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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-06585
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CROSS-CONTINENT AUTO RETAILERS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 75-2653095
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1201 S. TAYLOR
AMARILLO, TEXAS 79101
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (806) 374-8653
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
Common Stock, $0.01 Par Value New York Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of the close of business on March 25, 1998 was $33,478,000.
Number of shares outstanding of each of the issuer's classes of common
stock, as of March 25, 1998.
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<CAPTION>
CLASS SHARES OUTSTANDING
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<S> <C>
$.01 Par Value 13,573,908
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement to be filed in
connection with the annual meeting of shareholders on May 12, 1998 are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
Cross-Continent Auto Retailers, Inc. was incorporated in the State of
Delaware in May 1996, and in June 1996 acquired all of the capital stock of
eight companies under common ownership (the "Reorganization"). Unless the
context otherwise requires, as used herein the terms "Company" and
"Cross-Continent" mean Cross-Continent Auto Retailers, Inc., its subsidiaries
and its predecessors.
The Company is a leading operator and acquirer of retail automotive
dealerships. The Company currently operates four dealerships in Texas, four in
Nevada, one in Colorado and one in Oklahoma. Through these dealerships the
Company offers a total of ten brands, at eleven retail locations. The Company
generates its revenue from the sale of new and used vehicles, fees for repair
and maintenance services, the sale of replacement parts, fees and commissions
from arranging financing and credit insurance in connection with vehicle sales,
and the sale of extended warranties on vehicles.
The Company's founder and Chief Executive Officer, Bill Gilliland, has
managed automobile dealerships since 1966 and acquired the Company's first
dealership, Quality Nissan, Inc. in Amarillo, Texas in 1982. Growth continued in
the Amarillo area by acquiring three Chevrolet dealerships, two of which have
been in continuous operation (under various owners) since the 1920s. Since the
Company's September 1996 initial public offering, Cross-Continent has acquired
six dealerships and is actively pursuing additional acquisitions with two
currently pending.
The Company is currently the only Chevrolet and Nissan dealer in the
Amarillo, Texas market and the only BMW, Land Rover, Volkswagen and Audi dealer
in the Las Vegas, Nevada market.
The Company owns the following dealerships:
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<CAPTION>
DEALERSHIP NAME MARKET YEAR ACQUIRED
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<S> <C> <C>
Plains Chevrolet (3) Amarillo, Texas 1991
Midway Chevrolet (3) Amarillo, Texas 1988
Westgate Chevrolet (3) Amarillo, Texas 1991
Quality Nissan (3) Amarillo, Texas 1982
Lynn Hickey Dodge Oklahoma City, Oklahoma 1996
Denver Toyota (1) Denver, Colorado 1997
Toyota West Las Vegas, Nevada 1997
Nissan West Las Vegas, Nevada 1997
Chaisson Motor Cars (2) Las Vegas, Nevada 1998
Chaisson BMW Henderson, Nevada 1998
</TABLE>
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(1) Name changed from Douglas Toyota in March 1998
(2) Multi-line dealer selling BMW, Land Rover, Volkswagen, Audi, Bentley and
Rolls-Royce
(3) Acquired pursuant to the Reorganization
ACQUISITIONS AND DIVESTITURES
The Company intends to expand its business by acquiring additional
dealerships and seeks to improve their profitability through implementation of
the Company's business strategies. Based on trends affecting automobile
dealerships, the Company also believes that an increasing number of acquisition
opportunities will become available to the Company.
The Company intends to focus its expansion primarily on markets that have
fewer dealerships relative to the size of the population than the national
average. The Company believes that the most attractive
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markets for acquisitions currently exist, but are not limited to, selected
cities in the Western and Southern regions of the United States. As part of its
strategy to acquire a significant market share in any targeted market, the
Company intends to focus its efforts on dealer groups that own multiple lines in
a single city, as well as on large, single dealerships possessing significant
market share.
Other criteria for evaluating potential acquisitions will include the
dealership or dealer group's profitability, the quality of its management team,
its local reputation with customers, and its location along a principal
thoroughfare. The Company plans to evaluate acquisition candidates on a
case-by-case basis, and there can be no assurance that future acquisitions by
the Company will have all or any of these characteristics or that the Company
will make additional acquisitions.
Upon completion of each acquisition, the Company plans to implement its
sales methods and philosophy, computer-supported management system and
profit-based compensation plans in an effort to enhance the acquired
dealership's overall profitability. Cross-Continent intends to focus initially
on any under-performing departments within the acquired entity that the Company
believes may yield the most rapid marginal improvements in operating results.
The Company anticipates that it will take two to three years to integrate an
acquired dealership into the Company's operations and realize the full benefit
of the Company's strategies and systems. There can be no assurance, however,
that the profitability of any acquired dealership will equal that achieved to
date by the Company's existing dealerships. During the early part of the
integration period the operating results of an acquired dealership may decrease
from results prior to the acquisition as the Company implements its strategies
and systems.
In 1997 the Company made the decision to divest the Performance Nissan and
Performance Dodge dealerships in Oklahoma City, Oklahoma. Effective July 1,
1997, the Company sold 100% of the stock in Performance Dodge, Inc. and
Performance Nissan, Inc. (collectively "Performance"), to Benji Investments,
Ltd., a Texas limited partnership controlled by Mr. Emmett M. Rice, Jr., the
Company's former Chief Operating Officer (also a shareholder and former Director
of the Company). The Company received 760,000 shares of the Company's stock
valued at a total of $8.7 million. During the quarter ended June 30, 1997, the
Company recorded a loss on the disposition of $347,000, including selling
expenses. In connection with the sale, the Company repaid $4.3 million in
long-term debt associated with these dealerships. The Company also retained
ownership of the Performance Dodge facilities and the related mortgage, and is
leasing such facilities to Benji Investments, Ltd. The term of the lease is
fifteen years with annual rental of approximately $253,000. Upon completion of
the transaction, Mr. Emmett M. Rice Jr. resigned his positions as Chief
Operating Officer and Director of the Company.
The Company continues to monitor the business and market conditions in
Oklahoma City, Oklahoma and the financial prospects for its remaining dealership
in this market. The Company may decide, in 1998, to remain in the Oklahoma City,
Oklahoma market, expand its presence in this market or exit the market
altogether.
Effective April 1, 1997, the Company acquired Toyota West Sales and Service,
Inc. in Las Vegas, Nevada and Douglas Toyota, Inc. in Denver, Colorado
(collectively "Spedding Toyota"). Spedding Toyota is engaged in the retail sales
of new and used vehicles and in the retail and wholesale sales of replacement
parts and vehicle servicing. The total purchase price of approximately $40.7
million was funded with $28.7 million in cash, $6 million of which was financed
with bank debt, 279,720 shares of the Company's common stock valued at
approximately $5.0 million, and a seller financed note in the amount of $7
million which matures in 2002. The seller note was repaid in the second fiscal
quarter of 1997. In connection with the acquisition of Spedding Toyota, the
Company purchased two tracts of land from R. Douglas Spedding, now an Officer of
the Company, in exchange for a total of $7.5 million in seller-financed notes.
The land will be used to relocate both the Spedding dealerships to newly
constructed facilities. The Spedding Toyota acquisition was accounted for as a
purchase and the operating results of Spedding Toyota have been included in the
accompanying consolidated statements of operations since April 1, 1997.
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Effective July 1, 1997, the Company acquired Sahara Nissan, Inc. ("Nissan
West") in Las Vegas, Nevada. Nissan West is engaged in the retail sales of new
and used vehicles and in the retail and wholesale sales of replacement parts and
vehicle servicing. The total purchase price of approximately $14.3 million was
funded with $11.3 million in cash, $9 million of which was financed, 125,983
shares of the Company's common stock valued at approximately $2.0 million, and
$1.0 million in seller financed notes. The Nissan West acquisition was accounted
for as a purchase and the operating results of Nissan West have been included in
the accompanying consolidated statements of operations since July 1, 1997.
Effective January 1, 1998 the Company completed its previously announced
acquisition of JRJ Investments, Inc. ("JRJ Investments") which owns Chaisson
Motor Cars, a multi-line dealership operating in Las Vegas, Nevada, and Chaisson
BMW, in Henderson, Nevada. The purchase price was $18.2 million. The cash
portion, $13.4 million, was funded under the Company's credit line and from
available working capital. The December 31, 1997 Balance Sheet included an
earnest money deposit of approximately $4.0 million. The Company also issued a
note for $2.8 million payable to the seller bearing interest at 8%. The Company
also issued 128,205 shares of its Common Stock to the seller. The Company has
guaranteed the seller a price of the Common Stock of $15.60 per share one year
from the date of closing, January 5, 1999. To the extent the stock price is less
than $15.60 the Company must make up the difference in cash or by issuing
additional shares of common stock to provide a total value of $2.0 million as of
January 5, 1999.
As a result of the Company's business strategy, including the acquisition of
new dealerships, the Company's revenues have increased from approximately $165.4
million in 1993 to approximately $472.1 million in 1997. Unaudited pro forma
sales for 1997 were approximately $605.8 million, giving a full year effect to
the acquisition of Spedding Toyota, Nissan West and JRJ Investments. In 1997,
the Company's actual gross profit percentage was 17.2%, compared to the industry
average of 12.8% according to the National Automobile Dealers Association
("N.A.D.A.").
The table below sets forth a reconciliation of the Company's actual 1997
revenue to the Company's 1997 unaudited revenue on a pro forma basis (in
thousands):
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<CAPTION>
ACTUAL ADJUSTMENT(1) PRO FORMA
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<S> <C> <C> <C>
Dealership operations owned for the full year of 1997........... $ 275,770 $ -- $ 275,770
Spedding Toyota................................................. 132,949 50,200 183,149
Nissan West..................................................... 26,087 27,160 53,247
JRJ Investments................................................. -- 93,609 93,609
Performance Dodge and Nissan.................................... 37,312 (37,312) --
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$ 472,118 $ 133,657 $ 605,775
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</TABLE>
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(1) The Adjustments for Spedding Toyota, Nissan West and JRJ Investments
represent 1997 revenue from January 1, 1997 to the effective date of their
respective acquisition by the Company. The adjustment for Performance Dodge
and Nissan represent their actual revenue recorded by the Company from
January 1, 1997 to the date of disposition.
The Company has entered into a contract to acquire a certain dealership in
California. The proposed purchase price is approximately $5.5 million consisting
of approximately $4.0 million cash, $1.4 million in seller financed notes and
$100,000 in value of the Company's common stock. The Company intends to fund the
cash portion of the proposed purchase price from available working capital and
availability under its credit line. In January 1998 the Company advanced
approximately $1.7 million towards the closing of this transaction. The Company
expects to complete the transaction by the end of the second fiscal quarter of
1998.
The Company has entered into a contract to acquire a certain dealership in
Nevada. The proposed purchase price is approximately $12.5 million consisting of
approximately $9.0 million in cash, $3.2 million
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in seller financed notes and approximately $300,000 in value of the Company's
common stock. The Company intends to fund the cash portion of the proposed
purchase price from available working capital and availability under its credit
line. The Company expects to complete this transaction by the end of the second
fiscal quarter of 1998.
DEALERSHIP OPERATIONS
The Company owns ten dealerships which operate eleven retail locations. Each
of the Company's dealerships has a general manager who oversees all of the
operations of that dealership. In addition, each dealership's new vehicle, parts
and service, and finance and insurance ("F&I") departments have managers who
supervise the employees in their departments and report to that dealership's
general manager. All general managers report to the Company's senior management
on a daily basis. The Company's senior management tracks the daily sales,
inventory turnover and other operating conditions at each dealership.
NEW VEHICLE SALES. The Company sells ten domestic and imported brands
ranging from economy to luxury cars, sport utility vehicles, minivans and light
trucks. The Company believes that its new vehicle sales mix is influenced by
regional preferences as well as the Company's inventory management policies. In
1997, the Company sold 9,722 new vehicles generating revenues of $217.2 million,
which constituted 46.0% of the Company's total revenues. The Company generated
gross profit percentage for new vehicle sales of 10.5% in 1997, as compared to
the industry average for 1997 of 6.4%, according to N.A.D.A.
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COMPANY'S NEW VEHICLE SALES
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1997(1) 1996(1) 1995(1) 1994 1993
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Unit sales............................................. 9,722 6,408 5,547 4,468 4,978
Sales revenue.......................................... $ 217,206 $ 137,712 $ 114,494 $ 90,804 $ 91,012
Gross profit percentage................................ 10.5% 10.8% 12.1% 12.5% 11.8%
</TABLE>
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(1) Figures shown reflect actual new vehicle sales activity and do not include
the full year effect of the acquisitions completed in 1997 and 1996 and the
divestiture in 1997.
The table below sets forth the Company's 1997 actual new vehicle sales and
1997 pro forma new vehicle unaudited sales by manufacturers (dollars in
thousands).
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ACTUAL PROFORMA(1)
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UNITS % $ % UNITS % $ %
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
General Motors (Chevrolet).............. 3,704 38.1% $ 87,419 40.3% 3,704 30.1% $ 87,419 28.7%
Toyota.................................. 3,112 32.0 71,780 33.0 4,293 34.8 99,508 32.7
Nissan.................................. 1,257 12.9 23,741 10.9 1,677 13.6 32,777 10.8
Chrysler (Dodge)........................ 1,649 17.0 34,266 15.8 1,197 9.7 25,271 8.3
BMW..................................... 0 0.0 0 0.0 742 6.0 33,516 11.0
All Other............................... 0 0.0 0 0.0 716 5.8 26,046 8.5
----- --------- --------- --------- --------- --------- --------- ---------
9,722 100.0% $ 217,206 100.0% 12,329 100.0% $ 304,537 100.0%
----- --------- --------- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- --------- --------- ---------
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(1) Includes dealerships owned by the Company for the entire year of 1997 plus
the results of Spedding Toyota, Nissan West and JRJ Investments from January
1, 1997 to the effective date of their respective acquisitions by the
Company, less the results of Performance Dodge and Performance Nissan,
recorded by the Company from January 1, 1997 to the date of disposition.
USED VEHICLE SALES. In 1997, the Company's used vehicle sales generated
revenues of $196.5 million, which constituted 41.6% of the Company's total
revenue. The Company's retail used vehicle and truck sales have grown from 4,532
units in 1993 to 13,120 units in 1997. The Company attributes this growth to
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acquisitions and, in part, to attractive product availability. The quality and
selection of used vehicles available in the industry have improved in the last
several years primarily due to an increase in the number of popular vehicles
coming off short term leases. In addition, increases in new vehicle prices have
prompted a growing segment of the vehicle-buying population to purchase used
vehicles and trucks. The Company also sells used vehicles through its wholly
owned subsidiary, Working Man's Credit Plan, Inc. ("Working Man's Credit").
Working Man's Credit sells primarily older used vehicles and finances those
purchases for customers who, due to their low income levels or past credit
problems, may not be able to obtain credit for the vehicles more typically sold
by the Company's dealerships. Working Man's Credit sales accounted for less than
1% of the Company's total sales in each of 1996 and 1997.
The Company sells used vehicles to retail customers and, particularly in the
case of used vehicles held in inventory more than 60 days, to other dealers and
to wholesalers. As the table below reflects, sales to other dealers and
wholesalers are frequently at or below cost and therefore affect the Company's
overall gross profit percentage on used vehicle sales. Excluding inter-dealer
and wholesale transactions, the Company's gross profit percentage on retail used
vehicle sales was 13.6% in 1997, as compared to the industry average for 1997 of
10.8% according to N.A.D.A.
The following table sets forth all used vehicle sales transactions of the
Company from 1993 through 1997.
<TABLE>
<CAPTION>
COMPANY'S USED VEHICLE SALES
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1997(1) 1996(1) 1995(1) 1994 1993
---------- ---------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail unit sales....................................... 13,120 8,145 6,170 4,816 4,532
Retail sales revenue.................................... $ 156,611 $ 104,842 $ 75,677 $ 50,019 $ 44,655
Retail gross profit percentage.......................... 13.6% 12.3% 13.7% 15.7% 16.5%
Wholesale unit sales.................................... 8,274 7,423 5,372 5,201 4,983
Wholesale sales revenue................................. 39,858 $ 41,423 $ 22,813 $ 22,897 $ 14,538
Wholesale gross profit percentage....................... (5.0)% (1.8)% (3.4)% (6.0)% (8.2)%
Total unit sales........................................ 21,394 15,568 11,542 10,017 9,515
Total sales revenue..................................... $ 196,469 $ 146,265 $ 98,490 $ 72,916 $ 59,193
Total gross profit percentage........................... 9.8% 8.3% 9.8% 8.9% 10.4%
</TABLE>
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(1) Figures shown reflect actual used vehicle sales activity and do not include
the full year effect of the acquisitions completed in 1997, 1996 and 1995 or
the divestiture in 1997.
PARTS AND SERVICE. The Company provides parts and service primarily for the
vehicle makes sold by its dealerships but also services other makes of vehicles.
In 1997, the Company's parts and service operations generated $36.3 million in
revenues, or 7.7% of total revenues. In 1997, the Company's parts and service
operation generated gross profit percentage of 51.7%, including the sale of
parts at wholesale to independent repair shops, compared to an industry average
of 43.2% according to N.A.D.A.
The Company attributes its profitability in parts and service to its
comprehensive management system, including the use of a variable rate pricing
structure, the adoption of a team concept in servicing vehicles and the
cultivation of strong customer relationships through an emphasis on preventive
maintenance. Also, critical to the profitability of the Company's parts and
service business is the efficient management of parts inventory.
In charging for its mechanics' labor, the Company uses a variable rate
structure designed to reflect the difficulty and sophistication of different
types of repairs. The percentage mark-ups on parts are similarly varied based on
market conditions for different parts. The Company believes that variable rate
pricing helps the Company to achieve overall profit margins in parts and service
higher than to those of certain competitors who rely on fixed labor rates and
percentage markups.
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The Company also believes that the profitability of its parts and service
business is significantly enhanced by its use of teams in servicing vehicles.
Each vehicle that is brought into one of the Company's dealerships for service
typically is assigned to a team of service professionals, ranging from master
technicians with multiple skills to less experienced apprentices. The
experienced technicians perform more complicated repairs, while apprentices
assist technicians, track down needed parts and perform basic repairs and
maintenance, such as oil changes. Each team is responsible for servicing
multiple vehicles each day, depending upon the complexity of the services
required. When possible, the team performs multiple service functions
simultaneously and, as a result, enhances productivity and completes repairs
more quickly. The Company believes this team system increases the productivity
of its service personnel and results in reduced training costs and higher
quality repairs.
The Company also makes extensive efforts to notify owners of vehicles
purchased at the dealerships when their vehicles are due for periodic service,
thereby encouraging preventive maintenance rather than repairing vehicles only
after breakdowns. The Company regards its parts and service activities as an
integral part of its overall approach to customer service, providing an
opportunity to strengthen relationships with the Company's customers and deepen
customer loyalty.
FINANCE AND INSURANCE (F&I). The Company arranges financing for its
customers' vehicle purchases, sells vehicle warranties and arranges selected
types of credit insurance in connection with the financing of vehicle sales. The
Company places heavy emphasis on F&I and trains its general and sales managers
in F&I. This emphasis resulted in the Company's arranging financing for 76.1% of
its new vehicle unit sales and 69.9% of its used vehicle unit sales in 1997, as
compared to 42% and 51%, respectively, for the average U.S. dealership (1996
data). The Company receives a finance fee from the lender for arranging the
financing and is typically assessed a chargeback against a portion of the
finance fee if the contract is terminated prior to its scheduled maturity for
any reason, such as early repayment or default. As a result, it is important
that the Company arrange financing for a customer that is competitive and
affordable.
At the time of a new vehicle sale, the Company offers extended warranties to
supplement the warranties offered by auto makers. Additionally, the Company
sells primary warranties for used vehicles. Until July 1996, the Company sold
its own warranties and is recognizing the associated revenue over the life of
these warranty contracts. The Company sells warranties of third parties,
recognizes the associated commission income immediately and is typically
assessed a chargeback against a portion of the warranty fee if the contract is
terminated prior to its scheduled maturity for any reason, such as early
repayment or default. In 1997, the Company sold warranties on 47.5% and 55.0%,
respectively, of its new and used vehicle unit sales. The Company believes these
penetration rates exceed the industry averages.
The Company sells credit life insurance policies to customers, which
policies provide for repayment of the vehicle loan if the obligor dies while the
loan is outstanding. The Company also sells accident and health insurance
policies, which provide payment of the monthly loan obligations during any
period in which the obligor is disabled. These policies are underwritten by a
third party, which pays the Company a commission upon the sale of a policy and a
bonus based on whether payments are made under the policy. In 1997, the Company
sold such insurance on 21.3% and 16.5%, respectively, of the new and used
vehicle unit sales for which it arranged financing.
SALES AND MARKETING
To promote customer satisfaction and enhance profitability, the Company
seeks to "match" its customers' economic situation to appropriate vehicles. The
Company assesses (i) the customer's equity position in the vehicle being traded
in (I.E., the value of the vehicle relative to the amount still owed on the
vehicle), (ii) the ability and willingness of the customer to make a down
payment, (iii) the customer's credit profile and (iv) the cost of the desired
vehicle and the likely insurance premium the customer will be required to pay.
The Company believes that its "counseling" approach during the sales process
increases the likelihood that a customer will be satisfied with the vehicle
purchase over a longer time period.
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The Company's marketing and advertising activities vary among its
dealerships and among its markets. Generally, the Company advertises primarily
through newspapers, radio or television to reach the Company's targeted customer
base. Under arrangements with the auto makers, the Company receives a subsidy
for its advertising expenses incurred in connection with that auto maker's
vehicles. The Company expects to realize cost savings on its advertising
expenses as it acquires multiple dealerships in particular markets, due to
volume discounts and other concessions from media.
The Company is marketing and advertising over the Internet. The Company's
Hickey Dodge, Westgate Chevrolet and Chaisson Motor Cars dealerships currently
have a series of Internet web pages which have been designed to promote and
advertise the dealership's products and services. The Company plans to develop
Internet web pages for each of its dealerships, and will eventually market
vehicles over the Internet.
VEHICLE AND PARTS SUPPLIERS
The Company depends primarily on the manufacturers represented by its
various dealerships for supply of new vehicles and replacement parts. As the
Company acquires dealerships representing other manufacturers, the Company also
will depend on those manufacturers for vehicles and parts. The majority of the
Company's dealerships' used vehicle inventory is derived from trade-ins, with
the remainder being obtained by purchases at auctions and from other dealers and
wholesalers.
The Company enters into agreements, ("Agreement{s}"), with the manufacturers
that supply new vehicles and parts to each of its dealerships. Management
currently believes that it will be able to renew each and all of the Agreements
upon expiration; however, there can be no assurance that each and all of the
Agreements will be renewed.
The Agreements generally limit locations of dealerships and retain
manufacturer approval rights over changes in dealership management and
ownership. Each manufacturer is also entitled to terminate the Agreement for a
dealership if the dealership is in material breach of the terms. The Agreement
with Dodge stipulates that the Company could lose its Dodge dealership upon any
change in ownership of a controlling number of shares in the Company. Under the
June 1996 supplemental Agreements with Chevrolet, Chevrolet has the right, under
certain circumstances, to terminate the Agreements with the Company upon the
acquisition by any person or entity of 20% or more of the Common Stock
outstanding. In addition, the Company has agreed to comply with the General
Motors (GM) Network 2000 Channel Strategy ("Project 2000"). Project 2000
includes a plan to eliminate 1,500 GM dealerships by the year 2000, primarily
through dealership buybacks and approval by GM of inter-dealership acquisitions,
and encourages dealers to align GM divisions' brands as may be requested by GM.
The June 1996 supplemental Agreements require that the Company bring any GM
dealership acquired after the initial public offering into compliance with the
Project 2000 plan within one year of the acquisition. Failure to achieve such
compliance will result in termination of the Agreements and a buyback of the
related dealership assets by GM. The Company believes that this aspect of the
June 1996 supplemental Agreements does not present a significant risk to its
business or future operating results. Under the Company's Agreements with
Nissan, Nissan has the right to terminate the Agreements with the Company if,
without Nissan's prior approval, Mr. Gilliland's ownership of common stock
decreases below 20% of the total number of shares of common stock issued and
outstanding or Mr. Gilliland ceases to be the Chief Executive Officer of the
Company. Under the Agreements with Toyota, Toyota has the right to terminate the
Agreements with the Company if acceptable customer satisfaction is not
maintained. Toyota also limits the number of Toyota dealerships the Company may
acquire within a nine month period to one and the number of Toyota dealerships
that the Company may own to nine.
The Company's ability to expand operations depends, in part, on obtaining
the consent of manufacturers to the acquisition or establishment of additional
dealerships.
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The Company's total sales of new vehicles may be adversely affected by a
manufacturer inability or unwillingness to furnish one or more dealerships with
an adequate supply of models popular in the Company's markets. A dealership that
lacks sufficient inventory to satisfy demand for a particular model may purchase
additional vehicles from other franchised dealers throughout the United States,
although such sales frequently are at prices higher than those charged by the
manufacturer.
COMPETITION
The retail automotive industry in which the Company operates is highly
competitive. The Company competes with both dealers offering the same product
line as the Company and dealers offering other auto makers' vehicles. The
Company also competes with local dealerships, large multi-franchise auto
dealerships, dealership groups, auto brokers and leasing and rental companies.
Some of the Company's larger competitors have greater financial resources and
are more widely known than the Company. The Company may also face increased
competition from certain automobile "superstores," such as CarMax, AutoNation
USA and Driver's Mart Woldwide, Inc. Such "superstores" have emerged recently in
various areas of the United States and are beginning to expand nationally. The
Company currently competes with AutoNation USA in the Denver, Colorado and the
Las Vegas, Nevada markets, and the Company expects other such "superstores" to
expand their operations into these markets, other markets in which the Company
currently operates, or new markets the Company may enter. The Company also
competes with other automobile retailers that sell vehicles through
non-traditional methods, such as the Internet.
The Company believes that the principal competitive factors in vehicle sales
are the marketing campaigns conducted by auto makers, the ability of dealerships
to offer a wide selection of the most popular vehicles, the location of
dealerships and the quality of customer service. Other competitive factors
include customer preference for makes of automobiles, pricing (including
manufacturer rebates and other special offers) and warranties. The Company
believes that its dealerships are competitive in all of these areas.
In addition to competition for vehicle sales, the Company also competes with
other auto dealers, service stores, auto parts retailers and independent
mechanics in providing parts and service. The Company believes that the
principal competitive factors in parts and service sales are price, the use of
factory-approved replacement parts, the familiarity with a dealer's makes and
models and the quality of customer service. A number of regional or national
chains offer selected parts and service at prices that may be lower than the
Company's prices.
In arranging or providing financing for its customers' vehicle purchases,
the Company competes with a broad range of financial institutions. The Company
believes that the principal competitive factors in offering financing are
convenience, interest rates and contract terms. The Company believes that its
dealerships are competitive in these areas.
In addition to being affected by national competitive trends, the Company's
success depends, in part, on regional auto-buying trends, local and regional
economic factors and other regional competitive pressures. Currently, the
Company sells its vehicles in the Amarillo, Texas; Oklahoma City, Oklahoma;
Denver, Colorado; and Las Vegas, Nevada markets. Conditions and competitive
pressures affecting these markets, such as price-cutting by dealers in these
areas, or in any new markets the Company may enter, could adversely affect the
Company, although the retail automobile industry as a whole might not be
affected.
The Company believes that its acquisition strategies will result in broader
geographic diversification and a broader diversification of manufacturer brands
which could lessen the risks associated with local and regional economic factors
and other competitive pressures.
8
<PAGE>
REGULATION
The Company's operations are subject to regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations. Various state and federal regulatory agencies, such as the
Occupational Safety and Health Administration and the U.S. Environmental
Protection Agency, have jurisdiction over the operation of the Company's
dealerships, repair shops, body shops and other operations, with respect to
matters such as consumer protection, workers' safety and laws regarding clean
air and water.
The relationship between a franchised automobile dealership and a
manufacturer is governed by various federal and state laws established to
protect dealerships from the generally unequal bargaining power between the
parties. Federal laws, as well as certain state laws, prohibit a manufacturer
from terminating or failing to renew a franchise without good cause.
Manufacturers are also prohibited from preventing or attempting to prevent any
reasonable changes in the capital structure or the manner in which a dealership
is financed. Manufacturers are, however, entitled to object to a sale or change
of management where such an objection is materially related to the character,
financial ability or business experience of the proposed transferee.
Automobile dealers and manufacturers are also subject to various federal and
state laws established to protect consumers, including so-called "Lemon Laws"
which require a manufacturer or the dealer to replace a new vehicle or accept
its return in exchange for a full refund within one year after initial purchase
if the vehicle does not conform to the manufacturer's express warranties and the
dealer or manufacturer, after a reasonable number of attempts, is unable to
correct or repair the defect. Federal laws require certain written disclosures
to be provided on new vehicles, including mileage and pricing information. In
addition, the financing and insurance activities of the Company are subject to
certain statutes governing credit reporting, debt collection, and insurance
industry regulation.
The imported automobiles purchased by the Company are subject to United
States customs duties and, in the ordinary course of its business, the Company
may, from time to time, be subject to claims for duties, penalties, liquidated
damages, or other charges.
As with automobile dealerships generally, and parts, service and body shop
operations in particular, the Company's business involves the use, handling and
contracting for recycling or disposal of hazardous or toxic substances or
wastes. The Company believes that it does not have any material environmental
liabilities and that continued compliance with environmental laws, ordinances
and regulations will not, individually or in the aggregate, have a material
adverse effect on the Company's results of operations or financial condition.
EMPLOYEES
As of February 28, 1998 the Company employed 1,148 people, of whom
approximately 167 were employed in managerial positions, 420 were employed in
non-managerial sales positions, 197 were employed in non-managerial parts and
service positions and 364 were employed in administrative support positions.
None of the Company's employees are represented by a labor union.
The Company believes that many dealerships in the retail automobile industry
have difficulty attracting and retaining qualified personnel for several
reasons, including the historical inability of dealerships to provide employees
with a marketable equity interest in the profitability of the dealerships. The
Company intends to provide certain executive officers, managers and other
employees with options to purchase Common Stock and believes this equity
incentive will be attractive to existing and prospective employees of the
Company.
The Company believes that its relationship with its employees is good.
Because of its dependence on the auto makers, however, the Company may be
affected by labor strikes, work slowdowns and walkouts at the auto makers'
manufacturing facilities. The Company has a policy of requiring prospective
employees to
9
<PAGE>
undergo tests for illegal substances prior to being hired and of requiring
employees to consent to drug tests at the Company's discretion during their
employment with the Company.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 1201 South Taylor
Street, Amarillo, Texas 79101, and its telephone number is (806) 374-8653. The
Company leases its principal corporate offices from the Gilliland Group Family
Partnership for a lease term ending 2001.
At December 31, 1997, the Company owned four dealership properties in the
Amarillo, Texas vicinity; one dealership property in Denver, Colorado; and, one
dealership property in Las Vegas, Nevada. The Company leases certain other
dealership properties in Oklahoma City, Oklahoma, Denver, Colorado, and Las
Vegas, Nevada.
On December 31, 1997, the Company entered into a contract with a third party
to sell all of its dealership real property in Amarillo, Texas and dealership
real properties under construction in Denver, Colorado and Las Vegas, Nevada.
The Company agreed to a sale price of $35.3 million. In connection with the
sale, the Company exercised its option to purchase certain real property under
lease used by its Quality Nissan dealership in Amarillo, Texas for $400,000 and
included the property in the sale. The Company will leaseback all the property
for a term of ten years with two ten year renewal options. The initial annual
lease rate for all the property is approximately $3.9 million triple net with
annual escalation not to exceed 2.5% per year beginning the fourth year of the
initial lease term. The Company will use the proceeds to retire approximately
$5.5 million in existing mortgages, $7.5 million in existing land purchase notes
and $4.8 million in construction notes. The remainder of the proceeds will be
used to complete the construction of the property in Las Vegas, Nevada and
Denver, Colorado and general corporate purposes including the reduction of other
debt, acquisitions and working capital needs. A gain of approximately $3.6
million on the transaction will be deferred and amortized into income as a
reduction of lease costs over the lease term. Part of the transaction was
completed on February 24, 1998 with the Company receiving $13.2 million sale
proceeds for its Amarillo, Texas property and paid off existing mortgages of
approximately $5.5 million. The balance of the transaction for the two
properties in Las Vegas, Nevada and Denver, Colorado is expected to be completed
by the end of April, 1998 after all construction is completed.
Under the terms of its dealer agreements with the various automobile
manufacturers, the Company must maintain an appropriate appearance and design of
its facilities and is restricted in its ability to relocate its dealerships.
The Company owns the Performance Dodge property in Oklahoma City, Oklahoma
and leases it to Benji Investments, Ltd., under a fifteen year lease with annual
rents of approximately $253,000.
The Company believes that its facilities are adequate for its current needs.
In connection with its acquisition strategy, the Company intends to evaluate, on
a case-by-case basis, the relative benefit of owning or leasing the real estate
associated with a particular dealership.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is named in claims involving the manufacture
of automobiles, contractual disputes and other matters arising in the ordinary
course of the Company's business. Currently, no legal proceedings are pending
against or involve the Company, that in the opinion of management, could be
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company has only one class of Common Stock and it is traded on the New
York Stock Exchange under the trading symbol "XC".
The high and low closing sales prices per share for the Common Stock on the
New York Stock Exchange for the period from September 24, 1996 to September 30,
1996 was $23.00 and $19.875, respectively. The high and low closing prices per
share for the Common Stock for the fourth quarter of 1996 was $27.125 and
$18.50, respectively. The high and low closing prices of the Company's Common
Stock per share for 1997 are set forth below.
<TABLE>
<CAPTION>
1997
-------------------
HIGH LOW
--------- --------
<S> <C> <C>
Quarter ended
March 31,......... $ 23 1/2 $ 14 3/4
June 30,.......... 17 7/8 9 5/8
September 30,..... 13 7/16 8
December 31,...... 13 8
</TABLE>
Effective April 1, 1997, the Company acquired Toyota West Sales and Service,
Inc. in Las Vegas, Nevada and Douglas Toyota, Inc. in Denver, Colorado
(collectively "Spedding Toyota") from R. Douglas Spedding, the sole shareholder.
Spedding Toyota is engaged in the retail sales of new and used vehicles and in
the retail and wholesale sales of replacement parts and vehicle servicing. The
total purchase price of approximately $40.7 million was funded with $28.7
million in cash, $6 million of which was financed with bank debt, 279,720 shares
of the Company's common stock valued at approximately $5.0 million, and a seller
financed note in the amount of $7 million which matures in 2002. The transaction
was accounted for as a purchase.
Effective July 1, 1997, the Company acquired Sahara Nissan, Inc. ("Nissan
West") in Las Vegas, Nevada from Jack Biegger and Dale M. Edwards, shareholders.
Nissan West is engaged in the retail sales of new and used vehicles and in the
retail and wholesale sales of replacement parts and vehicle servicing. The total
purchase price of approximately $14.3 million was funded with $11.3 million in
cash, $9 million of which was financed with bank debt, 125,983 shares of the
Company's common stock valued at approximately $2.0 million, and $1.0 million in
seller financed notes. The Nissan West acquisition was accounted for as a
purchase.
Effective July 1, 1997, the Company sold 100% of the stock in Performance
Dodge, Inc. and Performance Nissan, Inc. ("Performance"), to Benji Investments,
Ltd., a Texas limited partnership controlled by Emmett M. Rice, Jr., the
Company's former Chief Operating Officer (also a shareholder and former Director
of the Company). The Company received 760,000 shares of the Company's stock
valued at a total of $8.7 million. In connection with the sale, the Company
repaid $4.3 million in long-term debt associated with these dealerships. The
Company also retained ownership of the Performance Dodge facilities and the
related mortgage, and is leasing such facilities to Performance Dodge. The term
of the lease is fifteen years with annual rental of approximately $253,000. Upon
completion of the transaction, Mr. Emmett M. Rice, Jr. resigned his positions as
Chief Operating Officer and Director of the Company.
Effective January 1, 1998 the Company completed its previously announced
acquisition of JRJ Investments, Inc., which owns Chaisson Motor Cars, a
multi-line dealership operating in Las Vegas, Nevada, and Chaisson BMW, in
Henderson, Nevada. The purchase price was $18.2 million. The cash portion, $13.4
million, was funded with bank debt and from available working capital. The
December 31, 1997 Balance Sheet included a deposit of approximately $4.0 million
toward closing the transaction. The
11
<PAGE>
Company also issued a note for $2.8 million payable to the seller. The note may
be repaid in full at anytime without premium or penalty. The Company also issued
128,205 shares of its Common Stock to the seller. The Company has guaranteed the
seller a price of the Common Stock of $15.60 per share one year from the date of
closing, January 5, 1999. To the extent the stock price is less than $15.60 the
Company must make up the difference in cash or by issuing additional shares of
common stock to provide a total value of $2.0 million as of January 5, 1999.
At March 18, 1998 there were 62 holders of record of the Common Stock. The
Company has never paid dividends on its Common Stock and does not anticipate
doing so in the foreseeable future.
All of the issuances of securities described above were exempt from
registration pursuant to Regulation D promulgated under the securities act of
1933.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations and balance sheet data for
the 1997, 1996, 1995, 1994, and 1993 fiscal years were derived from the
Company's audited consolidated financial statements. This selected consolidated
financial data should be read in connection with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and related notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997(1) 1996(2) 1995(3) 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA
Revenues
Vehicle sales...................................... $ 413,675 $ 283,977 $ 212,984 $ 163,721 $ 150,205
Other operating revenue............................ 58,443 37,606 23,210 18,047 15,159
---------- ---------- ---------- ---------- ----------
Total revenues..................................... 472,118 321,583 236,194 181,768 165,364
Cost of sales........................................ 390,856 271,650 198,702 153,446 139,626
---------- ---------- ---------- ---------- ----------
Gross profit......................................... 81,262 49,933 37,492 28,322 25,738
Selling, general and administrative.................. 61,512 36,490 25,630 18,522 17,194
Depreciation and amortization........................ 2,658 1,207 951 934 992
Management fees (4).................................. -- -- 4,318 3,183 2,536
Employee stock compensation (5)...................... -- 1,099 -- --
Loss from sale of dealerships........................ 347 -- -- -- --
---------- ---------- ---------- ---------- ----------
Operating income..................................... 16,745 11,137 6,593 5,683 5,016
Interest expense, net................................ (5,819) (3,193) (3,088) (1,950) (1,848)
---------- ---------- ---------- ---------- ----------
Income before income taxes........................... 10,926 7,944 3,505 3,733 3,168
Income tax expense................................... 4,213 3,362 1,310 1,351 1,173
---------- ---------- ---------- ---------- ----------
Net income........................................... $ 6,713 $ 4,582 $ 2,195 $ 2,382 $ 1,995
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Basic and diluted net income per share............... $ .49 $ .42 $ .22 $ .24 $ .20
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Working capital...................................... $ 3,088 $ 33,781 $ 536 $ 50 $ 135
Total assets......................................... 197,273 142,446 83,407 47,579 43,513
Long-term debt....................................... 44,263 10,568 11,859 7,150 7,887
Total liabilities.................................... 134,011 83,928 76,306 42,538 40,774
Stockholders' equity................................. 63,262 58,518 7,101 5,041 2,739
</TABLE>
- ------------------------
(1) The results for the year ended December 31, 1997 include the results of
operations of Douglas Toyota and Toyota West from the date of the
acquisitions, April 1, 1997; and the results of operations of Nissan West
from its date of acquisition, July 1, 1997 and, the results of Performance
from January 1, 1997 through the date of disposition.
(2) The results for the year ended December 31, 1996 include the results of
operations of Hickey Dodge from the date of acquisition, October 1, 1996.
(3) The results for the year ended December 31, 1995 include the results of
Performance Nissan, Inc. from the date of acquisition, February 2, 1995, and
the results of Performance Dodge, Inc. from the date of acquisition,
December 4, 1995.
(4) As of January 1, 1996, the Company no longer pays management fees to GGFP.
See Note 18 to the Consolidated Financial Statements.
(5) Represents a non-cash expense relating to employee stock compensation that
the Company recognized in the second quarter of 1996 in connection with a
stock purchase by a Company executive. This non-cash expense represents the
difference, as of April 1, 1996, between the Company's estimate of the fair
value of the Common Stock issued to the executive and the cash consideration
paid of $250,000. See Note 14 to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Cross-Continent currently owns and operates a group of automobile
dealerships in the Amarillo, Texas, Oklahoma City, Oklahoma, Denver, Colorado
and Las Vegas, Nevada markets. The financial condition and results of operations
reported herein are based solely upon the results of the dealerships owned by
the Company for the time periods reported. The Company generates its revenues
from sales of new and used vehicles, fees for repair and maintenance services,
sale of replacement parts, and fees and commissions from arranging financing,
extended warranties, and credit insurance in connection with vehicle sales.
In October 1996, the Company acquired Lynn Hickey Dodge ("Hickey"). In April
1997, the Company completed the purchase of Spedding Toyota, from owner R.
Douglas Spedding. In July 1997, the Company acquired Nissan West (see Note 3 for
information regarding each of these acquisitions). Hickey, Spedding Toyota and
Nissan West are herein collectively referred to as the "Acquisitions". Each of
the aforementioned Acquisitions was accounted for as purchases and, accordingly,
the operating results of the acquired dealerships have been included in the
operating results of the Company since their respective dates of acquisition.
Because of the significant growth of the Company since its formation, as a
result of the aforementioned Acquisitions, the Company's historical results of
operations, its period-to-period comparisons of such results and certain
financial data may not be comparable, meaningful or indicative of future
results.
13
<PAGE>
The Company completed the sale of Performance Nissan, Inc. and Performance
Dodge, Inc. to Benji Investments, Ltd., a Texas limited partnership controlled
by Emmett M. Rice, Jr., a former Officer and Director of the Company (see Note
3), effective July 1, 1997 (the "Divestiture").
In January, 1998, the Company acquired 100% of the stock of JRJ Investments,
Inc. The transaction will be accounted for as a purchase (see Note 20). The
Company also has two acquisitions pending and is currently operating those
dealerships under management agreements (see Note 16).
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain matters discussed herein are forward-looking statements about the
business, financial condition and prospects of the Company. The actual results
could differ materially from those indicated by such forward-looking statements
because of various risks and uncertainties. Such risks and uncertainties may
include, but are not limited to, local, regional and national economic
conditions, changes in consumer demand for products offered by the Company,
manufacturer employee strikes and other matters that may adversely affect the
availability of products and pricing, state and federal regulatory environment,
availability of additional funding for acquisitions in the future, and other
risks identified in the Company's previous filings with the Commission. The
Company cannot control these risks and uncertainties and, in many cases, cannot
predict the risks and uncertainties that could cause its actual results to
differ materially from those indicated by the forward-looking statements.
14
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
MARGIN STATISTICS
DECEMBER 31,
<TABLE>
<CAPTION>
CONSOLIDATED SAME STORE COMPARISONS (1)
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(THOUSANDS, EXCEPT UNITS AND PERCENTAGES)
<S> <C> <C> <C> <C>
New vehicle sales
Units................................................. 9,722 6,408 4,296 4,668
Revenue............................................... $ 217,206 $ 137,712 $ 99,442 $ 105,215
Average selling price................................. $ 22.3 $ 21.5 $ 23.1 $ 22.5
Used vehicle sales (2)
Units................................................. 21,394 15,568 9,776 11,549
Revenue............................................... $ 196,469 $ 146,265 $ 94,068 $ 111,479
Average selling price................................. $ 9.2 $ 9.4 $ 9.6 $ 9.7
Total vehicle sales
Units................................................. 31,116 21,976 14,072 16,217
Revenue............................................... $ 413,675 $ 283,977 $ 193,510 $ 216,694
Other operating revenue
Finance and insurance................................. $ 17,787 $ 12,520 $ 8,198 $ 9,120
Parts and service..................................... 36,348 23,808 17,135 16,083
Other revenue......................................... 4,308 1,278 1,235 817
------------ ------------ ------------ ------------
Total other Operating revenue....................... 58,443 37,606 26,568 26,020
------------ ------------ ------------ ------------
Total revenue........................................... $ 472,118 $ 321,583 $ 220,078 $ 242,714
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Gross profit
New vehicles.......................................... $ 22,818 $ 14,856 $ 10,595 $ 11,544
Used vehicles (2)..................................... 19,269 12,140 7,013 9,398
Finance and insurance................................. 16,082 9,975 7,046 7,443
Parts and service..................................... 18,785 11,684 8,510 8,397
Other revenue......................................... 4,308 1,278 1,235 817
------------ ------------ ------------ ------------
Total gross profit...................................... $ 81,262 $ 49,933 $ 34,399 $ 37,599
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Gross profit percent
New vehicles.......................................... 10.5% 10.8% 10.7% 11.0%
Used vehicles (2)..................................... 9.8% 8.3% 7.5% 8.4%
Finance and insurance................................. 90.4% 79.7% 85.9% 81.6%
Parts and service..................................... 51.7% 49.1% 49.7% 52.2%
Other revenue......................................... 100.0% 100.0% 100.0% 100.0%
------------ ------------ ------------ ------------
Total gross profit percent.............................. 17.2% 15.5% 15.6% 15.5%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
- ------------------------
(1) "Same Store" information relates to the dealerships for which their results
of operations are included in the Consolidated Statements of Operations for
the same periods of 1997 and 1996.
(2) Used vehicle information includes the Company's retail and wholesale used
vehicle activities.
15
<PAGE>
RESULTS OF OPERATIONS
1997 VERSUS 1996
REVENUES AND GROSS PROFIT
NEW VEHICLES--
<TABLE>
<CAPTION>
CONSOLIDATED SAME STORE COMPARISONS
------------------------------ -----------------------------
1997 1996 1997 1996
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Unit sales....................................... 9,722 6,408 4,296 4,668
Average price per unit........................... $ 22,342 $ 21,491 $ 23,148 $ 22,540
New vehicle revenue.............................. $ 217,206,000 $ 137,712,000 $ 99,442,000 $ 105,215,000
New vehicle gross profit......................... $ 22,818,000 $ 14,856,000 $ 10,595,000 $ 11,544,000
Gross profit percentage.......................... 10.5% 10.8% 10.7% 11.0%
</TABLE>
Same store unit sales (which are defined as the results of the Company's
Amarillo, Texas market for the year of 1997 and 1996 plus the fourth fiscal
quarter of 1997 and 1996 for the Oklahoma City, Oklahoma market, exclusive of
Performance) decreased 372 units, or 8.0%. Unit sales in Oklahoma City, Oklahoma
declined 115 units, or 33.7%, in 1997 compared to 1996. Management believes the
decline in unit sales for same store comparisons is attributed to a decrease in
demand for new vehicles which is consistent with regional and national trends in
1997, a less desirable new vehicle inventory at the Company's Dodge dealership
in Oklahoma City due to a manufacturer's labor strike earlier in 1997,
elimination of low margin fleet sales in the Oklahoma City, Oklahoma market and
a higher than expected dealership management turnover. Same store average
selling prices per unit increased $608, or 2.7%, due to model mix and
manufacturer cost increases passed on in the sales price of new vehicles. The
results of these factors from 1996 to 1997 were an approximate $5.8 million
decrease in same store revenue from new vehicle sales, of which approximately
$2.4 million is attributed to the Oklahoma City, Oklahoma market. The
Acquisitions added approximately $103.7 million in new vehicle revenue and 4,670
new units sales with an average price of $22,213.
Same store gross profit on new vehicle sales decreased approximately
$949,000, or 8.2%, from 1996 to 1997. This decline is primarily attributable to
the decrease in new vehicle sales and to a lesser extent a decline in new
vehicle gross profit percentage, both as a result of the factors discussed
above. The Acquisitions added approximately $10.7 million in gross profit with a
gross profit percentage of 10.3%. The table below sets forth a reconciliation of
new vehicle revenue, units and gross profit from 1996 to 1997 accounting for the
variance in same store results, the Acquisitions and excluding Performance:
<TABLE>
<CAPTION>
UNITS REVENUES GROSS PROFIT
--------- -------------- -------------
<S> <C> <C> <C>
Year ended December 31, 1996.............................................. 6,408 $ 137,712,000 $ 14,856,000
Same store variance....................................................... (372) (5,773,000) (949,000)
Acquisitions.............................................................. 4,670 103,737,000 10,697,000
Effects of the Divestiture................................................ (984) (18,470,000) (1,786,000)
--------- -------------- -------------
Year ended December 31, 1997.............................................. 9,722 $ 217,206,000 $ 22,818,000
--------- -------------- -------------
--------- -------------- -------------
</TABLE>
16
<PAGE>
USED VEHICLES--
<TABLE>
<CAPTION>
CONSOLIDATED SAME STORE COMPARISONS
------------------------------ -----------------------------
1997 1996 1997 1996
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Unit sales....................................... 21,394 15,568 9,776 11,549
Average price per unit........................... $ 9,183 $ 9,395 $ 9,622 $ 9,653
Used vehicle revenue............................. $ 196,469,000 $ 146,265,000 $ 94,068,000 $ 111,479,000
Used vehicle gross profit........................ $ 19,269,000 $ 12,140,000 $ 7,013,000 $ 9,398,000
Gross profit percentage.......................... 9.8% 8.3% 7.5% 8.4%
</TABLE>
Same store unit sales decreased 1,773 units or 15.4%, for both retail and
wholesale. Unit sales in Oklahoma City, Oklahoma declined by 925 units, or
65.1%, in 1997 compared to 1996. Management believes the decline in unit sales
for same store comparisons is attributed to a decrease in demand for used
vehicles which is consistent with regional trends in 1997, a less than desirable
used vehicle inventory at the Company's Dodge dealership in Oklahoma City,
Oklahoma due to lower volume of new vehicle sales which generates a significant
percentage of used vehicles available for sale from trade-ins, a Company effort
to change the sales methods in Oklahoma City, Oklahoma to eliminate low margin
highly promotional volume selling and higher than expected dealership management
turnover. The results of these factors from 1996 to 1997 were an approximate
$17.4 million decrease in same store revenue from used vehicle sales, of which
approximately $8.3 million is attributed to the Oklahoma City, Oklahoma market.
The Acquisitions added approximately $84.8 million used vehicle revenue and
9,454 used vehicle units sales at an average price of $8,967.
Same store gross profit decreased approximately $2.4 million, or 25.4%, from
1996 to 1997. This decline is primarily attributable to the decrease in used
vehicle sales and to a lesser extent a decline in the used vehicle gross profit
percentage, both as a result of the factors discussed above. The Acquisitions
added approximately $11.5 million in gross profit with a gross profit percentage
of 13.6%. The Acquisitions had a higher gross profit percentage from used
vehicle operations as a result of wholesaling fewer vehicles and a lower average
cost of used vehicles compared to same store operations. The table sets forth a
reconciliation of used vehicle revenue, units and gross profit from 1996 to 1997
accounting for the variance in same store results, the Acquisitions and
excluding Performance:
<TABLE>
<CAPTION>
UNITS REVENUES GROSS PROFIT
--------- -------------- -------------
<S> <C> <C> <C>
Year ended December 31, 1996............................................ 15,568 $ 146,265,000 $ 12,140,000
Same store variance..................................................... (1,773) (17,411,000) (2,385,000)
Acquisitions............................................................ 9,454 84,774,000 11,515,000
Effects of the Divestiture.............................................. (1,855) (17,159,000) (2,001,000)
--------- -------------- -------------
Year ended December 31, 1997............................................ 21,394 $ 196,469,000 $ 19,269,000
--------- -------------- -------------
--------- -------------- -------------
</TABLE>
17
<PAGE>
The used vehicle analysis and tables above include the results of both the
Company's retail and wholesale used vehicle activities. The tables below set
forth supplemental information related to the Company's wholesale activities
only:
<TABLE>
<CAPTION>
MARGIN STATISTICS
----------------------------------------------------------
CONSOLIDATED SAME STORE COMPARISONS
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Units............................................... 8,274 7,423 4,791 5,520
Average selling price............................... $ 4,817 $ 5,580 $ 5,807 $ 5,753
Revenue............................................. $ 39,858,000 $ 41,423,000 $ 27,821,000 $ 31,758,000
Gross loss.......................................... $ 1,996,000 $ 760,000 $ 1,068,000 $ 590,000
Gross loss percentage............................... 5.0% 1.8% 3.8% 1.9%
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION
--------------------------------------
UNITS REVENUES GROSS LOSS
--------- ------------- ------------
<S> <C> <C> <C>
Year ended December 31, 1996............................................... 7,423 $ 41,423,000 $ 760,000
Same store variance........................................................ (729) (3,937,000) 478,000
Acquisitions............................................................... 2,588 8,692,000 457,000
Effects of the Divestiture................................................. (1,008) (6,320,000) 301,000
--------- ------------- ------------
Year ended December 31, 1997............................................... 8,274 $ 39,858,000 $ 1,996,000
--------- ------------- ------------
--------- ------------- ------------
</TABLE>
The Company believes that the factors, as discussed above, that led to a
15.4% decline in total used vehicle units significantly contributed to an
increase in the wholesale loss from 1996 to 1997. Approximately $1.1 million of
the 1997 wholesale losses where incurred in the Oklahoma City, Oklahoma market.
OTHER OPERATING REVENUE--
<TABLE>
<CAPTION>
SAME STORE
CONSOLIDATED COMPARISONS
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue
Finance and insurance............................................... $ 17,787 $ 12,520 $ 8,198 $ 9,120
Parts and service................................................... 36,348 23,808 17,135 16,083
Other revenue....................................................... 4,308 1,278 1,235 817
--------- --------- --------- ---------
Total............................................................. $ 58,443 $ 37,606 $ 26,568 $ 26,020
--------- --------- --------- ---------
--------- --------- --------- ---------
Gross Profit
Finance and insurance............................................... $ 16,082 $ 9,975 $ 7,046 $ 7,443
Parts and service................................................... 18,785 11,684 8,510 8,397
Other revenue....................................................... 4,308 1,278 1,235 817
--------- --------- --------- ---------
Total............................................................. $ 39,175 $ 22,937 $ 16,791 $ 16,657
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Finance and insurance (F&I) revenue primarily represents fees and
commissions the Company earns for selling and placing customer's retail finance
and lease contracts, credit life insurance contracts and third party extended
warranty contracts. Same store comparisons from 1996 to 1997 reveal a decrease
in F&I revenue of $922,000, or 10.1%. Prior to July 1, 1996 the Company sold
in-house warranties and deferred the revenue from the sale of these contracts.
The deferred revenue is being amortized into F&I revenue on a straight line
method over the life of the respective in-house warranty contracts. This revenue
item decreased from approximately $2.7 million in 1996 to approximately $1.5
million in 1997, and will
18
<PAGE>
continue to decrease in future years. Adjusting for the amortization of in-house
warranty revenue, all other same store F&I revenue increased $287,000 or 4.5%.
This increase is the result of a full year, versus six months in 1996, of the
sale of third party extended warranty contracts partially offset by a reduction
in vehicle retail sales. The Acquisitions added approximately $8.2 million in
revenue from F&I activities.
Same store F&I gross profit percentage increased from 81.6% in 1996 to 85.9%
in 1997 due to the full year impact of the sale of third party extended warranty
contracts versus only six months of such revenue in 1996. Third party extended
warranty contracts have minimal cost of sales and therefore have a significantly
higher gross profit percentage. The Acquisitions added approximately $7.7
million in gross profit from F&I activities in 1997 at a gross profit percentage
of 95%. The Acquisitions have experienced a higher gross profit percentage as
they have sold third party extended warranty contracts.
Parts and service revenue represents the wholesale and retail sales of
repair and replacement parts and the sale of labor for servicing customers
vehicles. Same store parts and service revenue increased approximately $1.1
million, or 6.5%, in 1997 from 1996. This increase is attributed to an increase
in same store wholesale parts business and an increase in repair services
provided to customers. The Acquisitions added approximately $15.3 million in
revenue from their parts and service activities.
Same store parts and service gross profit increased from 1996 to 1997 by
approximately $113,000, or 1.3%. The gross profit percentage declined from 52.2%
in 1996 to 49.7% in 1997. This decrease in the gross profit percentage and
increase gross profit amount is attributed to the heavier weighting of the
wholesale parts business which has lower gross profit and lower gross profit
percentage than retail parts sales. The Acquisitions added approximately $8.7
million from parts and service activities at a gross profit percentage of 56.6%.
The Acquisitions have historically been heavily weighted toward retail parts and
service activities, excluding Lynn Hickey Dodge.
Other revenue primarily consists of documentation fees charged by the
Company to its customers on vehicle sales. The amount the Company can charge and
application of these fees is usually governed by state statute, regulation or
regulatory agency. Also included in other revenue is rental income and
miscellaneous income. Same store revenue and gross profit from other revenue
increased $418,000, or 51.2%, from 1996 to 1997. The primary factors causing the
increase was the commencement of the lease on the property rented to Performance
Dodge in connection with the sale of Performance and increased miscellaneous
income. The Acquisitions added approximately $2.7 million in other revenue and
gross profit primarily from documentation fees. The Acquisitions are located in
states which permit higher documentation fees compared to the Company's same
store dealerships. The Company expects this component of other revenue to
increase as the Company acquires additional dealerships.
The table below sets forth a reconciliation of other operating revenue and
gross profit by major category accounting for the variance in same store
results, the Acquisitions and excluding Performance.
<TABLE>
<CAPTION>
F&I PARTS AND SERVICE OTHER REVENUE TOTAL
------------------ ------------------ ----------------- ------------------
GROSS GROSS GROSS GROSS
REVENUE PROFIT REVENUE PROFIT REVENUE PROFIT REVENUE PROFIT
-------- ------- -------- ------- -------- ------ -------- -------
(IN THOUSANDS)
<C> <C> <C> <C> <C> <C> <C> <C>
Year
ended
December
31,
1996... $12,520 $ 9,975 $23,808 $11,684 $1,278 $1,278 $37,606 $22,937
Same
store
variance... (922) (397) 1,052 113 418 418 548 134
Acquisitions... 8,160 7,740 15,337 8,687 2,720 2,720 26,217 19,147
Effects
of
the
Divestiture... (1,971) (1,236) (3,849) (1,699) (108) (108) (5,928) (3,043)
-------- ------- -------- ------- -------- ------ -------- -------
Year
ended
December
31,
1997... $17,787 $16,082 $36,348 $18,785 $4,308 $4,308 $58,443 $39,175
-------- ------- -------- ------- -------- ------ -------- -------
-------- ------- -------- ------- -------- ------ -------- -------
</TABLE>
Total same store other operating revenue increased by approximately $548,000
or 2.1%, due to the increase in parts and service revenue and other revenue
which was partially offset by a decrease in F&I revenue. The Acquisitions added
approximately $26.2 million to other operating revenue from F&I, parts and
services and other activities.
19
<PAGE>
Same store gross profit from other operating revenue increased approximately
$134,000, or .8%. This increase is primarily attributed to the increase in other
revenue and parts and service activities offset partially by a decrease in same
store F&I activities. The Acquisitions added approximately $19.1 million in
other operating revenue gross profit from F&I, parts and service and other
activities.
TOTAL REVENUE AND GROSS PROFIT--
<TABLE>
<CAPTION>
SAME STORE COMPARISONS
CONSOLIDATED
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue
Vehicle revenue................................................ $ 413,675 $ 283,977 $ 193,510 $ 216,694
Other operating revenue........................................ 58,443 37,606 26,568 26,020
---------- ---------- ---------- ----------
Total revenue................................................ $ 472,118 $ 321,583 $ 220,078 $ 242,714
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Gross Profit
Vehicle gross profit........................................... $ 42,087 $ 26,996 $ 17,608 $ 20,942
Other operating gross profit................................... 39,175 22,937 16,791 16,657
---------- ---------- ---------- ----------
Total gross profit........................................... $ 81,262 $ 49,933 $ 34,399 $ 37,599
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Same store total revenue decreased approximately $22.6 million, or 9.3%,
from 1996 to 1997. The primary factors contributing to this decrease in same
store total revenue was the decline in same store used vehicle revenue of
approximately $17.4 million and the decline in new vehicle revenue of
approximately $5.8 million discussed above. This total decline of approximately
$23.2 million, or 10.7%, in total same store vehicle revenue was slightly offset
by an increase in same store other operating revenue of $548,000 for the reasons
given above. The Acquisitions added total revenue of approximately $214.7
million with approximately $188.5 million coming from vehicle sales and
approximately $26.2 million coming from other operating revenue.
Same store gross profit decreased approximately $3.2 million, or 8.5%, from
1996 to 1997. Same store gross profit percentage increased from 15.5% to 15.6%
from 1996 to 1997. The primary factors contributing to the reduced gross profit
from same store results was an approximately $3.3 million reduction in gross
profit from new and used vehicle sales, approximately $949,000 from new vehicle
sales and approximately $2.4 million from used vehicle sales, due to the factors
discussed above. The reduction in same store gross profit from vehicle sales was
partially offset by an increase in other operating revenue gross profit of
$134,000 for the reasons outlined above. The Acquisitions added approximately
$41.4 million in gross profit from their new and used vehicle sales and other
operating revenue. The table below is a reconciliation of vehicle sales and
other operating revenue gross profit and revenue from 1996 to 1997 accounting
for the variance in same store results, the Acquisitions and excluding
Performance.
<TABLE>
<CAPTION>
REVENUE GROSS PROFIT
----------------------------------- ---------------------------------
OTHER OTHER
VEHICLE OPERATING VEHICLE OPERATING
SALES REVENUE TOTAL SALES REVENUE TOTAL
---------- ----------- ---------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996................ $ 283,977 $ 37,606 $ 321,583 $ 26,996 $ 22,937 $ 49,933
Same store variance......................... (23,184) 548 (22,636) (3,334) 134 (3,200)
Acquisitions................................ 188,511 26,217 214,728 22,212 19,147 41,359
Effects of the Divestiture.................. (35,629) (5,928) (41,557) (3,787) (3,043) (6,830)
---------- ----------- ---------- --------- ----------- ---------
Year ended December 31, 1997................ $ 413,675 $ 58,443 $ 472,118 $ 42,087 $ 39,175 $ 81,262
---------- ----------- ---------- --------- ----------- ---------
---------- ----------- ---------- --------- ----------- ---------
</TABLE>
20
<PAGE>
Consistent with regional trends recently experienced, the Company expects a
flat market for auto sales and service in 1998. The Company expects each of its
revenue and gross profit categories to be positively impacted due to the
inclusion of a full year effect of the Acquisitions and negatively impacted by
the decrease caused by the sale of Performance and negative same store
comparisons primarily due to the Oklahoma City, Oklahoma market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)--
Selling, general and administrative expenses, including employee stock
compensation recorded in 1996 of approximately $1.1 million, increased
approximately $23.9 million from 1996 to 1997. Approximately $30.9 million was
added from the Acquisitions and the effects of the Divestiture was a reduction
in SG&A of approximately $5.4 million. Same store and corporate expenses
declined approximately $1.6 million from 1996 to 1997, or 5.9%. The primary
reasons for the reduction in same store and corporate expenses relates to the
absence in 1997 of approximately $1.1 million of employee stock compensation
expense and a $600,000 employee bonus paid in 1996, both recorded prior to the
Company's initial public offering. The Company has pursued many efforts to
reduce costs such as restructuring its liability insurance program, altering pay
plans and reducing the same store employee count from 657 at December 31, 1996
to 531 at December 31, 1997. These efforts have resulted in approximately
offsetting the increasing cost of doing business. SG&A expense was 13.0% of
revenues in 1997 versus 11.3% in 1996. This increased percentage is primarily
due to the loss of operating leverage from a reduction in same store revenue and
the fact that the Acquisitions have historically had higher SG&A expense
compared to their revenues than same store operations. The Company believes that
SG&A expenses, other than the impact of one time items, will increase in the
future as the Company expands. The Company also expects SG&A to increase in
1998, even if cost reduction efforts offset the increasing cost of doing
business, due to a full year effect of the Acquisitions. The Company also
expects additional lease expense in 1998 as a result of the sale and leaseback
transaction (see Note 20). The annualized rent under the contract is $3.5
million for the properties, net of the amortization of the deferred gain.
DEPRECIATION AND AMORTIZATION--
Depreciation and amortization increased approximately $1.5 million, or 120%,
from 1996 to 1997. The primary factor behind this increase was the Acquisitions,
which added approximately $1.5 million in depreciation and amortization of
acquisition intangibles. The Company expects this expense to increase in 1998
over 1997 due to a full year impact from the Acquisitions which should exceed
the reduction caused by the Divestiture. Depreciation expense will be reduced by
approximately $300,000 on an annual basis beginning in 1998 due to the sale and
leaseback transaction the Company entered into in December 1997.
OTHER INCOME (EXPENSE)--
Other income (expense) consists of interest income and expense. Net interest
increased approximately $2.6 million from 1996 to 1997, or 82%. The reason for
this increase was the increase in long-term debt from $11.9 million at December
31, 1996 to $45.0 million at December 31, 1997, incurred primarily to finance
the Acquisitions and an increase in floor plan notes payable from $46.3 million
at December 31, 1996 to $53.4 million at December 31, 1997, due to inventory
fluctuations and the Acquisitions. The Company expects interest expense to
increase in 1998 due to the full year effect of the additional long term debt
and increased floor plan notes payable due to the Acquisitions. These increases
will be partially offset by reduced interest associated with property mortgages
and construction loans which are to be repaid with the proceeds from the sale
and leaseback transaction. Net interest expense may be further impacted by the
actions the Company may take in the future regarding its overall capital
structure and may be impacted by external factors such as the future direction
of interest rates.
21
<PAGE>
INCOME TAX PROVISION--
Income taxes increased from approximately $3.4 million in 1996 to
approximately $4.2 million in 1997, or 25%. The primary factor for the increase
was a 37.5% increase in pretax profits. The effective tax rate in 1996 was 42.3%
compared to 38.6% for 1997. The primary reason for a higher effective tax rate
in 1996 was the establishment of a valuation allowance for certain net operating
loss carry forwards. The Company expects its effective tax rate for 1998 and
beyond to be in the 37.5% to 39.0% range.
NET INCOME AND BASIC AND DILUTED NET INCOME PER SHARE--
Net income increased approximately $2.1 million, or 47%, in 1997 over 1996.
The table sets forth a reconciliation of income before interest and taxes from
1996 to 1997 accounting for same store variance, the Acquisitions, sale of
Performance, and loss on such sale ( in thousands):
<TABLE>
<S> <C>
Income before interest and taxes year ended
December 31, 1996................................ $ 11,137
Same store variance................................ (1,685)
Acquisitions....................................... 8,945
Effects of the Divestiture......................... (1,305)
Loss on the Divestiture............................ (347)
---------
Income before interest and taxes year ended
December 31, 1997................................ $ 16,745
---------
---------
</TABLE>
Basic and diluted net income per share increased from $.42 in 1996 to $.49
in 1997 or 16.7%. The weighted average shares outstanding increased from
approximately 11.0 million in 1996 to approximately 13.7 million in 1997
primarily due to the shares issued in the offering, shares issued in connection
with the Acquisitions and a reduction due to the treasury shares received in the
sale of Performance.
The Company believes several factors are in place that will affect net
income in 1998. The sale leaseback transaction entered into in December 1997
will be slightly accretive to income in that the reduced interest expense or
interest income, as a result of paying down debt or investing the proceeds, plus
reduced depreciation expense and the amortization of the gain will more than
offset the increase in lease expense. The Company will be opening two new
facilities with significantly increased capacity in Denver, Colorado and Las
Vegas, Nevada in the first and second fiscal quarters of 1998, respectively.
Sales may slow in the fiscal quarter of the actual relocations; however, the
Company is receiving an additional allocation of 1,800 new Toyota's for 1998 due
to the investment made in these two facilities. The vacated property will be
converted into used vehicle operations which may increase the Company's capacity
for used vehicle sales. The Company will also have the benefit of a full year
impact from the Spedding Toyota, Nissan West and JRJ Investments acquisitions.
The Company will also be receiving management fees from two dealerships
currently under management contract until the acquisitions are completed or
terminate. The Company does not expect volume or margin growth in its Amarillo,
Texas market and expects negative comparison for Oklahoma City, Oklahoma for
both volume and gross profit. While the Denver, Colorado and Las Vegas, Nevada
markets continue to grow, national and regional sales trends indicate flat
demand for new vehicles in 1998. As previously discussed, during 1997 the
Company sold two of its then three existing dealerships in the Oklahoma City,
Oklahoma market. Management continues to closely monitor business and operating
conditions in Oklahoma City, Oklahoma and the financial prospects of its
remaining dealership in this market. The Company may elect in 1998 to continue
operations, expand its presence or exit this market altogether. No decisions
have been made at this time.
22
<PAGE>
1996 VERSUS 1995
REVENUES--
The Company's total revenue increased 36.2% to $321.6 million in 1996 from
$236.2 million in 1995. New vehicle sales increased 20.3% to $137.7 million in
1996 from $114.5 million in 1995, primarily because of the acquisitions in
December 1995 and October 1996, of the Company's Performance Dodge and Lynn
Hickey Dodge dealerships in Oklahoma City. The inclusion of the results of these
two dealerships accounted for the overall increase in new vehicle sales in 1996.
The increase in new vehicle revenue from the Company's Oklahoma City
acquisitions was partially offset by a lower demand for new vehicles in the
Company's Amarillo market. The lower demand is partially attributable to the
drought conditions in West Texas during 1996, which had a negative impact on the
Amarillo market area.
Used vehicle sales increased 48.5% to $146.3 million in 1996 from $98.5
million in 1995. The inclusion of the results of the Company's Oklahoma City
dealerships (purchased in 1995 and 1996) accounted for 62.7% of this increase in
used vehicle sales. The remaining used vehicle revenue increase was caused
primarily by a 23.7% increase in the Amarillo market. The Company attributes
this increase to its market strategy for used vehicle inventory management.
The Company's other operating revenue increased 62.0% to $37.6 million for
1996, compared to $23.2 million for 1995 largely due to the inclusion of the
Company's Oklahoma City dealerships in the 1996 results of operations. The
addition of the Oklahoma City dealerships accounted for approximately 65.1% of
the increase in other operating revenue. The remaining increase in other
operating revenue can be largely attributed to the Company, since July 1996,
selling third party vendor warranties at its dealerships rather than its own
warranties. Historically, the Company principally sold its own in-house extended
warranty at its dealerships and recognized the resulting revenue over the term
of the warranties, although it received payment in full at the time of the sale.
In contrast, when the Company sells warranties of third party vendors, the
Company receives and immediately recognizes commission income at the time of
sale as the Company has no further obligation pursuant to the extended warranty
contracts.
GROSS PROFIT--
Gross profit increased 33.2% in 1996 to $49.9 million from $37.5 million in
1995 primarily due to the recently acquired Oklahoma City dealerships. Gross
profit as a percentage of sales decreased to 15.5% in 1996 from 15.9% in 1995.
The decrease in gross profit as a percentage of sales was primarily caused by
reduced margins on new and used vehicles. Gross profit percentage on other
operating revenue was up slightly to 61.0% in 1996 as compared to 60.8% in 1995.
The reduction in the gross profit percentage on new vehicles (10.8% in 1996
versus 12.1% in 1995) was partially attributable to increased vehicle costs
resulting from the Company's efforts to minimize the effect of inventory
shortfalls caused by GM's parts plant strike in March 1996 by purchasing
supplemental inventory from other dealers. The reduction was also attributable
to lower gross profit percentage at the Company's Oklahoma City dealerships,
which the Company believes was attributable to favorable vehicle allocations
from the manufacturers related to the 1995 acquisitions.
The reduction in the gross profit percentage on used vehicles (8.3% in 1996
versus 9.8% in 1995) was primarily attributable to increased vehicle purchase
and reconditioning costs as well as greater volume of sales of used vehicles to
other dealers and wholesalers (which sales are frequently at or slightly below
cost). In 1996, approximately 28% of the Company's used vehicle sales were to
other dealers and wholesalers as compared to approximately 23% in 1995. The
increase in wholesales is primarily due to the Company maintaining its policy to
limit the days' supply and age of its used vehicle inventory. Management
believes this policy keeps its inventory in line with the market and minimizes
carrying costs.
23
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)--
The Company's selling, general and administrative expenses increased to
$36.5 million, or 11.4% of the Company's revenues, in 1996 from $25.6 million,
or 10.9% of total revenues, in 1995.
The increase is primarily attributable to incremental start-up expenses
associated with the acquisition of the Company's Oklahoma City dealerships.
These expenses relate to integrating the Company's systems into their operations
and implementing the Company's strategies. The remaining portion of the increase
is attributable to an increase in the Company's corporate expense resulting from
the conversion from a private company to a public company.
Furthermore, in connection with the Company's reorganization, the Company
recorded an executive bonus of $600,000, which was expensed in 1996.
The Company recorded a non-cash expense relating to employee stock
compensation of approximately $1.1 million in 1996, representing the difference
between the Company's estimate of the fair value, as of the grant date of April
1, 1996, of the 303,750 shares of Common Stock issued to a certain Company
executive and the cash consideration paid of $250,000, (see Note 14).
INTEREST EXPENSE--
The Company's interest expense, net of interest income, increased
approximately 3.4% to $3.2 million for 1996 compared to $3.1 million for 1995.
The increase is primarily attributable to increased debt levels associated with
the acquisition of Performance Dodge and Hickey Dodge dealerships, which were
partially offset by a reduction in interest expense at the Company's Amarillo
dealerships. Additionally, the Company recorded interest income approximating
$631,000 from the investment of initial public offering proceeds for the period
of September 27, 1996 through December 31, 1996.
Net interest expense is expected to increase in 1997 as the Company uses the
proceeds from the initial public offering to acquire additional dealerships and
due to increased floor plan financing associated with the newly acquired
dealerships.
INCOME TAXES--
The Company's effective income tax rate increased to 42% in 1996 as compared
to 37.4% in 1995 primarily due to the fact that the Company did not recognize
the benefit for certain separate company losses incurred by the parent company
in 1996.
NET INCOME--
The Company's net income increased approximately 108.8% to $4.6 million in
1996 compared to $2.2 million in 1995. The increase was primarily attributable
to the elimination of the management fees paid to Gilliland Group Family
Partnership, and the commencement of selling third party extended warranty
contracts on an exclusive basis, which was partially offset by an increase in
selling, general and administrative expenses and employee stock compensation.
Excluding the non-recurring stock compensation charge and the $600,000 executive
bonus, the 1996 net income would have been approximately $6.1 million
representing a 24% increase over 1995 income of $4.9 million, excluding the 1995
management fee paid to GGFP.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventory of new and
used vehicles and replacement parts, acquisitions of additional dealerships,
capital expenditures and transition expenses in connection with its
acquisitions. The Company has met these liquidity requirements primarily through
cash flow generated from operating activities, floor plan financing, borrowings
under credit agreements with
24
<PAGE>
manufacturer captive finance companies and commercial banks and the proceeds
from its initial public offering. Floor plan financing from manufacturer captive
finance companies and commercial banks represents the primary source of
financing for vehicle inventories.
During 1997, the Company generated net cash of approximately $8.7 million
from operating activities, compared to $7.7 million in 1996. The increase is
primarily attributable to the decrease in same store accounts receivable and
inventory levels and an increase in net income, partially offset by a decrease
in accounts payable and accrued expenses and other liabilities.
Cash used in investing activities of approximately $56.1 million during 1997
related primarily to the acquisitions of Spedding Toyota and Nissan West as well
as the construction of two new dealership facilities for Spedding Toyota.
Expenditures related to the purchase of the Acquisitions totaled approximately
$43.3 million. The Company spent approximately $10.6 million during 1997 and
expects to spend an additional $4.0 million (a total of $22.1 million, including
$7.5 million in land, financed by seller, and construction cost), to complete
construction on two new dealership facilities in order to relocate Toyota West
and Douglas Toyota. Funds will be provided by cash on hand and interim financing
provided by an Interim Construction and Master Loan Agreement for $7.4 million
(see Note 18). The amount outstanding at December 31, 1997 was approximately
$4.8 million. Upon completion, the facilities will be sold to a third party
under a sale and leaseback contract entered into by the Company on December 31,
1997 (see Note 20). Net cash from the sale and leaseback transaction, net of
debt reduction, expenses and taxes, will be approximately $13 million. The
Company currently anticipates that any future acquisitions will be financed with
a combination of debt, stock, and cash.
Cash provided from financing activities totaled approximately $25.6 million
for the year. The increase was mainly attributable to $37 million of advances
under the credit facility for the Acquisitions, to retire debt incurred for the
Acquisitions and to make deposits on pending acquisitions. The Company re-paid
$7.0 million of seller notes incurred in the Spedding Toyota purchase and
approximately $4.3 million of debt associated with the Divestiture and other
long-term debt of approximately $6.0 million.
The Company finances its purchases of new vehicle inventory with
manufacturer captive finance companies and commercial banks. The Company also
maintains a line of credit with manufacturer captive finance companies for the
financing of used vehicle inventories. The lender receives a security interest
in all inventory it finances. The Company makes monthly interest payments on the
amount financed and must repay the principal amount of the indebtedness with
respect to any vehicle within a few days of the sale of such vehicle by the
Company. The Company periodically re-negotiates the terms of its financing,
including the interest rate. At December 31, 1997, the Company had outstanding
floor plan debt of $53.4 million, incurred on an average annual interest rate of
approximately 8.8% during 1997.
The Company began financing its used vehicle operations at its Spedding
Toyota dealerships on January 16, 1998 (see Note 18). The amount of the notes is
$3 million and is provided by R. Douglas Spedding, an Officer of the Company.
The notes mature on June 1, 1998 and bears an interest rate of 9%.
The Company has entered into a contract to acquire a certain dealership in
California. The proposed purchase price is approximately $5.5 million consisting
of approximately $4.0 million cash, $1.4 million in seller financed notes and
$100,000 in value of the Company's common stock. The Company intends to fund the
cash portion of the proposed purchase price from available working capital and
availability under its credit facility. In January 1998 the Company advanced
approximately $1.7 million towards completing this transaction, the Company
expects to complete this transaction by the end of the second quarter of 1998.
The Company has entered into a contract to acquire a certain dealership in
Nevada. The proposed purchase price is approximately $12.5 million consisting of
approximately $9.0 million in cash, $3.2 million in seller financed notes and
approximately $300,000 in value of the Company's common stock. The Company
intends to fund the cash portion of the proposed purchase price from available
working capital
25
<PAGE>
and availability under its credit facility. The Company expects to complete this
transaction by the end of the second quarter of 1998.
As of December 31, 1997 the Company had $22.4 million in cash acquisition
commitments to fund in 1998. Approximately $11.1 million of this requirement was
paid in January 1998 upon the closing of the JRJ acquisition and by the Company
making a deposit of approximately $1.7 million on one of its pending
acquisitions. The balance of approximately $11.3 million will be paid in 1998
upon the closing of the Company's pending acquisitions and funded from
availability under the Company's credit facility and available working capital.
The Company is negotiating to increase the credit facility; however, no
assurance can be given as to whether the line will be increased or whether the
agent bank will be able to syndicate future loan requests. At the end of 1997
the Company had $3 million available under this credit agreement. The Company
believes that its existing capital resources will be sufficient to fund its
current acquisition commitments.
The Company has incurred a tax liability of approximately $4 million in
connection with the change in its tax basis of accounting for inventory from
LIFO to FIFO. The Company believes that it is required to pay this liability in
six annual installments, beginning in 1997, and believes that it will be able to
pay such obligation with cash provided by operations.
The Company believes that its existing capital resources, including cash on
hand, cash from operations, funds available under the credit facility and funds
to come from the sale and leaseback transaction will be sufficient to run the
Company's operations in the ordinary course of business and fund its debt
service requirements. To the extent the Company pursues additional acquisitions,
it may need to raise additional capital either through the public or private
issuance of equity or debt securities or through additional bank borrowings.
SEASONALITY
The Company generally experiences a higher volume of new and used vehicle
sales in the second and third quarters of each year. If the Company acquires
dealerships in other markets, it may be affected by other seasonal or consumer
buying trends.
YEAR 2000 ISSUES
The Company uses primarily one vendor to supply its dealership and corporate
computer software. This vendor has informed the Company that all year 2000
issues have been or will be addressed and resolved in the Company's major record
keeping systems prior to the year 2000. The Company does not expect any major
disruption in its business activities or any significant cost or cost increases
as a result of the year 2000 issues.
26
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INDEX TO FINANCIAL
STATEMENTS
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INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants................................................................ 37
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995....... 38
Consolidated Balance Sheets, as of December 31, 1997 and 1996.................................... 39
Consolidated Statements of Changes in Stockholders' Equity for the Three Years Ended December 31,
1997........................................................................................... 40
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995....... 41
Notes to Consolidated Financial Statements....................................................... 42
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
27
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is hereby incorporated by reference from
the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders (the
"1998 Proxy Statement") under the caption "Election of Directors."
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference from
the 1998 Proxy Statement under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is hereby incorporated by reference from
the 1998 Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is hereby incorporated by reference from
the 1998 Proxy Statement under the caption "Certain Relationships and Related
Transactions."
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. & 2. See "index to Financial Statements" at Item 8 of this report. All
schedules are omitted because they were not required or the required
information is included in the Financial Statements and Notes thereto.
3. The following exhibits are filed as part of this report or hereby
incorporated by reference to exhibits previously filed with the
Commission:
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2.1 Asset Purchase Agreement dated as of June 17, 1996, among Lynn Hickey Dodge, Inc.,
Lynn Hickey, and Cross Country Dodge, Inc. (1)
2.2 Stock Purchase Agreement, dated as of January 23, 1997, by and between
Cross-Continent Auto Retailers, Inc. and R. Douglas Spedding (2)
2.3 Amendment to Stock Purchase Agreement dated as of April 1, 1997, by and between
Cross-Continent Auto Retailers, Inc. and R. Douglas Spedding (3)
2.4 Stock Purchase Agreement dated as of February 28, 1997, among Cross-Continent Auto
Retailers, Inc., Jack Biegger, Dale Edwards, and Sahara Datsun, Inc., d/b/a Jack
Biegger Nissan, as amended by the Amendment to Stock Purchase Agreement dated as
of March 17, 1997, among Cross-Continent Auto Retailers, Inc., Jack Biegger,
Dale Edwards, and Sahara Nissan, Inc., d/b/a Jack Biegger Nissan (10)
2.5 Second Amendment to Stock Purchase Agreement dated as of April 30, 1997, by and
between Cross-Continent Auto Retailers, Inc., Jack Biegger, Dale Edwards, and
Sahara Datsun, Inc., d/b/a Jack Biegger Nissan, as amended by the Amendment to
Stock Purchase Agreement dated as of March 17, 1997, among Cross-Continent Auto
Retailers, Inc., Jack Biegger, Dale Edwards, and Sahara Nissan, Inc., d/b/a Jack
Biegger Nissan (10)
2.6 Asset Purchase Agreement dated as of April 16, 1997, by and between JRJ
Investments, Inc., a Nevada corporation, The Chaisson Family Trust R-501, and
Cross-Continent Auto Retailers, Inc. (11)
2.6.1 Consent to Termination of Agreements dated as of August 5, 1997, among
Cross-Continent Auto Retailers, Inc., JRJ Investments, Inc. and The Chaisson
Family Trust R-501 (11)
2.7 Purchase Agreement dated as of March 1, 1997, between RDS, Inc. and
Cross-Continent Auto Retailers, Inc. (omitting exhibits thereto, which will be
furnished supplementally to the Commission upon request) (3)
2.8 Purchase Agreement dated as of March 1, 1997, between R. Douglas Spedding and
Cross-Continent Auto Retailers, Inc. (omitting exhibits thereto, which will be
furnished supplementally to the Commission upon request) (3)
2.9 Third Amendment to Stock Purchase Agreement, dated as of May 9, 1997, among Cross-
Continent Auto Retailers, Inc., The Jack Biegger Revocable Living Trust, The
Dale M. Edwards Revocable Family Trust, and Sahara Nissan, Inc. d/b/a Jack
Biegger Nissan. (9)
2.10 Stock Purchase Agreement dated as of June 20, 1997 between Cross-Continent Auto
Retailers, Inc. and Benji Investments, Ltd. (omitting exhibits thereto, which
will be furnished supplementally to the Commission upon request). (11)
2.11 Stock Purchase Agreement dated as of October 8, 1997, by and among Cross-Continent
Auto Retailers, Inc., The Chaisson Family Trust R-501, and JRJ Investments, Inc.
(omitting exhibits thereto, which will be furnished supplementally to the
Commission upon request) (13)
</TABLE>
29
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2.12 Amendment to Stock Purchase Agreement dated as of October 14, 1997, by and among
Cross-Continent Auto Retailers, Inc., The Chaisson Family Trust R-501, and JRJ
Investments, Inc. (13)
2.13 Amended and Restated Stock Purchase Agreement dated as of November 1, 1997, by and
among Cross-Continent Auto Retailers, Inc., The Chaisson Family Trust R-501, and
JRJ Investments, Inc. (omitting exhibits thereto, which will be furnished
supplementally to the Commission upon request) (15)
2.14 Stock Purchase Agreement dated October 16, 1997, by and among Cross-Continent Auto
Retailers, Inc., Thomas A. Randt, Ronald J. Blomquist, and Tar-Car, Inc.
(omitting exhibits thereto, which will be furnished supplementally to the
Commission upon request)
2.15 Amendment to Stock Purchase Agreement dated January 14, 1998, by and among Cross-
Continent Auto Retailers, Inc., Thomas A. Randt, Ronald J. Blomquist, and
Tar-Car, Inc.
2.16 Asset Purchase Agreement dated December 17, 1997, by and among Vinci, Inc., Ronald
C. Vinci, and Sahara Imports, Inc. (omitting exhibits thereto, which will be
furnished supplementally to the Commission upon request)
2.17 Amendment to Asset Purchase Agreement dated January 29, 1998, by and among Vinci,
Inc., Ronald C. Vinci, and Sahara Imports, Inc.
3.1 Amended and Restated Certificate of Incorporation of Cross-Continent Auto
Retailers, Inc. (4)
3.3 Amended and Restated Bylaws of Cross-Continent Auto Retailers, Inc. (4)
4.1 Specimen Common Stock Certificate (4)
4.2 Rights Agreement between Cross-Continent Auto Retailers, Inc. and The Bank of New
York, as rights agent (4)
4.3 Amended and Restated 1996 Stock Option Plan of Cross-Continent Auto Retailers,
Inc. (5)
4.4 Registration Rights Agreement dated as of April 1, 1997, by and between
Cross-Continent Auto Retailers, Inc. and R. Douglas Spedding (3)
4.5 Registration Rights Agreement dated January 5, 1998, by and between
Cross-Continent Auto Retailers, Inc. and The Chaisson Family Trust R-501
10.1 Dealer Sales and Service Agreement dated November 1, 1995, between the Chevrolet
Division of General Motors Corporation and Plains Chevrolet, Inc., as amended by
Supplemental Agreement dated as of July 29, 1996 (1)(6)
10.2 Sales and Service Agreement between Performance Dodge, Inc. and Chrysler
Corporation, dated as of October 1, 1996 (1)
10.3 Dealer Sales and Service Agreement dated September 23, 1996, between the Nissan
Division of Nissan Motor Corporation, U.S.A., Quality Nissan, Inc. and
Cross-Continent Auto Retailers, Inc. (4)
10.4 Dealer Sales and Service Agreement dated September 23, 1996, between the Nissan
Division of Nissan Motor Corporation, U.S.A., Performance Nissan and
Cross-Continent Auto Retailers, Inc. (4)
10.4(a) Dollar Volume Contract dated April 1, 1997, between Plains Chevrolet, Inc.,
Westgate Chevrolet, Inc., Midway Chevrolet, Inc., Quality Nissan, Inc. and
Amarillo Globe News (1)
10.5 Sublease Agreement dated June 1, 1995, between Gilliland Group Family Partnership
and Performance Nissan, Inc. (1)
10.6 Lease Agreement dated March 1, 1994, among John W. Adams, Eleanore A. Braly as
Trustee of the Eleanore A. Braly Trust, Romie G. Carpenter, Melody Lynn Goff,
and Selden Simpson and Quality Nissan, Inc. (1)
10.7 Office Lease dated June 1, 1996, between Gilliland Group Family Partnership and
Cross-Country Auto Retailers, Inc. (now named Cross-Continent Auto Retailers,
Inc.) (1)
</TABLE>
30
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10.8 Wholesale Security Agreement, as amended, dated December 4, 1995, between General
Motors Acceptance Corporation and Performance Dodge, Inc. (1)(7)
10.9 Corporation and Shareholders' Agreement of Xaris Management Co. (1)
10.10 Documents dated December 4, 1995, relating to $5,550,000 loan by General Motors
Acceptance Corporation to Performance Dodge, Inc. (1)
10.10.1 Promissory Note by Performance Dodge, Inc. to General Motors Acceptance
Corporation, in the amount of $1,850,000 (2)
10.10.2 Promissory Note by Performance Dodge, Inc. to General Motors Acceptance
Corporation, in the amount of $3,700,000 (fully repaid) (2)
10.10.4 Security Agreement between General Motors Acceptance Corporation and Performance
Dodge, Inc. (2)
10.10.5 Mortgage, Assignment and Security Agreement between General Motors Acceptance
Corporation and Performance Dodge, Inc. (2)
10.11 Documents relating to loan by General Motors Acceptance Corporation to Midway
Chevrolet, Inc. (1)
10.11.1 Promissory Note dated December 15, 1989, by Midway Chevrolet, Inc. to General
Motors Acceptance Corporation, in the amount of $977,249.74 (2)
10.11.2 Renewal, Extension and Modification Agreement dated February 20, 1995, between
General Motors Acceptance Corporation and Midway Chevrolet, Inc. (2)
10.11.3 Security Agreement dated February 20, 1995, between General Motors Acceptance
Corporation and Midway Chevrolet, Inc. (2)
10.12 Documents dated December 4, 1995, relating to $1,350,000 loan by General Motors
Acceptance Corporation to Performance Nissan, L.L.C. (1)
10.12.1 Promissory Note by Performance Nissan, L.L.C. to General Motors Acceptance
Corporation, in the amount of $1,350,000 (2)
10.12.2 Cross-Default and Cross-Collateralization Agreement between General Motors
Acceptance Corporation and Performance Nissan, L.L.C. (2)
10.12.3 Security Agreement between General Motors Acceptance Corporation and Performance
Nissan, L.L.C. (2)
10.13 Documents relating to used vehicle inventory financing agreements between General
Motors Acceptance Corporation and Cross-Continent Auto Retailers, Inc.
dealership subsidiaries (1)(7)
10.13.1 Used Vehicle Wholesale Borrowing Base Credit Line Loan Agreement dated June 7,
1996, between General Motors Acceptance Corporation and Plains Chevrolet, Inc.
