EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
TBC CORPORATION
AND
THE STOCKHOLDERS OF MERCHANT'S, INCORPORATED
TABLE OF CONTENTS
Article 1 . Definitions......................................................................................... 1
1.01 Defined Terms ...................................................................................... 1
1.02 Interpretation....................................................................................... 4
Article 2 . Sale and Purchase of Shares......................................................................... 5
2.01 Agreement to Sell and Purchase....................................................................... 5
2.02 The Shares........................................................................................... 5
Article 3 . Purchase Price and Payment Terms.................................................................... 5
3.01 Purchase Price ..................................................................................... 5
3.02 Definition of Net Purchase Price..................................................................... 5
3.03 Payment.............................................................................................. 5
Article 4 . Contingent Earnout.................................................................................. 6
4.01 Earnout Amounts...................................................................................... 6
4.02 Certain Definitions.................................................................................. 6
4.03 Certain Adjustments and Allocations.................................................................. 8
4.04 Determinations and Payments.......................................................................... 9
4.05 Examples:............................................................................................ 10
4.06 Certain Events:...................................................................................... 11
4.07 Accounting Standards; Consultation; Continuing Insurance............................................. 11
4.08 Confidentiality...................................................................................... 12
Article 5 . Section 338(h)(10) and Related Elections............................................................ 12
5.01 The Federal Election................................................................................. 12
5.02 State and Local Elections............................................................................ 13
5.03 Cooperation.......................................................................................... 13
5.04 Binding Effect....................................................................................... 13
5.05 Tax Liability........................................................................................ 13
Article 6 . Representations and Warranties of Individual Stockholders........................................... 13
6.01 By Xxx. Xxxx......................................................................................... 13
6.02 By Xxx. Xxxxx........................................................................................ 14
6.03 By Dr. Merchant...................................................................................... 15
Article 7 . Representations and Warranties of all Stockholders.................................................. 15
7.01 Schedules............................................................................................ 15
7.02 Corporate Organization ............................................................................. 15
7.03 Capitalization....................................................................................... 16
7.04 Subsidiaries......................................................................................... 17
7.05 Consents and Approvals; No Violation................................................................. 17
7.06 Financial Statements; Debt and Capital Leases........................................................ 18
7.07 Taxes................................................................................................ 18
7.08 Employee Plans; Employees............................................................................ 20
7.09 Material Contracts................................................................................... 22
7.10 Absence of Certain Changes or Events................................................................. 23
7.11 Litigation; Pending Decrees.......................................................................... 23
7.12 Licenses; Compliance With Laws....................................................................... 23
7.13 Conduct to Date...................................................................................... 24
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7.14 Labor Matters........................................................................................ 25
7.15 Undisclosed Liabilities; Warranty Matters............................................................ 25
7.16 Title to Properties; Absence of Liens, Etc........................................................... 25
7.17 Receivables; Prepaid Expenses........................................................................ 27
7.18 Inventories.......................................................................................... 27
7.19 Proprietary Rights................................................................................... 27
7.20 Insurance; Bank Accounts............................................................................. 27
7.21 Environmental Matters................................................................................ 28
7.22 Certain Transactions................................................................................. 29
7.23 Maryland and Related Matters......................................................................... 29
7.24 Disclosure........................................................................................... 30
Article 8 . Representations, Warranties and Covenants of Buyer............................................. 30
8.01 Representations and Warranties....................................................................... 30
8.02 Covenants of Buyer................................................................................... 31
Article 9 . Pre-Closing Obligations............................................................................. 32
9.01 Conduct of the Business.............................................................................. 32
9.02 Further Assurances................................................................................... 33
9.03 Notice............................................................................................... 34
9.04 Access............................................................................................... 34
Article 10 .Conditions; the Closing............................................................................. 34
10.01 Conditions to Obligations of Each Party............................................................ 34
10.02 Additional Conditions to the Obligations of Buyer.................................................. 35
10.03 Additional Conditions to the Obligations of the Stockholders....................................... 37
10.04 Time and Place of Closing.......................................................................... 38
10.05 Deliveries at the Closing.......................................................................... 38
Article 11 . Termination and Waiver.............................................................................. 38
11.01 Termination........................................................................................ 38
11.02 Effect of Termination.............................................................................. 39
11.03 Waiver............................................................................................. 39
Article 12 . Certain Tax Matters............................................................................. 39
12.01 Certain Definitions................................................................................ 39
12.02 Preparation and Filing of Tax Returns.............................................................. 39
12.03 Liability for Certain.............................................................................. 40
12.04 Excess Dividends; Taxes Occasioned by Elections Described in Article 5............................. 40
12.05 Transfer and Gains Taxes........................................................................... 42
12.06 Assistance and Cooperation......................................................................... 42
Article 13 . Claims; Escrow; Indemnification; Limitations....................................................... 43
13.01 Certain Defined Terms.............................................................................. 43
13.02 Escrow............................................................................................. 46
13.03 Right to Reimbursement from Escrow................................................................. 46
13.04 Limitations on Escrow Reimbursement................................................................ 46
13.05 Indemnification by Stockholders; Deduction from Earnout Amount..................................... 47
13.06 Limitations on Indemnification Obligations and Earnout Deductions.................................. 47
13.07 Reimbursement and Indemnification by Buyer ....................................................... 47
13.08 Indemnification Procedures......................................................................... 48
13.09 Characterization and Indemnification Payments...................................................... 48
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13.10 Sole Remedy......................................................................................... 48
Article 14 . Noncompetition and Confidentiality Covenants........................................................ 48
14.01 Noncompetition..................................................................................... 48
14.02 Definition of Competitive Business and Noncompetition Period....................................... 48
14.03 Confidentiality.................................................................................... 49
14.04 Injunctive Relief.................................................................................. 49
14.05 Judicial Modification.............................................................................. 49
Article 15 . Damage or Destruction of Assets..................................................................... 49
Article 16 . Miscellaneous....................................................................................... 49
16.01 Survival........................................................................................... 49
16.02 Public Statements.................................................................................. 49
16.03 Notices............................................................................................ 50
16.04 Headings........................................................................................... 51
16.05 Counterparts....................................................................................... 51
16.06 Transaction Expenses............................................................................... 51
16.07 Attorneys' Fees.................................................................................... 51
16.08 Whole Agreement; Amendmen.......................................................................... 51
16.09 Severability....................................................................................... 51
16.10 Binding Effect; Assignment......................................................................... 52
16.11 Governing Law...................................................................................... 52
EXHIBIT A - Form of Promissory Note
EXHIBIT B - Election Price Determination and Allocations
EXHIBIT C - Excluded Properties
EXHIBIT D - Assumed Rental Expense Allocated to Owned Real Property
EXHIBIT E - Form of Opinion of Winston & Xxxxxx
EXHIBIT F - Tax Reimbursement Methodology
EXHIBIT G - Form of Escrow Agreement
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INDEX OF DEFINED TERMS
Defined Term Defined in Section or Subsection
------------ --------------------------------
Additional Transaction Taxes 12.04(c)
Adjustment Statement 4.04(c)
Allocated Portion 13.05
Amount Reimbursable by the Buyer 12.04(d)
Amount Reimbursable by the Stockholders 12.04(d)
Annual Earnings Statement 4.04(a)
Assurance 1.01
Xxxx Shares 2.01(a)
Business 7.09(c)
Buyer Introduction
Capital Leases 7.06(b)
Cato Severance Agreement Schedule 7.08
Closing 2.01
Closing Date 10.04
Code 1.01
Common Shares 7.03(a)
Company Introduction
Competitive Business 14.02(a)
Confidentiality Agreement 11.02
Contested Adjustments 4.04(c)
Contested Adjustment Notice 4.04(c)
Contributions to Overhead or COH 4.02
Damages 13.01(a)
Debt 7.06(b)
Division 1.01
Dr. Merchant Introduction
Earnout Amounts 4.01
Earnout Year 4.02
Election Price Determination and Allocation 5.01
Eligible Employees 1.01
Employee Payments 4.04(a)
Employee Plans 1.01
Employee Related Taxes 1.01
Equipment Leases 7.16(b)
Entity 1.01
Environmental Laws 1.01
ERISA 1.01
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Defined Term Defined in Section or Subsection
------------ --------------------------------
Escrow Account 1.01
Escrow Agent 1.01
Escrow Agreement 13.02
Excess Dividends 12.04(a)
Excluded Properties 1.01
Federal Election 5.01
Xxxxxxxx Xxxxxxxxx Agreement Schedule 7.08
Financial Statement 1.01
Gift Cards 1.01
Government Entity 1.01
Hazardous Substance 1.01
Xxxxxxx 7.09(c)
HSR Act 1.01
IRS 5.01
Independent Accountant 4.04(c)
Installment Note 3.03(a)
Xxxxx Shares 2.01(b)
Licenses 7.12
Liens 1.01
Losses 13.01(d)
MDC 1.01
Maryland Matter 1.01
Material Adverse Effect 1.01
Material Contracts 1.01
Merchant Shares 2.01(c)
Merchant Stores 4.02
Xxx. Xxxx Introduction
Xxx. Xxxxx Introduction
Negotiators Bonus Plan 1.01
Net Cost of Sales or NCOS 4.02
Net Purchase Price 3.20
Non-Voting Common Shares 7.03(a)
Noncompetition Agreemeent 7.09(c)
Noncompetition Period 14.02(b)
Options 7.03
Option Plans 7.03
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Defined Term Defined in Section or Subsection
------------ --------------------------------
Owned Real Property 7.16(a)
Payor 12.05
Permitted Encumbrances 7.16(a)
Post-Closing Period 12.01
Post-Closing Straddle Period 12.01
Pre-Closing Period 12.01
Pre-Closing Straddle Period 12.01
Predecessor 7.07(a)
Principal Funds 13.02
Proprietary Rights 7.19
Real Property Leases 4.16(b)
Xxxxxx Employment Agreement Schedule 7.08
Restricted Territory 8.02(b)
Rights of Purchase 1.01
S-Election 7.07(a)
Sale Incentive Plan 1.01
Schedules 1.01
Shares 2.02
Sold Real Property 7.16(g)
State and Local Elections 5.02
State Claims 13.01(b)
Stockholders Introduction
Straddle Period 12.01
Subsidiary 5.01
Targeted Contribution 4.02
Tax Claims 13.01(c)
Tax Returns 1.01
Taxes 1.01
Total Purchase Price 3.01
Transfer Taxes 13.01(b)
2003 Pre-Closing Period 12.01
Voting Common Shares 7.03(a)
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INDEX TO SCHEDULES
Schedule No. Description
----------- -----------
7.02 Company's Assumed Names
7.03 Stockholders and Stockholdings; Options;
Stockholders' Agreements and Other Rights of Purchase
7.04 Certain Matters Relating to the Subsidiary
7.05 Consents and Approvals; No Violation
7.06 Financial Statement Exceptions; Debt and Capital Leases
7.07 Tax Matters
7.08 Employee Plans; Employees
7.09 Material Contracts
7.10 Post-December 31, 2001 Events
7.11 Litigation; Outstanding Judgments
7.12 Licenses; Compliance With Laws
7.13 Changes Since December 31, 2000
7.15 Forms of Warranties and Service Contracts
7.16 Real Property; Equipment and Real Property
Leases; Title; Condition of Assets; Certain Equipment
7.17 Receivables and Prepaid Expenses
7.18 Consigned Inventory
7.19 Proprietary Rights
7.20 Insurance; Bank Accounts
7.21 Environmental Matters
7.22 Certain Transactions
7.23 Maryland and Related Matters
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STOCK PURCHASE AGREEMENT
THIS AGREEMENT is being executed this 25th day of March, 2003, by and
among TBC CORPORATION, a Delaware corporation ("Buyer"), and XXXXX XXXXXXXX XXXX
("Xxx. Xxxx"), XXXXX XXXXXXXX XXXXX ("Xxx. Xxxxx"), and WILSON C. MERCHANT III
("Dr. Merchant"), under the following circumstances:
A. Xxx. Xxxx, Xxx. Xxxxx, and Xx. Xxxxxxxx
(collectively, the "Stockholders") own all of the issued and
outstanding capital stock of Merchant's, Incorporated, a Delaware
corporation (the "Company").
B. Buyer and the Stockholders have agreed to Buyer's
acquisition of all of the issued and outstanding capital stock of the
Company pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereby agree as follows:
Article 1. Definitions.
1.01 Defined Terms. In addition to the capitalized terms defined
elsewhere in this Agreement, the capitalized terms set forth below shall have
the following meanings whenever used in this Agreement:
"Assurance" means the Assurance of Discontinuance, dated December 31,
2002, between the Company and the Division.
"Code" means the Internal Revenue Code of 1986 and the rules and
regulations thereunder, all as from time to time amended.
"Division" means the Division of Consumer Protection of the Office of
the Attorney General for the State of Maryland.
"Eligible Employee" means each of the individuals listed on Schedule
7.08 who is entitled to receive payments under the Sale Incentive Plan or the
Negotiators Bonus Plan, whether or not such individual is employed by the
Company.
"Employee Plans" means all employment, bonus or other incentive
compensation, deferred compensation, pension, retirement, profit sharing, stock
option, stock purchase or bonus, employee stock ownership, stock appreciation
rights, savings, consulting, severance, termination, collective bargaining,
insurance (including without limitation, self-insured arrangements, disability
coverage, life, health or accident benefits, and split-dollar life insurance
benefits), fringe benefit, flex benefit, employee discount, vacation, or other
benefit or incentive policies, contracts, or arrangements, formal or informal,
written or oral, of the Company or the Subsidiary, including without limitation,
all "employee pension benefit plans" as defined in Section 3(2) of ERISA and
"employee welfare plans" as defined in Section 3(1) of ERISA, and
all trust agreements related thereto, relating to any present or former
director, officer, consultant, or employee of the Company or the Subsidiary.
"Employee Related Taxes" means, collectively, all old age, survivors,
and disability insurance (FICA) and hospital insurance (Medicare) taxes payable
by the Company or the Subsidiary pursuant to Section 3111 of the Code.
"Entity" means an individual, firm, trust, corporation, partnership,
limited liability company, joint venture, business, enterprise, association, or
organization, however constituted or existing.
"Environmental Laws" means all applicable federal, state or local laws,
statutes, ordinances, rules, regulations, codes, licenses, permits,
authorizations, approvals, consent orders, judgments, decrees, injunctions, or
agreements with any governmental entity related to (i) the protection,
preservation, or restoration of the environment (including, without limitation,
air, water vapor, surface water, ground water, drinking water supply, surface
soil, subsurface soil, plant and animal life, or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release, or disposal of Hazardous
Substances. The term "Environmental Laws" includes, without limitation: the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, et seq.; the Resource Conservation and Recovery
Act, as amended, 42 U.S. C. Section 6901, et seq.; the Clean Air Act, as
amended, 42 U.S.C. Section 7401, et seq.; the Federal Water Pollution Control
Act, as amended, 33 U.S. C. Section 1251, et seq.; the Toxic Substances Control
Act, as amended, 15 U.S.C. Section 2601, et seq.; the Emergency Planning and
Community Right to Know Act, 42 U.S.C. Section 11001, et seq.; the Safe Drinking
Water Act, 42 U.S.C. Section 300f, et seq.; and all comparable state and local
laws that may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
the rules and regulations thereunder, all as from time to time amended.
"Escrow Account" means the escrow account created pursuant to the terms
of the Escrow Agreement.
"Escrow Agent" means U.S. Bank Trust National Association.
"Escrow Agreement" means the Escrow Agreement as defined in Section
13.02 below.
"Excluded Properties" means the real property, buildings, and
improvements listed on Exhibit C.
"Financial Statements" means the (i) audited consolidated financial
statements, schedules, and notes of the Company and the Subsidiary at and for
the 52/53 weeks ended January 1, 2000, December 30, 2000, December 29, 2001, and
December 28, 2002; (ii) the interim consolidated financial statements of the
Company and the Subsidiary at and for the
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months ended January 25 and February 22, 2003; and (iv) those financial
statements of the Company and the Subsidiary delivered to Buyer pursuant to
Subsection 9.01(e) hereof.
"Gift Cards" means, collectively, the $20 gift cards or certificates
described on Schedule 7.23.
"Governmental Entity" means any federal, state, or local court,
governmental authority, or other regulatory or administrative agency or
commission.
"Hazardous Substance" means any substance presently listed, defined,
designated, or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity. Hazardous Substances include, without limitation, petroleum or any
derivative or by-product thereof, asbestos, radioactive materials,
polychlorinated biphenyls, and battery acids.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976 and the rules and regulations thereunder, as from time to time amended.
"Liens" means any mortgage, pledge, charge, security interest, or other
encumbrance of any nature whatsoever upon or conditional assignment of any
property or assets.
"MDC" means the Company's Manassas, Virginia distribution center.
"Maryland Matter" means the allegations against the Company which are
described in the Assurance.
"Material Adverse Effect" means a material adverse effect on the
condition (financial or otherwise), business, operations, or prospects of the
Company and its Subsidiary, taken as a whole.
"Material Contracts" means all of the following to which the Company or
the Subsidiary is a party, is bound or affected by, receives any benefits under,
or by which any property or assets of either the Company or the Subsidiary may
be bound: (i) the Real Property Leases; (ii) the Equipment Leases; (iii) all
franchise, dealer, or other distribution agreements pursuant to which the
Company or the Subsidiary sells or otherwise distributes its products or
services or pursuant to which any Entity sells or otherwise distributes products
or services of either the Company or the Subsidiary; (iv) all supply contracts
or other such agreements or understandings pursuant to which the Company or the
Subsidiary purchased in its last fiscal year, or expects to purchase in this
fiscal year, in excess of $50,000 worth of products; (v) any agreement,
arrangement, or commitment which materially restricts the conduct of any line of
business, including without limitation, all standstill or noncompete agreements;
(vi) any contract, agreement, or other arrangement (other than pursuant to the
Employee Plans), providing for the furnishing of services to or by, providing
for the rental of real or personal property to or from, or otherwise requiring
payments to or from, any current or former director, officer, or stockholder of
the Company or the Subsidiary, any family member of any such director, officer,
or stockholder, or any Entity in which any of the foregoing holds, directly or
indirectly, a substantial interest; (vii) any agreement, indenture, or other
instrument relating to the borrowing
3
of money by the Company or the Subsidiary (other than trade payables entered
into in the ordinary course of business), including without limitation, Debt and
Capital Leases; (viii) any agreement pursuant to which the Company or the
Subsidiary is obligated to lend money or make advances, or has lent money or
made advances which are still outstanding, to any Entity (other than routine
travel advances to any employee not to exceed $2,000, routine salary advances to
any employee not to exceed $3,000, or deposits or advances in respect of
products purchased in the ordinary course of business); (ix) any agreement,
arrangement, or commitment to guarantee the obligations of or to indemnify or
exonerate from liability any Entity or the current or former directors or
officers of the Company or the Subsidiary (other than pursuant to the
Certificate of Incorporation or By-Laws of either the Company or the Subsidiary
or applicable law); (x) any power of attorney presently in effect giving any
Entity the right to act on behalf of the Company or the Subsidiary; (xi) any
partnership or joint venture agreement; (xii) any confidentiality or secrecy
agreement; (xiii) any consulting agreement; (xiv) the Employee Plans; and (xv)
any other contract, commitment, agreement, or understanding, whether written or
oral, which involves more than $50,000 and is not terminable without penalty
upon not more than 90 days' notice.
"Negotiators Bonus Plan" means the Merchant's, Incorporated Negotiators
Incentive Bonus Plan.
"Rights of Purchase" means any subscriptions, options, warrants, scrip,
rights, calls, convertible securities, commitments, promises, or any other
similar agreements or arrangements of any character.
"Sale Incentive Plan" means the Merchant's, Incorporated Sale Incentive
Bonus Plan, established effective January 25, 2002.
"Schedules" means the Schedules to this Agreement being delivered by
the Stockholders to Buyer simultaneously with the execution and delivery of this
Agreement.
"Taxes" means all federal, state, local, or foreign income, franchise,
sales, use, excise, real and personal property, transfer, employment, social
security, unemployment, withholding, and other taxes, assessments, charges,
fees, or levies, and any interest or penalties on any of the foregoing and
includes, without limitation, all Employee Related Taxes.
"Tax Returns" means all federal, state, local, and foreign returns and
reports relating to or required to be filed in connection with the
determination, collection, assessment, or reporting of Taxes.
1.02 Interpretation. As used in this Agreement, (i) the masculine,
feminine and neuter genders and the plural and singular numbers shall be deemed
to include the others in all cases where they would so apply; (ii) the phrase
"to the best knowledge" of any party shall mean to the knowledge of such party
after due and appropriate inquiry; and (iii) "to the best knowledge of the
Company" shall mean to the knowledge of any of the following individuals, after
due and appropriate inquiry: Xxx. Xxxx, Xxx. Xxxxx, Xx. Xxxxxxxx, J. Xxxxxxx
Xxxxxx, Xxxxx X. Xxxx, Xxxx X. Xxxxxxxx, or Xxxxxxx X. Xxxx.
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Article 2. Sale and Purchase of Shares.
2.01 Agreement to Sell and Purchase. Subject to the terms and
conditions of this Agreement, at the closing for which provision is made in
Article 10 (the "Closing"), each Stockholder shall sell to Buyer, and Buyer
shall purchase from each Stockholder, the number of Voting Common Shares which
is set forth below adjacent to the name of the Stockholder:
(a) Xxxxx Xxxxxxxx Xxxx - 2,733,333 Voting Common Shares (the
"Xxxx Shares").
(b) Xxxxx Xxxxxxxx Xxxxx - 2,733,333 Voting Common Shares (the
"Xxxxx Shares").
(c) Wilson C. Merchant III - 2,733,333 Voting Common Shares (the
"Merchant Shares").
2.02 The Shares. The Xxxx Shares, the Xxxxx Shares, and the
Merchant Shares are referred to hereinafter collectively as the "Shares."
Article 3. Purchase Price and Payment Terms.
3.01 Purchase Price. The aggregate purchase price payable by Buyer
for the Shares (the "Total Purchase Price") shall be an amount equal to the sum
of the following: (a) the Net Purchase Price, as defined in Section 3.02; (b)
the Earnout Amounts, as defined in Article 4; and (c) the Amount Reimbursable by
the Buyer, as defined in Subsection 12.04(d).
3.02 Definition of Net Purchase Price. For purposes of this
Agreement, "Net Purchase Price" means $42,486,203; provided , however, that if
the aggregate amount paid or payable by the Company or the Subsidiary to
discharge the Capital Leases and the Debt, as provided in Subsection 10.02(h),
is not $12,736,111, the Net Purchase Price (i) shall be reduced by any amount
above $12,736,111, or (ii) shall be increased by any amount below $12,736,111.
3.03 Payment. (a) The Net Purchase Price shall be payable as
follows:
(i) The Net Purchase Price, less the amount set
forth in Subsection 3.03(a)(ii), shall be payable to the
Stockholders by Buyer by delivery at the Closing of promissory
note in the form of Exhibit A attached hereto (the
"Installment Note"), less any required Tax withholdings with
respect thereto.
(ii) At the Closing, Buyer shall deliver
$4,050,000 of the Net Purchase Price to the Escrow Agent to be
held by the Escrow Agent for distribution in accordance with
the terms of the Escrow Agreement.
(b) At the Closing, each Stockholder shall surrender the
certificates representing the Shares held by that Stockholder, duly endorsed for
transfer to Buyer.
(c) Upon Closing, Buyer shall cause the Company to make
payment of the first installment of amounts payable under the Sale Incentive
Plan and the Negotiators Bonus Plan, less any required Tax withholdings with
respect thereto.
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Article 4. Contingent Earnout.
4.01 Earnout Amounts. For each Earnout Year, Buyer shall pay to the
Stockholders, pro rata, an amount, if any, equal to the difference between the
Earnout Amount for such Earnout Year and the Employee Payments relating to such
Earnout Year. A portion of the Earnout Amount for each Earnout Year paid or
payable will be characterized as interest accrued from Closing at the lowest
3-month applicable federal rate ("AFR") pursuant to Section 1274(d)(2) of the
Code and accompanying regulations. Notwithstanding any other provision of this
Agreement, in no event shall the sum of all Earnout Amounts paid or payable
pursuant to this Article 4 exceed $15,000,000. In addition, in no event shall
any deficiency between the Contribution to Overhead and the Targeted
Contribution for any Earnout Year require repayment of any previously paid
Earnout Amounts or be offset against any Contribution to Overhead for any future
Earnout Year.
4.02 Certain Definitions.
As used in this Article 4 and elsewhere in this Agreement, the
following terms shall have the meanings set forth below:
(i) "Earnout Year" means each of the calendar
years included in the period beginning January 1, 2004 and
ending December 31, 2008.
