Exhibit 10.5
PPAB 3/12/98
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of March 16, 1998 (this
"Agreement") among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "Buyer"),
and FREEMAN SMITH and the other stockholders named on the signature page of this
Agreement (the "Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers own all of the issued and outstanding shares of
capital stock of Economy Cars, Inc., a Tennessee corporation (the
"Corporation"), and all of such shares (the "Shares") are owned of record and
beneficially by the Sellers in the amounts set forth opposite their respective
names on Exhibit A hereto;
WHEREAS, the Corporation owns and operates a Honda automobile dealership
franchise pursuant to certain dealership arrangements with American Honda Motor
Co., Inc. ("Honda"); and
WHEREAS, the Buyer desires to purchase the Shares from the Sellers, and
the Sellers are willing to sell the Shares to the Buyer, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and representations hereinafter stated, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Agreement of Purchase and Sale. On the terms and subject to the
conditions of this Agreement and in reliance upon the representations and
warranties of the parties herein, at the closing referred to in Article 2 hereof
(the "Closing"), the Sellers shall sell, transfer, convey and deliver to the
Buyer, and the Buyer shall purchase from the Sellers, the Shares.
1.2 Purchase Price.
(a) Purchase Price. As the full purchase price to be paid by the
Buyer for the Shares, the Buyer shall pay to the Sellers the sum of (i)
$7,500,000, plus (ii) the Net Book Value (as defined in Section 1.2(c)
below)(collectively, the "Purchase Price").
(b) Payment of Purchase Price. The Purchase Price shall be paid as
follows:
(1) At the Closing, the Sellers shall deliver to the Buyer a
certificate signed by the Sellers setting forth their good faith estimate of the
Net Book Value as of the Closing Date (as defined in Article 2 hereof), which
estimate (the "Estimated Net Book Value") shall be reasonably acceptable to the
Buyer. At the Closing, an amount equal to the Purchase Price (for this purpose
only, calculated based upon the Estimated Net Book Value), less the Preferred
Stock (as defined in Section 1.2(b)(2) below), shall be payable in cash by the
Buyer to the Sellers by wire transfer of immediately available funds to the
account or accounts of the Sellers, which shall be designated by the Sellers in
writing at least one full Business Day prior to the Closing Date, pro rata
according to the percentages set forth opposite their respective names on
Exhibit A hereto. For purposes of this Agreement, a "Business Day" is a day
other than a Saturday, a Sunday or a day on which banks are required to be
closed in the State of Tennessee.
(2) (I) At the Closing, the Buyer shall issue to the Sellers,
pro rata according to the respective percentages specified opposite their names
on Exhibit A hereto, that number of shares of the Buyer's Convertible Preferred
Stock obtained by dividing 51% of the Purchase Price (for this purpose only,
calculated based upon the Estimated Net Book Value) by $1,000, but in no event
more than 5,100 shares (the "Preferred Stock"). The Preferred Stock will be
convertible into shares of the Buyer's Class A Common Stock (the "Common Stock")
having an aggregate market value at the time of conversion equal to the number
of shares of Preferred Stock multiplied by $1,000, as more specifically provided
in the Statement of Rights and Preferences attached as Exhibit C-1 hereto. At
the Closing, all but 1,000 shares of the Preferred Stock will be delivered to
the Sellers pro rata according to the respective percentages specified opposite
their names on Exhibit A hereto and 1,000 shares of the Preferred Stock (the
"Pledged Shares") shall be retained and held by the Buyer in accordance with the
pledge agreement in the form of Exhibit B hereto (the "Pledge Agreement"). The
Preferred Stock may include fractional shares (rounded to the nearest four
decimal points); provided, however, upon conversion of the Preferred Stock, no
fractional shares of Common Stock shall be issued. At the Closing, the Buyer
will deliver to the Sellers the agreement of Sonic Financial Corporation,
guaranteed by O. Bruton Smith, in the form of Exhibit C-2 hereto (the "Liquidity
Agreement").
(II) The Buyer shall use its reasonable best efforts to
make available current public information with respect to the Buyer within the
meaning of Subsection (c)(1) of Securities and Exchange Commission Rule 144
("Rule 144") to the extent necessary to facilitate public resales by the Sellers
of the Buyer's Common Stock issuable upon conversion of the Preferred Stock,
pursuant to Rule 144. The Buyer shall remove any and all stop transfer
instructions and shall remove any restrictive legend on the certificates with
respect to any such Common Stock then owned by the Sellers to the extent that
either (i) such Common Stock may hereafter be registered under the Securities
Act of 1933, as amended, and under any applicable state securities or blue sky
laws, or (ii) the Buyer has received an opinion of counsel satisfactory to the
Buyer, in form and substance satisfactory to the Buyer, that such registration
is not required.
(III) The Buyer will pay to the respective Sellers a
conversion forbearance fee on each share of the Preferred Stock, or portion
thereof, at the annual rate of $60.00 per whole share of Preferred Stock. Such
fee shall accrue on a daily basis (based upon a 365 day year) until the earlier
of (A) the receipt by the respective Sellers of the net proceeds of the sale of
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the Common Stock issued upon conversion of the respective shares of the
Preferred Stock, plus any amounts required to be paid pursuant to the Liquidity
Agreement with respect thereto, or (B) the termination of the Liquidity
Agreement with respect to such shares of Preferred Stock and/or the shares of
Common Stock issued on conversion thereof, or (C) two (2) years and ninety (90)
days from the Closing Date. Such fee shall be payable quarterly in arrears on
each January 1, April 1, July 1 and October 1 for the fee accrued for the
quarter, or portion thereof, immediately preceding such payment date.
(c) Net Book Value Determination.
(1) Not later than 60 days after the Closing Date, the
Sellers, acting through Freeman Smith (the "Sellers' Agent"), will prepare and
deliver to the Buyer an unaudited balance sheet (the "Closing Balance Sheet") of
the Corporation as of the Closing Date, consisting of a computation of the
tangible net book value of the tangible assets of the Corporation as of the
Closing Date, including accounts receivable, notes receivable and prepaid
expenses of an ordinary and recurring nature (excluding amounts receivable from
the Sellers and their Affiliates (as defined in Section 1.4(a) below) as of the
Closing Date), less the book value of the liabilities of the Corporation as of
the Closing Date (excluding amounts payable by the Corporation to the Sellers
and their Affiliates), all as determined in accordance with the same accounting
principles utilized in preparing the Corporation's tax basis balance sheet as at
December 31, 1997 included in the Financial Statements (as defined in Section
3.13(a)); provided, however, that (A) new vehicles shall be valued at actual
invoice cost, plus dealer installed options, less factory holdback and any and
all reserves reflected on the Closing Balance Sheet relating to the use of the
last-in, first out (LIFO) method of accounting will be added to book value, (B)
used vehicle inventories shall be valued as mutually agreed by the Buyer and the
Sellers' Agent, based upon a physical inventory to be conducted by them not
later than the Business Day immediately preceding the Closing Date, with any
used vehicles as to which the Buyer and the Sellers' Agent cannot reach
agreement as to value being valued by a mutually acceptable third party
appraiser not later than the Closing Date, (C) parts inventories shall include
only Honda returnable parts, which shall be valued based on the value of such
returnable parts under applicable returnable parts plans with Honda prior to the
deduction by Honda of any charge in the nature of a restocking charge, and
salable non-Honda parts shall be valued at net book value, (D) no real property
and related mortgage indebtedness of the Corporation shall be included in the
computation of the tangible net book value of the assets and liabilities of the
Corporation, it being understood by the parties that the Sellers will cause the
Corporation to distribute to the Sellers all of the real property owned by the
Corporation and related mortgage indebtedness immediately prior to, and in
anticipation of, the Closing, (E) the assets of the Corporation shall reflect
the dividend(s) contemplated by Schedule 5.5 hereto, (F) the liabilities of the
Corporation shall include any tax liabilities associated with (i) such
distribution of such real property to the Sellers utilizing a fair market value
for such property which is mutually agreed to by the Sellers' Agent and the
Buyer or, failing such agreement, determined by a nationally recognized
appraisal firm selected by the Buyer and reasonably acceptable to the Sellers'
Agent, and (ii) the conversion from the LIFO method of accounting to the
first-in, first-out (FIFO) method of accounting, and (G) there shall be included
appropriate write-offs for doubtful accounts receivable and bad debts and for
damaged, spoiled, obsolete or slow-moving inventory. To the extent that any
write down of value of any used vehicle would ultimately result in a tax benefit
to the Corporation when such vehicle was sold, such tax benefit will be
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reflected in the Closing Balance Sheet. The tangible net book value reflected on
the Closing Balance Sheet is hereinafter called the "Net Book Value". The Buyer
shall give to the Sellers' Agent and its authorized agents and representatives
full access, during normal business hours and on reasonable prior notice, to the
books and records of the Corporation to enable the Sellers' Agent to prepare the
Closing Balance Sheet. The out-of-pocket fees and expenses of the Sellers' Agent
incurred in the preparation of the Closing Balance Sheet (but not in connection
with any dispute under Section 1.2(c)(2) below) shall be paid by the Buyer.
(2) If within 30 days following delivery of the Closing
Balance Sheet (or the next Business Day if such 30th day is not a Business Day),
the Buyer has not given the Sellers' Agent notice of the Buyer's objection to
the computation of the Net Book Value as set forth in the Closing Balance Sheet
(such notice to contain a statement in reasonable detail of the nature of the
Buyer's objection), then the Net Book Value reflected in the Closing Balance
Sheet will be deemed mutually agreed by the Buyer and the Sellers. During such
30 day period, the Sellers' Agent shall give to the Buyer and its authorized
agents and representatives full access, during normal business hours and on
reasonable prior notice, to the books and records of the Sellers' Agent and the
work papers of its accountants to enable the Buyer to determine the manner in
which the Closing Balance Sheet was prepared. If the Buyer shall have given such
notice of objection in a timely manner, then the issues in dispute will be
submitted to a "Big Six" accounting firm mutually acceptable to the Buyer and
the Sellers' Agent (the "Accountants") for resolution. If issues in dispute are
submitted to the Accountants for resolution, (1) each party will furnish to the
Accountants such workpapers and other documents and information relating to the
disputed issues as the Accountants may request and are available to the party or
its subsidiaries (or its independent public accountants), and will be afforded
the opportunity to present to the Accountants any material relating to the
determination and to discuss the determination with the Accountants; (2) the
Accountants will be instructed to determine the Net Book Value based upon their
resolution of the issues in dispute; (3) such determination by the Accountants
of the Net Book Value, as set forth in a notice delivered to both parties by the
Accountants, will be binding and conclusive on the parties; and (4) the Buyer
and the Sellers shall each bear 50% of the fees and expenses of the Accountants
for such determination.
(3) If the Net Book Value, as deemed mutually agreed by the
parties or as determined by the Accountants, as aforesaid, equals or exceeds the
Estimated Net Book Value, the Buyer shall deliver 500 of the Pledged Shares to
the Sellers pursuant to the Pledge Agreement (except to the extent of any
pending claim by the Buyer for indemnification pursuant to this Agreement). To
the extent that the Net Book Value, as deemed mutually agreed by the parties or
as determined by the Accountants, as aforesaid, exceeds the Estimated Net Book
Value (the "Net Book Value Excess"), the Buyer shall be obligated to pay in
cash, in immediately available funds, the Net Book Value Excess promptly to the
Sellers, together with interest on the amount of the Net Book Value Excess at
the Buyer's floor plan financing rate from time to time in effect (the "Interest
Rate") from the Closing Date to the date of such payment. As of the date hereof,
the Interest Rate is prime rate less ninety (90) basis points. To the extent
that the Net Book Value, as deemed mutually agreed by the parties or as
determined by the Accountants, as aforesaid, is less than the Estimated Net Book
Value (the "Net Book Value Shortfall"), the Sellers shall be obligated, jointly
and severally, to pay the amount of the Net Book Value Shortfall, together with
interest on such amount at the Interest Rate from the Closing Date to the date
of such payment, promptly to the Buyer. In furtherance of (but not by way of
limitation of)
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such obligation of the Sellers, the Buyer shall be entitled to transfer into its
own name and retain up to 500 of the Escrow Shares, with any remaining balance
of such 500 of the Pledged Shares to be delivered to the Sellers pursuant to the
Pledge Agreement (except to the extent of any pending claim by the Buyer for
indemnification pursuant to this Agreement).
1.3 Delivery of the Shares.
(a) At the Closing, each Seller shall deliver to the Buyer a
certificate or certificates representing the number of Shares set forth opposite
such Seller's name on Exhibit A hereto, duly endorsed in blank or with a fully
executed stock power attached, all in proper form for transfer with all transfer
taxes, if any, paid by such Seller.
