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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 000-21789
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LITHIA MOTORS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0572810
(State or other jurisdiction of (I.R.S.Employer Identification No.)
incorporation or organization)
360 E. JACKSON STREET, MEDFORD, OREGON 97501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 541-776-6899
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common stock without par value 2,895,550
Class B Common stock without par value 4,110,000
(Class) (Outstanding at August 1, 1997)
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LITHIA MOTORS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 2
Consolidated Statements of Operations - Three and Six Months Ended
June 30, 1997 and 1996 3
Consolidated Statements of Cash Flows - Six Months Ended June 30,
1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LITHIA MOTORS, INC, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 (1)
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,296 $ 15,413
Trade receivables 3,851 2,260
Notes receivable, current portion 204 414
Notes receivable - related party - 308
Inventories, net 42,626 33,362
Vehicles leased to others, current portion 859 524
Prepaid expenses and other 286 372
Deferred income taxes 1,316 1,646
-------------- --------------
Total Current Assets 64,438 54,299
Property and Equipment, net of accumulated
depreciation of $3,752 and $2,073 8,816 4,616
Vehicles Leased to Others, less current portion 5,269 4,500
Notes Receivable, less current portion 599 377
Goodwill, net of accumulated amortization of
$111 and $23 6,808 4,101
Other Non-Current Assets 1,291 1,071
-------------- --------------
Total Assets $ 87,221 $ 68,964
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ - $ 500
Flooring notes payable 29,146 19,645
Current maturities of long-term debt 3,975 1,855
Trade payables 1,699 2,434
Accrued liabilities 2,801 2,482
Payable to related parties - 1,952
-------------- --------------
Total Current Liabilities 37,621 28,868
Long-Term Debt, less current maturities 9,599 6,160
Deferred Revenue 2,784 3,250
Other Long-Term Liabilities 175 -
Deferred Income Taxes 2,753 2,772
-------------- --------------
Total Liabilities 52,932 41,050
-------------- --------------
Shareholders' Equity
Preferred stock - no par value; authorized 15,000
shares; issued and outstanding; none - -
Class A common stock - no par value;
authorized 100,000 shares; issued and
outstanding 2,896 and 2,500 28,037 24,172
Class B common stock
authorized 25,000 shares; issued and
outstanding 4,110 and 4,110 511 511
Retained earnings 5,741 3,231
-------------- --------------
Total Shareholders' Equity 34,289 27,914
-------------- --------------
Total Liabilities and Shareholders' Equity $ 87,221 $ 68,964
-------------- --------------
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</TABLE>
(1) Restated, see Note 2 of Notes to Consolidated Financial Statements
The accompanying notes are an integral part of these consolidated balance
sheets.
2
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LITHIA MOTORS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
1997 1996 (1) 1997 1996 (1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales:
Vehicles $ 57,405 $ 31,822 $ 104,875 $ 59,878
Service, body, parts and other 9,017 4,817 16,251 9,165
------------ ------------ ------------ ------------
Net Sales 66,422 36,639 121,126 69,043
Cost of sales
Vehicles 51,570 28,179 94,049 52,905
Service, body, parts and other 4,136 2,409 7,413 4,530
------------ ------------ ------------ ------------
Cost of Sales 55,706 30,588 101,462 57,435
------------ ------------ ------------ ------------
Gross profit 10,716 6,051 19,664 11,608
Selling, general and administrative 8,417 4,797 15,581 9,273
------------ ------------ ------------ ------------
Operating income 2,299 1,254 4,083 2,335
Other income (expense)
Equity in income of affiliate 6 7 56 24
Interest income 33 87 61 131
Interest expense (505) (329) (651) (697)
Other, net 394 185 541 347
------------ ------------ ------------ ------------
(72) (50) 7 (195)
------------ ------------ ------------ ------------
Income before minority interest and income taxes 2,227 1,204 4,090 2,140
Minority interest - 159 - 316
------------ ------------ ------------ ------------
Income before income taxes 2,227 1,045 4,090 1,824
Income tax expense 859 - 1,579 -
------------ ------------ ------------ ------------
Net income $ 1,368 $ 1,045 $ 2,511 $ 1,824
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share $ 0.19 $ 0.21 (2) $ 0.35 $ 0.37 (2)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Shares used in per share calculations 7,308,911 4,883,016 7,265,155 4,883,016
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro Forma Net Income Data (unaudited)
- -------------------------------------------------------------
Income before minority interest and income taxes, as reported $ 1,204 $ 2,140
Pro forma income taxes 462 822
------------ ------------
Pro forma net income $ 742 $ 1,318
------------ ------------
------------ ------------
Pro forma net income per share $ 0.15 $ 0.27
------------ ------------
------------ ------------
</TABLE>
(1) Restated, see Note 2 of Notes to Consolidated Financial Statements.
(2) Not comparable to 1997 data due to S Corporation status in 1996, therefore
this is a pre-tax earnings per share amount. See Note 7 of Notes to
Consolidated Financial Statements.
The accompanying notes are an integral part of these consolidated statements.
3
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LITHIA MOTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,511 $ 1,824
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 1,025 823
Loss on sale of assets - 25
Gain on sale of vehicles leased to others (118) (142)
Deferred income taxes (19) -
Minority interest in income - 317
Equity in income of affiliate (56) (24)
(Increase) decrease in:
Trade and installment contract receivables, net (1,597) (579)
Inventories (1,199) 988
Prepaid expenses and other 478 (454)
Other noncurrent assets (340) (143)
Increase (decrease) in:
Trade payables (734) (206)
Accrued liabilities 320 (196)
Other liabilities (2,245) 455
Proceeds from sale of vehicles leased to others 2,421 2,814
Expenditures for vehicles leased to others (4,069) (3,642)
------------ ------------
Net cash provided by (used in) operating activities (3,622) 1,860
Cash flows from investing activities:
Notes receivable issued (203) (672)
Principal payments received on notes receivable 192 643
Capital expenditures (4,089) (133)
Proceeds from sale of assets - 1,876
Cash paid for acquisitions (2,736) -
------------ ------------
Net cash provided by (used in) investing activities (6,836) 1,714
Cash flows from financing activities:
Net repayments on notes payable - (625)
Net borrowings (repayments) on flooring notes payable 1,918 (5,867)
Principal payments on long-term debt (3,363) (7,461)
Proceeds from issuance of long-term debt 7,922 5,102
Proceeds from issuance of common stock 3,864 -
Proceeds from minority interest share receivable - 149
Dividends and distributions - (760)
------------ ------------
Net cash provided by (used in) financing activities 10,341 (9,462)
------------ ------------
Decrease in cash and cash equivalents (117) (5,888)
Cash and cash equivalents:
Beginning of period 15,413 9,706
------------ ------------
------------ ------------
End of period $ 15,296 $ 3,818
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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LITHIA MOTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein for the three and six-month periods
ended June 30, 1997 and 1996 is unaudited; however, such information reflects
all adjustments consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. The
financial information as of December 31, 1996 is derived from Lithia Motors,
Inc.'s (the Company's) 1996 Annual Report on Form 10-K. The interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's 1996 Annual Report on Form 10-K. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the full year.
NOTE 2: CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1997, the Company changed its method of accounting for
inventories from the last-in first-out (LIFO) method to the specific
identification method for vehicles and the first-in first-out (FIFO) method of
accounting for parts (collectively, the FIFO method). Management believes the
FIFO method is preferable because the FIFO method of valuing inventories more
accurately presents the Company's financial position as it reflects more recent
costs at the balance sheet date, more accurately matches revenues with costs
reported during the period presented and provides comparability to industry
information. The financial statements of prior periods have been restated to
apply the new method of accounting for inventories retroactively. The effect of
this restatement was to increase retained earnings as of January 1, 1996 by
$4,896. The restatement increased net income by $117, or $0.02 per share and
$235, or $0.05 per share, for the three and six-month periods ended June 30,
1996, respectively.
NOTE 3: INVENTORIES
Inventories are valued at cost, using the specific identification method for
vehicles and the first-in first-out (FIFO) method of accounting for parts
(collectively, the FIFO method).
June 30, 1997 December 31, 1996
------------- -----------------
New and demonstrator vehicles $ 27,119 $ 19,402
Used vehicles 13,349 12,199
Parts and accessories 2,158 1,761
-------- --------
$ 42,626 $ 33,362
-------- --------
-------- --------
NOTE 4: ACQUISITIONS
In April 1997, the Company closed its previously announced acquisition of
Magnussen Dodge and Magnussen Isuzu in Concord, California. The Company paid a
total of $10.4 million in cash and notes for all of the assets of the
dealerships and certain leasehold improvements, with bank finance funding a
substantial portion of the total payment.
5
<PAGE>
In July 1997, the Company closed its previously announced acquisition of
Magnussen-Barbee Ford of Napa, California. The Company paid a total of $7.9
million in cash and notes for all of the assets of the dealerships, with bank
finance funding a substantial portion of the total payment.
These acquisitions were recorded as purchase transactions. Pro forma financial
information is not presented, as it is not materially different from the
reported financial information of the Company.
NOTE 5: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
Six Months Ended June 30,
----------------------------
1997 1996
-------- --------
Cash paid during the period for income taxes $ 1,434 $ -
Cash paid during the period for interest 817 919
Property acquired through debt 1,424 -
NOTE 6: EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement 128,
EARNINGS PER SHARE ("SFAS 128"), superseding Opinion 15. This statement
establishes a different method of computing net income per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS 128, the Company will be required to present both basic net
income per share and diluted net income per share. Basic net income per share
is expected to be comparable or slightly higher than the currently presented net
income per share as the effect of dilutive stock options will not be considered
in computing basic net income per share. Diluted net income per share is
expected to be comparable or slightly lower than the currently presented net
income per share since the diluted calculation will also use the average market
price instead of the higher of the average or ending market price for its
calculations. SFAS 128 is required to be adopted for periods ending after
December 15, 1997. Pro forma effects of applying SFAS 128 are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Primary EPS as reported $ 0.19 $ 0.17 $ 0.35 $ 0.33
Effect of SFAS 128 0.01 0.00 0.01 0.00
------------ ------------ ------------ ------------
Basic EPS as restated $ 0.20 $ 0.17 $ 0.36 $ 0.33
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Fully diluted EPS as reported $ 0.19 $ 0.17 $ 0.35 $ 0.33
Effect of SFAS 128 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------
Diluted EPS as restated $ 0.19 $ 0.17 $ 0.35 $ 0.33
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
NOTE 7: RECLASSIFICATIONS
Certain reclassifications have been made to the prior period statements to
conform to current presentation. Such reclassifications are a result of the
change from an S Corporation to a C Corporation as of December 18, 1996, the
date of the Company's initial public offering and also as a result of the change
in accounting principle discussed above in Note 2.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This Form 10-Q contains forward-looking statements. These statements are
necessarily subject to risk and uncertainty. Actual results could differ
materially from those projected in these forward looking statements as a result
of certain risks including those set forth in the Company's initial public
offering prospectus dated December 18, 1996 and in its 1996 Annual Report on
Form 10-K. These risk factors include, but are not limited to, the cyclical
nature of automobile sales, the intense competition in the automobile retail
industry and the Company's ability to negotiate profitable acquisitions and
secure manufacturer approvals for such acquisitions.
GENERAL
Lithia Motors is one of the larger retailers of new and used vehicles in the
western United States, offering 21 domestic and imported makes of new
automobiles and light trucks (including acquisitions that have not yet closed)
at fifteen locations. As an integral part of its operations, the Company
arranges related financing (non-recourse) and insurance and sells parts, service
and ancillary products. The Company's headquarters are currently located in
Medford, Oregon, where it has a market share of over 40 percent. The Company has
grown primarily by successfully acquiring and integrating dealerships and by
obtaining new dealer franchises. The Company's strategy is to become a leading
acquirer and operator of dealerships in the western United States.
The following table sets forth selected condensed financial data expressed as a
percentage of total sales for the periods indicated for the average automotive
dealer in the United States.
YEAR ENDED DECEMBER 31,
AVERAGE U.S. DEALERSHIP -----------------------------
STATEMENT OF OPERATIONS DATA: 1996 1995
----------- -----------
Sales:
New vehicles 57.7 % 58.6 %
Used vehicles 30.4 29.0
Parts and service, other 11.9 12.4
----------- -----------
Total sales 100.0 % 100.0 %
Gross profit 12.8 % 12.9 %
Total dealership expense 11.3 % 11.5 %
Income before taxes 1.5 % 1.4 %
________
Source: NADA INDUSTRY ANALYSIS DIVISION
7
<PAGE>
The following table sets forth selected condensed financial data for the
Company, restated using the FIFO method, expressed as a percentage of total
sales for the periods indicated below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales:
New vehicles 47.6 % 45.5 % 46.6 % 45.6 %
Used vehicles 38.8 41.4 40.0 41.1
Parts and service 8.4 8.9 8.4 9.0
Finance, insurance and other 5.2 4.2 5.0 4.3
------------ ------------ ------------ ------------
Total sales 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit 16.1 16.5 16.2 16.5
Selling, general and administrative 12.6 13.1 12.8 13.4
------------ ------------ ------------ ------------
Operating income 3.5 3.4 3.4 3.1
Other income (expense), net (0.1) (0.1) 0.0 (0.3)
------------ ------------ ------------ ------------
Income before taxes and minority
interest 3.4 % 3.3 % 3.4 % 2.8 %
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Net sales for the Company increased $29.8 million, or 81 percent, to $66.4
million for the quarter ended June 30, 1997 from $36.6 million for the
comparable period of 1996. Net sales increased $52.1 million, or 75 percent, to
$121.1 million for the six months ended June 30, 1997 compared to $69.0 million
for the comparable period of 1996. The Company's revenue mix for the three and
six months ended June 30, 1997 was relatively consistent with the prior year,
although with a slight trend towards increased finance and insurance as a
percentage of total revenue. Same store revenue growth for the three and six
month periods ended June 30, 1997 was 7.6 percent and 5.5 percent, respectively,
with a 12.5 percent and 11.1 percent increase in used retail revenue,
respectively, a 19.2 percent and 20.1 percent increase in other operating
revenue, respectively, offset by a 3.0 percent and 3.2 percent decrease in new
vehicle sales, respectively.
NEW VEHICLE SALES. The Company sells 21 domestic and imported brands (including
acquisitions that have not yet closed) ranging from economy to luxury cars, as
well as sport utility vehicles, minivans and light trucks. Revenue on new
vehicle sales increased 89 percent to $31.6 million and 79 percent to $56.5
million, respectively, for the three and six-month periods ended June 30, 1997
compared to $16.7 million and $31.5 million, respectively, for the comparable
periods of 1996. These increases were achieved by a 77 percent and 68 percent
increase, respectively, in units sold to 1,488 and 2,685, respectively, for the
three and six-month periods ended June 30, 1997 and a 7 percent and 6 percent
increase, respectively, in the average selling price to $21,255 and $21,027
respectively, for the three and six-month periods ended June 30, 1997. The
increases are primarily attributable to the Eugene Dodge, Vacaville Toyota and
Concord Dodge stores, all of which were acquired since the fourth quarter of
1996. Same store new vehicle
8
<PAGE>
revenue was down 3.0 percent and 3.2 percent, respectively, for the three and
six-month periods ended June 30, 1997, primarily as a result of decreased
volume at the Medford Saturn and Honda stores
The Company purchases substantially all of its new car inventory directly from
manufacturers who allocate new vehicles to dealerships based on the amount of
vehicles sold by the dealership and by the dealership's market area. The Company
will also exchange vehicles with other dealers to accommodate customer demand
and to balance inventory.
The Company sells vehicles from the factory to a fleet purchaser utilizing
(i) "book only" fleet sales in which the Company does not take delivery of a
vehicle; or (ii) fleet sales which pass through the Company's inventory. The
Company realizes substantially less profit per vehicle on fleet sales than it
does through retail sales. For "book only" fleet sales, only the net revenue is
included in the Company's revenue. Fleet sales do not represent a material
portion of the Company's sales.
USED VEHICLE SALES. The Company offers a variety of makes and models of used
cars and light trucks of varying model years and prices. Revenue from retail
used vehicle sales increased 50 percent and 58 percent, respectively to $18.9
million and $36.5 million for the three and six-month periods ended June 30,
1997 from $12.6 million and $23.1 million, respectively, for the comparable
periods of 1996. Retail used unit volume increased 35 percent and 47 percent,
respectively, to 1,536 units and 2,986 units, respectively, for the three and
six-month periods ended June 30, 1997. The average unit price increased 13
percent and 8 percent, respectively, to $12,329 and $12,224, respectively for
the three and six-month periods ended June 30, 1997. The increases are
attributable to the addition of the three new stores and a same store used
retail revenue increase of 12.5 percent and 11.1 percent, respectively, with a
12 percent and 8 percent increase, respectively, in same store average selling
prices.
Used vehicle sales are an important part of the Company's overall profitability.
The Company has made a strategic commitment to emphasize used vehicle sales. As
part of its focus on used vehicle sales, the Company retains a full-time used
vehicle manager at each of its locations and has allocated additional financing
and display space to this effort. The Company believes there is substantial
consumer demand for quality used vehicles.
The Company sells used vehicles to retail customers and, in the case of vehicles
in poor condition, or vehicles which have not sold within a specified period of
time, to other dealers, and to wholesalers. Sales to other dealers and to
wholesalers are frequently at, or close to, cost and therefore affect the
Company's overall gross profit margin on used vehicle sales.
SERVICE, BODY, PARTS AND OTHER. The Company's service, body, parts and other
operating revenue, the Company's highest margin product area, increased to $9.0
million and $16.3 million, respectively, for the three and six-month periods
ended June 30, 1997, from $4.8 million and $9.2 million, respectively, for the
comparable periods of 1996. This increase is primarily due to an increased
number of finance and insurance transactions and an increase in revenues derived
from service department maintenance and repairs. To a
9
<PAGE>
limited extent, revenues from the parts and service department are
countercyclical to new car sales as owners repair existing vehicles rather
than buy new vehicles. The Company believes this helps mitigate the affects
of a downturn in the new vehicle sales cycle.
GROSS PROFIT. Gross profit increased to $10.7 million and $19.7 million,
respectively, for the three and six-month periods ended June 30, 1997,
compared with $5.8 million and $11.4 million, respectively, for the
comparable periods of 1996. These increases are primarily due to an
increase in new and used vehicle unit sales during the periods at the
Company's new stores as discussed above. Gross profit margins were 16.1
percent and 16.2 percent, respectively, for the three and six-month periods
ended June 30, 1997 compared to 16.5 percent and 16.5 percent for the
comparable periods of 1996. The decrease in the gross profit margin is
primarily attributable to large volume increases at certain key stores. As
volumes increase, gross profit margin typically decreases. The margins on
the newly acquired stores have improved, however, from pre-acquisition
margins. Same store gross profit margin was 16.1 percent and 16.6 percent,
respectively, for the three and six month periods ended June 30, 1997
compared to 16.4 percent and 16.4 percent, respectively, for the comparable
periods of 1996. The decrease for the three-month period was primarily a
result of increased volume at several of the Company's stores during the
quarter ended June 30, 1997. The increase in the six-month period gross
margin is primarily a result of growth in service and parts and finance and
insurance income. The Company's gross profit margin continues to exceed the
average U.S. dealership gross profit margin of 12.8 percent for 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ("SG&A"). The Company's SG&A
expense increased to $8.4 million and $15.6 million (12.6 percent and 12.8
percent, respectively, of total sales), respectively, for the three and
six-month periods ended June 30, 1997 compared to $4.8 million and $9.3
million (13.0 percent and 13.4 percent, respectively, of total sales),
respectively, for the comparable periods of 1996. The increase in SG&A was
due primarily to increased selling, or variable, expense related to the
increase in sales and increased costs associated with being a public company.
The decrease in SG&A as a percent of total sales is a result of economies of
scale gained as the fixed expenses are spread over a larger revenue base.
INCOME TAX EXPENSE. The Company's effective tax rate for the three and
six-month periods ended June 30, 1997 was 38.6 percent compared to 38.4
percent (on a pro forma basis) for the comparable periods of 1996. The
Company's effective tax rate may be effected by the purchase of new stores in
jurisdictions with tax rates either higher or lower than the current
estimated rate.
NET INCOME. Net income was $1.4 million and $2.5 million (2.1 percent and
2.1 percent, respectively, of total sales), respectively, for the three and
six-month periods ended June 30, 1997 compared to $0.6 million and $1.2
million (1.6 percent and 1.7 percent, respectively, of total sales),
respectively, on a pro forma basis, for the comparable periods of 1996, as a
result of the individual line item changes discussed above.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997 the Company had working capital of $26.8 million, which
included $15.3 million of cash and cash equivalents. The $117,000 decrease
in cash since December 31, 1996 is primarily a result of $3.6 million used in
operations, $4.1 million used for the purchase of property and equipment and
$2.7 million used for acquisitions, offset by $1.9 million in advances under
the Company's flooring line, $4.6 million net proceeds from long-term debt
and $3.9 million in net proceeds from the sale of the Company's common stock
as a result of the exercise of the underwriters' overallotment option. The
current ratio at June 30, 1997 was 1.7:1 compared to 1.9:1 at December 31,
1996.
