<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K
-------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 16, 1997
--------------------------
LITHIA MOTORS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0572810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
360 E. Jackson Street, Medford, Oregon 97501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 776-6899
(Former name or former address, if changed since last report): N/A
<PAGE>
LITHIA MOTORS, INC.
FORM 8-K
INDEX
Item Description Page
- ---- ----------- ----
Item 2. Acquisition or Disposition of Assets 2
Item 7. Financial Statements and Exhibits 2
Signatures 3
1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On December 16, 1997, Lithia Motors, Inc. (the "Company"), acquired the
inventories, operating assets and intangible assets of Century Ford, Inc.
in Fresno, California, pursuant to an Agreement for Purchase and Sale of
Business Assets (the "Agreement") dated September 1, 1997. Pursuant to
the Agreement, the total purchase price was approximately $12.23 million,
consisting of $2.43 million in cash from the Company's existing cash
balances, $0.8 million financed under the Company's equipment line of
credit and $9.0 million financed through the Company's flooring line of
credit. The Company is leasing the land and facilities from the sellers of
Century Ford, Inc.
There was no previous relationship between the Company and Century Ford,
Inc., nor any of the Company's and Century Ford, Inc.'s affiliates,
officers or directors.
(b) The Company acquired vehicle and parts and supplies inventories, as well as
other assets used in the business of vehicle sales, service and support.
The Company intends to utilize the purchased assets in the same capacity.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS
(a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED
Financial statements for Century Ford, Inc. are not required to be filed.
(b) PRO FORMA FINANCIAL INFORMATION
Pro forma financial information for Century Ford, Inc. is not required to
be filed.
(c) EXHIBITS
The exhibit filed as a part of this report is listed below and this list
constitutes the exhibit index.
2.1 Agreement for Purchase and Sale of Business Assets, by and between
Century Ford, Inc. and the Company, dated September 1, 1997.
2
<PAGE>
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: December 23, 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)
3
<PAGE>
EXHIBIT 2.1
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
THIS AGREEMENT is entered into by and between CENTURY FORD, INC., a
California corporation (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 and Mazda motor vehicles and related parts and
accessories from premises located at 155, 165, 175 and 195 E. Auto Center Drive,
Fresno, California 93710 (the "Business Real Property"), and holds franchises
issued by Ford Motor Company and Mazda Motor Sales of America, Inc.
Buyer wishes to purchase from Seller, and Seller is willing to sell to
Buyer, all assets relating to Seller's Ford and Mazda franchise at the Business
Real Property conditioned upon Ford Motor Company and Mazda Motor Sales of
America granting to Buyer a franchise for the sale of new Ford and Mazda motor
vehicles in the same location as Seller's franchise.
Buyer (or a related entity) also wishes to purchase or lease 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 or lease 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 November 15, 1997.
(b) "SELLER'S BUSINESS" shall refer to any and all activities
conducted by Seller in Fresno, California, relating to the marketing and sale of
new Ford and Mazda vehicles and associated parts and accessories, and the repair
and servicing of new or used Ford and Mazda 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 tangible personal property
owned or used by Seller in connection with Seller's business, including, but not
limited to, 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. Prior to the Closing Date, a list
of the "Equipment"
Page 1 of 17
<PAGE>
shall be attached hereto as Exhibit "A". Buyer and Seller have acknowledged
that certain equipment used by Seller and included in this definition is
presently owned by All-Way Leasing, Inc., "All-Way", a California corporation.
Prior to the Closing Date, a listing prepared by Seller of certain personal
items being retained by Seller and NOT being purchased by Buyer shall be
attached hereto as Exhibit "B".
(e) Seller's "INTANGIBLE ASSETS" shall refer to Seller's telephone
and fax numbers, service customer lists, sales customer lists, 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 ("Century Ford-Mazda") is not
included within the Intangible Assets being sold by Seller hereunder.
(f) "BUSINESS REAL PROPERTY" shall refer to that certain real
property located in Fresno, California, Assessor's Parcel Number 418-050-50 as
recorded in Fresno County Records, Parcel 1 of Map 3148, Book 20, Page 78, and
more commonly known as 155, 165, 175 and 195 East Auto Center Drive, Fresno,
California.