(2)(7)
10.13.2 Promissory Note dated June 7, 1996, by Plains Chevrolet, Inc. to General Motors
Acceptance Corporation, in the amount of $3,000,000 (2)(8)
10.13.3 Cross-Default and Cross-Collateralization Agreements between General Motors
Acceptance Corporation and Midway Chevrolet, Inc., Plains Chevrolet, Inc.,
Quality Nissan, Inc., and Westgate Chevrolet, Inc. (2)
10.14(*) Employment Contract dated February 21, 1997, by and between Cross-Continent Auto
Retailers, Inc. and James F. Purser (2)
10.15(*) Employment Contract dated February 18, 1997, by and between Cross-Continent Auto
Retailers, Inc. and R. Wayne Moore (11)
10.16(*) Employment Agreement dated as of April 1, 1997, by and between R. Douglas Spedding
and Cross-Continent Auto Retailers, Inc. (3)
10.17(*) Employment Agreement dated as of April 1, 1997, by and between Douglas J. Spedding
and Cross-Continent Auto Retailers, Inc. (3)
</TABLE>
31
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10.18 Promissory Note dated April 1, 1997, by Cross-Continent Auto Retailers, Inc. to
the order of R. Douglas Spedding in the principal amount of $7,000,000 (fully
repaid) (3)
10.19 Promissory Note dated April 4, 1997, by Cross-Continent Auto Retailers, Inc. to
Amarillo National Bank in the principal amount of $8,000,000 (fully repaid) (3)
10.20 Documents dated April 10, 1997, relating to Promissory Note by Cross-Continent
Auto Retailers, Inc. to the order of RDS, Inc. in the principal amount of
$2,000,000 (3)
10.20.1 Promissory Note by Cross-Continent Auto Retailers, Inc. to the order of RDS, Inc.
(3)
10.20.2 Security Agreement between Cross-Continent Auto Retailers, Inc. and RDS, Inc. (3)
10.20.3 Deed of Trust between Cross-Continent Auto Retailers, Inc. and RDS, Inc. (3)
10.21 Documents dated April 10, 1997, relating to Promissory Note by Cross-Continent
Auto Retailers, Inc. to the order of R. Douglas Spedding in the principal amount
of $5,500,000 (3)
10.21.1 Promissory Note by Cross-Continent Auto Retailers, Inc. to the order of R. Douglas
Spedding (3)
10.21.2 Security Agreement between Cross-Continent Auto Retailers, Inc. and R. Douglas
Spedding (3)
10.21.3 Deed of Trust between Cross-Continent Auto Retailers, Inc. and R. Douglas Spedding
(3)
10.22 Release and Indemnification Agreement dated as of April 10, 1997, between Cross-
Continent AutoRetailers, Inc. and R. Douglas Spedding (3)
10.23 Unsecured Promissory Note dated July 1, 1997, by Cross-Continent Auto Retailers,
Inc. to The Jack Biegger Revocable Living Trust, in the principal amount of
$360,000.00. (9)
10.24 Unsecured Promissory Note, dated July 1, 1997, by Cross-Continent Auto Retailers,
Inc. to The Dale M. Edwards Revocable Family Trust, in the principal amount of
$240,000.00. (9)
10.25 Unsecured Promissory Note, dated July 1, 1997, by Sahara Nissan, Inc. to The Jack
Biegger Revocable Living Trust, in the principal amount of $275,000.00. (9)
10.26 Unsecured Promissory Note, dated July 1, 1997, by Sahara Nissan, Inc. to The Dale
M. Edwards Revocable Family Trust, in the principal amount of $125,000.00. (9)
10.27 Documents, dated as of June 26, 1997, relating to line of credit for
Cross-Continent Auto Retailers, Inc. with Texas Commerce Bank National
Association, individually and as agent. (9)
10.27.1 Revolving Credit Agreement between Cross-Continent Auto Retailers, Inc., and Texas
Commerce Bank National Association. (9)
10.27.2 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries
to the order of Texas Commerce Bank National Association. (9)
10.27.3 Pledge and Security Agreement between Cross-Continent Auto Retailers, Inc. and
Texas Commerce Bank National Association. (9)
10.28 Dealer Sales and Service Agreement dated July 1, 1997, between the Nissan Division
of Nissan Motor Corporation, U.S.A., Sahara Nissan, Inc., Cross-Continent Auto
Retailers, Inc., and Bill A. Gilliland. (9)
10.29 Environmental Agreement dated July 1, 1997 between Cross-Continent Auto Retailers,
Inc. and The Jack Biegger Revocable Living Trust. (9)
10.30 Separation Agreement dated as of June 20, 1997 between Cross-Continent Auto
Retailers, Inc. and Emmett M. Rice, Jr. (11)
10.32 Documents, dated as of August 7, 1997, relating to the line of credit for
Cross-Continent Auto Retailers, Inc. with Texas Commerce Bank National
Association, individually and as agent (13)
</TABLE>
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10.32.1 First Amendment to Revolving Credit Agreement among Cross-Continent Auto
Retailers, Inc.; its subsidiaries; Texas Commerce Bank National Association;
Amarillo National Bank; The Bank of Tokyo-Mitsubishi, Ltd., Houston Agency; and
U. S. Bank. (13)
10.32.2 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries
to the order of Texas Commerce Bank National Association in the principal amount
of $22,500,000 (13)
10.32.3 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries
to the order of Amarillo National Bank in the principal amount of $7,500,000
(13)
10.32.4 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries
to the order of Bank of Tokyo-Mitsubishi, Ltd., Houston Agency, in the principal
amount of $5,000,000 (13)
10.32.5 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries
to the order of U. S. Bank in the principal amount of $5,000,000 (13)
10.33 Lease Agreement dated August 15, 1997 between Cross-Continent Auto Retailers, Inc.
and Performance Dodge, Inc. (12)
10.34 Joinder Agreement dated July 1, 1997 between Sahara Nissan, Inc. and Texas
Commerce Bank National Association (13)
10.35 Documents dated as of September 30, 1997 relating to the loan agreement between
Cross-Continent Auto Retailers, Inc. and R. Douglas Spedding (omitting exhibits
thereto, which will be furnished supplementally to the Commission upon request)
(13)
10.35.1 Master Construction and Master Loan Agreement among Toyota West Sales and Service,
Inc., Douglas Toyota, Inc., Sahara Imports, Inc., and Cross-Continent Auto
Retailers, Inc. as Borrowers, and R. Douglas Spedding as Lender (13)
10.35.2 Promissory Note by Cross-Continent Auto Retailers, Inc. to the order of R. Douglas
Spedding in the principal amount of $7,400,000 (13)
10.35.3 Deed of Trust among Cross-Continent Auto Retailers, Inc. as Borrower, the Public
Trustee of Adams County, Colorado, as Trustee, and R. Douglas Spedding as Lender
(13)
10.35.4 Deed of Trust and Assignment of Rents among Cross-Continent Auto Retailers, Inc.
as Grantor, Old Republic Title Company of Nevada as Trustee, and R. Douglas
Spedding as Beneficiary (13)
10.35.5 Security Agreement between Cross-Continent Auto Retailers, Inc., Douglas Toyota,
Inc. and Toyota West Sales and Service, Inc. as Debtors and R. Douglas Spedding
as Lender (13)
10.35.6 Guaranty by Bill A. Gilliland in favor of R. Douglas Spedding (13)
10.36 Documents dated August 22, 1997 relating to loans by General Motors Acceptance
Corporation to Cross-Continent Auto Retailers, Inc. and certain subsidiaries
(13)
10.36.1 Cross Default and Cross Collateralization Agreement among General Motors
Acceptance Corporation and Midway Chevrolet, Inc., Plains Chevrolet, Inc.,
Quality Nissan, Inc., Westgate Chevrolet, Inc., Sahara Nissan, Inc., and
Cross-Continent Auto Retailers, Inc. (13)
10.36.2 Guaranty Agreement between Cross-Continent Auto Retailers, Inc. and General Motors
Acceptance Corporation (13)
10.37 Assumption Agreement dated August 22, 1997 between General Motors Acceptance
Corporation and Cross-Continent Auto Retailers, Inc. relating to Performance
Dodge, Inc. (omitting exhibit thereto, which will be furnished supplementally to
the Commission upon request) (13)
</TABLE>
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10.38 Amendment to Office Lease dated October 1, 1997, between Gilliland Group Family
Partnership and Cross-Country Auto Retailers, Inc. (now named Cross-Continent
Auto Retailers, Inc.) (13)
10.39 Amendment No. 1 to Nissan Dealer Term Sales and Service Agreement dated October
13, 1997, between the Nissan Division of Nissan Motor Corporation U.S.A. and
Sahara Nissan, Inc. d/b/a Jack Biegger Nissan (13)
10.40 Management Agreement dated as of the 16th day of October, 1997, by and between
Cross-Continent Auto Retailers, Inc. and Tar-Car, Inc.
10.41 Amendment to Management Agreement effective as of November 1, 1997, by and between
Cross-Continent Auto Retailers, Inc. and Tar-Car, Inc.
10.42 Management Agreement dated as of the 17th day of December, 1997, by and between
Sahara Imports, Inc. and Vinci, Inc.
10.43 Management Agreement dated as of November 1, 1997 by and among Cross-Continent
Auto Retailers, Inc., JRJ Investments, Inc., and the Chaisson Family Trust R-501
(15)
10.44 Triple Net Lease Agreement dated November 1, 1997 covering 2333 South Decatur
Boulevard, Las Vegas, Nevada, by and between JRJ Properties and JRJ Investments,
Inc. (15)
10.45 Triple Net Lease Agreement dated November 1, 1997 covering 261 and 251 Auto Mall
Drive, Henderson, Nevada, by and between The Chaisson Family Trust R-501 and JRJ
Investments, Inc. (15)
10.46 Unsecured Promissory Note dated January 5, 1998, by Cross-Continent Auto
Retailers, Inc. to The Chaisson Family Trust R-501 (15)
10.47 Management Agreement dated January 5, 1998, by and among Cross-Continent Auto
Retailers, Inc., JRJ Investments, Inc., and The Chaisson Family Trust R-501.
(15)
10.48 Escrow Agreement dated January 5, 1998, by and among Cross-Continent Auto
Retailers, Inc., The Chaisson Family Trust R-501, and United Title of Nevada,
Inc. (15)
10.49 Agreement Regarding Stock Options dated January 5, 1998, between James J.
Chaisson, Jr. and Cross-Continent Auto Retailers, Inc. (15)
10.50 Real Property Purchase Agreement dated as of December 31, 1997, by and among
Capital Automotive REIT, Capital Automotive, L.P., Plains Chevrolet, Inc.,
Midway Chevrolet, Inc., Westgate Chevrolet, Inc., Quality Nissan, Inc., and
Cross-Continent Auto Retailers, Inc. (omitting exhibits thereto, which will be
furnished supplementally to the Commission upon request)
10.51 Documents dated January 16, 1998 relating to financing for the purchase of used
vehicles at T-West Sales & Service, Inc. and Douglas Motors
10.51.1 Promissory Note from T-West Sales & Service, Inc. to R. Douglas Spedding, with
Guaranty by Cross-Continent Auto Retailers, Inc.
10.51.2 Security Agreement between T-West Sales & Service, Inc. and R. Douglas Spedding
10.51.3 Promissory Note from Douglas Motors, Inc. to R. Douglas Spedding, with Guaranty by
Cross-Continent Auto Retailers, Inc.
10.51.4 Security Agreement between Douglas Motors, Inc. and R. Douglas Spedding
10.52 Sublease Agreement dated February 25, 1998 by and between Allied 2000 Collision
Center, Inc. and Plains Chevrolet, Inc.
10.53 Sublease Agreement dated February 25, 1998 by and between Working Man's Credit
Plan, Inc. and Plains Chevrolet, Inc.
10.54 Sublease Agreement dated February 25, 1998 by and between Westgate Chevrolet, Inc.
and Enterprise Rent-A-Car Company
</TABLE>
34
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10.55 Guaranty and Subordination Agreement dated February 25, 1998 by Cross-Continent
Auto Retailers, Inc. in favor of Capital Automotive, L.P.
10.56 Lease Agreement dated February 25, 1998 by and between Capital Automotive, L. P.
and Plains Chevrolet, Inc. (14)
10.57 Dealer Agreement effective as of February 1, 1998 by and between BMW of North
America, Inc. and JRJ Investments, Inc.
21.1 Subsidiaries
23.1 Consent of independent accountants
27.1 Financial Data Table
</TABLE>
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(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 333-0685), incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated April 10, 1997, incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the Quarterly Period Ended September 30, 1996, incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, filed with the Securities and Exchange Commission on March 7,
1997, incorporated herein by reference.
(6) Substantially identical agreements exist between the Chevrolet Division and
each of Midway Chevrolet, Inc. and Westgate Chevrolet, Inc.
(7) Substantially identical Agreements exist between General Motors Acceptance
Corporation and each of Midway Chevrolet, Inc., Westgate Chevrolet, Inc.,
and Quality Nissan, Inc.
(8) Substantially identical Promissory Notes have been executed by Midway
Chevrolet, Inc., Westgate Chevrolet, Inc., and Quality Nissan, Inc., in the
amounts indicated for each dealership subsidiary in the Cross-Default and
Cross-Collateralization Agreement (Exhibit 10.13.3)
(9) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated July 15, 1997, incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997, incorporated herein by
reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997, incorporated herein by
reference.
(12) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 2, 1997, incorporated herein by reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997, incorporated herein
by reference.
(14) Substantially identical agreements exist between Capital Automotive, L.P.
and each of Midway Chevrolet, Inc., Westgate Chevrolet, Inc., Quality
Nissan, Inc., Douglas Motors, Inc., and T-West Sales & Service, Inc.
(15) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated January 5, 1998, incorporated herein by reference.
(b) Reports on Form 8-K
35
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(1) A form 8-K was filed on April 25, 1997 reporting the purchase of all the
outstanding capital stock of each of Douglas Toyota, Inc., a Colorado
corporation, and Toyota West Sales & Service, Inc., a Nevada corporation,
together with certain real estate to be used in connection with both
dealerships.
(2) A Form 8-K/A No. 1 was filed on June 24, 1997 completing Item 7
Financial Statements and Pro Forma Financial Information.
(3) A Form 8-K was filed on July 15, 1997 reporting the purchase of all the
outstanding stock of Sahara Nissan, Inc., a Nevada corporation.
(4) A Form 8-K/A No. 1 was filed on August 13, 1997 completing Item 7
Financial Statements and Pro Forma Financial Information.
(5) A Form 8-K was filed on September 2, 1997 reporting the sale of all the
outstanding capital stock of Performance Dodge, Inc., an Oklahoma
corporation, and Performance Dodge, Inc., an Oklahoma corporation.
(6) A Form 8-K was filed on January 23, 1998 reporting the purchase of all
the outstanding capital stock of JRJ Investments, Inc., a Nevada
corporation.
36
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Cross-Continent Auto Retailers, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Cross-Continent Auto Retailers, Inc. and its subsidiaries at December 31, 1997
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE, LLP
Fort Worth, Texas
February 13, 1998,
except as to Note 20,
which is as of February 24, 1998
37
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CROSS-CONTINENT AUTO RETAILERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(THOUSANDS--EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues
Vehicle sales.............................................................. $ 413,675 $ 283,977 $ 212,984
Other operating revenue.................................................... 58,443 37,606 23,210
---------- ---------- ----------
Total revenues........................................................... 472,118 321,583 236,194
Cost of sales................................................................ 390,856 271,650 198,702
---------- ---------- ----------
Gross profit............................................................. 81,262 49,933 37,492
Expenses
Selling, general and administrative........................................ 61,512 36,490 25,630
Depreciation and amortization.............................................. 2,658 1,207 951
Management fees paid to related party...................................... -- -- 4,318
Employee stock compensation................................................ -- 1,099 --
Loss from sale of dealerships.............................................. 347 -- --
---------- ---------- ----------
64,517 38,796 30,899
---------- ---------- ----------
Income before interest and taxes........................................... 16,745 11,137 6,593
Other income (expense)
Interest income............................................................ 1,224 1,585 830
Interest expense........................................................... (7,043) (4,778) (3,918)
---------- ---------- ----------
Income before income taxes................................................. 10,926 7,944 3,505
Income tax provision....................................................... 4,213 3,362 1,310
---------- ---------- ----------
Net income............................................................... $ 6,713 $ 4,582 $ 2,195
---------- ---------- ----------
---------- ---------- ----------
Basic and diluted net income per share....................................... $ .49 $ .42 $ .22
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding................................... 13,683 11,027 9,821
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(THOUSANDS)
<S> <C> <C>
Current assets
Cash and cash equivalents............................................................... $ 15,173 $ 36,946
Accounts receivable..................................................................... 16,884 18,629
Inventories............................................................................. 55,807 48,168
Other current assets.................................................................... 1,792 1,088
---------- ----------
Total current assets.................................................................. 89,656 104,831
Property and equipment, net............................................................. 33,165 13,391
Goodwill and other intangible assets, net............................................... 67,988 22,094
Other assets and deferred charges....................................................... 6,464 2,130
---------- ----------
Total assets.......................................................................... $ 197,273 $ 142,446
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Floor plan notes payable................................................................ $ 53,368 $ 46,282
Current maturities of long-term debt.................................................... 727 1,345
Accounts payable........................................................................ 6,117 8,623
Due to affiliates....................................................................... 15,150 5,478
Accrued expenses and other liabilities.................................................. 10,559 7,408
Deferred income taxes................................................................... 647 1,914
---------- ----------
Total current liabilities............................................................. 86,568 71,050
Long-term debt.......................................................................... 44,263 10,568
Other liabilities and deferred credits.................................................. 3,180 2,310
---------- ----------
Total long-term liabilities........................................................... 47,443 12,878
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued.............. -- --
Common stock, $.01 par value, 100,000,000 shares authorized, 14,205,703 and 13,800,000
issued and outstanding at December 31, 1997 and 1996, respectively.................... 142 138
Paid-in capital......................................................................... 54,528 47,761
Retained Earnings....................................................................... 17,332 10,619
Treasury stock, 760,000 shares at cost.................................................. (8,740) --
---------- ----------
Total stockholders' equity............................................................ 63,262 58,518
Commitments and contingencies
(Notes 12, 14, 16, 19 and 20)
---------- ----------
Total liabilities and stockholders' equity............................................ $ 197,273 $ 142,446
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK
------------------------ ------------------------ ------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.............. -- $ -- -- $ -- -- $ -- $ 1,064
Net income................................ -- -- -- -- -- -- --
Dividends paid............................ -- -- -- -- -- -- --
--- ----- ----------- ----- --- ----------- ---------
Balance at December 31, 1995.............. -- -- -- -- -- -- 1,064
Issuance of common stock pursuant to
reorganization.......................... -- -- 9,821 98 -- -- (98)
Issuance of common stock pursuant to
employment agreement.................... -- -- 304 3 -- -- 1,346
Issuance of common stock pursuant to the
initial public offering................. -- -- 3,675 37 -- -- 45,449
Net income................................ -- -- -- -- -- -- --
--- ----- ----------- ----- --- ----------- ---------
Balance at December 31, 1996.............. -- -- 13,800 138 -- -- 47,761
Issuance of common stock pursuant to
acquisition............................. -- -- 406 4 -- -- 6,995
Treasury stock acquired in disposition.... -- -- -- -- (760) (8,740) --
Other..................................... -- -- -- -- -- -- (228)
Net income................................ -- -- -- -- -- -- --
--- ----- ----------- ----- --- ----------- ---------
Balance at December 31, 1997.............. -- $ -- 14,206 $ 142 (760) $ (8,740) $ 54,528
--- ----- ----------- ----- --- ----------- ---------
--- ----- ----------- ----- --- ----------- ---------
<CAPTION>
RETAINED
EARNINGS TOTAL
----------- ---------
<S> <C> <C>
Balance at December 31, 1994.............. $ 3,977 $ 5,041
Net income................................ 2,195 2,195
Dividends paid............................ (135) (135)
----------- ---------
Balance at December 31, 1995.............. 6,037 7,101
Issuance of common stock pursuant to
reorganization.......................... -- --
Issuance of common stock pursuant to
employment agreement.................... -- 1,349
Issuance of common stock pursuant to the
initial public offering................. -- 45,486
Net income................................ 4,582 4,582
----------- ---------
Balance at December 31, 1996.............. 10,619 58,518
Issuance of common stock pursuant to
acquisition............................. -- 6,999
Treasury stock acquired in disposition.... -- (8,740)
Other..................................... -- (228)
Net income................................ 6,713 6,713
----------- ---------
Balance at December 31, 1997.............. $ 17,332 $ 63,262
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
(THOUSANDS)
Cash flows from operating activities
Net income................................................................... $ 6,713 $ 4,582 $ 2,195
Adjustments to reconcile net income to net cash provided (used) by operating
activities.................................................................
Depreciation and amortization................................................ 2,658 1,207 951
Net proceeds related to in-house warranties.................................. -- 1,586 3,345
Amortization of deferred warranty revenue.................................... (1,467) (2,676) (2,136)
Employee stock compensation.................................................. -- 1,099 --
Deferred taxes and other..................................................... 1,690 (136) (836)
Loss on sale of dealership................................................... 347 -- --
---------- ---------- ---------
9,941 5,662 3,519
(Increase) decrease in
Accounts receivable.......................................................... 6,085 (9,246) (4,860)
Inventory.................................................................... 4,143 9,156 (8,285)
Other assets................................................................. (2,056) (989) --
Increase (decrease) in
Accounts payable--trade...................................................... (3,713) 3,768 3,275
Accrued expenses and other liabilities....................................... (5,735) (604) (68)
---------- ---------- ---------
Net cash provided (used) by operating activities........................... 8,665 7,747 (6,419)
Cash flows from investing activities
Acquisition of property and equipment........................................ (12,172) (1,636) (1,485)
Acquisition of dealerships................................................... (43,309) (20,052) (302)
Disposition of dealerships................................................... (569) -- --
---------- ---------- ---------
Net cash used by investing activities...................................... (56,050) (21,688) (1,787)
Cash flows from financing activities
Change in floor plan notes payable........................................... (741) (1,220) 9,381
Due to affiliates............................................................ (2,635) (476) 3,729
Net proceeds from borrowings................................................. 46,870 -- --
Long-term debt repayments.................................................... (10,882) (1,515) (1,408)
Long-term debt repayments-related parties.................................... (7,000) -- --
Proceeds from common stock issuance.......................................... -- 45,736 --
Dividends paid............................................................... -- -- (135)
---------- ---------- ---------
Net cash provided by financing activities.................................. 25,612 42,525 11,567
---------- ---------- ---------
Increase (decrease) in cash and cash equivalents............................... (21,773) 28,584 3,361
Cash and cash equivalents at beginning of period............................... 36,946 8,362 5,001
---------- ---------- ---------
Cash and cash equivalents at end of period..................................... $ 15,173 $ 36,946 $ 8,362
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
41
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--GENERAL INFORMATION AND BASIS OF PRESENTATION
Cross-Continent Auto Retailers, Inc. operates in one business segment, the
retail sales and service of new and used automobiles. The Company conducts its
operations in the Amarillo, Texas, Oklahoma City, Oklahoma, Las Vegas Nevada,
and Denver, Colorado markets through three Chevrolet, one Dodge, two Toyota and
two Nissan dealerships.
The Company was incorporated in Delaware in May, 1996. In June, 1996,
shareholders of the then six existing dealerships exchanged their shares of
stock in such companies for 9,821,250 shares of the Company's stock (the
"Reorganization"). The Shareholders' ownership interest in the Company
immediately after the exchange was as follows:
<TABLE>
<S> <C>
Gilliland Group Family Partnership ("GGFP")......... 88.2%
Emmett M. Rice, Jr.................................. 10.3%
Other............................................... 1.5%
</TABLE>
All of the interests in GGFP are owned and controlled by Bill Gilliland,
Chairman and CEO, Robert W. Hall, Senior Vice Chairman and son-in-law to Bill
Gilliland, and Lori D'Atri, daughter of Bill Gilliland. The ownership group
described above is hereinafter referred to as the Control Group.
Prior to the Reorganization, the Company did not conduct business or have
any assets and liabilities and, thus, did not operate as a stand-alone company.
The term "Company," when used hereinafter, includes Cross-Continent Auto
Retailers, Inc., its subsidiaries and its predecessors.
In September 1996, the Company sold 3,675,000 shares of its common stock in
an initial public offering for $14.00 per share. Net proceeds from the initial
public offering, after considering underwriting commissions, printing costs,
professional fees, and other direct expenses, were $45.3 million. Following the
initial public offering, the Control Group remains the principal stockholder of
the Company and at December 31, 1997 owned approximately 60.7% of the Company's
issued and outstanding shares.
The accompanying consolidated financial statements consist of the accounts
of the Company, its subsidiaries and its predecessors. The accounts prior to the
Reorganization are presented as if the Company had existed as a corporation
separate from the Control Group during the periods presented and include the
historical assets, liabilities, revenues and expenses that are directly related
to the Company's operations. All material intercompany transactions have been
eliminated. Prior to the Reorganization, certain expenses reflected in the
consolidated financial statements include allocations of expenses from GGFP.
These allocations include expenses for general management, use of an airplane,
treasury, legal and benefits administration, insurance, tax compliance and other
miscellaneous services. The allocation of expenses was generally based upon
actual costs incurred and such costs were apportioned to the Company on various
methods such as sales volume, employee count, profit and actual expense or time
incurred as it related to the Company's business.
Financing associated with working capital needs and mortgage financing used
to purchase property for the dealership operations and their related interest
expense have been historically recorded on the Company's financial statements.
No other interest expense or income has been allocated to the Company in these
financial statements.
Management believes that the foregoing allocations were made on a reasonable
basis; however, the allocations of costs and expenses do not necessarily
indicate the costs that would have been or will be
42
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--GENERAL INFORMATION AND BASIS OF PRESENTATION (CONTINUED)
incurred by the Company on a stand-alone basis. Also, the financial information
included in the consolidated financial statements for the periods prior to the
Reorganization may not necessarily reflect the financial position, results of
operations and cash flows of the Company in the future or what the financial
position, results of operations and cash flows would have been if the Company
had been a separate, stand-alone company during the periods presented. Since the
initial public offering, the Company has incurred additional corporate expenses
as a result of being a public company and no longer remits management fees to
the Control Group (see Note 18).
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash on hand
and all highly liquid investments with maturities of three months or less when
purchased.
REVENUES--Revenues from vehicle and parts sales and from service operations
are recognized at the time the vehicle is delivered to the customer or service
is completed.
FINANCE FEES AND INSURANCE COMMISSIONS--Finance fees represent revenue
earned by the Company for notes and leases placed with financial institutions in
connection with customer vehicle financing. Finance fees are recognized in
income upon acceptance of the credit by the financial institution. Insurance
income represents commissions earned on credit life, accident and disability
insurance contracts sold in connection with the vehicle on behalf of third-party
insurance companies. Insurance commissions are recognized in income upon
customer acceptance of the insurance terms as evidenced by contract execution.
The Company is charged back for a portion of these fees and commissions
should the customer terminate the contract prior to its scheduled maturity. The
estimated allowance for these chargebacks ("chargeback allowance") is based upon
the Company's historical experience for prepayments or defaults. Finance fees
and insurance commissions, net of chargebacks, are classified as other operating
revenue in the accompanying consolidated statement of operations (see Note 7).
EXTENDED WARRANTY CONTRACTS--The Company sells extended service contracts on
new and used vehicles on behalf of unrelated third parties. Commission revenue
for the unrelated third-party extended service contracts is recognized at the
time of sale. Until July 1996, the Company also offered its own in-house
warranty contract; these contracts generally provide extended coverage for
periods of one year or 12,000 miles up to six years or 100,000 miles, whichever
comes first. The Company accounts for the sale of its in-house extended warranty
contracts in accordance with FASB Technical Bulletin No. 90-1, ACCOUNTING FOR
SEPARATELY PRICED EXTENDED WARRANTY AND PRODUCT MAINTENANCE CONTRACTS, which
requires that revenues from sales of in-house extended warranty contracts be
recognized ratably over the lives of the contracts. Costs directly related to
sales of in-house extended warranty contracts are deferred and charged to
expense proportionately as the revenues are recognized. A loss is recognized on
extended warranty contracts if the sum of the expected costs of providing
services under the contracts exceeds related unearned revenue.
Revenue and commissions recognized from the sale of extended warranty
contracts are classified as other operating revenue and the related costs of
parts and service associated therewith are classified as cost of sales in the
accompanying consolidated statement of operations.
INVENTORIES--Vehicles are stated at the lower of cost or market, cost being
determined on a specific identification basis. Parts are stated at the lower of
cost or market, cost being determined on the first-in, first-out (FIFO) basis.
43
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the respective
lives of the assets. The ranges of estimated useful lives are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings................................................ 30 years
Furniture and equipment.................................. 3 to 7 years
Leasehold improvements................................... 7 to 15 years
</TABLE>
When depreciable assets are sold or retired, the related cost and
accumulated depreciation are removed from the accounts. Any gains or losses are
included in selling, general and administrative expenses. Major additions and
betterments are capitalized. Maintenance and repairs which do not materially
improve or extend the lives of the respective assets are charged to operating
expenses as incurred.
GOODWILL AND OTHER INTANGIBLE ASSETS--Goodwill, $64,445,000 at December 31,
1997 and $20,623,000 at December 31, 1996 (net of accumulated amortization of
$1,866,000 and $707,000 in 1997 and 1996, respectively), represents the excess
of the purchase price over the estimated fair value of net assets of acquired
businesses and is being amortized over a 40-year period. Other intangible assets
of $3,543,000 at December 31, 1997 and $1,471,000 at December 31, 1996 (net of
accumulated amortization of $307,000 and $29,000 in 1997 and 1996, respectively)
principally includes customer base and customer lists received in business
acquisitions. Costs of such assets are assigned at the time of the acquisition
based on the estimated fair value and are generally being amortized on a
straight line basis over a period of 10 to 15 years.
IMPAIRMENT OF LONG-LIVED ASSETS--Effective December 31, 1995, the Company
adopted Statement of Accounting Standard ("FAS") No. 121 which requires that
long-lived assets (i.e., property, plant and equipment and goodwill) held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the net book value of the asset may not be
recoverable. An impairment loss is recognized if the sum of the expected future
cash flows (undiscounted and before interest) from the use of the asset is less
than the net book value of the asset. Generally, the amount of the impairment
loss is measured as the difference between the net book value and the estimated
fair value of the related assets. The adoption of this statement at December 31,
1995 has had no impact on the Company's results of operations or its financial
position.
ADVERTISING AND PROMOTIONAL COSTS--Advertising and promotional costs are
expensed as incurred and are included in selling, general and administrative
expense in the accompanying consolidated statement of operations. Total
advertising and promotional expenses approximated $7,957,000, $3,863,000, and
$2,638,000 in 1997, 1996 and 1995, respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION--The Company accounts for
stock-based employee compensation plans under the intrinsic method pursuant to
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (see Note 14).
INCOME TAXES--Deferred taxes are provided on the liability method whereby
deferred tax assets and liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion
44
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
or all of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and the rates on
the date of enactment.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of financial instruments
is determined by reference to various market data and other valuation
techniques, as appropriate. Unless otherwise disclosed, the fair value of
financial instruments approximates their recorded values due primarily to the
short-term nature of their related interest rate or their maturities.
EARNINGS PER SHARE--Effective December 31, 1997, the Company adopted
Financial Accounting Standard No. 128, "Earnings per Share"("FAS 128"), which
established new standards for computing and presenting earnings per share
("EPS"). The standard requires dual presentation of basic and diluted EPS on the
face of the income statement for entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes the effects of potentially dilutive securities while diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised, converted, or resulted in the
issuance of common stock that would then share in the earnings of the entity. In
accordance with FAS 128, EPS amounts for the prior periods, including the
quarterly financial data in Note 21, have been restated.
As of December 31, 1997 and 1996, the Company had 1,149,707 and 260,394
stock options outstanding, respectively, which are potentially dilutive to the
Company's basic EPS. No options or other potentially dilutive securities were
outstanding prior to 1996. For 1997 and 1996, basic and diluted EPS are the same
because of the insignificant effect of options on the EPS computation (the
options add 102,183, and 13,180 outstanding shares, using the treasury stock
method, for diluted EPS purposes in 1997 and 1996, respectively). An additional
12,100 options with an exercise price of $15.50 per share were outstanding at
December 31, 1997 which were not reflected in the diluted EPS computation
because the exercise price was higher than the average price of the Company's
stock during the period such options were outstanding; accordingly, such options
would have been anti-dilutive.
In prior periods, the Company had not reported EPS prior to October 1, 1996
because the capital structure of the Company before the Reorganization and
initial public offering were not comparable with the capital structure after the
Reorganization and initial public offering. However, in February 1998, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 98 ("SAB
98"), which requires, among other things, entities, following an initial public
offering, to report EPS for all periods presented even if the capital structure
prior to the offering is not comparable to the capital structure after the
offering. In accordance with SAB 98, the Company reported, on the Statement of
Operations, EPS for all periods presented as if the 9,821,250 shares issued in
the June 1996 Reorganization had been outstanding at the beginning of each
period presented.
OTHER OPERATING REVENUE--Other operating revenue primarily consists of
finance fees, insurance commissions, sales for parts and service and revenue
recognized from the sale of in-house and third party extended warranty
contracts.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform to the 1997 presentation.
PERVASIVENESS OF ESTIMATES--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the
45
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of assets and liabilities, and related revenues and expenses,
and disclosure of gain and loss contingencies at the date of the financial
statements. Actual results could differ from those estimates.
NOTE 3--ACQUISITIONS AND DISPOSITIONS
Effective February 2, 1995, the Company acquired Performance Nissan, Inc.
(formerly Jim Glover Nissan, Inc.) in Oklahoma City, Oklahoma. Performance
Nissan is engaged in the retail sales of new and used vehicles and in the retail
and wholesale of replacement parts and vehicle servicing. The total purchase
price of approximately $1.4 million was funded originally by bank debt. The
acquisition was accounted for as a purchase, and the operating results of
Performance Nissan have been included in the accompanying consolidated
statements of operations since the date of acquisition through the date of
disposition. The cost of the acquisition has been allocated on the basis of the
estimated fair market value of the assets acquired and the liabilities assumed.
A summary of the purchase price allocation for Performance Nissan is
presented below (in thousands):
<TABLE>
<S> <C>
Net working capital................................. $ 76
Equipment........................................... 61
Goodwill............................................ 1,300
---------
Total............................................. $ 1,437
---------
---------
</TABLE>
Effective December 4, 1995, the Company acquired Performance Dodge, Inc.
(formerly Jim Glover Dodge, Inc.) in Oklahoma City, Oklahoma. Performance Dodge
is engaged in the retail sales of new and used automobiles and in the retail and
wholesale of replacement parts and vehicle servicing. The total purchase price
of approximately $5.9 million was financed with debt proceeds of $3.7 million
and a mortgage of $1.85 million. The remaining purchase price approximating
$302,000 was provided with available cash. The acquisition was accounted for as
a purchase, and the operating results of Performance Dodge have been included in
the accompanying consolidated statements of operations since the date of the
acquisition through the date of disposition. The cost of the acquisition has
been allocated on the basis of the estimated fair market value of the assets
acquired and the liabilities assumed.
A summary of the purchase price allocation for Performance Dodge is
presented below (in thousands):
<TABLE>
<S> <C>
Net working capital................................. $ 1,160
Property and equipment.............................. 1,992
Goodwill............................................ 2,700
---------
Total............................................. $ 5,852
---------
---------
</TABLE>
Effective July 1, 1997, the Company sold 100% of the stock in Performance
Dodge, Inc. and Performance Nissan, Inc. ("Performance"), to Benji Investments,
Ltd., a Texas limited partnership controlled by Emmett M. Rice, Jr., the
Company's former Chief Operating Officer (also a shareholder and former Director
of the Company). The Company received 760,000 shares of the Company's stock
valued at a total of $8.7 million. During the quarter ended June 30, 1997, the
Company recorded a loss on the disposition of $347,000, including selling
expenses. In connection with the sale, the Company repaid
46
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS AND DISPOSITIONS (CONTINUED)
$4.3 million in long-term debt associated with these dealerships. The Company
also retained ownership of the Performance Dodge facilities and the related
mortgage, and is leasing such facilities to Performance Dodge. The term of the
lease is fifteen years with annual rental of approximately $253,000. Upon
completion of the transaction, Mr. Emmett M. Rice, Jr. resigned as an Officer
and Director of the Company. The combined revenue and operating loss for these
dealerships included in the Consolidated Statement of Operations for 1997, 1996,
and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenue...................................................... $ 37,312 $ 78,869 $ 37,567
Operating loss............................................... $ 561 $ 338 $ 306
</TABLE>
Effective October 1, 1996, the Company acquired Hickey Dodge ("Hickey") in
Oklahoma City, Oklahoma. Hickey is engaged in the retail sales of new and used
automobiles and in the retail and wholesale of replacement parts and vehicle
servicing. The total purchase price of approximately $20 million was financed
with proceeds from the Company's initial public offering. The acquisition was
accounted for as a purchase, and the operating results of Hickey have been
included in the accompanying consolidated statements of operations since the
date of the acquisition. The cost of the acquisition has been allocated on the
basis of the estimated fair market value of the assets acquired and the
liabilities assumed.
A summary of the purchase price allocation for Lynn Hickey Dodge is
presented below (in thousands):
<TABLE>
<S> <C>
Net working capital................................ $ 4,760
Property and equipment............................. 430
Goodwill and other intangibles..................... 14,862
---------
Total............................................ $ 20,052
---------
---------
</TABLE>
Effective April 1, 1997, the Company acquired Toyota West Sales and Service,
Inc. in Las Vegas, Nevada and Douglas Toyota, Inc. in Denver, Colorado
(collectively "Spedding Toyota"). Spedding Toyota is engaged in the retail sales
of new and used vehicles and in the retail and wholesale sales of replacement
parts and vehicle servicing. The total purchase price of approximately $40.7
million was funded with $28.7 million in cash, $6 million of which was financed
with bank debt, 279,720 shares of the Company's common stock valued at
approximately $5.0 million, and a seller financed note in the amount of $7
million which matures in 2002. The seller note was repaid in the second fiscal
quarter of 1997 with proceeds from the Company's credit facility (see Note 10).
In connection with the acquisition of Spedding Toyota, the Company purchased two
tracks of land from R. Douglas Spedding, now an Officer of the Company, in
exchange for a total of $7.5 million in seller-financed notes. The principal
amount, together with interest at the prime rate, matures October, 1998. The
land will be used to relocate both the Spedding dealerships to newly constructed
facilities. The Spedding Toyota acquisition was accounted for as a purchase and
the operating results of Spedding Toyota have been included in the accompanying
consolidated statements of operations since April 1, 1997. The cost of the
Spedding Toyota acquisition, including acquisition costs, has been allocated on
the basis of the estimated fair market value of the assets acquired and the
liabilities assumed.
47
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS AND DISPOSITIONS (CONTINUED)
A summary of the purchase price allocation for Spedding Toyota is presented
below (in thousands):
<TABLE>
<S> <C>
Net working capital................................ $ 2,330
Property and equipment............................. 1,264
Goodwill and other intangibles..................... 37,120
---------
Total............................................ $ 40,714
---------
---------
</TABLE>
Effective July 1, 1997, the Company acquired Sahara Nissan, Inc. ("Nissan
West") in Las Vegas, Nevada. Nissan West is engaged in the retail sales of new
and used vehicles and in the retail and wholesale sales of replacement parts and
vehicle servicing. The total purchase price of approximately $14.3 million was
funded with $11.3 million in cash, $9 million of which was financed with
borrowings on the Company's credit facility (see Note 10), 125,983 shares of the
Company's common stock valued at approximately $2.0 million, and $1.0 million in
seller financed notes. The Nissan West acquisition was accounted for as a
purchase and the operating results of Nissan West have been included in the
accompanying consolidated statements of operations since July 1, 1997. The cost
of the Nissan West acquisition, including acquisition costs, has been allocated
on the basis of the estimated fair market value of the assets acquired and the
liabilities assumed.
A summary of the purchase price allocation for Nissan West is presented
below (in thousands):
<TABLE>
<S> <C>
Net working capital................................ $ 899
Property and equipment............................. 476
Goodwill and other intangibles..................... 12,900
---------
Total............................................ $ 14,275
---------
---------
</TABLE>
The unaudited consolidated statement of operations data is presented below
on a pro forma basis as though the acquisition of Lynn Hickey Dodge, Spedding
Toyota and Nissan West had all occurred as of the beginning of 1996 (in
thousands, except per share data).
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Pro forma revenue................................. $ 549,478 $ 691,529
Pro forma net income.............................. $ 7,293 $ 11,298
Pro forma basic and diluted net income per
share........................................... $ 0.53 $ 0.80
</TABLE>
The adjustments to arrive at pro forma revenue include additional revenue
based on the historic revenue of Lynn Hickey Dodge, Spedding Toyota and Nissan
West prior to the acquisition of each. Adjustments to net income to arrive at
pro forma net income include additional amortization expense related to
purchased goodwill, increased interest expense associated with acquisition debt,
and the tax effects of these adjustments.
The pro forma results of operations information is not necessarily
indicative of the operating results that would have occurred had the
acquisitions been consummated as of the beginning of each period, nor is it
necessarily indicative of future operating results.
48
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--MAJOR SUPPLIERS
The Company owns and operates three Chevrolet, two Nissan, one Dodge and two
Toyota automobile dealerships. The Company enters into agreements,
("Agreement{s}"), with the manufacturers that supply new vehicles and parts to
each of its dealerships. The Company's existing Chevrolet Agreements have
remaining terms of approximately two years, expiring in 2000. The Nissan
Agreements expire in 1999 and 2002. The Dodge Agreement has no stated expiration
date. The Toyota Agreements expire in 1999. Management currently believes that
it will be able to renew each and all of the Agreements upon expiration;
however, there can be no assurance that each and all of the Agreements will be
renewed.
The Agreements generally limit locations of dealerships and retain
manufacturer approval rights over changes in dealership management and
ownership. Each manufacturer is also entitled to terminate the Agreement for a
dealership if the dealership is in material breach of the terms. The Agreement
with Dodge stipulates that the Company could lose its Dodge dealership upon any
change in ownership of a controlling number of shares in the Company. Under the
June 1996 supplemental Agreements with Chevrolet, Chevrolet has the right, under
certain circumstances, to terminate the Agreements with the Company upon the
acquisition by any person or entity of 20% or more of the Common Stock
outstanding. In addition, the Company has agreed to comply with the General
Motors (GM) Network 2000 Channel Strategy ("Project 2000"). Project 2000
includes a plan to eliminate 1,500 GM dealerships by the year 2000, primarily
through dealership buybacks and approval by GM of inter-dealership acquisitions,
and encourages dealers to align GM divisions' brands as may be requested by GM.
The June 1996 supplemental Agreements require that the Company bring any GM
dealership acquired after the initial public offering into compliance with the
Project 2000 plan within one year of the acquisition. Failure to achieve such
compliance will result in termination of the Agreements and a buyback of the
related dealership assets by GM. The Company believes that this aspect of the
June 1996 supplemental Agreements does not present a significant risk to its
business or future operating results. Under the Company's Agreements with
Nissan, Nissan has the right to terminate the Agreements with the Company if,
without Nissan's prior approval, Mr. Gilliland's ownership of common stock
decreases below 20% of the total number of shares of common stock issued and
outstanding or Mr. Gilliland ceases to be the Chief Executive Officer of the
Company. Under the Agreements with Toyota, Toyota has the right to terminate the
Agreements with the Company if acceptable customer satisfaction is not
maintained. Toyota also limits the number of Toyota dealerships the Company may
acquire within a nine month period to one as well as an aggregate limit of nine
Toyota dealerships that the Company may own.
The Company's ability to expand operations depends, in part, on obtaining
the consent of manufacturers to the acquisition or establishment of additional
dealerships.
NOTE 5--ACCOUNTS RECEIVABLE
Contracts in transit and vehicle receivables primarily represent receivables
from manufacturer's captive finance companies such as General Motor Acceptance
Corporation (GMAC), Chrysler Credit Corporation and Toyota Motor Credit
Corporation and banks and finance companies which provide funding for customer
vehicle financing. These receivables are normally collected in less than 30 days
from the sale of the vehicle. Trade receivables primarily relate to the sale of
parts to commercial customers and finance fees representing amounts due from
financial institutions earned from arranging financing for the Company's
customers. Amounts due from manufacturers represent receivables for parts and
service work performed on vehicles pursuant to the manufacturers warranty
coverage. Receivables from manufacturers also include amounts due in connection
with the purchase of vehicles ("holdback") pursuant to the
49
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--ACCOUNTS RECEIVABLE (CONTINUED)
dealership agreement; such amounts are generally remitted to the Company on a
monthly or quarterly basis.
The accounts receivable balances at December 31, 1997 and 1996 are comprised
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Contracts in transit and vehicle receivables...................................... $ 10,432 $ 12,615
Trade............................................................................. 3,300 2,801
Due from manufacturers............................................................ 2,421 2,552
Other............................................................................. 1,072 796
--------- ---------
17,225 18,764
Less allowance for doubtful accounts.............................................. (341) (135)
--------- ---------
Total accounts receivable....................................................... $ 16,884 $ 18,629
--------- ---------
--------- ---------
</TABLE>
NOTE 6--CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and accounts receivable. The Company invests a substantial portion of its excess
cash with manufacturers' captive finance companies, and, to a lesser extent,
with financial institutions with strong credit ratings. Cash invested with the
manufacturers' captive finance companies can be withdrawn at any time. At
December 31, 1997, the amounts invested with the captive finance companies
approximated $13,657,000 with interest rates of 8.25% to 9.25%. At times,
amounts invested with financial institutions may be in excess of FDIC insurance
limits. As of December 31, 1997, the Company has not experienced any losses on
its cash equivalents.
Concentrations of credit risk with respect to customer receivables are
limited primarily to manufacturers' captive finance companies, financial
institutions and banks. Credit risk arising from receivables from commercial
customers is minimal due to the large number of customers comprising the
Company's customer base. The Company's operations and therefore it customers are
concentrated in Amarillo, Texas and Las Vegas, Nevada. During the year ended
December 31, 1997 the percentage of the Company's sales generated from its
dealerships located in Las Vegas, Nevada and Amarillo, Texas approximated 20.2%
and 44.2%, respectively. Management believes that the percentage derived from
its Las Vegas, Nevada dealerships will increase during 1998 as these dealerships
were acquired during 1997.
50
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7-- PROVISION FOR FINANCE FEES AND INSURANCE AND WARRANTY COMMISSION
CHARGEBACKS
Presented below is the change in the allowance for estimated future
chargebacks for finance fees and insurance and warranty commission for the years
ended December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1.................................................... $ 2,209 $ 2,056 $ 1,595
Provision............................................................... 3,390 2,016 1,917
Acquisitions and dispositions........................................... 1,694 -- --
Actual chargebacks...................................................... (3,242) (1,863) (1,456)
--------- --------- ---------
Ending allowance balance at December 31,................................ $ 4,051 $ 2,209 $ 2,056
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 8--INCOME TAX MATTERS
Components of income tax expense consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal.................................................................. $ 2,273 $ 3,041 $ 1,910
State.................................................................... 461 457 265
Deferred................................................................... 1,479 (136) (865)
--------- --------- ---------
Total income tax expense................................................. $ 4,213 $ 3,362 $ 1,310
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense for the year ended December 31, 1997, 1996 and 1995 is
different than the amount computed by applying the U.S. federal income tax rate
to income before income taxes. The reasons for these differences are as follows
(in thousands except percentages):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income before income taxes................................................ $ 10,926 $ 7,944 $ 3,505
Statutory tax rate........................................................ 34% 34% 34%
Federal income tax at statutory rate...................................... 3,715 2,701 1,192
State income tax, net of federal benefit.................................. 220 229 97
Valuation allowance....................................................... -- 405 --
Other..................................................................... 278 27 21
--------- --------- ---------
Total income tax expense.................................................. $ 4,213 $ 3,362 $ 1,310
--------- --------- ---------
--------- --------- ---------
Effective tax rate........................................................ 38.6% 42.3% 37.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
51
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--INCOME TAX MATTERS (CONTINUED)
The net deferred tax liability consists of the following components as of
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities
Goodwill amortization............................................................ $ (1,138) $ (619)
Inventory........................................................................ (2,689) (3,260)
Other............................................................................ (337) (279)
--------- ---------
(4,164) (4,158)
--------- ---------
Deferred tax assets
Deferred warranty revenue........................................................ 897 1,669
Chargeback allowance............................................................. 1,458 817
Net operating loss carryforward.................................................. 511 1,207
Other............................................................................ 157 50
--------- ---------
3,023 3,743
Valuation Allowance.............................................................. (405) (405)
--------- ---------
2,618 3,338
--------- ---------
Net deferred tax liability....................................................... $ (1,546) $ (820)
--------- ---------
--------- ---------
The net deferred tax liability is classified as follows
Other assets--non-current........................................................ $ -- $ 1,094
Deferred tax liability--current.................................................. (647) (1,914)
Deferred tax liability--non-current.............................................. (899) --
--------- ---------
Net deferred tax liability....................................................... $ (1,546) $ (820)
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1997, the Company has net federal and state operating
loss carryforwards of approximately $3.6 million, which expire in 2001. Future
utilization of certain of these loss carryforwards may be limited, and as a
result, management has provided a valuation allowance of $405,000.
The Company changed its tax basis method of valuing inventories from the
LIFO method to the FIFO and specific identification methods in 1996. The balance
of the LIFO reserve as of the date of the change is being amortized into taxable
income over a six year period, thereby increasing current taxes payable. This
amortization will create a corresponding reduction in the deferred tax liability
related to inventory and will not impact the Company's effective tax rate.
52
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--INVENTORIES
The inventory balances are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Inventories at cost
New vehicles and demonstrators.................................................. $ 40,046 $ 30,341
Used vehicles................................................................... 13,001 15,366
Parts and accessories........................................................... 2,760 2,461
--------- ---------
Total inventory................................................................. $ 55,807 $ 48,168
--------- ---------
--------- ---------
</TABLE>
NOTE 10--DEBT
Notes payable and long-term debt (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Floor plan note payable to General Motors Acceptance Corporation (GMAC) with interest at
prime(1) less .25%, collateralized by vehicle inventory................................. $ 32,854 $ 32,110
Floor plan note and credit line payable to Chrysler Credit Corporation (CCC) with interest
at prime(1) plus .75% to 1.50%, collateralized by vehicle inventory and other dealership
assets.................................................................................. 13,290 14,172
Floor plan note payable to Toyota Motor Credit Corporation (TMCC) with interest at
prime(1) plus .50% collateralized by vehicle inventory.................................. 7,224 --
Mortgage loans at prime(1), less .25% to prime(1) plus 1.0% maturing in 2000 through 2002,
monthly principal payments aggregating $45,500 plus interest, collateralized by related
property................................................................................ 7,062 7,618
Notes Payable to Jack Biegger Revocable Living Trust with interest at 6.45%, monthly
principal payments of $12,410 including interest, maturing
July 1, 2002............................................................................ 589 --
Notes Payable to Dale M. Edwards Revocable Trust with interest at 6.45%, monthly principal
payments of $7,133 including interest, maturing July 1, 2002............................ 339 --
Note Payable to Chase Bank Texas, Credit Facility, with interest at London Interbank
Offered Rates (LIBOR) plus 2.00%, or prime(1) plus .25%. The LIBOR rate at December 31,
1997 was 5.8125%........................................................................ 37,000 --
Note Payable to GMAC with interest at prime(1) less .25%, collateralized by property and
inventory............................................................................... -- 4,295
---------- ----------
98,358 58,195
Debt payable within one year
Floorplan notes payable............................................................... (53,368) (46,282)
Current maturities.................................................................... (727) (1,345)
---------- ----------
Total long-term debt................................................................ $ 44,263 $ 10,568
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) The prime interest rate at December 31, 1997 was 8.50%, and was 8.25% at
December 31, 1996.
53
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--DEBT (CONTINUED)
Due to affiliates (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Land purchase notes payable to R. Douglas Spedding with interest at prime(1) maturing October
31, 1998, collateralized by the related property........................................... $ 7,500 $ --
Construction note payable to R. Douglas Spedding with interest at prime(1) plus 1%, maturing
October 31, 1998, collateralized by the related property................................... 4,807 --
Due to affiliates on demand, with an average rate of 8.0% at December 31, 1997, and 1996..... 2,843 5,478
--------- ---------
Debt payable within one year............................................................... $ 15,150 $ 5,478
--------- ---------
--------- ---------
Scheduled maturities....................................................................... $ 12,307 $ --
--------- ---------
--------- ---------
</TABLE>
Scheduled maturities of long-term debt, including amounts due to affiliates
subsequent to December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................................... $ 13,034
1999............................................................... 740
2000............................................................... 39,231
2001............................................................... 2,191
2002............................................................... 2,101
---------
Total............................................................ $ 57,297
---------
---------
</TABLE>
During 1997 the Company capitalized $649,000 of interest cost relating to
construction of certain dealership facilities. No interest was capitalized in
previous years.
Management believes that the fair value of the Company's long-term debt
approximates its recorded value based on the floating nature of the related
interest rates.
See Note 18 for information on amounts due to affiliates.
On June 26, 1997 the Company entered into a credit facility with Chase Bank
Texas. The Company may draw advances under the facility for acquisitions and
general corporate purposes. The facility is revolving in nature in that the
Company may draw funds and repay advances under the terms, but at no time can
the maximum amount outstanding exceed $40 million, $3.0 million was available at
December 31, 1997. The note is secured by the stock of the Company's
subsidiaries except for those that have entered into dealer agreements with
Nissan Motor Corporation In U.S.A. The credit facility has a three year term
which expires on June 26, 2000, and the full amount of any outstanding balance
is then due and payable. The Company may repay any advance under the facility
prior to maturity without prepayment penalty or premium. The Company has the
option of two alternative interest rates based on the London Interbank Offered
Rate (LIBOR) and the Chase Bank Texas base rate as they may exist from time to
time. The interest rate on LIBOR based loans is the LIBOR rate for the time
period of the advance plus a margin of 1.25 to 2.00 percentage points depending
upon the Company's leverage ratio. The interest rate of base rate loans is the
Chase Bank Texas base rate plus a margin of 0 to .25 percentage points depending
upon the Company's leverage ratio. Of the $37 million outstanding under the
facility at December 31, 1997
54
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--DEBT (CONTINUED)
$30 million had an interest rate of 7.8125% and $7 million had interest rate of
8.75%. The Company also pays a commitment fee for the unused portion of the line
of .25 to .50 percentage points depending upon the leverage ratio of the
Company. The note agreement contains several affirmative and negative covenants
including a leverage test, a cash flow test, a minimum net worth test, a fixed
charged coverage test, an interest coverage test, restrictions on the payment of
dividends, limits on maintenance type capital expenditures and limits on the
increase of additional debt and liens.
NOTE 11--ACCRUED EXPENSES AND OTHER LIABILITIES (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Payroll and bonuses................................................................ $ 1,655 $ 1,625
Deferred warranty revenue--current portion......................................... 1,029 2,216
Chargeback allowance............................................................... 4,051 2,209
Other.............................................................................. 3,824 1,358
--------- ---------
$ 10,559 $ 7,408
--------- ---------
--------- ---------
</TABLE>
NOTE 12--PROPERTY AND EQUIPMENT (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Land.............................................................................. $ 9,358 $ 1,858
Buildings......................................................................... 11,584 9,863
Construction in progress.......................................................... 10,509 670
Furniture, fixtures and equipment................................................. 7,900 6,407
--------- ---------
39,351 18,798
Less: accumulated depreciation.................................................... (6,186) (5,407)
--------- ---------
$ 33,165 $ 13,391
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1997, construction in progress primarily represents cost
accumulated in the construction of the Toyota dealership facilities in Denver,
Colorado and Las Vegas, Nevada as discussed in Notes 3 and 18. Total
construction contract commitments associated with these projects total
approximately $14.6 million, including costs incurred to date. As discussed in
Note 20, the Company has signed an agreement to sell and leaseback these
facilities upon completion in the first half of 1998.
NOTE 13--EMPLOYEE BENEFIT PLANS
The Company's defined contribution plan, available to substantially all
employees, permits eligible participants to contribute from 1% to 15% of their
annual compensation. The Company may make voluntary contributions to the plan.
The Company has not made any contributions to the plan for the three years ended
December 31, 1997.
55
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--STOCK OPTIONS AND STOCK PLANS
The Company has adopted a Stock Option Plan for the purpose of attracting
and retaining employees, officers, directors and independent contractors of the
Company, or any Subsidiary or Affiliate of the Company, and to furnish
additional incentives to such persons by encouraging them to acquire a
proprietary interest in the Company. The Company has reserved 1,380,000 shares
of stock for option grants under the Plan. The term (not to exceed ten years),
vesting period and exercise price of options granted under the Plan are at the
discretion of the Board of Directors, with the exception of Incentive options
the exercise price of which shall not be less than the fair market value at the
date of grant. It is the Company's intention to generally grant options with an
exercise price equal to the fair value at the date of grant.
The following tables summarizes stock options information for 1997 and 1996.
There were no options granted prior to 1996.
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year.............. 260,394 $ 16.44 -- --
Granted........................................... 1,065,479 $ 8.69 260,394 $ 16.44
Exercised......................................... -- -- -- --
Canceled.......................................... 176,166 $ 18.85 -- --
---------- ----------
Options outstanding, end of year.................... 1,149,707 $ 8.89 260,394 $ 16.44
---------- ----------
---------- ----------
Options exerciseable, end of year................... 969,861 $ 9.16 180,394 $ 15.19
Options available for grant, end of year............ 360,601 1,249,914
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISEABLE
----------------------------------------------- ------------------------
WEIGHTED WEIGHTED
NUMBER OF WEIGHTED AVERAGE AVERAGE NUMBER OF AVERAGE
RANGE OF OPTIONS REMAINING CONTRACTUAL EXERCISE OPTIONS EXERCISE
EXERCISED PRICES OUTSTANDING LIFE (MONTHS) PRICE EXERCISEABLE PRICE
- --------------------------------------------- ----------- --------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.00 - $ 0.01.............................. 25,000 110 $ 0.01 -- $ --
7.70 - 9.62.............................. 861,213 115 8.05 723,189 8.05
9.63 - 11.55.............................. 105,000 114 10.00 101,000 10.00
11.56 - 13.47.............................. 6,000 113 13.08 1,200 13.08
13.48 - 15.40.............................. 139,394 104 14.00 139,394 14.00
15.41 - 19.25.............................. 13,100 111 15.79 5,078 16.24
</TABLE>
The tables above include actions taken by the Company during the third
quarter of 1997. The Company modified the pay plans of certain officers and key
employees for the three months ended September 30, 1997 resulting in a reduction
in compensation expense of approximately $1.3 million. As part of the modified
pay plans, the Company granted to these officers and employees options to
purchase 492,214 shares of the Company's common stock at an exercise price of
$8.06 per share representing the market price of the shares on the date of
grant. The options were fully vested when granted. The Company advanced to these
officers and employees an aggregate of approximately $821,000 which is to be
repaid to the Company by no later than February 1999.
56
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--STOCK OPTIONS AND STOCK PLANS (CONTINUED)
The Company canceled 169,038 previously issued options at an exercise price
range of $18.00 to $19.25 per share. The Company issued new options with an
exercise price of $8.06 per share which was the market price on the measurement
date.
The Company has adopted the disclosure-only provision of the Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The following table presents pro forma net income assuming the
Company recognized compensation expense for stock options granted using
estimated fair market value method instead of the intrinsic value method.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Net income (in thousands)
As reported........................................................................ $ 6,713 $ 4,582
Pro-forma.......................................................................... 3,925 3,794
Basic and diluted net income per share
As reported........................................................................ $ .49 $ .42
Pro-forma.......................................................................... .29 .34
</TABLE>
The weighted average fair market value at grant date of the 1,040,479 and
260,394 options issued at market during 1997 and 1996 was $6.35 and $8.63 per
option, respectively. The grant date fair market value of 25,000 options with an
exercise price below market price granted during 1997 was $18.74 per option.
Such market value estimates were derived from the Black Scholes option-pricing
model as of the date of each grant using the following weighted average
assumptions for the 1997 and 1996 grants; dividend yield of 0.0%; expected
volatility of 45% and 28%, respectively; risk free interest rate of 6.1% and
6.4%, respectively; and expected lives of seven years.
The Company may grant shares of restricted stock, which are subject to
forfeiture, under such conditions and for such period of time (not less than one
year) as the Company may determine. The conditions or restrictions of any
restricted stock awards may include restrictions on transferability,
requirements of continued employment, individual performance or the Company's
financial performance. The Company has not made any grants of restricted stock
to date.
Pursuant to an agreement dated April 1, 1996 between a former Company
executive and GGFP, GGFP agreed to sell 3% (equal to 303,750 shares) of the
common stock of the Company on a fully diluted basis for $250,000. In the second
quarter of 1996, the Company recorded a non-cash charge of $1,099,000 for
compensation, which represents the difference between the estimated fair value,
as of April 1, 1996, of the common stock purchased ($1,349,000) and the cash
consideration paid. In 1997, the Company recorded approximately $56,000 of
compensation expense related to certain options granted in 1997 with an exercise
price that was below the market value of the Company's common stock at the
measurement date.
NOTE 15--STOCKHOLDERS' RIGHTS AGREEMENT
Immediately prior to the completion of the initial public offering, the
Company adopted a stockholder rights agreement (the "Rights Agreement").
Pursuant to the Rights Agreement, each shareholder of the Company has been
issued one right for each share of common stock owned. Until a right is
exercised, the holder thereof, as such, will have no rights as a stockholder of
the Company. Each right becomes
57
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--STOCKHOLDERS' RIGHTS AGREEMENT (CONTINUED)
exercisable upon certain events involving the acquisition of or stated intention
by an entity to acquire 19.9% of the Company's common stock. Upon the occurrence
of such an event, each right entitles its holder to purchase common stock of the
Company or, in certain circumstances, of the acquirer, worth twice as much as
the exercise price. The Company may, at the discretion of the Board of Directors
lower this threshold of 19.9% to 10% of the common stock then outstanding. If
the Company is unable to issue a sufficient number of shares of common stock to
permit the exercise in full of the rights for common stock, it will issue shares
of junior preferred stock upon exercise of the rights. The junior preferred
stock is non-redeemable and junior to any other preferred stock of the Company.
The provisions of the junior preferred stock are designed to provide that each
one one-hundredth of a share of junior preferred stock issuable upon exercise of
a right approximates the value of one share of common stock. Each whole share of
junior preferred stock will accrue a quarterly dividend of $1 and a dividend
equal to 100 times any dividend paid on the common stock. Upon liquidation of
the Company, each whole share of junior preferred stock will have a liquidation
preference of $100 plus an amount equal to 100 times the amount paid on any
shares of common stock. Each share of junior preferred stock will entitle its
holder to 100 votes on matters submitted to the Company's stockholders, which
votes will be cast with the votes of the holders of common stock. If the Company
were merged, consolidated or involved in a similar transaction, each share of
junior preferred stock would entitle its holder to receive 100 times the amount
received by holders of common stock in the merger or similar transaction.
NOTE 16--COMMITMENTS AND CONTINGENCIES
Richard V. Holland, a former general manager of Westgate Chevrolet, Inc., a
subsidiary of the Company, has brought a lawsuit against the Company, Gilliland
Group, Inc., an affiliate of the Control Group, and Emmett Rice, Jr., a former
officer and director of the Company, Richard V. Holland v. Gilliland Group,
Inc., et al., Cause No. 97-00028 in the 261st Judicial District Court of Travis
County, Texas. Mr. Holland is claiming that the defendants breached an oral
employment agreement by which Mr. Holland was to allegedly receive ten percent
(10%) of the stock of Westgate Chevrolet, Inc. The Company and the other
defendants have specifically denied the existence of any such agreement and
intend to vigorously defend their position. The lawsuit is in its early stages
and no discovery has taken place, other than exchanging written interrogatories
and requests for production of documents. Depositions are scheduled to be
conducted in the near future. The Company believes, based on opinion of counsel,
that there is less than a reasonable likelihood that the plaintiff will be
successful.
The Company is a defendant in three class action lawsuits that have been
filed by several claimants against approximately 700 automobile dealerships
across the State of Texas. The plaintiffs allege that the charging of the
vehicle inventory taxes to vehicle purchasers constitutes fraud, violates the
Texas Deceptive Trade Practices Act, and constitutes price fixing in violation
of the Clayton Antitrust Act. The Texas Automobile Dealers Association has hired
counsel to represent the defendants in these lawsuits. The defendants have
denied the allegations and the affiliates contend that they have charged the
vehicle inventory taxes to vehicle purchases in compliance with applicable law.
The lawsuits are in their early stages and no discovery has been conducted other
than the Company has answered interrogatories and document production request in
one of the lawsuits. The defendants intend to vigorously defend their position.
The Company has not recorded any liability in the accompanying Consolidated
Balance Sheets for any of the above described claims.
58
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is a party to various other legal actions arising in the
ordinary course of its business. While it is not feasible to determine the
outcome of these actions, the Company's information available at this time,
including discussions with legal counsel, does not indicate that these matters
will have a material adverse effect upon the financial condition, results of
operations or cash flows of the Company.
The Company is also subject to federal and state environmental regulations,
including rules relating to air and water pollution and the storage and disposal
of gasoline, oil, other chemicals and waste. Local, state and federal
regulations also affect automobile dealerships' advertising, sales, service and
financing activities. The Company believes that it complies with all applicable
laws relating to its business.
The Company has certain financial guarantees outstanding representing
conditional commitments issued by the Company to guarantee the payment of
certain customer's loans. These financial guarantees have historically
represented an immaterial portion of its sales. The Company's exposure for
financial guarantees is less than the customers full contractual obligations
outstanding under such financial guarantees which at December 31, 1997 were less
than $5.0 million. No material loss is anticipated as a result of such
guarantees.
The Company has entered into a contract to acquire a certain dealership in
California. The proposed purchase price is approximately $5.5 million consisting
of approximately $4.0 million cash, $1.4 million in seller financed notes and
$100,000 in value of the Company's common stock. In January 1998 the Company
advanced approximately $1.7 million towards the closing of this transaction. The
Company expects to complete the transaction by the end of the second fiscal
quarter of 1998. The Company has been managing the dealership since December 1,
1997 under a management agreement. The Company provides management of day to day
operations in exchange for a non-refundable fee equal to the dealership's net
profit before tax during the period of the management agreement. The fee for
December 1997 was approximately $31,000.
The Company has entered into a contract to acquire a certain dealership in
Nevada. The proposed purchase price is approximately $12.5 million consisting of
approximately $9.0 million in cash, $3.2 million in seller financed notes and
approximately $300,000 in value of the Company's common stock. The Company
expects to complete this transaction by the end of the second fiscal quarter of
1998. The Company began managing the dealership under a management agreement on
February 1, 1998. The agreement requires the Company to provide management of
day to day operations in exchange for a non-refundable fee equal to the
dealership's net profit before tax during the period of the management agreement
less a fixed amount of $70,000 per month.
NOTE 17--SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest paid.................................................... $ 6,468 $ 4,772 $ 3,697
Income taxes paid................................................ $ 2,699 $ 3,177 $ 1,707
</TABLE>
The Company acquired two dealerships during 1995, both of which were
financed primarily with debt. During 1996, the Company purchased another
dealership which was partially financed with debt (see Note 3). The Company also
recognized stock compensation expense aggregating $1,099,000 for stock purchased
by an employee (see Note 14). In 1997 the Company acquired three dealerships
which were
59
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS) (CONTINUED)
partially financed with debt and Company common stock (see Note 3). Also the
disposal of two dealerships in Oklahoma City, Oklahoma in 1997 resulted in the
Company receiving consideration of approximately $8.7 million in treasury stock.
NOTE 18--RELATED PARTY TRANSACTIONS
Until October 1, 1996, the Company received services provided by GGFP which
included treasury, risk management, tax compliance, employee benefits
administration and other miscellaneous services. The costs associated with these
services were allocated to the Company as described in Note 1. During fiscal
1996 and 1995, allocated expenses from GGFP to the Company approximated,
$1,302,000 and $1,090,000, respectively. These allocations are classified as
selling, general and administrative expense in the accompanying Consolidated
Statement of Operations. During 1997 the Company provided certain services,
primarily payroll related, to GGFP. GGFP reimbursed the Company approximately
$351,000 for these services. The Company no longer provides these services to
GGFP.
The Company from time to time used an airplane that was beneficially owned
by Bill Gilliland and Robert W. Hall, Chairman and Senior Vice Chairman,
respectively. The Company paid the owners $20,000 per month for fixed cost, $500
per hour for operating expenses and actual fuel cost when the airplane was used
by the Company. During 1997, 1996 and 1995 the Company paid the owners an
aggregate of $502,000, $175,000 and $199,000 respectively under the current and
similar arrangements. In the fourth quarter of 1997, this agreement was amended
due to a change in equipment. The new owner is Bill Gilliland. The agreement
provides for the Company to pay the owner $20,000 per month for fixed cost, $800
per hour for operating expenses and actual fuel cost when the airplane is used
by the Company. No payments were made under the new arrangement in 1997. The
Company believes that these fees are no less favorable to the Company than could
be obtained in an arm's-length transaction between unrelated parties. The
Company anticipates that as it pursues its acquisition strategy, its use of this
airplane will increase and its costs associated with the plane will
correspondingly increase.
In addition to the corporate allocations described above, prior to 1996, the
Company paid the Control Group a management fee for executive management
services. This fee was generally based upon the profits earned and the level of
executive management services rendered. These fees are shown separately on the
face of the accompanying Consolidated Statement of Operations. Commencing in
1996, the Company ceased to pay management fees to the Control Group.
In general, the Company is required to pay for all vehicles purchased from
the manufacturers upon delivery of the vehicles to the Company. Manufacturer's
captive finance companies provide financing for all new vehicles and certain
used vehicles. This type of financing is known as "floor plan financing" or
"flooring." Under this arrangement with the finance companies, the Company may
deposit funds with such finance companies in an amount up to a certain
percentage of the outstanding floor plan balance. Such funds earn interest at
approximately the same rate charged on outstanding floor plan balances. From
time to time certain Company executives and other affiliates will advance funds
to the Company primarily for the purpose of investing excess cash with the
finance companies. The Company acts only as an intermediary in this process. At
December 31, 1997 and 1996, funds advanced and outstanding from affiliates
approximated $2,843,000 and $5,260,000, respectively. Aggregate amounts
outstanding pursuant to these arrangements at December 31, 1997 and 1996 are
included in Due to Affiliates in the accompanying balance sheet. The amount of
interest accrued pursuant to these arrangements during 1997, 1996 and 1995
approximated $259,000, $464,000, and $226,000, respectively.
60
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18--RELATED PARTY TRANSACTIONS (CONTINUED)
GGFP was the contracting agent for the construction of certain facilities
for the Company during 1997 and 1996. The total cost of the facilities
approximated $448,000 and $1,013,000 for 1997 and 1996, respectively. Such
amounts include approximately $106,000 and $41,000 for 1997 and 1996,
respectively, as payment to GGFP for architectural and construction management
fees.
The Company leases its corporate offices, which were expanded in 1997, from
GGFP under a five-year lease extending through June 2001 for an annual rent of
approximately $123,000.
Subsequent to the acquisition of Toyota West Sales & Service, Inc. and
Douglas Toyota, Inc. (see Note 3), the seller, R. Douglas Spedding became an
officer of the Company. In connection with the acquisition of Toyota West Sales
& Service, Inc. and Douglas Toyota, Inc., the Company purchased two tracks of
land from R. Douglas Spedding in exchange for a total of $7.5 million in
seller-financed notes (see Note 10). The tracks of land will be used to relocate
the Las Vegas, Nevada and Denver, Colorado dealerships to newly constructed
facilities. In connection with interim financing on construction projects at the
two new locations the Company entered into an Interim Construction and Master
Loan Agreement ("Loan Agreement") with R. Douglas Spedding (see Note 10 ). The
Loan Agreement provides interim financing of $7.4 million at an interest rate of
prime plus 1% for construction of new automobile dealership facilities in Las
Vegas, Nevada and Denver, Colorado. At December 31, 1997 the amount outstanding
pursuant to the Loan Agreement approximated $4,807,000 and had an interest rate
of 9.5%. Total interest paid during 1997 to R. Douglas Spedding and his
affiliates was approximately $204,000.
Upon the Company's acquisition of Spedding Toyota, the seller R. Douglas
Spedding, agreed to reimburse the Company for the cost of repair work for
customers who had purchased an extended warranty from Spedding Toyota prior to
the acquisition. In 1997 Mr. Spedding reimbursed the Company $446,000 for the
cost of such repair work. The Company also agreed to reimburse Mr. Spedding for
his office facilities in Denver, Colorado until he is relocated to the new
facility under construction in Denver, Colorado. The Company reimbursed Mr.
Spedding $155,000 in 1997 for the office cost.
During 1997, the Company sold 100% of the stock in Performance Dodge, Inc.
and Performance Nissan, Inc. to Benji Investments, Ltd., a Texas limited
partnership controlled by Emmett M. Rice, Jr., the Companies former Chief
Operating Officer (also a shareholder and former Director of the Company). The
Company recorded a loss on the disposition of $347,000 (see Note 3).
NOTE 19--LEASES
The Company leases, under operating leases, land and buildings relating to
certain of its dealerships and certain computer equipment. The property leases
expire in 1998 through 2006 and have renewal options ranging from 5 to 7 years
(see Note 18 regarding leases with related parties). Additionally, the Company
has an option to purchase a portion of the property on which Quality Nissan,
Inc. operates for $400,000 upon expiration of that lease in 1998. The total rent
expense under all operating leases approximated $2,308,000, $667,000 and
$301,000 in 1997, 1996 and 1995, respectively.
61
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--LEASES (CONTINUED)
The aggregate minimum rental commitments for all non-cancelable operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal year:
1998............................................. $ 2,558
1999............................................. 2,445
2000............................................. 2,322
2001............................................. 2,133
2002............................................. 1,865
---------
Thereafter....................................... 5,244
---------
$ 16,567
---------
---------
</TABLE>
NOTE 20--SUBSEQUENT EVENTS
On December 31, 1997, the Company entered into a contract with a third party
to sell all of its dealership real property in Amarillo, Texas and the
dealership real property under construction in Denver, Colorado and Las Vegas,
Nevada. The Company agreed to a sale price of $35.3 million. In connection with
the sale, the Company exercised its option to purchase certain real property
under lease used by its Quality Nissan dealership in Amarillo, Texas for
$400,000, (see Note 19) and included the property in the sale. The Company will
leaseback all the property for a term of ten years with two ten year renewal
options. The initial annual lease rate for all the property is approximately
$3.9 million triple net with annual escalation not to exceed 2.5% per year
beginning the fourth year of the initial lease term. The Company will use the
proceeds to retire approximately $5.5 million in existing mortgages, $7.5
million in existing land purchase notes, (see Notes 10 and 18) and $4.8 million
in construction notes. The remainder of the proceeds will be used to complete
the construction of the property in Las Vegas, Nevada and Denver, Colorado and
general corporate purposes including the reduction of other debt, acquisitions
and working capital needs. A gain of approximately $3.6 million on the
transaction will be deferred and amortized into income as a reduction of lease
costs over the lease term. Part of the transaction was completed on February 24,
1998 with the Company receiving $13.2 million sale proceeds for its Amarillo,
Texas property and paid off existing mortgages of approximately $5.5 million.
The balance of the transaction for the two properties in Las Vegas, Nevada and
Denver, Colorado is expected to be completed by the end of April, 1998 after all
construction is completed.
Effective January 1, 1998 the Company completed its previously announced
acquisition of JRJ Investments, Inc. which owns Chaisson Motor Cars, a
multi-line dealership operating in Las Vegas, Nevada, and Chaisson BMW, in
Henderson, Nevada. The purchase price was $18.2 million. The cash portion, $13.4
million, was funded under the Company's credit facility and from available
working capital. The December 31, 1997 Balance Sheet included a deposit of
approximately $4.0 million toward closing the transaction. The Company also
issued a note for $2.8 million payable to the seller bearing interest at 8%. The
note calls for payments in equal monthly installments of approximately $56,000
for five years. The note may be repaid in full at anytime without premium or
penalty. The Company also issued 128,205 shares of its Common Stock to the
seller. The Company has guaranteed the seller a price of the Common Stock of
$15.60 per share one year from the date of closing, January 5, 1999. To the
extent the stock price is less than $15.60 the Company must make up the
difference in cash or by issuing additional shares of common stock to provide a
total value of $2.0 million as of January 5, 1999. JRJ Investments, Inc. was
62
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20--SUBSEQUENT EVENTS (CONTINUED)
operated by the Company from November 1, 1997 through December 31, 1997 under a
management agreement. The Company provided management of day to day operations
in exchange for a non-refundable fee equal to the dealership's net profit before
tax during the time of the management agreement less a fixed amount of $20,000
per month. The Company recorded approximately $228,000 from the operation of the
management agreement in the fourth quarter of 1997.
On January 16, 1998, the Company entered into floor planning notes with R.
Douglas Spedding, an officer of the Company, for $3,000,000. The purpose of the
arrangement is to provide financing for the Company's used vehicle operation at
its Toyota dealerships in Denver, Colorado and Las Vegas, Nevada. The notes
mature on June 1, 1998 and bear interest at 9%. The amount of the note is
settled and adjusted the tenth day of each month to be equal to 60% of the
borrowing base, defined as the aggregate value of the used vehicles at the two
dealerships as shown on the previous month financial statement less any other
used vehicle floor planning debt.
NOTE 21--QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- ------------- ------------- -------------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Net sales and operating revenue....................... $ 89,022 $ 135,387(1) $ 134,784(2) $ 112,925
Gross profit.......................................... $ 15,183 $ 23,531 $ 23,723 $ 18,825
Net income............................................ $ 2,146 $ 1,866 $ 2,612 $ 89
Basic and diluted net income per share................ $ .16 $ .13 $ .19 $ .01
YEAR ENDED DECEMBER 31, 1996
Net sales and operating revenue....................... $ 71,229 $ 70,012 $ 76,582 $ 103,759(3)
Gross profit.......................................... $ 11,333 $ 9,987 $ 12,054 $ 16,558
Net income (loss)..................................... $ 1,599 $ (570)(4) $ 1,635 $ 1,917
Basic and diluted net income (loss)per share.......... $ .16 $ (.06) $ .16 $ .14
</TABLE>
- ------------------------
(1) Includes results of operations for Douglas Toyota, Inc. and Toyota West
Sales & Service, Inc. from April 1, 1997.
(2) Includes results of operations of Sahara Nissan, Inc. from July 1, 1997.
(3) Includes results of operations for Lynn Hickey Dodge from October 31, 1996.
(4) Includes non-cash compensation charge of $1,099,000 relating to an executive
stock purchase agreement and a charge of $600,000 relating to an executive
bonus.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 31st day of March,
1998.
CROSS-CONTINENT AUTO RETAILERS, INC.
By: /s/ BILL GILLILAND
-----------------------------------
Bill Gilliland,
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE DESCRIPTION DATE
- ------------------------------- ----------------------------- ----------------
/s/ BILL Chairman, Chief Executive
GILLILAND Officer & Director
- ------------------------------- (principal executive March 27, 1998
Bill Gilliland officer)
/s/ ROBERT W.
HALL Senior Vice Chairman &
- ------------------------------- Director March 27, 1998
Robert W. Hall
/s/ JAMES F.
PURSER Chief Financial Officer &
- ------------------------------- Director (principal March 27, 1998
James F. Purser financial officer)
/s/ ROBERT F.
GREEN
- ------------------------------- Director March 27, 1998
Robert F. Green
/s/ JOHN W.
GAINES Vice President-Finance &
- ------------------------------- Director March 27, 1998
John W. Gaines
/s/ CHARLES D. Vice President, Chief
WINTON Accounting Officer
- ------------------------------- (principal accounting March 27, 1998
Charles D. Winton officer)
/s/ JOHN H.
MARMADUKE
- ------------------------------- Director March 27, 1998
John H. Marmaduke
64
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Asset Purchase Agreement dated as of June 17, 1996, among Lynn Hickey Dodge, Inc., Lynn Hickey, and
Cross Country Dodge, Inc. (1)
2.2 Stock Purchase Agreement, dated as of January 23, 1997, by and between Cross-Continent Auto Retailers,
Inc. and R. Douglas Spedding (2)
2.3 Amendment to Stock Purchase Agreement dated as of April 1, 1997, by and between Cross-Continent Auto
Retailers, Inc. and R. Douglas Spedding (3)
2.4 Stock Purchase Agreement dated as of February 28, 1997, among Cross-Continent Auto Retailers, Inc.,
Jack Biegger, Dale Edwards, and Sahara Datsun, Inc., d/b/a Jack Biegger Nissan, as amended by the
Amendment to Stock Purchase Agreement dated as of March 17, 1997, among Cross-Continent Auto
Retailers, Inc., Jack Biegger, Dale Edwards, and Sahara Nissan, Inc., d/b/a Jack Biegger Nissan (10)
2.5 Second Amendment to Stock Purchase Agreement dated as of April 30, 1997, by and between Cross-Continent
Auto Retailers, Inc., Jack Biegger, Dale Edwards, and Sahara Datsun, Inc., d/b/a Jack Biegger Nissan,
as amended by the Amendment to Stock Purchase Agreement dated as of March 17, 1997, among
Cross-Continent Auto Retailers, Inc., Jack Biegger, Dale Edwards, and Sahara Nissan, Inc., d/b/a Jack
Biegger Nissan (10)
2.6 Asset Purchase Agreement dated as of April 16, 1997, by and between JRJ Investments, Inc., a Nevada
corporation, The Chaisson Family Trust R-501, and Cross-Continent Auto Retailers, Inc. (11)
2.6.1 Consent to Termination of Agreements dated as of August 5, 1997, among Cross-Continent Auto Retailers,
Inc., JRJ Investments, Inc. and The Chaisson Family Trust R-501 (11)
2.7 Purchase Agreement dated as of March 1, 1997, between RDS, Inc. and Cross-Continent Auto Retailers,
Inc. (omitting exhibits thereto, which will be furnished supplementally to the Commission upon
request) (3)
2.8 Purchase Agreement dated as of March 1, 1997, between R. Douglas Spedding and Cross-Continent Auto
Retailers, Inc. (omitting exhibits thereto, which will be furnished supplementally to the Commission
upon request) (3)
2.9 Third Amendment to Stock Purchase Agreement, dated as of May 9, 1997, among Cross-Continent Auto
Retailers, Inc., The Jack Biegger Revocable Living Trust, The Dale M. Edwards Revocable Family Trust,
and Sahara Nissan, Inc. d/b/a Jack Biegger Nissan. (9)
2.10 Stock Purchase Agreement dated as of June 20, 1997 between Cross-Continent Auto Retailers, Inc. and
Benji Investments, Ltd. (omitting exhibits thereto, which will be furnished supplementally to the
Commission upon request). (11)
2.11 Stock Purchase Agreement dated as of October 8, 1997, by and among Cross-Continent Auto Retailers,
Inc., The Chaisson Family Trust R-501, and JRJ Investments, Inc. (omitting exhibits thereto, which
will be furnished supplementally to the Commission upon request) (13)
2.12 Amendment to Stock Purchase Agreement dated as of October 14, 1997, by and among Cross-Continent Auto
Retailers, Inc., The Chaisson Family Trust R-501, and JRJ Investments, Inc. (13)
2.13 Amended and Restated Stock Purchase Agreement dated as of November 1, 1997, by and among
Cross-Continent Auto Retailers, Inc., The Chaisson Family Trust R-501, and JRJ Investments, Inc.
(omitting exhibits thereto, which will be furnished supplementally to the Commission upon request)
(15)
</TABLE>
65
<PAGE>
<TABLE>
<C> <S>
2.14 Stock Purchase Agreement dated October 16, 1997, by and among Cross-Continent Auto Retailers, Inc.,
Thomas A. Randt, Ronald J. Blomquist, and Tar-Car, Inc. (omitting exhibits thereto, which will be
furnished supplementally to the Commission upon request)
2.15 Amendment to Stock Purchase Agreement dated January 14, 1998, by and among Cross-Continent Auto
Retailers, Inc., Thomas A. Randt, Ronald J. Blomquist, and Tar-Car, Inc.
2.16 Asset Purchase Agreement dated December 17, 1997, by and among Vinci, Inc., Ronald C. Vinci, and Sahara
Imports, Inc. (omitting exhibits thereto, which will be furnished supplementally to the Commission
upon request)
2.17 Amendment to Asset Purchase Agreement dated January 29, 1998, by and among Vinci, Inc., Ronald C.
Vinci, and Sahara Imports, Inc.
3.1 Amended and Restated Certificate of Incorporation of Cross-Continent Auto Retailers, Inc. (4)
3.3 Amended and Restated Bylaws of Cross-Continent Auto Retailers, Inc. (4)
4.1 Specimen Common Stock Certificate (4)
4.2 Rights Agreement between Cross-Continent Auto Retailers, Inc. and The Bank of New York, as rights agent
(4)
4.3 Amended and Restated 1996 Stock Option Plan of Cross-Continent Auto Retailers, Inc. (5)
4.4 Registration Rights Agreement dated as of April 1, 1997, by and between Cross-Continent Auto Retailers,
Inc. and R. Douglas Spedding (3)
4.5 Registration Rights Agreement dated January 5, 1998, by and between Cross-Continent Auto Retailers,
Inc. and The Chaisson Family Trust R-501
10.1 Dealer Sales and Service Agreement dated November 1, 1995, between the Chevrolet Division of General
Motors Corporation and Plains Chevrolet, Inc., as amended by Supplemental Agreement dated as of July
29, 1996 (1)(6)
10.2 Sales and Service Agreement between Performance Dodge, Inc. and Chrysler Corporation, dated as of
October 1, 1996 (1)
10.3 Dealer Sales and Service Agreement dated September 23, 1996, between the Nissan Division of Nissan
Motor Corporation, U.S.A., Quality Nissan, Inc. and Cross-Continent Auto Retailers, Inc. (4)
10.4 Dealer Sales and Service Agreement dated September 23, 1996, between the Nissan Division of Nissan
Motor Corporation, U.S.A., Performance Nissan and Cross-Continent Auto Retailers, Inc. (4)
10.4(a) Dollar Volume Contract dated April 1, 1997, between Plains Chevrolet, Inc., Westgate Chevrolet, Inc.,
Midway Chevrolet, Inc., Quality Nissan, Inc. and Amarillo Globe News (1)
10.5 Sublease Agreement dated June 1, 1995, between Gilliland Group Family Partnership and Performance
Nissan, Inc. (1)
10.6 Lease Agreement dated March 1, 1994, among John W. Adams, Eleanore A. Braly as Trustee of the Eleanore
A. Braly Trust, Romie G. Carpenter, Melody Lynn Goff, and Selden Simpson and Quality Nissan, Inc. (1)
10.7 Office Lease dated June 1, 1996, between Gilliland Group Family Partnership and Cross-Country Auto
Retailers, Inc. (now named Cross-Continent Auto Retailers, Inc.) (1)
10.8 Wholesale Security Agreement, as amended, dated December 4, 1995, between General Motors Acceptance
Corporation and Performance Dodge, Inc. (1)(7)
10.9 Corporation and Shareholders' Agreement of Xaris Management Co. (1)
10.10 Documents dated December 4, 1995, relating to $5,550,000 loan by General Motors Acceptance Corporation
to Performance Dodge, Inc. (1)
</TABLE>
66
<PAGE>
<TABLE>
<C> <S>
10.10.1 Promissory Note by Performance Dodge, Inc. to General Motors Acceptance Corporation, in the amount of
$1,850,000 (2)
10.10.2 Promissory Note by Performance Dodge, Inc. to General Motors Acceptance Corporation, in the amount of
$3,700,000 (fully repaid) (2)
10.10.4 Security Agreement between General Motors Acceptance Corporation and Performance Dodge, Inc. (2)
10.10.5 Mortgage, Assignment and Security Agreement between General Motors Acceptance Corporation and
Performance Dodge, Inc. (2)
10.11 Documents relating to loan by General Motors Acceptance Corporation to Midway Chevrolet, Inc. (1)
10.11.1 Promissory Note dated December 15, 1989, by Midway Chevrolet, Inc. to General Motors Acceptance
Corporation, in the amount of $977,249.74 (2)
10.11.2 Renewal, Extension and Modification Agreement dated February 20, 1995, between General Motors
Acceptance Corporation and Midway Chevrolet, Inc. (2)
10.11.3 Security Agreement dated February 20, 1995, between General Motors Acceptance Corporation and Midway
Chevrolet, Inc. (2)
10.12 Documents dated December 4, 1995, relating to $1,350,000 loan by General Motors Acceptance Corporation
to Performance Nissan, L.L.C. (1)
10.12.1 Promissory Note by Performance Nissan, L.L.C. to General Motors Acceptance Corporation, in the amount
of $1,350,000 (2)
10.12.2 Cross-Default and Cross-Collateralization Agreement between General Motors Acceptance Corporation and
Performance Nissan, L.L.C. (2)
10.12.3 Security Agreement between General Motors Acceptance Corporation and Performance Nissan, L.L.C. (2)
10.13 Documents relating to used vehicle inventory financing agreements between General Motors Acceptance
Corporation and Cross-Continent Auto Retailers, Inc. dealership subsidiaries (1)(7)
10.13.1 Used Vehicle Wholesale Borrowing Base Credit Line Loan Agreement dated June 7, 1996, between General
Motors Acceptance Corporation and Plains Chevrolet, Inc. (2)(7)
10.13.2 Promissory Note dated June 7, 1996, by Plains Chevrolet, Inc. to General Motors Acceptance Corporation,
in the amount of $3,000,000 (2)(8)
10.13.3 Cross-Default and Cross-Collateralization Agreements between General Motors Acceptance Corporation and
Midway Chevrolet, Inc., Plains Chevrolet, Inc., Quality Nissan, Inc., and Westgate Chevrolet, Inc.
(2)
10.14(*) Employment Contract dated February 21, 1997, by and between Cross-Continent Auto Retailers, Inc. and
James F. Purser (2)
10.15(*) Employment Contract dated February 18, 1997, by and between Cross-Continent Auto Retailers, Inc. and R.
Wayne Moore (11)
10.16(*) Employment Agreement dated as of April 1, 1997, by and between R. Douglas Spedding and Cross-Continent
Auto Retailers, Inc. (3)
10.17(*) Employment Agreement dated as of April 1, 1997, by and between Douglas J. Spedding and Cross-Continent
Auto Retailers, Inc. (3)
10.18 Promissory Note dated April 1, 1997, by Cross-Continent Auto Retailers, Inc. to the order of R. Douglas
Spedding in the principal amount of $7,000,000 (fully repaid) (3)
10.19 Promissory Note dated April 4, 1997, by Cross-Continent Auto Retailers, Inc. to Amarillo National Bank
in the principal amount of $8,000,000 (fully repaid) (3)
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10.20 Documents dated April 10, 1997, relating to Promissory Note by Cross-Continent Auto Retailers, Inc. to
the order of RDS, Inc. in the principal amount of $2,000,000 (3)
10.20.1 Promissory Note by Cross-Continent Auto Retailers, Inc. to the order of RDS, Inc. (3)
10.20.2 Security Agreement between Cross-Continent Auto Retailers, Inc. and RDS, Inc. (3)
10.20.3 Deed of Trust between Cross-Continent Auto Retailers, Inc. and RDS, Inc. (3)
10.21 Documents dated April 10, 1997, relating to Promissory Note by Cross-Continent Auto Retailers, Inc. to
the order of R. Douglas Spedding in the principal amount of $5,500,000 (3)
10.21.1 Promissory Note by Cross-Continent Auto Retailers, Inc. to the order of R. Douglas Spedding (3)
10.21.2 Security Agreement between Cross-Continent Auto Retailers, Inc. and R. Douglas Spedding (3)
10.21.3 Deed of Trust between Cross-Continent Auto Retailers, Inc. and R. Douglas Spedding (3)
10.22 Release and Indemnification Agreement dated as of April 10, 1997, between Cross-Continent
AutoRetailers, Inc. and R. Douglas Spedding (3)
10.23 Unsecured Promissory Note dated July 1, 1997, by Cross-Continent Auto Retailers, Inc. to The Jack
Biegger Revocable Living Trust, in the principal amount of $360,000.00. (9)
10.24 Unsecured Promissory Note, dated July 1, 1997, by Cross-Continent Auto Retailers, Inc. to The Dale M.
Edwards Revocable Family Trust, in the principal amount of $240,000.00. (9)
10.25 Unsecured Promissory Note, dated July 1, 1997, by Sahara Nissan, Inc. to The Jack Biegger Revocable
Living Trust, in the principal amount of $275,000.00. (9)
10.26 Unsecured Promissory Note, dated July 1, 1997, by Sahara Nissan, Inc. to The Dale M. Edwards Revocable
Family Trust, in the principal amount of $125,000.00. (9)
10.27 Documents, dated as of June 26, 1997, relating to line of credit for Cross-Continent Auto Retailers,
Inc. with Texas Commerce Bank National Association, individually and as agent. (9)
10.27.1 Revolving Credit Agreement between Cross-Continent Auto Retailers, Inc., and Texas Commerce Bank
National Association. (9)
10.27.2 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries to the order of
Texas Commerce Bank National Association. (9)
10.27.3 Pledge and Security Agreement between Cross-Continent Auto Retailers, Inc. and Texas Commerce Bank
National Association. (9)
10.28 Dealer Sales and Service Agreement dated July 1, 1997, between the Nissan Division of Nissan Motor
Corporation, U.S.A., Sahara Nissan, Inc., Cross-Continent Auto Retailers, Inc., and Bill A.
