EXHIBIT 99.1
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT ("Agreement") is made and entered into as of the
2nd day of June, 2005, by and among HOMETOWN AUTO RETAILERS, INC. (the
"Company"), a Delaware corporation with an office and place of business at 1309
South Main Street, Waterbury, Connecticut 06706; ERR ENTERPRISES, INC., ("ERR"),
FAMILY FORD, INC. ("Family Ford"), SHAKER'S, INC. ("Shaker's"), SHAKER'S
LINCOLN/MERCURY AUTO CARE, INC. ("Shaker's Lincoln/Mercury"), HOMETOWN
BRATTLEBORO, INC. ("Hometown Brattleboro"), HOMETOWN AUTO FRAMINGHAM, INC.
("Hometown Framingham") BAY STATE REALTY HOLDINGS, INC. ("Bay State") and
BRATTLEBORO REALTY HOLDINGS, INC. ("Brattleboro") (collectively the "New England
Subsidiaries"), and the INDIVIDUALS LISTED ON EXHIBIT A attached hereto who are
shareholders of Hometown and who are members of the Shaker family (the "Shaker
Group").
WHEREAS, the Company sells new and used cars and light trucks, provides
maintenance and repair services, sells replacement parts, and provides related
financing, insurance and service contracts through franchised dealerships
located in New Jersey, New York, Connecticut, Massachusetts and Vermont which
sell American and Asian automotive brands, including Ford, Chrysler/Dodge/Jeep,
Lincoln/Mercury, Mazda, Toyota and Chevrolet; and
WHEREAS, the Company desires to transfer its business operations and real
estate holdings located in the States of Connecticut, Massachusetts and Vermont,
and to simultaneously assign the franchises relating to those business
operations and real estate holdings, to the Shaker Group in exchange for all of
their outstanding shares of common stock of the Company; and
WHEREAS, the Company shall establish a Connecticut corporation called
Shaker Auto Group, Inc. ("Shaker Auto Group") and shall transfer all of the
shares of stock of the New England Subsidiaries, plus cash (in the amount
determined herein) to Shaker Auto Group in exchange for all of the outstanding
shares of common stock of Shaker Auto Group, and immediately thereafter the
Company shall transfer all of the outstanding shares of common stock of Shaker
Auto Group to the Shaker Group in exchange for all of their shares of common
stock of the Company, subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the representations, warranties and
mutual promises contained herein, the parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Assumed Liabilities" -- present obligations of the Company that Shaker Auto
Group will assume and take assignment. Such obligations are more particularly
set forth on the Balance Sheet described in Section 2.4. Shaker Auto Group shall
not assume any obligation not identified on the Balance Sheet.
"Balance Sheet" - statement of financial position listing assets owned and
liabilities owed as of a specific date, as described in Section 2.4.
"Best Efforts"-- the efforts that a prudent Person desiring to achieve a result
would use in similar circumstances to ensure that such result is achieved as
expeditiously as possible; provided, however, that an obligation to use Best
Efforts under this Agreement does not require the Person subject to that
obligation to take actions that would result in a materially adverse change in
the benefits to such Person of this Agreement and the Contemplated Transactions.
"Breach"-- a "Breach" of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"Chevrolet" -- General Motors Corporation Chevrolet Division.
"Chrysler/Dodge/Jeep" - DaimlerChrysler.
"Closing" -- as defined in Section 2.3
"Closing Date"-- the date and time as of which the Closing actually takes place.
"Contemplated Transactions"-- all of the transactions contemplated by this
Agreement, including:
(a) the formation of Shaker Auto Group;
(b) the exchanges, transfers and adjustments as provided in Section 2.1
and Section 2.2; and
-2-
(c) the performance by the Company and the Shaker Group of their
respective covenants and obligations under this Agreement.
"Contract"-- any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"Ford" -- Ford Motor Company
"Franchises" - (a) the Ford franchise operated through ERR and its subsidiary,
Family Ford; (b) the Lincoln/Mercury franchise operated through ERR and its
subsidiary, Shaker's, Inc.; (c) the Auto Care franchise operated through ERR and
its subsidiary, Shaker's Lincoln/Mercury; (d) the Chrysler/Dodge/Jeep franchise
operated through Hometown Brattleboro; and (e) the Lincoln/Mercury and Mazda
franchises operated through Hometown Framingham (collectively referred to as the
"Franchises").
"GAAP"-- generally accepted United States accounting principles, applied on a
basis consistent with the basis on which the Company's Balance Sheet was
prepared.
"Legal Requirement"-- any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Lincoln/Mercury" - Ford Motor Company Lincoln Mercury Division.
"Mazda" - Mazda Motor of America, Inc.
"Order"-- any award, decision, injunction, judgment, order, ruling, subpoena, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other governmental body or by any arbitrator.
"Organizational Documents"-- (a) the articles or certificate of incorporation
and the bylaws of a corporation; (b) any charter or similar document adopted or
filed in connection with the creation, formation, or organization of a Person;
and (c) any amendment to any of the foregoing.
"Person"-- any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
governmental body.
"Proceeding"-- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any governmental body or arbitrator.
-3-
"Securities Exchange Act"-- the Securities Exchange Act of 1934 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"Transferred Assets" -- The assets which the New England Subsidiaries must own
at the time of the transfer of all of their shares of outstanding stock to
Shaker Auto Group. Such assets are more particularly set forth in Section 2.1.2.
The New England Subsidiaries shall not own any assets not identified in said
Section 2.1.2.
"Tax Return"-- any return (including any information return), report, statement,
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any governmental body in
connection with the determination, assessment, collection, or payment of any tax
or in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any tax.
"Threatened"-- a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing).
"Toyota" - Toyota Motor Sales USA, Inc.
"Working Capital" -- the amount of working capital of Shaker Auto Group as of
the date of Closing shall be the amount calculated by adding the amount of cash
plus Accounts Receivable plus New Motor Vehicles plus Rental Cars, plus Used
Motor Vehicles plus Parts and Accessories Inventory plus prepaid expenses plus
deposits, and then reducing that amount by floorplan notes payable, debt related
to Rental Cars, accounts payable and accrued expenses.
2. EXCHANGES; CLOSING
2.1 Transfer of New England Subsidiaries to Shaker Auto Group
2.1.1 Exchange of Stock. Subject to the terms and conditions
of this Agreement, on or prior to the Closing Date: (a) the Company shall,
assign, transfer, convey and deliver to Shaker Auto Group all of the Company's
right, title and interest in and to all of the outstanding shares of stock of
the New England Subsidiaries; and (b) the Company shall cause Shaker Auto Group
to transfer to the Company 2,604,236 shares of common stock of Shaker Auto Group
(representing all of the outstanding shares of common stock of Shaker Auto
Group).
-4-
In addition, subject to the terms and conditions of this
Agreement, on or prior to the Closing Date: (a) the Company shall cause Shaker
Auto Group to assign, transfer, convey and deliver to Hometown Brattleboro all
of Shaker Auto Group's right, title and interest in and to all of the
outstanding shares of stock of Brattleboro; (b) the Company shall cause Shaker
Auto Group to assign, transfer, convey and deliver to Hometown Framingham all of
Shaker Auto Group's right, title and interest in and to all of the outstanding
shares of stock of Bay State; (c) the Company shall, assign, transfer, convey
and deliver to Hometown Newburgh, Inc. all of the Company's right, title and
interest in and to all of the outstanding shares of stock of Newburgh Realty
Holding Co., Inc.; (d) the Company shall, assign, transfer, convey and deliver
to Hometown Newburgh, Inc. all of the Company's right, title and interest in and
to all of the outstanding shares of stock of Hometown New Windsor, Inc.; and (e)
the Company shall, assign, transfer, convey and deliver to Muller Chevrolet,
Oldsmobile, Isuzu, Inc. all of the Company's right, title and interest in and to
all of the outstanding shares of stock of Morristown Auto Sales, Inc.
2.1.2 Transferred Assets. On the Closing Date, the New England
Subsidiaries shall possess the full right, title and interest in and to all of
the following assets which are used by the New England Subsidiaries in
conducting their business operations, free and clear of all liens and
encumbrances; provided, however, that such assets shall remain subject to any
liabilities to which the New England Subsidiaries are already subject, and to
any liabilities which will be assumed by the New England Subsidiaries pursuant
to Section 2.1.6 (collectively, the "Transferred Assets"):
(a) Franchises. All of the Franchises.