(g) "FRANCHISOR" shall refer to Ford Motor Company and Mazda Motor
Sales of America, Inc.
(h) "NEW VEHICLE" shall refer to a Ford and Mazda motor vehicle
which: (i) is unregistered and unused, (ii) is from the 1996, 1997 or 1998
model year, (iii) has been driven for less than 500 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 1996, 1997 or
1998 model year which has been sold to a customer by Seller but returned
because of the customer's inability for whatever reason, to complete the
purchase. "DEMONSTRATOR VEHICLE" shall mean an unregistered vehicle from the
1996, 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, and
9 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,
and 9 of this Agreement.
3. INVENTORY OF NEW VEHICLES, DEMONSTRATOR VEHICLES AND ROLLBACK
VEHICLES.
Page 2 of 17
<PAGE>
Buyer shall purchase Seller's entire inventory of new Ford and Mazda 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 six (6) rollback and demonstrator vehicles), as that inventory
exists on the Closing Date.
Page 3 of 17
<PAGE>
(a) PRICE OF NEW VEHICLES. The purchase price for each of
Seller's new 1997 and 1998 vehicles and up to a maximum of five (5) new 1996
vehicles (of seller's choice) shall be equal to Seller's factory invoice cost
adjusted to reflect any holdbacks or carryover allowances received by or
credited to Seller prior to the Closing Date, and further adjusted for the
addition (or removal) of accessories and/or equipment at Seller's internal
cost for parts and labor.
(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, and 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 the cost of repairing that damage is less than
$1,000.00, then Buyer shall be obligated to purchase that vehicle as 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 outside of
escrow.
(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 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, ROLLBACK AND NEW, EXCESS 1996 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 304 per mile for
each odometer mile on that vehicle. Provided, Buyer shall not be required to
purchase more than six (6) demonstrator or rollback vehicles (those units as
selected by Seller). The price for each new 1996 vehicle in excess of the first
five (which Buyer is required to purchase under Section 3. (a)), shall be based
upon the average wholesale price which similarly equipped model vehicles are
selling for at the three nearest factory auctions and then adjusted for the
mileage of the respective units. Seller shall not be required to sell, nor
shall Buyer be required to buy, new, excess 1996 vehicles. The purchase price
for demonstrator, rollback vehicles and new, excess 1996 vehicles shall be paid
outside of escrow.
4. INVENTORY OF USED VEHICLES. Buyer intends to purchase Seller's 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. Prior to Closing, Seller shall provide Buyer with
access to
Page 4 of 17
<PAGE>
Seller's purchase and repair documentation for the used vehicles, and at the
Closing provide to Buyer legal odometer statements and free and clear title for
each of the used vehicles. All vehicles are sold "As-Is" without warranty,
either express or implied.
(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 (3) business days prior to the
Closing Date.
(c) PAYMENT FOR USED VEHICLES. The aggregate purchase price for
Seller's inventory of used vehicles shall be paid in full outside of escrow.
(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 Seller's used vehicles which are not purchased by
Buyer. Buyer shall store those vehicles in accordance with Buyer's 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, undamaged and remanufactured Ford and Mazda vehicle
parts and accessories manufactured by Franchisor and/or third party suppliers
listed on the current supplier's price list (including parts with superceded
numbers), as that inventory exists on the inventory date. Buyer shall have no
obligation to purchase from Seller any parts or accessories which are used or
damaged. 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, remanufactured and undamaged parts and
accessories for Ford and Mazda 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 item.
(b) DETERMINATION OF INVENTORY OF PARTS AND ACCESSORIES. Seller's
inventory of new, remanufactured and undamaged Ford and Mazda parts and
accessories (whether manufactured by Franchisor or third party suppliers) 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.
(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
Page 5 of 17
<PAGE>
to purchase the Equipment from Seller. Seller warrants to Buyer that the items
listed on Exhibit "A" constitute tangible personal property (other than
inventory, consumable supplies or those items listed on Exhibit "B") which,
during the six (6) months preceding Closing, has owned or used by Seller in
connection with Seller's Business. Buyer shall have the right to fully inspect
the Equipment. Any Parts delivery or shop vehicles which may be included in
this section will be purchased by Buyer as part of Seller's Used Vehicle
inventory.