Gilliland. (9)
10.29 Environmental Agreement dated July 1, 1997 between Cross-Continent Auto Retailers, Inc. and The Jack
Biegger Revocable Living Trust. (9)
10.30 Separation Agreement dated as of June 20, 1997 between Cross-Continent Auto Retailers, Inc. and Emmett
M. Rice, Jr. (11)
10.32 Documents, dated as of August 7, 1997, relating to the line of credit for Cross-Continent Auto
Retailers, Inc. with Texas Commerce Bank National Association, individually and as agent (13)
10.32.1 First Amendment to Revolving Credit Agreement among Cross-Continent Auto Retailers, Inc.; its
subsidiaries; Texas Commerce Bank National Association; Amarillo National Bank; The Bank of
Tokyo-Mitsubishi, Ltd., Houston Agency; and U. S. Bank. (13)
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10.32.2 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries to the order of
Texas Commerce Bank National Association in the principal amount of $22,500,000 (13)
10.32.3 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries to the order of
Amarillo National Bank in the principal amount of $7,500,000 (13)
10.32.4 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries to the order of Bank
of Tokyo-Mitsubishi, Ltd., Houston Agency, in the principal amount of $5,000,000 (13)
10.32.5 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries to the order of U.
S. Bank in the principal amount of $5,000,000 (13)
10.33 Lease Agreement dated August 15, 1997 between Cross-Continent Auto Retailers, Inc. and Performance
Dodge, Inc. (12)
10.34 Joinder Agreement dated July 1, 1997 between Sahara Nissan, Inc. and Texas Commerce Bank National
Association (13)
10.35 Documents dated as of September 30, 1997 relating to the loan agreement between Cross-Continent Auto
Retailers, Inc. and R. Douglas Spedding (omitting exhibits thereto, which will be furnished
supplementally to the Commission upon request) (13)
10.35.1 Master Construction and Master Loan Agreement among Toyota West Sales and Service, Inc., Douglas
Toyota, Inc., Sahara Imports, Inc., and Cross-Continent Auto Retailers, Inc. as Borrowers, and R.
Douglas Spedding as Lender (13)
10.35.2 Promissory Note by Cross-Continent Auto Retailers, Inc. to the order of R. Douglas Spedding in the
principal amount of $7,400,000 (13)
10.35.3 Deed of Trust among Cross-Continent Auto Retailers, Inc. as Borrower, the Public Trustee of Adams
County, Colorado, as Trustee, and R. Douglas Spedding as Lender (13)
10.35.4 Deed of Trust and Assignment of Rents among Cross-Continent Auto Retailers, Inc. as Grantor, Old
Republic Title Company of Nevada as Trustee, and R. Douglas Spedding as Beneficiary (13)
10.35.5 Security Agreement between Cross-Continent Auto Retailers, Inc., Douglas Toyota, Inc. and Toyota West
Sales and Service, Inc. as Debtors and R. Douglas Spedding as Lender (13)
10.35.6 Guaranty by Bill A. Gilliland in favor of R. Douglas Spedding (13)
10.36 Documents dated August 22, 1997 relating to loans by General Motors Acceptance Corporation to
Cross-Continent Auto Retailers, Inc. and certain subsidiaries (13)
10.36.1 Cross Default and Cross Collateralization Agreement among General Motors Acceptance Corporation and
Midway Chevrolet, Inc., Plains Chevrolet, Inc., Quality Nissan, Inc., Westgate Chevrolet, Inc.,
Sahara Nissan, Inc., and Cross-Continent Auto Retailers, Inc. (13)
10.36.2 Guaranty Agreement between Cross-Continent Auto Retailers, Inc. and General Motors Acceptance
Corporation (13)
10.37 Assumption Agreement dated August 22, 1997 between General Motors Acceptance Corporation and
Cross-Continent Auto Retailers, Inc. relating to Performance Dodge, Inc. (omitting exhibit thereto,
which will be furnished supplementally to the Commission upon request) (13)
10.38 Amendment to Office Lease dated October 1, 1997, between Gilliland Group Family Partnership and
Cross-Country Auto Retailers, Inc. (now named Cross-Continent Auto Retailers, Inc.) (13)
10.39 Amendment No. 1 to Nissan Dealer Term Sales and Service Agreement dated October 13, 1997, between the
Nissan Division of Nissan Motor Corporation U.S.A. and Sahara Nissan, Inc. d/b/a Jack Biegger Nissan
(13)
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10.40 Management Agreement dated as of the 16th day of October, 1997, by and between Cross-Continent Auto
Retailers, Inc. and Tar-Car, Inc.
10.41 Amendment to Management Agreement effective as of November 1, 1997, by and between Cross-Continent Auto
Retailers, Inc. and Tar-Car, Inc.
10.42 Management Agreement dated as of the 17th day of December, 1997, by and between Sahara Imports, Inc.
and Vinci, Inc.
10.43 Management Agreement dated as of November 1, 1997 by and among Cross-Continent Auto Retailers, Inc.,
JRJ Investments, Inc., and the Chaisson Family Trust R-501 (15)
10.44 Triple Net Lease Agreement dated November 1, 1997 covering 2333 South Decatur Boulevard, Las Vegas,
Nevada, by and between JRJ Properties and JRJ Investments, Inc. (15)
10.45 Triple Net Lease Agreement dated November 1, 1997 covering 261 and 251 Auto Mall Drive, Henderson,
Nevada, by and between The Chaisson Family Trust R-501 and JRJ Investments, Inc. (15)
10.46 Unsecured Promissory Note dated January 5, 1998, by Cross-Continent Auto Retailers, Inc. to The
Chaisson Family Trust R-501 (15)
10.47 Management Agreement dated January 5, 1998, by and among Cross-Continent Auto Retailers, Inc., JRJ
Investments, Inc., and The Chaisson Family Trust R-501. (15)
10.48 Escrow Agreement dated January 5, 1998, by and among Cross-Continent Auto Retailers, Inc., The Chaisson
Family Trust R-501, and United Title of Nevada, Inc. (15)
10.49 Agreement Regarding Stock Options dated January 5, 1998, between James J. Chaisson, Jr. and
Cross-Continent Auto Retailers, Inc. (15)
10.50 Real Property Purchase Agreement dated as of December 31, 1997, by and among Capital Automotive REIT,
Capital Automotive, L.P., Plains Chevrolet, Inc., Midway Chevrolet, Inc., Westgate Chevrolet, Inc.,
Quality Nissan, Inc., and Cross-Continent Auto Retailers, Inc. (omitting exhibits thereto, which will
be furnished supplementally to the Commission upon request)
10.51 Documents dated January 16, 1998 relating to financing for the purchase of used vehicles at T-West
Sales & Service, Inc. and Douglas Motors
10.51.1 Promissory Note from T-West Sales & Service, Inc. to R. Douglas Spedding, with Guaranty by
Cross-Continent Auto Retailers, Inc.
10.51.2 Security Agreement between T-West Sales & Service, Inc. and R. Douglas Spedding
10.51.3 Promissory Note from Douglas Motors, Inc. to R. Douglas Spedding, with Guaranty by Cross-Continent Auto
Retailers, Inc.
10.51.4 Security Agreement between Douglas Motors, Inc. and R. Douglas Spedding
10.52 Sublease Agreement dated February 25, 1998 by and between Allied 2000 Collision Center, Inc. and Plains
Chevrolet, Inc.
10.53 Sublease Agreement dated February 25, 1998 by and between Working Man's Credit Plan, Inc. and Plains
Chevrolet, Inc.
10.54 Sublease Agreement dated February 25, 1998 by and between Westgate Chevrolet, Inc. and Enterprise
Rent-A-Car Company
10.55 Guaranty and Subordination Agreement dated February 25, 1998 by Cross-Continent Auto Retailers, Inc. in
favor of Capital Automotive, L.P.
10.56 Lease Agreement dated February 25, 1998 by and between Capital Automotive, L. P. and Plains Chevrolet,
Inc. (14)
10.57 Dealer Agreement effective as of February 1, 1998 by and between BMW of North America, Inc. and JRJ
Investments, Inc.
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21.1 Subsidiaries
23.1 Consent of independent accountants
27.1 Financial Data Table
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(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 333-0685), incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated April 10, 1997, incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the Quarterly Period Ended September 30, 1996, incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, filed with the Securities and Exchange Commission on March 7,
1997, incorporated herein by reference.
(6) Substantially identical agreements exist between the Chevrolet Division and
each of Midway Chevrolet, Inc. and Westgate Chevrolet, Inc.
(7) Substantially identical Agreements exist between General Motors Acceptance
Corporation and each of Midway Chevrolet, Inc., Westgate Chevrolet, Inc.,
and Quality Nissan, Inc.
(8) Substantially identical Promissory Notes have been executed by Midway
Chevrolet, Inc., Westgate Chevrolet, Inc., and Quality Nissan, Inc., in the
amounts indicated for each dealership subsidiary in the Cross-Default and
Cross-Collateralization Agreement (Exhibit 10.13.3)
(9) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated July 15, 1997, incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997, incorporated herein by
reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997, incorporated herein by
reference.
(12) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 2, 1997, incorporated herein by reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997, incorporated herein
by reference.
(14) Substantially identical agreements exist between Capital Automotive, L.P.
and each of Midway Chevrolet, Inc., Westgate Chevrolet, Inc., Quality
Nissan, Inc., Douglas Motors, Inc., and T-West Sales & Service, Inc.
(15) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated January 5, 1998, incorporated herein by reference.
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Exhibit 2.14
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 16th day of October, 1997, by and among CROSS-CONTINENT AUTO RETAILERS,
INC. ("Purchaser"), a Delaware corporation; THOMAS A. RANDT ("Randt"), a
Nevada resident; RONALD J. BLOMQUIST ("Blomquist"), a California resident;
and TAR-CAR, INC. (the "Company), a California corporation, d/b/a "Toyota By
The Bay" and "Auto Central Used Car Sales and Credit Union Buying Service."
RECITALS
A. The Company owns and operates a Toyota franchised automobile
dealership located at 4555 Mission Bay Drive, San Diego, California 92109 and
a used car lot located at 7777 Convoy Court, San Diego, California 92111
(collectively, the "Dealership").
B. The Company operates the Dealership under the names "Toyota By the
Bay" and "Auto Central Used Car Sales and Credit Union Buying Service."
C. Randt and Blomquist are the owners of all of the issued and
outstanding shares of capital stock of the Company (the "Shares").
D. Randt and Blomquist shall hereinafter be collectively referred to
as the "Sellers" and individually as a "Seller".
E. Subject to the terms and conditions set forth in this Agreement,
Purchaser desires to purchase all of the Shares, and Sellers desire to sell
all of the Shares to Purchaser.
AGREEMENT
In consideration of the mutual covenants, agreements, representations,
and warranties set forth in this Agreement, Purchaser, Sellers, and the
Company agree as follows:
1. PURCHASE AND SALE OF THE SHARES. Subject to and upon the
terms and conditions of this Agreement, at the Closing (hereinafter defined)
each Seller shall sell, transfer, convey, assign, and deliver to the
Purchaser, and Purchaser shall purchase, acquire and accept from each Seller,
all of the Shares owned by such Seller, free and clear of all security
interests, liens, claims, agreements, encumbrances, or restrictions of any
kind, whether written or oral.
2. PURCHASE PRICE. The purchase price to be paid by Purchaser
to Sellers for the Shares shall be $5,500,000 (the "Purchase Price"),
subject to the adjustment set forth in Paragraph 3 of this Agreement.
3. ADJUSTMENT TO THE PURCHASE PRICE. In the event that the Company's
Net Worth (hereinafter defined) is more or less than $825,000, the Purchase
Price shall be increased or decreased by an amount equal to the difference
between $825,000 and the Net Worth, provided Purchaser and Sellers agree to
the adjustment. As used in this Agreement, the term
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"Net Worth" shall mean the net worth shown on the balance sheet in the
Audited Financial Statements (hereinafter defined) as of September 30, 1997,
as adjusted by the Net Worth Adjustments (hereinafter defined), using the
values for the New Vehicle Inventory (hereinafter defined), Remarketed
Vehicle Inventory (hereinafter defined), Used Vehicle Inventory (hereinafter
defined), Parts and Accessories Inventory (hereinafter defined) and Tangible
Personal Property (hereinafter defined), as determined in accordance with
subparagraph 12(d); except (a) reserves for charge backs of finance income,
insurance premiums, and service contract income will not be deducted in
determining Net Worth, (b) the reserve for LIFO will be deducted in
determining Net Worth, (c) all accruals through October 31, 1997, including
(without limitation) accruals for vacation expenses, legal fees, property
taxes, income taxes and payroll taxes shall be included in the determination
of Net Worth, and (d) the deferred profit (the "Deferred Profit") as
established by Price Waterhouse, LLP in the Audited Financial Statements
shall not be included in the determination of Net Worth. In addition, in the
event the Capital Loan (hereinafter defined) as of October 31, 1997 is less
than $700,000, the Purchase Price shall be increased by such difference. Any
adjustment to the Purchase Price shall be applied to the various components
of the Purchase Price proportionally.
4. PAYMENT OF PURCHASE PRICE. At Closing Purchaser shall pay
the Purchase Price, as adjusted, as follows:
a. TO RANDT:
(i) $3,150,000 in cash; and
(ii) Purchaser shall execute and deliver a promissory note
to Randt in the original principal amount of $1,350,000
(the "$1,350,000 Note"), bearing interest on the unpaid
principal at the prime rate announced from time to time
by Bank of America, payable in twenty-three (23)
monthly installments of interest only, with all unpaid
principal and accrued interest being due and payable
twenty-four (24) months after the date of the
$1,350,000 Note. The $1,350,000 Note shall be in the
form of Exhibit "A" hereto.
b. TO BLOMQUIST:
(i) $350,000 in cash;
(ii) Purchaser shall issue to Blomquist the number of shares
of restricted common stock of Purchaser (the
"Restricted Stock") that, when multiplied by the
average closing price for the stock of Purchaser quoted
in THE WALL STREET JOURNAL for the five (5) trading
2
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days immediately preceding the date that the
transactions contemplated by this Agreement are
announced to the public by Purchaser (the "Announcement
Date"), will equal $100,000. Purchaser shall not issue
any fractional shares and shall pay Blomquist cash in
lieu of any fractional shares based on the closing
price for the stock of Purchaser quoted in THE WALL
STREET JOURNAL for the five (5) trading days
immediately preceding the Announcement Date; and
(iii) Purchaser shall execute and deliver a promissory
note to Blomquist in the original principal amount of
$50,000 (the "$50,000 Note), bearing interest on the
unpaid principal at the prime rate announced from time
to time by Bank of America, payable in twenty-three
(23) monthly installments of interest only, with all
unpaid principal and accrued interest being due and
payable twenty-four (24) months after the date of the
$50,000 Note. The $50,000 Note shall be in the form of
Exhibit "B" hereto.
The certificates representing the Restricted Stock that is issued
to Blomquist shall bear a restrictive legend that the stock has
not been registered under applicable federal and state securities
laws. It is understood and agreed that Purchaser has not agreed
to register the Restricted Stock that is to be issued to
Blomquist.
c. SELLERS' ESCROW. In addition, Purchaser shall deliver
$500,000 ($450,000 for Randt and $50,000 for Blomquist) into
an interest bearing account for twenty-four (24) months
under an escrow agreement (the "Sellers' Escrow Agreement")
between Sellers and Purchaser. The Sellers' Escrow
Agreement shall be substantially in the form of Exhibit "C"
hereto. The Sellers' Escrow Agreement shall provide (among
other things) that (i) all interest that accrues on the
amount held in escrow shall be paid to the Sellers' pro rata
at the expiration or termination of the Sellers' Escrow
Agreement, and (ii) the amount held in escrow, including
accrued interest, shall be used to pay any unaccrued
expenses that arose prior to October 31, 1997; any debts,
liabilities, or obligations of the Company at the Balance
Sheet Date (hereinafter defined) that are not reflected in
the Financial Statements (hereinafter defined); and any
claims or costs (hereinafter defined) of cancellations on
extended service contracts that were sold prior to October
31, 1997; provided, however, the Escrow Agreement shall
provide that the Escrow Agent shall pay fifty percent (50%)
of any interest to the Sellers in order for the Sellers
3
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to pay the income taxes due on the interest. Purchaser and
Sellers agree that if any receivables are written off prior
to Closing and after Closing payments are made on such
receivables, the payments shall be added to Sellers' escrow
account.
5. CLOSING. Subject to the terms and conditions set forth in
this Agreement, the closing ("Closing") of the purchase and sale of the
Shares shall take place at 1083 Skyland Drive, Zepher Cove, Nevada 89448, or
at such other place as may be mutually agreed upon by Purchaser and Sellers,
on the earlier of (a) as soon as practicable following the date on which all
conditions to the obligations of the parties hereunder (other than those
requiring the taking of action at the Closing) have been satisfied or waived,
but not earlier than January 1, 1998, or (b) January 19, 1998, subject to the
mutual agreement of the parties to select another date. The date on which
the Closing is to occur is hereinafter referred to as the "Closing Date."
Any other provision of this Agreement to the contrary notwithstanding, if
Sellers have not obtained the consent of Toyota Motor Corporation, U.S.A.
("Toyota") prior to January 19, 1998, either Purchaser or Sellers shall have
the right to extend the Closing Date thirty (30) days by giving written
notice to the other parties.
6. TRANSACTIONS AT CLOSING. The following transactions shall
take place at Closing:
a. DELIVERIES BY SELLERS. The Sellers shall deliver the
following to the Purchaser:
(i) Stock certificates representing the Shares in duly
transferable form;
(ii) Such other documents and instruments as Purchaser may
reasonably request in order to vest in Purchaser good
and marketable title to the Shares and to any and all
right, title, interest or claim of any kind that
Sellers may have in the properties, assets or business
of the Company;
(iii) Any consent required from the landlord under that
certain Triple Net Lease ("the Dealership Lease") dated
December 21, 1988, by and between Hans Hamann, Margo
Hamann, and Fritz Walter, and Beach Cities Toyota,
Inc.; the sublandlord under that certain Sublease
Agreement (the "Dealership Sublease") dated July 20,
1990, by and between Toyota Motor Sales, USA, Inc., and
Beach Cities Toyota, Inc.; the landlord under that
certain Ground Lease (the "Used Car Lot Lease") dated
April 16, 1990, by and between Abraham Perl, Trustee of
the Perl Property Trust and Fred
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Salehyan; and the sublandlord under that certain
Sublease (the "Used Car Lot Sublease") dated December
12, 1994, by and between California Auto Resale and
Tar-Car, Inc.;
(iv) A Phase I environmental site audit on all real property
currently owned, leased, or otherwise utilized by the
Company, paid for by the Sellers, in form and substance
satisfactory to Purchaser;
(v) Copies of resolutions of the Board of Directors of the
Company, duly certified by its Secretary, in form
reasonably satisfactory to Purchaser's counsel,
authorizing the execution, delivery and performance of
this Agreement and all other documents to which the
Company is a party as contemplated hereby, and all
actions to be taken by the Company hereunder and
thereunder;
(vi) A Sellers' certificate in the form of Exhibit "D"
hereto, duly executed by the Sellers and the Company;
(vii) An opinion of counsel to the Sellers, in the form
of Exhibit "E" hereto;
(viii) An Investment Letter (hereinafter defined)
executed by Blomquist, in the form of Exhibit "F"
hereto;
(ix) A Registration Rights Agreement executed by Blomquist,
in the form of Exhibit "G" hereto;
(x) The Sellers' Escrow Agreement;
(xi) Any instruments and other documents specifically
required by this Agreement that are not otherwise set
forth in this subparagraph 6(a); and
(xii) Any other instruments or documents deemed reasonably
necessary or desirable by the Purchaser in order to
consummate the transactions contemplated hereby.
b. DELIVERIES BY BUYER. The Buyer shall deliver the following
to the Sellers:
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(i) The cash portions of the Purchase Price, the $1,350,000
Promissory Note, the $50,000 Promissory Note, and a
stock certificate representing the Restricted Stock;
(ii) Copies of resolutions of the Board of Directors of the
Purchaser, duly certified by its secretary, in form
reasonably satisfactory to Sellers' counsel,
authorizing the execution, delivery and performance of
this Agreement and all other documents to which the
Purchaser is a party as contemplated hereby, and all
action to be taken by Purchaser hereunder and
thereunder;
(iii) The Purchaser's Escrow Agreement (hereinafter
defined);
(iv) Any instruments and other documents specifically
required by this Agreement that are not otherwise set
forth in this subparagraph 6(b); and
(v) Any other instruments or documents deemed reasonably
necessary or desirable by the Sellers in order to
consummate the transactions contemplated hereby.
7. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY.
The Sellers and the Company jointly and severally represent and warrant to
Purchaser, effective as of the date of this Agreement and again at Closing,
each of the following:
a. AUTHORITY AND BINDING AGREEMENT. Each Seller has the legal
power and capacity to enter into this Agreement and to
perform his obligations hereunder. This Agreement has been
duly and validly executed and delivered by each Seller and
the Company and is a valid and binding obligation of each
Seller and the Company (relating to those certain agreements
of the Company contained in this Agreement), enforceable
against each Seller and the Company in accordance with its
terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to the enforcement of creditors'
rights generally and by general principles of equity. Each
Seller has (i) good and marketable title to the portion of
the Shares owned by that Seller, free and clear of any
security interests, liens, claims, agreements,
encumbrances, or restrictions of any kind, and (ii) the
complete and unrestricted right, power, and authority to
sell, transfer, and assign the Shares in accordance with
this Agreement.
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b. ORGANIZATION AND STANDING. The Company is duly
incorporated, is validly existing, and is in good standing
under the laws of the State of California and has all
necessary power and authority to own, lease, and operate its
properties and assets and to conduct its business as its
business is now being conducted. Sellers have delivered to
Purchaser complete and accurate copies of the Company's
articles of incorporation and bylaws, including all
amendments thereto and have made available to Purchaser its
minute book and stock records. Schedule 7(b) will set forth
a complete and accurate list of all officers, directors and
assumed or fictitious names of the Company as of the date of
this Agreement. The Company is qualified to do business and
is in good standing in each state in which it transacts
business. The Company does not have any subsidiaries nor any
direct or indirect equity interest in any corporation,
partnership, or other entity, except for the Company's
interest in San Diego Special Events Sales, LLC and Metro
Autoplex, Inc. The Company is a "small business corporation"
and has maintained a valid election to be an "S" corporation
under Subchapter S of the Internal Revenue Code of 1986, as
amended.
c. CAPITALIZATION. The authorized capital stock of the Company
consists of 10,000 shares of common stock, having no par
value. On the date hereof, Randt owns beneficially and of
record 9,000 shares of common stock of the Company and
Blomquist owns beneficially and of record 1,000 shares of
common stock of the Company, which collectively comprise the
Shares. The Shares (i) constitute all of the issued and
outstanding shares of capital stock of the Company, (ii)
have been validly authorized and issued, (iii) are fully
paid and nonassessable, (iv) have not been issued in
violation of any preemptive rights or of any federal or
state securities laws, and (v) are not subject to any
agreement that relates to the voting or control of any of
the Shares. There are and will be on the Closing Date no
outstanding subscriptions, options, rights, warrants,
convertible securities, or any other agreements or
commitments obligating the Company to issue, deliver, or
sell any additional shares of its capital stock of any class
or any other securities of any kind. There are no bonds,
debentures, notes, or other indebtedness or securities of
the Company having the right to vote on any matters on which
the shareholders of the Company may vote. There are no
outstanding rights, agreements, or arrangements of any kind
obligating the Company to repurchase, redeem, or otherwise
acquire any shares of capital stock or other voting
securities of the Company.
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d. NO CONFLICTS. Neither the execution and delivery of this
Agreement nor the fulfillment of or compliance with the
terms and provisions hereof will violate, conflict with, or
result in a breach of the terms, conditions or provisions
of, or constitute a default or an event which, with notice
or lapse of time or both, would constitute a default under,
(i) the articles of incorporation or bylaws of the Company,
(ii) any contract, agreement, mortgage, deed of trust, or
other instrument or obligation to which the Sellers or the
Company is a party or by which any of them is bound, except
for agreements between the Company and Toyota, which require
the consent of Toyota; the Dealership Lease, which may
require the consent of the landlord; the Dealership
Sublease, which may require the consent of the sublandlord;
the Used Car Lot Lease, which may require the consent of the
landlord; the Used Car Lot Sublease, which may require the
consent of the sublandlord; and the Capital Loan, which may
require the consent of Toyota Motor Credit Corporation;
(iii) violate any provision of any applicable law or
regulation or of any order, decree, writ or injunction of
any court or governmental body, or (iv) result in the
creation or imposition of any lien, charge, restriction,
security interest or encumbrance of any kind whatsoever on
any property or asset of the Company or on the Shares.
e. CONSENTS. No consent or approval by, or any notification
of or filing with, any governmental entity or agency or any
other person or entity is required in connection with the
execution, delivery or performance of this Agreement by
Sellers or the Company, other than consent from (i) the
California Department of Motor Vehicles, (ii) Toyota, or
(iii) the FTC and the Justice Department under the
Hart-Scott-Rodino Act.
f. REAL PROPERTY. Schedule 7(f) will set forth a complete and
accurate (i) legal description of all real property owned by
the Company, and (ii) description of each lease or sublease
of real property under which the Company holds a leasehold
interest. Each of the leases and subleases are in full
force and effect and constitutes a legal, valid and binding
obligation of the parties thereto. The Company has
performed the covenants required to be performed by it under
each of the leases and subleases to which it is a party and
is not in default under any of the leases or subleases to
which it is a party. The zoning of each tract of real
property owned, leased or otherwise utilized by the Company
permits the presently existing improvements and the
continuation of the business presently being conducted on
such real property. To the best of each Seller's and the
Company's knowledge, neither Sellers nor the Company
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is aware of any pending or proposed changes to such zoning
or of any pending or proposed condemnation action, affecting
any real property owned, leased or otherwise utilized by the
Company.
g. TANGIBLE PERSONAL PROPERTY. Schedule 7(g) will set forth a
complete and accurate description of (i) all equipment,
furniture, fixtures, and other tangible personal property
(other than inventory) owned by the Company, and (ii) each
lease of personal property under which the Company holds a
leasehold interest. Each of the leases is in full force and
effect and constitutes a legal, valid, and binding
obligation of the parties thereto. The Company has
performed the covenants required to be performed by it under
each of the leases to which it is a party and is not in
default under any of the leases to which it is a party. To
the best of each Seller's and the Company's knowledge, the
Tangible Personal Property (hereinafter defined) is in good
repair and operating condition, has been regularly and
properly maintained and fully serviced, and is suitable for
the purposes for which it is presently being used. All
Tangible Personal Property described on Schedule 7(g) shall
be at the dealerships, in good working order and condition,
and free and clear of all liens and other encumbrances. On
November 1, 1997, the Company will have Tangible Personal
Property with a value, determined in accordance with
subparagraph 12(d)(iv),of at least $350,000. As used in
this Agreement, the term "Tangible Personal Property" shall
mean all tangible personal property owned by the Company on
November 1, 1997.
h. INVENTORIES. Schedule 7(h) will set forth a complete and
accurate description of the New Vehicle Inventory
(hereinafter defined), Remarketed Vehicle Inventory
(hereinafter defined), Used Vehicle Inventory (hereinafter
defined), and Parts and Accessories Inventory (hereinafter
defined). As used in this Agreement, the term "New Vehicle
Inventory" shall mean all new vehicles and demonstrators
owned by the Company on November 1, 1997; the term
"Remarketed Vehicle Inventory" shall mean program cars
purchased through auction that are eligible for Toyota Motor
Credit Corporation's special floor planning; the term "Used
Vehicle Inventory" shall mean all used vehicles owned by
the Company on November 1, 1997; and the term "Parts and
Accessories Inventory" shall mean all parts and accessories
purchased from Toyota and other reputable and reliable
suppliers, including tires, gas, oil, grease, body shop
materials and other inventories, and owned by the Company on
November 1, 1997. To the
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best of each Seller's and the Company's knowledge, each
inventory of the Company consists of goods of a quality
and in quantities that are saleable in the ordinary course
of the Company's business with normal mark-up at prevailing
market prices. To the best of each Seller's and the
Company's knowledge, all Toyota parts and accessories in the
inventory of the Company are returnable for full credit and
undamaged parts and accessories that are listed for sale in
the current dealer parts and accessories price schedule for
Toyota, except as set forth on Schedule 7(h). In order for
the Company to conduct business reasonably consistent with
past and current practices, on November 1, 1997, the Company
will have the following:
(i) a Used Vehicle Inventory with a value, determined in
accordance with subparagraph 12(d)(ii), of at least
$1,200,000;
(ii) a Parts and Accessories Inventory with a value,
determined in accordance with subparagraph 12(d)(iii),
at least $325,000; and
(iii) a New Vehicle Inventory that has a value,
determined in accordance with subparagraph 12(d)(i),
equal to the outstanding balance of the floor plan
indebtedness to Toyota Motor Credit Corporation for the
purchase of the New Vehicle Inventory; and
(iv) a Remarketed Vehicle Inventory with a value, determined
in accordance with subparagraph 12(d)(v), equal to the
outstanding balance of the floor plan indebtedness to
Toyota Motor Credit Corporation for the purchase of the
Remarketed Vehicle Inventory.
The New Vehicle Inventory, the Remarketed Vehicle Inventory,
the Used Vehicle Inventory, and the Parts and Accessories
Inventory shall be free and clear of all liens and other
encumbrances, except the security interest held by Toyota
Motor Corporation to secure the (a) floor plan indebtedness
for the New Vehicle Inventory and the Remarketed Vehicle
Inventory (collectively, the "Floor Plan"), and (b) the
Capital Loan.
i. LICENSES AND PERMITS. Schedule 7(i) will set forth a
complete and accurate description of all permits, licenses,
franchises, certificates, and similar items and rights,
owned or held by the Company (hereinafter collectively
referred to as the "Licenses and Permits"). The Licenses
and Permits (i) are adequate for the operation of the
Company's business, (ii)
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are valid and in full force and effect, except as set forth
on Schedule 7(i), and (iii) will be transferred to the
Purchaser at the Closing, unless such transfer is prohibited
by law or by the terms of the item or right to be
transferred. No additional permit, license, franchise,
certificate, or similar item or right is required
by the Company for the operation of its business.
j. INTELLECTUAL PROPERTY. Schedule 7(j) will set forth a
complete and accurate description of all intellectual
property presently in use by the Company, which intellectual
property includes (without limitation) software patents,
trademarks, tradenames, service marks, copyrights, trade
secrets, customer lists, inventions, formulas, methods,
processes, advertising materials, Internet sites, and any
other proprietary information or property. There are no
outstanding licenses or consents to third parties granting
the right to use any intellectual property owned by the
Company. To the best of each Seller's and the Company's
knowledge, no intellectual property used by the Company
infringes on any rights owned or held by any other person or
entity, and no person is infringing on the rights of the
Company in any intellectual property used by the Company.
Any royalties or fees payable by the Company to any third
party by reason of the use of any intellectual property by
the Company is set forth on Schedule 7(j). No additional
intellectual property is required by the Company for the
operation of its business.
k. TITLE TO PROPERTIES AND ENCUMBRANCES. The Company has good
and marketable title to (or, in the case of leased property,
valid and subsisting leasehold interests in) all of its
properties and assets, including (without limitation) the
properties and assets that will be listed on Schedules 7(f),
7(g), 7(h), 7(i) and 7(j). The properties and assets of the
Company are subject to no liens, deeds of trust, mortgages,
encumbrances, conditional sales agreements, security
interests, claims, or restrictions of any kind or character,
except for (i) the encumbrances that will be listed on
Schedule 7(k), and (ii) liens for current taxes not yet due
and payable.
l. FINANCIAL STATEMENTS. The Company has delivered to the
Purchaser copies of a balance sheet for the Company dated
September 30, 1997 (the "Balance Sheet Date"), and
statements of income and retained earnings for the periods
ending December 31, 1996 and September 30, 1997 (hereinafter
collectively referred to as the "Financial Statements").
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The Financial Statements were prepared by Karen Buley,
Controller of the Company, and are unaudited. The Financial
Statements fairly present the financial condition of the
Company at the dates mentioned and the results of its
operations for the periods specified, except as set forth on
Schedule 7(l), and were prepared in accordance with its
normal and customary accounting procedures. The balance
sheet in the Financial Statements discloses all of the
debts, liabilities, and obligations of any nature (whether
absolute, accrued, contingent, or otherwise, and whether due
or to become due) of the Company as of the Balance Sheet
Date and includes appropriate reserves for all taxes and
other liabilities accrued or due at such dates but not yet
paid. Schedule 7(l) will set forth all (i) inter-Dealership
transactions, and (ii) related party transactions between
any one or more of the Dealerships, Randt, Blomquist, the
Company, and any of their affiliates.
m. INDEBTEDNESS FOR BORROWED MONEY AND GUARANTIES. Schedule
7(m) will set forth a complete and accurate description of
the Company's indebtedness for borrowed money. Sellers will
deliver to the Purchaser complete and accurate copies of all
instruments evidencing or relating to the Company's
indebtedness for borrowed money. To the best of each
Seller's and the Company's knowledge, the Company is not in
default or violation of any provision of any agreement
evidencing or relating to its indebtedness for borrowed
money. Schedule 7(m) will also set forth a complete and
accurate list of (i) all guaranties by the Company of any
obligation or liability of any person or entity, including
(without limitation) any guaranties of installment sales
contracts or leases, (ii) all warranties on vehicles that
have been sold by the Company for the last three (3) years
for which there is any contingency of liability for the
Company, and (iii) all loans from the Company to any person
or entity.
n. TAX MATTERS. To the best of each Seller's knowledge, the
Company has filed or will file all federal, state, local and
foreign tax returns and tax reports required to be filed by
it for periods ending on or prior to the Closing Date. All
such returns and reports are and will be correct and
complete in all material respects. All federal, state,
local, and foreign income, profits, franchise, property,
excise, sales, use, occupation, payroll, employment, and
other taxes and assessments for periods ending on or prior
to the Closing Date that are or will be due and payable by
either Seller, the Company, or by either Seller on behalf of
the Company have been or will be properly computed, duly
reported, fully paid, and discharged. Neither Seller is
aware of any unpaid taxes that require
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payment by the Company, except for current taxes not yet
due and payable. To the best of each Seller's and the
Company's knowledge, (i) all current taxes not yet due
and payable by the Company have been properly accrued and
are accurately reflected in the Company's balance sheet
in the Financial Statements, (ii) the Company has not
been delinquent in the payment of any tax, assessment, or
governmental charge, (iii) no issues have been raised in
writing with the Company by the Internal Revenue Service
or any other taxing authority in connection with any tax
return or tax report filed by the Company, and (iv) the
Company has not executed any waiver of the statute of
limitations on the assessment or collection of any tax.
Each Seller agrees to indemnify and hold harmless the
Purchaser with respect to any income or other tax
liabilities, penalties and interest which arise from the
operation of the Company prior to Closing or arise as a
result of the transactions contemplated by this Agreement.
o. TRANSACTIONS SINCE THE BALANCE SHEET DATE. Since the
Balance Sheet Date, (i) the Company has not incurred any
debts, liabilities, or obligations, except current
liabilities in the ordinary course of business; discharged
or satisfied any liens or encumbrances, or paid any debts,
liabilities, or obligations, except in the ordinary course
of business; mortgaged, pledged, or otherwise subjected to
any lien or other encumbrance any of its properties or
assets; canceled any debt or claim; sold or transferred any
properties or assets, except sales from inventory in the
ordinary course of business; nor entered into any
transaction other than in the ordinary course of business;
(ii) there has not been any material adverse change in the
business, operations, properties, assets, revenues,
earnings, liabilities, or condition (financial or otherwise)
of the Company; (iii) there has not been any declaration,
setting aside or payment of any dividend or other
distribution in respect of, or any direct or indirect
redemption, purchase or other acquisition of, any of the
capital stock of the Company, except for distribution of
fifty percent (50%) of the Company's profits for September
and October, 1997; (iv) the Company has not issued or sold
or contracted to issue or sell any stock, securities or
options, of any nature whatsoever; (v) the Company has not
increased the compensation, commissions, bonuses, or other
remuneration payable to any officer, director, employee, or
to any other person or entity, whether now or hereafter
payable, including any increase pursuant to any pension,
profit-sharing or other plan or commitment, (vi) there has
not been any damage, destruction or loss (whether or not
covered by insurance) affecting any asset or property of
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the Company; (vii) the Company has not made any capital
expenditure or commitment, individually or in the
aggregate, in excess of $10,000.00, except for the
execution of a purchase order on a $40,400 smog and
emission testing machine that is required by the State of
California to do smog checks; (viii) the Company has not
made any loan or advance to any person or entity (other
than salary advances to employees that were less than
$500 per occurrence and less than $2,000 in the aggregate
to any employee) or guaranteed any obligation or
liability of any person or entity, including (without
limitation) any guaranties of any installment sales
contracts or leases, other than as will be set forth on
Schedule 7(m); (ix) the Company has not given any
indemnifications to any person or entity; (x) the
Company has not acquired any properties or assets other
than in the ordinary course of business; (xi) the Company
has not made any change in its method of accounting or
accounting practices, including (without limitation) any
change in depreciation or amortization policies or rates;
(xii) the Company has not granted any waiver or release
of any claim or right held by it; (xiii) the Company has
not amended or terminated any material contract,
agreement, or license to which it is a party; (xiv) the
Company has not made any material write-down of the value
of any asset of the Company or any material write-off as
uncollectible of any account receivable or note
receivable; (xv) the Company has not changed its past
practices in the acquisition or sale of its new vehicle,
used vehicle, or parts and accessories inventories; and
(xvi) the Company has not agreed, in writing or
otherwise, to do or permit any of the foregoing;
p. LITIGATION. Schedule 7(p) will set forth a complete and
accurate description of all actions, suits, claims,
investigations or legal, administrative or arbitration
proceedings, pending or threatened, whether at law or in
equity, involving the Company or any of its properties,
assets, or business, and all judgments, orders, decrees,
writs or injunctions of any court or governmental
department, commission, agency, instrumentality or
arbitrator applicable to either Seller or to the Company.
Neither of the Sellers nor the Company is aware of any facts
that might result in any other action, suit, claim,
investigation, or legal, administrative or arbitration
proceeding.
q. COMPLIANCE WITH LAWS.
(i) To the best of each Seller's and the Company's
knowledge, the
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Company has complied and is in compliance in all
material respects with all federal, state, local and
foreign laws, ordinances, rules, codes, regulations,
and orders (including those related to environmental
protection and occupational safety and health)
applicable to the Company.
(ii) To the best of each Seller's and the Company's
knowledge, there are no past or present events,
conditions, circumstances, activities, practices,
incidents, plans or actions, based on or resulting from
the conduct of the business of the Company, including
the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling,
or the emission, discharge, release, or threatened
release into the environment, of any pollutant,
contaminant, chemical, or industrial toxic or hazardous
material, substance or waste, which violates any laws
and the regulations promulgated thereunder currently in
effect relating to pollution or protection of the
environment (the "Environmental Laws"), including
(without limitation) the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"),
or any plan, order, decree, judgment, injunction,
notice or demand letter from a governmental department,
commission, agency or instrumentality applicable to
the Company, or which could give rise to any common law
or other legal liability. To the best of each Seller's
and the Company's knowledge, all real property
currently or formerly owned, leased or otherwise
utilized by the Company contains no spill, deposit, or
discharge of any hazardous substance (as that term is
currently defined under CERCLA or any applicable state
law), for which the Company could be liable.
(iii) Schedule 7(q) will set forth a complete and
accurate description of (x) each underground storage
tank of any kind or nature of which the Sellers or the
Company has any knowledge that is located or that was
located on any real property currently or formerly
owned, leased or otherwise utilized by the Company, (y)
a complete history of each underground storage tank,
including the dates and types of all tests, and (z) all
land and leasehold interests formerly owned, leased or
otherwise utilized by the Company.
(iv) The Company will deliver to Purchaser copies of all
existing environmental site audits in the possession of
either Seller or the Company that cover any real
property currently or formerly owned,
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leased, or otherwise utilized by the Company.
r. CONTRACTS AND AGREEMENTS. Schedule 7(r) will set forth a
complete and accurate description of all material written or
oral contracts and agreements to which the Company is a
party or by which it or any of its property is bound. All
such contracts and agreements are in full force and effect
and are binding upon the parties thereto, and none of the
parties thereto are in breach of any of the provisions
thereof. Schedule 7(r) will list any contracts or
agreements which have a material adverse affect or are
likely to have a material adverse affect on the business,
operations, properties, assets, revenues, earnings,
liabilities, or condition (financial or otherwise) of the
Company. Schedule 7(r) will also set forth a complete and
accurate list of all the Company's contracts in transit.
s. EMPLOYEE BENEFIT PLANS. Schedule 7(s) will set forth a
complete and accurate description of all pension,
retirement, savings, deferred compensation, profit sharing,
stock option, bonus, incentive, severance, retirement,
health, insurance and other employee benefit plans that are
binding upon the Company. The Company has complied with
the provisions of and has performed the obligations required
of it under such plans. To the best of each Seller's and
the Company's knowledge, there have been no material
defaults, breaches, or omissions by the Company or any
fiduciary under any of such plans. The Company has not
accrued any liability of any kind under any employee benefit
plan other than as set forth in the Financial Statements.
t. INSURANCE. Schedule 7(t) will set forth a complete and
accurate description of all insurance, including (without
limitation) property damage, general liability, earthquake,
flood and worker's compensation, maintained by the Company
and will summarize the substantive terms of each of the
insurance policies, including (without limitation) whether
the insurance policies are "claims made" or "occurrence"
policies. The Company is carrying insurance that is
reasonable in light of the risks attendant to the business
and activities in which the Company is engaged. All of the
insurance is in full force and effect and will not be
affected by, or terminated or lapse by reason of, the
transactions contemplated by this Agreement. The Sellers
will cause the Company to keep such insurance in full force
and effect until the Closing Date.
u. PERSONNEL. Schedule 7(u) will set forth a complete and
accurate list of
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(i) all current employees of the Company and all
independent contractors regularly performing services on
behalf of the Company, (ii) their respective rates of
compensation, including any salary, bonus or other
payment arrangement made with any of them, and (iii) any
accrued vacation of any employees of the Company. The
Company does not have any employment agreements or
employment contracts between the Company and any person
or entity. The Company has furnished to Purchaser
complete and accurate copies of the pay plans for all
employees of the Company. No employee of the Company is
represented by any union or collective bargaining agent.
The Company is not a party to or bound by any collective
bargaining agreement, nor has the Company experienced any
strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. The Company has
not, to either Seller's knowledge, committed any unfair
labor practice. Neither Seller has any knowledge of any
organizational effort being made or threatened by or on
behalf of any labor union with respect to employees of
the Company within the past five (5) years. To the best
of each Seller's and the Company's knowledge, the Company
has (i) paid or has made provision for the payment of all
compensation due any person or entity, (ii) complied in
all material respects with all applicable laws, rules,
and regulations relating to the employment of labor,
including those related to wages, hours, collective
bargaining and the payment and withholding of taxes, and
(iii) withheld and paid to the appropriate governmental
authority, or is holding for payment not yet due to such
authority, all amounts required by law or agreement to be
withheld from the compensation of its employees.
v. ACCOUNTS RECEIVABLE. Schedule 7(v) will set forth a
complete and accurate list of all accounts receivable and
notes receivable of the Company and an aging analysis of the
accounts receivable. To the best of each Seller's and the
Company's knowledge, all accounts receivable and notes
receivable of the Company are valid and enforceable claims,
arose in the ordinary course of business, require no further
performance by the Company, and are collectible without
resort to litigation. To the best of each Seller's and the
Company's knowledge, no material objection, claim, or offset
has been made regarding any of the accounts receivable or
notes receivable. Except as will be set forth on Schedule
7(v), all of the accounts receivable and notes receivable
are current. There are and at Closing there will be no
payables or receivables due or owing between either Seller
and the Company, except for the prior month's salary or
bonus, if any, owed by the Company to Randt or
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Blomquist.
w. BROKERS. Neither Seller nor the Company has employed,
directly or indirectly, any broker or finder, or incurred
any liability for any brokerage fees, commissions, or
finder's fees, and no broker or finder has acted directly or
indirectly for either Seller or the Company in connection
with this Agreement or the transactions contemplated by this
Agreement.
x. DELIVERY OF DOCUMENTS. Complete and accurate copies of all
written instruments listed or described on the exhibits
attached hereto or that will be attached hereto have been or
will be furnished to Purchaser. The Company will make
available to Purchaser, to the extent requested by
Purchaser, all books, records, and facilities of the
Company.
y. BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 7(y) will
set forth a complete and accurate list of (i) the names and
addresses of all persons holding a power of attorney on
behalf of the Company, and (ii) the account numbers and
names of all banks or other financial institutions in which
the Company currently has an account, deposit, or safe
deposit box, with the names of all persons authorized to
draw on the accounts or deposits or to have access to the
boxes.
z. DISCLOSURE.
(i) To the best of each Seller's and the Company's
knowledge, there have been no events, transactions or
information relating to the Company which, singly or in
the aggregate could reasonably be expected to have a
material adverse affect on the business, operations,
properties, assets, revenues, earnings, liabilities, or
condition (financial or otherwise) of the Company. No
representation or warranty by either Seller or the
Company in this Agreement or in any of the exhibits
attached hereto, or other statement in any other
writing furnished or to be furnished to Purchaser by or
on behalf of either Seller or the Company in connection
with the transactions contemplated by this Agreement,
contains or will contain any untrue statement of a
material fact, or omits or will omit to state a
material fact necessary to make the statements
contained herein not misleading.
(ii) Neither Seller knows of any reason why the Company
cannot
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continue its business in the same manner following
the execution of this Agreement and the Closing as it
has been operated prior thereto, except to the extent
that Purchaser causes the business of the Company to
change following the Closing, or for the possible
expiration of the Dealership Sublease on April 19,
1998. Neither Seller has any reason to believe that
at any time in the foreseeable future the business of
the Company shall be materially adversely affected by
any event, except to the extent that the Purchaser
causes the business of the Company to change following
the Closing, or for the possible expiration of the
Dealership Sublease on April 19, 1998.
8. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
and warrants to each Seller, effective as of the date of this Agreement and
again at Closing, each of the following:
a. INCORPORATION. Purchaser is duly incorporated, is validly
existing, and is in good standing under the laws of the
State of Delaware. Purchaser shall deliver to Sellers a
certificate of good standing from the Delaware Secretary of
State.
b. AUTHORITY AND BINDING AGREEMENT. Purchaser has the
corporate power and authority to enter into this Agreement
and to perform its obligations hereunder. This Agreement is
a valid and binding obligation of Purchaser, enforceable
against Purchaser in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally
and by general principles of equity.
c. NO CONFLICTS. Neither the execution and delivery of this
Agreement nor the consummation of the transactions
contemplated by this Agreement will result in any breach or
violation of or default under any agreement or other
instrument to which Purchaser is a party or by which it is
bound.
d. BROKERS. The Purchaser has not employed, directly or
indirectly, any broker or finder, or incurred any liability
for any brokerage fees, commissions or finders' fees, and no
broker or finder has acted directly or indirectly for the
Purchaser in connection with this Agreement or the
transactions contemplated by this Agreement.
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9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by the parties in this Agreement or in any certificate,
schedule, statement, document or instrument furnished in connection with this
Agreement shall survive the Closing. Notwithstanding any investigation,
examination or audit conducted before or after the Closing or the decision of
any party to consummate the transactions contemplated by this Agreement, each
party shall be entitled to rely upon the representations and warranties set
forth in this Agreement.
10. SELLERS' OBLIGATIONS PRIOR TO CLOSING. Each Seller agrees to do
the following prior to Closing:
a. NOTICES AND CONSENTS. Each Seller shall use his best
efforts to obtain any required approvals or consents to this
Agreement and to the transactions contemplated by this
Agreement from any person or entity from which such approval
or consent is required, including (without limitation)
consent or approval from (i) Toyota, (ii) the FTC and the
Justice Department under the Hart-Scott-Rodino Act and all
regulations promulgated thereunder, and (iii) the California
Department of Motor Vehicles.
b. CONDUCT OF BUSINESS BY THE COMPANY PRIOR TO THE CLOSING
DATE. Each Seller shall cause the Company to conduct its
operations according to the ordinary and usual course of
business reasonably consistent with past and current
practices, to maintain and preserve its business
organization, assets and properties, and vendor and supplier
relationships, and to retain the services of its officers,
employees, agents, and independent contractors, and shall
not allow the Company to engage in any practice, take any
action, or enter into any transaction outside of the
ordinary course of business. Without limiting the
generality of the foregoing, each Seller shall prohibit the
Company, without the prior written consent of Purchaser,
from directly or indirectly taking any of the actions
described in subparagraph 7(o).
c. FULL ACCESS. Each Seller shall cause the Company to permit
Purchaser and representatives of the Purchaser to have full
access to and to examine, at all reasonable times and
places, and in a manner so as not to interfere with the
normal business operations of the Company; the books,
records, properties, assets and operations of the Company.
Such examination shall include access to the officers,
directors, employees, agents and representatives of the
Company. Each Seller shall cause the Company to furnish to
Purchaser and representatives of Purchaser with
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such financial, operating and other data and information,
and copies of documents with respect to the Company, as
Purchaser shall from time to time request. Such access and
information shall not in any way affect or diminish any of
the representations or warranties made in this Agreement.
d. AUDIT. Each Seller shall cause the Company to permit an
audit (the "Audit") to be conducted under generally accepted
auditing standards, of the books, records, and financial
statements of the Company for 1996, 1997, and any
additional period requested by the Purchaser or required by
applicable law, and shall cause Audited Financial Statements
(hereinafter defined) to be prepared in accordance with
generally accepted accounting principles, which shall
include reserves for any extended warranties, charge-backs,
inventory write downs, repossessions, contracts in transit,
and any other appropriate reserves and accruals. As used in
this Agreement, "Audited Financial Statements" shall mean an
audited (i) balance sheet dated September 30, 1997, for the
Company, and (ii) income statement for the nine (9) month
period ending September 30, 1997, for the Company. The
Audit will be conducted by Purchaser's accountants, Price
Waterhouse, LLP. Each Seller agrees to cause the full
cooperation of the officers, directors, employees, agents
and representatives of the Company in the Audit as requested
by Purchaser. The start date of the Audit is anticipated to
be October 13, 1997. In addition, as near as possible to
the Closing Date, Price Waterhouse shall review the books
and records of the Company for the period after September
30, 1997, and prepare a letter setting forth the unaudited
adjustments that should be made to the Net Worth (the "Net
Worth Adjustments").
e. NOTICE OF ADVERSE CHANGES. Each Seller shall give prompt
written notice to Purchaser of any material adverse change
in the business, operations, properties, assets, revenues,
earnings, liabilities, or condition (financial or otherwise)
of the Company.
f. STANDSTILL. From the date hereof to the earlier of the
Closing Date or the date this Agreement expires or
terminates, neither Seller shall, directly or indirectly,
through any officer, director, employee, or otherwise, (i)
solicit or initiate the submission of any proposal or offer
from any person or entity (including any officers or
employees of the Company) relating to any liquidation,
dissolution, recapitalization, merger, consolidation,
acquisition, or purchase of all or a material
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portion of the assets and properties of the Company, or
the acquisition or purchase of any equity interest in the
Company, or (ii) participate in any negotiations
regarding, or furnish to any other person or entity any
information with respect to, or otherwise cooperate in
any manner with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other person
or entity to do or seek any of the foregoing.
g. FURTHER ASSURANCES. Each Seller shall from time to time,
upon the request of Purchaser, execute and deliver to
Purchaser such further instruments and take such other
action as Purchaser may reasonably request, in order to
consummate the transactions contemplated by this Agreement
as expeditiously as possible and to place Purchaser in
possession and control of, the Shares and the assets and
properties of the Company, or to enable Purchaser to
exercise and enjoy all rights and benefits with respect
thereto.
h. INSURANCE AND RISK OF LOSS. Until the Closing, each Seller
shall cause the Company to maintain the insurance the
Company is carrying in connection with the operation of the
Dealership, including (without limitation) property damage
insurance, general liability insurance, worker's
compensation, and group health insurance. The Sellers and
the Company shall have the risk of loss for damage by fire
or other casualty to the assets and properties of the
Company before Closing. In the event of any material loss
or damage to the assets and properties of the Company prior
to Closing, Purchaser shall have the option to terminate
this Agreement.
i. ENVIRONMENTAL SITE AUDITS. On or before October 31, 1997,
the Company shall obtain a Phase I environmental site audit
on all real property owned, leased, or otherwise utilized by
the Company in order to determine whether there exists any
environmental condition which could reasonably be expected
to result in any liability, cost, or expense to the owner,
occupier, or operator of such real property arising under
any Environmental Laws.
j. CONSENT OF SUBLANDLORDS AND LANDLORDS. The Sellers shall
furnish the Purchaser with any required consent from (i) the
landlord of the Dealership Lease, (ii) the sublandlord of
the Dealership Sublease, (ii) the landlord of the Used Car
Lot Lease, and (iv) the sublandlord of the Used Car Lot
Sublease.
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k. INVESTMENT LETTER. Blomquist agrees to execute and deliver
an Investment Letter (the "Investment Letter") in the form
of Exhibit "G" hereto.
l. CONDOMINIUM FURNITURE. Randt shall pay off the balance, if
any, of any indebtedness owed on the furniture that was
located in his condominium on Thomas Street, San Diego,
California and described on Schedule 7(g), and such
furniture shall be the property of Randt.
11. PURCHASER'S OBLIGATIONS PRIOR TO CLOSING. Purchaser agrees to
do the following prior to Closing:
a. DUE DILIGENCE. On or before December 1, 1997, Purchaser
shall conduct and complete all investigations, reviews and
inspections of the business, operations, properties, assets,
revenues, earnings, liabilities, and condition (financial or
otherwise) of the Company which Purchaser and Purchaser's
representatives deem necessary or desirable to make an
informed and reasonable decision to complete the
transactions contemplated by this Agreement; provided,
however, that after December 1, 1997, until the transactions
contemplated by this Agreement close or this Agreement
expires or terminates, Purchaser may conduct such additional
investigations, reviews and inspections of the business,
operations, properties, assets, revenues, earnings,
liabilities, and condition (financial or otherwise) of the
Company as Purchaser and Purchaser's representatives deem
necessary or desirable to determine whether a material
adverse change has occurred since December 1, 1997 as a
result of any act by either Seller.
b. FURTHER ASSURANCES. Purchaser shall from time to time, upon
the request of the Sellers, execute and deliver to Sellers
such further instruments and take such further action as the
Sellers may reasonably request, in order to consummate the
transactions contemplated by this Agreement as expeditiously
as possible.
c. PURCHASER'S NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
REGARDING THE COMPANY. Purchaser acknowledges that it may
possibly have access to certain confidential information of
the Company, including (without limitation) lists of
accounts, operational policies, and pricing and costs
policies (the "Confidential Information"). The Purchaser
agrees that it will not disclose such Confidential
Information to any
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person or entity for any purpose or reason whatsoever,
except to authorized representatives of the Purchaser, or
as required by law, unless such Confidential Information
becomes known to the public generally through no fault of
the Purchaser. In the event of a breach or threatened
breach by Purchaser of the provisions of this
subparagraph, the Sellers shall be entitled to an
injunction restraining the Purchaser from disclosing, in
whole or in part, such Confidential Information. Nothing
herein shall be construed as prohibiting the Sellers from
pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
12. SELLERS' AND PURCHASER'S OBLIGATIONS PRIOR TO CLOSING.
a. ASSISTANCE. Each Seller and Purchaser agree to use their
best efforts to create a workable, smooth and orderly
transition of Purchaser's acquisition of the Company.
b. HART-SCOTT-RODINO NOTIFICATION. Within a reasonable time
after the execution and delivery of this Agreement, the
parties shall, if and to the extent required by law, file
all reports or other documents required or requested by the
FTC or the Justice Department under the Hart-Scott-Rodino
Act, and all regulations promulgated thereunder, concerning
the transactions contemplated by this Agreement, and comply
promptly with any request by the FTC or the Justice
Department for additional information concerning such
transactions, so that the waiting period specified in the
Hart-Scott-Rodino Act will expire as soon as reasonably
possible after the execution and delivery of this Agreement.
The parties agree to furnish to one another such information
concerning the Purchaser, the Sellers, and the Company as
the parties need to perform their obligations hereunder.
The Purchaser agrees to pay all filing fees and costs
due governmental agencies with regard to the notification
under and compliance with the Hart-Scott-Rodino Act and all
regulations promulgated thereunder.
c. REGISTRATION RIGHTS AGREEMENT. Blomquist and Purchaser
agree to execute and deliver a Registration Rights Agreement
(the "Registration Rights Agreement") in the form of Exhibit
"E" hereto covering the Restricted Stock that will be
acquired by Blomquist at Closing.
d. PHYSICAL INVENTORIES. On or before October 31, 1997,
Purchaser and
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Sellers shall conduct a physical inventory of the New
Vehicle Inventory, the Remarketed Vehicle Inventory, the
Used Vehicle Inventory, the Parts and Accessories
Inventory, and the Tangible Personal Property. The
physical inventories shall be collectively referred to in
this Agreement as the "Physical Inventories." The value
of the New Vehicle Inventory, the Remarketed Vehicle
Inventory, the Used Vehicle Inventory, the Parts and
Accessories Inventory, and the Tangible Personal Property
shall be determined as follows:
(i) Purchaser and Sellers shall calculate the value of the
New Vehicle Inventory. The value of each new vehicle
shall be the cash sum equal to the factory invoice
price (excluding any Company internal profit) to the
Company, less any factory holdback rebate, any other
factory rebate or incentive which the Company may have
received, or to which the Company is or may become
entitled to receive, advertising credits and interest
credits, plus performed PDI (for which the Company has
not been reimbursed by Toyota) at the Company's cost
(excluding any internal profit, unless Toyota will
reimburse the Company for the profit) options added at
the Company's cost (excluding any internal profit), and
any freight and handling charges. Purchaser and
Sellers shall agree to the value of any demonstrators.
It is understood and agreed that performed PDI will not
be added to the value of any new vehicle unless Toyota
has agreed that it will reimburse the Company for such
PDI. The value of any new vehicle shall be decreased by
an amount equal to the Company's cost (excluding any
internal profit) of repair for any physically damaged
vehicle. Sellers agree that all factory rebates and
other credits on any new vehicles shall be retained by
the Company. The value of any new vehicle should be
reduced by the following percentages based on the
number of days since invoice date:
0-30 days 0%
31-60 days 5%
61-90 days 10%
Any reduction determined pursuant to this formula shall
be added back to the Net Worth as of the October 31,
1997 to determine the Net Worth of the Company for the
final acquisition price. Any other deduction as it
relates to inventory for LCM or obsolescence shall be
considered a deduction for Net Worth computational
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purposes.
(ii) Purchaser and Sellers shall agree to the value of the
Used Vehicle Inventory. If Purchaser and Sellers fail
to agree on the value of any used vehicle, Sellers
shall purchase the used vehicle at its net book value
as reflected in the books and records of the Company
and such used vehicle shall be removed from the Used
Vehicle Inventory. Purchaser agrees to allow Sellers
to store any used vehicles purchased by Sellers from
the Used Vehicle Inventory at 7777 Convoy Court, San
Diego, California, for a period of sixty (60) days in
order to allow Sellers time to sell the used vehicles.
(iii) Purchaser and Sellers shall calculate the value of
the Parts and Accessories Inventory. The value of the
Toyota parts and accessories shall be the cost of the
parts and accessories set forth in the Toyota price
schedule in effect on the date of the inventory.
Purchaser and Sellers shall agree to the value of any
non-Toyota parts and accessories. The Sellers agree
that all rebates and credits on any parts or
accessories earned on or after November 1, 1997, shall
be retained by the Company.
(iv) Purchaser and Sellers shall agree to the value of the
Tangible Personal Property.
(v) Purchaser and Sellers shall agree to the value of the
Remarketed Vehicle Inventory. If Purchaser and Sellers
fail to agree on the value of any remarketed vehicle,
Sellers shall purchase the remarketed vehicle at its
net book value as reflected in books and records of the
Company and such remarketed vehicle shall be removed
from the Remarketed Vehicle Inventory. Purchaser
agrees to allow Sellers to store any remarketed vehicle
purchased by Sellers from the Remarketed Vehicle
Inventory at 7777 Convoy Court, San Diego, California,
for a period of sixty (60) days in order to allow
Sellers time to sell the remarketed vehicles.
13. CONDITIONS PRECEDENT TO OBLIGATION OF PURCHASER. The obligation
of Purchaser to consummate the transactions contemplated by this Agreement is
subject to the satisfaction on or prior to the Closing Date of the following
conditions, each of which may be waived by the Purchaser:
a. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations
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and warranties made by the Sellers and the Company in or
pursuant to this Agreement shall be true and correct in
all material respects as of the Closing Date with the
same effect as though such representations and warranties
were made on the Closing Date, except to the extent that
such representations and warranties expressly relate to
any earlier date. Sellers and the Company shall have
performed and complied with all the covenants and
agreements and satisfied all the conditions required by
this Agreement to be performed, complied with or
satisfied by Sellers and the Company on or prior to the
Closing Date. Sellers must have delivered to the
Purchaser a certificate dated as of the Closing Date
certifying that this condition has been fulfilled.
b. NO ADVERSE CHANGE. Purchaser shall have determined, to its
satisfaction, that as of the Closing Date, there has been no
material adverse change in the business, operations,
properties, assets, revenues, earnings, liabilities or
condition (financial or otherwise) of the Company.
c. EXHIBITS. Purchaser shall have timely received all exhibits
to this Agreement.
d. TRANSFER OF SHARES. The certificates representing the
Shares shall have been transferred and conveyed by Sellers
to Purchaser in a manner and by instruments acceptable to
Purchaser and its counsel, free and clear of all liens,
claims, encumbrances, or restrictions of any kind.
Contemporaneously with the consummation of the transfer of
the Shares, Sellers shall put Purchaser in full possession
and enjoyment of all properties and assets of the Company.
In addition, Purchaser shall have received the complete
stock ledgers, minute books and other corporate records of
the Company.
e. ENVIRONMENTAL SITE AUDITS. Purchaser shall have timely
received a Phase I environmental site audit on each tract of
real property owned, leased, or otherwise utilized by the
Company. If any of the environmental site audits discloses
an environmental condition which could reasonably be
expected to result in any liability, cost, or expense to the
Purchaser arising under any Environmental Laws, then the
Company shall have either (i) cured such environmental
condition and received a "no further action" letter from the
United States Environmental Protection Agency and the
applicable state agency, or (ii) given Purchaser written
notice that the Company has elected to terminate
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this Agreement.
f. THIRD PARTY APPROVALS. This Agreement and the transactions
contemplated by this Agreement shall have received all
required approvals and consents from all persons and
entities from which such approvals or consents are required,
including (without limitation) (i) Toyota, (ii) the FTC and
the Justice Department under the Hart-Scott-Rodino Act and
the regulations promulgated thereunder, and (iii) the
California Department of Motor Vehicles. Without limiting
the generality of the foregoing, Toyota must approve
Purchaser as the dealer for the Dealership in San Diego,
California prior to Closing.
g. COMPLIANCE WITH SECURITIES LAWS. Purchaser shall have (i)
received the Investment Letter, (ii) received the
Registration Rights Agreement, and (iii) determined that all
state and federal securities laws have been fully satisfied
relating to the purchase of the Shares by Purchaser.
h. CONSENT OF SUBLANDLORDS AND LANDLORDS. The Purchaser shall
have received any required consent from (i) the landlord of
the Dealership Lease, (ii) the sublandlord of the Dealership
Sublease, (iii) the landlord of the Used Car Lot Lease, and
(iv) the sublandlord of the Used Car Lot Sublease.
i. PHYSICAL INVENTORIES. Purchaser shall have conducted the
Physical Inventories.
j. DUE DILIGENCE. Based on such examinations and inquiries as
Purchaser shall have made or shall have caused to be made in
accordance with this Agreement, the business, operations,
properties, assets, revenues, earnings, liabilities, and
condition (financial or otherwise) shall be satisfactory to
Purchaser, in Purchaser's sole judgment and discretion.
k. APPROVAL OF DOCUMENTATION. The form and substance of all
opinions, certificates, instruments and other documents
delivered to Purchaser in connection with this Agreement
shall be satisfactory in all reasonable respects to
Purchaser and Purchaser's counsel.
l. CORPORATE DIRECTORS AND OFFICERS. The composition of the
directors and officers of the Company shall be as requested
by Purchaser, effective as of the Closing Date.
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<PAGE>
m. OPINIONS OF COUNSEL. Each Seller shall have delivered to
Purchaser an opinion of counsel reasonably satisfactory to
Purchaser, dated as of the Closing Date, that contains such
opinions that are reasonably requested by Purchaser,
including (without limitation) an opinion that the Shares
were issued and will be transferred to Purchaser, in
compliance with all state and federal securities laws. The
Company shall have delivered to Purchaser an opinion of
counsel reasonably satisfactory to Purchaser, dated as of
the Closing Date, that contains such opinions that are
reasonably requested by Purchaser.
n. HART-SCOTT-RODINO WAITING PERIOD. The applicable waiting
period under the Hart-Scott-Rodino Act, and the regulations
promulgated thereunder, shall have expired.
o. AUDIT. Price Waterhouse shall have timely performed the
Audit and the review of the period after September 30, 1997,
prepared the Audited Financial Statements, and delivered a
copy of the Audited Financial Statements and the Net Worth
Adjustments to Purchaser.
p. ADDITIONAL INFORMATION. Each Seller and the Company shall
have furnished to Purchaser and Purchaser's counsel such
additional information, certificates, and other documents as
Purchaser shall have reasonably requested.
q. NET WORTH AND VALUE OF INVENTORIES. On October 31, 1997,
(i) the Net Worth shall be at least $825,000, (ii) the value
of the Used Vehicle Inventory shall be at least $1,200,000,
(iii) the value of the Parts and Accessories Inventory shall
be at least $325,000, (iv) the value of the Tangible
Personal Property shall be at least $350,000, (v) the value
of the New Vehicle Inventory shall be equal to the floor
plan indebtedness to Toyota Motor Credit Corporation for the
purchase of the New Vehicle Inventory, and (vi) the value of
the Remarketed Vehicle Inventory shall be equal to the floor
plan indebtedness to Toyota Motor Credit Corporation for the
purchase of Remarketed Vehicle Inventory.
r. CAPITAL LOAN. On the Closing Date, the outstanding balance
(principal and accrued interest) on the Capital Loan shall
not exceed $700,000.
14. CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS. The obligation
of each Seller to consummate the transactions contemplated by this Agreement is
subject to the satisfaction on or prior to the Closing Date of the following
conditions, each of which may be waived by the
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<PAGE>
Seller:
a. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties made by the Purchaser in or
pursuant to this Agreement shall be true and correct in all
material respects as of the Closing Date with the same
effect as though such representations and warranties were
made on the Closing Date, except to the extent that such
representations and warranties expressly relate to an
earlier date, and Purchaser shall have performed and
complied with all of the covenants and agreements and
satisfied all the conditions required by this Agreement to
be performed, complied with or satisfied by Purchaser on or
prior to the Closing Date. The Purchaser must have
delivered to the Sellers a certificate dated as of the
Closing Date certifying that this condition has been
fulfilled.
b. DELIVERY OF PURCHASE PRICE. The Purchaser shall have
delivered (i) the cash provided for in subparagraphs 4(a)(i)
and 4(b)(i) of this Agreement, (ii) the Restricted Stock,
(iii) the $1,350,000 Note, (iv) the $50,000 Note, and (v)
$500,000 to the escrow agent to be held under the Seller's
Escrow Agreement.
c. APPROVAL OF DOCUMENTATION. The form and substance of all
certificates and other documents required to be delivered to
Sellers in connection with this Agreement shall be
satisfactory in all reasonable respects to Sellers and
Sellers' counsel.
d. REGISTRATION RIGHTS AGREEMENT. Purchaser shall have
executed and delivered to Blomquist the Registration Rights
Agreement.
e. EXHIBITS. Sellers shall have timely received all exhibits
to this Agreement.
f. ADDITIONAL INFORMATION. Purchaser shall have furnished to
Sellers and Sellers' counsel such additional information,
certificates, and other documents as Sellers shall have
reasonably requested.
15. SELLERS' OBLIGATIONS AFTER CLOSING.
a. INDEMNITY BY SELLERS. Sellers jointly and severally shall
indemnify, defend and hold Purchaser harmless from and
against any and all liabilities, damages, losses, claims,
costs and expenses, including (without limitation)
reasonable attorneys' fees, arising from or related to
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(i) any breach of any representation, warranty, covenant
or agreement made by either Seller in this Agreement, or
in any certificate or other document delivered on behalf
of either Seller or the nonperformance of any covenant or
obligation of either Seller under this Agreement, (ii)
any debts, liabilities, or obligations of any nature
(whether absolute, accrued, contingent or otherwise and
whether due or to become due) of the Company at the
Balance Sheet Date that are not reflected in the
Financial Statements, (iii) the conduct of the business
or other operations of the Company prior to the Closing
Date, (iv) any condition, activity, or event existing or
occurring prior to the Closing Date arising or resulting
from any acts or omissions of the Company during the
period after the date of incorporation of the Company
that created or creates any product or environmental
liability, (v) the failure of either Seller or the
Company to comply with any federal, state, or local tax
laws for any matter occurring prior to the Closing Date
or applicable to the transactions contemplated by this
Agreement, and (vi) any and all actions, suits,
proceedings, demands and judgments, arising from or
related to any of the matters set forth in this
subparagraph 15(a).
b. SELLERS' NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
REGARDING THE COMPANY. Each Seller acknowledges that the
Seller has in the past, currently has, and in the future may
possibly have access to Confidential Information. Each
Seller agrees that the Seller will not disclose such
Confidential Information to any person or entity for any
purpose or reason whatsoever except to authorized
representatives of the Purchaser, or as required by law,
unless the Confidential Information becomes known to the
public generally through no fault of the Seller. In the
event of a breach or threatened breach by either of the
Sellers of this subparagraph, the Purchaser shall be
entitled to an injunction restraining the Seller from
disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as
prohibiting the Purchaser from pursuing any other available
remedy for such breach or threatened breach, including the
recovery of damages.
c. RANDT'S COVENANT NOT TO COMPETE. Randt agrees that he will
not, either directly or indirectly, alone or with others,
either as an employee, owner, partner, agent, stockholder,
member, director, officer or otherwise, enter into or engage
in the business of operating a new vehicle dealership, used
car lot, warranty repair business, or other related business
which may compete directly or indirectly with the Purchaser
within the San Diego metropolitan area (the "Restricted
Area") for a
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period of three (3) years from the Closing Date (the
"Restricted Period"), provided that Randt may (i) sell
any used cars he purchased from the Used Vehicle
Inventory, (ii) collect accounts and notes receivables
for the Company, and (iii) pay the debts, liabilities and
obligations for the Company, in accordance with the terms
of this Agreement. Further, Randt shall not individually,
or in conjunction with others, within the Restricted
Period and Restricted Area, directly or indirectly,
solicit or hire any employee of the Company or encourage
such employee to leave such employment unless such
employee has already terminated such employment with the
Company or the Purchaser and Randt have mutually agreed
in advance to the solicitation or employment. Randt also
agrees that in the event of a breach of these covenants,
the Purchaser may protect its rights by injunction or
otherwise.
16. INDEMNITY BY PURCHASER. Purchaser shall indemnify, defend and
hold Sellers harmless from and against any and all liabilities, damages, losses,
claims, costs and expenses, including (without limitation) reasonable attorneys'
fees arising from or related to (a) any breach of any warranty or representation
made by Purchaser in this Agreement or the nonperformance of any covenant or
obligation of Purchaser under this Agreement, or (b) Purchaser's operation of
the Dealership on or after the Closing Date.
17. INFORMATION REGARDING THE PURCHASER.
a. INSIDER LIABILITY. Each Seller acknowledges that trading in
the Purchaser's securities by persons possessing material
non-public information may result in private lawsuits for
damages or to civil or criminal proceedings by the
Securities and Exchange Commission. Each Seller also
acknowledges that liability may be imposed on insiders who
privately disclose otherwise non-public material information
where such disclosure coincide with trading Purchaser's
securities by such insiders or by the recipients of such
information.
b. SELLERS' NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
REGARDING THE PURCHASER. Each Seller acknowledges that the
Seller may possibly have access to certain confidential
information of the Purchaser. Each Seller agrees that the
Seller will not disclose such confidential information to
any person or entity for any purpose or reason whatsoever
except as required by law, unless the confidential
information becomes known to the public generally through no
fault of the Seller. In the event of a breach or threatened
breach by either of the Sellers of this subparagraph,
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the Purchaser shall be entitled to an injunction
restraining the Seller from disclosing, in whole or in
part, such confidential information. Nothing herein
shall be construed as prohibiting the Purchaser from
pursuing any other available remedy for such breach or
threatened breach, including the recovery damages.
18. TERMINATION.
a. MUTUAL CONSENT. This Agreement may be terminated by the
written consent of the parties.
b. BY THE PURCHASER. This Agreement may be terminated by
written notice of termination given by the Purchaser to each
Seller if a material default should be made by either Seller
in the observance of or in the due and timely performance by
either Seller of any of the agreements and covenants of the
Sellers herein contained, or if there shall have been a
material breach by either Seller of any of the warranties
and representations of the Sellers herein contained, or if
the conditions of this Agreement to be complied with or
performed by Sellers at or before Closing shall not have
been complied with or performed at the time required for
such compliance or performance and such noncompliance or
nonperformance shall not have been waived by the Purchaser.
c. BY THE SELLERS. This Agreement may be terminated by written
notice of termination given by the Sellers to the Purchaser
if a material default should be made by the Purchaser in the
observance of or in the due and timely performance by the
Purchaser of any of the agreements and covenants of the
Purchaser herein contained, or if there shall have been a
material breach by the Purchaser of any of the warranties
and representations of the Purchaser, of if the conditions
of this Agreement to be complied with or performed by the
Purchaser at or before Closing shall not have been complied
with or performed at the time required for such compliance
or performance and such noncompliance or nonperformance
shall not have been waived by the Sellers.
19. SECTION 338(h)(10) ELECTIONS.
a. Each Seller agrees to make elections under Section
338(h)(10) of the Internal Revenue Code and all comparable
elections under state and local tax law with respect to the
Company.
b. Purchaser and Sellers shall jointly file Form 8023-A with
the Internal
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Revenue Service in accordance with Section 338 of the
Internal Revenue Code and the regulations thereunder no
later than the 15th day of the ninth month beginning
after the month that includes the Closing Date in
accordance with Internal Revenue Code Section 338(g) and
Treasury Regulation Section 1.338(h)(10)-1(d)(2).
c. Purchaser and Sellers shall allocate the Purchase Price to
the assets conveyed pursuant to this Agreement using a
reasonable asset valuation which will be agreed to by
Purchaser and Sellers no later than ninety (90) days after
the Closing Date. In all events, however, Purchaser and
Sellers agree to conformity of the treatment of all asset
allocations with respect to the Section 338(h)(10)
elections.
d. Purchaser agrees that it will not step-up the basis on any
fixed assets of the Company unless Purchaser and Sellers
otherwise agree.
20. MANAGEMENT AGREEMENT.
a. On the date of this Agreement, Purchaser and the Company
shall execute a management agreement (the "Management
Agreement") to be effective November 1, 1997, under which
the Purchaser will manage the Dealership and will receive a
management fee in accordance with the Management Agreement
in cash in an amount equal to the monthly net income arising
from the business and operation of the Dealership.
b. Prior to the commencement of the Management Agreement, the
Sellers agree to cause the Company to take all new cars and
trucks allocated to the Dealership, to floor plan all new
cars and trucks with Toyota Motor Credit Corporation, and
not to wholesale any new vehicles without the Purchaser's
prior written consent.
21. ADDITIONAL AGREEMENTS.
a. RANDT'S RIGHT TO PURCHASE VEHICLES. Randt shall have the
right to purchase five (5) new Toyota vehicles from any
Toyota franchised dealership owned by Purchaser over the
next five (5) years from the dealership's inventory at the
dealership's invoice cost plus $35, taxes, title, and
licensing on each vehicle. Up to three (3) of the vehicles
may be purchased during the first twelve (12) months after
the Closing Date.
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b. PAYMENT OF OBLIGATIONS; COLLECTION OF RECEIVABLES.
Notwithstanding anything contained in this Agreement to the
contrary, prior to the Closing Date, Sellers shall assist
the Company in (i) paying all outstanding debts,
liabilities, and obligations of the Company, whether matured
or unmatured, that arose prior to November 1, 1997,
provided that the Company shall not be obligated to pay the
Floor Plan or the capital loan (the "Capital Loan") in the
original principal amount of $1,200,000 from Toyota Motor
Credit Corporation to the Company, and (ii) collecting all
receivables that arose prior to November 1, 1997.
c. NEW ACCOUNTS. Purchaser and Sellers agree that the payment
of all outstanding debts, liabilities and obligations of the
Company that arose prior to the November 1, 1997 and the
collection of all receivables that arose prior to November
1, 1997, shall be made through the Company's existing
operating accounts at Union Bank of California. The Company
shall open new operating accounts at Union Bank of
California for the transaction of the business of the
Company on and after November 1, 1997.
d. PURCHASE OF EXCESS USED CAR INVENTORY. On November 1, 1997,
Purchaser shall purchase (for cash and free of all liens,
claims, or other encumbrances) all of the Used Car Inventory
in excess of $1,200,000 (the "Excess") based on the value
determined in accordance with subparagraph 12(d)(ii). The
Excess shall be used by the Company and the Sellers to pay
all outstanding debts, liabilities, and obligations of the
Company. Notwithstanding anything contained in this
Agreement to the contrary, in the event this Agreement
expires or terminates, the Company shall repurchase (for
cash and free of all liens, claims and other encumbrances)
any of the used vehicles purchased by Purchaser that are
still owned by the Purchaser based on the value determined
in accordance with subparagraph 12(d)(ii).
e. MAINTENANCE OF RECORDS. Purchaser agrees that it will
maintain the books and records of the Company for the period
(i) required by law, or (ii) reasonably requested by the
Sellers, and will provide the Sellers with such information
from the books and records as the Sellers reasonably request
from time to time. In addition, the Purchaser agrees that
the accounting staff of the Dealership will assist the
Sellers in collecting the accounts receivable, collecting
payments on the notes receivable, and paying all outstanding
debts, liabilities, and obligations of the Company prior to
the Closing Date and thereafter as reasonably requested.
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f. UNDISTRIBUTED 1997 PROFITS. Sellers and Purchaser agree
that Sellers shall be entitled to take their respective
portion of fifty percent (50%) of the Company's profits for
September and October, 1997. The remaining fifty percent
(50%) of such profits shall be retained by the Company.
g. RELEASE OF GUARANTEES. Purchaser agrees to use reasonable
efforts in order to obtain the release of Randt and
Blomquist from any personal guaranties they have made of any
debt or obligation of the Company, including (without
limitation) any guaranties of the Floor Plan, the Dealership
Sublease, the Used Car Lot Sublease, or the Capital Loan.
h. INVENTORY WRITEDOWN. It is understood and agreed that prior
to October 31, 1997, the Company shall write down the Parts
and Accessories Inventory by $58,000.
i. PROTEST OF TAXES. Sellers shall have the right to protest
through all administrative and legal channels, at Sellers'
sole cost and expense, any proposed adjustment that would
result in any additional tax liability for the Company for
any year for which the Sellers are liable.
j. TAXES ON LIFO RESERVE. The Purchaser agrees to pay all
income taxes payable for the recapture of the LIFO Reserve.
k. TAXES ON THE DEFERRED PROFIT. The Purchaser agrees to pay
all income taxes payable on the Deferred Profit that is
retained by the Company.
22. GENERAL PROVISIONS.
a. ENTIRE AGREEMENT. This Agreement contains and constitutes
the entire agreement between the parties regarding the
subject matter hereof and supersedes all prior agreements
and understandings between the parties relating to the
subject matter of this Agreement. There are no agreements,
understandings, restrictions, warranties or representations
between the parties relating to the subject matter hereof
other than those set forth in this Agreement. This
Agreement is not intended to have any legal effect
whatsoever, or to be a legally binding agreement, or any
evidence thereof, until it has been signed by each Seller,
the Company, and the Purchaser.
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b. EXHIBITS. Preliminary drafts of all Schedules and Exhibits
A through E shall be prepared by the Sellers on or before
November 15, 1997 and delivered to Purchaser for Purchaser's
review. Preliminary drafts of Exhibits F and G shall be
prepared by Purchaser on or before November 15, 1997 and
delivered to Sellers for Sellers' review. Final Schedules
and Exhibits shall be prepared by the party that prepared
the preliminary drafts, initialed by the parties, and
attached to this Agreement on or before December 1, 1997.
When attached to this Agreement, the Schedules and Exhibits
shall be made a part of this Agreement by reference.
SCHEDULES:
Schedule 7(b) Officers, Directors, and Assumed Names
Schedule 7(f) Real Property
Schedule 7(g) Tangible Personal Property
Schedule 7(h) Inventories
Schedule 7(i) Licenses
Schedule 7(j) Intellectual Property
Schedule 7(k) Encumbrances
Schedule 7(l) Related Parties Transactions
Schedule 7(m) Indebtedness and Guaranties
Schedule 7(p) Litigation
Schedule 7(q) Underground Storage Tanks
Schedule 7(r) Contracts and Agreements
Schedule 7(s) Employee Benefit Plans
Schedule 7(t) Insurance
Schedule 7(u) Personnel
Schedule 7(v) Accounts Receivable
Schedule 7(y) Bank Accounts and Powers of Attorney
EXHIBITS:
Exhibit "A" $1,350,000 Note
Exhibit "B" $50,000 Note
Exhibit "C" Sellers' Escrow Agreement
Exhibit "D" Sellers' Certificate
Exhibit "E" Opinion of Sellers' Counsel
Exhibit "F" Investment Letter
Exhibit "G" Registration Rights Agreement
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<PAGE>
c. THIRD PARTY CONSENTS. The Sellers and the Purchaser
mutually agree to cooperate and use their respective
reasonable, good faith efforts to prepare all documentation,
to effect all filings and to obtain all permits, consents,
approvals, and authorizations of all third parties and
governmental entities as may be necessary to consummate the
transactions contemplated by this Agreement.
d. FURTHER ACTIONS. From time to time, as and when requested
by any parties hereto, the other parties shall execute and
deliver, or cause to be executed and delivered, all such
documents and instruments and shall take, or cause to be
taken, all such further or other actions as such other
parties may reasonably deem necessary or desirable to
consummate the transactions contemplated by this Agreement.
e. PUBLICITY. The parties hereto agree that no public release
or announcement concerning the terms of the transactions
contemplated by this Agreement shall be issued by any party
without the prior written consent of the other parties
(which consent shall not be unreasonably withheld), except
as such release or announcement may be required by law, in
which case the party required to make the release or
announcement shall allow the other parties reasonable time
to comment on such release or announcement in advance of
such issuance.
f. AMENDMENT. This Agreement may not be amended, modified, or
terminated except by an instrument in writing signed by all
parties to this Agreement.
g. CONSTRUCTION. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine or
neuter gender thereof or to the plurals of each, as the
identity of the person or persons or the context may
require. The descriptive headings contained in this
Agreement are for reference purposes only and are not
intended to describe, interpret, define or limit the scope,
extent or intent of this Agreement or any provision
contained in this Agreement.
h. INVALIDITY. If any provision contained in this Agreement
shall for any reason be held to be invalid, illegal, void or
unenforceable in any respect, such provision shall be deemed
modified so as to constitute a provision conforming as
nearly as possible to such invalid, illegal, void or
unenforceable provision while still remaining valid and
enforceable; and the remaining terms or provisions contained
herein shall not be
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affected thereby.
i. EXPENSES. Whether or not the transactions contemplated by
this Agreement are consummated, each of the parties to this
Agreement shall be responsible for its own costs and
expenses incurred in connection with the preparation and
negotiation of this Agreement and with the transactions
contemplated hereby.
j. BINDING EFFECT AND ASSIGNMENT. This Agreement shall be
binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, administrators,
executors, successors and permitted assigns. Purchaser may
assign its rights under this Agreement to an affiliated
entity, and thereafter the Purchaser and its assignee shall
be fully obligated, responsible and liable for the
performance of the Purchaser's obligations hereunder.
Neither Seller may assign any of his rights or delegate any
of his obligations hereunder. Any assignment in violation
of this Agreement shall be void.
k. ATTORNEYS' FEES. In the event any party instigates
litigation to enforce or protect its rights under this
Agreement, the party prevailing in any such litigation shall
be entitled, in addition to all other relief, to reasonable
attorneys' fees, out-of-pocket costs and disbursements
relating to such litigation.
l. NOTICES. All notices and other communications hereunder
shall be (i) in writing, dated with the current date of such
notice, and signed by the party giving such notice, and (ii)
mailed, postpaid, registered or certified, return receipt
requested, addressed to the party to be notified, or
delivered by personal delivery or by overnight courier.
Notice shall be deemed given when received by the party to
be notified or when the party to be notified refuses to
accept delivery of the notice. The initial addresses of the
parties shall be as follows:
IF TO PURCHASER:
Cross-Continent Auto Retailers, Inc.
1201 S. Taylor
P.O. Box 750
Amarillo, Texas 79105-0750
ATTENTION: ROBERT W. HALL
(806) 374-8653
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<PAGE>
IF TO SELLERS:
Thomas A. Randt.
1083 Skyland Drive
P.O. Box 10391
Zepher Cove, Nevada 89448
(702) 588-1917
and
Ronald J. Blomquist
735 Spring Time Way
El Cajon, California 92019
(619) 588-7173
with a copy to:
Alan Williams
1650 Hotel Circle North, Suite 210
San Diego, California 92108
The parties hereto shall have the right from time to time to
change their respective addresses by not less than ten (10)
days prior written notice to the other parties.
m. DEFINITION OF KNOWLEDGE. As used in this Agreement, a
Seller's or the Company's "knowledge" shall include the
knowledge of the Sellers and the employees and agents of the
Company. Each representation and warranty that is limited
to a Seller's or the Company's "knowledge" is made with the
understanding that the Seller or the Company has examined
whatever sources of information as are in the possession or
control of either Seller or the Company in order to verify
the truth and accuracy of such representation and warranty.
n. TIME IS OF THE ESSENCE. Time shall be of the essence with
respect to this Agreement and the consummation of the
transactions contemplated hereby.
o. REMEDIES. None of the remedies provided for in this
Agreement shall be the exclusive remedy of any party for a
breach of this Agreement. The parties hereto shall have the
right to seek any other remedy at law or
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<PAGE>
in equity in lieu of or in addition to any remedies provided
for in this Agreement.
p. SURVIVAL OF OBLIGATIONS. To the extent necessary to carry
out the terms and provisions of this Agreement, the
obligations and rights arising from or related to this
Agreement shall survive the Closing and shall not be merged
into the various documents executed and delivered at the
time of the Closing.
q. WAIVER. No waiver of any breach or default hereunder shall
be considered valid unless in writing and signed by the
party giving such waiver, and no such waiver shall be deemed
a waiver of any subsequent breach or default of the same or
similar nature.
r. GOVERNING LAW. This Agreement shall be construed, enforced,
and governed in accordance with the laws of the State of
California.
s. VENUE. The obligations of the parties to this Agreement are
performable, and venue for any legal action arising out of
this Agreement shall lie in San Diego County, California.
t. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute
one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
PURCHASER: CROSS-CONTINENT AUTO RETAILERS, INC.,
a Delaware corporation
By:
----------------------------------------
Robert W. Hall, Vice Chairman
SELLERS:
-------------------------------------------
THOMAS A. RANDT
-------------------------------------------
RONALD J. BLOMQUIST
COMPANY: TAR-CAR, INC., a California corporation,
d/b/a Toyota
By The Bay, Auto Central Used Car Sales
and Credit Union Buying Services
By:
----------------------------------------
Thomas A. Randt, President and Secretary
By:
----------------------------------------
Ronald J. Blomquist, Vice President
SPOUSAL CONSENT
I hereby (a) consent to the execution and performance of the Stock
Purchase Agreement by Ronald J. Blomquist, and (b) acknowledge that Ronald J.
Blomquist's performance of his obligations under the Stock Purchase Agreement
will be binding upon my community interest, if any, in the Shares (as defined
in the Stock Purchase Agreement).
-------------------------------------
Linda L. Blomquist
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<PAGE>
Exhibit 2.15
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment to Stock Purchase Agreement (the "Amendment") is made and
entered into this 14th day of January, 1998, by and among Cross-Continent
Auto Retailers, Inc. ("Purchaser"), Thomas A. Randt ("Randt"), Ronald J.
Blomquist ("Blomquist"), and Tar-Car, Inc. (the "Company").
RECITALS
A. By that certain Stock Purchase Agreement (the "Purchase Agreement")
dated October 16, 1997, by and among Purchaser, Randt, Blomquist, and the
Company; Randt and Blomquist agreed to sell all of the issued and outstanding
shares of capital stock of the Company to Purchaser.
B. By letter agreement (the "Letter Agreement") dated December 15, 1997,
Purchaser, Randt and Blomquist agreed to certain modifications of the Purchase
Agreement.
C. Purchaser, Randt, Blomquist and the Company desire to (1) modify the
Purchase Agreement, and (2) terminate the Letter Agreement.
AGREEMENT
In consideration of the mutual agreements set forth in this Amendment,
Purchaser, Randt, Blomquist, and the Company agree as follows:
1. Paragraph 2 of the Purchase Agreement is deleted in its entirety
and the following is substituted therefor:
The purchase price to be paid by Purchaser to Sellers for
the Shares shall be $5,500,000 (the "Purchase Price").
2. Paragraph 3 of the Purchase Agreement is deleted in its entirety.
3. The first sentence of subparagraph 4(c) of the Purchase Agreement
is deleted in its entirety and the following is substituted therefor:
In addition, Purchaser shall deliver $500,000 ($450,000 for
Randt and $50,000 for Blomquist) into an interest bearing
account until January 13, 2000 under an escrow agreement
(the "Sellers Escrow Agreement") between Sellers and
Purchaser.
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<PAGE>
4. Paragraph 5 of the Purchase Agreement is deleted in its entirety
and the following is substituted therefor:
Subject to the terms and conditions set forth in this
Agreement, the closing ("Closing") of the purchase and sale
of the Shares shall take place at 1083 Skyland Drive, Zepher
Cove, Nevada 89448, or at such other place as may be
mutually agreed upon by Purchasers and Sellers, as soon as
practicable following the date on which all conditions to
the obligations of the parties hereunder (other than those
requiring the taking of action at the Closing) have been
satisfied or waived, but no later than January 13, 2000 (the
"Closing Date"), unless extended by the mutual agreement of
Purchaser and Sellers. Purchaser, Randt, and Blomquist
agree to use reasonable efforts to satisfy the conditions to
their respective obligations under the Purchase Agreement.
5. On the date of this Amendment, Purchaser shall pay to Sellers
earnest money (the "Earnest Money") in an amount equal to $1,700,000
($1,530,000 to Randt and $170,000 to Blomquist). The Earnest Money shall be
credited to the Purchase Price at the Closing. In the event the Purchaser
elects not to complete the closing of the Purchase Agreement on or before
January 13, 2000, Purchaser shall have the right to obtain a substitute buyer
for the Shares (as defined in the Purchase Agreement) who will close on or
before July 13, 2000. At the closing of the purchase of the Shares by the
substitute buyer, Randt and Blomquist (hereinafter collectively referred to
as the "Sellers") shall refund the Earnest Money to Purchaser, provided that
if the purchase price paid by the substitute buyer is more or less than
$5,500,000, the Earnest Money refunded to Purchaser shall be increased or
decreased by the amount of the excess or deficit so that Sellers shall
receive $5,500,000 for the Shares.