(b) Furniture, Fixtures and Equipment. All machinery,
equipment, tools, supplies, leasehold improvements, furniture and
fixtures, factory brand signs, factory brand special tools, lifts,
compressors and front end alignment equipment, the computer system used by
the New England Subsidiaries (or by the Company with regard to the
operations of the New England Subsidiaries) to record its accounts
payable, accounts receivable and general ledger, the telephone system and
any other fixed assets owned by the New England Subsidiaries (or by the
Company with regard to the operations of the New England Subsidiaries)
(the "Furniture, Fixtures and Equipment") (as reflected on the Balance
Sheet described in Section 2.4).
(c) Intangible Assets; Books and Records. True and complete
copies of all of the New England Subsidiaries' business records, technical
data, asset ledgers, customer lists and records, supplier records,
telephone numbers, computer programs, correspondence and other files of
the New England Subsidiaries created or maintained in connection with
their business, the Franchises and the Transferred Assets (including
information in the Company's computer database in such electronic format
as will allow Shaker Auto Group to adapt such information for use in
Shaker Auto Group's computer system).
-5-
(d) New Motor Vehicles. Upon Shaker Auto Group's floor plan
lender paying off the Company's floor plan lender, the Company shall
transfer to Shaker Auto Group or its lender all "New Motor Vehicles,"
which shall be defined to mean all model Ford, Chrysler/Dodge/Jeep,
Lincoln/Mercury and Mazda motor vehicles owned by each of the New England
Subsidiaries (or by the Company with regard to the operations of the New
England Subsidiaries).
(e) Rental Cars. The Company shall transfer to Shaker Auto
Group all "Rental Cars" used in the business operations of Shaker Auto
Group and the New England Subsidiaries, subject to any debt related to the
"Rental Cars" that is on the books of the Company, the New England
Subsidiaries or any of the Company's other affiliates.
(f) Used Motor Vehicles. All of the New England Subsidiaries'
inventory of "Used Motor Vehicles", which shall be defined to mean any
used motor vehicles belonging to the New England Subsidiaries and held by
the New England Subsidiaries for resale and which shall have an aggregate
cost basis value of not more than Five Hundred Thousand ($500,000.00)
Dollars in excess of the floor plan amount at the time of Closing. The
value of any inventory of Used Motor Vehicles transferred that is in
excess of Five Hundred Thousand ($500,000.00) Dollars shall result in a
deduction from the payment to be made under Section 2.1.3 by the amount of
such excess. The value of any inventory of Used Motor Vehicles transferred
that is less than Five Hundred Thousand ($500,000.00) Dollars shall result
in an increase in the payment to be made under Section 2.1.3 by the amount
of such deficiency.
(g) Parts and Accessories. All of the New England
Subsidiaries' inventory of parts and accessories, which is defined to mean
any Ford, Chrysler/Dodge/Jeep, Lincoln/Mercury or Mazda parts and
accessories, including parts and accessories purchased from any of their
authorized manufacturers and/or third-party distributors (collectively,
the "Parts and Accessories Inventory"). The Parts and Accessories
Inventory shall have a cost basis value of not less than Five Hundred and
Fifteen Thousand ($515,000.00) Dollars. If the value of the Parts and
Accessories Inventory (as reflected on the Balance Sheet described in
Section 2.4) is in excess of Five Hundred and Fifteen Thousand
($515,000.00) Dollars, the excess shall be deducted from the payment to be
made under Section 2.1.3. If the value of the Parts and Accessories
Inventory (as reflected on the Balance Sheet described in Section 2.4) is
less than Five Hundred and Fifteen Thousand ($515,000.00) Dollars, the
deficiency shall be added to the payment to be made under Section 2.1.3.
(h) Accounts Receivable. All of the New England Subsidiaries'
Accounts Receivable, which is defined to mean all claims, accounts, notes
and loans receivable and any other rights to receive money for payment for
goods sold or leased or services rendered, or otherwise, including without
limitation all accounts, accounts receivable, contract rights, chattel
paper and instruments; provided, however, that any holdback monies not
collected by the New England Subsidiaries from the manufacturers at the
time of the Closing shall be excluded from Accounts Receivable. The
Accounts Receivable shall have a value of not less than the amount of the
accounts payable and accrued expenses assumed by Shaker Auto Group under
Section 2.1.6. If the value of the Accounts Receivable (as reflected on
the Balance Sheet described in Section 2.4) is greater than the amount of
the accounts payable and accrued expenses assumed by Shaker Auto Group
under Section 2.1.6, the excess will be deducted from the payment to be
made under Section 2.1.3. If the value of the Accounts Receivable (as
reflected on the Balance Sheet described in Section 2.4) is less than the
amount of the accounts payable and accrued expenses assumed by Shaker Auto
Group under Section 2.1.6, such deficiency shall be added to the payment
to be made under Section 2.1.3.
-6-
(i) Trade Names, Internet Access and Telephone Numbers. All
right, title and interest of the Company in and to the names of the New
England Subsidiaries, together with any trade name, service mark, domain
name, software (including but not limited to any internet website computer
program with necessary code, passwords and documentation to access e-mail
and links to and from the business of any of the New England Subsidiaries,
or to or from Ford, Chrysler/Dodge/Jeep, Lincoln/Mercury or Mazda), and
the telephone numbers of the businesses of the New England Subsidiaries,
so that Shaker Auto Group can continue the operations of the businesses of
the New England Subsidiaries without delay or interruption.
2.1.3 Cash Payment to Shaker Auto Group. Immediately prior to
the exchange of stock described in Section 2.1.1, the Company shall transfer to
Shaker Auto Group in exchange for the stock of Shaker Auto Group the sum of Five
Million ($5,000,000.00) Dollars by bank or certified check or by wire transfer
as directed by Shaker Auto Group for the purposes provided in Section 5.3,
subject, however, to adjustment as described in Section 2.1.2(f), Section
2.1.2(g) and Section 2.1.2(h).
2.1.4 Allowances and Credits The parties agree as follows with
respect to all New Motor Vehicles and Rental Cars to be transferred to Shaker
Auto Group hereunder (collectively the "Motor Vehicle Inventory"):
(a) As to the transferred Motor Vehicle Inventory relating to
the operations of the New England Subsidiaries and invoiced by Ford,
Chrysler/Dodge/Jeep, Lincoln/Mercury or Mazda to the New England
Subsidiaries (or the Company with regard to the operations of the New
England Subsidiaries) on or before Closing, the Company does hereby assign
to Shaker Auto Group the value of any holdbacks (whether paid to the
Company or otherwise) as reflected on the dealer invoice. The parties
agree to remit to each other promptly any such sum due to the other, which
payment was made in error by Ford, Chrysler/Dodge/Jeep, Lincoln/Mercury or
Mazda and not already paid to the other.
-7-
(b) As to transferred Motor Vehicle Inventory invoiced by
Ford, Chrysler/Dodge/Jeep, Lincoln/Mercury or Mazda to the New England
Subsidiaries (or the Company with regard to the operations of the New
England Subsidiaries) on or before Closing, the Company does hereby assign
to Shaker Auto Group any pre-delivery credit and/or allowances pertaining
to such vehicles (as reflected on the Balance Sheet described in Section
2.4). The parties agree to remit to each other promptly any such sum due
to the other, which payment was made in error by Ford,
Chrysler/Dodge/Jeep, Lincoln/Mercury or Mazda and not already paid to the
other.
(c) The parties agree to remit to each other promptly any
other sums that may be due to the other, which payment was made in error
by Ford, Chrysler/Dodge/Jeep, Lincoln/Mercury or Mazda and not already
paid to the other.
2.1.5 Excluded Assets Notwithstanding anything herein to the
contrary, the assets of the New England Subsidiaries as of the Closing Date
shall exclude all assets not described in Section 2.1.2, Section 2.1.3 and
Section 2.1.4. If any assets that are not described in Section 2.1.2, Section
2.1.3 or Section 2.1.4 are owned by the New England Subsidiaries prior to the
Closing Date, the New England Subsidiaries do hereby transfer, assign and convey
such assets to the Company (or to any assignee of the Company).