(b) The Shares shall be delivered to the Buyer free and clear of all
liens, pledges, encumbrances, claims, security interests, charges, voting
trusts, voting agreements, other agreements, rights, options, warrants or
restrictions or claims of any kind, nature or description (collectively,
"Encumbrances").
1.4 Dealership Leases; Non-Competition Agreement.
(a) Dealership Leases. At the Closing, Freeman Smith and/or his
Affiliates (as hereinafter defined), as lessors, will enter into lease
agreements with the Buyer, as lessee, regarding the Leased Premises (as defined
in Section 3.16(b) below) owned by them, such lease agreements to be
substantially in the form of Exhibit D hereto (the "Dealership Leases"). For
purposes of this Agreement, the term "Affiliate" shall mean any entity directly
or indirectly controlling, controlled by or under common control with the
specified person, whether by stock ownership, agreement or otherwise, or any
parent, child or sibling of such specified person and the concept of "control"
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such person or entity, whether
through the ownership of voting securities, by contract or otherwise.
(b) Non-Competition Agreement. At the Closing, the Sellers will
enter into a non-competition agreement with the Buyer and the Corporation, such
non-competition agreement to be substantially in the form of Exhibit E hereto
(the "Non-Competition Agreement"). The parties hereto agree that the amount of
the Purchase Price allocated to the Non-Competition Agreement is $10,000.
ARTICLE 2
CLOSING
The Closing shall take place at the offices of Baker, Donelson, Bearman &
Caldwell, 1800 Republic Centre, 633 Chestnut Street, Chattanooga, Tennessee at
11:00 a.m., local time, on the Closing Date. The Closing Date shall be the fifth
(5th) Business Day, or such shorter period as the Buyer may choose, following
the date the Buyer gives notice of the Closing to the Sellers, but in no event
later than sixty (60) calendar days after the date of this Agreement (the
"Closing Date Deadline"); provided, however, if as of the Closing Date Deadline,
the consents or
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approvals of Honda (or any subsidiary or affiliate of Honda, as may be required)
to the sale of the Shares pursuant hereto shall not have been obtained and/or
the audited financial statements contemplated by Section 7.13 shall not have
been completed, the Buyer may, so long as it is using its reasonable best
efforts to obtain such consents or approvals and/or to complete such financial
statements, elect to extend the Closing Date Deadline for up to an additional 60
days. The date upon which the Closing shall take place is hereinafter called the
"Closing Date".
ARTICLE 3
Representations and Warranties of the Sellers
Each of the Sellers hereby represents and warrants to the Buyer, severally
with respect to the matters set forth in Sections 3.1 through 3.6, inclusive,
and jointly and severally with respect to all other matters set forth in this
Article 3, as follows:
3.1 Ownership of Shares. Each Seller owns of record and beneficially the
number of Shares set forth opposite such Seller's name on Exhibit A hereto. Each
Seller has, and will have at the time of the Closing, good and valid title to
the Shares to be sold by such Seller hereunder, free and clear of all
Encumbrances.
3.2 Sellers' Power and Authority; Consents and Approvals.
(a) Each Seller has full capacity, right, power and authority to
execute and deliver this Agreement and the other agreements, documents and
instruments to be executed and delivered by each Seller in connection herewith,
to consummate the transactions contemplated hereby and thereby and to perform
its obligations hereunder and thereunder.
(b) Except as set forth on Schedule 3.2(b) hereto, no authorization,
approval or consent of, or notice to or filing or registration with, any
governmental agency or body, or any other third party, is required in connection
with the execution and delivery by each Seller of this Agreement and the other
agreements, documents and instruments to be executed and delivered by each
Seller in connection herewith, the consummation of the transactions contemplated
hereby and thereby and the performance by each Seller of his obligations
hereunder and thereunder.
3.3 Execution and Enforceability. This Agreement and the other agreements,
documents and instruments to be executed by the Sellers in connection herewith,
and the consummation by each Seller of the transactions contemplated hereby and
thereby, have been duly authorized, executed and delivered by each Seller and
constitute, and the other agreements, documents and instruments contemplated
hereby, when executed and delivered by each Seller, shall constitute, the legal,
valid and binding obligations of each Seller, enforceable against each such
Seller in accordance with their respective terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally.
3.4 Litigation Regarding Sellers. There are no actions, suits, claims,
investigations or legal, administrative or arbitration proceedings pending or,
to each Sellers' knowledge,
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threatened or probable of assertion, against any Seller relating to the Shares,
this Agreement or the transactions contemplated hereby before any court,
governmental or administrative agency or other body. None of the Sellers knows
of any basis for the institution of any such suit or proceeding. No judgment,
order, writ, injunction, decree or other similar command of any court or
governmental or administrative agency or other body has been entered against or
served upon any Seller relating to the Shares, this Agreement or the
transactions contemplated hereby.
3.5 Interest in Competitors and Related Entities; Certain Transactions.
(a) Except as set forth on Schedule 3.5 hereto, no Seller and no
Affiliate of any Seller has any direct or indirect interest in any person or
entity engaged or involved in any business which is competitive with the
business of the Corporation; provided, however, that the foregoing
representation and warranty shall not apply to any person or entity, or any
interest or agreement with any person or entity, which is a publicly held
corporation in which such Seller individually owns less than 3% of the issued
and outstanding voting stock.
(b) Except as set forth in Schedule 3.5 hereto, there are no
contracts, agreements or other arrangements between the Corporation and any of
(i) the Sellers (including the Sellers' Affiliates), (ii) the directors,
officers or salaried employees of the Corporation, or (iii) the family members
or Affiliates of any of such directors and officers (other than for services as
employees, officers and directors), providing for the furnishing of services to
or by, or the rental of real or personal property to or from, or otherwise
requiring payments to or from, (x) any of the Sellers, (y) any such officer,
director, salaried employee, family member or Affiliate, or (z) any corporation,
partnership, trust or other entity in which such family member, Affiliate,
officer, director or employee has a substantial interest or is a shareholder,
officer, director, trustee or partner.
3.6 Sellers Not Foreign Persons. Each Seller is a "United States person"
as that term is defined in Section 7701(a)(30) of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations promulgated thereunder.
3.7 Organization; Good Standing; Qualifications; and Power. The
Corporation is a corporation duly organized, validly existing and in good
standing under the laws of the State of Tennessee and has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. The Corporation is qualified to do business as
a foreign corporation and is in good standing in each of the jurisdictions
listed on Schedule 3.7 hereto, which are the only jurisdictions where the nature
of its business and assets requires such qualification.
3.8 Capitalization. The authorized capital stock of the Corporation is as
set forth on Schedule 3.8 hereto. All of the Shares are duly authorized, validly
issued, fully paid and non-assessable and are held by the Sellers in the amounts
indicated on Exhibit A hereto. Except as set forth on Schedule 3.8 hereto, there
are no preemptive rights, whether at law or otherwise, to purchase any of the
securities of the Corporation and there are no outstanding options, warrants,
"phantom" stock plans, subscriptions, agreements, plans or other commitments
pursuant to which the Corporation is or may become obligated to sell or issue
any shares of its capital stock or any other debt or equity security, and there
are no outstanding securities convertible into
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shares of such capital stock or any other debt or equity security.
3.9 Subsidiaries and Investments. The Corporation does not own or
maintain, directly or indirectly, any capital stock of or other equity or
ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity and does not have any
commitment to contribute to the capital of, make loans to, or share in the
losses of, any such entity.
3.10 No Violation; Conflicts. Except as set forth on Schedule 3.10 hereto,
the execution and delivery by the Sellers of this Agreement and the other
agreements, documents and instruments to be executed and delivered by the
Sellers in connection herewith, the consummation by the Sellers of the
transactions contemplated hereby and thereby and the performance by the Sellers
of their respective obligations hereunder and thereunder do not and will not (a)
conflict with or violate any of the terms of the Articles of Incorporation or
By-Laws of the Corporation, (b) violate or conflict with any law, ordinance,
rule or regulation, or any judgment, order, writ, injunction, decree or similar
command of any court, administrative or governmental agency or other body,
applicable to the Corporation, (c) violate or conflict with the terms of, or
result in the acceleration of, any indebtedness or obligation of the Corporation
under, or violate or conflict with or result in a breach of, or constitute a
default under, any indenture, mortgage, deed of trust, agreement or instrument
to which the Corporation is a party or by which the Corporation or any of its
assets or properties is bound or affected, (d) result in the creation or
imposition of any Encumbrance of any nature upon any of the assets or properties
of the Corporation, (e) constitute an event permitting termination of any
agreement, license or other right of the Corporation, or (f) require any
authorization, approval or consent of, or any notice to or filing or
registration with, any governmental agency or body, or any other third party,
applicable to the Corporation or any of its properties or assets.
3.11 Title to Assets; Related Matters. The Corporation has, and, except as
set forth on Schedule 3.11 hereto, on the Closing Date will have, good and valid
title to all assets, rights, interests and other properties, real, personal and
mixed, tangible and intangible, owned by it, including the real property which
will become the Leased Premises as of the Closing Date (collectively, the
"Assets"), free and clear of all Encumbrances, except those specified on
Schedule 3.11 and liens for taxes not yet due and payable. The Assets (a)
include all properties and assets (real, personal and mixed, tangible and
intangible) owned by the Corporation; (b) do not include (i) any contracts for
future services, prepaid items or deferred charges the full value or benefit of
which will not be usable by or transferable to the Buyer, or (ii) any goodwill,
organizational expense or other similar intangible asset.
3.12 Possession. The tangible assets included within the Assets are in the
possession or control of the Corporation and no other person or entity has a
right to possession or claims possession of all or any part of such Assets,
except the rights of lessors of Leased Equipment and Leased Premises (each as
defined in Section 3.16 hereof) under their respective contracts and leases.
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3.13 Financial Statements.
(a) The Sellers have delivered to the Buyer prior to the date
hereof:
(i) the Corporation's federal income tax returns on Form 1120
for the years ended December 31, 1995, 1996 and 1997 (the balance sheets
and income statements included in such tax returns being hereinafter
collectively called the "Annual Financial Statements"); and
(ii) the monthly and year to date financial statements
provided to Honda through the date hereof (collectively, the "Interim
Financial Statements") (the Annual Financial Statements and the Interim
Financial Statements are hereinafter collectively referred to as the
"Financial Statements").
(b) Except as set forth on Schedule 3.13 hereto, (i) the Annual
Financial Statements are in accordance with the books and records of the
Corporation, which books and records are true, correct and complete in all
material respects, (ii) the Financial Statements fairly present the financial
position of the Corporation as of the dates indicated and the results of
operation of the Corporation for the periods indicated in the form prescribed by
Honda except that the Interim Financial Statements contain estimates that are
subject to year end adjustment, and (iii) the Financial Statements have been
prepared in accordance with the income tax basis of accounting consistently
applied. The Corporation maintains its books and records, and prepares its
financial statements, in accordance with the income tax basis of accounting.
Schedule 3.13 sets forth certain material differences between the income tax
basis of accounting and generally accepted accounting principles.
3.14 Accounts Receivable. The accounts receivable of the Corporation are
collectible in the aggregate recorded amounts thereof and are not subject to any
known counterclaims or setoffs.
3.15 Inventories. Except as set forth on Schedule 3.15 hereto, all
inventories of the Corporation consist of items of a quality and quantity usable
and saleable in the ordinary course of business of the Corporation, and the
levels of inventories are consistent with the levels maintained by the
Corporation in the ordinary course consistent with past practice and the
Corporation's obligations under its agreements with all applicable vehicle
manufacturers and distributors. The values at which such inventories are carried
are based on the LIFO method in the case of new vehicle inventories and the FIFO
method in the case of all other inventories. All such values are stated in
accordance with tax basis accounting principles consistently applied by the
Sellers.
3.16 Real Property; Machinery and Equipment.
(a) Owned Real Property. As of the Closing Date, the Corporation
will own no real property.
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(b) Leased Premises. Schedule 3.16(b) hereto contains a complete
list and description of all real property (including buildings and other
structures thereon) which the Corporation uses in the conduct of its business.
Except as set forth on Schedule 3.16(b) hereto, all of such real property
(herein collectively referred to as the "Leased Premises" or the "Real
Property") will be leased to the Corporation pursuant to the Dealership Leases.
As of the date hereof, the Corporation does not, and as of the Closing Date the
Corporation will not (except for the Dealership Leases), lease any real property
from any person. To the knowledge of the Sellers, except as set forth on
Schedule 3.16(b) hereto, the Leased Premises are in good physical condition,
ordinary wear and tear excepted. Except as set forth on Schedule 3.16(b) hereto,
the Sellers have no knowledge of any event or condition which currently exists
which (i) would create a material legal or other impediment to the continued use
by the Corporation of the Leased Premises as currently used or the lease of the
Leased Premises to the Corporation pursuant to the Dealership Leases, or (ii)
would materially increase the additional charges or other sums payable by the
Corporation under the Dealership Leases (including, without limitation, any
pending tax reassessment or other special assessment affecting the Leased
Premises). The improvements and building systems which comprise a part of the
Leased Premises as to which the Corporation is responsible for the maintenance
and repair thereof are in good condition, maintenance and repair, ordinary wear
and tear excepted.