6. In order to secure the Sellers' contingent obligation under
paragraph 5 of this Amendment, the Company, as a third party pledgor, shall
(a) execute and deliver a security agreement in the form attached hereto as
Exhibit "A", which will grant a security interest in the Company's used
vehicle inventory, parts and accessories inventory, equipment, and fixtures
to Purchaser, and (b) execute and deliver such instruments and take such
action as is necessary in order to perfect the security interests, subject
only to any existing security interests of record or replacements therefor.
7. Regarding Purchaser's obligation to pay interest only, from
the date of this Amendment to the date the Purchase Agreement terminates,
Purchaser shall pay interest to the Sellers on $3,800,000 at the prime rate
announced by Bank of America on the date of this Amendment, adjusted on June
30, 1998, December 31, 1998, and June 30, 1999. Accrued interest shall be
paid within ten (10) days after the end of each month. The amount of
interest paid to Sellers shall be allocated 90% to Randt and 10% to Blomquist.
8. Effective as of the date of this Amendment, the Letter
Agreement is terminated.
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<PAGE>
9. This Amendment shall be governed by and construed and enforced in
accordance with the laws of the State of California.
10. This Amendment shall be binding upon and shall inure to the
benefit the parties hereto and their respective heirs, administrators,
executors, successors and assigns.
11. Except as specifically set forth herein, all other provisions
of the Purchase Agreement remain in full force and effect.
CROSS-CONTINENT AUTO RETAILERS, INC.,
a Delaware corporation
By:
-----------------------------------------
Robert W. Hall, Vice Chairman
-----------------------------------------
Thomas A. Randt
-----------------------------------------
Ronald J. Blomquist
TAR-CAR, INC., a California corporation
By:
-----------------------------------------
Thomas A. Randt, President
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Exhibit 2.16
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered into
this 17th day of December, 1997, by and among VINCI, INC., a Nevada
corporation ("Seller"), RONALD C. VINCI (the "Shareholder") and SAHARA
IMPORTS, INC., a Nevada corporation ("Buyer").
RECITALS
A. Seller is the owner and operator of a Honda motor vehicle sales
and service dealership (the "Dealership") located at 1700 E. Sahara, Las
Vegas, Nevada and operates the Dealership under the name "Las Vegas Honda"
in accordance with a dealer sales and service agreement with American Honda
Motor Co., Inc. ("Honda").
B. Shareholder owns the premises (the "Premises") on which the
Dealership is located. Seller leases the Premises from Shareholder. Seller
and Shareholder have agreed to terminate their lease at Closing (hereinafter
defined). Shareholder has agreed to lease the Premises to Buyer under a lease
in substantially the form of Exhibit "A" (the "Lease").
C. Subject to the terms and conditions set forth in this Agreement,
Buyer desires to purchase and receive from Seller, and Seller desires to sell
to Buyer, the right to operate the Dealership and certain assets used in,
arising from or related to the operation of the Dealership.
AGREEMENT
In consideration of the mutual promises contained herein and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties agree as follows:
1. ASSETS PURCHASED. Subject to and upon the terms and conditions
hereof, Seller agrees to sell, transfer, convey, assign and deliver to Buyer,
and Buyer agrees to purchase and acquire from Seller, the following described
assets (the "Assets") at Closing:
(a) FIXED ASSETS. All tangible personal property of Seller used in
the operation of the Dealership (the "Fixed Assets"), including
(without limitation) signage, machinery, tools and equipment,
furniture, computers, office equipment, telephone systems, parts
books, equipment records, and leasehold improvements. The Fixed
Assets will be set forth on Schedule 1(a) and shall be adjusted
to include those items acquired by Seller and to exclude those
items disposed of by Seller, in the ordinary course of business
subsequent to the date of the Schedule. Buyer shall purchase
the Fixed Assets in their
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<PAGE>
current condition and repair; provided, however, if any of the
Fixed Assets are not owned free and clear of all liens and
other encumbrances, physically present at the Dealership, and
in good working order as of the Closing Date, Buyer will not
be obligated to purchased such Fixed Assets.
(b) PARTS AND ACCESSORIES. All new, unused and undamaged Honda parts
and accessories which are (i) listed for sale in the Honda dealer
parts and accessories price schedules that are in effect for the
Dealership on the Closing Date (hereinafter defined), (ii) in the
original, resalable merchandising packaging, (iii) in unbroken
lots, and (iv) in the Seller's inventory on the Closing Date (the
"Parts").
(c) NEW VEHICLES. All new unregistered 1997 and 1998 Honda vehicles
(the "New Vehicles"), including demonstrators having no more than
2,000 miles on their odometer, which are owned and in the
possession of Seller or owned by Seller and in transit on the
Closing Date.
(d) USED VEHICLES. All used vehicles (the "Used Vehicles"),
including demonstrators have 2000 miles or more on their
odometer, which are owned and in the possession of Seller on the
Closing Date.
(e) GOODWILL. The expectation of continued public patronage of
Seller's former business, including the right of Buyer to
represent itself as carrying on the Dealership in succession to
the Seller ("Goodwill").
(f) RECORDS. All books, records, and other information arising from
or related to the operation of the Dealership (the "Records"),
including (without limitation) all information contained in or
derived from disks, tapes, manuals, source codes, charts and
other data sources.
(g) INTELLECTUAL PROPERTY. All business names, trade names, logos,
trademarks, service marks, copyrighted materials, trade secrets,
patents, patent applications and other proprietary rights,
including (without limitation) those items which will be
identified in Schedule 1(g), that are used in operating the
Dealership (the "Intellectual Property"). Schedule 1(g) shall
also set forth (i) those items of Intellectual Property that are
not owned by the Seller, and (ii) any royalties or fees that are
payable to another party by reason of Seller's use of any item of
Intellectual Property.
(h) CONTRACTS. Within ten (10) days after the date of this
Agreement, Seller shall deliver to Buyer a list of all contracts,
leases and agreements affecting or relating to the Dealership,
together with copies thereof. Within fifteen (15) days after
receipt of all of the copies, Buyer shall give Seller written
notice as to which of the contracts, leases and agreements it
will assume as of the
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Closing Date, provided that Buyer shall not assume any
liabilities, obligations or expenses under any assumed
contracts, leases or agreements that accrued prior to Closing.
All contracts, leases and agreements to be assumed by Buyer in
accordance with this Agreement will be referred to as the
"Contracts" and will be set forth on Schedule 1(h). Schedule
1(h) will also set forth the amount of any deposits or
prepayments, if any, held on behalf of Seller with respect to
the Contracts.
(i) LICENSES. All dealer franchise agreements, licenses, permits,
authorizations, and consents (except those which by law or by
their terms are not transferable) necessary to carry on the
operation of the Dealership ("Licenses").
(j) TIRES, GAS AND OIL INVENTORIES, GENERAL SUPPLIES AND
MISCELLANEOUS ASSETS. All tires, gas and oil inventories, grease
inventory, license plate frames and inserts, office supplies,
letterhead, postage, purchase order forms, parts invoices, repair
order forms, counter tickets, file jackets, and other items of
inventory, that are owned by Seller on the Closing Date
("Miscellaneous Assets"). Any vehicle sales of Seller not booked
as of the Closing Date shall be processed to completion or
cancellation by Buyer and Seller shall have no right to any
payment therefor.
(k) SUBLET REPAIRS. All sublet repairs owned by the Seller on the
Closing Date (the "Sublet Repairs"). Seller shall furnish to
Buyer at Closing a complete and accurate list of all Sublet
Repairs.
(l) WORK IN PROCESS. All work in process owned by the Seller on the
Closing Date (the "Work in Process"). Seller shall furnish to
Buyer at Closing a complete and accurate list of the Work in
Process.
(m) FINANCE RESERVES. All finance reserves owned by the Seller on
the Closing Date (the "Finance Reserves"). Seller shall furnish
to Buyer at Closing a complete and accurate list of the Finance
Reserves.
2. EXCLUDED ASSETS. Seller and Buyer mutually acknowledge and agree that
the following assets shall be excluded from the Assets to be sold, transferred,
conveyed, assigned and delivered to Buyer under the terms of this Agreement:
(a) Seller's cause of action in SIERRA AUTO CARS, INC., ETAL V.
AMERICAN HONDA MOTOR CO., INC., ETAL, Case No. SA CV 96-179 AHS
(EEx), In the United States District Court, District of Maryland.
(b) Any other assets that are not specifically described in paragraph
1 hereof.
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3. ASSUMED LIABILITIES. Except as set forth in subparagraphs 3 (a), 3
(b), and 3 (c) (the "Assumed Liabilities"), Buyer is not assuming or
undertaking to assume any liabilities, obligations or expenses of the Seller,
whether arising out of the conduct or operation of the Dealership or otherwise,
including (without limitation) any liability arising from a warranty or
incentive audit, any liability related to vehicle titles, any environmental
liability, any accounts payable, any obligations under any retirement, profit
sharing or defined benefit plan, any taxes, any contractual claims or
obligations, or any payroll obligations (including accrued vacation or sick
leave), whether disclosed, unknown, contingent or fixed. All liabilities other
than the Assumed Liabilities shall be and remain the obligations of the Seller.
(a) FLOOR PLAN. Buyer shall either pay in full or, with the consent
of the floor plan lender and the full, complete and final release by
the floor plan lender of Seller therefrom, assume Seller's floor plan
liability for the purchase price of the New Vehicles. Buyer also
agrees to accept delivery of all new vehicles, on order at Closing, in
accordance with prior practices, and either pay or floor plan the
same. If Buyer pays the floor plan liability for the purchase price
of the New Vehicles, Seller's floor plan lender shall release all
security interests that secure the floor plan liability.
(b) LICENSES. Buyer agrees to assume all liabilities relating to the
Licenses assigned by Seller, except such liabilities that accrued
prior to the Closing; and
(c) CONTRACTS. Buyer agrees to assume all obligations and
liabilities of Seller relating to the Contracts, except such
obligations and liabilities that accrued prior to the Closing.
Verified deposits and prepayments with respect to any Contracts shall
be paid by Buyer to Seller in cash on the Closing Date.
(d) FINANCE CHARGEBACKS. Buyer agrees to assume all finance
chargebacks on retail installment contracts and leases sold by Seller
to lenders prior to the Closing Date.
4. PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, in reliance on the representations, warranties and agreements of
Seller and Shareholder contained herein, and in consideration of the sale,
transfer, conveyance, assignment and delivery of the Assets, Buyer shall, in
addition to the assumption of the Assumed Liabilities as provided in paragraph 3
hereof, pay or deliver to Seller at Closing the following (hereinafter
collectively referred to as the "Purchase Price"):
(a) CASH. Buyer shall pay $8,000,000, plus or minus the amount of
any increase or reduction in the Purchase Price in accordance with
paragraph 6 hereof, by cashiers check or other immediately available
funds ("Cash");
(b) PROMISSORY NOTE. Buyer shall execute and deliver a promissory
note (the "Note") to Seller in the original principal amount of
$3,194,000, bearing interest
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at eight percent (8%) per annum, payable in (i) twelve (12) monthly
installments of interest only, commencing thirty (30) days after the
Closing Date, and (ii) twenty-four (24) equal monthly installments
of principal and interest commencing thirteen (13) months after the
Closing Date. The Note shall be in the form of Exhibit "B" hereto.
(c) ISSUANCE OF RESTRICTED STOCK. Cross-Continent Auto Retailers,
Inc. ("C-CAR") shall issue to Seller the number of shares of
restricted common stock of C-CAR (the "Restricted Stock") that, when
multiplied by the average closing price of C-CAR's common stock as
quoted in THE WALL STREET JOURNAL for the last five (5) trading days
immediately preceding the date the transactions contemplated by this
Agreement are announced to the public by Buyer (the "Pricing Date"),
will equal $290,000. C-CAR shall not issue any fractional shares and
Buyer shall pay Seller cash in lieu of any fractional shares based on
the average closing price of C-CAR's common stock as quoted in THE
WALL STREET JOURNAL for the last five (5) trading days immediately
preceding the Pricing Date. The Restricted Stock will be subject to
Rule 144 promulgated under the Securities Act of 1933. The
certificates representing any Restricted Shares that are issued to
Seller shall bear a restrictive legend that the stock has not been
registered under applicable federal and state securities laws. It is
understood and agreed that C-CAR has not agreed to register any
Restricted Shares that are to be issued or have been issued to the
Seller.
5. ALLOCATION OF PURCHASE PRICE. Buyer and Seller agree that the
Purchase Price shall be allocated among the Assets in the manner which will be
set forth in Schedule 5. All federal, state, and local tax returns filed after
the Closing by either Buyer or Seller, including (without limitation) IRS Form
8594, will contain valuations which are consistent with the valuations set forth
in Schedule 5.
6. ADJUSTMENT TO THE PURCHASE PRICE. The Purchase Price shall be (a)
increased by (i) the value of the Fixed Assets, Parts, New Vehicles, and Used
Vehicles, as determined in accordance with subparagraph 17(c), and (ii) any
refundable deposits or prepayments on Contracts assumed by Buyer in accordance
with subparagraph 1(h), and (b) shall be reduced by the amount of any Assumed
Liabilities.
7. CLOSING. Subject to the terms and conditions set forth in this
Agreement, the closing ("Closing") of the purchase and sale of the Assets shall
take place at the offices of Seller, 1700 E. Sahara, Las Vegas, Nevada 89104, or
at such other place as may be mutually agreed upon by Buyer and Seller, as soon
as practicable following the date on which all conditions to the obligations of
the parties hereunder (other than those requiring the taking of action at the
Closing) have been satisfied or waived, but no later than June 1, 1998 (the
"Closing Date"), unless extended by the mutual agreement of the Buyer and
Seller.
8. TRANSACTIONS AT CLOSING. The following transactions shall take place
at Closing:
(a) DELIVERIES BY SELLER AND SHAREHOLDER. The Seller and the
Shareholder shall
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deliver the following to the Buyer:
(i) A Warranty Bill of Sale or Warranty Bills of Sale executed
by Seller, in the form of Exhibit "C" hereto, to convey to
Buyer the Fixed Assets, the Parts, the New Vehicles
(including demonstrators treated as New Vehicles), the Used
Vehicles (including demonstrators treated as Used Vehicles),
and the tangible Miscellaneous Assets;
(ii) An Assignment or Assignments executed by Seller, in the form
of Exhibit "D" hereto, to convey to Buyer the Goodwill, the
Intellectual Property, the Contracts, the Licenses, and the
intangible Miscellaneous Assets;
(iii) The Lease executed by the Shareholder;
(iv) An agreement terminating the lease between Seller and
Shareholder;
(v) a Phase I Environmental Site Audit on the Premises, paid for
by the Seller, in form and substance satisfactory to Buyer;
(vi) Copies of resolutions of the Board of Directors of the
Seller, duly certified by its Secretary, in form reasonably
satisfactory to Buyer's counsel, authorizing the execution,
delivery and performance of this Agreement and all other
documents to which Seller is a party as contemplated hereby,
and all action to be taken by Seller hereunder;
(vii) A Seller's Certificate, in the form of Exhibit "E"
hereto, duly executed by Seller and Shareholder;
(viii) The Records;
(ix) An opinion of counsel to the Seller, in the form of Exhibit
"F" hereto;
(x) The Investment Letter (hereinafter defined) and the
Registration Rights Agreement (hereinafter defined);
(xi) a list of the Sublet Repairs;
(xii) a list of the Work in Process;
(xiii) Any instruments and other documents specifically
required by this Agreement that are not otherwise set forth
in this subparagraph 8(a); and
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(xiv) Any other instruments or documents deemed reasonably
necessary by the Buyer in order to consummate the
transactions contemplated hereby.
(b) DELIVERIES BY BUYER. The Buyer shall deliver the following to
the Seller:
(i) The Cash portion of the Purchase Price, the Note and the
Restricted Stock;
(ii) A guaranty of the Note, in the form of Exhibit "G" hereto;
(iii) The Lease executed by the Buyer;
(iv) A guaranty of the Lease, in the form of Exhibit "H" hereto:
(v) Copies of resolutions of the Board of Directors of the
Buyer, duly certified by its Secretary, in form reasonably
satisfactory to Seller's counsel, authorizing the execution,
delivery and performance of this Agreement and all other
documents to which Buyer is a party as contemplated hereby,
and all action to be taken by Buyer hereunder;
(vi) The Registration Rights Agreement;
(vii) A Certificate of Good Standing issued by the Secretary
of State of the State of Nevada;
(viii) An opinion of counsel to the Buyer, in the form of
Exhibit "I" hereto; and
(ix) Any instruments and other documents specifically required by
this Agreement that are not otherwise set forth in this
subparagraph 8(b).
9. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND SHAREHOLDER. In
order to induce the Buyer to enter into this Agreement:
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
represents, warrants and covenants to the Buyer, effective as of
the date of this Agreement and again at Closing, each of the
following:
(i) ORGANIZATION AND STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Nevada and is duly qualified to do
business as a foreign corporation and is in good standing in
the states of the United States and foreign jurisdictions
where its ownership or leasing of property or the conduct of
its business requires it to be so qualified.
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(ii) POWER AND AUTHORITY. Seller has all requisite right, power
and authority to own, lease and operate its properties and
Assets and to operate the Dealership as it is now being
operated. The execution and delivery of this Agreement and
the performance of all of Seller's obligations under this
Agreement have been duly and validly authorized by all
necessary action on the part of the Seller. This Agreement
constitutes the valid and binding obligation of Seller,
enforceable against it in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally
and by general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity
or at law).
(iii) NO CONFLICTS. Other than with respect to compliance
with the Hart-Scott-Rodino Anti-Trust Improvement Act of
1976 (the "Act") and the rights of Honda under its dealer
sales and service agreement, neither the execution and
delivery of this Agreement by the Seller, nor the
consummation by the Seller of the transactions contemplated
hereby, will (i) violate, conflict with, or result in a
breach of any provisions of, or 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, any of the terms,
conditions, or provisions of the Seller's Articles of
Incorporation, Bylaws, or any contract, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument
or obligation to which the Seller is a party or by which it
may be bound, or to which any of the Seller's properties or
Assets may be subject, or result in the creation of any
material lien, security interest, charge or encumbrance upon
any of the properties or Assets of the Seller, or (ii)
violate any judgment, ruling, order, writ, injunction,
decree, constitution, statute, rule or regulation applicable
to the Seller or any of its properties or Assets, which in
the case of either subparagraph (i) or (ii) above would have
a materially adverse effect on the operation of the
Dealership by the Seller.
(iv) FINANCIAL STATEMENTS. The Seller has delivered to the Buyer
copies of the following financial statements (collectively
referred to herein as the "Financial Statements") of the
Seller:
(A) Balance Sheet, as of August 31, 1997;
(B) Income Statement, as of August 31, 1997; and
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(C) Balance Sheets and Income Statements for the fiscal
years ended December 31, 1995 and December 31,
1996.
To the best of Seller's knowledge, the Financial Statements
(including the notes thereto) are true and correct in all
respects and have been compiled in accordance with standard
dealer financial statement practices applied on a consistent
basis throughout the periods indicated. Without limitation
of the foregoing, the Balance Sheet described in
subparagraph 9(a)(iv)(A) above presents fairly the financial
position of the Seller as of the date indicated thereon, and
the Income Statement described in subparagraph 9(a)(iv)(B)
above presents fairly the results of operations of the
Seller for the period indicated thereon.
Seller has also delivered to the Buyer copies of Seller's
tax returns for 1994, 1995, and 1996.
(v) TITLE AND RELATED MATTERS. The Seller is the lawful owner
of and has good and marketable title to the Assets; except
for the items of Intellectual Property that are shown on
Schedule 1(g) to be owned by another party, which Seller
has the right to use. The right to operate the Dealership
under Seller's dealer sales and service agreement with Honda
and the Assets will, at the Closing, be free and clear of
all liens and encumbrances, except for:
(A) the Assumed Liabilities;
(B) liens for current taxes not yet due and payable or for
taxes the validity of which is being contested in
good faith by appropriate proceedings with
adequate reserves; and
(C) the rights of Honda under its dealer sales and service
agreement with the Seller.
All Parts which Buyer is obligated to purchase in accordance
herewith are in undamaged, returnable condition that:
(A) are still in the original, resalable merchandising
package and in unbroken lots;
(B) at Closing will be listed for sale in the then current
dealer parts and accessories price schedules for
Honda, and will not be listed as "discontinued" or
"replaced" parts and accessories;
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and
(C) were purchased directly from Honda.
(vi) LICENSES. The Seller has made copies available to Buyer of,
and will list on Schedule 9(a)(vi), all Licenses relating to
the Dealership. To the best of Seller's knowledge, all of
the Licenses are adequate for the operation of the
Dealership and are valid and in full force and effect. All
of the Licenses will be transferred to the Buyer at the
Closing, unless such transfer is prohibited by law or by the
terms of the item to be transferred.
(vii) INTELLECTUAL PROPERTY. The Seller owns all of the
Intellectual Property presently in use by the Dealership;
except for the items of Intellectual Property that are shown
on Schedule 1(g) to be owned by another party, which Seller
has the right to use. Other than with respect to the
royalties and fees listed in Schedule 1(g), no royalties or
fees are payable by the Seller to any third party by reason
of the use of any of the Intellectual Property to which
Buyer shall acquire hereunder. To the best of Seller's
knowledge, no additional intellectual property is needed to
permit the Seller to operate the Dealership as now operated.
(viii) CONTRACTS AND AGREEMENTS. The Seller will deliver to
Buyer copies of all Contracts listed in Schedule 1(h) to
which the Seller is a party or by which it or any of the
Assets is bound. To the best of Seller's knowledge, all
Contracts included in Schedule 1(h) are in full force and
effect and binding upon the parties thereto, and none of the
parties thereto is in breach of any of the provisions
thereof.
(ix) LITIGATION AND OTHER PROCEEDINGS. Except as set forth in
Schedule 9(a)(ix), the Seller is not a party to any pending
or, to the best of Seller's knowledge, threatened claim,
action, suit, investigation or proceeding, nor is it subject
to any order, judgment or decree.
(x) EMPLOYMENT CONTRACTS AND EMPLOYEE BENEFIT PLANS. Schedule
9(a)(x) will contain (i) a complete and correct list of all
pension, bonus, profit sharing, retirement, stock option,
medical expense, dental expense, hospitalization, life
insurance or other death benefit, severance, and other
benefit plans, agreements, arrangements or programs
providing benefits for Seller's employees, whether or not
funded and whether or not reflected in any plan documents,
including available vacation of Seller's employees, (ii) a
list all of the current employees of the Seller and the
independent contractors regularly performing services on
behalf of the Seller, and (iii) a list of the
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compensation paid to the current employees of the Seller
and the independent contractors regularly performing
services on behalf of the Seller, including any salary,
bonus or other payment arrangement made with any of them.
The Seller is not a party to or bound by any collective
bargaining agreement, nor has the Seller experienced any
strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. The Seller has not,
to Seller's knowledge, committed any unfair labor
practice. The Seller has no knowledge of any
organizational effort presently being made or threatened
by or on behalf of any labor union with respect to
employees of the Seller. To the best of Seller's
knowledge, there have been no material defaults,
breaches, omissions or other failings by the Seller or
any fiduciary under any of these contracts or programs.
Except as set forth in Schedule 9(a)(x), the Seller does
not sponsor any employee benefit plan defined in Section
3(3) of the Employee Retirement Income Security Act of
1974, as amended (29 U.S.C. Section 1002(3)).
(xi) BROKERS AND FINDERS. Other than Elysium Enterprises,
Inc. (the "Broker"), no broker or finder has any potential
claim against Seller for a commission or fee arising out of
the transactions contemplated herein.
(xii) CONSENTS TO CONSUMMATION. Except as will be disclosed
in Schedule 9(a)(xii), no consent, approval or other action
of any third party is required to be obtained by the Seller
in connection with the transactions contemplated by this
Agreement.
(xiii) EQUIPMENT. The Fixed Assets are in good repair and
operating condition.
(xiv) CONTINUATION OF BUSINESS. The Seller knows of no
reason why the Dealership will not continue on in the same
manner following the execution of this Agreement and the
Closing as it has been operated prior thereto, except to the
extent that the Buyer causes the operation of the Dealership
to change following the Closing. The Seller has no reason to
believe that at any time in the foreseeable future the
Dealership shall be materially or adversely affected by any
event, including (without limitation) the loss of customers
of the Dealership, except to the extent that the Buyer
causes the operation of the Dealership to change following
the Closing. The Seller will use its best efforts to cause
the employees, agents, and independent contractors who have
performed services for the Dealership in the past to
continue to do so following the Closing, to the extent the
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Buyer so requests.
(xv) COPIES COMPLETE. The copies of all documents which have
been delivered or otherwise been made available to the Buyer
in connection with the transactions contemplated hereby are
complete and accurate and are true and correct copies of the
originals thereof, to the best of Seller's knowledge.
(xvi) BORROWED MONIES. The Seller is not in default in any
respect under, and is not otherwise in violation or
contravention of, any of the terms and provisions of any
agreement for the repayment of borrowed monies. All notes
and other documents and instruments evidencing or relating
to indebtedness for borrowed monies by the Seller and which
relate to any of the Assets will be identified in Schedule
9(a)(xvi).
(xvii) COMPLIANCE WITH LAWS. Other than as set forth in
Schedule 9(a)(ix), the Seller has no knowledge of (i) any
governmental proceeding or investigation involving the
Seller, nor has any reason to believe that any such
proceeding or investigation is pending or threatened or that
there exists any basis for any such proceeding or
investigation, (ii) any facts which might reasonably be
believed to be a basis for any other action, suit,
proceeding, arbitration, claim, or counterclaim against the
Seller, (iii) any violations of federal, state or local
laws, ordinances, rules, codes, regulations or orders by the
Seller, or (iv) any illegal kick backs, bribes, or political
contributions made by the Seller.
(xviii) NO CHANGES. Except as will be disclosed in Schedule
9(a)(xviii), the Seller has not since December 31, 1996, (i)
operated the Dealership, except in the ordinary course of
business, (ii) incurred any debts, liabilities or
obligations, except in the ordinary course of business,
(iii) mortgaged, pledged or subjected to lien or other
encumbrance any of the Assets, except in the ordinary course
of business, or (iv) sold or transferred any of its tangible
assets, except in the ordinary course of business.
(xix) FULL DISCLOSURE. No representation or warranty of the
Seller in this paragraph 9 (including any information in the
Schedules attached or to be attached to this Agreement)
contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact
necessary in order to make the statements herein or therein,
in light of the circumstances in which they are made, not
misleading.
(xx) CONDITION OF BUILDINGS. To the best of Seller's knowledge,
the buildings on the Premises are in good working condition
and repair.
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(xxi) NO DEFAULTS. To the best of Seller's knowledge, Seller
is not in material default under any of the Contracts.
(xxii) SERVICES PERFORMED. To the best of Seller's knowledge,
Seller has not received any payment from Honda for services
to be performed by Seller on New Vehicles which services
were not in fact performed by Seller prior to Closing.
(b) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The
Shareholder represents, warrants, and covenants to the Buyer,
effective as of the date of this Agreement and again at Closing,
each of the following:
(i) AUTHORITY. This Agreement constitutes the valid and binding
obligation of the Shareholder relating to the agreements of
the Shareholder contained in this Agreement, enforceable
against him in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally
and by general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity
or at law). The Shareholder has all requisite right, power
and authority to execute and deliver this Agreement and to
perform all of his obligations under this Agreement.
(ii) CONSENTS TO CONSUMMATION. Except as will be disclosed in
Schedule 9(a)(xii), no consent, approval or other action of
any third party is required to be obtained by the
Shareholder in connection with transactions contemplated by
this Agreement.
(iii) FULL DISCLOSURE. No representation or warranty of the
Shareholder in this paragraph 9 (including any information
in the Schedules attached or to be attached to this
Agreement) contains or will contain any untrue statement of
a material fact or omits or will omit to state any material
fact necessary in order to make the statements herein or
therein, in light of the circumstances in which they are
made, not misleading.
(c) REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SHAREHOLDER.
The Seller and the Shareholder jointly and severally represent, warrant, and
covenant to the Buyer, effective as of the date of this Agreement and again at
Closing, each of the following:
(i) The Seller and the Shareholder have obtained all permits,
licenses and other authorizations, which are required under
applicable laws
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currently in effect relating to pollution or protection
of the environment, including laws relating to emissions,
discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials
or wastes into ambient air, surface water, ground water,
or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants,
contaminants, or hazardous or toxic materials or wastes
or the manufacture of substances subject to the Toxic
Substances Control Act (hereinafter collectively referred
to as the "Environmental Laws").
(ii) The Seller and the Shareholder are in compliance with all
terms and conditions of such permits, licenses and
authorizations, and with all other limitations,
restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables
contained in such Environmental Laws or contained in any
regulation, code, plan, order, decree, judgment or notice or
demand letter from a governmental entity issued, entered,
promulgated or approved thereunder as they apply to the
Seller or the Shareholder.
(iii) Neither the Seller nor the Shareholder has received any
notification from any governmental authority or any other
person nor does the Seller or the Shareholder have
knowledge, that any of the current or former properties,
assets or operations of the Seller or the Shareholder is in
violation of any applicable Environmental Laws.
(iv) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter from a governmental
entity pending or threatened against the Seller or the
Shareholder.
(v) There are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or
plans, which will interfere with or prevent compliance or
continued compliance with the Environmental Laws or with any
regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter from a governmental entity issued,
entered, promulgated or approved thereunder, or which will
give rise to any common law or other legal liability,
including, without limitation, liability under the
Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or similar state or local laws in
effect as of the date hereof, or otherwise form the basis of
any claim, action, demand, suit, proceeding, hearing, notice
of violation or investigation which would be materially
adverse to the Seller or
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the Shareholder, based on or resulting from the operation
of the Dealership by the Seller, including the
manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the
emission, discharge, release or threatened release into
the environment, of any pollutant, contaminant, chemical,
or industrial toxic or hazardous material, substance or
waste. Without in any way limiting the foregoing, no
release, emission or discharge into the environment of
any hazardous substance (as that term is currently
defined under CERCLA or any applicable analogous state
law) has occurred or is currently occurring in connection
with the operation of the Dealership by the Seller and
which would be materially adverse to the Seller or the
Shareholder. No real property currently owned, leased or
otherwise utilized by the Seller or the Shareholder
contains any spill, deposit, or discharge of any
hazardous substance (as that term is currently defined
under CERCLA or any applicable analogous state law), as a
result of which there would be a materially adverse
effect on the Seller or the Shareholder.
10. REPRESENTATIONS AND WARRANTIES OF BUYER. The Buyer represents and
warrants to the Seller and the Shareholder effective as of the date of this
Agreement and again at Closing, as follows:
(a) ORGANIZATION AND STANDING OF BUYER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Nevada, is duly qualified to do business as a
foreign corporation and is in good standing in the states of the
United States and foreign jurisdictions where its ownership or
leasing of property or conduct of its business requires it to be
so qualified.
(b) AUTHORIZATION. The Buyer has all requisite right, power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery
of this Agreement and the performance of all of Buyer's
obligations under this Agreement have been duly and validly
authorized by all necessary corporate action on the part of the
Buyer. This Agreement constitutes the valid and binding
obligation of the Buyer, enforceable against the Buyer in
accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(c) NO CONFLICT. Other than with respect to the Act, neither the
execution and delivery of this Agreement by the Buyer, nor the
consummation by the Buyer
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of the transactions contemplated hereby, will (i)
violate, conflict with, or result in a breach of any
provisions of, or 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, any of the terms,
conditions or provisions of the Buyer's Articles of
Incorporation, Bylaws, or any contract, mortgage,
indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Buyer is a
party or by which it may be bound, or to which the
Buyer's properties or assets may be subject, or result in
the creation of any material lien, security interest,
charge or encumbrance upon any of the properties or
assets of the Buyer, or (ii) violate any judgment,
ruling, order, writ, injunction, decree, constitution,
statute, rule or regulation applicable to the Buyer or
any of its properties or assets, which in the case of
either subparagraph (i) or (ii) above would have a
materially adverse effect on the Buyer or its financial
condition.
(d) LITIGATION OR OTHER PROCEEDINGS. Buyer is not a party to any
pending or, to the best of its knowledge, any threatened claim,
action, suit, investigation or proceeding, or subject to any
order, judgment or decree, except for matters which in the
aggregate, will not have, or cannot reasonably be expected to
have, a materially adverse effect on the financial condition of
the Buyer, and none that would affect the Buyer's ability to
consummate the transactions and perform its obligations
contemplated by this Agreement.
(e) RESTRICTED STOCK. The Restricted Stock is authorized stock of
C-CAR and when issued to the Seller will be valid and
nonassessable.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by the parties in this Agreement or in any certificate,
schedule, statement, document or instrument furnished hereunder or in connection
with the negotiation, execution and performance of this Agreement shall survive
the Closing for a period of three (3) years, and any claim or cause of action
for indemnification for breaches of representations or warranties set forth in
this Agreement or in any exhibit or document furnished hereto shall be made in
respect of such matters within three (3) years after the Closing Date.
Notwithstanding any investigation or audit conducted before or after the Closing
or the decision of any party to complete the Closing, each party shall be
entitled to rely upon the representations and warranties set forth herein for
the time period set forth above.
12. SELLER'S OBLIGATIONS PRIOR TO CLOSING.
(a) NOTICES AND CONSENTS. The Seller will give any notices to third
parties, and will use its best efforts to assist Buyer in
obtaining any third party consents, that the Buyer may request in
connection with consummating the transactions contemplated by
this Agreement.
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(b) CONDUCT OF BUSINESS BY THE SELLER PRIOR TO THE CLOSING DATE.
From the date of this Agreement to the earlier of the Closing
Date or the termination of this Agreement, the Seller shall
conduct its operations according to their ordinary and usual
course of business reasonably consistent with past and current
practices in light of the Seller's current financial position and
use its best efforts to maintain and preserve its business
organization, properties and vendor and supplier relationships,
and retain the services of its officers and employees and the
Seller will not engage in any practice, take any action, or enter
into any transaction outside the ordinary course of business.
Without limiting the generality of the foregoing, the Seller will
(i) not hold any kind of liquidation or going out of business
sale, (ii) not sell, transfer, mortgage, encumber or otherwise
dispose of any of the Assets, except in the ordinary course of
business or pursuant to contracts or agreements in force at the
date of this Agreement, (iii) except for transactions in the
ordinary course of the Seller's business, not enter into or
terminate any contract or agreement, or make any change in any of
its leases or contracts, other than renewals of contracts and
leases without adverse changes of terms, (iv) not agree to, or
make any commitment to, take any of the actions prohibited by
this subparagraph 12(b), (v) not change its past practices in the
acquisition or sale of the used vehicle inventory of the
Dealership; (vi) not change its past practices in the acquisition
or sale of the new vehicle inventory of the Dealership; or (vii)
not change its past practices in the acquisition or sale of Parts
inventory of the Dealership.
(c) FULL ACCESS. Seller will permit Buyer and representatives of
the Buyer to have full access, at all reasonable times, and in a
manner so as not to materially interfere with the normal business
operations of the Seller, to the books, records, properties,
assets and operations of the Seller. The Seller shall furnish to
Buyer and representatives of Buyer such financial, operating and
other data and information, and copies of documents with respect
to the Seller as Buyer shall from time to time reasonably
request. Such access and information shall not in any way affect
or diminish any of the representations or warranties made by
Seller in this Agreement.
(d) NOTICE OF ADVERSE CHANGES. The Seller will give prompt written
notice to the Buyer of any material adverse change in the
business, operations, properties, assets, revenues, earnings,
liabilities, or condition (financial or otherwise) of the
Dealership.
(e) STANDSTILL. From the date of this Agreement to the earlier of
the Closing Date or the termination of this Agreement, the Seller
shall not, directly or indirectly, through any officer, director,
agent or otherwise, solicit, or initiate submission of any
proposal or offer from any person or entity (including any of
their officers or employees) relating to any liquidation,
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dissolution, recapitalization, merger, consolidation or
acquisition or purchase of all or a material portion of the
Assets of the Seller, or any equity interest in the Seller, or
participate in any negotiations regarding, or furnish to any
other person any information with respect to, or otherwise
cooperate in any manner with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other
person or entity to do or seek any of the foregoing.
(f) RISK OF LOSS. Seller shall have the risk of loss or damage by
fire or other casualty to the Assets before Closing. In the event
of a material loss or damage to the Assets prior to Closing,
Buyer shall have the option to terminate this Agreement.
(g) WASTE DISPOSAL. Seller agrees, at its sole cost, to properly
dispose of all pollutants, contaminants, or hazardous or toxic
materials or wastes accumulated by Seller prior to Closing and
located on any of the properties of the Dealership.
(h) RETURN RESERVE. Seller agrees to assign and transfer its parts
and accessories return reserve to the Buyer, if assignable, and
allow Buyer to participate in such return reserve accumulated
prior to Closing.
(i) AUDIT. Seller will allow an audit (the "Audit") to be conducted
under generally accepted auditing standards of the books,
records, and financial statements of the Seller for 1996 and 1997
and any additional years if required by applicable law, and shall
allow Audited Financial Statements (hereinafter defined) to be
prepared in accordance with generally accepted accounting
principles, which shall include reserves for any deferred
warranties, charge backs, inventory write-downs, repossessions,
contracts in transit, and any other appropriate reserves. As used
in this Agreement, "Audited Financial Statements" shall mean an
audited (i) balance sheet dated December 31,1997 for the Seller,
and (ii) income statement for the year ending December 31, 1997
for the Seller. The Audit will be conducted by Buyer's
accountants, Price Waterhouse, LP. Seller agrees to cause the
full cooperation of the officers, directors, employees, and
independent accountants of the Seller in the Audit as requested
by Buyer. The start date of the Audit will be no later than
January 15, 1998. The Seller's accounting staff will assist in
gathering information and providing schedules and analyses in
order to have the Audit completed by January 31, 1998. In
addition, as near as possible prior to the Closing Date, Price
Waterhouse shall review the activities of the Seller for the
period after December 31, 1997, and shall prepare a letter (the
"Post 1997 Letter") setting forth any material adverse changes in
the revenues, earnings, assets, liabilities, or financial
condition of the Dealership.
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(j) FURTHER ASSURANCES. Seller shall from time to time, upon the
request of Buyer, execute and deliver to Buyer such further
instruments and take such further action as Buyer may reasonably
request, in order to consummate the transactions contemplated by
this Agreement as expeditiously as possible and to place Buyer in
possession and control of the Assets and to enable Buyer to
exercise and enjoy all rights and benefits with respect thereto.
(k) INSURANCE. Until the Closing, Seller shall maintain the
insurance it is carrying in connection with the operation of the
Dealership and the Assets, including (without limitation)
property damage insurance, general public liability insurance,
and group health insurance. Schedule 12(k) will contain a
complete list and description of all insurance carried by Seller.
Seller shall cooperate with Buyer's insurance representative
prior to the Closing. Seller shall obtain discontinued
operations insurance in amounts and with a company that is
reasonably satisfactory to Buyer and shall furnish Buyer with
evidence of such insurance.
(l) UTILITY AND TELEPHONE SERVICE. Seller agrees to sign over all
utility and telephone services, including telephone numbers, to
Buyer. Seller agrees to allow Buyer to assume all utility and
telephone deposits, provided that Buyer shall pay to Seller the
amount of any such assumed deposits. Seller agrees to use its
best efforts to assure that there will be no breaks or
discontinuances of any utility or telephone services upon
Closing.
13. BUYER'S OBLIGATIONS PRIOR TO CLOSING.
(a) DUE DILIGENCE. Buyer shall conduct all investigations, reviews
and inspections of the business, operations, properties, assets,
revenues, earnings, liabilities, and condition (financial or
otherwise) of Seller which Buyer and Buyer's representatives deem
necessary or desirable to make an informed and reasonable
decision to complete the transactions contemplated by this
Agreement. Buyer hereby expressly acknowledges and agrees that
in purchasing the Assets from the Seller, it is relying solely
upon the results of its own due diligence and is not relying upon
any representations or warranties, express or implied, written or
oral, of the Seller, Shareholder, or any of their respective
employees, agents or representatives, except as expressly set
forth in this Agreement.
(b) FURTHER ASSURANCES. Buyer shall from time to time, upon the
request of Seller, execute and deliver to Seller such further
instruments and take such further action as Seller may reasonably
request, in order to consummate the transactions contemplated by
this Agreement as expeditiously as possible.
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14. BUYER'S AND SELLER'S OBLIGATIONS PRIOR TO CLOSING.
(a) ASSISTANCE. Both Buyer and Seller each agree to use their best
efforts to create a workable, smooth and orderly transition
between Seller's and Buyer's operation of the Dealership.
(b) HART-SCOTT-RODINO NOTIFICATION. Promptly after the execution
and delivery of this Agreement, the parties shall, if and to the
extent required by law, file all reports or other documents
required or requested by the Federal Trade Commission ("FTC") or
the United States Department of Justice ("Justice Department")
under the Act, and all regulations promulgated thereunder,
concerning the transactions contemplated hereby, and comply
promptly with any requests by the FTC or Justice Department for
additional information concerning such transactions, so that the
waiting period specified in the Act will expire as soon as
reasonably possible after the execution and delivery of this
Agreement. The parties agree to furnish to one another such
information concerning the Buyer, the Seller, the Shareholder and
the Dealership as the parties need to perform their obligations
hereunder. The Buyer agrees to pay all filing fees and costs due
governmental agencies with regard to the notification under and
compliance with the Act and all regulations promulgated
thereunder.
(c) INVENTORIES. Prior to Closing, Buyer and Seller shall conduct a
physical inventory of the Used Vehicles, New Vehicles, Parts, and
Fixed Assets owned by the Seller and shall determine the values
thereof in the following manner:
(i) Seller and Buyer shall agree to the value of the Used
Vehicle inventory of the Dealership. If Buyer and Seller
fail to agree on the value of any Used Vehicle, Seller shall
retain it and remove it from the Dealership.
(ii) Buyer and Seller shall calculate the value of the New
Vehicle inventory of the Dealership. The value of each new
vehicle shall be the cash sum equal to the distributor's
original invoice price (excluding any Seller internal
profit) to the Dealership, less any factory hold back
rebate, any other factory rebate or incentive which the
Dealership may have received, or to which the Dealership is
or may become entitled to receive, advertising credits and
interest credits, plus performed PDI at Seller's cost
(excluding any internal profit), options added at Seller's
costs (excluding any internal profit), and any freight and
handling charges. All demonstrators shall be valued for a
cash sum equal to an amount as calculated above, less
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$.25 per mile on the odometer for depreciation for
demonstration service, provided that demonstrators having
more than 2,000 miles on the odometer be treated as a
Used Vehicle. The value of any New Vehicle shall be
decreased by an amount equal to Seller's cost (excluding
any internal profit) of repair for any physically damaged
vehicle and by the cost of any accessories, equipment or
parts that are missing.
(iii) Seller and Buyer shall calculate the value of the Parts
inventory, based on the cost of the parts and accessories
set forth in the then-current dealer parts and accessories
price schedule for Honda.
(iv) Seller and Buyer shall agree to the value of the Fixed
Assets of the Dealership. If Buyer and Seller fail to agree
on the value of any Fixed Asset, Seller shall retain it and
remove it from the Dealership.
(d) WARRANTY MAINTENANCE. Buyer and Seller acknowledge that Seller
both provides and has imposed on it by operation of law limited
warranties with respect to certain vehicles sold by it and
certain services functions performed by it (the "Limited
Warranties") in addition to any factory warranties provided by
Honda, and agree that Buyer shall not assume any obligations
under the Limited Warranties which pertain to vehicles sold and
service functions performed by Seller prior to the Closing Date;
provided, however, that Buyer agrees that it will cause the
performance of any and all maintenance and repair work necessary
to comply with the terms of the Limited Warranties and factory
warranties (at Buyer's normal retail rates) following receipt of
approval of the applicable warranty insurer. In the event such
approval is not received, Buyer shall seek such approval from
Seller. All costs, losses and expenses incurred by the Buyer in
executing such maintenance and repair work, including (without
limitation) parts and labor, shall be the responsibility of the
warranty insurer or Seller. In the event Seller approves such
work, Seller shall have fifteen (15) days after receipt of
Buyer's invoice to pay such costs and expenses.
(e) PURCHASE OF PARTS AND USED VEHICLES. In the event Buyer and
Seller enter into a management agreement that provides for Buyer
to manage the Dealership prior to the Closing Date (the
"Management Agreement"), on the effective date of the Management
Agreement Buyer shall purchase from Seller the Parts and the Used
Vehicles for the values determined in accordance with
subparagraph 14(c). Notwithstanding anything contained in this
Agreement to the contrary, in the event this Agreement expires or
terminates, Seller shall repurchase (for cash and free of all
liens, claims and other encumbrances, and for the values of the
Parts and Used Vehicles as determined in accordance with
subparagraph 14(c)) any of the Used Vehicles
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or Parts purchased by Buyer that are still owned by Buyer.
15. CONDITIONS PRECEDENT TO OBLIGATION OF THE BUYER. The obligation of
the Buyer to effect the transactions contemplated hereby shall be subject, at
its option, to the fulfillment prior to the Closing Date of the following
conditions, each of which can be waived by the Buyer:
(a) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. All
representations and warranties made by the Seller and the
Shareholder in or pursuant to this Agreement shall be true and
correct on the date hereof and on the Closing Date with the same
affect as though such representations and warranties were made on
the Closing Date, except to the extent that such representations
and warranties expressly relate to any earlier date.
(b) COMPLIANCE WITH AGREEMENT. The Seller and the Shareholder shall
have fully performed and strictly complied with all of their
covenants, agreements, conditions and obligations under this
Agreement to be performed or complied with by Seller or
Shareholder on or prior to the Closing Date.
(c) THIRD PARTY CONSENTS. This Agreement and the transactions
contemplated hereby shall have received all approvals, consents,
authorizations, and waivers from governmental and other
regulatory agencies and other third parties, including lenders,
lessors, and Honda, required to consummate the transactions
contemplated by this Agreement. Without limiting the generality
of the foregoing, Honda must approve Buyer, without conditions,
as the dealer for Las Vegas Honda in Las Vegas, Nevada prior to
Closing.
(d) ABSENCE OF LITIGATION. No action, suit or proceeding before any
court or any governmental body or authority pertaining to the
transactions contemplated by this Agreement, or to their
consummation, shall have been instituted or threatened on or
before the Closing Date.
(e) AUDIT. Price Waterhouse shall have timely performed the Audit,
prepared the Audited Financial Statements, and delivered a copy
of the Audited Financial Statements to Buyer.
(f) PHYSICAL INVENTORY. Buyer and Seller shall have jointly
conducted a physical inventory of the Fixed Assets, Parts, New
Vehicles, and Used Vehicles, the results of which are
satisfactory to Buyer.
(g) APPROVAL OF DOCUMENTATION. The form and substance of all
Schedules, certificates, instruments and other documents required
to be delivered to the Buyer under this Agreement shall be
satisfactory in all reasonable respects to Buyer and its counsel.
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(h) HART-SCOTT-RODINO ACT. The applicable waiting period under the
Act, and regulations promulgated thereunder, shall have expired.
(i) NO ADVERSE CHANGE. Buyer shall have determined, to its
satisfaction, that as of the Closing Date, there have been no
material adverse changes in the business, operations, properties,
assets, revenues, earnings, liabilities, or condition (financial
or otherwise), of Seller or the Dealership.
(j) DUE DILIGENCE. Based on such examinations and inquiries as
Buyer shall have made or shall have caused to be made, the
business, operations, properties, assets, revenues, earnings,
liabilities, and condition (financial or otherwise) of Seller and
the Dealership shall be satisfactory to Buyer, in Buyer's sole
judgment and discretion.
(k) ENVIRONMENTAL SITE AUDIT. Buyer shall have received an
environmental site audit on the Premises. If the environmental
site audit discloses an environmental condition which could
reasonably be expected to result in any liability, cost, or
expense to the owner, occupier, or operator of the Premises
arising under any Environmental Laws, then the Seller shall cure
such environmental condition and obtain a "No Further Action"
letter from the Environmental Protection Agency and any
applicable state agency.
(l) ADDITIONAL INFORMATION. Seller and Shareholder shall furnish to
Buyer and Buyer's counsel such additional information,
certificates, and other documents as Buyer shall have reasonably
requested.
(m) POST 1997 LETTER. Price Waterhouse shall have prepared the Post
1997 Letter and delivered it to Buyer.
(n) PRICE WATERHOUSE CERTIFICATE. Seller and Shareholder shall have
executed a certificate in such form as Price Waterhouse shall
reasonably request.
(o) INVESTMENT LETTER. Seller shall have executed an Investment
Letter, in the form of Exhibit "J" hereto.
(p) REGISTRATION RIGHTS AGREEMENT. Seller shall have executed a
Registration Rights Agreement (the "Registration Rights
Agreement"), in the form of Exhibit "K" hereto.
(q) CLOSING. Upon closing of the transactions contemplated by this
Agreement, the conditions precedent to Buyer's obligation to
close shall be deemed to have been satisfied or waived, provided
that Buyer shall not be deemed to have waived the Buyer's rights
under paragraph 11 or 17 of this Agreement.
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16. CONDITIONS PRECEDENT TO OBLIGATION OF THE SELLER. The obligation of
the Seller to effect the transactions contemplated by this Agreement shall be
subject, at its option, to the fulfillment prior to the Closing Date of the
following conditions, each of which can be waived by the Seller:
(a) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. All
representations and warranties made by the Buyer in or pursuant
to this Agreement shall be true and correct on the date hereof
and on the Closing Date with the same affect as though such
representations and warranties were made on the Closing Date,
except to the extent that such representations and warranties
expressly relate to any earlier date.
(b) COMPLIANCE WITH AGREEMENT. The Buyer shall have performed and
complied with all of its obligations under this Agreement that
are to be performed or complied with by it on or prior to the
Closing Date.
(c) DELIVERY OF PURCHASE PRICE. The Seller shall have received the
Purchase Price.
(d) APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments and other documents required to be
delivered to Seller under this Agreement shall be satisfactory in
all reasonable respects to Seller and its counsel.
(e) REGISTRATION RIGHTS AGREEMENT. Buyer shall have executed the
Registration Rights Agreement.
(f) ADDITIONAL INFORMATION. Buyer shall furnish to Seller and
Seller's counsel such additional information, certificates, and
other documents as Seller shall have reasonably requested.
(g) CLOSING. Upon closing of the transactions contemplated by this
Agreement, the conditions precedent to Seller's obligation to
close shall be deemed to have been satisfied or waived, provided
that Seller shall not be deemed to have waived Seller's rights
under paragraph 11 or 18 of this Agreement.
(h) THIRD PARTY CONSENTS. This Agreement and the transactions
contemplated hereby shall have received all approvals, consents,
authorizations, and waivers from governmental and other
regulatory agencies and other third parties, including lenders,
lessors, and Honda, required to consummate the transactions
contemplated by this Agreement. Without limiting the generality
of the foregoing, Honda must approve Buyer, without conditions,
as the dealer for Las Vegas Honda in Las Vegas, Nevada prior to
Closing.
17. SELLER'S AND SHAREHOLDER'S OBLIGATIONS AFTER CLOSING.
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(a) INDEMNITY BY SELLER AND SHAREHOLDER. Seller and Shareholder
(jointly and severally) shall indemnify, defend and hold Buyer
harmless from and against any and all liabilities, damages,
losses, claims, costs and expenses, including (without
limitation) reasonable attorneys' fees (i) arising out of or
resulting from any breach of any warranty or representation made
by Seller or Shareholder in this Agreement or the non-performance
of any covenant or obligation of Seller or Shareholder under this
Agreement, (ii) arising out of or resulting from Seller's
operation of the Dealership prior to the Closing Date, and (iii)
any condition, activity or event occurring prior to the Closing
Date, including (without limitation) any condition, activity, or
event that violates any Environmental Laws.
Shareholder's liability under this indemnity shall be limited in
an aggregate amount equal to (i) the final purchase price paid by
Buyer to Seller, less (ii) any actual amounts recovered by Buyer
from Seller. Buyer shall be obligated to exhaust all recourse
and remedy under the law and in equity against Seller before any
recourse may be had against Shareholder under this indemnity.
(b) SELLER'S AND SHAREHOLDER'S NONDISCLOSURE OF CONFIDENTIAL
INFORMATION. Both the Seller and the Shareholder recognize and
acknowledge that they have in the past, they currently have, and
in the future may possibly have access to certain confidential
information of the Dealership, including, but not limited to,
lists of accounts, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the
Dealership (the "Confidential Information). The Seller and the
Shareholder agree that they will not disclose such Confidential
Information to any person or entity for any purpose or reason
whatsoever, except to authorized representatives of the Buyer or
Seller, or as required by law, unless such Confidential
Information becomes known to the public generally through no
fault of the Seller or Shareholder, or the parties mutually agree
to such disclosure. In the event of a breach or threatened breach
by the Seller or Shareholder of the provisions of this
subparagraph, the Buyer shall be entitled to an injunction
restraining the Seller or Shareholder from disclosing, in whole
or in part, such Confidential Information. Nothing herein shall
be construed as prohibiting the Buyer from pursuing any other
available remedy for such breach or threatened breach, including
the recovery of damages.
(c) HOLDBACKS AND INCENTIVES. All holdbacks and incentives
applicable to vehicles accepted by Seller prior to the Closing
Date or applicable to vehicles accepted by Buyer after the
Closing Date, which are received by Seller after Closing, will be
paid to the Buyer by Seller within ten (10) days after receipt
of such holdback or incentive by Seller.
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(d) SHAREHOLDER'S AND SELLER'S COVENANT NOT TO SOLICIT EMPLOYEES OF
BUYER. Neither the Shareholder nor the Seller will individually,
collectively or in conjunction with others, directly or
indirectly, for a term of three (3) years from the Closing Date
(the "Restricted Period"), within the Las Vegas or Henderson,
Nevada metropolitan areas (the "Restricted Area"), directly or
indirectly solicit or hire any employee of the Buyer or encourage
any such employee to leave such employment unless such employee
has already terminated such employment with the Buyer or the
Buyer and the Seller have mutually agreed in advance to the
solicitation or employment. The Seller and the Shareholder also
agree that in the event of breach of these covenants, the Buyer
may protect its property rights by injunction or otherwise.
18. BUYER'S OBLIGATIONS AFTER CLOSING.
(a) INDEMNITY BY BUYER. Buyer shall indemnify, defend and hold
Seller harmless from and against any and all liabilities,
damages, losses, claims, costs and expenses, including (without
limitation) reasonable attorneys' fees (i) arising out of or
resulting from any breach of warranty or representation made by
Buyer in this Agreement or the non-performance of any covenant or
obligation of Buyer under this Agreement, or (ii) arising out of
or resulting from Buyer's operation of a Honda dealership at the
Premises on or after the Closing Date.
(b) BUYER'S NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Buyer
recognizes and acknowledges that it has in the past, it currently
has, and in the future may possibly have access to the
Confidential Information. Prior to Closing and thereafter if the
transactions contemplated by this Agreement do not close, the
Buyer agrees that it will not disclose such Confidential
Information to any person or entity for any purpose or reason
whatsoever, except to affiliated entities and authorized
representatives of the Buyer, or as required by law, unless such
Confidential Information becomes known to the public generally
through no fault of the Buyer. In the event of a breach or
threatened breach by the Buyer of the provisions of this
subparagraph, the Seller shall be entitled to an injunction
restraining the Buyer from disclosing, in whole or in part, such
Confidential Information. Nothing herein shall be construed as
prohibiting the Seller from pursuing any other available remedy
for such breach or threatened breach, including the recovery of
damages.
19. EMPLOYEES.
(a) Seller will terminate Seller's employees as of the Closing
Date. Buyer shall have no obligation to employ any of Seller's
employees from and after the Closing Date, but may employ such
persons on such terms and conditions as may be mutually
agreeable with each employee and Buyer. At Buyer's
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request, Seller shall introduce Buyer to each of its
employees. Within ten (10) days after the date of this
Agreement, Seller shall deliver to Buyer a copy of all of
its employee manuals, policies and procedures. Except as
set forth on Schedule 9(a)(x), Seller has no employment
agreement, service contract, collective bargaining
agreement or other similar arrangement with any
employees, agents or independent contractors which is not
subject to termination without penalty upon not more than
thirty (30) days prior written notice. Seller shall pay
all of Seller's obligations to its employees arising
prior to the Closing Date, including (without limitation)
wages and related payroll expenses, vacation pay, sick
pay, medical and dental benefits, if any, and any other
benefits. If any of such liabilities and obligations
remain unpaid after the Closing Date, Seller shall
promptly pay them with their own funds and Buyer shall
have no liability therefor.
(b) EMPLOYEE LIST. To the extent not set forth in Schedule 9(a)(x),
Seller agrees to provide, at least ten (10) days prior to
Closing, a list of all employees of the Seller. Such list shall
contain the employee's name, employment description,
compensation or formula for computing such compensation, accrued
vacation pay and tentative vacation plans.
20. BROKER'S COMMISSION. Buyer and Seller agree to pay the Broker's
commission of $450,000 in the following proportions:
(a) Seller - $300,000
(b) Buyer - $150,000
21. TAXES.
(a) TAX RETURNS AND AUDITS. Seller represents and warrants that it
has paid all taxes, assessments and penalties due and payable by
it in connection with the Assets and the operation of Dealership.
Seller shall be responsible for any and all federal, state,
county and local taxes for any period prior to the Closing Date,
whether or not disputed. To the best of Seller's knowledge,
there are no present disputes as to taxes of any nature payable
in connection with the operation of the Dealership.
(b) SALES AND TRANSFER TAXES. All sales and transfer taxes, if any,
incurred in connection with the transfer of the Assets
contemplated hereby shall be borne by the Buyer.
(c) PROPERTY TAXES. All state and local real and personal property
taxes, if any, applicable to the Assets or due pursuant to the
Lease shall be prorated between Buyer and Seller as of the
Closing Date.
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(d) TAX CLEARANCES. Seller shall provide Buyer with certificates of
clearance or releases from any applicable governmental authority
showing that all sales and employment taxes owed by Seller have
been paid as of Closing.
22. USE OF THE NAME "LAS VEGAS HONDA". The Seller and the Shareholder
consent for all purposes to the Buyer's continued use of the "Las Vegas Honda"
name ( the "Name"). Buyer shall not be obligated to use the Name. Neither
Seller nor Shareholder shall be prohibited from using the Name if Buyer ceases
using the Name within the Restricted Area. The parties acknowledge that the
Dealership's television, radio and print advertisements aimed at the Restricted
Area may also be broadcast or distributed outside the Restricted Area, and the
Seller and the Shareholder agree such advertisements shall not be a violation of
this Agreement; and
(a) No separate consideration, over and above the Purchase Price, is
owed by the Buyer to the Seller or the Shareholder for this
consent to use the Name as provided herein.
(b) As soon as practicable after the Closing, the Seller agrees to
file any instruments or documents with the Nevada Secretary of
State or the County Clerk of Clark County , Nevada that are
necessary to allow Buyer to use the Name. The parties mutually
agree to take other reasonable steps as from time to time may be
appropriate to avoid confusion and mistake by third parties as to
their respective corporate identities.
(c) The Buyer's right to use the Name in the Restricted Area shall be
binding on the Seller as well as the Shareholder and on all of
their heirs, administrators, executors, assignees, licensees,
transferees and successors in interest, and every such sale,
assignment, license or transfer entered into by either the Seller
or the Shareholder shall be expressly subject to the Buyer's
continued right to use the Name in the Restricted Area as
provided in this Agreement.
(d) Any other provisions hereof to the contrary notwithstanding,
Buyer's right to continued use of the Name shall absolutely
terminate on the first to occur of (i) the termination of this
Agreement, (ii) the mutual agreement of the Seller and the Buyer
after Closing, or (iii) the Buyer's cessation of use thereof in
the Restricted Area.
23. TERMINATION. This Agreement may be terminated as follows:
(a) MUTUAL CONSENT. This Agreement may be terminated by the written
consent of the parties.
(b) BY THE BUYER. This Agreement may be terminated by written notice
of
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termination given by the Buyer to the Seller and Shareholder
if (i) all of the conditions set forth in paragraph fifteen (15)
are not satisfied or waived by Buyer prior to the Closing Date,
or (ii) there shall occur any material default or failure on the
part of the Seller or the Shareholder to perform any obligations
of Seller or Shareholder set forth herein, and such default or
failure has not been waived by Buyer.
(c) BY THE SELLER AND THE SHAREHOLDER. This Agreement may be
terminated by written notice of termination given by the Seller
and the Shareholder to the Buyer if (i) all of the conditions
set forth in paragraph sixteen (16) are not satisfied or waived
by Seller and Shareholder, prior to the Closing Date, or (ii)
there shall occur any material default or failure on the part of
the Buyer to perform any of its obligations set forth herein, and
such default or failure has not been waived by Seller and
Shareholder.
24. GENERAL PROVISIONS
(a) ENTIRE AGREEMENT. This Agreement contains and constitutes the
entire agreement between the parties regarding the subject matter
hereof and supersedes all prior agreements and understandings
between the parties relating to the subject matter of this
Agreement. There are no agreements, understandings, restrictions,
warranties or representations between the parties relating to the
subject matter hereof other than those set forth in this
Agreement. This instrument is not intended to have any legal
effect whatsoever, or to be a legally binding agreement, or any
evidence thereof, until it has been signed by the Seller, the
Shareholder and the Buyer.
(b) THIRD PARTY CONSENTS. The Seller and the Buyer mutually agree
to cooperate and use their respective best efforts to prepare all
documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and
governmental bodies as may be necessary to consummate the
transactions contemplated by this Agreement.
(c) EXHIBITS. Preliminary drafts of all Schedules (except Schedules
1(h) and 5) and Exhibits C,D,E, and F shall be prepared by the
Seller on or before January 15, 1998, and delivered to Buyer for
Buyer's review. Preliminary drafts of Schedules 1(h) and 5 and
Exhibits A, B, G, H and I shall be prepared by Buyer on or before
January 15, 1998, and delivered to Seller for Seller's review.
Final Schedules and Exhibits shall be prepared by the party that
prepared the preliminary drafts and approved by all of the
parties prior to Closing. When approved by the parties to this
Agreement, the schedules and exhibits shall be made a part of
this Agreement by reference.
SCHEDULES:
Schedule 1 (a) - Fixed Assets
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Schedule 1 (g) - Intellectual Property
Schedule 1 (h) - Contracts
Schedule 5 - Allocation of Purchase Price
Schedule 9 (a)(vi) - Licenses
Schedule 9 (a)(ix) - Litigation
Schedule 9 (a)(x) - Employment Contracts and Benefit Plans
Schedule 9 (a)(xii) - Consents to Consummation
Schedule 9 (a)(xvi) - Borrowed Monies
Schedule 9 (a)(xvii) - No Changes
Schedule 12(k) - Insurance
EXHIBITS:
Exhibit "A" - The Lease
Exhibit "B" - The Note
Exhibit "C" - Warranty Bill of Sale
Exhibit "D" - Assignment
Exhibit "E" - Seller's Certificate
Exhibit "F" - Seller's Counsel Opinion
Exhibit "G" - Guaranty of the Note
Exhibit "H" - Guaranty of the Lease
Exhibit "I" - Buyer's Counsel Opinion
Exhibit "J" - Investment Letter
Exhibit "K" - Registration Rights Agreement
(d) FURTHER ACTIONS. From time to time, as and when requested by any
party hereto, the other parties shall execute and deliver, or
cause to be executed and delivered, all such documents and
instruments and shall take, or cause to be taken, all such
further or other actions as the requesting party may reasonably
deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
(e) PUBLICITY. The parties hereto agree that no public release or
announcement concerning the terms of the transactions
contemplated by this Agreement shall be issued by any party
without the prior written consent of the other parties (which
consent shall not unreasonably be withheld), except as such
release or announcement may be required by law, in which case the
party required to make the release or announcement shall allow
the other parties reasonable time to comment on such release or
announcement in advance of such issuance.
(f) AMENDMENT. This Agreement may not be amended, modified or
terminated except by an instrument in writing signed by all the
parties to this Agreement.
(g) GOVERNING LAW. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of Nevada.
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(h) CONSTRUCTION. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter gender
thereof or to the plurals of each, as the identity of the person
or persons or the context may require. The descriptive headings
contained in this Agreement are for reference purposes only and
are not intended to describe, interpret, define or limit the
scope, extent or intent of this Agreement or any provision
contained in this Agreement.
(i) INVALIDITY. If any provision contained in this Agreement shall
for any reason be held to be invalid, illegal, void or
unenforceable in any respect, such provision shall be deemed
modified so as to constitute a provision conforming as nearly as
possible to such invalid, illegal, void or unenforceable
provision while still remaining valid and enforceable; and the
remaining terms or provisions contained herein shall not be
affected thereby.
(j) BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and
their respective heirs, executors, administrators, successors,
and permitted assigns. Buyer may assign its rights under this
Agreement to an affiliated entity, and the Buyer and its assignee
shall be fully obligated, responsible and liable for performance
of the Buyer's obligations hereunder regardless of any such
assignment. The Seller and the Shareholder may not assign any of
their rights or delegate any of their obligations hereunder. Any
assignment in violation hereof shall be void.
(k) SURVIVAL OF OBLIGATIONS. To the extent necessary to carry out
the terms and provisions of this Agreement, the obligations and
rights arising from or related to this Agreement shall survive
the Closing and shall not be merged into the various documents
executed and delivered at Closing. Seller and Shareholder shall
be jointly and severally liable for all of Seller's obligations
under this Agreement.
(l) ATTORNEYS' FEES. In the event any party institutes litigation to
enforce or protect its rights under this Agreement, the party
prevailing in any such litigation shall be entitled, in addition
to all other relief, to reasonable attorneys' fees, out-of-pocket
costs and disbursements relating to such litigation.
(m) NOTICES. All notices and other communications hereunder shall
be in writing, dated with the current date of such notice and
signed by the party giving such notice. Notices shall be deemed
to be duly received (i) on the date given or delivered personally
or by telecopy or telex, or (ii) on the earlier of the date
received or three business days after
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proven mailing, when mailed by registered or certified
mail (return receipt requested), to the parties at the
following addresses (or at such other address for a party
as shall be specified by like notice):
if to Buyer:
Sahara Imports, Inc.
1201 S. Taylor Street
Amarillo, Texas 79101
Attn: R. Wayne Moore
if to Seller:
Vinci, Inc.
1700 E. Sahara
Las Vegas, Nevada 89104
Attn: Ronald C. Vinci
if to Shareholder:
Ronald C. Vinci
578 Johnson Drive
Aspen, Colorado 81611
(n) DEFINITION OF KNOWLEDGE. As used in this Agreement, the Seller's
or the Shareholder's "knowledge" shall include the knowledge of
the Shareholder and the employees and agents of the Seller. Each
representation and warranty that is limited to the Seller's or
the Shareholder's "knowledge" is made with the understanding that
the Seller or the Shareholder has examined whatever sources of
information as are in the possession or control of the Seller or
the Shareholder in order to verify the truth and accuracy of such
representation and warranty.
(o) EXPENSES. Whether or not the transactions contemplated hereby
are consummated, each of the parties to this Agreement shall be
responsible for his or its own costs and expenses incurred in
connection with the preparation and negotiation of this
Agreement.
(p) TIME IS OF THE ESSENCE. Time shall be of the essence with respect
to this Agreement and the consummation of the transactions
contemplated hereby.
(q) WAIVER. No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving
such waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default of
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the same or similar nature.
(r) MEDIATION. If a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be
settled through negotiation, the parties agree first to try in
good faith to settle the dispute by mediation administered by the
American Arbitration Association under its Commercial Mediation
Rules before restoring to arbitration, litigation, or some other
dispute resolution procedure.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
BUYER: SELLER
SAHARA IMPORTS, INC., VINCI
a Nevada corporation a Nevada corporation
By: By:
-------------------------- ---------------------------
Bill Gilliland, President Ronald C. Vinci, President
SHAREHOLDER:
------------------------------
Ronald C. Vinci
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Exhibit 2.17
AMENDMENT TO ASSET PURCHASE AGREEMENT
This Amendment to Asset Purchase Agreement (the "Amendment") is made and
entered into this 29th day of January, 1998, by and among Vinci, Inc.
("Seller"), Ronald C. Vinci ("Shareholder"), and Sahara Imports, Inc.
("Buyer").
RECITALS
A. By that certain Asset Purchase Agreement (the "Purchase Agreement")
dated December 17, 1997, by and among Seller, Shareholder, and Buyer, Seller
agreed to sell certain assets to Buyer.
B. Seller, Shareholder, and Buyer desire to modify the Purchase
Agreement.
AGREEMENT
In consideration of the mutual agreements set forth in this Amendment,
Seller, Shareholder, and Buyer agree as follows:
1. The first sentence of paragraph 3 of the Purchase Agreement is
deleted in its entirety and the following is substituted therefor:
Except as set forth in subparagraphs 3(a), 3(b), 3(c) and
3(d) (the "Assumed Liabilities"), Buyer is not assuming or
undertaking to assume any liabilities, obligations or
expenses of the Seller, whether arising out of the conduct
or operation of the Dealership or otherwise, including
(without limitation) any liability arising from a warranty
or incentive audit, any liability related to vehicle titles,
any environmental liability, any accounts payable, any
obligations under any retirement, profit sharing or defined
benefit plan, any taxes, any contractual claims or
obligations, or any payroll obligations (including accrued
vacation or sick leave), whether disclosed, unknown,
contingent or fixed.
2. The following words are added after the descriptive heading of
paragraph 12:
Seller agrees to do the following prior to Closing:
3. The following words are added after the descriptive heading of
paragraph 13:
Buyer agrees to do the following prior to Closing:
4. The following words are added after the descriptive heading of
paragraph 14:
<PAGE>
Buyer and Seller agree to do the following prior to Closing:
5. Subparagraph 14(e) of the Purchase Agreement is deleted in its
entirety and the following is substituted therefor:
In the event Buyer and Seller enter into a management
agreement that provides for Buyer to manage the Dealership
prior to the Closing Date (the "Management Agreement"), on
the effective date of the Management Agreement, Buyer shall
purchase from Seller (for cash, free of all liens, claims
and other encumbrances, and for values determined in
accordance with subparagraph 14(c)) Seller's parts and used
vehicles. Notwithstanding anything contained in this
Agreement to the contrary, (a) in the event this Agreement
expires or terminates, Seller shall repurchase from Buyer
(for cash, free of all liens, claims and other encumbrances,
and for values determined in accordance with subparagraph
14(c)) any of the parts or used vehicles purchased by Buyer
that are still owned by Buyer, and (b) in the event the
transactions contemplated by this Agreement close, the Parts
and Used Vehicles shall not include any parts or used
vehicles that have been purchased by Buyer in accordance
with this subparagraph 14(e).
6. The following words are added after the descriptive heading of
paragraph 17:
Seller and Shareholder agree to do the following after
Closing:
7. The following words are added after the descriptive heading of
paragraph 18:
Buyer agrees to do the following after Closing:
8. This Amendment shall be governed by and construed and enforced in
accordance with the laws of the State of Nevada.
9. This Amendment shall be binding upon and shall inure the benefit
of the parties hereto and their respective heirs, administrators, executors,
successors and assigns.
10. Except as specifically set forth herein, all other provisions of
the Purchase Agreement remain in full force and affect.
VINCI, INC.
By:
--------------------------------
Ronald C. Vinci, President
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<PAGE>
--------------------------------
Ronald C. Vinci
SAHARA IMPORTS, INC.
By:
--------------------------------
Bill Gilliland, President
3
<PAGE>
Exhibit 4.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into the 5th day of January, 1998, by and between CROSS-CONTINENT AUTO
RETAILERS, INC., a Delaware corporation (the "Company"), and The Chaisson
Family Trust R-501 (the Stockholder").
INTRODUCTION
In accordance with the Amended and Restated Stock Purchase Agreement
dated November 1, 1997, as amended to the date hereof (the "Stock Purchase
Agreement"), by and among the Company, the Stockholder, and JRJ Investments,
Inc., the Stockholder is being issued shares of restricted common stock, par
value $.01 per share, of the Company (the "Common Stock") in connection with
the consummation of the transactions contemplated thereby.
As a condition to the consummation of the transactions contemplated by
the Stock Purchase Agreement, the Company and the Stockholder are entering
into this Agreement.
The parties hereto agree as follows:
1. DEFINITIONS. As used herein, the following terms have the following
respective meanings:
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Distribution Period" means (a) in the case of a distribution of
Registrable Shares in a firm commitment underwritten public offering, the
period of time as each underwriter has completed the distribution of all
securities purchased by it, but in any case not more than thirty (30) days,
or (b) in the case of any other distribution of Registrable Shares, the
period ending on the earlier of (i) the sale of all Registerable Shares
covered by such registration, or (ii) twenty-one (21) days following the
effective date of the registration statement utilized in connection with
such registration under the Securities Act.
"Registrable Shares" means the shares of Common Stock issued to the
Stockholder pursuant to the Stock Purchase Agreement, including any
additional shares issued as a stock dividend thereon or any shares issued
as the result of a stock split (including reverse stock split),
recapitalization, reorganization, stock exchange or other combination).
"Securities Act" means the Securities Act of 1933, as amended.
2. INCIDENTAL REGISTRATION.
a. If the Company proposes to register any Common Stock under the
Securities Act (other than on Forms S-4, S-8 or any other form which
does not permit registration of
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securities by selling stockholders for sale to the public for
cash) in connection with the proposed offer and sale for cash
either for its own account or on behalf of any holder of Common
Stock, it will give prompt written notice to the Stockholder of
its intention to do so. Upon the Stockholder's written request
to the Company, given within twenty (20) days after receipt of
any such notice, to register any of such Stockholder's
Registrable Shares, the Company will use reasonable efforts to
cause the Registrable Shares as to which registration shall have
been so requested to be included in the shares of Common Stock to
be covered by the registration statement proposed to be filed by
the Company; provided that nothing set forth in this Agreement
shall prevent the Company from, at any time, withdrawing,
abandoning or delaying any registration of such Common Stock.
b. The Company shall have the sole right to select the underwriter or
underwriters for any underwritten offering, including (without
limitation) the managing underwriter. The managing underwriter for
such offering shall have the authority, in its sole discretion, to
reduce the number of Registrable Shares to be included in such
registration if and to the extent that it advises the Company in
writing that in its opinion that inclusion of such Registrable Shares
would adversely affect the marketing of the other Common Stock to be
sold thereunder or would limit the number of shares of Common Stock to
be included in such registration by the Company. Any such reduction
in the shares included in any such offering shall be effected (i)
first, by excluding (A) shares ("Piggyback Shares") of Common Stock
that otherwise would be included by virtue of incidental or piggyback
registration rights (but not demand registration rights) granted to
stockholders of the Company (including the Stockholder), and (B)
shares ("Executive shares") of Common Stock that are beneficially
owned by Bill Gilliland or Robert W. Hall and that otherwise would be
included, which exclusion shall be effected on a pro rata basis based
upon the number of shares of Common Stock so requested to be
registered in such offering by all such stockholders proposing to sell
Piggyback Shares or Executive Shares, and (ii) second, only to the
extent necessary and after the exclusion of all Piggyback Shares and
Executive Shares, by excluding shares of Common Stock included in such
registration by the Company and any stockholder of the Company who
shall have exercised a demand registration right in connection with
such offering, which exclusion shall be effected on a pro rata basis
based upon the number of shares of Common Stock proposed to be
registered on behalf of the Company and on behalf of any such holder
of demand registration rights, unless the Company and the holder of
such demand registration rights otherwise agree.
c. On any offering that is not underwritten, the Company shall have the
authority, in its sole discretion, to reduce the number of Registrable
Shares to be included in such registration if and to the extent that
it, in good faith, determines that inclusion of such Registrable
Shares would adversely affect the marketing of the other Common Stock
to be sold thereunder or would limit the number of shares of Common
Stock to be included in such registration by the Company. Any such
reduction in the shares included in any such offering shall be
effected (i) first, by excluding Piggyback Shares and Executive
Shares, which exclusion shall be effected on a pro rata basis based
upon the number of shares of Common Stock so requested to be
registered in such offering
2
<PAGE>
by all such stockholders proposing to sell Piggyback Shares or
Executive Shares, and (ii) second, only to the extent necessary
and after the exclusion of all Piggyback Shares and Executive
Shares, by excluding shares of Common Stock included in such
registration by the Company and any stockholder of the Company
who shall have exercised a demand registration right in
connection with such offering, which exclusion shall be effected
on a pro rata basis based upon the number of shares of Common
Stock proposed to be registered on behalf of the Company and on
behalf of any such holder of demand registration rights, unless
the Company and the holder of such demand registration rights
otherwise agree.
d. If any registration pursuant to this Section 2 shall be underwritten,
in whole or in part, the Company or the managing underwriter or
underwriters may require that the Registrable Shares requested for
inclusion pursuant to this Section 2 be included in the underwriting
on the same terms and conditions as the securities otherwise being
sold through the underwriters.
3. PREPARATION AND FILING. If and whenever the Company is under an
obligation pursuant to the provisions of Section 2 to effect the
registration of any Registrable Shares, the Company shall, as expeditiously
as practicable:
a. prepare and diligently pursue the filing with the Commission of a
registration statement with respect to such securities and use
reasonable efforts to cause such registration statement to become and
remain effective for the Distribution Period, but no longer;
b. notify Stockholder of the effectiveness of the registration statement
and prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the Distribution Period, but no longer;
c. furnish to the Stockholder such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as the Stockholder may reasonably request in order to
facilitate the public sale or other disposition of such Registrable
Shares;
d. use reasonable efforts to register or qualify the Registrable Shares
covered by such registration statement under the securities or "blue
sky" laws of such states as the Stockholder shall reasonably request
(provided, that the Company shall not be required to consent to
general service of process for all purposes in any jurisdiction where
it is not then qualified) and do any and all other acts or things
which may be necessary or advisable to enable the Stockholder to
consummate the public sale or other disposition in such jurisdictions
of such securities;
e. notify the Stockholder at any time during the Distribution Period when
a prospectus relating thereto covered by such registration statement
is required to be delivered under
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<PAGE>
the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of
such Stockholder, prepare and furnish to such Stockholder a
reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall
not include an 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 not misleading in the light of the
circumstances then existing;
f. use reasonable efforts to furnish, at the request of the Stockholder
on the date that such Registrable Shares are delivered to the
underwriters for sale in connection with a registration pursuant to
Section 2, if such securities are being sold through underwriters, or,
if such securities are not being sold through underwriters, on the
date that the registration statement with respect to such securities
becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration,
stating that such registration statement has become effective under
the Securities Act and that (A) to the best of such counsel's
knowledge, no stop order suspending the effectiveness thereof has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act, (B) the registration
statement, the related prospectus, and each amendment or supplement
thereof, comply as to form in all material respects with the
requirements of the Securities Act and the applicable rules and
regulations of the Commission thereunder (except no opinion or
statement is required regarding financial statements and other
financial and statistical data), and (C) to such other matters as may
reasonably be requested by counsel for the underwriters, if any, and
(ii) a letter dated such date, from the independent certified public
accountants of the Company, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the
opinion of such accountants, the financial statements of the Company
included or incorporated by reference in the registration statement or
the prospectus, or any amendment or supplement thereof, comply as to
form in all material respects with the applicable accounting
requirements of the Securities Act, and such letter shall additionally
cover such other financial matters with respect to the registration in
respect of which such letter is being given as such underwriters, if
any, may reasonably request.
g. cause all included Registrable Shares to be listed on each securities
exchange on which similar securities issued by the Company are then
listed, and, if not so listed, to be listed on the NASD automated
quotation system;
h. provide a transfer agent and registrar for all included Registrable
Shares not later than the effective date of such registration
statement;
i. enter into such customary agreements, take all such other actions, and
cause the
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Company's officers, directors, employees and independent
accountants to supply all information as Stockholder may
reasonably request in order to expedite or facilitate the
disposition of the registered Registrable Shares;
j. comply with all applicable rules and regulations of the Commission;
and
k. in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending
or preventing the use of any related prospectus or suspending the
qualification of any Registrable Shares included in such registration
statement for sale in any jurisdiction, the Company shall use
reasonable efforts to promptly obtain the withdrawal of such order.
Notwithstanding anything to the contrary contained herein, the
Company shall have the right to deregister any Registerable
Shares that remain unsold at the conclusion of any Distribution
Period.
4. STOCKHOLDER'S LOCK-UP; COOPERATION. If any Registrable Shares of the
Stockholder are included in an underwritten registration pursuant to
Section 2, the Stockholder, as a condition to receiving the rights granted
hereunder, may be required to, and if required the Stockholder shall, enter
into an agreement with the managing underwriter or underwriters (a "Lock-up
Agreement"), pursuant to which such Stockholder shall refrain from selling
any shares of Common Stock not included in such registration during the
Distribution Period and for a period of up to 180 days following the
effective date of such registration; provided, however, that such Lock-up
Agreement shall not restrict such Stockholder from selling such shares for
a period longer than that imposed upon Bill Gilliland or Robert W. Hall
pursuant to a similar lock-up agreement entered into by Bill Gilliland or
Robert W. Hall in connection with such distribution of Common Stock. In
connection with each registration pursuant to Section 2 hereof, the
Stockholder selling Registrable Shares shall furnish in writing to the
Company and any underwriter participating in such offering such information
with respect to themselves and the proposed distribution by them as shall
be reasonably necessary in order to assure compliance with Federal and
applicable state securities laws.
5. UNDERWRITING AGREEMENT. In connection with each registration pursuant to
Section 2 covering an underwritten public offering, the Company and the
Stockholder agree to enter into a written agreement with the managing
underwriter or underwriters in such form and containing such provisions as
are usual and customary in the securities business for such an arrangement
between reputable underwriters and companies of the Company's size and
investment stature; provided that such agreement shall not contain any such
provision applicable to the Company or the Stockholder which is
inconsistent with the provisions of this Agreement; and provided, further,
that the time and place of the closing under said underwriting agreement
shall be as mutually agreed upon between the Company and such managing
underwriter.
6. EXPENSES. With respect to each registration pursuant to Section 2
hereof, the Company shall bear the following fees, costs and expenses: all
registration and filing fees, fees of the
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National Association of Securities Dealers, Inc., printing
expenses, fees and disbursements of counsel and accountants for
the Company, fees and disbursements of counsel for the
underwriter or underwriters of the securities included in such
registration (if the Company and/or selling security holders are
required to bear such fees and disbursements), all internal
Company expenses, and all reasonable legal fees and disbursements
and other reasonable expenses of complying with state securities
or blue sky laws of any jurisdiction in which the securities to
be offered are to be registered or qualified. Fees and
disbursements of counsel and accountants for the Stockholder,
underwriting discounts and commissions and transfer taxes
relating to the Registrable Shares included in the offering by
the Stockholder, and any other expenses incurred by the
Stockholder not expressly included above, shall be borne by such
Stockholder.
7. INDEMNIFICATION.
a. In the event of any registration of any Registrable Shares under the
Securities Act pursuant to this Agreement or registration or
qualification of any Registrable Shares under state securities or
"blue sky" laws pursuant to this Agreement, the Company shall
indemnify and hold harmless the Stockholder, its trustees,
beneficiaries, agents, and consultants against any losses, claims,
damages or liabilities, joint or several, to which the Stockholder or
such other person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in
any registration statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement
thereto, or any document prepared or furnished by the Company incident
to the registration or qualification of any Registrable Shares
pursuant to this Agreement, 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 not
misleading or, with respect to any prospectus, necessary to make the
statements therein in light of the circumstances under which they were
made, not misleading, or any violation by the Company of the
Securities Act or state securities or "blue sky" laws applicable to
the Company and relating to action or inaction required of the Company
in connection with such registration or qualification under such state
securities or "blue sky" laws; and shall reimburse the Stockholder or
such other person for any legal or any other expenses reasonably
incurred by him in connection with investigating or defending any such
loss, claim, damage, liability or action; provided that the Company
shall not be liable (i) in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in the registration statement, any preliminary
prospectus or final prospectus or any amendment or supplement or any
document incident to the registration or qualification of any
Registrable Shares pursuant to this Agreement in reliance upon and in
conformity with written information furnished to the Company by the
Stockholder, or other person on behalf of the Stockholder, or such
underwriter specifically for use in the preparation thereof, and (ii)
to any broker or other person acting on behalf of such Stockholder to
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the extent that any such loss, claim, damage or liability arises out
of or is based upon any representation or other statement of such
broker or other person that is not in conformity with the preliminary
prospectus or final prospectus.
b. Stockholder hereby indemnifies and holds harmless the Company, each
director of the Company, each officer of the Company who shall sign
such registration statement and any person who controls the Company
within the meaning of the Securities Act; and, before Registrable
Shares held by such Stockholder shall be included in any registration
pursuant to this Agreement, any underwriter acting on such
Stockholder's behalf shall agree to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who
shall sign such registration statement and any person who controls the
Company within the meaning of the Securities Act (in each case in the
same manner and to the same extent as set forth in (a) above) with
respect to any untrue statement or omission from such registration
statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, if such untrue
statement or omission was made in reliance upon and in conformity with
written information furnished to the Company by such Stockholder
specifically for use in the preparation of such registration
statement, preliminary prospectus, final prospectus or amendment or
supplement; provided that the maximum amount of liability in respect
of such indemnification shall be limited, in the case of the
Stockholder who, at any time during the registration or the year
preceding the registration, was not an officer or director of the
Company or any of its subsidiaries, to the amount paid for such
Registrable Shares upon the sale thereof pursuant to such
registration.
c. Each party entitled to indemnification hereunder (the "indemnified
party") shall give notice to the party required to provide
indemnification (the "indemnifying party") promptly after such
indemnified party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the indemnifying party (at
its expense) to assume the defense of any claim or any litigation
resulting therefrom; provided that counsel for the indemnifying party,
who shall conduct the defense of such claim or litigation, shall be
reasonably satisfactory to the indemnified party, and the indemnified
party may participate in such defense, but only at such indemnified
party's expense; and provided, further, that the failure of any
indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 7 except
to the extent that the omission results in a failure of actual notice
to the indemnifying party and such indemnifying party is damaged as a
result of the failure to give notice. It is understood that the
indemnifying party shall not, in connection with any action or related
actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such
jurisdiction to act as counsel for the indemnified party. No
indemnifying party, in the defense of any such claim or litigation,
shall, except with the consent of each indemnified party, consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in
respect to such claim or litigation.
7
<PAGE>
8. RULE 144 MATTERS. For so long as the Stockholder holds Registrable
Shares, or shares of Common Stock that will become Registrable Shares, that
may not be sold, without restriction, under Rule 144 under the Securities
Act or any successor rule, the Company shall (a) make and keep public
information generally available, as those terms are defined in Rule 144
under the Securities Act, and (b) file with the Commission in a timely
manner reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended.
9. REPRESENTATIONS AND WARRANTIES.
a. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby
represents and warrants to the Stockholder that:
i. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part
of the Company. The Company has all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby and has duly executed and
delivered this Agreement. This Agreement constitutes the valid
and binding obligation of the Company, enforceable against the
Company in accordance with its respective terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws of general applicability relating to or
affecting creditors' rights and to general equitable principles.
ii. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will
(A) conflict with or result in a breach of the charter, by-laws
or other constitutive documents of the Company, (B) conflict with
or result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the provisions of any
note, bond, lease, mortgage, indenture, license, franchise,
permit, agreement or other instrument or obligation to which the
Company is a party, or by which the Company or the Company's
properties or assets may be bound or affected, except for such
conflict, breach or default as to which requisite waivers or
consents shall be obtained before the Closing, (C) violate any
law, statute, rule or regulation or order, writ, injunction or
decree applicable to the Company or the Company's properties or
assets, or (D) result in the creation or imposition of any
security interest, lien or other encumbrance upon any of the
Company's properties or assets. No consent or approval by, or
any notification of or filing with, any person, firm,
corporation, partnership, joint venture, association or entity
(governmental or private) (each, a "person" and collectively,
"persons") is required in connection with the execution, delivery
and performance by the Company of this Agreement or the
consummation of the transactions contemplated hereby, except as
set forth in the Stock Purchase Agreement.
b. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
represents
8
<PAGE>
and warrants to the Company that:
i. The Stockholder has all requisite power, capacity and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby and has duly executed and delivered this
Agreement. This Agreement constitutes the valid and binding
obligation of the Stockholder, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights and to
general equitable principles.
ii. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby nor
compliance by the Stockholder with any of the provisions hereof
will (A) conflict with or result in a default (or give rise to
any right of termination, cancellation or acceleration) under any
of the provisions of any note, bond, lease, mortgage, indenture,
license, franchise, permit, agreement or other instrument or
obligation to which the Stockholder is a party, or by which the
Stockholder or the Stockholder's properties or assets may be
bound or affected, except for such conflict, breach or default to
which requisite waivers or consents shall be obtained before the
Closing, (B) violate any law, statute, rule, regulation or order,
writ, injunction, or decree applicable to the Stockholder or the
Stockholder's properties or assets, or (C) result in the creation
or imposition of any security interest, lien or other encumbrance
upon any property or assets of the Stockholder. No consent or
approval by, or any notification of or filing with, any person is
required in connection with the execution, delivery and
performance by the Stockholder of this Agreement or the
consummation of the transactions contemplated hereby, except as
set forth in the Stock Purchase Agreement.
10. TERMINATION OF REGISTRATION RIGHTS. The Stockholder shall not be entitled
to execute any registration right provided for in this Agreement after the
second anniversary of the date of this Agreement.
11. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Company and the Stockholder with respect to the
transactions contemplated hereby and supersedes all prior agreements
or understandings among the parties with respect thereto.
b. HEADINGS. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provision of
this Agreement.
c. NOTICES. All notices or other communications provided for in this
Agreement shall be in writing and shall be sent by confirmed telecopy
to the telecopy number set forth below (with an undertaking to provide
a hard copy) or delivered by hand or sent by overnight courier service
prepaid to the address specified below, or to such other
9
<PAGE>
telecopy number or address as the party to whom notice is to be
given may have furnished to the other party in writing in
accordance with this subsection.
IF TO THE COMPANY:
Cross-Continent Auto Retailers, Inc.
1201 S. Taylor
Amarillo, Texas 79101
ATTN: R. Wayne Moore
Telecopy Number: 806/374-3818
IF TO THE STOCKHOLDER:
The Chaisson Family Trust R-501
40 Innisbrook
Las Vegas, Nevada 89113
ATTN: James J. Chaisson, Sr.
Telecopy Number: 702/227-0171
WITH A COPY TO:
Douglas Crosby, Esq.
Jones, Jones, Close & Brown
3773 Howard Hughes Parkway, Third Floor South
Las Vegas, NV 89109
Telecopy Number: 702/734-2722
d. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall
constitute but one agreement.
e. AMENDMENTS. This Agreement shall not be altered or otherwise amended
except pursuant to an instrument in writing signed by the Company and
the Stockholder.
f. TRANSFERABILITY. The registration and other rights granted to the
Stockholder hereunder are non-transferable and cannot be assigned or
transferred in any manner to any third party without the prior written
consent of the Company.
g. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA.
COMPANY: CROSS-CONTINENT AUTO RETAILERS, INC.
10
<PAGE>
By:
-------------------------------
Bill Gilliland, Chairman
STOCKHOLDER: THE CHAISSON FAMILY
TRUST R-501
By:
-------------------------------
James J. Chaisson, Sr., Trustee
11
<PAGE>
Exhibit 10-40
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement") is made and entered into as
of the 16th day of October, 1997, by and between Cross-Continent Auto
Retailers, Inc., a Delaware corporation ("C-CAR"), and Tar-Car, Inc., a
California corporation (the "Company").
RECITALS
A. The Company owns a Toyota franchised automobile dealership located
at 4555 Mission Bay Drive, San Diego, California 92109 and a used car lot
located at 7777 Convoy Court, San Diego, California 92111 (hereinafter
referred to individually and collectively as the "Dealership").
B. The Company operates the Dealership under the names
"Toyota-By-The-Bay" and "Auto Central Used Car Sales and Credit Union Buying
Service."
C. The Company desires for C-CAR to manage the Dealership, and C-CAR
desires to manage the Dealership, for the consideration and upon the terms
set forth in this Agreement.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, C-CAR and the Company agree as follows:
1. MANAGEMENT OF THE DEALERSHIP. The Company hereby engages C-CAR as
an independent contractor to manage the Dealership. C-CAR shall assume
management responsibilities of the Dealership effective November 1, 1997 (the
"Effective Date"). Subject to paragraph 3 of this Agreement, C-CAR shall be
responsible for (a) supervising the daily operations of the Dealership, and
(b) making all management and operating decisions, including (without
limitation) decisions concerning sales practices, inventory management, and
personnel matters.