2.1.6 Assumed Liabilities. As of the Closing Date, the New
England Subsidiaries or Shaker Auto Group shall assume and agree to pay,
discharge or arrange to discharge and perform when lawfully due, all of the
obligations, duties and liabilities that relate to the business of the New
England Subsidiaries (as reflected on the Balance Sheet described in Section
2.4), including but not limited to: (a) the debt related to the Rental Cars, as
described in Section 2.1.2(e); (b) that portion of the debt owed to The First
National Bank of Chicago, as Trustee For The Registered Holders of Falcon
Franchise Loan Trust 1991-1 Franchise Loan Backed Bonds (as successor in
interest to Falcon Financial, LLC) referred to in the letter dated April 25,
2005 and identified as loan number 815010 as evidenced by a promissory note from
Bay State Realty Holdings, Inc. dated April 16, 1999 in the original principal
amount of $5,800,000.00; (c) the debt owed to Merchants Bank as evidenced by a
promissory note from Brattleboro Realty Holdings, Inc. dated June 10, 2004 in
the original principal amount of $1,050,000.00; (d) the debt owed to Ford Motor
Company Credit in connection with floor plan financing; (e) the debt owed to
Ford Motor Company Credit that is financing certain Daewoo Motor Co., Ltd.
vehicles; (f) the debt owed to Bank of America, N.A., as evidenced by a
promissory note from Shaker's Inc. dated December 23, 2004 in the original
principal amount of $225,000.00; and (g) the debt owed to Consenzi Automotive
Realty Limited Partnership, as evidenced by a promissory note from Brattleboro
Realty Holdings, Inc. dated June 10, 2004 in the original principal amount of
$300,000.00. The Company shall have no liability or obligation with respect to
any obligations, duties and liabilities assumed by the New England Subsidiaries
or Shaker Auto Group pursuant to this Section 2.1.6.
-8-
The Shaker Group shall execute such documents as are necessary
to release the Company from any obligations relating to the real property leased
by the New England Subsidiaries and identified on Exhibit B and to enter into
lease agreements for such properties with Shaker Auto Group or the New England
Subsidiaries.
2.1.7 Excluded Liabilities. Except as set forth in Section
2.1.6, the parties expressly agree that Shaker Auto Group and the New England
Subsidiaries shall not assume, agree to pay, perform, discharge or otherwise
have any responsibility for any liability or obligation of the Company, fixed or
contingent, and whether arising or to be performed prior to, on or after the
Closing Date, that does not relate to the business of the New England
Subsidiaries. Unless otherwise set forth herein and without limiting the
generality of the foregoing, Shaker Auto Group and the New England Subsidiaries
do not assume, and the Company shall pay, perform and discharge the following
liabilities and obligations:
(a) All liabilities and obligations of the Company for taxes,
assessments, interest or penalties thereon, and other similar governmental
charges arising out of or related to the Company's operation of its
business prior to the Closing Date; and
(b) All other liabilities and obligations of the Company,
other than the Assumed Liabilities.
2.2 Exchange of Stock of Shaker Auto Group for Stock of the Shaker
Group.
Subject to the terms and conditions of this Agreement, immediately
following the exchange described in Section 2.1, the Company shall assign,
transfer, convey and deliver to the Shaker Group all of the Company's right,
title and interest in and to all of the outstanding shares of stock of Shaker
Auto Group, and the Shaker Group shall transfer to the Company all of the
outstanding shares of common stock of the Company which they own (representing
801,736 shares of Class A common stock of the Company and 1,802,500 shares of
Class B common stock of the Company). The shares of common stock of Shaker Auto
Group shall be transferred to each member of the Shaker Group in the amount set
forth in Exhibit A.
-9-
2.3 Closing
The Closing will take place at the offices of the Company or at such
other location as shall be mutually agreeable to the parties hereto. The closing
shall take place no later than fourteen (14) days after the satisfaction or
waiver of all of the conditions set forth in Section 6 and Section 7 of this
Agreement, provided that all material authorizations, consents, approvals,
waivers and releases necessary for the Company to consummate the transactions
contemplated hereby shall have been obtained, including, without limitation, the
obtaining of shareholder and director approvals pursuant to the requirements of
the Delaware General Corporation Law and applicable provisions of the Securities
Exchange Act, as amended.
2.4 Balance Sheet
As of a date prior to the Closing Date, the Company shall cause to
be prepared a statement of financial position listing the assets owned and the
liabilities owed of Shaker Auto Group and the New England Subsidiaries,
determined as if such entities were the only members of a controlled group of
corporations on such date and excluding therefrom the assets owned and the
liabilities owed of the Company not attributable to Shaker Auto Group and the
New England Subsidiaries (the "Interim Balance Sheet"). The Interim Balance
Sheet shall fairly present, in all material respects, the assets and liabilities
of Shaker Auto Group and the New England Subsidiaries as at the date thereof.
Within sixty (60) days following the Closing Date, the Company and
the Shaker Group shall jointly perform such reasonable "true-up" procedures to
the Interim Balance Sheet as they may reasonably agree to prior to the Closing
Date to establish the financial position of Shaker Auto Group and the New
England Subsidiaries as of the Closing Date. Such procedures shall take into
account, among other things: (a) information made available to the Company and
the Shaker Group after the Closing Date regarding inventory in transit or
located at seller locations as of the Closing Date; (b) the payment of invoices
by Shaker Auto Group and the New England Subsidiaries through to and including
the Closing Date; and (c) the quantification of the sale and purchase of
inventory through to and including the Closing Date. As a result of such
"true-up" procedures, the Company and the Shaker Group shall cause to be
prepared a final statement of financial position listing the assets owned and
the liabilities owed of Shaker Auto Group and the New England Subsidiaries as of
the Closing Date (the "Final Balance Sheet"). The Final Balance Sheet shall be
deemed to be the Balance Sheet for all purposes of this Agreement, including but
not limited to making the adjustments required by Section 2.1.2(f), Section
2.1.2(g) and Section 2.1.2(h).
-10-
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Shaker Group as follows:
3.1 Organization and Good Standing
The Company and the New England Subsidiaries are each corporations
duly organized, validly existing, and in good standing under the laws of their
respective jurisdictions, with full corporate power and authority to own,
operate and/or lease the Transferred Assets and to conduct their businesses as
they are now being conducted and to perform all their obligations under this
Agreement.
3.2 Authority
This Agreement constitutes the legal, valid, and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
Upon the execution and delivery by the Company of the documents identified in
Section 8.1 (collectively, the "Company's Closing Documents"), the Company's
Closing Documents will constitute the legal, valid, and binding obligations of
the Company, enforceable against the Company in accordance with their respective
terms. The Company has the absolute and unrestricted right, power, authority,
and capacity to execute and deliver this Agreement and the Company's Closing
Documents and to perform its obligations under this Agreement and the Company's
Closing Documents.
Additionally, neither the execution and delivery of this Agreement
by the Company nor the consummation or performance of any of the Contemplated
Transactions by the Company will give any Person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of the Company's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of the Company;
(iii) any Legal Requirement or Order to which the Company may be
subject; or
(iv) any Contract to which the Company is a party or by which the
Company may be bound.
The Company is not and will not be required to obtain any consent
from any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions,
except for the consent and approval of Ford, Chrysler/Dodge/Jeep,
Lincoln/Mercury, Mazda, Toyota, Chevrolet, The First National Bank of Chicago,
as Trustee For The Registered Holders of Falcon Franchise Loan Trust 1991-1
Franchise Loan Backed Bonds (as successor in interest to Falcon Financial, LLC),
Merchants Bank, Ford Motor Company Credit, Comerica Bank, Bank of America, N.A.
and Consenzi Automotive Realty Limited Partnership. Except as set forth herein,
no consent, authorization or approval of, or filing with or exemption by any
governmental, corporate, public or self-regulatory body or authority or any
other person is required in connection with the execution and delivery by the
Company of this Agreement or any ancillary agreements, or the consummation by
the Company of any of the Contemplated Transactions.
-11-
3.3 Title to Assets; Encumbrances
The Company has good and marketable title to all of the Transferred
Assets and owns such assets, free and clear of any Liens or other encumbrances
and any rights of third parties, other than: (a) the floor plan financing on the
Company's New Motor Vehicles; (b) the debt related to the Rental Cars; (c) the
debt owed to The First National Bank of Chicago, as Trustee For The Registered
Holders of Falcon Franchise Loan Trust 1991-1 Franchise Loan Backed Bonds (as
successor in interest to Falcon Financial, LLC); (d) the debt owed to Merchants
Bank; (e) the debt owed to Ford Motor Company Credit in connection with floor
plan financing; (f) the debt owed Ford Motor Company Credit that is financing
certain Daewoo Motor Co., Ltd. vehicles; (g) the debt owed to Bank of America,
N.A.; (h) the debt owed to Consenzi Automotive Realty Limited Partnership; and
(i) any other Assumed Liabilities. "Lien" means any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including but not limited to,
any conditional sale or other title retention agreement, any lease in the nature
thereof and the filing of an agreement to give any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction in connection with
a mortgage, pledge, security interest, encumbrance, lien or charge).
3.4 Taxes
(a) There are no, and by reason of the consummation of the
transactions contemplated hereby, there will be no, tax liabilities of the
Company which could result in any transferee liability to Shaker Auto Group, the
New England Subsidiaries or the Shaker Group, or which could attach to the
Transferred Assets.