Trade receivables increased $1.6 million to $3.9 million at June 30, 1997 from
$2.3 million at December 31, 1996, primarily as a result of the acquisition of
the Concord Dodge store.
Inventories increased $9.2 million to $42.6 million at June 30, 1997 from $33.4
million at December 31, 1996 primarily as a result of vehicles acquired with the
Concord Dodge acquisition that closed during the second quarter of 1997.
Property and equipment increased $4.2 million to $8.8 million at June 30, 1997
from $4.6 million at December 31, 1996 primarily as a result of the purchase of
a new body and paint shop and a vacant parcel of land, which is being held for
future development.
Total debt, excluding flooring lines, increased by $5.1 to $13.6 million, for a
40 percent debt to equity ratio. Including the flooring line of $29.1 million,
the debt to equity ratio increases to 125 percent.
The Company currently has a credit facility with U.S. Bank, giving the Company
access to an aggregate of approximately $45.9 million of credit for various
purposes. The principal component of the credit facility is the Flooring Line.
Management believes that the Flooring Line provides the Company with financing
at rates lower than those available from manufacturers. At June 30, 1997, there
was approximately $29.1 million outstanding under the Flooring Line and $42.3
million outstanding under the credit facility in total.
In anticipation of growth due to future acquisitions, all lines of credit are
being reviewed for increases with the issuing financial institution. Although
the Company is optimistic about such increases being approved by the financial
institution, there can be no assurances that such increases will be approved or,
if approved, that the terms will be acceptable to the Company.
Total shareholders' equity increased $6.4 million as a result of the
underwriters' exercise of their over allotment option for 375,000 additional
shares of Class A Common Stock for a total of $3.9 million, $3.2 million of
non-cash, after-tax LIFO reserves resulting from the conversion to the FIFO
method of accounting (the industry standard) and $2.5 million of retained
earnings from the six months ended June 30, 1997.
The Company's principal needs for capital resources are to finance acquisitions,
capital expenditures and increased working capital requirements. Historically,
the Company has relied primarily upon internally generated cash flows from
operations, borrowings under its credit facility and borrowings from its
shareholders to finance its operations and expansion.
11
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In April 1997, the Company closed its acquisition of Magnussen Dodge Isuzu in
Concord, California for $10.4 million in cash and notes, canceled its agreement
to acquire Linder Honda of Salinas, California and signed a definitive agreement
to purchase Sun Valley Ford Volkswagen Hyundai in Concord, California.
In July 1997, the Company closed its previously announced acquisition of
Magnussen-Barbee Ford Lincoln Mercury of Napa, California. The Company paid a
total of $7.9 million in cash and notes for all of the assets of the
dealerships, with bank finance funding a substantial portion of the total
payment.
The following table sets forth the estimated purchase price of currently pending
acquisitions. Acquisition costs are estimates, as the actual purchase prices
will depend on inventory levels at each acquired dealership upon closing.
Estimates assume the purchase of used vehicles at each store location. Actual
cash used in these purchases is much lower than the total purchase price as bank
financing is used for most of the inventory purchase and notes held by the
seller, payable over a number of years, are often part of the purchase
agreement.
TOTAL ESTIMATED
ACQUISITIONS PURCHASE PRICE
------------ ---------------
Sun Valley Ford Volkswagen Hyundai $18.9 million
Bakersfield Nissan and Bakersfield BMW/Acura $10.6 million
Dick Donnelly Automotive of Reno, Nevada $12.8 million
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, the Company's sales have been lower in the first and fourth
quarters of each year largely due to consumer purchasing patterns during the
holiday season, inclement weather and the reduced number of business days during
the holiday season. As a result, financial performance for the Company is
generally lower during the fourth quarter than during the other quarters of each
fiscal year; however, this did not hold true for the years 1996 and 1995.
Management believes that interest rates, levels of consumer debt, consumer
buying patterns and confidence, as well as general economic conditions, also
contribute to fluctuations in sales and operating results. The timing of
acquisitions may cause substantial fluctuations of operating results from
quarter to quarter.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS
128"). This statement establishes a different method of computing net income
per share than is currently required under the provisions of Accounting
Principles Board Opinion No. 15. Under SFAS 128, the Company will be required
to present both basic net income per share and diluted net income per share.
Basic net income per share is expected to be comparable or slightly higher than
the currently presented net income per share as the effect of dilutive stock
options will not be considered in computing basic net income per share. Diluted
net income per share is expected to be comparable or slightly lower than the
currently presented net income per share since the diluted calculation will also
use the average market price instead of the higher of the average or ending
market price for its
12
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calculations. The Company expects to adopt SFAS 128 in the fourth quarter of
1997 and, at that time, all historical net income per share data presented
will be restated to conform to the provisions of SFAS 128.
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The objective of SFAS
130 is to report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. The Company expects to adopt SFAS 130 in the first
quarter of 1998 and does not expect comprehensive income to be materially
different from currently reported net income.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on May 15, 1997,
at which the following actions were taken:
1. The shareholders elected the five nominees for director to the Board of
Directors of the Company. The five directors elected, along with the
voting results are as follows:
No. of Shares No. of Shares
Name Voting For Withheld Voting
--------------------- ----------------- -----------------
Sidney B. DeBoer Class A 62,350 0
Class B 4,110,000 0
M. L. Dick Heimann Class A 62,350 0
Class B 4,110,000 0
Thomas Becker Class A 62,350 0
Class B 4,110,000 0
R. Bradford Gray Class A 62,350 0
Class B 4,110,000 0
William J. Young Class A 62,350 0
Class B 4,110,000 0
13
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits filed as a part of this report are listed below and this list
constitutes the exhibit index.
EXHIBIT NO.
-----------
10.1 Agreement for Purchase and Sale of Business Assets, by and between
Sun Valley Ford, Inc., a California corporation, dba Sun Valley Ford
Volkswagen Hyundai, and the Company, dated April 2, 1997.
10.2 Agreement for Purchase and Sale of Business Assets, by and between
Nissan-BMW, Inc., a California corporation, dba Bakersfield Nissan,
Acura, BMW, and the Company, dated June 26, 1997.
10.3 Agreement for Purchase and Sale of Business Assets, by and between
Dick Donnelly Automotive Enterprises, Inc., a Delaware corporation,
dba Dick Donnelly Lincoln, Mercury, Audi, Suzuki, Isuzu, and the
Company, dated July 8, 1997.
11 Calculations of Net Income Per Share
18 Letter re change in accounting principles, previously filed as
exhibit 18 to the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1997, as filed with the Securities and
Exchange Commission on May 13, 1997 and incorporated herein by
reference.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K under Item 2., Acquisition or Disposition
of Assets, dated April 1, 1997 and filed with the Securities and Exchange
Commission on June 6, 1997.
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 6, 1997 LITHIA MOTORS, INC.
By /s/ SIDNEY B. DEBOER
-----------------------
Sidney B. DeBoer
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By /s/ BRIAN R. NEILL
---------------------
Brian R. Neill
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
EXHIBIT 10.1
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
THIS AGREEMENT is entered into by and between SUN VALLEY FORD, INC., a
California corporation, dba "SUN VALLEY FORD VOLKSWAGEN HYUNDAI" (hereinafter
referred to as "Seller"), and LITHIA MOTORS, INC. or its nominee (hereinafter
referred to as the "Buyer).
RECITALS,
Seller is a California business corporation engaged in the business of
selling and servicing Ford, Volkswagen, and Hyundal motor vehicles and related
parts and accessories from premises located at 2285 Diamond Blvd, & 1051 Burnett
Ave., Concord, Califamia 94520 (the "Business Real Properr/), under franchises
issued by Ford Motor Company, Volkswagen of America, Inc., and Hyundai Motor
Company.
Buyer wishes to purchase from Seller, and Seller is willing to sell to
Buyer, all assets relating to Seller's Ford, Volkswagen, and Hyundal franchises,
conditioned upon the granting to Buyer of exclusive franchises for the sale of
new Ford, Volkswagen, and Hyundai motor vehicles in the same geographical area
as Seller's current franchises in Concord, California.
Buyer (or a related entity) also wishes to purchase, lease or sublease all
of the real property and improvements which constitute the Business Real
Property, and the purchase of Seller's business assets shall be conditioned upon
the simultaneous closing of the purchase, lease or sublease of that real
property by Buyer.
NOW, THEREFORE, IN CONSIDERATION OF the mutual promises set forth herein,
the parties agree as follows:
1. DEFINITIONS. In this Agreement, the following words shall have the
indicated meanings:
(a) "Closing" shall refer to the consummaton of the transacton
contemplated under this Agreement in accordance with the terms hereof, and
"Closing Date" shall refer to the actual date of Closing. "Target Closing Date"
shall refor to July 1, 1997.
(c) "Seller's Business" shall refer to any and all actvities
conducted by Seller in Contra Costa County, California, relating to the
marketing and sale of new Ford, Volkswagen and Hyundai vehicles and associated
parts and accessories, and the repair and servicing of new or used Ford,
VolkSwagen and Hyundai vehicles.
(d) "Purchased Assets" shall refer to those assets which are
identfied in Paragraph 2 as being purchased and sold by ft parties hereunder.
Page 1 of 15
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(e) Seller's "Equipment" shall refor to all non-inventory items of
tangible personal property presently owned or used by Saller im connecton Wth
Sellers Business, including all of Sellees machinery, tools, signs, offical
equipment, computer equipment, computer programs, microfiches, parts lists,
repair manuals, sales or service brochures, fumiture and fixtures, and all of
Seller's leasehold improvements to the Business Real Property, and further
including all assets listed on Seller's financial statements as of December 31,
1996, and further including all assets listed in the "Personal Property
Appraisal of Sun Valley Ford as of March 4, 1997" which was prepared by Marshall
& Stevens Incorporated (File Reference 14-5170). Attached to this Agreement as
Exhibit "A" is a listng prepared by Seller of certain personal items being
retained by Seller and NOT being purchased by Buyer.
(f) Seller's "Intangible Assets" shall refer to Seller's business
name ("Sun Valley Ford Volkswagen Hyundai"), telephone and fax numbers, service
customer lists, sales customer lists, vehicle sales records, vehicle service
records, all of Seller under contracts assigned to and assumed by Buyer pursuant
to this Agreement, all goodwil associated with Seller's Business, and all other
intangible rights and interests of any value relating to Seller's Business.
(g) "Business Real Property" shall refer to all of the real property
located in Concord, California which has been used in connection with Seller's
business, including but not limited to the premises at 2285 Diamond Blvd,
Concord, California.
(h) "Franchisors" shall refer to Ford Motor Company, Volkswagen of
America, Inc., and Hyundai Motor Company.
(i) "New Vehicle" shall refer to a Ford, Volkswagen or Hyundai motor
vehicle which: (i) is unregistered and unused, (ii) is from the 1996, 1997 and
1998 model years, (iii) has been driven for less than 200 odometer miles, and
(iv) may be represented or warranted to consumers as "new" under California law.
"Rollback Vehicle" shall mean an unregistered vehicle from the 1997 model year
which has been sold to a customer by Seller but returned because of the
customers inability to obtain financing for the purchase. "Demonstrator
Vehicle" shall mean an unregistered vehicle from the 1997 model year which has
been used and operated by Seller on dealer plates for sales demonstration
purposes. "Used Vehicle" shall mean any vehicle which is not a "new vehicle", a
"demonstrator vehicle" or a "rollback vehicle" as defined in the three preceding
sentences.
(j) "Date of this Agreement" shall refer to the first date upon
which this Agreement has been signed by all of the parties.
(k) All amounts payable by Buyer to Selli@r at Closing shall. be
paid by certfied check drawn against a bank of Buyer's choice having offices
located in Jackson County, Oregon, or by whatever other means acceptable to
Seller.
2. PURCHASED ASSET. Seller agrees to sell to Buyer, and Buyer agrees to
purchase from
Page 2 of 15
<PAGE>
Seller, the assets identfied in Paragraphs 3, 4, 5, 6, 7, 8, 9, and 10 of
this Agreement (the "Purchased Assets". Excluded from this transaction are
Seller's cash, accounts receivable, notes receivable, banking accounts and
deposits, and all other assets not identified in Paragraphs 3, 4, 5, 6. 7, 8,
9, and 10 of this Agreement.
3. INVENTORY OF NEW VEHICLES, DEMONSTRATOR VEHICLES AND ROLLBACK
VEHICLES. Buyer shall purchase Seller's entire inventory of new Ford,
Volkswagen and Hyundai vehicles, as that inventory exists on the Closing Date.
Buyer also shall purchase Seller's entire inventory of demonstrator vehicles and
rollback vehicles (up to a maximum of five rollback vehiciies), as that
inventory exists on the Closing Date.
(a) PRICE OF NEW VEHICLES. The purchase price for each of Seller's
new vehicles shall be equal to Seller's factory invoice cost, reduced by any
factory hold-backs, factory rebates, factory incentives, carry-over model
allowances, floor plan allowances, finance cost allowances, advertising
allowances, and any other items which should reasonably be deducted in order
to establish Seller's actual not cost for each vehicle, and further reduced
by the actual net cost for any and all accessories, equipment and parts which
are missing from a vehicle, Sellers actual net cost for new vehicles shall
include Sellees actual net cost for any and all parts and accessories
reasonably installed by Seller to new vehicles in the ordinary course of
business, but shall not include any other vehicle preparation charges, labor
charges or other dealer charges of any kind.
(b) DEDUCTION FOR DAMAGE TO NEW VEHICLES. Immediately prior to
Closing, Buyer and Seller shall jointly inspect Seller's inventory of new
vehicles. If any new vehicle purchased by Buyer from Seller is damaged, the
price for that vehicle, as determined under subparagraph 3(a), shall be
reduced by the actual net cost to Buyer of repairing that damage. If Buyer
and Seller are unable to agree upon the actual net cost to Buyer of repairing
the damage to a vehicle, then Buyer and Seller shall select an independent
third party to determine that repair cost, which determinaton shall be
binding upon both Buyer and Seller.
(c) PAYMENT FOR NEW VEHICLES. The aggregate purchase price for all
new vehicles purchased by Buyer from Seller shall be paid in full at Closing.
(d) PURCHASE ORDERS FOR NEW VEHICLES. Immediately prior to
Closing, Buyer and Seller shall jointly review Seller's outstanding purchase
orders for new vehicles ordered from Seller by customers but not delivered
prior to Closing. At Closing, Seller shall assign to Buyer, and Buyer shall
assume from Seller, all of Sellers rights (including customer deposits) and
obligations (including sales commissions) under such purchase orders;
provided, however, that Buyer shall not be obligated to assume Sellers rights
or obligations with respect to any new vehicle purchase order which is at a
price less then net factory invoice, or which provides for a trade-in at a
price or under terms unacceptable to Buyer. At Closing, Buyer shall
reimburse Seller for all deposits made by Seller with respect to ordered but
undelivered new vehicles.
(e) PRICE FOR DEMONSTRATOR VEHICLES AND ROLLBACK VEHICLE. The price
for each
Page 3 of 15
<PAGE>
demonstrator vehicle shall be determined as provided in subparagraphs 3(a)
and 3(b) and then reduced by $750 per vehicle and further reduced by 30CENTS per
mile for each odometer mile on that vehicle in excess of 1,000 miles. The price
for each rollback vehicle shall be determined as provided in subparagraphs 3(a)
and 3(b) and then reduced by 3CENTS per mile for each odometer mile on that
vehicle in excess of 200 miles. The purchase price for demonstrator vehicles
and rollback vehicles shall be paid at Closing.
4. LNVENTORY OF USED VEHICLES. Buyer intends to purchase Seller's entire
inventory of used vehicles (including 1996 demonstrator vehicles and 1996
rollback vehicles), as that inventory exists at Closing. However, Buyer shall
not be obligated to purchase any used vehicle for which Buyer and Seller are
unable to agree upon a purchase price.
(a) DISCLOSURES. Seller shall be obligated, prior to Closing, to:
(i) disclose to Buyer any and all facts concerning each used vehicle which
Seller would be legally obligated to disclose to a consumer (including but not
limited to known damage and usage history), and (ii) provide to Buyer legal
odometer statements and free and clear title for each of the used vehicles.
(b) PRICE FOR USED VEHICLES. Used vehicles shall be purchased on an
individual basis. It is Buyer's intenton to purchase all of Seller's used
vehicles. However, if Buyer and Seller cannot agree on the value of one or more
used vehicles, then those vehicles whose value is not agreed upon shall remain
the property of the Seller, and Buyer shall not be obiligated to purchase those
vehicles. Buyer and Seller agree to establish the proposed purchase price for
all of Seller's used vehicles at least three business days prior to this
anticipated Closing Date.
(c) PAYMENT FOR USED VEHICLES. The aggregate purchase price for
Seller's inventory of used vehicies shall be paid in full at Closing.
(d) STORAGE OF USED VEHICLES WHICH ARE NOT PURCHASED BY BUYER.
Seller shall have ten (10) days after Closing within which to remove from the
Business Real Property any of Sellers used vehicles which are not purchased
by Buyer. Buyer shall store those vehicles in accordance with Buyers normal
business practces. Seller shall have sole and exclusive risk and liability
for any damage or loss to Seller's used vehicles while so stored on the
Business Real Property after Closing, and Buyer shall have no liability or
obligation of any kind by reason of any such damage or loss.
5. INVENTORY OF NEW PARTS AND ACCESSORIES. Buyer shall purchase Seller's
entire Inventory of new, current (non-obsolete), undamaged Ford, Volkswagen and
Hyundai vehicle parts and accessories manufactured by Franchisors and/or third
party suppliers, as that inventory exists on the Closing Date. Buyer shall have
no obligation to purchase from Seller any parts or accessories which are used,
damaged or obsolete. For purposes of this Paragraph 5, a part or accessory
shall be "obsolete" on the Closing Date if not then returnable to the supplier
from which that part was originally purchased, or if not then listed in the
supplier's then-current price and parts books. Prior to Closing, Seller shall
maintain Seller's inventory of parts and accessories at a level consistent with
good business practices and Seller's normal
Page 4 of 15
<PAGE>
and regular course of business.
(a) PRICE FOR PARTS AND ACCESSORIES. The purchase price for each
item in Seller's inventory of new, current and undamaged parts and accessories
for Ford, Wolkswagen and Hyundai vehicles (whether manufactured by a Franchisor
or third party suppliers) shall be the net cost for that item as set forth in
the then most recent price book published by the supplier of that item, REDUCED
by any discounts, rebates, incentves or allowances which should reasonably be
taken into account in order to establish what Buyer's net cost for that item
would be if that item was purchased by Buyer directly from that supplier at the
time of Closing.
(b) DETERMINATION OF INVENTORY OF PARTS AND ACCESSORIES. Seller's
inventory of new, current and undamaged Ford, Volkswagen and Hyundal parts and
accessories shall be deterrmined immediately prior to Closing (or on whatever
ealier date shall be selected by mutual agreement of the parties) by a third
party inventory service selected by mutual agreement of the parties. Buyer and
Seller each shall be responsible for 50% of the fees charged by the inventory
service for conducting the inventory.
(c) PAYMENT FOR INVENTORY OF NEW PARTS AND ACCESSORIES. The purchase
price for Seller's inventory of parts and accessories shall be paid in full at
Closing.
6. EQUIPMENT. Buyer shall purchase Seller's Equipment; provided,
however, that Seller is retaining, and is not selling to Buyer, those personal
items of Seller's Equipment which are listed on Exhibit "A" attached hereto.
(a) PRICE FOR EQUIPMENT. The aggregate purchase price for all items
of Seller's Equipment (including leasehold improvements) which are being
purchased hereunder shall be One Million Nine Hundred Thirty Three Thousand
Fifty and 00/100 Dollars ($l,933,050.00), of which $795,800.00 shall be
allocated to the Purchase of Seller's leasehold improvements to the Business
Real Property, and $1,137,250.00 shall be allocated to the purchase of all items
of Equipment other than leasehold improvements to the Business Real Property.
Notwithstanding the preceding sentence, if one or more items of Equipment listed
on the "Personal Property Appraisal of Sun Valley Ford as of March 4, 1997"
which was prepared by Marshall & Stevens incorporated (File Reference 14-5170)
are not delivered to Buyer at Closing or any equipment is added, then the
aggregate purchase price for the Equipment shall be reduced or increased by the
value for those missing or added items as shown an the Marshall & Stevens
appraisal.
(b) PAYMENT FOR EQUIPMENT. The purchase price for the Equipment
shall be paid as follows:
(1) Prior to or simultaneously with the execution of this
Agreement, Buyer is making an earnest money deposit to Capital City Escrow,
Inc., in Sacramento, California, in the amount of $100,000.00, which earnest
money deposit, together with all interest earned thereon, shall be credited at
Closing against the purchase price for the items of Equipment other than
leasehold improvements to the Business Real Property.
(2) The balance of the purchase price for the terms of Equipment
other than leasehold improvements to the Business Real Property ($1,037,250.00)
shall be paid in full at Closing.
Page 5 of 15
<PAGE>
(3) $200,000.00 of the purchase price for Seller's leasehold
improvements to the Business Real Property shall be paid at Closing.