(c) Easements, Condemnation, Etc. Except as set forth on Schedule
3.16(c), the Real Property enjoys all easements and rights, including, but not
limited to, easements for power lines, water lines, sewers, roadways and other
means of ingress and egress, necessary to conduct the business the Corporation
now conducts, all such easements and rights are unconditional appurtenant rights
to the Real Property, which are for at least the applicable lease terms
(including renewals and extensions) under the Dealership Leases, and none of
such easements or rights are subject to any forfeiture or divestiture rights.
Except as set forth on Schedule 3.16(c), none of the Real Property is in the
process of being condemned, expropriated, ordered to be sold or otherwise taken
by any public authority, with or without payment or compensation therefor, and
the Sellers have no knowledge of any such threatened condemnation,
expropriation, sale or taking.
(d) Zoning, Etc. Except as set forth on Schedule 3.16(d) hereto,
none of the Real Property is in violation in any material respect of any public
or private restriction or any law or any building, zoning, health, safety, fire
or other law, ordinance, code or regulation, and no notice from any governmental
body has been served upon the Corporation or upon any of the Real Property
claiming any violation of any such law, ordinance, code or regulation or
requiring or calling to the attention of the Corporation the need for any work,
repair, construction, alterations or installation on or in connection with said
properties which has not been complied with. Except as set forth on Schedule
3.16(d) hereto, all improvements which comprise a part of the Real Property are
located within the record lines of the Real Property and none of the
improvements located on the Real Property encroach upon any adjoining property
or any easements or rights of way and no improvements located on any adjoining
property encroach upon any of the Real Property or any easements or rights of
way servicing the Real Property.
10
(e) Owned Equipment. Schedule 3.16(e) hereto sets forth a list of
all material machinery, equipment, motor vehicles (other than inventory),
furniture and fixtures owned by the Corporation (collectively, the "Owned
Equipment").
(f) Leased Equipment. Schedule 3.16(f) hereto contains a list of all
leases or other agreements, whether written or oral, under which the Corporation
is lessee of or holds or operates any items of machinery, equipment, motor
vehicles, furniture and fixtures or other property (other than real property)
owned by any third party (collectively, the "Leased Equipment").
(g) Maintenance of Equipment. Except as set forth on Schedule
3.16(g) hereto, the Owned Equipment and the Leased Equipment are in good
operating condition, maintenance and repair in accordance with industry
standards taking into account the age thereof.
3.17 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc.
(a) Except as set forth on Schedule 3.17 hereto, there are no
patents, trademarks, trade names, service marks, service names and copyrights,
and there are no applications therefor or licenses thereof, inventions, trade
secrets, computer software, logos, slogans, proprietary processes and formulae
and all other proprietary information, know-how and intellectual property
rights, whether patentable or unpatentable, that are owned or leased by the
Corporation or used in the conduct of the Corporation's business. The
Corporation is not a party to, nor pays a royalty to anyone under, any license
or similar agreement. There is no existing claim, or, to the knowledge of the
Sellers, any basis for any claim, against the Corporation that any of its
operations, activities or products infringe the patents, trademarks, trade
names, copyrights or other property rights of others or that the Corporation is
wrongfully or otherwise using the property rights of others.
(b) The Corporation has the right to use the name "Economy Honda"
and the other names listed on Schedule 3.17 hereto in the State of Tennessee
and, to the knowledge of the Sellers, no person uses, or has the right to use,
such name or any derivation thereof in connection with the manufacture, sale,
marketing or distribution of products or services commonly associated with an
automobile dealership.
3.18 Certain Liabilities.
(a) All accounts payable by the Corporation to third parties as of
the date hereof arose in the ordinary course of business and none are delinquent
or past-due.
(b) Schedule 3.18 hereto sets forth a list of all indebtedness of
the Corporation, other than accounts payable and accrued liabilities in the
ordinary course, as of the close of business on the day preceding the date
hereof, including, without limitation, money borrowed, indebtedness of the
Corporation owed to stockholders and former stockholders, the deferred purchase
price of assets, letters of credit and capitalized leases, indicating, in each
case, the name or names of the lender, the date of maturity, the rate of
interest, any prepayment
11
penalties or premiums and the unpaid principal amount of such indebtedness as of
such date.
3.19 No Undisclosed Liabilities. The Corporation does not have any
material liabilities or obligations of any nature, known or unknown, fixed or
contingent, matured or unmatured, other than those (a) reflected in the
Financial Statements, (b) incurred in the ordinary course of business since the
date of the Financial Statements and of the type and kind reflected in the
Financial Statements, or (c) disclosed specifically on Schedule 3.18 or Schedule
3.19 hereto.
3.20 Absence of Changes. Since December 31, 1997, the business of the
Corporation has been operated in the ordinary course, consistent with past
practices and, except as set forth on Schedule 3.20 hereto, there has not been
incurred, nor has there occurred: (a) Any damage, destruction or loss (whether
or not covered by insurance), adversely affecting the business or assets of the
Corporation in excess of $100,000; (b) Any strikes, work stoppages or other
labor disputes involving the employees of the Corporation; (c) Any sale,
transfer, pledge or other disposition of any of the Assets of the Corporation
having an aggregate book value of $100,000 or more (except sales of vehicles and
parts inventory in the ordinary course of business); (d) Any amendment,
termination, waiver or cancellation of any Material Agreement (as defined in
Section 3.29 hereof) or any termination, amendment, waiver or cancellation of
any material right or claim of the Corporation under any Material Agreement
(except in each case in the ordinary course of business and consistent with past
practice); (e) Any (1) general uniform increase in the compensation of the
employees of the Corporation (including, without limitation, any increase
pursuant to any bonus, pension, profit-sharing, deferred compensation or other
plan or commitment), (2) increase in any such compensation payable to any
individual officer, director, consultant or agent thereof, or (3) loan or
commitment therefor made by the Corporation to any officer, director,
stockholder, employee, consultant or agent of the Corporation; (f) Any change in
the accounting methods, procedures or practices followed by the Corporation or
any change in depreciation or amortization policies or rates theretofore adopted
by the Corporation; (g) Any material change in policies, operations or practices
of the Corporation with respect to business operations followed by the
Corporation, including, without limitation, with respect to selling methods,
returns, discounts or other terms of sale, or with respect to the policies,
operations or practices of the Corporation concerning the employees of the
Corporation; (h) Any capital appropriation or expenditure or commitment therefor
on behalf of the Corporation in excess of $50,000 individually or $100,000 in
the aggregate; (i) Any write-down or write-up of the value of any inventory or
equipment of the Corporation or any increase in inventory levels in excess of
historical levels for comparable periods; (j) Any account receivable in excess
of $50,000 or note receivable in excess of $50,000 owing to the Corporation
which (1) has been written off as uncollectible, in whole or in part, (2) has
had asserted against it any claim, refusal or right of setoff, or (3) the
account or note debtor has refused to, or threatened not to, pay for any reason,
or such account or note debtor has become insolvent or bankrupt; (k) Any other
change in the condition (financial or otherwise), business operations, assets,
earnings, business or prospects of the Corporation which, in the judgment of the
Sellers, has, or could reasonably be expected to have, a material adverse effect
on the assets, business or operations of the Corporation; (l) Any declaration or
payment of any dividend or distribution of the Corporation's assets or any
redemption, repurchase or other acquisition by the Corporation of any shares of
its capital stock; or (m) Any agreement, whether in writing or otherwise, for
the Corporation to take any of the actions enumerated in this Section 3.20.
12
3.21 Tax Matters.
(a) Except as set forth on Schedule 3.21 hereto, all federal, state
and local tax returns and tax reports required as of the date hereof to be filed
by the Corporation for taxable periods ending prior to the date hereof have been
duly and timely filed prior to the due date thereof (as such due date may have
been lawfully extended) by the Corporation with the appropriate governmental
agencies, and all such returns and reports are true, correct and complete.
(b) Except as set forth on Schedule 3.21 hereto, all federal, state
and local income, profits, franchise, sales, use, occupation, property, excise,
payroll, withholding, employment, estimated and other taxes of any nature,
including interest, penalties and other additions to such taxes ("Taxes"),
payable by, or due from, the Corporation for all periods prior to the date
hereof have been fully paid or adequately reserved for by the Corporation or,
with respect to Taxes required to be accrued, the Corporation has properly
accrued or will properly accrue such Taxes in the ordinary course of business
consistent with past practice of the Corporation.
(c) The federal income tax returns of the Corporation have not been
examined by the Internal Revenue Service ("IRS") for the years listed on
Schedule 3.21 hereto. Except as set forth on Schedule 3.21 hereto, the
Corporation has not received any notice of any assessed or proposed claim or
deficiency against it in respect of, or of any present dispute between it and
any governmental agency concerning, any Taxes. Except as set forth on Schedule
3.21 hereto, no examination or audit of any tax return or report of the
Corporation by any applicable taxing authority is currently in progress and
there are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any tax return or report of the Corporation. Copies of
all federal, state and local tax returns and reports required to be filed by the
Corporation for the years ended 1997, 1996, 1995, 1994, 1993 and 1992, together
with all schedules and attachments thereto, have been delivered by the Sellers
to the Buyer.
(d) Except as set forth on Schedule 3.21 hereto, the Corporation is
not now, and has never been, a member of a consolidated group for federal income
tax purposes or a consolidated, combined or similar group for state tax
purposes. No consent under Code Section 341 has been made affecting the
Corporation. The Corporation is not a party to any agreement or arrangement that
would result in the payment of any "excess parachute payments" under Code
Section 280G. The Corporation is not required to make any adjustment under Code
Section 481(a). No power of attorney relating to Taxes is currently in effect
affecting the Corporation.
3.22 Compliance with Laws, Etc. The Corporation has conducted its
operations and business in compliance in all material respects with, and all of
the Assets (including all of the Real Property) comply in all material respects
with, (i) all applicable laws, rules, regulations and codes (including, without
limitation, any laws, rules, regulations and codes relating to anticompetitive
practices, contracts, discrimination, employee benefits, employment, health,
safety, fire, building and zoning, but excluding Environmental Laws which are
the subject of Section 3.36 hereof) and (ii) all applicable orders, rules,
writs, judgments, injunctions, decrees and ordinances. The Corporation has not
received any notification of any asserted present or past failure by it to
comply with such laws, rules or regulations, or such orders, writs, judgments,
injunctions, decrees or ordinances. Set forth on Schedule 3.22 hereto are all
orders, writs,
13
judgments, injunctions, decrees and other awards of any court or governmental
agency applicable to the Corporation or its business or operations. The Sellers
have delivered to the Buyer copies of all reports, if any, of the Corporation
required to be submitted during the period from January 1, 1995 to the date
hereof under the Federal Occupational Safety and Health Act of 1970, as amended,
and under all other applicable health and safety laws and regulations. Except as
set forth on Schedule 3.22 hereto, the deficiencies, if any, noted on such
reports have been corrected by the Corporation and any deficiencies noted by
inspection through the Closing Date will have been corrected by the Corporation
by the Closing Date.
3.23 Litigation Regarding the Corporation. Except as set forth on Schedule
3.23 hereto, there are no actions, suits, claims, investigations or legal,
administrative or arbitration proceedings pending, or, to the Sellers'
knowledge, threatened or probable of assertion, against the Corporation or
relating to its assets, business or operations or the transactions contemplated
by this Agreement, and the Sellers do not know of any reasonable basis for the
institution of any such suit or proceeding. Except as set forth on Schedule 3.22
hereto, no order, writ, judgment, injunction, decree or similar command of any
court or any governmental or administrative agency or other body has been
entered against or served upon the Corporation relating to the Corporation or
its assets, business or operations.
3.24 Permits, Etc. Set forth on Schedule 3.24 hereto is a list of all
governmental licenses, permits, approvals, certificates of inspection and other
authorizations, filings and registrations that are necessary for the Corporation
to own and operate its business as presently conducted in all material respects
(collectively, the "Permits"). Except as set forth on Schedule 3.24 hereto, all
such Permits have been duly and lawfully secured or made by the Corporation and
are in full force and effect. Except as set forth on Schedule 3.24 hereto, there
is no proceeding pending, or, to the Sellers' knowledge, threatened or probable
of assertion, to revoke or limit any such Permit. None of the transactions
contemplated by this Agreement will terminate, violate or limit the
effectiveness of any such Permit.
