EXHIBIT 10.23
PURCHASE AGREEMENT
BY AND AMONG
CITY TRUCK HOLDINGS, INC.
AND
HDA PARTS SYSTEM, INC.
AND
THE MEMBER OF ACTIVE GEAR, L.L.C.
APRIL 20, 1999
TABLE OF CONTENTS
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Page
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ARTICLE I. PURCHASE AND SALE............................................................... 1
1.1 Purchase Price.................................................................. 1
1.2 Purchase Price Adjustment....................................................... 1
(a) Closing Balance Sheet...................................................... 1
(b) Closing Balance Sheet Notice............................................... 2
(c) Post-Closing Adjustment.................................................... 2
1.3 Allocation of Purchase Price.................................................... 2
ARTICLE II. CLOSING......................................................................... 3
2.1 Closing......................................................................... 3
2.2 Sale of Units in the Company.................................................... 3
2.3 Payment of Purchase Price....................................................... 3
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE EXISTING MEMBER........................... 4
3.1 Organization and Standing....................................................... 4
3.2 Authorization................................................................... 4
3.3 No Conflict or Violation........................................................ 4
3.4 Capitalization of the Company................................................... 5
3.5 Title to Units.................................................................. 5
3.6 Facilities...................................................................... 5
(a) Owned Real Property........................................................ 5
(b) Actions.................................................................... 5
(c) Leases or Other Agreements................................................. 5
(d) Facility Leases and Leased Real Property................................... 5
(e) Certificate of Occupancy................................................... 6
(f) Utilities.................................................................. 6
(g) Improvements, Fixtures and Equipment....................................... 6
(h) No Special Assessment...................................................... 6
3.7 Financial Statements............................................................ 6
3.8 Books and Records............................................................... 7
3.9 Litigation...................................................................... 7
3.10 Licenses and Permits; Compliance with Laws...................................... 7
3.11 Tax Matters..................................................................... 7
3.12 Brokers, Finders................................................................ 9
3.13 Absence of Certain Changes......................................................10
3.14 Material Contracts..............................................................11
3.15 Proprietary Rights..............................................................12
3.16 Labor Matters...................................................................13
3.17 Consents........................................................................13
3.18 Employee Benefit Plans; Employment Agreements...................................14
(a) Plans......................................................................14
(b) Pension and Welfare Benefit Plans..........................................14
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3.19 Compliance with Environmental Laws..............................................16
(a) Definitions................................................................16
(b) Notice of Violation........................................................17
(c) Environmental Conditions...................................................18
(d) Environmental Audits or Assessments........................................18
(e) Indemnification Agreements.................................................18
(f) Releases or Waivers........................................................18
(g) Notices, Warnings and Records..............................................18
(h) Compliance.................................................................18
(i) Hazardous Material.........................................................18
(j) Underground Storage Tanks..................................................18
(k) Asbestos Containing Material...............................................18
(l) Liens......................................................................18
3.20 Certain Business Relationships with the Company.................................19
3.21 Undisclosed Liabilities.........................................................19
3.22 Insurance.......................................................................19
3.23 Accounts Receivable.............................................................19
3.24 Inventory.......................................................................19
3.25 Payments........................................................................20
3.26 Customers.......................................................................20
3.27 Investment Intent; Accredited Investors; Suitability and Sophistication.........20
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND HDA..............................22
4.1 Corporate Organization and Standing.............................................22
4.2 Authorization...................................................................22
4.3 No Conflict or Violation........................................................22
4.4 Stock...........................................................................22
ARTICLE V. POST-CLOSING COVENANTS..........................................................22
5.1 Further Assurances..............................................................22
5.2 Tax Matters.....................................................................23
(a) Tax Indemnification........................................................23
(b) Procedures Relating to Tax Indemnification.................................24
(c) Tax Dispute Resolution Mechanism...........................................25
(d) Survival of Tax Provisions.................................................26
(e) Conveyance Taxes...........................................................26
(f) Exclusivity................................................................26
(g) Adjustment to Purchase Price...............................................26
(h) Tax Election...............................................................26
5.3 Guarantees......................................................................26
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY HOLDINGS AND HDA..............27
6.1 No Injunctive Proceedings.......................................................27
6.2 Representations and Warranties..................................................27
6.3 Performance of Agreements.......................................................27
6.4 Compliance Certificate..........................................................27
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6.5 Certificates................................................................... 27
6.6 Books and Records.............................................................. 27
6.7 Managing Member, Officers and Advisors......................................... 27
6.8 Opinion of Counsel............................................................. 27
6.9 Ancillary Agreements........................................................... 27
6.10 Consents, Etc................................................................. 27
6.11 Nonforeign Affidavit........................................................... 28
ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BYTHE EXISTING MEMBER........... 28
7.1 No Injunctive Proceedings...................................................... 28
7.2 Representations and Warranties................................................. 28
7.3 Performance of Agreements; Instruments of Transfer............................. 28
7.4 Compliance Certificates........................................................ 28
7.5 Ancillary Agreements........................................................... 28
ARTICLE VIII. INDEMNIFICATION................................................................ 28
8.1 Indemnification by the Existing Member......................................... 28
8.2 Indemnification by HDA......................................................... 29
8.3 Survival of Representations, Warranties and Covenants.......................... 29
8.4 Threshold; Deductible.......................................................... 29
8.5 Notice and Opportunity to Defend............................................... 29
8.6 Indemnification Payments....................................................... 30
8.7 Adjustment to Purchase Price................................................... 30
ARTICLE IX. MISCELLANEOUS.................................................................. 30
9.1 Expenses....................................................................... 30
9.2 Notices........................................................................ 31
9.3 Counterparts................................................................... 32
9.4 Entire Agreement............................................................... 32
9.5 Headings....................................................................... 32
9.6 Assignment; Amendment of Agreement............................................. 32
9.7 Governing Law.................................................................. 32
9.8 Further Assurances............................................................. 32
9.9 No Third-Party Rights.......................................................... 32
9.10 Non-Waiver..................................................................... 32
9.11 Severability................................................................... 32
9.12 Incorporation of Exhibits and Schedules........................................ 33
9.13 Knowledge...................................................................... 33
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), dated as of April 20, 1999, is
entered into by and among City Truck Holdings, Inc., a Delaware corporation
("Holdings"), HDA Parts System, Inc., an Alabama corporation ("HDA"), and Xxxx
X. Xxxxxxxx, the sole member (the "Existing Member") of Active Gear, L.L.C., a
Washington limited liability company (the "Company"). Holdings, HDA and the
Existing Member are referred to herein as each a "Party" and collectively, the
"Parties."
RECITALS
WHEREAS, the Existing Member owns all of the units in the Company; and
WHEREAS, HDA desires to acquire all of the units in the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth herein, the Parties hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE
1.1 Purchase Price. Upon the terms and subject to the conditions set
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forth herein, subject to adjustment pursuant to in Section 1.2, HDA will
purchase from the Existing Member all of the units in the Company for an
aggregate purchase price (the "Purchase Price") determined as follows: (i) cash
in an amount equal to (x) $4,177,012.69, payable by wire transfer of immediately
available funds to the Existing Member (the "Estimated Cash Purchase Price") and
(y) $2,524,690.80, payable by wire transfer of immediately available funds to
certain of the Company's lenders to discharge indebtedness of the Company, as
set forth on Annex C; (ii) 1,651 shares of Common Stock of Holdings, par value
$.01 per share (the "Common Stock"); and (iii) 7,194.13 shares of Series A
Preferred Stock of Holdings, par value $.01 per share (the "Series A Preferred
Stock").
1.2 Purchase Price Adjustment.
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(a) Closing Balance Sheet. The Existing Member will prepare at its
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expense a balance sheet of the Company dated the Closing Date (the "Closing
Balance Sheet"), prepared from the books and records of the Company and prepared
in accordance with generally accepted accounting principles ("GAAP"). Based on
the Closing Balance Sheet, the Existing Member will also prepare a calculation
of Net Working Capital as of the Closing Date ("Closing Net Working Capital") on
a basis consistent with the Net Working Capital calculation reflected on
Schedule 1.2. The Existing Member will deliver such Closing Balance Sheet and
such Closing Net Working Capital calculation to HDA as soon as possible but in
any event within 45 days after the Closing.
(b) Closing Balance Sheet Notice.
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(i) Within 30 days of the receipt of the Closing Balance Sheet
and the calculation of Closing Net Working Capital, HDA will deliver to the
Existing Member a written notice certifying that either (A) it agrees with
such Closing Balance Sheet and calculation or (B) it disagrees with such
Closing Balance Sheet and calculation, in which case it will also provide
therewith a reasonably detailed written report stating the basis for
disagreement with such Closing Balance Sheet and such calculation (the
"Closing Balance Sheet Notice").
(ii) If the Closing Balance Sheet Notice is not timely given as
described in Section 1.2(b)(i), the Closing Balance Sheet and the
calculation of Closing Net Working Capital shall be final, binding and
conclusive upon the Parties. If the Closing Balance Sheet Notice is
properly given and the Existing Member disagrees with such Closing Balance
Sheet Notice, and if the disagreement is not resolved by mutual agreement
among the Parties within 30 days following delivery of the Closing Balance
Sheet Notice, such dispute will be resolved by a "Big 5" accounting firm
("BFAF"), other than PricewaterhouseCoopers LLP, selected by mutual
agreement of HDA and the Existing Member. The costs of resolving such a
dispute shall be borne equally by HDA and the Existing Member.
(iii) Upon appointment of a BFAF, such BFAF in consultation with
the Parties shall establish a schedule for resolution of the dispute that
is reasonably calculated to result in a resolution as expeditiously as
practicable, and in any event, no later than six months after the Closing
Date. In resolving such dispute, the BFAF shall revise the Closing Balance
Sheet and the calculation of Closing Net Working Capital only with respect
to the issues raised in the Closing Balance Sheet Notice and only to the
extent necessary to make it conform to the practices, procedures and
methods described in Section 1.2(a) above. The decision of the BFAF shall
be final and binding on HDA and the Existing Member in the absence of
manifest error.
(c) Post-Closing Adjustment. Within two business days after a final
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resolution by the BFAF of such disagreements as may arise out of the review of
the Closing Balance Sheet in accordance with Section 1.2(b) above, and an
appropriate adjustment to the Closing Balance Sheet and the calculation of
Closing Net Working Capital to reflect such resolution, or, if Section
1.2(b)(i)(A) or the first sentence of Section 1.2(b)(ii) applies, two business
days after delivery of, or expiration of the period for delivering, the Closing
Balance Sheet Notice (as applicable), the actual cash portion of the Purchase
Price will be determined. If Closing Net Working Capital is less than
$2,961,153, the difference and interest thereon will be due and payable to HDA
by the Existing Member; however, to the extent Closing Net Working Capital is
more than $2,961,153, the excess and interest thereon will be due and payable to
the Existing Member by HDA. Any adjustment to the Estimated Cash Purchase Price
pursuant to the preceding sentence shall be promptly paid to the Existing Member
by HDA, or to HDA by the Existing Member (as the case may be). Any amounts
payable pursuant to this paragraph shall bear interest from the Closing Date
through the date of payment at an annual rate equal to LIBOR as reported in The
Wall Street Journal on the Closing Date.