(ii) "Earnout Amount" for each Earnout Year means
an amount equal to (A) the amount by which the Contribution to
Overhead for such Earnout Year exceeds the Targeted
Contribution for such Earnout Year, multiplied by 5.1, minus
(B) the amount of all Earnout Amounts for prior Earnout Years.
(iii) "Employee Payments" for each Earnout Year
means all amounts payable from the Earnout Amount for such
Earnout Year to Eligible Employees under the Sale Incentive
Plan or the Negotiators Bonus Plan, together with all Employee
Related Taxes payable with respect thereto.
(iv) "Merchant Stores" means, collectively, the
retail, tire and automotive service stores operated by Company
on the date of this Agreement and the Company's retreading and
commercial fleet servicing operations located in Manassas,
Virginia and Landover, Maryland.
(v) "Net Cost of Sales" or "NCOS" means, for any
period, the cost of sales made by the Merchant Stores, based
on the lower of the Company's or Buyer's actual cost of
product and is defined as the amount of money paid to the
vendors for products sold (invoice amount less cash discounts)
less any monies or the value of benefits received from the
vendor or affiliates of the vendor without regard to the
method of receipt (cash, credit, check, free goods, provided
services). Examples of monies or the value of benefits
included in the NCOS calculation include, but are not limited
to, all co-op or advertising funds, marketing funds,
promotional funds, spiff fund credits (other than amounts paid
by third parties directly to employees of the Company), core
return credits, share
6
of account discounts, volume discounts, mix incentive
discounts, volume incentive discounts, lot pricing discounts,
training funds net of directly related expenses, point of sale
development funds, net of directly related expenses, cash
rebates or discounts, anticipation discounts less incremental
borrowing costs, meet competition discounts, delivery
commissions, bonuses, manufacturer price supports, fill rate
penalty reimbursements, forward buy savings less incremental
borrowing costs, market development funds, net of directly
related expenses, defect allowances in lieu of product
returns, obsolescence allowances or discounts, slotting or
placement funds, end of year discounts or funds, advertising
placed by manufacturers on behalf of the Company, free
product, meeting funds or discounts net of directly related
expenses, headquarters allowances, administrative allowances,
changeover incentives, employee purchase discounts, growth
rebates, buying group discounts, new store allowances,
functional discounts, product discounts, management fees,
discounts in lieu of representation, pickup allowances in lieu
of prepaid freight, and quantity discounts. Funds received by
Buyer or any affiliate or subsidiary of Buyer that were earned
in full or part by purchases of goods sold by the Company must
be allocated to Net Cost of Sales based upon the Company's
share of such purchases compared to the total. NCOS shall not
include any internal xxxx-up, administrative fee, transfer
fee, up charge, or the like from Buyer or any affiliate or
subsidiary of Buyer.
(vi) "Contribution to Overhead" or "COH" means,
for any period, aggregate net revenues of the Merchant Stores,
less Net Cost of Sales, less store level expenses of the
Merchant Stores, less distribution expenses of the Merchant
Stores as described in Subsection 4.03(d) below, and less
field administrative expenses relating to the Merchant Stores
as described in Subsection 4.03(c) below. For purposes of this
definition, store level expenses include all expenses
associated with the operation of the Merchant Stores,
including an allocation of insurance and advertising expenses
described in Subsection 4.03(e) below. Store level rent
expense will be reflective of rents paid plus or minus normal
period accruals (other than for any Merchant Store that is
part of the Owned Real Property, which rent expense shall be
as set forth in Subsection 4.03(a) above) and shall not
include any adjustment for straight-line rent. For the
avoidance of doubt, store level expenses shall not include any
corporate expenses, such as, by way of example, payroll
processing costs, corporate management fees other than field
administrative expenses as described in Subsection 4.03(c)
below, legal expenses, accounting firm services, accounts
payable processing costs, and the like. The words "associated
with" are not intended to allow for the allocation of expenses
that would otherwise be deemed corporate expenses, such as the
expense for the host/server side of a frame relay or a time
and materials charge for computer support.
(vii) "Targeted Contribution" means $19,349,000
for each of the 2004 and 2005 Earnout Years, and $18,349,000
for each of the 2006, 2007, and 2008
7
Earnout Years, subject in all cases to adjustment pursuant to
Subsections 4.03(b) and 4.03(c).
4.03 Certain Adjustments and Allocations. (a) For purposes of
determining store level expenses, each Merchant Store which is part of the Owned
Real Property shall be assumed to have incurred rental expense in the amount set
forth for such Merchant Store on Exhibit D, notwithstanding the fact that the
Company continues to own such Store or may have sold such Store and is then
leasing it at a rental rate which differs from the amount set forth on Exhibit
D.
(b) During any Earnout Year, if any Merchant Store is
closed or ceases to be operated by the Company, the COH for such Year shall not
include any revenues or expenses for such Store. In such event, the Targeted
Contribution for that Earnout Year and each Earnout Year that follows shall also
be reduced by an amount which bears the same proportion to the Targeted
Contribution in effect prior to the reduction as the actual contribution to
overhead of such Store for 2002 bears to the total actual contribution to
overhead of the Merchant Stores for 2002. Contribution to overhead information
for 2002 for the Merchant Stores, individually and in the aggregate, shall be as
set forth on the 2002 Schedule previously delivered to and accepted by Buyer (as
indicated by the signatures of the Company and Buyer set forth thereon).
(c) Field administrative expenses include all expenses
associated with regional management employees of the Company, Buyer, or any
company affiliated with Buyer, whose offices are physically located in the
Merchant Stores region and whose primary duties involve the Merchant Stores and
their operations. If any such employee's work involves other stores in addition
to the Merchant Stores, field expenses shall be allocated to the Merchant Stores
based upon the percentage which the gross sales of the Merchant Stores covered
by the employee represents of the gross sales of all stores covered by the
employee. For the avoidance of doubt, field administrative expenses shall not
include any expenses attributable to corporate overhead allocations or human
resources or training personnel.
(d) Distribution expenses of the Merchant Stores shall
include only the direct, variable costs associated with (i) unloading products
at the MDC or other distribution centers or warehouses; (ii) assembling,
packaging and loading products at the MDC or other distribution centers or
warehouses for delivery to the Merchant Stores; and (iii) transportation of
products to the Merchant Stores.
(e) For purposes of determining COH, insurance includes
all premium and claims expense for property, casualty and employee benefits
relating to risks related to people, physical assets, or activities involving
the Merchant Stores and advertising includes all advertising expenses benefiting
the Merchant Stores. If any such advertising expenses involve other stores in
addition to the Merchant Stores, advertising expenses shall be allocated to the
Merchant Stores based upon the percentage of sales the Merchant Stores represent
to the gross sales of all stores benefiting from the expense.
(f) During an Earnout Year, if any products are shipped
from the MDC to stores other than the Merchant Stores, the Targeted Contribution
for that Earnout Year shall be reduced by an amount which bears the same
proportion to $800,000 as the dollar value of
8
products shipped from the MDC to such other stores during such Earnout Year
bears to the dollar value of all products shipped from the MDC during such
Earnout Year.
(g) For purposes of this Article 4, in no case shall
interest charges, taxes (other than real estate and personal property taxes),
depreciation, or amortization of goodwill be charged as expenses to the Merchant
Stores.
4.04 Determinations and Payments. (a) As soon as practicable, but
in no event later than 90 days following the end of each Earnout Year, Buyer
shall notify each of the Stockholders in writing of the amount of COH for that
Earnout Year and the Earnout Amount to be paid on the basis of such COH (such
writing being referred to herein as the "Annual Earnings Statement"). With each
Annual Earning Statement, Buyer shall also provide to the Stockholders complete
and detailed work papers upon which the calculations set forth therein are based
and a list of all Employee Payments relating to such Earnout Year. Buyer shall
pay to the Stockholders the difference between the Earnout Amount and the
Employee Payments on the date of delivery of the Annual Earnings Statement.
(b) The Stockholders shall have until 60 days after the
receipt of each Annual Earnings Statement to review such Annual Earnings
Statement and propose any adjustments thereto, and if Stockholders do not
propose any adjustments within such 60 day period, then the Earnout Amount
stated in the Annual Earnings Statement shall be deemed to be final. To
facilitate such review, Buyer shall cooperate fully and promptly with the
Stockholders or any Stockholder's accountants and shall promptly make available
to the Stockholders during normal business hours during such 60 day period any
records, reasonably requested by the Stockholders or their accountants, as any
Stockholder or Stockholder's accountant deems necessary and appropriate to
verify the Annual Earnings Statement and used in the preparation thereof. All
adjustments proposed by the Stockholders shall be set out in detail in a written
statement delivered to Buyer within such 60 day period (the "Adjustment
Statement") and shall be incorporated into such Annual Earnings Statement unless
Buyer shall object in writing to such proposed adjustments within 30 days of
delivery by the Stockholders to Buyer of the Adjustment Statement. If Buyer does
not object in writing within 30 days after its receipt of the Adjustment
Statement, then such adjustments shall be deemed incorporated into the Annual
Earnings Statement, and Buyer shall pay any additional amount owing to
Stockholders or Eligible Employees as shown in such adjusted Annual Earnings
Statement within five days after the end of such 30 day period, with interest on
such additional amounts payable from the date of Buyer's delivery of the Annual
Earnings Statement covered by the Adjustment Statement until the date of
payment.
(c) If Buyer does object in writing to any such proposed
adjustment within 30 days (the proposed adjustment or adjustments to which Buyer
objects are referred to herein as the "Contested Adjustments" and Buyer's
objection notice is referred to herein as the "Contested Adjustment Notice"),
Buyer and the Stockholders shall use reasonable efforts to resolve their dispute
regarding the Contested Adjustments, but if a final resolution thereof is not
obtained within ten days after Buyer delivers to the Stockholders said Contested
Adjustment Notice, Buyer or the Stockholders shall promptly retain a nationally
recognized independent accounting firm acceptable to both the Stockholders and
Buyer (the "Independent Accountant") to resolve
9
any remaining disputes concerning the Contested Adjustments. Either the
Stockholders or Buyer may retain the Independent Accountant upon the expiration
of such ten day period.
(d) If an Independent Accountant is retained, then (i)
the Stockholders and Buyer shall each submit to the Independent Accountant in
writing not later than 15 days after the Independent Accountant is retained
their respective positions with respect to the Contested Adjustments, together
with such supporting documentation as they deem necessary or as the Independent
Accountant requests, and (ii) the Independent Accountant shall, within 30 days
after receiving the positions of both the Stockholders and Buyer and all
supplementary supporting documentation requested by the Independent Accountant,
render its decision as to the Contested Adjustments, which decision shall be
final and binding on, and nonappealable by, the Stockholders and Buyer;
provided, however, that Buyer or any Stockholder may contest a demonstrable
error in calculation or the genuineness of the documents reviewed by the
Independent Accountant. Each Stockholder and Buyer are entitled to receive any
and all records and papers received and prepared by the Independent Accountant.
Within 30 days after the rendering of a decision by the Independent Accountant,
Buyer shall pay any additional amount owing to the Stockholders or the Eligible
Employees, with interest accruing from the date of Buyer's delivery of the
relevant Annual Earnings Statement until the date of payment.
(e) In the event that the Independent Accountant's
decision results in an increase of an Earnout Amount, which increase is greater
by (i) 10% or more than the disputed amount of the Earnout Amount stated in the
Annual Earnings Statement delivered by Buyer and by (ii) $50,000 or more, then
Buyer shall pay the fees and expenses of the Independent Accountant. In all
other cases the fees and expenses of the Independent Accountant shall be paid by
the Stockholders. Each Annual Earnings Statement shall be deemed to include all
proposed adjustments not disputed by Buyer and those adjustments accepted or
made by the decision of the Independent Accountant in resolving the Contested
Adjustments.
(f) Interest payable to this Section 4.04 shall accrue at
the then-current prime rate as published from time to time by the Wall Street
Journal.
(g) For purposes of this Section 4.04, any action by the
Stockholders shall be authorized by a majority of the Stockholders, or by the
respective heirs, successors and assigns of a majority of the Stockholders.
(h) Amounts described in this Article 4 shall be
determined in accordance with generally accepted accounting principles unless
the provisions of this Article 4 expressly require an amount to be otherwise
determined.
4.05 Examples. The following are examples of the calculation of
Earnout Amounts for illustrative purposes only:
(i) Example 1: In this example, the maximum
Earnout Amount would be paid over the first three Earnout
Years.
10
(2004) (2005) (2006)
EXAMPLE 1 YEAR 1 YEAR 2 YEAR 3
------ ------ ------
Targeted Contribution $19,349 $19,349 $18,349
COH (actual) 19,500 19,750 22,000
Incr (decr) from COH 151 401 3,651
Value incr (dcr) 770 2,045 18,620
less prior Earnout Amounts --- 770 2,045
Annual Earnout Amount 770 1,275 12,955
Cumulative Earnout Amount 770 2,045 15,000
(ii) Example 2: In this example, the aggregate
Earnout Amounts would never reach the $15,000,000 cap.
(2004) (2005) (2006) (2007) (2008)
EXAMPLE 2 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------ ------ ------ ------ ------
Targeted Contribution $19,349 $19,349 $18,349 $18,349 $18,349
COH (actual) 19,000 19,750 20,000 20,500 20,750
Incr (decr) from COH (349) 401 1,651 2,151 2,401
Value incr (dcr) (1,780) 2,045 8,420 10,970 12,245
less prior Earnout --- --- 2,045 8,420 10,970
Amounts
Annual Earnout Amount --- 2,045 6,375 2,550 1,275
Cumulative Earnout Amount --- 2,045 8,420 10,970 12,245
4.06 Certain Events. If during the Earnout Years, Buyer sells all
or substantially all of the assets, rights, agreements and other properties
constituting the Merchant Stores to one or more purchasers other than its
affiliates, whether through a sale of assets or stock, whether in a single
transaction or in a series of transactions, then Buyer shall pay to the
Stockholders and Eligible Employees, within 30 days after the closing of such
transaction, all remaining Earnout Amounts that would be owing to them under
this Article 4, assuming for purposes of this Section 4.06, that the full
$15,000,000 in Earnout Amounts had been reached.
4.07 Accounting Standards; Consultation; Continuing Insurance. (a)
Buyer acknowledges that from and after the Closing, each of the Stockholders
shall have, by virtue of the Earnout Amounts potentially to be paid to
Stockholders pursuant to this Article 4, a strong interest in the integrity of
the books, records and financial reports of the Company, the principles and
methods applied in determining COH of the Company for each Earnout Year, and
being kept informed about the results of operations and plans for the Company.
In light of the importance of this matter to the Stockholders, Buyer covenants
and agrees that until the termination of its
11
obligations pursuant to this Article 4 in respect of Earnout Amounts, Buyer will
at all times (i) keep and maintain books and records required for the
calculation of the COH of the Company for each Earnout Year which are accurate
in all material respects in accordance with general accepted accounting
principles, and (ii) in the event Buyer develops any questions as to any matters
relevant to the determination of COH, inform the Stockholders as to the nature
and details and request the Stockholders to provide their views.
(b) Each Stockholder acknowledges and agrees that the
Company will belong to Buyer from and after the Closing and that Buyer shall be
entitled to conduct the Company as it deems necessary or appropriate.
(c) Buyer shall cause the Company to maintain in full
force and effect for a period of ten years from the Closing Date directors' and
officers' liability insurance covering the Company's current directors and
officers as to events or occurrences during their terms of service, which
policies shall have coverage limits substantially similar to the directors' and
officers' liability insurance maintained by the Company as of the date of this
Agreement and set forth on Schedule 7.20; provided, however, that the coverage
and amount of the insurance maintained or otherwise provided by Buyer may be
reduced to the extent necessary to cause the aggregate premiums for such ten
year period not to exceed $60,000.
4.08 Confidentiality. Each Stockholder undertakes that he or she
shall keep confidential and shall not, without prior written consent of Buyer,
disclose to any person other than Buyer's employees or representatives or
another Stockholder requiring such information for purposes of the performance
of this Agreement, nor use or exploit commercially for his or her own purposes,
any confidential, proprietary or trade secret information obtained in connection
with or as a result of the provisions of this Article 4; provided, however, that
the Stockholders may disclose such information (i) to their respective legal and
financial advisors for use in connection with rendering advice with respect to
the performance of this Agreement, and (ii) as is required to be disclosed by
operation of law or any stock exchange regulations or any binding judgment or
order, or by any requirement of any Governmental Entity. This Section 4.08 shall
not apply to information: (a) acquired from a third party with the right to
divulge the same; (b) which, prior to the date of this Agreement, Buyer has
decided to disclose; (c) which is or comes within the public domain (otherwise
than through the fault of the Stockholders); or (d) which has been furnished to
a third party by Buyer without a similar restriction on the third party's
rights.
Article 5. Section 338(h)(10) and Related Elections.
5.01 The Federal Election. The Stockholders shall join with Buyer
in making an election (the "Federal Election") under Section 338(h)(10) of the
Code to treat the Stockholders' sale of the Shares as a deemed sale of the
assets of the Company and Merban, Inc. (the "Subsidiary"), using the aggregate
deemed sale price and asset allocations set forth on Exhibit B attached hereto
(the "Election Price Determination and Allocations"). The amount to be allocated
on Exhibit B shall be the sum of (a) the Net Purchase Price, plus (b) the Amount
Reimbursable by the Buyer, plus (c) the Earnout Amounts, as paid, plus (d)
liabilities of the Company to be taken into account for federal income Tax
purposes, plus (e) in the case of the deemed purchase of assets by Buyer, the
acquisition costs incurred by it, less (f) in the case of the deemed sale of
assets by the Company, the selling costs incurred by the Stockholders. Buyer
12
shall have the responsibility for preparing all Internal Revenue Service ("IRS")
filings relating to the Federal Election, including IRS Form 8023 and Form 8883,
which shall be based on and consistent with the Election Price Determination and
Allocations, and shall make all requisite filings with the IRS no later than the
15th day of the ninth month after the Closing Date.
5.02 State and Local Elections. Stockholders and Buyer also agree
to make, with respect to the Stockholders' sale of the Shares, any available
elections (collectively, the "State and Local Elections") under applicable state
and local Tax law which are comparable to the Federal Election.
5.03 Cooperation. Buyer and the Stockholders shall cooperate with
each other to take all actions necessary and appropriate, including filing such
additional forms, elections, schedules, and other Tax Returns, as may be
required to effect and preserve a timely Federal Election and any State and
Local Elections in accordance with all applicable provisions of the Code and
state and local Tax law.
5.04 Binding Effect. Buyer and Stockholders shall (a) be bound by
the Election Price Determination and Allocations for purposes of determining any
Taxes; (ii) prepare and file their Tax Returns on a basis consistent with the
Federal Election, all State or Local Elections, and the Election Price
Determination and Allocations; and (c) take no position inconsistent with the
Election Price Determination and Allocations on any applicable Tax Return or in
any proceeding before any Governmental Entity. In the event that the Election
Price Determination and Allocations are disputed by any Governmental Entity, the
party receiving notice of the dispute shall promptly notify the other parties
hereto concerning such dispute.
5.05 Tax Liability. All liability for Taxes resulting from the
Federal Election or the State and Local Elections and the distribution of the
Excluded Properties described in Subsection 10.02(k) shall be borne by the
Stockholders, subject to the Buyer's reimbursement and indemnification
obligations under Sections 12.04 and 13.08; provided, however, that Taxes
incurred by the Subsidiary attributable to the Federal Election shall be borne
solely by the Buyer.
Article 6. Representations and Warranties of Individual Stockholders.
6.01 By Xxx. Xxxx. Xxx. Xxxx represents and warrants to Buyer as
follows, both as of the date of this Agreement and as of the time of the
Closing:
(a) She owns the Xxxx Shares free and clear of all Liens and has
not granted any Entity other than the Buyer any Right of Purchase with respect
to any of the Xxxx Shares.
(b) Xxx. Xxxx has full right and lawful authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by her and constitutes her
valid and binding obligation, enforceable against her in accordance with its
terms.
(c) Her execution and delivery of this Agreement, consummation of
the transactions contemplated hereby, and compliance with each of the provisions
hereof, will not (i) violate, conflict with, constitute a default (or an event
which, with notice or lapse of time or both, would
13
constitute a default) under, or result in the termination of, accelerate the
performance required by, or result in a right of termination or acceleration of,
any agreement or instrument to which she is bound; (ii) violate any judgment,
ruling, order, writ, injunction, decree, statute, rule, or regulation of any
Governmental Entity applicable to her or any of her properties or assets; or
(iii) except for compliance with the requirements of the HSR Act, require any
consent, approval, authorization, or permit of or from, or filing with or
notification to, any Governmental Entity or any other party to any agreement or
instrument described in clause (i) above.
(d) Xxx. Xxxx is a resident of Texas for states income purposes
and is not a resident of any local jurisdiction that Taxes ordinary income or
capital gains.
(e) To her best knowledge, the representations and warranties of
the other Stockholders set forth in Subsections 6.02(a) - (c) and 6.03(a) - (c)
are true and correct in all material respects.
6.02 By Xxx. Xxxxx. Xxx. Xxxxx represents and warrants to Buyer as
follows, both as of the date of this Agreement and as of the time of the
Closing:
(a) She owns the Xxxxx Shares free and clear of all Liens and has
not granted any Entity other than the Buyer any Right of Purchase with respect
to any of the Xxxxx Shares, except for the Stockholders Agreement listed on
Schedule 7.03.
(b) Xxx. Xxxxx has full right and lawful authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by her and constitutes her
valid and binding obligation, enforceable against her in accordance with its
terms.
(c) Her execution and delivery of this Agreement, consummation of
the transactions contemplated hereby, and compliance with each of the provisions
hereof, will not (i) violate, conflict with, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, accelerate the performance required by, or
result in a right of termination or acceleration of, any agreement or instrument
to which she is bound; (ii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule, or regulation of any Governmental Entity
applicable to her or any of her properties or assets; or (iii) except for
compliance with the requirements of the HSR Act and the Stockholders Agreement
listed on Schedule 7.03, require any consent, approval, authorization, or permit
of or from, or filing with or notification to, any Governmental Entity or any
other party to any agreement or instrument described in clause (i) above.
(d) Xxx. Xxxxx is a resident of Virginia for states income
purposes and is not a resident of any local jurisdiction that Taxes ordinary
income or capital gains.
(e) To her best knowledge, the representations and warranties of
the other Stockholders set forth in Subsections 6.01(a) - (c) and 6.03(a) - (c)
are true and correct in all material respects.
14
6.03 By Dr. Merchant. Dr. Merchant represents and warrants to Buyer
as follows, both as of the date of this Agreement and as of the time of the
Closing:
(a) He owns the Merchant Shares free and clear of all Liens and
has not granted any Entity other than the Buyer any Right of Purchase with
respect to any of the Merchant Shares, except for the Stockholders Agreement
listed on Schedule 7.03.
(b) Dr. Merchant has full right and lawful authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by him and
constitutes his valid and binding obligation, enforceable against him in
accordance with its terms.
(c) His execution and delivery of this Agreement, consummation of
the transactions contemplated hereby, and compliance with each of the provisions
hereof, will not (i) violate, conflict with, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, accelerate the performance required by, or
result in a right of termination or acceleration of, any agreement or instrument
to which he is bound; (ii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule, or regulation of any Governmental Entity
applicable to him or any of his properties or assets; or (iii) except for
compliance with the requirements of the HSR Act and the Stockholders Agreement
listed on Schedule 7.03, require any consent, approval, authorization, or permit
of or from, or filing with or notification to, any Governmental Entity or any
other party to any agreement or instrument described in clause (i) above.
(d) Dr. Merchant is a resident of Virginia for states income
purposes and is not a resident of any local jurisdiction that Taxes ordinary
income or capital.
(e) To his best knowledge, the representations and warranties of
the other Stockholders set forth in Subsections 6.01(a) - (c) and 6.02(a) - (c)
are true and correct in all material respects.
Article 7. Representations and Warranties of all Stockholders.
Each of the Stockholders jointly and severally represents and warrants
to Buyer as follows, both as of the date of this Agreement and as of the time of
the Closing:
7.01 Schedules. The Stockholders have heretofore delivered one set
of the Schedules to Buyer, identified by their signatures thereon. Each Schedule
is true, accurate, and complete in all material respects.
7.02 Corporate Organization. (a) The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.
(b) The Company is qualified to do business as a foreign
corporation and is in good standing in the States of Maryland, North Carolina,
Pennsylvania, South Carolina, and Virginia, and in the District of Columbia.
Neither the Company's ownership or leasing of property or the
15
nature of the business conducted by it makes it necessary for the Company to be
qualified to do business as a foreign corporation in any other state or
jurisdiction.
(c) The Company has the requisite corporate power and authority to
own, lease, and operate its properties and assets and to carry on its business
as it is now being conducted in all material respects. Except as otherwise
indicated on Schedule 7.02, the Company has not previously done business, and is
not doing business, under any other corporate name or assumed or fictitious
name.
