-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VVCJ4qf5n+8m3u2kAAyEjNw1kM+FhRjOfHFY66MkaOW4lDsL7MfDeQvSOvFR/hwR Fj3i4akH3WWa+lIF3orByg== 0000950144-97-002408.txt : 19970317 0000950144-97-002408.hdr.sgml : 19970317 ACCESSION NUMBER: 0000950144-97-002408 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970227 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970314 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC INDUSTRIES INC CENTRAL INDEX KEY: 0000350698 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 731105145 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09787 FILM NUMBER: 97557179 BUSINESS ADDRESS: STREET 1: 450 E LAS OLAS BLVD STREET 2: STE 1200 CITY: FT. LAUDERDALE STATE: FL ZIP: 33301 BUSINESS PHONE: 3057618333 MAIL ADDRESS: STREET 1: 200 EAST LAS OLAS BLVD STREET 2: SUITE 1400 CITY: FT. LAUDERDALE STATE: FL ZIP: 33301 FORMER COMPANY: FORMER CONFORMED NAME: REPUBLIC WASTE INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: REPUBLIC RESOURCES CORP DATE OF NAME CHANGE: 19900226 8-K 1 REPUBLIC INDUSTRIES FORM 8-K 02/27/97 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) February 27, 1997 ----------------- REPUBLIC INDUSTRIES, INC. ------------------------- (Exact name of registrant as specified in its charter) Delaware -------- (State or other jurisdiction of incorporation) 0-9787 73-1105145 ------ ---------- (Commission (IRS Employer File Number) Identification No.) 450 East Las Olas Boulevard Ft. Lauderdale, FL 33301 --------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (954) 713-5200 -------------- N.A. ------------------------------------------------------------- (Former name or former address, if changed since last report) 2 With respect to each contract, agreement or other document referred to herein and filed with the Securities and Exchange Commission as an exhibit to this report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On February 27, 1997, Republic Industries, Inc. (the "Company") acquired in a merger transaction (the "Taormina Merger") all of the outstanding shares of capital stock of Taormina Industries, Inc. ("Taormina"), which provides waste collection services and owns and operates a materials recycling facility. The Company issued an aggregate of approximately 7.4 million shares of the Company's common stock, $.01 par value per share ("Common Stock"), in this transaction, which will be accounted for under the pooling of interests method of accounting. The Merger Agreement for the Taormina Merger is attached hereto as Exhibit 2.1 and is incorporated herein by reference for all purposes. On February 28, 1997, the Company acquired in merger transactions (the "AAA Disposal Mergers") all of the outstanding shares of capital stock of AAA Disposal Service, Inc. ("AAA Disposal"), which provide waste collection and recycling services. The Company issued an aggregate of approximately 2.9 million shares of Common Stock in this transaction, which will be accounted for under the pooling of interests method of accounting. The Merger Agreement for the AAA Disposal Mergers is attached hereto as Exhibit 2.2 and is incorporated herein by reference for all purposes. On February 28, 1997, the Company acquired in merger transactions (the "Wallace Mergers") all of the outstanding shares of capital stock of the Wallace Automotive Group ("Wallace"), which own and operate three franchised automotive dealerships. The Company issued an aggregate of approximately 1.7 million shares of Common Stock in this transaction, which will be accounted for under the pooling of interests method of accounting. The Merger Agreement for the Wallace Mergers is attached hereto as Exhibit 2.3 and is incorporated herein by reference for all purposes. On February 28, 1997, the Company acquired in merger transactions (the "Maroone Merger") all of the outstanding shares of capital stock of the Maroone Automotive Group ("Maroone"), which own and operate five franchised automotive dealerships. The Company issued an aggregate of approximately 6.1 million shares of Common Stock in this transaction, which will be accounted for under the pooling of interests method of accounting. The Merger Agreement for the Maroone Mergers is attached hereto as Exhibit 2.4 and is incorporated herein by reference for all purposes. On February 28, 1997, the Company acquired in merger transactions (the "Kendall Mergers") all of the outstanding shares of capital stock of the Kendall Automotive Group ("Kendall"), which own and operate two franchised automotive dealerships. The Company issued an aggregate of approximately 1.2 million shares of Common Stock in this transaction, which will be accounted for under the purchase method of accounting. The Merger Agreement for the Kendall Mergers is attached hereto as Exhibit 2.5 and is incorporated herein by reference for all purposes. On February 28, 1997, the Company acquired in merger transactions (the "York Mergers") all of the outstanding shares of capital stock of York Waste Disposal, Inc. ("York"), which provide waste collection services. The Company issued an aggregate of approximately 1.1 million shares of Common Stock in this transaction, which will be accounted for under the purchase method of accounting. The Merger Agreement for the York Mergers is attached hereto as Exhibit 2.6 and is incorporated herein by reference for all purposes. ITEM 5. OTHER EVENTS REPORTING OF CERTAIN FINANCIAL INFORMATION FOR REGISTRATION AND OTHER PURPOSES. In connection with the consummation of certain acquisitions of insignificant businesses which, in the aggregate, are significant, and in accordance with Rule 3-05 of Regulation S-X, the Registrant is filing herewith certain pro forma financial information relating to such consummated acquisitions. In addition, the Registrant is filing herewith audited supplemental consolidated financial statements which give retroactive effect to the consummated acquisitions of National Car Rental System, Inc.; Maroone Automotive Group; Wallace Automotive Group; Taormina Industries, Inc.; and Carlisle Motors, Inc., all of which have been accounted for under the pooling of interests method of accounting. Such financial information is attached hereto as Exhibit 99 and incorporated herein by reference. Exhibit 99 is hereby incorporated by reference into the Registrant's previously filed Registration Statements on Forms S-3, file numbers 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009 and 333-20667, on Form S-4, file number 333-17915 and on Forms S-8, file numbers 33-93742, 333-07623, 333-19453 and 333-20669. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Businesses Acquired. The financial statements or combined financial statements of Taormina, Wallace, Maroone and Kendall required by this Item 7(a) are incorporated by reference herein by reference to Exhibit 99 attached hereto. The financial statements with respect to AAA Disposal and York will be filed by amendment within 60 days after March 14, 1997. (b) Pro Forma Financial Information. The pro forma financial information of Taormina, Wallace, Maroone and Kendall required by this Item 7(b) are incorporated by reference to the audited supplemental consolidated financial statements and the unaudited condensed consolidated pro forma financial statements, both included in Exhibit 99 attached hereto. The pro forma financial information with respect to AAA Disposal and York will be filed by amendment within 60 days after March 14, 1997. (c) Exhibits. The Exhibits to this Report are listed in the Exhibit Index set forth elsewhere herein. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. REPUBLIC INDUSTRIES, INC. By: /s/ Michael S. Karsner ---------------------------------- Michael S. Karsner Senior Vice President and Chief Financial Officer Date: March 14, 1997 ---------------- 4 REPUBLIC INDUSTRIES, INC. EXHIBIT INDEX
Number and Description of Exhibit - ---------------------- 1. None 2.1 Merger Agreement, dated as of February 3, 1997, among Republic Industries, Inc., RI/T Merger Corp., Taormina Industries, Inc., Taormina Revocable Inter Vivos Trust U/A/D July 26, 1983, Vincent Cosmo Taormina Revocable Inter Vivos Trust U/A/D May 14, 1984, the C.V. Taormina Family Trust U/A/D September 16, 1980, William C. Taormina and Vincent C. Taormina 2.2 Merger Agreement, dated as of February 4, 1997 among Republic Industries, Inc., certain wholly-owned subsidiaries of Republic Industries, Inc., AAA Disposal Service, Inc., AAA Commercial, Inc., AAA Recycling, Inc., AAA Maintenance, Inc. and AAA Land and Building Co., Inc., Larry E. Edwards, the Jeffrey L. Edwards Trust U/T/A/D April 3, 1989, the Kevin S. Edwards Trust U/T/A/D April 3, 1989, the Mitchell G. Edwards Trust U/T/A/D April 3, 1989, the Troy L. Edwards Trust U/T/A/D April 3, 1989, and the Samantha L. Edwards U/T/A/D April 3, 1989 2.3 Merger and Reorganization Agreement, dated as of February 2, 1997 among Republic Industries, Inc., certain wholly-owned subsidiaries of Republic Industries, Inc., Wallace Ford, Inc., Wallace Nissan, Inc., Wallace Dodge, Inc., Wallace Lincoln- Mercury, Inc., Stuart Lincoln-Mercury, Inc., Bill Wallace Enterprises, Inc. d/b/a Stuart Mitsubishi, Wallace Imports, Inc., Mechanical Warranty Protection, Inc. and William L. Wallace 2.4 Merger and Acquisition Agreement, dated as of January 12, 1997 among Republic Industries, Inc., certain wholly-owned subsidiaries of Republic Industries, Inc., Maroone Chevrolet, Inc., Maroone Oldsmobile, Inc., Maroone Isuzu, Inc., Maroone Dodge, Inc., Al Maroone Ford, Inc., Maroone Car & Truck Rental Company, Empire Warranty Corporation, Empire Warranty Holding Company, Empire Service Agency, Inc., Quantum Premium Finance Corporation, Alkit Enterprises, Inc., Maroone Management Services, Limited, Maroone Dodge Pompano, Limited, Maroone Chevrolet Ft. Lauderdale, Limited, Albert E. Maroone, Michael E. Maroone, Katherine C. Maroone, Kathleen Hoctor, Patricia Damoorgian, Faisal Ahmed, Maroone Isuzu, Inc., Floyd Clements and Curtis L. Rodman 2.5 Merger Agreement, dated as of November 15, 1996 among Republic Industries, Inc., RI/RB Merger Corp., RI/GFB Merger Corp., R&B Holding Company d/b/a Kendall Toyota and Kendall KIA, G.F.B. Enterprises, Inc. d/b/a Lexus of Kendall and Gerald F. Bean 2.6 Merger Agreement, dated as of February 4, 1997 among Republic Industries, Inc., Republic Waste Companies Holding Co., RI/YWD Merger Corp., York Waste Disposal, Inc., Scott R. Wagner, Robert A. Kinsley, Patrick A. Kinsley, Jonathan R. Kinsley, Christopher A. Kinsley, Timothy J. Kinsley and Robert Anthony Kinsley 3. None 4. None 15. None 16. None 17. None 21. None 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Crowe, Chizek and Company LLP 23.3 Consent of Goldenberg, Rosenthal Friedlander, LLP 23.4 Consent of McGladrey & Pullen, LLP 24. None 27. None 99. Financial Information
EX-2.1 2 MERGER AGREEMENT- TAORMINA 1 EXHIBIT 2.1 MERGER AGREEMENT This Merger Agreement (this "Agreement") is entered into as of February 3, 1997 by and among Republic Industries, Inc., a Delaware corporation ("Republic"); and RI/T Merger Corp., a California corporation and wholly-owned subsidiary of Republic (the "Republic Merger Sub," and together with Republic, the "Republic Companies"); Taormina Industries, Inc., a California corporation (the "Company"); the Taormina Revocable Inter Vivos Trust under Agreement dated July 26, 1983 and the Vincent Cosmo Taormina Revocable Inter Vivos Trust under Agreement dated May 14, 1984 and the C.V. Taormina Family Trust under Agreement dated September 16, 1980 ("C.V. Taormina Family Trust"), each a trust formed under the laws of the State of California, which together constitute all of the shareholders of the Company as of the date hereof (together, the "Shareholders": the C.V. Taormina Family Trust to become a shareholder as a result of the transaction contemplated by Section 5.17(b) hereof); and William C. Taormina and Vincent C. Taormina (together, the "Taorminas"). Certain other capitalized terms used herein are defined in Article XI and throughout this Agreement. RECITALS The Boards of Directors of Republic and the Company have determined that it is in the best interests of their respective shareholders for Republic to acquire the Company upon the terms and subject to the conditions set forth in this Agreement. In order to effectuate the transaction, Republic has organized the Republic Merger Sub as a wholly-owned subsidiary, and the parties have agreed, subject to the terms and conditions set forth in this Agreement, to merge the Republic Merger Sub with and into the Company so that the Company continues as the surviving corporation. As a result, the Company will become a wholly-owned subsidiary of Republic, and each of the Shareholders will be issued certain shares of common stock of Republic. TERMS OF AGREEMENT In consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I THE MERGER 1.1 The Merger. Subject to the terms and conditions of this Agreement and in accordance with the General Corporation Law of the State of California (the "Corporations Code"), at the Effective Time (as defined below) Republic Merger Sub shall be merged with and into the Company (the "Merger") pursuant to the terms and conditions set forth in the Agreement of Merger annexed hereto as Exhibit A (the "Agreement of Merger"). The terms and conditions of the Agreement of Merger are incorporated herein by reference as if fully set forth herein. As a result of the Merger, the separate corporate existence of Republic Merger Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation"). 2 1.2 The Closing. Subject to the terms and conditions of this Agreement, the consummation of the Merger (the "Closing") shall take place as promptly as practicable (and in any event within five (5) business days) after satisfaction or waiver of the conditions set forth in Articles VI and VII, at the offices of Republic's counsel, Akerman, Senterfitt & Eidson, P.A., Miami, Florida, or such other time and place as the parties may otherwise agree. Each of the parties shall use best efforts to take all actions necessary to attempt to cause the Closing to occur on or before March 1, 1997. 1.3 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Republic, Republic Merger Sub, the Taorminas or the Shareholders: (a) Pursuant to the Agreement of Merger, all of the shares of common stock, par value $20.00 per share, of the Company (the "Company Common Stock") issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive the greater of (i) an aggregate of 6,511,935 shares of common stock, par value $.01 per share (the "Republic Common Stock") of Republic (adjusted, as appropriate to reflect any stock split, reverse stock split or stock dividend effected by Republic on or prior to the Effective Time); or (ii) that number of shares of Republic Common Stock determined by dividing Two Hundred Fifty-Two Million Four Hundred Thousand Dollars ($252,400,000) by the Average Closing Share Price, rounded off to the nearest whole share (the greater of such amounts being referred to herein as the "Merger Consideration"). For purposes of this Agreement, "Average Closing Share Price" shall mean the average closing price of a share of Republic Common Stock on the NASDAQ Stock Market for the five (5) consecutive trading days which precede the second trading day which is immediately prior to the Effective Date, as reported (absent manifest error in the printing thereof) by the Wall Street Journal (Eastern Edition), as thereafter adjusted, as appropriate, to reflect any stock split, reverse stock split, or stock dividend effected by Republic after the Effective Time. Notwithstanding anything to the contrary in the foregoing, if all of the partnership interests in the Blue Gum Partnership (as defined in Section 5.17) and the Landowner (as defined therein) have not been acquired by the Company by the time of Closing, then the Merger Consideration shall be reduced by a number of shares of Republic Common Stock determined by dividing Five Million Four Hundred Fifty Thousand Dollars ($5,450,000) by the lesser of (i) $38.75 or (ii) the Average Closing Share Price. (b) Each share of common stock of Republic Merger Sub issued and outstanding at the Effective Time shall be converted into one share of the common stock of the Surviving Corporation. 1.4 Filing of Agreement of Merger. At the time of the Closing, the parties shall cause the Merger to be consummated by filing the duly executed Agreement of Merger with the Secretary of State of the State of California in accordance with the relevant provisions of the Corporations Code (the date and time of such filing is referred to herein as the "Effective Date" or "Effective Time"). 1.5 Issuance of Republic Shares; Delivery of Certificates. At the Effective Time, the Shareholders shall deliver the certificates representing all issued and outstanding shares of Company Common Stock to Republic for cancellation; and Republic shall issue to each Shareholder the shares of Republic Common Stock issuable pursuant to Section 1.3, registered in 2 3 the name of such Shareholder based on the number of shares of Company Common Stock owned by such Shareholder on the Effective Date and shall deliver such shares in the following manner: (a) Republic shall set aside and hold in accordance with Article IX certificates for shares of Republic Common Stock evidencing ten percent (10%) of the Merger Consideration (rounded to the nearest whole share) (the "Held Back Shares"); and (b) Republic shall deliver to each such Shareholder one or more certificates evidencing the balance of such shares of Republic Common Stock. The shares of Republic Common Stock, including the Held Back Shares, issuable by Republic in the Merger are sometimes referred to herein as the "Republic Shares." 1.6 Accounting and Tax Treatment. The parties hereto acknowledge and agree that the transactions contemplated hereby shall be treated as a pooling of interest business combination by Republic for accounting purposes and as a tax-free reorganization under Section 368 of the Code for tax purposes. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE REPUBLIC COMPANIES As a material inducement to each of the Shareholders to enter into this Agreement and to consummate the transactions contemplated hereby, each of the Republic Companies jointly and severally makes the following representations and warranties to the Shareholders: 2.1 Corporate Status. Republic is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Republic Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Republic Merger Sub is a wholly-owned subsidiary of Republic. 2.2 Corporate Power and Authority. Each of the Republic Companies has the corporate power and authority to execute and deliver this Agreement, to perform its respective obligations hereunder and to consummate the transactions contemplated hereby. Each of the Republic Companies has taken all action necessary to authorize its execution and delivery of this Agreement, the performance of its respective obligations hereunder and the consummation of the transactions contemplated hereby. 2.3 Enforceability. This Agreement has been duly executed and delivered by each of the Republic Companies and constitutes a legal, valid and binding obligation of each of the Republic Companies, enforceable against each of the Republic Companies in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 2.4 Republic Common Stock. Upon consummation of the Merger and the issuance and delivery of certificates representing the Republic Shares to the Shareholders, the Republic Shares will be validly issued, fully paid and non-assessable shares of Republic Common Stock. The Republic Shares will be issued in accordance with all applicable federal and state securities laws and in compliance with the rules of NASDAQ Stock Market-National Market. 3 4 2.5 No Commissions. None of the Republic Companies has incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. 2.6 No Violation. The execution and delivery of this Agreement by the Republic Companies and the performance by them of their respective obligations hereunder and the consummation by them of the transactions contemplated by this Agreement will not: (a) contravene any provision of the articles of incorporation or bylaws of the Republic Companies; (b) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon or enforceable against the Republic Companies; (c) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any Contract which is applicable to, binding upon or enforceable against the Republic Companies; (d) result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of the Republic Companies; or (e) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except any applicable filings required under the HSR Act, and any SEC and other filings required to be made by Republic. 2.7 SEC Filings. From January 1, 1996 through the date hereof, Republic has duly and timely filed with the SEC all reports, proxy statements and other information required to be filed by it under the Exchange Act (the "SEC Filings"). The SEC Filings at the time of filing, did not contain any untrue statement of a material fact or omit to state any material fact which is necessary to make the information contained therein not misleading. Except as disclosed in the SEC Filings prior to the date hereof, since September 30, 1996 to the date hereof, there has not been any material adverse change in the business, financial position or results of operations of Republic. 2.8 California Laws. Republic acknowledges that it is familiar with California Proposition 218 and with the California Integrated Waste Management Act of 1989 (A.B. 939), and the impact such laws had or may have on the solid waste industry in the State of California. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS, THE TAORMINAS AND THE COMPANY As a material inducement to each of the Republic Companies to enter into this Agreement and to consummate the transactions contemplated hereby, each of the Shareholders, the Taorminas and the Company jointly and severally makes the following representations and warranties to Republic: 3.1 Corporate Status. The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of California and has the requisite power and authority to own or lease its properties and to carry on its business as now being conducted. The Company is not legally qualified to transact business as a foreign corporation in any jurisdiction and the nature of its properties and the conduct of its business does not require such qualification. All of the fictitious names under which the Company operates its business are set forth on Schedule 3.1. The Company has fully complied with all of the requirements of any statute 4 5 governing the use and registration of fictitious names, and has the legal right to use the names under which it operates its business. There is no pending or threatened proceeding for the dissolution, liquidation, insolvency or rehabilitation of the Company. 3.2 Power and Authority. The Company has the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The Company has taken all action necessary to authorize the execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby. Each of the Taorminas is an individual residing in the State of California, and has the requisite competence and authority to execute and deliver this Agreement, to perform his respective obligations hereunder and to consummate the transactions contemplated hereby. Each of the Shareholders is a grantor trust formed under the laws of the State of California by the Taorminas, respectively, and each of the Taorminas, as the respective trustees of the Shareholders, has the power and authority under his or her respective trust agreement to execute and deliver this Agreement, to cause the Shareholders to perform their respective obligations hereunder, and to consummate the transactions contemplated hereby. 3.3 Enforceability. This Agreement has been duly executed and delivered by the Company, the Shareholders and the Taorminas and constitutes the legal, valid and binding obligation of each of them, enforceable against each of them in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 3.4 Capitalization. The Company has authorized 5,000 shares of common stock, $20.00 par value per share, of which 790 shares are issued and outstanding as of the date hereof, and no shares of which are held in treasury. All of the issued and outstanding shares of capital stock of the Company (i) have been duly authorized and validly issued and are fully paid and non-assessable, (ii) were issued in compliance with all applicable state and federal securities laws, and (iii) were not issued in violation of any preemptive rights or rights of first refusal. No preemptive rights or rights of first refusal exist with respect to the shares of capital stock of the Company and no such rights arise by virtue of or in connection with the transactions contemplated hereby. There are no outstanding or authorized rights, options, warrants, convertible securities, subscription rights, conversion rights, exchange rights or other agreements or commitments of any kind that could require the Company to issue or sell any shares of its capital stock (or securities convertible into or exchangeable for shares of its capital stock). There are no outstanding stock appreciation, phantom stock, profit participation or other similar rights with respect to the Company. There are no proxies, voting rights or other agreements or understandings with respect to the voting or transfer of the capital stock of the Company. The Company is not obligated to redeem or otherwise acquire any of its outstanding shares of capital stock. 3.5 Shareholders of the Company. The Shareholders constitute all of the holders of all issued and outstanding shares of capital stock of the Company as of the date hereof. Each of the Taormina Revocable Inter Vivos Trust under Agreement dated July 26, 1983 and the Vincent Cosmo Taormina Revocable Inter Vivos Trust under Agreement dated May 14, 1984 own 395 shares of Company Common Stock as of the date hereof, free and clear of all Liens, restrictions and claims of any kind, except for a pledge of a total of 250 shares of Company Common Stock to the Taormina's sister Arlene Taormina, as Trustee of the Arlene Taormina Separate Property Trust (which will be released prior to the Closing). As of the Closing, the C.V. Taormina Family 5 6 Trust under Agreement dated September 16, 1980 will own less than 5% of the total outstanding shares of the Company Common Stock, free and clear of all Liens, restrictions and claims of any kind. 3.6 No Violation. The execution and delivery of this Agreement by the Company, the Taorminas and the Shareholders, the performance by them of their respective obligations hereunder and the consummation by them of the transactions contemplated by this Agreement will not: (a) contravene any provision of the articles of incorporation or bylaws of the Company; (b) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon or enforceable against the Company, the Taorminas, the Shareholders or any of their respective Affiliates; (c) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any Contract which is applicable to, binding upon or enforceable against the Company, the Taorminas or Shareholders or any of their respective Affiliates; (d) result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of the Company, the Taorminas, the Shareholders or any of their respective Affiliates; or (e) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except any applicable filings required under the HSR Act, and any SEC and other filings required to be made by Republic or as otherwise set forth on Schedule 3.6. No statute, regulation, rule or other law related to "control share acquisitions" or similar "antitakeover" legislation is applicable to the transactions contemplated by this Agreement. 3.7 Records of the Company. The copies of the respective articles of incorporation and bylaws of the Company which were provided to Republic are true, accurate and complete and reflect all amendments made through the date of this Agreement. The minute books for the Company made available to Republic for review were correct and complete in all material respects as of the date of such review, no further entries have been made through the date of this Agreement, such minute books contain the true signatures of the persons purporting to have signed them. All material corporate actions taken by the Company have been duly authorized or ratified. The stock ledgers of the Company, as previously made available to Republic, contain accurate and complete records of all issuances, transfers and cancellations of shares of the capital stock of the Company. 3.8 Subsidiaries. The Company does not own, directly or indirectly, any outstanding voting securities of or other interests in, or control, any other corporation, partnership, joint venture or other business entity. 3.9 Financial Statements. Schedule 3.9 contains a copy of the audited balance sheet of the Company as of December 31, 1995 and the related audited statements of income and retained earnings and cash flows, for the fiscal year ended on December 31, 1995, and the notes and schedules thereto, accompanied by the unqualified report thereon of McGladrey & Pullen, LLP (the "Audited Financial Statements"), and a copy of the unaudited balance sheet of the Company as of December 31, 1996, and the related unaudited statements of income and retained earnings and cash flows, for the fiscal year ended on December 31, 1996, certified by the chief financial officer of the Company (the "Unaudited Financial Statements"). The balance sheet of the Company dated as of December 31, 1996, included in the Unaudited Financial Statements is referred to herein as the "Current Balance Sheet," and the Audited Financial Statements and 6 7 Unaudited Financial Statements are referred to herein as the "Financial Statements." The Financial Statements fairly present the financial position of the Company at each of the balance sheet dates and the results of operations and cash flows for the periods covered thereby, and have been prepared in accordance with GAAP consistently applied throughout the periods indicated, except as specifically disclosed therein, and except, in the case of the Unaudited Financial Statements, for normal year-end audit adjustments (and any adjustments and reserves other than normal year-end audit adjustments as may be approved by Republic, the creation of which shall not be deemed a violation of the representations and warranties contained in Section 3.11) and the absence of footnotes. The books and records of the Company are sufficient to permit an audit in accordance with GAAP. There are no extraordinary items of income or expense during the periods covered by the Financial Statements and the balance sheets included in the Financial Statements do not reflect any writeup or revaluation increasing the book value of any assets, except as specifically disclosed in the notes thereto. 3.10 Changes Since the Current Balance Sheet Date. Since the date of the Current Balance Sheet of the Company, the Company has not: (a) issued any capital stock or other securities; (b) except as set forth on Schedule 3.10, made any distribution of or with respect to its capital stock or other securities or purchased or redeemed any of its securities; (c) except as set forth on Schedule 3.10, paid any bonus to or increased the rate of compensation of any of its officers or salaried employees or amended any other terms of employment of such persons; (d) sold, leased or transferred any of its properties or assets other than in the ordinary course of business consistent with past practice; (e) made or obligated itself to make capital expenditures out of the ordinary course of business consistent with past practice except for purchases of real property, known as the Kraemer Boat Property, adjacent to the Company's facilities in Anaheim for not more than $350,000; (f) made any payment in respect of its liabilities other than in the ordinary course of business consistent with past practice; (g) incurred any obligations or liabilities (including any indebtedness) or entered into any transaction involving in excess of $100,000 individually, or in excess of $250,000 in the aggregate for all such transactions, out of the ordinary course of business, except for this Agreement and the transactions contemplated hereby; (h) suffered any theft, damage, destruction or casualty loss, not covered by insurance and for which a timely claim was filed, in excess of $100,000 in the aggregate; (i) suffered any extraordinary losses (whether or not covered by insurance); (j) waived, canceled, compromised or released any rights having a value in excess of $100,000 in the aggregate; (k) made or adopted any change in its accounting practice or policies; (l) made any adjustment to its books and records other than in respect of the conduct of its business activities in the ordinary course consistent with past practice; (m) entered into any transaction with any Affiliate; (n) entered into any written employment agreement; (o) terminated, amended or modified any agreement involving an amount in excess of $100,000 out of the ordinary course of business; (p) imposed any security interest or other Lien on any of its assets other than in the ordinary course of business consistent with past practice; (q) delayed paying any accounts payable which are due and payable except to the extent being contested in good faith; (r) made or pledged any charitable contribution other than in the ordinary course of business consistent with past practice; (s) entered into any other transaction or been subject to any event which has or is likely to have a Material Adverse Effect on the Company; or (t) agreed to do or authorized any of the foregoing. 3.11 Liabilities of the Company. The Company does not have any liabilities or obligations, whether accrued, absolute, contingent or otherwise, except: (a) to the extent reflected or taken into account in the Current Balance Sheet and not heretofore paid or discharged; (b) to the extent specifically set forth in or incorporated by express reference in any of the Schedules attached hereto; (c) liabilities incurred in the ordinary course of business consistent with past 7 8 practice since the date of the Current Balance Sheet (none of which relates to breach of contract, breach of warranty, tort, infringement or violation of law, or which arose out of any action, suit, claim, governmental investigation or arbitration proceeding); (d) normal year-end accruals (including, without limitation, reasonable accruals for workers' compensation claims), which would not be material in the aggregate, reclassifications and audit adjustments and any other reserves and accruals created with the approval of Republic which would be reflected on an audited financial statement; (e) liabilities incurred in the ordinary course of business prior to the date of the Current Balance Sheet which, in accordance with GAAP consistently applied, were not recorded thereon and (f) leases being treated as operating leases and expenses rather than being treated as capital leases. The aggregate amount of indebtedness for borrowed money of the Company, including (i) principal and accrued but unpaid interest, (ii) the present value of remaining payments on capitalized equipment leases, and (iii) the debt (not in excess of $2,623,000 in the aggregate) assumed in connection with the contribution to the Company of the Other Owned Properties pursuant to Section 5.17 hereof, will not exceed $56,923,000 as of the Effective Time. The Adjusted Total Stockholders' Equity of the Company will be no less than $25,600,000, as of the Effective Time. As used herein, Adjusted Total Stockholders' Equity shall mean the total stockholders' equity of the Company determined in accordance with GAAP, consistently applied, but adjusted as follows (except to the extent such adjustments have already been reflected in total stockholders' equity of the Company): (a) The legal and accounting fees and costs incurred by the Company in connection with this Agreement and the transactions contemplated hereby (up to a maximum of $400,000) shall be added back to the Company's total stockholders' equity; (b) Any amounts reserved for in an audit of the Current Balance Sheet for workers' compensation claims, environmental liabilities or any other items, in each case which are approved by Republic in its sole discretion (or in the case of additional workers' compensation accruals, in its reasonable discretion), shall be added back to the Company's total stockholders' equity; (c) The title and survey fees incurred by the Company pursuant to Section 3.14 hereof shall be added back to the Company's total stockholders' equity; and (d) Adjusted Total Stockholders' Equity shall be calculated as though the following transactions had never occurred (i.e., any impact on the stockholders' equity of such transactions shall be reversed in calculating the Company's stockholders' equity): (a) the transfer of Other Owned Property to the Company and the assumption by the Company of up to $2,623,000 of liabilities related to the Other Owned Property, (b) the transfer to the Company of the interests in the Blue Gum Partnership (as defined in Section 5.17) and the Landowner (as defined in Section 5.17), (c) the payment by the Company of up to $5,450,000 to purchase the interest of Bobby Babajian, Jr. in the Blue Gum Partnership (and to pay off all debts owed to Bobby Babajian, Jr. by Blue Gum Partnership) and the interest of Bobby Babajian, Sr. in the Landowner and the related acquisition of such interests, (d) the assumption and payoff of up to $377,000 in indebtedness owed by the Blue Gum Partnership to Bobby Babajian, Sr., (e) the return by Vincent Taormina of approximately $50,000 to the Company, and (f) the deferred tax liability created by the termination of the Corporation's "S" election at Closing. 3.12 Litigation. Except as set forth on Schedule 3.12, there is no action, suit, or other legal or administrative proceeding or governmental investigation pending, or to the Company's knowledge or either of the Taorminas' knowledge, threatened, anticipated or contemplated against, 8 9 by or affecting the Company, or any of its properties or assets, or affecting the Shareholders or the Taorminas, or which questions the validity or enforceability of this Agreement or the transactions contemplated hereby, and there is no basis for any of the foregoing. There are no outstanding orders, decrees or stipulations issued by any Governmental Authority in any proceeding to which the Company is or was a party which have not been complied with in full or which continue to impose any material obligations on the Company. 3.13 Environmental Matters. (a) Except as set forth on Schedule 3.13, the Company (as defined in clause (h) below) is and has at all times been in material compliance with all Environmental Laws (as defined in clause (h) below) governing its business, operations, properties and assets, including, without limitation: (i) all requirements relating to the Discharge (as defined in clause (h) below) and Handling (as defined in clause (h) below) of Hazardous Substances (as defined in clause (h) below) or other Waste (as defined in clause (h) below); (ii) all requirements relating to notice, record keeping and reporting; (iii) all requirements relating to obtaining and maintaining Licenses (as defined in clause (h) below) for the ownership of its properties and assets and the operation of its business as presently conducted, including Licenses relating to the Handling and Discharge of Hazardous Substances and other Waste; and (iv) all applicable writs, orders, judgements, injunctions, governmental communications, decrees, informational requests or demands issued pursuant to, or arising under, any Environmental Laws. (b) There are no (and there is no reasonable basis for any) non-compliance orders, warning letters, notices of violation (collectively "Notices"), claims, suits, actions, judgments, penalties, fines, or administrative or judicial investigations or proceedings (collectively "Proceedings") pending or threatened against or involving the Company, or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws or Licenses issued to the Company thereunder in connection with, related to or arising out of the ownership by the Company of its properties or assets or the operation of its business, which have not been resolved to the satisfaction of the issuing Governmental Authority or third party in a manner that would not impose any obligation, burden or continuing liability on Republic or the Surviving Corporation in the event that the transactions contemplated by this Agreement are consummated, or which could have a Material Adverse Effect on the Company, including, without limitation: (i) Notices or Proceedings related to the Company being a potentially responsible party for a federal or state environmental cleanup site or for corrective action under any applicable Environmental Laws; (ii) Notices or Proceedings in connection with any federal or state environmental cleanup site, or in connection with any real property or premises where the Company has transported, transferred or disposed of other Waste; (iii) Notices or Proceedings relating to the Company being responsible to undertake any response or remedial actions or clean-up actions of any kind; or (iv) Notices or Proceedings related to the Company being liable under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (c) Except as set forth on Schedule 3.13, Company has not Handled or Discharged, nor has it allowed or arranged for any third party to Handle or Discharge, Hazardous Substances or other Waste to, at or upon: (i) any location other than a site lawfully permitted to receive such Hazardous Substances or other Waste; (ii) any real property currently or previously owned or leased by the Company; or (iii) any site which, pursuant to any Environmental Laws, (x) has been placed on the National Priorities List or its state equivalent; or (y) the Environmental Protection Agency or the relevant state agency or other Governmental Authority has notified the 9 10 Company that such Governmental Authority has proposed or is proposing to place on the National Priorities List or its state equivalent. There has not occurred, nor is there presently occurring, a Discharge, or threatened Discharge, of any Hazardous Substance on, into or beneath the surface of, or adjacent to, any real property currently or previously owned or leased by the Company in an amount requiring a notice or report to be made to a Governmental Authority or in violation of any applicable Environmental Laws. (d) Schedule 3.13 identifies the operations and activities, and locations thereof, which have been conducted or are being conducted by the Company on any real property currently or previously owned or leased by the Company which have involved the Handling or Discharge of Hazardous Substances. (e) Schedule 3.13 identifies the locations to which the Company has ever transferred, transported, hauled, moved, or disposed of Waste and the types and volumes of Waste transferred, transported, hauled, moved, or disposed of to each such location. (f) Except as set forth on Schedule 3.13, the Company does not use, nor has it used, any Aboveground Storage Tanks (as defined in clause (h) below) or Underground Storage Tanks (as defined in clause (h) below), and there are not now nor have there ever been any Underground Storage Tanks beneath any real property currently or previously owned or leased by the Company that are required to be registered under applicable Environmental Laws. (g) Schedule 3.13 identifies: (i) all environmental audits, assessments or occupational health studies undertaken by the Company or its agents or, to the knowledge of the Company, undertaken by any Governmental Authority, or any third party, relating to or affecting the Company or any real property currently or previously owned or leased by the Company; (ii) the results of any ground, water, soil, air or asbestos monitoring undertaken by the Company or its agents or, to the knowledge of the Company, undertaken by any Governmental Authority or any third party, relating to or affecting the Company or any real property currently or previously owned or leased by the Company which indicate the presence of Hazardous Substances at levels requiring a notice or report to be made to a Governmental Authority or in violation of any applicable Environmental Laws; (iii) all material written communications between the Company and any Governmental Authority arising under or related to Environmental Laws; and (iv) all outstanding citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting either the Company or any real property currently or previously owned or leased by the Company. (h) For purposes of this Section 3.13, the following terms shall have the meanings ascribed to them below: "Aboveground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree governing Aboveground Storage Tanks. "Company" means the Company and any Affiliates. "Discharge" means any manner of spilling, leaking, dumping, discharging, releasing or emitting, as any of such terms may further be defined in any Environmental Law, into any medium including, without limitation, ground water, surface water, soil or air. 10 11 "Environmental Laws" means all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, or similar laws of foreign jurisdictions where the Company conducts business, whether currently in existence or hereafter enacted or promulgated, any of which govern (or purport to govern) or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are or may be defined in such statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. ss.9601, et seq. (collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.6901 et seq. (collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. ss.1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. ss.1311, et seq.; the Clean Air Act, as amended (42 U.S.C. ss.7401-7642); the Toxic Substances Control Act, as amended, 15 U.S.C. ss.2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. ss.136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. ss.11001, et seq. (Title III of SARA) ("EPCRA"); and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. ss.651, et seq. ("OSHA"). "Handle" means any manner of generating, accumulating, storing, treating, disposing of, transporting, transferring, labeling, handling, manufacturing or using, as any of such terms may further be defined in any Environmental Law, of any Hazardous Substances or Waste. "Hazardous Substances" shall be construed broadly to include any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires investigation or remediation under any Environmental Laws or which are or become regulated, listed or controlled by, under or pursuant to any Environmental Laws, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA, or any similar state statute, or any future amendments to, or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "Licenses" means all licenses, certificates, permits, approvals and registrations. "Underground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree governing Underground Storage Tanks. "Waste" shall be construed broadly to include agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special 11 12 wastes, used oils, white goods, and yard trash as those terms are defined under any applicable Environmental Laws. (i) Any matters contained in any reports or studies referenced in Schedule 3.13 which have not been delivered to Republic's environmental counsel prior to the date hereof shall not be deemed to be exceptions to the representations and warranties contained in this Section 3.13. In addition, any reserves or accruals for environmental liabilities that may have been, or may be, created by the Company on its financial statements shall not reduce or affect any indemnification obligation under Section 9.1 of the Shareholders or the Taorminas with respect to such representations and warranties. 3.14 Real Estate. (a) Schedule 3.14(a) sets forth the street address and legal description of (A) each parcel of real estate owned by the Company as of the date hereof (the "Company Owned Properties"), and (B) each parcel of real estate owned by any Affiliate of the Company as of the date hereof and used in the conduct of the business of the Company as of the date hereof, including all parcels constituting the Blue Gum Property and Anaheim Truck Depot (the "Other Owned Properties"). Schedule 3.14(a) also sets forth the name of the owner of record of each of the parcels constituting the Other Owned Properties. With respect to each parcel of the Company Owned Properties and the Other Owned Properties (collectively, the "Owned Properties"): (i) The Company or Affiliates of the Company have good and marketable title to each parcel of Owned Properties, free and clear of any Lien other than: (x) liens for real estate taxes not yet delinquent; (y) recorded easements, covenants, and other restrictions which do not materially impair the current use or occupancy of the property subject thereto; and (z) encumbrances and restrictions, none of which materially impair the current use or occupancy, which are described in the title insurance policies relating to such properties which have been delivered to Republic, and are listed on Schedule 3.14(a) or which are otherwise listed on Schedule 3.14(a), or which are otherwise reflected in the Current Balance Sheet and such other covenants, conditions, easements and exceptions to title as Republic may approve in writing (collectively, except for Deeds of Trust or Liens encumbering Other Owned Properties, "Permitted Exceptions"); (ii) There are no pending or threatened condemnation proceedings, suits or administrative actions relating to any of the Owned Properties or other matters affecting adversely the current use or occupancy thereof; (iii) The legal descriptions for the parcels of Owned Properties contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in material violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; the land does not serve any adjoining property for any purpose inconsistent with the use of the land; and the Owned Properties are not located within any flood plain (such that a mortgagee would require a mortgagor to obtain flood insurance) or subject to any similar type restriction for which any permits or licenses necessary to the use thereof have not been obtained; 12 13 (iv) All facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the ownership or operation thereof and have been operated and maintained in material compliance with applicable laws, ordinances, rules and regulations; (v) There are no Contracts granting to any party or parties the right of use or occupancy of any portion of the parcels of Company Owned Properties except leases entered into by the Company as the lessor and Dartco Transmission Sales and Service Inc., Linnert Roofing, Inc., Medtronics Inc., Universal Alloy Corp. and Metal-Lite Inc., as lessees, respectively, and there are no Contracts granting to any party other than the Company the right of use or occupancy of any portion of the parcels of Other Owned Properties; (vi) Except as set forth in Schedule 3.14, there are no outstanding options or rights of first refusal to purchase the parcels of Owned Properties, or any portion thereof or interest therein; (vii) There are no parties (other than the Company) in possession of the parcels of Owned Properties, except as noted in clause (v) above; (viii) All facilities located on the parcels of Owned Property are supplied with utilities and other services necessary for the operation of such facilities, including gas, electricity, water, telephone, sanitary sewer and storm sewer, all of which services are adequate in accordance with all applicable laws, ordinances, rules and regulations, and are provided via public roads or via permanent, irrevocable, appurtenant easements benefitting the parcels of Owned Properties; (ix) Each parcel of Owned Properties abuts on and has direct, or indirect through another Owned Properties, vehicular access to a public road, or has access to a public road via a permanent, irrevocable, appurtenant easement benefitting the parcel of Owned Properties; access to the property is provided by paved public right-of-way with adequate curb cuts available; and there is no pending or threatened termination of the foregoing access rights; and (x) No owner of a parcel of Owned Properties has received notice of: (a) any condemnation proceeding with respect to any portion of any parcel of Owned Properties or any access thereto; and no such proceeding is contemplated by any Governmental Authority; or (b) any special assessment which may affect any parcel of Owned Properties, and no such special assessment is contemplated by any Governmental Authority. (b) Schedule 3.14(b) sets forth a list of all leases, licenses or similar agreements ("Leases") to which the Company is a party (copies of which have previously been furnished to Republic), in each case, setting forth (A) the lessor and lessee thereof and the date and term of each of the Leases, and (B) the legal description, including street address, of each property covered thereby, and (C) a brief description of the principal use of such property by the Company (the "Leased Premises"). The Leases are in full force and effect and have not been amended, and no party thereto is in material default or breach under any such Lease. No event has occurred which, with the passage of time or the giving of notice or both, would cause a material breach of or default under any of such Leases. There is no material breach or anticipated breach by any other party to such Leases. With respect to each such Leased Premises: 13 14 (i) The Company has valid leasehold interests in the Leased Premises, free and clear of any Liens, covenants and easements or title defects of any nature whatsoever; (ii) The Leased Premises that are used in the business of the Company are in the aggregate sufficient to satisfy the Company's current normal business activities as conducted thereat; (iii) Each of the Leased Premises: (a) has direct access to public roads or access to public roads by means of a perpetual access easement, such access being sufficient to satisfy the current and reasonably anticipated normal transportation requirements of the Company's business as presently conducted at such parcel; and (b) is served by all utilities in such quantity and quality as are sufficient to satisfy the current normal business activities as conducted at such parcel; and (iv) The Company has not received notice of: (a) any condemnation proceeding with respect to any portion of the Leased Premises or any access thereto, and no such proceeding is contemplated by any Governmental Authority; or (b) any special assessment which may affect any of the Leased Premises, and no such special assessment is contemplated by any Governmental Authority. 3.15 Good Title to and Condition of Assets. (a) The Company has good and marketable title to all of its Assets (as hereinafter defined), free and clear of any Liens or restrictions on use except as set forth on Schedule 3.15. For purposes of this Agreement, the term "Assets" means all of the properties and assets of the Company, other than the Owned Properties and the Leased Premises, whether personal or mixed, tangible or intangible, wherever located. (b) The Fixed Assets (as hereinafter defined) taken as a whole currently in use or necessary for the business and operations of the Company are in reasonable working condition for operations of the business. For purposes of this Agreement, the term "Fixed Assets" means all vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures used by or located on the premises of the Company or set forth on the Current Balance Sheet or acquired by the Company since the date of the Current Balance Sheet. Schedule 3.15 lists the vehicles owned, leased or used by the Company. Other than as set forth herein, the Assets are AS IS, WHERE IS, and without representation as to merchantability or fitness for use. 3.16 Compliance with Laws. (a) The Company is and has been in material compliance with all laws, regulations and orders applicable to it, its business and operations (as conducted by it now and in the past), the Assets, the Owned Properties and the Leased Premises and any other properties and assets (in each case owned or used by it now or in the past). Except for citations identified on Schedule 3.13, the Company has not been cited, fined or otherwise notified of any asserted past or present failure to comply with any laws, regulations or orders (except where such failure to comply has been cured to the satisfaction of the relevant Governmental Authority), and no proceeding with respect to any such violation is pending or, to the knowledge of the Company or either of the Shareholders, threatened. 14 15 (b) Neither the Company, nor any of its employees or agents, has made any payment of funds in connection with the business of the Company which is prohibited by law, and no funds have been set aside to be used in connection with the business of the Company for any payment prohibited by law. (c) The Company is and at all times has been in material compliance with the terms and provisions of the Immigration Reform and Control Act of 1986, as amended (the "Immigration Act"). With respect to each Employee (as defined in 8 C.F.R. 274a.1(f)) of the Company for whom compliance with the Immigration Act is required, the Company has on file a true, accurate and complete copy of: (i) each Employee's Form I-9 (Employment Eligibility Verification Form); and (ii) all other records, documents or other papers prepared, procured and/or retained by the Company pursuant to the Immigration Act. The Company has not been cited, fined, served with a Notice of Intent to Fine or with a Cease and Desist Order, nor has any action or administrative proceeding been initiated or, to the knowledge of the Company or either of the Shareholders, threatened against the Company, by the Immigration and Naturalization Service by reason of any actual or alleged failure to comply with the Immigration Act. (d) The Company is not subject to any Contract, decree or injunction in which the Company is a party which restricts the continued operation of any business of the Company or the expansion thereof to other geographical areas, customers and suppliers or lines of business. 3.17 Labor and Employment Matters. Schedule 3.17 sets forth the name and current rate of compensation of the employees of the Company having an annual base salary in excess of $50,000. Except for Teamsters Local 396, which represents approximately 300 drivers and other workers employed by the Company, pursuant to the currently effective Collective Bargaining Agreements between the Company and Teamsters Local 396 (collectively, the "CBA"), the Company is not a party to or bound by any collective bargaining agreement or any other agreement with a labor union. There has been no effort by any labor union during the 24 months prior to the date hereof to organize any employees of the Company into one or more collective bargaining units, except Teamsters Local 952. Both the Company and Teamsters Local 396 are currently in material compliance with the terms and conditions of the CBA, and there is no pending or, to the knowledge of the Company or either of the Taorminas, threatened grievances, disputes, or arbitrations arising out of the CBA. The CBA was negotiated in good faith, at arm's length, and was properly ratified and agreed to by the Company and the Teamsters Local 396. Nothing in the CBA precludes the transactions contemplated hereby provided notice is provided to the Teamsters 396, and such transactions will not affect in any way the Company's rights or the Teamsters Local 396's obligations as set forth in the CBA. The CBA does not violate any federal or state law or the rights of any individuals created by federal or state law. There is no pending or threatened labor dispute, strike or work stoppage which affects or which may affect the business of the Company or which may interfere with its continued operations. Neither the Company nor any agent, representative or employee thereof has within the last 24 months committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or threatened charge or complaint against the Company by or with the National Labor Relations Board or any representative thereof. There has been no strike, walkout or work stoppage involving any of the employees of the Company during the 24 months prior to the date hereof. None of the Taorminas is aware that any executive or key employee or group of employees has any plans to terminate his, her or their employment with the Company as a result of the Merger or otherwise. Schedule 3.17 identifies each contract, agreement or plan of the following nature, whether formal or informal, and whether or not in writing, to which the Company is a party or under which it has an obligation: (a) employment agreements; (b) employee handbooks, policy 15 16 statements and similar plans; (c) noncompetition agreements; and (d) consulting agreements. The Company has complied in all material respects with applicable federal and state laws, rules and regulations relating to employment, civil rights and equal employment opportunities, including but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and the Americans with Disabilities Act, as amended. 3.18 Employee Benefit Plans. (a) Employee Benefit Plans. Schedule 3.18 contains a list setting forth each employee benefit plan or arrangement of the Company, including but not limited to employee pension benefit plans, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA, employee welfare benefit plans, as defined in Section 3(1) of ERISA, deferred compensation plans, stock option plans, bonus plans, stock purchase plans, hospitalization, disability and other insurance plans, severance or termination pay plans and policies, whether or not described in Section 3(3) of ERISA, in which employees, their spouses or dependents, of the Company participate ("Employee Benefit Plans") (true and accurate copies of which, together with the most recent annual reports on Form 5500 and summary plan descriptions with respect thereto, were furnished to Republic). (b) Compliance with Law. With respect to each Employee Benefit Plan: (i) except for routine benefit claims, each has been administered in all material respects in compliance with its terms and with all applicable laws, including, but not limited to, ERISA and the Internal Revenue Code of 1986, as amended (the "Code"); (ii) no actions, suits, claims or disputes are pending, or, to the knowledge of the Company or either of the Taorminas, threatened; (iii) no audits, inquiries, reviews, proceedings, claims, or demands are pending with any governmental or regulatory agency; (iv) except for routine benefit claims, there are no facts which could give rise to any material liability in the event of any such investigation, claim, action, suit, audit, review, or other proceeding; (v) all material reports, returns, and similar documents required to be filed with any governmental agency or distributed to any plan participant have been duly or timely filed or distributed; and (vi) no non-exempt "prohibited transaction" has occurred within the meaning of the applicable provisions of ERISA or the Code. (c) Qualified Plans. With respect to each Employee Benefit Plan intended to qualify under Code Section 401(a), or 403(a) (i) the Internal Revenue Service has issued a favorable determination letter, true and correct copies of which have been furnished to Republic, that such plans are qualified and exempt from federal income taxes; (ii) no such determination letter has been revoked nor has revocation been threatened, nor has any amendment or other action or omission occurred with respect to any such plan since the date of its most recent determination letter or application therefor in any respect which would adversely affect its qualification or materially increase its costs; (iii) no such plan has been amended in a manner that would require security to be provided in accordance with Section 401(a)(29) of the Code; (iv) no reportable event (within the meaning of Section 4043 of ERISA) has occurred, other than one for which the 30-day notice requirement has been waived; (v) as of the Effective Date, the present value of all liabilities that would be "benefit liabilities" under Section 4001(a)(16) of ERISA if benefits described in Code Section 411(d)(6)(B) were included will not exceed the then current fair market value of the assets of such plan (determined using the actuarial assumptions used for the most recent actuarial valuation for such plan); (vi) all contributions to, and payments from and with respect to such plans, which may have been required to be made in accordance with such plans and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been timely made; and (vii) 16 17 all such contributions to the plans, and all payments under the plans (except those to be made from a trust qualified under Section 401(a) of the Code) and all payments with respect to the plans (including, without limitation, PBGC (as defined below) insurance premiums) for any period ending before the Effective Date that are not yet, but will be, required to be made are properly accrued and reflected on the Current Balance Sheet. (d) Multiemployer Plans. With respect to any multiemployer plan, as described in Section 4001(a)(3) of ERISA ("MPPA Plan"): (i) all contributions required to be made with respect to employees of the Company have been timely paid; (ii) the Company has not incurred or is not expected to incur, directly or indirectly, any withdrawal liability under ERISA with respect to any such plan (whether by reason of the transactions contemplated by the Agreement or otherwise); (iii) Schedule 3.18 sets forth (A) the withdrawal liability under ERISA to each MPPA Plan, (B) the date as of which such amount was calculated, and (C) the method for determining the withdrawal liability; and (iv) no such plan is (or is expected to be) insolvent or in reorganization and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists or is expected to exist with respect to any such plan. (e) Welfare Plans. (i) The Company is not obligated under any employee welfare benefit plan as described in Section 3(1) of ERISA ("Welfare Plan") to provide medical or death benefits with respect to any employee or former employee of the Company or its predecessors after termination of employment; (ii) the Company has complied with the notice and continuation coverage requirements of Section 4980B of the Code and the regulations thereunder with respect to each Welfare Plan that is, or was during any taxable year for which the statute of limitations on the assessment of federal income taxes remains, open, by consent or otherwise, a group health plan within the meaning of Section 5000(b)(1) of the Code; and (iii) there are no reserves, assets, surplus or prepaid premiums under any Welfare Plan which is an Employee Benefit Plan. Except for routine benefit claims, the consummation of the transactions contemplated by this Agreement will not entitle any individual to severance pay, and, will not accelerate the time of payment or vesting, or increase the amount of compensation, due to any individual. (f) Controlled Group Liability. Neither the Company, nor any entity that would be aggregated with it under Code Section 414(b), (c), (m) or (o): (i) has ever terminated or withdrawn from any employee benefit plan under circumstances resulting (or expected to result) in liability to the Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the employee benefit plan is funded, or any employee or beneficiary for whose benefit the plan is or was maintained (other than routine claims for benefits); (ii) has any assets subject to (or expected to be subject to) a lien for unpaid contributions to any employee benefit plan; (iii) has failed to pay premiums to the PBGC when due; (iv) is subject to (or expected to be subject to) an excise tax under Code Section 4971; (v) has engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has violated Code Section 4980B or Section 601 through 608 of ERISA. (g) Other Liabilities. (i) None of the Employee Benefit Plans obligates the Company to pay separation, severance, termination or similar benefits solely as a result of any transaction contemplated by this Agreement or solely as a result of a "change of control" (as such term is defined in Section 280G of the Code); (ii) all required or discretionary (in accordance with historical practices) payments, premiums, contributions, reimbursements, or accruals for all periods ending prior to or as of the Effective Date shall have been made or properly accrued on 17 18 the Current Balance Sheet or will be properly accrued on the books and records of the Company as of the Effective Date; and (iii) none of the Employee Benefit Plans has any unfunded liabilities which are not reflected on the Current Balance Sheet or the books and records of the Company. 3.19 Tax Matters. All Tax Returns required to be filed prior to the date hereof with respect to the Company or any of its income, properties, franchises or operations have been timely filed, each such Tax Return has been prepared in compliance with all applicable laws and regulations, and all such Tax Returns are true and accurate in all material respects. All Taxes due and payable by or with respect to the Company have been paid and are accrued on the Current Balance Sheet or will be accrued on its books and records as of the Closing. Except as set forth in Schedule 3.19 hereto: (i) no Tax Return has been audited by the relevant taxing authority within the last four years; (ii) no deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Taxes has been asserted or assessed by any taxing authority against the Company; (iii) the Company has not consented to extend the time in which any Taxes may be assessed or collected by any taxing authority; (iv) the Company has not requested or been granted an extension of the time for filing any Tax Return to a date later than the Effective Time; (v) there is no action, suit, taxing authority proceeding, or audit or claim for refund now in progress, pending or threatened against or with respect to the Company regarding Taxes; (vi) the Company has not made an election or filed a consent under Section 341(f) of the Code (or any corresponding provision of state, local or foreign law) on or prior to the Effective Time; (vii) there are no Liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company; (viii) the Company will not be required (A) as a result of a change in method of accounting for a taxable period ending on or prior to the Effective Date, to include any adjustment under Section 481(c) of the Code (or any corresponding provision of state, local or foreign law) in taxable income for any taxable period (or portion thereof) beginning after the Effective Time or (B) as a result of any "closing agreement," as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign law), to include any item of income or exclude any item of deduction from any taxable period (or portion thereof) beginning after the Effective Time; (ix) after validly filing its election in 1990 for "S" corporation status under the Code, the Company has not been a member of an affiliated group (as defined in Section 1504 of the Code) or filed or been included in a combined, consolidated or unitary income Tax Return; (x) the Company is not a party to or bound by any tax allocation or tax sharing agreement or has any current or potential contractual obligation to indemnify any other Person with respect to Taxes; (xi) no taxing authority will claim or assess any additional Taxes against the Company for any period for which Tax Returns have been filed; (xii) the Company has not made any payments, and will not become obligated (under any contract entered into on or before the Effective Date) to make any payments, that will be non-deductible under Section 280G of the Code (or any corresponding provision of state, local or foreign law); (xiii) the Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code (or any corresponding provision of state, local or foreign law) during the applicable period specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding provision of state, local or foreign law); (xiv) no claim has ever been made by a taxing authority in a jurisdiction where the Company does not file Tax Returns that such company is or may be subject to Taxes assessed by such jurisdiction; and (xv) the Company does not have any permanent establishment in any foreign country, as defined in the relevant tax treaty between the United States of America and such foreign country; (xvi) true, correct and complete copies of all income and sales Tax Returns filed by or with respect to the Company for the past three years have been furnished or made available to Republic; (xvii) the Company will not be subject to any Taxes for the period ending at the Effective Time for any period for which a Tax Return has not been filed imposed pursuant to Section 1374 or Section 1375 of the Code (or any corresponding provision of state, local or 18 19 foreign law); (xviii) no sales or use tax, non-recurring intangibles tax, documentary stamp tax or other excise tax (or comparable tax imposed by any governmental entity) will be payable by Republic by virtue of the transactions completed in this Agreement; and (xix) the Company has duly and validly filed an election for "S" corporation status under the Code, and such "S" election has not been revoked or terminated and neither the Company nor the Shareholders have taken any action which would cause a termination of such "S" election. 3.20 Insurance. The Company is covered by valid, outstanding and enforceable policies of insurance covering its respective properties, assets and businesses against risks of the nature normally insured against by corporations in the same or similar lines of business and in coverage amounts reasonable in light of the Company's historical claims experience (the "Insurance Policies"). Such Insurance Policies are in full force and effect, and all premiums due thereon have been paid. As of the Effective Time, each of the Insurance Policies will be in full force and effect. None of the Insurance Policies will lapse or terminate as a result of the transactions contemplated by this Agreement. The Company has complied in all material respects with the provisions of such Insurance Policies. The Company has not failed to give, in a timely manner, any notice required under any of the Insurance Policies to preserve its rights thereunder. 3.21 Receivables. All of the Receivables (as hereinafter defined) are valid and legally binding, represent bona fide transactions and arose in the ordinary course of business of the Company. All of the Receivables are good and collectible receivables, without setoff or counterclaims, subject to the allowance for doubtful accounts, if any, set forth on the Current Balance Sheet as reasonably adjusted since the date of the Current Balance Sheet in the ordinary course of business consistent with past practice. For purposes of this Agreement, the term "Receivables" means all receivables of the Company, including, without limitation, all trade account receivables arising from the provision of services, sale of inventory, notes receivable, and insurance proceeds receivable. 3.22 Licenses and Permits. The Company possesses all material licenses and required governmental or official approvals, permits or authorizations (collectively, the "Permits") for its business and operations, including with respect to the operation of each of the Owned Properties and Leased Premises. All such Permits are valid and in full force and effect, the Company is in full compliance with the respective requirements thereof, and no proceeding is pending or, to the knowledge of the Company or either of the Taorminas, threatened to revoke or amend any of them. None of such Permits is or will be impaired or in any way affected by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.23 Adequacy of the Assets; Relationships with Customers and Suppliers; Affiliated Transactions. The Assets, Owned Properties and Leased Premises constitute, in the aggregate, all of the assets and properties necessary for the conduct of the business of the Company in the manner in which and to the extent to which such business is currently being conducted. No current supplier to the Company of items essential to the conduct of its business has threatened to terminate its business relationship with it for any reason. Except for the Blue Gum Partnership and for the leases by the Shareholders or the Taorminas of certain of the Other Owned Properties to the Company, the Company does not have any direct or indirect interest in any customer, supplier or competitor of the Company, or in any person from whom or to whom the Company leases real or personal property as of the date hereof and no officer, director or shareholder of the Company, nor any person related by blood or marriage to any such person, nor any entity in which any such person owns any beneficial interest, is a party to any Contract or transaction with the Company or has any interest in any property used by the Company as of the date hereof. 19 20 3.24 Intellectual Property. The Company has full legal right, title and interest in and to, or the right to use, all trademarks, service marks, trade names, copyrights, know-how, patents, trade secrets, licenses (including licenses for the use of computer software programs), and other intellectual property used in the conduct of its business including, without limitation, the "Program" defined below (the "Intellectual Property"). The conduct of the business of the Company as presently conducted, and such conduct and such use and exploitation of the Intellectual Property, does not infringe or misappropriate in any material respect any rights held or asserted by any Person, and to the Company's and each Shareholder's knowledge, no Person is infringing on the Intellectual Property. No payments are required for the continued use of the Intellectual Property. None of the Intellectual Property has ever been declared invalid or unenforceable, or is the subject of any pending or, to the knowledge of the Company or either of the Shareholders, threatened action for opposition, cancellation, declaration, infringement, or invalidity, unenforceability or misappropriation or like claim, action or proceeding. The Company owns all right, title and interest in and to the accounting software program used by it and any copyrighted or copyrightable source or object code, component, module, and documentation related thereto (the "Program") free and clear of any liens or claims or right of any other Person (including those employees and independent contractors who helped in the development thereof or any upgrades, modifications and other versions thereto) and has the sole and exclusive right to the use thereof. No payments to third parties are required for the continued use of the Program. 3.25 Contracts. Schedule 3.25 sets forth a list of each Contract to which the Company is a party or by which it or its properties and assets are bound and which is material to its business, assets, properties or prospects (the "Designated Contracts"), true and correct copies of which have been provided to Republic. The copy of each Designated Contract furnished to Republic is a true and complete copy of the document it purports to represent and reflects all amendments thereto made through the date of this Agreement. The Company has not violated any of the material terms or conditions of any Designated Contract or any term or condition which would permit termination or material modification of any Designated Contract, and all of the material covenants to be performed by any other party thereto have been performed in all material respects and there are no claims for breach or indemnification or notice of default or termination under any Designated Contract. No event has occurred which constitutes, or after notice or the passage of time, or both, would constitute, a material default by the Company under any Designated Contract, and to the knowledge of the Company and the Taorminas, no such event has occurred which constitutes or would constitute a material default by any other party. The Company is not subject to any liability or payment resulting from renegotiation of amounts paid it under any Designated Contract. As used in this Section, Designated Contracts shall include, without limitation: (a) loan agreements, indentures, mortgages, pledges, hypothecations, deeds of trust, conditional sale or title retention agreements, security agreements, equipment financing obligations or guaranties, or other sources of contingent liability in respect of any indebtedness or obligations to any other Person, or letters of intent or commitment letters with respect to same; (b) contracts obligating the Company to provide products or services for a period of one year or more, excluding standard waste collection and disposal contracts entered into in the ordinary course of business without material modification from the preprinted forms used by the Company in the ordinary course of its business; (c) leases of real property, and leases of personal property not cancelable without penalty on notice of sixty (60) days or less or calling for payment of an annual gross rental exceeding Fifty Thousand Dollars ($50,000.00); (d) distribution, sales agency or franchise or similar agreements, or agreements providing for an independent contractor's services, or letters of intent with respect to same; (e) employment agreements, management service agreements, consulting agreements, confidentiality agreements, non-competition agreements and 20 21 any other agreements relating to any employee, officer or director of the Company; (f) licenses, assignments or transfers of trademarks, trade names, service marks, patents, copyrights, trade secrets or know how, or other agreements regarding proprietary rights or intellectual property; (g) any Contract relating to pending capital expenditures by the Company; and (h) other material Contracts or understandings, irrespective of subject matter and whether or not in writing, not entered into in the ordinary course of business by the Company and not otherwise disclosed on the Schedules. 3.26 Customer Lists. Schedule 3.26 is a true, correct and complete list of all existing customers of the Company who each individually accounted for more than 1% of the Company's annual revenue in 1996. 3.27 Accuracy of Information Furnished. No representation, statement or information made or furnished by the Company, the Taorminas, or the Shareholders to Republic or any of Republic's representatives in this Agreement and the various Schedules attached hereto and the other information and statements referred to herein and previously furnished by the Company, the Taorminas, and the Shareholders, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained therein not misleading. The Company, the Taorminas, or the Shareholders have provided Republic with true, accurate and complete copies of all documents listed or described in the various Schedules attached hereto (except for the items set forth on Schedule 3.13). 3.28 Investment Intent; Accredited Investor Status; Securities Documents. Each of the Shareholders (and the C.V. Taormina Family Trust to the extent it becomes a shareholder of the Company pursuant to Section 5.17(b)) is acquiring the Republic Shares hereunder for its own account for investment and not with a view to, or for the sale in connection with, any distribution of any of the Republic Shares, except in compliance with applicable state and federal securities laws. Each of the Shareholders and the Taorminas and Arlene Taormina has had the opportunity to discuss the transactions contemplated hereby with Republic and has had the opportunity to obtain such information pertaining to the Republic Companies as has been requested, including but not limited to filings made by Republic with the SEC under the Exchange Act. Each of the Shareholders and the Taorminas and Arlene Taormina is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act, and has such knowledge and experience in business or financial matters that they are capable of evaluating the merits and risks of an investment in the Republic Shares. 3.29 Bank Accounts; Business Locations. Schedule 3.29 sets forth all accounts of the Company with any bank, broker or other depository institution, and the names of all persons authorized to withdraw funds from each such account. As of the date hereof, the Company has no office or place of business other than as identified on Schedules 3.14(a) and 3.14(b) and the Company's principal places of business and chief executive offices are indicated on Schedule 3.14(a) or 3.14(b), and, except for equipment leased to customers in the ordinary course of business, all locations where the equipment, inventory, chattel paper and books and records of the Company is located as of the date hereof are fully identified on Schedules 3.14(a) and 3.14(b). 3.30 Names; Prior Acquisitions. The Company has not changed its name or used any assumed or fictitious name except as set forth on Schedule 3.1, or been the surviving entity in a merger, acquired any business or changed its principal place of business or chief executive office, within the past three years. 21 22 3.31 No Commissions. Neither the Company, the Taorminas nor the Shareholders has incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. 3.32 Certain Accounting Matters. Neither the Company, the Taorminas nor any of the Shareholders, nor any of their respective Affiliates, has taken or agreed to take any action that (without regard to any action taken or agreed to be taken by Republic or any of its Affiliates) would prevent Republic from accounting for the transactions contemplated hereby as a pooling of interest business combination. ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER 4.1 Conduct of Business by the Company Pending the Merger. The Company covenants and agrees that, between the date of this Agreement and the Effective Time, the business of the Company shall be conducted only in, and the Company shall not take any action except in, the ordinary course of business, consistent with past practice. The Company shall use its best efforts to preserve intact its business organization, to keep available the services of its current officers, employees and consultants, and to preserve its present relationships with customers, suppliers and other persons with which it has significant business relations. By way of amplification and not limitation, except as contemplated by this Agreement, the Company shall not, between the date of this Agreement and the Effective Time, directly or indirectly, do or propose or agree to do any of the following without the prior written consent of Republic: (a) amend or otherwise change its articles of incorporation or bylaws or equivalent organizational documents; (b) (i) issue, sell, pledge, dispose of, or encumber, or, authorize the issuance, sale, pledge, disposition, or encumbrance of any shares of its capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest, of it (except the Company may issue additional shares of Company Common Stock to the Shareholders in accordance with Section 5.17 and 5.18); or (ii) sell, pledge, dispose of, or encumber, or authorize the sale, pledge, disposition or encumbrance of its assets, tangible or intangible, except in the ordinary course of business consistent with past practice; (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock or pay any bonuses to the Shareholders or the Taorminas; (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e) (i) acquire (including, without limitation, for cash or shares of stock, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or make any investment either by purchase of stock or securities, contributions of capital or property transfer, or, except in the ordinary course of business, consistent with past practice, purchase any property 22 23 or assets of any other Person (except as provided for in Sections 5.17 and 5.18); (ii) incur any indebtedness for borrowed money or issue any debt securities or assume (except as provided for in Sections 5.17 and 5.18), guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances; or (iii) enter into any Contract other than in the ordinary course of business, consistent with past practice; (f) increase the compensation payable or to become payable to its officers or employees, or, except as presently bound to do, grant any severance or termination pay to, or enter into any employment or severance agreement with, any of its directors, officers or other employees, or establish, adopt, enter into or amend or take any action to accelerate any rights or benefits which any collective bargaining, bonus, profit sharing, trust, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees; (g) take any action other than in the ordinary course of business and in a manner consistent with past practice with respect to accounting policies or procedures; (h) pay, discharge or satisfy any existing claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of due and payable liabilities reflected or reserved against in its financial statements, as appropriate, or liabilities incurred after the date hereof in the ordinary course of business and consistent with past practice; (i) increase or decrease prices charged to its customers, except for previously announced or contracted price changes, or take any other action which might reasonably result in any material increase in the loss of customers through non-renewal or termination of service contracts or other causes; (j) except in accordance with Section 5.17 and 5.18, enter into any transaction with an Affiliate, whether or not in the ordinary course of business; or (k) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty in Article III untrue or incorrect. ARTICLE V ADDITIONAL AGREEMENTS 5.1 Further Assurances. Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby. 5.2 Compliance with Covenants. The Shareholders and the Taorminas shall cause the Company to comply with all of the respective covenants of the Company under this Agreement, 23 24 and the Taorminas, as the respective trustees of the Shareholders, shall cause the Shareholders to comply with all of their respective covenants under this Agreement. 5.3 Cooperation. Each of the parties agrees to cooperate with the other in the preparation and filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to any law, rule or regulation or the rules of any exchange on which the Republic Common Stock is listed or The Nasdaq Stock Market in connection with the transactions contemplated by this Agreement and to use their respective best efforts to agree jointly on a method to overcome any objections by any Governmental Authority to any such transactions. 5.4 HSR Act and Other Actions. Each of the parties hereto shall: (a) make promptly (and in no event later than five (5) business days following the date hereof) its respective filings, and thereafter make any other required submissions, under the HSR Act, with respect to the transactions contemplated hereby; and (b) use its reasonable best efforts to take, or cause to be taken, all appropriate actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated herein, including, without limitation, using its best efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of any Governmental Authority and parties to Contracts with the Company as are necessary for the consummation of the transactions contemplated hereby. Each of parties shall make on a prompt and timely basis all governmental or regulatory notifications and filings required to be made by it for the consummation of the transactions contemplated hereby. The parties also agree to use best efforts to defend all lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby and to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. 5.5 Access to Information. From the date hereof to the Effective Time, the Company shall (and shall cause its directors, officers, employees, auditors, counsel and agents) to afford Republic and Republic's officers, employees, auditors, counsel and agents reasonable access at all reasonable times to its properties, offices, and other facilities, to its officers and employees and to all books and records, and shall furnish such persons with all financial, operating and other data and information as may be reasonably requested. No information provided to or obtained by Republic shall affect any representation or warranty in this Agreement. 5.6 Notification of Certain Matters. The Taorminas shall give prompt notice to Republic of the occurrence or non-occurrence of any event which would likely cause any representation or warranty contained herein to be untrue or inaccurate, or any covenant, condition, or agreement contained herein not to be complied with or satisfied. 5.7 Tax and Accounting Treatment. Republic, the Company, the Taorminas and the Shareholders will use their respective best efforts to cause the Merger to qualify as a reorganization under the provisions of Section 368(a) of the Code and do not presently intend to take any action after the Merger is effected to cause the Merger to lose its tax-free status. All parties hereto agree to file the Agreement of Merger with its respective federal income tax returns for the year in which the Merger is effective, if applicable, and to comply with the reporting requirements of Treasury Regulation 1.368-3. In addition, the Company, the Taorminas and the Shareholders shall not take any action after the date hereof to cause the Merger contemplated hereby not to be accounted for as a pooling of interests business combination. 24 25 5.8 Confidentiality; Publicity. Except as may be required by law or as otherwise permitted or expressly contemplated herein, no party hereto or their respective Affiliates, employees, agents and representatives shall disclose to any third party this Agreement or the subject matter or terms hereof, or use or disclose to any third party any information, documents or materials disclosed or produced hereunder, without the prior consent of the other parties hereto. No press release or other public announcement related to this Agreement or the transactions contemplated hereby shall be issued by any party hereto without the prior approval of the other parties, except that Republic may make such public disclosure which it believes in good faith to be required by law or by the terms of any listing agreement with or requirements of a securities exchange (in which case Republic will consult with an officer of the Company prior to making such disclosure). In the event of termination of this Agreement, the parties hereto shall promptly return all documents, including all copies thereof. 5.9 No Other Discussions. The Company, the Shareholders, the Taorminas and their respective Affiliates, employees, agents and representatives will not: (a) initiate, encourage the initiation by others of discussions or negotiations with third parties or respond to solicitations by third persons relating to any merger, sale or other disposition of any substantial part of the assets, business or properties of the Company (whether by merger, consolidation, sale of stock or otherwise); or (b) enter into any agreement or commitment (whether or not binding) with respect to any of the foregoing transactions. The Taorminas will immediately notify Republic if any third party attempts to initiate any solicitation, discussion or negotiation with respect to any of the foregoing transactions. 5.10 Restrictive Covenants. In order to assure that Republic will realize the benefits of the Merger, each of the Taorminas jointly and severally agrees with Republic that he will not after the Effective Time: (a) for a period of six years as to Orange County, California, and for a period of three years as to all other Counties listed below, directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, consultant, agent, independent contractor or stockholder of any company or business, engage in any business activity in Orange, San Bernardino, Los Angeles, San Diego, Ventura, or Riverside Counties, California, which is directly or indirectly in competition with the business conducted by the Company at the Effective Time; provided, however, that, the beneficial ownership of less than five percent (5%) of the shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this Section; (b) directly or indirectly: (i) induce any Person which is a customer of or supplier to the Company at the Effective Time to patronize any business directly or indirectly in competition with the business conducted by the Company; (ii) canvass, solicit or accept from any Person which is a customer of the Company, any such competitive business; or (iii) request or advise any Person which is a customer of the Company at the Effective Time to withdraw, curtail or cancel any such customer's or supplier's business with the Company or its successors; (c) directly or indirectly employ, or knowingly permit any company or business directly or indirectly controlled by him, to employ, any person who was employed by the Company at or within six months prior to the Effective Time, or in any manner seek to induce any such person to leave his or her employment (other than as to the Taorminas or Glenn Nygard); and 25 26 (d) except for the benefit of the Company, directly or indirectly, at any time following the Effective Time, in any way utilize, disclose, copy, reproduce or retain in his possession the Company's proprietary rights or records, including, but not limited to, any of its customer lists. The Taorminas agree and acknowledge that the restrictions contained in this Section are reasonable in scope of activity, duration of time, and geographic area, and are necessary to protect Republic after the Effective Time. If any provision of this Section as applied to any party or to any circumstance is adjudged by a court to be invalid or unenforceable, the same will in no way affect any other circumstance or the validity or enforceability of this Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision, and/or to delete specific words or phrases, and in its reduced form, such provision shall then be enforceable and shall be enforced. The parties agree and acknowledge that the breach of this Section will cause irreparable damage to Republic and upon breach of any provision of this Section, Republic shall be entitled to injunctive relief, specific performance or other equitable relief; provided, however, that, this shall in no way limit any other remedies which Republic may have (including, without limitation, the right to seek monetary damages). The provisions of this Section 5.10 are in addition to any restrictive covenants set forth in any employment agreement entered into by either of the Taorminas. 5.11 Due Diligence Review and Environmental Assessment. Republic shall be entitled to conduct prior to Closing a due diligence review of the assets, properties, books and records of the Company and an environmental assessment of the Owned Properties and Leased Premises (hereinafter referred to as "Environmental Assessment"). The Environmental Assessment may include, but not be limited to, a physical examination of the Owned Properties or Leased Premises, and any structures, facilities, or equipment located thereon, soil samples, ground and surface water samples, storage tank testing, review of pertinent records (including, but not limited to, off-site disposal records and manifests), documents, and Licenses of the Company. The Company, the Taorminas, the Shareholders and their Affiliates shall provide Republic or its designated agents or consultants with the access to such property which Republic, its agents or consultants require to conduct the Environmental Assessment. If the Environmental Assessment identifies environmental conditions which requires remediation, corrective action, or further evaluation under the Environmental Laws or the modification of operational practices to come into compliance with Environmental Laws or if the results of the Environmental Assessment or due diligence review are otherwise not satisfactory to Republic in its sole discretion, then Republic may elect not to close the transactions contemplated by this Agreement in which case this Agreement shall be terminated. Republic's failure or decision not to conduct any such Environmental Assessment shall not affect any representation or warranty of the Company, the Taorminas or the Shareholders under this Agreement. 5.12 Trading in Republic Common Stock. Except as otherwise expressly consented to by Republic, from the date of this Agreement until the Effective Time, neither the Company nor the Taorminas (nor any Affiliates thereof) will directly or indirectly purchase or sell (including short sales) any shares of Republic Common Stock in any transactions effected on The Nasdaq Stock Market or otherwise. 26 27 5.13 Employment Agreements. Republic or its assignee and each of the Taorminas shall enter into an employment agreement in the form attached hereto as Schedule 5.13. 5.14 Title Insurance and Surveys. (a) Within 10 business days after the date of this Agreement, the Company and the Shareholders shall obtain and deliver to Republic commitments (the "Commitments") issued by Chicago Title Insurance Company (the "Title Company") and dated not earlier than the date of this Agreement for the issuance of an ALTA Owners Policy of Title Insurance (the "Title Policy") for each of the Owned Properties in an aggregate amount of $20,000,000, together with legible hard copies of all title exceptions reflected in the Commitments. At Republic's option, the Company and Shareholders shall deliver copies of previous owner policies or other title evidence sufficient for Republic to obtain the Commitments directly from the Title Company. In either case, the premium for the Title Policy shall be paid by the Company, and in the event the Agreement contemplated hereby does not close, Republic shall pay up to $25,000 for the cost of obtaining the Commitments and the Surveys (as defined below). The Title Policy shall be in the amount of $20,000,000, showing fee simple title to the Owned Properties vested now or to be vested at or immediately prior to the Closing in the Company subject only to Permitted Exceptions, (it being agreed that the Shareholders shall cause any indebtedness secured by Deeds of Trust or any liens encumbering Other Owned Properties in excess of $2,623,000 to be satisfied or released prior to Closing). Within 3 business days following delivery of the Commitments to Republic, Republic shall notify the Shareholders of any exceptions in the Commitments which Republic maintains are not Permitted Exceptions. The Commitments and the Title Policy to be issued by the Title Company shall afford full "extended form coverage" and shall contain an ALTA Zoning Endorsements 3.1 (if available), contiguity (where appropriate), and such other endorsements as may be reasonably requested by Republic, excluding nonimputation and creditors rights endorsements. At the Closing, the Company, the Shareholders, their Affiliates and any other party owning an interest in Other Owned Properties shall deliver such affidavits or other instruments as the Title Company may reasonably require to provide the special endorsements required hereunder. The Company and the Shareholders shall cause the Commitments to be dated as of the Closing and to cause the Title Company to deliver the Title Policy dated as of the Closing as directed by Republic as soon as reasonably possible after the Closing. (b) Within 20 days after the date of this Agreement but before the Closing, the Company and the Shareholders shall use their best efforts to deliver to Republic and the Title Company an as-built plat of survey of each of the Owned Properties and the Leased Premises (the "Surveys") prepared by a registered land surveyor or engineer, licensed in the respective states in which such properties are located, dated on or after the date hereof, certified to Republic, the Title Company, and such other entities as Republic may designate in writing to the Company and the Shareholders prior to the Closing, and conforming to current ALTA/ACSM Minimum Detail Requirements for Land Title Surveys, sufficient to cause the Title Company to delete the standard printed survey exception. Each Survey shall show access from the land to dedicated roads and shall include a flood plain certification. Any survey may be a recertification of a prior survey, provided that it meets the above-described criteria. In the event that the necessary surveys cannot be obtained prior to Closing, the Shareholders shall deliver such surveys to Republic, at the cost and expense of the Company, as soon as practical thereafter, along with any insurance coverages contemplated by Section 5.14(a) above which could not be obtained due to the unavailability of such surveys prior to the Closing. 27 28 (c) If (i) any Commitment discloses a title exception other than a Permitted Exception (an "Unpermitted Exception") or (ii) any Survey discloses any encroachment, overlap, boundary dispute, or gap or any other matter which renders title to any of the Owned Properties unmarketable or reflects that any utility service to the improvements or access thereto does not lie wholly within the applicable parcel of real property, or within an encumbered easement for the benefit of such parcel of real property or another Owned Property, or reflects any other matter materially adversely affecting the use or improvements of such parcel of real property or another Owned Property (a "Survey Defect"), then the Shareholders, prior to the Closing with respect to Surveys delivered prior to Closing, or to the extent Survey Defects appear on Surveys delivered after Closing promptly thereafter, shall have the Unpermitted Exception removed from such Commitment or the Survey Defect corrected or insured over by an appropriate title insurance endorsement, all in a manner reasonably satisfactory to Republic. 5.15 Shareholder and Director Vote. Each of the Shareholders, in executing this Agreement, consents as a shareholder of the Company, and each of the Taorminas, in executing this Agreement, consents as a director of the Company, to the Merger and the transactions contemplated hereby, and waives notice of any meeting in connection therewith and hereby releases and waives all rights with respect to the transactions contemplated hereby under any agreements relating to the sale, purchase or voting of stock of the Company. 5.16 Taormina Name. Republic agrees, upon request by the Taorminas, to phase out as promptly as possible the use of the "Taormina" name in all aspects of the conduct of the Company's business over a period of one year following the date of such request, provided that nothing herein stated shall require the Company or Republic to repaint any vehicles, containers or other equipment or incur any other large expenditure of money. The Taorminas shall be entitled to use the "Taormina" name for any business that is totally unrelated to the solid waste management industry. 5.17 Anaheim Truck Depot. (a) The Taorminas and the Shareholders represent and warrant that: (A) Blue Gum Partnership is a California general partnership ("Blue Gum Partnership"), and the general partners of Blue Gum Partnership are William C. Taormina, Vincent C. Taormina, and Bobby Babajian, Jr. Blue Gum Partnership holds a land lease from Landowner (as defined below) to certain property known as the "Blue Gum Property" upon which is situated the business known as "Anaheim Truck Depot," a paved parking yard, and other improvements. As of the date hereof, the Blue Gum Partnership subleases the property and leases the improvements to the Company for a monthly rental of $77,000 and the business known as Anaheim Truck Depot sells fuel and provides maintenance services to the Company and third parties. (B) A California general partnership (herein referred to as "Landowner") exists between (i) Bobby Babajian, Sr. and (ii) Truck Haven, a California general partnership ("Truck Haven") existing between William C. Taormina, Vincent C. Taormina, and the C.V. Taormina Family Trust. Each of William C. Taormina, Vincent C. Taormina, and the C.V. Taormina Family Trust are general partners in Truck Haven, with a one-third interest therein. Each of Bobby Babajian, Sr. and Truck Haven are general partners 28 29 in Landowner. Landowner owns title to the real estate which is leased to the Blue Gum Partnership for a monthly rental of $5,000. (C) The Taorminas have voting control over the Blue Gum Partnership, and otherwise have the sole and exclusive power to direct the management, policies and assets of Blue Gum Partnership. (D) The Taorminas have voting control over Truck Haven, and have voting control over Landowner, and otherwise have the sole and exclusive power to direct the management, policies and assets of each of Truck Haven and Landowner. (b) Simultaneous with or prior to the Closing, the Taorminas shall contribute their respective interests in Blue Gum Partnership to the Company and the Taorminas and the C.V. Taormina Family Trust shall contribute all of Truck Haven to the Company, in exchange solely for additional shares of Company Common Stock. (c) The Taorminas agree to use best efforts to cause the Company to purchase and acquire (i) from Bobby Babajian, Jr., his non-controlling interest in the Blue Gum Partnership, and (ii) from Bobby Babajian, Sr., his non-controlling interest in Landowner and to cause the Company to pay off all debts owed to Bobby Babajian, Jr. by Blue Gum Partnership, provided, however, that completion of such purchases shall not be a condition to Republic's obligations to close the Merger. (d) The Taorminas, the Shareholders, and the Company agree that not more than $5,450,000 of the aggregate purchase price paid to Bobby Babajian, Jr. (as to his interest in Blue Gum Partnership, including repayment of all debt owed to him by Blue Gum Partnership), and to Bobby Babajian, Sr. (as to his interest in Landowner), shall be paid directly or indirectly by the Company. Any portion of such aggregate purchase price in excess of $5,450,000 shall be paid by the Taorminas personally out of their own funds, and not by the Company directly or indirectly. (e) Upon contribution of all of the Blue Gum Partnership interests to the Company, the Company shall assume and pay off, prior to closing, not more than $377,000 of the indebtedness (which indebtedness is not related to or secured by real estate upon which the Blue Gum Partnership does business) owed by Blue Gum Partnership to Bobby Babajian, Sr. (f) For purposes of this Agreement, the representations and warranties of Article III of this Agreement shall apply to and shall be deemed made by the Shareholders with respect to the assets, properties and operations of Blue Gum Partnership and Landowner as of the date hereof and as of the Closing pursuant to the Bringdown Certificate delivered pursuant to Section 6.1. 5.18 Other Leased Property. All of the leases of real estate listed on Schedule 3.14(b) pursuant to which the Shareholders or the Taorminas are leasing property to the Company shall be terminated prior to Closing, and all of such leased property shall be contributed by the Shareholders or the Taorminas, respectively, as the case may be, prior to Closing to the Company for no consideration other than the issuance of additional shares of Company Common Stock to the Shareholders. The Company agrees to assume no more than an aggregate of $2,623,000 of indebtedness related to or encumbering such contributed property, and the Shareholders and/or 29 30 the Taorminas agree to pay off all indebtedness in excess of such amount and to satisfy (at their expense) all encumbrances related to any such excess indebtedness. If the Taorminas or the Shareholders pay off any such excess indebtedness, then the Company shall issue additional shares of Company Common Stock to the Shareholders based on the amount of such payoff. 5.19 Intellectual Property. Prior to Closing, the Taorminas shall contribute to the Company all right, title and interest in and to any Intellectual Property owned by them individually which is used by or otherwise relates to the Company and its business and operations, including, without limitation, any interest Taormina's may have in the patent relating to the conveyors used in the Company's Materials Recycling Facility in Anaheim, California, but excluding the "Taormina" name for which Republic has a royalty-free license to continue to use subject to Section 5.16 (and which the Taorminas shall be entitled to use in a manner consistent with Section 5.16). ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES The obligations of the Republic Companies to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions, any or all of which may be waived in whole or in part by the Republic Companies: 6.1 Accuracy of Representations and Warranties and Compliance with Obligations. The representations and warranties of the Shareholders contained in this Agreement shall be true and correct at and as of the Effective Time with the same force and effect as though made at and as of that time except: (a) for changes specifically permitted by or disclosed pursuant to this Agreement; and (b) that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. The Company and the Shareholders shall have performed and complied with all of their respective obligations required by this Agreement to be performed or complied with at or prior to the Effective Time. The Company and the Shareholders shall have delivered to the Republic Companies a certificate, dated as of the Effective Date, duly signed (in the case of the Company, by its President), certifying that such representations and warranties are true and correct and that all such obligations have been complied with and performed (the "Bringdown Certificate"). 6.2 No Material Adverse Change or Destruction of Property. Between the date hereof and the Effective Time: (a) there shall have been no Material Adverse Change to the Company; (b) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of the Company; and (c) none of the properties and assets of the Company shall have been damaged by fire, flood, casualty, act of God or the public enemy or other cause (regardless of insurance coverage for such damage) which damages may have a Material Adverse Effect thereon, and there shall have been delivered to the Republic Companies a certificate to that effect, dated the Effective Date and signed by or on behalf of the Company and the Shareholders. 6.3 Corporate Certificate. The Shareholders shall have delivered to the Republic Companies: (a) copies of the articles of incorporation and bylaws of the Company as in effect immediately prior to the Effective Time; (b) copies of resolutions adopted by the Board of Directors and Shareholders of the Company authorizing the transactions contemplated by this 30 31 Agreement; and (c) a certificate of good standing of the Company issued by the Secretary of State of the State of California and each other state in which the Company is qualified to do business as of a date not more than thirty days prior to the Effective Date, certified in the case of subsections (a) and (b) of this Section as of the Effective Date by the Secretary of each such company as being true, correct and complete. 6.4 Opinion of Counsel. Republic shall have received an opinion dated as of the Effective Date from counsel for the Company and the Shareholders, in its typical format and subject to customary qualifications and assumptions, and in form and substance reasonably acceptable to Republic, to the effect that: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and is authorized to carry on the business now conducted by it and to own or lease the properties now owned or leased by it; (b) The Company has obtained all necessary authorizations and consents of its Board of Directors and the Shareholders to effect the Merger; (c) All issued and outstanding shares of capital stock of the Company are owned by the Shareholders; (d) This Agreement is a valid and binding obligation of the Company, the Taorminas, and the Shareholders, and enforceable against the Company, the Taorminas, and the Shareholders in accordance with its terms (subject to the assumption that Florida law is identical to California law), subject to customary limitations, such as bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or general equitable principles and provided that no opinion shall be rendered as to Section 5.10 or Section 8.7(b), or as to choice of law. 6.5 Consents. The Company shall have received (and delivered copies to the Republic of) consents to the transactions contemplated hereby and waivers of rights to terminate or modify any material rights or obligations of the Company from any Person from whom such consent or waiver is required under any Contract or instrument as of a date not more than thirty days prior to the Effective Date, or who, as a result of the transactions contemplated hereby, would have such rights to terminate or modify such Contracts or instruments, either by the terms thereof or as a matter of law. 6.6 Securities Laws. Republic shall have received all necessary consents and otherwise complied with any state Blue Sky or securities laws applicable to the issuance of the Republic Shares, in connection with the transactions contemplated hereby. 6.7 Pooling Letters. Republic shall have received from McGladrey & Pullen, LLP, independent certified public accountants for the Company, a letter dated the Effective Date, in form and substance acceptable to Republic, confirming that, to their knowledge after due and diligent inquiry of management, there have been no transactions or events with respect to the Company which would, and the ownership structure and attributes of the Company and the Shareholders would not, prescribe the transactions contemplated hereby, if consummated, from being considered as a pooling of interests business combination. Republic shall have received from Arthur Andersen LLP, a letter dated the Effective Date, confirming that the transactions contemplated hereby, if consummated, can properly be accounted for as a pooling of interests 31 32 combination in accordance with GAAP and the criteria of Accounting Principles Board Opinion No. 16 and the regulations of the SEC. 6.8 Acknowledgment of Pooling Restrictions and Receipt of SEC Filings. At or prior to the Closing the Shareholders shall have delivered to Republic a letter agreement acknowledging their status as Affiliates of the Company, their agreement to comply with the "pooling of interests" restrictions, and their receipt of SEC filings of Republic, in form and substance satisfactory to the Republic Companies. 6.9 Company Common Stock. At the Closing, each of the Shareholders shall have delivered to Republic all certificates evidencing the shares of capital stock of the Company issued by them, free and clear of any Liens or restrictions whatsoever, including, without limitation, any Lien in favor of the Taorminas' sister Arlene Taormina, Trustee of the Arlene Taormina Property Trust, or its or her successors or assigns. 6.10 Stock Powers. At the Closing, each of the Shareholders shall have delivered to Republic, for use in connection with the Held Back Shares, ten stock powers executed in blank, with signatures guaranteed. 6.11 No Adverse Litigation. There shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, invalidate or collect damages arising out of the Merger or any other transaction contemplated hereby, and which, in the judgment of Republic, makes it inadvisable to proceed with the Merger and other transactions contemplated hereby. 6.12 Intentionally Omitted. 6.13 HSR Act Waiting Period. Any applicable HSR Act waiting period shall have expired or been earlier terminated. 6.14 Due Diligence Review. Republic shall be satisfied with the results of its due diligence review and Environmental Assessment pursuant to Section 5.11. 6.15 Employment Agreements. The Taorminas shall have executed and delivered the employment agreements referred to in Section 5.13. 6.16 Releases. Each of the Shareholders and Taorminas shall deliver to Republic a release (collectively, the "Releases") in such form as is reasonably satisfactory to Republic releasing all claims of any nature against the Company, Blue Gum Partnership, and Truck Haven, if any, and any claims arising out of the Merger and the transactions contemplated by this Agreement, provided that such Release shall not cover (i) any rights of the Shareholders against Republic under this Agreement, (ii) any employment benefits accrued in the ordinary course of business consistent with past practice (such as vacation time) or related rights under law (such as ERISA or COBRA), or (iii) any rights under law to indemnification against third party claims arising with respect to the Taorminas' service as officers, directors or agents of the Company. 6.17 Assignments. The Taorminas shall have executed and delivered the assignments of the Intellectual Property referred to in Section 5.19. 6.18 Anaheim Truck Depot. If Blue Gum Partnership and the Landowner have not been acquired in their entirety by the Company as of the time of Closing, then Republic also shall have 32 33 received copies of duly executed amendments to, or new, leases between Blue Gum Partnership (as lessor) and the Company (as lessee) providing for the Company to continue to use the real property and improvements owned by the Landowner and Blue Gum Partnership, respectively, as of the date hereof (as the same may be subsequently improved) for a term of fifteen (15) years through December 31, 2011, at a fixed monthly rental of One Thousand Dollars ($1,000) per month payable to each of Blue Gum Partnership and Landowner together with the right to continue to purchase fuel at a price of $0.05 per gallon over cost to the Blue Gum Partnership, and the right to continue to purchase parts and maintenance services from the Anaheim Truck Depot at the same rates being charged as of the date hereof. ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS The obligations of the Company and the Shareholders to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions, any or all of which may be waived in whole or in part by the Company and the Shareholders: 7.1 Accuracy of Representations and Warranties and Compliance with Obligations. The representations and warranties of each of the Republic Companies contained in this Agreement shall be true and correct at and as of the Effective Time with the same force and effect as though made at and as of that time except: (a) for changes specifically permitted by or disclosed pursuant to this Agreement; and (b) that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. Each of the Republic Companies shall have performed and complied with all of its obligations required by this Agreement to be performed or complied with at or prior to the Effective Time. Each of the Republic Companies shall have delivered to the Company and the Shareholders a certificate, dated as of the Effective Date, and signed by an executive officer, certifying that such representations and warranties are true and correct and that all such obligations have been complied with and performed. 7.2 Republic Shares. At the Closing, Republic shall have issued all of the Republic Shares and shall have delivered to the Shareholders: (a) certificates representing the Republic Shares issued to them hereunder, other than the Held Back Shares; and (b) copies of stock certificates representing the Held Back Shares issued to them. 7.3 No Adverse Litigation. There shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, invalidate or collect damages arising out of the Merger or any other transaction contemplated hereby, and which in the judgment of the Company and the Shareholders makes it inadvisable to proceed with the Merger and other transactions contemplated hereby. 7.4 HSR Act Waiting Period. Any applicable HSR Act waiting period shall have expired or been earlier terminated. 7.5 Opinion of Counsel. The Shareholders and the Taorminas shall have received an opinion dated the Effective Date from counsel to Republic, in its typical format, and subject to 33 34 customary qualifications and assumptions, and in form and substance reasonably acceptable to the Shareholders and the Taorminas, to the effect that: (a) This Agreement is a valid and binding obligation of Republic, and enforceable against Republic in accordance with its terms, subject to customary limitations, such as bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or general equitable principles, and provided that no opinion shall be rendered as to Section 5.10 or Section 8.7(a), or as to choice of law. (b) The Republic Shares have been validly issued, and are fully paid and non-assessable. 7.6 Employment Agreements. Republic or its assignee shall have executed and delivered the employment agreements referred to in Section 5.13. 7.7 No Material Adverse Change. Since the date of this Agreement, there shall not have occurred with respect to Republic and its subsidiaries, taken as a whole, any material adverse change in their business, financial position, or results of operations excluding events which affected the solid waste or automotive industries generally in a like manner or which affected the economy or stock markets generally. ARTICLE VIII REGISTRATION RIGHTS The Shareholders shall have the following registration rights with respect to the Republic Shares issued to them hereunder: 8.1 Registration Rights for Republic Shares; Filing of Registration Statement. Republic will utilize reasonable best efforts to cause, as soon as practicable following the Effective Time, a registration statement to be filed under the Securities Act or an existing registration statement to be amended for the purpose of registering the Republic Shares for resale on a continuous basis from time to time by a Holder thereof (the "Registration Statement"). For purposes of this Article, a person is deemed to be a "Holder" of Republic Shares whenever such person is the record owner of Republic Shares. Thereafter Republic will use reasonable best efforts to have the Registration Statement become effective and cause the Republic Shares to be registered under the Securities Act, and registered, qualified or exempted under the state securities laws of such jurisdictions as any Holder reasonably requests, as soon as is reasonably practicable. Notwithstanding the foregoing, Republic may delay filing a Registration Statement, and may withhold efforts to cause the Registration Statement to become effective, if Republic determines in good faith that such registration might interfere with or affect the negotiation or completion of any transaction that is being contemplated by Republic (whether or not a final decision has been made to undertake such transaction) at the time the right to delay is exercised, provided, however, that the maximum cumulative delay in filing the Registration Statement and in withholding efforts to cause it to become effective shall be no more than 45 days. 8.2 Expenses of Registration. Republic shall pay all expenses incurred by Republic in connection with the registration, qualification and/or exemption of the Republic Shares, including any SEC and state securities law registration and filing fees, printing expenses, fees and 34 35 disbursements of Republic's counsel and accountants, transfer agents' and registrars' fees, fees and disbursements of experts used by Republic in connection with such registration, qualification and/or exemption, and expenses incidental to any amendment or supplement to the Registration Statement or prospectuses contained therein. Republic shall not, however, be liable for any sales, broker's or underwriting commissions upon sale by any Holder of any of the Republic Shares. 8.3 Furnishing of Documents. Republic shall furnish to the Holders such reasonable number of copies of the Registration Statement, such prospectuses as are contained in the Registration Statement and such other documents as the Holders may reasonably request in order to facilitate the offering of the Republic Shares. 8.4 Amendments and Supplements. Republic shall prepare and promptly file with the SEC and promptly notify the Holders of the filing of such amendments or supplements to the Registration Statement or prospectuses contained therein as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to the Republic Shares is required to be delivered under the Securities Act, any event shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Republic shall also advise the Holders promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of the Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. If, after a Registration Statement becomes effective, the Holders desire that the Registration Statement be amended or Republic advises the Holders that Republic considers it appropriate that the Registration Statement (and all other registration statements of Republic then effective and outstanding) be amended, the Holders shall suspend any further sales of the Republic Shares until Republic advises the Holders that the Registration Statement has been amended. 8.5 Duration. Republic shall maintain the effectiveness of the Registration Statement until such time as Republic reasonably determines, based on an opinion of counsel, that the Holders will be eligible to sell all of the Shares then owned by the Holders without the need for continued registration of the shares, in the three month period immediately preceding the termination of the effectiveness of the Registration Statement. Republic's obligations contained in Sections 8.1, 8.3 and 8.4 shall terminate on the second anniversary of the Effective Date. 8.6 Further Information. If Republic Shares owned by a Holder are included in any registration, such Holder shall furnish Republic such information regarding itself as Republic may reasonably request and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 8.7 Indemnification. (a) Republic will indemnify and hold harmless the Holders and each person, if any, who controls a Holder within the meaning of the Securities Act, from and against any and all losses, damages, liabilities, costs and expenses to which the Holders or any such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any prospectus contained 35 36 therein or any amendment or supplement thereto, or arise out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that, Republic will not be liable in any such case to the extent that any such loss, claim, damage, liability, cost or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of any Holder or such controlling person in writing specifically for use in the preparation thereof. (b) Each of the Holders, jointly and severally, will indemnify and hold harmless Republic and each person, if any, who controls Republic within the meaning of the Securities Act, from and against any and all losses, damages, liabilities, costs and expenses to which Republic or any such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in strict conformity with written information furnished by or on behalf of any Holder specifically for use in the preparation thereof. (c) Promptly after receipt by an indemnified party pursuant to the provisions of paragraph (a) or (b) of this Section of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said paragraph (a) or (b), promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have hereunder unless the indemnifying party has been materially prejudiced thereby nor will such failure to so notify the indemnifying party relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, if the defendants in any action include both the indemnified party and the indemnifying party and there is a conflict of interest which would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said paragraph (a) or (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless: (i) the indemnified party shall have employed counsel in accordance with the provisions of the preceding sentence; (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action; or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. 36 37 (d) In the event any of the Republic Shares are sold by any Holder or Holders in an underwritten public offering consented to by Republic, Republic shall provide indemnification to the underwriters of such offering and any person controlling any such underwriter on behalf of the Holder or Holders making the offering; provided, however, that Republic shall not be required to consent to any such underwriting or to provide such indemnification in respect of the matters described in the proviso to the first sentence of Section 8.7(a). ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Shareholders to Indemnify. The Shareholders jointly and severally agree to indemnify and hold Republic harmless from and against the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, related counsel and paralegal fees and expenses) incurred or suffered by Republic arising out of or resulting from: (a) any breach of a representation or warranty made by the Shareholders, the Taorminas or the Company in or pursuant to this Agreement; (b) any breach of the covenants or agreements made by the Shareholders, the Taorminas or the Company in or pursuant to this Agreement; or (c) any inaccuracy in any certificate delivered by the Shareholders, the Taorminas or the Company pursuant to this Agreement (collectively, "Indemnifiable Damages"). With respect to the measurement of Indemnifiable Damages, Republic shall have the right to be put in the same after-tax consolidated financial position as it would have been in had each of such representations and warranties been true and correct and had such covenants and agreements been performed in full. Notwithstanding anything to the contrary contained herein (other than the proviso at the end of this sentence), Republic shall not be entitled to any Indemnifiable Damages unless the aggregate of all Indemnifiable Damages exceeds Two Million Dollars ($2,000,000) ("Indemnification Threshold"), in which case Republic shall be entitled to (i) the full amount of such Indemnifiable Damages if such Indemnifiable Damages result from a breach of Section 4.1(c) or the representations as to total indebtedness and Adjusted Total Stockholders Equity as provided in Section 3.11, or (ii) the amount of such Indemnifiable Damages in excess of One Million Dollars ($1,000,000) if the Indemnifiable Damages result from anything other than a breach of Section 4.1(c) or such representations of Section 3.11; provided however, that the Indemnification Threshold shall not apply with respect to, and Republic shall be entitled to the full amount of any Indemnifiable Damages resulting from any breach of representations set forth in Section 3.5 hereof or any representations set forth in any factual certificate delivered to Repulic relating to the share ownership of the Company. In the case of any claim for Indemnifiable Damages, Republic agrees that it shall satisfy such claim only out of the following, and in the following order: (i) first, out of any Held Back Shares (or any Cash Collateral, as defined in Section 9.4 below) still held by Republic, (ii) second, out of any other Republic Shares (or any shares of Republic Common Stock issued to the Shareholders in connection with any stock split or stock dividend effected by Republic after the Effective Time) which are still held by the Shareholders valued at a price equal to the Average Closing Share Price, and (iii) third, out of any Proceeds received by the Shareholders or the Taorminas on account of the sale of any of the Republic Shares (or any shares of Republic Common Stock issued in connection with any stock split or stock dividend effected by Republic after the Effective Time). After such amounts have been exhausted, the Shareholders and the Taorminas shall have no further liability for Indemnifiable Damages. As used in this Section 9.1, "Proceeds" shall mean (i) in the case of the sale at Fair Market Value of any of the Republic Shares, the net proceeds received on account of such sale, after deducting any 37 38 commissions or other selling expenses paid in connection with such sale and any taxes payable on account of such sale (assuming applicability of the maximum long term capital gains tax rate in effect at the time of such sale, after offsetting any reduction in the Shareholders' taxable income resulting from the payment of the Indemnifiable Damages hereunder (assuming applicability of the maximum marginal federal and state income tax rates)); and (ii) in the case of the sale or transfer (by gift or otherwise) of any Republic Shares at less than Fair Market Value, or for no cash proceeds (as in the case of a gift), the Fair Market Value of such shares. As used in this Section 9.1, "Fair Market Value" shall mean on any date the closing price of a share of Republic Common Stock on the NASDAQ Stock Market for that day as reported (absent manifest error in the printing thereof) by the Wall Street Journal (Eastern Edition). The Shareholders' obligation to pay Republic all Indemnifiable Damages shall not be diminished or impaired by the existence of any insurance policies or other right to recover some or all of the Indemnifiable Damages from third parties. Republic agrees to use its reasonable efforts to seek recovery under any applicable insurance policies. The proceeds actually received by Republic, if any, under such insurance policies, net of all of Republic's unrecovered costs and expenses (including attorneys' fees and expenses) incurred in pursuing coverage under such insurance policies, shall be paid by Republic to the Shareholders but only to the extent that the Shareholders have actually paid to Republic the Indemnifiable Damages relating to the matter for which such insurance proceeds were paid to Republic. 9.2 Survival of Representations and Warranties. Each of the representations and warranties made by the Shareholders and the Taorminas in this Agreement or pursuant hereto shall survive for a period of one year after the Effective Time. No claim for the recovery of Indemnifiable Damages may be asserted by Republic against the Shareholders or the Taorminas after such representations and warranties shall thus expire, provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. Each of the representations and warranties of Republic Merger Sub and of the Company shall expire at the Effective Time. Each of the representations and warranties of Republic shall survive for a period of one year after the Effective Time. 9.3 Procedures for Defense of Third Party Actions. Promptly after receipt by Republic of notice of commencement of any action by a third party (including service of a summons in connection with the serving of a lawsuit) which could give rise to Indemnifiable Damages in excess of the Indemnification Threshold (individually or in the aggregate with other claims for Indemnifiable Damages) set forth in Section 9.1, or to Indemnifiable Damages for which no Indemnification Threshold applies. Republic shall notify the Shareholders of the commencement thereof to the extent that either of the Shareholders are otherwise not in receipt of such notice of commencement themselves. The omission to so notify the Shareholders will not relieve them from any liability which they may have hereunder unless the Shareholders have been materially prejudiced thereby, nor will such failure to so notify the Shareholders relieve them from any other liability which they may have to Republic otherwise than hereunder. With respect to any such action commenced by a third party, the Shareholders shall have the right to participate in, and, to the extent that they may wish, jointly or individually, to assume the defense thereof with counsel satisfactory to Republic; provided, however if the defendants in any action include both Republic (or any of its subsidiaries, including -- after Closing -- the Company) and either or both of the 38 39 Shareholders and there is a conflict of interest which would prevent counsel for the Shareholders from also representing Republic (or its subsidiaries), then Republic shall have the right to select separate counsel to participate in the defense of such action on behalf of Republic (or its subsidiaries). After notice from the Shareholders to Republic of their election to so assume the defense thereof, the Shareholders will not be liable to Republic pursuant to the provisions of Section 9.1 for the related counsel and paralegal fees and expenses subsequently incurred by Republic (or its subsidiaries) in connection with the defense thereof other than reasonable costs of investigation, unless (i) Republic (or its subsidiaries) shall have employed counsel in accordance with the provisions of the preceding sentence; (ii) the Shareholders shall not have employed counsel satisfactory to Republic to represent Republic (or its subsidiaries) within a reasonable time after notice of the commencement of the action, or (iii) the Shareholders have authorized the employment of counsel for Republic (or its subsidiaries) at the expense of the Shareholders. Notwithstanding anything to the contrary in this Section 9.3, the Shareholders shall have no right to settle or compromise any action for which they have assumed the defense of to the extent the settlement or compromise involves any injunctive or other equitable relief or otherwise involves any continuing obligations of any nature against Republic or loss of rights of Republic (or any of its subsidiaries or any of their respective directors, officers or employees), and nothing stated in this Section 9.3 shall otherwise affect the Shareholders' obligation to pay Republic all Indemnifiable Damages (other than such related counsel and paralegal fees and expenses) pursuant to Section 9.1. 9.4 Security for the Shareholders' Indemnification Obligation. As security for the agreement by the Shareholders to indemnify and hold Republic harmless as described in this Article at the Closing, the Shareholders do hereby grant a security interest in, pledge and instruct Republic to set aside and hold certificates representing the Held Back Shares issued pursuant to this Agreement. Republic may set off against the Held Back Shares (or against any Cash Collateral (defined below)) any Indemnifiable Damages for which the Shareholders may be responsible pursuant to this Agreement, subject, however, to the following terms and conditions: (a) Republic shall give written notice to the Shareholders of any claim for Indemnifiable Damages or any other damages hereunder, which notice shall set forth: (i) the amount of Indemnifiable Damages or other loss, damage, cost or expense which Republic claims to have sustained by reason thereof; and (ii) the basis of such claim; (b) Such set off shall be effected on the later to occur on the expiration of 30 days from the date of such notice (the "Notice of Contest Period") or, if such claim is contested, the date the dispute is resolved, and such set off shall be charged proportionally against the shares set aside; (c) If, prior to the expiration of the Notice of Contest Period, the Shareholders shall notify Republic in writing of an intention to dispute the claim and if such dispute is not resolved within 30 days after expiration of such period (the "Resolution Period"), then Republic may elect that such dispute shall be resolved in accordance with Section 13.10 below; (d) After the Held Back Shares are registered and any restrictions on sale imposed under the Securities Act or otherwise are terminated, the Shareholders may, not more than once during the twelve (12) month period following the Effective Date, instruct Republic in writing to sell some or all of the Held Back Shares and Republic shall utilize reasonable efforts to promptly sell the Held Back Shares following such written instruction and the net proceeds ("Cash Collateral") thereof shall be substituted for such Held Back Shares in any set off to be 39 40 made by Republic pursuant to any claim hereunder, subject to continued compliance with any applicable SEC requirements dealing with pooling of interests and other applicable regulations (any Cash Collateral shall be deposited with a financial institution in such manner as Republic shall reasonably determine necessary to retain its rights to the Cash Collateral as security for any Indemnifiable Damages; provided that any Cash Collateral shall be deposited in an interest bearing account or invested in United States Government or Agency obligations reasonably acceptable to the Shareholders); and e) For purposes of this Article, each share of Republic Common Stock not sold as provided in clause (d) of this Section shall be valued at a price equal to the Average Closing Share Price. 9.5 Voting of and Dividends on the Held Back Shares. Except with respect to shares transferred pursuant to the foregoing right of setoff (and in the case of such shares, until the same are transferred), all Held Back Shares shall be deemed to be owned by the Shareholders and the Shareholders shall be entitled to vote the same; provided, however, that, there shall also be deposited with Republic subject to the terms of this Article, all shares of Republic Common Stock issued to the Shareholders as a result of any stock dividend or stock split and all cash issuable to the Shareholders as a result of any cash dividend, with respect to the Held Back Shares (any such cash shall be deemed "Cash Collateral" hereunder). All stock and cash issued or paid upon Held Back Shares shall be distributed to the person or entity entitled to receive such Held Back Shares together with such Held Back Shares. 9.6 Delivery of Held Back Shares and Cash Collateral. Republic agrees to deliver to the Shareholders no later than the first anniversary of the Effective Date any Held Back Shares and Cash Collateral then held by it unless there then remains unresolved any claim for Indemnifiable Damages or other damages hereunder as to which notice has been given, in which event any Held Back Shares and Cash Collateral remaining on deposit after such claim shall have been satisfied shall be returned to the Shareholders promptly after the time of satisfaction. 9.7 Adjustment to Merger Consideration. All payments for Indemnifiable Damages made pursuant to this Article shall be treated as adjustments to the consideration granted in the Merger under Section 1.3 hereof. 9.8 No Bar. If the Held Back Shares and any Cash Collateral are insufficient to set off any claim for Indemnifiable Damages made hereunder (or have been delivered to the Shareholders prior to the making or resolution of such claim), then Republic may take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages (subject to the limitations set forth in Section 9.1 above). 9.9 Remedies Exclusive; Waiver. The rights of the parties hereto as set forth in this Agreement shall constitute their sole remedy under this Agreement, except for all equitable rights and remedies to seek specific performance, or to enjoin violation of, covenants for which monetary damages may be an inadequate remedy, and for remedies which any of the parties may have as a result of a claim for fraud. The Shareholders and the Taorminas hereby waive any rights to contribution or any other similar rights they may have against the Company as a result of their Agreement to Indemnify in this Article IX. 9.10 Taorminas Guaranty. The Taorminas hereby jointly and severally guaranty the payment when due of any and all amounts due and payable by the Shareholders to Republic 40 41 pursuant to this Article IX, and guaranty the performance by the Shareholders of their obligations under this Article IX. ARTICLE X SECURITIES LAW MATTERS The parties agree as follows with respect to the sale or other disposition after the Effective Time of the Republic Shares: 10.1 Disposition of Shares. The Shareholders represent and warrant that the shares of Republic Common Stock being acquired by them hereunder are being acquired and will be acquired for their own respective accounts and will not be sold or otherwise disposed of, except pursuant to: (a) an exemption from the registration requirements under the Securities Act, which does not require the filing by Republic with the SEC of any registration statement, offering circular or other document, in which case, the Shareholders shall first supply to Republic an opinion of counsel (which counsel and opinions shall be satisfactory to Republic) that such exception is available; or (b) an effective registration statement filed by Republic with the SEC under the Securities Act. 10.2 Legend. The certificates representing the Republic Shares shall bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE ACT, AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO, OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, AND ALSO MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT COMPLIANCE WITH THE SECURITIES AND EXCHANGE COMMISSION'S ACCOUNTING SERIES RELEASES 130 AND 135. Republic may, unless a registration statement is in effect covering such shares, place stop transfer orders with its transfer agents with respect to such certificates in accordance with federal securities laws. ARTICLE XI DEFINITIONS 11.1 Defined Terms. As used herein, the following terms shall have the following meanings: 41 42 "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof, and with respect to the Company, the Blue Gum Partnership and Landowner shall be deemed an Affiliate thereof. "Contract" means any agreement, contract, lease, note, mortgage, indenture, loan agreement, franchise agreement, covenant, employment agreement, license, instrument, purchase and sales order, commitment, undertaking, obligation, whether written or oral, express or implied. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in effect in the United States of America from time to time. "Governmental Authority" means any nation or government, any state, regional, local or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, but not limited to, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code or comparable law or any jurisdiction in connection with such mortgage, pledge, security interest, encumbrance, lien or charge). "Material Adverse Change (or Effect)" means a change (or effect), in the condition (financial or otherwise), properties, assets, liabilities, rights, obligations, operations, business or prospects which change (or effect) individually or in the aggregate, is materially adverse to such condition, properties, assets, liabilities, rights, obligations, operations, business or prospects. "Person" means an individual, partnership, corporation, business trust, joint stock company, estate, trust, unincorporated association, joint venture, Governmental Authority or other entity, of whatever nature. "Register", "registered" and "registration" refer to a registration of the offering and sale of securities effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. 42 43 "Tax Return" means any tax return, filing or information statement required to be filed in connection with or with respect to any Taxes; and "Taxes" means all taxes, fees or other assessments, including, but not limited to, income, excise, property, sales, franchise, intangible, withholding, social security and unemployment taxes imposed by any federal, state, local or foreign governmental agency, and any interest or penalties related thereto. 11.2 Other Definitional Provisions. (a) All terms defined in this Agreement shall have the defined meanings when used in any certificates, reports or other documents made or delivered pursuant hereto or thereto, unless the context otherwise requires. (b) Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (c) Unless otherwise expressly indicated herein, all matters of an accounting nature in connection with this Agreement and the transactions contemplated hereby shall be determined in accordance with GAAP applied on a basis consistent with prior periods, where applicable. (d) As used herein, the neuter gender shall also denote the masculine and feminine, and the masculine gender shall also denote the neuter and feminine, where the context so permits. ARTICLE XII TERMINATION 12.1 Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) by mutual written consent of all of the parties hereto at any time prior to the Closing; or (b) by Republic in the event of a material breach by the Company or any of the Shareholders of any provision of this Agreement; or (c) by the Company in the event of a material breach by Republic of any provision of this Agreement; (d) by either Republic or the Company if the Closing shall not have occurred by May 31, 1997; or (e) by Republic if the Merger Consideration shall have been determined pursuant to Section 1.3(a)(ii) and the Average Closing Share Price shall be Thirty-Four Dollars ($34.00) or less. 43 44 12.2 Effect of Termination. Except for the provisions of Article IX hereof, which shall survive any termination of this Agreement, in the event of termination of this Agreement pursuant to Section 12.1, this Agreement shall forthwith become void and of no further force and effect and the parties shall be released from any and all obligations hereunder; provided, however, that the provisions of Section 5.8 shall survive termination and continue in full force and effect and that nothing herein shall relieve any party from liability for damages resulting from the willful breach of any of its representations, warranties, covenants or agreements set forth in this Agreement. If Republic shall elect to terminate this Agreement pursuant to Section 12.1(e) above, then Republic shall reimburse the Company and the Shareholders for all reasonable legal and accounting costs and expenses incurred by them in connection with the negotiation, execution and delivery of this Agreement and the preparation for the Closing of the transactions contemplated by this Agreement, in each case, upon presentation of reasonably detailed documentation thereof. ARTICLE XIII GENERAL PROVISIONS 13.1 Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be delivered by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery, or facsimile transmission if such transmission is confirmed by delivery by certified or registered mail (first class postage pre-paid) or guaranteed overnight delivery, to the following addresses and telecopy numbers (or to such other addresses or telecopy numbers which such party shall designate in writing to the other party): (a) if to any of the Republic Companies to: Republic Industries, Inc. 450 East Las Olas Blvd., Suite 1200 Ft. Lauderdale, FL 33301 Attn: Richard L. Handley, General Counsel Telecopy: (305) 713-2120 with a copy to: Akerman, Senterfitt & Eidson, P.A. One Southeast Third Avenue, 28th Floor Miami, Florida 33131 Attention: Jonathan L. Awner, Esq. Telecopy: (305) 374-5095 (b) if to the Company, the Taorminas, and/or the Shareholders to: Taormina Industries, Inc. 1131 North Blue Gum Street P.O. Box 309 Anaheim, California 92805 Attn: Glenn Nygard Telecopy: (714) 238-3305 44 45 with a copy to: Paul, Hastings, Janofsky & Walker LLP 695 Town Center Drive 17th Floor Costa Mesa, CA 92626 Attention: William J. Simpson, Esq. Telecopy: (714) 979-1921 Notice shall be deemed given on the date sent if sent by overnight delivery or facsimile transmission and on the date delivered (or the date of refusal of delivery) if sent by certified or registered mail. 13.2 Entire Agreement. This Agreement (including the Exhibits and Schedules attached hereto) and other documents delivered at the Closing pursuant hereto, contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings (oral or written) between or among the parties with respect to such subject matter. The Exhibits and Schedules constitute a part hereof as though set forth in full above. 13.3 Expenses. Except as otherwise provided herein, the parties shall pay their own fees and expenses, including their own counsel fees, incurred in connection with this Agreement or any transaction contemplated hereby. Republic shall pay all filing fees of any party hereto under the HSR Act. Provided that the Company remains in compliance with its representations as to total indebtedness and net worth as set forth in Section 3.11 after accounting for any such payments, the Company may pay up to an aggregate of $400,000 of the legal fees of counsel and auditors to the Company and the Shareholders in connection with the negotiation, execution and closing of the transactions contemplated by this Agreement, but shall not in any event pay any expenses of the Shareholders related to their personal tax or estate planning undertaken in connection herewith or otherwise. 13.4 Amendment; Waiver. This Merger Agreement has been executed prior to the Closing and is effective as of February 3, 1997, and does hereby amend and restate that certain Merger Agreement executed and delivered on February 3, 1997 by each of the undersigned (other than the C.V. Taormina Family Trust under Agreement dated September 16, 1980). This Agreement may not be modified, amended, supplemented, canceled or discharged, except by written instrument executed by all parties. No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. The rights and remedies of the parties under this Agreement are in addition to all other rights and remedies, at law or equity, that they may have against each other. 13.5 Binding Effect; Assignment. The rights and obligations of this Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns. Nothing expressed or implied herein shall be construed to give any other person any legal or equitable 45 46 rights hereunder. Except as expressly provided herein, the rights and obligations of this Agreement may not be assigned by the Company, or any Shareholders without the prior written consent of Republic. 13.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. 13.7 Interpretation. When a reference is made in this Agreement to an article, section, paragraph, clause, schedule or exhibit, such reference shall be deemed to be to this Agreement unless otherwise indicated. The headings contained herein and on the schedules are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or the schedules. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Time shall be of the essence in this Agreement. 13.8 Governing Law; Interpretation. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the State of Florida applicable to contracts executed and to be wholly performed within such State. 13.9 Arm's Length Negotiations. Each party herein expressly represents and warrants to all other parties hereto that: (a) before executing this Agreement, said party has fully informed itself of the terms, contents, conditions and effects of this Agreement; (b) said party has relied solely and completely upon its own judgment in executing this Agreement; (c) said party has had the opportunity to seek and has obtained the advice of counsel before executing this Agreement; (d) said party has acted voluntarily and of its own free will in executing this Agreement; (e) said party is not acting under duress, whether economic or physical, in executing this Agreement; and (f) this Agreement is the result of arm's length negotiations conducted by and among the parties and their respective counsel. 13.10 Mandatory Arbitration. Any controversy or claim between or among the parties hereto including, but not limited to, those arising out of or relating to this Agreement or any related agreements or instruments, excluding any claim based on or arising from an alleged intentional tort or fraud, shall be determined by binding arbitration in Orange County, California in accordance with the Federal Arbitration Act (of if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and Mediation Services, Inc. (J.A.M.S.), and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Agreement may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this Agreement applies in any court having jurisdiction over such action. (a) Special Rules. The arbitration shall be administered by Endispute, Inc., d/b/a/ J.A.M.S./Endispute, who will appoint an arbitrator; if J.A.M.S./Endispute is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional sixty (60) days. 46 47 (b) Reservation of Rights. Nothing in this Agreement shall be deemed to: (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Agreement; or (ii) limit the right of Republic or the Shareholders (A) to exercise self-help remedies such as (but not limited to) setoff, in accordance with Section 9.4 hereof or (B) to realize upon any security granted hereunder, or (C) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief or the appointment of a receiver. No exercise of self-help remedies or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. [Signatures On Following Page] 47 48 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. REPUBLIC INDUSTRIES, INC., a Delaware corporation By: /s/ Harris W. Hudson --------------------------------------- Harris W. Hudson, Vice Chairman RI/T MERGER CORP., a California corporation By:/s/ Harris W. Hudson ---------------------------------------- Harris W. Hudson, President TAORMINA INDUSTRIES, INC., a California corporation By:/s/ William C. Taormina ---------------------------------------- William C. Taormina, Chairman /s/ William C. Taormina ------------------------------------------- William C. Taormina, individually /s/ Vincent C. Taormina ------------------------------------------- Vincent C. Taormina, individually [Signatures Continued On Following Page] 48 49 TAORMINA REVOCABLE INTER VIVOS TRUST UNDER AGREEMENT DATED JULY 26, 1983 By:/s/ William C. Taormina -------------------------------- William C. Taormina, Trustee VINCENT COSMO TAORMINA REVOCABLE INTER VIVOS TRUST UNDER AGREEMENT DATED MAY 14, 1984 By:/s/ Vincent C. Taormina -------------------------------- Vincent C. Taormina, Trustee C.V. TAORMINA FAMILY TRUST UNDER AGREEMENT DATED SEPTEMBER 16, 1980 By:/s/ Arlene Taormina -------------------------------- Arlene Taormina, Trustee 49 EX-2.2 3 MERGER AGREEMENT - AAA 1 EXHIBIT 2.2 MERGER AGREEMENT This Merger Agreement (this "Agreement") is entered into as of February 4, 1997 by and among Republic Industries, Inc., a Delaware corporation ("Republic"); RI/ADI Merger Corp. ("RI/ADI"), RI/ACI Merger Corp. ("RI/ACI"), RI/ARI Merger Corp. ("RI/ARI"), RI/AMI Merger Corp. ("RI/AMI"), and RI/ALB Merger Corp. ("RI/ALB"), each a Virginia corporation and wholly-owned subsidiary of Republic (sometimes hereinafter collectively referred to as the "Republic Merger Subs," and together with Republic, the "Republic Companies"); and AAA Disposal Service, Inc. ("Disposal"), AAA Commercial, Inc. ("Commercial"), AAA Recycling, Inc. ("Recycling"), AAA Maintenance, Inc. ("Maintenance"), and AAA Land and Building Co., Inc. ("Land and Building"), each a Virginia corporation; and Larry E. Edwards, a resident of the Commonwealth of Virginia; and Darlene Norris, Tony Poehler, Winnie Poehler, Harry W. Mulford, Esq. and Steven M. Serio, CPA as Trustees any of which is the authorized signatory for the Jeffrey L. Edwards Trust U/T/A/D April 3, 1989; Darlene Norris, Tony Poehler, Winnie Poehler, Harry W. Mulford, Esq. and Steven M. Serio, CPA as Trustees any of which is the authorized signatory for the Kevin S. Edwards Trust U/T/A/D April 3, 1989; Darlene Norris, Tony Poehler, Winnie Poehler, Harry W. Mulford, Esq. and Steven M. Serio, CPA as Trustees any of which is the authorized signatory for the Mitchell G. Edwards Trust U/T/A/D April 3, 1989; Darlene Norris, Tony Poehler, Winnie Poehler, Harry W. Mulford, Esq. and Steven M. Serio, CPA as Trustees any of which is the authorized signatory for the Troy L. Edwards Trust U/T/A/D April 3, 1989; and Darlene Norris, Tony Poehler, Winnie Poehler, Harry W. Mulford, Esq. and Steven M. Serio, CPA as Trustees any of which is the authorized signatory for the Samantha L. Edwards Trust U/T/A/D April 3, 1989; who together constitute all of the shareholders of the AAA Companies (together, the "Shareholders"). Certain other capitalized terms used herein are defined in Article X and throughout this Agreement. RECITALS The Boards of Directors of Republic and the AAA Companies (as such term is defined in Article X hereof) have determined that it is in the best interests of their respective shareholders for Republic to acquire the AAA Companies upon the terms and subject to the conditions set forth in this Agreement. In order to effectuate the transaction, Republic has organized the Republic Merger Subs as wholly-owned subsidiaries, and the parties have agreed, subject to the terms and conditions set forth in this Agreement, to merge the Republic Merger Subs with and into the AAA Companies so that the AAA Companies continue as the surviving corporations. As a result, the AAA Companies will become wholly-owned subsidiaries of Republic, and each of the Shareholders will be issued certain shares of common stock of Republic. 1 2 TERMS OF AGREEMENT In consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I THE MERGERS 1.1 THE MERGERS. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined below), and pursuant to the terms and conditions set forth in the Plans of Merger and Reorganization annexed hereto as Exhibits A through E (the "Plans of Merger"), the Republic Merger Subs will be merged with and into the AAA Companies (the "Mergers") as follows: (a) RI/ADI will be merged with and into Disposal; (b) RI/ACI will be merged with and into Commercial; (c) RI/ARI will be merged with and into Recycling; (d) RI/AMI will be merged with and into Maintenance; and (e) RI/ALB will be merged with and into Land and Building. The terms and conditions of the Plans of Merger are incorporated herein by reference as if fully set forth herein. As a result of the Mergers, the separate corporate existence of each of the Republic Merger Subs shall cease and each of the AAA Companies shall continue as surviving corporations and wholly-owned subsidiaries of Republic (the "Surviving Corporations"). 1.2 THE CLOSING. Subject to the terms and conditions of this Agreement, the consummation of the Mergers (the "Closing") shall take place as promptly as practicable (and in any event within five (5) business days) after satisfaction or waiver of the conditions set forth in Articles VI and VII hereof, at the offices of Akerman, Senterfitt & Eidson, P.A. in Miami, Florida, or such other time and place as the parties may otherwise agree. 1.3 PLANS OF MERGER. Pursuant to the Plans of Merger, an aggregate of 2,916,667 shares of common stock, $0.01 par value per share, of Republic ("Republic Common Stock") (the "Purchase Price") will be issued in the Mergers in exchange for all of the issued and outstanding 2 3 shares of capital stock of each of the AAA Companies (the "AAA Companies Capital Stock") as follows: (a) 2,132,667 shares of Republic Common Stock will be issued in exchange for all of the issued and outstanding shares of common stock of Disposal; (b) 459,375 shares of Republic Common Stock will be issued in exchange for all of the issued and outstanding shares of common stock of Commercial; (c) 187,833 shares of Republic Common Stock will be issued in exchange for all of the issued and outstanding shares of common stock of Recycling; (d) 99,458 shares of Republic Common Stock will be issued in exchange for all of the issued and outstanding shares of common stock of Maintenance; and (e) 37,334 shares of Republic Common Stock will be issued in exchange for all of the issued and outstanding shares of common stock of Land and Building. Notwithstanding the foregoing, if between the date of this Agreement and the Effective Date, the outstanding shares of Republic Common Stock shall have been changed into a different number of shares, or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, or split (the "Change"), the Purchase Price shall be correspondingly adjusted to reflect such Change. Notwithstanding the foregoing, the Purchase Price shall be reduced by (i) all Indebtedness (as defined below) of the Company in excess of $13,500,000.00, and (ii) the amount, if any, by which the Working Capital (as defined below) of the AAA Companies is less than zero dollars ($0) (collectively items (i) and (ii) are referred to herein as the "Purchase Price Adjustment," which amount shall be calculated as of the Effective Date). The amount of the Purchase Price Adjustment shall be divided by the Closing Sale Price, and the quotient so calculated shall be deducted from the number of shares of Republic Common Stock issued hereunder as of the Effective Date. For purposes of determining the Purchase Price Adjustment, (i) "Indebtedness" shall mean the aggregate amount of all indebtedness for borrowed money (excluding interest), whether owed to a bank or any other Person, and remaining payments on capitalized equipment leases, excluding any indebtedness incurred in the ordinary course of business consistent with past practice; (ii) "Working Capital" shall mean the difference, if any, between the Current Assets and the Current Liabilities of the Company; (iii) "Current Assets" shall mean all current assets determined in accordance with generally accepted accounting principles; and (iv) "Current Liabilities" shall mean the current liabilities (excluding the current portion of long-term indebtedness) determined in accordance with generally accepted accounting principles. 1.4 FILING OF ARTICLES OF MERGER. At the time of the Closing, the parties shall cause the Mergers to be consummated by filing duly executed Articles of Merger (with a completed Plan 3 4 of Merger attached thereto) with the Clerk of the State Corporation Commission of the Commonwealth of Virginia, in such form as Republic determines is required by and is in accordance with the relevant provisions of the Virginia Stock Corporation Act (the date and time of such filing is referred to herein as the "Effective Date" or "Effective Time"). 1.5 ISSUANCE OF REPUBLIC SHARES. At the Effective Time, by virtue of the Mergers and without any further action on the part of the parties hereto, Republic shall issue to each Shareholder duly executed certificates, in valid form registered in such Shareholder's name, evidencing that number of shares of Republic Common Stock determined, to the nearest whole share, pursuant to the terms of each of the respective Plans of Merger based on the number of shares of capital stock of each of the AAA Companies owned of record by such Shareholder as set forth on Schedule 3.5 hereto. 1.6 DELIVERY OF CERTIFICATES. At the Closing, the Shareholders shall deliver the certificates representing all of the issued and outstanding shares of capital stock of each of the AAA Companies to Republic for cancellation, and Republic shall deliver the certificates representing the shares of Republic Common Stock issued pursuant to Section 1.5 in the following manner: (i) Republic shall deliver to each such Shareholder one or more certificates evidencing an aggregate of 2,625,000 shares of Republic Common Stock, and (ii) Republic shall set aside and hold in accordance with Article IX certificates evidencing 291,667 shares of Republic Common Stock (the "Held Back Shares"). The shares of Republic Common Stock, including the Held Back Shares, issuable by Republic in the Mergers are sometimes referred to herein as the "Republic Shares". Any item in this Agreement requiring the withholding of or release of Held Back Shares shall be read to require such withholding or release to occur ratably among the Shareholders in proportion to their ownership interest in the AAA Companies as set forth on Schedule 3.5 hereof. 1.7 PURCHASE PRICE ADJUSTMENT. The parties hereto hereby acknowledge and agree that the Purchase Price Adjustment as of the Effective Date is a mutually agreed upon good faith estimate (which estimated amount is referred to herein as the "Estimated Amount"). Within 30 days after the Effective Date, Republic shall prepare and deliver to the Shareholders a determination (the "Determination") of the actual amount of the Purchase Price Adjustment as of the Effective Date (which actual value is referred to herein as the "Actual Amount") including the basis for such Determination. If, within 30 days after the date on which a Determination is delivered to the Shareholders, the Shareholders shall not have given written notice to Republic setting forth in detail any objection of the Shareholders to such Determination, then such Determination shall be final and binding on the parties hereto. In the event the Shareholders give written notice of any objection to such Determination within the 30-day period, Republic and the Shareholders shall use all reasonable efforts to resolve the dispute within the 30-day period following the receipt by Republic of the written notice from the Shareholders. If the parties are unable to reach an agreement within such 30- day period, the matter shall be submitted to a mutually agreed upon independent firm of certified public accountants for determination of the 4 5 Actual Amount which shall be final and binding upon Republic and the Shareholders. Republic and the Shareholders shall contribute equally to all costs (including fees and expenses charged by the selected independent firm of certified public accountants) in connection with the resolution of any such dispute. If the Actual Amount is greater than the Estimated Amount, such amount shall be deemed to be Indemnifiable Damages under Article IX hereof and Republic may set off against the Held Back Shares the difference between the Actual Amount and the Estimated Amount (assuming a value per share for purposes of such calculation equal to the Closing Sale Price); provided, that any and all such Indemnifiable Damages shall not be applied against or subject to the Indemnification Threshold (as such term is defined in Article IX hereof), or affect the determination thereof with respect to the Indemnifiable Damages. 1.8 ACCOUNTING AND TAX TREATMENT. The parties hereto intend that the transactions contemplated hereby shall be treated as pooling of interest business combinations by Republic for accounting purposes and as tax-free reorganizations under Section 368 of the Code. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE REPUBLIC COMPANIES As a material inducement to each of the Shareholders to enter into this Agreement and to consummate the transactions contemplated hereby, each of the Republic Companies jointly and severally make the following representations and warranties to the Shareholders: 2.1 CORPORATE STATUS. Republic is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of the Republic Merger Subs is a corporation duly organized, validly existing and in good standing under the Commonwealth of Virginia. Each Republic Merger Sub is a controlled subsidiary of Republic within the meaning of Section 368 of the Code. 2.2 CORPORATE POWER AND AUTHORITY. Each of the Republic Companies has the corporate power and authority to execute and deliver this Agreement, to perform its respective obligations hereunder and to consummate the transactions contemplated hereby. Each of the Republic Companies has taken all action necessary to authorize its execution and delivery of this Agreement, the performance of its respective obligations hereunder and the consummation of the transactions contemplated hereby. 2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by each of the Republic Companies and constitutes a legal, valid and binding obligation of each of the Republic Companies, enforceable against each of the Republic Companies in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, 5 6 moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 2.4 REPUBLIC COMMON STOCK; REGISTRATION STATEMENT. Upon consummation of the Mergers and the issuance and delivery of certificates representing the Republic Shares to the Shareholders, and except for any Liens imposed on such Republic Shares by any action or inaction of the Shareholders, the Shareholders shall have good and marketable title to the Republic Shares subject to the terms and conditions of Article IX hereof, and the Republic Shares will be validly issued, fully paid and non-assessable shares of Republic Common Stock. The Republic Shares will be issued pursuant to the prospectus, dated December 18, 1996, as filed with the SEC on a registration statement on Form S-4 (the "Registration Statement"), copies of which have been delivered to the Shareholders in accordance with the requirements of the Securities Act. Such Registration Statement has been declared effective and no stop order has been issued suspending effectiveness of such Registration Statement. The Republic Shares being issued in connection with the Mergers are less than one percent of the outstanding shares of Republic Common Stock. Until the earlier of (i) the date that all of the Republic Shares have been sold by the Shareholders or (ii) the date that the Republic Shares may be sold under Rule 145(d)(3) under the Securities Act, Republic shall continue to make all filings required to be made by it under the Exchange Act. 2.5 NO COMMISSIONS. None of the Republic Companies has incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. 2.6 TAX MATTERS. Republic does not know of any circumstances relating to Republic or its Affiliates that would prevent the Mergers from qualifying as reorganizations within the meaning of Section 368 of the Code, provided that (except as set forth in this Section 2.6) Republic makes no affirmative representations or warranties as to any circumstances relating to, or any actions taken or agreed to be taken prior to the Effective Time by, the AAA Companies that would prevent the Mergers from qualifying as reorganizations within the meaning of Section 368 of the Code. Both at execution and at Closing, Republic presently has no plan or intention (a) to cause any of the AAA Companies or any permitted transferee therefrom to sell or dispose of any of the assets or properties of any of the AAA Companies, except for dispositions in the ordinary course of business or transfers described in Section 368(a)(2)(C) of the Code, (b) to liquidate any of the AAA Companies, (c) to merge any of the AAA Companies with or into another corporation or corporations, (d) to sell or otherwise dispose of the stock of any of the AAA Companies except for transfers of stock to a corporation or corporations "controlled" (within the meaning of Section 368 of the Code) by Republic, or (e) to cause any of the AAA Companies to issue additional shares of stock that would result in Republic losing "control" (within the meaning of Section 368 of the Code) of any of the AAA Companies. Both at execution and at Closing, Republic currently intends to cause each of the AAA Companies to continue its historic business or use a significant portion of its historic business assets in a business following the Effective Time, and presently 6 7 does not intend to reacquire any of the Republic Common Stock issued in the Mergers. Immediately prior to the Mergers, Republic will own all of the outstanding stock of the Republic Merger Subs. Further, the assets and liabilities of the Republic Merger Subs as of the time immediately preceding the Closing will represent all of the assets and liabilities ever held by the Republic Merger Subs. 2.7 NO VIOLATION. The execution and delivery of this Agreement by the Republic Companies, the performance by the Republic Companies of their obligations hereunder and the consummation by the Republic Companies of the transactions contemplated by this Agreement will not (i) contravene any provision of the articles of incorporation, as amended, or bylaws of the Republic Companies or any subsidiary thereof, (ii) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment, filing or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon or enforceable against the Republic Companies or any subsidiary thereof, (iii) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any material Contract which is applicable to, binding upon or enforceable against the Republic Companies or any subsidiary thereof, (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of the Republic Companies or any subsidiary thereof, (v) give to any individual or entity a right or claim against the Republic Companies or any subsidiary thereof, which would have a Material Adverse Effect on the Republic Companies or any subsidiary thereof, or (vi) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except (a) pursuant to the Exchange Act and the Securities Act and applicable NASD inclusion requirements, (b) filings required under the securities or blue sky laws of the various states, (c) filings required under the HSR Act, or (d) any filings required to be made by the AAA Companies or (e) any filings required to be made with respect to the consummation of the Mergers. 2.8 REPORTS AND FINANCIAL STATEMENTS. Within the last three years, except where failure to have done so did not and would not have a Material Adverse Effect on Republic, Republic has filed all reports, registrations and statements, together with any required amendments thereto, that it was required to file with the SEC, including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements (collectively, the "Republic Reports"). Republic has previously made available to the Shareholders copies of all Republic Reports filed with the SEC since January 1, 1996, and with respect to Republic Reports filed after the date of this Agreement until the Effective Date, will promptly furnish to the Shareholders copies of each of the Republic Reports filed with the SEC during such period. As of their respective dates (but taking into account any amendments filed prior to the date of this Agreement), the Republic Reports complied, or, with respect to Republic Reports filed after the date of this Agreement, will comply, in all material respects with all the rules and regulations promulgated by the SEC and did not contain, or, with respect to Republic Reports filed after the date of this Agreement, will not 7 8 contain, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Republic included in the Republic Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP consistently applied during the periods presented (except, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to normal audit adjustments) the financial position of Republic and its consolidated subsidiaries as of the date thereof and the results of their operations and their cash flows for the periods then ended. Except as set forth in the Republic Reports, Republic has no material liabilities or obligations of any nature required by GAAP to be set forth on a consolidated balance sheet of Republic and its consolidated subsidiaries or in the notes thereto which individually or in the aggregate would have a Material Adverse Effect on Republic. 2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Republic Reports filed and publicly available prior to the date of this Agreement, and except as expressly contemplated by this Agreement, since the date of the most recently filed Republic Report, Republic has conducted its business only in the ordinary course, and there has not been: (i) any Material Adverse Change in Republic's business, results of operation, or business prospects in the aggregate; (ii) any damage, destruction or loss, whether or not covered by insurance, that has had or is likely to have a Material Adverse Effect on Republic in the aggregate; or (iii) any change in accounting methods, principles or practices by Republic materially affecting its assets, liabilities or business, except insofar as may have been required by a change in generally accepted accounting principles. 2.10 LITIGATION. Except as disclosed in the Republic Reports filed and publicly available prior to the date of this Agreement and except for any such action which may be commenced by or on behalf of the AAA Companies or the Shareholders, there is no suit, action or proceeding pending or in good faith Threatened against Republic or any of its subsidiaries challenging the acquisition by merger by Republic or the Republic Merger Subs of any shares of any of the AAA Companies or any provision of this Agreement or seeking to restrain or prohibit the consummation of the Mergers, or that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on Republic, nor is there any judgment, decree, injunction, rule or order of any Governmental Authority or arbitrator outstanding against Republic or any of its subsidiaries having, or which would reasonably be expected to have, any such effect. 2.11 COMPLIANCE WITH LAWS. Except as disclosed in the Republic Reports filed and publicly available prior to the date of this Agreement, Republic and its subsidiaries are in compliance with all applicable statutes, laws, ordinances, regulations, rules, judgments, decrees and orders of any Governmental Authority applicable to its business or operations, except for instances of possible noncompliance that, individually or in the aggregate, would not have a Material Adverse Effect on Republic. Each of Republic and its subsidiaries has in effect all permits 8 9 and licenses, necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted, and there has occurred no default under any such permit or license, except for the lack of permits or licenses and for defaults under such permits or licenses which, individually or in the aggregate, would not have a Material Adverse Effect on Republic. None of such permits or licenses is or will be impaired or in any way affected by the execution and delivery of this Agreement, or consummation of the transactions contemplated hereby which would individually or in the aggregate have a Material Adverse Effect on Republic. 2.12 CAPITALIZATION. The authorized capital stock of Republic consists of 500,000,000 shares of Republic Common Stock and 5,000,000 shares of preferred stock. As of January 24, 1997, (i) 299,412,227 shares of Republic Common Stock were validly issued and outstanding, fully paid and nonassessable and not issued in violation of any preemptive right of any stockholder of Republic, and (ii) no shares of preferred stock were issued and outstanding. The Republic Shares to be issued in the Mergers will be "voting stock" within the meaning of Section 368 of the Code. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS As a material inducement to each of the Republic Companies to enter into this Agreement and to consummate the transactions contemplated hereby, each of the Shareholders jointly and severally makes the following representations and warranties to Republic: 3.1 CORPORATE STATUS. Each of the AAA Companies is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has the requisite power and authority to own or lease its properties and to carry on its business as now being conducted. Each of the AAA Companies is legally qualified to transact business as a foreign corporation in all jurisdictions where the nature of its properties and the conduct of its business requires such qualification (all of which jurisdictions are listed on Schedule 3.1) and is in good standing in each of the jurisdictions in which it is so qualified. Each of the AAA Companies has fully complied in all material respects with all of the requirements of any statute governing the use and registration of fictitious names, and has the legal right to use the names under which it operates its business. There is no pending or in good faith Threatened proceeding for the dissolution, liquidation, insolvency or rehabilitation of any of the AAA Companies. 3.2 POWER AND AUTHORITY. Each of the AAA Companies has the power and authority to execute and deliver this Agreement, to perform its respective obligations hereunder and to consummate the transactions contemplated hereby. Each of the AAA Companies has taken all action necessary to authorize the execution and delivery of this Agreement, the performance of 9 10 its respective obligations hereunder and the consummation of the transactions contemplated hereby. Each of the Shareholders has the requisite competence, power and authority to execute and deliver this Agreement, to perform his or its respective obligations hereunder and to consummate the transactions contemplated hereby. 3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by each of the AAA Companies and the Shareholders, and constitutes the legal, valid and binding obligation of each of them, enforceable against them in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 3.4 CAPITALIZATION. Schedule 3.4 sets forth, with respect to each of the AAA Companies, (a) the number of authorized shares of each class of its capital stock, (b) the number of issued and outstanding shares of each class of its capital stock, and (c) the number of shares of each class of its capital stock which are held in treasury. All of the issued and outstanding shares of capital stock of each of the AAA Companies (i) have been duly authorized and validly issued and are fully paid and non-assessable, (ii) were issued in compliance with all applicable state and federal securities laws, and (iii) were not issued in violation of any preemptive rights or rights of first refusal. No preemptive rights exist except those that may exist under Virginia law, which all the Shareholders hereby waive upon execution of this Agreement. Except as set forth on Schedule 3.4, there are no other preemptive rights or rights of first refusal which exist with respect to the shares of capital stock of any of the AAA Companies and no such rights arise by virtue of or in connection with the transactions contemplated hereby, and any and all such rights shall be extinguished prior to the Effective Time. There are no outstanding or authorized rights, options, warrants, convertible securities, subscription rights, conversion rights, exchange rights or other agreements or commitments of any kind that could require any of the AAA Companies to issue or sell any shares of its capital stock (or securities convertible into or exchangeable for shares of its capital stock). There are no outstanding stock appreciation, phantom stock, profit participation or other similar rights with respect to any of the AAA Companies. Except as set forth on Schedule 3.4, there are no proxies, voting rights or other agreements or understandings with respect to the voting or transfer of the capital stock of any of the AAA Companies. None of the AAA Companies is obligated to redeem or otherwise acquire any of its outstanding shares of capital stock. 3.5 SHAREHOLDERS OF THE AAA COMPANIES. Schedule 3.5 sets forth, with respect to each of the AAA Companies, (a) the name, address and federal taxpayer identification number of, and the number of outstanding shares of each class of its capital stock owned by, each shareholder of record as of the close of business on the date of this Agreement; and (b) the name, address and federal taxpayer identification number of, and number of shares of each class of its capital stock beneficially owned by, each beneficial owner of outstanding shares of capital stock (to the extent that record and beneficial ownership of any such shares are different). The Shareholders constitute 10 11 all of the holders of all issued and outstanding shares of capital stock of each of the AAA Companies, and each of the Shareholders owns such shares as is set forth on Schedule 3.5, free and clear of all Liens, restrictions and claims of any kind. 3.6 NO VIOLATION. Except as set forth on Schedule 3.6, the execution and delivery of this Agreement by each of the AAA Companies and the Shareholders, the performance by them of their respective obligations hereunder and the consummation by them of the transactions contemplated by this Agreement will not (i) contravene any provision of the articles of incorporation or bylaws of any of the AAA Companies, (ii) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon or enforceable against any of the AAA Companies or any of the Shareholders, (iii) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any material Contract which is applicable to, binding upon or enforceable against any of the AAA Companies or any of the Shareholders, (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of any of the AAA Companies, (v) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except any applicable filings required under the HSR Act, and any SEC and other filings required to be made by Republic, or (vi) any filings required to be made with respect to the consummation of the Mergers. 3.7 RECORDS OF THE AAA COMPANIES. The copies of the respective articles of incorporation and bylaws of each of the AAA Companies are true, accurate and complete and reflect all amendments made through the date of this Agreement. The minute books for each of the AAA Companies are correct and complete in all material respects, no further entries have been made through the date of this Agreement, such minute books contain or as of the Effective Time will contain the true signatures of the persons purporting to have signed them, and such minute books contain an accurate record of all material corporate actions of the shareholders and directors (and any committees thereof) of each of the AAA Companies taken by written consent or at a meeting since incorporation. All material corporate actions taken by each of the AAA Companies have been duly authorized or ratified. All accounts, books, ledgers and official and other records of each of the AAA Companies have been fully, properly and accurately kept and completed in all material respects, and there are no material inaccuracies or discrepancies of any kind contained therein. The stock ledgers of each of the AAA Companies contain or as of the Effective Time will contain accurate and complete records of all issuances, transfers and cancellations of shares of the capital stock of each of the AAA Companies. 3.8 SUBSIDIARIES. Except as set forth on Schedule 3.8, none of the AAA Companies owns, directly or indirectly, any outstanding voting securities of or other interests in, or controls, any other corporation, partnership, joint venture or other business entity. 11 12 3.9 FINANCIAL STATEMENTS. The Shareholders have delivered to Republic the financial statements of each of the AAA Companies for the period ended December 31, 1996, internally prepared by the AAA Companies, copies of which are attached to Schedule 3.9 hereto (the "Financial Statements"). The balance sheets of each of the AAA Companies dated as of December 31, 1996, included in the Financial Statements are referred to herein as the "Current Balance Sheets." The Financial Statements fairly present the financial position of each of the AAA Companies at each of the balance sheet dates and the results of operations for the periods covered thereby and have been prepared consistent with the accounting methods of each of the AAA Companies. The books and records of each of the AAA Companies fairly reflect its transactions, properties, assets and liabilities consistent with the accounting methods of each of the AAA Companies. Except as set forth in the Financial Statements, there are no material special or non-recurring items of income or expense during the periods covered by the Financial Statements and the balance sheets included in the Financial Statements do not reflect any writeup or revaluation increasing the book value of any assets, except as specifically disclosed in the notes thereto. 3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Since the date of the Current Balance Sheets of each of the AAA Companies, none of the AAA Companies has (i) issued any capital stock or other securities; (ii) made any distribution of or with respect to its capital stock or other securities or purchased or redeemed any of its securities except in the ordinary course of business consistent with past practice and as set forth on Schedule 3.10; (iii) paid any bonus to or increased the rate of compensation of any of its officers or salaried employees or amended any other terms of employment of such persons except in the ordinary course of business consistent with past practice; (iv) sold, leased or transferred any of its properties or assets other than in the ordinary course of business consistent with past practice; (v) made or obligated itself to make capital expenditures out of the ordinary course of business consistent with past practice; (vi) made any payment in respect of its liabilities other than in the ordinary course of business consistent with past practice; (vii) incurred any obligations or liabilities (including any indebtedness) or entered into any transaction or series of transactions involving in excess of $25,000 in the aggregate out of the ordinary course of business, except for this Agreement and the transactions contemplated hereby; (viii) suffered any theft, damage, destruction or casualty loss, not covered by insurance and for which a timely claim was filed, in excess of $25,000 in the aggregate; (ix) suffered any extraordinary losses (whether or not covered by insurance); (x) waived, canceled, compromised or released any rights having a value in excess of $25,000 in the aggregate; (xi) made or adopted any change in its accounting practice or policies; (xii) made any adjustment to its books and records other than in respect of the conduct of its business activities in the ordinary course consistent with past practice; (xiii) entered into any transaction with any Affiliate other than intercompany transactions in the ordinary course of business consistent with past practice; (xiv) entered into any employment agreement except in the ordinary course of business, consistent with past practice; (xv) terminated, amended or modified any agreement involving an amount in excess of $25,000; (xvi) imposed any security interest or other Lien on any of its assets other than in the ordinary course of business consistent with past practice; (xvii) delayed paying any accounts payable which are due and payable except to the extent being contested in good faith; (xviii) made 12 13 or pledged any charitable contribution other than in the ordinary course of business consistent with past practice; (xix) entered into any other transaction or been subject to any event which has or may have a Material Adverse Effect on any of the AAA Companies; or (xx) agreed to do or authorized any of the foregoing. 3.11 LIABILITIES OF THE AAA COMPANIES. None of the AAA Companies has any liabilities or obligations, whether accrued, absolute, contingent or otherwise, except (a) to the extent reflected or taken into account in the Current Balance Sheets and not heretofore paid or discharged, (b) to the extent specifically set forth in or incorporated by express reference in any of the Schedules attached hereto, (c) liabilities incurred in the ordinary course of business consistent with past practice since the date of the Current Balance Sheets (none of which relates to breach of contract, breach of warranty, tort, infringement or violation of law, or which arose out of any action, suit, claim, governmental investigation or arbitration proceeding), (d) normal accruals, reclassifications, and audit adjustments which would be reflected on an audited financial statement and which would not be material in the aggregate, and (e) liabilities incurred in the ordinary course of business prior to the date of the Current Balance Sheets which, were not recorded thereon. The consolidated net worth of the AAA Companies determined in accordance with the accounting practices of each of the AAA Companies will be no less than $8,400,000, as of the Effective Time. 3.12 LITIGATION. Except as set forth in Schedule 3.12, there is no action, suit, or other legal or administrative proceeding or governmental investigation pending, in good faith Threatened against or affecting any of the AAA Companies, or any of their properties or assets, or the Shareholders, or which questions the validity or enforceability of this Agreement or the transactions contemplated hereby. The Shareholders are not aware of any facts that would give rise to any such actions not set forth on Schedule 3.12. There are no outstanding orders, decrees or stipulations issued by any Governmental Authority in any proceeding to which any of the AAA Companies is or was a party which have not been complied with in full or which continue to impose any material obligations on any of the AAA Companies. 3.13 ENVIRONMENTAL MATTERS. (a) Each of the AAA Companies is and has at all times been in full compliance with all Environmental Laws (as defined in clause (h) below) governing its business, operations, properties and assets, including, without limitation: (i) all requirements relating to the Discharge (as defined in clause (h) below) and Handling (as defined in clause (h) below) of Hazardous Substances (as defined in clause (h) below) or other Waste (as defined in clause (h) below); (ii) all requirements relating to notice, record keeping and reporting; (iii) all requirements relating to obtaining and maintaining Licenses (as defined in clause (h) below) for the ownership of its properties and assets and the operation of its business as presently conducted, including Licenses relating to the Handling and Discharge of Hazardous Substances and other Waste; and (iv) all applicable writs, orders, judgements, injunctions, governmental communications, decrees, 13 14 informational requests or demands issued pursuant to, or arising under, any Environmental Laws. (b) There are no (and there is no basis for any) non-compliance orders, warning letters, notices of violation (collectively "Notices"), claims, suits, actions, judgments, penalties, fines, or administrative or judicial investigations or proceedings (collectively "Proceedings") pending or in good faith Threatened against or involving any of the AAA Companies, or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws or Licenses issued to any of the AAA Companies thereunder in connection with, related to or arising out of the ownership by any of the AAA Companies of its properties or assets or the operation of its business, which have not been resolved to the satisfaction of the issuing Governmental Authority or third party in a manner that would not impose any obligation, burden or continuing liability on Republic or any of the Surviving Corporations in the event that the transactions contemplated by this Agreement are consummated, or which could have a Material Adverse Effect on any of the AAA Companies, including, without limitation: (i) Notices or Proceedings related to any of the AAA Companies being a potentially responsible party for a federal or state environmental cleanup site or for corrective action under any applicable Environmental Laws; (ii) Notices or Proceedings in connection with any federal or state environmental cleanup site, or in connection with any real property or premises where any of the AAA Companies has transported, transferred or disposed of other Waste; (iii) Notices or Proceedings relating to any of the AAA Companies being responsible to undertake any response or remedial actions or clean-up actions of any kind; or (iv) Notices or Proceedings related to any of the AAA Companies being liable under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (c) None of the AAA Companies has Handled or Discharged, nor has any of them allowed or arranged for any third party to Handle or Discharge, Hazardous Substances or other Waste to, at or upon: (i) any location other than a site lawfully permitted to receive such Hazardous Substances or other Waste; (ii) any real property currently or previously owned or leased by any of the AAA Companies; or (iii) any site which, pursuant to any Environmental Laws, (x) has been placed on the National Priorities List or its state equivalent; or (y) the Environmental Protection Agency or the relevant state agency or other Governmental Authority has notified any of the AAA Companies that such Governmental Authority has proposed or is proposing to place on the National Priorities List or its state equivalent. There has not occurred, nor is there presently occurring, a Discharge, or in good faith Threatened Discharge, of any Hazardous Substance on, into or beneath the surface of, or adjacent to, any real property currently or previously owned or leased by any of the AAA Companies in an amount requiring a notice or report to be made to a Governmental Authority or in violation of any applicable Environmental Laws. (d) Schedule 3.13 identifies the operations and activities, and locations thereof, which have been conducted or are being conducted by any of the AAA Companies on any real 14 15 property currently or previously owned or leased by any of the AAA Companies which have involved the Handling or Discharge of Hazardous Substances. (e) Schedule 3.13 identifies the locations to which any of the AAA Companies has ever transferred, transported, hauled, moved, or disposed of Waste and the types and volumes of Waste transferred, transported, hauled, moved, or disposed of to each such location. (f) Except as set forth on Schedule 3.13, none of the AAA Companies uses, nor has any of them used, any Aboveground Storage Tanks (as defined in clause (h) below) or Underground Storage Tanks (as defined in clause (h) below), and there are not now nor have there ever been any Underground Storage Tanks beneath any real property currently or previously owned or leased by any of the AAA Companies that are required to be registered under applicable Environmental Laws. (g) Schedule 3.13 identifies (i) all environmental audits, assessments or occupational health studies undertaken by any of the AAA Companies or any of their agents or, to the knowledge of any of the AAA Companies, undertaken by any Governmental Authority, or any third party, relating to or affecting the AAA Companies or any real property currently or previously owned or leased by any of the AAA Companies; (ii) the results of any ground, water, soil, air or asbestos monitoring undertaken by any of the AAA Companies or any of their agents or, to the knowledge of any of the AAA Companies, undertaken by any Governmental Authority or any third party, relating to or affecting any of the AAA Companies or any real property currently or previously owned or leased by any of the AAA Companies which indicate the presence of Hazardous Substances at levels requiring a notice or report to be made to a Governmental Authority or in violation of any applicable Environmental Laws; (iii) all material written communications between any of the AAA Companies and any Governmental Authority arising under or related to Environmental Laws; and (iv) all outstanding citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting either any of the AAA Companies or any real property currently or previously owned or leased by any of the AAA Companies. (h) For purposes of this Section 3.13, the following terms shall have the meanings ascribed to them below: "Aboveground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree governing Aboveground Storage Tanks. "Discharge" means any manner of spilling, leaking, dumping, discharging, releasing or emitting, as any of such terms may further be defined in any Environmental Law, into any medium including, without limitation, ground water, surface water, soil or 15 16 air. "Environmental Laws" means all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, or similar laws of foreign jurisdictions where any of the AAA Companies conducts business, whether currently in existence or hereafter enacted or promulgated, any of which govern (or purport to govern) or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642); the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"). "Handle" means any manner of generating, accumulating, storing, treating, disposing of, transporting, transferring, labeling, handling, manufacturing or using, as any of such terms may further be defined in any Environmental Law, of any Hazardous Substances or Waste. "Hazardous Substances" shall be construed broadly to include any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi- solid, sludge and/or gaseous, including without limitation, chemicals, compounds, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires investigation or remediation under any Environmental Laws or which are or become regulated, listed or controlled by, under or pursuant to any Environmental Laws, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA, or any similar state statute, or any future amendments to, or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, 16 17 orders, rulings, or decrees, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "Licenses" means all licenses, certificates, permits, approvals and registrations. "Underground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree governing Underground Storage Tanks. "Waste" shall be construed broadly to include agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special wastes, used oils, white goods, and yard trash as those terms are defined under any applicable Environmental Laws. 3.14 REAL ESTATE (a) None of the AAA Companies owns any real property or any interest therein except as set forth on Schedule 3.14(a) (the "Owned Properties"), which Schedule sets forth the location and size of, and principal improvements and buildings on, the Owned Properties, together with a list of all title insurance policies relating to such properties, all of which policies have previously been delivered or made available to Republic by the AAA Companies. With respect to each such parcel of Owned Property except as set forth on Schedule 3.14(a): (i) One of the AAA Companies has good and marketable title to each parcel of Owned Property, free and clear of any Lien other than (x) liens for real estate taxes not yet due and payable; (y) recorded easements, covenants, and other restrictions which do not impair the current use, occupancy or value of the property subject thereto, and (z) encumbrances and restrictions described in the title insurance policies listed on Schedule 3.14(a); (ii) There are no pending or in good faith Threatened condemnation proceedings, suits or administrative actions relating to the Owned Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) The legal descriptions for the parcels of Owned Property contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local 17 18 comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; the land does not serve any adjoining property for any purpose inconsistent with the use of the land; and the Owned Properties are not located within any flood plain (such that a mortgagee would require a mortgagor to obtain flood insurance) or subject to restriction for which any permits or licenses necessary to the use thereof have not been obtained; (iv) All facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the ownership or operation thereof and have been operated and maintained in accordance with applicable laws, ordinances, rules and regulations; (v) There are no Contracts granting to any party or parties ,other than the AAA Companies, the right of use or occupancy of any portion of the parcels of Owned Property; (vi) There are no outstanding options or rights of first refusal to purchase the parcels of Owned Property, or any portion thereof or interest therein; (vii) There are no parties (other than the AAA Companies) in possession of the parcels of Owned Property; (viii) All facilities located on the parcels of Owned Property are supplied with utilities and other services necessary for the operation of such facilities, including gas, electricity, water, telephone, sanitary sewer and storm sewer, all of which services are adequate in accordance with all applicable laws, ordinances, rules and regulations, and are provided via public roads or via permanent, irrevocable, appurtenant easements benefitting the parcels of Owned Property; (ix) Each parcel of Owned Property abuts on and has direct vehicular access to a public road, or has access to a public road via a permanent, irrevocable, appurtenant easement benefitting the parcel of Owned Property; access to the property is provided by paved public right-of- way with adequate curb cuts available; and there is no pending or in good faith Threatened termination of the foregoing access rights; (x) All improvements and buildings on the Owned Property are 18 19 in good repair and are safe for occupancy and use, free from termites or other wood-destroying organisms; the roofs thereof are watertight; and the structural components and systems (including plumbing, electrical, air conditioning/heating, and sprinklers) are in good working order and adequate for the use of such Owned Property in the manner in which presently used; and (xi) Except as between or among the AAA Companies, there are no service contracts, management agreements or similar agreements which affect the parcels of Owned Property. (b) Schedule 3.14(b) sets forth a list of all leases, licenses or similar agreements concerning real property ("Leases") to which any of the AAA Companies is a party (copies of which have previously been furnished to Republic), in each case, setting forth (A) the lessor and lessee thereof and the date and term of each of the Leases, (B) the legal description, including street address, of each property covered thereby, and (C) a brief description (including size and function) of the principal improvements and buildings thereon (the "Leased Premises"), all of which are within the property set-back and building lines of the respective property. The Leases are in full force and effect and have not been amended, and no party thereto is in default or breach under any such Lease. No event has occurred which, with the passage of time or the giving of notice or both, would cause a material breach of or default under any of such Leases. There is no breach or anticipated breach by any other party to such Leases. With respect to each such Leased Premises, except as set forth on Schedule 3.14(b): (i) The AAA Companies have valid leasehold interests in the Leased Premises, free and clear of any Liens, or title defects, not inured by the title policy regarding the subject property, of any nature whatsoever; (ii) The portions of the buildings located on the Leased Premises that are used in the business of the AAA Companies are each in good repair and condition, normal wear and tear excepted, and are in the aggregate sufficient to satisfy the AAA Companies' current and reasonably anticipated normal business activities as conducted thereat; (iii) Each of the Leased Premises (a) has direct access to public roads or access to public roads by means of a perpetual access easement, such access being sufficient to satisfy the current and reasonably anticipated normal transportation requirements of the AAA Companies' business as presently conducted at such parcel; and (b) is served by all utilities in such quantity and quality as are sufficient to satisfy the current normal business activities as conducted at such parcel; and (iv) None of the AAA Companies has received notice of (a) any 19 20 condemnation proceeding with respect to any portion of the Leased Premises or any access thereto, and no such proceeding is contemplated by any Governmental Authority; or (b) any special assessment which may affect any of the Leased Premises, and no such special assessment is contemplated by any Governmental Authority. 3.15 GOOD TITLE TO AND CONDITION OF ASSETS (a) Except as set forth on Schedule 3.15(a), each of the AAA Companies has good and marketable title to all of its Assets (as hereinafter defined), free and clear of any Liens or restrictions on use. For purposes of this Agreement, the term "Assets" means all of the properties and assets of each of the AAA Companies, other than the Owned Properties and the Leased Premises, whether personal or mixed, tangible or intangible, wherever located. (b) The Fixed Assets (as hereinafter defined) currently in use or necessary for the business and operations of each of the AAA Companies are in good operating condition, normal wear and tear excepted, and have been maintained substantially in accordance with all applicable manufacturer's specifications and warranties. For purposes of this Agreement, the term "Fixed Assets" means all vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures used by or located on the premises of each of the AAA Companies or set forth on the Current Balance Sheets or acquired by any of the AAA Companies since the date of the Current Balance Sheets. Schedule 3.15(b) lists the vehicles owned, leased or used by any of the AAA Companies, setting forth the make, model, description of body and chassis, vehicle identification number, and year of manufacture, and for each vehicle, whether it is owned or leased, and if owned, the name of any lienholder and the amount of the lien, and if leased, the name of the lessor and the general terms of the lease, and, whether owned or leased, if it is used to transport, transfer, handle, dispose or haul Waste materials. 3.16 COMPLIANCE WITH LAWS. (a) Each of the AAA Companies is and has been in compliance with all laws, regulations and orders applicable to it, its business and operations (as conducted by it now and in the past), the Assets, the Owned Properties and the Leased Premises and any other properties and assets (in each case owned or used by it now or in the past). Except as set forth on Schedule 3.16(a), none of the AAA Companies has been cited, fined or otherwise notified of any asserted past or present failure to comply with any laws, regulations or orders and no proceeding with respect to any such violation is pending or in good faith Threatened. 20 21 (b) None of the AAA Companies, nor any of their employees or agents, has made any payment of funds in connection with the business of any of the AAA Companies which is prohibited by law, and no funds have been set aside to be used in connection with the business of any of the AAA Companies for any payment prohibited by law. (c) Each of the AAA Companies is and at all times since 1994 has been in full compliance with the terms and provisions of the Immigration Reform and Control Act of 1986, as amended (the "Immigration Act"). With respect to each Employee (as defined in 8 C.F.R. 274a.1(f)) of any of the AAA Companies for whom compliance with the Immigration Act is required, each of the AAA Companies has on file a true, accurate and complete copy of (i) each Employee's Form I-9 (Employment Eligibility Verification Form) and (ii) all other records, documents or other papers prepared, procured and/or retained by the AAA Companies pursuant to the Immigration Act. None of the AAA Companies has been cited, fined, served with a Notice of Intent to Fine or with a Cease and Desist Order, nor has any action or administrative proceeding been initiated or in good faith Threatened against any of the AAA Companies, by the Immigration and Naturalization Service by reason of any actual or alleged failure to comply with the Immigration Act. (d) None of the AAA Companies is subject to any Contract, decree or injunction in which any of the AAA Companies is a party which restricts the continued operation of any business of any of the AAA Companies or the expansion thereof to other geographical areas, customers and suppliers or lines of business. 3.17 LABOR AND EMPLOYMENT MATTERS. Schedule 3.17 sets forth the name, address, social security number and current rate of compensation of the employees of each of the AAA Companies. None of the AAA Companies is a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and there has been no effort by any labor union during the 24 months prior to the date hereof to organize any employees of any of the AAA Companies into one or more collective bargaining units. There is no pending or in good faith Threatened labor dispute, strike or work stoppage which affects or which may affect the business of any of the AAA Companies or which may interfere with its continued operations. None of the AAA Companies nor any agent, representative or employee thereof has within the last 24 months committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or in good faith Threatened charge or complaint against any of the AAA Companies by or with the National Labor Relations Board or any representative thereof. There has been no strike, walkout or work stoppage involving any of the employees of any of the AAA Companies during the 24 months prior to the date hereof. None of the Shareholders is aware that 21 22 any executive or key employee or group of employees has any plans to terminate his, her or their employment with any of the AAA Companies as a result of the Mergers or otherwise. Schedule 3.17 contains detailed information about each contract, agreement or plan of the following nature, whether formal or informal, and whether or not in writing, to which any of the AAA Companies is a party or under which it has an obligation: (i) employment agreements, (ii) employee handbooks, policy statements and similar plans, (iii) noncompetition agreements and (iv) consulting agreements. Each of the AAA Companies since 1994 has complied with all applicable laws, rules and regulations relating to employment, civil rights and equal employment opportunities, including, but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and the Americans with Disabilities Act, as amended. 3.18 EMPLOYEE BENEFIT PLANS. (a) Employee Benefit Plans. Schedule 3.18 contains a list setting forth each employee benefit plan or arrangement of each of the AAA Companies, including but not limited to employee pension benefit plans, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA, employee welfare benefit plans, as defined in Section 3(1) of ERISA, deferred compensation plans, stock option plans, bonus plans, stock purchase plans, hospitalization, disability and other insurance plans, severance or termination pay plans and policies, whether or not described in Section 3(3) of ERISA, in which employees, their spouses or dependents, of the AAA Companies participate ("Employee Benefit Plans") (true and accurate copies of which, together with the most recent annual reports on Form 5500 and summary plan descriptions with respect thereto, were furnished to Republic). (b) Compliance with Law. With respect to each Employee Benefit Plan (i) each has been administered in all material respects in compliance with its terms and with all applicable laws, including, but not limited to, ERISA and the Internal Revenue Code of 1986, as amended (the "Code"); (ii) no actions, suits, claims or disputes are pending, or in good faith Threatened; (iii) no audits, inquiries, reviews, proceedings, claims, or demands are pending with any governmental or regulatory agency; (iv) there are no facts which could give rise to any material liability in the event of any such investigation, claim, action, suit, audit, review, or other proceeding; (v) all material reports, returns, and similar documents required to be filed with any governmental agency or distributed to any plan participant have been duly or timely filed or distributed; and (vi) no "prohibited transaction" has occurred within the meaning of the applicable provisions of ERISA or the Code. (c) Qualified Plans. With respect to each Employee Benefit Plan intended to qualify under Code Section 401(a) or 403(a) (i) the Internal Revenue Service has issued a favorable determination letter, true and correct copies of which have been furnished to Republic, that such 22 23 plans are qualified and exempt from federal income taxes; (ii) no such determination letter has been revoked nor has revocation been in good faith Threatened, nor has any amendment or other action or omission occurred with respect to any such plan since the date of its most recent determination letter or application therefor in any respect which would adversely affect its qualification or materially increase its costs; (iii) no such plan has been amended in a manner that would require security to be provided in accordance with Section 401(a)(29) of the Code; (iv) no reportable event (within the meaning of Section 4043 of ERISA) has occurred, other than one for which the 30-day notice requirement has been waived; (v) as of the Effective Date, the present value of all liabilities that would be "benefit liabilities" under Section 4001(a)(16) of ERISA if benefits described in Code Section 411(d)(6)(B) were included will not exceed the then current fair market value of the assets of such plan (determined using the actuarial assumptions used for the most recent actuarial valuation for such plan); (vi) all contributions to, and payments from and with respect to such plans, which may have been required to be made in accordance with such plans and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been timely made; and (vii) all such contributions to the plans, and all payments under the plans (except those to be made from a trust qualified under Section 401(a) of the Code) and all payments with respect to the plans (including, without limitation, PBGC (as defined below) and insurance premiums) for any period ending before the Effective Date that are not yet, but will be, required to be made are properly accrued and reflected on the Current Balance Sheet. (d) Multiemployer Plans. With respect to any multiemployer plan, as described in Section 4001(a)(3) of ERISA ("MPPA Plan") (i) all contributions required to be made with respect to employees of any of the AAA Companies have been timely paid; (ii) none of the AAA Companies has incurred or is not expected to incur, directly or indirectly, any withdrawal liability under ERISA with respect to any such plan (whether by reason of the transactions contemplated by the Agreement or otherwise); (iii) Schedule 3.18 sets forth (A) the withdrawal liability under ERISA to each MPPA Plan, (B) the date as of which such amount was calculated, and (C) the method for determining the withdrawal liability; and (iv) no such plan is (or is expected to be) insolvent or in reorganization and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists or is expected to exist with respect to any such plan. (e) Welfare Plans. (i) None of the AAA Companies is obligated under any employee welfare benefit plan as described in Section 3(1) of ERISA ("Welfare Plan") to provide medical or death benefits with respect to any employee or former employee of any of the AAA Companies or any of their predecessors after termination of employment; (ii) each of the AAA Companies has complied with the notice and continuation coverage requirements of Section 4980B of the Code and the regulations thereunder with respect to each Welfare Plan that is, or was during any taxable year for which the statute of limitations on the assessment of federal income taxes remains, open, by consent or otherwise, a group health plan within the meaning of Section 5000(b)(1) of the Code; and (iii) there are no reserves, assets, surplus or prepaid premiums under any Welfare Plan which is an Employee Benefit Plan. The consummation of the transactions 23 24 contemplated by this Agreement will not entitle any individual to severance pay, and, will not accelerate the time of payment or vesting, or increase the amount of compensation, due to any individual. (f) Controlled Group Liability. None of the AAA Companies, nor any entity that would be aggregated with any of them under Code Section 414(b), (c), (m) or (o): (i) has ever terminated or withdrawn from any employee benefit plan under circumstances resulting (or expected to result) in liability to the Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the employee benefit plan is funded, or any employee or beneficiary for whose benefit the plan is or was maintained (other than routine claims for benefits); (ii) has any assets subject to (or expected to be subject to) a lien for unpaid contributions to any employee benefit plan; (iii) has failed to pay premiums to the PBGC when due; (iv) is subject to (or expected to be subject to) an excise tax under Code Section 4971; (v) has engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has violated Code Section 4980B or Section 601 through 608 of ERISA. (g) Other Liabilities. (i) None of the Employee Benefit Plans obligates any of the AAA Companies to pay separation, severance, termination or similar benefits solely as a result of any transaction contemplated by this Agreement or solely as a result of a "change of control" (as such term is defined in Section 280G of the Code); (ii) all required or discretionary (in accordance with historical practices) payments, premiums, contributions, reimbursements, or accruals for all periods ending prior to or as of the Effective Date shall have been made or properly accrued on the Current Balance Sheets or will be properly accrued on the books and records of each of the AAA Companies as of the Effective Date; and (iii) none of the Employee Benefit Plans has any unfunded liabilities which are not reflected on the Current Balance Sheets or the books and records of each of the AAA Companies. 3.19 TAX MATTERS. All Tax Returns required to be filed prior to the date hereof with respect to each of the AAA Companies or any of their income, properties, franchises or operations have been timely filed, each such Tax Return has been prepared in compliance with all applicable laws and regulations, and all such Tax Returns are true and accurate in all respects. All Taxes due and payable by or with respect to each of the AAA Companies have been paid or are accrued on the Current Balance Sheets or will be accrued on each of their books and records as of the Closing. Except as set forth in Schedule 3.19 hereto: (i) with respect to each taxable period of each of the AAA Companies, either such taxable period has been audited by the relevant taxing authority or the time for assessing or collecting Taxes with respect to each such taxable period has closed and such taxable period is not subject to review by any relevant taxing authority; (ii) no deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Taxes has been asserted or assessed by any taxing authority against any of the AAA Companies; (iii) none of the AAA Companies has consented to extend the time in which any Taxes may be assessed or collected by any taxing authority; (iv) none of the AAA Companies has requested or been granted an extension of the time for filing any Tax Return to a date later than 24 25 the Effective Time; (v) there is no action, suit, taxing authority proceeding, or audit or claim for refund now in progress, pending or in good faith Threatened against or with respect to any of the AAA Companies regarding Taxes; (vi) none of the AAA Companies has made an election or filed a consent under Section 341(f) of the Code (or any corresponding provision of state, local or foreign law) on or prior to the Effective Time; (vii) there are no Liens for Taxes (other than for current Taxes not yet due and payable) upon any of the assets of any of the AAA Companies; (viii) none of the AAA Companies will be required (A) as a result of a change in method of accounting for a taxable period ending on or prior to the Effective Date, to include any adjustment under Section 481(c) of the Code (or any corresponding provision of state, local or foreign law) in taxable income for any taxable period (or portion thereof) beginning after the Effective Time or (B) as a result of any "closing agreement," as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign law), to include any item of income or exclude any item of deduction from any taxable period (or portion thereof) beginning after the Effective Time; (ix) none of the AAA Companies has been a member of an affiliated group (as defined in Section 1504 of the Code) or filed or been included in a combined, consolidated or unitary income Tax Return; (x) none of the AAA Companies is a party to or bound by any tax allocation or tax sharing agreement or has any current or potential contractual obligation to indemnify any other Person with respect to Taxes; (xi) no taxing authority will claim or assess any additional Taxes against any of the AAA Companies for any period for which Tax Returns have been filed; (xii) none of the AAA Companies has made any payments, and as of or after Closing will not be obligated (under any contract entered into on or before the Effective Date) to make any payments, that will be non-deductible under Section 280G of the Code (or any corresponding provision of state, local or foreign law); (xiii) none of the AAA Companies has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code (or any corresponding provision of state, local or foreign law) during the applicable period specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding provision of state, local or foreign law); (xiv) no claim has ever been made by a taxing authority in a jurisdiction where any of the AAA Companies does not file Tax Returns that such company is or may be subject to Taxes assessed by such jurisdiction; and (xv) none of the AAA Companies has any permanent establishment in any foreign country, as defined in the relevant tax treaty between the United States of America and such foreign country; (xvi) true, correct and complete copies of all income and sales Tax Returns filed by or with respect to each of the AAA Companies for the past three years have been furnished or made available to Republic; (xvii) none of the AAA Companies will be subject to any Taxes for the period ending at the Effective Time for any period for which a Tax Return has not been filed imposed pursuant to Section 1374 or Section 1375 of the Code (or any corresponding provision of state, local or foreign law); (xviii) no sales or use tax, non-recurring intangibles tax, documentary stamp tax or other excise tax (or comparable tax imposed by any governmental entity) will be payable by Republic or any of the AAA Companies by virtue of the transactions completed in this Agreement; and (xix) each of the AAA Companies has duly and validly filed an election for "S" corporation status under the Code, and such "S" election has not been revoked or terminated and none of the AAA Companies nor the Shareholders have taken any action which would cause a termination of such "S" election (excluding the transactions contemplated by this 25 26 Agreement). 3.20 INSURANCE. Each of the AAA Companies is covered by valid, outstanding and enforceable policies of insurance covering each of their respective properties, assets and businesses against risks of the nature normally insured against by corporations in the same or similar lines of business and in coverage amounts typically and reasonably carried by such corporations (the "Insurance Policies"). Such Insurance Policies are in full force and effect, and all premiums due thereon have been paid. As of the Effective Time, each of the Insurance Policies will be in full force and effect. None of the Insurance Policies will lapse or terminate as a result of the transactions contemplated by this Agreement. Each of the AAA Companies has complied with the provisions of such Insurance Policies. Schedule 3.20 contains (i) a complete and correct list of all Insurance Policies and all amendments and riders thereto (copies of which have been provided to Republic) and (ii) a detailed description of each pending claim under any of the Insurance Policies for an amount in excess of $50,000 that relates to loss or damage to the properties, assets or businesses of any of the AAA Companies. None of the AAA Companies has failed to give, in a timely manner, any notice required under any of the Insurance Policies to preserve its rights thereunder. 3.21 LICENSES AND PERMITS. Each of the AAA Companies possesses all licenses and required governmental or official approvals, permits or authorizations (collectively, the "Permits") for each of their respective businesses and operations, including with respect to the operation of each of the Owned Properties and Leased Premises. All such Permits are valid and in full force and effect, each of the AAA Companies is in full compliance with the respective requirements thereof, and no proceeding is pending or in good faith Threatened to revoke or amend any of them. None of such Permits is or will be impaired or in any way affected by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.22 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets, Owned Properties and Leased Premises constitute, in the aggregate, all of the assets and properties necessary for the conduct of the business of each of the AAA Companies in the manner in which and to the extent to which such business is currently being conducted. The AAA Companies does not have any direct or indirect interest in any customer, supplier or competitor of the AAA Companies, or in any person from whom or to whom the AAA Companies leases real or personal property. Except as set forth on Schedule 3.22, no officer, director or shareholder of the AAA Companies, nor any person related by blood or marriage to any such person, nor any entity in which any such person owns any beneficial interest, is a party to any Contract or transaction with the AAA Companies or has any interest in any property used by the AAA Companies. 3.23 INTELLECTUAL PROPERTY. Each of the AAA Companies has full legal right, title and interest in and to all trademarks, service marks, trade names, copyrights, know-how, patents, trade secrets, licenses (including licenses for the use of computer software programs), and other 26 27 intellectual property used in the conduct of its business (the "Intellectual Property"). The conduct of the business of each of the AAA Companies as presently conducted, and the unrestricted conduct and the unrestricted use and exploitation of the Intellectual Property, does not infringe or misappropriate any rights held or asserted by any Person, and no Person is infringing on the Intellectual Property. No payments are required for the continued use of the Intellectual Property. None of the Intellectual Property has ever been declared invalid or unenforceable, or is the subject of any pending or in good faith Threatened action for opposition, cancellation, declaration, infringement, or invalidity, unenforceability or misappropriation or like claim, action or proceeding. 3.24 CUSTOMER LISTS, CONTRACTS AND RECURRING REVENUE. All of the customers listed on Schedule 3.24 are subject to valid and enforceable customer contracts. True, correct and complete copies of such contracts have been made available by the Shareholders to Republic. None of the AAA Companies has violated any of the material terms or conditions of any of the Contracts, and all of the covenants to be performed by any other party thereto have been fully performed and there are no claims for breach or indemnification or notice of default or termination thereunder. Schedule 3.24 lists all customers of the AAA Companies that account for more than 1% of the AAA Companies' consolidated annual revenue. The average gross monthly revenue determined in accordance with the accounting methods of each of the AAA Companies collected by the AAA Companies from all of the customers of the AAA Companies during the twelve (12) month period ending December 31, 1996 (the "Test Period") was not less than $2,600,000.00 net of any intercompany eliminations (the "Minimum Revenue"). The Shareholders agree that if the actual average gross monthly revenue collected by the AAA Companies determined in accordance with the accounting methods of each of the AAA Companies was less than the Minimum Revenue, then Republic shall be given and allowed an offset to the Purchase Price (the "Purchase Price Offset") equal to the difference between the Minimum Revenue and the actual average gross monthly revenue collected during the Test Period, multiplied by 41.4. The Purchase Price Offset shall be deemed to be Indemnifiable Damages (as defined below) and may be set-off against the Held Back Shares in the manner described in Article VIII. Such determination shall be made within six months following the Effective Date. This multiplier will be utilized for remedy purposes with respect to this Section 3.24 only. 3.25 ACCURACY OF INFORMATION FURNISHED BY THE SHAREHOLDERS. No written representation, statement or information made or furnished by the Shareholders to Republic or any of Republic's representatives, including those contained in this Agreement and the various Schedules attached hereto and the other information and statements referred to herein and previously furnished by the AAA Companies and the Shareholders, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained therein not misleading. The Shareholders have provided Republic with access to true, accurate and complete copies of all documents listed or described in the various Schedules attached hereto. 27 28 3.26 INVESTMENT INTENT; SECURITIES DOCUMENTS. Each of the Shareholders is acquiring the Republic Shares hereunder for his or its own account for investment and not with a view to, or for the sale in connection with, any distribution of any of the Republic Shares, except in compliance with applicable state and federal securities laws. Each of the Shareholders has had the opportunity to discuss the transactions contemplated hereby with Republic and has had the opportunity to obtain such information pertaining to the Republic Companies as has been requested, including but not limited to filings made by Republic with the SEC under the Exchange Act. Each of the Shareholders acknowledge receiving a prospectus of Republic in accordance with the requirements of the Securities Act. 3.27 BANK ACCOUNTS; BUSINESS LOCATIONS. Schedule 3.27 sets forth all accounts of the AAA Companies with any bank, broker or other depository institution, and the names of all persons authorized to withdraw funds from each such account. As of the date hereof, none of the AAA Companies has any office or place of business other than as identified on Schedules 3.14(a) and 3.14(b) and the AAA Companies' principal places of business and chief executive offices are indicated on Schedule 3.14(a) or 3.14(b), and, except for equipment leased to customers in the ordinary course of business, all locations where the equipment, inventory, chattel paper and books and records of the AAA Companies are located as of the date hereof are fully identified on Schedules 3.14(a) and 3.14(b). 3.28 NAMES; PRIOR ACQUISITIONS. All names under which the AAA Companies do business as of the date hereof are specified on Schedule 3.28. Except as set forth in Schedule 3.28, none of the AAA Companies has changed its name or used any assumed or fictitious name, or been the surviving entity in a merger, acquired any business or changed its principal place of business or chief executive office, within the past three years. 3.29 NO COMMISSIONS. Except as set forth on Schedule 3.29, neither the AAA Companies nor the Shareholders has incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. 3.30 RECEIVABLES. All of the Receivables (as hereinafter defined) are valid and legally binding, represent bona fide transactions and arose in the ordinary course of business of each of the AAA Companies. All of the Receivables are good and collectible receivables, and will be collected in full in accordance with the terms of such receivables (and in any event within six months following the Closing), without setoff or counterclaims, subject to the allowance for doubtful accounts of an amount not to exceed 1% of revenue collected by the AAA Companies from its customers. For purposes of this Agreement, the term "Receivables" means all receivables of each of the AAA Companies, including all trade account receivables arising from the provision of services, sale of inventory, notes receivable, and insurance proceeds receivable. 28 29 ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGERS 4.1 CONDUCT OF BUSINESS BY THE AAA COMPANIES PENDING THE MERGERS. The AAA Companies covenant and agree that, between the date of this Agreement and the Effective Time, the business of each of the AAA Companies shall be conducted only in, and each of the AAA Companies shall not take any action except in, the ordinary course of business, consistent with past practice. Each of the AAA Companies shall use all reasonable efforts to preserve intact its business organization, to keep available the services of its current officers, employees and consultants, and to preserve its present relationships with customers, suppliers and other persons with which it has significant business relations. By way of amplification and not limitation, except as contemplated by this Agreement, none of the AAA Companies shall, between the date of this Agreement and the Effective Time, directly or indirectly, do or propose or agree to do any of the following without the prior written notice to Republic: (a) amend or otherwise change any of their articles of incorporation or bylaws or equivalent organizational documents; (b) issue, sell, pledge, dispose of, encumber, or, authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of their capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest, of any of them or (ii) any of their assets, tangible or intangible, except in the ordinary course of business consistent with past practice; (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of their capital stock (except for distributions to any of the Shareholders consistent with past practices of any of the AAA Companies); (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of their capital stock; (e) (i) acquire (including, without limitation, for cash or shares of stock, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or make any investment either by purchase of stock or securities, contributions of capital or property transfer, or, except in the ordinary course of business, consistent with past practice, purchase any property or assets of any other Person, (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances, or (iii) enter into any Contract other than in the ordinary course of business, consistent with past practice; 29 30 (f) except in the ordinary course of business consistent with past practice, increase the compensation payable or to become payable to any of their officers or employees, or, except as presently bound to do, grant any severance or termination pay to, or enter into any employment or severance agreement with, any of their directors, officers or other employees, or establish, adopt, enter into or amend or take any action to accelerate any rights or benefits which any collective bargaining, bonus, profit sharing, trust, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees; (g) take any action other than in the ordinary course of business and in a manner consistent with past practice with respect to accounting policies or procedures; (h) pay, discharge or satisfy any existing claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of due and payable liabilities reflected or reserved against in any of their financial statements, as appropriate, or liabilities incurred after the date hereof in the ordinary course of business and consistent with past practice; (i) except in the ordinary course of business consistent with past practice, increase or decrease prices charged to any of their customers, except for previously announced price changes, or take any other action which might reasonably result in any material increase in the loss of customers through non-renewal or termination of service contracts or other causes; or (j) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty in Article III untrue or incorrect. Notwithstanding the foregoing, the parties agree that the agreements or arrangements set forth in Schedules 3.4 (relating to stock transfer restriction agreements), 3.17 (relating to Larry E. Edwards' employment agreement and salary continuation agreements) will be terminated at or prior to the Effective Time so long as doing so will not adversely affect the poolability of the transactions contemplated by this Agreement. ARTICLE V ADDITIONAL AGREEMENTS 5.1 FURTHER ASSURANCES. Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the 30 31 transactions contemplated hereby. Each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated herein, including, without limitation, using all reasonable efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of any Governmental Authority and parties to Contracts with the AAA Companies as are necessary for the consummation of the transactions contemplated hereby. In the event the foregoing agreements of the parties shall result in the imposition of any fees, costs or expenses after the Effective Time, Republic hereby agrees to pay all such fees, costs and expenses and to indemnify and hold the Shareholder harmless with respect to such fees, costs and expenses. Each of parties shall make on a prompt and timely basis all governmental or regulatory notifications and filings required to be made by it for the consummation of the transactions contemplated hereby. The parties also agree to use all reasonable efforts to defend all lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby and to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. Notwithstanding anything to the contrary set forth herein, with respect to (i) the making of any required governmental or regulatory notifications and filings, (ii) the defense of any lawsuit or other legal proceeding challenging this Agreement or the consummation of the transactions contemplated hereby, and (iii) the lifting or rescinding of any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby, Republic and the Shareholders shall pay their own fees and expenses, including their own counsel fees, incurred in connection with any of the foregoing matters, whether such fees and expenses arise prior to the consummation of the transactions contemplated hereby or after the Effective Time. The Republic Companies will be solely responsible for the defense of any Republic shareholder lawsuits challenging the transactions contemplated by this Agreement or any governmental action which challenges the transactions contemplated by this Agreement. 5.2 HSR ACT FILINGS. Each of the parties hereto shall make promptly (and in no event later than ten (10) business days following the date hereof) its respective filings, if any, and thereafter make any other required submissions under the HSR Act, with respect to the transactions contemplated hereby. 5.3 COMPLIANCE WITH COVENANTS. The Shareholders shall cause the AAA Companies to comply with all of the respective covenants of the AAA Companies under this Agreement. 5.4 COOPERATION. Each of the parties agrees to cooperate with the other in the preparation and filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to any law, rule or regulation or the rules of any exchange on which the Republic Common Stock is listed or The Nasdaq Stock Market in connection with the transactions contemplated by this Agreement and to use their respective Best Efforts to agree jointly on a method to overcome any objections by any Governmental Authority to any such 31 32 transactions. 5.5 ACCESS TO INFORMATION. From the date hereof to the Effective Date, the Shareholders shall in good faith cooperate with Republic to make available to Republic and Republic's officers, employees, auditors, counsel and agents copies of all books and records of the AAA Companies, and shall furnish such persons with all financial, operating and other data and information as may be requested. No information provided to or obtained by Republic shall affect any representation or warranty in this Agreement. The Shareholders shall provide Republic with reasonable access to its offices and other facilities, provided that all visits and inspections to such offices and facilities shall be conducted while accompanied by a Shareholder or a representative of the Shareholders in a manner which does not suggest or disclose the existence of this Agreement (or any agreement to sell stock or assets) to employees or officers of the AAA Companies. 5.6 NOTIFICATION OF CERTAIN MATTERS. The parties shall give prompt notice to the other of the occurrence or non-occurrence of any event which would likely cause any representation or warranty contained herein to be untrue or inaccurate, or any covenant, condition, or agreement contained herein not to be complied with or satisfied. 5.7 TAX TREATMENT. The Republic Companies will use their respective Best Efforts to cause the Mergers to qualify as reorganizations under the provisions of Section 368(a) of the Code. The Republic Companies will not and do not presently intend to take any action after the Mergers are effected to cause the Mergers to lose their tax-free status, unless the Shareholders of the AAA Companies take any actions that, individually or in the aggregate, have the effect of disqualifying this transaction under the provisions of Section 368 of the Code. All parties hereto agree to file the Plans of Merger with each of their respective federal income tax returns for the year in which the Mergers are effective, and to comply with the reporting requirements of Treasury Regulation 1.368-3. The parties agree to use their respective reasonable Best Efforts to contest, or to assist any other party hereto who is contesting, the assertion by any Governmental Authority that any of the Mergers failed to qualify as reorganization under Section 368 of the Code. 5.8 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as otherwise permitted or expressly contemplated herein, or as required (on a confidential basis) in either party's due diligence investigation or in the consummation of this transaction, or as otherwise set forth in those certain Confidentiality and Non-Disclosure Agreements dated December 2, 1996 as amended by the addendum dated January 27, 1997 by and between each of the AAA companies and Republic, the terms of which are specifically incorporated herein by this reference, no party hereto or their respective Affiliates, employees, agents and representatives shall disclose to any third party this Agreement or the subject matter or terms hereof without the prior consent of the other parties hereto. No press release or other public announcement related to this Agreement or the transactions contemplated hereby shall be issued by any party hereto without the prior approval 32 33 of the other parties until the Effective Date, except that Republic may make such public disclosure which it believes in good faith to be required by law or by the terms of any listing agreement with or requirements of a securities exchange (in which case Republic will consult with an officer of the AAA Companies prior to making such disclosure). Any of the provisions of this Agreement notwithstanding, the provisions of this Section 5.8 shall survive termination of this Agreement. 5.9 NO OTHER DISCUSSIONS. Unless and until this Agreement is terminated pursuant to Article XI, the AAA Companies, the Shareholders, and their respective Affiliates, employees, agents and representatives will not (i) initiate, encourage the initiation by others of discussions or negotiations with third parties or respond to solicitations by third persons relating to any merger, sale or other disposition of any substantial part of the assets, business or properties of the AAA Companies (whether by merger, consolidation, sale of stock or otherwise) or (ii) enter into any agreement or commitment (whether or not binding) with respect to any of the foregoing transactions. The Shareholders will immediately notify Republic if any third party attempts to initiate any solicitation, discussion or negotiation with respect to any of the foregoing transactions. 5.10 RESTRICTIVE COVENANTS. In order to assure that Republic will realize the benefits of the Mergers, each of the Shareholders jointly and severally agrees with Republic that he or it will not for a period of three years from the Effective Time: (a) directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, consultant, agent, independent contractor or stockholder of any company or business, engage in any business activity in any county of the Commonwealth of Virginia in which the AAA Companies presently conduct business which is directly or indirectly in competition with the business conducted by the AAA Companies at the Effective Time; provided, however, that, (i) the beneficial ownership of less than five percent (5%) of the shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or over-the-counter market and (ii) the ownership or operation of, or other interests in, real property shall not be deemed, in and of itself, to violate the prohibitions of this Section; (b) directly or indirectly (i) induce any Person which is a customer of the AAA Companies at the Effective Time to patronize any business directly or indirectly in competition with the business conducted by the AAA Companies; (ii) canvass,solicit or accept from any Person which is a customer of the AAA Companies, any such competitive business; or (iii) request or advise any Person which is a customer of the AAA Companies at the Effective Time to withdraw, curtail or cancel any such customer's business with the AAA Companies or any of their successors; (c) except with respect to any trustee of any of the Shareholders, 33 34 directly or indirectly employ, or knowingly permit any company or business directly or indirectly controlled by him, to employ, any person who was employed by any of the AAA Companies at or within six months prior to the Effective Time, or in any manner seek to induce any such person to leave his or her employment; and (d) directly or indirectly, at any time following the Effective Time, in any way utilize, disclose, copy, reproduce or retain in his possession any of the AAA Companies' proprietary rights or records, including, but not limited to, any of its customer lists, except as otherwise provided in Section 5.15. The Shareholders agree and acknowledge that the restrictions contained in this Section are reasonable in scope and duration and are necessary to protect Republic after the Effective Time. If any provision of this Section as applied to any party or to any circumstance is adjudged by a court to be invalid or unenforceable, the same will in no way affect any other circumstance or the validity or enforceability of this Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision, and/or to delete specific words or phrases, and in its reduced form, such provision shall then be enforceable and shall be enforced. The parties agree and acknowledge that the breach of this Section will cause irreparable damage to Republic and upon breach of any provision of this Section, Republic shall be entitled to injunctive relief, specific performance or other equitable relief; provided, however, that, this shall in no way limit any other remedies which Republic may have (including, without limitation, the right to seek monetary damages). 5.11 DUE DILIGENCE REVIEW AND ENVIRONMENTAL ASSESSMENT. Republic shall be entitled to have conducted prior to Closing a due diligence review of the assets, properties, books and records of each of the AAA Companies and an environmental assessment of the Owned Properties and Leased Premises (hereinafter referred to as "Environmental Assessment"). The Environmental Assessment may include, but not be limited to, a physical examination of the Owned Property or Leased Premises, and any structures, facilities, or equipment located thereon, soil samples, ground and surface water samples, storage tank testing, review of pertinent records, documents, and Licenses of each of the AAA Companies. The Shareholders shall provide Republic or its designated agents or consultants with the access to such property which Republic, its agents or consultants require to conduct the Environmental Assessment. If the Environmental Assessment identifies environmental contamination which requires remediation or further evaluation under the Environmental, Health and Safety Laws or if the results of the Environmental Assessment are otherwise not satisfactory to Republic in its sole discretion, then Republic may elect not to close the transactions contemplated by this Agreement in which case this Agreement shall be terminated. Republic's failure or decision not to conduct any such Environmental Assessment shall not affect any representation or warranty of the Shareholders under this Agreement. 34 35 5.12 TRADING IN REPUBLIC COMMON STOCK. Except as otherwise expressly consented to by Republic, from the date of this Agreement until the Effective Time, none of the AAA Companies or the Shareholders (nor any Affiliates thereof) will directly or indirectly purchase or sell (including short sales) any shares of Republic Common Stock in any transactions effected on The Nasdaq Stock Market or otherwise. 5.13 RELEASE OF GUARANTIES. After the Effective Date, Republic hereby covenants and agrees to (i) take promptly any and all actions necessary to cause any and all personal guaranties by the Shareholders, with respect to the Guaranteed Liabilities set forth in Schedule 5.13 (the "Guaranteed Liabilities"), to be released by the holders of such guaranties; and (ii) indemnify and hold the Shareholders harmless for any Guaranteed Liabilities outstanding after the Effective Date, and any expenses, losses, deficiencies, liabilities, and damages (including, without limitation, reasonable related counsel fees, paralegal fees, and expenses) resulting from Republic's breach of this Section 5.13. 5.14 DELIVERY OF QUALIFIED CERTIFICATE. Notwithstanding anything to the contrary set forth herein, if any events shall have occurred which were beyond the control of the AAA Companies or the Shareholders between the date of this Agreement and the Effective Time which would prevent the AAA Companies and the Shareholders from delivering to Republic the certificate(s) referred to in Section 6.1 and 6.2 hereof without exception or qualification, the AAA Companies and the Shareholders shall nevertheless deliver to Republic such certificate with exceptions attached thereto (the "Qualified Certificate"). In the event Republic shall receive a Qualified Certificate, Republic may in its sole and absolute discretion (a) terminate this Agreement without penalty or (b) waive such condition to effect the Mergers and close the transactions contemplated pursuant to the terms of this Agreement. In the event Republic elects to effect the Mergers, Republic hereby waives any right to bring a claim for Indemnifiable Damages arising as a result of the exceptions set forth in the Qualified Certificate; provided that Republic specifically reserves and may assert any claim for Indemnifiable Damages (i) arising from any breach of the representations and warranties of the Shareholders in this Agreement existing as of the date of this Agreement, (ii) arising from any events which have occurred between the date of this Agreement and the Effective Time which were in the control of the AAA Companies or the Shareholders whether or not such events have been disclosed to Republic in the Qualified Certificate, (iii) arising from any events not disclosed to Republic, and (iv) arising from any environmental remediation of the Leased Premises or Owned Properties. 5.15 AVAILABILITY OF RECORDS. After the Effective Date, Republic hereby covenants and agrees, upon the receipt of written notice from the Shareholders setting forth with reasonable specificity the basis and purpose of the request, to provide to the Shareholders any records (i) necessary for purposes of resolution of any audit of any Tax Return of the AAA Companies, for, or of the Shareholders with respect to income attributable to any period of the AAA Companies ending on or before the Effective Time, (ii) with respect to any claim for Indemnifiable Damages hereunder, and (iii) any claim against any Shareholder (whether in his or its capacity as a 35 36 shareholder, officer or director), with respect to any period of time ending on or before the Effective Time. 5.16 TAX AUDIT PRIOR TO THE EFFECTIVE TIME. In the event of any audit by a taxing authority of any Tax Return of the AAA Companies for, or of the Shareholders with respect to income attributable to, any period of the AAA Companies ending on or before the Effective Time, Republic will promptly provide the Shareholders with copies of all notices issued by the taxing authority and received by Republic or the AAA Companies in connection therewith. The Shareholders may, at their sole expense, defend any such audit, and may assert or agree to accept any reasonable reporting position of transactions required to be reflected in the Tax Return so audited to achieve resolution of such audit, provided that in the event such position has an adverse effect to Republic, Republic shall be fully indemnified and held harmless by the Shareholders with respect to any damage, loss, cost or expense (including, without limitation, reasonable attorneys' fees) incurred by Republic as a result of such adverse position. Republic will have the right to participate in any such audit at its own non-reimbursable expense and shall receive from the Shareholders copies of all communications between the taxing authority and Shareholders relevant to the Tax Returns or Taxes of the AAA Companies. The provisions of Section 8.11 hereof shall be applicable with respect to any dispute between the parties with respect to the amount of any damage, loss, cost or expense incurred by Republic in connection with the terms of this Section. 5.17 PREPARATION OF FINAL TAX RETURN; ALLOCATION OF INCOME. After the Effective Date, Republic and the Shareholders hereby covenant and agree that (i) Beers & Cutler, C.P.A. shall prepare the final Tax Return of the AAA Companies for the year ending as a result of the Mergers, and (ii) any income of the AAA Companies for the year ending as a result of the Mergers shall be allocated on a closing of the books method in accordance with Section 1362(e)(6)(D) of the Code and no election to the contrary shall be made by the AAA Companies under Treasury Regulations 1.1502- 76(b)(2)(ii)(D) of the Code. 5.18 SATISFACTION OF REAL PROPERTY INDEBTEDNESS. Within five (5) business days from the Effective Time, Republic shall cause Land and Building to fully pay and satisfy, in immediately available funds, that certain indebtedness in the remaining principal amount not to exceed $2,600000.00 owed by Land and Building to Larry E. Edwards with respect to that certain parcel of real property located at 4619 West Ox Road, Fairfax, Virginia 22030. ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES The obligations of the Republic Companies to effect the Mergers shall be subject to the fulfillment at or prior to the Effective Time of the following conditions, any or all of which may be waived in whole or in part by the Republic Companies: 36 37 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Shareholders contained in this Agreement shall be true and correct at and as of the Effective Time with the same force and effect as though made at and as of that time except (i) for changes specifically permitted by or disclosed pursuant to this Agreement, and (ii) that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. Each of the AAA Companies and the Shareholders shall have performed and complied with all of their respective obligations required by this Agreement to be performed or complied with at or prior to the Effective Time. Each of the AAA Companies and the Shareholders shall have delivered to the Republic Companies a certificate, dated as of the Effective Date, duly signed (in the case of each of the AAA Companies, by its President), certifying that such representations and warranties are true and correct and that all such obligations have been complied with and performed. 6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the date hereof and the Effective Time, (i) there shall have been no Material Adverse Change to the AAA Companies, (ii) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of any of the AAA Companies, and (iii) none of the properties and assets of the AAA Companies shall have been damaged by fire, flood, casualty, act of God or the public enemy or other cause (regardless of insurance coverage for such damage) which damages may have a Material Adverse Effect thereon, and there shall have been delivered to the Republic Companies a certificate to that effect, dated the Effective Date and signed by or on behalf of each of the AAA Companies and the Shareholders. 6.3 CORPORATE CERTIFICATE. The Shareholders shall have delivered to the Republic Companies (i) copies of the articles of incorporation and bylaws of each of the AAA Companies as in effect immediately prior to the Effective Time, (ii) copies of resolutions adopted by the Board of Directors and Shareholders of each of the AAA Companies authorizing the transactions contemplated by this Agreement, and (iii) a certificate of good standing each of the AAA Companies issued by the Secretary of State of the Commonwealth of Virginia and each other state in which any of the AAA Companies is qualified to do business as of a date not more than ten days prior to the Effective Date, certified in the case of subsections (i) and (ii) of this Section as of the Effective Date by the Secretary of each such company as being true, correct and complete. 6.4 OPINION OF COUNSEL. The Republic Companies shall have received an opinion dated as of the Effective Date from counsel for the AAA Companies and the Shareholders, in form and substance acceptable to the Republic Companies, with reasonable limitations acceptable to counsel for the AAA Companies and the Shareholders, to the effect that: (i) Each of the AAA Companies is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia and each is authorized to carry on the business now conducted by each of 37 38 them and to own or lease the properties now owned or leased by each of them; (ii) Each of the AAA Companies has obtained all necessary authorizations and consents of each of their Board of Directors and the Shareholders to effect each of the Mergers; (iii) All issued and outstanding shares of capital stock of each of the AAA Companies are owned as set forth on Schedule 3.5 hereto; (iv) Such counsel does not have actual knowledge that there is any litigation, proceeding or investigation pending or in good faith Threatened which might result in any Material Adverse Change in the properties, business or prospects or in the condition of each of the AAA Companies, or which questions the validity of this Agreement; and (v) This Agreement is a valid and binding obligation of each of the AAA Companies, and the Shareholders, and enforceable against each of the AAA Companies and the Shareholders in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or general equitable principles. 