2. TERM. The term of this Agreement shall begin on the Effective
Date and shall terminate (the "Termination Date") upon the earlier of (a) the
closing of the transactions contemplated by that certain Stock Purchase
Agreement dated October 16, 1997, by and among Cross-Continent Auto
Retailers, Inc., Thomas A. Randt ("Randt"), Ronald J. Blomquist
("Blomquist"), and the Company (the "Stock Purchase Agreement"), or (b) the
termination of the Stock Purchase Agreement in accordance with the terms and
provisions thereof, including (without limitation) the termination of the
Stock Purchase Agreement for C-CAR's failure to receive the approval of (i)
Toyota Motor Sales, USA, (ii) the FTC and the Justice Department under the
Hart-Scott-Rodino Act, or (iii) the California Department of Motor Vehicles.
3. CONDUCT OF THE BUSINESS OF THE DEALERSHIP.
<PAGE>
(a) C-CAR shall conduct the Dealership's business according to the
ordinary and usual course of the Dealership's business reasonably
consistent with past and current practices, and shall not allow
the Dealership to engage in any practice, take any action, or
enter into any transaction outside of the ordinary course of
business without the prior written consent of the Company.
(b) In order to assist in implementing the terms and provisions of
the Stock Purchase Agreement, C-CAR shall open additional
Dealership bank accounts. Until Closing (as defined in the Stock
Purchase Agreement), all payments and receipts arising from the
operation of the Dealership (i) prior to November 1, 1997, shall
be made out of and into the existing Dealership bank accounts,
and (ii) on and after November 1, 1997, shall be made out of and
into the new Dealership bank accounts.
4. MANAGEMENT FEE.
(a) As consideration for C-CAR managing the Dealership during the
term of this Agreement, the Company shall pay C-CAR a fee in cash
(the "Management Fee") in an amount equal to the monthly net
income, before depreciation, amortization, income taxes and other
non-cash charges, resulting from the business and operation of
the Dealership. Notwithstanding anything contained in this
Agreement to the contrary, any costs or expenses that are not
directly related to the operation of the Dealership, any
deferred costs or expenses of operating the Dealership that were
incurred prior to the Effective Date, and any costs or expenses
of operating the Dealership that are incurred after the
Termination Date, shall be excluded from the calculation of the
Management Fee. The Management Fee for any partial calendar
month shall be prorated. The Company shall pay C-CAR the
Management Fee for each month or partial month during the term of
this Agreement within fifteen (15) days after the end of such
month or partial month.
(b) C-CAR and the Company agree that the profit or loss on any
vehicle sold by the Dealership prior to 12:00 p.m. October 31,
1997, that is reflected on the Dealership's operating statements
for October, 1997 or any prior month, shall be excluded from the
calculation of any Management Fee.
(c) In the event the Stock Purchase Agreement expires or terminates,
C-CAR shall return the management of the Dealership to the
Company and if the Net Worth (as defined in the Stock Purchase
Agreement) is less than $825,000, then C-CAR shall pay the
Company an amount equal to the difference between (i) $825,000,
less any depreciation, amortization, income taxes, and other
non-cash charges that accrue during the term of this Agreement,
and (ii) the Net Worth, within thirty (30) days after the
expiration or termination of the Stock Purchase Agreement.
5. ADVANCEMENT OF OPERATING CAPITAL. In the event C-CAR advances any
operating capital
2
<PAGE>
to the Company during the term of this Agreement and the Stock Purchase
Agreement expires or terminates, the Company shall reimburse the amount of
such advances to C-CAR within thirty (30) days after the expiration or
termination of the Stock Purchase Agreement.
6. LICENSES OF THE DEALERSHIP. The Company agrees to allow C-CAR to
use the Dealership's dealer numbers, dealer licenses, and dealer tags.
7. COOPERATION. The Company shall cause the Dealership to fully
cooperate with C-CAR in connection with C-CAR's operation of the Dealership.
8. CORPORATE EXISTENCE OF THE COMPANY. The Company shall maintain
its corporate existence and good standing in the State of California.
9. INDEMNIFICATION BY C-CAR. C-CAR shall indemnify, defend and hold
the Company and its officers, directors, shareholders, employees, agents and
representatives harmless from and against any and all losses, damages,
claims, actions, suits, proceedings, liabilities, obligations, costs and
expenses, including reasonable attorneys' fees, arising out of or based upon
any breach of this Agreement by C-CAR which occurred during the term of this
Agreement with respect to the operation of the Dealership.
10. INDEMNIFICATION BY THE COMPANY. The Company shall indemnify,
defend and hold C-CAR and its officers, directors, shareholders, employees,
agents and representatives harmless from and against any and all losses,
damages, claims, actions, suits, proceedings, liabilities, obligations, costs
and expenses, including reasonable attorneys' fees, arising out of or based
upon any act, omission, or event occurring (a) during the term of this
Agreement with respect to the operation of the Dealership if caused by the
negligence or willful misconduct of the Company, (b) during the term of this
Agreement with respect to the Dealership other than matters related to the
operation of the Dealership, and (c) prior to and after the Termination Date
with respect to the Dealership if the transactions contemplated by the Stock
Purchase Agreement do not close. The Company shall cause its insurance
policies to be modified to name C-CAR as an additional insured.
11. AUTHORIZATION AND VALIDITY. The Company has the power and
authority to make, execute, deliver and perform its obligations under this
Agreement and all such action has been duly authorized by all necessary
proceedings on its part. This Agreement has been duly and validly executed
and delivered by the Company and constitutes the valid and legally binding
agreement of the Company enforceable in accordance with its terms.
12. COMPENSATION TO RANDT AND BLOMQUIST. During the term of this
Agreement, (a) Blomquist's responsibilities and compensation will remain
unchanged unless otherwise agreed to by C-CAR and Blomquist, and (b) Randt's
responsibilities shall be those responsibilities reasonably requested by
C-CAR, and Randt's compensation shall be as follows:
(i) $15,000 salary per month;
(ii) payment of medical insurance premiums;
3
<PAGE>
(iii) payment of premiums on the existing $2,000,000 life
insurance policy held by Universal Underwriters, insuring the
life of Randt; and
(iv) continued use of up to four (4) demonstrators.
13. ESCROW AGREEMENT. On the date of this Agreement, C-CAR shall
deliver $79,410.96 into an interest-bearing account under an escrow agreement
between C-CAR, Randt, and Blomquist containing mutually agreeable terms and
conditions.
14. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State
of California.
(b) LITIGATION. If this Agreement or any term or provision hereof
becomes the subject of litigation, the prevailing party in such
litigation shall be entitled to recover from the non-prevailing
party court costs and reasonable attorneys' fees.
(c) ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements, arrangements
and understandings, whether written or oral, relating to the
subject matter hereof.
(d) INVALIDITY. If any provision contained in this Agreement shall
for any reason be held to be invalid, illegal, or unenforceable
in any respect, such provision shall be deemed modified so as to
constitute a provision conforming as nearly as possible to such
invalid, illegal, or unenforceable provision while still
remaining valid and enforceable; and the remaining terms and
provisions contained herein shall not be affected thereby.
(e) ASSIGNMENT. C-CAR shall not assign this Agreement or its duties
hereunder without the prior written consent of the Company.
(f) AMENDMENT. This Agreement may not be amended by any oral
agreement or understanding, but only by an amendment in writing,
executed by the parties hereto.
(g) BINDING AGREEMENT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(h) WAIVER. No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving
such waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
4
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
By:
----------------------------------
Robert W. Hall, Vice Chairman
TAR-CAR, INC.
By:
----------------------------------
Thomas A. Randt, President
By:
----------------------------------
Ronald J. Blomquist, Vice President
5
<PAGE>
Exhibit 10.41
AMENDMENT TO MANAGEMENT AGREEMENT
This Amendment to Management Agreement (the "Amendment") is made
effective as of November 1, 1997, by and between Cross-Continent Auto
Retailers, Inc. ("C-CAR") and Tar-Car, Inc. (the "Company").
RECITALS
A. By that certain Management Agreement (the "Management Agreement")
dated October 16, 1997, by and between C-CAR and the Company, C-CAR agreed to
manage the Dealership (as defined in the Management Agreement).
B. C-CAR and the Company desire to amend the Management Agreement.
AGREEMENT
In consideration of the mutual agreements set forth in this Amendment,
C-CAR and the Company agree as follows:
1. The second sentence of Paragraph 1 of the Management Agreement
is deleted in its entirety and the following is substituted therefor:
C-CAR shall assume management responsibilities of the
Dealership effective December 1, 1997 (the "Effective
Date").
2. Subparagraph 3(b) of the Management Agreement is deleted in
its entirety.
3. Subparagraph 4(c) of the Management Agreement is deleted in
its entirety.
4. The following sentence is added to the end of paragraph 12 of
the Management Agreement:
Randt may be employed in northern Nevada in a position that
allows Randt to perform his obligations under this
Agreement.
5. This Amendment shall be governed by and construed and enforced
in accordance with the laws of the State of California.
6. This Amendment shall be binding upon and shall inure to the
benefit of the
1
<PAGE>
parties hereto and their respective successors and assigns.
7. Except as specifically set forth herein, all other provisions
of the Management Agreement remain in full force and effect.
CROSS-CONTINENT AUTO RETAILERS, INC.,
a Delaware corporation
By:
-------------------------------
Robert W. Hall, Vice Chairman
TAR-CAR, INC., a California corporation
By:
-------------------------------
Thomas A. Randt, President
By:
-------------------------------
Ronald J. Blomquist, Vice President
2
<PAGE>
Exhibit 10.42
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement") is made and entered into as
of the 17th day of December, 1997, by and between Sahara Imports, Inc., a
Nevada corporation ("Sahara"), and Vinci, Inc., a Nevada corporation (the
"Company").
RECITALS
A. The Company owns a Honda franchised automobile dealership located
at 1700 E. Sahara, Las Vegas, Nevada 89104 (hereinafter referred to as the
"Dealership").
B. The Company operates the Dealership under the name "Las Vegas
Honda."
C. The Company desires for Sahara to manage the Dealership, and Sahara
desires to manage the Dealership, for the consideration and upon the terms
set forth in this Agreement.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Sahara and the Company agree as follows:
1. MANAGEMENT OF THE DEALERSHIP. The Company hereby engages Sahara
as an independent contractor to manage the Dealership. Sahara shall assume
management responsibilities of the Dealership effective February 1, 1998 (the
"Effective Date"). Sahara shall be responsible for (a) supervising the daily
operations of the Dealership, and (b) making all management and operating
decisions, including (without limitation) decisions concerning sales
practices, inventory management, and personnel matters. Notwithstanding
anything contained in this Agreement to the contrary, the Company shall
retain all authority required under the Company's franchise agreement with
respect to the Dealership until the closing of the transactions contemplated
by that certain Asset Purchase Agreement (the "Purchase Agreement") dated
December 17, 1997, by and among Sahara, the Company, and Ronald C. Vinci.
2. TERM. The term of this Agreement shall begin on the Effective
Date and shall terminate (the "Termination Date") upon the earlier of (a) the
closing of the transactions contemplated by the Purchase Agreement, or (b)
the termination of the Purchase Agreement in accordance with the terms and
provisions thereof, including (without limitation) the termination of the
Purchase Agreement for Sahara's failure to timely receive the approval of (i)
American Honda Motor Co., Inc., (ii) the FTC and the Justice Department under
the Hart-Scott-Rodino Act, or (iii) the Nevada Department of Motor Vehicles.
3. CONDUCT OF THE BUSINESS OF THE DEALERSHIP. Sahara shall conduct
the Dealership's business according to the ordinary and usual course of the
Dealership's business reasonably
1
<PAGE>
consistent with past and current practices, and shall not allow the
Dealership to engage in any practice, take any action, or enter into any
transaction outside of the ordinary course of business without the prior
written consent of the Company.
4. MANAGEMENT FEE. As consideration for Sahara managing the
Dealership during the term of this Agreement, the Company shall pay Sahara a
fee in cash (the "Management Fee") in an amount equal to the monthly net
income, before depreciation, amortization, income taxes and other non-cash
charges, resulting from the business and operations of the Dealership. Net
income shall be calculated in accordance with generally accepted accounting
principles. Notwithstanding anything contained in this Agreement to the
contrary, any costs or expenses that are not directly related to the
operation of the Dealership, any deferred costs or expenses of operating the
Dealership that were incurred prior to the Effective Date, and any costs or
expenses of operating the Dealership that are incurred after the Termination
Date, shall be excluded from the calculation of the Management Fee. The
Management Fee for any partial calendar month shall be prorated. The Company
shall pay Sahara the Management Fee for each month or partial month during
the term of this Agreement within fifteen (15) days after the end of such
month or partial month.
5. LICENSES OF THE DEALERSHIP. To the extent permitted under
applicable law, the Company agrees to allow Sahara to use the Dealership's
dealer numbers, dealer licenses, and dealer tags.
6. COOPERATION. The Company shall (a) cause the Dealership to fully
cooperate with Sahara in connection with Sahara's operation of the
Dealership, and (b) name Sahara as an additional insured on all of the
Company's liability insurance policies.
7. CORPORATE EXISTENCE OF THE COMPANY. The Company shall maintain
its corporate existence and good standing in the State of Nevada.
8. INDEMNIFICATION BY SAHARA. Sahara shall indemnify, defend and
hold the Company and its officers, directors, shareholders, employees, agents
and representatives harmless from and against any and all losses, damages,
claims, actions, suits, proceedings, liabilities, obligations, costs and
expenses, including reasonable attorneys' fees, arising out of, in connection
with, or based upon any breach of this Agreement by Sahara which occurred
during the term of this Agreement with respect to the operation of the
Dealership. Sahara's indemnification under this paragraph shall survive the
termination of this Agreement.
9. INDEMNIFICATION BY THE COMPANY. The Company shall indemnify,
defend and hold Sahara and its officers, directors, shareholders, employees,
agents, representatives, parent, and affiliates harmless from and against any
and all losses, damages, claims, actions, suits, proceedings, liabilities,
obligations, costs and expenses, including reasonable attorneys' fees,
arising out of or based upon any act, omission, or event occurring (a) during
the term of this Agreement with respect to the operation of the Dealership if
caused by the negligence or willful misconduct of the Company, (b) during the
term of this Agreement with respect to the Dealership
2
<PAGE>
other than matters related to the operation of the Dealership, and (c) prior
to and after the Termination Date with respect to the Dealership if the
transactions contemplated by the Stock Purchase Agreement do not close. The
Company shall cause its insurance policies to be modified to name Sahara as
an additional insured. The Company's indemnification under this paragraph
shall survive the termination of this Agreement.
10. AUTHORIZATION AND VALIDITY. The Company has the power and
authority to make, execute, deliver and perform its obligations under this
Agreement and all such action has been duly authorized by all necessary
proceedings on its part. This Agreement has been duly and validly executed
and delivered by the Company and constitutes the valid and legally binding
agreement of the Company enforceable in accordance with its terms.
11. PAYMENT TO THE COMPANY. During the term of this Agreement, Sahara
shall pay the Company $70,000 per month (prorated for any partial month) from
the Effective Date to the Termination Date.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the
State of Nevada.
(b) LITIGATION. If this Agreement or any term or provision
hereof becomes the subject of litigation, the prevailing
party in such litigation shall be entitled to recover from
the non-prevailing party court costs and reasonable
attorneys' fees.
(c) ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements,
arrangements and understandings, whether written or oral,
relating to the subject matter hereof.
(d) INVALIDITY. If any provision contained in this Agreement
shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such provision shall be deemed
modified so as to constitute a provision conforming as
nearly as possible to such invalid, illegal, or
unenforceable provision while still remaining valid and
enforceable; and the remaining terms and provisions
contained herein shall not be affected thereby.
(e) ASSIGNMENT. Sahara shall not assign this Agreement or its
duties hereunder without the prior written consent of the
Company.
(f) AMENDMENT. This Agreement may not be amended by any oral
3
<PAGE>
agreement or understanding, but only by an amendment in
writing, executed by the parties hereto.
(g) BINDING AGREEMENT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(h) WAIVER. No waiver of any breach or default hereunder shall
be considered valid unless in writing and signed by the
party giving such waiver, and no such waiver shall be deemed
a waiver of any subsequent breach or default of the same or
similar nature.
SAHARA IMPORTS, INC.
By:
-----------------------------------
Robert W. Hall, Vice President
VINCI, INC.
By:
-----------------------------------
Ronald C. Vinci, President
4
<PAGE>
Exhibit 10.50
CAPITAL AUTOMOTIVE L.P.
REAL PROPERTY PURCHASE AGREEMENT
December 31, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
I. PURCHASE AND SALE - 1 -
1.1 Certain Definitions - 1 -
1.2 Agreement to Purchase and Sell. - 2 -
1.3 Encumbrances. - 2 -
1.4 Purchase Price. - 2 -
1.5 Capitalized Terms - 3 -
II. OPERATION OF PROPERTY THROUGH CLOSING - 3 -
2.1 Business Practice - 3 -
2.2 No Sale or Encumbrance - 3 -
2.3 Leases, Service Contracts and Management Contracts - 3 -
2.4 Termination of Leases; New Company Leases - 4 -
2.5 Compliance - 4 -
2.6 Notice of Inaccuracy or Incompleteness - 4 -
2.7 Access - 4 -
2.8 Insurance - 4 -
2.9 Fulfillment of Obligation - 4 -
2.10 Financial Statements and Reports - 5 -
2.11 Under Construction Properties. - 5 -
III. STATUS OF TITLE TO PROPERTY - 7 -
3.1 State of Title - 7 -
3.2 Preliminary Evidence of Title - 7 -
3.3 Title Defects -10 -
IV. CLOSING PRORATIONS AND ADJUSTMENTS -10 -
4.1 Prorations and Adjustments -10 -
V. CLOSING -11 -
5.1 Closing Date -11 -
5.2 Closing Documents -12 -
5.3 Conditions to the Partnership's Obligation to Close
-15 -
5.4 Conditions to the Seller's Obligation to Close -17 -
5.5 Transaction Costs -17 -
VI. CASUALTY LOSS AND CONDEMNATION -18 -
6.1 Casualty -18 -
6.2 Condemnation or Taking -18 -
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<PAGE>
VII. REPRESENTATIONS AND WARRANTIES OF THE SELLERS -19 -
7.1 Organization -19 -
7.2 Authority -19 -
7.3 Interest in Contributed Properties -20 -
7.4 No Defaults -20 -
7.5 No Litigation; No Condemnation -20 -
7.6 No Violation -21 -
7.7 Required Obligations -21 -
7.8 Condition of Properties -21 -
7.9 Warranties -22 -
7.10 Utilities -22 -
7.11 Zoning -22 -
7.12 Improvements -22 -
7.13 Environmental Matters -22 -
7.14 Insurance -25 -
7.15 Compliance -25 -
7.16 Leases. -25 -
7.17 Service Contracts; Management Contracts -26 -
7.18 Permits -26 -
7.19 Other Liabilities -26 -
7.20 Tax Matters -26 -
7.21 Taxes -27 -
7.22 Special Filings -27 -
7.23 Books and Records -27 -
7.24 No Brokers -27 -
7.25 All Material Information -27 -
7.26 Survival of Warranties -27 -
VIII. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PARTNERSHIP -28 -
8.1 Organization, Good Standing and Qualification -28 -
8.2 Authorization -28 -
8.3 No Violation -29 -
8.4 Tax Status -29 -
8.5 No Litigation -29 -
8.6 No Brokers -29 -
8.7 Survival -29 -
IX. COVENANTS -29 -
9.1 Covenants of the Company and the Partnership -29 -
9.2 Covenants of the Sellers and the Contributing
Entities -31 -
9.3 No Claim Against Property -32 -
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<PAGE>
X. DUE DILIGENCE PERIOD -32 -
10.1 Due Diligence Period -32 -
10.2 Access to Properties and Materials -32 -
10.3 Adjustment Following Due Diligence -33 -
XI. DEFAULTS AND REMEDIES -33 -
11.1 Indemnification by Sellers -33 -
11.2 Remedies -34 -
11.3 Indemnification by the Company and the Partnership -35 -
11.4 Indemnification Procedures -35 -
XII. MISCELLANEOUS -38 -
12.1 Assignment -38 -
12.2 Entire Agreement -38 -
12.3 Notices -39 -
12.4 Governing Law -39 -
12.5 Litigation Costs -40 -
12.6 Counterparts -40 -
12.7 Offer and Acceptance -40 -
12.8 Arbitration -40 -
</TABLE>
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<PAGE>
EXHIBITS
2.4(a) Form of Company Lease
2.4(c) Guaranty and Subordination Agreement
5.2.1(m) Opinion of Seller's Counsel
5.2.2(d) Opinion of Company Counsel
SCHEDULES
I. Sellers (Names and Addresses)
1.2 Schedule of Properties; Ownership Interests in Properties and
Purchase Price
2.1 Prior Occupants
2.4(b) Guarantors
2.11(a) Construction Contracts for Douglas Toyota and Toyota West
2.11(b) Plans and Specifications for Douglas Toyota and Toyota West
7.5 Litigation
7.13.5(a) The Treatment, Storage and Disposal Locations for Substances of
Concern
7.13.5(f) Environmental Permits and Authorizations
7.14 Insurance
7.17(a) Material Contracts
9.1.4 Restrictions on Sale and/or Financing of Specified
Properties
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<PAGE>
CAPITAL AUTOMOTIVE L.P.
REAL PROPERTY PURCHASE AGREEMENT
THIS REAL PROPERTY PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of this 31st day of December, 1997, by and among the persons
and entities named on SCHEDULE I hereto consisting of all of the owners of an
interest in any of the Properties listed on SCHEDULE 1.2 (each individually,
a "Seller" and, if more than one Seller, collectively, the "Sellers"), and
CAPITAL AUTOMOTIVE L.P., a Delaware limited partnership (the "Partnership"),
having offices at 1925 North Lynn Street, Suite 306, Arlington, Virginia
22209, and CAPITAL AUTOMOTIVE REIT, a Maryland real estate investment trust
(the "Company"), having offices at 1925 North Lynn Street, Suite 306,
Arlington, Virginia 22209 on its own behalf and as the general partner of the
Partnership.
RECITALS
A. The Sellers are the legal and beneficial owners of all of the
interests in fee simple title to all of the real property and improvements
set forth on such SCHEDULE 1.2 hereto (including the residual interests in
any tenant improvements thereon), which are individually referred to as a
"Property" and collectively, the "Properties." Such Properties are
identified on SCHEDULE 1.2 by street address and property tax identification
number, or if such Properties constitute more than one parcel, by the several
applicable property tax identification numbers.
B. Each Seller desires to sell all of its interest in each of the
Properties to the Partnership and the Partnership desires to purchase all of
the Sellers' interests in such Properties.
NOW THEREFORE, in consideration of and in reliance upon the above
Recitals, the terms, covenants and conditions contained in this Agreement,
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. PURCHASE AND SALE
1.1 CERTAIN DEFINITIONS. For purposes of this Agreement:
1.1.1 "Mortgage Debt" means the aggregate amount of
mortgage indebtedness, if any, encumbering the Propteries as
set forth opposite the description of each Property on
SCHEDULE 1.2.
<PAGE>
1.1.2 "Purchase Price" means the amount, in U.S.
dollars, that is the purchase price of each Property, as
identified on SCHEDULE 1.2 for each such Property.
1.1.3 "Affiliate" means with respect to any Person,
(i) any Person that holds direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of voting
securities or other voting interests representing at
least five percent (5%) of the outstanding voting power
of a Person or equity securities or other equity
interests representing at least five percent (5%) of
the outstanding equity securities or interests in a
Person, or (ii) any Person that directly, or indirectly
through one or more intermediaries, controls, or is
controlled by, or is under common control with such
Person.
1.1.4 A "Person" shall mean and include natural persons,
corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust
companies, land trusts, business trusts, Indian tribes
or other organizations, whether or not legal entities,
and governments and agencies and political subdivisions
thereof.
1.1.5 For purposes of this Agreement, the "knowledge" of
a Person shall mean the actual knowledge of such
Person's officers, senior executives, managing
partners, general partners, majority shareholders, key
employees or their equivalents.
1.2 AGREEMENT TO PURCHASE AND SELL. Subject to the terms and
conditions of this Agreement, at the Closing (as hereinafter defined), each
Seller shall sell, transfer and convey to the Partnership, and the
Partnership shall purchase and accept from the Sellers, all of the Sellers'
right, title and interest in and to the Properties identified on SCHEDULE
1.2, excluding items of movable personal property attached to such Properties
that relate to the business conducted on such Properties and may readily be
removed from such Properties without material damage whether or not such
items are "fixtures," ("Excluded Personal Property").
1.3 ENCUMBRANCES. The Partnership shall acquire each Property
free and clear of all liabilities, obligations and commitments of Sellers and
free and clear of all liens, options, adverse claims and encumbrances other
than Permitted Exceptions.
-2-
<PAGE>
1.4 PURCHASE PRICE. On the terms and subject to the conditions
of this Agreement, at the Closing Sellers shall sell, transfer, convey,
assign and deliver to the Partnership, and the Partnership shall purchase and
accept from Sellers all the right, title and interest of Sellers to and under
the Properties for an aggregate purchase price (the "Aggregate Purchase
Price") in an amount equal to:
(i) THIRTY FIVE MILLION THREE HUNDRED THOUSAND U.S. Dollars
($35,300,000)
MINUS
(ii) the amount of the Mortgage Debt as of the Closing Date.
The Aggregate Purchase Price will be adjusted pursuant to Sections 3.3,
5.2.1(k), 5.2.1(l), 6.1, 6.2, 10.3 as applicable.
1.5 CAPITALIZED TERMS. Capitalized terms used in this Agreement
that are not otherwise defined herein shall have the meanings required by
context.
2. OPERATION OF PROPERTY THROUGH CLOSING
Through the Closing Date:
1.1 BUSINESS PRACTICE. Except as otherwise provided in this
Article 2, the Sellers shall continue, or shall cause any Affiliate, tenant,
or third party managing, maintaining or occupying, as the case may be, any of
the Properties (referred to herein individually as a "Prior Occupant" and
collectively as the "Prior Occupants") to continue, to manage, to maintain
and to operate the Properties in accordance with sound and prudent business
practices and keep the Properties and the tangible personal property thereon
in good condition and repair, ordinary wear and tear excepted. The Sellers
shall instruct such Prior Occupant not to make any material change in its
management, maintenance or operation of the Properties or in its normal and
customary other practices. The Prior Occupants are identified on SCHEDULE
2.1 to this Agreement.
2.2 NO SALE OR ENCUMBRANCE. None of the Sellers shall sell,
mortgage, pledge, hypothecate or otherwise transfer or dispose of all, or any
part of any Property or any interest therein, nor shall any Seller initiate,
consent to, approve or otherwise take any action with respect to zoning or
any other governmental rules or regulations presently applicable to all or
any part of any Property, nor shall any Seller (other than Cross-Continent
Auto Retailers, Inc.) permit any new limited or general partners,
shareholders or members to be admitted to any Seller.
-3-
<PAGE>
2.3 LEASES, SERVICE CONTRACTS AND MANAGEMENT CONTRACTS. Except as
provided in Section 2.4, the Sellers shall not, nor shall they cause or
permit any Prior Occupant to, terminate, modify, extend, amend or renew any
Lease (as defined in Section 4.1.3 hereof), Service Contract (as defined in
Section 7.17 hereof), or Management Contract (as defined in Section 7.17
hereof) or enter into any new Lease (other than the Company Lease pursuant to
Section 2.4 of this Agreement) or Service Contract without the prior written
consent of the Company or the Partnership; provided, however, that the
failure of the Company or the Partnership to object to any such action within
fifteen (15) days after written notice to it by Seller shall be deemed to
reflect the Company's or the Partnership's consent thereto. Notwithstanding
the foregoing, all Service Contracts and Management Contracts relating to the
respective Properties shall remain in effect after the Closing Date, except
for those Service Contracts and Management Contracts that the Partnership
requires, in writing, to be terminated as of the Closing Date.
2.4 TERMINATION OF LEASES; NEW COMPANY LEASES. Prior to the
Closing Date, the Sellers shall cause the termination of all Leases. Not
later than five (5) days before the Closing Date (as defined herafter), the
Sellers of each Property, or an Affiliate thereof, shall execute and deliver
to the Partnership an occupancy lease with the Partnership for each of the
Properties substantially in the form attached hereto as EXHIBIT 2.4(a)
(referred to hereafter individually as a "Company Lease" and collectively as
the "Company Leases"), on terms and conditions (including Rent (as defined in
such Company Lease)) acceptable to the Partnership and Sellers. The Base
Annual Rent (as defined in the Company Lease) called for under the Company
Lease for each Property shall be eleven percent (11%) of the Purchase Price
(the "Rate of Return") for such Property. The effective date of such Company
Leases shall be the Closing Date. The Company Leases shall be guaranteed as
reflected on SCHEDULE 2.4(b) using a Guaranty and Subordination Agreement
substantially in the form attached hereto as EXHIBIT 2.4(c).
2.5 COMPLIANCE. None of the Sellers shall knowingly take or fail
to take any action that will cause the Properties to fail to comply with any
federal, state, municipal and other governmental laws, ordinances,
requirements, rules, regulations, notices, codes and orders, or any
agreements, covenants, conditions, easements and restrictions currently in
effect relating to the Properties.
2.6 NOTICE OF INACCURACY OR INCOMPLETENESS. The Sellers shall
promptly give written notice to the Company before Closing of the occurrence
of any event of which Sellers have knowledge and which may adversely affect
the completeness or accuracy of any representation or warranty made or to be
made by Sellers under or pursuant to this Agreement.
2.7 ACCESS. The Sellers shall cause the Company and the
Partnership and its representatives to have reasonable access to the
Properties, subject to the prior rights, if any, of any Prior Occupant;
provided, however, that without the consent of the Seller, the
representatives of the Partnership shall not disclose to any Prior Occupant
the existence of this Agreement or the transactions contemplated hereby.
-4-
<PAGE>
2.8 INSURANCE. The Sellers shall cause the existing insurance
coverages on the Properties and the business of the Sellers to be maintained
in full force and effect through the Closing Date.
2.9 FULFILLMENT OF OBLIGATION. To the extent any Seller is
obligated, pursuant to any contract, agreement, covenant, lease, including
any Lease, or other understanding entered into prior to the date hereof with
any Prior Occupant, governmental subdivision or any other third party, to
effect any construction, make any improvements or take any action, the
Sellers shall cause any such construction, improvements and/or action to be
taken, completed and fully paid for by such Seller, at its expense, prior to
the Closing Date. No such obligation shall be unfulfilled, and no liability
for or payment in respect of any such obligation shall be unsatisfied as of
the Closing Date.
2.10 FINANCIAL STATEMENTS AND REPORTS. The Sellers shall
provide to the Company financial statements, agings of accounts receivable,
and other financial, operating or statistical information for each Property
upon any reasonable request of the Company, and the general partner or chief
financial officer, as the case may be, of each Seller shall certify that, to
the best of his or its knowledge, such financial statements and other reports
are true, accurate and complete in all material respects.
2.11 UNDER CONSTRUCTION PROPERTIES. Notwithstanding anything to
the contrary contained in this Agreement, the Partnership and the Company
recognize that the two properties listed in SCHEDULE 1.2 to this Agreement
as Property No. 5 and Property No. 6 (collectively, the "Under Construction
Properties") are presently being improved pursuant to the construction
contracts listed on EXHIBIT 2.11(a) hereto and the plans and specifications
listed on EXHIBIT 2.11(b) hereto. The contracts, plans and specifications so
listed are referred to herein, collectively, as the "Contract Documents."
With respect to the Under Construction Properties, the parties to this
Agreement agree as follows:
2.11.1 The Purchase Price of each such property, as stated in
SCHEDULE 1.2 to this Agreement, is based upon the assumption
that each such property will be conveyed to the Partnership
at the Closing Date identified in Section 5.1 hereto, but in
no event later than the date to which the Sellers and the
Partnership shall agree in writing:
a. with all improvements called for under the Contract
Documents complete in all respects and in conformity
with all requirements of the Contract Documents;
b. free of all liens and claims of any and all persons,
firms, companies, corporations or other entities
-5-
<PAGE>
supplying any labor, services, materials, supplies or
other things of value in connection with or in respect
of any construction or other improvement to the Under
Construction Properties or either of them (the
"Construction Service/Material Suppliers"); and
c. with certificates of occupancy and/or other
certificates issued by all appropriate governmental
bodies or agencies attesting to the fact of the
completion of all improvements in conformity with all
building, zoning and other applicable codes or
regulations so as to permit the immediate occupancy of
the improvements for the purposes contemplated by the
Company Lease.
2.11.2 The Seller of the Under Construction Properties agrees
that it will do all things necessary to convey the Under
Construction Properties as contemplated in Section 2.11.1
hereto.
2.11.3 If the Seller of the Under Construction Properties
shall have any dispute with any Construction
Service/Material Supplier referred to in Section 2.11.1.b
above, and that dispute prevents the delivery of the
properties or either of them free of any lien or claim, such
Seller may deliver the property so affected subject to such
lien or claim; provided however that:
a. by such Seller's "bonding off" or posting money with
the Partnership's Title Insurer, such Title Insurer
will "insure over" the lien or claim in question; and
b. such Seller diligently pursues the dispute to its
conclusion.
2.11.4 If for any reason (including the resolution of a
dispute specified in Section 2.11.3 above) the Seller is
required to pay more money (the "Excess") than is specified
in the Contract Documents as they exist on the date of this
Agreement, then if the Partnership determines that the
Excess, when added to the Purchase Price specified in this
-6-
<PAGE>
Agreement, results in an aggregate amount not in excess of
fair market value of the property in question, the Purchase
Price specified in this Agreement for the property in
question will be increased by the amount of the Excess and
the Base Annual Rent payable under the applicable Company
Lease will be increased by an amount equal to the amount of
the Excess times the Rate of Return.
2.11.5 The Seller of the Under Development Properties agrees
that nothing in this Section 2.11 shall lessen the Seller's
obligations under other provisions of this Agreement or
lower the requirements with respect to such Properties as
specified therein.
2.11.6 The Partnership, as purchaser of the Under Development
Properties, intends to enter into a separate construction
management agreement (the "CMA") with the Seller of such
Properties (or an Affiliate of such Seller) with respect to
the improvements specified in the Contract Documents. All
parties to this Agreement agree with respect to the CMA:
a. Nothing in the CMA shall affect this Agreement or the
obligations of the Sellers hereunder, or constitute the
acceptance of title to the Properties affected thereby,
or give any rights to any entities specified in Section
2.11.1.b above; and
b. No part of the sums paid to the Seller (or its
Affiliate) under the CMA shall be considered as part of
the Purchase Price of the Under Development Properties
or be included in the calculation of the Base Annual
Rent under the applicable Company Lease.
3. STATUS OF TITLE TO PROPERTY
3.1 STATE OF TITLE. At Closing, the Sellers shall own,
beneficially and of record, good and marketable fee simple title to the
Properties, subject only to the mortgages creating the Mortgage Debt listed
on SCHEDULE 1.2 hereto and those covenants, conditions, restrictions and
other matters affecting title as set forth in the land Title Commitments, UCC
Searches and/or Surveys to be delivered to the Partnership hereunder and
found to be acceptable to the Partnership under Section 3.3 hereto (the
"Scheduled Exceptions"). The Mortgage Debt and Scheduled Exceptions are
referred to collectively herein as the "Permitted Exceptions."
-7-
<PAGE>
3.2 PRELIMINARY EVIDENCE OF TITLE. Within no more than 30 days
after the date hereof, the Sellers and the Partnership shall obtain, in a
form acceptable to the Partnership, the following documents to evidence the
condition of the title to each of the Properties:
3.2.1 Commitments (the "Title Commitments") to the
Partnership for ALTA Form B (1987) Owner's Title Insurance
Policies (and for any Properties located within the State of
Texas the standard form of commitment for title insurance
promulgated by the Texas State Board of Insurance)
committing to insure, at standard rates, title to each
Property as being good and marketable (except for Properties
located within the State of Texas, in which case such title
shall be good and indefeasible), subject only to the
Permitted Exceptions, in the amount of the Purchase Price of
each such Property, issued by a title company acceptable to
the Company and the Partnership (the "Title Insurer"). The
Title Commitments shall be effective as of the Closing Date,
and shall reflect that fee simple title is held by the
respective Seller. Each Owner's Title Insurance Policy to
be issued to the Partnership at Closing pursuant to Section
7.2.2 below ("Title Insurance Policies") shall contain (to
the extent available under applicable state law) an extended
coverage endorsement over the general or standard exceptions
which are a part of the printed form of the policy and
subject only to the Permitted Exceptions. If available for a
title insurance policy under applicable laws and regulations
in the state of issuance, , each Title Insurance Policy
shall, in addition, (a) include provisions for co-insurance,
in such amounts of liability acceptable to the Partnership
and the Company; (b) not contain any survey exception, (c)
not contain any exceptions for (i) liens for labor or
material, whether or not of record, (ii) parties in
possession (other than Prior Occupants under the Leases,
solely as such Prior Occupants), (iii) unrecorded easements,
and (iv) taxes and special assessments not shown on the
public records, (d) provide for the following endorsements:
(i) an access endorsement insuring that there is direct and
unencumbered access to the land from all adjacent public
streets and roads, (ii) a survey endorsement insuring that
all foundations in place as of the date of such policy are
within the lot lines and applicable setback lines, that the
improvements do not encroach on adjoining land or any
easements, and that there are no encroachments of
-8-
<PAGE>
improvements from adjoining land on any or the Properties or
any part thereof, (iii) an ALTA Form 3.1 zoning endorsement
insuring that the Properties are zoned for the buildings and
the operation thereof as contemplated by the terms and
provisions of this Agreement, (iv) a non-imputation
endorsement, by which the Title Insurer waives any defense
based upon knowledge of any person or entity (other than the
knowledge of the Partnership or its designees), (v) a
statement that each Property constitutes a separate lot of
record and is separately assessed for real estate tax
purposes, (vi) an endorsement commonly referred to as a
"Fairway endorsement," providing among other things, that
the Title Insurer waives any defense based on a dissolution
or termination of the insured partnership or the formation
of a new partnership solely by reason of one or more
transfers of all or any part of the partnership interests of
any one or more of the general partners of the insured to
the Company or the Partnership and/or any one or more of the
limited partners of the insured, and/or the transfer of any
one or more of the limited partner's interests to the
current general partner, the Company or the Partnership, and
(vii) such other endorsements as the Partnership and the
Company may reasonably require.
3.2.2 Written results of searches reflecting any liens,
judgements, tax liens, bankruptcies, and open dockets (the
"UCC Searches"), conducted by a company reasonably
acceptable to the Partnership. The UCC Searches shall name
each Seller, Prior Occupant, and Property, and shall search
the appropriate land records and central filing office for
Uniform Commercial Code financing statements.
3.2.3 Legible copies of all documents of record referred
to in any Title Commitment or disclosed by the UCC Searches,
and all other documents evidencing or, to the extent in the
possession or control of the Sellers, relating to, matters
reflected in any Title Commitment or the UCC Searches.
3.2.4 Current ALTA/ACSM land title surveys (if available
in the jurisdiction or their equivalent if not available in
such jurisdiction) of each of the Properties (the "Surveys")
dated on or after the date of this Agreement, certified to
the Partnership and the Title Insurer (and such other
persons or entities as the Partnership may designate) by a
surveyor
-9-
<PAGE>
registered in the State where the Property is located. Each
Survey shall be in form and substance acceptable to the
Partnership and the Title Insurer, provided that the
Partnership shall accept a recertified Survey on any
Property if the Survey conforms with ALTA/ACSM standards
and is acceptable to the Title Insurer.
3.3 TITLE DEFECTS. The Partnership shall have the right to
review the Title Commitments, UCC Searches or Surveys (or any revision or
update of any of them) and to require the Seller to remove, correct, and cure
any defects in the title or other such matters relating to the title that the
Partnership determines, in its sole discretion, are unacceptable. The
Partnership shall notify the Sellers in writing within ten (10) business days
after the Partnership receives the Title Commitments, UCC Searches or
Surveys, as the case may be, of any such defects or matters that the
Partnership finds to be unacceptable, and, within sixty (60) days from the
receipt of notice, such Sellers shall, (i) as to any such exception or other
matter of a nonmonetary nature, use reasonable efforts to remove, correct and
cure such defects or such other matters, and (ii) as to any such defect or
other matter of a monetary nature, cause such lien or encumbrance or other
matter to be discharged and released, in each case to the reasonable
satisfaction of the Partnership. If such Seller fails to remove, correct and
cure such defects or such other matters, the Partnership may, at its option
and as its exclusive remedy, (x) terminate this Agreement, in which event
this Agreement, without further action of the parties, shall become null and
void and neither party shall have any further rights or obligations under
this Agreement, (y) terminate this Agreement with respect to such Property
and reduce the Aggregate Purchase Price by the Purchase Price for such
Property with respect to which the Seller fails to correct and cure such
defects or other such matters, or (z) elect to accept title to such Property
and discharge or release any liens, encumbrances or other matters of a
monetary nature and reduce the Aggregate Purchase Price by the amount
necessary to correct or cure such monetary liens, encumbrances or other
matters. If the Partnership fails to make any such election, the Partnership
shall be deemed to have elected the option contained in clause (y).
4. CLOSING PRORATIONS AND ADJUSTMENTS
4.1 PRORATIONS AND ADJUSTMENTS. All prorations and adjustments
(the "Prorations") with respect to each Property, for the period up to and
through the Closing Date, shall be the responsibility of or belong to the
Sellers and all Prorations for the period after the Closing Date shall be the
responsibility of or belong to the tenant under the applicable Company Lease.
The Company and the Partnership shall have no responsibility for, and will
receive no benefit from, the Prorations, and the Seller shall have liability
for such Prorations. Such Prorations shall include, but not be limited to,
the following:
4.1.1 real estate and personal property taxes and
assessments;
-10-
<PAGE>
4.1.2 common area maintenance fees and reimbursements
for prior years property taxes payable by Prior Occupants;
4.1.3 the rent payable by Prior Occupants under leases
in effect immediately prior to the Closing Date (the
"Leases") as set forth on SCHEDULE 2.1 hereto;
4.1.4 the full amount of security deposits paid under
the Leases, together with interest thereon if required by
law or otherwise;
4.1.5 water, electric, telephone and all other utility
and fuel charges (those that are meter read will be read by
the appropriate utility and service transferred as of the
Closing Date);
4.1.6 amounts due and prepayments under the Service
Contracts;
4.1.7 assignable license and permit fees;
4.1.8 other expenses of operation and similar items; and
4.1.9 all or any other disbursements, payments, and
obligations relating to the Property.
4.1.10 notwithstanding the foregoing, any refunds of real
or personal property taxes for tax years beginning prior to
the Closing Date shall belong to Sellers, and if paid to the
Partnership shall be promptly refunded by the Partnership to
Sellers in cash.
4.1.11 with respect to Mortgage Debt, at the time of
Closing, all obligations accrued up to the Closing Date,
whether the same shall constitute principal, interest, or
other payments, shall be paid by the Seller by way of a
reduction to the Purchase Price for each Property in the
amount of such obligations according to Section 1.4 hereof.
5. CLOSING
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<PAGE>
5.1 CLOSING DATE. Provided that all conditions to closing have
been satisfied or waived, the Closing of the transactions contemplated by
this Agreement (each of the following being a "Closing") for (i) the
acquisition of the Properties other than the Under Construction Properties
shall occur on February 15, 1998, or such other time or place following the
closing of the initial public offering of Initial Shares of the Company
pursuant to the Registration Statement as the Sellers and the Partnership
shall agree in writing, and for (ii) the acquisition of the Under
Construction Properties shall occur within fifteen (15) business days of the
completion of construction under the Contract Documents, or at such other
time and place as the Sellers and the Company shall agree in writing. The
Closing shall occur at the offices of Wilmer, Cutler & Pickering, 2445 M
Street, N.W. Washington, D.C. 20037-1420, at 10:00 a.m. on the scheduled date
of the Closing (the "Closing Date"). Notwithstanding the foregoing, the
Partnership may reschedule the Closing Date (x) until ten (10) business days
following the completion of any Seller's cure of any title defects pursuant
to Section 3.3 hereto, and (y) up to an additional thirty (30) days if the
Closing Date under this Agreement would conflict with the timing and
completion of any other closing under any other agreement entered into by the
Partnership to acquire properties.
5.2 CLOSING DOCUMENTS
5.2.1 SELLERS. Not later than five (5) business days
prior to the Closing Date, the Sellers shall deliver to the
Company and the Partnership, to be held in escrow pending
closing, the following:
a. special warranty deeds and assignments for the
Properties;
b. executed copies of all Company Leases, effective at
Closing;
c. any affidavits, certificates and other documents
(including without limitation non-imputation affidavits
and/or certificates) that are reasonably necessary for
the Title Insurer to issue the Owner's Title Insurance
Policies in the form and condition required by this
Agreement;
d. evidence satisfactory to the Partnership that all
mortgages and other indebtedness secured by the
Properties that are not being specifically assumed or
paid off by the Partnership on the Closing Date have
been paid in full;
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e. for each Seller that is a corporation, a corporate
resolution authorizing the transactions contemplated by
this Agreement, a certificate of good standing, a
certified copy of its articles or certificate of
incorporation and bylaws, and a certificate of
incumbency certifying the titles and signatures of the
corporate officers authorized to consummate the
transactions contemplated hereunder on behalf of Seller
and such other evidence of such Seller's power and
authority as the Company or Partnership reasonably
requests;
f. for each Seller that is a partnership or a limited
liability company, a partnership resolution authorizing
the transactions contemplated by this Agreement, a
certificate of good standing, a certified copy of the
partnership or operating agreement governing such
Seller, and a certificate of incumbency certifying the
titles and signatures of the general partners or
members authorized to consummate the transactions
contemplated hereunder on behalf of such Seller and
such other evidence of power and authority of such
Seller as the Company or Partnership reasonably
requests;
g. for each Seller, an affidavit stating, under penalty of
perjury, its U.S. taxpayer identification number and
that it is not a foreign person within the meaning of
Section 1445 of the Internal Revenue Code of 1986, as
amended (the "Code");
h. agreements from each Prior Occupant who leases any
Property terminating its Leases with Sellers and an
estoppel certificate from such Prior Occupant stating
that it has no claims under the Lease;
i. all of the original Leases, and copies, certified and
warranted by Seller to be correct and accurate in all
respects to the best of each Seller's knowledge, of any
written Service Contracts and Management Contracts and
any and all building plans, surveys, site plans,
engineering plans and studies, utility plans,
landscaping plans, development plans,
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specifications drawings, marketing artwork,
construction drawings, soil tests, complete warranty
book including all contractors and subcontractors and
other documentation concerning all or any part of each
Property to the extent that any of the foregoing
documents are in the possession or control of Sellers;
j. any bonds, warranties or guaranties which are in any
way applicable to any Property or any part thereof to
the extent any of the foregoing are in the possession
or control of Sellers;
k. If the Company or Partnership shall so request, each
Seller shall deliver to the Company a letter (an
"Estoppel Letter") in a form acceptable to the Company,
dated not more than thirty (30) days prior to the
Closing Date, from each Prior Occupant under each
Lease. The Estoppel Letter shall be fully completed in
a manner reasonably satisfactory to the Company, and
with no modifications other than those reasonably
acceptable to the Company. In the event Estoppel
Letters in form and content reasonably satisfactory to
the Company are not received by the Company and the
Partnership within the time prescribed herein, then the
Partnership and the Company, at their option and as a
non-exclusive remedy, upon notice to the Sellers, may
immediately terminate this Agreement, or may terminate
this Agreement with respect to the relevant Property,
in which case the Aggregate Purchase Price shall be
reduced by the Purchase Price of such Property.
l. [Intentionally Omitted]
m. an opinion of Seller's counsel substantially in the
form attached hereto as EXHIBIT 5.2.1(m); and
n. all other documents reasonably required by the
Partnership or the Company in connection with the
transactions contemplated by this Agreement.
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5.2.2 PARTNERSHIP. At the Closing, the Partnership shall
deliver the following:
a. an executed counterpart of the Partnership Agreement
executed by the Company, as the General Partner of the
Partnership;
b. for the Company, a resolution of its Board of Trustees
authorizing the transactions contemplated hereby and a
certificate of good standing from the State Department
of Assessments and Taxation of the State of Maryland;
c. for the Partnership, evidence of the Partnership's
authorization of the transactions contemplated hereby
and a certified copy of the Partnership Agreement and a
Certificate of Limited Partnership certified by the
Secretary of State of Delaware; and
d. an opinion of Wilmer, Cutler & Pickering, substantially
in the form attached hereto as EXHIBIT 5.2.2(d).
5.3 CONDITIONS TO THE PARTNERSHIP'S OBLIGATION TO CLOSE. At the
option of the Partnership, the obligations of the Company and the Partnership
under this Agreement are subject to the satisfaction of the following
conditions (unless explicitly waived in writing):
5.3.1 Each Seller shall have terminated such existing
Management Contracts that Partnership has required, in
writing, to be terminated prior to the Closing Date.
5.3.2 Each Seller shall have terminated all Leases prior
to the Closing Date.
5.3.3 Each Seller shall have terminated such existing
Service Contracts that the Partnership has required, in
writing, to be terminated prior to the Closing Date.
5.3.4 Each and every representation and warranty of the
Sellers contained in this Agreement is true, correct and
complete in all material respects as of the date hereof and
at all times through the Closing Date.
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5.3.5 The Sellers shall have fully performed and
satisfied each and every material obligation, term and
condition to be performed and satisfied by them under this
Agreement.
5.3.6 All consents, authorizations, certificates,
Estoppel Letters, and approvals required to be obtained by
the Sellers in connection with the Agreement shall have been
obtained, including but not limited to all consents,
approvals and authorizations (without any conditions or
requirements) required to be obtained under any Mortgage,
deed of trust or other instrument relating to any of the
Properties or pursuant to which any of the Sellers are bound
in order to complete the transactions contemplated under
this Agreement.
5.3.7 The Company shall have completed the Company's
initial public offering.
5.3.8 The Sellers shall have paid in full, other than
the Mortgage Debt, which shall be paid off at Closing with
purchase proceeds, all indebtedness secured by the
Properties as required by the Company and Partnership and
shall have provided the Company and Partnership with
satisfactory evidence thereof, and to the extent that such
Mortgage Debt is to be paid off following Closing, the
mortgagee shall deliver pay-off letters to the Company and
the Partnership no later than five (5) days prior to the
Closing Date.
5.3.9 The condition of the Property shall not have
materially changed.
5.3.10 The Partnership shall have received an Owner's
Title Insurance Policy (or marked-up commitment therefor)
for each Property insuring fee simple title to such Property
in the amount of the Purchase Price of such Property subject
only to Permitted Exceptions, and otherwise in the form and
condition required by this Agreement;
5.3.11 If the Sellers do not deliver completed SCHEDULES
to the Company and Partnership at the time of the execution
of this Agreement, the Sellers shall deliver to the Company
and Partnership, in substantially completed form, all
SCHEDULES required by this Agreement within fifteen (15)
business days after the date of the execution of this
Agreement.
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5.3.12 The Sellers shall have delivered to the Company
all closing documents required by Section 5.2.1 hereof.
5.3.13 The Partnership shall enter into a Company Lease
for each Property with each Seller or Seller's Affiliate.
5.3.14 Quality Nissan, Inc. shall have exercised its
option to and shall have closed the acquisition (in fee
simple title) of the parcel of the Quality Nissan, Inc.
Property currently subject to the ground lease by and
between Quality Nissan, Inc. (tenant) and John W. Adams,
Eleanore A. Braly, Trustee of the Eleanore A. Braly Trust,
Romie G. Carpenter, Melody Lynn Goff, and Selden Simpson
(landlords) dated March 1, 1994.
5.4 CONDITIONS TO THE SELLER'S OBLIGATION TO CLOSE. The obligations
of the Seller under this Agreement are subject to the satisfaction of the
following conditions (unless explicitly waived in writing):
5.4.1 Each of the representations and warranties of the
Partnership contained in this Agreement is true, correct and
complete as of the date hereof and at all times through the
Closing Date.
5.4.2 The Partnership and the Company shall have fully
performed and satisfied each and every obligation, term and
condition to be performed and satisfied by them under this
Agreement.
5.4.3 The Company shall have completed its initial
public offering pursuant to the Registration Statement.
5.4.4 All consents, authorizations and approvals
required to have been obtained by the Company and the
Partnership in connection with this Agreement shall have
been obtained.
5.4.5 The Sellers shall have obtained approvals to the
purchase and sale of the Properties under this Agreement, if
any are required, from any third party, including (i)
franchisors under the franchise agreements between any
Seller and any automobile manufacturer (the "Franchise
Agreements") and (ii) Texas Commerce Bank, N.A.
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("TCB"), under the revolving credit agreement dated June 26,
1997, by and between Cross-Continent Auto Retailers, Inc.
and TCB.
5.4.6 The Sellers and the Partnership shall have entered
into the CMA referred to in Section 2.11.6 hereof.
5.4.7 The Partnership shall enter into a Company Lease
for each Property with each Seller or Seller's Affiliate.
5.5 TRANSACTION COSTS.
5.5.1 The Sellers shall pay all costs (including, but not
limited to, any recordation and transfer taxes, surveys,
title insurance (including all special endorsements (except
that the Company or the Partnership shall pay for the survey
endorsement, if requested pursuant to Section 3.2.1(d)(ii)
hereof, for each of such Properties located within the State
of Texas, and the Company or Partnership shall pay for the
zoning endorsement and the survey endorsement, if requested,
for the Property located in Colorado)), searches made
pursuant to Section 3.2.2 hereof, fees and expenses of going
to record) in connection with the transfer by the Sellers of
the Properties (collectively referred to as the "Closing
Costs"). The Company and the Partnership shall bear the
cost of their due diligence activities.
5.5.2 The Sellers shall pay all prepayment penalties,
premiums, lender's consent fees or other such charges
("Consent Fees") imposed in connection with the transactions
contemplated hereby.
5.5.3 Except as specified above and elsewhere in this
Agreement, each party shall bear and pay its expenses in
connection with this Agreement and the transactions
contemplated herein, including the fees of their respective
professional advisors.
6. CASUALTY LOSS AND CONDEMNATION
6.1 CASUALTY. Prior to Closing, all risk of loss shall belong to
the Sellers. If, prior to Closing, the Properties or any part thereof shall
be destroyed or materially damaged by fire or other casualty, the Seller of
such Property shall repair such damage prior to Closing to the
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reasonable satisfaction of the Partnership, at no cost or expense to the
Company or the Partnership, in which event the proceeds of any insurance
applicable thereto shall be paid to the Seller. Seller shall, at Closing and
thereafter, execute and deliver to the Partnership all required proofs of
loss, assignments of claims and other similar items. Notwithstanding
anything herein to the contrary, in the event such loss or casualty shall
constitute a total or substantial loss or casualty or, in the opinion of the
Company, in its reasonable discretion, shall render the Property unsuitable
for its intended purpose for a period of one hundred twenty (120) days or
longer, then the Company and the Partnership, at their option, may terminate
this Agreement with respect to such Property upon notice to the Seller, and
reduce the Aggregate Purchase Price by the Purchase Price of such Property.
6.2 CONDEMNATION OR TAKING. If, prior to Closing, any Property or
any part thereof shall be condemned or taken and such condemnation or taking
materially interferes with the existing business use of the Property, the
Company and the Partnership may (i) terminate this Agreement either as to all
the Properties or solely as to such Property, in the discretion of the
Partnership and the Company, or (ii) complete the transactions contemplated
by this Agreement notwithstanding such condemnation. If the Company and the
Partnership elect to complete the transactions contemplated hereby, the
Partnership shall be entitled to receive the condemnation proceeds and the
appropriate Seller shall, at Closing and thereafter, execute and deliver to
the Partnership and the Company all required assignments of claims and other
similar items. If the Partnership and the Company elect to terminate this
Agreement, then upon written notice to the Sellers and without further action
of the parties, this Agreement shall become null and void and no party shall
have any rights or obligations under this Agreement. If the Partnership and
the Company elect to terminate this Agreement solely with respect to the
affected Property, the Aggregate Purchase Price shall be reduced by the
Purchase Price of such Property.
7. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, jointly and severally, represent and warrant to the
Company and the Partnership that, except as described on the SCHEDULES
attached hereto and incorporated by reference herein, the following are true,
complete and correct as of the date of this Agreement and as of the Closing
Date:
7.1 ORGANIZATION. Each Seller is duly organized and validly
existing and in good standing under the laws of the state of its
organization, and has all requisite power and authority to own or lease and
operate its properties (including the Properties) and assets and conduct its
business in the manner in which they are being owned or leased and operated
and conducted, as the case may be. Each Seller is duly qualified and
authorized and is in good standing in all jurisdictions where its ownership,
lease or operation of assets and properties (including the Properties) or the
conduct of its business requires such qualification or authorization.
7.2 AUTHORITY. The execution and delivery of this Agreement
and all agreements, documents and instruments contemplated hereby and the
performance of all transactions
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contemplated herein or therein, have been duly and validly authorized by all
requisite partnership, corporate or trust action, as the case may be, and by
the requisite general partners, the board of directors, stockholders, or
trustees of each Seller, as the case may be. This Agreement and the
agreements, documents and instruments executed and delivered in connection
herewith constitute the legal, valid and binding obligations of the Sellers,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject,
as to enforceability, to general principles of equity, including principles
of commercial reasonableness, good faith and fair dealing (regardless of
whether enforcement is sought in a proceeding at law or in equity) and except
to the extent that rights to indemnification and sale and purchase under or
contemplated by this Agreement or such other agreements may be limited by
federal or state securities laws or public policy relating thereto. To the
knowledge of the Sellers, none of the Sellers are required to obtain any
consent, authorization, approval or waiver from any governmental agency or
authority or from any third party in connection with the execution and
delivery of, and the performance of the obligations to be performed under,
this Agreement and the documents and instruments executed and delivered in
connection herewith, or if any of the foregoing is required, it has been
obtained; except for any approval of a holder of the Mortgage Debt, of TCB
under the revolving credit agreement, or of a franchisor under any Franchise
Agreement, which approval Seller shall use its best efforts to obtain prior
to Closing.
7.3 INTEREST IN CONTRIBUTED PROPERTIES. Each Seller is the
record and beneficial owner of, and has good and marketable and insurable fee
simple title (except with respect to that portion of the Quality Nissan, Inc.
Property in Amarillo, Texas which is currently subject to a ground lease by
and between Quality Nissan, Inc. (tenant) and John W. Adams, Eleanore A.
Braly, Trustee of the Eleanore A. Braly Trust, Romie G. Carpenter, Melody
Lynn Goff, and Selden Simpson (landlords) dated March 1, 1994, which parcel
is to be acquired in fee simple title by Quality Nissan, Inc. from such
landlords prior to the Closing Date hereof) to, the interests in the
Properties set forth opposite such Seller's name on SCHEDULE 1.2, free and
clear of all liens, options, adverse claims or encumbrances, except the
Permitted Exceptions, and SCHEDULE 1.2 is true, accurate and complete in all
material respects as to each seller. Between the date hereof and the Closing
Date, no liens, claims or encumbrances will be created or permitted to be
created on any Property other than the Permitted Exceptions. Prior to or at
the Closing all monetary encumbrances on any Property, other than the
Permitted Exceptions, shall be duly canceled, removed and discharged of
record, and proof thereof satisfactory to the Title Insurer, the Company and
the Partnership shall be delivered to the Company and the Partnership.
Except for Prior Occupants, there are no parties in possession of any part
of the Properties as of the Closing Date, and there are no other rights of
possession, or agreements providing for the sale, assignment or transfer of
title to any Property or portion thereof (other than this Agreement), which
have been granted to any third parties. Such Seller has the full power,
capacity and authority to sell, transfer and assign the legal and equitable
ownership of his/her or its interest to the Partnership as provided in this
Agreement, and the Sellers have not entered into any agreement and have no
knowledge of any agreement or understanding to issue any additional interests
in any Seller (other than Cross-Continent Auto-Retailers, Inc.) to any other
person or entity.
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7.4 NO DEFAULTS. No Seller, or party thereto, is in default of
any of its material obligations under any agreement, franchise, license,
contract, deed, mortgage, lease, instrument, certificate, affidavit or
covenant affecting title to the Properties, whether or not listed on SCHEDULE
7.17(a) hereto; (b) no Seller, or party thereto, is in material default or
breach under any Service Contract; (c) no Seller, or party thereto, is in
material default or breach under any Management Contract; and (d) except as
disclosed on Schedule 7.5, there are no judgments, orders, decrees or
settlement agreements to which any Seller is a party or by which any Property
is bound or will be bound after the Closing.
7.5 NO LITIGATION; NO CONDEMNATION. Except as set out on
SCHEDULE 7.5, there are no actions, suits, proceedings or claims pending, or
to the knowledge of any Seller, threatened or contemplated, with respect to
or in any manner affecting the Properties, or any Seller's interest therein;
or the ability of any Sellers to complete the transactions contemplated by
this Agreement or which could prevent any Seller from satisfying its
obligations under this Agreement. No Seller has received notice of any
pending or threatened condemnation or similar proceedings or special
assessments affecting the Properties, or any part thereof.
7.6 NO VIOLATION. Except for the required approval of the
holder of the Mortgage Debt, TCB under the revolving credit agreement, and
the respective franchisor of each Seller to any Seller's performance under
this Agreement, the execution and delivery of this Agreement and the
agreements, documents and instruments executed and delivered in connection
herewith, the consummation of the transactions contemplated hereby or
thereby, and the operation of any Property shall not: (a) conflict with, or
result in a breach of, the terms, conditions or provisions of, or constitute
a default under, any agreement, contract, mortgage, deed, lease, license,
franchise or instrument to which any Seller is a party or is subject or to
which any Property is subject; (b) to Sellers' knowledge, violate any
agreement, contract, mortgage, deed, lease, license, franchise, restriction,
easement, restrictive covenant, or instrument to which any Seller or any
Property is subject; (c) to Sellers' knowledge, constitute a violation of any
applicable code, resolution, law, statute, regulation, ordinance, rule,
judgment, decree or order; (d) with respect to each Seller that is an entity,
violate any provision of its charter, bylaws or other organizational
document; (e) except as to any indebtedness in respect of which the consent
of the lender shall have been obtained prior to the Closing Date, result in
the acceleration of any indebtedness or any encumbrance pertaining to any
Seller or any Property, or the cancellation of any contract, agreement,
franchise, license, instrument or lease pertaining to any Property (other
than as specifically requested by the Company or the Partnership pursuant to
this Agreement); except that, if any Seller discovers during the Due
Diligence period that an approval to Seller's execution, delivery, or
performance of this Agreement is required from any third party, such Seller
shall have a period of fifteen (15) business days or until five (5) days
before the Closing Date, which ever period is shorter, to obtain such
approval; or (f) except as to any Permitted Exceptions, result in the
creation of any lien, encumbrance or security interest upon any Property.
Except as set out on SCHEDULE 7.5, none of the Sellers have received any
written notice of any violation (both as to condition of the Property and
use) of any applicable laws, statutes, ordinances, codes (including, but not
limited to, zoning,
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building, subdivision, pollution, environmental protection, water disposal,
health, fire and safety engineering codes, and laws and regulations with
respect to the submetering of any utilities serving any Property), and the
rules and regulations of, by governmental authority having jurisdiction over
the Properties.
7.7 REQUIRED OBLIGATIONS. The Sellers have paid and performed
all material obligations relating to the Properties required to have been
paid or performed prior to the date hereof and prior to the Closing Date,
including but not limited to all principal installments, interest payments,
taxes, penalties and other charges in connection with all indebtedness
relating to or secured by any of the Properties or an interest in any of the
Properties.
7.8 CONDITION OF PROPERTIES. No Seller has been notified that
the structural, mechanical, electrical, plumbing, roofing and other major
systems on any Property and items of equipment and components located
thereon, require to be replaced or are in need of material repair.
7.9 WARRANTIES. The Sellers have not released or modified any
warranties of builders, contractors, manufacturers or other tradespersons
that have been given to any Seller without the consent of the Company or the
Partnership.
7.10 UTILITIES. Usable sanitary and storm sewers and public
water, and electrical utilities (collectively, the "Utilities") of adequate
capacity required for the operation of the Properties, are installed in, and
are duly connected to, the Properties and can be used without any charge
except the normal user charges for sanitary sewers and the normal and usual
charges imposed for public water, gas and electric utilities.
7.11 ZONING. Each Property is currently located in the areas
zoned for its current use which classification permits the development, use
and operation of the improvements on such Property as such improvements
currently are being used without special exception or permit. The Sellers
have no knowledge of any threat of, and have not received written notice of,
any proceeding to change adversely or down-zone the existing zoning
classification as to any portion of any Property.
7.12 IMPROVEMENTS. To Sellers' knowledge, all improvements on
the Properties have been constructed in accordance with, and substantially
comply with, all requirements of all applicable laws, ordinances, regulations
and orders, including without limitation applicable zoning, building and fire
safety codes and all restrictive covenants, if any, and other easements,
encumbrances or agreements affecting title to any Properties or improvements.
For purposes of this Section 7.12, "substantially" means that Sellers shall
not be permitted to engage in even de minimis non-compliance with applicable
laws, ordinance, regulations and orders if such de minimis non-compliance
could result in any governmental, administrative or other authority executing
any penalty, fine, remedy or other disciplinary action against such Seller or
such Seller's Business (as defined in the Company Lease).
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7.13 ENVIRONMENTAL MATTERS.
7.13.1 For purposes of this Agreement:
a. "Environmental Claim" means any claim, action, cause of
action, investigation, or notice (written or oral) by
any person or entity alleging potential liability
(including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental
response costs, natural resource damages, property
damages, personal injuries, or civil or criminal
penalties) arising out of or resulting from (i) the
actual or alleged presence or release into the
environment of any Substance of Concern at any
location, whether or not owned or operated by the
Seller, or (ii) circumstances forming the basis of any
actual or alleged violation of any Environmental Law.
b. "Environmental Laws" means all federal, state, local,
and foreign laws and regulations relating to pollution
or protection of human health or the environment
(including, without limitation, ambient air, surface
water, ground water, wetlands, land surface, subsurface
strata, and indoor and outdoor workplace), including,
without limitation, (i) laws and regulations relating
to emissions, discharges, releases, or threatened
releases of Substances of Concern, and (ii) common law
principles of tort liability.
c. "Substances of Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous
substances, radioactive materials or genetically
modified organisms, which are, have been or become
regulated by any federal, state or local government
authority including, without limitation, (i) petroleum
or any fraction thereof, (ii) asbestos, (iii) any
substance or material defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation, and Liability Act
(42 U.S.C. Section
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9601), or (iv) any substance or material defined as
a "hazardous chemical" pursuant to the federal Hazard
Communication Standard (29 C.F.R. Section 1910.1200).
7.13.2 To the Sellers' knowledge, each Seller and
Property are in full compliance with all applicable
Environmental Laws, which compliance includes, but is not
limited to, possession by each Seller of all permits and
other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and
conditions thereof. No Seller has received any
communication (written or oral), whether from a governmental
authority, citizens group, employee or otherwise, that
alleges that such Seller or Property is not in full
compliance with the Environmental Laws, and, to the Sellers'
best knowledge after due inquiry, there are no circumstances
that may prevent or interfere with such full compliance in
the future.
7.13.3 There is no Environmental Claim pending (or to any
Sellers' knowledge threatened) against any Seller or, to
each Seller's best knowledge after due inquiry, against any
person or entity whose liability for any Environmental Claim
any Seller has retained or assumed either contractually or
by operation of law.
7.13.4 To the Sellers' knowledge, there are no past or
present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the
release, emission, discharge, presence, or disposal of any
Substance of Concern, at or relating to any of the
Properties that could form the basis of any Environmental
Claim against any Seller or, to each Seller's best knowledge
after due inquiry, against any person or entity whose
liability for any Environmental Claim any Seller has
retained or assumed either contractually or by operation of
law.
7.13.5 Without in any way limiting the generality of the
foregoing, to the best of any Seller's knowledge, (a) all
on-site and off-site locations where any Seller has treated,
disposed, or arranged for the disposal of Substances of
Concern or stored hazardous wastes (as defined under the
Resource
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Conservation and Recovery Act or analogous state
laws) are identified in SCHEDULE 7.13.5(a); (b) no Property
has any underground or aboveground storage tanks, whether or
not currently in use, and, no underground or above ground
storage tank that has been removed from any Property has
leaked; (c) there is no asbestos contained in or forming
part of any building, building component, structure or
office space on any Property; (d) no polychlorinated
biphenyls (PCBs) are used or stored on any Property; (e) the
Sellers have previously provided to the Company copies of
all environmental audit reports, Phase I and Phase II
investigation reports, technical reports regarding
environmental sampling results, and similar environmental
reports in the possession of the Sellers or their
contractors or agents relating to any Property; and (f) all
permits and other governmental authorizations currently held
by any Seller for any Property pursuant to the Environmental
Laws are identified in SCHEDULE 7.13.5(f).
7.14 INSURANCE. SCHEDULE 7.14 contains a complete and correct
description of all policies of insurance presently maintained by the Sellers
with respect to all Properties and the operations thereof. To the knowledge
of the Sellers, each Seller and Property is in compliance with the
requirements of each such policy, there is no violation of any of the
provisions thereof, and each such policy is in full force and effect. No
Seller has received from any insurance company which carries underwriters
insurance on any Property, or any Board of Fire Underwriters, any notice of
any defect or inadequacy in connection with any Property or its operation
which, since the date of such notice, has not been corrected.
7.15 COMPLIANCE. To each Seller's knowledge, each Seller has
complied in all material respects with all laws, ordinances, rules,
regulations and orders of all governmental authorities applicable to the
ownership, management, operation, construction, maintenance and repair of any
Property.
7.16 LEASES.
7.16.1 Copies of all Leases for each of the Properties
and all parts thereof, as amended through the date hereof
have been made available to the Company and the Partnership;
such copies are and shall be, in all material respects,
true, accurate and complete records of all agreements and
understandings with respect to the use or lease of all or
any portion of any of the Properties or otherwise
constituting Leases that are currently outstanding including
all amendments and modifications thereto.
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7.16.2 SCHEDULE 2.1 contains a true, complete and correct
list of all current Leases for the Properties or any part
thereof.
7.16.3 No Prior Occupant has an option or right of
refusal to purchase any Property or any part thereof.
7.16.4 Except as specified in the Estoppel Letter
approved by the Company and sent to a Prior Occupant, no
Prior Occupant is entitled to any rebate, concession,
deduction or offset.
7.16.5 Except as specified in the Estoppel Letter
approved by the Company and sent to a Prior Occupant, no
Prior Occupant has paid any rent, additional rent or other
charge of any nature for a period of more than thirty (30)
days in advance.
7.16.6 No Prior Occupant has any claim or basis for any
claim for reduction, deduction or set-off against the
landlord or the rent under such Lease.
7.16.7 No Seller or Affiliate has refused to execute and
deliver the Company Lease at Closing, or no Prior Occupant
has refused to vacate its premises or such Property, or
otherwise to cease occupancy of its premises or such
Property.
7.16.8 Except as set forth on SCHEDULE 2.1, the Seller is
the landlord under the Leases.
7.17 SERVICE CONTRACTS; MANAGEMENT CONTRACTS. SCHEDULE 7.17(a)
is a list of all contracts affecting or pertaining to the Properties or
Sellers' Business that have a monetary obligation of at least $25,000 per
year and are not cancellable without penalty by Sellers upon notice of one
year or less, including all employment, union, purchase, service and
maintenance agreements, leasing agreements, listing agreements, equipment
leases, utility contracts, licensing or leasing contracts for personal
property, and any other agreements, contracts, licenses and permits of any
kind affecting or pertaining to the Properties or any part thereof (the
"Service Contracts"), and including a list of all management contracts
relating to the Properties (the "Management Contracts"). There will be no
contract or agreement in effect, between Seller and any third party for the
management or leasing of any Property other than the Management Contracts and
no leasing commission is due and owing. Each of the Service Contracts is in
full force and effect and constitutes the legal, valid and binding obligation
of the respective parties thereto, enforceable in accordance with its terms,
and
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has not been modified, amended or extended. Each of the Management Contracts
is in full force and effect and constitutes the legal, valid and binding
obligation of the respective parties thereto, enforceable in accordance with
its terms, and has not been modified, amended or extended.
7.18 PERMITS. All permits, licenses, inspections and other
approvals from all applicable governmental authorities having jurisdiction
over each Seller and Property that are necessary in connection with the
operation of the use, ownership and operation of each Property as it is
currently used, have been obtained and are in full force and effect.
7.19 OTHER LIABILITIES. Other than the Mortgage Debt, there are
no debts, liabilities or obligations (whether known or unknown, disputed or
undisputed, fixed, contingent or otherwise) associated with or relating to
any of the Properties, or secured by any of the Properties.
7.20 TAX MATTERS. The Sellers or their Designees have relied
solely on their own counsel for advice on any and all federal, state and
local tax matters relating to this Agreement and the transactions
contemplated herein and have not relied on any advice or representations of
the Company, the Partnership, or their counsel with respect to any federal,
state and local tax matters relating to this Agreement or the transactions
contemplated herein.
7.21 TAXES. The Sellers have filed all federal, state and local
tax returns required to be filed by the Sellers. With respect to any periods
prior to the Closing Date, each Seller (i) has no knowledge of any unpaid
taxes that would create a lien on any Property, and (ii) has paid in full all
taxes and assessments payable or is diligently pursing with the appropriate
authority any dispute such Seller has regarding any unpaid taxes or
assessments as of the Closing Date.
7.22 SPECIAL FILINGS. No Seller is required to submit any
notice, report or other filing to any governmental or regulatory authority in
connection with the execution, delivery or performance of this Agreement or
any document or instrument executed and delivered in connection herewith or
the consummation of the transactions contemplated hereby other than the
filing of the tax returns required by the terms of this Agreement and the
filing of an 8-K notice with the Securities and Exchange Commission.
7.23 BOOKS AND RECORDS. The books and records of each Seller
with respect to each Property, all of which have been or will be made
available to the Company and the Partnership, are, and will be at all times
until Closing, complete and correct in all material respects. All of such
books and records shall be made available to the Company for examination
prior to the Closing.
7.24 NO BROKERS. No Seller has dealt with any agent, broker or
other person acting pursuant to express or implied authority of any Seller
(each a "Broker"), and no person or entity is entitled to a commission or
finder's fee in connection with the sale and purchase described by this
Agreement or will be entitled to make any claim against the Company, or the
Partnership for a commission or finder's fee by reason of any Seller having
engaged such Broker.
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7.25 ALL MATERIAL INFORMATION. With respect to all information,
statements, representations and warranties made herein, any agreements or
documents contemplated hereby, any schedules or exhibits hereto, and any
certificates or instruments delivered in connection herewith, the Sellers
hereby represent and warrant that no information, statement, representation
or warranty herein or therein contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in
which made, not misleading; or necessary in order to provide the Partnership
or the Company with true, accurate and complete information. No Seller has
knowledge or information of any facts, circumstances or conditions which do
or could (whether by the passage of time or the giving of notice or both)
materially and adversely affect any Property or the operation or intended use
of the same.
7.26 SURVIVAL OF WARRANTIES, REPRESENTATIONS AND COVENANTS. The
foregoing representations and warranties shall not be affected by any
investigation or verification made by or on behalf of the Company or the
Partnership. The representations, warranties and covenants of Sellers made in
this Agreement shall survive the Closing and consummation of the transactions
contemplated hereby, and shall remain in full force and effect so long as the
Company or the Partnership provides the Sellers with written notice of any
breach, violation or right to indemnification thereunder within a period
ending 24 months from the date of this Agreement, except that in the case of
any claim arising out of the representations or warranties herein relating to
Section 7.13 (Environmental Matters) and Section 7.21 (Taxes), such
representations and warranties shall survive in each case until the
applicable statute of limitations has run. After Closing, neither the
Company nor the Partnership shall prosecute any claim against any Seller for
a breach of the foregoing representations and warranties if the Company or
the Partnership have obtained knowledge of such breach prior to Closing.
8. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PARTNERSHIP
The Partnership and the Company, jointly and severally, represent and
warrant to the Seller that the following are true, complete and correct as of
the date of this Agreement and as of the Closing:
8.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the
Company and the Partnership (i) is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
(ii) has all requisite power and authority to carry on its business and own
or lease and operate its assets and properties in the manner in which it is
being conducted and owned or leased and operated, as the case may be, and
(ii) is duly qualified and authorized to transact business and is in good
standing in all jurisdictions where its ownership, lease or operation of its
properties or assets or the conduct of its business requires such
qualification or authorization.
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8.2 AUTHORIZATION. The execution and delivery of this Agreement
and all agreements, documents and instruments contemplated hereby and the
performance of all transactions contemplated herein or therein, have been
duly and validly authorized by all requisite action by the Company and its
board of trustees; and by all requisite action of the Partnership. This
Agreement and the agreements, documents and instruments executed and
delivered in connection herewith constitute the legal, valid and binding
obligation of each of the Company and the Partnership, enforceable in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity) and except to the
extent that rights to indemnification and sale and purchase under or
contemplated by this Agreement or such other agreements may be limited by
federal or state securities laws or public policy relating thereto. To the
knowledge of the Partnership, the Partnership is not required to obtain any
consent, authorization, approval or waiver from any governmental agency or
authority or from any third party in connection with the execution and
delivery of, and the performance of the obligations to be performed under,
this Agreement and the documents and instruments executed and delivered in
connection herewith, or if any of the foregoing is required, it has been
obtained.
8.3 NO VIOLATION. The execution and delivery of this Agreement
and the agreements, documents and instruments executed and delivered in
connection herewith, the consummation of the transactions hereby or thereby,
and the operation of any Property shall not: (i) conflict with, violate, or
result in a breach of, the terms, conditions or provisions of, or constitute
a default under, any agreement, contract, Mortgage, deed, lease, license,
franchise or instrument to which the Company or the Partnership is a party or
is subject; (ii) constitute a violation of any applicable code, resolution,
law, statute, regulation, ordinance, rule, judgment, decree or order to the
Company or the Partnership; or (iii) violate any provision of the
organizational documents of the Company or the Partnership.
8.4 TAX STATUS. As of the Closing, the Partnership will be
qualified as a partnership for Federal income tax purposes, and the Company
will be qualified as a real estate investment trust organized under the laws
of the State of Maryland.
8.5 NO LITIGATION. Neither the Partnership nor the Company is
involved in any pending or, to its knowledge, threatened litigation that
would materially or adversely effect its operations or financial condition or
the ability to perform under this Agreement or the Partnership Agreement.
8.6 NO BROKERS. Neither the Partnership nor the Company has
dealt with any agent, broker or other person acting pursuant to express or
implied authority of either such party, and no person or entity is entitled
to a commission or finder's fee in connection with the transactions
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contemplated by this Agreement or will be entitled to make any claim against
any Seller for a commission or finder's fee by reason of the Company or the
Partnership having engaged him/her/it.
8.7 SURVIVAL. The representations and warranties of the Company
and the Partnership made in this Section 11 shall survive the Closing and
consummation of the transactions contemplated hereby, and shall remain in
full force and effect so long as the Seller provides the Company or the
Partnership with written notice of any breach, violation or right to
indemnification thereunder within a period ending twenty-four (24) months
from the date of this Agreement. After Closing, the Seller shall not
prosecute any claim against the Company or the Partnership for a breach of
the foregoing representations and warranties if the Seller obtained knowledge
of such breach prior to Closing.
9. COVENANTS
9.1 COVENANTS OF THE COMPANY AND THE PARTNERSHIP. Each of the
Company and the Partnership hereby covenants as follows:
9.1.1 If this Agreement is terminated for any reason,
(a) the Partnership and the Company shall promptly return to
Sellers all materials furnished by Sellers to the
Partnership and the Company pursuant to this Agreement, and
(b) the Partnership and the Company shall promptly restore
the Properties to substantially the same condition in which
they existed immediately before any physical tests conducted
by or on behalf of the Partnership and the Company pursuant
to the purposes of this Agreement.
9.1.2 Prior to the Closing Date, except as may be
required to be disclosed by law (including federal and state
securities laws, and the rules and regulations thereunder),
regulation or legal process, or unless otherwise consented
to in writing by the Sellers, which consent shall not be
unreasonably withheld, the Partnership and the Company shall
keep all information learned by the Partnership and the
Company in connection with the Properties or any operation
thereof confidential.
9.1.3 In connection with inspection of the Properties,
the Partnership and the Company shall not unreasonably
interfere with any Prior Occupants or any Seller's business
operations.
9.1.4 The Partnership shall not sell, repay Mortgage
Debt, finance, refinance or otherwise take any actions that
are
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prohibited with respect to any specified Properties to
the extent described on SCHEDULE 9.1.4. Notwithstanding the
provisions of this Section, the Partnership may (A) at any
time, sell or exchange one or more of the Properties in a
"like kind exchange" under Section 1031 the Code (or any
successor or similar section) in which no gain is recognized
by the Partnership and reasonable provisions are made (such
as by substituted debt) to avoid triggering gain to the
Seller. Notwithstanding the provisions of this Section, the
Company may sell the Properties which relate to the: (1)
closure of the Dealership on such Property due to
termination of the Franchise Agreement, (2) sale of the
Dealership on such Property, or (3) closure of the
Dealership on such Property for any reason if a new
Dealership does not open on such Property with 24 months,
unless expressly waived by the Company.
9.1.5 [Intentionally Omitted]
9.1.6 The parties acknowledge and agree that the Sellers
and their affiliates are required under this Agreement and
the Company Leases to provide to the Company certain
confidential financial information (the "Confidential
Information") with respect to the business conducted on the
Leased Properties. The Company agrees to use the
Confidential Information solely for the purposes of
monitoring compliance with the terms of this Agreement and
the Company Leases, and the Confidential Information shall
be disclosed only to those of the Company's employees,
advisors and consultants to whom it is necessary for such
purposes. Moreover, the Company will use its best efforts
to implement policies and procedures at the Board of
Trustees level so as to minimize the disclosure of
Confidential Information to Trustees having interest in
businesses that compete with the Sellers and their
affiliates.
9.1.7 Between the date of this Agreement and the Closing
Date, the Partnership and the Company will use their best
efforts to cause the conditions in this Agreement to be
satisfied.
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9.1.8 Except as otherwise required under this Agreement,
the Partnership shall pay-off the Mortgage Debt at Closing
and obtain and record full releases of such Mortgage Debt.
9.2 COVENANTS OF THE SELLERS AND THE CONTRIBUTING ENTITIES. The
Sellers hereby covenant and agree as follows:
9.2.1 If this Agreement is terminated as to all
Properties for any reason, the Sellers shall promptly return
to the Company or the Partnership, as the case may be, all
materials furnished by the Company or the Partnership, to
such Sellers pursuant to this Agreement.
9.2.2 Each Seller shall keep all information relating to
the Partnership or the Company or any operation thereof
confidential.
9.2.3 In the event that facts or circumstances are
discovered or develop that could form the basis of an
Environmental Claim with respect to a specific Property or
Properties, the Seller(s) of such Property or Properties
shall take all actions necessary to fully address such
circumstances, including, without limitation, providing
notice to appropriate governmental authorities; conducting
environmental studies, sampling and testing procedures;
taking remedial action; and modifying operations or physical
facilities to otherwise eliminate potential liability and
ensure full compliance with the Environmental Laws. Without
limiting the foregoing, each Seller shall ensure that it has
identified any underground storage tanks ("USTs") used in
conjunction with its operations and that all registration,
investigation, remedial action and technical upgrade
requirements have been complied with fully in respect of
each such UST.
9.2.4 Between the date of this Agreement and the Closing
Date, Sellers shall use their best efforts to cause the
conditions in this Agreement to be satisfied.
9.3 NO CLAIM AGAINST PROPERTY. Each Seller hereby represents,
warrants, covenants and agrees that, as of the Closing Date, each Seller: (i)
will have no claim of any kind or nature against any Property by reason of
the execution of this Agreement; and (ii) hereby waives, releases and
discharges any claim any Seller has or may have with respect thereto.
Notwithstanding
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Section 7.26, this representation, warranty, covenant and agreement shall
survive the closing of the transactions contemplated hereby and shall
continue in effect.
10. DUE DILIGENCE PERIOD
10.1 DUE DILIGENCE PERIOD. The period from the date hereof until
the Closing Date is referred to herein as the "Due Diligence Period."
10.2 ACCESS TO PROPERTIES AND MATERIALS. During the Due Diligence
Period and upon twenty-four (24) hours prior notice, the Company and the
Partnership and their agents, engineers, surveyors, appraisers, auditors,
counsel and other representatives shall have the right to enter upon the
Properties to inspect, examine, survey, obtain engineering inspections and
environmental studies, appraise, and otherwise do that which, in the opinion
of the Partnership and the Company, is necessary to determine the boundaries,
acreage and condition of the Properties and to determine the suitability of
the Properties for the uses intended by the Partnership (including, without
limitation, inspect, review and copy any and all documents in the possession
or control of Sellers, or their respective agents, contractors or employees,
and which pertain to the construction, ownership, title, use, occupancy or
operation of the Properties or any part thereof). During the Due Diligence
Period, the Sellers, at their expense and at such times as will not
unreasonably interfere with the business being conducted on the Property or
hinder the Partnership's due diligence review, shall make available to the
Company and the Partnership copies or originals of all of their respective
books, files and records relating in any way to the Properties, complete
copies (or originals when requested) of all title information and title
insurance policies, easements, leases, brokerage agreements, licenses,
permits, surveys, zoning information, environmental reports, structural
reports, violation or default notices, contracts, tax bills and assessments,
information regarding pending or threatened claims, suits or proceedings, and
all consents and other documents required to be obtained for the completion
of the transactions contemplated hereunder.
10.3 ADJUSTMENT FOLLOWING DUE DILIGENCE. If the Company or
Partnership determines that one or more representations or warranties or any
information included on any SCHEDULE relating to any Property is incomplete
or inaccurate in any material respect (the "Non-Conforming Property"), the
Company shall have the option to: (a) proceed with the transactions
contemplated hereby, (b) declare this Agreement null and void in which case
no party shall have any rights or obligations under this Agreement, or (c)
terminate this Agreement with respect to such Non-Conforming Property and
proceed with the transactions hereby with respect to the other Properties, in
which case the Aggregate Purchase Price shall be reduced by the Purchase
Price of such Non-Conforming Property. Notwithstanding anything herein to the
contrary, if the Partnership excercises its rights under Section 10.3(c)
above with respect to any Non-Conforming Property other than due to a title
defect (pursuant to Section 3.3) or a misrepresentation or breach of any
environmental representation, warranty or covenant (as set forth in Section
7.13), then the Sellers shall have the option of declaring this Agreement
null and void with respect to all Properties.
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11. DEFAULTS AND REMEDIES
11.1 INDEMNIFICATION BY SELLERS. The Sellers, jointly and
severally (each, for purposes of Sections 11.1 and 11.2, a "Seller
Indemnifying Party"), shall indemnify, defend and hold harmless the
Partnership, the Company and their respective shareholders, partners,
trustees, officers, agents, representatives, employees, Affiliates,
successors and assigns (collectively, for purposes of this paragraph, the
"Company Indemnified Parties") from and against any and all losses, damages,
claims, liabilities, actions, suits, proceedings and reasonable costs and
expenses of investigation or defense thereof, including reasonable attorneys'
fees payable as incurred, arising out of or relating to any (a)
misrepresentation or breach of warranty by any Seller or nonfulfillment of
any covenant or agreement to be performed or complied with by such Seller
under this Agreement and any agreement, document, instrument, certificate,
schedule or exhibit contemplated hereby; (b) untrue or incomplete statement
of a material fact contained in any statement or information provided by any
Seller or based on any omission to state therein a material fact required to
be stated therein or other information necessary to make the statements
therein not misleading, to the extent such alleged untrue or incomplete
statement or omission was made with any Seller's knowledge that the statement
was untrue or incomplete or omitted to state a material fact; (c) any debts,
liabilities or obligations (whether known or unknown, disputed or undisputed,
fixed, contingent or otherwise) associated with or relating to any of the
Sellers, their officers, directors, partners, trustees or Affiliates or the
Properties, or secured by any of the Sellers, or by any of the Properties,
including any obligations under any of the Leases, Service Contracts and
Management Contracts, to the extent any such obligation was to be performed
prior to the Closing Date, or was to be performed after the Closing Date as a
result of a breach or default under any of the Leases or Service Contracts by
any Seller or its Affiliates prior to the Closing Date; (d) any action taken,
or any failure to act, by any Seller in connection with this transaction and
the transactions contemplated herein constituting a breach of this Agreement
or any agreement, document or instrument contemplated hereby or a breach of a
duty owed to any person, including, without limitation, any action taken to
redeem or otherwise liquidate the interest of certain holders in anticipation
of the transactions contemplated herein, to the extent such action or failure
to act results in a violation (or alleged violation) of applicable laws or of
the fiduciary duties owed to such holders; (e) pollution or threat to human
health or the environment, or any Environmental Claim against any person or
entity whose liability for such Environmental Claim any Seller has assumed or
retained either contractually or by operation of law, that is related in any
way to any of the Properties, including, without limitation, all on-site and
off-site activities relating to any of the Properties involving Substances of
Concern, and that occurred, existed, arises out of conditions or
circumstances that occurred or existed, or was caused, in whole or in part,
on or before the Closing Date, whether or not the pollution or threat to
human health or the environment, or the existence of any Environmental Claim,
is known to any Seller; (f) regardless of whether it arises as a breach of
any representation or warranty, any debts, liabilities or obligations of any
Seller (whether known or unknown, disputed or undisputed, fixed, contingent
or otherwise) of, associated with or relating to any asset or property other
than the Properties; and (g) any and all damages and expenses incident to any
of the foregoing or to the enforcement of this Section 11.1.
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11.2 REMEDIES.
11.2.1 [Intentionally Omitted]
11.2.2 Each Seller Indemnifying Party shall be fully
responsible and jointly and severally liable for any of the
following and any and all losses, damages, claims,
liabilities, actions, suits, proceedings and reasonable
costs and expenses of defense thereof, including reasonable
attorneys' fees payable as incurred, arising out of or
relating to: (a) each representation and warranty made by
each Seller hereunder relating to or associated with title
such Seller's interest in any Property and such Seller's
ability to convey such Seller's interest as contemplated by
this Agreement; (b) regardless of whether it arises as a
breach of any representation or warranty, any debts,
liabilities or obligations (whether known or unknown,
disputed or undisputed, fixed, contingent or otherwise) of,
associated with or relating to any of the Sellers, or the
Properties, or secured by any of the Sellers or by any of
the Properties, and (c) regardless of whether it arises as a
breach of any representation or warranty, any debts,
liabilities or obligations of the Sellers (whether known or
unknown, disputed or undisputed, fixed, contingent or
otherwise) of, associated with or relating to any other
asset or property other than the Properties.
11.2.3 Each Seller hereby represents, warrants, covenants
and agrees that he/she/it presently has, a tangible net
worth (such term meaning net worth exclusive of the value
(if any) of goodwill, going concern value and similar
assets, but inclusive of the value of shares of stock,
interests in partnerships and other business enterprises and
similar assets) of not less than the Aggregate Purchase
Price, minus all Mortgage Debt for all Properties being
acquired by the Partnership pursuant to this Agreement.