(4) The $595,800.00 balance of the purchase price for Seller's
leasehold improvements to the Business Real Property shall be amortized,
together with interest accruing thereon at the rate of nine percent (9%) per
annum beginning on the date of Closing, in equal monthly installments over a 120
month period, with the first monthly installment being due and payable one month
after the date of Closing, and with subsequent being due and payable at regular
monthly intervals thereafter on the monthly installments same day of each month
until payment in full, provided, however, that the entire deferred balance then
outstanding (together with any Interest accrued thereon) shall be due and
payable in full on the fifth anniversary after the date of Closing.
(A) Buyer shall have the right at any time to prepay all or
any portion of the unpaid balance of the purchase price for Sellers leasehold
improvements to the Business Real Property without penalty or premium. Any
prepayment shall be applied against the last maturing installments of principal
then due (with the principal balance being reduced accordingly), and shall not
excuse Buyer from making the regular installment payments subsequently due until
the principal balance has been paid in full.
(B) If Buyer fails to pay any amount of p6ncipal or
interest due pursuant to this subparagraph 5(b)(4) within ten (10) days after tm
date when due, and ff Seller notiflas Buyer in wdbng of that defauft and Buyer
fails to cure that defauft within ten (1 0) days after receipt of that written
notce from Seller, then Seller will have the right at any time prior to the
moment when Buyer cures that default, to declare (and thereby cause) the entire
unpaid balance of the purchase price to be immediately due and payable.
(C) Buyer's deferred payment obligation as set forth in
this subparagraph 6(b)(4) shall be evidenced by a negotiable promissory note to
be executed by Buyer and delivered to Seller at Closing. If Lithia Motors, Inc.
is not the Buyer, then Lithia Motors Inc. shall co-sign the promissory note.
The promissory note shall be secured by the leaseholds.
7. SUPPLIES. Buyer shall purchase all of the gas, oil, nuts, bolts, and
other automotive supplies which are held for use in Seller's Business. The
price for all such supplies shall be Sellers actual net cost, as determined by
mutual agreement of the parties, and shall be paid to Seller at Closing.
8. CONTRACTUAL RIGHTS AND OBLIGATIONS. At Closing, Buyer shall assume
all rights and obligations of Seller under those certain equipment leases and
other contract identified on Exhibit "B" attached hereto. Seller warrants that
all of Seller's obligations under the contracts listed on Exhibit "B" shall be
current at the time of Closing. Seller agrees to indemnity Buyer against all
obligations under the contracts idenfified on Exhibit "B" which relate to
periods prior to Closing. Buyer agrees to indemnify Seller against all
obligatons under the contracts identified on Exhibit "B" which relate to periods
after Closing.
9. REPAIR WORK IN PROGRESS. Buyer shall purchase all of Seller's vehicle
repair work in progress (in-house and subcontracted), at a price equal to
Seller's actual net cost (before profit and overhead) for all work completed
pprior to Closing. The purchase price for work in progress shall be paid at
Closing.
Page 6 of 15
<PAGE>
10. INTANGIBLE ASSETS. Buyer shall purchase all of Seller's Intangible
Assets.
(a) The aggregate purchase price for Seller's Intangible Assets shall
be Five Million and 00/100 Dollars ($5,000,000.00). This $5,000,000.00 purchase
price shall be allocated among the items which constitute the Intangible Assets
as determined by Buyer in the reasonable exercise of Buyer's discreton. This
$5,000,000.00 purchase price shall be paid as follows:
(1) A down payment of One Million Five Hundred Thousand and 00/1
OC Dollars ($1,500, 000.00) shall be paid at the Closing.
(2) A second lump sum payment of principal in the amount of One
Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) shall be due
and payable on the first anniversary after the date of Closing.
(3) The sum of Two Million Three Hundred Fifteen Thousand
Dollars ($2,315,000.00) (i.e. the $2,000,000.00 balance of the purchase price
for the Intangible Assets, plus interest in the amount of $315,000.00 which
shall have acrrued at the rate of 9% per annum on the $3,500,000.00 outstanding
balance during the period beginning on the date of Closing and anding on the
first anniversary after the date of Closing), shall be amortized over a 48 month
period with interest at the rate of nine percent (9%) per annum in equal monthly
installments of $448,856.00 each, with the first monthly installment being due
and payable thirteen months after the date of Closing, and with subsequent
monthly installments being due and payable at regular monthly intervals
thereafter on the same day of each month until payment in full; provided,
however, that the entire deferred balance then outstanding (together with any
interest accrued thereon) shall be due and payable in full on the fifth
anniversary after the date of Closing.
(4) Buyer shall have the right at any time to prepay all or any
portion of the unpaid balance of the purchase price for the Intangible Assets,
without penalty or premium. Any prepayment shall be applied against the last
maturing installments of principal then due (with the principal balance being
reduced accordingiy), and shall not excuse Buyer from makng the regular
installment payments subsequenty due until the principal balance has been paid
in full.
(5) If Buyer fails to pay any amount of principal or interest
due pursuant to this subparagraph 10(a)(3) within ten (10) days after the date
when due, and if Seller notifies Buyer in writing of that default and Buyer
fails to cure that defauft within ten (10) days after receipt of that written
notice from Seller, then Saller shall have the right, at any time prior to the
moment when Buyer cures that default to declare (and thereby cause) the entire
unpaid balance of the purchase price to be immediately due and payable.
(6) Buyer's deferred payment obligation as set forth in this
subparagraph 10(a)(3) shall be evidenced by a negotiable promissory note to be
executed by Buyer and delivered to Seller at Closing. If Lithia Motors, Inc. is
not the Buyer, then Lithia Motors Inc. shall co-sign the promissory note. The
promissory note shall be unsecured and guaranteed by the public company.
The parties agree that there is no separate value to the non-transferable Ford,
Volkswagen, and Hyundai franchises issued by the Franchisors.
(b) In order for Buyer to receive the full benefit of the intangible
good will being
Page 7 of 15
<PAGE>
purchased by Buyer, it will be necessary for Buyer to perform no-charge
repair work and vehicle warranty work with respect to vehicles repaired or
sold by Seller prior to Closing. In partial consideration of the
$5,000,000.00 amount being paid by Buyer for the Intangible Assets, Seller
agrees to reimburse Buyer for the net cost to Buyer of repair and warranty
services which are not covered by factory warranty and which are performed by
Buyer within six (6) months after Closing in order to satisfy: (i) customers
who are dissatisfied with repair services provided by Seller prior to
Closing, and (ii) warranty claims with respect to new or used vehicles
purchased from Seller prior to Closing, Seller agrees to reimburse Buyer
pursuant to the preceding sentence on a monthly basis, with payment to be
made within ten (10) days after Buyer submits a billinf for the cost of
repair and warranty service performed during the preceding calendar month.
11. BULK TRANSFERS. It is the intenton of the panes that this transaction
comply with Division Six of the California Uniform Commercial Code, more
commonly known as Uniform Commercial Code - Bulk Transfers, and Seller shall
take all actions necessary to comply therewith.
12. LIMITATION ON LIABILITIES ASSUMED. Except as provided in subparagraph
3(d), Paragraph 8 and Paragraph 9, Buyer shall not, by reason of htis Agreemet
or Buyer's purchase of the Pruchased Assets, take responsibility for any
liabilities, debts or obligations of Seller (including Seller's trade payables,
account payables, oboigations to employees, or tax liabilities).
13. WARRANTIES OF SELLER. J. Larry Wagner, Edmund Bartlett and Seller
make the following warranties to Buyer, with the intent that Buyer rely thereon:
(a) CORPORATE ORGANIZATION. Seller is a corporation organized,
validly existing, and in good standign under the laws of the State of
California. Seller is qualified to do business in teh State of California, and
has full pwoer and authority to own, use, and sell its assets.
(b) CORPORATE AUTHORITY. Seller's board of directors and
shareholders have authorized the execution and delivery of this Agreement to
Buyer and the carrying out of its provisions. This Agreement will not violate
any judicial, governmental or administrative decree, order, writ, injunction ir
judgment, and will not conflict with or constitutte a default under Seller's
bylaws, or any contract, agreement, or other instrument to which Seller is a
party or by which it may be bound.
(c) EMPLOYEE ISSUES. Seller has a union agreement with the
Machinists Automotive Trades District Lodge No. 190, Local Lodge 1173,
International Association of Machinists and Aerospace and Teamsters General
Truck Drivers and Helpers No. 315, which expries on January 1, 2000. Within 10
days after the date of this Agreement, Seller shall provide Buyer the following:
(i) a consus of Seller's employees, (ii) a written disclosure of all benefits
made available to Seller's employees (including qualified and non-qualified
retirement plans), and (iii) access to all personnel files for seller's
employees. All employee benefit plans maintained by seller for its employees
shall be fully funded prior to Closing. Seller shall pay all wages,
commissions, accrued vacation pay and other accrued compensation earned by
Seller's employees prior to Closing (together with all accrued FICA and
withholding taxes). Seller shall terminate the employment of all of Seller's
employees effective as of the close of business on the Clsoing Date. Buyer will
consider any of Seller's employees who apply for employment on an equal basis
with all othe applications. Employement will be offered to Buyer's selected
applicants on terms and conditions to be established by Buyer. Seller will not,
for a peirod of two years following Closing, employ or offer emplyoment to any
of Seller's terminated employees unless Buyer shall fail to employ such
employees or shall subsequently terminate such employees.
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(d) FINANCIAL DISCLOSURES. Seller shall furnish to Buyer such
financial and operating data and other information as to the business nad
propertie sof Seller's Business as Buyer shall request. The review of such
materials will be at Buyer's expense. Buyer (at Buyer's expense) shall have the
right, at any time prior to Closing, to coduct a certified audit (by one or more
certified public accounting firms selected by Buyer) of Seller's balance sheets
and income and cash flow statements fro recent periods, and Seller agrees to
cooperate and assist in the prompt and efficient completion of all such audit
activities, recognizing that the audit process may result in inconveniences or
inefficiencies to Seller's Business.
(e) UNDISCLOSED LIABILITIES AND CONTRACTUAL COMMITMENTS. Except as
otherwise disclosed in this Agreement (or in an attached Exhibit): (i) Seller
does not have any liabilities which might have a material impact on Buyer's use
of the Purchased Assets, (ii) Seller is not a party to any contracts or
commitments which might have a material impact on Buyer's use of hte Purchased
Assets, and (iii) no law suit or action, administrative proceeding, arbitration
proceeding, governmental investigation, or other legal or equitable proceedign
of any kind s pending or threatened agaisnt Seller which might adversely affect
the value of the Purchased Assets. If any claim is asserted against Buyer after
Closing with respect to any obligation of Seller which Seller has failed to
disclose to Buyer in writing, or which Seller has disclosed but failed to pay,
then Buyer shall give prompt written notice of that claim to Seller. Seller
shall indemnify Buyer with respect to all such obligations.
(f) CONDITION OF EQUIPMENT. Each item of the Equipment shall be in
good operating condition at Closing. Seller will continue to perform routine
maintenance and repairs with respect to the Equipment prior to Closing. Buyer
shall have thirty days after Closign within which to advise Seller in writing if
any item of Equipment is not in good operating condition at Closing, and Seller
shall thereupon be obligated to repair or replace that item (or reimburse Buyer
for doing so).
(g) GOOD TITLE. Seller has, and shall transfer to Buyer at Clsoing,
good and marketable title to all of the Purchased Assets, free and clear of all
security interests, liens, equitable interests, leases, assetssments,
restrictions, reservations, or other burdens of any kind. All current and
accrued taxes which may become a lien agasint any of the Purchased Assets shall
have been paid by Seller prior to Closing (including property taxes, sales taxes
and excise taxes).
(h) NO TOXIC MATERIALS DISCHARGED. Upon the execution of this
Agreement, Seller at its cost shall engage an appropriate environmental firm to
conduct an investigation and produce a Phase One Environmental Report regarding
the Business Real Property. In addition, Seller shall make available to Buyer
copies of all other environmental reports and certificates (of which Seller has
knowledge) with respect to the Business Real Property. If the Phase One
Environmental Report discloses any likelihood of contamiation, Seller shall have
untilt he closing Date to remedy that contamination (unless Buyer waives the
requirement for remediation). In the event it is apparent that a remedy can not
be completed by the Closing Date, then Seller cna either elect to rescind the
transaction in its entirety or place sufficient funds into the escrow at the
Closing Date to cover the expense of the required remedy.
Except as disclosed by Seller on Exhibit "C" attached hereto,
(i) no activity in connection with Seller's Business prior to Closing shall have
produced any toxic materials, the presence or use of which upon the Business
Real Property would violate any federal, state, local or other governmental law,
regulation or order or would require reporting to any govenmental authority and
(ii) the Business Real Property is otherwise free and clear of any toxic
materials. For purposes of this subparagraph (h), the phrase "toxic materials"
shall include but not be limited to any and all substances deemed to be
pollutants, toxic materials or hazardous materials under any state or federal
law.
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(i) FRANCHISORS' CONSENT. Seller shall take all actions which are
reasonably necessary on Seller's part to obtain the consent of the Franchisors
to the issuance to Buyer of exclusive franchises for the sale of new Ford,
Volkswagen and Hyundai vehicles in the same geographical area as Seller's
current franchises in Concord, California.
(j) INDEMNFICIATION FOR BREACH OF WARRANTIES. Larry Wagner, Edmund
Bartlett and Seller shall indemnify Buyer agaisnt all losses, damages and costs
(including attorney fees and court costs) relating to any warranty made by
Seller in this Agreement which is false, misleading, incomplete or inaccurate
(either ont eh date of htis Agreement or at the time of Closing). If at any
time prior to Closing Buyer determiens that any warranty made by Seller in this
Agremeent is incorrect, incomplete or misleading, then Seller shall advise Buyer
of that fact and shall provide Buyer in writing whatever other information shall
be necessary to cause that warranty to be correct, complete and not misleading.
14. CONDUCT OF BUSINESS PENDING CLOSING. Seller warrants that during the
period beginning on the date of this Agreement and ending at Closing:
(i) Seller shall continue to operate Sellers' Business in the usual and ordinary
course, and in substantial conformity with all applicable laws, ordinarnces,
regulatins, rules or orders; (ii) Seller shall not allow any liens to be places
against any of the Purchased Assets unless those liens are discharged prior to
Closing; (iii) Seller shall not take any action which may cause a material
adverse change in the operations of Seller's Business; (iv) Seller shall not
conduct any sale which shall use the words or phrases "Going Out of Business
Sale" or "Change of Ownership Sale" or other words ro phrases having similar
meaings; (v) Selle shall use its best efforts to preserve teh value of the Ford,
Volkswagen and Hyundai franches in Concord, California.
15. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby makes the
following representations and warranties to Seller, with the intent tht Seller
rely thereon:
(a) ORGANIZATION. Lithia Motors, Inc. is a corporation organized,
validly existing and in good standing under the laws of the State of Oregon, and
is entitled to own property and to carry on its business.
(b) AUTHORITY. This Agreement has bene authorized by the board of
directors of Lithia Motors, Inc. This Agreement will not violate the provision
of any judicial, governmental or administraitve decreem, order, writ,
injunction, or judgment, or conflict with or constitute a default under, the
Articles or bylaws of Lithia Motors, INcl, or any contract, agreement, or other
instrumet to which Lithia Motors, Inc. is a party.
16. ADDITIONAL CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The
obligation of Buyer to close this transation is subject to each of the following
conditions (each of which is for the benefit of Buyer and may be waived by
Buyer), the Buyer shall have the right to rescind this Agreement if any ofh te
following conditions is not satisfied in accordance with its terms:
(a) Buyer shall have obtained from Frnachisors, prior to the Final
Closing Date, exclusive franchises to sell new Ford, Volkswagen and Hyundai
vehicles in teh same geographical area as Seller's current franchises in
Concord, California (as evidenced by the issuance to Buyer by Franchisors of
appropriate Dealership Sales and Service Agreement, and the approval of Buyer as
the publicily owned Dealer-Operator of the franchises), and Buyer agrees to use
its best reasonable efforts to obtain those franchises.
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(b) Buyer shall be reasonably satisifed with any facility improvement
requirements which are imposed by Franchisors which have an aggregate cost of
more than $25,000.00.
(c) All leases and subleases which are necessary for the beneficial
use by Buyer of the Business Real Property shall be closed concurrently with
this transaction under terms and conditions which are acceptable to Buyer.
(d) All of Seller's agreements and warranties set forth in this
Agremeent shall be true, correct complete and not misleading at Closing;
provided that Buyer's decision to close this transaction shall not release
Seller form liabilty to Buyer for any warrnaty which is subsequently determiend
to be incorrect, incomplete or misleading.
17. CLOSING. The parties shall make all reasonable effort to close the
purchase and sale under this Agremeent at or begore 5:00 p.m., Pacific Standard
Time, on or before the Final Clsoing Date, at the offices of Capital City
Escrow, Inc. in Sacramento, California, or at such other location as shall be
selected by mutual agreement of the parties.
(a) The parties agree to establish a closing escrow account at
Capital City Escrow, Inc. in Sacramento, California, (the "Closing Escrow
Agent"). Buyer and Seller each shall pay one-half (1/2) of the closing escrow
fees. Buyer and Seller agree to execute whatever reasonable escrow instructions
may be reuqired by Colsing Escrow Agent in connection with this transaction. In
the event of any conflict between those escrow instructions and this Agreement,
the terms of this Agreement shall prevail. Upon the execution of this
Agreement, Buyer shall deliver to Closing Excrow agent the sum of $100,000.00
(the deposit), which amount shall immediately be placed into an interest bearing
account. The deposit plus interest shall be credited to Buyer and shall be
applied against the pruchase price of the Equipment at Closing as provided in
Paragraph 6, or if the Closing fails to occur, then the deposit shall be
disbursed as set forth hereinafter.
(b) In all events, the Closing of the transaction contemplated under
this Agreement shall occur (if at all) on or before the 60th day after the
Target Closing Date.
(c) If this transaction closes as provided herein, then actual
possession and all risk of loss, damage or destruction with respect to the
Purchased Assets, shall be deemed to have been delivered to Buyer at 11:59 p.m.,
Pacific Standard Time, on the Closing Date.
(d) At Closing, and coincidentally with the performance of the
obligations to be performed by Buyer at Closing, Seller shall deliver to Buyer
the following: (i) all bills for sale, assignments and other instruments of
transfer, in form and substance reasonably satisfactory to Buyer, which shall be
necessary to convey the Purchased Assets to Buyer; and (ii) all other documents
required under this Agreement.
(e) At Closing, and coincidentally with the performance of all
obligations required by Seller at Closing, Buyer shall deliver to Seller the
following: (i) payment for the Purchased Assets; and (ii) all other payments
and documents required under this Agreement. Buyer shall be responsible for all
sales taxes payable in connection with the transaction.
(f) If Closing does not take place on or before the Final Closing
Date because there has been a failure of any condition precedent set forth in
Paragraph 16 or because Seller has elected to
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rescind the Agreement pursuant to subparagraph 13(h), then: (i) all rights
and obligations of both parties under this Agreement shall terminate, (ii)
Buyer shall be entitled to a refund of the entire $100,000.00 earnes money
deposit (and interest earned thereon) referred to in subparagraph 6(b), and
(iii) this Agreement and all predecessor agreements shall thereafter be void
and of no effect.
(g) If Closing does not take place on or before the Final Closing
Date because of Buyer's material breach of this Agreement, then the $100,000.00
earnest money deposit delivered by Buyer to the Closing Escrow Agent (together
with all interst earned tehreon while held by the Closing Escrow Agent) shall be
forfeited to Seller as Seller's sole and exclusive remedy for Buyer's breach,
and Seller shall have no other rights or remedies agasint Buyer by reason of
that breach. THIS SUM REPRESENTS A REASONABLE ESTIMATE BY BUYER AND SELLER OF
SELLER'S DAMAGES IN THE EVENT OF SUCH A DEFUALT, IT BEGIN EXTREMELY DIFICULT TO
ASCERTAIN SELLER'S PRECISE DAMAGES. If Closing does not take place on or before
the Final Closing Date because of Seller's material breach of htis Agreement,
then Buyer shall be entitled to: (i) a refund of the entire $100,000.00 earnest
money depost previously delivered by Buyer to the Escrow Forum (together with
all interest earned thereon while held by The Escrow Forum), (ii) any and all
other rights and remedies for that beach which are specified in thsi Agreement
or which may be provided by law or in equity.
(h) Both parties agree to make a good faith effort to execute and
deliver all documents and complete all actions necessary to consummate this
transaction.
18. BOOKS AND RECORDS. Seller shall have the right at any tiem and from
time to time, for a period of five (f) years after the Closing Date, to examine
and make copies of all books and reocrds required by Buyer hereunder. In
addition, Buyer agrees to store for a period of five (5) years all books and
records of Seller which Buyer is not acquiring hereunder. Buyer agrees to make
its staff available to Seller for a period of five (5) days subsequent to the
Closing Date so that Seller can close out Seller's books.
