Exhibit 10.7
STOCK PURCHASE AGREEMENT
BY AND AMONG
CITY TRUCK HOLDINGS, INC.,
HDA PARTS SYSTEM, INC.,
TRUCKPARTS, INC.
AND
THE SHAREHOLDERS OF TRUCKPARTS, INC.
DECEMBER 17, 1998
TABLE OF CONTENTS
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ARTICLE I. PURCHASE AND SALE............................................... 1
1.1. Purchase Price................................................... 1
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1.2. Purchase Price Adjustment........................................ 2
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1.3. Closing Balance Sheet............................................ 2
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ARTICLE II. CLOSING........................................................ 3
2.1. Closing.......................................................... 3
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ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE EXISTING
SHAREHOLDERS....................................................... ...... 3
3.1. Corporate Organization and Standing.............................. 3
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3.2. Authorization.................................................... 3
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3.3. No Conflict or Violation......................................... 4
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3.4. Capitalization of the Company.................................... 4
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3.5. Title to Shares.................................................. 4
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3.6. Facilities....................................................... 5
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3.7. Financial Statements............................................. 6
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3.8. Books and Records................................................ 7
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3.9. Litigation....................................................... 7
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3.10. Licenses and Permits; Compliance with Laws...................... 7
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3.11. Tax Matters..................................................... 7
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3.12. Brokers, Finders................................................ 9
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3.13. Absence of Certain Changes...................................... 9
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3.14. Material Contracts.............................................. 11
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3.15. Proprietary Rights.............................................. 12
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3.16. Labor Matters................................................... 13
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3.17. Consents........................................................ 13
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3.18. Employee Benefit Plans; Employment Agreements................... 14
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3.19. Compliance with Environmental Laws.............................. 19
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3.20. Certain Business Relationships with the Company................. 21
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3.21. Undisclosed Liabilities......................................... 21
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3.22. Insurance....................................................... 21
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3.23. Accounts Receivable............................................. 22
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3.24. Inventory....................................................... 22
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3.25. Payments........................................................ 22
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3.26. Customers, Distributors and Suppliers........................... 22
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3.27. Investment...................................................... 23
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3.28. Material Misstatements Or Omissions............................. 23
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3.29. Expenses Paid................................................... 23
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HDA AND
HOLDINGS...................................................... 23
4.1. Corporate Organization and Standing............................... 23
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4.2. Authorization..................................................... 23
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4.3. No Conflict or Violation.......................................... 24
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4.4. Stock............................................................. 24
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4.5. Offering Memorandum............................................... 24
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4.6. Absence of Certain Changes or Events.............................. 24
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4.7. Capitalization of Holdings and HDA................................ 24
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4.8. Financial Statements.............................................. 25
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4.9. Stockholder Agreement; Other Agreements Relating to Holdings'
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Capital Stock.................................................. 25
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ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING AND POST-CLOSING
COVENANTS..................................................... 25
5.1. Further Assurances................................................ 26
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5.2. No Solicitation and Confidentiality............................... 26
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5.3. Disclosures....................................................... 27
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5.4. Notification of Certain Matters................................... 27
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5.5. Investigation by HDA and Its Representatives...................... 27
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5.6. Conduct of Business............................................... 28
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5.7. Tax Matters....................................................... 30
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ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE
TRANSACTIONS BY HDA AND HOLDINGS............................ 31
6.1. No Injunctive Proceedings......................................... 31
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6.2. Representations and Warranties.................................... 32
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6.3. Performance of Agreements......................................... 32
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6.4. Compliance Certificate............................................ 32
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6.5. Material Changes.................................................. 32
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6.6. Opinion of Counsel................................................ 32
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6.7. Consents, Etc..................................................... 32
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6.8. Ancillary Agreements.............................................. 32
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6.9. Due Diligence..................................................... 32
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6.10. Investment Affidavit............................................. 33
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6.11. Shareholder Releases............................................. 33
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ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE
TRANSACTIONS BY THE COMPANY AND THE
EXISTING SHAREHOLDERS......................................... 33
7.1. No Injunctive Proceedings......................................... 33
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7.2. Representations and Warranties.................................... 33
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7.3. Performance of Agreements; Instruments of Transfer................ 33
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7.4. Compliance Certificates........................................... 33
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7.5. Ancillary Agreements.............................................. 33
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7.6. Opinion of Counsel................................................ 34
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ARTICLE VIII. ACTIONS BY THE PARTIES AFTER THE CLOSING...................... 34
8.1. Indemnification by the Existing Shareholders...................... 34
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8.2. Indemnification by HDA and Holdings............................... 35
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8.3. Survival of Representations, Warranties and Covenants............. 35
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8.4. Threshold; Deductible............................................. 35
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8.5. Notice and Opportunity to Defend.................................. 36
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8.6. Indemnification Payments.......................................... 36
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ARTICLE IX. MISCELLANEOUS................................................... 37
9.1. Expenses.......................................................... 37
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9.2. Notices........................................................... 37
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9.3. Counterparts...................................................... 38
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9.4. Entire Agreement.................................................. 38
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9.5. Headings.......................................................... 38
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9.6. Assignment; Amendment of Agreement................................ 38
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9.7. Governing Law..................................................... 39
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9.8. Further Assurances................................................ 39
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9.9. No Third-Party Rights............................................. 39
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9.10. Non-Waiver....................................................... 39
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9.11. Severability..................................................... 39
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9.12. Incorporation of Exhibits and Schedules.......................... 39
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of December
17, 1998, is entered into by and among City Truck Holdings, Inc., a Delaware
corporation ("Holdings"), HDA Parts System, Inc., an Alabama corporation
("HDA"), Truckparts, Inc., a Connecticut corporation (the "Company"), and each
of the shareholders identified on Annex A hereto (individually, an "Existing
Shareholder" and collectively, the "Existing Shareholders"). Holdings, HDA, the
Company and the Existing Shareholders are referred to herein as each a "Party"
and collectively, the "Parties."
RECITALS
WHEREAS, the Existing Shareholders own all of the capital stock of the
Company;
WHEREAS, Holdings owns all of the capital stock of HDA;
WHEREAS, Holdings desires that HDA acquire all of the capital stock of
the Company; and
WHEREAS, HDA desires to acquire all of the capital stock of the
Company.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Parties hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE
1.1 Purchase Price.
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(a) Upon the terms and subject to the conditions set forth herein,
HDA will purchase from the Existing Shareholders all of the capital stock of the
Company for a price (the "Purchase Price") determined as follows: (i) Eleven
Million Seven Hundred Thousand Dollars ($11,700,000) in cash payable by wire
transfer of immediately available funds to the Existing Shareholders, less the
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amount of any long-term liabilities listed on Schedule 1.1 and the current
portion thereof outstanding as of the Closing (as defined), (ii) 4,578 shares of
Common Stock of City Truck Holdings, Inc. ("Holdings"), par value $.01 per share
(the "Common Stock"), and (iii) 19,954.218 shares of Series A Preferred Stock of
Holdings, par value $.01 per share (the "Series A Preferred Stock"), subject to
the holdback deposited into escrow as set forth below in Section 1.1(c).
(b) HDA agrees to pay to the Existing Shareholders the Purchase
Price by wire transfer or delivery of other immediately available funds and by
delivery of the shares of
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Common Stock and Series A Preferred Stock referred to in Section 1.1(a) above
which are not held back pursuant to Section 1.1(c) below.
(c) The "Holdback Amount" shall be 2,289 shares of Common Stock and
9,977.109 shares of Series A Preferred Stock of the Purchase Price which HDA, at
the Closing, shall deposit with the Escrow Agent (as defined below) subject to
the terms and conditions of the Escrow Agreement (as defined below). Such
holdback deposited into escrow is for the purposes referred to in Section 8.6
below. .
1.2. Purchase Price Adjustment. If any distributions in excess of
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$130,000 are made by the Company to any Existing Shareholder or any persons
related directly or indirectly by blood or marriage to any Existing Shareholder
or to an entity controlled by any of the foregoing between June 30, 1998 and the
Closing, the Purchase Price shall be reduced by the amount of the excess. In
addition, to the extent the Company has already paid any costs or expenses which
are to be borne by the Existing Shareholders pursuant to Section 9.1, the
Purchase Price will be reduced by that amount.