11.3 INDEMNIFICATION BY THE COMPANY AND THE PARTNERSHIP. The Company
and the Partnership (each, for purposes of this Section 11.3, a "Company
Indemnifying Party") shall indemnify, defend and hold harmless each Seller and
their respective shareholders, partners, directors, officers, partners, agents,
employees, Affiliates, successors and assigns (collectively, for purposes of
this paragraph, "Seller Indemnified Parties") from and against any and all
losses,
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damages, claims, liabilities, actions, suits, proceeds and costs and expenses
of defense therefore, including attorneys' fees payable as incurred, arising
out of or relating to any (a) misrepresentation or breach of warranty by such
Company Indemnifying Party or nonfulfillment of any covenant or agreement to
be performed or complied with by such Company Indemnifying Party under this
Agreement; (b) untrue or incomplete statement (or allegation by a third party
of an untrue or incomplete statement) of a material fact contained in any
statement or information provided by such Company Indemnifying Party or based
on any omission (or allegation by a third party of an untrue or incomplete
statement) to state therein a material fact required to be stated therein or
other information necessary to make the statements therein not misleading, to
the extent such alleged untrue or incomplete statement or omission was made
with the Company's or the Partnership's knowledge that the statement was
untrue or incomplete or omitted to state a material fact; (c) any Service
Contracts that survive the Closing Date, to the extent any such obligation is
to be performed after the Closing Date, except to the extent any such
obligation is to be performed after the Closing Date as a result of a breach
or default under any of the Leases or Service Contracts by the Seller prior
to the Closing Date; (d) any damage caused to the Property or incurred by any
third party as a result of the Partnership's environmental review or due
diligence investigation; and (e) any and all damages and expenses incident to
any of the foregoing or to the enforcement of this Section 11.3.
11.4 INDEMNIFICATION PROCEDURES. All claims for indemnification
under this Article 14 shall be asserted and resolved as follows:
11.4.1 In the event that any Seller Indemnified Party or
Company Indemnified Party (the "Indemnified Party") has a
Claim against any Seller Indemnifying Party or Company
Indemnifying Party obligated to provide indemnification
pursuant to Sections 11.1 or 11.2 hereof, on the one hand,
or Section 11.3 hereof, on the other hand (the
"Indemnifying Party"), which does not involve a claim being
asserted against or sought to be collected by a third party,
the Indemnified Party shall with reasonable promptness send
a written notice (the "Claim Notice") with respect to such
claim to the Indemnifying Party. If the Indemnifying Party
does not notify the Indemnified Party within the thirty (30)
days thereafter (the "Notice Period") that the Indemnifying
Party disputes such claim, the amount of such claim shall be
conclusively deemed a liability of the Indemnifying Party
hereunder. In case an objection is made in writing in
accordance with this Section 11.4.1, the Indemnified Party
shall have thirty (30) days to respond in a written
statement to the objection. If after such thirty (30) day
period there remains a dispute as to any claims, the parties
shall attempt in good faith for sixty (60) days to agree
upon the rights of the respective parties with respect to
each of such claims. If the
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parties should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties.
11.4.2 In the event that any claim for which the
Indemnifying Party would be liable to an Indemnified Party
hereunder is asserted, or any action or proceeding
commenced, against an Indemnified Party by a third party,
the Indemnified Party shall with reasonable promptness
notify the Indemnifying Party of such claim, specifying the
nature of such claim and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall
not be conclusive of the final amount of such Claim) (the
"Third Party Claim Notice"). The Indemnifying Party shall
have 30 days from the receipt of the Claim Notice (the
"Third Party Notice Period") to notify the Indemnified Party
(a) whether or not such party disputes the liability to the
Indemnified Party hereunder with respect to such claim and
(b) if such party does not dispute such liability, whether
or not the Indemnifying Party desires, at the sole cost and
expense of the Indemnifying Party, to defend against such
claim, provided that such party is hereby authorized (but
not obligated) prior to and during the Third Party Notice
Period to file any motion, answer or other pleading and to
take any other action which the Indemnifying Party shall
deem necessary or appropriate to protect the Indemnifying
Party's interests. In the event that the Indemnifying Party
notifies the Indemnified Party within the Third Party Notice
Period that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify hereunder and
desires to defend the Indemnified Party against such claim,
except as hereinafter provided, such party shall have the
right to defend by appropriate proceedings. No non-monetary
settlement of any such matter shall be entered into without
the written consent of the Indemnified Party, which consent
shall not be unreasonably withheld; provided that, unless
the Indemnified Party otherwise agrees in writing, such
party may not settle any matter (in whole or in part) unless
such settlement includes a complete and unconditional
release of the Indemnified Party. If the Indemnified Party
desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole
cost and expense. If the Indemnifying Party elects not to
defend the
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Indemnified Party against such claim, whether by
failure of such party to give the Indemnified Party timely
notice as provided above or otherwise, then the Indemnified
Party, without waiving any rights against such party, may
settle or defend against any such claim in the Indemnified
Party's sole discretion and the Indemnified Party shall be
entitled to recover from the Indemnifying Party the amount
of any settlement or judgment to the extent the Indemnified
Party is entitled to indemnification and, on an ongoing
basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest
from the date such costs and expenses were incurred.
11.4.3 If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing
to the Indemnifying Party, any such claim seeks material
prospective or other relief which could have a materially
adverse effect on the assets, liabilities, financial
condition, results of operations or business prospects of
any Indemnified Party or in the reasonable opinion of
counsel for the Indemnified Party a conflict exists, the
Indemnified Party shall have the right to control or assume
(as the case may be) the defense of any such claim and the
amount of any judgment or settlement and the reasonable
costs and expenses of defense shall be included as part of
the indemnification obligations of the Indemnifying Party
hereunder. If the Indemnified Party should elect to
exercise such right, the Indemnifying Party shall have the
right to participate in, but not control, the defense of
such claim or demand at the sole cost and expense of the
Indemnifying Party.
11.4.4 Nothing herein shall be deemed to prevent the
Indemnified Party from making a claim, and an Indemnified
Party may make a claim hereunder, for potential or
contingent claims or demands provided the Claim Notice or
Third Party Claim Notice, as the case may be, sets forth the
specific basis for any such potential or contingent claim or
demand to the extent then feasible and the Indemnified Party
has reasonable grounds to believe that such a claim or
demand may be made.
11.4.5 The Indemnified Party's failure to give reasonably
prompt notice as required by this Section 11.4 of any
actual, threatened or possible claim, demand, action or
proceeding
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which may give rise to a right of indemnification
hereunder shall not relieve the Indemnifying Party of any
liability which the Indemnifying Party may have to the
Indemnified Party unless the failure to give such notice
materially and adversely prejudiced the Indemnifying Party
or increases the amount of indemnification which the
Indemnifying Party is obligated to pay hereunder. In any
such event, the amount of indemnification which the
Indemnified Party will be entitled to receive hereunder
shall be reduced to an amount which the Indemnified Party
would have been entitled to receive had such notice been
timely.
12. MISCELLANEOUS
12.1 ASSIGNMENT. Neither this Agreement nor any interest
hereunder may be assigned or transferred by any Seller without the prior
written consent of the Company or the Partnership. As of the Closing Date,
theCompany or the Partnership may assign, transfer or demise any or all of
its interest in any Property to any Affiliate (the "Permitted Transferees")
without the prior consent of the Sellers.
12.2 ENTIRE AGREEMENT. Any prior agreement or understanding
among the parties concerning the subject matter hereof is hereby superseded.
This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof and the transactions contemplated herein
and shall not be modified or amended except in a written document signed by
all of the parties hereto.
12.3 NOTICES. All notices or other communications required or
permitted under this Agreement shall be in writing and delivered personally
or by registered or certified mail, return receipt requested, postage
prepaid, or by a nationally recognized overnight courier (such as Federal
Express) with receipted delivery. Notices to the parties shall be addressed
as follows:
If to the Sellers to the addresses contained in SCHEDULE I;
with a copy to:
Sprouse, Mozola, Smith & Rowley, P.C.
801 S. Filmore, Suite 600
Amarillo, Texas 79101
Attention: Jeff Tankersley
If to the Partnership or to the Company:
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<PAGE>
Capital Automotive REIT
1925 North Lynn Street
Suite 306
Arlington, Virginia 22209
Attention: Thomas D. Eckert, President and Chief Executive Officer
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037
Attention: George P. Stamas, Esq.
All notices given in accordance with the terms hereof shall be deemed
effective (a) if delivered in person or by overnight courier, on the business
day it is delivered, and (b if sent by registered or certified mail, three
(3) business days after deposit with the U.S. mail. Any party hereto may
change its address by written notice to all parties hereto sent in accordance
with the terms of this Section and any such Notice of change of address shall
be effective five (5) days after delivery.
12.4 GOVERNING LAW. This Agreement shall be governed and
interpreted in accordance with the laws of the Commonwealth of Virginia
without regard to its principles of conflicts of laws, and any action brought
under or arising out of this Agreement or the matters relating hereto shall
be submitted to the jurisdiction of the United States District Court for the
Eastern District of Virginia. Each party acknowledges and agrees to such
jurisdiction.
12.5 LITIGATION COSTS. If there is any legal action or
proceeding between the parties hereto arising from or based upon this
Agreement, the unsuccessful party to such action or proceeding shall pay to
the prevailing party all litigation costs and expenses, including reasonable
attorneys' fees, incurred by such prevailing party in such action or
proceeding and in any appeal in connection therewith, and if such prevailing
party recovers a judgment in any such action, proceeding or appeal, such
costs, expenses and attorneys' fees shall be included in as part of such
judgment.
12.6 COUNTERPARTS. This Agreement may be executed in any
number of identical counterparts, any or all of which may contain the
signatures of fewer than all of the parties but all of which shall be taken
together as a single instrument.
12.7 OFFER AND ACCEPTANCE. This Agreement constitutes an offer
by the Company and the Partnership which must be accepted, by delivery to the
Company of a duly signed and completed signature page hereof, by all of the
Sellers within five (5) days after the date this Agreement is signed by the
Company and the Partnership. If, within such time period, less than all of
the persons owning any interest in a Seller shall have signed this Agreement,
then the Seller and the Property owned by such Seller shall, at the sole
option of the Company, be excluded from the
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<PAGE>
sale and purchase hereunder, this Agreement shall remain in full force and
effect as to the other Sellers and Properties, and an appropriate adjustment
shall be made with respect to the relevant Property, in which case the
Aggregate Purchase Price shall be reduced by the Purchase Price of such
Property as provided in this Agreement; if after the expiration of such time
period all of the Sellers execute this Agreement, the Company, at its sole
option, may elect to re-include, or may continue to exclude, any such Seller
and Property.
12.8 ARBITRATION. In the event a dispute arises between the
parties as to any of the requirements of this Agreement or the performance
under this Agreement, which the parties are unable to resolve, the parties
agree to waive the remedy of litigation (except for extraordinary relief in
an emergency situation) and agree that such dispute or disputes shall be
determined by arbitration. Notwithstanding the foregoing, the parties
acknowledge and agree that this Section 12.8 is not intended to create new
rights.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal, with the intention that it be a sea ed instrument, as of the date
set forth above.
WITNESS CAPITAL AUTOMOTIVE REIT
By: /s/ ____________________________ By: /s/ THOMAS D. ECKERT (SEAL)
Name: ____________________________ Name: Thomas D. Eckert
Title: ____________________________ Title: President and Chief Executive
Officer
CAPITAL AUTOMOTIVE L.P.
WITNESS By: Capital Automotive REIT, as General
Partner
By: ____________________________ By: ____________________________ (SEAL)
Name: ____________________________ Name: Thomas D. Eckert
Title: ____________________________ Title: President and Chief Executive
Officer
WITNESS SELLER: PLAINS CHEVROLET, INC.,
a Texas corporation
By: ____________________________ By: ____________________________ (SEAL)
Name: ____________________________ Name: Robert W. Hall
Title: ____________________________ Title: Vice President
Address: P.O. Box 750
Amarillo, Texas 79105-0750
Telephone #: (806) 374-8653
Facsimile #: (806) 374-3818
Social Security # or TIN: 75-1057395
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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<PAGE>
WITNESS SELLER: MIDWAY CHEVROLET, INC.
(formerly Yarbrough Chevrolet,
Inc.), a Texas corporation
By: ____________________________ By: ____________________________ (SEAL)
Name:____________________________ Name: Robert W. Hall
Title:___________________________ Title: Vice President
Address: P.O. Box 750
Amarillo, Texas 79105-0750
Telephone #: (806) 374-8653
Facsimile #: (806) 374-3818
Social Security # or TIN: 75-1631858
WITNESS SELLER: WESTGATE CHEVROLET, INC.,
a Texas corporation
By: ____________________________ By: ____________________________ (SEAL)
Name:____________________________ Name: Robert W. Hall
Title:___________________________ Title: Vice President
Address: P.O. Box 750
Amarillo, Texas 79105-0750
Telephone #: (806) 374-8653
Facsimile #: (806) 374-3818
Social Security # or TIN: 75-1324586
WITNESS SELLER: QUALITY NISSAN, INC.,
a Texas corporation
By: ____________________________ By: ____________________________ (SEAL)
Name:____________________________ Name: Robert W. Hall
Title:___________________________ Title: Vice President
Address: P.O. Box 750
Amarillo, Texas 79105-0750
Telephone #: (806) 374-8653
Facsimile #: (806) 374-3818
Social Security # or TIN: 75-1847218
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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<PAGE>
WITNESS SELLER: CROSS-CONTINENT AUTO
RETAILERS, INC.
a Delaware corporation
By: ____________________________ By: ____________________________ (SEAL)
Name:____________________________ Name: Robert W. Hall
Title:___________________________ Title: Vice Chairman
Address: P.O. Box 750
Amarillo, Texas 79105-0750
Telephone #: (806) 374-8653
Facsimile #: (806) 374-3818
Social Security # or TIN: 75-2653095
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Exhibit 10.51.1
PROMISSORY NOTE
$1,500,000.00 Las Vegas, Nevada January 16, 1998
FOR VALUE RECEIVED, the undersigned, T-West Sales & Service, Inc.,
a Nevada corporation (hereinafter referred to as the "Maker"), promises to
pay to the order of R. Douglas Spedding (sometimes hereinafter referred to as
the "Holder"), at 32 Princeville Lane, Las Vegas, Nevada, or at such other
place as the Holder from time to time designate in writing, the principal sum
of ONE MILLION FIVE HUNDRED THOUSAND AND N0/100 DOLLARS ($1,500,000.00) or,
if less, the total of advances from time to time made hereon and remaining
outstanding, in legal and lawful money of the United States of America,
together with interest on the principal outstanding from time to time prior
to maturity at nine percent (9%) per annum. Interest shall be calculated on
the total number of days elapsed and shall be based on a 360-day year. In no
event shall the rate of interest charged on this Note exceed the highest
nonusurious rate of interest permitted by applicable law (the "Highest Lawful
Rate"). Matured unpaid principal and interest shall bear interest until paid
at the Highest Lawful Rate.
The principal and interest hereof shall be due and payable on or before
June 1, 1998.
Advances of principal may be made hereunder at any time prior to
maturity, provided the advance does not cause the outstanding principal
balance of this Note to exceed the Monthly Borrowing Base (hereinafter
defined) for the month in which such advance request is made. "Monthly
Borrowing Base" for each month shall mean the lesser of (a) $1,500,000, or
(b) an amount equal to sixty percent (60%) of the aggregate value of Maker's
used car inventory as shown on that month's financial statements as prepared
by Maker, less any floor plan indebtedness on such used car inventory. In
the event the outstanding principal balance of this Note on February 10,
1998, or on the 10th day of any month thereafter exceeds the Monthly
Borrowing Base for such month, Maker shall promptly reduce the outstanding
principal balance of this Note to an amount equal to or less than the Monthly
Borrowing Base for such month. Advances and payments hereon shall be
evidenced by posting the same to the records of the Holder, and such entries
shall be prima facie evidence of the amount owing on this Note. Interest
shall accrue on principal amounts advanced hereunder only from the dates the
respective principal amounts are advanced. Prepayments may be made in any
amount at any time prior to maturity without premium or penalty, and interest
shall cease to accrue on all principal amounts prepaid. Prepayments shall be
applied first to accrued interest and then toward the reduction of principal.
Amounts prepaid may be reborrowed if Maker is not in default hereunder or
under the Security Agreement (hereinafter defined).
The payment hereof is secured by a Security Agreement (the "Security
Agreement") of even date herewith by and between the Maker and Holder
covering Maker's used car inventory.
It is expressly provided that default in the punctual payment of this
Note or any part hereof, principal or interest, as the same shall become due
and payable, or failure to carry out the other terms hereof, or failure to
keep, observe, and perform any of the covenants, conditions, or agreements
contained in, or the occurrence of any event of default under, the Security
Agreement, or any other instrument now or hereafter taken to secure this Note
or executed in connection with the loan evidenced hereby, shall authorize the
Holder, at its election, and without notice to any person liable hereunder,
to declare the indebtedness evidenced by this Note and the entire
indebtedness secured by the instruments securing this Note to be immediately
due and payable, and shall authorize the Holder to exercise all remedies
provided hereunder, under the Security Agreement, or any other instrument now
or hereafter taken as security herefor, or at law or in equity. No
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<PAGE>
delay on the part of the Holder in the exercise of any power or right under
this Note or under any other instrument executed in connection herewith shall
operate as a waiver thereof. The exercise of, or failure to exercise, any
right or remedy shall not constitute a waiver or release of such right or
remedy or of any other right or remedy.
The Maker hereof and each surety, endorser, and guarantor of this Note
or any part hereof, and any other party liable or to become liable on this
Note or any part hereof, severally (1) waive demand for payment, presentation
for payment, protest, all notices (including, without limitation, notice of
dishonor, notice of protest, notice of intent to accelerate the maturity, and
notice of acceleration of the maturity), diligence in collecting and the
bringing of suit against any party, as to this Note and as to each, every,
and all installments hereof; and (2) consent to all renewals, extensions,
rearrangements, and modifications of, partial payments on, and releases or
substitutions of security for, this Note or any part hereof, with or without
notice, before or after maturity, without releasing any of their liability
hereon.
If this Note is placed in the hands of an attorney for collection or if
collection is attempted by suit or through probate, bankruptcy, insolvency,
or other judicial proceedings, the Maker agrees to pay the collection
expenses of the Holder, including reasonable attorneys' fees. In the event
judgment is rendered on any indebtedness evidenced by this Note such amount
shall bear interest at the Highest Lawful Rate.
It is the intention of Holder and the Maker hereof that this Note
and all provisions hereof and of all documents securing this Note conform in
all respects to applicable law so that no payment of interest or other sum
construed to be interest shall exceed the Highest Lawful Rate. In
determining the rate of interest paid or payable under this Note or any
document securing the same, all funds paid or to be paid as interest or
construed to be interest shall be prorated, allocated, or spread as permitted
under applicable law. If, through any circumstance, the contract of Maker
and Holder would result in exceeding the Highest Lawful Rate, or if the Maker
pays any sum as interest or construed to be interest in excess of such rate,
then (1) the amount contracted for shall be automatically reduced to the
Highest Lawful Rate, and (2) the amount of excess interest paid shall be
applied to the reduction of the principal balance of this Note, if any, and
if the principal balance has been fully paid, the excess interest shall be
refunded to the Maker and Maker agrees to accept such refund. Thereupon, to
the extent permitted by law, the Holder shall not be subject to any penalty
provided for the contracting for, charging, or receiving of interest in
excess of such Highest Lawful Rate, regardless of when or the circumstances
under which such refund or application was made.
T-WEST SALES & SERVICE, INC.,
a Nevada corporation
By:
---------------------------------------
Robert W. Hall, Vice President
GUARANTY
FOR VALUE RECEIVED, Cross-Continent Auto Retailers, Inc. guarantees
payment of this Note according to its terms.
CROSS-CONTINENT AUTO RETAILERS, INC.,
a Delaware corporation
2
<PAGE>
By:
---------------------------------------
Bill Gilliland,
Chairman and Chief Executive Officer
3
<PAGE>
Exhibit 10.51.2
SECURITY AGREEMENT
DATE: January 16, 1998
DEBTOR: T-West Sales & Service, Inc., a Nevada corporation
DEBTOR'S MAILING ADDRESS: 2025 S. Decatur
Las Vegas, Nevada 89102
SECURED PARTY: R. Douglas Spedding
SECURED PARTY'S MAILING ADDRESS: 32 Princeville Lane
Las Vegas, Nevada 89116
COLLATERAL: All used vehicles, including all additions and accessions thereto
and replacements and substitutions therefor; all of the foregoing,
whether now owned or hereafter acquired and wherever located; and
all proceeds from the sale, lease, or other disposition of any of
the foregoing.
OBLIGATION: That certain Promissory Note (the "Note") dated January 16, 1998,
in the principal amount of up to $1,500,000, executed by T-West
Sales & Service, Inc., payable to the order of R. Douglas Spedding.
Subject to the terms of this agreement, Debtor grants to Secured Party a
security interest in the collateral and all its proceeds to secure payment
and performance of Debtor's obligation in this security agreement and all
renewals and extensions of any of the obligation.
DEBTOR'S WARRANTIES
1. Financing Statement. Except for (a) that in favor of Secured Party,
and (b) those in favor of Toyota Motor Credit Corporation, no financing
statement covering the collateral is filed in any public office.
2. Ownership. Debtor owns the collateral and has the authority to
grant this security interest. Ownership is free from any setoff, claim,
restriction, lien, security interest, or encumbrance except this security
interest, the security interests in favor of Toyota Motor Credit Corporation,
and liens for taxes not yet due.
3. Fixtures. None of the collateral is affixed to real estate, or will
become a fixture, except as expressly provided in this agreement.
4. Financial Statements. All information about Debtor's financial
condition provided to Secured Party was accurate when submitted, as will be
any information subsequently provided.
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<PAGE>
DEBTOR'S COVENANTS
1. Protection of Collateral. Debtor will (a) defend the collateral
against all claims and demands adverse to Secured Party's interest in it, and
(b) keep it free from all liens and security interests, except for taxes not
yet due, this security interest and the security interests in favor of Toyota
Motor Credit Corporation. The collateral will remain in Debtor's possession
or control at all times, except as otherwise provided in this agreement.
Debtor will maintain the collateral in good condition and protect it against
misuse, abuse, waste, and deterioration except for ordinary wear and tear
resulting from its intended use.
2. Insurance. Debtor will insure the collateral in accord with Secured
Party's reasonable requirements regarding choice of carrier, casualties
insured against, and amount of coverage. Policies will be written in favor
of Debtor and Secured Party according to their respective interests or
according to Secured Party's other requirements. All policies will provide
that Secured Party will receive at least ten days' notice before
cancellation, and the policies or certificates evidencing them will be
provided to Secured Party when issued. Debtor assumes all risk of loss and
damage to the collateral to the extent of any deficiency in insurance
coverage. Debtor irrevocably appoints Secured Party as attorney-in-fact to
collect any return, unearned premiums, and proceeds of any insurance on the
collateral and to endorse any draft or check deriving from the policies and
made payable to Debtor.
3. Secured Party's Costs. Debtor will pay all expenses incurred by
Secured Party in obtaining, preserving, perfecting, defending, and enforcing
this security interest or the collateral and in collecting or enforcing the
Note. Expenses for which Debtor is liable include, but are not limited to,
taxes, assessments, reasonable attorney's fees, and other legal expenses.
These expenses will bear interest from the dates of payments at the highest
rate stated in the Note, and Debtor will pay Secured Party this interest on
demand at a time and place reasonably specified by Secured Party. These
expenses and interest will be part of the obligation and will be recoverable
as such in all respects.
4. Additional Documents. Debtor will sign any papers that Secured
Party considers necessary to obtain, maintain, and perfect this security
interest or to comply with any relevant law.
5. Notice of Changes. Debtor will immediately notify Secured Party of
any material change in the collateral; change in Debtor's name, address, or
location; change in any matter warranted or represented in this agreement;
change that may affect this security interest; and any event of default.
6. Use and Removal of Collateral. Debtor will use the collateral
primarily as inventory unless Secured Party consents otherwise in writing.
Debtor will not permit the collateral to be affixed to any real estate, to be
or to become a fixture, except as expressly provided in this agreement.
7. Sale. Debtor will not sell, transfer, or encumber any of the
collateral without the prior written consent of Secured Party, provided that
Debtor may sell its used car inventory in the ordinary
2
<PAGE>
course of business.
RIGHTS AND REMEDIES OF SECURED PARTY
1. Generally. Secured Party may exercise the following rights and
remedies either before or after default:
a. take control of any proceeds of the collateral;
b. release any collateral in Secured Party's
possession to any debtor, temporarily or
otherwise;
c. take control of any funds generated by the
collateral, such as refunds from and proceeds of
insurance, and reduce any part of the obligation
accordingly or permit Debtor to use such funds to
repair or replace damaged or destroyed collateral
covered by insurance; and
d. demand, collect, convert, redeem, settle,
compromise, receipt for, realize on, sue for, and
adjust the collateral either in Secured Party's or
Debtor's name, as Secured Party desires.
2. Insurance. If Debtor fails to maintain insurance as required by
this agreement or otherwise by Secured Party, then Secured Party may purchase
single-interest insurance coverage that will protect only Secured Party. If
Secured Party purchases this insurance, its premiums will become part of the
obligation.
EVENTS OF DEFAULT
Each of the following conditions is an event of default:
1. if Debtor defaults in timely payment or performance of any
obligation, covenant, or liability in any written agreement between Debtor
and Secured Party or in any other transaction secured by this agreement;
2. if any warranty, covenant, or representation made to Secured Party
by or on behalf of Debtor proves to have been false in any material respect
when made;
3. if a receiver is appointed for Debtor or any of the collateral;
4. if the collateral is assigned for the benefit of creditors or, to
the extent permitted by law, if bankruptcy or insolvency proceedings commence
against or by any of these parties: Debtor; any partnership of which Debtor
is a general partner; and any maker, drawer, acceptor, endorser, guarantor,
surety, accommodation party, or other person liable on or for any part of the
obligation;
5. if any financing statement regarding the collateral but not related
to this security interest
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<PAGE>
and not favoring Secured Party is filed other than those in favor of Toyota
Motor Credit Corporation;
6. if any lien attaches to any of the collateral; and
7. if any of the collateral is lost, stolen, damaged, or destroyed,
unless it is promptly replaced with collateral of like quality or restored to
its former condition.
REMEDIES OF SECURED PARTY ON DEFAULT
During the existence of any event of default, Secured Party may declare
the unpaid principal and earned interest of the obligation immediately due in
whole or part, enforce the obligation, and exercise any rights and remedies
granted by Article 9 of the Nevada Uniform Commercial Code or by this
agreement, including the following:
1. require Debtor to deliver to Secured Party all books and records
relating to the collateral;
2. require Debtor to assemble the collateral and make it available to
Secured Party at a place reasonably convenient to both parties;
3. take possession of any of the collateral and for this purpose enter
any premises where it is located if this can be done without breach of the
peace;
4. sell, lease, or otherwise dispose of any of the collateral in
accord with the rights, remedies, and duties of a secured party under
Articles 2 and 9 of the Nevada Uniform Commercial Code after giving notice as
required by those chapters; unless the collateral threatens to decline
speedily in value, is perishable, or would typically be sold on a recognized
market. Secured Party will give Debtor reasonable notice of any public sale
of the collateral or of a time after which it may be otherwise disposed of
without further notice to Debtor; in this event, notice will be deemed
reasonable if it is mailed, postage prepaid, to Debtor at the address
specified in this agreement at least ten days before any public sale or ten
days before the time when the collateral may be otherwise disposed of without
further notice to Debtor;
5. surrender any insurance policies covering the collateral and
receive the unearned premium;
6. apply any proceeds from disposition of the collateral after default
in the manner specified in Article 9 of the Nevada Uniform Commercial Code,
including payment of Secured Party's reasonable attorney's fees and court
expenses; and
7. if disposition of the collateral leaves the obligation unsatisfied,
collect the deficiency from Debtor.
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<PAGE>
GENERAL PROVISIONS
1. Parties Bound. Secured Party's rights under this agreement shall
inure to the benefit of its successors and assigns. Assignment of any part of
the obligation and delivery by Secured Party of any part of the collateral
will fully discharge Secured Party from responsibility for that part of the
collateral. If Debtor is more than one, all their representations,
warranties, and agreements are joint and several. Debtor's obligations under
this agreement shall bind Debtor's personal representatives, successors, and
assigns.
2. Waiver. Neither delay in exercise nor partial exercise of any of
Secured Party's remedies or rights shall waive further exercise of those
remedies or rights. Secured Party's failure to exercise remedies or rights
does not waive subsequent exercise of those remedies or rights. Secured
Party's waiver of any default does not waive further default. Secured
Party's waiver of any right in this agreement or of any default is binding
only if it is in writing. Secured Party may remedy any default without
waiving it.
3. Reimbursement. If Debtor fails to perform any of Debtor's
obligations, Secured Party may perform those obligations and be reimbursed by
Debtor on demand at the place where the Note is payable for any sums so paid,
including attorney's fees and other legal expenses, plus interest on those
sums from the dates of payment at the rate stated in the Note for matured,
unpaid amounts. The sum to be reimbursed shall be secured by this security
agreement.
4. Interest Rate. Interest included in the obligation shall not exceed
the maximum amount of nonusurious interest that may be contracted for, taken,
reserved, charged, or received under law; any interest in excess of that
maximum amount shall be credited to the principal of the obligation or, if
that has been paid, refunded. On any acceleration or required or permitted
prepayment of the obligation, any such excess shall be canceled automatically
as of the acceleration or prepayment or, if already paid, credited on the
principal amount of the obligation or, if the principal amount has been paid,
refunded. This provision overrides other provisions in this and all other
instruments concerning the obligation.
5. Modifications. No provisions of this agreement shall be modified or
limited except by written agreement.
6. Severability. The unenforceability of any provision of this
agreement will not affect the enforceability or validity of any other
provision.
7. After-Acquired Consumer Goods. This security interest shall attach
to after-acquired consumer goods only to the extent permitted by law.
8. Applicable Law. This agreement will be construed according to
Nevada laws.
9. Place of Performance. This agreement is to be performed in Clark
County, Nevada.
10. Financing Statement. A carbon, photographic, or other reproduction
of this agreement
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or any financing statement covering the collateral is sufficient as a
financing statement.
11. Presumption of Truth and Validity. If the collateral is sold after
default, recitals in the bill of sale or transfer will be prima facie
evidence of their truth, and all prerequisites to the sale specified by this
agreement and by Article 9 of the Nevada Uniform Commercial Code will be
presumed satisfied.
12. Singular and Plural. When the context requires, singular nouns and
pronouns include the plural.
13. Priority of Security Interest. This security interest shall neither
affect nor be affected by any other security for any of the obligation.
Neither extensions of any of the obligation nor releases of any of the
collateral will affect the priority or validity of this security interest
with reference to any third person.
14. Cumulative Remedies. Foreclosure of this security interest by suit
does not limit Secured Party's remedies, including the right to sell the
collateral under the terms of this agreement. All remedies of Secured Party
may be exercised at the same or different times, and no remedy shall be a
defense to any other. Secured Party's rights and remedies include all those
granted by law or otherwise, in addition to those specified in this agreement.
15. Agency. Debtor's appointment of Secured Party as Debtor's agent is
coupled with an interest and will survive any disability of Debtor.
DEBTOR: T-WEST SALES & SERVICE, INC.
a Nevada corporation
By:
------------------------------------
Robert W. Hall, Vice President
SECURED PARTY: ------------------------------------
R. Douglas Spedding
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Exhibit 10.51.3
PROMISSORY NOTE
$1,500,000.00 Las Vegas, Nevada January 16, 1998
FOR VALUE RECEIVED, the undersigned, Douglas Motors, Inc., a
Colorado corporation (hereinafter referred to as the "Maker"), promises to
pay to the order of R. Douglas Spedding (sometimes hereinafter referred to as
the "Holder"), at 32 Princeville Lane, Las Vegas, Nevada, or at such other
place as the Holder from time to time designate in writing, the principal sum
of ONE MILLION FIVE HUNDRED THOUSAND AND N0/100 DOLLARS ($1,500,000.00) or,
if less, the total of advances from time to time made hereon and remaining
outstanding, in legal and lawful money of the United States of America,
together with interest on the principal outstanding from time to time prior
to maturity at nine percent (9%) per annum. Interest shall be calculated on
the total number of days elapsed and shall be based on a 360-day year. In no
event shall the rate of interest charged on this Note exceed the highest
nonusurious rate of interest permitted by applicable law (the "Highest Lawful
Rate"). Matured unpaid principal and interest shall bear interest until paid
at the Highest Lawful Rate.
The principal and interest hereof shall be due and payable on or before
June 1, 1998.
Advances of principal may be made hereunder at any time prior to
maturity, provided the advance does not cause the outstanding principal
balance of this Note to exceed the Monthly Borrowing Base (hereinafter
defined) for the month in which such advance request is made. "Monthly
Borrowing Base" for each month shall mean the lesser of (a) $1,500,000, or
(b) an amount equal to sixty percent (60%) of the aggregate value of Maker's
used car inventory as shown on that month's financial statements as prepared
by Maker, less any floor plan indebtedness on such used car inventory. In
the event the outstanding principal balance of this Note on February 10,
1998, or on the 10th day of any month thereafter exceeds the Monthly
Borrowing Base for such month, Maker shall promptly reduce the outstanding
principal balance of this Note to an amount equal to or less than the Monthly
Borrowing Base for such month. Advances and payments hereon shall be
evidenced by posting the same to the records of the Holder, and such entries
shall be prima facie evidence of the amount owing on this Note. Interest
shall accrue on principal amounts advanced hereunder only from the dates the
respective principal amounts are advanced. Prepayments may be made in any
amount at any time prior to maturity without premium or penalty, and interest
shall cease to accrue on all principal amounts prepaid. Prepayments shall be
applied first to accrued interest and then toward the reduction of principal.
Amounts prepaid may be reborrowed if Maker is not in default hereunder or
under the Security Agreement (hereinafter defined).
The payment hereof is secured by a Security Agreement (the "Security
Agreement") of even date herewith by and between the Maker and Holder
covering Maker's used car inventory.
It is expressly provided that default in the punctual payment of this
Note or any part hereof, principal or interest, as the same shall become due
and payable, or failure to carry out the other terms hereof, or failure to
keep, observe, and perform any of the covenants, conditions, or agreements
contained in, or the occurrence of any event of default under, the Security
Agreement, or any other instrument now or hereafter taken to secure this Note
or executed in connection with the loan evidenced hereby, shall authorize the
Holder, at its election, and without notice to any person liable hereunder,
to declare the indebtedness evidenced by this Note and the entire
indebtedness secured by the instruments securing this Note to be immediately
due and payable, and shall authorize the Holder to exercise all remedies
provided hereunder, under the Security Agreement, or any other instrument now
or hereafter taken as security herefor, or at law or in equity. No delay on
the part of the Holder in the exercise of any power or right under this Note
or under any other instrument executed in connection herewith shall operate
as a waiver thereof. The exercise of, or failure to
<PAGE>
exercise, any right or remedy shall not constitute a waiver or release of
such right or remedy or of any other right or remedy.
The Maker hereof and each surety, endorser, and guarantor of this Note
or any part hereof, and any other party liable or to become liable on this
Note or any part hereof, severally (1) waive demand for payment, presentation
for payment, protest, all notices (including, without limitation, notice of
dishonor, notice of protest, notice of intent to accelerate the maturity, and
notice of acceleration of the maturity), diligence in collecting and the
bringing of suit against any party, as to this Note and as to each, every,
and all installments hereof; and (2) consent to all renewals, extensions,
rearrangements, and modifications of, partial payments on, and releases or
substitutions of security for, this Note or any part hereof, with or without
notice, before or after maturity, without releasing any of their liability
hereon.
If this Note is placed in the hands of an attorney for collection or if
collection is attempted by suit or through probate, bankruptcy, insolvency,
or other judicial proceedings, the Maker agrees to pay the collection
expenses of the Holder, including reasonable attorneys' fees. In the event
judgment is rendered on any indebtedness evidenced by this Note such amount
shall bear interest at the Highest Lawful Rate.
It is the intention of Holder and the Maker hereof that this Note
and all provisions hereof and of all documents securing this Note conform in
all respects to applicable law so that no payment of interest or other sum
construed to be interest shall exceed the Highest Lawful Rate. In
determining the rate of interest paid or payable under this Note or any
document securing the same, all funds paid or to be paid as interest or
construed to be interest shall be prorated, allocated, or spread as permitted
under applicable law. If, through any circumstance, the contract of Maker
and Holder would result in exceeding the Highest Lawful Rate, or if the Maker
pays any sum as interest or construed to be interest in excess of such rate,
then (1) the amount contracted for shall be automatically reduced to the
Highest Lawful Rate, and (2) the amount of excess interest paid shall be
applied to the reduction of the principal balance of this Note, if any, and
if the principal balance has been fully paid, the excess interest shall be
refunded to the Maker and Maker agrees to accept such refund. Thereupon, to
the extent permitted by law, the Holder shall not be subject to any penalty
provided for the contracting for, charging, or receiving of interest in
excess of such Highest Lawful Rate, regardless of when or the circumstances
under which such refund or application was made.
DOUGLAS MOTORS, INC.,
a Colorado corporation
By:
-----------------------------------
Robert W. Hall, Vice President
GUARANTY
FOR VALUE RECEIVED, Cross-Continent Auto Retailers, Inc. guarantees
payment of this Note according to its terms.
CROSS-CONTINENT AUTO RETAILERS, INC.,
a Delaware corporation
By:
-----------------------------------
Bill Gilliland,
Chairman and Chief Executive Officer
<PAGE>
Exhibit 10.51.4
SECURITY AGREEMENT
DATE: January 16, 1998
DEBTOR: Douglas Motors, Inc., a Colorado corporation
DEBTOR'S MAILING ADDRESS: 1650 W. 104th Avenue
Thornton, Colorado 80234
SECURED PARTY: R. Douglas Spedding
SECURED PARTY'S MAILING ADDRESS: 32 Princeville Lane
Las Vegas, Nevada 89116
COLLATERAL: All used vehicles, including all additions and accessions thereto
and replacements and substitutions therefor; all of the foregoing,
whether now owned or hereafter acquired and wherever located; and
all proceeds from the sale, lease, or other disposition of any of
the foregoing.
OBLIGATION: That certain Promissory Note (the "Note") dated January 16, 1998,
in the principal amount of up to $1,500,000, executed by Douglas
Motors, Inc., payable to the order of R. Douglas Spedding.
Subject to the terms of this agreement, Debtor grants to Secured Party a
security interest in the collateral and all its proceeds to secure payment
and performance of Debtor's obligation in this security agreement and all
renewals and extensions of any of the obligation.
DEBTOR'S WARRANTIES
1. Financing Statement. Except for (a) that in favor of Secured Party,
and (b) those in favor of Toyota Motor Credit Corporation, no financing
statement covering the collateral is filed in any public office.
2. Ownership. Debtor owns the collateral and has the authority to
grant this security interest. Ownership is free from any setoff, claim,
restriction, lien, security interest, or encumbrance except this security
interest, the security interests in favor of Toyota Motor Credit Corporation,
and liens for taxes not yet due.
3. Fixtures. None of the collateral is affixed to real estate, or will
become a fixture, except as expressly provided in this agreement.
4. Financial Statements. All information about Debtor's financial
condition provided to Secured Party was accurate when submitted, as will be
any information subsequently provided.
1
<PAGE>
DEBTOR'S COVENANTS
1. Protection of Collateral. Debtor will (a) defend the collateral
against all claims and demands adverse to Secured Party's interest in it, and
(b) keep it free from all liens and security interests, except for taxes not
yet due, this security interest and the security interests in favor of Toyota
Motor Credit Corporation. The collateral will remain in Debtor's possession
or control at all times, except as otherwise provided in this agreement.
Debtor will maintain the collateral in good condition and protect it against
misuse, abuse, waste, and deterioration except for ordinary wear and tear
resulting from its intended use.
2. Insurance. Debtor will insure the collateral in accord with Secured
Party's reasonable requirements regarding choice of carrier, casualties
insured against, and amount of coverage. Policies will be written in favor
of Debtor and Secured Party according to their respective interests or
according to Secured Party's other requirements. All policies will provide
that Secured Party will receive at least ten days' notice before
cancellation, and the policies or certificates evidencing them will be
provided to Secured Party when issued. Debtor assumes all risk of loss and
damage to the collateral to the extent of any deficiency in insurance
coverage. Debtor irrevocably appoints Secured Party as attorney-in-fact to
collect any return, unearned premiums, and proceeds of any insurance on the
collateral and to endorse any draft or check deriving from the policies and
made payable to Debtor.
3. Secured Party's Costs. Debtor will pay all expenses incurred by
Secured Party in obtaining, preserving, perfecting, defending, and enforcing
this security interest or the collateral and in collecting or enforcing the
Note. Expenses for which Debtor is liable include, but are not limited to,
taxes, assessments, reasonable attorney's fees, and other legal expenses.
These expenses will bear interest from the dates of payments at the highest
rate stated in the Note, and Debtor will pay Secured Party this interest on
demand at a time and place reasonably specified by Secured Party. These
expenses and interest will be part of the obligation and will be recoverable
as such in all respects.
4. Additional Documents. Debtor will sign any papers that Secured
Party considers necessary to obtain, maintain, and perfect this security
interest or to comply with any relevant law.
5. Notice of Changes. Debtor will immediately notify Secured Party of
any material change in the collateral; change in Debtor's name, address, or
location; change in any matter warranted or represented in this agreement;
change that may affect this security interest; and any event of default.
6. Use and Removal of Collateral. Debtor will use the collateral
primarily as inventory unless Secured Party consents otherwise in writing.
Debtor will not permit the collateral to be affixed to any real estate, to be
or to become a fixture, except as expressly provided in this agreement.
7. Sale. Debtor will not sell, transfer, or encumber any of the
collateral without the prior written consent of Secured Party, provided that
Debtor may sell its used car inventory in the ordinary
2
<PAGE>
course of business.
RIGHTS AND REMEDIES OF SECURED PARTY
1. Generally. Secured Party may exercise the following rights and
remedies either before or after default:
a. take control of any proceeds of the collateral;
b. release any collateral in Secured Party's
possession to any debtor, temporarily or
otherwise;
c. take control of any funds generated by the
collateral, such as refunds from and proceeds of
insurance, and reduce any part of the obligation
accordingly or permit Debtor to use such funds to
repair or replace damaged or destroyed collateral
covered by insurance; and
d. demand, collect, convert, redeem, settle,
compromise, receipt for, realize on, sue for, and
adjust the collateral either in Secured Party's or
Debtor's name, as Secured Party desires.
2. Insurance. If Debtor fails to maintain insurance as required by
this agreement or otherwise by Secured Party, then Secured Party may purchase
single-interest insurance coverage that will protect only Secured Party. If
Secured Party purchases this insurance, its premiums will become part of the
obligation.
EVENTS OF DEFAULT
Each of the following conditions is an event of default:
1. if Debtor defaults in timely payment or performance of any
obligation, covenant, or liability in any written agreement between Debtor
and Secured Party or in any other transaction secured by this agreement;
2. if any warranty, covenant, or representation made to Secured Party
by or on behalf of Debtor proves to have been false in any material respect
when made;
3. if a receiver is appointed for Debtor or any of the collateral;
4. if the collateral is assigned for the benefit of creditors or, to
the extent permitted by law, if bankruptcy or insolvency proceedings commence
against or by any of these parties: Debtor; any partnership of which Debtor
is a general partner; and any maker, drawer, acceptor, endorser, guarantor,
surety, accommodation party, or other person liable on or for any part of the
obligation;
5. if any financing statement regarding the collateral but not related
to this security interest
3
<PAGE>
and not favoring Secured Party is filed other than those in favor of Toyota
Motor Credit Corporation;
6. if any lien attaches to any of the collateral; and
7. if any of the collateral is lost, stolen, damaged, or destroyed,
unless it is promptly replaced with collateral of like quality or restored to
its former condition.
REMEDIES OF SECURED PARTY ON DEFAULT
During the existence of any event of default, Secured Party may declare
the unpaid principal and earned interest of the obligation immediately due in
whole or part, enforce the obligation, and exercise any rights and remedies
granted by Article 9 of the Nevada Uniform Commercial Code or by this
agreement, including the following:
1. require Debtor to deliver to Secured Party all books and records
relating to the collateral;
2. require Debtor to assemble the collateral and make it available to
Secured Party at a place reasonably convenient to both parties;
3. take possession of any of the collateral and for this purpose enter
any premises where it is located if this can be done without breach of the
peace;
4. sell, lease, or otherwise dispose of any of the collateral in
accord with the rights, remedies, and duties of a secured party under
Articles 2 and 9 of the Nevada Uniform Commercial Code after giving notice as
required by those chapters; unless the collateral threatens to decline
speedily in value, is perishable, or would typically be sold on a recognized
market. Secured Party will give Debtor reasonable notice of any public sale
of the collateral or of a time after which it may be otherwise disposed of
without further notice to Debtor; in this event, notice will be deemed
reasonable if it is mailed, postage prepaid, to Debtor at the address
specified in this agreement at least ten days before any public sale or ten
days before the time when the collateral may be otherwise disposed of without
further notice to Debtor;
5. surrender any insurance policies covering the collateral and
receive the unearned premium;
6. apply any proceeds from disposition of the collateral after default
in the manner specified in Article 9 of the Nevada Uniform Commercial Code,
including payment of Secured Party's reasonable attorney's fees and court
expenses; and
7. if disposition of the collateral leaves the obligation unsatisfied,
collect the deficiency from Debtor.
4
<PAGE>
GENERAL PROVISIONS
1. Parties Bound. Secured Party's rights under this agreement shall
inure to the benefit of its successors and assigns. Assignment of any part of
the obligation and delivery by Secured Party of any part of the collateral
will fully discharge Secured Party from responsibility for that part of the
collateral. If Debtor is more than one, all their representations,
warranties, and agreements are joint and several. Debtor's obligations under
this agreement shall bind Debtor's personal representatives, successors, and
assigns.
2. Waiver. Neither delay in exercise nor partial exercise of any of
Secured Party's remedies or rights shall waive further exercise of those
remedies or rights. Secured Party's failure to exercise remedies or rights
does not waive subsequent exercise of those remedies or rights. Secured
Party's waiver of any default does not waive further default. Secured
Party's waiver of any right in this agreement or of any default is binding
only if it is in writing. Secured Party may remedy any default without
waiving it.
3. Reimbursement. If Debtor fails to perform any of Debtor's
obligations, Secured Party may perform those obligations and be reimbursed by
Debtor on demand at the place where the Note is payable for any sums so paid,
including attorney's fees and other legal expenses, plus interest on those
sums from the dates of payment at the rate stated in the Note for matured,
unpaid amounts. The sum to be reimbursed shall be secured by this security
agreement.
4. Interest Rate. Interest included in the obligation shall not exceed
the maximum amount of nonusurious interest that may be contracted for, taken,
reserved, charged, or received under law; any interest in excess of that
maximum amount shall be credited to the principal of the obligation or, if
that has been paid, refunded. On any acceleration or required or permitted
prepayment of the obligation, any such excess shall be canceled automatically
as of the acceleration or prepayment or, if already paid, credited on the
principal amount of the obligation or, if the principal amount has been paid,
refunded. This provision overrides other provisions in this and all other
instruments concerning the obligation.
5. Modifications. No provisions of this agreement shall be modified or
limited except by written agreement.
6. Severability. The unenforceability of any provision of this
agreement will not affect the enforceability or validity of any other
provision.
7. After-Acquired Consumer Goods. This security interest shall attach
to after-acquired consumer goods only to the extent permitted by law.
8. Applicable Law. This agreement will be construed according to
Nevada laws.
9. Place of Performance. This agreement is to be performed in Clark
County, Nevada.
10. Financing Statement. A carbon, photographic, or other reproduction
of this agreement
5
<PAGE>
or any financing statement covering the collateral is sufficient as a
financing statement.
11. Presumption of Truth and Validity. If the collateral is sold after
default, recitals in the bill of sale or transfer will be prima facie
evidence of their truth, and all prerequisites to the sale specified by this
agreement and by Article 9 of the Nevada Uniform Commercial Code will be
presumed satisfied.
12. Singular and Plural. When the context requires, singular nouns and
pronouns include the plural.
13. Priority of Security Interest. This security interest shall neither
affect nor be affected by any other security for any of the obligation.
Neither extensions of any of the obligation nor releases of any of the
collateral will affect the priority or validity of this security interest
with reference to any third person.
14. Cumulative Remedies. Foreclosure of this security interest by suit
does not limit Secured Party's remedies, including the right to sell the
collateral under the terms of this agreement. All remedies of Secured Party
may be exercised at the same or different times, and no remedy shall be a
defense to any other. Secured Party's rights and remedies include all those
granted by law or otherwise, in addition to those specified in this agreement.
15. Agency. Debtor's appointment of Secured Party as Debtor's agent is
coupled with an interest and will survive any disability of Debtor.
DEBTOR: DOUGLAS MOTORS, INC.,
a Colorado corporation
By:
---------------------------------------
Robert W. Hall, Vice President
SECURED PARTY: --------------------------------------
R. Douglas Spedding
6
<PAGE>
Exhibit 10.52
SUBLEASE AGREEMENT
This Sublease Agreement (the "Sublease") is made this 25th day of
February, 1998, effective as of the Effective Date (as defined herein), by
and between Allied 2000 Collision Center, Inc. ("Sublessee"), a Texas
corporation, whose address is 2316 I-40 East, Amarillo, Texas 79103, and
Plains Chevrolet, Inc. ("Sublessor"), a Texas corporation, whose address is
2200 I-40 East, Amarillo, Texas 79103.
RECITALS
A. By that certain Lease (the "Existing Lease") dated June 1, 1996, by
and between Sublessor (as landlord) and Sublessee (as tenant), Sublessor
leased to Sublessee approximately 12,000 square feet of space located at 2316
I-40 East, Amarillo, Potter County, Texas (the "Premises").
B. The Existing Lease is attached to this Sublease as Exhibit "A" and
is made a part hereof for all purposes.
C. By that certain Real Property Purchase Agreement (the "Purchase
Agreement") dated December 31, 1997, Sublessor has agreed to sell certain
real property, including the Premises, to Capital Automotive L.P. (the
"Purchase Transaction").
D. To satisfy the terms of the Purchase Agreement, Sublessor and
Sublessee desire to terminate the Existing Lease and continue their tenancy
relationship under the terms of this Sublease.
AGREEMENT
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged, Sublessor and Sublessee agree as
follows:
1. EFFECTIVE DATE. The Existing Lease shall terminate and this
Sublease shall become effective upon closing of the Purchase Transaction
(herein referred to as the "Effective Date"). Sublessee acknowledges that
simultaneous with the Purchase Transaction, Sublessor will lease back the
real property which is the subject of the Purchase Transaction from Capital
Automotive L.P. (the "Prime Lease"). This Sublease shall be subordinate to
the Prime Lease in all respects.
2. TERMS OF SUBLEASE. As of the Effective Date, Sublessor subleases
to Sublessee, and Sublessee subleases from Sublessor, the Premises. Except
for the modifications set forth below, Sublessor and Sublessee adopt and
ratify the terms of the Existing Lease as the terms of this Sublease:
<PAGE>
(a) The term "Commencement Date" as used in the Existing Lease shall
be modified to be the Effective Date under this Sublease.
(b) The term "Landlord" as used in the Existing Lease is substituted
with the term "Sublessor."
(c) The term "Tenant" as used in the Existing Lease is substituted
with the term "Sublessee."
3. APPLICATION OF RENT. Any rent received by Sublessor before the
Effective Date under the Existing Lease will be retained in full by
Sublessor. The first installment of rent due under this Sublease shall be on
March 1, 1998.
4. TERMINATION OF PRIME LEASE. If the Prime Lease expires or
terminates for any reason during the term of this Sublease, this Sublease
shall terminate concurrently with the termination or expiration of the Prime
Lease, and Sublessor shall have no liability to Sublessee as a result of the
termination or expiration.
5. CAUSES OF ACTION. Sublessee has no, and will have no, claims or
causes of action against Capital Automotive L.P. in connection with the
termination of the Existing Lease or under the terms of the Sublease.
EXECUTED on the date first written above, but effective as of the
Effective Date.
SUBLESSOR: PLAINS CHEVROLET, INC.,
a Texas corporation
By: /s/ Robert W. Hall
Its: Vice President
SUBLESSEE: ALLIED 2000 COLLISION CENTER, INC.,
a Texas corporation
By: /s/ Robert W. Hall
Its: Vice President
-2-
<PAGE>
Exhibit 10.53
SUBLEASE AGREEMENT
This Sublease Agreement (the "Sublease") is made this 25th day of
February, 1998, effective as of the Effective Date (as defined herein), by
and between Working Man's Credit Plan, Inc. ("Sublessee"), a Texas
corporation, whose address is 2400 I-40 East, Amarillo, Texas 79103, and
Plains Chevrolet, Inc. ("Sublessor"), a Texas corporation, whose address is
2200 I-40 East, Amarillo, Texas 79103.
RECITALS
A. By that certain Lease (the "Existing Lease") dated June 1, 1996, by
and between Sublessor (as landlord) and Sublessee (as tenant), Sublessor
leased to Sublessee approximately 2,500 square feet of space located at 2400
I-40 East, Amarillo, Potter County, Texas (the "Premises").
B. The Existing Lease is attached to this Sublease as Exhibit "A" and
is made a part hereof for all purposes.
C. By that certain Real Property Purchase Agreement (the "Purchase
Agreement") dated December 31, 1997, Sublessor has agreed to sell certain
real property, including the Premises, to Capital Automotive L.P. (the
"Purchase Transaction").
D. To satisfy the terms of the Purchase Agreement, Sublessor and
Sublessee desire to terminate the Existing Lease and continue their tenancy
relationship under the terms of this Sublease.
AGREEMENT
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged, Sublessor and Sublessee agree as
follows:
1. EFFECTIVE DATE. The Existing Lease shall terminate and this
Sublease shall become effective upon closing of the Purchase Transaction
(herein referred to as the "Effective Date"). Sublessee acknowledges that
simultaneous with the Purchase Transaction, Sublessor will lease back the
real property which is the subject of the Purchase Transaction from Capital
Automotive L.P. (the "Prime Lease"). This Sublease shall be subordinate to
the Prime Lease in all respects.
2. TERMS OF SUBLEASE. As of the Effective Date, Sublessor subleases
to Sublessee, and Sublessee subleases from Sublessor, the Premises. Except
for the modifications set forth below, Sublessor and Sublessee adopt and
ratify the terms of the Existing Lease as the terms of this Sublease:
<PAGE>
(a) The term "Commencement Date" as used in the Existing Lease shall
be modified to be the Effective Date under this Sublease.
(b) The term "Landlord" as used in the Existing Lease is substituted
with the term "Sublessor."
(c) The term "Tenant" as used in the Existing Lease is substituted
with the term "Sublessee."
3. APPLICATION OF RENT. Any rent received by Sublessor before the
Effective Date under the Existing Lease will be retained in full by
Sublessor. The first installment of rent due under this Sublease shall be on
March 1, 1998.
4. TERMINATION OF PRIME LEASE. If the Prime Lease expires or
terminates for any reason during the term of this Sublease, this Sublease
shall terminate concurrently with the termination or expiration of the Prime
Lease, and Sublessor shall have no liability to Sublessee as a result of the
termination or expiration.
5. CAUSES OF ACTION. Sublessee has no, and will have no, claims or
causes of action against Capital Automotive L.P. in connection with the
termination of the Existing Lease or under the terms of the Sublease.
EXECUTED on the date first written above, but effective as of the
Effective Date.
SUBLESSOR: PLAINS CHEVROLET, INC.,
a Texas corporation
By: /s/ Robert W. Hall
Its: Vice President
SUBLESSEE: WORKING MAN'S CREDIT PLAN, INC.,
a Texas corporation
By: /s/ Robert W. Hall
Its: Vice President
-2-
<PAGE>
Exhibit 10.54
SUBLEASE AGREEMENT
This Sublease Agreement (the "Sublease") is made this 25th day of
February, 1998, effective as of the Effective Date (as defined herein), by
and between Westgate Chevrolet, Inc. ("Sublessor"), whose address is 7300
I-40 West, Amarillo, Texas 79106, and Enterprise Rent-A-Car Company
("Sublessee"), whose address is 1911 Avenue Q, Lubbock, Texas 79405.
AGREEMENT
In consideration of the mutual agreements herein contained, Sublessor
and Sublessee agree as follows:
1. EFFECTIVE DATE. Upon Sublessor's sale and transfer of the property
located at 7300 I-40 West, Amarillo, Potter County, Texas to Capital
Automotive L.P. (herein called the "Effective Date") that certain Agreement
(the "Existing Lease") by and between Sublessor (as landlord) and Sublessee
(as tenant) shall terminate, and this Sublease shall become effective.
Sublessee acknowledges that simultaneously with the above-described sale,
Capital Automotive L.P. will lease back the property to Sublessor (the "Prime
Lease"). This Sublease is entered to continue the tenancy relationship
between Sublessor and Sublessee, but is subordinate to the Prime Lease in all
respects.
2. SUBLEASE OF PREMISES. Upon and subject to the terms and provisions
of this Sublease, Sublessor subleases to Sublessee, and Sublessee subleases
from Sublessor, certain premises (the "Premises") in Amarillo, Potter County,
Texas, described as follows:
One office out of the west end of the service department of the
service write-up area of Westgate Chevrolet.
3. TERM. The term of this Sublease shall begin on the Effective Date
and shall end on October 31, 1998 (the "Termination Date").
4. RENT. Sublessee agrees to pay to Sublessor monthly installments of
rent during the term of this Sublease in the amount of $750.00. The rent
shall be paid in advance on or before the first day of each month, commencing
on the calendar month immediately following the Effective Date. Any rent
received by Sublessor before the Effective Date under the Existing Lease will
be retained in full by Sublessor.
5. TERMINATION OF PRIME LEASE. If the Prime Lease expires or
terminates for any reason during the term of this Sublease, this Sublease
shall terminate concurrently with the termination or expiration of the Prime
Lease, and Sublessor shall have no liability to Sublessee as a result of the
termination or expiration.
6. TERMINATION. Either party may terminate this Sublease by providing
ninety (90) days written notice.
7. RENEWAL. This Sublease shall automatically renew for an additional
two (2) year period upon expiration of the original term of this Sublease
unless either party should give a ninety (90) day written notice.
8. OPERATIONS. Sublessee is to be solely responsible for personnel,
vehicles, and all aspects of the rental operations.
9. CONDITION OF PREMISES. Sublessee has examined and accepts the
Premises in its present "as is" condition as suitable for the purposes for
which the Premises are leased.
10. MAINTENANCE. Sublessor shall keep the foundation, the exterior
walls, glass, windows, doors, door closure devices, window and doorframes,
molding, locks, hardware, heating and air units, parking lot, light fixtures,
plumbing and the roof of the Premises in good
<PAGE>
repair except that Sublessor shall not be required to make any repairs
occasioned by the act of negligence of Sublessee, its employees, subtenants,
licensee, and concessionaires. Sublessee shall pay all the costs of general
liability insurance. Sublessor shall pay all real estate taxes and hazardous
insurance premiums. At the termination of this Sublease, Sublessee shall
deliver the Premises in good order and condition, normal wear and tear
excepted.
11. PAYMENTS. Billings to Sublessor will be paid to Sublessee, net 30.
Billings to Sublessee will be paid to Sublessor, net 30.
12. INSURANCE. Sublessee, at its sole expense, shall obtain and keep
in force during the term of this Sublease, the following insurance naming
Sublessor as a co-insured: Comprehensive general liability insurance and
personal liability for injury to persons or damage to property in or about
Premises or arising out of the ownership, maintenance, or use or occupancy
thereof. The insurance shall specify a single occurrence policy limit of
$1,000,000.00. An insurance certificate to the above affect will be issued
to Sublessor with renewal certificates being supplied at renewal periods.
13. INDEMNIFICATION. Sublessee shall indemnify Sublessor and save it
harmless from and against any and all liability, damages, costs or expenses,
including attorneys' fees, arising from any act, omission, or negligence of
Sublessee or its contractors, licensees, agents, servants or employees, or
arising from an accident, injury or damage, howsoever and by whomsoever
caused, to any person or property, occurring in or about the premises or any
part thereof, unless such accident, injury or damage shall arise solely at
Sublessor's negligence. Sublessor shall indemnify and hold Sublessee
harmless from any liability for loss or damage (excepting that which results
from the negligence of Sublessee, its agents, servants and employees)
occurring to customers or other invitees of Sublessee in the common areas.
Sublessor assumes no responsibility or liability for any damaged motor
vehicles of Sublessee, its customers, employees, or invitees, or for loss of
property from such motor vehicles unless such damage or loss is caused solely
by Sublessor's negligence.
14. SIGNS. Sublessee shall have the right to place business signs on
the Premises subject to Sublessor approval which shall not be unreasonably
withheld. All signs that are attached to the Premises shall remain the
property of Sublessee at the termination or expiration thereof.
15. SATELLITE DISH. Sublessee shall have the right to install a
non-penetrating satellite dish on the roof of the Premises.
16. CAUSES OF ACTION. Sublessee has no, and will have no, claims or
causes of action against Capital Automotive L.P. in connection with the
termination of the Existing Lease or under the terms of the Sublease.
SUBLESSOR: WESTGATE CHEVROLET, a Texas corporation
By: /s/ Robert W. Hall, Vice President
SUBLESSEE: ENTERPRISE RENT-A-CAR COMPANY
By: /s/ Dick Janicki
Its: Vice President & General Manager
-2-
<PAGE>
Exhibit 10.55
GUARANTY AND SUBORDINATION AGREEMENT
THIS GUARANTY AND SUBORDINATION AGREEMENT (this "Agreement"), made as of
the 25th day of February 1998, by Cross-Continent Auto Retailers, Inc., a
Delaware corporation ("Guarantor"), in favor of Capital Automotive, L.P., a
Delaware limited partnership ("Landlord").
WITNESSETH:
WHEREAS, Landlord has this day entered into six leases (each referred to
as the "Lease") of certain Properties identified on SCHEDULE A hereto
(individually a "Property" and collectively the "Properties") with Plains
Chevrolet, Inc, a Texas corporation, Midway Chevrolet, Inc., a Texas
corporation, Quality Nissan, Inc., a Texas Corporation, Westgate Chevrolet,
Inc., a Texas corporation, Douglas Motors, Inc., a Colorado corporation, and
T-West Sales & Service, Inc., a Nevada corporation (each individually
referred to as the "Tenant"), this Agreement being attached to the Leases;
WHEREAS, Tenant is an affilate of Guarantor; and
WHEREAS, Landlord has required, as a condition to entering into the
Lease, Guarantor to be a guarantor of each and every obligation imposed upon
Tenant by the Lease.
NOW, THEREFORE, to induce Landlord to enter into the Lease and in
consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Guarantor, for itself, its successors and assigns, hereby covenants and
agrees for the benefit of Landlord, as follows:
1. GUARANTY. Guarantor does hereby unconditionally and irrevocably
guaranty to Landlord the full, complete and timely performance of all
obligations imposed on Tenant by the terms of the Lease, including, but not
limited to, the full, complete and timely payment of rent and all other sums
due by Tenant under the Lease, and the payment as required by the Lease of
all damages to Landlord which may result from Tenant's breach of any
provision of the Lease, including, but not limited to, those relating to
damage to any Property or the leased premises.
2. GUARANTY OF PAYMENT AND PERFORMANCE. Guarantor acknowledges and
agrees that this is a guaranty of payment and performance and not mere
collection. The liability of Guarantor under this Agreement shall be direct
and immediate and not conditional or contingent upon the pursuit of any
remedies against Tenant or any other person or entity. Guarantor waives any
right to require that an action be brought against Tenant or any other person
or entity. In the event, on account of the Bankruptcy Reform Act of 1978, as
amended, or any other debtor relief law (whether statutory, common law, case
law or otherwise) of any jurisdiction whatsoever, now or hereafter in effect,
<PAGE>
which may be or become applicable, Tenant shall be relieved of the Lease or
any debt, obligation or liability as provided in the Lease, Guarantor shall
nevertheless be fully liable for the complete and timely performance of all
obligations imposed on Tenant by the Lease throughout the entire term of the
Lease, all to the same extent as if Guarantor had been the original tenant
thereunder and the Lease shall be deemed unaffected by any such relief
granted to Tenant. In the event of a default under the Lease which is not
cured within any applicable grace or cure period, Landlord shall have the
right to enforce its rights, powers and remedies thereunder or hereunder, in
any order to the maximum extent permitted by law, and all rights, powers and
remedies provided thereunder or hereunder or by law or in equity. If the
obligations guaranteed hereby are partially performed, paid or discharged by
reason of the exercise of any of the remedies available to Landlord, this
Agreement shall nevertheless remain in full force and effect, and Guarantor
shall continue to be liable for all remaining obligations guaranteed hereby,
even though any rights which Guarantor may have against Tenant may be
destroyed or dismissed by the exercise of any such remedy.
3. WAIVERS BY GUARANTOR. To the extent permitted by law, Guarantor
hereby waives and agrees not to assert or take advantage of:
(a) Any right to require Landlord to proceed against Tenant or any
other person or entity or to proceed against or exhaust any security held by
Landlord at any time or to pursue any other remedy in Landlord's power or
under any other agreement before proceeding against Guarantor;
(b) Any defense that may arise by reason of the incapacity, lack
of authority, death or disability of any other person or persons or the
failure of Landlord to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other person or
persons:
(c) Any defense based upon an election of remedies by Landlord;
(d) Any right or claim or right to cause a marshaling of the
assets of Tenant or Guarantor;
(e) Any invalidity, irregularity or unenforceability, in whole or
in part, of any one or more provisions of the Lease;
(f) Any modification of the Lease or of any obligation of Tenant
thereunder by amendments to the Lease, by waivers granted by Landlord or by
operation of law or by action of any court, whether pursuant to the
Bankruptcy Reform Act of 1978, as amended, or any other debtor relief law
(whether statutory, common law, case law or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, or otherwise.
4. SUBORDINATION. Guarantor and those parties signing below for the
purpose of being bound by this Section 4 (collectively, "Section 4 Signers")
hereby unconditionally and irrevocably
-2-
<PAGE>
subordinate (i) all payments due or to become due by Tenant to the Section 4
Signers, or any of them, by reason of any and all debts or other obligations,
including the obligation to pay salaries or other compensation (collectively
"Debt Payments") and (ii) the receipt of all dividends or other distributions
of any kind or nature (collectively, "Distributions") to the payment of all
sums due or to become due by Tenant to Landlord under the Lease, including
the payment of Rent and all damages due by reason of Tenant's breach of the
Lease; provided, however, that for so long as there shall be no existing
Event of Default under the Lease, after the payment of each monthly
installment of Rent, the Section 4 Signers shall be entitled to receive Debt
Payments due for such month.
5. GENERAL PROVISIONS.
(a) SURVIVAL. This Agreement shall be deemed to be continuing in
nature and shall remain in full force and effect and shall survive the
exercise of any remedy by Landlord under the Lease;
(b) NO SUBROGATION; NO RECOURSE AGAINST LANDLORD. Notwithstanding
the satisfaction by Guarantor of any liability hereunder, Guarantor's rights
of subrogation, contribution, reimbursement or indemnity, if any, or any
right of recourse to or with respect to the assets or property of Tenant,
shall be subject and subordinate to the rights of Landlord. Guarantor
expressly agrees not to exercise any and all rights of subrogation against
Landlord.
(c) ENTIRE AGREEMENT; AMENDMENT; SEVERABILITY. This Agreement
contains the entire agreement between the parties respecting the matters
herein set forth and supersedes all prior agreements, whether written or
oral, between the parties respecting such matters. Any amendments or
modifications hereto, in order to be effective, shall be in writing and
executed by Landlord and Guarantor. A determination that any provision of
this Agreement is unenforceable or invalid shall not affect the
enforceability or validity of any other provision, and any determination that
the application of any provision of this Agreement to any person or
circumstance is illegal or unenforceable shall not affect the enforceability
or validity of such provision as it may apply to any other persons or
circumstances.
(d) GOVERNING LAW: BINDING EFFECT; WAIVER OF ACCEPTANCE. This
Agreement shall be governed by and construed in accordance with the laws of
the State of Virginia without regard to conflicts of laws principles thereof.
This Agreement shall bind Guarantor, it successors and assigns (but in the
event of an assignment, Guarantor shall not be relieved of its obligations
hereunder), and shall inure to the benefit of Landlord, its successors and
assigns. Guarantor hereby waives any acceptance of this Agreement by Landlord
and this Agreement shall immediately be binding upon Guarantor.
(e) NOTICE. All notices, demands, requests or other
communications to be sent by one party to the other hereunder or required by
law shall be in writing and shall be deemed to have been validly given or
served by delivery of the same in person to the intended addressee, or
certified mail or by depositing the same with Federal Express or another
reputable private courier
-3-
<PAGE>
service for next business day delivery to the intended addressee at its
address set forth in the last section of this Agreement or at such other
address as may be designated by such party as herein provided. All notices,
demands and requests shall be effective upon such personal delivery, or one
(1) business day after being deposited with the private courier service, or
two (2) business days after being deposited in the United States mail as
required above. Rejection or other refusal to accept or the inability to
deliver because of changed address of which no notice was given as herein
required shall be deemed to be receipt of the notice, demand or request sent.
By giving to the other party hereto at least seven (7) days' prior written
notice thereof in accordance with the provisions hereof, each party shall
have the right from time to time to change their respective addresses and
each shall have the right to specify as its address any other address within
the United States of America.
(f) NO WAIVER; TIME OF ESSENCE. The failure of either party to
enforce any of the respective rights or remedies hereunder, or to promptly
enforce any such rights or remedies, shall not constitute a waiver thereof
nor give rise to any estoppel against such party nor excuse any of the
parties hereto from their respective obligations hereunder. Any waiver of
such right or remedy must be in writing and signed by the party to be bound
and must expressly state that such right or remedy has been or thereby is
waived. This Agreement is subject to enforcement at law or in equity,
including actions for damages or specific performance. Time is of the
essence hereof.
(g) CAPTIONS FOR CONVENIENCE. The captions and headings of the
section and paragraphs of this Agreement are for convenience of reference
only and shall not be construed in interpreting the provisions hereof.
(h) ATTORNEY'S FEES. In the event it is necessary for Landlord to
retain the services of an attorney or any other consultants in order to
enforce this Agreement, or any portion hereof, Guarantor shall promptly pay
to Landlord any and all costs and expenses, including, without limitation,
attorney's fees, incurred by Landlord as a result thereof and such costs,
fees and expenses shall be included in the costs of the case to the extent
the Landlord wins the issue under contest.
(i) SUCCESSIVE ACTIONS. Separate and successive actions may be
brought hereunder to enforce any of the provisions hereof at any time and
from time to time. No action hereunder shall preclude any subsequent action,
and Guarantor hereby waives any covenants to the maximum extent permitted by
law not to assert any defense in the nature of splitting of causes of action
or merger of judgments.
(j) RELIANCE. Landlord would not enter into the Lease without
this Agreement. Accordingly, Guarantor intentionally, irrevocably and
unconditionally enters into the covenants and agreements as set forth above
and understand that, in reliance upon and in consideration of such covenants
and agreements, the Lease has been made.
4. NOTICES: The following addresses shall be used for notice
purposes:
If to Landlord:
-4-
<PAGE>
Capital Automotive L.P.
1925 North Lynn Street, Suite 306
Arlington, Virginia 22209
With copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
attn: George P. Stamas, Esq. and John B. Watkins, Esq.
IN WITNESS WHEREOF, Guarantor has executed this Agreement under seal as
of the day and year first above written:
GUARANTOR: CROSS-CONTINENT AUTO
RETAILERS, INC., a Delaware limited partnership
ATTEST/WITNESS: By: /s/ Robert W. Hall
By: /s/ R. Wayne Moore
----------------------- -----------------------
Title: Vice Chairman
-5-
<PAGE>
SCHEDULE A
1. Lessee: Plains Chevrolet, Inc.
Leased Property: 2200 I-40 East
Amarillo, Texas 79103
2316 I-40 East
Amarillo, Texas 79103
2400 I-40 East
Amarillo, Texas 79103
2. Lessee: Midway Chevrolet, Inc.
Leased Property: 16301 Interstate I-27
Amarillo, Texas 79120
3. Lessee: Westgate Chevrolet, Inc.
Leased Property: 7400 I-40 West
Amarillo, Texas 79106
4. Lessee: Quality Nissan, Inc.
Leased Property: 4121 S. Georgia
Amarillo, Texas 79110
5. Lessee: Douglas Motors, Inc.
Leased Property: 7300 North Broadway
Denver, Colorado 80221
6. Lessee: T-West Sales & Service, Inc.
Leased Property: 6300 West Sahara
Las Vegas, Nevada 89102
-6-
<PAGE>
Exhibit 10.56
LEASE AGREEMENT
BETWEEN
CAPITAL AUTOMOTIVE L.P., LANDLORD
AND
PLAINS CHEVROLET, INC., TENANT
DATED: FEBRUARY 25, 1998
<PAGE>
ARTICLE I LEASE AGREEMENT, LEASED PROPERTY AND TERM . . . . . . . . 1
1.01 Lease Agreement . . . . . . . . . . . . . . . . . . . . . 1
1.02 Contingent Upon Acquisition of the Leased Property. . . . 2
1.03 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04 Holding Over. . . . . . . . . . . . . . . . . . . . . . . 3
1.05 Surrender . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II RENT . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.01 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . 4
2.02 Payment . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.03 Security Deposit. . . . . . . . . . . . . . . . . . . . . 4
2.04 Base Annual Rent Adjustment . . . . . . . . . . . . . . . 5
2.05 Additional Rent . . . . . . . . . . . . . . . . . . . . . 5
2.06 Place(s) of Payment of Rent; Direct Payment of
Additional Rent . . . . . . . . . . . . . . . . . . . . . 5
2.07 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . 5
2.08 No Termination, Abatement, Etc. . . . . . . . . . . . . . 5
ARTICLE IIII MPOSITIONS AND UTILITIES . . . . . . . . . . . . . . . 6
3.01 Payment of Impositions. . . . . . . . . . . . . . . . . . 6
3.02 Definition of Impositions . . . . . . . . . . . . . . . . 7
3.03 Utilities . . . . . . . . . . . . . . . . . . . . . . . . 8
3.04 Escrow of Impositions . . . . . . . . . . . . . . . . . . 8
3.05 Discontinuance of Utilities . . . . . . . . . . . . . . . 9
3.06 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . 9
4.01 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 9
4.02 Insurance Limits. . . . . . . . . . . . . . . . . . . . .11
4.03 Insurance Requirements. . . . . . . . . . . . . . . . . .11
4.04 Replacement Cost. . . . . . . . . . . . . . . . . . . . .12
4.05 Blanket Policy. . . . . . . . . . . . . . . . . . . . . .12
4.06 No Separate Insurance . . . . . . . . . . . . . . . . . .12
4.07 Waiver of Subrogation . . . . . . . . . . . . . . . . . .13
4.08 Mortgages . . . . . . . . . . . . . . . . . . . . . . . .13
4.09 Other Insurance Requirements. . . . . . . . . . . . . . .13
ii
<PAGE>
ARTICLE V INDEMNITY; SUBSTANCES OF CONCERN. . . . . . . . . . . . .13
5.01 Tenant's Indemnification. . . . . . . . . . . . . . . . .13
5.02 Substances of Concern . . . . . . . . . . . . . . . . . .14
5.03 Audits. . . . . . . . . . . . . . . . . . . . . . . . . .16
5.04 Landlord's Option Re: Compliance. . . . . . . . . . . . .17
5.05 Environmental Indemnification . . . . . . . . . . . . . .17
5.06 Tenant's Cleanup Obligation . . . . . . . . . . . . . . .18
5.07 Existing Environmental Conditions . . . . . . . . . . . .18
5.08 Survival of Tenant's Obligations. . . . . . . . . . . . .18
ARTICLE VI USE AND ACCEPTANCE OF PREMISES . . . . . . . . . . . . .18
6.01 Use of Leased Properties . . . . . . . . . . . . . . . .18
6.02 Acceptance of Leased Properties . . . . . . . . . . . . .19
6.03 Conditions of Use and Occupancy . . . . . . . . . . . . .19
6.04 Financial Statements and Other Information. . . . . . . .19
ARTICLE VII REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS . .20
7.01 Maintenance . . . . . . . . . . . . . . . . . . . . . . .20
7.02 Compliance with Laws. . . . . . . . . . . . . . . . . . .20
7.03 Required Alterations. . . . . . . . . . . . . . . . . . .21
7.04 Mechanics' Liens. . . . . . . . . . . . . . . . . . . . .21
7.05 Replacements of Fixtures. . . . . . . . . . . . . . . . .21
7.06 Encroachments; Restrictions. 22
ARTICLE VIII ALTERATIONS AND SIGNS; TENANT'S PROPERTY;CAPITAL
ADDITIONS TO THE LEASED PROPERTIES . . . . . . . . . . . . . . . .22
8.01 Tenant's Right to Construct . . . . . . . . . . . . . . .22
8.02 Scope of Right. . . . . . . . . . . . . . . . . . . . . .23
8.03 Cooperation of Landlord . . . . . . . . . . . . . . . . .23
8.04 Commencement of Construction. . . . . . . . . . . . . . .24
8.05 Rights in Tenant Improvements . . . . . . . . . . . . . .24
8.06 Personal Property . . . . . . . . . . . . . . . . . . . .25
8.07 Requirements for the Tenant's Personal Property . . . . .25
8.08 Financings of Capital Additions to a Leased Property. . .26
ARTICLE IX DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . .27
9.01 Events of Default . . . . . . . . . . . . . . . . . . . .27
9.02 Remedies. . . . . . . . . . . . . . . . . . . . . . . . .29
9.03 Right of Set-Off. . . . . . . . . . . . . . . . . . . . .32
9.04 Performance of Tenant's Covenants . . . . . . . . . . . .32
9.05 Late Charge . . . . . . . . . . . . . . . . . . . . . . .32
9.06 Litigation; Attorneys' Fees . . . . . . . . . . . . . . .32
9.07 Remedies Cumulative . . . . . . . . . . . . . . . . . . .33
iii
<PAGE>
9.08 Escrows and Application of Payments . . . . . . . . . . .33
9.09 Power of Attorney . . . . . . . . . . . . . . . . . . . .33
ARTICLE X DAMAGE AND DESTRUCTION. . . . . . . . . . . . . . . . . .34
10.01 General . . . . . . . . . . . . . . . . . . . . . . . . .34
10.02 Landlord's Inspection . . . . . . . . . . . . . . . . . .35
10.03 Landlord's Costs. . . . . . . . . . . . . . . . . . . . .35
10.04 Rent Abatement. . . . . . . . . . . . . . . . . . . . . .35
10.05 Substantial Damage During Lease Term. . . . . . . . . . .35
10.06 Damage Near End of Term . . . . . . . . . . . . . . . . .36
10.07 Risk of Loss. . . . . . . . . . . . . . . . . . . . . . .36
ARTICLE XI CONDEMNATION . . . . . . . . . . . . . . . . . . . . . .37
11.01 Total Taking. . . . . . . . . . . . . . . . . . . . . . .37
11.02 Partial Taking. . . . . . . . . . . . . . . . . . . . . .37
11.03 Restoration . . . . . . . . . . . . . . . . . . . . . . .37
11.04 Landlord's Inspection . . . . . . . . . . . . . . . . . .38
11.05 Award Distribution. . . . . . . . . . . . . . . . . . . .38
11.06 Temporary Taking. . . . . . . . . . . . . . . . . . . . .38
ARTICLE XII ADDITIONAL REPRESENTATIONS, WARRANTIES AND FINANCIAL
COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
12.01 Organization and Qualification. . . . . . . . . . . . . .39
12.02 Material Agreements. . . . . . . . . . . . . . . . . . .40
12.03 Changes in Condition. . . . . . . . . . . . . . . . . . .40
12.04 Franchises, Licenses, etc.. . . . . . . . . . . . . . . .40
12.05 Litigation. . . . . . . . . . . . . . . . . . . . . . . .41
12.06 Authorization and Enforceability. . . . . . . . . . . . .41
12.07 No Legal Obstacle to Lease. . . . . . . . . . . . . . . .41
12.08 Certain Business Representations. . . . . . . . . . . . .42
12.09 Certain Financial Covenants . . . . . . . . . . . . . . .43
12.10 Cash Flow Coverage Ratio Covenant . . . . . . . . . . . .43
12.11 Disclosure. . . . . . . . . . . . . . . . . . . . . . . .43
12.12 Covenant Not to Acquire . . . . . . . . . . . . . . . . .44
ARTICLE XIII ASSIGNMENT AND SUBLETTING; ATTORNMENT . . . . . . . .44
13.01 Prohibition Against Subletting and Assignment . . . . . .44
13.02 Changes of Control. . . . . . . . . . . . . . . . . . . .44
13.03 Operating/Service Agreements. . . . . . . . . . . . . . .45
13.04 Assignment. . . . . . . . . . . . . . . . . . . . . . . .46
13.05 REIT Limitations. . . . . . . . . . . . . . . . . . . . .46
13.06 Attornment. . . . . . . . . . . . . . . . . . . . . . . .47
13.07 Severance and Spin-Off. . . . . . . . . . . . . . . . . .47
iv
<PAGE>
ARTICLE XIV ARBITRATION . . . . . . . . . . . . . . . . . . . . . .48
14.01 Controversies . . . . . . . . . . . . . . . . . . . . . .48
14.02 Appointment of Arbitrators. . . . . . . . . . . . . . . .48
14.03 Arbitration Procedure . . . . . . . . . . . . . . . . . .48
14.04 Expenses. . . . . . . . . . . . . . . . . . . . . . . . .48
14.05 Enforcement of the Arbitration Award. . . . . . . . . . .49
ARTICLE XV QUIET ENJOYMENT, SUBORDINATION,ATTORNMENT, ESTOPPEL
CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . .49
15.01 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . .49
15.02 Landlord Mortgages; Subordination . . . . . . . . . . . .49
15.03 Attornment. . . . . . . . . . . . . . . . . . . . . . . .49
15.04 Estoppel Certificates . . . . . . . . . . . . . . . . . .50
15.05 Waiver of Landlord's Lien . . . . . . . . . . . . . . . .50
ARTICLE XVI RIGHT OF FIRST OFFER. . . . . . . . . . . . . . . . . .51
16.01 Right of First Offer During Lease Term or Extension
Term. . . . . . . . . . . . . . . . . . . . . . . . . . .51
16.02 Right to Purchase at End of an Extension Term . . . . . .52
ARTICLE XVII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . .53
17.01 Notices.. . . . . . . . . . . . . . . . . . . . . . . . .53
17.02 Advertisement of a Leased Property. . . . . . . . . . . .54
17.03 Landlord's Access . . . . . . . . . . . . . . . . . . . .54
17.04 Entire Agreement. . . . . . . . . . . . . . . . . . . . .54
17.05 Severability. . . . . . . . . . . . . . . . . . . . . . .55
17.06 Captions and Headings . . . . . . . . . . . . . . . . . .55
17.07 Governing Law . . . . . . . . . . . . . . . . . . . . . .55
17.08 Memorandum of Lease or Certain Rights Under the Lease . .55
17.09 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . .55
17.10 Assignment; Binding Effect. . . . . . . . . . . . . . . .55
17.11 Consents and Approvals. . . . . . . . . . . . . . . . . .55
17.12 Single Property . . . . . . . . . . . . . . . . . . . . .56
17.13 Modification. . . . . . . . . . . . . . . . . . . . . . .56
17.14 Incorporation by Reference. . . . . . . . . . . . . . . .56
17.15 No Merger . . . . . . . . . . . . . . . . . . . . . . . .56
17.16 Force Majeure . . . . . . . . . . . . . . . . . . . . . .56
17.17 Laches. . . . . . . . . . . . . . . . . . . . . . . . . .56
17.18 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . .56
17.19 Permitted Contests. . . . . . . . . . . . . . . . . . . .57
17.20 Construction of Lease . . . . . . . . . . . . . . . . . .57
17.21 Counterparts. . . . . . . . . . . . . . . . . . . . . . .58
17.22 Relationship of Landlord and Tenant . . . . . . . . . . .58
v
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SCHEDULES
A Leased Properties and Initial Base Rent
B Permitted Exceptions
12.02 Material Agreements
12.03 Changes in Condition
EXHIBITS
2.02 Payment Account Information
2.04 Base Annual Rent Adjustment
5.07 Environmental Reports
15.02 Form of Subordination and Non-Disturbance Agreement
15.04 Form of Tenant Estoppel Certificate
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LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") dated as of the 25th day of February,
1998, by and between CAPITAL AUTOMOTIVE L.P., a Delaware limited partnership
("Landlord"), having its principal office at 1925 North Lynn Street, Suite
306, Arlington, Virginia 22209, and PLAINS CHEVROLET, INC., a Texas
corporation, having its principal office at c/o Cross-Continent Auto
Retailers, Inc., 1201 S. Taylor, P.O. Box 750, Amarillo, Texas 79105
("Tenant").
RECITALS
WHEREAS, Tenant or an Affiliate (as hereafter defined) has conveyed or
will convey to Landlord certain parcels of real estate and improvements
thereon upon which Tenant engages in motor vehicle retail and/or motor
vehicle related businesses (the "Business"), which parcels of real estate and
improvements thereon are described on SCHEDULE A attached hereto and
incorporated herein by reference (each hereinafter a "Leased Property" or
collectively, the "Leased Properties"), and Landlord and Tenant desire to
provide for the lease by Landlord to Tenant of the Leased Properties; and
WHEREAS, Landlord and Tenant desire that each of the Leased Properties
shall be the subject of this Lease and be used by Tenant in its operation of
the Business; and
WHEREAS, this Lease provides that additional real estate and
improvements thereon may be made subject to the operation and effect of this
Lease, upon execution by Landlord and Tenant of a Lease Supplement
designating each such additional property as a Leased Property hereunder.
NOW, THEREFORE, in consideration of the foregoing premises and of their
respective agreements and undertakings herein, and of other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
ARTICLE I
LEASE AGREEMENT, LEASED PROPERTY AND TERM
1.01 LEASE AGREEMENT. Landlord does hereby let and lease unto Tenant,
and Tenant does here by take and hire from Landlord, the Leased Properties,
which shall respectively consist of:
(a) The parcels of land described and located at the addresses listed
in SCHEDULE A hereto, as more particularly described therein,
together with any additional parcels of real estate and
improvements thereon subsequently designated as a Leased Property
by the parties pursuant to a Lease Supplement as provided for
herein, together with all rights, titles, appurtenant interests,
covenants, licenses, privileges and benefits thereto belonging,
and any easements,
<PAGE>
rights-of-way, rights of ingress or egress or other interests in,
on, or to any land, highway, street, road or avenue, open or
proposed, in, on, across, in front of, abutting or adjoining such
real property including, without limitation, any strips and gores
adjacent to or lying between such real estate and any adjacent
real estate (the "Land");
(b) All buildings, improvements, structures and Fixtures (as
hereinafter defined) now located or to be located or to be
constructed on the Land, including, without limitation, sidewalks,
landscaping, parking lots and structures, roads, drainage and all
above ground and underground utility structures and conduits
(on-site or off-site), equipment systems and other so-called
"infrastructure" improvements (the "Improvements");
(c) All equipment, machinery, fixtures, and other items of real and/or
personal property, including all components thereof, located in,
on or used in connection with, and permanently affixed to or
incorporated into, the Improvements, including, without
limitation, all furnaces, boilers, heaters, electrical equipment,
heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal,
air-cooling and air-conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, and similar
systems, all of which, to the greatest extent permitted by law,
are hereby deemed to constitute real estate, together with all
replacements, modifications, alterations and additions thereto
(collectively the "Fixtures"); and
(d) All easements, rights and appurtenances relating to the Land and
the Improvements.
SUBJECT, HOWEVER, to the liens, encumbrances, restrictions, agreements,
and other title matters listed or specifically referred to in SCHEDULE B
("Permitted Exceptions").
The Leased Properties shall however exclude all furniture, equipment,
inventory and items of moveable personal property attached to the Land or
Improvements that relate to the business being conducted on the Leased
Property which items may readily be removed without material damage to the
Land and Improvements whether or not such items might legally be considered
to be "fixtures" (all of which are owned by Tenant and shall hereinafter be
defined as the "Excluded Personal Property").
1.02 CONTINGENT UPON ACQUISITION OF THE LEASED PROPERTY. In the event
this Lease is executed prior to the conveyance by Tenant or an Affiliate of
the Leased Property to Landlord, the parties acknowledge that the
effectiveness of this Lease in respect of such Leased Property is contingent
upon the closing of such conveyance (the "Commencement Date").
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1.03 TERM. The initial term of this Lease (the "Term") shall be for a
fixed term of One Hundred and Twenty (120) months commencing on the
Commencement Date. The initial term for any Leased Property designated in a
Lease Supplement shall begin onthe date of such Lease Supplement and expire
at the end of the Term or then current Extension Term (as hereafter defined),
as the case may be. Tenant shall have the right to extend this Lease for the
Leased Properties as a group, at Tenant's option, for one One Hundred and
Twenty (120) month renewal term from the expiration of the Term (the "First
Extension Term"), provided that no Event of Default (as defined in Section
9.01 hereof) shall exist and be continuing. In addition, Tenant shall have
the right to extend this Lease for the Leased Properties as a group at
Tenant's option, for a second One Hundred and Twenty (120) month renewal term
from the expiration of the First Extension Term (the "Second Extension Term",
each an "Extension Term", and collectively with the First Extension Term, the
"Extension Terms") provided that no Event of Default (as defined in Section
9.01 hereof) shall exist and be continuing. Tenant shall exercisethe First
Extension Term by written notice to Landlord no later than twelve (12)
months prior to the end of the Term. Tenant shall exercise the Second
Extension Term by written notice to Landlord no later than twelve (12) months
prior to the end of the First Extension Term. Notwithstanding anything else
to the contrary in this Agreement, the Rent during the Second Extension Term
shall be the Fair Market Rent (as hereafter defined) for the Leased
Property.Fair Market Rent shall be determined as soon as possible after
receipt by Landlord of Tenant's notice of option exercise, on the basis of
appraisals of independent appraisers selected in accordance with the
provisions of Section 16.02(b). Tenant shall have the right, in its sole
discretion, to rescind the exercise of Tenant's option to extend the Lease
for the Second Extension Term during a period of fifteen (15) business days
after the determination of the Fair Market Rent. If Tenant shall fail to
exercise the right to rescind within such fifteen (15) day period, the
election to extend shall be irrevocable and the Fair Market Rent so
determined shall be the Base Annual Rent during the Second Extension Term
notwithstanding any changes in the market rental rates, whether upward or
downward, which may occur after such determination. However, notwithstanding
anything else in this Agreement, Fair Market Rent shall become the Base
Annual Rent (as defined hereafter) and shall be subject to Base Annual Rent
Adjustments as set forth in Section 2.04.
1.04 HOLDING OVER. Should Tenant, without the express consent of
Landlord, continue to hold and occupy any Leased Property after the
expiration or earlier termination of the Term or any Extension Term, as the
case may be, such holding over beyond the Term and the acceptance or
collection of Rent (as defined hereinafter) by Landlord shall operate and be
construed as creating a tenancy from month-to-month and not for any other
term whatsoever. During any such holdover period Tenant shall pay to
Landlord for each month (or portion thereof) Tenant remains in such Leased
Property, in lieu of the Base Annual Rent (as defined hereafter) for such
Leased Property, an amount equal to the sum of one-twelfth (1/12) of (i) one
hundred seven percent (107%) of such Base Annual Rent (the "Holdover Rate"),
and (ii) as applicable, one hundred percent (100%) of the Additional Rent (as
defined hereinafter) for such Leased Property and Other Additional Rent (as
defined hereinafter) for such Leased Property, each as in effect on the
expiration date. Said month-to-month tenancy may be terminated by Landlord
by giving Tenant thirty (30) days written notice, and at any time thereafter
Landlord may re-enter and take possession of such Leased Property.
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1.05 SURRENDER. Except as a result of (a) Tenant Improvements and
Capital Additions (as defined hereinafter); (b) normal and reasonable wear
and tear (subject to the obligation of Tenant to maintain each Leased
Property in good order and repair during the Term); and (c) casualty, taking
or other damage and destruction not required to be repaired by Tenant, Tenant
shall surrender and deliver up each Leased Property at the expiration or
termination of the Term or the Extension Term therefor, as the case may be,
broom clean, in good order and repair, free of the Excluded Personal Property
and any additional items of Tenant's personal property (together with the
Excluded Personal Property, the "Tenant's Personal Property"), all of which
Tenant shall remove prior to such surrender and delivery, and in as good
order and condition as of the Commencement Date.