3.25 Employees; Labor Relations. As of the date hereof, the Corporation
employs the total number of employees set forth on Schedule 3.25 hereto. As of
the date hereof, except as set forth on Schedule 3.25 hereto (a) the Corporation
is not delinquent in the payment (i) to or on behalf of its past or present
employees of any wages, salaries, commissions, bonuses, benefit plan
contributions or other compensation for all periods prior to the date hereof, or
(ii) of any amount which is due and payable to any state or state fund pursuant
to any workers' compensation statute, rule or regulation or any amount which is
due and payable to any workers' compensation claimant; (b) there are no
collective bargaining agreements currently in effect between the Corporation and
labor unions or organizations representing any employees of the Corporation; (c)
no collective bargaining agreement is currently being negotiated by the
Corporation; (d) to the knowledge of the Sellers, there are no union
organizational drives in progress and there has been no formal or informal
request to the Corporation for collective bargaining or for an employee election
from any union or from the National Labor Relations Board; and (e) no dispute
exists between the Corporation and any of its sales representatives or, to the
knowledge of the Sellers, between any such sales representatives with respect to
territory, commissions, products or any other terms of their representation.
3.26 Compensation. Schedule 3.26 contains a schedule of all employees
(including
14
sales representatives) and consultants of the Corporation whose individual cash
compensation for the year ended December 31, 1996, or projected for the year
ended December 31, 1997, is in excess of $100,000, together with the amount of
total compensation paid to each such person for the twelve month period ended
December 31, 1996 and the current aggregate base salary or hourly rate
(including any bonus or commission) for each such person.
3.27 Employee Benefits.
(a) The Sellers have listed on Schedule 3.27 and have delivered to
the Buyer true and complete copies of all Employee Plans (as defined below) and
related documents, established, maintained or contributed to by the Corporation
(which shall include for this purpose and for the purpose of all of the
representations in this Section 3.27, the Sellers and all employers, whether or
not incorporated, that are treated together with the Corporation as a single
employer with the meaning of Section 414 of the Code). The term "Employee Plan"
shall include all plans described in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and also shall include,
without limitation, any deferred compensation, stock, employee or retiree
pension benefit, welfare benefit or other similar fringe or employee benefit
plan, program, policy, contract or arrangement, written or oral, qualified or
nonqualified, funded or unfunded, foreign or domestic, covering employees or
former employees of the Corporation and maintained or contributed to by the
Corporation.
(b) Where applicable, each Employee Plan (i) has been administered
in material compliance with the terms of such Employee Plan and the requirements
of ERISA and the Code; and (ii) is in material compliance with the reporting and
disclosure requirements of ERISA and the Code. The Corporation does not maintain
or contribute to, and has never maintained or contributed to, an Employee Plan
subject to Title IV of ERISA or a "multiemployer plan" or a plan subject to
Section 412 of the Code. There are no facts relating to any Employee Plan that
(i) have resulted in a "prohibited transaction" of a material nature or have
resulted or is reasonably likely to result in the imposition of a material
excise tax, penalty or liability pursuant to Section 4975 of the Code, or (ii)
have resulted in a material breach of fiduciary duty or violation of Part 4 of
Title I of ERISA. To the Sellers' knowledge, each Employee Plan that is intended
to qualify under Section 401(a) or to be exempt under Section 501(c)(g) of the
Code is so qualified or exempt as of the date hereof in each case as such
Employee Plan has received favorable determination letters from the Internal
Revenue Service with respect thereto. To the knowledge of the Sellers, the
amendments to and operation of any Employee Plan subsequent to the issuance of
such determination letters do not adversely affect the qualified status of any
such Employee Plan. No Employee Plan has an "accumulated funding deficiency" as
of the date hereof, whether or not waived, and no waiver has been applied for.
The Corporation has made no promises or incurred any liability under any
Employee Plan or otherwise to provide health or other welfare benefits to former
employees of the Corporation, except as specifically required by law. There are
no pending or, to the best knowledge of the Sellers, threatened claims (other
than routine claims for benefit) or lawsuits with respect to any of
Corporation's Employee Plans. As used in this Section 3.27, all technical terms
enclosed in quotation marks shall have the meaning set forth in ERISA.
(c) Sections 3.27(a) and 3.27(b) above shall not apply with respect
to any Employee Plan in connection with any events occurring or facts arising
after the Closing Date,
15
except to the extent such events or facts could reasonably have been prevented
by any notice to the Buyer or other reasonable action of the Sellers prior to
the Closing Date.
3.28 Powers of Attorney. Except as set forth on Schedule 3.28 hereto,
there are no persons, firms, associations, corporations or business
organizations or entities holding general or special powers of attorney from the
Corporation.
3.29 Material Agreements.
(a) List of Material Agreements. Set forth on Schedule 3.29(a)
hereto is a list or, where indicated, a brief description of all contracts,
agreements, documents, instruments, guarantees, plans, understandings or
arrangements, written or oral, which are material to the Corporation or its
business or assets (collectively, the "Material Agreements"). True copies of all
written Material Agreements and written summaries of all oral Material
Agreements described or required to be described on Schedule 3.29(a) have been
furnished to the Buyer.
(b) Performance, Defaults, Enforceability. The Corporation has in
all material respects performed all of its obligations required to be performed
by it to the date hereof, and is not in default or alleged to be in default in
any material respect, under any Material Agreement, and there exists no event,
condition or occurrence which, after notice or lapse of time or both, would
constitute such a default. To the knowledge of the Sellers, no other party to
any Material Agreement is in default in any respect of any of its obligations
thereunder. Each of the Material Agreements is valid and in full force and
effect and enforceable against the parties thereto in accordance with their
respective terms, and, except as set forth in Schedule 3.29(b) hereto, the
consummation of the transactions contemplated by this Agreement will not (i)
require the consent of any party thereto or (ii) constitute an event permitting
termination thereof.
3.30 Brokers' or Finders' Fees, Etc. No agent, broker, investment banker,
person or firm acting on behalf of the Corporation or any of the Sellers or any
person, firm or corporation affiliated with any of the Sellers or under their
authority is or will be entitled to any brokers' or finders' fee or any other
commission or similar fee directly or indirectly from any of the parties hereto
in connection with the sale of the Shares contemplated hereby, other than any
such fee or commission the entire cost of which will be borne by the Sellers.
3.31 Bank Accounts, Credit Cards, Safe Deposit Boxes and Cellular
Telephones. Schedule 3.31 hereto lists all bank accounts, credit cards and safe
deposit boxes in the name of, or controlled by, the Corporation, and all
cellular telephones provided and/or paid for by the Corporation, and details
about the persons having access to or authority over such accounts, credit
cards, safe deposit boxes and cellular telephones.
3.32 Insurance.
(a) Schedule 3.32(a) hereto contains a list of all policies of
liability, theft, fidelity, life, fire, product liability, workmen's
compensation, health and any other insurance and bonds maintained by, or on
behalf of, the Corporation on its properties, operations, inventories, assets,
business or personnel (specifying the insurer, amount of coverage, type of
insurance,
16
policy number and any pending claims in excess of $5,000 thereunder). Except as
set forth on Schedule 3.32(a), each such insurance policy identified therein is
and shall remain in full force and effect on and as of the Closing Date and the
Corporation is not in default with respect to any provision contained in any
such insurance policy and has not failed to give any notice or present any claim
under any such insurance policy in a due and timely fashion. The insurance
maintained by, or on behalf of, the Corporation is adequate in accordance with
the standards of business of comparable size in the industry in which the
Corporation operates and no notice of cancellation or termination has been
received with respect to any such policy. The Corporation has not, during the
last three (3) fiscal years, been denied or had revoked or rescinded any policy
of insurance.
(b) Set forth on Schedule 3.32(b) hereto is a summary of information
pertaining to material property damage and personal injury claims in excess of
$5,000 against the Corporation during the past five (5) years, all of which are
fully satisfied or are being defended by the insurance carrier and involve no
exposure to the Corporation.
3.33 Warranties. Set forth on Schedule 3.33 hereto are descriptions or
copies of the forms of all express warranties and disclaimers of warranty made
by the Corporation (separate and distinct from any applicable manufacturers',
suppliers' or other third-parties' warranties or disclaimers of warranties)
during the past five (5) years to customers or users of the vehicles, parts,
products or services of the Corporation. Except as set forth on Schedule 3.33,
there have been no breach of warranty or breach of representation claims against
the Corporation during the past five (5) years which have resulted in any cost,
expenditure or exposure to the Corporation of more than $100,000 individually or
in the aggregate.
3.34 Directors and Officers. Set forth on Schedule 3.34 hereto is a true
and correct list of the names and titles of each director and officer of the
Corporation.
3.35 Suppliers and Customers. The Corporation is not required to provide
bonding or any other security arrangements in connection with any transactions
with any of its respective customers and suppliers. To the knowledge of the
Sellers, no such supplier, customer or creditor intends or has threatened, or
reasonably could be expected, to terminate or modify any of its relationships
with the Corporation.
3.36 Environmental Matters.
(a) For purposes of this Agreement, the following terms shall have
the following meaning: (i) "Environmental Law" means all present federal, state
and local laws, statutes, regulations, rules, ordinances and common law, and all
judgments, decrees, orders, agreements, or permits, issued, promulgated,
approved or entered thereunder by any government authority relating to
pollution, Hazardous Materials, worker safety or protection of human health or
the environment; (ii) "Hazardous Materials" means any pollutant, hazardous
material, hazardous substance, toxic substance, hazardous waste, special waste,
solid waste, petroleum or petroleum-derived substance or waste (regardless of
specific gravity), or any constituent or decomposition product of any such
pollutant, material, substance or waste, including, but not limited to, any
hazardous substance or hazardous constituent contained within any waste and any
other pollutant, material, substance or waste, as regulated under or as defined
by any applicable
17
Environmental Law.
(b) Except as set forth on Schedule 3.36, the Corporation has
obtained all permits, licenses and other authorizations or approvals required
under Environmental Laws for the conduct and operation of the Assets and the
business of the Corporation ("Environmental Permits"). Except as set forth on
Schedule 3.36, all such Environmental Permits are in good standing, the
Corporation is and has been in compliance in all material respects with the
terms and conditions of all such Environmental Permits, and no appeal or any
other action is pending or, to the knowledge of the Sellers, threatened to
revoke any such Environmental Permit.
(c) Except as disclosed on Schedule 3.36, the Corporation and its
business, operations and the Assets are and have been in compliance in all
material respects with all applicable Environmental Laws.
(d) Except as disclosed on Schedule 3.36, neither the Corporation
nor any of the Sellers has received any written or oral order, notice,
complaint, request for information, claim, demand or other communication from
any government authority or other person, whether based in contract, tort,
implied or express warranty, strict liability, or any other common law theory,
or any criminal or civil statute, arising from or with respect to (i) the
presence, release or threatened release of any Hazardous Material or any other
environmental condition on, in or under the Real Property or any other property
formerly owned, used or leased by the Corporation, (ii) any other circumstances
forming the basis of any actual or alleged violation by the Corporation or the
Sellers of any Environmental Law or any liability of the Corporation or the
Sellers under any applicable Environmental Law, (iii) any remedial or removal
action required to be taken by the Corporation or the Sellers under any
applicable Environmental Law, or (iv) any harm, injury or damage to real or
personal property, natural resources, the environment or any person alleged to
have resulted from the foregoing, nor are the Sellers aware of any facts which
might reasonably give rise to such notice or communication. Except as disclosed
on Schedule 3.36, the Corporation has not entered into any agreements concerning
any removal or remediation of Hazardous Materials.
(e) Except as set forth on Schedule 3.36, no lawsuits, claims, civil
actions, criminal actions, administrative proceedings, investigations or
enforcement or other actions are pending or, to the knowledge of the Sellers,
threatened under any applicable Environmental Law with respect to the
Corporation or the Real Property.
(f) Except as disclosed on Schedule 3.36, no environmental condition
exists (including, without limitation, the presence, release, threatened
release, migration or disposal of Hazardous Materials) related to the Real
Property, to any property previously owned, operated or leased by the
Corporation, or to the Corporation's past or present operations, which would
constitute a material violation of any applicable Environmental Law or otherwise
give rise to costs, liabilities or obligations of the Corporation under any
applicable Environmental Law.
(g) Except as disclosed on Schedule 3.36, neither the Corporation
nor the Sellers, nor, to the knowledge of the Sellers, any of their respective
predecessors in interest, has transported or disposed of, or arranged for the
transportation or disposal of, any Hazardous Materials to any location (i) which
is listed on the National Priorities List or, to the knowledge of
18
the Sellers, the CERCLIS list under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or any similar federal,
state or local list, (ii) which is the subject of any federal, state or local
enforcement action or other investigation under any Environmental Law, or (iii)
about which either the Corporation or the Sellers has received or has reason to
expect to receive a potentially responsible party notice or other notice under
any Environmental Law.