1.3. Closing Balance Sheet
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(a) Closing Balance Sheet. The Existing Shareholders will prepare a
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balance sheet dated the Closing Date (as defined) (the "Closing Balance Sheet"),
prepared in accordance with generally accepted accounting principles ("GAAP"),
applied consistently with the Company's respective past practice to the extent
such practice is GAAP. The Existing Shareholders will deliver such Closing
Balance Sheet to HDA within 45 days after the Closing. At HDA's election, the
Closing Balance Sheet shall be audited by McGladrey & Pullen, LLP. HDA shall
allow the Existing Shareholders and their authorized professionals reasonable
access to the financial information of HDA in order to prepare the Closing
Balance Sheet.
(b) Closing Balance Sheet Notice.
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(i) Within 30 days of the receipt of such Closing Balance
Sheet, HDA will deliver to the Existing Shareholders a written notice
certifying that either (x) it agrees with such Closing Balance Sheet, or
(y) it disagrees with such Closing Balance Sheet, in which case it will
also provide therewith a reasonably detailed written report stating the
basis for disagreement with the Closing Balance Sheet (the "Closing Balance
Sheet Notice"). The Existing Shareholders shall provide reasonable access
to its accountants' work papers, personnel and to such historical financial
information as HDA shall reasonably request in order to review such Closing
Balance Sheet.
(ii) If the Closing Balance Sheet Notice is not timely given as
described in Section (b)(i), the Closing Balance Sheet shall be final,
binding and conclusive upon the Parties. If HDA disagrees with the Closing
Balance Sheet Notice as described in Section 1.3(b)(i)(y), and if the
disagreement is not resolved by mutual agreement among the Parties within
30 days following delivery of the Closing Balance
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Sheet Notice, such dispute will be resolved by a "Big 5" accounting firm
("BFAF") selected by HDA and the Company.
(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 Balance
Sheet only to the extent necessary to make it conform to the practices,
procedures and methods described in Section 1.3(a) above.
ARTICLE II.
CLOSING
2.1 Closing. The Closing of the transactions contemplated herein
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(the "Closing") shall take place at the offices of Parrett, Porto, Parese &
Colwell, P.C. commencing at 9:00 a.m. local time on December 17, 1998 or such
later date upon which the Parties mutually agree (the "Closing Date").
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE EXISTING SHAREHOLDERS
The Company and the Existing Shareholders represent and warrant to HDA
and Holdings as follows, except as set forth in a disclosure schedule
("Schedule") attached hereto 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. The Company is a
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corporation duly organized and validly existing under the laws of the state of
Connecticut and has all requisite corporate power and authority to own or lease
its properties and to carry on its business as presently conducted. The Company
has delivered to HDA or its representatives complete and correct copies of its
Articles of Incorporation and Bylaws and all amendments thereto. The Company 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,
all of which are listed on Schedule 3.1.
3.2. Authorization. This Agreement, the Ancillary Agreements (as
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defined), and the transactions contemplated hereby and thereby have been duly
authorized, executed and delivered by the Company and the Existing Shareholders
party thereto, and are the legal, valid and binding obligations of the Company
and the Existing Shareholders party thereto, 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,
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or by applicable bankruptcy or insolvency laws and related decisions affecting
creditors' rights generally.
3.3. No Conflict or Violation. Neither the execution and delivery of
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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 the Company or any
Existing Shareholder is a party or by which it, he or she is bound or to which
its, his or her assets are 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 the 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 the Company or any Existing Shareholder 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.
3.4. Capitalization of the Company. The authorized capital stock of
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the Company consists of 2,000 shares of 6% non-cumulative, non-participating
preferred stock, non-voting, $500.00 par value per share ("Company Preferred"),
2,000 shares of Class A common stock, voting, $1.00 par value per share
("Company Class A Common"), and 1,000 shares of Class B common stock, voting,
$100.00 par value per share ("Company Class B Common"). As of the date of this
Agreement, 590 shares of Company Preferred, 1,000 shares of Company Class A
Common and 100 shares of Company Class B Common are 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"). There are (i) no preemptive or similar rights on the part of any
holder of any class of securities of the Company, and (ii) no options,
warrants, conversion or other rights, agreements or commitments of any kind
obligating the Company, 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.
3.5. Title to Shares. The Existing Shareholders have, and at Closing
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will have, good and valid title to the Shares owned by them, free and clear of
any claims, liens, security interests, options, charges,restrictions and
interests of others whatsoever. Upon delivery to HDA at the Closing of
certificates representing the Shares owned by the Existing Shareholders, duly
endorsed by them for transfer to HDA, HDA 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 for any
restrictions created by HDA. There are no voting trusts, proxies, or other
agreements or understandings to which the Company or any Existing Shareholder
is a party with respect to the voting, dividend right or disposition of any of
the
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Shares. The Existing Shareholders have no obligation, absolute or contingent, to
any other person or entity to issue, sell or otherwise dispose of any capital
stock of the Company or to effect any merger, consolidation, reorganization or
other business combination of the Company or to enter into any agreement with
respect thereto.
3.6. Facilities. Schedule 3.6 contains (i) a complete and accurate
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list of all real property used in connection with the business of the Company
("Real Property"), identifying which are owned ("Owned Real Property") and which
are leased ("Leased Real Property"), and (ii) accurate and complete copies of
preliminary title reports covering all of the Owned Real Property.
(a) Owned Real Property. The Company has good and marketable fee
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simple title to all Owned Real Property, free and clear of all encumbrances,
except for minor liens which in the aggregate are not substantial in amount and
do not interfere with the present use of the property and have not arisen other
than in the ordinary course of business ("Permitted Encumbrances"). The Company
enjoys peaceful and undisturbed possession of all Owned Real Property.
(b) Actions. There are no pending or, to the best knowledge of the
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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 facility used in connection with the
business of the Company ("Facility").
(c) 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 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.
(d) Facility Leases and Leased Real Property. With respect to each
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Facility lease, the Company has an unencumbered interest in the leasehold
estate. The Company enjoys peaceful and undisturbed possession of all Leased
Real Property.
(e) Certificate of Occupancy. All Facilities have received all
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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.
(f) Utilities. All Facilities are supplied with utilities
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(including, without limitation, water, sewage, disposal, electricity, gas and
telephone) and other services necessary for the operation of such Facilities as
currently operated, and 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.
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(g) 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 the Company at the Facilities are (i) insured to the extent
and in a manner customary in the industry, (ii) structurally sound with no known
material defects, (iii) in good operating condition and repair, subject to
ordinary wear and tear, (iv) not in need of maintenance, repair or correction
except for ordinary routine maintenance and repair, the cost and scope of which
is consistent with past practice, (v) sufficient for the operation of the
Company as presently conducted and (vi) in conformity with all applicable
regulations.
(h) No Special Assessment. The Company has not received notice of
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any special assessment relating to any Facility or any portion thereof, and
there is no pending or threatened special assessment.
3.7. Financial Statements.
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(a) The Company will prepare and deliver to HDA no later than
December 31, 1998, the audited balance sheets of the Company dated September
30, 1998, and 1997, respectively (the "1998 Balance Sheet" and the "1997
Balance Sheet," respectively, and collectively the "Balance Sheets") and the
statements referred to in Section 3.7(b) below. The Balance Sheets will be
prepared in accordance with GAAP consistently applied and will fairly present
the financial condition of the Company as of their respective dates. The
Company has no liabilities of any nature, whether absolute, accrued, asserted or
unasserted or contingent or whether due or to become due which will be recorded
or reserved for on the Balance Sheets and were not so recorded or reserved on
the Unaudited 1998 Balance Sheet (as defined in Section 3.7(c) below), except
for liabilities incurred in the ordinary course of business since September 30,
1998, none of which involve borrowed money. The Balance Sheets and the
statements referred to in Section 3.7(b) below will be the same in all material
respects as the unaudited versions thereof previously delivered to HDA.
(b) The audited statements of operations, statements of changes in
shareholder's equity and statements of cash flows of the Company for the fiscal
years ended September 30, 1998, and 1997, respectively, will be prepared in
accordance with GAAP consistently applied and will fairly present, when
delivered, the results of operations, changes in shareholder's equity and cash
flows of the Company for each such period.
