EXECUTION COPY
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ASSET PURCHASE AGREEMENT
by and among
SONIC AUTO WORLD, INC.,
LAKE NORMAN DODGE, INC.,
LAKE NORMAN CHRYSLER-PLYMOUTH-JEEP-EAGLE LLC,
QUINTON M. GANDY
and
PHIL M. GANDY, JR.
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Dated as of May 27, 1997
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TABLE OF CONTENTS
Page
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Article 1 - Purchase and Sale of Assets; Assumption of Liabilities.......................................1
1.1 Agreement of Purchase and Sale.........................................................1
1.2 Assumed Liabilities....................................................................2
1.3 Purchase Price; Allocation.............................................................2
1.4 Instruments of Conveyance and Transfer; Further Assurances; Access.....................4
1.5 Offers of Employment to Sellers' Employees.............................................5
Article 2 - Closing......................................................................................5
Article 3 - Representations, Warranties and Covenants of the Sellers.....................................5
3.1 Organization; Good Standing; Qualifications............................................5
3.2 Authority; Consents; Enforceability....................................................6
3.3 Investments............................................................................7
3.4 Financial Statements...................................................................7
3.5 Absence of Certain Changes.............................................................7
3.6 Material Contracts.....................................................................9
3.7 Title to Purchased Assets and Related Matters.........................................11
3.8 Real Property of the Sellers..........................................................11
3.9 Machinery, Equipment, Etc.............................................................12
3.10 Inventories of the Sellers...........................................................13
3.11 Accounts Receivable of the Sellers...................................................13
3.12 Approvals, Permits and Authorizations................................................13
3.13 Compliance with Laws.................................................................14
3.14 Insurance............................................................................14
3.15 Taxes................................................................................15
3.16 Litigation...........................................................................16
3.17 Powers of Attorney...................................................................16
3.18 Broker's and Finder's Fees...........................................................16
3.19 Employee Relations...................................................................16
3.20 Compensation.........................................................................17
3.21 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc..........................17
3.22 Certain Liabilities..................................................................17
3.23 No Undisclosed Liabilities...........................................................18
3.24 Certain Transactions.................................................................18
3.25 Business Generally...................................................................18
3.26 Employee Benefits....................................................................18
3.27 Sellers and Shareholders Not Foreign Persons.........................................19
3.28 Suppliers and Customers..............................................................20
3.29 Environmental Matters................................................................20
3.30 Bank Accounts and Safe Deposit Boxes.................................................22
3.31 Warranties...........................................................................22
3.32 Interest in Competitors and Related Entities.........................................22
3.33 Availability of Sellers' Employees...................................................22
3.34 Misstatements and Omissions..........................................................23
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Article 4 - Representations and Warranties of the Buyer.................................................23
4.1 Organization and Good Standing........................................................23
4.2 Authority; Consents; Enforceability...................................................23
4.3 Broker's and Finder's Fees............................................................24
4.4 Litigation............................................................................24
4.5 Misstatements or Omissions............................................................24
Article 5 - Pre-closing Covenants of the Shareholders and the Sellers...................................24
5.1 Provide Access to Information; Cooperation with Buyer.................................24
5.2 Operation of Business of the Sellers..................................................25
5.3 Other Changes.........................................................................26
5.4 Additional Information................................................................26
5.5 Publicity.............................................................................26
5.6 Other Negotiations....................................................................27
5.7 Closing Conditions....................................................................27
5.8 Environmental Audit...................................................................27
5.9 Hart-Scott-Rodino Compliance..........................................................28
5.10 .....................................................................................28
Article 6 - Pre-closing Covenants of the Buyer..........................................................28
6.1 Publicity; Disclosure.................................................................28
6.2 Closing Conditions....................................................................29
6.3 Application to Chrysler Corporation...................................................29
6.4 Hart-Scott-Rodino Compliance..........................................................29
Article 7 - Conditions Precedent to Obligations of the Buyer............................................29
7.1 Representations and Warranties........................................................29
7.2 Performance of Obligations of the Sellers.............................................29
7.3 Closing Certificate...................................................................29
7.4 Opinion of Counsel....................................................................30
7.5 Supporting Documents..................................................................30
7.6 Bill of Sale, Etc.....................................................................30
7.7 Dealership Leases and Consulting Agreements...........................................31
7.8 Books and Records.....................................................................31
7.9 Change of Name of Sellers; Use of Sellers' Name by Buyer..............................31
7.10 Consents.............................................................................31
7.11 No Litigation........................................................................31
7.12 Authorizations.......................................................................32
7.13 [Intentionally left blank]...........................................................32
7.14 Approval of Legal Matters............................................................32
7.15 [Intentionally left blank]...........................................................32
7.16 [Intentionally left blank]...........................................................32
7.17 Hart-Scott-Rodino Waiting Period.....................................................32
7.18 IPO..................................................................................32
7.19 Certification of Used Car Inventories................................................32
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Article 8 - Conditions Precedent to Obligations of the Sellers..........................................33
8.1 Representations and Warranties........................................................33
8.2 Performance of Obligations of the Buyer...............................................33
8.3 Closing Certificate...................................................................33
8.4 Payment of Purchase Price.............................................................33
8.5 Opinion of Counsel....................................................................33
8.6 Supporting Documents..................................................................33
8.7 Approval of Legal Matters.............................................................34
8.8 No Litigation.........................................................................34
8.9 Hart-Scott-Rodino Waiting Period......................................................34
Article 9 - Transfer Taxes; Proration of Charges........................................................35
9.1 Certain Taxes and Fees................................................................35
9.2 Proration of Certain Charges..........................................................35
Article 10 - Survival of Representations and Warranties; Indemnification................................35
10.1 Survival of Representations and Warranties...........................................35
10.2 Agreement to Indemnify by the Sellers................................................35
10.3 Agreement to Indemnify by the Buyer..................................................36
10.4 Claims for Indemnification...........................................................37
10.5 Procedures Regarding Third Party Claims..............................................37
10.6 Effectiveness........................................................................38
Article 11 - Termination and Termination Fee............................................................39
11.1 Payment of Buyer's Termination Fee; Sellers' Exclusive Remedy;
Buyer's Ability to Terminate........................................................39
11.2 Payment of Sellers' Termination Fee..................................................39
11.3 Security for Termination Fees........................................................40
11.4 Effect of Termination................................................................41
Article 12 - Guaranty of Shareholders...................................................................41
12.1 Guaranty.............................................................................41
12.2 Notice to the Shareholders...........................................................41
12.3 Absoluteness of Guaranty.............................................................41
12.4 Guaranty Not Affected................................................................41
12.5 Waiver...............................................................................42
12.6 No Subrogation.......................................................................42
12.7 Reinstatement........................................................................43
12.8 Effectiveness........................................................................43
Article 13 - Additional Covenants and Agreements........................................................43
13.1 Non-Competition Covenant.............................................................43
13.2 Bulk Sales Compliance................................................................44
13.3 Additional Agreements on Vehicles....................................................44
13.4 Additional Agreements on Health Care Continuation Coverage Costs.....................44
13.5 Expenses Associated with Preparation of Financial Statements.........................45
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Article 14 - Miscellaneous Provisions...................................................................45
14.1 Access to Books and Records after Closing............................................45
14.2 Confidentiality......................................................................45
14.3 Remedies.............................................................................45
14.4 Notices..............................................................................46
14.5 Parties in Interest; No Third Party Beneficiaries....................................47
14.6 Assignability........................................................................47
14.7 Entire Agreement; Amendment..........................................................47
14.8 Headings.............................................................................47
14.9 Counterparts.........................................................................47
14.10 Governing Law.......................................................................48
14.11 Knowledge...........................................................................48
14.12 Jurisdiction; Arbitration...........................................................48
14.13 Waivers.............................................................................49
14.14 Severability........................................................................49
14.15 Expenses............................................................................49
14.16 Regarding Termination Fees..........................................................49
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of this 27th day of May, 1997, by and among SONIC AUTO WORLD, INC., a
Delaware corporation (the "Buyer"), LAKE NORMAN CHRYSLER-PLYMOUTH-JEEP-EAGLE
LLC, a North Carolina limited liability company (the "LLC"), LAKE NORMAN DODGE,
INC., a North Carolina corporation and a member of the LLC (the "Corporation"
and collectively with the LLC, the "Sellers"), QUINTON M. GANDY, a shareholder
of the Corporation and a member of the LLC ("QMG") and PHIL M. GANDY, JR., a
shareholder of the Corporation ("PMG", and together with QMG, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, the Buyer desires to purchase, or to cause a wholly-owned
subsidiary of Buyer to purchase, from the Sellers substantially all of the
assets and properties of the Sellers relating to their respective businesses and
operations, subject to certain exceptions as hereinafter specified, and to
assume, or to cause a wholly-owned subsidiary of Buyer to assume, certain
liabilities of each of the Sellers, all upon the terms and conditions
hereinafter set forth; and
WHEREAS, the Sellers are willing to sell, transfer, convey, assign and
deliver the same to the Buyer, or a wholly-owned subsidiary of the Buyer, upon
the terms and conditions hereinafter set forth; and
WHEREAS, the Shareholders desire that the foregoing be effected.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES
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 contained herein and non-competition covenant and agreement herein of
the Sellers and the Shareholders, at the Closing (as such term is defined in
Article 2 hereof), the Sellers shall sell, transfer, convey, assign and deliver
(or cause to be sold, transferred, conveyed, assigned and delivered) to the
Buyer, and the Buyer shall purchase and accept delivery of, all of the Sellers'
right, title and interest in and to all of the assets of the Sellers of every
kind, character and description, tangible or intangible, real, personal or
mixed, and wherever located, including, without limitation, all of the Sellers'
right, title and interest in and to the names "Lake Norman Dodge, Inc." and
"Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC", and all variations thereof, but
excluding, however, the assets described on Schedule 1.1 (the "Excluded Assets")
(said assets, other than the Excluded Assets, constituting the "Purchased
Assets"). The Purchased Assets will be sold free and clear of all mortgages,
deeds of trust, liens,
pledges, charges, security interests, contractual restrictions, claims or
encumbrances of any kind or character (collectively, "Encumbrances"), other than
those Encumbrances set forth on Schedule 3.7 which secure indebtedness (and only
such indebtedness) included in the Assumed Liabilities (as defined below).
1.2 Assumed Liabilities. On the terms and subject to the conditions of this
Agreement and in reliance upon the representations and warranties contained
herein, at the Closing the Buyer shall assume and undertake to perform all of
the liabilities and obligations of each of the Sellers (the "Assumed
Liabilities"), but excluding, however, the liabilities and obligations
specifically described on Schedule 1.2 (such liabilities and obligations being
hereinafter referred to as the "Excluded Liabilities").
1.3 Purchase Price; Allocation.
(a) Purchase Price. In addition to the assumption by the Buyer of the
Assumed Liabilities, as full consideration to be paid by the Buyer for the
Purchased Assets, the Buyer shall pay to the Sellers the aggregate purchase
price of (i) Fifteen Million, Two-Hundred Thousand Dollars ($15,200,000) (the
"Cash Consideration"), plus (ii) the positive Net Book Value (as defined below)
of the Purchased Assets, not to exceed Three Million Dollars ($3,000,000), on
the date of the Closing (the "Adjustment Amount" and together with the Cash
Consideration, the "Purchase Price"). The Cash Consideration, plus the sum of
Two Million Five Hundred Thousand Dollars ($2,500,000) (the "Initial Adjustment
Amount Payment") shall be payable to the Sellers at Closing by wire transfer of
immediately available funds to the accounts of the Sellers, which shall be
designated by the Sellers in writing at least one full Business Day prior to the
Closing Date. The sum of Five Hundred Thousand Dollars ($500,000) (the "Escrowed
Adjustment Amount") shall be placed in escrow under arrangements acceptable to
both parties of the Closing Date. 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 or authorized to be closed in the State of North Carolina.
(aa) Installment Method. Notwithstanding the foregoing, the Sellers may, by
notice to the Buyer not later than four Business Days prior to Closing, elect to
receive payment of the Cash Consideration and Initial Adjustment Amount Payment
in two installments, the first such installment being in an amount specified in
such notice and payable on the Closing Date and the second such installment
being payable on or before January 1, 1998. If Sellers elect to receive payments
in installments pursuant to this paragraph, at the Closing, the Buyer shall pay
the first installment in cash and shall execute and deliver to the Sellers a
promissory note for the principal amount of the second installment (after
deduction of all letter of credit issuance fees and expenses (including
associated attorneys' fees) actually payable to the issuer of the letter of
credit securing such promissory note). Such promissory note shall bear interest
at a rate equal to the same rate the Buyers would be able to obtain by investing
an amount equal to the principal amount of the note in the letter of credit
bank's money market funds and shall be secured by an irrevocable letter of
credit authorizing Sellers to draw thereon upon certification to the issuer
thereof that Buyer has failed to pay such note when due. Such promissory note
and letter of credit shall be on terms and pursuant to written documents
mutually agreed by Sellers and Buyer.
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(b) Adjustment Procedures. The Buyer will prepare an unaudited combined
balance sheet (the "Closing Balance Sheet") of the Sellers as of the Closing
Date, consisting of a computation of the book value as of the Closing Date of
the Purchased Assets (excluding goodwill and other intangible assets) less the
book value of the Assumed Liabilities, all as determined in accordance with
generally accepted accounting principles applied consistently with the Financial
Statements (as defined in Section 3.4(a)); provided, however, that: inventory
shall be valued on a FIFO basis; the GE Shareholder Payments (as defined in
Section 3.4(b)) shall be excluded; and there shall be included such reserves
and/or write-offs for doubtful accounts receivable and bad debts and for
damaged, spoiled, obsolete or slow-moving inventory as shall be consistent with
the Seller's past year-end practices. The net book value reflected on the
Closing Balance Sheet is hereinafter called the "Net Book Value". The Buyer will
deliver the Closing Balance Sheet to the Sellers within 30 days after the
Closing Date. 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 Sellers
have not given Buyer notice of their objection to the computation of the Net
Book Value as set forth in the Closing Balance Sheet (such notice must contain a
statement of the basis of the Seller's objection), then the Net Book Value
reflected in the Closing Balance Sheet will be deemed mutually agreed by the
Buyer and the Sellers and will be used in computing the Adjustment Amount. If
the Sellers give such notice of objection, then the issues in dispute will be
submitted to a "Big Six" accounting firm, other than Deloitte & Touche LLP,
mutually acceptable to the Buyer and the Sellers (the "Accountants") for
resolution. If issues in dispute are submitted to the Accountants for
resolution, (i) 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; (ii) the Accountants will be
instructed to determine the Net Book Value based upon their resolution of the
issues in dispute; (iii) 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 (iv) the Buyer and the
Sellers shall each bear 50% of the fees of the Accountants for such
determination unless the determination by the Accountants results in an increase
of the Adjustment Amount by more than 10% over the Adjustment Amount based upon
the Net Book Value reflected on the Closing Balance Sheet prepared by the Buyer,
in which case the Buyer shall pay all fees of the Accountant.