(h) No environmental lien has attached or, to the knowledge of the
Sellers, is threatened to be attached to the Real Property.
(i) To the knowledge of the Sellers, no employee of the Corporation
in the course of his or her employment with the Corporation has been exposed to
any Hazardous Materials or other substance, generated, produced or used by the
Corporation which could give rise to any claim (whether or not such claim has
been asserted) against the Corporation.
(j) Except as set forth on Schedule 3.36 hereto, the Real Property
does not contain any: (i) septic tanks into which process wastewater or any
Hazardous Materials have been disposed; (ii) asbestos; (iii) polychlorinated
biphenyls (PCBs); (iv) underground injection or monitoring wells; or (v)
underground storage tanks.
(k) Except as set forth on Schedule 3.36, there have been no
environmental studies or reports made relating to the Real Property or, to the
knowledge of the Sellers, any other property or facility previously owned,
operated or leased by the Corporation.
(l) Except as described on Schedule 3.36, the Corporation has not
agreed to assume, defend, undertake, guarantee, or provide indemnification for,
any liability, including, without limitation, any obligation for corrective or
remedial action, of any other person under any Environmental Law for
environmental matters or conditions.
3.37 Business Generally. The Sellers are not selling the Shares to the
Buyer based in whole or in part on the actual knowledge of the Sellers of any
information concerning the Corporation's business which has or could reasonably
be expected to have a material adverse effect on the Corporation or its business
and which has not been disclosed to the Buyer hereunder.
3.38 Misstatements and Omissions. No representation and warranty by the
Sellers contained in this Agreement, and no statement contained in any
certificate or Schedule furnished or to be furnished by the Sellers to the Buyer
in connection with this Agreement, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary in
order to make such representation and warranty or such statement not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as follows:
19
4.1 Organization and Good Standing. The Buyer is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware.
4.2 Buyer's Power and Authority; Consents and Approvals.
(a) The Buyer has all requisite corporate power and authority to
execute and deliver this Agreement and the other agreements, documents and
instruments to be executed and delivered by the Buyer in connection herewith, to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder.
(b) Except as set forth in Schedule 4.2(b) hereto, no authorization,
approval or consent of, or notice to or filing or registration with, any
governmental agency or body, or any other third party, is required in connection
with the execution and delivery by the Buyer of this Agreement and the other
agreements, documents and instruments to be executed by the Buyer in connection
herewith, the consummation by the Buyer of the transactions contemplated hereby
or thereby or the performance by the Buyer of its obligations hereunder and
thereunder.
4.3 Execution and Enforceability. This Agreement and the other agreements,
documents and instruments to be executed and delivered by the Buyer in
connection herewith, and the consummation by the Buyer of the transactions
contemplated hereby and thereby, have been duly and validly authorized, executed
and delivered by all necessary corporate action on the part of the Buyer and
this Agreement constitutes, and the other agreements, documents and instruments
to be executed and delivered by the Buyer in connection herewith, when executed
and delivered by the Buyer, shall constitute the legal, valid and binding
obligations of the Buyer, enforceable against the Buyer in accordance with their
respective terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally and general equity principles.
4.4 Litigation Regarding Buyer. There are no actions, suits, claims,
investigations or legal, administrative or arbitration proceedings pending or,
to the Buyer's knowledge, threatened or probable of assertion against the Buyer
relating to this Agreement or the transactions contemplated hereby before any
court, governmental or administrative agency or other body, and no judgment,
order, writ, injunction, decree or other similar command of any court or
governmental or administrative agency or other body has been entered against or
served upon the Buyer relating to this Agreement or the transactions
contemplated hereby.
4.5 No Violation; Conflicts. The execution and delivery by the Buyer of
this Agreement and the other agreements, documents and instruments to be
executed and delivered by the Buyer in connection herewith, the consummation by
the Buyer of the transactions contemplated hereby and thereby and the
performance by the Buyer of its obligations hereunder and thereunder do not and
will not (a) conflict with or violate any of the terms of the Certificate of
Incorporation or By-Laws of the Buyer, or (b) violate or conflict with any
domestic law, ordinance, rule or regulation, or any judgement, order, writ,
injunction or decree of any court, administrative or governmental agency or
other body, material to the Buyer.
4.6 Brokers' or Finders' Fees, Etc. No agent, broker, investment banker,
person or firm acting on behalf of the Buyer or any person, firm or corporation
affiliated with the Buyer or
20
under its authority is or will be entitled to any brokers' or finders' fee or
any other commission or similar fee directly or indirectly from any of the
parties hereto in connection with the sale of the Shares contemplated hereby.
4.7 Misstatements and Omissions. No representation and warranty by the
Buyer contained in this Agreement, and no statement contained in any certificate
or Schedule furnished or to be furnished by the Buyer to the Sellers in
connection with this Agreement, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary in
order to make such representation and warranty or such statement not misleading.
The Buyer has delivered to the Sellers copies of the Prospectus dated November
10, 1997 and the Form 10-Q of the Buyer for the quarterly period ended September
30, 1997 (collectively, the "Buyer's Disclosure Materials"). None of the Buyer's
Disclosure Materials contained, at the time of the filing thereof with the
Securities and Exchange Commission, any untrue statement of any material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances in which
they were made, not misleading.
ARTICLE 5
PRE-CLOSING COVENANTS OF THE SELLERS
The Sellers hereby jointly and severally covenant and agree that, from and
after the date hereof until the Closing:
5.1 Provide Access to Information; Cooperation with Buyer.
(a) Access. The Sellers shall afford, and cause the Corporation to
afford, to the Buyer, its attorneys, accountants, and representatives, free and
full access at all reasonable times, and upon reasonable prior notice, to the
properties, books and records of the Corporation, and to interview personnel,
suppliers and customers of the Corporation, in order that the Buyer may have a
full opportunity to make such investigation (including the Environmental Audit
contemplated by Section 5.11 below) as it shall reasonably desire of the assets,
business and operations of the Corporation (including, without limitation, any
appraisals or inspections thereof), and provide to the Buyer and its
representatives such additional financial and operating data and other
information as to the business and properties of the Corporation as the Buyer
shall from time to time reasonably request.
(b) Cooperation in Obtaining Consents. The Sellers shall use
reasonable best efforts in cooperating with the Buyer in the preparation of and
delivery to all applicable automobile manufacturers or distributors, as soon as
practicable after the date hereof, of an application and other information
necessary to obtain such automobile manufacturer's or distributor's consent to
or the approval of the transactions contemplated by this Agreement.
5.2 Operation of Business of the Corporation. The Sellers shall cause the
Corporation to (a) maintain its corporate existence in good standing, (b)
operate its business substantially as presently operated and only in the
ordinary course and consistent with past
21
operations and its obligations under any existing agreements with all applicable
automobile manufacturers or distributors, (c) use its best efforts to preserve
intact its present business organizations and employees and its relationships
with persons having business dealings with them, including, but not limited to,
all applicable automobile manufacturers or distributors and any floor plan
financing creditors, (d) comply in all respects with all applicable laws, rules
and regulations, (e) maintain its insurance coverages, (f) pay all Taxes,
charges and assessments when due, subject to any valid objection or contest of
such amounts asserted in good faith and adequately reserved against, (g) make
all debt service payments when contractually due and payable, (h) pay all
accounts payable and other current liabilities when due, (i) maintain the
Employee Plans and each plan, agreement and arrangement listed on Schedule 3.27,
and (j) maintain its property, plant and equipment in good operating condition
in accordance with industry standards taking into account the age thereof.
5.3 Books of Account. The Sellers shall cause the Corporation to maintain
its books and records of account in the usual, regular and ordinary manner.
5.4 Employees. The Sellers shall (i) use their reasonable best efforts to
encourage such personnel of the Corporation as the Buyer may designate in
writing to remain employees of the Corporation after the date of the Closing,
and (ii) not take any action, or permit the Corporation to take any action, to
encourage any of the personnel of the Corporation to leave their positions with
the Corporation.
5.5 Certain Prohibitions. The Sellers shall not permit the Corporation to
(i) issue any equity or debt security or any options or warrants, (ii) enter
into any subscriptions, agreements, plans or other commitments pursuant to which
the Corporation is or may become obligated to issue any of its debt or equity
securities, (iii) otherwise change or modify its capital structure, (iv) engage
in any reorganization or similar transaction, (v) sell or otherwise dispose of
any of its assets, other than sales of inventory in the ordinary course of
business and the distribution of all real property owned by the Corporation as
contemplated by Section 1.2(c) above, (vi) declare or make payment of any
dividend or other distribution in respect of the Shares or redeem, repurchase or
acquire any of the Shares, except that the Corporation may pay dividends as
provided in Schedule 5.5 hereto and such dividends shall not, as of the Closing,
constitute a breach of the Sellers' representations and warranties contained in
Section 3.20(l), or (vii) agree to take any of the foregoing actions.
5.6 Other Changes. The Sellers shall not permit the Corporation to take,
cause, agree to take or cause to occur any of the actions or events set forth in
Section 3.20 of this Agreement.
5.7 Additional Information. The Sellers shall furnish and cause the
Corporation to furnish to the Buyer such additional information with respect to
any matters or events arising or discovered subsequent to the date hereof which,
if existing or known on the date hereof, would have rendered any representation
or warranty made by the Sellers or any information contained in any Schedule
hereto or in other information supplied in connection herewith then inaccurate
or incomplete. The receipt of such additional information by the Buyer shall not
operate as a waiver by the Buyer of the obligations of the Sellers to satisfy
the conditions to Closing set forth in Section 7.1 hereof.
22
5.8 Publicity. Except as may be required by law or the applicable rules or
regulations of any securities exchange, the Sellers shall not (i) make or permit
the Corporation to make any press release or other public announcement relating
to this Agreement or the transactions contemplated hereby, without the prior
written approval of the Buyer, and (ii) otherwise disclose the existence and
nature of their discussions or negotiations regarding the transactions
contemplated hereby to any person or entity other than their accountants,
attorneys and similar professionals, all of whom shall be subject to this
nondisclosure obligation as agents of the Sellers, as the case may be. The
Sellers shall cooperate with the Buyer in the preparation and dissemination of
any public announcements of the transactions contemplated by this Agreement.
5.9 Other Negotiations. The Sellers shall not pursue, initiate, encourage
or engage in, nor shall any of their respective Affiliates or agents pursue,
initiate, encourage or engage in, and the Sellers shall cause the Corporation
and its Affiliates, directors, officers and agents not to pursue, initiate,
encourage or engage in, any negotiations or discussions with, or provide any
information to, any other person or entity (other than the Buyer and its
representatives and Affiliates) regarding the sale of the assets or capital
stock of the Corporation or any merger or similar transaction involving the
Corporation.
5.10 Closing Conditions. The Sellers shall use all reasonable best efforts
to satisfy promptly the conditions to Closing set forth in Article 7 hereof
required herein to be satisfied by the Sellers prior to the Closing.
5.11 Environmental Audit. The Sellers shall cause the Corporation to allow
an environmental consulting firm selected by the Buyer (the "Environmental
Auditor") to have prompt access to the Real Property in order to conduct an
environmental investigation, satisfactory to the Buyer in scope (such scope
being sufficient to result in a Phase I environmental audit report and a Phase
II environmental audit report, if desired by the Buyer), of, and to prepare a
report with respect to, the Real Property (the "Environmental Audit"). The
Sellers shall cause the Corporation to provide to the Environmental Auditor: (i)
reasonable access to all its existing records concerning the matters which are
the subject of the Environmental Audit; and (ii) reasonable access to the
employees of the Corporation and the last known addresses of former employees of
the Corporation who are most familiar with the matters which are the subject of
the Environmental Audit (the Sellers agreeing to use reasonable efforts to have
such former employees respond to any reasonable requests or inquiries by the
Environmental Auditor). The Sellers shall otherwise cooperate and cause the
Corporation to cooperate with the Environmental Auditor in connection with the
Environmental Audit. The Buyer and the Sellers shall each bear 50% of the costs,
fees and expenses incurred in connection with the preparation of the
Environmental Audit.
5.12 Audited Financial Statements. The Sellers shall allow, cooperate with
and assist Buyer's accountants, and shall instruct the Corporation's accountants
to cooperate, in the preparation of audited financial statements of the
Corporation as necessary for any required filings by the Buyer with the
Securities and Exchange Commission or with the Buyer's lenders; provided that
the expense of such audit shall be borne by the Buyer.