1.3 Allocation of Purchase Price. The Parties acknowledge that the
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transaction contemplated by this Agreement will be treated for Tax purposes as
the taxable sale by the Existing
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Member of all of the assets and business of the Company to HDA. The sum of (i)
the Purchase Price plus (ii) the liabilities of the Company assumed by HDA by
reason of the purchase of all of the units in the Company represent the amount
agreed upon by the parties to be the aggregate consideration paid for the assets
of the Company, and shall be allocated among the assets of the Company in
accordance with a schedule (the "Allocation Schedule") to be agreed upon after
the Closing Date by HDA and the Existing Member. HDA shall prepare and deliver
the Allocation Schedule to the Existing Member for his review and approval
within 45 days after the period for making any adjustment to the Purchase Price
expires (as provided in Section 1.2 hereof), and the Existing Member shall
deliver to HDA any proposed adjustments thereto within 30 days of his receipt of
the Allocation Schedule. If the Existing Member does not deliver to HDA
proposed adjustments to the Allocation Schedule within such time, he shall be
deemed to agree with the Allocation Schedule as prepared by HDA. In the event
that the Existing Member proposes adjustments to the Allocation Schedule as
prepared by HDA, HDA and the Existing Member shall negotiate in good faith to
resolve their differences. If the disagreement is not resolved by mutual
agreement among the Parties within 45 days of HDA's receipt of the Existing
Member's proposed adjustments, such dispute will be resolved by a BFAF, other
than PricewaterhouseCoopers LLP, selected by mutual agreement of HDA and the
Existing Member. The costs of resolving such a dispute shall be borne equally by
HDA and the Existing Member. The Allocation Schedule shall comply with the
requirements of Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations promulgated thereunder. Any subsequent
indemnification payment treated as an adjustment to the Purchase Price pursuant
to Sections 5.2(h) and 8.7 shall be reflected as an adjustment to the amount set
forth on the Allocation Schedule that is allocated to the specific asset, if
any, giving rise to the adjustment, and if any such adjustment does not relate
to a specific asset, such adjustment shall be allocated among the assets of the
Company acquired hereunder in accordance with Section 1060 of the Code and the
regulations promulgated thereunder. HDA and the Existing Member shall (i)
report for all Tax purposes the purchase of the assets in a manner consistent
with the Allocation Schedule and in a manner consistent with all applicable
rules and regulations; (ii) timely file a Form 8594 in accordance with the
Allocation Schedule; (iii) not assert, in connection with any Tax Return, Tax
audit or similar proceedings, any allocation that differs from that agreed to
herein; and (iv) notify the other Party in the event any taxing authority is
taking or proposing to take a position inconsistent with such allocation.
ARTICLE II.
CLOSING
2.1 Closing. The closing of the transactions contemplated herein (the
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"Closing") shall be held at 10:00 a.m., local time, on April 20, 1999 (the
"Closing Date") at the offices of Xxxxx, Day, Xxxxxx & Xxxxx, 00 Xxxx Xxxxxx,
Xxxxxxx, Xxxxxxxx 00000. The place of the Closing and the Closing Date may be
varied by agreement among the Parties.
2.2 Sale of Units in the Company. On the terms and subject to the
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conditions of the Agreement, on the Closing Date, the Existing Member shall
sell, transfer and assign to HDA, and HDA shall purchase and acquire from the
Existing Member, all of the units in the Company.
2.3 Payment of Purchase Price. At the Closing, (a) HDA shall wire
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transfer the Estimated Cash Purchase Price in immediately available funds in the
amounts and to the bank account designated by the Existing Member on Annex B
hereto; and (b) Holdings shall issue, the 1,651
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validly issued, fully paid and nonassessable shares of Common Stock and 7,194.13
validly issued, fully paid and nonassessable shares of Series A Preferred Stock
that are included in the Purchase Price; provided, however, that 743 shares of
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Common Stock and 3,236.9 shares of Series A Preferred Stock shall be delivered
to the Escrow Agent (as defined herein) pursuant to Section 8.6 hereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE
EXISTING MEMBER
The Existing Member represents and warrants to Holdings and HDA as follows,
except as set forth in a disclosure schedule ("Schedule") attached hereto and
made a part hereof, the number of each Schedule corresponding to the Section
number to which it refers:
3.1 Organization and Standing. The Company has been duly organized, is
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validly existing as a limited liability company in good standing under the laws
of the State of Washington, has full power and authority to own or lease its
properties and to carry on its business as presently conducted and is duly
qualified to transact business in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such qualification
(all of which jurisdictions are listed on Schedule 3.1). The Company has
delivered to HDA or its representatives complete and correct copies of its
Certificate of Formation and Limited Liability Company Agreement (or other
charter documents) and all amendments thereto. The Company does not own, and
has not at any time within the past five years owned, any capital stock of, or
other securities evidencing an equity interest in, any corporation, partnership,
limited liability company or other entity.
3.2 Authorization. This Agreement and the Ancillary Agreements (as
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defined herein) have been duly authorized, executed and delivered by the
Existing Member, and are the legal, valid and binding obligations of the
Existing Member, enforceable against him in accordance with their respective
terms.
3.3 No Conflict or Violation. Neither the execution and delivery of this
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Agreement or the Ancillary Agreements nor the consummation of the transactions
contemplated hereby or thereby will (a) violate, conflict with or result in or
constitute a default under or result in the termination or the acceleration of,
or the creation in any party of any right (whether or not with notice or lapse
of time or both) to declare a default, accelerate, terminate, modify or cancel
any indenture, contract, lease, sublease, loan agreement, note or other
agreement, obligation or liability ("Contractual Obligation") to which the
Company, or any Existing Member is a party or by which it, he or she is bound or
to which any of its, his or her assets are subject or result in the creation of
any lien or encumbrance upon any of said assets, (b) violate, conflict with or
result in a breach of or constitute a default under any provision of the
Certificate of Formation or Operating Agreement (or other organizational
documents) of the Company or any Existing Member, or a default under or
violation of any material restriction, lien, encumbrance or any contract to
which the Company or any Existing Member is bound or to which any of its, his or
her assets is subject or result in the creation of any lien or encumbrance upon
any of said assets, (c) violate, conflict with or result in a breach of or
constitute a default under any judgment, order, decree, rule or regulation of
any court or governmental agency to which the Company, or any Existing Member is
subject or (d) violate, conflict with or result in a breach of any applicable
rule or regulation of any federal, state, local or other governmental authority.
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3.4 Capitalization of the Company. As of the date of this Agreement,
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there are 20,000 units in the Company outstanding, all of which units have been
duly authorized and validly issued and are owned in the aggregate by the
Existing Member (the "Units"). There are (a) no preemptive or similar rights on
the part of any holder of any class of securities of the Company and (b) no
options, warrants, conversion or other rights, agreements or commitments of any
kind obligating the Company, contingently or otherwise, to issue, sell or
otherwise cause to be outstanding any of its units of any class or any
securities convertible into or exchangeable for any such units.
3.5 Title to Units. The Existing Member has good and valid title to the
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Units owned by them, free and clear of any claims, liens, security interests,
options, charges, restrictions and interests of others whatsoever. Upon
delivery to HDA at the Closing of certificates representing the Units owned by
the Existing Member, duly endorsed by them for transfer to HDA, HDA will obtain
good and valid title to such Units, free and clear of any claims, liens,
security interests, options, charges, restrictions and interests of others
whatsoever except for any restrictions created by HDA. There are no voting
trusts, proxies, or other agreements or understandings to which the Company or
the Existing Member is a party with respect to the voting, distribution rights
or disposition of any of the Units. The Existing Member has no obligation,
absolute or contingent, to any other person or entity to issue, sell or
otherwise dispose of any units in the Company or to effect any merger,
consolidation, reorganization or other business combination of the Company or to
enter into any agreement with respect thereto.
3.6 Facilities. Schedule 3.6 contains a complete and accurate list of all
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real property used in connection with the business of the Company ("Real
Property"), identifying which is owned ("Owned Real Property") and which is
leased ("Leased Real Property"), and accurate and complete copies of preliminary
title reports covering all of the Owned Real Property.
(a) Owned Real Property. The Company has good and marketable fee
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simple title to all Owned Real Property, free and clear of all encumbrances,
except for taxes and assessments that are not yet due and payable, building
codes and zoning ordinances and easements, restrictions, covenants, rights-of-
way and reservations of record, which do not detract from the value of the
property and do not interfere with the present use of the property and have
arisen in the ordinary course of business ("Permitted Encumbrances"). The
Company enjoys peaceful and undisturbed possession of all Owned Real Property.
(b) Actions. There are no pending or, to the best knowledge of the
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Company, threatened, condemnation proceedings or other actions, claims, suits,
litigation, proceedings, notices of violation, inquiry or investigations
(collectively, "Actions") relating to any facility ("Facility") used in
connection with the businesses of the Company.
(c) Leases or Other Agreements. There are no leases, subleases,
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licenses, occupancy agreements, options, rights, concessions or other agreements
or arrangements, written or oral, granting to any person the right to purchase,
use or occupy any Facility or any Real Property or any portion thereof, or
interest in any such Facility or Real Property.
(d) Facility Leases and Leased Real Property. With respect to each
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Facility lease, the Company is the sole lessee and such lessee has an
unencumbered interest in the leasehold estate related thereto. The Company
enjoys peaceful and undisturbed possession of all of its Leased Real Property.
Each Facility lease is valid, binding and enforceable in accordance with its
terms. The
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Company is not in default under any Facility lease or sublease, and no event or
condition exists that with notice or lapse of time or both would constitute a
default by the Company under any Facility lease or sublease. True, correct and
complete copies of all leases and subleases listed on Schedule 3.6, including
all amendments, modifications, waivers or supplemental agreements thereto, have
been delivered to, or made available for inspection by, HDA or its
representatives.
(e) Certificate of Occupancy. All Facilities have received all
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required approvals of governmental authorities (including, without limitation,
permits and a certificate of occupancy or similar certificate permitting lawful
occupancy of the Facilities) required in connection with the operation thereof
and are and have been operated and maintained in accordance with applicable
regulations.
(f) Utilities. All Facilities are supplied with utilities
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(including, without limitation, water, sewage, disposal, electricity, gas and
telephone) and other services necessary for the operation of such Facilities as
currently operated, and there is no condition which would reasonably be expected
to result in the termination of the present access from any Facility to such
utility services.
(g) Improvements, Fixtures and Equipment. The improvements
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constructed on the Facilities, including, without limitation, all leasehold
improvements, and all fixtures and equipment and other tangible assets owned,
leased or used by the Company at the Facilities are (i) insured to the extent
and in a manner customary in the industry, (ii) structurally sound with no known
material defects, (iii) in good operating condition and repair, subject to
ordinary wear and tear, (iv) not in need of maintenance, repair or correction
except for ordinary routine maintenance and repair, the cost of which would not
be material, (v) necessary, desirable and appropriate for the operation of the
business of the Company as presently conducted and (vi) in conformity with all
applicable regulations.
(h) No Special Assessment. The Company has not received notice of
---------------------
any special assessment relating to any Facility or any portion thereof, and
there is no pending or threatened special assessment.