To the extent that the Net Book Value, as mutually agreed by the parties or
as determined by the Accountants, exceeds the Initial Adjustment Amount Payment,
the Buyer shall be obligated to pay the amount of such excess, up to the amount
of the Escrowed Adjustment Amount, promptly to the Sellers, one-half to the
Corporation and one-half to the LLC. In furtherance of such obligation of the
Buyer, the parties shall execute and deliver to the escrow agent with whom the
Escrowed Adjustment Amount is on deposit a joint instruction to pay such excess
to the Sellers, with any remaining balance of the Escrowed Adjustment Amount to
be paid to the Buyer. To the extent that the Net Book Value, as mutually agreed
by the parties or as determined by the Accountants, is less than the Initial
Adjustment Amount Payment, the Sellers shall be obligated, jointly and
severally, to pay the amount of such shortfall in the Net Book Value promptly to
the Buyer. In furtherance of such obligation of the Sellers, the parties shall
execute and deliver to the escrow agent with whom
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the Escrowed Adjustment Amount is on deposit a joint instruction to pay up to
the entire amount of the Escrowed Adjustment Amount to the Buyer. To the extent
that the amount of such shortfall in the Net Book Value shall exceed the
Escrowed Adjustment Amount, the Sellers shall be obligated, jointly and
severally, to pay such excess amount of shortfall promptly to the Buyer. Any
interest earned on the Escrowed Amount shall be paid to the Buyer or the Sellers
in proportion to the respective principal amounts of the Escrowed Adjustment
Amount received by each of them.
(c) Allocation. The allocation of the Purchase Price and the Assumed
Liabilities among the Purchased Assets is to be mutually agreed by the Sellers
and the Buyer at the Closing; provided that (i) the amount allocated to the
covenants set forth in Section 13.1 shall be $10,000, (ii) the aggregate
allocation between the Corporation and the LLC shall be equal, and (iii) the
aggregate allocation to the Purchased Assets (other than goodwill) shall not
exceed the Adjustment Amount computed in paragraph (b) above.
1.4 Instruments of Conveyance and Transfer; Further Assurances; Access.
(a) Instruments of Conveyance and Transfer. At the Closing, each of the
Sellers shall deliver to the Buyer a Bill of Sale and Assignment, substantially
in the form of Exhibit 1.4(a) (the "Bill of Sale") and such other endorsements,
certificates of title, assignments and other good and sufficient instruments of
conveyance and transfer, as shall be necessary to vest in the Buyer good, valid,
marketable and insurable title to the Purchased Assets in accordance herewith.
Simultaneously therewith, the Sellers shall take all steps as may be required to
transfer to the Buyer actual possession and exclusive operating control of the
Purchased Assets.
(b) Consulting Agreements. At the Closing, the Shareholders will enter into
consulting agreements with the Buyer on terms reasonably satisfactory to the
Shareholders and the Buyer (the "Consulting Agreements") pursuant to which the
Shareholders will provide part-time consulting services (including advertising
and promotional assistance) to the Buyer on an as needed basis.
(c) Dealership Leases. At the Closing, the Shareholders will enter into
leases to the Buyer's wholly-owned subsidiary (with the guaranty of the Buyer or
other security required by the terms of the leases), as lessee, regarding the
real properties associated with the Sellers' dealership businesses,
substantially in the form of Exhibit 1.4(c) (the "Dealership Leases").
(d) Further Assurances. The Sellers further agree that, from and after the
Closing, they will execute and deliver to the Buyer such additional instruments
and documents and take such further action as the Buyer may reasonably require
in order to more fully vest, record and/or perfect the Buyer's title to, or
interest in, the Purchased Assets.
(e) Shareholders' Covenant to Close. The Shareholders further covenant and
agree to take all necessary officer, director and stockholder or member actions
to cause the Sellers to perform their obligations at and prior to the Closing,
as contemplated by this Agreement.
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1.5 Offers of Employment to Sellers' Employees. On or prior to the date of
the Closing, the Buyer may offer employment to such of the Sellers' employees as
the Buyer shall select, such employment to begin on or after the date of the
Closing and to be upon such terms and conditions as determined by the Buyer in
its sole discretion, but the Buyer has no obligation to employ any person.
ARTICLE 2
CLOSING
The sale and purchase of the Purchased Assets contemplated hereby shall
take place at a closing (the "Closing") at the offices of Parker, Poe, Adams &
Bernstein L.L.P., 2500 Charlotte Plaza, Charlotte, North Carolina, at 10:00 a.m.
local time on 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 September 30, 1997, unless another date or
place is agreed to in writing by the Sellers and the Buyer. The date on which
the Closing actually occurs is hereinafter referred to as the "Closing Date".
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLERS
The Sellers, jointly and severally, hereby represent and warrant to the
Buyer as follows:
3.1 Organization; Good Standing; Qualifications. The Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the State of North Carolina. The Corporation is not required to be qualified
as a foreign corporation in any jurisdiction. The LLC is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of North Carolina. The LLC has not been dissolved, its articles of
organization have not been revoked or suspended, it has not been merged into
another limited liability company in a transaction in which it was not the
survivor, and, if its term of duration is limited, its term has not expired. The
LLC is not required to be qualified as a foreign limited liability company in
any jurisdiction.
3.2 Authority; Consents; Enforceability.
(a) Authority. Each of the Sellers has full organizational power and
authority to carry on its business as now conducted, to execute and deliver this
Agreement and the other agreements, documents and instruments contemplated
hereby, to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder and thereunder. The execution and delivery by
each of the Sellers of this Agreement and the other agreements, documents and
instruments contemplated hereby, the consummation by each of the Sellers of the
transactions contemplated hereby and thereby and the performance by each of the
Sellers of its
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obligations hereunder and thereunder have been duly and validly authorized by
all necessary organizational action, including, without limitation, all
necessary shareholder or member action, as the case may be. The execution and
delivery by each of the Sellers of this Agreement and the other agreements,
documents and instruments contemplated hereby, the consummation of the
transactions contemplated hereby and thereby and the performance by each of the
Sellers of its obligations hereunder and thereunder do not and will not, except
as set forth on Schedule 3.2(a), (i) conflict with or violate any of the
provisions of the articles of incorporation or by-laws, each as amended, of the
Corporation, (ii) conflict with or violate any of the provisions of the articles
of organization or operating agreement, each as amended, of the LLC, (iii)
violate any law, ordinance, rule or regulation or any judgment, order, writ,
injunction or decree or similar command of any court, administrative or
governmental agency or other body applicable to either of the Sellers, the
Purchased Assets or the Assumed Liabilities, (iv) violate or conflict with the
terms of, or result in the acceleration of, any indebtedness or obligation of
either of the Sellers under, or violate or conflict with or result in a breach
of, or constitute a default under, any Material Contract, as defined in Section
3.6, to which either of the Sellers is a party or by which either of the Sellers
or any of the Purchased Assets or Assumed Liabilities are bound or affected, or
(v) result in the creation or imposition of any Encumbrance upon any of the
Purchased Assets.
(b) Consents. Except as set forth in Schedule 3.2(b), no consent,
authorization or approval of, or notice to, or filing or registration with, any
governmental body or authority, or any other third party, is required in
connection with the execution and delivery by either of the Sellers of this
Agreement and the other agreements, documents and instruments to be executed and
delivered in connection herewith, the consummation of the transactions
contemplated hereby and thereby and the performance by each of the Sellers of
its obligations hereunder or thereunder. Upon receipt from the Buyer of a notice
that the Buyer anticipates the Closing to occur within approximately 30 days
from the date of such notice (the "30-Day Notice"), the Sellers shall commence
reasonable commercial efforts to obtain all consents, authorizations, approvals,
notices, filings and registrations set forth on Schedule 3.2(b). The Buyer shall
reasonably cooperate with the Sellers in such efforts by them. Originals or
certified copies thereof, to the extent available, will have been delivered to
the Buyer prior to the Closing.
(c) Enforceability. This Agreement constitutes, and all instruments of
conveyance and other agreements, documents and instruments to be executed and
delivered by each of the Sellers in connection herewith shall, when so executed
and delivered, constitute, the legal, valid and binding obligations of each of
the Sellers, enforceable against each of the Sellers 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.
3.3 Investments. Other than the Corporation's membership interest in the
LLC and customary investments of cash in marketable securities or as set forth
on Schedule 3.3, neither Seller owns, directly or indirectly, any shares of
capital stock or other equity ownership or proprietary or membership interest in
any corporation, limited liability company, partnership, association, trust,
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joint venture or other entity, nor has any commitment to contribute to the
capital of, make loans to, or share in the losses of, any enterprise.
3.4 Financial Statements. (a) The Sellers have delivered to the Buyer prior
to the date hereof:
(i) The reviewed but unaudited balance sheets for the Sellers on a
combined basis as of December 31, 1996, and the related reviewed but
unaudited statements of income, stockholders' equity and changes in cash
flows of the Sellers on a combined basis for the fiscal year then ended
(including the notes thereto and any other information included therein),
accompanied, in each case, by the report of Dellinger & Deese PLLC, the
Sellers' independent certified public accountants (collectively, the
"Annual Financial Statements"); and
(ii) The unaudited balance sheet of the Sellers on a combined basis as
of March 31, 1997 and the related unaudited statements of income,
stockholders' equity and changes in cash flow for the three month period
then ended (collectively, the "Interim Financial Statements"), as certified
by each of the Sellers' respective President and Manager, as the case may
be, (the Annual Financial Statements and the Interim Financial Statements
are hereinafter collectively referred to as the "Financial Statements").
(b) The Financial Statements (i) include the payments by Dealer Financial
Services, Inc. and GE Capital Corporation to the Shareholders (as reported on
Internal Revenue Service Forms 1099) pursuant to which the Shareholders receive
commissions on General Electric service contracts sold by the Sellers (the "GE
Shareholder Payments"), (ii) are in accordance with the books and records of the
Sellers, which books and records are true, correct and complete in all material
respects, (iii) fully and fairly present the financial condition and results of
the operations of the Sellers as of and for the periods indicated, and (iv) have
been prepared in accordance with generally accepted accounting principles
consistently applied, except as set forth on Schedule 3.4.
3.5 Absence of Certain Changes. Since December 31, 1996 the Sellers have
operated their businesses in the ordinary course and, except as set forth on
Schedule 3.5, there has not been incurred, nor has there occurred:
(a) Any (i) damage, destruction or loss not covered by insurance, or (ii)
any damage, destruction or loss covered by insurance and in excess of one
million dollars ($1,000,000), in either case adversely affecting the Purchased
Assets or the business of either of the Sellers;
(b) Except for such liens as may be disclosed on Schedule 3.7, any sale,
transfer, pledge or other disposition of any tangible or intangible assets of
the either of the Sellers (except sales of vehicle and parts inventory in the
ordinary course of business) having an aggregate book value of $75,000 or more;
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(c) Any termination, amendment, cancellation or waiver of any Material
Contract (as defined in Section 3.6 hereof) or any termination, amendment,
cancellation or waiver of any material rights or claims of either of the Sellers
under any Material Contract (except in each case in the ordinary course of
business and consistent with past practices);
(d) Any material change in the accounting methods, procedures or practices
followed by either of the Sellers or any change in depreciation or amortization
policies or rates theretofore adopted by the Sellers;
(e) Except as may be disclosed on Schedules 3.8(b), 3.9(b), 3.22 and 3.23,
any obligation or liability for indebtedness for (i) borrowed money (or the
guaranty thereof), or (ii) the deferred purchase price of assets or for the
leasing of real or personal property requiring total payments in any single
instance in excess of $10,000 incurred by either of the Sellers (whether jointly
or severally) to any person or entity;
(f) Any material change in policies, operations or practices with respect
to business operations followed by either of the Sellers, 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 Sellers
concerning the employees of the Sellers;
(g) Any statute, rule, regulation or order adopted or promulgated which
materially and adversely affects the Purchased Assets or the business of the
Sellers or the ability of the Sellers to enter into valid, binding and
enforceable agreements;
(h) Any capital appropriation or expenditure or commitment therefor on
behalf of the Sellers in excess of $50,000 individually, or $100,000 in the
aggregate;
(i) Any general uniform increase, other than in the ordinary course of
business, in the compensation of employees of either of the Sellers (including,
without limitation, any increase, other than in the ordinary course of business,
pursuant to any bonus, incentive pay system, pension, profit-sharing, defined
compensation or other plan or commitment) (other than any bonus which is fully
paid and satisfied prior to Closing), or any increase in excess of $25,000 in
any such compensation payable to any individual officer, director, consultant or
agent thereof, or any loans or commitments therefor made by either of the
Sellers to any persons, including any officers, directors, stockholders,
employees, consultants or agents of the Sellers or any of their affiliates;
(j) Any account receivable in excess of $50,000 or note receivable in
excess of $50,000 owing to either of the Sellers which (i) has been written off
as uncollectible, in whole or in part, (ii) has had asserted against it any
claim, refusal or right of setoff, or (iii) 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 either of the Sellers
which has, or could
8
reasonably be expected to have, a material adverse effect on the Purchased
Assets or the business or operations of the Sellers; or
(l) Any agreement, whether in writing or otherwise, by either of the
Sellers to take or do any of the actions enumerated in this Section 3.5.