(d) The Stockholders have heretofore delivered to Buyer true and
complete copies of the Company's Certificate of Incorporation and By-Laws, each
as currently in effect.
7.03 Capitalization. (a) The authorized capital stock of the
Company consists of 10,000,000 shares of Common Stock, par value $0.01 per share
(the "Common Shares"), of which 9,350,000 shares are Voting Common Stock, also
known as Class A Stock (the "Voting Common Shares") and 650,000 are Non-Voting
Common Stock, also known as Class B Stock (the "Non-Voting Common Shares").
8,199,999 Voting Common Shares are issued and outstanding, and no Non-Voting
Common Shares are issued or outstanding. No Entity other than the Stockholders
owns any Common Shares or other capital stock of the Company. Schedule 7.03 sets
forth a complete and accurate listing of the number of Common Shares owned of
record by each Stockholder.
(b) No options to purchase Common Shares (collectively,
the "Options") are outstanding under any stock option plan or other option
arrangement of the Company (collectively, the "Option Plans"), and there are no
outstanding Rights of Purchase relating to the issued or unissued Common Shares
or other capital stock or securities of the Company which obligate or may
obligate the Company to issue, deliver, or sell, or cause to be issued,
delivered, or sold, additional Common Shares or other capital stock or
securities of the Company or to grant, extend, or enter into any such Rights of
Purchase. The option cancellation agreements listed on Schedule 7.03 are
effective to terminate all Options described therein without the payment of any
amounts by the Company other than those set forth in such cancellation
agreements.
(c) Except as set forth on Schedule 7.03, there are no
contracts, agreements, or understandings between or among any Stockholders which
limit, restrict, or otherwise affect the voting, sale, transfer, or other
disposition of any Common Shares.
(d) All outstanding Common Shares are duly authorized,
validly issued, fully paid, and nonassessable, and not subject to any right of
rescission. No outstanding Common Shares were issued in violation of any
preemptive right of any Stockholder or other Entity, and no Stockholder
currently has any preemptive right with respect to any Common Shares. No
Stockholder has a valid claim or cause of action against the Company based on
any violation of any applicable securities law in connection with the sale or
other issuance by the Company of Common Shares to such Stockholder.
(e) Since December 28, 2002, the Company has not
repurchased or otherwise acquired any of its Common Shares or other capital
stock or securities.
16
7.04 Subsidiaries. (a) The Company has no investment in and does
not own any securities of any Entity, other than certificates of deposit,
commercial paper, or similar money equivalents, and the Company's investment in
and ownership of capital stock of the Subsidiary.
(b) The Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Virginia.
Neither the Subsidiary's ownership or leasing of property or the nature of its
business makes it necessary for the Subsidiary to be qualified to do business as
a foreign corporation in any state or jurisdiction.
(c) The Subsidiary has the requisite corporate power and
authority to own, lease, and operate its properties and assets and to carry on
its business as now being conducted in all material respects. Except as
otherwise indicated on Schedule 7.04, the Subsidiary has not previously done
business, and is not now doing business, under any other corporate name or
assumed or fictitious name.
(d) The Stockholders have heretofore delivered to Buyer
true and complete copies of the Subsidiary's Certificate of Incorporation and
By-Laws, each as currently in effect.
(e) The authorized capital stock of the Subsidiary
consists of 2,000 shares of Common Stock, $1.00 par value each, of which 1,266
are issued and outstanding. Schedule 7.04 sets forth a complete and accurate
listing of each stockholder of the Subsidiary and the number of shares of Common
Stock owned by each stockholder.
(f) At the time of the Closing, all of the issued and
outstanding capital stock of the Subsidiary will be owned by the Company.
(g) There are not outstanding Rights of Purchase relating
to any issued or unissued capital stock or other securities of the Subsidiary
which obligate or may obligate the Subsidiary to issue, deliver, or sell, or
cause to be issued, delivered, or sold, any capital stock or other securities of
the Subsidiary, or to grant, extend, or enter into any such Rights of Purchase.
(h) Except as set forth on Schedule 7.04, there are no
contracts, agreements, or understandings between or among any of the
stockholders of the Subsidiary which limit, restrict, or otherwise affect the
voting, sale, transfer, or other disposition of any capital stock or other
securities of the Subsidiary.
(i) All outstanding capital stock of the Subsidiary is
duly authorized, validly issued, fully paid, and nonassessable, and not subject
to any right of rescission. No outstanding capital stock of the Subsidiary was
issued in violation of any preemptive right of any stockholder or other Entity,
and no stockholder of the Subsidiary currently has any preemptive right with
respect to any capital stock of the Subsidiary. No stockholder of the Subsidiary
has a valid claim or cause of action against the Subsidiary based on any
violation of any applicable securities law in connection with the sale or other
issuance by the Subsidiary of capital stock to such stockholder.
7.05 Consents and Approvals; No Violation. Except as set forth on
Schedule 7.05, neither the execution and delivery of this Agreement by the
Stockholders, nor the consummation
17
by the Stockholders of the transactions contemplated hereby, nor compliance by
the Stockholders with any of the provisions hereof, will:
(a) Conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-Laws of the Company.
(b) Violate, conflict with, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
result in the termination of, accelerate the performance required by, result in
a right of termination or acceleration of, or result in the creation of any Lien
upon any of the properties or assets of either the Company or the Subsidiary
under, any Material Contract.
(c) Require any consent, approval, authorization or permit of or
from, or notification to, any party to any Material Contract.
(d) Violate any judgment, ruling, order, writ, injunction, decree,
statute, rule, or regulation of any Governmental Entity applicable to either the
Company or the Subsidiary or any of their respective properties or assets.
(e) Except for compliance with the requirements of the HSR Act,
require any consent, approval, authorization or permit of or from, or filing
with or notification to, any Governmental Entity.
7.06 Financial Statements; Debt and Capital Leases. (a) Except as
set forth on Schedule 7.06, the Financial Statements have been, and in the case
of Financial Statements for periods ending after the date of this Agreement and
that are prepared prior to the Closing, will be, prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated therein) and fairly present or will fairly present, as the
case may be, the consolidated financial position of the Company and the
Subsidiary at the dates thereof and the results of operations and cash flows for
the periods then ended subject, in the case of interim financial statements, to
normal year-end adjustments and any other adjustments described therein, which
adjustments will not, in the aggregate, have a Material Adverse Effect.
(b) Schedule 7.06 sets forth a complete and accurate
listing of (i) all indebtedness for borrowed money owing by the Company or the
Subsidiary (collectively, the "Debt"); and (ii) all leases of personal property
to which the Company or the Subsidiary is a party and which, under generally
accepted accounting principles, are required to be capitalized on the books and
records of the Company or the Subsidiary (collectively, the "Capital Leases").
The value of life insurance shown as an asset on the most recent balance sheet
included in the Financial Statements is net of any loans outstanding against
such life insurance.
7.07 Taxes. (a) The Company or its predecessor, Merchant's,
Incorporated, a Virginia corporation (the "Predecessor"), has been a "small
business corporation," as defined in Section 1361(b) of the Code, at all times
since February 3, 1991. The Company or the Predecessor has had in effect, at all
times since February 3, 1991, a valid election to be treated as an "S
corporation," as defined in Section 1361(a) of the Code, for federal income Tax
purposes and in the states and local jurisdictions listed on Schedule 7.07 (the
"S-Election"). Neither the
18
Company nor any Stockholder has taken or caused or permitted to be taken any
action that would cause or caused a termination of the Company's S-Election for
any period. For federal income Tax purposes, the Subsidiary has not made an
election to be treated as a "qualified subchapter S subsidiary," as defined in
Section 1361(b)(3)(B) of the Code (or in any comparable provision of state or
local law).
(b) Except as set forth on Schedule 7.07, the Company,
the Predecessor, and the Subsidiary have prepared in good faith and duly and
timely filed all Tax Returns required to be filed by either of them, and to the
best knowledge of the Company, all such Tax Returns are correct and complete in
all material respects. The Company, the Predecessor, and the Subsidiary have
paid in full, within the time and in the manner prescribed by law, all Taxes due
and payable pursuant to such Tax Returns. Except as set forth on Schedule 7.07,
the Company and the Subsidiary (i) have paid all Taxes that are due and payable
and (ii) have adequately reserved or made adequate accruals (in accordance with
generally accepted accounting principles) with respect to all Taxes for any
prior period that are not yet due and payable. The Company and the Subsidiary do
not and will not have any liability for Taxes referable to any period prior to
the Closing Date in excess of the amount so reserved or accrued.
(c) Schedule 7.07 sets forth the following information
with respect to the Company, the Predecessor, and the Subsidiary: (i) the most
recent Tax years through which the IRS and each other Governmental Entity having
jurisdiction over Taxes payable by the Company, the Predecessor, or the
Subsidiary have completed their examinations of the Company, the Predecessor, or
the Subsidiary; (ii) whether there is any Tax examination pending by the IRS or
any other Governmental Entity with respect to the Company, the Predecessor, or
the Subsidiary, and, if so, the Tax years involved; and (iii) whether the
Company, the Predecessor, or the Subsidiary has executed or filed with the IRS
or any other Governmental Entity any agreement which is still in effect
extending the period for assessment and collection of any Tax and, if so, the
Tax years covered by such agreement and expiration date of such extension.
(d) Except as set forth on Schedule 7.07, since January
1, 1996, neither the Company, the Predecessor, nor the Subsidiary has been a
party to any audit, investigation, or proceeding with respect to Taxes, nor to
the best knowledge of the Company, is any of the same threatened, by any
Governmental Entity, and no deficiency notices or reports, requests for
information or documents, or questionnaires have been received by the Company,
the Predecessor, or the Subsidiary in respect of any Tax matters (including
without limitation, any inquiry from any Taxing authority in any jurisdiction
where either the Company, the Predecessor, or the Subsidiary does not file Tax
Returns). After the date of this Agreement, the Stockholders will promptly
notify Buyer of (i) the commencement or threat of any such audit, investigation,
or proceeding, or (ii) the receipt by the Company or the Subsidiary of any such
inquiry.
(e) Set forth on Schedule 7.07 is information as of the
most recent practicable date concerning: (i) the amount and date of expiration
of any net operating loss, net capital loss, unused investment, minimum, or
other tax credit, or excess charitable contribution deduction of the Company or
the Subsidiary; and (ii) a list of jurisdictions in which either the Company or
the Subsidiary is required to file Tax Returns. The Stockholders have heretofore
made available to
19
Buyer true and complete copies of the Tax Returns of the Company and the
Subsidiary for the fiscal years ended January 2, 1999, January 1, 2000, December
30, 2000, and December 29, 2001.
(f) Except as otherwise set forth on Schedule 7.07, since
January 1, 1991, neither the Company, the Predecessor, nor the Subsidiary has
ever filed a consolidated or combined Tax return for federal, state, or local
income Tax purposes with another Entity or held any equity interest in another
Entity.
(g) Except as otherwise set forth on Schedule 7.07, (i)
neither the Company, the Predecessor, nor the Subsidiary has taken any position
on its federal income Tax Returns (and is not considering taking a position on a
federal income Tax Return required to be filed before or after the Closing Date)
that would subject it or any other Entity to an underpayment of federal income
Tax within the meaning of Section 6662 of the Code or any corresponding
provision of state or local Tax law; (ii) neither the Company nor the Subsidiary
is a party to any Tax allocation or Tax sharing agreement or has any liability
for Taxes of another Entity, whether by contract or otherwise; (iii) neither the
Company nor the Subsidiary has agreed to make, nor is it required to make, any
adjustment under Section 481 of the Code by reason of a change in accounting
method, accounting period, or otherwise; (iv) neither the Company, the
Predecessor, nor the Subsidiary has engaged in a transfer of assets that would
have resulted in gain pursuant to Section 311 of the Code or in a listed or
reportable transaction within the meaning of Section 1.6011-4T(b) of the Federal
Income Tax Regulations; (v) neither the Company, the Predecessor, nor the
Subsidiary has deferred any gain from the sale of assets pursuant to Section 453
of the Code; (vi) neither the Company, the Predecessor, nor the Subsidiary has
made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments, that will not be
deductible under Section 280G of the Code; (vii) no closing agreement pursuant
to Section 7121 of the Code (or any predecessor provision) or any similar
provision of any state or local law has been entered into by or with respect to
the Company, the Predecessor, or the Subsidiary; (viii) no power of attorney
which is currently in force has been granted by or with respect to the Company
or the Subsidiary in connection with any matter relating to Taxes; (ix) no
property of the Company or the Subsidiary is property that the Company or the
Subsidiary is or will be required to treat as being owned by another Entity
pursuant to the provisions of Section 168(f)(8) of the Code (as in effect prior
to amendment by the Tax Equity and Fiscal Responsibility Act of 1982); and (x)
neither the Company nor the Subsidiary has engaged in a like-kind exchange
within the meaning of Section 1031 of the Code or received cash proceeds in
connection with an involuntary conversion within the meaning of Section 1033 of
the Code, in which the replacement property could be purchased on or after the
Closing Date.
(h) The Company and the Subsidiary have delivered to
Buyer complete and accurate copies of all Tax opinions, audit reports, letter
rulings, technical advice memoranda, and similar items obtained or received
since January 1, 1997 relating to the federal, state, or local Taxes due from or
with respect to the Company, the Predecessor, or the Subsidiary. The Company and
the Subsidiary will deliver to Buyer all such materials obtained or received
after the date hereof and on or prior to the Closing Date.
7.08 Employee Plans; Employees. (a) Schedule 7.08 sets forth a
complete list of all Employee Plans. The Stockholders have previously delivered
or made available to Buyer true
20
and complete copies of all such Employee Plans, in each case as in effect on the
date of this Agreement.
(b) Each Employee Plan has been maintained, operated, and
administered in substantial compliance with its terms and with all applicable
requirements of ERISA, the Code, and any other laws, rules, or regulations
(including without limitation, the provisions of ERISA relating to fiduciary
obligations and disclosure and reporting requirements, and the provisions of the
Code relating to nondiscrimination testing).
(c) Except as set forth on Schedule 7.08, neither the
Company nor the Subsidiary currently maintains, or has at any time in the past
maintained, any pension plan, as defined in Section 3(2) of ERISA. Neither the
Company nor the Subsidiary is or has been a party to or has completely or
partially withdrawn from any multi-employer plan, within the meaning of Section
3(37) of ERISA, which is subject to any of the provisions of ERISA.
(d) Schedule 7.08 lists each employee who is a "Covered
Employee" under the Management Severance Plan and the amount payable to each
such employee thereunder. Except for the obligations under the Management
Severance Plan or as otherwise set forth on Schedule 7.08, the Company and the
Subsidiary have no present or future obligation to make any severance or other
payments or provide benefits, including without limitation, death or medical
benefits (whether or not insured), with respect to current or former employees,
directors, officers, or consultants beyond their retirement or other termination
of service, other than (i) temporary coverage mandated by applicable law, (ii)
death benefits or retirement benefits under any employee pension plan, as that
term is defined in Section 3(2) of ERISA, (iii) deferred compensation benefits
accrued as liabilities on the books of the Company or the Subsidiary, or (iv)
benefits the full cost of which are borne by the current or former employee,
director, officer, or consultant (or his or her beneficiary).
(e) There is no action, order, judgment, claim, suit,
litigation, governmental audit, investigation, or compliance examination
relating to or seeking benefits under any Employee Plan that is outstanding,
pending, or to the best knowledge of the Company, threatened or anticipated
against the Company or the Subsidiary, other than routine claims of
participants.
(f) All required contributions and incentive bonuses and
other payments owing to any employee pursuant to each Employee Plan have been
made, except for current contributions, bonuses, and other payments not yet due
and payable, all of which have been accrued and are reflected on the books and
records of the Company and the Subsidiary.
(g) With respect to each Employee Plan, (i) to the best
knowledge of the Company, no event has occurred and no condition exists that
would subject either the Company, the Subsidiary, or Buyer to any tax under
Sections 4971 through 4980B of the Code or to a fine or liability under Section
502 of ERISA, and (ii) no provision of any such Plan prevents either the Company
or the Subsidiary from terminating such Plan.
(h) The Stockholders have delivered or made available to
Buyer rue and complete copies of the (i) IRS Forms 5500 and all accompanying
schedules, financial statements,
21
and accountant's opinions for 1999, 2000, and 2001 for each Employee Plan
required to file or prepare the same; (ii) the most recent determination letters
from the IRS relating to each Employee Plan which is a pension plan, as defined
in Section 3(2) of ERISA; and (iii) the most recent consolidated statement of
assets and liabilities of each Employee Plan which is a pension plan, as defined
in Section 3(2) of ERISA.
(i) Except as set forth on Schedule 7.08, neither the
Company nor the Subsidiary has announced plans and do not have any legally
binding commitment to create any additional Employee Plans which are intended to
cover, or to amend or modify any existing Employee Plan which covers or has
covered, current or former employees, directors, officers, or consultants of the
Company or the Subsidiary.
(j) Schedule 7.08 sets forth the name, title or
responsibility, and rate of annual compensation of each employee of the Company
or the Subsidiary whose base salary exceeds $40,000 per annum. Except as set
forth on Schedule 7.08, since December 31, 2002, no manager of any of the
Company's retail facilities has left the employment of the Company.
(k) Schedule 7.08 lists each employee who is an Eligible
Employee in the Sale Incentive Plan or the Negotiators Bonus Plan and the amount
payable to each Eligible Employee thereunder. Except for obligations under the
Sale Incentive Plan or the Negotiators Bonus Plan or as otherwise set forth on
Schedule 7.08, the Company and the Subsidiary have no present or future
obligation to make any payments to any current or future employee, director,
officer, or consultant of the Company or the Subsidiary as a result of the sale
of the Company contemplated by this Agreement.
(l) Regardless whether included elsewhere on Schedule
7.08 or any other Schedule, Schedule 7.08 lists under the heading "Obligations
to Messrs. Riggan, Cato, and Xxxxxxxx" all financial obligations of the Company
or the Subsidiary to each such individual under any existing contract,
agreement, understanding, or other Employee Plan.
7.09 Material Contracts. (a) Set forth on Schedule 7.09 is a
complete list of all Material Contracts in force and effect on the date of this
Agreement. The Stockholders have delivered to Buyer true and complete copies of
all such Material Contracts and will deliver to Buyer true and complete copies
of all Material Contracts executed after the date of this Agreement. Except as
set forth on Schedule 7.09, (i) to the best knowledge of the Company, all of the
Material Contracts are valid, binding, and in full force and effect; (ii)
neither the Company nor the Subsidiary nor, to the best knowledge of the
Company, any other party thereto is in default under any Material Contract,
which default is reasonably likely to have a Material Adverse Effect; and (iii)
to the best knowledge of the Company, there has not occurred any event that with
the lapse of time or the giving of notice or both would constitute a default
under any Material Contract.
(b) To the best knowledge of the Company, no Material
Contract calls for the leasing or purchasing by the Company or the Subsidiary of
any premises, goods, or services at prices substantially in excess of prevailing
market prices on the date of this Agreement or the leasing or sale by the
Company or the Subsidiary of any premises, goods, or services at prices
substantially below prevailing market prices on the date of this Agreement.
22
(c) To the best knowledge of the Company, after Buyer's
acquisition of the Company, the Company will not be in breach of its obligations
under the Noncompetition Agreement, dated as of July 21, 2000, among Xxxxxxx
Tire Group, Inc. ("Xxxxxxx"), the Company, and the Stockholders (the
"Noncompetition Agreement"), provided that (i) the Buyer continues the business
of the Company as it is now conducted; and (ii) the Company is not merged or
consolidated with any other Entity controlled by Buyer which is engaged in a
business or other activity in competition with the Business (as that term is
defined in such Noncompetition Agreement).
7.10 Absence of Certain Changes or Events. Since December 28, 2002,
there has not been any adverse change in the financial condition, results of
operations, business, or prospects of the Company and the Subsidiary, taken as a
whole, other than such changes as will not have a Material Adverse Effect and
except as set forth on Schedule 7.10.
7.11 Litigation; Pending Decrees. (a) Set forth on Schedule 7.11 is
a complete and accurate list of all litigation, actions, arbitrations,
proceedings, or investigations pending against the Company or the Subsidiary or,
to the best knowledge of the Company, threatened in writing (in the case of
routine customer matters) or threatened orally or in writing (in the case of all
other matters) against or affecting the Company or the Subsidiary (including
without limitation, charges or complaints filed with the Department of Labor,
the Equal Employment Opportunity Commission, the Occupational Safety and Health
Administration, or comparable or similar state agencies). To the best knowledge
of the Company, except as set forth on Schedule 7.11, no set of circumstances
exists or events have occurred that are likely to result in any claim or
litigation against the Company or the Subsidiary which is not covered by the
insurance currently maintained by the Company and the Subsidiary, other than
routine customer complaints in the ordinary course of business.
(b) Except as set forth on Schedule 7.11, there is no
judgment, decree, injunction, rule, or order of any Governmental Entity or
arbitrator outstanding against either the Company or the Subsidiary.
7.12 Licenses; Compliance With Laws. (a) Set forth on Schedule 7.12
is a complete list of all permits, licenses, franchises, zoning variances, and
governmental approvals and authorizations, including without limitation, those
required under any Environmental Law (collectively, "Licenses"), which are held
or used by either the Company or the Subsidiary. All of the Licenses are in full
force and effect, and no material violation has occurred which has not been
cured in respect of any of the same, nor is any proceeding pending or, to the
best knowledge of the Company, threatened with respect to the revocation or
limitation of any of the same. There are no material permits, licenses,
franchises, zoning variances, or governmental approvals or authorizations, other
than the Licenses, which are necessary to own either the Company's or the
Subsidiary's assets or to conduct the business of the Company or the Subsidiary
as it is now being conducted.
(b) Except as disclosed on Schedule 7.12, the business of
the Company, the Predecessor, and the Subsidiary is not being conducted, and,
since January 1, 1998, has not been conducted, in violation of any law,
ordinance, regulation, judgment, order, decree, license, or permit of any
Governmental Entity (including without limitation, zoning ordinances, building
23
codes, Environmental Laws, occupational health and safety laws and regulations,
Fair Labor Standards Act or comparable state laws governing the payment of wages
or overtime, and franchise laws and regulations), except for possible violations
which have not had, and, insofar as reasonably can be foreseen will not have, a
Material Adverse Effect. To the best knowledge of the Company, except as
described on Schedule 7.12, no investigation or review by any Governmental
Entity is pending or threatened with respect to either the Company, the
Predecessor, or the Subsidiary, nor has any Governmental Entity indicated an
intention to conduct the same.
7.13 Conduct to Date. Except as disclosed on Schedule 7.13 and
except for the transactions contemplated by this Agreement, since December 28,
2002:
(a) Each of the Company and the Subsidiary has carried on its
business in the ordinary and usual course consistent with its current practices.
(b) Each of the Company and the Subsidiary has not issued or sold
any of its capital stock or directly or indirectly redeemed or otherwise
acquired any of its capital stock.
(c) Each of the Company and the Subsidiary has not declared, set
aside, or paid any dividend or other distribution in respect of its capital
stock or made or accrued any other payment or distribution to any Stockholder,
other than rents payable under certain of the Real Property Leases, interest
payments, and routine salary payments and business expense reimbursement.
(d) Each of the Company and the Subsidiary has not incurred or
prepaid any Debt, Capital Lease, or any other corporate debt or instruments
which are or would be classified as debt on its balance sheet, increased the
amount of its short term borrowings under available lines of credit, or made any
loan or advance to any Entity.
(e) Each of the Company and the Subsidiary has not sold, assigned,
transferred, or otherwise disposed of any of its material properties or assets
other than in the ordinary course of its business.
(f) Each of the Company and the Subsidiary has not purchased or
otherwise acquired from any third party assets constituting any other line of
business or any material properties or assets outside the ordinary course of its
business.
(g) Each of the Company and the Subsidiary has not entered into
any supply contract or other such agreement or understanding relating to the
purchase of products by it which would constitute a Material Contract and which
is not listed on Schedule 7.09.
(h) Each of the Company and the Subsidiary has not increased the
rate of compensation of any employee whose base salary exceeds $75,000 per annum
after the increase or made an across-the-board increase in the compensation of
any class of employees; paid any bonus to any of its directors, officers, or
other employees, except as required under existing Employee Plans; secured,
collateralized, or funded any Employee Plan not previously secured,
24
collateralized, or funded; entered into, terminated, or substantially modified
any employment agreement or other Employee Plan; or agreed to do any of the
foregoing.
(i) Each of the Company and the Subsidiary has not entered into,
amended, modified, or terminated any Material Contract outside the ordinary
course of its business.
7.14 Labor Matters. There are no controversies pending between the
Company or the Subsidiary and any of their respective current or former
employees, other than routine individual grievances which will not have a
Material Adverse Effect. No employee of the Company or the Subsidiary is
represented by any labor union and, to the best knowledge of the Company, no
labor union is attempting any such representation.