3.7 Financial Statements.
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(a) The unaudited balance sheet and statement of income of the
Company at and for the fiscal years ended December 31, 1998 and 1997 were
prepared in accordance with GAAP consistently applied and fairly present the
financial condition and results of operations of the Company as of their
respective dates and for each such period. The unaudited balance sheet of the
Company at December 31, 1998 is referred to herein as the "Balance Sheet." The
Company has no liabilities of any nature, whether absolute, accrued, asserted or
unasserted or contingent or whether due or to become due that should have been
recorded or reserved for on the Balance Sheet and were not so recorded or
reserved.
(b) The unaudited balance sheet and statement of income of the
Company at and for the one month ended January 31, 1999 were prepared in
accordance with GAAP consistently applied and fairly present the financial
condition and results of operations of the Company as of its date and for such
period and are consistent with the financial statements described in Section
3.7(a).
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(c) Copies of the financial statements described in Sections 3.7(a)
and (b) have been provided to HDA or its representatives.
3.8 Books and Records. The Company has made and kept and given HDA and
-----------------
its representatives access to books and records and accounts, which, in
reasonable detail, accurately and fairly reflect the activities of the Company.
The minute books of the Company accurately and adequately reflect all action
taken by the members, board of advisors and committees of the board of advisors
of the Company. The copies of the records of the units in the Company are true,
correct and complete, and accurately reflect all transactions effected in the
units in the Company through and including the date hereof. The Company has not
engaged in any transaction, maintained any bank account or used any Company
funds except for the transactions, bank accounts and funds that have been and
are reflected in the normally maintained books and records of the Company, all
of which have been provided or made available to HDA or its representatives.
3.9 Litigation. There is no claim, action, suit, proceeding, or
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investigation pending or, to the best knowledge of the Company, threatened
against the Company or the members, manager, advisors, officers, agents or
employees of the Company (in their capacity as such), or any properties or
rights of the Company or that are reasonably likely to adversely affect the
business or properties of the Company or the transactions contemplated hereby.
There are no orders, writs, injunctions or decrees currently in force against
the Company or the members, manager, advisors officers, agents or employees of
the Company (in their capacity as such) with respect to the conduct of the
Company's business.
3.10 Licenses and Permits; Compliance with Laws. Schedule 3.10 sets forth
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a complete list of all licenses, franchises, permits, approvals and other
governmental authorizations (collectively, "Licenses and Permits") held by the
Company. The Company owns, holds or possesses all Licenses and Permits
necessary or appropriate to entitle it to use its name, to own or lease, operate
and use its assets and properties and to carry on and conduct its business and
operations as presently conducted. The Company is not in violation of or
default under any Licenses or Permits or any judgment, order, writ, injunction
or decree of any court or administrative agency issued against it or any law,
ordinance, rule or regulation applicable to it. The Company's conduct of its
business has been and is in compliance with all applicable laws, statutes,
ordinances and regulations. The Company has not received any notice asserting a
failure to comply with any law, statute, ordinance, regulation, rule or order of
any foreign, federal, state or local government or any other governmental
department or agency.
3.11 Tax Matters.
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(a) The Company has duly and timely filed all Tax Returns (including
without limitation in respect of estimated Taxes) required to be filed by it
with the appropriate governmental authorities, or requests for extensions to
file such Tax Returns have been timely filed and granted and have not expired.
All such Tax Returns were at the time of filing and are as of the date hereof
correct and complete in all respects. All Taxes owed by the Company (whether or
not shown on any Tax Return) have been paid within the time and in the manner
prescribed by law.
(b) No claim has ever been made by a governmental authority in a
jurisdiction where the Company has never filed a Tax Return that the Company is
or may be subject to taxation by that jurisdiction. Schedule 3.11(b) sets forth
each state, local and foreign jurisdiction in which
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the Company has (i) filed an income or franchise Tax Return, during the five-
year period ended December 31, 1998, or (ii) collected or remitted any sales
and/or use Taxes during the five-year period ended December 31, 1998.
(c) The Balance Sheet reflects an adequate reserve in accordance with
GAAP for all Taxes payable by the Company for all Taxable periods and portions
thereof accrued through the date of such balance sheet. All deficiencies for
any Taxes that have been proposed, asserted, or assessed against the Company
have been fully paid, or are fully reflected as a liability on such balance
sheet, or are being contested and an adequate reserve therefor has been
established and is fully reflected in accordance with GAAP on the Balance Sheet.
(d) The Company is not a party to any pending audit, examination,
action or proceeding for the assessment or collection of any Taxes, nor, to the
best of the knowledge of the Existing Member, is any such audit, examination,
action or proceeding threatened. No facts exist that constitute grounds for the
assessment of any additional Taxes with respect to the Company.
(e) There are no liens for Taxes (other than for current Taxes not
yet due and payable) on the assets of the Company or the units in the Company.
(f) The Company is not subject to any agreements, waivers or other
arrangements extending the statute of limitations for the assessment, collection
or levy of any Taxes for any taxable year or other period.
(g) Copies of all Tax agreements (including, without limitation,
agreements providing for the allocation or sharing of or indemnification with
respect to Taxes) to which the Company is a party, including any novations,
transfers or assignments thereof, have heretofore been delivered to HDA and all
such agreements are listed on Schedule 3.11.
(h) The Company has not filed a consent pursuant to, or agreed to the
application of, Section 341(f) of the Code.
(i) The Company has not made any payments, is not obligated to make
any payments, or is not a party to any agreement that could obligate it to make
any payments, the deductibility of which would be disallowed (in whole or in
part) under Section 280G of the Code.
(j) The Company is not and has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The
Existing Member is not a foreign person within the meaning of, and no Tax is
required to be withheld as a result of any the transactions contemplated by this
Agreement pursuant to, Section 1445 or any other provision of the Code or of any
other state, local or foreign laws.
(k) Tax Election. No election pursuant to Treasury Regulation
------------
(S)301.7701-3(c) has been made by or on behalf of the Company at any time prior
to the Closing to cause the Company to be treated for federal income tax
purposes as an association taxable as a corporation.
8
(l) All Taxes that are required by law to be withheld or collected by
the Company have been duly withheld or collected and, to the extent required,
have been paid to the proper governmental authority or properly segregated or
deposited as required by applicable law.
(m) The Company (i) has not been a member of an affiliated group
filing a consolidated federal income Tax Return and (ii) has no liability for
the Taxes of any other person under Treas. Reg. (S) 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract or otherwise.
(n) The Company has not executed or entered into any closing
agreement pursuant to Section 7121 of the Code, or any predecessor provision
thereof, or any similar provision of state or local law.
(o) None of the assets owned by the Company is property that is
required to be treated as owned by any other person pursuant to Section
168(f)(8) of the Internal Revenue Code of 1954, as amended, as in effect
immediately prior to the enactment of the Tax Reform Act of 1986, or is "tax-
exempt use property" within the meaning of Section 168(h) of the Code.
(p) The Company has not taken any action in anticipation of the
Closing not expressly required by this Agreement, or in accordance with past
practice that would have the effect of deferring any liability for Taxes of the
Company to any period (or portion thereof) ending after the Closing Date. The
purchase and sale provided for herein will not cause any recognition of gain or
income to the Company under any provision of U.S. federal, state or local or
foreign income or franchise Tax law.
(q) The Company is not and will not be required to include any amount
in its gross income or exclude any amount of its deductions in any Taxable
period ending after the Closing Date by reason of a change in accounting method
or use of the installment method of accounting under Section 453 of the Code in
any Taxable period ending on or before the Closing Date.
(r) No power of attorney has been granted by the Company with respect
to any matter relating to Taxes that is currently in force.
For purposes of this Agreement, (i) the term "Tax" (including, with
correlative meaning, the terms "Taxes" and "Taxable") means all federal, state,
local, and foreign net income, gross income, profits, franchise, gross receipts,
payroll, sales, employment, use, occupation, license, value added, property, ad
valorem, withholding, excise, user, fuel, excess or windfall profits,
alternative or add-on minimum, custom duties, gains, transfer, documentary,
stamp, and other taxes, duties, fees, assessments or charges of any nature
whatsoever, together with all interest, penalties, fines and additions to tax or
additional amounts imposed with respect thereto, and (ii) the term "Tax Returns"
means any return, report, statement, election, information return or other
document (including schedules or any related or supporting information) filed or
required to be filed with any governmental authority in connection with the
determination, assessment or collection of any Tax or the administration of any
laws, regulations or administrative requirements relating to any Tax.
3.12 Brokers, Finders. The Company has not retained any broker or finder
----------------
in connection with the transactions contemplated herein, and the Company is not
obligated and has not agreed to pay any brokerage or finder's commission, fee or
similar compensation.
9
3.13 Absence of Certain Changes.
--------------------------
(a) Since December 31, 1998, the Company has conducted its business
in the ordinary course, and there has not occurred with respect to the Company:
(i) any material adverse effect on the business, operations,
assets, results of operations, financial condition or prospects of the
Company ("Material Adverse Effect");
(ii) any revaluation of assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable;
(iii) any payment, discharge or satisfaction of any liabilities
or obligations, other than in the ordinary course of business;
(iv) any incurrence of liabilities, except liabilities incurred
in the ordinary course of business, or increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves;
(v) any capital expenditure exceeding $2,500, the execution of
any lease or the incurring of any obligation to make any capital
expenditure or execute any lease other than in the ordinary course of
business;
(vi) the failure to pay or satisfy when due any liability,
except where the failure would not have a Material Adverse Effect;
(vii) any assets (whether real, personal or mixed, tangible or
intangible) of the Company becoming subject to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind, except
in the ordinary course of business;
(viii) the failure to carry on diligently the business in the
ordinary course so as to preserve for HDA the assets and the business of
the Company and the goodwill of the Company's suppliers, customers,
distributors and others having business relations with it;
(ix) the disposition or lapsing of any Proprietary Rights (as
defined below) or any disposition or disclosure to any person of any
Proprietary Rights not theretofore a matter of public knowledge;
(x) any cancellation or waiver of any material claims or
rights of value, or any sale, lease, transfer, assignment, distribution or
other disposition of any assets, except for sales of finished goods
inventory in the ordinary course of business, or any disposal of any
material assets for any amount;
(xi) an amendment, cancellation or termination of any contract,
commitment, agreement, lease, transaction or Permit relating to assets or
the business or entry into any contract, commitment, agreement, lease,
transaction or Permit which is not in the ordinary course of business ,
including, without limitation, any employment or consulting agreements;
10
(xii) any bonus paid or promised, an increase in the base
compensation, or other payment or loan to any manager, advisor, officer or
employee, whether now or hereafter payable or granted, or entry into or
variation of the terms of any employment, incentive or severance agreement
with any such person;
(xiii) an adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the productivity, the
financial condition, results of operations or business or the relationships
between the employees of the Company and the management of the Company;
(xiv) any change in any method of accounting or keeping books
of account or accounting practices other than changes necessary to conform
to changes in GAAP;
(xv) any material damage, destruction or loss of any asset,
whether or not covered by insurance;
(xvi) the issuance, delivery or sale of any equity securities,
or alteration in terms of any outstanding securities issued by it or any
increase in its indebtedness for borrowed money (other than borrowings
under its revolving credit facility in the ordinary course of business);
(xvii) the declaration, payment or setting aside for payment of
any dividend or other distribution (whether in cash, stock or property or
otherwise), the redemption, purchase or other acquisition of any units in
the Company, or the creation of any securities convertible into or
exchangeable for any units in the Company or any options, warrants or other
rights to purchase or subscribe to any of the foregoing;
(xviii) the consummation or adoption of any plan of liquidation
or resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of the Company;
(xix) the existence of any other event or condition which, in
any one case or in the aggregate, has been or might reasonably be expected
to have a Material Adverse Effect; or
(xx) an agreement to do any of the things described in the
preceding clauses (i) - (xix) other than as expressly provided for herein.