3.6 Material Contracts.
(a) List of Material Contracts. Set forth on Schedule 3.6(a) is a list of
all of the following contracts, agreements, documents, instruments,
understandings or arrangements, written or oral, relating to the Purchased
Assets or the Assumed Liabilities, other than vehicle and parts purchase and
sale contracts made in the ordinary course of business (collectively, the
"Material Contracts"):
(i) purchase or sales orders and other contracts for the sale of goods
or services in excess of $50,000 individually;
(ii) purchase orders or contracts involving the expenditure of more
than $50,000 in any instance for the purchase of materials, supplies,
equipment or services and which are not cancelable within thirty (30) days
without penalty;
(iii) contracts which have a term in excess of one (1) year and
involve the expenditure of more than $75,000;
(iv) contracts and agreements relating to the leasing (as lessor or
lessee) or to the conditional purchase or sale by the Sellers of any
property, real, personal or mixed and pursuant to which the Sellers'
outstanding obligations exceed $10,000;
(v) contracts, commitments and arrangements with any governmental
body, agency or authority;
(vi) indentures, mortgages, deeds of trust, promissory notes, loan
agreements, capital leases (except to the extent covered in (iv) above),
security agreements or other agreements or commitments for the borrowing of
money, or the deferred purchase price of assets (except to the extent
covered in (iv) above), or which otherwise evidence indebtedness of the
Sellers for borrowed money or which create an Encumbrance on any of the
Purchased Assets;
(vii) guarantees of the obligations of a third party or agreements to
indemnify third parties;
(viii) agreements which restrict the Sellers from doing business with
any other person or entity in any geographic area or from producing or
selling any product;
9
(ix) contracts or agreements with any of the Shareholders or any
affiliate (as defined below) of any of the Shareholders;
(x) license agreements (as licensee or licensor) with third parties;
(xi) employment, severance, change of control, parachute, or
consulting agreements or arrangements and collective bargaining agreements
and other related agreements, other than oral at-will arrangements with any
employees the termination of which will not require the payment of any
money;
(xii) distributor, dealer, sales, advertising, agency, manufacturer's
representative, franchise or similar agreements or any other contract
relating to the payment of a commission, including, but not limited to, all
agreements with Chrysler Corporation, General Motors Corporation or other
vehicle manufacturer or distributor;
(xiii) profit-sharing, deferred compensation, bonus, incentive, stock
option, pension, retirement, stock purchase, hospitalization, insurance or
similar plan, agreement or policy, formal or informal, funded or unfunded,
providing benefits to any current or former director, officer, shareholder
or employee;
(xiv) any agreement, arrangement, commitment or understanding for the
sale of any of the Purchased Assets, outside the ordinary course of
business; and
(xv) any other agreement, understanding or arrangement, written or
oral, which, in the judgment of the Sellers and the Shareholders, is
material to the business of the Sellers, the Purchased Assets or the
Assumed Liabilities and not otherwise described in this Section 3.6.
True copies of all written Material Contracts and written summaries of all
oral Material Contracts described or required to be described on Schedule 3.6(a)
will be delivered to the Buyer or its counsel promptly after the date hereof.
For purposes of this Agreement, an "affiliate" is any person or entity which,
directly or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with a person or entity 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) Performance, Defaults, Enforceability. Except as set forth on Schedule
3.6(b), the Sellers have in all material respects performed all of their
obligations required to be performed by them to the date hereof, and are not in
default or alleged to be in default in any material respect, under any Material
Contract, and there exists no event, condition or occurrence which, after notice
or lapse of time or both, would constitute such a default. Except as set forth
on Schedule 3.6(b), to the knowledge of the Sellers, no other party to any
Material Contract is in default in any respect of any of its obligations
thereunder. Each of the Material Contracts is valid and in
10
full force and effect, and, except as set forth in Schedule 3.6(b), the transfer
and assignment to the Buyer of all of the Material Contracts, will not (i)
require the consent of any party thereto or (ii) constitute an event permitting
termination thereof.
3.7 Title to Purchased Assets and Related Matters. The Sellers have good,
marketable and insurable title to all of the tangible Purchased Assets, free and
clear of all Encumbrances, except those described on Schedule 3.7 or another
schedule hereto and liens for taxes not yet due and payable, liens of
materialmen, mechanics and the like, incurred and discharged in the ordinary
course of business, and liens in the ordinary course of business in connection
with workers' compensation, unemployment insurance and the like. Except as set
forth in Schedule 3.7 or another schedule hereto, the Purchased Assets: (i)
include all properties and assets (real, personal and mixed, tangible and
intangible, and all leases, licenses and other agreements) utilized by the
Sellers in carrying on their business in the ordinary course; (ii) are in the
exclusive possession and control of the Sellers and no person or entity other
than the Sellers are entitled to possession of any portion of the Purchased
Assets; and (iii) do not include 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.
3.8 Real Property of the Sellers.
(a) Owned Real Property. The Sellers do not own and have never owned any
real property.
(b) Leased Premises. Schedule 3.8(b) contains a complete list and
description (including buildings and other structures thereon) of all real
property of which the Sellers are individually or jointly tenants (herein
collectively the "Leased Premises"), true and complete copies of the leases
thereof (except existing leases to be replaced by the Dealership Leases) have
been delivered to the Buyer. Except as set forth in Schedule 3.8(b), the Leased
Premises are in good physical condition and repair, except for ordinary wear and
tear and any damage, destruction or loss which would not be a breach of the
Sellers' representations and warranties contained in Section 3.5(a) above. The
Sellers have no knowledge of any event or condition which currently exists which
would create a legal or other impediment to the use of the Leased Premises as
currently used, or would increase the additional charges or other sums payable
by the tenant under any of the leases (together with the Dealership Leases, the
"Leases") (including, without limitation, any pending tax reassessment or other
special assessment affecting the Leased Premises). Except as set forth in
Schedule 3.8(b), the improvements and building systems which comprise a part of
the Leased Premises as to which the Sellers are responsible for the maintenance
and repair thereof are in good condition, maintenance and repair, except for
ordinary wear and tear and any damage, destruction or loss which would not be a
breach of the Sellers' representations and warranties contained in Section
3.5(a) above. Except for easements and restrictions of record, there is no
person or entity other than the Sellers in or entitled to possession of the
Leased Premises.
(c) Easements, Etc. The Leased Premises have sufficient easements and
rights, including, but not limited to, easements for power lines, water lines,
sewers, roadways and
11
other means of ingress and egress, to conduct the businesses the Sellers now
conduct, all such easements and rights are unconditional appurtenant rights to
the Leased Premises for terms not less than those of the Leases, including
without limitation, renewal periods with respect to the Leased Premises, and
none of such easements or rights are subject to any forfeiture or divestiture
rights.
(d) Condemnation. Neither the whole nor any portion of any of the Leased
Premises has been condemned, expropriated, ordered to be sold or otherwise taken
by any public authority, with or without payment or compensation therefor, and
the Sellers do not know of any such condemnation, expropriation, sale or taking,
or have any grounds to anticipate that any such condemnation, expropriation,
sale or taking is threatened or contemplated. The Sellers have no knowledge of
any pending assessments which would affect the Leased Premises.
(e) Zoning, Etc. Except as set forth in Schedule 3.8(e), none of the Leased
Premises is in violation of any public or private restriction or any law or any
building, zoning, health, safety, fire or other law, ordinance, code or
regulation, and, except as set forth on Schedule 3.8(e), no notice from any
governmental body has been served upon the Sellers or upon any of the Leased
Premises claiming any violation of any building, zoning, health, safety, fire or
other law, ordinance, code or regulation or requiring or calling to the
attention of the Sellers the need for any work, repair, construction,
alterations or installation on or in connection with said properties, with which
the Sellers have not complied.
Notwithstanding anything to the contrary contained herein, all representations
and warranties of the Sellers in this Section 3.8 are made to the knowledge of
the Sellers insofar as such representations and warranties relate to Leased
Premises not owned by the Sellers, the Shareholders or their respective
affiliates.
3.9 Machinery, Equipment, Etc.
(a) Owned Equipment. Schedule 3.9(a) sets forth a list of all material
machinery, equipment, tools, motor vehicles, furniture and fixtures owned by the
Sellers and included in the Purchased Assets (collectively, the "Owned
Equipment").
(b) Leased Equipment. Schedule 3.9(b) contains a list of all personal
property leases or other agreements, whether written or oral, having total
remaining payments in excess of $10,000 and under which the Sellers individually
or jointly are lessees of or hold or operate any items of machinery, equipment,
motor vehicles, furniture and fixtures or other property owned by any third
party (collectively the "Leased Equipment").
(c) Maintenance of Equipment. Except as set forth on Schedule 3.9(c), the
Owned Equipment and the Leased Equipment is in good operating condition,
maintenance and repair in accordance with industry standards, except for
ordinary wear and tear and any damage, destruction or loss which would not be a
breach of the Sellers' representations and warranties contained in Section
3.5(a) above.
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3.10 Inventories of the Sellers. All inventories of the Sellers included in
the Purchased Assets consist in all material respects of items of a quality and
quantity usable and salable in the normal course of their businesses at the
values at which such inventories are carried, are generally sufficient to do
business in the ordinary course, and the levels of inventories are consistent
with the levels maintained by the Sellers in the ordinary course consistent with
past practices and the Sellers' obligations under their agreements with Chrysler
Corporation or other vehicle manufacturer or distributor. The values at which
such inventories are carried are based on (a) the LIFO method in the case of new
vehicle inventory, and (b) the FIFO method in the case of used vehicles and
spare parts inventories, and are stated in accordance with generally accepted
accounting principles consistently applied by the Sellers at the lower of
historic cost or market.
3.11 Accounts Receivable of the Sellers. The Sellers have delivered to the
Buyer a true and correct aged list of all unpaid accounts receivable of the
Sellers as of May 1, 1997. All accounts receivable of the Sellers included in
the Purchased Assets will constitute legal, valid and binding and enforceable
claims with respect to which the rendition of services or the sale of goods has
been completed in bona fide transactions in the ordinary course of business, are
collectible at the aggregate recorded amounts thereof, subject to the Sellers'
customary bad debt write-off which would, but for the Closing, be taken at the
end of 1997, in the ordinary course of the Sellers' business, and are not
subject to any known offsets or counterclaims.
3.12 Approvals, Permits and Authorizations. Set forth on Schedule 3.12 is a
list of all governmental licenses, permits, certificates of inspection, other
authorizations, filings and registrations which are necessary in all material
respects for the Sellers to own the Purchased Assets and to operate their
businesses as presently conducted (collectively, the "Authorizations"). All
Authorizations have been duly and lawfully secured or made by the Sellers and
are in full force and effect. There is no proceeding pending or overtly
threatened or, to the Sellers' knowledge, any basis for a claim, to revoke or
limit any Authorization. From the date hereof to and including the Closing Date,
the Sellers will make all reasonable commercial efforts to maintain the
Authorizations. As of the Closing, all Authorizations will be transferred
pursuant to this Agreement to the Buyer to the extent permitted by law. Upon
receipt of the 30-Day Notice, the Sellers will take all reasonable commercial
steps to obtain, and will cooperate with the Buyer to obtain, all consents and
approvals required to effect such transfer. With respect to renewal of
Authorizations, the Sellers have made, in a timely manner, all filings, reports,
notices and other communications with the appropriate governmental body, and
have otherwise taken, in a timely manner, all other action, known or anticipated
to be required to be taken by the Sellers, reasonably necessary to secure the
renewal of the respective Authorizations prior to the date of their respective
expirations.
3.13 Compliance with Laws. The Sellers have conducted their operations and
businesses in all material respects in compliance with, and all of the Purchased
Assets comply in all material respects with, (i) all applicable laws, rules and
regulations (including, without limitation, any laws, rules and regulations
relating to anticompetitive practices, contracts, discrimination, employee
benefits, employment, health, safety, and zoning, but excluding Environmental
Laws which are the subject of Section 3.29 hereof) and (ii) all applicable
orders, rules, writs, judgments, injunctions, decrees and ordinances. The
Sellers have not received any currently pending
13
notification of any asserted present or past failure by them to comply with such
laws, rules or regulations, or such orders, rules, writs, judgments,
injunctions, decrees or ordinances. Set forth on Schedule 3.13 are all orders,
writs, judgments, injunctions, decrees or other awards of any court or any
governmental instrumentality presently applicable to the Purchased Assets or the
Sellers or their businesses and operations. The Sellers have delivered to the
Buyer copies of all reports, if any, of the Sellers required to be prepared by
the Sellers within the last 2 years under the Federal Occupational Safety and
Health Act of 1970, as amended, and under all other applicable health and safety
laws and regulations. The deficiencies, if any, noted on such reports or any
deficiencies noted by inspection through the Closing Date have been, or as of
the Closing Date, will have been, corrected by the Sellers.
3.14 Insurance.
(a) Schedule 3.14(a) of this Agreement sets forth 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 Sellers on their properties, operations, inventories, assets,
businesses or personnel (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims in excess of $5,000 thereunder).
Each such insurance policy identified therein is and shall remain in full force
and effect on and as of the Closing Date (subject to cancellation immediately
thereafter unless continued by the Buyer) and the Sellers are not in default
with respect to any provision contained in any such insurance policy and have
not failed to give any notice or present any claim under any such insurance
policy in a due and timely fashion. No notice of cancellation or termination has
been received with respect to any such policy. The Sellers have not, during the
last three (3) fiscal years, been denied or had revoked or rescinded any policy
of insurance.
(b) Set forth on Schedule 3.14(b) is a summary of information pertaining to
property damage and personal injury claims in excess of $5,000 against either of
the Sellers 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
Sellers.
3.15 Taxes.
(a) All federal, state and local tax returns and reports required as of the
date hereof to be filed by the Sellers for taxable periods ending prior to the
date hereof have been duly and timely filed (after giving effect to applicable
extension periods) by the Sellers with the appropriate governmental agencies,
and all such returns and reports are true, correct and complete.
(b) 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 Sellers for all periods prior
to the date hereof have been fully paid or adequately reserved for by the
Sellers or, with respect to Taxes required to be accrued, the Sellers have
properly accrued or will properly accrue such Taxes in the ordinary course of
business consistent with past practice
14
of the Sellers, in all cases except to the extent (i) the requirement to pay or
accrue such tax is unknown to the Sellers and immaterial as to amount and (ii)
being contested in good faith by appropriate proceedings with adequate reserves
therefor.