5.13 Hart-Scott-Rodino. Subject to the determination by the Buyer that any
of the
23
following actions is not required, the Sellers shall promptly prepare and file
Notification and Report Forms under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") with the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
Division"), and respond as promptly as practicable to all inquiries received
from the FTC or the Antitrust Division for additional information or
documentation.
ARTICLE 6
PRE-CLOSING COVENANTS OF BUYER
The Buyer hereby covenants and agrees that, from and after the date hereof
until the Closing:
6.1 Publicity. Except as may be required by law or by the rules of the New
York Stock Exchange, or as necessary in connection with the transactions
contemplated hereby, the Buyer shall not (i) make any press release or other
public announcement relating to this Agreement or the transactions contemplated
hereby, without the prior written approval of the Sellers' Agent, or (ii)
otherwise disclose the existence and nature of its discussions or negotiations
regarding the transactions contemplated hereby to any person or entity other
than its accountants, attorneys and similar professionals, all of whom shall be
subject to this nondisclosure obligation as agents of the Buyer.
6.2 Closing Conditions. The Buyer shall use all reasonable best efforts to
satisfy promptly the conditions to Closing set forth in Article 8 hereof
required herein to be satisfied by the Buyer prior to the Closing.
6.3 Application to Automobile Manufacturers and Distributors. Subject to
the reasonable cooperation of the Sellers, the Buyer shall provide to all
applicable automobile manufacturers and distributors as promptly as practicable
after the execution and delivery of this Agreement any application or other
information with respect to such application necessary in connection with the
seeking of the consents of such manufacturers and distributors to the
transactions contemplated by this Agreement.
6.4 Hart-Scott-Rodino. Subject to the determination by the Buyer that any
of the following actions is not required, the Buyer shall promptly prepare and
file Notification and Report Forms under the HSR Act with the FTC and the
Antitrust Division, respond as promptly as practicable to all inquiries received
from the FTC or the Antitrust Division for additional information or
documentation, and the Buyer shall pay all filing fees in connection therewith.
6.5 ss.338 Election. In the event that the Buyer makes an election under
Section 338(g) of the Code with respect to the purchase of the Shares, the Buyer
shall be liable for and hereby agrees to indemnify the Sellers for any and all
liability for Taxes imposed on the Sellers or the Corporation that are
attributable, directly or indirectly, to any election made by the Buyer pursuant
to Section 338(g) of the Code.
24
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF THE BUYER AT THE CLOSING
The obligations of the Buyer to perform this Agreement at the Closing are
subject to the satisfaction at or prior to the Closing of the following
conditions, unless waived in writing by the Buyer:
7.1 Representations and Warranties. The representations and warranties
made by the Sellers in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing as
though made at and as of the Closing.
7.2 Performance of Obligations of the Sellers. The Sellers shall have
performed all obligations required to be performed by the Sellers under this
Agreement, and complied with all covenants for which compliance by the Sellers
is required under this Agreement, prior to or at the Closing.
7.3 Closing Documentation. The Buyer shall have received the following
documents, agreements and instruments from the Sellers:
(a) a certificate signed by the Sellers and dated the date of the
Closing certifying as to the satisfaction of the conditions set forth in
Sections 7.1 and 7.2 hereof;
(b) the stock certificates and stock powers for the Shares described
in Section 1.3(a) hereof;
(c) such duly signed resignations of directors and officers of the
Corporation as the Buyer shall have previously requested;
(d) an opinion of Baker, Donelson, Bearman & Caldwell, counsel for
the Sellers, dated the date of the Closing and addressed to the Buyer, in form
and substance reasonably acceptable to the Buyer;
(e) copies of all authorizations, approvals, consents, notices,
registrations and filings referred to in Schedules 3.2(b), 3.10 and 3.29(b)
hereof including, without limitation, the approval of Honda (or any subsidiary
or affiliate of Honda, as may be required);
(f) (i) a certificate dated as of a recent date from the Secretary
of State of the State of Tennessee to the effect that the Corporation is duly
incorporated in such State and stating that the Corporation owes no taxes, fees
or penalties in such State, and (ii) one or more certificates of officials from
the jurisdictions listed on Schedule 3.7 hereto to the effect that the
Corporation is duly qualified as a foreign corporation and is in good standing
in such jurisdictions;
(g) a copy of the Corporation's Articles of Incorporation, including
all amendments thereto, certified as of a recent date by the Secretary of State
of the State of Tennessee;
25
(h) evidence, reasonably satisfactory to the Buyer, of the authority
and incumbency of the persons acting on behalf of the Corporation in connection
with the execution of any document delivered in connection with this Agreement;
(i) Uniform Commercial Code Search Reports on Form UCC-11 with
respect to the Corporation from the states and local jurisdictions where the
principal places of business of the Corporation and its assets are located;
(j) a certificate of each of the Sellers as to such Seller's
non-foreign status in appropriate form;
(k) the corporate minute books and stock record books of the
Corporation, and all other books and records of, or pertaining to, the business
and operations of the Corporation;
(l) estoppel letter[s] of lender[s] to the Corporation, in form and
substance reasonably satisfactory to the Buyer, with respect to amounts owing by
the Corporation as of the Closing; and
(m) such other instruments and documents as the Buyer shall
reasonably request not inconsistent with the provisions hereof.
7.4 Approval of Legal Matters. The form of all instruments, certificates
and documents to be executed and delivered by the Sellers to the Buyer pursuant
to this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Buyer and its counsel, none
of whose approval shall be unreasonably withheld or delayed.
7.5 No Litigation. No action, suit or other proceeding shall be pending or
threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages in respect thereof,
or involving a claim that consummation thereof would result in the violation of
any law, decree or regulation of any governmental authority having appropriate
jurisdiction, and no order, decree or ruling of any governmental authority or
court shall have been entered challenging the legality, validity or propriety
of, or otherwise relating to, this Agreement or the transactions contemplated
hereby, or prohibiting, restraining or otherwise preventing the consummation of
the transactions contemplated hereby.
7.6 No Material Adverse Change or Undisclosed Liability. There shall have
been no material adverse change or development in the business, prospects,
properties, earnings, results of operations or financial condition of the
Corporation, or any of its assets.
7.7 No Adverse Laws. There shall not have been enacted, adopted or
promulgated any statute, rule, regulation or order which materially adversely
affects the business or assets of the Corporation.
26
7.8 Affiliate Transactions. All amounts owing to the Corporation from the
Sellers or any Affiliate thereof shall have been paid in full and any
indebtedness of the Corporation to the Sellers or their Affiliates shall have
been canceled by the holder(s) thereof. Title to the Real Property, as well as
all related mortgage indebtedness of the Corporation with respect to the Real
Property, shall have been transferred to the Sellers with no continuing
liability or obligation of the Corporation with respect thereto.
7.9 Pledge Agreement. The Sellers shall have duly executed and delivered
to the Buyer the Pledge Agreement and the Pledged Shares thereunder.
7.10 Execution of Dealership Leases. The Sellers shall have duly delivered
to the Corporation and the Buyer the Dealership Leases, duly executed by the
respective lessors thereunder, each with a corresponding memorandum of lease in
a form suitable for recording.
7.11 Non-Competition Agreement. The Sellers shall have duly executed and
delivered to the Buyer and the Corporation the Non-Competition Agreement.
7.12 Cancellation of Stock Options. All outstanding options, warrants,
"phantom" stock options and other plans, agreements or arrangements of the
Corporation with respect to the purchase, or the issuance of, any capital stock
or other securities of the Corporation shall have been canceled and terminated
prior to the Closing at no expense to the Buyer, and the Buyer shall have
received reasonably satisfactory evidence thereof.
7.13 Audited Financial Statements. The Buyer shall have completed
preparation of such audited financial statements of the Corporation as may be
required by applicable regulations of the Securities and Exchange Commission or
by any of the Buyer's lenders.
7.14 Hart-Scott-Rodino Waiting Period. All applicable waiting periods
under the HSR Act shall have expired without any indication by the Antitrust
Division or the Federal Trade Commission that either of them intends to
challenge the transactions contemplated hereby or, if any such challenge or
investigation is made or commenced, the conclusion of such challenge or
investigation permits the transactions contemplated hereby in all material
respects.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF THE SELLERS AT THE CLOSING
The obligations of the Sellers to perform this Agreement at the Closing
are subject to the satisfaction at or prior to the Closing of the following
conditions, unless waived in writing by the Sellers:
8.1 Representations and Warranties. The representations and warranties
made by the Buyer in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing as
though made at and as of the Closing.
8.2 Performance of Obligations of the Buyer. The Buyer shall have
performed all
27
obligations required to be performed by it under this Agreement, and complied
with all covenants for which compliance by it is required under this Agreement,
prior to or at the Closing.
8.3 Closing Documentation. The Sellers shall have received the following
documents, agreements and instruments from the Buyer:
(a) a certificate signed by a duly authorized signatory of the Buyer
and dated as of the Closing Date certifying as to the satisfaction of the
conditions set forth in Sections 8.1 and 8.2 hereof;
(b) payment of the Purchase Price pursuant to Section 1.2 hereof;
(c) an opinion of Parker, Poe, Adams & Bernstein L.L.P., counsel for
the Buyer, dated as of the Closing Date and addressed to the Sellers, in form
and substance reasonably acceptable to the Sellers;
(d) such resolutions of the Buyer, as sole shareholder of the
Corporation, and the directors of the Corporation electing directors and
appointing officers, respectively, of the Corporation, effective upon the
Closing;
(e) certificates dated as of a recent date from the Secretary of
State of the State of Delaware to the effect that the Buyer is duly incorporated
and in good standing in such state;
(f) a copy of the Buyer's Certificate of Incorporation, including
all amendments thereto, certified by the Secretary of State of the State of
Delaware;
(g) evidence, reasonably satisfactory to the Sellers, of the
authority and incumbency of the persons acting on behalf of the Buyer in
connection with the execution of any document delivered in connection with this
Agreement; and
(h) such other instruments and documents as the Sellers shall
reasonably request not inconsistent with the provisions hereof.
8.4 Approval of Legal Matters. The form of all certificates, instruments
and documents to be executed or delivered by the Buyer to the Sellers pursuant
to this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Sellers and their counsel,
none of whose approval shall be unreasonably withheld or delayed.
8.5 No Litigation. No action, suit or other proceeding shall be pending or
threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain substantial damages in
respect thereof, or involving a claim that consummation thereof would result in
the violation of any law, decree or regulation of any governmental authority
having appropriate jurisdiction, and no order, decree or ruling of any
governmental authority or court
28
shall have been entered challenging the legality, validity or propriety of, or
otherwise relating to, this Agreement or the transactions contemplated hereby,
or prohibiting, restraining or otherwise preventing the consummation of the
transactions contemplated hereby.
8.6 Dealership Leases. The Corporation shall have duly executed and
delivered to the Sellers the Dealership Leases.
8.7 Pledge Agreement. The Buyer shall have duly executed and delivered the
Pledge Agreement.
8.8 Liquidity Agreement. O. Bruton Smith shall have executed and delivered
to the Sellers the Liquidity Agreement.
8.9 Hart-Scott-Rodino Waiting Period. All applicable waiting periods under
the HSR Act shall have expired without any indication of the Antitrust Division
or the Federal Trade Commission that either of them intends to challenge the
transactions contemplated hereby, or, if any such challenge or investigation is
made or commenced, the conclusion of such challenge or investigation permits the
transactions contemplated hereby in all material respects.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION, ETC.
9.1 Survival. All statements contained in any Schedule or certificate
delivered hereunder or in connection herewith by or on behalf of any of the
parties pursuant to this Agreement shall be deemed representations and
warranties by the respective parties hereunder unless otherwise expressly
provided herein. The representations and warranties of the Sellers and the Buyer
contained in this Agreement, including those contained in any Schedule or
certificate delivered hereunder or in connection herewith, shall survive the
Closing for a period of two years with the exception of (i) the representations
and warranties of the Sellers contained in Section 3.21, which shall survive the
Closing until the expiration of the applicable tax statutes of limitation plus a
period of sixty (60) days, and (ii) the representations and warranties of the
Sellers contained in Sections 3.11, 3.19 and 3.36, which shall survive the
Closing for a period of five years. As to each representation and warranty of
the parties hereto, the date to which such representation and warranty shall
survive is hereinafter referred to as the "Survival Date".