6.5 CONSENTS. The AAA Companies shall have received consents to the transactions contemplated hereby and waivers of rights to terminate or modify any material rights or obligations of any of the AAA Companies from any Person from whom such consent or waiver is required as of a date not more than ten days prior to the Effective Date, or who, as a result of the transactions contemplated hereby, would have such rights to terminate or modify any such material rights or obligations, either by the terms thereof or as a matter of law. 6.6 SECURITIES LAWS. Republic shall have received all necessary consents and otherwise complied with any state Blue Sky or securities laws applicable to the issuance of the Republic Shares, in connection with the transactions contemplated hereby. 6.7 POOLING LETTERS. Republic shall have received from Beers & Cutler, independent certified public accountants for each of the AAA Companies, a letter dated the Effective Date, in form and substance acceptable to Republic, confirming that, to their knowledge after due and diligent inquiry of management, there have been no transactions or events with respect to any of the AAA Companies which would, and the ownership structure and attributes of any of the AAA Companies and the Shareholders would not, proscribe the transactions contemplated hereby, if consummated, from being considered as pooling of interests business combinations. Republic shall have received from Arthur Andersen LLP, a letter dated the Effective Date, confirming that the transactions contemplated hereby, if consummated, can properly be accounted for as pooling 38 39 of interests combinations in accordance with GAAP and the criteria of Accounting Principles Board Opinion No. 16 and the regulations of the SEC. 6.8 ACKNOWLEDGMENT OF POOLING RESTRICTIONS AND RECEIPT OF SEC FILINGS. At or prior to the Closing, the Shareholders shall have delivered to Republic a letter agreement acknowledging "pooling of interests" restrictions and receipt of SEC filings of Republic, in form and substance satisfactory to the Republic Companies. 6.9 AAA COMPANIES CAPITAL STOCK. At the Closing, each of the Shareholders shall have delivered to Republic all certificates evidencing the shares of capital stock of each of the AAA Companies held by them. 6.10 STOCK POWERS. At the Closing, each of the Shareholders shall have delivered to Republic, for use in connection with the Held Back Shares, ten stock powers executed in blank, with signatures guaranteed. 6.11 NO ADVERSE LITIGATION. There shall not be pending or in good faith Threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, invalidate or collect damages arising out of the Mergers or any other transaction contemplated hereby, and which, in the judgment of Republic, makes it inadvisable to proceed with the Mergers and other transactions contemplated hereby. 6.12 BOARD APPROVAL. The Board of Directors of Republic shall have authorized and approved this Agreement, the Mergers and transactions contemplated hereby. 6.13 HSR ACT WAITING PERIOD. Any applicable HSR Act waiting period shall have expired or been terminated. 6.14 DUE DILIGENCE REVIEW. Republic shall be satisfied with the results of its due diligence review and Environmental Assessment pursuant to Section 5.11. ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE AAA COMPANIES AND THE SHAREHOLDERS The obligations of the AAA Companies and the Shareholders to effect the Mergers shall be subject to the fulfillment at or prior to the Effective Time of the following conditions, any or all of which may be waived in whole or in part by the AAA Companies and the Shareholders: 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. 39 40 The representations and warranties of each of the Republic Companies contained in this Agreement shall be true and correct in all material respects at and as of the Effective Time with the same force and effect as though made at and as of that time except (i) for changes specifically permitted by or disclosed pursuant to this Agreement, and (ii) that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. Each of the Republic Companies shall have performed and complied with all of its obligations required by this Agreement to be performed or complied in all material respects with at or prior to the Effective Time. Each of the Republic Companies shall have delivered to the AAA Companies and the Shareholders a certificate, dated as of the Effective Date, and signed by an executive officer, certifying that such representations and warranties are true and correct and that all such obligations have been complied with and performed. 7.2 REPUBLIC SHARES. At the Closing, Republic shall have issued all of the Republic Shares and shall have delivered to the Shareholders (i) certificates representing the Republic Shares issued to them hereunder, other than the Held Back Shares, and (ii) copies of stock certificates representing the Held Back Shares issued to them. 7.3 NO ADVERSE LITIGATION. There shall not be pending or in good faith Threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, invalidate or collect damages arising out of the Mergers or any other transaction contemplated hereby, and which in the judgment of the AAA Companies and the Shareholders makes it inadvisable to proceed with the Mergers and other transactions contemplated hereby. 7.4 HSR ACT WAITING PERIOD. Any applicable HSR Act waiting period shall have expired or been terminated. 7.5 OPINION OF REPUBLIC'S COUNSEL. The AAA Companies and the Shareholders shall have received an opinion dated as of the Effective Date from counsel for Republic, in form and substance acceptable to the AAA Companies and the Shareholders, with reasonable limitations acceptable to Republic's counsel, to the effect that: (i) Republic is a corporation duly organized and existing and in good standing under the laws of the State of Delaware and is authorized to carry on the business now conducted by it and own or lease the properties now owned or leased by it; (ii) Republic has obtained all necessary authorizations and consents of its Board of Directors to effect the transactions contemplated hereunder; (iii) Such counsel does not have actual knowledge that there is any litigation, proceeding or investigation pending or in good faith Threatened which might result in any Material Adverse Change in the properties, business or prospects or in the condition of Republic or which questions the validity of this Agreement; 40 41 (iv) This Agreement is a valid and binding obligation of Republic and enforceable against Republic in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally; and (v) Upon consummation of the Mergers and the issuance and delivery of certificates representing the Republic Shares to the Shareholders, the Republic shares will be validly issued, fully paid and non-assessable shares of Republic Common Stock. 7.6 No Material Adverse Change to Republic. Between the date hereof and the Effective Time, there shall have been no Material Adverse Change to Republic, taken as a whole. ARTICLE VIII INDEMNIFICATION 8.1 AGREEMENT BY THE SHAREHOLDERS TO INDEMNIFY. The Shareholders jointly and severally agree to indemnify and hold Republic harmless from and against the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, related counsel and paralegal fees and expenses) incurred or suffered by Republic (collectively, "Indemnifiable Damages") arising out of or resulting from (i) any breach of a representation or warranty made by the Shareholders in or pursuant to this Agreement, (ii) any breach of the covenants or agreements made by the AAA Companies or any Shareholder in or pursuant to this Agreement, (iii) any inaccuracy in any certificate delivered by the AAA Companies or any Shareholder pursuant to this Agreement, (iv) any Claim (as such term is defined in Section 8.5 hereof), or (v) any matters set forth on Schedules 3.12, 3.29 and 3.19 attached hereto. Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Republic shall have the right to be put in the same pre-tax consolidated financial position as it would have been in had each of the representations and warranties of the Shareholders hereunder been true and correct and had the covenants and agreements of the AAA Companies and the Shareholders hereunder been performed in full. Notwithstanding the foregoing, after the Effective Time, the maximum liability of the Shareholders for Indemnifiable Damages for any breach of the representations, warranties, covenants and agreements hereunder shall not exceed in the aggregate the Purchase Price (the "Indemnification Limitation"); provided, however, that any Indemnifiable Damages resulting from or arising out of (i) any Claim (as defined in Section 8.5) and (ii) any matters set forth in Schedules 3.12, 3.29 and 3.19, shall not be applied against or subject to the foregoing Indemnification Limitation. Republic hereby agrees to use its, and cause its subsidiaries to use their, reasonable efforts to mitigate any claim for Indemnifiable Damages hereunder, including but not limited to seeking recovery under applicable insurance policies or from third parties. Republic hereby agrees to promptly deliver to the Shareholders any insurance proceeds received by Republic or any of the AAA Companies after the Effective Time, 41 42 pursuant to the provisions of any insurance policy of the AAA Companies in full force and effect prior to the Effective Time, in connection with any claim for Indemnifiable Damages for which Republic has received Indemnifiable Damages with respect to any matters existing prior to the Effective Time. 8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by the Shareholders in this Agreement or pursuant hereto shall expire on the first anniversary of the Effective Time, except that the representations and warranties contained in (i) Section 3.12 and 3.29, shall expire at the time the period of limitations expires for the bringing of any claim, suit or action by any Person with respect to any matters set forth in Schedule 3.12 or Schedule 3.29 hereof, and (ii) Section 3.19, with respect to the audits more fully described in Schedule 3.19, shall expire at the time the period of limitations (including any extensions thereof pursuant to the delivery of waivers of the applicable period of limitations) expires for the assessment or imposition by any Governmental Authority of additional Taxes with respect to such audits (the "Claims Period"). No claim for the recovery of Indemnifiable Damages for the breach of any of the representations and warranties made by the Shareholders hereunder may be asserted by Republic against the Shareholders after such representations and warranties shall thus expire, provided, however, that claims for Indemnifiable Damages first asserted within the Claims Period shall not thereafter be barred; provided, however, such claims (except any claim for Indemnifiable Damages arising from or related to any Claim), including, without limitation, claims with respect to or against the Held Back Shares, shall be barred if arbitration with respect to such claims is not filed within six (6) months after the expiration of the Claims Period regardless of any otherwise applicable limitations period. With respect to any claim for Indemnifiable Damages hereunder, Republic shall give written notice to the Shareholders which notice shall set forth (i) the amount of Indemnifiable Damages which Republic claims to have sustained; and (ii) the basis of such claim with reasonable specificity. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. Each of the representations and warranties of the Republic Companies shall survive for a period of one year after the Effective Time. 8.3 SECURITY FOR THE SHAREHOLDERS' INDEMNIFICATION OBLIGATION. As security for the agreement by the Shareholders to indemnify and hold Republic harmless as described in this Article at the Closing, Republic shall set aside and hold certificates representing the Held Back Shares issued pursuant to this Agreement. The Shareholders hereby grant Republic a first priority security interest in the Held Back Shares. Republic may set off against the Held Back Shares any Indemnifiable Damages for which the Shareholders may be responsible pursuant to this Agreement, subject, however, to the following terms and conditions: 42 43 (a) Republic shall give written notice to the Shareholders of any claim for Indemnifiable Damages or any other damages hereunder, which notice shall set forth (i) the amount of Indemnifiable Damages or other loss, damage, cost or expense which Republic claims to have sustained by reason thereof, and (ii) the basis of such claim with reasonable specificity; (b) Such set off shall be effected on the later to occur on the expiration of 20 days from the date of such notice (the "Notice of Contest Period") or, if such claim is contested, the date the dispute is resolved, and such set off shall be charged againstthe Held Back Shares; (c) If, prior to the expiration of the Notice of Contest Period, the Shareholders shall notify Republic in writing of an intention to dispute the claim and if such dispute is not resolved within 30 days after expiration of such period (the "Resolution Period"), then such dispute shall be resolved pursuant to the terms of Section 8.11 hereof; (d) After any restrictions on sale imposed under the Securities Act or otherwise are terminated, the Shareholders may, not more than once during each twelve (12) month period in which Republic holds the Held Back shares following the Effective Date, instruct Republic in writing to sell some or all of the Held Back Shares and the proceeds thereof shall be substituted for such Held Back Shares and held in an interest bearing account as directed by the Shareholders, subject to continued compliance with any applicable SEC and other regulations. Republic shall not be liable for any loss or damage incurred by the Shareholders arising from any delay in the sale of such Held Back Shares following the Shareholders' instruction to sell the Held Back Shares unless such delay shall be unreasonable in nature. (e) For purposes of this Article, the shares of Republic Common Stock not sold as provided in clause (d) of this Section shall be valued at the Closing Sale Price. 8.4 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES . Except with respect to shares transferred pursuant to the foregoing right of setoff (and in the case of such shares, until the same are transferred), all Held Back Shares shall be deemed to be owned by the Shareholders and the Shareholders shall be entitled to vote the same; provided, however, that, there shall also be deposited with Republic subject to the terms of this Article, all shares of Republic Common Stock issued to the Shareholders as a result of any stock dividend or stock split and all cash issuable to the Shareholders as a result of any cash dividend, with respect to the Held Back Shares. All stock and cash issued or paid upon Held Back Shares shall be distributed to the person or entity entitled to receive such Held Back Shares together with such Held Back Shares. 43 44 8.5 DELIVERY OF HELD BACK SHARES. Republic agrees to deliver to the Shareholders no later than the first anniversary of the Effective Date (the "Release Date") any Held Back Shares then held by it (or proceeds from the sale of the Held Back Shares) unless there then remains unresolved any claim for Indemnifiable Damages or other damages hereunder as to which notice has been given, in which event any Held Back Shares remaining on deposit (or proceeds from the sale of Held Back Shares) after such claim shall have been satisfied shall be returned to the Shareholders promptly after the time of satisfaction. Notwithstanding the foregoing provision, the parties hereto hereby agree that following the Release Date, Republic shall continue to set aside and hold, in accordance with this Article, 13,889 of the Held Back Shares (or the proceeds from the sale of such Held Back Shares), or any remaining Held Back Shares then held by Republic, (or the proceeds from the sale of any such remaining Held Back Shares), as continued security (the "Continued Security") for the Shareholders' obligation to indemnify and hold Republic harmless with respect to the bringing of any claim, suit, or action (equitable or otherwise) (the "Claim") in connection with, arising out of or from, or in any manner related to that certain Property Settlement Agreement dated as of November 12, 1996, by and between Larry E. Edwards and Mary G. Edwards, and any amendments thereto. No later than the second anniversary of the Effective Date, Republic shall promptly deliver 6,945 of the Continued Security then held by it (or the proceeds from the sale of such Continued Security) to the Shareholders unless there then remains unresolved any claim for Indemnifiable Damages with respect to any Claim as to which notice has been given. No later than the third anniversary of the Effective Date, Republic shall promptly deliver to the Shareholders any Continued Security then held by it (or the proceeds from the sale of such Continued Security) unless there then remains unresolved any claim for Indemnifiable Damages with respect to any Claim as to which notice has been given, in which event any Continued Security remaining on deposit (or proceeds from the sale of such Continued Security), after any such Claim shall have been satisfied, shall be returned to the Shareholders promptly after the time of satisfaction. 8.6 ADJUSTMENT TO MERGER CONSIDERATION. All payments for Indemnifiable Damages made pursuant to this Article shall be treated as adjustments to the consideration granted in the Merger under Section 1.3 hereof. 8.7 NO BAR. If the Held Back Shares are insufficient to set off any claim for Indemnifiable Damages made hereunder (or have been delivered to the Shareholders prior to the making or resolution of such claim), then Republic may take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. 8.8 INDEMNIFICATION THRESHOLD. Notwithstanding anything to the contrary in this Agreement and any documents related thereto, the Shareholders shall not be liable to Republic with respect to any claim for Indemnifiable Damages unless the aggregate amount of all Indemnifiable Damages (excluding claims for Indemnifiable Damages arising from or related to any Claim (as defined in Section 8.5) or any matters set forth in Schedules 3.12, 3.29 and 3.19) incurred by Republic exceed an aggregate of $1,000,000.00 (the "Indemnification Threshold"), 44 45 in which case the Shareholders shall be liable for the total amount of such Indemnifiable Damages in excess of such Indemnification Threshold. Notwithstanding anything to the contrary set forth herein, the Shareholders shall be responsible for the full amount of any claim for Indemnifiable Damages arising from or related to any Claim and any matters set forth in Schedules 3.12, 3.29 and 3.19. 8.9 DEFENSE OF CLAIM. Promptly after receipt by Republic of notice of the commencement of any Claim (as such term is defined in Section 8.5 hereof), Republic will, if a Claim is to be made against Republic or any of the Surviving Corporations, promptly notify the Shareholders of the commencement thereof and the Shareholders shall have the right, at their sole cost and expense, to participate in, and, to the extent they may wish, assume the defense of any such Claim, with counsel satisfactory to Republic; provided, however, if the defendants of any Claim include Republic or any of the Surviving Corporations and any of the Shareholders and there is a conflict of interest which would prevent counsel for the Shareholders from also representing Republic or any of the Surviving Corporations, Republic shall have the right to select separate counsel to participate in the defense of any such Claim on behalf of Republic or the Surviving Corporations. After notice from the Shareholders to Republic of their election to assume the defense of any Claim, the Shareholders will not be liable to Republic for any legal or other expenses subsequently incurred by Republic in connection with the defense of any Claim other than reasonable costs of investigation, unless (i) Republic shall have employed counsel in accordance with the provisions of the preceding sentence, (ii) the Shareholders shall not have employed counsel satisfactory to Republic to represent Republic or the Surviving Corporations within a reasonable time after the notice of the commencement of any Claim, or (iii) the Shareholders have authorized the employment of counsel for Republic or the Surviving Corporations at the expense of the Shareholders. 8.10 AGREEMENT BY REPUBLIC TO INDEMNIFY. Republic agrees to indemnify and hold the Shareholders harmless from and against the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, reasonable related counsel and paralegal fees and expenses) incurred or suffered by the Shareholders (collectively, the "Shareholder Indemnifiable Damages") resulting from or arising out of (i) any breach of a representation or warranty made by Republic in or pursuant to this Agreement, (ii) any breach of the covenants or agreements made by Republic in this Agreement, or (iii) any inaccuracy in any certificate delivered by Republic pursuant to this Agreement. Without limiting the generality of the foregoing with respect to the measurement of Shareholder Indemnifiable Damages, the Shareholders shall have the right to be put in the same pre-tax consolidated financial position as they would have been in had each of the representations and warranties of Republic hereunder been true and correct. No claim for the recovery of Shareholder Indemnifiable Damages with respect to the breach of the representations and warranties of the Republic Companies may be asserted by the Shareholders against Republic after such representations and warranties shall thus expire. 45 46 8.11 ARBITRATION. Notwithstanding anything to the contrary set forth herein, any claim for Indemnifiable Damages or Shareholder Indemnifiable Damages hereunder shall be resolved by arbitration in the city or suburbs of Wilmington, Delaware in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitrators shall apply the laws of the state as provided in Section 12.8 hereof in any such arbitration and any judgment upon the award rendered by such arbitrators may be entered in any court having jurisdiction over the parties. The arbitrators shall have the authority to grant any remedies that would be available in any judicial proceeding instituted to resolve any claim for Indemnifiable Damages or Shareholder Indemnifiable Damages. 8.12 INDEMNIFICATION PROCEDURES. In the event that any claim for which the AAA Companies or Shareholders may be liable to the Republic Companies hereunder is asserted against the Republic Companies by a third party, with respect to each such claim: (a) The Republic Companies will with reasonable promptness give notice to the Shareholders of such claim, specifying the nature of such claim and the amount or the estimated amount thereof to the extent then feasible (which estimate will not be conclusive of the final amount of such claim). (b) The Shareholders will be consulted in good faith on all material matters concerning the defense or settlement of such claim. (c) In dealing with such claim, the Republic Companies and their counsel will have a reasonable good faith duty to assess the merits of the claim and act reasonably in defending such claim taking into account the financial exposure of such claim to the Shareholders. ARTICLE IX SECURITIES LAW MATTERS The Shareholders agree as follows with respect to the sale or other disposition after the Effective Time of the Republic Shares: 9.1 DISPOSITION OF SHARES. The Shareholders represent and warrant that the shares of Republic Common Stock being acquired by them thereunder are being acquired and will be acquired for their own respective accounts and will not be sold or otherwise disposed of, except (a) pursuant to an exemption from the registration requirements under the Securities Act, (b) in accordance with Rule 145(d) under the Securities Act, or (c) pursuant to an effective registration statement filed by Republic with the SEC under the Securities Act. To the extent the Shareholders comply with the provisions of Rule 145(d) under the Securities Act in effecting sales of the Republic Shares, Republic agrees to provide its transfer agent with appropriate instructions and/or 46 47 opinions of counsel in order for the Shareholders to sell, transfer and/or dispose of the Republic Shares in accordance with Rule 145(d). 9.2 LEGEND. The certificates representing the Republic Shares shall bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE ACT AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO, (B) IN ACCORDANCE WITH RULE 145(D) UNDER THE ACT, OR (C) IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, AND ALSO MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT COMPLIANCE WITH THE SECURITIES AND EXCHANGE COMMISSION'S ACCOUNTING SERIES RELEASES 130 AND 135. Republic may, unless a registration statement is in effect covering such shares or unless the Shareholders comply with Rule 145(d), place stop transfer orders with its transfer agent with respect to such certificates in accordance with federal securities laws. ARTICLE X DEFINITIONS 10.1 DEFINED TERMS. As used herein, the following terms shall have the following meanings: "AAA Companies" shall mean Disposal, Commercial, Recycling, Maintenance, and Land and Building and any Affiliates thereof. "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof. 47 48 "Best Efforts" means the efforts that an ordinary, reasonable, prudent Person would use to achieve a result in similar circumstances; provided, however, that an obligation to use Best Efforts does not require a Person to take actions that would result in a Material Adverse Change to such Person under the terms of this Agreement. "Closing Sale Price" shall mean $36.00 per share of Republic Common Stock issued pursuant to the terms hereof; provided, however, that if between the date of this Agreement and the Effective Date, the outstanding shares of Republic Common Stock shall have been changed into a different number of shares, or a different class, by reason of any Change (as such term is defined in Section 1.3 hereof), the Closing Sale Price shall be correspondingly adjusted to reflect such Change. "Code" shall mean the Internal Revenue Code of 1986, and any amendments thereto, and the treasury regulations promulgated thereunder. "Contract" means any agreement, contract, lease, note, mortgage, indenture, loan agreement, franchise agreement, covenant, employment agreement, license, instrument, purchase and sales order, commitment, undertaking, obligation, whether written or oral, express or implied. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in effect in the United States of America from time to time. "Governmental Authority" means any nation or government, any state, regional, local or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, but not limited to, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code or comparable law or any jurisdiction in connection with such mortgage, pledge, security interest, encumbrance, lien or charge). 48 49 "Material Adverse Change (or Effect)" means a change (or effect), in the condition (financial or otherwise), properties, assets, liabilities, rights, obligations, operations, business or prospects which change (or effect) individually or in the aggregate, is materially adverse to such condition, properties, assets, liabilities, rights, obligations, operations, business or prospects. "Person" means an individual, partnership, corporation, business trust, joint stock company, estate, trust, unincorporated association, joint venture, Governmental Authority or other entity, of whatever nature. "Register", "registered" and "registration" refer to a registration of the offering and sale of securities effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Tax Return" means any tax return, filing or information statement required to be filed in connection with or with respect to any Taxes; and "Taxes" means all taxes, fees or other assessments, including, but not limited to, income, excise, property, sales, franchise, intangible, withholding, social security and unemployment taxes imposed by any federal, state, local or foreign governmental agency, and any interest or penalties related thereto. "Threatened" means with respect to any claim, suit, proceeding, dispute, or other matter that a demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing) that would lead an ordinary, reasonable, prudent Person to conclude that such a claim, suit, proceeding, dispute, or other matter may be asserted, commenced, taken, or otherwise pursued in the future. 10.2 OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in this Agreement shall have the defined meanings when used in any certificates, reports or other documents made or delivered pursuant hereto or thereto, unless the context otherwise requires. (b) Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. 49 50 (c) All matters of an accounting nature in connection with this Agreement and the transactions contemplated hereby shall be determined on a cash basis method of accounting. (d) As used herein, the neuter gender shall also denote the masculine and feminine, and the masculine gender shall also denote the neuter and feminine, where the context so permits. ARTICLE XI TERMINATION 11.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time: (a) by mutual written consent of all of the parties hereto at any time prior to the Closing; or (b) by Republic in the event of a material breach by any of the AAA Companies or any of the Shareholders of any provision of this Agreement; or (c) by the AAA Companies and the Shareholders in the event of a material breach by Republic of any provision of this Agreement; or (d) by either Republic or the AAA Companies if the Closing shall not have occurred by April 1, 1997. 11.2 EFFECT OF TERMINATION. In the event of termination of this Agreement pursuant to Section 12.1, this Agreement shall forthwith become void; provided, however, that nothing herein shall relieve any party from liability for the willful and intentional breach of any of its representations, warranties, covenants or agreements set forth in this Agreement. ARTICLE XII GENERAL PROVISIONS 12.1 NOTICES. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be delivered by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery, or facsimile transmission if such transmission is confirmed by delivery by certified or registered mail (first class postage pre-paid) or guaranteed overnight delivery, to the following addresses and telecopy numbers (or to such other addresses or telecopy numbers which such party shall designate in writing to the other party): 50 51 (a) IF TO ANY OF THE REPUBLIC COMPANIES TO: Republic Industries, Inc. 450 East Las Olas Blvd., Suite 1200 Ft. Lauderdale, FL 33301 Attn: Richard L. Handley, General Counsel Telecopy: (954) 713-2120 WITH A COPY TO: Akerman, Senterfitt & Eidson, P.A. One Southeast Third Avenue, 28th Floor Miami, Florida 33131 Attention: Jonathan L. Awner, Esq. Telecopy: (305) 374-5095 (b) IF TO THE AAA COMPANIES AND/OR THE SHAREHOLDERS TO: AAA Disposal Service, Inc. 4619 West Ox Road Fairfax, VA 22030 Attn: Harry W. Mulford, General Counsel Telecopy: (703) 803-1379 WITH A COPY TO: The Mandell Law Firm A Professional Corporation 8133 Leesburg Pike, Suite 630 Vienna, VA 22182 Attention: Steve A. Mandell, Esq. Telecopy: (703) 356-0005 Notice shall be deemed given on the date sent if sent by overnight delivery or facsimile transmission and on the date delivered (or the date of refusal of delivery) if sent by certified or registered mail. 12.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits and Schedules attached hereto), the Confidentiality and Non-Disclosure Agreements dated December 2, 1996 as 51 52 amended by the Addendum dated January 27, 1997, and other documents delivered at the Closing pursuant hereto, contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings (oral or written) between or among the parties with respect to such subject matter. The Exhibits and Schedules constitute a part hereof as though set forth in full above. 12.3 EXPENSES. Except as otherwise provided herein, the parties shall pay their own fees and expenses, including their own counsel fees, incurred in connection with this Agreement or any transaction contemplated hereby. Republic hereby agrees to pay all applicable filing fees, and counsel fees of Akin, Gump, et al, with respect to any required HSR Act filings. 12.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended, supplemented, canceled or discharged, except by written instrument executed by all parties. No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. The rights and remedies of the parties under this Agreement are in addition to all other rights and remedies, at law or equity, that they may have against each other. 12.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns. Nothing expressed or implied herein shall be construed to give any other person any legal or equitable rights hereunder. Except as expressly provided herein, the rights and obligations of this Agreement may not be assigned by any of the AAA Companies, or any of the Shareholders without the prior written consent of Republic. 12.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. 12.7 INTERPRETATION. When a reference is made in this Agreement to an article, section, paragraph, clause, schedule or exhibit, such reference shall be deemed to be to this Agreement unless otherwise indicated. The headings contained herein and on the schedules are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or the schedules. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Time shall be of the essence in this Agreement. 52 53 12.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the State of Delaware applicable to contracts executed and to be wholly performed within such State. 12.9 JURISDICTION. (a) Any suit, action or proceeding, equitable or otherwise, against any of the AAA Companies or the Shareholders arising out of, or with respect to, this Agreement or any judgment entered by any court in respect thereof shall be brought in the courts of New Castle County, Delaware, including the Delaware Chancery Courts located therein, or in the U.S. District Court for the District of Delaware as Republic (in its sole discretion) may elect, and the AAA Companies and the Shareholder hereby accept the nonexclusive jurisdiction of those courts for the purpose of any suit, action or proceeding. (b) In addition, each of the AAA Companies and the Shareholders hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any judgment entered by any court in respect thereof brought in New Castle County, Delaware or the U.S. District Court for the District of Delaware, as selected by Republic, and hereby further irrevocably waives any claim that any suit, action or proceedings brought in New Castle County, Delaware or in such District Court has been brought in an inconvenient forum. 12.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents and warrants to all other parties hereto that (a) before executing this Agreement, said party has fully informed itself of the terms, contents, conditions and effects of this Agreement; (b) said party has relied solely and completely upon its own judgment in executing this Agreement; (c) said party has had the opportunity to seek and has obtained the advice of counsel before executing this Agreement; (d) said party has acted voluntarily and of its own free will in executing this Agreement; (e) said party is not acting under duress, whether economic or physical, in executing this Agreement; and (f) this Agreement is the result of arm's length negotiations conducted by and among the parties and their respective counsel. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. REPUBLIC INDUSTRIES, INC., a Delaware corporation By: /s/ Richard L. Handley ----------------------------------------- Richard L. Handley, Senior Vice President 53 54 RI/ADI MERGER CORP., a Virginia corporation By: /s/ Richard L. Handley ----------------------------------------- Richard L. Handley, Senior Vice President RI/ACI MERGER CORP., a Virginia corporation By: /s/ Richard L. Handley ----------------------------------------- Richard L. Handley, Senior Vice President RI/ARI MERGER CORP., a Virginia corporation By: /s/ Richard L. Handley ----------------------------------------- Richard L. Handley, Senior Vice President RI/AMI MERGER CORP., a Virginia corporation By: /s/ Richard L. Handley ----------------------------------------- Richard L. Handley, Senior Vice President (Signatures continued on following page) 54 55 RI/ALB MERGER CORP., a Virginia corporation By: /s/ Richard L. Handley ----------------------------------------- Richard L. Handley, Senior Vice President AAA DISPOSAL SERVICE, INC., a Virginia corporation By: /s/ Larry E. Edwards ----------------------------------------- Larry E. Edwards, President AAA COMMERCIAL, INC., a Virginia corporation By: /s/ Larry E. Edwards ----------------------------------------- Larry E. Edwards, President AAA RECYCLING, INC., a Virginia corporation By: /s/ Larry E. Edwards ----------------------------------------- Larry E. Edwards, President AAA MAINTENANCE, INC., a Virginia corporation By: /s/ Larry E. Edwards ----------------------------------------- Larry E. Edwards, President (Signatures continued on following page) 55 56 AAA LAND & BUILDING CO., INC., a Virginia corporation By: /s/ Larry E. Edwards ----------------------------------------- Larry E. Edwards, President /s/ Larry E. Edwards ----------------------------------------- LARRY E. EDWARDS, individually JEFFREY L. EDWARDS TRUST U/T/A/D APRIL 3. 1989 By: /s/ Stephen M. Serio CPA ----------------------------------------- Stephen M. Serio, CPA, as Trustee KEVIN S. EDWARDS TRUST U/T/A/D APRIL 3, 1989 By: /s/ Stephen M. Serio CPA ----------------------------------------- Stephen M. Serio, CPA, as Trustee MITCHELL G. EDWARDS TRUST U/T/A/D APRIL 3, 1989 By: /s/ Stephen M. Serio CPA ----------------------------------------- Stephen M. Serio, CPA, as Trustee TROY L. EDWARDS TRUST U/T/A/D APRIL 3, 1989 By: /s/ Stephen M. Serio CPA ----------------------------------------- Stephen M. Serio, CPA, as Trustee SAMANTHA L. EDWARDS TRUST U/T/A/D APRIL 3, 1989 By: /s/ Stephen M. Serio CPA ----------------------------------------- Stephen M. Serio, CPA, as Trustee 56 EX-2.3 4 MERGER AGREEMENT - WALLACE 1 EXHIBIT 2.3 MERGER AND REORGANIZATION AGREEMENT This MERGER AND REORGANIZATION AGREEMENT (this "Agreement") is entered into as of February 2, 1997 by and among (i) Republic Industries, Inc., a Delaware corporation ("Republic"); (ii) RI/WF Merger Corp., a Florida corporation, RI/WN Merger Corp., a Florida corporation, RI/WD Merger Corp., a Florida corporation, RI/WLM Merger Corp., a Florida corporation, RI/SLM Merger Corp., a Florida corporation, RI/BWE Merger Corp., a Florida corporation and RI/MWP Merger Corp., a Florida corporation (the foregoing "Merger" corporations are referred to herein collectively as the"Republic Subsidiaries" and individually as a "Republic Subsidiary"); (iii) Wallace Ford, Inc., a Florida corporation, Wallace Nissan, Inc., a Florida corporation, Wallace Dodge, Inc., a Florida corporation, Wallace Lincoln-Mercury, Inc., a Florida corporation, Stuart Lincoln-Mercury, Inc., a Florida corporation, Bill Wallace Enterprises, Inc., d/b/a Stuart Mitsubishi, a Florida corporation ("WI"), Wallace Imports, Inc., a Florida corporation, and Mechanical Warranty Protection, Inc., a Florida corporation, (each referred to individually as an "Acquired Entity" and collectively as the "Acquired Entities"); and (iv) William L. Wallace, the sole shareholder of the Acquired Entities (the "Shareholder"). Republic and the Republic Subsidiaries are sometimes referred to herein individually as a "Republic Company" and collectively as the "Republic Companies". RECITALS A. Republic and the Acquired Entities desire to merge the automotive operations of the Acquired Entities with Republic's automotive businesses. B. Republic, the Republic Subsidiaries and the Acquired Entities have determined that it is in the best interests of their respective shareholders for Republic to acquire all of the issued and outstanding equity interests of the Acquired Entities as provided herein in order to effectuate the acquisition of the automotive dealerships and related businesses of the Acquired Entities (other than WI), Republic has organized each Republic Subsidiary as a wholly-owned subsidiary, and the parties have agreed, subject to the terms and conditions set forth in this Agreement, to merge the respective Republic Subsidiaries with and into the respective Acquired Entities so that the Acquired Entities continue as surviving corporations of the respective mergers and as wholly-owned subsidiaries of Republic, and, in the case of WI, to exchange all of the outstanding stock of WI for shares of Republic common stock so that the Shareholder will be issued certain shares of common stock of Republic as provided herein in exchange for his respective issued and outstanding equity interests in the Acquired Entities. TERMS OF AGREEMENT In consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: 2 ARTICLE I MERGERS; SHARE EXCHANGE; RELATED TRANSACTIONS; CLOSING 1.1 THE CLOSING. Subject to the terms and conditions of this Agreement, the consummation of the Mergers (as defined below) and the other transactions contemplated hereby (the "Closing") shall take place as promptly as practicable (and in any event within five (5) business days after the satisfaction or waiver of the conditions set forth in Articles VI and VII hereof), at the offices of Akerman, Senterfitt & Eidson, P.A. in Miami, Florida, or such other place and time as the parties may otherwise agree, and the date of the Closing is referred to herein as the "Closing Date." 1.2 THE MERGERS AND SHARE EXCHANGE. The mergers described in this Section are referred to herein collectively as the "Mergers" and individually as a "Merger," and the share exchange described in this section is referred to herein as the "Share Exchange". The surviving corporations of such Mergers and WI after the Share Exchange are referred to herein collectively as the "Surviving Corporations" and individually as a "Surviving Corporation." (a) The Wallace Ford, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Business Corporation Act (the "Florida Act"), at the Effective Time, RI/WF Merger Corp. will be merged with and into Wallace Ford, Inc. with Wallace Ford, Inc. being the Surviving Corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/WF Merger Corp. shall cease. (b) The Wallace Nissan, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/WN Merger Corp. will be merged with and into Wallace Nissan, Inc., with Wallace Nissan, Inc. being the Surviving Corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/WN Merger Corp. shall cease. (c) The Wallace Dodge, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/WD Merger Corp. will be merged with and into Wallace Dodge, Inc., with Wallace Dodge, Inc. being the Surviving Corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/WD Merger Corp. shall cease. (d) The Wallace-Lincoln Mercury, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/WLM Merger Corp. will be merged with and into Wallace-Lincoln Mercury, Inc., with Wallace-Lincoln Mercury, Inc. being the Surviving Corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/WLM Merger Corp. shall cease. 2 3 (e) The Stuart Lincoln-Mercury, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/SLM Merger Corp. will be merged with and into Stuart Lincoln-Mercury, Inc., with Stuart Lincoln-Mercury, Inc. being the Surviving Corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/SLM Merger Corp. shall cease. (f) The Bill Wallace Enterprises, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/BWE Merger Corp. will be merged with and into Bill Wallace Enterprises, Inc., with Bill Wallace Enterprises, Inc. being the Surviving Corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/BWE Merger Corp. shall cease. (g) The Wallace Imports, Inc. Share Exchange. Subject to the terms and conditions of this Agreement, at the Effective Time Republic shall acquire from the Shareholder all of the issued and outstanding shares of capital stock of WI in the Share Exchange in accordance with the Florida Act, with WI becoming a wholly-owned subsidiary of Republic. (h) The Mechanical Warranty Protection, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/MWP Merger Corp. will be merged with and into Mechanical Warranty Protection, Inc., with Mechanical Warranty Protection, Inc. being the Surviving Corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/MWP Merger Corp. shall cease. 1.3 SHAREHOLDER RECEIVABLES, PAYABLES. Prior to Closing, all debt owed by the Shareholder to any of the Acquired Entities (estimated to have a current aggregate balance of approximately $5,100,000), and all notes payable by any of the Acquired Entities to the Shareholder or related parties (estimated to have a current aggregate balance of approximately $1,650,000) will be paid in full, and the Shareholder will obtain or deliver, as appropriate, proper releases and satisfactions therefor in form satisfactory to Republic. 1.4 PURCHASE PRICE; CONVERSION OF SECURITIES. (a) Aggregate Consideration. For purposes of this Agreement, "Aggregate Consideration" means the number of shares (rounded to the nearest whole share) of common stock, par value $.01 per share, of Republic (the "Republic Common Stock") determined by dividing (i) Fifty Five Million Dollars ($55,000,000) (the "Purchase Price"), minus (x) the Transaction Fees (as defined below), if any, minus (y) the amount, if any, by which Working Capital (as defined below) as of the Closing Date is less than Nine Million Nine Hundred Thousand Dollars ($9,900,000) (items (x) and (y) are referred to herein as the "Purchase Price Adjustment"), by (ii) $32.75 (the "Price per 3 4 Share"). For purposes of determining the Purchase Price Adjustment, (i) "Working Capital" shall mean the amount, if any, by which the aggregate of the Current Assets of the Acquired Entities exceeds the aggregate of the Current Liabilities of the Acquired Entities; (ii) "Current Assets" shall mean on a combined basis all current assets of the Acquired Entities determined in accordance with GAAP; and (iii) "Current Liabilities" shall mean on a combined basis the current liabilities of the Acquired Entities determined in accordance with GAAP (excluding any reserve for Chargebacks and any reserve for LIFO inventories). "Transaction Fees" shall mean all legal, accounting, tax, consulting and financial advisory and other fees and expenses, including any transfer taxes, fees and expenses and the cost of title insurance, incurred, paid, or payable by the Acquired Entities in connection with the transactions contemplated hereby. (b) At the Effective Time, by virtue of the Mergers and the Share Exchange and without any action on the part of the Acquired Entities, Republic, the Republic Subsidiaries or the Shareholder, the outstanding shares of capital stock of each of the Acquired Entities that is party to a Merger or the Share Exchange shall be converted into the right to receive that portion of the Aggregate Consideration determined as provided in Exhibit A hereto, which Exhibit A shall be reasonably acceptable to Republic, shall be attached within 15 days of the date of this Agreement, and shall be incorporated into this Agreement. (c) Each share of common stock of each Republic Subsidiary that is party to a Merger, issued and outstanding at the Effective Time shall be converted into one share of the voting common stock of the Surviving Corporation into which it is merged. (d) Each share of common stock of WI shall be exchanged for such number of shares of the voting common stock of Republic as is determined in accordance with this Section 1.4. 1.5 TIMING OF PURCHASE PRICE ADJUSTMENT. At least two days prior to the Closing Date, the Acquired Entities and Republic shall estimate by mutual written agreement the amount of the Purchase Price Adjustment, if any, as of the Closing Date for purposes of determining the number of Republic Shares to be delivered by Republic to the Acquired Entities at Closing (which estimated amount is referred to herein as the "Estimated Value"). Within 60 days after the Closing Date, Republic shall prepare and deliver to the Acquired Entities (in accordance with Section 13.1) a determination (the "Determination") of the actual amount of the Purchase Price Adjustment as of the Closing Date (which actual value is referred to herein as the "Actual Value"), which shall be prepared on a basis consistent with the determination of the Estimated Value. Republic shall also provide the Shareholder any supporting documentation for the Determination. If, within 30 days after the date on which a Determination is delivered to the Acquired Entities, the Acquired Entities shall not have given written notice to Republic setting forth in detail any objection of the Acquired Entities to such Determination, then such Determination shall be final and binding on the parties hereto. In the event the Acquired Entities give written notice of any objection to such Determination within the 30-day period, Republic and the Acquired Entities shall use all reasonable efforts to resolve the dispute within the 30-day period following the delivery of the written notice. If the parties are unable to reach an agreement within such 30-day period, the matter shall be submitted 4 5 to Arthur Andersen LLP, a firm of independent certified public accountants, for determination of the Actual Value which shall be final and binding upon Republic and the Acquired Entities. Republic and the Shareholder shall contribute equally to costs (including fees and expenses charged by Arthur Andersen LLP) in connection with the resolution of any such dispute. The Shareholder hereby represents and warrants that the Estimated Value will be accurate. If, as finally determined, the Actual Value is greater than the Estimated Value, Republic shall be entitled to set off against the Held Back Shares (as defined in Section 1.9(c)) the difference between the Actual Value and the Estimated Value (assuming a value per share for purposes of such calculation equal to the Price per Share), which set off shall be deemed to be Indemnifiable Damages under Article IX hereof, provided that the Indemnification Threshold (as defined in Section 9.1) shall not be applicable to such setoff, and such setoff shall not count against such Indemnification Threshold. 1.6 FILING OF MERGER AND SHARE EXCHANGE DOCUMENTS; EFFECTIVE TIME. At the Closing, the parties shall cause the Mergers and the Share Exchange to be consummated by executing and filing duly executed Articles of Merger with respect to each of the Mergers and the Plan of Share Exchange with respect to the Share Exchange with the Secretary of State of the State of Florida in such form as Republic determines is required by and in accordance with the relevant provisions of the Florida Act (the date and time of such filings is referred to herein as the "Effective Date" or "Effective Time"). 1.7 EFFECT OF THE MERGERS AND SHARE EXCHANGE. At the Effective Time, the effect of the Mergers shall be as provided under the Florida Act. Without limiting the generality of the foregoing, at the Effective Time: (a) All property, rights, privileges, policies and franchises of each Acquired Entity that is party to a Merger and the Republic Subsidiary with which it is merged shall vest in the Surviving Corporation of such Merger and all debts, liabilities and duties of such Acquired Entity and the Republic Subsidiary with which it is merged shall become the debts, liabilities and duties of the Surviving Corporation of such Merger. (b) The Articles of Incorporation and the Bylaws of each Acquired Entity that is party to a Merger, as in effect immediately prior to the Effective Time, shall remain its Articles of Incorporation and Bylaws thereafter, unless and until amended in accordance with their terms and as provided by law; and (c) The directors of each Republic Subsidiary that is merged in one of the Mergers at the Effective Time shall be the respective directors and officers of the Acquired Entity into which it is merged, each to hold a directorship or office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation of such Merger, until their respective successors are duly elected and qualified, and the parties listed on Schedule 1.7 shall be the respective officers of the Surviving Corporations as identified on Schedule 1.7; and 5 6 (d) The entire equity interest of WI shall be owned by Republic, and the directors and officers of WI shall be appointed or elected by Republic as identified on Schedule 1.7. 1.8 TAX AND ACCOUNTING TREATMENT. The parties hereto acknowledge and agree that the Mergers and the Share Exchange contemplated hereby shall be treated for accounting purposes as a pooling of interests business combination, and are intended to be treated for tax purposes as tax-free reorganizations under Section 368 of the Code. 1.9 PROCEDURE AT THE CLOSING. At the Closing, the parties agree that the following shall occur: (a) The Acquired Entities and the Shareholder shall have satisfied each of the conditions set forth in Article VI and shall deliver to Republic the documents, certificates, opinions, consents and letters required by Article VI. (b) The Republic Companies shall have satisfied each of the conditions set forth in Article VII and shall deliver the documents, certificates, consents and letters required by Article VII. (c) Republic shall issue the shares of Republic Common Stock issuable pursuant to Section 1.4. registered in the name of the Shareholder and shall deliver such shares in the following manner: (i) Republic shall set aside and hold in accordance with Section 9.3 stock certificates representing shares of Republic Common Stock having a value (based upon the Price per Share) equal to 10% of the Purchase Price (the "Held Back Shares"), based on the Estimated Value, and (ii) Republic shall deliver stock certificates representing the balance of the shares of Republic Common Stock issuable in accordance with Section 1.4 to the Shareholder. The shares of Republic Common Stock issuable pursuant to Section 1.4 including the Held Back Shares, are referred to herein as the "Republic Shares." ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE REPUBLIC COMPANIES As a material inducement to the Acquired Entities and the Shareholder to enter into this Agreement and to consummate the transactions contemplated hereby, the Republic Companies make the following representations and warranties to the Acquired Entities and the Shareholder: 2.1 CORPORATE STATUS. Republic is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, authorized to do business in the State of Florida, and has the requisite power and authority to own or lease its properties and to carry on its business as presently conducted. Each Republic Subsidiary is a corporation duly organized, validly 6 7 existing and in good standing under the laws of the State of Florida, and is a wholly-owned subsidiary of Republic. There is no pending or, to the knowledge of Republic, threatened proceeding for the dissolution, liquidation, insolvency or rehabilitation of any of the Republic Companies. 2.2 CORPORATE POWER AND AUTHORITY. Each of the Republic Companies has the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. Each of the Republic Companies has taken all corporate action necessary to authorize its execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby. 2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by each of the Republic Companies and constitutes their legal, valid and binding obligation enforceable against each of the Republic Companies in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 2.4 REPUBLIC COMMON STOCK. Upon consummation of the transactions contemplated hereby and the issuance and delivery of certificates representing the Republic Shares as provided in this Agreement, the Republic Shares will be validly issued, fully paid, non-assessable shares. 2.5 CAPITALIZATION. As of the date hereof, the authorized capital stock of Republic consists of 500,000,000 shares of Republic Common Stock and 5,000,000 shares of preferred stock. As of January 15, 1997 (i) 251,015,811 shares of Republic Common Stock were validly issued and outstanding, and (ii) no shares of preferred stock were issued or outstanding. 2.6 NO VIOLATION. The execution and delivery of this Agreement by the Republic Companies, the performance by the Republic Companies of their respective obligations hereunder and the consummation by the Republic Companies of the transactions contemplated by this Agreement will not (a) contravene any provision of the Certificates of Incorporation or Bylaws of the Republic Companies, (b) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment, ruling or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon, or enforceable against the Republic Companies, (c) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any Contract which is applicable to, binding upon or enforceable against the Republic Companies, (d) result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of the Republic Companies, (e) give to any individual or entity a right or claim against the Republic Companies, which would have a Material Adverse Effect on Republic; or (f) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except (i) pursuant to the Exchange Act and the Securities Act and 7 8 applicable inclusion requirements of Nasdaq, (ii) filings required under the securities or blue sky laws of the various states, (iii) filings required under the HSR Act, (iv) any filings or consents required to be made or obtained by the Acquired Entities or the Shareholder or (v) any governmental permits or licenses required to operate the dealerships and other businesses of the Acquired Entities. 2.7 REPORTS AND FINANCIAL STATEMENTS. From January 1, 1996 to the date hereof, except where failure to have done so did not and would not have a Material Adverse Effect on Republic, Republic has filed all reports, registrations and statements, together with any required amendments thereto, that it was required to file with the SEC, including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements (collectively, the "Republic Reports"). Republic will furnish or make available to the Acquired Entities and the Shareholder copies of all Republic Reports filed with the SEC since January 1, 1996 within five days of the date of this Agreement. As of their respective dates (but taking into account any amendments filed prior to the date of this Agreement), the Republic Reports complied in all material respects with all the rules and regulations promulgated by the SEC and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Republic included in the Republic Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP consistently applied during the periods presented (except, as noted therein, or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to normal audit adjustments) the financial position of Republic and its consolidated subsidiaries as of the date thereof and the results of their operations and their cash flows for the periods then ended. 2.8 NO COMMISSIONS. Republic has not incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. 2.9 TAX MATTERS. Republic has no current plan or intention to cause any of the Surviving Corporations to issue additional shares of stock after the Closing that would result in Republic's losing control of any of the Surviving Corporations within the meaning of Section 368(c) of the Code. Republic has no current plan or intention to liquidate, merge or sell or otherwise dispose of the stock of any of the Surviving Corporations after the Closing, except for transfers of stock or assets to an affiliated corporation or corporations (as defined in Section 1504(a) of the Code), or sell or otherwise dispose of any of the assets of any of the Surviving Corporations after the Closing, except for dispositions in the ordinary course of business or transfers described in Section 368(a)(2)(c) of the Code. Republic currently intends to cause, after the Closing, each of the Surviving Corporations to continue its historic business or use a significant portion of each Surviving Corporation's historic business assets in a business. 8 9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED ENTITIES AND THE SHAREHOLDER As a material inducement to the Republic Companies to enter into this Agreement and to consummate the transactions contemplated hereby, the Acquired Entities and the Shareholder, jointly and severally, make the following representations and warranties to the Republic Companies: 3.1 CORPORATE STATUS. Each Acquired Entity is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has the requisite power and authority to own or lease its properties and to carry on its business as now being conducted. Each Acquired Entity is legally qualified to do business as a foreign corporation in each of the jurisdictions in which it is required to be so qualified, which represent all jurisdictions where the nature of its properties and the conduct of its business require such qualification, and is in good standing in each of the jurisdictions in which it is so qualified. Each Acquired Entity has fully complied with all of the requirements of any statute governing the use and registration of fictitious names, and has the legal right to use the names under which it operates its businesses. There is no pending or threatened proceeding for the dissolution, liquidation, insolvency or rehabilitation of any Acquired Entity. 3.2 POWER AND AUTHORITY. Each Acquired Entity has the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby. Each Acquired Entity has taken all corporate action necessary to authorize the execution and delivery of this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated hereby. The Shareholder is an individual residing in the State of Florida and has the requisite competence and authority to execute and deliver this Agreement, to perform his obligations hereunder and to consummate the transactions contemplated hereby. 3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by each of the Acquired Entities and by the Shareholder, and constitutes the legal, valid and binding obligation of each of them, enforceable against each of them in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 3.4 CAPITALIZATION. Schedule 3.4 sets forth, as of the date hereof, with respect to each Acquired Entity, respectively, (a) the number of authorized shares of each class of its capital stock, (b) the number of issued and outstanding shares of each class of its capital stock and (c) the number of shares of each class of its capital stock which are held in treasury. All of the issued and outstanding shares of capital stock of each Acquired Entity (i) have been duly authorized and validly issued and are fully paid and nonassessable, (ii) were issued in compliance with all applicable state 9 10 and federal securities laws and (iii) were not issued in violation of any preemptive rights or rights of first refusal or similar rights. No preemptive rights or rights of first refusal or similar rights exist with respect to any shares of capital stock of any Acquired Entity and no such rights arise by virtue of or in connection with the transactions contemplated hereby. There are no outstanding or authorized rights, options, warrants, convertible securities, subscription rights, conversion rights, exchange rights or other agreements or commitments of any kind that could require any Acquired Entity to issue or sell any shares of its capital stock (or securities convertible into or exchangeable for shares of its capital stock). There are no outstanding stock appreciation, phantom stock, profit participation or other similar rights with respect to any Acquired Entity. There are no proxies, voting rights or other agreements or understandings with respect to the voting or transfer of the capital stock of any Acquired Entity. No Acquired Entity is obligated to redeem or otherwise acquire any of its outstanding shares of capital stock. 3.5 SHAREHOLDER OF THE ACQUIRED ENTITIES. Schedule 3.5 sets forth, with respect to each Acquired Entity (i) the name, address and federal taxpayer identification number of the Shareholder, and the number of outstanding shares of each class of its capital stock owned by the Shareholder as of the close of business on the date of this Agreement; and (ii) the name, address and federal taxpayer identification number of, and number of shares of each class of its capital stock beneficially owned by each beneficial owner of outstanding shares of capital stock (to the extent that record and beneficial ownership of any such shares or interests are different). The Shareholder constitutes the record and beneficial holder of all issued and outstanding shares of capital stock of the Acquired Entities, and the Shareholder owns such shares as is set forth on Schedule 3.5. free and clear of all Liens, restrictions and claims of any kind. 3.6 NO VIOLATION. Except for any approvals or consents required under the Franchise Agreements (as defined in Section 3.25), the execution and delivery of this Agreement by the Acquired Entities and the Shareholder, the performance by the Acquired Entities and the Shareholder of their obligations hereunder and the consummation by them of the transactions contemplated by this Agreement will not (a) contravene any provision of the Articles of Incorporation or Bylaws or other organizational or governing document of any Acquired Entity, (b) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon or enforceable against any Acquired Entity or the Shareholder, (c) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right of payment under or the right to terminate, amend, modify, abandon or accelerate, any Contract which is applicable to, binding upon or enforceable against any Acquired Entity or the Shareholder, (d) result in or require the creation or imposition of any Lien upon or with respect to any of the properties or assets of any Acquired Entity or the Shareholder, (e) give to any individual or entity a right or claim against any Acquired Entity or the Shareholder or (f) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except any applicable filings required under the HSR Act by the Acquired Entities, the Shareholder, and the 10 11 Republic Companies, any SEC and other filings required to be made by the Republic Companies, and any notifications or filings to the Florida Department of Motor Vehicles. 3.7 RECORDS OF THE ACQUIRED ENTITIES. The copies of the Articles of Incorporation, Bylaws and other documents and agreements of the Acquired Entities which were provided to Republic are true, accurate, and complete and reflect all amendments made through the date of this Agreement. The minute books and other records of corporate actions for the Acquired Entities made available to Republic for review were correct and complete as of the date of such review, no further entries have been made through the date of this Agreement (except for appropriate resolutions by the Boards of Directors of the Acquired Entities and by the Shareholder approving the execution of this Agreement and the consummation of its terms), such minute books and records contain the true signatures of the persons purporting to have signed them, and such minute books and records contain an accurate record of all corporate actions of the shareholders and directors (and any committees thereof) of the Acquired Entities taken by written consent or at a meeting or otherwise since incorporation or formation. All corporate actions by the Acquired Entities have been duly authorized or ratified. All accounts, books, ledgers and official and other records of the Acquired Entities have been fully, properly and accurately kept and are complete, and there are no inaccuracies or discrepancies of any kind contained therein. The stock ledgers of the Acquired Entities, as previously made available to Republic, contain accurate and complete records of all issuances, transfers and cancellations of shares of the capital stock of the Acquired Entities. 3.8 SUBSIDIARIES. The Acquired Entities do not, directly or indirectly, own any outstanding voting securities of or other interests in, or control, any other corporation, partnership, joint venture or other entity. 3.9 FINANCIAL STATEMENTS. Each of the Acquired Entities has delivered to Republic the financial statements of such Acquired Entity for the fiscal years ended December 31, 1995 and December 31, 1996 (collectively, the "Financial Statements"), copies of which are attached to Schedule 3.9 hereto and will, prior to the Closing Date, deliver to Republic combined audited financial statements of the Acquired Entities as of December 31, 1996 audited by Goldenberg Rosenthal Friedlander, LLP (the "Audited Financial Statements"). The respective individual balance sheets of the Acquired Entities dated as of December 31, 1996, included in the Financial Statements are referred to herein as the "Current Balance Sheets." The Financial Statements fairly present the financial position of the respective Acquired Entities at each of the balance sheet dates and the results of operations for the periods covered thereby, and have been prepared in accordance with GAAP consistently applied throughout the periods indicated. The Audited Financial Statements will upon delivery fairly present the combined financial position of the Acquired Entities at the balance sheet dates, and the results of operations for the period covered thereby, and the Audited Financial Statements will be prepared in accordance with GAAP consistently applied throughout the period indicated. The books and records of each of the Acquired Entities fully and fairly reflect all of its transactions, properties, assets and liabilities. There are no material special or non-recurring items of income or expense during the periods covered by the Financial Statements, and the balance sheets included in the Financial Statements do not reflect any write-up or revaluation increasing the book 11 12 value of any assets. The Financial Statements reflect all adjustments necessary for a fair presentation of the financial information contained therein. There will be no material special or non-recurring items of income or expense during the period covered by the Audited Financial Statements, and the balance sheet included in the Audited Financial Statements will not upon delivery reflect any write-up or revaluation increasing the book value of any assets. 3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Since the date of its Current Balance Sheet included in the Financial Statements, no Acquired Entity has (a) issued, sold, pledged, disposed of, encumbered, or authorized the issuance, sale, pledge, disposition, grant or encumbrance of any shares of its capital stock or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock or any other ownership interest of such Acquired Entity; (b) declared, set aside, made, or paid any dividend or other distribution payable in cash, stock, property or otherwise of or with respect to its capital stock or other securities, or reclassified, combined, split, subdivided or redeemed, purchased or otherwise acquired, directly or indirectly, any of its capital stock or other securities; (c) paid any bonus to or increased the rate of compensation of any of its officers, salaried employees or amended any other terms of employment or engagement of such persons; (d) sold, leased or transferred any of its properties or assets or acquired any properties or assets other than in the ordinary course of business consistent with past practice; (e) made or obligated itself to make capital expenditures out of the ordinary course of business consistent with past practice; (f) made any payment in respect of its liabilities other than in the ordinary course of business consistent with past practice; (g) except in the ordinary course of business, incurred any obligations or liabilities (including, without limitation, any indebtedness for borrowed money, issuance of any debt securities, or the assumption, guarantee, or endorsement of the obligations of any Person) or entered into any transaction or series of transactions involving in excess of $25,000 in the aggregate, except for this Agreement and the transactions contemplated hereby; (h) suffered any theft, damage, destruction or casualty loss, whether or not covered by insurance, in excess of $25,000 in the aggregate; (i) suffered any extraordinary losses (whether or not covered by insurance); (j) waived, canceled, compromised or released any rights having a value in excess of $25,000 in the aggregate; (k) made or adopted any change in its accounting practice or policies; (l) made any adjustment to its books and records other than in respect of the conduct of its business activities in the ordinary course consistent with past practice; (m) entered into any transaction with the Shareholder or any Affiliate of any of the Acquired Entities or the Shareholder, (n) entered into any employment agreement that is not terminable at Closing without any liability or obligation; (o) terminated, amended or modified any agreement involving an amount in excess of $25,000 in the aggregate; (p) imposed any security interest or other Lien on any of its assets other than in the ordinary course of business consistent with past practice; (q) delayed paying any account payable beyond 45 days following the date on which it is due and payable except to the extent being contested in good faith; (r) made or pledged any charitable contributions in excess of $25,000 in the aggregate; (s) acquired (including, without limitation, for cash or shares of stock, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or made any investment either by purchase of stock or securities, contributions or property transfer of capital other than as permitted or provided in this Agreement; (t) increased or decreased prices charged to customers, except in the ordinary 12 13 course of business consistent with past practice, materially increased or decreased the average monthly New Parts and Accessories Inventory, Other Parts and Accessories Inventory, New Vehicle Inventory or Other Vehicle Inventory, other than in the ordinary course of business consistent with past practice, ordered any New Vehicle Inventory from the Factory which would be inconsistent with the prior practices of the Acquired Entity, or taken any actions which might reasonably result in any material loss of customers; (u) entered into any other transaction or been subject to any event which has or may reasonably be expected to have a Material Adverse Effect on such Acquired Entity; or (v) agreed to do or authorized any of the foregoing. 3.11 LIABILITIES. Except as set forth in Schedule 3.11, no Acquired Entity has any liabilities or obligations, whether accrued, absolute, contingent or otherwise, except (a) to the extent reflected on such Acquired Entity's Current Balance Sheet and not heretofore paid or discharged, (b) liabilities incurred in the ordinary course of business consistent with past practice since the date of such Acquired Entity's Current Balance Sheet (none of which relates to breach of contract, breach of warranty, tort, infringement or violation of law, or which arose out of any action, suit, claim, governmental investigation or arbitration proceeding), and (c) liabilities incurred in the ordinary course of business prior to the date of such Acquired Entity's Current Balance Sheet which, in accordance with GAAP consistently applied, were not required to be recorded thereon and which, in the aggregate, are not material (the liabilities and obligations referenced in (a), (b) and (c) above and those accrued and unpaid obligations of WI and Wallace Ford, Inc. described on Schedule 3.11 are referred to as the "Designated Liabilities"). Schedule 3.11 lists all indebtedness owed by any of the Acquired Entities, itemized with respect to each Acquired Entity, to a bank or any other Person, including without limitation, indebtedness for borrowed money (including principal and accrued but unpaid interest) and capitalized equipment leases. Schedule 3.11 also lists, for each Acquired Entity, the account numbers and names of each bank, broker or other depository institution, and the names of all persons authorized to withdraw funds from each such account. 3.12 LITIGATION. Except as provided in Schedule 3.12, there is no action, suit or other legal or administrative proceeding or governmental investigation pending, or, to the knowledge of the Acquired Entities and the Shareholder, threatened, anticipated or contemplated (i) against, by or affecting any Acquired Entity or the Shareholder (which, in the case of the Shareholder, relates to or concerns any Acquired Entity or for which any Acquired Entity may be responsible), or any Acquired Entity's properties or assets, except for routine customer claims and complaints arising in the ordinary course consistent with past practice which involve amounts less than $10,000 individually or $100,000 in the aggregate, or (ii) which question the validity or enforceability of this Agreement or the transactions contemplated hereby, and there is no basis for any of the foregoing. There are no outstanding orders, decrees or stipulations issued by any Governmental Authority in any proceeding to which any Acquired Entity is or was a party which have not been complied with in full or which continue to impose any material obligations on any Acquired Entity. Shareholder shall remain responsible for any matters listed on Schedule 3.12 in which the Shareholder or any of the Acquired Entities is a defendant, except, the Shareholder shall not be responsible for any routine customer claims and complaints arising in the ordinary course consistent with past practice which involve amounts less than $10,000 individually or $100,000 in the aggregate. 13 14 3.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 3.13, each of the Acquired Entities and the Shareholder are and have at all times been in full compliance with all Environmental Laws governing its business, operations, properties and assets, including, without limitation: (i) all requirements relating to the Discharge and Handling of Hazardous Substances; (ii) all requirements relating to notice, record keeping and reporting; (iii) all requirements relating to obtaining and maintaining Licenses (as defined herein) for the ownership by each of the Acquired Entities of its properties and assets and the operation of its business as presently conducted or the ownership by the Acquired Entities and use by the Acquired Entities of the Shareholder Owned Properties (as defined in Section 3.14); and (iv) all applicable writs, orders, judgments, injunctions, governmental communications, decrees, informational requests or demands issued pursuant to, or arising under, any Environmental Laws. (b) Except as set forth in Schedule 3.13, there are no (and, to the best knowledge of the Shareholder and the Acquired Entities, there is no basis for any) non-compliance orders, warning letters, notices of violation (collectively "Notices"), claims, suits, actions, judgments, penalties, fines, or administrative or judicial investigations of any nature or proceedings (collectively "Proceedings") pending or threatened against or involving any of the Acquired Entities, their businesses, operations, properties or assets or the Shareholder Owned Properties, issued by any Governmental Authority or third party with respect to any Environmental Laws or Licenses issued to any of the Acquired Entities thereunder in connection with, related to or arising out of the ownership by any of the Acquired Entities of its properties or assets or the operation of its businesses or the ownership by the Shareholder and use by the Acquired Entities of the Shareholder Owned Properties, which have not been resolved to the satisfaction of the issuing Governmental Authority or third party in a manner that would not impose any obligation, burden or continuing liability on Republic or any Surviving Corporation in the event that the transactions contemplated by this Agreement are consummated. (c) Except as set forth in Schedule 3.13, none of the Acquired Entities nor the Shareholder has at any time Handled or Discharged, nor has it at any time allowed or arranged for any third party to Handle or Discharge, Hazardous Substances to, at or upon: (i) any location other than a site lawfully permitted to receive such Hazardous Substances; (ii) any parcel of real property owned or leased at any time by any of the Acquired Entities (including, without limitation, the Company Owned Properties (as defined in Section 3.14)) or any of the Shareholder Owned Properties, except in compliance with applicable Environmental Laws; or (iii) any site which, pursuant to CERCLA or any similar state law (x) has been placed on the National Priorities List or its state equivalent, or (y) the Environmental Protection Agency or any relevant state agency has notified any of the Acquired Entities that it has proposed or is proposing to place on the National Priorities List or its state equivalent. There has not occurred, nor is there presently occurring, a Discharge, or threatened Discharge of any Hazardous Substance on, into or directly beneath the surface of any real property owned or leased at any time by any of the Acquired Entities or the Shareholder Owned Properties. 14 15 (d) Except as set forth in Schedule 3.13, none of the Acquired Entities uses, nor has any of them used, any Aboveground Storage Tanks or Underground Storage Tanks; there are not now nor have there ever been any Underground Storage Tanks on any real property owned or leased at any time by any of the Acquired Entities, or the Shareholder Owned Properties; and there has been no Discharge from or rupture of any Aboveground Storage Tanks or Underground Storage Tanks. (e) Schedule 3.13 identifies (i) all environmental audits, assessments or occupational health studies undertaken since January 1, 1994 and to the knowledge of any of the Acquired Entities or the Shareholder, undertaken by any Governmental Authority, or any third party, relating to or affecting any of the Acquired Entities or Company Owned Properties or the Shareholder Owned Properties since January 1, 1994; (ii) all ground, water, soil, air or asbestos monitoring undertaken by any of the Acquired Entities or its agents or representatives thereof or undertaken by any Governmental Authority or any third party, relating to or affecting any of the Company Owned Properties or any real property owned or leased at any time by any of the Acquired Entities or the Shareholder Owned Properties since January 1, 1994; (iii) all Notices of violation and notices of non-compliance issued to any of the Acquired Entities or the Shareholder arising under or related to Environmental Laws and pertaining to the Company Owned Properties or the Shareholder Owned Properties; and (iv) all outstanding citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings or decrees, relating to or affecting any of the Acquired Entities or any real property owned or leased at any time by any of the Acquired Entities or the Shareholder Owned Properties. (f) For purposes of this Section, the following terms shall have the meanings ascribed to them below: "Aboveground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree governing Aboveground Storage Tanks. "Discharge" means any manner of spilling, leaking, dumping, discharging, releasing, migrating or emitting, as any of such terms may further be defined in any Environmental Law, into or through any medium including, without limitation, ground water, surface water, land, soil or air. "Environmental Laws" means all federal state, regional or local statutes, laws rules, regulations, codes, ordinances, orders, plans, injunctions, decrees, rulings, licenses, and changes thereto, or judicial or administrative interpretations thereof, or similar laws, whether currently in existence or hereafter enacted, issued, or promulgated, any of which govern, purport to govern, or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, waste disposal, hazardous or toxic substances, solid or hazardous waste, occupational, health and safety, as any of these terms are or may be defined in such statutes, laws, rules, regulations, codes, orders, ordinances, plans, injunctions, decrees, rulings, licenses, and changes thereto, or judicial or administrative 15 16 interpretations thereof, including, without limitation: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. ss.9601, et seq. (herein, collectively, "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.6901 et seq. (herein, collectively, "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. ss.1801, et seq., (the "Hazardous Materials Transportation Act"); the Clean Water Act, as amended, 33 U.S.C. ss.1311, et seq. (the "Clean Water Act"); the Clean Air Act, as amended, 42 U.S.C. ss.7401-7642, (the "Clean Air Act"); the Toxic Substances Control Act, as amended, 15 U.S.C. ss.2601 et seq. (the "Toxic Substances Control Act"); the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. ss.136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended 42 U.S.C. ss.11001, et seq. (Title III of SARA) ("EPCRA"); and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. ss.651, et seq. ("OSHA"). "Handle" means any manner of generating, accumulating, storing, treating, disposing of, transporting, transferring, labeling, handling, manufacturing or using, as any of such terms may further be defined in any Environmental Law. "Hazardous Substances" shall be construed broadly to include any toxic or hazardous substance, material or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires investigation or remediation under any Environmental Laws or which are or become regulated, listed or controlled by, under or pursuant to any Environmental Laws, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "Licenses" means all licenses, certificates, permits, approvals, decrees and registrations. "Underground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order, ruling or decree governing Underground Storage Tanks. (g) Notwithstanding any other provision of this Agreement, Environmental Costs incurred by Republic post-closing to correct any matters addressed in Schedule 3.13 of this Agreement are Indemnifiable Damages subject to Section 9.1 of the Agreement, as long as such Environmental Costs relate to a Recognized Environmental Condition. 16 17 3.14 REAL ESTATE. (a) Schedule 3.14(a) contains the street addresses of, and indicates the owner(s) of, any real property or any leasehold or other interest therein (including without limitation any option or other right or obligation to purchase any real property or any interest therein) owned by any of the Acquired Entities as of the date hereof (the "Company Owned Properties"). Except as listed on Schedule 3.14(b), there has been no real property (or any interest therein) owned by any of the Acquired Entities within the past five years that is not owned by such Acquired Entity as of the date of this Agreement. Schedule 3.14(c) contains the legal descriptions and the street addresses of any real property (or any interest therein) which was owned by the Shareholder or any of his Affiliates (the "Shareholder Owned Properties," and together with the Company Owned Properties, the "Owned Properties"), and used in any Acquired Entity's business which has been conveyed as additional contributions of capital, or otherwise conveyed, to any Acquired Entity other than such real property interests listed in Schedule 3.14(a). Schedule 3.14(a) also sets forth the location and approximate size of, and description of the principal improvements and buildings on, the Owned Properties, together with a list of all title insurance policies and commitments relating to such properties, all of which policies and commitments have previously been delivered or made available to Republic by the Acquired Entities. With respect to each such parcel of Owned Properties: (i) the Acquired Entity that owns such parcel as indicated in the Schedules to this Section 3.14 has good and marketable title, free and clear of any covenants, conditions, easements and exceptions other than the Permitted Exceptions (as defined in Section 5.15), and of any Lien other than liens for real estate taxes not yet due and payable, (ii) there are no pending or, to the knowledge of the Shareholder or the Acquired Entities, threatened condemnation proceedings, suits or administrative actions relating to the Owned Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) the legal descriptions for the Owned Properties contained in the deeds thereof describe such parcels fully and adequately; (iv) except as provided on Schedule 3.14(d), (each of which is a "Permitted Exception") the buildings and improvements are located within the boundary lines of the described parcels of land and are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval, regulation or restrictions by any Governmental Authority, and, other than perimeter walls and fences owned by the Acquired Entities, do not encroach on any easement which may burden the land; the land does not serve any adjoining property for any purpose inconsistent with the use of the land; and the Owned Properties are not located within any flood plain or subject to any similar type restriction for which any permits or licenses necessary to the use thereof have not been obtained; (v) all facilities have received all material approvals of Governmental Authorities (including licenses and permits) required in connection with the ownership or operation thereof and have been operated and maintained in accordance with applicable laws, ordinances, rules and regulations; (vi) there are no Contracts granting to any party or parties 17 18 the right of use or occupancy of any portion of the Owned Properties, and there are no parties (other than the Acquired Entities) in possession of any of the Owned Properties; (vii) there are no outstanding options or rights of first refusal or similar rights to purchase any of the Owned Properties or any portion thereof or interest therein, (viii) all facilities located on the Owned Properties are supplied with utilities and other services necessary for their operation, all of which services are adequate in accordance with all applicable laws, ordinances, rules and regulations, and are provided via public roads or via permanent, irrevocable, appurtenant easements benefiting the Owned Properties; (ix) the Owned Properties abut on and have adequate direct vehicular access to a public road and there is no pending or, to the knowledge of the Shareholder or the Acquired Entities, threatened termination of such access; and (x) all improvements, buildings and systems on the Owned Properties are in good repair, and safe for occupancy and use. (b) Schedule 3.14(e) sets forth a list of all leases, licenses or similar agreements to which any Acquired Entity is a party, which are for the use or occupancy of real estate owned by a third party ("Leases") (copies of which have previously been furnished to Republic), in each case, setting forth: (i) the lessor and lessee thereof and the commencement date, term and renewal rights under each of the Leases; (ii) the street address or legal description of each property covered thereby; and (iii) a brief description (including approximate size and function) of the principal improvements and buildings thereon (the "Leased Premises"). The Leases are in full force and effect and have not been amended except as disclosed in Schedule 3.14(e), and no party thereto is in default or breach under any such Lease. No event has occurred which, with the passage of time or the giving of notice or both, would cause a material breach of or default under any of such leases. With respect to each such Leased Premises: (i) the Acquired Entity that is the lessee has a valid leasehold interest in the Leased Premises, which leasehold interest is free and clear of any Liens, covenants and easements or title defects of any nature whatsoever; (ii) the portions of the buildings located on the Leased Premises that are used in the business of the Acquired Entity are each in good repair and condition, normal wear and tear excepted, and are in the aggregate sufficient to satisfy the Acquired Entity's current and reasonably anticipated normal business activities as conducted thereat; (iii) each of the Leased Premises (a) has direct access to public roads or access to public roads by means of a perpetual access easement, such access being sufficient to satisfy the current and reasonably anticipated normal transportation requirements of the business presently conducted at such parcel; and (b) is served by all utilities in such quantity and quality as are sufficient to satisfy the current normal business activities conducted at such parcel; and (iv) no Acquired Entity or the Shareholder has received notice of (a) any condemnation proceeding with respect to any portion of the Leased Premises or any access thereto, and no such proceeding is, to the best knowledge of the Acquired Entities and the Shareholder, contemplated by any Governmental Authority; or (b) any special assessment which may affect any of the Leased Premises, and, to the best knowledge of the Acquired Entities and the Shareholder, no such special assessment is contemplated by any Governmental Authority. 18 19 3.15 BUSINESS; GOOD TITLE TO AND CONDITION OF ASSETS; INVENTORY (a) The Shareholder is not engaged in the Auto Business or the Parts Business (as defined in Section 5.11) and does not own an interest in any Person engaged in the Auto Business or the Parts Business, other than (A) the Auto Business and Parts Business conducted by the Acquired Entities or (B) the Shareholder's ownership interests in the Acquired Entities. The Acquired Entities own and operate the motor vehicle dealerships (the "Dealerships") listed on Schedule 3.15 at the locations set forth thereon, and each Dealership is owned and operated by the Acquired Entity indicated in Schedule 3.15. Upon the consummation of the transactions contemplated hereby, the Republic Companies will have acquired and own all of the Acquired Entities' assets and operations engaged in the Auto Business or Parts Business and related rights and interests. Except as specifically disclosed in the Financial Statements, each Acquired Entity has good and marketable title to all of its Assets free and clear of any Liens. For purposes of this Agreement, the term "Assets" means all of the properties and assets of any nature of the Acquired Entities. (b) The Fixed Assets currently in use or necessary for the business and operations of the Acquired Entities are in good operating condition, normal wear and tear excepted, and have been maintained substantially in accordance with all applicable manufacturer's specifications and warranties. For purposes of this Agreement, the term "Fixed Assets" means all vehicles (other than vehicles held as inventory), machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures, owned, used by or located on the premises of the Acquired Entities or set forth on the Current Balance Sheets or acquired by the Acquired Entities since the date of the Current Balance Sheets. (c) Except for such vehicles as are acquired as trade-ins in the ordinary course of business and sold or to be sold wholesale, none of the vehicles owned by the Acquired Entities as of the date hereof has been, or will be on the Closing Date, salvaged or rebuilt or have any frame, flood or other damage impairing its salability in the ordinary course of business, and with respect to each vehicle, the Acquired Entities owning such vehicles have or will have prior to the Closing Date on file true and correct odometer statements, none of which indicate that the actual mileage is unknown. 3.16 COMPLIANCE WITH LAWS. Each of the Acquired Entities and the Shareholder (as it relates to his ownership or operation of the Acquired Entities) and his Affiliates has been in compliance in all material respects with all laws, regulations and orders applicable to it, its business and operations (as conducted by it now and in the past), the Assets, the Owned Properties and the Leased Premises and any other properties and assets (in each case owned or used by it now or in the past). Except as disclosed in Schedule 3.16, no Acquired Entity has been cited, fined or otherwise notified of any asserted past or present failure to comply with any laws, regulations or orders and no proceeding with respect to any such violation is pending or threatened. Except for the Franchise Agreements, no Acquired Entity is subject to any Contract, decree or injunction to which it is a party which restricts the continued operation of any business or the expansion thereof to other geographical areas, customers and suppliers or lines of business. No Acquired Entity, nor any of their 19 20 employees or agents, has made any payment of funds in connection with its business which is prohibited by law, and no funds have been set aside to be used in connection with its business for any payment prohibited by law. Each of the Acquired Entities is and at all times has been in full compliance with the terms and provisions of the Immigration Reform and Control Act of 1986, as amended (the "Immigration Act"). With respect to each Employee (as defined in 8 C.F.R. 274a.1(f)) of the Acquired Entities for whom compliance with the Immigration Act is required, the Acquired Entities have on file a true, accurate and complete copy of (i) each Employee's Form I-9 (Employment Eligibility Verification Form) and (ii) all other records, documents or other papers prepared, procured and/or retained pursuant to the Immigration Act. None of the Acquired Entities has been cited, fined, served with a Notice of Intent to Fine or with a Cease and Desist Order, nor has any action or administrative proceeding been initiated or threatened against any of the Acquired Entities, by the Immigration and Naturalization Service by reason of any actual or alleged failure to comply with the Immigration Act. Except as specifically provided for in Section 3.12, and Schedule 3.12, the Shareholder and the Acquired Entities shall remain responsible for and liable under any matters disclosed in Schedule 3.16 subject to the terms and provisions of Article IX. 3.17 LABOR AND EMPLOYMENT MATTERS. No Acquired Entity is a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and there has been no labor union prior to the date hereof organizing any employees of the Acquired Entities into one or more collective bargaining units. There is not now, and there has not been prior to the date hereof, any actual or threatened labor dispute, strike or work stoppage which affects or which may affect the business of the Acquired Entities or which may interfere with their continued operations. No Acquired Entity, and no employee, agent or representative thereof, has since the date of incorporation or formation of such Acquired Entity committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or threatened charge or complaint against any Acquired Entity by or with the National Labor Relations Board or any representative thereof. There has been no strike, walkout or work stoppage involving any of the employees of any of the Acquired Entities prior to the date hereof. No executive or key employee or group of employees has any plans to terminate his, her or their employment with any Acquired Entity as a result of the transactions contemplated hereby or otherwise. Each Acquired Entity has complied with applicable laws, rules and regulations relating to employment, civil rights and equal employment opportunities, including but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and the Americans with Disabilities Act, all as amended. 3.18 EMPLOYEE BENEFIT PLANS. (a) Employee Benefit Plans. Schedule 3.18 contains a list setting forth each employee benefit plan or arrangement of each of the Acquired Entities, including but not limited to employee pension benefit plans, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA, employee welfare benefit plans, as defined in Section 3(1) of ERISA, deferred compensation plans, stock option plans, material bonus plans, stock purchase plans, hospitalization, disability and other insurance plans, severance or termination pay plans and policies, whether or not described in 20 21 Section 3(3) of ERISA, in which employees, their spouses or dependents, of any of the Acquired Entities participate ("Employee Benefit Plans") (true and accurate copies of which, together with the most recent annual reports on Form 5500 and summary plan descriptions with respect thereto, were furnished to Republic). (b) Compliance with Law. With respect to each Employee Benefit Plan (i) each has been administered in all material respects in compliance with its terms and with all applicable laws, including, but not limited to, ERISA and the Internal Revenue Code of 1986, as amended (the "Code"); (ii) no actions, suits, claims or disputes are pending, or threatened; (iii) no audits, inquiries, reviews, proceedings, claims, or demands are pending with any governmental or regulatory agency; (iv) there are no facts which could give rise to any material liability in the event of any such investigation, claim, action, suit, audit, review, or other proceeding; (v) all material reports, returns and similar documents required to be filed with any governmental agency or distributed to any plan participant have been duly or timely filed or distributed; and (vi) no "prohibited transaction" has occurred within the meaning of the applicable provisions of ERISA or the Code. (c) Qualified Plans. With respect to each Employee Benefit Plan intended to qualify under Code Section 401(a) or 403(a), (i) the Internal Revenue Service has issued a favorable determination letter, true and correct copies of which have been furnished to Republic, that such plans are qualified and exempt from federal income taxes; (ii) no such determination letter has been revoked nor has revocation been threatened, nor has any amendment or other action or omission occurred with respect to any such plan since the date of its most recent determination letter or application therefor in any respect which would adversely affect its qualification or materially increase its costs; (iii) no such plan has been amended in a manner that would require security to be provided in accordance with Section 401(a)(29) of the code; (iv) no reportable event (within the meaning of Section 4043 of ERISA) has occurred, other than one for which the 30-day notice requirement has been waived; (v) as of the Effective Date, the present value of all liabilities that would be "benefit liabilities" under Section 4001(a)(16) of ERISA if benefits described in Code Section 411(d)(6)(B) were included will not exceed the then current fair market value of the assets of such plan (determined using the actuarial assumptions used for the most recent actuarial valuation for such plan); (vi) all contributions to, and payments from and with respect to such plans, which may have been required to be made in accordance with such plans and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been timely made; and (vii) all such contributions to the plans and all payments under the plans (except those to be made from a trust qualified under Section 401(a) of the Code) and all payments with respect to the plans (including without limitation PBGC (as defined below) and insurance premiums) for any period ending before the Effective Date that are not yet, but will be, required to be made are properly accrued and reflected on the Current Balance Sheet. (d) Multiemployer Plans. No Acquired Entity is or has been obligated with respect to any multiemployer plan as described in Section 4001(a)(3) of ERISA ("MPPA Plan"). 21 22 (e) Welfare Plans. (i) No Acquired Entity is obligated under any employee welfare benefit plan as described in Section 3(1) of ERISA ("Welfare Plan") to provide medical or death benefits with respect to any employee or former employee of the Acquired Entities or their predecessors after termination of employment; (ii) each Acquired Entity has complied with the notice and continuation coverage requirements of Section 4980B of the Code and the regulations thereunder with respect to each Welfare Plan that is, or was during any taxable year for which the statute of limitations on the assessment of federal income taxes remains open, by consent or otherwise, a group health plan within the meaning of Section 5000(b)(1) of the Code; and (iii) there are no reserves, assets, surplus or prepaid premiums under any Welfare Plan which is an Employee Benefit Plan. The consummation of the transactions contemplated by this Agreement will not entitle any individual to severance pay, and, will not accelerate the time of payment or vesting, or increase the amount of compensation due to any individual. (f) Controlled Group Liability. No Acquired Entity nor any entity that would be aggregated with any Acquired Entity under Code Section 414(b), (c), (m) or (o): (i) has ever terminated or withdrawn from an employee benefit plan under circumstances resulting (or expected to result) in liability to the Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the employee benefit plan is funded, or any employee or beneficiary for whose benefit the plan is or was maintained (other than routine claims for benefits); (ii) has any assets subject to (or expected to be subject to) a lien for unpaid contributions to any employee benefit plan; (iii) has failed to pay premiums to the PBGC when due (iv) is subject to (or expected to be subject) an excise tax under Code Section 4971; (v) has engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has violated Code Section 4980B or Section 601 through 608 of ERISA. (g) Other Liabilities. (i) None of the Employee Benefit Plans obligates any Acquired Entity to pay separation, severance, termination or similar benefits solely as a result of any transaction contemplated by this Agreement or solely as a result of a "change of control" (as such term is defined in Section 280G of the Code); (ii) all required or discretionary (in accordance with historical practices) payments, premiums, contributions, reimbursements, or accruals for all periods ending prior to or as of the Effective Date shall have been made or properly accrued on the Current Balance Sheets or will be properly accrued on the books and records of the Acquired Entities as of the Effective Date; and (iii) none of the Employee Benefit Plans has any unfunded liabilities which are not reflected on the Current Balance Sheets or the books and records of the Company. 3.19 TAX MATTERS. All Tax Returns required to be filed prior to the date hereof with respect to any of the Acquired Entities or any of their respective income, properties, franchises or operations have been timely filed, each such Tax Return has been prepared in compliance with all applicable laws and regulations, and all such Tax Returns are true and accurate in all respects. All Taxes due and payable by or with respect to each Acquired Entity have been paid or are accrued on the applicable Current Balance Sheet or will be accrued on the Acquired Entity's books and records as of the Closing. Except as set forth on Schedule 3.19: (i) with respect to each taxable period of each Acquired Entity, either such taxable period has been audited by the relevant taxing authority 22 23 or the time for assessing or collecting Taxes with respect to each such taxable period has closed and each taxable period is not subject to review by any relevant taxing authority; (ii) no deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Taxes has been asserted or assessed by any taxing authority against any Acquired Entity; (iii) no Acquired Entity has consented to extend the time in which any Taxes may be assessed or collected by any taxing authority; (iv) no Acquired Entity has requested or been granted an extension of the time for filing any Tax Return to a date later than the Closing; (v) there is no action, suit, taxing authority proceeding, or audit or claim for refund now in progress, pending or threatened against or with respect to any Acquired Entity regarding Taxes; (vi) no Acquired Entity has made an election or filed a consent under Section 341(f) of the Code (or any corresponding provision of state, local or foreign law) on or prior to the Effective Date; (vii) there are no Liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of any Acquired Entity; (viii) no Acquired Entity will be required (A) as a result of a change in method of accounting for a taxable period ending on or prior to the Effective Date, to include any adjustment under Section 481(c) of the Code (or any corresponding provision of state, local or foreign law) in taxable income for any taxable period (or portion thereof) beginning after the Effective Date or (B) as a result of any "closing agreement," as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign law), to include any item of income or exclude any item of deduction from any taxable period (or portion thereof) beginning after the Effective Date; (ix) no Acquired Entity has been a member of an affiliated group (as defined in Section 1504 of the Code) or filed or been included in a combined, consolidated or unitary income Tax Return; (x) no Acquired Entity is a party to or bound by any tax allocation or tax sharing agreement and has no current or potential contractual obligation to indemnify any other Person with respect to Taxes; no taxing authority will claim or assess any additional Taxes against any of the Companies for any period for which Tax Returns have been filed; (xi) no taxing authority will claim or assess any additional Taxes against any of the Acquired Entities for any period for which Tax Returns have been filed; (xii) no Acquired Entity has made any payments or, is or will become obligated (under any contract entered into on or before the Closing) to make any payments, that will be non-deductible under Section 280G of the Code (or any corresponding provision of state, local or foreign law); and (xiii) no Acquired Entity has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code (or any corresponding provision of state, local or foreign law) during the applicable period specified in Section 897(c)(l)(a)(ii) of the Code (or any corresponding provision of state, local or foreign law); (xiv) no claim has ever been made by a taxing authority in a jurisdiction where any Acquired Entity does not file Tax Returns that an Acquired Entity is or may be subject to Taxes assessed by such jurisdiction; (xv) no Acquired Entity has any permanent establishment in any foreign country, as defined in the relevant tax treaty between the United States of America and such foreign country; (xvi) true, correct and complete copies of all income and sales Tax Returns filed by or with respect to any Acquired Entity for the past three years have been furnished or made available to Republic; (xvii) no Acquired Entity will be subject to any Taxes, for the period ending at the Closing for any period for which a Tax Return has not been filed, imposed pursuant to Section 1374 or Section 1375 of the Code (or any corresponding provision of state, local or foreign law); and (xviii) no sales or use tax will be payable by any Acquired Entity or Republic or any Surviving Corporation or transferee as a result of this transaction, and there will be no non-recurring intangible tax, 23 24 documentary stamp tax other than on the Republic Shares, or other excise tax (or comparable tax imposed by any governmental entity) as a result of this transaction. Each Acquired Entity has timely and properly filed an S corporation election under the Code and under applicable state and local Tax law for its first taxable year, and no such S election has been revoked or terminated and neither the Acquired Entities nor the Shareholder has taken any action that would cause a termination of such S election. 3.20 INSURANCE. Each Acquired Entity is covered by valid, outstanding enforceable policies of insurance issued to it by reputable insurers covering its properties, assets and business against risks of the nature normally insured against by similar entities in the same or similar lines of business in coverage amounts typically and reasonably carried by such entities (the "Insurance Policies"). Such Insurance Policies are in full force and effect, and all premiums due thereon have been paid through the date of this Agreement and will be paid through the Effective Time. Each Acquired Entity has complied with the provisions of such Insurance Policies applicable to it, and has provided Republic copies of all Insurance Policies and all amendments and riders thereto. Other than claims which may have been filed by an Acquired Entity with respect to matters described in Schedule 3.12, and other than worker's compensation claims filed by employees of an Acquired Entity in the ordinary course of business which are covered by insurance, there is no pending claim under any of the Insurance Policies for an amount in excess of $25,000 individually or $100,000 in the aggregate, including any claim for loss or damage to the properties, assets or business of any Acquired Entity. No Acquired Entity has failed to give, in a timely manner, any notice required under any of the Insurance Policies to preserve its rights thereunder. 3.21 RECEIVABLES. All of the Receivables are valid and legally binding, represent bona fide transactions and arose in the ordinary course of business of the Acquired Entities. All of the Receivables are good and collectible receivables, and will be collected in accordance with past practice and the terms of such receivables (and in any event within six months following the Closing Date), without set off or counterclaims, subject to the allowance for doubtful accounts, if any, set forth on the Current Balance Sheets, as reasonably adjusted since the date of the Current Balance Sheets in the ordinary course of business, consistent with GAAP. For purposes of this Agreement, the term "Receivables" means all receivables of the Acquired Entities, including without limitation all contracts in transit, manufacturer's warranty receivables and all trade account receivables arising from the provision of services, sale of inventory, notes receivable, and insurance proceeds receivable. 3.22 LICENSES AND PERMITS. Each Acquired Entity possesses all licenses and required governmental or official approvals, permits or authorizations (collectively, the "Permits") for its business and operations, including with respect to the operations of each of the Owned Properties and Leased Premises. Schedule 3.22 sets forth a true, complete and accurate list of all such Permits, itemized for each Acquired Entity. All such Permits are valid and in full force and effect, each Acquired Entity is in compliance with the respective requirements thereof, and no proceeding is pending or threatened to revoke or amend any of them. None of such Permits is or will be impaired or in any way affected by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 24 25 3.23 ADEQUACY OF THE ASSETS: RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets, Owned Properties, and Leased Premises constitute, in the aggregate, all of the assets and properties necessary for the conduct of each of the businesses of the Acquired Entities in the manner in which and to the extent to which such business is currently being conducted. No current supplier to the Acquired Entities of items material to the conduct of their business has threatened to terminate its business relationship with any of the Acquired Entities for any reason. No Acquired Entity has any direct or indirect interest in any customer, supplier or competitor of any Acquired Entity or in any person from whom or to whom the Acquired Entity leases real or personal property. No officer, director or shareholder of any Acquired Entity, nor any person related by blood or marriage to any such person, nor any entity in which any such person owns any beneficial interest, is a party to any Contract or transaction with the Acquired Entity or has any interest in any property used by the Acquired Entity. 3.24 INTELLECTUAL PROPERTY. Each Acquired Entity has full legal right, title and interest in and to all trademarks, service marks, trade names, copyrights, know-how, patents, trade secrets, licenses (including licenses for the use of computer software programs), and other intellectual property used in the conduct of its business (the "Intellectual Property"). The conduct of the business of the Acquired Entities as presently conducted, and the unrestricted conduct and the unrestricted use and exploitation of the Intellectual Property, does not infringe or misappropriate any rights held or asserted by any Person and to the knowledge of the Acquired Entities and the Shareholder, no Person is infringing on any Intellectual Property. No payments are required for the continued use of the Intellectual Property. None of the Intellectual Property has ever been declared invalid or unenforceable, or is the subject of any pending or threatened action for opposition, cancellation, declaration, infringement, or invalidity, unenforceability or misappropriation or like claim, action or proceeding. 3.25 CONTRACTS. Schedule 3.25 sets forth a list of each Contract to which any Acquired Entity is a party or by which any of them or their properties and assets are bound and which is material to any of their businesses, assets, properties or prospects (the "Material Contracts"), true, correct and complete copies of which have been provided to Republic, including without limitation all franchise, sales and service, dealer and other agreements or undertakings (the "Franchise Agreements") with the Ford Division of the Ford Motor Company, Nissan Division of Nissan Motor Corporation in U.S.A., the Dodge Division of the Chrysler Corporation, the Lincoln-Mercury division of Ford Motor Company, and Mitsubishi Motor Sales of America, Inc. or any other automobile manufacturer or distributor (collectively, the "Factories"). As indicated in Schedule 3.25, certain Acquired Entities are parties to Franchise Agreements for each of the Dealerships, which Franchise Agreements grant the Acquired Entities full rights and privileges necessary to operate the Dealerships. The copy of each Material Contract furnished to Republic is a true and complete copy of the document it purports to represent and reflects all amendments thereto made through the date of this Agreement. The Acquired Entities have not violated any of the terms or conditions of any Material Contract or any term or condition which would permit termination or material modification of any Material Contract, all of the covenants to be performed by any other party thereto have been fully performed, and there are no claims for breach or indemnification or notice of default or 25 26 termination under any Material Contract. No event has occurred which constitutes, or after notice or the passage of time, or both, would constitute, a default by any Acquired Entity under any Material Contract, and no such event has occurred which constitutes or would constitute a default by any other party. No Acquired Entity is subject to any liability or payment resulting from renegotiation of amounts paid under any Material Contract. As used in this Section 3.25 Material Contracts shall include, without limitation, formal or informal, written or oral, in each case which is material to any of the Acquired Entities' business, assets, properties or prospects (a) loan agreements, indentures, mortgages, pledges, hypothecations, deeds of trust, conditional sale or title retention agreements, security agreements, equipment financing obligations or guaranties, or other sources of contingent liability in respect of any indebtedness or obligations to any other Person, or letters of intent or commitment letters with respect to same (other than those which individually provide for annual payments of less than $25,000 and which are cancelable without penalty on notice of sixty (60) days or less); (b) contracts obligating any Acquired Entity to provide products or services for a period of one year or more, excluding standard warranty contracts entered into in the ordinary course of its business without material modification from the preprinted forms used by the Acquired Entities in the ordinary course of business, copies of which have been supplied to Republic; (c) leases of real property; (d) leases of personal property (other than those which individually provide for annual payments of less than $25,000 and which are cancelable without penalty on notice of sixty (60) days or less); (e) distribution, sales agency or franchise or similar agreements, or agreements providing for an independent contractor's services, or letters of intent with respect to same (other than those which individually provide for annual payments of less than $25,000 and which are cancelable without penalty on notice of sixty (60) days or less); (f) employment agreements, management service agreements, consulting agreements, confidentiality agreements, non-competition agreements, employee handbooks, policy statements and any other agreements relating to any employee, officer or director of the Acquired Entities; (g) licenses, assignments or transfers of trademarks, trade names, service marks, patents, copyrights, trade secrets or know how, or other agreements regarding proprietary rights or intellectual property; (h) any contract relating to pending capital expenditures by the Acquired Entities; (i) contracts obligating any Acquired Entity to purchase vehicles, parts, accessories, supplies, equipment, oil, advertising, media and media related services of any kind (other than those which individually provide for annual payments of less than $25,000 and which are cancelable without penalty on notice of thirty (30) days or less); (j) any non-competition agreements restricting any Acquired Entity in any manner, and (k) other material Contracts or understandings, irrespective of subject matter and whether or not in writing, and not otherwise disclosed on the Schedules. 3.26 ACCURACY OF INFORMATION FURNISHED. No representation, statement or information contained in this Agreement (including, without limitation, the various Schedules attached hereto) or any agreement executed in connection herewith or in any certificate delivered pursuant hereto or thereto or made or furnished to Republic or its representatives by the Acquired Entities or the Shareholder, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained therein not misleading. The Acquired Entities have provided Republic with true, accurate and complete copies of all documents listed or described in the various Schedules attached hereto. 26 27 3.27 INVESTMENT INTENT; ACCREDITED INVESTOR STATUS; SECURITIES DOCUMENTS. The Shareholder has had the opportunity to discuss the transactions contemplated hereby with Republic and has had the opportunity to obtain such information pertaining to Republic as has been requested, including but not limited to filings made by Republic with the SEC under the Exchange Act. The Shareholder is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act, and has such knowledge and experience in business or financial matters that he is capable of evaluating the merits and risks of an investment in the Republic Shares. The Shareholder hereby represents that he can bear the economic risk of losing his investment in the Republic Shares and has adequate means for providing for his current financial needs and contingencies. The Shareholder has received copies of all Republic Reports filed with the SEC since January 1, 1996. 3.28 NO COMMISSIONS. No Acquired Entity nor the Shareholder has incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. 3.29 CERTAIN ACCOUNTING MATTERS. No Acquired Entity nor the Shareholder, nor any of their Affiliates, has taken or agreed to take any action that (without regard to any action taken or agreed to be taken by Republic or any of its Affiliates) would prevent Republic from accounting for the transactions contemplated hereby as pooling of interests business combinations in accordance with GAAP and the criteria of Accounting Principles Board Opinion No. 16 and the regulations of the SEC. 3.30 ADVERSE IMPACT OF ACTIONS OR PROPOSALS OF MANUFACTURERS. To the knowledge of the Shareholder and each of the Acquired Entities, none of the Factories nor any other dealer has taken or proposed to take any action that could have an adverse impact on any of the Dealerships, including, but not limited to, (i) relocating or closing any of the Dealerships, (ii) relocating any other dealership or establishing or awarding a new franchise for a dealership to a location that could have an adverse impact on any of the Dealerships, or (iii) protesting any action taken or proposed to be taken by any of the Dealerships. The Shareholder and the Acquired Entities have delivered to Republic copies of any written documentation or proposals relating to the foregoing, including any strategic plans of the Factories relating to distribution, marketing, facilities or divisional image or alignment or any documentation relating to specific plans or proposals with respect to any of the Dealerships. ARTICLE IV CONDUCT OF BUSINESS PENDING THE CLOSING 4.1 CONDUCT OF BUSINESS BY THE ACQUIRED ENTITIES PENDING THE CLOSING. The Acquired Entities and the Shareholder, jointly and severally, covenant and agree that, except as otherwise specifically required by the terms of this Agreement, between the date of this Agreement and the Effective Time, the business of the Acquired Entities shall be conducted only in, and the Acquired 27 28 Entities shall not take any action except in the ordinary course of business consistent with past practice. The Acquired Entities and the Shareholder shall each use its or his reasonable best efforts to preserve intact the Acquired Entities' business organizations, to keep available the services of their current officers, employees and consultants, and to preserve their present relationships with customers, suppliers and other Persons with which they have significant business relations. By way of amplification and not limitation, except as contemplated by this Agreement, the Acquired Entities shall not, between the date of this Agreement and the Effective Time, directly or indirectly, do or propose or agree to do any of the following without the prior written consent of Republic. (a) amend or otherwise change its Articles of Incorporation, Bylaws or equivalent organizational documents; (b) issue, sell, pledge, dispose of, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of its capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest, of it, or (ii) any of its assets, tangible or intangible, except, in the case of (ii), in the ordinary course of business consistent with past practice; (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock, except that the Acquired Entities may make cash distributions only to the extent necessary to pay for the Shareholder's tax liability for earnings of the Acquired Entities, consistent with past practice in the ordinary course. (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e) (i) acquire (including, without limitation, for cash or shares of stock, by merger, consolidation or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or make any investment either by purchase of stock or securities, contributions of capital or property transfer or, except in the ordinary course of business consistent with past practice, purchase any property or assets of any other Person, (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances, except for its "floor plan" financing of vehicle inventories in the ordinary course of business consistent with past practice or (iii) modify, terminate, or enter into any Contract other than as provided herein or in the ordinary course of business consistent with past practice; (f) increase the compensation payable or to become payable to its officers or employees or, except as presently bound to do, grant any severance or termination pay to, or 28 29 enter into any employment or severance agreement with, any of its directors, officers or employees, or establish, adopt, enter into or amend or take any action to accelerate any rights or benefits which any collective bargaining, bonus, profit sharing trust, compensation, stock option, restricted stock pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees; (g) take any action with respect to accounting policies or procedures other than in the ordinary course of business and in a manner consistent with past practices; (h) pay, discharge or satisfy any existing claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of due and payable liabilities reflected or reserved against in its financial statements, as appropriate, or liabilities incurred after the date thereof in the ordinary course of business and consistent with past practice; (i) increase or decrease prices charged to its customers, except in the ordinary course of business consistent with past practices, or take any other action which might reasonably result in any material increase in the loss of customers; materially increase or decrease the average monthly New or Other Parts and Accessories Inventory, New Vehicle Inventory, or Other Vehicle Inventory, other than in the ordinary course of business and in a manner consistent with past practice; or order any New Vehicles from the Factory which would be inconsistent with the prior ordering practices of the Acquired Entities; (j) enter into any transaction with the Shareholder or an Affiliate thereof; or (k) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty in Article III untrue or incorrect in any material respect. ARTICLE V ADDITIONAL AGREEMENTS 5.1 FURTHER ASSURANCES. Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby. 5.2 COMPLIANCE WITH COVENANTS. The Shareholder shall cause the Acquired Entities to comply with all of the covenants of the Acquired Entities under this Agreement. 29 30 5.3 COOPERATION. Each of the parties agrees to cooperate with the other in the preparation and filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to any law, rule or regulation in connection with the transactions contemplated by this Agreement and to use their respective best efforts to agree jointly on a method to overcome any objections by any Governmental Authority to any such transactions. 5.4 FACTORIES APPLICATIONS AND OTHER ACTIONS. Each of the parties hereto shall (a) cooperate in the preparation and filing of, and take all appropriate actions in connection with, the application to the Factories for approval of the transactions contemplated hereby, and (b) use its reasonable best efforts to take, or cause to be taken, all appropriate actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated herein, including, without limitation, using its reasonable best efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of any Governmental Authority and parties to Contracts with the Acquired Entities as are necessary for the consummation of the transactions contemplated hereby. Each of the parties shall make on a prompt and timely basis all governmental or regulatory notifications and filings required to be made by it for the consummation of the transactions contemplated hereby. The parties also agree to use reasonable best efforts to defend all lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby and to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. 5.5 HSR ACT. Republic, the Acquired Entities and the Shareholder shall make promptly (unless they have already made) their respective filings, if any, and thereafter make any other required submissions, under the HSR Act, with respect to the transactions contemplated hereby, and shall, if requested by Republic, seek early termination of the applicable waiting period under the HSR Act. Republic shall pay all filing fees required to be paid by the Acquired Entities and the Shareholder in connection with any such filing under the HSR Act. 5.6 ACCESS TO INFORMATION. From the date hereof to the Effective Time, the Acquired Entities and the Shareholder shall, and shall cause their directors, officers, employees, auditors, counsel and agents to, afford Republic and Republic's officers, employees, auditors, counsel and agents reasonable access at all reasonable times to its properties, offices and other facilities, to its officers and employees and to all books and records, and shall furnish such persons with all financial, operating and other data and information as may be requested. No information provided to or obtained by Republic shall affect any representation or warranty in this Agreement. Following the Effective Time, the Shareholder shall have reasonable access to the Acquired Entities' tax records to prepare his own tax return. 5.7 NOTIFICATION OF CERTAIN MATTERS. Each of the parties to this Agreement shall give prompt notice to the other parties of the occurrence or non-occurrence of any event which would likely cause any representation or warranty made by such party herein to be untrue or inaccurate or any covenant, condition or agreement contained herein not to be complied with or satisfied 30 31 (provided, however, that, any such disclosure shall not in any way be deemed to amend, modify or in any way affect the representations, warranties and covenants made by any party in or pursuant to this Agreement). 5.8 TAX AND ACCOUNTING TREATMENT. Republic, the Acquired Entities and the Shareholder will use their respective reasonable best efforts to cause the Mergers contemplated hereby to qualify as a reorganization under the provisions of Section 368(a) of the Code and the Share Exchange to qualify as a reorganization under Section 368(a)(1)(B) of the Code. All parties hereto agree to file the Plans of Merger for the Mergers and the Plan of Share Exchange for the Share Exchange with their respective federal income tax returns for the year in which the Mergers and the Share Exchange are effective, and to comply with the reporting requirements of Treasury Regulation 1.368-3. In addition, Republic, the Acquired Entities and the Shareholder will not take any action after the date hereof to cause the Merger and the Share Exchange contemplated hereby not to be accounted for as a pooling of interests business combination. 