3.14 Material Contracts. Schedule 3.14 attached hereto sets forth a
------------------
complete and correct list of all the Material Contracts to which the Company or,
in the case of Section 3.14(g), any Existing Member, is a party. As used in
this Agreement, "Material Contracts" means:
(a) all contracts not made in the ordinary course of business;
(b) all leases or other agreements under which the Company is a
lessor or lessee of any real property or any machinery, equipment, vehicle or
other tangible personal property owned by a third party and used in the business
of the Company, which entails annual payments, in the case of any such lease or
agreement, in excess of $5,000;
11
(c) all options with respect to any property, real or personal,
whether the Company shall be the grantor or grantee thereunder;
(d) all distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to assets
or the business and that are not cancelable, without payment of any kind, on 30
calendar days' or less notice;
(e) all mortgages, indentures, security agreements, pledges, notes,
loan agreements or guaranties relating to the Company in a principal amount (or
with maximum availability) in excess of $5,000;
(f) all contracts and agreements to which the Company is a party and
that are (i) outstanding contracts with its officers, employees, agents,
consultants, advisors, sales personnel, sales representatives, distributors,
sales agents or dealers other than contracts that by their terms are cancelable
by the Company with notice of not more than 30 days and without cancellation
penalties or severance payments, in the case of any such contract, in excess of
$5,000, (ii) collective bargaining agreements of the Company and (iii) pension,
profit-sharing, bonus, retirement, incentive option or employee benefit plans or
other similar plans or arrangements of the Company under which employees of the
Company have received awards or may have the right to any awards or in which
employees of the Company are or may be entitled to participate;
(g) any covenant not to compete or similar restriction on the
Company, any Existing Member or, to the best knowledge of the Company, any
officer or key employee of the Company;
(h) any contract with the United States, state or local government or
any agency or department thereof, involving expenditures or liabilities in
excess of $5,000; or
(i) any contract or agreement providing for the receipt or payment
(whether the obligations are fixed or contingent) of $5,000 or more after the
date of this Agreement, including, without limitation, agreements calling for
penalties or payments upon voluntary termination or withdrawal by the Company.
Schedule 3.14 lists all consents of third parties that are required under the
Material Contracts in connection with the execution and delivery of this
Agreement or any Ancillary Agreement or the consummation by the Existing Member
of the transactions contemplated herein and therein (the "Required Consents").
The Existing Member has furnished or will furnish to HDA or its representatives
true and correct copies of all Material Contracts prior to the Closing,
including all amendments and supplements thereto.
3.15 Proprietary Rights.
------------------
(a) Schedule 3.15 lists the material patents, trademarks (whether
registered or unregistered), service marks, trade names, service names, brand
names, logos and copyrights (collectively, the "Proprietary Rights") for the
Company. Schedule 3.15 also sets forth: (i) for each patent, the number, normal
expiration date and subject matter for each country in which such patent has
been issued, or, if applicable, the application number, date of filing and
subject matter for each country, (ii) for each trademark, the application serial
number or registration number, the class of
12
goods covered and the expiration date for each country in which a trademark has
been registered and (iii) for each copyright, the number and date of filing for
each country in which a copyright has been filed. The Proprietary Rights listed
in Schedule 3.15 are all those used by the Company in connection with its
business. True and correct copies of all patents (including all pending
applications) owned, controlled, created or used by or on behalf of the Company
or in which the Company has any interest whatsoever have been provided to HDA or
its representatives.
(b) The Company has no obligation to compensate any person for the
use of any such Proprietary Rights and the Company has not granted to any person
any license, option or other rights to use in any manner any of its Proprietary
Rights, whether requiring the payment of royalties or not.
(c) The Company owns or has a valid right to use each of the
Proprietary Rights, and the Proprietary Rights will not cease to be valid rights
of Company by reason of the execution, delivery and performance of this
Agreement, the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. All of the pending patent applications have
been duly filed. The Company has not received any notice of invalidity or
infringement of any rights of others with respect to such trademarks. The
Company has taken all reasonable and prudent steps to protect the Proprietary
Rights from infringement by any other person. No other person (i) has the right
to use any trademarks of the Company on the goods on which they are now being
used either in identical form or in such near resemblance thereto as to be
likely, when applied to the goods of any such person, to cause confusion with
such trademarks or to cause a mistake or to deceive, (ii) has notified the
Company that it is claiming any ownership of or right to use such Proprietary
Rights or (iii) to the best knowledge of the Company, is infringing upon any
such Proprietary Rights in any way. The Company's use of any Proprietary Rights
does not and will not conflict with, infringe upon or otherwise violate the
valid rights of any third party in or to such Proprietary Rights, and no Action
has been instituted against or notices received by the Company that are
presently outstanding, alleging that the Company's use of the Proprietary Rights
infringes upon or otherwise violates any rights of a third party in or to such
Proprietary Rights. There are not, and it is reasonably expected that after the
Closing there will not be, any restrictions on right of the Company to sell
products manufactured by the Company in connection with the operation of its
business.
3.16 Labor Matters. The Company is not a party to any labor agreement
-------------
with respect to its employees with any labor organization, union, group or
association, and there are no employee unions (nor any other similar labor or
employee organizations) under local statutes, custom or practice. The Company
has not experienced any attempt by organized labor or its representatives to
make it conform to demands of organized labor relating to its employees or to
enter into a binding agreement with organized labor that would cover the
employees of the Company. There is no labor strike or labor disturbance pending
or, to the best knowledge of the Company, threatened against the Company, nor is
any grievance currently being asserted, and the Company has not experienced a
work stoppage or other labor difficulty, and is not and has not engaged in any
unfair labor practice. Without limiting the foregoing, the Company is in
compliance with the Immigration Reform and Control Act of 1986 and maintains a
current Form I-9, as required by such Act, in the personnel file of each
employee hired after November 9, 1986.
3.17 Consents. No consent, approval, authorization, order, filing,
--------
registration or qualification of or with any court, governmental authority or
third person is required to be made or obtained by the Company, or any Existing
Member in connection with the execution and delivery
13
of this Agreement, the Ancillary Agreements or the consummation by the Existing
Member of the transactions contemplated herein and therein.
3.18 Employee Benefit Plans; Employment Agreements.
---------------------------------------------
(a) Plans. Schedule 3.18 sets forth a true, complete and accurate
-----
list of: (i) any and all severance or employment agreements with any current or
former member, manager, advisor, officer or employee; (ii) any and all severance
programs or policies applicable to any such personnel; (iii) any and all plans
or arrangements relating to current or former members, managers, advisors,
officers or employees containing change in control provisions or any other
agreements or arrangements (including collective bargaining agreements or
consulting agreements) or currently established, maintained or contributed to by
the Company for the benefit of any current or former employee of the Company,
including bonus, incentive compensation, ownership, option, appreciation,
purchase, "phantom stock," vacation, retirement, insurance, severance,
supplemental unemployment, disability, death benefit, hospitalization, medical,
workers compensation, pension, profit-sharing or deferred compensation plans;
(iv) any employee welfare and employee pension benefit plans (as such terms are
defined in Sections 3(1) and 3(2), respectively of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), which are currently
established, maintained or contributed to by the Company and are applicable to
the Company's former or current employees (singularly, "Employee Benefit Plan"
and collectively, "Employee Benefit Plans"); and (v) all Employee Benefit Plans,
except those disclosed above, previously established, maintained or contributed
to by the Company, or any one of them acting alone ("Terminated Employee Benefit
Plans").
(b) Pension and Welfare Benefit Plans. With respect to the Employee
---------------------------------
Benefit Plans and Terminated Employee Benefit Plans, each as described on
Schedule 3.18:
(i) each Employee Benefit Plan is in compliance with the
requirements provided by any and all statutes, orders or governmental rules
or regulations currently in effect and applicable to such Employee Benefit
Plans, including but not limited to ERISA and the Code, and each Employee
Benefit Plan has been administered in accordance with its terms;
(ii) with respect to the Company's employee welfare benefit
plans, any trust related to such ERISA Plans (which term shall have the
meaning set forth in Section 3(3) of the ERISA with respect to employee
benefit plans maintained or contributed to by the Company, or any of its
affiliates that currently cover employees and are subject to ERISA) has
been determined to be tax-exempt by the IRS pursuant to Code (S) 501(c)(9)
and nothing has since occurred from the time of such determination to cause
the loss of such trust's tax-exempt status. Each ERISA Plan intended to be
qualified pursuant to Code (S) 401(a) and Code (S) 501(a) is qualified
under Code (S) 401(a) and Code (S) 501(a) and has received a determination
letter from the IRS covering the Tax Reform Act of 1986, as amended, that
such ERISA Plans are so qualified and each trust established in connection
with any such plan is exempt from federal income taxation and nothing
(either in form or operation) has since occurred from the date of the last
favorable determination letter to cause the loss of such ERISA Plans' or
trusts' qualification;
14
(iii) all required reports and descriptions of such ERISA Plans
(including without limitation the IRS Form 5500 Annual Return/Report,
summary annual report and summary plan description) have been timely filed
and distributed;
(iv) any notices required by ERISA or the Code or any other
state or federal law or any ruling or regulation of any state or federal
administrative agency with respect to such Employee Benefit Plans have been
appropriately given;
(v) all required contributions for all periods ending prior to
Closing (including periods from the first day of the current plan year to
Closing) will be made to such Employee Benefit Plans prior to the Closing
Date by the Company;
(vi) the Company does not have any action directly or
indirectly that obligates the Company to institute, modify or change any
Employee Benefit Plan, any change in the manner in which contributions are
made or the basis on which such contributions are determined;
(vii) all insurance premiums have been paid in full, subject
only to normal retrospective adjustments in the ordinary course, with
regard to such Employee Benefit Plans for policy years or other applicable
policy periods ending on or before Closing;
(viii) with respect to each such Employee Benefit Plan, the
Company and its affiliates have not engaged in any prohibited transactions
(as defined in ERISA (S) 406 or Code (S) 4975), no penalty, fine, tax,
action, suit, grievance, arbitration or other manner of litigation, or
claim (other than routine claims for benefits made in the ordinary course
of plan administration for which plan administrative review procedures have
not been exhausted) are pending, threatened or imminent against or with
respect to such Employee Benefit Plans, the Company or any fiduciary (as
defined in ERISA (S) 3(21)) of such Employee Benefit Plans (including any
action, suit, grievance, arbitration or other manner of litigation, or
claim regarding conduct which allegedly interferes with the attainment of
rights under such plans), neither the Company nor any fiduciary with
respect to such plans has any knowledge of any facts that would give rise
to or could give rise to any penalty, fine, tax, action, suit, grievance,
arbitration or other manner of litigation, or claim, and the Company has
not incurred any lien under Section 401(a)(29) or any material liability
for any tax or civil penalty imposed by Section 4971 or 4976 of the Code or
Section 502 of ERISA and no condition or set of circumstances exists that
presents a risk to the Company of incurring any such lien or liability;
(ix) no Employee Benefit Plan is (A) a "defined benefit" plan
(as defined in Section 3(35) of ERISA, (B) a "multiemployer plan" within
the meaning of Section 3(37) of ERISA, (C) a "multiple employer" or a
"multiple employer welfare arrangement" within the meaning of Section
413(c) of the Code or Section 514(b)(6) of ERISA, respectively, or (D) a
"welfare benefit fund" as defined in Section 419(e) of the Code;
(x) the Company is not subject to any liability under Title IV
of ERISA, including any withdrawal liability on behalf of a multiemployer
plan;
15
(xi) none of the Company or any of its members, managers,
advisors, officers, employees or any other fiduciary has any liability for
a material breach of fiduciary responsibility imposed by ERISA for failure
to comply with ERISA or the Code for any action or failure to act in
connection with the administration or investment of such Employee Benefit
Plans;
(xii) except as disclosed on Schedule 3.18, none of such
Employee Benefit Plans has been completely or partially terminated;
(xiii) no current or former employee of the Company will be
entitled to any payment, additional benefits or any acceleration of the
time of payment or vesting of any benefits under any Employee Benefit Plan
as a result of the transactions contemplated by this Agreement (either
alone or in conjunction with any other event such as a termination of
employment) and no trustee under any "rabbi trust" or similar arrangement
in connection with any Employee Benefit Plan will be entitled to payment as
a result of the transactions contemplated by this Agreement;
(xiv) there is no pending or threatened litigation, action,
suit, proceeding or investigation against or involving such Employee
Benefit Plans and, to the best knowledge of the Company, there is no basis
for any litigation, action, suit, proceeding or investigation; and
(xv) no Employee Benefit Plan provides medical, life or other
welfare benefits (whether or not insured), with respect to current or
former employees after retirement or other termination of service (other
than coverage mandated by applicable law). With respect to any contract or
arrangement with an insurance company providing funding under any Employee
Benefit Plan, there is no material liability for any retroactive rate
adjustment. Except as disclosed on Schedule 3.18, the Company has the
right to amend or terminate its participation with respect to each Employee
Benefit Plan. Each Employee Benefit Plan that is a "group health plan," as
defined in Section 5000 of the Code has been operated in accordance with
Section 4980B of the Code, Section 9801 and the secondary payor
requirements of Section 1862(b) of the Social Security Act.