19. SELLER'S ACCOUNTS RECEIVABLE. For a period of 6 months after Closing,
Buyer shall, on Seller's behalf, and at no charge to Seller, accept any payment
with respect to Seller's customer receivables and other receivables arising otu
of the operation of Seller's Busienss prior to Closing. All collected
receivables from vehicle sales shall be delivered to Seller within ten (1) days
after collection, and all other collected receivables shall be delivered to
Seller on a monthly basis. Buyer shall have no obligation to undertkae
collection efforts with respect to Seller's receivables, and Buyer's only
obligatin shall be to account for and pay over Seller's receivables which are
actually received by Buyer.
20. SURVIVAL OF REPRESENTATIONS. All representations, warranties,
indemnification obligations and covenants made in this Agrement shall survive
the Closing, and shall remain in effect until the expiration of the latest
period allowable in any applicable statute of limitations.
21. ASSIGNMENT BY BUYER. Lithia Motors, Inc. shall have the right to
assign all rights and obligations of Lithia Motors, Inc. as "Buyer" under this
Agreement. In the event of any such assignment, the assignee shall assume all
rihgts and obligations of the Buyer under this Agreement, and Lithia Motors,
Inc. shall remain jointly liable for all obligations of the Buyer.
22. MISCELLANEOUS.
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(a) There are no oral agreements or representations between the
parties which affect this transactions, and this Agreement supersedes all
previous negotiations, warranties, representations and understandings between
the parties. True copies of all documents references in this Agreement are
attached hereto. If any provision fo htis Agremeent shall be determined to be
viod by any court of competent jurisdiction, then that determination shall not
affect any other provision of htis Agreement, and all other provisions shall
reamain in full force and effect. If any provision of htis Agreement is capable
of two consturctions, only one of which would render the provisin valid, then
the provision shall have the meaining whihc renders it valid. The paragraph
headings in this Agremeent are for convenience purposes only, and do not in any
way define or construe the contents of this Agreement.
(b) This Agreement shall be governed and performed in accordnace with
the laws of the State of California. Each of hte parties hereby irrevocably
submits to the jurisdiction of the courts of Contra Costs County, California,
and agrees that any legal proceedings with represt to this Agreement shall be
filed and hear in the appropriate court in Contra Costa County, California.
(c) This Agremeent may be executed in multiple counterparts, each of
which shall be an original, and all of which shall constitute a single
instrument, when signed by both of the parties. This Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
respective parties.
(d) Waiver by either party of strict performance of any provision of
this Agreement shall not be a waiver of, and shall not prejudice the party's
right to subsequently require strict performance of, the same provision or any
other provision. The consent or approval of either party to any act by the
other party of a nature requiring consent or approval shall not render
unnecessary the consent to or approval of any subsequent similar act.
(e) All notices provided for herein shall be in writing and shall be
deemed to be duly given when mailed by United States certified mail, postage
prepaid, to the last-known address of the party entitled to receive the notice,
or when personally delivered to that party.
(f) Time is of the essence to this Agreement.
(g) Should any party hereto institute any action or proceedings to
enforce or interpret any provision hereof, or for damages by reasona of any
alleged breach of any provision of this Agrement, the prevailing party shall be
entitle dto recover from the losing party or parties such amount as the court
may adjudge to be reasonable attorney's fees for services rendered to the
prevailing party in such action or proceeding. The term "prevailing party" as
used in this section shall include, without limitation, any party who is made a
defendant in litigatin in which damages and/or other relief may be sought
agaisnt such party and a final judgment or dismissal or decree is entered in
such litigation in favor of such party defendent
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated below.
SELLER: SUN VALLEY FORD, a California corporation
By/s/J. LARRY WAGNER APRIL 2, 1997
- ----------------------- -----------------------------------------
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J. Larry Wagner, President Dated
By/s/EDMUND BARTLETT APRIL 2, 1997
------------------ -----------------------------------------
Edmund Bartlett, Chairman & CEO Dated
BUYER: LITHIA MOTORS, INC. (OR NOMINEE)
By/s/BRAD GRAY APRIL 2, 1997
- ----------------------------- ---------------------------------------------
Brad Gray, Vice President Dated
Page 14 of 15
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EXHBIIT "A" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between SUN VALLEY FORD, INC. as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
LIST OF EQUIPMENT, FURNITURE AND FIXTURES BEING RETAINED BY SELLER
[SEE PAGES ATTACHED HERETO.]
EXHIBIT "B" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between SUN VALLEY FORD, INC., as "Seller", and
LITHIA HOLDING COMPANY, L.L.C. (OR NOMINEE), as Buyer
LISTING OF LEASES AND AGREEMENTS BEING ASSUMED
[SEE PAGES ATTACHED HERETO.]
EXHIBIT "C" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between SUN VALLEY FORD, INC., as "Seller", and
LITHIA MOTORS, INC., (OR NOMINEE), as Buyer
DISCLOSURE OF TOXIC MATERIALS
[SEE PAGES ATTACHED HERETO.]
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EXHIBIT 10.2
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
THIS AGREEMENT is entered into by and between NISSAN - BMW, INC., a
California corporation, dba "BAKERSFIELD NISSAN, ACURA, BMW" (hereinafter
referred to as "Seller"), ELOY RENFROW (hereinafter "Renfrow"), and LITHIA
MOTORS, INC. OR ITS NOMINEE (hereinafter referred to as the "Buyer' or as
"Lithia").
RECITALS:
Seller is a California business corporation engaged in the business of
selling and servicing Nissan, Acura and BMW motor vehicles and related parts and
accessories from premises located at 31 01 Cattle Drive, Bakersfield, California
93313 (the "Business Real Property"), under franchises issued by Nissan Motor
Corporation in USA, BMW of North America, Inc., and American Honda Motor Co.
Renfrow owns all of the outstanding shares of Seller.
Buyer wishes to purchase from Seller, and Seller is willing to sell to
Buyer, all assets relating to Seller's Nissan, Acura and BMW franchises at 3101
Cattle Drive, Bakersfield, California, conditioned upon the granting to Buyer of
exclusive franchises for the sale of new Nissan, Acura and BMW motor vehicles in
the same geographical area as Seller's franchises.
Buyer (or a related entity) also wishes to purchase, lease or sublease all
of the real property and improvements which constitute the Business Real
Property, and the purchase of Seller's business assets shall be conditioned upon
the simultaneous closing of the purchase, lease or sublease of that real
property by Buyer. Renfrow is the owner of the Business Real Property.
NOW, THEREFORE, IN CONSIDERATION OF the mutual promises set forth herein,
the parties agree as follows:
1. DEFINITIONS. In this Agreement, the following words shall have the
indicated meanings:
(a) "CLOSING" shall refer to the consummation of the transaction
contemplated under this Agreement in accordance with the terms hereof, and
"CLOSING DATE" shall refer to the actual date of Closing. "TARGET CLOSING DATE"
shall refer to September 1, 1997. "FINAL CLOSING DATE" shall refer to OCTOBER
1, 1997.
(b) "SELLER'S BUSINESS" shall refer to any and all activities
conducted by Seller in Bakersfield, California, relating to the marketing and
sale of new Nissan, Acura and BMW vehicles and associated parts and accessories,
and the repair and servicing of new or used Nissan, Acura and BMW vehicles.
(c) "PURCHASED ASSETS" shall refer to those assets which are
identified in Paragraph 2 as being purchased and sold by the parties hereunder.
(d) Seller's "EQUIPMENT" shall refer to all non-inventory items of
tangible personal property presently owned or used by Seller in connection with
Seller's Business, including all of Seller's machinery, tools, signs, office
equipment, computer equipment, computer programs, microfiches, parts lists,
repair manuals, sales or service brochures, furniture and fixtures, and all of
Seller's leasehold improvements to the Business Real Property, and further
including all fixed assets listed on Sellers financial statements as of December
31, 1996.
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(e) Sellers "INTANGIBLE ASSETS" shall refer to Seller's business name
("Bakersfield Nissan, Acura and BMW), telephone and fax numbers, service
customer lists, sales customer lists, vehicle sales records, vehicle service
records, all rights of Seller under contracts assigned to and assumed by Buyer
pursuant to this Agreement, and all other intangible rights and interests of any
value relating to Seller's Business; provided, however, that Seller's
"Intangible Assets" shall not include the goodwill arising out of the franchise
agreements issued by the Franchisors to Renfrow, which goodwill is being
separately sold by Renfrow to Buyer under this Agreement.
(f) "BUSINESS REAL PROPERTY" shall refer to all of the real property
located in Bakersfield, California which has been used in connection with
Sellers business, including but not limited to the premises at 3101 Cattle
Drive, Bakersfield, California, and also including the vacant parcel of
approximately 2.7 acres to the rear of the dealership on the opposite side of
the railroad tracks.
(g) "FRANCHISORS" shall refer to Nissan Motor Corporation in USA, BMW
of North America, Inc. and American Honda Motor Co.
(h) "NEW VEHICLE" shall refer to a Nissan, Acura or BMW motor vehicle
which: (i) is unregistered and unused, (ii) is from the 1997 or 1998 model year,
(iii) has been driven for less than 200 odometer miles, and (iv) may be
represented or warranted to consumers as "new" under California law. "ROLLBACK
VEHICLE" shall mean an unregistered vehicle from the 1997 or 1998 model year
which has been sold to a customer by Seller but returned because of the
customers inability to obtain financing for the purchase. "DEMONSTRATOR
VEHICLE" shall mean an unregistered vehicle from the 1997 or 1998 model year
which has been used and operated by Seller on dealer plates for sales
demonstration purposes. "USED VEHICLE" shall mean any vehicle which is not a
"new vehicle", a "demonstrator vehicle" or a "rollback vehicle" as defined in
the three preceding sentences.
(i) "DATE OF THIS AGREEMENT" shall refer to the first date upon which
this Agreement has been signed by all of the parties.
(j) All amounts payable by Buyer to Seller at Closing shall be paid
by certified check drawn against a bank of Buyers choice having offices located
in Jackson County, Oregon, or by whatever other means shall be acceptable to
Seller.
2. PURCHASED ASSETS. Seller agrees to sell to Buyer, and Buyer agrees to
purchase from Seller, the assets identified in Paragraphs 3, 4, 5, 6, 7, 8, 9,
and 10 of this Agreement (the "Purchased Assets"). Excluded from this
transaction are Seller's cash, accounts receivable, notes receivable, banking
accounts and deposits, and all other assets not identified in Paragraphs 3, 4,
5, 6, 7, 8, 9, and 1 0 of this Agreement.
3. INVENTORY OF NEW VEHICLES, DEMONSTRATOR VEHICLES AND ROLLBACK
VEHICLES. Buyer shall purchase Seller's entire inventory of new Nissan, Acura
and BMW vehicles, as that inventory exists on the Closing Date. Buyer also
shall purchase Seller's entire inventory of demonstrator vehicles and rollback
vehicles (up to a maximum of five rollback vehicles), as that inventory exists
on the Closing Date.
(a) PRICE OF NEW VEHICLES. The purchase price for each of Seller's
new vehicles shall be equal to Seller's factory invoice cost, reduced by any
factory hold-backs, factory rebates, factory incentives, carry-over model
allowances, Franchisor floor plan allowances, finance cost allowances,
advertising allowances, and any other items which should reasonably be deducted
in order to establish Sellers actual net cost for each vehicle, and further
reduced by the actual net cost for any and all
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accessories, equipment and parts which are missing from a vehicle. Seller
shall be entitled to receive directly from the Franchisors all holdbacks,
rebates, incentives, allowances and other items referred to in the preceding
sentence which shall have accrued prior to Closing and which reduce Buyer's
purchase price for Seller's new vehicles. Seller's actual net cost for new
vehicles shall include Seller's actual net cost for any and all parts and
accessories reasonably installed by Seller to new vehicles in the ordinary
course of business, but shall not include any other vehicle preparation
charges, labor charges or other dealer charges of any kind.
(b) DEDUCTION FOR DAMAGE TO NEW VEHICLES. Immediately prior to
Closing, Buyer and Seller shall jointly inspect Seller's inventory of new
vehicles. If any vehicle in Seller's inventory of new vehicles is damaged,
and if the cost of repairing that damage would be more than $1,000.00, then
that vehicle shall be treated as a used vehicle for purposes of Paragraph 4
and this Paragraph 3, rather than as a new vehicle. If any vehicle in
Seller's inventory of new vehicles is damaged, and if the cost of repairing
that damage is less than $1,000.00, then Buyer shall be obligated to purchase
that vehicle as a new vehicle, and the price for that vehicle, as determined
under subparagraph 3(a), shall be reduced by the actual net cost to Buyer of
repairing that damage. If Buyer and Seller are unable to agree upon the
actual net cost to Buyer of repairing the damage to a vehicle, then Buyer and
Seller shall select an independent third party to determine that repair cost,
which determination shall be binding upon both Buyer and Seller.
(c) PAYMENT FOR NEW VEHICLES. The aggregate purchase price for all
new vehicles purchased by Buyer from Seller shall be paid in full at Closing.
(d) PURCHASE ORDERS FOR NEW VEHICLES. Immediately prior to Closing,
Buyer and Seller shall jointly review Sellers outstanding purchase orders for
new vehicles ordered from Seller by customers but not delivered prior to
Closing. At Closing, Seller shall assign and transfer to Buyer, and Buyer shall
assume from Seller, all of Seller's rights (including customer deposits) and
obligations (including sales commissions) under such purchase orders; provided,
however, that Buyer shall not be obligated to assume Seller's rights or
obligations with respect to any new vehicle purchase order which is at a price
less than factory invoice, or which provides for a trade in at a price or under
terms unacceptable to Buyer.
(e) PRICE FOR DEMONSTRATOR VEHICLES AND ROLLBACK VEHICLES. The price
for each demonstrator and rollback vehicle shall be determined as provided in
subparagraphs 3(a) and 3(b) and then reduced by $750 per vehicle and further
reduced by 30 cents per mile for each odometer mile on that vehicle in excess of
1,000 miles]. The purchase price for demonstrator vehicles and rollback
vehicles shall be paid at Closing.
(f) ALLOCATION TO SELLER OF PORTION OF POTENTIAL NISSAN INCENTIVE.
If for the 1997 calendar year the combined Bakersfield Nissan franchises which
are operated by Seller prior to Closing and by Buyer subsequent to Closing
qualify for the $150.00 per vehicle incentive which is being offered under the
Nissan Wholesale Delivery Incentive Plan, then that incentive shall be allocated
between Buyer and Seller as follows:
(i) Seller shall be entitled to receive that portion of the
total incentive which is determined by multiplying the total incentive by a
fraction, the denominator of which is the total number of wholesale vehicles
purchased by the combined franchises from Nissan during the entire 1997 calendar
year, and the numerator of which is the number of wholesale vehicles purchased
by Seller's franchise from Nissan in 1997 prior to Closing minus the number of
those wholesale vehicles purchased by Seller's franchise from Nissan in 1997
which are purchased by
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(ii) Buyer shall be entitled to receive that portion of the total
incentive which is determined by multiplying the total incentive by a fraction,
the denominator of which is the total number of wholesale vehicles purchased by
the combined franchises from Nissan during the entire 1997 calendar year, and
the numerator of which is the number of wholesale vehicles purchased by Buyer's
franchise from Nissan in 1997 subsequent to Closing PLUS the number of wholesale
vehicles purchased by Seller's franchise from Nissan in 1997 which are purchased
by Buyer from Seller under this Agreement.
4. INVENTORY OF USED VEHICLES. Buyer intends to purchase Sellers entire
inventory of used vehicles, as that inventory exists at Closing. However, Buyer
shall not be obligated to purchase any used vehicle for which Buyer and Seller
are unable to agree upon a purchase price.
(a) DISCLOSURES. Seller shall be obligated, prior to Closing, to:
(i) disclose to Buyer any and all facts concerning each used vehicle which
Seller would be legally obligated to disclose to a consumer (including but not
limited to known damage and usage history), and (ii) provide to Buyer legal
odometer statements and free and clear title for each of the used vehicles.
(b) PRICE FOR USED VEHICLES. Used vehicles shall be purchased on an
individual basis. It is Buyer's intention to purchase all of Seller's used
vehicles. However, if Buyer and Seller cannot agree on the value of one or more
used vehicles, then those vehicles whose value is not agreed upon shall remain
the property of the Seller, and Buyer shall not be obligated to purchase those
vehicles. Buyer and Seller agree to establish the proposed purchase price for
all of Seller's used vehicles at least three business days prior to the
anticipated Closing Date.
(c) PAYMENT FOR USED VEHICLES. The aggregate purchase price for
Seller's inventory of used vehicles shall be paid in full at Closing.
(d) STORAGE AND DISPOSITION OF USED VEHICLES WHICH ARE NOT PURCHASED
BY BUYER. Buyer agrees to cooperate with Seller (at no cost to Buyer) in the
disposition of any of Sellers used vehicles which are not purchased by Buyer.
Seller shall have twenty (20) days after Closing within which to remove from the
Business Real Property any of Seller's used vehicles which are not purchased by
Buyer. Buyer shall store those vehicles in accordance with Buyers normal
business practices. Seller shall have sole and exclusive risk and liability for
any damage or loss to Seller's used vehicles while so stored on the Business
Real Property after Closing, and Buyer shall have no liability or obligation of
any kind by reason of any such damage or loss.
5. INVENTORY OF NEW PARTS AND ACCESSORIES. Buyer shall purchase Seller's
entire inventory of new, current (non-obsolete), undamaged Nissan, Acura and BMW
vehicle parts and accessories manufactured by Franchisor and/or third party
suppliers, as that inventory exists on the Closing Date. Buyer shall have no
obligation to purchase from Seller any parts or accessories which are used,
damaged or obsolete. For purposes of this Paragraph 5, a part or accessory
shall be "obsolete" on the Closing Date if not then returnable to the supplier
from which that part was originally purchased, or if not then listed in the
supplier's then-current price and parts books. Prior to Closing, Seller shall
maintain Seller's inventory of parts and accessories at a level consistent with
good business practices and Seller's normal and regular course of business.
(a) PRICE FOR PARTS AND ACCESSORIES. The purchase price for each
item in Seller's inventory of new, current and undamaged parts and
accessories for Nissan, Acura and BMW vehicles (whether manufactured by
Franchisor or third party suppliers) shall be the net cost for that item as
set forth in the then most recent price book published by the supplier of
that Rem, reduced
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by any discounts (including quantity purchase or stock order discounts),
rebates, incentives or allowances which should reasonably be taken into
account in order to establish what Buyer's net cost for that item would be if
that item was purchased by Buyer directly from that supplier at the time of
Closing.
(b) DETERMINATION OF INVENTORY OF PARTS AND ACCESSORIES. Seller's
inventory of new, current and undamaged Nissan, Acura and BMW parts and
accessories shall be determined immediately prior to Closing (or on whatever
earlier date shall be selected by mutual agreement of the parties) by a third
party inventory service selected by mutual agreement of the parties. Buyer and
Seller each shall be responsible for 50% of the fees charged by the inventory
service for conducting the inventory. If Closing does not take place
immediately after the inventory is completed, then the aggregate purchase price
for Seller's inventory of parts and accessories shall be increased by the actual
purchase price of any new items acquired after the inventory and prior to
Closing, and decreased by the cost of any items sold after the inventory and
prior to Closing
(c) PAYMENT FOR INVENTORY OF NEW PARTS AND Accessories The purchase
price for Seller's inventory of parts and accessories shall be paid in full at
Closing.
6. EQUIPMENT. Seller agrees to sell all of the Equipment to Buyer, and
Buyer agrees to purchase the Equipment from Seller. Within twenty (20) days
after the date of this Agreement, Seller shall provide to Buyer a list of the
Equipment, which list shall be attached hereto as Exhibit "A". Seller is
retaining, and is not selling to Buyer, those personal items of Seller's
Equipment which are listed on Exhibit "B" attached hereto. Seller warrants to
Buyer that the items listed on Exhibit "A" constitute all of the items of
tangible personal property (other than inventory, consumable supplies or those
items listed on Exhibit "B") which, during the six months preceding Closing,
shall have been owned or used by Seller in connection with Seller's Business.
Buyer shall have the right to fully inspect the Equipment. If Buyer is
dissatisfied with the kind, quality and/or value of the items listed on Exhibit
"A", Buyer shall have ten (10) days after receipt of Exhibit "A" from Seller
within which to notify Seller, in writing, of Buyer's determination to rescind
the transaction contemplated hereunder based on that dissatisfaction.
(a) PRICE FOR EQUIPMENT. The aggregate purchase price for all items
of Seller's Equipment (including leasehold improvements) which are being
purchased hereunder shall be Two Hundred Thousand and 00/100 Dollars
($200,000.00). Notwithstanding the preceding sentence, if one or more items of
Equipment listed on Sellers financial statements as of April 30, 1997 are not
delivered to Buyer at Closing, then the aggregate purchase price for the
Equipment shall be reduced by the fair market value of those missing items.
Seller agrees that Buyer shall have the right to allocate the aggregate purchase
price for the Equipment among the various items of Equipment in whatever manner
Buyer, in the exercise of its discretion, believes will best reflect the
relative fair market values of those items.
(b) PAYMENT FOR EQUIPMENT. The purchase price for the Equipment
shall be paid as follows:
(1) Prior to or simultaneously with the execution of this
Agreement, Buyer is making an earnest money deposit to Capital City Escrow,
Inc., in Sacramento, California, in the amount of $100,000.00, which earnest
money deposit, together with all interest earned thereon, shall be credited at
Closing against the purchase price for the Equipment.