5.9 CONFIDENTIALITY: PUBLICITY. Except as may be required by law or as otherwise permitted or expressly contemplated herein, no party hereto or their respective Affiliates, employees, agents and representatives shall disclose to any third party this Agreement, the subject matter or terms hereof or any confidential information or other proprietary knowledge concerning the business or affairs of any other party which it may have acquired from such party in the course of pursuing the transactions contemplated by this Agreement without the prior consent of the other parties hereto; provided, that any information that is otherwise publicly available, without breach of this provision, or has been obtained from a third party without a breach of such third party's duties, shall not be deemed confidential information. No press release or other public announcement related to this Agreement or the transactions contemplated hereby shall be issued by any party hereto without the prior approval of the other parties, except that Republic may make such public disclosure which it believes in good faith to be required by law or by the terms of any listing agreement with or requirements of Nasdaq (in which case Republic will consult with the Acquired Entities prior to making such disclosure). 5.10 NO OTHER DISCUSSIONS. The Acquired Entities, the Shareholder and their Affiliates, employees, agents and representatives will not (a) initiate, encourage the initiation by others of discussions or negotiations with third parties or respond to solicitations by third persons relating to any merger, sale or other disposition of any substantial part of the assets, capital stock (or derivatives thereof), business or properties of any Acquired Entities (whether by merger, consolidation, sale of stock, sale of assets, or otherwise), or (b) enter into any agreement or commitment (whether or not binding) with respect to any of the foregoing transactions. The Acquired Entities and the Shareholder will immediately notify Republic if any third party attempts to initiate any solicitation, discussion, or negotiation with respect to any of the foregoing transactions, and shall provide Republic with the name of such third parties and the terms of any offers. 5.11 RESTRICTIVE COVENANTS. In order to assure that Republic will realize the benefits of the transactions contemplated hereby, the Shareholder agrees with Republic that he will not: 31 32 (a) during the Restricted Period (defined below), other than as an employee of Republic or its Affiliates, directly or indirectly, alone or as a partner, joint venturer, officer, director, member, employee, consultant, agent, independent contractor or stockholder of, or lender to, any company or business, engage in selling, leasing, or servicing any new or used vehicles (the "Auto Business") or in the wholesale or retail supply of parts with respect thereto (the "Parts Business") anywhere in the Restricted Territory (defined below); provided, however, that, the beneficial ownership of less than five percent (5%) of the shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this Section; (b) during the Restricted Period, directly or indirectly (i) induce any Person which is a customer or supplier of any Acquired Entity, Republic or any Affiliate of the Acquired Entities or Republic to patronize any business directly or indirectly in competition with the Auto Business or the Parts Business conducted by the Acquired Entities, Republic or any Affiliate of the Acquired Entities or Republic; (ii) canvass, solicit or accept from any Person which is a customer of the Acquired Entities, Republic or any Affiliate of the Acquired Entities or Republic, any such competitive business; or (iii) request or advise any Person which is a customer or supplier of the Acquired Entities, Republic or any Affiliate of the Acquired Entities or Republic, or its or their successors, to withdraw, curtail or cancel any such customer's business with any such entity; (c) during the Restricted Period, directly or indirectly employ, or knowingly permit any company or business directly or indirectly controlled by him, to employ, any person who was employed by the Acquired Entities, Republic or any Affiliate of the Acquired Entities or Republic at or within the then prior six months, or in any manner seek to induce any such person to leave his or her employment; (d) during the Restricted Period, directly or indirectly, in any way utilize, disclose, copy, reproduce or retain in his possession any of the Acquired Entities' proprietary rights or records of the Acquired Entities or Republic, including, but not limited to any customer lists. For purposes of this Section 5.11. (a) the "Restricted Period" shall mean the period beginning on the Effective Time and ending on the later of (i) the fifth anniversary of the Effective Time (the "Five-Year Restricted Period"), and (ii) the second anniversary of the termination of the Shareholder's employment following the Effective Time (the "Two-Year Restricted Period"), and (b) the "Restricted Territory" shall mean (i) during the Two-Year Restricted Period, anywhere in the United States, and (ii) during the Five-Year Restricted Period (to the extent it extends longer than the Two Year Restricted Period), anywhere within twenty-five (25) miles of any new or used automotive dealership owned or operated by Republic or any Affiliate of Republic (including any AutoNation USA used car superstore) at such time. The Shareholder agrees and acknowledges that the restrictions contained in this Section 5.11 are reasonable in scope and duration and are necessary 32 33 to protect Republic and the Acquired Entities after the Effective Time. If any provision of this Section 5.11, as applied to any party or to any circumstance, is adjudged by a court to be invalid or unenforceable, the same will in no way affect any other circumstance or the validity or enforceability of the remainder of this Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the scope or duration of such provision or the geographic area covered thereby, the parties agree that the court making such determination shall have the power to reduce the scope, duration and/or area of such provision, and/or to delete specific words or phrases, and in its reduced form, such provision shall then be enforceable and shall be enforced. The parties agree and acknowledge that the breach of this Section 5.11 will cause irreparable damage to Republic and upon breach of any provision of this Section 5.11, Republic shall be entitled to injunctive relief, specific performance or other equitable relief, provided, however, that the foregoing remedies shall in no way limit any other remedies which Republic may have (including, without limitation, the right to seek monetary damages). 5.12 TRADING IN REPUBLIC COMMON STOCK. Except as otherwise expressly consented to in writing by Republic, from the date of this Agreement until the Effective Time, neither the Acquired Entities, the Shareholder nor any of their Affiliates will directly or indirectly purchase or sell (including short sales) any shares of Republic Common Stock in any transactions effected on Nasdaq or otherwise. 5.13 EMPLOYMENT OF SHAREHOLDER. At the Closing, Republic or its assignee and the Shareholder shall enter into an employment agreement in the form attached hereto as Schedule 5.13. The Shareholder shall use reasonable best efforts to facilitate Republic and Chris Woods entering into a reasonably acceptable employment arrangement. 5.14 DUE DILIGENCE REVIEW AND ENVIRONMENTAL ASSESSMENT. Republic, at its expense, shall be entitled to conduct prior to Closing a due diligence review of the assets, properties, books and records of the Acquired Entities and an environmental assessment of the Owned Properties and Leased Premises (hereinafter referred to as "Environmental Assessment"). The Environmental Assessment may include, but not be limited to, a physical examination of the Owned Properties and Leased Premises, and any structures, facilities, or equipment located thereon, soil samples, ground and surface water samples, storage tank testing, review of pertinent records (including but not limited to, off-site disposal records and manifests), documents, and Licenses of the Acquired Entities. The Acquired Entities shall provide Republic or its designated agents or consultants with the access to such properties which Republic, its agents or consultants require to conduct the Environmental Assessment. If the Environmental Assessment identifies Recognized Environmental Conditions (as defined by ASTM Standard Practice E-1527) which require remediation or further evaluation under the Environmental Laws as defined in Section 3.13(f) of this Agreement, then Republic shall notify the Acquired Entities and the Shareholder in writing and the Acquired Entities and the Shareholder shall be financially responsible for the remediation of all Recognized Environmental Conditions which remediation is, may or would be required by any appropriate governmental agency. Republic's failure or decision not to conduct any such Environmental Assessment shall not affect any representation or warranty of the Acquired Entities or the Shareholder under this Agreement. Prior 33 34 to Closing, the parties hereto shall agree on the appropriate actions (and the cost thereof) to be taken with respect to any such Recognized Environmental Conditions (provided further that in the event the parties do not agree prior to Closing on which action is to be taken with respect to any such Recognized Environmental Conditions, after Closing, Republic shall at its reasonable discretion, determine the appropriate course of action (and the cost thereof) with respect thereto). Such costs, being Environmental Costs, will be considered Excluded Liabilities and be borne by the Shareholder as Indemnifiable Damages in accordance with Article IX of this Agreement. 5.15 TITLE INSURANCE AND SURVEYS. (a) Within ten (10) business days after the date of this Agreement, the Acquired Entities and the Shareholder shall deliver copies of previous owner policies or other title evidence sufficient to obtain commitments (the "Commitments") to be issued by Shareholder's counsel as agent for Attorneys' Title Insurance Fund (the "Title Company") for the issuance of an ALTA Owners Policy of Title Insurance (10-17-92) (with Florida Modifications, the "Title Policy") for each of the Owned Properties (and such of the Leased Properties as Republic may designate) in an amount not to exceed the fair market value of the Owned Properties. The premium for the Title Policy shall be paid by the Shareholder. The Title Policy shall show fee simple title to the Owned Properties vested now or to be vested at or immediately prior to the Closing in the Acquired Entities subject only to current real estate Taxes not yet due and payable as of the Effective Time, and such other covenants, conditions, easements, and exceptions to title as Republic may approve in writing (collectively, the "Permitted Exceptions"). The Permitted Exceptions shall include, but shall not be limited to, mortgages or instruments securing any of the Designated Liabilities, and such of the following matters as do not affect the current use of the Owned Properties: (i) zoning restrictions imposed by Governmental Authority (so long as there exists no violation of any such restrictions by the use of or improvements on the Owned Properties), (ii) restrictions and matters appearing on the Plat or otherwise common to the subdivision, and (iii) utility easements that are not subject to any encroachment by existing improvements on the Owned Properties (other than perimeter walls and fences). The Commitments and the Title Policy to be issued by the Title Company shall have all Standard and General Exceptions deleted so as to afford full "extended form coverage" and shall contain contiguity (where appropriate), survey, and such other endorsements as may be reasonably requested by Republic, excluding nonimputation and creditors rights endorsements. At the Closing, the Acquired Entities, the Shareholder and their Affiliates shall deliver such affidavits or other instruments as the Title Company may reasonably require to delete Standard and General Exceptions and to provide the special endorsements required hereunder. The Acquired Entities and the Shareholder shall cause the Commitments to be later-dated to cover the Closing and to cause the Title Company to delete all Schedule B-1 requirements and all Standard Exceptions in the Commitment at the Closing as directed by Republic. (b) Within 20 days after the date of this Agreement but before the Closing, the Acquired Entities and the Shareholder shall deliver to Republic and the Title Company an as-built survey of each of the Owned Properties and the Leased Premises (the "Surveys") prepared by a registered land surveyor or engineer, licensed in the respective states in which such properties are 34 35 located, dated on or after the date hereof, certified to Republic, the Title Company, and such other entities as Republic may designate in writing to the Acquired Entities and the Shareholder within such 20-day period prior to the Closing, and conforming to current ALTA/ACSM Minimum Detail Requirements for Land Title Surveys, sufficient to cause the Title Company to delete the standard printed survey exception. Each Survey shall show access from the land to dedicated roads and shall include a flood plain certification. Any survey may be a recertification of a prior survey, provided that it meets the above-described criteria. (c) If (i) any Commitment discloses a title exception other than a Permitted Exception (an "Unpermitted Exception") or (ii) any Survey discloses any encroachment, overlap, boundary dispute, or gap or any other matter which renders title to any of the Owned Properties unmarketable or reflects that any utility service to the improvements or access thereto does not lie wholly within the applicable parcel of real property, or within an encumbered easement for the benefit of such parcel of real property, or reflects any other matter adversely affecting the use or improvements of such parcel of real property (a "Survey Defect"), then the Acquired Entities and the Shareholder, prior to the Closing, shall exercise reasonable best efforts to have the Unpermitted Exception removed from such Commitment or the Survey Defect corrected or insured over by an appropriate title insurance endorsement, all in a manner satisfactory to Republic. Should the Shareholder fail to release said Unpermitted Exception or correct or insure over a Survey Defect in a manner satisfactory to Republic, Republic may, at its option, (i) terminate and render this Agreement null and void, or (ii) close on the transactions contemplated by this Agreement, in which case, any damages incurred by Republic or the Acquired Entities, as a result of such Unpermitted Exception or the Survey Defect shall be considered Indemnifiable Damages under Article IX but shall not be included in nor deducted from the Indemnification Threshold, provided, however, that if the cost of releasing such Unpermitted Exception or correcting or insuring over such Survey Defect would be reasonably determined by Republic and the Shareholder to exceed ten percent (10%) of the Purchase Price, either Republic or the Shareholder and the Acquired Entities may terminate and render this Agreement null and void. 5.16 SHAREHOLDER AND DIRECTOR VOTE. The Shareholder, in executing this Agreement, consents as a director and shareholder (as applicable) of the Acquired Entities to the Mergers, the Share Exchange and other transactions contemplated hereby, and waives notice of any meeting in connection therewith and hereby releases and waives all rights with respect to the transactions contemplated hereby under any agreements relating to the sale, purchase or voting of stock of the Acquired Entities. 5.17 AUDITED FINANCIAL STATEMENTS OF ACQUIRED ENTITIES. The Acquired Entities acknowledge and agree that they shall engage a certified public accounting firm acceptable to Republic to complete an audit and prepare audited financial statements for each of the Acquired Entities (the "Audited Statements") as soon as practicable, it being anticipated that it will be completed the 21st day after the date of this Agreement, and the Acquired Entities shall deliver such Audited Statements (including signed audit opinions relating thereto) to Republic upon completion. The Audited Statements shall comply with all laws and regulations of the Securities and Exchange 35 36 Commission that require Republic to file audited financial statements with the SEC with respect to registrations under the Securities Act and for reporting purposes under the Securities Exchange Act. 5.18 SHAREHOLDER'S LIABILITY. At Closing, Republic shall use its reasonable best efforts to cause the Shareholder to be released from the Shareholder's guarantees of the Acquired Entity indebtedness listed on Schedule 3.11. In the event a release is not obtained, Republic agrees to indemnify and hold the Shareholder harmless from any claims resulting from the failure to obtain such release. 5.19 PURCHASE OF WI'S ASSET. Prior to the Closing, the Shareholder or his assignee shall purchase from WI at fair market value (which approximates the amount of the indebtedness relating thereto, which indebtedness shall be assumed by the Shareholder), the airplane (the "Airplane") more particularly described as a Hawker 700. The Shareholder agrees that any gain resulting from the sale of the Airplane will be reported in WI's S Short Year (as defined in Treasury Regulation Section 1.1362-3(a)). The Shareholder further specifically agrees that allocation between the S Short Year and the C Short Year (as defined in Treasury Regulation Section 1.1362-3(a)) shall be made pursuant to Section 1.362(e)(3) of the Code. ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES The obligations of the Republic Companies to effect the Mergers and the Share Exchange and the other transactions contemplated hereby shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, any or all of which may be waived in whole or in part by the Republic Companies: 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Acquired Entities and the Shareholder in this Agreement shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time except (i) for changes specifically permitted by this Agreement, and (ii) that those representations and warranties which address matters only as of particular date shall remain true and correct as of such date. The Acquired Entities and the Shareholder shall have performed or complied with all of their obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. The Acquired Entities and the Shareholder shall have delivered to Republic a certificate, dated as of the Closing Date, (which in case of the Acquired Entities shall be duly signed by their respective Chief Executive Officers and Chief Financial Officers) certifying that such representations and warranties, as specifically permitted to be amended by the terms of this Section 6.1, are true and correct and that all such obligations have been performed and complied with. 36 37 6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the date hereof and the Closing Date; (a) there shall have been no Material Adverse Change to any of the Acquired Entities, (b) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of any of the Acquired Entities and (c) none of the Assets of the Acquired Entities shall have been damaged by fire, flood, casualty, act of God or the public enemy or other cause (regardless of insurance coverage for such damage) which damages may have a Material Adverse Effect thereon, and the Acquired Entities and the Shareholder shall have delivered to Republic a certificate, dated as of the Closing Date, to that effect. 6.3 CORPORATE CERTIFICATE. The Acquired Entities shall have delivered to the Republic Companies (i) copies of the Articles of Incorporation of each of the Acquired Entities certified by the Florida Secretary of State no longer than 15 days prior to the Effective Time and copies of the Bylaws of each Acquired Entity as in effect immediately prior to the Effective Time, (ii) copies of resolutions adopted by the Board of Directors and shareholders of each Acquired Entity authorizing the transactions contemplated by this Agreement, and (iii) a certificate of good standing of each of the Acquired Entities issued by the state of its incorporation or formation and each other state in which it is qualified to do business as of a date not more than 5 days prior to the Closing Date, and all of such documents as to each Acquired Entity shall be certified as of the Closing Date by the Secretary of such Acquired Entity as being true, correct and complete. 6.4 OPINION OF COUNSEL. Republic shall have received an opinion, dated as of the Closing Date, from counsel for the Acquired Entities and the Shareholder, in form and substance acceptable to Republic, including but not limited to such matters as set forth on Schedule 6.4. 6.5 CONSENTS. The Acquired Entities, the Shareholder, and Republic shall have received consents to the Mergers, the Share Exchange and other transactions contemplated hereby and waivers of rights to terminate or modify any material rights or obligations of the Acquired Entities or the Shareholder, from any Person from whom such consent or waiver is required, including without limitation, under any Material Contract listed or required to be listed in Schedule 3.25 (including but not limited to, any Franchise Agreement or any other franchise, dealer or other agreement with the Factories) or under the HSR Act or other law or regulation as of a date not more than five days prior to the Closing, or who as a result of the transactions contemplated hereby, would have such rights to terminate or modify such Contracts or instruments, either by the terms thereof or as a matter of law. Republic shall have received all consents required under the Franchise Agreements between the Acquired Entities and the Factories or shall have entered into new arrangements and franchise agreements of the type generally in use at that time to operate a dealership of each of the Factories at the current locations of the Dealerships, subject only to such additional terms and conditions as are acceptable to Republic. Republic shall have obtained any applicable dealer license or other approvals required under state laws or the applicable state motor vehicle authorities and all other Governmental Authorities with respect to the transactions contemplated hereby. 37 38 6.6 SECURITIES LAWS. Republic shall have received all necessary consents and otherwise complied with any state Blue Sky or securities laws applicable to the issuance of the Republic Shares in connection with the transactions contemplated hereby. 6.7 POOLING LETTERS. The Acquired Entities shall have received from Goldenberg Rosenthal Friedlander, LLP, a letter, dated the Closing Date, confirming that to their knowledge after due and diligent inquiry of management, there have been no transactions or events with respect to the Acquired Entities which would, and the ownership structure and attributes of the Acquired Entities and the Shareholder would not, prohibit the transactions contemplated hereby, if consummated, from being accounted for as pooling of interests business combinations in accordance with GAAP and the criteria of Accounting Principles Board Opinion No. 16 and the regulations of the SEC. Republic shall have requested and received from Arthur Andersen LLP, a letter, dated the Closing Date, confirming that the transactions contemplated hereby, if consummated, can properly be accounted for as pooling of interests combinations in accordance with GAAP and the criteria of Accounting Principles Board Opinion No. 16 and the regulations of the SEC. 6.8 POOLING UNDERTAKINGS. At or prior to the Closing, the Shareholder and other appropriate Persons shall have delivered to Republic a letter agreement relating to "pooling of interests" criteria, in form and substance satisfactory to Republic. 6.9 AUDITED STATEMENTS. The Audited Statements shall have been timely delivered to Republic as required by Section 5.17. 6.10 STOCK POWERS. At the Closing, the Shareholder shall have delivered to Republic, for use in connection with the Held Back Shares, ten stock powers executed in blank, with signature guarantees. 6.11 NO ADVERSE LITIGATION. There shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, invalidate or collect damages arising out of the Mergers, the Share Exchange or other transactions hereunder, or which, in the judgment of Republic, makes it inadvisable to proceed with the transactions contemplated hereby. 6.12 EMPLOYMENT AGREEMENT. At or prior to the Closing, as provided in Section 5.13, the Shareholder shall have entered into an employment agreement and Chris Woods shall have entered into an employment arrangement satisfactory to Republic, with one of the Acquired Entities, Republic, or at Republic's option, one or more of its assignees. 6.13 LIABILITIES. Prior to the Closing, each Acquired Entity shall have obtained full satisfactions or releases of all obligations and liabilities due from the Acquired Entities which is due to be satisfied or released by the terms of this Agreement to or on behalf of (i) any Affiliate of any Acquired Entity or (ii) the Shareholder or any Affiliate of the Shareholder. 38 39 6.14 RELEASES. At the Closing, each of the Acquired Entities and the Shareholder and such of their Affiliates as may be designated by Republic, shall deliver to Republic a release (collectively, the "Releases") in such form satisfactory to Republic releasing all claims of any nature against the Republic Companies and the Acquired Entities and any claims arising out of the Mergers, the Share Exchange and the other transactions contemplated by this Agreement, except for claims and obligations set forth in the express terms of this Agreement. 6.15 BOARD APPROVAL. The Board of Directors of Republic shall have authorized and approved this Agreement and the transactions contemplated hereby on the earlier of the Closing Date or within thirty (30) days of the date of this Agreement. ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE ACQUIRED ENTITIES AND THE SHAREHOLDER The obligations of the Acquired Entities and the Shareholder to effect the Mergers and the Share Exchange shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, any or all of which may be waived in whole or in part by the Acquired Entities and the Shareholder. 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Republic Companies contained in this Agreement shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time except (i) for changes specifically permitted by this Agreement, and (ii) that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. Republic shall have performed and complied with all of its obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. The Republic Companies shall each have delivered to the Acquired Entities a certificate, dated as of the Closing Date, and signed by an executive officer, certifying that such representations and warranties are true and correct, as specifically permitted to be amended by the terms of this Section 7.1, and that all such obligations have been performed and complied with. 7.2 REPUBLIC SHARES. At the Closing, Republic shall have issued all of the Republic Shares and shall have delivered to the Shareholder (a) certificates for the Republic Shares issued to him hereunder, other than the Held Back Shares, and (b) copies of certificates representing the Held Back Shares. 7.3 NO ORDER OR INJUNCTION. There shall not be issued and in effect by or before any court or other governmental body an order or injunction restraining or prohibiting the transactions contemplated hereby. 39 40 7.4 HSR ACT WAITING PERIOD. Any applicable waiting period under the HSR Act shall have expired or been terminated. ARTICLE VIII REGISTRATION RIGHTS The Shareholder shall have the following registration rights with respect to the Republic Shares issued to him hereunder. 8.1 REGISTRATION RIGHTS FOR REPUBLIC SHARES; FILING OF REGISTRATION STATEMENT. Republic will utilize its reasonable best efforts to cause, as soon as practicable following the Closing Date, a registration statement to be filed under the Securities Act or an existing registration statement to be amended for the purpose of registering the Republic Shares for resale by a Holder thereof (the "Registration Statement"). For purposes of this Article VIII, a person is deemed to be a "Holder" of Republic Shares whenever such person is the record owner of Republic Shares. Republic will use its reasonable best efforts to have the Registration Statement become effective and cause the Republic Shares to be registered for resale under the Securities Act and registered, qualified or exempted under the state securities laws of such jurisdictions as any Holder reasonably requests as soon as reasonably practicable following the Effective Date, provided, however, that Republic shall not be required to qualify to do business in any state or to consent to be subject to general service of process in any state where it is not otherwise required to be so qualified or subject. 8.2 EXPENSES OF REGISTRATION. Republic shall pay all expenses incurred by Republic in connection with the registration, qualification and/or exemption of the Republic Shares, including any SEC and state securities law registration and filing fees, printing expenses, fees and disbursements of Republic's counsel and accountants, transfer agents' and registrars' fees, fees and disbursements of experts used by Republic in connection with such registration, qualification and/or exemption, and expenses incidental to any amendment or supplement to the Registration Statement or prospectuses contained therein. Republic shall not, however, be liable for any sales, broker's or underwriting commissions or discounts upon sale by any Holder of any of the Republic Shares. 8.3 FURNISHING OF DOCUMENTS. Republic shall furnish to the Holders such reasonable number of copies of the Registration Statement, such prospectuses as are contained in the Registration Statement and such other documents as the Holders may reasonably request in order to facilitate the offering of the Republic Shares. 8.4 AMENDMENTS AND SUPPLEMENTS. Republic shall prepare and promptly file with the SEC and promptly notify the Holders of the filing of such amendments or supplements to the Registration Statement or prospectuses contained therein as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to the Republic Shares is required 40 41 to be delivered under the Securities Act, any event shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made not misleading (and the Holders shall not use any prospectus to offer or sell Republic Shares until such amendments or supplements are completed and the Registration Statement is effective), provided, however, that Republic shall be entitled to delay any such filing and the Holders' use of the prospectus if Republic determines that such filing would impede, delay, or interfere with any significant financing, acquisition, or other transaction involving Republic, or require disclosure of material information which Republic has a bona fide business purpose for preserving as confidential. Republic shall also advise the Holders promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of the Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. 8.5 DURATION. Republic shall maintain the effectiveness of the Registration Statement until such time as Republic reasonably determines, based on an opinion of counsel, that all of the Holders will be eligible to sell all of the Republic Shares then owned by the Holders without the need for continued registration of the shares within the three month period immediately following the termination of the effectiveness of the Registration Statement. Republic's obligations contained in Sections 8.1. 8.3 and 8.4 shall terminate on the second anniversary of the Closing Date; provided, however, that if the two-year holding period under Rule 144 under the Securities Act is reduced to one year, such terminations shall take effect as of the first anniversary of the Closing Date. 8.6 FURTHER INFORMATION. If Republic Shares owned by a Holder are included in any registration, such Holder shall furnish Republic such information regarding itself as Republic may reasonably request or as required by applicable law in connection with any registration, qualification or compliance referred to in this Agreement. 8.7 INDEMNIFICATION. (a) Republic will indemnify and hold harmless the Holders and each person, if any, who controls a Holder within the meaning of the Securities Act, from and against any and all losses, damages, liabilities, costs and expenses to which the Holders or any such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities, costs or expenses are caused by any untrue or alleged untrue statement of any material fact contained in the Registration Statement, any prospectus contained therein or any amendment or supplement thereto, or are out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they were made, not misleading; provided, however, that, Republic will not be liable in any such case to the extent that any such loss, claim, damage, liability, cost or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission 41 42 or alleged omission so made in conformity with information furnished by or on behalf of any Holder or such controlling person in writing specifically for use in the preparation thereof. (b) Each of the Holders, jointly and severally, will indemnify and hold harmless Republic and each person, if any, who controls Republic within the meaning of the Securities Act, from and against any and all losses, damages, liabilities, costs and expenses to which Republic or any such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, if such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in conformity with written information furnished by or on behalf of any Holder specifically for use in the preparation thereof. (c) Promptly after receipt by an indemnified party pursuant to the provisions of paragraph (a) or (b) of this Section 8.7 of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said paragraph (a) or (b), promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have hereunder unless the indemnifying party has been materially prejudiced thereby nor will such failure to so notify the indemnifying party relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any action include both the indemnified party and the indemnifying party and there is a conflict of interest which would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said paragraph (a) or (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless (i) the indemnified party shall have employed counsel in accordance with the provisions of the preceding sentence; (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. 42 43 (d) In the event that Republic determines in its sole discretion to allow any of the Republic Shares to be sold by any Holder or Holders in an underwritten public offering, (i) Republic shall provide customary indemnification to the underwriters of such offering and any person controlling any such underwriter on behalf of the Holder or Holders making the offering; provided, however, that Republic shall not be required to consent to any such underwriting or to provide such indemnification in respect of the matters described in the proviso to the first sentence of Section 8.7(a), and (ii) the Holders desiring to participate in such offering shall enter into the underwriting agreement for such offering. ARTICLE IX INDEMNIFICATION 9.1 AGREEMENT BY THE SHAREHOLDER FOR INDEMNIFICATION. The Shareholder agrees to indemnify and hold Republic and its stockholders, directors, officers, employees, attorneys, agents and Affiliates harmless from and against, and at Republic's election in its sole discretion Republic shall be entitled to recover by set off against the Held Back Shares in accordance with Section 9.3, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, related counsel and paralegal fees and expenses) incurred or suffered by Republic arising out of, relating to, or resulting, from (i) any breach of a representation or warranty made by the Acquired Entities or the Shareholder in or pursuant to this Agreement, (ii) any breach of the covenants or agreements made by the Acquired Entities or the Shareholder in or pursuant to this Agreement, (iii) any inaccuracy in any certificate, instrument or other document delivered by the Acquired Entities or the Shareholder as required by this Agreement; or (iv) any Excluded Liabilities (collectively, "Indemnifiable Damages"). Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Republic shall have the right to be put in the same pretax consolidated financial position (taking into consideration any insurance proceeds actually received or agreed to be paid) as it would have been in if the breach or inaccuracy referenced in the foregoing clauses (i), (ii), and (iii), and (iv) that caused such Indemnifiable Damages had not occurred. 9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by the Acquired Entities and the Shareholder in this Agreement or pursuant hereto shall survive for a period of one year after the Closing Date. No claim for the recovery of Indemnifiable Damages may be asserted by Republic after such one-year period has expired; provided, however, that claims for Indemnifiable Damages first asserted within such period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. Each of the representations and warranties of the Republic Companies shall 43 44 expire at the Effective Time. Notwithstanding the foregoing, no claim for Indemnifiable Damages (except for claims under clause (ii) of Section 9.1 , Section 3.19 , and matters under Schedule 3.19) shall be asserted by the Republic Companies until the aggregate of all such Indemnifiable Damages exceeds the sum of $200,000, in which case the Republic Companies shall be entitled to the full amount of Indemnifiable Damages in excess of such $200,000, provided that the aggregate Indemnifiable Damages that may be paid by the Shareholder herein shall not exceed the Purchase Price. 9.3 SECURITY FOR THE INDEMNIFICATION OBLIGATION. As security for the indemnification obligations contained in this Article IX, at the Closing, Republic shall set aside and hold certificates representing the Held Back Shares issued pursuant to this Agreement. Subject to the provisions of Section 9.2, Republic may set off against the Held Back Shares any Indemnifiable Damages (to the extent not paid in full by the Shareholder prior to the expiration of the ten (10) day period provided in Section 9.3(b) below) subject, however, to the following, terms and conditions: (a) Republic shall give written notice to the holders of Held Back Shares of any claim for Indemnifiable Damages or any other damages hereunder, which notice shall set forth (i) the amount of Indemnifiable Damages or other loss, damage, cost or expense which Republic claims to have sustained by reason thereof, and (ii) the basis of such claim; (b) Such set off shall be effected on the later to occur of the expiration of ten (10) days from the date of such notice (the "Notice of Contest Period") or, if such claim is contested, the date the dispute is resolved; (c) After the Held Back Shares are registered and any restrictions on sale imposed under the Securities Act or otherwise are terminated, the Shareholder may instruct Republic to sell some or all of the Held Back Shares and the net proceeds thereof shall be held by Republic in an interest-bearing account and shall be substituted for such Held Back Shares in any set off to be made by Republic pursuant to any claim hereunder subject to continued compliance with any applicable SEC and other regulations; and (d) For purposes of any set off against the Held Back Shares pursuant to this Article IX, the shares of Republic Common Stock not sold as provided in clause (c) of this Section shall be valued at the Price per Share. 9.4 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES. Except with respect to Held Back Shares sold pursuant to the foregoing Section 9.3(c) (and in the case of such shares, until the same are transferred), all Held Back Shares shall be deemed to be owned by the Shareholder and the Shareholder shall be entitled to vote the Held Back Shares; provided, however, that, there shall also be deposited with Republic subject to the terms of this Article IX, all shares of Republic Common Stock or other assets issued to or paid upon Held Back Shares as a result of any stock or other dividend or distribution or stock split with respect to the Held Back Shares. All stock or other distributions issued or paid upon the Held Back Shares shall be delivered to the person or entity 44 45 entitled to receive such Held Back Shares together with the delivery of such Held Back Shares pursuant to Section 9.5. 9.5 DELIVERY OF HELD BACK SHARES. Republic agrees to deliver to the Shareholder one-half of the Held Back Shares six months following the Effective Date, provided that no claim for Indemnifiable Damages has been made during that period. Republic agrees to deliver to the Shareholder any remaining Held Back Shares no later than one year after the Effective Date any Held Back Shares (and distributions thereon) then held by Republic (or proceeds, together with interest thereon, if any, from the sale of Held Back Shares) unless there then remains unresolved any claim for Indemnifiable Damages hereunder for which notice has been given, in which event Republic shall retain such number of Held Back Shares (and such amount of proceeds therefrom, together with interest, if any, or distributions thereon) as is sufficient to satisfy any such unresolved claim, as well as the attorney fees and costs associated therewith, and shall release the remaining Held Back Shares (and such remaining proceeds, together with interest, if any, and distributions) to the Shareholder. Any Held Back Shares (and proceeds, together with interest, if any, from the sale of, or distributions on, Held Back Shares) remaining on deposit after all such claims shall have been satisfied shall be returned to the Shareholder promptly after the time of satisfaction. 9.6 ADJUSTMENT TO PURCHASE PRICE. All payments for Indemnifiable Damages made pursuant to this Article IX shall be treated as adjustments to the Aggregate Consideration provided in Section 1.4. 9.7 NO BAR. If the Held Back Shares are insufficient to set off any claim for Indemnifiable Damages made hereunder (or have been delivered to the Shareholder prior to the making or resolution of such claim), then Republic may take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. 9.8 REMEDIES CUMULATIVE-WAIVER. The remedies provided herein shall be cumulative and shall not preclude Republic from asserting any other right, or seeking any other remedies against the Shareholder. The Shareholder hereby waives any right to contribution or any other similar right it may have against any of the Acquired Entities as a result of his Agreement to Indemnify in this Article IX. 9.9 DEFENSE OF THIRD PARTY CLAIMS. With respect to each third party claim for which Republic seeks indemnification under this Article (a "Third Party Claim"), Republic shall give prompt notice to the Shareholder of the Third Party Claim, provided that failure to give such notice promptly shall not relieve or limit the obligations of the Shareholder unless the Shareholder has been materially prejudiced thereby (and such failure to notify the Shareholder will not relieve him from any other liability he may have to Republic). If the remedy sought in the Third Party Claim is solely money damages or if Republic otherwise permits, then the Shareholder, at his sole cost and expense, may, upon notice to Republic within fifteen (15) days after the Shareholder receives notice of the Third Party Claim, assume the defense of the Third Party Claim. If the Shareholder assumes the defense of a Third Party Claim, then the Shareholder shall select counsel reasonably satisfactory to 45 46 Republic to conduct the defense. The Shareholder shall not consent to a settlement of, or the entry of any judgment arising from, any Third Party Claim, unless (i) the settlement or judgment is solely for money damages and the Shareholder admits in writing his liability to hold Republic harmless from and against any losses, damages, expenses and liabilities arising out of such settlement or judgment or (ii) Republic consents thereto, which consent shall not be unreasonably withheld. The Shareholder shall provide Republic with fifteen (15) days prior notice before it consents to a settlement of, or the entry of a judgment arising from, any Third Party Claim. Republic shall be entitled to participate at its own expense in the defense of any Third Party Claim, the defense of which is assumed by the Shareholder with his own counsel and at his own expense. With respect to Third Party Claims in which the remedy sought is not solely money damages and Republic does not permit the Shareholder to assume the defense, the Shareholder shall, upon notice to Republic within fifteen (15) days after the Shareholder receives notice of the Third Party Claim, be entitled to participate in the defense with his own counsel at his own expense. If the Shareholder does not assume or participate in the defense of any Third Party Claim in accordance with the terms of this Section, then the Shareholder shall be bound by the results obtained by Republic with respect to the Third Party Claim. The parties shall cooperate in the defense of any Third Party Claim and the relevant records of each party shall be made available on a timely basis. ARTICLE X SECURITIES LAW MATTERS The parties agree as follows with respect to the sale or other deposition after the Closing Date of the Republic Shares: 10.1 DISPOSITION OF SHARES. (a) The Shareholder acknowledges that (i) he may be deemed to be an "affiliate" of the Acquired Entities for purposes of qualifying the transactions contemplated hereby as pooling of interests business combinations under applicable accounting and SEC rules and regulations, and (ii) the Republic Shares constitute "restricted securities" as defined in Rule 144 under the Securities Act. The Shareholder agrees that prior to Closing he will not dispose of any shares of capital stock of the Acquired Entities, and following the Closing he will not sell, transfer or otherwise dispose of any of his Republic Shares until such time as final results of operations of Republic covering at least thirty (30) days of combined operations of Republic and the Acquired Entities have been published. (b) The Shareholder agrees that he will not sell, transfer or otherwise dispose of any Republic Shares, except pursuant to (a) an exemption from the registration requirements under the Securities Act, which does not require the filing by Republic with the SEC of any registration statement, offering circular or other document, in which case, each such Person shall first supply to Republic an opinion of counsel (which counsel and opinions shall be satisfactory to Republic) that 46 47 such exemption is available, or (b) an effective registration statement filed by Republic with the SEC under the Securities Act. 10.2 LEGENDS. The certificates representing the Republic Shares shall bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE ACT, AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO, OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, AND ALSO MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT COMPLIANCE WITH THE SECURITIES AND EXCHANGE COMMISSION'S ACCOUNTING SERIES RELEASES 130 AND 135. Republic may, unless a registration statement is in effect covering such shares, place stop transfer orders with its transfer agents with respect to such certificates in accordance with federal securities laws. ARTICLE XI DEFINITIONS 11.1 DEFINED TERMS. As used herein, the following terms shall have the following meanings: "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof. "Chargebacks" shall mean (a) any amount which an Acquired Entity may be required to pay back to any party purchasing retail paper, warranties, insurance or the like from the Acquired Entity, or (b) any amount which may be set-off or otherwise deducted from any amount due and owing to the Acquired Entity by any party purchasing retail paper, warranties, insurance or the like from the Acquired Entity. 47 48 "Code" means the Internal Revenue Code of 1986, as amended. "Contract" means any agreement, contract, lease, note, mortgage, indenture, loan agreement, franchise agreement, covenant, employment agreement, license, instrument, purchase and sales order, commitment, undertaking, obligation, whether written or oral, express or implied. "Environmental Costs" shall mean any and all expenses, costs, damages, liabilities, or obligations (including, without limitation, fees and expenses of counsel) incurred by, under or pursuant to any Environmental Laws or related to the Discharge, Handling, presence or clean up of Hazardous Substances arising as a result of events occurring or facts or circumstances arising or existing on or prior to the Closing Date (whether or not in the ordinary course of business). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Liabilities" shall mean (i) any obligations and liabilities of the Acquired Entities, absolute or contingent, known or unknown, other than Designated Liabilities, (ii) any liability or obligation of the Acquired Entities arising under this Agreement, (iii) any liability or obligation of the Acquired Entities relating to any default under any Designated Liability to the extent such default existed and was not cured prior to the Closing, (iv) any liability or obligation of the Acquired Entities with respect to, or arising out of, any employee benefit plan, executive deferred compensation plan, or any other plans or arrangements for the benefit of any employees or officers of the Acquired Entities (except for those listed on Schedule 3.18), (v) any liability or obligation of the Acquired Entities to the Shareholder or any Affiliate of the Acquired Entities or the Shareholder or to any party claiming to have a right to acquire any shares of capital stock or other securities convertible into or exchangeable for any shares of capital stock of the Acquired Entities and (vi) any Environmental Costs or Litigation Costs. "GAAP" means generally accepted accounting principles in effect in the United States of America from time to time. "Governmental Authority" means any nation or government, any state, regional, local or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "HSR Act" means the Hart-Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 48 49 "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, but not limited to, any conditional sale or other title retention agreement any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code or comparable law or any jurisdiction in connection with such mortgage, pledge, security interest, encumbrance, lien or charge). "Litigation Costs" shall mean any and all expenses, costs, damages, liabilities, or obligations (including, without limitation, fees and expenses of counsel) incurred in connection with any action, suit, or other legal or administrative proceeding or governmental investigation arising as a result of events occurring or facts or circumstances arising or existing on or prior to the Closing Date (whether or not in the ordinary course of business), except for routine customer claims and complaints arising in the ordinary course consistent with past practice which involve amounts less than $10,000 individually or $100,000 in the aggregate. "Material Adverse Change (or Effect)" means a change (or effect), in the condition (financial or otherwise), properties, assets, liabilities, rights, obligations, operations, business or prospects which change (or effect) individually or in the aggregate, is materially adverse to such condition, properties, assets, liabilities, rights, obligations, operations, business or prospects. "New Parts and Accessories Inventory" shall mean new, non-damaged and nonobsolete parts and accessories inventory that may be returned to the manufacturer. "New Vehicle Inventory" shall mean all new vehicle inventory including all demonstrator vehicles. "Other Parts and Accessories Inventory" shall mean parts and accessories inventory other than New Parts and Accessories Inventory. "Other Vehicle Inventory" shall mean vehicle inventory other than New Vehicle Inventory. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, estate, trust, unincorporated association, joint venture, Governmental Authority or other entity, of whatever nature. "Register", "registered" and "registration" refer to a registration of the offering and sale of securities effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement. "SEC" means the Securities and Exchange Commission. 49 50 "Securities Act" means the Securities Act of 1933, as amended. "Tax Return" means any tax return, filing or information statement required to be filed in connection with or with respect to any Tax. "Taxes" means all taxes, fees or other assessments, including, but not limited to, income, excise, property, sales, use, franchise, intangible, payroll, withholding, social security and unemployment taxes imposed by any federal, state, local or foreign government agency, and any interest or penalties related thereto. 11.2 OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in this Agreement shall have the defined meanings when used in any certificates, reports or other documents made or delivered pursuant hereto or thereto, unless the context otherwise requires. (b) Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (c) All matters of an accounting nature in connection with this Agreement and the transactions contemplated hereby shall be determined in accordance with GAAP applied on a basis consistent with prior periods, where applicable. (d) As used herein, the neuter gender shall also denote the masculine and feminine, and the masculine gender shall also denote the neuter and feminine, where the context so permits. ARTICLE XII TERMINATION, AMENDMENT AND WAIVER 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time: (a) by mutual written consent of all of the parties hereto at any time prior to the Closing; or (b) by Republic upon delivery of written notice to the Acquired Entities and the Shareholder in accordance with Section 13.1 of this Agreement in the event of a material breach by any Acquired Entity or the Shareholder of any provisions of this Agreement, including covenants, warranties or representations; or 50 51 (c) by the Acquired Entities and the Shareholder upon delivery of written notice to Republic in accordance with Section 13.1 of this Agreement in the event of a material breach by Republic of any provision of this Agreement, including covenants, warranties or representations; or (d) by Republic or the Acquired Entities and the Shareholder upon delivery of written notice to the other in accordance with Section 13.1 of this Agreement, if the Closing shall not have occurred by June 30, 1997. 12.2 EFFECT OF TERMINATION. Except for the provisions of Article IX hereof, which shall survive any termination of this Agreement, in the event of termination of this Agreement pursuant to Section 12.1, this Agreement shall forthwith become void and of no further force and effect, and the parties shall be released from any and all obligations hereunder; provided, however, that nothing herein shall relieve any party from liability for the willful breach of any of its representations, warranties, covenants or agreements set forth in this Agreement. ARTICLE XIII GENERAL PROVISIONS 13.1 NOTICES. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be deemed given if delivered by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery or facsimile transmission if such transmission is confirmed by delivery by certified or registered mail (first class postage pre-paid) or guaranteed overnight delivery, to the following addresses and telecopy numbers (or to such other addresses or telecopy numbers which any party shall designate in writing to the other parties): (a) IF TO REPUBLIC TO: Republic Industries, Inc. 450 East Las Olas Blvd., Suite 1400 Ft. Lauderdale, FL 33301 Attn: Richard L. Handley, General Counsel Telecopy: (954) 713-2111 51 52 with a copy to: Akerman, Senterfitt & Eidson, P.A. SunTrust International Center One Southeast Third Avenue, 28th Floor Miami, FL 33131-1704 Attn: Luis J. Perez, Esq. Telecopy: (305) 374-5095 (b) IF TO THE ACQUIRED ENTITIES AND/OR THE SHAREHOLDER TO: William L. Wallace P.O. Box 9002 Delray Beach, FL 33447 with a copy to: A. Edward Quinton III Adams & Quinton, P.A. World Trade Center 80 S.W. 8th Street, Suite 2150 Miami, FL 33130 Thomas D. Lumpkin, II Attorney at Law 515 Gables International Plaza 2655 LeJeune Road Coral Gables, FL 33134 13.2 ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits attached hereto) and other documents delivered at the Closing pursuant hereto, contains the entire understanding of the parties in respect of its subject matters and supersedes all prior agreements and understanding (oral or written) between or among the parties with respect to such subject matter. The Schedules and Exhibits constitute a part hereof as though set forth in full above. 13.3 EXPENSES. Except as otherwise provided herein, the parties shall pay their own fees and expenses, including their own counsel fees, incurred in connection with this Agreement or any transaction contemplated hereby. 13.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended, supplemented, canceled, or discharged, except by written instrument executed by all parties. No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege 52 53 hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. 13.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns. Nothing expressed or implied herein shall be construed to give any other person any legal or equitable rights hereunder. Except as expressly provided herein, the rights and obligations of this Agreement may not be assigned or delegated by the Acquired Entities or the Shareholder without the prior written consent of Republic. Republic may assign all or any portion of its rights hereunder to one or more of its wholly owned subsidiaries. 13.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. 13.7 INTERPRETATION. When a reference is made in this Agreement to an article, section, paragraph, clause, schedule or exhibit, such reference shall be deemed to be to this Agreement unless otherwise indicated. The headings contained herein and on the schedules are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or the schedules. Whenever, the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." Time shall be of the essence in this Agreement. 13.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the State of Florida applicable to contracts executed and to be wholly performed with such State. 13.9 JURISDICTION. (a) the parties to this Agreement agree that any suit, action or proceeding arising out of, or with respect to, this Agreement or any judgment entered by any court in respect thereof may be brought in the courts of Broward County, Florida or in the U.S. District Court for the Southern District of Florida as Republic (in its sole discretion) may elect, and the Acquired Entities and the Shareholder hereby accept the non-exclusive jurisdiction of those courts for the purpose of any suit, action or proceeding. (b) In addition, each of the Acquired Entities and the Shareholders hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any judgment entered by any court in respect thereof brought in Broward County, 53 54 Florida or the U.S. District Court for the Southern District of Florida, as selected by Republic, and hereby further irrevocably waives any claim that any suit, action or proceedings brought in Broward County, Florida or in such District Court has been brought in an inconvenient forum. 13.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents and warrants to all other parties hereto that (a) before executing this Agreement, said party has fully informed itself of the terms, contents, conditions, and effects of this Agreement; (b) said party has relied solely and completely upon its own judgment in executing this Agreement; (c) said party has had the opportunity to seek and has obtained the advise of counsel before executing this Agreement; (d) said party has acted voluntarily and of its own free will in executing this Agreement; (e) said party is not acting under duress, whether economic or physical, in executing this Agreement; and (f) this Agreement is the result of arm's length negotiations conducted by and among the parties and their respective counsel. 13.11 PREVAILING PARTY. The prevailing party in all litigation concerning this Agreement shall be entitled to recover all reasonable attorney's fees and expenses incurred in connection with such litigation (and any appeal thereof). The parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. REPUBLIC INDUSTRIES, INC., a Delaware corporation By: /s/ Richard L. Handley ---------------------------------------------- Richard L. Handley, Senior Vice President RI/WF MERGER CORP., a Florida corporation By: /s/ Richard L. Handley ---------------------------------------------- Richard L. Handley, Senior Vice President [SIGNATURES CONTINUED ON NEXT PAGE] 54 55 RI/WN MERGER CORP., a Florida corporation By: /s/ Richard L. Handley --------------------------------------------- Richard L. Handley, Senior Vice President RI/WD MERGER CORP., a Florida corporation By: /s/ Richard L. Handley --------------------------------------------- Richard L. Handley, Senior Vice President RI/WLM MERGER CORP., a Florida corporation By: /s/ Richard L. Handley --------------------------------------------- Richard L. Handley, Senior Vice President RI/SLM MERGER CORP., a Florida corporation By: /s/ Richard L. Handley --------------------------------------------- Richard L. Handley, Senior Vice President RI/BWE MERGER CORP., a Florida corporation By: /s/ Richard L. Handley --------------------------------------------- Richard L. Handley, Senior Vice President [SIGNATURES CONTINUED ON NEXT PAGE] 55 56 RI/MWP MERGER CORP., a Florida corporation By: /s/ Richard L. Handley --------------------------------------------- Richard L. Handley, Senior Vice President WALLACE FORD, INC., a Florida corporation By: /s/ William L. Wallace --------------------------------------------- William L. Wallace, President WALLACE NISSAN, INC., a Florida corporation By: /s/ William L. Wallace --------------------------------------------- William L. Wallace, President WALLACE DODGE, INC., a Florida corporation By: /s/ William L. Wallace --------------------------------------------- William L. Wallace, President WALLACE IMPORTS, INC., a Florida corporation By: /s/ William L. Wallace --------------------------------------------- William L. Wallace, President [SIGNATURES CONTINUED ON NEXT PAGE] 56 57 WALLACE LINCOLN-MERCURY, INC., a Florida corporation By: /s/ William L. Wallace ---------------------------------------- William L. Wallace, President STUART LINCOLN-MERCURY, INC., a Florida corporation By: /s/ William L. Wallace ---------------------------------------- William L. Wallace, President BILL WALLACE ENTERPRISES, INC., d/b/a Stuart Mitsubishi, a Florida corporation By: /s/ William L. Wallace ---------------------------------------- William L. Wallace, President MECHANICAL WARRANTY PROTECTION, INC., a Florida corporation By: /s/ William L. Wallace ---------------------------------------- William L. Wallace, President /s/ William L. Wallace ------------------------------------------- WILLIAM L. WALLACE, Individually 57 EX-2.4 5 MERGER AGREEMENT - MAROONE 1 Exhibit 2.4 MERGER AND ACQUISITION AGREEMENT This MERGER AGREEMENT (this "Agreement") is entered into as of January 12, 1997 by and among (i) Republic Industries, Inc., a Delaware corporation ("Republic"); (ii) RI/MC Merger Corp., a Florida corporation, RI/MO Merger Corp., a Florida corporation, RI/MI Merger Corp., a Florida corporation, RI/MD Merger Corp., a Florida corporation, RI/EWH Merger Corp., a Florida corporation, RI/ESA Merger Corp., a Florida corporation, RI/MC&TR Merger Corp., a Florida corporation, RI/QPF Merger Corp., a Florida corporation, RI/AMF Merger Corp., a New York corporation (the foregoing "Merger" corporations are referred to herein as the "Republic Merger Subs" and individually as a Republic Merger Sub"), RI/MDP Acquisition Corp., a Florida corporation, RI/MCFL Acquisition Corp., a Florida corporation, and RI/MP Acquisition Corp., a Florida corporation (the foregoing "Acquisition" corporations are referred to herein as the "Republic Acquisition Subs" and individually as a "Republic Acquisition Sub") (the Republic Merger Subs and the Republic Acquisition Subs are referred to herein collectively as the "Republic Subsidiaries" and individually as a "Republic Subsidiary"), (iii) Maroone Chevrolet, Inc., a Florida corporation, Maroone Oldsmobile, Inc., a Florida corporation, Maroone Isuzu, Inc., a Florida corporation, Maroone Dodge, Inc., a Florida corporation, Al Maroone Ford, Inc., a New York corporation, Maroone Car & Truck Rental Company, a Florida corporation, Empire Warranty Corporation, a Florida corporation, Empire Warranty Holding Company, a Florida corporation, Empire Services Agency, Inc., a Florida corporation, Quantum Premium Finance Corporation, a Florida corporation, Alkit Enterprises, Inc., a New York corporation, (each, a "Maroone Corporation" and collectively, the "Maroone Corporations"), (iv) Maroone Management Services, Limited, a Florida limited partnership, Maroone Dodge Pompano, Limited, a Florida limited partnership, Maroone Chevrolet Ft. Lauderdale, Limited, a Florida limited partnership, (each a "Partnership" and collectively, the "Partnerships") (the Maroone Corporations and the Partnerships are referred to herein individually as an "Acquired Entity" and collectively as the "Acquired Entities"), (v) Albert E. Maroone, Michael E. Maroone, Katherine C. Maroone, Kathleen Hoctor, Patricia Damoorgian, and Faisal Ahmed (each a "Shareholder" and collectively, the "Shareholders"), and (vi) Michael E. Maroone, Maroone Isuzu, Inc., Floyd Clements and Curtis L. Rodman (each a "Partner" and collectively, the "Partners"). The Shareholders and Partners are sometimes referred to herein individually as a "Principal" and collectively, as the "Principals." Michael E. Maroone is sometimes referred to herein as "Maroone." Republic and the Republic Subsidiaries are sometimes referred to herein individually as a "Republic Company" and collectively as the "Republic Companies". RECITALS A. Republic and the Acquired Entities desire to merge the automotive operations of the Maroone Corporations and Partnerships with Republic's automotive businesses. 2 B. Republic and the Republic Merger Subs and the Maroone Corporations have determined that it is in the best interests of their respective shareholders for Republic to acquire all of the issued and outstanding equity interests of the Maroone Corporations as provided herein. In order to effectuate the acquisition of the new car dealerships and the used car superstore operations, Republic has organized each Republic Merger Sub as a wholly-owned subsidiary, and the parties have agreed, subject to the terms and conditions set forth in this Agreement, to merge the respective Republic Merger Subs with and into the respective Maroone Corporations so that the Maroone Corporations continue as surviving corporations of the respective mergers and as wholly-owned subsidiaries of Republic, and each of the Shareholders will be issued certain shares of common stock of Republic as provided herein in exchange for their respective issued and outstanding equity interests in the Maroone Corporations. C. The parties also desire to provide for the acquisition by the Republic Acquisition Subs of certain equity interests of the Partnerships and certain other assets and securities as provided herein so that Republic acquires the automotive retailing business and all related businesses of the Acquired Entities. TERMS OF AGREEMENT In consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I MERGERS; RELATED TRANSACTIONS; CLOSING 1.1 THE CLOSING. Subject to the terms and conditions of this Agreement, the consummation of the Mergers (as defined below) and the other transactions contemplated hereby (the "Closing"), shall take place as promptly as practicable (and in any event within five (5) business days after the satisfaction or waiver of the conditions set forth in Articles VI and VII hereof), at the offices of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. in Miami, Florida, or such other place and time as the parties may otherwise agree, and the date of the Closing is referred to herein as the "Closing Date". 1.2 THE MERGERS. The mergers described in this Section are referred to herein collectively as the "Mergers" and individually as a "Merger," and the surviving corporations of such Mergers are referred to herein collectively as the "Surviving Corporations" and individually as a "Surviving Corporation". (a) The Maroone Chevrolet, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Business Corporation Act (the "Florida Act"), at the Effective Time (as defined below), RI/MC Merger Corp. will be merged with and into Maroone Chevrolet, Inc., with Maroone Chevrolet, Inc. being the 2 3 surviving corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/MC Merger Corp. shall cease. (b) The Maroone Oldsmobile, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/MO Merger Corp. will be merged with and into Maroone Oldsmobile, Inc. with Maroone Oldsmobile, Inc. being the surviving corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/MO Merger Corp. shall cease. (c) The Maroone Isuzu, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/MI Merger Corp. will be merged with and into Maroone Isuzu, Inc., with Maroone Isuzu, Inc. being the surviving corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/MI Merger Corp. shall cease. (d) The Maroone Dodge, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/MD Merger Corp. will be merged with and into Maroone Dodge, Inc., with Maroone Dodge, Inc. being the surviving corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/MD Merger Corp. shall cease. (e) The Empire Warranty Holding Company Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/EWH Merger Corp. will be merged with and into Empire Warranty Holding Company, with Empire Warranty Holding Company being the surviving corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/EWH Merger Corp. shall cease. (f) The Empire Services Agency, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/ESA Merger Corp. will be merged with and into Empire Services Agency, Inc., with Empire Services Agency, Inc. being the surviving corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/ESA Merger Corp. shall cease. (g) The Maroone Car & Truck Rental Company Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/MC&TR Merger Corp. will be merged with and into Maroone Car & Truck Rental Company, with Maroone Car & Truck Rental Company being the surviving corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/MC&TR Merger Corp. shall cease. 3 4 (h) The Quantum Premium Finance Corporation Merger. Subject to the terms and conditions of this Agreement, and in accordance with the Florida Act, at the Effective Time, RI/QPF Merger Corp. will be merged with and into Quantum Premium Finance Corporation, with Quantum Premium Finance Corporation being the surviving corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/QPF Merger Corp. shall cease. (i) The Al Maroone Ford, Inc. Merger. Subject to the terms and conditions of this Agreement, and in accordance with the corporation laws of the State of New York, at the Effective Time, RI/AMF Merger Corp. will be merged with and into Al Maroone Ford, Inc., with Al Maroone Ford, Inc. being the surviving corporation in the Merger and becoming a wholly-owned subsidiary of Republic, and the separate corporate existence of RI/AMF Merger Corp. shall cease. 1.3 RELATED TRANSACTIONS. (a) Upon the Closing Date at the Effective Time the following transactions shall occur (the "Related Transactions"): (i) the Partners of Maroone Management Services, Limited shall sell, assign, convey and transfer all of the outstanding partnership interests in such Partnership to RI/MP Acquisition Corp., and Maroone Management Services, Limited shall be liquidated and its real property and other assets transferred to RI/MP Acquisition Corp. or such other person as RI/MP Acquisition Corp. may designate; (ii) the Partners of Maroone Dodge Pompano, Limited shall sell, assign, convey and transfer all of the outstanding partnership interests in such Partnership to RI/MDP Acquisition Corp., and such Partnership shall be liquidated; (iii) the Partners of Maroone Chevrolet Ft. Lauderdale, Limited. shall sell, assign, convey and transfer all of the outstanding partnership interests in such Partnership to RI/MCFL Acquisition Corp., and such Partnership shall be liquidated; (iv) Alkit Enterprises, Inc. shall sell, assign, convey and transfer all real property owned by such Maroone Corporation and used by the Al Maroone Ford dealership in Williamsville, New York, and all cash and cash equivalents owned by such Maroone Corporation, to RI/MP Acquisition Corp. (the "Alkit Purchase"); and (v) Maroone shall sell, assign, convey and transfer to RI/MP Acquisition Corp., all of his partnership interests in, and any and all other rights and interests in and to and with respect to, Premier Auto Finance, 4 5 L.P. (including, without limitation, any rights or options to acquire any general partner's interests in such partnership or to acquire any other interest in the partnership from the partnership or any Person); (b) To the extent that any deed is legally necessary or reasonably requested by the transferee to consummate any of the Related Transactions (and a deed shall be required for the Alkit Purchase), the transferring party shall execute and deliver to the transferee at Closing a warranty deed in appropriate form reasonably satisfactory to Republic, and the Principals shall pay any and all transfer taxes and fees applicable to the Alkit Purchase, and the other Related Transactions, if applicable. All transfers pursuant to the Related Transactions shall be effected pursuant to instruments of transfer in form reasonably satisfactory to Republic. All partnership interests and shares of stock and other assets transferred pursuant to the Related Transactions shall be transferred free and clear of any liens, security interests or other encumbrances and shall vest good title thereto in the transferees. With respect to the Alkit Purchase, all items of income and expense shall be prorated between the transferring and transferor parties as of the Closing Date, including property taxes, rent, etc. 1.4 PURCHASE PRICE; CONVERSION OF SECURITIES. (a) Aggregate Consideration. For purposes of this Agreement, "Aggregate Consideration" means the number of shares (rounded to the nearest whole share) of common stock, par value $.01 per share, of Republic (the "Republic Common Stock") determined by dividing (a) two hundred million six hundred thousand dollars ($200,600,000.00) (the "Purchase Price"), minus the Transaction Fees (as defined below), if any, by (b) $32.75 (the "Price per Share"). (b) The parties hereto agree that the Purchase Price shall be reduced by the amount of the Transaction Fees. "Transaction Fees" shall mean all legal, accounting, tax, consulting and financial advisory and other fees and expenses, including any transfer taxes, fees and expenses and the cost of title insurance, incurred by the Acquired Entities in connection with the transactions contemplated hereby. (c) At the Effective Time, by virtue of the Mergers and without any action on the part of the Maroone Corporations, Republic, the Republic Subsidiaries or the Shareholders, the outstanding shares of capital stock of each of the Maroone Corporations that is party to a Merger shall be converted into the right to receive a number of shares of Republic Common Stock determined as provided in Exhibit A hereto, which Exhibit A is incorporated herein and constitutes part of this Agreement (the aggregate number of such shares of Republic Common Stock are referred to herein as the "Merger Shares"). (d) In consideration of the Related Transactions, Republic shall issue to each of the parties that transfers interests or other assets pursuant to the Related Transactions, a number of shares of Republic Common Stock determined as provided in Exhibit B 5 6 hereto, which Exhibit B is incorporated herein and constitutes part of this Agreement (the aggregate number of such shares of Republic Common Stock are referred to herein as the "Transaction Shares"). (e) The combined total of the Merger Shares and the Transaction Shares shall be equal to the Aggregate Consideration. The total portion of the Aggregate Consideration to be received by each Person who shall receive Republic Shares pursuant to the foregoing paragraphs (c) and (d) is set forth on Exhibit C hereto. (f) Each share of common stock of each Republic Merger Sub that is party to a Merger, issued and outstanding at the Effective Time shall be converted into one share of the voting common stock of the Surviving Corporation into which it is merged. 1.5 [INTENTIONALLY DELETED] 1.6 FILING OF MERGER DOCUMENTS; EFFECTIVE TIME. At the Closing, the parties shall cause the Mergers to be consummated by executing and filing duly executed Certificates or Articles of Merger with respect to each of the Mergers with the Secretary of State or other appropriate governmental authority of the States of Florida and New York, in such form as Republic determines is required by and in accordance with the relevant provisions of the Florida Act and the corporation laws of such other jurisdictions (the date and time of such filings is referred to herein as the "Effective Date" or "Effective Time"). 1.7 EFFECT OF THE MERGER. At the Effective Time, the effect of the Mergers shall be as provided under the Florida Act and the corporate law of the State of New York applicable to the Mergers. Without limiting the generality of the foregoing, at the Effective Time: (a) all property, rights, privileges, policies and franchises of each Maroone Corporation and the Republic Subsidiary with which it is merged shall vest in the Surviving Corporation of such Merger and all debts, liabilities and duties of such Maroone Corporation and the Republic Subsidiary with which it is merged shall become the debts, liabilities and duties of the Surviving Corporation of such Merger. (b) the Articles or Certificate of Incorporation and the Bylaws of each Maroone Corporation that is party to a Merger, as in effect immediately prior to the Effective Time, shall remain its Articles or Certificate of Incorporation and Bylaws thereafter, unless and until amended in accordance with their terms and as provided by law; and (c) the directors and officers of each Republic Merger Sub that is merged in one of the Mergers at the Effective Time shall be the respective directors and officers of the Maroone Corporation into which it is merged, each to hold a directorship or office in accordance with the Articles or Certificate of Incorporation and Bylaws of the Surviving Corporation of such Merger, until their respective successors are duly elected and qualified. 6 7 1.8 TAX AND ACCOUNTING TREATMENT. The parties hereto acknowledge and agree that the Mergers and the Related Transactions contemplated hereby shall be treated for accounting purposes as a pooling of interests business combination, and the Mergers and the Alkit Purchase shall be treated for tax purposes as a tax-free reorganization under Section 368 of the Code. 1.9 PROCEDURE AT THE CLOSING. At the Closing, the parties agree that the following shall occur: (a) The Acquired Entities and the Principals shall have satisfied each of the conditions set forth in Article VI and shall deliver to Republic the documents, certificates, opinions, consents and letters required by Article VI. (b) Republic shall have satisfied each of the conditions set forth in Article VII and shall deliver the documents, certificates, consents and letters required by Article VII. (c) Republic shall issue the shares of Republic Common Stock issuable pursuant to Section 1.4, registered in the names of the parties to receive such shares as provided in Section 1.4, and shall deliver such shares in the following manner: (i) Republic shall set aside and hold in accordance with Section 9.3 stock certificates representing shares of Republic Common Stock having a value (based upon the Price per Share) equal to 10% of the Purchase Price (the "Held Back Shares"), and (ii) Republic shall deliver stock certificates representing the balance of the shares of Republic Common Stock issuable in accordance with Section 1.4 to the parties to receive such shares as provided in Section 1.4. The shares of Republic Common Stock issuable pursuant to Section 1.4, including the Held Back Shares, are referred to herein as the "Republic Shares." ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE REPUBLIC COMPANIES As a material inducement to the Company and the Principals to enter into this Agreement and to consummate the transactions contemplated hereby, the Republic Companies make the following representations and warranties to the Company and the Principals: 2.1 CORPORATE STATUS. Republic is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, authorized to do business in the State of Florida, and has the requisite power and authority to own or lease its properties and to carry on its business as presently conducted. Each Republic Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, and is a wholly-owned subsidiary of Republic. There is no pending or, to the knowledge of Republic, threatened proceeding for the dissolution, liquidation, insolvency or rehabilitation of Republic. 7 8 2.2 CORPORATE POWER AND AUTHORITY. Each of the Republic Companies has the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. Each of the Republic Companies has taken all corporate action necessary to authorize its execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby. 2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by each of the Republic Companies and constitutes their legal, valid and binding obligation enforceable against each of the Republic Companies in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 2.4 REPUBLIC COMMON STOCK. Upon consummation of the transactions contemplated hereby and the issuance and delivery of certificates representing the Republic Shares as provided in this Agreement, the Republic Shares will be validly issued, fully paid, non-assessable shares. 2.5 CAPITALIZATION. As of the date hereof, the authorized capital stock of Republic consists of 500,000,000 shares of Republic Common Stock and 5,000,000 shares of preferred stock. As of November 30, 1996 (i) 232,466,603 shares of Republic Common Stock were validly issued and outstanding, and (ii) no shares of preferred stock were issued or outstanding. 2.6 NO VIOLATION. The execution and delivery of this Agreement by Republic, the performance by Republic of its obligations hereunder and the consummation by Republic of the transactions contemplated by this Agreement will not (a) contravene any provision of the Certificate of Incorporation or Bylaws of Republic, (b) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment, ruling or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon, or enforceable against Republic, (c) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any material Contract which is applicable to, binding upon or enforceable against Republic, (d) result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of Republic, (e) give to any individual or entity a right or claim against Republic, which would have a Material Adverse Effect on Republic or (f) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except (i) pursuant to the Exchange Act and the Securities Act and applicable inclusion requirements of Nasdaq, (ii) filings required under the securities or blue sky laws of the various states, (iii) filings required under the HSR Act, (iv) any filings or consents required to be made or obtained by the Acquired Entities or the Principals or (v) any governmental permits or licenses required to operate the dealerships and other businesses of the Acquired Entities. 8 9 2.7 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1996, except where failure to have done so did not and would not have a Material Adverse Effect on Republic, Republic has filed all reports, registrations and statements, together with any required amendments thereto, that it was required to file with the SEC, including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements (collectively, the "Republic Reports"). Republic has previously furnished or made available to the Acquired Entities and the Principals copies of all Republic Reports filed with the SEC since January 1, 1996. As of their respective dates (but taking into account any amendments filed prior to the date of this Agreement), the Republic Reports complied in all material respects with all the rules and regulations promulgated by the SEC and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Republic included in the Republic Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP consistently applied during the periods presented (except, as noted therein, or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to normal audit adjustments) the financial position of Republic and its consolidated subsidiaries as of the date thereof and the results of their operations and their cash flows for the periods then ended. 2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Republic Reports, since January 1, 1996, there has not been any change in the financial condition, results of operations or business of Republic that either individually or in the aggregate would have a Material Adverse Effect on Republic. 2.9 NO COMMISSIONS. Republic has not incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED ENTITIES AND THE PRINCIPALS As a material inducement to the Republic Companies to enter into this Agreement and to consummate the transactions contemplated hereby, the Acquired Entities and the Principals, jointly and severally, make the following representations and warranties to the Republic Companies: 3.1 CORPORATE AND PARTNERSHIP STATUS. Each Maroone Corporation is a corporation, and each Partnership is a limited partnership, duly organized, validly existing and in good standing under the laws of the state of its incorporation or partnership formation and has the requisite power and authority to own or lease its properties and to carry on its business as now 9 10 being conducted. Each Acquired Entity is legally qualified to do business as a foreign corporation or partnership, as the case may be, in each of the jurisdictions in which it is required to be so qualified, which represent all jurisdictions where the nature of its properties and the conduct of its business require such qualification, and is in good standing in each of the jurisdictions in which it is so qualified. Each Acquired Entity has fully complied with all of the requirements of any statute governing the use and registration of fictitious names, and has the legal right to use the names under which it operates its businesses. There is no pending or threatened proceeding for the dissolution, liquidation, insolvency or rehabilitation of any Acquired Entity. 3.2 POWER AND AUTHORITY. Each Maroone Corporation has the corporate power and authority, and each Partnership has the partnership power and authority, to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby. Each Acquired Entity has taken all corporate or partnership action necessary to authorize the execution and delivery of this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated hereby. Each of the Principals is an individual or other Person residing in the State of Florida and has the requisite competence and authority to execute and deliver this Agreement, to perform his or her respective obligations hereunder and to consummate the transactions contemplated hereby. 3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by each of the Acquired Entities and each of the Principals, and constitutes the legal, valid and binding obligation of each of them, enforceable against each of them in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 3.4 CAPITALIZATION. (a) Schedule 3.4 sets forth, as of the date hereof, with respect to each Maroone Corporation, respectively, (a) the number of authorized shares of each class of its capital stock, (b) the number of issued and outstanding shares of each class of its capital stock and (c) the number of shares of each class of its capital stock which are held in treasury. All of the issued and outstanding shares of capital stock of each Maroone Corporation (i) have been duly authorized and validly issued and are fully paid and non-assessable, (ii) were issued in compliance with all applicable state and federal securities laws and (iii) were not issued in violation of any preemptive rights or rights of first refusal or similar rights. No preemptive rights or rights of first refusal or similar rights exist with respect to any shares of capital stock of any Maroone Corporation and no such rights arise by virtue of or in connection with the transactions contemplated hereby. Except as set forth on Schedule 3.4, (which items disclosed on Schedule 3.4 are referred to herein as the "Equity Rights"), (i) there are no outstanding or authorized rights, options, warrants, convertible securities, subscription rights, conversion rights, exchange rights or other agreements or commitments of any kind that could require any Maroone Corporation to 10 11 issue or sell any shares of its capital stock (or securities convertible into or exchangeable for shares of its capital stock); (ii) there are no outstanding stock appreciation, phantom stock, profit participation or other similar rights with respect to any Maroone Corporation; (iii) there are no proxies, voting rights or other agreements or understandings with respect to the voting or transfer of the capital stock of any Maroone Corporation; and (iv) no Maroone Corporation is obligated to redeem or otherwise acquire any of its outstanding shares of capital stock. (b) Schedule 3.4 sets forth, as of the date hereof, with respect to each Partnership, respectively, (a) the number of authorized partnership interests of each class of partnership interests (limited, general, etc.) and (b) the number or amount of issued and outstanding partnership interests of each class. All of the issued and outstanding partnership interests of each Partnership (i) have been duly authorized and validly issued and are fully paid and non-assessable, (ii) were issued in compliance with all applicable state and federal securities laws and (iii) were not issued in violation of any preemptive rights or rights of first refusal or similar rights. No preemptive rights or rights of first refusal or similar rights exist with respect to any partnership interests of any Partnership and no such rights arise by virtue of or in connection with the transactions contemplated hereby. Except as set forth on Schedule 3.4, (which items disclosed on Schedule 3.4 are referred to herein as the "Equity Rights"), (i) there are no outstanding or authorized rights, options, warrants, convertible securities, subscription rights, conversion rights, exchange rights or other agreements or commitments of any kind that could require any Partnership to issue or sell any partnership interests (or securities convertible into or exchangeable for its partnership interests); (ii) there are no proxies, voting rights or other agreements or understandings with respect to the voting or transfer of the partnership interests of any Partnership; and (iv) no Partnership is obligated to redeem or otherwise acquire any of its outstanding partnership interests. 3.5 SHAREHOLDERS AND PARTNERS OF THE ACQUIRED ENTITIES. Schedule 3.5 sets forth, with respect to each Acquired Entity (i) the name, address and federal taxpayer identification number of, and the number of outstanding shares of each class of its capital stock and number or amount and type of partnership interests owned by, each shareholder of record or partner as of the close of business on the date of this Agreement; and (ii) the name, address and federal taxpayer identification number of, and number of shares of each class of its capital stock and number or amount and type of partnership interests beneficially owned by, each beneficial owner of outstanding shares of capital stock or partnership interests (to the extent that record and beneficial ownership of any such shares or interests are different). The Shareholders constitute all of the record and beneficial holders of all issued and outstanding shares of capital stock of the Maroone Corporations, the Partners constitute all of the holders of any partnership interests in the Partnerships, and each of the Shareholders and Partners owns such shares and/or partnership interests as is set forth on Schedule 3.5, free and clear of all Liens, restrictions and claims of any kind, except as set forth on Schedule 3.5. 11 12 3.6 NO VIOLATION. Except for any approvals or consents required under the Franchise Agreements (as defined in Section 3.25), the execution and delivery of this Agreement by the Acquired Entities and the Principals, the performance by the Acquired Entities and the Principals of their obligations hereunder and the consummation by them of the transactions contemplated by this Agreement will not (a) contravene any provision of the Articles or Certificate of Incorporation or Bylaws or partnership agreement or other organizational or governing document of any Acquired Entity, (b) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon or enforceable against any Acquired Entity or Principal, (c) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right of payment under or the right to terminate, amend, modify, abandon or accelerate, any Contract which is applicable to, binding upon or enforceable against any Acquired Entity or Principal, (d) result in or require the creation or imposition of any Lien upon or with respect to any of the properties or assets of any Acquired Entity or Principal, (e) give to any individual or entity a right or claim against any Acquired Entity or Principal or (f) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except any applicable filings required under the HSR Act and any SEC and other filings required to be made by the Republic Companies. 3.7 RECORDS OF THE ACQUIRED ENTITIES. The copies of the Articles and Certificates of Incorporation, Bylaws, partnership agreements, and other documents and agreements of the Acquired Entities which were provided to Republic are true, accurate, and complete and reflect all amendments made through the date of this Agreement. The minute books and other records of corporate and partnership actions for the Acquired Entities made available to Republic for review were correct and complete as of the date of such review, no further entries have been made through the date of this Agreement, such minute books and records contain the true signatures of the persons purporting to have signed them, and such minute books and records contain an accurate record of all material corporate and partnership actions of the shareholders, partners and directors (and any committees thereof) of the Acquired Entities taken by written consent or at a meeting or otherwise since incorporation or formation. All corporate and partnership actions taken by the Acquired Entities have been duly authorized or ratified. All accounts, books, ledgers and official and other records of the Acquired Entities have been fully, properly and accurately kept and are complete, and there are no inaccuracies or discrepancies of any kind contained therein. The stock and partnership ledgers of the Acquired Entities, as previously made available to Republic, contain accurate and complete records of all issuances, transfers and cancellations of shares of the capital stock and partnership interests of the Acquired Entities. 3.8 SUBSIDIARIES. The Acquired Entities do not, directly or indirectly, own any outstanding voting securities of or other interests in, or control, any other corporation, partnership, joint venture or other entity, except that Empire Warranty Corporation (the "Subsidiary") is a wholly owned subsidiary of Empire Warranty Holding Company (the "Holding Company"), and the Holding Company owns all outstanding shares of capital stock of the Subsidiary, free and clear of any Liens or encumbrances of any nature. 12 13 3.9 FINANCIAL STATEMENTS. Each of the Acquired Entities has delivered to Republic the financial statements of such Acquired Entity for the fiscal year ended December 31, 1995 and the eleven-month period ended November 30, 1996 (collectively, the "Financial Statements"), copies of which are attached to Schedule 3.9 hereto. The respective individual balance sheets of the Acquired Entities dated as of November 30, 1996, included in the Financial Statements are referred to herein as the "Current Balance Sheets." The Financial Statements fairly present the financial position of the respective Acquired Entities at each of the balance sheet dates and the results of operations for the periods covered thereby, and have been prepared in accordance with GAAP consistently applied throughout the periods indicated. The books and records of each of the Acquired Entities fully and fairly reflect all of its transactions, properties, assets and liabilities. There are no material special or non-recurring items of income or expense during the periods covered by the Financial Statements, and the balance sheets included in the Financial Statements do not reflect any write-up or revaluation increasing the book value of any assets. The Financial Statements reflect all adjustments necessary for a fair presentation of the financial information contained therein. 3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Except as specifically set forth in Schedule 3.10, since the date of its Current Balance Sheet included in the Financial Statements, no Acquired Entity has (a) issued, sold, pledged, disposed of, encumbered, or authorized the issuance, sale, pledge, disposition, grant or encumbrance of any shares of its capital stock or of any class or any partnership interests, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock or partnership interests or any other ownership interest of such Acquired Entity, (b) declared, set aside, made, or paid any dividend or other distribution payable in cash, stock, property or otherwise of or with respect to its capital stock, partnership interests or other securities, or reclassified, combined, split, subdivided or redeemed, purchased or otherwise acquired, directly or indirectly, any of its capital stock, partnership interests or other securities; (c) paid any bonus to or increased the rate of compensation of any of its officers, partners or salaried employees or amended any other terms of employment or engagement of such persons; (d) sold, leased or transferred any of its properties or assets or acquired any properties or assets other than in the ordinary course of business consistent with past practice; (e) made or obligated itself to make capital expenditures out of the ordinary course of business consistent with past practice; (f) made any payment in respect of its liabilities other than in the ordinary course of business consistent with past practice; (g) incurred any obligations or liabilities (including, without limitation, any indebtedness for borrowed money, issuance of any debt securities, or the assumption, guarantee, or endorsement of the obligations of any Person) or entered into any transaction or series of transactions involving in excess of $100,000 in the aggregate out of the ordinary course of business, except for this Agreement and the transactions contemplated hereby; (h) suffered any theft, damage, destruction or casualty loss, whether or not covered by insurance, in excess of $100,000 in the aggregate; (i) suffered any extraordinary losses (whether or not covered by insurance); (j) waived, canceled, compromised or released any rights having a value in excess of $100,000 in the aggregate; (k) made or adopted any change in its accounting practice or policies; (l) made any adjustment to its books and records other than in respect of the conduct of its business activities in the ordinary course consistent with past practice; (m) entered into any transaction with any Principal or any Affiliate of any of the 13 14 Acquired Entities or any Principal, (n) entered into any employment agreement not terminable at will; (o) terminated, amended or modified any agreement involving an amount in excess of $100,000 in the aggregate; (p) imposed any security interest or other Lien on any of its assets other than in the ordinary course of business consistent with past practice; (q) delayed paying any account payable beyond 45 days following the date on which it is due and payable except to the extent being contested in good faith; (r) made or pledged any charitable contributions in excess of $100,000 in the aggregate; (s) acquired (including, without limitation, for cash or shares of stock or partnership interests, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or made any investment either by purchase of stock or securities, contributions or property transfer of capital other than as permitted or provided in this Agreement; (t) increased or decreased prices charged to customers, except in the ordinary course of business consistent with past practice, materially increased or decreased the average monthly New Parts and Accessories Inventory, Other Parts and Accessories Inventory, New Vehicle Inventory or Other Vehicle Inventory, other than in the ordinary course of business consistent with past practice, ordered any New Vehicle Inventory from the Factory which would be inconsistent with the prior practices of the Acquired Entity, or taken any actions which might reasonably result in any material loss of customers; (u) made any dealer trades other than in the ordinary course of business consistent with past practice, or (v) entered into any other transaction or been subject to any event which has or may reasonably be expected to have a Material Adverse Effect on such Acquired Entity; or (w) agreed to do or authorized any of the foregoing. 3.11 LIABILITIES. No Acquired Entity has any liabilities or obligations, whether accrued, absolute, contingent or otherwise, except (a) to the extent reflected on such Acquired Entity's Current Balance Sheet and not heretofore paid or discharged, (b) liabilities incurred in the ordinary course of business consistent with past practice since the date of such Acquired Entity's Current Balance Sheet (none of which relates to breach of contract, breach of warranty, tort, infringement or violation of law, or which arose out of any action, suit, claim, governmental investigation or arbitration proceeding), and (c) liabilities incurred in the ordinary course of business prior to the date of such Acquired Entity's Current Balance Sheet which, in accordance with GAAP consistently applied, were not required to be recorded thereon and which, in the aggregate, are not material (the liabilities and obligations referenced in (a), (b) and (c) above are referred to as the "Designated Liabilities"). Schedule 3.11 lists all indebtedness owed by any of the Acquired Entities, itemized with respect to each Acquired Entity, to a bank or any other Person, including without limitation, indebtedness for borrowed money (including principal and accrued but unpaid interest) and capitalized equipment leases. Schedule 3.11 also lists each account of each Acquired Entity with any bank, broker or other depository institution, and the names of all persons authorized to withdraw funds from each such account. 3.12 LITIGATION. There is no action, suit or other legal or administrative proceeding or governmental investigation pending, or, to the knowledge of the Acquired Entities and Principals, threatened, anticipated or contemplated (i) against, by or affecting any Acquired Entity or Principal (which, in the case of the Principals, relate to or concern any Acquired Entity or for which any Acquired Entity may be responsible), or any Acquired Entity's properties or assets, 14 15 except for routine customer claims and complaints arising in the ordinary course consistent with past practice which involve amounts less than $10,000 individually or $200,000 in the aggregate, or (ii) which question the validity or enforceability of this Agreement or the transactions contemplated hereby, and there is no basis for any of the foregoing. There are no outstanding orders, decrees or stipulations issued by any Governmental Authority in any proceeding to which any Acquired Entity is or was a party which have not been complied with in full or which continue to impose any material obligations on the any Acquired Entity. 3.13 ENVIRONMENTAL MATTERS. (a) Each of the Acquired Entities and the Principals are and have at all times been in full compliance with all Environmental Laws governing its business, operations, properties and assets, including, without limitation: (i) all requirements relating to the Discharge and Handling of Hazardous Substances; (ii) all requirements relating to notice, record keeping and reporting; (iii) all requirements relating to obtaining and maintaining Licenses (as defined herein) for the ownership by each of the Acquired Entities of its properties and assets and the operation of its business as presently conducted or the ownership by the Acquired Entities and the Principals and use by the Acquired Entities of the Principal Owned Properties (as defined in Section 3.14); or (iv) all applicable writs, orders, judgments, injunctions, governmental communications, decrees, informational requests or demands issued pursuant to, or arising under, any Environmental Laws. (b) There are no (and there is no basis for any) non-compliance orders, warning letters, notices of violation (collectively "Notices"), claims, suits, actions, judgments, penalties, fines, or administrative or judicial investigations of any nature or proceedings (collectively "Proceedings") pending or threatened against or involving any of the Acquired Entities, their businesses, operations, properties or assets or the Principal Owned Properties, issued by any Governmental Authority or third party with respect to any Environmental Laws or Licenses issued to any of the Acquired Entities thereunder in connection with, related to or arising out of the ownership by any of the Acquired Entities of its properties or assets or the operation of its businesses or the ownership by the Principals and use by the Company of the Principal Owned Properties, which have not been resolved to the satisfaction of the issuing Governmental Authority or third party in a manner that would not impose any obligation, burden or continuing liability on Republic or any Surviving Corporation in the event that the transactions contemplated by this Agreement are consummated. (c) None of the Acquired Entities nor any of the Principals has at any time Handled or Discharged, nor has it at any time allowed or arranged for any third party to Handle or Discharge, Hazardous Substances to, at or upon: (i) any location other than a site lawfully permitted to receive such Hazardous Substances; (ii) any parcel of real property owned or leased at any time by any of the Acquired Entities (including, without limitation, the Company Owned Properties (as defined in Section 3.14)) or any of the Principal Owned Properties, except in compliance with applicable Environmental Laws; or 15 16 (iii) any site which, pursuant to CERCLA or any similar state law (x) has been placed on the National Priorities List or its state equivalent, or (y) the Environmental Protection Agency or any relevant state agency has notified any of the Acquired Entities that it has proposed or is proposing to place on the National Priorities List or its state equivalent. There has not occurred, nor is there presently occurring, a Discharge, or threatened Discharge of any Hazardous Substance on, into or beneath the surface of, or adjacent to, any real property owned or leased at any time by any of the Acquired Entities or the Principal Owned Properties. (d) Except as set forth in a letter to be delivered by the Acquired Entities to Republic no later than 10 days after the date hereof, none of the Acquired Entities uses, nor has any of them used, any Aboveground Storage Tanks or Underground Storage Tanks; there are not now nor have there ever been any Underground Storage Tanks on any real property owned or leased at any time by any of the Acquired Entities, or the Principal Owned Properties; and there has been no Discharge from or rupture of any Aboveground Storage Tanks or Underground Storage Tanks. (e) Except as set forth on Schedule 3.13(e), there have been no (i) environmental audits, assessments or occupational health studies undertaken since the date that any of the Acquired Entities was incorporated by any of the Acquired Entities or its agents or representatives thereof or, to the knowledge of any of the Acquired Entities or Principals, undertaken by any Governmental Authority, or any third party, relating to or affecting any of the Acquired Entities or any real property owned or leased at any time by any of the Acquired Entities or the Principal Owned Properties; (ii) ground, water, soil, air or asbestos monitoring undertaken by any of the Acquired Entities or its agents or representatives thereof or undertaken by any Governmental Authority or any third party, relating to or affecting any of the Acquired Entities or any real property owned or leased at any time by any of the Acquired Entities or the Principal Owned Properties; (iii) material written communications between any of the Acquired Entities and any Governmental Authority arising under or related to Environmental Laws including but not limited to, any notices of violation and notices of non-compliance; and (iv) outstanding citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings or decrees, relating to or affecting any of the Acquired Entities or any real property owned or leased at any time by any of the Acquired Entities or the Principal Owned Properties. The representations and warranties in this Section 3.13 shall survive for a period of one year after the Closing Date as provided in Section 9.2 in the same manner as the other representations and warranties herein. (f) For purposes of this Section, the following terms shall have the meanings ascribed to them below: "Aboveground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, 16 17 ordinance, code, rule, regulation, order ruling, or decree governing Aboveground Storage Tanks. "Discharge" means any manner of spilling, leaking, dumping, discharging, releasing, migrating or emitting, as any of such terms may further be defined in any Environmental Law, into or through any medium including, without limitation, ground water, surface water, land, soil or air. "Environmental Laws" means all federal state, regional or local statutes, laws rules, regulations, codes, ordinances, orders, plans, injunctions, decrees, rulings, licenses, and changes thereto, or judicial or administrative interpretations thereof, or similar laws of business, whether currently in existence or hereafter enacted, issued, or promulgated, any of which govern, purport to govern, or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, waste disposal, hazardous or toxic substances, solid or hazardous waste, occupational, health and safety, as any of these terms are or may be defined in such statutes, laws, rules, regulations, codes, orders, ordinances, plans, injunctions, decrees, rulings, licenses, and changes thereto, or judicial or administrative interpretations thereof, including, without limitation: the Comprehensive Environmental Responses, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (herein, collectively, "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (herein, collectively, "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq., (the "Hazardous Materials Transportation Act"); the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq. (the "Clean Water Act"); the Clean Air Act, as amended, 42 U.S.C. Section 7401-7642, (the "Clean Air Act"); the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq., (the "Toxic Substances Control Act"); the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"). "Handle" means any manner of generating, accumulating, storing, treating, disposing of, transporting, transferring, labeling, handling, manufacturing or using, as any of such terms may further be defined in any Environmental Law. "Hazardous Substances" shall be construed broadly to include any toxic or hazardous substance, material or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires investigation or remediation under any Environmental laws or which are or become regulated, listed or controlled by, under or pursuant to any Environmental 17 18 Laws, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "Licenses" means all licenses, certificates, permits, approvals, decrees and registrations. "Underground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order, ruling or decree governing Underground Storage Tanks. 3.14 REAL ESTATE (a) Schedule 3.14 contains the street addresses of, and indicates the owner(s) of, any real property or any leasehold or other interest therein (including without limitation any option or other right or obligation to purchase any real property or any interest therein) owned by any of the Acquired Entities as of the date hereof (the "Company Owned Properties"). There has been no real property (or any interest therein) owned by any of the Acquired Entities within the past five years that is not owned as of the date of this Agreement. Schedule 3.14 contains the legal descriptions and the street addresses of any real property (or any interest therein) which was owned by any of the Principals or any of their Affiliates (the 'Principal Owned Properties," and together with the Company Owned Properties, the "Owned Properties"), and used in any Acquired Entity's business which has been conveyed, as additional contributions of capital or otherwise conveyed, to any Acquired Entity. With respect to each such parcel of Owned Properties: (i) the Acquired Entity that owns such parcel as indicated in the Schedules to this Section 3.14 has good and marketable title, free and clear of any covenants, conditions, easements and exceptions other than the Permitted Exceptions (as defined in Section 5.15), and of any Lien other than liens for real estate taxes not yet due and payable, (ii) there are no pending or threatened condemnation proceedings, suits or administrative actions relating to the Owned Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) the legal descriptions for the Owned Properties contained in the deeds thereof describe such parcels fully and adequately; (iv) the buildings and improvements are located within the boundary lines of the described parcels of land and are not in violation of applicable setback requirements, local comprehensive plan provisions zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval, regulation or restrictions by any Governmental Authority, and do not encroach on any easement which may burden the land; the land does not serve any adjoining property for any purpose inconsistent with the use of the land; and the Owned Properties are not located within any flood plain or subject to any similar type restriction for which any permits or licenses necessary to the use thereof have not been obtained; (v) all facilities 18 19 have received all material approvals of Governmental Authorities (including licenses and permits) required in connection with the ownership or operation thereof and have been operated and maintained in accordance with applicable laws, ordinances, rules and regulations; (vi) there are no Contracts granting to any party or parties the right of use or occupancy of any portion of the Owned Properties, and there are no parties (other than the Acquired Entities) in possession of any of the Owned Properties; (vii) there are no outstanding options or rights of first refusal to purchase any of the Owned Properties or any portion thereof or interest therein, (viii) all facilities located on the Owned Properties are supplied with utilities and other services necessary for their operation, all of which services are adequate in accordance with all applicable laws, ordinances, rules and regulations, and are provided via public roads or via permanent, irrevocable, appurtenant easements benefiting the Owned Properties: (ix) the Owned Properties abut on and have adequate direct vehicular access to a public road and there is no pending or threatened termination of such access; (x) all improvements, buildings and systems on the Owned Properties are in good repair, and safe for occupancy; and (xi) there are no material Contracts relating to management or similar matters which affect any of the Owned Properties. (b) Schedule 3.14 sets forth a list of all leases, licenses or similar agreements to which any Acquired Entity is a party, which are for the use or occupancy of real estate owned by a third party ("Leases") (copies of which have previously been furnished to Republic), in each case, setting forth (i) the lessor and lessee thereof and the commencement date, term and renewal rights under each of the Leases, and (ii) the street address or legal description of each property covered thereby (the "Leased Premises"). The Leases are in full force and effect and have not been amended, and no party thereto is in default or breach under any such Lease. No event has occurred which, with the passage of time or the giving of notice or both, would cause a material breach of or default under any of such leases. With respect to each such Leased Premises: (i) the Acquired Entity that is the lessee has a valid leasehold interest in the Leased Premises, free and clear of any Liens, covenants and easements or title defects of any nature whatsoever; (ii) the portions of the buildings located on the Leased Premises that are used in the business of the Acquired Entity are each in good repair and condition, normal wear and tear excepted, and are in the aggregate sufficient to satisfy the Acquired Entity's current and reasonably anticipated normal business activities as conducted thereat; (iii) each of the Leased Premises (a) has direct access to public roads or access to public roads by means of a perpetual access easement, such access being sufficient to satisfy the current and reasonably anticipated normal transportation requirements of the business presently conducted at such parcel; and (b) is served by all utilities in such quantity and quality as are sufficient to satisfy the current normal business activities conducted at such parcel; and (iv) no Acquired Entity or Principal has received notice of (a) any condemnation proceeding with respect to any portion of the Leased Premises or any access thereto, and no such proceeding is contemplated by any Governmental Authority; or (b) any special assessment which may affect any of the Leased Premises, and no such special assessment is contemplated by any Governmental Authority. 19 20 3.15 BUSINESS; GOOD TITLE TO AND CONDITION OF ASSETS; INVENTORY (a) No Principal is engaged in the Auto Business or the Parts Business (as defined in Section 5.11) or owns an interest in any Person engaged in the Auto Business or the Parts Business, other than (A) the Auto Business and Parts Business conducted by the Acquired Entities or (B) the Principals' ownership interests in the Acquired Entities. Alkit Enterprises, Inc. has no assets used in the Auto Business or Parts Business other than real property. The Acquired Entities own and operate the motor vehicle dealerships (the "Dealerships") listed on Schedule 3.15 at the locations set forth thereon, and each Dealership is owned and operated by the Acquired Entity indicated in Schedule 3.15. Upon the consummation of the transactions contemplated hereby, the Republic Companies will have acquired and own all of the Acquired Entities' assets and operations engaged in the Auto Business or Parts Business and related rights and interests. Except as disclosed in the Financial Statements, each Acquired Entity has good and marketable title to all of its Assets free and clear of any Liens. For purposes of this Agreement, the term "Assets" means all of the properties and assets of any nature of the Acquired Entities. (b) The Fixed Assets currently in use or necessary for the business and operations of the Acquired Entities are in good operating condition, normal wear and tear excepted, and, to the knowledge of the Acquired Entities and the Principals, have been maintained substantially in accordance with all applicable manufacturer's specifications and warranties. For purposes of this Agreement, the term "Fixed Assets" means all vehicles (other than vehicles held as inventory), machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures, owned, used by or located on the premises of the Acquired Entities or set forth on the Current Balance Sheets or acquired by the Acquired Entities since the date of the Current Balance Sheets. (c) None of the vehicles owned by the Acquired Entities as of the date hereof has been, or will be on the Closing Date, salvaged or rebuilt or have any frame, flood or other damage impairing its salability in the ordinary course of business, and with respect to each vehicle, the Acquired Entities owning such vehicles has or will have prior to the Closing Date on file true and correct odometer statements, none of which indicate that the actual mileage is unknown. 3.16 COMPLIANCE WITH LAWS. Each of the Acquired Entities, the Principals and their Affiliates is and has been in compliance in all material respects with all laws, regulations and orders applicable to it, its business and operations (as conducted by it now and in the past), the Assets, the Owned Properties and the Leased Premises and any other properties and assets (in each case owned or used by it now or in the past). No Acquired Entity has been cited, fined or otherwise notified of any asserted past or present failure to comply with any laws, regulations or orders and no proceeding with respect to any such violation is pending or threatened. Except for the Franchise Agreements, no Acquired Entity is subject to any Contract, decree or injunction in which it is a party which restricts the continued operation of any business or the expansion thereof to other geographical areas, customers and suppliers or lines of business. No Acquired Entity, nor 20 21 any of their employees or agents, has made any payment of funds in connection with its business which is prohibited by law, and no funds have been set aside to be used in connection with its business for any payment prohibited by law. 3.17 LABOR AND EMPLOYMENT MATTERS. No Acquired Entity is a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and there has been no labor union during the 24 months prior to the date hereof organizing any employees of the Acquired Entities into one or more collective bargaining units. There is not now, and there has not been during the 24 months prior to the date hereof, any actual or threatened labor dispute, strike or work stoppage which affects or which may affect the business of the Acquired Entities or which may interfere with their continued operations. No Acquired Entity, and no employee, agent or representative thereof has since the date of incorporation or formation of such Acquired Entity committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or, to the knowledge of the Acquired Entities and the Principals, threatened, charge or complaint against any Acquired Entity by or with the National Labor Relations Board or any representative thereof. To the knowledge of the Acquired Entities and Principals, no executive or key employee or group of employees has any plans to terminate his, her or their employment with any Acquired Entity as a result of the transactions contemplated hereby or otherwise. Each Acquired Entity has complied with applicable laws, rules and regulations relating to employment, civil rights and equal employment opportunities, including but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and the Americans with Disabilities Act, as amended. 3.18 EMPLOYEE BENEFIT PLANS. (a) Employee Benefit Plans. Schedule 3.18 contains a list setting forth each employee benefit plan or arrangement of each of the Acquired Entities, including but not limited to employee pension benefit plans, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA, employee welfare benefit plans, as defined in Section 3(1) of ERISA, deferred compensation plans, stock option plans, bonus plans, stock purchase plans, hospitalization, disability and other insurance plans, severance or termination pay plans and policies, whether or not described in Section 3(3) of ERISA, in which employees, their spouses or dependents, of any of the Acquired Entities participate ("Employee Benefit Plans") (true and accurate copies of which, together with the most recent annual reports on Form 5500 and summary plan descriptions with respect thereto, were furnished to Republic). (b) Compliance with Law. With respect to each Employee Benefit Plan (i0 each has been administered in all material respects in compliance with its terms and with all applicable laws, including, but not limited to, ERISA and the Internal Revenue Code of 1986, as amended (the "Code"); (ii) no actions, suits, claims or disputes are pending, or threatened; (iii) no audits, inquiries, reviews, proceedings, claims, or demands are pending with any governmental or regulatory agency; (iv) there are no facts which could give rise 21 22 to any material liability in the event of any such investigation, claim, action, suit, audit, review, or other proceeding; (v) all material reports, returns and similar documents required to be filed with any governmental agency or distributed to any plan participant have been duly or timely filed or distributed; and (vi) no "prohibited transaction" has occurred within the meaning of the applicable provisions of ERISA or the Code. (c) Qualified Plans. With respect to each Employee Benefit Plan intended to qualify under Code Section 401(a) or 403(a), (i) the Internal Revenue Service has issued a favorable determination letter, true and correct copies of which have been furnished to Republic, that such plans are qualified and exempt from federal income taxes; (ii) no such determination letter has been revoked nor has revocation been threatened, nor has any amendment or other action or omission occurred with respect to any such plan since the date of its most recent determination letter or application therefor in any respect which would adversely affect its qualification or materially increase its costs; (iii) no such plan has been amended in a manner that would require security to be provided in accordance with Section 401(a)(29) of the code; (iv) no reportable event (within the meaning of Section 4043 of ERISA) has occurred, other than one for which the 30-day notice requirement has been waived; (v) as of the Effective Date, the present value of all liabilities that would be "benefit liabilities" under Section 4001(a)(16) of ERISA if benefits described in Code Section 411(d)(6)(B) were included will not exceed the then current fair market value of the assets of such plan (determined using the actuarial assumptions used for the most recent actuarial valuation for such plan); (vi) all contributions to, and payments from and with respect to such plans, which may have been required to be made in accordance with such plans and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been timely made; and (vii) all such contributions to the plans and all payments under the plans (except those to be made from a trust qualified under Section 401(a) of the Code) and all payments with respect to the plans (including without limitation PBGC (as defined below) and insurance premiums) for any period ending before the Effective Date that are not yet, but will be, required to be made are properly accrued and reflected on the Current Balance Sheet. (d) Multiemployer Plans. With respect to any multiemployer plan as described in Section 4001(a)(3) of ERISA ("MPPA Plan") (i) all contributions required to be made with respect to employees of the Acquired Entities have been timely paid; (ii) each Acquired Entity has not incurred and is not expected to incur, directly or indirectly, any withdrawal liability under ERISA with respect to any such plan (whether by reason of the transactions contemplated by the Agreement or otherwise); (iii) Schedule 3.18 sets forth (A) the withdrawal liability under ERISA to each MPPA Plan, (B) the date as of which such amount was calculated, and (C) the method for determining the withdrawal liability; and (iv) no such plan is (or is expected to be) insolvent or in reorganization and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists or is expected to exist with respect to any such plan. 22 23 (e) Welfare Plans. (i) No Acquired Entity is obligated under any employee welfare benefit plan as described in Section 3(1) of ERISA ("Welfare Plan") to provide medical or death benefits with respect to any employee or former employee of the Acquired Entities or their predecessors after termination of employment; (ii) each Acquired Entity has complied with the notice and continuation coverage requirements of Section 4980B of the Code and the regulations thereunder with respect to each Welfare Plan that is, or was during any taxable year for which the statute of limitations on the assessment of federal income taxes remains open, by consent or otherwise, a group health plan within the meaning of Section 5000(b)(1) of the Code; and (iii) there are no reserves, assets, surplus or prepaid premiums under any Welfare Plan which is an Employee Benefit Plan. The consummation of the transactions contemplated by this Agreement will not entitle any individual to severance pay, and, will not accelerate the time of payment or vesting, or increase the amount of compensation due to any individual. (f) Controlled Group Liability. No Acquired Entity nor any entity that would be aggregated with any Acquired Entity under Code Section 414(b), (c), (m) or (o): (i) has ever terminated or withdrawn from an employee benefit plan under circumstances resulting (or expected to result) in liability to the Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the employee benefit plan is funded, or any employee or beneficiary for whose benefit the plan is or was maintained (other than routine claims for benefits); (ii) has any assets subject to (or expected to be subject to) a lien for unpaid contributions to any employee benefit plan; (iii) has failed to pay premiums to the PBGC when due (iv) is subject to (or expected to be subject) an excise tax under Code Section 4971; (v) has engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has violated Code Section 4980B or Section 601 through 608 of ERISA. (g) Other Liabilities. (i) None of the Employee Benefit Plans obligates any Acquired Entity to pay separation, severance, termination or similar benefits solely as a result of any transaction contemplated by this Agreement or solely as a result of a "change of control" (as such term is defined in Section 280G of the Code); (ii) all required or discretionary (in accordance with historical practices) payments, premiums, contributions, reimbursements, or accruals for all periods ending prior to or as of the Effective Date shall have been made or properly accrued on the Current Balance Sheets or will be properly accrued on the books and records of the Acquired Entities as of the Effective Date; and (iii) none of the Employee Benefit Plans has any unfunded liabilities which are not reflected on the Current Balance Sheets or the books and records of the Company. 3.19 TAX MATTERS. All Tax Returns required to be filed prior to the date hereof with respect to any of the Acquired Entities or any of their respective income, properties, franchises or operations have been timely filed, each such Tax Return has been prepared in compliance with all applicable laws and regulations, and all such Tax Returns are true and accurate in all respects. All Taxes due and payable by or with respect to each Acquired Entity have been paid or are accrued on the applicable Current Balance Sheet or will be accrued on the Company's books and records 23 24 as of the Closing. (i) Except as set forth in a letter to be delivered by the Acquired Entities to Republic no later than 10 days after the date hereof, with respect to each taxable period of each Acquired Entity, either such taxable period has been audited by the relevant taxing authority or the time for assessing or collecting Taxes with respect to each such taxable period has closed and such taxable period is not subject to review by any relevant taxing authority; (ii) no deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Taxes has been asserted or assessed by any taxing authority against any Acquired Entity; (iii) no Acquired Entity has consented to extend the time in which any Taxes may be assessed or collected by any taxing authority; (iv) no Acquired Entity has requested or been granted an extension of the time for filing any Tax Return to a date later than the Closing; (v) there is no action, suit, taxing authority proceeding, or audit or claim for refund now in progress, pending or threatened against or with respect to any Acquired Entity regarding Taxes; (vi) no Acquired Entity has made an election or filed a consent under Section 341(f) of the Code (or any corresponding provision of state, local or foreign law) on or prior to the Effective Date; (vii) there are no Liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of any Acquired Entity; (viii) no Acquired Entity will be required (A) as a result of a change in method of accounting for a taxable period ending on or prior to the Effective Date, to include any adjustment under Section 481(c) of the Code (or any corresponding provision of state, local or foreign law) in taxable income for any taxable period (or portion thereof) beginning after the Effective Date or (B) as a result of any "closing agreement," as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign law), to include any item of income or exclude any item of deduction from any taxable period (or portion thereof) beginning after the Effective Date; (ix) no Acquired Entity has been a member of an affiliated group (as defined in Section 1504 of the Code) or filed or been included in a combined, consolidated or unitary income Tax Return; (x) no Acquired Entity is a party to or bound by any tax allocation or tax sharing agreement and has no current or potential contractual obligation to indemnify any other Person with respect to Taxes; (xi) no Acquired Entity has made any payments or, is or will become obligated (under any contract entered into on or before the Closing) to make any payments, that will be non-deductible under Section 280G of the Code (or any corresponding provision of state, local or foreign law); and (xii) no Acquired Entity has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code (or any corresponding provision of state, local or foreign law) during the applicable period specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding provision of state, local or foreign law); (xiii) no claim has ever been made by a taxing authority in a jurisdiction where any Acquired Entity does not file Tax Returns that an Acquired Entity is or may be subject to Taxes assessed by such jurisdiction; (xiv) no Acquired Entity has any permanent establishment in any foreign country, as defined in the relevant tax treaty between the United States of America and such foreign country; (xv) true, correct and complete copies of all income and sales Tax Returns filed by or with respect to any Acquired Entity for the past three years have been furnished or made available to Republic; (xvi) no Acquired Entity will be subject to any Taxes for the period ending at the Closing for any period for which a Tax Return has not been filed imposed pursuant to Section 1374 or Section 1375 of the Code (or any corresponding provision of state, local or foreign law); and (xvii) no sales or use tax will be payable by any Acquired Company or Republic or any Surviving Corporation or transferee pursuant to the Related Transactions, on the transfer 24 25 of any Assets pursuant to the isolated or occasional sale rule, Fla. Admin. Code 12A-10.037 and the resale provisions of Fla. Admin. Code 12A-1.038 as a result of this transaction, and there will be no non-recurring intangible tax, documentary stamp tax, or other excise (or comparable tax imposed by any governmental entity) as a result of this transaction. Each Maroone Corporation that has filed a Tax return as an S corporation timely and properly filed an S corporation election under the Code and under applicable state and local Tax law for its first taxable year, and no such S election has been revoked or terminated and neither the Maroone Corporations nor any Shareholder has taken any action that would cause a termination of such S election. Each Partnership for all taxable periods has qualified to be treated as a partnership for Federal, state, local and foreign income Tax purposes. 