(c) The unaudited balance sheet, statements of operations,
statements of changes in shareholder's equity and statements of cash flows of
the Company (i) at and for the 11 months ended August 31, 1998, and (ii) at and
for the fiscal year ended September 30, 1998 (the "Unaudited 1998 Balance
Sheet"), were each prepared consistent with past practice and fairly present the
results of operations, changes in shareholder's equity and cash flows of the
Company at such dates and for each such period and are consistent with the
financial statements described in Section 3.7(a) and (b). The Company has no
liabilities of any nature, whether
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absolute, accrued, asserted or unasserted or contingent or whether due or to
become due which should have been recorded or reserved for on the Unaudited 1998
Balance Sheet and were not so recorded or reserved.
(d) Copies of the financial statements described in Section 3.7(a),
(b) and (c), other than the 1998 Balance Sheet and the 1997 Balance Sheet to be
delivered in accordance with Section 3.7(a), have been provided to HDA or its
representatives.
3.8. Books and Records. The Company has made and kept and given HDA
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and its representatives access to books and records and accounts, which, in
reasonable detail, accurately and fairly reflect the activities of the Company.
The minute books of the Company accurately and adequately reflect all action
taken by the shareholders, board of directors and committees of the board of
directors of the Company. The copies of the stock book records of the Company
are true, correct and complete, and accurately reflect all transactions effected
in the Company's stock interests through and including the date hereof. The
Company has not engaged in any transaction, maintained any bank account or used
any corporate funds except for the transactions, bank accounts and funds which
have been and are reflected in the normally maintained books and records of the
Company.
3.9. Litigation. There is no claim, action, suit, proceeding, or
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investigation pending or, to the best knowledge of the Company, threatened
against the Company or the directors, officers, agents or employees of the
Company (in their capacity as such), or any properties or rights of the
Company. There are no orders, writs, injunctions or decrees currently in force
against the Company or the directors, officers, agents or employees of the
Company (in their capacity as such) with respect to the conduct of the
Company's business.
3.10. Licenses and Permits; Compliance with Laws. Schedule 3.10 sets
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forth a complete list of all licenses, franchises, permits, approvals and other
governmental authorizations (collectively, "Licenses and Permits") held by the
Company. The Company 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 Company is not 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. The Company's conduct of its business has been and
is in compliance with all applicable laws, statutes, ordinances and regulations.
The Company has not 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.
3.11. Tax Matters.
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(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,
environmental, customs duties, capital stock, franchise,
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profits, withholding, social security, unemployment, disability, 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, and (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.
(b) The Company has timely filed, or caused to be timely filed, all
Tax Returns that it was required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by the Company (whether or not shown
on any Tax Return) have been paid. The Company currently is not the beneficiary
of any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company does not file Tax
Returns that the Company is or may be subject to taxation by that jurisdiction.
There are no liens on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(c) The Company has withheld and paid all 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 the
Company either (i) claimed or raised by any authority in writing or (ii) of
which the Company or any Existing Shareholder has knowledge. To the knowledge
of the Company and each Existing Shareholder, no audit or examination of any Tax
Return is currently in progress, and the Company has not received notice of any
proposed audit or examination. The Company has furnished to HDA 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 the Company with respect to years ended on or before September 30, 1997.
The Company has not 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) The Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations (or any comparable state income tax
provision). The Company has not made any payments, is not obligated to make any
payments, and is not 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. The Company is not a party to any Tax allocation, sharing or
indemnity agreement. The Company (i) has not been a member of an affiliated
group of corporations filing a consolidated federal income Tax Return or (ii)
has no 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 3.11 hereto sets forth all material
elections (e.g., accelerated depreciation, Sec. 263(a) regarding the
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allocation of overhead to inventory, and FIFO election for inventory accounting)
in effect as of the date hereof with respect to Taxes affecting the Company.
(f) The unpaid Taxes of the 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. The 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 the periods covered thereby.
3.12. Brokers, Finders. The Company has not retained any broker or
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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.
3.13. Absence of Certain Changes.
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(a) Since June 30, 1998, the 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), and there has not occurred with respect to the
Company:
(i) any material adverse effect on the business, operations,
assets, results of operations or financial condition of the Company, taken
as a whole ("Material Adverse Effect");
(ii) any revaluation of assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable, but excluding write-offs of uncollectible assets or of
inventory breakage, all consistent with past practice;
(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) except as disclosed on Schedule 3.13(a), any capital
expenditure exceeding $5,000, the execution of any lease or the incurring
of any obligation to make any capital expenditure or execute any lease
other than in the ordinary course of business;
(vi) the failure to pay or satisfy when due any liability,
except where the failure would not have a Material Adverse Effect on the
assets or the business;
9
(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 failure to carry on diligently the business in the
ordinary course so as to preserve for HDA the assets, the business and the
goodwill of the Company's suppliers, customers, distributors and others
having business relations with it;
(ix) the disposition or lapsing of any Proprietary Rights (as
defined below) or any disposition or disclosure to any person of any
Proprietary Rights not theretofore a matter of public knowledge;
(x) 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;
(xi) 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;
(xii) 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 increases
in base compensation in the ordinary course consistent in timing and amount
with past practices), or entry into or variation of the terms of any
employment or incentive agreement with any such person;
(xiii) an 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 the Company and the management of the Company;
(xiv) any change in any method of accounting or keeping books
of account or accounting practices ;
(xv) any material damage, destruction or loss of any asset,
whether or not covered by insurance.
(xvi) 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);
10
(xvii) 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
Company Preferred, Company Class A Common or Company Class B Common, or the
creation of any securities convertible into or exchangeable for any shares
of Company Preferred, Company Class A Common or Company Class B Common or
any options, warrants or other rights to purchase or subscribe to any of
the foregoing (except the planned bonus payout to the Existing Shareholders
in September of 1998 in the amount of $130,000);
(xviii) the adoption of any plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or other
reorganization;
(xix) the existence of any other event or condition which, in
any one case or in the aggregate, has been or might reasonably be expected
to have a Material Adverse Effect; or
(xx) an agreement to do any of the things described in the
preceding clauses (i) - (xix) other than as expressly provided for herein.
3.14. Material Contracts. Schedule 3.14 attached hereto sets forth a
------------------
complete and correct list of all the Material Contracts to which the Company or,
in the case of Section 3.14(g), 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 the 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 the Company, which entails annual payments, in the case of any such lease or
agreement, in excess of $5,000;
(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 the Company in a principal amount (or
with maximum availability) in excess of $5,000;
(f) all contracts and agreements to which the Company is a party and
which are (i) outstanding contracts with its officers, employees, agents,
consultants, advisors, salesmen,
11
sales representatives, distributors, sales agents or dealers of the Company
other than contracts which by their terms are cancelable by the 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 the Company which relate to the business of the
Company, and (iii) pension, profit-sharing, bonus, retirement, stock option or
employee benefit plans or other similar plans or arrangements of the Company;
(g) any covenant not to compete or similar restriction on the
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 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 the Company,
but excluding (A) any obligations to pay utility bills at the Facilities and (B)
any on-going supply or purchase contracts with non-affiliates of the Company
which do not obligate the Company to any specific level of purchases and which
are cancelable on no more than thirty (30) calendar days notice by the Company
without cancellation penalties.
The Company has furnished or will furnish to HDA or its representatives true and
correct copies of all Material Contracts prior to the Closing, including all
amendments and supplements thereto.
3.15. Proprietary Rights.
------------------
(a) Schedule 3.15 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 the
Company. Schedule 3.15 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 3.15 are
all those used by the Company in connection with its businesses. True and
correct copies of all patents (including all pending applications) owned,
controlled, created or used by or on behalf of the Company or in which the
Company has any interest whatsoever have been provided to HDA or its
representatives.
(b) The Company has no obligation to compensate any person for the
use of any such Proprietary Rights nor has the Company granted to any person any
license, option or
12
other rights to use in any manner any of its Proprietary Rights, whether
requiring the payment of royalties or not.