As used in this Agreement, "tax" or "taxes" shall mean taxes of any
kind payable to any taxing authority of the United States (Federal, state or
local) or any country or jurisdiction including, without limitation: (a) income,
gross receipts, ad valorem, value added, sales, use, service, franchise,
profits, real or personal property, capital stock, license, payroll,
withholding, employment, social security, workers' compensation, unemployment
compensation, utility, severance, production, excise, stamp, occupation,
premium, windfall profits, transfer and gains taxes; (b) customs duties,
imports, charges, levies or other assessments of any kind; (c) interest,
penalties, and addition to tax imposed with respect to the above taxes; and (d)
any damages, costs, expenses, fees or other liabilities arising from such tax or
taxes.
-12-
(b) The Company has filed or caused to be filed all Tax Returns that
are or were required to be filed. The Company has paid, or made provision for
the payment of, all taxes that have or may have become due pursuant to those Tax
Returns or otherwise, or pursuant to any assessment received by the Company,
except such taxes, if any, as are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been provided in the
Balance Sheet described in Section 2.4. All Tax Returns filed by (or that
include on a consolidated basis) the Company are true, correct, and complete.
There is no tax sharing agreement that will require any payment by the Company
after the date of this Agreement.
3.5 No Material Adverse Change
Since the date of the Company's balance sheet dated March 31, 2005,
there has not been any material adverse change in the business, operations,
properties, prospects, assets, or condition of the Company (excluding the
business, operations, properties, prospects, assets or condition of the New
England Subsidiaries), and no event has occurred or circumstance exists that may
result in such a material adverse change.
3.6 Legal Proceedings
There is no action, suit, Proceeding, arbitration, claim,
investigation or inquiry ("Litigation") the purpose of which is to prevent the
consummation of the transactions contemplated by this Agreement that is ongoing,
pending or, to the best of the Company's knowledge, Threatened, before or by any
foreign or United States Federal, state, municipal or other governmental,
administrative or self-regulatory instrumentality or agency (or any private
arbitration tribunal).
The Company has not received notice of any Order, judgment or decree
of any court, tribunal, agency or self-regulatory body enjoining the Company
from taking (or requiring the Company to take) action of any kind, or to which
the Company is bound (excluding any Order, judgment or decree relating to the
business, operations, properties, prospects, assets or condition of the New
England Subsidiaries).
-13-
3.7 Employee Benefit Plans, etc.
The Company shall assist Shaker Auto Group in establishing benefit
plans for the employees of the New England Subsidiaries following the Closing
Date that are comparable to the benefit plans maintained by the Company.
3.8 Easycare Service Warranties
Shaker Auto Group and the New England Subsidiaries shall continue to
service Easycare Service Warranties until such time as the current advance on
such warranties has been repaid. Any revenues from Easycare Service Warranties
sold after the Closing Date, as well as any retroactive premiums paid, will be
allocated to Shaker Auto Group to the extent it is sold at one of the New
England Subsidiaries, and to the Company to the extent it is sold at the
retained dealerships of the Company.
4. REPRESENTATIONS AND WARRANTIES OF SHAKER GROUP
The Shaker Group represents and warrants to the Company as follows:
4.1 Authority
This Agreement constitutes the legal, valid, and binding obligation
of the Shaker Group, enforceable against the Shaker Group in accordance with its
terms. Upon the execution and delivery by the Shaker Group of the documents
identified in Section 8.2 (collectively, the "Shaker Group's Closing Documents")
the Shaker Group's Closing Documents will constitute the legal, valid, and
binding obligations of the Shaker Group, enforceable against the Shaker Group in
accordance with their respective terms. The Shaker Group has the absolute and
unrestricted right, power, authority and capacity to execute and deliver this
Agreement and the Shaker Group's Closing Documents and to perform their
obligations under this Agreement and the Shaker Group's Closing Documents.
Additionally, neither the execution and delivery of this Agreement
by the Shaker Group nor the consummation or performance of any of the
Contemplated Transactions by the Shaker Group will give any Person the right to
prevent, delay, or otherwise interfere with any of the Contemplated Transactions
pursuant to:
(i) any Legal Requirement or Order to which the Shaker Group may
be subject; or
(ii) any Contract to which the Shaker Group is a party or by which
the Shaker Group may be bound.
-14-
The Shaker Group is not and will not be required to obtain any
consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions, except for the consent and approval of Ford, Chrysler/Dodge/Jeep,
Lincoln/Mercury, Mazda, Toyota, Chevrolet, The First National Bank of Chicago,
as Trustee For The Registered Holders of Falcon Franchise Loan Trust 1991-1
Franchise Loan Backed Bonds (as successor in interest to Falcon Financial, LLC),
Merchants Bank, Ford Motor Company Credit, Comerica Bank, Bank of America, N.A.
and Consenzi Automotive Realty Limited Partnership. Except as set forth herein,
no consent, authorization or approval of, or filing with or exemption by any
governmental, corporate, public or self-regulatory body or authority or any
other person is required in connection with the execution and delivery by the
Shaker Group of this Agreement or any ancillary agreements, or the consummation
by the Shaker Group of any of the Contemplated Transactions.
4.2 Legal Proceedings
There is no action, suit, Proceeding, arbitration, claim,
investigation or inquiry ("Litigation") the purpose of which is to prevent the
consummation of the transactions contemplated by this Agreement that is ongoing,
pending or, to the best of the Shaker Group's knowledge, Threatened, before or
by any foreign or United States Federal, state, municipal or other governmental,
administrative or self-regulatory instrumentality or agency (or any private
arbitration tribunal).
The Shaker Group has not received notice of any Order, judgment or
decree of any court, tribunal, agency or self-regulatory body enjoining the
Shaker Group from taking (or requiring the Shaker Group to take) action of any
kind, or to which the Shaker Group is bound, relating to the business,
operations, properties, prospects, assets or condition of the New England
Subsidiaries.
5. CERTAIN AGREEMENTS AND CERTAIN PRE- AND POST-CLOSING COVENANTS OF THE
PARTIES
5.1 Operation of the Business of the Company
Between the date of this Agreement and the Closing Date, each party
to this Agreement shall use its reasonable Best Efforts to ensure that the
Company conducts its business only in the ordinary course, and shall use its
reasonable Best Efforts to preserve intact the business of the Company.
5.2 Access to Business
Between the date of this Agreement and the Closing Date, each party
shall afford the other parties and the other parties' accountants, counsel,
consultants and other representatives reasonable access to the party's premises
and to all of its books, contracts, commitments, records, and personnel, to the
extent required by the other parties' lending institutions.
-15-
5.3 Plan of Reorganization
The parties hereto intend that the transactions contemplated by this
Agreement constitute a reorganization under Section 355 and Section 368 of the
Internal Revenue Code of 1986, as amended, and that this Agreement constitute a
plan of reorganization within the meaning of such provisions. The transactions
contemplated by this Agreement are an ordinary and necessary incident of the
conduct of the Company's corporate enterprise.
The primary purpose of the cash payment to Shaker Auto Group
required by Section 2.1.3 is: (a) to equalize the value of the Shaker Group's
stock interest in the Company with the value of the stock of Shaker Auto Group
that the Shaker Group is to receive in the transactions; and (b) to provide
Shaker Auto Group with necessary working capital.
6. CONDITIONS PRECEDENT TO THE SHAKER GROUP'S OBLIGATION TO CLOSE
The Shaker Group's obligation to acquire Shaker Auto Group and the New
England Subsidiaries in exchange for its shares of common stock of the Company,
and to take the other actions required to be taken by the Shaker Group at the
Closing, is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by the Shaker Group, in
whole or in part):
6.1 Representations and Warranties True as of the Closing Date.
The representations and warranties made by the Company in this
Agreement, or in any schedule, certificate or document delivered by the Company
to the Shaker Group pursuant to the provisions hereof, shall have been true in
all material respects on the date hereof, without regard to any schedule updates
furnished by the Company after the date hereof, and shall be true and correct in
all material aspects on and as of the Closing Date with the same force and
effect as though such representations and warranties were made as of the Closing
Date.
6.2 Compliance with this Agreement.
The Company shall have performed and complied with in all material
respects all agreements, conditions, covenants and obligations required by this
Agreement to be performed or complied with by it prior to or by the Closing
Date.
-16-
6.3 Compliance with the Securities Laws.
The Company, with the cooperation of the Shaker Group, shall have
filed an information statement with the Securities and Exchange Commission (the
"SEC"), and the Company and the Shaker Group shall have taken such other actions
as are necessary under the Federal and state securities laws to permit the
consummation of the transactions contemplated by this Agreement.
6.4 No Threatened or Pending Litigation.
On the Closing Date, no suit, action or other Proceeding, or
injunction or final judgment relating thereto, shall be threatened or pending
before any court or governmental or regulatory official, body or authority in
which it is sought to restrain or prohibit, or to obtain damages or other relief
in connection with, this Agreement or the consummation of the transactions
contemplated by this Agreement, and no investigation that might result in any
such suit, action or Proceeding shall be pending or threatened.