3.20 INSURANCE. Each Acquired Entity is covered by valid, outstanding enforceable policies of insurance issued to it by reputable insurers covering its properties, assets and businesses against risks of the nature normally insured against by similar entities in the same or similar lines of business, and in the Principals' opinion, in coverage amounts typically and reasonably carried by such entities (the "Insurance Policies"). Such Insurance Policies are in full force and effect, and all premiums due thereon have been paid. Through the Effective Time, each of the Insurance Policies will be in full force and effect. Each Acquired Entity has complied with the provisions of such Insurance Policies applicable to it. A complete and correct list and copies of all Insurance Policies and all amendments and riders thereto have been provided to Republic and there is no pending claim or claims under any of the Insurance Policies for an amount in excess of $50,000 individually or $250,000 in the aggregate, including any claim for loss or damage to the properties, assets or business of any Acquired Entity. No Acquired Entity has failed to give, in a timely manner, any notice required under any of the Insurance policies to preserve its rights thereunder. 3.21 RECEIVABLES. All of the Receivables are valid and legally binding, represent bona fide transactions and arose in the ordinary course of business of the Acquired Entities. All of the Receivables are good and collectible receivables, and will be collected in accordance with past practice and the terms of such receivables (and in any event within six months following the Closing Date), without set off or counterclaims, subject to the allowance for doubtful accounts, if any, set forth on the Current Balance Sheets. For purposes of this Agreement, the term "Receivables" means all receivables of the Acquired Entities, including without limitation all manufacturer's warranty receivables and all trade account receivables arising from the provision of services, sale of inventory, notes receivable, and insurance proceeds receivable. 3.22 LICENSES AND PERMITS. Each Acquired Entity possesses all licenses and required governmental or official approvals, permits or authorizations (collectively, the "Permits") for its business and operations, including with respect to the operations of each of the Owned Properties and Leased Premises, and, within one week after the date hereof, the Acquired Entities will deliver to Republic a schedule that sets forth a true, complete and accurate list of all such Permits, itemized for each acquired Entity. All such Permits are valid and in full force and effect, each Acquired Entity is in compliance with the respective requirements thereof, and no proceeding is pending or threatened to revoke or amend any of them. None of such Permits is or will be 25 26 impaired or in any way affected by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.23 ADEQUACY OF THE ASSETS: RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets, Owned Properties, and Leased premises constitute, in the aggregate, all of the assets and properties necessary for the conduct of each of the businesses of the Acquired Entities in the manner in which and to the extent to which such business is currently being conducted. No current supplier to the Acquired Entities of items essential to the conduct of their businesses has threatened to terminate its business relationship with any of the Acquired Entities for any reason. Each Acquired Entity has no direct or indirect interest in any customer, supplier or competitor of the Acquired Entity or in any person from whom or to whom the Acquired Entity leases real or personal property. No officer, director, shareholder, or partner of any Acquired Entity, nor any person related by blood or marriage to any such person, nor any entity in which any such person owns any beneficial interest, is a party to any Contract or transaction with the Acquired Entity or has any interest in any property used by the Acquired Entity. 3.24 INTELLECTUAL PROPERTY. Each Acquired Entity has full legal right title and interest in and to all trademarks, service marks, trade names, copyrights, know-how, patents, trade secrets, licenses (including licenses for the use of computer software programs), and other intellectual property used in the conduct of its business (the "Intellectual Property"). The conduct of the business of the Acquired Entities as presently conducted, and the unrestricted conduct and the unrestricted use and exploitation of the Intellectual Property, does not infringe or misappropriate any rights held or asserted by any Person and to the knowledge of the Acquired Entities and the Principals, no Person is infringing on any Intellectual Property. No payments are required for the continued use of the Intellectual Property. None of the Intellectual Property has ever been declared invalid or unenforceable, or is the subject of any pending or threatened action for opposition, cancellation, declaration, infringement, or invalidity, unenforceability or misappropriation or like claim, action or proceeding. 3.25 CONTRACTS. Schedule 3.25 sets forth a list of each Contract to which any Acquired Entity is a party or by which any of them or their properties and assets are bound and which is material to any of their businesses, assets, properties or prospects (the "Material Contracts"), including without limitation all franchise, sales and service, dealer and other agreements or understandings (the "Franchise Agreements") with the Chevrolet and Oldsmobile Divisions of General Motors, the Ford Division of the Ford Motor Company, American Isuzu Motors, Inc., and the Dodge Division of the Chrysler Corporation or any other automobile manufacturer or distributor (collectively, the "Factories"). As indicated in Schedule 3.25, certain Acquired Entities are parties to Franchise Agreements for each of the Dealerships, which Franchise Agreements grant the Acquired Entities full rights and privileges necessary to operate the Dealerships. The copy of each Material Contract furnished to Republic is a true and complete copy of the document it purports to represent and reflects all amendments thereto made through the date of this Agreement. The Acquired Entities have not violated any of the terms or conditions of any Material Contract or any term or condition which would permit termination or material 26 27 modification of any Material Contract, all of the covenants to be performed by any other party thereto, to the knowledge of the Acquired Entities and the Principals, have been fully performed, and there are no claims for breach or indemnification or notice of default or termination under any Material Contract. No event has occurred which constitutes, or after notice or the passage of time, or both, would constitute, a default by any Acquired Entity under any Material Contract, and no such event has occurred which constitutes or would constitute a default by any other party. Each Acquired Entity is not subject to any liability or payment resulting from renegotiation of amounts paid under any Material Contract. As used in this Section 3.25, Material Contracts shall include, without limitation, formal or informal, written or oral, (a) loan agreements, indentures, mortgages, pledges, hypothecations, deeds of trust, conditional sale or title retention agreements, security agreements, equipment financing obligations or guaranties, or other sources of contingent liability in respect of any indebtedness or obligations to any other Person, or letters of intent or commitment letters with respect to same, which individually or in the aggregate exceed $100,000; (b) contracts obligating any Acquired Entity to provide products or services for a period of one year or more, excluding standard warranty contacts entered into in the ordinary course of its business without material modification from the preprinted forms used by the Acquired Entities in the ordinary course of business, copies of which have been supplied to Republic and which individually or in the aggregate exceed $100,000; (c) leases of real property; (d) leases of personal property which individually or in the aggregate provide for total payments in excess of $100,000 (other than those which individually provide for annual payments of less than $25,000 and which are cancelable without penalty on notice of sixty (60) days or less); (e) distribution, sales agency or franchise or similar agreements, or agreements providing for an independent contractor's services, or letters of intent with respect to same; (f) employment agreements, management service agreements, consulting agreements, confidentially agreements, non-competition agreements, employee handbooks, policy statements and any other agreements relating to any employee, officer, partner or director of the Acquired Entities; (g) licenses, assignments or transfers of trademarks, trade names, service marks, patents, copyrights, trade secrets or know how, or other agreements regarding proprietary rights or intellectual property; (h) any contract relating to pending capital expenditures by the Acquired Entities; (i) contracts obligating any Acquired Entity to purchase vehicles, parts, accessories, supplies, equipment, oil, advertising, media and media related services of any kind, not cancelable without penalty on notice of thirty (30) days or less; (j) any non-competition agreements restricting any Acquired Entity in any manner; and (k) other material Contracts or understandings, irrespective of subject matter and whether or not in writing, and not otherwise disclosed on the Schedules. 3.26 ACCURACY OF INFORMATION FURNISHED. No representation, statement or information contained in this Agreement (including, without limitation, the various Schedules attached hereto) or any agreement executed in connection herewith or in any certificate delivered pursuant hereto or thereto or made or furnished to Republic or its representatives by the Acquired Entities or the Principals, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained therein not misleading. The Acquired Entities have provided Republic with true, accurate and complete copies of all documents listed or described in the various Schedules attached hereto. 27 28 3.27 INVESTMENT INTENT; ACCREDITED INVESTOR STATUS; SECURITIES DOCUMENTS. Each of the Principals has had the opportunity to discuss the transactions contemplated hereby with Republic and has had the opportunity to obtain such information pertaining to Republic as has been requested, including but not limited to filings made by Republic with the SEC under the Exchange Act. Each of the Principals and the Partnerships is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act, and has such knowledge and experience in business or financial matters that he or it is capable of evaluating the merits and risks of an investment in the Republic Shares. Each of the Principals and the Partnerships hereby represents that he or it can bear the economic risk of losing his or its investment in the Republic Shares and has adequate means for providing for his current financial needs and contingencies. The Principals and Partnerships have received copies of all Republic Reports filed with the SEC since January 1, 1996. 3.28 [INTENTIONALLY OMITTED] 3.29 NO COMMISSIONS. No Acquired Entity nor any Principal has incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. 3.30 CERTAIN ACCOUNTING MATTERS. No Acquired Entity nor any of the Principals, nor any of their Affiliates, has taken or agreed to take any action that (without regard to any action taken or agreed to be taken by Republic or any of its Affiliates) would prevent Republic from accounting for the transactions contemplated hereby as pooling of interests business combinations in accordance with GAAP and the criteria of Accounting Principles Board Opinion No. 16 and the regulations of the SEC. ARTICLE IV CONDUCT OF BUSINESS PENDING THE CLOSING 4.1 CONDUCT OF BUSINESS BY THE ACQUIRED ENTITIES PENDING THE CLOSING. The Acquired Entities and the Principals, jointly and severally, covenant and agree that, between the date of this Agreement and the Effective Time, the business of the Acquired Entities shall be conducted only in, and the Acquired Entities shall not take any action except in, the ordinary course of business consistent with past practice. The Acquired Entities and each of the Principals shall use its or his reasonable best efforts to preserve intact the Acquired Entities' business organizations, to keep available the services of their current officers, employees and consultants, and to preserve their present relationships with customers, suppliers and other persons with which they have significant business relations. By way of amplification and not limitation, except as contemplated by this Agreement, the Acquired Entities shall not, between the date of this Agreement and the Effective Time, directly or indirectly, do or propose or agree to do any of the following without the prior written consent of Republic. 28 29 (a) amend or otherwise change its Articles or Certificate of Incorporation, Bylaws, partnership agreement or equivalent organizational documents; (b) issue, sell, pledge, dispose of, encumber, or, authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of its capital stock of any class or any partnership interests, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock of partnership interests, or any other ownership interest, of it, or (ii) any of its assets, tangible or intangible, except, in the case of (ii), in the ordinary course of business consistent with past practice; (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock or partnership interests, except that the Acquired Entities may make cash distributions only to the extent necessary to pay for the Principals' tax liability for earnings of the Acquired Entities, consistent with past practice in the ordinary course. (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock or partnership interests; (e) (i) acquire (including, without limitation, for cash or shares of stock or partnership interests, by merger, consolidation or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or make any investment either by purchase of stock or securities, contributions of capital or property transfer, or, except in the ordinary course of business, consistent with past practice, purchase any property or assets of any other Person, (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances, except for its "floor plan" financing of vehicle inventories in the ordinary course of business consistent with past practice or (iii) modify, terminate, or enter into any Contract other than as provided herein or in the ordinary course of business, consistent with past practice; (f) increase the compensation payable or to become payable to its officers or employees or partners, or, except as presently bound to do, grant any severance or termination pay to, or enter into any employment or severance agreement with, any of its directors, officers or other employees or partners, or establish, adopt, enter into or amend or take any action to accelerate any rights or benefits which any collective bargaining, bonus, profit sharing, trust, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees or partners; (g) take any action with respect to accounting policies or procedures other than in the ordinary course of business and in a manner consistent with past practices; 29 30 (h) pay, discharge or satisfy any existing claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of due and payable liabilities reflected or reserved against in its financial statements, as appropriate, or liabilities incurred after the date thereof in the ordinary course of business and consistent with past practice; (i) enter into any transaction with any Principal or Affiliate thereof; or (j) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty in Article III untrue or incorrect in any material respect. ARTICLE V ADDITIONAL AGREEMENTS 5.1 FURTHER ASSURANCES. Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby. 5.2 COMPLIANCE WITH COVENANTS. The Principals shall cause the Acquired Entities to comply with all of the covenants of the Acquired Entities under this Agreement. 5.3 COOPERATION. Each of the parties agrees to cooperate with the other in the preparation and filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to any law, rule or regulation in connection with the transactions contemplated by this Agreement and to use their respective best efforts to agree jointly on a method or overcome any objections by any Governmental Authority to any such transactions. 5.4 FACTORIES APPLICATIONS AND OTHER ACTIONS. Each of the parties hereto shall (a) cooperate in the preparation and filing of, and take all appropriate actions in connection with, the application to the Factories for approval of the transactions contemplated hereby, and (b) use its reasonable efforts to take, or cause to be taken, all appropriate actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated herein, including, without limitation, using its best efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of any Governmental Authority and parties to Contracts with the Acquired Entities as are necessary for the consummation of the transactions contemplated hereby. Each of the parties shall make on a prompt and timely basis all governmental or regulatory notifications and filings required to be made by it for the consummation of the transactions contemplated hereby. The parties also agree to use best efforts to defend all lawsuits or other 30 31 legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby and to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. 5.5 HSR ACT. Republic and the Acquired Entities and Principals shall make promptly (unless they have already made) their respective filings, if any, and thereafter make any other required submissions, under the HSR Act, with respect to the transactions contemplated hereby, and shall, if requested by Republic, seek early termination of the applicable waiting period under the HSR Act. Republic shall pay the HSR Act filing fee. 5.6 ACCESS TO INFORMATION. From the date hereof to the Effective Time, the Acquired Entities and the Principals shall, and shall cause their directors, officers, employees, auditors, counsel and agents to, afford Republic and Republic's officers, employees, auditors, counsel and agents reasonable access at all reasonable times to its properties, offices and other facilities, to its officers and employees and to all books and records, and shall furnish such persons with all financial, operating and other data and information as may be requested. No information provided to or obtained by Republic shall affect any representation or warranty in this Agreement. Following the Effective Time, the Principals shall have reasonable access to the Acquired Entities' tax records to prepare their own tax return, and shall have input in the preparation of the Acquired Entities' tax returns for the first fiscal year ending after the Effective Time. 5.7 NOTIFICATION OF CERTAIN MATTERS. Each of the parties to this Agreement shall give prompt notice to the other parties of the occurrence or non-occurrence of any event which would likely cause any representation or warranty made by such party herein to be untrue or inaccurate or any covenant, condition or agreement contained herein not to be complied with or satisfied (provided, however, that, any such disclosure shall not in any way be deemed to amend, modify or in any way affect the representations, warranties and covenants made by any party in or pursuant to this Agreement). 5.8 TAX AND ACCOUNTING TREATMENT. Republic and the Acquired Entities and the Principals will use their respective reasonable best efforts to cause the Mergers contemplated hereby to qualify as a reorganization under the provisions of Section 368(a) of the Code and will not take any action after the Mergers are effected to cause the Mergers to lose their tax-free status. All parties hereto agree to file the plan of merger for the Mergers with their respective federal income tax returns for the year in which the Mergers are effective, and to comply with the reporting requirements of Treasury Regulation 1.368-3. In addition, Republic, the Acquired Entities and the Principals will not take any action after the date hereof to cause the Mergers or Related Transactions contemplated hereby not to be accountable as a pooling of interests business combination. 5.9 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as otherwise permitted or expressly contemplated herein, no party hereto or their respective Affiliates, employees, agents and representatives shall disclose to any third party this Agreement, the subject matter or terms hereof or any confidential information or other proprietary knowledge concerning 31 32 the business or affairs of any other party which it may have acquired from such party in the course of pursuing the transactions contemplated by this Agreement without the prior consent of the other parties hereto; provided, that any information that is otherwise publicly available, without breach of this provision , or has been obtained from a third party, shall not be deemed confidential information. No press release or other public announcement related to this Agreement or the transactions contemplated hereby shall be issued by any party hereto without the prior approval of the other parties, except that Republic may make such public disclosure which it believes in good faith to be required by law or by the terms of any listing agreement with or requirements of Nasdaq (in which case Republic will consult with Maroone prior to making such disclosure). 5.10 NO OTHER DISCUSSIONS. The Acquired Entities and the Principals and their Affiliates, employees, agents and representatives will not (a) initiate, encourage the initiation by others of discussions or negotiations with third parties or respond to solicitations by third persons relating to any merger, sale or other disposition of any substantial part of the assets, capital stock, partnership interests (or derivatives thereof), business or properties of any Acquired Entities (whether by merger, consolidation, sale of stock or partnership interests, sale of assets, or otherwise), or (b) enter into any agreement or commitment (whether or not binding) with respect to any of the foregoing transactions. The Acquired Entities and the Principals will immediately notify Republic if any third party attempts to initiate any solicitation, discussion, or negotiation with respect to any of the foregoing transactions, and shall provide Republic with the name of such third parties and the terms of any offers. 5.11 RESTRICTIVE COVENANTS. In order to assure that Republic will realize the benefits of the transactions contemplated hereby, each of the Principals agrees with Republic that he will not: (a) during the Restricted Period, directly or indirectly, alone or as a partner, joint venturer, officer, director, member, employee, consultant, agent, independent contractor or stockholder of, or lender to, any company or business, engage in selling, leasing, or servicing any new or used vehicles (the "Auto Business") or in the wholesale or retail supply of parts with respect thereto (the "Parts Business") anywhere in the Restricted Territory; provided, however, that, the beneficial ownership of less than five percent (5%) of the shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this Section; (b) during the Restricted Period, directly or indirectly (i) induce any Person which is a customer of any Acquired Entity, Republic or any Affiliate of the Acquired Entities or Republic to patronize any business directly or indirectly in competition with the Auto Business or the Parts Business conducted by the Acquired Entities, Republic or any Affiliate of the Acquired Entities or Republic; (ii) canvass, solicit or accept from any Person which is a customer of the Acquired Entities, Republic or any Affiliate of the Acquired Entities or Republic, any such competitive business; or (iii) request or advise any Person which is a customer of the Acquired Entities, Republic or any Affiliate of the 32 33 Acquired Entities or Republic, or its or their successors, to withdraw, curtail or cancel any such customer's business with any such entity; (c) during the Restricted Period, directly or indirectly employ, or knowingly permit any company or business directly or indirectly controlled by him, to employ, any person who was employed by the Acquired Entities, Republic or any Affiliate of the Acquired Entities or Republic at or within the prior six months, or in any manner seek to induce any such person to leave his or her employment; (d) during the Restricted Period, directly or indirectly, in any way utilize, disclose, copy, reproduce or retain in his possession any of the Acquired Entities' proprietary rights or records, including, but not limited to any customer lists, provided, however, that the Principals shall be allowed reasonable access to review and copy such records for purposes of litigation and tax audits, but with respect to any litigation against or adverse to Republic or any of its Affiliates such access shall be only to the extent required under laws and rules of procedure and discovery applicable to such proceeding. For purposes of this Section 5.11, (a) the "Restricted Period" shall mean (i) for the Principals other than Maroone, the period beginning on the Effective Time and ending on the fifth anniversary of the Effective Time, and (ii) for Maroone, the longer of (A) the period beginning on the Effective Time and ending on the fifth anniversary of the Effective Time, or (B) the second anniversary of the termination of his employment following the Effective Time, and (b) the "Restricted Territory" shall mean anywhere in the United States. The Principals agree and acknowledge that the restrictions contained in this Section 5.11 are reasonable in scope and duration and are necessary to protect Republic and the Acquired Entities after the Effective Time. If any provision of this Section 5.11, as applied to any party or to any circumstance, is adjudged by a court to be invalid or unenforceable, the same will in no way affect any other circumstance or the validity or enforceability of the remainder of this Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision, and/or to delete specific words or phrases, and in its reduced form, such provision shall then be enforceable and shall be enforced. The parties agree and acknowledge that the breach of this Section 5.11 will cause irreparable damage to Republic and upon breach of any provision of this Section 5.11, Republic shall be entitled to injunctive relief, specific performance or other equitable relief, provided, however, that the foregoing remedies shall in no way limit any other remedies which Republic may have (including, without limitation, the right to seek monetary damages). 5.12 TRADING IN REPUBLIC COMMON STOCK. Except as otherwise expressly consented to by Republic, from the date of this Agreement until the Effective Time, neither the Acquired Entities, the Principals nor any of their Affiliates will directly or indirectly purchase or sell (including short sales) any shares of Republic Common Stock in any transactions effected on Nasdaq or otherwise. 33 34 5.13 EMPLOYMENT OF SHAREHOLDERS AND OTHER EMPLOYEES. Republic or its assignee and Maroone shall enter into an employment agreement in the form attached hereto as Schedule 5.13. 5.14 DUE DILIGENCE REVIEW AND ENVIRONMENTAL ASSESSMENT. Republic shall be entitled to conduct prior to Closing a due diligence review of the assets, properties, books and records of the Acquired Entities and an environmental assessment of the Owned Properties and Leased Premises (hereinafter referred to as "Environmental Assessment"). The Environmental Assessment may include, but not be limited to, a physical examination of the Owned Properties and Leased Premises, and any structures, facilities, or equipment located thereon, soil samples, ground and surface water samples, storage tank testing, review of pertinent records (including but not limited to, off-site disposal records and manifests), documents, and Licenses of the Acquired Entities. The Acquired Entities shall provide Republic or its designated agents or consultants with the access to such properties which Republic, its agents or consultants require to conduct the Environmental Assessment. If the Environmental Assessment identifies Recognized Environmental Conditions (as defined by ASTM Standard Practice E-1527) which require remediation or further evaluation under the Environmental Laws as defined in Section 3.13(f) of this Agreement, then Republic shall notify the Acquired Entities and the Principals in writing and the Acquired Entities and the Principals shall be financially responsible for the remediation of all Recognized Environmental Conditions which remediation is, may or would be required by any appropriate governmental agency. Republic's failure or decision not to conduct any such Environmental Assessment shall not affect any representation or warranty of the Acquired Entities or the Principals under this Agreement. Prior to Closing, the parties hereto shall agree on the appropriate actions (and the cost thereof) to be taken with respect to any such Recognized Environmental Conditions (provided further that in the event the parties do not agree prior to Closing on which action is to be taken with respect to any such Recognized Environmental Conditions, after Closing, Republic shall at its reasonable discretion, determine the appropriate course of action (and the cost thereof) with respect thereto). If the cost of remediation of all Recognized Environmental Conditions exceeds $10,000,000 the Acquired Entities and the Principals reserve the right to terminate this Agreement, prior to the Effective Time, upon the delivery of written notice in accordance with Section 13.1 of this Agreement. 5.15 TITLE INSURANCE AND SURVEYS. (a) Within 10 business day after the date of this Agreement, the Acquired Entities and the Principals shall obtain and deliver to Republic commitments (the "Commitments") issued by a title insurance company acceptable to Republic (the "Title Company") and dated not earlier than the date of this Agreement for the issuance of an ALTA Owners Policy of Title Insurance (10-17-92) (with Florida Modifications), (the "Title Policy") for each of the Owned Properties (and such of the Leased Premises as Republic may designate) in an amount acceptable to Republic, together with legible hard copies of all title exceptions reflected in the commitments. At Republic's option, the Acquired Entities and principals shall deliver copies of previous owner policies or other title evidence sufficient for Republic to obtain the Commitments directly from the Title 34 35 Company or its agent. In either case, the premium for the Title Policy shall be paid by the Principals. The Title Policy shall be in the amount designated by Republic, showing fee simple title to the Owned Properties vested now or to be vested at or immediately prior to the Closing in the Acquired Entities subject only to current real estate Taxes not yet due and payable as of the Effective Time, and such other covenants, conditions, easements, and exceptions to title as Republic may approve in writing (collectively, the "Permitted Exceptions"). The Commitments and the Title Policy to be issued by the Title Company shall have all Standard and General Exceptions deleted so as to afford full "extended form coverage" and shall contain an ALTA Zoning Endorsements 3.1 (if available), contiguity (where appropriate), survey, and such other endorsements as may be reasonably requested by Republic, excluding nonimputation and creditors rights endorsements. At the Closing, the Acquired Entities, the Principals and their Affiliates shall deliver such affidavits or other instruments as the Title Company may reasonably require to delete Standard and General Exceptions and to provide the special endorsements required hereunder. The Acquired Entities and the Principals shall cause the Commitments to be later-dated to cover the Closing and to cause the Title Company to deliver the Title Policy at the Closing as directed by Republic. (b) Within 20 days after the date of this Agreement but before the Closing, the Acquired Entities and the Principals shall deliver to Republic and the Title Company an as-built plat of survey of each of the Owned Properties and the Leased Premises (the "Surveys") prepared by a registered land surveyor or engineer, licensed in the respective states in which such properties are located, dated on or after the date hereof, certified to Republic, the Title Company, and such other entities as Republic may designate in writing to the Acquired Entities and the Principals prior to the Closing, and conforming to current ALTA/ACSM Minimum Detail Requirements for Land Title Surveys, sufficient to cause the Title Company to delete the standard printed survey exception. Each Survey shall show access from the land to dedicated roads and shall include a flood plain certification. Any survey may be a recertification of a prior survey, provided that it meets the above-described criteria. (c) If (i) any Commitment discloses a title exception other than a Permitted Exception (an "Unpermitted Exception") or (ii) any Survey discloses any encroachment, overlap, boundary dispute, or gap or any other matter which renders title to any of the Owned Properties unmarketable or reflects that any utility service to the improvements or access thereto does not lie wholly within the applicable parcel of real property, or within an encumbered easement for the benefit of such parcel of real property, or reflects any other matter adversely affecting the use or improvements of such parcel of real property (a "Survey Defect"), then the Acquired Entities and the Principals, prior to the Closing, shall have the Unpermitted Exception removed from such Commitment or the Survey Defect corrected or insured over by an appropriate title insurance endorsement, all in a manner reasonably satisfactory to Republic. 35 36 5.16 SHAREHOLDER AND DIRECTOR VOTE. Each of the Principals, in executing this Agreement, consents as a director, shareholder, and/or partner (as applicable) of the Acquired Entities to the Mergers and other transactions contemplated hereby, and waives notice of any meeting in connection therewith and hereby release and waive all rights with respect to the transactions contemplated hereby under any agreements relating to the sale, purchase or voting of stock or partnership interests of the Acquired Entities, including without limitation the Shareholders Agreement, dated July 13, 1989, and effective November 2, 1988, by and between Albert E. Maroone, Michael E. Maroone and Faisal Ahmed, the Buy-Sell Agreement, dated June 22, 1992, by and among Albert E. Maroone and Michael E. Maroone, and the Cross Purchase Agreement by and among Michael E. Maroone, Kathleen M. Hoctor and Patricia Damoorgian. 5.17 AUDITED FINANCIAL STATEMENTS OF ACQUIRED ENTITIES. The Acquired Entities acknowledge and agree that they have already engaged their certified public accounting firm of Crowe, Chizek and Company LLP to complete an audit and prepare audited financial statements for each of the Acquired Entities (the "Audited Statements") as soon as practicable, it being anticipated that it will be completed the 21st day after the date of this Agreement, and the Acquired Entities shall deliver such Audited Statements (including signed audit opinions relating thereto) to Republic upon completion. The Audited Statements shall comply with all laws and regulations of the Securities and Exchange Commission that require Republic to file audited financial statements with the SEC with respect to registrations under the Securities Act and for reporting purposes under the Securities Exchange Act. 5.18 [INTENTIONALLY DELETED] 5.19 [INTENTIONALLY DELETED] 5.20 POSITIVE WORKING CAPITAL. The Acquired Entities and the Principals hereby covenant, represent and warrant that on and as of the Closing Date, the total aggregate current assets of the Acquired Entities (other than any current assets that are not held by the Surviving Corporations upon consummation of the Mergers and any current assets of the Partnerships that are not acquired by the Republic Acquisition Subs hereunder) shall exceed the total aggregate current liabilities of the Acquired Entities, in each case determined in accordance with GAAP (such condition is referred to herein as "Positive Working Capital"). 5.21 RELEASES. Each of the Acquired Entities and each of the Principals shall deliver (and shall cause any other Person holding Equity Rights to deliver) to Republic a release (collectively, the "Releases") in such form as is reasonably satisfactory to Republic releasing all Equity Rights and releasing all claims of any nature against the Acquired Entities and any claims arising out of the Mergers and the Related Transactions and the other transactions contemplated by this Agreement, except for claims and obligations set forth in the express terms of this Agreement; provided, however, that if all such Releases are not delivered as required then, at Republic's election at its sole discretion, Maroone shall sign an indemnification agreement to indemnify Republic and its subsidiaries and Affiliates from and against all such claims, rights and obligations to which the Releases were to relate. 36 37 5.22 APPOINTMENT OF MAROONE REPRESENTATIVE. Each of the Acquired Entities and the Principals hereby appoints Michael E. Maroone (the "Maroone Representative") as the attorney-in-fact of such Person, with full power and authority, including power of substitution, acting in the name of and for and on behalf of such person to amend or waive any provision of this Agreement, to terminate this Agreement pursuant to the provisions hereof, and to take all other action under or related to this Agreement, which in his discretion, he may consider necessary or proper to effectuate the transactions contemplated hereunder and to resolve any dispute with the Republic Companies over any aspect of this Agreement and on behalf of such person to enter into any agreement to effectuate any of the foregoing which shall have the effect of binding such person as if such person had personally entered into such an agreement; provided, however, that all actions taken or decisions made by the Maroone Representative on behalf of the Principals and the Acquired Entities shall be taken or made in a manner which is ratable and equitable amongst all of them. This appointment and power of attorney shall be deemed as coupled with an interest and all authority conferred hereby shall be irrevocable and shall not be subject to termination by operation of law, whether by the death or incapacity or liquidation or dissolution of any Acquired Entity or Principal or the occurrence of any other event or events. The Maroone Representative may not terminate this power of attorney with respect to any Acquired Entity or Principal, or such Person's successors or assigns without the consent of Republic. Each Acquired Entity and Principal agrees to hold the Maroone Representative harmless from any and all loss, damage or liability and expenses (including legal fees) which such person may sustain as a result of any action taken in good faith by the Maroone Representative. 5.23 DRIVER'S MART. Maroone and Maroone Isuzu, Inc. hereby represent and warrant that their agreements and relationships with Driver's Mart Worldwide, Inc. ("Driver's Mart") have been terminated with no further rights or obligations between Driver's Mart and any Acquired Entity or Principal, and any proceeds received by the Acquired Entities or Principals in connection therewith shall be acquired by the Republic Companies pursuant to this Agreement. ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES The obligations of the Republic Companies to effect the Mergers and the other transactions contemplated hereby shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, any or all of which may be waived in whole or in part by the Republic Companies: 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Acquired Entities and the Principals contained in this Agreement shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time except that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. The Acquired Entities and each of the Principals shall have performed or complied with all of their obligations required by this Agreement to be performed or complied with at or 37 38 prior to the Closing Date. The Acquired Entities and each of the Principals shall have delivered to Republic a certificate, dated as of the Closing Date, (which in case of the Maroone Corporations shall be duly signed by their respective Chief Executive Officers and Chief Financial Officers and in case of the Partnerships shall be signed by their respective general partners) certifying that such representations and warranties are true and correct and that all such obligations have been performed and complied with. 6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the date hereof and the Closing Date, (a) there shall have been no Material Adverse Change to the Acquired Entities, (b) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of the Acquired Entities and (c) none of the Assets of the Acquired Entities shall have been damaged by fire, flood, casualty, act of God or the public enemy or other cause (regardless of insurance coverage for such damage) which damages may have a Material Adverse Effect thereon, and the Acquired Entities and the Principals shall have delivered to Republic a certificate, dated as of the Closing Date, to that effect. 6.3 CORPORATE CERTIFICATE. The Acquired Entities shall have delivered to the Republic Companies (i) state- certified copies of the articles or certificate of incorporation or certificate of limited partnership of each of the Acquired Entities and copies of the bylaws or partnership agreement of each Acquired Entity as in effect immediately prior to the Effective Time, (ii) copies of resolutions adopted by the Board of Directors and shareholders of each Maroone Corporation and the partners of each Partnership authorizing the transactions contemplated by this Agreement, and (iii) a certificate of good standing of each of the Acquired Entities issued by the state of its incorporation or formation and each other state in which it is qualified to do business as of a date not more than 5 days prior to the Closing Date, and all of such documents as to each Acquired Entity shall be certified as of the Closing Date by the Secretary or general partner of such Acquired Entity as being true, correct and complete. 6.4 OPINION OF COUNSEL. Republic shall have received an opinion dated as of the Closing Date from counsel for the Acquired Entities and the Partners in form and substance acceptable to Republic, including but not limited to, such matters as set forth on Schedule 6.4. 6.5 CONSENTS. The Acquired Entities, the Principals, and Republic shall have received consents to the Mergers and Related Transactions and other transactions contemplated hereby and waivers of rights to terminate or modify any material rights or obligations of the Acquired Entities or Principals, from any Person from whom such consent or waiver is required under any Material Contract listed or required to be listed in Schedule 3.25 (including but not limited to, any Franchise Agreement or any other franchise, dealer or other agreement with the Factories) or under the HSR Act or other law or regulation as of a date not more than five days prior to the Closing, or who as a result of the transactions contemplated hereby, would have such rights to terminate or modify such Contracts or instruments, either by the terms thereof or as a matter of law. Republic shall have received all consents required under the Franchise Agreements between the Acquired Entities and the Factories or shall have entered into new dealer and franchise 38 39 agreements of the type generally in use at that time to operate a dealership of each of the Factories at the current locations of the Dealerships, subject only to such additional terms and conditions as are acceptable to Republic. Republic shall have obtained any applicable dealer license or other approvals required under state laws or the applicable state motor vehicle authorities and all other Governmental Authorities with respect to the transactions contemplated hereby. 6.6 SECURITIES LAWS. Republic shall have received all necessary consents and otherwise complied with any state Blue Sky or securities laws applicable to the issuance of the Republic Shares in connection with the transactions contemplated hereby. 6.7 POOLING LETTERS. The Acquired Entities shall have received from Crowe, Chizek and Company LLP, a letter, dated the Closing Date, confirming that to their knowledge after due and diligent inquiry of management, there have been no transactions or events with respect to the Acquired Entities which would, and the ownership structure and attributes of the Acquired Entities and the Principals would not, prohibit the transactions contemplated hereby, if consummated, from being accounted for as pooling of interests business combinations. Republic shall have received from Arthur Andersen LLP, a letter, dated the Closing Date, confirming that the transactions contemplated hereby, if consummated, can properly be accounted for as pooling of interests combinations in accordance with GAAP and the criteria of Accounting Principles Board Opinion No. 16 and the regulations of the SEC. 6.8 POOLING UNDERTAKINGS. At or prior to the Closing, the Shareholders and other appropriate Persons shall have delivered to Republic a letter agreement relating to "pooling of interests" criteria, in form and substance satisfactory to Republic. 6.9 AUDITED STATEMENTS. At or prior to the Closing Date, the Audited Statements shall have been delivered to Republic as required by Section 5.17, or if not so delivered then Republic shall have received assurances satisfactory to Republic that the Audited Statements will be delivered as required under Section 5.17. 6.10 STOCK POWERS. At the Closing, the parties to receive the Republic Shares shall have delivered to Republic, for use in connection with the Held Back Shares, ten stock powers executed in blank, with signature guarantees. 6.11 NO ADVERSE LITIGATION. There shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, invalidate or collect damages arising out of the Mergers or other transactions hereunder, and which, in the judgment of Republic, makes it inadvisable to proceed with the transactions contemplated hereby. 6.12 EMPLOYMENT AGREEMENTS. At or prior to the Closing, as provided in Section 5.13, Maroone shall have entered into an employment agreement with one of the Acquired Entities, Republic, or at Republic's option, one or more of its assignees. 39 40 6.13 LIABILITIES. Prior to the Closing, (a) each Acquired Entity shall have obtained full satisfactions or releases of all obligations and liabilities due to or on behalf of any Affiliate of any Acquired Entity or any Principal. 6.14 POSITIVE WORKING CAPITAL. The Acquired Entities shall have Positive Working Capital as provided in Section 5.20. 6.15 TERMINATION OF EQUITY RIGHTS. All Releases shall have been delivered to Republic in form and substance reasonably satisfactory to Republic. 6.16 BOARD APPROVAL. The transactions contemplated hereby shall have been approved by the Board of Directors of Republic. ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE ACQUIRED ENTITIES AND PRINCIPALS The obligations of the Acquired Entities and the Principals to effect the Mergers and the Related Transactions shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, any or all of which may be waived in whole or in part by the Acquired Entities and the Principals. 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Republic Companies contained in this Agreement shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time except that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. Republic shall have performed and complied with all of its obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. The Republic Companies shall each have delivered to the Acquired Entities a certificate, dated as of the Closing Date, and signed by an executive officer, certifying that such representations and warranties are true and correct and that all such obligations have been performed and complied with. 7.2 REPUBLIC SHARES. At the Closing, Republic shall have issued all of the Republic Shares and shall have delivered to the parties to receive such shares hereunder (a) certificates representing the Republic Shares issued to them hereunder, other than the Held Back Shares, and (b) copies of certificates representing the Held Back Shares. 7.3 NO ORDER OR INJUNCTION. There shall not be issued and in effect by or before any court or other governmental body an order or injunction restraining or prohibiting the transactions contemplated hereby. 40 41 7.4 HSR ACT WAITING PERIOD. Any applicable waiting period under the HSR Act shall have expired or been terminated. 7.5 OPINION OF COUNSEL. The Acquired Entities shall have received an opinion dated as of the Closing Date from Republic's general counsel substantially in the form attached as Schedule 7.5 hereto. ARTICLE VIII REGISTRATION RIGHTS The parties receiving the Republic Shares hereunder shall have the following registration rights with respect to the Republic Shares issued to them hereunder. 8.1 REGISTRATION RIGHTS FOR REPUBLIC SHARES; FILING OF REGISTRATION STATEMENT. Republic will utilize its reasonable best efforts to cause, as soon as practicable following the Closing Date, a registration statement to be filed under the Securities Act or an existing registration statement to be amended for the purpose of registering the Republic Shares for resale by a Holder thereof (the "Registration Statement"). For purposes of this Article VIII, a person is deemed to be a "Holder" of Republic Shares whenever such person is the record owner of Republic Shares. Republic will use it reasonable best efforts to have the Registration Statement become effective and cause the Republic Shares to be registered for resale under the Securities Act, and registered, qualified or exempted under the state securities laws of such jurisdictions as any Holder reasonably requests as soon as reasonably practicable following the Effective Date, provided, however, that Republic shall not be required to qualify to do business in any state or to consent to be subject to general service of process in any state where it is not otherwise required to be so qualified or subject. 8.2 EXPENSES OF REGISTRATION. Republic shall pay all expenses incurred by Republic in connection with the registration, qualification and/or exemption of the Republic Shares, including any SEC and state securities law registration and filing fees, printing expenses, fees and disbursements of Republic's counsel and accountants, transfer agents' and registrars' fees, fees and disbursements of experts used by Republic in connection with such registration, qualification and/or exemption, and expenses incidental to any amendment or supplement to the Registration Statement or prospectuses contained therein. Republic shall not, however, be liable for any sales, broker's or underwriting commissions or discounts upon sale by any Holder of any of the Republic Shares. 8.3 FURNISHING OF DOCUMENTS. Republic shall furnish to the Holders such reasonable number of copies of the Registration Statement, such prospectuses as are contained in the Registration Statement and such other documents as the Holders may reasonably request in order to facilitate the offering of the Republic Shares. 41 42 8.4 AMENDMENTS AND SUPPLEMENTS. Republic shall prepare and promptly file with the SEC and promptly notify the Holders of the filing of such amendments or supplements to the Registration Statement or prospectuses contained therein as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to the Republic Shares is required to be delivered under the Securities Act, any event shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made not misleading (and the Holders shall not use any prospectus to offer or sell Republic Shares until such amendments or supplements are completed and the Registration Statement is effective), provided, however, that Republic shall be entitled to delay any such filing and the Holders' use of the prospectus if Republic determines that such filing would impede, delay, or interfere with any significant financing, acquisition, or other transaction involving Republic, or require disclosure of material information which Republic has a bona fide business purpose for preserving as confidential. Republic shall also advise the Holders promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of the Registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. 8.5 DURATION. Republic shall maintain the effectiveness of the Registration Statement until such time as Republic reasonably determines, based on an opinion of counsel, that all of the Holders will be eligible to sell all of the Republic Shares then owned by the Holders without the need for continued registration of the shares within the three month period immediately following the termination of the effectiveness of the Registration Statement. Republic's obligations contained in Sections 8.1, 8.3 and 8.4 shall terminate on the second anniversary of the Closing Date; provided, however, that if the two-year holding period under Rule 144 under the Securities Act is reduced to one year, such terminations shall take effect as of the first anniversary of the Closing Date. 8.6 FURTHER INFORMATION. If Republic Shares owned by a Holder are included in any registration, such Holder shall furnish Republic such information regarding itself as Republic may reasonably request or as required by applicable law in connection with any registration, qualification or compliance referred to in this Agreement. 8.7 INDEMNIFICATION. (a) Republic will indemnify and hold harmless the Holders and each person, if any, who controls a Holder within the meaning of the Securities Act, from and against any and all losses, damages, liabilities, costs and expenses to which the Holders or any such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any prospectus contained therein or any amendment or supplement thereto, or 42 43 arise out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they were made, not misleading; provided, however, that, Republic will not be liable in any such case to the extent that any such loss, claim, damage, liability, cost or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of any Holder or such controlling person in writing specifically for use in the preparation thereof. (b) Each of the Holders will indemnify and hold harmless Republic and each person, if any, who controls Republic within the meaning of the Securities Act, from and against any and all losses, damages, liabilities, costs and expenses to which Republic or any such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, if such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in conformity with written information furnished by or on behalf of any Holder specifically for use in the preparation thereof. (c) Promptly after receipt by an indemnified party pursuant to the provisions of paragraph (a) or (b) of this Section 8.7 of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said paragraph (a) or (b), promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have hereunder unless the indemnifying party has been materially prejudiced thereby nor will such failure to so notify the indemnifying party relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any action include both the indemnified party and the indemnifying party and there is a conflict of interest which would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said paragraph (a) or (b) for 43 44 any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless (i) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action or (ii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. (d) In the event that Republic determines in its sole discretion to allow any of the Republic Shares to be sold by any Holder or Holders in an underwritten public offering, (i) Republic shall provide customary indemnification to the underwriters of such offering and any person controlling any such underwriter on behalf of the Holder or Holders making the offering; provided, however, that Republic shall not be required to consent to any such underwriting or to provide such indemnification in respect of the matters described in the proviso to the first sentence of Section 8.7(a), and (ii) the Holders desiring to participate in such offering shall enter into the underwriting agreement for such offering. ARTICLE IX INDEMNIFICATION 9.1 AGREEMENT BY THE PRINCIPALS FOR INDEMNIFICATION. The Principals other than Maroone Isuzu, Inc. jointly and severally agree to indemnify and hold Republic and its stockholders, directors, officers, employees, attorneys, agents and Affiliates harmless from and against, and at Republic's election in its sole discretion Republic shall be entitled to recover by set off against the Held Back Shares in accordance with Section 9.3, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, related counsel and paralegal fees and expenses) incurred or suffered by Republic arising out of, relating to, or resulting, from (i) any breach of a representation or warranty made by the Acquired Entities or the Principals in or pursuant to this Agreement, (ii) any breach of the covenants or agreements made by the Acquired Entities or the Principals in or pursuant to this Agreement, (iii) any inaccuracy in any certificate, instrument or other document delivered by the Acquired Entities or the Principals as required by this Agreement or (iv) any Excluded Liabilities which any Surviving Corporation, Republic or any Affiliate of Republic may pay or be required to or otherwise pay (collectively, "Indemnifiable Damages"). Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Republic shall have the right to be put in the same pre-tax consolidated financial position as it would have been in if the breach, inaccuracy or Excluded Liability referenced in the foregoing clauses (i), (ii), (iii) and (iv) that caused such Indemnifiable Damages had not occurred. Notwithstanding anything to the contrary contained herein, Republic shall not be entitled to any Indemnifiable Damages unless the aggregate of all such Indemnifiable Damages exceeds $500,000 ("Indemnification Threshold"), in which case Republic shall be entitled to the full amount of Indemnifiable Damages; provided, however, that the Indemnification Threshold shall be $100,000 for breaches of Section 3.13. 44 45 9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by the Acquired Entities and Principals in this Agreement or pursuant hereto shall survive for a period of one year after the Closing Date. No claim for the recovery of Indemnifiable Damages may be asserted by Republic after such representations and warranties shall thus expire; provided, however, that claims for Indemnifiable Damages first asserted within such period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. Each of the representations and warranties of the Republic Companies shall expire at the Effective Time. 9.3 SECURITY FOR THE INDEMNIFICATION OBLIGATION. As security for the indemnification obligations contained in this Article IX, at the Closing, Republic shall set aside and hold certificates representing the Held Back Shares issued pursuant to this Agreement. Republic may set off against the Held Back Shares any Indemnifiable Damages, subject, however, to the following terms and conditions: (a) Republic shall give written notice to the holders of Held Back Shares of any claim for Indemnifiable Damages or any other damages hereunder, which notice shall set forth (i) the amount of Indemnifiable Damages or other loss, damage, cost or expense which Republic claims to have sustained by reason thereof, and (ii) the basis of such claim; (b) Such set off shall be effected on the later to occur on the expiration of twenty (20) days from the date of such notice or, if such claim is contested, the date the dispute is resolved, and such set off shall be charged proportionally against the shares set aside; (c) After the Held Back Shares are registered and any restrictions on sale imposed under the Securities Act or otherwise are terminated, the Shareholders may instruct Republic to sell some or all of the Held Back Shares and the net proceeds thereof shall be substituted for such Held Back Shares in any set off to be made by Republic pursuant to any claim hereunder subject to continued compliance with any applicable SEC and other regulations; and (d) For purposes of any set off against the Held Back Shares pursuant to this Article IX, the shares of Republic Common Stock not sold as provided in clause (c) of this Section shall be valued at the Price per Share. 9.4 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES. Except with respect to Held Back Shares sold pursuant to the foregoing Section 9.3(c) (and in the case of such shares, until the same are transferred), all Held Back Shares shall be deemed to be owned by the record holders thereof and the record holders shall be entitled to vote the Held Back Shares; provided, however, that, there shall also be deposited with Republic subject to the terms of this Article IX, 45 46 all shares of Republic Common Stock or other assets issued to or paid upon Held Back Shares as a result of any stock or other dividend or distribution or stock split with respect to the Held Back Shares. All stock or other distributions issued or paid upon Held Back Shares shall be delivered to the person or entity entitled to receive such Held Back Shares together with the delivery of such Held Back Shares pursuant to Section 9.5. 9.5 DELIVERY OF HELD BACK SHARES. Republic agrees to deliver to the holders of the Held Back Shares, no later than one year after the Effective Date any Held Back Shares (and distributions thereon) then held by Republic (or proceeds from the sale of Held Back Shares) unless there then remains unresolved any claim for Indemnifiable Damages or other damages hereunder as to which notice has been given, in which event Republic shall retain such number of Held Back Shares (and such amount of proceeds therefrom or distributions thereon) as is sufficient to satisfy any such unresolved claim, as well as the attorney fees and costs associated therewith, and shall release the remaining Held Back Shares (and such remaining proceeds and distributions) to the holders thereof; provided, however, if Republic has made no claim for damages hereunder during the first six months after the Effective Date, Republic shall deliver 50% of the Held Back Shares (and such proceeds thereon) to the holders thereof pro rata, promptly after such six-month period. Any Held Back Shares (and proceeds from the sale of, or distributions on, Held Back Shares) remaining on deposit after all such claims shall have been satisfied shall be returned to the holders thereof promptly after the time of satisfaction. 9.6 ADJUSTMENT TO PURCHASE PRICE. All payments for Indemnifiable Damages made pursuant to this Article IX shall be treated as adjustments to the Aggregate Consideration provided in Section 1.4. 9.7 NO BAR. If the Held Back Shares are insufficient to set off any claim for Indemnifiable Damages made hereunder (or have been delivered to the holders prior to the making or resolution of such claim), then Republic may take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. 9.8 REMEDIES CUMULATIVE. The remedies provided herein shall be cumulative and shall not preclude Republic from asserting any other right, or seeking any other remedies against the Principals. 46 47 ARTICLE X SECURITIES LAW MATTERS The parties agree as follows with respect to the sale or other deposition after the Closing Date of the Republic Shares: 10.1 DISPOSITION OF SHARES. (a) The parties to receive the Republic Shares hereunder acknowledge that (i) they may be deemed to be "affiliates" of the Acquired Entities for purposes of qualifying the transactions contemplated hereby as pooling of interests business combinations under applicable accounting and SEC rules and regulations, and (ii) the Republic Shares constitute "restricted securities" as defined in Rule 144 under the Securities Act. Each of the parties to receive Republic Shares hereunder agrees that prior to Closing they will not dispose of any shares of capital stock or partnership interests of the Acquired Entities, and following the Closing he or it will not sell, transfer or otherwise dispose of any of their Republic Shares until such time as final results of operations of Republic covering at least thirty (30) days of combined operations of Republic and the Acquired Entities have been published. (b) The parties to receive Republic Shares hereunder agree that they will not sell, transfer or otherwise dispose of any Republic Shares, except pursuant to (a) an exemption from the registration requirements under the Securities Act, which does not require the filing by Republic with the SEC of any registration statement, offering circular or other document, in which case, each such Person shall first supply to Republic an opinion of counsel (which counsel and opinions shall be satisfactory to Republic) that such exemption is available, or (b) an effective registration statement filed by Republic with the SEC under the Securities Act. 10.2 LEGENDS. The certificates representing the Republic Shares shall bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE ACT, AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO, OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, AND ALSO MAY NOT BE SOLD, 47 48 TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT COMPLIANCE WITH THE SECURITIES AND EXCHANGE COMMISSION'S ACCOUNTING SERIES RELEASES 130 AND 135. Republic may, unless a registration statement is in effect covering such shares, place stop transfer orders with its transfer agents with respect to such certificates in accordance with federal securities laws. ARTICLE XI DEFINITIONS 11.1 DEFINED TERMS. As used herein, the following terms shall have the following meanings: "Accepted Liabilities" shall mean all Designated Liabilities (as defined in Section 3.11) of the Maroone Corporations, other than those obligations, duties and liabilities due to or on behalf of any Principal or Affiliate of any Acquired Entity or any Principal. "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof. "Chargebacks" shall mean (a) any amount which an Acquired Entity may be required to pay back to any party purchasing retail paper, warranties, insurance or the like from the Acquired Entity, or (b) any amount which may be set-off or otherwise deducted from any amount due and owing to the Acquired Entity by any party purchasing retail paper, warranties, insurance or the like from the Acquired Entity. "Code" means the Internal Revenue Code of 1986, as amended. "Contract" means any agreement, contract, lease, note, mortgage, indenture, loan agreement, franchise agreement, covenant, employment agreement, license, instrument, purchase and sales order, commitment, undertaking, obligation, whether written or oral, express or implied. "Environmental Costs" shall mean any and all expenses, costs, damages, liabilities, or obligations (including, without limitation, fees and expenses of counsel) incurred by, under or pursuant to any Environmental Laws or related to the Discharge, Handling, presence or clean up of Hazardous Substances arising as a result of events occurring or facts or circumstances arising or existing on or prior to the Closing Date (whether or not in the ordinary course of business). 48 49 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Liabilities" shall mean (i) any obligations and liabilities of any of the Acquired Entities, absolute or contingent, known or unknown, other than Accepted Liabilities, (ii) any liability or obligation of any of the Acquired Entities arising under this Agreement, (iii) any liability or obligation of any of the Acquired Entities relating to any default under any Accepted Liability to the extent such default existed prior to the Closing, (iv) any liability or obligation of any of the Acquired Entities with respect to, or arising out, of any employee benefit plan, executive deferred compensation plan, or any other plans or arrangements for the benefit of any employees or officers of any of the Acquired Entities, (v) any liability or obligation of any of the Acquired Entities to any of the Principals or any Affiliate of any of the Acquired Entities or the Principals or to any party claiming to have a right to acquire any shares of capital stock or partnership interests or other securities convertible into or exchangeable for any shares of capital stock or partnership interests of any of the Acquired Entities and (vi) any Environmental Costs or Litigation Costs. "GAAP" means generally accepted accounting principles in effect in the United States of America from time to time. "Governmental Authority" means any nation or government, any state, regional, local or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "HSR Act" means the Hart-Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, but not limited to, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code or comparable law or any jurisdiction in connection with such mortgage, pledge, security interest, encumbrance, lien or charge). "Litigation Costs" shall mean any and all expenses, costs, damages, liabilities, or obligations (including, without limitation, fees and expenses of counsel) incurred in connection with any action, suit, or other legal or administrative proceeding or governmental investigation arising as a result of events occurring or facts or circumstances arising or existing on or prior to the Closing Date (whether or not in the ordinary course of business). 49 50 "Material Adverse Change (or Effect)" means a change (or effect), in the condition (financial or otherwise), properties, assets, liabilities, rights, obligations, operations, business or prospects which change (or effect) individually or in the aggregate, is materially adverse to such condition, properties, assets, liabilities, rights, obligations, operations, business or prospects. "New Parts and Accessories Inventory" shall mean new, non-damaged and non-obsolete parts and accessories inventory that may be returned to the manufacturer. "New Vehicle Inventory" shall mean all new vehicle inventory including all demonstrator vehicles. "Other Parts and Accessories Inventory" shall mean parts and accessories inventory other than New Parts and Accessories Inventory. "Other Vehicle Inventory" shall mean vehicle inventory other than New Vehicle Inventory. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, estate, trust, unincorporated association, joint venture, Governmental Authority or other entity, of whatever nature. "Register", "registered" and "registration" refer to a registration of the offering and sale of securities effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Tax Return" means any tax return, filing or information statement required to be filed in connection with or with respect to any Tax. "Taxes" means all taxes, fees or other assessments, including, but not limited to, income, excise, property, sales, use, franchise, intangible, payroll, withholding, social security and unemployment taxes imposed by any federal, state, local or foreign governmental agency, and any interest or penalties related thereto. 11.2 OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in this Agreement shall have the defined meanings when used in any certificates, reports or other documents made or delivered pursuant hereto or thereto, unless the context otherwise requires. 50 51 (b) Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (c) All matters of an accounting nature in connection with this Agreement and the transactions contemplated hereby shall be determined in accordance with GAAP applied on a basis consistent with prior periods, where applicable. (d) As used herein, the neuter gender shall also denote the masculine and feminine, and the masculine gender shall also denote the neuter and feminine, where the context so permits. ARTICLE XII TERMINATION, AMENDMENT AND WAIVER 12.1 TERMINATION. This Agreement may be terminated at any prior to the Effective Time. (a) by mutual written consent of all of the parties hereto at any time prior to the Closing; or (b) by Republic upon delivery of written notice to the Acquired Entities and the Principals in accordance with Section 13.1 of this Agreement in the event of a material breach by any Acquired Entity or any of the Principals of any provisions of this Agreement; or (c) by the Acquired Entities and the Principals upon delivery of written notice to Republic in accordance with Section 13.1 of this Agreement in the event of a material breach by Republic of any provision of this Agreement; or (d) by Republic or the Acquired Entities and the Principals upon delivery of written notice to the other in accordance with Section 13.1 of this Agreement, if the Closing shall not have occurred by June 30, 1997. 12.2 EFFECT OF TERMINATION. Except for the provisions of Article IX hereof, which shall survive any termination of this Agreement, in the event of termination of this Agreement pursuant to Section 12.1, this Agreement shall forthwith become void and of no further force and effect, and the parties shall be released from any and all obligations hereunder; provided, however, that nothing herein shall relieve any party from liability for the willful breach of any of its representations, warranties, covenants or agreements set forth in this Agreement. 51 52 ARTICLES XIII GENERAL PROVISIONS 13.1 NOTICES. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be deemed given if delivered by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery or facsimile transmission if such transmission is confirmed by delivery by certified or registered mail (first class postage pre-paid) or guaranteed overnight delivery, to the following addresses and telecopy numbers (or to such other addresses or telecopy numbers which any party shall designate in writing to the other parties): (a) IF TO REPUBLIC TO: Republic Industries, Inc. 450 East Las Olas Blvd., Suite 1400 Ft. Lauderdale, FL 33301 Attn: Richard L. Handley, General Counsel Telecopy: (954) 713-2111 with a copy to: Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. 1221 Brickell Avenue Miami, Florida 33131 Attn: Cesar L. Alvarez, Esq. Telecopy: (305) 579-0717 (b) IF TO THE ACQUIRED ENTITIES AND/OR THE PRINCIPALS TO: Michael E. Maroone c/o Maroone Auto Plaza 8600 Pines Boulevard Pembroke Pines, Florida 33024 Telecopy: (954) 433-3311 WITH A COPY TO: James E. Kelly, Esq. 1920 Liberty Building Buffalo, New York 14202 Telecopy: (716) 856-2150 13.2 ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits attached hereto) and other documents delivered at the Closing pursuant hereto, contains the entire 52 53 understanding of the parties in respect of its subject matters and supersedes all prior agreements and understanding (oral or written) between or among the parties with respect to such subject matter. The Schedules and Exhibits constitute a part hereof as though set forth in full above. 13.3 EXPENSES. Except as otherwise provided herein, the parties shall pay their own fees and expenses, including their own counsel fees, incurred in connection with this Agreement or any transaction contemplated hereby. 13.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended, supplemented, canceled, or discharged, except by written instrument executed by all parties. No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. 13.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns. Nothing expressed or implied herein shall be construed to give any other person any legal or equitable rights hereunder. Except as expressly provided herein, the rights and obligations of this Agreement may not be assigned by the Acquired Entities or the Principals without the prior written consent of Republic. Republic may assign all or any portion of its rights hereunder to one or more of its wholly owned subsidiaries. 13.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. 13.7 INTERPRETATION. When a reference is made in this Agreement to an article, section, paragraph, clause, schedule or exhibit, such reference shall be deemed to be to this Agreement unless otherwise indicated. The headings contained herein and on the schedules are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or the schedules. Whenever, the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Time shall be of the essence in this Agreement. 13.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the State of Florida applicable to contracts executed and to be wholly performed with such State. 13.9 JURISDICTION. The parties to this Agreement agree that any suit, action or proceeding arising out of, or with respect to, this Agreement or any judgment entered by any 53 54 court in respect thereof may be brought only in the courts of the State of Florida or the federal district courts located within the State of Florida, and the parties hereto hereby accept the exclusive jurisdiction of those courts for the purpose of any suit, action or proceeding. 13.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents and warrants to all other parties hereto that (a) before executing this Agreement, said party has fully informed itself of the terms, contents, conditions, and effects of this Agreement; (b) said party has relied solely and completely upon its own judgment in executing this Agreement; (c) said party has had the opportunity to seek and has obtained the advise of counsel before executing this Agreement; (d) said party has acted voluntarily and of its own free will in executing this Agreement; (e) said party is not acting under duress, whether economic or physical, in executing this Agreement; and (f) this Agreement is the result of arm's length negotiations conducted by and among the parties and their respective counsel. 54 55 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. REPUBLIC INDUSTRIES, INC., a Delaware corporation By: /s/ H. Wayne Huizenga ---------------------------------------------- Name: H. Wayne Huizenga ---------------------------------------- Title: Chairman and Co-Chief Executive Officer ---------------------------------------- REPUBLIC SUBSIDIARIES: RI/MC Merger Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------- Title: Vice President ---------------------------------------- RI/MO Merger Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------- Title: Vice President ---------------------------------------- RI/MI Merger Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------- Title: Vice President ---------------------------------------- RI/MD Merger Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------- Title: Vice President ---------------------------------------- 56 RI/EWH Merger Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------- Title: Vice President ---------------------------------------- RI/ESA Merger Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------- Title: Vice President ---------------------------------------- RI/MC&TR Merger Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------- Title: Vice President ---------------------------------------- RI/QPF Merger Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------- Title: Vice President ---------------------------------------- RI/AMF Merger Corp., a New York corporation By: /s/ Thomas W. Hawkins ---------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------- Title: Vice President ---------------------------------------- 57 RI/MDP Acquisition Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------------- Title: Vice President ---------------------------------------------- RI/MCFL Acquisition Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------------- Title: Vice President ---------------------------------------------- RI/MP Acquisition Corp., a Florida corporation By: /s/ Thomas W. Hawkins ---------------------------------------------------- Name: Thomas W. Hawkins ---------------------------------------------- Title: Vice President --------------------------------------------- MAROONE CORPORATIONS: Maroone Chevrolet, Inc., a Florida corporation By: /s/ Michael E. Maroone --------------------------------------------------- Name: Michael E. Maroone Title: President Maroone Oldsmobile, Inc., a Florida corporation By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President 58 Maroone Isuzu, Inc., a Florida corporation By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President Maroone Dodge, Inc., a Florida corporation By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President Al Maroone Ford, Inc., a New York corporation By: /s/ Albert E. Maroone ---------------------------------------------------- Name: Albert E. Maroone Title: President --------------------------------------------- Maroone Car & Truck Rental Company, a Florida corporati By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President Empire Warranty Corporation, a Florida corporation By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President 59 Empire Warranty Holding Company, a Florida corporation By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President Empire Services Agency, Inc., a Florida corporation By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President Quantum Premium Finance Corporation, a Florida corporation By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President Alkit Enterprises, Inc., a New York corporation By: /s/ Albert E. Maroone ---------------------------------------------------- Name: Albert E. Maroone Title: President -------------------------------------------- 60 PARTNERSHIPS: Maroone Management Services, Limited, a Florida limited partnership By: Maroone Isuzu, Inc., general partner By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President Maroone Dodge Pompano, Limited, a Florida limited partnership By: Maroone Isuzu, Inc., general partner By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President Maroone Chevrolet Ft. Lauderdale, Limited, a Florida limited partnership By: Maroone Isuzu, Inc., general partner By: /s/ Michael E. Maroone ---------------------------------------------------- Name: Michael E. Maroone Title: President 61 SHAREHOLDERS: /s/ Albert E. Maroone ------------------------------------------------------ Albert E. Maroone /s/ Michael E. Maroone ------------------------------------------------------ Michael E. Maroone /s/ Katherine C. Maroone ------------------------------------------------------ Katherine C. Maroone /s/ Kathleen Hoctor ------------------------------------------------------ Kathleen Hoctor /s/ Patricia Damoorgian ------------------------------------------------------ Patricia Damoorgian /s/ Faisal Ahmed ------------------------------------------------------ Faisal Ahmed PARTNERS: /s/ Michael E. Maroone ------------------------------------------------------ Michael E. Maroone /s/ Michael E. Maroone ------------------------------------------------------ Maroone Isuzu, Inc. 62 /s/ Floyd Clements ------------------------------------------------------- Floyd Clements /s/ Curtis L. Rodman ------------------------------------------------------- Curtis L. Rodman 63 EX-2.5 6 MERGER AGREEMENT - KENDALL 1 EXHIBIT 2.5 MERGER AGREEMENT This MERGER AGREEMENT (this "Agreement") is entered into as of November 15, 1996 by and among Republic Industries, Inc., a Delaware corporation ("Republic"); RI/RB Merger Corp., RI/GFB Merger Corp., both Florida corporations and wholly-owned subsidiaries of Republic (collectively, RI/RB Merger Corp. and RI/GFB Merger Corp. shall be referred to herein as the "Republic Merger Subs," and together with Republic, the "Republic Companies"); R & B Holding Company, Inc. d/b/a Kendall Toyota and Kendall KIA ("R&B"), a Florida corporation, G.F.B. Enterprises, Inc. d/b/a Lexus of Kendall ("GFB"), a Florida corporation (collectively R&B and GFB shall be referred to herein as the "Companies"); and Gerald F. Bean, a resident of the State of Florida and the sole shareholder of the Companies (the "Shareholder"). RECITALS Republic and the Boards of Directors of the Companies have determined that it is in the best interests of their respective shareholders for Republic to acquire all of the issued and outstanding equity interests of the Companies. In order to effectuate the acquisition, Republic has organized the Republic Merger Subs as wholly-owned subsidiaries, and the parties have agreed, subject to the terms and conditions set forth in this Agreement, to merge the Republic Merger Subs with and into the Companies as provided herein, so that the Companies continue as surviving corporations and wholly-owned subsidiaries of Republic, and the Shareholder will be issued certain shares of common stock of Republic in exchange for the issued and outstanding equity interests of each of the Companies. TERMS OF AGREEMENT In consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I THE MERGERS 1.1 THE MERGERS. Subject to the terms and conditions of this Agreement, and in accordance with the Business Corporations laws of the State of Florida (the "Corporations Code"), at the Effective Time (as defined in Section 1.5), the Republic Merger Subs will be merged with and into the Companies (the "Mergers") as follows: 2 (a) RI/RB Merger Corp. shall be merged into and with R&B; and (b) RI/GFB Merger Corp. shall be merged into and with GFB. As a result of the Mergers, the separate corporate existence of each of the Republic Merger Subs shall cease, and the Companies shall continue as surviving corporations in the Mergers (the "Surviving Corporations") and wholly-owned subsidiaries of Republic. 1.2 THE CLOSING. Subject to the terms and conditions of this Agreement, the consummation of the Mergers (the "Closing") shall take place as promptly as practicable (and in any event within five (5) business days) after satisfaction or waiver of the conditions set forth in Articles VI and VII hereof, as and when determined by Republic, at the offices of Akerman, Senterfitt & Eidson, P.A. in Miami, Florida, or such other place and time as the parties may otherwise agree. 1.3 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the Mergers and without any action on the part of the Companies, the Republic Companies, or the Shareholder: (a) Each share of common stock of R&B, par value $0.00 per share, issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive a number of shares (rounded to the nearest whole share) of common stock, par value $.01 per share, of Republic (the "Republic Common Stock") determined by dividing (i) $66,000,000 less the sum allocated in Schedule 1.3(a) to GFB, minus (A) the amount of all bank indebtedness and any long-term non-bank debt of R&B as of the Effective Date, and minus (B) the amount (if any) by which R&B's current liabilities exceed its current assets as of the Effective Date, (the "R&B Purchase Price"), by (ii) the average closing sale price of a share of Republic Common Stock as quoted on the Nasdaq Stock Market ("Nasdaq") for the fifteen consecutive trading days which precede the third trading day which is immediately prior to the Closing, as reported (absent manifest error in the printing thereof) by the Wall Street Journal (Eastern Edition) (the "Average Closing Sale Price"), and then (iii) dividing the quotient determined under (i) and (ii) above by the aggregate number of shares of common stock of R&B issued and outstanding at the Effective Time. (b) Each share of common stock of GFB, par value $1.00 per share, issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive a number of shares (rounded to the nearest whole share) of Republic Common Stock determined by dividing (i) $66,000,000 less the sum allocated in Schedule 1.3(b) to R&B, minus (A) the amount of all bank indebtedness and any long-term non-bank debt of GFB as of the Effective Date, and minus (B) the amount (if any) by which GFB's current liabilities exceed its current assets as of the Effective Date, (the "GFB Purchase Price"), by (ii) the Average Closing Sale Price, and then (iii) dividing the quotient determined under (i) and (ii) above by the aggregate number of shares of common stock of GFB issued and outstanding at the Effective Time. The sum of the R&B Purchase Price and the GFB Purchase shall be referred hereto as the "Total Purchase Price." 2 3 (c) Each share of common stock of the Republic Merger Subs issued and outstanding at the Effective Time shall be converted into one share of the common stock of the Surviving Corporation into which it is merging. (d) The parties agree that the calculation of current liabilities and current assets pursuant to this Section 1.3 shall be consistent with past practice and shall include all short-term non-bank debt of the Companies. For purposes of clarification, the total Purchase Price shall equal $66,000,000, minus the amount of all bank indebtedness and any long-term non-bank debt of R&B and GFB and minus the amount by which the total current liabilities of R&B and GFB exceed the total current assets of R&B and GFB as of the Effective Time. 1.4 TIMING OF TOTAL PURCHASE PRICE DETERMINATION. At least two days prior to the Closing, the Companies and Republic shall estimate the Total Purchase Price by mutual agreement as of the Effective Time for purposes of determining the number of Republic Shares to be delivered by Republic at the Effective Time (which estimated amount is referred to herein as the "Estimated Value"). Within 60 days after the Effective Time, Republic shall prepare and deliver to the Shareholder (in accordance with Section 13.1) a determination (the "Determination") of the actual Total Purchase Price as of the Effective Time (which actual value is referred to herein as the "Actual Value"), which shall be prepared on a basis consistent with the determination of the Estimated Value. If, within 30 days after the date on which a Determination is delivered to the Shareholder, the Shareholder shall not have given written notice to Republic setting forth in detail any objection of the Shareholder to such Determination, then such Determination shall be final and binding on the parties hereto. In the event the Shareholder gives written notice of any objection to such Determination within the 30-day period, Republic and the Shareholder shall use all reasonable efforts to resolve the dispute within the 30-day period following the delivery of the written notice. If the parties are unable to reach an agreement within such 30-day period, the matter shall be submitted to Arthur Andersen LLP, a firm of independent certified public accountants, for determination of the Actual Value which shall be final and binding upon Republic and the Shareholder. Republic and the Shareholder shall contribute equally to the costs (including fees and expenses charged by Arthur Andersen LLP) in connection with the resolution of any such dispute. If the Actual Value is lesser than the Estimated Value, Republic shall be entitled to set off against the Held Back Shares (as defined in Section 1.8) the difference between the Actual Value and the Estimated Value (assuming a value per share for purposes of such calculation equal to the Average Closing Sale Price ), which set off shall be deemed to be Indemnifiable Damages under Article IX hereof but such set-off shall not count against or toward the Indemnification Threshold (as defined in Section 9.1). If the Actual Value is greater than the Estimated Value, Republic shall issue to the Shareholder such additional Republic Shares as would have a value (assuming a value per share equal to the Average Closing Sale Price), equal to the difference between the Actual Value and the Estimated Value. 1.5 FILING OF PLANS OF MERGER. At the Closing, the parties shall cause the Mergers to be consummated by filing duly executed Certificates of Merger with the Secretary of State of the State of Florida, in such form as Republic determines is required by and in accordance with the relevant provisions of the Corporations Code (the date and time of such filing is referred to herein as the "Effective Date" or "Effective Time"). 3 4 1.6 EFFECT OF THE MERGERS. At the Effective Time, the effect of the Mergers shall be as provided under the Corporations Code. Without limiting the generality of the foregoing, at the Effective Time: (a) all property, rights, privileges, policies and franchises of each of the Companies and the Republic Merger Subs shall vest in the Surviving Corporations, and all debts, liabilities and duties of each of the Companies and Republic Merger Subs shall become the debts, liabilities and duties of the Surviving Corporations. (b) the Articles of Incorporation and Bylaws of each of the Companies, as in effect immediately prior to the Effective Time, shall remain its Articles of Incorporation and Bylaws thereafter, unless and until amended in accordance with their terms and as provided by law; and (c) the directors and officers or each of the Republic Merger Subs at the Effective Time shall be the directors and officers of R&B and GFB, respectively, each to hold a directorship or office in accordance with the Articles of Incorporation and Bylaws of the respective Surviving Corporations, until their respective successors are duly elected and qualified. 1.7 TAX TREATMENT. The parties hereto acknowledge and agree that the Mergers contemplated hereby shall be treated for tax purposes as a tax-free reorganization under Section 368 of the Code. 1.8 PROCEDURE AT THE CLOSING. At the Closing, the parties agree that the following shall occur: (a) The Companies and the Shareholder shall have satisfied each of the conditions set forth in Article VI and shall deliver to Republic the documents, certificates, opinions, consents and letters required by Article VI. (b) The Republic Companies shall have satisfied each of the conditions set forth in Article VII and shall deliver to the Companies the documents, certificates, consents and letters required by Article VII. (c) Republic shall issue the shares of Republic Common Stock issuable pursuant to Section 1.3, registered in the names of the Shareholder and shall deliver such shares in the following manner: (i) Republic shall set aside and hold in accordance with Section 9.3 stock certificates representing shares of Republic Common Stock having a value (based upon the Average Closing Sale Price) equal to 5% of the Total Purchase Price (the "Held Back Shares"), and (ii) Republic shall deliver stock certificates representing the balance of the shares of Republic Common Stock issuable in accordance with Section 1.3 to the Shareholder. The shares of Republic Common Stock issuable pursuant to Section 1.3, including the Held Back Shares, are referred to herein as the "Republic Shares." 4 5 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE REPUBLIC COMPANIES As a material inducement to the Companies and the Shareholder to enter into this Agreement and to consummate the transactions contemplated hereby, the Republic Companies make the following representations and warranties to the Companies and the Shareholder: 2.1 CORPORATE STATUS. Republic is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority to own or lease its properties and to carry on its business as presently conducted. The Republic Merger Subs are corporations duly organized, validly existing and in good standing under the laws of the State of Florida, and is a wholly-owned subsidiary of Republic. There is no pending or, to the knowledge of Republic, threatened proceeding for the dissolution, liquidation, insolvency or rehabilitation of Republic. 2.2 CORPORATE POWER AND AUTHORITY. Each of the Republic Companies has the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. Each of the Republic Companies has taken all corporate action necessary to authorize its execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby. 2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by each of the Republic Companies and constitutes their legal, valid and binding obligation enforceable against each of the Republic Companies in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 2.4 REPUBLIC COMMON STOCK. Upon consummation of the transactions contemplated hereby and the issuance and delivery of certificates representing the Republic Shares to the Shareholder, the Republic Shares will be duly authorized, validly issued, fully paid, non-assessable shares, and free and clear of any Liens, other than Liens arising by operating of law or Liens on any particular Shareholder's Republic Shares that may be created or permitted to exist by such Shareholder's actions. 2.5 CAPITALIZATION. As of the date hereof, the authorized capital stock of Republic consists of 500,000,000 shares of Republic Common Stock and 5,000,000 shares of preferred stock. As ofNovember 6, 1996 (i) 192,150,630 shares of Republic Common Stock were validly issued and outstanding, fully paid and nonassessable, and (ii) no shares of preferred stock were issued or outstanding. 5 6 2.6 NO VIOLATION. The execution and delivery of this Agreement by Republic, the performance by Republic of its obligations hereunder and the consummation by Republic of the transactions contemplated by this Agreement will not (a) contravene any provision of the Certificate of Incorporation or Bylaws of Republic, (b) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment, ruling or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon, or enforceable against Republic, (c) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any material Contract which is applicable to, binding upon or enforceable against Republic, (d) result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of Republic, (e) give to any individual or entity a right or claim against Republic, which would have a Material Adverse Effect on Republic or (f) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except (i) pursuant to the Exchange Act and the Securities Act and applicable inclusion requirements of Nasdaq, (ii) filings required under the securities or blue sky laws of the various states, (iii) filings required under the HSR Act or (iv) any filings required to be made by the Companies or the Shareholder. Republic will use its best efforts to ensure its continued inclusion in, and the continued eligibility of the Republic Common Stock for trading on, the Nasdaq Stock Market or a similar market, for a period of one year from the date hereof. 2.7 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1996, except where failure to have done so did not and would not have a Material Adverse Effect on Republic, Republic has filed all reports, registrations and statements, together with any required amendments thereto, that it was required to file with the SEC, including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements (collectively, the "Republic Reports"). Republic has previously furnished or made available to the Companies and the Shareholder copies of all Republic Reports filed with the SEC since January 1, 1996. As of their respective dates (but taking into account any amendments filed prior to the date of this Agreement), the Republic Reports complied in all material respects with all the rules and regulations promulgated by the SEC and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Republic included in the Republic Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP consistently applied during the periods presented (except, as noted therein, or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to normal audit adjustments) the financial position of Republic and its consolidated subsidiaries as of the date thereof and the results of their operations and their cash flows for the periods then ended. 2.8 NO COMMISSIONS. Republic has not incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. 6 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE SHAREHOLDER As a material inducement to the Republic Companies to enter into this Agreement and to consummate the transactions contemplated hereby, the Companies and the Shareholder, jointly and severally, make the following representations and warranties to the Republic Companies: 3.1 CORPORATE STATUS. Each of the Companies is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has the requisite power and authority to own or lease its properties and to carry on its business as now being conducted. Each of the Companies is legally qualified to do business as a foreign corporation in each of the jurisdictions set forth in Schedule 3.1, which represent all jurisdictions where the nature of its properties and the conduct of its business require such qualification, and is in good standing in each of the jurisdictions in which it is so qualified. Each of the Companies has fully complied with all of the requirements of any statute governing the use and registration of fictitious names, and each of the Companies has the legal right to use the names under which it operates its businesses including, in the case of R&B, the names "Kendall Toyota" and "Kendall KIA" and in the case of GFB, the name "Lexus of Kendall." There is no pending or threatened proceeding for the dissolution, liquidation, insolvency or rehabilitation of the Companies. 3.2 POWER AND AUTHORITY. Each of the Companies has the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby. Each of the Companies has taken all corporate action necessary to authorize the execution and delivery of this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated hereby. The Shareholder is an individual residing in the State of Florida and has the requisite competence and authority to execute and deliver this Agreement, to perform his obligations hereunder and to consummate the transactions contemplated hereby. 3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by each of the Companies and the Shareholder, and constitutes the legal, valid and binding obligation of each of them, enforceable against each of them in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 3.4 CAPITALIZATION. Schedule 3.4 sets forth, as of the date hereof, with respect to each of the Companies, (a) the number of authorized shares of each class of its capital stock, (b) the number of issued and outstanding shares of each class of its capital stock and (c) the number of shares of each class of its capital stock which are held in treasury. All of the issued and outstanding shares of capital stock of each of the Companies (i) have been duly authorized and validly issued and 7 8 are fully paid and non-assessable, (ii) were issued in compliance with all applicable state and federal securities laws and (iii) were not issued in violation of any preemptive rights or rights of first refusal. No preemptive rights or rights of first refusal exist with respect to the shares of capital stock of either of the Companies and no such rights arise by virtue of or in connection with the transactions contemplated hereby. There are no outstanding or authorized rights, options, warrants, convertible securities, subscription rights, conversion rights, exchange rights or other agreements or commitments of any kind that could require either of the Companies to issue or sell any shares of its capital stock (or securities convertible into or exchangeable for shares of its capital stock). There are no outstanding stock appreciation, phantom stock, profit participation or other similar rights with respect to either of the Companies. There are no proxies, voting rights or other agreements or understandings with respect to the voting or transfer of the capital stock of either of the Companies. Neither Company is obligated to redeem or otherwise acquire any of its outstanding shares of capital stock. 3.5 SHAREHOLDERS OF THE COMPANIES. Schedule 3.5 sets forth, with respect to each of the Companies (i) the name, address and federal taxpayer identification number of, and the number of outstanding shares of each class of its capital stock owned by the Shareholder of record as of the close of business on the date of this Agreement; and (ii) the name, address and federal taxpayer identification number of, and number of shares of each class of its capital stock beneficially owned by, each beneficial owner of outstanding shares of capital stock (to the extent that record and beneficial ownership of any such shares are different). The Shareholder is the sole holder of all issued and outstanding shares of capital stock of the Companies, and the Shareholder owns such shares as is set forth on Schedule 3.5, free and clear of all Liens, restrictions and claims of any kind. 3.6 NO VIOLATION. Except as set forth on Schedule 3.6, the execution and delivery of this Agreement by the Companies and the Shareholder, the performance by the Companies and the Shareholder of their obligations hereunder and the consummation by them of the transactions contemplated by this Agreement will not (a) contravene any provision of the Articles of Incorporation or Bylaws of either of the Companies, (b) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon or enforceable against either of the Companies or the Shareholder, (c) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right of payment under or the right to terminate, amend, modify, abandon or accelerate, any Contract which is applicable to, binding upon or enforceable against either of the Companies or the Shareholder, (d) result in or require the creation or imposition of any Lien upon or with respect to any of the properties or assets of either of the Companies, (e) give to any individual or entity a right or claim against either of the Companies or the Shareholder or (f) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except any applicable filings required under the HSR Act and any SEC and other filings required to be made by the Republic Companies. 8 9 3.7 RECORDS OF THE COMPANIES. The copies of the Articles of Incorporation and Bylaws of each of the Companies which were provided to Republic are true, accurate, and complete and reflect all amendments made through the date of this Agreement. The minute books for each of the Companies made available to Republic for review were correct and complete as of the date of such review, no further entries have been made through the date of this Agreement, such minute books contain the true signatures of the persons purporting to have signed them, and such minute books contain an accurate record of all corporate actions of the shareholders and directors (and any committees thereof) of the Companies taken by written consent or at a meeting since incorporation. All corporate actions taken by the Companies have been duly authorized or ratified. All corporate books, corporate ledgers and official and other corporate records of the Companies have been fully, properly and accurately kept and are complete, and there are no inaccuracies or discrepancies of any kind contained therein. The stock ledgers of the Companies, as previously made available to Republic, contain accurate and complete records of all issuances, transfers and cancellations of shares of the capital stock of the Companies. 3.8 SUBSIDIARIES. Except as set forth on Schedule 3.8, the Companies do not own, directly or indirectly, any outstanding voting securities of or other interests in, or controls, any other corporation, partnership, joint venture or other business entity. 3.9 FINANCIAL STATEMENTS. The Companies have delivered to Republic the financial statements of the Companies for the fiscal year ended December 31, 1995, and for the year-to-date period and month ended October 31, 1996, including the notes thereto, (collectively, the "Financial Statements"), copies of which are attached to Schedule 3.9 hereto. The balance sheets of the Companies dated as of October 31, 1996, included in the Financial Statements are referred to herein collectively as the "Current Balance Sheets." The Financial Statements fairly present the financial position of each of the Companies at each of the balance sheet dates and the results of operations for the periods covered thereby. The books and records of each of the Companies fully and fairly reflect all of its transactions, properties, assets and liabilities. There are no material special or non-recurring items of income or expense during the periods covered by the Financial Statements, and the balance sheets included in the Financial Statements do not reflect any writeup or revaluation increasing the book value of any assets, except as specifically disclosed in the notes thereto. The Financial Statements reflect all adjustments necessary for a fair presentation of the financial information contained therein. The Companies have and at the Effective Time continue to have sufficient working capital to meet the aggregate of the minimum working capital requirements imposed by the Factories pursuant to the Franchise Agreements (as defined in Section 3.25). The reserve for Chargebacks (as defined in Section 11.1) maintained by the Companies on the Current Balance Sheet is sufficient to cover any Chargebacks which may be made to the Companies on account of any sales of vehicles made on or prior to the date of the Current Balance Sheet and the reserve for Chargebacks maintained by the Companies in Balance Sheet prepared as of the date of Closing will be sufficient to cover any Chargebacks which may be made to the Companies on account of any sales of vehicles made on or prior to the Effective Time. 9 10 3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Except as set forth on Schedule 3.10 hereto, since the date of the Current Balance Sheets, the Companies have not (a) issued, sold, pledged, disposed of, encumbered, or authorized the issuance, sale, pledge, disposition, grant or encumbrance of any shares of its capital stock or of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock or any other ownership interest of the Companies; (b) declared, set aside, made, or paid any dividend or other distribution payable in cash, stock, property or otherwise of or with respect to its capital stock or other securities, or reclassified, combined, split, subdivided or redeemed, purchased or otherwise acquired, directly or indirectly, any of its capital stock or other securities; (c) paid any bonus to or increased the rate of compensation of any of its officers, or salaried employees or amended any other terms of employment of such persons; (d) sold, leased or transferred any of its properties or assets or acquired any properties or assets other than in the ordinary course of business consistent with past practice; (e) made or obligated itself to make capital expenditures out of the ordinary course of business consistent with past practice; (f) made any payment in respect of its liabilities other than in the ordinary course of business consistent with past practice; (g) incurred any obligations or liabilities (including, without limitation, any indebtedness for borrowed money, issuance of any debt securities, or the assumption, guarantee, or endorsement of the obligations of any person) or entered into any transaction or series of transactions involving in excess of $25,000in the aggregate out of the ordinary course of business, except for this Agreement and the transactions contemplated hereby; (h) suffered any theft, damage, destruction or casualty loss, whether or not covered by insurance, in excess of $25,000in the aggregate; (i) suffered any extraordinary losses (whether or not covered by insurance); (j) waived, canceled, compromised or released any rights having a value in excess of $25,000in the aggregate; (k) made or adopted any change in its accounting practice or policies; (l) made any adjustment to its books and records other than in respect of the conduct of its business activities in the ordinary course consistent with past practice; (m) entered into any transaction with the Shareholder or any Affiliate of the Companies or the Shareholder; (n) entered into any employment agreement; (o) terminated, amended or modified any agreement involving an amount in excess of $25,000in the aggregate; (p) imposed any security interest or other Lien on any of its assets other than in the ordinary course of business consistent with past practice; (q) delayed paying any account payable beyond 45 days following the date on which it is due and payable except to the extent being contested in good faith; (r) made or pledged any charitable contributions in excess of $25,000in the aggregate; (s) acquired (including, without limitation, for cash or shares of stock, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or made any investment either by purchase of stock or securities, contributions or property transfer of capital other than as permitted or provided in this Agreement; (t) increased or decreased prices charged to customers, except in the ordinary course of business consistent with past practice, materially increased or decreased the average monthly New Parts and Accessories Inventory, Other Parts and Accessories Inventory, New Vehicle Inventory or Other Vehicle Inventory, other than in the ordinary course of business consistent with past practice, ordered any New Vehicle Inventory from the Factory which would be inconsistent with the prior practices of the Companies, or taken any actions which might reasonably result in any material increase in the loss of customers; (u) made any dealer trades other than in the ordinary course of business consistent with past practice, or (v) entered into any other transaction 10 11 or been subject to any event which has or may reasonably be expected to have a Material Adverse Effect on the Companies; or (w) agreed to do or authorized any of the foregoing. 3.11 LIABILITIES OF THE COMPANIES. The Companies have no liabilities or obligations, whether accrued, absolute, contingent or otherwise, except (a) to the extent reflected on the Current Balance Sheet and not heretofore paid or discharged, (b) liabilities incurred in the ordinary course of business consistent with past practice since the date of the Current Balance Sheet (none of which relates to breach of contract, breach of warranty, tort, infringement or violation of law, or which arose out of any action, suit, claim, governmental investigation or arbitration proceeding), (c) liabilities incurred in the ordinary course of business prior to the date of the Current Balance Sheet which, in accordance with GAAP consistently applied, were not required to be recorded thereon and which, in the aggregate, are not material. Schedule 3.11 lists all indebtedness owed by the Companies to a bank or any other Person, including without limitation, indebtedness for borrowed money (including principal and accrued but unpaid interest) and capitalized equipment leases of the Companies. 3.12 LITIGATION. Except as set forth in Schedule 3.12 hereto, there is no action, suit or other legal or administrative proceeding or governmental investigation pending, threatened, anticipated or contemplated against, by or affecting the Companies or Shareholder (which, in the case of the Shareholder, relate to or concern the Companies or for which the Companies may be responsible), or the Companies' properties or assets, or which question the validity or enforceability of this Agreement or the transactions contemplated hereby, and there is no basis for any of the foregoing. There are no outstanding orders, decrees or stipulations issued by any Governmental Authority in any proceeding to which either of the Companies is or was a party which have not been complied with in full or which continue to impose any material obligations on the Companies. 3.13 ENVIRONMENTAL MATTERS. (a) Each of the Companies and the Shareholder are and have at all times been in full compliance with all Environmental Laws governing its business, operations, properties and assets, including, without limitation: (i) all requirements relating to the Discharge and Handling of Hazardous Substances; (ii) all requirements relating to notice, record keeping and reporting; (iii) all requirements relating to obtaining and maintaining Licenses (as defined herein) for the ownership by each of the Companies of its properties and assets and the operation of its business as presently conducted or the ownership by the Companies and the Shareholder and use by the Companies of the Shareholder Owned Properties; or (iv) all applicable writs, orders, judgements, injunctions, governmental communications, decrees, informational requests or demands issued pursuant to, or arising under, any Environmental Laws. (b) There are no (and there is no basis for any) non-compliance orders, warning letters, notices of violation (collectively "Notices"), claims, suits, actions, judgments, penalties, fines, or administrative or judicial investigations of any nature or proceedings (collectively "Proceedings") pending or threatened against or involving any of the Companies, their businesses, operations, 11 12 properties or assets or the Shareholder Owned Properties, issued by any Governmental Authority or third party with respect to any Environmental Laws or Licenses issued to any of the Companies thereunder in connection with, related to or arising out of the ownership by any of the Companies of their properties or assets or the operation of its businesses or the ownership by the Shareholder and use by the Companies of the Shareholder Owned Properties, which have not been resolved to the satisfaction of the issuing Governmental Authority or third party in a manner that would not impose any obligation, burden or continuing liability on Republic in the event that the transactions contemplated by this Agreement are consummated. (c) None of the Companies nor the Shareholder has at any time Handled or Discharged, nor has it or he at any time allowed or arranged for any third party to Handle or Discharge, Hazardous Substances to, at or upon: (i) any location other than a site lawfully permitted to receive such Hazardous Substances; (ii) any parcel of real property owned or leased at any time by any of the Companies (including, without limitation, the Company Owned Properties) or any of the Shareholder Owned Properties, except in compliance with applicable Environmental Laws; or (iii) any site which, pursuant to CERCLA or any similar state law (x) has been placed on the National Priorities List or its state equivalent, or (y) the Environmental Protection Agency or any relevant state agency has notified any of the Companies that it has proposed or is proposing to place on the National Priorities List or its state equivalent. There has not occurred, nor is there presently occurring, a Discharge, or threatened Discharge, of any Hazardous Substance on, into or beneath the surface of, or adjacent to, any real property owned or leased at any time by any of the Companies or the Shareholder Owned Properties. (d) Except as set forth on Schedule 3.13(d), (i) none of the Companies uses, nor has any of them used, any Aboveground Storage Tanks or Underground Storage Tanks, (ii) there are not now nor have there ever been any Underground Storage Tanks on any real property owned or leased at any time by any of the Companies, or the Shareholder Owned Properties (iii) there has been no Discharge from or rupture of any such Aboveground Storage Tanks or Underground Storage Tanks listed on Schedule 3.13(d). (e) Schedule 3.13(e) identifies (i) all environmental audits, assessments or occupational health studies undertaken since the date that any of the Companies was incorporated by any of the Companies or its agents or representatives thereof or, to the knowledge of any of the Companies or Shareholder, undertaken by any Governmental Authority, or any third party, relating to or affecting any of the Companies or any real property owned or leased at any time by any of the Companies or the Shareholder Owned Properties; (ii) the results of any ground, water, soil, air or asbestos monitoring undertaken by any of the Companies or its agents or representatives thereof or undertaken by any Governmental Authority or any third party, relating to or affecting any of the Companies or any real property owned or leased at any time by any of the Companies or the Shareholder Owned Properties; (iii) all material written communications between any of the Companies and any Governmental Authority arising under or related to Environmental Laws including but not limited to, any notices of violation and notices of non-compliance; and (iv) all outstanding citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, 12 13 rules, regulations, orders, rulings or decrees, relating to or affecting any of the Companies or any real property owned or leased at any time by any of the Companies or the Shareholder Owned Properties. (f) For purposes of this Section, the following terms shall have the meanings ascribed to them below: "Aboveground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree governing Aboveground Storage Tanks. "Discharge" means any manner of spilling, leaking, dumping, discharging, releasing, migrating or emitting, as any of such terms may further be defined in any Environmental Law, into or through any medium including, without limitation, ground water, surface water, land, soil or air. "Environmental Laws" means all federal, state, regional or local statutes, laws, rules, regulations, codes, ordinances, orders, plans, injunctions, decrees, rulings, licenses, and changes thereto, or judicial or administrative interpretations thereof, or similar laws of foreign jurisdictions where the Companies or any of its subsidiaries conducts business, whether currently in existence or hereafter enacted, issued, or promulgated, any of which govern, purport to govern, or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, waste disposal, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are or may be defined in such statutes, laws, rules, regulations, codes, orders, ordinances, plans, injunctions, decrees, rulings , licenses, and changes thereto, or judicial or administrative interpretations thereof, including, without limitation: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. ss.9601, et seq. (herein, collectively, "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.6901 et seq. (herein, collectively, "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. ss.1801, et seq., (the "Hazardous Materials Transportation Act"); the Clean Water Act, as amended, 33 U.S.C. ss.1311, et seq., (the "Clean Water Act"); the Clean Air Act, as amended (42 U.S.C. ss.7401-7642) (the "Clean Air Act"); the Toxic Substances Control Act, as amended, 15 U.S.C. ss.2601 et seq., (the "Toxic Substances Control Act"); the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. ss.136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. ss.11001, et seq. (Title III of SARA) ("EPCRA"); and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. ss.651, et seq. ("OSHA"). "Handle" means any manner of generating, accumulating, storing, treating, disposing of, transporting, transferring, labeling, handling, manufacturing or using, as any of such terms may further be defined in any Environmental Law. 13 14 "Hazardous Substances" shall be construed broadly to include any toxic or hazardous substance, material or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires investigation or remediation under any Environmental Laws or which are or become regulated, listed or controlled by, under or pursuant to any Environmental Laws, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "Licenses" means all licenses, certificates, permits, approvals, decrees and registrations. "Underground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree governing Underground Storage Tanks. 3.14 REAL ESTATE (a) Schedule 3.14(a)(1) contains the legal description and street address of any real property or any interest therein (including without limitation any option or other right or obligation to purchase any real property or any interest therein) owned by the Companies as of the date hereof (the "Company Owned Properties"). Schedule 3.14(a)(2) contains a list of the locations of any real property (or any interest therein) owned by the Companies and disposed of in any manner on or prior to the date hereof (the "Previously Owned Properties"). Schedule 3.14(a)(3) contains the legal descriptions and the street addresses of any real property (or any interest therein) owned by the Shareholder or any of his Affiliates (the "Shareholder Owned Properties," and together with the Company Owned Properties, the "Owned Properties"), which will be conveyed, as additional contributions of capital, to one of the Companies prior to the Effective Time. With respect to each such parcel of Owned Properties, except as set forth on Schedule 3.14(a)(4): (i) one of the Companies has (and in the case of Shareholder Owned Properties, will as of the Effective Time have) good and marketable title, free and clear of any covenants, conditions, easements and exceptions other than the Permitted Exceptions (as defined in Section 5.14), and of any Lien other than liens for real estate taxes not yet due and payable, (ii) there are no pending or threatened condemnation proceedings, suits or administrative actions relating to the Owned Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) the legal descriptions for the Owned Properties contained in the deeds thereof describe such parcels fully and adequately; (iv) the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties 14 15 or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; the land does not serve any adjoining property for any purpose inconsistent with the use of the land; and the Owned Properties are not located within any flood plain or subject to any similar type restriction for which any permits or licenses necessary to the use thereof have not been obtained; (v) all facilities have received all material approvals of Governmental Authorities (including licenses and permits) required in connection with the ownership or operation thereof and have been operated and maintained in accordance with applicable laws, ordinances, rules and regulations; (vi) there are no Contracts granting to any party or parties the right of use or occupancy of any portion of the Owned Properties and there are no parties (other than the Companies) in possession of the Owned Properties; (vii) there are no outstanding options or rights of first refusal to purchase the Owned Properties or any portion thereof or interest therein (other than by the Companies); (viii) all facilities located on the Owned Properties are supplied with utilities and other services necessary for their operation, all of which services are adequate in accordance with all applicable laws, ordinances, rules and regulations, and are provided via public roads or via permanent, irrevocable, appurtenant easements benefitting the Owned Properties; (ix) the Owned Properties abut on and have adequate direct vehicular access to a public road, and there is no pending or threatened termination of such access; (x) all improvements, buildings and systems on the Owned Properties are in good repair, safe for occupancy, and adequate for the current use of such Owned Properties; and (xi) there are no Contracts relating to service, management or similar matters which affect any of the Owned Properties. (b) Schedule 3.14(b) sets forth a list of all leases, licenses or similar agreements to which either of the Companies is a party, which are for the use or occupancy of real estate owned by a third party ("Leases")(copies of which have previously been furnished to Republic), in each case, setting forth (i) the lessor and lessee thereof and the commencement date, term and renewal rights under each of the Leases, and (ii) the street address or legal description of each property covered thereby (the "Leased Premises"). The Leases are in full force and effect and have not been amended, and no party thereto is in default or breach under any such Lease. No event has occurred which, with the passage of time or the giving of notice or both, would cause a material breach of or default under any of such Leases. Except as set forth in Schedule 3.14(b), with respect to each such Leased Premises: (i) one of the Companies has a valid leasehold interest in the Leased Premises, free and clear of any Liens, covenants and easements or title defects of any nature whatsoever; (ii) the portions of the buildings located on the Leased Premises that are used in the business of the Companies are each in good repair and condition, normal wear and tear excepted, and are in the aggregate sufficient to satisfy the Companies' current and reasonably anticipated normal business activities as conducted thereat; (iii) each of the Leased Premises (a) has direct access to public roads or access to public roads by means of a perpetual access easement, such access being sufficient to satisfy the current and reasonably anticipated normal 15 16 transportation requirements of the business presently conducted at such parcel; and (b) is served by all utilities in such quantity and quality as are sufficient to satisfy the current normal business activities conducted at such parcel; and (iv) neither of the Companies has received notice of (a) any condemnation proceeding with respect to any portion of the Leased Premises or any access thereto, and no such proceeding is contemplated by any Governmental Authority; or (b) any special assessment which may affect any of the Leased Premises, and no such special assessment is contemplated by any Governmental Authority. 3.15 GOOD TITLE TO AND CONDITION OF ASSETS; INVENTORY. (a) The Companies own and operate the motor vehicle dealerships (the "Dealerships") listed on Schedule 3.15, at the locations set forth thereon. Except as set forth on Schedule 3.15(a), the Companies have good and valid title to all of their Assets free and clear of any Liens. For purposes of this Agreement, the term "Assets" means all of the properties and assets owned by the Companies, other than the Owned Properties and the Leased Premises, whether personal or mixed, tangible or intangible, wherever located. (b) Except as provided in Schedule 3.15(b), the Fixed Assets currently in use by the Companies are, in the aggregate, in good operating condition, normal wear and tear excepted, and have been maintained substantially in accordance with all applicable manufacturer's specifications and warranties. For purposes of this Agreement, the term "Fixed Assets" means all vehicles (other than vehicles held as inventory), machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures used by or located on the premises of the Companies or set forth on the Current Balance Sheet or acquired by the Companies since the date of the Current Balance Sheet. (c) None of the vehicles owned by the Companies as of the date hereof has been, or will be on the Closing Date, salvaged or rebuilt or have any frame, flood or other damage impairing its salability in the ordinary course of business, and with respect to each vehicle, one of the Companies has or will have prior to the Closing Date on file true and correct odometer statement, none of which indicate that the actual mileage is unknown. (d) Schedule 3.15(d) sets forth a true, complete and correct list of any and all dealer trades made by the Companies within the last 90 days from the date hereof. 