(c) The Company owns or has a valid right to use each of the
Proprietary Rights, and the Proprietary Rights will not cease to be valid rights
of the 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. All of the pending patent applications have
been duly filed. The Company has not received any notice of invalidity or
infringement of any rights of others with respect to such trademarks. The
Company has taken all reasonable and prudent steps to protect the Proprietary
Rights from infringement by any other person. No other person (i) has the right
to use any trademarks the Company 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 the Company
that it is claiming any ownership of or right to use such Proprietary Rights, or
(iii) to the best knowledge of the Company, is infringing upon any such
Proprietary Rights in any way. The 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 the Company that are presently
outstanding, alleging that the Company's use of the Proprietary Rights infringes
upon or otherwise violates any rights of a third party in or to such Proprietary
Rights. There are not, and it is reasonably expected that after the Closing
there will not be, any restrictions on right of the Company to sell products
manufactured by the Company in connection with the operation of its business.
3.16. Labor Matters. The Company is not 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. The Company
has not 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 the Company. There is no labor strike or labor disturbance pending
or, to the best knowledge of the Company, threatened against the Company, nor is
any grievance currently being asserted, and the Company has not experienced a
work stoppage or other labor difficulty, and is not and has not engaged in any
unfair labor practice. Without limiting the foregoing, the Company are in
compliance with the Immigration Reform and Control Act of 1986 and maintains a
current Form I-9, as required by such Act, in the personnel file of each
employee hired after November 9, 1986.
3.17. Consents. 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 the
Company in connection with the execution and delivery of this Agreement, the
Ancillary Agreements or the consummation by the Company and the
13
Existing Shareholders of the transactions contemplated herein and therein, which
Consent(s), if not obtained, would have a Material Adverse Effect.
3.18. Employee Benefit Plans; Employment Agreements.
---------------------------------------------
(a) Definitions. The following terms, when used in this
-----------
Section 3.18, 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) Benefit Arrangement. "Benefit Arrangement" shall mean any
-------------------
employment, consulting, severance or other similar contract, arrangement or
policy and each plan, arrangement (written or oral), program, agreement or
commitment providing for insurance coverage (including without limitation
any self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
life, health, disability or accident benefits (including without limitation
any "voluntary employees' beneficiary association" as defined in Section
501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which
(A) is not a Welfare Plan or Pension Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case
may be, by the Company or an ERISA Affiliate or under which the Company or
any ERISA Affiliate may incur any liability, and (C) covers any employee or
former employee of the Company or any ERISA Affiliate (with respect to
their relationship with such entities).
(ii) Code. "Code" shall mean the Internal Revenue Code of 1986,
----
as amended.
(iii) Employee Plans. "Employee Plans" shall mean all Benefit
--------------
Arrangements, Pension Plans and Welfare Plans.
(iv) ERISA. "ERISA" shall mean the Employee Retirement Income
-----
Security Act of 1974, as amended.
(v) ERISA Affiliate. "ERISA Affiliate" shall mean any entity
---------------
which is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, or a member of an
"affiliated service group" with, the Company as defined in Section 414(b),
(c), (m) or (o) of the Code or any partnership of which the Company or any
such entity is a general partner.
(vi) Multiemployer Plan. "Multiemployer Plan" shall mean any
------------------
"multiemployer plan," as defined in Section 3(37) or Section 4001(a)(3) of
ERISA,
14
(A) which the Company or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or, after September 25,
1980, maintained, administered, contributed to or was required to
contribute to, or under which the Company or any ERISA Affiliate may incur
any liability and (B) which covers any employee or former employee of the
Company or any ERISA Affiliate (with respect to their relationship with
such entities).
(vii) PBGC. "PBGC" shall mean the Pension Benefit Guaranty
----
Corporation.
(viii) Pension Plan. "Pension Plan" shall mean any "employee
------------
pension benefit plan" as defined in Section 3(2) of ERISA (A) which the
Company or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, within the five years prior to the Closing
Date, maintained, administered, contributed to or was required to
contribute to, or under which the Company or any ERISA Affiliate may incur
any liability and (B) which covers any employee or former employee of the
Company or any ERISA Affiliate (with respect to their relationship with
such entities).
(ix) Welfare Plan. "Welfare Plan" shall mean (A) any "employee
------------
welfare benefit plan" as defined in Section 3(1) of ERISA, (A) which the
Company or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or under which the Company or any ERISA
Affiliate may incur any liability and (B) which covers any employee or
former employee of the Company or any ERISA Affiliate (with respect to
their relationship with such entities).
(b) Disclosure; Delivery of Copies of Relevant Documents and Other
--------------------------------------------------------------
Information. Schedule 3.18 contains a complete list of Employee Plans. True and
- -----------
complete copies of each of the following documents have been delivered by the
Company to Buyer: (i) each Welfare Plan and Pension Plan (and, if applicable,
related trust agreements) and all amendments thereto, all written
interpretations thereof and written descriptions thereof which have been
distributed to the Company's employees and all annuity contracts or other
funding instruments, (ii) each Employee Plan and written interpretations thereof
and written descriptions thereof which have been distributed to the Company's
employees (including descriptions of the number and level of employees covered
thereby) and a complete description of any Employee Plan which is not in
writing, (iii) the most recent determination or opinion letter issued by the
Internal Revenue Service with respect to each Pension Plan and each Welfare
Plan, (iv) for the three most recent plan years, Annual Reports on Form 5500
Series required to be filed with any governmental agency for each Pension Plan,
(v) all actuarial reports (if any) prepared for the last three plan years for
each Pension Plan, (vi) a description of complete age, salary, service and
related data as of the last day of the last plan year for employees and former
employees of the Company, and (vii) a description setting forth the amount of
any liability of the Company as of the Closing Date for payments more than
thirty
15
(30) calendar days past due with respect to each Welfare Plan which covers or
has covered employees or former employees of the Company.
(c) Representations. Except as set forth in Schedule 3.18, the
---------------
Existing Shareholders and the Company represents and warrants as follows:
(i) Pension Plans
-------------
(A) There is no Pension Plans which is subject to Title IV
of ERISA or which is a "defined benefit plan" as defined in Section
414(j) of the Code. No "accumulated funding deficiency" (for which an
excise tax is due or would be due in the absence of a waiver) as
defined in Section 412 of the Code or as defined in Section 302(a)(2)
of ERISA, whichever may apply, has been incurred with respect to any
Pension Plan with respect to any plan year, whether or not waived.
Neither the Company nor any ERISA Affiliate has failed to pay when due
any "required installment", within the meaning of Section 412(m) of
the Code and Section 302(e) of ERISA, whichever may apply, with
respect to any Pension Plan. Neither the Company nor any ERISA
Affiliate is subject to any lien imposed under Section 412(n) of the
Code or Section 302(f) of ERISA, whichever may apply, with respect to
any Pension Plan. Neither the Company nor any ERISA Affiliate has any
liability for unpaid contributions with respect to any Pension Plan.
(B) Neither the Company nor any ERISA Affiliate is required
to provide security to a Pension Plan which covers or has covered
employees or former employees of the Company under Section 401(a)(29)
of the Code.
(C) Each Pension Plan and each related trust agreement,
annuity contract or other funding instrument is qualified and tax-
exempt under the provisions of Code Sections 401(a) and 501(a) and has
been so qualified during the period from its adoption to date.
(D) Each Pension Plan, each related trust agreement, annuity
contract or other funding instrument presently complies and has been
maintained in compliance with its terms and, both as to form and in
operation, with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable to such plans,
including without limitation ERISA and the Code.
16
(ii) Multiemployer Plans. There are no Multiemployer Plans.
--------------------
(iii) Welfare Plans
-------------
(A) Each Welfare Plan has been maintained in compliance
with its terms and, both as to form and operation, with the
requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Welfare Plan, including
without limitation ERISA and the Code.
(B) None of the Company, any ERISA Affiliate or any Welfare
Plan has any present or future obligation to make any payment to, or
with respect to any present or former employee of the Company or any
ERISA Affiliate pursuant to, any retiree medical benefit plan, or
other retiree Welfare Plan, and no condition exists which would
prevent the Company from amending or terminating any such benefit plan
or Welfare Plan.