(c) The federal income tax returns of the Sellers have not been examined by
the Internal Revenue Service ("IRS") since the taxable period ended December 31,
1993. Except as set forth on Schedule 3.15, the Sellers have 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 3.15, no examination or audit of any tax
return or report of either of the Sellers 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 Sellers. Copies of all federal, state and local tax returns and
reports required to be filed by the Sellers for the years ended December 31,
1995 and 1994, together with all schedules and attachments thereto, have been
previously delivered to the Buyer.
(d) The Corporation, with the consent of the Shareholders, has validly
elected under Subchapter S of the Internal Revenue Code of 1986, as amended (the
"Code"), to be taxed as a small business corporation for the Corporation's
taxable year beginning January 1, 1987, and such tax election has continued
uninterrupted for that time and is still in effect and will remain in effect
through the Closing. The Corporation and the Shareholders from the date hereof
though the Closing will not cause or allow the Corporation's election to be
taxed as a small business corporation under Subchapter S of the Code to
terminate and will not perform or fail to perform any act which might jeopardize
the continued validity of said election through such date.
(e) The Sellers are not now, and have never been, members 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 Sellers. Neither of the Sellers is a party to any agreement or
arrangement that would result in the payment of any "excess parachute payments"
under Code Section 280G. Except as set forth on Schedule 3.15, the Sellers are
not required to make any adjustment under Code Section 481(a). No power of
attorney relating to Taxes is currently in effect affecting the Sellers.
3.16 Litigation. Except as set forth in Schedule 3.16, there are no
actions, suits, claims, investigations or legal or administrative or arbitration
proceedings pending or overtly threatened, against the Sellers with respect to
the Purchased Assets or the Assumed Liabilities or the businesses of the
Sellers, other than customer complaints in the ordinary course of business.
Except as set forth on Schedule 3.6(b), the Sellers know of no basis for the
institution of any such action, suit, claim, investigation or proceeding. The
Sellers are not now under any judgment, order, writ, injunction, decree, award
or other similar command of any court, administrative agency or other
governmental authority applicable to the businesses of the Sellers or any of the
Purchased Assets or Assumed Liabilities.
15
3.17 Powers of Attorney. Except as set forth on Schedule 3.17, there are no
persons, firms, associations, corporations, business organizations or other
entities holding general or special powers of attorney from the Sellers other
than the registered corporate agents of the Sellers in the State of North
Carolina and powers of attorney granted under and embodied in the written terms
of the Material Contracts.
3.18 Broker's and Finder's Fees. The Sellers have not incurred any
liability to any broker, finder or agent or any other person or entity for any
fees or commissions with respect to the transactions contemplated by this
Agreement, and the Sellers hereby agree to assume all liability to any such
broker, finder or agent or any other person or entity claiming any such fee or
commission.
3.19 Employee Relations. The Sellers employ a total of 226 employees as of
May 14, 1997. Except as set forth in Schedule 3.19: (a) the Sellers are not
delinquent in the payment (i) to or on behalf of any 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 the date of the
Closing, as the case may be, (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 or any other party arising under or with respect to a claim that has
been filed under state statutes and approved in the ordinary course in
accordance with the Sellers' policies regarding workers' compensation and/or any
applicable state statute or administrative procedure; (b) there is no material
unfair labor practice charge or complaint against the Sellers pending before the
National Labor Relations Board, and, to the knowledge of the Sellers, none is
threatened; (c) there is no labor strike, dispute, slowdown or stoppage actually
in progress or, to the knowledge of the Sellers, threatened against the Sellers;
(d) there are no collective bargaining agreements currently in effect between
the Sellers and labor unions or organizations representing any employees of the
Sellers; (e) no collective bargaining agreement is currently being negotiated by
the Sellers; (f) there are no union organizational drives in progress and there
has been no formal or informal request to the Sellers for collective bargaining
or for an employee election from any union or from the National Labor Relations
Board; (g) no union representation or jurisdictional dispute or question exists
respecting the employees of the Sellers; (h) no material grievance or
arbitration proceedings are pending and no claim therefor has been asserted
against the Sellers; and (i) no material dispute exists between either of the
Sellers and any of their 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.
3.20 Compensation. Schedule 3.20 contains a schedule of all employees
(including sales representatives) and consultants of the Sellers 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 incentive pay system, bonus or commission) for each such
person.
16
3.21 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc.
(a) Except as set forth on Schedule 3.21, there are no patents, trademarks,
trade names, service marks, service names and registered copyrights, which are
material to the Sellers' businesses, and there are no applications therefor or
licenses thereof, inventions, computer software, logos, or slogans, which are
owned or leased by the Sellers or used in the conduct of the Sellers' business.
Except as set forth on Schedule 3.21, the Sellers are not individually or
jointly a party to, and do not pay 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 Sellers that any of their
operations, activities or products infringe the patents, trademarks, trade
names, copyrights or other property rights of others or that either of the
Sellers is wrongfully or otherwise using the property rights of others. To the
Sellers' knowledge, no third party is violating the Sellers' intangible property
rights.
(b) The Sellers are the owners of the names "Lake Norman Dodge, Inc." and
"Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC" in the State of North Carolina
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 in North Carolina.
3.22 Certain Liabilities.
(a) Part 1 of Schedule 3.22 sets forth a true and complete aged listing of
all accounts payable owing by the Sellers as of May 1,1997. All accounts payable
by the Sellers to third parties as of the date hereof arose in the ordinary
course of business and none are delinquent or past due, except as may be noted
on such Schedule and except to the extent payment thereof is being disputed in
an appropriate manner and the disputed amounts are adequately reserved on the
respective Sellers' books of account.
(b) Part 2 of Schedule 3.22 sets forth a list of all indebtedness of the
Sellers as of the close of business on the day preceding the date hereof (other
than accounts payable) including, without limitation, money borrowed, 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 penalties or premiums and the unpaid
principal amount of such indebtedness as of such date.
3.23 No Undisclosed Liabilities. The Sellers do 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, (c) fully insured by third party insurance carriers,
or (d) disclosed specifically on Schedule 3.23.
3.24 Certain Transactions. Except as set forth in Schedule 3.24, there are
no transactions between any Seller and any of the Shareholders (including the
Shareholders' affiliates),
17
or the Sellers' or Shareholders' (including the Shareholders' affiliates)
directors, officers or salaried employees, or the family members or affiliates
of any of the above (other than for services as employees, officers and
directors), including, without limitation, any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from, any of the Shareholders, or any such officer, director or salaried
employee, family member, or affiliate or 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.
3.25 Business Generally. The Sellers have not agreed to sell the Purchased
Assets to the Buyer based in whole or in part on the knowledge of any
information concerning the Sellers which has, or could reasonably be expected to
have, a material adverse effect on the businesses and operations of the Sellers,
taken as a whole, and which has not been disclosed to the Buyer hereunder.
3.26 Employee Benefits.
(a) Schedule 3.26 lists each "employee benefit plan" (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) maintained by the Sellers or to which the Sellers contribute or are
required to contribute and also lists each deferred compensation plan, bonus
plan, severance plan, stock option plan, "phantom" stock plan, employee stock
purchase plan, cafeteria plan, and each other employee benefit plan, agreement,
arrangement, policy or commitment of the Sellers, whether formal or informal,
written or oral, funded or unfunded, covering employees or former employees of
the Seller (each such plan being hereinafter called an "Employee Benefit Plan").
For this purpose and for the purpose of all of the representations in this
Section 3.26, the term Sellers shall include the Shareholders and all entities
which by reason of common control are treated together with the Sellers and/or
Shareholders as a single employer in accordance with Section 414 of the Internal
Revenue Code (the "Code").
(b) The Sellers do not maintain or contribute to, and have never maintained
or contributed to, an Employee Benefit Plan subject to Title IV of ERISA or a
"multiemployer plan" (as defined in Section 3(37) of ERISA).
(c) Each Employee Benefit Plan and any related trust agreements or annuity
contracts (or any other funding instruments) has been administered and
maintained to date in substantial compliance with the provisions of its terms,
ERISA and the Code, where required, and all other applicable laws, rules and
regulations; and a favorable determination as to the qualification under the
Code of each Employee Benefit Plan intended to be so qualified, and each
amendment thereto, has been made by the IRS.
(d) No Employee Benefit Plan is funded by means of a VEBA or is otherwise
subject to the funding rules of Sections 419 and 419A of the Code. The Sellers
comply and have substantially complied with the health care continuation
coverage (COBRA) requirements of Section 4980B of the Code and Sections 601-608
of ERISA and any applicable state health care continuation coverage
requirements. Sellers have made no promises or incurred any liability,
18
pursuant to an Employee Benefit Plan or otherwise, to provide medical or other
welfare benefits to retired or former employees of the Sellers (other than COBRA
or state mandated continuation coverage, where applicable).
(e) To the knowledge of the Sellers, neither the Sellers nor any plan
fiduciary of any Employee Benefit Plan has engaged in any transaction which
would result in any tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any plan fiduciaries breached any of their
responsibilities or obligations imposed upon fiduciaries under Title I of ERISA
which may result in any claim being made under or by or on behalf of any
Employee Benefit Plan by any party with standing to make such claim. No
litigation concerning any Employee Benefit Plan is pending or, to the Sellers'
knowledge, threatened or probable of assertion, nor, to the knowledge of the
Sellers, is there outstanding any complaint to the Department of Labor
concerning any such plan.
(f) True and complete copies of each Employee Benefit Plan, related trust
agreements or annuity contracts (or any other funding instruments), most recent
Summary Plan Descriptions thereof, all records concerning any IRS or Department
of Labor audit, if any, of the same or of deductions for contributions thereto,
the three most recent Annual Reports on Form 5500 Series required to be filed
with any governmental agency for each Employee Benefit Plan and annual financial
statements for the last three (3) plan years of any Employee Benefit Plan,
together with test results demonstrating compliance with coverage and either
contributions or benefits non-discrimination, as required by the Code, have
heretofore been delivered by the Sellers to the Buyer.
(g) All Employee Benefit Plans, related trust agreements or annuity
contracts (or any other funding instruments) are legally valid and binding and
in full force and effect, and there are no material defaults thereunder. None of
the rights of the Sellers thereunder will be impaired by the consummation of the
transactions contemplated by this Agreement.
3.27 Sellers and Shareholders Not Foreign Persons. Neither the Sellers nor
any of the Shareholders is a "foreign person" as that term is defined in the
Code and the regulations promulgated pursuant thereto, and the Buyer has no
obligation under Section 1445 of the Code to withhold or pay over to the IRS any
part of the "amount realized" (as such term is defined in the regulations issued
under Section 1445 of the Code) by the Sellers and/or the Shareholders in the
transactions contemplated hereby.
3.28 Suppliers and Customers. Except as set forth in Schedule 3.28, the
Sellers are not required to provide bonding or any other security arrangements
in connection with any transactions with any of its respective customers or
suppliers. Except as disclosed on Schedule 3.28, to the knowledge of the
Sellers, no material supplier or creditor intends or has threatened to terminate
or modify any of their respective relationships with the Sellers.
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3.29 Environmental Matters.
(a) For purposes of this Section 3.29, the following terms shall have the
following meaning:
(i) "Environmental Law" means all present and future 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 Material" means any waste, pollutant, chemical,
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 constituent contained within any
waste and any other pollutant, material, substance or waste regulated under
or as defined by any Environmental Law.
(b) The Sellers have obtained all permits, licenses and other
authorizations or approvals required under Environmental Laws for the conduct
and operation of the Purchased Assets in all material respects ("Environmental
Permits"). All such Environmental Permits are in good standing, the Sellers are
and have 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 threatened to revoke any such Environmental Permit.
(c) Except as may be disclosed in the environmental reports referred to in
Section 3.29(l), the Sellers and the Purchased Assets are and have been in
compliance in all material respects with all Environmental Laws.
(d) Except as may be disclosed in the environmental reports referred to in
Section 3.29(l), neither the Sellers nor the Shareholders 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 of any Hazardous Material or any other environmental
condition or a release or threatened release on, in or under the Leased Premises
or any other property formerly owned, used or leased by the Sellers, (ii) any
other circumstances forming the basis of any actual or alleged violation by the
Sellers of any Environmental Law or any liability of the Sellers under any
Environmental Law, (iii) any remedial or removal action required to be taken by
the Sellers under any 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. The
Sellers have not entered into any agreements concerning any removal or
remediation of Hazardous Materials
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(e) No lawsuits, claims, civil actions, criminal actions, administrative
proceedings, investigations or enforcement or other actions are pending or
overtly threatened under any Environmental Law with respect to the Sellers or
the Leased Premises.
(f) Except as may be disclosed in the environmental reports referred to in
Section 3.29(l) or as disclosed on Schedule 3.29, no Hazardous Materials are or
have been released, discharged, spilled or disposed of onto, or migrated onto,
the Leased Premises or any other property previously owned, operated or leased
by the Sellers, and no environmental condition exists (including, without
limitation, the presence, release, threatened release or disposal of Hazardous
Materials) related to the Leased Premises, to any property previously owned,
operated or leased by the Sellers, or to the Sellers' past or present
operations, which would constitute a violation of any Environmental Law or
otherwise give rise to costs, liabilities or obligations under any Environmental
Law.
(g) Neither the Sellers nor any of their 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, 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, or (iii) about which the
Sellers or the Shareholders have received or have reason to expect to receive a
potentially responsible party notice or other notice under any Environmental
Law.
(h) No environmental lien has attached or is threatened to be attached to
the Leased Premises.
(i) No employee of the Sellers in the course of his or her employment with
the Sellers has been exposed to any Hazardous Materials or other substance,
generated, produced or used by the Sellers which could give rise to any material
claim (whether or not such claim has been asserted) against the Sellers.
(j) Except as set forth on Schedule 3.29(j) and except as may be disclosed
in the environmental reports referred to in Section 3.29(l), the 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 provided in the written terms of the Material Contracts, the
Sellers have 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.
21
(l) Except as set forth on Schedule 3.29(l), to the knowledge of the
Sellers, there have been no environmental studies or reports made relating to
the Leased Premises or any other property or facility previously owned, operated
or leased by the Sellers.
(m) Notwithstanding anything to the contrary contained herein, all
representations and warranties of the Sellers in paragraphs (e) through (j) and
(l) of this Section 3.29 are made to the knowledge of the Sellers insofar as
such representations and warranties relate to real property not owned by the
Sellers, the Shareholders or their respective affiliates.