6.5 Opinion of Duff & Phelps LLC.
The Special Committee of the board of directors of the Company shall
have obtained an opinion from Duff & Phelps LLC, in form and substance
satisfactory to the Special Committee, indicating that the consideration to be
received by the Company as a result of the transactions contemplated by this
Agreement is fair, from a financial point of view, to the unaffiliated public
stockholders of the Company (i.e., the stockholders of the Company who are not
directors or officers of the Company and who are not affiliated with the Shaker
Group or any entities that the Shaker Group or any member thereof controls).
6.6 Tax-Free Exchange Opinion.
The Company and the Shaker Group shall have obtained an opinion from
BDO Seidman, LLP, the Company's certified public accountants, in form and
substance satisfactory to the Company and the Shaker Group, indicating that the
transactions contemplated by this Agreement will qualify as tax-free exchanges
under the Internal Revenue Code of 1986, as amended, and will not cause the
recognition of income by either the Company or the Shaker Group for federal
income tax purposes. In order to obtain such opinion, on the Closing Date the
Shaker Group shall not have any options to acquire shares of common stock of the
Company.
6.7 Consents and Approvals.
(a) The stockholders of the Company shall have approved the
transactions contemplated by this Agreement in accordance with the requirements
of the General Corporation Law of the State of Delaware.
-17-
(b) Ford, Chrysler/Dodge/Jeep, Lincoln/Mercury, Mazda, Toyota and
Chevrolet shall have approved Shaker Auto Group as the transferee of the
Franchises in accordance with the terms of this Agreement.
(c) Shaker Auto Group shall have obtained floor plan financing in
accordance with the terms of this Agreement.
(d) Each obligee of the Assumed Liabilities under Section 2.1.6
shall have consented to the release of the Company from any and all liability
relating to the Assumed Liabilities to the extent required by the terms of the
Assumed Liabilities, without such release being deemed to be an event of default
and without imposing any material loan modifications unless approved by the
Shaker Group and the Company. In particular and not by way of limitation, the
obligee of the debt related to the Rental Cars, The First National Bank of
Chicago, as Trustee For The Registered Holders of Falcon Franchise Loan Trust
1991-1 Franchise Loan Backed Bonds (as successor in interest to Falcon
Financial, LLC), Merchants Bank, Ford Motor Company Credit, Bank of America,
N.A. and Consenzi Automotive Realty Limited Partnership shall each have
consented to the release of the Company from any and all liability relating to
the debt owed to such obligee in connection with the business operations of the
New England Subsidiaries.
6.8 Working Capital
Immediately following the Closing, Shaker Auto Group will have
Working Capital of $6,015,000.
6.9 Additional Documents
The Company must have delivered to the Shaker Group such documents
as the Shaker Group may reasonably request for the purpose of (a) evidencing the
accuracy of any of the Company's representations and warranties, (b) evidencing
the performance by the Company of, or the compliance by the Company with, any
covenant or obligation required to be performed or complied with by the Company,
and (c) otherwise facilitating the consummation or performance of any of the
transactions contemplated by this Agreement.
6.10 No Prohibition
Neither the consummation nor the performance of any of the
transactions contemplated by this Agreement will, directly or indirectly (with
or without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause the Shaker Group or any Person
affiliated with the Shaker Group to suffer any material adverse consequence
under any applicable Legal Requirement or Order.
-18-
7. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE
The Company's obligation to make the exchanges described in Section 2.1
and Section 2.2, and to take the other actions required to be taken by the
Company at the Closing, is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions (any of which may be waived by the
Company, in whole or in part):
7.1 Representations and Warranties True as of the Closing Date.
The representations and warranties made by the Shaker Group in this
Agreement, or in any schedule, certificate or document delivered by the Shaker
Group to the Company pursuant to the provisions hereof, shall have been true in
all material respects on the date hereof, without regard to any schedule updates
furnished by the Shaker Group after the date hereof, and shall be true and
correct in all material aspects on and as of the Closing Date with the same
force and effect as though such representations and warranties were made as of
the Closing Date.
7.2 Compliance with this Agreement.
The Shaker Group shall have performed and complied with in all
material respects all agreements, conditions, covenants and obligations required
by this Agreement to be performed or complied with by it prior to or by the
Closing Date.
7.3 Compliance with the Securities Laws.
The Company, with the cooperation of the Shaker Group, shall have
filed an information statement with the Securities and Exchange Commission (the
"SEC"), and the Company and the Shaker Group shall have taken such other actions
as are necessary under the Federal and state securities laws to permit the
consummation of the transactions contemplated by this Agreement.
7.4 No Threatened or Pending Litigation.
On the Closing Date, no suit, action or other Proceeding, or
injunction or final judgment relating thereto, shall be threatened or pending
before any court or governmental or regulatory official, body or authority in
which it is sought to restrain or prohibit, or to obtain damages or other relief
in connection with, this Agreement or the consummation of the transactions
contemplated by this Agreement, and no investigation that might result in any
such suit, action or Proceeding shall be pending or threatened.
-19-
7.5 Opinion of Duff & Phelps LLC.
The Special Committee of the board of directors of the Company shall
have obtained an opinion from Duff & Phelps, LLC, in form and substance
satisfactory to the Special Committee, indicating that the consideration to be
received by the Company as a result of the transactions contemplated by this
Agreement is fair, from a financial point of view, to the unaffiliated public
stockholders of the Company (i.e., the stockholders of the Company who are not
directors or officers of the Company and who are not affiliated with the Shaker
Group or any entities that the Shaker Group or any member thereof controls).
7.6 Tax-Free Exchange Opinion.
The Company and the Shaker Group shall have obtained an opinion from
BDO Seidman, LLP, the Company's certified public accountants, in form and
substance satisfactory to the Company and the Shaker Group, indicating that the
transactions contemplated by this Agreement will qualify as tax-free exchanges
under the Internal Revenue Code of 1986, as amended, and will not cause the
recognition of income by either the Company or the Shaker Group for Federal
income tax purposes. In order to obtain such opinion, on the Closing Date the
Shaker Group shall not have any options to acquire shares of common stock of the
Company.
7.7 Consents and Approvals.
(a) The stockholders of the Company shall have approved the
transactions contemplated by this Agreement in accordance with the requirements
of the General Corporation Law of the State of Delaware.
(b) Ford, Chrysler/Dodge/Jeep, Lincoln/Mercury, Mazda, Toyota and
Chevrolet shall have approved Shaker Auto Group as the transferee of the
Franchises in accordance with the terms of this Agreement.
(c) Shaker Auto Group shall have obtained floor plan financing in
accordance with the terms of this Agreement.
(d) Each obligee of the Assumed Liabilities under Section 2.1.6
shall have consented to the release of the Company from any and all liability
relating to the Assumed Liabilities to the extent required by the terms of the
Assumed Liabilities, without such release being deemed to be an event of default
and without imposing any material loan modifications unless approved by the
Shaker Group and the Company. In particular and not by way of limitation, the
obligee of the debt related to the Rental Cars, The First National Bank of
Chicago, as Trustee For The Registered Holders of Falcon Franchise Loan Trust
1991-1 Franchise Loan Backed Bonds (as successor in interest to Falcon
Financial, LLC), Merchants Bank, Ford Motor Company Credit, Bank of America,
N.A. and Consenzi Automotive Realty Limited Partnership shall each have
consented to the release of the Company from any and all liability relating to
the debt owed to such obligee in connection with the business operations of the
New England Subsidiaries.
-20-
(e) Each member of the Shaker Group, and each individual related to
any member of the Shaker Group who is listed in Exhibit C, shall have resigned
as an employee, director and/or officer of the Company and each affiliate of the
Company other than the New England Subsidiaries, effective as of the Closing
Date.
7.8 Working Capital
Immediately following the Closing, Shaker Auto Group will have
Working Capital of $6,015,000.
7.9 Additional Documents
The Shaker Group must have delivered to the Company such documents
as the Company may reasonably request for the purpose of (a) evidencing the
accuracy of any of the Shaker Group's representations and warranties, (b)
evidencing the performance by the Shaker Group of, or the compliance by the
Shaker Group with, any covenant or obligation required to be performed or
complied with by the Shaker Group, and (c) otherwise facilitating the
consummation or performance of any of the transactions contemplated by this
Agreement.
7.10 No Prohibition
Neither the consummation nor the performance of any of the
transactions contemplated by this Agreement will, directly or indirectly (with
or without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause the Company or any Person affiliated
with the Company to suffer any material adverse consequence under any applicable
Legal Requirement or Order.