7.15 Undisclosed Liabilities; Warranty Matters. (a) Except as and
to the extent disclosed, reflected, or reserved against in the Financial
Statements, neither the Company nor the Subsidiary has or will have, as of the
respective dates thereof, any material liabilities and obligations (whether
known or unknown, accrued, absolute, contingent or otherwise) of the type which,
if known, would be required to be reflected on a balance sheet prepared in
accordance with generally accepted accounting principles or disclosed in the
notes thereto, and there was or will be no material loss contingency, as defined
in paragraph 1 of Statement of Financial Accounting Standards No. 5, of the
Company or the Subsidiary which was not so reflected or disclosed. Since
December 28, 2002, neither the Company nor the Subsidiary has incurred any such
material liability or obligation (other than liabilities and obligations
voluntarily assumed in the ordinary course of business), and no such material
loss contingency has arisen.
(b) Schedule 7.15 contains true and complete copies of
the forms of all unexpired warranties made by either the Company or the
Subsidiary with respect to products sold by it (other than warranties arising by
operation of law) and the forms of all unexpired service contracts under which
either the Company or the Subsidiary has any obligation. The warranty reserve
set forth on the most recent balance sheet included in the Financial Statements
is adequate to satisfy in full all present and future warranty and service
contract claims with respect to products or services sold by the Company and the
Subsidiary as of the date of such balance sheet.
(c) The workers' compensation, insurance, and incurred
but not reported employee health claims reserves set forth on the most recent
balance sheet included in the Financial Statements are adequate to satisfy all
workers' compensation, insurance, and incurred but not reported health claims
existing as of the date of such balance sheet.
7.16 Title to Properties; Absence of Liens, Etc. (a) Schedule 7.16
contains (i) a true and complete list of any real property now owned by the
Company or the Subsidiary, other than the Excluded Properties (the "Owned Real
Property"); and (ii) the true and complete legal description of each parcel of
Owned Real Property. The Company has good record and marketable title in fee
simple to all Owned Real Property, free and clear of all Liens except such as
are described on Schedule 7.16 (the "Permitted Encumbrances"). All buildings
which are located on the Owned Real Property are located wholly within and on
the Owned Real Property. None of the Permitted Encumbrances materially impair,
either individually or in the aggregate,
25
the value of the Owned Real Property or its ability to be used for the purpose
for which it is now being used.
(b) Schedule 7.16 contains a true and complete list of
(i) all leases, bailments, or right-to-use consignments of equipment or other
personal property to which either the Company or the Subsidiary is a party (the
"Equipment Leases"), and (ii) all leases of real property to which either the
Company or the Subsidiary is a party (the "Real Property Leases").
(c) Except for the equipment subject to the Equipment
Leases, the Excluded Properties, the real property subject to the Real Property
Leases, and various personal items of nominal value belonging to the employees
of the Company or the Subsidiary, each of the Company and the Subsidiary owns
all properties and assets used in the conduct of its business since December 31,
2002, other than any properties or assets disposed of since such date in the
ordinary course of business.
(d) Except as disclosed on Schedule 7.16, each of the
Company and the Subsidiary has good and marketable title to all of its personal
property and assets, including without limitation, those assets and properties
reflected in the Financial Statements, free and clear of all Liens, except (i)
the Lien of current Taxes not yet delinquent or which are being contested in
good faith by appropriate proceedings; (ii) properties and assets disposed of
since the dates of such Financial Statements in the ordinary course of business;
(iii) such secured indebtedness as is disclosed in the Financial Statements;
(iv) Liens and imperfections of title which do not individually or in the
aggregate materially detract from the value, or impair the use, of the
properties as currently used; (v) inchoate mechanics and materialmens' Liens for
construction in progress; and (vi) other Liens of workmen, repairmen,
warehousemen, and carriers arising in the ordinary course of business which are
not, either individually or in the aggregate, material in amount.
(e) Except as set forth on Schedule 7.16, (i) all of the
buildings and material tangible personal property owned or leased by the Company
or the Subsidiary are, to the best knowledge of the Company, in good working
condition (normal wear and tear excepted) and adequate and suitable for the
purposes for which they are presently being used; (ii) the assets of the Company
and the Subsidiary are sufficient to operate their respective businesses as
presently conducted; and (iii) the Company presently operates a retail tire and
automotive service business at each retail store facility which is part of the
Owned Real Property or subject to the Real Property Leases.
(f) Set forth on Schedule 7.16 is a complete list of each
item of "Property and Equipment" as labeled on the December 28, 2002 balance
sheet of the Company included in the Financial Statements. Included within this
list are all items of "equipment" (as defined in Article 9 of the Uniform
Commercial Code) owned by the Company or the Subsidiary and having a net book
value in excess of $5,000 as of December 28, 2002.
(g) Set forth on Schedule 7.16 is a complete list of any
real property previously but no longer owned by the Company or the Subsidiary,
other than the Excluded Properties (the "Sold Real Property").
26
7.17 Receivables; Prepaid Expenses. (a) Except as set forth on
Schedule 7.17, all of the accounts, notes, and other receivables which are
reflected on the most recent balance sheet included in the Financial Statements
were acquired, and all of the accounts, notes, and other receivables thereafter
acquired by the Company or the Subsidiary will be acquired, in the ordinary
course of business and, except to the extent reserved against on the books and
records of the Company and the Subsidiary, have been collected in full, or will
be collected in full, in the ordinary course of business.
(b) All prepaid expenses of the Company or the Subsidiary
accrued on their books and records on the Closing Date will represent bona fide
prepayments made by the Company or the Subsidiary, full credit for which will be
afforded to the Company or the Subsidiary by the Entities that received such
prepayments.
7.18 Inventories. The inventories set forth on the December 28,
2002 balance sheet of the Company and the Subsidiary which constitutes part of
the Financial Statements are, and the inventories thereafter acquired by the
Company or the Subsidiary were or will be, properly valued in accordance with
generally accepted accounting principles. Except as described on Schedule 7.18,
neither the Company nor the Subsidiary has any consigned inventory.
7.19 Proprietary Rights. (a) Set forth on Schedule 7.19 is a
complete and accurate list of all patents, trademarks, tradenames, or copyright
registrations (collectively, "Proprietary Rights") owned or held by either the
Company or the Subsidiary. To the best knowledge of the Company, with the
exception of the right to advertise, display, and sell products purchased by the
Company or the Subsidiary from its suppliers using the trademarks of those
suppliers, no Proprietary Rights other than those listed on Schedule 7.19 are
used in or necessary for the conduct of either the Company's or the Subsidiary's
business as now being conducted.
(b) Except as set forth on Schedule 7.19, the Company or
the Subsidiary owns all Proprietary Rights listed therein; the use of such
Proprietary Rights by the Company or the Subsidiary does not infringe upon the
rights of any other party; and no claim of such infringement is pending or, to
the best knowledge of the Company, threatened. No licenses, sublicenses, or
agreements with respect to the Proprietary Rights listed on Schedule 7.19 have
been granted or entered into by either the Company or the Subsidiary. Except as
set forth on Schedule 7.19, to the best knowledge of the Company, no third party
is infringing upon any of the Proprietary Rights listed therein or has made any
claim of ownership or right to use any of such Proprietary Rights.
7.20 Insurance; Bank Accounts. (a) Set forth on Schedule 7.20 is a
description (including applicable deductible amounts and limitations) of all
insurance maintained by either the Company or the Subsidiary or under which
either of them is entitled to coverage or benefits. True and complete copies of
such insurance policies have previously been made available, and will upon
request be delivered, to Buyer. Except as set forth on Schedule 7.20, the
Company and the Subsidiary have in place adequate insurance coverage with third
party insurers or providers with respect to all litigation or claims pending or
threatened against the Company or the Subsidiary, and the reserves set forth on
the most recent balance sheet included in the Financial Statements are
satisfactory to discharge (i) any deductibles or other liability of the Company
or the Subsidiary with respect to any such litigation or claim which is not paid
in full by such
27
insurance, and (ii) any retrospective premium or other cost or assessment for
which either the Company or the Subsidiary may be or become obligated as a
result of payments or expenses incurred by the insurer(s) with respect to such
litigation or claim.
(b) Set forth on Schedule 7.20 is a list of all bank
accounts maintained by either the Company or the Subsidiary and the name of each
individual who is authorized to sign checks on behalf of the Company or the
Subsidiary or to otherwise act with respect to each account.
7.21 Environmental Matters. (a) Except as set forth on Schedule
7.21, neither the Company, nor the Predecessor, nor the Subsidiary, nor any real
property currently owned or leased by either the Company or the Subsidiary, nor,
to the best knowledge of the Company, any real property previously owned or
leased by the Company, the Predecessor, or the Subsidiary, has been or is in
violation of or liable under any Environmental Law (including without
limitations, any liability for release of any Hazardous Substance), except for
any such violation or liabilities which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth on Schedule 7.21, (i) there are
no actions, suits, demands, notices, claims, investigations, or proceedings
under any Environmental Law pending or, to the best knowledge of the Company,
threatened against either the Company or the Subsidiary or relating to any real
property currently owned or leased by either the Company or the Subsidiary, or,
to the best knowledge of the Company, pending or threatened against any real
property previously owned or leased by the Company, the Predecessor, or the
Subsidiary, including without limitation, any notices, demand letters, or
requests for information from any Governmental Entity making inquiries relating
to any Environmental Law or any notice that either the Company, the Predecessor,
or the Subsidiary is or may be a potentially responsible party under any
Environmental Law; and (ii) there are no investigations or remedial activities
ongoing, pending, or under consideration by either the Company or the Subsidiary
relating to compliance with any Environmental Law or the possible presence of
any Hazardous Substance at either any real property previously or currently
owned or leased by either the Company, the Predecessor, or the Subsidiary or any
adjacent real property, except such investigations or remedial activities that
would not reasonably be expected to have a Material Adverse Effect.
(c) Except as set forth on Schedule 7.21, to the best
knowledge of the Company, there are no past or present conditions,
circumstances, activities, practices, omissions, plans, or contractual
undertakings that will interfere with or prevent continued compliance by the
Company and the Subsidiary with Environmental Laws and the requirements of any
permits or licenses issued under any Environmental Law or that will give rise to
any liability or other obligation under any Environmental Law.
(d) Except as set forth on Schedule 7.21, (i) no Lien
exists, and to the best knowledge of the Company, no condition exists which
could result in the filing of a Lien, against any property of either the Company
or the Subsidiary under any Environmental Law, and (ii) neither the Company, the
Predecessor, nor the Subsidiary has been requested or required by any
Governmental Entity to perform or cooperate in any investigatory or remedial
activity under or
28
in connection with any Environmental Law which has not been so performed to the
complete and final satisfaction of such Governmental Entity.
(e) Except as set forth on Schedule 7.21, no condition
currently exists on, in, under, or to the best knowledge of the Company,
adjacent to, any real property currently owned or leased by either the Company
or the Subsidiary or, to the best knowledge of the Company, on, in, under, or
adjacent to any real property previously owned or leased by the Company, the
Predecessor, or the Subsidiary, that requires that the Company or the Subsidiary
to make any report to a Governmental Entity or undertake remedial activities
under any Environmental Law.
7.22 Certain Transactions. (a) Except pursuant to the Employee
Plans or as set forth on Schedule 7.13 or 7.22, none of the current or former
officers, directors, or employees of either the Company or the Subsidiary and no
Stockholder is currently a party to any transaction with either the Company or
the Subsidiary, or since December 28, 2002 has been a party to any such
transaction, including without limitation, any contract, agreement, or other
arrangement (i) providing for the furnishing of services (other than as an
officer, director, or employee) to or by, (ii) providing for rental of real or
personal property to or from, or (iii) otherwise requiring payments to or from,
any such officer, director, employee, or Stockholder, any member of the family
of any such officer, director, employee, or Stockholder, or any Entity in which
any such officer, director, employee, or Stockholder has a substantial interest
or which is an affiliate of such officer, director, employee, or Stockholder.
(b) Except as set forth on Schedule 7.22, no customer of
the Company or the Subsidiary (i) has been granted or is entitled to any rebate
which has not been paid or accrued on the books and records of the Company or
the Subsidiary or (ii) has a right to purchase products from the Company or the
Subsidiary at prices or upon terms other than the Company's or the Subsidiary's
standard prices or terms.
7.23 Maryland and Related Matters. (a) The Company has paid in a
timely manner all amounts payable to the Division under the Assurance, the due
dates of which were prior to the date of this Agreement, and will pay in a
timely manner all amounts payable to the Division under the Assurance, the due
dates of which fall within the period beginning on the date of this Agreement
and ending on the Closing Date.
(b) The Company has complied with all of its other
obligations under the Assurance, the dates for compliance with which were prior
to the date of this Agreement, and will comply in a timely manner with all of
its other obligations under the Assurance, the dates for compliance with which
fall within the period beginning on the date of this Agreement and ending on the
Closing Date.
(c) Except as set forth on Schedule 7.23, to the best
knowledge of the Company, there exists no reason why the Company will not be
able to perform all of its obligations under the Assurance in a timely manner.
(d) The Company has not received any communication from
the Division in which the Division has questioned, asserted, or alleged that the
Company is not in full compliance with the Assurance.
29
(e) Schedule 7.23 sets forth a summary of actions taken
by the Company and which the Company intends to take with regard to customers
who purchased brake or transmission services of the type described in the
Assurance in states other than Maryland. To the best knowledge of the Company,
the Company has no obligation to such customers except as described in such
summary.
(f) The Company has received no inquiry or correspondence
from any Governmental Entity in any state other than Maryland with regard to
brake or transmission services of the type described in the Assurance.
7.24 Disclosure. The representations and warranties of the
Stockholders contained in this Article 7 and the information set forth on the
Schedules do not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
Article 8. Representations, Warranties and Covenants of Buyer.
8.01 Representations and Warranties. Buyer represents and
warrants to the Stockholders as follows, both as of the date of this Agreement
and as of the time of the Closing:
(a) Authority; Authorization; Enforceability.
(i) Buyer has the requisite power and authority
to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
(ii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly authorized and approved by the Board of
Directors of Buyer. No other proceedings on the part of Buyer
are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby.
(iii) This Agreement has been duly executed and
delivered by, and constitutes a valid and binding obligation
of, Buyer, enforceable against Buyer and in accordance with
its terms.
(b) Consents and Approvals; No Violation. Neither the execution
and delivery of this Agreement by Buyer, nor the consummation by Buyer of the
transactions contemplated hereby, nor compliance by Buyer with any of the
provisions hereof, will:
(i) Conflict with or result in any breach of any
provision of the Certificate of Incorporation or By-Laws of
Buyer.
(ii) Violate, conflict with, constitute a default
(or an event which, with notice or lapse of time or both,
would constitute a default) under, result in the termination
of, accelerate the performance required by, or result in a
right of termination or acceleration of, any agreement,
instrument, or obligation to which Buyer is a party or to
which Buyer or any of its properties or assets may be subject
and which will not be cured or waived on or before the Closing
Date.
30
(iii) Violate any judgment, ruling, order, writ,
injunction, decree, statute, rule, or regulation applicable to
Buyer or any of its properties or assets.
(iv) Except for compliance with the requirements
of the HSR Act, require any consent, approval, authorization,
or permit of or from, or filing with or notification to, any
Governmental Entity.
(c) Disclosure. The representations and warranties of Buyer
contained in this Agreement do not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
contained herein not misleading in light of the circumstances under which they
were made.
8.02 Covenants of Buyer. From and after the Closing, Buyer
covenants that until July 21, 2005:
(a) Noncompetition. Buyer shall not allow, permit, cause or suffer
the Company to carry on or engage in, directly or indirectly, on its own behalf
or by or through any other person or entity, any business or other activity in
competition with the Business within the Restricted Territory (as defined in
Section 8.02(b)), including but not limited to, engaging in any of the following
activities:
(i) owning any interest in, managing or serving
as a consultant, employee, business advisor or independent
contractor for any individual, corporation, partnership,
association, joint venture or other entity which is engaged in
a business in competition with the Business;
(ii) soliciting the sale of tires to any customer
to whom the Business had sales during the 12-month period
ended July 21, 2000;
(iii) making a loan to, or guaranteeing the
obligations of, any individual or entity engaged in a business
in competition with the Business or making a loan to, or
guaranteeing the obligations of, any owners, officers,
director, partner or shareholder thereof;
(iv) requesting, inducing or attempting to
influence any supplier of goods or services to the Business to
curtail or cancel any business it transacts with Xxxxxxx with
respect to the Business;
(v) requesting, inducing or attempting to
influence any of the employees of Xxxxxxx to terminate his or
her employment with Xxxxxxx, or attempting to dissuade any
then current employee of Xxxxxxx, from continuing employment
with Xxxxxxx;
(vi) inducing, enticing, hiring or attempting to
hire or employ any employee of the Business, Xxxxxxx or its
affiliates; or
31
(vii) overtly doing or performing any act that is
designed or intended to materially and adversely affect the
goodwill, operations or business of the Business or Xxxxxxx.
(b) Territory. The "Restricted Territory" includes (i) the states
of New York, Pennsylvania, Maryland, Virginia, West Virginia, and North
Carolina; and (ii) the geographic area within a one hundred (100) mile radius of
(i) Nitro, West Virginia, (ii) Roanoke, Virginia, (iii) Durham, North Carolina,
(iv) Baltimore, Maryland, (v) Rural Hall, North Carolina, (vi) Richmond,
Virginia, (vii) Auburn, New York, (viii) North Versailles, Pennsylvania, (ix)
Erie County, New York, (x) Manassas, Virginia or (xi) Chesapeake, Virginia.
(c) Exceptions. Notwithstanding the foregoing, nothing herein
shall prevent: (i) passive investments by the Company, directly or indirectly,
of less than 3% of the outstanding common equity of any person whose common
equity is listed for trading on the New York Stock Exchange or the American
Stock Exchange or quoted on the NASDAQ National Market System; (ii) continued
retail tire sales and related activities (i.e., mounting and balancing) at the
Company's retail sales facilities within the Restricted Territory; provided,
however, that such operations shall not include the sales of any products or
services other than (x) those sales or services which are installed at the
Company's retail facilities, (y) continued direct sales (at levels consistent
with prior practice) from the Company's distribution centers to customers
identified in the Noncompetition Agreement and (z) de minimis sales of unmounted
tires, not to exceed 3% of the total number of tire units purchased by the
Company from their suppliers in any one year, from the Company's retail
facilities within the Restricted Territory; or (iii) continued operation of the
Company's Commercial Sales and Service Division which includes the sale and
service of products to business accounts and fleet accounts at the Company's
retail facilities as well as through its fleet of commercial service trucks and
which are subject to sales tax. The Company shall, upon written request from
Xxxxxxx, supply Xxxxxxx with all information as Xxxxxxx may reasonably request
in order to satisfy Xxxxxxx that the Company has not exceeded the volume
limitations set forth in (ii)(z) above.
Article 9. Pre-Closing Obligations.
9.01 Conduct of the Business. The Stockholders jointly and
severally covenant and agree that, prior to the Closing, unless Buyer shall
otherwise agree in writing, or except as disclosed in the Schedules or as
otherwise expressly contemplated by this Agreement:
(a) Neither the Company nor the Subsidiary shall take any action
except in the ordinary course of business and consistent with past practices,
and the Company and the Subsidiary shall each use its best efforts to maintain
and preserve its business organization, customer network, assets, prospects,
employees, and advantageous business relationships.
(b) Neither the Company nor the Subsidiary shall, directly or
indirectly, do any of the following: (i) take any action or incur any expenses
in contemplation of a reorganization or restructuring of either the Company or
the Subsidiary; (ii) amend its Certificate of Incorporation or By-Laws or
similar organizational documents; (iii) split, combine or reclassify any shares
of its capital stock or declare, set aside, or pay any dividend or make any
distribution, payable in cash, stock, property, or otherwise, with respect to
its capital stock; (iv) adopt a plan of
32
liquidation or resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of either the Company or the Subsidiary;
or (v) authorize or propose any of the foregoing, or enter into any contract,
agreement, commitment, or arrangement to do any of the foregoing.
(c) Neither the Company nor the Subsidiary shall, directly or
indirectly: (i) issue, sell, pledge, encumber or dispose of, or authorize,
propose, or agree to the issuance, sale, pledge, encumbrance or disposition of,
any shares of its capital stock or any other equity securities or any Rights of
Purchase with respect thereto; (ii) acquire (by merger, consolidation, or
acquisition of stock or assets) any Entity or division thereof or make any
material investment, either by purchase of stock or securities, contributions to
capital, property transfer, or purchase of any material amount of property or
assets, in any Entity; (iii) other than as set forth in the Schedules, incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee, endorse (other than to a Company or Subsidiary account) or otherwise
as an accommodation become responsible for, the obligations of any Entity, or
make any loans or advances, including without limitation, advances to suppliers
or customers, regardless of whether made in the ordinary course of business or
consistent with past practice; (iv) enter into any new Material Contract or
release or relinquish any Material Contract right; (v) materially increase the
inventory levels of the Company or the Subsidiary beyond the average levels
maintained by the Company and the Subsidiary since December 28, 2002 or allow to
remain in inventory any damaged, unusable, or obsolete goods which otherwise
should have been disposed of; (vi) take any action involving possible
expenditures, contingent liabilities, or the acquisition or disposition of
assets, in each case in excess of $50,000, other than the purchase or sale of
inventory in the ordinary course of business; or (vii) authorize or propose any
of the foregoing, or enter into or modify any contract, agreement, commitment,
or arrangement to do any of the foregoing.
(d) Each of the Company and the Subsidiary shall use its best
efforts to keep in place its current insurance policies, and if any such policy
is cancelled, to replace such policy.
(e) The Company shall deliver to Buyer, within fifteen business
days after the end of each fiscal month ending after the date of this Agreement
and prior to the Closing, the interim financial statements of the Company and
the Subsidiary at and for such month.
(f) Except in accordance with the provisions of this Article 9,
neither the Company nor the Subsidiary shall enter into any agreement or
otherwise agree to do anything which would make any representation or warranty
of the Stockholders in this Agreement untrue or incorrect in any material
respect as of the date hereof and as of the Closing.
The Stockholders covenant and agree that the Stockholders will take all
necessary action to cause the Company and the Subsidiary to comply with and
satisfy their respective obligations under this Section 9.01.
9.02 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties agrees 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 as promptly as
practicable the transactions contemplated by this Agreement, and to cooperate
with each other in connection with the foregoing, including, but not limited to,
using reasonable
33
efforts (a) to obtain all necessary waivers, consents, and approvals from other
parties to Material Contracts; (b) to obtain all necessary consents, approvals,
and authorizations as are required to be obtained under any federal, state or
local law or regulations; (c) to effect all necessary filings with any
Governmental Entity, including without limitation, filings under the HSR Act;
(d) to fulfill all conditions to this Agreement; and (d) to keep the other
parties reasonably apprised of the status of all such efforts.
9.03 Notice. The Stockholders shall give prompt notice to Buyer,
and Buyer shall give prompt notice to the Stockholders, of (a) the occurrence,
or failure to occur, of any event, the occurrence or failure of which would be
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Closing, (b) any material failure of the Stockholders or Buyer or any of
their respective officers, directors, employees, or agents, to comply with or
satisfy any covenant, condition, or agreement to be complied with or satisfied
by such party under this Agreement, (c) commencement or the threat of
commencement of any material claim, action, proceeding, or investigation
involving or affecting either the Company or the Subsidiary or any of their
respective properties or assets, or, to the best of its or their knowledge,
against any employee, consultant, director, officer of either the Company or the
Subsidiary or any Stockholder, in his, her, or its capacity as such, and (d) any
change in the condition (financial or otherwise), business, or prospects of
either the Company or the Subsidiary that has a Material Adverse Effect, or the
occurrence of an event which, so far as reasonably can be foreseen at the time
of its occurrence, would result in a Material Adverse Effect; provided, however,
that no such notification shall affect the representations or warranties of the
parties or the conditions to the obligations of the parties hereunder.
9.04 Access. From the date hereof to the Closing, the Stockholders
shall cause the Company and the Subsidiary and the officers, directors,
employees, and agents of the Company and the Subsidiary to continue to afford
the officers, employees, advisors, and agents of Buyer (collectively, the
"Representatives") complete access, without disruption to the Company's normal
business or operations, at all reasonable times to the officers, employees,
agents, properties, books, records, and contracts of the Company and the
Subsidiary and to furnish Buyer and the Representatives with such operating and
other data and information as they may reasonably request. No investigation
pursuant to this Section 9.04 shall affect any representations or warranties of
the parties herein or the conditions to the obligations of the parties
hereunder.
Article 10. Conditions; the Closing.
10.01 Conditions to Obligations of Each Party. The respective
obligations of each party under this Agreement, including the obligation to
consummate the transactions contemplated by this Agreement, shall be subject to
the fulfillment or waiver at or prior to the Closing of the following
conditions:
(a) HSR Act. Any waiting period (and any extension thereof) under
the HSR Act which is applicable to the consummation of the transactions
contemplated by this Agreement shall have expired or been terminated.