3.30 Bank Accounts and Safe Deposit Boxes. Schedule 3.30 lists all bank
accounts, credit cards and safe deposit boxes in the name of, or controlled by,
the Sellers, and details about the persons having access to or authority over
such accounts, credit cards and safe deposit boxes.
3.31 Warranties. Set forth on Schedule 3.31 are descriptions or copies of
the forms of all express, unexpired warranties and disclaimers of warranty made
by the Sellers (separate and distinct from any applicable manufacturers',
suppliers' or other third-parties' warranties or disclaimers of warranties) to
customers or users of the vehicles, parts, products or services of the Sellers.
Except for no more than $300,000 per year of warranty repairs and accommodations
made for customers in the ordinary course of business, there has been no breach
of warranty or breach of representation claim against the Sellers during the
past five years which has resulted in any cost, expenditure or exposure to the
Seller of more than $10,000 individually.
3.32 Interest in Competitors and Related Entities. Except as set forth on
Schedule 3.32, no Shareholder and no affiliate of any Shareholder (i) 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 Sellers, (ii) has any
direct or indirect interest in any person or entity which is a lessor of assets
or properties to, material supplier of, or provider of services to, the Sellers,
or (iii) has a beneficial interest in any contract or agreement to which either
of the Sellers is a party; provided, however, 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 the
Shareholders individually and collectively own less than 3% of the issued and
outstanding voting stock.
3.33 Availability of Sellers' Employees. There have been no actions taken
by the Sellers, their affiliates, or any of their respective shareholders,
officers, directors, members, managers or employees, to discourage, or in any
way prevent, any of the employees of the Sellers from being hired by the Buyer
after Closing.
3.34 Misstatements and Omissions. No representation or warranty made by the
Sellers in this Agreement, and no statement contained in any certificate or
Schedule furnished or to be furnished by the Sellers or any of the Shareholders
pursuant hereto, 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 or warranty or such statement not misleading.
22
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as follows:
4.1 Organization and Good Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Authority; Consents; Enforceability.
(a) Authority. The Buyer has full corporate power and authority to execute
and deliver the Agreement and the other agreements and documents and instruments
contemplated hereby, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. The execution
and delivery by the Buyer of this Agreement and the other agreements, documents
and instruments contemplated hereby, the consummation by the Buyer of the
transactions contemplated hereby and thereby and the performance by the Buyer of
its obligations hereunder and thereunder have been duly and validly authorized
by all necessary corporate action on the part of the Buyer. The execution and
delivery by the Buyer of this Agreement and the other agreements, documents and
instruments contemplated hereby, the consummation by the Buyer of the
transactions contemplated hereby and thereby and the performance by the Buyer of
its obligations hereunder and thereunder will not (i) conflict with or violate
any of the provisions of the Certificate of Incorporation or By-laws of the
Buyer, (ii) violate any law, ordinance, rule or regulation or any judgment,
order, writ, injunction or decree or similar command of any court administrative
or governmental agency or other body applicable to the Buyer or any of its
assets, or (iii) violate or conflict with the terms of, or result in the
acceleration of, any indebtedness or obligation of the Buyer under, or violate
or conflict with or result in a breach by the Buyer of, or constitute a default
under, any material instrument, agreement or indenture or any mortgage, deed of
trust or similar contract to which the Buyer is a party or by which the Buyer or
any of its assets may be otherwise bound or affected.
(b) Consents. Except as set forth in Schedule 4.2(b), no consent,
authorization or approval of, or notice to, or filing or registration with, any
governmental body or authority, 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 and delivered 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. The Buyer shall use reasonable commercial
efforts to obtain all consents, authorizations, approvals, notices, filings and
registrations set forth on Schedule 4.2(b). The Sellers shall reasonably
cooperate with the Buyer in such efforts by it.
(c) Enforceability. This Agreement constitutes, and all other agreements,
documents and instruments to be executed and delivered by the Buyer in
connection herewith shall, when so executed and delivered, 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
23
enforceability may be limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally.
4.3 Broker's and Finder's Fees. The Buyer has not incurred any liability to
any broker, finder or agent or any other person or entity for any fees or
commissions with respect to the transactions contemplated by this Agreement, and
the Buyer hereby agrees to assume all liability to any such broker, finder or
agent or any other person or entity claiming any such fee or commission.
4.4 Litigation. There are no actions, suits, claims, investigations or
legal or administrative or arbitration proceedings pending or, to the Buyer's
knowledge, threatened or probable of assertion, against the Buyer before any
court, governmental or administrative agency or other body relating to this
Agreement and/or the transactions contemplated hereby. The Buyer is not now
under any judgment, order, writ, injunction, decree or other similar command of
any court, administrative agency or other governmental agency which relate to
this Agreement and/or the transactions contemplated hereby.
4.5 Misstatements or Omissions. No representation or warranty made by the
Buyer in this Agreement, and no statement contained in any certificate or
Schedule furnished or to be furnished by the Buyer to the Sellers and/or the
Shareholders pursuant hereto, contains or will contain an untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make such representation or warranty or such statement not misleading.
ARTICLE 5
PRE-CLOSING COVENANTS
OF THE SHAREHOLDERS AND THE SELLERS
The Sellers and the Shareholders 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. Subject to the Buyer's compliance with Section 14.2, the
Sellers shall afford to the Buyer, its attorneys, accountants, and such other
representatives of the Buyer as the Buyer shall designate to the Sellers in
writing, free and full access at all reasonable times, and upon reasonable prior
notice, to the Purchased Assets and the properties, books and records of the
Sellers, and to interview personnel, suppliers and customers of the Sellers, in
order that the Buyer may have full opportunity to make such investigation
(hereinafter referred to as the "Buyer's due diligence") as it shall reasonably
desire of the Purchased Assets (including, without limitation, any appraisals or
inspections thereof), Assumed Liabilities and the businesses and operations of
the Sellers, provided, however that, unless the Sellers shall otherwise consent,
until the transaction has been publicly announced (a) the Buyer's due diligence
shall be conducted off-site and not at the Sellers' premises, except in the
context of any Environmental Audit as provided under Section 5.8
24
or any physical inspection of the roof, walls and systems of the Sellers'
premises, and (b) the Buyer's discussions with the Sellers' personnel shall be
limited to discussions with PMG, QMG, Phil M. (Bunky) Gandy, III, James Pentalow
and the Sellers' accountants and attorneys. In addition, the Sellers shall
provide to the Buyer and its representatives such additional financial and
operating data and other information in respect of the Purchased Assets, Assumed
Liabilities and the business and properties of the Sellers as the Buyer shall
from time to time reasonably request.
(b) Cooperation in IPO Preparation. The Sellers and Shareholders shall
cooperate with the Buyer in the preparation of any description of the
transactions contemplated by this Agreement deemed by the Buyer, in its sole
discretion, as necessary for the completion of any registration statement,
prospectus or amendment or supplement thereto prepared in connection with the
closing of the Initial Public Offering ("IPO") of the Buyer's securities.
(c) Cooperation in Obtaining Buyer's Consents. The Sellers and Shareholders
shall use reasonable best efforts in cooperating with the Buyer in the
preparation of and delivery to Chrysler Corporation, as soon as practicable
after the date hereof, of an application and other information necessary to
obtain Chrysler Corporation's consent to or the approval of the transactions
contemplated by this Agreement in satisfaction of the conditions expressed in
Section 7.10.
5.2 Operation of Business of the Sellers. At all times before the Closing,
the Sellers shall (a) maintain their corporate existence in good standing, (b)
operate their businesses substantially as presently operated and only in the
ordinary course and consistent with past operations and, except as set forth on
Schedule 5.2, their obligations under any existing agreements with Chrysler
Corporation, (c) use their reasonable, commercial best efforts to preserve
intact their present business organizations and employees and their
relationships with persons having business dealings with them, including, but
not limited to, Chrysler Corporation and any floor plan financing creditors, (d)
comply in all material respects with all applicable laws, rules and regulations,
(e) maintain their insurance coverages as currently maintained, (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, except as set forth
on Schedule 5.2, (i) maintain the Welfare Benefit Plans and Pension Benefit
Plans, if any, (j) except as set forth on Schedules 3.8(b) and 3.9(b), maintain
the property, plant and equipment included in the Purchased Assets in good
operating condition, ordinary wear and tear excepted, (k) as of the Closing
Date, not maintain any used cars in inventory for longer than 90 days, (l)
maintain their books and records of account in the usual, regular and ordinary
manner, and (m) use their reasonable efforts to encourage such personnel of the
Sellers as the Buyer may designate in writing to become employees of the Buyer
after the date of the Closing.
5.3 Other Changes. The Sellers shall not, without the prior written consent
of the Buyer, (a) issue any debt or equity security or any options or warrants,
(b) enter into any subscriptions, agreements, plans or other commitments
pursuant to which the Sellers are or may become obligated to issue any shares of
its capital stock or any securities convertible into shares of
25
their capital stock or membership interests, as the case may be, (c) otherwise
change or modify their capital structure, (d) engage in any reorganization or
similar transaction, (e) agree to take any of the foregoing actions, (f) enter
into any contract, agreement, undertaking or commitment which would have been
required to be set forth in Schedule 3.6(a) if in effect on the date hereof or
enter into any contract, agreement, undertaking or commitment which cannot be
assigned to the Buyer or a permitted assignee of the Buyer, or (g) take, cause,
agree to take or cause, or permit to occur any of the actions or events set
forth in clauses (b), (d), (e), (f), (h), (i), item (i) of clause (j), or (l) of
Section 3.5 of this Agreement. The Sellers will not agree to any termination,
amendment, cancellation or waiver of any Material Contract, or to any
termination, amendment, cancellation or waiver of any material rights or claims
of either of the Sellers under any Material Contract, where the effect of any
such termination, amendment, cancellation or waiver would be to materially and
adversely affect the Purchased Assets or the ability of the Sellers to
consummate the transactions at the Closing under this Agreement.
5.4 Additional Information. The Sellers shall 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 obligation of the Sellers to satisfy the conditions to Closing set
forth in Section 7.1 hereof; provided, however, if such information shall be
furnished to the Buyer in a writing which shall also specifically refer to one
or more representations and warranties of the Sellers contained herein which in
the absence of such information is inaccurate or incomplete, then if the Buyer
waives the condition to Closing set forth in said Section 7.1 hereof and elects
to close the transactions contemplated hereunder, the furnishing of such
additional information shall be deemed to have amended as of the Closing any
such representation and warranty so specifically referred to by the Sellers.
Notwithstanding the foregoing, the Sellers may amend the Schedules prepared by
it and attached hereto at any time during the twenty (20) day period after the
date hereof by delivering copies of such amendments, as marked to show changes,
to the Buyer and its attorneys. Such amendments shall be incorporated as part of
this Agreement and shall be deemed to amend the representation and warranty to
which any such schedule relates so long as Buyer does not elect to terminate
this Agreement pursuant to Section 11.1 on or prior to the Early Termination
Date (as defined in Section 11.1).
5.5 Publicity. Except as may be required by law or as necessary in
connection with the transactions contemplated hereby, the Sellers 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 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 the nondisclosure obligations set
forth in this Section 5.5, Section 6.1 and Section 14.2, as agents of the
Sellers and the Shareholders, as the case may be. Notwithstanding anything
herein to the contrary, each party (i) will hold, and will use its reasonable
best efforts to cause its officers, directors, employees, lenders, accountants,
representatives, agents, consultants and advisors to hold, in strict
26
confidence all information (other than such information as may be publicly
available) furnished to such party by the other party in connection with the
transactions contemplated by this Agreement (collectively, the "Information");
and (ii) will not, without the prior written consent of the party owning such
information and except as may be required to be disclosed in any registration
statement filed by the Buyer in connection with the IPO, release or disclose any
information to any other person, except to such party's officers, directors,
employees, lenders, attorneys, accountants, representatives, agents, consultants
and advisors who need to know the Information in connection with the
consummation of the transactions contemplated by this Agreement, who are
informed of the confidential nature of the Information, and who agree to be
bound by the terms and conditions of this Section 5.5. In the event any party or
any Person to whom a party transmits the Information pursuant to this Agreement
becomes legally compelled to disclose any of the Information, such party will
provide the other party that owns such Information with prompt notice so that
the owning party may seek a protective order or other appropriate remedy. If the
transactions contemplated by this Agreement are not consummated, all tangible
embodiments of the Information will be returned to the party that is the source
of such Information immediately upon such party's request.
5.6 Other Negotiations. Neither the Sellers nor any of the Shareholders
shall 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,
capital stock or membership interests of the Sellers or any merger or
consolidation or similar transaction involving the Sellers, until 5:00 p.m.
Eastern Time on September 30, 1997.
5.7 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.
5.8 Environmental Audit. The Sellers shall allow an environmental
consulting firm selected by the Buyer (the "Environmental Auditor") to have
prompt access to the 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 Property (the "Environmental Audit"). The Buyer hereby initially
designates Law Engineering as the Environmental Auditor. The Sellers shall
provide to the Environmental Auditor: (i) reasonable access to all of their
existing records concerning the matters which are the subject of the
Environmental Audit; and (ii) reasonable access to the employees of the Sellers
and the last known addresses of former employees of the Sellers 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 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.
5.9 Hart-Scott-Rodino Compliance. Subject to the determination by the Buyer
that any of the following actions is not required, the Sellers shall cooperate
with the Buyer and shall
27
promptly 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.
5.10 Additional Covenants with Respect to Governmental Requirements. Prior
to the Closing, the Sellers shall deliver to the Buyer the following material in
a form and content satisfactory to the Buyer and its counsel:
(a) A copy of a duly issued permanent, unconditional certificate of
occupancy with respect to the LLC's principal facility on Chartwell Drive,
together with written confirmation from the applicable governmental
authority that no fines, penalties or other amounts are or may become
payable on account of the circumstances described in the initial paragraph
of Schedule 3.8(e); and
(b) Written confirmation from the Town of Cornelius that the site
leased by the LLC from Lake-Side Automotive, Inc. is not in violation of
the Land Development Code and that no fines, penalties or other amounts are
or may become payable on account of the circumstances described in the
second paragraph of Schedule 3.8(e).