(C) Each Welfare Plan which is a "group health plan," as
defined in Section 607(1) of ERISA, has been operated in compliance
with provisions of Part 6 of Title I, Subtitle B of ERISA and Sections
162(k) and 4980B of the Code at all times.
(iv) Benefit Arrangements. Each Benefit Arrangement has been
--------------------
maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Benefit Arrangement, including without limitation the
Code. Except as set forth in the Disclosure Schedule, and except as
provided by law, the employment of all persons presently employed or
retained by the Company is terminable at will.
(v) Unrelated Business Taxable Income. No Employee Plan (or
---------------------------------
trust or other funding vehicle pursuant thereto) is subject to any tax
under Code Section 511.
(vi) Deductibility of Payments. There is no contract, agreement,
-------------------------
plan or arrangement covering any employee or former employee of the Company
(with respect to its relationship with such entities) that, individually or
collectively, provides for the payment by the Company of any amount (i)
that is not deductible under Section 162(a)(1) or 404 of the Code or (ii)
that is an "excess parachute payment" pursuant to Section 280G of the Code.
(viii) Fiduciary Duties and Prohibited Transactions. Neither
--------------------------------------------
the Company nor any plan fiduciary of any Welfare Plan or Pension Plan has
engaged in
17
any transaction in violation of Sections 404 or 406 of ERISA or
any "prohibited transaction," as defined in Section 4975(c)(1) of the Code,
for which no exemption exists under Section 408 of ERISA or Section
4975(c)(2) or (d) of the Code, or has otherwise violated the provisions of
Part 4 of Title I, Subtitle B of ERISA. The Company has not knowingly
participated in a violation of Part 4 of Title I, Subtitle B of ERISA by
any plan fiduciary of any Welfare Plan or Pension Plan and has not been
assessed any civil penalty under Section 502(l) of ERISA.
(ix) Validity and Enforceability. Each Welfare Plan, Pension
---------------------------
Plan, related trust agreement, annuity contract or other funding instrument
and Benefit Arrangement which covers or has covered employees or former
employees of the Company (with respect to their relationship with such
entities) is legally valid and binding and in full force and effect.
(x) Litigation. There is no action, order, writ, injunction,
----------
judgment or decree outstanding or claim, suit, litigation, proceeding,
arbitral action, governmental audit or investigation relating to or seeking
benefits under any Employee Plan that is pending, threatened or anticipated
against the Company, any ERISA Affiliate or any Employee Plan.
(xi) No Amendments. Neither the Company nor any ERISA Affiliate
-------------
has any announced plan or legally binding commitment to create any
additional Employee Plans which are intended to cover employees or former
employees of the Company or to amend or modify any existing Employee Plan.
(xii) No Other Material Liability. No event has occurred in
---------------------------
connection with which the Company or any ERISA Affiliate or any Employee
Plan, directly or indirectly, could be subject to any material liability
(A) under any statute, regulation or governmental order relating to any
Employee Plans or (B) pursuant to any obligation of the Company to
indemnify any person against liability incurred under any such statute,
regulation or order as they relate to the Employee Plans.
(xiii) Unpaid Contributions. Neither the Company nor any ERISA
--------------------
Affiliate has any liability for unpaid contributions under Section 515 of
ERISA with respect to any Pension Plan or Welfare Plan.
(xiv) Insurance Contracts. Neither the Company nor any Employee
-------------------
Plan holds as an asset of any Employee Plan any interest in any annuity
contract, guaranteed investment contract or any other investment or
insurance contract issued by an insurance company that is the subject of
bankruptcy, conservatorship or rehabilitation proceedings.
18
(xv) No Acceleration or Creation of Rights. Neither the
-------------------------------------
execution and delivery of this Agreement or other related agreements by the
Company nor the consummation of the transactions contemplated hereby or the
related transactions will result in the acceleration or creation of any
rights of any person to benefits under any Employee Plan (including,
without limitation, the acceleration of the vesting or exercisability of
any stock options, the acceleration of the vesting of any restricted stock,
the acceleration of the accrual or vesting of any benefits under any
Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
3.19. Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section
-----------
3.19, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, used in the singular or the plural depending on the
reference.
(i) "Company" for the purposes of this Section, shall include
(i) the Company, (ii) all partnerships, joint ventures and other entities
or organizations in which the 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 the Company or to which the 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,
19
transportation, generation, manufacture, or other release or threatened
release of, Hazardous Substances or otherwise dangerous substances, wastes,
pollution or materials (whether, gas, liquid or solid), the preservation or
protection of waterways, groundwater, 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 introduction into
the environment of any pollution, including, without limitation, any
contaminant, irritant or pollutant or other Hazardous Substance (whether or
not upon any Facility or former Facility or other property and whether or
not such pollution constituted at the time thereof a violation of any
Environmental Law as a result of any Release of any kind whatsoever of any
Hazardous Substance) as a result of which the Company has or may become
liable to any person or by reason of which any Facility, former Facility or
any of the assets of the Company may suffer or be subjected to any lien.
(b) Notice of Violation. The Company has not 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.
The Company has not 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 the Company.
(c) Environmental Conditions. There are no present or past
------------------------
Environmental Conditions in any way relating to the business of the Company or
at any Facility or former Facility.
(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 the Company, of
all environmental audits or assessments which have been conducted at any
Facility or former Facility within the past five years, either by the
20
Company or any attorney, environmental consultant or engineer engaged for such
purpose, have been delivered to HDA or its representatives and a list of all
such reports, audits and assessments and any other similar report, audit or
assessment of which the Company has knowledge is included in Schedule 3.19
hereto.
(e) Indemnification Agreements. Except as disclosed on Schedule
--------------------------
3.19(e), the Company is not 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 the 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.
(f) Releases or Waivers. The Company has not released any other
-------------------
person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
(g) Notices, Warnings and Records. The Company 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.
3.20. Certain Business Relationships with the Company. Except as set
-----------------------------------------------
forth on Schedule 3.20, none of the Existing Shareholders of the Company owning
more than 5% of its outstanding voting securities have been involved in any
business arrangement or relationship with the 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 the Company.
3.21. Undisclosed Liabilities. The Company has no 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 the
Company since June 30, 1998, (iii) liabilities or obligations disclosed in
Schedule 3.21 hereto and in the other Schedules attached hereto, or (iv)
liabilities or obligations disclosed elsewhere in this Agreement.
3.22. Insurance. Schedule 3.22 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 provided, loss
experience history by line of coverage, and whether occurrence or claims made)
maintained by the Company on its respective (i) businesses, (ii) assets or (iii)
employees at any time since December 31, 1987. All insurance coverage applicable
to the Company or its respective businesses or assets is in full force and
effect, insures the Company in reasonably sufficient amounts against all risks
usually insured against by persons operating similar businesses or
21
properties of similar size in the localities where such businesses or properties
are located, provides coverage as may be required by applicable regulation and
by any and all contracts to which the Company is a party and has been issued by
insurers of recognized responsibility. 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 and no notice of
cancellation or nonrenewal of any such coverage has been received. Except as set
forth on Schedule 3.22, there are no provisions in such insurance policies for
retroactive or retrospective premium adjustments. There are no outstanding
performance bonds covering or issued for the benefit of the Company. There are
no facts upon which an insurer might be justified in reducing coverage or
increasing premiums on existing policies or binders. No insurer has advised the
Company that it intends to reduce coverage, increase premiums or fail to renew
existing policy or binder.
3.23. 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 Company 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. Said accounts receivable are subject to no
defenses, counterclaims or rights of setoff and are fully collectible in the
ordinary course of business consistent with past practice without cost in
collection efforts therefor, except to the extent of the appropriate reserves
for bad debts on accounts receivable as set forth on the Balance Sheets and, in
the case of accounts receivable arising since the date of the Balance Sheets, to
the extent of a reasonable reserve rate for bad debts on accounts receivable
which is not greater than the rate reflected by the reserve for bad debts on the
Balance Sheets.
3.24. Inventory. Schedule 3.24 contains a complete and accurate list
---------
of the addresses at which all inventory as set forth on the Balance Sheets is
located. 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 accordance
with the regular business practices of the Company, consists of new and unused
items of a quality and quantity usable or saleable in the ordinary course of
business, and is valued at the lower or cost or market on a FIFO basis. None of
such inventory is obsolete, unusable, slow-moving, damaged or unsaleable in the
ordinary course of business, except for such items of inventory which have been
written down to realizable market value, or for which adequate reserves have
been provided in the Balance Sheets.