(2) The balance of the purchase price for the Equipment shall be
paid in full at Closing.
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(c) Attached to this Agreement as Exhibit "A-Nonfunctional" is a
listing of certain items of the Equipment which are nonfunctional and have been
retained by Seller as a source of parts. Seller shall have no obligation to
restore any of the items listed on Exhibit "A-Nonfunctional" to good operating
condition prior to Closing, and Buyer agrees to accept those items in an "as
is", nonfunctional state of repair.
7. SUPPLIES. Buyer shall purchase all of the gas, oil, nuts, bolts, and
other automotive supplies which are held for use in Seller's Business; provided,
however, that Buyer shall not be obligated to purchase used, damaged or obsolete
items or supplies. For purposes of this Paragraph 7, an item shall be
"obsolete" on the Closing Date if not then returnable to the supplier from which
that item was originally purchased, or if not then listed in the suppliers then
current price books. Prior to Closing, Seller shall maintain Seller's inventory
of supplies at a level consistent with good business practices and Sellers
normal and regular course of business. The price for each item of the purchased
supplies shall be Seller's actual net cost, as determined by mutual agreement of
the parties, reduced by any discounts (including quantity purchase or stock
order discounts), rebates, incentives or allowances which should reasonably be
taken into account in order to establish what Buyer's net cost for that item
would be if that item was purchased by Buyer directly from that supplier at the
time of Closing. The purchase price for Seller's supplies shall be paid to
Seller at Closing.
8. CONTRACTUAL RIGHTS AND OBLIGATIONS. At Closing, Buyer shall assume
all rights and obligations of Seller under those certain equipment leases and
other contracts identified on Exhibit 'C" attached hereto, which Exhibit "C"
shall be prepared and attached hereto within 10 days after the date of this
Agreement. Buyer shall have the right to refuse to permit any one or more of
Seller's leases or other contracts to be included in Exhibit "C" (and assumed by
Buyer under this Agreement), and Seller shall remain solely responsible for any
such obligations refused by Buyer. Notwithstanding the preceding sentence,
Seller shall have the right to include on Exhibit "C" all of Seller's factory
communications computer leases and all of those additional leases identified on
Exhibit "C-l". Seller warrants that all of Seller's obligations under the
contracts listed on Exhibit "C" shall be current at the time of Closing. Seller
agrees to indemnity Buyer against all obligations under the contracts identified
on Exhibit "C" which relate to periods prior to Closing. Buyer agrees to
indemnity Seller against all obligations under the contracts identified on
Exhibit "C" which relate to periods after Closing.
9. REPAIR WORK IN PROGRESS. Buyer shall purchase all of Seller's vehicle
repair work in progress (in-house and subcontracted), at a price equal to
Seller's actual net cost (before profit and overhead) for all work completed
prior to Closing. The purchase price for work in progress shall be paid at
Closing.
10. INTANGIBLE ASSETS. Buyer shall purchase all of Seller's Intangible
Assets.
(a) The aggregate purchase price for Seller's Intangible Assets shall
be Two Hundred Thousand and 00/100 Dollars ($200,000.00). This $200,000.00
purchase price shall be allocated among the items which constitute the
Intangible Assets as determined by Buyer in the reasonable exercise of Buyer's
discretion, and shall be paid by Buyer to Seller at Closing.
(b) In order for Buyer to receive the full benefit of the intangible
assets being purchased by Buyer from Seller, it will be necessary for Buyer to
perform no-charge repair work and vehicle warranty work with respect to vehicles
repaired or sold by Seller prior to Closing. In partial consideration of the
$200,000.00 amount being paid by Buyer for the Intangible Assets, Seller agrees
(subject to subparagraph (b)(1)) to reimburse Buyer for the net cost to Buyer of
repair and warranty services which are not covered by factory warranty and which
are performed by Buyer within six (6)
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months after Closing in order to satisfy: (i) customers who are dissatisfied
with repair services provided by Seller prior to Closing, and (ii) warranty
claims with respect to new or used vehicles purchased from Seller prior to
Closing.
(1) Buyer shall be obligated to provide written notification to
Seller before performing any services which would give rise to Seller's
reimbursement obligation under this subparagraph 10(b). In each individual
case, Seller shall have no obligation to reimburse Buyer under the second
sentence of this subparagraph 10(b) for the cost of repair and warranty services
unless: (i) Buyer either consents in writing to those services (which consent
shall not be withheld unreasonably) or fails to reasonably object in writing to
those services within three (3) business days after receiving the written
notification referred to in the first sentence of this subparagraph 10(b)(1).
(2) In each individual case, Buyer agrees to exhaust reasonable
efforts to obtain reimbursement from the manufacturer for warranty services
before submitting a notice to Seller pursuant to subparagraph 10(b)(1).
(3) Seller agrees to reimburse Buyer pursuant to the preceding
sentence on a monthly basis, with payment to be made within ten (10) days after
Buyer submits a billing for the cost of repair and warranty services performed
during the preceding calendar month.
11. PURCHASE AND SALE OF GOODWILL. Renfrow is the owner of the Nissan,
Acura and BMW franchises issued by Franchisors with respect to Seller's
Business. All goodwill relating to the existing franchises is the property of
Renfrow. Buyer agrees to purchase from Renfrow all goodwill associated with the
Nissan, Acura and BMW franchises issued by Franchisors with respect to Seller's
Business for the aggregate purchase price of Three Million Two Hundred Thousand
and 00/100 Dollars ($3,200,000.00).
(a) Two Million and 00/100 Dollars ($2,000,000.00) of the purchase
price for the franchise goodwill shall be paid to Renfrow at Closing.
(b) Renfrow shall have the option (which option shall be exercised by
Renfrow in writing not less than ten (10) business days prior to Closing) to
receive the $1,200,000.00 balance of the purchase price for the Intangible
Assets in accordance with either of the following two alternatives:
Option #1: Delivery to Renfrow at Closing of a promissory note
issued by Buyer in the amount of One Million Two Hundred Thousand Dollars
($1,200,000.00), which promissory note (the "Promissory Note") shall incorporate
the following terms:
(A) Interest shall accrue on the outstanding balance of the
Promissory Note at the rate of eight and one-half percent (8.5%) per annum
beginning on the date of Closing. The interest which accrues on the unpaid
principal balance during the first year following the date of Closing
($102,000.00 if there are no prepayments) shall be added to the principal
balance outstanding as of the first anniversary after Closing, and that adjusted
principal balance ($1,302,000.00 if there are no prepayments) shall thereafter
be amortized (with interest at the rate of 8.5% per annum) in equal monthly
installments over a 60 month period, with the first monthly installment being
due and payable thirteen months after the date of Closing, and with subsequent
monthly installments being due and payable at regular monthly intervals
thereafter on the same day of each month until payment in full.
(B) Print to prepay all or any portion of the unpaid
balance of the
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Promissory Note, without penalty or premium. Any prepayment shall be applied
against the last maturing installments of principal then due (with the
principal balance being reduced accordingly), and shall not excuse Buyer from
making the regular installment payments subsequently due until the principal
balance has been paid in full.
(C) If Buyer fails to pay any amount of principal or
interest due under the Promissory Note within ten (1 0) days after the date when
due, and if Renfrow notifies Buyer in writing of that default and Buyer fails to
cure that default within ten (10) days after receipt of that written notice from
Renfrow, then Renfrow shall have the right, at any time prior to the moment when
Buyer cures that default, to declare (and thereby cause) the entire unpaid
balance of the Promissory Note to be immediately due and payable.
(D) The Promissory Note shall be unsecured.
Option #2: Delivery to Renfrow at Closing of shares of
Class A Common Stock issued by Lithia. The number of shares ("Lithia
Shares") to be issued to Renfrow pursuant to the preceding sentence will be
determined by dividing One Million Two Hundred Thousand Dollars
($1,200,000.00) by the average closing price of Lithia's Class A Common Stock
as quoted in the Wall Street Journal for the ten (10) business days prior to
Closing. No fractional shares will be issued and should Renfrow be entitled
to a fractional share, the value of that fractional share shall be paid in
cash. The Lithia shares so issued to Renfrow shall be issued without
registration under the Securities Act of 1933 or any state securities laws,
under applicable exemptions from registration.
12. LIMITATION ON LIABILITIES ASSUMED. Except as provided in subparagraph
3(d), Paragraph 8 and Paragraph 9, Buyer shall not, by reason of this Agreement
or Buyer's purchase of the Purchased Assets, take responsibility for any
liabilities, debts or obligations of Seller (including Seller's trade payables,
account payables, obligations to employees, or tax liabilities).
13. WARRANTIES OF SELLER. Seller makes the following warranties to Buyer,
with the intent that Buyer rely thereon:
(a) CORPORATE ORGANIZATION. Seller is a corporation organized,
validly existing, and in good standing under the laws of the State of
California. Seller is qualified to do business in the State of California, and
has full power and authority to own, use, and sell its assets.
(b) CORPORATE AUTHORITY. Seller's board of directors and
shareholders have authorized the execution and delivery of this Agreement to
Buyer and the carrying out of its provisions. This Agreement will not violate
any judicial, governmental or administrative decree, order, writ, injunction, or
judgment, and will not conflict with or constitute a default under Seller's
bylaws, or any contract, agreement, or other instrument to which Seller is a
party or by which it may be bound.
(c) EMPLOYEE ISSUES. No employees of Seller are members of any
union. Within 10 days after the date of this Agreement, Seller shall provide to
Buyer the following: (i) a census of Seller's employees, (ii) a written
disclosure of all benefits made available to Seller's employees (including
qualified and non-qualified retirement plans), and (iii) access to all personnel
files for seller's employees. All employee benefit plans maintained by Seller
for its employees shall be fully funded prior to Closing. Seller shall pay all
wages, commissions, accrued vacation pay and other accrued compensation earned
by Seller's employees prior to Closing (together with all accrued FICP and
withholding taxes). Seller shall terminate the employment of all of the
employees of Sellers Business, with the termination to be effective as of the
close of business on the Closing Date. At Buyer's sole discretion, Buyer may
(but
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shall not be obligated to) hire any of the terminated employees of Seller's
Business (the 'Terminated Employees"). Seller will not, for a period of two
years following Closing, employ or offer employment to any Terminated
Employee unless: (1) Buyer shall fail to offer employment to that Terminated
Employee, or (2) that Terminated Employee is initially employed by Buyer, but
that employment is subsequently terminated and either: (i) Buyer consents in
writing to Seller's employment of that Terminated Employee, or (ii) a period
of 6 months elapses between the date of termination of Buyer's employment of
that Terminated Employee and the first date of Seller's reemployment of that
Terminated Employee.
(e) UNDISCLOSED LIABILITIES AND CONTRACTUAL COMMITMENTS. Except as
otherwise disclosed in this Agreement (or in an attached Exhibit), the following
statements are true as of the date of this Agreement and shall be true at
Closing: (i) Seller does not have any liabilities which might have a material
impact on Buyer's use of the Purchased Assets, (ii) Seller is not a party to any
contracts or commitments which might have a material impact on Buyer's use of
the Purchased Assets, (iii) no law suit or action, administrative proceeding,
arbitration proceeding, governmental investigation, or other legal or equitable
proceeding of any kind is pending or threatened against Seller which might
adversely affect the value of the Purchased Assets and (iv) Seller has all
licenses, permits and authorizations required by any federal, state or local
governmental or regulatory agency in order to operate Seller's Business, and
knows of no reason why any such license or permit might be subject to
revocation. if any claim is asserted against Buyer after Closing with respect to
any obligation of Seller which Seller has failed to disclose to Buyer in
writing, or which Seller has disclosed but failed to pay, then Buyer shall give
prompt written notice of that claim to Seller. Seller shall indemnity Buyer
with respect to all such obligations.
(f) CONDITION OF EQUIPMENT. Each item of the Equipment shall be in
good operating condition at Closing. Seller will continue to perform routine
maintenance and repairs with respect to the Equipment prior to Closing. Buyer
shall have two business days after Closing within which to advise Seller in
writing if any item of Equipment is not in good operating condition at Closing,
and Seller shall thereupon be obligated to repair or replace that item (or
reimburse Buyer for doing so). Any items of Equipment which are in good
operating condition at Closing shall be accepted by Buyer "as is" and without
any additional warranty.
(g) GOOD TITLE. Seller has, and shall transfer to Buyer at Closing,
good and marketable title to all of the Purchased Assets, free and clear of all
security interests, liens, equitable interests, leases, assessments,
restrictions, reservations, or other burdens of any kind. All current and
accrued taxes which may become a lien against any of the Purchased Assets prior
to Closing shall have been paid by Seller prior to Closing (including property
taxes, sales taxes accrued with respect to any transaction other than the
transaction contemplated under this Agreement, and excise taxes).
(h) NO TOXIC MATERIALS DISCHARGED. Except as disclosed by Seller on
Exhibit, D" attached hereto, Seller and Renfrow warrant that (i) no activity in
connection with Seller's Business prior to Closing shall have produced any toxic
materials, the presence or use of which upon the Business Real Property would
violate any federal, state, local or other governmental law, regulation or order
or would require reporting to any governmental authority and (ii) there are no
in-ground hoists, underground gas tanks, underground fuel tanks, or underground
waste oil tanks located on the Business Real Property, and (iii) the Business
Property is otherwise free and clear of any toxic materials. For purposes of
this subparagraph (h), the phrase "toxic materials" shall include but not be
limited to any and all substances deemed to be pollutants, toxic materials or
hazardous materials under any state or federal law. Seller has furnished to
Buyer, prior to the date of this Agreement, copies of all environmental reports
and
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certificates of compliance relating to Seller's Business and the Business
Real Property. Upon the execution of this Agreement, Seller shall, at
Seller's sole expense, engage an appropriate environmental firm which is
acceptable to Buyer to conduct an investigation and produce a Phase One
Environmental Report regarding the Business Real Property. If the Level 1
environmental assessment discloses that the Business Real Property is, or is
likely to be, materially contaminated by the presence of toxic materials, and
if Buyer provides Seller with a written demand to remediate, cleanup,
detoxify and decontaminate any and all such contamination as a condition of
Closing, and if the cost of remediation would not exceed $100,000.00, then
Seller shall be obligated (at Seller's sole expense) either to: (i) complete
such remediation, cleanup, detoxification and/or decontamination prior to,
and as a condition of, Closing, or (ii) place sufficient funds into escrow at
Closing to cover the expense of the required remedy. If the Level 1
environmental assessment discloses that the Business Real Property is, or is
likely to be, materially contaminated by the presence of toxic materials, and
if Buyer provides Seller with a written demand to remediate, cleanup,
detoxify and decontaminate any and all such contamination as a condition of
Closing, and if the cost of remediation would exceed $100,000.00, then Seller
shall have the option either to take one of the two actions identified in
claues (i) and (ii) of the preceding sentence or promptly notify Buyer in
writing of Seller's intention not to take either of those actions; if Seller
notifies Buyer in writing of Seller's intention not to take either of the
actions identified in clauses (i) and (ii) of the preceding sentence, then
Buyer shall be entitled to treat that event as a failure of a condition
precedent for purposes of Paragraph 16 of this Agreement.
(i) FRANCHISORS' CONSENT. Seller shall take all actions which are
reasonably necessary on Seller's part to obtain the consent of the Franchisors
to the issuance to Buyer of exclusive franchises for the sale of new Nissan,
Acura and BMW vehicles in the same geographical area as Seller's current
franchises in Bakersfield, California.
(j) EVALUATION OF RISKS IN RECEIVING LITHIA SHARES. Seller and
Renfrow each are capable of evaluating the merits and risks of an investment in
the Lithia Shares. By reason of their respective business or financial
experience, and/or the business or financial experience of their respective
professional advisors who are not affiliated (either directly or indirectly)
with Lithia or any affiliate or selling agent of Lithia, Seller and Renfrow have
the capacity to protect their interests in connection with an investment in the
Lithia Shares. Seller and Renfrow each have met (either directly or through
their respective professional advisors) with a representative of Lithia and have
had the opportunity to ask questions of, and receive answers from, Lithia
concerning Lithia and the Lithia Shares and the terms and conditions of this
transaction, and also have had the opportunity to obtain any information
requested by them (or their respective professional advisors). Any questions
raised concerning the transaction have been answered to their satisfaction.
(k) LIMITATIONS ON TRANSFER OF LITHIA SHARES. The Lithia Shares to
be transferred to Seller and/or Renfrow pursuant to this Agreement will be held
as an investment and not with a view to distribution. Further, any public
offering of the Lithia Shares by Seller or its transferee pursuant to an S-3
Registration Statement or Rule 144 of the Securities Act of 1933 shall be
limited to 20,000 shares per calendar quarter during 1998.
(l) LACK OF REGISTRATION OF LITHIA SHARES. Seller and Renfrow each
understand that: (i) the Lithia Shares have not been registered under the
Securities Act of 1933 in reliance upon an exemption from registration, (ii) the
Lithia Shares must be held indefinitely, unless the Lithia Shares subsequently
are registered under the Securities Act of 1933, or unless an exemption from
registration is otherwise available, (iii) the Lithia Shares may not be offered,
sold, transferred, pledged, or otherwise disposed of in the absence of either an
effective registration statement under the Securities Act of 1933 and applicable
state securities laws or an opinion of counsel acceptable to the Lithia that
such registration
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is not required, and (iv) the certificate representing the Lithia shares will
be imprinted with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. NO OFFER,
SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THE SHARES
MAY BE EFFECTED IN THE ABSENCE OF EITHER AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
(m) INFORMATION HAS BEEN PROVIDED CONCERNING LITHIA SHARES. Seller
and Renfrow each have received a copy of Lithia's Prospectus dated December 18,
1996, its Form 10-K for the year-end December 31, 1996, the Form 10-Q for the
quarter ended March 31, 1997, and the Information Statement for the Buyer's
Annual Meeting of Shareholders held May 15, 1997, and has had the opportunity to
review and discuss those filings with their respective professional advisors.
(n) INDEMNIFICATION FOR BREACH OF WARRANTIES. Seller (and Renfrow,
in the case of the warranty made in subparagraph 13(h)) shall indemnity Buyer
against all losses, damages and costs (including attorney fees and court costs)
relating to any warranty made by Seller (and Renfrow, in the case of the
warranty made in subparagraph 13(h)) in this Agreement which is false,
misleading, incomplete or inaccurate (either on the date of this Agreement or at
the time of Closing). If at any time prior to Closing Seller determines that
any warranty made by Seller in this Agreement is incorrect, incomplete or
misleading, then Seller shall advise Buyer of that fact and shall provide to
Buyer in writing whatever other information shall be necessary to cause that
warranty to be correct, complete and not misleading.
14. CONDUCT OF BUSINESS PENDING CLOSING. Seller warrants that during the
period beginning on the date of this Agreement and ending at Closing: (i)
Seller shall continue to operate Seller's Business in the usual and ordinary
course, and in substantial conformity with all applicable laws, ordinances,
regulations, rules or orders; (ii) Seller shall not allow any liens to be placed
against any of the Purchased Assets unless those liens are discharged prior to
Closing; (iii) Seller shall not take any action which may cause a material
adverse change in the operations of Seller's Business; (iv) Seller shall not
conduct any sale which shall use the words or phrases "Going Out of Business
Sale" or "Change of Ownership Sale" or other words or phrases having similar
meanings; (v) Seller shall use its best efforts to preserve the value of the
Nissan, Acura and BMW franchises in Bakersfield, California.
15. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby makes the
following representations and warranties to Seller and Renfrow, with the intent
that Seller and Renfrow rely thereon:
(a) ORGANIZATION. Lithia Motors, Inc. is a corporation organized,
validly existing and in good standing under the laws of the State of Oregon, and
is entitled to own property and to carry on its business.
(b) AUTHORITY. This Agreement must be authorized by the board of
directors of Lithia Motors, Inc. within 10 days after the date of this
Agreement. This Agreement will not violate the provision of any judicial,
governmental or administrative decree, order, writ, injunction, or judgment, or
conflict with or constitute a default under, the Article or bylaws of Lithia
Motors, Inc., or any
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contract, agreement, or other instrument to which Lithia Motors, Inc. is a
party.
(c) S-3 REGISTRATION. As soon as practicable after Lithia is
eligible to effect an S-3 Registration, and in no event later than January 30,
1998, Lithia shall file an S-3 Registration with the Securities and Exchange
Commission ("SEC"). The obligation of Lithia to include in the S-3 Registration
the Lithia Shares held by Seller or Renfrow (hereinafter collectively referred
to as the "Selling Shareholders") shall be conditioned upon the Selling
Shareholders providing such information regarding the Selling Shareholders, the
Lithia Shares held by the Selling Shareholders, and the intended method of
distribution as shall be requested by Lithia and required for the Registration.