3.19 Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section
-----------
3.19, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, used in the singular or the plural depending on the
reference.
(i) "Company" for the purposes of this Section, shall include
(A) the Company, (B) all partnerships, joint ventures and other entities or
organizations in which the Company was at any time or is a partner, joint
venturer, member or participant and (C) all predecessor or former
corporations, partnerships, joint ventures, organizations, businesses or
other entities, whether in existence as of the date hereof or at any time
prior to the date hereof, the assets or obligations of which have been
acquired or assumed by the Company or to which the Company has succeeded.
16
(ii) "Release" shall mean and include any existing or
previously existing spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the environment or the workplace of any hazardous substance or
otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
contaminant, chemical, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical compound
or hazardous substance, material or waste, whether solid, liquid or gas,
including, without limitation, any quantity of asbestos in any form, urea
formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance or material, pesticide waste waters, sludges, slag
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Laws.
(iv) "Environmental Laws" shall mean all laws, statutes,
regulations, rules, ordinances, by-laws, orders or determinations of any
governmental or judicial authority at the federal, state or local level,
whether existing as of the date hereof, previously enforced, or
subsequently enacted which regulate or relate to the protection or clean-up
of the environment, the use, treatment, storage, transportation,
generation, manufacture, processing, distribution, handling or disposal of,
or emission, discharge or other release or threatened release of Hazardous
Substances or otherwise dangerous substances, wastes, pollution or
materials (whether, gas, liquid or solid), the preservation or protection
of waterways, groundwater, drinking water, air, wildlife, plants or other
natural resources, or the health and safety of persons or property,
including, without limitation, protection of the health and safety of
employees. Environmental Laws shall include, without limitation, the
Federal Insecticide, Fungicide, Rodenticide Act, Resource Conservation &
Recovery Act, Clean Water Act, Safe Drinking Water Act, Atomic Energy Act,
Occupational Safety and Health Act, Toxic Substances Control Act, Clean Air
Act, Comprehensive Environmental Response, Compensation and Liability Act,
Emergency Planning and Community Right-to-Know Act and the Hazardous
Materials Transportation Act.
(v) "Environmental Conditions" means the introduction into the
environment, whether or not yet discovered, of any pollution, including,
without limitation, any contaminant, irritant or pollutant or other
Hazardous Substance (whether or not upon any Facility or former Facility or
other property and whether or not such pollution constituted at the time
thereof a violation of any Environmental Law as a result of any Release of
any kind whatsoever of any Hazardous Substance) as a result of which the
Company has or may become liable to any person or by reason of which any
Facility, former Facility or any of the assets of the Company may suffer or
be subjected to any lien or as a result of which the Company or HDA could
incur any damage, loss, cost, expense, claim, demand, order or liability to
a third party (including, without limitation, any governmental authority).
(b) Notice of Violation. The Company has not received a notice of
-------------------
alleged, actual or potential responsibility for, or any inquiry or investigation
regarding, (i) any Release or threatened Release of any Hazardous Substance at
any location, whether at the Facilities, the former Facilities or otherwise or
(ii) an alleged violation of or non-compliance with the conditions of any Permit
required under any Environmental Law or the provisions of any Environmental Law.
The Company has not received notice of any other claim, demand or Action by any
individual or entity alleging any
17
actual or threatened injury or damage to any person, property, natural resource
or the environment arising from or relating to any Release or threatened Release
of any Hazardous Substances at, on, under, in, to or from any Facilities or
former Facilities, or in connection with any operations or activities of the
Company.
(c) Environmental Conditions. Other than the Environmental
------------------------
Conditions identified in Schedule 3.19 hereto, there are no present or past
Environmental Conditions.
(d) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports if such drafts are in the possession or control of the Company, of
all environmental audits or assessments that have been conducted at any Facility
or former Facility within the past five years, either by the Company or any
attorney, environmental consultant or engineer engaged for such purpose, have
been delivered to HDA or its representatives and a list of all such reports,
audits and assessments and any other similar report, audit or assessment of
which the Company has knowledge is included in Schedule 3.19 hereto.
(e) Indemnification Agreements. The Company is not a party, whether
--------------------------
as a direct signatory or as successor, assign or third party beneficiary, or
otherwise bound, to any lease or other contract (excluding insurance policies
disclosed on Schedule 3.22) under which the Company is obligated by or entitled
to the benefits of directly or indirectly, any representation, warranty,
indemnification, covenant, restriction or other undertaking concerning
environmental conditions.
(f) Releases or Waivers. The Company has not released any other
-------------------
person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
(g) Notices, Warnings and Records. The Company has given all notices
-----------------------------
and warnings, made all reports, and has kept and maintained all records required
by and in compliance with all Environmental Laws.
(h) Compliance. The Company has never violated and is presently in
----------
compliance with all Environmental Laws.
(i) Hazardous Material. Other than the Environmental Conditions
------------------
identified in Schedule 3.19 hereto, the Company has not generated, manufactured,
refined, transported, treated, disposed, stored, handled, transferred, produced
or processed any Hazardous Material.
(j) Underground Storage Tanks. There are no underground storage
-------------------------
tanks at any Facility owned or operated by the Company. The Company does not
own or operate any underground storage tanks, whether currently in use or
formerly used.
(k) Asbestos Containing Material. There is no asbestos containing
----------------------------
material at any Facility owned or operated by the Company.
(l) Liens. No lien has been imposed on any Facility pursuant to any
-----
Environmental Law.
18
3.20 Certain Business Relationships with the Company. The Existing
-----------------------------------------------
Member has not been involved in any business arrangement or relationship with
the Company within the past 12 months, and the Existing Member does not own any
assets, tangible or intangible, which are used in the business of the Company.
3.21 Undisclosed Liabilities. The Company has no liabilities or
-----------------------
obligations, whether accrued, absolute, contingent or otherwise except (a) to
the extent reflected or reserved for on the Balance Sheet, (b) liabilities or
obligations incurred in the normal and ordinary course of business of the
Company since December 31, 1998, (c) liabilities or obligations disclosed in
Schedule 3.21 hereto and in the other Schedules attached hereto or (d)
liabilities or obligations disclosed elsewhere in this Agreement.
3.22 Insurance. Schedule 3.22 contains a complete and accurate list of
---------
all policies or binders of fire, liability, title, worker's compensation,
product liability and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage provided, loss
experience history by line of coverage) maintained by the Company its (a)
business, (b) assets or (c) employees at any time since December 31, 1988. All
insurance coverage applicable to the Company or its business or assets is in
full force and effect, insures the Company in reasonably sufficient amounts
against all risks usually insured against by persons operating similar
businesses or properties of similar size in the localities where such businesses
or properties are located, provides coverage as may be required by applicable
regulation and by any and all contracts to which the Company is a party and has
been issued by insurers of recognized responsibility. There is no default under
any such coverage nor has there been any failure to give notice or present any
claim under any such coverage in a due and timely fashion. There are no
premiums for any such insurance that are due or past due and no notice of
cancellation or nonrenewal of any such coverage has been received. There are no
provisions in such insurance policies for retroactive or retrospective premium
adjustments. All products liability, general liability and workers'
compensation insurance policies maintained by the Company have been occurrence
policies and not claims made policies. There are no outstanding performance
bonds covering or issued for the benefit of the Company. There are no facts
upon which an insurer might be justified in reducing coverage or increasing
premiums on existing policies or binders. No insurer has advised the Company
that it intends to reduce coverage, increase premiums or fail to renew any
existing policy or binder.
3.23 Accounts Receivable. The accounts receivable set forth on the
-------------------
Balance Sheet, and all accounts receivable arising since the date of the Balance
Sheet, represent bona fide claims of the Company against debtors for sales,
services performed or other charges arising on or before the date hereof, and
all the goods delivered and services performed that gave rise to said accounts
were delivered or performed in accordance with the applicable orders, contracts
or customer requirements. Said accounts receivable are subject to no defenses,
counterclaims or rights of setoff and are fully collectible in the ordinary
course of business without cost in collection efforts therefor, except to the
extent of the appropriate reserves for bad debts on accounts receivable as set
forth on the Balance Sheet and, in the case of accounts receivable arising since
the date of the Balance Sheet, to the extent of a reasonable reserve for bad
debts on accounts receivable that is not greater than the reserve for bad debts
on the Balance Sheet.
3.24 Inventory. Schedule 3.24 contains a complete and accurate list of
---------
the addresses at which all inventory as set forth on the Balance Sheet, and all
inventory acquired since the date of
19
the Balance Sheet, is located. The inventory as set forth on the Balance Sheet
or arising since the date of the Balance Sheet was acquired and has been
maintained in accordance with the regular business practices of the Company,
consists of new and used items of a quality and quantity usable or saleable in
the ordinary course of business, and is valued at the lower or cost or market on
an average cost basis. None of such inventory is obsolete, unusable, damaged or
unsaleable in the ordinary course of business, except for such items of
inventory that have been written down to realizable market value, or for which
adequate reserves have been provided in the Balance Sheet.