8. DELIVERIES AT CLOSING
8.1 The Company's Documents. Subject to the Shaker Group's
satisfaction of its obligations hereunder, the Company shall execute and/or
deliver to the Shaker Group at the Closing, the following instruments and
documents, all of which shall be in form and substance as set forth in an
applicable Exhibit hereto or, if not so set forth, otherwise as may be
reasonably acceptable to the Shaker Group:
-21-
(a) The Company shall organize Shaker Auto Group and shall deliver
to Shaker Auto Group all of the outstanding shares of stock of the New England
Subsidiaries, together with such assignments and instruments of transfer as
shall be necessary and reasonably requested by the Shaker Group in order to
assign and transfer, or to evidence the assignment and transfer of, the shares
of stock of the New England Subsidiaries to Shaker Auto Group, all in a form and
substance satisfactory to the Shaker Group and its counsel.
(b) The Company shall deliver to the Shaker Group all of the
outstanding shares of stock of Shaker Auto Group, together with such assignments
and instruments of transfer as shall be necessary and reasonably requested by
the Shaker Group in order to assign and transfer, or to evidence the assignment
and transfer of, the shares of stock of Shaker Auto Group to the Shaker Group,
all in a form and substance satisfactory to the Shaker Group and its counsel.
(c) The Company shall deliver to the Shaker Group a certificate of
the Company stating that all representations and warranties of the Company set
forth in Article 3 herein are true and correct in all material respects on and
as of the Closing Date with the same force and effect as if such representations
and warranties had been made on and as of the Closing Date in the form as
attached as Exhibit D, which is incorporated herein by reference.
(d) The Company shall deliver to the Shaker Group copies of the
following documents certified by an authorized corporate officer of the
respective corporation to be true, correct and complete: (i) certificate of good
standing of the Company, Shaker Auto Group and the New England Subsidiaries from
the Secretary of State of their respective states of incorporation; (ii)
resolutions approved by the board of directors and stockholder(s) of the
Company, Shaker Auto Group and the New England Subsidiaries in connection with
the execution of this Agreement and the consummation of the transactions
contemplated hereby; (iii) Certificate of Incorporation of the Company, Shaker
Auto Group and the New England Subsidiaries; and (iv) Bylaws of the Company,
Shaker Auto Group and the New England Subsidiaries.
(e) The Company shall deliver to the Shaker Group a duly executed
Assumption of Liabilities Agreement in the form as attached as Exhibit E.
(f) The Company shall deliver to the Shaker Group all client lists
and data bases relating to either the sales and/or service and parts operations
currently maintained by the New England Subsidiaries.
-22-
(g) The Company shall deliver to the Shaker Group all of the
Company's books and records, including, but not limited to, all of the Company's
licenses and permits, relating to Shaker Auto Group and the New England
Subsidiaries.
(h) The Company shall deliver to the Shaker Group such other
documents as shall reasonably be requested by the Shaker Group in order to
effectively carry out the transactions contemplated by this Agreement, duly
executed by the Company where appropriate.
8.2 The Shaker Group's Documents
Subject to the Company's satisfaction of its obligations hereunder,
the Shaker Group shall execute and/or deliver to the Company at the Closing, the
following instruments and documents, all of which shall be in form and substance
as set forth in an applicable Exhibit hereto or, if not so set forth, otherwise
as may be reasonably acceptable to the Company:
(a) The Shaker Group shall deliver to the Company all of the
outstanding shares of stock of the Company which the Shaker Group owns, together
with such assignments and instruments of transfer as shall be necessary and
reasonably requested by the Company in order to assign and transfer, or to
evidence the assignment and transfer of, the shares of stock of the Company
which the Shaker Group owns to the Company, all in a form and substance
satisfactory to the Company and its counsel.
(b) The Shaker Group shall deliver to the Company a certificate of
the Shaker Group stating that all representations and warranties of the Shaker
Group set forth in Article 4 herein are true and correct in all material
respects on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date in
the form as attached as Exhibit F, which is incorporated herein by reference.
(c) The Shaker Group shall deliver to the Company such other
documents as shall reasonably be requested by the Company in order to
effectively carry out the transactions contemplated by this Agreement, duly
executed by the Shaker Group where appropriate.
9. INDEMNIFICATION
9.1 Indemnification by the Company
The Company shall indemnify, defend and hold harmless the Shaker
Group from, against, and with respect to any and all losses, damages, claims,
obligations, liabilities, costs and expenses (including without limitation
reasonable attorneys' fees and costs, consequential damages, and expenses
incurred in investigating, preparing, defending against or prosecuting any
litigation, claims, proceeding or demand), of any kind or character (a "Loss")
arising out of or in connection with any of the following:
-23-
(a) any Breach of any of the representations or warranties of the
Company contained in or made pursuant to this Agreement;
(b) any failure by the Company to perform or observe, in full, or in
part, any covenant, agreement or condition to be performed or observed by it
pursuant to this Agreement;
(c) any and all liabilities and obligations of the Company (other
than the Assumed Liabilities) of any kind or nature whatsoever, whether accrued,
absolute, contingent or otherwise, known or unknown; or
(d) any action brought by one or more of the stockholders of the
Company against any member of the Shaker Group which is based on the
Contemplated Transactions or upon any violation of Sections 9.1(a), (b) or (c)
above; provided, however, that such indemnification shall not apply to any claim
based upon the operations of the New England Subsidiaries or upon the fraud or
misrepresentation of any member of the Shaker Group.
9.2 Indemnification by the Shaker Group
The Shaker Group shall indemnify, defend and hold harmless the
Company (or such individual or legal entity as it may designate) and its
shareholders, officers, directors, agents, employees, affiliates, and assigns,
from, against, and with respect to any and all losses, damages, claims,
obligations, liabilities, costs and expenses (including without limitation
reasonable attorneys' fees and costs, consequential damages, and expenses
incurred in investigating, preparing, defending against or prosecuting any
litigation, claims, proceeding or demand), of any kind or character (a "Loss")
arising out of or in connection with any of the following:
(a) any Breach of any of the representations or warranties of the
Shaker Group contained in or made pursuant to this Agreement;
(b) any failure by the Shaker Group to perform or observe, in full,
or in part, any covenant, agreement or condition to be performed or observed by
it pursuant to this Agreement; or
(c) any and all liabilities and obligations of the Shaker Group
(including but not limited to the Assumed Liabilities) of any kind or nature
whatsoever, whether accrued, absolute, contingent or otherwise, known or
unknown.
-24-
10. GENERAL PROVISIONS
10.1 Brokers or Finders
Neither party, nor their officers and agents, have incurred any
obligations or liabilities, contingent or otherwise, for brokerage or finders'
fees or agents commissions or other similar payment in connection with this
Agreement, and each party will indemnify and hold the other harmless from any
such payment alleged to be due as a result of the transfer.
10.2 Expenses
Each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants in connection with this
Agreement and the Contemplated Transactions; provided, however, that, in the
event that the Shaker Group refinances any debt owed to The First National Bank
of Chicago, as Trustee For The Registered Holders of Falcon Franchise Loan Trust
1991-1 Franchise Loan Backed Bonds (as successor in interest to Falcon
Financial, LLC) which results in a reduction in the "loan modification fee" or
in the "Due Diligence Deposit" payable by the Company pursuant to that certain
April 25, 2005 proposal letter from Falcon Financial II, LLC to the Company (any
such reduction to be determined by Falcon Financial II, LLC, at its discretion,
and being hereinafter referred to as the "Savings"), then the Company will
reimburse the Shaker Group for its actual out of pocket (incurred and paid)
refinancing costs up to an amount not to exceed the lesser of : (i) such
Savings; or (ii) $37,500; and provided, further, that it is understood and
agreed that the Company shall bear all costs incurred in completing the
transactions contemplated under the aforesaid April 25, 2005 proposal letter
from Falcon Financial II, LLC to the Company, so long as the same do not include
any prepayments or prepayment fees related to debts owed by the Shaker Group
and/or the New England Subsidiaries.
10.3 Public Announcements
Any public announcement or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as both parties mutually agree. Unless consented to by
the Company in advance or required by Legal Requirements, prior to the Closing
the Company and the Shaker Group shall keep this Agreement strictly confidential
and may not make any disclosure of this Agreement to any Person. The Company and
the Shaker Group will consult with each other concerning the means by which the
Company' employees, customers, and suppliers and others having dealings with the
Company will be informed of the Contemplated Transactions, and both parties will
have the right to be present for any such communication.