3.16 COMPLIANCE WITH LAWS. Except as set forth in Schedule 3.16(a), each of the Companies, the Shareholder, and any Affiliate is and has been in compliance with all laws, regulations and orders applicable to their businesses and operations (as conducted now and in the past), the Assets, the Owned Properties and the Leased Premises and any other properties and assets (in each case owned or used now or in the past). Except as provided in Schedule 3.16(b), neither of the Companies has been cited, fined or otherwise notified of any asserted past or present failure to comply with any laws, regulations or orders and no proceeding with respect to any such violation is pending or threatened. Neither of the Companies is subject to any Contract, decree or injunction 16 17 in which it is a party which restricts the continued operation of any business or the expansion thereof to other geographical areas, customers and suppliers or lines of business. Neither of the Companies, nor any of its employees or agents, has made any payment of funds in connection with its business which is prohibited by law, and no funds have been set aside to be used in connection with its business for any payment prohibited by law. 3.17 LABOR AND EMPLOYMENT MATTERS. Neither of the Companies is a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and there has been no effort by any labor union during the 24 months prior to the date hereof to organize any employees of the Companies into one or more collective bargaining units. Except as set forth in Schedule 3.17, there is not now, and there has not been during the 24 months prior to the date hereof, any actual threatened labor dispute, strike or work stoppage which affects or which may affect the businesses of the Companies or which may interfere with their continued operations, except for employment disputes with individual employees. Neither of the Companies nor any agent, representative or employee thereof has since the date of incorporation of the Companies committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or, to the knowledge of the Companies or the Shareholder, threatened charge or complaint against either of the Companies by or with the National Labor Relations Board or any representative thereof. Neither of the Companies is aware that any executive or key employee or group of employees has any plans to terminate his, her or their employment with either of the Companies as a result of the transactions contemplated hereby or otherwise. The Companies have complied with applicable laws, rules and regulations relating to employment, civil rights and equal employment opportunities, including but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and the Americans with Disabilities Act, as amended. 3.18 EMPLOYEE BENEFIT PLANS. (a) Employee Benefit Plans. Schedule 3.18 contains a list setting forth each employee benefit plan or arrangement of the Companies, including but not limited to employee pension benefit plans, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA, employee welfare benefit plans, as defined in Section 3(1) of ERISA, deferred compensation plans, stock option plans, bonus plans, stock purchase plans, hospitalization, disability and other insurance plans, severance or termination pay plans and policies, whether or not described in Section 3(3) of ERISA, in which employees, their spouses or dependents, of the Companies participate ("Employee Benefit Plans") (true and accurate copies of which, together with the most recent annual reports on Form 5500 and summary plan descriptions with respect thereto, were furnished to Republic). (b) Compliance with Law. With respect to each Employee Benefit Plan (i) each has been administered in all material respects in compliance with its terms and with all applicable laws, including, but not limited to, ERISA and the Internal Revenue Code of 1986, as amended (the "Code"); (ii) no actions, suits, claims or disputes are pending, or threatened; (iii) no audits, inquiries, reviews, proceedings, claims, or demands are pending with any governmental or regulatory agency; 17 18 (iv) there are no facts which could give rise to any material liability in the event of any such investigation, claim, action, suit, audit, review, or other proceeding; (v) all material reports, returns, and similar documents required to be filed with any governmental agency or distributed to any plan participant have been duly or timely filed or distributed; and (vi) no "prohibited transaction" has occurred within the meaning of the applicable provisions of ERISA or the Code. (c) Qualified Plans. With respect to each Employee Benefit Plan intended to qualify under Code Section 401(a) or 403(a) (i) the Internal Revenue Service has issued a favorable determination letter, true and correct copies of which have been furnished to Republic, that such plans are qualified and exempt from federal income taxes; (ii) no such determination letter has been revoked nor has revocation been threatened, nor has any amendment or other action or omission occurred with respect to any such plan since the date of its most recent determination letter or application therefor in any respect which would adversely affect its qualification or materially increase its costs; (iii) no such plan has been amended in a manner that would require security to be provided in accordance with Section 401(a)(29) of the Code; (iv) no reportable event (within the meaning of Section 4043 of ERISA) has occurred, other than one for which the 30- day notice requirement has been waived; (v) as of the Effective Date, the present value of all liabilities that would be "benefit liabilities" under Section 4001(a)(16) of ERISA if benefits described in Code Section 411(d)(6)(B) were included will not exceed the then current fair market value of the assets of such plan (determined using the actuarial assumptions used for the most recent actuarial valuation for such plan); (vi) all contributions to, and payments from and with respect to such plans, which may have been required to be made in accordance with such plans and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been timely made; and (vii) all such contributions to the plans, and all payments under the plans (except those to be made from a trust qualified under Section 401(a) of the Code) and all payments with respect to the plans (including, without limitation, PBGC (as defined below) and insurance premiums) for any period ending before the Closing Date that are not yet, but will be, required to be made are properly accrued and reflected on the Current Balance Sheet. (d) Multiemployer Plans. With respect to any multiemployer plan, as described in Section 4001(a)(3) of ERISA ("MPPA Plan") (i) all contributions required to be made with respect to employees of the Companies have been timely paid; (ii) the Companies have not incurred, and are not expected to incur, directly or indirectly, any withdrawal liability under ERISA with respect to any such plan (whether by reason of the transactions contemplated by the Agreement or otherwise); (iii) Schedule 3.18 sets forth (A) the withdrawal liability under ERISA to each MPPA Plan, (B) the date as of which such amount was calculated, and (C) the method for determining the withdrawal liability; and (iv) no such plan is (or is expected to be) insolvent or in reorganization and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists or is expected to exist with respect to any such plan. (e) Welfare Plans. (i) The Companies are not obligated under any employee welfare benefit plan as described in Section 3(1) of ERISA ("Welfare Plan") to provide medical or death benefits with respect to any employee or former employee of the Companies or their 18 19 predecessors after termination of employment; (ii) the Companies have complied with the notice and continuation coverage requirements of Section 4980B of the Code and the regulations thereunder with respect to each Welfare Plan that is, or was during any taxable year for which the statute of limitations on the assessment of federal income taxes remains, open, by consent or otherwise, a group health plan within the meaning of Section 5000(b)(1) of the Code; and (iii) there are no reserves, assets, surplus or prepaid premiums under any Welfare Plan which is an Employee Benefit Plan. The consummation of the transactions contemplated by this Agreement will not entitle any individual to severance pay, and, will not accelerate the time of payment or vesting, or increase the amount of compensation, due to any individual. (f) Controlled Group Liability. Neither of the Companies nor any entity that would be aggregated with the Companies under Code Section 414(b), (c), (m) or (o): (i) has ever terminated or withdrawn from an employee benefit plan under circumstances resulting (or expected to result) in liability to the Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the employee benefit plan is funded, or any employee or beneficiary for whose benefit the plan is or was maintained (other than routine claims for benefits); (ii) has any assets subject to (or expected to be subject to) a lien for unpaid contributions to any employee benefit plan; (iii) has failed to pay premiums to the PBGC when due; (iv) is subject to (or expected to be subject to) an excise tax under Code Section 4971; (v) has engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has violated Code Section 4980B or Section 601 through 608 of ERISA. (g) Other Liabilities. (i) None of the Employee Benefit Plans obligates either of the Companies to pay separation, severance, termination or similar benefits solely as a result of any transaction contemplated by this Agreement or solely as a result of a "change of control" (as such term is defined in Section 280G of the Code); (ii) all required or discretionary (in accordance with historical practices) payments, premiums, contributions, reimbursements, or accruals for all periods ending prior to or as of the Effective Date shall have been made or properly accrued on the Current Balance Sheet or will be properly accrued on the books and records of the Companies as of the Effective Date; and (iii) none of the Employee Benefit Plans has any unfunded liabilities which are not reflected on the Current Balance Sheet or the books and records of the Companies. 3.19 TAX MATTERS. All Tax Returns required to be filed prior to the date hereof with respect to each of the Companies or any of its income, properties, franchises or operations have been timely filed, each such Tax Return has been prepared in compliance with all applicable laws and regulations, and all such Tax Returns are true and accurate in all respects. All Taxes due and payable by or with respect to each of the Companies have been paid or are accrued on the Current Balance Sheet or will be accrued on the Companies' books and records as of the Closing. Except as set forth in Schedule 3.19 hereto: (i) with respect to each taxable period of each of the Companies, either such taxable period has been audited by the relevant taxing authority or the time for assessing or collecting Taxes with respect to each such taxable period has closed and such taxable period is not subject to review by any relevant taxing authority; (ii) no deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Taxes has been asserted or assessed by 19 20 any taxing authority against either of the Companies; (iii) neither of the Companies has consented to extend the time in which any Taxes may be assessed or collected by any taxing authority; (iv) neither of the Companies has requested or been granted an extension of the time for filing any Tax Return to a date later than the Closing; (v) there is no action, suit, taxing authority proceeding, or audit or claim for refund now in progress, pending or threatened against or with respect to either of the Companies regarding Taxes; (vi) neither of the Companies has made an election or filed a consent under Section 341(f) of the Code (or any corresponding provision of state, local or foreign law) on or prior to the Closing; (vii) there are no Liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of either of the Companies; (viii) neither of the Companies will be required (A) as a result of a change in method of accounting for a taxable period ending on or prior to the Effective Date, to include any adjustment under Section 481(c) of the Code (or any corresponding provision of state, local or foreign law) in taxable income for any taxable period (or portion thereof) beginning after the Effective Date or (B) as a result of any "closing agreement," as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign law), to include any item of income or exclude any item of deduction from any taxable period (or portion thereof) beginning after the Effective Date; (ix) neither of the Companies has been a member of an affiliated group (as defined in Section 1504 of the Code) or filed or been included in a combined, consolidated or unitary income Tax Return; (x) neither of the Companies is a party to or bound by any tax allocation or tax sharing agreement and has no current or potential contractual obligation to indemnify any other Person with respect to Taxes; (xi) no taxing authority will claim or assess any additional Taxes against either of the Companies for any period for which Tax Returns have been filed; (xii) neither of the Companies has made any payments, is or will become obligated (under any contract entered into on or before the Closing) to make any payments, that will be non-deductible under Section 280G of the Code (or any corresponding provision of state, local or foreign law); (xiii) neither of the Companies has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code (or any corresponding provision of state, local or foreign law) during the applicable period specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding provision of state, local or foreign law); (xiv) no claim has ever been made by a taxing authority in a jurisdiction where either of the Companies does not file Tax Returns that such Company is or may be subject to Taxes assessed by such jurisdiction; (xv) neither of the Companies has any permanent establishment in any foreign country, as defined in the relevant tax treaty between the United States of America and such foreign country; (xvi) true, correct and complete copies of all income and sales Tax Returns filed by or with respect to the Companies for the past three years have been furnished or made available to Republic; (xvii) neither of the Companies will be subject to any Taxes for the period ending at the Closing for any period for which a Tax Return has not been filed imposed pursuant to Section 1374 or Section 1375 of the Code (or any corresponding provision of state, local or foreign law); (xviii) no sales or use tax will be payable by the Companies or Republic on the transfer of any Assets pursuant to the isolated or occasional sale rule, Fla. Admin. Code 12A-1.037 and the resale provisions of Fla. Admin. Code 12A-1.038 as a result of this transaction, and there will be no non-recurring intangible tax, documentary stamp tax, or other excise (or comparable tax imposed by any governmental entity) as a result of this transaction; and (xix) the Companies have duly and validly filed elections for S corporation status under the Code, and such 20 21 S elections have not been revoked or terminated, and neither of the Companies nor the Shareholder have taken any action which would cause a termination of any of such S elections. 3.20 INSURANCE. The Companies are covered by valid, outstanding and enforceable policies of insurance issued to it by reputable insurers covering its properties, assets and businesses against risks of the nature normally insured against by corporations in the same or similar lines of business and in coverage amounts typically and reasonably carried by such corporations (the "Insurance Policies"). Such Insurance Policies are in full force and effect, and all premiums due thereon have been paid. Through the Effective Time, each of the Insurance Policies will be in full force and effect. The Companies have complied with the provisions of such Insurance Policies. Schedule 3.20 contains (i) a complete and correct list of all Insurance Policies and all amendments and riders thereto (copies of which have been or prior to Closing will be provided to Republic) and (ii) a detailed description of each pending claim under any of the Insurance Policies for an amount in excess of $10,000 that relates to loss or damage to the properties, assets or businesses of the Companies. Neither of the Companies have failed to give, in a timely manner, any notice required under any of the Insurance Policies to preserve its rights thereunder. 3.21 RECEIVABLES. All of the Receivables are valid and legally binding, represent bona fide transactions and arose in the ordinary course of business of the Companies. All of the Receivables are good and collectible receivables, and will be collected in full in accordance with the terms of such receivables (and in any event within six months following the Effective Date), without set off or counterclaims, subject to the allowance for doubtful accounts, if any, set forth on the Current Balance Sheet. For purposes of this Agreement, the term "Receivables" means all receivables of the Companies, including, without limitation, all manufacturer's warranty receivables and all trade account receivables arising from the provision of services, sale of inventory, notes receivable, and insurance proceeds receivable. 3.22 LICENSES AND PERMITS. Except as set forth in Schedule 3.22, the Companies possess all licenses and required governmental or official approvals, permits or authorizations (collectively, the "Permits") for their businesses and operations, including with respect to the operations of each of the Owned Properties and Leased Premises, and Schedule 3.22 sets forth a true, complete and accurate list of all such Permits. All such Permits are valid and in full force and effect, the Companies are in compliance with the respective requirements thereof, and no proceeding is pending or threatened to revoke or amend any of them. None of such Permits is or will be impaired or in any way affected by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.23 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets, Owned Properties, and Leased Premises constitute, in the aggregate, all of the assets and properties necessary for the conduct of each of the businesses of the Companies in the manner in which and to the extent to which such business is currently being conducted. No current supplier to the Companies of items essential to the conduct of their businesses has threatened to terminate its business relationship with either of the Companies for any reason. Neither of the 21 22 Companies has a direct or indirect interest in any customer, supplier or competitor of the Companies, or in any person from whom or to whom the Companies lease real or personal property. Except as set forth on Schedule 3.23, no officer, director, shareholder, or partner of the Companies, nor any person related by blood or marriage to any such person, nor any entity in which any such person owns any beneficial interest, is a party to any Contract or transaction with the Companies or has any interest in any property used by the Companies. 3.24 INTELLECTUAL PROPERTY. The Companies have full legal right, title and interest in and to all trademarks, service marks, trade names, copyrights, know-how, patents, trade secrets, licenses (including licenses for the use of computer software programs), and other intellectual property used in the conduct of its business and set forth on Schedule 3.24 (the "Intellectual Property"). The conduct of the businesses of the Companies as presently conducted, and the unrestricted conduct and the unrestricted use and exploitation of the Intellectual Property, does not infringe or misappropriate any rights held or asserted by any Person, and, to the knowledge of the Companies and the Shareholder, no Person is infringing on the Intellectual Property. No payments are required for the continued use of the Intellectual Property. None of the Intellectual Property has ever been declared invalid or unenforceable, or is the subject of any pending threatened action for opposition, cancellation, declaration, infringement, or invalidity, unenforceability or misappropriation or like claim, action or proceeding. 3.25 CONTRACTS. Schedule 3.25 sets forth a list of each Contract to which each of the Companies is a party or by which any of them or their properties and assets are bound and which is material to any of their businesses, assets, properties or prospects (the "Material Contracts"), including all franchise, sales and service, dealer and other agreements or understandings (the "Franchise Agreements") with Toyota Motor Sales, U.S.A., Inc. and KIA Motors America, Inc. (collectively, the "Factories"). One of the Companies is party to Franchise Agreements for each of the Dealerships, granting such Company full rights and privileges necessary to operate the Dealerships. The copy of each Material Contract furnished to Republic is a true and complete copy of the document it purports to represent and reflects all amendments thereto made through the date of this Agreement. The Companies have not violated any of the terms or conditions of any Material Contract or any term or condition which would permit termination or material modification of any Material Contract, all of the covenants to be performed by any other party thereto, to the knowledge of the Companies and the Shareholder, have been fully performed, and there are no claims for breach or indemnification or notice of default or termination under any Material Contract. No event has occurred which constitutes, or after notice or the passage of time, or both, would constitute, a default by the Companies under any Material Contract, and no such event has occurred which constitutes or would constitute a default by any other party. The Companies are not subject to any liability or payment resulting from renegotiation of amounts paid under any Material Contract. As used in this Section 3.25, Material Contracts shall include, without limitation, formal or informal, written or oral (a) loan agreements, indentures, mortgages, pledges, hypothecations, deeds of trust, conditional sale or title retention agreements, security agreements, equipment financing obligations or guaranties, or other sources of contingent liability in respect of any indebtedness or obligations to any other Person, or letters of intent or commitment letters with respect to same, which individually or in the aggregate 22 23 exceed $25,000; (b) contracts obligating the Companies to provide products or services for a period of one year or more, excluding standard warranty contracts entered into in the ordinary course of its business without material modification from the preprinted forms used by the Companies in the ordinary course of business, copies of which have been supplied to Republic and which individually or in the aggregate exceed $25,000; (c) leases of real property; (d) leases of personal property which individually or in the aggregate provide for total payments in excess of $25,000 (other than those which individually provide for annual payments of less than $25,000 and which are cancelable without penalty on notice of sixty (60) days or less; (e) distribution, sales agency or franchise or similar agreements, or agreements providing for an independent contractor's services, or letters of intent with respect to same; (f) employment agreements, management service agreements, consulting agreements, confidentiality agreements, non-competition agreements, employee handbooks, policy statements and any other agreements relating to any employee, officer or director of either of the Companies; (g) licenses, assignments or transfers of trademarks, trade names, service marks, patents, copyrights, trade secrets or know how, or other agreements regarding proprietary rights or intellectual property; (h) any contract relating to pending capital expenditures by the Companies; (i) contracts obligating the Companies to purchase vehicles, parts, accessories, supplies, equipment, oil, advertising, media and media related services of any kind, not cancelable without penalty on notice of thirty (30) days or less; (j) any non-competition agreements restricting either of the Companies in any manner; and (k) other material Contracts or understandings, irrespective of subject matter and whether or not in writing, and not otherwise disclosed on the Schedules. 3.26 ACCURACY OF INFORMATION FURNISHED. No representation, statement or information contained in this Agreement (including, without limitation, the various Schedules attached hereto) or any agreement executed in connection herewith or in any certificate delivered pursuant hereto or thereto or made or furnished to Republic or its representatives by the Companies or the Shareholder, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained therein not misleading. The Companies have provided Republic with true, accurate and complete copies of all documents listed or described in the various Schedules attached hereto. 3.27 INVESTMENT INTENT; ACCREDITED INVESTOR STATUS; SECURITIES DOCUMENTS. The Shareholder has had the opportunity to discuss the transactions contemplated hereby with Republic and has had the opportunity to obtain such information pertaining to Republic as has been requested, including but not limited to filings made by Republic with the SEC under the Exchange Act. The Shareholder is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act, and has such knowledge and experience in business or financial matters that he is capable of evaluating the merits and risks of an investment in the Republic Shares. The Shareholder hereby represents that he can bear the economic risk of losing his investment in the Republic Shares and has adequate means for providing for his current financial needs and contingencies. The Shareholder has received copies of all Republic Reports filed with the SEC since January 1, 1996. 3.28 BANK ACCOUNTS; BUSINESS LOCATIONS. As of the date hereof, the Companies have no office or place of business other than as identified on Schedules 3.14(a) and 3.14(b) and the 23 24 Companies' principal places of business and chief executive offices are indicated on Schedule 3.14(a). All locations where the equipment, inventory, chattel paper and books and records of the Companies are located as of the date hereof are fully identified on Schedules 3.14(a) and 3.14(b). Schedule 3.28 lists each account of the Companies with any bank, broker or other depository institution, and the names of all persons authorized to withdraw funds from each such account. 3.29 NAMES; PRIOR ACQUISITIONS; NO COMMISSIONS. All names under which each of the Companies does business as of the date hereof are specified on Schedule 3.29. Except as otherwise disclosed in Schedule 3.29, neither of the Companies has changed its name or used any assumed or fictitious name, or been the surviving entity in a merger, acquired any business or changed its principal place of business or chief executive office, within the past three years. Neither of the Companies nor the Shareholder has incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. ARTICLE IV CONDUCT OF BUSINESS PENDING THE CLOSING 4.1 CONDUCT OF BUSINESS BY THE COMPANIES PENDING THE CLOSING. The Companies and the Shareholder, jointly and severally, covenant and agree that, between the date of this Agreement and the Effective Time, the business of the Companies shall be conducted only in, and the Companies shall not take any action except in, the ordinary course of business consistent with past practice. The Companies and the Shareholder shall use their or his reasonable best efforts to preserve intact the Companies' business organizations, to keep available the services of their current officers, employees and consultants, and to preserve their present relationships with customers, suppliers and other persons with which they have significant business relations. By way of amplification and not limitation, except as contemplated by this Agreement, each of the Companies shall not, between the date of this Agreement and the Effective Time, directly or indirectly, do or propose or agree to do any of the following without the prior written consent of Republic: (a) amend or otherwise change their Articles of Incorporation, Bylaws, or equivalent organizational documents; (b) issue, sell, pledge, dispose of, encumber, or, authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of its capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest, of it, or (ii) any of its assets, tangible or intangible, except, in the case of (ii), in the ordinary course of business consistent with past practice; 24 25 (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock; (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e) (i) acquire (including, without limitation, for cash or shares of stock, by merger, consolidation or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or make any investment either by purchase of stock or securities, contributions of capital or property transfer, or, except in the ordinary course of business, consistent with past practice, purchase any property or assets of any other Person, (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances, except for its "floor plan" financing of vehicle inventories in the ordinary course of business consistent with past practice or (iii) modify, terminate, or enter into any Contract other than as provided herein or in the ordinary course of business, consistent with past practice; (f) increase the compensation payable or to become payable to its officers or employees, or, except as presently bound to do, grant any severance or termination pay to, or enter into any employment or severance agreement with, any of its directors, officers or other employees, or establish, adopt, enter into or amend or take any action to accelerate any rights or benefits which any collective bargaining, bonus, profit sharing, trust, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees; (g) take any action with respect to accounting policies or procedures other than in the ordinary course of business and in a manner consistent with past practices; (h) pay, discharge or satisfy any existing claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of due and payable liabilities reflected or reserved against in its financial statements, as appropriate, or liabilities incurred after the date thereof in the ordinary course of business and consistent with past practice; (i) increase or decrease prices charged to its customers, except in the ordinary course of business consistent with past practices, or take any other action which might reasonably result in any material increase in the loss of customers; materially increase or decrease the average monthly parts and accessories inventory, 25 26 New Vehicle Inventory, or Other Vehicle Inventory, other than in the ordinary course of business and in a manner consistent with past practice; and order any New Vehicles from the Factory which would be inconsistent with the prior ordering practices of the Companies; (j) make any dealer trades other than in the ordinary course of business consistent with past practice; (k) enter into any transaction with the Shareholder or Affiliate thereof; or (l) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty in Article III untrue or incorrect in any material respect. ARTICLE V ADDITIONAL AGREEMENTS 5.1 FURTHER ASSURANCES. Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby. 5.2 COMPLIANCE WITH COVENANTS. The Shareholder shall cause the Companies to comply with all of the covenants of the Companies under this Agreement. 5.3 COOPERATION. Each of the parties agrees to cooperate with the other in the preparation and filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to any law, rule or regulation in connection with the transactions contemplated by this Agreement and to use their respective best efforts to agree jointly on a method to overcome any objections by any Governmental Authority to any such transactions. 5.4 FACTORIES APPLICATIONS AND OTHER ACTIONS. Each of the parties hereto shall (a) cooperate in the preparation and filing of, and take all appropriate actions in connection with, the application to the Factories for approval of the transactions contemplated hereby, and (b) use its reasonable best efforts to take, or cause to be taken, all appropriate actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated herein, including, without limitation, using its best efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of any Governmental Authority and parties to Contracts with the Companies as are necessary for the consummation of the transactions contemplated hereby. Each of the parties shall make on a prompt and timely basis all governmental or regulatory notifications and filings required to be made by it 26 27 for the consummation of the transactions contemplated hereby. The parties also agree to use best efforts to defend all lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby and to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. 5.5 HSR ACT. Republic and the Companies shall make promptly (unless they have already made) their respective filings, if any, and thereafter make any other required submissions, under the HSR Act, with respect to the transactions contemplated hereby, and shall, if requested by Republic, seek early termination of the applicable waiting period under the HSR Act. Republic shall pay the HSR Act filing fee. 5.6 ACCESS TO INFORMATION. From the date hereof to the Effective Time, the Companies shall, and shall cause its directors, officers, employees, auditors, counsel and agents to, afford Republic and Republic's officers, employees, auditors, counsel and agents reasonable access at all reasonable times to its properties, offices and other facilities (including access to perform environmental and other tests and assessments), to its officers and employees and to all books and records, and shall furnish such persons with all financial, operating and other data and information as may be requested. No information provided to or obtained by Republic shall affect any representation or warranty in this Agreement. 5.7 NOTIFICATION OF CERTAIN MATTERS. The Companies shall give prompt notice to Republic of the occurrence or non-occurrence of any event which would likely cause any representation or warranty contained herein to be untrue or inaccurate, or any covenant, condition or agreement contained herein not to be complied with or satisfied (provided, however, that, any such disclosure shall not in any way be deemed to amend, modify or in any way affect the representations, warranties and covenants made by the Companies and the Shareholder in or pursuant to this Agreement). 5.8 TAX TREATMENT. Republic and the Companies and the Shareholder will use their respective reasonable best efforts to cause the transactions contemplated hereby to qualify as a reorganization under the provisions of Section 368(a) of the Code. All parties hereto agree to file the Plans of Merger with their respective federal income tax returns for the year in which the Mergers are effective, and to comply with the reporting requirements of Treasury Regulation 1.368-3. 5.9 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as otherwise permitted or expressly contemplated herein, no party hereto or their respective Affiliates, employees, agents and representatives shall disclose to any third party this Agreement, the subject matter or terms hereof or any confidential information or other proprietary knowledge concerning the business or affairs of the other party which it may have acquired from such party in the course of pursuing the transactions contemplated by this Agreement without the prior consent of the other party hereto; provided, that any information that is otherwise publicly available, without breach of this provision, 27 28 or has been obtained from a third party, shall not be deemed confidential information. No press release or other public announcement related to this Agreement or the transactions contemplated hereby shall be issued by any party hereto without the prior approval of the other parties, except that Republic may make such public disclosure which it believes in good faith to be required by law or by the terms of any listing agreement with or requirements of Nasdaq (in which case Republic will consult with the Companies prior to making such disclosure). 5.10 NO OTHER DISCUSSIONS. The Companies and the Shareholder and their Affiliates, employees, agents and representatives will not (a) initiate, encourage the initiation by others of discussions or negotiations with third parties or respond to solicitations by third persons relating to any merger, sale or other disposition of any substantial part of the assets, capital stock (or derivatives thereof), business or properties of the Companies (whether by merger, consolidation, sale of stock, sale of assets, or otherwise), or (b) enter into any agreement or commitment (whether or not binding) with respect to any of the foregoing transactions. The Companies and the Shareholder will immediately notify Republic if any third party attempts to initiate any solicitation, discussion, or negotiation with respect to any of the foregoing transactions, and shall provide Republic with the name of such third parties and the terms of any offers. 5.11 RESTRICTIVE COVENANT. In order to assure that Republic will realize the benefits of the Mergers, the Shareholder agrees with Republic that he will not: (a) during the Restricted Period, directly or indirectly, alone or as a partner, joint venturer, officer, director, member, employee, consultant, agent, independent contractor or stockholder of, or lender to, any company or business, engage in selling, leasing, or servicing any new or used vehicles (the "Auto Business") or in the wholesale or retail supply of parts with respect thereto (the "Parts Business") anywhere in the Restricted Territory; provided, however, that, the beneficial ownership of less than five percent (5%) of the shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this Section; (b) during the Restricted Period, directly or indirectly (i) induce any Person which is a customer of the Companies, Republic or any Affiliate of the Companies or Republic to patronize any business directly or indirectly in competition with the Auto Business or the Parts Business conducted by the Companies, Republic or any Affiliate of the Companies or Republic; (ii) canvass, solicit or accept from any Person which is a customer of the Companies, Republic or any Affiliate of the Companies or Republic, any such competitive business; or (iii) request or advise any Person which is a customer of the Companies, Republic or any Affiliate of the Companies or Republic, to withdraw, curtail or cancel any such customer's business with the Companies, Republic or any Affiliate of the Companies or Republic, or its or their successors; 28 29 (c) during the Restricted Period, directly or indirectly employ, or knowingly permit any company or business directly or indirectly controlled by him, to employ, any person who was employed by either of the Companies, Republic or any Affiliate of the Companies or Republic at or within the prior six months, or in any manner seek to induce any such person to leave his or her employment; (d) during the Restricted Period, directly or indirectly, in any way utilize, disclose, copy, reproduce or retain in his possession any of the Companies' proprietary rights or records, including, but not limited to, any of its customer lists. Notwithstanding the provisions of this Section 5.11, the parties agree that the Shareholder's ownership interest and operation of KIA dealership in St. Lucie County, Florida shall not be deemed a violation hereof. For purposes of this Section 5.11, (a) the "Restricted Period" for any individual shall mean the period beginning on the Effective Time and ending on the later of (i) the fifth anniversary of the Effective Time (the "Purchase Restricted Period"), or (ii) the second anniversary of the termination of the employment of such individual with Republic, the Companies, or any Affiliate of Republic or the Companies (the "Employment Restricted Period"), and (b) the "Restricted Territory" for any individual shall mean (i) during the Employment Restricted Period, anywhere in the United States, and (ii) during the Purchase Restricted Period, anywhere within the city limits or within fifty miles of the city limits of those cities listed on Schedule 5.11. The Shareholder agrees and acknowledges that the restrictions contained in this Section 5.11 are reasonable in scope and duration and are necessary to protect Republic and the Companies after the Effective Time. If any provision of this Section 5.11, as applied to any party or to any circumstance, is adjudged by a court to be invalid or unenforceable, the same will in no way affect any other circumstance or the validity or enforceability of the remainder of this Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision, and/or to delete specific words or phrases, and in its reduced form, such provision shall then be enforceable and shall be enforced. The parties agree and acknowledge that the breach of this Section 5.11 will cause irreparable damage to Republic and upon breach of any provision of this Section 5.11, Republic shall be entitled to injunctive relief, specific performance or other equitable relief; provided, however, that the foregoing remedies shall in no way limit any other remedies which Republic may have (including, without limitation, the right to seek monetary damages). 5.12 TRADING IN REPUBLIC COMMON STOCK. Except as otherwise expressly consented to by Republic, from the date of this Agreement until the Effective Time, neither of the Companies, the Shareholder nor any of their Affiliates will directly or indirectly purchase or sell (including short sales) any shares of Republic Common Stock in any transactions effected on Nasdaq or otherwise. 5.13 EMPLOYMENT OF SHAREHOLDER. Republic or its assignee and the Shareholder shall enter into an employment agreement in the form attached hereto as Schedule 5.13. 29 30 5.14 TITLE INSURANCE AND SURVEYS. (a) Within 10 business days after the date of this Agreement, the Companies and the Shareholder shall obtain and deliver to Republic commitments (the "Commitments") issued by a title insurance company acceptable to Republic (the "Title Company") and dated not earlier than November 15, 1996 for the issuance of an ALTA Owners Policy of Title Insurance (10-17-92) (with Florida Modifications), (the "Title Policy") for the Owned Properties. The Title Policy shall be in the amount allocated to the real property herein, showing fee simple title to the Owned Properties vested now or to be vested at the Effective Time in one of the Companies subject only to current real estate Taxes not yet due and payable as of the Effective Time, and such other covenants, conditions, easements, and exceptions to title as Republic may approve in writing (collectively, the "Permitted Exceptions"). The Commitments and the Title Policy to be issued by the Title Company shall have all Standard and General Exceptions deleted so as to afford full "extended form coverage" and shall contain an ALTA Zoning Endorsement 3.1, contiguity (where appropriate), and such other endorsements as may be reasonably requested by Republic, excluding non-imputation and creditors rights endorsements. At the Closing, the Shareholder or his Affiliates shall deliver such affidavits or other instruments as the Title Company may reasonably require to delete Standard and General Exceptions and to provide the special endorsements required hereunder. The Shareholder shall cause the Commitments to be later-dated to cover the Closing and to cause the Title Company to deliver the Title Policy at the Closing as directed by Republic. The cost of the Title Policy shall be borne one-half by Republic and one-half by the Companies and the Shareholder (b) Within 20 days after the date of this Agreement but before the Closing, the Companies and the Shareholder shall deliver to Republic and the Title Company an as-built plat of survey of each of the Owned Properties and the Leased Premises (the "Surveys") prepared by a registered land surveyor or engineer, licensed in the respective states in which such properties are located, dated on or after the date hereof, certified to Republic, the Title Company, and such other entities as Republic may designate in writing to the Companies and the Shareholder prior to the Closing, and conforming to current ALTA/ACSM Minimum Detail Requirements for Land Title Surveys, sufficient to cause the Title Company to delete the standard printed survey exception. Each Survey shall show access from the land to dedicated roads and shall include a flood plain certification. Any survey may be a recertification of a prior survey, provided that it meets the above-described criteria. (c) Republic shall notify the Companies and the Shareholder in writing, within ten (10) business days of the receipt of any Commitment of Survey, if (i) such Commitment discloses a title exception other than a Permitted Exception (an "Unpermitted Exception") or (ii) such Survey discloses any encroachment, overlap, or gap or any other matter which renders title to any of the Owned Properties unmarketable or reflects that any utility service to the improvements or access thereto does not lie wholly within the applicable parcel of real property, or within an encumbered easement for the benefit of such parcel of real property, or reflects any other matter adversely affecting the use or improvements of such parcel of real property (a "Survey Defect"), then the Companies and the Shareholder, twenty (20) days prior to the Closing, shall have the Unpermitted 30 31 Exception removed from such Commitment or the Survey Defect corrected or insured over by an appropriate title insurance endorsement, all in a manner reasonably satisfactory to Republic, or, if unable to do so, the parties may terminate this Agreement. 5.15 SHAREHOLDER AND DIRECTOR VOTE. The Shareholder, in executing this Agreement, consents as a director, shareholder, and/or partner (as applicable) of the Companies to the transactions contemplated hereby, and waives notice of any meeting in connection therewith. 5.16 SCHEDULES. The parties hereto acknowledge and agree that, as of the date hereof, the Schedules to this Agreement are preliminary in nature and, therefore, are incomplete. The parties hereto further acknowledge and agree that (i) the Shareholder and the Companies shall be permitted to finalize the Schedules to this Agreement, including providing new Schedules, within fourteen (14) business days of the date hereof (the "Schedule Date"), and (ii) Republic shall have ten (10) business days from the Schedule Date to accept or object to any matter disclosed in any Schedule, including the Schedules attached hereto. 5.17 DUE DILIGENCE REVIEW. Republic shall be entitled to conduct a due diligence review of the assets, real and personal properties, corporate and financial books, records, plans, programs, and any other matters relating to the Companies or their properties, which shall be completed on the tenth (10th) business day (the "Due Diligence Date") after the later of (i) the Schedule Date, or (ii) receipt by Republic of all documents, items, and information requested by Republic to complete such due diligence review. Republic may, at any time up to and including the Due Diligence Date, elect not to close the transactions contemplated by this Agreement for any reason, in which case this Agreement shall be terminated and the parties shall be released from any and all obligations hereunder. ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES The obligations of the Republic Companies to effect the Mergers shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, any or all of which may be waived in whole or in part by the Republic Companies: 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Companies and the Shareholder contained in this Agreement shall be true and correct at and as of the Effective Time with the same force and effect as though made at and as of that time except that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. The Companies and the Shareholder shall have performed and complied with all of their obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. The Companies and the Shareholder shall have delivered to Republic a certificate, dated as of the Closing Date, (which 31 32 in case of the Companies shall be duly signed by its Chief Executive Officer and Chief Financial Officer) certifying that such representations and warranties are true and correct and that all such obligations have been performed and complied with. 6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the date hereof and the Closing Date, (a) there shall have been no Material Adverse Change to the Companies, (b) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of the Companies and (c) none of the Assets of the Companies shall have been damaged by fire, flood, casualty, act of God or the public enemy or other cause (regardless of insurance coverage for such damage) which damages may have a Material Adverse Effect thereon, and the Companies and the Shareholder shall have delivered to Republic a certificate, dated as of the Closing Date, to that effect. 6.3 OPINION OF COUNSEL. Republic shall have received an opinion dated as of the Closing Date from counsel for the Companies and the Shareholder in form and substance acceptable to Republic, in the form set forth on Schedule 6.3. 6.4 CONSENTS. The Companies and Republic shall have received consents to the Mergers contemplated hereby and waivers of rights to terminate or modify any material rights or obligations of the Companies from any Person from whom such consent or waiver is required under any Material Contract (including but not limited to, any franchise, dealer or other agreement with the Factories) or under the HSR Act as of a date not more than five days prior to the Closing Date, or who, as a result of the transactions contemplated hereby, would have such rights to terminate or modify such Contracts or instruments, either by the terms thereof or as a matter of law. Republic shall have received consents to the transfer of the Franchise Agreements between each of the Companies and each of the Factories or shall have entered into new dealer and franchise agreements of the type generally in use at that time to operate a dealership of each of the Factories at the Companies' current locations, subject only to such additional terms and conditions as are acceptable to Republic. Republic shall have obtained any applicable dealer license or other approvals required under laws of the States of Florida and terms from the Motor Vehicle Commission of the State of Florida and other Governmental Authorities with respect to the Mergers. 6.5 SECURITIES LAWS. Republic shall have received all necessary consents and otherwise complied with any state Blue Sky or securities laws applicable to the issuance of the Republic Shares in connection with the transactions contemplated hereby. 6.6 STOCK POWERS. At the Closing, the Shareholder shall have delivered to Republic, for use in connection with the Held Back Shares, ten stock powers executed in blank, with signature guarantees. 6.7 NO ADVERSE LITIGATION. There shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, 32 33 invalidate or collect damages arising out of the Mergers, and which, in the judgment of Republic, makes it inadvisable to proceed with the transactions contemplated hereby. 6.8 EMPLOYMENT AGREEMENTS. At or prior to the Closing, the Shareholder shall have entered into employment agreements with the Companies, Republic, or at Republic's option, one or more of its assignees provided that such assignment shall not require the Shareholder to move outside the South Florida area, in the form attached hereto as Schedule 5.13. 6.9 BOARD APPROVAL. The Board of Directors (the "Board") of Republic shall have authorized and approved this Agreement, the Mergers, and the transactions contemplated hereby. Republic shall notify the Companies and the Shareholder of such approval or rejection by the Board before the end of the third (3) business day following the Due Diligence Date. Upon notification by Republic to the Companies of the Board's rejection of this Agreement and the transactions contemplated hereby, this Agreement shall be terminated and the parties shall be released from any and all obligations hereunder. Failure by Republic to notify the Companies of the Board's rejection within the period provided herein shall be deemed a waiver of this condition by Republic. ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDER AND COMPANIES The obligations of the Shareholder and the Companies to effect the Mergers shall be subject to the fulfillment at or prior to the Effective Time of the following conditions, any or all of which may be waived in whole or in part by the Shareholder and the Companies: 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Republic Companies contained in this Agreement shall be true and correct at and as of the Effective Time with the same force and effect as though made at and as of that time except that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. Republic shall have performed and complied with all of its obligations required by this Agreement to be performed or complied with at or prior to the Effective Time. The Republic Companies shall each have delivered to the Companies a certificate, dated as of the Effective Time, and signed by an executive officer, certifying that such representations and warranties are true and correct and that all such obligations have been performed and complied with. 7.2 REPUBLIC SHARES. At the Closing, Republic shall have issued all of the Republic Shares and shall have delivered to the Shareholder (a) certificates representing the Republic Shares issued to them hereunder, other than the Held Back Shares, and (b) copies of certificates representing the Held Back Shares issued to the Shareholder. 33 34 7.3 NO ORDER OR INJUNCTION. There shall not be issued and in effect by or before any court or other governmental body an order or injunction restraining or prohibiting the transactions contemplated hereby. 7.4 HSR ACT WAITING PERIOD. Any applicable waiting period under the HSR Act shall have expired or been terminated. 7.5 CONSENTS. The Companies and the Shareholder shall have received consents to the Mergers contemplated hereby and waivers of rights to terminate or modify any material rights or obligations of the Companies from any Person from whom such consent or waiver is required under any Material Contract (including but not limited to, any franchise, dealer or other agreement with the Factories) or under the HSR Act as of a date not more than five days prior to the Closing Date, or who, as a result of the transactions contemplated hereby, would have such rights to terminate or modify such Contracts or instruments, either by the terms thereof or as a matter of law. ARTICLE VIII REGISTRATION RIGHTS The Shareholder shall have the following registration rights with respect to the Republic Shares issued to them hereunder. 8.1 REGISTRATION RIGHTS FOR REPUBLIC SHARES; FILING OF REGISTRATION STATEMENT. Republic will utilize its reasonable best efforts to cause, as soon as practicable following the Closing Date, a registration statement to be filed under the Securities Act or an existing registration statement to be amended for the purpose of registering the Republic Shares for resale by a Holder thereof (the "Registration Statement"). For purposes of this Article VIII, a person is deemed to be a "Holder" of Republic Shares whenever such person is the record owner of Republic Shares. Republic will use its reasonable best efforts to have the Registration Statement become effective and cause the Republic Shares to be registered under the Securities Act, and registered, qualified or exempted under the state securities laws of such jurisdictions as any Holder reasonably requests, as soon as reasonably practicable following the Effective Date, provided, however, that Republic shall not be required to qualify to do business in any state or to consent to be subject to general service of process in any state where it is not otherwise required to be so qualified or subject. 8.2 EXPENSES OF REGISTRATION. Republic shall pay all expenses incurred by Republic in connection with the registration, qualification and/or exemption of the Republic Shares, including any SEC and state securities law registration and filing fees, listing fees, printing expenses, fees and disbursements of Republic's counsel and accountants, transfer agents' and registrars' fees, fees and disbursements of experts used by Republic in connection with such registration, qualification and/or exemption, and expenses incidental to any amendment or supplement to the Registration Statement 34 35 or prospectuses contained therein. Republic shall not, however, be liable for any sales, broker's or underwriting commissions upon sale by any Holder of any of the Republic Shares. 8.3 FURNISHING OF DOCUMENTS. Republic shall furnish to the Holders such reasonable number of copies of the Registration Statement, such prospectuses as are contained in the Registration Statement and such other documents as the Holders may reasonably request in order to facilitate the offering of the Republic Shares. 8.4 AMENDMENTS AND SUPPLEMENTS. Republic shall prepare and promptly file with the SEC and promptly notify the Holders of the filing of such amendments or supplements to the Registration Statement or prospectuses contained therein as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to the Republic Shares is required to be delivered under the Securities Act, any event shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided, however, that Republic shall be entitled to delay any such filing and the use of the prospectus if Republic determines that such filing would impede, delay, or interfere with any significant financing, acquisition, or other transaction involving Republic, or require disclosure of material information which Republic has a bona fide business purpose for preserving as confidential. Republic shall also advise the Holders promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of the Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. 8.5 DURATION. Republic shall maintain the effectiveness of the Registration Statement until such time as Republic reasonably determines, based on an opinion of counsel, that all of the Holders will be eligible to sell all of the Republic Shares then owned by the Holders without the need for continued registration of the shares within the three month period immediately following the termination of the effectiveness of the Registration Statement. Republic's obligations contained in Sections 8.1, 8.3 and 8.4 shall terminate on the second anniversary of the Effective Date. 8.6 FURTHER INFORMATION. If Republic Shares owned by a Holder are included in any registration, such Holder shall furnish Republic such information regarding itself as Republic may reasonably request and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 8.7 INDEMNIFICATION (a) Republic will indemnify and hold harmless the Holders and each person, if any, who controls a Holder within the meaning of the Securities Act, from and against any and all losses, damages, liabilities, costs and expenses to which the Holders or any such controlling person may become subject under the Securities Act or otherwise, insofar as such 35 36 losses, claims, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that, Republic will not be liable in any such case to the extent that any such loss, claim, damage, liability, cost or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of any Holder or such controlling person in writing specifically for use in the preparation thereof. (b) Each of the Holders, jointly and severally, will indemnify and hold harmless Republic and each person, if any, who controls Republic within the meaning of the Securities Act, from and against any and all losses, damages, liabilities, costs and expenses to which Republic or any such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in strict conformity with written information furnished by or on behalf of any Holder specifically for use in the preparation thereof. (c) Promptly after receipt by an indemnified party pursuant to the provisions of paragraph (a) or (b) of this Section 8.7 of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said paragraph (a) or (b), promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have hereunder unless the indemnifying party has been materially prejudiced thereby nor will such failure to so notify the indemnifying party relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, if the defendants in any action include both the indemnified party and the indemnifying party and there is a conflict of interest which would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. After notice from the indemnifying 36 37 party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said paragraph (a) or (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless (i) the indemnified party shall have employed counsel in accordance with the provisions of the preceding sentence, (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. (d) In the event any of the Republic Shares are sold by any Holder or Holders in an underwritten public offering consented to by Republic, Republic shall provide indemnification to the underwriters of such offering and any person controlling any such underwriter on behalf of the Holder or Holders making the offering; provided, however, that Republic shall not be required to consent to any such underwriting or to provide such indemnification in respect of the matters described in the proviso to the first sentence of Section 8.7(a). ARTICLE IX INDEMNIFICATION 9.1 AGREEMENT BY THE SHAREHOLDER FOR INDEMNIFICATION. The Shareholder agrees to indemnify and hold Republic and its shareholders, directors, officers, employees, attorneys, agents and Affiliates harmless from and against, and Republic shall be entitled to recover by set off against the Held Back Shares in accordance with Section 9.3, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, related counsel and paralegal fees and expenses) incurred or suffered by Republic arising out of, relating to, or resulting from (i) any breach of a representation or warranty made by the Companies or the Shareholder in or pursuant to this Agreement, (ii) any breach of the covenants or agreements made by the Companies or the Shareholder in or pursuant to this Agreement, or (iii) any inaccuracy in any certificate, instrument or other document delivered by the Companies or the Shareholder as required by this Agreement (collectively, "Indemnifiable Damages"). Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Republic shall have the right to be put in the same pre-tax consolidated financial position as it would have been in had each of the representations and warranties of the Shareholder hereunder been true and correct and had the agreements of the Companies and the Shareholder hereunder been performed in full, and such Indemnifiable Damages shall be reduced by and to the extent Republic receives proceeds under insurance policies, including title insurance policies, as a result of, and in compensation for, the subject matter of such claim. In no event, however, shall the aggregate amount of Indemnifiable Damages payable by the Shareholder exceed the Total Purchase Price. Notwithstanding anything to the contrary contained herein, 37 38 Republic shall not be entitled to any Indemnifiable Damages unless the aggregate of all such Indemnifiable Damages exceeds $250,000 ("Indemnification Threshold"). The Indemnification Threshold shall not be applicable to any claim under (ii) above or any claim arising under Section 3,19. 9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by the Shareholder in this Agreement or pursuant hereto shall survive for a period of two years after the Effective Time, except that the representations and warranties made in Section 3.12, Section 3.18, and Section 3.19 shall survive for the length of any applicable period of limitations, and the representations and warranties made by the Shareholder in Sections 3.4, 3.5, and 3.13, shall never expire. No claim for the recovery of Indemnifiable Damages may be asserted by Republic after such representations and warranties shall thus expire; provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. Each of the representations and warranties of the Republic Companies shall expire at the Effective Time. 9.3 SECURITY FOR THE SHAREHOLDER'S INDEMNIFICATION OBLIGATION. As security for the indemnification obligations contained in this Article IX, at the Closing, Republic shall set aside and hold certificates representing the Held Back Shares issued pursuant to this Agreement. Republic may set off against the Held Back Shares any loss, damage, cost or expense for which the Shareholder may be responsible pursuant to this Agreement (including without limitation, any Indemnifiable Damages) whether or not indemnified pursuant to this Article IX, subject, however, to the following terms and conditions: (a) Republic shall give written notice to the Shareholder of any claim for Indemnifiable Damages or any other damages hereunder, which notice shall set forth (i) the amount of Indemnifiable Damages or other loss, damage, cost or expense which Republic claims to have sustained by reason thereof, and (ii) the basis of such claim; (b) Such set off shall be effected on the later to occur on the expiration of 15 days from the date of such notice or, if such claim is contested, the date the dispute is resolved, and such set off shall be charged proportionally against the shares set aside; (c) After the Held Back Shares are registered and any restrictions on sale imposed under the Securities Act or otherwise are terminated, the Shareholder may 38 39 instruct Republic to sell some or all of the Held Back Shares and the net proceeds thereof shall be substituted for such Held Back Shares in any set off to be made by Republic pursuant to any claim hereunder subject to continued compliance with any applicable SEC and other regulations; and (d) For purposes of any set off against the Held Back Shares pursuant to this Article IX, the shares of Republic Common Stock not sold as provided in clause (d) of this Section shall be valued at the Average Closing Sale Price. 9.4 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES. Except with respect to shares transferred pursuant to the foregoing right of set off (and in the case of such shares, until the same are transferred), all Held Back Shares shall be deemed to be owned by the Shareholder and the Shareholder shall be entitled to vote the Held Back Shares; provided, however, that, there shall also be deposited with Republic subject to the terms of this Article IX, all shares of Republic Common Stock issued to the Shareholder as a result of any stock dividend or stock split and all cash issuable to the Shareholder as a result of any cash dividend, with respect to the Held Back Shares. All stock and cash issued or paid upon Held Back Shares shall be distributed to the person or entity entitled to receive such Held Back Shares together with such Held Back Shares. 9.5 DELIVERY OF HELD BACK SHARES. Republic agrees to deliver to the Shareholder no later than one year after the Effective Date any Held Back Shares then held by it (or proceeds from the Held Back Shares) unless there then remains unresolved any claim for Indemnifiable Damages or other damages hereunder as to which notice has been given, in which event any Held Back Shares (or proceeds from the sale of Held Back Shares) remaining on deposit after such claim shall have been satisfied shall be returned to the Shareholder promptly after the time of satisfaction. 9.6 ADJUSTMENT TO TOTAL PURCHASE PRICE. All payments for Indemnifiable Damages made pursuant to this Article IX shall be treated as adjustments to the consideration granted in the Mergers under Section 1.3. 9.7 NO BAR. If the Held Back Shares are insufficient to set off any claim for Indemnifiable Damages made hereunder (or have been delivered to the Shareholder prior to the making or resolution of such claim), then Republic may take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. 9.8 REMEDIES CUMULATIVE. The remedies provided herein shall be cumulative and shall not preclude Republic from asserting any other right, or seeking any other remedies against the Shareholder. 39 40 ARTICLE X SECURITIES LAW MATTERS The parties agree as follows with respect to the sale or other disposition after the Effective Time of the Republic Shares: 10.1 DISPOSITION OF SHARES. The Shareholder agrees that he will not sell, transfer or otherwise dispose of any Republic Shares, except pursuant to (a) an exemption from the registration requirements under the Securities Act, which does not require the filing by Republic with the SEC of any registration statement, offering circular or other document, in which case, each such Shareholder shall first supply to Republic an opinion of counsel (which counsel and opinions shall be satisfactory to Republic) that such exemption is available, or (b) an effective registration statement filed by Republic with the SEC under the Securities Act. 10.2 LEGEND. The certificates representing the Republic Shares shall bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE ACT, AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO, OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. Republic may, unless a registration statement is in effect covering such shares, place stop transfer orders with its transfer agents with respect to such certificates in accordance with federal securities laws. ARTICLE XI DEFINITIONS 11.1 DEFINED TERMS. As used herein, the following terms shall have the following meanings: 40 41 "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof. "Chargebacks" shall mean (a) any amount which either of the Companies may be required to pay back to any party purchasing retail paper, warranties or the like from such Companies, or (b) any amount which may be set-off or otherwise deducted from any amount due and owing to either of the Companies by any party purchasing retail paper, warranties or the like from such Companies. "Code" means the Internal Revenue Code of 1986, as amended. "Contract" means any agreement, contract, lease, note, mortgage, indenture, loan agreement, franchise agreement, covenant, employment agreement, license, instrument, purchase and sales order, commitment, undertaking, obligation, whether written or oral, express or implied. "Current Assets" shall mean all current assets of each of the Companies, the value of which shall be determined in accordance with the rules and policies of each of the Factories (or in the case of any Factory for which no such rules or policies have been established, in accordance with GAAP). "Current Liabilities" shall mean all current liabilities of each of the Companies, the value of which shall be determined in accordance with the rules and policies of each of the Factories (or in the case of any Factory for which no such rules or policies have been established, in accordance with GAAP). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in effect in the United States of America from time to time. "Governmental Authority" means any nation or government, any state, regional, local or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 41 42 "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, but not limited to, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code or comparable law or any jurisdiction in connection with such mortgage, pledge, security interest, encumbrance, lien or charge). "Material Adverse Change (or Effect)" means a change (or effect), in the condition (financial or otherwise), properties, assets, liabilities, rights, obligations, operations, business or prospects which change (or effect) individually or in the aggregate, is materially adverse to such condition, properties, assets, liabilities, rights, obligations, operations, business or prospects. "New Parts and Accessories Inventory" shall mean new, non-damaged and non-obsolete parts and accessories inventory that may be returned to the manufacturer. "New Vehicle Inventory" shall mean vehicles which are new, unused (meaning untitled and unreported as sold with full factory warranty) and undamaged (meaning having repairable damage costing less than $100) and have less than 100 miles. "Other Parts and Accessories Inventory" shall mean parts and accessories inventory other than New Parts and Accessories Inventory. "Other Vehicle Inventory" shall mean vehicle inventory other than New Vehicle Inventory. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, estate, trust, unincorporated association, joint venture, Governmental Authority or other entity, of whatever nature. "Register", "registered" and "registration" refer to a registration of the offering and sale of securities effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. 42 43 "Tax Return" means any tax return, filing or information statement required to be filed in connection with or with respect to any Tax. "Taxes" means all taxes, fees or other assessments, including, but not limited to, income, excise, property, sales, use, franchise, intangible, payroll, withholding, social security and unemployment taxes imposed by any federal, state, local or foreign governmental agency, and any interest or penalties related thereto. 11.2 OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in this Agreement shall have the defined meanings when used in any certificates, reports or other documents made or delivered pursuant hereto or thereto, unless the context otherwise requires. (b) Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (c) All matters of an accounting nature in connection with this Agreement and the transactions contemplated hereby shall be determined in accordance with GAAP applied on a basis consistent with prior periods, where applicable. (d) As used herein, the neuter gender shall also denote the masculine and feminine, and the masculine gender shall also denote the neuter and feminine, where the context so permits. ARTICLE XII TERMINATION, AMENDMENT AND WAIVER 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time. (a) by mutual written consent of all of the parties hereto at any time prior to the Closing; or (b) by Republic, ten days after delivery of written notice to the Companies and the Shareholder in accordance with Section 13.1 of this Agreement in the event of a material breach by the Companies or the Shareholder of any provision of this Agreement if the Companies and the Shareholder have not cured said material breach; or (c) by the Companies and the Shareholder ten days after delivery of written notice to Republic in accordance with Section 13.1 of this Agreement in the event of a 43 44 material breach by Republic of any provision of this Agreement, if Republic has not cured said material breach; or (d) by Republic or the Companies upon delivery of written notice to the other in accordance with Section 13.1 of this Agreement, if the Closing shall not have occurred by January 31, 1996. 12.2 EFFECT OF TERMINATION. Except for the provisions of Article IX hereof, which shall survive any termination of this Agreement, in the event of termination of this Agreement pursuant to Section 12.1, this Agreement shall forthwith become void and of no further force and effect, and the parties shall be released from any and all obligations hereunder; provided, however, that nothing herein shall relieve any party from liability for the willful breach of any of its representations, warranties, covenants or agreements set forth in this Agreement. ARTICLE XIII GENERAL PROVISIONS 13.1 NOTICES. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be deemed given if delivered by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery or facsimile transmission if such transmission is confirmed by delivery by certified or registered mail (first class postage pre-paid) or guaranteed overnight delivery, to the following addresses and telecopy numbers (or to such other addresses or telecopy numbers which such party shall designate in writing to the other party): (a) IF TO REPUBLIC TO: Republic Industries, Inc. 200 East Las Olas Blvd., Suite 1400 Ft. Lauderdale, FL 33301 Attn: Richard L. Handley, General Counsel Telecopy: (954) 779-3884 WITH A COPY TO: Akerman, Senterfitt & Eidson, P.A. One Southeast Third Avenue, 28th Floor Miami, Florida 33131 Attn: Bruce I. March, Esq. Telecopy: (305) 374-5095 44 45 (b) IF TO THE COMPANIES AND/OR THE SHAREHOLDER TO: 10943 South Dixie Highway Miami, Florida 33156 Attn: Gerald L. Bean Telecopy: (305) 669-7204 WITH A COPY TO: Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. 1221 Brickell Avenue Miami, Florida 33131 Attn: Jorge L. Freeland, Esq. Telecopy: (305) 579-0717 13.2 ENTIRE AGREEMENT. This Agreement (including the Schedules attached hereto) and other documents delivered at the Closing pursuant hereto, contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings (oral or written) between or among the parties with respect to such subject matter. The Schedules constitute a part hereof as though set forth in full above. 13.3 EXPENSES; SALES TAX. Except as otherwise provided herein, the parties shall pay their own fees and expenses, including their own counsel fees, incurred in connection with this Agreement or any transaction contemplated hereby. 13.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended, supplemented, canceled or discharged, except by written instrument executed by all parties. No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. 13.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns. Nothing expressed or implied herein shall be construed to give any other person any legal or equitable rights 45 46 hereunder. Except as expressly provided herein, the rights and obligations of this Agreement may not be assigned by the Companies without the prior written consent of Republic. Republic may assign all or any portion of its rights hereunder to one or more of its wholly owned subsidiaries. 13.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. 13.7 INTERPRETATION. When a reference is made in this Agreement to an article, section, paragraph, clause, schedule or exhibit, such reference shall be deemed to be to this Agreement unless otherwise indicated. The headings contained herein and on the schedules are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or the schedules. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Time shall be of the essence in this Agreement. 13.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the State of Florida applicable to contracts executed and to be wholly performed within such State. 13.9 JURISDICTION. (a) The parties to this Agreement agree that any suit, action or proceeding arising out of, or with respect to, this Agreement or any judgment entered by any court in respect thereof may be brought only in the courts of Dade County, Florida or in the U.S. District Court for the Southern District of Florida and the parties hereto hereby accept the exclusive jurisdiction of those courts for the purpose of any suit, action or proceeding. (b) In addition, each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any judgment entered by any court in respect thereof brought in Dade County, Florida or the U.S. District Court for the Southern District of Florida, and hereby further irrevocably waives any claim that any suit, action or proceedings brought in Dade County, Florida or in such District Court has been brought in an inconvenient forum. 13.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents and warrants to all other parties hereto that (a) before executing this Agreement, said party has fully informed itself of the terms, contents, conditions and effects of this Agreement; (b) said party has relied solely and completely upon its own judgment in executing this Agreement; (c) said party has had the opportunity to seek and has obtained the advice of counsel before executing this Agreement; (d) said party has acted voluntarily and of its own free will in executing this Agreement; (e) said party is not acting under duress, whether economic or physical, in executing this Agreement; and (f) this 46 47 Agreement is the result of arm's length negotiations conducted by and among the parties and their respective counsel. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. REPUBLIC INDUSTRIES, INC., a Delaware corporation By: /s/ Steven R. Berrard ---------------------------------------- Steven R. Berrard, President RI/RB MERGER CORP., a Florida corporation By: /s/ Steven R. Berrard ---------------------------------------- Steven R. Berrard, President RI/GFB MERGER CORP., a Florida corporation By: /s/ Steven R. Berrard ---------------------------------------- Steven R. Berrard, President R & B HOLDING COMPANY, INC., a Florida corporation By: /s/ Gerald F. Bean ---------------------------------------- Gerald F. Bean, President G.F.B. ENTERPRISES, INC., a Florida corporation By: /s/ Gerald F. Bean ---------------------------------------- Gerald F. Bean, President /s/ Gerald F. Bean ------------------------------------------- Gerald F. Bean, individually 47 EX-2.6 7 MERGER AGREEMENT - YORK 1 EXHIBIT 2.6 MERGER AGREEMENT This Merger Agreement (this "Agreement") is entered into as of February 4, 1997 by and among REPUBLIC INDUSTRIES, INC., a Delaware corporation ("Republic"); REPUBLIC WASTE COMPANIES HOLDING CO., a Delaware corporation and wholly-owned subsidiary of Republic ("Republic Holding"); and RI/YWD MERGER CORP. ("RI/YWD"), a Pennsylvania corporation and wholly-owned subsidiary of Republic Holding (sometimes hereinafter referred to as the "Republic Merger Sub," and together with Republic and Republic Holding, the "Republic Companies"); YORK WASTE DISPOSAL, INC. (the "Company"), a Pennsylvania corporation; and SCOTT R. WAGNER, ROBERT A. KINSLEY, PATRICK A. KINSLEY, JONATHAN R. KINSLEY, CHRISTOPHER A. KINSLEY, TIMOTHY J. KINSLEY and ROBERT ANTHONY KINSLEY, each a resident of the State of Pennsylvania; who together constitute all of the shareholders of the Company (together, the "Shareholders"). Certain other capitalized terms used herein are defined in Article X and throughout this Agreement. RECITALS The Boards of Directors of Republic and the Company have determined that it is in the best interests of their respective shareholders for Republic to acquire through Republic Holding the Company upon the terms and subject to the conditions set forth in this Agreement. In order to effectuate the transaction, Republic has organized the Republic Merger Sub as a wholly-owned subsidiary of Republic Holding, and the parties have agreed, subject to the terms and conditions set forth in this Agreement, to merge the Republic Merger Sub with and into the Company so that the Company continues as the surviving corporation. As a result, the Company will become a wholly-owned subsidiary of Republic Holding, and each of the Shareholders will be issued certain shares of common stock of Republic. TERMS OF AGREEMENT In consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I THE MERGER 1.1 THE MERGER. Subject to the terms and conditions of this Agreement and in accordance with the Business Corporations Law of 1988 of the Commonwealth of Pennsylvania (the "Corporations Code"), at the Effective Time (as defined below) Republic Merger Sub shall be merged with and into the Company (the "Merger") pursuant to the terms and conditions set forth in 2 the Plan of Merger annexed hereto as Exhibit A (the "Plan of Merger"). The terms and conditions of the Plan of Merger are incorporated herein by reference as if fully set forth herein. As a result of the Merger, the separate corporate existence of Republic Merger Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation"). 1.2 THE CLOSING. Subject to the terms and conditions of this Agreement, the consummation of the Merger (the "Closing") shall take place as promptly as practicable (and in any event within five (5) business days) after satisfaction or waiver of the conditions set forth in Articles VI and VII, at the offices of Republic's counsel, Akerman, Senterfitt & Eidson, P.A., Miami, Florida, or such other time and place as the parties may otherwise agree. 1.3 PLAN OF MERGER. Pursuant to the Plan of Merger, an aggregate of 1,131,579 shares of common stock, $0.01 par value per share, of Republic ("Republic Common Stock") (the "Purchase Price") will be issued in the Merger in exchange for all of the issued and outstanding shares of capital stock of the Company. Notwithstanding the foregoing, the Purchase Price shall be reduced by (i) all Indebtedness (as defined below) of the Company in excess of $9,000,000.00, and (ii) the amount, if any, by which the Working Capital (as defined below) of the Company is less than Zero Dollars ($0) (collectively items (i) and (ii) are referred to herein as the "Purchase Price Adjustment," which amount shall be calculated as of the Effective Date). The amount of the Purchase Price Adjustment shall be divided by $38.00, and the quotient so calculated shall be deducted from the number of shares of Republic Common Stock based on the Purchase Price to be issued hereunder as of the Effective Date. For purposes of determining the Purchase Price Adjustment, (i) "Indebtedness" shall include the aggregate amount of all liabilities and indebtedness for borrowed money, whether owed to a bank or any other Person, and any interest which has accrued but remains unpaid thereon, and remaining payments on capitalized equipment leases and operating equipment leases; (ii) "Working Capital" shall mean the difference, if any, between the Current Assets and the Current Liabilities of the Company; (iii) "Current Assets" shall mean all current assets determined in accordance with GAAP; and (iv) "Current Liabilities" shall mean the sum of (a) current liabilities (excluding the current portion of long-term indebtedness) determined in accordance with GAAP and (b) any consulting, accounting, legal or other similar fees and expenses paid or payable by the Company to any Person relating to the transactions contemplated by this Agreement. 1.4 FILING OF ARTICLES OF MERGER. At the time of the Closing, the parties shall cause the Merger to be consummated by filing duly executed Articles of Merger (with the completed Plan of Merger annexed thereto) with the Secretary of State of the Commonwealth of Pennsylvania, in such form as Republic determines is required by and is in accordance with the relevant provisions of the Corporations Code (the date and time of such filing is referred to herein as the "Effective Date" or "Effective Time"). 1.5 ISSUANCE OF REPUBLIC SHARES; DELIVERY OF CERTIFICATES. At the Effective Time, each of the Shareholders shall deliver the certificates representing all issued and outstanding shares of Company Common Stock to Republic for cancellation; and Republic shall issue to each Shareholder 2 3 the shares of Republic Common Stock issuable pursuant to Section 1.3 (the shares of Republic Common Stock, including the Held Back Shares, issuable by Republic in the Merger are sometimes referred to herein as the "Republic Shares"), registered in the name of such Shareholder based on the number of shares of Company Common Stock owned by such Shareholder on the Effective Date as set forth on Schedule 3.5 and shall deliver such shares in the following manner: (i) Republic shall set aside and hold in accordance with Article VIII certificates evidencing an aggregate of 113,158 shares of Republic Common Stock (the "Held Back Shares"); and (ii) Republic shall deliver to each such Shareholder one or more certificates evidencing an aggregate of 1,018,421 shares of Republic Common Stock. 1.6 PURCHASE PRICE ADJUSTMENT. At least two days prior to the Closing Date, the Company and Republic shall estimate by mutual agreement the amount of the Purchase Price Adjustment, if any, as of the Effective Date for purposes of determining the number of Republic Shares to be delivered by Republic to the Shareholders at the Closing (which estimated amount is referred to herein as the "Estimated Amount"). Within 30 days after the Closing Date, Republic shall prepare and deliver to the Shareholders (in accordance with Section 12.1) a determination (the "Determination") of the actual amount of the Purchase Price Adjustment as of the Effective Date (which actual value is referred to herein as the "Actual Amount"). If, within 30 days after the date on which a Determination is delivered to the Shareholders, the Shareholders shall not have given written notice to Republic setting forth in detail any objection of the Shareholders to such Determination, then such Determination shall be final and binding on the parties hereto. In the event the Shareholders give written notice of any objection to such Determination within the 30-day period, Republic and the Shareholders shall use all reasonable efforts to resolve the dispute within the 30-day period following the delivery of the written notice. If the parties are unable to reach an agreement within such 30-day period, the matter shall be submitted to Arthur Andersen LLP for determination of the Actual Amount which shall be final and binding upon Republic and the Shareholders. Republic and the Shareholders shall contribute equally to costs (including fees and expenses charged by Arthur Andersen LLP in connection with the resolution of any such dispute). If the Actual Amount is greater than the Estimated Amount, such amount shall be deemed to be Indemnifiable Damages under Article VIII hereof and Republic may set off against the Held Back Shares the difference between the Actual Amount and the Estimated Amount (assuming a value per share for purposes of such calculation equal to the Closing Sale Price); provided, that any and all such Indemnifiable Damages shall not be applied against or subject to the Indemnification Threshold (as such term is defined in Article VIII hereof). 1.7 ACCOUNTING AND TAX TREATMENT. The parties hereto acknowledge and agree that the transactions contemplated hereby shall be treated as a purchase transaction by Republic for accounting purposes and as a tax-free reorganization under Section 368 of the Code. 3 4 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE REPUBLIC COMPANIES As a material inducement to each of the Shareholders to enter into this Agreement and to consummate the transactions contemplated hereby, each of the Republic Companies jointly and severally makes the following representations and warranties to the Shareholders: 2.1 CORPORATE STATUS. Each of Republic and Republic Holding is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Republic Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania. The Republic Merger Sub is a wholly-owned subsidiary of Republic Holding. 2.2 CORPORATE POWER AND AUTHORITY. Each of the Republic Companies has the corporate power and authority to execute and deliver this Agreement, to perform its respective obligations hereunder and to consummate the transactions contemplated hereby. Each of the Republic Companies has taken all action necessary to authorize its execution and delivery of this Agreement, the performance of its respective obligations hereunder and the consummation of the transactions contemplated hereby. 2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by each of the Republic Companies and constitutes a legal, valid and binding obligation of each of the Republic Companies, enforceable against each of the Republic Companies in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 2.4 REPUBLIC COMMON STOCK. Upon consummation of the Merger and the issuance and delivery of certificates representing the Republic Shares to the Shareholders, the Republic Shares will be (i) validly issued, fully paid and non-assessable shares of Republic Common Stock, (ii) registered under the Securities Act and applicable Blue Sky Laws under effective registration statements and (iii) listed on the NASDAQ Stock Market. 2.5 NO COMMISSIONS. None of the Republic Companies has incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. 2.6 CAPITALIZATION. The authorized capital stock of Republic consists of 500,000,000 shares of Republic Common Stock and 5,000,000 shares of preferred stock. As of January 24, 1997, (i) 299,412,227 shares of Republic Common Stock were validly issued and outstanding, fully paid and nonassessable and not issued in violation of any preemptive right of any stockholder of 4 5 Republic, and (ii) no shares of preferred stock were issued and outstanding. The Republic Shares to be issued in the Merger will be "voting stock" within the meaning of the Code. 2.7 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and delivery of this Agreement by Republic, nor the consummation by Republic of the transactions contemplated hereby, nor compliance by Republic with any of the provisions hereof, will (a) conflict with or result in any breach of any provision of its First Amended and Restated Certificate of Incorporation, (b) 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, or accelerate the performance required by, or 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 Republic or any of its subsidiaries (the "Republic Subsidiaries") under any of the terms, conditions or provisions of any contract or lien, to which Republic or any Republic Subsidiary is a party or to which they or any of their respective properties or assets may be subject, except for such violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens or other encumbrances, which, individually or in the aggregate, will not have a Material Adverse Effect on Republic, (c) violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Republic or any Republic Subsidiary or any of their respective properties or assets, except for such violations which, individually or in the aggregate, will not have a Material Adverse Effect on Republic, or (d) require any consent, approval, authorization or permit of or from, or filing with or notification to, any Governmental Authority except (i) pursuant to the Exchange Act and the Securities Act, (ii) filings required under the securities or blue sky laws of the various states, (iii) filings required under the HSR, (iv) consents, approvals, authorizations, permits, filings or notifications which have either been obtained or made prior to the Closing or which, if not obtained or made, will neither individually or in the aggregate, have a Material Adverse Effect on Republic nor restrict Republic's legal authority to execute and deliver this Agreement and consummate the transactions contemplated hereby, or (v) any filings required to be made by the Company or the Shareholders. 2.8 REPORTS AND FINANCIAL STATEMENTS. Within the last three years, except where failure to have done so did and would not have a Material Adverse Effect on Republic, Republic has filed all reports, registrations and statements, together with any required amendments thereto, that it was required to file with the SEC, including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements (collectively, the "Republic Reports"). Republic has previously furnished to the Company and made available to the Shareholders copies of all Republic Reports filed with the SEC since January 1, 1996, and with respect to Republic Reports filed after the date of this Agreement until the Effective Date, will promptly furnish to the Company and make available to the Shareholders, copies of each of the Republic Reports filed with the SEC during such period. As of their respective dates (but taking into account any amendments filed prior to the date of this Agreement), the Republic Reports complied, or, with respect to Republic Reports filed after the date of this Agreement, will comply, in all material respects with all the rules and regulations promulgated by the SEC and did not contain, or, with respect to Republic Reports filed after the date of this Agreement, will not contain any untrue statement of a material fact or omit to state a material 5 6 fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Republic Reports filed by Republic with the SEC prior to the date of this Agreement, since December 31, 1995 to the date of this Agreement, there has not been any change in the financial condition, results of operations or business of Republic and the Republic Subsidiaries that either individually or in the aggregate would have a Material Adverse Effect on the financial condition of Republic. 2.10 ACCOUNTING AND TAX MATTERS. Neither Republic nor, to the best of its knowledge, any of its affiliates, has taken or agreed to take any action that would prevent Republic from accounting from the business combinations to be effected by the Merger as a "purchase." Republic warrants that it has no present intention of disposing of any of the common stock of the Company to be received by Republic in the Mergers. Republic does not have any present intention to take any action to cause the Merger to lose its tax free status. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS As a material inducement to each of the Republic Companies to enter into this Agreement and to consummate the transactions contemplated hereby, each of the Shareholders jointly and severally makes the following representations and warranties to Republic: 3.1 CORPORATE STATUS. The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has the requisite power and authority to own or lease its properties and to carry on its business as now being conducted. The Company is legally qualified to transact business as a foreign corporation in all jurisdictions where the nature of its properties and the conduct of its business requires such qualification (all of which jurisdictions are listed on Schedule 3.1) and is in good standing in each of the jurisdictions in which it is so qualified. The Company has fully complied with all of the requirements of any statute governing the use and registration of fictitious names, and has the legal right to use the names under which it operates its business. There is no pending or threatened proceeding for the dissolution, liquidation, insolvency or rehabilitation of the Company. 3.2 POWER AND AUTHORITY. The Company has the power and authority to execute and deliver this Agreement, to perform its respective obligations hereunder and to consummate the transactions contemplated hereby. The Company has taken all action necessary to authorize the execution and delivery of this Agreement, the performance of its respective obligations hereunder and the consummation of the transactions contemplated hereby. Each of the Shareholders resides in the Commonwealth of Pennsylvania, and has the requisite power, competence and authority to 6 7 execute and deliver this Agreement, to perform each of their respective obligations hereunder and to consummate the transactions contemplated hereby. 3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by the Company and the Shareholders, and constitutes the legal, valid and binding obligation of each of them, enforceable against them in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity. 3.4 CAPITALIZATION. Schedule 3.4 sets forth, with respect to the Company, (a) the number of authorized shares of each class of its capital stock, (b) the number of issued and outstanding shares of each class of its capital stock, and (c) the number of shares of each class of its capital stock which are held in treasury. All of the issued and outstanding shares of capital stock of the Company (i) have been duly authorized and validly issued and are fully paid and non-assessable, (ii) were issued in compliance with all applicable state and federal securities laws, and (iii) were not issued in violation of any preemptive rights or rights of first refusal. No preemptive rights or rights of first refusal exist with respect to the shares of capital stock of the Company and no such rights arise by virtue of or in connection with the transactions contemplated hereby. There are no outstanding or authorized rights, options, warrants, convertible securities, subscription rights, conversion rights, exchange rights or other agreements or commitments of any kind that could require the Company to issue or sell any shares of its capital stock (or securities convertible into or exchangeable for shares of its capital stock). Except as otherwise set forth on Schedule 3.17C, there are no outstanding stock appreciation, phantom stock, profit participation or other similar rights with respect to the Company. There are no proxies, voting rights or other agreements or understandings with respect to the voting or transfer of the capital stock of the Company. The Company is not obligated to redeem or otherwise acquire any of its outstanding shares of capital stock. 3.5 SHAREHOLDERS OF THE COMPANY. Schedule 3.5 sets forth, with respect to the Company, (a) the name, address and federal taxpayer identification number of, and the number of outstanding shares of each class of its capital stock owned by, each shareholder of record as of the close of business on the date of this Agreement; and (b) the name, address and federal taxpayer identification number of, and number of shares of each class of its capital stock beneficially owned by, each beneficial owner of outstanding shares of capital stock (to the extent that record and beneficial ownership of any such shares are different). The Shareholders constitute all of the holders of all issued and outstanding shares of capital stock of the Company, and each of the Shareholders owns such shares as is set forth on Schedule 3.5, free and clear of all Liens, restrictions and claims of any kind. 3.6 NO VIOLATION. The execution and delivery of this Agreement by the Company and the Shareholders, the performance by them of their respective obligations hereunder and the consummation by them of the transactions contemplated by this Agreement will not (i) contravene any provision of the articles of incorporation or bylaws of the Company, (ii) violate or conflict with 7 8 any law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any Governmental Authority or of any arbitration award which is either applicable to, binding upon or enforceable against the Company or any of the Shareholders, (iii) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any Contract which is applicable to, binding upon or enforceable against the Company or any of the Shareholders, (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of the Company, or (v) require the consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, any court or tribunal or any other Person, except any applicable filings required under the HSR Act, and any SEC and other filings required to be made by Republic. 3.7 RECORDS OF THE COMPANY. The copies of the respective articles of incorporation and bylaws of the Company which were provided to Republic are true, accurate and complete and reflect all amendments made through the date of this Agreement. The minute books for the Company made available to Republic for review were correct and complete in all material respects as of the date of such review, no further entries have been made through the date of this Agreement, such minute books contain the true signatures of the persons purporting to have signed them, and such minute books contain an accurate record of all material corporate actions of the shareholders and directors (and any committees thereof) of the Company taken by written consent or at a meeting since incorporation. All material corporate actions taken by the Company have been duly authorized or ratified. All accounts, books, ledgers and official and other records of the Company have been fully, properly and accurately kept and completed in all material respects, and there are no material inaccuracies or discrepancies of any kind contained therein. The stock ledgers of the Company, as previously made available to Republic, contain accurate and complete records of all issuances, transfers and cancellations of shares of the capital stock of the Company. 3.8 SUBSIDIARIES. The Company does not own, directly or indirectly, any outstanding voting securities of or other interests in, or controls, any other corporation, partnership, joint venture or other business entity. 3.9 FINANCIAL STATEMENTS. The Shareholders have delivered to Republic the financial statements of the Company, including the notes thereto, for the year ended December 31, 1996, audited by Miller & Company, copies of which are attached to Schedule 3.9A hereto. The balance sheet of the Company dated as of December 31, 1996, included in the Financial Statements are referred to herein as the "Current Balance Sheet." The Financial Statements fairly present the financial position of the Company at each of the balance sheet dates and the results of operations for the periods covered thereby, and have been prepared in accordance with GAAP consistently applied throughout the periods indicated. The books and records of the Company fully and fairly reflect all of its transactions, properties, assets and liabilities. Except as disclosed on Schedule 3.9B, there are no material special or non-recurring items of income or expense during the periods covered by the Financial Statements and the balance sheets included in the Financial Statements do not reflect any writeup or revaluation increasing the book value of any assets, except as specifically disclosed in the 8 9 notes thereto. The Financial Statements reflect all adjustments necessary for a fair presentation of the financial information contained therein. 3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Since the date of the Current Balance Sheet of the Company, the Company has not (i) issued any capital stock or other securities; (ii) made any distribution of or with respect to its capital stock or other securities or purchased or redeemed any of its securities; (iii) paid any bonus to or increased the rate of compensation of any of its officers or salaried employees or amended any other terms of employment of such persons; (iv) sold, leased or transferred any of its properties or assets other than in the ordinary course of business consistent with past practice; (v) made or obligated itself to make capital expenditures out of the ordinary course of business consistent with past practice; (vi) made any payment in respect of its liabilities other than in the ordinary course of business consistent with past practice; (vii) incurred any obligations or liabilities (including any indebtedness) or entered into any transaction or series of transactions involving in excess of $25,000 in the aggregate out of the ordinary course of business, except for this Agreement and the transactions contemplated hereby; (viii) suffered any theft, damage, destruction or casualty loss, not covered by insurance and for which a timely claim was filed, in excess of $25,000 in the aggregate; (ix) suffered any extraordinary losses (whether or not covered by insurance); (x) waived, canceled, compromised or released any rights having a value in excess of $25,000 in the aggregate; (xi) made or adopted any change in its accounting practice or policies; (xii) made any adjustment to its books and records other than in respect of the conduct of its business activities in the ordinary course consistent with past practice; (xiii) entered into any transaction with any Affiliate other than intercompany transactions in the ordinary course of business consistent with past practice; (xiv) entered into any written employment agreement or any other employment agreements other than "at will" employment agreements; (xv) terminated, amended or modified any agreement involving an amount in excess of $25,000, except in the ordinary course of business; (xvi) imposed any security interest or other Lien on any of its assets other than in the ordinary course of business consistent with past practice; (xvii) delayed paying any accounts payable which are due and payable except to the extent being contested in good faith; (xviii) made or pledged any charitable contribution other than in the ordinary course of business consistent with past practice; (xix) entered into any other transaction or been subject to any event which has or may have a Material Adverse Effect on the Company; or (xx) agreed to do or authorized any of the foregoing. 3.11 LIABILITIES OF THE COMPANY. Except as set forth on Schedule 3.12, the Company does not have any liabilities or obligations, whether accrued, absolute, contingent or otherwise, except (a) to the extent reflected or taken into account in the Current Balance Sheet and not heretofore paid or discharged, (b) to the extent specifically set forth in or incorporated by express reference in any of the Schedules attached hereto, (c) liabilities incurred in the ordinary course of business consistent with past practice since the date of the Current Balance Sheet (none of which relates to breach of contract, breach of warranty, tort, infringement or violation of law, or which arose out of any action, suit, claim, governmental investigation or arbitration proceeding), (d) normal accruals, reclassifications, and audit adjustments which would be reflected on an audited financial statement and which would not be material in the aggregate, and (e) liabilities incurred in the ordinary course of business prior to the date of the Current Balance Sheet which, in accordance with 9 10 GAAP consistently applied, were not recorded thereon. The aggregate amount of indebtedness for borrowed money, including principal and accrued but unpaid interest, and including remaining payments on capitalized equipment leases and operating equipment leases, of the Company, will not exceed $10.0 million, and its net worth will be no less than $4.1 million, as of the Effective Time. 3.12 LITIGATION. Except as set forth in Schedule 3.12, there is no action, suit, or other legal or administrative proceeding or governmental investigation pending, threatened, anticipated or contemplated against, by or affecting the Company, or any of its properties or assets, or which questions the validity or enforceability of this Agreement or the transactions contemplated hereby, and there is no basis for any of the foregoing. There are no outstanding orders, decrees or stipulations issued by any Governmental Authority in any proceeding to which the Company is or was a party which have not been complied with in full or which continue to impose any material obligations on the Company. 3.13 ENVIRONMENTAL MATTERS. (a) The Company (as defined in clause (h) below) is and has at all times been in full compliance with all Environmental Laws (as defined in clause (h) below) governing its business, operations, properties and assets, including, without limitation: (i) all requirements relating to the Discharge (as defined in clause (h) below) and Handling (as defined in clause (h) below) of Hazardous Substances (as defined in clause (h) below) or other Waste (as defined in clause (h) below); (ii) all requirements relating to notice, record keeping and reporting; (iii) all requirements relating to obtaining and maintaining Licenses (as defined in clause (h) below) for the ownership of its properties and assets and the operation of its business as presently conducted, including Licenses relating to the Handling and Discharge of Hazardous Substances and other Waste; and (iv) all applicable writs, orders, judgements, injunctions, governmental communications, decrees, informational requests or demands issued pursuant to, or arising under, any Environmental Laws. (b) Except with respect to matters disclosed in Schedule 3.12, there are no (and there is no basis for any) non-compliance orders, warning letters, notices of violation (collectively "Notices"), claims, suits, actions, judgments, penalties, fines, or administrative or judicial investigations or proceedings (collectively "Proceedings") pending or threatened against or involving the Company, or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws or Licenses issued to the Company thereunder in connection with, related to or arising out of the ownership by the Company of its properties or assets or the operation of its business, which have not been resolved to the satisfaction of the issuing Governmental Authority or third party in a manner that would not impose any obligation, burden or continuing liability on Republic or the Surviving Corporation in the event that the transactions contemplated by this Agreement are consummated, or which could have a Material Adverse Effect on the Company, including, without limitation: (i) Notices or Proceedings related to the Company being a potentially responsible party for a federal or state environmental cleanup site or for corrective action under any applicable Environmental Laws; (ii) Notices or Proceedings in connection with any federal or state environmental cleanup site, or in 10 11 connection with any real property or premises where the Company has transported, transferred or disposed of other Waste; (iii) Notices or Proceedings relating to the Company being responsible to undertake any response or remedial actions or clean-up actions of any kind; or (iv) Notices or Proceedings related to the Company being liable under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (c) Except as disclosed in Schedule 3.13B(1), the Company has not Handled or Discharged, nor has it allowed or arranged for any third party to Handle or Discharge, Hazardous Substances or other Waste to, at or upon: (i) any location other than a site lawfully permitted to receive such Hazardous Substances or other Waste; (ii) any real property currently or previously owned or leased by the Company; or (iii) any site which, pursuant to any Environmental Laws, (x) has been placed on the National Priorities List or its state equivalent; or (y) the Environmental Protection Agency or the relevant state agency or other Governmental Authority has notified the Company that such Governmental Authority has proposed or is proposing to place on the National Priorities List or its state equivalent. There has not occurred, nor is there presently occurring, a Discharge, or threatened Discharge, of any Hazardous Substance on, into or beneath the surface of, or adjacent to, any real property currently or previously owned or leased by the Company in an amount requiring a notice or report to be made to a Governmental Authority or in violation of any applicable Environmental Laws. (d) Schedule 3.13A identifies the operations and activities, and locations thereof, which have been conducted or are being conducted by the Company on any real property currently or previously owned or leased by the Company which have involved the Handling or Discharge of Hazardous Substances. None of the operations and activities listed on Schedule 3.13A have had nor will they have a Material Adverse Effect on the use and occupancy of any such real property. (e) Schedule 3.13B(2) identifies the locations to which the Company has ever transferred, transported, hauled, moved, or disposed of Waste and the types and volumes of Waste transferred, transported, hauled, moved, or disposed of to each such location. (f) Except as set forth on Schedule 3.13C, the Company does not use, nor has it used, any Aboveground Storage Tanks (as defined in clause (h) below) or Underground Storage Tanks (as defined in clause (h) below), and there are not now nor have there ever been any Underground Storage Tanks beneath any real property currently or previously owned or leased by the Company that are required to be registered under applicable Environmental Laws. There has been no Discharge from any Aboveground Storage Tanks or Underground Storage Tanks set forth on Schedule 3.13C. (g) Schedule 3.13D identifies (i) all environmental audits, assessments or occupational health studies undertaken by the Company or its agents or, to the knowledge of the Company, undertaken by any Governmental Authority, or any third party, relating to or affecting the Company or any real property currently or previously owned or leased by the Company; (ii) the results of any ground, water, soil, air or asbestos monitoring undertaken by the Company or its 12 11 12 agents or, to the knowledge of the Company, undertaken by any Governmental Authority or any third party, relating to or affecting the Company or any real property currently or previously owned or leased by the Company which indicate the presence of Hazardous Substances at levels requiring a notice or report to be made to a Governmental Authority or in violation of any applicable Environmental Laws; (iii) Schedule 3.13E identifies all material written communications between the Company and any Governmental Authority arising under or related to Environmental Laws; and (iv) Schedule 3.13F identifies all outstanding citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting either the Company or any real property currently or previously owned or leased by the Company. (h) For purposes of this Section 3.13, the following terms shall have the meanings ascribed to them below: "Aboveground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree governing Aboveground Storage Tanks. "Company" means the Company, Lancaster Waste Disposal, Inc., America's Recycling Center, Inc. and the businesses referred to in Schedule 3.30B. "Discharge" means any manner of spilling, leaking, dumping, discharging, releasing or emitting, as any of such terms may further be defined in any Environmental Law, into any medium including, without limitation, ground water, surface water, soil or air. "Environmental Laws" means all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, or similar laws of foreign jurisdictions where the Company conducts business, whether currently in existence or hereafter enacted or promulgated, any of which govern (or purport to govern) or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are or may be defined in such statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642); the Toxic Substances 12 13 Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"). "Handle" means any manner of generating, accumulating, storing, treating, disposing of, transporting, transferring, labeling, handling, manufacturing or using, as any of such terms may further be defined in any Environmental Law, of any Hazardous Substances or Waste. "Hazardous Substances" shall be construed to include any toxic or hazardous material, or waste, and any other contaminant or pollutant whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires investigation or remediation under any Environmental Laws or which are regulated, listed or controlled by, under or pursuant to any Environmental Laws, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA, or any similar state statute, or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "Licenses" means all licenses, certificates, permits, approvals and registrations. "Underground Storage Tank" shall have the meaning ascribed to such term in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree governing Underground Storage Tanks. "Waste" shall be construed broadly to include agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special wastes, used oils, white goods, and yard trash as those terms are defined under any applicable Environmental Laws. 3.14 REAL ESTATE. The Company does not own any real property or any interest therein. Schedule 3.14 sets forth a list of all leases, licenses or similar agreements ("Leases") to which the Company is a party (copies of which have previously been furnished to Republic), in each case, setting forth (A) the lessor and lessee thereof and the date and term of each of the Leases, (B) the legal description, including street address, of each property covered thereby, and (C) a brief 13 14 description (including size and function) of the principal improvements and buildings thereon (the "Leased Premises"), all of which are within the property set-back and building lines of the respective property. The Leases are in full force and effect and have not been amended, and no party thereto is in default or breach under any such Lease. No event has occurred which, with the passage of time or the giving of notice or both, would cause a material breach of or default under any of such Leases. There is no breach or anticipated breach by any other party to such Leases. With respect to each such Leased Premises: (i) The Company has valid leasehold interests in the Leased Premises, free and clear of any Liens, covenants and easements or title defects of any nature whatsoever; (ii) The portions of the buildings located on the Leased Premises that are used in the business of the Company are each in good repair and condition, normal wear and tear excepted, and are in the aggregate sufficient to satisfy the Company's current and reasonably anticipated normal business activities as conducted thereat; (iii) Each of the Leased Premises (a) has direct access to public roads or access to public roads by means of a perpetual access easement, such access being sufficient to satisfy the current and reasonably anticipated normal transportation requirements of the Company's business as presently conducted at such parcel; and (b) is served by all utilities in such quantity and quality as are sufficient to satisfy the current normal business activities as conducted at such parcel; and (iv) The Company has not received notice of (a) any condemnation proceeding with respect to any portion of the Leased Premises or any access thereto, and no such proceeding is contemplated by any Governmental Authority; or (b) any special assessment which may affect any of the Leased Premises, and no such special assessment is contemplated by any Governmental Authority. 3.15 GOOD TITLE TO AND CONDITION OF ASSETS. (a) The Company has good and marketable title to all of its Assets (as hereinafter defined) and except as set forth on Schedule 3.15A, free and clear of any Liens or restrictions on use. For purposes of this Agreement, the term "Assets" means all of the properties and assets of the Company, other than the Leased Premises, whether personal or mixed, tangible or intangible, wherever located. (b) The Fixed Assets (as hereinafter defined) currently in use or necessary for the business and operations of the Company are in good operating condition, normal wear and tear excepted, and have been maintained substantially in accordance with all applicable manufacturer's specifications and warranties. For purposes of this Agreement, the term "Fixed Assets" means all 14 15 vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures used by or located on the premises of the Company or set forth on the Current Balance Sheet or acquired by the Company since the date of the Current Balance Sheet. Schedule 3.15B lists the vehicles owned, leased or used by the Company, setting forth the make, model, description of body and chassis, vehicle identification number, and year of manufacture, and for each vehicle, whether it is owned or leased, and if owned, the name of any lienholder and the amount of the lien, and if leased, the name of the lessor and the general terms of the lease, and, whether owned or leased, if it is used to transport, transfer, handle, dispose or haul Waste materials. 3.16 COMPLIANCE WITH LAWS. (a) The Company is and has been in compliance with all laws, regulations and orders applicable to it, its business and operations (as conducted by it now and in the past), the Assets, the Leased Premises and any other properties and assets (in each case owned or used by it now or in the past). The Company has not been cited, fined or otherwise notified of any asserted past or present failure to comply with any laws, regulations or orders and no proceeding with respect to any such violation is pending or threatened. (b) Neither the Company, nor any of its employees or agents, has made any payment of funds in connection with the business of the Company which is prohibited by law, and no funds have been set aside to be used in connection with the business of the Company for any payment prohibited by law. (c) The Company is and at all times has been in full compliance with the terms and provisions of the Immigration Reform and Control Act of 1986, as amended (the "Immigration Act"). With respect to each Employee (as defined in 8 C.F.R. 274a.1(f)) of the Company for whom compliance with the Immigration Act is required, the Company has on file a true, accurate and complete copy of (i) each Employee's Form I-9 (Employment Eligibility Verification Form) and (ii) all other records, documents or other papers prepared, procured and/or retained by the Company pursuant to the Immigration Act. The Company has not been cited, fined, served with a Notice of Intent to Fine or with a Cease and Desist Order, nor has any action or administrative proceeding been initiated or threatened against the Company, by the Immigration and Naturalization Service by reason of any actual or alleged failure to comply with the Immigration Act. (d) The Company is not subject to any Contract, decree or injunction in which the Company is a party which restricts the continued operation of any business of the Company or the expansion thereof to other geographical areas, customers and suppliers or lines of business. 3.17 LABOR AND EMPLOYMENT MATTERS. Schedule 3.17A sets forth the name, address, social security number and current rate of compensation of the employees of the Company. Except as set forth on Schedule 3.17B, the Company is not a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and there has been no effort by any labor union during the 24 months prior to the date hereof to organize any employees of the Company into one 15 16 or more collective bargaining units. There is no pending or threatened labor dispute, strike or work stoppage which affects or which may affect the business of the Company or which may interfere with its continued operations. Neither the Company nor any agent, representative or employee thereof has within the last 24 months committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or threatened charge or complaint against the Company by or with the National Labor Relations Board or any representative thereof. There has been no strike, walkout or work stoppage involving any of the employees of the Company during the 24 months prior to the date hereof. None of the Shareholders is aware that any executive or key employee or group of employees has any plans to terminate his, her or their employment with the Company as a result of the Merger or otherwise. Schedule 3.17C contains detailed information about each contract, agreement or plan of the following nature, whether formal or informal, and whether or not in writing, to which the Company is a party or under which it has an obligation: (i) employment agreements, (ii) employee handbooks, policy statements and similar plans, (iii) noncompetition agreements and (iv) consulting agreements. The Company has complied with applicable laws, rules and regulations relating to employment, civil rights and equal employment opportunities, including but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and the Americans with Disabilities Act, as amended. 3.18 EMPLOYEE BENEFIT PLANS. (a) Employee Benefit Plans. Schedule 3.18 contains a list setting forth each employee benefit plan or arrangement of the Company, including but not limited to employee pension benefit plans, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA, employee welfare benefit plans, as defined in Section 3(1) of ERISA, deferred compensation plans, stock option plans, bonus plans, stock purchase plans, hospitalization, disability and other insurance plans, severance or termination pay plans and policies, whether or not described in Section 3(3) of ERISA, in which employees, their spouses or dependents, of the Company participate ("Employee Benefit Plans") (true and accurate copies of which, together with the most recent annual reports on Form 5500 and summary plan descriptions with respect thereto, were furnished to Republic). (b) Compliance with Law. With respect to each Employee Benefit Plan (i) each has been administered in all material respects in compliance with its terms and with all applicable laws, including, but not limited to, ERISA and the Code; (ii) no actions, suits, claims or disputes are pending, or threatened; (iii) no audits, inquiries, reviews, proceedings, claims, or demands are pending with any governmental or regulatory agency; (iv) there are no facts which could give rise to any material liability in the event of any such investigation, claim, action, suit, audit, review, or other proceeding; (v) all material reports, returns, and similar documents required to be filed with any governmental agency or distributed to any plan participant have been duly or timely filed or distributed; and (vi) no "prohibited transaction" has occurred within the meaning of the applicable provisions of ERISA or the Code. 16 17 (c) Qualified Plans. With respect to each Employee Benefit Plan intended to qualify under Code Section 401(a) or 403(a) (i) the Internal Revenue Service has issued a favorable determination letter, true and correct copies of which have been furnished to Republic, that such plans are qualified and exempt from federal income taxes; (ii) no such determination letter has been revoked nor has revocation been threatened, nor has any amendment or other action or omission occurred with respect to any such plan since the date of its most recent determination letter or application therefor in any respect which would adversely affect its qualification or materially increase its costs; (iii) no such plan has been amended in a manner that would require security to be provided in accordance with Section 401(a)(29) of the Code; (iv) no reportable event (within the meaning of Section 4043 of ERISA) has occurred, other than one for which the 30-day notice requirement has been waived; (v) as of the Effective Date, the present value of all liabilities that would be "benefit liabilities" under Section 4001(a)(16) of ERISA if benefits described in Code Section 411(d)(6)(B) were included will not exceed the then current fair market value of the assets of such plan (determined using the actuarial assumptions used for the most recent actuarial valuation for such plan); (vi) all contributions to, and payments from and with respect to such plans, which may have been required to be made in accordance with such plans and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been timely made; and (vii) all such contributions to the plans, and all payments under the plans (except those to be made from a trust qualified under Section 401(a) of the Code) and all payments with respect to the plans (including, without limitation, PBGC (as defined below) and insurance premiums) for any period ending before the Effective Date that are not yet, but will be, required to be made are properly accrued and reflected on the Current Balance Sheet. (d) Multiemployer Plans. With respect to any multiemployer plan, as described in Section 4001(a)(3) of ERISA ("MPPA Plan") (i) all contributions required to be made with respect to employees of the Company have been timely paid; (ii) the Company has not incurred or is not expected to incur, directly or indirectly, any withdrawal liability under ERISA with respect to any such plan (whether by reason of the transactions contemplated by the Agreement or otherwise); (iii) Schedule 3.18 sets forth (A) the withdrawal liability under ERISA to each MPPA Plan, (B) the date as of which such amount was calculated, and (C) the method for determining the withdrawal liability; and (iv) no such plan is (or is expected to be) insolvent or in reorganization and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists or is expected to exist with respect to any such plan. (e) Welfare Plans. (i) The Company is not obligated under any employee welfare benefit plan as described in Section 3(1) of ERISA ("Welfare Plan") to provide medical or death benefits with respect to any employee or former employee of the Company or its predecessors after termination of employment; (ii) the Company has complied with the notice and continuation coverage requirements of Section 4980B of the Code and the regulations thereunder with respect to each Welfare Plan that is, or was during any taxable year for which the statute of limitations on the assessment of federal income taxes remains, open, by consent or otherwise, a group health plan within the meaning of Section 5000(b)(1) of the Code; and (iii) there are no reserves, assets, surplus or prepaid premiums under any Welfare Plan which is an Employee Benefit Plan. The 17 18 consummation of the transactions contemplated by this Agreement will not entitle any individual to severance pay, and, will not accelerate the time of payment or vesting, or increase the amount of compensation, due to any individual. (f) Controlled Group Liability. Neither the Company, nor any entity that would be aggregated with it under Code Section 414(b), (c), (m) or (o): (i) has ever terminated or withdrawn from any employee benefit plan under circumstances resulting (or expected to result) in liability to the Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the employee benefit plan is funded, or any employee or beneficiary for whose benefit the plan is or was maintained (other than routine claims for benefits); (ii) has any assets subject to (or expected to be subject to) a lien for unpaid contributions to any employee benefit plan; (iii) has failed to pay premiums to the PBGC when due; (iv) is subject to (or expected to be subject to) an excise tax under Code Section 4971; (v) has engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has violated Code Section 4980B or Section 601 through 608 of ERISA. (g) Other Liabilities. (i) None of the Employee Benefit Plans obligates the Company to pay separation, severance, termination or similar benefits solely as a result of any transaction contemplated by this Agreement or solely as a result of a "change of control" (as such term is defined in Section 280G of the Code); (ii) all required or discretionary (in accordance with historical practices) payments, premiums, contributions, reimbursements, or accruals for all periods ending prior to or as of the Effective Date shall have been made or properly accrued on the Current Balance Sheet or will be properly accrued on the books and records of the Company as of the Effective Date; and (iii) none of the Employee Benefit Plans has any unfunded liabilities which are not reflected on the Current Balance Sheet or the books and records of the Company. 