3.25 Payments. The Company has not, directly or indirectly, paid or
--------
delivered any fee, commission or other sum of money or item or property, however
characterized, to any finder, agent, client, customer, supplier, government
official or other party, in the United States or any other country, which is in
any manner related to the business, assets or operations of the Company, which
is, or may be with the passage of time or discovery, illegal under any federal,
state or local laws of the United States (including, without limitation, the
U.S. Foreign Corrupt Practices' Act) or any other country having jurisdiction.
The Company has not participated, directly or indirectly, in any boycotts or
other similar practices affecting any of its actual or potential customers and
has at all times done business in an open and ethical manner.
3.26 Customers, Distributors and Suppliers. Schedule 3.26 sets forth a
-------------------------------------
complete and accurate list of the names and addresses of the Company's (a) ten
largest (in terms of dollar volume) customers, distributors and other agents and
representatives during the Company's last fiscal year, showing the approximate
total sales in dollars by the Company to such customer during such fiscal year;
and (b) suppliers during the Company's last fiscal year, showing the approximate
total purchases in dollars by the Company from such supplier during such fiscal
year. Since the date of the Balance Sheet, there has been no adverse change in
the business relationship of the Company with any customer, distributor or
supplier named on Schedule 3.26. The Company has not received any communication
from any customer, distributor or supplier named on Schedule 3.26 of any
intention to terminate or materially reduce purchases from or supplies to the
Company.
3.27 Investment Intent; Accredited Investors; Suitability and
--------------------------------------------------------
Sophistication.
--------------
(a) The Common Stock and Series A Preferred Stock to be issued to the
Existing Member hereunder are being acquired for his own account and not with
the view to, or for resale in connection with, any distribution or public
offering thereof within the meaning of the Securities Act of 1933 (the
"Securities Act") except in compliance with the Securities Act. The Existing
Member understands that the Common Stock and Series A Preferred Stock have not
been registered under the Securities Act by reason of their issuance in
transactions exempt from the registration and prospectus delivery requirements
of the Securities Act, the availability of which exemption or exemptions depends
upon, among other things, the bona fide nature of the investment intent as
expressed herein. The Existing Member acknowledges that shares of Common Stock
or Series A Preferred Stock originally issued, any shares of Common Stock or
Series A Preferred Stock issued upon any direct or indirect transfer of any such
security, each certificate for shares of Common Stock issued upon the conversion
of any shares of Series A Preferred Stock and each certificate issued upon the
direct or indirect transfer of any such shares of Common Stock shall be stamped
or otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES
20
ACT OF 1933 NOR PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY
STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS
EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT OR
(iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT, PROVIDED
THAT IN A TRANSACTION PURSUANT TO (iii) ABOVE, IF REQUESTED BY THE
ISSUER HEREOF, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE IS FURNISHED TO SUCH ISSUER STATING THAT AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND OTHER CONDITIONS AS SET FORTH IN THE
STOCKHOLDERS' AGREEMENT, DATED AS OF SEPTEMBER 30, 1998, AS AMENDED,
BY AND AMONG THE STOCKHOLDERS OF CITY TRUCK HOLDINGS, INC. AND CITY
TRUCK HOLDINGS, INC.
Whenever the legend requirements imposed by this Section 3.27(a) shall terminate
or a holder shall provide an opinion of counsel stating that such legend is no
longer required, the respective holders of the securities for which such legend
requirements have terminated shall be entitled to receive from Holdings
certificates without such legend. In the event any disagreement arises
regarding whether the legend requirement imposed by this Section 3.27(a) has
terminated, the holders of such securities shall be entitled to receive from
Holdings certificates without such legend if any such holder provides Holdings
with a written opinion of counsel stating that such legend is no longer
necessary or required.
(b) The Existing Member is an "accredited investor" as such term is
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
(c) The Existing Member has (i) such knowledge and experience in
financial and business matters that it is capable of independently evaluating
the risks and merits of acquiring the Common Stock and Series A Preferred Stock,
(ii) independently evaluated the risks and merits of acquiring the Common Stock
and Series A Preferred Stock and (iii) sufficient financial resources to bear
the loss of its entire investment in such securities.
21
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND HDA
Holdings and HDA represent and warrant to the Existing Member as follows:
4.1 Corporate Organization and Standing. Each of Holdings and HDA is a
-----------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and each of Holdings and HDA has all
requisite corporate power and authority to execute and deliver this Agreement,
the Ancillary Agreements and to consummate the transactions contemplated hereby
and thereby.
4.2 Authorization. This Agreement and the Ancillary Agreements have been
-------------
duly authorized, executed and delivered by each of Holdings and HDA and are
valid and binding obligations of each of Holdings and HDA, enforceable against
each of them in accordance with their terms.
4.3 No Conflict or Violation. Neither the execution and delivery of this
------------------------
Agreement or the Ancillary Agreements nor the consummation of the transactions
contemplated hereby or thereby will (a) violate, conflict with or result in or
constitute a default under or result in the termination or the acceleration of,
or the creation in any party of any right (whether or not with notice or lapse
of time or both) to declare a default, accelerate, terminate, modify or cancel
any Contractual Obligation to which Holdings or HDA is a party or by which
either of them is bound or to which any of their assets are subject, (b)
violate, conflict with or result in a breach of or constitute a default under
any provision of Holdings' or HDA's Articles of Incorporation or Bylaws (or
other charter documents), or a default under or violation of any material
restriction, lien, encumbrance or any contract to which Holdings or HDA is a
party or by which either of them is bound or to which any of their assets is
subject or result in the creation of any lien or encumbrance upon any of said
assets, (c) violate, conflict with or result in a breach of or constitute a
default under any judgment, order, decree, rule or regulation of any court or
governmental agency to which Holdings or HDA is subject or (d) violate, conflict
with or result in a breach of any applicable rule or regulation of any federal,
state, local or other governmental authority.
4.4 Stock. The shares of Common Stock and Series A Preferred Stock to be
-----
issued to the Existing Member pursuant to this Agreement are duly authorized
and, when paid for in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable.
ARTICLE V.
POST-CLOSING COVENANTS
Holdings, HDA and the Existing Member each covenant with the others as
follows:
5.1 Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, the Parties agree, after the Closing, (a) to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement or the Ancillary
Agreements, (b) to execute any documents, instruments or conveyances of any kind
that may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder and (c) to cooperate with
22
each other in connection with the foregoing. Without limiting the foregoing,
the Parties agree to use their respective best efforts (i) to obtain all
necessary waivers, consents and approvals from other parties (including, without
limitation, governmental entities) to the consummation of the transactions
contemplated by this Agreement; (ii) to obtain all necessary Permits as are
required to be obtained under any regulations; (iii) to defend all Actions
challenging this Agreement or the consummation of the transactions contemplated
hereby; (iv) to lift or rescind any injunction or restraining order or other
court order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby; (v) to give all notices to, and make all
registrations and filings with third parties, including, without limitation,
submissions of information requested by governmental authorities; and (vi) to
fulfill all conditions to this Agreement.
5.2 Tax Matters.
-----------
(a) Tax Indemnification.
-------------------
(i) The Existing Member shall indemnify HDA, the Company and
their affiliates and hold them harmless from and against: (1) any and all
liabilities for Taxes (including without limitation any obligation to
contribute to the payment of a Tax determined on a consolidated, combined,
or unitary basis with respect to a group of corporations that includes or
included the Company) of the Company for all taxable periods ending on or
before the Closing Date (the "Pre-Closing Tax Period") and for the portion
of any Taxes (including without limitation any obligation to contribute to
the payment of a Tax determined on a consolidated, combined, or unitary
basis with respect to a group of corporations that includes or included the
Company) of the Company for any Straddle Period (as hereinafter defined)
that is allocated (pursuant to Section 5.2(a)(iii)) to the Pre-Closing Tax
Period (such liabilities collectively, "Pre-Closing Tax Liabilities"); (2)
one-half of any and all liabilities for Conveyance Taxes; (3) any and all
liabilities for Taxes arising out of a breach or inaccuracy of any
representation or warranty contained in Section 3.11; (4) any liability (as
a result of Treas. Reg. (S) 1.1502-6(a) or otherwise) for income Taxes of
the Existing Member or any other person (other than the Company) that is or
has ever been affiliated with the Company, or with whom the Company
otherwise joins or has ever joined (or is or has ever been required to
join) in filing any consolidated, combined or unitary Tax Return prior to
the Closing; and (5) any and all liability for reasonable legal, accounting
and appraisal fees and expenses with respect to any item described in
clauses (1), (2) or (4); provided, however, that the amount of the
-------- -------
Existing Member's indemnity obligation for Taxes pursuant to this Section
5.2(a)(i) shall be reduced to the extent that the aggregate reserves for
Taxes (excluding deferred income taxes) reflected on the Closing Balance
Sheet exceeds the aggregate liability for Taxes for the Pre-Closing Tax
Period not paid prior to the close thereof. Notwithstanding the foregoing,
the Existing Member shall not be required to indemnify or hold harmless
HDA, the Company and their affiliates from or against any liability for
Taxes attributable to a breach by HDA of its obligations under this
Agreement.
(ii) HDA shall defend and indemnify the Existing Member and hold
him harmless from and against (1) any liability for Taxes of the Company
for any taxable period ending after the Closing Date (except with respect
to a Straddle Period, in which case HDA's indemnity will cover only Taxes
that are not Pre-Closing Tax Liabilities); (2) one-half of any and all
liabilities for Conveyance Taxes; and (3) any and all liability for
reasonable legal, accounting and appraisal fees and expenses with respect
to any item described in clauses (1)
23
or (2). Notwithstanding the foregoing, HDA shall not be required to
indemnify or hold harmless the Existing Member from or against any
liability for Taxes attributable to a breach by the Existing Member of
their obligations under this Agreement.
(iii) In the case of any taxable period that includes but does
not end on the Closing Date (a "Straddle Period"), Taxes of the Company for
the Straddle Period shall be allocated to the Pre-Closing Tax Period using
an interim-closing-of-the-books method assuming that such taxable period
ended at the close of the Closing Date, except that (A) exemptions,
allowances or deductions that are calculated on an annual basis (such as
the deduction for depreciation) shall be apportioned on a per-diem basis
and (B) real property, personal property, intangibles and other similar
Taxes shall be allocated in accordance with the principles of Section
164(d) of the Code.
(b) Procedures Relating to Tax Indemnification.
------------------------------------------
(i) If a claim for Taxes, including, without limitation, notice
of a pending or threatened audit, shall be made by any taxing authority in
writing (a "Tax Claim"), which, if successful, might result in an indemnity
payment pursuant to Section 5.2(a), the indemnified party shall notify the
indemnifying party in writing of the Tax Claim within 30 business days of
receipt of such Tax Claim. If notice of a Tax Claim (a "Tax Notice") is
not given to the indemnifying party within such 30-day period or in detail
sufficient to apprise the indemnifying party of the nature of the Tax
Claim, the indemnifying party shall not be liable to the indemnified party
to the extent that the indemnifying party's position would be prejudiced as
a result thereof.