ARTICLE 6
PRE-CLOSING COVENANTS OF THE BUYER
The Buyer hereby covenants and agrees that, from and after the date hereof
until the Closing:
6.1 Publicity; Disclosure. Before the filing by the Buyer of any
registration statement regarding the IPO and except as may be required by law 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 and the Shareholders, 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 the nondisclosure obligations set forth in this Section 6.1 and Sections 5.5
and 14.2, as agents of the Buyer. Subject to the Buyer's legal obligations and
the advice of its IPO underwriters, the Buyer shall submit to the Sellers for
their pre-approval (such approval shall not be unreasonably withheld) of the
content of any disclosures in the IPO context about the transactions
contemplated hereby.
28
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.
6.3 Application to Chrysler Corporation. Subject to the reasonable
cooperation of the Sellers, the Buyer shall provide to Chrysler Corporation no
later than 30 days after the execution and delivery of this Agreement any
application or other information necessary to satisfy the conditions of Section
7.10.
6.4 Hart-Scott-Rodino Compliance. Subject to the determination by the Buyer
that any of the following actions is not required, the Buyer shall cooperate
with the Sellers and shall promptly file Notification and Report Forms under the
HSR Act with the FTC and 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, and Buyer shall pay all filing fees in
connection therewith.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer under this Agreement at the Closing and the
consummation by the Buyer of the transactions contemplated hereby are subject to
the satisfaction or fulfillment by the Sellers, prior to or at the Closing, of
each of the following conditions, unless waived 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
Date as though such representations and warranties were made at and as of such
times.
7.2 Performance of Obligations of the Sellers. The Sellers shall have
performed and complied with all their covenants, agreements, obligations and
restrictions pursuant to this Agreement required to be performed or complied
with prior to or at the Closing.
7.3 Closing Certificate. The Sellers shall have delivered a certificate,
signed by each of the Sellers' respective President and Manager, as the case may
be, and dated the date of the Closing, certifying to the satisfaction of the
conditions set forth in Sections 7.1 and 7.2 hereof.
7.4 Opinion of Counsel. The Buyer shall have received an opinion of
Robinson, Bradshaw & Hinson, P.A., counsel to the Sellers, dated the date of the
Closing, in a form reasonably acceptable to the Buyer and its counsel.
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7.5 Supporting Documents. The Buyer shall have received from the Sellers
the following:
(a) A copy of the Articles of Incorporation of the Corporation and all
amendments thereto, certified as of a recent date by the Secretary of State of
the State of North Carolina and a copy of the Articles of Organization of the
LLC and all the amendments thereto, certified as of a recent date by the
Secretary of State of the State of North Carolina;
(b) One or more certificates of the Secretary of State of the State of
North Carolina dated as of a recent date as to the due incorporation or
organization and good standing of the Sellers, and stating that the Sellers owe
no franchise taxes in such state and listing all charter documents of the
Sellers on file with said official;
(c) Certificates of the Secretary or an Assistant Secretary of the
Corporation, and of the Manager of the LLC, and dated the date of the Closing
and certifying (i) that attached thereto is a true, complete and correct copy of
the By-laws of the Corporation or the Operating Agreement of the LLC as in
effect on the date of such certification, (ii) that the Articles of
Incorporation of the Corporation and the Articles of Organization and the
Operating Agreement of the LLC have not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to Subsection (a)
above, (iii) that attached thereto are true, complete and correct copies of the
resolutions duly adopted by the Board of Directors of the Corporation, the
Managers of the LLC, the shareholders of the Corporation and the members of the
LLC approving the transactions contemplated hereby and authorizing the
execution, delivery and performance by the Sellers of this Agreement and the
sale and transfer of the Purchased Assets as in effect on the date of such
certification, and (iv) as to the incumbency and signatures of those officers
and managers of the Sellers executing any instrument or other document delivered
in connection with such transactions;
(d) Uniform Commercial Code Search Reports on Form UCC-11 with respect to
the Sellers from the states and local jurisdictions where the principal places
of business of the Sellers and the Purchased Assets are located; and
(e) Such reasonable additional supporting documents and other information
as the Buyer or its counsel may reasonably request.
7.6 Bill of Sale, Etc. The Buyer shall have received from the Sellers a
duly executed Bill of Sale and all necessary deeds, assignments, documents and
instruments to effect the transfers, conveyances and assignments to the Buyer
referred to in Article 1 hereof, free and clear of all Encumbrances, except as
permitted by Section 1.1 hereof, and the Sellers shall have taken such action as
shall be necessary to put the Buyer in actual possession and exclusive control
of each of the Purchased Assets (including, without limitation, the delivery of
keys).
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7.7 Dealership Leases and Consulting Agreements. The Buyer shall have
received Dealership Leases, duly executed by the lessors thereunder, and
Consulting Agreements from the Shareholders.
7.8 Books and Records. The Buyer shall have received all books and records
of, or pertaining to, the businesses of the Sellers and the Purchased Assets and
Assumed Liabilities, except the corporate minute books and stock or membership
interest record books of the Sellers, which are not required to be transferred
to the Buyer pursuant to Section 1.1 hereof.
7.9 Change of Name of Sellers; Use of Sellers' Name by Buyer. At the
Closing, the Sellers shall deliver to the Buyer all documents, including,
without limitation resolutions of the Board of Directors or Managers and the
shareholders or members, as the case may be, of the Sellers, necessary to effect
a change of corporate and limited liability company names of the Sellers after
the Closing to names other than "Lake Norman Dodge, Inc." and "Lake Norman
Chrysler-Plymouth-Jeep-Eagle LLC" or any variation thereof, which names shall be
sufficiently different from the name of the Buyer and "Lake Norman Dodge, Inc."
and "Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC" as to distinguish them upon
the records in the office of the Secretary of State of North Carolina from such
names. The Sellers shall also have delivered to the Buyer at the Closing a
written consent to the use by the Buyer or any parent, subsidiary or affiliate
of the Buyer, or any successor or assignee of any thereof, of the names "Lake
Norman Dodge, Inc." and "Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC" or any
variant thereof and an agreement satisfactory to the Buyer that the Sellers will
not use the names "Lake Norman Dodge, Inc." and "Lake Norman
Chrysler-Plymouth-Jeep-Eagle LLC" or any variant thereof except to the extent
necessary for the winding down of the affairs of the Corporation and the LLC.
7.10 Consents. The Buyer shall have received duly executed copies of all
consents, authorizations, approvals, notices, registrations and filings referred
to in Schedules 3.2(b) and 3.6(b), which are required to consummate the
transactions contemplated hereby, and including, but not limited to, the consent
of Chrysler Corporation to the transactions contemplated hereby.
7.11 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 a violation of
any law, rule, 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.
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7.12 Authorizations. The Buyer shall have received in its name all
authorizations of the types referred to in Section 3.12 of this Agreement and
the Sellers shall have provided reasonable commercial assistance to the Buyer or
assisted the Buyer in obtaining or making all such Authorizations.
7.13 [Intentionally left blank]
7.14 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.
7.15 [Intentionally left blank]
7.16 [Intentionally left blank]
7.17 Hart-Scott-Rodino Waiting Period. All applicable waiting periods under
the HSR Act, shall have expired without any indication by the Department of
Justice 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.
7.18 IPO. The Buyer shall have closed its IPO.
7.19 Certification of Used Car Inventories. The President of the
Corporation and the Manager of the LLC shall have delivered to the Buyer at the
Closing certificates as of the Closing Date to the effect that neither of the
Sellers has any used car or truck that has been in inventory for more than
ninety (90) days.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE SELLERS
The obligations of the Sellers under this Agreement at the Closing and the
consummation by the Sellers of the transactions contemplated hereby are subject
to the satisfaction or fulfillment by the Buyer, prior to or at the Closing, of
each of the following conditions, unless waived 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
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as of the date of this Agreement and at and as of the date of the Closing as
though such representations and warranties were made at and as of such times.
8.2 Performance of Obligations of the Buyer. The Buyer shall have performed
and complied with all its covenants, agreements, obligations and restrictions
pursuant to this Agreement required to be performed or complied with prior to or
at the Closing.
8.3 Closing Certificate. The Buyer shall have delivered a certificate,
signed by the Buyer's President and dated the date of the Closing, certifying to
the satisfaction of the conditions set forth in Sections 8.1 and 8.2.
8.4 Payment of Purchase Price. The Buyer shall have tendered to the Sellers
payment of the Cash Consideration and the Initial Adjustment Amount Payment (or
the applicable consideration under Section 1.3 (aa)) and shall have tendered
payment of the Escrowed Adjustment Amount to the escrow agent therefor.
8.5 Opinion of Counsel. The Sellers shall have received an opinion of
Parker, Poe, Adams & Bernstein L.L.P., counsel to the Buyer, dated the date of
the Closing, in a form reasonably acceptable to the Sellers and their counsel.
8.6 Supporting Documents. The Sellers shall have received the following:
(a) A copy of the Certificate of Incorporation of the Buyer, and all
amendments thereto, certified as of a recent date by the Secretary of State of
the State of Delaware;
(b) A certificate of the Secretary of State of the State of Delaware dated
as of a recent date as to the due incorporation and good standing of the Buyer;
(c) A certificate of the Secretary or an Assistant Secretary of the Buyer
dated the date of the Closing, and certifying (i) that attached thereto is a
true, complete and correct copy of the By-laws of the Buyer as in effect on the
date of such certification, (ii) that the Certificate of Incorporation of the
Buyer has not been amended since the date of the last amendment referred to in
the certificate delivered pursuant to Subsection (a) above, (iii) that attached
thereto are true, complete and correct copies of the resolutions duly adopted by
the Board of Directors of the Buyer approving the transactions contemplated
hereby and authorizing the execution, delivery and performance by the Buyer of
this Agreement as in effect on the date of such certification, and (iv) as to
the incumbency and signatures of certain officers of the Buyer executing any
instrument or other document delivered in connection with such transactions; and
33
(d) Copies of all authorizations, consents, approvals, notices, filings and
registrations referred to in Section 4.2(b) hereof.
8.7 Approval of Legal Matters. The form of all certificates, instruments
and documents to be executed and/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 its
counsel, none of whose approval shall be unreasonably withheld or delayed.
8.8 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, rule, 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.
8.9 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 FTC 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
TRANSFER TAXES; PRORATION OF CHARGES
9.1 Certain Taxes and Fees. All sales, transfer, documentary, stamp,
recording and other similar taxes and/or fees which may be due or payable in
connection with the sale of the Purchased Assets pursuant hereto shall be borne
by the Sellers.
9.2 Proration of Certain Charges. The following taxes, charges and payments
("Charges") shall, to the extent not reflected in the Closing Date Balance
Sheet, be prorated on a per diem basis and apportioned between the Sellers and
the Buyer as of the date of the Closing: personal property, use, intangible
taxes, utility charges, rental or lease charges, license fees, general
assessments imposed with respect to the Purchased Assets, employee payrolls and
insurance premiums. The Sellers shall be liable for that portion of the Charges
relating to, or arising in respect of, periods on or prior to the Closing Date
and the Buyer shall be liable for that portion of the Charges relating to, or
arising in respect of, any period after the Closing Date.
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ARTICLE 10
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
10.1 Survival of Representations and Warranties. 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 * with the exception of the representations and warranties
contained in the first sentence of Section 3.7 and in Sections 3.15 and 3.26,
which shall survive the Closing * . 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."
10.2 Agreement to Indemnify by the Sellers. Subject to the terms and
conditions of Sections 10.4 and 10.5, the Sellers hereby agree, jointly and
severally, to indemnify and save the Buyer, its affiliates, 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 demands, judgments, injuries, penalties, damages, losses, obligations,
liabilities, claims, actions or causes of action, encumbrances, costs, expenses
, (including, without limitation, reasonable attorneys' fees and expert witness
fees) suffered, sustained, incurred or required to be paid by any Buyer
Indemnitee (collectively,
* Confidential portions omitted and filed separately with the Commission.
35
"Buyer's Damages") arising out of, based upon, resulting from, in connection
with or as a result of:
(a) any fraud or 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;
(b) the breach or nonfulfillment of any covenant or agreement of the
Sellers contained in this Agreement or in any other agreement document or
instrument delivered hereunder or pursuant hereto; or
(c) the defense by the Buyer of any claim by any person against the Buyer
or the Purchased Assets under any federal or state bankruptcy, insolvency or
other similar law seeking to avoid or otherwise set aside the transfer of any of
the Purchased Assets pursuant to this Agreement, whether or not settled, and
whether or not the Buyer is successful in the defense of such claim, except in
all cases to the extent such claim arises under any Assumed Liability.
Except to the extent Buyer's Damages arise out of (i) the Sellers' fraud,
(ii) the Excluded Liabilities, or (iii) the Sellers' obligations under Section
1.3: (a) the Sellers have no obligation to pay Buyer's Damages, and the Buyer
shall have no right of indemnification, unless Buyer's Damages exceed a
cumulative aggregate total of * , and, (b) to the extent Buyer's Damages exceed
a cumulative aggregate total of * , the Sellers shall be obligated to indemnify
for Buyer's Damages in excess of * , subject to a maximum indemnification
obligation of an aggregate of * . To the extent that Buyer's Damages result from
any fraudulent conduct on the Sellers' part or from the Excluded Liabilities or
from the Sellers' obligations under Section 1.3, the indemnification amounts
payable by Sellers under this Section 10.2 shall not be to such * threshold and
shall be up to the full amount of Buyer's Damages without restriction. The
parties hereby acknowledge that the above stated figure of * was established to
facilitate the administration of claims for indemnification by the Buyer.
Accordingly, such figure is not intended by any of the parties as, and shall not
be construed or interpreted as, an expression or understanding of the parties in
respect of the term "material" or the concept of materiality as used in this
Agreement.
10.3 Agreement to Indemnify by the Buyer. Subject to the terms and
conditions of Sections 10.4 and 10.5, the Buyer hereby agrees to indemnify and
save the Sellers and the Shareholders (each, a "Seller Indemnitee") harmless
from and against, for and in respect of, any and all demands, judgments,
injuries, penalties, damages, losses, obligations, liabilities, 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
(collectively, "Sellers' Damages") arising out of, based upon, in connection
with or as a result of:
* Confidential portions omitted and filed separately with the Commission.