ARTICLE II
RENT
2.01 BASE RENT. Tenant shall pay Landlord annual base rent (the "Base
Annual Rent") as to the Leased Property for each year during the Term or the
Extension Term (each such year a "Lease Year"), which Base Annual Rent shall
be subject to upward adjustment pursuant to Section 2.04. In the first Lease
Year, Base Annual Rent shall be in the amount set forth on SCHEDULE A (the
"Initial Base Annual Rent"), paid to Landlord in twelve equal monthly
installments.
2.02 PAYMENT. Tenant shall pay Landlord the Base Annual Rent as to the
Leased Property for each Lease Year, without notice, demand, set-off or
counterclaim in advance, in lawful money of the United States of America and
payable in consecutive monthly installments commencing on the Commencement
Date and thereafter on the first day of each month during the Term. Tenant
will, to the extent that such method of payment is compatible with its
business practices, make such payments by direct deposit of immediately
available funds to the account set forth in EXHIBIT 2.02 (which EXHIBIT 2.02
may be modified by Landlord from time to time upon Notice (as hereafter
defined) to Tenant).
2.03 SECURITY DEPOSIT. Prior to the Commencement Date, Tenant shall
deliver to Landlord an amount equal to one-twelfth (1/12th) of the Initial
Base Annual Rent, which amount shall be held by Landlord as security (the
"Security Deposit") for the performance of Tenant's payment and other
obligations under this Lease. Upon an Event of Default and the continuance
thereof, Landlord shall have the right, but not the obligation, to apply the
Security Deposit as set forth in Section 9.08. If Tenant has fully and
faithfully carried out all of the terms, covenants and conditions hereof,
Landlord shall return the Security Deposit, without interest, after
expiration of this Lease, or upon early terminati on of this Lease in
accordance with Article X, Article XI, or otherwise less any amounts that
Landlord may deduct from such Security Deposit for unpaid amounts due and
owing under this Lease at the time of termination. In the event that
Landlord eliminates its standard business policy of requiring security
deposits from tenants, then Landlord shall refund the Security Deposit to
Tenant within thirty (30) days of such policy change.
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2.04 BASE ANNUAL RENT ADJUSTMENT.
(a) The Base Annual Rent shall be adjusted during the Lease Term
or the Extension Terms under the procedures set forth in
EXHIBIT 2.04 (the "Base Annual Rent Adjustment").
(b) As used in EXHIBIT 2.04, the "Index" shall mean the CPI-U
published by the United States Department of Labor, Bureau
of Labor Statistics Consumer Price Index for All Urban
Consumers, U.S. City Average. If at any time during the Term
or the Extension Term, as the case may be, the Index shall be
discontinued, Landlord shall select a substitute index, being
an existing official index published by the Bureau of Labor
Statistics or its successor or another, similar governmental
agency, which index is most nearly equivalent to the Index.
2.05 ADDITIONAL RENT. As to each Leased Property, in addition to the
Base Annual Rent, Tenant shall pay all other amounts, liabilities,
obligations and Impositions (as hereinafter defined) which Tenant assumes or
agrees to pay under this Lease and any fine, penalty, interest, charge and
cost which may be added for nonpayment or late payment of such items
(collectively, the "Additional Rent").
2.06 PLACE(S) OF PAYMENT OF RENT; DIRECT PAYMENT OF ADDITIONAL RENT.
The Base Annual Rent and Additional Rent are hereinafter referred to as
"Rent." Landlord shall have all legal, equitable and contractual rights,
powers and remedies provided in this Lease or by statute or otherwise in the
case of nonpayment of the Rent for each Leased Property. Tenant shall make
all payments of Rent at Landlord's address set forth in Section 17.01 or as
Landlord may otherwise from time to time direct in writing, or, if Landlord
shall direct Tenant, directly to a bank account specified by Landlord to
Tenant in writing. At the direction of the Landlord, Tenant shall make
payments of Additional Rent directly to the person or persons to whom such
amount is owing at the time and times when such payments are due, and Tenant
shall give to Landlord such evidence of such direct payments as Landlord
shall reasonably request.
2.07 NET LEASE. This Lease shall be deemed and construed to be an
"absolute net lease" or "triple net lease," (i.e. that Tenant shall pay all
costs and expenses related to the ownership and operations of each Leased
Property, thereby leaving all Rent as an absolutely net return to Landlord)
and as to each Leased Property, Tenant shall pay all Rent, Impositions, and
other charges and expenses in connection with such Leased Property throughout
the Term and any Extension Term, without abatement, deduction or set-off.
2.08 NO TERMINATION, ABATEMENT, ETC. Except as otherwise specifically
provided herein, Tenant shall remain bound by this Lease in accordance with
its terms. Except as otherwise
5
<PAGE>
specifically provided herein, Tenant shall not, without the prior written
consent of Landlord, modify, surrender or terminate this Lease as to any
Leased Property, nor seek nor be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off against the Rent as to any Leased
Property for any reason whatsoever. Except as specifically provided herein,
the obligations of Landlord and Tenant shall not be affected by reason of:
(a) the lawful or unlawful prohibition of, or restriction upon, Tenant's use
of any Leased Property, or any part thereof, the interference with such use
by any person, corporation, partnership or other entity, or by reason of
eviction by paramount title; (b) any claim which Tenant has or might have
against Landlord or by reason of any default or breach of any warranty by
Landlord under this Lease or any other agreement between Landlord and Tenant,
or to which Landlord and Tenant are parties; (c) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding
up or other proceeding affecting Landlord or any assignee or transferee of
Landlord; (d) any damage to, or destruction of, any Leased Property or any
portion thereof for whatever cause, or any taking of the Leased Property or
any portion thereof; or (e) any other cause, whether similar or dissimilar to
any of the foregoing, other than a discharge of Tenant from any such
obligations as a matter of law. Except as otherwise specifically provided
herein, and to the maximum extent permitted by law, Tenant hereby
specifically waives all rights, including but not limited to any rights under
any statute relating to rights of tenants in the jurisdictions where the
Leased Properties are located, which may now be conferred upon it by law,
relating to: (a) the modification, surrender or termination of this Lease,
or the quitting or surrender of any Leased Property or any portion thereof;
(b) any abatement, reduction, suspension or deferment of the Rent or other
sums payable by Tenant hereunder; or (c) any rights of redemption. As to
each Leased Property, the obligations of Landlord and Tenant hereunder shall
be separate and the Rent and all other sums shall continue to be payable in
all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this
Lease other than by reason of an Event of Default.
ARTICLE III
IMPOSITIONS AND UTILITIES
3.01 PAYMENT OF IMPOSITIONS. Subject to the adjustments set forth
herein, Tenant shall pay, in the manner set forth in Section 3.04, as
Additional Rent, to the Landlord an amount equal to the amount necessary to
pay all Impositions (as hereinafter defined) that may be levied or become a
lien on any Leased Property or any part thereof at any time (whether prior to
or during the Term), without regard to prior ownership of said Leased
Property, before the same becomes delinquent; provided that Tenant shall be
permitted to request from the taxing authority or other assessing authority
that payment of the Impositions be amortized over the greatest allowable
period; and further provided that Tenant shall be required to pay only such
Impositions as actually become due and payable during the Term or any
Extension Term of the Lease. Tenant's obligation to pay such Impositions
shall be deemed absolutely fixed upon the date such Impositions become a lien
upon any Leased Property or any part thereof. Tenant, at its expense, shall
prepare and file all tax returns and reports in respect of any Imposition as
may be required by governmental authorities, provided, however, that Tenant
shall provide to Landlord copies of all filings of such tax returns or
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reports in respect of any real or personal property owned by Landlord.
Tenant shall be entitled to any refund due in respect of such Impositions
from any taxing authority if no Event of Default shall have occurred
hereunder and be continuing. Any refunds in respect of such Impositions
retained by Landlord due to an Event of Default shall be applied as provided
in Section 9.08. Landlord and Tenant shall, upon request of the other,
provide such data as is maintained by the party to whom the request is made
with respect to a Leased Property as may be necessary to prepare any required
tax returns and reports. In the event governmental authorities classify any
property covered by this Lease as personal property, Landlord and Tenant
shall file all personal property tax returns in such jurisdictions where it
may legally so file with respect to their respective owned personal property.
Landlord, to the extent it possesses the same, and Tenant, to the extent it
possesses the same, will provide the other party, upon request, with cost and
depreciation records necessary for filing such returns or reports for any
property so classified as personal property. To the extent that Landlord is
legally required to file personal property tax returns, Tenant will be
provided with copies of assessment notices indicating a value in excess of
the reported value in sufficient time for Tenant to file a protest. Tenant
may, upon notice to Landlord, at Tenant's option and at Tenant's sole cost
and expense, protest, appeal, or institute such other proceedings as Tenant
may deem appropriate to effect a reduction of real estate or personal
property assessments and Landlord, at Tenant's expense as aforesaid, shall
fully cooperate with Tenant in such protest, appeal, or other action. Tenant
shall provide Landlord copies of all materials filed or presented in
connection with any such proceeding. Tenant shall promptly reimburse
Landlord for all taxes paid by Landlord, which were not paid with deposits
received from Tenant, upon receipt of billings accompanied by copies of a
bill therefor and payments thereof which identify the property with respect
to which such payments are made. Impositions imposed with respect to the
tax-fiscal period during which the Term commences and terminates as to each
Leased Property shall be adjusted and prorated between Landlord and Tenant on
a per diem basis, with Tenant being obligated to pay its pro rata share from
and including the Commencement Date to and including the expiration or
termination date of the Term or Extension Term, as the case may be, whether
or not such Imposition is imposed before or after such commencement or
termination, and Tenant's obligation to pay its prorated share thereof shall
survive such termination. Tenant shall also pay to Landlord a sum equal to
the amount which Landlord may be caused to pay of any privilege tax, sales
tax, gross receipts tax, rent tax, occupancy tax or like tax (excluding any
tax based on net income), hereinafter levied, assessed, or imposed by any
federal, state, city, county or municipal or other local governmental
authority, or any subdivision thereof, upon or measured by rent or other
consideration required to be paid by Tenant under this Lease.
3.02 DEFINITION OF IMPOSITIONS. "Impositions" means, collectively: (a)
taxes (including without limitation, all real estate and personal property ad
valorem (whether assessed as part of the real estate or separately assessed
as unsecured personal property), sales and use, business or occupation,
single business, gross receipts, transaction, privilege, rent or similar
taxes, but not including income or franchise or excise taxes payable with
respect to Landlord's receipt of Rent); (b) assessments, whether in the
nature of a special assessment or otherwise (including, without limitation,
all assessments for public improvements or benefits, whether or not commenced
or completed prior to the date hereof and whether or not to be completed
within the Term or any Extension Term, as the case may be), provided that all
assessments shall be paid over the longest
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amortization period available without causing a penalty or the accrual of
interest; (c) ground rents, water, sewer or other rents and charges, excises,
tax levies, and fees (including, without limitation, license, permit,
inspection, authorization and similar fees); (d) to the extent they may
become a lien on a Leased Property, all taxes imposed on Tenant's operations
of such Leased Property including without limitation, Tenant's or Affiliates
of Tenant's employee withholding taxes, income taxes and intangible taxes;
and (e) all other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforseen, of every
character in respect of each Leased Property or any part thereof, the
Business conducted by Tenant thereon, and/or the Rent (including all interest
and penalties thereon due to any failure in payment by Tenant), which at any
time prior to, during or in respect of the Term or any Extension Term, as the
case may be, hereof may be assessed or imposed on or in respect of or be a
lien upon (i) Landlord or Landlord's interest in any Leased Property or any
part thereof; (ii) any Leased Property or any part thereof or any rent
therefrom or any estate, right, title or interest therein; or (iii) any
occupancy, operation, use or possession of, or sales from, or activity
conducted on, or in connection with any Leased Property or the leasing or use
of any Leased Property or any part thereof. Tenant shall not, however, be
required to pay: (x) any tax based on net income (whether denominated as a
franchise or capital stock or other tax) imposed on Landlord or (y) except as
provided in Section 13.01, any tax imposed with respect to the sale, exchange
or other disposition by Landlord of a Leased Property or the proceeds
thereof; provided, however, that if any tax, assessment, tax levy or charge
which Tenant is obligated to pay pursuant to the first sentence of this
definition and which is in effect at any time during the Term hereof is
totally or partially repealed, and a tax, assessment, tax levy or charge set
forth in clause (x) or (y) immediately above is levied, assessed or imposed
expressly in lieu thereof Tenant shall then pay such tax, levy, or charge set
forth in said clause (x) or (y).
3.03 UTILITIES. Tenant shall contract for, in its own name, and will
pay, as Additional Rent all taxes, assessments, charges/deposits, and bills
for utilities, including without limitation charges for water, gas, oil,
sanitary and storm sewer, electricity, telephone service, trash collection,
and all other utilities which may be charged against the occupant of the
Improvements during the Term. Tenant shall at all times maintain that amount
of heat necessary to ensure against the freezing of water lines. Tenant
hereby agrees to indemnify and hold Landlord harmless from and against any
liability or damages to the utility systems of each Leased Property that may
result from Tenant's failure to maintain sufficient heat in the Improvements
therefor.
3.04 ESCROW OF IMPOSITIONS. If Tenant is in default under this Lease
beyond any applicable cure period, Tenant shall thereafter deposit with
Landlord on the first day of each month during the Term hereof and any
Extension Term, as the case may be, a sum equal to one-twelfth (1/12th) of
the Impositions assessed against such Leased Property which sums shall be
used by Landlord toward payment of such Impositions. If, at the end of any
applicable tax year, any such funds held by Landlord are insufficient to make
full payment of taxes or other Impositions for which such funds are held,
Tenant, on demand, shall pay to Landlord any additional funds necessary to
pay and discharge in full the obligations of Tenant pursuant to the
provisions of this Section. If, however, at the end of any applicable tax
year, such funds held by Landlord are in excess of the total payment required
to satisfy taxes or other Impositions for which such funds are held, Landlord
shall
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apply such excess amounts to a tax and Imposition escrow fund for the next
tax year. With respect to each Leased Property, if any such excess exists
following the expiration or earlier termination of this Lease, and subject to
Section 8.08 below, Landlord shall promptly refund such excess amounts to
Tenant. The receipt by Landlord of the payment of such Impositions by and
from Tenant shall only be as an accommodation to Tenant and the taxing
authorities, and shall not be construed as rent or income to Landlord,
Landlord serving, if at all, only as a conduit for delivery purposes.
3.05 DISCONTINUANCE OF UTILITIES. Landlord will not be liable for
damages to person or property or for injury to, or interruption of, business
for any discontinuance of utilities at any Leased Property nor will such
discontinuance in any way be construed as an eviction of Tenant from such
Leased Property or cause an abatement of Rent as to such Leased Property or
operate to release Tenant from any of Tenant's obligations as to such Leased
Property under this Lease. Notwithstanding the forgoing, however, Landlord
shall be liable for damages to person or property or for injury to, or
interruption of business, for any discontinuance of utilities at any Leased
Property, in the event and to the extent, such damages or injury are caused
by the gross negligence or wilful misconduct of the Landlord.
3.06 LIENS. Subject to Section 17.19 relating to contests, Tenant shall
not directly or indirectly create or allow to remain, and will promptly
discharge at its expense, any lien, encumbrance, attachment, title retention
agreement or claim upon any Leased Property or any attachment, levy, claim or
encumbrance in respect of any Rent provided under this Lease, not including,
however: (a) this Lease; (b) utility easements and road rights-of-way in the
customary form (i) provided the same do not adversely affect the intended use
of the Leased Properties (including the Improvements) and do not create a
material adverse effect on the value of the Leased Properties or (ii) which
result solely from the action or inaction of Landlord; (c) zoning and
building laws or ordinances, provided they do not prohibit the use of the
Leased Properties for the Business and so long as the Leased Properties are
in compliance with same; (d) such encumbrances as are subsequently consented
to in writing by Landlord, but excluding liens in respect of Impositions
required to be paid under Section 3.01; (e) liens for Impositions so long as
(i) the same are not yet payable or are payable without the addition of any
fine or penalty or (ii) such liens are being contested as permitted under
Section 17.19; and (f) other encumbrances, easements, rights of way or liens
(i) provided the same do not adversely affect the intended use of the Leased
Properties (including the Improvements) and do not create a material adverse
effect on the value of the Leased properties, or (ii) which result solely
from the action or inaction of Landlord.
3.07 TAX STATEMENTS. Tenant shall immediately after the Commencement
Date notify the appropriate taxing authorities in the jurisdiction in which
the Leased Properties are situated that all tax statements, assessments and
bills for Impositions shall be delivered directly to Tenant for payment.
Tenant shall deliver to Landlord copies of all statements of taxes, special
assessments or other Impositions within ten (10) days of Tenant's receipt
thereof.
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ARTICLE IV
INSURANCE
4.01 INSURANCE. Tenant shall, at Tenant's expense, keep the
Improvements, Fixtures, and other components of each Leased Property insured
against the following risks:
(a) Loss or damage by fire with extended coverage (including
windstorm and subsidence), vandalism and malicious mischief,
sprinkler leakage and all other physical loss perils commonly
covered by "All Risk" insurance in an amount not less than one
hundred percent (100%) of the then full replacement cost thereof
(as hereinafter defined). Such policy shall include an agreed
amount endorsement if available at a reasonable cost. Such
policy shall also include endorsements for contingent liability
for operation of building laws, demolition costs, and increased
cost of construction.
(b) Loss or damage by explosion of steam boilers, pressure vessels,
or similar apparatus, now or hereafter installed on any Leased
Property, in commercially reasonable amounts acceptable to
Landlord.
(c) [Intentionally Omitted]
(d) If the Land or any portion thereof related to a Leased Property
is located in whole or in part within a designated flood plain
area, loss or damage caused by flood in commercially reasonable
amounts acceptable to Landlord.
(e) Loss or damage commonly covered by blanket crime insurance
including employee dishonesty, loss of money orders or paper
currency, depositor's forgery, and loss of property accepted by
Tenant for safekeeping, in commercially reasonable amounts
acceptable to Landlord.
(f) Workers' compensation insurance as required by statute in respect
of any work or other operations on or about each Leased Property.
(g) Comprehensive liability insurance as to each Leased Property in
amounts equal to the greater of (i) One Million Dollars
($1,000,000) for each occurrence and Two Million Dollars
($2,000,000) in the aggregate, or (ii) the limits of liability
generally required under the franchise agreements or other
agreements pursuant to which Tenant operates the Businesses
conducted on or about each Leased Property.
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(h) Commercial comprehensive catastrophic liability insurance with
limits of liability of not less than the greater of (i) Five
Million ($5,000,000) and (ii) the limits of liability generally
required under the franchise agreements or other agreements
pursuant to which Tenant operates the Businesses conducted on or
about each Leased Property.
(i) upon Landlord's request if such insurance is customary in the
region in which the Leased Property is situated, earthquake
insurance in an amount not less than the full insurable value of
each Leased Property.
(j) During the period when any addition, alteration, construction,
installation or demolition is being made or performed to any part
of the Leased Property, contingent liability, public liability,
completed value, builder's risk (non-reporting form) workers'
compensation and other insurance as is deemed reasonably prudent
by Landlord.
4.02 INSURANCE LIMITS. Deductible provisions for the insurance required
under Section 4.01(a) shall not exceed Twenty-Five Thousand Dollars ($25,000)
per location per occurrence and One Hundred Thousand Dollars ($100,000)
aggregate per occurrence; under clause(d), Twenty-Five Thousand Dollars
($25,000) per occurrence, except that if federal flood insurance is available
then such deductible shall not be greater than the lowest deductible available
with respect to such federal flood insurance; under clause (g), Fifty Thousand
Dollars ($50,000) per occurrence; under clause (h), Twenty-Five Thousand Dollars
($25,000) per occurrence; and under clause (j), Twenty-Five Thousand Dollars
($25,000) per occurrence.
4.03 INSURANCE REQUIREMENTS. The following provisions shall apply to all
insurance coverages required hereunder:
(a) The carriers of all policies shall have a Best's Rating of "A-"
or better and a Best's Financial Category of XII or larger and
shall be authorized to do insurance business in the jurisdiction
in which the Leased Property is located.
(b) Tenant shall be the "named insured" and Landlord and any
mortgagee of Landlord shall be an "additional named insured" on
each policy with respect to such mortgagee's and the Landlord's
interest in the Leased Property, except the coverages required
under Section 4.01(f) hereto.
(c) Tenant shall deliver to Landlord certificates or policies showing
the required coverages and endorsements. Each policy or
certificate of insurance shall provide that such policy or
certificate (i) may not be
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canceled, (ii) may not lapse for failure to renew, and (iii)
no material change or reduction in coverage may be made,
without at least thirty (30) days' prior written notice to
Landlord.
(d) The policies shall contain a severability of interest and/or
cross-liability endorsement, provide that the acts or omissions
of Tenant will not invalidate Landlord's coverage, and provide
that Landlord shall not be responsible for payment of premiums.
(e) All loss adjustment shall require the written consent of Landlord
and Tenant, as their interests may appear.
(f) At least (30) thirty days prior to the expiration of each policy,
Tenant shall deliver to Landlord a certificate showing renewal of
such policy and payment of the annual premium therefor.
Landlord shall have the right to review the insurance coverages required
hereunder with Tenant from time to time, to obtain the input of third party
professional insurance advisors (at Landlord's expense) with respect to such
insurance coverages, and to consult with Tenant in Tenant's annual review and
renewal of such insurance coverages. All insurance coverages hereunder shall
be in such form, substance and amounts as are customary or standard in
Tenant's industry, but at a minimum shall comply with the requirements set
forth herein.
4.04 REPLACEMENT COST. The term "full replacement cost" means the
actual replacement cost of the Improvements from time to time including
increased cost of construction, with no reductions or deductions. Tenant
shall, not later than thirty (30) days after the anniversary of each policy
of insurance, increase the amount of the replacement cost endorsement for the
Improvements to the extent necessary to reflect increased costs of
construction. If Tenant makes any Permitted Alterations (as hereinafter
defined) to any Leased Property, Landlord may have such full replacement cost
redetermined at any time after such Permitted Alterations are made,
regardless of when the full replacement cost was last determined.
4.05 BLANKET POLICY. Tenant may carry the insurance required by this
Article under a blanket policy of insurance, provided that the coverage
afforded Tenant will not be reduced or diminished or otherwise be different
from that which would exist under a separate policy meeting all of the
requirements of this Lease and the Landlord approves the form of the policy.
4.06 NO SEPARATE INSURANCE. Tenant shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article, or increase the amounts of any then existing
insurance by securing an additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including Landlord and any mortgagees, are included therein as additional
named insureds or loss payees, the loss is payable under said insurance in
the same manner as losses are payable under this Lease, and
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such additional insurance is not prohibited by the existing policies of
insurance required pursuant to this Article. Tenant shall immediately notify
Landlord of the taking out of such separate insurance or the increasing of
any of the amounts of the existing insurance by securing an additional policy
or additional policies. The term "mortgages" as used in this Lease includes,
but is not limited to, Deeds of Trust and the term "mortgagees" includes, but
is not limited to, trustees and beneficiaries under a Deed of Trust.
4.07 WAIVER OF SUBROGATION. Each party hereto hereby waives any and
every claim which arises or may arise in its favor and against the other
party hereto during the Term or any Extension Term or renewal thereof, for
any and all loss of, or damage to, any of its property located within or
upon, or constituting a part of, any Leased Property, which loss or damage is
covered by valid and collectible insurance policies, to the extent that such
loss or damage is recoverable in full under such policies. Said mutual
waiver shall be in addition to, and not in limitation or derogation of, any
other waiver or release contained in this Lease with respect to any loss or
damage to property of the parties hereto. Inasmuch as the said waivers will
preclude the assignment of any aforesaid claim by way of subrogation (or
otherwise) to an insurance company (or any other person), each party hereto
agrees immediately to give each insurance company which has issued to it
policies of insurance, written notice of the terms of said mutual waivers,
and to have such insurance policies properly endorsed, if necessary, to
prevent the invalidation of said insurance coverage by reason of said
waivers, so long as such endorsement is available at a reasonable cost.
4.08 MORTGAGES. The following provisions shall apply if Landlord at the
Commencement Date or thereafter places a mortgage on any Leased Property or
any part thereof: (a) Tenant shall obtain a standard form of mortgage clause
insuring the interest of the mortgagee; (b) Tenant shall deliver evidence of
insurance to such mortgagee; (c) loss adjustment shall require the consent of
the mortgagee but such consent shall not be unreasonably withheld and may not
include any requirement that the funds be paid to mortgagee in lieu of
reconstruction; and (d) Tenant shall obtain such other coverages and provide
such other information and documents as may be reasonably required by the
mortgagee. Tenant shall be required to pay for the cost of the mortgage
clause insuring the interest of the mortgagee only if Landlord places a
mortgage on a Leased Property at the Commencement Date.
4.09 OTHER INSURANCE REQUIREMENTS. Notwithstanding anything in this
Lease to the contrary and not by way of limitation, in addition to the types
and amounts of insurance required to be carried by Tenant herein, Tenant
covenants to insure and continue in effect such types and amounts of
insurance as the Tenant shall be required to carry pursuant to any contract,
agreement, instrument, statute, law, rule or regulation relating to the use
of the Leased Property and the operations of any Business or other activities
thereon, including noncancellable written notice to mortgagee.
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ARTICLE V
INDEMNITY; SUBSTANCES OF CONCERN
5.01 TENANT'S INDEMNIFICATION. Subject to Section 4.07, Tenant hereby
agrees to indemnify and hold harmless Landlord, its agents, and employees
from and against any and all demands, claims, causes of action, fines,
penalties, damages (including punitive and consequential damages), losses,
liabilities (including strict liability), judgments, costs and expenses
(including, without limitation, attorneys' fees, court costs, and the costs
set forth in Section 9.06) (the "Claims") incurred in connection with or
arising from: (a) the use, condition, operation or occupancy of the Leased
Properties; (b) any activity, work, or thing done, or permitted or suffered
by Tenant in, on or about the Leased Properties; (c) any acts, omissions, or
negligence of Tenant or any person claiming under Tenant, or the contractors,
agents, employees, invitees, or visitors of Tenant or any such person; (d)
any breach, violation, or nonperformance by Tenant or any person claiming
under Tenant or the employees, agents, contractors, invitees, or visitors of
Tenant or of any such person, of any term, representation, warranty,
covenant, or provision of this Lease or any law, ordinance, or governmental
requirement of any kind; (e) any injury or damage to the person, property or
Business of Tenant, its employees, agents, contractors, invitees, visitors,
or any other person entering upon any Leased Property; (f) any accident,
injury to or death of persons or loss or damage to any item of property
occurring on or about any Leased Property; (g) any Environmental Law or any
pollution or other threat to human health or the environment at, arising out
of or relating to any Leased Property as set forth in Section 5.05, and (h)
any brokers' or agents' fees and commissions. If any action or proceeding is
brought against Landlord, its employees, or agents by reason of any such
demand, claim, or cause of action, Tenant, upon notice from Landlord, will
defend the same at Tenant's expense with counsel reasonably satisfactory to
Landlord. In the event Landlord reasonably determines that its interests and
the interests of Tenant in any such action or proceeding are not
substantially the same and that Tenant's counsel cannot adequately represent
the interests of Landlord therein, Landlord shall have the right to hire
separate counsel in any such action or proceeding and the reasonable costs
thereof shall be paid for by Tenant. Tenant's indemnification obligations
with respect to a Claim shall survive the expiration or earlier termination
of this Lease until the later of (i) two (2) years from the date hereof, or
(ii) the expiration of the period ninety (90) days after the date on which
Landlord has actual knowledge of the existence of such Claim, provided,
however, that Tenant's indemnification obligations shall survive the
expiration or earlier termination of this Lease until ninety (90) days after
the expiration of the applicable statute of limitations for Claims incurred
in connection with, arising out of, or related to (i) Section 5.01(g) or (ii)
the failure to pay, as provided for in this Agreement, any Imposition.
Nothing herein is intended to have Tenant indemnify or hold harmless Landlord
for any actions or failures to act by Landlord, its agents, employees,
servants and invitees.
5.02 SUBSTANCES OF CONCERN.
(a) For purposes of this Section 5:
(i) "Substances of Concern" means, without limitation,
chemicals, pollutants, contaminants, wastes, toxic
substances, radioactive materials or genetically modified
organisms, which are, have been or become regulated by any
federal,
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state or local government authority including,without
limitation, (1) petroleum or any fraction thereof,
(2) asbestos, (3) any substance or material defined as a
"hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response Compensation and
Liability Act (42 U.S.C. Section 9601), or (4) any
substance or material defined as a "hazardous chemical"
pursuant to the federal Hazard Communication Standard
(29 C.F.R. Section 1910.1200).
(ii) "Environmental Laws" means all federal, state, local, and
foreign laws and regulations relating to pollution or
protection of human health or the environment (including,
without limitation, ambient air, surface water, ground
water, wetlands, land surface, subsurface strata, and indoor
and outdoor workplace), including, without limitation,
(1) laws and regulations relating to emissions, discharges,
releases, or threatened releases of Substances of Concern,
and (2) common law principles of tort liability.
(b) Tenant shall not, either with or without negligence, injure,
overload, deface, damage or otherwise harm any Leased Property or
any part or component thereof; commit any nuisance; permit the
emission of any Substances of Concern; allow the release or other
escape of any biologically or chemically active substances or
materials or other Substances of Concern so as to impregnate,
impair or in any manner affect, even temporarily, any element or
part of any Leased Property or neighboring property, or allow the
storage or use of such substances or materials in any manner not
sanctioned by law and by reasonable standards prevailing in the
automobile retail and related industries for the storage and use
of such substances or materials; nor shall Tenant permit the
occurrence of objectionable noise or odors; or make, allow or
suffer any waste whatsoever to any Leased Property. Landlord may
inspect each Leased Property from time to time, and Tenant will
cooperate with such inspections.
(c) Notwithstanding the foregoing, Tenant anticipates using, storing
and disposing of certain Substances of Concern in connection with
operation of its Business. Such Substances of Concern include,
but are not limited to, the following: motor oil, waste motor
oil and filters, transmission fluid, antifreeze, refrigerants,
waste paint and lacquer thinner, batteries, solvents, lubricants,
degreasing agents, gasoline and diesel fuels. Tenant shall
ascertain and comply fully with all applicable Environmental Laws
and environmental standards
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and requirements set by federal, state or local laws, rules,
regulations or governmental directives related to the Leased
Properties or Tenant's use or occupancy of the Leased
Property ("Environmental Standards"), including but not
limited to any laws or standards (a) regulating the use,
storage, generation or disposal of Substances of Concern, (b)
regulating the monitoring or use of any underground or
aboveground storage tanks at the Leased Properties, or (c)
establishing any permitting, notification or reporting
requirements. As promptly as practicable after the
Commencement Date (but in no event later than 120 days
thereafter), Tenant shall establish and implement a program
of compliance with all applicable Environmental Laws and
Environmental Standards ("Environmental Compliance Program").
Tenant shall update such Environmental Compliance Program
every three (3) years during the Term. Tenant shall submit
its Environmental Compliance Program and each update thereto
to Landlord; provided, however, such submittal shall not
relieve Tenant of its obligations pursuant to this Section 5.
Tenant's Environmental Compliance Program shall include a
program for monitoring Tenant's compliance with Environmental
Laws and Environmental Standards and a plan for correcting
immediately any incident of noncompliance. Tenant shall
comply with its Environmental Compliance Program.
(d) In the event of any noncompliance with any Environmental Laws or
Environmental Standards or any spill, release or discharge of
Substances of Concern in a reportable quantity under federal,
state or local law, Tenant shall:
(i) give Landlord immediate notice of the incident by telephone
or facsimile, providing as much detail as possible. Such
notice shall be provided to Landlord's National Dealership
Real Estate Manager or to such other person as Landlord
shall designate in accordance with Section 16.01 below;
(ii) as soon as possible, but no later than seventy-two (72)
hours, after discovery of an incident of noncompliance,
submit a written report to Landlord, identifying the source
or case of the noncompliance or spill, release or discharge
(including the names and quantities of any Substances of
Concern involved) and the method or action required to
correct the problem; and
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(iii) cooperate with Landlord or its designated agents or
contractors with respect to the investigation and correction
of such problem.
Tenant shall also be solely responsible for providing any notice to
any federal, state or local governmental authority required by applicable
laws and regulations as a result of such incident.
5.03 AUDITS. Landlord shall have the right to conduct, at its expense,
periodic audits of Tenant's compliance with the Environmental Compliance Program
and management of Substances of Concern at the Leased Properties and/or periodic
tests of air, soil, surface water or groundwater at or near the Leased
Properties. Landlord shall not be obligated to provide Tenant with the results
of any audit or tests unless such results are the basis for a claim by Landlord
that Tenant has breached its obligations under this Lease or a demand by
Landlord that Tenant modify its Environmental Compliance Program or operations
or remediate or remove a spill, release or discharge of Substances of Concern in
accordance with Section 5.06 below. Tenant agrees promptly to modify its
Environmental Compliance Program or the conduct of its operations in accordance
with Landlord's reasonable recommendations directed at improvement of Tenant's
handling, use and disposal of Substances of Concern in, on or from any Leased
Property to bring Tenant into compliance with Environmental Laws. If, as a
result of an environmental audit performed by Landlord with respect to any
Leased Property, Landlord reasonably determines in its judgment that alterations
or improvements of equipment or buildings located on the Leased Property are
necessary to comply with Environmental Laws, Tenant shall perform such
alterations or improvements as are reasonable under the circumstances and pay
all costs and expenses relating thereto. If Tenant shall fail to pay any such
costs or expenses, Tenant shall deposit with Landlord the full amount necessary
to pay such costs in full within ten (10) days of Landlord's demand. Nothing
contained herein shall be construed to obligate or require Landlord to perform
any audits, tests, inquiry or investigation. Should Landlord elect or be
required to disclose to Tenant the results of any audit or tests, Landlord shall
not be liable in any way for the truth or accuracy of such information.
5.04 LANDLORD'S OPTION RE: COMPLIANCE. If Tenant, after notice from
Landlord, fails to comply with or perform any of its obligations pursuant to
this Section 5, including, but not limited to, obligations to clean up spills,
releases or discharges, Landlord may, but shall not be obligated to, perform
such obligations and Tenant shall pay Landlord within ten (10) days of demand
Landlord's costs therefor, including any overhead and administrative costs.
5.05 ENVIRONMENTAL INDEMNIFICATION. Tenant shall indemnify and hold
harmless Landlord from and against all demands, claims, causes of action, fines,
penalties, damages (including punitive and consequential damages), losses,
liabilities (including strict liability), judgments, and expenses (including,
without limitation, attorneys' fees, court costs, and the costs set forth in
Section 9.06) imposed upon or asserted against Tenant, Landlord or any Leased
Property on account of any Environmental Law (irrespective of whether there has
occurred any violation of any Environmental Law) relating to any Leased
Property, including (a) response costs and costs of removal and remedial
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action incurred by the United States Government or any state or local
governmental unit to any other person or entity, or damages from injury to or
destruction or loss of natural resources, including the reasonable costs of
assessing such injury, destruction or loss, incurred pursuant to any
Environmental Law, (b) costs and expenses of abatement, investigation,
removal, remediation, correction or cleanup, fines, damages, response costs
or penalties which arise from the provisions of any Environmental Law, (c)
liability for personal injury or property damage arising under any statutory
or common-law tort theory, including damages assessed for the maintenance of
a public or private nuisance or for carrying on of a dangerous activity, (d)
liability by reason of a breach of an environmental representation or
warranty by Tenant, and (e) failure of Tenant to complete in a timely manner
alterations or improvements of equipment or buildings located on the Leased
Property deemed necessary or advisable by Landlord pursuant to Section 5.03
in a manner acceptable to Landlord.
5.06 TENANT'S CLEANUP OBLIGATION. If any spill, release or discharge of
Substances of Concern occurs on, at or from the Leased Properties during the
Term, Tenant shall promptly take all actions, at its sole expense, as are
necessary to remove or remediate such spill, release or discharge and to
return the Leased Property to the condition existing prior to the
introduction of any such Substances of Concern to the Leased Property,
provided that Landlord's approval of such action shall first be obtained,
which approval shall not be unreasonably withheld so long as such actions
would not potentially have any material adverse effect on the Leased
Property.
5.07 EXISTING ENVIRONMENTAL CONDITIONS. Tenant acknowledges that it has
had the opportunity to review the Environmental Reports attached hereto as
EXHIBIT 5.07. Tenant hereby represents that it has reviewed and is aware of
the matters disclosed in the Environmental Reports.
As a material consideration for Landlord's willingness to enter
into this Lease, Tenant, for itself and its Affiliates, and each of their
shareholders, directors, officers, employees, agents, contractors,
representatives, insurers, successors and assigns hereby waives and releases
Landlord and its Affiliates and each of their shareholders, directors,
officers, employees, representatives, agents, contractors, representatives,
insurers, successors and assigns from any and all claims, demands,
liabilities, costs, expenses, causes of action and rights of action
whatsoever, past, present or future, known or unknown, suspected or
unsuspected, which arise out of or relate in any way to the violation of
Environmental Laws or the use, storage, treatment, disposal, presence, spill,
release, or discharge of Substances of Concern at, on or from the Leased
Properties before the Commencement Date (collectively, the "Released Claims").
In the event that Landlord is ordered by a governmental agency, or
determines that it is in its best interest, to remedy any violation of
Environmental Laws or to remove or remediate any Substances of Concern
present on, under or about the Leased Properties on the Commencement Date, or
spilled, released or discharged on, at or from the Leased Properties before
the Commencement Date, Tenant shall immediately upon notice from Landlord
take all actions, at Tenant's sole expense, to promptly complete such removal
or remediation.
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5.08 SURVIVAL OF TENANT'S OBLIGATIONS. Tenant's obligations under this
Section 5 shall survive the expiration or earlier termination of this Lease.
During any period of time employed by Tenant after the termination of this
Lease to complete the removal from the Leased Property of any Substances of
Concern, if the premises are not rentable for uses contemplated under this
Lease, Tenant shall continue to pay the full amount of Rent due under this
Lease, which Rent shall be prorated daily for the final month of such period
of time.
ARTICLE VI
USE AND ACCEPTANCE OF PREMISES
6.01 USE OF LEASED PROPERTIES. For so long as this Lease is in effect
(including following any sublease or assignment thereof), Tenant shall use
and occupy each Leased Property exclusively for the purpose of conducting the
Business or for any other legal purpose for which such Leased Property is
being used as of the Commencement Date, and for no other purpose without the
prior written consent of Landlord. Tenant shall obtain and maintain all
approvals, licenses, and consents needed to use and operate the Leased
Properties for such purposes. Tenant shall promptly deliver to Landlord
complete copies of surveys, examinations, certification and licensure
inspections, compliance certificates, and other similar reports issued to
Tenant by any governmental agency.
6.02 ACCEPTANCE OF LEASED PROPERTIES. Except as otherwise specifically
provided in this Lease, Tenant acknowledges (i) Tenant and its agents have
had an opportunity to inspect each Leased Property; (ii) Tenant has found
each Leased Property fit for Tenant's use; (iii) delivery of each Leased
Property to Tenant is in an "as-is" condition; (iv) Landlord is not obligated
to make any improvements or repairs to any Leased Property; and (v) the roof,
walls, foundation, heating, ventilating, air conditioning, telephone, sewer,
electrical, mechanical, utility, plumbing, and other portions of each Leased
Property are in good working order. Tenant waives any claim or action
against Landlord with respect to the condition of any Leased Property.
LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT
OF THE LEASED PROPERTIES OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR
USE, DESIGN OR CONDITION OR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO
QUALITY OR THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.
6.03 CONDITIONS OF USE AND OCCUPANCY. Tenant agrees that during the
Term it shall use and keep each Leased Property in a careful, safe and proper
manner; not commit or suffer waste thereon; not use or occupy any Leased
Property for any unlawful purposes; not use or occupy any Leased Property or
permit the same to be used or occupied, for any purpose or business deemed
extra hazardous on account of fire or otherwise; keep each Leased Property in
such repair and condition as may be required by the local board of health, or
other city, state or federal authorities, free of all cost to Landlord; not
permit any acts to be done which will cause the cancellation, invalidation,
or suspension of any insurance policy; and permit Landlord and its agents to
enter upon each Leased Property at all reasonable times after notice to
Tenant to examine the condition thereof.
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In addition, at any time and from time to time upon not less than fifteen
(15) days prior written notice, Tenant shall permit Landlord and any
mortgagee or lender and their authorized representatives, to inspect the
Leased Properties during normal Business hours, provided that such
inspections shall not unreasonably interfere with Business of Tenant.
6.04 FINANCIAL STATEMENTS AND OTHER INFORMATION. Tenant shall provide
Landlord and any mortgagee or lender regularly (or more often as may be
reasonably requested by Landlord in writing), the following financial
information from Cross-Continent Auto Retailers, Inc. ("C-CAR"): (a) as to
each Leased Property within thirty (30) days after each fiscal quarter during
the Term or any Extension Term, as the case may be, (except the fourth
quarter), C-CAR-prepared financial statements prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied; and
(b) as to each Leased Property and C-CAR, Tenant shall use its best efforts
to provide Landlord within ninety (90) days after the end of each fiscal year
of Tenant during the Term or any Extension Term, as the case may be, and in
no event later than one hundred and twenty (120) days after the end of each
fiscal year of Tenant during the Term or any Extension Term, as the case may
be, financial statements, audited, reviewed or compiled by a certified public
accountant (the "Annual Financial Statements"). Tenant shall also deliver
to Landlord such additional financial information as Landlord may reasonably
request, provided the same is of a type normally maintained by C-CAR or can
be obtained without undue cost or burden on Tenant's personnel and does not
constitute information which Tenant reasonably determines to be proprietary
or confidential. Additionally, upon Landlord's request, Tenant shall provide
Landlord with copies of C-CAR's annual capital expenditure budgets for each
Leased Property and shall deliver quarterly any reports generated by Tenant
regarding maintenance and repairs of each Leased Property and statements
delivered by Tenant to its automobile franchisors.
ARTICLE VII
REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS
7.01 MAINTENANCE. Tenant shall maintain each Leased Property in good
order, repair and appearance, and repair each Leased Property, including without
limitation, all interior and exterior, structural and nonstructural repairs and
replacements to the roof, foundations, exterior walls, building systems, HVAC
systems, parking areas, sidewalks, water, sewer and gas connections, pipes, and
mains. Tenant shall pay as Additional Rent the full cost of such maintenance,
repairs, and replacements, and to the extent that Tenant has paid such costs
directly to third parties, Tenant shall receive a credit against Additional Rent
payments for such amounts. Tenant shall maintain all drives, sidewalks, parking
areas, and lawns on or about each Leased Property in a clean and orderly
condition, free of accumulations of dirt, rubbish, snow and ice. Tenant shall
permit Landlord to inspect each Leased Property at all reasonable times, and
shall implement all reasonable suggestions of Landlord as to the maintenance and
repair of each Leased Property.
7.02 COMPLIANCE WITH LAWS. Tenant shall comply with all laws, ordinances,
orders, rules, regulations, and other governmental requirements relating to the
use, condition, or
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occupancy of each Leased Property, whether now or hereafter enacted and in
force including without limitation: (a) licensure requirements for operation
of the Business; (b) requirements of any board of casualty insurance
underwriters or insurance service office for any other similar body having
jurisdiction over any Leased Property; (c) all zoning and building codes; and
(d) Environmental Laws. At Landlord's request, from time to time, Tenant
shall deliver to Landlord copies of certificates or permits evidencing
compliance with such laws, including without limitation, copies of any
applicable licenses, certificates of occupancy and building permits. Tenant
shall provide Landlord with copies of any notice from any governmental
authority alleging any non-compliance by Tenant or any Leased Property with
any of the foregoing requirements and such evidence as Landlord may
reasonably require of Tenant's remediation thereof. Tenant hereby agrees to
defend, indemnify and hold Landlord, its agents, and employees from and
against any and all demands, claims, causes of action, fines, penalties,
damages (including punitive and consequential damages), losses, liabilities
(including strict liability), judgments, costs and expenses (including,
without limitation, attorneys' fees, court costs, and the costs set forth in
Section 9.06) resulting from any failure by Tenant to comply with any laws,
ordinances, rules, regulations, and other governmental requirements.
7.03 REQUIRED ALTERATIONS. Tenant shall, at Tenant's sole cost and
expense, make any additions, changes, improvements or alterations to each
Leased Property, including structural alterations, which may be required by
any governmental authorities, including those required to continue to satisfy
any licensure requirements related to the operation of the Business, whether
such changes are required by Tenant's use, changes in the law, ordinances, or
governmental regulations, defects existing as of the date of this Lease, or
any other cause whatsoever. Tenant shall provide thirty (30) days prior
written notice to Landlord of any changes to a Leased Property pursuant to
this Section 7.03 which involve changes to the structural integrity thereof
or materially affect the operational capabilities thereof. All such
additions, changes, improvements or alterations shall be deemed to be a
Tenant Improvement and shall comply with all laws relating to such
alterations and with the provisions of Section 8.01.
7.04 MECHANICS' LIENS. Tenant shall have no authority to permit or
create a lien against Landlord's interest in any Leased Property, and Tenant
shall post notices or file such documents as may be required to protect
Landlord's interest in each Leased Property against liens. Tenant hereby
agrees to defend, indemnify, and hold Landlord harmless from and against any
mechanics' liens against any Leased Property by reason of work, labor
services or materials supplied or claimed to have been supplied on or to such
Leased Property. Tenant shall immediately remove, bond-off, or otherwise
obtain the release of any mechanics' lien filed against any Leased Property.
Tenant shall pay all expenses in connection therewith, including without
limitation, damages, interest, court costs and reasonable attorneys' fees.
7.05 REPLACEMENTS OF FIXTURES. Tenant shall not remove Fixtures from any
Leased Property except to replace such Fixtures with other items used for
similar or analogous purposes, which replacement items are of equal or greater
quality and value. Items being replaced by Tenant may be removed and shall
become the property of Tenant and items replacing the same
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shall be and remain the property of Landlord. Tenant shall execute, upon
written request from Landlord, any and all documents necessary to evidence
Landlord's ownership of the Fixtures and replacements therefor. Tenant may
not finance Fixture replacements by security agreement or equipment lease
unless: (a) Landlord has consented to the terms and conditions of the
equipment lease or security agreement; (b) the equipment lessor or lender has
entered into a non-disturbance agreement with Landlord upon terms and
conditions acceptable to Landlord, including without limitation (i) Landlord
shall have the right (but not the obligation) to assume such security
agreement or equipment lease upon the occurrence of an Event of Default by
Tenant hereunder; (ii) the equipment lessor or lender shall promptly notify
Landlord of any default by Tenant under the equipment lease or security
agreement and give Landlord a reasonable opportunity to cure such default;
and (iii) Landlord shall have the right to assign its rights under the
equipment lease, security agreement, or non-disturbance agreement; (c) the
equipment lessor or lender shall subordinate its security interest to the
security interest of any of Landlord's lessors, mortgagors or lenders,
whether now created or hereafter existing, and (d) Tenant shall, within ten
(10) days after receipt of an invoice from Landlord, reimburse Landlord for
all costs and expenses incurred in reviewing and approving the equipment
lease, security agreement, and non-disturbance agreement, including without
limitation, reasonable attorneys' fees and costs.
7.06 ENCROACHMENTS; RESTRICTIONS. If any of the Improvements shall, at
any time, encroach upon any property, street or right-of-way adjacent to a
Leased Property, or shall materially violate the agreements or conditions
contained in any restrictive covenant or other agreement affecting a Leased
Property, other than one which is created or consented to by Landlord without
Tenant's consent, or shall materially impair the rights of others under an
easement or right-of-way to which a Leased Property is subject, other than
one which is created or consented to by Landlord without Tenant's consent,
then promptly upon the request of Landlord or at the request of any person
affected by any such encroachment, violation or impairment, Tenant shall, at
its expense, subject to its right to contest the existence of any
encroachment, violation or impairment and in such case, in the event of an
adverse final determination, either (a) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Landlord
or Tenant or (b) make such changes in the Improvements and take such other
actions as shall be necessary to remove such encroachment and to end such
violation or impairment, including, if necessary, the alteration of
improvements. Any such alteration shall be made in conformity with the
requirements of Article VIII. For purposes of this Section 7.06,
"materially" shall mean any violation of restrictive covenants or agreements
or impairment of rights for which Landlord or Tenant receives any notice from
any person, entity, governmental authority or other source.
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ARTICLE VIII
ALTERATIONS AND SIGNS; TENANT'S PROPERTY;
CAPITAL ADDITIONS TO THE LEASED PROPERTIES
8.01 TENANT'S RIGHT TO CONSTRUCT. As to each Leased Property, during
the Term of this Lease or any Extension Term, as the case may be, so long as
no Event of Default shall have occurred and be continuing as to such Leased
Property, Tenant may make Capital Additions (as defined herein), or other
alterations, additions, changes and/or improvements to such Leased Property
as deemed necessary or useful to operate such Leased Property for Tenant's
Business (individually, a "Tenant Improvement," or collectively, the "Tenant
Improvements"). "Capital Additions" shall mean the construction of one or
more new buildings or one or more additional structures annexed to any
portion of any of the Improvements on a Leased Property, which are
constructed on any parcel or portion of the Land comprising a Leased
Property, including the construction of a new floor, or the repair,
replacement, restoration, remodeling or rebuilding of the Improvements or any
portion thereof on a Leased Property which are not normal, ordinary or
recurring to maintain such Leased Property. Except as otherwise agreed to by
Landlord herein or otherwise in writing, any such Tenant Improvement or
Capital Addition shall be made at Tenant's sole expense and shall become the
property of Landlord upon termination of this Lease. Unless made on an
emergency basis to prevent injury to person or property, as to each Leased
Property, Tenant must obtain Landlord's prior written approval, such approval
not to be unreasonably withheld or delayed, for any Capital Addition or for
any Tenant Improvement which is not a Capital Addition and which has a cost
of more than One Hundred Thousand Dollars ($100,000) or a cost which, when
aggregated with the costs of all such Tenant Improvements on such Leased
Property in a given Lease Year, would cause the total costs of all such
Tenant Improvements on such Leased Property to exceed Two Hundred Fifty
Thousand Dollars ($250,000). Additionally, in connection with any Tenant
Improvement, including any Capital Addition, Tenant shall provide Landlord
with copies of any plans and specification therefor, Tenant's budget relating
thereto, any required governmental permits or approvals, any construction
contracts or agreements relating thereto, and any other information relating
to such Tenant Improvement as Landlord shall reasonably request. In addition
to the preceding rights and obligations, Tenant or its franchisor may erect
on the Property the maximum amount of signage permitted by applicable laws.
8.02 SCOPE OF RIGHT. Subject to Section 8.01 herein and Section 7.03
concerning required alterations, at Tenant's cost and expense, Tenant shall
have the right to:
(a) seek any governmental approvals, including building permits,
licenses, conditional use permits and any certificates of need
that Tenant requires to construct any Tenant Improvement;
(b) erect upon each Leased Property such Tenant Improvements as
Tenant deems desirable;
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(c) make additions, alterations, changes and improvements in any
Tenant Improvement so erected; and
(d) engage in any other lawful activities that Tenant determines are
necessary or desirable for the development of each Leased
Property in accordance with the Tenant's Business;
provided, however, Tenant shall not make any Tenant Improvement which would, in
Landlord's reasonable judgment, impair the value of the Leased Property without
Landlord's prior written consent and provided, further that Tenant shall not be
permitted to create a mortgage, lien or any other encumbrance on any Leased
Property without Landlord's prior written consent.
8.03 COOPERATION OF LANDLORD. Landlord shall cooperate with Tenant and
take such actions, including the execution and delivery to Tenant of any
applications or other documents, reasonably requested by Tenant in order to
obtain any governmental permits, licenses or approvals sought by Tenant to
construct any Tenant Improvement within ten (10) business days following the
later of: (a) the date Landlord receives Tenant's request or (b) the date of
delivery of any such application or document to Landlord; provided, the taking
of such action by Landlord, including the execution of said applications or
documents, shall be without cost to Landlord (or if there is a cost to Landlord,
such cost shall be reimbursed by Tenant), shall not cause Landlord to be in
violation of any law, ordinance or regulation, and shall not be deemed a waiver
by Landlord of any of its rights or of any of Tenant's obligations, including
but not limited to indemnification.
8.04 COMMENCEMENT OF CONSTRUCTION. Tenant agrees that:
(a) Tenant shall diligently seek all governmental approvals relating
to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant Improvement,
Tenant shall diligently oversee any such construction to
completion in accordance with applicable insurance requirements
and the laws, rules and regulations of all governmental bodies or
agencies having jurisdiction over the subject Leased Property;
(c) Landlord shall have the right at any time and from time to time
to post and maintain upon each Leased Property such notices as
may be necessary to protect Landlord's interest from mechanics'
liens, materialmen's liens or liens of a similar nature;
(d) Tenant shall not suffer or permit any mechanics' liens or any
other claims or demands arising from the work of construction of
any Tenant Improvement to be enforced against any Leased Property
or any part thereof, and Tenant agrees to hold Landlord, its
agents and
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employees and said Leased Property free and harmless from
all demands, claims, causes of action, fines, penalties,
damages (including punitive and consequential damages), losses,
liabilities (including strict liability), judgments, costs and
expenses (including, without limitation, attorneys' fees, court
costs, and the costs set forth in Section 9.06) incurred in
connection with or arising therefrom;
(e) All work shall be performed in a satisfactory and workmanlike
manner consistent with standards in the industry; and
(f) Subject to Section 8.08 in the case of Capital Additions, Tenant
shall not secure any construction or other financing for the
Tenant Improvements which is secured by a portion of any Leased
Property without Landlord's prior written consent, and any such
financing (i) shall not exceed the cost of the Tenant
Improvements, (ii) shall be subordinate to any mortgage or
encumbrance now existing or hereinafter created with respect to
such Leased Property, and (iii) shall be limited solely to
Tenant's interest in the subject Leased Property.
8.05 RIGHTS IN TENANT IMPROVEMENTS. Notwithstanding anything to the
contrary in this Lease, all Tenant Improvements existing on the Leased Property
or constructed upon each Leased Property pursuant to Section 8.01, any and all
subsequent additions thereto and alterations and replacements thereof shall be
the sole and absolute property of Tenant during the Term and any Extension Term,
as the case may be, of this Lease (in respect of such Leased Property). Upon
the expiration or early termination of this Lease in respect of a Leased
Property, all such Tenant Improvements located thereon shall become the property
of Landlord. Without limiting the generality of the foregoing, prior to the
expiration or early termination of this Lease in respect of a Leased Property,
Tenant shall be entitled to all federal and state income tax benefits associated
with all Tenant Improvements located on such Leased Property.
8.06 PERSONAL PROPERTY. Tenant shall install, place, and use on each
Leased Property such fixtures, furniture, equipment, inventory and other
personal property in addition to the Fixtures Tenant may, from time to time,
deem necessary or useful to operate such Leased Property in the operation of the
Business.
8.07 REQUIREMENTS FOR THE TENANT'S PERSONAL PROPERTY. Tenant shall comply
with all of the following requirements in connection with the Tenant's Personal
Property:
(a) RESERVED.
(b) The Tenant's Personal Property shall be installed in a good and
workmanlike manner, in compliance with all governmental laws,
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ordinances, rules, and regulations and all insurance
requirements, and be installed free and clear of any mechanics'
liens.
(c) Tenant shall, at Tenant's sole cost and expense, maintain,
repair, and replace the Tenant's Personal Property.
(d) Tenant shall, at Tenant's sole cost and expense, keep the
Tenant's Personal Property insured against loss or damage by
fire, vandalism and malicious mischief, sprinkler leakage, and
other physical loss perils commonly covered by fire and extended
coverage, boiler and machinery, and difference in conditions
insurance (which insurance shall meet the requirements of Section
4.03 hereof) in an amount not less than the full replacement cost
thereof or such other amount as appears on a schedule submitted
by Tenant to Landlord, which schedule shall be subject to
Landlord's approval, and Tenant shall use the proceeds from any
such policy for the repair and replacement of such items of
Tenant's Personal Property; provided, however, that if Landlord
fails to object to the schedule so submitted by Tenant within
five (5) business days of Landlord's receipt of such schedule,
Landlord's approval of such schedule shall be deemed given.
(e) Tenant shall pay all Impositions and other taxes applicable to
Tenant's Personal Property.
(f) If Tenant's Personal Property is damaged or destroyed by fire or
otherwise, Tenant shall promptly repair or replace Tenant's
Personal Property unless Tenant is entitled to and elects to
terminate the Lease pursuant to Section 10.05.
(g) As to each Leased Property, unless an Event of Default (or any
event which, with the giving of notice or lapse of time, or both,
would constitute an Event of Default) has occurred and remains
uncured beyond any applicable grace period, Tenant may remove
Tenant's Personal Property from such Leased Property from time to
time provided that Tenant promptly repairs any damage to such
Leased Property resulting from the removal of Tenant's Personal
Property.
(h) As to each Leased Property, Tenant shall remove all of Tenant's
Personal Property upon the termination or expiration of the Lease
and shall promptly repair any damage to such Leased Property
resulting from the removal thereof to the reasonable satisfaction
of Landlord; provided, however, if Tenant fails to remove
Tenant's Personal Property from such Leased Property within
thirty (30) days after the
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termination or expiration of this Lease with respect
thereto, then Tenant shall be deemed to have abandoned
such items of Tenant's Personal Property, all of which
shall become the property of Landlord, and Landlord may
remove, store and dispose of such property and Tenant
shall have no claim or right against Landlord for such
property or the value thereof regardless of the
disposition thereof by Landlord. Tenant shall pay
Landlord, upon demand, all expenses incurred by Landlord
in removing, storing, and disposing of such items of
Tenant's Personal Property and repairing any damage
caused by such removal. Tenant's obligations hereunder
shall survive the termination or expiration of this Lease
as to such Leased Property.
(i) Tenant shall perform its obligations under any equipment lease or
security agreement for Tenant's Personal Property.
8.08 FINANCINGS OF CAPITAL ADDITIONS TO A LEASED PROPERTY. Landlord
may, but shall be under no obligation to, provide or arrange construction,
permanent or other financing for any Capital Addition proposed to be made to
a Leased Property by Tenant. Any financing so provided by Landlord shall be
made in accordance with, and subject to, a written Addendum to this Lease.
ARTICLE IX
DEFAULTS AND REMEDIES
9.01 EVENTS OF DEFAULT. The occurrence of any one or more of the following
shall be an event of default ("Event of Default") hereunder:
(a) Tenant fails to pay in full any installment of Rent, or any other
monetary obligation payable by Tenant to Landlord hereunder,
within ten (10) days after the due date thereof and after written
notice thereof and an opportunity to cure within a ten (10) day
period after such notice is given to Tenant by Landlord. In the
event of Tenant's failure to make timely payment of such
obligations two (2) times during any twelve (12) month period,
each subsequent such failure within the twelve (12) months
immediately following such second failure shall immediately
constitute an Event of Default, and Landlord shall not be
required to provide notice thereof, nor shall Tenant have any
further opportunity to cure such failure;
(b) Tenant fails to observe and perform any covenant (other than the
covenant in respect of insurance set forth in Article IV),
condition or agreement hereunder to be performed by Tenant
(except those
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described in Section 9.01(a) of this Lease) and such failure
continues for a period of thirty (30) days after written notice
thereof is given to Tenant by Landlord; or if, by reason of the
nature of such default, the same cannot with due diligence be
remedied within said thirty (30) days, such failure will not be
deemed to continue if Tenant proceeds promptly and with due
diligence to remedy the failure and diligently completes the
remedy thereof; provided, however, said cure period will not
extend beyond sixty (60) days if the facts or circumstances
giving rise to the default are creating a further harm to
Landlord or the subject Leased Property and Landlord makes a
good faith determination that Tenant is not undertaking
remedial steps that Landlord would cause to be taken if this
Lease were then to terminate;
(c) If Tenant: (i) admits in writing its inability to pay its debts
generally as they become due; (ii) files a petition in bankruptcy
or a petition to take advantage of any insolvency act; (iii)
makes an assignment for the benefit of its creditors; (iv) is
unable to pay its debts as they mature; (v) consents to the
appointment of a receiver of itself or of the whole or any
substantial part of its property; or (vi) files a petition or
answer seeking reorganization or arrangement under the federal
bankruptcy laws or any other applicable law or statute of the
United States of America or any state thereof;
(d) If Tenant, on insolvency proceedings or on a petition in
bankruptcy filed against it, is adjudicated as bankrupt or a
court of competent jurisdiction enters an order or decree
appointing, without the consent of Tenant, a receiver of Tenant
of the whole or substantially all of its property, or approving a
petition filed against it seeking reorganization or arrangement
of Tenant under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
state thereof, and such judgment, order or decree is not vacated,
dismissed or set aside within sixty (60) days from the date of
the entry thereof, and within an additional thirty (30) days,
provided that under applicable laws, rules and regulations no
action can be taken within such thirty (30) day period by the
party obtaining such judgment, order or decree;
(e) If the estate or interest of Tenant in a Leased Property or any
part thereof is levied upon or attached in any proceeding and the
same is not vacated or discharged within fifteen (15) days after
commencement thereof (unless Tenant is contesting such lien or
attachment in accordance with this Lease) or if such estate or
interest
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of Tenant is assigned, conveyed or involuntarily transferred in
violation of this Lease;
(f) Any representation, warranty or covenant made by Tenant on behalf
of itself or an Affiliate in this Lease or in any certificate,
demand or request made pursuant hereto proves to be incorrect, in
any material respect, as of the date of issuance or making
thereof;
(g) Conviction of Tenant or an Affiliate of a crime or offense
constituting a felony in the jurisdiction in which committed or
under federal law which conviction results in the termination of
the franchise.
(h) Termination or relinquishment of the franchise or license
pursuant to which Tenant or an Affiliate conducts business on or
from any Leased Property, provided that such event shall not
constitute an Event of Default if (i) no other Event of Default
enumerated in this Section 9.01 shall occur and be continuing,
and (ii) at a date no later than twenty-four (24) months
following such date of termination or relinquishment, Tenant or
an Affiliate has entered into written new or amended franchises
or licenses for operation of motor vehicle retail or motor
vehicle related businesses at such Leased Property satisfactory
to Landlord in its discretion applying commercially reasonable
standards;
(i) Default, beyond any applicable cure period, under any franchise
or license pursuant to which Tenant or an Affiliate conducts
business at a Leased Property, if in the Landlord's judgment such
default in light of commercially reasonable standards and
industry practice would have a material adverse effect on the
Leased Property;
(j) A final, non-appealable judgment or judgments for the payment of
money not fully covered (excluding deductibles) by insurance is
rendered against Tenant and the same remains undischarged,
unvacated, unbonded, unappealed or unstayed for a period of
thirty (30) consecutive days, and within an additional thirty
(30) days, provided that under applicable laws, rules and
regulations no action can be taken within such thirty (30) day
period by the party obtaining such judgment, order or decree;
(k) Tenant shall fail to observe the covenant in respect to insurance
under Article IV provided Landlord shall have provided notice of
such failure to Tenant and Tenant shall have failed to cure such
failure within five (5) business days of such notice; or
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(l) Except after the effective date of a permitted assignment meeting
the requirements of Article XIII, if Tenant is liquidated or
dissolved, or begins proceedings toward liquidation or
dissolution, or in any manner permits the sale or divestiture of
substantially all of its assets.
9.02 REMEDIES. To the extent an Event of Default is applicable only to a
specific Leased Property or specific Leased Properties (in accordance with
Section 9.01 above), the remedies set forth herein shall be exercisable solely
with respect to such Leased Property or Leased Properties, and shall not be
exercisable with respect to any other Leased Property. To the extent an Event
of Default constitutes an Event of Default as to all of the Leased Properties
(in accordance with Section 9.01 above), the remedies set forth herein shall be
exercisable with respect to all of the Leased Properties. Subject to the
foregoing provisions, Landlord may exercise any one or more of the following
remedies upon the occurrence of an Event of Default:
(a) Landlord may terminate this Lease, exclude Tenant from possession
of the subject Leased Property and use reasonable efforts to
lease the subject Leased Property to others. If this Lease is
terminated pursuant to the provisions of this subparagraph (a)
with respect to one or more, but less than all, of the Leased
Properties identified on SCHEDULE A hereto, Tenant will remain
liable to Landlord for the Rent for all of the Leased Properties
identified on SCHEDULE A and other sums then due and for the
balance of the Term as if the Lease had not been terminated with
respect to the subject Leased Property, less the net proceeds, if
any, of any re-letting of the subject Leased Property by Landlord
subsequent to such termination, after deducting all Landlord's
expenses in connection with such re-letting, including without
limitation, the expenses set forth in Section 9.02(b)(ii) below.
Notwithstanding the termination of this Lease with respect to a
subject Leased Property, Tenant shall pay to Landlord all amounts
due as Rent, and such other amounts then due, under this Lease on
the days that such Rent and such other amounts become due and
payable as required by this Lease.
(b) Without demand or notice, Landlord may re-enter and take
possession of the subject Leased Property or any part thereof;
and repossess such Leased Property as of Landlord's former
estate; and expel Tenant and those claiming through or under
Tenant from such Leased Property; and, remove the effects of both
or either, without being deemed guilty of any manner of trespass
and without prejudice to any remedies for arrears of Rent or
preceding breach of covenants or conditions. If Landlord elects
to re-enter, as provided in this paragraph (b) or if Landlord
takes possession of such Leased Property pursuant to legal
proceedings or pursuant to any notice provided by law, Landlord,
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without terminating any portion of this Lease, shall use
reasonable efforts to re-let such Leased Property or any part of
such Leased Property, either alone or in conjunction with other
portions of the Improvements of which such Leased Property are a
part, in Landlord's name but for the account of Tenant, for such
term or terms (which may be greater or less than the period which
would otherwise have constituted the balance of the Term of this
Lease) and on such terms and conditions (which may include
concessions of free rent, and the alteration and repair of such
Leased Property) as Landlord, in its reasonable discretion, may
determine. Landlord may collect and receive the Rents for such
Leased Property. Unless Tenant can establish that Landlord's
efforts to re-let were unreasonable or that Landlord's efforts to
collect Rents were unreasonable, Landlord will not be responsible
or liable for any failure to re-let such Leased Property, or any
part of such Leased Property, or for any failure to collect any
Rent due upon such re-letting. No such re-entry or taking
possession of such Leased Property by Landlord will be construed
as an election on Landlord's part to terminate this Lease unless
a written notice of such intention is given to Tenant. No notice
from Landlord under this Lease or under a forcible entry and
detainer statute or similar law will constitute an election by
Landlord to terminate this Lease unless such notice specifically
says so. Landlord reserves the right following any such re-entry
or re-letting, or both, to exercise its right to terminate this
Lease by giving Tenant such written notice, and, in that event
such Lease will terminate as specified in such notice.
(c) If Landlord elects to take possession of a Leased Property
according to subparagraph (b) of this Section 9.02 without
terminating this Lease, Tenant will pay Landlord (A) the Rent and
other sums which would be payable under this Lease with respect
to such Leased Property if such repossession had not occurred,
less (B) the net proceeds, if any, of any re-letting of such
Leased Property after deducting all of Landlord's reasonable
expenses incurred in connection with such re-letting, including
without limitation, all reasonable repossession costs, brokerage
commissions, legal expense, attorneys' fees, expense of
employees, alteration, remodeling, repair costs, and expense of
preparation for such re-letting. If, in connection with any
re-letting, any resulting lease term for the subject Leased
Property extends beyond the existing Term or Extension Term, as
the case may be, or such Leased Property covered by such
re-letting includes areas which are not part of such Leased
Property, a fair apportionment of the Rent received from such
re-letting and the
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expenses incurred in connection with such re-letting will be
made in determining the net proceeds received from such
re-letting. In addition, in determining the net proceeds from
such re-letting, any rent concessions will be apportioned over
the term of the new lease. Tenant will pay such amounts to
Landlord monthly on the days on which the Rent and all other
amounts owing under this Lease would have been payable if
opssession had not been retaken, and Landlord will be entitled
to receive the rent and other amounts from Tenant on each such
day. Notwithstanding anything herein to the contrary, Landlord,
at its option, may collect and apply any Rent received from
such re-letting in accordance herewith and in such case shall
remit any balance thereof to Tenant. Landlord shall incur no
liability or obligation to Tenant arising out of the collection
or application of Rent by Landlord hereunder.
(d) Landlord may re-enter the applicable Leased Property and have,
repossess and enjoy such Leased Property as if this Lease had not
been made, and in such event, Tenant and its successors and
assigns shall remain liable for any contingent or unliquidated
obligations or sums owing at the time of such repossession.
(e) Landlord may take whatever action at law or in equity as may
appear necessary or desirable to collect the Rent and other
amounts payable hereunder with respect to the subject Leased
Property then due and thereafter to become due, or to enforce
performance and observance of any obligations, agreements or
covenants of Tenant under this Lease.
9.03 RIGHT OF SET-OFF. Landlord may, and is hereby authorized by
Tenant, at any time and from time to time, after advance notice to Tenant, to
set-off and apply any and all sums held by Landlord in respect of a Leased
Property, including all sums held in any escrow for Impositions, any
indebtedness of Landlord to Tenant, and any claims by Tenant against
Landlord, against any obligations of Tenant under this Lease in respect of
such Leased Property and against any claims by Landlord against Tenant,
whether or not Landlord has exercised any other remedies hereunder. Landlord
shall set-off and apply such sums first, to delinquent real estate taxes,
unless such taxes are being protested in good faith and no lien has attached
to any Leased Property with respect thereto, second, to currently due and
owing real estate taxes, and next, to other Tenant's obligations in the order
which Landlord may determine. The rights of Landlord under this Section are
in addition to any other rights and remedies Landlord may have against Tenant.
9.04 PERFORMANCE OF TENANT'S COVENANTS. Landlord may, without waiving
or releasing any obligation of Tenant, and without waiving or releasing any
obligation or default, perform any obligation of Tenant which Tenant has
failed to commence to perform within fifteen
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(15) business days after Landlord has sent a written notice to Tenant
informing it of its specific failure (provided no such notice shall be
required if Landlord has previously notified Tenant of such failure under the
provisions of Section 9.01). In the event Landlord deems, in its discretion,
that Tenant's failure to perform such obligation has given rise to an
emergency situation, Landlord may perform such obligation without waiving or
releasing any obligation of Tenant, and without waiving or releasing any
obligation or default; provided, however, that Landlord shall notify Tenant
of such performance as soon as it is reasonably practicable to do so. Tenant
shall reimburse Landlord on demand, as Additional Rent, for any reasonable
expenditures thus incurred by Landlord and shall pay interest thereon at the
New York Prime Rate.
9.05 LATE CHARGE. Any payment not made by Tenant for more than five (5)
business days after the due date shall be subject to a late charge payable by
Tenant as Rent of four percent (4%) of the amount of such overdue payment.
Notwithstanding the foregoing, in the event that Tenant's payment is not made
more than five (5) business days after the due date more than two (2) times
during any twelve (12) month period, any such subsequent overdue payments
within the twelve (12) months immediately following such second failure shall
be subject to a late charge payable by Tenant as Rent of seven percent (7%)
of the amount of such overdue payment.
9.06 LITIGATION; ATTORNEYS' FEES. Within ten (10) business days after
Tenant has knowledge of any litigation or other proceeding related to or arising
out of this Agreement or the Leased Property in which claims are asserted in an
amount in excess of $50,000, that (1) may be instituted against Tenant, (2) may
be instituted against any Leased Property to secure or recover possession
thereof, or (3) may affect the title to or the interest of Landlord in any
Leased Property (other than litigation or proceedings relating to Landlord's
indebtedness on the Leased Property or claims caused solely by Landlord), Tenant
shall give written notice thereof to Landlord. In the event that Landlord
determines that Tenant has failed to give adequate cooperation or information
with respect to any such litigation, investigation, receivership,
administrative, bankruptcy, insolvency or other similar proceeding, Landlord
may, after notice to Tenant, undertake such investigation or proceeding and
Tenant shall pay all reasonable costs and expenses (the "Costs") related thereto
that are incurred by Landlord, whether or not Landlord has received notice from
Tenant of such investigation or proceeding, and whether or not an Event of
Default has actually occurred or has been declared and thereafter cured, which
Costs shall include, without limitation: (a) the reasonable fees, expenses, and
costs of any litigation, investigation, receivership, administrative,
bankruptcy, insolvency or other similar proceeding; (b) reasonable attorney,
paralegal, consulting and witness fees and disbursements; and (c) the reasonable
expenses, including, without limitation, lodging, meals, and transportation, of
Landlord and its employees, agents, attorneys, and witnesses in investigating or
preparing for litigation, administrative, bankruptcy, insolvency or other
similar proceedings and attendance at hearings, depositions, and trials in
connection therewith. Within ten (10) days of Landlord's presentation of an
invoice of Costs incurred by Landlord pursuant to the preceeding sentence or
otherwise incurred by Landlord in enforcing or preserving Landlord's rights
under this Lease, whether or not an Event of Default has actually occurred or
has been declared and thereafter cured, Tenant shall pay all such Costs. All
such Costs as incurred shall be deemed to be Additional Rent under this Lease.
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9.07 REMEDIES CUMULATIVE. The remedies of Landlord herein are
cumulative to and not in lieu of any other remedies available to Landlord at
law or in equity. The use of, or failure to use, any one remedy shall not be
taken to exclude or waive the right to use any other remedy.
9.08 ESCROWS AND APPLICATION OF PAYMENTS. As security for the
performance of its obligations hereunder, Tenant hereby assigns to Landlord
all its right, title and interest in and to all monies escrowed with Landlord
under this Lease and all deposits with utility companies, taxing authorities,
and insurance companies; provided, however, that Landlord shall not exercise
its rights hereunder with respect to any Leased Property until an Event of
Default has occurred in respect of such Leased Property. Any payments
received by Landlord under any provisions of this Lease during the existence,
or continuance of an Event of Default shall be applied to Tenant's
obligations, first, to delinquent real estate taxes, unless such taxes are
being protested in good faith and no lien has attached to any Leased Property
with respect thereto, second, to currently due and owing real estate taxes,
and next, to other Tenant's obligations in the order which Landlord may
determine.
9.09 POWER OF ATTORNEY. Tenant hereby irrevocably and unconditionally
appoints Landlord, or Landlord's authorized officer, agent, employee or
designee, as Tenant's true and lawful attorney-in-fact, to act, after an
Event of Default, for Tenant in Tenant's name, place, and stead, and for
Tenant's and Landlord's use and benefit, to execute, deliver and file all
applications and any and all other necessary documents or things, to effect a
transfer, reinstatement, renewal and/or extension of any and all licenses and
other governmental authorizations issued to Tenant in connection with the
Leased Properties (but not including permits or other licenses relating
solely to the operation of Tenant's Business thereon), and to do any and all
other acts incidental to any of the foregoing. Tenant irrevocably and
unconditionally grants to Landlord as its attorney-in-fact full power and
authority to do and perform, after an Event of Default, every act necessary
and proper to be done in the exercise of any of the foregoing powers as fully
as Tenant might or could do if personally present or acting, with full power
of substitution, hereby ratifying and confirming all that said attorney shall
lawfully do or cause to be done by virtue hereof. This power of attorney is
coupled with an interest and is irrevocable prior to the full performance of
Tenant's obligations hereunder.
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ARTICLE X
DAMAGE AND DESTRUCTION
10.01 GENERAL. Tenant shall notify Landlord if any Leased Property
is damaged or destroyed by reason of fire or any other cause. Tenant shall
promptly repair, rebuild, or restore such Leased Property, at Tenant's
expense, so as to make such Leased Property at least equal in value to such
Leased Property existing immediately prior to such occurrence and as nearly
similar to it in character as is practicable and reasonable. Before
beginning such repairs or rebuilding, or executing any contracts in
connection with such repairs or rebuilding, Tenant will submit for Landlord's
approval, which approval Landlord will not unreasonably withhold or delay,
complete and detailed plans and specifications for such repairs or
rebuilding. Promptly after receiving Landlord's approval of the plans and
specifications, Tenant will begin such repairs or rebuilding and will oversee
the repairs and rebuilding to completion with diligence, subject, however, to
strikes, lockouts, acts of God, embargoes, governmental restrictions, and
other causes beyond Tenant's reasonable control. Landlord will make available
to Tenant the net proceeds of any fire or other casualty insurance paid to
Landlord for such repair or rebuilding as the same progresses, less (if
Landlord has accrued collection costs after Tenant has failed to diligently
pursue collection of such insurance proceeds) any reasonable costs of
collection, including attorney's fees. Payment will be made against
properly certified vouchers of a competent architect in charge of the work
and approved by Landlord. Prior to commencing the repairing or rebuilding,
Tenant shall deliver to Landlord for Landlord's approval a schedule setting
forth the estimated monthly draws for such work. Landlord will contribute to
such payments out of the insurance proceeds an amount equal to the proportion
that the total net amount received by Landlord from insurers bears to the
total estimated cost of the rebuilding or repairing, multiplied by the
payment by Tenant on account of such work. Landlord may, however, withhold
ten percent (10%) from each such payment and shall disburse such amount
after: (a) the work of repairing or rebuilding is completed and proof has
been furnished to Landlord that no lien or liability has attached or will
attach to such Leased Property or to Landlord in connection with such
repairing or rebuilding and (b) Tenant has obtained a certificate of use and
occupancy (or its functional equivalent) for the portion of such Leased
Property being repaired or rebuilt. Upon the completion of rebuilding or
repairing and the furnishing of such proof, the balance of the net proceeds
of such insurance payable to Tenant on account of such repairs or rebuilding
will be paid to Tenant. Tenant will obtain and deliver to Landlord a
temporary or final certificate of occupancy before such Leased Property is
reoccupied for any purpose. Tenant shall complete such repairs or rebuilding
free and clear of mechanic's or other liens, and in accordance with the
building codes and all applicable laws, ordinances, regulations, or orders of
any state, municipal, or other public authority affecting the repairs or
rebuilding, and also in accordance with all requirements of the insurance
rating organization, or similar body. Any remaining proceeds of insurance
after such restoration will be Tenant's property.
10.02 LANDLORD'S INSPECTION. During the progress of such repairs or
rebuilding, Landlord and its architects and engineers may, from time to time,
inspect the subject Leased Property and will be furnished, if required by
them, with copies of all plans, shop drawings, and specifications relating to
such repairs or rebuilding. Tenant will keep all plans, shop drawings, and
specifications available, and Landlord and its architects and engineers may
examine them at all reasonable times. If, during such repairs or rebuilding,
Landlord and its architects and engineers determine that the repairs or
rebuilding are not being done in accordance with the approved plans and
specifications,
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Landlord will give prompt notice in writing to Tenant, specifying in detail
the particular deficiency, omission, or other respect in which Landlord
claims such repairs or rebuilding do not accord with the approved plans and
specifications. Upon the receipt of any such notice, Tenant will cause
corrections to be made to any deficiencies, omissions, or such other respect.
Tenant's obligations to supply insurance, according to Article IV, will be
applicable to any repairs or rebuilding under this Section 10.02.
10.03 LANDLORD'S COSTS. Tenant shall, within fifteen (15) days
after receipt of an invoice from Landlord, pay the reasonable costs,
expenses, and fees of any architect or engineer employed by Landlord to
review any plans and specifications and to supervise and approve any
construction, or for any services rendered by such architect or engineer to
Landlord as contemplated by any of the provisions of this Lease, or for any
services performed by Landlord's attorneys in connection therewith; provided,
however, that Landlord will consult with Tenant and notify Tenant of the
estimated amount of such expenses.
10.04 RENT ABATEMENT. Notwithstanding the occurrence of any event
that causes any interruption, disruption or interference of any kind (whether
or not substantial) of Tenant's Business on the Leased Property, Tenant shall
continue to pay to Landlord the full amount of the Base Annual Rent as
required by this Lease without abatement, reduction, interruption, or delay
of any kind.
10.05 SUBSTANTIAL DAMAGE DURING LEASE TERM. Provided Tenant has
fully complied with Section 4.01 hereof and has satisfied the conditions of
the last sentence of this Section 10.05, if, at any time during the Term or
any Extension Term, as the case may be, of this Lease, any Leased Property
is so damaged by fire or otherwise that it is Completely Destroyed or
Partially Destroyed (as such terms are hereafter defined), Tenant may, within
one hundred and eighty (180) days after such damage, give notice of its
election to terminate this Lease with respect to such Leased Property and,
subject to the further provisions of this Section, this Lease will cease with
respect to such Leased Property on the thirtieth (30th) day after the
delivery of such notice. If the Lease is so terminated, Tenant will have no
obligation to repair, rebuild or replace such Leased Property, and the entire
insurance proceeds will belong to Landlord. If the Lease is not so
terminated, Tenant shall rebuild such Leased Property in accordance with
Section 10.01. If Tenant elects to terminate this Lease pursuant to this
Section 10.05, Tenant will pay (or cause to be paid) to Landlord, an amount
equal to the excess amount, if any, of the book value of the damaged property
(excluding the land) as shown in Landlord's financial statements as of the
date of such termination, over the amount of all insurance proceeds received
by Landlord. A Leased Property shall be deemed to be "Completely Destroyed"
if there is sufficient damage to such Leased Property that Landlord and
Tenant agree to its classification as such. A Leased Property shall be
deemed to be "Partially Destroyed" if, as a result of damages to it, a
substantial part of the Business (as determined by a reasonable dealer in the
trade, in light of standard trade practices) cannot be conducted on it within
one hundred and eighty (180) days of the occurrence of such damages. In the
event that Landlord and Tenant are unable to agree to a determination of
whether any Leased Property is Completely Destroyed,
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Partially Destroyed or otherwise, such determination shall be made pursuant
to the Arbitration provisions set forth in Article XIV.
10.06 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of
Sections 10.01 or 10.05 to the contrary, if damage to or destruction of any
Leased Property occurs during the last twenty-four (24) months of the Term or
any Extension Term, and if such damage or destruction renders the Leased
Property Completely Destroyed or Partially Destroyed, either party shall have
the right to terminate this Lease as to such Leased Property by giving notice
to the other within ten (10) days after the date of damage or destruction, in
which event Landlord shall be entitled to retain the insurance proceeds and
Tenant shall pay to Landlord on demand the amount of any deductible or
uninsured loss arising in connection therewith; provided, however, that any
such notice given by Landlord shall be void and of no force and effect if
Tenant exercises an available option for an Extension Term with respect to
such Leased Property pursuant to provisions of this Lease within ten (10)
business days following receipt of such termination notice.
10.07 RISK OF LOSS. Notwithstanding anything herein to the
contrary, during the Term or any Extension Term, as the case may be, the risk
of loss of or decrease in the enjoyment and beneficial use of the Leased
Properties in consequence of the damage or destruction thereof by fire, the
elements, casualties, thefts, riots, wars or otherwise is assumed by Tenant,
and Landlord shall in no event be answerable or accountable therefor except
in the case of gross negligence, willful misconduct or breach of this Lease
by Landlord resulting in such damage or destruction. In addition, all risk
of loss or decrease in enjoyment and beneficial use in consequence of
foreclosures, attachments, levies or executions is assumed by Tenant except
for foreclosure due to Landlord's indebtedness.
ARTICLE XI
CONDEMNATION
11.01 TOTAL TAKING. If at any time during the Term or any Extension
Term, as the case may be, any Leased Property is totally and permanently
taken by right of eminent domain or by conveyance made in response to the
threat of the exercise of such right ("Condemnation"), this Lease shall
terminate as to such Leased Property on the Date of Taking (which shall mean
the date the condemning authority has the right to possession of the property
being condemned), and Tenant shall promptly pay all outstanding applicable
Rent and other charges through the date of termination, provided, however,
this Lease shall not so terminate if the Condemnation occurred due to the
failure of Tenant to maintain such Leased Property as required by Article VII
hereof or other applicable provisions hereof, whether or not such failure on
the part of Tenant constituted an Event of Default hereunder at the time of
the Condemnation.
11.02 PARTIAL TAKING. If a portion of a Leased Property is taken by
Condemnation, this Lease shall remain in effect as to such Leased Property if
such Leased Property is not thereby rendered Unsuitable for the continuation of
Tenant's Business on that Leased Property (which shall
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mean that such Leased Property is in such a state or condition such that in
the good faith judgment of Tenant, reasonably exercised, it cannot be used on
a commercially practicable basis in the operation of the Business), but if
such Leased Property is thereby rendered Unsuitable for the continuation of
Tenant's Business on that Leased Property, this Lease shall terminate as to
such Leased Property on the Date of Taking, provided such Condemnation was
not as a result of Tenant's failure to maintain such Leased Property as
provided for in Section 11.01.
11.03 RESTORATION. If there is a partial taking of any Leased Property
and this Lease remains in full force and effect pursuant to Section 11.02,
Landlord shall retain the amount of any Landlord Award (as hereafter defined)
received by Landlord, Landlord shall apply such Landlord Award to accomplish all
necessary restoration to the Leased Property, and any excess after such
application shall be retained by Landlord. If there is a partial taking of any
Leased Property and this Lease remains in full force and effect pursuant to
Section 11.02, Tenant shall retain the amount of any Tenant Award (as hereafter
defined) received by Tenant, Tenant shall apply such Tenant Award to accomplish
all necessary restoration of Tenant's property, and any excess after such
application shall be retained by Tenant. Notwithstanding anything in this
Section to the contrary, in the event that there is a partial taking of any
Leased Property and this Lease remains in full force and effect pursuant to
Section 11.02, and there is a single Award with respect to such partial taking,
then the Landlord and Tenant shall use their good faith efforts to determine the
proper apportionment of such Award (as hereafter defined) to restoration of
Landlord's and Tenant's respective properties. In the event that the parties
are unable to agree on such apportionment within thirty (30) days, the parties
shall submit to arbitration of an apportionment subject to the arbitration
provisions set forth in Article XIV.
11.04 LANDLORD'S INSPECTION. During the progress of such restoration,
Landlord and its architects and engineers may, from time to time, inspect the
subject Leased Property and will be furnished, if required by them, with copies
of all plans, shop drawings, and specifications relating to such restoration.
Tenant will keep all plans, shop drawings, and specifications available, and
Landlord and its architects and engineers may examine them at all reasonable
times. If, during such restoration, Landlord and its architects and engineers
determine that the restoration is not being done in accordance with the approved
plans and specifications, Landlord will give prompt notice in writing to Tenant,
specifying in detail the particular deficiency, omission, or other respect in
which Landlord claims such restoration does not accord with the approved plans
and specifications. Upon the receipt of any such notice, Tenant will cause
corrections to be made to any deficiencies, omissions, or such other respect.
Tenant's obligations to supply insurance, according to Article IV, will be
applicable to any restoration under this Section.
11.05 AWARD DISTRIBUTION. The entire compensation, sums or anything of
value awarded, paid or received on a total or partial Condemnation of a Leased
Property that is awarded to Landlord shall belong to Landlord (the "Landlord
Award"). The entire compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation of a Leased Property that is awarded
to Tenant shall belong to Tenant (the "Tenant Award", collectively with the
Landlord Award, the "Awards", and each, individually, an "Award").
Notwithstanding anything in this
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Section to the contrary, in the event that there is a total or partial
Condemnation of a Leased Property and there is a single Award with respect to
such Condemnation, then the Landlord and Tenant shall use their good faith
efforts to determine the proper apportionment of such Award to Landlord's and
Tenant's respective properties. In the event that the parties are unable to
agree on such apportionment within thirty (30) days, the parties shall submit
to arbitration of an apportionment subject to the arbitration provisions set
forth in Article XIV.
11.06 TEMPORARY TAKING. The taking of any Leased Property, or any
part thereof, by military or other public authority shall constitute a taking
by Condemnation only when the use and occupancy by the taking authority has
continued for longer than twenty four (24) months. During any such
twenty-four (24) month period, which shall be a temporary taking, all the
provisions of this Lease shall remain in full force and effect as to such
Leased Property with no abatement of rent payable by Tenant hereunder. In
the event of any such temporary taking, the entire amount of any such Award
made for such temporary taking allocable to the Term hereof, whether paid by
way of damages, Rent or otherwise, shall be paid to Tenant.
ARTICLE XII
ADDITIONAL REPRESENTATIONS, WARRANTIES AND FINANCIAL COVENANTS
Tenant hereby represents, warrants and covenants to Landlord as follows:
12.01 ORGANIZATION AND QUALIFICATION.
(a) Tenant is a Texas corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation or
organization, with all power and authority, corporate or otherwise,
necessary to: (i) enter into and perform this Lease and (ii) own and
lease its assets and properties, and conduct its Business, as it is
now being conducted or proposed to be conducted. Tenant is duly
qualified as a foreign corporation or other entity, as the case may
be, to conduct its Business and own and lease its assets and
properties, and is in good standing, in each jurisdiction where the
character of its assets and properties owned or held under lease or
the nature of its Business makes such qualification necessary or
advisable, and is duly qualified and licensed under all laws,
regulations, ordinances or orders of public or governmental
authorities, or otherwise to carry on its Business and own or lease
its assets and properties in the places and in the manner in which
they are owned, leased or conducted or proposed to be owned, leased or
conducted, except where the failure to be so organized, qualified and
in good standing or to have such authority, qualification or licensing
could not result in a Material Adverse Change. Complete and correct
copies of Tenant's Charter, as in effect on the date hereof, and
Tenant's by-laws, also as in effect on the date hereof, have been
delivered to Landlord.
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(b) Each Affiliate that conducts operations or business on or from any
Leased Property, whether now or at any time in the future, is duly
organized, validly existing and in good standing under the laws of its
organization, with all power and authority, corporate or otherwise,
necessary to own and lease its assets and properties, and conduct its
business, as it is now being conducted or proposed to be conducted.
Each Affiliate is duly qualified as a foreign corporation or other
entity, as the case may be, to do business and own and lease its
assets and properties, and is in good standing, in each jurisdiction
where the character of its assets and properties owned or held under
lease or the nature of its activities or business makes such
qualification necessary or advisable, and is duly qualified and
licensed under all laws, regulations, ordinances or orders or public
or governmental authorities or otherwise to carry on its business and
own or lease its assets and properties in the places and in the manner
in which they are owned, leased or is conducted or proposed to be
owned, leased or conducted, except where the failure to be so
organized, qualified and in good standing or to have such authority,
qualification or licensing could not result in a Material Adverse
Change.
"Material Adverse Change" since a particular specified date, or a date
which may be specified from the circumstances existing immediately prior to
the happening of a specified event or occurrence, or, if no date or event is
specified, with reference to the most recent Annual Financial Statements
delivered pursuant to this Lease, means a material adverse change in the
Business, assets, properties, franchises, financial condition or income of
Tenant or the operations, business, assets, properties, franchises,
financial condition, income or prospects of any Affiliate, whether or not
such event or occurrence is an Event of Default.
"Affiliate" means with respect to any Person, (i) any Person that holds
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of voting securities or other
voting interests representing at least five percent (5%) of the outstanding
voting power of a Person or equity securities or other equity interests
representing at least five percent (5%) of the outstanding equity securities
or interests in a Person, or (ii) any Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is
under common control with such Person.
A "Person" shall mean and include natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts,
business trusts, Indian tribes or other organizations, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
12.02 MATERIAL AGREEMENTS. SCHEDULE 12.02 is a complete list of all
agreements to which Tenant is a party that are material to the ownership and use
of the Leased Property or the
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operation of Tenant's Business, and Tenant has delivered to Landlord a copy
of each of these agreements (including all exhibits, schedules and amendments
thereto).
12.03 CHANGES IN CONDITION. Since the date of the latest Annual
Financial Statements, no Material Adverse Change has occurred between such
date and the date hereof, and neither Tenant nor any Affiliate has entered
into any material transaction outside the ordinary course of its or their
operations or business, including the Business, except as set forth in
SCHEDULE 12.03 and the matters contemplated by this Lease.