(ii) (a) The Existing Member shall have the sole right to
represent the interests of the Company in any tax audit or administrative
or court proceeding relating to taxable periods ending on or before the
Closing Date, and to employ counsel of their choice at their expense.
Notwithstanding the foregoing, the Existing Member shall not be entitled to
settle, either administratively or after the commencement of litigation,
any claim for Taxes that would materially adversely affect the liability
for Taxes of HDA or the Company for any taxable period after the Closing
Date (including, but not limited to, the imposition of income tax
deficiencies, the reduction of asset basis or cost adjustments, the
lengthening of any amortization or depreciation periods, the denial of
amortization or depreciation deductions or the reduction of loss or credit
carryforwards) without the prior written consent of HDA. Such consent shall
not be unreasonably withheld, and shall not be necessary to the extent that
the Existing Members have indemnified HDA against the effects of any such
settlement.
(b) The Existing Member shall be entitled to participate at
their expense in the defense of any claim for Taxes for a taxable year or
period ending after the Closing Date that may be subject to indemnification
by the Existing Member pursuant to Section 5.2(a)(i) and, with the written
consent of HDA, and at the Existing Member's expense, may assume the entire
defense of such tax claim, subject to the second and third sentences of
Section 5.2(b)(ii)(a). Notwithstanding the foregoing, HDA shall not be
entitled to settle, either administratively or after the commencement of
litigation, any claim for Taxes for any such taxable year or period that
would materially adversely affect the Pre-Closing Tax Liabilities of the
Company (including, but not limited to, the imposition of income tax
deficiencies, the reduction of asset basis or cost adjustments, the
lengthening of any
24
amortization or depreciation periods, the denial of amortization or
depreciation deductions or the reduction of loss or credit carryforwards)
without the prior written consent of the Existing Member, which consent
shall not be unreasonably withheld.
(c) Subject to the immediately preceding paragraph, HDA shall
have the sole right to represent the Company's interests in the defense of
any claim for Taxes relating to taxable periods ending after the Closing
Date. Notwithstanding the foregoing, HDA shall not be entitled to settle,
either administratively or after the commencement of litigation, any claim
for Taxes that would materially adversely affect the Pre-Closing Tax
Liabilities of the Company and the Existing Member (including, but not
limited to, the imposition of income tax deficiencies, the reduction of
asset basis or cost adjustments, the lengthening of any amortization or
depreciation periods, the denial of amortization or depreciation deductions
or the reduction of loss or credit carryforwards) without the prior written
consent of the Existing Member, which consent shall not be unreasonably
withheld.
(iii) After the Closing Date, the Existing Member and HDA,
shall:
(a) assist (and cause their respective affiliates to assist) the
other party in preparing any Tax Returns that such other party is
responsible for preparing and filing in accordance with this Section 5.2;
(b) cooperate fully in preparing for any audits of, or disputes
with taxing authorities regarding, any Tax Returns of the Company;
(c) make available for inspection and copying to the others and
to any taxing authority as reasonably requested all information, records
and documents relating to Taxes of the Company;
(d) provide timely notice to the other in writing of any pending
or threatened tax audits or assessments of the Company for taxable periods
for which the other may have a liability under this Section 5.2; and
(e) furnish the others with copies of all correspondence
received from any Taxing Authority in connection with any Tax audit or
information request with respect to any such taxable period.
(iv) Within 60 days following the Closing Date, the Existing
Member shall deliver or cause to be delivered to HDA all books, records,
returns, schedules, work papers and other documents (including without
limitation appraisals and other background information) that are in the
possession of the Existing Member and that relate to any Taxes of the
Company for any taxable year or other period.
(c) Tax Dispute Resolution Mechanism. Wherever in this Section 5.2
--------------------------------
it is provided that a dispute shall be resolved pursuant to the "Tax Dispute
Resolution Mechanism," such dispute shall be resolved as follows: The parties
shall submit the dispute to a jointly selected BFAF other than
PricewaterhouseCoopers LLP (the "Settlement Accountants") for resolution, which
resolution shall be final, conclusive and binding on the Parties.
Notwithstanding anything in this Agreement to the contrary, the fees and
expenses of the Settlement Accountants in resolving a
25
dispute shall be borne 50% by the Existing Member and 50% by HDA, other than
fees and expenses relating to a dispute as to the amount of Taxes owed by any of
the parties with respect to a Straddle Period Tax Return, in which case such
fees and expenses shall be paid by HDA and by the Existing Member in proportion
to their respective liability for Taxes as determined by the Settlement
Accountants.
(d) Survival of Tax Provisions. The obligations of each Party set
--------------------------
forth in this Section 5.2 shall be unconditional and absolute and shall remain
in effect until the date 90 days after the expiration of the relevant statute of
limitations (and any waiver or extensions thereof) applicable to the Taxes at
issue.
(e) Conveyance Taxes. Notwithstanding any other provision of this
----------------
Agreement to the contrary, HDA and the Existing Member shall each be liable for,
and shall timely pay or shall cause to be paid, one-half of any and all gains,
transfer, sales, use, bulk sales, recording, registration, documentary, stamp,
and other Taxes that may result from, or be incurred in connection with, the
transactions contemplated by this Agreement ("Conveyance Taxes"). The Existing
Member shall, at his own expense, properly complete, sign, and timely file any
and all required Tax Returns with respect to such Conveyance Taxes and, if
required by applicable law, HDA will join in the execution of any such Tax
Returns.
(f) Exclusivity. This Section 5.2 shall govern the procedures for
-----------
all indemnification claims with respect to Taxes.
(g) Adjustment to Purchase Price. Any payment by HDA or by the
----------------------------
Existing Member under this Section 5.2 will be an adjustment to the Purchase
Price unless a determination (as defined in Section 1313 of the Code) with
respect to the indemnified party causes any such payment not to constitute an
adjustment to the Purchase Price for United States federal income tax purposes.
(h) Tax Election. The Existing Member shall not at any time after
------------
the Closing make an election on behalf of the Company pursuant to Treasury
Regulation (S)301.7701-3(c) to cause the Company be treated for Tax purposes as
an association taxable as a corporation.
5.3 Guarantees. To the extent that on or before the Closing Date the
----------
Existing Member and Xxx Xxxxxxxx have not been released from their respective
obligations as guarantor of Contractual Obligations of the Company, HDA shall
use reasonable efforts to obtain such releases as soon as reasonably possible
after the Closing Date. HDA's reasonable efforts may include the substitution
of HDA as guarantor of such Contractual Obligations in lieu of the Existing
Member or Xxx Xxxxxxxx, as the case may be. HDA further agrees to indemnify,
defend and hold harmless the Existing Member and Xxx Xxxxxxxx and their
respective heirs, representatives, successors and assigns (such persons are
collectively referred to as the "Guarantors' Indemnified Persons" in this
Section 5.3) from and against any and all Losses (as defined in Section 8.1)
that the Guarantors' Indemnified Persons suffer, sustain or incur or become
subject to or arising out of or due to the guarantees of such Contractual
Obligations.
26
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE
TRANSACTIONS BY HOLDINGS AND HDA
The obligations of Holdings and HDA under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived by Holdings and HDA.
6.1 No Injunctive Proceedings. No preliminary or permanent injunction or
-------------------------
other order (including a temporary restraining order) of any state or federal
court or other governmental agency which prevents the consummation of the
transactions which are the subject of this Agreement shall have been issued and
remain in effect.
6.2 Representations and Warranties. Except as otherwise contemplated by
------------------------------
this Agreement, all representations and warranties of the Existing Member
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date.
6.3 Performance of Agreements. The Existing Member shall have fully
-------------------------
performed all obligations, agreements, conditions and commitments required to be
fulfilled by him pursuant to the terms hereof on or prior to the Closing Date.
6.4 Compliance Certificate. The Existing Member shall have delivered to
----------------------
HDA or its representatives a certificate, each dated the Closing Date, as to the
fulfillment of the conditions set forth in Sections 6.2 and 6.3 hereof.
6.5 Certificates. The Existing Member shall deliver to HDA a certificate
------------
or certificates representing all of the Units, if any, together with duly
executed transfer powers in favor of HDA.
6.6 Books and Records. HDA shall have received the record books of the
-----------------
Units, ledgers of the Units, minute books and seal (if any) of the Company.
6.7 Managing Member, Officers and Advisors. HDA shall have received the
--------------------------------------
written resignation of the managing member and all officers and advisors of the
Company in office immediately prior to the Closing.
6.8 Opinion of Counsel. HDA shall have received the opinion of Levy &
------------------
Associates, P.S., counsel for the Company and the Existing Member, in the form
set forth in Schedule 6.8 hereto.
6.9 Ancillary Agreements. The following agreements (the "Ancillary
--------------------
Agreements") shall have been duly executed and delivered by all parties thereto
other than Holdings or HDA: (a) a noncompetition agreement between HDA and Xxxx
X. Xxxxxxxx, substantially in the form attached hereto as Exhibit A; (b)
Joinders to a Stockholders' Agreement for Holdings, substantially in the form
attached hereto as Exhibit B; and (c) an escrow agreement (the "Escrow
Agreement") by and among Holdings, HDA, the Existing Member and Chase Manhattan
Bank and Trust Company, National Association, as "Escrow Agent" substantially in
the form attached hereto as Exhibit C.
6.10 Consents, Etc. All authorizations, consents or approvals of any and
--------------
all third parties, including the Required Consents, and governmental regulatory
authorities necessary in connection
27
with the consummation of the Closing shall have been obtained and be in full
force and effect. Copies of all such authorizations, consents or approvals
shall have been delivered to HDA or its representatives.
6.11 Nonforeign Affidavit. The Existing Member shall furnish to HDA an
--------------------
affidavit stating, under penalty of perjury, its United States taxpayer
identification number and that it is not a foreign person pursuant to Section
1445(b)(2) of the Code.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY
THE EXISTING MEMBER
The obligations of the Existing Member under this Agreement are subject to
the fulfillment prior to the Closing of each of the following conditions, any
one or more of which may be waived by the Existing Member:
7.1 No Injunctive Proceedings. No preliminary or permanent injunction or
-------------------------
other order (including a temporary restraining order) of any state or federal
court or other governmental agency that prevents the consummation of the
transactions that are the subject of this Agreement shall have been issued and
remain in effect.
7.2 Representations and Warranties. Except as otherwise contemplated by
------------------------------
this Agreement, all representations and warranties of Holdings and HDA contained
in this Agreement shall be true and correct in all material respects as of the
Closing Date.
7.3 Performance of Agreements; Instruments of Transfer. Holdings and HDA
--------------------------------------------------
shall have fully performed all obligations, agreements, conditions and
commitments required to be fulfilled by Holdings and HDA on or prior to the
Closing Date.
7.4 Compliance Certificates. Each of Holdings and HDA shall have
-----------------------
delivered to the Existing Member its certificate, dated the Closing Date,
executed on its behalf by its President or a Vice President, as to the
fulfillment of the conditions set forth in Sections 7.2 and 7.3 hereof.
7.5 Ancillary Agreements. The condition set forth in Section 6.9 shall be
--------------------
satisfied, except that such documents shall be signed by all parties other than
the Existing Member or entities controlled by him.