3.19 TAX MATTERS. All Tax Returns required to be filed prior to the date hereof with respect to the Company or any of its income, properties, franchises or operations have been timely filed, each such Tax Return has been prepared in compliance with all applicable laws and regulations, and all such Tax Returns are true and accurate in all respects. All Taxes due and payable by or with respect to the Company have been paid and are accrued on the Current Balance Sheet or will be accrued on its books and records as of the Closing. Except as set forth in Schedule 3.19 hereto: (i) with respect to each taxable period of the Company, either such taxable period has been audited by the relevant taxing authority or the time for assessing or collecting Taxes with respect to each such taxable period has closed and such taxable period is not subject to review by any relevant taxing authority; (ii) no deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Taxes has been asserted or assessed by any taxing authority against the Company; (iii) the Company has not consented to extend the time in which any Taxes may be assessed or collected by any taxing authority; (iv) the Company has not requested or been granted an extension of the time for filing any Tax Return to a date later than the Effective Time; (v) there is no action, suit, taxing authority proceeding, or audit or claim for refund now in progress, pending or threatened against or with respect to the Company regarding Taxes; (vi) the Company has not made an election or filed a consent under Section 341(f) of the Code (or any corresponding provision 18 19 of state, local or foreign law) on or prior to the Effective Time; (vii) there are no Liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company; (viii) the Company will not be required (A) as a result of a change in method of accounting for a taxable period ending on or prior to the Effective Date, to include any adjustment under Section 481(c) of the Code (or any corresponding provision of state, local or foreign law) in taxable income for any taxable period (or portion thereof) beginning after the Effective Time or (B) as a result of any "closing agreement," as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign law), to include any item of income or exclude any item of deduction from any taxable period (or portion thereof) beginning after the Effective Time; (ix) the Company has not been a member of an affiliated group (as defined in Section 1504 of the Code) or filed or been included in a combined, consolidated or unitary income Tax Return; (x) the Company is not a party to or bound by any tax allocation or tax sharing agreement or has any current or potential contractual obligation to indemnify any other Person with respect to Taxes; (xi) no taxing authority will claim or assess any additional Taxes against the Company for any period for which Tax Returns have been filed; (xii) the Company has not made any payments, and will not become obligated (under any contract entered into on or before the Effective Date) to make any payments, that will be non-deductible under Section 280G of the Code (or any corresponding provision of state, local or foreign law); (xiii) the Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code (or any corresponding provision of state, local or foreign law) during the applicable period specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding provision of state, local or foreign law); (xiv) no claim has ever been made by a taxing authority in a jurisdiction where the Company does not file Tax Returns that such company is or may be subject to Taxes assessed by such jurisdiction; and (xv) the Company does not have any permanent establishment in any foreign country, as defined in the relevant tax treaty between the United States of America and such foreign country; (xvi) true, correct and complete copies of all income and sales Tax Returns filed by or with respect to the Company for the past three years have been furnished or made available to Republic; (xvii) the Company will not be subject to any Taxes for the period ending at the Effective Time for any period for which a Tax Return has not been filed imposed pursuant to Section 1374 or Section 1375 of the Code (or any corresponding provision of state, local or foreign law); (xviii) no sales or use tax, non-recurring intangibles tax, documentary stamp tax or other excise tax (or comparable tax imposed by any governmental entity) will be payable by Republic by virtue of the transactions completed in this Agreement; and (xix) the Company has duly and validly filed an election for "S" corporation status under the Code, and such "S" election has not been revoked or terminated and neither the Company nor the Shareholders have taken any action which would cause a termination of such "S" election. 3.20 INSURANCE. The Company is covered by valid, outstanding and enforceable policies of insurance covering its respective properties, assets and businesses against risks of the nature normally insured against by corporations in the same or similar lines of business and in coverage amounts typically and reasonably carried by such corporations (the "Insurance Policies"). Such Insurance Policies are in full force and effect, and all premiums due thereon have been paid. As of the Effective Time, each of the Insurance Policies will be in full force and effect. None of the Insurance Policies will lapse or terminate as a result of the transactions contemplated by this 19 20 Agreement. The Company has complied with the provisions of such Insurance Policies. Schedule 3.20 contains (i) a complete and correct list of all Insurance Policies and all amendments and riders thereto (copies of which have been provided to Republic) and (ii) a detailed description of each pending claim under any of the Insurance Policies for an amount in excess of $10,000 that relates to loss or damage to the properties, assets or businesses of the Company. The Company has not failed to give, in a timely manner, any notice required under any of the Insurance Policies to preserve its rights thereunder. 3.21 RECEIVABLES. All of the Receivables (as hereinafter defined) are valid and legally binding, represent bona fide transactions and arose in the ordinary course of business of the Company. All of the Receivables are good and collectible receivables, and will be collected in full in accordance with the terms of such receivables (and in any event within six months following the Closing), without setoff or counterclaims, subject to the allowance for doubtful accounts, if any, set forth on the Current Balance Sheet as reasonably adjusted since the date of the Current Balance Sheet in the ordinary course of business consistent with past practice. For purposes of this Agreement, the term "Receivables" means all receivables of the Company, including those set forth on the Current Balance Sheet and all trade account receivables arising from the provision of services, sale of inventory, notes receivable, and insurance proceeds receivable. 3.22 LICENSES AND PERMITS. The Company possesses all licenses and required governmental or official approvals, permits or authorizations (collectively, the "Permits") for its respective businesses and operations, including with respect to the operation of each of the Leased Premises. All such Permits are valid and in full force and effect, the Company is in full compliance with the respective requirements thereof, and no proceeding is pending or threatened to revoke or amend any of them. None of such Permits is or will be impaired or in any way affected by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.23 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets and the Leased Premises constitute, in the aggregate, all of the assets and properties necessary for the conduct of the business of the Company in the manner in which and to the extent to which such business is currently being conducted. No current supplier to the Company of items essential to the conduct of its business will or has threatened to terminate its business relationship with it for any reason. The Company does not have any direct or indirect interest in any customer, supplier or competitor of the Company, or in any person from whom or to whom the Company leases real or personal property. Except as set forth in Schedule 3.23, no officer, director or shareholder of the Company, nor any person related by blood or marriage to any such person, nor any entity in which any such person owns any beneficial interest, is a party to any Contract or transaction with the Company or has any interest in any property used by the Company. 3.24 INTELLECTUAL PROPERTY. The Company has full legal right, title and interest in and to all trademarks, service marks, trade names, copyrights, know-how, patents, trade secrets, licenses (including licenses for the use of computer software programs), and other intellectual property used 20 21 in the conduct of its business (the "Intellectual Property"). The conduct of the business of the Company as presently conducted, and the unrestricted conduct and the unrestricted use and exploitation of the Intellectual Property, does not infringe or misappropriate any rights held or asserted by any Person, and no Person is infringing on the Intellectual Property. No payments are required for the continued use of the Intellectual Property. None of the Intellectual Property has ever been declared invalid or unenforceable, or is the subject of any pending or threatened action for opposition, cancellation, declaration, infringement, or invalidity, unenforceability or misappropriation or like claim, action or proceeding. 3.25 CONTRACTS. Schedule 3.25 sets forth a list of each Contract to which the Company is a party or by which it or its properties and assets are bound and which is material to its business, assets, properties or prospects (the "Designated Contracts"), true and correct copies of which have been provided to Republic. The copy of each Designated Contract furnished to Republic is a true and complete copy of the document it purports to represent and reflects all amendments thereto made through the date of this Agreement. The Company has not violated any of the material terms or conditions of any Designated Contract or any term or condition which would permit termination or material modification of any Designated Contract, and all of the covenants to be performed by any other party thereto have been fully performed and there are no claims for breach or indemnification or notice of default or termination under any Designated Contract. No event has occurred which constitutes, or after notice or the passage of time, or both, would constitute, a material default by the Company under any Designated Contract, and no such event has occurred which constitutes or would constitute a material default by any other party. The Company is not subject to any liability or payment resulting from renegotiation of amounts paid it under any Designated Contract. As used in this Section, Designated Contracts shall include, without limitation, (a) loan agreements, indentures, mortgages, pledges, hypothecations, deeds of trust, conditional sale or title retention agreements, security agreements, equipment financing obligations or guaranties, or other sources of contingent liability in respect of any indebtedness or obligations to any other Person, or letters of intent or commitment letters with respect to same; (b) contracts obligating the Company to provide products or services for a period of one year or more, excluding standard waste collection and disposal contracts entered into in the ordinary course of business without material modification from the preprinted forms used by the Company in the ordinary course of its business; (c) leases of real property, and leases of personal property not cancelable without penalty on notice of sixty (60) days or less or calling for payment of an annual gross rental exceeding Ten Thousand Dollars ($10,000.00); (d) distribution, sales agency or franchise or similar agreements, or agreements providing for an independent contractor's services, or letters of intent with respect to same; (e) employment agreements, management service agreements, consulting agreements, confidentiality agreements, non-competition agreements and any other agreements relating to any employee, officer or director of the Company; (f) licenses, assignments or transfers of trademarks, trade names, service marks, patents, copyrights, trade secrets or know how, or other agreements regarding proprietary rights or intellectual property; (g) any Contract relating to pending capital expenditures by the Company; and (h) other material Contracts or understandings, irrespective of subject matter and whether or not in writing, not entered into in the ordinary course of business by the Company and not otherwise disclosed on the Schedules. 21 22 3.26 CUSTOMER LISTS AND RECURRING REVENUE. Schedule 3.26 is a true, correct and complete list of all existing municipal, county or city or other large customers (collectively, the "Material Customers") of the Company who have entered into valid and enforceable long-term (i.e., more than one year) waste collection and disposal, recycling or other franchises or agreements with the Company. True, correct and complete copies of such franchises and agreements, and any ordinances relating thereto, have been furnished by the Shareholders to Republic. Other than the Material Customers listed on Schedule 3.26, no customer of the Company as of the date of this Agreement accounts for more than 1% of its annual revenue. Schedule 3.26 sets forth each Material Customer's name, address, account number, term of franchise or agreement, billing cycle, type of service and rates charged. The average gross monthly revenue generated for the Company by all of its customers during the six (6) calendar month period immediately following the Effective Date (the "Test Period") will not be less than $3,200,000.00 per month. 3.27 ACCURACY OF INFORMATION FURNISHED BY THE SHAREHOLDERS. No representation, statement or information made or furnished by the Shareholders to Republic or any of Republic's representatives, including those contained in this Agreement and the various Schedules attached hereto and the other information and statements referred to herein and previously furnished by the Company and the Shareholders, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained therein not misleading. The Shareholders have provided Republic with true, accurate and complete copies of all documents listed or described in the various Schedules attached hereto. 3.28 SECURITIES LAW MATTERS. Each of the Shareholders is acquiring the Republic Shares hereunder for his own account for investment and not with a view to, or for the sale in connection with, any distribution of any of the Republic Shares, except in compliance with applicable state and federal securities laws. Each of the Shareholders has had the opportunity to discuss the transactions contemplated hereby with Republic and has had the opportunity to obtain such information pertaining to the Republic Companies as has been requested, including but not limited to filings made by Republic with the SEC under the Exchange Act. Each of the Shareholders acknowledge receiving a prospectus of Republic in accordance with the requirements of the Securities Act. Each of the Shareholders represent that they have such knowledge and experience in business or financial matters that are capable of evaluating the merits and risks of an investment in the Republic Shares. 3.29 BANK ACCOUNTS; BUSINESS LOCATIONS. Schedule 3.29 sets forth all accounts of the Company with any bank, broker or other depository institution, and the names of all persons authorized to withdraw funds from each such account. As of the date hereof, the Company has no office or place of business other than as identified on Schedule 3.14 and the Company's principal place of business and chief executive offices are indicated on Schedule 3.14, and, except for equipment leased to customers in the ordinary course of business, all locations where the equipment, inventory, chattel paper and books and records of the Company is located as of the date hereof are fully identified on Schedule 3.14. 22 23 3.30 NAMES; PRIOR ACQUISITIONS. All names under which the Company does business as of the date hereof are specified on Schedule 3.30A. Except as set forth on Schedule 3.30B, the Company has not changed its name or used any assumed or fictitious name, or been the surviving entity in a merger, acquired any business or changed its principal place of business or chief executive office, within the past three years. 3.31 NO COMMISSIONS. Neither the Company nor the Shareholders has incurred any obligation for any finder's or broker's or agent's fees or commissions or similar compensation in connection with the transactions contemplated hereby. ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER 4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The Company covenants and agrees that, between the date of this Agreement and the Effective Time, the business of the Company shall be conducted only in, and the Company shall not take any action except in, the ordinary course of business, consistent with past practice. The Company shall use its best efforts to preserve intact its business organization, to keep available the services of its current officers, employees and consultants, and to preserve its present relationships with customers, suppliers and other persons with which it has significant business relations. By way of amplification and not limitation, except as contemplated by this Agreement, the Company shall not, between the date of this Agreement and the Effective Time, directly or indirectly, do or propose or agree to do any of the following without the prior written consent of Republic: (a) amend or otherwise change its articles of incorporation or bylaws or equivalent organizational documents; (b) issue, sell, pledge, dispose of, encumber, or, authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of its capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest, of it or (ii) any of its assets, tangible or intangible, except in the ordinary course of business consistent with past practice (except for distributions to the Shareholders of the certain assets more particularly described in Schedule 4.1(b) attached hereto); (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock (except for distributions to the Shareholders in amounts reasonably necessary for the Shareholders to pay taxes with respect to the taxable income of the Company, which amounts are consistent with past practices of the Company); 23 24 (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e) (i) acquire (including, without limitation, for cash or shares of stock, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or make any investment either by purchase of stock or securities, contributions of capital or property transfer, or, except in the ordinary course of business, consistent with past practice, purchase any property or assets of any other Person, (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances, or (iii) enter into any Contract other than in the ordinary course of business, consistent with past practice; (f) subject to the provisions of any agreements referenced on Schedule 3.17C, increase the compensation payable or to become payable to its officers or employees, or, except as presently bound to do, grant any severance or termination pay to, or enter into any employment or severance agreement with, any of its directors, officers or other employees, or establish, adopt, enter into or amend or take any action to accelerate any rights or benefits which any collective bargaining, bonus, profit sharing, trust, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees; (g) take any action other than in the ordinary course of business and in a manner consistent with past practice with respect to accounting policies or procedures; (h) pay, discharge or satisfy any existing claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of due and payable liabilities reflected or reserved against in its financial statements, as appropriate, or liabilities incurred after the date hereof in the ordinary course of business and consistent with past practice; provided, however, that the Shareholders may, at their option, provide the Company with additional capital to be applied by the Company to increase Working Capital; (i) other than in the ordinary course of its business, increase or decrease prices charged to its customers, except for previously announced price changes, or take any other action which might reasonably result in any material increase in the loss of customers through non-renewal or termination of service contracts or other causes; or 24 25 (j) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty in Article III untrue or incorrect. ARTICLE V ADDITIONAL AGREEMENTS 5.1 FURTHER ASSURANCES. Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby. 5.2 COMPLIANCE WITH COVENANTS. The Shareholders shall cause the Company to comply with all of the respective covenants of the Company under this Agreement. 5.3 COOPERATION. Each of the parties agrees to cooperate with the other in the preparation and filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to any law, rule or regulation or the rules of any exchange on which the Republic Common Stock is listed or The NASDAQ Stock Market in connection with the transactions contemplated by this Agreement and to use their respective best efforts to agree jointly on a method to overcome any objections by any Governmental Authority to any such transactions. 5.4 HSR ACT AND OTHER ACTIONS. Each of the parties hereto shall (i) make promptly (and in no event later than five (5) business days following the date hereof) its respective filings, if any, and thereafter make any other required submissions, under the HSR Act, with respect to the transactions contemplated hereby, and (ii) use its reasonable best efforts to take, or cause to be taken, all appropriate actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated herein, including, without limitation, using its best efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of any Governmental Authority and parties to Contracts with the Company as are necessary for the consummation of the transactions contemplated hereby. Each of parties shall make on a prompt and timely basis all governmental or regulatory notifications and filings required to be made by it for the consummation of the transactions contemplated hereby. The parties also agree to use best efforts to defend all lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby and to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. 5.5 ACCESS TO INFORMATION. From the date hereof to the Effective Time, the Company shall (and shall cause its directors, officers, employees, auditors, counsel and agents) to afford Republic and Republic's officers, employees, auditors, counsel and agents reasonable access at all 25 26 reasonable times to its properties, offices, and other facilities, to its officers and employees and to all books and records, and shall furnish such persons with all financial, operating and other data and information as may be requested. No information provided to or obtained by Republic shall affect any representation or warranty in this Agreement. 5.6 NOTIFICATION OF CERTAIN MATTERS. The Shareholders shall give prompt notice to Republic of the occurrence or non-occurrence of any event which would likely cause any representation or warranty contained herein to be untrue or inaccurate, or any covenant, condition, or agreement contained herein not to be complied with or satisfied. 5.7 TAX TREATMENT. Republic, the Company and the Shareholders will use their respective best efforts to cause the Merger to qualify as a reorganization under the provisions of Section 368(a) of the Code and do not presently intend to take any action after the Merger is effected to cause the Merger to lose its tax-free status. All parties hereto agree to file the Plan of Merger with its respective federal income tax returns for the year in which the Merger is effective, and to comply with the reporting requirements of Treasury Regulation 1.368-3. 5.8 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as otherwise permitted or expressly contemplated herein, no party hereto or their respective Affiliates, employees, agents and representatives shall disclose to any third party this Agreement or the subject matter or terms hereof without the prior consent of the other parties hereto. No press release or other public announcement related to this Agreement or the transactions contemplated hereby shall be issued by any party hereto without the prior approval of the other parties, except that Republic may make such public disclosure which it believes in good faith to be required by law or by the terms of any listing agreement with or requirements of a securities exchange (in which case Republic will consult with an officer of the Company prior to making such disclosure). 5.9 NO OTHER DISCUSSIONS. The Company, the Shareholders, and their respective Affiliates, employees, agents and representatives will not (i) initiate, encourage the initiation by others of discussions or negotiations with third parties or respond to solicitations by third persons relating to any merger, sale or other disposition of any substantial part of the assets, business or properties of the Company (whether by merger, consolidation, sale of stock or otherwise) or (ii) enter into any agreement or commitment (whether or not binding) with respect to any of the foregoing transactions. The Shareholders will immediately notify Republic if any third party attempts to initiate any solicitation, discussion or negotiation with respect to any of the foregoing transactions. 5.10 RESTRICTIVE COVENANTS. In order to assure that Republic will realize the benefits of the Merger, each of the Shareholders jointly and severally agrees with Republic that he will not for a period of three years from the Effective Time: (a) directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, consultant, agent, independent contractor or stockholder of any company or business, engage in any business activity in the counties set forth in 26 27 Schedule 5.10 attached hereto in the states of Pennsylvania or Maryland in which the Company presently conducts business which is directly or indirectly in competition with the business conducted by the Company at the Effective Time; provided, however, that, (i) the beneficial ownership of less than five percent (5%) of the shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this Section, (ii) Kinsley Construction, Inc., an affiliate of certain Shareholders, may, from time to time, engage in demolition activities and remove and transport construction and demolition debris solely in connection with its construction and demolition business as currently conducted, and (iii) Advantage Recovery LLC, an affiliate of certain of the Shareholders, may engage in the processing of recycled materials at its present facility in Baltimore County, Maryland and the transporting of recycled products from such facility, as currently conducted by it; (b) directly or indirectly (i) induce any Person which is a customer of the Company at the Effective Time to patronize any business directly or indirectly in competition with the business conducted by the Company; (ii) canvass, solicit or accept from any Person which is a customer of the Company, any such competitive business; or (iii) request or advise any Person which is a customer of the Company at the Effective Time to withdraw, curtail or cancel any such customer's business with the Company or its successors; (c) directly or indirectly employ, or knowingly permit any company or business directly or indirectly controlled by him, to employ, any person who was employed by the Company at or within six months prior to the Effective Time, or in any manner seek to induce any such person to leave his or her employment; and (d) directly or indirectly, at any time following the Effective Time, in any way utilize, disclose, copy, reproduce or retain in his possession the Company's proprietary rights or records, including, but not limited to, any of its customer lists. The Shareholders agree and acknowledge that the restrictions contained in this Section are reasonable in scope and duration and are necessary to protect Republic after the Effective Time. If any provision of this Section as applied to any party or to any circumstance is adjudged by a court to be invalid or unenforceable, the same will in no way affect any other circumstance or the validity or enforceability of this Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision, and/or to delete specific words or phrases, and in its reduced form, such provision shall then be enforceable and shall be enforced. The parties agree and acknowledge that the breach of this Section will cause irreparable damage to Republic and upon breach of any provision of this Section, Republic shall be entitled to injunctive relief, specific performance or other equitable relief; 27 28 provided, however, that, this shall in no way limit any other remedies which Republic may have (including, without limitation, the right to seek monetary damages). 5.11 DUE DILIGENCE REVIEW AND ENVIRONMENTAL ASSESSMENT. At its sole expense, Republic shall be entitled to have conducted prior to Closing a due diligence review of the assets, properties, books and records of the Company and an environmental assessment of the Leased Premises (hereinafter referred to as "Environmental Assessment"). The Environmental Assessment may include, but not be limited to, a physical examination of the Leased Premises, and any structures, facilities, or equipment located thereon, soil samples, ground and surface water samples, storage tank testing, review of pertinent records, documents, and Licenses of the Company. The Shareholders shall provide Republic or its designated agents or consultants with the access to such property which Republic, its agents or consultants require to conduct the Environmental Assessment. If the Environmental Assessment identifies environmental contamination which requires remediation or further evaluation under the Environmental, Health and Safety Laws or if the results of the Environmental Assessment are otherwise not satisfactory to Republic in its sole discretion, then Republic may elect not to close the transactions contemplated by this Agreement in which case this Agreement shall be terminated. Republic's failure or decision not to conduct any such Environmental Assessment shall not affect any representation or warranty of the Shareholders under this Agreement. 5.12 TRADING IN REPUBLIC COMMON STOCK. Except as otherwise expressly consented to by Republic, from the date of this Agreement until the Effective Time, neither the Company nor the Shareholders (nor any Affiliates thereof) will directly or indirectly purchase or sell (including short sales) any shares of Republic Common Stock in any transactions effected on The NASDAQ Stock Market or otherwise. 5.13 LEASES. At or prior to the Effective Time, (i) the Company and the Shareholders shall enter into lease amendments with respect to the headquarters facility and the recycling facility of the Company located at 1110 East Princess Street, York, Pennsylvania upon such commercially reasonable terms reasonably acceptable to Republic, the Company and the Shareholders, and (ii) the Company and Concord Road Associates shall enter into a lease with respect to that certain C&D facility located at Concord Road, York, Pennsylvania, for an initial two-year term commencing the Effective Date and containing successive renewal options, at the option of the Company and at the annual rent specified in the current lease, as follows: (A) a two-year renewal term immediately following the initial two-year term and (B) two successive five- year renewal terms, and containing such other commercially reasonable terms reasonably acceptable to Republic and Concord Road Associates. 5.14 NASDAQ LISTING. During the three (3) years following the Effective Date, Republic shall use reasonable efforts to maintain its listing on the NASDAQ Stock Market or other nationally-recognized securities exchanges. 28 29 ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES The obligations of the Republic Companies to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions, any or all of which may be waived in whole or in part by the Republic Companies: 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Shareholders contained in this Agreement shall be true and correct at and as of the Effective Time with the same force and effect as though made at and as of that time except (i) for changes specifically permitted by or disclosed pursuant to this Agreement, and (ii) that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. The Company and the Shareholders shall have performed and complied with all of their respective obligations required by this Agreement to be performed or complied with at or prior to the Effective Time. The Company and the Shareholders shall have delivered to the Republic Companies a certificate, dated as of the Effective Date, duly signed (in the case of the Company, by its President), certifying that such representations and warranties are true and correct and that all such obligations have been complied with and performed. 6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the date hereof and the Effective Time, (i) there shall have been no Material Adverse Change to the Company, (ii) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of the Company, and (iii) none of the properties and assets of the Company shall have been damaged by fire, flood, casualty, act of God or the public enemy or other cause (regardless of insurance coverage for such damage) which damages may have a Material Adverse Effect thereon, and there shall have been delivered to the Republic Companies a certificate to that effect, dated the Effective Date and signed by or on behalf of the Company and the Shareholders. 6.3 CORPORATE CERTIFICATE. The Shareholders shall have delivered to the Republic Companies (i) copies of the articles of incorporation and bylaws of the Company as in effect immediately prior to the Effective Time, (ii) copies of resolutions adopted by the Board of Directors and Shareholders of the Company authorizing the transactions contemplated by this Agreement, and (iii) a certificate of good standing of the Company issued by the Secretary of State of the Commonwealth of Pennsylvania and each other state in which the Company is qualified to do business as of a date not more than thirty days prior to the Effective Date, certified in the case of subsections (i) and (ii) of this Section as of the Effective Date by the Secretary of the Company as being true, correct and complete. 6.4 OPINION OF COUNSEL. The Republic Companies shall have received an opinion dated as of the Effective Date from counsel for the Company and the Shareholders, in form and substance acceptable to the Republic Companies, to the effect that: 29 30 (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and is authorized to carry on the business now conducted by it and to own or lease the properties now owned or leased by it; (ii) The Company has obtained all necessary authorizations and consents of its Board of Directors and the Shareholders to effect the Merger; (iii) All issued and outstanding shares of capital stock of the Company are owned as set forth on Schedule 3.5 hereto; (iv) Such counsel does not know or have reason to believe that there is any litigation, proceeding or investigation pending or threatened which might result in any Material Adverse Change in the properties, business or prospects or in the condition of the Company which questions the validity of this Agreement; and (v) This Agreement is a valid and binding obligation of the Company, and the Shareholders, and enforceable against the Company and the Shareholders in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or general equitable principles. 6.5 CONSENTS. The Company shall have received consents to the transactions contemplated hereby and waivers of rights to terminate or modify any material rights or obligations of the Company from any Person from whom such consent or waiver is required under any Contract or instrument as of a date not more than ten days prior to the Effective Date, or who, as a result of the transactions contemplated hereby, would have such rights to terminate or modify such Contracts or instruments, either by the terms thereof or as a matter of law. 6.6 ACKNOWLEDGMENT OF PROSPECTUS DELIVERY AND RULE 145 RESTRICTIONS. At or prior to the Closing, the Shareholders shall have delivered to Republic a letter acknowledging receipt of a prospectus in accordance with the Securities Act and compliance with the restrictions of Rule 145 under the Securities Act, in form and substance satisfactory to the Republic Companies. 6.7 COMPANY COMMON STOCK. At the Closing, each of the Shareholders shall have delivered to Republic all certificates evidencing the shares of capital stock of the Company held by them. 6.8 STOCK POWERS. At the Closing, each of the Shareholders shall have delivered to Republic in escrow, for use in connection with the Held Back Shares, ten stock powers executed in blank, with signatures guaranteed. 30 31 6.9 NO ADVERSE LITIGATION. There shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, invalidate or collect damages arising out of the Merger or any other transaction contemplated hereby, and which, in the judgment of Republic, makes it inadvisable to proceed with the Merger and other transactions contemplated hereby. 6.10 BOARD APPROVAL. The Board of Directors of Republic shall have authorized and approved this Agreement, the Merger and transactions contemplated hereby. 6.11 HSR ACT WAITING PERIOD. Any applicable HSR Act waiting period shall have expired or been terminated. 6.12 DUE DILIGENCE REVIEW. Republic shall be satisfied with the results of its due diligence review and Environmental Assessment pursuant to Section 5.11. ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS The obligations of the Company and the Shareholders to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions, any or all of which may be waived in whole or in part by the Company and the Shareholders: 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of each of the Republic Companies contained in this Agreement shall be true and correct at and as of the Effective Time with the same force and effect as though made at and as of that time except (i) for changes specifically permitted by or disclosed pursuant to this Agreement, and (ii) that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. Each of the Republic Companies shall have performed and complied with all of its obligations required by this Agreement to be performed or complied with at or prior to the Effective Time. Each of the Republic Companies shall have delivered to the Company and the Shareholders a certificate, dated as of the Effective Date, and signed by an executive officer, certifying that such representations and warranties are true and correct and that all such obligations have been complied with and performed. 7.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the date hereof and the Effective Time, (i) there shall have been no Material Adverse Change of the Republic Companies, (ii) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of the Republic Companies, and (iii) none of the properties and assets of the Republic Companies shall have been damaged by fire, flood, casualty, act of God or the public enemy or other cause (regardless of 31 32 insurance coverage for such damage) which damages may have a Material Adverse Effect on Republic and the Republic Companies taken as a whole, and there shall have been delivered to the Company and the Shareholders a certificate to that effect, dated the Effective Date and signed on behalf of Republic. 7.3 REPUBLIC SHARES. At the Closing, Republic shall have issued all of the Republic Shares and shall have delivered to the Shareholders (i) certificates representing the Republic Shares issued to them hereunder, other than the Held Back Shares, and (ii) copies of stock certificates representing the Held Back Shares issued to them. 7.4 NO ADVERSE LITIGATION. There shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, invalidate or collect damages arising out of the Merger or any other transaction contemplated hereby, and which in the judgment of the Company and the Shareholders makes it inadvisable to proceed with the Merger and other transactions contemplated hereby. 7.5 HSR ACT WAITING PERIOD. Any applicable HSR Act waiting period shall have expired or been terminated. 7.6 OPINION OF COUNSEL. The Company and the Shareholders shall have received an opinion dated as of the Closing Date from counsel for Republic, in form and substance acceptable to the Company and the Shareholders, to the effect that: (a) Republic is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware; (b) Republic has obtained all necessary authorizations and consents of its Board of Directors to effect the transactions contemplated hereby and the consent of its shareholders is not required; (c) the Republic Shares, when issued in connection with the transactions contemplated hereby, will be duly authorized, validly issued, fully paid and nonassessable; and (d) this Agreement is a valid and binding obligation of Republic, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or general equitable principles. 7.7 TAX OPINION. The Company and the Shareholders shall have received an opinion of counsel reasonably acceptable to them confirming that the Merger is a tax-free reorganization under Section 368(a) of the Code. 32 33 7.8 STOCK REGISTRATION AND LISTING. The Republic Shares shall remain subject to effective registration statements under the Securities Act and applicable state blue sky laws and have been authorized for listing on the NASDAQ Stock Market. 7.9 RELEASE OF PERSONAL LIABILITIES OF THE SHAREHOLDERS. Republic shall use reasonable efforts to obtain from each appropriate third party referred to in Schedule 7.9, a release of all liabilities of the Shareholders for the obligations of the Company, contingent or otherwise, referred to therein. To the extent that Republic is unable to obtain any such releases, Republic agrees to indemnify and hold harmless Shareholders for any losses, claims or damages incurred by them for any such unreleased liabilities. ARTICLE VIII INDEMNIFICATION 8.1 AGREEMENT BY THE SHAREHOLDERS TO INDEMNIFY. The Shareholders jointly and severally agree to indemnify and hold Republic harmless from and against the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, related counsel and paralegal fees and expenses) incurred or suffered by Republic arising out of or resulting from (i) any breach of a representation or warranty made by the Shareholders in or pursuant to this Agreement, (ii) any breach of the covenants or agreements made by the Company or any Shareholder in or pursuant to this Agreement, or (iii) any inaccuracy in any certificate delivered by the Company or any Shareholder pursuant to this Agreement (collectively, "Indemnifiable Damages"). Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Republic shall have the right to be put in the same pre-tax consolidated financial position as it would have been in had each of the representations and warranties of the Shareholders hereunder been true and correct and had the covenants and agreements of the Company and the Shareholders hereunder been performed in full. 8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by the Shareholders and Republic in this Agreement or pursuant hereto shall survive the Effective Time for a period of one year after the Effective Time except for the representations and warranties contained in Sections 3.13, 3.16, 3.18 and 3.19, which shall expire at the time the last applicable period of limitations expires for enforcement by an applicable governmental authority. No claim for the recovery of Indemnifiable Damages may be asserted by Republic against the Shareholders after such representations and warranties shall thus expire, provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement 33 34 of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. 8.3 RECURRING REVENUE. In the event that Republic shall have determined that the actual average gross combined monthly revenue generated by the Company from its customers during the Test Period was less than the amount represented and warranted in Section 3.26, then, notwithstanding any other provision of this Agreement to the contrary, an amount equal to 16.25 times the deficiency shall be deemed to be the amount of the loss, damage or expense incurred as a result of such breach of the representation and warranty set forth in Section 3.26 for purposes of this Section. Such determination shall be made within seven (7) months following the Effective Date. 8.4 SECURITY FOR THE SHAREHOLDERS' INDEMNIFICATION OBLIGATION. As security for the agreement by the Shareholders to indemnify and hold Republic harmless as described in this Article at the Closing, Republic shall set aside and hold certificates representing the Held Back Shares issued pursuant to this Agreement. The Shareholders hereby grant Republic a first priority security interest in the Held Back Shares. Republic may set off against the Held Back Shares any Indemnifiable Damages for which the Shareholders may be responsible pursuant to this Agreement, subject, however, to the following terms and conditions: (a) Republic shall give written notice to the Shareholders of any claim for Indemnifiable Damages or any other damages hereunder, which notice shall set forth (i) the amount of Indemnifiable Damages or other loss, damage, cost or expense which Republic claims to have sustained by reason thereof, and (ii) the basis of such claim; (b) Unless the Indemnifiable Damages arise from a claim of a third party with respect to which (i) the Shareholders have agreed in writing to assume the defense of and pay all resulting costs, liabilities, judgments or settlements thereunder and (ii) Republic has previously consented in writing to such arrangement, which consent is in the sole discretion of Republic, then such set off shall be effected on the later to occur on the expiration of 10 days from the date of such notice (the "Notice of Contest Period") or, if such claim is contested, the date the dispute is resolved, and such set off shall be charged proportionally against the shares set aside; (c) If, prior to the expiration of the Notice of Contest Period, the Shareholders shall notify Republic in writing of an intention to dispute the claim and if such dispute is not resolved within 30 days after expiration of such period (the "Resolution Period"), then Republic may elect that such dispute shall be resolved by a committee of three arbitrators (one appointed by the Shareholders, one appointed by Republic and one appointed by the two arbitrators so appointed), which shall be appointed within 60 days after the expiration of the Resolution Period. The arbitrators shall abide by the rules of the American Arbitration Association and their 34 35 decision shall be made within 45 days of being appointed and shall be final and binding on all parties; (d) For purposes of any set off described under this Section, the Held Back Shares shall be valued at the Closing Sale Price. 8.5 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES. Except with respect to shares transferred pursuant to the foregoing right of setoff (and in the case of such shares, until the same are transferred), all Held Back Shares shall be deemed to be owned by the Shareholders and the Shareholders shall be entitled to vote the same; provided, however, that, there shall also be deposited with Republic subject to the terms of this Article, all shares of Republic Common Stock issued to the Shareholders as a result of any stock dividend or stock split and all cash issuable to the Shareholders as a result of any cash dividend, with respect to the Held Back Shares. All stock and cash issued or paid upon Held Back Shares shall be distributed to the person or entity entitled to receive such Held Back Shares together with such Held Back Shares. 8.6 DELIVERY OF HELD BACK SHARES. Republic agrees to deliver to the Shareholders no later than ten (10) business days following the first anniversary of the Effective Date any Held Back Shares then held by it unless there then remains unresolved any claim for Indemnifiable Damages or other damages hereunder as to which notice has been given, in which event only so many of the Held Back Shares as determined by Republic in its sole discretion, to be necessary to cover such claim, valued at the Closing Sale Price, shall be retained and the remainder of the Held Back Shares shall be released to the Shareholders free and clear of Republic's security interest thereon. Any Held Back Shares remaining on deposit after such claim shall have been satisfied shall be returned to the Shareholders promptly after the time of satisfaction. Republic agrees to advise the Shareholders of the number of Held Back Shares it determines to retain pursuant to this provision. 8.7 NO BAR. If the Held Back Shares are insufficient to set off any claim for Indemnifiable Damages made hereunder (or have been delivered to the Shareholders prior to the making or resolution of such claim), then Republic may take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. 8.8 INDEMNIFICATION THRESHOLD. Excluding any Indemnifiable Damages arising in connection with or relating to (i) Section 1.6, (ii) the following disposal sites (NPL) referred to on Schedule 3.13B(1) : (A) Keystone Sanitation Co., Inc., (B) Modern Landfill and (C) York County Solid Waste Authority, (iii) the 1 Holland Ave location referred to on Schedule 3.13A, (iv) Section 5.11; and (v) Section 8.3, the Shareholders shall not be liable to Republic with respect to any claim for Indemnifiable Damages unless the aggregate amount of all Indemnifiable Damages incurred by Republic exceeds an aggregate of $520,000.00 (the "Indemnification Threshold"), in which case the Shareholders shall be only liable for the amount of such Indemnifiable Damages above the Indemnification Threshold. 35 36 ARTICLE IX SECURITIES LAW MATTERS The Shareholders agree as follows with respect to the sale or other disposition after the Effective Time of the Republic Shares: 9.1 DISPOSITION OF SHARES. The Shareholders represent and warrant that the shares of Republic Common Stock being acquired by them hereunder are being acquired and will be acquired for their own respective accounts and will not be sold or otherwise disposed of, except (a) pursuant to an exemption from the registration requirements under the Securities Act, (b) in accordance with Rule 145(d) under the Securities Act, or (c) pursuant to an effective registration statement filed by Republic with the SEC under the Securities Act. To the extent the Shareholders comply with the provisions of Rule 145(d) under the Securities Act in effecting sales of the Republic Shares, Republic agrees to provide its transfer agent with appropriate instructions and/or opinions of counsel in order for the shareholders to sell, transfer and/or dispose of the Republic Shares in accordance with Rule 145(d). 9.2 LEGEND. The certificates representing the Republic Shares shall bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE ACT AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO, (B) IN ACCORDANCE WITH RULE 145(D) UNDER THE ACT, OR (C) IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. Republic may, unless a registration statement is in effect covering such shares or unless the Shareholders comply with Rule 145(d), place stop transfer orders with its transfer agent with respect to such certificates in accordance with federal securities laws. 36 37 ARTICLE X DEFINITIONS 10.1 DEFINED TERMS. As used herein, the following terms shall have the following meanings: "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof. "Closing Sale Price" shall mean $38.00 per share of Republic Common Stock issued pursuant to the terms hereunder. "Code" means the Internal Revenue Code of 1986, as amended. "Contract" means any agreement, contract, lease, note, mortgage, indenture, loan agreement, franchise agreement, covenant, employment agreement, license, instrument, purchase and sales order, commitment, undertaking, obligation, whether written or oral, express or implied. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in effect in the United States of America from time to time. "Governmental Authority" means any nation or government, any state, regional, local or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, but not limited to, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code or comparable law or any jurisdiction in connection with such mortgage, pledge, security interest, encumbrance, lien or charge). "Material Adverse Change (or Effect)" means a change (or effect), in the condition (financial or otherwise), properties, assets, liabilities, rights, obligations, operations, business or prospects which change (or effect) individually or in the 37 38 aggregate, is materially adverse to such condition, properties, assets, liabilities, rights, obligations, operations, business or prospects. "Person" means an individual, partnership, corporation, business trust, joint stock company, estate, trust, unincorporated association, joint venture, Governmental Authority or other entity, of whatever nature. "Register", "registered" and "registration" refer to a registration of the offering and sale of securities effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Tax Return" means any tax return, filing or information statement required to be filed in connection with or with respect to any Taxes; and "Taxes" means all taxes, fees or other assessments, including, but not limited to, income, excise, property, sales, franchise, intangible, withholding, social security and unemployment taxes imposed by any federal, state, local or foreign governmental agency, and any interest or penalties related thereto. 10.2 OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in this Agreement shall have the defined meanings when used in any certificates, reports or other documents made or delivered pursuant hereto or thereto, unless the context otherwise requires. (b) Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (c) All matters of an accounting nature in connection with this Agreement and the transactions contemplated hereby shall be determined in accordance with GAAP applied on a basis consistent with prior periods, where applicable. (d) As used herein, the neuter gender shall also denote the masculine and feminine, and the masculine gender shall also denote the neuter and feminine, where the context so permits. 38 39 ARTICLE XI TERMINATION 11.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time: (a) by mutual written consent of all of the parties hereto at any time prior to the Closing; or (b) by Republic in the event of a material breach by the Company or any of the Shareholders of any provision of this Agreement; or (c) by the Company in the event of a material breach by Republic of any provision of this Agreement; or (d) by either Republic or the Company if the Closing shall not have occurred by April 15, 1997. 11.2 EFFECT OF TERMINATION. Except for the provisions of Article VIII hereof, which shall survive any termination of this Agreement, in the event of termination of this Agreement pursuant to Section 12.1, this Agreement shall forthwith become void and of no further force and effect and the parties shall be released from any and all obligations hereunder; provided, however, that nothing herein shall relieve any party from liability for the willful breach of any of its representations, warranties, covenants or agreements set forth in this Agreement. ARTICLE XII GENERAL PROVISIONS 12.1 NOTICES. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be delivered by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery, or facsimile transmission if such transmission is confirmed by delivery by certified or registered mail (first class postage pre-paid) or guaranteed overnight delivery, to the following addresses and telecopy numbers (or to such other addresses or telecopy numbers which such party shall designate in writing to the other party): 39 40 (a) IF TO ANY OF THE REPUBLIC COMPANIES TO: Republic Industries, Inc. 450 East Las Olas Blvd., Suite 1200 Ft. Lauderdale, FL 33301 Attn: Richard L. Handley, General Counsel Telecopy: (954) 713-2120 WITH A COPY TO: Akerman, Senterfitt & Eidson, P.A. One Southeast Third Avenue, 28th Floor Miami, Florida 33131 Attention: Jonathan L. Awner, Esq. Telecopy: (305) 374-5095 (b) IF TO THE COMPANY AND/OR THE SHAREHOLDERS TO: Mr. Robert A. Kinsley c/o Kinsley Construction, Inc. 2700 Water Street York, Pennsylvania 17403 Telecopy: (717) 741-5292 AND Mr. Scott R. Wagner 550 Hess Farm Road Dallastown, Pennsylvania 17313 Telecopy: (717) 845-5301 WITH A COPY TO: Barley, Snyder, Senft & Cohen, LLP 100 East Market Street York, Pennsylvania 17401 Attention: Jeffrey D. Lobach, Esq. Telecopy: (717) 843-8492 Notice shall be deemed given on the date sent if sent by overnight delivery or facsimile transmission and on the date delivered (or the date of refusal of delivery) if sent by certified or registered mail. 40 41 12.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits and Schedules attached hereto) and other documents delivered at the Closing pursuant hereto, contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings (oral or written) between or among the parties with respect to such subject matter. The Exhibits and Schedules constitute a part hereof as though set forth in full above. 12.3 EXPENSES. Except as otherwise provided herein, the parties shall pay their own fees and expenses, including their own counsel fees, incurred in connection with this Agreement or any transaction contemplated hereby. Republic and the Shareholders each hereby agree to pay one-half ( 1/2) of the applicable filing fees with respect to any required HSR Act filings. 12.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended, supplemented, canceled or discharged, except by written instrument executed by all parties. No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. The rights and remedies of the parties under this Agreement are in addition to all other rights and remedies, at law or equity, that they may have against each other. 12.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns. Nothing expressed or implied herein shall be construed to give any other person any legal or equitable rights hereunder. Except as expressly provided herein, the rights and obligations of this Agreement may not be assigned by the Company, or any Shareholders without the prior written consent of Republic. 12.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. 12.7 INTERPRETATION. When a reference is made in this Agreement to an article, section, paragraph, clause, schedule or exhibit, such reference shall be deemed to be to this Agreement unless otherwise indicated. The headings contained herein and on the schedules are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or the schedules. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Time shall be of the essence in this Agreement. 12.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the State of Florida applicable to contracts executed and to be wholly performed within such State. 41 42 12.9 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents and warrants to all other parties hereto that (a) before executing this Agreement, said party has fully informed itself of the terms, contents, conditions and effects of this Agreement; (b) said party has relied solely and completely upon its own judgment in executing this Agreement; (c) said party has had the opportunity to seek and has obtained the advice of counsel before executing this Agreement; (d) said party has acted voluntarily and of its own free will in executing this Agreement; (e) said party is not acting under duress, whether economic or physical, in executing this Agreement; and (f) this Agreement is the result of arm's length negotiations conducted by and among the parties and their respective counsel. 42 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. REPUBLIC INDUSTRIES, INC., a Delaware corporation By: /s/ Richard L. Handley ------------------------------------ Richard L. Handley, President REPUBLIC WASTE COMPANIES HOLDING CO., a Delaware corporation By: /s/ Richard L. Handley ------------------------------------ Richard L. Handley, President RI/YWD MERGER CORP., a Pennsylvania corporation By: /s/ Richard L. Handley ------------------------------------ Richard L. Handley, President YORK WASTE DISPOSAL, INC., a Pennsylvania corporation By: /s/ Scott R. Wagner ------------------------------------ Scott R. Wagner, President /s/ Scott R. Wagner ------------------------------------ SCOTT R. WAGNER, individually /s/ Robert A. Kinsley ------------------------------------ ROBERT A. KINSLEY, individually 43 44 /s/ Patrick A. Kinsley ------------------------------------ PATRICK A. KINSLEY, individually /s/ Jonathan R. Kinsley ------------------------------------ JONATHAN R. KINSLEY, individually /s/ Christopher A. Kinsley ------------------------------------ CHRISTOPHER A. KINSLEY, individually /s/ Timothy J. Kinsley ------------------------------------ TIMOTHY J. KINSLEY, individually /s/ Robert Anthony Kinsley ------------------------------------ ROBERT ANTHONY KINSLEY, individually 44 EX-23.1 8 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our reports included in this Form 8-K, into the previously filed Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009 and 333-20667), Form S-4 (Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669). ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, March 14, 1997. EX-23.2 9 CONSENT OF CROWE, CHIZEK & CO. LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation of our report dated February 14, 1997, on the combined financial statements of Maroone Automotive Group included in Republic Industries, Inc. Form 8-K, dated February 27, 1997, into the previously filed Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009 and 333-20667), Form S-4 (Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669). Crowe, Chizek and Company LLP Ft. Lauderdale, Florida March 14, 1997 EX-23.3 10 CONSENT OF GOLDENBERG ROSENTHAL FRIEDLANDER LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report included in this Form 8-K, into the previously filed Registration Statements of Republic Industries, Inc. on Form S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009 and 333-20667), Form S-4 (Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669). Goldenberg Rosenthal Friedlander, LLP Jenkintown, Pennsylvannia March 14, 1997 EX-23.4 11 CONSENT OF MCGLADREY & PULLEN, LLP 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation of our report included in this Form 8-K of Republic Industries, Inc. dated February 27, 1997 into the previously filed Registration Statements and related prospectuses of Republic Industries, Inc. on Forms S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009 and 333-20667), Form S-4 (Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669). McGLADREY & PULLEN, LLP Anaheim, California, March 14, 1997 EX-99 12 FINANCIAL INFORMATION 1 EXHIBIT 99 INDEX TO FINANCIAL INFORMATION
Page ---- (a) Historical Financial Information REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES Report of Independent Certified Public Accountants........................................................ F-2 Supplemental Consolidated Balance Sheets as of December 31, 1996 and 1995................................. F-3 Supplemental Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994....................................................................... F-4 Supplemental Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994.................................................................. F-5 Supplemental Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994........................................................................ F-6 Notes to Supplemental Consolidated Financial Statements................................................... F-7 KENDALL AUTOMOTIVE GROUP Report of Independent Certified Public Accountants........................................................ F-28 Combined Balance Sheet as of October 31, 1996............................................................. F-29 Combined Statement of Income and Retained Earnings for the Ten-Month Period Ended October 31, 1996........ F-31 Combined Statement of Cash Flows for the Ten-Month Period Ended October 31, 1996.......................... F-32 Notes to Combined Financial Statements.................................................................... F-33 MAROONE AUTOMOTIVE GROUP Report of Independent Auditors............................................................................ F-39 Combined Statements of Income for the Years Ended December 31, 1996 and 1995.............................. F-40 Combined Balance Sheets as of December 31, 1996 and 1995.................................................. F-41 Combined Statements of Cash Flows for the Years Ended December 31, 1996 and 1995.......................... F-42 Combined Statements of Owners' Equity for the Years Ended December 31, 1996 and 1995...................... F-44 Notes to Combined Financial Statements.................................................................... F-45 THE WALLACE COMPANIES Independent Auditor's Report.............................................................................. F-60 Combined Balance Sheet as of December 31, 1996............................................................ F-61 Combined Statement of Income for the Year Ended December 31, 1996......................................... F-63 Combined Statement of Retained Earnings for the Year Ended December 31, 1996.............................. F-64 Combined Statement of Cash Flows for the Year Ended December 31, 1996..................................... F-65 Notes to Combined Financial Statements.................................................................... F-67 TAORMINA INDUSTRIES, INC. Independent Auditor's Report.............................................................................. F-78 Balance Sheets as of December 31, 1996 and 1995........................................................... F-79 Statements of Income for the Years Ended December 31, 1996 and 1995....................................... F-80 Statements of Retained Earnings for the Years Ended December 31, 1996 and 1995............................ F-81 Statements of Cash Flows for the Years Ended December 31, 1996 and 1995................................... F-82 Notes to Financial Statements............................................................................. F-84 (b) Pro Forma Financial Information REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC., GRUBB AUTOMOTIVE AND KENDALL AUTOMOTIVE GROUP Unaudited Condensed Consolidated Pro Forma Financial Statements........................................... F-93 Unaudited Condensed Consolidated Pro Forma Balance Sheet as of December 31, 1996.......................... F-94 Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Year Ended December 31, 1996............................................................................ F-95 Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.................................. F-96
F-1 2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Republic Industries, Inc.: We have audited the accompanying consolidated balance sheets of Republic Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the three-year period ended December 31, 1996, included on pages 46 through 71 of Form 10-K. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Republic Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. We have also made similar audits of the accompanying supplemental consolidated balance sheets of Republic Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related supplemental consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. The supplemental consolidated statements give retroactive effect to the mergers with Carlisle Motors, Inc. on January 21, 1997; National Car Rental System, Inc. on February 24, 1997; Taormina Industries, Inc. on February 27, 1997; and Wallace Automotive Group and Maroone Automotive Group on February 28, 1997, which have been accounted for as poolings of interests as described in Note 1. These supplemental financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplemental financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of Republic Industries, Inc. and its subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, after giving retroactive effect to the mergers with Carlisle Motors, Inc., National Car Rental System, Inc., Taormina Industries, Inc., Wallace Automotive Group, and Maroone Automotive Group as described in Note 1, all in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, March 14, 1997. F-2 3 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, (IN THOUSANDS, EXCEPT SHARE DATA)
1996 1995 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 299,453 $ 345,633 Receivables, net.......................................... 535,653 428,743 Revenue earning vehicles, net............................. 3,495,178 2,922,832 Advances to affiliate..................................... 247,472 -- Inventory................................................. 185,395 178,722 Other current assets...................................... 149,981 145,767 ---------- ---------- Total Current Assets.............................. 4,913,132 4,021,697 PROPERTY AND EQUIPMENT, NET................................. 1,064,974 790,043 INTANGIBLE ASSETS, NET...................................... 260,067 156,910 INVESTMENT IN SUBSCRIBER ACCOUNTS, NET...................... 92,427 42,240 OTHER ASSETS................................................ 39,659 30,059 ---------- ---------- $6,370,259 $5,040,949 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 270,654 $ 221,258 Accrued liabilities....................................... 278,025 158,425 Estimated liability insurance claims...................... 144,225 119,161 Current portion of revenue earning vehicle debt........... 2,688,787 3,040,699 Notes payable and current maturities of long-term debt.... 184,054 197,622 Other current liabilities................................. 94,194 81,650 ---------- ---------- Total Current Liabilities......................... 3,659,939 3,818,815 LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 347,987 293,659 LONG-TERM REVENUE EARNING VEHICLE DEBT, NET OF CURRENT PORTION.................................... 799,624 -- OTHER LIABILITIES........................................... 210,736 210,637 COMMITMENTS AND CONTINGENCIES............................... SHAREHOLDERS' EQUITY: Preferred stock, par value $.01 per share; 5,000,000 shares authorized; none issued......................... -- -- Common stock, par value $.01 per share; 500,000,000 and 350,000,000 shares authorized, respectively; 296,829,054 and 248,013,006 shares issued and outstanding, respectively.............................. 2,968 2,480 Additional paid-in capital................................ 1,343,003 629,131 Retained earnings......................................... 6,002 86,227 ---------- ---------- Total Shareholders' Equity........................ 1,351,973 717,838 ---------- ---------- $6,370,259 $5,040,949 ========== ==========
The accompanying notes are an integral part of these statements. F-3 4 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1994 ---------- ---------- ---------- REVENUE: Vehicle rentals.......................................... $2,567,099 $1,886,399 $1,222,325 Vehicle sales............................................ 1,410,513 1,000,282 858,330 Solid waste services..................................... 701,209 450,398 317,928 Electronic security services............................. 85,276 49,826 41,913 ---------- ---------- ---------- 4,764,097 3,386,905 2,440,496 EXPENSES: Vehicle rental operating expenses........................ 2,072,373 1,517,036 910,337 Cost of vehicle sales.................................... 1,269,873 872,337 743,721 Cost of solid waste services............................. 512,396 307,519 213,633 Cost of electronic security services..................... 37,307 20,569 20,643 Selling, general and administrative...................... 784,212 602,818 467,449 Restructuring and merger expenses........................ 38,335 3,264 -- ---------- ---------- ---------- OPERATING INCOME .......................................... 49,601 63,362 84,713 INTEREST INCOME............................................ 30,769 21,038 6,430 INTEREST EXPENSE........................................... (43,887) (33,526) (20,198) OTHER INCOME (EXPENSE), NET................................ 5,525 5,085 (2,567) ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE........................... 42,008 55,959 68,378 PROVISION FOR INCOME TAXES................................. 43,024 31,280 29,767 ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY CHARGE..................................... (1,016) 24,679 38,611 EXTRAORDINARY CHARGE RELATED TO EARLY EXTINGUISHMENT OF DEBT, NET OF BENEFIT FOR INCOME TAXES OF $14,955......... (31,592) -- -- ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS................... (32,608) 24,679 38,611 ---------- ---------- ---------- DISCONTINUED OPERATIONS: Income (loss) from discontinued operations, net of income taxes................................................. -- 5,414 (2,764) Loss on disposal of segment, net of income tax benefit... -- (30,537) -- ---------- ---------- ---------- Loss from discontinued operations........................ -- (25,123) (2,764) ---------- ---------- ---------- NET INCOME (LOSS).......................................... $ (32,608) $ (444) $ 35,847 ========== ========== ========== FULLY DILUTED INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Income (loss) from continuing operations before extraordinary charge.................................. $ -- $ .11 $ .25 Extraordinary charge..................................... (.10) -- -- Discontinued operations.................................. -- (.11) (.02) ---------- ---------- ---------- Net income (loss)........................................ $ (.10) $ -- $ .23 ========== ========== ==========
The accompanying notes are an integral part of these statements. F-4 5 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
COMMON ADDITIONAL RETAINED STOCK PAID-IN CAPITAL EARNINGS ------ --------------- --------- BALANCE AT DECEMBER 31, 1993................................ $1,533 $ 230,266 $103,612 Sales of common stock..................................... 29 16,490 -- Distributions to former owners of pooled companies........ -- -- (25,743) Other..................................................... 16 21,161 1,245 Net income................................................ -- -- 35,847 ------- ---------- -------- BALANCE AT DECEMBER 31, 1994................................ 1,578 267,917 114,961 Sales of common stock and warrants........................ 441 261,967 -- Stock issued in acquisitions.............................. 173 83,910 -- Exercise of stock options and warrants.................... 30 15,690 -- Reclassification of additional paid-in capital to effect the spin-off........................................... -- (36,305) 36,305 Spin-off of Republic Environmental Systems, Inc........... -- -- (23,579) Contributions to capital from former owners of pooled companies.................................... -- 29,783 -- Distributions to former owners of pooled companies........ -- -- (41,033) Other..................................................... 258 6,169 17 Net loss.................................................. -- -- (444) ------- ---------- -------- BALANCE AT DECEMBER 31, 1995................................ 2,480 629,131 86,227 Sales of common stock..................................... 220 550,652 -- Stock issued in acquisitions.............................. 221 101,224 -- Exercise of stock options and warrants.................... 57 43,707 -- Contributions to capital from former owners of pooled companies.............................................. -- 21,887 -- Distributions to former owners of pooled companies........ -- -- (48,187) Other..................................................... (10) (3,598) 570 Net loss.................................................. -- -- (32,608) ------- ---------- -------- BALANCE AT DECEMBER 31, 1996................................ $2,968 $1,343,003 $ 6,002 ======= ========== ========
The accompanying notes are an integral part of these statements. F-5 6 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS)
1996 1995 1994 ----------- ----------- ----------- CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Income (loss) from continuing operations.............. $ (32,608) $ 24,679 $ 38,611 Adjustments to reconcile income (loss) from continuing operations to net cash provided by continuing operations: Restructuring, merger and other non-recurring expenses......................................... 95,519 3,264 -- Loss on extinguishment of debt, net of income taxes............................................ 31,592 -- -- Depreciation and amortization...................... 847,635 629,724 415,217 Changes in assets and liabilities, net of effects from business acquisitions: Receivables...................................... (102,253) (29,316) (37,258) Inventory........................................ (1,392) (41,509) (12,039) Other assets..................................... (47,920) 2,980 9,747 Accounts payable and accrued liabilities......... 68,863 84,425 6,026 Other liabilities................................ 128,672 22,807 8,786 ----------- ----------- ----------- 988,108 697,054 429,090 ----------- ----------- ----------- CASH PROVIDED BY DISCONTINUED OPERATIONS................ -- 6,105 12,168 ----------- ----------- ----------- CASH USED IN INVESTING ACTIVITIES: Purchases of revenue earning vehicles from third party suppliers.......................................... (3,999,100) (2,806,011) (2,762,648) Purchases of revenue earning vehicles from related party suppliers.................................... (631,280) (351,755) (551,157) Sales of revenue earning vehicles..................... 3,356,359 2,841,614 2,673,654 Purchases of property and equipment................... (251,688) (221,906) (153,419) Advances to affiliate................................. (243,400) -- -- Investment in subscriber accounts..................... (41,371) (15,980) (17,512) Cash used in business acquisitions.................... (47,018) (1,331,676) (11,797) Other................................................. 46,537 90,742 147,134 ----------- ----------- ----------- (1,810,961) (1,794,972) (675,745) ----------- ----------- ----------- CASH PROVIDED BY FINANCING ACTIVITIES: Payments of revenue earning vehicle financing......... (17,414,332) (9,972,386) (3,071,250) Proceeds from revenue earning vehicle financing....... 17,732,521 11,094,327 3,348,787 Payments of long-term debt and notes payable.......... (563,698) (211,360) (200,169) Proceeds from long-term debt and notes payable........ 512,133 188,189 128,993 Sales of common stock................................. 550,872 262,408 16,519 Other................................................. (40,823) 30,957 11,917 ----------- ----------- ----------- 776,673 1,392,135 234,797 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (46,180) 300,322 310 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 345,633 45,311 45,001 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 299,453 $ 345,633 $ 45,311 =========== =========== ===========
The accompanying notes are an integral part of these statements. F-6 7 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (000'S OMITTED IN ALL TABLES EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying Supplemental Consolidated Financial Statements include the accounts of Republic Industries, Inc. and its subsidiaries ("Republic" or the "Company"). All significant intercompany accounts and transactions have been eliminated. In 1995, the Company implemented a formal plan to dispose of all of its mining and citrus operations. In 1994, the Board of Directors authorized management to pursue a plan to distribute its hazardous waste services segment, Republic Environmental Systems, Inc. ("RESI"), now known as International Alliance Services, Inc., to Republic shareholders. Accordingly, as discussed in Note 11, Discontinued Operations, these segments have been accounted for as discontinued operations and the accompanying Supplemental Consolidated Financial Statements presented herein have been restated to report separately the operating results of these discontinued operations. In order to maintain consistency and comparability between periods presented, certain amounts have been reclassified from the previously reported financial statements in order to conform with the financial statement presentation of the current period. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The accompanying Supplemental Consolidated Financial Statements include the financial position and results of operations of Addington Resources, Inc. ("Addington") and Continental Waste Industries, Inc. ("Continental") which the Company acquired in December 1996; Alamo Rent-A-Car, Inc. ("Alamo") which the Company acquired in November 1996; CarChoice, Inc. ("CarChoice") which the Company acquired in August 1996; and Incendere, Inc. ("Incendere") and The Denver Fire Reporter & Protective Co. ("Denver Alarm"), which the Company acquired in February 1996. These transactions were accounted for under the pooling of interests method of accounting and, accordingly, the Supplemental Consolidated Financial Statements have been previously restated as if the Company and Addington, Continental, Alamo, CarChoice, Incendere and Denver Alarm had operated as one entity since inception. See Note 2, Business Combinations, for further discussion of these transactions. All per share data and numbers of shares of the Company's common stock, par value $.01 per share ("Common Stock") for all periods included in the financial statements and notes thereto have been adjusted to reflect a two-for-one stock split in the form of a 100% stock dividend that became effective in June 1996, as more fully described in Note 6, Shareholders' Equity. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS The accompanying Supplemental Consolidated Financial Statements give retroactive effect to the acquisitions of National Car Rental System, Inc. ("National"), Maroone Automotive Group ("Maroone"), Wallace Automotive Group ("Wallace") and Taormina Industries, Inc. ("Taormina") all of which the Company acquired in February 1997 and Carlisle Motors, Inc. ("Carlisle") which the Company acquired in January 1997. The acquisitions of National, Maroone, Wallace, Taormina and Carlisle have been accounted for under the pooling of interests method of accounting. See Note 2, Business Combinations, for further discussion of these transactions. RECEIVABLES Receivables include trade accounts receivable from the Company's various operating business segments which consist of amounts due from retail and service customers, travel agents and tour operators. Receivables also include vehicle receivables from automobile manufacturers which consist of amounts due under vehicle repurchase and incentive programs and from vehicle renters for damages incurred on revenue earning vehicles. F-7 8 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of receivables, net of allowance for doubtful accounts at December 31 are as follows:
1996 1995 -------- -------- Trade....................................................... $286,154 $219,756 Vehicle..................................................... 226,620 185,229 Contracts in transit........................................ 19,338 16,899 Other....................................................... 19,499 16,879 -------- -------- 551,611 438,763 Less: allowance for doubtful accounts....................... (15,958) (10,020) -------- -------- $535,653 $428,743 ======== ========
INVESTMENTS Investments have a maturity of one year or less, are classified as held-to-maturity securities and are recorded at amortized cost adjusted for the amortization or accretion of premiums or discounts, which approximate market value. Investments are included in other assets in the accompanying Supplemental Consolidated Balance Sheets. Investments at December 31 are as follows:
1996 1995 ------- ------- Eurodollar deposits......................................... $ -- $26,727 Repurchase agreements....................................... 20,165 24,000 Certificates of deposit..................................... 1,000 13,549 Other....................................................... 1,706 3,798 ------- ------- $22,871 $68,074 ======= =======
Repurchase agreements are restricted for the settlement of specific estimated auto liability claims. REVENUE EARNING VEHICLES AND DEPRECIATION Revenue earning vehicles are stated at cost less accumulated depreciation and allowances for stolen vehicles. The straight-line method is used to depreciate revenue earning vehicles to their estimated residual values over the anticipated periods of use based on the Company's fleet plan, typically ranging from four to twenty months in the United States and from four to nine months in Canada and Europe. Depreciation expense also includes those costs relating to losses from damaged vehicles, and gains and losses on revenue earning vehicle sales in the ordinary course of business. Depreciation expense related to revenue earning vehicles was $732.3 million, $545.7 million, and $352.5 million for the years ended December 31, 1996, 1995 and 1994, respectively, and is included as a component of vehicle rental operating expenses in the accompanying Supplemental Consolidated Statements of Operations. A summary of revenue earning vehicles at December 31 is as follows:
1996 1995 ---------- ---------- Revenue earning vehicles.................................... $3,906,376 $3,245,254 Less: accumulated depreciation.............................. (411,198) (322,422) ---------- ---------- $3,495,178 $2,922,832 ========== ==========
Revenue earning vehicles with depreciated cost of $2.9 billion at December 31, 1996 were acquired under programs that allow the Company to require counterparties to repurchase vehicles held for periods of up to twenty-four months. The agreements contain varying mileage and damage limitations. F-8 9 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company also leases vehicles under operating lease agreements which require the Company to provide normal maintenance and liability coverage. The agreements generally have terms of four to twelve months. Many agreements provide for an option to terminate the leases early and allow for the purchase of leased vehicles subject to certain restrictions. Most leases provide for an initial minimum monthly charge, with contingent rental charges for changes in interest rates and adjustments for wear, damage and mileage in excess of stipulated amounts. Contingent rental charges were $1.8 million, $13.2 million and $2.8 million for the years ended December 31, 1996, 1995 and 1994, respectively. INVENTORY Inventory consists primarily of retail vehicles held for sale valued using the specific identification method. Cost includes acquisition expenses, including reconditioning and transportation costs. Parts and accessories are valued at the lower of cost or market, using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance and repairs are charged to expense as incurred. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the Supplemental Consolidated Statements of Operations. The Company revises the estimated useful lives of property and equipment acquired through its business acquisitions to conform with its policies regarding property and equipment. Depreciation is provided over the estimated useful lives of the assets involved using the straight-line method. The estimated useful lives are: twenty to forty years for buildings and improvements, three to fifteen years for trucks and equipment and five to ten years for furniture and fixtures. Landfills are stated at cost and are depleted based on consumed airspace. Landfill improvements include direct costs incurred to obtain a landfill permit and direct costs incurred to construct and develop the site. These costs are depleted based on consumed airspace. No general and administrative costs are capitalized as landfills and landfill improvements. Interest costs are capitalized in connection with the construction of automotive rental facilities and landfill sites. Interest capitalized was $2.4 million, $3.3 million, and $2.7 million for the years ended December 31, 1996, 1995 and 1994, respectively. Depreciation, amortization and depletion expense related to property and equipment was $93.2 million, $71.4 million and $54.6 million in 1996, 1995 and 1994, respectively. A summary of property and equipment at December 31 is as follows:
1996 1995 ---------- --------- Land, landfills and improvements............................ $ 451,523 $ 376,008 Furniture, fixtures and equipment........................... 657,091 408,355 Buildings and improvements.................................. 355,111 287,166 ---------- --------- 1,463,725 1,071,529 Less: accumulated depreciation, amortization and depletion................................................. (398,751) (281,486) ---------- --------- $1,064,974 $ 790,043 ========== =========
F-9 10 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTANGIBLE ASSETS Intangible assets consist primarily of the cost of acquired businesses in excess of the fair value of net tangible assets acquired. The cost in excess of the fair value of net tangible assets is amortized over periods ranging from fifteen to forty years on a straight-line basis. Amortization expense related to intangible assets was $12.8 million, $8.2 million and $4.7 million, in 1996, 1995 and 1994, respectively. Accumulated amortization of intangible assets was $47.6 million and $30.4 million at December 31, 1996 and 1995, respectively. The Company continually evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of intangible assets or whether the remaining balance of intangible assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the intangible assets in measuring their recoverability. INVESTMENT IN SUBSCRIBER ACCOUNTS Investment in subscriber accounts consists of certain capitalized costs associated with new monitoring systems installed by the Company's electronic security service business and the cost of acquired subscriber accounts. The costs are amortized over periods ranging from eight to twelve years (based on estimated and historical customer attrition rates) on a straight-line basis. Amortization expense related to investment in subscriber accounts was $9.3 million, $4.4 million and $3.4 million in 1996, 1995 and 1994, respectively. Accumulated amortization of investment in subscriber accounts was $20.7 million and $11.4 million at December 31, 1996 and 1995, respectively. ACCRUED ENVIRONMENTAL AND LANDFILL COSTS Accrued environmental and landfill costs are included in other liabilities and include landfill site closure and post-closure costs. Landfill site closure and post-closure costs include estimated costs to be incurred for final closure of the landfills and estimated costs for providing required post-closure monitoring and maintenance of landfills. These costs are accrued based on consumed airspace. Estimated aggregate closure and post-closure costs are to be fully accrued for these landfills at the time that such facilities cease to accept waste and are closed. Excluding existing accruals at December 31, 1996, approximately $53.7 million of such costs are to be expensed over the remaining lives of these facilities. The Company estimates its future cost requirements for closure and post-closure monitoring and maintenance for its solid waste facilities based on its interpretation of the technical standards of the United States Environmental Protection Agency's Subtitle D regulations. These estimates do not take into account discounts for the present value of such total estimated costs. In addition to the Company's solid waste collection and disposal operations, the Company's vehicle rental operations also involve the storage and dispensing of petroleum products, primarily gasoline. The Company records as expense, on a current basis, costs associated with remediation of environmental pollution. The Company also accrues for its proportionate share of costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and the amount can be reasonably estimated. Estimated costs include anticipated site testing, consulting, remediation, disposal, post-remediation monitoring and legal fees, as appropriate. The liability does not reflect possible recoveries from insurance companies or reimbursement of remediation costs. The Company periodically reassesses its method and assumptions used to estimate such accruals for environmental and landfill costs and adjusts such accruals accordingly. Such factors considered are changing regulatory requirements, the effects of inflation, changes in operating climates in the regions in which the Company's facilities are located and the expectations regarding costs of securing environmental services. F-10 11 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As discussed in Note 8, Commitments and Contingencies, the Company is involved in litigation and is subject to ongoing environmental investigations by certain regulatory agencies, as well as other claims and disputes that could result in additional litigation which are in the normal course of business. LIABILITY INSURANCE The Company retains up to $1.0 million of risk per claim under its various liability insurance programs for property damage and bodily injury claims. Costs in excess of $1.0 million per claim are insured under various contracts with insurance carriers. The costs of these retained insurance risks are estimated by management and by actuarial evaluation based on historical claims experience, adjusted for current trends and changes in claims-handling procedures. In 1996, the Company changed its method of accounting for estimated auto rental liability insurance claims by no longer discounting such liability. The effect of this change was not material to the Company's supplemental consolidated financial position or results of operations. REVENUE RECOGNITION Revenue from the Company's automotive rental operations consists primarily of fees from rentals and the sale of related rental products from the leisure and business travel segments. Revenue from the Company's automotive retailing operations consists of sales of new and used vehicles, parts and service. Revenue from the Company's solid waste services operations consists of collection fees from residential, commercial and industrial customers and landfill disposal fees charged to third parties. Revenue from the Company's electronic security services business results from monitoring contracts for security systems and fees charged for the sale and installation of such systems. The Company recognizes revenue over the period vehicles are rented, services are provided or products are sold. FINANCIAL INSTRUMENTS The Company utilizes interest rate swaps in the management of interest rate risk. The differentials between the amounts paid and received from these swaps are recognized over the terms of the agreements and are recorded as adjustments to interest expense. Amounts receivable or payable under the agreements are included in receivables or accrued liabilities in the Supplemental Consolidated Balance Sheets and were not material at December 31, 1996 or 1995. ADVERTISING The Company expenses the cost of advertising as incurred or when such advertising initially takes place. No advertising costs were capitalized at December 31, 1996 or 1995. Advertising expense was $138.6 million, $108.4 million and $78.8 million for the years ended December 31, 1996, 1995 and 1994, respectively. STATEMENTS OF CASH FLOWS The Company considers all highly liquid investments with purchased maturities of three months or less to be cash equivalents unless the investments are legally or contractually restricted for more than three months. The effect of non-cash transactions related to business combinations, as discussed in Note 2, Business Combinations, and other non-cash transactions are excluded from the Statements of Cash Flows. NEW ACCOUNTING PRONOUNCEMENT In October 1996, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities," effective for fiscal years beginning after December 15, 1996. This statement provides that environmental remediation liabilities should be accrued when the criteria of Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies," F-11 12 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) are met, and it includes benchmarks to aid in the determination of when environmental remediation liabilities should be recognized. SOP 96-1 also states that an accrual for environmental liabilities should include incremental direct costs of the remediation effort and costs of compensation and benefits for those employees who are expected to devote a significant amount of time directly to the remediation effort. The Company early adopted SOP 96-1 in 1996 without material impact on its supplemental consolidated results of operations or financial position. 2. BUSINESS COMBINATIONS PENDING ACQUISITIONS In March 1997, the Company signed a definitive agreement to acquire Chesrown Automotive Group ("Chesrown"), which owns and operates seven franchised automotive dealerships. The Company will issue approximately 1.9 million shares of Common Stock in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In March 1997, the Company signed a definitive agreement to acquire Bankston Enterprises ("Bankston"), which owns and operates four franchised automotive dealerships. The Company will issue approximately 1.1 million shares of Common Stock in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In March 1997, the Company signed a definitive agreement to acquire Flemington Car and Truck Country and certain related dealerships ("Flemington"), which own and operate twelve franchised automotive dealerships. The Company will issue approximately 1.6 million shares of Common Stock in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In February 1997, the Company signed a definitive agreement to acquire Joe Meyers Automotive Group ("Joe Meyers"), which owns and operates five franchised automotive dealerships. The Company will issue approximately .9 million shares of Common Stock in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. Additionally, in January, February and March 1997, the Company signed definitive agreements to acquire various other businesses in the automotive retailing and solid waste services industries which are not material to the Company. The Company will issue an aggregate of approximately .9 million shares of Common Stock in such transactions which will be accounted for under the purchase method of accounting, and will issue an aggregate of approximately .4 million shares of Common Stock in such transactions which will be accounted for under the pooling of interests method of accounting. These transactions are subject to customary conditions, including manufacturer and regulatory approvals, as applicable. COMPLETED ACQUISITIONS Significant businesses acquired and accounted for under the pooling of interests method of accounting have been included retroactively in the Supplemental Consolidated Financial Statements as if the companies had operated as one entity since inception. Businesses acquired through December 31, 1996 and accounted for under the purchase method of accounting are included in the Supplemental Consolidated Financial Statements from the date of acquisition. In February 1997, the Company acquired National, which operates a vehicle rental business. The Company issued approximately 21.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. National was formed in April 1995 to acquire the operating assets and certain liabilities of a predecessor company ("Old National") from General Motors Corp. as further discussed below. In February 1997, the Company acquired Maroone, which owns and operates five franchised automotive dealerships. The Company issued approximately 6.1 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Wallace, which owns and operates three franchised automotive dealerships. The Company issued approximately 1.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Taormina, which provides waste collection services and owns and operates a materials recycling facility. The Company issued approximately 7.4 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Kendall Automotive Group ("Kendall"), which owns and operates three franchised automotive dealerships. The Company issued approximately 1.2 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In January 1997, following approval by the Company's stockholders at a special meeting, the Company acquired AutoNation Incorporated ("AutoNation"), which is developing a chain of used vehicle megastores. The Company issued approximately 17.5 million shares of Common Stock in this transaction, which will be accounted for under the purchase method of accounting. F-12 13 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In January 1997, the Company acquired Carlisle which owns and operates three franchised automotive dealerships. The Company issued approximately 1.0 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In January 1997, the Company acquired Grubb Automotive ("Grubb"), which owns and operates seven franchised automotive dealerships. The Company issued approximately 4.0 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In January 1997, the Company acquired Ed Mullinax, Inc. and subsidiaries ("Mullinax"), which owns and operates six franchised automotive dealerships. The Company issued approximately 3.6 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In addition, in January, February and March 1997, the Company acquired various other businesses in the solid waste services, electronic security services and automotive retailing industries which were not material to the Company. The Company issued an aggregate of approximately 1.9 million shares of Common Stock and paid approximately $56.5 million of cash in such transactions which will be accounted for under the purchase method of accounting, and issued an aggregate of approximately 4.0 million shares of Common Stock in such transactions which will be accounted for under the pooling of interests method of accounting. In December 1996, the Company acquired Addington, which primarily provides solid waste disposal services. The Company issued approximately 13.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In December 1996, the Company acquired Continental, which provides integrated solid waste services. The Company issued approximately 12.4 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In November 1996, the Company acquired Alamo, which operates a vehicle rental business. The Company issued approximately 22.6 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In August 1996, the Company acquired substantially all of the assets of CarChoice, which operated used vehicle superstores similar to those being developed by AutoNation. The Company issued approximately 3.9 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1996, the Company acquired Incendere, which provides solid waste collection, recycling and medical waste hauling services. In February 1996, the Company acquired Denver Alarm, which provides electronic security services. The Company issued an aggregate of approximately 5.8 million shares of Common F-13 14 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock in these transactions, which have been accounted for under the pooling of interests method of accounting. Details of the results of operations of the Company and National, Maroone, Wallace, Taormina and Carlisle (collectively, the "Pooled Entities") for the periods before the pooling of interests combinations were consummated are as follows for the years ended December 31:
1996 1995 1994 ---------- ---------- ---------- Revenue: The Company.................................. $2,365,520 $1,791,446 $1,595,880 Pooled Entities.............................. 2,398,577 1,595,459 844,616 ---------- ---------- ---------- $4,764,097 $3,386,905 $2,440,496 ========== ========== ========== Net income (loss): The Company.................................. $ (59,497) $ (26,586) $ 27,188 Pooled Entities.............................. 26,889 26,142 8,659 ---------- ---------- ---------- $ (32,608) $ (444) $ 35,847 ========== ========== ==========
During the year ended December 31, 1996, the Company also acquired various other businesses in the solid waste services, electronic security services and automotive retailing industries which were not material to the Company. The Company issued an aggregate of approximately 9.1 million shares of Common Stock and paid $23.4 million of cash in such transactions which have been accounted for under the purchase method of accounting, and issued an aggregate of approximately 13.0 million shares of Common Stock in such transactions which have been accounted for under the pooling of interests method of accounting. These acquisitions accounted for under the pooling of interests method of accounting were not material in the aggregate and, consequently, prior period financial statements were not restated for such acquisitions. In November 1995, the Company acquired J.C. Duncan Company, Inc. ("Duncan"), Garbage Disposal Service, Inc. ("GDS"), Fennell Container Co., Inc. ("Fennell") and Scott Security Systems ("Scott"). Duncan provides solid waste collection and recycling services and also operates two landfills. GDS provides solid waste collection and recycling services. Fennell provides solid waste collection and recycling services and also owns a landfill. Scott provides electronic security services. In October 1995, the Company acquired United Waste Service, Inc. ("United") and Southland Environmental Services, Inc. ("Southland"). United provides solid waste collection, transfer and recycling services. Southland provides solid waste collection services. In August 1995, the Company acquired Kertz Security Systems, Inc. ("Kertz"), which provides electronic security services. The Company issued an aggregate of approximately 36.3 million shares of Common Stock for the above acquisitions. These acquisitions have been accounted for under the pooling of interests method of accounting and, accordingly, the accompanying Consolidated Financial Statements have previously been restated as if the Company and Duncan, GDS, Fennell, Scott, United, Southland and Kertz had operated as one entity since inception. In August 1995, the Company acquired Hudson Management Corporation and Envirocycle, Inc. (collectively, "HMC"). HMC provides solid waste collection and recycling services. The Company issued 16.0 million shares of Common Stock to acquire HMC. The acquisition of HMC has been accounted for under the purchase method of accounting. The pro forma effect of this acquisition is not material to the Company's Supplemental Consolidated Results of Operations. During the years ended December 31, 1995 and 1994, the Company entered into several other business combinations which have been accounted for under the purchase method of accounting, which were not material to the Company. In June 1995, National acquired all of the operating assets and assumed certain liabilities of Old National for a total cash purchase price of approximately $1.3 billion. This acquisition was accounted for under the purchase method of accounting. The Company's unaudited pro forma supplemental consolidated results of operations for the years ended December 31, assuming the acquisition of Old National had occurred on January 1, 1994 are as follows:
1995 1994 ---------- ---------- Revenue........................................ $3,732,405 $3,187,796 ========== ========== Income from continuing operations.............. $ 23,935 $ 54,793 ========== ========== Fully diluted income from continuing operations per common and common equivalent share........................................ $ .10 $ .31 ========== ==========
The unaudited pro forma supplemental consolidated results of operations are presented for informational purposes only and may not necessarily reflect the future results of operations of the Company or what results of operations would have been had the Company owned and operated Old National as of January 1, 1994. F-14 15 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The preliminary purchase price allocations for business combinations accounted for under the purchase method of accounting (including historical accounts of immaterial acquisitions accounted for under the pooling of interests method of accounting) for the years ended December 31 were as follows:
1996 1995 1994 --------- -------- -------- Revenue earning vehicles.............................. $ 79,379 $1,455,197 $ -- Property and equipment................................ 114,260 99,296 45,301 Investment in subscriber accounts..................... 18,087 -- -- Intangible assets..................................... 104,996 100,058 18,802 Working capital deficiency, net of cash acquired...... (19,138) 16,794 (10,536) Long-term debt assumed................................ (127,503) (124,326) (15,445) Other liabilities, net................................ (21,618) (131,260) (17,879) Common stock issued................................... (101,445) (84,083) (8,446) --------- ---------- -------- Cash used in acquisitions............................. $ 47,018 $1,331,676 $ 11,797 ========= ========== ========
3. NOTES PAYABLE AND LINES OF CREDIT SECURED BY REVENUE EARNING VEHICLES Notes payable and lines of credit secured by revenue earning vehicles at December 31 consist of the following:
1996 1995 ---------- ---------- Amounts under $1.4 billion loan agreement with termination date of June 10, 1997; secured by eligible vehicle collateral and vehicle receivable balances; interest based on market dictated commercial paper rates................. $ 1,396,846 $ 579,001 Senior secured notes payable with interest at fixed rates ranging from 5.58% to 7.08% with various maturity dates secured by eligible vehicle collateral and vehicle receivable balances; repaid in 1996....................... -- 445,500 Amounts due under commercial paper program with National Fleet Funding Corp., maturities of 58 days or less, weighted average interest rate was 5.47% and 5.81% in 1996 and 1995, respectively.................................... 856,294 1,429,235 Medium term notes payable, interest payable monthly at floating or fixed rates (average fixed rate at December 31, 1996 was 7.12% and floating rate based on 3 month LIBOR plus .5% was 5.97% at December 31, 1996), due in July 2001................................................. 799,524 -- Amounts under $250.0 million loan agreement with termination date of September 19, 1997; secured by eligible vehicle collateral and vehicle receivable balances; interest based on market dictated commercial paper rates; repaid in 1996...................................................... -- 236,357 Amounts under various uncommitted revolving lease facilities with financing institutions in United Kingdom; secured by eligible vehicle collateral; interest based on an as quoted basis dictated by market competition; no stated expiration dates, reviewed annually....................... 143,519 157,088 Other, including amounts to be financed after period end, under various revolving credit agreements and lease facilities................................................ 292,228 193,518 ----------- ---------- 3,488,411 3,040,699 Less: current portion....................................... (2,688,787) (3,040,699) ----------- ---------- $ 799,624 $ -- =========== ==========
In November 1996, the Company refinanced a substantial portion of Alamo's notes payable and lines of credit secured by revenue earning vehicles through an increase in its commercial paper loan agreement from $580.0 million to $1.4 billion. Certain of the notes payable and lines of credit secured by revenue earning vehicles contain various restrictive covenants, including provisions relating to the maintenance of tangible net worth F-15 16 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and debt to tangible net worth ratios, incurrence of additional indebtedness, and limitations on the payment of dividends and certain investments. The effective economic interest rate on notes payable and lines of credit secured by revenue earning vehicles was 6.79%, 6.94% and 6.02% at December 31, 1996, 1995 and 1994, respectively. Interest expense on notes payable and lines of credit secured by revenue earning vehicles is included as a component of vehicle rental operating expenses in the accompanying Supplemental Consolidated Statements of Operations. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. Interest protection agreements with several counterparties are used to manage the impact of interest rate changes. At December 31, 1996 and 1995, the Company effectively converted interest rates on the following notional principal amounts:
LATEST 1996 1995 MATURITY -------- -------- ----------- Variable-rate (capped) into fixed-rate obligations....................................... $150,000 $175,000 August 1998 Variable-rate into fixed-rate obligations........... 651,950 350,000 December 2006 -------- -------- Aggregate notional principal........................ $801,950 $525,000 ======== ========
4. LONG-TERM DEBT AND NOTES PAYABLE Long-term debt and notes payable at December 31 is as follows:
1996 1995 -------- -------- $250.0 million revolving credit facility; interest payable monthly using either a competitive bid feature or LIBOR based rate; matures December 1998; unsecured........................ $ 150,000 $ -- Mortgages payable to GMAC and predecessor agreements with interest at 9.19% or 1% above prime; payable in monthly installments; secured by real property; repaid in 1997............. 25,158 110,467 Revolving credit facility, secured by the stock of certain of the Company's subsidiaries, interest at prime or at a Eurodollar rate plus 0% to 2.75%, repaid in 1996.................... -- 16,400 Amounts under United Kingdom $17.1 million revolving credit commitment due on demand with 90-day notice; interest based on Sterling LIBOR plus 125 basis points or base rate plus 125 basis points; secured by non-vehicle equipment and leaseholds...................................................... 6,003 11,431 Bonds payable under loan agreements with California Pollution Control Financing Authority; interest varies weekly as determined by remarketing agent (3.15% at December 31, 1996)............................................................... 43,960 29,685 Note payable to Ford Motor Credit Company; interest at 2.75%-3.00% above commercial paper rate or 1.25% above prime; secured by assets of certain of the Company's subsidiaries; due 2000-2004....................................................... 26,577 28,245 Amounts due under line of credit with Ford Motor Credit Company; interest at 1%-1.75% above prime or commercial paper rate; collateralized by the assets of certain of the Company's subsidiaries........................................................ 19,700 3,994 Mortgages payable to Ford Motor Credit Company; interest at .75% above prime or 3.0% above commercial paper rate; secured by assets of certain of the Company's subsidiaries; maturing through 2011........................................................ 8,557 3,830 Notes to banks and financial institutions, secured by real property, equipment and other assets, interest ranging from 4.8% to 14.0%, maturing through 2015........................... 99,017 99,610 Vehicle inventory credit facilities secured by the Company's vehicle inventory, interest at LIBOR plus 2.75% or 1% above prime......................................................... 114,300 130,693 Note payable to bank with interest based on LIBOR or prime paid quarterly; secured by a building; repaid in 1996............... -- 8,700 Other notes, secured by equipment and other assets, interest ranging from 0% to 21%, maturing through 2010....................... 38,769 48,226 --------- --------- 532,041 491,281 Less: current portion................................................. (184,054) (197,622) --------- --------- $ 347,987 $ 293,659 ========= =========
F-16 17 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In December 1996, the Company completed a tender offer and consent solicitation resulting in the repurchase of approximately $100.0 million aggregate principal amount 11.75% senior notes due 2006 ("Senior Notes"), which were issued in February 1996. The Company recorded an extraordinary charge of $31.6 million, net of income taxes, during 1996 related to the early extinguishment of the Senior Notes and certain other debt. Included in this charge are bond redemption premiums, the write-off of debt issue costs, prepayment penalties and other fees related to the tender offer and the repayment of other debt. In December 1995, the Company entered into a credit agreement (the "Credit Agreement") with certain banks pursuant to which such banks have agreed to advance the Company on an unsecured basis an aggregate of $250.0 million for a term of 36 months. Outstanding advances, if any, are payable at the expiration of the 36-month term. The Credit Agreement requires, among other items, that the Company maintain certain financial ratios and comply with certain financial covenants. Interest is payable monthly and generally determined using either a competitive bid feature or a LIBOR based rate. As of December 31, 1996, $150.0 million was outstanding and the Company was in compliance with all covenants under the Credit Agreement. At December 31, 1996, aggregate maturities of long-term debt were as follows: 1997........................................................ $184,054 1998........................................................ 180,061 1999........................................................ 20,311 2000........................................................ 28,740 2001........................................................ 14,719 Thereafter.................................................. 104,156 -------- $532,041 ========
The Company made interest payments on revenue earning vehicle financing and notes payable and long-term debt of approximately $274.2 million, $204.4 million, and $129.0 million in 1996, 1995 and 1994, respectively. 5. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". Accordingly, deferred income taxes have been provided to show the effect of temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company files a consolidated federal income tax return which includes the operations of businesses acquired for periods subsequent to the dates of the acquisitions. Certain businesses acquired which were accounted for under the pooling of interests method of accounting were subchapter S corporations for income tax purposes prior to their acquisition by the Company. For purposes of these Consolidated Financial Statements, federal and state income taxes have been provided as if these companies had filed subchapter C corporation tax returns for the pre-acquisition periods, and the current income tax expense is reflected as an increase to additional paid-in capital. The subchapter S corporation status of these companies was terminated effective with the closing date of the acquisitions. F-17 18 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the provision (benefit) for income taxes related to continuing operations for the years ended December 31 are as follows:
1996 1995 1994 -------- ------- ------- Current: Federal................................................... $ 41,759 $11,233 $12,317 State..................................................... 3,991 2,465 2,959 Federal and state deferred.................................. (11,868) 15,698 17,196 Foreign deferred............................................ (8,780) (1,406) (2,617) Change in valuation allowance............................... 17,922 3,290 (88) -------- ------- ------- Provision for income taxes.................................. $ 43,024 $31,280 $29,767 ======== ======= =======
A reconciliation of the statutory federal income tax rate to the Company's effective tax rate for the years ended December 31 is shown below:
1996 1995 1994 ----- ----- ----- Statutory federal income tax rate........................... 35.0% 35.0% 35.0% Amortization of intangible assets........................... 3.0 1.3 .4 Non-deductible expenses..................................... 14.6 1.9 1.3 State income taxes, net of federal benefit.................. 6.0 4.4 4.7 Change in valuation allowance............................... 42.8 5.9 -- Foreign income tax benefit at other than U.S. rates......... (3.0) (.1) -- Other, net.................................................. 4.0 7.5 2.1 ----- ----- ----- Effective tax rate........................................ 102.4% 55.9% 43.5% ===== ===== =====
Components of the net deferred income tax liability included in other liabilities in the accompanying Supplemental Consolidated Balance Sheets at December 31 are as follows:
1996 1995 -------- -------- Deferred income tax liabilities: Book basis in property over tax basis..................... $ 260,860 $213,669 Deferred costs............................................ 15,870 17,867 Deferred income tax assets: Net operating losses...................................... (102,124) (43,636) Deferred revenue.......................................... (14,388) (14,913) Accruals not currently deductible......................... (91,103) (89,638) Valuation allowance......................................... 62,125 41,933 --------- -------- Net deferred income tax liability........................... $ 131,240 $125,282 ========= ========
At December 31, 1996, the Company had available domestic net operating loss carryforwards of approximately $253.9 million which begin to expire in the year 2006 and foreign net operating loss carryforwards of approximately $47.9 million, the majority of which have an indefinite carryforward. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has provided a valuation allowance to offset a portion of the deferred tax assets due to uncertainty surrounding the future realization of such deferred tax assets. The Company adjusts the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized. F-18 19 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The foreign component of income (loss) from continuing operations before income taxes and extraordinary charge for the years ended December 31, 1996, 1995 and 1994 was $(22.0) million, $(20.8) million and $.8 million, respectively. The Company made income tax payments of approximately $13.5 million, $11.6 million and $2.6 million in 1996, 1995 and 1994, respectively. 6. SHAREHOLDERS' EQUITY In January 1997, the Company sold 15.8 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $552.7 million. In November 1996, the Company sold 12.1 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $353.0 million. In May 1996, the Company sold 9.9 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $197.6 million. In May 1996, the Board of Directors declared a two-for-one split of the Company's Common Stock in the form of a 100% stock dividend, payable June 8, 1996, to holders of record on May 28, 1996. In May 1996, the Company's Certificate of Incorporation was amended to increase the number of authorized shares of Common Stock from 350.0 million shares to 500.0 million shares. In October 1995, one of the Pooled Entities completed a secondary public offering of approximately 2.6 million equivalent shares of Common Stock resulting in net proceeds of approximately $30.1 million. In September 1995, the Company sold 10.0 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $99.0 million. In August 1995, the Company sold an aggregate of 16.7 million shares of Common Stock and warrants to purchase an additional 33.4 million shares of Common Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation controlled by Michael G. DeGroote, former Chairman of the Board, President and Chief Executive Officer of Republic), Harris W. Hudson, and certain of their assigns for an aggregate purchase price of $37.5 million. Mr. Huizenga is the Chairman of the Board and Co-Chief Executive Officer of the Company; Mr. DeGroote is a Director of the Company and Mr. Hudson is Vice Chairman of the Board of the Company. The warrants are exercisable at prices ranging from $2.25 to $3.50 per share. In August 1995, the Company issued and sold an additional 2.0 million shares of Common Stock each to Mr. Huizenga and John J. Melk (a Director of the Company) for aggregate proceeds of approximately $26.5 million. In July 1995, the Company sold 10.8 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $69.0 million. The Company has 5.0 million authorized shares of preferred stock, par value $.01 per share, none of which are issued or outstanding. The Board of Directors has the authority to issue the preferred stock in one or more series and to establish the rights, preferences and dividends. 7. STOCK OPTIONS AND WARRANTS The Company has various stock option plans under which shares of Common Stock may be granted to key employees and directors of the Company. Options granted under the plans are non-qualified and are granted at a price equal to the fair market value of the Common Stock at the date of grant. Generally, options granted will have a term of ten years from the date of grant, and will vest in increments of 25% per year over a four year period on the yearly anniversary of the grant date. F-19 20 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of stock option and warrant transactions for the years ended December 31 is as follows:
1996 1995 1994 ----------------------- ----------------------- ----------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------ -------------- ------ -------------- ------ -------------- Options and warrants outstanding at beginning of year.................. 49,635 $ 4.87 8,062 $4.54 7,195 $ 4.45 Granted.................... 8,741 21.86 45,110 4.92 1,310 4.96 Exercised.................. (5,666) 4.03 (2,884) 4.14 (26) 13.61 Canceled................... (208) 9.44 (653) 7.49 (417) 4.07 ------ ------ ----- Options and warrants outstanding at end of year..................... 52,502 7.63 49,635 4.87 8,062 4.54 ====== ====== ===== Options and warrants exercisable at year-end................. 38,495 4.12 39,852 3.50 4,334 4.33 Options available for future grants............ 7,911 4,344 5,698
The following table summarizes information about outstanding and exercisable stock options and warrants at December 31, 1996:
OUTSTANDING EXERCISABLE -------------------------------------------- ------------------------- WEIGHTED-AVERAGE REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE - ------------------------ ------ ---------------- ---------------- ------ ---------------- $ 1.05 - $ 2.75.......... 24,144 1.22 $ 2.37 23,323 $ 2.40 2.95 - 12.38.......... 17,761 5.15 7.28 14,123 6.10 12.88 - 33.75.......... 10,597 9.38 20.21 1,049 15.76 ------ ------ 1.05 - 33.75.......... 52,502 4.20 7.63 38,495 4.12 ====== ======
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for stock-based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income (loss). Had compensation cost for the Company's stock option plans been determined pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's supplemental pro forma net loss and pro forma net loss per share would have increased accordingly. Using the Black-Scholes option pricing model for all options granted after December 31, 1994, the Company's supplemental pro forma net loss, supplemental pro forma net loss per share and supplemental pro forma weighted average fair value of options granted, with related assumptions, are as follows for the years ended December 31:
1996 1995 ------------- ------------- Pro forma net loss................................... $(50,442) $(8,400) Pro forma net loss per share......................... (.18) (.04) Pro forma weighted average fair value of options granted............................................ 9.80 5.28 Risk free interest rates............................. 5.98% - 6.17% 5.98% - 6.17% Expected lives....................................... 5-7 years 5-7 years Expected volatility.................................. 40% 40%
F-20 21 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS In 1992, the Company received notices from Imperial County, California (the "County") and the California Department of Toxic Substances Control ("DTSC") that spent filter elements (the "Filters") from geothermal power plants, which had been deposited at the Company's Imperial Landfill for approximately five years, were classified as hazardous waste under California environmental regulations. Under United States EPA regulations, the Filters are not deemed hazardous waste as they are associated with the production of geothermal energy. The Company is currently conducting active discussions with all appropriate California regulatory agencies in order to obtain a variance under California regulations to reclassify the Filters as a special waste so they may be left in the landfill. If this occurs, the State, regional and local regulatory agencies may nevertheless require that the affected area of the landfill be capped and closed. In the event that the variance is not granted, remedial measures may be required based on the Filters' classification as a California hazardous waste. One of those measures could include the removal of the Filters or the closure of a portion of the landfill. Management is currently unable to determine (i) whether the waste will ultimately be classified as hazardous, (ii) if so, what action, if any, will be required as a result of this issue or (iii) what liability, if any, the Company will have as a result of this inquiry. In January 1994, the Company filed suit in the United States District Court for the Southern District of California against the known past and present owners and operators of the geothermal power plants for all losses, fines and expenses incurred by the Company associated with the resolution of this matter. This suit was settled in November 1996 without material impact on the Company's supplemental consolidated financial position, results of operations or cash flows. The Company's solid waste and environmental services activities are conducted in the context of a developing and changing statutory and regulatory framework, aggressive government enforcement and a highly visible political environment. Governmental regulation of the waste management industry requires the Company to obtain and retain numerous governmental permits to conduct various aspects of its operations. These permits are subject to revocation, modification or denial. The costs and other capital expenditures which may be required to obtain or retain the applicable permits or comply with applicable regulations could be significant. By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The Auto Superstore, ("CarMax") accused AutoNation of infringing CarMax's trademark rights by using the marks AutoNation USA and "The Better Way to Buy a Car." AutoNation denied such allegations and on February 5, 1996, filed suit in the U.S. District Court for the Southern District of Florida seeking a declaratory judgment that AutoNation's use and registration of such marks do not violate any of the rights of CarMax. On or about October 11, 1996, CarMax filed a counterclaim against AutoNation seeking unspecified damages and an order enjoining AutoNation from using certain marks, including the marks AutoNation USA and "The Better Way to Buy a Car." In February 1997, AutoNation filed a motion for partial summary judgment on CarMax's dilution claim under Florida law. A trial has been set for May 1997. Although it is impossible to predict the outcome of this litigation, the Company believes that AutoNation has a valid basis for its complaint and that CarMax's allegations and counterclaims are without merit. While the results of the legal and environmental proceedings described above and other proceedings which arose in the normal course of business cannot be predicted with certainty, management believes that losses, if any, resulting from the ultimate resolution of these matters will not have a material adverse effect on the Company's consolidated results of operations, consolidated cash flows or consolidated financial position. However, unfavorable resolution of each matter individually or in the aggregate could affect the consolidated results of operations or cash flows for the quarterly periods in which they are resolved. F-21 22 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company maintains general liability and property insurance and an umbrella and excess liability policy in amounts it considers adequate and customary for businesses of its kind. However, there can be no assurance that the Company will not experience legal claims in excess of its insurance coverage or claims which are ultimately not covered by insurance. LEASE COMMITMENTS The Company and its subsidiaries lease real property, equipment and software under various operating leases with terms from 1 to 20 years. The Company has also entered into various airport concession and permit agreements which generally provide for payment of a percentage of revenue from vehicle rentals with a guaranteed minimum lease obligation. Expenses under real property, equipment and software leases and airport concession agreements (excluding amounts charged through to customers) for the years ended December 31 are as follows:
1996 1995 1994 -------- -------- -------- Real property.......................................... $ 45,614 $ 36,084 $ 25,591 Equipment and software................................. 23,772 24,896 22,890 Airport concession and permit fees: Minimum fixed obligations............................ 89,594 68,027 36,328 Additional amounts, based on revenue from vehicle rentals........................................... 94,544 60,106 27,617 -------- -------- -------- Total........................................ $253,524 $189,113 $112,426 ======== ======== ========
Future minimum lease obligations under noncancelable real property and equipment leases and airport agreements with initial terms in excess of one year at December 31, 1996 are as follows: Year Ending December 31: 1997................................................... $ 99,598 1998................................................... 80,519 1999................................................... 53,737 2000................................................... 33,656 2001................................................... 20,632 Thereafter............................................. 117,590 -------- $405,732 ========