3.25. Payments. The Company has not, 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 the 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.
The Company has not participated,
22
directly or indirectly, in any boycotts orother similar practices affecting any
of its actual or potential customers and has at all times done business in an
open and ethical manner.
3.26. Customers, Distributors and Suppliers. Schedule 3.26 sets forth
-------------------------------------
a complete and accurate list of the names and addresses of the Company's (i) ten
largest (in terms of dollar volume) customers, distributors and other agents and
representatives during the Company's last fiscal year, showing the approximate
total sales in dollars by the Company to such customer during such fiscal year;
and (ii) ten largest (in terms of dollar purchases) suppliers during the
Company's last fiscal year, showing the approximate total purchases in dollars
by the Company from such supplier during such fiscal year. Since the date of the
Balance Sheets, there has been no adverse change in the business relationship of
the Company with any customer, distributor or supplier named on Schedule 3.26.
The Company has not received any communication from any customer, distributor or
supplier named on Schedule 3.26 of any intention to terminate or materially
reduce purchases from or supplies to the Company.
3.27. Investment. The Existing Shareholders (i) understand that the
----------
Common and Series A Preferred Stock has not been, and will not be as of the
Closing Date, registered under the Securities Act, or under any state securities
laws, and is being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering, (ii) is acquiring
the Common and Series A Preferred Stock solely for its own account for
investment purposes, and not with a view to the distribution thereof, (iii) has
received information concerning Holdings and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the risks
inherent in holding the Common and Series A Preferred Stock, and (iv) is able to
bear the economic risk and lack of liquidity inherent in holding the Common and
Series A Preferred Stock.
3.28. Material Misstatements Or Omissions. No representations or
-----------------------------------
warranties by the Company or any Existing Shareholder in this Agreement, nor any
document, exhibit, statement, certificate or Schedule heretofore or hereinafter
furnished to HDA or its representatives pursuant hereto, or in connection with
the transactions contemplated hereby, including, without limitation, the
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 therein not misleading. The Company and the Existing
Shareholders have disclosed all events, conditions and facts materially
affecting the business, prospects and financial conditions of the Company.
3.29. Expenses Paid. The costs and expenses already paid by the
-------------
Company which are to be borne by the Existing Shareholders pursuant to Section
9.1 total $87,395.
23
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HDA AND HOLDINGS
HDA and Holdings represent and warrant to the Company and the Existing
Shareholders as follows:
4.1. Corporate Organization and Standing. Each of Holdings and HDA is
-----------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and each has all requisite corporate
power and authority to execute and deliver this Agreement, the Ancillary
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby.
4.2. Authorization. This Agreement has been duly authorized,
-------------
executed and delivered by each of Holdings and HDA, and is the valid and binding
obligation of each of Holdings and HDA, enforceable against each of them 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 or Violation. 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 Holdings or HDA 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 any provision of its Articles of
Incorporation or Bylaws (or other charter documents), or a default under or
violation of any material restriction, lien, encumbrance or any contract to
which Holdings or HDA 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 Holdings or HDA is subject, or (iv) violate,
conflict with or result in a breach of any applicable federal or state rule or
regulation.
4.4. Stock. The shares of Common Stock and Series A Preferred Stock
-----
issued to the Existing Shareholders pursuant to this Agreement will be validly
issued, fully paid and nonassessable.
4.5. Offering Memorandum. The final offering memorandum dated July
-------------------
28, 1998, relating to HDA's high-yield debt offering, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
24
4.6. Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Schedule 4.6 and except for transactions contemplated by this Agreement, since
June 30, 1998, there has not been any change in the business, financial
condition or results of operations of Holdings and its subsidiaries which has or
would reasonably be expected to have, individually or in the aggregate, a
material adverse effect on Holdings and its subsidiaries taken as a whole.
4.7. Capitalization of Holdings and HDA. The authorized capital
----------------------------------
stock of Holdings consists of 250,000 shares of Common Stock and 850,000 shares
of Series A Preferred Stock. Following the consummation of the transactions
contemplated by this Agreement, 106,245 shares of Common Stock and 434,752.534
shares of Series A Preferred Stock, respectively, are outstanding, all of which
shares have been duly authorized, validly issued and are fully paid and non-
assessable. There are no preemptive rights on the part of any holder of any
class of securities of Holdings. Holdings owns all of the outstanding capital
stock of HDA. The authorized capital stock of HDA consists of 250,000 shares of
Common Stock, 40,000 shares of Series A Preferred Stock and 810,000 shares of
Series B Preferred Stock. As of the date of this Agreement, 94,229 shares of
Common Stock, no shares of Series A Preferred Stock and 382,372.711 shares of
Series B Preferred Stock, respectively, are outstanding, all of which shares
have been duly authorized, validly issued and are fully paid and non-assessable.
There are no preemptive rights on the part of any holder of any class of
securities of HDA.
4.8. Financial Statements.
--------------------
(a) The audited combined balance sheets of City Truck & Trailer
Parts, Inc. and its affiliates ("City") and Stone Heavy Duty, Inc. ("Stone," and
together with City, the "Predecessors") dated December 31, 1997 and 1996,
respectively (the "Predecessor Balance Sheets" and the "1996 Predecessor Balance
Sheets," respectively), were prepared in accordance with GAAP consistently
applied and fairly present in all material respects the financial condition of
the Predecessors as of their respective dates. As of the dates of the respective
Predecessor Balance Sheets, none of the Predecessors had any liabilities of any
nature, 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 Predecessor Balance Sheets in accordance with GAAP and were not so recorded
or reserved.
(b) The audited combined statements of operations, statements of
changes in shareholder's equity and statements of cash flows of the Predecessors
for the fiscal years ended December 31, 1997 and 1996, respectively, were
prepared in accordance with GAAP consistently applied and fairly present in all
material respects the results of operations, changes in shareholder's equity and
cash flows of the Predecessors for each such period.
4.9. Stockholder Agreement; Other Agreements Relating to Holdings'
------------------------------------------------------------
Capital Stock. Except as set forth in the Stockholders'
-------------
Agreement, (i) there are no preemptive or similar rights on the part of any
holder of any class of securities of Holdings and (ii) no options, warrants,
conversion or other rights, agreements or commitments of any kind obligating
25
Holdings, 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 have been issued and
outstanding by Holdings to any seller of a business to Holdings as a portion of
the purchase price therefor. No stockholder has a "put" right requiring Holdings
to repurchase any of its shares. The Stockholder's Agreement dated September 30,
1998 is the only agreement among HDA or Holdings and any of their respective
stockholders (or, to the knowledge of Holdings, among any of the stockholders)
relating to the transfer, voting or liquidity of Holdings capital stock. All
outstanding shares of Class B Preferred Stock and Common Stock of HDA were
issued either (i) for cash at the prices of $100 per share and $1.00 per share,
respectively, or (ii) for property in transactions in which the stock issued by
HDA was valued at the same prices set forth in clause (i).
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING
AND POST-CLOSING COVENANTS
The Company, the Existing Shareholders and HDA 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 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 (as defined), (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 connection with the
foregoing. Without limiting the foregoing, the Parties agree to use their
respective best 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; (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 Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if
required.
26
5.2. No Solicitation and Confidentiality.
-----------------------------------
(a) 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 Company, or of any shares of capital stock of the Company or any
merger, consolidation, liquidation, dissolution or similar transaction involving
the Company (each such transaction being referred to herein as a "Proposed
Acquisition Transaction") other than with (i) another Party hereto and its
representatives (ii) as required by law, or (iii) employees of the Company
regarding such employees' possible investments in Holdings. The Company shall
not, 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. The Company represents that it is not now engaged in discussions
or negotiations with any party other than HDA with respect to any of the
foregoing.
(b) Notification. The Company and the Existing Shareholders will
------------
immediately notify HDA 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 HDA of the identity
of the prospective purchaser or soliciting party.
5.3. Disclosures. Except as required by law or occurring after the
-----------
Closing, none of the Parties, without the prior written consent of the other
Parties, will make any press release or any similar public announcement
concerning the transactions contemplated hereby.