(1) The plan of distribution of the Lithia Shares by the Selling
Shareholders, which shall be stated in the S-3 Registration, shall be
substantially as follows (except as may be otherwise required by the SEC or
state securities law regulators):
"The Lithia Shares may be sold from time to time by the
Selling Shareholders, or by pledgees, donees, transferees or
other successors in interest. Such sales may be made on
stock exchanges (including the Nasdaq National Market) or
otherwise at prices and on terms then prevailing or at
prices related to the then current market price, or in
negotiated transactions. The Lithia Shares may be sold by
one or more of the following methods: (i) block trades in
which the broker or dealer so engaged will attempt to sell
the Lithia Shares as agent but may position and resell a
portion of the block as principal to facilitate the
transaction; (ii) purchases by a broker or dealer as
principal, in a market maker capacity or otherwise, and
resale by such broker or dealer for its account pursuant to
this Prospectus; and (iii) ordinary brokerage transactions
and transactions in which the broker solicits purchasers.
In effecting sales, brokers or dealers engaged by the
Selling Shareholders may arrange for other brokers or
dealers to participate. Brokers or dealers will receive
commissions or discounts from the Selling Shareholders in
amounts to be negotiated immediately prior to the sale. The
Selling Shareholders, such brokers or dealers, and any other
participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of
1933 (the "Act") in connection with such sales.
In addition, any securities covered by this Prospectus which
qualify for sale pursuant to Rule 144 under the Act may be
sold under Rule 144 rather than pursuant to this Prospectus"
(2) In connection with the filing of an S-3 Registration Statement,
Lithia will as expeditiously as possible:
(i) Use its best efforts to cause the S-3 Registration to be
declared effective by the SEC.
(ii) Subject to paragraph (v) below, prepare and file with the
SEC such amendments and post-effective amendments to any S-3 Registration , and
such supplements to the Prospectus, as may be necessary to keep the S-3
Registration continuously effective until all Lithia Shares included in the
Registration Statement shall have been sold or until twelve (1 2) months after
Closing (at
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which time sales pursuant to Rule 144 of the Act may be effected).
(iii) Promptly notify the Selling Shareholders (and, if
requested by any Selling Shareholder, confirm such advice in writing) of: ((l))
the date when the S-3 Registration or any post-effective amendment thereto
becomes effective, ((2)) the issuance by the SEC of any stop order suspending
the effectiveness of the S-3 Registration, ((3)) the initiation of any
proceedings which might lead to the issuance by the SEC of any stop order
suspending the effectiveness of the S-3 Registration, ((4)) the receipt by
Lithia of any notification relating to the suspension of the qualification of
the Lithia Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose, and ((5)) the existence of any fact which
causes the Prospectus or any document incorporated therein by reference to
contain an untrue statement of a material fact or to omit to state a material
fact necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Each Selling Shareholder agrees that,
upon receipt of any notice from Lithia of the happening of any event of the kind
described in clause ((2)) or clause ((5)) of the preceding sentence, that
Selling Shareholder will forthwith discontinue disposition of Lithia Shares
until that Selling Shareholder's receipt of the copies of the supplemented or
amended prospectus contemplated by subparagraph (iv).
(iv) Subject to subparagraph (v) below, prepare a supplement or
post-effective amendment to the S-3 Registration or the related Prospectus or
any document incorporated therein by reference, or file any other required
document, so that the Prospectus, as thereafter delivered to the purchasers of
the Lithia Shares, will not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made.
(v) At any time when the S-3 Registration is effective, give
written notice to Selling Shareholders that a "Blackout Period" has commenced.
((1)) Upon receipt of notice that a "Blackout Period" has
commenced, the Selling Shareholders shall suspend sales of Lithia Shares
pursuant to the S-3 Registration until Lithia gives notice of the termination
of the Blackout Period. During a Blackout Period, Lithia's obligations under
subparagraph 2(ii) and 2(iv) shall also be suspended.
((2)) Blackout Period" shall mean a period: ((a))
commencing upon notice by Lithia to the Selling Shareholders of Lithia's good
faith determination that sales of Lithia Shares pursuant to a Registration
Statement would require the disclosure of material nonpublic information at a
time when such disclosure would be disadvantageous to Lithia or otherwise
inconsistent with Lithia's normal timing for disclosures, and ((b)) ending on
the earliest of: ((i)) the date upon which such material non-public information
is disclosed to the public or ceases to be material, ((ii)) sixty (60) days
after the date when Lithia first gives notice to Selling Shareholders of that
Blackout Period, or ((iii)) the date on which Lithia gives notice to the Selling
Shareholders that the Blackout Period is terminated. Blackout Periods shall not
exceed a total of ninety (90) days in any calendar year.
(vi) Make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the S-3 Registration.
(vii) Deliver to each of the Selling Shareholders, without
charge, as many copies of the Prospectus and any amendment or supplement thereto
as the Selling Shareholders may reasonably request.
(viii) Cause all Lithia Shares covered by the S-3 Registration
to be listed for
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trading on the Nasdaq National Market System.
(ix) Pay all expenses of Lithia in connection with the
registration of the Lithia Shares.
(x) Upon being notified by a Selling Shareholder that any
material arrangement has been entered into with a broker or dealer for the sale
of Lithia Shares, which arrangement requires a supplement to the Prospectus, to
promptly file a supplemented Prospectus pursuant to Rule 424 of the Act setting
forth such additional information as is required under the Act and the rules and
regulations of the SEC.
(d) INDEMNIFICATION FOR BREACH OF WARRANTIES. Buyer shall indemnity
Seller and Renfrow against all losses, damages and costs (including attorney
fees and court costs) relating to any warranty made by Buyer in this Agreement
which is false, misleading, incomplete or inaccurate (either on the date of this
Agreement or at the time of Closing). If at any time prior to Closing Buyer
determines that any warranty made by Buyer in this Agreement is incorrect,
incomplete or misleading, then Buyer shall advise Seller of that fact and shall
provide to Seller in writing whatever other information shall be necessary to
cause that warranty to be correct, complete and not misleading.
16. ADDITIONAL CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The
obligation of Buyer to close this transaction is subject to each of the
following conditions being true as of the date of Closing (each of which is for
the benefit of Buyer and may be waived by Buyer), and Buyer shall have the right
to rescind this Agreement if any of the following conditions is not satisfied in
accordance with its terms:
(a) Buyer shall have obtained from Franchisors, prior to the Final
Closing Date, exclusive franchises to sell new Nissan and BMW vehicles in the
same geographical area as Seller's current franchises in Bakersfield, California
(as evidenced by the issuance to Buyer by Franchisors of appropriate Dealership
Sales and Service Agreements, and the approval of Buyer as the publicly owned
Dealer-Operator of the franchises), and Buyer agrees to use its best reasonable
efforts to obtain those franchises. Buyer specifically agrees to prepare and
submit its applications for franchise approvals as soon as reasonably possible
after execution of this Agreement. Although Buyer, with Seller's full
cooperation, will attempt to obtain an exclusive franchise to sell new Acura
vehicles in Bakersfield, California, the issuance of that franchise to Buyer
shall not be a condition precedent to the closing of this transaction. If Buyer
is unable, prior to Closing, to obtain an exclusive franchise to sell new Acura
vehicles in Bakersfield, California, then Seller agrees to cooperate fully with
Buyer in the disposition of all assets related to Seller's Acura franchise.
(b) Buyer shall be reasonably satisfied with any facility improvement
requirements which are imposed by Franchisors.
(c) Buyer shall have been permitted to fully inspect the Business
Real Property. Buyer shall be reasonably satisfied with the physical condition
of the Business Real Property, and with all other aspects of the Business Real
Property (and Buyer agrees that if Buyer is not reasonably satisfied with any
aspect of the Business Real Property, then Buyer shall notify Seller in writing
of that dissatisfaction within 30 days after Buyer completes is inspection of
the Business Real Property). All leases and subleases which are necessary for
the beneficial use by Buyer of the Business Real Property shall be closed
concurrently with this transaction under terms and conditions which are
acceptable to Buyer.
(d) All of Sellers agreements and warranties set forth in this
Agreement shall be true,
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correct, complete and not misleading at Closing; provided that Buyers
decision to close this transaction shall not release Seller from liability to
Buyer for any warranty which is subsequently determined to be incorrect,
incomplete or misleading.
(e) Buyer shall be reasonably satisfied with the kind, quality and/or
value of the items listed on Exhibit "A", and does not notify Seller to the
contrary pursuant to Paragraph 6.
(f) This Agreement shall have been authorized by the board of
directors of Lithia Motors, Inc. within 10 days after the date of this
Agreement.
(g) If the Business Real Property is contaminated by hazardous
materials and the cost of remediation would exceed $100,000.00, then Seller must
either remediate that contamination prior to Closing or deposit sufficient funds
in escrow to cover the cost of that remediation, in accordance with the
provisions of subparagraph 13(h).
17. CLOSING. The parties shall make all reasonable effort to close the
purchase and sale under this Agreement at or before 5:00 p.m., Pacific Standard
Time, on or before the Final Closing Date, at the offices of Capital City
Escrow, Inc. in Sacramento, California, or at such other location as shall be
selected by mutual agreement of the parties.
(a) The parties agree to establish a closing escrow account at
Capital City Escrow, Inc. in Sacramento, California, (the "Closing Escrow
Agent"). Buyer and Seller each shall pay one-half (1/2) of the closing escrow
fees. Buyer and Seller agree to execute whatever reasonable escrow instructions
may be required by Closing Escrow Agent in connection with this transaction. In
the event of any conflict between those escrow instructions and this Agreement,
the terms of this Agreement shall prevail. Upon the execution of this
Agreement, Buyer shall deliver to Closing Escrow Agent the sum of $100,000.00
(the deposit), which amount shall immediately be placed into an interest bearing
account. The deposit plus interest shall be credited to Buyer and shall be
applied against the purchase price for the Equipment at Closing as provided in
Paragraph 6, or if the Closing fails to occur, then the deposit shall be
disbursed as set forth hereinafter.
(b) In all events, the Closing of the transaction contemplated under
this Agreement shall occur (if at all) on or before the Final Closing Date.
(c) If this transaction closes as provided herein, then actual
possession and all risk of loss, damage or destruction with respect to the
Purchased Assets, shall be deemed to have been delivered to Buyer at 11:59 p.m.,
Pacific Time, on the Closing Date.
(d) At Closing, and coincidentally with the performance of the
obligations to be performed by Buyer at Closing, Seller shall deliver to Buyer
the following: (i) all bills of sale, assignments and other instruments of
transfer, in form and substance, reasonably satisfactory to Buyer, which shall
be necessary to convey the Purchased Assets to Buyer; and (ii) all other
documents required under this Agreement.
(e) At Closing, and coincidentally with the performance of all
obligations required of Seller at Closing, Buyer shall deliver to Seller the
following: (i) payment for the Purchased Assets; and (ii) all other payments
and documents required under this Agreement. Buyer shall be responsible for all
sales taxes payable in connection with the transaction.
(f) If Closing does not take place on or before the Final Closing
Date because there
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has been a failure of any condition precedent set forth in Paragraph 16,
then: (i) all rights and obligations of both parties under this Agreement
shall terminate, (ii) Buyer shall be entitled to a refund of the entire
$100,000.00 earnest money deposit (and interest earned thereon) referred to
in subparagraph 6(b), and (iii) this, Agreement and all predecessor
agreements shall thereafter be void and of no effect.
(g) if Closing does not take place on or before the Final Closing
Date because of Buyer's material breach of this Agreement, then the $100,000.00
earnest money deposit delivered by Buyer to the Closing Escrow Agent (together
with all interest earned thereon while held by the Closing Escrow Agent) shall
be forfeited to Seller as Seller's sole and exclusive remedy for Buyer's breach,
and Seller shall have no other rights or remedies against Buyer by reason of
that breach. THIS SUM REPRESENTS A REASONABLE ESTIMATE BY BUYER AND SELLER OF
SELLER'S DAMAGES IN THE EVENT OF SUCH A DEFAULT, IT BEING EXTREMELY DIFFICULT TO
ASCERTAIN SELLER'S PRECISE DAMAGES. If Closing does not take place on or before
the Final Closing Date because of Seller's material breach of this Agreement,
then Buyer shall be entitled to: (i) a refund of the entire $100,000.00 earnest
money deposit previously delivered by Buyer to the Closing Escrow Agent
(together with all interest earned thereon while held by the Closing Escrow
Agent), (ii) any and all other rights and remedies for that breach which are
specified in this Agreement or which may be provided by law or in equity.
(h) Both parties agree to make a good faith effort to execute and
deliver all documents and complete all actions necessary to consummate this
transaction.
(i) At Closing, Seller agrees to execute an Asset Acquisition
Statement (IRS Form 8594) prepared by Buyer which reflects the allocation of the
total purchase price among the Purchased Assets in the manner determined in
accordance with this Agreement.
18. SELLER'S ACCOUNTS RECEIVABLE. For a period of six months after
Closing, Buyer shall, on Seller's behalf, and at no charge to Seller, accept any
payment with respect to Sellers customer receivables and other receivables
arising out of the operation of Seller's Business prior to Closing. All
collected receivables from vehicle sales shall be delivered to Seller within ten
(10) days after collection, and all other collected receivables shall be
delivered to Seller on a monthly basis. Buyer shall have no obligation to
undertake collection efforts with respect to Seller's receivables, and Buyers
only obligation shall be to account for and pay over Seller's receivables which
are actually received by Buyer.
19. SURVIVAL OF REPRESENTATIONS. All representations, warranties,
indemnification obligations and covenants made in this Agreement shall survive
the Closing, and shall remain in effect until the expiration of the latest
period allowable in any applicable statute of limitations.
20. ASSIGNMENT BY BUYER. Lithia Motors, Inc. shall have the right to
assign all rights and obligations of Lithia Motors, Inc. as "Buyer" under this
Agreement to any subsidiary of Lithia Motors, Inc. In the event of any such
assignment, the assignee shall assume all rights and obligations of the Buyer
under this Agreement, and Lithia Motors, Inc. shall remain jointly liable for
all obligations of the Buyer.
21. LEASE AND/OR PURCHASE OF BUSINESS REAL PROPERTY. As a condition to
the Closing of the transaction contemplated under this Agreement, Buyer (or a
related entity) is leasing the Business Real Property under the following
general terms and conditions, and Buyers obligation to close the transaction
contemplated under this Agreement shall be subject to the condition that Buyer
is, within 45 days after the date of execution of this Agreement, able to enter
into an agreement with the owner of the Business Real Property which allows
Buyer to lease the Business Real Property under the following general terms
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and under such additional terms as are reasonably satisfactory to Buyer:
(a) Fifteen year initial lease term, with Buyer having five
subsequent 5 year options to renew (for a total potential lease term of 40
years).
(b) Lease amount for first five years of $36,500.00 on a triple net
basis. Increase in basic lease amount for second five years based on changes in
CPI for Los Angeles/Long Beach area during first five years, with the maximum
increase being 10%. Similar CPI adjustment (limited to 10% over five years) for
each successive five year option period (with the maximum increase for each five
year period being 10%).
(c) At any time during initial five (5) years of the lease term,
Buyer will have right to exercise an option to purchase the Business Real
Property for $4,800,000.00. If Buyer exercises option, parties obligated to
close transaction no earlier than six months and no later than nine months after
date of notice of exercise of option. Full purchase price for property shall be
payable at closing of purchase. Seller must convey the Business Real Property
free of all liens and encumbrances. If Buyer exercises its purchase option,
then Buyer will cooperate with Seller (at no cost to Buyer) in enabling Seller
to complete a tax-free exchange of the Business Real Property under IRC Section
1031.
(d) During the initial fifteen year lease term, Buyer agrees to
maintain either Nissan and BMW franchises, or one or more other new car
franchises, on the Business Real Property.
(e) Buyer will agree to indemnity and hold harmless Seller with
respect to environmental contamination occurring with respect to the Business
Real Property during the lease term.
22. BOOKS AND RECORDS. For a period of three (3) years after Closing,
Seller shall maintain Seller's financial records, and Buyer and its agents shall
have full reasonable access to Seller's financial statements and general ledger
relating to periods prior to Closing, and may make copies thereof.
23. BULK TRANSFERS. It is the intention of the parties that this
transaction comply with Division Six of the California Uniform Commercial Code,
more commonly known as Uniform Commercial Code - Bulk Transfers, and Seller
shall take all actions necessary to comply therewith.
24. BROKERS COMMISSIONS. Seller shall be responsible for all commissions
payable to National Business Brokers in connection with the transaction
contemplated under this Agreement.
25. MISCELLANEOUS.
(a) There are no oral agreements or representations between the
parties which affect this transaction, and this Agreement supersedes all
previous negotiations, warranties, representations and understandings between
the parties. True copies of all documents referenced in this Agreement are
attached hereto. If any provision of this Agreement shall be determined to be
void by any court of competent jurisdiction, then that determination shall not
affect any other provision of this Agreement, and all other provisions shall
remain in full force and effect. If any provision of this Agreement is capable
of two constructions, only one of which would render the provision valid, then
the provision shall have the meaning which renders it valid. The paragraph
headings in this Agreement are for convenience purposes only, and do not in any
way define or construe the contents of this Agreement.
(b) This Agreement shall be governed and performed in accordance with
the laws of the state of California. Each of the parties hereby irrevocably
submits to the jurisdiction of the courts
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of Kern County, California, and agrees that any legal proceedings with
respect to this Agreement shall be filed and heard in the appropriate court
in Kern County, California.
(c) This Agreement may be executed in multiple counterparts, each of
which shall be an original, and all of which shall constitute a single
instrument, when signed by both of the parties. This Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
respective parties.
(d) Waiver by either party of strict performance of any provision of
this Agreement shall not be a waiver of, and shall not prejudice the party's
right to subsequently require strict performance of, the same provision or any
other provision. The consent or approval of either party to any act by the
other party of a nature requiring consent or approval shall not render
unnecessary the consent to or approval of any subsequent similar act.
(e) All notices provided for herein shall be in wilting and shall be
deemed to be duly given when mailed by United States certified mail, postage
prepaid, to the last-known address of the party entitled to receive the notice,
or when personally delivered to that party.
(f) Time is of the essence to this Agreement.
(g) Should any party hereto institute any action or proceedings to
enforce or interpret any provision hereof, or for damages by reason of any
alleged breach of any provision of this Agreement, the prevailing party shall be
entitled to recover from the losing party or parties such amount as the court
may adjudge to be reasonable attorney's fees for services rendered to the
prevailing party in such action or proceeding. The term "prevailing party" as
used in this section shall include, without limitation, any party who is made a
defendant in litigation in which damages and/or other relief may be sought
against such party and a final judgment or dismissal or decree is entered in
such litigation in favor of such party defendant.
(h) This Agreement may be executed by the parties using facsimile
copies, and facsimile signatures of the parties shall be binding.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated below.
SELLER NISSAN - BMW, INC., a California corporation
By/s/ELOY RENFROW JUNE 26, 1997
--------------------------------------- ---------------------------------
Eloy Renfrow, President Dated
ELOY RENFROW:
/s/ELOY RENFROW JUNE 26, 1997
- ----------------------------------------- ---------------------------------
Eloy Renfrow Dated
BUYER: LITHIA MOTORS, INC. (OR NOMINEE)
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By/s/BRYAN B. DEBOER JUN 26, 1997
- ----------------------------------------- ---------------------------------
Bryan B. DeBoer, Authorized Agent Dated
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EXHIBIT "A" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between NISSAN - BMW, INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
LIST OF EQUIPMENT, FURNITURE AND FIXTURES BEING SOLD BY SELLER
[See ____ pages attached hereto.]
EXHIBIT "B" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between NISSAN - BMW, INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
LIST OF EQUIPMENT, FURNITURE AND FIXTURES BEING RETAINED BY SELLER
[See ____ pages attached hereto.]
EXHIBIT "C" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between NISSAN - BMW, INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
LISTING OF LEASES AND AGREEMENTS BEING ASSUMED
[See ____ pages attached hereto.]
EXHIBIT "D" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between NISSAN - BMW, INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
DISCLOSURE OF TOXIC MATERIALS
[See ____ pages attached hereto.]
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EXHIBIT 10.3
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
THIS AGREEMENT is entered into by and between DICK DONNELLY AUTOMOTIVE
ENTERPRISES, INC., a Delaware corporation, dba "DICK DONNELLY LINCOLN, MERCURY,
AUDI, SUZUKI, ISUZU" (hereinafter referred to as "Seller"), and LITHIA MOTORS,
INC. or its nominee (hereinafter referred to as the "Buyer").
RECITALS:
Seller is a Delaware business corporation engaged in the business of
selling and servicing Lincoln, Mercury, Audi, Suzuki and Isuzu motor vehicles
and related parts and accessories from premises located at 7175 South Virginia,
Reno, Nevada and 40 Victorian Avenue, Sparks, Nevada (the "Business Real
Property), under franchises issued by Ford Motor Company, Isuzu Motor Company,
Suzuki Motor Company and Audi Motor Company.
Buyer wishes to purchase from Seller, and Seller is willing to sell to
Buyer, all assets relating to Seller's Lincoln, Mercury, Audi, Suzuki and Isuzu
franchise at P.O. Box 7120, Reno, Nevada, conditioned upon the granting to Buyer
of an exclusive franchise for the sale of new Lincoln, Mercury, Audi, Suzuki and
lsuzu motor vehicle in the same geographical area as Sellers franchise.