ARTICLE VIII.
INDEMNIFICATION
8.1 Indemnification by the Existing Member. Subject to the provisions of
--------------------------------------
this Article VIII, the Existing Member will indemnify, defend and hold Holdings,
HDA and their respective stockholders, subsidiaries, officers, directors,
employees, agents, successors and assigns, (such indemnified persons are
collectively hereinafter referred to as "HDA Indemnified Persons"), harmless
from and against any and all loss, liability, damage or deficiency (including
interest, penalties, judgments, costs of preparation and investigation, and
reasonable attorneys' fees)
28
(collectively, "Losses") that any HDA Indemnified Person may suffer, sustain,
incur or become subject to arising out of or due to: (a) any inaccuracy of any
representation of the Existing Member in this Agreement, any Schedule hereto or
any Ancillary Agreement; (b) the breach of any warranty of the Existing Member
in this Agreement, any Schedule hereto or any Ancillary Agreement; (c)
environmental liabilities (including but not limited to, liabilities arising out
of or relating to the existence of contaminated soils at the property located at
3807-3815 Puget Sound Avenue, Tacoma, Washington as existing at the time of the
Closing and as detailed in the Phase I and Phase II reports of Adapt
Engineering); or (d) the nonfulfillment of any covenant, undertaking or other
obligation of any Existing Member under this Agreement, any Schedule hereto or
any Ancillary Agreement, not otherwise waived by HDA. "Losses" as used in this
Article VIII is not limited to matters asserted by third parties, but includes
Losses incurred or sustained in the absence of third party claims. Payment is
not a condition precedent to recovery of indemnification for Losses.
8.2 Indemnification by HDA. Subject to the provisions of this Article
----------------------
VIII, HDA agrees to indemnify, defend and hold the Existing Member and their
respective heirs, representatives, successors and assigns (such persons are
hereinafter collectively referred to as the "Existing Member Indemnified
Persons"), harmless from and against any and all Losses that the Existing Member
Indemnified Persons may suffer, sustain, incur or become subject to arising out
of or due to: (a) any inaccuracy of any representation of HDA in this Agreement,
any Schedule hereto or any Ancillary Agreement; (b) the breach of any warranty
of HDA in this Agreement, any Schedule hereto or any Ancillary Agreement; and
(c) the nonfulfillment of any covenant, undertaking or other obligation of HDA
under this Agreement, any Schedule hereto or any Ancillary Agreement, not
otherwise waived by the Existing Member. Payment is not a condition precedent
to recovery of indemnification for Losses.
8.3 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations and warranties of the Parties contained in this Agreement or in
any document delivered pursuant hereto and the Parties' right to indemnification
in accordance with this Article VIII shall survive the Closing Date and shall
remain in full force and effect for 18 months thereafter; provided, however,
-------- -------
that the representations and warranties set forth in Section 3.11 relating to
tax matters and Section 3.18 relating to employee benefits matters shall survive
for the length of the applicable statute of limitations; provided further,
-------- -------
however, that the representations and warranties set forth in Section 3.19
-------
relating to environmental matters and the right of HDA Indemnified Persons to
indemnification under Section 8.1(c) shall survive for three years; and provided
--------
further that the representations in Sections 3.4 and 3.5 shall survive
-------
indefinitely. All covenants and agreements contained in this Agreement shall
survive the Closing Date indefinitely until, by their respective terms, they are
no longer operative.
8.4 Threshold; Deductible. Except as provided in this Section 8.4, no HDA
---------------------
Indemnified Person or Existing Member Indemnified Person shall be entitled to
any recovery in accordance with clause (a) or (b) of Section 8.1 or clause (a)
or (b) of Section 8.2 unless and until the amount of such Losses suffered,
sustained or incurred by such party, or to which such party becomes subject, by
reason of such inaccuracy or breach or exceeds $75,000 in the aggregate.
8.5 Notice and Opportunity to Defend. If a claim for Losses (a "Claim")
--------------------------------
is to be made by a party seeking indemnification hereunder, such party seeking
indemnification (the "Indemnitee") shall notify the party obligated to provide
indemnification (the "Indemnitor") promptly. If such event involves (a) any
claim or (b) the commencement of any action or proceeding by a third person,
29
the Indemnitee shall give the Indemnitor written notice of such claim or the
commencement of such action or proceeding. Delay or failure to so notify the
Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that it is prejudiced by reasons of such delay or failure. The
Indemnitor shall have a period of 30 days within which to respond thereto. If
the Indemnitor accepts responsibility or does not respond within such 30-day
period, then the Indemnitor shall be obligated to compromise or defend, at its
own expense and by counsel chosen by the Indemnitor, such matter, and the
Indemnitor shall provide the Indemnitee with such assurances as may be
reasonably required by the Indemnitee to assure that the Indemnitor will assume
and be responsible for the entire liability at issue, subject to the limitations
set forth in Sections 8.3 and 8.4 hereof. If the Indemnitor fails to assume the
defense of such matter within said 30-day period, the Indemnitee against which
such matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to undertake, at the Indemnitor's cost and expense,
the defense, compromise or settlement of such matter on behalf of the
Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and
its counsel in the defense against any such asserted liability. In any event,
the Indemnitee shall have the right to participate at its own expense in the
defense of such asserted liability. Any compromise of such asserted liability
by the Indemnitor shall require the prior written consent of the Indemnitee,
which consent will not be unreasonably withheld and in the event the Indemnitee
defends any such asserted liability, then any compromise of such asserted
liability by the Indemnitee shall require the prior written consent of the
Indemnitor, which consent shall not be unreasonably withheld.
8.6 Indemnification Payments. At the Closing, Holdings will deliver
------------------------
certificates representing 743 shares of Common Stock and 3,236.9 shares of
Series A Preferred Stock included in the Purchase Price under Section 1.1 to the
Escrow Agent to be held by the Escrow Agent for 18 months pursuant to the terms
of the Escrow Agreement and to serve as partial security for the indemnification
obligations and Purchase Price adjustment obligations of the Existing Member
under this Agreement. Any indemnification obligations of the Existing Member
under this Article VIII shall be satisfied (a) first, out of the property held
by the Escrow Agent pursuant to the terms of the Escrow Agreement and (b)
second, by payment of cash by the Existing Member.
8.7 Adjustment to Purchase Price. Any payments made pursuant to Sections
----------------------------
8.1 and 8.2 will be treated by the Parties as an adjustment to the Purchase
Price unless a determination (as defined in Section 1313 of the Code) with
respect to the indemnified party causes any such payment not to constitute an
adjustment to the Purchase Price for United States federal income tax purposes.
ARTICLE IX.
MISCELLANEOUS
9.1 Expenses. Except as otherwise set forth in this Agreement, HDA or
--------
Holdings shall pay all costs and expenses incurred by them or on their behalf,
and with respect to costs and expenses incurred by the Existing Member or the
Company on the Existing Member's or the Company's behalf, such costs and
expenses to the extent incurred and reflected on the Closing Balance Sheet or
paid prior to the Closing, shall be paid by the Company, and any such costs and
expenses incurred thereafter shall be paid by the Existing Member, in connection
with this Agreement and the transactions contemplated hereby, including fees and
expenses of their financial consultants, accountants and legal counsel.
30
9.2 Notices. All notices, requests, demands and other communications
-------
given hereunder (collectively, "Notices") shall be in writing and delivered
personally or by overnight courier to the Parties at the following addresses or
sent by telecopier or telex, with confirmation received, to the telecopy
specified below:
If to the Existing Member, at the address or telecopier number set
forth on Annex B hereto or otherwise provided to HDA from time to
time.
With a Copy to:
Levy & Associates, X.X.
Xxxxxxxx Center
0000 0xx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attn.: Xxxxxxx X. Xxxx
Telecopy No.: (000) 000-0000
If to Holdings or HDA:
HDA Parts System, Inc.
000 Xxxx Xxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn.: Xxxx X. Xxxxxxx
Telecopy No.: (000) 000-0000
With a Copy to:
Brentwood Associates
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn.: Xxxxxxxxxxx X. Xxxxxxxx
Telecopy No.: (000) 000-0000
And:
Xxxxx, Day, Xxxxxx & Xxxxx
00 Xxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn.: Xxxxxxx X. Xxxxxx
Telecopy No.: (000) 000-0000
All Notices shall be deemed delivered when actually received if delivered
personally or by overnight courier, sent by telecopier or telex (promptly
confirmed in writing), addressed as set forth above. Each of the Parties shall
hereafter notify the other in accordance with this Section 9.2 of any change of
address or telecopy number to which notice is required to be mailed.
31
9.3 Counterparts. This Agreement may be executed simultaneously in one or
------------
more counterparts, and by different parties hereto in separate counterparts,
each of which when executed shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
9.4 Entire Agreement. This Agreement and the Ancillary Agreements
----------------
constitute the entire agreement of the Parties with respect to the subject
matter hereof and supersede all prior negotiations, agreements and
understandings, whether written or oral, of the Parties.
9.5 Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.6 Assignment; Amendment of Agreement. This Agreement shall be binding
----------------------------------
upon the respective successors and assigns of the Parties hereto. This
Agreement may not be assigned by any Party hereto without the prior written
consent of all other Parties hereto. This Agreement may be amended only by
written agreement of the Parties hereto, duly executed and delivered by an
authorized representative of each of the Parties hereto.
9.7 Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal laws of the State of Illinois
applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof.
9.8 Further Assurances. Each Party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary in order to consummate the transactions contemplated hereby,
and to effectuate the provisions and purposes hereof.
9.9 No Third-Party Rights. This Agreement is not intended, and shall not
---------------------
be construed, to create any rights in any parties other than Holdings, HDA, the
Company and the Existing Member, and no person shall assert any rights as third-
party beneficiary hereunder.
9.10 Non-Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.11 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
32
9.12 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
---------------------------------------
hereto are incorporated into this Agreement and shall be deemed a part hereof as
if set forth herein in full. References herein to "this Agreement" and the words
"herein," "hereof" and words of similar import refer to this Agreement
(including its Exhibits and Schedules) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Exhibit or
Schedule, the provisions of this Agreement shall control.
9.13 Knowledge. As used herein, to the "knowledge" or "best knowledge"
---------
or similar phrase includes (a) actual knowledge of any member, manager, officer
or advisor of the Company and any employee of the Company whose job duties
include the subject matter in question and (b) such knowledge as would have been
obtained by any of the foregoing individuals after inquiring of the appropriate
personnel and after conducting, or having had conducted by such appropriate
personnel, a diligent search of files, computer records and other available
data.
[Signature Page Follows]
33
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the day and year first above written.
CITY TRUCK HOLDINGS, INC.
By: /s/ Xxxx X. Xxxxxx
------------------------------------
Name: Xxxx X. Xxxxxx
------------------------------------
Title: Vice President of Finance, Chief
-----------------------------------
Financial Officer and Secretary
HDA PARTS SYSTEM, INC.
By: /s/ Xxxx X. Xxxxxx
------------------------------------
Name: Xxxx X. Xxxxxx
------------------------------------
Title: Vice President of Finance, Chief
-----------------------------------
Financial Officer and Secretary
/s/ Xxxx X. Xxxxxxxx
-----------------------------------------
XXXX X. XXXXXXXX
S-1