5.4. Notification of Certain Matters. From the date hereof through
-------------------------------
the Closing, the Company and the Existing Shareholders shall give prompt notice
to HDA 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 the Company or the
Existing Shareholders, 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. The Company and the Existing Shareholders shall
promptly notify HDA 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 the Company, its assets or its business.
27
5.5. Investigation by HDA and Its Representatives.
--------------------------------------------
(a) The Company shall, and shall cause its officers, directors,
employees and agents, to afford HDA and its representatives complete access at
all reasonable times to the Company's Facilities, officers, employees, agents,
attorneys, accountants, properties, books and records, and contracts, and shall
furnish HDA and its representatives, all financial, operating and other data and
information as HDA through its respective representatives, may reasonably
request, including unaudited consolidated balance sheets and the related
statements of income, 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 (a) be true, correct and complete,
(b) be in accordance with the books and records of the Company and (c)
accurately set forth the assets, liabilities and financial condition, results of
operations and other information purported to be set forth therein in accordance
with GAAP consistently applied.
(b) HDA shall have the right to conduct due diligence of the Owned
and Leased Real Property, to confirm that all such Owned and Leased Real
Property are in compliance with environmental and zoning laws and the Americans
with Disabilities Act of 1990. The Company shall, at its expense, order Phase I
site assessment reports and, if necessary, Phase II site assessment reports for
the Owned and Leased Real Property, and such environmental assessments shall be
performed by environmental consultants approved by HDA, in accordance with
standard ASPM quality review standards. The Existing Shareholders shall be
liable for any environmental remediation or underground storage tank removal, if
necessary.
5.6. Conduct of Business. From the date hereof through the Closing,
-------------------
the Company shall, except as contemplated by this Agreement, or as consented to
by HDA in writing, operate its 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, the Company shall not, except as specifically
contemplated by this Agreement or as consented to by HDA 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, the 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;
28
(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 the Company 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;
(ii) make any change in the key management structure,
including, without limitation, the hiring of additional officers or the
termination of existing officers;
(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 in excess of the $130,000 bonus
payout to the Existing Shareholders in September of 1998;
(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;
29
(1) make any loans or advances to any partnership, firm or
corporation, except for expenses incurred in the ordinary course of business;
(m) make any income tax election or settlement or compromise with
tax authorities;
(n) fail to comply with all regulations applicable to it, its assets
and its business;
(o) intentionally do any other act which would cause any
representation or warranty of the 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 best efforts to (i) retain its employees and
(ii) maintain 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; or
(r) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
5.7. Tax Matters.
-----------
(a) The Company shall timely prepare and file, or cause to be
prepared and filed, with the appropriate authorities all Tax Returns of the
Company for all taxable periods of the Company ending on or prior to the Closing
Date ("Preclosing Periods"). The Company shall deliver such Tax Returns to HDA
or its representatives and obtain HDA's consent thereto, which consent shall not
be unreasonably withheld or delayed, prior to the filing thereof. The Existing
Shareholders shall timely pay, or cause to be paid, when due all Taxes relating
to the periods covered by such Tax Returns and not accrued on the Balance
Sheets.
(b) The Company shall prepare or complete, or cause to be prepared
or completed, and timely filed, or cause to be timely filed, all Tax Returns of
the Company required to be filed after the Closing Date and, subject to Section
5.7(c) hereof, 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 in a
manner consistent with the principles set forth in clause (i) of the next
succeeding sentence. Except as provided in Section 5.7(a), with respect to Tax
Returns of the 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 the Company in a manner consistent
with the prior practice of the Company, and in a manner that does not
30
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 Company, as the taxpayer or in connection with
filing the Tax Returns specified in Section 5.7(b) above, may be required to pay
Taxes relating to time periods ending on or before the Closing Date ("Pre-
Closing Taxes"), it is the intention of the Parties that, to the extent such
Pre-Closing 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 Taxes either by payment of such Pre-Closing
Taxes themselves or pursuant to this Section 5.7.
(d) HDA shall promptly notify the Existing Shareholders in writing
upon receipt by HDA or any affiliate of HDA 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 the Company in any such Tax Proceeding; provided, however, that
-------- -------
without the prior written approval of HDA, 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 could have an adverse effect on HDA for any period ending after the
Closing Date.
(e) Neither HDA nor any affiliate of HDA 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 the 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, HDA shall, or cause the 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) and, in the reasonable determination of HDA, shall conform to
applicable laws and regulations. If HDA or any affiliate of HDA shall receive a
Tax refund relating to a period or transaction for which the Existing
Shareholders are liable hereunder, HDA shall, within 30 days after receipt of
such Tax refund, remit such Tax refund (including any 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, 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 HDA has actual
knowledge that a payment due to the relevant taxing authority (for which HDA
would be responsible under this Agreement) has been offset by such a refund and
(ii) the receipt of cash.
31
(a) (f) After the date hereof, HDA and the Company shall provide
each other and the Existing Shareholders, with such cooperation and information
relating to the 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 the 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.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY HDA AND HOLDINGS
The obligations of HDA and Holdings 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 HDA.
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 HDA has acted in accordance with the
--------
requirements of Section 5.1 hereof).
6.2. Representations and Warranties. All representations and
------------------------------
warranties of the Company and the Existing Shareholders contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date, except as otherwise contemplated by this Agreement.
6.3. Performance of Agreements. The Company and the Existing
-------------------------
Shareholders shall have fully performed in all material respects all
obligations, agreements, conditions and commitments required to be fulfilled by
it pursuant to the terms hereof on or prior to the Closing Date.
6.4. Compliance Certificate. The Company and the Existing
----------------------
Shareholders shall have delivered to HDA or its representatives, their
respective certificates, dated the Closing Date, executed on their behalf by its
respective duly authorized representatives, as to the fulfillment of the
conditions set forth in Sections 6.2 and 6.3 hereof.
32
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. HDA shall have received the opinion of
------------------
Parrett, Porto, Parese & Colwell, P.C., counsel for the Company and the Existing
Shareholders, in the form set forth in Schedule 6.6 hereto.
6.7. Consents, Etc. All authorizations, consents or approvals of any
-------------
and all 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 HDA: (i) employment agreements, containing non-competition clauses, by and
between HDA and each of Anthony N. Vingiano and Gary Vingiano, substantially in
the form attached hereto as Exhibit A (the "Employment Agreements"); (ii) non-
competition agreements by and between HDA and each of Anthony N. Vingiano and
Gary Vingiano containing non-competition clauses identical to the non-
competition clauses contained in the Employment Agreements; (iii) a consulting
agreement, containing non-competition clauses, by and between HDA and Anthony A.
Vingiano, substantially in the form attached hereto as Exhibit B; (iv) Joinders
to a Stockholders' Agreement for Holdings substantially in the form attached
hereto as Exhibit C; and (v) an escrow agreement in substantially the form
attached hereto as Exhibit D (the "Escrow Agreement") with Chase Trust Company
of California (the "Escrow Agent").
6.9. Due Diligence. HDA, together with its representatives, shall
-------------
have completed to its full satisfaction, its due diligence investigation
described in Section 5.5(a) and (b).
6.10 Investment Affidavit. The Existing Shareholders shall have
--------------------
delivered to HDA or its representatives, their respective affidavits, dated the
Closing Date, executed on their behalf by their respective duly authorized
representatives, as to their financial position and the business experience of
the individuals directing their execution and performance of this Agreement.
6.11 Shareholder Releases. The Existing Shareholders shall have
--------------------
delivered to HDA or its representatives a release, dated the Closing Date, of
any outstanding claims, other than those set forth on Schedule 1.1, that the
Existing Shareholders and their respective affiliates may have against the
Company.
33
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE COMPANY
AND THE EXISTING SHAREHOLDERS
The obligations of the Company and the 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 Company
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, all representations and warranties of HDA and Holdings
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date.
7.3. Performance of Agreements; Instruments of Transfer. HDA and
--------------------------------------------------
Holdings shall have fully performed in all material respects all obligations,
agreements, conditions and commitments required to be fulfilled by HDA and
Holdings on or prior to the Closing Date and shall have tendered to the Company
and the Existing Shareholders the documents, instruments and certificates
required by Article 7 hereof.