Buyer (or a related entity) also wishes to purchase, lease or sublease all
of the real property and improvements which constitute the Business Real
Property, and the purchase of Seller's business assets shall be conditioned upon
the simultaneous closing of the purchase, lease or sublease of that real
property by Buyer.
NOW, THEREFORE, IN CONSIDERATION OF the mutual promises set forth herein,
the parties agree as follows:
1. Definitions. In this Agreement, the following words shall have the
indicated meanings:
(a) "Closing" shall refer to the consummation of the transaction
contemplated under this Agreement in accordance with the terms hereof, and
"Closing Date* shall refer to the actual date of Closing. 'Target Closing Date"
shall refer to August 1, 1997. "Final Closing Date" shall refer to October 15,
1997.
(b) "Sellers Business" shall refer to any and all activities
conducted by Seller in Reno, Nevada, relating to the marketing and sale of new
Lincoln, Mercury, Audi, Suzuki and lsuzu vehicles and associated parts and
accessories, and the repair and servicing of new or used Lincoln, Mercury, Audi,
Suzuki and Isuzu vehicles.
(c) "Purchased Assets" shall refer to those assets which are
identified in Paragraph 2 as being purchased and sold by the parties hereunder.
Page 1 of 17
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(d) Seller's "Equipment" shall refer to all non-inventory items of
tangible personal property presently owned or used by Seller in connection with
Sellers Business, including all of Sellers machinery, tools, signs, office
equipment, computer equipment, computer programs, microfiches, parts lists,
repair manuals, sales or service brochures, furniture and fixtures, and all of
Seller's leasehold improvements to the Business Real Property. Within 20 days
after the date of this Agreement, Seller shall provide to Buyer a list of the
"Certain Person" items being retained by Seller which list shall be attached
hereto as Exhibit "A".
(e) Seller's "Intangible As@N shall refer to Seller's telephone and
f-ax numbers, service customer lists, sales customer lists, vehicle sales
records, vehicle service records, all rights of Seller under contracts assigned
to and assumed by Buyer pursuant to this Agreement, all goodwill associated with
Seller's Business, and all other intangible rights and interests of any value
relating to Seller's Business; provided, however, that Seller's business name
("Dick Donnelly Lincoln, Mercury, Audi, Suzuki, Isuzu") is included within the
Intangible Assets being sold by Seller hereunder.
(f) "Business Real Property" shall refer to all of the mal property
located in Reno and Sparks, Nevada which has been used in connection with
Seller's business, including but not limited to the premises at 7175 South
Virginia St. Reno, Nevada and 40 Victorian Avenue, Sparks, Nevada.
(g) "Franchisor shall refer to Ford Motor Company, American lsuzu
Motor Corporation, American Suzuki Motor Corporation and Audi of America
Incorporated.
(h) "New Vehicle" shall refer to a Lincoln, Mercury, Audi, Suzuki and
lsuzu motor vehicle which: (i) is unregistered and unused, (ii) is from the 1997
or 1998 model year, (ii) has been driven for less than 200 odometer miles, and
(iv) may be represented or warranted to consumers as "new" under Nevada law.
"Rollback Vehicle" shall mean an unregistered vehicle from the 1997 or 1998
model year which has been sold to a customer by Seller but returned because of
the customers inability to obtain financing for the purchase. "Demonstrator
Vehicle shall mean an unregistered vehicle from the 1997 or 1998 model year
which has been used and operated by Seller on dealer plates for sales
demonstration purposes. "Used Vehicle" shall mean any vehicle which is not a
"new vehicle", a 'demonstrator vehicle" or a "rollback vehicle" as defined in
the three preceding sentences.
(i) "Date of this Agreement!' shall refer to the first date upon
which this Agreement has been signed by all of the parties.
(j) All amounts payable by Buyer to Seller at Closing shall be paid
by certified check drawn against a bank of Buyer's choice having offices located
in Jackson County, Oregon, or by whatever other means shall be acceptable to
Seller.
2. PURCHASED ASSETS. Seller agrees to sell to Buyer, and Buyer agrees to
purchase from Seller, the assets identified in Paragraphs 3, 4, 5, 6, 7, 8, 9,
and 10 of this Agreement (the "Purchased Assets"). Excluded from this
transaction are Seller's cash, accounts receivable,
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notes receivable, banking accounts and deposits, and all other assets not
identified in Paragraphs 3, 4, 5, 6, 7, 8, 9, and 1 0 of this Agreement.
3. INVENTORY OF NEW VEHICLES, DEMONSTRATOR VEHICLES AND ROLLBACK VEHICLE.
Buyer shall purchase Seller's entire inventory of new Lincoln, Mercury, Audi,
Suzuki and lsuzu vehicles, as that inventory exists on the Closing Date. Buyer
also shall purchase Seller's entire inventory of demonstrator vehicles and
rollback vehicles (up to a maximum of five rollback vehicles), as that inventory
exists on the Closing Date.
(a) PRICE OF NEW VEHICLES. The purchase price for each of Sellers
new vehicles shall be equal to Sellers factory invoice cost, reduced by any
factory hold-backs, factory rebates, factory incentives, carry-over model
allowances, floor plan allowances, finance cost allowances, advertising
allowances, and any other Rems which should reasonably be deducted in order to
establish Sellers actual net cost for each vehicle, and further reduced by the
actual net cost for any and all accessories, equipment and parts which are
missing from a vehicle. Seller's actual net cost for new vehicles shall include
Seller's actual net cost for any and all parts and accessories reasonably
installed by Seller to new vehicles in the ordinary course of business, but
shall not include any other vehicle preparation charges, labor charges or other
dealer charges of any kind.
(b) DEDUCTION FOR DAMAGE TO NEW VEHICLES. Immediately prior to
Closing, Buyer and Seller shall jointly inspect Sellers inventory of new
vehicles. If any new vehicle purchased by Buyer from Seller is damaged, the
price for that vehicle, as determined under subparagraph 3(a), shall be reduced
by the actual net cost to Buyer of repairing that damage. If Buyer and Seller
are unable to agree upon the actual net cost to Buyer of repairing the damage to
a vehicle, then Buyer and Seller shall select an independent third party to
determine that repair cost, which determination shall be binding upon both Buyer
and Seller.
(c) PAYMENT FOR NEW VEHICLES. The aggregate purchase pdoe for all
now vehicles purchased by Buyer from Seller shall be paid in full at Closing.
(d) PURCHASE ORDERS FOR NEW VEHICLES. Immediately pdor to Closing,
Buyer and Seller shall jointly review Sellers outstanding purchase orders for
new vehicles ordered from Seller by customers but not delivered prior to
Closing. At Closing, Seller shall assign to Buyer, and Buyer shall assume from
Seller, all of Seller's rights (including customer deposits) and obligations
(including sales commissions) under such purchase orders; provided, however,
that Buyer shall not be obligated to assume Seller's rights or obligations with
respect to any new vehicle purchase order which is at a price less than factory
invoice, or which provides for a trade in at a price or under terms unacceptable
to Buyer. At Closing, Seller shall reimburse Buyer for all deposits made to
Seller with respect to ordered but undelivered new vehicles.
(e) PRICE FOR DEMONSTRATOR VEHICLES AND ROLLBACK Vehicles. The price
for each demonstrator and rollback vehicle shall be determined as provided in
subparagraphs 3(a) and 3(b) and then induced by $750 per vehicle and further
reduced by 30 cents per mile for each odometer mile on that vehicle in excess of
200 miles. The price for each rollback vehicle shall be determined as provided
in subparagraphs 3(a) and 3(b) and then reduced by 30 cents per mile
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for each odometer mile in excess of 200 miles. The purchase price for
demonstrator vehicles and rollback vehicles shall be paid at Closing.
4. INVENTORY OF USED VEHICLES. Buyer intends to purchase Sellers entire
inventory of used vehicle, as that inventory exists at Closing, including
Sellers parts trucks, service vehicles and courtesy vehicles, and also including
the one car that Seller provides to each of Sierra Nevada College, the Governor
of the State of Nevada and the Reno D.A.R.E. Program.
(a) DISCLOSURES. Seller shall be obligated, prior to Closing, to:
(i) disclose to Buyer any and all facts concerning each used vehicle which
Seller would be legally obligated to disclose to a consumer (including but not
limited to known damage and usage history), and (ii) provide to Buyer legal
odometer statements and free and clear tide,(or proof @, for each of the used
vehicles.
(b) PRICE FOR USED VEHICLES. The price for the used vehicles shall
be determined by using the Kelley Blue Book wholesale value, with exception of
program vehicles which will be Seller's actual net cost. The Kelley Blue Book
used will be the most current in production as of the date of closing. Buyer
and Seller agree to establish the proposed purchase price for all of Sellers
used vehicles at least three business days prior to the anticipated Closing
Date.
(c) PAYMENT FOR USED VEHICLES. The aggregate purchase price for
Sellers inventory of used vehicle shall be paid in full at Closing.
5. INVENTORY OF NOW PARTS AND ACCESSORIES. Buyer shall purchase Seller's
entire inventory of new, current (non-obsolete), undamaged Lincoln, Mercury,
Audi, Suzuki and Isuzu vehicle parts and accessories manufactured by Franchiser
and/or third party suppliers, as that inventory exists on the Closing Date.
Buyer shall have no obligation to purchase from Seller any parts or accessories
which are used, damaged or obsolete. For purposes of this Paragraph 5, a part
or accessory shall be "obsolete" on the Closing Date if not then returnable to
the supplier from which that part was originally purchased, or if not then
listed in the supplier's then-current price and parts books. Pdor to Closing,
Seller shall maintain Sellers inventory of parts and accessories at a level
consistent with good business practices and Sellers normal and regular course of
business.
(a) PRICE FOR PARTS AND ACCESSORIES. The purchase price for each
item in Sellers inventory of new, current and undamaged parts and accessories
for Lincoln, Mercury, Audi, Suzuki and lsuzu vehicles (whether manufactured by
Franchiser or third party suppliers) shall be the net cost for that item as set
forth in the then most recent price book published by the supplier of that item,
REDUCED BY THE STOCK ORDER DISCOUNTS in order to establish what Buyers net cost
for that item would be if that item was purchased by Buyer directly from that
supplier at the time of Closing.
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(b) DETERMINATION OF INVENTORY OF PARTS AND ACCESSORIES. Sellers
inventory of new, current and undamaged Lincoln, Mercury, Audi, Suzuki and lsuzu
parts and accessories shall be determined immediately pdor to Closing (or on
whatever earlier date shall be selected by mutual agreement of the parties).
Buyer and Seller each shall be responsible for conducting the inventory.
(c) PAYMENT FOR INVENTORY OF NEW PARTS AND ACCESSORIES. The purchase
price for Seller's inventory of parts and accessories shall be paid in full at
Closing.
6. EQUIPMENT Buyer shall purchase Seller's Equipment. Buyer acknowledges
that Seller is retaining, and is not selling to buyer those personal items of
Seller's Equipment, if any, which are listed on Exhibit 'A' attached hereto.
(a) PRICE FOR EQUIPMENT. The aggregate purchase price for Seller's
Equipment shall be determined by a mutually agreed upon appraiser whose cost
shall be equally shared by the parties.
(b) PAYMENT FOR EQUIPMENT. The purchase pdoe for the Equipment
shall be paid as follows:
(1) Prior to or simultaneously with the execution of this
Agreement, Buyer is making an earnest money deposit to Capital City Escrow,
Inc., in Sacramento, California, in the amount of $300,000.00, which earnest
money deposit, together with all interest earned thereon, shall be credited at
Closing against the purchase price for the Equipment.
(2) The balance of the purchase price for the Equipment shall
be paid in full at Closing.
7. SUPPLIES. Buyer shall purchase all of the gas, oil, nuts, bolts, and
other automotive and office supplies which are held for use in Seller's
Business; provided, however, that Buyer shall not be obligated to purchase used,
damaged or obsolete items or supplies. The price for all such supplies shall be
Sellers actual net cost, as determined by mutual agreement of the parties, and
shall be paid to Seller at Closing.
8. CONTRACTUAL RIGHTS AND OBLIGATIONS. At Closing, Buyer shall assume all
rights and obligations of Seller under those certain equipment leases and other
contracts identified on Exhibit "B' attached hereto, which Exhibit "B" shall be
prepared and attached hereto within 20 days after the date of this Agreement.
Seller warrants that all of Seller's obligations under the contracts listed on
Exhibit "B* shall be current at the time of Closing. Seller agrees to indemnity
Buyer against all obligations under the contracts identified on Exhibit "B*
which relate to periods pdor to Closing. Buyer agrees to indemnity Seller
against all obligations under the co identified on Exhibit "B" which relate to
periods after Closing. The amount of any obligation assumed by Buyer pursuant
to this Paragraph 8 shall be credited at Closing against the purchase price for
the Equipment.
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9. REPAIR WORK IN PROGRESS. Buyer shall purchase all of Sellers vehicle
repair work in progress (in-house and subcontracted), at a price equal to
Sellers actual net cost (before profit and overhead) for all work completed
prior to Closing. The purchase price for work in progress shall be paid at
Closing.
10. INTANGIBLE ASSETS. Buyer shall purchase all of Seller's Intangible
Assets.
(a) The aggregate purchase price for Seller's Intangible Assets shall
be Three Million Three Hundred Thousand and 00/100 Dollars ($3,300,000.00). This
$3,300,000.00 purchase price shall be allocated among the Rems which constitute
the Intangible Assets as determined by Buyer in the reasonable exercise of
Buyer's discretion; Two Million Seven Hundred Thousand and 00/1 00 Dollars
($2,700,000.00) of the purchase price for the Intangible Assets shall be paid at
closing. The remaining $600,000.00 of the purchase price for the Intangible
Assets shall be paid by Buyer to Seller as follows (subject to the provisions of
subparagraph 10(b):
(1) During the period beginning on the Closing Date and ending
when the entire $600,000.00 deferred balance of the purchase price for the
Intangible Assets has been paid in full, interest shall accrue on the
outstanding balance of that purchase p@ at the rate of eight (8%) per
annum.
(2) Subject to the provisions of subparagraph I 0(b), the
$600,000.00 deferred balance of the purchase price for the Intangible
Assets, together with interest accruing thereunder as provided in
subparagraph 10(a)l, shall be due and payable as follows: (i) the sum of
$248,000.00 ($200,000.00 in principal and $48,000.00 in accrued interest)
shall be due and payable on the first anniversary the after Closing Date;
(ii) the sum of $232,000.00 ($200,000.00 in principal and $32,000.00 in
accrued interest) shall be due and payable an the second anniversary after
the Closing Date; (iii) the sum of $216,000-00 ($200,000.00 in principal
and $16,000.00 in accrued interest) shall be due and payable on the third
anniversary after the Closing Date.
(i) If Buyer fails to pay any amount of principal or
interest due pursuant to this subparagraph 10(a)(2) within ten (10) days
after the date when due, and if Seller notifies Buyer in writing of that
default and Buyer fails to cure that default within ten (10) days after
receipt of that written notice from Seller, then Seller shall have the right
at any time prior to the moment when Buyer cures that default, to declare
(and thereby cause) the entire unpaid balance of the purchase price to be
immediately due and payable.
(ii) Buyer's deferred payment obligation as set forth in this
subparagraph 10(a)(2) shall be unsecured.
(b) Donnelly is the owner of the franchise issued by Franchiser with
respect to Seller's Business, and Donnelly has played an important personal role
in establishing the goodwill of Seller's Business. Buyer believes that the
continued employment of Donnelly by
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Buyer after Closing is important to the continued success of the purchased
business. In order for Buyer to receive the full benefit of the goodwill
being purchased by Buyer from Seller, it will be necessary for Donnelly to
complete at least three full years of employment for Buyer subsequent to
Closing. Donnelly has agreed to continue work for Buyer for a period of five
years after Closing under terms and conditions to be established by mutual
agreement between Donnelly and Buyer prior to Closing. Seller and Buyer agree
that a would be very difficult for Buyer to establish the exact measure of
Buyers damages if Donnelly was to fail to complete all or any portion of
Donnelly's required three years of continued employment by Buyer. Seller and
Buyer further agree that subparagraphs 1 0(b)(1) through 1 0(b)(3) reflect a
reasonable estimate of those damages suffered by Buyer.
(1) If Donnelly fails to complete at least one full year of
employment with Buyer after Closing, then a reasonable estimate of the damages
suffered by Buyer as a result of that failure is the entire $600,000.00 deferred
portion of the purchase price otherwise being paid to Seller by Buyer for the
Intangible Assets pursuant to subparagraphs 10(a)(1) and I 0(a)(2), and Buyer
thereafter shall have no obligation to pay any amount of principal or interest
to Seller pursuant to subparagraphs 10(a)(1) and 10(a)(2).
(2) If Donnelly completes at least one full year of employment
with Buyer after Closing but fails to complete at least two full years of
employment with Buyer after Closing, then a reasonable estimate of the damages
suffered by Buyer as a result of that failure is the $400,000.00 amount of
principal (plus accrued interest) otherwise being paid to Seller by Buyer for
the Intangible Assets subsequent to the first anniversary after the Closing
Date, and Buyer shall have no obligation to pay any amount of principal or
interest to Seller pursuant to subparagraphs 1 0(a)(1) and 1 0(a)(2) other than
the amount of principal and interest which is due and payable on the first
anniversary after Closing.
(3) If Donnelly completes at least two full years of employment
with Buyer after Closing but fails to compete at least three full years of
employment with Buyer after Closing, then a reasonable estimate of the damages
suffered by Buyer as a result of that failure is the $200,000.00 amount of
principal (plus accrued interest) otherwise being paid to Seller by Buyer for
the Intangible Assets subsequent to the second anniversary after the Closing
Date, and Buyer shall have no obligation to pay any amount of principal or
interest to Seller pursuant to subparagraphs 1 0(a)(1) and 1 0(a)(2) other than
the amount of principal and interest which is due and payable on the second
anniversary after Closing.
(4) For purposes of subparagraphs I 0(b)(1) through 1 0(b)(3),
Donnelly shall be deemed to have failed to complete a particular period of
employment with Buyer only if Donnelly's employment is terminated for one of the
following reasons: (1) Donnelly resigns employment for a reason other than death
or permanent and substantial disability, or (ii) Buyer fires Donnelly with "good
cause". For purposes of the preceding sentence, any one or more of the
following shall constitute "good cause" for Buyer to fire Donnelly: (A) any
failure or refusal by Donnelly to perform all of the material duties and
responsibilities which are reasonably associated with Donnelly's employment by
Buyer, or (B) the commission by Donnelly of any material act of malfeasance or
misfeasance in the performance of his employment duties and responsibilities; or
(C) any failure or refusal by Donnelly to comply with each and all of the
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material terms and conditions of the employment agreement entered into between
Donnelly and Buyer. If Donnelly's employment by Buyer is terminated by
Donnelly's death or permanent and substantial disability or if Buyer fires
Donnelly without "good cause", then Donnelly shall be deemed to have completed
at least three full years of employment with Buyer for purposes of subparagraphs
1 0(b)(1) through 1 0(b)(3).
(5) The execution, at or pdor to Closing, of an employment
agreement between Donnelly and Buyer which contains terms and conditions
satisfactory to Donnelly and Buyer, shall be an absolute condition precedent to
all obligations of Buyer and Seller under this Agreement.
(c) In order for Buyer to receive the full benefit of the intangible
good vail being purchased by Buyer, it will be necessary for Seller to perform
no-charge repair work and vehicle warranty work with respect to vehicles
repaired or sold by Seller pdor to Closing. In partial consideration of the
$3,300,000.00 amount being paid by Buyer for the Intangible Assets, Seller
agrees to reimburse Buyer for the cost of repair and warranty services which are
not covered by factory warranty and which are performed by Buyer within three
(3) months after Closing in order to satisfy: (i) customers who are dissatisfied
with repair services provided by Seller prior to Closing, and (ii) warranty
claims with respect to new or used vehicles purchased from Seller prior to
Closing.
11. BULK TRANSFERS- ft is the intention of the parties that this
transaction comply with Division Six of the Nevada Uniform Commercial Code, more
commonly known as Uniform (1) Commercial Code - Bulk Transfers, and Seller shall
take all actions necessary to comply therewith.
12. LIMITATION ON LIABILITIES ASSUMED. Except as provided in subparagraph
3(d), Paragraph 8 and Paragraph 9, Buyer shall not, by season of this Agreement
or Buyer's purchase of the Purchased Assets, take responsibility for any
liabilities, debts or obligations of Seller (including Seller's trade payables,
account payables, obligations to employees, or tax liabilities).
13. WARRANTIES Of Seller. Dick Donnelly and Seller make the following
warranties to Buyer, with the intent that Buyer rely thereon:
(a) CORPORATE ORGANIZATION. Seller is a corporation organized,
validly exiting, and in good standing under the laws of the State of Nevada.
Seller is qualified to do business in the State of Nevada, and has full power
and authority to own, use, and sell its assets.
(b) CORPORATE AUTHORITY. Seller's board of directors and
shareholders have authorized the execution and delivery of this Agreement to
Buyer and the carrying out of its provisions. This Agreement will not violate
any judicial, governmental or administrative decree, order, writ, injunction, or
judgment, and will not conflict with or constitute a default under Seller's
bylaws, or any contract, agreement, or other instrument to which Seller is a
party or by which k may be bound.