-25-
10.4 Confidentiality
Between the date of this Agreement and the Closing Date, the Company
and the Shaker Group will maintain in confidence, exercising Best Efforts, and
will cause the directors, officers, employees, agents, and advisors of the
Company to maintain in confidence (and will not use to the detriment of the
other party) any written, oral, or other information obtained in confidence from
written information stamped "confidential" when originally furnished by the
other party in connection with this Agreement or the Contemplated Transactions,
unless (a) such information is already known to such party or to others not
bound by a duty of confidentiality or such information becomes publicly
available through no fault of such party, (b) the use of such information is
necessary or appropriate in making any filing or obtaining any consent or
approval required for the consummation of the Contemplated Transactions, or (c)
the furnishing or use of such information is required by or necessary or
appropriate in connection with legal proceedings. If the Contemplated
Transactions are not consummated, each party will return or destroy as much of
such written information as the other party may reasonably request.
10.5 Notices
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Company: Hometown Auto Retailers, Inc.
1309 South Main Street
Waterbury, Connecticut 06706
Attention: William C. Muller, Jr.
Facsimile No.: (203) 756-1339
With a copy to:
Richard L. Emerson, Esq.
Gager, Emerson, Rickart, Bower & Scalzo, LLP
2 Stony Hill Road
Suite 208
Bethel, Connecticut 06801
Facsimile No.: (203) 207-5407
-26-
Shaker Group: Corey E. Shaker
1309 South Main Street
Waterbury, CT 06706
With a copy to:
Robert S. Cooper, Esq.
Zeldes, Needle & Cooper
1000 Lafayette Boulevard
Bridgeport, Connecticut 06601-1740
Facsimile No.: (203) 333-1489
10.6 Jurisdiction; Service of Process
Any action or proceeding seeking to enforce any provision of, or
based on any right arising out of, this Agreement may be brought against any of
the parties in the courts of Connecticut or, if it can acquire jurisdiction, in
the United States District Court for the District of Connecticut, and each of
the parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world. The
prevailing party in any action or proceeding shall be entitled to reasonable
attorney's fees and costs.
10.7 Further Assurances
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement and (d) to provide information
to the other after the Closing to assist the other in responding to claims,
disputes and litigation.
10.8 Waiver
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
-27-
10.9 Entire Agreement and Modification
This Agreement supersedes all prior agreements between the parties
with respect to its subject matter and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
10.10 Severability
If any provision of this Agreement is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this Agreement
will remain in full force and effect. Any provision of this Agreement held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
10.11 Section Headings; Construction
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
10.12 Governing Law
This Agreement will be governed by the laws of the State of
Connecticut without regard to conflicts of laws principles.
10.13 Counterparts
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
-28-
10.14 Arm's Length Negotiations
Each party herein expressly represents and warrants to all other
parties hereto that (a) before executing this Agreement, said party has fully
informed itself of the terms, contents, conditions and effects of this
Agreement; (b) said party has relied solely and completely upon its own judgment
in executing this Agreement; (c) said party has had the opportunity to seek and
has obtained the advice of counsel before executing this Agreement; (d) said
party has acted voluntarily and of its own free will in executing this
Agreement; (e) said party is not acting under duress, whether economic or
physical, in executing this Agreement; and (f) this Agreement is the result of
arm's length negotiations conducted by and among the parties and their
respective counsel.
10.15 Bulk Transfer Laws
The Company and the Shaker Group shall comply in all respects with
the notification requirements of any State Taxing Authority with respect to a
bulk transfer to the extent applicable to the transactions contemplated by this
Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
COMPANY:
HOMETOWN AUTO RETAILERS, INC. ATTESTED:
By:/s/ William C. Muller, Jr. /s/Charles F. Schwartz
--------------------------------------- ----------------------
William C. Muller, Jr. Charles F. Schwartz
Its Vice President Its Secretary
NEW ENGLAND SUBSIDIARIES:
ERR ENTERPRISES, INC. ATTESTED:
By:/s/ Corey Shaker /s/Charles F. Schwartz
--------------------------------------- ----------------------
Corey Shaker Charles F. Schwartz
Its President Its Secretary
FAMILY FORD, INC. ATTESTED:
By:/s/ Corey Shaker /s/Charles F. Schwartz
--------------------------------------- ----------------------
Corey Shaker Charles F. Schwartz
Its President Its Secretary
-29-
SHAKER'S, INC. ATTESTED:
By:/s/ Corey Shaker /s/Charles F. Schwartz
--------------------------------------- ----------------------
Corey Shaker Charles F. Schwartz
Its President Its Secretary
SHAKER'S LINCOLN/MERCURY AUTO CARE ATTESTED:
INC.
By:/s/ Corey Shaker /s/Charles F. Schwartz
--------------------------------------- ----------------------
Corey Shaker Charles F. Schwartz
Its President Its Secretary
HOMETOWN BRATTLEBORO, INC. ATTESTED:
By:/s/ Corey Shaker /s/Charles F. Schwartz
--------------------------------------- ----------------------
Corey Shaker Charles F. Schwartz
Its President Its Secretary
HOMETOWN AUTO FRAMINGHAM, INC. ATTESTED:
By:/s/ Corey Shaker /s/Charles F. Schwartz
--------------------------------------- ----------------------
Corey Shaker Charles F. Schwartz
Its President Its Secretary
BAY STATE REALTY HOLDINGS, INC. ATTESTED:
By:/s/ Corey Shaker /s/Charles F. Schwartz
--------------------------------------- ----------------------
Corey Shaker Charles F. Schwartz
Its President Its Secretary
BRATTLEBORO REALTY HOLDINGS, INC. ATTESTED:
By:/s/ Corey Shaker /s/Charles F. Schwartz
--------------------------------------- ----------------------
Corey Shaker Charles F. Schwartz
Its President Its Secretary
-30-
THE SHAKER GROUP:
WITNESSED:
/s/ Corey Shaker /s/ Lillian Shaker
- --------------------------------------- ----------------------
Corey Shaker Lillian Shaker
WITNESSED:
/s/ Corey Shaker /s/ Lillian Shaker
- --------------------------------------- ----------------------
Corey Shaker, Custodian for Lindsay Shaker Lillian Shaker
WITNESSED:
/s/ Corey Shaker /s/ Lillian Shaker
- --------------------------------------- ----------------------
Corey Shaker, Custodian for Kristen Shaker Lillian Shaker
WITNESSED:
/s/ Corey Shaker /s/ Lillian Shaker
- --------------------------------------- ----------------------
Corey Shaker, Custodian for Edward Shaker Lillian Shaker
Edward Shaker Family Trust WITNESSED:
By /s/ Corey Shaker /s/ Lillian Shaker
- --------------------------------------- ----------------------
Corey Shaker Lillian Shaker
Its Trustee
WITNESSED:
/s/ Joseph Shaker /s/ Judy Austin
- --------------------------------------- ----------------------
Joseph Shaker Judy Austin
Shaker Irrevocable Trust WITNESSED:
By /s/ Joseph Shaker /s/ Judy Austin
------------------------------------ ----------------------
Joseph Shaker Judy Austin
Its Trustee
Richard Shaker Family Trust WITNESSED:
By /s/ Joseph Shaker /s/ Judy Austin
------------------------------------ ----------------------
Joseph Shaker Judy Austin
Its Trustee
-31-
WITNESSED:
/s/ Steven Shaker /s/ Lillian Shaker
- --------------------------------------- ----------------------
Steven Shaker Lillian Shaker
WITNESSED:
/s/ Janet Shaker /s/ Lillian Shaker
- --------------------------------------- ----------------------
Janet Shaker Lillian Shaker
WITNESSED:
/s/ Paul Shaker /s/ Lillian Shaker
- --------------------------------------- ----------------------
Paul Shaker Lillian Shaker
WITNESSED:
/s/ Edward D. Shaker /s/ Labebe Shaker
- --------------------------------------- ----------------------
Edward D. Shaker Labebe
WITNESSED:
/s/ Edward Shaker /s/ Labebe Shaker
- --------------------------------------- ----------------------
Edward Shaker Labebe Shaker
WITNESSED:
/s/ Lillian Shaker /s/ Janet Shaker
- --------------------------------------- ----------------------
Lillian Shaker Janet Shaker
-32-
WITNESSED:
/s/ Richard Shaker /s/ Labebe Shaker
- --------------------------------------- ----------------------
Richard Shaker Labebe Shaker
WITNESSED:
/s/ Rose Shaker /s/ Lillian Shaker
- --------------------------------------- ----------------------
Rose Shaker Lillian Shaker
-33-
EXHIBIT A
Shaker Group
Company Class A Company Class B Shaker Auto Group
Name Common Stock Common Stock Common Stock
- ---- --------------- --------------- ---------------
Corey Shaker 120,142 249,100 369,242
Corey Shaker,
Custodian for
Lindsay 24 24
Corey Shaker,
Custodian for
Kristen 24 24
Corey Shaker,
Custodian for
Edward 24 24
Edward Shaker
Family Trust 15,980 15,980
Joseph Shaker 147,826 265,832 413,658
Shaker Irrevocable
Trust 40,000 40,000
Richard Shaker
Family Trust 15,980 15,980
Steven Shaker 115,142 206,424 321,566
Janet Shaker 71,428 227,668 299,096
Paul Shaker 218,268 218,268
Edward D. Shaker 107,142 206,612 313,754
Edward Shaker 112,142 175,404 287,546
Lillian Shaker 13,700 13,700
Richard Shaker 114,142 175,404 289,546
Rose Shaker 5,828 5,828
Totals: 801,736 1,802,500 2,604,236
A-1
EXHIBIT B
Leases
Lessee/Location of Property: Lessor:
Shaker's Lincoln/Mercury Shaker Enterprises, a Connecticut
831 Straits Turnpike general partnership
Watertown, CT 06795
Family Ford, Inc. Joseph Shaker Realty, a Connecticut
1200 Wolcott Street general partnership
Waterbury, CT 06705
Hometown Auto Retailers, Inc. Joseph Shaker Realty, a Connecticut
1309 South Main Street general partnership
Waterbury, CT 06706
Wellesley Mazda Regan and Stapleton, Inc.