7.4. Compliance Certificates. HDA and Holdings shall have delivered
-----------------------
to the Company and the Existing Shareholders its 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
--------------------
shall be satisfied, except that such documents shall be signed by all parties
other than the Existing Shareholders and/or entities controlled by them.
7.6. Opinion of Counsel. The Company and the Existing Shareholders
------------------
shall have received the opinion of Latham & Watkins, counsel for Holdings and
HDA, in the form set forth in Schedule 7.6 hereto.
ARTICLE VIII.
ACTIONS BY THE PARTIES AFTER THE CLOSING
8.1. Indemnification by the Existing Shareholders. Subject to the
--------------------------------------------
provisions of this Article VIII, the Existing Shareholders will jointly and
severally indemnify, defend and hold
34
HDA and its respective stockholders,subsidiaries, officers, directors,
employees, agents, successors and assigns, (such indemnified persons are
collectively hereinafter referred to as "HDA's Indemnified Persons"), harmless
from and against any and all loss, liability, damage (excluding consequential,
indirect special, exemplary and punitive damages) or deficiency (including
interest, penalties, judgments, costs of preparation and investigation, and
reasonable attorneys' fees) (collectively, "Losses") that HDA'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 Company or any Existing
Shareholder in this Agreement or in any Schedule hereto; (b) the breach of any
warranty of the Company or any Existing Shareholder in this Agreement or any
Schedule hereto, (c) environmental liabilities, or (d) the nonfulfillment of any
covenant, undertaking, agreement or other obligation of the Company or any
Existing Shareholder under this Agreement or any Schedule hereto, not otherwise
waived by HDA. "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 HDA and Holdings. Subject to the provisions
-----------------------------------
of this Article VIII, HDA and Holdings agree to indemnify, defend and hold the
Existing Shareholders and their respective heirs, representatives, successors
and assigns (such persons are hereinafter collectively referred to as the
"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 HDA or Holdings in this Agreement or in any Schedule
hereto; (b) the breach of any warranty of HDA or Holdings in this Agreement or
any Schedule hereto; and (c) the nonfulfillment of any covenant, undertaking,
agreement or other obligation of HDA or Holdings under this Agreement or any
Schedule hereto, not otherwise waived by the Existing Shareholders.
8.3. 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 VIII shall survive the Closing Date
and shall remain in full force and effect for one (1) year thereafter; provided,
however, that the representations and warranties set forth in Section 3.11
relating to tax matters and Section 3.18 relating to employee benefits matters
shall survive for the length of the applicable statute of limitations and that
the representations and warranties set forth in Section 3.4 relating to
capitalization of the Company and Section 3.5 relating to title to the Shares
will survive the Closing Date in perpetuity.
8.4. Threshold; Deductible. Except as provided in this Section 8.4,
---------------------
no HDA's Indemnified Person or Company's Indemnified Person shall be entitled to
any recovery in accordance with this Article VIII 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, breach or nonfulfillment
exceeds $50,000 and then only to the extent of such excess. Except for
35
willful and intentional fraud, liability for breach of representations and
warranties under this Agreement shall not exceed the Purchase Price, except that
liability of the Existing Shareholders for breach of the representations and
warranties contained in Section 3.4 (Capitalization of the Company), Section 3.5
(Title to Shares), Section 3.11 (Tax Matters) and Section 3.18 (Employee Benefit
Plans; Employment Agreements) shall not be subject to the $50,000 deductible or
the Purchase Price ceiling.
8.5. 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 Sections 8.3 and 8.4 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.
8.6 Indemnification Payments. At the Closing, HDA deposit into
------------------------
escrow, in accordance with the terms and conditions of the Escrow Agreement,
2,289 shares of Common Stock and 9,977.109 shares of Series A Preferred Stock
(the "Escrow Stock") of the Purchase Price to serve as partial security for the
indemnification obligations, if any, of the Company and the Existing
Shareholders under this Agreement; provided, however, that the Existing
--------
Shareholders may satisfy any such indemnification obligations in cash rather
than in Escrow Stock. To the extent the Existing Shareholders elect to satisfy
indemnification obligations under this Agreement in cash rather than Escrow
Stock, HDA will direct the Escrow Agent to release to the Existing Shareholders
a number of shares of Escrow Stock equal in value to the amount of such cash
payment (to be valued as set forth in the Escrow Agreement). The Escrow
Agreement
36
will provide that at the end of the one year survival period set forth in
Section 8.3 above the Escrow Agent will deliver the Escrow Stock to the Existing
Shareholders, less any shares of Common Stock or Series A Preferred Stock
previously paid out of the Escrow Amount to HDA and less a number of shares
equal in value to any amount which is the subject of an unresolved, disputed or
pending claim (to be valued as set forth in the Escrow Agreement), in accordance
with the terms and conditions of the Escrow Agreement.
ARTICLE IX.
MISCELLANEOUS
9.1. Expenses. Except as otherwise set forth in this Agreement, each
--------
Party shall bear its own expenses and costs incurred by it in preparing,
negotiating and closing this Agreement, except that the Existing Shareholders
will also bear all expenses and costs incurred by the Company.
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 the Company, at
Mr. Anthony N. Vingiano
Truckparts, Inc.
269 State Street
North Haven, Connecticut 06473
Attn.: Anthony N. Vingiano
With a Copy to:
Parrett, Porto, Parese & Colwell, P.C.
357 Whitney Avenue
New Haven, Connecticut 06511
Attn.: Michael D. Amato, Esq.
37
If to Holdings or HDA:
HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, IL 60015
Attn.: John Greisch
With a Copy to:
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn.: Christopher A. Laurence
And:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn.: Elizabeth A. Blendell, Esq.
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. This
Agreement may not be assigned by any Party hereto without the prior written
consent of all other Parties hereto. This
38
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 Connecticut
applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof.
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.
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 Company,
HDA 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 includes (i) actual knowledge of any officer,
director or shareholder of the Company and any employee of the Company whose job
duties include the subject matter in
39
question and (ii) such knowledge which, based on facts of which each of such
foregoing individuals is aware, would be known to a reasonable person in similar
circumstances.
(Signature Page Follows)
40
IN WITNESS WHEREOF, City, HDA, Truckparts, each of the Existing
Shareholders and Seller Representative have duly executed and delivered this
Agreement as of the day and year first above written.
CITY TRUCK HOLDINGS, INC.
By: /s/ John Greisch
-----------------------------------------
Name: John Greisch
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
HDA PARTS SYSTEM, INC.
By: /s/ John Greisch
-----------------------------------------
Name: John Greisch
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
TRUCKPARTS, INC.
By: /s/ Anthony A. Vingiano
-----------------------------------------
Name: Anthony A. Vingiano
---------------------------------------
Title: President
--------------------------------------
THE VINGIANO FAMILY LIMITED
PARTNERSHIP
By: /s/ Anthony N. Vingiano
-----------------------------------------
Name: Anthony N. Vingiano
---------------------------------------
Title: G.P.
--------------------------------------
S-1
ANTHONY N. VINGIANO SPRAY TRUST
By: /s/ Theresa Vingiano
-----------------------------------------
Name: Theresa F. Vingiano
---------------------------------------
Title: Trustee
--------------------------------------
TRACEY A. VINGIANO SPRAY TRUST
By: /s/ Theresa Vengiano
-----------------------------------------
Name: Theresa F. Vingiano
---------------------------------------
Title: Trustee
--------------------------------------
GARY D. VINGIANO SPRAY TRUST
By: /s/ Theresa Vingiano
-----------------------------------------
Name: Theresa F. Vingiano
---------------------------------------
Title: Trustee
--------------------------------------
/s/ Anthony N. Vingiano
___________________________________
Anthony N. Vingiano, individually
/s/ Gary D. Vingiano
___________________________________
Gary D. Vingiano, individually
S-2
ANNEX A
The Existing Shareholders
The Vingiano Family Limited Partnership
Anthony N. Vingiano Spray Trust
Tracey A. Vingiano Spray Trust
Gary D. Vingiano Spray Trust
Anthony N. Vingiano
Gary D. Vingiano
A-1