(a) PRICE FOR EQUIPMENT. The Equipment shall be purchased by Buyer
at current fair market value. The current fair market shall be determined by an
appraisal; the appraiser shall be mutually agreed upon between Buyer and Seller
within ten (10) working days from the opening of escrow; the decision of the
appraiser shall be binding upon Buyer and Seller. The appraisal shall be
determined prior to the Closing on a date mutually agreeable to the parties.
Buyer and Seller shall each be responsible for 50% of the fees charged by the
appraiser. 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 reasonable 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 $500,000.00, 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 supplies which are held for use in Seller's Business; provided, however,
that Buyer shall not be obligated to purchase used or damaged items or supplies.
The price for all such supplies shall be Seller's actual net cost, as determined
by mutual agreement of the parties, and shall be paid to Seller at Closing.
Buyer shall purchase prepaid expenses of Seller which are assignable from Seller
to Buyer.
8. 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 performed
prior to Closing. The purchase price for work in progress shall be paid at
Closing.
9. INTANGIBLE ASSETS. Buyer shall purchase all of Seller's Intangible
Assets.
(a) The aggregate purchase price for Seller's Intangible Assets shall
be One Million Seven Hundred Thirty Three Thousand and 00/100 Dollars
($1,733,000.00). This $1,733,000.00 purchase price shall be allocated entirely
to goodwill and all other intangible assets shall be at no charge; provided,
however, that no value shall be allocated to the non-transferable Ford and Mazda
franchise issued by the Franchisor. This $1,733,000.00 purchase price shall be
Page 6 of 17
<PAGE>
paid at the Closing.
(b) In order for Buyer to receive the full benefit of the intangible
goodwill 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 prior to Closing. In partial consideration of the
$1,733,000.00 amount being paid by Buyer for the Intangible Assets, Seller
agrees to reimburse Buyer for the full list price, less 25% of repair and
warranty services which were
Page 7 of 17
<PAGE>
not covered by factory warranty and which are performed by Buyer within ninety
(90) days or three thousand (3,000) miles from the date of completion of
Seller's repairs as provided in Seller's warranty for labor performed (as set
forth on the reverse of Seller's repair orders). Buyer agrees to obtain
Seller's prior approval before performing any such repairs. 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
net cost of repair and warranty services performed during the preceding calendar
month.
10. 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. Seller will not commence
with the publishing of such notice until such time as Buyer has obtained
approval from Franchisor as an authorized Ford and Mazda dealer.
11. 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).
12. 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 authorized 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. To Seller's knowledge, no employees of Seller
are members of any union. Within ten (10) days after Franchisor approval of
Buyer as a Ford and Mazda dealer, Seller shall provide to Buyer the following:
(i) a list 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, unless the providing of such information would, in Seller's
reasonable discretion, be prohibited by State or Federal law. 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 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
Page 8 of 17
<PAGE>
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 would materially impair
Buyer's use of the Purchased Assets, (ii) Seller is not a party to any contracts
or commitments which would materially impair 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 would materially
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 indemnify 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 prior to Closing, Buyer
shall have thirty days prior to the Closing within which to advise Seller in
writing if any item of Equipment is not in good operating condition. Seller
shall thereupon have the option to repair or replace that item, or remove that
item from the items to be purchased by Buyer.
(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. 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
or other governmental law, regulation or order or would require reporting to any
governmental authority, and (ii) there are no underground hoists, underground
tanks, underground fuel tanks, or underground waste oil tanks located on the
Business Real Property, and (iii) 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. Seller has furnished to Buyer, prior to the date of
this Agreement, copies of all environmental reports and certificates of
compliance relating to Seller's Business and the Business Real Property. Upon
the execution of this Agreement, Buyer may, at Buyer'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
Page 9 of 17
<PAGE>
to remediate, cleanup, detoxify and decontaminate any and all such contamination
as a condition of Closing, then Seller shall be obligated (at Seller's sole
expense) either: (i) complete such remediation, cleanup, detoxification and/or
decontamination prior to, and as a condition of, Closing, at Seller's sole
expense, (ii) place sufficient funds into escrow at Closing to cover the expense
of the required remedy, or (iii) cancel this transaction.
(h) FRANCHISOR'S CONSENT. Seller shall take all actions which are
reasonably necessary on Seller's part to obtain the consent of the Franchisor to
the issuance to Buyer of a franchise for the sale of new Ford and Mazda vehicles
in the same geographical area as Seller's current franchise in Fresno,
California.