965 Worcester Road
Wellesley, MA 02181
B-1
Exhibit C
Individuals Related to Shaker Group
Who Will Resign as Employees, Officers and/or Directors
of the Company and its Affiliates
o Corey Shaker, President, Chief Executive Officer and Director of the
Company
o Joseph Shaker, Regional Vice President and Director of the Company
o Steven Shaker, Regional Vice President of the Company
o Edward Shaker, Employee
o Lillian Shaker, Employee
o Edward D. Shaker, Employee
o Janet Shaker, Employee
o Richard Shaker, Employee
o Rose Shaker, Employee
C-1
Exhibit D
Certification of Representations and Warranties
of the Company set forth in Article 3
The undersigned does hereby certify, pursuant to Section 8.1(c) of the
Exchange Agreement dated _____________, 2005 among Hometown Auto Retailers,
Inc., ERR Enterprises, Inc., Family Ford, Inc., Shaker's, Inc., Shaker's
Lincoln/Mercury Auto Care, Inc., Hometown Brattleboro, Inc., Hometown Auto
Framingham, Inc., Bay State Realty Holdings, Inc., Brattleboro Realty Holdings,
Inc. and the Shaker Group (the "Agreement") that:
(1) The undersigned is the duly-elected ______________ of Hometown Auto
Retailers, Inc. (the "Company") and, as such, is authorized to make this
certificate on behalf of the Company.
(2) The representations and warranties of the Company set forth in Article
3 of the Agreement are true and correct in all material respects on and as of
this date with the same force and effect as if such representations and
warranties had been made on and as of the date hereof.
(3) The Company has performed and complied in all material respects with
all of the terms, covenants, and conditions contained in the Agreement that are
required to be performed or complied with by the Company on or before the date
hereof.
Dated: _________________ ________________________
Name:
Title:
D-1
Exhibit E
Assumption of Liabilities Agreement
By Shaker Auto Group and the New England Subsidiaries
Relating to the Assumed Liabilities
The undersigned do hereby agree, pursuant to Section 8.1(e) of the
Exchange Agreement dated _____________, 2005 among Hometown Auto Retailers,
Inc., ERR Enterprises, Inc., Family Ford, Inc., Shaker's, Inc., Shaker's
Lincoln/Mercury Auto Care, Inc., Hometown Brattleboro, Inc., Hometown Auto
Framingham, Inc., Bay State Realty Holdings, Inc., Brattleboro Realty Holdings,
Inc. and the Shaker Group (the "Agreement") to the following:
(1) Hometown Auto Retailers, Inc. (the "Company") hereby assigns to Shaker
Auto Group, Inc. ("Shaker Auto Group") and to ERR Enterprises, Inc., Family
Ford, Inc., Shaker's, Inc., Shaker's Lincoln/Mercury Auto Care, Inc., Hometown
Brattleboro, Inc., Hometown Auto Framingham, Inc., Bay State Realty Holdings,
Inc. and Brattleboro Realty Holdings, Inc. (the "New England Subsidiaries") all
of its duties and obligations with respect to, and Shaker Auto Group and the New
England Subsidiaries hereby assume and agree to pay, discharge or perform, as
appropriate, all of the duties and obligations of the Company arising in
connection with or relating to, the Assumed Liabilities as described in Section
2.1.6 of the Agreement.
(2) Shaker Auto Group and the New England Subsidiaries hereby indemnify
and hold harmless the Company, its directors, officers, employees, agents,
stockholders, successors and assigns, and all persons claiming through them,
from any and all costs, claims, liabilities or expenses (including reasonable
attorneys fees) which the Company may incur with respect to the liabilities and
obligations of the Company which have been specifically assumed hereby by Shaker
Auto Group and the New England Subsidiaries, but only to the extent set forth in
the Agreement.
(3) This Assumption of Liabilities Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have duly executed and sealed this
Assumption of Liabilities Agreement as of the _________ day of _____________,
2005.
COMPANY:
HOMETOWN AUTO RETAILERS, INC. ATTESTED:
By: ___________________________ ______________________________
William C. Muller, Jr.
E-1
SHAKER AUTO GROUP:
SHAKER AUTO GROUP, INC. ATTESTED:
By: ___________________________ ______________________________
NEW ENGLAND SUBSIDIARIES:
ERR ENTERPRISES, INC. ATTESTED:
By: ___________________________ ______________________________
FAMILY FORD, INC. ATTESTED:
- ----------------
By: ___________________________ ______________________________
SHAKER'S, INC. ATTESTED:
By: ___________________________ ______________________________
SHAKER'S LINCOLN/MERCURY AUTO CARE ATTESTED:
INC.
By: ___________________________ ______________________________
HOMETOWN BRATTLEBORO, INC. ATTESTED:
By: ___________________________ ______________________________
E-2
HOMETOWN AUTO FRAMINGHAM, INC. ATTESTED:
By: ___________________________ ______________________________
BAY STATE REALTY HOLDINGS, INC. ATTESTED:
By: ___________________________ ______________________________
BRATTLEBORO REALTY HOLDINGS, INC. ATTESTED:
By: ___________________________ ______________________________
E-3
Exhibit F
Certification of Representations and Warranties
of the Shaker Group set forth in Article 4
The undersigned do hereby certify, pursuant to Section 8.2(b) of the
Exchange Agreement dated _____________, 2005 among Hometown Auto Retailers,
Inc., ERR Enterprises, Inc., Family Ford, Inc., Shaker's, Inc., Shaker's
Lincoln/Mercury Auto Care, Inc., Hometown Brattleboro, Inc., Hometown Auto
Framingham, Inc., Bay State Realty Holdings, Inc., Brattleboro Realty Holdings,
Inc. and the Shaker Group (the "Agreement") that:
(1) The undersigned are the members of the Shaker Group.
(2) The representations and warranties of the Shaker Group set forth in
Article 4 of the Agreement are true and correct in all material respects on and
as of this date with the same force and effect as if such representations and
warranties had been made on and as of the date hereof.
(3) Each member of the Shaker Group has performed and complied in all
material respects with all of the terms, covenants, and conditions contained in
the Agreement that are required to be performed or complied with by the members
of the Shaker Group on or before the date hereof.
Dated:
---------------------- ------------------------------
Corey Shaker
Dated:
------------------------ ------------------------------
Corey Shaker, Custodian for Lindsay Shaker
Dated:
------------------------ ------------------------------
Corey Shaker, Custodian for Kristen Shaker
Dated:
------------------------ ------------------------------
Corey Shaker, Custodian for Edward Shaker
F-1
Edward Shaker Family Trust
Dated: By
------------------------ ---------------------------
Its Trustee
Dated:
------------------------ ------------------------------
Joseph Shaker
Shaker Irrevocable Trust
Dated: By
------------------------ ---------------------------
Its Trustee
Richard Shaker Family Trust
Dated: By
------------------------ ---------------------------
Its Trustee
Dated:
------------------------ ------------------------------
Steven Shaker
Dated:
------------------------ ------------------------------
Janet Shaker
Dated:
------------------------ ------------------------------
Paul Shaker
Dated:
------------------------ ------------------------------
Edward D. Shaker
F-2
Dated:
----------------------- ------------------------------
Edward Shaker
Dated:
----------------------- ------------------------------
Lillian Shaker
Dated:
----------------------- ------------------------------
Richard Shaker
Dated:
----------------------- ------------------------------
Rose Shaker
F-3