34
(b) Governmental Approvals, Etc. The Stockholders and Buyer shall
have obtained such other licenses, permits, consents, approvals, authorizations,
qualifications, and orders of Governmental Entities as are necessary for
consummation of the transactions contemplated by this Agreement.
(c) No Injunction or Proceedings. No preliminary or permanent
injunction or other order, decree, or filing issued by a Governmental Entity,
nor any statute, rule, regulation, or executive order promulgated or enacted by
any Governmental Entity, shall be in effect which materially adversely affects
the transactions contemplated by this Agreement, and no suit, action, or
proceeding shall be pending by or with any Governmental Entity which seeks to
have declared illegal or would make illegal or otherwise prevent the
consummation of such transactions or seeks damages with respect thereto.
10.02 Additional Conditions to the Obligations of Buyer. The
obligations of Buyer under this Agreement, including its obligation to
consummate the transactions contemplated by this Agreement, shall be subject to
the satisfaction at or prior to the Closing of the following additional
conditions, unless waived by Buyer:
(a) Performance of Obligations of the Stockholders. The
Stockholders shall have performed in all material respects all obligations and
agreements required to be performed by them under this Agreement prior to the
Closing.
(b) Representations and Warranties. The representations and
warranties of the Stockholders set forth in this Agreement shall be true and
correct in all material respects at and as of the time of the Closing as if made
at and as of such time, except as expressly contemplated by this Agreement.
(c) Legal Opinion(s). The Stockholders shall have delivered to
Buyer an opinion of Winston & Xxxxxx, dated the Closing Date and addressed to
Buyer, substantially in the form of Exhibit E to this Agreement.
(d) Resignations and Releases. The Stockholders shall have
delivered to Buyer letters of resignation, effective as of the Closing, executed
and tendered by (i) each of the then incumbent directors of the Company and the
Subsidiary, and (ii) any non-employee officers of either the Company or the
Subsidiary. Each such resignation shall contain an acknowledgment that the
director or officer has been paid all amounts owing to him or her by the Company
and the Subsidiary in connection with his or her services as a director or
officer and shall release the Company from any further liability of any nature
whatsoever to the director or officer.
(e) Certificates. The Stockholders shall have furnished to Buyer a
certificate that the conditions set forth in Subsections 10.02(a) and 10.02(b)
to be satisfied by the Stockholders have been satisfied as of the Closing Date.
(f) Compliance and Consents. The Stockholders shall have delivered
to Buyer evidence of their compliance with the requirements of the Stockholders
Agreement listed on Schedule 7.03, together with each consent, approval, or
authorization described on Schedule 7.05 (i) which is required under the terms
of any Material Contract, or (ii) which is necessary to cure
35
or eliminate any violation, default, termination, acceleration, or right of
termination or acceleration of any Material Contract.
(g) Mortgage and Lien Releases. The Stockholders shall have
delivered to Buyer duly recorded releases of all mortgages and UCC fixture
filings encumbering the Owned Real Property other than the mortgages and fixture
filings described in Subsection 10.02(h), and duly filed UCC termination
statements relating to all Liens against any personal property of the Company or
the Subsidiary, other than the Liens reflected in the UCC financing statements
filed against the Company or the Subsidiary by Bridgestone/Firestone, Inc. or
Bandag, Incorporated or described in Subsection 10.02(h).
(h) Debt and Capital Leases. The Stockholders shall have delivered
to Buyer (i) written confirmation by each holder of Debt as the amount necessary
to discharge such Debt in full on the Closing Date (including without
limitation, all prepayment penalties or premiums), together with wire transfer
instructions for the payment of the same; and (ii) the written agreement of each
lessor under any Capital Lease permitting the Company or the Subsidiary to
accelerate the payment of its obligations thereunder, stating the amount
necessary to discharge such Capital Lease in full on the Closing Date, together
with wire transfer instructions for the payment of the same, and agreeing to
terminate promptly any Lien filed with respect thereto and transfer title to the
leased property to the Company or the Subsidiary.
(i) Escrow Agreement. The Stockholders shall have delivered to
Buyer the Escrow Agreement, duly executed by the Stockholders.
(j) Company Stock Certificates. The Stockholders shall have
delivered to Buyer all stock certificates representing the Shares, duly endorsed
for transfer to Buyer.
(k) Excluded Properties and Related Leases. The Stockholders shall
have caused the Company (i) to transfer the Excluded Properties to the
Stockholders or to an Entity designated by the Stockholders that is not owned by
the Company, and to terminate any existing lease pursuant to the terms of which
the Company or the Subsidiary leases any land or buildings located on, at, or
adjacent to the Manassas, Virginia, property included in the Excluded
Properties, such transfer and termination being accomplished without any adverse
Tax consequences to the Company; and (ii) to enter into a one year triple-net
real property lease for the Manassas, Virginia property located at 0000 Xxxxxx
Xxxxxx, Xxxxxxxx, Xxxxxxxx 00000 and which is part of the Excluded Properties,
with rights of sublease, at a monthly rent of $74,208 and upon other terms
mutually satisfactory to the Buyer and the lessor thereof.
(l) Ownership of the Subsidiary. The Stockholders shall have
delivered to Buyer evidence satisfactory to Buyer that the Stockholders have
caused all capital stock of the Subsidiary not owned by the Company to be
contributed to the capital of the Company or the Subsidiary without any payment
by the Company or the Subsidiary, together with certificates, issued in the name
of the Company, representing all of the outstanding capital stock of the
Subsidiary.
(m) Stockholder Receivables. All amounts owing by any Stockholder
to the Company or the Subsidiary shall have been paid in full.
36
(n) Form 8023 and IRS Letter. Each Stockholder shall have signed
and delivered to the Buyer the Form 8023 described in Section 5.01 and the
Stockholders shall have delivered to the Buyer a letter from the IRS, dated as
of a date prior to the Closing Date, acknowledging the Company's status as an
"S" corporation for federal income Tax purposes.
(o) Option to Purchase Training Center. The Company shall have
entered into an agreement, upon terms satisfactory to Buyer and for a payment of
$50,000, which will be credited to the purchase price, to be made ten days after
the Closing Date, giving the Stockholders or an Entity designated by them an
option to purchase the Company's training center located on Euclid Avenue in
Manassas, Virginia at fair market value, at any time within one year after the
Closing Date.
(p) Lease Extension. The Stockholders shall have delivered to the
Buyer evidence of the extension of the term of the lease for Store #1050 upon
terms mutually satisfactory to the Buyer and the lessor thereof.
(q) No Material Adverse Change. Except as disclosed in the
Schedules, since December 28, 2002, there shall have been no change in the
financial condition, results of operations, business, properties, or prospects
of the Company and the Subsidiary that, in the aggregate, have had or can
reasonably be expected to have a Material Adverse Effect.
(r) Other Documents. Buyer shall have received such other
certificates and documents (customary in similar transactions) relating to the
satisfaction of the conditions to the obligations of Buyer as Buyer or its
counsel shall have reasonably requested.
(s) Approval of Documents. All certificates, agreements,
instruments, and other documents required by this Agreement to be delivered by
the Stockholders to Buyer at the Closing shall have been approved by counsel for
Buyer, which approval shall not be unreasonably withheld.
10.03 Additional Conditions to the Obligations of the Stockholders.
The obligations of the Stockholders under this Agreement, including the
obligation of each to consummate the transactions contemplated by this
Agreement, shall be subject to the satisfaction at or prior to the Closing of
the following additional conditions, unless waived by them:
(a) Performance of Obligations of Buyer. Buyer shall have
performed in all material respects all obligations and agreements required to be
performed by it under this Agreement prior to the Closing.
(b) Representations and Warranties. The representations and
warranties of Buyer set forth in this Agreement shall be true and correct in all
material respects at and as of the time of the Closing as if made at and as of
such time, except as expressly contemplated by this Agreement.
(c) Certificates. Buyer shall have furnished to the Stockholders a
Certificate, executed by its chief executive officer, certifying that the
conditions set forth in Subsections 10.03(a) and 10.03(b) have been satisfied as
of the Closing Date.
37
(d) Escrow Agreement. Buyer shall have delivered to the
Stockholders the Escrow Agreement, duly executed by Buyer and the Escrow Agent.
(e) Payoff of Debt and Capital Leases. Buyer shall have made
arrangements for the Company and the Subsidiary to repay and discharge the Debt
and Capital Leases.
(f) Other Documents. The Stockholders shall have received such
other certificates and documents (customary in similar transactions) relating to
the satisfaction of the conditions to the obligations of the Stockholders as the
Stockholders or their counsel shall have reasonably requested.
(g) Approval of Documents. All certificates, agreements,
instruments, and other documents required by this Agreement to be delivered by
Buyer to the Stockholders at the Closing shall have been approved by counsel for
the Stockholders, which approval shall not be unreasonably withheld.
10.04 Time and Place of Closing. The Closing shall take place at the
offices of Winston & Xxxxxx, 0000 X Xxxxxx, X.X., Xxxxxxxxxx, X.X., at 10:00
a.m., local time, as soon as practicable after satisfaction or waiver of all of
the conditions contained in this Article 10 or at such other place or at such
other time as Buyer and the Stockholders may mutually agree (the date of the
Closing being referred to herein as the "Closing Date").
10.05 Deliveries at the Closing. At the Closing, Buyer and the
Stockholders shall take any and all actions and do all other lawful things
called for by this Agreement or necessary to consummate the transactions
contemplated by this Agreement. At the Closing, all actions shall be deemed to
have been taken simultaneously and the taking of any action shall be contingent
upon the taking of all other action called for in this Agreement or necessary to
consummate the transactions contemplated hereby.
Article 11. Termination and Waiver.
11.01 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated at any time prior to the Closing:
(a) By mutual written consent of the Stockholders and Buyer.
(b) By the Stockholders, acting jointly, or by Buyer, if (i) the
Closing shall not have occurred on or before April 30, 2003, or (ii) any of the
conditions set forth in Section 10.01 hereof shall not be met on or prior to
April 30, 2003; provided, however, that the right to terminate this Agreement
under this Subsection 11.01(b) shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before such date.
(c) By Buyer if any of the conditions set forth in Section 10.02
shall not be met at or prior to the Closing.
(d) By the Stockholders if any of the conditions set forth in
Section 10.03 shall not be met at or prior to the Closing.
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11.02 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 11.01, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of the
Stockholders or Buyer or their affiliates, except that a party shall be liable
for (i) willful defaults of its obligations hereunder, and (ii) any breach of
its obligations under the Confidentiality Agreement, dated June 22, 2001,
between Buyer and the Company (the "Confidentiality Agreement"). The parties
acknowledge and agree that, notwithstanding that paragraph 8 of the
Confidentiality Agreement recites that the obligations of the parties thereto
shall endure until June 22, 2003, the parties shall remain bound by such
obligations until two years after the date of any termination of this Agreement.
11.03 Waiver. At any time prior to the Closing, any party hereto may
(i) extend the time for the performance of any of the obligations or other acts
of any other party hereto or (ii) waive compliance with any of the agreements of
any other party or with any conditions to its, his, or her own obligations. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
Article 12. Certain Tax Matters.
12.01 Certain Definitions. (a) As used in this Article 12, the
following capitalized terms shall have the meanings set forth below:
(i) "Pre-Closing Period" means any Taxable
period of the Company or the Subsidiary ending on or before
the Closing Date.
(ii) "Straddle Period" means any Taxable period
of the Company or the Subsidiary beginning before the Closing
Date and ending after the Closing Date.
(iii) "Pre-Closing Straddle Period" means that
portion of a Straddle Period ending on the Closing Date.
(iv) "Post-Closing Straddle Period" means that
portion of a Straddle Period beginning on the day after the
Closing Date.
(v) "2003 Pre-Closing Period" means the
Pre-Closing Period beginning on December 29, 2002 and ending
on the Closing Date.
(vi) "Post-Closing Period" means any Taxable
period of the Company or the Subsidiary beginning and ending
after the Closing Date.
12.02 Preparation and Filing of Tax Returns. (a) After the Closing,
the Buyer shall prepare or cause to be prepared all Tax Returns of the Company
and the Subsidiary that have not been filed by the Company or the Subsidiary
prior to the Closing Date.
(b) Not less than twenty business days prior to the due
date (taking into account any applicable extensions) for filing any Tax Return
of the Company or the Subsidiary for any Pre-Closing Period or any Straddle
Period, Buyer shall deliver a copy of such Tax Return to the Stockholders for
their review and comment thereon, together with such supporting
39
documentation as shall enable the Stockholders to properly review the matters
and calculations set forth therein.
(c) Buyer shall cause the Company or the Subsidiary to
timely pay all Taxes shown to be due and payable on any Tax Return of the
Company or the Subsidiary not filed prior to the Closing Date, but only to the
extent that the Company or the Subsidiary (and not, for example, any
Stockholder) is responsible for payment of such Taxes to the appropriate
Governmental Entity.
12.03 Liability for Certain Taxes. (a) After the Buyer has paid any
Taxes accrued on the books and records of the Company or the Subsidiary with
respect to a period for which the Taxes are not due and payable on the Closing
Date, the Stockholders shall reimburse the Buyer for the amount of (i) any Taxes
paid by the Company or the Subsidiary with respect to any Pre-Closing Period
(other than Taxes imposed on the Company under Section 1374 of the Code relating
to the 2003 Pre-Closing Period resulting from the Federal and State Election
with respect to the Subsidiary) and (ii) that portion of any Taxes which is
attributable to any Pre-Closing Straddle Period (determined in the manner
specified in Subsection 12.03(b) below). Such reimbursement shall be made in the
manner described in Sections 13.03 and 13.05.
(b) For purposes of allocating Taxes which relate to a
Straddle Period, in the case of Taxes that are either based upon or related to
income or receipts or imposed in connection with any sale, transfer, assignment,
or distribution of property (real or personal, tangible or intangible), the
amount of such Taxes that is allocable to the Pre-Closing Straddle Period shall
be deemed equal to the amount which would have been payable if the period for
which such Tax is assessed ended on and included the Closing Date, and the
balance of such Taxes shall be allocated to the Post-Closing Straddle Period.
All other Taxes (including without limitation, real estate and personal property
Taxes for or relating to any Straddle Period, regardless of whether such Taxes
were a lien against the assets of the Company or the Subsidiary on the Closing
Date) shall be computed and allocated between the Pre-Closing Straddle Period
and the Post-Closing Straddle Period on a per diem basis.
(c) Buyer shall not be entitled to reimbursement from the
Stockholders for (i) any Taxes paid by the Company or the Subsidiary with
respect to any Post-Closing Period or (ii) that portion of any Taxes payable
with respect to any Straddle Period which is attributable to the Post-Closing
Straddle Period (determined in the manner specified in Subsection 12.03(b)
above).
12.04 Excess Dividends; Taxes Occasioned by Elections Described in
Article 5. (a) Buyer shall cause the Company to provide to the Stockholders the
Form K-1's for the 52/53 week period ended December 28, 2002 and for the 2003
Pre-Closing Period at the time the Company files its federal income Tax Returns
for such periods. If such Form K-1's disclose that the Stockholders received
actual cash distributions (including without limitation state withholding tax
payments) from the Company during 2002 and 2003 which total more than $100,000
in the aggregate for such periods (as set forth on the federal income Tax
Returns of the Company for such periods) without taking into account the
distribution of the Excluded Properties described in Subsection 10.02(k), the
Stockholders shall reimburse the Company for such excess amount (the "Excess
Dividends").
40
(b) Subject to the provisions of Subsection 12.04(d),
Buyer shall reimburse the Stockholders for additional Taxes incurred by them as
a result of the Federal Election and any State or Local Election, calculated in
the manner described in Subsection 12.04(c).
(c) To accomplish Subsection 12.04(b), the following
shall apply:
(i) Within 90 days after the Closing Date, the
Stockholders shall furnish to the Buyer a report which sets
forth each Stockholder's Tax basis in his or her Shares as of
December 29, 2001 and the aggregate legal, accounting, and
other similar expenses and broker's or finder's fees incurred
by the Stockholders in connection with the sale of the Shares
and the transactions contemplated by this Agreement. The
Stockholders shall include with the report such supporting
information as is necessary to enable the Buyer to understand
the amounts set forth therein.
(ii) At the time the Buyer delivers to the
Stockholders the Form K-1's applicable to the 2003 Pre-Closing
Period, Buyer shall also deliver to the Stockholders copies of
all federal, state, and local income Tax Returns of the
Company for the 2003 Pre-Closing Period, as filed by the
Company. With such Tax Returns and K-1's, the Buyer shall
furnish to the Stockholders a report based on the methodology
and assumptions set forth on Exhibit F which sets forth (A)
the Taxes that are payable by each Stockholder on the ordinary
income and additional gain resulting from the Federal Election
and any State and Local Elections with respect to the sale of
the Shares to Buyer (taking into account any deductions
against income associated with the obligations payable
pursuant to the Sale Incentive Plan and the Negotiators Bonus
Plan, any deductions against income for expenses associated
with the discharge of the Debt and the Capital Leases in
accordance with Subsection 10.02(h), and any loss to the
Stockholders on the deemed liquidation of the Company pursuant
to the Federal Election and any State and Local Elections, but
exclusive of any gain relating to any part of the Earnout
Amounts); (B) each Stockholder's Tax basis in his or her
Shares as of the Closing Date, calculated based upon the
report provided by the Stockholders in accordance with
Subsection 12.04(c)(i) and information set forth in the
Company's federal income Tax Returns for the 52/53 week period
ended December 28, 2002 and for the 2003 Pre-Closing Period;
(C) the amount of the gain attributable to the sale of each
Stockholder's Shares to Buyer which such Stockholder would
have reported for federal, state, and local income Tax
purposes if no Federal Election or State or Local Election had
been made (exclusive of any gain relating to any part of the
Earnout Amounts); and (D) the amount, if any, by which the
Taxes described in clause (A) of this Subsection 12.04(c)(ii)
exceed the Taxes that would have been payable by the
Stockholders on the gain described in clause (C) of this
Subsection 12.04(c)(ii) (the "Additional Transaction Taxes").
The Additional Transaction Taxes shall be calculated by taking
into account the installment method of reporting as provided
under Section 453 of the Code, as applicable, provided,
however, that in no event shall Additional Transaction Taxes
be less than zero. The Buyer shall include with its
41
report all supporting information necessary to enable the
Stockholders to verify the calculations set forth therein.
(iii) Taxes described in Subsection 12.04(c)(ii)
shall be calculated using the following assumed federal,
state, and local ordinary income and capital gains Tax rates
for each Stockholder:
Tax Rate for Xxx. Xxxx Xxx. Xxxxx Xx. Xxxxxxxx
------------ --------- ---------- ------------
Federal ordinary income or loss 38.60% 38.60% 38.60%
Federal unrecaptured section 1250 gain 25.00% 25.00% 25.00%
Federal long-term capital gain 20.00% 20.00% 20.00%
Federal short-term capital gain 38.60% 38.60% 38.60%
Resident state Tax rate (net of federal benefit) 0.00% 3.53% 3.53%
Effective state Tax rate (net of federal benefit) on
pass-through income 3.67% 3.67% 3.67%
(d) The Buyer shall reimburse the Stockholders for that
amount, grossed up for any income Taxes payable by the Stockholders with respect
to such payment (using the Tax rates set forth in Subsection 12.04(c)(iii)
hereof and the methodology and assumptions set forth on Exhibit F) so as to
completely reimburse the Stockholders therefor (the "Amount Reimbursable by the
Buyer"), by which the Additional Transaction Taxes exceed the Excess Dividends;
provided, however, that in no event shall the Amount Reimbursable by the Buyer
exceed $1,565,000. In the alternative, if any unreimbursed Excess Dividends are
greater than the Additional Transaction Taxes, the Stockholders shall reimburse
the Buyer for the amount (the "Amount Reimbursable by the Stockholders") by
which the Excess Dividends exceed the Additional Transaction Taxes.
(e) Amounts described in Subsection 12.04(d) shall be
reimbursed by the applicable party(ies) in the manner described in Sections
13.03, 13.05, and 13.07.
12.05 Transfer and Gains Taxes. All sales (including without
limitation, bulk sales), use, transfer, recording, ad valorem, privilege,
documentary, gross receipts, registration, conveyance, excise, license, stamp,
duties or similar Taxes and fees (collectively, the "Transfer Taxes") arising
out of, in connection with, or attributable to the transactions effected
pursuant to this Agreement shall be borne 50% by Buyer and 50% by the
Stockholders, except for Transfer Taxes associated with the distribution of the
Excluded Properties described in Subsection 10.02(k), all of which shall be
borne by the Stockholders. The party which has primary legal responsibility for
the payment of any particular Transfer Tax (the "Payor") shall prepare and
timely file all relevant Tax Returns required to be filed in respect of such
Transfer Tax, pay the Transfer Tax shown on such Tax Return, and notify the
other party(ies) in writing of the Transfer Tax shown on such Tax Return and how
such Transfer Tax was calculated. Such other party(ies) shall reimburse the
Payor for their respective share of the amount of such Transfer Tax in the
manner described in Sections 13.03, 13.05, and 13.07.
12.06 Assistance and Cooperation. After the Closing, each of the
Buyer and the Stockholders shall:
42
(a) Cooperate fully in preparing any Tax Returns of the Company
and the Subsidiary and preparing for any audits of, or disputes or litigation
with Taxing authorities regarding, any Tax Returns with respect to the Company
and the Subsidiary.
(b) Make available to the other and to any Taxing authority as
reasonably requested all information and documents relating to Taxes of the
Company and the Subsidiary.
(c) Provide timely notice to the other party(ies) of any pending
or threatened Tax audits, assessments, or litigation with respect to the Company
or the Subsidiary for any Pre-Closing Period or any Straddle Period.
(d) Furnish the other party(ies) with copies of all correspondence
received from any Taxing authority in connection with any Tax audit or
information request with respect to any Pre-Closing Period or any Straddle
Period.
Article 13. Claims; Escrow; Indemnification; Limitations.
13.01 Certain Defined Terms. For purposes of this Article 13:
(a) "Damages" means all liabilities, demands, claims, actions or
causes of action, regulatory, legislative, or judicial proceedings or
investigations, assessments, levies, losses, judgments, amounts paid in
settlement, fines, penalties, damages, and costs and expenses reasonably
required and incurred, including without limitation, reasonable fees and
expenses of attorneys, accountants, investigators, and experts. By way of
example and not in limitation of the foregoing, in the case of Buyer, Damages
include all costs and expenses reasonably required (it being understood that no
governmental or court action or notice is necessary for the costs and expenses
to be "required") to cause either the Company or the Subsidiary to be in
compliance with the representations and warranties set forth in Article 7.
(b) "State Claims" means any of the following;
(i) All amounts payable by the Company to the
Division pursuant to the Assurance and unpaid on the Closing
Date.
(ii) The sum of $17.95 for parts and labor
associated with each replacement of brake hardware performed
by the Company on or after the Closing Date on a vehicle
belonging to a consumer entitled to restitution pursuant to
the Assurance or to a consumer in any state other than
Maryland who would have been entitled to restitution pursuant
to the Assurance if the consumer had purchased a brake package
or service from the Company in Maryland.
(iii) The sum of $35.00 for labor associated with
each replacement of brake pads performed by the Company on or
after the Closing Date on a vehicle pursuant to paragraph 22
of the Assurance or on a vehicle belonging to a consumer in
any state other than Maryland who would have been entitled to
such replacement pursuant to paragraph 22 of the Assurance if
the consumer had purchased a brake package or service from the
Company in Maryland.
43
(iv) The sum of $32.47 for each transmission
service performed by the Company on or after the Closing Date
on a vehicle belonging to a consumer in any state other than
Maryland who would have been entitled to restitution pursuant
to the Assurance if the consumer had purchased a scheduled
maintenance package, transmission service, or another package
or service that included replacement of a transmission filter
from the Company in Maryland.
(v) The sum of $20 for each Gift Card provided
to a consumer during the period beginning on the Closing Date
and ending on October 31, 2003.
(vi) All Damages relating to or arising out of
the Company's breach of any of its obligations under the
Assurance prior to the Closing Date.
(vii) All Damages relating to or arising out of
any further inquiries by the Division to the extent such
inquiries involve the Maryland Matter.
(viii) All Damages relating to or arising out of
any investigation, action, or proceeding by, or settlement
with, any state other than Maryland or consumers in those
states, the scope of which is substantially the same as the
scope of the Maryland Matter, but only to the extent that such
investigation, action, or proceeding involves actions of the
Company prior to the Closing Date.
(ix) All Damages relating to or arising out of
any breach of any representation or warranty on the part of
Stockholders contained in Section 7.23 or any other provision
of Article 7 (to the extent that the breach or inaccuracy of
the representation or warranty contained in such other
provision relates to the matters described in Section 7.23).