36
(a) any fraud or 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; or
(c) the assertion against the Sellers of any of the Assumed Liabilities,
including any claims, liabilities or obligations arising from the Sellers'
operation of their dealership businesses, regardless of whether such claims,
liabilities or obligations arise before or after the Closing Date, provided that
such claims, liabilities or obligations are not the subject of a claim for
indemnification by a Buyer Indemnitee under Section 10.2.
10.4 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.
10.5 Procedures Regarding Third Party Claims. The procedures to be followed
by the Buyer and the Sellers and Shareholders with respect to indemnification
hereunder regarding claims by third persons 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 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 or claim, including copies of any 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 10.2 or 10.3, 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,
37
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 or
delayed. The Indemnifying Party shall be entitled to participate in the defense
of such action, 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 extent that such fees and expenses
relate to claims as to which indemnification is due under Sections 10.2 or 10.3,
as the case may be. The Indemnified Party shall have full rights to dispose of
such action; provided, however, in the event that the Indemnified Party shall
settle or compromise any claims involved in the action insofar as they relate
to, or arise out of, the same facts as gave rise to any claim for which
indemnification is due under Sections 10.2 or 10.3, as the case may be, the
Indemnified Party shall obtain the prior written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or delayed.
(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 claim, proceeding or action, including, without limitation, by
making available to the other all pertinent information and witnesses within its
control.
(e) Any Indemnified Party shall be entitled (but shall not be obligated) to
make a setoff and reduction of any amounts owed by such Indemnified Party to any
Indemnifying Party equal to Buyer's Damages where the Indemnified Party is a
Buyer Indemnitee or Sellers' Damages where the Indemnified Party is a Seller
Indemnitee.
10.6 Effectiveness. The provisions of this Article 10 shall be effective
upon consummation of the Closing, and prior to the Closing, shall have no force
and effect.
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ARTICLE 11
TERMINATION AND TERMINATION FEE
11.1 Payment of Buyer's Termination Fee; Sellers' Exclusive Remedy; Buyer's
Ability to Terminate.
(a) Payment of Buyer's Termination Fee. If the Closing does not occur on or
before September 30, 1997 for any reason other than (i) (A) fraud or bad faith
on the part of the Sellers or the Shareholders or (B) the failure to satisfy, or
the non-fulfillment of, the conditions precedent to the Buyer's Closing
conditions stated in Sections 7.1, 7.2 or 7.3 or (to the extent not included in
Sections 7.1, 7.2 or 7.3) in Sections 7.6, 7.7 (insofar as it relates to the
Dealership Leases), 7.8, 7.9, or 7.17, or (ii) the failure of Chrysler
Corporation to consent to or approve of the transactions contemplated hereby,
then the Buyer shall pay to the order of the Sellers in immediately available
funds a termination fee (the "Buyer's Termination Fee") equal to $1,500,000. If
the Closing does not occur on or before September 30, 1997 because of the
failure of Chrysler Corporation to consent to or approve of the transactions
contemplated hereby, then the Buyer shall pay in immediately available funds a
Buyer's Termination Fee equal to $1,000,000. The Buyer's Termination Fee, if
any, shall be payable on the second Business Day following September 30, 1997
and, subject to any award of fees and expenses in the event the Seller's
entitlement to the Buyer's Termination Fee is subject to a dispute under Section
14.12, shall be the Sellers' sole and exclusive remedy for any failure, for
whatever reason, of the Closing to occur on or before September 30, 1997. Unless
otherwise provided in this Agreement, the Sellers and the Shareholders are not
entitled to specific performance of any provision of this Agreement. Upon
payment of the Buyer's Termination Fee, this Agreement shall terminate, except
as provided in Section 11.4.
(b) Buyer's Ability to Terminate Without Liability. Notwithstanding the
foregoing provisions of this Section 11.1, (i) until the earlier of (A) 30 days
after the execution and delivery of this Agreement by the Buyer and (B) the date
the Buyer files a registration statement with the Securities and Exchange
Commission in connection with the IPO, or (ii) if, prior to the filing of any
registration statement in connection with the IPO, either the Antitrust Division
or the FTC makes a "second request" for performance under the HSR Act or
indicates that it will be challenging or investigating the transactions
contemplated hereby, the Buyer may terminate this Agreement without any
liability or other obligation therefor, including, but not limited to, any
obligations to pay any Buyer's Termination Fee under this Section 11.1 or to
indemnify any Seller Indemnitee under Section 10.3. The date of termination
hereunder shall be referred to herein as the "Early Termination Date".
11.2 Payment of Sellers' Termination Fee.
(a) Sellers' Termination Fee. If the Closing does not occur on or before
September 30, 1997 because of any (i) fraud or bad faith on the part of the
Sellers
39
or the Shareholders or (ii) the failure to satisfy, or the non-fulfillment of,
the conditions precedent to the Buyer's Closing conditions stated in Sections
7.1, 7.2 or 7.3 or (to the extent not included in Sections 7.1, 7.2 or 7.3) in
Sections 7.6, 7.7 (insofar as it relates to the Dealership Leases), 7.8, 7.9 ,
or 7.17, then the Sellers shall pay to the order of the Buyer in immediately
available funds a termination fee on September 30, 1997 (the "Sellers'
Termination Fee") equal to $250,000. The Sellers' Termination Fee, if any, shall
be payable on the second Business Day following September 30, 1997 and shall be
the exclusive remedy of the Buyer unless there is fraud on the Sellers' or the
Shareholders' part or the Sellers or the Shareholders shall have failed to
comply with their material covenants, agreements and obligations under this
Agreement required to be performed or complied with before or at the Closing.
Upon payment of the Sellers' Termination Fee, this Agreement shall terminate,
except as provided in Section 11.4.
(b) Termination of Agreement by Buyer. Notwithstanding the provisions of
Section 11.2(a), if the Buyer shall terminate this Agreement pursuant to Section
11.1(b) above, the Seller shall have no obligation to pay the Sellers'
Termination Fee under this Section 11.2 or to indemnify the Buyer under Section
10.2.
11.3 Security for Termination Fees.
(a) Buyer's Termination Fee Security. As of the date of this Agreement, the
Buyer shall either (i) deposit into escrow with any nationally recognized
banking organization the full amount of the Buyer's Termination Fee, the terms
of such escrow being in accordance with the terms of Exhibit 11.3(a) and
otherwise pursuant to such written agreements and documents acceptable to both
parties (the "Buyer's Escrow") or (ii) procure an irrevocable standby letter of
credit drawn on a bank reasonably acceptable to the Sellers, or other security
satisfactory to the Sellers, securing the payment of the full amount of the
Buyer's Termination Fee, the terms of such letter of credit being in accordance
with the terms of Exhibit 11.3(a) and otherwise pursuant to such written
agreements and documents acceptable to both parties (the "Buyer's Letter of
Credit" and together with the Buyer's Escrow, the "Buyer's Termination Fee
Security"). If the Closing occurs, all amounts held under the Buyer's Escrow may
be applied toward payment of the Purchase Price. The Buyer shall pay all
expenses and costs associated with the Buyer's Termination Fee Security. The
Sellers agree not to make any draw under the Buyer's Termination Fee Security
unless and until the Sellers shall be entitled to payment of the Buyer's
Termination Fee in accordance with Section 11.1.
(b) Sellers' Termination Fee Security. As of the date of this Agreement,
the Sellers shall either (i) deposit into escrow with any nationally recognized
banking organization the full amount of Sellers' Termination Fee, the terms of
such escrow being in accordance with the terms of Exhibit 11.3(b) and otherwise
pursuant to such written agreements and documents acceptable to both parties
(the "Sellers' Escrow") or (ii) procure an irrevocable standby letter of credit
drawn on a bank reasonably acceptable to the Buyer, or other security
satisfactory to the Buyer, securing the payment of the full amount of the
40
Sellers' Termination Fee, the terms of such letter of credit being in accordance
with the terms of Exhibit 11.3(b) and otherwise pursuant to such written
agreements and documents acceptable to both parties (the "Sellers' Letter of
Credit" and together with the Sellers' Escrow, the "Sellers' Termination Fee
Security"). The Sellers shall pay all expenses and costs associated with the
Sellers' Termination Fee Security. The Buyer agrees not to make any draw under
the Sellers' Termination Fee Security unless and until the Buyer shall be
entitled to payment of the Sellers' Termination Fee in accordance with Section
11.2.
11.4 Effect of Termination. In the event that this Agreement is
terminated as contemplated by this Article 11, this Agreement shall be of no
further force or effect and neither party shall have any further liabilities or
obligations hereunder, except as specifically provided under this Article 11,
and provided that the provisions of Sections 5.5, 14.2, 14.4, 14.7, 14.11, 14.12
and 14.13 shall survive such termination. Upon any such termination, each party
will authorize the cancellation of any outstanding letters of credit and/or
escrow arrangements established pursuant to this Article 11.
ARTICLE 12
GUARANTY OF SHAREHOLDERS
12.1 Guaranty. The Shareholders hereby guarantee the due and punctual
payment, observance and performance by the Sellers of each and all of the
obligations and liabilities of the Sellers under this Agreement and all other
agreements, documents and instruments to be executed and delivered by the
Sellers pursuant to, or in connection with, this Agreement (collectively, the
"Other Agreements"), including, without limitation, the Sellers' obligation to
indemnify and save the Buyer harmless, in accordance with the provisions of
Article 10 of this Agreement. All of the foregoing liabilities and obligations
of the Sellers under this Agreement and the Other Agreements, together with any
and all reasonable fees, costs and expenses (including, without limitation,
attorneys' fees) which may be paid or incurred by the Buyer in enforcing or
collecting liabilities and obligations of the Shareholders under this Guaranty,
are hereinafter called, collectively, the "Guaranteed Obligations" and,
individually, a "Guaranteed Obligation."
12.2 Notice to the Shareholders. The Shareholders hereby agree that if any
Guaranteed Obligation is not paid, observed or performed, as the case may be,
when and as due, the Buyer may notify the Shareholders of such non-performance,
whereupon the Shareholders shall cause the Sellers to promptly pay, observe or
perform or the Shareholders will promptly pay, observe or perform, as the case
may be, such Guaranteed Obligation.
12.3 Absoluteness of Guaranty. The obligations of the Shareholders under
this Guaranty shall be absolute and unconditional, present and continuing,
irrespective of any bankruptcy proceeding involving the Sellers or any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of or
termination of the existence of the Sellers, or any circumstance which might
constitute a legal or equitable discharge of a guarantor.
41
12.4 Guaranty Not Affected. Each of the Shareholders hereby consents and
agrees that, at any time and from time to time:
(a) the time, manner, place and/or terms and conditions of payment,
observance or performance of all or any of the Guaranteed Obligations may be
extended, amended, modified or changed pursuant to agreement between the Buyer
and the Sellers;
(b) any action may be taken under or in respect of this Agreement or any of
the Other Agreements, and the exercise of any remedy, power or privilege
thereunder may be waived, omitted or not enforced;
(c) the time for performance of or compliance with any term, obligation,
covenant or agreement on the part of the Sellers to be performed or observed by
the Sellers under this Agreement or any of the Other Agreements may be extended,
or such performance or compliance waived, or failure in or departure from such
performance or compliance consented to; and
(d) this Agreement and/or any of the Other Agreements may be amended or
modified in any respect by the parties thereto, all in such manner and upon such
terms as the parties thereto may deem proper, and without notice to or further
assent from the Shareholders, and all without affecting this Guaranty or the
obligations of the Shareholders hereunder, which shall continue in full force
and effect until all of the Guaranteed Obligations and all obligations of the
Shareholders hereunder shall have been fully paid, observed and performed.
Notwithstanding the provisions of this Article XII, the Shareholders shall have
the benefit of any and all defenses to the payment or performance of the
Guaranteed Obligations available to the Sellers, such that the obligations of
the Shareholders under this Article 12 shall be no greater than the obligations
of the Sellers with respect to the obligations of the Seller which constitute
the Guaranteed Obligations.
12.5 Waiver. Each of the Shareholders hereby waives notice of acceptance of
this Guaranty, presentment, demand, protest, or (except as set forth in Section
12.2 hereof) any notice of any kind whatsoever, with respect to any or all of
the Guaranteed Obligations, and promptness in making any claim or demand
hereunder; and no act or omission of any kind shall in any way affect or impair
this Guaranty. Each of the Shareholders, except as set forth in Section 12.2
hereof, also waives any requirement, and any right to require, that any right or
power be exercised or any action be taken against the Sellers or any other
person or entity or any assets for any of the Guaranteed Obligations.
12.6 No Subrogation. Notwithstanding any payment, observance or performance
made by the Shareholders pursuant to this Article 12, until all obligations of
the Sellers to the Buyer have been paid in full, the Shareholders hereby waive
any and all
42
rights of subrogation to all of the Buyer's rights against the Sellers and any
and all rights of reimbursement, assignment, indemnification or implied contract
or any similar rights against the Sellers or against any endorser or other
guarantor of all or any part of any obligations of the Sellers to the Buyer with
respect to any liabilities of the Shareholders under this Article 12. If,
notwithstanding the foregoing, any amount shall be paid to the Shareholders on
account of any subrogation rights at any time when all of the obligations of the
Sellers to the Buyer shall not have been paid in full, such amount shall be held
by the Shareholders in trust for the Buyer, segregated from other funds of the
Shareholders, and shall, forthwith upon receipt by the Shareholders, be turned
over to the Buyer in the exact form received by the Shareholders (duly endorsed
by the Shareholders to the Buyer, if required), to be applied against the
obligations of the Sellers to the Buyer, whether matured or unmatured, in such
order as the Buyer may determine.
12.7 Reinstatement. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time payment, observance or
performance, or any part thereof, of any of the Guaranteed Obligations is
rescinded or must otherwise be restored or returned by the Buyer upon the
insolvency, bankruptcy or reorganization of the Sellers, all as though such
payment, observance or performance had not been made.
12.8 Effectiveness. The obligations of the Shareholders under this Article
12 shall be effective upon the consummation of the Closing; prior to the
Closing, the provisions of this Article 12 shall be of no force or effect. The
obligations of each Shareholder hereunder shall be joint and several; however,
the maximum liability of each Shareholder hereunder shall be limited to the
maximum amount of the Purchase Price paid by the Buyer.