12.04 FRANCHISES, LICENSES, ETC. Tenant and its subsidiaries own,
or have sufficient interests in, all franchises, trademarks, trademark
rights, trade names, trade name rights, copyrights, licenses, permits,
authorizations and other rights as are necessary for the conduct of Tenant's
Business and its subsidiaries' businesses as now conducted or proposed to be
conducted by Tenant or any Affiliate, as well as rights under any agreement
under which Tenant or its subsidiaries has access to confidential information
used by Tenant or its subsidiaries in Tenants' Business or the businesses of
its subsidiaries, as the case may be (collectively, the "Intellectual
Property"). All Intellectual Property is in full force and effect in all
material respects, and Tenant and its subsidiaries are in substantial
compliance with the foregoing without any conflict with the valid rights of
others, which has resulted, or could be reasonably likely to result in any
Material Adverse Change. Neither Tenant nor any Affiliate has violated, or
received any communication that by conducting its Business or any Affiliate's
businesses, it or any Affiliate would violate any franchises, licenses,
patents, trademarks, service marks, trade names, copyrights, trade secrets,
proprietary rights or processes of any other Person (as hereafter defined)
nor is Tenant or any Affiliate aware of any such violations. No event has
occurred which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any such license, franchise or other
right or affect the rights of Tenant or any Affiliate so as to result in or
reasonably be likely to result in any Material Adverse Change. There is no
litigation or other proceeding or dispute or, to the knowledge of Tenant or
any Affiliate, threat thereof with respect to the validity or, where
applicable, the extension or renewal, of any of the foregoing which has
resulted, or could result, in any Material Adverse Change.
12.05 LITIGATION. No litigation, at law or in equity, or any
proceeding before any court, board or other governmental or administrative
agency or any arbitrator or other forum of alternative dispute resolution is
pending or, to the knowledge of Tenant or any Affiliate, threatened which
involves any risk of any final judgment, order or liability which, after
giving effect to any applicable insurance, has resulted, or could result, in
any Material Adverse Change or which seeks to enjoin the execution and
consummation of this Lease and the performance of Tenant's obligations
hereunder. No judgment, decree or order of any court, board or other
governmental or administrative agency or any arbitrator has been issued
against or binds Tenant or any Affiliate, which has resulted, or could
result, in any Material Adverse Change.
12.06 AUTHORIZATION AND ENFORCEABILITY. Tenant has taken all corporate
or other action required to execute, deliver and perform this Lease. This
Lease constitutes the legal, valid and binding obligation of Tenant and is
enforceable against Tenant in accordance with its terms.
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12.07 NO LEGAL OBSTACLE TO LEASE. Neither the execution and delivery of
this Lease nor the performance of any obligation hereunder has constituted or
resulted in or will constitute or result in:
(a) any breach, violation of, conflict with, default under or
termination of any agreement, contract, mortgage, instrument,
deed or lease to which Tenant or any Affiliate is a party or by
which it or they are bound;
(b) the violation of or conflict with any law, statute, ordinance,
judgment, decree, order, rule or regulation applicable to Tenant,
any Affiliate, any Improvements or any Leased Property; or
(c) any violation of or conflict with Tenant's or any Affiliate's
Charter or By-Laws or other organizational documents, as the case
may be.
No approval, authorization or other action by, or declaration to or
filing with, any governmental or administrative authority or any other Person
is required to be obtained or made by Tenant in connection with the
execution, delivery and performance of this Lease.
12.08 CERTAIN BUSINESS REPRESENTATIONS:
(a) LABOR RELATIONS. No dispute or controversy between Tenant or any
Affiliate and its or their employees has resulted in, or is
reasonably likely to result in, any Material Adverse Change, and
neither Tenant nor any Affiliate anticipates that its
relationships with its unions or employees will result, or are
reasonably likely to result, in any Material Adverse Change.
Tenant and each Affiliate is in compliance in all material
respects with all federal and state laws relating to employees
and labor relations, including, but not limited to, laws relating
to health and safety in the workplace, non-discrimination in
employment and the payment of wages.
(b) ANTITRUST. Tenant and each Affiliate is in compliance in all
material respects with all federal and state antitrust laws
relating to Tenant's Business and the subsidiaries' businesses
and the geographic concentration thereof.
(c) CONSUMER PROTECTION. Neither Tenant nor any Affiliate is in
violation of any rule, regulation, order, or interpretation of
any rule, regulation or order of the Federal Trade Commission
(including truth-in-lending) or other federal, state or local
public or governmental
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authority or agency, with which the failure to comply, in the
aggregate, has resulted in, could result in, a Material Adverse
Change.
(d) FUTURE EXPENDITURES. Neither Tenant nor any Affiliate,
anticipates that further expenditures, if any, by Tenant or any
Affiliate needed to meet the provisions of any federal, state or
foreign governmental statutes, orders, rules or regulation could
result in any Material Adverse Change.
(e) BENEFIT LIABILITIES. Neither Tenant nor any ERISA Affiliate
maintains, contributes to, or is obligated to
contribute to, nor has Tenant or any ERISA Affiliate
maintained, contributed to, been obligated to
contribute to, or had any direct, indirect, or
contingent liability with respect to, any Title IV Plan
(as hereafter defined). Each Tenant Benefit Plan has
been maintained in compliance with its terms and with
applicable laws (including specifically the Code and
the Employee Retirement Income Security Act of 1974
("ERISA"). "Tenant Benefit Plan" means any plan, fund,
or other similar program described in Section 3(2) of
ERISA and established or maintained or with respect to
which Tenant and/or any ERISA Affiliate has an
obligation to contribute for the benefit of its
employees (or for which Tenant could be directly or
contingently liable). "Title IV Plan" means an
"employee benefit plan" (as defined in Section 3(3) of
ERISA) that is subject to Title IV of ERISA and is or
has been established or maintained, by Tenant or any
ERISA Affiliate, or to which contributions are, have
been, or should have been made. "ERISA Affiliate"
means any trade or business, whether or not
incorporated, that, together with Tenant, is or has
been under common control, within the meaning of
Section 414(b), (c), (m), or (o) of the Code or Section
4001 of ERISA.
12.09 CERTAIN FINANCIAL COVENANTS. Tenant or an Affiliate,
as applicable, is in compliance in all material respects with all financial
covenants required to be maintained pursuant to any franchise or other agreement
pursuant to which Tenant or such Affiliate operates its business, except in such
respects as shall not result in any franchisor under any franchise or operating
agreement to which Tenant is a party taking any action that could result in a
Material Adverse Change.
12.10 CASH FLOW COVERAGE RATIO COVENANT. On the date of this
Lease and measured at a date that is twenty-four (24) months following such date
(each a "Cash Flow Measurement Date"), and on each anniversary date that is
twenty-four (24) months following a prior Cash Flow Measurement Date, Tenant
shall have maintained a Cash Flow Coverage Ratio of not less than 1.5 to 1.0
based on the Annual Financial Statements to be delivered to Landlord in
accordance
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with Section 6.04 hereof. "Cash Flow Coverage Ratio" means the aggregate of
net income before taxes plus mortgage interest, rent expense, depreciation,
compensation of principals of the Business, management fees plus the annual
LIFO adjustment and other non-cash expenses, less recurring capital
expenditures and gain (loss) on sale of real estate, dividends and/or profits
taken out of Tenant divided by the aggregate of the Tenant's obligations
under this Lease. Notwithstanding anything herein to the contrary, in the
event that Tenant shall not be in compliance with this covenant at a Cash
Flow Measurement Date or Tenant shall have knowledge of such non-compliance
prior to any Cash Flow Measurement Date, the Tenant shall have the right to
cure such breach through any reasonable commercial means, including, but not
limited to, providing guarantees acceptable to Landlord, increasing capital,
or cross collateralizing with any other property of Tenant or an Affiliate,
provided that such breach is cured within one hundred and eighty (180) days
after Notice by Landlord to Tenant of the existence of such breach.
12.11 DISCLOSURE. This Lease does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make any statement contained herein not misleading in light of the
circumstances under which it was made. To Tenant's knowledge, there is no
event, fact or occurrence that has resulted, or in the future (so far as Tenant
can reasonably foresee) could result, in any Material Adverse Change, except to
the extent that present or future general and sector-specific economic
conditions may result in a Material Adverse Change.
12.12 COVENANT NOT TO ACQUIRE. Tenant covenants and agrees
that during the Term and any Extension Term, as the case may be, Tenant and its
controlling shareholders or its or their Affiliates will not acquire, directly
or indirectly, more that 9.90% of the outstanding common shares of beneficial
interest of Capital Automotive REIT. Tenant covenants and agrees that it will
divest itself of such shares of Capital Automotive REIT as may be necessary to
satisfy the limitations of this Section 12.12.
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ARTICLE XIII
ASSIGNMENT AND SUBLETTING; ATTORNMENT
13.01 PROHIBITION AGAINST SUBLETTING AND ASSIGNMENT.
Subject to Section 13.03, Tenant shall not, without the prior written consent
of Landlord, or upon compliance with any conditions established by Landlord,
in its sole discretion, assign, mortgage, pledge, hypothecate, encumber or
otherwise transfer (except to an Affiliate) this Lease or any interest
herein, or all or any part of any Leased Property, or suffer or permit this
Lease or the leasehold estate created hereby or any other rights arising
hereunder to be assigned, transferred, mortgaged, pledged, hypothecated or
encumbered, in whole or in part, whether voluntarily, involuntarily or by
operation of law. For purposes of this Section 13.01, an assignment of this
Lease shall be deemed to include any Change of Control of Tenant, as if such
Change of Control were an assignment of the Lease. In the event that (i)
Landlord shall withhold any consent to any assignment or transfer of this
Lease or any interest herein, and (ii) such assignee or transferee is
approved by the relevant manufacturer for continuation as a franchisee, there
shall be a presumption that such assignment or transfer was reasonable and
Landlord shall have the burden of rebutting such presumption and of proving
that such consent was in fact reasonably withheld (or that such conditions
were reasonable). Upon the assignment of this Lease according to this
Section 13.01, Plains Chevrolet, Inc. shall have no liability under this
Lease for any obligations or responsbilities of Tenant that accrue after the
date the assignment becomes effective.
13.02 CHANGES OF CONTROL. A Change of Control requiring the
consent of Landlord shall mean:
(a) the issuance and/or sale by Tenant or the sale by any
shareholder or equity holder of Tenant of a Controlling
(which shall mean, as applied to any Person, the
possession, directly or indirectly, of the power to
direct or cause the direction of the management and
policies of such Person, whether through the ownership
of voting securities, by contract or otherwise)
interest in Tenant to a Person other than an Affiliate
of Tenant, other than in either case a distribution to
the public pursuant to an effective registration
statement under the Securities Act of 1933, as amended
(a "Registered Offering");
(b) the sale, conveyance or other transfer of all or
substantially all of the assets of Tenant (whether by
operation of law or otherwise) provided, however, that
no Change of Control shall be deemed to have occurred
in the event of the transfer of assets as a result of
the death of a person involved in the Business, so long
as the transferee is approved by the manufacturer for
the continuation of the Business; or
(c) any transaction pursuant to which Tenant is merged with
or consolidated into another entity (other than an
entity owned and Controlled by an Affiliate), and
Tenant is not the surviving entity.
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13.03 OPERATING/SERVICE AGREEMENTS.
(a) PERMITTED AGREEMENTS. Tenant shall, without Landlord's
prior approval, be permitted to enter into such
operating/service agreements for portions of each
Leased Property to various licensees in connection with
Tenant's Business as are customarily associated with or
incidental to the operation of such Leased Property,
which agreements may be in the nature of a sublease
agreement.
(b) TERMS OF AGREEMENTS. Each operating/service agreement
concerning a Leased Property shall be subject and
subordinate to the provisions hereof. No agreement
made as permitted by Section 13.03(a) shall affect or
reduce any of the obligations of Tenant hereunder, and
all such obligations shall continue in full force and
effect as if no agreement had been made. No agreement
shall impose any additional obligations on Landlord
hereunder.
(c) COPIES. Tenant shall, within ten (10) days after the
execution and delivery of any operating/service
agreement permitted by Section 13.03(a), deliver a
duplicate original thereof to Landlord.
(d) ASSIGNMENT OF RIGHTS IN AGREEMENTS. As security for
performance of its obligations hereunder, Tenant hereby
grants, conveys and assigns to Landlord all right,
title and interest of Tenant in and to all
operating/service agreements now in existence or
hereinafter entered into for each Leased Property, and
all extensions, modifications and renewals thereof and
all rents, issues and profits therefrom, to the extent
the same are assignable by Tenant. Landlord hereby
grants to Tenant a license to collect and enjoy all
rents and other sums of money payable under any such
agreement; provided, however, that Landlord shall have
the absolute right at any time after the occurrence and
continuance of an Event of Default upon notice to
Tenant and any vendors or licensees to revoke said
license and to collect such rents and sums of money and
to retain the same. Tenant shall not (i) after the
occurrence and continuance of an Event of Default,
consent to, cause, or allow, any material modification
or alteration of any of the terms, conditions or
covenants of any of the agreements or the termination
thereof, without the prior written approval of Landlord
nor (ii) accept any rents (other than customary
security deposits) more than thirty (30) days in
advance of the accrual thereof nor permit anything to
be done, the doing of which, nor omit or refrain from
doing anything, the omission of which, will or could be
a breach of or default in the terms of any of the
agreements.
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(e) LICENSES, ETC. For purposes of Section 13.03, the
operating/service agreements shall mean any licenses,
concession arrangements, or other arrangements relating
to the possession or use of all or any part of any
Leased Property.
13.04 ASSIGNMENT. If Landlord shall withhold its consent to
any assignment or if Landlord shall have established conditions to approval
of any assignment but such conditions shall not have been complied with, to
the satisfaction of Landlord, such assignment shall not in any way impair
the continuing primary liability of Tenant hereunder. No consent to any
assignment in a particular instance shall be deemed to be a general waiver of
the prohibition set forth in Article XIII. Any assignment shall be solely of
Tenant's entire interest in this Lease with respect to the subject Leased
Property or Leased Properties. Any assignment or other transfer of all or
any portion of Tenant's interest in this Lease in contravention of Article
XIII shall be voidable at Landlord's option.
13.05 REIT LIMITATIONS.
(a) Anything contained herein to the contrary
notwithstanding, Tenant shall not: (a) sublet or
assign a Leased Property or this Lease on any basis
such that the rental or other amounts to be paid by the
sublessee or assignee thereunder would be based, in
whole or in part, on the income or profits derived by
the business activities of the sublessee or assignee;
(b) sublet or assign a Leased Property or this Lease to
any Person that, under Section 856(d)(2)(B) of the
Internal Revenue Code of 1986, as amended (the "Code"),
Landlord or its general partner owns, directly or
indirectly (by applying constructive ownership rules
set forth in Section 856(d) (5) of the Code, a ten
percent (10%) or greater interest; or (c) sublet or
assign a Leased Property or this Lease in any other
manner or otherwise derive any income which could cause
any portion of the amounts received by Landlord
pursuant hereto or any sublease to fail to qualify as
"rents from real property" within the meaning of
Section 856(d) of the Code, or which could cause any
other income received by Landlord to fail to qualify as
income described in Section 856(c) (2) of the Code.
The requirements of this Section 13.05 shall likewise
apply to any further subleasing by any subtenant.
(b) Tenant acknowledges that Capital Automotive REIT, a
Maryland real estate investment trust and the general
partner of Landlord (the "Company"), intends to elect
to be taxed as a real estate investment trust (a
"REIT") under the Code. Tenant shall not do anything
which would adversely affect the Company's status as a
REIT. Tenant hereby agrees to modifications of this
Lease which do not materially adversely affect Tenant's
rights and liabilities if such
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modifications are required to retain or clarify the
Company's status as a REIT.
13.06 ATTORNMENT. Tenant shall insert in each sublease
permitted under Section 13.03(a) provisions to the effect that: (a) such
sublease is subject and subordinate to all of the terms and provisions of
this Lease and to the rights of Landlord hereunder; (b) in the event this
Lease shall terminate before the expiration of such sublease, the sublessee
thereunder will, at Landlords' option, attorn to Landlord and waive any right
the sublessee may have to terminate the sublease or to surrender possession
thereunder, as a result of the termination hereof; and (c) in the event the
sublessee receives a written notice from Landlord or Landlord's assignees, if
any, stating that Tenant is in default under this Lease, the sublessee shall
thereafter be obligated to pay all rentals accruing under said sublease
directly to the party giving such notice, or as such party may direct. All
rentals received from the sublessee by Landlord or Landlord's assignees in
respect of a Leased Property, if any, as the case may be, shall be credit
against the amounts owing by Tenant hereunder with respect to such Leased
Property.
13.07 SEVERANCE AND SPIN-OFF. If at any time while this
Lease is in effect any Leased Property shall be utilized by Tenant in the
operation of more than one automobile franchise, then provided that there is no
existing Event of Default and there exists no condition which, with the passage
of time, could become an Event of Default, Tenant shall have the right (the
"Spin-Off Right") to sever and spin-off one or more parcels (each referred to as
a "Spin-Off Parcel") of the Leased Property from this Lease, subject to
compliance with the requirements of Section 13.08.
13.08 ASSIGNMENT. If the Leased Property is not a separate
subdivided lot, Landlord may condition its approval of an assignment upon
Tenant showing that there are appropriate provisions (such as a condominium
regime, subdivision, and/or reciprocal easements, lender and/or franchisor
consents if necessary, and separate tax lots) which allow the Leased Property
to be separately owned and operated without interference from or dependence
upon, another person as to items such as access, real estate taxes, or
utilities.
ARTICLE XIV
ARBITRATION
14.01 CONTROVERSIES. Except with respect to the payment of
Rent hereunder, which shall be subject to the provisions of Section 9.02, in
the event a controversy arises between the parties as to any of the
requirements of this Lease or the performance hereunder, which the parties
are unable to resolve, the parties agree to waive the remedy of litigation
(except for extraordinary relief in an emergency situation) and agree that
such controversy or controversies shall be determined by arbitration as
hereafter provided in this Article.
14.02 APPOINTMENT OF ARBITRATORS. The party or parties
requesting arbitration shall serve upon the other a demand therefor, in
writing, specifying in detail the controversy and matter(s)
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to be submitted to arbitration before the American Arbitration Association.
The selection of arbitrators shall be conducted pursuant to the rules for
resolution of commercial disputes promulgated by the American Arbitration
Association. The party or parties giving notice shall request a listing of
available arbitrators from the American Arbitration Association, and each
party shall respond in the selection process within fifteen (15) days after
each receipt of such listings until a panel of three (3) arbitrators has been
designated. If either party fails to respond within fifteen (15) days, it is
agreed that the American Arbitration Association may make such selections as
are necessary to complete the panel of three (3) arbitrators.
14.03 ARBITRATION PROCEDURE. Within five (5) business days
after the selection of the arbitration panel, the arbitrators shall give written
notice to each party as to the time and the place of each meeting, which shall
be held in the jurisdiction in which the Leased Property is situated, at which
the parties may appear and be heard, which shall be no later than fifteen (15)
days after certification of the arbitration panel. The parties specifically
waive discovery, and further waive the applicability of rules of evidence or
rules of procedure in the proceedings. The applicable rules shall be those in
effect at the time for the resolution of commercial disputes promulgated by the
American Arbitration Association. The arbitrators shall take such testimony and
make such examination and investigations as the arbitrators reasonably deem
necessary. The decision of the arbitrators shall be in writing signed by a
majority of the panel which decision shall be final and binding upon the parties
to the controversy. Provided, however, in rendering their decisions and making
awards, the arbitrators shall not add to, subtract from or otherwise modify the
provisions of this Lease.
14.04 EXPENSES. The expenses of the arbitration shall be
assessed by the arbitrators and specified in the written decision. In the
absence of a determination or assessment of expenses of the arbitration
procedure in the award, all of the expenses of such arbitration shall be
divided equally between Landlord and Tenant. Each party in interest shall be
responsible for and pay the fees, costs and expenses of its own counsel,
unless the arbitration award provides for an assessment of reasonable
attorneys' fees and costs.
14.05 ENFORCEMENT OF THE ARBITRATION AWARD. There shall be no
appeal from the decision of the arbitrators, and upon the rendering of an
award, any party thereto may file the arbitrators' decision in the United
States District Court for the jurisdiction in which the Leased Property is
situated for enforcement as provided by applicable law.
ARTICLE XV
QUIET ENJOYMENT, SUBORDINATION,
ATTORNMENT, ESTOPPEL CERTIFICATES
15.01 QUIET ENJOYMENT. So long as Tenant performs all of its
obligations under this Lease, Tenant's possession of the Leased Properties
will not be disturbed by or through Landlord.
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15.02 LANDLORD MORTGAGES; SUBORDINATION. Subject to Section
15.03, without the consent of Tenant, Landlord may, from time to time,
directly or indirectly, create or otherwise cause to exist any liens,
encumbrances, security interests or title retention agreements on any Leased
Property, or any portion thereof or any interest therein, whether to secure
any borrowing or other means of financing or refinancing. Tenant shall
execute, acknowledge and deliver to Landlord, at any time and from time to
time (up to three times per calendar year) upon demand by Landlord or any
mortgagee or any holder of any mortgage or other instrument described in this
Section, without cost to Landlord, a Subordination and Non-Disturbance
Agreement in substantially the form attached hereto as EXHIBIT 15.02, which
provides that (i) Tenant's rights hereunder are subordinate to any ground
lease or underlying lease, first mortgage, first deed of trust, or other
first lien against any Leased Property, together with any renewal,
consolidation, extension, modification, or replacement thereof, which now or
at any subsequent time affects any Leased Property or any interest of
Landlord in any Leased Property, except to the extent that any such
instrument expressly provides that this Lease is superior; and (ii) in the
event such party succeeds to Landlord's interest under the Lease and provided
that no Event of Default by Tenant exists, such party will not disturb
Tenant's possession, use or occupancy of the subject Leased Property or
Tenant's rights under this Lease. If Tenant fails or refuses to execute,
acknowledge, and deliver such Subordination and Non-Disturbance Agreement
within ten (10) business days after written demand, then Landlord shall send
to Tenant a second written demand. If Tenant fails or refuses to execute,
acknowledge and deliver such Subordination and Non-Disturbance Agreement
within ten (10) days after such second written demand, then Landlord or such
successor in interest may execute, acknowledge and deliver such Subordination
and Non-Disturbance Agreement on behalf of Tenant as Tenant's
attorney-in-fact. Tenant hereby constitutes and irrevocably appoints
Landlord, its successors and assigns, as Tenant's attorney-in-fact to
execute, acknowledge, and deliver on behalf of Tenant the Subordination and
Non-Disturbance Agreement. This power of attorney is coupled with an
interest and is irrevocable.
15.03 ATTORNMENT. If any holder of any mortgage, indenture,
deed of trust, or other similar instrument described in Section 15.02
succeeds to Landlord's interest in any Leased Property, Tenant will pay to
such holder all Rent subsequently payable hereunder as to such Leased
Property. Tenant shall, upon request of anyone succeeding to the interest of
Landlord, automatically become the tenant of, and attorn to, such successor
in interest without changing this Lease. The successor in interest will not
be bound by: (a) any payment of Rent for more than one (1) month in advance;
(b) any amendment or modification hereof made without its written consent;
(c) any claim against Landlord arising prior to the date on which the
successor succeeded to Landlord's interest; or (d) any claim or offset of
Rent against Landlord.
15.04 ESTOPPEL CERTIFICATES. At the request of Landlord or any
mortgagee or purchaser of a Leased Property, Tenant shall execute,
acknowledge, and deliver an estoppel certificate substantially in the form
attached hereto as EXHIBIT 15.04, in recordable form, in favor of Landlord or
any mortgagee or purchaser of any Leased Property certifying the following as
to such Leased Property: (a) that this Lease is unmodified and in full force
and effect, or if there have been modifications that the same is in full
force and effect as modified and stating the modifications; (b) the date to
which Rent and other charges have been paid; (c) that neither Tenant nor
Landlord is in
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default nor is there any fact or condition which, with notice or lapse of
time, or both, would constitute a default, if that be the case, or specifying
any existing default; (d) that Tenant has accepted and occupies such Leased
Property; (e) that Tenant has no defenses, set-offs, deductions, credits, or
counterclaims against Landlord, if that be the case, or specifying such that
exist; (f) that Landlord has no outstanding construction or repair
obligations; and (g) such other information as may reasonably be requested by
Landlord or any mortgagee or purchaser. Any purchaser or mortgagee may rely
on this estoppel certificate. If Tenant fails to deliver the estoppel
certificates to Landlord within ten (10) business days after the request of
Landlord, then Landlord shall request such delivery a second time. If Tenant
fails to deliver the estoppel certificates to Landlord within ten (10) days
after such second request by Landlord, then Tenant shall be deemed to have
certified that: (a) this Lease is in full force and effect and has not been
modified, or that this Lease has been modified as set forth in the
certificate delivered to Tenant; (b) Tenant has not prepaid any Rent or other
charges except for the current month; (c) Tenant has accepted and occupies
such Leased Property; (d) neither Tenant nor Landlord is in default nor is
there any fact or condition which, with notice or lapse of time, or both,
would constitute a default; (e) Landlord has no outstanding construction or
repair obligation; and (f) Tenant has no defenses, set-offs, deductions,
credits, or counterclaims against Landlord. Tenant hereby irrevocably
appoints Landlord as Tenant's attorney-in-fact to execute, acknowledge and
deliver on Tenant's behalf any estoppel certificate which Tenant does not
object to within twenty (20) days after Landlord sends the certificate to
Tenant. This power of attorney is coupled with an interest and is
irrevocable.
15.05 WAIVER OF LANDLORD'S LIEN. Landlord agrees to and
does hereby waive its Landlord's lien and any other rights that it may have
with respect to property or assets representing the security or collateral
under Tenant's "floor-plan" or similar financing arrangements, during the
Term or any Extension Term. Landlord shall, upon request by any such lender,
execute such reasonable documents as are requested by Tenant's lender to
acknowledge such waiver and allow the lender access to the Leased Property.
ARTICLE XVI
RIGHT OF FIRST OFFER
16.01 RIGHT OF FIRST OFFER DURING LEASE TERM OR EXTENSION
TERM.
(a) If and when during the Term or Extension Term, as the
case may be, Landlord shall decide to sell the Leased
Properties to a Person who is not an Affiliate of
Landlord (the "Decision to Sell"), provided that no
Event of Default has occurred and is continuing under
the Lease, Landlord shall notify Tenant in writing
within ten (10) business days after Landlord makes a
Decision to Sell. Tenant shall have ten (10) business
days thereafter in which to notify Landlord in writing
of its desire to purchase the Leased Properties. If
Tenant shall give such notice, Tenant shall have a
period of thirty (30) days within which to
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make a written offer to purchase the property (the
"First Offer"). The First Offer must set forth the
purchase price, deposit amounts and closing date and
any and all other terms and conditions being proposed
by Tenant.
(b) Within thirty (30) days of receipt of the First Offer,
Landlord shall give Tenant written notice of its
acceptance or rejection thereof. If accepted, Tenant
shall, within five (5) days after receipt of the
acceptance notice, make the deposit called for in the
First Offer and the parties shall proceed to contract
and closing upon the terms thereof. If the First Offer
is rejected, then, subject to the provisions of
subsections (c) and (d) of this Section 16.01, Tenant
shall have no further rights with respect to the
purchase of the Leased Properties during the Term or
Extension Term, as the case may be.
(c) If Landlord shall reject the First Offer, for a one
year period thereafter it may proceed to sell the
Leased Properties, subject to the Lease and the
remaining Term or Extension Term thereof, as the case
may be, to any third party, provided (i) the purchase
price of such sale shall exceed that specified in the
First Offer, or (ii) if the purchase price of such sale
does not exceed that specified in the First Offer, the
terms of such sale, taken together, are more favorable
to Landlord, in Landlord's reasonable judgement, than
those of the First Offer. There shall be a presumption
that Landlord's judgment was reasonable and Tenant
shall have the burden of rebutting such presumption and
of proving that such judgment was in fact
unreasonable.
(d) If no sale is effected by Landlord within the period
specified in subsection (c) above, then if Landlord
thereafter desires to sell the Leased Properties, the
procedure set forth in subsections (a), (b) and (c)
shall be followed.
(e) This option shall terminate in any event twenty (20)
years after the death of the last descendant of William
Jefferson Clinton, current President of the United
States, living at the time of execution of this Lease.
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16.02 RIGHT TO PURCHASE AT END OF AN EXTENSION TERM.
(a) Landlord hereby grants the Tenant the right and option
to purchase the Leased Properties (the "Option to
Purchase") at an amount equal to the Property
Consideration (as hereafter defined) upon termination
of an Extension Term of this Lease. The Option to
Purchase shall not be granted if Tenant does not extend
the Term of this Lease pursuant to Section 1.03 or if
on the Option Exercise Date (as hereafter defined) an
Event of Default with respect to any Leased Property
exists and has not been cured. The Tenant shall notify
Landlord in writing of its intent to exercise this
Option to Purchase, thirty (30) days prior to the end
of an Extension Term of this Lease (the "Option
Exercise Date").
(b) The consideration to be paid for the Leased Properties
upon exercise of the Option to Purchase (the "Property
Consideration") shall be the Appraised Value (as
hereafter defined) determined by (1) an independent
appraiser, who is a member of the Appraisal Institute,
and will be selected by Landlord, (the "Landlord MAI
Appraiser"), (2) a second appraiser, who is a member of
the Appraisal Institute, and will be selected by the
Tenant (the "Tenant MAI Appraiser"), and (3) a third
MAI Appraiser selected by agreement of the Landlord MAI
Appraiser and the Tenant MAI Appraiser (the "Third MAI
Appraiser") (each an "Appraiser" and, collectively, the
"Appraisers"). Landlord and Tenant shall, as promptly
as possible, but in no event later than ten (10) days
following the Option Exercise Date, select its
respective Appraiser. The Third MAI Appraiser shall be
selected no later than five (5) days after the
selection of the other Appraisers. The costs of the
Appraisers' appraisals shall be shared equally by the
parties. As promptly as possible but in no event later
than fifteen (15) days after selection of the Third
Appraiser, each Appraiser shall deliver his or her
written report of the Appraisers' determination of the
fair market value of the Leased Property, which
determination shall be based, for each Leased Property,
upon the highest and best use of such Leased Property,
taking into consideration the location of such Leased
Property and other properties comparable thereto. The
"Appraised Value" of the Real Property shall be equal
to the arithmetic mean of the two (2) fair market value
determinations of the Appraisers that are closest in
value. In the event that the values of (i) the
difference between the highest appraisal value and the
next lower appraisal value, and (ii) the difference
between the lowest appraisal value and the next higher
appraisal value, are equal, then the "Appraised Value"
shall be equal
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to the arithmetic mean of the fair market value
determinations of all Appraisers.
(c) Upon determination of the Property Consideration,
Landlord and Tenant agree to cooperate to close the
sale and purchase of the Leased Property entirely for
cash on an "as is, where as basis" and with no
warranties by Landlord other than in a special warranty
deed, within forty-five (45) days after the date of
determination of the Property Consideration (the
"Option Closing Period"). If the sale and purchase of
the Leased Property does not close within the Option
Closing Period due to Tenant's default, Landlord shall
have no further obligations to Tenant pursuant to this
Section 16.02 (a).
ARTICLE XVII
MISCELLANEOUS
17.01 NOTICES. Landlord and Tenant hereby agree that all
notices, demands, requests, and consents (hereinafter "Notices") required to
be given pursuant to the terms of this Lease shall be in writing and shall be
addressed as follows:
If to Tenant:
Plains Chevrolet, Inc.
c/o Cross-Continent Auto Retailers, Inc.
1201 S. Taylor
P.O. Box 750
Amarillo, Texas 79105
Attention: R. Wayne Moore, Esq.
With a copy to:
Sprouse, Mozola, Smith & Rowley, P.C.
801 South Fillmore, Suite 620
Amarillo, Texas 79101
Attention: Jeff E. Tankersley, Esq.
If to Landlord:
Capital Automotive L.P.
1925 North Lynn Street
Suite 306
Arlington, Virginia 22209
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Attention: Thomas D. Eckert
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq. and
John B. Watkins, Esq.
and shall be served by: (a) personal delivery; (b) certified mail, return
receipt requested, postage prepaid; or (c) nationally recognized overnight
courier. All notices shall be deemed to be given upon the earlier of actual
receipt or three (3) days after mailing, or one (1) business day after deposit
with the overnight courier. Any Notices meeting the requirements of this
Section shall be effective, regardless of whether or not actually received.
Landlord or Tenant may change its notice address at any time by giving the other
party Notice of such change. Any such Notice of change of address shall be
effective five (5) days after delivery.
17.02 ADVERTISEMENT OF A LEASED PROPERTY. In the event
the parties hereto have not executed a renewal lease, or agreed to the
Extension Term, as to the Leased Property within twelve (12) months prior to
the expiration of the Term or an Extension Term, as the case may be, then
Landlord or its agent shall have the right to enter such Leased Property at
all reasonable times for the purpose of exhibiting such Leased Property to
others and to place upon such Leased Property for and during the period
commencing two-hundred seventy (270) days prior to the expiration of the Term
or an Extension Term, as the case may be, "for sale" or Afor rent" notices or
signs.
17.03 LANDLORD'S ACCESS. Landlord, or its designated
agents or contractors, shall have the right to enter upon each Leased
Property, upon reasonable prior notice to Tenant, for purposes of inspecting
the same and assuring Tenant's compliance with this Lease provided, any such
entry by Landlord shall be subject to all rules, guidelines and procedures
prescribed by Tenant in connection therewith. Landlord shall not be allowed
entry to a Leased Property unless accompanied by such of Tenant's personnel
as Tenant shall require and which Tenant shall promptly provide.
17.04 ENTIRE AGREEMENT. This Lease contains the entire
agreement between Landlord and Tenant with respect to the subject matter
hereof. No representations, warranties, and agreements have been made by
Landlord or Tenant except as set forth in this Lease.
17.05 SEVERABILITY. If any term or provision of this
Lease is held by Landlord to be invalid or unenforceable as to a Leased
Property, such holding shall not affect the remainder of this Lease as to
such Leased Property, or the validity or enforceability of this Lease as to
any other Leased Property, and the same shall remain in full force and
effect, unless such holding substantially deprives Tenant of the use of such
Leased Property or Landlord of the Rents therefor, in which case
55
<PAGE>
this Lease shall forthwith terminate as to such Leased Property as if by
expiration of the Term or an Extension Term, as the case may be, but shall
remain in full force and effect with respect to each other Leased Property.
17.06 CAPTIONS AND HEADINGS. The captions and headings
are inserted only as a matter of convenience and for reference and in no way
define, limit or describe the scope of this Lease or the intent of any
provision hereof.
17.07 GOVERNING LAW. This Lease shall be construed under
the laws of the State of Texas (without application of choice of law
provisions).
17.08 MEMORANDUM OF LEASE OR CERTAIN RIGHTS UNDER THE
LEASE. Landlord and Tenant agree that a record of this Lease or of certain
rights under this Lease may be recorded by either party in a memorandum of
lease approved by Landlord and Tenant with respect to each Leased Property.
The party recording such memorandum must bear all costs of such recording.
17.09 WAIVER. No waiver by Landlord of any condition or
covenant herein contained, or of any breach of any such condition or
covenant, shall be held or taken to be a waiver of any subsequent breach of
such covenant or condition, or to permit or excuse its continuance or any
future breach thereof or of any condition or covenant, nor shall the
acceptance of Rent by Landlord at any time when Tenant is in default in the
performance or observance of any condition or covenant herein be construed as
a waiver of such default, or of Landlord's right to terminate this Lease or
exercise any other remedy granted herein on account of such default.
17.10 ASSIGNMENT; BINDING EFFECT. Except as otherwise set
forth herein, this Lease shall not be assignable by Tenant, without the prior
written consent of Landlord. This Lease will be binding upon and inure to
the benefit of the heirs, successors, personal representatives, and permitted
assigns of Landlord and Tenant.
17.11 CONSENTS AND APPROVALS. In each instance in this
Lease where the Landlord is required or permitted to give a consent or
approval, or to make a determination, the Landlord's decision and any
conditions thereon must be reasonable under the circumstances. Except as
provided in Sections 8.07(d), 13.01 and 13.07, there shall be a presumption
that each such decision and any conditions thereon by Landlord was in fact
reasonable, and Tenant shall have the burden of proof in any attempt to rebut
that presumption. With respect to Sections 8.07(d), 13.01 and 13.07, there
shall be a presumption that each such decision and any conditions thereon by
Landlord was in fact unreasonable, and Landlord shall have the burden of
proof in any attempt to rebut that presumption.
17.12 SINGLE PROPERTY. Throughout the form of this Lease
there are references to "Leased Properties". If, in fact, there is only one
Leased Property being leased hereunder, all such references shall, without
further action, be deemed amended to refer solely to such Leased Property and
all provisions relating to Leased Properties, including remedies applicable to
only one Leased
56
<PAGE>
Property, shall likewise be amended to the extent necessary, but
only to the extent necessary, to give effect to the fact that there is only one
Leased Property.
17.13 MODIFICATION. This Lease may only be modified by a
writing signed by both Landlord and Tenant.
17.14 INCORPORATION BY REFERENCE. All schedules and exhibits
referred to in this Lease are incorporated herein by reference.
17.15 NO MERGER. As to each Leased Property, the surrender of
this Lease by Tenant or the cancellation of this Lease by agreement of Tenant
and Landlord or the termination of this Lease on account of Tenant's default
will not work a merger, and will, at Landlord's option, terminate any
subleases or operate as an assignment to Landlord of any subleases.
Landlord's option under this paragraph will be exercised by notice to Tenant
and all known subtenants of such Leased Property.
17.16 FORCE MAJEURE. Landlord, its agents and employees, will
not be liable for any loss, injury, death, or damage (including consequential
damages) to persons, property, or Tenant's Business occasioned by theft, act
of God, public enemy, injunction, riot, strike, insurrection, war, court
order, requisition, order of governmental body or authority, fire, explosion,
falling objects, steam, water, rain or snow, leak or flow of water (including
water from the elevator system), rain or snow from any Leased Property or
into any Leased Property or from the roof, street, subsurface or from any
other place, or by dampness or from the breakage, leakage, obstruction, or
other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning, or lighting fixtures of any Leased Property, or from
construction, repair, or alteration of any Leased Property or from any acts
or omissions of any other occupant or visitor of any Leased Property, or from
the release, emission, discharge, presence or disposal of any hazardous
substance or material on or from any Leased Property, or from any other cause
beyond Landlord's control.
17.17 LACHES. No delay or omission by either party hereto to
exercise any right or power accruing upon any noncompliance or default by the
other party with respect to any of the terms hereof shall impair any such
right or power or be construed to be a waiver thereof.
17.18 WAIVER OF JURY TRIAL. To the extent that there is any
claim by one party against the other that is not to be settled by arbitration
as provided in Article XIV hereof, Landlord and Tenant waive trial by jury in
any action, proceeding or counterclaim brought by either of them against the
other on all matters arising out of this Lease or the use and occupancy of
any Leased Property (except claims for personal injury or property damage).
If Landlord commences any summary proceeding for nonpayment of Rent, Tenant
will not interpose, and waives the right to interpose, any counterclaim in
any such proceeding.
17.19 PERMITTED CONTESTS. Tenant, on its own or on Landlord's
behalf (or in Landlord's name), but at Tenant's expense, may contest, by
appropriate legal proceedings conducted
57
<PAGE>
in good faith and with due diligence, the amount or validity or application,
in whole or in part, of any Imposition or any legal requirement or insurance
requirement or any lien, attachment, levy, encumbrance, charge or claim
provided that: (a) in the case of an unpaid Imposition, lien, attachment,
levy, encumbrance, charge or claim, the commencement and continuation of such
proceedings shall suspend the collection thereof from Landlord and from the
subject Leased Property; (b) neither the subject Leased Property nor any Rent
therefrom nor any part thereof or interest therein would be in any immediate
danger of being sold, forfeited, attached or lost; (c) in the case of a legal
requirement, Landlord would not be in any immediate danger of civil or
criminal liability for failure to comply therewith pending the outcome of
such proceedings; (d) in the event that any such contest shall involve a sum
of money or potential loss in excess of Twenty Five Thousand Dollars
($25,000), Tenant shall deliver to Landlord and its counsel an opinion of
Tenant's counsel to the effect set forth in clauses (a), (b) and (c), to the
extent applicable; (e) in the case of a legal requirement and/or an
Imposition, lien, encumbrance, or charge, Tenant shall give such reasonable
security as may be demanded by Landlord to insure ultimate payment of the
same and to prevent any sale or forfeiture of a subject Leased Property or
the Rent in respect thereof by reason of such nonpayment or noncompliance;
provided, however, the provisions of this Section shall not be construed to
permit Tenant to contest the payment of Rent (except as to contests
concerning the method of computation or the basis of levy of any Imposition
or the basis for the assertion of any other claim) or any other sums payable
by Tenant to Landlord hereunder; (f) in the case of an insurance requirement,
the coverage required by Article IV shall be maintained; and (g) if such
contest be finally resolved against Landlord or Tenant, Tenant shall, as
Additional Rent due hereunder, promptly pay the amount required to be paid,
together with all interest and penalties accrued thereon, or comply with the
applicable legal requirement or insurance requirement. Landlord, at Tenant's
expense, shall execute and deliver to Tenant such authorizations and other
documents as may be reasonably required in any such contest, and, if
reasonably requested by Tenant or if Landlord so desires, Landlord shall join
as a party therein. Tenant hereby agrees to indemnify and hold harmless
Landlord, its officers, trustees, employees, shareholders, affiliates and
agents from and against any and all demands, claims, causes of action, fines,
penalties, damages (including punitive and consequential damages), losses,
liabilities (including strict liability), judgments, costs and expenses
(including, without limitation, attorneys' fees, court costs, and the costs
set forth in Section 9.06) that may be incurred in connection with or arise
from any such contest.
17.20 CONSTRUCTION OF LEASE. This Lease has been reviewed by
Landlord and Tenant and their respective professional advisors. Landlord and
Tenant believe that this Lease is the product of all their efforts, that they
express their agreement, and agree that they shall not be interpreted in
favor of either Landlord or Tenant or against either Landlord or Tenant
merely because of any party's efforts in preparing such documents.
17.21 COUNTERPARTS. This Lease may be executed in duplicate
counterparts, each of which shall be deemed an original hereof or thereof.
58
<PAGE>
17.22 RELATIONSHIP OF LANDLORD AND TENANT. The relationship of
Landlord and Tenant is the relationship of lessor and lessee. Landlord and
Tenant are not partners, joint venturers, or associates.
{remainder of this page left intentionally blank}
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Lease or caused the same to be executed by their respective duly authorized
officers as of the date first set forth above.
CAPITAL AUTOMOTIVE L.P., a Delaware limited partnership
By: Capital Automotive REIT,
Its General Partner
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
PLAINS CHEVROLET, INC., a Texas corporation
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
<PAGE>
PLAINS CHEVROLET, INC. LEASE AGREEMENT SCHEDULES AND EXHIBITS
SCHEDULES
A Leased Properties
B Permitted Liens
12.02 Material Agreements
12.03 Changes in Condition
EXHIBITS
2.02 Payment Account Information
2.04 Base Annual Rent Adjustment
5.07 Environmental Reports
15.02 Form of Subordination and Non-Disturbance Agreement
<PAGE>
SCHEDULE A
LEASED PROPERTIES
Lessee: Plains Chevrolet, Inc.
Leased Property: 2200 I-40 East
Amarillo, Texas 79103
2316 I-40 East
Amarillo, Texas 79103
2400 I-40 East
Amarillo, Texas 79103
Initial Base Rent: $517,000
<PAGE>
SCHEDULE B
PERMITTED LIENS
<PAGE>
SCHEDULE 12.02
MATERIAL AGREEMENTS
<PAGE>
SCHEDULE 12.03
CHANGES IN CONDITION
<PAGE>
EXHIBIT 2.02
PAYMENT ACCOUNT INFORMATION
Wiring instructions for the Landlord's operating account are as follows:
FIRST UNION NATIONAL BANK OF VIRGINIA
CHARLOTTE, NC
ABA# 051400549
For Credit to: CAPITAL AUTOMOTIVE REIT, Operating Account
Account # 2050000478240
<PAGE>
EXHIBIT 2.04
BASE ANNUAL RENT ADJUSTMENT
The Base Annual Rent shall be increased, effective as of the
commencement of the fourth Lease Year and as of each subsequent Lease Year by
an amount equal to the Base Annual Rent multiplied by 100 percent (100%) of
the change in the Index during the immediately preceding one (1) year period;
provided, however, that, in the event that the above-calculated adjustment is
greater than two percent and one-half (22%), such adjustment shall be equal
to two and one-half percent (22%).
<PAGE>
EXHIBIT 5.07
ENVIRONMENTAL REPORTS
<PAGE>
EXHIBIT 15.02
SUBORDINATION AND NON-DISTURBANCE AGREEMENT
THIS AGREEMENT is made as of this ___ day of __________, 1998, among
_____________, a ___________ organized under the laws of the State of
_____________ ("Lender"), __________________ ("Tenant"), and CAPITAL
AUTOMOTIVE L.P., a Delaware limited partnership ("Landlord").
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into a certain Lease, dated
__________________, which lease and all amendments, modifications,
assignments, subleases and other agreements related thereto are attached
hereto as EXHIBIT A and incorporated herein by this reference (collectively,
the "Lease"), which Lease relates to the premises described therein (the
"Premises"), and
WHEREAS, Lender has made or has committed to make a first mortgage loan
to Landlord in the principal amount not to exceed $_________ (the "Loan"),
the Loan being secured by a mortgage, deed of trust or security deed
(collectively, the "Mortgage") and an assignment(s) of leases and rents from
Landlord to Lender covering the Premises; and
WHEREAS, Tenant has agreed that the Lease shall be subject and
subordinate to the Mortgage held by Lender, provided Tenant is assured of
continued occupancy of the Premises under the terms of the Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, the sum of Ten Dollars ($10.00) and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
and notwithstanding anything in the Lease to the contrary, it is hereby
agreed as follows:
1. SUBORDINATION OF LEASE. Lender, Tenant and Landlord do hereby
covenant and agree that the Lease with all rights, options, liens and charges
created thereby, is and shall continue to be subject and subordinate in all
respects to the Mortgage and to any renewals, modifications, consolidations,
replacements and extensions thereof and to all advancements made thereunder.
2. NONDISTURBANCE OF TENANT. Lender does hereby agree with Tenant
that, in the event Lender becomes the owner of the Premises by foreclosure,
conveyance in lieu of foreclosure or otherwise, so long as Tenant complies
with and performs its obligations under the Lease, (a) Lender will take no
action which will interfere with or disturb Tenant's possession or use of the
Premises or other rights under the Lease, and (b) the Premises shall be
subject to the Lease and Lender shall recognize Tenant as the tenant of the
Premises for the remainder of the terms of the
<PAGE>
Lease in accordance with the provisions thereof, provided, however, that
Lender shall not be subject to any offsets or defenses which Tenant might
have against any prior landlord except those which arose under the provisions
of the Lease out of such landlord's default and accrued after Tenant had
notified Lender and given Lender the opportunity to cure same as hereinbelow
provided, nor shall Lender be liable for any act or omission of any prior
landlord, nor shall Lender be bound by any rent or additional rent which
Tenant might have paid for more than the current month to any prior landlord
nor shall it be bound by any amendment or modification of the Lease made
without its consent.
3. ATTORNMENT BY TENANT. Tenant does hereby agree with Lender that,
in the event Lender becomes the owner of the Premises by foreclosure,
conveyance in lieu of foreclosure or otherwise, then Tenant shall attorn to
and recognize Lender as the landlord under the Lease for the remainder of the
term thereof, and Tenant shall perform and observe its obligations
thereunder, subject only to the terms and conditions of the Lease. In such
event, Lender shall not be liable for any act or omission of any prior
landlord, liable for return of the security deposit unless same was actually
delivered to Lender, bound by any amendment to or assignment of the Lease
made without its consent, bound by any rent paid more than thirty (30) days
in advance, or be subject to any set-off or defense Tenant might have had
against any prior landlord. Tenant further covenants and agrees to execute
and deliver upon request of Lender or its assigns, an appropriate Agreement
of Attornment to Lender and any subsequent titleholder of the Premises.
4. ACKNOWLEDGMENT OF ACQUISITION RIGHTS. Lender acknowledges that
Tenant has certain purchase rights under the lease. So long as Tenant
complies with the provisions of the Lease, Lender acknowledges that Tenant
may exercise such rights and Lender will honor such rights so long as Tenant
pays the acquisition price to Lender or otherwise obtains a release from
Lender.
5. CURATIVE RIGHTS, MODIFICATION OF LEASE, AND ADVANCE PAYMENT OF
RENT. So long as the Mortgage remains outstanding and unsatisfied:
(a) Tenant will mail or deliver to Lender, at the address and in the
manner hereinbelow provided, a copy of all notices permitted or required to
be given to the Landlord by Tenant under and pursuant to the terms and
provisions of the Lease. At any time before the rights of the Landlord shall
have been forfeited or adversely affected because of any default of the
Landlord, or within the time permitted the Landlord for curing any default
under the Lease as therein provided, Lender may, but shall have no obligation
to, pay any taxes and assessments, make any repairs and improvements, make
any deposits or do any other act or thing required of the Landlord by the
terms of the Lease; and all payments so made and all things so done and
performed by Lender shall be as effective to prevent the rights of the
Landlord from being forfeited or adversely affected because of any default
under the Lease as the same would have been if done and performed by the
Landlord.
(b) Tenant will not consent to the modification of the Lease, nor to
the termination thereof, without the prior written consent of Lender, such
consent not to be unreasonably withheld or delayed, nor will Tenant pay any
rent under the Lease more than thirty (30) days in advance.
-2-
<PAGE>
(c) Notwithstanding anything herein to the contrary, at any time that
the Landlord and the Tenant shall agree to a modification or the termination
of the Lease, Tenant shall provide written notice and a copy of the agreement
to Lender within five (5) business days of the execution of the agreement and
shall deliver a copy of the notice to Landlord. Tenant shall make such
delivery by first class mail, return receipt requested. Lender shall have
thirty (30) business days from the date of receipt of the notice to deliver
to Tenant and Landlord notice of its approval or disapproval of the proposed
modification or termination of the Lease. If Tenant and Landlord do not
receive such notice from Lender within such time, Lender shall be deemed to
have consented to the noticed modification or termination of the Lease.
6. CONSENT TO ASSIGNMENT. Tenant acknowledges that Landlord will
execute and deliver to Lender an assignment of the Lease as security for the
Loan, and Tenant hereby expressly consents to such assignment.
7. LIMITATION OF LIABILITY. Lender shall have no liability whatsoever
hereunder prior to becoming the owner of the Premises; and Tenant agrees that
if Lender becomes the owner of the Premises, Tenant shall look solely to the
estate or interest of Lender in the Premises for satisfaction of any
obligation which may be or become owing by Lender to Tenant hereunder or
under the Lease.
8. LANDLORD AND TENANT CERTIFICATIONS. Landlord and Tenant hereby
certify to Lender that the Lease has been duly executed by Landlord and
Tenant and is in full force and effect, that the Lease and any modifications
and amendments specified herein are a complete statement of the agreement
between Landlord and Tenant with respect to the leasing of the Premises, and
the Lease has not been modified or amended except as specified herein; that
to the knowledge of Landlord and Tenant, no party to the Lease is in default
thereunder; that no rent under the Lease has been paid more than thirty (30)
days in advance of its due date; and that Tenant, as of this date, has no
charge, lien or claim of offset under the Lease, or otherwise, against the
rents or other charges due or to become due thereunder.
9. TENANT ESTOPPEL CERTIFICATIONS. With the knowledge that Lender, as
beneficiary of the mortgage encumbering the premises, will place substantial
reliance thereon in connection with the closing and funding of the Loan,
Tenant hereby makes the following certifications:
(a) The term of the Lease commenced on ________, 19__, and will
terminate on ______________.
(b) The Lease, as described above, has not been modified, amended,
assigned or subleased except as set forth in EXHIBIT A attached hereto, and
is in good standing and in full force and effect.
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<PAGE>
(c) The Lease provides for rental payments over the term of the Lease,
all as specifically provided in the Lease. No rent under the Lease has been
paid more than thirty (30) days in advance of the due date of same. For the
year ____, monthly payments, which are due on the first (1st) day of each
month, are as follows: Basic Rent - $________
Payment of the above amount was timely made for the months of ______,
___and _____, ____, and the next payment of the above amount will be due on
________, ____. In addition to the above amount, certain additional sums are
due to Landlord from Tenant under the Lease, all as specifically set forth in
the Lease.
(d) Tenant has paid a security deposit under the Lease.
(e) To Tenant's knowledge there are no defaults by Landlord under the
Lease and there are no existing circumstances which, with the passage of
time, or notice, or both, would give rise to a default under the Lease.
(f) Tenant has accepted and is occupying the Premises, and Landlord has
no unperformed obligation under the Lease to construct any improvements for
the Tenant related to the Premises.
(g) As of the date of this Agreement, Tenant has no charge, lien, claim
of set-off or defense against rents or other charges due or to become due
under the Lease or otherwise under any of the terms, conditions, or covenants
contained therein.
(h) Tenant has received no notice from any insurance company of any
defects or inadequacies in the Premises or in any part thereof which would
adversely affect the insurability of the Premises.
(i) Except as provided in the Lease, Tenant does not have any right or
option to purchase the Premises.
(j) Except as provided in the Lease, Tenant does not have any rights or
options to renew the Lease or to lease additional space in any building owned
by the Landlord.
10. TENANT COVENANTS.
(a) From and after the date hereof, Tenant will not pay any rent under
the Lease more than thirty (30) days in advance of its due date.
(b) From and after the date hereof, so long as there shall be any
assignment of Landlord's interest in the Lease to Lender, or any successor
thereto, Tenant will not: consent to the modification
-4-
<PAGE>
of the Lease nor to the termination thereof without the prior written consent
of the Lender or any successor holder of the Loan or the Mortgage which
consent shall not be unreasonably withheld or delayed (either of them being
called "Mortgagee"), nor seek to terminate the Lease by reason of any act or
omission of Landlord until Tenant shall have given written notice of such act
or omission to such Mortgagee's last address furnished Tenant) and until a
reasonable period of time shall have elapsed following the giving of such
notice, during which period the Mortgagee shall have the right, but not the
obligation, to remedy such act or omission.
(c) Upon written notice of the default by Landlord under any of the
loan documents held by Mortgagee and assignment of the Landlord's interest
under the Lease by Landlord to Mortgagee, Tenant, if Mortgagee so requests,
will recognize such Mortgagee as the Landlord under the Lease and will
thereafter pay rent and other sums to Mortgagee (or to the party designated
by the Mortgagee in writing) in accordance with the terms of the Lease, and,
in such event, such Mortgagee will not be liable for any act or omission of
any prior lessor, liable for return of the security deposit unless same was
actually delivered to Mortgagee, bound by any amendment to or assignment of
the Lease made without its consent, bound by any rent paid more than thirty
(30) days in advance, or be subject to any set-off or defense Tenant might
have had against any prior lessor.
-5-
<PAGE>
11. NOTICES. Unless and except as otherwise specifically provided
herein, any and all notices, elections, approvals, consents, demands,
requests and responses thereto ("Communications") permitted or required to be
given under this Agreement shall be in writing, signed by or on behalf of the
party giving the same, and shall be deemed to have been properly given and
shall be effective upon the earlier of receipt thereof or three (3) days
after deposit thereof in the United States mail, postage prepaid, certified
with return receipt requested, to the other party at the address of such
other party set forth hereinbelow or at such other address within the
continental United States as such other party may designate by notice
specifically designated as a notice of change of address and given in
accordance herewith; provided, however, that the time period in which a
response to any Communication must be given shall commence on the date of
receipt thereof, and provided further that no notice of change of address
shall be effective with respect to Communications sent prior to the time of
receipt of such change. Receipt of Communications hereunder shall occur upon
actual delivery (whether by mail, facsimile transmission, messenger, courier
service, or otherwise) to an individual party or to an officer, member, or
general or limited partner of a party or to any agent or employee of such
party at the address of such party set forth hereinbelow, subject to change
as provided hereinabove. An attempted delivery in accordance with the
foregoing, acceptance of which is refused or rejected, shall be deemed to be
and shall constitute receipt; and an attempted delivery in accordance with
the foregoing by mail, messenger, or courier service (whichever is chosen by
the sender) which is not completed because of changed address of which no
notice was received by the sender in accordance with this provision prior to
the sending of the Communication shall also be deemed to be and constitute
receipt. Any Communication, if given to Lender, must be addressed as
follows, subject to change as provided hereinabove:
-------------------------------
-------------------------------
-------------------------------
and, if given to Tenant, must be addressed as follows, subject to change as
provided hereinabove:
-------------------------------
-------------------------------
-------------------------------
and, if given to Landlord, must be addressed as follows, subject to change as
provided hereinabove:
Capital Automotive, L.P.
1925 North Lynn Street
Suite 306
Arlington, Virginia 22209
12. MISCELLANEOUS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors, successors-in-title and
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<PAGE>
assigns. When used herein, the term "Landlord" or "landlord" refers to
Landlord and to any successor to the interest of Landlord under the Lease.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
LENDER:
Signed, sealed and delivered
in the presence of: By:
Title:
- -------------------------------- --------------------------------
Witness (CORPORATE SEAL)
TENANT:
Signed, sealed and delivered
in the presence of: By:
Title:
- -------------------------------- --------------------------------
Witness (CORPORATE SEAL)
LANDLORD:
Signed, sealed and delivered
in the presence of: By:
Title:
- -------------------------------- --------------------------------
Witness (PARTNERSHIP SEAL)
-8-
<PAGE>
EXHIBIT A
Lease Dated __________ from ________________ to _______________ with Exhibit
A attached, all in the form attached hereto as ATTACHMENT TO EXHIBIT A.
-9-
<PAGE>
County of :
----------------------------
SS:
State of :
----------------------------
This is to certify that on this ____ day of ________, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to
me (or satisfactorily identified to me) to be the individual signing on
behalf of Lender in the capacity stated by his signature, and that he
acknowledged the within document to be the act and deed of the Lender.
----------------------------
Notary Public
My commission expires:
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<PAGE>
County of :
----------------------------
SS:
State of :
----------------------------
This is to certify that on this ____ day of _________, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to
me (or satisfactorily identified to me) to be the individual signing on
behalf of Tenant in the capacity stated by his signature, and that he
acknowledged the within document to be the act and deed of the Tenant.
----------------------------
Notary Public
My commission expires:
-11-
<PAGE>
County of :
----------------------------
SS:
State of :
----------------------------
This is to certify that on this ____ day of _______, 1997, personally
appeared before me, a notary public of the County (City) aforesaid, known to
me (or satisfactorily identified to me) to be the individual signing on
behalf of Landlord in the capacity stated by his signature, and that he
acknowledged the within document to be the act and deed of the Landlord.
----------------------------
Notary Public
My commission expires:
-12-
<PAGE>
EXHIBIT 15.04
Tenant Name:
-----------------------------
TENANT ESTOPPEL CERTIFICATE
The undersigned ("Tenant") hereby warrants, represents and certifies to
and agrees with _________________, whose mailing address is
____________________ ("Lender"), the following statements set forth below in
this Tenant Estoppel Certificate (the "Certificate") with the understanding
that Lender is relying on such warranties, representations, certifications
and agreements in this Certificate as an inducement to the Lender in making a
permanent loan (the "Loan") to ___________________ ("Landlord"), secured by,
among other things, that certain deed of trust/mortgage, assignment of rents
and security agreement executed (or to be executed) by Landlord for the
benefit of Lender (the "Instrument") encumbering the land and buildings
located on the property as more particularly described on Exhibit A attached
hereto (the "Mortgaged Property"). Based upon the foregoing, Tenant hereby
warrants, represents and certifies as follows:
1. The Tenant is the tenant under that certain lease (the "Lease")
dated ____________________, 19__ as amended on _____________ between
Landlord, as landlord, and Tenant, as tenant, covering the Mortgaged Property
and the following information concerning the Lease, the Tenant and the
Mortgaged Property is true and correct.
(a) A true, correct and complete copy of the Lease together with
all amendments, modifications, side letters, guaranties, letters of credit
and other documents evidencing, governing or securing the Tenant's
obligations under the Lease are attached hereto as Exhibit B. The Lease
constitutes the entire agreement between the Landlord and the Tenant
concerning the Mortgaged Property and there are no other agreements, written
or oral, between the Landlord and the Tenant relating thereto except as
attached in Exhibit B. The guarantor of the Lease is Cross-Continent Auto
Retailers, Inc., a Delaware corporation.
(b) The Lease has commenced pursuant to its terms and is in full
force and effect. Except as otherwise set forth in the Lease, the Tenant has
no right to vacate the Mortgaged Property or cease to operate its business
therefrom, except as provided in the Lease for reasons of casualty to or
condemnation or the Leased Property.
(c) The Lease commenced on ___________ and expires on __________.
The Tenant has ___________ remaining options to renew the Lease for a
successive period of _________ years.
<PAGE>
(d) The Lease is an absolute net lease, and the Tenant is
presently obligated under the lease to pay (i) monthly Rent to the Landlord
[$___________](subject to annual upward adjustment), and (ii) all taxes,
assessments, water, sewer and other charges, levies and fees, utilities
government charges and other sums or amounts of any kind that come due or are
payable during the term of the Lease.
(e) The Tenant has paid the monthly rent described in subparagraph
1(d)(i) above through and including the month of ______________, 19__. The
Tenant has paid the charges described in subparagraphs 1(d)(ii) through the
most recent billing period for such charges.
(f) The Tenant is in possession of the Mortaged Property, is
presently open and conducting business with the public at the Mortgaged
Property under the trade name of _________________.
(g) As of the date hereof, except as otherwise expressly set forth
on the attached schedule (if necessary), the Tenant is not entitled to any
credits, reductions, offsets, defenses, free rent, rent concessions or
abatements of rent under the Lease or otherwise against the payment of rent
or other charges under the Lease.
(h) No rent has been paid more than (1) month in advance.
(i) All of the obligations of the Landlord under the Lease have
been duly performed and completed including, without limitations, any
obligations of the Landlord to make or to pay the Tenant for any
improvements, alterations or work done on the Mortgaged Property.
(j) There are no existing or claimed conditions which are or with
the passage of time would constitute a default on the part of the Landlord or
the Tenant under the terms of the Lease. The Tenant has not assigned,
transferred, mortgaged, or hypothecated the Lease or any interest therein or
subleased all or any portion of the Mortgaged Property.
(k) The Landlord is holding a security deposit in the amount of
$__________.
(l) Neither Tenant nor any guarantor of the Lease is presently the
subject of any proceeding pursuant to the United States Bankruptcy Code of
1978, as amended.
2. The Certificate shall apply to, bind and inure to the benefit of
the Lender and the Tenant and their respective successors and assigns. As
used herein, the term "Tenant" shall mean and include the present tenant
under the Lease, any permitted subtenant under the Lease, any permitted
assigned of Tenant under the Lease and any successor of any of them. The
term "Lender" as used herein shall include the current holder of the
Instrument [__________], the successors and assigns of Lender of [__________],
and any person, party or entity which shall become the owner of (a) the
Mortgaged Property by reason of a foreclosure of the Instrument or the
acceptance of a deed or assignment in lieu of foreclosure or otherwise and/or
(b) the Loan and Instrument; provided,
-2-
<PAGE>
however, any party listed herein as included in the definition of "Lender"
shall only be liable for any acts, omissions, liabilities or obligations of
that particular party and not for any such matters of any other party
included in the definition of "Lender". The term ALandlord" as used herein
shall mean and include the present landlord under the Lease and such
landlord's predecessors and successors in interest under the Lease.
TENANT:
-----------------------------------
a
---------------------------------
By:
---------------------------------
Title:
---------------------------------
-3-
<PAGE>
EXHIBIT A
Mortgaged Property
-4-
<PAGE>
Exhibit 10.57
BMW OF NORTH AMERICA, INC.
D E A L E R A G R E E M E N T
This DEALER AGREEMENT is effective as of the 1st day of February, 1998,
by and between BMW of North America, Inc., a Delaware corporation having it
principals place of business at Woodcliff Lake, New Jersey 07675 ("BMW NA")
and
DEALER NAME: JRJ Investments, Inc.
DEALER LOCATION: Henderson, Nevada
BUSINESS TYPE: Corporation
(If a corporation or partnership) organized or incorporated under the laws of
the State of Nevada and doing business as Chaisson BMW, having its principal
place of business at 261 Auto Mall Drive, in Henderson, Clark County, Nevada,
(as "Dealer").
All terms defined in the DEALER STANDARD PROVISIONS (Form 93/B) are
incorporated herein by reference.
PURPOSE OF AGREEMENT
The purpose of this Agreement is to authorize Dealer to operate a BMW
automobile dealership and to set forth the responsibilities of both BMW NA
and Dealer in providing BMW Products and services to the consuming public.
The United States automotive market requires a fluid relationship between BMW
NA and authorized BMW dealers who represent BMW Products. Mutual compliance
with the terms of this Agreement will promote the interests of both BMW NA
and Dealer by providing each party an opportunity to earn a reasonable return
on its investment through developing and retaining satisfied customers and by
building a spirit of cooperation between BMW NA and Dealer by providing each
party an opportunity to earn a reasonable return on its investment through
developing and retaining satisfied customers and by building a spirit of
cooperation between BMW NA and authorized BMW dealers (collectively the "BMW
Dealers") which will increase the value and customer perception of BMW
trademarks.
BMW NA and Dealer have entered into this Agreement with confidence in each
other's integrity, ability and expressed intention to deal fairly with the
other party and the consuming public. Dealer is relying upon BMW NA's
commitment to distribute quality BMW Products that meet the needs and
expectations of the BMW customers in Dealer's primary market and to provide
Dealer with a
<PAGE>
broad range of support activities to assist Dealer in its retail operations.
BMW NA is relying upon Dealer's commitment to perform and carry out the
responsibilities of an authorized BMW dealer, as set forth in this Agreement.
Each party recognizes that it must rely upon the efforts of the other party
in performing successfully under this Agreement.
IN CONSIDERATION OF the foregoing and the mutual covenants herein contained,
the parties hereto agree as follows:
A. APPOINTMENT OF DEALER
BMW NA appoints Dealer as a dealer of BMW Products. Subject to the terms of
this Agreement, Dealer is granted the non-exclusive right to buy BMW
Products. Dealer accepts such appointment and agrees to be bound by this
Agreement.
While dealer recognizes that its performance will be primarily measured based
upon its activities in its Primary Market Area, Dealer agrees that this
appointment does not confer upon it the exclusive right to deal in BMW
Products in any specific geographic area within the 50 United States, nor
does it limit the persons within the 50 United States to whom Dealer may sell
BMW Products for use therein.
Dealer agrees that it will not sell BMW Products for resale or use outside
the 50 United States. Dealer further agrees to abide by any Export Policy
established by BMW NA.
Dealer acknowledges that BMW NA reserves the right to appoint additional
dealers, whether located near Dealer's location or elsewhere, as BMW NA in
its sole discretion deems necessary or appropriate. BMW NA agrees that it
will not explore additional representation without first conferring
individually with the BMW Dealer(s) surrounding the proposed location to
determine whether other alternatives to additional representation are
satisfactory to BMW NA. If a decision is made to proceed with establishment
of additional representation, BMW NA will provide such BMW Dealer(s) no less
than thirty (30) days written notice of such decision.
B. DEALER STANDARD PROVISIONS AND DEALER OPERATING REQUIREMENTS
The accompanying DEALER STANDARD PROVISIONS (Form 93/B), DEALER OPERATING
REQUIREMENTS, DEALER FACILITY GUIDELINES, and all currently effective Addenda
issued to Dealer by BMW NA, all of which may be amended, canceled or
superseded from time to time, are hereby incorporated into this Dealer
Agreement ("Incorporated Documents"). Unless the context otherwise
indicates, the term "Agreement" shall mean this documents, the Incorporated
Documents, and the documents referred to therein. Dealer hereby acknowledges
receipt of this Agreement and agrees to become familiar with its terms.
While Dealer is not contractually required to comply with the BMW DEALER
OPERATING SYSTEM, Dealer agrees to consider conforming its operations to the
guidelines and recommendations of the BMW Dealer Operating System.
<PAGE>
C. DEALER OWNERSHIP AND MANAGEMENT
This is a PERSONAL SERVICES AGREEMENT. BMW NA is entering into this
Agreement in reliance upon the qualifications, abilities and integrity of the
Dealer Operator and upon the representation of the Dealer's Owner(s) that the
Dealer Operator will have full managerial authority for operations and
activities of Dealer. In order to induce BMW NA to enter into this
Agreement, Dealer states that:
(i) DEALER'S OWNERS. The beneficial owners, record owners and partners, if
any of Dealer are (include Record Owners if different from Beneficial):
NAME % RECORD OR BENEFICIAL
Cross-Continent Auto Retailers, Inc. 100% Record
(iii) DEALER'S OFFICERS. The following persons are Dealer's Officers:
NAME TITLE
Bill Gilliland President
Robert W. Hall Vice President
R. Wayne Moore Secretary
(iv) DEALER OPERATOR. The following person shall be in complete charge of
Dealer's BMW Operations with authority to make all operating decisions on
behalf of Dealer with respect to Dealer's BMW Operations and is the person
upon whom BMW NA can rely to act on Dealer's behalf:
Name: Jim Chaisson, Jr.
(v) GENERAL MANAGER. The following is Dealer's General Manager (if non,
enter "NONE"):
Name: Jim Chaisson, Jr.
(vi) SUCCESSOR. The Dealer's Owners have nominated the following individual(s)
as proposed Dealer Owner(s) of a Successor Dealer to be established if this
Agreement is terminated because of the death or permanent disability of any of
the Dealers Owners (if none, enter "NONE"):
Name: NONE
Because of the importance that BMW NA places on the statements and
representations of the Dealer's Owners and the qualifications of the Dealer
Operator, Dealer agrees that there will be no
<PAGE>
change in the (a) identity of the Dealer's Owner (i above); (b) the Dealer
Operator (iv above); or (c) Dealer's name, identity, business organization or
structure without the prior written consent of BMW NA.
To enable BMW NA to maintain effectively the BMW NA dealer network, Dealer
further agrees to provide BMW NA with forty-five (45) days prior written
notice of any proposed change in the ownership of Dealer, which would change
the majority interest or control of Dealer, or of any proposed disposition of
Dealer's BMW assets. Any such change in ownership or disposition of Dealer's
BMW assets shall not- be effective without the prior written consent of BMW
NA which consent shall not be unreasonably withheld. BMW NA shall respond to
Dealer's notification within forty-five (45) days after Dealer has furnished
to BMW NA all applications and information reasonably requested to evaluate
the proposal.
Without limiting other considerations in determining whether BMW NA will
provide consent, this Agreement may not be transferred, assigned or assumed
until all indebtedness of Dealer to BMW NA, its subsidiaries or affiliates
has been fully satisfied and unless the transferee, assignee or party
assuming this Agreement agrees and commits to fulfill and complete all of the
obligations under this Agreement and the Improvement Addendum (if applicable).
Dealer recognizes that BMW NA has a vital interest in ensuring that qualified
personnel are employed by BMW Dealers. Therefore, Dealer agrees to employ
personnel who meet the qualifications for each position. BMW NA agrees that
Dealer has the right to decide reasonably all matters concerning management
and personnel.
Dealer has designated herein certain individuals as officers, directors,
managers and/or individuals with responsibility for Dealer's BMW Operations.
Dealer agrees to notify BMW NA in writing of any change in the designated
individuals (ii, iii and v above) and recognizes that such designation shall
not relieve Dealer of its responsibility for performance under this Agreement.
Dealer agrees that BMW NA may rely upon the Dealer Operator and General
Manager (if applicable) to act on Dealer's behalf and that such reliance will
not alter Dealer's responsibilities under this Agreement.
D. DEALER'S FACILITIES
Dealer agrees that Dealer's Facilities shall satisfy all applicable
provisions of this Agreement, including reasonable space, facility and BMW
Corporate Identification requirements in the Dealer Operating Requirements
Addendum and/or Dealer Facilities Guidelines. BMW NA recognizes the
investment Dealer has in its facilities and hereby approves the location of
the following Dealer's Facilities for the exclusive purpose of:
1) A showroom and sales facility for BMW Vehicles at: 261 Auto Mall Drive,
Henderson, Nevada
<PAGE>
2) Service and Parts facilities form BMW Vehicles: (same as 1 above)
3) Facilities for the display and sale of used BMW Vehicles at: (same)
4) Other facilities (indicate the nature of the facility: E.G., storage
facility): None.
Unless otherwise provided herein, Dealer shall conduct Dealer's BMW
Operations and keep BMW Products exclusively at Dealer's Facilities
designated above.
In the event that Dealer desires to (i)n change its principal place of
business from that first set forth in this Agreement; (ii) change any
location of Dealer's Facilities; (iii) establish any additional locations for
either operating its business or storage of BMW Products; (iv) make any major
structural or design change in Dealer's Facilities; or (v) change the usage
or function of any locations or facility approved herein or otherwise utilize
such locations or facilities for any functions other than the approved
functions, Dealer must obtain the prior written approval of BMW NA for any
such change or establishment.
In the event Dealer desires to establish or add any additional automobile
franchise, line, make or dealership at Dealer's Facilities simultaneously
with Dealer's BMW Operations, Dealer agrees to provide BMW NA thirty (30)
days prior written notice of such establishment or addition. At the time
notice is provided, Dealer shall demonstrate in writing to BMW NA that Dealer
will continue to comply with the Dealer Operating Requirements Addendum and
will not adversely impact the representation or sale of BMW Products. If
Dealer is unable to comply, Dealer shall not pursue such establishment or
addition, but may submit a detailed plan of compliance with the Dealer
Operating Requirements and Dealer Operating Requirements Addendum to BMW NA.
If BMW NA approves the detailed plan of compliance, Dealer may proceed with
the establishment or addition. Dealer understands that BMW NA may, at its
sole option, reject the plan or require issuance or modification of an
Improvement Addendum in the event the plan is approved. Such approval shall
not be unreasonably withheld.
E. EXCLUSION OF WARRANTIES
EXCEPT AS SPECIFICALLYN PROVIDED FOR IN THE NEW CAR LIMITED WARRANTY, THE
LIMITED WARRANTY ON EMISSION CONTROLS, THE LIMITED WARRANTY AGAINST RUST
PERFORATION, THE LIMITED WARANTY ON ORIGINAL BMW PARTS AND THE LIMITED
WARRANTY ON ORIGINAL PARTS SOLD OVER THE COUNT; ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE EXCLUDED. THE EXCLUSION ALSO APPLIES TO INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES FOR ANY BREACH OF EXPRESS OR
IMPLIED WARRANTY, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND/OR
FITNESS, IF ANY, APPLICABLE TO BMW PRODUCTS.
F. BMW DEALER FORUM
<PAGE>
BMW NA and Dealer agree that it is in their mutual interest to have an
independent group of BMW dealer representatives serve on the BMW Dealer Forum
("DEALER FORUM"). The DEALER FORUM shall represent BMW Dealers and will
communicate the position of BMW Dealers to BMW NA on various common issues.
BMW NA and the DEALER FORUM shall establish a mechanism to foster open and
frequent communication on substantive issues affecting BMW NA and BMW Dealers.
Each BMW dealer is entitled and encouraged to serve on the DEALER FORUM or on
a committee of the DEALER FORUM pursuant to its by-laws and each BMW dealer
is expected to support and participate in the DEALER FORUM.
The DEALER FORUM shall adopt by-laws as BMW Dealers deem reasonable and
necessary. The DEALER FORUM may establish committees to study various
aspects of the retail environment and the BMW NA-BMW Dealers' relationship.
Before any material change may be made to this Agreement, BMW NA agrees to
notify the DEALER FORUM and consider BMW Dealers' position regarding the
proposed change.
G. TERM
This Agreement shall continue in full force and effect and shall govern all
relations and transactions between the parties commencing on the effective
date hereof and continuing as follows:
* If Dealer has fulfilled all of its obligations hereunder and no
Improvement Addendum is currently in force, this Agreement shall
expire five years from the effective date hereof, unless terminated
earlier in accordance with the applicable provisions of this
Agreement. In such event BMW NA will renew this Agreement or offer
Dealer an opportunity to enter into a superseding Agreement.
* If Dealer has outstanding obligations as of the effective date of
this Agreement and/or an Improvement Addendum is in force, this
Agreement shall expire on the earlier of three years from the
effective date hereof or sixty (60) days following the earliest
"Compliance Date" specified in said Addendum, unless otherwise
terminated in accordance with the applicable provisions of this
Agreement.
H. ALTERNATE DISPUTE RESOLUTION
BMW NA and Dealer agree to minimize disputes between them. However, in the
event that disputes arise, BMW NA and Dealer agree that they will attempt to
resolve all matters between them before any formal action is taken to seek
any administrative or judicial adjudication or governmental review.
A BMW BOARD ("BOARD") will act as the Administrator of all disputes between
BMW NA and
<PAGE>
Dealer arising out of this Agreement. The BOARD will consist of three
representatives who will be selected by BMW NA and three representatives of
BMW Dealers who will be selected by the DEALER FORUM. The BOARD will
determine eligibility requirements, develop procedures to ensure a fair and
equitable decision ("ADR PROCEDURES") and select individuals to participate
in a DISPUTE RESOLUTION PANEL ("PANEL") to hear an eligible dispute. The
PANEL shall consist of at least one BMW NA employee, one BMW dealer and one
independent person selected by the BOARD.
The BOARD shall also monitor the dispute resolution process, report to BMW NA
and the DEALER FORUM annually on the effectiveness of this process and, when
required, make recommendations for changes in this process.
BMW NA and Dealer agree that the process outlined in this Article H and
developed by the BOARD in the ADR PROCEDURES will be mandatory. The PANEL's
recommendation will be non-binding, unless the parties agree to be bound by
the decision of the PANEL. The purpose of the PANEL will be to recommend a
resolution and work with the parties to reach a fair and equitable solution
to their dispute in a cost-effective, efficient manner and to avoid formal
adjudication or government intervention.
If either party to this Agreement initiates any action in court or an
administrative agency prior to issuance of a PANEL recommendation on a
dispute, that party shall pay all costs, fees and expenses, including
attorneys fees, of the other party which arise out of the enforcement of this
Article H.
I. RIGHT OF FIRST REFUSAL
BMW NA recognizes the investment which Dealer has committed to remain a BMW
dealer. Dealer recognizes the importance to BMW NA of continuing dealership
operations from approved locations to provide for effective sale and service
of BMW Products. Accordingly, whenever Dealer intends to dispose of Dealer's
BMW assets or to change majority ownership from that listed in Article C(i),
BMW NA shall have the first right to purchase Dealer's BMW assets or
ownership interests pursuant to this Article. Dealer agrees to disclose to
the prospective buyer that any sale or disposition shall be subject to the
terms of this Dealer Agreement.
BMW NA will advise Dealer if it will exercise the right of first refusal
within forty-five (45) days after Dealer has furnished all applications and
information in accordance with Article C. If BMW NA exercises the right, BMW
NA will assume the proposed buyer's rights and obligations under the written
agreement the proposed buyer negotiated with Dealer (the "Buy/Sell
Agreement"). The purchase price shall be that set forth in the Buy/Sell
Agreement.
In the event BMW NA exercises its right of first refusal, BMW NA may assign
the Buy/Sell Agreement to any party. BMW NA shall remain responsible to
guarantee the purchase price to be paid by the assignee.
Dealer shall transfer the assets and any applicable real estate free and clear
of all liens and
<PAGE>
encumbrances. Any property shall be transferred by Warranty Deed, where
possible, conveying marketable title. Deeds will be in the proper form for
recording. Possession will be deemed transferred when the deed is delivered.
Dealer will furnish copies of, and will assign where required, all
agreements, licenses, easements, permits or other documents necessary for the
conduct of Dealer's BMW Operations.
If it exercises its right under this Article, BMW NA will reimburse Dealer
for all acceptable expenses, excluding brokerage commissions, incurred by
Dealer in connection with the development of the Buy/Sell Agreement. Dealer
will supply BMA NA with reasonable documentation to support all those
expenses and all copies of materials generated during the negotiation and
development of the Buy/Sell Agreement in anticipation of the sale (including
environmental reports, accounting reviews, among others.) Any dispute
regarding reimbursement shall be presented for review under Article H.
This Article shall not apply in the event that Dealer proposes to change
majority ownership, dispose of its assets or otherwise enter into a proposed
Buy/Sell Agreement with a member of Dealer's immediate family (spouse, child,
brother, sister, parent, grandchild, or spouse of child); to an individual
who is listed on the Successor Addendum; to an individual who is currently
employed by Dealer and has been actively employed by Dealer for a least three
consecutive years in the BMW Operations and is otherwise qualified as a
Dealer Operator; or to an individual who is currently listed as a Dealer's
Owner in Article C and has been so listed for the past three consecutive
years and is otherwise qualified as a Dealer Operator.
J. CUSTOMER SATISFACTION
BMW NA and Dealer agree to conduct their respective businesses to promote and
support the image and reputation of BMW NA, BMW Products and BMW Dealers. BMW
Products must be perceived as the finest available. BMW NA and BMW Dealers
must be recognized as providing the best service in the industry.
Dealer, as the direct link to the BMW customer, is responsible for satisfying
customers in all matters, except those directly related to product design
and manufacturing. Dealer will take reasonable steps to ensure that each
customer is satisfied with BMW Products, and with the services and the
practices of Dealer. Dealer will recommend to BMW NA methods of reasonably
satisfying customers. BMW NA will support Dealer's customer satisfaction
efforts through counseling, training opportunities and providing survey
results.
When requested by BMW NA, Dealer shall submit a plan detailing its customer
satisfaction programs. That plan shall include continuous reinforcement to
all dealership personnel of the importance of customer satisfaction,
necessary training for dealership personnel and methods of conveying to
customers that Dealer is committed to their satisfaction.
Following consultation with and notice from BMW NA or its authorized
representative, Dealer shall remedy to the satisfaction of BMW NA any
practice or method of operation which would have a
<PAGE>
detrimental effect upon customer satisfaction or would impair the reputation
or image of BMW NA, BMW Products or Dealer.
K. EXECUTION OF AGREEMENT
This Agreement shall not become effective until signed by a duly authorized
office of Dealer, if a corporation; or by one of the general partners of
Dealer, if a partnership; or by the named individual if a sole
proprietorship; and countersigned by authorized representatives of BMW NA.
L. MODIFICATION OF AGREEMENT
No representative of BMW NA shall have the authority to waive any of the
provisions of this Agreement or to make any amendment or modification of or
any other change in, addition to, or deletion of any portion of this
Agreement or to make any other agreement which imposes any obligation on
either BMW NA or Dealer which is not specifically imposed by this Agreement
or which renews or extends this Agreement; unless such waiver, amendment,
modification, change, addition, deletion or agreement is reduced to writing
and signed by two authorized representatives of BMW NA and by the authorized
representative of Dealer as set forth in Article K of this Agreement.
BMW OF NORTH AMERICA, INC. JRJ INVESTMENTS, INC.
By: /s/ By: /s/ Bill Gilliland
------------------------------------ ------------------------------------
Title: Senior Vice President, Title: President
General Manager - Western Region Federal Tax ID No.: 88-0199942
By: /s/ ATTEST: (if Dealer is a Corporation)
------------------------------------
Title: Regional Business /s/ R. Wayne Moore, Secretary
Development Manager ------------------------------------
WITNESS: (If Partnership or
Proprietorship)
------------------------------------
------------------------------------
<PAGE>
BMW OF NORTH AMERICA, INC.
IMPROVEMENT ADDENDUM
DEALER: CHAISSON MOTORCARS-SATELLITE CODE: 21294
This IMPROVEMENT ADDENDUM is effective as of the 22nd day of December, 1997.
The following Obligations of the Dealer under the terms of the Dealer
Agreement, dated the 1st day of February, 1998, must be satisfied by the
following compliance date to ensure issuance of the Satellite Addendum and
renewal of the Dealer Agreement.
CONTRACTUAL REQUIREMENTS COMPLIANCE DATE
- ------------------------- ---------------
BMW Customer Exclusivity. April 30, 1998
(Defined as exclusive BMW Sales Showroom,
BMW Service Reception Area and BMW Retail
Parts Counter)
Complete BMW exclusivity including February 28, 1999
BMW Sales Showroom, BMW Service Department,
BMW Parts Department, including incorporation
of BMW Corporate Identity design elements and
signage. Plans must be approved in advance by
BMW NA.
SHOULD DEALER REASONABLY REQUEST A JUSTIFIED EXTENSION, THE EXTENSION WILL
NOT BE UNREASONABLY WITHHELD.
Dealer acknowledges that the above list may not be all inclusive and may
change during the term of this Agreement. No deficiency can be noted on this
Addendum unless BMW NA has provided the Dealer prior written notice of said
deficiency and the Dealer has had a reasonable opportunity to cure.
Dealer understands and agrees that failure to remedy all contractual
requirements will jeopardize the dealer's ability to renew this Dealer
Agreement and could subject Dealer to early termination of this Agreement.
This contract will be automatically renewed for those Dealers which are in
compliance with this Agreement.
<PAGE>
BMW OF NORTH AMERICA, INC.
SATELLITE LOCATION ADDENDUM
As an addendum to the BMW Dealer Agreement, dated the 1st day of February,
between BMW of North America, Inc. and JRJ Investments, Inc., the following
business and location is recognized as a satellite to the principal location
of the dealership:
Business Type: Corporation
Business Name: Chaisson Motorcars
Address: 2333 South Decatur Blvd.
County: Clark
City: Las Vegas
State: Nevada Zip: 89102
This location is approved to perform the following functions as an authorized
BMW Satellite Operation:
New Car Sales: T
Used Car Sales: T
Service: T
Parts: T
This Satellite Addendum is subordinate to and runs concurrent with the BMW
Dealer Agreement and is subject to and governed by the same terms and
conditions as detailed in the Dealer Agreement and Dealer Standard
Provisions. The expiration or termination of the BMW Dealer Agreement shall
cause this addendum to be null and void.
This Satellite Operation is supplemental, not separate from the main BMW
Operation and therefore cannot be sold as a separate entity from the main BMW
Operation without the prior written approval of BMW NA. Any transfer or sale
of assets of this Satellite Operation without such approval shall result in
the intermediate termination of this Satellite Addendum.
This Addendum provides the dealer the first option should BMW NA determine
the need for a fully operational, independent BMW Dealership within the
immediate area of the Satellite Operation. BMW NA shall notify the dealer in
writing of this need and allow the dealer a 90 day period ("review period")
to determine their willingness to convert the Satellite Operation to a fully
functional BMW Dealership which may have common ownership with the current
BMW Dealership, and respond in writing to the Regional Manager. Should the
dealer determine that the conversion is viable then a plan for the operation,
facilities management and ownership is to be submitted at the time of
acceptance of the option. If the dealer is not willing or able to convert
the satellite to a fully functional BMW Dealership then the dealer must cease
all BMW Operations at the Satellite Location within 6 months of the end of
the review period.
<PAGE>
The purpose of the development of this Satellite Operation is to better serve
the BMW customers. BMW NA and the dealer must share a mutual commitment to
the satisfaction of all BMW customers. BMW NA and the dealer must share a
mutual commitment to the satisfaction of all BMW Customers. As the
representative for BMW to the BMW Customers in this satellite area, the
dealer agrees that it will designate one person to oversee and facilitate BMW
customer satisfaction, that it will participate in BMW NA sponsored Customer
Satisfaction Programs and training as provided and empower its organization
to assist and satisfy all BMW customers. The dealer further commits that it
will notify BMW NA of problems which relate to product and customers to
provide BMW NA the best, most timely opportunity to make corrections and
support the overall BMW Dealer Organization's efforts to achieve the highest
levels of customer satisfaction. Should the Satellite Operation fail to
provide customer satisfaction at or above the National CSI average for a
reasonable period of time, then the purpose of this addendum shall cease to
exist and the dealer will be notified in writing that this addendum will
expire ninety (90) days from the date of the notice.
This Satellite Operation is for the sole benefit of the BMW Operation of the
dealer and therefore no other automotive line or make may be added at any
time. The addition of another line or make at the Satellite location or the
main location will immediately void this addendum and require the dealer to
cease all BMW operations at the Satellite location or else be in violation of
the BMW Dealer Agreement, Paragraph 12(9).
The dealer may void this addendum at any time by sending notice to BMW NA by
certified mail, return receipt requested, telegram, or overnight mail service
sixty (60) days in advance of the effective date.
The activities of the satellite operation are governed by the same terms and
conditions as the main BMW Operation and as such, actions and events at the
satellite could result in the termination of the BMW Dealer Agreement for all
locations.
The terms and conditions of the Letter of Intent - Satellite Location
("LOI"), a copy of which is attached hereto, is incorporated herein. If
there is any conflict between the terms and conditions of the LOI and this
addendum, the terms and conditions of the LOI shall control.
BMW OF NORTH AMERICA, INC. RJ INVESTMENTS, INC.
By: By:
---------------------------- ----------------------------
James J. Ryan Bill Gilliland
Senior Vice President President
General Manager, Western Division
By: By:
---------------------------- ----------------------------
Stephen J. Saward Robert W. Hall
<PAGE>
Business Development Manager Vice President
Western Region
Date: 2/2/98 Date: 1/30/98
<PAGE>
Exhibit 21.1
C-CAR SUBSIDIARIES
March 16, 1998
PLAINS CHEVROLET, INC.
2200 I-40 East (79103)
P.O. Box 32266 (79120-2266)
(806) 374-4611
a Texas corporation
WESTGATE CHEVROLET, INC.
7300 I-40 West
P.O. Box 50850
Amarillo, Texas 79159
(806) 355-7201
a Texas corporation
QUALITY NISSAN, INC.
4121 S. Georgia (79109)
P.O. Box 8879 (79114)
Amarillo, Texas
(806) 354-3550
a Texas corporation
MIDWAY CHEVROLET, INC.
I-27 & Rockwell Road (79015)
P.O. Box 31447 (79120)
Canyon, Texas
(806) 655-7774
a Texas corporation
WORKING MAN'S CREDIT PLAN, INC.
D/B/A CROSS-CONTINENT AUTO WORLD
2400 I-40 East
Amarillo, Texas 79109
(806) 373-6161
a Texas corporation
ALLIED 2000 COLLISION CENTER, INC.
2316 I-40 East
Amarillo, Texas 79103
(806) 374-9448
a Texas corporation
CROSS COUNTRY DODGE, INC.,
D/B/A LYNN HICKEY DODGE
4025 N. May Avenue (73112)
P.O. Box 12922 (73157)
Oklahoma City, Oklahoma
(405) 946-0601
an Oklahoma corporation
DOUGLAS MOTORS, INC.
D/B/A DENVER TOYOTA
7300 N. Broadway
Denver, CO 80221
(303) 426-1026
a Colorado corporation
T-WEST SALES & SERVICE, INC.
D/B/A TOYOTA WEST
2025 S. Decatur Blvd.
(effective 4-98 6300 W. Sahara)
Las Vegas, Nevada 89102
(702) 871-4111
a Nevada corporation
SAHARA NISSAN, INC.,
D/B/A NISSAN WEST
5050 W. Sahara
Las Vegas, Nevada 89102
702/871-7000
a Nevada corporation
JRJ INVESTMENTS, INC.
D/B/A CHAISSON MOTOR CARS
2333 S. Decatur
Las Vegas, Nevada 89102
(702) 871-1010
D/B/A CHAISSON BMW
261 Auto Mall Drive
Henderson, Nevada
(702) 257-1010
a Nevada corporation
<PAGE>
PMWQ, INC.
1115 S. Taylor
Amarillo, Texas 79101
(806) 374-8653
a Nevada corporation
SAHARA IMPORTS, INC.
(empty corporation)
a Nevada corporation
C-CAR AUTO WHOLESALERS, INC.
(empty corporation)
a Nevada corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of references in the Registration
Statement on S-8 (No. 333-23303) of Cross-Continent Auto Retailers, Inc. of our
report dated February 13, 1998, except for Note 20 which is as of February 24,
1998 appearing in Form 10-K.
PRICE WATERHOUSE LLP
Fort Worth, Texas
March 25, 1998
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<TABLE> <S> <C>
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<PERIOD-TYPE> YEAR
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<TOTAL-COSTS> 271,650
<OTHER-EXPENSES> 38,796
<LOSS-PROVISION> 0
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<TABLE> <S> <C>
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1995
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