(c) "Tax Claims" means any of the following:
(i) Amounts for which the Stockholders are
obligated to reimburse the Buyer in accordance with Section
12.03.
(ii) Amounts for which the Stockholders are
obligated to reimburse the Buyer in accordance with Section
12.05.
(iii) The Amount Reimbursable by the Stockholders
(if any) in accordance with Subsection 12.04(d).
(iv) Any other Taxes paid by the Company or the
Subsidiary after the Closing which relate to or arise as a
result of the conduct of the business of the Company or the
Subsidiary prior to the Closing Date, in excess of the amount
reserved or accrued on the books and records of the Company or
the Subsidiary on the Closing Date for Taxes not due and
payable as of the Closing Date, and all Damages incident
thereto.
(v) All Damages relating to or arising out of
any breach or inaccuracy of any representation or warranty on
the part of the Stockholders contained in
44
Section 7.07 or any other provision of Article 7 (to the
extent that the breach or inaccuracy of the representation or
warranty contained in such other provision relates to Tax
matters).
(vi) All Damages relating to or arising out of
the Stockholders' breach of any covenant or breach or failure
to perform any of their obligations contained in Article 5 or
12 of this Agreement.
By way of example and not in limitation of the foregoing, Tax Claims shall
include all Taxes and Damages incident thereto which relate to or arise as a
result of (A) the failure of the Company to be an "S" corporation for federal
income Tax purposes at or at any time prior to the Closing; and (B) Taxes
imposed on the Company under Section 1374 or 1375 of the Code or state or local
law for any Pre-Closing Period (other than Taxes imposed on the Company under
Section 1374 of the Code for the 2003 Pre-Closing Period resulting from the
Federal and State Election).
(d) "Losses" means any of the following:
(i) All legal and accounting fees and expenses
incurred or paid by either the Company or the Subsidiary in
connection with the transactions contemplated by this
Agreement (including without limitation, legal and accounting
fees and expenses incurred by or on behalf of any Stockholder
in connection with the transactions contemplated hereby, but
paid by or invoiced to either the Company or the Subsidiary)
after January 1, 2003.
(ii) All Damages incurred in connection with or
as a result of the matters described on Schedule 7.11 or
required to be disclosed on Schedule 7.11, but not so
disclosed.
(iii) All Damages incurred in connection with or
as a result of any matter described on Schedule 7.21 or
required to be disclosed on Schedule 7.21 (other than those
matters described on Schedule 7.21(a)), but not so disclosed.
(iv) All Damages relating to any employment or
alleged employment by either the Company or the Subsidiary or
any Stockholder of any finder, broker, agent, or other
intermediary in connection with the negotiation or
consummation of this Agreement or any of the transactions
contemplated hereby.
(v) All amounts incurred or paid by the Company
or the Subsidiary in connection with the termination of any
employee of the Company or the Subsidiary after the Closing
Date, if such amount was incurred or paid pursuant to any
Employee Plan (other than the Management Severance Plan, the
Xxxxxx Employment Agreement, the Cato Severance Agreement, or
the Xxxxxxxx Xxxxxxxxx Agreement) disclosed on Schedule 7.08
or required to be disclosed on Schedule 7.08, but not so
disclosed.
(vi) All Damages relating to or arising out of
any breach or inaccuracy of any representation or warranty on
the part of the Stockholders contained in
45
Articles 6 and 7 of this Agreement or in any certificate,
schedule, or other instrument required to be furnished to
Buyer by the Stockholders in connection with the transactions
contemplated hereby.
(vii) All Damages relating to or arising out of
the Stockholders' breach of any covenant or breach or failure
to perform any of their obligations contained in this
Agreement or in any certificate, schedule, or other instrument
required to be furnished to Buyer by the Stockholders in
connection with the transactions contemplated hereby.
Provided, however, that in no event shall Losses include any Tax Claims. The
parties acknowledge that Losses may exist under clauses (i) through (v) above
notwithstanding the fact that the events or occurrences involved in such Loss
may also or may not constitute a Loss under clause (vi) or (vii) above.
13.02 Escrow. At the Closing, the Stockholders, Buyer, and the
Escrow Agent shall execute an Escrow Agreement in the form attached hereto as
Exhibit G (the "Escrow Agreement"), and Buyer shall deposit with the Escrow
Agent, to be held and distributed in accordance with the terms of the Escrow
Agreement, that portion of the Net Purchase Price described in Subsection
3.03(a)(ii) hereof, as such amount may be adjusted or reduced from time to time
pursuant to the terms and conditions of the Escrow Agreement or the
reimbursement provisions of this Agreement (the "Escrow Funds").
13.03 Right to Reimbursement from Escrow. Following the Closing,
subject to the limitations set forth in Section 13.04, the Buyer shall have the
right to be reimbursed from the Escrow Account for the amount of any State
Claims or Losses incurred by the Buyer, the Company, or the Subsidiary and for
the amount of any Tax Claims.
13.04 Limitations on Escrow Reimbursement. Buyer's right to be
reimbursed from the Escrow Account for the amount of any State Claims, Losses,
or Tax Claims, in accordance with Section 13.03, shall not apply to Losses
relating to the representations and warranties of the individual Stockholders
contained in Article 6 of the Agreement and shall be subject to the following
limitations:
(a) The representations and warranties set forth in Article 7
shall survive only for a period of twenty-four months after the Closing Date,
with the following exceptions: (i) the representations and warranties set forth
in Subsections 7.07(b) through (h) shall survive only until the expiration of
the respective statute of limitations applicable to each matter described
therein; (ii) the representations and warranties set forth in Section 7.21 shall
survive only for a period of forty-eight months after the Closing Date; and
(iii) the representations and warranties set forth in Section 7.03 and
Subsections 7.04(a) and 7.07(a) shall survive indefinitely.
(b) Buyer shall not be entitled to any reimbursement in connection
with Losses described in Subsection 13.01(d)(vi) or (vii) unless the aggregate
amount theretofore incurred by Buyer, the Company, and the Subsidiary in
connection with such Losses exceeds, on a cumulative basis, $30,000 and then
only to the extent of any such excess. For purposes of satisfying the foregoing
$30,000 threshold, all references in Article 7 to materiality or Material
46
Adverse Effect shall be disregarded in determining whether a representation or
warranty has been breached or is inaccurate.
13.05 Indemnification by Stockholders. Each of the Stockholders
hereby agrees to indemnify and hold Buyer, the Company, and the Subsidiary
harmless from and against (i) any Losses resulting from such Stockholder's
breach of his or her representations and warranties set forth in Article 6 (the
"Individual Stockholder Indemnity Obligation"), and (ii) subject to the
limitations set forth in Section 13.06, such Stockholder's Allocated Portion of
any of the following (collectively, the "Group Indemnity Obligations"): State
Claims, Losses (other than Losses described in (i) or from another Stockholder's
breach of his or her representations set forth in Article 6), or Tax Claims not
reimbursed from the Escrow Account. "Allocated Portion" means one-third of the
amount of such Group Indemnity Obligations.
13.06 Limitations on Indemnification Obligations; Earnout Deductions
and Limitations Thereon. The Group Indemnity Obligations under Section 13.05
shall be subject to the following limitations:
(a) The Stockholders shall have no obligation under Section 13.05
with respect to any State Claims, Tax Claims or Losses unless and until there
are no funds remaining in the Escrow Account.
(b) The Stockholders shall have no liability under Section 13.05
with respect to any State Claim, Loss, or Tax Claim if the Buyer would not be
entitled to reimbursement of the State Claim, Loss or Tax Claim from the Escrow
Account, if there were funds remaining in the Escrow Account.
(c) Except as set forth in Sections 13.06(d) and 13.10 below, in
no event shall the Group Indemnity Obligations under Section 13.05 exceed the
sum of $6,000,000 (the "Cash Indemnity Amount"); nor shall any Stockholder's
Allocated Portion of any Group Indemnity Obligations exceed a maximum
out-of-pocket payment of $2,000,000.
(d) In the event that the Group Indemnity Obligations under
Section 13.05 shall exceed the Cash Indemnity Amount, Buyer shall be entitled to
deduct from unpaid Earnout Amounts the excess of such Group Indemnity
Obligations, up to a maximum aggregate deduction amount of $6,500,000. In no
event shall the maximum aggregate Stockholder reimbursement under Sections 13.03
and 13.05 for Group Indemnity Obligations exceed $15,000,000.
(e) The foregoing limitations shall not apply to Losses arising
from breach of an individual Stockholder's representations and warranties
contained in Article 6 of this Agreement.
13.07 Reimbursement and Indemnification by Buyer. (a) Within 15 days
after Buyer's delivery to Stockholders of the report described in Subsection
12.04(c)(ii), Buyer shall reimburse the Stockholders for the Amount Reimbursable
by the Buyer and for Buyer's respective share of Transfer Taxes payable pursuant
to Section 12.05. Reimbursement shall be made by wire transfer of immediately
available funds to such bank account(s) as the Stockholders may specify. In the
event the Internal Revenue Service or other Taxing authority challenges the
allocations set
47
forth on Exhibit B or the methodology and assumptions set forth on Exhibit F and
the Buyer agrees to the adjustment or a final determination is made, the
Additional Transaction Taxes shall be recalculated and Buyer shall reimburse the
Stockholders in accordance with Subsection 12.04(d) hereof and only if such
amount exceeds $22,000.
(b) Buyer shall indemnify and hold the Stockholders
harmless from and against all Damages incurred by any of them arising out of, in
connection with, or as a result of (i) any misrepresentation, inaccuracy,
breach, or nonfulfillment of any representation, warranty, covenant, or
agreement on the part of Buyer contained in this Agreement or in any
certificate, schedule, or other instrument required to be furnished to the
Stockholders by Buyer in connection with the transactions contemplated hereby;
or (ii) the employment or alleged employment by Buyer or any of its affiliates
of any finder, broker, agent, or other intermediary in connection with the
negotiation or consummation of this Agreement or any of the transactions
contemplated hereby.
13.08 Indemnification Procedures. (a) Each party shall comply with
its, his, or her obligations under the Escrow Agreement with respect to State
Claims, Losses, Tax Claims, and other matters.
(b) As to indemnification claims not subject to the
Escrow Agreement, any party claiming indemnification under any provision of this
Agreement shall promptly notify the party from whom indemnification is sought of
the facts and circumstances giving rise to such claim and give the party from
whom indemnification is sought the opportunity to participate in the defense or
settlement of the same. Notwithstanding the foregoing, failure to give such
prompt notice shall relieve a party from its indemnification obligation only to
the extent of any prejudice resulting from such failure.
13.09 Characterization and Indemnification Payments. All amounts
paid pursuant to this Article 13 shall be treated as adjustments to the Total
Purchase Price for all Tax purposes.
13.10 Sole Remedy. If the Closing occurs, the rights and remedies
afforded to any party in this Article 13 shall be the sole and exclusive remedy
of such party for all matters described in Sections 13.03, 13.05, and 13.07,
other than matters relating to any breach involving fraud.
Article 14. Noncompetition and Confidentiality Covenants.
14.01 Noncompetition. Each Stockholder covenants and agrees with
Buyer that, during the Noncompetition Period that Stockholder will not, without
Buyer's prior written consent, either directly or indirectly (i) engage in a
Competitive Business; (ii) have any interest in (whether as a proprietor,
partner, stockholder, associate, or any type of principal or owner whatsoever)
any Entity which is engaged in a Competitive Business; or (iii) provide
financial or other assistance or act as an agent of or advisor to any such
Entity which is or is about to become engaged in a Competitive Business.
14.02 Definition of Competitive Business and Noncompetition Period.
(a) As used in this Article 14, "Competitive Business" shall mean a retail tire
or automotive service business operating in the United States east of the
Mississippi River. Notwithstanding the foregoing,
48
nothing in this Agreement shall prevent any Stockholder from holding securities
in a publicly traded Entity engaged in a Competitive Business, provided that
such holdings do not constitute more than 5% of such Entity's issued and
outstanding securities.
(b) As used in this Article 14, "Noncompetition Period"
means a period of three years after the Closing Date.
14.03 Confidentiality. Each Stockholder covenants and agrees that,
if the Closing occurs, he or she (i) will not, without Buyer's prior written
consent, either directly or indirectly, use or disclose to any third party any
customer or financial information, trade secrets, or other confidential or
proprietary information of or relating to the Company or the Subsidiary; and
(ii) will, promptly upon Buyer's request, return to Buyer all documents or other
tangible materials in his or her possession containing such confidential or
proprietary information.
14.04 Injunctive Relief. Each Stockholder acknowledges that the
satisfaction of the covenants set forth in this Article is necessary to protect
the business, goodwill, and other proprietary interests of Buyer, the Company,
and the Subsidiary and that a breach of such covenants will result in
irreparable and continuing damage to Buyer, the Company, and the Subsidiary for
which there will be no adequate remedy at law. Each Stockholder agrees that in
the event of any breach of the aforesaid covenants, Buyer, the Company, and/or
the Subsidiary, as the case may be, shall be entitled to injunctive relief,
without the necessity of proof of actual damage, reimbursement of all attorneys'
fees and expenses of litigation, and such other and further relief as may be
proper.
14.05 Judicial Modification. If the scope of any restriction
contained in this Article is too broad to permit enforcement of such restriction
to its full extent, then such restriction shall be enforced to the maximum
extent permitted by law, and each Stockholder hereby consents and agrees that
such scope may be judicially modified accordingly in any proceeding brought to
enforce such restriction.
Article 15. Damage or Destruction of Assets. If any material portion of
the assets of the Company or the Subsidiary or the real property subject to the
Real Property Leases is lost or destroyed or materially damaged prior to the
Closing, Buyer shall have the right to terminate this Agreement, in which case
Buyer and the Stockholders shall have no further obligations or rights
hereunder.
Article 16. Miscellaneous.
16.01 Survival. (a) Subject to the provisions of Subsection
13.04(a), the respective representations and warranties of each party shall
survive the Closing, any investigation made by the parties hereto, and payment
of all or any portion of the Total Purchase Price.
(b) Article 11 and this Article 16 shall survive any
pre-Closing termination of this Agreement, however occurring.
16.02 Public Statements. The parties agree to consult with each
other and their respective counsel prior to issuing any press release or public
announcement with respect to this Agreement or the transactions contemplated
hereby. Each party shall use all reasonable efforts
49
to give to the other parties sufficient opportunity to review any such press
release or other public announcement in advance of release.
16.03 Notices. All notices and other communications hereunder shall
be in writing, shall be delivered personally or sent by U.S. mail, telecopy, or
overnight delivery service, to the parties at the following addresses or at such
other addresses as shall be specified by the parties by like notice, and shall
be deemed given when received by the party for whom intended:
(a) If to Buyer:
c/o TBC Corporation
0000 Xxxxxxx Xxxx Xxxxx
X.X. Xxx 00000
Xxxxxxx, Xxxxxxxxx 00000-0000
Attn: Xxxxxxxx X. Day
Fax #: (000) 000-0000
with a copy to:
Xxxxxxxx Xxxx LLP
0000 Xxxxxxxxxx Xxxxx X.X.
00 Xxxx Xxxxxx Xxxxxx
Xxxxxx, Xxxx 00000-0000
Attn: Xxxxxx Xxxxxx Xxxxxxxx, Esq.
Fax #: (000) 000-0000
(b) If to the Stockholders:
Xxxxx Xxxxxxxx Xxxx
0000 Xxxx Xxxx
Xxxxxx, XX 00000
Fax# (000) 000-0000
Xxxxx Xxxxxxxx Xxxxx
0000 Xxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Fax# (000) 000-0000
Xx. Xxxxxx X. Xxxxxxxx, III
00000 Xxxxxxxx Xxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Fax#: (000) 000-0000
with a copy to:
Winston & Xxxxxx
0000 X Xxxxxx, X.X.
00
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxx X. Xxxxx, Esq.
Fax#: (000) 000-0000
The sending party shall have the burden of proving receipt.
16.04 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16.05 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
16.06 Transaction Expenses. The Stockholders shall bear all legal
and accounting fees and expenses incurred by the Stockholders, the Company, or
the Subsidiary that are paid by or invoiced to either the Company or the
Subsidiary after January 1, 2003 in connection with the transactions
contemplated by this Agreement, and the Buyer shall bear all costs and expenses
incurred by Buyer.
16.07 Attorneys' Fees. If any legal action or any other proceeding
is brought for the enforcement of this Agreement or because of an alleged
dispute, breach, default, or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs incurred in
connection with such action or proceeding, in addition to any other remedies
available.
16.08 Whole Agreement; Amendment. (a) This Agreement and the
Exhibits, Schedules, other instruments, and documents referred to herein contain
the entire agreement between the parties with respect to the transactions
contemplated hereby, and supersede all negotiations, representations,
warranties, commitments, offers, contracts, and writings prior to the date
hereof, including without limitation, the letter of intent, dated February 28,
2003, between the Stockholders, the Company, and Buyer.
(b) This Agreement may not be amended except by means of
a written instrument, duly executed by all parties hereto, which specifically
references this Agreement and states that this Agreement is being amended in the
respects set forth therein.
16.09 Severability. If any provision of this Agreement is invalid,
illegal, or incapable of being enforced by any rule of law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as, and only so long as, the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party hereto. Upon any determination that any
provision is invalid, illegal, or incapable of being enforced and does not
adversely affect the substance of these transactions in a material way, the
parties will negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated by this Agreement are
consummated to the extent possible.
51
16.10 Binding Effect; Assignment. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, devisees, or other successors and assigns, and shall be enforceable by
and against such Entities. Buyer may, without the prior consent of the
Stockholders, assign this Agreement in whole or in part to any Entity affiliated
with Buyer; provided, however that no assignment of this Agreement shall relieve
the Buyer of responsibility for the performance of all of its obligations
hereunder. Upon any such assignment by Buyer, all references to "Buyer" in this
Agreement shall be deemed to include Buyer's assignee. Nothing herein is
intended to nor shall it create any rights in any person other than the parties
hereto and their respective successors and assigns.
16.11 Governing Law. This Agreement, the rights and obligations of
the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of New York
(excluding the choice of law rules thereof).
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
TBC CORPORATION
By /S/XXXXXXXX X. DAY
--------------------------------------------
Title: President and Chief Executive Officer
/S/XXXXX XXXXXXXX XXXX
-----------------------------------------------
XXXXX XXXXXXXX XXXX
/S/XXXXX XXXXXXXX XXXXX
-----------------------------------------------
XXXXX XXXXXXXX XXXXX
/S/WILSON C. MERCHANT III
-----------------------------------------------
WILSON C. MERCHANT III
52
EXHIBIT A
NON-NEGOTIABLE PROMISSORY NOTE
[$___________ Amount] April [__], 2003
FOR VALUE RECEIVED, TBC Corporation, a Delaware corporation whose principal
office is located at 0000 Xxxxxxx Xxxx Xxxx, Xxxxxxx, Xxxxxxxxx 00000 and Tire
Kingdom, Inc., a Florida corporation whose principal office is located at 0000
Xxxxx Xxxxxxxx Xxxxxx, Xxxxxxx Xxxxx, XX 00000 ("MAKERS"), promise to pay to
Xxxxx Xxxxxxxx Xxxx, Xxxxx Xxxxxxxx Xxxxx and Xxxxxx X. Xxxxxxxx III
(collectively, the "PAYEE") at such place as Payee may from time to time
designate, the principal amount of [__________ Dollars ($_________)]. This
Promissory Note is being made pursuant to Section 3.03(a) of that certain Stock
Purchase Agreement dated as of March 25, 2003, among TBC Corporation, Payee and
the other parties thereto (the "PURCHASE AGREEMENT").
1. PAYMENT.
The full principal amount of this Promissory Note shall be due
and payable on [fifteen (15) days after Closing], April [__], 2003 (the "PAYMENT
DATE"). Interest shall accrue at a rate of 4.25% per annum and be payable on the
Payment Date.
2. MANNER OF PAYMENT.
Payment hereunder shall be made in lawful money of the United
States of America. If any payment of principal on this Promissory Note is due on
a day which is not a Business Day, such payment shall be due on the next
succeeding Business Day. "BUSINESS DAY" means any day other than a Saturday,
Sunday or legal holiday in the Commonwealth of Virginia.
3. EVENTS OF DEFAULT.
The occurrence of any of the following shall constitute an
event of default ("EVENTS OF DEFAULT") hereunder:
(a) Failure to pay when due the principal payable hereunder;
(b) The failure of either Maker generally to pay its debts as
such debts become due, the admission by either Maker in writing of its inability
to pay its debts as such debts become due, or the making by either Maker of any
general assignment for the benefit of creditors;
(c) If pursuant to or within the meaning of the United States
Bankruptcy Code or any other federal or state law relating to insolvency or
relief of debtors, either Maker shall (i) commence a voluntary case or
proceeding; (ii) consent to the entry of an order for relief against
it in an involuntary case; or (iii) consent to the appointment of a trustee,
receiver, assignee, liquidator or similar official.
Upon the occurrence of such Event of Default, the entire
principal amount hereof shall be accelerated and shall be immediately due and
payable, at the option of Payee, without demand or notice, and in addition
thereto and not in substitution therefor, Payee shall be entitled to exercise
any one or more rights and remedies provided by applicable law. Failure to
exercise said option to pursue such other remedies shall not constitute a waiver
of such option or such other remedies or of the right to exercise any of the
same in the event of any subsequent Event of Default.
4. WAIVER.
Each Maker hereby waives presentment, protest, demand, notice
of dishonor, setoff and all other defenses and pleas on the grounds of any
extension or extensions of the time of payment or the due date of this
Promissory Note, in whole or in part, before or after maturity, with or without
notice. No renewal or extension of this Promissory Note and no delay in
enforcement of this Promissory Note or in exercising any right or power
hereunder, shall affect the liability of Makers or of either Maker.
5. SUCCESSORS AND ASSIGNS.
The rights and obligations of Makers and Payee of this
Promissory Note shall be binding upon and benefit the respective successors and
assigns of Makers and Payee.
6. NOTICES.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person or by facsimile
transmission, by certified or registered mail, return receipt requested, postage
prepaid, or by telegram or telex, to the respective addresses of Makers and
Payee first set forth above or to such other address which either party may
designate by notice in writing to the other party. Each such notice, demand or
other communication which shall be mailed, delivered or transmitted in the
manner described above shall be deemed given for all purposes at such time it is
delivered to the addressee (with the return receipt, the delivery receipt, the
affidavit of messenger or (with respect to a telex) the answer back being deemed
conclusive (but not exclusive) evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
7. GOVERNING LAW.
This Promissory Note shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law.
8. SEVERABILITY.
If any part of any provision of this Promissory Note shall be
invalid or unenforceable in any respect, such part shall be ineffective to the
extent of such invalidity or
unenforceability only, without in any way affecting the remaining parts of such
provision or the remaining provisions of this Promissory Note.
9. COSTS OF COLLECTION.
In the case of an Event of Default pursuant to Section 3
hereof, and if litigation is brought by Payee as a result thereof, then Payee
shall be entitled to recover from Makers, or from either Maker, all reasonable
attorneys' fees and costs incurred in connection therewith.
10. HEADINGS; REFERENCES.
All headings used herein are used for convenience only and
shall not be used to construe or interpret this Promissory Note.
11. NO WAIVER.
Any failure by Payee to exercise any right under this
Promissory Note shall not be construed as a waiver of the right to exercise the
same or any other right at any time. This Promissory Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought. No
amendment to or modification of this Promissory Note shall be binding upon Payee
unless in writing and signed by Payee.
[Remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the undersigned have caused this
Promissory Note to be duly executed on their behalf, as of the day and year
first hereinabove set forth.
TBC CORPORATION
By:_________________________________________
Title:
TIRE KINGDOM, INC.