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(c) EMPLOYEE ISSUES. No employees of Seller are members of any
union. Within 1 0 days after the date of this Agreement, Seller shall provide
to Buyer the following: (i) a census of Seller's employees, (ii) a written
disclosure of all benefits made available to Seller's employees (including
qualified and non-qualified retirement plans), and (iii) access to all personnel
files for soles employees. All employee benefit plans maintained by seller for
its employees shall be fully funded pdor to Closing. Seller shall pay all
wages, commissions, accrued vacation pay and other accrued compensation earned
by Seller's employees prior to Closing (together with all accrued FICA and
withholding taxes). Seller shall terminate the employment of all of Sellers
employees effective as of the close of business on the Closing Date. At Buyer's
sole discretion, Buyer may (but shall not be obligated to) hire any of Seller's
employees. Seller will not, for a period of two years following Closing, employ
or offer employment to any of Seller's terminated employees unless Buyer shall
fail to employ such employees or shall subsequently terminate such employees.
(d) UNDISCLOSED LIABILITIES AND CONTRACTUAL COMMITMENTS. Except as
otherwise disclosed in this Agreement (or in an attached Exhibit), the following
statements are true as of the date of this Agreement and shall be true at
Closing: (i) Seller does not have any liabilities which might have a material
impact on Buyers use of the Purchased Assets, (ii) Seller is not a party to any
contracts or commitments which might have a material impact on Buyers use of the
Purchased Assets, (iii) no law suit or action, administrative proceeding,
arbitration proceeding, governmental investigation, or other legal or equitable
proceeding of any kind is pending or threatened against Seller which might
adversely affect the value of the Purchased Assets, and (iv) Seller has all
licenses, permits and authorizations required by any federal, state or local
governmental or regulatory agency in order to operate Seller's Business, and
knows of no reason why any such license or permit might be subject to
revocation. If any claim is asserted against Buyer after Closing with respect
to any obligation of Seller which Seller has failed to disclose to Buyer in
writing, or which Seller has disclosed but failed to pay, then Buyer shall give
prompt written notice of that claim to Seller. Seller shall indemnity Buyer
with respect to all such obligations.
(e) CONDITION OF EQUIPMENT. Each item of the Equipment shall be in
good operating condition at Closing. Seller will continue to perform routine
maintenance and repairs with respect to the Equipment pdor to Closing. Buyer
shall have thirty days after Closing within which to advise Seller in writing if
any item of Equipment is not in good operating condition at Closing, and Seller
shall thereupon be obligated to repair or replace that item (or reimburse Buyer
for doing so).
(f) GOOD TITLE. Seller has, and shall transfer to Buyer at Closing,
good and marketable title to all of the Purchased Assets, free and clear of all
security interests, liens, equitable interests, leases, assessments,
restrictions, reservations, or other burdens of any kind. All current and
accrued taxes which may become a lien against any of the Purchased Assets shall
have been paid by Seller prior to Closing (including property taxes, sales taxes
and excise taxes).
(g) NO TOXIC MATERIALS DISCHARGED. Upon the execution of this
Agreement, Seller at its cost shall engage an appropriate environmental firm
which is acceptable to Buyer to conduct an investigation and produce a Phase One
Environmental Report regarding the
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Business Real Property. In addition, Seller shall make available to Buyer
copies of all other environmental reports and certificates (of which Seller
has knowledge) with respect to the Business Real Property. If the Phase One
Environmental Report discloses any likelihood of contamination, Seller shall
have until the Closing Date to remedy that contamination (unless Buyer waives
the requirement for remediation). In the event ft is apparent that a remedy
can not be completed by the Closing Date, then Seller can either elect to
rescind the transaction in its entirely or place sufficient funds into the
escrow at the Closing Date to cover the expense of the required remedy.
Except as disclosed by Seller on Exhibit "C" attached hereto,
(i) no activity in connection with Seller's Business pdor to Closing shall have
produced any to)dc materials, the presence or use of which upon the Business
Real Property would violate any federal, state, local or other governmental law,
regulation or order or would require reporting to any governmental authority and
(ii) the Business Real Property is otherwise free and clear of any toxic
materials. For purposes or this subparagraph (h), the phrase "toxic materials"
shall include but not be limited to any and all substances deemed to be
pollutants, toxic materials or hazardous materials under any state or federal
law.
(h) FRANCHISORS CONSENT. Seller shall take all actions which are
reasonably necessary on Seller's part to obtain the consent of the Franchiser to
the issuance to Buyer of an exclusive franchise for the sale of new Lincoln,
Mercury, Audi, Suzuki and Isuzu vehicles in the same geographical area as
Sellers current franchise in Reno and Sparks, Nevada.
(i) INDEMNIFICATION FOR BREACH OF WARRANTIES. Dick Donnelly and
Seller shall indemnity Buyer against all losses, damages and costs (including
attorney fees and court costs) relating to any warranty made by Seller in this
Agreement which is false, misleading, incomplete or inaccurate (either on the
date of this Agreement or at the time of Closing). If at any time prior to
Closing Seller determines that any warranty made by Seller in this Agreement is
incorrect, incomplete or misleading, then Seller shall advise Buyer of that fact
and shall provide to Buyer in writing whatever other information shall be
necessary to cause that warranty to be correct, complete and not misleading.
14. CONDUCT OF BUSINESS PENDING CLOSING. Seller warrants that during the
period beginning on the date of this Agreement and ending at Closing: (i) Seller
shall continue to operate Seller's Business in the usual and ordinary course,
and in substantial conformity with all applicable laws, ordinances, regulations,
rules or orders; (ii) Seller shall not allow any liens to be placed against any
of the Purchased Assets unless those liens are discharged pdor to Closing; (iii)
Seller shall not take any action which may cause a material adverse change in
the operations of Seller's Business; (iv) Seller shall not conduct any sale
which shall use the words or phrases "Going Out of Business Sale* or other words
or phrases having similar meanings; (v) Seller shall use its best efforts to
preserve the value of the Lincoln, Mercury, Audi, Suzuki and Isuzu franchise in
Reno and Sparks, Nevada.
15. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby makes the
following representations and warranties to Seller, with the intent that Seller
rely thereon:
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(a) ORGANIZATION. Lithia Motors, Inc. is a corporation organized,
validly existing and in good standing under the laws of the State of Oregon, and
is entitled to own property and to carry on its business.
(b) AUTHORITY. This Agreement must be authorized by the board of
directors of Lithia Motors, Inc. within (10) days after the date of this
agreement. This Agreement will not violate the provision of any judicial,
governmental or administrative decree, order, writ, injunction, or judgment, or
conflict with or constitute a default under, the Article or bylaws of Lithia
Motors, Inc., or any contract, agreement, or other instrument to which Lithia
Motors, Inc. is a party.
16. ADDITIONAL CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The
obligation of Buyer to close this transaction is subject to each of the
following conditions (each of which is for the benefit of Buyer and may be
waived by Buyer), and Buyer shall have the right to rescind this Agreement if
any of the following conditions is not satisfied in accordance with its terms:
(a) Buyer shall have obtained from Franchiser, prior to the Final
Closing Date, an exclusive franchise to sell new Lincoln, Mercury, Audi, Suzuki
and Isuzu vehicles in the same geographical area as Seller's current franchise
in Reno and Sparks, Nevada (as evidenced by the issuance to Buyer by Franchiser
of an appropriate Dealership Sales and Service Agreement, and the approval of
Buyer as the publicly owned Dealer-Operator of the franchise), and Buyer agrees
to use its best reasonable efforts to obtain that franchise.
(b) Buyer shall be reasonably satisfied with any facility improvement
requirements which are imposed by Franchiser.
(c) Buyer shall have been permitted to inspect the business real
property. All leases and subleases which are necessary for the beneficial use
by Buyer of the Business Real Property shall be closed concurrently with this
transaction under terms and conditions which are acceptable to Buyer. Buyer
shall have been reasonably satisfied with the physical condition of the business
real property, and with all aspects of the business real property.
(d) All of Seller's agreements and warranties set forth in this
Agreement shall be true, correct, complete and not misleading at Closing;
provided that Buyer's decision to dose this transaction shall not release Seller
from liability to Buyer for any warranty which is subsequently determined to be
incorrect, incomplete or misleading.
(e) Buyer is satisfied with the kind, quality and/or value of the
items listed on Exhibit "A", and does not notify Seller to the contrary pursuant
to Paragraph 6.
(f) This agreement, shall have been authorized by the board of
directors of Lithia Motors Inc. within 10 days after the date of this agreement.
17. CLOSING. The parties shall make all reasonable effort to dose the
purchase and sale under this Agreement at or before 5:00 p.m., Pacific Standard
Time, on or before the Final
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Closing Date, at the offices of Capital City Escrow, Inc. in Sacramento,
California, or at such other location as shall be selected by mutual
agreement of the parties.
(a) The parties agree to establish a dosing escrow account at Capital
City Escrow, Inc. in Sacramento, California, (the "Closing Escrow Agent').
Buyer and Seller each shall pay one-half (1/2) of the closing escrow fees.
Buyer and Seller agree to execute whatever reasonable escrow instructions may be
required by Closing Escrow Agent in connection with this transaction. In the
event of any conflict between those escrow instructions and this Agreement, the
terms of this Agreement shall prevail. Upon the execution of this Agreement,
Buyer shall deliver to Closing Escrow Agent the sum of $300,000.00 (the
deposit), which amount shall immediately be placed into an interest bearing
account. The deposit plus interest shall be credited to Buyer and shall be
applied against the purchase price for the Equipment at Closing as provided in
Paragraph 6, or if the Closing fails to occur, then the deposit shall be
disbursed as set forth hereinafter.
(b) In all events, the Closing of the transaction contemplated under
this Agreement shall occur (if at all) on or before the Final Closing Date.
(c) If this transaction closes as provided herein, then actual
possession and all risk of loss, damage or destruction with respect to the
Purchased Assets, shall be deemed to have been delivered to Buyer at 11:59 p.m.,
Pacific Standard Time, on the Closing Date.
(d) At Closing, and coincidentally with the performance of the
obligations to be performed by Buyer at Closing, Seller shall deliver to Buyer
the following: (i) all bills of sale, assignments and other instruments of
transfer, in form and substance reasonably satisfactory to Buyer, which shall be
necessary to convey the Purchased Assets to Buyer; and (ii) all other documents
required under this Agreement.
(e) At Closing, and coincidentally with the performance of all
obligations required of Seller at Closing, Buyer shall deliver to Seller the
following: (i) payment for the Purchased Assets; and (ii) all other payments and
documents required under this Agreement. Buyer shall be responsible for all
sales taxes payable in connection with the transaction.
(f) If Closing does not take place on or before the Final Closing
Date because there has been a failure of any condition precedent set forth in
Paragraph 16 or because Seller has elected to rescind the Agreement pursuant to
subparagraph 13(g), then: (i) all rights and obligations of both parties under
this Agreement shall terminate, (ii) Buyer shall be entitled to a refund of the
entire $300,000.00 earnest money deposit (and interest earned thereon) referred
to in subparagraph 6(b), and (iii) this Agreement and all predecessor agreements
shall thereafter be void and of no effect.
(g) If Closing does not take place on or before the Final Closing
Date because of Buyer's material breach of this Agreement, then the $300,000.00
earnest money deposit delivered by Buyer to the Closing Escrow Agent (together
with all interest earned thereon while held by the Closing Escrow Agent) shall
be forfeited to Seller as Seller's sole and exclusive remedy for Buyers breach,
and Seller shall have no other rights or remedies against Buyer by
Page 12 of 17
<PAGE>
reason of that breach. THIS SUM REPRESENTS A REASONABLE ESTIMATE BY BUYER
AND SELLER OF SELLER'S DAMAGES IN THE EVENT OF SUCH A DEFAULT, IT BEING
EXTREMELY DIFFICULT TO ASCERTAIN SELLER'S PRECISE DAMAGES. If Closing does
not take p@ on or before the Final Closing Date because of Seller's material
breach of this Agreement, then Buyer shall be entitled to: (i) a refund of
the entire $300,000.00 earnest money deposit previously delivered by Buyer to
the Closing Escrow Agent (together with all interest earned thereon while
held by the Closing Escrow Agent ), (ii) any and all other rights and
remedies for that breach which are specified in this Agreement or which may
be provided by law or in equity.
(h) Both parties agree to make a good faith effort to execute and
deliver all documents and complete all actions necessary to consummate this
transaction.
18. SELLER'S ACCOUNTS RECEIVABLE. For a period of 6 months after Closing,
Buyer shall, on Seller's behalf, and at no-charge to Seller, accept any payment
with respect to Seller's customer receivables and other receivables arising out
of the operation of Seller's Business pdor to Closing. All collected
receivables from vehicle sales shall be delivered to Seller within ten (1 0)
days after collection, and all other collected receivables shall be delivered to
Seller on a monthly basis. Buyer shall have no obligation to undertake
collection efforts with respect to Sellers receivables, and Buyer's only
obligation shall be to account for and pay over Seller's receivables which are
actually received by Buyer.
19. SURVIVAL OF REPRESENTATIONS. All representations, warranties,
indemnification obligations and covenants made in this Agreement shall survive
the Closing, and shall remain in effect until the expiration of the latest
period allowable in any applicable statute of limitations.
20. ASSIGNMENT BY BUYER. Lithia Motors, Inc. shall have the right to
assign all rights and obligations of Lithia Motors, Inc. as 'Buyer" under this
Agreement. In the event of any such assignment, the assignee shall assume all
rights and obligations of the Buyer under this Agreement, and Lithia Motors,
Inc. shall remain jointly liable for all obligations of the Buyer.
21. LEASE AND/OR PURCHASE OF BUSINESS REAL PROPERTY. As a condition to
the Closing of the transaction contemplated under this Agreement, Buyer (or a
related entity) is leasing the Sparks Business Real Property under the following
general terms and conditions, and Buyer's obligation to close the transaction
contemplated under this Agreement shall be subject to the condition that Buyer
is simultaneously able to enter into an agreement with the owner of the Sparks
Business Real Property which allows Buyer to lease the Sparks Business Real
Property under the following general terms and under such additional terms as
are reasonably satisfactory to Buyer
(a) Five year initial lease term, with Buyer having nine subsequent 5
year options to renew (for a total potential lease term of 50 years).
(b) Lease amount for first five years of $16,000.00 on a triple net
basis. Increase in basic lease amount for @ five years based on changes in CPI
for Reno during first five years, with the maximum increase being 10%. Similar
CPI adjustment (limited to 10%
Page 13 of 17
<PAGE>
over five years) for each successive five year option period (with the
maximum increase for each five year period being 10%).
(c) At any time during initial 5 year lease term, Buyer will have
right to exercise option to purchase Sparks Business Real Property for
$1,850,000.00. When purchase option expires market price applies. If Buyer
exercises option, parties obligated to dose transaction no earlier than 6 months
and no later than 9 months after date of notice of exercise of option. Full
purchase price for property shall be payable at closing of purchase. Seller
must convey the Sparks Business Real Property free of all liens and
encumbrances.
22. Miscellaneous.
(a) There are no oral agreements or representations between the
parties which affect this transaction, and this Agreement supersedes all
previous negotiations, warranties, representations and understandings between
the parties. True copies of all documents referenced in this Agreement are
attached hereto. If any provision of this Agreement shall be determined to be
void by any court of competent jurisdiction, then that determination shall not
affect any other provision of this Agreement, and all other provisions shall
remain in full force and effect. If any provision of this Agreement is capable
of two constructions, only one of which would render the provision valid, then
the provision shall have the meaning which renders R valid. The paragraph
headings in this Agreement are for convenience purposes only, and do not in any
way define or construe the contents of this Agreement.
(b) This Agreement shall be governed and performed in accordance with
the laws of the state of Nevada. Each of the parries hereby irrevocably submits
to the jurisdiction of the courts of Washoe County, Nevada, and agrees that any
legal proceedings wkh respect to this Agreement shall be filed and heard in the
appropriate court in Washoe County, Nevada.
(c) This Agreement may be executed in multiple counterparts, each of
which shall be an original, and all of which shall constitute a single
instrument, when signed by both of the pa@. This Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of the
respective parries.
(d) Waiver by either party of strict performance of any provision of
this Agreement shall not be a waiver of, and shall not prejudice the party's
right to subsequently require strict performance of, the same provision or any
other provision. The consent or approval of either party to any act by the
other party of a nature requiring consent or approval shall not render
unnecessary the consent to or approval of any subsequent similar act.
(e) All notices provided for herein shall be in writing and shall be
deemed to be duly given when mailed by linked States certified mail, postage
prepaid, to the last-known address of the party entitled to receive the notice,
or when personally delivered to that party.
Page 14 of 17
<PAGE>
(f) Time is of the essence to this Agreement.
(g) Should any party hereto institute any action or proceedings to
enforce or interpret any provision hereof, or for damages by reason of any
alleged breach of any provision of this Agreement, the prevailing party shall be
entitled to recover from the losing party or pa@ such amount as the court may
adjudge to be reasonable attorney's fees for services rendered to the prevailing
party in such action or proceeding. The term "prevailing party" as used in this
section shall include, without limitation, any party who is made a defendant in
litigation in which damages and/or other relief may be sought against such party
and a final judgment or dismissal or decree is entered in such litigation in
favor of such party defendant.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated below.
SELLER: DICK DONNELLY LINCOLN, MERCURY, AUDI, SUZUKI AND ISUZU, a Delaware
corporation.
By/s/RICHARD M. DONNELLY JULY 8, 1997
- --------------------------------------- --------------------------
Richard M. Donnelly, President Dated
Richard M. Donnelly
/s/RICHARD M. DONNELL JULY 8, 1997
- --------------------------------------- --------------------------
Richard M. Donnelly Dated
By/s/BRAD GRAY JULY 8, 1997
- --------------------------------------- --------------------------
Brad Gray, Executive Vice President Dated
EXHIBIT "A" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between DICK DONNELLY LINCOLN, MERCURY, AUDI, SUZUKI AND ISUZU,
INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
LIST OF EQUIPMENT, FURNITURE AND FIXTURES BEING RETAINED BY SELLER
[SEE ____ PAGES ATTACHED HERETO.]
EXHIBIT "B"' TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Page 15 of 17
<PAGE>
Between DICK DONNELLY LINCOLN, MERCURY, AUDI, SUZUKI AND ISUZU,
INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
LISTING OF LEASES AND AGREEMENTS BEING ASSUMED
[SEE ____ PAGES ATTACHED HERETO.]
EXHIBIT "C" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between RENO LINCOLN, MERCURY, AUDI, SUZUKI AND ISUZU, INC., as "Seller",
and LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
Page 16 of 17
<PAGE>
DISCLOSURE OF TOXIC MATERIALS
[SEE ____ PAGES ATTACHED HERETO.]
Page 17 of 17
<PAGE>
LITHIA MOTORS, INC.
CALCULATIONS OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------ -------------------------------------------------
1997 1996 1997 1996
----------------------- ----------------------- ----------------------- -----------------------
Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Shares
Outstanding for the Period
Class A 2,895,550 2,895,550 390,000 390,000 2,846,592 2,846,592 390,000 390,000
Class B 4,110,000 4,110,000 4,110,000 4,110,000 4,110,000 4,110,000 4,110,000 4,110,000
Dilutive Common Stock
Options Using the Treasury
Stock Method 303,361 303,361 - - 308,563 308,507 - -
Shares Added Pursuant
to SAB 83 - - 383,016 383,016 - - 383,016 383,016
----------------------- ----------------------- ----------------------- -----------------------
Total Shares Used for Per
Share Calculations 7,308,911 7,308,911 4,883,016 4,883,016 7,265,155 7,265,099 4,883,016 4,883,016
Net Income $1,368,000 $1,368,000 $1,045,000 $1,045,000 $2,511,000 $2,511,000 $1,824,000 $1,824,000
----------------------- ----------------------- ----------------------- -----------------------
Net Income Per Share $0.19 $0.19 $0.21 $0.21 $0.35 $0.35 $0.37 $0.37
----------------------- ----------------------- ----------------------- -----------------------
----------------------- ----------------------- ----------------------- -----------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 15,296
<SECURITIES> 0
<RECEIVABLES> 4,055
<ALLOWANCES> 0
<INVENTORY> 42,626
<CURRENT-ASSETS> 64,438
<PP&E> 12,568
<DEPRECIATION> 3,752
<TOTAL-ASSETS> 87,221
<CURRENT-LIABILITIES> 37,621
<BONDS> 42,720
0
0
<COMMON> 28,548
<OTHER-SE> 5,741
<TOTAL-LIABILITY-AND-EQUITY> 87,221
<SALES> 115,738
<TOTAL-REVENUES> 121,126
<CGS> 100,496
<TOTAL-COSTS> 101,462
<OTHER-EXPENSES> 15,581
<LOSS-PROVISION> 31
<INTEREST-EXPENSE> 651
<INCOME-PRETAX> 4,090
<INCOME-TAX> 1,579
<INCOME-CONTINUING> 2,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,511
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