9.2 Agreement to Indemnify by Sellers. Subject to the terms and conditions
of Sections 9.4 and 9.5 hereof, the Sellers hereby, severally with respect to
the breach, inaccuracy or untruth of any of the matters set forth in Sections
3.1 through 3.6 hereof, and jointly and severally with respect to all other
matters set forth in this Agreement, agree to indemnify and save the Buyer, the
Corporation and their respective shareholders, officers, directors, employees,
successors and assigns (each, a "Buyer Indemnitee") harmless from and against,
for and in respect of, any and all damages, losses, obligations, liabilities,
demands, judgments, injuries, penalties, claims, actions or causes of action,
encumbrances, costs, and expenses (including, without limitation, reasonable
attorneys' fees and expert witness fees), suffered, sustained, incurred or
required to be paid by any Buyer Indemnitee (collectively, "Buyer's Damages")
29
arising out of, based upon, in connection with, or as a result of:
(a) the untruth, inaccuracy or breach of any representation and
warranty of the Sellers contained in or made pursuant to this Agreement,
including in any Schedule or certificate delivered hereunder or in connection
herewith, excluding any breach of representation and warranty contained in
Section 3.19; provided, however, that with respect to the foregoing
indemnification obligation of the Sellers contained in this paragraph (a), the
Sellers shall not have any indemnification obligation until (and only to the
extent that) Buyer's Damages in respect of all claims for indemnity pursuant to
this paragraph (a) shall exceed a cumulative aggregate total of $150,000;
(b) the untruth, inaccuracy or breach of any representation and
warranty of the Sellers contained in or made pursuant to Section 3.19, including
in any Schedule or certificate delivered hereunder in connection therewith;
(c) the breach or nonfulfillment of any covenant or agreement of any
Seller contained in this Agreement or in any other agreement, document or
instrument delivered hereunder or pursuant hereto;
(d) any loss of life, injury to persons or property, or damage to
natural resources caused by the actual, alleged, or threatened release, storage,
transportation, treatment or generation of or exposure to Hazardous Materials
generated, stored, used, disposed of, treated, handled or shipped by the
Corporation or present on the Real Property on or before the Closing Date;
(e) any cleanup of Hazardous Materials released, disposed of or
discharged: (i) on, beneath or adjacent to the Real Property prior to or on the
date of the Closing; or (ii) at any other location if such substances were
generated, used, stored, treated, transported or released by the Corporation
prior to or on the Closing Date;
(f) all known or unknown environmental liabilities of and claims
against the Corporation or any such liabilities and claims arising out of the
operation of the business or ownership of the Real Property prior to the
Closing, including, without limitation, the presence, release or threatened
release of Hazardous Materials and any liabilities or obligations arising under
any Environmental Law, including but not limited to the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), as amended;
(g) any and all costs of installing pollution control equipment or
other equipment to bring any of the Real Property into compliance with any
Environmental Law if such equipment is installed because any of the Real
Property was not in compliance with any Environmental Laws as of the date of the
Closing, regardless of when such non-compliance is discovered; or
(h) any and all Taxes owing out of or based upon the ownership, use
and operation of the Owned Real Property before or after the Closing (other than
any Taxes which are the obligation of the Buyer under the Dealership Leases) or
the distribution by the Corporation of the Owned Real Property contemplated in
Section 1.2(c)(1).
30
With respect to the Sellers' obligations to pay Buyer's Damages
pursuant to Section 9.2 of this Agreement, the Buyer shall be entitled (but
shall not be obligated) to make demand for delivery of Escrow Shares under the
Escrow Agreement.
9.3 Agreement to Indemnify by Buyer. Subject to the terms and conditions
of Sections 9.4 and 9.5 hereof, the Buyer hereby agrees to indemnify and save
the Sellers and their successors and assigns (each, a "Seller Indemnitee")
harmless from or against, for and in respect of, any and all damages, losses,
obligations, liabilities, demands, judgments, injuries, penalties, claims,
actions or causes of action, encumbrances, costs, and expenses (including,
without limitation, reasonable attorneys' fees and expert witness fees)
suffered, sustained, incurred or required to be paid by any Seller Indemnitee
("Sellers' Damages") arising out of, based upon or in connection with or as a
result of:
(a) the untruth, inaccuracy or breach of any representation and
warranty of the Buyer contained in or made pursuant to this Agreement, including
in any Schedule or certificate delivered hereunder or in connection herewith;
(b) the breach or nonfulfillment of any covenant or agreement of the
Buyer contained in this Agreement or in any other agreement, document or
instrument delivered hereunder or pursuant hereto;
(c) any loss of life, injury to persons or property, or damage to
natural resources caused by the actual, alleged, or threatened release, storage,
transportation, treatment or generation of or exposure to Hazardous Materials
generated, stored, used, disposed of, treated, handled or shipped by the
Corporation after the Closing Date;
(d) any cleanup of Hazardous Materials released, disposed of or
discharged: (i) on, beneath or adjacent to the Real Property after the date of
the Closing; or (ii) at any other location if such substances were generated,
used, stored, treated, transported or released by the Corporation after the
Closing Date;
(e) all known or unknown environmental liabilities of and claims
against the Corporation or any such liabilities and claims arising out of
operation of the business after the Closing, including, without limitation, the
presence, release or threatened release of Hazardous Materials and any
liabilities or obligations arising under any Environmental Law, including but
not limited to the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), as amended; or
(f) any and all costs of installing pollution control equipment or
other equipment in order to bring any of the Real Property into compliance with
any Environmental Laws if such equipment is installed because any of the Real
Property is not in compliance with applicable Environmental Laws during the
Buyer's operation on or occupancy of the Real Property; provided, however, that
this indemnification does not apply to (i) any such noncompliance of any of the
Real Property as of the date of Closing, regardless of when such noncompliance
is discovered, or (ii) any such noncompliance that is otherwise attributable to
the acts or omissions of the Sellers or their agents.
31
9.4 Claims for Indemnification. No claim for indemnification with respect
to a breach of a representation and warranty shall be made under this Agreement
after the applicable Survival Date unless prior to such Survival Date the Buyer
Indemnitee or the Seller Indemnitee, as the case may be, shall have given the
Sellers or the Buyer, as the case may be, written notice of such claim for
indemnification based upon actual loss sustained, or potential loss anticipated,
as a result of the existence of any claim, demand, suit, or cause of action
against such Buyer Indemnitee or Seller Indemnitee, as the case may be.
9.5 Procedures Regarding Third Party Claims. The procedures to be followed
by the Buyer and the Sellers with respect to indemnification hereunder regarding
claims by third persons which could give rise to an indemnification obligation
hereunder shall be as follows:
(a) Promptly after receipt by any Buyer Indemnitee or Seller
Indemnitee, as the case may be, of notice of the commencement of any action or
proceeding (including, without limitation, any notice relating to a tax audit)
or the assertion of any claim by a third person which the person receiving such
notice has reason to believe may result in a claim by it for indemnity pursuant
to this Agreement, such person (the "Indemnified Party") shall give a written
notice of such action, proceeding or claim to the party against whom
indemnification pursuant hereto is sought (the "Indemnifying Party"), setting
forth in reasonable detail the nature of such action, proceeding or claim,
including copies of any documents and written correspondence from such third
person to such Indemnified Party.
(b) The Indemnifying Party shall be entitled, at its own expense, to
participate in the defense of such action, proceeding or claim, and, if (i) the
action, proceeding or claim involved seeks (and continues to seek) solely
monetary damages, (ii) the Indemnifying Party confirms, in writing, its
obligation hereunder to indemnify and hold harmless the Indemnified Party with
respect to such damages in their entirety pursuant to Sections 9.2 or 9.3
hereof, as the case may be, and (iii) the Indemnifying Party shall have made
provision which, in the reasonable judgment of the Indemnified Party, is
adequate to satisfy any adverse judgment as a result of its indemnification
obligation with respect to such action, proceeding or claim, then the
Indemnifying Party shall be entitled to assume and control such defense with
counsel chosen by the Indemnifying Party and approved by the Indemnified Party,
which approval shall not be unreasonably withheld or delayed. The Indemnified
Party shall be entitled to participate therein after such assumption, the costs
of such participation following such assumption to be at its own expense. Upon
assuming such defense, the Indemnifying Party shall have full rights to enter
into any monetary compromise or settlement which is dispositive of the matters
involved; provided, that such settlement is paid in full by the Indemnifying
Party and will not have any direct or indirect continuing material adverse
effect upon the Indemnified Party.
(c) With respect to any action, proceeding or claim as to which (i)
the Indemnifying Party does not have the right to assume the defense or (ii) the
Indemnifying Party shall not have exercised its right to assume the defense, the
Indemnified Party shall assume and control the defense of and contest such
action, proceeding or claim with counsel chosen by it and approved by the
Indemnifying Party, which approval shall not be unreasonably withheld. The
Indemnifying Party shall be entitled to participate in the defense of such
action, proceeding or claim, the cost of such participation to be at its own
expense. The Indemnifying Party shall be obligated to pay the reasonable
attorneys' fees and expenses of the Indemnified Party to the
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extent that such fees and expenses relate to claims as to which indemnification
is due under Sections 9.2 or 9.3 hereof, as the case may be. The Indemnified
Party shall have full rights to dispose of such action, proceeding or claim and
enter into any monetary compromise or settlement; provided, however, in the
event that the Indemnified Party shall settle or compromise any action,
proceeding or claim for which indemnification is due under Sections 9.2 or 9.3
hereof, as the case may be, it shall act reasonably and in good faith in doing
so.
(d) Both the Indemnifying Party and the Indemnified Party shall
cooperate fully with one another in connection with the defense, compromise or
settlement of any such action, proceeding or claim, including, without
limitation, by making available to the other all pertinent information and
witnesses within its control.
9.6 Effectiveness. The provisions of this Article 9 shall be effective
upon consummation of the Closing, and prior to the Closing, shall have no force
and effect.
9.7 Access to Information. In order to facilitate the resolution of any
claims for indemnification under this Article 9, each of the parties hereto
shall, after the Closing: (a) afford to the other parties hereto, and their
authorized agents and representatives, reasonable access, during normal business
hours, to the offices, properties, books and records of such party; and (b)
furnish to the other parties hereto, and their authorized agents and
representatives, such additional financial and other information as may be
relevant to the matter in dispute; provided, however, that such access shall not
unreasonably interfere with the business or operations of the party providing
such access and, provided, further, that no party hereunder shall be obligated
to disclose any information which it holds under a legally binding obligation of
confidentiality or which is protected by any privilege.
9.8 Certain Limitations on Indemnification. The indemnification
obligations of any party hereto shall be offset by any net reduction of federal
and state income tax that may reasonably be expected by reason of the respective
Buyer's Damages or Sellers' Damages, as the case may be, after taking into
account the amount of the indemnification received by such party. Furthermore,
in the case of indemnification by the Sellers, the amount of any reserve or
liability reflected on the Closing Balance Sheet with respect to the item of
Buyer's Damages involved shall be deducted in the calculation of such Buyer's
Damages.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision herein contained to
the contrary, this Agreement may be terminated at any time prior to the Closing
Date:
(a) by the written mutual consent of the Buyer and the Sellers;
(b) At any time after the Closing Date Deadline, by written notice
by the Buyer or the Sellers to the other party(ies) hereto if the Closing shall
not have been completed on or before the Closing Date Deadline; provided,
however, no party may terminate this Agreement pursuant to this Section 10.1(b)
if such party is in breach of any material representation,
33
warranty or covenant of such party contained in this Agreement;
(c) By the Buyer or the Sellers if, after any initial HSR Act
filing, the FTC makes a "second request" for information, or the FTC or the
Antitrust Division challenges the transactions contemplated hereby; provided,
that the Buyer or the Sellers' Agent, as the case may be, delivers a written
notice to the other party(ies) of such termination hereunder within 30 days of
the Buyer's or Sellers' receipt of such second request or of notice of such
challenge;
(d) By the Buyer or the Sellers' Agent, by written notice to the
other party(ies) hereto, in the event that approval by Honda (or any subsidiary
or affiliate of Honda, as may be required) of the transactions contemplated by
this Agreement is not received on or prior to the Closing Date Deadline;
provided, however, if this Agreement shall be terminated by the Sellers' Agent
pursuant to this clause (d), the Buyer may nevertheless elect to close the
transactions contemplated hereby by giving the Sellers' Agent written notice of
such election within five (5) Business Days of the receipt of such termination
notice by the Sellers' Agent, in which case the parties shall be obligated to
close the transactions contemplated hereby within five (5) Business Days of the
receipt by the Sellers' Agent of such notice of election by the Buyer; or
(e) By the Buyer within 30 days after ______________ if, and only
if, the Buyer is not satisfied, in its discretion, with the results of the
Buyer's due diligence investigations contemplated by Section 5.1(a) hereof.