In August 1995, the Company entered into a ten-year lease agreement for Alamo's Fort Lauderdale, Florida corporate headquarters facility. In December 1996, the Company acquired the headquarters facility for approximately $23.5 million, including the assumption of debt totaling approximately $22.7 million which was repaid by the Company in January 1997. OTHER MATTERS In the normal course of business, the Company is required to post performance bonds, letters of credit, and/or cash deposits as a financial guarantee of the Company's performance. To date, the Company has satisfied financial responsibility requirements for regulatory agencies by making cash deposits, obtaining bank letters of credit or by obtaining surety bonds. At December 31, 1996, letters of credit and surety bonds totaling $283.3 million expire through October 1999. 9. INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Income (loss) per common and common equivalent share are based on the combined weighted average number of common shares and common share equivalents outstanding which include, where appropriate, the assumed exercise or conversion of warrants and options. In computing income per common and common equivalent share from continuing operations before extraordinary charge, the Company has utilized the treasury stock method. F-22 23 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The computation of weighted average common and common equivalent shares used in the calculation of fully diluted income per share from continuing operations before extraordinary charge, which is substantially the same as the computation used to calculate primary income per share from continuing operations before extraordinary charge, for the years ended December 31 is as follows:
1996 1995 1994 ------- ------- ------- Common shares outstanding................................. 296,829 248,012 157,816 Common equivalent shares.................................. 58,080 53,774 1,234 Weighted average treasury shares purchased................ (15,159) (7,646) 298 Effect of using weighted average common and common equivalent shares outstanding........................... (25,825) (74,054) (3,298) ------- ------- ------- 313,925 220,086 156,050 ======= ======= =======
For the years ended December 31, 1996 and 1995, the weighted-average effect of common stock equivalents of approximately 37.1 million and 17.4 million shares, respectively, has been excluded from the computations of the extraordinary charge per share and net loss per share in 1996 and the net loss from discontinued operations per share in 1995 since they are anti-dilutive. 10. RESTRUCTURING, MERGER AND OTHER NON-RECURRING EXPENSES During the year ended December 31, 1996, the Company recorded one-time pre-tax charges of approximately $95.5 million related primarily to the integration of the operations of Alamo into those of the Company. Also included in these charges are merger expenses associated with the acquisitions of Alamo, Addington and Continental. Approximately $38.3 million of such expenses appear as restructuring and merger expenses with the remainder of approximately $57.2 million included in selling, general and administrative expenses in the Company's Supplemental Consolidated Statements of Operations for the year ended December 31, 1996. These costs primarily include asset write-offs, severance benefits, accounting and legal merger costs and changes in various estimated reserve requirements. In 1995, the Company recorded a $3.3 million pre-tax charge related to the closing of a subsidiary's headquarters office in Indianapolis, Indiana. The major components of the charge include severance costs, future contractual payments required under pre-existing contracts and other costs related to the write-off of equipment and other obligations related to the physical closure of the office. 11. DISCONTINUED OPERATIONS In 1995, the Company implemented a formal plan to dispose of all of its mining and citrus operations. These discontinued operations consisted primarily of the following: coal mining, mining equipment manufacturing and licensing, citrus properties in Belize, precious and industrial metals mining and incidental limestone properties. The Company initially recorded a loss on the disposal of the discontinued operations of approximately $30.5 million (net of income tax benefits of approximately $10.0 million) which represents the estimated loss on the disposal of such operations and a provision of approximately $2.0 million for expected operating losses through the final disposition of such operations. See Note 14, Related Party Transactions, for discussion of the disposition of the Company's mining and citrus operations. In 1994, the Company announced the contemplation of a plan to spin-off RESI, its hazardous waste services segment. In April 1995, Republic shareholders received one share of common stock of RESI for every ten shares of Common Stock of Republic owned in connection with the spin-off of RESI. Approximately 5.4 million RESI shares were distributed to Republic shareholders (the "Distribution"). In connection with the Distribution, the Company contributed the intercompany balance to RESI's equity and contributed approximately $2.5 million to RESI to repay RESI's indebtedness and to provide working capital to RESI. Additionally, the Company reclassified approximately $36.3 million to retained earnings from additional paid-in capital to effect the spin-off under Delaware law. As a result of these transactions, the Company's equity at the date of the Distribution was reduced by approximately $23.6 million. The Company has sold or spun-off all of its subsidiaries included in discontinued operations, hence fully disposing of all mining and citrus and hazardous waste operations. Upon ultimate disposal of its discontinued operations, the Company determined its initial estimates did not require adjustment. The recorded transactions reflect the disposal of all of the Company's hazardous waste and mining and citrus segments and, F-23 24 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accordingly, the operating results of these segments have been classified as discontinued operations for all periods presented in the accompanying Supplemental Consolidated Financial Statements. 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, investments, receivables, other assets (excluding goodwill, intangibles and deferred costs), accounts payable and accrued liabilities (nonderivatives) approximates fair value because of the short maturity of these instruments. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. The assumptions used have a significant effect on the estimated amounts reported. The Company has interest protection agreements with several counterparties to manage the impact of interest rate changes. The estimated fair values of the interest protection agreements were determined from dealer quotations and represent the discounted future cash flows through maturity or expiration using current rates, and are effectively the amounts the Company would pay or receive to terminate the agreements. The estimated fair values of the interest rate protection agreements at December 31, 1996 and 1995 was a net payable position of $.7 million and $9.7 million, respectively. The estimated fair value of mortgages payable at December 31, 1996 and 1995 was approximately $34.0 million and $114.0 million, respectively which approximates the carrying value. The estimated fair values were derived by discounting expected cash flows at the rates then offered to the Company for debt of similar terms and remaining maturities. The fair value of the Company's medium-term notes payable is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair value of the medium-term notes payable was $792,775 as of December 31, 1996. The carrying amount of the remaining debt approximates fair value because interest rates are variable and, accordingly, approximate current market rates. In September 1996, the Agreement and Plan of Amalgamation, dated as of July 1, 1996 and amended as of July 15, 1996 (the "ADT Agreement") by and among the Company, R.I./Triangle, Ltd. and ADT Limited, a Bermuda corporation ("ADT"), which provided for the acquisition of ADT by the Company, was terminated by mutual agreement of the parties. In connection with the execution of the ADT Agreement, ADT granted to the Company a warrant (the "ADT Warrant") to purchase 15.0 million common shares of ADT at a purchase price $20 per share (which approximated fair market value), subject to certain anti-dilution adjustments. The warrant became exercisable upon the termination of the ADT Agreement and remains exercisable through March 1997. Pursuant to the terms of the warrant, ADT has granted to the Company certain registration rights with respect to the common shares of ADT issuable to the Company upon exercise of the warrant. The Company estimates the fair value of the ADT Warrant at December 31, 1996 to be approximately $5.7 million based upon an option pricing model calculation, which approximates the carrying value. 13. BUSINESS AND CREDIT CONCENTRATIONS AUTOMOTIVE RENTAL INDUSTRY At December 31, 1996 the Company had 406 corporate owned vehicle rental facilities at airport, near-airport and downtown locations throughout the United States. The Company also had 31 corporate owned vehicle rental facilities in the United Kingdom, 25 in Germany, 4 in Switzerland, 82 in Canada, 1 in Belgium and 2 in The Netherlands. In addition to its corporate owned locations, the Company's licensee network operates 284 locations throughout Europe, Latin America, the Caribbean, and the Pacific. The automotive rental industry in which the Company operates is highly seasonal. Trade receivables at December 31, 1996 and 1995 include $68.3 million and $59.3 million, respectively from travel agents and tour operators. Of the travel agent and tour operator receivable balances, $25.4 million F-24 25 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and $25.6 million at December 31, 1996 and 1995, respectively, are maintained outside the United States. The Company holds minimum collateral in the form of cash, letters of credit or insurance from most of these vendors. The Company continually evaluates the credit risk of these customers and believes that the allowance for doubtful accounts relative to its trade receivables is adequate. At December 31, 1996 and 1995, the Company had vehicle receivables from manufacturers of $125.4 million and $65.0 million, respectively. Of the receivable balances from manufacturers, $16.9 million and $12.7 million are maintained outside the United States. Vehicle receivables also include amounts due from renters for damages incurred on revenue earning vehicles. The Company enters into vehicle repurchase programs with one principal vehicle manufacturer, as well as other vehicle manufacturers. During model year 1996, the Company purchased 71% of its vehicle fleet under repurchase programs with one vehicle manufacturer. SOLID WASTE SERVICES, ELECTRONIC SECURITY SERVICES AND AUTOMOTIVE RETAILING INDUSTRIES Concentrations of credit risk with respect to trade receivables related to the Company's solid waste services, electronic security services and automotive retailing segments are limited due to the wide variety of customers and markets in which the Company's products are sold and services are provided as well as their dispersion across many different geographic areas in the United States. As a result, at December 31, 1996, the Company does not consider itself to have any significant concentrations of credit risk in the solid waste services, electronic security services and automotive retailing segments. 14. RELATED PARTY TRANSACTIONS As of December 31, 1996, approximately $247.5 million was due from AutoNation pursuant to a loan agreement whereby the Company agreed to provide advances at an interest rate of LIBOR plus 2% to fund AutoNation's cash flow requirements. Interest income recognized on such advances was approximately $5.6 million for the year ended December 31, 1996. In addition, on behalf of AutoNation, the Company has guaranteed certain lease obligations and the residual value related to a portfolio of properties leased by AutoNation under a $150.0 million operating lease facility. At December 31, 1996, annual lease obligations were approximately $2.6 million through the year 2001 and the residual value guaranty was approximately $37.6 million. The Company purchased approximately $631.3 million, $351.8 million and $551.2 million of revenue earning vehicles from a group of automotive dealerships owned primarily by a former director of Alamo during the years ended December 31, 1996, 1995 and 1994, respectively. Pursuant to an automobile purchase agreement, the Company agreed to purchase and/or lease a minimum number of vehicles and pay to these automotive dealerships a specific amount (in addition to the manufacturer's sales price) for each vehicle purchased. In September 1995, in a related party transaction, the Company entered into a stock purchase agreement with Addington Enterprises, Inc. (a company f/k/a Addington Acquisition Company, Inc., owned by certain former shareholders of Addington; collectively, the "Addington Brothers") whereby the Company would receive $30.0 million, subject to a working capital adjustment, in exchange for all the issued and outstanding shares of common stock of its subsidiaries, Addington Mining, Inc., Mining Technologies Inc., Addwest Mining, Inc. and Addington Coal Holding, Inc. This transaction closed in November 1995, at which time the proceeds received were used by the Company to pay down certain borrowings under a revolving line of credit. Included in the transaction described above and pursuant to an option agreement, in August 1995 the Company sold to the Addington Brothers all the issued and outstanding shares of common stock of its subsidiary, Tennessee Mining, Inc. According to the terms of the option agreement, the Addington Brothers will pay the Company a royalty based on tons of coal delivered under a certain coal sales contract, up to a maximum aggregate royalty of $12.5 million. F-25 26 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In September 1995, in a related party transaction, the Company entered into an agreement to sell all of the issued and outstanding shares of common stock of its subsidiary, Belize River Fruit Co., to the Addington Brothers in exchange for .9 million shares of Common Stock of the Company owned by such shareholders. This transaction was consummated in November 1995, at which time the Company acquired and retired the .9 million shares valued at $13.6 million. The Company retained no obligations in connection with the sales and has fully divested its investment in its citrus operations. 15. OPERATIONS BY INDUSTRY SEGMENT The Company is a diversified holding company with major business operations in the automotive rental, solid waste services, automotive retailing and electronic security services industries. The Company operates primarily in the United States. The following table presents financial information regarding the Company's different industry segments as of and for the years ended December 31:
1996 1995 1994 ---------- ---------- ---------- Revenue: Automotive rental................................ $2,567,099 $1,886,399 $1,222,325 Solid waste services............................. 701,209 450,398 317,928 Automotive retailing............................. 1,410,513 1,000,282 858,330 Electronic security services..................... 85,276 49,826 41,913 ---------- ---------- ---------- $4,764,097 $3,386,905 $2,440,496 ========== ========== ========== Operating income (loss): Automotive rental................................ $ (30,674) $ (19,318) $ 30,224 Solid waste services............................. 93,656 63,091 42,650 Automotive retailing............................. 3,887 15,276 12,369 Electronic security services..................... 14,495 8,631 2,352 Corporate........................................ (31,763) (4,318) (2,882) ---------- ---------- ---------- $ 49,601 $ 63,362 $ 84,713 ========== ========== ========== Depreciation and amortization: Automotive rental................................ $ 772,932 $ 576,139 $ 372,544 Solid waste services............................. 58,946 44,595 35,028 Automotive retailing............................. 4,947 4,044 3,534 Electronic security services..................... 10,810 4,946 4,111 ---------- ---------- ---------- $ 847,635 $ 629,724 $ 415,217 ========== ========== ========== Capital expenditures, purchases of revenue earning vehicles and investment in subscriber accounts: Automotive rental................................ $4,691,228 $3,197,399 $3,347,988 Solid waste services............................. 141,147 146,008 112,723 Automotive retailing............................. 38,043 34,786 5,750 Electronic security services..................... 53,021 17,459 18,275 ---------- ---------- ---------- $4,923,439 $3,395,652 $3,484,736 ========== ========== ========== Assets: Automotive rental................................ $4,625,368 $3,838,227 $2,310,448 Solid waste services............................. 1,309,262 840,201 466,066 Automotive retailing............................. 392,071 318,687 230,331 Electronic security services..................... 43,558 43,834 34,447 Net assets of discontinued operations............ -- -- 86,229 ---------- ---------- ---------- $6,370,259 $5,040,949 $3,127,521 ========== ========== ==========
F-26 27 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The Company's automotive rental operations and particularly the leisure travel segment is highly seasonal. In these operations, the third quarter which includes the peak summer travel months has historically been the strongest quarter of the year. During the peak season the Company increases its rental fleet and workforce to accommodate increased rental activity. As a result, any occurrence that disrupts travel patterns during the summer period could have a material adverse effect on the annual performance of this segment. The first quarter for the Company's automotive rental operations is generally the weakest, when there is limited leisure family travel and a greater potential for adverse weather conditions. Many of the operating expenses such as rent, general insurance and administrative personnel are fixed and cannot be reduced during periods of decreased rental demand. The third and fourth quarters of 1996 included one-time pre-tax charges of approximately $7.6 million and $87.9 million, respectively, as described in Note 10, Restructuring, Merger and Other Non-Recurring Expenses. The fourth quarter of 1996 also included an extraordinary charge of approximately $31.6 million, net of income tax benefit, related to the early extinguishment of debt as described in Note 4, Long-Term Debt and Notes Payable. The following is an analysis of certain items in the Supplemental Consolidated Statements of Operations by quarter for 1996 and 1995. Amounts for the first, second and third quarters of 1996 and the 1995 quarterly amounts have been restated from amounts previously reported in Form 10-Q for significant business combinations accounted for under the pooling of interests method of accounting.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Revenue................................. 1996 $1,015,948 $1,191,533 $1,212,789 $1,343,827 1995 618,152 745,336 1,009,955 1,013,462 Operating income (loss)................. 1996 $ 25,791 $ 47,013 $ 70,828 $ (94,031) 1995 (7,959) 11,196 69,117 (8,992) Income (loss) from continuing operations before extraordinary charge........... 1996 $ 12,400 $ 23,712 $ 37,102 $ (74,230) 1995 (8,129) 3,133 37,045 (7,370) Income (loss) per share from continuing operations before extraordinary charge.................. 1996 $ .04 $ .08 $ .12 $ (.26) 1995 (.05) .02 .16 (.03) Net income (loss)....................... 1996 $ 12,400 $ 23,712 $ 37,101 $ (105,821) 1995 (6,627) 5,429 9,255 (8,501)
F-27 28 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have audited the accompanying combined balance sheet of Kendall Automotive Group, as of October 31, 1996 and the related combined statements of income and retained earnings and cash flows for the ten-month period then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kendall Automotive Group as of October 31, 1996, and the results of its operations and its cash flows for the ten-month period then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Miami, Florida, January 3, 1997. F-28 29 KENDALL AUTOMOTIVE GROUP COMBINED BALANCE SHEET OCTOBER 31, 1996
ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 6,876,561 Temporary investments 976,025 Accounts receivable, net 14,634,782 Inventories 23,066,290 Rental vehicles 3,933,290 Other current assets 220,350 ------------ Total current assets 49,707,298 PROPERTY AND EQUIPMENT, net 21,586,597 OTHER ASSETS 49,440 NET ASSETS TO BE DISTRIBUTED TO STOCKHOLDER (Note 10) 2,864,384 ----------- Total assets $ 74,207,719 ============
(Continued) F-29 30 KENDALL AUTOMOTIVE GROUP COMBINED BALANCE SHEET OCTOBER 31, 1996 (Continued)
LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ CURRENT LIABILITIES: Floor plan notes $ 37,035,142 Current portion of long-term debt 2,275,919 Capital lease obligation 4,180,299 Trade accounts payable 2,995,954 Accrued expenses 2,111,462 Allowance for chargebacks 2,693,020 Other current liabilities 853,062 ------------ Total current liabilities 52,144,858 LONG-TERM DEBT, less current portion 19,654,433 ------------ Total liabilities 71,799,291 ------------ COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDER'S EQUITY: R&B common stock, zero par value, 60 shares authorized, 30 shares issued 420,499 GFB common stock, $1 par value 1,000 shares authorized issued and outstanding 1,000 GFB additional paid-in-capital 499,000 Retained earnings 6,832,645 Less 15 shares of R&B common stock held in treasury, at cost (5,344,716) ------------ Total stockholder's equity 2,408,428 ------------ Total liabilities and stockholder's equity $ 74,207,719 ============
The accompanying notes to combined financial statements are an integral part of this balance sheet. F-30 31 KENDALL AUTOMOTIVE GROUP COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE TEN-MONTH PERIOD ENDED OCTOBER 31, 1996 SALES: New vehicles $ 237,815,425 Used vehicles 74,587,988 Service and parts 28,238,797 ------------- 340,642,210 COST OF SALES, including floor plan interest of $2,838,576 307,494,140 ------------- Gross profit 33,148,070 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 29,410,233 ------------- Income from operations 3,737,837 ------------- OTHER INCOME (EXPENSE): Interest, net (1,113,820) Other, net 539,740 ------------- (574,080) ------------- Net income 3,163,757 RETAINED EARNINGS, beginning of period 4,868,888 DISTRIBUTION TO STOCKHOLDER (1,200,000) ------------- RETAINED EARNINGS, end of period $ 6,832,645 =============
The accompanying notes to combined financial statements are an integral part of this statement. F-31 32 KENDALL AUTOMOTIVE GROUP COMBINED STATEMENT OF CASH FLOWS FOR THE TEN-MONTH PERIOD ENDED OCTOBER 31, 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,163,757 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 723,650 Provision for doubtful accounts 208,006 (Increase) decrease in- Temporary investments (133,090) Accounts receivable (1,309,508) Inventories (277,257) Rental vehicles (610,469) Other current assets (138,316) Other assets 208,182 Increase (decrease) in- Floor plan notes (7,434,195) Capital lease obligation 449,850 Trade accounts payable (1,728,413) Accrued expenses (640,413) Allowance for chargebacks (438,430) Other current liabilities 105,402 ------------ Net cash used in operating activities (7,851,244) ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,912,391) Change in net assets to be distributed to stockholder (462,395) ------------ Net cash used in investing activities (2,374,786) ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 250,000 Repayment of long-term debt (5,231,579) Distribution to stockholder (1,200,000) ------------ Net cash used in financing activities (6,181,579) ------------ Net decrease in cash and cash equivalents (16,407,609) CASH AND CASH EQUIVALENTS, beginning of period 23,284,170 ------------ CASH AND CASH EQUIVALENTS, end of period $ 6,876,561 ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 5,003,776 ============
The accompanying notes to combined financial statements are an integral part of this statement. F-32 33 KENDALL AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS OCTOBER 31, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of Business- R & B Holding Company, Inc. ("R&B"), d/b/a Kendall Toyota and Kendall Kia, and GFB Enterprises, Inc. ("GFB"), d/b/a Lexus of Kendall, (collectively, the "Companies" or "Kendall Automotive Group") are Florida corporations engaged primarily in the sale and service of new and used cars and trucks in South Florida. The Companies operate as franchised dealers for Southeast Toyota Distributors; Lexus, a division of Toyota Motor Sales, U.S.A. Inc. and Kia Motors America, Inc. In accordance with the individual franchise agreements, each dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships or the loss of a franchise agreement could have a negative impact on the operating results of the Companies. Principles of Combination- The combined financial statements include the accounts of R&B and GFB. All significant transactions and balances between R&B and GFB have been eliminated in combination. Revenue Recognition- Revenue is recognized by the Companies when vehicles are delivered to consumers or motor vehicle service work is performed and parts are delivered. Finance and insurance revenues (participation fees) are recognized upon the sale of the finance or insurance contract. A corresponding allowance for chargebacks of finance and insurance revenues is recognized in the same period. Use of Estimates- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-33 34 Cash and Cash Equivalents- Cash and cash equivalents include all highly-liquid investments with an original maturity of three months or less. Included in cash and cash equivalents is $5,724,401 of interest-bearing cash maintained by R&B with World Omni Finance Company ("WOFCO"). Under the terms of the Loan Agreement discussed in Note 6 WOFCO has the right of set-off against any monies of R&B in the possession of WOFCO at the time the loan obligations become due and payable. Temporary Investments- Temporary investments consists of certificates of deposits with banks with original maturities of approximately one year and interest rates ranging from 3.10% to 4.75%. Inventories- Inventories are stated at the lower of cost or market. The cost of new Toyota vehicles is determined using the last-in, first-out (LIFO) method. The cost of all other vehicles is determined on a specific identification basis. The cost of parts and accessories is determined on a FIFO basis. Rental Vehicles- Rental vehicles consist of new vehicles under short-term capital leases which are utilized primarily as loaners for customers with vehicles in service. Rental vehicles are acquired from the lessor generally after a six-month period and are included in the used vehicle inventory at such time. Rental vehicles are stated at cost less accumulated depreciation. Depreciation is provided during the rental period to reduce the cost of the rental vehicle to its estimated net realizable value at the time of resale to customers. Property and Equipment- Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the following methods and estimated useful lives:
Estimated Description Method Useful Lives -------------------------- --------------- --------------- Buildings and improvements Straight-line 25 - 40 years Equipment Accelerated 5 - 10 years
F-34 35 Expenditures for repairs and maintenance which increase the useful life or substantially increase serviceability of the asset are capitalized. All other expenditures are charged to expense as incurred. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included in the statement of income. Income Taxes- The Companies have elected S-Corporation status for federal income tax purposes. Accordingly, the Companies themselves are not subject to income taxes; instead, earnings are included in the stockholder's personal income tax returns and taxed accordingly. The financial statements, therefore, do not include a provision for income taxes. Fair Value of Financial Instruments- The Companies' financial instruments consist of cash and cash equivalents, temporary investments, accounts receivable, floor plan notes, capital lease obligations, trade accounts payable and long-term debt. The carrying amount of these financial instruments approximates fair value due either to length of maturity or existence of variable interest rates that approximates prevailing market rates. (2) ACCOUNTS RECEIVABLE: Accounts receivable consist of the following as of October 31, 1996: Customer installment contracts in transit $ 10,849,905 Participation fees on customer installment contracts 629,367 Manufacturer or distributor 884,783 Other customers 2,473,060 ------------ 14,837,115 Less- allowance for doubtful accounts (202,333) ------------ $ 14,634,782 ============
(3) INVENTORIES: Inventories consist of the following components: New vehicles $ 11,023,182 Used vehicles 11,330,678 Parts and accessories 1,770,755 ------------ 24,124,615 Cumulative LIFO reserve (1,058,325) ------------ $ 23,066,290 ============
If the specific identification method had been used to determine the cost of new Toyotas, the Companies would have reported approximately $366,000 less net income for the ten-month period ended October 31, 1996. F-35 36 (4) PROPERTY AND EQUIPMENT: Property and equipment consist of the following at October 31, 1996: Land $ 6,002,002 Buildings and improvements 16,997,747 Equipment 3,838,905 ------------ 26,838,654 Less- accumulated depreciation (5,252,057) ------------ $ 21,586,597 ============
(5) FLOOR PLAN NOTES: At October 31, 1996, the Companies' vehicle floor plan agreements are with WOFCO. The floor plan agreements require demand notes which are secured by new and used vehicle inventory. The agreements are cancelable at any time by WOFCO. The notes bear interest at prime (8.25% at October 31, 1996) plus .75% for new vehicles and prime plus 1.75% for used vehicles. The floor plan agreements also grant a collateral interest in substantially all of the non-inventory assets of the Companies and generally require payment of debt at the time the related customer installment contracts are collected. The notes are also personally guaranteed by the stockholder of the Companies. From November 1994 to February 1996, GFB's vehicle inventory was financed through a floor plan agreement with Toyota Motor Credit Corp. The weighted average interest rate on floor plan borrowings was 9.1% for the ten-month period ended October 31, 1996. (6) LONG-TERM DEBT: Long-term debt consists of notes payable to WOFCO pursuant to a revolving line of credit agreement, as amended, (the "Loan Agreement") between WOFCO and R&B in connection with the construction and improvement of the Companies' premises. The notes payable to WOFCO bear annual interest of 8% to 8.75%, with principal and interest due monthly. Principal amortization periods are primarily 120 months. The maximum amount of borrowings approved by WOFCO under the Loan Agreement is $25,000,000. The Loan Agreement also requires prior written consent from WOFCO for any additional indebtedness to be assumed by R&B. The notes are secured by substantially all assets of the Companies and certain assets of the stockholder. The security interest in the inventories is subordinate to the security interest granted to WOFCO under the floor plan agreements. The notes payable are personally guaranteed by the stockholder of the Companies. As of December 31, 1995, R&B was indebted to WOFCO for an additional $4,500,000 under a separate note payable. The terms of the note included a requirement that the proceeds of such loan be maintained in an interest-bearing cash account with WOFCO. The loan was repaid at maturity in April 1996. The weighted average interest rate on long-term debt was 8.6% for the ten-month period ended October 31, 1996. F-36 37 The aggregate maturities of long-term debt are as follows:
Years Ending October 31, ------------------------ 1997 $ 2,275,919 1998 2,468,734 1999 2,689,710 2000 2,930,474 2001 3,192,803 Thereafter 8,372,712 ------------ $ 21,930,352 ============
(7) CAPITAL LEASE OBLIGATION: The Companies lease their rental vehicles from Toyota Motor Credit Corp. under capital lease agreements which essentially require the Companies to acquire the rental vehicles after a specified period, generally six months. Accordingly, the capital lease obligation has been reflected as a current liability in the accompanying combined balance sheet. Interest expense from these leases amounted to approximately $185,000 for the ten-month period ended October 31,1996. As of October 31, 1996, the interest rate on the leases was 9%. (8) INCOME TAXES: In the event that the Companies terminate S-Corporation status, deferred income taxes will arise due to the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. Under the provisions of Statement of Financial Accounting No. 109, "Accounting for Income Taxes", recording of these deferred taxes are required in the period that S-Corporation status is terminated. If the Companies' S-Corporation status had terminated on October 31, 1996, the deferred tax asset (related primarily to allowances for chargebacks) as of that date would have been approximately $915,000. (9) COMMITMENT AND CONTINGENCIES: Lease Commitments- The Companies lease a portion of their dealer premises and certain equipment under operating leases. Future minimum lease commitments are as follows:
Years Ending October 31, ------------------------ 1997 $ 315,819 1998 323,138 1999 330,777 2000 292,387 2001 207,985 Thereafter 2,194,363 ----------- $ 3,664,469 ===========
F-37 38 Total expense for these leases amounted to $257,821 for the ten-month period ended October 31, 1996. Advertising Commitments- The Companies have entered into certain contractional agreements which require a minimum amount of advertising expenditures from October 1996 through September 1997. As of October 31, 1996, the Companies remaining commitment amounted to $1,094,000. Self Insurance- The Companies retain a portion of their workers compensation insurance risk through a retrospective rating plan with the Employee Self Insurance Funds of Florida. As of October 31, 1996, reserves of approximately $375,000 have been recorded to cover estimated losses from outstanding and incurred but not reported claims. Although not determinable at the present time, in the opinion of the Companies management, the ultimate resolution of these claims, net of related insurance coverage, will not have a material effect on the combined financial position or results of operations of the Companies. Legal Matters- Certain claims, suits and complaints in the ordinary course of business have been filed or are pending against the Companies. In the opinion of management, all such matters are without merit or are of such kind and involve such amounts that their resolution, net of related insurance coverage, would not have a material effect on the combined financial position or results of operations of the Companies. (10) SUBSEQUENT EVENT: On November 15, 1996, the stockholder of the Companies entered into a Merger Agreement with Republic Industries, Inc. Under the terms of the Merger Agreement, Republic Industries will acquire 100% of the common stock of the Companies. Prior to the closing of this Merger Agreement, the Companies will distribute to the stockholder certain nonautomotive net assets. These net assets consist of the following as of October 31, 1996: Cash and cash equivalents $ 338,842 Keyman life insurance ($6,000,000 face value) 362,027 Land and buildings, net of accumulated depreciation of $406,257, and mortgage debt of $901,282 2,148,176 Yacht 950,000 Other assets 111,342 Due to stockholder (1,046,003) ----------- $ 2,864,384 ===========
The above net assets contributed approximately $300,675 to net income for the ten-month period ended October 31, 1996. F-38 39 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Maroone Automotive Group Pembroke Pines, Florida We have audited the accompanying combined balance sheets of Maroone Automotive Group as of December 31, 1996 and 1995 and the related combined statements of income, owners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Maroone Automotive Group as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Crowe, Chizek and Company LLP Ft. Lauderdale, Florida February 14, 1997 - ------------------------------------------------------------------------------- F-39 40 MAROONE AUTOMOTIVE GROUP COMBINED STATEMENTS OF INCOME Years ended December 31, 1996 and 1995 - --------------------------------------------------------------------------------
1996 1995 ---- ---- REVENUE $ 715,063,853 $ 486,993,709 Cost of revenue 644,039,039 421,351,542 ----------------- ----------------- GROSS PROFIT 71,024,814 65,642,167 Operating expenses 55,741,827 53,794,891 ----------------- ----------------- INCOME BEFORE TAXES 15,282,987 11,847,276 Provision for income taxes 366,429 209,059 ----------------- ----------------- NET INCOME $ 14,916,558 $ 11,638,217 ================= =================
- -------------------------------------------------------------------------------- See accompanying notes to financial statements. F-40 41 MAROONE AUTOMOTIVE GROUP COMBINED BALANCE SHEETS December 31, 1996 and 1995 - -------------------------------------------------------------------------------
1996 1995 ---- ---- ASSETS Current assets Cash and cash equivalents $ 10,336,825 $ 2,554,938 Short-term investments 1,000,463 4,001,383 Receivables, net of allowance for doubtful accounts 18,506,835 14,920,807 Inventories 58,508,330 55,418,310 Rental vehicles, net of accumulated depreciation 2,650,190 2,733,084 Prepaid expenses and other 1,328,882 1,097,699 Receivable and advances - related parties 5,193,189 1,684,219 Due from shareholder 500,000 - ----------------- ----------------- Total current assets 98,024,714 82,410,440 Property and equipment, net 36,790,574 25,300,047 Other assets Intangible assets, net of accumulated amortization 2,744,211 87,711 Due from shareholder 1,197,278 1,204,524 Other assets 1,950,139 1,596,284 ----------------- ----------------- 5,891,628 2,888,519 ----------------- ----------------- $ 140,706,916 $ 110,599,006 ================= ================= LIABILITIES AND OWNERS' EQUITY Current liabilities Checks written in excess of bank balance $ 6,730,648 $ 6,442,793 Notes payable - floorplan 23,132,830 25,732,281 Notes payable 24,400,487 14,178,270 Accounts payable and other accrued expenses 10,238,613 7,236,257 Liability for finance and insurance chargebacks 4,238,051 3,997,957 Unearned income 2,382,257 2,073,717 Due to related parties 3,562,491 1,127,505 Deferred income taxes 191,973 186,598 Due to shareholders 35,435,123 31,090,731 ----------------- ----------------- Total current liabilities 110,312,473 92,066,109 Long-term portion of notes payable 17,071,341 6,824,682 Liability for finance and insurance chargebacks 4,202,430 5,082,212 Unearned income 4,782,682 4,079,476 Deferred income taxes 383,945 373,195 Other liabilities - 274,972 Owners' equity 3,954,045 1,898,360 ----------------- ----------------- $ 140,706,916 $ 110,599,006 ================= =================
- ------------------------------------------------------------------------------- See accompanying notes to financial statements. F-41 42 MAROONE AUTOMOTIVE GROUP COMBINED STATEMENTS OF CASH FLOWS Years ended December 31, 1996 and 1995 - --------------------------------------------------------------------------------
1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 14,916,558 $ 11,638,217 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 1,188,684 1,097,336 Amortization of intangibles 43,500 8,398 (Gain)/loss on disposal of property and equipment 1,774 (1,624) Change in assets and liabilities Short term - investments 3,000,920 (399,999) Receivables (3,586,028) (695,253) Inventories 2,469,269 (9,657,215) Rental vehicles 82,894 (338,486) Due from related parties (3,508,970) (1,584,219) Other current assets (208,530) (144,015) Other assets (141,573) (34,156) Checks in excess of bank balance 287,855 (782,269) Accounts payable and accrued expenses 3,002,356 1,382,794 Due to related party 2,434,986 1,127,505 Liability for finance and insurance chargebacks (639,688) 393,578 Unearned income 1,011,747 1,035,261 Other liabilities 140,402 174,972 Deferred income taxes 16,124 79,235 --------------- ---------------- Net cash from operating activities 20,512,280 3,300,060 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of property and equipment 25,098 13,881 Capital expenditures (12,257,025) (4,900,754) Split dollar life insurance arrangements (212,281) (204,566) Acquisition of dealerships and franchise rights (9,926,949) (50,000) Disposal of franchises 1,195,948 - Due from shareholder (492,754) (1,202,524) --------------- ---------------- Net cash from investing activities (21,667,963) (6,343,963)
- -------------------------------------------------------------------------------- (Continued) F-42 43 MAROONE AUTOMOTIVE GROUP COMBINED STATEMENTS OF CASH FLOWS Years ended December 31, 1996 and 1995 - --------------------------------------------------------------------------------
1996 1995 ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (payments) under floorplan agreements $ (2,599,451) $ 1,425,042 Borrowings on long-term debt 31,114,646 10,080,000 Payments on long-term debt (10,645,770) (6,483,131) Net borrowings from shareholders 4,344,392 12,127,791 Capital contributions 1,441,500 200,000 Dividends (14,717,747) (12,505,903) --------------- ---------------- Net cash from financing activities 8,937,570 4,843,799 --------------- ---------------- Net change in cash 7,781,887 1,799,896 Cash at beginning of year 2,554,938 755,042 --------------- ---------------- CASH AT END OF YEAR $ 10,336,825 $ 2,554,938 =============== ================ Supplemental disclosure of cash flow information Cash paid during the year for interest $ 6,379,379 $ 6,909,531 Income taxes paid during the year 271,405 63,500
- -------------------------------------------------------------------------------- See accompanying notes to financial statements. F-43 44 MAROONE AUTOMOTIVE GROUP COMBINED STATEMENTS OF OWNERS' EQUITY Years ended December 31, 1996 and 1995 - --------------------------------------------------------------------------------
Additional Common Paid-In Retained Partners' Minority Stock Capital Earnings Capital Interest Total ----- ------- -------- ------- -------- ----- BALANCE AT JANUARY 1, 1995... $ 45,001 $ 298,099 $ 2,322,946 $ -- $ -- $ 2,666,046 Capital contributions........ -- -- -- 200,000 (100,000) 100,000 Dividends.................... (2,000) -- (12,503,903) -- -- (12,505,903) Net income for year.......... -- -- 11,761,722 51,467 (174,972) 11,638,217 ------------ ------------ ------------ ------------ ------------ ------------ BALANCE AT DECEMBER 31, 1995 43,001 298,099 1,580,765 251,467 (274,972) 1,898,360 Capital contributions........ -- 100,000 -- 1,341,500 (1,500) 1,440,000 Dividends.................... -- -- (13,883,999) (833,748) 416,874 (14,300,873) Net income for year.......... -- -- 15,372,627 (315,667) (140,402) 14,916,558 ------------ ------------ ------------ ------------ ------------ ------------ BALANCE AT DECEMBER 31, 1996 $ 43,001 $ 398,099 $ 3,069,393 $ 443,552 $ -- $ 3,954,045 ============ ============ ============ ============ ============ ============
- -------------------------------------------------------------------------------- See accompanying notes to financial statements. F-44 45 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS: Maroone Automotive Group (the Group) operates in Pembroke Pines, Miami, Ft. Lauderdale and Pompano Beach, Florida and Buffalo, New York. The Group serves customers principally in the south Florida and metropolitan Buffalo areas. The Group offers a broad range of products and services including new and used car and light truck sales, vehicle financing and warranty products, and replacement parts and service. At its five locations the Group offers collectively five makes of new vehicles, including Chevrolet, Dodge, Ford, Oldsmobile and Isuzu. PRINCIPLES OF COMBINATION: The combined financial statements of Maroone Automotive Group consists of the entities listed below, which represent the financial position and results of operations of the entities to be acquired by Republic Industries, Inc. (Republic) in February 1997. The majority of the entities are owned by members of the Maroone Family. Certain dealership executives also have ownership interest which is to be acquired by Republic. The entities include: Maroone Chevrolet, Inc. Maroone Oldsmobile, Inc. Maroone Isuzu, Inc. Maroone Dodge, Inc. Al Maroone Ford, Inc. Maroone Dodge Pompano, Limited Maroone Chevrolet Ft. Lauderdale, Limited Empire Warranty Holding Company Empire Warranty Corporation Empire Services Agency, Inc. Maroone Car & Truck Rental Company Empire Acceptance, L.P. Quantum Premium Finance Corporation Maroone Realty, Inc. Maroone Management Services, Limited
Empire Acceptance, L.P. had minority interest of 20% and 50% at December 31, 1996 and 1995, respectively, which interest is not subject to the February 1997 acquisition by Republic. Alkit Enterprises, Inc. which leases the facilities to Al Maroone Ford, Inc. has not been included in the combined group because it is not subject to the acquisition by Republic. All significant intercompany transactions have been eliminated in the combined financial statements. MAJOR SUPPLIER AND DEALER AGREEMENTS: The Group purchases substantially all of its new vehicles and replacement parts inventories from General Motors Corporation, Ford Motor Company, American Isuzu Motors and Chrysler Motor Corporation at the prevailing prices charged to all franchised dealers. The Group's overall sales could be impacted by a manufacturer's inability or unwillingness to supply the Group with an adequate supply or mix of inventory. - -------------------------------------------------------------------------------- (Continued) F-45 46 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The Group enters into Dealer Agreements with each manufacturer. The Dealer Agreements limit the location of the dealership and give the manufacturer rights to approve changes in the dealership's ownership. A manufacturer is entitled to terminate the Dealer Agreement if the Group is in breach of its terms. REVENUE RECOGNITION: Revenue from the sale of vehicles is recognized on customer acceptance and completed financing arrangements. Revenue from parts sales and service are recognized on customer service. Revenue from service agreements entered into by the Group and the customer is recorded as deferred revenue upon receipt and recognized as income on a prorated basis over the term of the contract. The Group also sells service contracts on behalf of unrelated entities for which the Group receives a commission. The Group arranges financing with financial institutions for its customers' purchases of new and used vehicles for which the Group earns a fee from the respective financial institution. The fees that the Group earns for arranging financing and selling third party service contracts is subject to chargeback if the customer terminates the respective contract for any reason. The Group records an estimate of the liability for future chargebacks based on management's estimate and historical experience. SHORT-TERM INVESTMENTS: Short-term investments represents certificate of deposits with maturities of one year or less, but greater than 90 days. FLEET TRANSACTIONS: The revenue and cost for fleet sales are reported the same way as other vehicle sales. On the balance sheet, the contract receivable from the purchaser is netted with the floorplan owing to the credit facility. The net balance being reported represents the commission receivable on the sales. INVENTORIES: Inventories are valued at the lower of cost or market. The cost of the new and used vehicle inventories is determined on a last-in first-out basis (LIFO), except for Maroone Dodge Pompano, Limited and Maroone Chevrolet Ft. Lauderdale, Limited which are determined using the first-in first-out (FIFO) basis. All parts and accessories inventories are determined on a first-in first-out (FIFO) basis. INCOME TAXES: An asset and liability approach is used to recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. - -------------------------------------------------------------------------------- (Continued) F-46 47 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The deferred taxes arise from temporary differences in recognition of premium income and the expensing of the acquisition cost. For financial reporting purposes, premium income and acquisition cost are deferred and recognized over the life of the contract. For income tax purposes, 20% of the premium income is recognized in income immediately with the balance deferred, and the acquisition costs are expensed as incurred for tax return purposes. Acquisition costs include commissions paid to the dealerships for originating the contracts and management fees paid per contract. ADVERTISING: The Group expenses production and other costs of advertising as incurred. Advertising expense for the years ended December 31, 1996 and 1995 was $5.2 million and $4.9 million, respectively. CREDIT RISK CONCENTRATION: The Group sells new and used vehicles, service replacement parts and body shop repairs to customers in south Florida and western New York areas. The Group's trade receivables are due primarily from retail customers. In addition, the majority of the vehicle and contracts receivables are due from the manufacturers' financing subsidiaries and financial institutions relating to sales of new and used vehicles, with the balance due from various wholesale customers. Additionally there are receivables and payables to the various manufacturers. The Group has cash deposited in various local banks. The first $100,000 of the deposits for each individual company are insured by an agency of the U.S. Government. PROPERTY AND EQUIPMENT: Property and equipment is stated at cost less accumulated depreciation. Expenditures for maintenance, repairs and minor renewals are charged to expense in the period incurred. Betterments and additions are capitalized. Depreciation is provided by the straight-line and accelerated methods over the estimated useful lives of the assets. INTANGIBLE ASSETS: The goodwill of Companies acquired is being amortized on a straight-line basis over a period not to exceed 40 years. Recoverability is reviewed annually or sooner if events or changes in circumstances indicate that the carrying amount may exceed fair value. Loan costs are amortized over the life of the loan. - -------------------------------------------------------------------------------- (Continued) F-47 48 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: Preparing financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements. FAIR VALUES OF FINANCIAL INSTRUMENTS: The fair value of cash equivalents, receivables and trade payables approximates the carrying value. The fair value of floorplan debt, shareholder note payable and other debt approximates the carrying amount as these instruments bear market interest rates. At December 31, 1996, the fair value of the interest rate swaps represented a benefit to the Group of approximately $76,000. INTEREST RATE SWAP AGREEMENTS: The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreement. STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, cash includes cash and short-term investments with original maturities of 90 days or less. NOTE 2 - REVENUE AND COST OF REVENUE For the years ended December 31, 1996 and 1995 the revenue and cost of revenue consisted of the following:
Revenue 1996 1995 - -------- ---- ---- Fleet $ 283,625,609 $ 105,188,472 Automotive retail 431,438,244 381,805,237 Cost of Revenue - --------------- Fleet $ 281,601,214 $ 104,102,172 Automotive retail 362,437,825 317,249,370
- -------------------------------------------------------------------------------- (Continued) F-48 49 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 3 - INCOME TAXES SUB CHAPTER S CORPORATIONS The following entities are treated for income tax purposes as S Corporations. Accordingly, the accompanying financial statements reflect no provision for income taxes for these entities since the taxable income or loss of the entities are reported by the shareholders, individually: Maroone Chevrolet, Inc. Maroone Oldsmobile, Inc. Maroone Isuzu, Inc. Maroone Dodge, Inc. Al Maroone Ford, Inc. Maroone Car & Truck Rental Company Quantum Premium Finance Corporation. Empire Services Agency, Inc.
LIMITED PARTNERSHIPS The following entities are organized as limited partnerships. Accordingly the accompanying financial statements reflect no provision for income taxes for these entities since the taxable income or loss of the entities are reported by the partners, individually: Maroone Management Services, Limited Maroone Dodge Pompano, Limited Maroone Chevrolet Ft. Lauderdale, Limited Empire Acceptance, L.P.
TAXABLE CORPORATION The provision for income taxes consist of the following for the years ended December 31, 1996 and 1995:
1996 1995 ---- ---- Current federal income taxes $ 284,305 $ 125,574 Deferred federal income taxes 16,124 79,235 ------------ ------------ 300,429 204,809 State income taxes 66,000 4,250 ------------ ------------ Total $ 366,429 $ 209,059 ============ ============
The detail to the deferred tax balances as of December 31, 1996 and December 31, 1995 is as follows:
1996 1995 ---- ---- Deferred tax liability $ 575,918 $ 559,793
- -------------------------------------------------------------------------------- (Continued) F-49 50 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 3 - INCOME TAXES (Continued) The provision for income taxes at the Group's effective tax rate of 34% differed from the provision for income taxes at the statutory rate as follows:
1996 1995 ---- ---- Computed tax at the expected statutory rate $ 5,196,216 $ 4,028,074 S-corporation and partnership not subject to entity level tax (4,875,103) (3,815,560) State taxes, net of federal effect 43,560 2,805 Other, net 1,756 (6,260) --------------- --------------- Provision for income taxes $ 366,429 $ 209,059 =============== ==============
NOTE 4 - RECEIVABLES Receivables consist of the following:
1996 1995 ---- ---- Trade receivables $ 1,431,027 $ 1,029,492 Contract in transit and vehicle receivables 12,980,081 10,541,942 Factory receivables and others 4,140,727 3,399,373 --------------- --------------- 18,551,835 14,970,807 Less: allowance for doubtful accounts (45,000) (50,000) --------------- --------------- $ 18,506,835 $ 14,920,807 =============== ===============
NOTE 5 - INVENTORIES Inventories consist of the following:
1996 1995 ---- ---- New vehicles $ 45,727,117 $ 46,933,155 Used vehicles 10,119,773 5,916,661 Parts, accessories and miscellaneous 2,661,440 2,568,494 --------------- --------------- $ 58,508,330 $ 55,418,310 =============== ===============
At December 31, 1996, $10.2 million of new vehicles and $2.7 million of used vehicles are valued on a FIFO basis. The remaining December 31, 1996 new and used vehicle inventories were valued on a LIFO basis. All of the December 31, 1995 new and used vehicle inventories were valued on a LIFO basis. The LIFO reserve at December 31, 1996 and 1995 was $9.3 million and $9.1 million, respectively. - -------------------------------------------------------------------------------- (Continued) F-50 51 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 6 - PROPERTY AND EQUIPMENT Property and equipment consists of the following:
1996 1995 ---- ---- Land $ 16,479,368 $ 11,301,738 Buildings and improvements 13,767,282 12,856,005 Construction in progress 5,332,459 110,956 Leasehold improvements 923,037 1,030,125 Equipment and vehicles 2,928,882 2,254,470 Furniture and fixtures 3,834,145 3,089,722 --------------- --------------- 43,295,173 30,643,016 Less: accumulated depreciation and amortization 6,504,599 5,342,969 --------------- --------------- $ 36,790,574 $ 25,300,047 =============== ===============
The construction in progress represents the substantial completion of the Pines Boulevard facility. NOTE 7 - RECEIVABLES FROM AFFILIATES AND SHAREHOLDERS Due from shareholders at December 31, 1996 and 1995 consists of unsecured advances made during 1996 and 1995 due from shareholders. The Group anticipates repayment of these advances during 1997 but has recorded the 1995 advances as long term at December 31, 1996. Due from affiliates includes approximately $4.0 and $1.6 million at December 31, 1996 and 1995 respectively, due from the general partner of Empire Acceptance, L.P. and are the results of purchase of finance contracts by the general partner through the normal course of operations. Approximately $20 million of contracts were sold by Empire Acceptance, L.P. in 1996 and approximately $10 million in 1995. In addition, at December 31, 1996, Alkit Enterprises, Inc. owed the Group approximately $1.1 million for funds advanced during 1996 for the remodeling of the Al Maroone Ford facilities. Alkit plans to repay these funds in 1997 when permanent financing for the improvements is obtained. - -------------------------------------------------------------------------------- (Continued) F-51 52 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 8 - INTANGIBLE ASSETS Intangible assets included the following:
1996 1995 ---- ---- Goodwill and franchise rights $ 2,750,000 $ 50,000 Mortgage costs and other intangibles 64,109 64,109 -------------- ------------ 2,814,109 114,109 Less: accumulated amortization 69,898 26,398 -------------- ------------ $ 2,744,211 $ 87,711 ============== ============
NOTE 9 - OTHER ASSETS Other assets consists of the following:
1996 1995 ---- ---- Amounts due under split dollar life insurance arrangements $ 1,408,478 $ 1,196,197 Deposits 500,000 400,000 Other 41,661 87 --------------- -------------- $ 1,950,139 $ 1,596,284 =============== ==============
NOTE 10 - NOTES PAYABLE - FLOORPLAN At December 31, 1996 the Group had floorplan financing agreements with Ford Motor Credit Corporation bearing interest at 1% over prime, secured by new and used vehicle inventories. Ford Motor Credit allows the Group to invest available cash against the floor plan in a Cash Management Account (CMA) arrangement with Ford Motor Credit Corporation. The cash invested in and the earnings on the CMA account is reflected as a reduction of the floorplan liability and interest expense in the Group financial statements. At December 31, 1996 and 1995 the CMA amounts shown as offsets to the floorplan liability were $44,110,000 and $42,265,000, respectively. Prior to the current floorplan agreements with Ford Motor Credit, the Group had floorplan agreements with General Motors Acceptance Corporation and Chrysler Credit Corporation. - -------------------------------------------------------------------------------- (Continued) F-52 53 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 10 - NOTES PAYABLE - FLOORPLAN (Continued) The Group also has financing arrangements with General Motors Acceptance and Chrysler Credit relating to daily rental vehicles. The loans are secured by the rental vehicles and bear interest at .75% to 1% of prime and require monthly principal payments of 1.75% to 3% of the original amount. NOTE 11 - NOTES PAYABLE Notes payable consist of the following at December 31, 1996 and 1995;
1996 1995 ---- ---- $5 million line of credit arrangement with First Union National Bank of Florida requiring payment of interest monthly at .5% over the bank's prime rate. The loan is guaranteed by the shareholder. The loan agreement contains certain covenants. $ 1,300,000 $1,000,000 Unsecured notes payable to NationsBank, due on demand with interest due monthly at 9.25%. 3,200,000 3,200,000 $13 million mortgage loan payable to First Union National Bank of Florida in monthly installment of $54,167 plus interest at 1.9% above the Bank of America LIBOR rate. The loan is secured by the Maroone Auto Plaza property in Pembroke Pines, Florida and is guaranteed by Maroone Isuzu, Inc. and Maroone Oldsmobile, Inc. and is subject to restrictive covenants. The mortgage matures on March 15, 2001. 12,512,500 -- Mortgage loan payable to General Motors Acceptance Corporation in monthly installments of $15,000 plus interest at prime plus 1%, with a balloon payment due on December 28, 1998. The loan is secured by the Maroone Dodge, Inc. facilities. 2,446,667 2,626,667
- -------------------------------------------------------------------------------- (Continued) F-53 54 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 11 - NOTES PAYABLE (Continued)
1996 1995 ---- ---- $5 million line of credit arrangement with First Union Mortgage loan payable to General Motors Acceptance Corporation in monthly installments of $129,928 including interest at 1% over prime rate, with the balance due on February 1, 1996. The loan is secured by the Pembroke Pines auto plaza facilities and all real and personal assets of Maroone Chevrolet, Inc. The interest rate was reduced by .25% due to Maroone Chevrolet's participation in the GMAC Quality Finance Plan. $ -- $ 9,546,950 $30 million revolving line of credit agreement with Ford Motor Credit Company with interest payable monthly at 1.75% above the commercial paper rate. Principal amortization begins the day on which either party terminates the agreement, with payments due monthly on a five year amortization schedule. The balance of the loan is due two years from the date the agreement is terminated. The loan is secured by all tangible and intangible property of the borrowers which are Maroone Management Services, Limited, Maroone Chevrolet, Inc., Maroone Oldsmobile, Inc., Maroone Dodge, Inc, Maroone Chevrolet Ft. Lauderdale, Limited, and Maroone Dodge Pompano, Limited. The loan agreement contains certain restrictive covenants. 17,000,000 -- Mortgage loan payable to First Union National Bank of Florida in 39 quarterly installments of $122,500 commencing on March 10, 1997, plus interest at 1.75% above the USD-LIBOR-BBA rate. The loan matures and is due in full on December 8, 2006. The loan is secured by tracts of real estate located in Broward and Dade Counties Florida and is guaranteed by Maroone Isuzu, Inc. and Maroone Oldsmobile, Inc. and is subject to restrictive covenants. The borrower is Maroone Management Services, Limited. 4,900,000 4,107,780
- -------------------------------------------------------------------------------- (Continued) F-54 55 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 11 - NOTES PAYABLE (Continued)
1996 1995 ---- ---- Other notes payable and capital lease arrangements relating to various computer and office equipment. $ 112,661 $ 521,555 ---------------- --------------- 41,471,828 21,002,952 Current maturities 24,400,487 14,178,270 ---------------- --------------- $ 17,071,341 $ 6,824,682 ================ ===============
Before considering covenant violations, notes payable are scheduled to become due over the next five years as follows: 1997 $ 5,861,320 1998 3,470,413 1999 1,147,595 2000 1,140,000 2001 10,402,500 The loan agreements with Ford Motor Credit Company, First Union National Bank and General Motors Acceptance Corporation contain covenants which include restrictions on merger transactions and ownership changes; and minimum requirements for the floor plan cash management balance and net worth levels and restrictions on the entering into other loan arrangements or guaranteeing the debt of the companies or persons. At December 31, 1996 the Group was in violation of certain of these covenants with General Motors Acceptance Corporation and First Union National Bank and the balance of these loans are reflected in current maturities. At December 31, 1996 the Group had an unused line of credit with First Union Bank of $3.7 million. In addition First Union held approximately $800,000 of standby letters of credits relating to the Group's workers compensation plan. Interest expense on all indebtedness amounted to $6.7 million and $7.0 million for the years ended December 31, 1996 and 1995 respectively. Interest credits of $3.3 million and $3.5 million received from the manufacturers in 1996 and 1995, respectively have been shown as a reduction in the cost of revenue. Interest capitalized during 1996 and 1995 was $647,995 and $12,653, respectively. - -------------------------------------------------------------------------------- (Continued) F-55 56 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 12 - NOTES PAYABLE TO SHAREHOLDERS Notes payable shareholders represent amounts due to Group shareholders. The average balance outstanding was approximately $34 million and $21 million during 1996 and 1995, respectively. The highest balance outstanding was approximately $36 million in 1996 and $31 million in 1995. Interest is paid on the notes at 1% over major bank prime. Total interest paid to the shareholders was $2,614,210 and $2,091,458 for 1996 and 1995, respectively. NOTE 13 - INTEREST RATE SWAP AGREEMENTS Maroone Chevrolet, Inc. has entered into a interest rate swap agreement to reduce the impact of changes in interest rates on its long-term debt. At December 31, 1996, the swap agreement with First Union National Bank had a notional principal of approximately $12.5 million. This agreement effectively changes the Group's interest rate exposure on its $12.5 million mortgage to a fixed 7.76%. The interest swap agreement matures on March 15, 2001. Maroone Management Services, Limited. has entered into a interest rate swap agreement to reduce the impact of changes in interest rates on its long-term debt. At December 31, 1996, the swap agreement with First Union National Bank had a notional principal of approximately $2.45 million. This agreement effectively changes the Group's interest rate exposure on $2.45 million of the $4.9 million mortgage to a fixed 8.25%. The interest swap agreement matures on December 8, 2006. NOTE 14 - COMMON STOCK At December 31, 1996 and 1995 the Common Stock consisted of:
Par Value Shares of Common Shares Issued and Shares Authorized Outstanding Amount ------ ---------- ----------- ------ Maroone Chevrolet, Inc. $ 1.00 7,500 100 $ 100 Maroone Oldsmobile, Inc. 1.00 1,000 100 100 Maroone Isuzu, Inc. .01 1,000 100 1 Maroone Dodge, Inc. .01 500,000 240,000 2,400 Al Maroone Ford, Inc. No Par 200 200 40,000 Empire Warranty Holding Company. 1.00 1,000 100 100 Empire Services Agency, Inc. 1.00 1,000 100 100 Maroone Car & Truck Rental Company 1.00 1,000 100 100 Quantum Premium Finance Corporation 1.00 1,000 100 100 --------- $ 43,001 =========
- -------------------------------------------------------------------------------- (Continued) F-56 57 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 15 - PROFIT SHARING PLAN All of the Maroone Automotive Group's corporations and partnerships have adopted the Maroone Group 401(k) Plan. The plan covers all non-highly compensated employees over the age of 21 with one year experience and at least one thousand hours worked in the current year. The Group annually sets matching contributions. The profit sharing plan expense was $44,139 and $15,793 for 1996 and 1995, respectively. NOTE 16 - LEASE COMMITMENTS On August 1, 1996, Maroone Dodge Pompano, Limited assumed a contract with Chrysler Realty Corporation to lease the dealership facilities through October 21, 1997. The lease calls for monthly payment of $16,250, plus taxes and insurance, through September 30, 1997 with a final payment of $11,008. Maroone Chevrolet Ft. Lauderdale, Limited leases its dealership facilities under a ten year lease agreement dated November 1, 1996. The lease is a triple net lease and provides monthly rent of $45,000 for the first thirty months and then increasing proportionately with increases in the appraised value of the dealership facilities. The lease provides for three five year renewal options. The minimum rental commitments under these operating leases are as follows: 1997 $ 697,258 1998 540,000 1999 540,000 2000 540,000 2001 540,000 2002 and thereafter 2,610,000 --------------- $ 5,467,258 =============== Total rent expense under the lease agreements was $171,250 for the year ended December 31, 1996. - -------------------------------------------------------------------------------- (Continued) F-57 58 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 17 - RELATED PARTY TRANSACTIONS The Group leases the Al Maroone Ford facilities from Alkit Enterprises, Inc. which is owned by shareholders of the Group. The Group intends to continue rent this facility for the next four years. The minimum rent is as follows: 1997 $ 288,000 1998 288,000 1999 288,000 2000 288,000 --------------- $ 1,152,000 =============== The rent expense under this lease arrangement was $288,000 and $270,000 for the years ended December 31, 1996 and 1995 respectively. NOTE 18 - ACQUISITIONS On August 1, 1996 the Group acquired the Dodge franchise and certain assets from Harbor Corp., Inc. The cost of the acquisition, which has been treated as a purchase, was allocated as follows: Goodwill $ 750,000 Inventory 2,978,584 Fixed assets 233,854 Other current assets 22,653 The goodwill will be amortized on a straight-line basis over 40 years. The results of operations for the period of August 1, 1996 through December 31, 1996 are included in the financial statements. In addition the Group acquired the Chevrolet franchise and certain assets from Gary Fronrath Chevrolet, Inc. on November 1, 1996. The cost of the acquisition, which has been treated as a purchase, was allocated as follows: Goodwill $ 1,500,000 Inventory 3,776,653 Fixed assets 215,205 The goodwill will be amortized on a straight-line basis over 40 years. The results of operations for the period of November 1, 1996 through December 31, 1996 are included in the financial statements. - -------------------------------------------------------------------------------- (Continued) F-58 59 MAROONE AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 19 - SUBSEQUENT EVENTS MERGER AGREEMENT On January 12, 1997, the Maroone Automotive Group corporations, partnerships, shareholders and partners entered into a merger agreement with Republic Industries, Inc. and its subsidiaries. LOAN COVENANTS The loan agreements with Ford Motor Credit Corporation, General Motors Acceptance Corporation and First Union National Bank contain restrictive covenants restricting merger transactions and the change in ownership of the companies away from the Maroone Family. The financial institutions had not waived these covenants as they relate to the merger agreement discussed above. A violation of these covenants could result in a default of the loan agreements. TERMINATION OF RETAILER AGREEMENT On January 13, 1997 Maroone Isuzu, Inc. and related affiliates terminated a Retailer Agreement dated October 31, 1996 with Driver's Mart Worldwide, Inc. The termination agreement included the redemption of Maroone Isuzu, Inc. stock holding in Driver's Mart Worldwide, Inc. by Driver's Mart. - -------------------------------------------------------------------------------- F-59 60 INDEPENDENT AUDITOR'S REPORT Shareholder The Wallace Companies Delray Beach, Florida We have audited the accompanying combined balance sheet of The Wallace Companies as of December 31, 1996, and the related combined statements of income, of retained earnings and of cash flows for the year then ended. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of The Wallace Companies as of December 31, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Goldenberg Rosenthal Friedlander, LLP Jenkintown, Pennsylvania February 17, 1997 F-60 61 THE WALLACE COMPANIES COMBINED BALANCE SHEET DECEMBER 31, 1996
ASSETS (Notes 7 and 13) Current assets Cash (Note 1) $ 6,625,000 Marketable securities (Note 4) 726,000 Accounts receivable, net of allowance for doubtful accounts of $116,000 (Notes 1 and 2) 7,483,000 Inventories (Notes 1 and 5) 39,076,000 Aviation equipment held for sale, net (Note 1) 2,930,000 Due from shareholder (Notes 1 and 3) 5,334,000 Prepaid expenses 533,000 ------------- Total current assets 62,707,000 ------------- Property and equipment (Notes 1 and 12) Land 16,544,000 Building and improvements 14,461,000 Machinery and equipment 2,254,000 Furniture, signs and equipment 3,272,000 Construction in Progress 559,000 ------------- 37,090,000 Less accumulated depreciation 7,282,000 ------------- 29,808,000 ------------- Other assets Intangibles (Notes 1 and 6) 7,806,000 Other 376,000 ------------- 8,182,000 ------------- $ 100,697,000 =============
See notes to combined financial statements F-61 62 THE WALLACE COMPANIES COMBINED BALANCE SHEET DECEMBER 31, 1996
LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities Notes payable (Notes 1 and 7) $ 50,593,000 Notes and loans payable, related parties (Notes 1 and 7) 1,802,000 Current maturities of long-term debt (Notes 1 and 7) 3,744,000 Accounts payable, trade (Note 1) 2,206,000 Accrued expenses 2,435,000 Finance and receivable chargeback reserve 1,426,000 Current portion of unearned premium reserve (Note 1) 1,796,000 ------------- Total current liabilities 64,002,000 ------------- Long-term debt, net of current maturities (Notes 1 and 7) 25,622,000 ------------- Unearned premium reserve, net of current portion (Note 1) 2,350,000 ------------- Deferred income taxes (Note 9) 474,000 ------------- Contingencies (Note 14) Shareholder's equity Common stock (Note 8) 32,000 Additional paid-in capital 4,259,000 Retained earnings 3,958,000 ------------- 8,249,000 ------------- $ 100,697,000 =============
See notes to combined financial statements F-62 63 THE WALLACE COMPANIES COMBINED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1996 Sales (Note 1) Vehicle $ 258,585,000 Service, parts and other 23,678,000 ------------- Net sales 282,263,000 ------------- Cost of sales (Notes 1 and 5) Vehicle 240,203,000 Service, parts and other 12,607,000 ------------- Cost of sales 252,810,000 ------------- Gross profit on sales 29,453,000 Other operating income (Note 11) 4,749,000 ------------- Gross operating income 34,202,000 Selling, general and administrative expenses (Notes 1, 2, 6 and 11) 29,812,000 ------------- Operating income 4,390,000 ------------- Other income (expense) Interest expense (Note 11) (2,467,000) Investment income, net (Note 4) 230,000 Gain on disposal of property and equipment 739,000 Miscellaneous 661,000 ------------- Total other income (expense) (837,000) ------------- Income before income taxes 3,553,000 ------------- Income taxes (Note 9) Current -- Deferred 110,000 ------------- 110,000 ------------- Net income $ 3,443,000 =============
See notes to combined financial statements F-63 64 THE WALLACE COMPANIES COMBINED STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1996 Retained earnings, beginning of year $ 1,635,000 Net income 3,443,000 Dividends paid (1,120,000) ------------- Retained earnings, end of year $ 3,958,000 =============
See notes to combined financial statements F-64 65 THE WALLACE COMPANIES COMBINED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 Cash flows from operating activities Cash received from customers $ 298,140,000 Cash paid to suppliers and employees (277,433,000) Interest received (Note 1) 237,000 Interest paid (Note 1) (4,293,000) Income taxes paid (239,000) ------------- Net cash provided by operating activities 16,412,000 ------------- Cash flows from investing activities Capital expenditures (3,966,000) Proceeds from disposal of property and equipment 1,918,000 Net advances to shareholder (4,909,000) Acquisition of marketable securities (46,000) Increase in other assets (100,000) ------------- Net cash used in investing activities (7,103,000) ------------- Cash flows from financing activities Net payments on short-term debt (5,700,000) Proceeds from long-term debt 2,475,000 Principal payments on long-term debt (697,000) Net borrowings from related parties 70,000 Dividends paid (1,120,000) ------------- Net cash used in financing activities (4,972,000) ------------- Net increase in cash 4,337,000 Cash, beginning of year 2,288,000 ------------- Cash, end of year $ 6,625,000 =============
See notes to combined financial statements F-65 66 THE WALLACE COMPANIES COMBINED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 Reconciliation of net income to net cash provided by operating activities Net income $ 3,443,000 ------------- Adjustment to reconcile net income to net cash provided by operating activities Depreciation 1,663,000 Amortization 247,000 Bad debt recoveries (59,000) Gain on disposal of property and equipment (739,000) Unrealized loss on marketable securities (Note 4) 11,000 Deferred income taxes 110,000 (Increase) decrease in assets Accounts receivable 1,205,000 Inventories 9,823,000 Prepaid expenses (445,000) Other assets 5,000 Increase (decrease) in liabilities Accounts payable and accrued expenses 540,000 Unearned premium reserve 847,000 Income taxes payable (239,000) ------------- 12,969,000 ------------- Net cash provided by operating activities $ 16,412,000 =============
See notes to combined financial statements F-66 67 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS The Wallace Companies ("the Company") is engaged in the sale of new and used motor vehicles, finance and insurance products, vehicle service and parts, limited extended warranty contracts and after-market products. The Company also maintains a fleet of vehicles held for rental to others. The principal geographic markets served are South Florida including Palm Beach and Martin Counties. Revenues are derived primarily from sales of vehicles. The Company's new vehicle brand offering consists of Ford, Nissan, Dodge, Lincoln-Mercury and Mitsubishi, which products are purchased under franchise and dealer agreements with the respective vehicle manufacturers and distributors. PRINCIPLES OF COMBINATION The accompanying combined financial statements include Wallace Ford, Inc., Wallace Nissan, Inc., Wallace Dodge, Inc., Wallace Imports, Inc., Wallace Lincoln-Mercury, Inc., Stuart Lincoln-Mercury, Inc. and Bill Wallace Enterprises, Inc. d/b/a Stuart Mitsubishi (all subchapter S corporations) and Mechanical Warranty Protection, Inc., all affiliated through common ownership by a sole shareholder. All significant intercompany accounts and transactions have been eliminated in combination. CONCENTRATION OF CREDIT RISK The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and trade accounts receivable. The Company places its cash and temporary cash investments with commercial institutions. At times, such cash and temporary cash investments may be in excess of the FDIC insurance limit. The Company routinely assesses the financial strength of its customers and as a consequence, believes that its trade accounts receivable credit risk exposure is limited. INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined as follows: new vehicles - last-in, first-out (LIFO); used vehicles - specific identification; parts, accessories and oil - first-in, first-out (FIFO); vehicles held for rental are carried at specifically identified cost, net of accumulated amortization (straight-line method). F-67 68 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) REVENUE RECOGNITION Revenue is recognized by the Company when vehicles are delivered to consumers or motor vehicle service work is performed and parts are delivered. Finance fees earned in connection with customer vehicle financing is recognized upon the acceptance of the contract by the financial institution. Commissions received from the sale of extended warranty contracts, service contracts and insurance on credit life, accident and disability policies in connection with the vehicle sale are recognized upon customer execution of the related contracts. Generally, the Company is subject to a chargeback of a portion of the commission or fee received in the event that the contracts are prematurely canceled. An allowance for chargebacks against revenue recognized from such activities is established during the period in which the related revenue is recognized. Premiums on the sale of limited extended warranties are deferred and recognized on a pro rata basis over the terms of the policies. PROPERTY AND EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost. Expenditures for maintenance, repairs and renewals of a minor nature are charged against earnings as incurred. Major renewals and betterments are capitalized. Depreciation is provided principally by accelerated methods over the estimated useful lives of the related assets. AVIATION EQUIPMENT HELD FOR SALE AND DEPRECIATION Aviation equipment held for sale is stated at cost. Depreciation is provided on the straight-line method over the twelve year estimated useful life of the asset. AMORTIZATION Goodwill is amortized on the straight-line method over forty years. Loan acquisition costs are amortized on the straight-line method over the term of the loan. Organization costs are amortized on the straight-line method over five years. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-68 69 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ADVERTISING The Company expenses production and other costs of advertising as incurred. Advertising expense amounted to $4,452,000 for the year ended December 31, 1996. MAJOR SUPPLIERS AND FRANCHISE AGREEMENTS The Company purchases substantially all of their new vehicles and parts inventories from various automobile manufacturers with whom the Company holds franchise agreements. The franchise agreements provide the Company with certain rights and restrictions such as location of the dealership, and approval rights over changes in management and ownership. The ability of the manufacturers to influence the operations of the dealership and to supply the dealership with an adequate supply of popular models could have a significant effect on operating results of the Company. The ability to add additional locations depends, in part, on obtaining consents of the manufacturers to acquire additional dealerships. ENVIRONMENTAL LIABILITIES Environmental liabilities are charged to operations when it is probable that a liability has been incurred and the amount of the liability can reasonably be estimated. Accrued liabilities are not reduced by claims against third parties and are not discounted. No accrued liabilities have been recorded as of December 31, 1996. LONG-LIVED ASSETS Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS No. 121") requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable. SFAS No. 121 was adopted in 1996 and did not have a material effect on the Company's results of operations, cash flows or financial position. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash equivalents, receivables, payables and short- and long-term borrowing approximate fair value due either to length of maturity or existence of variable interest rates that approximate prevailing market rates. EARNINGS PER SHARE Historical earnings per share is not presented, as the historical capital structure prior to the merger is not comparable to the capital structure that will exist subsequent to the merger (Note 13). F-69 70 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 2. ACCOUNTS RECEIVABLE Accounts receivable consists of the following: Contracts-in-transit $3,789,000 Trade, other 1,152,000 Due from manufacturers 2,350,000 Due from finance companies 157,000 Due from related party 56,000 Recoverable income taxes 51,000 Other 44,000 ----------- 7,599,000 Less allowance for doubtful accounts (116,000) ----------- $7,483,000 ===========
3. DUE FROM SHAREHOLDER The amount due from shareholder is comprised of the following: An unsecured advance due on demand; interest is accrued at 5.89% for 1996 which approximates the Internal Revenue Service annual blended federal rate $ 4,880,000 Unsecured notes receivable resulting from the sale of wholly-owned subsidiaries in the amount of $44,000 and $410,000, including interest at 9.0% and 7.5% per annum, respectively 454,000 ----------- $ 5,334,000 ===========
Upon the completion of the merger, the above amounts will be repaid in full (Note 13). 4. MARKETABLE SECURITIES The Company has adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). The Company's investments are comprised of mutual funds which are classified as trading securities as of December 31, 1996, and, accordingly, net unrealized holding losses of $11,000 were included in net earnings for 1996. In accordance with SFAS No. 115, these investments are carried at fair value, which is based on quoted market prices. Marketable securities as of December 31, 1996 were as follows:
Cost Fair Value ------------ ------------ Mutual fund $ 770,000 $ 726,000 ============ ============
F-70 71 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 5. INVENTORIES New vehicles $ 35,694,000 Used vehicles 4,141,000 Vehicles held for rental to others, net 4,244,000 Other 1,588,000 ------------ 45,667,000 LIFO reserve (6,591,000) ------------ $ 39,076,000 ============ The LIFO provision was $253,000 for the year ended December 31, 1996. Cost of sales would have been lower by this amount if a non-LIFO method had been used. Accumulated amortization of vehicles held for rental to others was $509,000 as of December 31, 1996. 6. INTANGIBLE ASSETS Intangible assets as of December 31, 1996 consist of the following: Goodwill, net of accumulated amortization of $482,000 $ 7,640,000 Loan acquisition costs, net of accumulated amortization of $61,000 138,000 Organization costs, net of accumulated amortization of $18,000 28,000 ------------ $ 7,806,000 ============
7. DEBT Collateralized by vehicle inventories, interest ranging from prime rate plus 1%, to prime rate plus 1.75% (prime rate as of December 31, 1996 was 8.25%) $ 46,374,000 Collateralized by lease and rental vehicles, interest rate as of December 31, 1996 ranged from 8.25% to 9.75% 4,219,000 ------------ Balance, carried forward 50,593,000
F-71 72 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 7. DEBT (continued) Balance, brought forward 50,593,000 Line-of-credit with Ford Motor Credit Company, amounting to $2,400,000, collateralized by substantially all Company assets; interest only payable monthly at 1.25% over the prime rate (prime was 8.25% as of December 31, 1996); commencing on the date either the borrower or lender amends or terminates the agreement, the amount outstanding shall be paid in 23 equal monthly installments of principal in an amount calculated to amortize the then outstanding balance over a period of 60 months, plus interest with a final installment which shall include the unpaid balance. As of December 31, 1996, Ford Motor Credit Company has indicated that it has no intention of withdrawing the credit line 1,000,000 Note payable to Ford Motor Credit Company, due in monthly installments of $208,000 including interest at 3% above the commercial paper rate (the commercial paper rate was 5.25% as of December 31, 1996) but not to exceed 13.49%; collateralized by substantially all the assets of the Company guaranteed by the sole shareholder and the spouse of the sole shareholder, Wallace Imports, Inc. and Mechanical Warranty Protection, Inc.; due December, 2000; upon the debt being paid down below $19,100,000, the interest rate shall be 2.75% above the commercial paper rate not to exceed 13.24% 20,167,000 Note payable to Ford Motor Credit Company, due in monthly installments of $47,000 including interest at 3% above the commercial paper rate (the commercial paper rate was 5.25% as of December 31, 1996) but not to exceed 13.49%; collateralized by substantially all the assets of the Company guaranteed by the sole shareholder and the spouse of the sole shareholder, Wallace Imports, Inc. and Mechanical Warranty Protection, Inc.; due December, 2000 4,521,000 Note payable, bank, due in equal monthly installments of $1,802 plus interest at prime; collateralized by equipment; due July, 1998 34,000 Note payable to individual, due in monthly installments of $50,000; due April, 1997; total amount due as of December 31, 1996 is $200,000; noninterest bearing, interest at 9.5% per annum imputed for financial statement purposes, unsecured 196,000 ------------ Balance, carried forward 76,511,000
F-72 73 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 7. DEBT (continued) Balance, brought forward 76,511,000 Capital lease payable for computer system, payable to leasing company; due in equal monthly lease payments of $5,000 including interest at an imputed rate of 10.5% per annum through December, 1999 (Note 12) 147,000 Capital lease payable for property; the terms of the lease require a payment of $7,500 per month including interest at an imputed rate of 9.274% per annum through May, 1998; lessor has the right at anytime during the term of the lease to give notice to the Company and the Company must purchase the property for $875,000 or the lease is terminated; at the end of the lease term, the Company has the option to purchase the property for $900,000 881,000 Individual notes payable to a trust of the Wallace family and a key employee of the Company, unsecured and due on demand; interest ranging from 9.00% to 9.25% per annum payable annually; principal and interest due upon the effective date of the merger (Note 13) 137,000 Individual notes to various members of the Wallace family and a trust of the Wallace family, unsecured; interest only ranging from 7.00% to 7.50% payable annually; principal and interest due upon the effective date of the merger (Note 13) 695,000 Note payable to a trust of the Wallace family, unsecured, interest only at 7.75%; principal and interest due upon the effective date of the merger (Note 13) 970,000 Note payable, G.E. Capital Corporation, payable in monthly installments of $30,000 including interest at 2.6% above the commercial paper rate; collateralized by aviation equipment; note to be assumed upon the effective date of the merger (Note 13) 2,420,000 ------------ 81,761,000 Less, debt payable within one year: Floor plan notes payable (50,593,000) Notes payable related parties (1,802,000) Current portion of long-term debt and capital lease obligations (3,744,000) ------------ $ 25,622,000 ============
F-73 74 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 7. DEBT (continued) The Company leases its computer system and property adjacent to Wallace Lincoln-Mercury, Inc. from third parties under capitalized lease agreements. Future minimum lease payments under capital leases and principal maturities of long-term debt are as follows:
Capital Long-Term Leases Debt Total ----------- ----------- ------------ Year Ending December 31 ----------------------- 1997 $ 149,000 $ 3,690,000 $ 3,839,000 1998 972,000 1,155,000 2,127,000 1999 54,000 1,242,000 1,296,000 2000 - 21,251,000 21,251,000 2001 - - - Thereafter - 1,000,000 1,000,000 ----------- ----------- ------------ Total minimum lease payments and principal maturities of long-term debt 1,175,000 28,338,000 29,513,000 Less, amount representing interest (147,000) - (147,000) Less, current maturities (54,000) (3,690,000) (3,744,000) ----------- ----------- ------------ $ 974,000 $24,648,000 $ 25,622,000 =========== =========== ============
Floor plan notes are due generally upon sale of the related vehicle. New vehicles collateralizing floor plan notes of approximately $6,083,000 were sold prior to December 31, 1996. The notes were subsequently paid in January, 1997. In addition, during the first week of January, 1997, the Company paid $3,783,000 of floor plan notes collateralized by used vehicles. The floor plan agreements permit the Company to borrow up to $48,900,000 as of December 31, 1996, restricted by new and used vehicle levels. In the normal course of business, Ford Motor Credit Company has allowed the Company to exceed the available credit limits. As of December 31, 1996, Ford Motor Credit Company indicated that it has no intention of calling the credit facilities due to the floor plan liabilities exceeding the stated credit limit. The weighted average interest rate on short-term borrowings was 9.27% as of December 31, 1996. F-74 75 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 8. COMMON STOCK
Par Authorized Issued Outstanding Value Shares Shares Shares Amount ---------- --------------- ----------- ---------------- -------- Wallace Ford, Inc. None 50 6 6 $ 6,000 Wallace Nissan, Inc. $1.00 7,500 1,000 1,000 1,000 Wallace Dodge, Inc. 1.00 7,500 760 760 1,000 Wallace Imports, Inc. 1.00 7,500 1,000 1,000 1,000 Wallace Lincoln-Mercury, Inc. .10 100,000 50,000 50,000 5,000 Stuart Lincoln-Mercury, Inc. .10 100,000 50,000 50,000 5,000 Bill Wallace Enterprises, Inc. d/b/a Stuart Mitsubishi .10 100,000 50,000 50,000 5,000 Mechanical Warranty Protection, Inc. 10.00 750 750 750 8,000 -------- $ 32,000 ========
9. INCOME TAXES Effective January 1, 1989, Wallace Imports, Inc. elected S corporation status. Effective January 1, 1993, Wallace Ford, Inc., Wallace Nissan, Inc. and Wallace Dodge, Inc. elected S corporation status. Effective November 18, 1994, Wallace Lincoln-Mercury, Inc. elected S corporation status. Effective September 18, 1995, Stuart Lincoln-Mercury, Inc. elected S corporation status. Effective October 12, 1995, Bill Wallace Enterprises, Inc. d/b/a Stuart Mitsubishi elected S corporation status. Under such elections, federal and state income taxes or tax benefits accrue to the shareholder personally and are included on his individual tax return. Therefore, income tax expense for these companies has not been accrued in the financial statements. As a result of the election of S corporation status by Wallace Ford, Inc., Wallace Nissan, Inc. and Wallace Dodge, Inc. the entities incurred income tax expense relating to recapture of their respective LIFO reserves. The final payment as a result of this election was made in March, 1996. Mechanical Warranty Protection, Inc. has adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which requires the use of the liability method of accounting for deferred income taxes. Deferred income taxes are provided for temporary differences between the financial statement and tax bases of assets and liabilities. The differences arise from items not currently includable or deductible for income tax purposes, primarily deferred policy acquisition costs and unearned premium reserves. F-75 76 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 9. INCOME TAXES (continued) The Company's total deferred tax assets, deferred tax liabilities and deferred tax valuation allowance are as follows: Total deferred tax assets $ 478,000 Less valuation allowance (146,000) ---------- 332,000 Total deferred tax liabilities (806,000) ---------- Net deferred tax liability ($474,000) ==========
These amounts have been presented in the accompanying combined balance sheet as noncurrent deferred tax liabilities. As of December 31, 1996, Mechanical Warranty Protection, Inc. has carryforward net operating losses available as follows:
Expiration Amount Date -------- ---------- Federal net operating loss $297,000 2007, 2010 State net operating loss 818,000 2007, 2010
10. RETIREMENT PLAN The Company has a salary deferral 401(k) profit-sharing plan. Participation is limited to those employees who have completed at least one year of service and have attained the age of 21. Employees may defer up to 15% of their compensation. Participants may also make after-tax contributions up to 10% of their compensation. In total, these contributions cannot exceed 19% of their compensation. The Company may contribute a percentage of each participant's salary deferral. Such discretionary match is limited to 3% of the participants' compensation. Also, the Company may make a discretionary profit-sharing contribution. The matching contributions for 1996 amounted to $155,000. There were no discretionary profit-sharing contributions for the year ended December 31, 1996. F-76 77 THE WALLACE COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 11. INTEREST EXPENSE Interest expense for the year ended December 31, 1996 was comprised as follows: Other expense Related party $ 213,000 Other 2,254,000 ----------- $ 2,467,000 =========== Operating expense Floor plan - new and used vehicles $ 849,000 Floor plan - rental vehicles 440,000 ----------- $ 1,289,000 ===========
The floor plan interest for the year ended December 31, 1996 is net of floor plan assistance of $3,018,000 12. LEASING ARRANGEMENTS As discussed in Note 7, the Company leases its computer system and land adjacent to Wallace Lincoln-Mercury, Inc. under capital leases. The computer system, recorded under the capital lease of $229,000 is included in furniture, signs and equipment. Accumulated amortization of this equipment is $151,000 as of December 31, 1996. The property recorded under the capital lease of $900,000 is included in land. 13. SUBSEQUENT EVENT The Company has agreed to a merger and share exchange with Republic Industries, Inc. which will be treated for accounting purposes as a pooling of interests. Prior to closing, all indebtedness of the shareholder to the Company and all indebtedness of the Company to related parties will be paid in full. In addition, the shareholder or his assignee shall purchase from the Company the aviation equipment held for sale and assume the amount of the related indebtedness. 14. COMMITMENTS AND CONTINGENCIES The Company is exposed to various asserted and unasserted potential claims encountered in the normal course of business. In the opinion of management, the resolution of these matters will not have a material effect on the Company's financial position or results of operations. F-77 78 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Taormina Industries, Inc. Anaheim, California We have audited the accompanying balance sheets of Taormina Industries, Inc. as of December 31, 1996 and 1995 and the related statements of income, retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Taormina Industries, Inc. as of December 31, 1996 and 1995 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ McGladrey & Pullen, LLP Anaheim, California January 24, 1997, except for the first paragraph of Note 13 as to which the date is February 3, 1997 F-78 79
TAORMINA INDUSTRIES, INC. BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS (NOTES 7 AND 9) 1996 1995 - -------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents partially restricted (Notes 2, 3 and 7) $21,076,128 $ 15,137,787 Certificates of deposit, restricted (Notes 2, 8 and 9) 845,681 720,681 Trade accounts receivable, less allowance for doubtful accounts; 1996 and 1995 $50,000 8,083,245 9,265,774 Notes receivable, current portion (Note 4) 619,712 1,501,365 Salvage materials (Note 8) 202,000 240,196 Prepaid expenses 896,784 34,915 Other 324,415 299,709 ---------------------------- TOTAL CURRENT ASSETS 32,047,965 27,200,427 ---------------------------- Property and Equipment (Note 5) 49,101,847 45,117,719 ---------------------------- Other Long-Term Assets Notes receivable, long-term portion (Note 4) - 239,223 Intangible assets, net (Note 6) 8,429,774 6,839,930 ---------------------------- 8,429,774 7,079,153 ---------------------------- $89,579,586 $ 79,397,299 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------------------- Current Liabilities Current maturities of long-term debt (Note 7) $ 3,347,237 $ 3,248,804 Accounts payable 6,029,492 7,383,728 Accrued expenses (Note 12) 2,006,765 1,661,989 Deferred income 614,977 593,285 ---------------------------- TOTAL CURRENT LIABILITIES 11,998,471 12,887,806 ---------------------------- Long-Term Debt, less current maturities (Note 7) 49,551,969 38,535,218 ---------------------------- Deferred Income Taxes (Note 11) 1,890,000 2,250,000 ---------------------------- Commitments and Contingencies (Notes 7, 8, 9, 10, 11 and 12) Stockholders' Equity (Note 13) Common stock, $20 par value; authorized 5,000 shares; shares issued and outstanding 1996 and 1995: 790 shares 15,810 15,810 Additional paid-in capital 4,653,334 4,653,334 Retained earnings 21,470,002 21,055,131 ---------------------------- 26,139,146 25,724,275 ---------------------------- $89,579,586 $ 79,397,299 ============================
See Notes to Financial Statements. F-79 80
TAORMINA INDUSTRIES, INC. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996 AND 1995 - ----------------------------------------------------------------------------------- 1996 1995 Disposal Service Revenue (Note 8) $ 81,046,868 $78,702,718 --------------------------- Salvage Revenue, net (Note 8) 8,811,732 21,802,002 Cost of Salvage Revenue 6,310,474 13,929,943 --------------------------- GROSS PROFIT FROM SALVAGE OPERATIONS 2,501,258 7,872,059 --------------------------- Operating and Administrative Expenses Salaries and wages 22,203,488 24,299,298 Fringe benefits (Notes 10 and 12) 4,409,275 3,800,656 Amortization 1,090,965 1,203,251 Depreciation 6,888,392 6,737,993 Dump fees 26,729,517 25,232,835 Facilities rent (Note 9) 5,001,380 4,600,250 Outside services 2,650,149 3,141,670 Other 10,542,927 9,047,009 --------------------------- 79,516,093 78,062,962 --------------------------- OPERATING INCOME 4,032,033 8,511,815 Financial Income (Expense) Interest income 1,607,282 2,033,734 Interest expense (2,072,665) (2,349,627) --------------------------- INCOME BEFORE INCOME TAXES 3,566,650 8,195,922 Income Tax (Credits) (Note 11) (276,000) (575,200) --------------------------- NET INCOME $ 3,842,650 $ 8,771,122 ===========================
See Notes to Financial Statements. F-80 81
TAORMINA INDUSTRIES, INC. STATEMENTS OF RETAINED EARNINGS YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 - ----------------------------------------------------------------------------- Balance, beginning $ 21,055,131 $ 13,731,219 Net income 3,842,650 8,771,122 Dividends (3,427,779) (1,447,210) ------------------------------ Balance, ending $ 21,470,002 $ 21,055,131 ==============================
See Notes to Financial Statements. F-81 82
TAORMINA INDUSTRIES, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 - --------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net income $ 3,842,650 $ 8,771,122 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,888,392 6,737,993 Amortization 1,090,965 1,203,251 (Gain) loss on sale of equipment 118,691 (7,880) Deferred income taxes (360,000) (720,000) Change in assets and liabilities: (Increase) decrease in: Trade receivables 1,182,529 (1,810,604) Salvage materials 38,196 (113,728) Prepaid expenses (861,870) 81,280 Other 37,705 (139,734) Increase (decrease) in accounts payable, accrued expenses and deferred income (1,072,695) 5,807,262 --------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,904,561 19,808,962 --------------------------- Cash Flows from Investing Activities Proceeds from sale of property and equipment 138,514 35,565 Proceeds from maturities of certificates of deposit 720,681 2,579,513 Principal payments received on notes receivable 1,840,569 1,231,473 Disbursements on notes receivable (719,693) (1,046,467) Purchase of property and equipment (6,647,581) (17,774,904) Purchase of securities and cash restricted for the purchase of property and equipment (4,459,625) (4,373,538) Purchase of intangible assets (2,680,810) - Purchase of certificates of deposit (845,681) - Proceeds from maturities of securities restricted for the purpose of property and equipment - 16,242,000 ---------------------------- NET CASH (USED IN) INVESTING ACTIVITIES (12,653,626) (3,106,358) --------------------------- Cash Flows from Financing Activities Dividends paid to stockholders (3,427,779) (1,447,210) Proceeds from long-term borrowings 14,500,000 - Payments on long-term borrowings, including capital lease obligations and leasehold interests (3,384,815) (5,427,011) --------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,687,406 (6,874,221) --------------------------- INCREASE IN CASH AND CASH EQUIVALENTS 5,938,341 9,828,383 Cash and Cash Equivalents Beginning 15,137,787 5,309,404 --------------------------- Ending $ 21,076,128 $15,137,787 ===========================
See Notes to Financial Statements. F-82 83
TAORMINA INDUSTRIES, INC. STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------ Supplemental Disclosures of Cash Flow Information Cash payments for: Interest $ 2,118,670 $ 2,347,347 =========================== Income taxes $ 114,842 $ 120,800 ===========================
See Notes to Financial Statements. F-83 84 TAORMINA INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: The Company operates in all aspects of commercial and residential waste disposal and recycling in the Orange County and San Bernardino County, California areas. A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES ARE AS FOLLOWS: Cash and cash equivalents: For the purpose of reporting cash flows, the Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Available-for-sale securities: Available-for-sale securities consist of debt securities and repurchase agreements. Available-for-sale securities are stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of stockholders' equity. Property and equipment: Property and equipment is stated at cost. Provisions for depreciation on equipment have been made using primarily an accelerated method with useful lives ranging from three to ten years. Buildings and improvements are being depreciated using an accelerated method with useful lives ranging from fifteen to thirty-one years. The amortization expense on assets acquired under capital leases and leasehold interests are being amortized on an accelerated method over their estimated useful lives of ten years and are included with depreciation expense on owned assets. Intangible assets: Intangible assets consist principally of city contracts, routes, covenants not-to-compete, and the excess of cost over carrying value of net assets acquired. These assets are being amortized by the straight-line method over lives ranging from two to fifteen years. Deferred income: Deferred income represents the amount of billings issued for services to be performed in future months. Income taxes: Deferred income taxes are provided primarily on the difference between the financial reporting and the income tax basis of certain assets which if sold at a gain within a ten-year period, beginning with the effective date of becoming a S Corporation, would be subject to income taxes at the maximum corporate tax rate. As of December 31, 1996, the Company's reported net assets exceed their tax basis by approximately $5,900,000. Accordingly, if the election was terminated on that date, a deferred tax liability of approximately $2,400,000 would be recognized (see Note 13). F-84 85 TAORMINA INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. CONCENTRATION OF CASH BALANCES As of December 31, 1996, the Company had deposits at two financial institutions in excess of FDIC insurance limits. NOTE 3. MARKETABLE SECURITIES The Company has securities which are all classified as available-for-sale. The marketable securities are comprised of U.S. Treasury Securities and Repurchase Agreements with fair values totaling $13,124,943. The fair value of these securities is approximately equal to their respective amortized cost. The fair values of the above noted securities are classified on the balance sheet as of December 31, 1996 as cash and cash equivalents. At December 31, 1995, the Company had $11,751,572 of U.S Treasury Securities classified as held-to-maturity and included with cash and cash equivalents. These are recorded at cost which approximates market value. NOTE 4. NOTES RECEIVABLE As of December 31, 1996, the Company had an unsecured note receivable totaling $408,312 from a partnership which is related through common ownership. This note is a result of loans from the Company totaling $3,165,000 to the partnership, that were used to build a maintenance facility which, together with the land, are leased to the Company on a month-to-month lease at $77,000 per month. The note requires a minimum monthly payment of principal and interest of $47,000, interest is at 7.5% and matures in September 1997. In addition, the Company has other notes receivable from unrelated parties totaling $233,249 of which $205,510 is secured and these notes bear interest ranging from 10% to 11.25%, respectively. F-85 86
TAORMINA INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 5. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1996 and 1995 is comprised of the following: 1996 1995 - ------------------------------------------------------------------------------- Land $ 3,574,953 $ 3,089,535 Buildings and improvements 11,885,543 11,067,398 Transportation equipment 25,089,163 24,190,889 Machinery, bins and equipment 25,228,493 22,805,933 Leasehold improvements 2,066,378 1,363,712 Furniture and fixtures 509,752 464,705 Equipment under capital leases (Note 9) - 572,020 Leasehold interests in recycling equipment (Note 9) 10,548,826 10,548,826 Cash and cash equivalents, restricted for purchase of land, buildings and equipment (Note 7) 11,028,613 6,568,988 ------------------------- 89,931,721 80,672,006 Less accumulated depreciation: ------------------------- Equipment acquired under capital leases - 269,997 Leasehold interests 6,414,489 5,389,445 Owned assets 34,415,385 29,894,845 ------------------------- 40,829,874 35,554,287 ------------------------- $ 49,101,847 $45,117,719 ========================= NOTE 6. INTANGIBLE ASSETS Intangible assets are recorded at cost as of December 31, 1996 and 1995 and are comprised of the following: 1996 1995 - ------------------------------------------------------------------------------- City contracts $21,128,951 $18,643,951 Covenants not-to-compete 302,867 302,867 Excess of purchase price over carrying value of net assets acquired 1,945,593 1,945,593 Bond issuance costs 195,809 - Solid waste collection routes 57,325 57,325 ------------------------ $23,630,545 20,949,736 Less accumulated amortization 15,200,771 14,109,806 ------------------------ $ 8,429,774 $ 6,839,930 ========================
F-86 87 TAORMINA INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 7. PLEDGED ASSETS, NOTES PAYABLE AND LONG-TERM DEBT Pledged assets, notes payable and long-term debt are comprised of the following as of December 31, 1996: Obligations under capital leases and leasehold interests (Note 9). $ 4,692,508 Bonds payable (A). 43,960,000 Note payable to an individual, secured by real property which is owned by the stockholders, payable in monthly installments of $100,000, including interest at 6%, due July 2000. 3,790,583 Other 456,115 --------------- 52,899,206 Less current maturities 3,347,237 --------------- $ 49,551,969 ===============
(A) On August 1, 1994, November 1, 1994 and September 1, 1996, the Company entered into three loan agreements with the California Pollution Control Financing Authority (CPCFA) to borrow $9,000,000, $20,685,000 and $14,500,000 of proceeds received by the CPCFA from the sale of Pollution Control Variable Rate Demand Solid Waste Revenue Bonds (Series 1994A, 1994B and 1996A) due August 1, 2014, November 1, 2014, and August 1, 2016. The Company is required to make monthly interest payments to a trustee for the bondholders based on a variable market rate of interest determined weekly by the remarketing agent (3.15% at December 31, 1996). Pursuant to a reimbursement agreement between a bank which has posted letters of credit on this facility, and the Company, the Company began making monthly principal sinking fund payments on January 1, 1996. As of December 31, 1996, $11,028,613 of the proceeds remain unspent and on deposit with the trustee (Note 5). The loan agreements require the Company to utilize the proceeds within a specified period. If such use of proceeds does not occur timely, the Company must refund arbitrage amounts consisting of investment earnings on debt proceeds in excess of corresponding debt interest costs. At December 31, 1996 and 1995, no amounts are subject to arbitrage rebate. Series 1994A, 1994B, and 1996A require the Company to post irrevocable letters of credit to be held by the trustee for the benefit of the bondholders. At December 31, 1996, these letters of credit total $44,847,775 and are secured by all of the assets of the Company. The Company further covenants to maintain certain financial ratios with respect to these borrowings and is required to maintain a cash balance of $7,500,000 until such time as the Company's bank is able to arrange and consummate another bank to participate in the Company's borrowing relationship. Aggregate maturities on long-term debt are as follows: 1997 $3,347,237; 1998 $3,687,732; 1999 $4,258,474; 2000 $3,510,599; 2001 $2,277,903; thereafter $35,817,261. F-87 88
TAORMINA INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 8. DISPOSAL SERVICE CONTRACTS The Company has disposal service contracts with the cities of Anaheim, Brea, Garden Grove, Placentia, Yorba Linda, Fullerton, Villa Park and Colton for the collection and/or processing of waste and rubbish from residential and commercial establishments. The period of these contracts range from fifteen to twenty years with an evergreen provision on seven of these contracts which provides an extension of an additional year on an annual basis. The remaining agreement contains a six-year option. One agreement is personally guaranteed by the Company's stockholders up to $20,000,000. Certain other agreements require certificates of deposit totaling 225,000 to be pledged to the cities and a county for landfill use. Revenues for the years ended December 31, 1996 and 1995, include revenues from the following two city contracts, which accounted for more than 10% of the total revenues of the Company: Contract A Contract B - ---------------------------------------------------------------- 1996 Revenue $ 19,621,000 $ 14,231,000 Accounts receivable 1,740,000 1,267,000 1995 Revenue 24,550,000 14,361,000 Accounts receivable 2,090,000 1,474,000
The Company sells salvaged recyclable materials. Certain amounts of this revenue are shared equally with four of the cities. The Company also sells recyclable materials which are purchased from other waste collection contractors and the general public. NOTE 9. COMMITMENTS, RENT EXPENSE AND RELATED PARTY TRANSACTIONS The Company has entered into operating agreements with three cities to manage, operate and maintain certain recycling equipment, each for a period of ten years, at which time the Company can purchase the equipment at its fair market value. The operating agreements have been recorded as leasehold interests in recycling equipment, since the present value of the future minimum lease payments equals the equipment cost. The implicit interest rates on these agreements range from 8.4% to 8.8%, and expire in June 2000, September 2000 and November of 2001. Two financial institutions have posted two outstanding letters of credit totaling $1,197,300 on behalf of the Company naming two of the cities as beneficiaries. One of these letters of credit are collateralized by all assets of the Company, while the other letter of credit is unsecured. The Company has a certificate of deposit of $550,000 pledged to one of the cities. These letters of credit are collateralized by all the assets of the Company. These letters of credit and certificate of deposit are security for performance under the operating agreements. The Company has posted a $250,000 letter of credit as security for performance under one of its municipal franchise agreements. This letter of credit is secured by all assets of the Company. The Company has also pledged a $69,686 certificate of deposit as security on a note payable in the amount of $98,926. F-88 89 TAORMINA INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 9. COMMITMENTS, RENT EXPENSE AND RELATED PARTY TRANSACTIONS (CONTINUED) Components of capital leases and leasehold interests at December 31, 1996 and 1995 are as follows:
1996 1995 - ------------------------------------------------------------------------------ Assets Acquired Under Capital Leases Transportation equipment $ - $ 384,221 Machinery, bins and equipment - 187,799 ----------------------------- $ - $ 572,020 ============================= Leasehold Interests in Recycling Equipment Transportation equipment $ 3,523,578 $ 3,523,578 Automated barrels 7,025,248 7,025,248 ----------------------------- $ 10,548,826 $ 10,548,826 =============================
At December 31, 1996, the trustees for the bondholders are holding approximately $1,220,000 in reserve funds to pay bondholders related to the leasehold interests in recycling equipment. Interest earnings on these funds reduces the lease payments made by the Company. The leasehold interests liability as shown on the Company's financial statements is reduced by the amount of these reserve funds. The following is a schedule by years and in the aggregate, of the expected future minimum lease payments under the capital leases and leasehold interests together with the present value of the net minimum lease payments as of December 31, 1996:
Year Ending Leasehold December 31, Interests - ------------------------------------------------------------------------------- 1997 $ 1,757,130 1998 1,756,452 1999 1,752,343 2000 1,282,245 2001 471,860 Thereafter - ------------- TOTAL MINIMUM LEASE PAYMENTS 7,020,030 Less the amount representing interest 2,327,522 ------------- PRESENT VALUE OF MINIMUM LEASE PAYMENTS (NOTE 7) 4,692,508 =============
F-89 90 TAORMINA INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 9. COMMITMENTS, RENT EXPENSE AND RELATED PARTY TRANSACTIONS (CONTINUED) The Company leases land from its stockholders. The Company has original cost investments in buildings and leasehold improvements on the leased land of approximately $12,400,000 and, accordingly, intends to continue leasing the improved property over a thirty-year amortization period. The Company leases the improved property pursuant to a five-year lease with a fifteen-year option to renew. The Company leases land and improvements from a partnership under common control on a month-to-month basis. The total monthly commitment under these leases is $415,000. Rent expense under these leases amounted to approximately $4,920,000 and $4,570,000 for the years ended December 31, 1996 and 1995, respectively. The Company also leases a variety of small office equipment under short-term operating leases. Future minimum lease commitments by year and in the aggregate under terms of operating lease agreements are approximately as follows: 1997 $4,062,000; 1998 $3,996,000; 1999 $3,996,000; 2000 $3,996,000; 2001 $3,990,000 and thereafter $52,440,000. The Company purchases fuel from a related party partnership at $.05 per gallon above invoice cost. Total purchases of fuel from the related party for the years ended December 31, 1996 and 1995 were $1,719,557 and $1,430,847, respectively. NOTE 10. RETIREMENT PLAN AND CONTINGENCY The Company contributes to a union-sponsored multi-employer retirement plan in accordance with a negotiated labor contract. The retirement plan covers all of the Company's union employees, which represents approximately 38% of the Company's employees. Contributions, which are based on varying rates for the hours worked by the employees, totaled approximately $175,000 and $189,000 for the years ended December 31, 1996 and 1995, respectively. In the event of plan termination or employer withdrawal, an employer may be liable for a portion of the Plan's unfunded vested benefits. The Company has not received information from the Plan's administrators to determine its share of unfunded vested benefits. The Company does not anticipate withdrawal from the Plan, nor is the Company aware of any expected plan termination. F-90 91 TAORMINA INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 11. INCOME TAX MATTERS The net deferred income tax liabilities at December 31, 1996 and 1995 consist of the following components:
1996 1995 - ------------------------------------------------------------------------------- Deferred tax assets $ 22,600 $ 17,500 Deferred tax liabilities 1,912,600 2,267,500 ------------------------- $ 1,890,000 $ 2,250,000 ========================= The components of the net income tax (credits) for the years ended December 31, 1996 and 1995 are as follows: 1996 1995 - -------------------------------------------------------------------------------- Current $ 84,000 $ 144,800 Deferred (360,000) (720,000) ------------------------- $ (276,000) $ (575,200) =========================
On February 1, 1990, the Company, with the consent of its stockholders, has elected to be taxed under sections of federal and California income tax law, which provides that, in lieu of federal corporation income taxes, the stockholders separately account for their pro rata shares of the Company's items of income, deductions, losses and credits. For California, the tax rate has been reduced from 9.3% to 1.5% at the corporate level (See Note 13). As a result of the Tax Reform Act of 1986, the Company may be subject to income taxes at the maximum corporate rate if certain assets are sold at a gain for a ten-year period following the effective date of election mentioned above. The Company has provided for its deferred tax liability that represents income taxes that might be payable if those assets are sold at their carrying values. The liability at December 31, 1996 and 1995 is approximately $1,874,000 and $2,222,000, respectively. This deferred tax liability will be reduced, either through actual tax payments or as the excess of the financial reporting basis of assets over the tax basis of the related assets on the effective date of the election diminishes over the ten-year period. Accordingly, the Company's income tax (credits) are not as expected for 1996 and 1995 due to the amortization of these assets resulting in a credit of approximately $348,000 in 1996 and $678,000 in 1995, respectively. F-91 92 TAORMINA INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 12. SELF-INSURANCE The Company is self-insured for its workers compensation claims up to $300,000 per occurrence with no overall aggregate stop-loss limitation. It is the Company's policy to accrue for claims as they are incurred. At December 31, 1996 and 1995 the Company has recorded reserves of $620,218 and $446,216, respectively. The Company has posted a performance bond totaling approximately $1,500,000 as security to the State of California for the administration of its workers compensation claims. NOTE 13. SUBSEQUENT EVENTS On February 3, 1997, the Company's shareholders entered into a Merger Agreement to exchange their total shares for equivalent shares of a publicly-traded entity. The transaction is anticipated to be accounted for as a pooling of interests. Management anticipates the transaction will close or before on March 1, 1997. Upon closing, the Company will revoke its S status for income tax purposes and will record a deferred tax liability as discussed in Note 1. Subsequent to December 31, 1996, the Company declared and paid dividends totaling $500,000. F-92 93 UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC., GRUBB AUTOMOTIVE AND KENDALL AUTOMOTIVE GROUP The following Unaudited Condensed Consolidated Pro Forma Financial Statements include the supplemental consolidated financial statements of Republic Industries, Inc. and subsidiaries (the "Company") which include the results of operations of National Car Rental System, Inc. ("National"), Maroone Automotive Group ("Maroone"), Wallace Automotive Group ("Wallace") and Taormina Industries, Inc. ("Taormina") which the Company acquired in February 1997 and Carlisle Motors, Inc. ("Carlisle") which the Company acquired in January 1997. These transactions have been accounted for under the pooling of interests method of accounting and, accordingly, the Company's supplemental consolidated financial statements have been retroactively adjusted as if the Company, National, Maroone, Wallace, Taormina and Carlisle had operated as one entity since inception. The following Unaudited Condensed Consolidated Pro Forma Balance Sheet presents the pro forma financial position of the Company as of December 31, 1996 as if the acquisitions of AutoNation Incorporated ("AutoNation"), Ed Mullinax, Inc. and subsidiaries ("Mullinax") and Grubb Automotive ("Grubb"), which were acquired in January 1997, and Kendall Automotive Group ("Kendall"), which was acquired in February 1997, had been consummated as of December 31, 1996. This pro forma balance sheet also includes pro forma adjustments related to the January 1997 sale of the Company's common stock, par value $.01 per share ("Common Stock") which resulted in net proceeds to the Company of approximately $553 million (the "1997 Equity Transaction"). The following Unaudited Condensed Consolidated Pro Forma Statement of Operations for the year ended December 31, 1996 presents the pro forma results of operations of the Company as if the acquisitions of AutoNation, Mullinax, Grubb and Kendall, which have all been accounted for under the purchase method of accounting, had been consummated as of January 1, 1996. This pro forma statement of operations also contains pro forma adjustments related to the 1997 Equity Transaction and certain 1996 equity transactions which resulted in net proceeds to the Company of approximately $551 million (the "1996 Equity Transactions"). The unaudited pro forma income per common and common equivalent share before extraordinary charge is based on the combined weighted average number of common shares and common share equivalents outstanding which include, where appropriate, the assumed exercise or conversion of warrants and options. In computing the unaudited pro forma income per common and common equivalent share before extraordinary charge, the Company utilizes the treasury stock method. Primary income per share is not presented as it does not significantly differ from fully diluted income per share. These Unaudited Condensed Consolidated Pro Forma Financial Statements should be read in conjunction with the respective historical consolidated financial statements and notes thereto of the Company, National, Maroone, Wallace, Taormina, Carlisle, AutoNation, Mullinax, Grubb and Kendall. These Unaudited Condensed Consolidated Pro Forma Financial Statements were prepared utilizing the accounting policies of the respective entities as outlined in their historical financial statements except as described in the accompanying notes. The acquisitions of AutoNation, Mullinax, Grubb and Kendall have been accounted for under the purchase method of accounting. Accordingly, the Unaudited Condensed Consolidated Pro Forma Financial Statements reflect the Company's preliminary allocations of the purchase prices of such acquisitions which will be subject to further adjustments as the Company finalizes the allocations of the purchase prices in accordance with generally accepted accounting principles. The unaudited condensed consolidated pro forma results of operations do not necessarily reflect actual results which would have occurred if the acquisitions or the 1996 or 1997 Equity Transactions had taken place on the assumed dates, nor are they necessarily indicative of the results of future combined operations. F-93 94 REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC., GRUBB AUTOMOTIVE AND KENDALL AUTOMOTIVE GROUP UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1996
SUPPLEMENTAL REPUBLIC AUTONATION MULLINAX GRUBB KENDALL COMBINED -------- ---------- ------------ ------- ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 299,453 $ 6,062 $ 1,470 $ 4,077 $ 5,910 $ 316,972 Receivables, net 535,653 7,580 21,038 11,123 10,978 586,372 Inventory 185,395 66,258 92,171 48,011 25,694 417,529 Revenue earning vehicles, net 3,495,178 -- -- -- -- 3,495,178 Other current assets 397,453 445 4,517 228 1,179 403,822 ---------- ---------- ------------ -------- ---------- ---------- Total current assets 4,913,132 80,345 119,196 63,439 43,761 5,219,873 Property and equipment, net 1,064,974 196,665 15,500 12,150 26,550 1,315,839 Intangible assets 260,067 -- 15 -- -- 260,082 Investment in subscribers 92,427 -- -- -- -- 92,427 Other assets 39,659 -- 157 3,506 2,821 46,143 ---------- --------- ------------ -------- --------- ---------- $6,370,259 $ 277,010 $ 134,868 $ 79,095 $ 73,132 $6,934,364 ========== ========= ============ ======== ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 548,679 $ 35,833 $ 6,564 $ 5,535 $ 7,022 $ 603,633 Current portion of long-term debt and notes payable 2,872,841 247,472 77,835 55,675 45,004 3,298,827 Other current liabilities 238,419 -- -- -- 512 238,931 ---------- --------- ------------ -------- --------- ---------- Total current liabilities 3,659,939 283,305 84,399 61,210 52,538 4,141,391 Long-term debt, net of current maturities 1,147,611 -- 10,190 4,060 19,310 1,181,171 Other liabilities 210,736 -- -- 600 -- 211,336 ---------- -------- ------------ -------- --------- ---------- Total liabilities 5,018,286 283,305 94,589 65,870 71,848 5,533,898 ---------- -------- ------------ -------- --------- ---------- Shareholders' equity: Common stock 2,968 80 40 3,025 421 6,534 Additional paid-in capital 1,343,003 52,050 134 (650) (4,846) 1,389,691 Retained earnings 6,002 (58,425) 40,105 10,850 5,709 4,241 ---------- -------- ------------ -------- --------- ---------- Total shareholders' equity 1,351,973 (6,295) 40,279 13,225 1,284 1,400,466 ---------- -------- ------------ -------- --------- ---------- $6,370,259 $277,010 $ 134,868 $ 79,095 $ 73,132 $6,934,364 ========== ======== ============ ======== ========= ========== PRO FORMA ADJUSTMENTS ----------------------------- DR. CR. PRO FORMA ------------ ------------ ------------- ASSETS Current assets: Cash and cash equivalents $ 316,972 Receivables, net 586,372 Inventory $ 18,129(a) 435,658 Revenue earning vehicles, net 3,495,178 Other current assets $ 247,472(b) 156,350 ------------ ------------ ------------- Total current assets 18,129 247,472 4,990,530 Property and equipment, net 1,315,839 Intangible assets 329,705(c) 589,787 Investment in subscribers 92,427 Other assets 46,143 ------------ ------------ ------------- $ 347,834 $ 247,472 $ 7,034,726 ============ ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 603,633 Current portion of long-term debt and notes payable $ 247,472(b) 2,880,031 171,324(d) Other current liabilities 238,931 ------------ ------------ ------------- Total current liabilities 418,796 3,722,595 Long-term debt, net of current maturities 381,352(d) 799,819 Other liabilities 211,336 ------------ ------------ ------------- Total liabilities 800,148 4,733,750 ------------ ------------ ------------- Shareholders' equity: Common stock 3,566(e) $ 263(f) 3,389 158(d) Additional paid-in capital 46,688(e) 396,064(f) 2,291,585 552,518(d) Retained earnings 1,761(e) 6,002 ------------ ------------ ------------- Total shareholders' equity 50,254 950,764 2,300,976 ------------ ------------ ------------- $ 850,402 $ 950,764 $ 7,034,726 ============ ============ =============
The accompanying notes are an integral part of these statements. F-94 95 REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC., GRUBB AUTOMOTIVE AND KENDALL AUTOMOTIVE GROUP UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
SUPPLEMENTAL REPUBLIC AUTONATION MULLINAX GRUBB KENDALL COMBINED --------- ---------- -------- --------- --------- ------------ Revenue $4,764,097 $ 31,464 $659,002 $439,980 $405,835 $6,300,378 Expenses: Cost of operations 3,891,949 43,411 589,835 384,759 367,063 5,277,017 Selling, general and administrative 784,212 38,633 54,537 46,870 34,275 958,527 Restructuring and merger expenses 38,335 -- -- -- -- 38,335 Other (income) expense: Interest and other income (36,294) -- -- (2,042) (669) (39,005) Interest expense 43,887 4,782 886 4,329 1,276 55,160 ---------- -------- -------- -------- -------- ---------- 4,722,089 86,826 645,258 433,916 401,945 6,290,034 ---------- -------- -------- -------- -------- ---------- Income before income taxes and extraordinary charge 42,008 (55,362) 13,744 6,064 3,890 10,344 Provision for income taxes 43,024 -- -- -- -- 43,024 ---------- -------- -------- -------- -------- ---------- Income before extraordinary charge $ (1,016) $(55,362) $ 13,744 $ 6,064 $ 3,890 $ (32,680) ========== ======== ======== ======== ======== ========== Fully-diluted: Income per share before extraordinary charge $ -- ========== Weighted average shares outstanding 313,925 17,467 3,633 3,962 1,216 340,203 ========== ======== ======== ======== ======== ==========
PRO FORMA ADJUSTMENTS ------------------------- DR. CR. PRO FORMA ---------- ---------- -------------- Revenue $6,300,378 Expenses: Cost of operations $ 8,243(g) $ 862(a) 5,234,770 48,847(h) 781(b) Selling, general and administrative 958,527 Restructuring and merger expenses 38,335 Other (income) expense: Interest and other income 5,563(b) (33,442) Interest expense 50,378(h) -- 4,782(b) ------- -------- ---------- 13,806 105,650 6,198,190 ------- -------- ---------- Income before income taxes and extraordinary charge 13,806 105,650 102,188 Provision for income taxes 22,267(i) 65,291 ------- -------- ---------- Income before extraordinary charge $36,073 $105,650 $ 36,897 ======= ======== ========== Fully-diluted: Income per share before extraordinary charge $ .10 ========== Weighted average shares outstanding 29,868(j) 370,071 ======= ==========
The accompanying notes are an integral part of these statements. F-95 96 REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC., GRUBB AUTOMOTIVE AND KENDALL AUTOMOTIVE GROUP NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (a) Represents an entry to conform the inventory accounting policies of acquired companies from LIFO to the specific identification method. (b) Represents an entry to eliminate advances from the Company to AutoNation and related interest on such advances. (c) Represents an entry to record intangible assets resulting from the preliminary allocations of the purchase prices for the acquisitions of AutoNation, Mullinax, Grubb and Kendall as follows (in thousands): Shares of Republic Common Stock to be issued............... 26,278 Value of Republic Common Stock consideration............... $396,327 Historical net assets...................................... 48,493 Write-up of inventory to fair value........................ 18,129 -------- Allocation to intangible assets............................ $329,705 ========
(d) Represents an entry to record the 1997 Equity Transaction and the assumed repayment of indebtedness as of December 31, 1996. (e) Represents an entry to eliminate the historical equity balances of AutoNation, Mullinax, Grubb and Kendall. (f) Represents the recording of equity resulting from the Company's issuance of Common Stock to effect the acquisitions of AutoNation, Mullinax, Grubb and Kendall. (g) Represents an adjustment to record amortization, on a straight-line basis, of the intangible assets resulting from the preliminary purchase price allocations of AutoNation, Mullinax, Grubb and Kendall. Intangible assets resulting from these purchases are being amortized over a 40 year life which approximates the estimated useful life. (h) Represents the assumed interest savings on the payoff of a portion of the existing indebtedness outstanding as of January 1, 1996 of the combined entity with the proceeds from the 1996 and 1997 Equity Transactions which are also assumed to have occurred as of January 1, 1996. (i) Represents the incremental change in the combined entity's provision for income taxes as a result of the pre-tax income (loss) of AutoNation, Mullinax, Grubb and Kendall and all pro forma adjustments as described above. (j) Includes the weighted average effect of shares issued in the 1996 and 1997 Equity Transactions. F-96 -----END PRIVACY-ENHANCED MESSAGE-----