ARTICLE 13
ADDITIONAL COVENANTS AND AGREEMENTS
13.1 Non-Competition Covenant. Because the sale of the Purchased Assets
involves the sale of the goodwill of the Sellers, the Shareholders and the
Sellers covenant and agree that they will not, either directly or indirectly,
alone or with others, either as an employee, owner, partner, agent, stockholder,
member, director, officer or otherwise, enter into or engage in, or provide
financing to, the business of operating a Chrysler, Plymouth, Dodge or
Jeep-Eagle car or truck dealership (the "Competitive Business") within
Mecklenburg County, North Carolina or any county in North or South Carolina that
is contiguous with Mecklenburg County, North Carolina (the "Restrictive Area")
for a period of three years after the Closing Date (the "Restrictive Period").
Neither the Shareholders nor the Sellers will individually, collectively or in
conjunction with others, directly or indirectly, within the Restrictive Area,
(i) for the Restrictive Period, solicit or accept any Competitive Business from
any person or entity which was a customer of the Sellers during the 12 months
prior to the date of Closing; or (ii) for a period of one year after the Closing
Date, directly or indirectly solicit or hire any employee of the Buyer or
encourage any such employee to
43
leave such employment unless such employee has already terminated such
employment with the Buyer or the Buyer and the Seller have mutually agreed in
advance to the solicitation or employment. Notwithstanding the foregoing, direct
family relations of QMG and PMG, except for Phil M. (Bunky) Gandy, are excluded
from the operation of clause (ii) of the preceding sentence unless such relative
shall have executed an employment agreement with the Buyer, in which case said
clause (ii) shall apply for a period equal to the term of such employment
agreement. The Sellers and the Shareholders also agree that in the event of
breach of these covenants, the Buyer may protect its property rights in the
goodwill of the Purchased Assets by injunction or otherwise.
13.2 Bulk Sales Compliance. The Buyer hereby waives compliance by the
Sellers with the provisions of any applicable bulk sales law, and the parties
acknowledge that such compliance shall not be a condition precedent to the
Closing.
13.3 Additional Agreements on Vehicles. The Buyer agrees to provide the
Shareholders personally (and not for commercial resale) the right to purchase
during each year after the Closing Date, for ten years, 14 vehicles (including
trucks) from the Buyer or one of Buyer's wholly-owned subsidiaries at the
Buyer's or its subsidiary's actual cost (equal to factory invoice less (i)
factory holdback, (ii) dealer rebates, and (iii) any other factory incentive.
13.4 Additional Agreements on Health Care Continuation Coverage Costs.
Subject to the terms and conditions of this Section 13.4, the Buyer agrees to
pay premiums to provide continuing health insurance coverage for the
Shareholders and also for their eligible spouses and dependents who were covered
under the Sellers' health plans for the three month period immediately preceding
the date of this Agreement (the "Eligible Dependents"). Health insurance
coverage shall be provided to the Shareholders and their Eligible Dependents to
the extent such coverage is available to and subject to the terms and conditions
applicable to management employees of the Buyer and their dependents under
Buyer's health plan. Each Shareholder and Eligible Dependent shall have the
opportunity to elect to have such continuation coverage provided through the
reimbursement of premiums under a separate individual insurance policy purchased
by the Shareholder or Eligible Dependent for a period not to exceed two years
and up to the cost of COBRA premiums under the Buyer's health plan.
Alternatively, to the extent a Shareholder or Eligible Dependent is a COBRA
qualified beneficiary, such Shareholder or Eligible Dependent shall have the
opportunity to elect to receive COBRA continuation coverage for the applicable
period under Buyer's health plan and Buyer will pay the premiums for such COBRA
continuation coverage; provided, however, that in the event a Shareholder's or
Eligible Dependent's COBRA continuation coverage extends beyond eighteen months,
Buyer will pay the premiums only for an additional six months (so that Buyer
will pay premiums for a maximum of two years) and the Shareholder or Eligible
Dependent will be liable and responsible for all premiums due for coverage after
such time. Notwithstanding the foregoing, if a Shareholder elects to receive
COBRA continuation coverage, the two year reimbursement option previously
described will not be available to the Shareholder's
44
Eligible Dependents, and if an Eligible Dependent elects to receive COBRA
continuation coverage, the two year reimbursement option will not be available
to the Shareholder through which the Eligible Dependent is claiming coverage or
any of that Shareholder's other Eligible Dependents. Notwithstanding the
foregoing, Buyer's obligation under this Section 13.4 with respect to a
Shareholder or Eligible Dependent shall end in the event that the Shareholder or
Eligible Dependent becomes eligible for Part A or Part B of Medicare or becomes
eligible to participate in another group health plan or policy. Each Shareholder
shall have sole responsibility for any income tax liabilities arising out of the
Buyer's payment or reimbursement of health care coverage premiums for the
Shareholder and his Eligible Dependents and the benefits of such coverage.
13.5 Expenses Associated with Preparation of Financial Statements. The
Buyer agrees to pay at Closing all costs and expenses incurred by Seller, if
any, for the preparation of the Interim Financial Statements and the Closing
Balance Sheet. The Buyer also agrees to pay any incremental additional cost of
combining the financial data relating to the GE Shareholder Payments with the
financial data from the Sellers' other operations to produce the Financial
Statements. The Sellers agree to pay all other costs and expenses associated
with the preparation of the Financial Statements.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 Access to Books and Records after Closing. The Buyer shall, for a
period of seven years following the Closing, give, and shall cause to be given,
to the Sellers and its authorized representatives such access, during normal
business hours and upon prior notice, to such books and records constituting
part of the Purchased Assets as shall be reasonably necessary for the Sellers in
connection with the preparation and filing of the Sellers' tax returns for
periods prior to the Closing, and to make extracts and copies of such books and
records at the expense of the Sellers.
14.2 Confidentiality. Notwithstanding anything herein to the contrary,
after the Closing, each party shall hold in strict confidence documents and
information concerning the other, the other's affiliates and their respective
businesses and properties (including that of the Sellers) and the transactions
contemplated hereby, except that either party may disclose such documents and
information to (i) any governmental authority reviewing the transactions
contemplated hereby or as required in either party's judgment pursuant to
federal or state laws; (ii) such persons as are required to have such
information in either party's good faith judgment in order to assist either
party in consummating the transactions contemplated hereby, and except that upon
the Closing, the Buyer may disclose such documents and information to such
persons as it may desire in order to carry on the business heretofore conducted
by the Sellers, or (iii) in connection with the pursuit or defense of any claim
between parties arising under this Agreement.
45
14.3 Remedies. Unless otherwise provided in Article 11 of this Agreement,
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.
14.4 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 sent by telecopier, with receipt confirmed, or one (1)
Business Day after 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 Auto World, Inc.
P.O. Box 18747
5401 East Independence
Charlotte, North Carolina 28218
Telecopier No.: (704) 532-3312
Attention: Theodore Wright
with a copy to:
Parker, Poe Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopier No.: (704) 334-4706
Attention: Edward W. Wellman, Jr., Esq.
If to the Sellers, to the addresses of each of the Shareholders below
If to the Shareholders, to:
Mr. Quinton M. Gandy and Mr. Phil M. Gandy, Jr.
123 Bridgeport Drive 2120 Captiva Court
Mooresville, North Carolina 28115 Cornelius, North Carolina 28031
Telecopier No.: (704) 892-9695 Telecopier No.: (704) 892-9695
46
in either case, with a copy to:
Robinson, Bradshaw & Hinson, P.A.
1900 Independence Center
101 North Tryon Street
Charlotte, North Carolina 28246
Telecopier No.: (704) 378-4000
Attention: Karen Gledhill, Esq.
The Buyer, the Sellers or the Shareholders may change the address or
telecopier number to which such communications are to be directed by giving
written notice to the others in the manner provided in this Agreement.
14.5 Parties in Interest; No Third Party Beneficiaries.
(a) Subject to Section 14.6 hereof, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
(b) Nothing in this Agreement, expressed or implied, is intended or shall
be construed to confer upon or give to any employee of the Sellers or the Buyer,
or any other person, firm, corporation or legal entity, other than the parties
hereto and their successors and permitted assigns, any rights, remedies or other
benefits under or by reason of this Agreement.
14.6 Assignability. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties, provided that
Buyer may assign its rights under the Agreement (a) at any time after the date
hereof, to any affiliate of Buyer presently existing or hereafter formed, and
(b) at any time after the Closing, to any person or entity that shall acquire
all or substantially all of the assets of the Buyer; provided, however, that no
such assignment by the Buyer shall release it from its obligations hereunder
without the consent of the Sellers and the Shareholders.
14.7 Entire Agreement; Amendment. This Agreement 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, including, without limitation, the Letter of Intent dated April
18, 1997, as supplemented by an Addendum dated April 25, 1997 and an Addendum
dated May 9, 1997. This Agreement may be amended or modified only by a written
instrument duly executed by the parties hereto, and any condition to a party's
obligations hereunder may only be waived in writing by such party.
47
14.8 Headings. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
14.9 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.
14.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina, without giving effect
to its principles of conflicts of law.
14.11 Knowledge. Whenever any representation or warranty of the Sellers
contained herein or in any other document executed and delivered in connection
herewith is based upon the knowledge of the Sellers, such knowledge shall be
deemed to mean (a) matters actually known to either of the Shareholders or to
Phil M. (Bunky) Gandy III or Jim Pentalow, or (ii) information of which any of
such persons would reasonably be expected to be aware in the prudent discharge
of his duties in the ordinary course of business (including consultation with
legal counsel).
14.12 Jurisdiction; Arbitration. (a) Subject to the other provisions of
this Section 14.12, any judicial proceeding brought with respect to this
Agreement must be brought in any court of competent jurisdiction in the State of
North Carolina, 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, 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
48
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 Charlotte, North Carolina. 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 14.12 shall prevent any party hereto
from seeking any equitable relief to which it would otherwise be entitled from a
court of competent jurisdiction in the State of North Carolina.
14.13 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 of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach of such provision or any other provision of this
Agreement.
14.14 Severability. In the event that any provision, or part thereof, of
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.
14.15 Expenses. Except as otherwise set forth herein, each party shall be
responsible for its own legal fees and other costs and expenses incurred in
connection with this Agreement and the negotiation and consummation of the
transactions contemplated hereby.
14.16 Regarding Termination Fees. In the event that the Buyer's Termination
Fee or the Sellers' Termination Fee were determined by any court or other
tribunal to constitute liquidated damages, the Buyer and the Sellers hereby
acknowledge and agree that (a) they reasonably anticipate that the damages for
the matters contemplated by Sections 11.1 and 11.2 will be difficult to
ascertain because of their indefiniteness or uncertainty and (b) the Buyer's
Termination Fee and the Sellers' Termination Fee are reasonable estimates of
such damages. Notwithstanding the foregoing, this Section 14.16 shall in no way
prevent any party hereto from seeking any other legal or equitable remedies to
which it would otherwise be entitled hereunder. The provisions of this Section
14.16 shall also survive any termination of this Agreement as contemplated by
Article 11 hereof.
[Signatures begin on following page.]
49
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day, month and year first above written.
SONIC AUTO WORLD, INC.
By: /s/ Bryan Scott Smith
-------------------------------
Name: Bryan Scott Smith
Title: Chief Executive Officer
LAKE NORMAN DODGE, INC.
By: /s/ Phil M. Gandy, Jr.
-------------------------------
Name: Phil M. Gandy, Jr.
Title: President
LAKE NORMAN CHRYSLER-PLYMOUTH- JEEP-
EAGLE LLC
By: /s/ Quinton M. Gandy
-------------------------------
Name: Quinton M. Gandy
Title: Manager
/s/ Quinton M. Gandy
-----------------------------------
Quinton M. Gandy
/s/ Phil M. Gandy, Jr.
-----------------------------------
Philip M. Gandy, Jr.
50
List of Schedules
Schedule 1.1 - Excluded Assets
Schedule 1.2 - Excluded Liabilities
Schedule 3.2(a) - Required Authorizations to Agreement
Schedule 3.2(b) - Required Consents to Agreement
Schedule 3.3 - Investments
Schedule 3.4 - Exceptions to Financial Statements of the Sellers
Schedule 3.5 - Certain Changes
Schedule 3.6(a) - Material Contracts
Schedule 3.6(b) - Required Consents for Sale of Purchased Assets
and Transfer of Assumed Liabilities
Schedule 3.7 - Encumbrances
Schedule 3.8(b) - Leased Premises & Condition Exceptions
Schedule 3.8(e) - Zoning
Schedule 3.9(a) - Owned Equipment
Schedule 3.9(b) - Leased Equipment
Schedule 3.9(c) - Maintenance of Machinery and Equipment
Schedule 3.12 - Approvals, Permits and Authorizations
Schedule 3.13 - Compliance with Laws
Schedule 3.14(a) - Insurance Policies
Schedule 3.14(b) - Property Damage and Personal Injury Claims
Schedule 3.15 - Taxes
Schedule 3.16 - Litigation
1
Schedule 3.17 - Powers of Attorney
Schedule 3.19 - Employee Relations
Schedule 3.20 - Compensation
Schedule 3.21 - Patents; Trademarks; Trade Names; Copyrights;
Licenses; Etc.
Schedule 3.22 - Accounts Payable and Indebtedness
Schedule 3.23 - Other Liabilities
Schedule 3.24 - Affiliate Transactions
Schedule 3.26 - Employee Benefits
Schedule 3.28 - Suppliers and Customers
Schedule 3.29 - Hazardous Materials
Schedule 3.29(j) - Environmental Conditions
Schedule 3.29(l) - Environmental Studies and Reports
Schedule 3.30 - Bank Accounts and Safe Deposit Boxes
Schedule 3.31 - Warranties
Schedule 3.32 - Interests in Competitors
Schedule 4.2(b) - Buyer Consents
Schedule 5.2 - Operation of Business
2
List of Exhibits
Exhibit 1.4(a)-1 - Bill of Sale and Assignment/Corporation
Exhibit 1.4(a)-2 - Bill of Sale and Assignment/LLC
Exhibit 1.4(c) - Forms of Dealership Leases
Exhibit 11.3(a) - Terms of Letter of Credit - Buyer's Termination
Fee Security
Exhibit 11.3(b) - Terms of Letter of Credit - Sellers' Termination
Fee Security
1