By:_________________________________________
Title:
EXHIBIT B
Merchant's, Incorporated
Election Price Determination and Allocations
Aggregate FMV Allocation of ADSP
------------- -----------------
Class I:
Cash & Cash Equivalents GAAP value at closing date GAAP value at closing date
Class II:
Not Applicable
Class III:
Demand Note Receivable (Inter-Company
Receivable) GAAP value at closing date GAAP value at closing date
Accounts Receivable GAAP value at closing date GAAP value at closing date
Class IV:
Inventories FIFO value at closing date FIFO value at closing date
Class V:
Prepaid & Other Assets GAAP value at closing date GAAP value at closing date
Deferred Warranty Costs GAAP value at closing date GAAP value at closing date
Prepaid Income Taxes GAAP value at closing date GAAP value at closing date
Land & Land Improvements Fair market value at closing date Fair market value at closing date
Building & Building Improvements Fair market value at closing date Fair market value at closing date
Machinery, Equipment, $9,624,129 $9,624,129
Furniture & Fixtures
Merchant's, Incorporated
Election Price Determination and Allocations
Aggregate FMV Allocation of ADSP
------------- -----------------
Leasehold Improvements Fair market value at closing date Fair market value at closing date
Class V Continued:
Investments in Merban, Inc. $1,000,000 $1,000,000
Other Non Current Assets GAAP value at closing GAAP value at closing
Hercules Stock Fair market value at closing date Fair market value at closing date
Class VI:
Triad Covenant Not To
Compete $0 $0
Havelock Covenant Not To
Compete $0 $0
Merchant's Incorporated
Covenant Not to Compete $100,000 $100,000
Class VII:
Triad Goodwill GAAP value at closing GAAP value at closing
Xxx Xxxxxx Goodwill GAAP value at closing GAAP value at closing
Merchant's Incorporated ADSP remaining after allocation to ADSP remaining after allocation to
Goodwill Class I, II, III, IV, V, VI Class I, II, III, IV, V, VI
Merchant's Assets
The Purchase Price allocated among Merchant's assets consists of the Net
Purchase Price stated in Section 3.02 of the Agreement (in the form of an
installment note), adjusted if actual payment by TBC is reduced,
plus Amount Reimbursed by TBC, pursuant to Sect. 12.04, when paid,
plus Earnout Amounts, when paid,
plus Liabilities Assumed, consisting of:
Accounts payable shown as of Closing;
Accrued Salaries, Wages and others (less disputed insurance workers'
compensation amount) shown as of Closing;
Accrued Vacation shown as of Closing; and
Deferred Compensation paid and/or shown as of Closing
Unpaid 401(k) Matching Amounts
Amounts payable pursuant to Merchant's Sale Incentive Bonus Plan and
Negotiators Incentive Bonus Plan
Amounts payable pursuant to the Capital Leases and Debt
plus, with respect to the deemed purchase of assets by TBC, acquisition costs
incurred by TBC or
less, with respect to the deemed side of assets by Merchant's, selling costs
incurred by the Stockholders.
Merban, Inc.
Election Price Determination and Allocations
Aggregate FMV Allocation of ADSP
------------- -----------------
Class I:
Cash & Cash Equivalent GAAP value at closing date GAAP value at closing date
Class II:
Not Applicable
Class III:
Accounts Receivable GAAP value at closing date GAAP value at closing date
Class IV:
Inventories FIFO value at closing date FIFO value at closing date
Class V:
Prepaid & Other Assets GAAP value at closing date GAAP value at closing date
Deferred Warranty Costs GAAP value at closing date GAAP value at closing date
Prepaid Income Taxes GAAP value at closing date GAAP value at closing date
Land & Land Improvements Fair market value at closing date Fair market value at closing date
Building & Building Improvements Fair market value at closing date Fair market value at closing date
Machinery, Equipment, Fair market value at closing date Fair market value at closing date
Furniture & Fixtures
Leasehold Improvements Fair market value at closing date Fair market value at closing date
Class V: (Continued)
Other Non Current Assets GAAP value at closing date GAAP value at closing date
Merban, Inc.
Election Price Determination and Allocations
Aggregate FMV Allocation of ADSP
------------- -----------------
Class VI:
Not Applicable
Class VII:
Merban, Inc. Goodwill ADSP remaining after allocation to ADSP remaining after allocation to
Class I, II, III, IV, V, VI Class I, II, III, IV, V, VI
Merban's Assets
The Purchase Price allocated among the Merban assets is $1,000,000.
EXHIBIT C
EXCLUDED PROPERTIES
01047 Baltimore
02006 Xxxxxx
00000 Xxxxxx (Sold in 2002)
06003 Madison Heights
06074 Richmond (Sold in 2002)
Manassas Leasehold Improvements
EXHIBIT D
ASSUMED RENTAL EXPENSE ALLOCATED TO OWNED PROPERTY
=========================================================================================
Location
# Adress 2002 Internal Rent
=========================================================================================
01006 000 Xxxxxxxxxx Xxxxx, Xxxxxxxxx, XX 00000 80,000
-----------------------------------------------------------------------------------------
01017 0000 Xxx xxxxxxx, Xxxxxxxxx, XX 00000 98,070
-----------------------------------------------------------------------------------------
01018 0000 Xxxxxxxxxxx Xxxx, Xxxxxxxxxx, XX 00000 50,000
-----------------------------------------------------------------------------------------
01026 0000 Xxxxx Xxxxxx, Xxxxxxxx, XX 00000 119,000
-----------------------------------------------------------------------------------------
02003 0000 Xxxxxxxxxxxx Xxxx, Xxxxxx, XX 00000 45,000
-----------------------------------------------------------------------------------------
04082 0000 Xxxxx Xxxxxx, Xxxxxxxx, XX 00000 75,184
-----------------------------------------------------------------------------------------
05016 0000 X. Xxxxxxxx Xxxxxxx, Xxxxxxx, XX 00000 65,000
-----------------------------------------------------------------------------------------
05018 000 X. Xxxxxxx Xxxx., Xxxxxxx, XX 00000 45,000
-----------------------------------------------------------------------------------------
05019 00000 Xxxxxxx Xxxx., Xxxxxxx Xxxx, XX 00000 45,000
-----------------------------------------------------------------------------------------
05021 0000 X. Xxxxxxxxxxx Xxxx., Xxxxxxxxxx, XX 00000 51,831
-----------------------------------------------------------------------------------------
05036 0000 X. Xxxxxxxxx Xxxx, Xxxxxxx, XX 00000 73,395
-----------------------------------------------------------------------------------------
05037 0000 Xxxxxxxxx Xxxx, Xxxxxxx, XX 00000 25,000
-----------------------------------------------------------------------------------------
05038 0000 XX Xxxxxxx 00 Xxxx, Xxxxxx, XX 00000 75,000
-----------------------------------------------------------------------------------------
06041 000 X. Xxxxxxxxx Xxxx, Xxx Xxx, XX 00000 111,540
-----------------------------------------------------------------------------------------
06067 00000 Xxxxxxxxx Xxxx, Xxxxxxxxxxxx, XX 00000 80,000
-----------------------------------------------------------------------------------------
06068 00000 Xxxx Xxxxxx Xxxx, Xxxxxxxxxx, XX 00000 75,000
-----------------------------------------------------------------------------------------
06070 0000 Xxxxxxxxxx Xxxxx, Xxxxxxxx, XX 00000 65,000
-----------------------------------------------------------------------------------------
06080 0000 Xxxxxxxxx Xxxxx, Xxxxxxx, XX 00000 68,434
-----------------------------------------------------------------------------------------
08006 0000 Xxxxxxxxxx Xxxx, Xxxxxxxx, XX 00000 30,004
-----------------------------------------------------------------------------------------
1,277,458
==================
EXHIBIT E
April ____, 2003
TBC Corporation
0000 Xxxxxxx Xxxx Xxxxx
P. O. Xxx 00000
Xxxxxxx, Xxxxxxxxx 00000-0000
RE: STOCK SALE OF MERCHANT'S, INCORPORATED
Ladies and Gentlemen:
We have acted as special counsel to (i) Xxxxx Xxxxxxxx Xxxx, Xxxxx
Xxxxxxxx Xxxxx and Xxxxxx X. Xxxxxxxx, III (collectively, the "Stockholders"),
and (ii) Merchant's, Incorporated (the "Company") in connection with the
transactions described in that certain Stock Purchase Agreement, dated as of
March 25, 2003 (the "Purchase Agreement") by and between each of the
Stockholders and TBC Corporation (the "Buyer").
This opinion letter is furnished to Buyer pursuant to Section 10.02(c)
of the Purchase Agreement. In this opinion letter, capitalized terms shall have
the same meanings ascribed to them in the Purchase Agreement, unless otherwise
defined herein.
In arriving at the opinions expressed below, we have (a) examined the
Purchase Agreement, including the executed counterparts of the Purchase
Agreement; (b) examined the Escrow Agreement of even date herewith by and among
U.S. Bank Trust National Association, Buyer and each of the Stockholders; (c)
examined such corporate documents and records of the Company, and such other
instruments and certificates of public officials, officers and representatives
of the Company and the Stockholders as we have deemed necessary or appropriate
to render this opinion letter; and (d) made such investigations of law as we
have deemed appropriate as a basis for such opinions. For purposes of this
opinion letter, the Purchase Agreement and the Escrow Agreement are sometimes
referred to collectively as the "Agreements".
We have assumed, with Buyer's consent and without independent
investigation, (i) that the signatures (other than those of the Stockholders) on
all documents examined by us are genuine and that where any such signature
purports to have been made in a corporate, governmental, fiduciary or other
capacity, the person who affixed such signature to such documents had authority
to do so, (ii) the legal capacity of signatories who are natural persons,
(iii) the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
certified, conformed or photostatic copies, and (iv) the correctness of public
files, records and certificates of, or furnished by, governmental or regulatory
agencies or authorities.
We have further assumed, with Buyer's consent and without independent
investigation, (i) except as to each Stockholder to the extent discussed in our
opinion in paragraph 3 below, that all of the Agreements examined by us have
been duly authorized, executed and delivered by all of the parties thereto, (ii)
except as to each Stockholder to the extent discussed in our opinion in
paragraph 2 below, that all such Agreements constitute legal, valid, binding and
enforceable obligations of all of the parties thereto, (iii) that all
signatories to such documents have been duly authorized, (iv) that all such
parties are duly organized and validly existing and in good standing, (v) that
all such parties have the power and authority (corporate or other) to execute,
deliver and perform their respective obligations under the Agreements, and (vi)
except as to each Stockholder to the extent discussed in our opinion in
paragraph 4 below, compliance with applicable laws and regulations.
Based upon the foregoing, and subject to the limitations and
qualifications set forth herein, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly
existing and, as of April 1, 2003, in good standing under the
laws of the State of Delaware. The Company has the corporate
power and authority to own, lease or operate its assets and
properties and to carry on its business as it is now being
conducted.
2. The Subsidiary is a corporation duly incorporated, validly
existing and, as of March 25, 2003, in good standing under the
laws of the Commonwealth of Virginia. The Subsidiary has the
corporate power and authority to own, lease or operate its
assets and properties and to carry on its business as it is
now being conducted.
3. To our knowledge, each of the Stockholders has full right and
lawful authority to execute and deliver the Agreements and to
consummate the transactions contemplated thereby. Each of the
Purchase Agreement and the Escrow Agreement has been duly and
validly executed and delivered by each of the Stockholders and
constitutes a legal, valid and binding agreement of each
Stockholder, enforceable against such Stockholder in
accordance with its respective terms, except (a) as may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the rights of
creditors generally and (b) as the enforceability of such
Agreements is subject to the application of general principles
of equity (regardless of whether considered in a proceeding in
equity or at law), including, without limitation, the possible
unavailability of specific performance, injunctive relief or
any other equitable remedy and concepts of materiality,
reasonableness, good faith and fair dealing; provided however
that we express no opinion in this paragraph with respect to
matters relating to title to, or ownership of the Shares.
4. The execution, delivery and performance of each of the
Agreements by each Stockholder do not (a) to our knowledge,
constitute a default (or give rise to any right of
termination, cancellation or acceleration), or require a
consent, under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, material agreement or
other instrument or obligation to which any Stockholder or the
Company is a party or by which it, the Shares or any of the
assets or properties of the Company may be bound, except as
set forth in the Purchase Agreement or the Schedules, (b)
violate any law or regulation applicable to any Stockholder,
(c) to our knowledge, violate any currently existing judgment,
order, writ, injunction or decree specifically directed to any
Stockholder of any court, governmental or administrative
agency or other body, or (d) to our knowledge, result in the
creation or imposition of any claim, lien, charge or
encumbrance of any nature upon any of the assets or properties
of the Company pursuant to any currently existing indenture,
mortgage, deed of trust, or other written agreement or
instrument; provided however, we express no opinion as to
compliance with the terms, conditions or provisions of any
financial covenants or covenants where compliance with such
covenant is dependent upon financial calculations.
5. Based solely upon our review of the Company's stock records
and minute books, the authorized capital stock of the Company
consists of 10,000,000 shares of common stock, par value $0.01
per share, of which 9,350,000 shares are voting common stock
and 650,000 shares are non-voting common stock. 8,199,999
voting common shares are issued and outstanding and no
non-voting common shares are issued or outstanding. 2,733,333
shares of voting common stock are held of record by each
Stockholder. To our knowledge, (i) there are no other shares
of capital stock of the Company outstanding, (ii) the Company
has not issued any securities convertible into or exchangeable
for, or outstanding options, warrants or other rights to
purchase or to subscribe for, any shares of stock or other
securities of the Company, (iii) there are no subscriptions,
calls, options, warrants or other rights to purchase or
subscribe to capital stock or other securities of the Company,
and (iv) except for the Purchase Agreement, there are no
contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance, sale or
transfer of any capital stock or other equity securities of
the Company, any such convertible or exchangeable securities
or any such options, warrants or other rights.
6. Based solely upon our review of the Subsidiary's stock records
and minute books, the authorized capital stock of the
Subsidiary consists of 2,000 shares of common stock, par value
$1.00 per share, of which 1,266 shares are issued and
outstanding and are held of record by the Company. To our
knowledge, (i) there are no other shares of capital stock of
the Subsidiary outstanding, (ii) the Subsidiary has not issued
any securities convertible into or exchangeable for, or
outstanding options, warrants or other rights to purchase or
to subscribe for, any shares of stock or other securities of
the Subsidiary, (iii) there are no subscriptions, calls,
options, warrants or other rights to purchase or subscribe to
capital stock or other securities of the Subsidiary, and (iv)
there are no contracts, commitments, agreements,
understandings or
arrangements of any kind relating to the issuance, sale or
transfer of any capital stock or other equity securities of
the Subsidiary, any such convertible or exchangeable
securities or any such options, warrants or other rights.
7. All material authorizations, approvals and consents of,
notices to, and filings and registrations with, any
governmental or administrative agency or other body or any
other person or entity necessary for the execution and
delivery by any Stockholder of the Purchase Agreement and each
of the other Agreements and the performance by any Stockholder
of his or her obligations thereunder, have been obtained,
effected or given and are in full force and effect.
8. To our knowledge, (i) there are no actions, suits, claims,
investigations (legal or administrative) or arbitration
proceedings pending by or against any Stockholder or the
Company and relating to or which question the validity of the
Purchase Agreement or any of the other Agreements, or the
transactions contemplated thereby, before any court,
governmental or administrative agency or other body, and no
judgment, order, writ, injunction or decree of any court or
governmental agency or other body has been entered against or
served upon a Stockholder or the Company relating to or which
questions the validity of the Purchase Agreement or any of the
other Agreements or the transactions contemplated thereby, and
(ii) there are no actions, suits, claims, investigations
(legal or administrative) or arbitration proceedings pending
or overtly threatened by or against the Company except as set
forth in the Schedules.
The opinions as expressed herein are subject to the following
limitations and qualifications:
a. In rendering the opinions set forth in paragraph 1 above as to
the good standing of the Company under the laws of the State of Delaware and in
paragraph 2 above as to the good standing of the Company under the laws of the
Commonwealth of Virginia, we have relied exclusively upon certificates of public
officials.
b. With your consent, we have assumed and relied upon, with
respect to the factual matters set forth therein, (i) the accuracy and
completeness of all certificates and other statements, documents, records,
financial statements and papers reviewed by us, and (ii) the accuracy and
completeness of all representations, warranties, schedules and exhibits
contained in the Agreements.
c. Whenever our opinion with respect to the existence or absence
of facts is indicated to be based on our knowledge or awareness, we are
referring to the actual present knowledge of the particular Winston & Xxxxxx
attorneys who have represented the Stockholders and the Company during the
course of our limited representation of such Stockholders and the Company in
connection with the Agreements. Except as expressly set forth herein, we have
not undertaken any independent investigation, examination or inquiry to
determine the existence or absence of any facts (and have not caused the review
of any court file or indices) and no inference as to our
knowledge concerning any facts should be drawn as a result of the limited
representation undertaken by us.
d. We express no opinion as to the validity, binding effect or
enforceability of (i) any indemnification provision of any of the Agreements to
the extent such obligation to indemnify is contrary to applicable law or public
policy or requires an indemnification of a party for its own action or inaction
to the extent that such action or inaction involves gross negligence,
recklessness, willful misconduct or unlawful conduct, or (ii) any severability
provision of any of the Agreements.
e. We express no opinion as to any law, rule or regulation
relating to (i) pollution or protection of the environment, (ii) employee rights
and benefits or occupational safety and health, (iii) securities or "blue sky"
laws, (iv) antitrust laws, (v) tax laws, (vi) any law, rule, regulation,
ordinance, code or similar provision of law of any state, county, municipality,
or similar political subdivision or any agency or instrumentality thereof, or
(vii) any law, rule, regulation ordinance, code or similar provision of law of
any foreign nation or any political subdivision or any agency or instrumentality
thereof.
f. The enforceability of provisions in the Agreements to the
effect that terms may not be waived or modified except in writing may be limited
under certain circumstances.
g. We express no opinion as to the enforceability of provisions
of the Agreements relating to consent to jurisdiction insofar as such provisions
purport to confer subject matter jurisdiction to a federal court.
h. We express no opinion with respect to dispute resolution
provisions of the Agreements. We have based our opinions upon a consideration of
legal principles that would be applicable in judicial proceedings.
The opinions expressed herein are based upon the facts in existence and
the laws in effect on the date hereof and we expressly disclaim any obligations
to update our opinions herein, regardless of whether changes in such facts or
laws come to our attention after the date hereof.
The opinions expressed herein are limited to matters expressly set
forth herein and no opinion is to be implied or inferred beyond the matters
expressly so stated.
We are members of the bar of the State of New York and we express no
opinion as to the laws of any other jurisdiction other than the federal laws of
the United States of America, the corporate and commercial laws of the State of
New York, and the General Corporation Law of the State of Delaware.
The opinions expressed herein are furnished solely for the benefit of
the Buyer, and they may not be used, quoted from or relied on by or delivered to
any other person without our express prior written consent.
Very truly yours,
EXHIBIT F
Computation of Gross Up
NO 338(h)(10) ELECTION:
XXXXX X. XXXXX X. XXXXXX X.
XXXX XXXXX XXXXXXXX, III
(TEXAS) (VIRGINIA) (VIRGINIA) Description
Resident State Rates COLUMN I 0% 5.75% 5.75% of Calculation
--------------------------------------
NET PURCHASE PRICE OF SHARES 20,000,000 6,666,667 6,666,667 6,666,667 A
SHAREHOLDER'S TAX BASIS 600,000 200,000 200,000 200,000 B
---------- ------------------------------------
GAIN 19,400,000 6,466,667 6,466,667 6,466,667 C
========== ====================================
FEDERAL TAX (20%) 1,293,333 1,293,333 1,293,333 D
STATE TAX NET OF FEDERAL BENEFIT
((1-.386) x RESIDENT STATE RATE) - 228,273 228,273 E
------------------------------------
TOTAL FEDERAL AND STATE INCOME TAX 1,293,333 1,521,607 1,521,607 F
====================================
338(h)(10) ELECTION:
ORDINARY INCOME/(LOSS) @ 38.6% 100,000 12,867 12,867 12,867 G
SECTION 1245 GAIN/(LOSS) @ 38.6% 1,000,000 128,667 128,667 128,667 H
SECTION 1231 GAIN/(LOSS) @ 20% 100,000 6,667 6,667 6,667 I
NET SECTION 1250 GAIN/(LOSS) @ 25% 500,000 41,667 41,667 41,667 J
LONG TERM CAPITAL GAIN @ 20% 17,700,000 1,180,000 1,180,000 1,180,000 K
------------------------------------
TOTAL FEDERAL TAX 1,369,867 1,369,867 1,369,867 L
STATE TAX NET OF FEDERAL BENEFIT
((1-.386) x EFFECTIVE STATE RATE)
ON PASS-THRU INCOME Inside gain 19,400,000 237,327 237,327 237,327 M
STATE TAX NET OF FEDERAL
BENEFIT ((1-.386) x RESIDENT STATE
RATE) ON CAPITAL GAIN/(LOSS) ON
REDEMPTION OF STOCK Outside gain 0 - - - N
------------------------------------
TOTAL FEDERAL AND STATE INCOME TAX 1,607,193 1,607,193 1,607,193 O
===================================
DIFFERENCE IN TOTAL TAX 313,860 85,587 85,587 P
GROSS UP RATE (100% - 20%- EFFECTIVE
RESIDENT SATE TAX RATE
NET OF FEDERAL BENEFIT) 80.00% 76.50% 76.50% Q
Total
GROSS UP AMOUNT 392,325 111,878 111,878 R====> 616,081 S
=================================== =======
Assumptions and Definitions:
The amounts in Column I are for illustrative purposes only. They help clarify
the mathematical calculations and are not intended to be representative of the
actual amounts arising from the Purchase and Sale transaction. For purposes of
computing the actual gross up amount the actual amounts will be inserted into
column I and by operation of the mathematical formula's the actual gross up will
be determined.
These computations are based on an all cash transaction paid at closing. The
actual income recognized at closing will result in income different than is set
forth above.
The above methodology is not intended to state that gain will be included
necessarily in any of the categories shown but only reflects how the gross up is
calculated if such gain is recognized.
The above formula assumes that any tax consequences to Merban attributable to
the Section 338(h)(10) election will be borne solely by purchaser. The maximum
deductions or losses used in calculating the Ordinary Income/(Loss) line with
respect to deductions that are taken into account in a Section 338 (h) (10)
transaction but that are not taken into account in a stock purchase without a
Section 338 (h) (10) election is $1,000,000.
Amounts payable pursuant to the Sale Incentive Plan and the Negotiators Bonus
Plan will be taken into account as permitted for tax purposes and without regard
to the $1,000,000 limitation, in calculating the Ordinary Income (Loss) line
with respect to deductions that are taken into account in a Section 338 (h) (10)
transaction that might not be taken into account in a stock purchase without a
Section 338 (h) (10) election.
Vocalization of the formulas:
A Net purchase Price divided by three
B Shareholder basis divided by three
C Equals A minus B
D Equals C times 20 percent
E Equals D times Resident state Tax rate (net of
federal benefit)
F Equals D plus E
G Column I amount times the Federal ordinary
income or loss rate divided by three.
H Column I amount times the Federal ordinary
income or loss rate divided by three
I Column I amount times the Federal long-term
capital gain rate divided by three
J Column I amount times the Federal unrecaptured
section 1250 gain rate divided by three
K Column I amount times the Federal long-term
capital gain rate divided by three
L Equals G plus H plus I plus J plus K
M Column I amount times the Effective state Tax
rate (net of federal benefit) on pass-through
income divided by three.
N Column I amount times the Resident state Tax
rate (net of federal benefit) divided by three.
O Equals L plus M plus N
P Equals O minus F
Q The Gross Up Rate
R Equals P divided by Q
S This is the total gross up amount and is the
sum of the three amounts in R
EXHIBIT G
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is being executed this ____ day of April, 2003,
by and among U.S. BANK TRUST NATIONAL ASSOCIATION ("Escrow Agent"), TBC
CORPORATION ("Buyer"), and XXXXX XXXXXXXX XXXX ("Xxx. Xxxx"), XXXXX XXXXXXXX
XXXXX ("Xxx. Xxxxx"), and WILSON C. MERCHANT III ("Dr. Merchant"), under the
following circumstances:
A. Xxx. Xxxx, Xxx. Xxxxx, and Xx. Xxxxxxxx
(collectively, the "Stockholders") and Buyer are parties to a Stock
Purchase Agreement, dated March 25, 2003 (the "Purchase Agreement"),
pursuant to the terms of which Buyer is acquiring all of the issued and
outstanding capital stock of Merchant's, Incorporated (the "Company").
B. Contemporaneously with the execution of this
Agreement, the parties are closing the transactions contemplated by the
Purchase Agreement, a true and complete copy of which will be delivered
to the Escrow Agent promptly after the execution of this Agreement.
C. Pursuant to the terms of the Purchase Agreement, a
portion of the consideration payable by Buyer is required to be
escrowed for the purposes and upon the terms set forth hereinafter.
D. Buyer and the Stockholders desire to appoint the
Escrow Agent as the agent for such escrow arrangement, and Escrow Agent
is agreeable to acting as such.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereby agree as follows:
1. Certain Definitions. (a) In addition to the capitalized terms
defined elsewhere in this Agreement, the capitalized terms set forth below shall
have the following meanings whenever used in this Agreement:
"Claim" means a claim for reimbursement pursuant to Section 13.03 of
the Purchase Agreement.
"Automatic Payment Claim" means a Claim relating to any State Claim
described in clauses (i) through (v) of Subsection 13.01(b) of the Purchase
Agreement.
"Third Party Claim" means any Claim (other than an Automatic Payment
Claim) which involves a claim or demand being asserted or sought to be collected
by a third party.
"Non Third Party Claim" means any Claim, other than an Automatic
Payment Claim or a Third Party Claim, and includes any Claim for attorneys' fees
and other costs and expenses incurred by Buyer in connection with any Third
Party Claim which is not covered by a Direction Letter described in Section 6(d)
of this Agreement.