10.2 Procedure and Effect of Termination. In the event of termination
pursuant to Section 10.1, this Agreement shall be of no further force or effect;
provided, however, that, except as expressly set forth below, any termination
pursuant to Section 10.1 shall not relieve (i) the Buyer of any liability under
Section 10.3 below or of any obligation under Section 12.14 below, (ii) the
Sellers of any liability under Section 10.4 below, or (iii) any party hereto of
any liability for breach of any representation and warranty, covenant or
agreement hereunder occurring prior to such termination. In addition, in the
event of any such termination, all filings, applications and other submissions
made pursuant to this Agreement or prior to the execution of this Agreement in
contemplation thereof shall, to the extent practicable, be withdrawn from the
agency or other entity to which made. Except as specifically provided in Section
10.5 below, nothing contained in this Agreement shall prevent any party from
seeking any equitable relief to which it would otherwise be entitled in the
event of breach by the other party.
10.3 Payment of Buyer's Termination Fee . If this Agreement is terminated
by the Sellers pursuant to Section 10.1(b) above and the failure to complete the
Closing on or before the Closing Date Deadline shall have been due to the
Buyer's breach of its material representations and warranties or its material
covenants or obligations under this Agreement, then the Buyer shall, upon demand
of the Sellers, promptly pay to the Sellers in immediately available funds, as
liquidated damages for the loss of the transaction, a termination fee of
$1,000,000 (the "Buyer's Termination Fee").
10.4 Payment of Sellers' Termination Fee. If this Agreement is terminated
by the Buyer pursuant to Section 10.1(b) above and the failure to complete the
Closing on or before the Closing Date Deadline shall have been due to the
Sellers' breach of any of their material
34
representations and warranties or any of their material covenants or obligations
under this Agreement, then the Sellers, jointly and severally, shall, upon
demand of the Buyer, promptly pay to the Buyer in immediately available funds,
as liquidated damages for the loss of the transaction, a termination fee of
$1,000,000 (the "Sellers' Termination Fee").
10.5 Termination Fees Exclusive Remedies for Damages. The respective
rights of the parties to terminate this Agreement under Section 10.1(b) and to
be paid the Sellers' Termination Fee or the Buyer's Termination Fee, as the case
may be, shall be the respective parties' sole and exclusive remedies for
damages; in the event of such termination by either party, such party shall have
no right to equitable relief for any breach or alleged breach of this Agreement,
other than for specific performance for the payment of the Sellers' Termination
Fee or the Buyers' Termination Fee, as the case may be. Nothing contained in
this Section 10.5 shall prevent any party hereto from electing not to terminate
this Agreement and seeking equitable relief, including specific performance,
from any breaching party hereunder.
ARTICLE 11
CERTAIN TAXES AND EXPENSES
11.1 Certain Taxes and Expenses.
(a) All sales, use, transfer, intangible, excise, documentary stamp,
recording, gross income, gross receipts and other similar taxes or fees which
may be due or payable in connection with the consummation of the transactions
contemplated hereby shall be paid by the Sellers.
(b) Except as otherwise herein provided, the Sellers and the Buyer
shall be responsible for the payment of their respective fees, costs and
expenses incurred in connection with the negotiation and consummation of the
transactions contemplated hereby and shall not be liable to the other party or
parties for the payment of any such fees, costs and expenses.
ARTICLE 12
MISCELLANEOUS
12.1 Certain Tax Returns. The Sellers shall cooperate with and provide
assistance to the Buyer and the Corporation in connection with the preparation
and filing of all federal, state, local and foreign income tax returns which
relate to the Corporation and to periods prior to Closing but which are not
required to be filed until after the Closing.
12.2 Parties in Interest; No Third-Party Beneficiaries. Subject to Section
12.4 hereof, this Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the respective successors and assigns of the parties hereto.
Nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon or give to any employee of the Corporation or the
Buyer, or any other person, firm, corporation or legal entity, other than the
parties hereto and their successors and assigns, any rights, remedies or other
benefits under or by
35
reason of this Agreement.
12.3 Entire Agreement; Amendments. This Agreement (including all Exhibits
and Schedules hereto) and the other writings referred to herein or delivered
pursuant hereto contain the entire understanding of the parties hereto with
respect to its subject matter. There are no representations, promises,
warranties, covenants or undertakings other than as expressly set forth herein
or therein. This Agreement supersedes all prior agreements and understandings
between the parties hereto with respect to its subject matter. This Agreement
may be amended or modified only by a written instrument duly executed by the
parties hereto.
12.4 Assignment. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties; provided,
however, the Buyer may assign its rights and obligations hereunder to any
Affiliate of the Buyer presently existing or hereafter formed and to any person
or entity that shall acquire all or substantially all of the assets of the Buyer
or the Corporation; provided, further, that no such assignment shall release the
Buyer from its obligations hereunder without the consent of the Sellers. Nothing
contained in this Agreement shall prohibit its assignment by the Buyer as
collateral security and the Sellers and the Corporation hereby agree to execute
any acknowledgment of such assignment by the Buyer as may be required by any
lender to the Buyer.
12.5 Remedies. Except as expressly provided in this Agreement to the
contrary, each of the parties to this Agreement is entitled to all remedies in
the event of breach provided at law or in equity, specifically including, but
not limited to, specific performance.
12.6 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.7 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by telecopier or by a nationally recognized overnight
courier, postage prepaid, and shall be deemed to have been duly given when so
delivered personally or one (1) business day after the date of transmission by
telecopier or the date of deposit with such nationally recognized overnight
courier. All such notices, claims, certificates, requests, demands and other
communications shall be addressed to the respective parties at the addresses set
forth below or to such other address as the person to whom notice is to be given
may have furnished to the others in writing in accordance herewith.
If to the Buyer, to:
Sonic Automotive, Inc.
5401 E. Independence Boulevard
Charlotte, North Carolina 28212
Telecopy: (704) 536-5116
Attention: Theodore M. Wright, Chief Financial Officer
36
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopy (704) 334-4706
Attention: Edward W. Wellman, Jr., Esq.
If to the Sellers, to:
Mr. Freeman Smith, as Seller's Agent
c/o Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
603 Chestnut Street
Chattanooga, Tennessee 37450
Telecopy: (423) 756-3447
Attention: Richard B. Gossett, Esq.
12.8 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
12.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee, without giving effect to its
rules governing conflict of laws.
12.10 Waivers. Any party to this Agreement may, by written notice to the
other parties hereto, waive any provision of this Agreement from which such
party is entitled to receive a benefit. The waiver by any party hereto of a
breach by another party of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach by such other party of such
provision or any other provision of this Agreement.
12.11 Severability. In the event that any provision, or part thereof, in
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions, or parts
thereof, shall not in any way be affected or impaired thereby.
12.12 Knowledge. Whenever any representation or warranty of any Seller
contained herein (other than the representations and warranties set forth in
Sections 3.1 through 3.6 hereof) or in any other document executed and delivered
in connection herewith is based upon the knowledge of such Seller, (i) such
knowledge shall be deemed to include (A) the best actual knowledge, information
and belief of any of the Sellers and (B) any information which any Seller would
reasonably be expected to be aware of in the prudent discharge of his or her
duties in the ordinary course of business (including consultation with legal
counsel) on behalf of the Corporation, and (ii) the knowledge of any Seller
shall be deemed to be the knowledge of all of the Sellers.
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12.13 Jurisdiction; Arbitration.
(a) Subject to the other provisions of this Section 12.13, any
judicial proceeding brought with respect to this Agreement must be brought in
any court of competent jurisdiction in the State of Tennessee, and, by execution
and delivery of this Agreement, each party (i) accepts, generally and
unconditionally, the exclusive jurisdiction of such courts and any related
appellate court, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement, and (ii) irrevocably waives any
objection it may now or hereafter have as to the venue of any such suit, action
or proceeding brought in such court or that such court is an inconvenient forum.
(b) Any dispute, claim or controversy arising out of or relating to
this Agreement (except for accounting matters provided for in Section 1.2(c)
hereto), or the interpretation or breach hereof (including, without limitation,
any of the foregoing based upon a claim to any termination fee hereunder), shall
be resolved by binding arbitration under the commercial arbitration rules of the
American Arbitration Association (the "AAA Rules") to the extent such AAA Rules
are not inconsistent with this Agreement. Judgment upon the award of the
arbitrators may be entered in any court having jurisdiction thereof or such
court may be asked to judicially confirm the award and order its enforcement, as
the case may be. The demand for arbitration shall be made by any party hereto
within a reasonable time after the claim, dispute or other matter in question
has arisen, and in any event shall not be made after the date when institution
of legal proceedings, based on such claim, dispute or other matter in question,
would be barred by the applicable statute of limitations. The arbitration panel
shall consist of three (3) arbitrators, one of whom shall be appointed by each
party hereto within thirty (30) days after any request for arbitration
hereunder. The two arbitrators thus appointed shall choose the third arbitrator
within thirty (30) days after their appointment; provided, however, that if the
two arbitrators are unable to agree on the appointment of the third arbitrator
within 30 days after their appointment, either arbitrator may petition the
American Arbitration Association to make the appointment. The place of
arbitration shall be Atlanta, Georgia. The arbitrators shall be instructed to
render their decision within sixty (60) days after their selection and to
allocate all costs and expenses of such arbitration (including legal and
accounting fees and expenses of the respective parties) to the parties in the
proportions that reflect their relative success on the merits (including the
successful assertion of any defenses).
(c) Nothing contained in this Section 12.13 shall (i) prevent any
party hereto from seeking any equitable relief to which it would otherwise be
entitled from a court of competent jurisdiction, or (ii) prevent the Buyer from
enforcing its rights under the Non-Competition Agreement in the State of North
Carolina.
12.14 Confidentiality. The Buyer agrees that it will keep confidential and
not disclose without the prior written consent of the Sellers' Agent, and will
not use for any reason other than the conduct of its due diligence
investigations contemplated by Section 5.1 of this Agreement, all confidential
information received from the Sellers or the Corporation. As used in this
Section 12.14, the term "confidential information" shall mean all information
regarding the Corporation's business which the Corporation takes reasonable
measures to treat as confidential, but does not include (i) information which
is, or becomes, generally available to the public other
38
than due to an act or omission of the Buyer, (ii) information which is, or
becomes, available to the Buyer on a non-confidential basis from a source other
than the Sellers or the Corporation, provided that such source is not bound by a
confidentiality agreement with the Sellers or the Corporation, or (iii) was
already known by the Buyer at the time of the receipt thereof. The provisions of
this Section 12.14 shall survive the termination of this Agreement.
[Remainder of this Page Intentionally Blank - Signatures Next Page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
SONIC AUTOMOTIVE, INC.
By: /s/ O. Bruton Smith
----------------------------------------
Name: O. Bruton Smith
Title: Chief Executive Officer
/s/ Freeman Smith
--------------------------------------------
Name: Freeman Smith
/s/ Melvin Q. Smith
--------------------------------------------
Name: Melvin Q. Smith
/s/ James M. Holland
--------------------------------------------
Name: James M. Holland
40
EXHIBITS
Exhibit A - List of Sellers
Exhibit B - Form of Pledge Agreement
Exhibit C-1 - Statement of Rights and Preferences of Preferred Stock
Exhibit C-2 - Form of Liquidity Agreement
Exhibit D - Form of Dealership Leases
Exhibit E - Form of Non-Competition Agreement
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SCHEDULES
Schedule 3.2(b) Consents and Approvals for the Sellers
Schedule 3.5 Interest in other Entities
Schedule 3.7 Qualification
Schedule 3.8 Capitalization
Schedule 3.10 No Violation; Conflicts
Schedule 3.11 Encumbrances
Schedule 3.13 Financial Statements
Schedule 3.14 Accounts Receivable
Schedule 3.15 Inventories
Schedule 3.16(b) Leased Premises
Schedule 3.16(c) Easements, Condemnation
Schedule 3.16(d) Zoning, Etc.
Schedule 3.16(e) Owned Equipment
Schedule 3.16(f) Leased Equipment
Schedule 3.16(g) Maintenance of Equipment
Schedule 3.17 Intellectual Property
Schedule 3.18 Certain Liabilities
Schedule 3.19 No Undisclosed Liabilities
Schedule 3.20 Absence of Changes
Schedule 3.21 Tax Matters
Schedule 3.22 Compliance with Laws
Schedule 3.23 Litigation Regarding Corporation
Schedule 3.24 Permits, Etc.
Schedule 3.25 Employees; Labor Relations
Schedule 3.26 Compensation
Schedule 3.27 Employee Benefits
Schedule 3.28 Powers of Attorney
Schedule 3.29(a) Material Agreements
Schedule 3.29(b) Required Consents for Transfers of Material Agreements
Schedule 3.31 Bank Accounts, Credit Cards and Safe Deposit Boxes
Schedule 3.32(a) Insurance Policies
Schedule 3.32(b) Property Damage and Personal Injury Claims
Schedule 3.33 Warranties
Schedule 3.34 Directors and Officers
Schedule 3.36 Environmental Matters
Schedule 4.2(b) Consents and Approvals for the Buyer
Schedule 5.5 Certain Dividends
42