(i) INDEMNIFICATION FOR BREACH OF WARRANTIES. The parties shall
indemnify and hold the other harmless from and against all losses, damages and
costs (including attorney fees and court costs) relating to any breach of
warranty made by that party in this Agreement (either on the date of this
Agreement or at the time of Closing).
(j) SHAREHOLDER WARRANTIES. Neither the shareholders or officers
of the Seller will be required to make any individual warranties. Further,
Buyer acknowledges that the Seller has made no representations or promises of
any description regarding the past, present or future profitability of the
franchises, that Buyer has conducted its own due diligence and has approached
Seller on its own and requested Seller to sell its assets, and that Seller
shall not be required to furnish any financial records nor allow any audit of
financial records or tax returns of the business and that the Buyer has not
relied upon any financial records or tax returns in making its decision to
purchase the business.
(k) ALL-WAY'S CONSENT. Seller warrants that it has obtained the
approval and consent of All-Way to offer for sale equipment included in 1(d) and
that All-Way shall transfer title to said equipment direct to Buyer pursuant to
this Agreement.
13. 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 causes a material adverse
change in the operations of Seller's Business; (iv) Seller shall not conduct any
sale which shall use the words or phrase "Going Out of Business Sale"; (v)
Seller shall use its best efforts to preserve the value of the Ford and Mazda
franchise in Fresno, California.
14. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby makes the
following representations and warranties to Seller, with the intent that 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.
Page 10 of 17
<PAGE>
(b) AUTHORITY. This Agreement must be authorized by the board of
directors of Lithia Motors, Inc. within five (5) days after the date of this
Agreement. This Agreement does 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. Seller has the right to rescind this Agreement until
accepted by Buyer's board of directors as herein set forth.
15. 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 Franchisor, prior to the Final
Closing Date, a franchise to sell new Ford and Mazda vehicles in the same
location as Seller's current franchise in Fresno, California (as evidenced by
the issuance to Buyer by Franchisor 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 those franchises.
(b) Buyer shall have approved any facility improvement requirements
which may be imposed by Franchisor; provided, Buyer's approval shall not be
unreasonably withheld.
(c) Buyer shall have been permitted to inspect the Business Real
Property. All leases 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 set forth in this Agreement.
(d) All of Seller's agreements and warranties set forth in this
Agreement shall be true and correct at Closing; provided that Buyer's decision
to close this transaction shall not release Seller from liability to Buyer for
any warranty which is subsequently determined to be untrue or incorrect.
(e) This agreement shall have been authorized by the board of
directors of Lithia Motors Inc. within five (5) days after the date of this
Agreement.
16. 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 November 15, 1997, 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) Immediately upon execution of this Agreement by the parties, the
parties shall 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 $500,000.00
Page 11 of 17
<PAGE>
(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 November 15, 1997.
(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 the close
of escrow.
(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 November 15, 1997,
because there has been a failure of any condition precedent set forth in
Paragraph 15 or because Seller has elected to rescind the Agreement pursuant to
subparagraph 12(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 $500,000.00 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 December 1, 1997,
because of Buyer's material breach of this Agreement, the parties recognize that
Seller may be entitled to damages for such breach. HOWEVER, THE PARTIES AGREE
THAT IT IS EXTREMELY DIFFICULT AND IMPRACTICAL TO ASCERTAIN THE EXTENT OF SUCH
DAMAGES AND, TO AVOID THIS PROBLEM, BUYER AND SELLER AGREE THAT IN THE EVENT OF
SUCH BREACH BY BUYER, THEN THE $500,000.00 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. THE ABOVE AMOUNT HAS
BEEN AGREED UPON THE PARTIES AS A REASONABLE ESTIMATE BY BUYER AND SELLER OF
SELLER'S DAMAGES IN THE EVENT OF SUCH A DEFAULT, AND THE PARTIES SPECIFICALLY
ACKNOWLEDGE THEIR AGREEMENT TO THE PROVISIONS OF THIS SECTION BY PLACING THEIR
INTIALS BELOW:
Page 12 of 17
<PAGE>
/s/ BG Buyer /s/ AR, III Seller.
----------- ---------------
In the event of such breach, escrow is directed to release said funds to Seller.
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 $500,000.00 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, with exception of Seller's financial or tax records and
complete all actions reasonably necessary to consummate this transaction.
17. SELLER'S ACCOUNTS RECEIVABLE. For a period of six (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 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 Buyer's
only obligation shall be to account for and pay over Seller's receivables which
are actually received by Buyer. Seller shall be provided with reasonable access
to Buyer's Ford and Mazda communication equipment for the above time period, at
no cost to Seller, for purposes of processing claims with the Franchisors.
18. 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.
19. ASSIGNMENT BY BUYER. Subject to Seller's prior written consent, which
shall not be unreasonably withheld, Lithia Motors, Inc. shall have the right to
assign all rights and obligations of Lithia Motors, Inc. as "Buyer" under this
Agreement. Provided, Seller's consent shall not be required if the assignee is
a corporation, the stock of which is owned entirely by Buyer. 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 and
severally liable for all obligations of the Buyer. In such event, Buyer shall
execute the Continuing Guaranty of Performance attached as an exhibit to Exhibit
"D" of this Agreement.
20. LEASE OF REAL PROPERTY. As a condition to the Closing of the
transaction contemplated under this Agreement, Buyer (or a related entity)
agrees to lease the Business Real Property pursuant to the Lease Agreement which
is attached hereto as Exhibit "D" and incorporated herein by reference.
21. MISCELLANEOUS.
(a) There are no oral agreements or representations between the
parties which
Page 13 of 17
<PAGE>
affect this transaction, and this Agreement supercedes 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 of Fresno County, California, and
agrees that any legal proceedings with respect to this Agreement shall be filed
and heard in the appropriate court in Fresno 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 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 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) Seller and Buyer agree to hold the other party harmless from any
claims relative to their respective obligations or operation of the dealership.
Therefore, Seller would agree to hold Lithia Motors harmless from any claims
dealing with the operation of the business up to the point of sale and Lithia
Motors would agree to hold Seller harmless from any claims which arise after the
time of sale.
Page 14 of 17
<PAGE>
(i) The parties agree that all hard copies of customer service files
shall remain in the possession of Buyer at the Business Real Property for a
period of one (1) year following the Closing and that Seller shall have
unrestricted access thereto. Buyer shall maintain the files in good condition.
Upon expiration of the one (1) year period, the records shall be returned to
Seller.
(j) Subsequent to Buyer having obtained appointment as a franchised
Ford and Mazda dealer, Buyer may interview Seller's employees for prospective
employment with Buyer.
(k) The parties agree that this Agreement shall become null and void
in the event Buyer shall fail to be appointed as a franchised Ford and Mazda
dealer (or receive a similar commitment from said manufacturers) by close of
business on October 15, 1997.
(l) Each of the parties to this Agreement shall pay its respective
attorney's fees, consultant's fees and any other similar costs associated with
this transaction. Buyer and Seller represent that except as otherwise herein
provided, neither party has dealt with any broker, consultant or finder in
connection with this Agreement and that no fees are due and payable. The
parties agree to indemnify and hold the other harmless with respect to any such
fee, commission, or assertion therefor, alleged to be payable because of any
act, omission, or statement of the indemnifying party, and each party agrees to
be responsible for its respective fees, commissions and/or costs.
Page 15 of 17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated below.
SELLER: CENTURY FORD, INC., a California corporation
Antonio Rodriguez by
/s/ Antonio Rodriguez, III
By Attorney in Fact 9/1/97
-------------------------------- ----------------
Antonio Rodriguez, President Dated
BUYER: LITHIA MOTORS, INC.
By /s/ Brad Gray 9/1/97
-------------------------------- ----------------
Brad Gray, Executive Vice President Dated
Page 16 of 17
<PAGE>
ALL EXHIBITS ARE TO BE ATTACHED PRIOR TO THE CLOSING
EXHIBIT "A" LIST OF EQUIPMENT, FURNITURE AND FIXTURES BEING SOLD BY SELLER
EXHIBIT "B" LIST OF EQUIPMENT, FURNITURE AND FIXTURES BEING RETAINED BY
SELLER
EXHIBIT "C" DISCLOSURE OF TOXIC MATERIALS
Page 17 of 17