(b) All capitalized terms used but not defined in this Agreement
shall have the meanings given to them in the Purchase Agreement.
2. Appointment of Escrow Agent. Buyer and the Stockholders hereby
appoint the Escrow Agent, and Escrow Agent hereby accepts appointment, as agent
to hold the Escrowed Amounts (as defined in Section 4(b) hereof) and to
distribute the same in accordance with the terms of this Agreement.
3. Deposit of Funds. Buyer hereby deposits with the Escrow Agent,
and Escrow Agent acknowledges receipt of, $4,050,000 (the "Principal Funds").
4. Escrow Account; Obligations of the Escrow Agent. (a) Escrow
Agent shall maintain an account (the "Escrow Account"), into which it shall
deposit the Principal Funds.
(b) Escrow Agent shall invest any and all amounts from time to
time held in the Escrow Account in certificates of deposit, short term
obligations of the U.S. government, or overnight money market funds, as
specified in accordance with the joint written instructions of Buyer and at
least two Stockholders from time to time received by the Escrow Agent. If no
such instructions have been received, the Escrow Agent shall invest all amounts
then held in the Escrow Account in the First American Treasury Obligation Fund
(Class A). The interest earned as a result of any such investment ("Interest")
shall be credited to and deposited into the Escrow Account. (The sum of the
Principal Funds plus the Interest from time to time held in the Escrow Account
is referred to hereinafter as the "Escrowed Amounts.")
(c) Escrow Agent shall maintain and preserve the Escrowed Amounts
and shall disburse the same from the Escrow Account only as provided hereinafter
or by court order.
(d) For purposes of any IRS Form 1099 reporting requirements, the
Escrow Agent shall report one-third of the Interest earned on the Principal
Funds, but not yet disbursed from the Escrow Account in accordance with the
provisions of Section 11(c) below, as having been earned by each Stockholder.
Promptly after the execution of this Agreement, each Stockholder shall provide
to the Escrow Agent a completed IRS Form W-9 and all other information necessary
to enable the Escrow Agent to fulfill its reporting responsibilities to the IRS.
5. Claim Notices. (a) In the event any Third Party Claim (other
than a Third Party Claim disclosed in the Schedules) or any Non Third Party
Claim should arise, Buyer shall promptly provide a written notice to the
Stockholders which sets forth all relevant information with respect to the Claim
and includes copies of all relevant documents (a "Claim Notice").
(b) Buyer's failure to provide a Claim Notice within any specified
period of time shall not affect Buyer's rights hereunder if Buyer cures such
failure by providing the required
Claim Notice on or before the Termination Date (as defined in Section 9(a)
hereof) and, in the case of any Third Party Claim, the Stockholders' right to
assume control of the Claim has not been prejudiced in any material manner by
Buyer's delay in providing the Claim Notice.
6. Third Party Claims Procedures and Payment. (a) In the case of
any Third Party Claim disclosed in the Schedules, the Stockholders hereby agree
that Buyer shall control the defense, settlement, adjustment, or compromise of
such Claim, subject to the last sentence of Section 6(c).
(b) In the case of any Third Party Claim not disclosed in the
Schedules, the Stockholders shall have the right (but not the obligation) to
assume control of the defense, settlement, adjustment, or compromise of the
Claim by giving written notice of exercise of this right (an "Assumption
Notice") to Buyer within 15 days after the date of the Claim Notice relating
thereto. In order to be effective, the Assumption Notice must be executed by at
least two of the Stockholders. If an Assumption Notice is timely given, the
Stockholders shall assume control of the Third Party Claim, with counsel which
is reasonably satisfactory to Buyer, and (i) all expenses associated with the
defense, settlement, adjustment, or compromise of the Third Party Claim shall be
borne by the Stockholders; (ii) Buyer shall, at the Stockholders' expense,
provide the Stockholders with such information and assistance as the
Stockholders may reasonably request; (iii) Buyer shall be entitled to
participate in the defense of the Third Party Claim, but shall not be entitled
to reimbursement from the Escrow Account with respect to the costs and expenses
of such defense if the Stockholders shall have assumed such defense with counsel
reasonably satisfactory to Buyer; and (iv) the Stockholders shall obtain the
prior written approval of Buyer, which shall not be unreasonably withheld,
before entering into any settlement, adjustment, or compromise of the Third
Party Claim or ceasing to defend against such Claim, if pursuant to or as a
result of such settlement, adjustment, compromise or cessation, injunctive or
other nonmonetary relief or any monetary relief not discharged in full by the
Stockholders would be imposed against Buyer, the Company, or the Subsidiary.
(c) In the event that at least two of the Stockholders do not
choose to assume control of the defense, settlement, adjustment, or compromise
of any Third Party Claim or an Assumption Notice is not given within 15 days
after the date of the Claim Notice relating thereto, Buyer shall control and
defend the same. In such event, no settlement, adjustment, or compromise of such
Third Party Claim shall be made by Buyer without the prior written consent of at
least two of the Stockholders, which shall not be unreasonably withheld.
(d) Notwithstanding the provisions of Section 6(b), if the
Stockholders fail to take timely and diligent action to defend any Third Party
Claim, or if the interests of Buyer and the Stockholders in such defense are
materially adverse, Buyer shall have the right to defend and settle the same as
Buyer may reasonably deem appropriate, provided that no settlement, adjustment,
or compromise of such Third Party Claim shall be made by Buyer without the prior
consent of at least two of the Stockholders, which shall not be unreasonably
withheld.
(e) If Buyer settles, adjusts, or compromises any Third Party
Claim with the consent of at least two of the Stockholders, Buyer and such
Stockholders shall execute and deliver to the Escrow Agent, as promptly as is
reasonably practicable under the circumstances, but in all events
within five business days after such settlement, adjustment, or compromise, a
letter (the "Direction Letter") specifying the amount of such settlement,
adjustment, or compromise, together with the amount of any attorneys' fees and
other costs and expenses which were incurred by Buyer in connection with such
Third Party Claim and which such Stockholders have agreed are reimbursable from
the Escrow Account. The Escrow Agent shall, within two business days after
receipt of such Direction Letter, pay to Buyer the amount specified therein from
the Principal Funds in the Escrow Account.
(f) If Buyer is unable to settle, adjust, or compromise any Third
Party Claim upon terms that are satisfactory to at least two of the
Stockholders, Buyer shall continue to control the defense of such Claim. At any
time during such defense, Buyer may, if it so chooses, submit to arbitration as
provided in Section 13 the issues of whether the terms of any proposed
settlement, adjustment, or compromise of such Third Party Claim are reasonable
and, if so, whether Buyer is entitled to reimbursement for such Third Party
Claim from the Escrowed Amounts. Buyer shall do so by filing a Notice of
Arbitration (as defined in Section 13(b) hereof) and shall promptly provide a
copy of the same to Stockholders. Promptly after completion of the arbitration
proceedings, Buyer shall execute and deliver a Direction Letter to the Escrow
Agent authorizing the disbursal to Buyer of the amount so determined in the
arbitration proceeding, and the Escrow Agent shall make payment of the amount
specified in such Direction Letter from the Principal Funds in the Escrow
Account within two business days after receipt thereof. To the extent that the
arbitration is resolved in the Stockholders' favor, no distribution shall be
made to Buyer with respect to the portion of the Third Party Claim resolved in
the Stockholders' favor, and such amount shall remain in the Escrow Account
until distribution is otherwise required hereunder.
(g) If Buyer, the Company, or the Subsidiary receives an adverse
judgment in any legal proceedings relating to any Third Party Claim, Buyer shall
have the right to issue to the Escrow Agent a Direction Letter with respect to
such Third Party Claim at any time thereafter, setting forth the basis upon
which it is issuing the Direction Letter and instructing the Escrow Agent to
disburse from the Principal Funds in the Escrow Account an amount equal to the
Damages incurred by Buyer, the Company, or the Subsidiary in connection
therewith. Buyer shall provide a copy of the Direction Letter to the
Stockholders no later than the date upon which such Direction Letter is issued
to the Escrow Agent. The Escrow Agent shall, within two business days after
receipt of the Direction Letter, pay such Damages from the Principal Funds in
the Escrow Account in accordance with the Direction Letter so received.
7. Non Third Party Claims Procedures and Payment. (a) Buyer and
the Stockholders agree to use good faith efforts to resolve amicably all Non
Third Party Claims, to respond to requests made by the other as promptly as is
reasonably practicable under the circumstances, and to provide each other with
all information reasonably requested by the other to enable the other to assess
the basis for any Non Third Party Claim (or any objection to the assertion of
such a Claim) or the magnitude of such Claim. Without limiting the foregoing,
the Stockholders shall respond in writing to any Non Third Party Claim asserted
by Buyer as promptly as is reasonably practicable under the circumstances, but
in all events within thirty days after receipt by the Stockholders of the Claim
Notice relating thereto. The Stockholders' written response (a "Claim Response")
shall specify either that (and to the extent to which) the
Stockholders consent to the payment of the Non Third Party Claim or object to
the payment of such Claim and stating its reasons therefor.
(b) If (and to the extent that) any Claim Response indicates that
at least two of the Stockholders consent to the payment of any Non Third Party
Claim, Buyer and such Stockholders shall execute and deliver to the Escrow
Agent, as promptly as is reasonably practicable under the circumstances, but in
all events within five business days after receipt by Buyer of such Claim
Response, a Direction Letter specifying the amount that such Stockholders have
consented to be paid to Buyer with respect to such Claim (to the extent of such
consent, an "Allowed Claim"). The Escrow Agent shall, within two business days
after receipt of the Direction Letter, pay the Allowed Claim from the Principal
Funds in the Escrow Account in accordance with the Direction Letter.
(c) If any Claim Response contains an objection to the payment of
any Non Third Party Claim (or any portion thereof) described therein (a
"Disputed Claim"), then (i) Buyer and the Stockholders executing such Claim
Response shall deliver a Direction Letter pursuant to Section 7(b) above with
respect to the payment of the undisputed portion (if any) of such Claim, and
(ii) Buyer and such Stockholders shall use their best efforts to resolve the
Disputed Claim. If the parties are unable to resolve the Disputed Claim within
sixty days after the date of the Claim Response relating thereto, the
Stockholders shall have the right to submit the Disputed Claim to arbitration as
provided in Section 13. The Stockholders shall do so by filing a Notice of
Arbitration within such sixty day period and shall promptly provide a copy of
the same to Buyer.
(d) If at least two of the Stockholders fail either (i) to respond
to any Claim Notice relating to any Non Third Party Claim within thirty days
after receipt of the same, or (ii) to file a Notice of Arbitration with respect
to any Disputed Claim within sixty days after the date of its Claim Response
relating thereto, the Stockholders shall be deemed to have agreed to the
validity of such Non Third Party Claim for the full amount thereof and to have
consented to the payment thereof. Buyer shall have the right to issue to the
Escrow Agent a Direction Letter with respect to any such Non Third Party Claim
at any time thereafter, setting forth the basis upon which it is issuing the
Direction Letter and instructing the Escrow Agent to disburse from the Principal
Funds in the Escrow Account an amount equal to the amount of such Claim as
indicated in the Claim Notice initially provided by Buyer with respect thereto.
Buyer shall provide a copy of such Direction Letter to the Stockholders no later
than the date upon which such Direction Letter is issued to the Escrow Agent.
The Escrow Agent shall, within two business days after receipt of the Direction
Letter, pay the Non Third Party Claim from the Principal Funds in the Escrow
Account in accordance with the Direction Letter so received.
(e) If at least two of the Stockholders, acting jointly, file a
Notice of Arbitration within sixty days after the date of their Claim Response
relating to any Disputed Claim, Buyer shall not issue a Direction Letter with
respect to the Disputed Claim and no disbursal of Principal Funds from the
Escrow Account shall be made with respect to such Disputed Claim until final
resolution of the Claim (whether by arbitration, settlement, or otherwise).
Promptly after such final resolution, Buyer and the Stockholders filing the
Notice of Arbitration shall execute and deliver a Direction Letter to the Escrow
Agent regarding payment of such Disputed Claim, and the Escrow Agent shall make
payment of the amount specified in such Direction Letter from the
Principal Funds in the Escrow Account within two business days after receipt
thereof. To the extent that the Disputed Claim is resolved in the Stockholders'
favor, no distribution shall be made to Buyer with respect to the portion of the
Disputed Claim resolved in the Stockholders' favor, and such amount shall remain
in the Escrow Account until distribution is otherwise required hereunder.
8. Automatic Payment Claims Procedures and Payment. (a) At any
time after Buyer makes payment of any State Claim described in clause (i) of
Subsection 13.01(b) of the Purchase Agreement, Buyer shall have the right to
issue a Direction Letter to the Escrow Agent instructing the Escrow Agent to
disburse to Buyer from the Escrow Account an amount equal to the payment so made
by Buyer. Buyer shall provide a copy of such Direction Letter to the
Stockholders no later than the date upon which such Direction Letter is issued
to the Escrow Agent. The Escrow Agent shall, within two business days after
receipt of the Direction Letter, pay the amount set forth in the Direction
Letter to Buyer from the Principal Funds in the Escrow Account.
(b) From time to time after the Company has performed the services
described in clauses (ii), (iii), and (iv) of Subsection 13.01(b) of the
Purchase Agreement or provided the Gift Cards described in clause (v) of such
Subsection 13.01(b), Buyer shall have the right to issue Direction Letters to
the Escrow Agent instructing the Escrow Agent to disburse to Buyer from the
Escrow Account the amounts described in such clauses and not previously
disbursed to Buyer from the Escrow Account. With each Direction Letter, Buyer
shall provide appropriate documentation establishing that the services were
performed and/or the Gift Cards were provided. Buyer shall provide a copy of
each Direction Letter to the Stockholders no later than the date upon which such
Direction Letter is issued to the Escrow Agent, together with a copy of all
accompanying documentation. The Escrow Agent shall, within two business days
after receipt of each Direction Letter described in this Section 8(b), pay the
amount set forth in the Direction Letter to Buyer from the Principal Funds in
the Escrow Account.
9. Termination Date and Pending Claims. (a) Subject to the
remaining provisions of this Section 9, Buyer's right to reimbursement of Claims
from the Escrow Account shall end on April 1, 2007 (the "Termination Date"), and
Escrow Agent shall not disburse to Buyer any Principal Funds from the Escrow
Account for which a Direction Letter has not been received by the close of
business on the Termination Date.
(b) Not more than two business days after the Termination Date,
Buyer shall give to the Stockholders a schedule of all outstanding Claims
existing as of the Termination Date and asserted or yet to be asserted by Buyer
(the "Schedule of Claims"), and the amount with respect to each such Claim to be
held in escrow until such Claim is resolved. Such amount shall not exceed the
greatest amount Buyer asserts (in the reasonable good faith discretion of Buyer)
is owing or, in the case of a then unliquidated Claim, could reasonably be
expected to become owing, with respect to such Claim. Promptly (but in any event
within three business days) after the Schedule of Claims is produced, Buyer and
the Stockholders shall execute and deliver to the Escrow Agent a Direction
Letter instructing the Escrow Agent to release from the Escrow Account and
promptly pay to the Stockholders the amount (if any) by which the balance of
Principal Funds in the Escrow Account exceeds the aggregate amount of all Claims
listed on the Schedule of Claims.
(c) On the second business day after final resolution, in
accordance with the provisions of this Agreement, of all Claims set forth on the
Schedule of Claims, Buyer and the Stockholders shall execute and deliver a final
Direction Letter to the Escrow Agent stating that no more Claims exist, and the
Escrow Agent shall pay over and distribute to the Stockholders all amounts
remaining in the Escrow Account.
10. Partial Disbursal to Stockholders. (a) On or prior to November
30, 2003, if the Principal Funds then in the Escrow Account exceed $3,250,000,
Buyer shall notify the Stockholders and the Escrow Agent in writing whether
there exist any pending Claims not disclosed in the Schedules or for which a
Claim Notice has not yet been given by Buyer or any State Claims for which no
Direction Letter has yet been given by Buyer, together with the amount of such
Claim or, if the amount is not yet known, Buyer's reasonable good faith estimate
of the maximum amount of such Claim.
(b) On December 1, 2003, the Escrow Agent shall disburse to the
Stockholders an amount equal to the amount, if any, by which the Principal Funds
then in the Escrow Account exceed the sum of $3,250,000 plus the amount of any
pending Claims, as described in the notice provided by Buyer pursuant to Section
10(a).
(c) On or prior to April 1, 2004, if the Principal Funds then in
the Escrow Account exceed $2,500,000, Buyer shall notify the Stockholders and
the Escrow Agent in writing whether there exist any pending Claims not disclosed
in the Schedules or for which a Claim Notice has not yet been given by Buyer,
together with the amount of such Claim or, if the amount is not yet known,
Buyer's reasonable good faith estimate of the maximum amount of such Claim.
(d) On April 2, 2004, the Escrow Agent shall disburse to the
Stockholders an amount equal to the lesser of (i) $750,000 or (ii) the amount,
if any, by which the Principal Funds then in the Escrow Account exceed the sum
of $2,500,000 plus the amount of any pending Claims, as described in the notice
provided by Buyer pursuant to Section 10(c).
11. Disbursal of Escrowed Amounts. (a) All disbursals to Buyer
from the Escrow Account shall be made by wire transfer of funds to such bank
account as Buyer shall specify to Escrow Agent in the Direction Letter relating
thereto.
(b) All disbursals to the Stockholders from the Escrow Account
shall be made by wire transfer to such bank account or accounts as may be
specified by the Stockholder receiving the same, by notice given to the Escrow
Agent.
(c) Within five business days after the end of any month in which
any Principal Funds are distributed from the Escrow Account, the Escrow Agent
shall also disburse to the party receiving such Principal Funds all Interest
accrued on such Principal Funds through the date of disbursal and then remaining
in the Escrow Account.
12. Obligation to Disburse. Escrow Agent shall comply with any
Direction Letter received in accordance with Sections 6, 7, 8, or 9 hereof
regardless of whether there is any dispute between any of the Stockholders and
Buyer as to the Claim to which such Direction Letter relates or the right to
issue or validity of such Direction Letter.
13. Arbitration. (a) Any controversy or claim arising out of or
relating to this Agreement or the breach thereof, including without limitation,
the validity or amount of any Claim, shall be settled by arbitration in
accordance with the then current Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). Any such arbitration shall be held in
Atlanta, Georgia. If necessary, judgment upon any award rendered by the
arbitrator in accordance with such Commercial Arbitration Rules may be entered
in any court having jurisdiction thereof.
(b) Arbitration proceedings under this Agreement may be commenced
only by the filing with the Atlanta office of the AAA of a notice of intent to
arbitrate (a "Notice of Arbitration") executed by at least two of the
Stockholders or, in the case of any arbitration described in Section 6(f), by
the Buyer. In addition to providing copies to the opposing party(ies), the
party(ies) filing a Notice of Arbitration shall also deliver a copy thereof to
the Escrow Agent. No Stockholder may commence any arbitration proceedings with
respect to any Disputed Claim unless at least one of the other Stockholders
joins in the filing of the Notice of Arbitration.
(c) Arbitration proceedings with respect to any Non Third Party
Claim which are not commenced within sixty days after the date of the Claim
Response relating thereto shall be forever barred.
(d) In any arbitration proceedings commenced under this Agreement,
the arbitrator shall award to the successful or prevailing party(ies)
reimbursement of their reasonable attorneys' fees and other costs incurred in
connection therewith, and assess against the losing party(ies) all costs of the
arbitration proceedings. If Buyer is the successful or prevailing party, the
amount of Buyer's reasonable attorneys' fees and other costs shall be added to
the amount to be disbursed from the Escrow Account with respect to the Claim
resolved by such proceedings.
14. Escrow Agent's Liability; Indemnification of Escrow Agent;
Resignation and Successor. (a) Escrow Agent shall not be liable to any
Stockholder or Buyer for any action taken or omitted to be taken by it under
this Agreement, unless such action or omission constitutes gross negligence or
willful misconduct on the part of the Escrow Agent. In any arbitration or legal
proceeding relating to this Agreement or any dispute hereunder, Escrow Agent
shall be indemnified and held harmless from all costs, expenses, and damages
(including reasonable attorneys' fees) incurred by it in connection with such
action or proceeding (i) by Buyer, if Buyer is the unsuccessful party, or (ii)
jointly and severally, by the Stockholders commencing the same, if Buyer is the
successful or prevailing party.
(b) The Escrow Agent may resign at any time, upon thirty days
prior written notice to Buyer and the Stockholders, and shall deposit all
amounts then held in the Escrow Account with a successor escrow agent to be
jointly designated by Buyer and at least two of the Stockholders.
Any such successor escrow agent must agree to be and shall be bound by, and
shall have all the rights, duties, and responsibilities of the Escrow Agent
under, this Agreement. If, upon the effective date of such resignation, no
successor escrow agent shall have been designated, the Escrow Agent shall have
the right to tender into the registry or custody of any court of competent
jurisdiction any part or all of the Escrow Account and shall be relieved of any
further obligations under this Agreement. Such resignation shall not deprive the
Escrow Agent of its compensation earned prior thereto, and the provisions of
Section 14(a) hereof shall survive any resignation by the Escrow Agent.
15. Escrow Agent's Fees and Expenses. (a) Escrow Agent shall be
paid an initial set-up fee of $1,000, plus an annual fee of $2,000, for its
services under this Agreement. In addition, Escrow Agent shall be reimbursed for
all reasonable attorneys' fees and reasonable and customary expenses, such as
wire transfer and certified or cashier's check charges, incurred by Escrow Agent
in connection with this Agreement or the servicing and administration of the
Escrow Account. (Such fees and expenses of Escrow Agent are referred to
hereinafter as the "Fees and Expenses.")
(b) Except as otherwise provided in Section 14(b), all Fees and
Expenses of the Escrow Agent shall be paid by Buyer.
16. Miscellaneous. (a) No modification or amendment of any
provision of this Agreement shall be effective unless made in written
instrument, duly executed by Buyer and at least two of the Stockholders, which
refers specifically to this Escrow Agreement and states that an amendment or
modification is being made in the respects set forth in such instrument.
Modifications or amendments approved by at least two of the Stockholders in
accordance with the provisions of this Section 16(a) shall be binding upon all
Stockholders.
(b) This Escrow Agreement shall be binding upon and shall inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns, including, in the case of each Stockholder, the heirs, legatees,
and legal representatives of such Stockholder.
(c) All notices, including without limitation, Claim Notices,
Resolution Notices, and Claim Responses, and all other communications which are
required or permitted hereunder shall be in writing and shall be delivered
personally or sent by U.S. mail, telecopy, or overnight delivery service, to the
party or parties for whom intended at such party's address set forth below, and
shall be deemed given when received by the party for whom intended:
If to Buyer:
TBC Corporation
0000 Xxxxxxx Xxxx Xxxx
Xxxxxxx, Xxxxxxxxx 00000
Attention: President
Fax: (000) 000-0000
With copy to:
Xxxxxxxx Xxxx LLP
0000 Xxxxxxxxxx Xxxxx XX
Xxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx Xxxxxxxx, Esq.
Fax: (000) 000-0000
If to Stockholders:
Xxxxx Xxxxxxxx Xxxx
0000 Xxxx Xxxx
Xxxxxx, XX 00000
Fax: (000) 000-0000
Xxxxx Xxxxxxxx Xxxxx
0000 Xxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Fax: (000) 000-0000
Wilson C. Merchant III
00000 Xxxxxxxx Xxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Fax: (000) 000-0000
With copy to:
Winston &Strawn
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
If to Escrow Agent:
U.S. Bank Trust National Association
Third Floor
000 Xxxx Xxxxx Xxxxxx
Xx. Xxxx, XX 00000
Attention: Xxxxxx Xxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
With copy to:
U.S. Bank Trust National Association
16th Floor
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
Any party may change the address to which notices and other communications are
to be directed to such party by giving written notice of such change to the
other parties hereto.
(d) The failure of any party to insist in any one or more
instances upon performance of any of the provisions of this Agreement or to take
advantage of any of such party's rights hereunder shall not be construed as a
waiver of any such provisions or the relinquishment of any such rights, and the
same shall continue and remain in full force and effect. No single or partial
exercise by any party of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy. Waiver by any
party of any breach of any provision of this Agreement shall not constitute or
be construed as a continuing waiver or a waiver of any other breach of any other
provision of this Agreement.
(e) This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York, as applicable to contracts
executed and wholly performed therein.
[Remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement on
the date first written above.
TBC CORPORATION
By___________________________________
Xxxxxx X. Xxxxxx,
Executive Vice President and Chief
Financial Officer
_____________________________________
XXXXX XXXXXXXX XXXX
_____________________________________
XXXXX XXXXXXXX XXXXX
_____________________________________
WILSON C. MERCHANT III
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Escrow Agent
By___________________________________
Name:
Title:
