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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
____________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 000-21789
LITHIA MOTORS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0572810
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
360 E. JACKSON STREET, MEDFORD, OREGON 97501
(Address of principal executive offices) (Zip Code)
541-776-6899
(Registrant's telephone number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
____________________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $22,921,600 as of February 27, 1998 based upon the last sales
price ($16.00) as reported by the Nasdaq National Market System.
The number of shares outstanding of the Registrant's Common Stock as of February
27, 1998 was: Class A: 2,925,550 shares and Class B: 4,110,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K, by reference,
portions of its Information Statement, relating to the 1998 Annual Meeting of
Shareholders.
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LITHIA MOTORS, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
PART I
Item 1. Business 2
Item 2. Properties 14
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 27
Signatures 33
</TABLE>
1
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PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This Form 10-K 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. 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 a leading automotive retailer offering a total of 21 brands in
22 locations in the western United States. The Company currently operates 12
dealerships in California, 7 in Oregon and 3 in Nevada. The Company sells new
and used cars and light trucks, sells replacement parts, provides vehicle
maintenance, warranty, paint and repair services, and arranges related financing
and insurance for its automotive customers. Since December 1996 when the
Company completed its initial public offering, Lithia has acquired
17 dealerships and is actively pursuing additional acquisitions.
In 1997, the Company generated record total sales, net income and unit sales of
new and used vehicles. Total sales increased to $319.8 million in 1997 from
$142.8 million in 1996, an increase of 124%. For the same period, net income
increased to $6.0 million from $2.6 million (pro forma), an increase of 129%.
In the fourth quarter of 1997, the Company's total sales and net income were
$113.1 million and $1.9 million, respectively, representing growth of 203% and
234% compared to the same period in 1996. New vehicle unit sales increased to
7,493 in 1997 from 3,274 in 1996, an increase of 129%, and retail used vehicle
unit retail sales increased from 4,156 to 7,148, an increase of 72%.
Lithia was founded in 1946 and its two senior executives have managed the
Company for over 27 years. Management has developed and implemented its
acquisition and operating strategies which have enabled the Company to
successfully identify, acquire and integrate dealerships, achieving
profitability superior to industry averages. In 1997, the Company was able to
achieve a gross profit margin of 16.7% and a pre-tax margin of 3.0%, versus
12.9% and 1.5%, respectively, for the industry (latest 1996 data).
The Company intends to continue to take advantage of the consolidation
opportunities in the $640 billion automotive retailing industry. According to
industry data, the number of franchised automobile dealerships has declined from
more than 36,000 dealerships in 1960 to approximately 22,000 in 1997. Currently,
the largest 100 dealer groups generate less than 10% of total industry sales and
control approximately 5% of all franchised automobile dealerships. Several
economic and industry factors are expected to lead to the further consolidation
of the automobile retailing industry, including increasing capital requirements
necessary to operate an automobile dealership, the fact that many dealerships
are owned by individuals nearing retirement age who are seeking exit
opportunities, and the desire of manufacturers to strengthen their dealer
networks through consolidation. The Company believes that it is well positioned
to continue to capitalize on the highly fragmented and consolidating automotive
retail industry.
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GROWTH STRATEGY
The Company has become a leading acquiror of automobile dealerships in the
western United States. The Company pursues a disciplined acquisition strategy,
targeting acquisitions in certain under-dealered markets where management
believes the Company has the opportunity to acquire a cluster of dealerships
over time and build a significant market presence. This strategy is patterned
after the Company's operations in southern Oregon where, prior to two recent
acquisitions, the Company operated 5 dealerships with annual revenues
approximating $135 million. The Company's current core markets are
South-Central Oregon, the Northeast Bay Area and South-Central Valley regions of
California, and Northern Nevada. Within these markets, the Company's evaluation
of potential acquisitions takes into account a dealership's size and reputation,
and the brand of vehicles sold by the dealership.
Over the last 16 months, the Company has completed the purchase of
17 dealerships with pre-acquisition annual revenues of approximately
$454 million for an aggregate net investment of $48.6 million (excluding real
estate purchases or borrowings on credit lines to finance acquired vehicle
inventories and equipment). In addition, the Company has one pending fill-in
acquisition in an existing core market. The following table sets forth certain
information regarding recent acquisitions:
<TABLE>
<CAPTION>
PRIOR-YEAR
ANNUAL
REVENUES (1) DATE
REGION LOCATION BRANDS (MILLIONS) ACQUIRED
- ------------------------------- ----------------- ------------------------------------ ------------ --------------
<S> <C> <C> <C> <C>
South-Central Oregon Eugene, OR Dodge, Dodge Trucks $ 32 December 1996
Medford, OR Nissan, BMW 15 February 1998
Northeast Bay Area, California Vacaville, CA Toyota 28 December 1996
Concord, CA Dodge, Dodge Trucks, Isuzu 39 April 1997
Napa, CA Ford, Lincoln-Mercury 24 July 1997
Concord, CA Ford 70 August 1997
Concord, CA Volkswagen August 1997
South-Central Valley, California Bakersfield, CA Nissan 41 October 1997
Bakersfield, CA BMW, Acura October 1997
Fresno, CA Ford 60 December 1997
Fresno, CA Mazda December 1997
Fresno, CA Nissan 40 January 1998
Fresno, CA Jeep, Hyundai January 1998
Bakersfield, CA Jeep 18 March 1998
Northern Nevada Reno, NV Isuzu, Lincoln-Mercury, Suzuki, Audi 78 October 1997
Sparks, NV Isuzu, Lincoln-Mercury, Suzuki October 1997
Reno, NV Volkswagen 9 February 1998
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$ 454
-------
-------
</TABLE>
_______________
(1) Revenues taken from dealer statements for the year prior to
acquisition.
3
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Based upon its current dealership locations, the percentage share of the
Company's total revenues from each region is approximately: South-Central Oregon
- - 31%; Northeast Bay Area, California - 27%; South-Central Valley, California -
27%; and Northern Nevada - 15%.
OPERATING STRATEGY
Upon completing an acquisition, the Company installs its management information
systems as soon as possible and implements its operating strategy. The
Company's operating strategy consists of the following elements:
VALUE PARTNERSHIP WITH MANUFACTURERS. The Company recognizes that the
manufacturers are true partners through the franchise system. They are all
large well-developed companies with enormous resources committed to the
franchise as the method of retailing their products. They lend support in
training the Company's employees, in allocating vehicles, in designing systems
for operations, in selling slower-moving inventories through incentives and
rebates, and in advertising through regional and national sources. The Company
relies on this help and encourages their assistance as a welcome partner. The
Company cooperates in facility design, in marketing efforts, and in program
support.
PROVIDE A BROAD RANGE OF PRODUCTS AND SERVICES. The Company offers a broad
range of products and services including a wide selection of new and used cars
and light trucks, vehicle financing and insurance and replacement parts and
service. At its 22 locations, the Company offers, collectively, 21 makes of new
vehicles including Dodge, Dodge Trucks, Chrysler, Plymouth, Jeep, Ford,
Lincoln-Mercury, Toyota, Isuzu, Nissan, Volkswagen, Audi, Honda, Acura, Suzuki,
BMW, Saturn, Pontiac, Mazda and Hyundai. In addition, the Company sells a
variety of used vehicles at a broad range of prices. By offering new and used
vehicles and an array of complementary services at each of its locations, the
Company seeks to increase customer traffic and meet specific customer needs.
The Company believes that offering numerous new vehicle brands appeals to a
variety of customers, minimizes dependence on any one manufacturer and reduces
its exposure to supply problems and product cycles.
FOCUS ON USED VEHICLE SALES. In addition to the sale of new vehicles, a key
element of the Company's operating strategy is to focus on the sale of used
vehicles. The Company believes that a well-managed used vehicle operation at
each location affords it an opportunity to (i) generate additional customer
traffic from a wide variety of prospective buyers, (ii) increase new and used
vehicle sales by aggressively pursuing customer trade-ins, (iii) generate
incremental revenues from customers financially unable or unwilling to purchase
a new vehicle, and (iv) increase ancillary product sales to improve overall
profitability. To maintain a broad selection of high quality used vehicles and
to meet local demand preferences, the Company acquires used vehicles from
trade-ins and a variety of sources nationwide, including direct purchases and
manufacturers' and independent auctions. The Company's goal is to sell 1.5
retail used vehicles for every new vehicle sold, compared to an industry average
ratio of 0.8-to-1. The Company strives to attract customers and enhance buyer
satisfaction by offering multiple financing options, a 10-day/500-mile "no
questions asked" exchange program and a 60-day/3,000-mile warranty on every used
vehicle sold.
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EMPHASIZE SALES OF HIGHER MARGIN PRODUCTS AND SERVICES. The Company generates
substantial incremental revenue and achieves higher profitability through the
sale of certain ancillary products and services such as financing and insurance,
extended service contracts and vehicle maintenance. Employees receive special
training and are compensated on a commission basis to sell such products and
services. In 1997, the Company arranged financing for 71% of its new vehicle
sales and 74% of its used vehicle sales, compared to 42% and 51%, respectively,
for the average automobile dealership in the United States (1996 data). Sales
of these other ancillary products and services represent 14% of Lithia's total
sales, compared to 12% for the average U.S. dealership. The Company also sells
extended service coverage and other vehicle protection packages, which the
Company believes enhances the value of the vehicle and provides a higher level
of customer satisfaction.
EMPLOY PROFESSIONAL MANAGEMENT TECHNIQUES. The Company employs professional
management practices in all aspects of its operations, including information
technology, employee training, profit-based compensation and cash management.
These efforts have been critical in managing the rapid growth in new stores over
the last 16 months. Each dealership is its own profit center and is managed by a
trained and experienced general manager who has primary responsibility for
decisions relating to inventory, advertising, pricing and personnel. The general
manager is assisted by a 5-person operations support team consisting of
specialists in the areas of new vehicle sales, used vehicle sales, finance and
insurance, service and parts, and back office administration (including
accounting and management information systems). The Company compensates its
general managers and department managers based on the profitability of their
dealerships and departments, respectively. Senior management utilizes
computer-based management information systems to monitor each dealership's
sales, profitability and inventory on a daily basis and to identify areas
requiring improvement. The Company believes the application of its professional
management practices provides it with a competitive advantage over many
dealerships and is critical to its ability to achieve levels of profitability
superior to industry averages.
FOCUS ON CUSTOMER SATISFACTION AND LOYALTY. The Company emphasizes customer
satisfaction throughout its organization and continually seeks to maintain its
reputation for quality and fairness. The Company trains its sales personnel to
identify an appropriate vehicle for each of its customers at an affordable
price. In 1996, the Company implemented an innovative customer-oriented
marketing program entitled "Priority You" which provides the Company's retail
customers six value-added services which the Company believes are important to
overall customer satisfaction, including a commitment to (i) provide a customer
credit check within 10 minutes, (ii) complete a used vehicle appraisal within 30
minutes, (iii) complete the paper work within 90 minutes for a vehicle purchase,
(iv) provide a 10-day/500-mile "no questions asked" right of exchange on any
used vehicle sold, (v) provide a warranty on all used vehicles sold for 60
days/3,000 miles and (vi) make a donation to a local charity or educational
organization for every vehicle sold. The Company believes "Priority You" will
help differentiate it from many other dealerships, thereby increasing customer
traffic and developing stronger customer loyalty.
The Company has received a number of dealer quality and customer satisfaction
awards from various manufacturers. Most recently, Lithia's Medford and Grants
Pass, Oregon Chrysler product dealerships achieved Chrysler's highest
recognition for dealer excellence, the Five-Star Certification. The Medford
location was the first to receive this certification in the Pacific Northwest.
5
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DEALERSHIP OPERATIONS
The Company owns and operates 12 dealership locations in California, 7 in Oregon
and 3 in Nevada. Each of the Company's dealerships sell new and used vehicles
and related automotive parts and services. The Company's primary target market
comprises middle-income customers seeking moderately-priced vehicles. The
Company offers 21 makes of new vehicles, including Dodge, Dodge Trucks,
Chrysler, Plymouth, Jeep, Ford, Lincoln-Mercury, Toyota, Isuzu, Nissan,
Volkswagen, Audi, Honda, Acura, Suzuki, BMW, Saturn, Pontiac, Mazda and Hyundai.
The operations of each of the Company's locations are overseen by a general
manager, who has primary responsibility for all aspects of the operations of the
dealership, including new and used vehicle inventory, advertising and marketing,
and the selection of personnel. Each location is operated as a profit center and
each general manager's compensation is based on dealership profitability. Each
general manager reports directly to the Company's Chief Operating Officer. In
addition, each dealership's general sales manager, used vehicle manager, parts
manager, service manager and F&I managers report directly to the general manager
and are compensated based on the profitability of their respective departments.
NEW VEHICLE SALES. The Company sells 21 domestic and imported brands
ranging from economy to luxury cars, sport utility vehicles, minivans and light
trucks. In 1997, the Company sold 7,493 new vehicles generating revenues of
$161.3 million, which constituted 50.4% of the Company's total revenues. The
following table sets forth, by manufacturer, the percentage of new vehicle sales
by the Company during the fourth quarter of 1997.
<TABLE>
<CAPTION>
1997 FOURTH QUARTER
PERCENTAGE OF
MANUFACTURER NEW VEHICLE SALES
- ------------ -------------------
<S> <C>
Chrysler (Chrysler, Plymouth, Dodge, Jeep, Dodge Trucks) 32%
Ford (Ford, Lincoln, Mercury) 27%
Toyota 12%
Isuzu 8%
Nissan 5%
Volkswagen, Audi 4%
BMW 4%
Honda (Acura, Honda) 3%
General Motors (Saturn, Pontiac) 2%
Suzuki 2%
Mazda 1%
Hyundai *
----
100%
----
----
</TABLE>
_______________
* Acquired in 1998.
6
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The following table sets forth the Company's sales and gross profit margins for
new vehicle sales for the periods presented.
<TABLE>
<CAPTION>
(dollars in thousands) 1993 1994 1995 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Units 2,464 2,744 2,715 3,274 7,493
Sales $42,663 $51,154 $53,277 $65,092 $161,294
Gross profit margin 12.8% 12.5% 12.8% 13.1% 11.4%
</TABLE>
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.
As required by law, the Company posts the manufacturer's suggested retail price
on every new vehicle. As is customary in the automobile industry, the final
sales price of a new vehicle is generally negotiated with the customer. However,
at the Company's Saturn dealership the Company does not deviate from the posted
price. The Company is continually evaluating its pricing practices and policies
in light of changing consumer preferences and competitive factors.
USED VEHICLE SALES. The Company offers a variety of makes and models of
used cars and light trucks of varying model years and prices. Used vehicle sales
are an important part of the Company's overall profitability. In 1997, the
Company sold 12,138 used vehicles generating revenues of $113.1 million, which
constituted 35.4% of the Company's total revenue. 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 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. As the table below reflects, 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. Excluding wholesale transactions, the Company's gross profit margin on
used vehicle sales was 11.4% in 1997, as compared to the industry average for
1996 of 11.0%. The following table reflects used vehicle sale transactions of
the Company from 1993 through December 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
(dollars in thousands) 1993 1994 1995 1996 1997
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Retail units 3,076 3,372 3,302 4,156 7,148
Retail sales $29,680 $36,382 $36,997 $48,697 $88,571
Retail gross margin 13.9% 13.5% 13.2% 12.8% 11.4%
Wholesale units 1,642 1,834 1,842 2,348 4,990
Wholesale sales $5,306 $5,999 $7,064 $9,914 $24,528
Wholesale gross margin 3.0% 3.0% 2.4% 1.7% 0.4%
Total units 4,718 5,206 5,144 6,504 12,138
Total sales $34,986 $42,381 $44,061 $58,611 $113,099
Total gross margin 12.3% 12.0% 11.4% 10.9% 9.1%
</TABLE>
7
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The Company acquires the majority of its used vehicles through customer
trade-ins. The Company also acquires its used vehicles at "closed" auctions
which may be attended only by new vehicle dealers and which offer off-lease,
rental and fleet vehicles, and at "open" auctions which offer repossessed
vehicles and vehicles being sold by other dealers.
The Company sells the majority of its used vehicles to retail purchasers. In an
effort to reach the Company's objective of 1.5 retail used vehicle sales for
every new vehicle sale, the Company employs innovative marketing programs, such
as "Priority You," which offers a 60-day/3,000-mile warranty and a
10-day/500-mile "no questions asked" exchange program on every used vehicle it
sells in order to generate customer confidence in his or her purchasing
decision. Each dealership's used vehicle manager is responsible for the
purchasing and pricing of the used vehicle inventory. The Company strives to
sell each of its used vehicles within 60 days of acquisition and financially
motivates its used vehicle managers to effect such sales within that period.
VEHICLE FINANCING AND LEASING. The Company believes that its customers'
ability to obtain financing at its dealerships is critical to its ability to
sell new and used vehicles and ancillary products and services. The Company
provides a variety of financing and leasing alternatives in order to meet the
specific needs of each potential customer. The Company believes its ability to
obtain customer-tailored financing on a "same day" basis provides it with an
advantage over many of its competitors, particularly smaller competitors who
lack the resources to offer vehicle financing or who do not generate sufficient
volume to attract the diversity of financing sources that are available to the
Company. Because of the high profit margins which are typically generated
through sales of F&I products, the Company employs more than one F&I manager at
its dealership locations. The Company's F&I managers have extensive knowledge
regarding available financing alternatives and sources and are specially trained
to determine the customer's financing needs to enable the customer to purchase
or lease an automobile. The Company seeks to finance or arrange financing for
every vehicle it sells and has financed or arranged financing for a larger
percentage of its transactions than the industry average. During 1997, the
Company financed or arranged for financing for over 71% of its new vehicle sales
and 74% of its used vehicle sales, compared to an industry average of 42% and
51%, respectively (latest 1996 data).
The Company maintains close relationships with a wide variety of financing
sources and arranges financing for its customers with those sources that are
best suited to satisfy its customers' particular needs. The Company also
utilizes financing sources, whenever possible, that maximize the Company's
revenues on the sale of the loan or lease to such source. The interest rates
available and the required down payment, if any, depend to a large extent, upon
the bank or other institution providing the financing and the credit history of
the particular customer. Currently, the Company has relationships with
approximately 30 banks and other financial institutions who are in a position to
provide financing for automobile purchases or leases by the Company's customers.
The Company's F&I managers have close working relationships with third-party
financing sources which enables them to quickly determine a customer's credit
position and confirm the type and level of financing that the third party can
commit to provide. A credit check generally occurs within minutes while the
customer remains at the dealership, allowing the sales manager to assist the
customer in making a fully informed decision regarding the terms of the
transaction.
8
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In most cases, the Company arranges financing for its customers from third party
sources, which relieves the Company from any credit risk. However, in certain
circumstances where the Company believes the credit risk is manageable and the
risk-weighted income is expected to exceed the earnings available upon the
immediate sale of the finance contract, the Company will directly finance or
lease the automobile to such customer. In these cases, the Company bears the
risk of default by the borrower or lessee. Historically, the Company has
provided direct financing for a minimal number of its new and used vehicle
sales.
ANCILLARY SERVICES AND PRODUCTS. In addition to arranging for vehicle
financing, the Company's F&I managers also market a number of ancillary products
and services to every purchaser of a new or used vehicle. Typically, these
products and services yield high profit margins and contribute significantly to
the overall profitability of the Company.
The Company offers third party extended service contracts which provide that,
for a predetermined and prepaid price, all designated repairs covered by the
plan during its term will be made at no additional charge above the deductible.
While all new vehicles are sold with the automobile manufacturer's standard
warranty, service plans provide additional coverage beyond the time frame or
scope of the manufacturer's warranty. Purchasers of used vehicles are offered a
similar extended service contract, even if the selected vehicle is no longer
under the manufacturer's warranty.
The Company offers its customers credit life, health and accident insurance when
they finance an automobile purchase. The Company receives a commission on each
policy sold. The Company also offers other ancillary products such as protective
coatings and automobile alarms.
The Company also owns and operates two automobile rental facilities, Avis
Rent-A-Car and Discount Auto & Truck Rental, Inc., both located in Medford,
Oregon.
PARTS AND SERVICE, BODY AND PAINT SHOP. The Company considers its parts
and service and body and paint operations to be an integral part of its customer
service program and an important element of establishing customer loyalty. The
Company provides parts and service primarily for the new vehicle brands sold by
the Company's dealerships but may also service other vehicles. In 1997, the
Company's parts and service operations generated $29.8 million in revenues, or
9.3% of total revenues. The Company uses a variable pricing structure designed
to reflect the difficulty and sophistication of different types of repairs. The
mark-up on a part is based upon the cost and availability of such part.
The parts and service business is relatively stable and provides an important
recurring revenue stream to the Company's dealerships. The Company markets its
parts and service products by notifying the owners of vehicles purchased at its
dealerships when their vehicles are due for periodic service. This practice
encourages preventive maintenance rather than post-breakdown repairs. To a
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.
The Company has operated a full-service body and paint shop since 1970. In
1997, it completed a body and paint shop to service all of the Company's
dealerships located in southwest Oregon, other dealerships in the area that do
not own a body and paint shop, and a
9
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number of major automotive casualty insurance companies that contract with the
Company to perform insurance repairs.
SALES AND MARKETING
The Company places particular emphasis on customer satisfaction throughout its
organization and continually seeks to maintain its reputation for quality and
fairness. The Company's sales force works closely with each customer to identify
an appropriate vehicle at a price affordable to that customer. The Company
believes that its "counseling" approach during the sales process increases the
likelihood that a customer will be satisfied with the vehicle purchased over a
longer time period and enables the Company to sell more vehicles at higher gross
profit margins.
The Company recently implemented a marketing program entitled "Priority You,"
which provides the Company's retail customers six value-added services which the
Company believes are important to the overall satisfaction of the customer,
including a commitment to (i) provide a customer credit check within 10 minutes,
(ii) complete a used vehicle appraisal within 30 minutes, (iii) complete the
paper work within 90 minutes for a vehicle purchase, (iv) provide a
10-day/500-mile "no questions asked" right of exchange on any used vehicle sold,
(v) provide a 60-day/3,000-mile warranty on all used vehicles sold and (vi) make
a donation to a local charity or educational organization for every vehicle
sold. The Company believes "Priority You" will help differentiate it from
traditional dealerships, and thereby increase customer traffic and develop
customer loyalty.
Advertising and marketing play a significant role in the success of the Company.
The competitive environment of the automobile dealership industry requires that
a substantial portion of each sales dollar be allocated to advertising. However,
as is the case with most franchised automobile dealerships, approximately 75% of
the Company's advertising and marketing expenses are paid for by the automobile
manufacturers. The manufacturers also provide the Company with market research,
which assists the Company in developing its own advertising and marketing
campaigns. The Company believes that it receives significant benefit from
manufacturers' advertising, particularly in the medium-sized markets in which
the Company has been the only representative of a manufacturer.
The Company's marketing efforts focus on a wide range of potential buyers. The
Company offers a variety of new and used cars and light trucks at a wide range
of prices and with various financing terms. The Company utilizes most forms of
media in its advertising, including television, newspaper, radio and direct
mail, including periodic mailers to previous customers. The Company primarily
uses advertising that focuses on developing its image as a reputable dealer,
offering quality service, affordable automobiles and financing for all potential
buyers. In addition, the Company's individual dealerships periodically sponsor
price discounts or other promotions designed to attract additional customers.
Each dealership has substantial control over the content and timing of its
promotions, although all advertising is coordinated by the Company. As the
Company owns several dealerships in most of the markets it serves, it realizes
cost savings on its advertising expenses from volume discounts and other media
concessions. The Company also participates as a member of a number of
advertising cooperatives or associations whose members, among other things, pool
their resources and expertise together with that of the manufacturer to develop
advertising aimed at benefiting all of their members.
10
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MANAGEMENT INFORMATION SYSTEM
The Company's financial information, operational and accounting data and other
related statistical information are consolidated, processed and maintained at
its headquarters in Medford, Oregon, on a network of server computers and work
stations. The flexible nature of the Company's installed network allows for
accumulation, processing and distribution of information using ADP, Inc. and
Reynolds & Reynolds computing programs. ADP, Inc. and Reynolds & Reynolds are
national software providers for many companies including automotive dealers. All
sales and expense information, and other data related to the operations of each
dealership or other Company facility, are entered at each location. This system
allows senior management to access detailed information on a "real time" basis
from all of the Company's dealerships and other stores regarding, for example,
the makes and models of automobiles in its inventory, the mix of new and used
automobile sales, the number of automobiles being sold or leased, the percentage
of vehicles for which the Company arranged financing or sold ancillary products
and services, the profit margins being obtained on sales and the relative
performances of the Company's dealerships to each other. Such information is
also available to each dealership's general manager. Reports can be generated
that set forth and compare revenue and expense data by department and by store,
allowing management to quickly analyze the results of operations, identify
trends in the business, and focus on areas that require attention or
improvement. The Company believes that its management information system also
allows its general managers to quickly respond to changes in consumer
preferences and purchasing patterns, thereby maximizing inventory turnover.
The Company believes that its management information system is a key factor in
successfully incorporating newly acquired businesses into the Company. Following
each acquisition, the Company installs its management information system at the
dealership location, thereby quickly making the financial, accounting and other
operational data easily accessible to senior management at the Company's
corporate offices. With access to such data, senior management can more
efficiently execute the Company's operating strategy at the newly acquired
dealership.
CASH MANAGEMENT
The Company employs a centralized cash management system designed to maximize
returns and minimize interest expense. The Company's new vehicle flooring line
is supplied by the Company's bank, rather than by automobile manufacturers,
unlike many dealerships that do not have the financial condition or results of
operations that would permit them to obtain bank financing on terms more
favorable than those offered by manufacturers. As a result, the Company's
interest rate for flooring financing is 150 to 200 basis points below the rates
currently available to it from most manufacturers. In addition, in order to
minimize the outstanding balance under the Company's Flooring Line, all
available excess cash in the Company's various checking accounts is
automatically transferred at the end of each weekday to a central collateral
account at U.S. Bank N.A. These funds are used to pay down the balance under the
Flooring Line, thereby reducing interest expense. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
RELATIONSHIPS WITH AUTOMOBILE MANUFACTURERS
The Company has, either directly or through its subsidiaries, entered into
franchise or dealer sales and service agreements with each manufacturer of the
new vehicles it sells. The Company currently has agreements with Chrysler
Corporation (Chrysler, Plymouth, Dodge,
11
<PAGE>
Dodge Trucks, Jeep), American Honda Motor Co. Inc. (Honda, Acura), American
Isuzu Motors, Inc. (Isuzu), Ford Motor Company (Ford, Lincoln, Mercury),
General Motors Corporation (Pontiac), Mazda Motor of America, Inc. (Mazda),
Saturn Corporation (Saturn), Toyota Motor Distributors, Inc. (Toyota), Nissan
Motor Corporation, U.S.A. (Nissan), American Suzuki Motor Corporation (Suzuki),
Audi of America, Inc. (Audi), BMW of North America, Inc. (BMW), Hyundai Motor
America (Hyundai), and Volkswagen of America (Volkswagen) (herein collectively
referred to as "manufacturers").
The typical automobile franchise agreement specifies the locations at which the
dealer has the right and the obligation to sell vehicles and related parts and
products and to perform certain approved services in order to serve a specified
market area. The designation of such areas and the allocation of new vehicles
among dealerships are subject to the discretion of the manufacturer, which
(except for Saturn) does not guarantee exclusivity within a specified territory.
A franchise agreement may impose requirements on the dealer concerning such
matters as the showroom, the facilities and equipment for servicing vehicles,
the maintenance of inventories of vehicles and parts, the maintenance of minimum
working capital, the training of personnel and the adherence to certain
performance standards established by the manufacturer regarding sales volume and
customer satisfaction. Compliance with these requirements is closely monitored
by each manufacturer. In addition, manufacturers require each dealership to
submit monthly and annual financial statements of operations. The franchise
agreements also grant the dealer the non-exclusive right to use and display
manufacturers' trademarks, service marks and designs in the form and manner
approved by each manufacturer.
Most franchise agreements expire after a specified period of time, ranging
from one to five years; however, some franchise agreements, including those
with Chrysler, have no termination date. The typical franchise agreement
provides for early termination or non-renewal by the manufacturer under
certain circumstances such as change of management or ownership without
manufacturer consent, insolvency or bankruptcy of the dealership, death or
incapacity of the dealer manager, conviction of a dealer manager or owner of
certain crimes, misrepresentation of certain information by the dealership,
dealer manager or owner to the manufacturer, failure to adequately operate
the dealership, failure to maintain any license, permit or authorization
required for the conduct of business, or a material breach of other
provisions of the franchise agreement including the dealership's poor sales
performance or low customer satisfaction index ("CSI") ratings. The dealer is
typically entitled to terminate the franchise agreement at any time without
cause.
Each franchise agreement sets forth the name of the person approved by the
manufacturer to exercise full managerial authority over the dealership's
operations and the names and ownership percentages of the approved owners of the
dealership, and contains provisions requiring the manufacturer's prior approval
of changes in management or transfers of ownership of the dealership.
Accordingly, any significant change in ownership, including the sale of shares
by the Company to the public or the acquisition of a dealership from a third
party, is subject to the consent of the respective manufacturer. Most
manufacturers now have stated public ownership policies which the Company
believes it will be able to satisfy. Some of the policies impose additional
restrictions or conditions on the Company that would not exist under private
ownership.
12
<PAGE>
COMPETITION
The new and used automobile dealership business in which the Company operates is
highly competitive. The automobile dealership industry is fragmented and
characterized by a large number of independent operators, many of whom are
individuals, families and small groups. In the sale of new vehicles, the Company
principally competes with other new automobile dealers in the same general
vicinity of the Company's dealership locations. Such competing dealerships may
offer the same or different models and makes of vehicles that the Company sells.
In the sale of used vehicles, the Company principally competes with other used
automobile dealers and with new automobile dealers that operate used automobile
lots in the same general vicinity of the Company's dealership locations. In each
of its markets, the Company competes with numerous other new automobile dealers
selling other brands and a large number of other used automobile stores. In
addition, certain regional and national car rental companies operate retail used
car lots to dispose of their used rental cars.
The Company also may face increased competition from certain automobile
"superstores," such as CarMax, AutoNation USA and Driver's Mart Worldwide Inc.
Such used automobile superstores have emerged recently in various areas of the
United States and are beginning to expand nationally. However, the Company is
not aware of any of such superstores currently located in any region where the
Company operates dealerships. In addition, the Company competes to a lesser
extent with an increasing number of automobile dealers that sell vehicles
through nontraditional methods, such as through direct mail or via the Internet.
The Company believes it is larger and has more financial resources than the
other operators with which it currently competes. However, as it enters other
markets, the Company may face competitors that are more established or have
access to greater financial resources. The Company, however, does not have any
cost advantage in purchasing new vehicles from manufacturers and typically
relies on advertising and merchandising, sales expertise, service reputation and
location of its dealerships to sell new vehicles.
REGULATION
The Company's operations are subject to extensive regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations. Various state and federal regulatory agencies, such as the
Occupational Safety and Health Administration and the U.S. Environmental
Protection Agency, have jurisdiction over the operation of the Company's
dealerships, repair shops, body shops and other operations, with respect to
matters such as consumer protection, workers' safety and laws regarding clean
air and water.
The relationship between a franchised automobile dealership and a manufacturer
is governed by various federal and state laws established to protect dealerships
from the generally unequal bargaining power between the parties. Federal laws,
as well as certain state laws, prohibit a manufacturer from terminating or
failing to renew a franchise without good cause. Manufacturers are also
prohibited from preventing or attempting to prevent any reasonable changes in
the capital structure or the manner in which a dealership is financed.
Manufacturers are, however, entitled to object to a sale or change of management
where such an objection is related to material reasons relating to the
character, financial ability or business experience of the proposed transferee.
Automobile dealers and manufacturers are also subject to various federal and
state laws established to protect consumers, including so-called "Lemon Laws"
which require a manufacturer or the dealer to replace a new vehicle or accept it
for a full refund within one
13
<PAGE>
year after initial purchase if the vehicle does not conform to the
manufacturer's express warranties and the dealer or manufacturer, after a
reasonable number of attempts, is unable to correct or repair the defect.
Federal laws require certain written disclosures to be provided on new
vehicles, including mileage and pricing information. In addition, the financing
and insurance activities of the Company are subject to certain statutes
governing credit reporting, debt collection, and insurance industry regulation.
The imported automobiles purchased by the Company are subject to United States
customs duties and, in the ordinary course of its business, the Company may,
from time to time, be subject to claims for duties, penalties, liquidated
damages, or other charges.
As with automobile dealerships generally, and parts, service and body shop
operations in particular, the Company's business involves the use, handling and
contracting for recycling or disposal of hazardous or toxic substances or
wastes, including environmentally sensitive materials such as motor oil, waste
motor oil and filters, transmission fluid, antifreeze, freon, waste paint and
lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline
and diesel fuels. The Company has also been required to remove aboveground and
underground storage tanks containing such substances or wastes. Accordingly, the
Company is subject to regulation by federal, state and local authorities
establishing health and environmental quality standards, and liability related
thereto, and providing penalties for violations of those standards. The Company
is also subject to laws, ordinances and regulations governing remediation of
contamination at facilities it operates or to which it sends hazardous or toxic
substances or wastes for treatment, recycling or disposal. The Company believes
that it does not have any material environmental liabilities and that compliance
with environmental laws, ordinances and regulations will not, individually or in
the aggregate, have a material adverse effect on the Company's results of
operations or financial condition.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 1,000 persons on a
full-time equivalent basis. The service department employees at Lithia Concord
Dodge, Isuzu and Lithia Sun Valley Ford, Volkswagen, Hyundai are bound by
collective bargaining agreements. The Company believes it has a good
relationship with its employees.
ITEM 2. PROPERTIES
The Company and its various dealerships and other facilities occupy an aggregate
of approximately 100 acres of land, providing approximately 700,000 square feet
of building space. Such properties consist primarily of automobile showrooms,
display lots, service facilities, two body and paint shops, rental agencies,
supply facilities, automobile storage lots, parking lots and offices. The
Company believes its facilities are currently adequate for its needs and are in
good repair.
14
<PAGE>
The following table sets forth each of the Company's facilities, the approximate
square footage at each facility, the acreage of each location and whether the
facility is owned or leased.
<TABLE>
<CAPTION>
FACILITY
---------------------------------------
LEASED FROM
TOTAL LEASED LITHIA
BUILDING / TOTAL LAND OWNED BY FROM PROPERTIES
DEALERSHIP/FACILITY SQUARE FEET / ACRES COMPANY THIRD PARTY L.L.C. (1)
- ---------------------------------- ----------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Lithia Motors, Medford, Oregon 5,255 0.51 X
Lithia Honda Pontiac Suzuki Isuzu
Volkswagen, Medford, Oregon 27,114 3.30 X
Lithia Toyota Lincoln-Mercury,
Medford, Oregon 56,658 5.09 X
Lithia Dodge Chrysler Plymouth
Mazda Jeep, Medford, Oregon 64,962 4.35 X
Saturn of Southwest Oregon, Medford,
Oregon 11,226 2.08 X
Grants Pass Auto Center,
Grants Pass, Oregon 32,138 4.12 X
Lithia Toyota of Vacaville, California 22,900 4.18 X
Lithia Dodge of Eugene, Oregon 35,706 5.58 X
Lithia Nissan Acura BMW,
Bakersfield, California 49,000 7.12 X
Lithia Donnelly Lincoln-Mercury Audi
Suzuki Isuzu, Reno, Nevada 38,373 6.00 X
Lithia Donnelly Isuzu Lincoln-Mercury
Suzuki, Sparks, Nevada 8,448 1.78 X
Lithia Sun Valley Ford Volkswagen,
Concord, California 78,240 12.60 X
Lithia Ford, Napa, California 26,900 6.20 X
Lithia Dodge, Concord California 21,722 4.46 X
Lithia Isuzu, Concord, California 2,000 1.50 X
Lithia Ford, Fresno, California 60,577 6.10 X
Lithia Mazda, Fresno, California 27,947 5.00 X
Lithia Body & Paint, Medford, Oregon 42,873 5.01 X
Thrift Auto Supply, Medford, Oregon 11,230 0.46 X
Discount Auto & Truck Rental,
Medford, Oregon 278 - X
Cellular World, Medford, Oregon 1,850 - X
Avis Rent-A-Car, Medford, Oregon 630 - X X
Vacant Parcel, Medford, Oregon (2) - 5.32 X
Lithia Nissan BMW, Medford, Oregon 22,687 4.03 X
Lithia Nissan Jeep, Fresno, California 47,914 6.00 X
Lithia Donnelly Volkswagen,
Reno, Nevada 9,120 4.45 X
Lithia Jeep, Bakersfield, California 12,030 2.06 X
</TABLE>
_______________
(1) Lithia Properties L.L.C., an Oregon limited liability company, is owned by
certain affiliates of the Company.
(2) Held for future development.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation that arises in the
normal course of its business operations. The Company does not believe it is
presently a party to litigation that will have a material adverse effect on its
business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock trades on the Nasdaq National Market under
the symbol LMTR. The quarterly high and low sales prices of the Company's
Common Stock for the period from December 18, 1996 (the date of the Company's
initial public offering) through December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1996 High Low
- ------------------------------------ --------- ---------
<S> <C> <C>
Quarter 4 (from December 18, 1996) $ 11.50 $ 10.94
<CAPTION>
1997
- ------------------------------------
<S> <C> <C>
Quarter 1 13.13 10.50
Quarter 2 12.38 9.50
Quarter 3 14.25 10.50
Quarter 4 19.00 13.63
</TABLE>
The number of shareholders of record and approximate number of beneficial
holders of the Company's Class A Common Stock at February 27, 1998 was 27 and
628, respectively. All shares of the Company's Class B Common Stock are held by
Lithia Holding Company LLC. There were no cash dividends declared or paid
subsequent to the Company's initial public offering in December 1996. The
Company does not intend to declare or pay cash dividends. The Company intends to
retain any earnings that it may realize in the future to finance its
acquisitions and operations. The payment of any future dividends will be subject
to the discretion of the Board of Directors of the Company and will depend upon
the Company's results of operations, financial position and capital
requirements, general business conditions, restrictions imposed by financing
arrangements, if any, legal restrictions on the payment of dividends and other
factors the Board of Directors deems relevant.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
(in thousands except per share amounts) 1993 (1) 1994 (1) 1995 (1) 1996 (1) 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales:
New vehicles $42,663 $ 51,154 $ 53,277 $ 65,092 $161,294
Used vehicles 34,986 42,381 44,061 58,611 113,099
Other 14,590 15,888 16,858 19,141 45,402
-------- -------- -------- -------- --------
Total sales 92,239 109,423 114,196 142,844 319,795
Cost of sales 74,224 89,709 93,559 118,333 266,363
-------- -------- -------- -------- --------
Gross profit 18,015 19,714 20,637 24,511 53,432
Selling, general and administrative (2) 14,721 14,781 16,333 19,830 40,625
Depreciation and amortization (3) 401 393 402 448 1,169
-------- -------- -------- -------- --------
Operating income 2,893 4,540 3,902 4,233 11,638
Interest income 216 99 179 193 138
Interest expense (1,374) (954) (1,390) (1,353) (3,004)
Other income, net 607 902 1,036 1,156 725
-------- -------- -------- -------- --------
Income before minority interest and income taxes 2,342 4,587 3,727 4,229 9,497
Minority interest (233) (458) (778) (687) -
-------- -------- -------- -------- --------
Income before income taxes (1) (2) $ 2,109 $ 4,129 $ 2,949 3,542 9,497
Income tax (expense) benefit -------- -------- -------- 813 (3,538)
-------- -------- -------- -------- --------
Net income $ 4,355 $ 5,959
-------- --------
-------- --------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Income before taxes, and minority interest, as reported $ 2,342 $ 4,587 $ 3,727 $ 4,229
Pro forma provision for taxes (4) (890) (1,743) (1,430) (1,623)
-------- -------- -------- --------
Pro forma net income $ 1,452 $ 2,844 $ 2,297 $ 2,606
-------- -------- -------- --------
-------- -------- -------- --------
Basic net income per share (5) $ 0.50 $ 0.56 $ 0.85
-------- -------- --------
-------- -------- --------
Diluted net income per share (5) $ 0.47 $ 0.52 $ 0.82
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------------
(in thousands) 1993 (1) 1994 (1) 1995 (1) 1996 (1) 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital $ 2,903 $ 9,325 $10,626 $25,431 $ 23,870
Total assets 38,088 41,981 44,117 68,964 166,526
Short-term debt 24,380 23,511 22,300 22,000 85,385
Long-term debt, less current maturities 3,789 6,748 10,743 6,160 26,558
Total shareholders' equity 4,074 6,094 3,716 27,914 37,877
</TABLE>
(1) Effective January 1, 1997, the Company converted from the LIFO method
of accounting for inventories to the FIFO method. Accordingly, the
1993, 1994, 1995 and 1996 data has been restated to reflect this
change. See Note 1 of Notes to Consolidated Financial Statements.
(2) Prior to 1994, the Company and its affiliated entities paid cash
bonuses to their shareholders and members in amounts approximating
their respective income tax liability on their undistributed earnings
($532,000 in 1991, $640,000 in 1992, and $1.0 million in 1993), in
addition to their normal salaries. These cash bonuses are reflected in
the selling, general and administrative expense above. In 1994 and
subsequent periods, cash to meet the shareholders' and members' tax
liabilities was distributed to the shareholders and members as
dividends. The Company believes that for a fair evaluation of its
historical performance, results for 1991, 1992 and 1993 should be
adjusted to eliminate such bonus payments.
17
<PAGE>
(3) Does not include depreciation included in cost of sales related to
vehicles leased to others. See "Consolidated Statements of Cash
Flows" for total depreciation and amortization.
(4) The Company was an S Corporation and accordingly was not subject to
federal and state income taxes during the periods indicated. Pro forma
net income reflects federal and state income taxes as if the Company
had been a C Corporation, based on the effective tax rates that would
have been in effect during these periods. See "Company Restructuring
and Prior S Corporation Status" and Notes 1 and 8 to the Company's
Consolidated Financial Statements.
(5) The per share amounts are pro forma for 1995 and 1996 and actual for
1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Lithia Motors is a leading retailer of new and used vehicles in the western
United States, offering 21 domestic and imported makes of new automobiles and
light trucks at 22 locations: 12 in California, 7 in Oregon and 3 in Nevada.
The Company sells new and used cars and light trucks, sells replacement parts,
provides vehicle maintenance, warranty, paint and repair services, and arranges
related financing and insurance for its automotive customers. The Company has
grown primarily by successfully acquiring and integrating dealerships and by
obtaining new dealer franchises. The Company's strategy is to continue as 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 (1997 data is not yet available).
AVERAGE U.S. DEALERSHIP
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
------ ------
<S> <C> <C>
Sales:
New vehicles 58.6% 57.7%
Used vehicles 29.0% 30.4%
Parts, service and other 12.4% 11.9%
------ ------
Total sales 100.0% 100.0%
Gross profit 12.9% 12.9%
Income before taxes 1.4% 1.5%
</TABLE>
_______________
Source: NADA Industry Analysis Division (latest information available).
18
<PAGE>
The following table sets forth selected condensed financial data for the Company
expressed as a percentage of total sales for the periods indicated below.
LITHIA MOTORS, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 (1) 1996 (1) 1997
-------- -------- -------
<S> <C> <C> <C>
Sales:
New vehicles 46.6% 45.6% 50.4%
Used vehicles 38.6% 41.0% 35.4%
Parts, service and other 14.8% 13.4% 14.2%
------ ------ ------
------ ------ ------
Total sales 100.0% 100.0% 100.0%
Gross profit 18.1% 17.2% 16.7%
Income before taxes 3.2% 3.0% 3.0%
</TABLE>
- -------------
(1) Restated to reflect FIFO method of accounting.
Prior to January 1, 1997, the Company utilized the LIFO (Last In-First Out)
method of accounting for inventory ("LIFO Method"). Industry standard is to use
the specific identification method of accounting for vehicles and the FIFO
(First In-First Out) method of accounting for parts (herein collectively
referred to as the "FIFO Method"). Beginning January 1, 1997, the Company began
using the FIFO Method. Prior period statements have been restated to be
consistent with the current year presentation on the FIFO Method.
RECENT ACQUISITIONS
Since December 1996, the Company has completed the acquisition of 17 dealerships
representing 16 makes of new automobiles and light trucks. An additional
acquisition is pending. The Company has accounted for each of its acquisitions
by the purchase method of accounting, and the results of operations of these
dealerships have not been included in the Company's results of operations prior
to the date they were acquired by the Company.
1997 COMPARED TO 1996
SALES. Sales for the Company increased $177.0 million, or 123.9% to $319.8
million for the year ended December 31, 1997 from $142.8 million in 1996. Total
vehicles sold during 1997 increased by 9,853, or 100.8%, to 19,631 from 9,778
during 1996. Dealerships acquired in late 1996 and 1997 accounted for 9,836 of
the total vehicles sold in 1997. Same dealership sales growth was 4.8%, due to
a 3.1% increase in vehicle sales, and a 20.7% increase in other operating sales.
NEW VEHICLES. The Company sells 21 domestic and imported brands
ranging from economy to luxury cars, as well as sport utility
vehicles, minivans and light trucks. In 1997 and 1996, the Company
sold 7,493 and 3,274 new vehicles, generating revenues of $161.3
million and $65.1 million, which constituted 50.4% and 45.6% of the
Company's total sales, respectively.
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.
19
<PAGE>
USED VEHICLES. The Company offers a variety of makes and models of used
cars and light trucks of varying model years and prices. Used vehicle sales
are an important part of the Company's overall profitability. In 1997 and
1996, the Company sold 12,138 and 6,504 used vehicles, respectively,
generating revenues of $113.1 million and $58.6 million, which constituted
35.4% and 41.0% of the Company's total revenue, respectively.
OTHER. The Company derives additional revenue from the sale of parts and
accessories, maintenance and repair services, auto body work, and financing
and insurance ("F&I") transactions. Other operating revenue increased
137.7% to $45.4 million during 1997, from $19.1 million during 1996, due to
an increased number of F&I transactions and, to a lesser extent, an
increase in revenues derived from service department maintenance and
repairs. To a limited extent, revenues from the parts and service
department are counter-cyclical to new car sales as owners repair existing
vehicles rather than buy new vehicles. The Company believes this helps
mitigate the effects of a downturn in the new vehicle sales cycle.
GROSS PROFIT. Gross profit increased 118.0% during 1997 to $53.4 million,
compared with $24.5 million for 1996, primarily because of the increase in new
and used vehicle unit sales during the period. The gross profit margin achieved
by the Company on new vehicle sales during 1997 and 1996 was 11.4% and 13.1%,
respectively. This compares favorably with the average gross profit margin of
6.5% realized by franchised automobile dealers in the United States on sales of
new vehicles in 1996. 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.
Excluding wholesale transactions, the Company's gross profit margin on used
vehicle sales was 11.4% in 1997 and 12.8% in 1996, as compared to the industry
average for 1996 of 11.0%. Total gross profit margin decreased to 16.7% for
1997 from 17.2% for 1996. The decrease in gross profit margins was primarily a
result of the acquisition of several new dealerships during 1997 which were
generating gross margins lower than those of the Company. The Company's gross
profit margin continues to exceed the average U.S. dealership gross profit
margin of 12.9% for 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. The Company's selling, general and
administrative ("SG&A") expense increased $20.8 million, or 104.9%, to $40.6
million for 1997 compared to $19.8 million for 1996. SG&A as a percentage of
sales decreased to 12.7% for 1997 from 13.9% for 1996. The increase in SG&A was
due primarily to increased selling, or variable, expense related to the increase
in sales resulting from the acquisition of additional dealerships, 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.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$721,000 or 160.9% to $1.2 million for the year ended December 31, 1997 compared
to $448,000 for 1996 primarily as a result of increased property and equipment
and goodwill related to acquisitions in 1997. Depreciation and amortization was
0.4% of sales in 1997 compared to 0.3% in 1996. These figures exclude
depreciation related to leased vehicles included in cost of sales.
20
<PAGE>
INTEREST EXPENSE. Interest expense increased $1.6 million or 122.0% to
$3.0 million for the year ended December 31, 1997 compared to $1.4 million for
1996, primarily as a result of increased debt in 1997 related to acquisitions,
partly offset by increased cash balances for a majority of the year related to
the Company's initial public offering.
OTHER INCOME, NET. Other income, net, consisting primarily of management fees
from Lithia Properties, equity in the income of Lithia Properties and other
non-dealer service income, decreased 37.3% to $725,000 for 1997 from $1.2
million for 1996. This decrease was primarily due to the one-time benefit of
insurance proceeds received in 1996 related to damage caused by a hail storm.
INCOME TAX EXPENSE. Prior to December 18, 1996, the Company and its affiliated
entities were treated as S Corporations or as partnerships under the Internal
Revenue Code for federal income tax purposes since their inception and, as a
result, have not been subject to federal or certain state income taxes.
Immediately before the completion of the Company's initial public offering on
December 18, 1996, and in connection with its restructuring, the Company and its
affiliated entities that were S Corporations terminated their status as S
Corporations and became subject to federal and state income tax at applicable C
Corporation rates.
The Company's effective tax rate for 1997 was 37.3% compared to 38.4% (on a pro
forma basis) for 1996. The Company's effective tax rate may be affected by the
purchase of new dealerships in jurisdictions with tax rates either higher or
lower than the current estimated rate.
NET INCOME. Net income rose 128.7% to $6.0 million (1.9% of total sales) for
the year ended December 31, 1997 compared to $2.6 million (1.87% of total
sales), on a pro forma basis, for 1996, as a result of the individual line item
changes discussed above.
1996 COMPARED TO 1995
SALES. Sales for the Company increased $28.6 million, or 25% from $114.2
million for 1995, to $142.8 million for the year ended December 31, 1996. Total
vehicles sold increased by 1,919, or 24.4%, from 7,859 during 1995 to 9,778 in
1996. The increase in sales was primarily from increased new and used vehicle
unit sales as a result of increased levels of promotional activity for certain
popular brands, increased availability of late model used vehicles (both retail
and wholesale) which were in high demand and, to a lesser extent, from increased
average per unit sales prices on both new and used vehicles. Sales in the third
and fourth quarters of 1996 were also slightly higher due to a hail storm in
July that mildly damaged vehicles in the Company's lots in and around Medford,
Oregon. Such vehicles were sold at reduced prices, increasing unit sales, and
increasing the gross profit margin due to the receipt of insurance proceeds
applied to increase the gross profit rather than repair the vehicles. Sales in
the fourth quarter of 1996 also increased as a result of the acquisition of two
dealerships late in the quarter.
NEW VEHICLES. In 1996 and 1995, the Company sold 3,274 and 2,715 new
vehicles, respectively, generating revenues of $65.1 million and $53.2
million, which constituted 45.6% and 46.7% of the Company's total revenues,
respectively.
21
<PAGE>
USED VEHICLES. In 1996 and 1995, the Company sold 6,504 and 5,144 used
vehicles, respectively, generating revenues of $58.6 million and $44.1
million, constituting 41.0% and 38.6%, respectively, of the Company's total
revenue.
OTHER. Revenue from maintenance and repair service, parts and other
operating revenue increased 13.5% to $19.1 million during 1996, from $16.9
million during 1995, due to an increased number of F&I transactions and to
a lesser extent, an increase in revenues derived from service department
maintenance and repairs.
GROSS PROFIT. Gross profit increased 18.8% during 1996 to $24.5 million,
compared with $20.6 million for 1995, primarily because of the increase in new
and used vehicle unit sales during the period. The gross profit margin achieved
by the Company on new vehicle sales during 1996 and 1995 was 13.1% and 12.8%,
respectively, compared to the average gross profit margin obtained by franchised
automobile dealers in the United States on sales of new vehicles of 6.5% in
1996. Excluding wholesale transactions, the Company's gross profit margin on
used vehicle sales was 12.8% in 1996 and 13.2% in 1995, as compared to the
industry average for 1995 of 11.5%. Gross profit margin decreased to 17.2% for
1996 from 18.1% for 1995. The decrease in gross profit margins is primarily due
to a reduction in gross profit margins on used vehicle sales caused by an
increase in wholesale sales of used vehicles, which typically provide negligible
profit margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. The Company's SG&A expense
increased $3.5 million, or 21.4%, to $19.8 million for 1996 compared to $16.3
million for 1995. SG&A as a percentage of sales decreased to 13.9% for 1996 from
14.3% for 1995. The increase in SG&A expense was due primarily to increased
selling, or variable, expense related to the increase in sales, and to a lesser
extent, an increase in compensation for additional personnel and management in
preparation for acquisitions.
INTEREST EXPENSE. In connection with the reorganization of the Company prior to
its initial public offering, and the termination of the Company's status as an
S Corporation, the Company distributed to the shareholders promissory notes
("Dividend Notes") in the aggregate amount of $3.9 million, representing
approximately all of the previously taxed undistributed earnings of the Company
through December 31, 1995. The Company's interest expense remained stable at
$1.4 million for 1996 and 1995 because the increase in total debt outstanding
for 1996 caused by the distribution of the Dividend Notes was offset by a
decrease in interest rates during 1996.
OTHER INCOME, NET. Other income, net, consisting primarily of management fees
from Lithia Properties, equity in the income of Lithia Properties and other
non-dealer service income, increased 11.6% to $1.2 million for 1996 from $1.0
million for 1995. This increase was primarily due to insurance proceeds received
in 1996 related to damage caused by a hail storm.
INCOME TAX BENEFIT. The Company and its affiliated entities have been treated
for federal income tax purposes as S Corporations or as partnerships under the
Internal Revenue Code since their inception and, as a result, have not been
subject to federal or certain state income taxes. Immediately before the
completion of the Company's initial public offering on December 18, 1996 and in
connection with its restructuring, the Company and its affiliated entities that
were S Corporations terminated their status as S Corporations and became subject
to federal and state income tax at applicable C Corporation rates. As a result
of the
22
<PAGE>
conversion from S Corporation status to C Corporation status in December
1996, the Company recorded a deferred tax asset of $906,000 and a
corresponding benefit of $906,000 to income taxes in the fourth quarter of
1996.
Prior to 1994, the shareholders and members of the Company and the
affiliated entities each received substantial year-end tax payment bonuses to
provide the cash to pay income taxes on the Company's and affiliated entities
income which was taxable to the principals. Such payments were reflected in
SG&A expense.
NET INCOME. Net income was $2.6 million (1.8% of total sales) for the year
ended December 31, 1996, on a pro forma basis, compared to $2.3 million (2.0%
of total sales), on a pro forma basis, for 1995, as a result of the individual
line item changes discussed above.
LIQUIDITY AND CAPITAL RESOURCES
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 the proceeds from its
initial public offering to finance its operations and expansion.
The Company's credit facility with a syndicate of banks, with U.S. Bank N.A. as
agent, provides for aggregate borrowings of $175 million (the "Credit
Facility"). The Credit Facility consists of (i) a $110 million revolving line
of credit to finance new and used vehicle inventory (the "Flooring Line"),
(ii) a $30 million revolving line of credit for acquisitions (the "Acquisition
Line"), (iii) a $10 million revolving line of credit for leased vehicles (the
"Lease Line"), (iv) a $10 million revolving line of credit for equipment (the
"Equipment Line"), and (v) a $15 million commitment for real estate acquisitions
(the "Real Estate Line").
The Credit Facility has a maturity date of October 1, 1998. At that time, the
Company has the right to elect to convert outstanding loans under the
Acquisition Line and the Equipment Line to a term loan payable over 5 years.
Amounts outstanding at December 31, 1997 were as follows (in thousands):
<TABLE>
<S> <C>
Flooring Line $82,598
Acquisition Line 5,000
Lease Line 5,211
Equipment and Real Estate Lines 4,827
-------
Total $97,636
-------
-------
</TABLE>
Loans under the Credit Facility bear interest at LIBOR (London Interbank Offered
Rate) plus 150 to 275 basis points, equivalent to 7.625% to 8.75% at
December 31, 1997.
The Credit Facility contains financial covenants requiring the Company to
maintain compliance with, among other things, specified ratios of (i) minimum
net worth; (ii) total liabilities to net worth; (iii) funded debt to cash
flow; (iv) fixed charge coverage; and (v) maximum allowable capital
expenditures. The Company is currently in compliance with all such financial
covenants.
23
<PAGE>
Since December 1996 when the Company completed its initial public offering,
the Company has acquired 17 dealerships. The aggregate net investment by the
Company was approximately $48.6 million (excluding borrowings on its credit
lines to finance acquired vehicle inventories and equipment and the purchase
of any real estate).
The Company anticipates that it will be able to satisfy its cash requirements
at least through December 31, 1998, including its currently anticipated
growth, primarily with cash flow from operations, borrowings under the
Flooring Line and the Company's other lines of credit, cash currently
available, and the proceeds from its pending secondary offering of its Class
A Common Stock. In addition, the Company is exploring various alternative
financing arrangements with respect to its real estate, the result of which
would be to provide additional available cash. No specific plans have been
made in that regard as of the date of this Form 10-K.
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 first and fourth quarters than during the other
quarters of each fiscal year; however, this did not hold true for the fourth
quarters of 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 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.
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement establishes standards for the way that public
business enterprises report information about operating segments in interim
and annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Company expects to adopt SFAS 131 for its fiscal year
beginning January 1, 1998.
INFLATION
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on the Company's revenues or
profitability. In the past, the Company has been able to maintain its profit
margins during inflationary periods.
24
<PAGE>
YEAR 2000
The Company has assessed the implications of the Year 2000 issue and has
determined that the cost of making its information systems Year 2000 compliant
will not be material.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No disclosure is required under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The financial statements and notes thereto required by this item begin on page
F-1 as listed in Item 14 of Part IV of this document.
Quarterly financial data, pro forma for income taxes in 1996, for each of the
eight quarters in the two-year period ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ----------------------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1997
- ----
Net sales $ 54,704 $ 66,422 $ 85,573 $ 113,096
Gross profit 8,949 10,716 14,185 19,582
Income before income taxes 1,864 2,227 2,573 2,833
Income taxes 720 859 994 965
Net income 1,144 1,368 1,579 1,868
Basic net income per share 0.17 0.20 0.23 0.27
Diluted net income per share 0.16 0.19 0.22 0.25
1996 (1)
- --------
Net sales $ 32,446 $ 36,597 $ 36,523 $ 37,278
Gross profit 5,599 6,009 6,566 6,337
Income before minority interest and
taxes as reported (2) 937 1,203 1,205 884
Pro forma income taxes 360 477 462 324
Pro forma net income before
minority interest (2) 577 726 743 560
Pro forma basic net income per
share (2) 0.13 0.16 0.16 0.12
Pro forma diluted net income
per share (2) 0.12 0.15 0.15 0.11
</TABLE>
- --------------
(1) The quarterly data for 1996 has been restated to give effect for the
conversion from the LIFO method of accounting for inventory to the
FIFO method, which was effective January 1, 1997.
(2) The quarterly data for 1996 is pro forma in order to be comparable to
1997 data due to S Corporation status in 1996 and C Corporation status
in 1997, as well as the elimination of minority interest pursuant to
the restructuring at the time of the initial public offering.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is included under the captions ELECTION OF
DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE, respectively, in the Company's Information Statement for its 1998
Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption EXECUTIVE
COMPENSATION in the Company's Information Statement for its 1998 Annual Meeting
of Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's
Information Statement for its 1998 Annual Meeting of Shareholders and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS in the Company's Information Statement
for its 1998 Annual Meeting of Shareholders and is incorporated herein by
reference.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
The Consolidated Financial Statements, together with the report thereon of KPMG
Peat Marwick LLP, are included on the pages indicated below:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-1
Consolidated Balance Sheets -- December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the years
ended December 31, 1997,1996 and 1995 F-3
Consolidated Statements of Changes in Shareholders'
Equity - December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
There are no schedules required to be filed herewith.
(b) REPORTS ON FORM 8-K
The Company filed the following reports on Form 8-K during the quarter ended
December 31, 1997:
1. Form 8-K/A dated August 8, 1997 under Items 2 and 7, as filed with the
Securities and Exchange Commission on October 14, 1997.
2. Form 8-K dated October 1, 1997 under Items 2 and 7, as filed with the
Securities and Exchange Commission on October 14, 1997.
3. Form 8-K/A dated October 1, 1997 under Items 2 and 7, as filed with
the Securities and Exchange Commission on December 12, 1997.
4. Form 8-K dated December 16, 1997 under Items 2 and 7, as filed with
the Securities and Exchange Commission on December 30, 1997.
27
<PAGE>
(c) EXHIBITS
The following exhibits are filed herewith and this list is intended to
constitute the exhibit index:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
3.1 (a) Restated Articles of Incorporation of Lithia Motors, Inc.
3.2 (a) Bylaws of Lithia Motors, Inc.
4.1 (a) Specimen Common Stock certificate
10.1.1 (a) 1996 Stock Incentive Plan
10.1.2 (a) Form of Incentive Stock Option Agreement
10.1.3 (a) Form of Non-Qualified Stock Option Agreement
10.1.4 (a) Form of Incentive Stock Option Agreement
10.2.1 (b) 1997 Non-Discretionary Stock Option Plan for Non-Employee Directors
10.3.1 Employee Stock Purchase Plan
10.4.1 (a) Chrysler Corporation Chrysler Sales and Service Agreement, dated
January 10, 1994, between Chrysler Corporation and Lithia
Chrysler Plymouth Jeep Eagle, Inc. (Additional Terms and
Provisions to the Sales and Service Agreements are in Exhibit
10.4.2 hereto) (1)
10.4.2 (a) Chrysler Corporation Dealer Agreement Additional Terms and Provisions
10.5.1 Honda Automobile Dealer Sales and Service Agreement dated October
14, 1997, between American Honda Motor Company, Inc. and Lithia
HPI, Inc. dba Lithia Honda (standard provisions are in Exhibit
10.5.3 hereto).
10.5.2 Acura Automobile Dealer Sales and Service Agreement dated October
2, 1997, between American Honda Motor Company, Inc. and Lithia
BB, Inc. dba Lithia Acura of Bakersfield (standard provisions are
in Exhibit 10.5.3 hereto).
10.5.3 American Honda Automobile Dealer Sales and Service Agreement Standard
Provisions.
10.5.4 Agreement between American Honda Motor Company, Inc. and Lithia
Motors, Inc. et al. dated December 17, 1996.
10.5.5 Amendment dated October 2, 1997, to Agreement between American
Honda Motor Company, Inc. and Lithia Motors, Inc. et al. dated
December 17, 1996.
10.6.1 (a) Isuzu Dealer Sales and Service Agreement, dated June 5, 1996
between American Isuzu Motors, Inc. and Lithia Motors, Inc.
(Additional Provisions to Dealer Sales and Service Agreements are
in Exhibit 10.6.2 hereto) (2)
10.6.2 (a) Isuzu Dealer Sales and Service Agreement Additional Provisions
10.6.3 (c) Supplemental Agreement, dated December 27, 1996 to Isuzu Dealer
Sales and Service Agreement (3)
10.7.1 Mercury Sales and Service Agreement, dated June 1, 1997, between
Ford Motor Company and Lithia TLM, LLC dba Lithia Lincoln Mercury
(general provisions are in Exhibit 10.7.3 hereto) (4)
10.7.2 Supplemental Terms and Conditions agreement between Ford Motor
Company and Lithia Motors, Inc. dated June 12, 1997.
10.7.3 (a) Mercury Sales and Service Agreement General Provisions
10.8.1 Supplemental Agreement dated January 16, 1998, to General Motors
Corporation Dealer Sales and Service Agreement between General
Motors Corporation and Lithia Motors, Inc.
10.8.2 (a) General Motors Corporation Dealer Sales and Service Agreement,
dated March 12, 1993, between General Motors Corporation Pontiac
Division and Lithia Motors, Inc. dba Lithia Pontiac
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
10.8.3 (a) General Motors Dealer Sales and Service Agreement Standard
Provisions
10.9.1 (a) Mazda Dealer Agreement, dated April 11, 1994 between Mazda Motor
of America, Inc. and Lithia Dodge, L.L.C. dba Lithia Mazda
10.10.1 Saturn Distribution Corporation Retailer Agreement, dated June
16, 1997, between Saturn Distribution Corporation and Saturn of
Southwest Oregon, Inc.
10.10.2 Supplemental Agreement to Saturn Retailer Agreement, dated August
26, 1997, between Saturn of Southwest Oregon, Inc., Lithia
Motors, Inc., Sidney B. DeBoer, Lithia Holding, LLC, and Saturn
Distribution Corporation.
10.11.1 (a) Toyota Dealer Agreement, dated January 30, 1990, between Toyota
Motor Distributors, Inc. and Lithia Motors, Inc. dba Medford
Toyota (5)
10.11.2 (a) Toyota Dealer Agreement Standard Provisions
10.11.3 (a) Agreement, dated September 30, 1996, between Toyota Motor
Sales, U.S.A., Inc. and Lithia Motors, Inc.
10.11.4 (c) Addendum dated December 26, 1996, to Section X - additional
provisions to Toyota Dealer Agreement, dated November 15, 1996
between Toyota Motor Sales, USA, Inc. and Lithia TKV, Inc.
10.12.1 Suzuki Term Dealer Sales and Service Agreement, dated May 14,
1997, between American Suzuki Motor Corporation and Lithia HPI,
Inc. dba Lithia Suzuki (standard provisions are in Exhibit
10.12.2 hereto) (6)
10.12.2 Suzuki Dealer Sales and Service Agreement Standard Provisions.
10.13.1 BMW Dealer Agreement, dated October 3, 1997, between BMW of North
America, Inc. and Lithia BB, Inc.
10.14.1 Hyundai Motor America Dealer Sales and Service Agreement, dated
January 26, 1998, between Hyundai Motor America and Lithia JEF,
Inc.
10.15.1 Nissan Dealer Term Sales and Service Agreement between Lithia
Motors, Inc., Lithia NF, Inc., and the Nissan Division of Nissan
Motor Corporation In USA dated January 2, 1998. (standard
provisions are in Exhibit 10.15.2 hereto) (7)
10.15.2 Nissan Standard Provisions
10.16.1 Volkswagen Dealer Agreement dated April 5, 1996, between
Volkswagen United States, Inc. and Lithia Motors, Inc. dba Lithia
Volkswagen. (standard provisions are in Exhibit 10.16.2 hereto)
10.16.2 Volkswagen Dealer Agreement Standard Provisions *
10.17.1 (a) Commercial Lease, dated September 20, 1996, between Lithia
Properties, L.L.C. and Lithia Motors, Inc. (8)
10.17.2 (a) Form of Commercial Lease, effective January 1, 1997, between
Lithia Properties, L.L.C. and Lithia Motors, Inc. (9)
10.18.1 (a) Asset Purchase Agreement, dated August 2, 1996, between Lithia
Motors, Inc. and Roberts Dodge, Inc.
10.18.2 (a) Land Sale Contract, dated August 2, 1996, between Lithia
Properties, L.L.C. and Milford G. Roberts, Sr. and Sandra L.
Roberts
10.18.3 (a) Assignment of Land Sale Contract, dated November 5, 1996, between
Lithia Properties, LLC and Lithia Motors, Inc.
10.19.1 (a) Commercial Lease, dated April 1, 1992, between Billy J. Wilson et
al and Wilson/Malasoma, Inc. relating to facility in Vacaville,
California.
10.20.1 (d) Agreement for Purchase and Sale of Business Assets between
Magnussen Dodge, Inc. and Lithia Motors, Inc. dated January 21,
1997
10.20.2 (d) Lease between Solano Way Partnership and Lithia Real Estate, Inc.
dated February 14, 1997
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
10.21.1 (c) Agreement for Purchase and Sale of Business Assets between
Magnussen-Barbee Ford, Lincoln-Mercury, Inc. and Lithia Motors,
Inc. dated February 21, 1997
10.21.2 (e) Lease between John Ferrogiaro and Bernard L. Magnussen et al., as
amended by Second Amendment to Lease, dated December 12, 1996,
and Consent to Assignment and Third Amendment to Lease, by and
among John Ferrogiaro, Magnussen Dealership Group and Lithia Real
Estate, Inc.
10.22.1 (f) Agreement for Purchase and Sale of Business Assets between Sun
Valley Ford, Inc. and Lithia Motors, Inc. dated April 2, 1997
10.22.2 (g) Promissory Note for Leasehold Improvements issued by Lithia
Motors, Inc. to Sun Valley Ford, Inc. dated August 8, 1997.
10.22.3 (g) Promissory Note for Intangible Assets issued by Lithia Motors,
Inc. to Sun Valley Ford, Inc. dated August 8, 1997.
10.22.4 (h) Standard Industrial Lease, as amended and assignment thereof,
among Edmund C. Bartlett, Jr., Anna Bartlett, Sun Valley Ford,
Inc. and Lithia Motors, Inc. dated July 16, 1997
10.22.5 (h) Lease Agreement and assignment thereof, among George Valente and
Lena E. Valente as trustees of the George and Lena E. Valente
Trust, Sun Valley Ford, Inc. and Lithia Motors, Inc. dated August
4, 1997.
10.23.1 (f) Agreement for Purchase and Sale of Business Assets between Dick
Donnelly Automotive Enterprises, Inc. dba Dick Donnelly
Lincoln-Mercury, Audi, Suzuki, Isuzu and Lithia Motors, Inc.
dated April 2, 1997
10.23.2 Lease Agreement among Paul H. Snider and Dick Donnelly
Automotive Enterprises, Inc. dated October 17, 1989
10.23.3 Lease Agreement among Richard M. Donnelly and Susan K. Donnelly
and Lithia Real Estate, Inc. dated October 1, 1997
10.24.1 (f) Agreement for Purchase and Sale of Business Assets between Nissan
BMW, Inc. dba Bakersfield Nissan, Acura, BMW and Lithia Motors,
Inc. dated June 26, 1997
10.24.2 Real Propertyt Lease Agreement among Eloy C. Renfrow and Lithia
Real Estate, Inc. dated October 2, 1997
10.25.1 (i) Agreement for Purchase and Sale of Business Assets between
Century Ford, Inc. and Lithia Motors, Inc. dated September 1,
1997
10.25.2 Lease Agreement among BR Enterprise and Lithia Motors, Inc.
dated September 3, 1997
10.26.1 (j) Agreement for Purchase and Sale of Business Assets between Daniel
A. Haus Group, Inc. dba Quality Nissan and Quality Jeep/Eagle
Hyundai and Lithia Motors, Inc. dated October 10, 1997
10.27.1 Agreement for Purchase and Sale of Business Assets between
Medford Nissan, Inc. dba "Medford Nissan BMW Kia", Lithia Motors,
Inc, or its nominee, and James D. Plummer, dated September 8,
1997.
10.27.2 Real Property Lease Agreement among James D. Plummer and Lithia
Real Estate, Inc. dated October 14, 1997
10.28.1 Agreement for Purchase and Sale of Business Assets between United
American Funding, Inc. dba "Reno Volkswagen" and Lithia Motors,
Inc., or its nominee, dated December 31, 1997.
10.28.2 Lease Agreement among Teddy Bear Havas Motors, Inc., and United
American Funding, Inc. dated July 28, 1992
10.29.1 (a) Reorganization Agreement, dated as of October 10, 1996, by and
among Lithia Motors, Inc., LGPAC, Inc., Lithia DM, Inc., Lithia
MTLM, Inc., Lithia HPI, Inc., Lithia SSO, Inc., Lithia Rentals,
Inc., Discount Auto & Truck Rental, Inc., Lithia Auto Services,
Inc., Lithia Holding Company L.L.C., Sidney B. DeBoer, M.L. Dick
Heimann, R. Bradford Gray, and Steve R. Philips
10.30.1 Credit Agreement among U.S. Bank National Association, as Agent
and Lender, and Lithia Motors, Inc. and its Affiliates and
Subsidiaries dated December 22, 1997.
10.30.2 Security Agreement among U.S. Bank National Association, as Agent
and Lender, and Lithia Motors, Inc. and its Affiliates and
Subsidiaries dated December 22, 1997.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
10.30.3 Guaranty among U.S. Bank National Association, as Agent and
Lender, and Lithia Motors, Inc. and its Affiliates and
Subsidiaries dated December 22, 1997.
10.31.1 (a) Management Contract between Lithia Leasing, Inc. and Lithia
Properties LLC.
10.32.1 (a) Purchase and Sale Agreement, dated December 13, 1996, between
Lithia Properties and Lithia Real Estate, Inc.
10.33.1 Agreement for Purchase and Sale of Business Assets between
E.W.H. Group, Inc. d/b/a Haddad Jeep/Eagle and Lithia Motors,
Inc. dated October 14, 1997 and Addendum to such agreement.
21.1 Subsidiaries of Lithia Motors, Inc.
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
- -------------
(a) Incorporated by reference from the Company's Registration Statement on
Form S-1, Registration Statement No. 333-14031, as declared effective
by the Securities Exchange Commission on December 18, 1996.
(b) Incorporated by reference from the Company's Registration Statement on
Form S-8, Registration Statement No. 333-45553, as filed with the
Securities Exchange Commission on February 4, 1998.
(c) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, as filed with the Securities
Exchange Commission on March 31, 1997.
(d) Incorporated by reference from the Company's Form 8-K as filed with
the Securities Exchange Commission on June 6, 1997.
(e) Incorporated by reference from the Company's Form 8-K as filed with
the Securities Exchange Commission on July 16, 1997.
(f) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, as filed with the Securities
Exchange Commission on August 12, 1997.
(g) Incorporated by reference from the Company's Form 8-K as filed with
the Securities Exchange Commission on August 21, 1997.
(h) Incorporated by reference from the Company's Form 8-K/A as filed with
the Securities Exchange Commission on October 14, 1997.
(i) Incorporated by reference from the Company's Form 8-K as filed with
the Securities Exchange Commission on December 30, 1997.
(j) Incorporated by reference from the Company's Form 8-K as filed with
the Securities Exchange Commission on January 30, 1998.
(1) Substantially identical agreements exist between Chrysler Corporation
and Lithia Chrysler Plymouth Jeep Eagle, Inc., with respect to
Jeep, Eagle, and Plymouth sales and service; between Chrysler
Corporation and Lithia's Grants Pass Auto Mart, with respect to Jeep,
Eagle, Dodge and Plymouth sales and service; between Chrysler
Corporation and Medford Dodge with respect to Dodge sales and service;
and between Chrysler Corporation and Lithia DC, Inc., with respect to
Dodge sales and service.
(2) A substantially identical agreement exists between American Isuzu
Motors, Inc and Lithia SALMIR, Inc. with respect to Isuzu sales and
service.
(3) Substantially identical agreements exist between American Isuzu
Motors, Inc., Lithia Motors, Inc. and Lithia DC, Inc. and between
American Isuzu Motors, Inc., Lithia Motors, Inc. and Lithia SALMIR,
Inc.
31
<PAGE>
(4) A substantially identical agreement exists between the same parties
with respect to Lincoln Sales and Services; between Ford Motor Company
and Lithia FN, Inc. with respect to Lincoln and Mercury sales and
service; and between Ford Motor Company and Lithia FVHC with respect
to Ford sales and service.
(5) A substantially identical agreement exists between Toyota Motor Sales,
USA, Inc. and Lithia TKV, Inc. dba Lithia Toyota Vacaville dated
November 15, 1996 with respect to Toyota Sales and Service.
(6) A substantially identical agreement exists between American Suzuki
Motor Corporation and Lithia SALMIR, Inc., dated October 6, 1997, with
respect to Suzuki sales and service.
(7) A substantially identical agreement exists between Nissan Motor
Corporation and Lithia NB, Inc., dated October 2, 1997, with respect
to Nissan sales and service.
(8) Substantially identical leases of the same date exist between Lithia
Properties L.L.C. and (i) Lithia TLM, L.L.C. and Lithia MTLM, Inc.,
relating to the properties located in Medford, Oregon at 360 E.
Jackson St., 400 N. Central Ave., 325 E. Jackson St., 343-345 Apple
St., 440-448 Front St., 3rd & Front St. and 344 Bartlett, collectively
at a lease rate of $42,828 per month; (ii) Lithia Motors, Inc. dba
Lithia Body and Paint, relating to the properties in Medford, Oregon,
located at 4th & Bartlett, 235 Bartlett, 220 N. Bartlett, and 275 E.
5th; and in Grants Pass, Oregon, at 1470 N.E. 7th, collectively at a
lease rate of $16,890 per month; (iii) Discount Auto and Truck
Rental, Inc., relating to properties located in Medford, Oregon, at
326 N. Bartlett, 315 & 321 Apple St., and in Grants Pass, Oregon, at
1470 N.E. 7th, collectively at a lease rate of $2,609 per month;
(iv) Lithia Dodge, L.L.C. and Lithia DM, Inc., relating to properties
located in Medford, Oregon, at 322 E. 4th, 315 & 324 E. 5th St., 225,
319 & 323 E. 6th, Riverside & 4th, Riverside & 6th, and 129 N.
Riverside, collectively at a lease rate of $53,490 per month;
(v) Lithia Grants Pass Auto Center and L.L.C., LGPAC, Inc., relating
to the property located in Grants Pass, Oregon, at 1421 N.E. 6th at a
lease rate of $25,625 per month; (vi) Lithia Motors, Inc. and Lithia
SSO, Inc., relating to properties located in Medford, Oregon, at 400,
705-717 N. Riverside Ave., 712 and 716 Pine St., and 502 Maple St.,
collectively at a lease rate of $20,048 per month; (vii) Lithia
Motors, Inc. dba Thrift Auto Supply, relating to the properties
located in Medford, Oregon, at 801 N. Riverside Ave, and 503 Maple
St., collectively at a lease rate of $6,265 per month; and
(viii) Lithia Motors, Inc. and Lithia HPI, Inc., relating to
properties located in Medford, Oregon, at 700 and 800 N. Central Ave,
217 and 220 N. Beatty St., 710 and 815-817 Niantic St., and 311 & 313
Maple St., collectively at a lease rate of $30,350 per month.
(9) Substantially identical lease will exist between Lithia Properties
L.L.C. and (i) Lithia MTLM, Inc., relating to the properties located
in Medford, Oregon at 360 E. Jackson St., 400 N. Central Ave., 325 E.
Jackson St., 343-345 Apple St., 440-448 Front St., 3rd & Front St. and
344 Bartlett, 315 & 321 Apple St., and 401 E. 4th St., collectively at
a lease rate of $33,728 per month; (ii) Lithia Auto Services, Inc. dba
Lithia Body and Paint, relating to the properties in Medford, Oregon,
located at 401 E. 4th St., 4th & Bartlett, 235 Bartlett, 220 N.
Bartlett, and 275 E. 5th; and in Grants Pass, Oregon, at 1470 N.E.
7th, and 801 N. Riverside Ave, collectively at a lease rate of $17,439
per month; (iii) Lithia Rentals, Inc., dba Discount Auto and Truck
Rental, relating to properties located in Medford, Oregon, at 971
Gilman Rd., and in Grants Pass, Oregon, at 1470 N.E. 7th, collectively
at a lease rate of $962 per month; (iv) Lithia Dodge, L.L.C. and
Lithia DM, Inc., relating to properties located in Medford, Oregon, at
322 E. 4th, 315 & 324 E. 5th St., 225, 319 & 323 E. 6th, Riverside &
4th, Riverside & 6th, and 129 N. Riverside, collectively at a lease
rate of $53,490 per month; (v) LGPAC, Inc., relating to the property
located in Grants Pass, Oregon, at 1421 N.E. 6th and 1470 N.E. 7th,
collectively at a lease rate of $18,023 per month; (vi) Lithia
SSO, Inc., relating to properties located in Medford, Oregon, at 400,
705-717 N. Riverside Ave., collectively at a lease rate of $16,364 per
month; (vii) Lithia DM, Inc., relating to properties located in
Medford, Oregon, at 324 E. 5th, 319 & 323 E. 6th St., 6th & Riverside,
129 N. Riverside, 4th & Riverside, 225 E. 6th, 315 E. 5th, 322 E. 4th,
201 N. Riverside, 309, 315, 333, and 329 N. Riverside, 334 & 346 Apple
St. and 401 E. 4th, collectively at a lease rate of $30,557 per month;
and (viii) Lithia Motors, Inc., relating to properties located in
Medford, Oregon, at 360 E. Jackson, 325 E. Jackson, 345 B. Bartlett,
and 401 E. 4th St., collectively at a lease rate of $5,309 per month.
Substantially identical lease agreements also exist between Lithia Real
Estate, Inc., and (i) Lithia FVHC, Inc. relating to the properties in
Concord, California, located at 1260 Diamond Way and 2285 Diamond Way;
(ii) Lithia BB, Inc., relating to the property in Bakersfield,
California, located at 3201 Cattle Drive; (iii) Lithia DE, Inc.,
relating to the properties in Eugene, Oregon, located at 2121 Centennial
Boulevard and 80 Centennial Loop; (iv) Lithia TKV, Inc. relating to the
property in Vacaville, California, located at 100 Auto Center Drive;
(v) Lithia Auto Services, Inc. relating to the property in Medford,
Oregon, located at 2665 Bullock Road; (vi) Lithia FN, Inc. relating to
the property in Napa, California, located at 300 Sascol Avenue;
(vii) Lithia NB, Inc. relating to the properties in Bakersfield,
California, located at 3101 and 3201 Cattle Drive and 2800 and 2808
Pacheco Road; (viii) Lithia MMF, Inc. relating to the properties in
Fresno, California, located and 155 and 165 East Auto Center Drive;
(ix) Lithia FMF, Inc. relating to the properties in Fresno, California,
located at 175 and 195 East Auto Center Drive; (x) Lithia DC, Inc.
relating to the property in Concord, California, located at 4901 Marsh
Drive; (xi) Lithia SALMIR, Inc. relating to the properties in Reno,
Nevada, located at 7063 and 7175 South Virginia Street and the property
in Sparks, Nevada, located at 40 Victorian Avenue; and (xii) Lithia NF,
Inc., relating to the property in Fresno, California, located at
5580 North Blackstone Avenue.
(10) A substantially indentical agreement (except for the price paid and the
purchase rather than lease of the business property) exists between
Rodway Chevrolet Co., and Lithia Motors, Inc. dated March 19, 1998,
with respect to the purchase and sale of business assets of Rodway
Chevrolet located in Redding, California.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 20, 1998 LITHIA MOTORS, INC.
By /s/ SIDNEY B. DEBOER
-------------------------
Sidney B. DeBoer
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 20, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ SIDNEY B. DEBOER Chairman of the Board and
- -------------------------- Chief Executive Officer
Sidney B. DeBoer (Principal Executive Officer)
/s/ BRIAN R. NEILL Senior Vice President and Chief Financial Officer
- -------------------------- (Principal Financial and Accounting Officer)
Brian R. Neill
/s/ M. L. DICK HEIMANN Director, President and
- -------------------------- Chief Operating Officer
M. L. Dick Heimann
/s/ R. BRADFORD GRAY
- -------------------------- Director and Executive Vice President
R. Bradford Gray
/s/ THOMAS BECKER
- -------------------------- Director
Director
/s/ WILLIAM J. YOUNG
- -------------------------- Director
William J. Young
</TABLE>
33
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lithia Motors, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Lithia
Motors, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Lithia Motors, Inc. and Subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1997, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for inventories, effective January 1, 1997.
KPMG PEAT MARWICK LLP
Portland, Oregon
February 6, 1998
F-1
<PAGE>
LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) ---------------------
1997 1996 (1)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,454 $ 15,413
Trade receivables 7,655 2,260
Notes receivable, current portion 427 414
Notes receivable, related party - 308
Inventories, net 89,845 33,362
Vehicles leased to others, current portion 738 524
Prepaid expenses and other 913 372
Deferred income taxes 1,855 1,646
--------- ---------
Total current assets 119,887 54,299
Property and equipment, net of accumulated
depreciation of $2,822 and $2,073 16,265 4,616
Vehicles leased to others, less current portion 4,588 4,500
Notes receivable, less current portion 309 377
Goodwill, net of accumulated amortization
of $293 and $0 24,062 4,101
Other non-current assets, net 1,415 1,071
--------- ---------
Total assets $ 166,526 $68,964
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $500
Flooring notes payable 82,598 19,645
Current maturities of long-term debt 2,688 1,855
Current portion of capital leases 99 -
Trade payables 3,874 2,434
Accrued liabilities 6,758 2,482
Payable to related parties - 1,952
--------- ---------
Total current liabilities 96,017 28,868
Long-term debt, less current maturities 24,242 6,160
Long-term capital leases, less current portion 2,316 -
Deferred revenue 2,519 3,250
Other long-term liabilities 447 -
Deferred income taxes 3,108 2,772
--------- ---------
Total liabilities 128,649 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 2926
and 2,500 28,117 24,172
Class B Common Stock, no par value; authorized
25,000 shares;
issued and outstanding 4,110 and 4,110 511 511
Additional paid-in capital 59 -
Retained earnings 9,190 3,231
--------- ---------
Total shareholders' equity 37,877 27,914
--------- ---------
Total liabilities and shareholders' equity $166,526 $68,964
--------- ---------
--------- ---------
</TABLE>
- ---------------
(1) Restated, see Note 1 of Notes to Consolidated Financial Statements.
The accompanying notes are an integral part of these consolidated statements.
F-2
<PAGE>
LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS oF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996(1) 1995(1)
-------- -------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Sales:
Vehicles $274,393 $123,703 $ 97,338
Service, body, parts and other 45,402 19,141 16,858
-------- -------- -------
Total sales 319,795 142,844 114,196
-------- -------- -------
Cost of sales
Vehicles 245,812 108,743 85,381
Service, body, parts and other 20,551 9,590 8,178
-------- -------- -------
Cost of sales 266,363 118,333 93,559
-------- -------- -------
Gross profit 53,432 24,511 20,637
Selling, general and administrative 40,625 19,830 16,333
Depreciation and amortization 1,169 448 402
-------- -------- -------
Operating income 11,638 4,233 3,902
-------- -------- -------
Other income (expense)
Equity in income of affiliate 102 44 67
Interest income 138 193 179
Interest expense (3,004) (1,353) (1,390)
Other, net 623 1,112 969
-------- -------- -------
(2,141) (4) (175)
-------- -------- -------
Income before minority interest and income taxes 9,497 4,229 3,727
Minority interest - (687) (778)
-------- -------- -------
Income before income taxes 9,497 3,542 2,949
Income tax (expense) benefit (3,538) 813 -
-------- -------- -------
Net income $ 5,959 $ 4,355 $ 2,949
-------- -------- -------
-------- -------- -------
Basic net income per share $0.85 $0.94(2) $0.64(2)
-------- -------- -------
-------- -------- -------
Diluted net income per share $0.82 $0.88(2) $0.60(2)
-------- -------- -------
-------- -------- -------
PRO FORMA NET INCOME DATA (UNAUDITED)
Income before minority interest and income
taxes, as reported $ 4,229 $ 3,727
Pro forma income taxes (1,623) (1,430)
-------- -------
Pro forma net income $2,606 $2,297
-------- -------
-------- -------
Pro forma basic net income per share $0.56 $0.50
-------- -------
-------- -------
Pro forma diluted net income per share $0.52 $0.47
-------- -------
-------- -------
</TABLE>
- -------------------
(1) Restated, see Note 1 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 8
of Notes to Consolidated Financial Statements.
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
----------------------------------------- PAID-IN RETAINED SHAREHOLDERS'
(in thousands) SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS(1) EQUITY(1)
-------- -------- -------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 - $ - 3,017 $ 751 $ - $ 5,343 $ 6,094
Net income - - - - - 2,949 2,949
Issuance of Class B Common Stock - - 1,093 50 - - 50
Dividends - - - - - (5,377) (5,377)
-------- -------- -------- -------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1995 - - 4,110 801 - 2,915 3,716
Net income - - - - - 4,355 4,355
Dividends - - - - - (4,460) (4,460)
Contribution of minority interest to Class
B Common Stock pursuant to
restructuring - - - 131 - - 131
Restructuring in connection with initial
public offering - - - (421) - 421 -
Issuance of Class A Common Stock,
net of offering expenses of $3,328 2,500 24,172 - - - - 24,172
-------- -------- -------- -------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1996 2,500 24,172 4,110 511 - 3,231 27,914
Net income - - - - - 5,959 5,959
Underwriters' over-allotment option 375 3,783 - - - - 3,783
Compensation for stock option issuances - - - - 59 - 59
Exercise of stock options 51 162 - - - - 162
-------- -------- -------- -------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1997 2,926 $28,117 4,110 $ 511 $59 $ 9,190 $37,877
-------- -------- -------- -------- ---------- ----------- -------------
-------- -------- -------- -------- ---------- ----------- -------------
</TABLE>
_______________
(1) Restated, see Note 1 of Notes to Consolidated Financial Statements.
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
(in thousands) 1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,959 $ 4,355 $ 2,949
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 2,483 1,756 1,907
Compensation related to stock option issuances 59 - -
(Gain) loss on sale of assets (1) (239) (305)
Gain on sale of vehicles leased to others (286) - -
Deferred income taxes 336 (906) -
Minority interest in income - 687 778
Equity in income of affiliate (102) (44) (67)
(Increase) decrease in operating assets:
Trade and installment contract receivables, net (5,087) (852) (692)
Inventories (9,009) (7,120) 1,858
Prepaid expenses and other (678) (19) 30
Other noncurrent assets (486) (196) (277)
Increase (decrease) in operating liabilities:
Flooring notes payable 24,622 (3,283) (1,628)
Trade payables 1,440 979 609
Accrued liabilities 4,252 797 306
Other liabilities (2,274) 3,095 677
Proceeds from sale of vehicles leased to others 5,330 5,760 4,757
Expenditures for vehicles leased to others (6,750) (6,537) (6,308)
-------- -------- -------
Net cash provided by (used in) operating activities 19,808 (1,767) 4,594
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable issued (249) (540) (190)
Principal payments received on notes receivable 304 500 83
Capital expenditures (8,801) (395) (524)
Proceeds from sale of assets 16 765 10
Cash paid for acquisitions (25,220) (6,937) -
Distribution from affiliate 204 - -
-------- -------- -------
Net cash used in investing activities (33,746) (6,607) (621)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on notes payable - (625) 235
Principal payments on long-term debt (15,917) (25,336) (8,070)
Proceeds from issuance of long-term debt 28,951 21,635 12,529
Proceeds from issuance of common stock 3,945 24,172 50
Proceeds from minority interest share receivable - 676 142
Dividends and distributions - (6,441) (6,105)
-------- -------- -------
Net cash provided by (used in) financing activities 16,979 14,081 (1,219)
-------- -------- -------
Increase in cash and cash equivalents 3,041 5,707 2,754
CASH AND CASH EQUIVALENTS:
Beginning of period 15,413 9,706 6,952
-------- -------- -------
End of period $ 18,454 $ 15,413 $ 9,706
-------- -------- -------
-------- -------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 3,206 $ 1,823 $ 1,828
Cash paid during the period for income taxes 3,011 - -
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of notes receivable - minority interest $ - $ - $ 678
Debt extinguishment upon transfer of property - 1,112 -
Contribution of minority interest in S Corporation
earnings upon Restructing to Class B Common Stock - 131 -
Contribution of excess S Corporation retained earnings
upon Restructuring to Class B Common Stock - 421 -
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
LITHIA MOTORS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
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 at 22 locations, 12 in California, seven in
Oregon and three in Nevada. 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%. 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.
At its 22 locations, the Company offers, collectively, 21 makes of new
vehicles including Dodge, Dodge Trucks, Chrysler, Plymouth, Jeep, Ford,
Lincoln-Mercury, Toyota, Isuzu, Nissan, Volkswagen, Audi, Honda, Acura,
Suzuki, BMW, Saturn, Pontiac, Mazda and Hyundai.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements reflect the results of operations,
the financial position, and the cash flows for Lithia Motors, Inc. and its
directly and indirectly wholly-owned subsidiaries. All significant
intercompany accounts and transactions, consisting principally of
intercompany sales, have been eliminated upon consolidation.
The financial results presented for periods prior to the Restructuring
(see note 11) have been restated to reflect the consolidated results of
operations, financial position and cash flows of the Company's dealerships
and those of its affiliated entities under common control whose operations
were combined under the Restructuring, using "as if" pooling of interest
basis of accounting.
Lithia TLM LLC, Lithia Dodge LLC and Lithia Grants Pass Auto Center LLC
were limited liability corporations majority owned by Lithia Motors, Inc. The
20%, 25% and 25% minority interests in Lithia TLM LLC, Lithia Dodge LLC and
Lithia Grants Pass Auto Center LLC, respectively, have been recorded in the
accompanying financial statements to the date of Restructuring.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers contracts in
transit and all highly liquid debt instruments with a maturity of three
months or less when purchased to be cash equivalents.
F-6
<PAGE>
INVENTORIES
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 (decreased) net income
by $314, or $0.06 per diluted share and $(426), or $(0.09) per diluted share,
for the years ended December 31, 1995 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and being depreciated
over their estimated useful lives, principally on the straight-line basis.
The range of estimated useful lives are as follows:
Building and improvements 40 years
Service equipment 5 to 10 years
Furniture, signs and fixtures 5 to 10 years
The cost for maintenance, repairs and minor renewals is expensed as incurred,
while significant renewals and betterments are capitalized. When an asset is
retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss is credited
or charged to income.
INVESTMENT IN AFFILIATE
The Company has a 20% interest in Lithia Properties, LLC, of which the
other members are Sidney DeBoer (35%), M. L. Dick Heimann (30%) and three of
Mr. DeBoer's children (5% each). The investment is accounted for using the
equity method, with a carrying value of $571 and $468 at December 31, 1996
and 1997, respectively.
INCOME TAXES
Prior to the Company's initial public offering of its Common Stock in
December 1996 (see note 11), the Company was an S Corporation for federal and
state income tax reporting purposes. Federal and state income taxes on the
income of an S Corporation were payable by the individual stockholders rather
than the corporation.
The Company's S Corporation status terminated immediately prior to the
effectiveness of the Company's initial public offering. At that time, the
Company established a net deferred tax asset and recorded an accompanying
credit to income tax expense. The accompanying statements of operations for
the years ended December 31, 1995 and 1996, reflect provisions for income
taxes on an unaudited pro forma basis, using the asset and liability method,
as if the Company had been a C Corporation, fully subject to federal and
state income taxes for those periods.
Under the asset and liability method, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.
F-7
<PAGE>
Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred income tax assets and liabilities of changes in tax rates is
recognized in income in the period that includes the enactment date.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters, if any, are recorded in operating
expenses when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. Accrued liabilities are
exclusive of claims against third parties and are not discounted.
In general, costs related to environmental remediation are charged to
expense. Environmental costs are capitalized if the costs increase the value of
the property and/or mitigate or prevent contamination from future operations.
COMPUTATION OF PER SHARE AMOUNTS
Beginning December 31, 1997, basic earnings per share (EPS) and diluted
EPS are computed using the methods prescribed by Statement of Financial
Accounting Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is
calculated using the weighted average number of common shares outstanding for
the period and diluted EPS is computed using the weighted average number of
common shares and dilutive common equivalent shares outstanding. Prior
period amounts have been restated to conform with the presentation
requirements of SFAS 128. Following is a reconciliation of basic EPS and
diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1997 1996 1995
------------------------- -------------------------- ---------------------------
PER PER PER
SHARE SHARE SHARE
BASIC EPS INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common
Sharholders $5,959 6,988 $0.85 $4,355 4,657 $0.94 $2,949 4,577 $0.64
------ ------ ------
------ ------ ------
EFFECT OF DILUTIVE SECURITIES
Stock Options - 315 - 316 - 316
------ ------ ------ ------ ------ ------
DILUTED EPS
Income available to Common
Shareholders $5,959 7,303 $0.82 $4,355 4,973 $0.88 $2,949 4,893 $0.60
------ ------ ------
------ ------ ------
</TABLE>
In accordance with certain Securities and Exchange Commission (SEC)
Staff Accounting Bulletins, the above computations include all common and
common equivalent shares issued within 12 months of the offering date as if
they were outstanding for all periods presented using the treasury stock
method.
FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, trade receivables, trade
payables, accrued liabilities and short term borrowings approximate fair value
because of the short-term nature of these instruments. The fair value of
long-term debt was estimated by discounting the future cash flows using
market interest rates and does not differ significantly from that reflected
in the financial statements.
F-8
<PAGE>
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
ADVERTISING
The Company expenses production and other costs of advertising as
incurred. Advertising expense was $2,678, $1,297 and $1,136 for the years
ended December 31, 1997, 1996 and 1995, respectively.
INTANGIBLE ASSETS AND GOODWILL
Intangible assets of $136 and $176, net of accumulated amortization of
$63 and $23, at December 31, 1997 and 1996, respectively, represents a
non-compete agreement being amortized on a straight-line basis over 5 years.
This intangible asset is included in other non-current assets and is
evaluated for impairment each period by determining its net realizable value.
Goodwill, which represents the excess purchase price over fair value of
net assets acquired, is amortized on the straight-line basis over the
expected period to be benefited of forty years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation.
The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's
customer base.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash deposits. The
Company generally is exposed to credit risk from balances on deposit in
financial institutions in excess of the FDIC-insured limit.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related notes to financial statements. Changes in such
estimates may affect amounts reported in future periods.
REVENUE RECOGNITION
Finance fees represent revenue earned by the Company for notes placed
with financial institutions in connection with customer vehicle financing.
Finance fees are recognized in income upon acceptance of the credit by the
financial institution. Insurance income represents commissions earned on
credit life, accident and disability insurance sold in connection with the
vehicle on behalf of third party insurance companies. Commissions from third
party service contracts are recognized upon sale. Insurance commissions are
recognized in income upon customer acceptance of the insurance terms as
evidenced by contract execution. Finance fees and insurance commissions, net
of charge-backs, are classified as other operating revenue in the
accompanying consolidated statements of operations.
F-9
<PAGE>
Revenue from the sale of vehicles is recognized upon delivery, when the
sales contract is signed and down payment has been received. Fleet sales of
vehicles whereby the Company does not take title are shown on a net basis in
other revenue.
MAJOR SUPPLIER AND DEALER AGREEMENTS
The Company purchases substantially all of its new vehicles and
inventory from various manufacturers at the prevailing prices charged by the
auto maker to all franchised dealers. The Company's overall sales could be
impacted by the auto maker's inability or unwillingness to supply the
dealership with an adequate supply of popular models.
The Company enters into agreements (Dealer Agreements) with the
manufacturer. The Dealer Agreements generally limit the location of the
dealership and retain auto maker approval rights over changes in dealership
management and ownership. The auto makers are also entitled to terminate the
Dealer Agreements if the dealership is in material breach of the terms.
The Company's ability to expand operations depends, in part, on
obtaining consents of the manufacturers for the acquisition of additional
dealerships.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plan under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Effective January 1, 1996, the Company adopted the
disclosure option of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 requires that
companies which do not choose to account for stock-based compensation as
prescribed by this statement shall disclose the pro forma effects on earnings
and earnings per share as if SFAS 123 had been adopted. Additionally,
certain other disclosures are required with respect to stock compensation and
the assumptions used to determine the pro forma effects of SFAS 123.
RECLASSIFICATIONS
Certain items previously reported in specific financial statement
captions have been reclassified to conform with the 1997 presentation.
(2) INVENTORIES AND RELATED NOTES PAYABLE
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).
The new and used vehicle inventory, collateralizing related notes
payable, and other inventory were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1997 1996
----------------------- -----------------------
INVENTORY NOTES INVENTORY NOTES
COST PAYABLE COST PAYABLE
--------- ------- --------- --------
<S> <C> <C> <C> <C>
New and demonstrator vehicles $63,457 $67,098 $19,402 $19,645
Used vehicles 21,524 15,500 12,199 -
Parts and accessories 4,864 - 1,761 -
--------- ------- --------- --------
Total inventories $89,845 $82,598 $33,362 $19,645
--------- ------- --------- --------
--------- ------- --------- --------
</TABLE>
F-10
<PAGE>
Flooring notes payable consist of flooring notes from a bank secured by
new and used vehicles. The flooring arrangements permit the Company to
borrow up to $27.9 million in 1996 and $110 million in 1997, restricted by
new and used vehicle levels. The notes are due within 5 days of the vehicle
being sold or after the vehicle has been in inventory for 1 year for new
vehicles, 6 months for program vehicles, and on a revolving basis for used
vehicles.
(3) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
------- ------
<S> <C> <C>
Buildings and improvements $7,449 $1,131
Service equipment 3,992 1,641
Furniture, signs and fixtures 4,340 2,545
------- ------
15,781 5,317
Less accumulated depreciation (2,822) (2,073)
------- ------
12,959 3,244
Land 2,924 1,272
Construction in progress 382 100
------- ------
$16,265 $4,616
------- ------
------- ------
</TABLE>
(4) VEHICLES LEASED TO OTHERS AND RELATED LEASE RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
------ ------
<S> <C> <C>
Vehicles leased to others $6,531 $6,378
Less accumulated depreciation (1,205) (1,354)
------ ------
5,326 5,024
Less current portion (738) (524)
------ ------
$4,588 $4,500
------ ------
------ ------
</TABLE>
Vehicles leased to others are stated at cost and depreciated over their
estimated useful lives (5 years) on a straight-line basis. Lease receivables
result from customer, employee and fleet leases of vehicles under agreements
which qualify as operating leases. Leases are cancelable at the option of
the lessee after providing 30 days written notice.
(5) NOTES PAYABLE
Notes payable at December 31, 1996 consisted of an 8.5% note payable in
connection with the Robert's Dodge acquisition.
(6) LINES OF CREDIT AND LONG-TERM DEBT
In September 1997, the Company announced an agreement with U.S. Bank N.A.
for $175 million in credit lines, including $110 million in new, used and
program flooring lines, $30 million in acquisition capital and $35 million
for other corporate purposes. The lines bear interest at LIBOR plus 150 to
275 basis points, 7.625% to 8.75% at December 31, 1997. The limits and
interest rates associated with the lines are reviewed annually, with the
current term expiring on October 1, 1998. Upon expiring on October 1, 1998,
the acquisition line and the equipment line convert to 5-year term notes.
F-11
<PAGE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
-------- -------
<S> <C> <C>
Lease Line $ 5,211 $ 5,196
Acquisition Line 5,000 -
Equipment and Real Estate Lines 4,827 1,019
Notes payable in monthly installments of $35, including interest
between 8.27% and 10.63%, maturing fully December 2009;
secured by land and buildings 11,892 1,800
-------- -------
26,930 8,015
Less current maturities (2,688) (1,855)
-------- -------
$ 24,242 $ 6,160
-------- -------
-------- -------
</TABLE>
The schedule of future principal payments on long-term debt after
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------
<S> <C>
1998 $ 2,688
1999 8,531
2000 3,905
2001 3,160
2002 3,471
Thereafter 5,175
-------
Total principal payments $26,930
-------
-------
</TABLE>
(7) SHAREHOLDERS' EQUITY
The shares of Class A common stock are not convertible into any other
series or class of the Company's securities. However, each share of Class B
common stock is freely convertible into one share of Class A common stock at the
option of the holder of the Class B common stock. All shares of Class B common
stock shall automatically convert to shares of Class A common stock (on a
share-for-share basis, subject to the adjustments) on the earliest record date
for an annual meeting of the Company shareholders on which the number of shares
of Class B common stock outstanding is less than 1% of the total number of
shares of common stock outstanding. Shares of Class B common stock may not be
transferred to third parties, except for transfers to certain family members and
in other limited circumstances.
Holders of Class A common stock are entitled to one vote for each share
held of record, and holders of Class B common stock are entitled to ten votes
for each share held of record. The Class A common stock and Class B common
stock vote together as a single class on all matters submitted to a vote of
shareholders.
F-12
<PAGE>
(8) INCOME TAXES
At the date of the Company's restructuring (see note 11), the Company
terminated its S Corporation election and is now taxed as a C Corporation in
accordance with SFAS 109, ACCOUNTING FOR INCOME TAXES. Income taxes for 1997
and pro forma income taxes on the Company's earnings for 1996 (unaudited) and
1995 (unaudited) are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal $2,967 $1,860 $1,487
State 444 387 309
------ ------ ------
3,411 2,247 1,796
------ ------ ------
Deferred:
Federal 114 (517) (303)
State 13 (107) (63)
------ ------ ------
127 (624) (366)
------ ------ ------
Total $3,538 $1,623 $1,430
------ ------ ------
------ ------ ------
</TABLE>
Individually significant components of the deferred tax assets and
liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance and accruals $ 470 $ 277
Deferred revenue 1,126 1,244
------- -------
Total deferred tax assets 1,596 1,521
------- -------
Deferred tax liabilities:
LIFO recapture (1,841) (2,032)
Property and equipment, principally due to
differences in depreciation (1,008) (615)
------- -------
Total deferred tax liabilities (2,849) (2,647)
------- -------
Total $(1,253) $(1,126)
------- -------
------- -------
</TABLE>
The reconciliation between the statutory federal income tax expense at 34%
and the Company's income tax expense for 1997 is shown in the following
tabulation. The following tabulation also reconciles the expected corporate
federal income tax expense for 1995 and 1996 (computed by multiplying the
Company's income before minority interest by 34%) with the Company's unaudited
pro forma income tax expense:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal taxes at 34% $3,229 $1,438 $1,267
State taxes, net of federal income tax benefit 278 184 162
Other 31 1 1
------ ------ ------
Income tax expense $3,538 $1,623 $1,430
------ ------ ------
------ ------ ------
</TABLE>
F-13
<PAGE>
(9) COMMITMENTS AND CONTINGENCIES
RECOURSE PAPER
The Company is contingently liable to banks for recourse paper from the
financing of vehicle sales. The contingent liability at December 31, 1997, 1996
and 1995 was approximately $64, $88 and $206, respectively.
OPERATING LEASES
Substantially all of the Company's operations are conducted in leased
facilities under noncancelable operating leases. These leases expire at various
dates through 2012. Beginning in 1998, certain lease commitments are subject to
escalation clauses of an amount equal to the cost of living based on the
"Consumer Price Index - U.S. Cities Average - All stems for all Urban Consumers"
published by the U.S. Department of Labor.
The minimum rental commitments under operating leases after December 31,
1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------
<S> <C>
1998 $ 4,815
1999 4,753
2000 4,449
2001 4,447
2002 4,012
Thereafter 34,378
-------
Total principal payments $56,854
-------
-------
</TABLE>
Rental expense for all operating leases was $2,764, $2,353 and $1,993 for
the years ended December 31, 1997, 1996 and 1995, respectively.
LITIGATION
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
(10) PROFIT SHARING PLAN
The Company has a defined contribution plan and trust covering
substantially all full-time employees. The annual contribution to the plan is
at the discretion of the Board of Directors of Lithia Motors, Inc.
Contributions of $138, $100 and $84 were recognized for the years ended
December 31, 1997, 1996 and 1995, respectively. Employees may contribute to the
plan under certain circumstances.
(11) RESTRUCTURING AND OFFERING
On December 18, 1996, the Company offered 2,500 shares of its Class A
common stock to the public (the "Offering"). Prior to the Offering, the Company
consummated a restructuring (the Restructuring) which resulted in each of the
Company's dealerships and operating divisions becoming direct or indirect
wholly-owned subsidiaries of the Company with Lithia Holding Company, LLC owning
all the outstanding Class B common stock of the Company. All shareholders prior
to the Restructuring exchanged their interests in the Company and its affiliated
entities for shares of Lithia Holding Company, LLC with the
F-14
<PAGE>
exception of (i) one shareholder who exchanged his interest in one entity for
cancellation of a note due to Lithia TLM, LLC and cash and (ii) Lithia TKV,
Inc. whose stock was purchased by the Company from the Company's principals
subsequent to the Offering.
(12) STOCK INCENTIVE PLANS
In April 1996, the Board of Directors (the Board) and the Company's
shareholders adopted the Company's 1996 Stock Incentive Plan for the granting of
up to 670 incentive and nonqualified stock options to officers, key employees
and consultants of the Company and its subsidiaries, and in 1997, the Board
adopted a Non-Discretionary Stock Option Plan for Non-Employee Directors and
reserved 15 shares under that plan (collectively, the "Plan"). The Plan is
administered by the Board or by a Compensation Committee of the Board and
permits accelerated vesting of outstanding options upon the occurrence of
certain changes in control of the Company. Options become exercisable over a
period of up to ten years from the date of grant as determined by the Board, at
prices generally not less than the fair market value at the date of grant. At
December 31, 1997, 634 shares of Class A common stock were reserved for issuance
under the Plan and 201 shares were available for future grant.
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
SHARES SHARES WEIGHTED
AVAILABLE SUBJECT TO AVERAGE
FOR GRANT OPTIONS EXERCISE PRICE
--------- ---------- --------------
<S> <C> <C> <C>
Balances, December 31, 1995 - - $ -
Shares reserved 685
Options granted (439) 439 3.11
Options canceled - - -
Options exercised - - -
------ ----- ------
Balances, December 31, 1996 246 439 3.11
Options granted (45) 45 6.05
Options canceled - - -
Options exercised - (51) 3.20
------ ----- ------
Balances, December 31, 1997 201 433 $ 3.41
------ -----
------ -----
</TABLE>
The Company issued non-qualified options during 1997 to certain members of
management at an exercise price of $1.00 per share. Compensation expense is
recognized ratably in accordance with the 5-year vesting schedule.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION
(SFAS 123), which defines a fair value based method of accounting for employee
stock options and similar equity instruments. As permitted under SFAS 123, the
Company has elected to continue to account for its stock-based compensation plan
under Accounting Principal Board Opinion No. 25 ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES (APB 25), and related interpretations. Accordingly, no compensation
expense has been recognized for the Plan.
F-15
<PAGE>
The Company has computed, for pro forma disclosure purposes, the value
of options granted under the Plan, using the Black-Scholes option pricing
model as prescribed by SFAS 123, using the weighted average assumptions for
grants as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996
------------ -------------
<S> <C> <C>
Risk-free interest rate 6.25% 6.50%
Expected dividend yield 0.0% 0.0%
Expected lives 6.8 years 6.5 years
Expected volatility 45.5% 60.0%
</TABLE>
Using the Black-Scholes methodology, the total value of options granted
during 1996 and 1997 was $709 and $320, respectively, which would be
amortized on a pro forma basis over the vesting period of the options,
typically five years. The weighted average fair value of options granted
during 1996 and 1997 was $1.62 per share and $7.20 per share, respectively.
If the Company had accounted for its stock-based compensation plan in
accordance with SFAS 123, the Company's net income and net income per share
would approximate the pro forma disclosures below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net income $5,959 $5,723 $4,355 $3,612
Basic net income per share $0.85 $0.82 $0.94 $0.78
Diluted net income per share $0.82 $0.79 $0.88 $0.73
</TABLE>
The following table summarizes stock options outstanding at December 31,
1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 1.00 21 8.0 $1.00 4 $1.00
3.02 282 6.3 3.02 64 3.02
3.32 107 3.3 3.32 80 3.32
10.75 20 7.2 10.75 - -
10.88 3 9.2 10.88 3 10.88
----------- ----------- ------------ -------- ----------- --------
$1.00-10.88 433 5.6 $3.41 151 $3.28
----------- ----------- ------------ -------- ----------- --------
----------- ----------- ------------ -------- ----------- --------
</TABLE>
At December 31, 1996, 167 shares were exercisable at a weighted average
exercise price of $3.27.
F-16
<PAGE>
(13) RELATED PARTY TRANSACTIONS
Certain of the real property on which the Company's business is located
is owned by Lithia Properties, LLC. The Company leases such facilities under
various lease agreements from Lithia Properties, LLC (Note 9). Selling,
general and administrative expense includes rental expense of $1,442, $2,132
and $1,929 for the years ended December 31, 1997, 1996 and 1995, respectively
relating to these properties.
The Company provides management services to Lithia Properties, LLC.
Other income includes management fees of $12, $477 and $288 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Company has guaranteed certain indebtedness of Lithia Properties, LLC
incurred in connection with purchases of real property which secures the
loan. This indebtedness amounts to approximately $9,266 at December 31, 1997.
Through December 1996, the Company and Lithia Properties, LLC share a
"pooled" cash account in the Company's name. At December 31, 1996, amounts
due to Lithia Properties, LLC related to this arrangement amounted to $1,703,
and are included in payable to related parties. Also included in payable to
related parties at December 31, 1996 is $249 due to former S Corporation
minority interest shareholders for distributions of their investment in the
Company prior to the Restructuring. There were no amounts due to related
parties at December 31, 1997.
Receivable from related parties at December 31, 1996 represents amounts
due to the Company for overpayments on distributions to shareholders in
connection with the Restructuring.
(14) ACQUISITIONS
During the fourth quarter of 1996, the Company acquired two new and used
car dealerships, Roberts Dodge, Inc. and Melody Vacaville, Inc., now Lithia
TKV and Lithia DE, respectively.
In April 1997, the Company closed its acquisition of Magnussen Dodge and
Magnussen Isuzu in Concord, California. The Company invested $3.8 million to
acquire this store, which includes goodwill, working capital, notes issued to
seller and other initial investments.
In July 1997, the Company closed its acquisition of Magnussen-Barbee
Ford of Napa, California. The Company invested $3.7 million to acquire this
store, which includes goodwill, working capital, notes issued to seller and
other initial investments.
In August 1997, the Company closed its acquisition of Sun Valley Ford, a
California corporation, dba "Sun Valley Ford Volkswagen Hyundai", located in
Concord, California. The Company invested $7.6 million to acquire the two
stores, which includes goodwill, working capital, notes issued to seller and
other initial investments.
On October 1, 1997, the Company closed its acquisition of Dick Donnelly
Automotive Enterprises, Inc., dba Dick Donnelly Lincoln, Mercury, Audi,
Suzuki, Isuzu, located in Reno and Sparks, Nevada. The Company invested $5.8
million to acquire the two stores, which includes goodwill, working capital,
notes issued to seller and other initial investments.
On October 3, 1997, the Company closed its acquisition of Nissan-BMW,
Inc., dba Bakersfield Nissan, Acura, BMW ("Bakersfield Nissan-BMW"), located
in Bakersfield, California. The Company invested $6.7 million to acquire
this store, which includes goodwill, working capital, notes issued to seller
and other initial investments. The Company is leasing the land and facilities
from the sellers of Bakersfield Nissan-BMW.
F-17
<PAGE>
On December 16, 1997 the Company closed its acquisition of Century Ford
and Century Mazda in Fresno, California. The Company invested $4.1 million
to acquire the two stores, which includes goodwill, working capital, notes
issued to seller and other initial investments. The Company is leasing the
land and facilities from the sellers of Century Ford and Century Mazda.
All of the above acquisitions were accounted for as purchase
transactions. The aggregate purchase price of the dealerships acquired in
the respective periods has been allocated to the assets and liabilities
acquired at their estimated fair market value at the acquisition dates as
follows:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Assets acquired $ 51,953 $ 9,542
Good will 19,944 4,101
Less liabilities assumed or incurred (46,190) (6,206)
------------ -------------
Total consideration $ 25,707 $ 7,437
------------ -------------
------------ -------------
</TABLE>
The unaudited pro forma results of operations including Roberts Dodge,
Inc., Melody Vacaville, Inc., Sun Valley Ford, Inc. and Dick Donnelly
Automotive Enterprises, Inc., are as follows. The results of operations for
the remaining acquisitions are not included in the unaudited pro forma
information as they are not materially different from actual results of the
Company.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Total revenues $419,675 $361,195
Net income 6,919 3,429
Basic earnings per share 0.99 0.74
Diluted earnings per share 0.95 0.69
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually would have occurred had the acquisitions been in effect for the
entire periods presented. In addition, they are not intended to be a
projection of future results that may be achieved from the combined
operations.
(15) OTHER INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Management fees $ 12 $ 477 $288
Hail damage settlement 281 206 -
Lawsuit settlement - - 160
Miscellaneous, net 330 429 521
------- ------- -------
Other income, net $623 $1,112 $969
------- ------- -------
------- ------- -------
</TABLE>
F-18
<PAGE>
(16) SUBSEQUENT EVENTS
On January 20, 1998, the Company closed its acquisition of Quality Jeep
in Fresno, California. The Company invested $4,400 to acquire the two stores,
which includes goodwill, working capital, notes issued to seller and other
initial investments.
On February 4, 1998 and February 10, 1998, the Company closed its
acquisitions of Reno Volkswagen and Medford Nissan, respectively. The Company
invested $3,100 to acquire the two stores, which includes goodwill, working
capital, notes issued to seller and other initial investments.
In February 1998, subject to shareholder approval, the Board of
Directors approved the reservation of 250 shares of Class A Common Stock for
issuance under an employee stock purchase plan.
In March 1998, subject to shareholder approval, the Board of Directors
of the Company approved the reservation of an additional 415 shares of Class
A Common Stock under its 1996 Stock Incentive Plan.
Also in March 1998, the Company filed a registration statement on Form
S-1 with the Securities and Exchange Commission for the sale of 3,000 shares
(3,450 shares with the Underwriters' over-allotment option) of Class A Common
Stock.
Also in March 1998, the Company closed its acquisition of Haddad Jeep/Eagle
in Bakersfield, California. The Company invested $2,020 to acquire the store,
which includes goodwill, working capital and other initial investments.
F-19
<PAGE>
EXHIBIT 10.3.1
LITHIA MOTORS, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The Lithia Motors, Inc. Employee Stock Purchase
Plan (the "Plan") is intended to provide an incentive for employees of Lithia
Motors, Inc. (the "Company") and its participating Subsidiaries to acquire or
increase their proprietary interests in the Company through the purchase of
shares of Common Stock of the Company. The Plan is intended to qualify as an
"Employee Stock Purchase Plan" under Sections 421 and 423 of the Internal
Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan
will be construed in a manner consistent with the requirements of such
sections of the Code and the regulations issued thereunder.
2. DEFINITIONS. As used in this Plan:
2.1. "Account" means the account recorded in the records
of the Company established on behalf of a Participant to which the amount of
the Participant's payroll deductions authorized under Section 6 and purchases
of Common Stock under Section 8 shall be credited, and any distributions of
shares of Common Stock under Section 9 and withdrawals under Section 10 shall
be charged.
2.2. "Benefits Representative" means the employee benefits
department of the Company or any such other person, regardless of whether
employed by an Employer, who has been formally, or by operation or practice,
designated by the Committee to assist the Committee with the day-to-day
administration of the Plan.
2.3. "Board" means the Board of Directors of the Company.
2.4. "Code" means the Internal Revenue Code of 1986, or
any successor thereto, as amended and in effect from time to time. Reference
in the Plan to any Section of the Code shall be deemed to include any
amendments or successor provisions to any Section and any treasury
regulations thereunder.
2.5. "Committee" means the Compensation Committee of the
Board. The Board shall have the power to fill vacancies on the Committee
arising by resignation, death, removal or otherwise. The Board, in its sole
discretion, may split the powers and duties of the Committee among one or
more separate Committees, or retain all powers and duties of the Committee in
a single Committee. The members of the Committee shall serve at the
discretion of the Board.
2.6. "Common Stock" or "Stock" means the Class A Common
Stock, without par value, of the Company.
2.7. "Company" means Lithia Motors, Inc. an Oregon
corporation, and any successor thereto.
2.8. "Disability" means any complete and permanent
disability as defined in Section 22(e)(3) of the Code.
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2.9. "Effective Date" means the date on which this Plan is
approved by the shareholders of the Company which date shall be, the
inception date of the Plan.
2.10. "Employee" means any person who, at such time, is in
the Employment of and Employer.
2.11. "Employer" means the Company, its successors, any
future parent (as defined in Section 424(e) of the Code) and each current or
future Subsidiary which has been designated by the Board or the Committee as
a participating employer in the Plan.
2.12. "Employment" means Employment as an employee or
officer by the Company or a Subsidiary as designated in such entity's payroll
records, or by any corporation issuing or assuming rights or obligations
under the Plan in any transaction described in Section 424(a) of the Code or
by a parent corporation or a subsidiary corporation of such corporation. In
this regard, neither the transfer of a Participant from Employment by the
Company to Employment by a Subsidiary nor the transfer of a Participant from
Employment by a Subsidiary to Employment by either the Company or any by any
other Subsidiary shall be deemed to be a termination of Employment of the
Participant. Moreover, the Employment of a Participant shall not be deemed
to have been terminated because of absence from active Employment on account
of temporary illness or during authorized vacation, temporary leaves of
absence from active Employment granted by Company or any Subsidiary for
reasons of professional advancement, education, health, or government
service, or during military leave for any period if the Participant returns
to active Employment within 90 days after the termination of military leave,
or during any period required to be treated as a leave of absence which, by
virtue of any valid law or agreement, does not result in a termination of
Employment. Any worker treated as an independent contractor by the Company
or any Subsidiary who is later reclassified as a common-law employee shall
not be in Employment during any period in which such worker was treated by
the Company or a Subsidiary as an independent contractor. Any "leased
employee", as described in Section 414(n) of the Code, shall not be deemed an
Employee hereunder.
2.13. "Entry Date" means the first day of each Fiscal
Quarter.
2.14. "Fiscal Quarter" means a three consecutive month
period beginning on each January 1, April 1, July 1 and October 1, commencing
with the first such date following the Effective Date and continuing until
the Plan is terminated.
2.15. "Market Price" means, subject to the next paragraph,
the market value of a share of Stock on any date, which shall be determined
as (i) the closing sales price on the immediately preceding business day of a
share of Stock as reported on the New York Stock Exchange or other principal
securities exchange on which shares of Stock are then listed or admitted to
trading or (ii) if not so reported, the average of the closing bid and asked
prices for a share of Stock on the immediately preceding business day as
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), or (iii) if not quoted on NASDAQ, the average of the
closing bid and asked prices for a share of Stock as quoted by the National
Quotation Bureau's "Pink Sheets" or the National Association of Securities
Dealers' OTC Bulletin Board System. If the price of a share of Stock shall
not be so reported pursuant to the previous sentence, the fair market value
of a share of Stock shall be determined by the Committee in its discretion
provided that such method is appropriate for purposes of an employee stock
purchase plan under Section 423 of the Code.
Notwithstanding the previous paragraph of this definition, the
Market Price of a share of Stock solely for purposes of determining the
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option price on the first or last day of the Fiscal Quarter in accordance
with Section 7.2 shall be based on the Market Price on the first or last day
of the Fiscal Quarter, as applicable, and not on the immediately preceding
business day.
2.16. "Participant" means any Employee who meets the
eligibility requirements of Section 3 and who has elected to and is
participating in the Plan.
2.17. "Plan" means the Lithia Motors, Inc. Employee Stock
Purchase Plan, as set forth herein, and all amendments hereto.
2.18. "Stock" means the Common Stock (as defined above).
2.19. "Subsidiary" means any domestic or foreign
corporation, limited liability company, partnership or other form of business
entity (other than the Company) (i) which, pursuant to Section 424(f) of the
Code, is included in an unbroken chain of entities beginning with the Company
if, at the time of the granting of the option, each of the entities other
than the last entity in the unbroken chain owns at least a majority of the
total combined voting power of all interests in one of the other entities in
such chain and (ii) which has been designated by the Board or the Committee
as a entity whose Employees are eligible to participate in the Plan.
2.20. "Total Pay" means regular straight-time earnings or
base salary, plus payments for overtime, shift differentials, incentive
compensation, bonuses, and other special payments, fees, allowances or
extraordinary compensation.
3. ELIGIBILITY.
3.1. Eligibility Requirements. Participation in the Plan
is voluntary. Each Employee who has completed at least six (6) consecutive
months of continuous Employment with an Employer (calculated from his last
date of hire to the termination of his Employment for any reason), is
regularly scheduled to work at least 20 hours per week and has reached the
age of majority in the jurisdiction of his legal residency, will be eligible
to participate in the Plan on the first day of the payroll period commencing
on or after the earlier of (i) the Effective Date or (ii) the Entry Date on
which the Employee satisfies the aforementioned eligibility requirements.
Each Employee whose Employment terminates and who is rehired by an Employer
shall be treated as a new Employee for eligibility purposes under the Plan.
3.2. Limitations on Eligibility. Notwithstanding any
provision of this Plan to the contrary, no Employee will be granted an option
under the Plan:
3.2.1. if, immediately after the grant, the Employee
would own stock, and/or hold outstanding options to purchase stock,
possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company or of any Subsidiary; or
3.2.2. which permits the Employee's rights to purchase
stock under this Plan and all other employee stock purchase plans
(within the meaning of Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds $25,000 of the fair
market value of the stock (determined at the time such option is
granted) for each Fiscal year in which such option is outstanding at
any time, all as determined in accordance with Section 423(b)(8) of the
Code.
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For purposes of Section 3.2.1 above, pursuant to Section 424(d)
of the Code, (i) the Employee with respect to whom such limitation is being
determined shall be considered as owning the stock owned, directly or
indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants; and (ii) stock owned,
directly or indirectly, by or for a corporation, partnership, estate, or
trust, shall be considered as being owned proportionately by or for its
shareholders, partners, or beneficiaries. In addition, for purposes of
Section 3.2.2 above, pursuant to Section 423(b)(8) of the Code, (i) the right
to purchase stock under an option accrues when the option (or any portion
thereof) first becomes exercisable during the calendar year, (ii) the right
to purchase stock under an option accrues at the rate provided in the option
but in no case may such rate exceed $25,000 of fair market value of such
stock (determined at the time such option is granted) for any one calendar
year, and (iii) a right to purchase stock which has accrued under one option
granted pursuant to the Plan may not be carried over to any other option.
4. SHARES SUBJECT TO THE PLAN. The total number of shares of
Common Stock that upon the exercise of options granted under the Plan will
not exceed 250,000 shares (subject to adjustment as provided in Section 16),
and such shares may be originally issued shares, treasury shares, reacquired
shares, shares bought in the market, or any combination of the foregoing. If
any option which has been granted expires or terminates for any reason
without having been exercised in full, the unpurchased shares will again
become available for purposes of the Plan. Any shares which are not subject
to outstanding options upon the termination of the Plan shall cease to be
subject to the Plan.
5. PARTICIPATION.
5.1. Payroll Deduction Authorization. An Employee shall
be eligible to participate in the Plan as of the first Entry Date following
such Employee's satisfaction of the eligibility requirements of Section 3,
or, if later, the first Entry Date following the date on which the Employee's
Employer adopted the Plan. At least 10 days (or such other period as may be
prescribed by the Committee or a Benefits Representative) prior to the first
Entry Date as of which an Employee is eligible to participate in the Plan,
the Employee shall execute and deliver to the Benefits Representative, on the
form prescribed for such purpose, an authorization for payroll deductions
which specifies his chosen rate of payroll deduction contributions pursuant
to Section 6, and such other information as is required to be provided by the
Employee on such enrollment form. The enrollment form shall authorize the
Employer to reduce the Employee's Base Pay by the amount of such authorized
contributions. To the extent provided by the Committee or a Benefits
Representative, each Participant shall also be required to open a stock
brokerage account with a brokerage firm which has been engaged to administer
the purchase, holding and sale of Common Stock for Accounts under the Plan
and, as a condition of participation hereunder, the Participant shall be
required to execute any form required by the brokerage firm to open and
maintain such brokerage account.
5.2. Continuing Effect of Payroll Deduction
Authorization. Payroll deductions for a Participant will commence with the
first payroll period beginning after the Participant's authorization for
payroll deductions becomes effective, and will end with the payroll period
that ends when terminated by the Participant in accordance with Section 6.3
or due to his termination of Employment in accordance with Section 11.
Payroll deductions will also cease when the Participant is suspended from
participation due to a withdrawal of payroll deductions in accordance with
Section 10. When applicable with respect to Employees who are paid on a
hourly wage basis, the authorized payroll deductions shall be withheld from
wages when actually paid following the period in which the compensatory
services were rendered. Only payroll deductions that are credited to the
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Participant's Account during the Fiscal Quarter will be used to purchase
Common Stock pursuant to Section 8 regardless of when the work was performed.
5.3. Employment and Shareholders Rights. Nothing in this
Plan will confer on a Participant the right to continue in the employ of the
Employer or will limit or restrict the right of the Employer to terminate the
Employment of a Participant at any time with or without cause. A Participant
will have no interest in any Common Stock to be purchased under the Plan or
any rights as a shareholder with respect to such Stock until the Stock has
been purchased and credited to the Participant's Account.
6. PAYROLL DEDUCTIONS.
6.1. Participant Contributions by Payroll Deductions. At
the time a Participant files his payroll deduction authorization form, the
Participant will elect to have deductions made from the Participant's Base
Pay for each payroll period such authorization is in effect in whole
percentages at the rate of not less than 1% nor more than 10% of the
Participant's Base Pay.
6.2. No Other Participant Contributions Permitted. All
payroll deductions made for a Participant will be credited to the
Participant's Account under the Plan. A Participant may not make any
separate cash payment into such Account.
6.3. Changes in Participant Contributions. Subject to
Sections 10 and 21, a Participant may increase, decrease, suspend, or resume
payroll deductions under the Plan by giving written notice to a designated
Benefits Representative at such time and in such form as the Committee or
Benefits Representative may prescribe from time to time. Such increase,
decrease, suspension or resumption will be effective as of the first day of
the payroll period as soon as administratively practicable after receipt of
the Participant's written notice, but not earlier than the first day of the
payroll period of the Fiscal Quarter next following receipt and acceptance of
such form. Notwithstanding the previous sentence, a Participant may
completely discontinue contributions at any time during a Fiscal Quarter,
effective as of the first day of the payroll period as soon as
administratively practicable following receipt of a written discontinuance
notice from the Participant on a form provided by a designated Benefits
Representative. Following a discontinuance of contributions, a Participant
cannot authorize any payroll contributions to his Account for the remainder
of the Fiscal Quarter in which the discontinuance was effective.
7. GRANTING OF OPTION TO PURCHASE STOCK.
7.1. Quarterly Grant of Options. For each Fiscal Quarter,
a Participant will be deemed to have been granted an option to purchase, on
the first day of the Fiscal Quarter, as many whole and fractional shares as
may be purchased with the payroll deductions (and any cash dividends as
provided in Section 8) credited to the Participant's Account during the
Fiscal Quarter.
7.2. Option Price. The option price of the Common Stock
purchased with the amount credited to the Participant's Account during each
Fiscal Quarter will be the lower of:
7.2.1. 85% of the Market Price of a share of Stock on
the first day of the Fiscal Quarter; or
7.2.2. 85% of the Market Price of a share of Stock on
the last day of the Fiscal Quarter.
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Only the Market Price as of the first day of the Fiscal Quarter and the
last day of the Fiscal Quarter shall be considered for purposes of
determining the option purchase price; interim fluctuations during the Fiscal
Quarter shall not be considered.
8. EXERCISE OF OPTION.
8.1. Automatic Exercise of Options. Unless a Participant
has elected to withdraw payroll deductions in accordance with Section 10, the
Participant's option for the purchase of Common Stock will be deemed to have
been exercised automatically as of the last day of the Fiscal Quarter for the
purchase of the number of whole and fractional shares of Common Stock which
the accumulated payroll deductions (and cash dividends on the Common Stock as
provided in Section 8.2) in the Participant's Account at that time will
purchase at the applicable option price. Fractional shares may be issued
under the Plan. As of the last day of each Fiscal Quarter, the balance of
each Participant's Account shall be applied to purchase the number of whole
and fractional shares of Stock as determined by dividing the balance of such
Participant's Account as of such date by the option price determined pursuant
to Section 7.2. The Participant's Account shall be debited accordingly. The
Committee or its delegate shall make all determinations with respect to
applicable currency exchange rates when applicable.
8.2. Dividends Generally. Cash dividends paid on shares
of Common Stock which have not been delivered to the Participant pending the
Participant's request for delivery pursuant to Section 9.3, will be combined
with the Participant's payroll deductions and applied to the purchase of
Common Stock at the end of the Fiscal Quarter in which the cash dividends are
received, subject to the Participant's withdrawal rights set forth in Section
10. Dividends paid in the form of shares of Common Stock or other securities
with respect to shares that have been purchased under the Plan, but which
have not been delivered to the Participant, will be credited to the shares
that are credited to the Participant's Account.
8.3. Pro-rata Allocation of Available Shares. If the
total number of shares to be purchased under option by all Participants
exceeds the number of shares authorized under Section 4, a pro-rata
allocation of the available shares will be made among all Participants
authorizing such payroll deductions based on the amount of their respective
payroll deductions through the last day of the Fiscal Quarter.
9. OWNERSHIP AND DELIVERY OF SHARES.
9.1. Beneficial Ownership. A Participant will be the
beneficial owner of the shares of Common Stock purchased under the Plan on
exercise of his option and will have all rights of beneficial ownership in
such shares. Any dividends paid with respect to such shares will be credited
to the Participant's Account and applied as provided in Section 8 until the
shares are delivered to the Participant.
9.2. Registration of Stock. Stock to be delivered to a
Participant under the Plan will be registered on the books and records of the
Company in the name of the Participant, or if the Participant so directs by
written notice to the designated Benefits Representative or brokerage firm,
if any, prior to the purchase of Stock hereunder, in the names of the
Participant and one such other person as may be designated by the
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Participant, as joint tenants with rights of survivorship or as tenants by
the entireties, to the extent permitted by applicable law. Any such
designation shall not apply to shares purchased after a Participant's death
by the Participant's beneficiary or estate, as the case may be, pursuant to
Section 11.2. If a brokerage firm is engaged by the Company to administer
Accounts under the Plan, such firm shall provide such account registration
forms as are necessary for each Participant to open and maintain a brokerage
account with such firm.
9.3. Delivery of Stock Certificates. The Company, or a
brokerage firm or other entity selected by the Company, shall deliver to each
Participant a certificate for the number of shares of Common Stock purchased
by the Participant hereunder as soon as practicable after the close of each
Fiscal Quarter. Alternatively, in the discretion of the Committee, the stock
certificate may be delivered to a designated stock brokerage account
maintained for the Participant and held in "street name" in order to
facilitate the subsequent sale of the purchased shares.
9.4. Regulatory Approval. In the event the Company is
required to obtain from any commission or agency the authority to issue any
stock certificate hereunder, the Company shall seek to obtain such
authority. The inability of the Company to obtain from any such commission
or agency the authority which counsel for the Company deems necessary for the
lawful issuance of any such certificate shall relieve the Company from
liability to any Participant, except to return to the Participant the amount
of his Account balance used to exercise the option to purchase the affected
shares.
10. WITHDRAWAL OF PAYROLL DEDUCTIONS. At any time during a
Fiscal Quarter, but in no event later than 15 days (or such shorter
prescribed by the Committee or a Benefits Representative) prior to the last
day of the Fiscal Quarter, a Participant may elect to abandon his election to
purchase Common Stock under the Plan. By written notice to the designated
Benefits Representative on a form provided for such purpose, the Participant
may thus elect to withdraw all of the accumulated balance in his Account
being held for the purchase of Common Stock in accordance with Section 8.2.
Partial withdrawals will not be permitted. All such amounts will be paid to
the Participant as soon as administratively practical after receipt of his
notice of withdrawal. After receipt and acceptance of such withdrawal
notice, no further payroll deductions will be made from the Participant's
Base Pay beginning as of the next payroll period during the Fiscal Quarter in
which the withdrawal notice is received. The Committee, in its discretion,
may determine that amounts otherwise withdrawable hereunder by Participants
shall be offset by an amount that the Committee, in its discretion,
determines to be reasonable to help defray the administrative costs of
effecting the withdrawal, including, without limitation, fees imposed by any
brokerage firm which administers such Participant's Account. After a
withdrawal, an otherwise eligible Participant may resume participation in the
Plan as of the first day of the Fiscal Quarter next following his delivery of
a payroll deduction authorization pursuant to the procedures prescribed in
Section 5.1.
11. TERMINATION OF EMPLOYMENT.
11.1. General Rule. Upon termination of a Participant's
Employment for any reason, his participation in the Plan will immediately
terminate.
11.2. Termination Due to Retirement, Death or Disability.
If the Participant's termination of Employment is due to (i) retirement from
Employment on or after his attainment of age 65, (ii) death or (iii)
Disability, the Participant (or the Participant's personal representative or
legal guardian in the event of Disability, or the Participant's beneficiary
(as defined in Section 12) or the administrator of his will or executor of
his estate in the event of death), will have the right to elect, either to:
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11.2.1. Withdraw all of the cash and shares of Common Stock
credited to the Participant's Account as of his termination date; or
11.2.2. Exercise the Participant's option for the purchase
of Common Stock on the last day of the Fiscal Quarter (in which
termination of Employment occurs) for the purchase of the number of
shares of Common Stock which the cash balance credited to the
Participant's Account as of the date of the Participant's termination
of Employment will purchase at the applicable option price.
The Participant (or, if applicable, such other person designated
in the first paragraph of this Section 11.2) must make such election by
giving written notice to the Benefits Representative at such time and in such
manner as prescribed from time to time by the Committee or Benefits
Representative. In the event that no such written notice of election is
received by the Benefits Representative within 30 days of the Participant's
termination of Employment date, the Participant (or such other designated
person) will automatically be deemed to have elected to withdraw the balance
in the Participant's Account as of his termination date. Thereafter, any
accumulated cash and shares of Common Stock credited to the Participant's
Account as of his termination of Employment date will be delivered to or on
behalf of the Participant as soon as administratively practicable.
11.3. Termination Other Than for Retirement, Death or
Disability. Upon termination of a Participant's Employment for any reason
other than retirement, death, or Disability pursuant to Section 11.2, the
participation of the Participant in the Plan will immediately terminate.
Thereafter, any accumulated cash and shares of Common Stock credited to the
Participant's Account as of his termination of Employment date will be
delivered to the Participant as soon as administratively practicable.
11.4. Rehired Employees. Any Employee whose Employment
terminates and who is subsequently rehired by an Employer shall be treated as
a new Employee for purposes of eligibility to participate in the Plan.
12. ADMINISTRATION OF THE PLAN.
12.1. No Participation in Plan by Committee Members. No
options may be granted under the Plan to any member of the Committee during
the term of his membership on the Committee.
12.2. Authority of the Committee. Subject to the
provisions of the Plan, the Committee shall have the plenary authority to (i)
interpret the Plan and all options granted under the Plan, (ii) make such
rules as it deems necessary for the proper administration of the Plan, (iii)
make all other determinations necessary or advisable for the administration
of the Plan, and (iv) correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any option granted under the Plan in the
manner and to the extent that the Committee deems advisable. Any action
taken or determination made by the Committee pursuant to this and the other
provisions of the Plan shall be conclusive on all parties. The act or
determination of a majority of the Committee shall be deemed to be the act or
determination of the Committee. By express written direction, or by the
day-to-day operation of Plan administration, the Committee may delegate the
authority and responsibility for the day-to-day administrative or ministerial
tasks of the Plan to a Benefits Representative, including a brokerage firm or
other third party engaged for such purpose.
12.3. Meetings. The Committee shall designate a chairman
from among its members to preside at its meetings, and may designate a
secretary, without regard to whether that person is a member of the
Committee, who shall keep the minutes of the proceedings. Meetings shall be
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held at such times and places as shall be determined by the Committee, and
the Committee may hold telephonic meetings. The Committee may take any
action otherwise proper under the Plan by the affirmative vote of a majority
of its members, taken at a meeting, or by the affirmative vote of all of its
members taken without a meeting. The Committee may authorize any one or more
of their members or any officer of the Company to execute and deliver
documents on behalf of the Committee.
12.4. Decisions Binding. All determinations and decisions
made by the Committee shall be made in its discretion pursuant to the
provisions of the Plan, and shall be final, conclusive and binding on all
persons including the Company, Participants, and their estates and
beneficiaries.
12.5. Expenses of Committee. The Committee may employ
legal counsel, including, without limitation, independent legal counsel and
counsel regularly employed by the Company, consultants and agents as the
Committee may deem appropriate for the administration of the Plan. The
Committee may rely upon any opinion or computation received from any such
counsel, consultant or agent. All expenses incurred by the Committee in
interpreting and administering the Plan, including, without limitation,
meeting expenses and professional fees, shall be paid by the Company.
12.6. Indemnification. Each person who is or was a member
of the Committee shall be indemnified by the Company against and from any
damage, loss, liability, cost and expense that may be imposed upon or
reasonably incurred by him in connection with or resulting from any claim,
action, suit, or proceeding to which he may be a party or in which he may be
involved by reason of any action taken or failure to act under the Plan,
except for any such act or omission constituting willful misconduct or gross
negligence. Such person shall be indemnified by the Company for all amounts
paid by him in settlement thereof, with the Company's approval, or paid by
him in satisfaction of any judgment in any such action, suit, or proceeding
against him, provided he shall give the Company an opportunity, at its own
expense, to handle and defend the same before he undertakes to handle and
defend it on his own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Company's Articles of Incorporation or Bylaws, as a
matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
13. DESIGNATION OF BENEFICIARY. At such time, in such manner,
and using such form as shall be prescribed from time to time by the Committee
or a Benefits Representative, a Participant may file a written designation of
a beneficiary who is to receive any Common Stock and/or cash credited to the
Participant's Account at the Participant's death. Such designation of
beneficiary may be changed by the Participant at any time by giving written
notice to the Benefits Representative at such time and in such form as
prescribed. Upon the death of a Participant, and receipt by the Benefits
Representative of proof of the identity at the Participant's death of a
beneficiary validly designated under the Plan, the Benefits Representative
will take appropriate action to ensure delivery of such Common Stock and/or
cash to such beneficiary. In the event of the death of a Participant and the
absence of a beneficiary validly designated under the Plan who is living at
the time of such Participant's death, the Benefits Representative will take
appropriate action to ensure delivery of such Common Stock and/or cash to the
executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the
Benefits Representative), the Committee, in its discretion, may direct
delivery of such Common Stock and/or cash to the spouse or to any one or more
dependents of the Participant as the Committee may designate in its
discretion. No beneficiary will, prior to the death of the Participant,
acquire any interest in any Common Stock or cash credited to the
Participant's Account.
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14. TRANSFERABILITY. No amounts credited to a Participant's
Account, whether cash or Common Stock, nor any rights with regard to the
exercise of an option or to receive Common Stock under the Plan, may be
assigned, transferred, pledged, or otherwise disposed of in any way by the
Participant other than by will or the laws of descent and distribution. Any
such attempted assignment, transfer, pledge, or other disposition will be
void and without effect. Each option shall be exercisable, during the
Participant's lifetime, only by the Employee to whom the option was granted.
The Company shall not recognize, and shall be under no duty to recognize, any
assignment or purported assignment by an Employee of his option or of any
rights under his option.
15. NO RIGHTS AS A SHAREHOLDER UNTIL CERTIFICATE ISSUED. With
respect to shares of Stock subject to an option, an optionee shall not be
deemed to be a shareholder, and the optionee shall not have any of the rights
or privileges of a shareholder. An optionee shall have the rights and
privileges of a shareholder when, but not until, a certificate for shares has
been issued to the optionee following exercise of his option.
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The Board
shall make or provide for such adjustments in the maximum number of shares
specified in Section 4 and the number and option price of shares subject to
options outstanding under the Plan as the Board shall determine is
appropriate to prevent dilution or enlargement of the rights of Participants
that otherwise would result from any stock dividend, stock split, stock
exchange, combination of shares, or other change in the capital structure of
the Company, merger, consolidation, spin-off of assets, reorganization,
partial or complete liquidation, issuance of rights or warrants to purchase
securities, any other corporate transaction or event having an effect similar
to any of the foregoing.
In the event of a merger of one or more corporations into the
Company, or a consolidation of the Company and one or more other corporations
in which the Company is the surviving corporation, each Participant, at no
additional cost, shall be entitled, upon his payment for all or part of the
Common Stock purchasable by him under the Plan, to receive (subject to any
required action by shareholders) in lieu of the number of shares of Common
Stock which he was entitled to purchase, the number and class of shares of
stock or other securities to which such holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of the number of shares of Common Stock equal to the number
of shares purchasable by the Participant hereunder.
If the Company is not the surviving corporation in any
reorganization, merger or consolidation (or survives only as a subsidiary of
an entity other than a previously wholly-owned subsidiary of the Company), or
if the Company is to be dissolved or liquidated or sell substantially all of
its assets or stock to another corporation or other entity, then, unless a
surviving corporation assumes or substitutes new options (within the meaning
of Section 424(a) of the Code) for all options then outstanding, (i) the date
of exercise for all options then outstanding shall be accelerated to dates
fixed by the Committee prior to the effective date of such corporate event,
(ii) a Participant may, at his election by written notice to the Company,
either (x) withdraw from the Plan pursuant to Section 10 and receive a refund
from the Company in the amount of the accumulated cash and Stock balance in
the Participant's Account, (y) exercise a portion of his outstanding options
as of such exercise date to purchase shares of Stock, at the option price, to
the extent of the balance in the Participant's Account, or (z) exercise in
full his outstanding options as of such exercise date to purchase shares of
Stock, at the option price, which exercise shall require such Participant to
pay the related option price, and (iii) after such effective date any
unexercised option shall expire. The date the Committee selects for the
exercise date under the preceding sentence shall be deemed to be the exercise
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date for purposes of computing the option price per share of Stock. If the
Participant elects to exercise all or any portion of the options, the Company
shall deliver to such Participant a stock certificate issued pursuant to
Section 9.4 for the number of shares of Stock with respect to which such
options were exercised and for which such Participant has paid the option
price. If the Participant fails to provide the notice set forth above within
three days after the exercise date selected by the Committee under this
Section 16, the Participant shall be conclusively presumed to have requested
to withdraw from the Plan and receive payment of the accumulated balance of
his Account. The Committee shall take such steps in connection with such
transactions as the Committee shall deem necessary or appropriate to assure
that the provisions of this Section 16 are effectuated for the benefit of the
Participants.
Except as expressly provided in this Section 16, the issue by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, for cash or property, or for labor or services
either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number
or price of shares of Stock then available for purchase under the Plan.
17. PLAN EXPENSES; USE OF FUNDS; NO INTEREST PAID. The
expenses of the Plan shall be paid by the Company except as otherwise
provided herein or under the terms and conditions of any agreement entered
into between the Participant and any brokerage firm engaged to administer
Accounts. All funds received or held by the Company under the Plan shall be
included in the general funds of the Company free of any trust or other
restriction, and may be used for any corporate purpose. No interest shall be
paid to any Participant or credited to his Account under the Plan.
18. TERM OF THE PLAN. The Plan shall become effective upon the
approval of the Plan by the holders of the majority of the Common Stock
present and represented at a special or annual meeting of the Company's
shareholders held on or before 12 months from December 18, 1997. Except with
respect to options then outstanding, if not terminated sooner under the
provisions of Section 19, no further options shall be granted under the Plan
at the earlier of (i) December 31, 2007, or (ii) the point in time when no
shares of Stock reserved for issuance under Section 4 are available.
19. AMENDMENT OR TERMINATION OF THE PLAN. The Board shall have
the plenary authority to terminate or amend the Plan; provided, however, that
the Board shall not, without the approval of the shareholders of the Company,
(i) increase the maximum number of shares which may be issued under the Plan
pursuant to Section 4, (ii) materially amend the requirements as to the class
of employees eligible to purchase Stock under the Plan, or (iii) permit the
members of the Committee to purchase Stock under the Plan. No termination,
modification, or amendment of the Plan shall adversely affect the rights of a
Participant with respect to an option previously granted to him under such
option without his written consent.
In addition, to the extent that the Committee determines that, in
the opinion of counsel, (i) the listing for qualification requirements of any
national securities exchange or quotation system on which the Company's
Common Stock is then listed or quoted, or (ii) the Code or Treasury
regulations issued thereunder, require shareholder approval in order to
maintain compliance with such listing or qualification requirements or to
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<PAGE>
maintain any favorable tax advantages or qualifications, then the Plan shall
not be amended by the Board in such respect without first obtaining such
required approval of the Company's shareholders.
20. SECURITIES LAWS RESTRICTIONS ON EXERCISE. The Committee
may, in its discretion, require as conditions to the exercise of any option
that the shares of Common Stock reserved for issuance upon the exercise of
the option shall have been duly listed, upon official notice of issuance,
upon a stock exchange, and that either (i) a Registration Statement under the
Securities Act of 1933, as amended, with respect to said shares shall be
effective; or (ii) the Participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it is his
intention to purchase the Stock for investment and not for resale or
distribution.
21. SECTION 16 COMPLIANCE. The Plan, and transactions
hereunder by persons subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), are intended to comply with all
applicable conditions of Rule 16b-3 or any successor exemption provision
promulgated under the Exchange Act. To the extent that any provision of the
Plan or any action by the Committee or the Board fails, or is deemed to fail,
to so comply, such provision or action shall be null and void but only to the
extent permitted by law and deemed advisable by the Committee in its
discretion.
22. WITHHOLDING TAXES FOR DISQUALIFYING DISPOSITION. Whenever
shares of Stock that were received upon the exercise of an option granted
under the Plan are disposed of within two years after the date of grant of
such option or one year from the date of exercise of such option (within the
meaning of Section 423(a)(1)), the Company shall have the right to require
the participant to remit to the Company in cash an amount sufficient to
satisfy federal, state and local withholding and payroll tax requirements, if
any, attributable to such disposition prior to authorizing such disposition
or permitting the delivery of any certificate or certificates with respect
thereto.
23. NO RESTRICTION ON CORPORATE ACTION. Subject to Section
19, nothing contained in the Plan shall be construed to prevent the Board or
any Employer from taking any corporate action which is deemed by the Employer
to be appropriate or in its best interest, whether or not such action would
have an adverse effect on the Plan or any option granted under the Plan. No
Employee, beneficiary or other person shall have any claim against any
Employer as a result of any such action.
24. USE OF FUNDS. The Employers shall promptly transfer all
amounts withheld under Section 6 to the Company or to any brokerage firm
engaged to administer Accounts, as directed by the Company. All payroll
deductions received or held by the Company under the Plan may be used by the
Company for any corporate purpose, and the Company will not be obligated to
segregate such payroll deductions.
25. MISCELLANEOUS.
25.1. Options Carry Same Rights and Privileges. To the
extent required to comply with the requirements of Section 423 of the Code,
all Employees granted options under the Plan to purchase Common Stock shall
have the same rights and privileges hereunder.
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25.2. Headings. Any headings or subheadings in this Plan
are inserted for convenience of reference only and are to be ignored in the
construction or interpretation of any provisions hereof.
25.3. Gender and Tense. Any words herein used in the
masculine shall be read and construed in the feminine when appropriate.
Words in the singular shall be read and construed as though in the plural,
and vice-versa, when appropriate.
25.4. Governing Law. This Plan shall be governed and
construed in accordance with the laws of the State of Oregon to the extent
not preempted by federal law.
25.5. Regulatory Approvals and Compliance. The Company's
obligation to sell and deliver Common Stock under the Plan is at all times
subject to all approvals of and compliance with the (i) regulations of any
applicable stock exchanges (including NASDAQ) and (ii) any governmental
authorities required in connection with the authorization, issuance, sale or
delivery of such Stock, as well as federal, state and foreign securities laws.
25.6. Severability. In the event that any provision of
this Plan shall be held illegal, invalid, or unenforceable for any reason,
such provision shall be fully severable, but shall not affect the remaining
provisions of the Plan, and the Plan shall be construed and enforced as if
the illegal, invalid, or unenforceable provision had not been included herein.
25.7. Refund of Contributions on Noncompliance with Tax
Law. In the event the Company should receive notice that this Plan fails to
qualify as an "employee stock purchase plan" under Section 423 of the Code,
all then existing Account balances will be paid to the Participants and the
Plan shall immediately terminate.
25.8. No Guarantee of Tax Consequences. The Company,
Board, and the Committee do not make any commitment or guarantee that any tax
treatment will apply or be available to any person participating or eligible
to participate in the Plan, including, without limitation, any tax imposed by
the United States or any state thereof, any estate tax, or any tax imposed by
a foreign government.
25.9. Company as Agent for the Employers. Each Employer,
by adopting the Plan, appoints the Company and the Board as its agents to
exercise on its behalf all of the powers and authorities hereby conferred
upon the Company and the Board by the terms of the Plan, including, but not
by way of limitation, the power to amend and terminate the Plan.
IN WITNESS WHEREOF, this Plan is hereby executed by a duly
authorized officer of the Company.
As approved by the Board of Directors of Lithia Motors, Inc on
December 18, 1997.
/s/ Sidney B. DeBoer
Sidney B. DeBoer, Secretary
As approved by the Shareholders of Lithia Motors, Inc on May __,
1998.
Sidney B. DeBoer, Secretary
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EXHIBIT 10.5.1
HONDA
AUTOMOBILE DEALER
SALES AND SERVICE AGREEMENT
A
This is an agreement between the Honda Automobile Division,
American Honda Motor Co., Inc. (American Honda) and Lithia HPI, Inc.
(Dealer), a(n) Oregon corporation doing business as Lithia Honda. By this
agreement, which is made and entered into at Torrance, California, effective
the 14th day of October, 1997, American Honda gives to Dealer the
nonexclusive right to sell and service Honda Products at the Dealership
Location. It is the purpose of this Agreement, including the Honda
Automobile Dealer Sales and Service Agreement Standard Provisions (Standard
Provisions), which are incorporated herein by reference, to set forth the
rights and obligations which Dealer will have as a retail seller of Honda
Products. Achievement of the purposes of this Agreement is premised upon the
mutual understanding and cooperation between American Honda and Dealer.
American Honda and Dealer have each entered into this Agreement in reliance
on the integrity and ability and expressed intention of each to deal fairly
with the consuming public and with each other.
For consistency and clarity, terms which are used frequently in
this Agreement have been defined in Article 12 of the Standard Provisions.
B
American Honda grants to Dealer the nonexclusive right to buy
Honda Products and to identify itself as a Honda dealer at the Dealership
Location. Dealer assumes the obligations specified in this Agreement and
agrees to sell and service effectively Honda Products within Dealer's Primary
Market Area and to maintain premises satisfactory to American Honda.
C
Dealer covenants and agrees that this Agreement is personal to
Dealer, to the Dealer Owner, and to the Dealer Manager, and American Honda
has entered into this Agreement based upon their particular qualifications
and attributes and their continued ownership or participation in Dealership
Operations. The parties therefore recognize that the ability of Dealer to
perform this Agreement satisfactorily and the Agreement itself are both
conditioned upon the continued active involvement in or ownership of Dealer
by either:
(1.) the following person(s) in the percentage(s) shown:
PERCENT OF
NAME ADDRESS TITLE OWNERSHIP
Lithia Motors, Inc. 100%
which is owned by
Lithia Holding, LLC minimum 53.585% and through publicly traded
shares maximum 46.415%
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Lithia Holding, LLC
which is owned by
Sidney B. DeBoer 58.125%
Manfred L. Heimann 34.875%
Bradford Gray 7.00%
(2.) _________________________________________________________, an
individual personally owning an interest in Dealer of at least 25% and who
has presented to American Honda a firm and binding contract giving to him the
right and obligation of acquiring an ownership interest in Dealer in excess
of 50% within five years of the commencement of Dealership Operations and
being designated in that contract as Dealer operator.
D
Dealer represents, and American Honda enters into this Agreement
in reliance upon the representation, that Bryan DeBoer exercises the
functions of Dealer Manager and is in complete charge of Dealership
Operations with authority to make all decisions on behalf of dealer with
respect to Dealership Operations. Dealer agrees that there will be no change
in Dealer Manager without the prior written approval of American Honda.
E
American Honda has approved the following premises as the
location(s) for the display of Honda Trademarks and for Dealership Operations.
HONDA NEW VEHICLE
SALES SHOWROOM PARTS AND SERVICE FACILITY
700 North Central 700 North Central
Medford, Oregon Medford, Oregon
USED VEHICLE DISPLAY
SALES AND GENERAL OFFICES AND SALES FACILITY
360 E. Jackson 700 North Central
Medford, Oregon Medford, Oregon
F
There shall be no voluntary or involuntary change, direct or
indirect, in the legal or beneficial ownership or executive power or
responsibility of Dealer for the dealership Operations, specified in
Paragraphs C and D hereof, without the prior written approval of American
Honda.
G
Dealer agrees to maintain, solely with respect to the Dealership
Operations, minimum net working capital of $1,162,800.00, minimum owner's
equity of $ * , and flooring and a line or lines of credit in the
aggregate amount of $1,325,000.00 with banks or financial institutions
approved by American Honda for use in connection with Dealer's purchases of
and carrying of inventory of Honda Products, all of which American Honda and
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Dealer agree are required to enable Dealer to perform its obligations
pursuant to this Agreement. If Dealer also carries on another business or
sells other products, Dealer's total net working capital, owner's equity and
lines of credit shall be increased by an appropriate amount.
* Long Term Debt, less Real Estate Mortgages, shall not exceed a ratio of
1:1 when compared to Effective Net Worth which is defined as Total Net
Worthless Total Other Assets.
H
This Agreement is made for the period beginning October 14, 1997
and ending October 31, 1998, unless sooner terminated. Continued dealings
between American Honda and dealer after the expiration of this Agreement
shall not constitute a renewal of this Agreement for a term, but rather shall
be on a day-to-day basis, unless a new agreement or a renewal of this
Agreement is fully executed by both parties.
I
This Agreement may not be varied, modified or amended except by
an instrument in writing, signed by duly authorized officers of the parties,
referring specifically to this agreement and the provision being modified,
varied or amended.
J
Neither this Agreement, nor any part thereof or interest therein,
may be transferred or assigned by Dealer, directly or indirectly, voluntarily
or by operation of law, without the prior written consent of American Honda.
Lithia HPI, Inc. dba
LITHIA HONDA #207171 By: /s/Sidney B. DeBoer
- ------------------------------------ ----------------------------------
(Corporate or Firm Name) (Dealer)
AMERICAN HONDA MOTOR CO., INC.
HONDA AUTOMOBILE DIVISION
BY: /s/Richard Colliver
-------------------------------
Richard Colliver
3
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ADDENDUM TO HONDA AUTOMOBILE DEALER
SALES AND SERVICE AGREEMENT
This Addendum (the "Addendum") dated October 14, 1997, is entered
into between Lithia HPI, Inc. ("Dealer"), an Oregon corporation, with its
principal place of business at 700 North Central, Medford Oregon 97501, and
American Honda Motor Co., Inc.. ("American Honda"), a California corporation,
with its principal place of business at 1919 Torrance Boulevard, Torrance,
California 90501.
WHEREAS, Dealer and American Honda are entering into the Honda
Automobile Dealer Sales and Service Agreement including the Standard
Provisions (the "Dealer Agreement"), a copy of which is attached hereto, as
of the date hereof; and
WHEREAS, Dealer and American Honda are entering into the "Agreement
Between
American Honda Motor Co., Inc. and Lithia Motors, Inc. et al."
effective as of December 17, 1996 (the "Lithia Agreement"); and
WHEREAS, Dealer and American Honda desire that this Addendum and the
Lithia Agreement be incorporated into and become part of the Dealer Agreement;
NOW THEREFORE, in consideration of the mutual covenants set forth
herein and in the Dealer Agreement and other good and valuable consideration
the sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Status of the Addendum. This Addendum is hereby incorporated
into and is made part of the Dealer Agreement. The Dealer Agreement and this
Addendum shall, when possible, be read as an integrated document; however, if
there is any conflict between the terms of this Addendum and the Dealer
Agreement, this Addendum shall govern.
2. Incorporation of the Applicable Terms of the Lithia Agreement.
Attached hereto as Schedule A is the Lithia Agreement. Dealer represents and
warrants that it has read the Lithia Agreement and acknowledges that the
Lithia Agreement includes provisions that pertain to Lithia's management,
ownership, and right to acquire and transfer Honda dealerships and other
matters. Dealer has executed the Lithia Agreement and agrees to be bound by
all provisions of the Lithia Agreement that are applicable to or affect it
and/or the actions of any Honda and Acura dealership owned by Dealer. Dealer
and American Honda agree that the terms and conditions of the Lithia
Agreement are hereby incorporated into and made part of the Dealer Agreement.
3. Additional Terms. Dealer shall satisfy the following terms on a
continuing basis during the term of the Dealer Agreement, as well as during
any periods following any renewal or extension of the Dealer Agreement:
a. Exclusive Facilities. As provided in Paragraph 3.1 of the
Lithia Agreement, Dealers non-exclusive Honda Dealership Operations will
by no later than December 31, 1997, be conducting all business in a separate,
freestanding, exclusive new facility built and maintained in full compliance
and conformity with Honda's designs and specifications, including Honda's
minimum land and building requirements, as detailed within the Honda Image
Program. Such new, exclusive Honda dealership facility will be located on a
site acceptable to AHM. Thereafter, Dealer shall maintain separate,
exclusive, freestanding Honda Dealership Operations that are in full and
timely compliance with American Honda standards and guidelines relating to
Honda Dealership Operations, facility design, functionality and capacity,
and enhancements to American Honda's brand image, which standards and
4
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guidelines American Honda may reasonably modify from time to time, shall
exclusively offer a full range of Honda Products and services and shall not
offer competing products or services from its Dealership Premises. In
addition, Dealer agrees that even though the facilities may exceed AHM's
minimum requirements now or in the future, the separate, exclusive,
freestanding Honda Dealership Operations will remain separate, exclusive and
freestanding for Honda Products and Honda Dealership Operations.
b. Honda Exclusive Minimum Facility Requirements. The
Dealership Premises shall provide the following Honda exclusive minimum
square footage requirements, arranged in a manner conducive to the
reasonable sales and service of Honda Automobiles, Honda Parts and
accessories:
Building
Honda New Vehicle Sales Showroom Display 1,200 Sq. Ft.
Sales Office 928 Sq. Ft.
General Office 1,619 Sq. Ft.
Honda Service Workshop and Support 2,985 Sq. Ft.
Stall/Lifts 6/4
Honda Parts and Accessories Department 1,965 Sq. Ft.
Total Building 8,697 Sq. Ft.
Land
New Vehicle Display and Storage 10,667 Sq. Ft.
Used Car Display 8,333 Sq. Ft.
Customer and Employee Parking 5,700 Sq. Ft.
Honda Service Parking 1,600 Sq. Ft.
Circulation and Landscaping 19,000 Sq. Ft.
Total Land 45,360 Sq. Ft.
Total Land and Building 54,057 Sq. Ft.
c. Minimum Capital Requirements. Dealer agrees that the Honda
Dealership Operations shall meet American Honda's minimum capital
requirements at all times. The minimum capital requirements shall be
determined by American Honda from time to time and, as of the date hereof,
shall be the amounts specified below:
o American Honda's current minimum working capital requirement is
$1,162,800 for the Honda dealership at the Dealership Premises. The
Honda dealership entity will be capitalized with not less than
$2,597,682 in equity of which $2,597,682 will be in the form of common
stock.
o Dealer's Long Term Debt (excluding Real Estate Mortgages and the current
portion of Long Term Debt) shall not exceed a ratio of 1:1 when compared
to Effective Net Worth (Total Net Worth less Total Other Assets) of
Dealer.
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o A wholesale line of credit is to be established and maintained by Dealer
with a financial institution approved by American Honda for the
exclusive purpose of purchasing and maintaining a representative
inventory of new Honda Automobiles. The current minimum amount of such
line is $1,325,000.
e. Financial Statement Submission. Dealer agrees to continue
to comply with American Honda's dealer financial requirements as specified in
the Dealer Agreement. These specifically provide that Dealer will furnish a
complete, timely and accurate financial statement on a monthly basis,
electronically, on the form required by American Honda.
f. Personnel Minimum Requirements. Dealer agrees to employ
Honda service and parts staff which meets at all times the minimum service
and parts training standards specified by American Honda for its authorized
dealers and whose members are properly licensed.
g. Communications Equipment. Dealer agrees to provide
appropriate data communications equipment, compatible with American Honda's
specifications, which currently must accommodate HondaNet 2000.
4. No Guarantee of Financial Success. Dealer recognizes and
acknowledges that American Honda's approval of Dealer's application and
Dealership Premises does not in any way constitute a representation,
assurance, or guarantee by American Honda that Dealer will achieve any
particular level of sales, operate at a profit, or realize any return on
Dealers investment.
5. Automobile Availability. Dealer recognizes and acknowledges that
American Honda cannot and does not guarantee a specific number of new Honda
Automobiles to be made available for resale by the Dealer. American Honda
assumes no liability in the event of losses incurred during periods of
unavailability, nor does unavailability excuse Dealers performance.
6. Compliance with and Impact of Applicable Laws. Dealer shall
comply at Dealers own expense with all applicable state and federal laws
including those pertaining to vehicle dealerships. Dealer shall secure all
licenses and permissions in accordance with such laws and bear all the cost
related thereto.
7. Assumption of Costs. Dealer will complete the above actions
solely at Dealers own expense and without responsibility on the part of
American Honda.
8. Severability. If any provision of this Addendum should be held
invalid or unenforceable for any reason whatsoever, or conflicts with any
applicable law, this Addendum will be considered divisible as to such
provision(s), and such provision(s) will be deemed amended to comply with
such law, or if it (they) cannot be so amended without materially affecting
the tenor of the Dealer Agreement, then it (they) will be deemed deleted from
the Dealer Agreement in such jurisdiction, and in either case, the remainder
of the Dealer Agreement will be valid and binding. notwithstanding the
foregoing, if, as a result of any provision of the Dealer Agreement
(including this Addendum) being held invalid or unenforceable, American
Honda's ability to control the selection of the Dealer Owner, Executive
Manager, or the Dealer Manager or to otherwise maintain its ability to
exercise reasonable discretion over the selection of the actual individual
who is managing Dealer is materially restricted beyond the terms of the
Dealer Agreement or the Lithia Agreement, American Honda shall be permitted
to invoke the repurchase provisions of Section 9.3 of the Lithia Agreement.
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IN WITNESS WHEREOF, the parties have executed this Addendum as of the
date first above written.
LITHIA HPI, INC.
By: /s/Sidney B. DeBoer
AMERICAN HONDA MOTOR CO., INC.
By: /s/Richard Colliver
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EX-10
Exhibit 10.5.2 Acura Dealer Sales & Service Agmt
EXHIBIT 10.5.2
ACURA
AUTOMOBILE DEALER
SALES AND SERVICE AGREEMENT
PARAGRAPH A
This is an agreement between the Acura Division, American Honda Motor
Co., Inc. (American Honda) and Lithia BB, Inc. (Dealer) a(n) California
Corporation doing business as Lithia Acura of Bakersfield. By this
agreement, which is made and entered into at Torrance, California, effective
the 2nd day of October, 1997. American Honda gives to Dealer the
nonexclusive right to sell and service Acura Products at the Dealership
Location. It is the purpose of this Agreement, including the Acura
Automobile Dealer Sales and Service Agreement Standard Provisions (Standard
Provisions), which are incorporated herein by reference, to set forth the
rights and obligations which Dealer will have as a retail seller of Acura
Products. Achievement of the purposes of this Agreement is premised upon the
mutual and continuing understanding and cooperation between American Honda
and Dealer and the expressed intention of each to deal fairly with the
consuming public.
For consistency and clarity, terms which are used frequently in this
Agreement have been defined in Article 12 of the Standard Provisions.
PARAGRAPH B
American Honda grants to Dealer the nonexclusive right to buy Acura
Products and to identify itself as an Acura dealer at the Dealership
Location. Dealer assumes the obligations specified in this Agreement and
agrees to sell and service effectively Acura Products within Dealer's Primary
Market Area and to maintain premises satisfactory to American Honda.
PARAGRAPH C
Dealer covenants and agrees that this Agreement is personal to Dealer,
to the Dealer Owner, and to the Dealer Manager, and American Honda has
entered into this Agreement based upon their particular qualifications and
attributes and their continued ownership or participation in Dealership
Operations. The parties therefore recognize that the ability of Dealer to
perform this Agreement satisfactorily and the Agreement itself are both
conditioned upon the continued active involvement in or ownership of Dealer
by either:
(1.) the following person(s) in the percentage(s) shown:
PERCENT OF
NAME ADDRESS TITLE OWNERSHIP
Lithia Motors, Inc. Holding Company 100%
Sidney B. DeBoer 234 Vista President/Secretary/Treasurer
Ashland, OR 97520
M.L. Dick Heimann 426 Roundelay Circle Vice President
Medford, OR 97504
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(2.) ______________________________________________________, an
individual personally owning an interest in Dealer of at least 25% and who
has presented to American Honda a firm and binding contract giving to him the
right and obligation of acquiring an ownership interest in Dealer in excess
of 50% within five years of the commencement of Dealership Operations and
being designated in that contract as Dealer operator.
PARAGRAPH D
Dealer represents, and American Honda enters into this Agreement in
reliance upon the representation, that Sidney B. DeBoer exercises the
functions of Dealer Manager and is in complete charge of Dealership
Operations with authority to make all decisions on behalf of Dealer with
respect to Dealership Operations. Dealer agrees that there will be no change
in Dealer Manager without the prior written approval of American Honda.
PARAGRAPH E
American Honda has approved the following premise as the location(s)
for the display of Acura Trademarks and for dealership Operations.
New Car Showroom 3201 Cattle Drive, Bakersfield, California 93313
Used Car Showroom 3201 Cattle Drive, Bakersfield, California 93313
Sales and General Offices 3201 Cattle Drive, Bakersfield, California 93313
Parts and Service Facilities 3201 Cattle Drive, Bakersfield, California 93313
PARAGRAPH F
There shall be no voluntary change or involuntary change, direct or
indirect, in the legal or beneficial ownership or executive power or
responsibility of Dealer for the Dealership Operations, specified in
Paragraphs C and D hereof, without the prior written approval of American
Honda.
PARAGRAPH G
Dealer agrees to maintain, solely with respect to the Dealership
Operations, minimum net working capital of $228,242, minimum owner's equity
of $270,482, and a line or lines of credit in the aggregate amount of
$566.400 with banks or financial institutions approved by American Honda for
use in connection with Dealer's purchases of and carrying of inventory of
Acura Products, all or which American Honda and Dealer agree are required to
enable Dealer to perform its obligations pursuant to this Agreement. If
Dealer also carries on another business or sells other products, Dealer's
total net working capital, owner's equity and lines of credit shall be
increased by an appropriate amount.
PARAGRAPH H
This Agreement is made for the period beginning October 2, 1997 and
ending November 30, 1997 unless sooner terminated. Continued dealings
between American Honda and Dealer after the expiration of this Agreement
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shall not constitute a renewal of this Agreement for a term, but rather shall
be on a day-to-day basis, unless a new agreement or a renewal of this
Agreement is fully executed by both parties.
PARAGRAPH I
This Agreement may not be varied, modified or amended except by an
instrument in writing, signed by duly authorized officers of the parties,
referring specifically to this Agreement and the provision being modified,
varied or amended.
PARAGRAPH J
Neither this Agreement, nor any part thereof or interest therein, may
be transferred or assigned by Dealer, directly or indirectly, voluntarily or
by operation of law, without the prior written consent of American Honda.
Lithia BB, Inc.
dba LITHIA ACURA OF BAKERSFIELD By /s/Sidney B. DeBoer
- ----------------------------------------- ------------------------------
(Corporate or Firm Name) (Dealer)
ACURA DIVISION
AMERICAN HONDA MOTOR CO., INC. (Corporate Seal)
By /s/Richard B. Thomas
-------------------------------------
Richard B. Thomas, Executive Vice President
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ADDENDUM TO ACURA AUTOMOBILE DEALER
SALES AND SERVICE AGREEMENT
This Addendum (the "Addendum") dated October 2, 1997, is entered
between Lithia BB, Inc. ("Dealer), a California corporation, with its
principal place of business at 3201 Cattle Drive, Bakersfield, California
93313, and American Honda Motor Co., Inc. ("American Honda"), a California
corporation, with its principal place of business at 1919 Torrance Boulevard,
Torrance, California 90501.
WHEREAS, Dealer and American Honda are entering into the Acura
Automobile Dealer Sales and Service Agreement including the Standard
Provisions (the "Dealer Agreement"), a copy of which is attached hereto, as
of the date hereof; and
WHEREAS, Dealer and American Honda have entered into the "Agreement
between American Honda Motor Co., Inc. and Lithia Motors, Inc. et al." dated
December 17, 1996 as amended by that certain "Amendment to Agreement between
American Honda Motor Co., Inc. and Lithia Motors, Inc. et al.0 dated October
2, 1997 (collectively, the "Lithia Agreement); and
WHEREAS, Dealer and American Honda desire that this Addendum and the
Lithia Agreement be incorporated into and become part of the Dealer Agreement;
NOW THEREFORE, in consideration of the mutual convenience set forth
herein and in the Dealer Agreement and other good and valuable consideration
the sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Status of the Addendum. This Addendum is hereby incorporated
into and is made part of the Dealer Agreement. The Dealer Agreement and this
Addendum shall, when possible, be read as an integrated document; however, if
there is any conflict between the terms of this Addendum and the Dealer
Agreement, this Addendum shall govern.
2. Incorporation of the Applicable Terms of the Lithia Agreement.
Attached hereto as Schedule A is the Lithia Agreement. Dealer represents and
warrants that it has read the Lithia Agreement and acknowledges that the
Lithia Agreement includes provisions that pertain to Lithia's management,
ownership, and right to acquire and transfer Acura dealerships and other
matters. Dealer has executed the Lithia Agreement and agrees to be bound by
all provisions of the Lithia- Agreement that are applicable to or affect it
and/or the actions of a Honda and Acura dealership. Dealer and American
Honda agree that the terms and conditions of the Lithia Agreement are hereby
incorporated into and made part of the Dealer Agreement.
3. Additional Terms. Dealer shall satisfy the following terms on a
continuing basis during the term of the Dealer Agreement, as well as during
any periods following any renewal or extension of the Dealer Agreement:
a. Separate Legal Entity. Dealer shall be a separate legal
entity, shall maintain and be subject to a separate motor vehicle license and
shall maintain separate financial statements from any and all other
dealerships, whether or not commonly owned. Consistent with American Honda
policy, the name "Honda" or "Acura", as applicable, shall appear in the d/b/a
of Dealer but not in the corporate name. Dealer agrees to provide a separate
legal entity by October 1, 1998 and to bring the d/b/a name into compliance
within 60 days from October 1, 1997.
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b. Public Ownership Policy. Dealer hereby agrees to be bound
by the terms of the American Honda Motor Co., Inc. Policy on the Public
Ownership of Honda and Acura Dealerships (the "Policy"), a copy of which is
appended to the Lithia Agreement as Schedule C.
c. Transfers of Ownership Interests. Dealer hereby agrees
that all transfers of ownership interests in Dealer, all limitations on who
may own Dealer, any obligation to identify the ownership interests in Dealer,
and any issues pertaining to future acquisitions of dealers by Dealer's owner
shall be governed by the applicable provisions of the Lithia Agreement,
including, without limitation, Article 2 and Schedule D, and Articles 1 and 8
and Schedule E, as amended, and that Dealer shall not object to American
Honda's enforcement of any of the provisions thereof.
d. Exclusive Facilities. As provided in Paragraph 3.1 of the
Lithia Agreement, as amended, Dealer shall maintain separate, exclusive,
freestanding Acura Dealership Operations that are in full and timely
compliance with American Honda standards and guidelines relating to Acura
Dealership Operations, facility design, functionality and capacity, and
enhancements to American Honda's brand image, which standards and guidelines
American Honda may reasonably modify from time to time, shall exclusively
offer a full range of Acura Products and services and shall not offer
competing products or services from its Dealership Premises. Dealer agrees
to bring the currently non-exclusive Acura Dealership Operations in
Bakersfield, California into compliance on or before October 1, 1998.
e. Acura Exclusive Minimum Facility Requirements. The
Dealership Premises shall provide the following Acura exclusive minimum
square footage requirements, arranged in a manner conducive to the reasonable
sales and service of Acura Automobiles, Acura Parts and accessories:
Building Facility Guide
Acura New Vehicle Sales Showroom and Sales Office 1,738 Sq. Ft.
General Office 1,067 Sq. Ft.
Acura Service Department 6,255 Sq. Ft.
Stall/Lifts 10/2
Acura Parts and Accessories Department 3,375 Sq. Ft.
Total Building 12,435 Sq. Ft.
Land
New Vehicle Display and Storage 11,756 Sq. Ft.
Used Car Display and Storage 6,520 Sq. Ft.
Customer, Employee and Service Parking 9,328 Sq. Ft.
Circulation and Landscaping 12,002 Sq. Ft.
Total Land 39,606 Sq. Ft.
Total Land and Building 52,041 Sq. Ft.
Dealer agrees to bring Dealership Premises into compliance with these
facility requirements on or before October 1, 1998.
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f. Dealer Manager. Dealer agrees to be bound by the
provisions of Articles 4, 5, and 6 of the Lithia Agreement governing, by way
of example, American Honda's right of approval of the Dealer Manager, the
authority of the Dealer Manager, Dealer's representation in dealer
organizations, and dealership personnel training, and to not object to
enforcement of any of the provisions thereof or take actions contrary to the
letter or spirit of these provisions.
g. Enforcement of Rights. Dealer agrees that, in addition to
the rights and remedies available to American Honda under the Dealer
Agreement and this Addendum, American Honda may enforce its rights under the
Lithia Agreement, as amended, against Dealer as if Dealer were a signatory
thereto.
h. American Honda Policies. American Honda has adopted
certain policies which are attached to the Lithia Agreement as Schedule G.
Dealer hereby agrees t o abide by these policies as attached thereto and as
reasonably amended by American Honda from time to time, and other policies
promulgated in the future by American Honda. In addition, American Honda has
expressed a commitment to diversity in management and among employees.
Dealer hereby agrees to adhere to that commitment by seeking to achieve
diversity among its management personnel and employees.
i. Minimum Capital Requirements. Dealer agrees that the Acura
Dealership Operations shall meet American Honda's minimum capital
requirements at all times. The minimum capital requirements shall be
determined by American Honda from time to time and, as of the date hereof,
shall be the amounts specified below:
o American Honda's current minimum working capital
requirement is $228,242 for the Acura dealership at the Dealership Premises.
The Acura dealership entity will be capitalized with not less than $270,482
in effective net worth.
o A wholesale line of credit is to be established and
maintained by Dealer with a financial institution approved by American Honda
for the exclusive purpose of purchasing and maintaining a representative
inventory of new Acura Automobiles. The current minimum amount of such line
is $566,400.
j. Financial Statement Submission. Dealer agrees to continue
to comply with American Honda's dealer financial requirements as specified in
the Dealer Agreement. These specifically provide that Dealer will furnish a
complete, timely and accurate financial statement on a monthly basis,
electronically, on the form required by American Honda.
k. Personnel Minimum Requirements. Dealer agrees to employ
Acura service and parts staff which meets at all times the minimum service
and parts training standards specified by American Honda for its authorized
dealers and whose members are properly licensed.
l. Communications Equipment. Dealer agrees to provide
appropriate data communications equipment, compatible with American Honda's
specifications, which currently must accommodate AcuraLink 2000.
4. No Guarantee of Financial Success. Dealer recognizes and
acknowledges that American Honda's approval of Dealer's application and
Dealership Premises does not in any way constitute a representation,
assurance, or guarantee by American Honda that Dealer w@ill achieve any
particular level of sales, operate at a profit, or realize any return on
Dealer's investment.
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5. Automobile Availability. Dealer recognizes and acknowledges that
American Honda cannot and does not guarantee a specific number of new Acura
Automobiles to be made available for resale by the Dealer. American Honda
assumes no liability in the event of losses incurred during periods of
unavailability, nor does unavailability excuse Dealer's performance.
6. Compliance with and Impact of Applicable Laws. Dealer shall
comply at Dealer's own expense with all applicable state and federal laws
including those pertaining to vehicle dealerships. Dealer shall secure all
licenses and permissions in accordance with such laws and bear all the cost
related thereto.
7. Assumption of Costs. Dealer will complete the above actions
solely at Dealers own expense and without responsibility on the part of
American Honda.
8. Severability. If any provision of this Addendum should be held
invalid or unenforceable for any reason whatsoever, or conflicts with any
applicable law, this Addendum will be considered divisible as to such
provision(s), and such provision(s) will be deemed amended to comply with
such law, or if it (they) cannot be so amended without materially affecting
the tenor of the Dealer Agreement, then it (they) will be deemed deleted from
the Dealer Agreement in such jurisdiction, and in either case, the remainder
of the Dealer Agreement will be valid and binding. Notwithstanding the
foregoing, if, as a result of any provision of the Dealer Agreement
(including this Addendum) being held invalid or unenforceable, American
Honda's ability to control the selection of the Dealer Owner, Executive
Manager, or the Dealer Manager or to otherwise maintain its ability to
exercise reasonable discretion over the selection of the actual individual
who is managing Dealer is materially restricted beyond the terms of the
Dealer Agreement or the Lithia Agreement, American Honda shall be permitted
to invoke the repurchase provisions of Section 9.3 of the Lithia Agreement.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the
date first above written.
LITHIA BB, INC.
BY /s/Sidney B. DeBoer
AMERICAN HONDA MOTOR CO., INC.
BY /s/Richard B. Thomas
Richard B. Thomas, Executive
Vice President
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SCHEDULE A
"Agreement between
American Honda Motor Co., Inc.
and
Lithia Motors, Inc. et al."
dated December 17, 1996
and
"Amendment to Agreement between
American Honda Motor Co., Inc.
and
Lithia Motors, Inc. et al."
dated October 2, 1997
<PAGE>
EX-10
Exhibit 10.5.3 American Honda Standard Provisions
EXHIBIT 10.5.3
HONDA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT
STANDARD PROVISIONS
The following Standard Provisions are, by reference, incorporated in
and made a part of the Honda Automobile Dealer's Sales and Service
Agreement. These Standard Provisions accompany the Honda Dealer's Sales and
Service Agreement which has been executed on behalf of both American Honda
and Dealer.
1. THE OBLIGATIONS OF AMERICAN HONDA
1.1. It is the obligation of American Honda to supply to Dealer,
and to all authorized dealers, Honda Products in a fair and reasonable manner
in order that Dealer may conduct Dealership Operations in a businesslike
manner. In fulfilling this obligation, Honda Products may be supplied either
on the basis of dealer order or on the basis of allocation, depending on
market conditions and availability. There are numerous factors which affect
the availability of Honda Products. Among those factors are component
availability and production capacity, consumer demand, strikes and other
labor troubles, weather and transportation conditions, and government
regulations. Because such factors affect individual dealer supply, American
Honda necessarily reserves discretion in accepting orders and allocating and
distributing Honda Products, and its judgment and decision in such matters
will be final.
1.2. To assist Dealer in the fulfillment of its obligations
under the Agreement, which it has as a retail seller of Honda Products,
American Honda agrees to provide Dealer sales, service and parts support.
1.2.A. To assist Dealer in fulfilling its sales
responsibility, American Honda agrees to offer general and specialized
product information and to provide field sales personnel to advise and
counsel Dealer's sales organization on sales-related subjects such as
merchandising, training and sales management.
1.2.B. To assist Dealer in fulfilling its service and
parts responsibilities, American Honda agrees to offer, or cause to be
offered, general and specialized service and parts training courses. Based
on the service training needs of Dealer's service personnel, to be determined
by American Honda with the assistance of Dealer, Dealer agrees to have
members of Dealer's service organization attend such courses. Further,
American Honda agrees to make available to Dealer field service personnel
capable of advising and counseling Dealer's service personnel on
service-related subjects, including product quality, technical adjustments,
repairs and replacement of product components, recall, product improvement or
product update campaigns which American Honda may conduct, owner complaints,
warranty administration, service and parts merchandising, and training and
service management.
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1.3. To assist Dealer in planning, establishing and maintaining
the Dealership Premises, American Honda will, at its sole option, make
available to Dealer, upon request, sample copies of building layout plans or
facility planning recommendations, including sales, service and parts space
and the placement, installation and maintenance of recommended signs. In
addition, representatives of American Honda will be available to Dealer from
time to time to counsel and advise Dealer and its personnel in connection
with Dealer's planning and equipping the Dealership Premises.
1.4. American Honda agrees to make available to Dealer, at
reasonable cost, such sales, service and parts manuals, brochures, special
service tools and equipment and other data for Honda Products as American
Honda deems necessary for Dealership Operations.
1.5. American Honda agrees to maintain a nationwide system of
authorized dealers of Honda Products. In order that those authorized dealers
may be assured of the benefits of comprehensive advertising of Honda
Products, American Honda agrees to establish and maintain general advertising
programs in such manner and amount as it may deem appropriate and will make
sales promotion and campaign materials available to Dealer.
1.6. American Honda agrees to compensate Dealer for the labor
and parts used by Dealer in performing its obligations under any American
Honda warranty and in connection with any recall, product improvement or
product update campaign which American Honda may undertake and require Dealer
to perform. Such compensation will be in such reasonable amounts, and
pursuant to such requirements and instructions, as American Honda shall
establish from time to time, and such compensation shall constitute full and
complete payment by American Honda to Dealer for such work.
1.7. American Honda agrees to assume the defense of Dealer and
to indemnify Dealer against any money judgment, less any off set recovered by
Dealer, in any lawsuit naming Dealer as a defendant, where such lawsuit
relates to: (a) an alleged breach of any Honda warranty relating to Honda
Products; (b) bodily injury or property damage claimed to have been caused by
a defect in the design, manufacture or assembly of a Honda Product prior to
delivery thereof to Dealer (other than a defect which could have been
detected by Dealer in a reasonable inspection); or (c) a misrepresentation or
misleading statement of American Honda; provided, however, that if any
information discloses the possibility of Dealer error or omission in
servicing or otherwise (including but not limited to Dealer not having
performed all recalls of which Dealer has notice on the Honda Product
involved in the lawsuit if the defect subject to the recall is alleged or
contended to be a contributing cause of the breach of warranty, injury or
damage which is the subject matter of the lawsuit), or should it appear that
the Honda Product involved in such lawsuit had been altered by or for Dealer,
or if Dealer has violated any of the provisions of this Paragraph 1.7, then
Dealer will immediately obtain its own counsel and defend itself, and
American Honda will not be obligated to defend or indemnify Dealer further.
Dealer will promptly notify American Honda of any claim which Dealer will
assert American Honda might be obligated to defend under this Paragraph 1.7.
American Honda will have not less than thirty (30) days to conduct a
reasonable investigation to initially determine whether or not American Honda
is obligated to defend under this Paragraph 1.7. Dealer will take the steps
necessary to protect its own interests involved in the lawsuit until American
Honda assumes the active defense of Dealer. American Honda will, upon
assuming the defense of Dealer, reimburse Dealer for all attorneys' fees or
court costs incurred by Dealer from the date of the tender. American Honda,
upon assuming Dealer's defense, will have the right to retain and direct
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counsel of its own choosing, and Dealer will cooperate in all matters during
the course of defending the lawsuit. If, upon final judgment in a lawsuit,
it is determined that American Honda wrongfully failed or refused to defend
Dealer, American Honda will reimburse Dealer for all costs and attorneys'
fees incurred by Dealer from the date of the tender of defense.
2. SALE OF HONDA PRODUCTS TO DEALER.
2.1. To the extent that Honda Products are the subject of dealer
order, such orders will be submitted and processed in accordance with
procedures established by American Honda. No order will be binding on
American Honda, as evidenced by either the issuance of an invoice or shipment
of the ordered Honda Products, and any such order may be accepted in whole or
in part. All orders by Dealer will be deemed firm orders and binding upon
the Dealer, except that at any time prior to acceptance, an order may be
canceled by Dealer by giving actual notice to American Honda in writing of
the desire by Dealer to cancel such order.
2.2. While it is the intent of American Honda to provide Honda
Automobiles to Dealer in such quantities and types as are ordered by Dealer,
American Honda and Dealer recognize that Honda Automobiles may not always be
available in desired quantities. It is therefore understood and agreed that
American Honda, at its sole election, will have the right to allocate Honda
Automobiles among authorized dealers of Honda Products in a fair and
reasonable manner. American Honda will provide to Dealer an explanation, in
writing, of any allocation system it may adopt.
2.3. American Honda will have the right at anytime and from time
to time to establish and revise prices and other terms, including payment by
Dealer, for its sales of Honda Products to Dealer. Revised prices, terms or
provisions will apply to the sale of any Honda Products as of the effective
date of the revised prices, terms or provisions, even though a different
price or different terms may have been in effect at the time such Honda
Products were allocated to or ordered by Dealer.
2.4. American Honda will have the right to select the
distribution points and the mode of transportation and may pay carriers for
all charges in effecting delivery of Honda Products to Dealer. Dealer agrees
to pay to American Honda such charges for delivery as American Honda may
assess. Subject to the terms of sale which may be established from time to
time by American Honda, risk of loss to Honda Products will pass to Dealer
upon tender of the Honda Products to Dealer or its authorized agent, and
title will pass to Dealer upon receipt by American Honda of payment.
2.5. If Dealer should fail or refuse or for any reason be unable
to accept delivery of any Honda Products ordered by Dealer, or if Dealer
should request diversion of a shipment from American Honda,, Dealer will be
responsible for and pay to American Honda, promptly on demand, all costs and
expenses incurred by American Honda in filling and shipping Dealer's order
and by reason of such diversion, including costs of demurrage and storage,
plus restocking charges as determined by American Honda. American Honda may
direct that such returned Honda Products be delivered to another destination,
but the amount charged Dealer for return to such other destination will not
be greater than the costs and expenses of returning such Honda Products to
their original place of shipment plus any demurrage, storage and restocking
charges.
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2.6. As between American Honda and Dealer, American Honda
assumes responsibility for damage to Honda Products caused prior to delivery
to Dealer or its authorized agent.
2.7. American Honda will not be liable in any manner for delay
or failure in supplying any Honda Products where such delay or failure is the
result of any event beyond the control of American Honda. Such event may
include, but is not limited to, any law or regulation or any acts of God,
foreign or civil wars, riots, interruptions of navigation, shipwrecks, fires,
strikes, lockouts, or other labor troubles, embargoes, blockades, demand for,
or delay or failure of any supplier to deliver or in making delivery, of
Honda Products.
2.8. American Honda reserves the right at any time to change or
modify, without notice, any specification, design or model of Honda
Products. In the event of any change or modification with respect to any
Honda Products, Dealer will not be entitled to have such or similar change or
modification made with respect to any other Honda Products, except as may be
required by applicable law. American Honda may, however, in its sole
discretion, make such changes or modifications to all Honda Products in its
inventory or control, whether or not invoiced to Dealer. No such change will
be considered a model year change unless specified by American Honda
2.9. American Honda may at any time discontinue, without
obligation to Dealer or Dealer's customers, the sale of any Honda Products,
or models or lines thereof or any other items, goods or services. Further,
American Honda will have no obligation, under any circumstances, to accept
orders for any Honda Products which are not in current inventory.
3. THE OBLIGATIONS OF DEALER.
3.1. It is the obligation of Dealer to promote and sell, at
retail, Honda Products, and to promote and render service, whether or not
under warranty, for those products within the Dealer's Primary Market Area.
3.2. Dealer's performance of its sales obligations for Honda
Products will be evaluated by American Honda on the basis of such reasonable
criteria as American Honda may develop from time to time, including, but not
limited to, such reasonable sales objectives as American Honda may establish
and a comparison of Dealer's sales performance with other authorized dealers
of Honda Products.
3.3. To enable Dealer to fulfill its obligations satisfactorily,
Dealer agrees to establish and maintain an adequate and trained sales and
customer relations organization. Dealer further agrees to establish and
maintain a complete service and parts organization, including a qualified
service manager and a qualified parts manager and a number of competent
service and parts personnel adequate to care for the service obligations to
be performed by Dealer under the Agreement.
3.4. Dealer agrees to acknowledge, investigate and resolve
satisfactorily all complaints received from owners of Honda Products in a
businesslike manner in order to secure and maintain the goodwill of the
public. Any complaint received by Dealer which, in the opinion of Dealer,
cannot be readily remedied, shall be promptly reported to American Honda by
Dealer.
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3.5. Dealer agrees that it will not make any misrepresentations
or misleading statements regarding the items making up the total selling
price of Honda Products or as to the prices or charges relating to such item&
With the understanding that Dealer is the sole judge of the price at which it
sells Honda Products, dealer recognizes that a retail customer has the right
to purchase Honda Automobiles without being required to purchase any optional
equipment or accessories which the purchaser does not want or order unless
such equipment or accessories are required under applicable laws or
regulations.
3.6. Dealer agrees to make certain that all Honda Products sold
by it have received predelivery services and inspection in accordance with
applicable procedures and directives issued by American Honda. Dealer
further agrees that all Honda Products sold by it will be in proper operating
condition prior to delivery to any customer. To enable Dealer to fulfill its
obligations in this regard, Dealer agrees that an appropriate number of its
service personnel will be fully qualified to perform all necessary
predelivery service and inspection.
3.7. Dealer agrees to comply with, and operate consistent with,
all applicable provisions of the National Traffic and Motor Vehicle Safety
Act of 1966 and the Federal Clean Air Act, as amended, including such
applicable rules and regulations as may be issued thereunder, and all other
applicable federal, state and local motor vehicle safety and emission control
requirements. In the interests of motor vehicle safety and emission control,
American Honda agrees to provide to Dealer, and Dealer to American Honda,
such information and assistance as may reasonably be requested by the other
in connection with the performance of obligations imposed on either party by
the National Traffic and Motor Vehicle Safety Act of 1966 and the Federal
Clean Air Act, as amended, and the rules and regulations issued thereunder,
and all other applicable federal, state and local motor vehicle safety and
emission control requirements.
3.8. Dealer agrees to conduct a used vehicle operation at or in
connection with the Dealership Premises, to the extent reasonably required to
enhance the opportunity for sales of Honda Automobiles.
3.9. American Honda and Dealer recognize that it may be
necessary for American Honda to formulate new or different policies or
directives to meet new or changing technology, laws or circumstances. In the
operation of Dealers business and in the sale and promotion of Honda
Products, in rendering service and in all other activities of the Dealership
Operations, Dealer will follow all reasonable directives, suggestions and
policies of American Honda. All written directives, suggestions and policies
of American Honda contained in any of its bulletins or manuals, which are in
effect as of the date of the Agreement or are issued thereafter, will be
deemed a part of the Agreement.
3.10. Dealer agrees that it will, at all times, maintain in
effect all licenses required for Dealership Operations and for the Dealership
Premises.
3.11. Dealer agrees that it will comply with all laws, rules,
regulations and guides relating to the conduct of its business.
3.12. Dealer agrees that it will perform any and all warranty,
recall, product improvement or product update service in compliance with
instructions and directives issued by American Honda, regardless of where the
Honda Product involved was purchased. To protect and maintain the goodwill
and reputation of Honda Products and the Honda Trademarks, Dealer agrees that
it will not charge any customer for warranty service or any work done in
connection with such warranty, recall, product improvement or update or any
other service as to which Dealer is reimbursed by American Honda.
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3.13. Dealer fully understands that the success of its Dealership
Operations depends to a great extend upon the amount of net working capital,
owners equity, flooring and lines of credit which Dealer maintains.
Accordingly, for the benefit of both American Honda and Dealer, Dealer agrees
that it will, at all times, pay for Honda Products promptly and, to do so,
maintain its minimum net working capital, owners equity, flooring and lines
of credit in the amounts specified in Paragraph G of the Agreement. American
Honda will have the right, reasonably, to specify an increased amount of
minimum net working capital, owners equity, flooring, or lines of credit to
be used in Dealership Operations and Dealer agrees promptly to establish and
maintain the increased amount. Dealer and American Honda agree to execute
such new documents as American Honda may reasonably require to evidence
revised capital requirements.
3.14. Dealer agrees to assume the defense of American Honda and
to indemnify American Honda against any money judgment less any offset
recovered by American Honda, in any lawsuit naming American Honda as a
defendant where such lawsuit relates to: (a) an alleged failure by Dealer to
comply, in whole or in part, with any obligation assumed by Dealer pursuant
to the Agreement, (b) Dealer's alleged negligent or improper repairing or
servicing of Honda Products, or such other motor vehicles or equipment as may
be sold or serviced by Dealer, (c) Dealer's alleged breach of any contract
between Dealer and Dealer's customer, or (d) Dealer's alleged
misrepresentation or misleading statement, either direct or indirect, to any
customer of Dealer. American Honda may, at its sole option and at its
expense, participate in defending any such lawsuit.
4. WARRANTY.
4.1. Dealer understands and agrees that the only warranties that
will be applicable to Honda Products will be such written warranty or
warranties as may be furnished by American Honda. Except for its express
liability under such written warranties, American Honda neither assumes nor
authorizes any other person or party to assume for it any other obligation or
liability in connection with any Honda Product or component thereof.
4.2. Dealer agrees that it will expressly incorporate any
warranty furnished by American Honda with a Honda Automobile as a part of
each order form or other contract for the sale of such Honda Automobile by
Dealer to any buyer. Dealer further agrees that it will deliver to the buyer
of all Honda Products, at the time of delivery of such Honda Products, copies
of such applicable warranties as may be furnished by American Honda. Dealer
agrees to abide by and implement in all other respects American Honda's
warranty procedures in effect at the time of Dealers sale.
5. ADVERTISING AND PROMOTIONAL PROGRAMS.
5.1. Dealer agrees to develop and actively utilize programs for
the advertisement and promotion of Honda Products and its servicing of such
products. Such programs will include the prominent display and use or
demonstration of Honda Automobiles. Dealer further agrees to cooperate with
all reasonable promotional programs developed by American Honda.
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5.2. Dealer agrees that it will not advertise, promote or trade
in Honda Products or the servicing thereof in such a manner as to injure or
be detrimental to the goodwill and reputation of American Honda and the Honda
Trademarks. Dealer further agrees that it will not publish or otherwise
disseminate any advertisement or announcement or use any form or media of
advertising which is objectionable to American Honda. Dealer agrees to
discontinue immediately any advertisement or form of advertising deemed
objectionable upon request of American Honda.
5.3. Subject to applicable federal, state or local ordinances,
regulations and statutes, Dealer agrees to erect and maintain, at the
Dealership Location, at Dealer's expense, authorized product and service
signs of types required by American Honda, as well as such other authorized
signs as are necessary to advertise the Dealership Operations effectively and
as are required by American Honda.
8. TRADEMARKS AND SERVICE MARKS.
6.1. Dealer agrees that American Honda has the exclusive right
to use and to control the use of the Honda Trademarks and but for the right
and license granted by Paragraph 6.2 hereof to use and display the Honda
Trademarks, Dealer would have no right to use the same.
6.2. Dealer is hereby granted the nonexclusive right and license
to use and display the Honda Trademarks at the Dealership Premises. Such use
or display is limited to that which is necessary in connection with the sale,
offering for sale and servicing of Honda Products at retail at the Dealership
Location. Dealer agrees that it will promptly discontinue the use of any of
the Honda Trademarks or change the manner in which any of the Honda
Trademarks is used when requested to do so by American Honda.
6.3. American Honda and Dealer recognize that Dealer is free to
sell Honda Products to customers wherever they may be located. However, in
order that American Honda may establish and maintain an effective network of
authorized dealers for the sale and service of Honda Products, Dealer
specifically agrees that it will not display Honda Trademarks, or, either
directly or indirectly, establish any place or places of business for the
conduct of any of its Dealership Operations except at the locations and for
the purpose described in Paragraph E of the Agreement without the prior
written approval of American Honda. Dealer further agrees that the rights
and license granted by Paragraph 6.2 hereof will be automatically canceled
upon a change in the location of the Dealership Location unless such change
in location was previously approved in writing by American Honda. Dealer
further agrees that such right and license terminates with the termination of
the Agreement.
6.4. If Dealer refuses or neglects to keep and perform its
obligations assumed under this Article 6 or under paragraph 10.3 hereof,
Dealer will reimburse American Honda for all costs, attorneys' fees and other
expenses incurred by American Honda in connection with any action to require
Dealer to comply therewith.
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7. GENERAL BUSINESS REQUIREMENTS.
7.1. It is to the mutual benefit of Dealer and American Honda
that uniform accounting systems and practices be maintained by authorized
dealers. Accordingly, Dealer agrees to maintain such systems and practices
as are required by American Honda. In the event Dealer engages in the sale
of any other product, Dealer agrees to maintain and keep separate records and
books relating to the sale and servicing of Honda Products.
7.2. Dealer agrees to furnish monthly to American Honda, on or
before the times designated by American Honda, on forms prescribed by
American Honda, a complete and accurate financial and operating statement
covering the preceding month and calendar-year-to-date operations and showing
the true and accurate condition of Dealership Operations. Financial
statements and other business information furnished to American Honda will
not be submitted to any third party unless authorized by Dealer or required
by law, or the information is pertinent to a proceeding in which American
Honda and Dealer are parties.
7.3. Dealer agrees to keep complete and current records
regarding the sale and servicing of Honda Products and to prepare for
American Honda such reports, based on those records, as American Honda may
reasonably request. In order that policies and procedures relating to the
applications for reimbursement for warranty and other applicable work and for
other credits or reimbursements may be applied uniformly to all authorized
dealers, Dealer agrees to prepare, keep current and retain records in support
of requests for reimbursement or credit in accordance with policies and
procedures designated by American Honda.
7.4. Dealer agrees to permit, during reasonable business hours,
American Honda, or its designee, to examine, audit, reproduce and take copies
of all reports, accounts and records pertaining to the sale, servicing and
inventorying of Honda Products, including, but not limited to, records in
support of claims for reimbursement or credit from American Honda, and with
the prior approval of Dealer, which approval will not be unreasonably
withheld, to interview Dealer employees with respect thereto.
7.5. Dealer agrees that Dealership Operations will be conducted
in the normal course of business during and for not less than the days of the
week and hours of the day customary for automobile dealerships in the Primary
Market Area.
7.6. Dealer agrees and understands that any retail price which
may be suggested by American Honda is merely a suggested price, and Dealer
has no obligation to sell any Honda Products at such price. Dealer further
understands and agrees that it is the sole judge of the price at which it
sells Honda Products and the price it charges others for service, subject
only to applicable local, state and federal laws, rules and regulations.
7.7. Dealer understands and agrees that it will be responsible
for and will pay any and all taxes, whether sales, use or excise, and all
other governmental or municipal charges imposed upon the sale of Honda
Products by American Honda to Dealer and will maintain accurate records of
the same, which record's will be available to American Honda, or its
designee, during regular business hours for inspection.
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7.8. Dealer understands and agrees that, while it has
responsibility for the promotion and retail sale and servicing of Honda
Products within the Primary Market Area, it has no territorial exclusivity.
Further, American Honda reserves the right, based upon reasonable criteria,
to appoint other authorized dealers of Honda Products in the Primary Market
Area.
8. APPOINTMENT OF SUCCESSOR AND REPLACEMENT DEALERS.
8.1. The parties recognize that Honda Products are marketed
through a system of authorized dealers developed by American Honda and that
customers and American Honda have a vital interest in the preservation and
efficient operation of the system. American Honda has the responsibility of
continuing to administer the system and of selecting the most suitable dealer
candidate in each circumstance. Accordingly, Dealer agrees that American
Honda has the right to select each successor and replacement dealer and to
approve its owners and principal management and the location of dealership
facilities. Further, Dealer agrees to provide written notice to American
Honda of any potential change in the involvement, ownership or management
specified in Paragraphs C and D of the Agreement. No change affecting such
involvement, ownership or management will be made without the prior written
approval of American Honda, which approval will not be unreasonably withheld.
8.2. Upon Dealer's request, American Honda will execute with
Dealer a Successor Addendum designating proposed Dealer operators or owners
of a successor dealer to be established if the Agreement expires or is
terminated because of death or incapacity. The request must be executed by
all persons identified in Paragraph C of the Agreement and all proposed
dealer operators or owners and be submitted to American Honda prior to such
death or incapacity, provided that such proposed dealer operators or owners
must be acceptable to American Honda.
8.3. Dealer, but not American Honda, may cancel any executed
Successor Addendum. If American Honda notifies Dealer that it does not plan
to permit Dealership Operations to continue at the Dealership Location,
American Honda shall have no obligation to execute a new Successor Addendum.
8.4. If the Agreement expires or is terminated because of death
or incapacity and Dealer and American Honda have not executed a Successor
Addendum, the remaining owners, successors or heirs may propose a successor
dealer entity to continue Dealership Operations at the Dealership Location.
Such proposal must be made within thirty days of the event causing expiration
or termination by submitting a written proposal to American Honda. Such
proposal will be accepted by American Honda if it does not introduce new
owners or if the proposed new owners are acceptable to American Honda.
8.5. Any successor dealer entity approved by American Honda
pursuant to this Article 8 must establish that it can conduct Dealership
Operations in an efficient and businesslike manner. Such successor dealer
entity will have one year to meet reasonable performance criteria established
from time to time by American Honda. In the event such successor dealer
entity fails to meet those criteria, such failure will be separate grounds
for termination of the Agreement.
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9. TERMINATION OF AGREEMENT.
9.1. The Agreement may be terminated, at any time, by mutual
agreement of American Honda and Dealer.
9.2. Dealer may terminate the Agreement, at any time, by giving
American Honda notice of such termination. Such termination shall be
effective upon the date specified by Dealer, or if no date is specified, then
upon receipt by American Honda of such notice.
9.3. American Honda may terminate the Agreement, at any time, by
serving on Dealer a written notice of such termination by certified or
registered mail to Dealer at the Dealership Premises. Subject to other
provisions of the Agreement, termination will be effective ninety (90) days
after mailing of such notice to dealer or such longer period as American
Honda may specify, provided, however, that termination will be effective ten
(10) days after mailing if for an occurrence of any circumstance referred to
in Paragraphs 9.4.A, 9.4.B, 9.4.J or 9.4.M hereof.
9.4. It is recognized that each of the following grounds is
within control of Dealer or originates from action taken by Dealer or its
employee(s) and is contrary to the spirit and objectives of the Agreement.
Therefore, American Honda may terminate the Agreement upon the occurrence of
any of the following:
9.4.A. Failure by Dealer to secure and continuously
maintain any license necessary for the conduct by Dealer of its business
pursuant to the Agreement or the termination or expiration without renewal,
or suspension or revocation of any such license for any reason whatsoever,
whether or not license is reinstated.
9.4.B. Any change, transfer or attempted transfer by
Dealer or any Dealer owner, voluntarily or by operation of law, of the whole
or any part of the Agreement or any interest or legal or beneficial ownership
therein or any right or obligation thereunder, directly or indirectly, such
as, for example only, by way of a sale of an underlying ownership interest in
Dealer or the Dealership Premises or a change in the persons having
control or managerial authority, without prior written consent of American
Honda. Any purported change, transfer or assignment shall be null and void
and not binding on American Honda.
9.4.C. Any dispute, disagreement, controversy or
personal difficulty between or among Dealer Owners or in the management of
Dealer which, in American Honda's opinion, may adversely affect the conduct
of Dealer's business, or the presence in the management of Dealer of any
person who, in American Honda's opinion, does not have or no longer has
requisite qualifications for his position.
9.4.D. Impairment of the reputation or the financial
standing of Dealer or of any Dealer Owner subsequent to the execution of the
Agreement; or the ascertainment by American Honda of any facts existing at or
prior to execution of the Agreement which tend to impair such reputation or
financial standings; or the failure of Dealer continuously to meet American
Honda's minimum requirements of net working capital, owner's equity or
line(s) of credit.
9.4.E. Failure by Dealer to pay, within ten (10) days
after written demand from American Honda, any delinquent accounts or other
monies due to American Honda from Dealer.
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9.4.F. Submission or participation in the submission
to American Honda of any false or fraudulent statement, application, report,
request for issuance of reimbursement, compensation, refund or credit,
including but not limited to any false or fraudulent claim for warranty work,
labor rate, set-up reimbursement or warranty coverage.
9.4.G. Use by Dealer of any deceptive or fraudulent
practice, whether willful, negligent or otherwise, in the sale of any Honda
Product
9.4.H. Any conviction in any court of original
jurisdiction of Dealer or any Dealer Owner or any employee of the Dealership
Operations for any crime or violation of any law if, in the opinion of
American Honda, such conviction or violation may adversely affect the conduct
of the Dealership Operations or tend to be harmful to the goodwill of
American Honda or to the reputation of Honda Products or the Honda
Trademarks, or the violation or refusal or neglect of Dealer to comply with
the provisions of the National Traffic and Motor Vehicle Safety Act of 1966,
as amended, or the Clean Air Act, or any rules, regulations or standards
under either of said Acts, including but not limited to performance of any
product update or recall operation as directed by American Honda.
9.4.l. Dealer's entering into any agreement,
combination, understanding or contract, oral or written, with any other
corporation, person, firm or other legal entity for the purpose of fixing
prices of Honda products or otherwise violating any law.
9.4.J. Dealer's abandonment of Dealership Premises or
failure to maintain Dealership Operations as a going business, open during
customary business hours for the days and hours as are customary for
automobile dealerships in the Primary Market Area, provided such failure is
not due to causes beyond Dealer's control. Failure of the Dealership
Premises to remain open for seven (7) consecutive days will constitute,
without more, such abandonment.
9.4.K Death or incapacity of any Dealer Owner or Dealer
Manager, subject to the provisions of Article S.
9.4.L. Failure of Dealer to make improvements,
alterations or modifications of its Dealership Premises which are required to
meet reasonable facility requirements of American Honda or which Dealer has
agreed or represented to American Honda that Dealer will make or do.
9.4.M. The movement of Dealership Premises to a new
location or the establishment of an additional location for the sale or
service of any Honda Products without the prior written approval of American
Honda.
9.4.N. The failure of Dealer to provide adequate
representation, promotion, sales or service, including warranty work, of any
Honda Products.
9.4.O. Dealer's breach of any provision of the
Agreement or Dealers failure to comply with any contained in the Agreement.
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9.5. The Agreement will also be terminated upon written notice
by American Honda in the event:
9.5.A Of termination of American Honda's distribution
agreement as a Honda Automobile distributor.
9.5.B. Of withdrawal by American Honda from the market
in which Dealer is located.
9.5.C. American Honda will, for any reason,
discontinue the distribution of Honda Automobiles.
9.6. Upon the occurrence of any of the following facts or
circumstances, the Agreement will terminate automatically, without notice or
other action by American Honda or Dealer, and upon such termination, any
dealings between American Honda and dealer will be on a day-to-day basis at
the sole option of American Honda and may be discontinued at any time by
American Honda:
9.6.A Insolvency by any definition of Dealer, or
9.6.B. The existence of facts or circumstances which
would allow the voluntary commencement by Dealer, or the involuntary
commencement against Dealer, of any proceedings under any bankruptcy act or
law or under any state insolvency law, or
9.6.C. The appointment of a receiver or other officer
having similar powers for Dealer or the Dealership Premises; or
9.6.D. Any levy against Dealer under attachment,
garnishment or execution or similar process which is not within ten (10) days
vacated or removed by payment or bonding.
9.7. American Honda may select any applicable provision under
which it elects to terminate the Agreement and give notice thereunder,
notwithstanding the existence of any other grounds for termination or the
failure to refer to such other grounds in the notice of termination. The
failure by American Honda to specify additional ground(s) for cancellation in
its notice will not preclude American Honda from later establishing that
termination is also supported by such additional ground(s).
9.8. The acceptance by American Honda of orders from Dealer or
the continued sale of Honda Products to Dealer or any other act or course of
dealing of American Honda after termination of the Agreement will not be
construed as or deemed to be a renewal of the Agreement for any further term
or a waiver of such termination. Any dealings after termination will be on a
day-to-day basis.
9.9. In all cases, Dealer agrees to conduct itself and
Dealership Operations until the effective date of termination and after
termination or expiration of the Agreement, so as not to injure the
reputation or goodwill of the Honda Trademarks or American Honda.
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10. RIGHTS, OBLIGATIONS AND DEALINGS UPON TERMINATION.
10.1. Upon the mailing of a written notice of termination or
after date of the expiration of the Agreement without renewal, American Honda
will have the right to cancel all pending orders of Dealer for Honda
Products, special tools and equipment, whether previously accepted by
American Honda or not, except as specifically otherwise provided in this
Section 10. Notwithstanding the foregoing, if American Honda chooses to fill
any orders, it will not be obligated to fill any other orders and will not be
precluded from changing the terms of any sale.
10.2. Not later than the effective date of the termination or
expiration of the Agreement, Dealer will cease to hold itself out as being
authorized to sell Honda Products and will discontinue selling Honda Products
or performing service as an authorized dealer.
10.3. In addition to the requirements of Section 10.2, not later
than the effective date of the termination or expiration of the Agreement,
Dealer will, at its sole expense, discontinue any and all uses of any Honda
Trademarks and any words, symbols and marks which are confusingly similar
thereto; will remove all signs bearing any Honda Trademark and will destroy
all stationery, repair orders, advertising and solicitation materials, and
all other printed matter bearing any Honda Trademark or referring directly or
indirectly to American Honda or Honda Products in any way which might make it
appear to members of the public that Dealer is still an authorized dealer.
The foregoing will include, but not be limited to, discontinuing the use of a
Honda Trademark as part of Dealer's business and corporate name. Dealer will
also deliver to American Honda, at American Honda's place of business, or to
a person designated by American Honda, or will destroy the same upon request
by American Honda, any and all technical or service literature, advertising
and other printed material then in Dealer's possession which relates to Honda
Products and which was acquired or obtained by Dealer f rom American Honda.
Dealer will destroy any sign bearing a Honda Trademark which has not been
repurchased by American Honda.
10.4. In the event the Agreement is terminated pursuant to the
provisions of paragraph 9.3 hereof, upon request of American Honda for
copying Dealer's records of predelivery service, warranty service, recall or
update service or other service of Honda Products. In the event the
Agreement is terminated pursuant to the provisions of paragraphs 9.1 or 9.2
hereof, upon the request of American Honda, Dealer will deliver to American
Honda copies of such Dealer records.
10.5. Dealer may, at any time within five (5) days after the
effective date of termination or expiration of the Agreement, notify American
Honda in writing of Dealer's desire to have American Honda repurchase from
Dealer Honda Products in Dealer's inventory which were purchased from
American Honda and which, when American Honda accepts sole possession:
10.5.A. In the case of Honda Automobiles, are new and
of the then current model year, as designated by American Honda, unused,
undamaged and in first-class resalable condition, regardless of whether or
not American Honda has exercised its right of inspection; and
10.5.B. In the case of Honda Parts are new, listed as
current in the Parts Price BooK unused, undamaged, in their original package
and in first-class resalable condition.
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10.6. Upon termination or expiration without renewal, upon
request of Dealer given no later than five (5) days after the effective date
of termination or expiration, American Honda will repurchase all signs which
use a Honda Trademark as were authorized in advance by American Honda and all
service information and materials, special tools and equipment designed
specifically for service of Honda Automobiles and which were purchased from
American Honda and are usable on current Honda Products, provided that such
signs, information, materials, tools and equipment are less than five (5)
years old and are in good working order.
10.7. American Honda will repurchase from Dealer Honda Products
and signs, information, materials, tools and equipment as aforesaid on the
condition that Dealer furnishes an inventory to American Honda within thirty
(30) days after the termination or expiration without renewal of the
Agreement and complies strictly with all procedures and conditions of
repurchase issued by American Honda at the time of repurchase. American
Honda Will have the right and option to assign to another person or entity
the right to purchase such Honda Products.
10.7.A. The price for Honda Products, other than tools,
equipment, information, materials and signs, will be the price at which they
were originally purchased by Dealer from American Honda or the price last
established by American Honda for the sale of identical Honda Products,
whichever may be lower, and in either case will be less all prior refunds and
allowances made by American Honda with respect thereto, if any. The price
for tools, equipment, information, materials and signs will be the price paid
by Dealer reduced by straight-line depreciation on the basis of a useful life
of five (5) years. In all cases, the price will be reduced by any applicable
restocking charge which may be in effect at the time American Honda's receipt
of goods to be repurchased.
10.7.B. Dealer agrees to store Honda Products and other
items which American Honda desires or is obligated to repurchase until
receipt from American Honda of rejection of repurchase or instructions for
shipping and return to American Honda. Dealer agrees to strictly follow and
abide by all instructions for return as may be issued from time to time by
American Honda. All Honda Products will be properly and suitably packaged
and containered for safe transportation to American Honda. All damage,
regardless of nature or cause, will be the responsibility of Dealer until the
Honda Products are inspected and accepted by American Honda for repurchase.
Storage of such Honda Products and other items will be at Dealer's expense
for a period of ninety (90) days after Dealer requests repurchase and
provides an inventory as provided by paragraphs 10.6 and 10.7 hereof.
Thereafter, Dealer will be entitled to charge American Honda a reasonable
storage charge.
10.7.C. American Honda, or its designee, at such
reasonable time and for such a reasonable period of time as American Honda
may determine, will have the right to enter the premises where items for
repurchase are being held for the purpose of checking the inventory submitted
by Dealer or examining, inspecting and inventorying any and all Honda
Products. If American Honda agrees to repurchase and Dealer fails to furnish
an inventory, Dealer will reimburse American Honda for all costs of American
Honda taking an inventory.
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10.7.D. Only those Honda Products meeting the
requirements of Paragraphs 10.5 and 10.6 hereof are or will be eligible for
return to American Honda. American Honda will not be obligated to give
Dealer credit for any Honda Products which do not meet those requirements.
10.7.E. Dealer warrants and represents that all Honda
Products tendered to American Honda for repurchase will be free of all liens,
encumbrances, security interests or attachments at the time repurchase is
requested by Dealer. Clear title will be vested in American Honda upon
receipt of goods. Dealer will execute and deliver any documents necessary to
vest clear title in American Honda, and Dealer will be responsible for
complying with all applicable procedures, including but not limited to those
relating to bulk transfers.
10.7.F. Dealer will pay all freight and insurance
charges from Dealer to the place of delivery designated by American Honda,
provided that Dealer will not be liable for any amount greater than the
freight and insurance charges from Dealer to American Honda's closest
automobile warehouse or parts center as American Honda may designate. Claims
for damage or allegedly caused by any carrier will be the sole responsibility
of Dealer, and in no event will American Honda be obligated to make a claim
against a carrier or be liable to Dealer for damage.
10.7.G. As a condition of repurchase and
notwithstanding any other agreement or offer to repurchase, payment for
repurchase will first be applied against any obligations or money owed by
Dealer to American Honda. All payment due from American Honda to Dealer
pursuant to any provisions of the Agreement or in connection with the
termination of the Agreement or in connection with the termination of the
Agreement will be made by American Honda after receipt of the goods to be
repurchased and after all debits and credits have been ascertained and
applied to Dealer's accounts, and Dealer has delivered to American Honda the
manufacturer's certificate of origin or other document of title for Honda
Automobiles tendered to American Honda for repurchase. In the event it be
found that a balance is due from Dealer to American Honda, Dealer will pay
such sum to American Honda within ten (10) days of written notice of such
balance.
11. GENERAL PROVISIONS.
11.1. Dealer acknowledges that only the President or a designated
Vice President, Secretary or Assistant Secretary of American Honda is
authorized to execute the Agreement, agree to any variation, modification or
amendment of any of the provisions thereof, including authorized location, or
to make commitments for or on behalf of American Honda. No other employee of
American Honda may make any promise or commitment on behalf of American Honda
or in any way bind American Honda. Dealer agrees that it will not rely on
any statements or purported statements except from personnel as authorized
hereinabove.
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11.2. The Agreement contains the entire agreement between Dealer
and American Honda. Dealer acknowledges that no representations or
statements other than those expressly set forth therein were made by American
Honda or any officer, employee, agent or representative thereof, or were
relied upon by Dealer in entering into the Agreement. The Agreement
terminates and supersedes, as of the execution thereof, all prior agreements
relating to Honda Products, if any.
11.3. Dealer hereby waives, abandons and relinquishes any and all
claims of any kind and nature whatsoever arising from or out of or in
connection with any prior agreement entered into between Dealer and American
Honda; provided, however, that nothing herein contained shall be deemed a
release or waiver of any claim arising out of prior sales of Honda Products
by American Honda to Dealer.
11.4. The Agreement is personal to the individuals identified as
principals, owner(s), partners or shareholder(s) in Paragraph C. Neither the
Agreement, nor any part hereof or any interest therein, may be transferred or
assigned by Dealer, in whole or in part, directly or indirectly, voluntarily
or by operation of law, without the prior written approval of American
Honda. Any attempted transfer or assignment will be void and not binding
upon American Honda.
11.5. All notices, notifications or requests under or pursuant to
the provisions of the Agreement will be directed to the address of the
principal places of business of the respective parties to the Agreement. If
either party cannot effect notice at the place of business of the other
because a party has abandoned its place of business or refuses to accept
notice, then, and only in such case, notice may be served on American Honda
through its designated agent for service of process and upon Dealer through
the Department of Motor Vehicles (or its equivalent) in the state where the
Dealership Location is authorized by American Honda.
11.6. The waiver by either party of any breach or violation of or
default under any provision of the Agreement will not be a waiver by such
party of any other provision or of any subsequent breach or violation thereof
or default thereunder. The failure or delay of either party to take prompt
action upon any breach or violation of the Agreement will not be deemed a
waiver of the right to take action for such breach, default or violation at
any time in the future.
11.7. Dealer agrees to keep confidential and not disclose,
directly or indirectly, any information which American Honda designates as
confidential.
11.8. The Agreement is and shall be deemed to have been entered
into in California and shall be governed by and construed in accordance with
the laws of the State of California.
11.9. If any provision of this Agreement should be held invalid
or unenforceable for any reason whatsoever or to conflict with any applicable
law, the Agreement will be considered divisible as to such provisions, and
such provisions will be deemed amended to comply with such law, or if it
cannot be so amended without materially altering the tenor of the Agreement,
then it will be deemed deleted from the Agreement in such jurisdiction, and
in either case, the remainder of the Agreement will be valid and binding.
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11.10. The terms of the Agreement may not be modified except
in writing signed by an authorized officer of the parties. Without limiting
the generality of the foregoing, no course of dealing will serve to modify or
alter the terms of the Agreement.
11.11. Dealer is an independent business. The Agreement
does not constitute Dealer the agent or legal representative of American
Honda for any purpose whatsoever. Dealer is not granted any expressed or
implied right or authority to assume or create any obligation on behalf of or
in the name of American Honda or to bind American Honda in any manner or
thing whatsoever. Dealer has paid no consideration for the Agreement.
Neither the Agreement nor any right granted under it is a property right.
11.12. The expiration or termination of the Agreement will
not extinguish any claims American Honda may have for the collection of money
or the enforcement of any obligations which may be in the nature of
continuing obligations.
12. DEFINITIONS.
12.1. American Honda means American Honda Motor Co., Inc. a
California corporation, and the Honda Automobile Division that markets Honda
Automobiles.
12.2. Dealer means the person, firm, corporation, partnership or
other legal entity that signs the Agreement and each of the persons
identified in Paragraph C.
12.3. Dealer Manager means the principal manager of Dealer
identified in Paragraph D upon whose personal service American Honda relies
in entering into the Agreement.
12.4. Dealer Owner means the owner(s) of Dealer identified in
Paragraph C upon whose personal service American Honda relies in entering
into the Agreement.
12.5. Dealership Location means the location approved by American
Honda for the purpose of conducting Dealership Operations.
12.6. Dealership Operations means all operations contemplated by
the Agreement. These operations include the sale and service of Honda
Products, and any other activities undertaken by Dealer related to Honda
Products, including rental and leasing operations, used car sales and body
shop operations, and finance and insurance operations, whether conducted
directly or indirectly by Dealer.
12.7. Dealership Premises means the facilities provided by Dealer
at its Dealership Location for the conduct of Dealership Operations as
approved by American Honda.
12.8. Honda Automobiles means such new passenger cars as are from
time to time offered for sale by American Honda to Dealer for resale as part
of the Honda automobile line as defined by American Honda.
12.9. Honda Parts means parts, accessories and optional equipment
marketed by American Honda for use with Honda Automobiles.
12.10. Honda Products means Honda Automobiles and Honda
Parts.
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12.11. Honda Trademarks means the various trademarks,
service marks, names and designs which American Honda uses or is authorized
to use in connection with Honda Products or services relating thereto.
12.12. Primary Market Area means the geographical area
designated for Dealer by American Honda from time to time.
12.13. The Agreement means the Honda Automobile Dealer's
Sales and Service Agreement and these Standard Provisions which are
incorporated therein by reference.
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EX-10
Exhibit 10.5.4 Agmt Btwn Amer Honda & Lithia
EXHIBIT 10.5.4
AGREEMENT BETWEEN
AMERICAN HONDA MOTOR COMPANY, INC.
AND
LITHIA MOTORS, INC. ET AL.
This Agreement, effective as of December 17, 1996, is entered into
between Lithia Motors, Inc., an Oregon corporation, with its principal place
of business at 360 East Jackson, Medford, Oregon 97501 ("Lithia Motors"),
Lithia HPI, Inc., an Oregon corporation, with its principal place of business
at 700 North Central, Medford, Oregon 97501 ("BPI"), Lithia HS, Inc., a
California corporation, intending to establish a place of business at 333
North Main Street, Salinas, California 93901 ("HS"), Lithia Holding, LLC, an
Oregon limited liability company, with its principal place of business at 360
East Jackson, Medford, Oregon 97501 ("Holding"), Sidney B. DeBoer, an
individual residing at 234 Vista, Ashland, Oregon 97520 ("DeBoer"), M.L. Dick
Heimann, an individual residing at 426 Roundelay, Medford, Oregon 97504
("Heimann"), and R. Bradford Gray, an individual residing at 6764 Laurel
Crest Drive, Medford, Oregon 97504 ("Gray") (the above-listed parties being
referred to collectively as the "Lithia Parties"), and American Honda Motor
Co., Inc. ("AHM"), a California corporation, with its principal place of
business at 1919 Torrance Boulevard, Torrance, California 90501.
WHEREAS, Lithia Motors currently owns and operates an authorized Honda
automobile dealership in Medford, Oregon and intends to acquire an authorized
Honda automobile dealership in Salinas, California; and
WHEREAS, Lithia Motors wants to issue stock in a public offering of
securities anticipated to be traded on the NASDAQ National Market; and
WHEREAS, AHM has formulated the American Honda Motor Co., Inc. Policy
on the Public Ownership of Honda and Acura Dealerships (the "Policy"), a copy
of which was forwarded to and subsequently reviewed by DeBoer and Heimann in
1996; and
WHEREAS, in order for Lithia Motors to make the aforementioned public
offering and, at the same time, adhere to the Policy, Lithia Motors desires
to transfer at least 53.585% of its common stock to Holding, offer no more
than 46.415% of its common stock to the public, transfer its Medford, Oregon
Honda dealership to HPI (which will at all times remain a wholly-owned
subsidiary of Lithia Motors), acquire and transfer the Salinas, California
Honda dealership to HS (which will at all times remain a wholly-owned
subsidiary of Lithia Motors), all of the foregoing subject to the
restrictions set forth in this Agreement and the Schedules hereto; and
WHEREAS, AHM is willing to permit Lithia Motors (as an entity of which
a minority portion is publicly owned and of which the majority portion is
owned by persons approved by to own Honda and Acura dealerships, provided
that Lithia adheres to the Policy and the terms and conditions set forth in
this Agreement; and
WHEREAS, the Lithia Parties are willing to adhere to the Policy and the
terms set forth herein;
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NOW THEREFORE, in consideration of the mutual covenants set forth
herein and other good and valuable consideration the sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. STRUCTURE OF RELATIONSHIP
1.1 Dealerships Are Separate Legal Entities. Lithia Motors
shall establish and maintain a separate legal entity to own each Honda and
Acura dealership which it owns or controls, directly or through an Affiliate,
shall obtain a separate motor vehicle license for each dealership, and shall
maintain separate financial statements for each such dealership. Consistent
with AHM policy, the name "Honda" or "Acura," as applicable, shall appear in
the d/b/a of each dealership. The Honda dealership(s) currently owned by
Lithia Motors or approved by AHM for acquisition by Lithia Motors are listed
in Schedule A, appended hereto. As used herein, "Affiliate" of, or a person
or entity "affiliated" with, a specified person or entity, means a person or
entity that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the person or
entity specified. For the purpose of this definition, the term "control"
(including the terms "controlling," "controlled by" and "under common control
with") means the possession, directly or indirectly, or the power to direct
or cause the direction of or influence the management and policies of a
person or entity, whether through the ownership of securities, by contract or
otherwise.
1.2 Agreement to Automobile Dealer Sales and Service
Agreement. Lithia Motors and, to the extent applicable, the other Lithia
Parties hereby agree to be bound by the terms of Honda Automobile Dealer
Sales and Service Agreement(s) and Acura Automobile Dealer Sales and Service
Agreement(s) including any addenda thereto (the "Dealer Agreements"), copies
of which are appended hereto as Schedule B. The Lithia Parties further agree
that each individual Honda and Acura dealership that Lithia Motors owns, in
whole or in part, shall execute and be bound by the applicable Dealer
Agreement.
1.3 Adherence to the Policy. Each of the Lithia Parties hereby
agree to be bound by the terms of the Policy, a copy of which is appended
hereto as Schedule C.
1.4 Transfer of Ownership of Honda Dealerships upon Occurrence
of the Initial Public Offering. Each of the Lithia Parties understands and
agrees that the public offering (the "Offering") of certain shares of the
capital stock of Lithia Motors (all such stock being referred to herein as
the "Lithia Stock") will constitute a change of ownership of the Honda
dealerships that, pursuant to the Dealer Agreement, requires AHM's prior
written approval. Provided that the representations and warranties in this
Section are accurate and that each of the Lithia Parties adhere to the terms
and conditions of this Agreement, the Policy, and the applicable Dealer
Agreements, AHM hereby agrees to the transfer of Lithia Stock pursuant to the
Offering as described herein. Each of the Lithia Parties hereby represent
and wan-ant that AHM has been provided with all documentation pertaining to
the public offering of Lithia: Stock, including but not limited to all
filings with the SEC and other federal and state regulatory agencies
(including, but not limited to, quarterly and annual financial statement
filings, prospectuses and other materials related to Lithia Motors), all
agreements between or among any of the Lithia Parties and financial
institutions and underwriters, all agreements between or among any of the
Lithia Parties, and all agreements between or among any of the Lithia
Parties, on the one hand, and other shareholders of Lithia Motors, on the
other hand. One copy of this documentation has been filed with AHM and
labeled Schedule X. Notwithstanding any statements in any of the
documentation provided by the Lithia Parties to AHM to the contrary
(including but not limited to any statements in prospectuses), the Lithia
Parties hereby further represent, warrant and covenant as follows:
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1.4.1 At least 53.585% of the Lithia Stock shall be
transferred to Holding, shall be denominated Class B Common Stock, and shall
be restricted as more fully described in Section 1.5 below.
1.4.2 The Lithia Stock offered in the Offering is referred
to as Class A Common Stock. The percentage of Class A Common Stock and any
other Lithia Stock not subject to the restrictions set forth in Section 1.5
below, whether pursuant to a future offering, conversion of Class B Common
Stock or creation of new classes of voting stock, may not exceed 46.415% of
the Lithia Stock.
1.4.3 At no time will owners of Lithia Class B Common Stock
have less than 92% of the total aggregate voting power of Lithia Motors.
1.4.4 At no time will the owners of Lithia Stock that is
not subject to the restrictions set forth in Section 1.5 below (including but
not limited to Class A Common Stock) have more than 8% of the total aggregate
voting power of Lithia Motors.
1.4.5 Schedule D, appended hereto, is an accurate list of
(1) all individuals and entities that own Lithia Stock as of the date hereof,
the number of shares held by each, and the percentage ownership of Lithia
Motors held by each and (2) all individuals and entities that will own any
interest in Holding after completion of the transfer described in this
Agreement and the percentage of ownership interest in Holding that will be
held by each.
1.5 Restrictions on Transfer of Class B Common Stock by
Stockholders. Each of the Lithia Parties hereby agree that the holders of
Lithia Class B Common Stock (the "Class B Stockholders") shall not, at any
time, without the prior written approval of AHM sell, offer or in any manner
encumber any Class B Common Stock or enter into any agreement providing for
the voting of Class B Common Stock as directed by any person or entity, or in
a I specified manner or pursuant to a specified procedure or grant any voting
proxy or otherwise enter into any arrangement the purpose or effect of which
is to vest in any other person or entity the voting rights of any Class B
Common Stock. AHM will not approve any transfers of Class B Common Stock
that it reasonably deems detrimental to AHM's interests as provided in
Section 1.8 below, and any approved offer may only be made on the condition
that the transferee agrees in writing to be bound by the terms of this
Agreement to the same extent as if it had executed this Agreement as a Class
B Stockholder. Each certificate representing Class B Common Stock held by a
Stockholder or any securities issued in respect of such Class B Common Stock
shall be stamped or otherwise imprinted with a legend substantially in the
following form:
The shares represented by this certificate are
subject to restrictions on transfer set forth in an
Agreement between American Honda Motor Company, Inc.
and the Corporation effective as of December 17,
1996, as amended, a copy of which will be furnished
by the Corporation without charge upon written
request.
Without limiting the generality of the foregoing restrictions, the
Lithia Parties specifically agree that transfers of shares of Class B Common
Stock are subject to AHM's prior written approval even if transfer is
permitted pursuant to Lithia Motors Articles of Incorporation or by an act of
the board of directors or the shareholders or by any other means. In the
event that any Class B Common Stock is transferred without the prior written
approval of AHM, including, but not limited to, transfer by operation of law
(e.g., upon the death of a Class B Stockholder to an heir), Lithia Motors
shall inform AHM of such transfer and either (a) request approval of such
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offer, (b) reacquire the shares or (c) arrange for the retransfer of the
shares to a previously approved Class B Stockholder. In the event that
Lithia Motors selects (a) above and AHM refuses to approve the transfer, then
Lithia Motors must make its best efforts to effectuate (b) or (c). If AHM
refuses to approve the transfer and Lithia Motors cannot effectuate (b) or
(c), then AHM may invoke the purchase procedures set forth in Section 9.3, as
though Lithia Motors had breached this Agreement.
1.6 Restrictions on Transfer of the Ownership Interests in
Holding. Each of the Lithia Parties hereby agree that the holders of any
ownership interest in Holding (a "Holding Interest") shall not, at any time,
without the prior written approval of AHM sell, transfer or in any manner
encumber any Holding Interest or enter into any agreement providing for the
voting or control of any Holding Interest as directed by any person or
entity, or in a specified mariner or pursuant to a specified procedure or
grant any voting proxy or otherwise enter into any arrangement the purpose or
effect of which is to vest in any other person or entity the voting rights of
any Holding Interest. AHM will not approve any transfers of any Holding
Interest that it reasonably deems detrimental to AHM's interests as provided
in Section 1.8 below, and any approved transfer may only be made on the
condition that the transferee agrees in writing to be bound by the terms of
this Agreement to the same extent as if it had executed this Agreement as an
owner of the Holding Interest on the effective date hereof. Each certificate
representing any Holding Interest, if any, or any securities issued in
respect of such Holding Interest shall be stamped or otherwise imprinted with
a legend substantially in the following form:
The shares represented by this certificate are
subject to restrictions on transfer set forth in an
Agreement between American Honda Motor Company, Inc.
and the Corporation effective as of December 17,
1996, as amended, a copy of which will be furnished
by the Corporation without charge upon written
request.
Without limiting the generality of the foregoing restrictions, the
Lithia Parties specifically agree that transfers of Holding Interests are
subject to AHM's prior written approval even if transfer is permitted
pursuant to Holding's Articles of Organization or by an act of owners of
Holding or by any other means. In the event that any Holding Interest is
transferred without the prior written approval of AHM, including, but not
limited to, transfer by operation of law (e.g., upon the death of an owner of
a Holding Interest to an heir), Holding shall inform AHM of such transfer and
either (a) request approval of such transfer, (b) reacquire the Holding
Interest or (c) arrange for the retransfer of the Holding Interest to a
previously approved owner of a Holding Interest. In the event that Holding
selects (a) above and AHM refuses to approve the transfer, then Holding must
make its best efforts to effectuate (b) or (c). If AHM refuses to approve
the transfer and Holding cannot effectuate (b) or (c), then AHM may invoke
the purchase procedures set forth in Section 9.3, as though Lithia Motors had
breached this Agreement.
1.7 Identification of Owners of Lithia Motors. Schedule E,
appended hereto, includes accurate documentation and information pertaining
to each individual or entity that owns or controls 5% or more of the Lithia
Stock, whether such stock is freely tradeable or restricted. In the event of
any change of ownership that results in an individual or entity not listed on
Schedule E obtaining ownership or control of 5% or more of Lithia Stock,
Lithia Motors shall provide AHM with the documentation and information
required by Schedule E with respect to such person or entity to the extent it
is publicly available. Lithia Motors will provide AHM with copies of all
filings made with the SEC and comparable filings made with state agencies by
persons or entities that own more than 5% of Lithia Motors and/or any of its
Affiliates. Without limiting the foregoing, Lithia Motors will use its best
efforts to provide such information regarding such stockholders as AHM may
from time to time request.
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1.8 Right of AHM to Disapprove Acquisitions of Lithia Stock.
Without limiting the restrictions set forth in Sections 1.5 and 1.6 above,
AHM shall have the irrevocable right to disapprove of the acquisition of more
than 5% of Lithia Stock by any individual or entity if such acquisition is
reasonably deemed detrimental to AHM's interests. Without limiting the
foregoing, the parties agree that such acquisition or attempted acquisition
may reasonably be deemed to be detrimental to AHM's interests if the
acquiring individual or entity (a) competes with American Honda or its
parent, subsidiaries or Affiliates in manufacturing, marketing, or selling
automotive products or services or is owned or controlled by or has a
substantial economic interest in an entity that competes with AHM or its
parent, subsidiaries or Affiliates in manufacturing, marketing, or selling
automotive products or services (not including an interest in a dealership
selling products manufactured by a competing automobile manufacturer); (b)
has c affiliations or a criminal record; (c) has inadequate experience in the
automotive sales and service business; (d) has less than an excellent credit
rating or credit history; (e) has demonstrated unacceptable customer
satisfaction index performance; or (f) has had a prior relationship with AHM
which AHM deems to have been unsatisfactory. Unless AHM objects in writing
to such acquisition within 180 days of receiving completed documentation and
information from Lithia Motors pertaining thereto, AHM shall be deemed to
have approved such acquisition. In the event AHM disapproves of such
acquisition, Lithia Motors and its then current shareholders shall make their
best efforts to prevent such acquisition or, if it has already taken place,
to reacquire the shares so transferred. In the event that Lithia Motors is
unable to prevent such acquisition or reacquire the shares, AHM may invoke
the purchase provisions of Section 9.3 hereof.
1.9 Designation of Lithia Motors' Executive Manager. Lithia
Motors shall designate DeBoer as its Executive Manager. The Executive
Manager shall have operational control of Lithia Motors and shall have final
authority to decide any dealership matters not within the authority of the
Dealer Manager. Lithia Motors agrees not to change its Executive Manager
without the prior written approval of AHM, which approval shall not be
unreasonably withheld.
1.10 No Further Public Offerings of Stock Without AHM's Prior
Written Approval. Lithia Motors shall not make any further public offerings
of Lithia Stock without AHM's prior written approval. Lithia shall submit
any proposals to make other public offerings of Lithia Stock to AHM in the
manner set forth in the Policy and AHM shall evaluate such proposal in
accordance therewith. The Lithia Parties understand and agree that AHM will
not approve of any public offering of Lithia Stock that increases the number
of shares of freely tradeable, unrestricted shares to fifty percent or more
of the total shares of Lithia Stock then outstanding.
1.11 No Public Ownership of Individual Dealerships. No Honda
and/or Acura dealership(s) that Lithia Motors owns or acquires shall be held
or owned by an entity required to file reports under Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934.
1.12 Change of Control of Lithia Motors. The Lithia Parties
acknowledge and agree that AHM has the right to ensure that its dealerships
remain under the control of persons and/or entities with a full-time
commitment to the sales and service of Honda Products or Acura Products (as
the case may be). The Lithia Parties recognize the legitimacy of AHM's
concern (as more fully set forth in the Policy) that public ownership of
dealerships, if unrestricted, could lead to the loss of AHM's control over
the selection of the individuals who sell and service AHM's products.
Therefore, in the event that a controlling interest in Lithia Motors,
Holding, HS, BPI, or any of their Affiliates that own Honda or Acura dealers
is acquired or threatened to be acquired by an individual or entity not
specifically approved by AHM, the Lithia Parties agree that AHM may exercise
the right of purchase set forth in Section 9.3. As used herein, "controlling
interest" means (a) ownership or practical control of shares of Lithia Motors
or its Affiliates sufficient to appoint or control either the management or
the board of directors thereof or (b) the practical ability to make the
day-to-day and/or policy decisions of a Honda or Acura dealership.
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2. FUTURE ACQUISITIONS BY THE LITHIA PARTIES OF HONDA AND ACURA
DEALERSHIPS.
2.1 Right of Approval by AHM. The Lithia Parties agree that
neither any of them or any of their Affiliates (as defined above) shall
acquire any interest in any Honda or Acura dealership not listed on Schedule
A without AHM's prior written approval. Approval shall be at AHM's sole
discretion and will be evaluated in light of the then-current Policy and
AHM's then current business interests. Without limiting the foregoing, in no
event will AHM approve any such acquisition unless all Honda and Acura
dealerships owned or controlled by any of the Lithia Parties and/or their
Affiliates are (a) in full compliance with all of the terms of the respective
Dealer Agreement(s) and this Agreement; and (b), meet all of the applicable
Honda or Acura policies and performance expectations.
2.2 Ownership of Contiguous Dealerships. Lithia Motors and/or
its Affiliates shall not own contiguous Honda dealerships or contiguous Acura
dealerships.
2.3 Ownership of Multiple Dealerships. The Lithia Parties
cumulatively or individually shall not own or control, directly or through an
Affiliate, Honda or Acura dealerships in excess of the numbers set forth
below:
2.3.1 Honda. The Lithia Parties shall not hold an
ownership interest, directly or through an Affiliate, in a multiple number of
Honda dealerships as provided below: (a) in a "Metro" market (a "Metro"
market is a metropolitan market area represented by two or more Honda dealer
points) with two (2) to ten (10) Honda dealership points (inclusive), no
Dealer Owner may own, operate or a have a dealer interest in more than one
(1) Honda dealership; (b) in a Metro market with eleven (11) to twenty (20)
Honda dealership points (inclusive), no Dealer Owner may own, operate or have
an interest in more than two (2) Honda dealerships; (c) in a Metro market
with twenty-one (21) or more Honda dealership points (inclusive), no Dealer
Owner may own, operate or have an interest in more than three (3) Honda
dealerships; (d) 4% of the Honda dealerships in any one of the ten Honda
Zones; and (e) seven (7) Honda dealerships nationally.
2.3.2 Acura. The Lithia Parties shall not hold an
ownership interest, directly or through an Affiliate, in more than: (a) one
(1) Acura dealership in a Metro market (as used herein, "Metro market" is a
Metropolitan market area represented by two or more Acura dealer points); (b)
two (2) Acura dealerships in any one of the six Acura Zones; and (c) three
(3) Acura dealerships nationally.
2.4 Proposed Acquisition in Excess of Limits. If the purchase
of any Honda or Acura dealership would result in exceeding the limits set
forth in this Section 2, AHM will reject the application for approval of the
ownership transfer until such time as the applicable Lithia Party shall
divest itself of the appropriate number of dealerships to bring it into
compliance with the requirements of this Agreement at which time AHM will
reconsider the proposal in light of the Policy. In case of such divestiture,
AHM may invoke the right of first refusal/purchase option provisions of
Section 8.2 hereof.
3. SEPARATE, FREESTANDING, EXCLUSIVE DEALERSHIPS
3.1 Maintenance of Exclusive Dealership Premises. Each Honda
or Acura dealership owned by Lithia Motors or its Affiliates shall be
maintained as separate, freestanding Dealership Operations that completely
and timely comply with facility design and image enhancements to AHM's brand
image, functionality and capacity standards and guidelines, which standards
and guidelines AHM may reasonably modify from time to time, and shall
exclusively offer a full range of Honda Products and services or Acura
Products and services and shall not offer competing products or services from
its Dealership Premises. Lithia BPI, Inc.'s currently nonexclusive Honda
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Dealership Operations in Medford, Oregon, will by no later am December 3 1,
1997, be conducting all business in a separate, freestanding, exclusive new
facility built and maintained in full compliance and conformity with Honda's
designs and specifications, including Honda's minimum land and building
requirements, as detailed within the Honda Image Program. Such new,
exclusive Honda dealership facility will be located on a site acceptable to
AHM. By no later than December 31, 1997, the aforementioned Honda Dealership
Operations in Medford will also be under, and will continuously remain under,
a separate corporation formed exclusively for said dealership.
3.2 Full Line of Products and Services. Lithia Motors shall
make available to the customers at each of its Honda dealerships all Honda
Products and services, including, but not limited to, vehicles, Genuine Parts
and Accessories, American Honda Finance Corporation retail financing services
(whether for purchases or leases), Honda Vehicle Service Contracts, and Honda
Certified Used Car Program. Lithia Motors shall make available to the
customers at any Acura dealership which it acquires all Acura Products and
services, including vehicles, Genuine Parts and Accessories, American Honda
Finance Corporation retail financing services (whether for purchases or
leases), Acura Vehicle Service Contracts, and Acura Preferred Pre-Owned
Program.
3.3 Treatment as Independent Dealers. For allocation and other
purposes, transfer of Honda or Acura Automobiles from one dealership to
another dealership owned by the same entity will be treated the same as a
transfer between separately-owned dealers.
3.4 Independent Reporting Requirements. Each Honda and Acura
dealership that Lithia Motors owns or acquires shall have the same reporting
requirements as all other Honda and Acura dealerships, including fully
audited dealership-specific financial information. Each individual
dealership must meet the capitalization requirements and other requirements
set forth in its individual Dealer Agreement including any addenda thereto.
The corporate by-laws of the individual corporation that actually owns the
Honda or Acura dealership must restrict it from engaging in any activity
other than the ownership and maintenance of a Honda or Acura dealership, as
the case may be.
4. DEALER MANAGERS
4.1 Approval by AHM. Each Honda and Acura dealership owned or
controlled by Lithia Motors shall have a qualified Dealer Manager, approved
by AHM (subject to the exception noted in Section 4.2 below). Each Dealer
Manager shall work at the Honda or Acura Dealership Premises, shall devote
all efforts to the management of the dealership and shall have no other
significant business interests or management responsibilities.
4.2 Trial Period. Whenever Lithia Motors nominates a new
Dealer Manager candidate for a Honda or Acura dealership, AHM shall have the
right to withhold a decision concerning approval or rejection of the
candidate for a trial period of up to one year, at its sole discretion;
provided, however, that the candidate may operate in the capacity of Dealer
Manager until AHM has approved or rejected the candidate.
4.3 Authority of Dealer Manager. Lithia Motors shall advise
AHM in writing of the limitations, by category and, where applicable, by
specific action, on the authority of the Dealer Manager regarding the
operation of the dealership. Without limiting the foregoing, the Dealer
Manager must have the authority to run the day-to-day operations of the
dealership and the capacity to enter into substantial transactions (e.g., the
placement of orders for Honda or Acura Automobiles and Genuine Parts and
Accessories) on behalf of the dealership.
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5. REPRESENTATION ON HONDA AND ACURA DEALER ORGANIZATIONS
No more than one representative each from the Honda, and
separately, Acura dealerships owned, directly or through an Affiliate, by any
of the Lithia Parties, may serve on the Honda National Dealer Advisory Board,
the Acura National Dealer Council or any future Honda or Acura national
board(s) which may be established, and no more than one representative each
may serve on either a Honda or Acura Zone Advisory Board/Council, or Honda
Advertising Triad or Acura advertising council (should one be established in
the future). Such representative must be involved on a full-time basis in
the day-to-day operation of the dealership which it is appointed to represent
and must otherwise comply with the bylaws of the applicable organization.
6. DEALERSHIP TRAINING PERSONNEL
No Lithia Party shall substitute training courses of its own for
those provided or sponsored by AHM without the prior written approval of AHM,
which approval shall be in AHM's sole discretion. In no event will AHM
approve training courses unless the trainers are certified pursuant to
Honda's or Acura's certification programs, as applicable.
7. PROSPECTUS DISCLAIMER AND INDEMNIFICATION AND HOLD HARMLESS AGREEMENT
Lithia Motors shall place in its registration statement and its
prospectus, as well as in any other document offering Lithia Stock to public
or private investors, the following disclaimer:
No Manufacturer (as defined in this Prospectus) has
been involved, directly or indirectly, in the
preparation of this Prospectus or in the offering
being made hereby. No Manufacturer has made any
statements or representations in connection with the
offering or has provided any information or materials
that were used in connection with the Offering, and
no Manufacturer has any responsibility for the
accuracy or completeness of this Prospectus.
The Lithia Parties shall, jointly and severally, indemnity and hold
harmless AHM pursuant to the terms of the Indemnification Agreement set forth
in Schedule F to this Agreement.
8. TRANSFER OF DEALERSHIPS BY LITHIA MOTORS
8.1 Sale of Ownership Interest in Dealership. This is a
personal services Agreement based upon personal skills, service,
qualifications and commitment of Lithia Motors, its Executive Manager, and
its Dealer Managers. For this reason, and because AHM has entered into this
Agreement in reliance upon Lithia Motors's, its Executive Manager's, and its
Dealer Managers' qualifications, without limiting any of the other
restrictions on transfer of ownership set forth in this Agreement, Lithia
Motors agrees to obtain AHM's prior written approval of any proposed transfer
of control or of any ownership interest in a Honda or Acura dealership owned
by Lithia Motors.
Without limiting the foregoing, in the event of such proposed
transfer, AHM shall not be obligated to renew the applicable Dealer Agreement
or to execute a new Dealer Agreement with Lithia Motors or the proposed
transferee unless (a) Lithia Motors first makes arrangements acceptable to
AHM to satisfy any outstanding indebtedness to AHM; (b) the proposed transfer
conforms to this Agreement and the Policy; and (c) the transferee agrees to
the terms and conditions of this Agreement and the Policy.
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8.2 Right of First Refusal or Option to Purchase
8.2.1 Rights. If a proposal to sell a dealership's assets
or transfer its ownership is submitted by Lithia Motors to AHM, AHM has a
right of first refusal or option to purchase the dealership assets or stock,
including any leasehold interest or realty. AHM's exercise of its right or
option under this Section supersedes Lithia Motors's right to transfer its
interest in, or ownership of, the dealership. AHM's right or option may be
assigned by it to any third party and AHM hereby guarantees the full payment
to Lithia Motors of the purchase price by such assignee. AHM may disclose
the terms of any pending ownership transfer agreement and any other relevant
dealership performance information to any potential assignee. AHM's rights
under this Section will be binding on and enforceable against any assignee or
successor in interest of Lithia Motors or purchaser of Lithia Motors's assets.
8.2.2 Exercise of AHM's. AHM shall have 180 days from
AHM's receipt of all completed documentation and information customarily
required by it to evaluate a proposed transfer of ownership in which to
exercise its option to purchase or right of first refusal. AHM's exercise of
its right of first refusal under this Section neither shall be dependent upon
nor require its prior refusal to approve the proposed transfer.
8.2.3 Right of First Refusal. If Lithia Motors has entered
into a bona fide written ownership transfer agreement for its dealership
business or assets, AHM's right under this Section is a right of first
refusal, enabling AHM to assume the buyer's rights and obligations under such
ownership transfer agreement, and to cancel this Agreement and all rights
granted Lithia Motors. Upon AHM's request, Lithia Motors agrees to provide
other documents relating to the proposed transfer and any other information
which AHM deems appropriate, including, but not limited to, those reflecting
other agreements or understandings between the parties to the ownership
transfer agreement. Refusal to provide such documentation or to state that
no such documents exist shall create the presumption that the ownership
transfer agreement is not a bona fide agreement.
8.2.4 Option to Purchase. If Lithia Motors submits a
proposal which AHM determines is not bona fide or in good faith, AHM has the
option to purchase the principal assets of Lithia Motors utilizing the
dealership business, including real estate and leasehold interest, and to
cancel this Agreement and the rights granted Lithia Motors. The purchase
price of the dealership assets will be determined by good faith negotiations
between the parties. If an agreement cannot be reached, the purchase price
will be exclusively determined as set forth in Section 9.3 of this Agreement.
8.2.5 Lithia Motors's Obligations. Upon AHM's exercise of
its right or option and tender of performance under the ownership transfer
agreement or upon whatever terms may be expressed in the ownership transfer
agreement, Lithia Motors shall forthwith transfer the affected real property
by warranty deed conveying marketable title free and clear of all liens,
claims, mortgages, encumbrances, tenancies and occupancies. The warranty
deed shall be in proper form for recording, and Lithia Motors shall deliver
complete possession of the property and deed at the time of closing. Lithia
Motors shall also furnish to AHM all copies of any easements, licenses or
other documents affecting the property or dealership operations and shall
assign any permits or licenses that are necessary or desirable for the use of
or appurtenant to the property or the conduct of such Dealer Operations.
Lithia Motors also agrees to execute and deliver to AHM instruments
satisfactory to AHM conveying title to all personal property, including
leasehold interests, involved in the transfer or sale to AHM. If any
personal property is subject to any lien or charge of any kind, Lithia Motors
agrees to procure the discharge and satisfaction thereof prior to the closing
of sale of such property to AHM.
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8.3. Transfer Provisions Fair and Reasonable. In entering into
this Agreement, each of the Lithia Parties understands that AHM would not
consent to the transfer of Honda or Acura dealerships to an entity that is
owned in part by a publicly-held corporation without the restrictions on
subsequent transfer set forth in this Agreement. The Lithia Parties have
entered into this Agreement to induce AHM to consent to such transfer to an
entity that is owned in part by a publicly-held corporation and hereby
acknowledge and agree that the restrictions on subsequent transfer set forth
herein are "fair" and "reasonable" as those terms are used under state and
federal laws governing the relationship between automobile manufacturers and
automobile dealers.
9. REMEDIES OF AHM.
9.1 Cumulative Remedies. All of AHM's remedies set forth
herein are cumulative. No explicit listing of any remedy shall foreclose AHM
from seeking any remedy at law or in equity, including injunctive relief,
that would otherwise be available to it.
9.2 Injunctive Relief. Lithia Motors agrees that any breach by
any of the Lithia Parties or their Affiliates of the covenants set forth in
this Agreement that pertain to the ownership, control, transfer, and/or
operation of Honda or Acura dealerships would result in irreparable harm to
AHM and therefore agrees that AHM shall be entitled to emergency, pre and
permanent injunctive relief to prevent such breaches.
9.3 Right to Purchase. The Lithia Parties understand and
acknowledge that AHM has the right to maintain a personal relationship with
its dealers and a healthy and competitive dealer network and that the Policy
and this Agreement are designed to ensure the protection of that right. and
the integrity of the dealer network while at the same time enabling Lithia
Motors to raise capital through the public offering of stock. Therefore, in
the event that any of the Lithia Parties materially breach the Policy or this
Agreement or any Dealer Agreement, in addition to any other remedies that AHM
might have, upon notice from AHM, the Lithia Parties agree that they will
sell to AHM all assets of the Honda and Acura dealerships that they own or
control at their then current fair market value and on the terms set forth in
Section 8.2.5 and that the applicable Dealer Agreements will terminate upon
such sale. Any dispute as to the fair market value of such dealerships will
be resolved by arbitration as described in Section 10 hereof. In such
arbitration, the Arbitrator shall be empowered only to determine (1) whether
a material breach took place; and, (2) if so, the fair market value of the
dealerships at issue. The arbitrator in such proceeding shall not have the
power to award any other damages or other relief. If the arbitrator finds a
material breach, Lithia Motors shall transfer the dealerships to AHM or its
designee at the fair market value de ed by the arbitrator without the
necessity of further legal action by AHM. The arbitrator's decision shall be
unappealable and unreviewable. If, in violation of the terms hereof, any of
the Lithia Parties require AHM to obtain a court judgment to enforce the
arbitrator's decision, the arbitrator's decision shall be enforceable in any
court of competent jurisdiction and Lithia Motors agrees to pay the costs and
attorneys' fees expended in connection therewith. The foregoing arbitration
shall not, without the consent of both parties, be consolidated with any
other arbitration initiated by a party pursuant to Section 10 hereof.
9.4 Indemnification for Claims by Disappointed Buyer. The
Lithia Parties, jointly and severally, hereby agree to indemnity and hold
harmless AHM and its affiliates from and against any and all losses,
liabilities, judgments, amounts paid in settlement, claims, damages and
expenses whatsoever (collectively a "Claim"), including, but not limited to,
any and all expenses whatsoever (including reasonable attorneys' fees)
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, to which AHM may become subject as a result of AHM's
exercise of the rights set forth in Sections 8.2 and 9.3 of this Agreement.
Without limiting the generality of the immediately preceding sentence, this
indemnification covers any Claim brought against AHM by an individual or
entity that alleges that the individual or entity would have purchased an
interest in a Honda or Acura dealership but for AHM's interference with such
proposed purchase.
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10. DISPUTE RESOLUTION
Except as modified in Section 9.3 above, any controversy or claim
arising out of or relating to the Agreement, or the breach thereof, or any
failure to agree where agreement of the parties is necessary pursuant hereto,
including the determination of the scope of this agreement to arbitrate,
shall be resolved by the following procedures:
10.1 Attempt to Resolve Dispute. The parties shall use all
reasonable efforts to amicably resolve the dispute through direct
discussions. The senior management of each party commits itself to respond
promptly to any such dispute. Any party may send written notice to the other
parties identifying the matter in dispute and invoking the procedures of this
article. Within ten (10) days after such written notice is received, unless
a delay is agreed to by both parties to the dispute or the parties agree to
confer by telephone, one or more senior management of each party shall meet
in Los Angeles, California to attempt to amicably resolve the dispute by
written agreement. If said dispute cannot be settled through direct
discussions, the parties agree to first endeavor to settle the dispute in an
amicable manner by mediation in Los Angeles and administered by the American
Arbitration Association ("AAA"), pursuant to the Commercial Mediation Rules
of the AAA at the time of submission prior to resorting to binding
arbitration.
10.2 Application to Binding Arbitration. If after forty-five
(45) days from the first written notice of dispute, the parties fail to
resolve the dispute by written agreement or mediation, either party may
submit the dispute to final and binding arbitration administered by the AAA,
pursuant to the Commercial Arbitration Rules of the AAA at the time of
submission. The arbitration shall be held in Los Angeles before a single
neutral, independent, and impartial arbitrator (the "Arbitrator").
10.3 Binding Arbitration Procedure. Unless the parties have
agreed upon the selection of the Arbitrator before then, the AAA shall
appoint the Arbitrator as soon as practicable, but in any event within thirty
(30) days after the submission to AAA for binding arbitration. The
arbitration hearings shall commence within forty-five (45) days after the
selection of the Arbitrator. Unless the Arbitrator otherwise directs, each
party shall be limited to three pre-hearing depositions lasting no longer
than 6 hours each. The parties shall exchange documents to be used at the
hearing no later than ten (10) days prior to the hearing date. Unless the
Arbitrator otherwise directs, each party shall have no longer than three days
to present its position, the entire proceedings before the Arbitrator shall
be on no more than eight hearing days within a three week period. The
Arbitrator's award shall be made no more than thirty (30) days following the
close of the proceeding. The Arbitrator's award may not include
consequential, exemplary, or punitive damages. The Arbitrator's award shall
be a final and binding determination of the dispute and shall be fully
enforceable in any court of competent jurisdiction. The prevailing party
shall be entitled to recover its reasonable attorneys' fees and expenses,
including arbitration administration fees, incurred in connection with such
proceeding. Except in a proceeding to enforce the results of the
arbitration, neither party nor the Arbitrator may disclose the existence,
content, or results of any arbitration hereunder without the prior written
consent of both parties.
10.4 Exceptions. Notwithstanding the foregoing, either party
may, without recourse to arbitration, assert against the other party a
third-party claim, cross-claim or like claim in any action brought by a Third
Party to which this Agreement or the obligations of the parties hereunder may
pertain. Nothing herein shall prevent a party from seeking injunctive
relief, where appropriate, from a court of competent jurisdiction pending the
outcome of any arbitration concerning the subject of such arbitration or when
authorized by an arbitrator's award or when emergency relief is required.
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11. ENTIRE AGREEMENT OF THE PARTIES
There are no prior agreements or understandings, either oral or
written, between the parties affecting this Agreement, except as otherwise
specified or referred to in this Agreement (including the Schedules hereto).
No change or addition to, or deletion of any portion of this Agreement shall
be valid or binding upon the parties hereto unless approved in writing signed
by an officer of each of the parties hereto. The parties acknowledge that
each of them have been represented by counsel and are substantial entities
with considerable resources. This Agreement has been fully negotiated. No
provision of this Agreement shall be construed against a party on the ground
that the party or its attorneys drafted it.
12. SEVERABILITY
If any provision of this Agreement should be held invalid or
unenforceable for any reason
whatsoever, or conflicts with any applicable law, this Agreement will
be considered divisible as to such provision(s), and such provision(s) will
be deemed amended to comply with such law, or if it (they) cannot be so
amended without materially affecting the tenor of the Agreement, then it
(they) will be deemed deleted from this Agreement in such jurisdiction, and
in either case, the remainder of the Agreement will be valid and binding.
Notwithstanding the foregoing, if, as a result of any provision of this
Agreement being held invalid or unenforceable, AHM's ability to control the
selection of the Dealer Owner, Executive Manager, or the Dealer Manager or to
otherwise maintain its ability to exercise reasonable discretion over the
selection of the actual individual who is managing a Honda or Acura
dealership is materially restricted beyond the terms of this Agreement or the
Dealer Agreement, AHM shall be permitted to invoke the purchase provisions of
Section 9.3 hereof.
13. NO IMPLIED WAIVERS
The failure of either party at any time to require performance by
the other party of any provision herein shall in no way affect the right of
such party to require such performance at any time thereafter, nor shall any
waiver by any party of a breach of any provision herein constitute a waiver
of any succeeding breach of the same or any other provision, nor constitute a
waiver of the provision itself.
14. AHM POLICIES
AHM has adopted certain policies which are attached hereto as Schedule
G. Lithia
Motors hereby agrees to abide by these policies as attached hereto and
as reasonably amended by AHM from time to time, and other policies
promulgated in the future by AHM. In addition, AHM has expressed a
commitment to diversity in management and among employees. Lithia Motors
hereby agrees to adhere to that commitment by seeking to achieve diversity
among the management personnel and employees it appoints in connection with
the Honda and Acura dealerships it owns or controls. Without limiting the
generality of the foregoing, Lithia Motors hereby agrees that its dealerships
will meet or exceed (with respect to both the applicable zone and the United
States as a whole) average Honda and/or Acura dealership performance (as such
performance is measured by AHM, now or in the future) with respect to
customer satisfaction, sales, and market share.
15. APPLICABLE LAW
This Agreement shall be governed by and construed according to
the laws of the State of California.
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16. BENEFIT
This Agreement is entered into by and between AHM and the Lithia
Parties for their sole and mutual benefit. Neither this Agreement nor any
specific provision contained in it is intended or shall be construed to be
for the benefit of any third party.
17. NOTICE TO THE PARTIES
Any notices permitted or required under the terms of this
Agreement shall be directed to the following respective addresses of the
parties, or if either of the parties shall have specified another address by
notice in writing to the other party, then to the address last specified:
If to AHM:
AMERICAN HONDA MOTOR CO., INC.
Honda Division
1919 Torrance Boulevard
Torrance, California 90501
Attention: Dealer Placement Department
AMERICAN HONDA MOTOR CO., INC.
Acura Division
1919 Torrance Boulevard
Torrance, California 90501
Attention: Acura Dealer Development Department
with a copy to:
Associate General Counsel
HONDA NORTH AMERICA, INC.
Law Department
700 Van Ness Avenue
Torrance, California 90509-2206
If to any of the Lithia Parties:
LITHIA MOTORS, INC.
360 East Jackson
Medford, Oregon 97501
Attention: Sidney B. DeBoer
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LITHIA MOTORS, INC.
BY: /s/Sidney B. DeBoer
Title
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LITHIA HOLDING, LLC
BY: /s/Sidney B. DeBoer
Title
LITHIA HPI, LLC
BY: /s/Sidney B. DeBoer
Title
LITHIA HS, INC.
BY: /s/Sidney B. DeBoer
Title
/s/Sidney B. DeBoer
------------------------------------------
Sidney B. DeBoer
/s/M.L. Dick Heimann
------------------------------------------
M.L. Dick Heimann
/s/R. Bradford Gray
------------------------------------------
R. Bradford Gray
AMERICAN HONDA MOTOR CO., INC.
Honda Division
BY: /s/Richard Colliver
Richard Colliver
Senior Vice President
Automobile Sales Division
LITHIA MOTORS, INC.
Acura Division
BY: /s/Richard B. Thomas
Richard B. Thomas
Executive Vice President
Acura Division
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SCHEDULE LIST
A. List of Lithia
B. AHM Automobile Dealer Sales and Service Agreements
C. AHM Policy on the Public Ownership of Honda and Acura Dealerships
D. Lithia Motors and Holding Ownership Information -- Restricted
Shares
E. Lithia Motors Ownership Information -- 5% Interest Holders
F. Indemnification Agreement
G. AHM Policies
X. Lithia Motors Documentation (retained in AHM's files; not attached to
copies of the Agreement)
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A.
List of Lithia Motors Honda Dealerships
Lithia HPI, Inc.
dba Lithia Honda
700 North Central
Medford, Oregon 97501-5817
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B.
AHM Automobile Dealer Sales and Service Agreements
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C.
AHM Policy on the Public Ownership of Honda and Acura Dealerships
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AMERICAN HONDA MOTOR CO., INC.
POLICY ON THE PUBLIC OWNERSHIP
OF HONDA AND ACURA DEALERSHIPS
I. OBJECTIVES
In this Policy on the Public Ownership of Honda and Acura
Dealerships (the "Policy"), American Honda Motor Co., Inc. ("American Honda")
addresses several issues raised by the recent announcement by certain
entities which own automobile dealerships that they intend to offer stock for
sale to the public. Proposals for the public ownership of automobile
dealerships have been widely publicized in the press. American Honda has
been asked by several dealers and the National Automobile Dealers Association
to state its position on the public ownership of Honda and Acura
dealerships. This Policy is an effort to address these inquiries by
providing guidelines for the ownership of Honda and Acura dealerships that
assist Dealer Owners and potential Dealer Owners in assessing whether a
particular form of ownership is consistent with American Honda's standards
for its dealerships.
II. BACKGROUND
A. The Personal Nature of the Dealer Owner Relationship
There is no simple "yes" or "no" answer to the question, "Will
American Honda permit transfer of a dealership to a publicly-owned
corporation?" The answer depends on whether the proposed form of ownership
preserves the individualized relationship between the Dealer Owner and the
local community, on the one hand, and American Honda and the Dealer Owner, on
the other hand.
Despite the recent increase of mass marketing (including the
advent over the last twenty years of so-called "category killers" such as the
toy store giants that have replaced neighborhood toy stores and the hardware
giants that have replaced local hardware stores), American Honda continues to
believe that automobile sales and service are most effectively done through
dedicated, local dealerships with strong ties to the community. For most
automobile purchasers, the decision to buy a new car is a major financial
commitment and is only made after extensive deliberation. Although
competitive price is undoubtedly a major factor in the buying decision,
American Honda believes strongly that the building of a relationship between
the dealer and the buyer, particularly the development of trust in the
qualify of the product and the service provided by Honda dealers has, over
the years, been a major selling point that has distinguished Honda and Acura
vehicles from the competition. When a first-time new car buyer purchases a
Honda vehicle, American Honda believes that we have a great opportunity to
make that customer a life-time Honda and Acura buyer -- because we provide
the best products and the best service through the most dedicated and
committed dealers.
In order to ensure that Honda and Acura dealers provide the
advice and service required by new car buyers, American Honda attempts to
select the best people to be its dealers and requires that these people
maintain personal control over dealership operations. Because individual
Dealer Owners have considerable autonomy as to how they run their
dealerships, American Honda's influence over the quality of its dealerships
depends in large part n how wisely it selects its dealers. Although no
process is perfect, American Honda believes that over the years it has done
an excellent job of selecting Dealer Owners and is extremely proud of the
quality of its dealerships.
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B. The Dealer Agreement
The Honda or Acura Automobile Dealer Sales and Service Agreement
(the "Dealer Agreement") between American Honda and its dealers includes a
number of provisions that ensure that the relationship between American Honda
and its dealers will remain personal. Section C of the Dealer Agreement
states: "Dealer covenants and agrees that this Agreement is personal to
Dealer, to the Dealer Owner, and to the Dealer Manager, and American Honda
has entered into this Agreement based upon their particular qualifications
and attributes and their continued ownership or participation in Dealership
Operations." Sections C and D of the Dealer Agreement name the specific
individuals who own the dealership, their percentage of ownership, the
individual who will function as the Dealer operation and the individual who
will function as the Dealer Manager. Section J states: "Neither this
Agreement, nor any part thereof or interest therein, may be transferred or
assigned by Dealer, directly or indirectly, voluntarily or by operation of
law, without the prior written consent of American Honda." In Section 8.1 of
the Dealer Agreement, "Dealer agrees that American Honda has the right to
select each successor and replacement dealer and to approve its owners and
principal management." Dealers must inform American Honda in writing of any
potential change in the ownership or management listed in Sections C and D.
Prior to taking effect, such changes must be approved in writing by American
Honda. American Honda's approval will not be unreasonably withheld.
C. The Potential Benefits of Public Investment in dealerships
Public investment in dealerships offers potential benefits to
both American Honda and its dealers. American Honda needs exclusive Honda or
Acura dealerships with separate, freestanding state-of-the-art facilities at
prime locations to meet its long term business objectives. American Honda
dealers need to compete vigorously and such competition may include expanded
and improved showrooms, upgraded computerization, the introduction of various
customer amenities, etc. The ability to raise capital through public
offerings of stock provides an additional means of financing improvement in
dealership facilities and operations.
D. The Tension between Personal Relationship and Public
Ownership
American Honda believes that the quality of the individuals who
serve as Honda or Acura dealers and Dealer Managers is essential to the
success of American Honda and the dealership. Therefore, American Honda is
determined to maintain its personal relationship with its Dealer Owners and
Dealer Managers and to continue to exercise the right of approval of changes
in dealer ownership and management as set forth in the Dealer Agreement. To
the extent that public ownership of a Honda or Acura dealership means that
the dealer Manager will be appointed by a board of directors selected by
owners of publicly-traded stock, such an arrangement is inconsistent with
American Honda's needs and the dealer Agreement. On the other hand, public
ownership of a portion of the shares of a dealership may be consistent with
American Honda's objectives in cases in which a controlling interest in the
dealership is maintained by a specified Dealer Owner and the dealership is
managed by a specified Dealer Manager. The following guidelines are an
attempt to reconcile the tension between American Honda's need for a personal
relationship with each dealer and dealer proposals for public ownership of an
interest in dealerships.
III. PUBLIC OWNERSHIP GUIDELINES
A. Case-By-Case Determination. As in the past, American Honda
will evaluate requests to transfer ownership of Honda and Acura dealerships
on a case-by-case basis. Proposals to transfer ownership to entities with
publicly-traded shares will be reviewed based on the standards set forth in
this Policy. AMERICAN HONDA RESERVES THE RIGHT, IN ITS SOLE BUSINESS
JUDGMENT, TO APPROVE OR REJECT SUCH TRANSFERS.
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B. Proposals To Be Submitted in Writing. All proposals to
transfer ownership of Honda and Acura dealerships must be submitted in
writing to American Honda and must include:
1. A list of the individuals and entities that will own
privately-held shares of the dealership, including the amount of shares owned
by such individual or entity and information and documentation about each
such individual or entity; in the case of entities owning or controlling such
privately-held shares, a list of the individuals owning such entities and
information and documentation about such individuals;
2. With respect to ownership interests not listed in
accordance with subsection 1, immediately above, a list of the individuals
and entities that will own or control 5% or more of the dealership (either
through ownership of publicly-held stock or any combination of privately-held
stock and publicly-held stock or any other arrangement), including
information and documentation about each such individual or entity;
3. The number and percentage (if any) of the shares of
the entity that owns the dealership that will be publicly traded.
4. A detailed description, including flow charts, of the
proposed structure of the entities that will own and/or control the
dealership and the relationship of the Dealer Owner to these entities,
including, with respect to entities with a significant interest in the Dealer
Owner, a description of the individuals holding such interest;
5. The name and a brief biography of the individual who
will function as Dealer Manager and a detailed description of the functions
and responsibilities of the Dealer Manager;
6. Complete financial documents (including but not
limited to the most recent and the prior year end audited financial
statements of any entity proposing to obtain any interest equal to or grater
than 5% of a dealership or 55 of an entity that owns a dealership),
indicating, among other things, the amount of capitalization of the
dealership and the verifiable sources of such capitalization;
7. A detailed description of the proposed use of the
funds to be raised from the public investment;
8. The articles and bylaws of the entities that will own
and/or control the dealership;
9. Copies of the proposed transactional documents that
will be used to effectuate the transaction, including, without limitation,
copies of any government filings and contracts pertaining thereto; and
10. Copies of any additional documents that the
transferees, transferors and other parties having a substantial interest in
the transaction have that American Honda would reasonably need to evaluate
the proposal.
After receipt of complete documentation for the Proposal, as
outlined above, and due consideration thereof, American Honda will provide
the party submitting the proposal with a preliminary assessment of the
proposed transaction. NO FINAL DECISION ON THE PROPOSAL WILL BE MADE UNTIL
SUBMISSION OF FINAL VERSIONS OF ITEMS 1 THROUGH 10 WITH ANY OTHER
DOCUMENTATION REQUESTED BY AMERICAN HONDA AND AMERICAN HONDA AND THE NEW
OWNERSHIP ENTITY AGREE ON AND ENTER INTO A DEALER AGREEMENT.
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It is not advisable to make any expenditures or commitments, or
to enter into any contracts or incur any obligations on the assumption that
authorization of a proposal will be granted. Any such expenditures,
commitments or obligations, financial or otherwise, made or entered into by a
dealer in anticipation of authorization of a proposal, and prior to: (1)
receipt of final written approval by American Honda and (2) execution of the
necessary documents as described above (including a new Dealer Agreement) are
made entirely at the dealer's own risk and without any liability on the part
of American Honda.
C. Guides to Preparation of an Acceptable Proposal
In preparing the documents listed immediately above, the dealer
should keep in mind the following list of standards (which is intended to
provide guidance, not to be a complete list) to which American Honda will
require adherence:
1. All dealerships must have a qualified Dealer Manager
acceptable to American Honda. American Honda's right to prior written
approval of any change of dealer Manager must be incorporated into the
transactional documents. The Dealer Manager should be a well-respected,
civicly-active member of the community. As discussed above, personal
involvement by Dealer Managers in Dealership Operations is an important means
of ensuring that Honda and Acura dealerships are run with a high level of
attention, care and commitment. The Dealer Manager must maintain control
over the day-to-day operations of the dealership and the transactional
documents should set forth in detail the level of autonomy that the Dealer
Manager will exercise, including, for example, the amount of money that the
Dealer Manager will be empowered to transfer. Dealerships must abide by
American Honda's commitment to encourage diversity of persons in dealer
management positions.
2. The Dealer Owner's Executive Manager (that is, the
person who has operational control of the entity that owns and/or controls
the dealership) should e an experienced, well-respected executive with final
authority to decide any dealership matters not within the authority of the
Dealer Manager.
3. Dealerships are non-transferable without the prior
written consent of American Honda. Because the shares of publicly-owned
corporations are freely transferable, the percentage of public ownership must
be restricted so that a controlling interest of the dealership remains in the
hands of approved individuals. It follows that the controlling interest in
the entity that controls the dealership cannot be transferred without the
prior written consent of American Honda. In no event may the percentage of
public ownership of a dealership exceed the percentage of private ownership
by American Honda-approved individual and privately-held entities. To the
extent that an entity not approved by American Honda attempts to acquire
control and/or ownership of a dealership, the dealer Agreement with American
Honda must provide for termination of the Dealer Agreement and/or American
Honda's right to acquire the dealership at its fair market value.
4. The controlling interest in Honda or Acura
dealerships must remain in the hands of a person or entity engaged
predominantly in the sale and service of new automobiles. For example,
American Honda will not approve transfer of dealerships or entities that
control dealerships to general retailers or retailers that deal primarily in
non-automotive products.
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5. American Honda will not approve the transfer of Honda
or Acura dealerships to entities that are known to have significant
investments in companies that compete with American Honda or its parent,
subsidiaries or Affiliates in manufacturing, marketing, or selling automotive
products or services.
6. Public corporations having an ownership interest in
the dealership and the individuals and entities that control such public
corporations (but not persons whose ownership interest is limited to passive
ownership of 5% or less of the shares of public corporations) must agree to
obtain American Honda's approval before acquiring an interest in any other
Honda or Acura dealership, American Honda reserves the right to limit the
number and/or location of Honda and Acura dealerships that can be owned or
controlled by any one individual or corporation. In the future, except where
a specific finding is made by American Honda that such acquisition would
further a business interest or American Honda, individuals and/or entities
will be limited to acquiring interests in dealerships as follows:
a. HONDA
No one shall be allowed to acquire an ownership interest,
directly or through an Affiliate, in a multiple number of Honda dealerships
as provided below:
(a) in a "Metro" market (a "Metro" market is a
metropolitan market area represented by two or more Honda dealer points) with
two (2) to ten (10) Honda dealership points (inclusive), no Dealer Owner may
own, operate or have an interest in more than one (1) Honda dealership;
(b) in a Metro market with eleven (11) to twenty (20)
Honda dealership points (inclusive), no Dealer Owner may own, operate or have
an interest in more than two (2) Honda dealerships;
(c) in a Metro market with twenty-one (21) or more Honda
dealership points, no Dealer Owner may own, operate or have an interest in
more than three (3) Honda dealerships;
(d) 4% of the Honda dealerships in any one of the ten
Honda Zones; and
(e) seven (7) Honda dealerships nationally.
No one shall acquire contiguous Honda dealerships.
b. ACURA
No one shall be allowed to acquire an ownership interest,
directly or through an Affiliate, in a multiple number of Acura dealerships
as provided below:
(a) one (1) Acura dealer in a "Metro" market (a "Metro"
market is a Metropolitan market are represented by two or more acura dealer
points);
(b) two (2) Acura dealerships in any one of the six Acura
Zones; and
(c) three (3) Acura dealerships nationally.
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No one shall acquire contiguous Acura dealerships.
"Affiliate" of, or a person or entity "affiliated" with, a
specified person or entity, means a person or entity that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the person or entity specified. For the
purpose of this definition, the term "control" (including the terms
"controlling," "controlled by" and "under common control with" means the
possession, directly or indirectly, or the power to direct or cause the
direction of the management and policies of a person or entity, whether
through the ownership of securities, by contract or otherwise.
7. The dealership would continue to have the same
reporting requirements as all other Honda and Acura dealerships, including
dealership-specific financial information on the same as is that the
dealership has provided such information in the pst. In the case of
corporations that, with American Honda's approval, own multiple Honda and
Acura dealerships, each such dealership must be separately incorporated and
financial information must be broken down by individual dealership and must
meet capitalization requirements, etc., by individual dealership. The
corporate by-laws of the individual corporation that actually owns a Honda or
Acura dealership must restrict it from engaging in any activity other than
the ownership and maintenance of a Honda or Acura dealership.
8. The dealership must agree to provide American Honda
with all information and documents, including but not limited to SEC filings,
that evidence a substantial change of ownership or control of such dealership
or any entity with a controlling interest in such dealership. Individuals or
entities that acquire, own or control more than 5% of any entity that owns or
controls a Honda or Acura dealership must provide American Honda with copies
of all filings made to the SEC, all comparable filings made to state
agencies, and, at least once annually, the most recent calendar year's fully
audited financial statements. Nothing in this section 8 should be construed
to limit the requirement that any proposed change in the ownership or control
of privately-held shares of a dealership or any entity that owns a dealership
must be reported to American Honda and is subject to American Honda's prior
written approval.
9. For allocation and other purposes, transfer of Honda
or Acura Automobiles from one dealership to another dealership owned and/or
controlled by the same entity will treated the same as a transfer between
separately-owned dealers.
10. The dealership should be committed to providing
separate, freestanding Dealership Operations that exclusively offer a full
range of Honda Products and services or Acura Products and services and do
not offer competing products or services from its Dealership Premises.
11. The controlling individual or entity must be liable
for the operation of the dealership and have must agree to indemnify American
Honda for any claims made by shareholders of publicly-held shares against
American Honda to the full extent permitted by law. American Honda must have
the right (but not the obligation) to review all documentation and other
representations to the public about any offering of stock in the dealership
or the entity owning the dealership. Whether or not American Honda reviews
them, such documentation and representations must include an affirmative
statement that American Honda is completely independent of the entity
offering the stock and that, although American Honda's acts or omissions may
have an impact on the value of the stock, American Honda bears no
responsibility for such impact and has no liability to any investor under any
legal or equitable theory.
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12. The entity that owns or controls the dealership may
not commingle its trademarks with dealer trademarks other than those used
exclusively in connection with the dealership. For example, a dealer could
use its own "dealership" trademark in conjunction with the Honda or Acura
Trademarks as in "John smith HONDA" but it could not use a trademark in
conjunction with the Honda or Acura Trademarks that it also uses in
conjunction with non-Honda or non-Acura goods or services. The entity must
agree to maintain the Honda or Acura brand image, as that image is developed
by American Honda.
13. The entity that owns the dealership must agree to
have all dealership sales and service personnel certified by American Honda
pursuant to its usual certification programs; to use and sell genuine Honda
and Acura parts and accessories; and to participate in good faith in
applicable Honda or Acura sales, marketing, service, parts, facility image
and upgrade, training, customer satisfaction, and diversity programs.
14. The Dealer Agreement will also provide that breaches
of the Dealer Agreement or failure to adhere to American Honda requirements
by any individual dealership owned by an entity shall be treated as breaches
of the Dealer Agreement between American Honda and such entity and shall
constitute reasonable grounds for rejection by American Honda of acquisition
by the entity of additional Honda or Acura dealerships.
15. American Honda will not approve any transfer of a
dealership that is not in full compliance with the Dealer Agreement between
American Honda and such dealership prior to such transfer.
16. The Dealer Agreement with the entity that owns the
dealership will include provisions that incorporates the provisions of this
Policy and, without limiting the foregoing, permit American Honda to
terminate the Dealer Agreement for breaches of the above-listed requirements
and to reacquire the dealership as set forth in subsection IIIC3 above.
Inquires about the Policy should be made to Honda Dealer Placement
Department and/or Acura Dealer development, as applicable.
Inquiries about the transfer of a dealership should be made to Zone
Sales Office.
25
<PAGE>
D.
Lithia Motors and Holding Ownership Information -- Restricted Shares
26
<PAGE>
Schedule D
Lithia Motors and Holding Ownership Information -- Restricted Shares
M.L. Dick Heimann Sidney B. DeBoer R. Bradford Gray
34.875% Beneficial 58.125% Beneficial 7% Beneficial
Interest Interest Interest
Sidney B. DeBoer
100% Voting
Managing Member
Lithia Holding Company, L.L.C. The Public
53.585% of all shares 46.415% of all shares (if options exercised)
4,110,000 Shares of Class "B" Common 3,560,000 Class "A" Common
10 votes per share, 92% Control 1 votes per share
Tax Id 93-1171867 8% Control
LITHIA MOTORS, INC.
<TABLE>
Shares Votes
<S> <C> <C> <C> <C>
Class B Restricted Shares ...... 4,110,000 53.585 41,100,000 92.029%
Class A Shares ................. 2,875,000 37.484 2,875,000 6.438%
Class A Employee Stock Incentive
Options ..................... 685,000 8.931 685,000 1.534%
Total .......................... 7,670,000 100.000 44,660,000 100.000%
</TABLE>
27
<PAGE>
E.
Lithia Motors Ownership Information - 5% Interest Holders
28
<PAGE>
Schedule E
Lithia Motors Ownership Information - 5% Interest Holders
The only 5% interest holder that is known to Lithia Motors, Inc.
management is Lithia Holding Company, LLC with 4,1 10,000 shares of class B
common representing 53.585% of all shares of outstanding common stock
(assuming all employee stock incentive options are exercised).
The largest block of stock sold to the underwriters was 250,000 shares,
which is less than 5% interest. Information as to the shareholders is given
to us quarterly by the transfer agent which is unavailable at this time.
They immediately report to us any holdings which are equal to or greater than
10%. If stocks are held in "Street Name" then it may be impossible to tell
if someone or entity has accumulated more than 5% interest.
29
<PAGE>
F.
Indemnification Agreement
30
<PAGE>
SCHEDULE F
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT, effective as of December 17,
1996, is entered into between Lithia Motors, Inc., an Oregon corporation,
with its principal place of business at 360 East Jackson, Medford, Oregon
97501 ("Lithia Motors"), Lithia HPI, Inc., an Oregon corporation, with its
principal place of business at 700 North Central, Medford, Oregon 97501
("BPI"), Lithia HS, Inc., a California corporation, intending to establish a
place of business at 333 North Main Street, Salinas, California 93901 ("HS"),
Lithia Holding, LLC, an Oregon limited liability company, with its principal
place of business at 360 East Jackson, Medford, Oregon 97501 ("Holding"),
Sidney B. DeBoer, an individual residing at 234 Vista, Ashland, Oregon 97520
("DeBoer"), M.L. Dick Heimann, an individual residing at 426 Roundelay,
Medford, Oregon 97504 ("Heimann"), and R. Bradford Gray, an individual
residing at 6764 Laurel Crest Drive, Medford, Oregon 97504 ("Gray"), on the
one hand (collectively, the "Indemnifying Parties"), and American Honda Motor
Co., Inc. ("AHM"), a California corporation, with its principal place of
business at 1919 Torrance Boulevard, Torrance, California 90501, on the other
hand.
WITNESSETH
WHEREAS, Lithia Motors has been formed to own subsidiary corporations
which will own and operate automobile dealerships; and
WHEREAS, Lithia Motors intends to publicly offer and sell a portion of
the shares of the Lithia Stock (as defined in the Agreement between American
Honda Motor Company, Inc. and Lithia Motors, Inc. et al. [the "Agreement"])
in a public offering pursuant to the Securities Act of 1933 (the "Act");
WHEREAS, AHM has consented to the offer and sale of such Lithia Stock
to the public on the terms set forth in the Agreement between the parties on
or about date herewith; and
WHEREAS, in recognition of AHM's demand for complete protection against
liability and threats of legal action and in order to obtain AHM's consent to
the offer and sale of such shares, the Indemnifying Parties wish to provide
in this Indemnification Agreement for the indemnification of and the
advancing of expenses to AHM as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants made herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. INDEMNITY OF AHM
The Indemnifying Parties hereby agree to indemnity and hold harmless
AHM and its affiliates from and against any and all losses, liabilities,
judgments, amounts paid in settlement, claims, damages and expenses
whatsoever (collectively a "Claim"), including, but not limited to, any and
all expenses whatsoever (including reasonable attorneys' fees) incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, to which AHM may become subject under the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the securities laws of
any state (the "Blue Sky Laws"), any other statute or at common law or
otherwise under the laws of any foreign country, arising in connection with
or resulting from the sale of the Lithia Stock. In addition, the
Indemnifying Parties hereby agree to indemnity and hold harmless AHM from any
31
<PAGE>
and all claims of the shareholders of Lithia Motors with respect to any
matter. If it is ultimately determined, based upon a final decision of a
court, arbitrator or other authorized panel or a settlement entered into by
the parties to the dispute and consented to by AHM that AHM was liable for
such Claim in whole or in part, the indemnification set forth herein shall be
reduced proportionately to reflect the extent of such liability, and AHM
shall reimburse the Indemnifying Party for any expenses advanced by it
pursuant to Paragraph 3 of this Indemnification Agreement to the extent that
such expenses were in excess of the Indemnifying Parties' proportionate
liability.
If the indemnification provided for in this Section 1 from the
Indemnifying Parties is unavailable to AHM hereunder in respect of any
losses, claims, damages, liabilities or expenses referred to therein as a
result of a judicial determination that such indemnification may not be
enforced in such case notwithstanding this Indemnification Agreement, the
Indemnifying Parties, in lieu of indemnifying AHM, shall contribute to the
amount paid or payable by AHM as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Parties and AHM in connection with the
actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Parties and AHM shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of material fact or omission or
alleged omission to state a material fact, has been made by, or relates to
information supplied by, such Indemnifying Parties or AHM, and the
Indemnifying Parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
2. NOTIFICATION AND DEFENSE OF CLAIM
(a) If any litigation is commenced against AHM in respect of
which indemnity may be sought pursuant to this Indemnification Agreement, AHM
shall promptly notify Lithia Motors in writing of the commencement of any
such litigation, and the Indemnifying Parties shall then assume the defense
of any such litigation, including the employment and fees of counsel
(reasonably satisfactory to AHM) and the payment of all such expenses.
(b) AHM shall have the right to employ its own counsel in any
such case to oversee the litigation on behalf of AHM, to consult with the
attorneys engaged by the Indemnifying Parties as to the proper handling of
the litigation and to take such actions in connection with the litigation as
are reasonably necessary to protect AHM's interests. The Indemnifying
Parties shall pay the reasonable fees and expenses of not more than one
additional firm of attorneys for AHM. In the event of a conflict of interest
between AHM and the Indemnifying Parties such that it would be inappropriate
for Indemnifying Parties' counsel to represent AHM in any litigation, the
limitation in the immediately preceding sentence shall not apply and the
Indemnifying Parties shall pay the reasonable fees and expenses of as many
firms of attorneys as AHM reasonably requires to defend its interests.
(c) Each of the Indemnifying Parties agrees to notify AHM
promptly of the commencement of any litigation against any of the parties to
the Agreement in connection with the issue and sale of the Lithia Stock. The
Indemnifying Parties and AHM agree to cooperate with each other in the
defense of any such litigation in which AHM is named as a party.
32
<PAGE>
(d) The Indemnifying Parties shall not be obligated to
indemnity or reimburse AHM under this Indemnification Agreement for any
amounts paid in settlement of any litigation effected without Lithia Motors's
prior written consent. The Indemnifying Parties shall not, in the defense of
any such litigation, except with AHM's prior written consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to AHM
of a release from all liability in respect to such litigation. Neither
Lithia Motors nor AHM shall unreasonably withhold its consent to any proposed
settlement.
3. PAYMENT OF EXPENSES
The Indemnifying Parties agree that it will pay any and all expenses
incurred by AHM in defending any civil or criminal action, suit or proceeding
against AHM in advance of the time such expenses are due. With respect to
legal fees and disbursements of AHM's attorneys, the Indemnifying Parties
will pay such attorneys an advance retainer of up to $20,000 and will pay
additional fees and expenses of such attorneys in increments of not more am
$20,000 periodically in advance of the dates that such fees and expenses are
incurred.
4. ENFORCEMENT
(a) The Indemnifying Parties expressly confirm and agree that
they have entered into this Indemnification Agreement and assume the
obligations imposed by it in order to induce AHM to consent to the offer and
sale of Lithia Stock and acknowledge that AHM is relying upon this
Indemnification Agreement to grant such consent.
(b) In the event AHM is required to bring any action to enforce
rights or to collect monies due under this Indemnification Agreement and is
successful in such action, the Indemnifying Parties shall reimburse AHM for
all of AHM's reasonable fees and expenses in bringing and pursuing such
action.
5. MISCELLANEOUS
(a) This Indemnification Agreement shall be interpreted and
construed in accordance with the laws of the State of California, without
giving effect to the conflict of law rules.
(b) This Indemnification Agreement shall be binding upon and
inure to the benefit of the Indemnifying Parties and AHM and their respective
legal representatives, successors and assigns.
(c) No amendment, modification or termination of this
Indemnification.Agreement shall be effective unless in writing and signed by
both parties hereto.
(d) If any provision of this Indemnification Agreement should
be held invalid or unenforceable for any reason whatsoever, or conflicts with
any applicable law, this Indemnification Agreement will be considered
divisible as to such provision(s), and such provision(s) will be deemed
amended to comply with such law, or if it (they) cannot be so amended without
materially affecting the tenor of this Indemnification Agreement, then it
(they) will be deemed deleted from this Indemnification Agreement in such
jurisdiction, and in either case, the remainder of this Indemnification
Agreement will be valid and binding.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement on the date first above written.
LITHIA MOTORS, INC.
BY: /s/Sidney B. DeBoer
-------------------------------------------
Title:
LITHIA HOLDING, LLC
BY: /s/Sidney B. DeBoer
-------------------------------------------
Title:
LITHIA HPI, LLC
BY: /s/Sidney B. DeBoer
-------------------------------------------
Title:
LITHIA HS, INC.
BY: /s/Sidney B. DeBoer
-------------------------------------------
Title:
------------------------------------------------
/s/Sidney B. DeBoer
Sidney B. DeBoer
------------------------------------------------
/s/M.L. Dick Heimann
M.L. Dick Heimann
------------------------------------------------
/s/R. Bradford Gray
R. Bradford Gray
AMERICAN HONDA MOTOR CO., INC.
Honda Division
BY: /s/Richard Colliver
-------------------------------------------
Richard Colliver
Senior Vice President
Automobile Sales Division
AMERICAN HONDA MOTOR CO., INC.
Acura Division
BY: /s/Richard B. Thomas
-------------------------------------------
Richard B. Thomas
Executive Vice President
Acura Division
34
<PAGE>
G.
AHM Policies
35
<PAGE>
EX-10
Exhibit 10.5.5 Amend to Agmt/Amer Honda & Lithia
EXHIBIT 10.5.5
AMENDMENT TO AGREEMENT BETWEEN
AMERICAN HONDA MOTOR CO., INC.
AND
LITHIA MOTORS, INC. ET AL.
This Amendment is dated October 2 , 1997 (the "Amendment") and
amends the Agreement between American Honda Motor Co., Inc. and Lithia
Motors, Inc. et al., effective December 17, 1996 (the "Agreement).
1. Except to the extent it is amended hereby, the Agreement
shall remain in full force and effect. The capitalized terms used herein are
defined in the Agreement.
2. Schedule A to the Agreement is hereby amended to add the
following:
"Lithia BB, Inc.
dba Lithia Acura of Bakersfield
3201 Cattle Drive
Bakersfield, California 93313
Provided that the Lithia Parties are in compliance with all terms
and conditions of the Agreement, AHM hereby authorizes Lithia Motors to
acquire the Acura dealership in Bakersfield, California which is currently
owned by Nissan-BMW, Inc. and is doing business as Acura of Bakersfield. AHM
understands that, for a period of no greater than sixty (60) days from the
date of acquisition of such Bakersfield Acura dealership, such dealership may
be referred to as "Lithia Acura of Bakersfield". Lithia Motors agrees that
on or before the end of such sixty (60) day period, it will remove any
reference to "Lithia" from the d/b/a of this dealership and any other Acura
or Honda dealership owned by Lithia Motors or any of its Affiliates and
change the d/b/a of such Bakersfield dealership to Acura of Bakersfield or
such other d/b/a which is acceptable to AHM."
3. Paragraph 1.8 of the Agreement is amended to insert in line
15 between the words "unsatisfactory." and "Unless", the following:
"Notwithstanding the immediately preceding sentence, as long as
control of Lithia Motors remains in the hands of persons or entities approved
by AHM, it is not AHM's intention to restrict reputable banks, mutual funds,
insurance companies, and/or pension funds (collectively referred to herein as
"Institutional Investors") from acquiring up to 10% of Lithia Stock.
Therefore, the parties further agree that, unless such Institutional Investor
(i) is owned or controlled by or has a substantial economic interest in an
entity that competes with AHM or its parent, subsidiaries or Affiliates in
manufacturing, marketing, or selling automotive products or services (not
including an interest in a dealership selling products manufactured by a
1
<PAGE>
competing automobile manufacturer); or (ii) has criminal affiliations or a
criminal record; or (iii) has acquired, or has a reasonable likelihood of
acquiring, a controlling interest in Lithia Motors, acquisition of up to 1 0%
of Lithia Stock by such Institutional Investor shall be presumed not to be
detrimental to AHM's interests. The parties further agree.that acquisition
or control of more than 10% of Lithia Stock by any party shall be subject to
AHM's right of disapproval pursuant to the standards set forth above with
respect to parties that acquire 5% or more of Lithia Stock.
Lithia Motors agrees that it will provide AHM with notice of any
acquisition or proposed acquisition of Lithia Stock of which it becomes aware
with respect to which AHM has a right of disapproval pursuant to this Section
1.8. Lithia Motors shall make its best efforts to obtain an d provide to AHM
such documentation and information pertaining to the party or parties that
have acquired or are proposing to acquire the Lithia Stock that AHM would
reasonably need to exercise its right of disapproval."
4. Paragraph 3.1 of the Agreement is amended to change both
current references to December 31, 1997 to October 1, 1998. In addition, the
following language is inserted at the end of Paragraph 3.1: "The currently
non-exclusive Acura Dealership Operations in Bakersfield, California that are
being acquired by Lithia Motors will, by no later than October 1, 1998, be
conducting all business in a separate, freestanding exclusive new facility
built and maintained in full compliance and conformity with Acura's designs
and specifications, including Acura's minimum land and building requirements,
as detailed within the Acura Facility Upgrade Program or such other standards
and guidelines published by AHM. Such new, exclusive Acura dealership
facility will be located on a site acceptable to AHM. By no later than
October 1, 1998, the aforementioned Acura Dealership Operations in
Bakersfield will also be under, and will continuously remain under, a
separate corporation formed exclusively for said dealership."
2
<PAGE>
5. The Agreement, as amended hereby, is hereby ratified and
confirmed in all respects.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first written above.
LITHIA MOTORS, INC.
By: /s/ Sidney B. deBoer
-------------------------------------
Title: Chairman
LITHIA HOLDING, LLC
By: /s/ Sidney B. deBoer
-------------------------------------
Title: Managing Member
LITHIA HS, INC.
By: /s/ Sidney B. deBoer
-------------------------------------
Title: President
LITHIA HPI, LLC.
By: /s/ Sidney B. deBoer
-------------------------------------
Title: President
/s/ M.L. Dick Neimann
------------------------------------------
M.L. Dick Heimann
/s/ Sidney B. deBoer
------------------------------------------
Sidney B. deBoer
//R. Bradford Gray
------------------------------------------
R. Bradford Gray
3
<PAGE>
AMERICAN HONDA MOTOR CO., INC.
By: /s/ Richard Colliver
-------------------------------------
Richard Colliver
Executive Vice President
Automobile Sales Division
AMERICAN HONDA MOTOR CO., INC.
By: /s/ Richard B. Thomas
-------------------------------------
Richard B. Thomas
Executive Vice President
Acura Division
4
<PAGE>
EX-10
Exhibit 10.7.1 Mercury Sales & Service Agmt
EXHIBIT 10.7.1
Superseding
FORD MOTOR COMPANY
Seattle Region
Mercury Sales and Service Agreement
AGREEMENT made as of the 1st day of June, 1997, By and Between Lithia
TLM, LLC, Limited Corporation, Oregon, doing business as Lithia Lincoln
Mercury and with a principal place of business at 360 East Jackson Street,
Medford, Jackson County, Oregon 97501.
(hereinafter called the "Dealer") and Ford Motor Company, a Delaware
corporation with its principal place of business at Dearborn, Michigan
(hereinafter call the "Company").
PREAMBLE
The purpose of this agreement is to (i) establish the Dealer as
an authorized dealer in COMPANY PRODUCTS including VEHICLES (as herein
defined), (ii) set forth the respective responsibilities of the Company in
producing and selling those products to the Dealer and of the Dealer in
reselling and providing service for them and (iii) recognize the
interdependence of both parties in achieving their mutual objectives of
satisfactory sales, service and profits by continuing to develop and retain a
broad base of satisfied owners of COMPANY PRODUCTS.
In entering into this agreement, the Company and the Dealer
recognize that the success of the Company and of each of its authorized
dealers depends largely on the reputation and competitiveness of COMPANY
PRODUCTS and dealers' services, and on how well each fulfills its
responsibilities under this agreement.
It is the opinion of the Company that sales and service of
COMPANY PRODUCTS usually can best be provided to the public though a system
of independent franchised dealers, with each dealer fulfilling its
responsibilities in a given locality from properly located, adequate,
well-equipped and attractive dealerships, which are staffed by competent
personnel and provided with the necessary working capital. The Dealer
recognizes that, in such a franchise system, the Company must plan for the
establishment and maintenance of the numbers, locations and sizes of dealers
necessary for satisfactory and proper sales and service representation in
each market area as it exists and as it develops and changes. At the same
time, the Company endeavors to provide each of its dealers with a reasonable
profit opportunity based on the potential for sales and service of COMPANY
PRODUCTS within its locality.
HOME PERCENTAGE
NAME ADDRESS OF INTEREST
Lithia Motors, Inc. 360 E. Jackson Street, Medford, OR 97501-5892 80
Lithia MTLM, Inc. 360 E. Jackson Street, Medford, OR 97501-5892 20
(ii) upon the representation and agreement that the following
person(s), and only the following person(s), shall have full managerial
authority for the operating management of the Dealer in the performance of
this agreement.
HOME
NAME ADDRESS TITLE
Sidney B. DeBoer 234 Vista, Ashland, OR 97520 Managing Member
Bret E. Green 2631 Rosewood, Medford, OR 97504 General Manager
1
<PAGE>
and (iii) upon the representation and agreement that the following
person(s), and only the following person(s), shall be remaining owners of the
Dealer:
HOME PERCENTAGE
NAME ADDRESS OF INTEREST
The Dealer shall give the Company prior notice of any proposed change
in the said ownership or managerial authority, and immediate notice of the
death or incapacity of any such person. No such change or notice, and no
assignment of this agreement or of any right or interest herein, shall be
effective against the Company unless and until embodied in an appropriate
amendment to or assignment of this agreement, as the case may be, duly
executed and delivered by the Company and by the Dealer. The Company shall
not unreasonably withhold it consent to any such change.
G. This agreement shall continue in force and effect for a
term commencing on the date of its execution and expiring April 30, 2000
unless sooner terminated under the provisions of paragraph 17 hereof.
H. Both the Company and the Dealer assume and agree to carry
out and perform their respective responsibilities under this agreement.
The parties hereto have duly executed this agreement in duplicate as of
the day and year first above written.
FORD MOTOR COMPANY LITHIA LINCOLN MERCURY
/s/ /s/ Sidney B. DeBoer
- ------------------------------------ ----------------------------------
General Manager, Lincoln-Mercury Managing Member
Division
Countersigned by
/s/
- ------------------------------------
2
<PAGE>
FORD MOTOR COMPANY
____________ Region
Addendum to
MERCURY SALES AND SERVICE AGREEMENT Dated: 6/1/97
LINCOLN SALES AND SERVICE AGREEMENT Dated: 6/1/97
by and between Lithia TLM, LLC, Limited Liability Corporation, in the State
of Oregon doing business as Lithia Lincoln Mercury (the "Dealer") and Ford
Motor Company, a Delaware corporation (the "Company").
THE PARTIES AGREE that the following addendum to Paragraph (F) containing a
claus (i)(e) is annexed and made part of the Agreements:
F(i)(a) upon the representation and agreement that the following person(s)
and/or entity(ies), and only the following person(s) and/or entity(ies) shall
have ownership interests in the principal owner(s) referred to in clause (i)
of this Paragraph F:
<TABLE>
<CAPTION>
NAME OF PRINCIPAL OWNER(S) WHICH NAME AND ADDRESS OF PERSON(S) OR ENTITY(IES) PERCENTAGE
ARE PARTNERSHIPS OR CORPORATIONS HAVING OWNERSHIP INTEREST(S) IN PRINCIPAL OWNER(S) OF OWNERSHIP
(STATE OF INCORPORATION) (INDICATE STOCKHOLDER OR PARTNER) INTEREST
- -------------------------------- -------------------------------------------------- ------------
<S> <C> <C>
Lithia Motors, Inc. Lithia Holding Company, LLC., (Stockholder) 53.5%
Oregon 360 E. Jackson, Medford, OR 97052-5892
The Public, (Stockholder)
Class "A" Stockholders 46.5%
Lithia MTLM, Inc. Lithia Motors, Inc., (Stockholder)
Oregon 360 E. Jackson, Medford, OR 97501-5892 100.0%
Lithia Holding Company, LLC Sidney B. DeBoer, (Stockholder)
Oregon 234 Vista, Ashland, OR 97520 58.125%
Manford L. Dick Heimann, (Stockholder)
426 Roundelay Circle, Medford, OR 97504 34.875%
Raymond Bradford Gray, (Stockholder)
6764 Laurel Crest Drive, Medford, OR 97504 7.0%
</TABLE>
The provisions of this paragraph F requiring notice to and consent by
the Company to any changes in ownership shall apply to any change in the
person(s) or entity(ies) having an ownership interest in the principal
owner(s) set forth in this clause F(i)(a).
IN WITNESS WHEREOF, the Company and the Dealer have duly executed this
addendum in duplicate as of the 1st day of June, 1997.
FORD MOTOR COMPANY LITHIA LINCOLN MERCURY
/s/ /s/Sidney B. DeBoer, President
- ----------------------------------- ----------------------------------------
Assistant Secretary Lithia Motors, Inc., The Managing Member
Countersigned by
/s/
- -----------------------------------
3
<PAGE>
EX-10
Exhibit 10.7.2 Ford Supplemental Terms & Cond
EXHIBIT 10.7.2
SUPPLEMENTAL TERMS AND CONDITIONS
FORD MOTOR COMPANY
This Agreement is made this 12th day of June, 1997 by and between Ford
Motor Company, a Delaware corporation with its principal place of business at
The American Road, Dearbom, Michigan (hereinafter called "Ford") and Lithia
Motors, Inc., an Oregon corporation, with its principal place of business at
Medford, Oregon (hereinafter called "Lithia").
WHEREAS; Lithia is established as a holding company, owning all the
shares of Lithia MTLM, Inc. of Medford, OR (LMTLM); and
WHEREAS; Lithia owns eighty (80%) percent of Lithia Motors TLM, LLC
("LTLM") and LMTLM owns twenty (20%) percent of LTLM; and
WHEREAS; LTLM holds the Lincoln and Mercury Sales and Service
Agreements ("Agreements") being transferred to Lithia; and
WHEREAS; Lithia has expressed its interest in changing the current
ownership structure, so that a minority ownership of Lithia's shares can be
held by the public; and
WHEREAS; Lithia acknowledges that Ford has the right to approve the
purchaser of the member units or assets of LTLM pursuant to the Agreements;
and
WHEREAS; Lithia has expressed an interest in acquiring additional Ford,
authorized dealerships primarily in the western United States and Lithia
acknowledges that Ford has the right to approve the purchase of the capital
stock or assets of each Ford authorized dealership pursuant to the Agreement,
as herein defined;
WHEREAS; Ford is willing to approve the transfer of up to forty-nine
(49%) percent of Lithia's voting interest to the public, subject to the terms
and conditions of the Agreements and the terms of these Supplemental Terms
and Conditions ("Supplemental Terms"); and
WHEREAS; Ford is willing to approve the transfer by one or more of its
authorized dealerships of their Ford, Mercury or Lincoln dealership
operations to Lithia, on a case by case basis but subject to the terms and
conditions of the Ford, Mercury and/or Lincoln Dealer sales and service
Agreements ("Agreement") and
the terms of these Supplemental Terms and conditions ("Supplemental
Terms");
NOW, THEREFORE, the parties do agree as follows:
1. Definitions. For purposes hereof, the following definitions
shall apply in addition to those set forth above:
a. "General Manager" shall mean the person designated by Lithia
pursuant to paragraph F (ii) of the Agreement with full day to day management
authority and approved by Ford in writing.
b. "Securities Act" shall mean the Securities Act of 1933, as
amended.
c. "Exchange Act" shall mean the Securities and Exchange Act of
1934, as
amended.
d. "SEC" shall mean the Securities and Exchange Commission.
1
<PAGE>
e. "Dealership" shall mean each Ford, Mercury or Lincoln
authorized dealership owned or controlled directly or indirectly by Lithia.
f. "Delegation Certificate" shall be the instrument executed by
an authorized officer of Lithia granting, full day to day operational and
management control of the Dealership to the General Manager.
g. "CSI" shall mean the Customer Satisfaction Index used by Ford
to measure customer satisfaction in terms of the selling process as well as
after sales service, as such may be modified from time to time by Ford.
2. Scope. Lithia has indicated that it will seek to acquire or
apply for additional Ford authorized dealerships (Ford, Mercury or Lincoln),
primarily in markets in the western United States. In order to simplify
future discussions and to avoid any misunderstandings, these Supplemental
Terms are intended to apply to those situations where Ford is willing to
approve Lithia (or its designated wholly- owned direct or indirect
subsidiary) as the purchaser of the capital stock or assets of a Ford
authorized dealership (Ford, Mercury or Lincoln) or where it is willing to
enter into an Agreement with Lithia with respect to a new dealership
location. In each situation where Ford is willing to enter into an
Agreement, Lithia will cause the Dealership to execute an Agreement and will
cause such Dealership to be bound by these Supplemental Terms.
3. Sole Ownership. To maintain financial and operational
autonomy and accountability, each Dealership will be a separate corporation
with the Ford, Mercury and or/Lincoln dealership operation being its sole
business, unless otherwise agreed in writing by Ford; provided, however,
that, if, at the time of acquisition of any Dealership, such Dealership is
not a separate corporation, Lithia will use reasonable efforts to cause the
Dealership to be held as a separate corporation as soon as practicable. Each
dealership shall be wholly owned by Lithia. Ford, however, does acknowledge
that LTLM will be a separate legal entity with the Mercury, Lincoln and
Toyota dealership operation being its sole business, and that there shall be
no requirement for this to change. Further, Ford acknowledges that LTLM will
not initially be wholly owned by Lithia, such issue which is addressed
further in these Supplemental Terms and Conditions. As is required of all
Ford authorized dealerships, LTLM and all other Dealerships shall continue to
submit monthly financial and operating performance data to Ford.
4. Capitalization. Each Dealership will be separately and fully
capitalized to ensure the maintenance of net cash, working capital and
operating investment in accordance with Ford guidelines. Other than through
dividends permitted by the law of the state of incorporation of each
Dealership, the effect of which shall not impair the ability of the
Dealership to meet the above mentioned Ford capitalization guidelines, or
through arms-length transactions, all cash and other assets generated by each
Dealership will remain within the Dealership and none of the assets of any
Dealership owned or controlled by Lithia shall be used directly or indirectly
to secure the debt or liability of Lithia or any other Dealership or other
business owned or controlled by Lithia; provided, however, that nothing
herein shall prevent the cross collateralization of capital stock or assets
with respect to the obtaining of a single floorplan financing source for all
of the Dealerships owned by Lithia. Provided, such actions are consistent
with the above undertakings, nothing contained herein shall preclude Lithia
from managing cash generated from the Dealership operations in accordance
with policies and programs established from time to time by Lithia.
5. General Manager. Lithia shall delegate in writing the
complete day to day management control of each Dealership to the General
Manager of such Dealership whose appointment shall be subject to Ford's prior
written approval which shall not be unreasonably withheld. The General
Manager shall be designated in paragraph F (ii) of the Agreement and shall
have full managerial authority and accountability for operating the
Dealership in accordance with the terms of the Agreement and the Supplemental
Terms. Each person nominated by Lithia as a General Manager must have
substantial, successful retail automotive experience and must meet Ford's
high standards for moral and ethical behavior. Upon the appointment of a
General Manager, a copy of the Delegation Certificate shall be submitted to
Ford. All proposed changes to the Delegation Certificate shall be in
writing, submitted to Ford and subject to Ford's prior written approval.
Lithia will notify Ford and obtain Fords prior written approval of any
proposed change to the General Manager, such approval not to be unreasonably
withheld. Lithia shall have the right to appoint an interim General Manager
as a temporary replacement for any General Manager who is terminated for
cause or who voluntarily resigns, in each case without the prior written
approval of Ford. In the event that an interim General Manager is appointed,
Lithia shall work with Ford to appoint a permanent General Manager within 90
days after the termination or departure of any current permanent General
Manager. In addition to meeting the criteria Ford customarily applies to new
dealer candidates, Lithia understands that the General Manager is to be
assigned to the Dealership for a sufficient time (being a minimum of 3 years
unless otherwise agreed by Ford in writing) to allow the General Manager to
develop and maintain ties to the local community evidenced by involvement in
community civic and charitable organizations, unless failure with respect to
performance of the Dealership warrants otherwise.
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6. Compensation Plans. Lithia will cause any Dealership to
provide to its General Manager and other key employees of the Dealership, as
deemed appropriate, as part of their compensation, incentive programs that
will provide specific financial rewards to the General Manager and such other
employees that are payable to them at least annually and are based upon the
achievement and maintenance by the Dealership of the long term and short term
operating performance objectives.
7. Performance Criteria. Should any Dealership fail to meet
reasonable performance criteria established by Ford relating to such matters
as sales performance, CSI and such performance criteria that Ford may
reasonably apply to all its authorized dealers, Ford will have the right to
implement the following procedure. Ford shall notify Lithia and the General
Manager in writing of such failure and shall grant Lithia and the General
Manager 90 days to either cure the failure in total or, with respect to sales
performance and CSI only, to present to Ford evidence of progress to cure the
failure indicating in Ford's reasonable judgment that the failure will be
cured within one year of Ford's notice. Should the failure not be cured
within the above period, persons delegated with authority from Lithia shall
immediately meet with authorized personnel from Ford to arrange for an
orderly and expeditious replacement of the General Manager. Should agreement
not be reached upon the identity of an appropriate replacement General
Manager within 90 days of the end of the cure period, Ford may terminate the
Agreement with immediate effect. Requirements that Dealerships consistently
meet or exceed Ford's regional average car and truck market share and
comparable dealer group average customer.satisfaction ratings, as measured by
CSI or other criteria established by Ford, shall be considered reasonable
performance requirements. Ford will not unreasonably withhold its consent to
the appointment of an appropriate replacement General Manager.
8. Additional Appointments. During the initial 12 month period after
the execution of this Agreement, Lithia shall be allowed to acquire up to two
(2) additional Lincoln Mercury Division supervised dealerships and up to three
(3) Ford Division supervised dealerships. The performance (sales performance,
CSI and such performance criteria that Ford may reasonably apply to all its
authorized dealers) of the Dealerships shall be monitored for a period of twelve
(12) months from the date of the first acquisition of a Ford Division
dealership, and if performance at the Dealerships operated by Lithia is deemed
to constitute satisfactory performance by Ford, then Lithia shall be allowed to
acquire up to one additional Ford Division supervised dealership and one
additional Lincoln Mercury supervised dealership. The performance of the
Dealerships will subsequently be reviewed for a nine month period (or more, if
an additional acquisition is not requested within the nine month period) from
the date of any new acquisition, to determine whether satisfactory performance
has been achieved and maintained and whether additional acquisitions in the
manner outlined above will be approved. Such additional acquisitions shall not
exceed one Ford Division supervised dealership and one Lincoln Mercury
supervised dealership during any nine month monitoring period, unless such
limitation is waived at Ford's sole discretion. In addition, should any
Dealership fail to maintain for any 12 month period the level of CSI at
substantially the same level that was reported for such Dealership as of the
date of its acquisition by Lithia, the Company shall not seek or apply for
another Ford authorized dealership until such time as such level of CSI is
restored to Ford's reasonable satisfaction. Ford will provide each Dealership a
report monthly, summarizing its CSI performance for the preceding month and for
the calendar year to date. Unless otherwise agreed by Ford in writing, Lithia
shall not seek or apply for a Ford authorized dealership if, once owning such
dealership, Lithia would own or control, directly or indirectly, the greater of
(a) 15 Ford and 15 Lincoln Mercury Dealerships or (b) that number of Ford
authorized dealerships with total retail sales of new vehicles in the
immediately preceding calendar year of more than 5% of the total Ford and
Lincoln Mercury branded vehicles sold at retail in the United States; provided,
however, that in no event shall Lithia seek or apply for a Ford authorized
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dealership in any market area, as defined from time to time by Ford for its
dealership network, that would result in the Lithia owning or controlling,
directly or indirectly, more than one Ford authorized dealership in those market
areas having 2 or less Ford authorized dealerships in them, or in Lithia owning
or controlling, directly or indirectly, more than 33% of the Ford authorized
dealerships in market areas, as defined from time to time by Ford for its
dealership network, having more than 3 authorized Ford dealerships in them, it
being understood that this provison is intended to apply separately to Ford and
to Lincoln Mercury dealerships. Should the above limitations be exceeded and,
notwithstanding the above limitations, Lithia seek Ford's approval to acquire an
additional authorized dealership, Ford's refusal to approve such an acquisition
shall be deemed to be a reasonable action by Ford.
9. Identification of Lithia Contact Official. Lithia shall
identify, in the Agreements, the Lithia executive (other than the General
Managers of the Dealerships) who will respond directly to any Ford concerns
regarding the operation or performance of the Dealerships, which executive
will have full authority, in accordance with Lithia management policies, to
resolve issues raised by Ford in connection with the operation of the
Dealerships.
10. Issuance of Shares. Lithia agrees that public ownership of
Lithia shall not exceed shares representing forty-nine percent (49%) of the
total voting control of Lithia. Further Lithia agrees that it shall not make
any changes to the voting structure of shares issued, authorize the creation
of a preferred class of stock or provide such class of stock voting rights,
which would result in a loss of voting control by the Holding Company,
without the prior approval of Ford. It is agreed that the voting rights
percentage of ownership for the Holding Company in Lithia will be maintained
at a percentage of at least fifty-one (51%) percent.
11. Major Changes. Lithia shall submit to Ford copies of all
effective registration statements and final reports, proxies and information
statements it files with the SEC pursuant to the Securities Act or the
Exchange Act within five (5) business days of filing with the SEC. Lithia,
if it becomes aware of or obtains copies of, shall submit to Ford all filings
submitted to the SEC by third parties that are required to disclose
significant holdings or substantial acquisitions of, or changes in, the
ownership of the capital stock of Lithia Holding LLC ("Holding, Company), the
holding Company that will hold a majority voting interest in Lithia,
including, without limitation, Schedules 13D or 13G provided Lithia becomes
aware of or receives copies of such filings. Certain events described in
such filings shall give rise to the rights and obligations of the parties
described in Attachment A.
12. Dissolution of LTLM. It is understood by Ford that the
establishment of LTLM by Lithia was undertaken to generate maximum tax
deferral benefits for Lithia, such benefits which will be fully realized by
Lithia by December 31, 1997. At such time, Lithia will dissolve LTLM and
Ford will agree to amend the Agreements to reflect LMTLM as the holder of the
Agreements with one hundred percent (100%) ownership of LMTLM being held by
Lithia. The request for the change will occur by no later than March 31,
1998 and Ford will have sixty (60) days after such request to process the
change. It is agreed by Lithia that at such time, LMTLM will then be bound
by all the terms and conditions herein that are currently applicable to LTLM.
13. Exclusive Dealership. Each Dealership shall operate as an
exclusively dedicated Ford, Mercury and/or Lincoln dealership, as the case
may be, and Lithia will not accept a sales and service agreement with any
other automobile manufacturer or importer or allow the merchandising,
display, sale or service of new vehicles other than Ford, Mercury or Lincoln
vehicles at the facilities and locations approved by Ford and used by any
Dealership for the conduct of its business ("Ford Approved Facilities"). It
is acknowledged by Ford, however, that LTLM shall operate as a Mercury,
Lincoln and Toyota dealership only, and Lithia will not accept a sales and
service agreement with any other automobile manufacturer or importer or allow
the merchandising, display, sale or service of new vehicles other than those
identified above at the facilities and locations approved by Ford and used by
LTLM for the conduct of its business. Neither LTLM, nor any other Dealership
will merchandise, display or sell new Ford, Mercury or Lincoln vehicles at
any unauthorized location including those owned or controlled by Lithia or
the Holding Company.
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14. Dealership Name. The trade name and corporate name of all
Dealerships will be subject to Ford's approval and will not include any
reference to any non-Ford, Mercury or Lincoln make vehicle.
15. Prospectus Disclaimer and Indemnification and Hold Harmless
Agreement. Lithia shall place in its registration statement and its
prospectus, as well as in any other document offering shares in Lithia to
public or private investors, the following disclaimer:
No Manufacturer (as defined in this Prospectus) has been involved,
directly or indirectly, in the preparation of this Prospectus or in the
Offering being made hereby. No Manufacturer has made any statements or
representations in connection with the Offering or has provided any
information or materials that were used in connection with the Offering, and
no Manufacturer has any responsibility for the accuracy or completeness of
this Prospectus.
16. Advertising. Lithia recognizes the benefit of local
cooperative advertising and has indicated that it will cause LTLM to remain a
fully participating member of the local Lincoln and Mercury dealer
advertising group (LMDA). Further, Lithia agrees that it will cause any
additional Dealership it shall obtain to remain a fully participating member
of the LMDA and/or the local Ford dealer advertising group (FDAF), as
applicable.
17. Auctions. Used vehicle purchases from Ford sponsored
auctions will be governed by a separate "Sponsored Auction Agreement" which
will be executed by each Dealership.
18. Site Control. Any existing agreement covering a Dealership
or its assets relating to site control will be assumed by Lithia and shall
remain in full force and effect.
19. Dispute Settlement. Any dispute concerning the Agreement or
the Supplemental Terms shall be resolved using the arbitration plan described
in paragraph 18 of the Agreements; provided, however, that notwithstanding
anything in the Agreement to the contrary, the use of such Plan shall be
mandatory and not optional and, provided, further, that no dispute need be
brought before the Ford Dealer Policy Board.
20. Agreement and Supplemental Terms. Lithia confirms that the
provisions of these Supplemental Terms are material to its relationship with
Ford and that a failure by Lithia to fully comply with any term hereof, after
having been given a reasonable opportunity to cure such failure, will
constitute good and just cause for Ford, in its discretion, to terminate the
Agreement and these Supplemental Terms with immediate effect.
21. Binding Effect. These Supplemental Terms are intended to
modify certain provisions of the Agreement and to be incorporated as a part
of the Agreement. Should there be an inconsistency between the terms of
these Supplemental Terms and any provision of the Agreement, the terms of
these Supplemental Terms shall apply.
22. Parent-Subsidiary. Lithia shall cause the Holding Company
and each Dealership to carry out the actions and to assume the
responsibilities provided herein.
IN WITNESS WHEREOF, Lithia and Ford, through their authorized officers,
have set their hands on the day and year above written.
Ford Motor Company Lithia Motors, Inc.
By: /s/ Ford Motor Company By: /s/ Sidney B. deBoer
---------------------------------- --------------------------------
Its Its President-CEO
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Attachment A
Should (a) any SEC filing disclose that a person, entity or group has a
binding agreement to acquire, or has acquired, an amount of voting securities
(or other securities convertible into voting securities) of Lithia or the
Holding Company that will place 50% or more of the voting securities (or
other securities convertible into voting securities) of Lithia or the Holding
Company into the hands of a person, entity or group who, at the date hereof,
do not directly or indirectly control 50% or more of the voting securities
(or other securities convertible into voting securities) of Lithia or the
Holding Company or the power through capital stock ownership or by contract
to elect or designate the election of 50% or more of the members of the Board
of Directors of Lithia or the Holding Company, or (b) should Lithia or the
Holding Company through their respective Boards of Directors or through
shareholder action propose (i) to enter into an extraordinary and material
corporate transaction such as a material merger or consolidation of Lithia or
the Holding Company with an enterprise in an industry new to Lithia or the
Holding Company or the liquidation of Lithia or the Holding Company,
respectively, or (ii) to sell or transfer substantially all the respective
assets of Lithia or the Holding Company or (iii) to make a change that,
together with other changes made to the respective Boards of Directors of
Lithia or the Holding Company within the preceding year would result in a
change of more than 50% of the composition of either Board of Directors,
Lithia shall provide 30 days prior written notice of such intended or
proposed action to Ford. If any such action is believed by Ford in its
reasonable judgment to have a material and adverse effect on its reputation
or image in the market place, with respect to the actions described in (b) or
materially incompatible with Ford's interests with respect to the actions
described in (a) Ford shall give Lithia written notice to such effect within
30 days of Lithia's prior notice to Ford. In such event, within 90 days of
Ford's notice, Lithia shall sell or cause to be sold one or more of the
Dealerships, as specified in the notice, to Ford or its designee at fair
market value, determined in accordance with Annex 1 or provide evidence to
Ford that the proposed action which gave rise to the issuance of Ford's
notice will not take place. Should Lithia enter into an agreement to
transfer the assets or capital stock of any Dealership to a third party,
Ford's right of first refusal provided in paragraph 24 (b) of the Agreement
shall apply.
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ANNEX
The Fair Market Value shall be determined as follows:
(a) Within 10 days after Ford has given notice to Lithia of its
intention to cause Lithia to sell one or more Dealerships (herein called the
"Valuation Date"), Ford and Lithia each shall designate a nationally
recognized investment banking firm ("Investment Banker"). If either Ford or
Lithia shall fail to designate an Investment Banker within such 10-day
period, the Investment Banker designated by the other party shall determine
the Fair Market Value, and such determination shall be binding on the parties.
(b) Within 30 days after the Valuation Date, each Investment Banker
shall submit to Ford and Lithia its written determination of the Fair Market
Value of the Dealership or group of Dealerships. If only one Investment
Banker submits a written determination within such 30-day period, the Fair
Market Value shall be deemed to be the value stated in such determination.
(c) If the two values established by the first two Investment Bankers
are within ten percent (10%) of one another (as measured from the lower
value), the average of the two values shall be deemed to be the Fair Market
Value. If the two values established by the Investment Bankers differ by
more than ten percent (10%) (measured from the lower value), the first two
Investment Bankers shall, within 10 days of the Valuation Date, jointly
select a third Investment Banker meeting the criteria specified in paragraph
(a) who shall submit to Ford and Lithia a written determination of the Fair
Market Value of the Dealership or group of Dealerships within 30 days of its
appointment. If the first two Investment Bankers fail to appoint the third
Investment Banker within the period specified, such appointment shall be made
by the American Arbitration Association. The average of the two valuations
that are closer in value shall be deemed to be the Fair Market Value of the
Dealerships or group of Dealerships.
(d) Ford and Lithia each shall bear the expense of the Investment
Banker hired by it and shall share equally in the expense of the third
Investment Banker.
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EX-10
Exhibit 10.8.1 GM Supplemental Agmt
Exhibit 10.8.1
SUPPLEMENTAL AGREEMENT TO
GENERAL MOTORS CORPORATION
DEALER SALES AND SERVICE AGREEMENT
This Supplemental Agreement to General Motors Corporation Dealer Sales
and Service Agreement is entered into between Lithia Motors, Inc. and General
Motors Corporation.
WHEREAS Lithia Motors, Inc. is interested in acquiring ownership of one
or more GM Dealerships in selected areas of the United States;
WHEREAS, the parties desire to enter into a positive and productive
business relationship which will accomplish our mutual goals and promote
sales of GM products consistent with GM's brand strategy for its products and
focus on total customer enthusiasm;
WHEREAS, the organization and ownership structure of Lithia Motors,
Inc. and its retail operating systems are such that the terms of the Dealer
Agreement are not wholly adequate to address the legitimate business needs
and concerns of Lithia Motors, Inc. and GM;
NOW, THEREFORE, the parties agree as follows:
1. Purpose of Agreement
1.1 Purpose of Agreement
The parties acknowledge that Lithia Motors, Inc. desires to
purchase the stock or assets of one or more current GM Dealerships and to be
appointed as the replacement Dealer by the appropriate Divisions. The
parties further acknowledge that the ownership arrangements of Lithia Motors,
Inc. and the operating processes and procedures of Lithia Motors, Inc.
require that the parties supplement the standard terms and provisions of the
Dealer Agreement to assure that the legitimate business needs of GM in regard
to the representation of its products are satisfied. The parties have agreed
to enter into this Agreement for that purpose. This agreement shall not
apply in any respect to Saturn Dealers or dealerships.
1.2 Definitions.
For purposes of this Agreement, the following terms shall
have the meaning indicated:
1.2.1 "Agreement" means this Supplemental Agreement to
General Motors Corporation Dealer Sales and Service Agreement.
1.2.2 "Lithia Motors, Inc. or "Lithia" means Lithia Motors,
Inc. and its subsidiary Dealer Companies.
1.2.3 "Dealer Agreement" means a General Motors Corporation
Dealer Sales and Service Agreement, a copy of which is attached hereto as
Exhibit A and is incorporated herein by reference. It also includes any
superseding Dealer Agreements.
1.2.4 "Dealer Company" or "Dealer" means the business
entity owned or controlled by Lithia Motors, Inc. that is a party to a Dealer
Agreement and is defined as the "Dealer" for purposes of the Dealer Agreement.
1.2.5 "Division" or "Divisions" means one or more of the
marketing divisions of GM; Chevrolet, Pontiac-GMC, Oldsmobile, Buick,
Cadillac.
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1.2.6 "GM" means General Motors Corporation.
1.2.7 "GM Dealerships" means a specific, physical location
from which Dealership Operations are conducted by a Dealer pursuant to the
terms of one or more Dealer Agreements. It does not include Saturn
Dealerships.
1.2.8 "Voting stock" means any stock of Lithia Motors,
Inc. that has voting rights as well as any debt or equity security of Lithia
Motors, Inc. that is convertible into stock of Lithia Motors, Inc. that has
voting rights.
2. Lithia Motors, Inc. Ownership
2.1 Ownership Structure.
Each Dealer will be a separate company, distinct from
Lithia Motors, Inc. in the form of either a corporation, partnership or other
business enterprise form acceptable to GM, which is capitalized in accordance
with the "GM Owned Working Capital Agreement". Each of the Dealer Companies
will be owned by Lithia Motors, Inc. or may have minority interests held by
employees of that Dealer Company subject to GM approval.
2.2 Lithia Motors, Inc. hereby warrants that the
representations and assurances contained in this Agreement are within its
authority to make and do not contravene any directive, policy or procedure of
Lithia Motors, Inc.
2.3 Change in Ownership. Any material change in ownership of
any Dealer company and any material change in Lithia Motors, Inc. or any
event described in section 2.4.2(b) shall be considered a change in ownership
of the Dealer Company under the terms of the dealer agreements and all
applicable terms of the Dealer Agreement as supplemented by this Agreement
will apply to any such change.
2.4 Acquisition of Ownership Interest by Third Party. Given the
ultimate control Lithia Motors, Inc. will have over the Dealer Companies, and
the Divisions' strong interest in assuring that those who own and control
their Dealers have interests consistent with those of the Divisions', Lithia
Motors, Inc. agrees to the following:
2.4.1 Lithia Motors, Inc. will deliver to GM copies of all
Schedules 13D and 13G, and all amendments thereto and terminations thereof,
received by Lithia Motors, Inc., within five (5) days of receipt of such
Schedules. If Lithia Motors, Inc. is aware of any ownership of its stock
that should have been reported to it on Schedule 13D but that is not reported
in a timely manner, it will promptly give GM written notice of such
ownership, with any relevant information about the owner that Lithia Motors,
Inc. possesses.
2.4.2 If Lithia Motors, Inc. through its Board of Directors
or through shareholder action proposes or if any person, entity or group
sends Lithia Motors, Inc. a schedule 13D, or any amendment thereto,
disclosing (a) a binding agreement to acquire or the acquisition of aggregate
ownership of more than twenty percent (20%) of the voting stock of Lithia
Motors, Inc. (b) Lithia Motors, Inc. through its Board of Directors or
through shareholder action proposes or if any plans or proposals which relate
to or would result in the following: (i) the acquisition by any person of
more than 20% of the voting stock of Lithia Motors, Inc. other than for the
purposes of ordinary passive investment (ii) an extraordinary corporate
transaction. such as a material merger, reorganization or liquidation,
involving Lithia Motors, Inc. or a sale or transfer of a material amount of
assets of Lithia Motors, Inc. and its subsidiaries; or (iii) any change which
together with any changes made to the Board of Directors within the preceding
year, would result in a change in control of the then current board of
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directors of Lithia Motors. Inc. or (iv) in the case of an entity that
produces or controls or is controlled by or is under common control with an
entity that either produces motor vehicles or is a motor vehicle franchisor,
the acquisition by any person entity or group of more than 20% of the voting
stock of Lithia Motors, Inc. and any proposal by any such person, entity or
group through the Lithia Motors, Inc. Board of Directors or shareholders
action to change the board of directors of Lithia Motors, Inc., then if such
actions in GM's business judgment could have a material or adverse effect on
its image or reputation in the GM dealerships or be materially incompatible
with GM's interests (and upon notice of GM's reasons for such judgment),
Lithia Motors, Inc. agree that it will take one of the remedial actions set
forth in Section 2.4.3 below within ninety (90) days of receiving such
Schedule 13D or such amendment.
2.4.3 If Lithia Motors, Inc. is obligated under Section
2.4.2 above to take remedial action, it will (a) transfer to GM or its
designee, and GM or its designee will acquire the assets, properties or
business associated with any Dealer Company at fair market value as
determined in accordance with Section 8 below, or (b) provide evidence to the
Divisions (reasonably acceptable to GM) that such person entity or group no
longer has such threshold level of ownership interest in Lithia Motors, Inc.
or that the actions described in Section 2.4.2(b) will not occur.
2.4.4 Should Lithia Motors, Inc. or Dealer Company enter
into an agreement to transfer the assets of a Dealer Company to a third
party, the right of first refusal described in Article 12.3 of the Dealer
Agreement shall apply to any such transfer.
2.4.5 Lithia Motors, Inc. will describe such provisions of
this Section in any prospectus it delivers in connection with the offer or
sale of its stock or any other securities filing as may be required by any
applicable laws or regulations.
2.5 Officers and Key Management. Lithia Motors, Inc. agrees to
provide to GM a list of the key management of Lithia Motors, Inc.
responsibilities in regard to the control and management of Lithia Motors,
Inc. and each Dealer Company. Each Dealer Company shall agree to propose to
GM any material changes in the key management of the Dealer Company or their
responsibilities. Such proposal should be provided to GM in writing prior to
such change to the extent practicable and shall include sufficient
information to permit GM to evaluate the proposed change consistent with
normal policies and procedures. Lithia Motors, Inc. will notify GM in
writing of any material change in the key management of Lithia Motors, Inc.
or their responsibilities. For purposes of this Agreement, the term "key
management" shall mean CEO, President and Vice Presidents with respect to
each dealer company and executive officers with respect to Lithia Motors. Inc.
3. Lithia Motors, Inc. Operating Policies and Procedures.
3.1 GM Brand Strategy. Lithia Motors, Inc. acknowledges that
GM has a Brand Strategy and has invested significant capital in the
development of corporate, divisional and brand image. Relevant information
regarding this strategy has been shared with Lithia Motors, Inc.. Lithia
Motors, Inc. agrees to accommodate GM's Brand Strategy in its Lithia Motors,
Inc. GM dealership Operations. Lithia Motors, Inc. will incorporate in each
of its GM Dealerships the following as a minimum in support of the GM Brand
Strategy:
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3.1.1 GM has developed retail and service operating
standards for each of its Divisions. At each of its GM Dealerships, Lithia
Motors, Inc. will implement and use those divisional standards, or higher
standards which it may develop, subject to GM's approval.
3.1.2 Dealer marketing associations for each of the
Divisions are an integral part of GM's Brand Strategy. Lithia Motors, Inc.
agrees that its advertising and marketing practices will support and enhance
GM and Divisional brand and marketing practices and goals. Lithia Motors,
Inc. agrees and each Dealer Company shall agree that the Dealer Company will
participate in the appropriate dealer marketing association or group as
provided in Section 11.
3.1.3 Lithia Motors, Inc. will not, and will not permit any
Dealer Company to jointly advertise or market any of their non-GM automotive
operations in conjunction with its approved GM Dealership Operations (it
being understood that the advertising example attached hereto as Exhibit C
will be permissible).
4. Acquisition of GM Dealerships.
4.1 In consideration for the representations, covenants and
commitments contained herein and assuming compliance with the normal
requirements of General Motors regarding transfer of assets and appointment
as a dealer, General Motors will permit the acquisition of up to five (5)
General Motors Dealerships during the period commencing from the date of this
Agreement and ending 24 months thereafter. Currently Lithia Motors is not in
compliance with General Motors standards for the Pontiac dealership in
Medford, Oregon for Customer Satisfaction and Sales performance. Lithia
represents intent to bring the performance into compliance, but believes it
will be able to do so if the location is in compliance with GM's channel
plan. Accordingly, General Motors will approve, upon receipt of an
acceptable proposal Lithia's acquisition of the Buick/Cadillac dealership or
the Oldsmobile/GMC dealership or the sale of Pontiac assets to either of
those dealers in Medford in order that the plan of a Pontiac-Buick-GMC
dealership and a Chevrolet Oldsmobile/Cadillac dealership may be
accomplished. If Lithia does not accomplish this purchase or sale within 12
months of the date of this agreement and the Pontiac Customer Satisfaction
and Sales performance does not meet the performance standards identified in
sections 4.2 and 4.3 of this agreement, Lithia will voluntarily terminate its
Pontiac dealer agreement in exchange for payment provided in section 5.2 of
this agreement. In the first 12 months following the date of this agreement,
GM will allow Lithia to acquire two additional GM dealers, subject to receipt
of acceptable proposals, while working on the purchase/sale/correction of the
Medford Pontiac dealership deficiencies. In the second 12 months, GM will
allow, subject to receipt of acceptable proposals the acquisition of two
additional GM dealerships if Lithia is meeting the performance standards for
its then owned GM dealerships. Total Lithia owned GM dealerships will not
exceed 5 at the conclusion of the 24 months following the date of this
agreement.
4.2 Following the 24 month period, each Dealer company in which
Lithia Motors, Inc. has an investment must be in compliance with the terms of
the General Motors Policies for Changes in GM Dealership Ownership/Management
bulletin of September 19, 1994 (a copy of which has already been provided)
including any revisions or replacements of that bulletin, in order to be
approved for additional acquisitions of General Motors Dealerships.
4.3 Multiple Dealer Policy. Lithia Motors, Inc. recognizes
that customers benefit from competition in the marketplace and agree that any
proposal to acquire additional GM dealerships shall be subject to the terms
of General Motors Multiple Dealer Investor/Multiple Dealer Operator policies
as set forth in NAO Bulletin 94-11, including any revisions of replacements
to the bulletin.
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4.4 GM and Lithia Motors, Inc. agree that Lithia Motors, Inc.
will not attempt to acquire more than 50% of the GM dealerships, by franchise
line in a GM defined Multiple Dealer Area. GM will provide upon Lithia
Motors, Inc. request the number of GM dealerships, by line, in the Multiple
Dealer Area and the maximum number of dealerships Lithia Motors, Inc. may
acquire in that Multiple Dealer Area.
4.5 Evaluation of Operation. GM will conduct semi annual
evaluation meetings with the management of Lithia Motors, Inc. and the Dealer
Operators of each GM Dealer Company to review the performance of each GM
Dealer Company. In the event GM advises Lithia Motors, Inc. for any two
consecutive evaluation periods that the performance of a GM dealership is not
meeting the sales volume, Customer Satisfaction and Branding requirements of
GM, in addition to other available remedies, GM will have the right to demand
a change in the management of the dealer company not meeting those
requirements. Lithia Motors, Inc. will make the management changes at any
deficient dealership within not more than six (6) months after notice of the
deficiencies.
5. Dealership Operations.
5.1 Dealership Operations. Each Dealer Company shall be a
distinct and complete business entity which shall include complete Dealership
Operations as that term is defined in the Dealer Agreement including, but not
limited to sales, service, parts and used car operations. This requirement
will not preclude certain centralized functions provided that they are
consistent with GM's Channel Strategy, and that such centralized functions
are reviewed with and approved by GM, which approval shall not be
unreasonably withheld. However, no sales, service or parts operations may be
combined with any non-GM representation and all GM Dealerships will have
reasonable used car operations.
5.2 GM Channel Strategy. Lithia Motors, Inc. further
stipulates and agrees that if Lithia Motors, Inc., GM, and the public are to
realize the potential benefits that Lithia Motors, Inc. represents to be the
result of the acquisitions proposed by Lithia Motors, Inc., then an integral
component of the participation by Lithia Motors, Inc. and Dealer Company is
their agreement that all GM Dealerships shall fully comply with General
Motors Channel Strategy including proper divisional representation alignment
and facilities that are properly located and that are in compliance with
appropriate divisional image programs. The Channel Strategy is set forth in
a memorandum dated October 5, 1995, from Ronald L. Zarrella to all GM
dealers. and in the written statement of the strategy as it relates to each
Dealer Company, copies of which will be provided to Lithia Motors, Inc. and
each Dealer Company. Lithia Motors, Inc. agrees and each Dealer Company
shall agree that within 12 months of the acquisition of any GM Dealership
that is not consistent with the Channel Strategy, Lithia Motors, Inc. and
Dealer Company will have complied with the Channel Strategy for that
location. Notwithstanding the above, GM will consider reasonable requests
from Lithia Motors, Inc. for an extension if Lithia Motors, Inc. is making
reasonable progress and is unable to comply with the Channel Strategy for
reasons beyond Lithia Motors, Inc. control. If Lithia Motors, Inc. and
Dealer Company fail to do so within the time provided, then Lithia Motors,
Inc. will cause Dealer Company and Dealer Company will agree to terminate the
representation of such products as reasonably required by GM to comply with
the Channel Strategy. If such termination is required, GM will compensate
Lithia Motors, Inc. the of sum $1,000 for each unit of GM retail planning
guide for each Dealer Agreement so terminated.
5.3 Exclusive Representation. Lithia Motors, Inc. agrees and
each Dealer Company shall agree that all GM Dealerships shall be used solely
for the exclusive representation of GM products and related services and in
no event shall be used for the display, sale or promotion or warranty service
of any new vehicle other than those of General Motors Corporation (provided
that if Lithia Motors, Inc. acquires a GM Dealership having a sales and
service agreement with a competitive automobile manufacturer or importer and
related sales and service operations at the same facility, at GM's request
Lithia Motors, Inc. shall cause the competitive sales and service operations
to be relocated within one year of acquisition). Lithia Motors, Inc. agrees
and each Dealer Company shall agree that should a Dealer Company cease to
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provide exclusive representation of GM products, based on the proper
franchise alignment as determined by the Charmer Strategy, then that shall
constitute good cause in and of itself for the termination of the Dealer
Agreement then in effect with such Dealer Company and Lithia Motors, Inc.
shall cause Dealer Company to and Dealer Company shall voluntarily terminate
the Dealer Agreements then in effect.
5.4 Image Compliance. Any Dealer Company acquired by Lithia
Motors, Inc. shall be brought into compliance with applicable Divisional
facility image requirements. Any new construction or significant interior or
exterior remodeling of any GM Dealerships shall incorporate the appropriate
divisional image program and shall be subject to approval by the appropriate
Division before such construction is undertaken.
5.5 Corporate Name and Tradenames. Both the corporate name and
any tradename or d/b/a of each Dealer Company must include the names of those
GM Divisions represented by such Dealer Company.
5.6 Dealer Company Advertising. Lithia Motors, Inc. agrees
that the advertising of each of the Dealer companies will maintain and
support the GM brand strategy. Newspaper, radio, television and any other
form of advertising will not combine GM brands or non GM brands, unless GM
has approved combined operations and will clearly identify each GM dealership
as a separate entity at its approved location (it being understood that the
advertising example attached hereto as Exhibit C will be permissible).
6. Dealer Operator
6.1 Appointment of Dealer Operator. For purposes of the Dealer
Agreement, including Paragraph Third and Article 2 and for each GM
Dealership, Lithia Motors, Inc. shall appoint an individual who shall act as
Executive Manager of that GM Dealership only and who shall be considered as
Dealer Operator for purposes of the Dealer Agreement. The Divisions will
rely upon the personal qualifications and management skills GM of Dealer
Operator. Lithia Motors. Inc. hereby represents that Dealer operator will
have complete managerial authority to make all decisions, and enter into any
and all necessary business commitments required in the normal course of
conducting Dealership Operations on behalf of Dealer Company and may take all
actions normally required of a Dealer Operator pursuant to Paragraph Third
and Article 2 of the Dealer Agreement. Lithia Motors, Inc. will not revoke,
modify or amend such authority without the prior written approval of the
applicable Division (except as provided in Section 6.3 below). Because of
the unique structure of Lithia Motors, Inc., the 15% ownership requirement
contained in Article 2 shall not apply to Dealer Operator.
6.2 Removal of Dealer Operator. Except as provided in Section
6.3 below, the removal or withdrawal of Dealer Operator without Divisions'
prior written consent shall constitute grounds for termination of the Dealer
Agreements. However, the Divisions recognize that employment
responsibilities of the Dealer Operator with Dealer Company may change,
making it impractical for the Dealer Operator to continue to fulfill his/her
responsibilities as Dealer Operator. In that case, or in the event Dealer
Operator leaves the employ of the Dealer Company, Dealer Company shall have
the opportunity to propose a replacement Dealer Operator. The Divisions will
not unreasonably withhold approval of any such proposal, provided the
proposed replacement has the skills and qualifications to act as Dealer
Operator pursuant to the standard policies and procedures of GM.
6.3 Replacement Dealer Operator. Dealer Company shall make
every effort to obtain the consent of the Divisions to a proposed replacement
Dealer Operator prior to the removal or withdrawal of the approved Dealer
Operator. If that is not practical, Dealer Company shall notify, Division in
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writing within 10 days following the removal or withdrawal of the approved
Dealer Operator. Within 10 days of that removal or withdrawal, Dealer
Company will submit to Division a plan and appropriate applications to
replace Dealer Operator with a qualified replacement acceptable to Division.
The replacement Dealer Operator must assume his/her responsibilities no later
than 90 days following the withdrawal of the approved Dealer Operator.
Lithia Motors, Inc. shall be permitted to appoint a temporary general manager
to manage the GM Dealership during the interim period while the Dealer
Operator is being replaced.
7. Dispute Resolution. Lithia Motors, Inc. agrees not to join any
legal or administrative action a seller of a General Motors dealership may
take against General Motors in the event General Motors declines to approve a
proposed transfer to Lithia Motors, Inc.. Lithia Motors, Inc. and GM
stipulate and agree and each Dealer Company shall stipulate and agree that
the dispute resolution process attached hereto as Exhibit D, or any
replacement process offered to all GM Dealers. shall be the exclusive source
of resolution of any dispute regarding the Dealer Agreements and this
Agreement including, but not limited to, involuntary termination of the
Dealer Agreements and/or approval of Lithia Motors, Inc. for additional
investment in or ownership of GM Dealerships. The parties further agree that
the Chevrolet dealer dispute resolution process will be used for the
resolution of the matter, regardless of the GM Division involved.
8. Right to Purchase or Lease. In the event of any termination of
the Dealer Agreement or any transaction or event that would, in effect,
discontinue Dealership Operations from that GM Dealership, or a transfer of
assets, properties or business to GM or a GM designee pursuant to Section
2.4.3, Lithia Motors, Inc. agrees and each Dealer Company shall agree to
provide GM with: (a) the right to purchase the dealership assets, properties
or business for fair market value based on automotive use, and (b) an
assignment of any existing lease or lease options that are available, subject
in each case to any legal or contractual obligations existing at such time
through the process attached hereto as Exhibit B, that Lithia Motors, Inc.
shall assure GM or its delegate of quiet possession of the dealership
facilities for a period of not less than five years if the right to have any
existing lease or lease option assigned as set forth above is exercised with
respect to such facilities within ten years of the execution of this
Agreement. If, however, Lithia Motors, Inc. enters into a financing
arrangement with respect to GM's option as described in this Section 8 would
be subordinated to the interests of any lender in connection with any default
by Lithia Motors, Inc. under the terms of the financing arrangement other
than a default due to the discontinuance of dealership operations from such
facilities. The Parties agree that GM may exercise its rights under this
Section 8 with respect to some or all of the dealership facilities to which
it may apply at any given time. and that failure to exercise such rights as
to one facility shall not affect GM's rights as to other facilities.
9. Electronic Funds Transfer. Lithia Motors, Inc. agrees that each
Dealer Company will use Electronic Funds Transfer (EFT) for settlement of the
dealership obligations to GM and that GM will have a right of offset for any
unpaid debit balances for any Dealer Company at the time the indebtedness is
due and will have the right to collect those amounts from the account of the
Dealer Company that owes the debt or the account of any other Dealer Company.
10. Compliance with Policies and Procedures. Each Dealer Company
must comply with all terms of the Dealer Agreement and all GM policies
applicable to Dealer company's Dealership Operations. Those procedures
include policies precluding joint advertising and prohibiting sales of GM
auction vehicles from other than the purchasing GM Dealership. Except as
specifically provided herein, all Dealership Operations shall be conducted
consistent with requirements for other GM dealerships.
11. Membership in Dealer Marketing Group. Each Dealer Company will
join its respective dealer marketing group and area marketing group including
membership financial support and will participate as a regular member in
meetings and marketing activities.
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12. Capital Standards. Lithia Motors, Inc. agrees and Dealer Company
shall agree that Dealer Company shall maintain, at all times, sufficient
working capital to meet or exceed the minimum net working capital standards
for the Dealer Company as determined from time to time by GM consistent with
its normal practices and procedures. Lithia Motors, Inc. and Dealer Company
shall provide such documentation as reasonably requested by GM to assure
compliance with that requirement. Lithia Motors, Inc. shall submit an annual
consolidated balance sheet for the combined GM Dealership operations of
Lithia Motors, Inc.
13. Discontinuance of Representations. In the event that Lithia
Motors, Inc. determines, voluntarily or otherwise to discontinue
representation in any given Multiple Dealer Area, Lithia Motors, Inc. shall
grant the right to GM to acquire at fair market value as determined in
accordance with Exhibit B the right to representation of the Divisions
previously represented by any Dealer Company in that Multiple Dealer Area.
GM shall also have the option to acquire the fixed assets and/or the
Dealership Facilities in that Multiple Dealer Area in accordance with section
8. The terms and conditions for the exercise of such rights shall be set
forth in appropriate and customary documents. Lithia Motors, Inc. has
received GM's standard option agreements modified for this Agreement.
14. Supplement to Dealer Agreement. The parties agree that each
Dealer Company shall be required to execute an addendum to the Dealer
Agreements binding the Dealer Company to the applicable portions of this
Agreement. For each Dealer Company, this Agreement shall supplement the
terms of the Dealer Agreements in accordance with Article 17.1.1 of the
Dealer Agreements.
15. Further Modifications. In the event that the policies of GM with
regard to Dealerships owned or controlled in whole or in part by public
shareholders should be modified. the parties agree to review such
modifications to determine whether modification to this Agreement is
appropriate.
16. Rights. Nothing in this Agreement or the Dealer Agreement shall
be construed to confer any rights upon any person not a party hereto or
thereto, nor shall it create in any party an interest as a third party
beneficiary of this Agreement or the Dealer Agreement. Lithia Motors, Inc.
and Dealer Company hereby agree to indemnity and hold harmless GM, its
directors, officers, employees, subsidiaries, agents and representatives from
and against all claims, actions, damages, expenses, costs and liability,
including attorneys fees, arising from or in connection with any action by a
third-party in its capacity as a stockholder of Lithia Motors, Inc. relating
to this Agreement other than through a derivative stockholder suit authorized
by the Board of Lithia Motors, Inc., provided that Lithia Motors, Inc. shall
have the right to assume the defense and control any such actions or suits
and that GM shall not settle any such actions or suits without Lithia Motors,
Inc. consent (such consent not to be unreasonably withheld). Notwithstanding
the above, GM may choose, at its own expense, to manage and control its own
defense in any such action.
17. Modification of Dealer Agreement. This Agreement is intended to
modify and adapt certain provisions of the Dealer Agreement and is intended
to be incorporated as part of the Dealer Agreement for each Dealer Company.
In the event that any provisions of this Agreement are in conflict with other
provisions of the standard Dealer Agreement, the provisions contained in this
Agreement shall govern. Except as expressly provided in this Agreement the
terms of the Dealer Agreements remain unchanged and apply herein.
18. Confidentiality. Each party agrees not to disclose the content
of this Agreement to non-affiliated entities and to treat the Agreement with
the same degree of confidentiality as it treats its own confidential
documents of the same nature, except as expressly provided by Article 2.3.5
of this Agreement or unless authorized by the other party, required by law,
pertinent to judicial or administrative proceedings or to proceedings under
the Dispute Resolution Process.
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19. This Agreement remains in effect so long as Lithia Motors, Inc.
or any successor thereto, directly or indirectly holds or has an agreement to
hold an ownership interest in any GM Dealer Company.
IN WITNESS WHEREOF, the parties have executed this Agreement this 16th
day of January 1998.
GENERAL MOTORS CORPORATION
By: /s/ Sidney B. deBoer By: /s/ E. K. Roggenkamp III
-------------------------------- -----------------------------------
E.K. Roggenkamp, III
General Manager
North American Operations
Dealer Network Investment and
Development
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EX-10
Exhibit 10.10.1 Saturn Retailer Agmt
EXHIBIT 10.10.1
PART ONE
MISSION, PHILOSOPHY, VALUES AND FRAMEWORK
OF RETAILER-FRANCHISOR RELATIONSHIP
Saturn Distribution Corporation Retailer Agreement
This Agreement, effective the _____ day of _________________, 199___,
is entered into by Saturn Distribution Corporation (the Franchisor), a wholly
owned subsidiary of Saturn Corporation (Saturn), and
_______________________________________________.
(__________) a proprietorship;
(__________) a partnership;
(__________) a limited liability company
(__________) a corporation, incorporated in the State of
___________________ on __________________________, located
in ___________________, __________________________ (the Retailer).
Purposes of the Agreement
The principal purposes of this Agreement are to:
A. affirm the commitment of the Retailer and the Franchisor to
adhere to the Saturn Philosophy and Values, and achieve the Saturn Mission;
B. identify the framework within which the Retailer and the
Franchisor will jointly act to fulfill their commitments to each other;
C authorize the Retailer to sell and service Saturn Products and to
represent itself as a Saturn Retailer, and
D. identify other commitments, rights and responsibilities of the
Retailer and the Franchiser.
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1. Retailer Commitment to the Saturn Mission, Philosophy and Values
Retailers represent Saturn's products and brand to the public.
Therefore, it is essential to the success of Saturn, the Franchisor and the
Retailers that each Retailer understand, embrace and promote both the letter
and the spirit of the Saturn Mission, Philosophy and Values as set forth
below.
The Retailer and the Franchisor can conduct their relationship
with trust and respect only if both the Retailer and the Franchisor work in
an open, fair and cooperative manner. Both the Retailer and the Franchisor
are dependent upon each other for maintaining this unique working
relationship.
The Retailer therefore agrees to adhere to the Saturn Philosophy
and Values in conducting its franchised business, and to work jointly with
the Franchisor and Saturn, within the framework identified in this Agreement,
to accomplish the Saturn Mission. The Retailer acknowledges that the success
of Saturn, the Franchisor, other Retailers and its suppliers is dependent on
the Retailer fulfilling this commitment. Consistent with the Saturn
Philosophy, the Retailer pledges to maintain the highest ethical standards in
all activities.
2. Saturn Mission
Saturn's Mission is to market vehicles developed and manufactured
in the United States that are world leaders in quality, cost and customer
enthusiasm through the integration of people, technology and business systems
and to exchange knowledge, technology and experience throughout General
Motors. Achieving this Mission is dependent in part upon the development and
maintenance of a network of authorized Retailers working together with the
Franchisor to build and maintain customer confidence in the Retailer and
Saturn.
3. Saturn Philosophy
We, the Saturn team, in concert with the UAW and General Motors,
believe that meeting the needs of customers, Saturn members, suppliers,
Retailers and neighbors is fundamental to fulfilling our Mission. To meet
the needs of Retailers, the Franchisor will conduct business in an open and
fair manner, and will share responsibility and decision making with Retailers
in the manner specified in this Agreement to further the spirit of trust and
respect that is critical to the relationship.
4. Values
The Saturn Values direct the way the Retailer and the Franchiser
can reach their shared goals. The Saturn Values, as set forth below, focus
on exceeding customer expectations and on establishing a positive work
environment for Saturn team members.
A. Commitment to Customer Enthusiasm
We continually exceed the expectations of internal and
external customers for products and services that are world leaders in cost,
quality and customer enthusiasm. Our customers know that we really care
about them.
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B. Commitment to Excel
There is no place for mediocrity and halfhearted efforts at
Saturn. We accept responsibility, accountability and authority for
overcoming obstacles and reaching beyond the best. We choose to excel in
every aspect of our business, including return on investment.
C. Teamwork
We are dedicated to singleness of purpose through the
effective involvement of team members, suppliers, Retailers, neighbors and
other stakeholders. A fundamental tenet of our philosophy is the belief that
effective teams engage the talents of individual members while encouraging
team growth.
D. Trust and Respect for the Individual
We have nothing of greater value than our people. We
believe that demonstrating respect for the uniqueness of every individual
builds a team of confident, creative members possessing a high degree of
initiative, self-respect and self-discipline.
F. Continuous Improvement
We know that sustained success depends on our ability to
continually improve the quality, cost and timeliness of our products and
services. We are providing opportunity for personal, professional, and
organizational growth and innovation for all Saturn stakeholders.
5. Shared Responsibility
In consideration of the Retailers' commitments, and to ensure
that the relationship between the Retailers and the Franchisor remains
mutually satisfactory, the Franchisor has put into place mechanisms that
allow Retailers to contribute collectively to decisions that significantly
affect Retailers' business. Retailer involvement is provided through two
principal mechanisms: the Franchise Operations Team and the Franchise Task
Forces.
A. Franchise Operations Team
The Franchise Operations Team (FOT) is made up of an equal
number of Saturn Retailer Operators and Franchiser representatives. The FOT
shall exercise the responsibilities specified in this Agreement. The
selection of FOT members, their terms of service and the manner in which the
FOT carries out its responsibilities are pursuant to procedures adopted by
the FOT.
The FOT uses a consensus decision-making process, described
in the FOT New Member Training Manual. The Retailer Operators serving on the
FOT will be trained in this process.
B. Franchise Task Forces
The FOT may establish Franchise Task Forces to assist in
the performance of its responsibilities if it concludes the input of
additional Retailer Operators, Retail team members and Saturn representatives
would be helpful. Franchise Task Forces make recommendations to the FOT
unless the Franchise Task Force is empowered by the FOT to make a decision.
FOT shall retain authority to modify or change Franchise Task Force
decisions. The FOT will determine the membership of each Franchise Task
Force, as well as the scope and duration of its assignment. A representative
from the FOT will serve as a champion of each Franchise Task Force.
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6. Dispute Resolution Process
A. Exclusive Remedy
The Retailer and the Franchiser believe their mutual
commitments to the Saturn Mission, Philosophy and Values, together with the
mechanisms for sharing responsibility described in Article 5, should minimize
the potential for disputes. Nonetheless, some disputes may occur that cannot
be resolved in the normal course of business.
The Retailer and the Franchisor acknowledge that, at the
state and federal levels, various courts and agencies would, in the absence
of this Article 6, be available to them to resolve claims or controversies
that might arise between them. The Retailer and the Franchisor agree that it
is inconsistent with the Saturn Mission and Philosophy for either the
Retailer or the Franchiser to use courts or governmental agencies to resolve
such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED
STATES ARBITRATION ACT (9 U.S.C Section I et seq.), THE RETAILER AND THE
FRANCHISOR AGREE THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS
ARTICLE, WHICH INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM
FOR RESOLVING ANY CONTROVERSY OR CLAIM BETWEEN THEM ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ITS CREATION OR TERMINATION.
There are two steps in the Dispute Resolution Process:
Mediation and Binding Arbitration. All controversies or claims must be
submitted to Mediation, unless that step is waived by written agreement of
the parties. If Mediation does not resolve the dispute to their mutual
satisfaction, then the Retailer or the Franchiser may submit the dispute to
Binding Arbitration.
Mediation and Arbitration are each conducted by a panel
consisting of two Franchiser Representatives and two Retailer Operators
selected from a pool of volunteers approved by the FOT and trained to serve
in the Dispute Resolution Process. The Retailer and the Franchisor agree
that the procedures contained in the Retailer/Saturn Dispute Resolution
Guide, as may be modified from time to time by the FOT, shall govern
Mediation and Arbitration under this Article.
B. Mediation
Either the Retailer or the Franchiser can submit to
Mediation a claim or controversy between them that arises out of or relates
to the Retailer Agreement. The Mediation Panel will evaluate each position
and recommend a solution. The recommended solution is not binding.
C. Binding Arbitration
If a claim or controversy arising out of or relating to
this Agreement has not been resolved after Mediation or if the Retailer and
the Franchisor have agreed in writing to waive Mediation, then the claim or
controversy will be settled by Binding Arbitration in accordance with the
procedures in the Retailer/Saturn Dispute Resolution Guide. All awards of
the arbitration are binding and non-appealable except as otherwise provided
in the United States Arbitration Act. Judgment upon any award rendered by
the arbitrators may be entered and enforced in any court having jurisdiction.
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PART TWO
RIGHTS GRANTED
7. Authorized Retailer
The Retailer has presented the Franchisor with information
regarding its qualifications to be appointed a Saturn Retailer. The
Retailer, its Retailer Operator and Investors have been evaluated and found
to satisfy the Franchisor's standards.
The Retailer has also presented to the Franchiser a Marketing
Area Plan ("MAP"), stating the Retailer's proposal to develop and operate
facilities in a specified Marketing Area to promote, sell and service
Products. The Franchiser has accepted this MAP.
In reliance upon the Retailer's representations, and on its
expressed commitment to the Mission, Philosophy and Values, the Franchisor
grants the Retailer a nonexclusive right to:
a) buy new Motor Vehicles distributed for resale by
Saturn and identified in any Saturn Motor Vehicle Addendum and related Parts
and Accessories; and
b) identify itself as an authorized Saturn Retailer in
the manner
and at the location(s) approved by the Franchisor.
The Retailer accepts the rights granted and agrees to fulfill its
obligations under this Agreement.
8. Retailer Operator
A. Personal Qualifications
The Franchisor is entering into this Agreement in reliance
on the qualifications and capabilities of the person identified in Article 25
as "Retailer Operator," on that person's commitment to the Mission,
Philosophy and Values, and on the Retailer's assurance that the personal
services of the Retailer Operator will be provided in the overall management
of the franchised business.
B. Management Responsibility
Both the Retailer and the Franchiser agree that the
Retailer Operator must have the sole authority to exercise management control
of the Retailer.
The Retailer's MAP describes the ownership of the Retailer
and any arrangements necessary to comply with this Article.
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C. Ownership Requirement
The Retailer Operator will have and maintain an
unencumbered ownership interest in the Retailer of at least 10 percent at all
times.
9. Retailer Investor
The Franchisor is entering into this Agreement in reliance on the
qualifications of the person(s) identified in Article 25 as "Retailer
Investor(s)." Retailer investor candidates with previous retail automotive
operating or management experience must participate in a selection process to
demonstrate qualification under the Franchisor's Retailer Selection
Criteria. Retailer investor candidates without previous automotive or
management experience must complete an investor questionnaire for review and
approval by the Franchisor.
10. Term
If the Retailer continues to meet all conditions and fulfill its
obligations and responsibilities under this Agreement, this Agreement will
not expire until the first to occur of the following:
a) a superseding form of Retailer Agreement, recommended
by FOT pursuant to Article 24L, is executed;
b) 90 days after such superseding form of Retailer
Agreement is presented to the Retailer for execution; or
c) 90 days following the death or incapacity of the
Retailer Operator, whichever occurs first.
If this Agreement is to expire because of the death or incapacity
of the Retailer Operator, the Retailer may request a deferral of the
effective date of expiration to assist in winding up its franchised business
or to provide for a transfer of assets or ownership previously approved under
Article 20.
The request must be made at least 30 days prior to the effective
date of expiration, and the Franchiser will not unreasonably refuse to grant
any necessary extension.
11. Authorized Locations and Marketing Area Rights
A. Retailer's Marketing Area
The Retailer has been furnished with a "Notice of
Retailer's Marketing Area." The Retailer is responsible for effectively
selling, servicing and otherwise representing Saturn Products in its
Marketing Area. The Retailer agrees to conduct Saturn Retail Facility
Operations only from approved locations within its Marketing Area. The
Retailer's Marketing Area Plan as described in Article 15 specifies
Retailer's approved location(s) and facility(ies). Where applicable, the
Retailer will establish additional facilities in the time and manner agreed
to by the Retailer and the Franchiser in the MAP.
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1) Facility Design and Appearance
Saturn's Mission to exceed customers'
expectations can be furthered if Retailers' facilities are instantly
identifiable and share a consistent architectural design and environment.
Accordingly, the Retailer agrees to purchase Franchiser's Retail
Environmental Design Package and to provide retail facilities consistent with
that Package. The Retailer also agrees to review all proposed facility plans
with the Franchisor and to obtain the Franchisor's approval before committing
to any construction or purchase.
Additionally, the Retailer pledges to properly
maintain its facilities so that they promote and reinforce the unique Saturn
image. The Retailer agrees to make any facility modifications approved by
the FOT. The Retailer agrees not to make any facility modifications that
affect the appearance or function of its facilities without the Franchiser's
prior written authorization.
2) Exclusive Use
The Retailer agrees to use all Saturn
facilities (including the individual sites approved by Saturn) exclusively
for conducting Saturn Retail Facilities Operations. The Retailer agrees to
conduct from each location only those Retail Facility Operations authorized
in the MAP for such location.
B. Marketing Area Rights
The Retailer will devote its full efforts to developing its
Marketing Area. Consequently, the Retailer agrees not to engage, either
directly or indirectly, in any of the activities contemplated by this
Agreement from any locations outside of its Marketing Area.
If the Retailer meets its obligations under the MAP and
this Agreement, then the Franchiser will not authorize any other Retailer to
establish a Saturn retail facility in the Retailer's Marketing Area. If the
Retailer fails to develop its Marketing Area according to its MAP, then the
Franchisor may terminate this Agreement for failure of performance under
Article 21 or restructure the Retailer's Marketing Area and reassign any
areas necessary to achieve the maximum potential development of the Marketing
Area.
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PART THREE
PRODUCT AND PERFORMANCE STANDARDS RESPONSIBILITIES
12. Retailer's Responsibility to Promote, Sell and Service Saturn
Products and Adhere to Brand Critical Standards
A. Responsibility to Promote and Sell
1) The Retailer agrees to effectively promote and sell both
the purchase and the use (including rental and leasing) of Saturn Products to
customers located in its marketing Area. The Franchiser will review annually
the Retailer's performance of this obligation, in conjunction with the
Marketing Area Plan as described in Article 15.
2) The Retailer is authorized to sell new and unused Motor
Vehicles only to:
a) customers who purchase for personal use or for a
primary business use other than resale,
b) other Saturn Retailers, and
c) Saturn.
3) The Retailer agrees to offer for sale Saturn Service Plan
Products to all customers who purchase or lease new Saturn vehicles, and used
Saturn vehicles if they are eligible for a Saturn Service Plan. The Retailer
may, in addition, offer customers the option of choosing a non-Saturn service
contract (or insurance coverage) provided:
a) the non-Saturn service contract or insurance meets or
exceeds quality standards adopted by FOT, and
b) the Retailer discloses to the customer in writing
that the non-Saturn service contract (or insurance) is not marketed or
warranted by Saturn, and the coverage is not provided by Saturn or an
affiliate and may not be honored by other Saturn Retailers. The form of the
disclosure will be approved by FOT.
4) The Retailer is authorized to sell Saturn Products only to
customers located in the United States. The Retailer agrees not to sell
Saturn Products for resale or use outside the continental United States,
Alaska and Hawaii.
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B. Responsibility to Service
The manner in which Retailers service Saturn Motor Vehicles
is important to maintaining the Saturn brand image, and to securing and
growing a loyal customer base.
Therefore, the Retailer agrees to provide quality,
courteous, convenient, prompt, efficient, respectful and professional service
to owners of Motor Vehicles, regardless of where the vehicles were purchased.
All service will be performed in accordance with this
Agreement and the Saturn Service Policies and Procedures Manual, as modified
from time to time, which is incorporated into this Agreement by reference.
C. Responsibility to Adhere to Brand Critical Standards
Saturn's brand image has been achieved through a
consistent, outstanding customer experience. Protecting the Saturn brand and
achieving Saturn's goal to be the industry leader in customer enthusiasm
requires that all Retailers adhere to consistent standards in conducting
their operations.
FOT may designate a particular standard as a Brand Critical
Standard when it pertains to matters deemed by FOT to be particularly vital
to the strength of the Saturn brand, or protecting the reputation and
goodwill of the Franchisor, Saturn and other Saturn Retailers.
The Retailer agrees to adhere to Brand Critical Standards
approved by FOT. The Retailer Standards Manual, which is incorporated into
this Agreement by reference, defines these Brand Critical Standards and will
be reviewed annually, or more often if deemed necessary by FOT, for potential
modifications.
13. Sale of Products to Retailer
A. Sale of Saturn Motor Vehicles to Retailers
The Franchisor has provided the Retailer with a Saturn
Motor Vehicle Addendum specifying the current model types or series of new
Motor Vehicles that the Retailer may purchase. The Franchisor may change the
Saturn Motor Vehicle Addendum at any time by furnishing the Retailer with a
superseding Saturn Motor Vehicle Addendum.
The Franchisor will make every effort to allocate new Motor
Vehicles among Retailers in a fair and equitable manner. The allocation
method used will be reviewed by the FOT and will provide the Franchisor
discretion in exercising business judgment to achieve fairness and equity.
B. Sale of Parts and Accessories to Retailers
Parts and Accessories are any new or remanufactured
automotive parts and accessories that are marketed by Saturn and listed
either in the current "Retailer Parts and Accessories Price Schedules" or in
supplements furnished to the Retailer.
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Parts and Accessories will be sold to Retailers by the
Franchisor, Saturn or other suppliers designated by the Franchiser. All
orders for Saturn Parts and Accessories will be submitted and processed
according to the written procedures established by the Franchisor, Saturn or
other designated suppliers.
To support the focus of marketing Parts and Accessories
primarily within a Retailer's Marketing Area, Saturn reserves the right to
exercise its best business judgment in allocating Parts and Accessories to
Retailers.
C. Prices and Other Terms of Sale
1) For Motor Vehicles:
a) Prices, destination charges and other terms of
sale applicable to purchases of new Motor Vehicles will be those established
according to the "Vehicle Terms of Sale Bulletin" furnished to the Retailer.
b) Prices, destination charges and other terms of
sale may be changed at any time. Changes will apply only to Motor Vehicles
not shipped at the time changes are effective.
c) If there is an increase in the price charged to
the Retailer for a Motor Vehicle or for any optional equipment or
transportation charge during a model year; such increase will not apply to
bona fide sold orders that were submitted before the Franchisor notifies the
Retailer of the price increase.
d) The Retailer will receive written notice of any
price increase before any Motor Vehicle to which such increase applies is
shipped except for initial prices for a new model year or for any new model
or body type.
2) For Saturn Parts and Accessories:
a) Prices and other terms of sale applicable to
Parts and Accessories will be those established according to the "Parts and
Accessories Terms of Sale Bulletin" furnished to the Retailer.
b) These prices and other terms of sale may be
changed at any time. Sales to Retailers will be made at the Retailer price
in effect at the order commitment date.
c) Such changes apply to Parts and Accessories not
shipped at the time the changes are effective.
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D. Inventory
1) Motor Vehicle Inventory.
The Retailer recognizes that customers expect to have
a reasonable quantity and variety of current model Motor Vehicles in
inventory. Accordingly, the Retailer agrees to stock and sell, subject to
any supply restrictions, all models and series of current Motor Vehicles
identified in the Motor Vehicle Addendum.
2) Parts and Accessories:
The Retailer also agrees to stock sufficient Parts
and Accessories to:
a) perform warranty repairs and policy adjustments,
b) meet the demands of its customers primarily
within its Marketing Area, and
c) meet the "same day" availability standards
approved by the FOT.
E. Warranties on Products
Saturn warrants the new Motor Vehicles and Parts and
Accessories (Products) that it produces. The warranties are explained in
documents provided with these Products and in the Saturn Service Policies and
Procedures Manual. Franchisor (Saturn Distribution Corporation) does not
warrant products.
EXCEPT AS OTHERWISE PROVIDED BY LAW, THE WRITTEN SATURN
WARRANTIES ARE THE ONLY WARRANTIES APPLICABLE TO NEW PRODUCTS. WITH RESPECT
TO RETAILERS, SUCH WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES OR
LIABILITIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY LIABILITY FOR
COMMERCIAL LOSSES BASED UPON NEGLIGENCE OR MANUFACTURER'S STRICT LIABILITY.
EXCEPT AS MAY BE PROVIDED UNDER AN ESTABLISHED SATURN PROGRAM OR PROCEDURE,
SATURN NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY OTHER
OBLIGATION OR LIABILITY IN CONNECTION WITH PRODUCTS, AND SATURN'S MAXIMUM
LIABILITY IS TO REPAIR OR REPLACE THE PRODUCT.
Any Parts and Accessories sold by to the Retailer by a
designated supplier are not warranted by Saturn or the Franchisor and are
warranted only as specified by the supplier.
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14. Service of Products
A. Service for Which Franchisor Pays
1) New Saturn Vehicle Predelivery Inspections and
Adjustments
The delivery condition of a new vehicle is
important to customer enthusiasm. Therefore, the Retailer agrees to perform
all predelivery inspections and adjustments on each new Motor Vehicle and to
verify the completion of these inspections and adjustments according to the
procedures established in the Saturn Service Policies and Procedures Manual.
2) Warranty Repairs and Special Policy Adjustments
The Retailer agrees to:
a) perform all required warranty repairs on each
qualified Motor Vehicle both at the time of predelivery service and when
requested by owner,
b) perform any special policy adjustments approved
by Franchisor, and
c) give the owner a copy and explanation of the
repair document reflecting all services performed and an explanation of those
services when the vehicle is returned to the owner.
3) Campaign Inspections and Corrections
The Retailer agrees to find and correct
suspected factory conditions on Products that the Franchisor has identified.
The Retailer will also ensure that, prior to sale, all campaign actions and
corrections have been made on all new and used Saturn Motor Vehicles in its
inventory, and will follow up on Products on which campaigns are outstanding.
4) Payment for Predelivery Adjustments, Warranty and
Campaign Work
For the Retailer's performance of services,
predelivery adjustments, warranty repairs, special policy adjustments, and
campaign inspections and corrections, the Franchisor will provide or pay the
Retailer for the Parts and other materials required and will pay the Retailer
a fair amount for Labor. Payment will be made according to policies in the
Saturn Service Policies and Procedures Manual. The Retailer will not impose
any charge for such service on owners or users except where a deductible or
pro rata charge applies.
B. Parts, Accessories and Body Repairs
1) Warranty Repairs and Policy Adjustments
The Retailer agrees to use only genuine Saturn
or Franchisor approved parts in performing all warranty repairs and policy
adjustments, including special policies.
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2) Representations and Disclosures as to Modifications,
Parts and Accessories
Both the Retailer and the Franchisor recognize
and appreciate that people who drive and own Motor Vehicles reasonably expect
that vehicles sold by Retailers as well as parts and accessories sold or used
by Retailers in servicing vehicles are marketed by Saturn or the Franchisor.
If the Retailer sells or uses parts or
accessories that are not marketed by Saturn or the Franchisor in lieu of
Saturn Parts and Accessories, the Retailer is required to give customers
written notice on the purchase order or bill of sale that such parts or
accessories are not marketed or warranted by Saturn or the Franchisor.
If the Retailer adds non-Saturn aftermarket
items to customers' vehicles, the Retailer agrees not to represent that these
vehicle modifications are warranted or approved by Saturn or the Franchisor.
Furthermore, the Retailer agrees not to
represent that any vehicle modifications performed by the retail facility or
authorized sublet shop that are not specifically authorized by Saturn are
warranted or approved by Saturn or the Franchiser
3) Body Repairs
The Retailer must provide body repair service
for all Saturn vehicles. The Retailer can provide this service through its
own body shop, or in cases where the Franchiser agrees, by arrangement with
an independent repair establishment that is acceptable to the Franchiser.
PART FOUR
THE BUSINESS PLANNING PROCESS
15. Business Planning
A. Marketing Area Plan
The Retailer and the Franchiser have executed a Marketing
Area Plan (MAP), which is an essential part of this Agreement and which may
be updated annually. The MAP describes how the Retailer will develop its
Marketing Area and fill its sales and service commitments.
1) Initial Marketing Area Plan
The Retailer agrees to develop its assigned
Marketing Area according to the MAP. Its commitments for such development
include:
a) a detailed description of the number, location,
type, size and opening date of the Saturn facilities to be provided,
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b) a detailed implementation schedule for each
facility, and
c) a statement of the Retailer's legal and
financial structure, including capitalization, line of credit and equity
ownership. The Retailer agrees to update this statement whenever necessary
to ensure it is accurate.
2) Annual Marketing Area Plan
The Retailer also agrees to fill the sales and
service commitments described in the MAP as updated annually. These
operational commitments include but are not limited to:
a) Customer enthusiasm
b) Team member enthusiasm
c) Training
d) Financial performance
e) Market development
f) Retail image
g) Partnership
B. Annual Plan Review
In order to maintain an effective working relationship, the
Retailer agrees to update its MAP annually, or more often if requested by
either party, and submit it to the Franchisor for joint review. Updated MAPs
will include a performance evaluation and any proposed modifications to the
prior year's MAP. If the Retailer and the Franchisor agree that changes to
the proposed MAP are necessary, then the Retailer will make these changes and
then resubmit the MAP.
The Retailer's performance of its obligations is essential
to effectively and consistently representing Saturn Products and to building
and main the reputation of Saturn, the Franchisor and other Retailers.
Therefore, the Retailer agrees to review with the
Franchisor its performance against the prior year's MAP in its updated MAP.
The Retailer's performance will be evaluated based on a number of factors
including its attainment of applicable Performance Benchmarks in areas which
may include but are not limited to the following Critical Success Factors:
Customer Enthusiasm, Team Member Enthusiasm, Training, Financial Performance,
Market Development, Retail Image and Partnership. The Retailer and the
Franchisor will use this evaluation to identify areas in which improvements
are necessary so that Retailer can take prompt action to achieve acceptable
performance, and to set goals for continuous improvement. Performance
Benchmarks are approved by FOT and may be modified from time to time with FOT
approval. Periodic facility evaluations will also be conducted, including an
evaluation of the Retailer's compliance with current requirements and
standards for the retail facility under the Marketing Area Plan.
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PART FIVE
OTHER OPERATING RESPONSIBILITIES
16. Saturn Systems and Processes
A major element of the Saturn Mission is to lead the industry in
customer enthusiasm. Maintaining this level of enthusiasm requires consistent
application by all Retailers of all designated sales, service, marketing,
facilities and other systems. The Retailer agrees to purchase, implement and
maintain the required systems that are identified in this Agreement, set
forth in the Retail Facilities Guide, the Architects Guide, other Franchise
Systems Manuals, or approved by the Franchise Operations Team. Additionally,
the Retailer agrees to fully utilize Saturn processes in order to ensure that
customers experience the Saturn Difference.
A. Systems for Which Retailer Rays
1) Sales and Service Systems
The Retailer agrees to pay Saturn, the
Franchisor or approved sources for the systems necessary to develop and
implement Saturn sales and service in the Retailer's Marketing Area. These
systems include materials and initiatives designed to promote the consistent
display, sales and service of Saturn Products.
Periodically, the FOT will determine that new
or updated information, materials or initiatives are necessary. The Retailer
agrees to accept and utilize such designated new or updated information,
materials or initiatives and pay any applicable charges. Any such charges
will be established by the FOT and will be based on anticipated costs.
2) Computer Systems
Saturn's Mission involves the integration of
people, technology and business systems. This integration is possible only
if the Retailer has computer systems that meet customers' needs and the
retail facility's internal business needs; permit direct communication
between the Retailer, the Franchisor and Saturn; and give the Franchisor and
Saturn ready access to the Retailer's accounts and records.
Accordingly, the Retailer agrees to purchase
and use all FOT-approved computer system hardware and software packages and
to diligently update these hardware and software packages whenever changes
are approved by the Franchise Operations Team.
3) Signs
To promote a consistent image among Retailers,
the Retailer agrees to purchase, maintain and use only signs approved by the
Franchisor as designated in the Retail Facilities Guide and the Critical
Image Element Guide, and to make and pay for any changes in signage approved
by the FOT.
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4) Tools and Equipment
The Retailer also agrees to provide all the
service tools and equipment necessary to fulfill its service obligations, and
to purchase and maintain any specified special tools and equipment to service
Saturn Products.
B Other Systems
1) Accounts and Records
a) Uniform Accounting System
Both the Retailer and the Franchiser will
benefit by using Retailer operating information to develop composite
operating statistics, to analyze the Retailer's business management
practices, and to assess the impact of the Franchiser's policies and
practices.
To assure maximum benefit, the Retailer
agrees to maintain a uniform accounting system and to furnish reports and
records as provided in the GM Dealer's Standard Accounting Manual and the FOT
approved Saturn Retailer Systems business accounting applications.
b) Examination of Accounts and Records
The Franchisor and Saturn will have
access, through computer systems, to the Retailer's accounts and records.
In addition, any designated
representative of the Franchisor is authorized to examine, audit, reproduce
and take copies of any of the accounts and records the Retailer maintains
under this Agreement. The Retailer agrees to make such accounts and records
readily available in an organized manner at its retail facilities during
business hours. The Franchisor agrees to furnish the Retailer with a copy of
any reproduced records.
c) Confidentiality of Retailer Data
The Franchiser will not furnish to any
nonaffiliated entity any personal or financial data submitted to it by the
Retailer in a format that permits identification of the Retailer, unless it
is either authorized by the Retailer, required by law, pertinent to
proceedings under the Dispute Resolution Process or to court or
administrative proceedings.
2) Additional Systems
The Retailer is free to use any additional
systems to help manage the business, so long as they are consistent with all
the required Saturn systems and with Saturn's Mission, Philosophy and
Values. The Retailer agrees to discontinue use of any systems deemed
inconsistent by the Franchisor.
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C Consistent Processes
An integral part of the Franchiser's plan to develop
industry leading customer enthusiasm is to promote Saturn Retailers as the
unsurpassed leaders of convenient and consistent automotive sales and
service. The Retailer agrees it will conduct its Retail Facility Operations
to support this concept, including utilizing processes approved by the FOT.
These processes include but are not limited to the Saturn Consultative Sales
Process, the Saturn Consultative Service Process, the Saturn Financial
Services Consultative Process and, if used vehicles are sold at any approved
locations specified in the Retailer's MAP, the Saturn Used Car Process.
17. Marketing Association
Both the Retailer and the Franchisor acknowledge the mutual
benefits of comprehensive joint Retailer advertising and merchandising to
promote the sale and service of Saturn Products.
Accordingly, the Regional Unincorporated Marketing
Association (Association) has been established through the joint effort of
Retailers and the Franchisor to produce such joint merchandising and
advertising. The Retailer agrees to participate in the Association. The
Association is governed by the Regional Marketing Council (RMC), which is
self-governing according to its bylaws. The Retailer and the Franchisor
agree to support the merchandising and advertising initiatives of the RMC.
The Association will, from time to time, assess a minimum
amount for each new Motor Vehicle purchased by Retailers to fund
merchandising and advertising initiatives. The FOT will review annually the
minimum assessment, and may recommend changes based on marketing conditions.
18. Training
The training of all Retailer team members is critical to
the success of the Retailer and the Franchisor in conducting business based
on the Saturn Mission, Philosophy, Values and designated processes.
The Retailer therefore agrees that all team members will
participate in both the initial and ongoing programs identified in the Saturn
Retail Training Catalogue of Programs and Services, and in any others
approved by the FOT, within the time frames specified. The MAP will measure
the completion of training required compared to FOT approved Performance
Benchmarks. The Retailer agrees to pay any specified training charges.
19. Capitalization
To ensure that the Retailer is financially capable of
fulfilling its commitments, the Retailer will maintain the levels of
capitalization mutually agreed upon in the Marketing Area Plan. To avoid the
erosion of Saturn's goodwill, which could result if the Retailer is
financially unable to fulfill its commitments, the Retailer agrees to have
and maintain a separate line of credit from a financial institution available
for the Retailer to draw upon to finance the purchase of new vehicles. The
amount of the line of credit and the identity of the financial institution
will be included in the Retailer's Marketing Area Plan, which is reviewed
annually.
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PART SIX
REPLACEMENT RETAILERS
20. Changes in Ownership
Both the Retailer and the Franchisor recognize it is
essential to the success of all associated with Saturn that each Saturn
retail facility be owned and operated by people who are committed to
upholding and promoting the Saturn Mission, Philosophy, Values and way of
doing business.
It is equally important that the Retailer Operators are
highly qualified and consistently meet the same high personal standards as
the original Retailer Operators.
Because the Franchisor has entered into this Agreement
based on the personal qualifications of the Retailer Operator and the
qualifications of any Investor(s), the Retailer agrees that it cannot assign
its rights under this Agreement.
A. Succession Rights upon Death or Disability
1) Successor Addendum
The Retailer can apply for a Successor
Addendum, which designates a proposed retailer operator and/or investor(s) of
a successor retailer to be established if this Agreement expires because of
the death or incapacity of the Retailer Operator. The Franchisor will
execute the Successor Addendum if the proposed retailer operator successfully
completes the Retailer Selection Process and if any proposed investors
satisfy applicable Retailer Selection Criteria.
However, the proposed retailer operator and
investors will not be required to meet the usual capital requirements, nor to
demonstrate an ability to implement the Retailer's Marketing Area Plan until
the Successor Addendum is implemented.
At the time of application, the Retailer will
pay the Franchisor a nonrefundable fee to defray costs associated with review
of the proposal.
2) Rights of Remaining Investors
If this Agreement is due to expire because of
the death or incapacity of the Retailer Operator, and the Retailer and the
Franchisor have not executed a Successor Addendum, the remaining Investors
may propose a successor retailer to continue the operations identified in
this Agreement.
The proposal must be made in writing to the
Franchisor at least 30 days prior to the expiration of this Agreement,
including any deferrals granted under Article 10. At the time of
application, the Retailer will pay the Franchisor a nonrefundable fee to
defray costs associated with review of the proposal.
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The proposal will be accepted if it meets the
requirements of Articles 2OA(3), if the proposed retailer operator
successfully completes the Retailer Selection Process and if all proposed
investors satisfy applicable Retailer Selection Criteria.
If the proposed successor retailer includes a
retailer operator and/or investors who are not remaining Investors, and who
will collectively acquire a majority ownership or voting control in the
proposed retailer, then Franchisor's right of first refusal or option to
purchase under Article 20C shall apply.
3) Successor Retailer Requirements
The Franchisor will accept a proposal to
establish a successor retailer that is submitted by a proposed retailer
operator under Article 20A if
a) the proposed successor retailer and the
proposed retailer operator are ready, willing and able to comply with the
requirements of a new retailer agreement and agree to adhere to and implement
the Marketing Area Plan formally agreed to by the Retailer, and
b) all outstanding monetary obligations of the
Retailer to Saturn and the Franchisor have been paid.
4) Limitation on Offers
The Retailer will be notified in writing of the
Franchisor's decision on a proposal under Article 2OA(3) within 60 days after
the Retailer has submitted all applications and information reasonably
requested by the Franchisor and the proposed retailer operator has
successfully completed the Retailer Selection Process. The Franchisor's
offer of a new Retailer Agreement under Article 20A will automatically expire
if it is not accepted by the proposed successor retailer within 60 days after
it receives the offer.
5) New Successor Addendum
The Retailer may cancel an executed Successor
Addendum at any time prior to the death or incapacity of the Retailer
Operator. However, the Franchisor may cancel an executed Successor Addendum
only if the proposed retailer operator or proposed investor(s) no longer meet
the Retailer Selection Criteria applicable to each. The parties may execute
a superseding Successor Addendum by agreement.
B. Other Changes in Ownership or Management
If the Retailer proposes a change in Retailer
Operator, a change in ownership, or a transfer of its Saturn franchised
business or principal assets to any person, the Franchisor will consider the
Retailer's proposal subject to the following:
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1) The Retailer agrees to give the Franchisor prior
written notice of any such proposed change or transfer. The Retailer
understands that if any such change is made prior to the Franchisor's
approval of the proposal, termination of this Agreement will be warranted and
the Franchisor will have no other obligation to consider the Retailer's
proposal.
2) To maintain the high standard and integrity of the
Retailer network, the Retailer agrees to give the Franchisor prior written
notice of any proposed disposition of its principal assets or of any proposed
change of ownership in which a party:
a) first acquires equity ownership or beneficial
interest in the franchised business, or
b) acquires a majority ownership or voting control
in the franchised business.
3) If the proposal involves a change of Retailer
Operator, the Retailer will pay the Franchiser a fee to defray the costs of
reviewing the proposal and completing the Retailer Selection Process. The
Franchiser has no obligation to consider the proposal until it has received a
nonrefundable payment.
4) The Retailer will be notified in writing of the
decision on its proposal within 60 days after the Retailer has furnished all
applications and information reasonably requested by the Franchiser and after
the proposed retailer operator has successfully completed the Retailer
Selection Process. If the Franchiser disagrees with the proposal, it will
specify its reasons.
5) Any material change in the Retailer's proposal,
including a change in price, proposed investors or proposed retailer
operator, will be considered a new proposal and the time period for the
Franchisor to respond shall recommence. In the event a new proposal is
submitted and the proposal includes a new retailer operator or investor
candidate, an additional fee may be imposed.
6) Prior written approval is not required where the
transfer of equity ownership or beneficial interest to an individual is
between Investors of the Retailer previously approved by the Franchisor where
there is no change in majority ownership or voting control. The Retailer
agrees to notify the Franchisor within 30 days of the date of the change and
to execute a new Form C: Investor Summary to Retailer's Marketing Area Plan.
7) The Franchisor is not obligated to execute a new
Retailer Agreement under this Article unless the Retailer makes acceptable
arrangements to the Franchisor to satisfy any indebtedness to Saturn or the
Franchisor.
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C. Right of First Refusal or Option to Purchase
1) Creation and Coverage
If a proposal is submitted by the Retailer under
Article 20B, then the Franchisor has a right of first refusal or option to
purchase as described under this Article 20C.
If the Franchisor exercises its right or option, it
will do so in the written decision on the Retailer's proposal. The
Franchisor's right or option may be assigned to any party and the Franchisor
will guarantee the full payment of the purchase price by the assignee. The
Franchisor has the right to disclose the terms of the buy/sell agreement to
any potential assignee.
If the Retailer has entered into a bona fide written
buy/sell agreement for its franchised business or principal assets, the
Franchisor's right under this Article 20 is a right of first refusal,
enabling the Franchisor to assume the buyer's rights and obligations under
such buy/sell agreement, and to cancel this Agreement and all rights granted
to the Retailer.
In the absence of a bona fide written buy/sell
agreement, the Franchisor has the option to purchase the Retail Facility
Assets of the Retailer and to cancel this Agreement and all rights granted to
the Retailer. Real property will be included only if the Retailer and the
Franchisor agree.
If the Franchisor exercises its right or option, the
fee described in Article 2OB(3) will be refunded if the person proposed by
the Retailer as a replacement retailer operator or investor satisfies the
Retailer Selection Criteria.
The Franchisor's rights under Article 20C will be
binding and enforceable against any assignee or successor in interest of the
Retailer or purchaser of the Retailer's assets.
2) Purchase Price and Other Terms of Sale
a) Bona Fide Agreement
If the Retailer has entered into a bona
fide written buy/sell agreement, the purchase price and other terms of the
sale will be those set forth in such agreement and any related documents
unless the Retailer and the Franchisor agree to other terms.
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Upon the Franchisor's request, the
Retailer will provide all other documents relating to the proposed transfer,
including, but not limited to, those reflecting any other agreements or
understandings between the parties to the buy/sell agreement. If the
Retailer does not provide such documentation or state in writing that such
documents do not exist, the agreement will be presumed not to be bona fide.
b) Absence of Bona Fide Agreement
In the absence of a bona fide written
buy/sell agreement, the purchase price of the Retail Facility Assets,
excluding new and undamaged Parts and Accessories, will be determined by good
faith negotiations between the parties.
If agreement cannot be reached, the
purchase price will be determined through the Dispute Resolution Process.
Repurchase prices for new and undamaged Parts and Accessories will be the
prices last indicated in the parts price listing established by the
Franchisor.
The Franchisor will not be responsible
for the repurchase of non-Saturn Parts or accessories in the Retailer's
inventory, or for Saturn Parts and Accessories that are not resaleable as
new, as specified in the Saturn Service Policies and Procedures Manual.
3) Consummation
The Retailer agrees to transfer the property by
Warranty Deed conveying marketable title free and clear. The Warranty Deed
will be in proper form for recording and the Retailer will deliver complete
possession of the property when the Deed is delivered. The Retailer will
also furnish the Franchisor with copies of any easements, licenses or other
documents affecting the property, and will assign to the Franchisor any
permits or licenses necessary to conduct the franchised business.
4) Transfers Involving Family Members
When the proposed change of ownership involves
a transfer by a Retailer Investor to a member or members of his or her
immediate family, the Franchisor's right of first refusal will not apply. An
"immediate family member" shall be the spouse, child, grandchild, spouse of a
child or grandchild, brother, sister, or parent of the Retailer Investor.
All other requirements of Article 20B shall apply.
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PART SEVEN
TERMINATION AND TERMINATION ASSISTANCE
21. Termination
A. Termination of Agreement
1) By Retailer
The Retailer may terminate this Agreement by
giving written notice to the Franchisor. The Termination will be effective
30 days after the Franchisor receives the notice, unless otherwise mutually
agreed upon in writing.
2) By Agreement
This agreement may be terminated at any time by
written agreement between the Retailer and the Franchisor. Termination
assistance will be applicable only as specified in the written termination
agreement.
3) Failure to Be Licensed
If the Retailer or the Franchisor fails to
secure or maintain any license that is required to perform their obligations
under this Agreement, or if such license is suspended or revoked, then either
party may immediately terminate this Agreement by giving the other party
written notice.
4) Misrepresentation, Failure to Conduct Operations, or
Disqualification or Change of Retailer Operator or Investor
If any of the following occurs, the Franchisor
will notify the Retailer and provide 30 days for the Retailer to respond.
Thereafter, the Franchisor may notify the Retailer that the Agreement will be
terminated not less than 30 days after receipt of notice.
a) If the Retailer submits any false information
to Saturn or to the Franchisor,
b) The Retailer fails to conduct customary Saturn
Retail Facility Operations for seven consecutive business days,
c) The Retailer Operator or Investor(s) fail to
continue to meet the Retailer Selection Criteria applicable to each,
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d) The Retailer Operator is changed or withdraws
without prior written approval of the Franchisor, or
e) if, without the prior written notice to and
approval of the Franchiser, a person:
i. first acquires an equity ownership or
beneficial interest in the Retailer, or
ii. acquires majority ownership or voting
control.
If the Retailer chooses to use the Dispute
Resolution Process, the Agreement will continue pending a final resolution of
the dispute.
5) Failure of Performance
If the Retailer fails to perform any other
obligations specified in this Agreement, including those listed as part of
the Marketing Area Plan, the Franchiser will review the failure with the
Retailer.
If the Franchisor determines that corrective
action is not forthcoming, then the Franchisor will notify the Retailer in
writing and designate a period of time during which the Retailer is expected
to remedy the failure.
If the failure is not remedied within that
period, the Franchiser may invoke the Dispute Resolution Process immediately
or at any time, or terminate this Agreement by giving the Retailer three
months' advance written notice.
6) Conviction of a Felony
a) The Franchiser may terminate this Agreement by
giving written notice to the Retailer if it learns that the Retailer, or a
predecessor of the Retailer owned or controlled by the same person, or the
Retailer Operator is convicted in a court of original jurisdiction of any
felony. Termination will be effective on the date specified in the notice.
b) If a Retailer Investor is convicted in a court
of original jurisdiction of any felony, the Retailer Investor must divest its
ownership interest in the Retailer within 60 days after the Franchiser
notifies the Retailer or the Retailer becomes aware of the conviction,
whichever occurs first. If the Retailer Investor fails to divest its
interest in the Retailer within that period, the Franchisor may terminate
this Agreement Termination will be effective on the date specified in the
notice.
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7) Reliance on Any Applicable Termination Provision
The terminating party may select the
termination provision under which it elects to terminate without reference in
its notice of termination to any other provision that may also be
applicable. Subsequently, the terminating party may also assert other
grounds for termination.
8) Option to Purchase
If this Retailer Agreement is set to expire or
to terminate for any reason, the Franchisor has the option to purchase the
Retail Facility Assets, and to cancel this Agreement and all rights granted
to the Retailer. Real property will be included only if the Retailer and the
Franchisor agree. The purchase price of the Retail Facility Assets and other
terms will be determined under Article 2OC(2)b. The Franchiser must advise
the Retailer of its intent to exercise this option within 60 days after it
notifies the Retailer that an event has occurred that would cause expiration
or warrant termination.
B. Transaction after Termination
1) Orders
If, when this Agreement expires or is
terminated, the Retailer and the Franchisor do not enter into a new Retailer
Agreement, the Retailer's designated supply of Products will automatically be
canceled except as provided in this Article.
The termination or expiration of this Agreement
will not release the Retailer or the Franchisor from the obligation to pay
any amounts owing to the other when such amounts become due.
2) Deliveries
If this Agreement is voluntarily terminated by
the Retailer or if it expires because of the death or incapacity of a
Retailer Operator, the Franchisor will make its best efforts consistent with
distribution procedures to furnish the Retailer with Motor Vehicles to fill
the Retailer's bona fide retail orders on hand on the effective date of
termination or expiration. Franchiser's obligation under this Article 21B(2)
shall not exceed the total number of Motor Vehicles invoiced to the Retailer
for retail sale during the average of any three-month period during the year
preceding the effective date of termination.
3) Effect of Transactions after Termination
Neither the sale of Products to the Retailer,
nor any other act by Saturn, the Retailer or the Franchisor after the
termination or expiration of this Agreement, will waive the termination or
expiration.
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22. Termination Assistance
If this Agreement expires or is terminated and the Franchiser
does not offer either the Retailer or a replacement retailer with
substantially the same ownership (more than 50%, including total family
ownership) a new Retailer Agreement, then the Franchisor will provide
assistance as specified in the Termination Assistance Manual. The
Franchisor's obligations under this Article 22 are subject to the Retailer
fulfilling its responsibilities relating to termination assistance, which are
described in the Termination Assistance Manual.
PART EIGHT
GENERAL PROVISIONS
23. Acknowledgment of Franchise Law Compliance
A. Retailer's Investigation
The Retailer acknowledges that it has conducted an
independent investigation of the business venture contemplated by this
Agreement, and recognizes that it involves business risks and that its
success will be largely dependent upon the ability of the Retailer.
The Franchisor expressly disclaims the making of, and
the Retailer acknowledges that it has not received, a warranty or guarantee,
express or implied, as to the potential volume, profits or success of the
business venture contemplated by this Agreement.
B. Disclosure
The Retailer also acknowledges having received a copy
of this Agreement (together with attachments and related documents) at least
five business days prior to the date on which this Agreement was executed.
The Retailer further acknowledges having received the
disclosure document, which is required by the Trade Regulation Rule of the
Federal Trade Commission entitled the "Franchise Offering Circular," which
contains a copy of this Agreement, at least 10 business days prior to the
date on which this Agreement was executed.
C. Review
The Retailer acknowledges that it has read and
understands this Agreement (and its attachments and related agreements) and
that the Franchiser has afforded the Retailer ample time and opportunity to
consult with advisors of the Retailer's own choosing, about the potential
benefits and risks of its entering into this Agreement.
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<PAGE>
24. General Provisions
A. No Agent or Legal Representative Status
This Agreement does not make either party or Saturn the
agent or legal representative of the others for any purpose, nor does it
grant either party or Saturn authority to assume or create any obligation on
behalf of or in the name of the others. No fiduciary obligations are created
by this Agreement.
B. Retailer's Responsibility for Its Operations
Except as provided in this Agreement, the Retailer is
solely responsible for all expenditures, liabilities and obligations incurred
or assumed by the Retailer to establish and conduct its operations.
C. Taxes
The Retailer is responsible for all local, state, federal,
or other applicable taxes and tax returns related to its franchised business
and agrees to hold the Franchisor and Saturn harmless from any related claims
or demands made by any taxing authority.
D. Indemnification by Saturn
Saturn has agreed with the Franchisor that Saturn will
assume the defense of the Retailer and indemnify the Retailer against any
judgment for monetary or rescission of contract in any lawsuit that names the
Retailer as a defendant when the lawsuit concerns:
1) Breach of the Saturn warranty related to a product or
bodily injury or property damage that is claimed to be caused solely by a
defect in the design, manufacture or assembly of a Product by Saturn. Saturn
may withhold indemnification where a defect should have been detected during
the predelivery inspection of the Product;
2) Failure of a Product to conform to the description
set forth in advertisements or product brochures distributed by Saturn,
because of changes in either standard equipment or material component parts,
unless the Retailer received notice of the changes prior to retail delivery
of the affected Product by Retailer;
3) Any substantial damage to a Product purchased by
Retailer from Saturn that has been repaired by Saturn unless the Retailer
accepted the Product with knowledge of the repair. Saturn has no obligation
under its agreement with Franchisor if the product involved has been
altered. Any indemnification provided by Saturn will be net of any offset
recovered by the Retailer. Procedures for requesting indemnification,
administrative details and limitations are contained in the Saturn Service
Policies and Procedures Manual.
27
<PAGE>
E. Trademarks and Services Marks
Saturn, the Franchisor or affiliated companies are the
exclusive owners of the various trademarks, service marks, names and designs
(Marks) used in connection with any Products.
The Retailer is granted the nonexclusive right to display
Marks in the form and manner approved by the Franchisor in the conduct of its
franchised business. Marks may be used as part of the Retailer's name with
the written approval of the Franchiser. The Retailer agrees to change or
discontinue the use of any Marks upon the Franchisor's request.
The Retailer agrees that no company owned by or affiliated
with the Retailer or any of its Investors may use any Mark to identify a
business without the Franchisor's written permission.
Upon termination of this Agreement, the Retailer agrees to
immediately discontinue, at its expense, all use of Marks. Thereafter, the
Retailer will not use, either directly or indirectly, any Marks or any other
confusingly similar marks in a manner that the Franchisor determines is
likely to cause confusion or mistake or to deceive the public.
The Retailer will reimburse the Franchisor for all legal
fees and other expenses incurred in connection with any action that is taken
to require the Retailer to comply with this Article 24E.
F. Notices
Any notice that is required to be given by either party to
the other in connection with this Agreement will be in writing and delivered
personally or by mail. Notices to the Retailer will be directed to either
the Retailer or its representatives at the Retailer's principal place of
business. Notices by the Retailer will be directed to:
Retail Network Planning
Saturn Distribution Corporation
100 Saturn Parkway, P.O. Box 1500
Spring Hill, TN 37174-1500
Mailed notices will be deemed received on the date deposited in U.S. or
express mail.
G. No Implied Waiver
The delay or failure of the Retailer or the Franchisor to
require performance by the other party or the waiver by Retailer or
Franchisor of a breach of any provision of this Agreement will not affect the
right subsequently to require such performance.
H. Assignment of Rights or Delegation of Duties
The Franchisor may assign this Agreement and any rights, or
delegate any obligations to any affiliated or successor company. The
Franchisor will provide the Retailer with written notice of such assignment
or delegation. Such an assignment or delegation will not relieve the
Franchisor of liability for the performance of its obligations.
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<PAGE>
I. Accounts Payable
All monies or accounts due to the Retailer will be
considered net of the Retailer's indebtedness to the Franchisor and Saturn.
The Franchisor and Saturn may deduct any amounts due, or to become due from
the Retailer to the Franchisor or Saturn, or any amounts held by the
Franchisor or Saturn, from any sums or accounts due, or to become due, from
Saturn or the Franchisor to the Retailer.
J. Sole Agreement of Parties
Except as provided in this Agreement, the Franchisor has
made no promises to the Retailer, the Retailer Operator or the Retailer
Investor(s). There are no other agreements or understandings, either oral or
written, between the parties affecting this Agreement or relating to any of
the subject matter covered by this Agreement.
Except as otherwise provided in this Agreement, this
Agreement cancels and supersedes all previous agreements between the parties
that relate to any matters covered herein.
No agreement between the Retailer and the Franchisor that
relates to matters covered herein, and no change in, addition to (except the
filling in of blank lines) or erasure of any printed portion of this
Agreement, will be binding unless it is approved in a written agreement
executed under Article 25.
K. Severability
If any provision of this Agreement is determined to be
unenforceable under a valid and applicable law in effect as of the effective
date of this Agreement, then the Agreement will be modified to the minimum
extent necessary to comply with such law.
L. Review and Modification of Agreement Terms
To demonstrate its commitment to the Saturn Philosophy,
Mission, Values and way of doing business, the Franchisor has entered into
indefinite term Agreement.
However, neither the Retailer nor the Franchisor want to
prevent the modification of their contractual relationship as necessary to
respond to changes in marketing conditions. Therefore, the Franchise
Operations Team will review this Agreement every five years or at such other
time as the FOT decides is appropriate.
In the event the FOT recommends a superseding form of
Retailer Agreement, the Retailer and the Franchisor agree to terminate this
Agreement and execute the new Agreement. Unless otherwise agreed in writing,
the rights and obligations of the Retailer that may otherwise become
applicable upon termination or expiration of this Agreement will not be
applicable.
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25. Execution on Behalf of Retailer and Franchisor
This Agreement and related agreements are valid only if
signed:
A. On behalf of the Retailer by a duly authorized
representative and, in the case of this Agreement, by the Chief Executive
Officer, Retailer Operator and Retailer Investor(s); and
B. On behalf of the Franchisor by either its President
or a Vice President, Sales.
SATURN OF SOUTHWEST OREGON, INC. SATURN DISTRIBUTION CORPORATION
Retailer Name
By: /s/Sidney B. DeBoer 6-16-97 By: /s/Joe Kennedy 6-5-97
--------------------------------- ----------------------------------
Retailer Operator Date President Date
By: /s/Sidney B. DeBoer 6-16-97 By: /s/Donald E. Young 6-9-97
--------------------------------- ----------------------------------
Retailer Investor Date Vice President, Sales Date
LITHIA MOTORS, INC.
Sidney B. DeBoer, President
By: /s/Sidney B DeBoer 6-16-97
---------------------------------
Retailer Investor Date
LITHIA HOLDING, LLC
Sidney B. DeBoer, Managing Member
By: /s/Sidney B DeBoer 6-16-97
---------------------------------
Retailer Investor Date
LITHIA HOLDING, LLC
Manfred L. Heimann, Member
By: /s/Manfred L. Heimann
---------------------------------
Retailer Operator Date
LITHIA HOLDING, LLC
R. Bradford Gray, Member
By: /s/R. Bradford Gray
---------------------------------
Retailer Operator Date
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Glossary of Terms
Critical Success Factors: Areas of performance that are critical
to the Retailer's success and success and that are evaluated in the MAP.
Financial Services Process: The four-step process that allows
customers to make informed financial decisions by providing an educational,
customer focused consultation by the financial services manager. The steps
are introduction, interview, selective presentation, and summary and
disclosure. By adhering to this process, customers receive a quality
experience that creates customer enthusiasm.
Franchise Systems Manuals: Manuals that contain the policies,
procedures, systems and guidelines for the conduct of Saturn Retail Facility
Operations under the Retailer Agreement.
Marketing Area: The geographic area assigned to the Retailer and
identified in a Notice of Retailer's Marketing Area.
Marketing Area Plan (MAP): An essential part of the Retailer
Agreement that describes how the Retailer will develop its designated area
and fulfill all the corresponding sales and service commitments.
Marks: The various trademarks, service marks, names and designs
used by Saturn, the Franchisor and its affiliated companies in connection
with Products.
Motor Vehicles: All current Saturn branded model types or series
of new motor vehicles specified in any Motor Vehicle Addendum and all past
motor vehicles marketed through Retailers.
Nonaffiliated Entity: An entity that is not incorporated into or
associated with either the Saturn Distribution Corporation, Saturn
Corporation, General Motors or any of its subsidiaries.
Parts and Accessories: New or remanufactured automotive parts
and accessories that are marketed or approved by Saturn or the Franchisor and
listed in the current Retailer Parts and Accessories Price Schedules and
supplements.
Performance Benchmarks: Minimum acceptable level of performance
for a Critical Success Factor, which may be modified from time to time by the
FOT, that will be evaluated in the MAP process.
Products: Motor Vehicles, Parts and Accessories, and Saturn
Service Plan Products.
Retail Environment Design Package: A comprehensive design
package to provides a design guide and access to a portfolio of Saturn retail
facility design control drawings (interior and exterior).
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Retail Facility Assets: The principal assets of the Retailer
used in the franchised business, other than real property.
Retail Facility Premises: The approved site(s) and facility(ies)
provided by the Retailer for Saturn Retail Facility Operations.
Retailer: The corporation, partnership, limited liability
company or proprietorship that signs the Retailer Agreement.
Retailer Agreement. The Retailer Agreement that is executed
including the Marketing Area Plan, the Retailer Standards Manual, the Saturn
Service Policies and Procedures Manual, other related Addenda and the Terms
of the Sale Bulletins.
Retailer Operator. The principal manager of the Retailer upon
whose personal service the Franchisor relies in entering into the Retailer
Agreement.
Retailer Investor. A person having equity ownership or a
beneficial interest in the Retailer upon whose qualifications the Franchisor
relies in entering into the Retailer Agreement.
Retailer Selection Criteria: The qualifications and standards
that prospective Retailer Operators and certain Retailer Investors must
satisfy in order to be approved by the Franchisor.
Retailer Selection Process: The process that an applicant must
successfully complete before becoming a Saturn Retailer Operator. This
process includes the application, the questionnaires, the assessment at the
applicant's place of business, an orientation and interview, and the
development and agreement on a Marketing Area Plan.
Retailer Standards Manual: The manual that contains Saturn Brand
Critical Standards and Fundamental Principles.
Sales Consultative Process. The seven-step process that delivers
a sales experience focused on the wants and needs of the customer. It
includes reception, interview, selective presentation, and demonstration,
purchase consultation, delivery and follow-up. By adhering to this process,
customers receive a quality experience that creates customer enthusiasm.
Saturn Brand Critical Standards. Retailer Standards that pertain
to matters deemed by the FOT to be particularly vital to the strength of the
Franchisor and other Retailers. These Brand Critical Standards must be
executed consistently across the retail network.
Saturn Retail Facility Operations: All operations contemplated
by the Retailer Agreement. These include the sales and service of Products,
the sale or promotion of products marketed or distributed by Saturn
Corporation, and any other activities undertaken by the Retailer related to
Products, including rental and leasing operations, used vehicle sales
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(including non-Saturns) using the Saturn Used Car Process, body shop
operations, and finance and insurance operations, whether conducted or
indirectly by the Retailer. "Saturn Retail Facility Operations" does not
include the sale of used vehicles (Saturn or non-Saturn) when the Saturn Used
Car Process is not used.
Saturn Service Policies and Procedures Manual: The manual, as
may be modified from time to time by the Franchiser, that details certain
policies and procedures for Retailer service under the Retailer Agreement.
Saturn Used Car Process: Procedures designed to bring the
"Saturn Difference" to the retail used car business through a consistent
approach as defined in the Administrative Guidelines for the Saturn Used Car
Process, which may be modified from time to time, with approval of FOT as
appropriate.
Service Consultative Process: The seven-step process that
provides service teams with a guide to exceed the customer's expectations
during a service visit. The process includes service reservation, customer
reception, interview, CSO development, customer and shop communication,
active service delivery, and customer follow-up. By involving the customer
in the service process and focusing on their wants and needs, service teams
are better able to customer enthusiasm that leads to customer retention,
referrals and repeat vehicle sales.
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EXHIBIT B
PROCEDURE FOR DETERMINATION OF
FAIR MARKET VALUE
For purposes of the Agreement to which this is an attachment, the term
"Fair Market Value" shall mean the fair market value of the businesses,
properties and assets of the Saturn Retailer. Fair Market Value shall be
calculated: (a) as the value of a Saturn automobile sales and service
facility that is not part of any other system or entity and not necessarily
the value of the Retailer, (b) based on comparable sales of automobile sales
and service facilities similar to the Saturn retail facility in the market
area in which Saturn retail facility is located, and (c) based on facility in
"AS IS, WHERE IS" condition. Fair Market Value shall be determined in
following manner:
1. The parties shall attempt, in good faith to agree on Fair
Market Value of the Saturn Retailer. If the parties fail, refuse, or are
unable for any reason to agree on Fair Market Value within thirty (30) days
following notice by SDC of an event giving rise to a determination of Fair
Market Value, Saturn of Southwest Oregon, Inc. ("Retailer"), shall within ten
(10) days thereafter select both a nationally recognized investment banker
and an appraiser and notify SDC in writing of the names, addresses and
qualifications. Within ten (10) days following its receipt of such notice,
SDC shall also select a nationally recognized investment banker and an
appraiser and notify Retailer of their names, addresses and qualifications.
The investment bankers and appraisers selected by Retailer and SDC are
sometimes referred to herein as the "Advisers."
2. The Advisers shall advise Retailer and SDC of their
respective determinations of Fair Market Value within 30 days of SDC's
selection of its investment banker and appraiser. If the greatest of the
four determinations of Fair Market Value is less than or equal to one hundred
five percent (105%) of the average of the four determinations of Fair Market
Value, the Fair Market Value shall equal the average of such determinations
of Fair Market Value, and that determination shall be binding and conclusive
upon all parties. If the greatest of the four determinations is greater than
105% of the average of the four determinations, the two investment bankers
shall select a third nationally recognized investment banker and the two
appraisers shall select a third appraiser to each make an additional
determination of Fair Market Value. If the average of the third set of
appraisals is higher than the highest of the original appraisals, then the
highest original appraisal will be used. If the average of the third set of
appraisals is lower than the lowest of the original appraisals, then the
lowest original appraisal will be used. If the average of the third set of
appraisals falls between the highest and lowest of the original appraisals,
then the average of the third set of appraisals will be used and shall be
binding and conclusive upon all parties.
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3. If the investment bankers selected by SDC and Retailer
respectively are unable to agree upon the designation of a third investment
banker within ten (10) days after the expiration of the thirty (30) day
period referred to above, or if such third investment banker has not advised
the investment bankers selected by Retailer and SDC of his/her determination
of Fair Market Value within thirty (30) days after his/her selection, either
party may request the United States District Court for the District in which
the premises are located to appoint a nationally recognized investment
banker. If the appraisers selected by SDC and Retailer respectively are
unable to agree upon the designation of a third appraiser within ten (10)
days after the expiration of the thirty (30) day period referred to above, or
if the third appraiser has not advised the appraisers selected by SDC and
Retailer of his/her determination of Fair Market Value within thirty (30)
days after his/her selection, either party may request the United States
District Court for the District in which the Premises are located to appoint
an appraiser. The determination of Fair Market Value made by the third
investment banker and by the third appraiser appointed pursuant hereto shall
be made within thirty (30) days after such appointment. If the average of
the third set of appraisals is higher than the highest of the original
appraisals, then the highest original appraisal will be used. If the average
of the third set of appraisals is lower than the lowest of the original
appraisal, then the lowest original appraisal will be used. If the average
of the third set of appraisals falls between the highest and lowest of the
original appraisals, then the average of the third set of appraisals will be
used and shall be binding and conclusive upon all parties.
4. All appraisers selected or appointed as provided above
shall (i) be independent qualified MAI appraisers active in the market in
which the premises are located, with experience in appraising automobile
sales and service facilities, (ii) use the definition of fair market value
set forth above, and (iii) be registered in the state in which the Premises
are located ("State") if the State provides for or required such
registrations. The costs and expenses of any investment banker and appraiser
selected by a party shall be borne solely by such party, and the costs and
expenses of a third investment banker and appraiser shall be shared equally
between Retailer and SDC.
If SDC elects to purchase the Saturn retail facility premises, then
within thirty (30) days following initiation of the Fair Market Value
process, Retailer shall supply SDC with commitment for title insurance and a
title report showing good and marketable title in Retailer. At closing,
Retailer shall cause a policy of title insurance to be issued to SDC insuring
good marketable title.
The parties shall close the purchase and sale of the Saturn retail
facility, within thirty (30) days after the determination of the Fair Market
Value. The parties shall prepare, execute and deliver all appropriate and
customary documents and make such closing adjustments as may be normal for
transactions of this type in the State.
35
<PAGE>
EX-10
Exhibit 10.10.2 Saturn Supplemental Agmt
EXHIBIT 10.10.2
SUPPLEMENTAL AGREEMENT
TO SATURN RETAILER AGREEMENT
This Supplemental Agreement to the Saturn Retailer Agreement is entered
into among Saturn of Southwest Oregon, Inc., an Oregon corporation and
wholly-owned subsidiary of Lithia Motors, Inc. ("Retailer"); Lithia Motors
Inc., an Oregon corporation ("Retailer Investor"); Lithia Holding, LLC, an
Oregon limited liability company, ("Holding"); Sidney B. DeBoer, an individual
("DeBoer'), and Saturn Distribution Corporation, a Delaware corporate ("SDC').
WHEREAS, SDC has entered into a Saturn Retailer Agreement ("Retailer
Agreement") with Retailer, permitting Retailer to conduct retail operations
from approved locations identified in the Retailer Agreement; and
WHEREAS, the organization and ownership structure of Retailer and
Retailer Investor are such that the terms of the Retailer Agreement are not
wholly adequate to address the legitimate business needs and concerns of the
Retailer, Retailer Investor, Holding and SDC; and
WHEREAS, the parties desire to continue a positive and productive
business relationship and to accomplish our mutual goals and promote the sale
and service of Saturn products consistent with Saturn's brand strategy and to
focus on total customer enthusiasm:
NOW, THEREFORE, in consideration for the mutual agreements contained
here and in the Retailer Agreement, the parties agree:
1. Purpose of Agreement
1.1 Purpose of Agreement.
The parties acknowledge that Retailer Investor desires to
offer from thirty to fifty percent of its equity as Class A Common Stock
(with total voting control of not more than 6.25%) to the public. The
remaining shares of Retail Investor's common stock will be Class B stock
(with not less than 93.75% of total effective voting control). Holding will
be the only initial owner of Class B common stock. The parties further
acknowledge that the ownership arrangements for Retailer and the operating
processes and procedures of Retailer Investor and Holding require that the
parties supplement the standard terms and provisions of the Retailer
Agreement to assure that the legitimate business needs of Saturn in regard to
the representation of its products are satisfied. The parties have agreed to
enter into this Supplemental Agreement for that purpose.
1
<PAGE>
1.2 Definitions.
For purposes of this Agreement, the following terms
shall have the meaning indicated:
1.2.1 "Agreement" means this Supplemental Agreement
to the Saturn Retailer Agreement.
1.2.2 "Retailer Agreement" means a Saturn Retailer
Agreement, a copy of which is attached hereto as Exhibit A and is
incorporated herein by reference. It also includes any superseding Saturn
Retailer Agreements.
1.2.3 "Saturn" means Saturn Corporation.
1.2.4 "SDC" means Saturn Distribution Corporation.
1.2.5 "Voting stock" means any stock of Retailer or
Retailer Investor that has voting rights as well as any debt or equity
security of Retailer or Retailer Investor that is convertible into stock of
Retailer that has voting rights.
2. Retailer Ownership
2.1 Ownership Structure
Retailer, Retailer Investor, Retailer Operator and Holding
hereby each warrant that the representations and assurances contained in this
Supplemental Agreement are within its respective authority to make and do not
contravene any directive, policy or procedure of each.
Retailer Investor is the 100% shareholder of Retailer;
Holding is and shall continue to be the controlling (as defined below)
shareholder of Retailer Investor, and DeBoer is and shall continue to be the
managing and controlling member of Holding. (For purposes of this
Supplemental Agreement, the terms "control", "controlling" and "controlled"
have the meanings given to them in Rule 405 under the Rules and Regulations
of the Securities Act of 1933, as amended.) DeBoer will serve as Chief
Executive Officer ("CEO"), Trustee and Controlling Manager of Holding, and
will continue to serve as President and CEO of Retailer Investor.
The ownership of the stock of Retailer Investor is:
<TABLE>
<CAPTION>
<S><C>
=============================================================================
| Share of Total | Type of | Votes | Share of Total
| Stock | Stock | Per Share | Voting Control
---------|-------------------|----------------|-----------|------------------
Holding | Not less than 55% | Common Class B | 10 | Not less than
| | | | 93.75%
---------|-------------------|----------------|-----------|------------------
Others | Not more than 45% | Common Class A | 1 | Not more than
| | | | 6.25%
=============================================================================
</TABLE>
2
<PAGE>
The members of the Holding, an Oregon Limited Liability Company, and
their respective interests in Holding are:
<TABLE>
<CAPTION>
Share of Units
<S> <C>
Sidney B. DeBoer 58.125%
Manfred L. Heimann 34.875%
R. Bradford Gray 7.000%
</TABLE>
2.2 Retailer Operator
The parties agree that DeBoer shall continue to serve as Retailer
Operator under Article 8 of the Retailer Agreement. AH parties to this
Agreement acknowledge and agree that, in addition to meeting the
qualifications for Retailer Operator set forth in the Retailer Agreement and
the Saturn Retailer Selection Process, DeBoer, as Retailer Operator, must
also meet the following q@cations at all times:
(i.) he must serve as CEO of Retailer Investor.
(ii.) he must maintain both effective voting control and a direct or
indirect beneficial ownership in Retailer of at least 20% at all times (the
beneficial interest with Holding must be equal to or greater than 34.4% in
order to constitute an effective 20% ownership interest in Retailer).
3. Changes in Ownership
All parties agree that the Retailer Agreement and this Supplemental
Agreement have been executed in reliance upon the ownership and management
structure described by this Agreement and any material change in such
structure (other than changes in ownership, which are discussed in Section
3.2 below), shall be the basis for a review of the Agreements among the
parties and a determination whether changes and modifications are required
and whether the business relationship among the parties should continue or
terminate.
Retailer will be maintained as a separate legal entity, distinct from
Retailer Investor and Holding, in the form of either a corporation,
partnership or other business enterprise form acceptable to SDC. Retailer
must capitalize in accordance with Part 5, Article 19 of the Saturn Retailer
Agreement. Retailer will not engage in any business other than the operation
of its Saturn franchises. Retailer will not be merged with or into, or be
consolidated with, or acquire substantially all the assets of, any other
entity without prior written consent of SDC.
Any change in ownership of Retailer or any material change in Retail
Investor or Holding (as described in Section 3.1) shall be considered a
change in ownership of the Retailer under the terms of the Retailer
Agreement, and all applicable terms of the Retailer Agreement as supplemented
by this Agreement will apply to any such change.
3.1 Material Changes in Ownership
Given the ultimate control Retailer Investor and Holding could
have over the Retailer and SDC's strong interest in assuring that those who
own and control the Retailer have interests consistent with those of Saturn
and SDC, all parties agree that:
3
<PAGE>
3.1.1 Retailer Investor will deliver to SDC copies of all
Schedules 13D and 13G, and all amendments thereto and terminations thereof,
received by Retailer Investor, within five (5) days of receipt of such
Schedules. If Retailer Investor is or becomes aware of any ownership of its
stock that should have been reported to it on Schedule 13D but that is not
reported in a timely maimer, it will promptly give SDC written notice of such
ownership, with any information about the owner that Retailer Investor
possesses.
3.1.2 Any change of ownership that was reported or should have
been reported through filings to the Securities and Exchange Commission by
third parties that are required to disclose significant holdings or
substantial acquisitions of, or changes in the ownership of the stock of
Retailer Investor, including but not @ted to Schedule 13D, that indicates
that any person, entity or group as a result of such change of ownership now
has or is about to acquire aggregate ownership of equal to or greater than
twenty percent (20%) of equity and/or voting interest in Retailer Investor,
shall be deemed a material change of ownership under this section.
Additionally, if Retailer Investor proposes, through its
Board of Directors or through shareholder action, or if any person, entity or
group notifies Retailer Investor by Schedule 13D or otherwise, of (a) a
proposal to acquire more than 20% of the voting and/or equity interests of
Retailer Investor, (b) an extraordinary corporate transaction, such as a
merger, reorganization or liquidation involving Retailer Investor which would
result in an issuance of more than 20% of the voting and/or equity interest
to another party; (c) a sale or transfer of a material amount of the assets
of Retailer Investor and/or its subsidiaries; or (d) any change which, either
by itself or together with any changes made to the Board of Directors within
the preceding year, would result in a change of control of the thencurrent
Board of Directors of Retailer Investor, such proposal, transaction, sale or
offer of change shall be treated by SDC as a proposal for a material change
of ownership or a material change of ownership, and shall require the prior
written approval of SDC or remedial action as set forth in Paragraph 3.2.
A material change in the ownership of Holding is deemed to
have occurred in the event that DeBoer no longer serves as Chief Executive
Officer and sole manager of Holding.
3.2 Remedial Actions.
SDC will consider any proposed change in ownership of
Retailer or Holding, or any proposed material change in ownership (as defined
in 3. 1) of Retailer Investor under Article 20(B) of the Retailer Agreement.
The right of first refusal and/or option to purchase under Article 20(C)
shall apply. Alternatively,. SDC may, at its sole discretion, require
Retailer, Retailer Investor and/or Holding to take one of the rededial
4
<PAGE>
actions set forth in Section 3.2.1 within 90 days of the time SDC learns of
such proposal. Upon notification of a material change of ownership that has
already occurred in Retailer Investor, SDC at its sole discretion, may
require Retailer, Retailer Investor and/or Holding to take one of the
remedial actions set forth in Section 3.2.1 within 90 days of the date SDC
learns of the material change of ownership.
3.2.1 If Retailer, Retailer Investor and/or Holding is
required by SDC to take remedial action, it/they will: (i) transfer to SDC or
its designee, and SDC or its designee will acquire, all the assets,
properties and/or businesses associated with Retailer at fair market value,
as determined in accordance with Section 6, below; or, (ii) provide evidence
reasonably acceptable to SDC that such person, entity or interest no longer
has such threshold level of ownership interest or effective voting interest
described in Section 3.1.2.
3.2.2 Retailer Investor will describe such provisions of
this Section in any prospectus it delivers in connection with the offer or
sale of its stock or any other securities filing as may be required by any
applicable laws and/or regulations.
3.3 Officers and Key Management
Retailer Investor agrees to provide to SDC a list of the
key management of Retailer Investor and of their responsibilities in regard
to the control and management of Retailer Investor and Retailer. Retailer
shall agree to propose to SDC any material changes in the key management of
the Retailer or their responsibilities. Such proposal should be provided to
SDC in writing prior to such change and shall include sufficient information
to permit SDC to evaluate the proposed change consistent with normal policies
and procedures. Retailer Investor will notify SDC in writing of any material
change in the key management of Retailer Investor or their responsibilities.
For purposes of this Agreement, the term "key management" shall mean CEO,
President and Vice Presidents with respect to Retailer, all executive
officers and Board of Directors with respect to Retailer Investor, and all
members with respect to Holding.
4. Changes in Retailer Operator or Retailer Operator's Qualifications
For purposes of these Agreements, Sid DeBoer is, has been and
will continue to be the Retailer Operator as set forth in Article 7 of the
Retailer Agreement. SDC has relied on and will continue to rely on DeBoer's
personal qualifications, management skills and commitment to Saturn's
Mission, Philosophy and Values. AH parties hereby represent and agree that
Retailer Operator wig have complete managerial authority to make all
decisions, and to enter into any and all necessary business commitments
required in the normal course of conducting Retailer Operations on behalf of
Retailer, and to take any and all actions required of a Retailer Operator
pursuant to the Agreements. Retailer, Retailer Investor, and/or Holding will
not revoke, modify, amend or abrogate Retailer Operator's authority without
the prior written approval of SDC.
5
<PAGE>
4.1 Removal, Withdrawal or Replacement of Retailer Operator
The removal, withdrawal and/or replacement of Retailer
Operator or the restriction of his managerial authority, without SDC's prior
written approval, shall constitute grounds for termination of the Retailer
Agreement. In the event Retailer proposes a change in Retailer Operator for
SDC's consideration, Retailer will pay SDC a fee (currently $5,000.00) to
defray the costs of review of the proposal and completion of the Retailer
Selection Process. SDC has no obligation to consider the proposal until it
has received this non-refundable payment. SDC's right of first refusal or
option to purchase described in Article 20(C) of the Retailer Agreement shall
apply to any proposal to change Retailer Operator. In the event that SDC
elects to exercise its right of first refusal or its option to purchase, the
price to be paid by SDC or its designee shall be the fair market value as
determined in accordance with Section 6 below.
4.2 Change in Qualifications of Retailer Operator
In the event that the Retailer operator fails to continue
to meet the Retailer Selection Criteria or the additional qualifications set
forth under Paragraph 2.2 of this Agreement, Article 2 1 (A) of the Retailer
Agreement shall apply.
5. Retailer Investor Operating Policies and Procedures
5.1 Saturn Brand Strategy
Retailer, Retailer Investor and Holding acknowledge that
Saturn and SDC have a Brand Strategy and have invested and are continuing to
invest significant capital in the development of the Saturn brand. Relevant
information regarding this strategy has been shared with Retailer, Retailer
Investor and Holding.
5.1.1 Retailer and Retailer Investor agree to
accommodate Saturn's Brand Strategy in their Retailer Operations, and will
incorporate in each Sat= retail facility as a minimum in support of the
Saturn Brand Strategy, all Saturn Retail and Service operating standards,
including Saturn Brand Critical Standards.
5.1.2 Neither Retailer nor Retailer Investor will jointly
advertise or market any non-Saturn operations in conjunction with any Saturn
Retailer Operations. Retailer, Retailer Investor and Holding agree that they
will not compete with Saturn or SDC within Retailer's Marketing Area in any
areas in which Saturn proposes to extend its brand.
6. Right to Purchase or Lease
In the event of any termination of the Retailer Agreement or any
transaction or event that would, in effect, discontinue Retail Operations
from that Saturn Retail facility, or require a transfer of assets, properties
or business to SDC or an SDC designee pursuant to Section 3, and business for
fair market value with fair market value being determined by the process set
forth in Exhibit B; (ii) the right to lease the properties for up to 24
(twenty-four) months at a monthly rent equivalent to 1% of the appraisal
6
<PAGE>
value as determined by the process set forth in Exhibit B; and (iii) the
right to an assignment of any existing lease or lease options that are
available, subject in each case to any legal or contractual obligations
existing at such time; provided, however, that the parties shall assure SDC
or its designee of quiet possession of the retail facilities for a period of
not less than five years if this right is exercised with respect to such
facilities within ten years of the execution of this Agreement. If, however,
the parties enter into a financing arrangement with respect to such
facilities then such assurance of quiet possession would be subordinated to
the interests of any lender in connection with any default by the parties
under the terms of the financing arrangement other than a default due to the
discontinuance of dealership operations from such facilities. The parties
agree that SDC may exercise any of its rights under this Section with respect
to some or all of the retail facilities to which it may apply at any given
time, and that exercise or failure to exercise any such rights as to one
facility shall in no way affect SDC's other rights or its rights as to other
facilities.
7. Dispute Resolution
All parties stipulate and agree that the dispute resolution
process described in Article 6 of the Retailer Agreement, including binding
arbitration, shall be the exclusive mechanism for resolving any dispute with
SDC arising out of or relating to the Saturn Retailer Agreement and this
Supplemental Agreement including, but not @ted to, involuntary termination of
the Agreement(s), and/or approval of Retailer Investor for additional
investment in or ownership of Saturn franchises.
8. Supplement to Retailer Agreement
The parties agree that this Agreement shall supplement the terms
of the Retailer Agreement in accordance with 24.J of the Retailer Agreement.
9. No Third Party Rights
Nothing in this Agreement or the Retailer Agreement shall be
construed to confer any rights upon any person not a party hereto, nor shall
it create in any party an interest as a third party beneficiary of this
Agreement or the Retailer Agreement. Retailer, Retailer Investor and Holding
hereby agree to indemnity and hold Sat= Corporation, Saturn Distribution
Corporation, its directors, officers, employees, subsidiaries, agents and
representatives harmless from and against all claims, actions, damages,
expenses, costs and liability arising from or in connection with any action
by a third party in its capacity as a stockholder of Retailer, Retailer
Investor or Holding.
7
<PAGE>
10. Modification of Retailer Agreement
This Agreement is intended to modify and adapt certain provisions
of the Retailer Agreement to the limited extent provided herein and is
intended to be incorporated as part of the Retailer Agreement AH provisions
of the Retailer Agreement not in conflict with this Agreement shall continue
to have fun force and effect. la the event that any provisions of this
Agreement are found to be in conflict with other provisions of the Retailer
Agreement, the provisions contained in this Supplemental Agreement shall
govern.
11. Confidentiality
Each party agrees not to disclose the content of this Agreement
to non-affiliated entities and to treat the Agreement with the same degree of
confidentiality as it treats its own confidential documents of the same
nature, unless authorized by the other party, required by law, pertinent to
judicial or administrative proceedings or to proceedings under the Dispute
Resolution Process.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement this 26
day of August 1997.
"RETAILER" "SDC"
Saturn of Southwest Oregon, Inc. Saturn Distribution Corporation
/s/ Sidney B. DeBoer /s/ Joe Kennedy 8-22-97
- --------------------------------- -----------------------------------
By: Sidney B. DeBoer By: Joe Kennedy
Retailer Operator President
"HOLDING"
Lithia Holding, LLC
/s/ Sidney B. DeBoer
- ---------------------------------
By: Sidney B. DeBoer, Member
Manfred L. Heimann
- ---------------------------------
By: Manfred L. Heimann, Member
/s/ R. Bradford Gray
- ---------------------------------
By: R. Bradford Gray, Member
"RETAILER INVESTOR"
Lithia Motors, Inc.
/s/ Sidney B. DeBoer
- ---------------------------------
By: Sidney B. DeBoer
President
"DeBoer"
Sidney B. DeBoer
/s/ Sidney B. DeBoer
- ---------------------------------
By: Sidney B. DeBoer
Chief Executive Officer
9
<PAGE>
EXHIBIT B
PROCEDURE FOR DETERMINATION OF
FAIR MARKET VALUE
For purposes of the Agreement to which this is an attachment, the term
"Fair Market Value" shall mean the fair market value of the businesses,
properties and assets of the Saturn Retailer. Fair Market Value shall be
calculated: (a) as the value of a Saturn automobile sales and service
facility that is not part of any other system or entity and not necessarily
the value of the Retailer, (b) based on comparable sales of automobile sales
and services facilities similar to the Saturn retail facility in the market
area in which Saturn retail @ty is located, and (c) based on the facility in
"AS IS, WHERE IS" condition. Fair Market Value shall be determined in the
following manner.
1. The parties shall attempt, in good faith, to agree on Fair
Market Value of the Saturn Retailer.
If the parties fail refuse, or are unable for any reason to
agree on Fair Market Value within (30) days following notice by SDC of an
event giving rise to a determination of Fair Market Value, Saturn of
Southwest Oregon, Inc. ("Retailer"), shall within ten (10) days thereafter
select both a nationally recognized investment banker and an appraiser and
notify SDC in writing of the names, addresses and qualifications. Wid2in
(10) days following its receipt of such notice, SDC shall also select a
nationally recognized inves=ent banker and an appraiser and notify Retailer
of their names, addresses and qualifications. The investment bankers and a
selected by Retailer and SDC are sometimes referred to herein as the
"Advisers."
2. The Advisors shall advise Retailer and SDC of their
respective derminitions of Fair Market Value within 30 days of SDC's
selection of its investment banker and appraiser. If the greatest of the
four determinitions of Fair Market Value is less dm or equal to one hundred
five percent (105%) of the average of the four determinations of Fair Market
Value, the Fair Market Value shall equal the average of such determinations
of Fair Market Value, and that determination shall be binding and conclusive
upon all parties. If the greatest of the four determinations is greater than
105% of the average of the four determinations, the two investznent bankers
shall select a diird nationally recognized investment banker and the two
appraisers shall select a third appraiser to each make an additional
determinition of Fair Market Value. If the average of the third set of
appraisals is higher than the highest of the original appraisals, then the
highest original appraisal will be used. If the average of the third set of
appraisals is lower than the lowest of the original appraisals, then the
lowest original appraisal will be used. If the average of the third set of
appraisals falls between the highest and lowest of the original appraisals,
then the average of the third set of appraisals will be used and shall be
binding and conclusive upon all parties.
10
<PAGE>
3. If the investment bankers selected by SDC and Retailer
respectively are unable to agree upon the designation of a third investment
banker withen ten (10) days after the expiration of the thirty (30) day
period referred to above, or if such third investment banker has not advised
the investment bankers selected by Retailer and SDC of his/her determination
of Fair Market Value within (30) days after his/her selection, either party
may request the United States District Court for the District in which the
premises are located to appoint a nationally recognized investment banker.
If the appraisers selected by SDC and Retailer respectively
are unable to agree upon the designation of a third appraiser within
ten (10) days after the expiration of the thirty (30) day period referred to
above, or if the third appraiser has not advised the appraiser selected by
SDC and Retailer of his/her determination of Fair Market Value within (30)
days after his/her selection, either party may request the United States
District Court for the District in which the Premises are located to appoint
an appraiser. The determination of Fair Market Value made by the third
investment banker and by the third appraiser appointed pursuant hereto shall
be made within (30) days after such appointment. If the average of the third
set of appraisals is higher than the highest of the original appraisals, then
the highest original appraisal will be used. If the average of the third set
of appraisals is lower than the lowest of the original appraisal then the
lowest original appraisal will be used. If the average of the set of
appraisals falls between the highest and lowest of the original appraisal
then the average of the third set of a will be used and shall be binding and
conclusive upon all parties.
4. All appraisers selected or appointed as provided above
shall (i) be independent and qualified MAI appraisers active in the market in
which the premises are located, with experience in appraising automobile
sales and service facilities, (ii) use the de@tion of Fair Market Value set
forth above, and (iii) be registered in the state in which the Premises are
located ("State') if the State provides for or required such registrations.
The costs and expenses of any investment banker and appraiser selected by a
party shall be borne solely by such party, and the costs and expenses of a
third investment banker and appraiser shall be shared equally between Retailr
and SDC.
If SDC elects to purchase the Saturn retail facility premises, then
within (30) days following initiation of the Fair Market Value process,
Retailer shall supply SDC with a commitment for title insurance and a title
report showing good and marketable title in Retailer. At closing, Retailer
shall cause a policy of title insurance to be issued to SDC insuring good and
marketable title.
The parties shall close the purchase and sale of the Saturn retail
facility, within (30) days after the determination of the Fair Muket Value.
The parties shall prepare, execute and deliver all appropriate and customary
documents and make such closing adjustments as may be normal for transactions
of this type in the State.
11
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MOTOR VEHICLE ADDENDUM
TO
SATURN RETAILER AGREEMENT
Saturn of Southwest Oregon, Inc.
------------------------------
Retailer Entity Name
Medford, Oregon
------------------------------
City, State
In accordance with the effective date of the Saturn Retailer Agreement
(see page 1), Retailer, as an authorized Saturn Retailer, has a non-exclusive
right to buy the following new Motor Vehicles marketed by Satum Distribution
Corporation:
SL, SL1, SL2, SC1, SC2, SW1, SW2
This Motor Vehicle Addendum shall remain in effect unless and until
superseded by a new Motor Vehicle Addendum fumished to Retailer by SDC. This
Motor Vehicle Addendum cancels and supersedes any previous Motor Vehicle
Addendum fumished to Retailer by Saturn.
SATURN DISTRIBUTION CORPORATION
By: Joe Kennedy 6-5-97
--------------------------
President
(This Motor Vehicle Addendum should be filed
with your Saturn Retailer Agreement)
12
<PAGE>
Execution of Agreement
We are pleased to offer you the new Saturn Retailer Agreement
(Agreement). The Franchise Operations Team (FOT), formerly the Franchise
Development Team (FDT), has reviewed this new Agreement and recommends it
pursuant to Article 22K of the existing Saturn Dealer Agreement.
"In the event the FDT recommends a superseding form
of Dealer Agreement, Franchisor and Dealer mutually
agree to terminate this Agreement and execute the new
Agreement."
Saturn Distribution Corporation as the Franchisor and Dealer mutually
agree to terminate the existing Saturn Dealer Agreement, including the
existing Marketing Area Plan (MAP), and execute the new Saturn Retailer
Agreement and new Marketing Area Plan effective the date signed by the
Retailer Operator or March 15, 1997 whichever is later.
The following agreements attached to this document are incorporated by
reference and survive the execution of the new Retailer Agreement:
None
Agreed to:
By: /s/ Sidney B. DeBoer Joe Kennedy 6-5-97
----------------------------------- ---------------------------------
Sidney B. DeBoer Joe Kennedy
Retailer Operator President
Saturn Distribution Corporation
Saturn of Southwest Oregon, Inc.
- ----------------------------------------
Retail Entity
13
<PAGE>
[Saturn of Southwest Oregon letterhead]
August 28, 1997
Mr. Larry C. Schmid
Manager Network Planning
Saturn Corporation
100 Saturn Parkway
P.O. Box 1500
Springhill, Tennessee 37174
Dear Larry,
Please find enclosed the signed supplemental agreement between Lithia
Motors, Inc. and Saturn Distribution Corporation. Unfortunately during our
final review we found some of the percentages in the agreement are
inaccurate. Our legal counsel did not take into account the impact of the
stock options issued to employees. The following table shows the ownership
and voting control breakdown:
Number of Votlng
Shares/Options Control
----------------------- -----------------------
Class A Shares - Public 2,875,000 37.484% 2,875,000 6.438%
Class A Employee Stock Options 685,000 8.931% 685,000 1.534%
Total Class A Shares 3,560,000 46.415% 3,560,000 7.971%
Class B Shares 4,110,000 53.585% 41,100,000 92.029%
Total Shares Outstanding 7,670,000 100.000% 44,660,000 100.000%
The corrections should therefore read as follows:
Paragraph 1. 1
6.25% should read 7.971%
93.75% should read 92.029%
Paragraph 2.1
55% should read 53.585%
93.75% should read 92.029%
45% should read 46.415%
6.25% should read 7.971%
We hope you agree these differences are minor. If so, we propose the
Supplemental Agreement not be changed, but rather this letter serve as an
amendment and attachment to it. If this is not acceptable, please so
advise. Thank you for all your help and cooperation in formulating this
agreement.
Sincerely,
/s/ Sidney B. DeBoer
Sidney B. DeBoer
President & CEO
SN/sm
enclosure: Supplemental Agreement
14
<PAGE>
[Saturn of Southwest Oregon letterhead]
August 28, 1997
Mr. Sid DeBoer
Lithia Automotive Group
360 E. Jackson Street
Medford, OR 97501-5892
Dear Sid,
Enclosed are two copies of the supplemental agreement between Lithia
Motors, Inc. and Saturn Distribution Corporation. This agreement
incorporates the suggested changes in your letter to me dated June 16, 1997.
You had also indicated you would "continue to ask for the removal of the 20%
equity interest portion". As you will see in the supplemental agreement, our
requirement remains at a minimum "of at least 20% at all times".
This supplemental agreement supercedes the supplemental agreement you
executed on June 16, 1997. Please date and obtain the necessary signatures
on both copies. Keep one copy for your files and forward one copy to me at
the following address:
Saturn Corporation
PO Box 1500
Springhill, TN 37174-1500
Attention: Larry Schmid
Mail Drop S20
Sid, thank you for your assistance in this matter.
Sincerely,
/s/ Larry Schmid
Larry Schmid
Mgr.- Network Planning
Attach.
cc: Jill Lajdziak
Jim Craner
John Minarick
<PAGE>
EX-10
Exhibit 10.12.1 Suzuki Sales & Service Agmt
EXHIBIT 10.12.1
AMERICAN SUZUKI MOTOR CORPORATION
TERM DEALER SALES AND SERVICE AGREEMENT
THIS AGREEMENT, effective the 6th day of October, 1997, is entered into
by and between AMERICAN SUZUKI MOTOR CORPORATION, Automotive Division, a
California Corporation (hereinafter referred to as "SUZUKI"), having its
principal office at 3251 East Imperial Highway, Brea, California, and LITHIA
SALMIR, INC., a corporation duly incorporation under the laws of the State of
NEVADA, and doing business as DBA DICK DONNELLY LINCOLN MERCURY, AUDI,
SUZUKI, ISUZU (hereinafter referred to as "DEALER"), having it principal
office at 40 "B" STREET, SPARKS, NEVADA 89431.
PURPOSE OF AGREEMENT
It is acknowledged by both SUZUKI and DEALER that the purpose of this
Agreement is to establish DEALER as an authorized dealer of Suzuki Products
and to provide for the sale, lease and servicing of Suzuki Products by
DEALER. It is of utmost importance to SUZUKI that Suzuki products are sold
and services in a manner which promotes consumer satisfaction and
confidence. It is hereby understood and acknowledged that DEALER desires an
opportunity to qualify for a three-year American Suzuki Motor Corporation
Dealer Sales and Service Agreement for Suzuki Four Wheel Vehicle Products.
DEALER understands, acknowledges and accepts that DEALER must first fulfill
all of DEALER's undertakings as hereinafter set forth.
In furtherance of the purpose of this Agreement, the parties
acknowledge that SUZUKI is the exclusive distributor in the United States
(except Hawaii) of Suzuki Four Wheel Vehicles and Parts and Accessories
therefor manufactured by Suzuki Motor Co., Ltd., a corporation incorporated
under the laws of Japan.
It is of utmost important to SUZUKI that Suzuki Products are sold and
services in a manner which promotes consumer satisfaction and confidence.
DEALER desires to become one of SUZUKI'S AUTHORIZED DEALERS. SUZUKI, based
on the representations and promises of DEALER, and in reliance on DEALER's
integrity, ability and expressed intention to deal fairly with SUZUKI and the
consumer, has accepted DEALER as an authorized retail dealer of Suzuki
Products.
DEALER acknowledges that SUZUKI has selected DEALER as an authorized
SUZUKI dealer and has granted to it a Dealership for Suzuki Products and
related rights pursuant to this Agreement solely in reliance upon the
undertaking of DEALER to fulfill its responsibilities to any third party or
parties.
This Agreement sets forth the rights and responsibilities of SUZUKI and
DEALER. The relationship between SUZUKI and DEALER shall be that of vendor
and purchaser. DEALER is not the agent or legal representative of SUZUKI or
Suzuki Motor Co., Ltd. for any purpose whatsoever. DEALER does not have any
express or implied rights of authority to assume or create any obligations or
responsibilities on behalf or, or int he name of, SUZUKI or Suzuki Motor Co.,
Ltd.
THEREFORE, subject to the terms and conditions of this Agreement, based
on the foregoing facts and in consideration of the mutual promises and other
valuable consideration the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
I. RIGHTS GRANTED TO DEALER
Subject to the terms of this Agreement SUZUKI hereby appoints DEALER as
a nonexclusive authorized dealer for Suzuki Products and grants DEALER the
right to:
A. Sell, lease and service Suzuki Products to the satisfaction of
SUZUKI from the Dealership Facilities and Locations as set forth in the
Facility Standards Addendum and Section X herein.
B. Identify itself as an authorized Suzuki Dealer utilizing
Suzuki-approved signage at the Dealership Facilities, and
C. Use the name "Suzuki" and the Suzuki trademarks int he
advertising, promotion, sales, leasing and servicing of Suzuki Products in
the manner herein provided.
SUZUKI hereby reserves the unrestricted right to sell Suzuki trademarks
to other dealer and entities, wherever they may be located.
1
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II. RESPONSIBILITIES ACCEPTED BY DEALER
DEALER accepts its appointment as an authorized Suzuki Dealer and, in
consideration of its appointment and subject to their conditions and
provisions of the Agreement, agrees to:
A. Establish and maintain Dealership Facilities to the satisfaction
of SUZUKI as set forth herein and in the Facility Standards Addendum and the
Dealer Minimum Standards Addendum at the location(s) set forth herein;
B. Sell, lease and promote Suzuki Products subject to, and in
accordance with, the terms and conditions of this Agreement;
C. Service, in a manner satisfactory to SUZUKI, Suzuki Products
subject to, and in accordance with, the terms and conditions of this
Agreement, and
D. Build and maintain public confidence and respect in DEALER,
SUZUKI and Suzuki Products by maintaining the highest ethical standards of
advertising, business practices and conduct.
III. TERM
This Agreement shall come into full force and effect at SUZUKI
headquarters in Brea, California when executed by SUZUKI and, subject to its
earlier termination, in accordance with the provisions of this Agreement,
shall continue in full force and effect for one year, expiring on October 6,
1998 subject to the provisions of section 11.00 of the Standard Provisions
only upon the condition that DEALER complies and completes all the terms and
conditions of this Agreement.
IV. OWNERSHIP OF DEALER
DEALER represents and warrants and this Agreement is conditioned upon,
and is entered into by SUZUKI upon the representations and warranties of
Dealer that:
A. Dealer is a Nevada Corporation (indicate whether a sole
proprietor, a partnership, a corporation or other type of organization)
B. The following person(s) and only said person(s) own and will
continue to own, throughout the term of this Agreement, the following
interest in ownership of the Dealership:
Percentage of State Whether Partner
Name Interest Officer and Director
Lithia Motors, Inc., 100%
Owned by:
The Public 8%
Lithia Holding Company, LLC 92%
Owned by:
Voting Non Voting
Sidney B. DeBoer 100% 58.125
M.L. Dick Heimann 34.875
R. Bradford Gray 7.000
C. DEALER intents to carry on business under the name(s) of Dick
Donnelly Lincoln, Mercury, Audi, Suzuki, Isuzu.
DEALER warrants that the appropriate registration or fictitious
business name statement reflecting the name in Paragraph (C) above has been
filed with the proper state authorities for the conduct of business under the
name by DEALER.
V. MANAGEMENT OF DEALERSHIP
A. SUZUKI enters into this Agreement on DEALER's representation that
Dick Donnelly and no other person, shall be General Manager and shall have
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full managerial authority and responsibility for the operation and management
of all phases of the business of the Dealership with authority to make all
decisions on behalf of DEALER with respect to the operation of the Dealership
and the performance of this Agreement.
VI. CHANGE IN OWNERSHIP OR MANAGEMENT
SUZUKI has entered into this Agreement in reliance on DEALER's
representation that the persons identified as Owners and/or General Manager
in section IV and V herein possess the ability, experience and other personal
qualifications requisite for the performance of this Agreement. Therefore,
if there is to be a change in the person(s) named as having full ownership
and/or full managerial authority as General Manager and responsibility for
the operation and management of the Dealership, DEALER must give prior
written notice of the change to SUZUKI (except a change caused by death, in
which case DEALER or the DEALER's legal representative shall give immediate
written notice to SUZUKI). No such change or notice shall alter or modify
any of the provision in this Agreement until embodied in an appropriate
written amendment and executed by all parties. SUZUKI will not unreasonably
withhold consent to a change in ownership or management, provided that SUZUKI
receives all information requested by it concerning the prospective owner(s)
and/or General Manager, and provided that the prospective owner(s) and/or
General Manager meet(s) all SUZUKI financial qualifications in effect at the
time of the proposed change.
VII. LICENSING OF DEALER
If any state, city or other jurisdiction where the Dealership
operations are to be located and conducted requires DEALER to obtain and
maintain a license for the conduct of Dealership operations as set forth
herein, this Agreement shall not be valid until and unless DEALER shall have
first provided to SUZUKI certification of the issuance of such license(s) to
DEALER. DEALER shall immediately notify SUZUKI in writing of failure to
obtain or maintain any such licenses or renewal thereof. DEALER shall
further notify SUZUKI in writing if any license that DEALER has obtained
pursuant to this Paragraph is suspended or revoked and the date and reasons
therefor.
VIII. INCORPORATION OF STANDARD PROVISIONS
The Suzuki Dealer Sales and Service Agreement Provisions accompanying
this Agreement are incorporated herein by this reference and made a part of
this Agreement with the same force and effect as if fully set forth in this
point.
IX. INCORPORATION OF DOCUMENTS AS PART OF AGREEMENT
The Dealer Application, Facility Standards Addendum, Dealer Minimum
standards Addendum and Dealer Updates are incorporated by this reference and
made a part of this Agreement with the same force and effect as if all the
representations and warranties in the Dealer Application, and all terms and
conditions of the Facility Standards Addendum, Dealer Minimum Standards
Addendum and Dealer Updates were set forth in full herein. The DEALER
represents and warrants and SUZUKI enters into this Agreement in reliance
upon those representations and warranties that all representations and
warranties made by the DEALER in the Dealer Application, Facility Standards
Addendum and Dealer Minimum Standards Addendum are true and correct as of the
date of execution of this Agreement.
X. CONDITIONS OF SUZUKI'S OFFER
If this Agreement is not terminated prior to its expiration date as set
forth above, SUZUKI hereby offers to enter into a three-year American Suzuki
Corporation Dealer Sales and Service Agreement with DEALER in such form as
shall be in use by SUZUKI at that time. This offer may be accepted by DEALER
fulfilling all of the following conditions during the term of this Agreement
and at the expiration thereof, each of which DEALER recognizes, understands
and agrees as being reasonable and necessary.
(a) Provide through acquisition or construction, and maintain the
following facilities for the Suzuki Dealership and for the sale, leasing and
servicing Suzuki Products:
40 "B" Street
Sparks, Nevada 89431
Dealer shall not establish or conduct any Dealership operations which
are the subject of this Agreement, including the display, sale, leasing or
servicing of Suzuki Products, at any location or facility other than as set
forth above or in the Facility Standards Addendum.
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(b) Complete the acquisition and installation, at the Dealership
Facilities, of improvements, signs, furniture and furnishings, tools and
equipment as recommended by SUZUKI for the Dealership;
(c) Employ such personnel, in qualification and number, as
recommended by SUZUKI for the Dealership;
(d) Furnish SUZUKI, on forms or int he formate designated by SUZUKI,
by the tenth (10) day of each month, with the financial and operating
statements set forth in section 3.04 of the Standard Provisions;
(e) Comply with all other of SUZUKI's standards of DEALER to operate
the Dealership and qualify in all other respects for a Suzuki three-year
Dealer Sales and Services Agreement;
(f) Company with all federal, state and local governmental statues,
ordinances, rules, regulations and standards to conduct business as an
authorized Suzuki Dealer at the Dealership Facilities;
(g) Other conditions:
o Complete and maintain a minimum of two (2) Suzuki trained technicians
in Product intro and EFI to service the Suzuki product line by the expiration
of this agreement.
o Install and maintain approved Suzuki signage in accordance with
paragraph 2.02 of the Standard Provisions of the Dealer Sales and service
Agreement by the expiration of this agreement.
o Maintain average monthly District, Region, or National total sales per
dealer, whichever is highest, during the entire term of the Term Dealer Sales
and Service Agreement.
o Pursuant to section 5.02 of the Suzuki Standard Provisions, DEALER
agrees to obtain and maintain adequate flooring arrangements conforming to
the requirements established and approved by SUZUKI, in no event less than
$500,000.
o Utilize Suzuki financial statement and submit by the 20th of each month
to National AND Regional Offices during the term of this agreement.
o Install and maintain Suzuki information Center during the term of this
agreement.
o Install and maintain Suzuki SCAT System by the expiration of this
agreement.
Should DEALER fail to fulfill each and every condition set forth in
this paragraph during the term of the Agreement and prior to the expiration
thereof, the above offer made by SUZUKI shall be automatically revoked on the
expiration date set forth in Paragraph III without further notice to dealer.
XI. EFFECT OF LEGAL PROCEEDINGS ON SUZUKI'S OFFER TO DEALER
Should a proceeding of any nature be filed with or initiated in any
court or administrative body seeking to prevent or delay SUZUKI from entering
into a Dealer Sales and Service Agreement with DEALER and/or seeking damages
resulting from SUZUKI doing so, SUZUKI shall be under no obligation to enter
into such Agreement during the pendency of such proceeding. Furthermore, if,
as a result of such proceeding, SUZUKI shall be ordered or prevented from
entering into such an Agreement with Dealer, the offer contained in Section X
herein shall be void and SUZUKI shall have no liability to DEALER whatsoever
for any damages which DEALER may incur as a result thereof.
XII. BREACH OF AGREEMENT BY DEALER
Should DEALER fail to comply with and fully and completely carry out
all of the terms and conditions of this Agreement, including those
incorporated by reference, such failure shall constitute a material breach of
this Agreement and SUZUKI shall be under no obligation whatsoever to DEALER
to extend this Agreement in whole or in part, to enter into a regular three
year Dealer Sales and Service Agreement with DEALER or be under any other
obligation or have any liability to DEALER whatsoever.
XIII. ONLY AGREEMENT
Unless expressly referred to and incorporated herein, this Agreement
cancels and supersedes all previous contracts, agreements and understandings
between SUZUKI and DEALER with respect to Suzuki Products, and there are no
promises, representations, understandings or agreements except as stated
herein.
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IN WITNESS WHEREOF the parties hereto have executed this Agreement this
6th day of October, 1997.
AMERICAN SUZUKI MOTOR CORPORATION
Automotive Division
By: /s/ M. Nagura
M. Nagura, President
LITHIA SALMIR, INC., dba Dick Donnelly
Lincoln,
Mercury, Audi, Suzuki, Isuzu
Dealer Entity Name
By:
President
By:
Secretary
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DEALER MINIMUM STANDARD ADDENDUM
Dealer: Sidney B. DeBoer
Dealer Code: 427063
Firm Name: Lithia Salmir, Inc.
DBA: Dick Donnelly Lincoln, Mercury, Audi, Suzuki, Isuzu
Region: Los Angeles
Sale District: A03
Service District A03
Address: 40 "B" Street
City: Sparks
State: Nevada
Zip Code: 89431
MANAGEMENT OFFICE
Business Name: Lithia Salmir, Inc.
Phone: 702-851-5000
Fax Number: 702-851-5017
Address: 7175 South Virginia
City: Reno
State: Nevada
Zip Code: 89610
SOURCE
Credit Institution: U.S. Bank
Phone: 541-776-2506
Credit Line: $1,000,000
Address: 131 Main Street
City: Medford
State: Oregon
Zip Code: 97501
PERSONNEL
Standard Actual
Sales Manager 1 1
Salesmen 4 8
Service Manager 1 1
Parts Manager 1 1
Technicians 2 2
REQUIREMENTS
Ordered Complete
Advertising Materials X
General Workshop Equipment X
Initial Parts Order X
Initial Accessories Order X
SCAT Plus System X
Special Tool Kit X
Temporary Signage N/A
Signage X
Suzuki Information Center X
Copy of Documents Files With State: Articles of Incorporation
Dealer Entity: Corporation
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LITHIA SALMIR, INC., DBA DICK DONNELLY
LINCOLN, MERCURY, AUDI, SUZUKI, ISUZU
(Dealer)
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer, President
9/25/97
AMERICAN SUZUKI MOTOR CORPORATION
(Automotive Division)
By: /s/ M. Nagura
M. Nagura, President
10/6/97
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FACILITY STANDARDS ADDENDUM
Lithia Salmir, Inc., dba
Dick Donnelly Lincoln Mercury, Audi, Suzuki, Isuzu
Sparks, Nevada 89431
October 6, 1997
Dealer Code: 427063
Main Location and Use: 40 "B" Street; Sales, service, parts.
Facility
Showroom, inclusive of Closing Offices:* 3,400
General Office and Customer Lounge:* 375
Parts:* 2,000
Dedicated Suzuki Parts:* 600
Service:* 13,200
Dedicated Suzuki Stalls/Hoists: 3/3
Body Shop:* N/A
Land
New Vehicle Display:* 12,000
New Vehicle Storage:* 6,000
Customer Parking:* 2,000
Service Customer Parking:* 6,000
Used Car Display:* 3,500
Totals
Building: 18,975
Land: 29,500
Total Land and Building: 48,475
* Total Facility.
Facilities Owned by: Dealer Realty Corporation or Similar Entity
Facilities are: Permanent
LITHIA SALMIR, INC., DBA DICK DONNELLY
LINCOLN, MERCURY, AUDI, SUZUKI, ISUZU
(Dealer)
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer, President
9/25/97
AMERICAN SUZUKI MOTOR CORPORATION
(Automotive Division)
By: /s/ M. Nagura
M. Nagura, President
10/6/97
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SUZUKI
AGREEMENT FOR SATELLITE FACILITY
THIS AGREEMENT, effective October 6, 1997, is entered into by and
between AMERICAN SUZUKI MOTOR CORPORATION, Automotive Division, a California
corporation (hereinafter referred to as "SUZUKI"), having its principal place
of business at 3251 East Imperial Highway, Brea, California, and LITHIA
SALMIR, INC., a corporation, doing business as DICK DONNELLY LINCOLN,
MERCURY, AUDI, SUZUKI, ISUZU, having its principal place of business at 40
"B" Street, Sparks, Nevada 89431 (hereinafter referred to as "DEALER").
WHEREAS, SUZUKI AND DEALER are parties to a Three Year Dealer Sales and
Service Agreement, dated October 6, 1997 whereby DEALER is an authorized
Suzuki dealer and is granted a dealership for Suzuki products; and
WHEREAS, DEALER desires to carry on the business of the above-mentioned
Suzuki dealership, specifically the sale of Suzuki vehicles, at more than one
location; and
WHEREAS, DEALER in furtherance of said desire to operate a sales
operation at a location in addition to its primary facility desires to
establish a sales-only satellite facility at a location approved by SUZUKI;
and
WHEREAS, DEALER has advised SUZUKI of such intention to establish a
sales-only satellite facility and SUZUKI has relied on the representations of
DEALER that he will establish and maintain a sales-only satellite facility to
the satisfaction of SUZUKI as set forth herein below incorporated herein as
if fully set forth.
THEREFORE, based on the foregoing facts, in consideration of the mutual
promises and other valuable consideration, the receipt of which is hereby
acknowledged, and subject tot he terms and conditions set forth herein, the
parties hereto agree as follows:
1. Rights Granted to DEALER
Subject to terms of this Agreement, SUZUKI hereby grants to
DEALER, as a nonexclusive authorized dealer for Suzuki Products, the right to
a. Establish a sales-only satellite facility, as approved by
SUZUKI, for the sales and lease of Suzuki Products to the satisfaction of
SUZUKI from the sales-only satellite facility located at 7175 S. Virginia
Street, Reno, Nevada 89511;
b. Identify itself as an authorized Suzuki Dealer at said
location by utilizing and maintaining Suzuki-approved signage conforming to
the requirements established by SUZUKI; and
c. Use the name "Suzuki" and the Suzuki trademarks in the
advertising, promotion, sales and leasing of Suzuki Products from said
sales-only satellite facility.
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2. Responsibilities Accepted by DEALER
a. DEALER agrees to establish and maintain a sales-only
satellite facility as states in Paragraph 1 a), to the satisfaction of SUZUKI
as set forth herein, and in accordance with the Satellite Facility Standards
Addendum attached hereto, which by this reference is incorporated as if fully
set forth. DEALER shall not establish or conduct any sales activities,
including the display, sale or lease of Suzuki Products, at any location or
facility other than its primary facility and the above-mentioned sales-only
satellite facility as approved by SUZUKI. DEALER shall obtain prior written
approval from SUZUKI should DEALER desire to change the location of this
sales-only satellite facility. Failure to obtain such prior written approval
shall constitute grounds for termination of this Agreement.
b. DEALER agrees to, and shall, comply with all applicable
state and local laws and regulations with respect to the establishment and
operation of said sales-only satellite facility, including but not limited to
obtaining a separate license for such facility as well as all approvals
required by state and/or local law and codes.
c. DEALER agrees to sell, lease and promote the Suzuki
Products sold at the said sales-only satellite facility subject to, and in
accordance with, the terms and conditions set forth herein.
d. DEALER agrees to build and maintain public confidence and
respect in DEALER and Suzuki Products by maintaining the highest ethical
standards in advertising, business practices and conduct at such sales-only
satellite facility.
e. DEALER acknowledges, understands and agrees that customer
satisfaction is of utmost importance and that DEALER is responsible for
building and maintaining customer satisfaction. DEALER further acknowledges
and agrees that because a sales-only facility, as contemplated by DEALER,
does not provide all the services that a full sales, parts and service
dealership provides, a customer could be inconvenienced and become
dissatisfied with DEALER and Suzuki Products. Therefore, in light of the
foregoing, if a high level of customer satisfaction is not achieved by the
sales-only satellite facility which is the subject of this Agreement, such
customer dissatisfaction would constitute grounds for termination of this
Agreement, and SUZUKI reserves the right to terminate this Agreement with
respect to the sales-only satellite facility.
f. DEALER understands, acknowledges and agrees that because
the sales-only satellite facility does not provide for repair or other
services with respect to Suzuki-brand vehicles, the customer must be informed
as to the availability of such services. Therefore, before the retail sale
of a Suzuki vehicle is completed, DEALER agrees to, and shall, fully advise
every customer in writing, at the sales-only satellite facility, as to where
the customer can go for service and where the vehicle can and will be
serviced. Furthermore, DEALER shall provide each customer with detailed
written instructions and/or directions for the service drop-off location
before the retail sale of a Suzuki vehicle is completed.
g. DEALER understands and agrees that the permission granted
herein for DEALER to establish and operate a sales-only satellite facility as
described above is conditioned upon and subject to: i) the Dealer sales and
Service Agreement entered into between the parties hereto being in full force
and effect; and ii) DEALER receipt and maintenance of all licenses, permits
and approval required by law therefor. DEALER further understands and agrees
that it shall be his sole responsibility and obligation to obtain such
licenses, permits, and approvals and that SUZUKI shall have no responsibility
in that regard. DEALER shall immediately notify SUZUKI in writing of failure
to obtain or maintain such licenses or renewals thereof. DEALER shall
further notify SUZUKI in writing if any license that DEALER has obtain
pursuant to this paragraph is suspended or revoked, and the date and reason
therefor.
3. Term
This agreement shall come into full force and effect at SUZUKI
headquarters in Brea, California when executed by SUZUKI and shall continue
in full force and effect for so long as the Dealer Sales and Service
Agreement entered into between the parties hereto remains in full force and
effect, except that SUZUKI reserves the right to terminate this Agreement at
SUZUKI's sole option and for any reason upon sixty (60) days notice to DEALER.
4. Signage
DEALER shall erect and maintain in such sales-only satellite
facility authorized sales signs conforming to the requirements established
and approved by SUZUKI. Due to applicable government statutes, ordinances
and regulations, DEALER shall a) pursue and obtain a variance, if necessary,
and b) if, and only if, the Suzuki-authorized signage is not allowed by
ordinance, and DEALER's attempt to obtain a variance fails through no fault
of DEALER, DEALER shall provide an alternate signage proposal acceptable to
SUZUKI. DEALER shall obtain and maintain all licenses and/or permits
necessary to the erection and maintenance of SUZUKI signage.
5. Location
Except for his primary dealership premises, DEALER shall sell and
lease at retail the SUZUKI Products only at the sales-only satellite
facility, or any part of its operation, prior written approval from SUZUKI
must be obtained. Failure to obtain such prior approval shall be a material
breach of this Agreement and shall constitute grounds for termination of this
Agreement.
6. Personnel
DEALER shall at all times employ competent and adequate personnel
including, but not limited to, a sales manager and salespeople, to sell and
lease the Suzuki Products in a manner satisfactory to SUZUKI.
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7. Inventory Responsibility
With respect to the above-described sales-only satellite
facility, DEALER shall maintain at all times an adequate stock of new
undamaged, and marketable Suzuki Products for display, demonstration and sale
at said sales-only satellite facility.
8. Delivery of Vehicles
SUZUKI will only be responsible for delivery of Suzuki-brand
vehicles to DEALER's primary dealership location. DEALER shall be
responsible for transporting vehicles to the sales-only satellite facility.
9. Dealer Directives
DEALER shall at all times comply with SUZUKI's existing and
future directives, bulletins and manuals pertaining to sale of Suzuki
Products form said sales-only satellite facility.
10. Sales
All sales of Suzuki Products to DEALER will be at Dealer Prices
published by SUZUKI in the Dealer Price Lists.
11. Title
Title to Suzuki Products passes to DEALER from SUZUKI only upon
payment in full for the Suzuki Products shipped to DEALER.
12. Advertising Standards
SUZUKI and DEALER recognize the need to maintain at all times the
highest ethical standards in advertising and which evoke an image consistent
with the equality and reputation that SUZUKI and Suzuki Products enjoy in
order to maintain public confidence in, and respect for, DEALER, SUZUKI and
Suzuki Products. Accordingly, DEALER shall not publish, nor cause or permit
to be published, advertising relating to Suzuki Products which is not in
compliance with all federal, state and local laws, ordinances, rules and
regulations or that is likely to mislead or deceive the public or impair
goodwill, good name and reputation of SUZUKI, Suzuki Motor Corporation or
Suzuki Products. If SUZUKI, in its sole judgment, determines that any of
DEALER'S advertising is inappropriate and which may be injurious to SUZUKI's
reputation or to the business of SUZUKI or DEALER, it shall so advise
DEALER. Upon receipt of such notice, DEALER agrees to immediately
discontinue all such appropriate advertising.
13. Termination
a) Written Notice
Either party may terminate this Agreement by giving a sixty (60)
days' written notice of termination to the other party.
b) Termination by SUZUKI
Notwithstanding the foregoing, SUZUKI may terminate this
Agreement with fifteen (15) days' written notice after the occurrence of any
of the following events:
i) DEALER or any of its owners, partners, shareholders,
offices or managers engaging in any practice or conduct or being convicted of
any felony or the violation of any law that, in the opinion of SUZUKI, may
adversely affect the operation or business of the DEALER or be injurious to
the goodwill or reputation of SUZUKI, Suzuki Products or other Suzuki Dealers;
ii) The closure of the sales-only satellite facility for
any reason for a period in excess of seven (7) days;
iii) Any change in the location of the sale-only satellite
facility or any portion of its operation without the prior written consent of
SUZUKI;
iv) Any sale or attempted sale of the sales-only
satellite facility by DEALER;
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v) The insolvency of DEALER, the filing of a voluntary
petition in bankruptcy by DEALER, the filing of an involuntary petition to
have the DEALER declared bankrupt, the appointment of a receive or a trustee
for DEALER, or in the execution by DEALER of an assignment for the benefit of
creditors;
vi) Any bulk sale or the attempted sale of the DEALERSHIP
assets; and/or
vii) The dissolution of the Dealership if the Dealership
is a corporation or a partnership.
14. Termination by Operation of Law
Notwithstanding the provisions above, this Agreement will terminate
automatically and without notice from either party int he event of the
occurrence of any of the following:
a) The failure of DEALER to obtain any license required for
the operation of the sales-only satellite facility in any jurisdiction where
this Agreement is performed; and/or
b) The failure of DEALER to secure or maintain the license or
renewal thereof, or the suspension or revocation of the license, irrespective
of the cause or reason.
15. Insurance
DEALER shall maintain at is own expense adequate insurance against all
types of risk and ability, including without limitation, personal liability
insurance. Such insurance shall be with an accredited and reputable
company. DEALER shall annually furnish SUZUKI with certification for such
insurance with evidence showing that premiums have been paid in full.
16. Expenses
Except as set forth herein, SUZUKI shall not be under any liability
whatsoever for any expenditure made or expense incurred by DEALER with
respect to DEALER's performance of its obligation pursuant to this Agreement.
17. Only Agreement
This Agreement when executed by SUZUKI and DEALER shall supersede and
cancel all other agreements at that time existing between SUZUKI and DEALER
with respect to the sales-only satellite facility which is the subject of
this Agreement.
18. No Assignment
This Agreement, based on mutual trust between DEALER and SUZUKI, may
not be assigned or transferred by DEALER without the prior written consent of
SUZUKI. Any purported assignment without the prior written consent of Suzuki
is null and void.
19. Jurisdiction
This Agreement is entered into in Brea, California. Therefore, it
shall be construed according to the laws of the state of California and shall
be treated in all respects as a California contract. The parties hereby
accept and accede to the jurisdiction and venue of the federal and state
courts in and for Oregon County, California to resolve any and all disputes
arising under this Agreement.
20. Arbitration
All disputes between the parties arising out of or in any way related
to this Agreement or the business relationship between the parties shall be
subject to and resolved by binding arbitration according to the rules and
under the administration of the American Arbitration Association. The site
of the arbitration shall be in any federal judicial district where venue
would be appropriate under federal law, without regard to the amount
allegedly in controversy.
21. Partial Invalidity
If any provision of this Agreement is invalid under or in conflict with
the laws of any jurisdiction where this Agreement is to be performed, such
provision shall be deemed to be deleted and the remaining provisions of this
Agreement shall remain valid and binding.
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22. Waiver
The waiver by either party of any breach or violation or any provision
of this Agreement shall not be deemed to be a waiver by that party of any
subsequent breach or violation of any other provisions herein.
23. Entire Agreement
This Agreement constitutes the entire agreement between the parties
relating to the matters set forth and there is no understanding between the
parties, either oral or written, which is in conflict with this Agreement.
24. Notice
Whenever a notice, demand or other document is required or permitted to
be given by the terms of this Agreement, or any document incorporated by
reference, it shall be deemed sufficiently given if delivered personally or
by prepaid ordinary mail at the addresses set forth for SUZUKI and DEALER on
page one (1) of this Agreement. The addresses set forth may be changed form
time to time by notice in writing. Any notice or other document, if sent by
mail, shall be deemed to have been given to, and received by the party to
whom it was sent as of the date of the mailing.
25. Modification
Any modification or amendment to this Agreement must be executed in the
same manner as the Agreement itself.
26. Attorney's Fees
If SUZUKI sues DEALER for lack of performance, monies due, or for any
other reason under the terms of the Agreement, SUZUKI shall be entitled to
reasonable attorney's fees as determined by a court of competent jurisdiction.
27. Reliance by SUZUKI on Representations of DEALER
DEALER represents and warrants and SUZUKI enters into this Agreement in
reliance thereon that all representations and warranties made by DEALER to
SUZUKI with respect to the sales-only satellite facility which is the subject
of this Agreement are true and correct as of the date of execution of this
Agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement this
6th day of October, 1997.
AMERICAN SUZUKI MOTOR CORPORATION
(Automotive Division)
By: /s/ M. Nagura
M. Nagura, President
DEALER
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer, President
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SATELLITE FACILITY STANDARDS ADDENDUM
Lithia Salmir, Inc., dba
Dick Donnelly Lincoln Mercury, Audi, Suzuki, Isuzu
40 "B" Street
Sparks, Nevada 89431
October 6, 1997
Dealer Code: 427063
Main Location and Use: 40 "B" Street; Sales, service, parts.
Deal with: Lincoln-Mercury, Isuzu, Audit used cars
Satellite Facility Location:7175 Virginia Street, Reno, Nevada 89511
Facility
Distance from Main Location: 7 miles
Facility Showroom: 6,500 sq. ft.
Offices and Customer Lounge:1,575 sq. ft.
New Vehicle Display: 24,000 sq. ft.
New Vehicle Storage: 44,800 sq. ft.
Customer Parking: 2,500 sq. ft.
Used Car Display: 10,000 sq. ft.
Totals
Building: 8,075 sq. ft.
Land: 81,300 sq. ft.
Total Land and Building:89,375 sq. ft.
Satellite Facilities Owned by: Facilities are lease, see section below.
Facilities are: Permanent
LITHIA SALMIR, INC., DBA DICK DONNELLY
LINCOLN, MERCURY, AUDI, SUZUKI, ISUZU
(Dealer)
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer, President
9/25/97
AMERICAN SUZUKI MOTOR CORPORATION
(Automotive Division)
By: /s/ M. Nagura
M. Nagura, President
10/6/97
Date Lease Expires: 10/16/99
Monthly Lease Rate (Net): $30,000 per month
Options and/or Contingencies: 10-year option to renew
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EX-10
Exhibit 10.12.2 Suzuki Standard Provisions
EXHIBIT 10.12.2
SUZUKI DEALER SALES AND SERVICE AGREEMENT
STANDARD PROVISIONS
The following standard Provisions have been made a part of, and are
incorporated by reference, in the American Suzuki Motor Corporation dealer
Sales and Service Agreement and shall apply to and govern the transactions,
dealings, and relations between SUZUKI and DEALER.
1.00 DEFINITIONS
For the purpose of this Agreement the following terms set forth below
shall be defined as indicated:
(a) "Accessories": All accessories for Suzuki Vehicles as defined in
(o) herein below, distributed in the United States by SUZUKI.
(b) "Agreement": This Agreement and the Dealer Application, Facility
Standards Addendum, Dealer Minimum Standards Addendum and Dealer Updates as
may be issued from time to time.
(c) "Dealership": The business of the DEALER located at the
designated Dealer Premises.
(d) "Dealer Application": The signed application of the DEALER
presented to SUZUKI which will become part of this Agreement when approved by
SUZUKI.
(e) "Dealer Minimum Standards Addendum": The written requirements
executed by DEALER and SUZUKI, as amended from time to time by SUZUKI,
setting forth the minimum qualifications required by SUZUKI for appointment
as a Suzuki Dealer and DEALER's representations as to its fulfillment of
those qualifications relied upon SUZUKI for DEALER's appointment as an
authorized Suzuki Dealer. In conjunction with the Facility Standards
Addendum, it constitutes the criteria by which SUZUKI shall evaluate DEALER's
performance to determine whether DEALER qualifies for renewal(s) of its
Suzuki Dealership. The Dealer Minimum Standards Addendum has been
incorporated by reference and is part of this Agreement as though set forth
in full herein.
(f) "Dealer Premises": The specific premises approved for the
Dealership by SUZUKI.
(g) "Dealer Prices": The prices in effect at the time of delivery of
Suzuki Products as set forth in the Dealer Price Lists that will be charged
by SUZUKI to the DEALER exclusive of any charges for transportation, taxes or
any other charges.
(h) "Dealer Price Lists": The price lists issued by SUZUKI for
Suzuki Products as defined in (n) herein below, as amended from time to time
by SUZUKI.
(i) "Dealer Updates": Addendums to the Agreement pursuant to the
terms of this Agreement, issued from time to time by SUZUKI to clarify and
explain procedures and programs to be followed by the DEALER in the operation
of the Suzuki Dealership. The Updates shall be incorporated as part of this
Agreement as they are issued.
(j) "Facility Standards Addendum": The written standards for
facilities, as amended from time to time by SUZUKI, setting forth the
criteria with respect to the physical facilities which DEALER is required to
establish and maintain and which was relied upon by SUZUKI in its appointment
of DEALER as an authorized Suzuki Dealer. The Facility Standards Addendum,
in conjunction with the Dealer Minimum Standards Addendum constitutes the
criteria by which SUZUKI shall evaluate DEALER's performance to determine
whether DEALER qualifies for renewal(s) of its Suzuki Dealership. Said
Facility Standards Addendum shall become part of this Agreement upon
execution of the Agreement by SUZUKI.
(k) "Manufacturer's Suggested Retail Price": Any suggested retail
price for any Suzuki Product as issued by SUZUKI from time to time.
(l) "Owner(s)": The beneficial owner(s) of the Dealership, listed in
this Agreement.
(m) "Parts": All parts of the Four Wheel Vehicles, which are the
subject of this Agreement, and/or accessories therefor distributed in the
United States by SUZUKI.
(n) "Suzuki Products": Suzuki Four Wheel vehicles manufactured for
highway use by Suzuki Motor Co., Ltd. including automobiles, trucks, vans,
and four wheel drive vehicles and their successors and the parts and
accessories therefor distributed in the United States (except Hawaii) by
SUZUKI. Whenever the term "Suzuki Products" is used in this Agreement, it
shall be construed as defined herein.
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(o) "Suzuki Vehicles": All suzuki automobiles, trucks, vans and four
wheel drive vehicles for highway use and their successors manufactured by
Suzuki Motor Co., Ltd. and distributed in the United States (except Hawaii)
by SUZUKI. This term specifically excludes all ATV recreational vehicles
manufactured and distributed by SUZUKI. Whenever the term "Suzuki Vehicles"
is used in this Agreement, it shall be construed as defined herein.
(p) "Suzuki Warranty": The warranty issued from time to time by
SUZUKI with respect to Suzuki Products and any revisions or supplements
thereto.
2.00 PLACE OF BUSINESS
2.01 Location. The DEALER shall be responsible for selling, leasing
and servicing at retail the Suzuki Products, but only at the Dealer Premises
described in this Agreement by the Facility Standards Addendum and the Dealer
Minimum Standards Addendum. If the DEALER desires to change the location of
the Dealership, or any part of its operation, prior written approval from
SUZUKI must be obtained. Failure to obtain such prior approval shall be a
material breach of this Agreement and shall constitute grounds for its
termination.
2.02 Identification and Signs. Subject to applicable government
statutes, ordinances, rules and regulations, DEALER shall buy from SUZUKI, or
from sources designated by SUZUKI, and erect and maintain in good working
order on the Dealership Premises, entirely at DEALER's expense, authorized
sales and service signs conforming to the requirements established and
approved by SUZUKI. DEALER shall obtain and maintain any licenses or permits
necessary to erect and maintain such signs. Failure to obtain, erect,
maintain, repair, illuminate and prominently display such signs in a manner
approved by SUZUKI shall constitute grounds for termination of this Agreement.
2.03 Business Hours. The DEALER shall operate the Dealership in an
efficient and businesslike manner during the retail and service hours
customary for the DEALER's trade and the area in which the Dealership is
located.
3.00 RETAIL SALES
3.01 Suzuki Products and Tradenames. Subject to and in accordance
with the terms and conditions of this Agreement, the DEALER shall have the
nonexclusive right to:
(a) Purchase from SUZUKI, for sale at retail only, Suzuki Products;
and
(b) Identify itself as an authorized Suzuki Dealer by displaying the
various tradenames, trademarks and service marks and any other word or design
marks that SUZUKI uses in connection with or with respect to the Suzuki
Products.
3.02 Personnel. The DEALER shall at all times employ competent and
adequate personnel to sell and service the Suzuki Products in a manner
satisfactory to SUZUKI. Upon request to do so by SUZUKI, the DEALER, at its
own expense, shall send its personnel to any training seminars organized and
carried out by SUZUKI.
3.03 Inventory Responsibility. The DEALER shall maintain at all times
an adequate stock of new, undamaged, and marketable Suzuki Products for
display, demonstration, sale and servicing. Further, the DEALER shall
maintain an adequate supply of tools for servicing the Suzuki Products.
3.04 Standard Accounting System. It is mutually beneficial to DEALER
and SUZUKI that DEALER keep and maintain standard accounting systems and
practices. Therefore, DEALER agrees to maintain its records based upon
commonly accepted accounting principles and to establish and maintain a
standard accounting system and practices in accordance with the Suzuki
Automotive Standard accounting System established and designated by SUZUKI
for use by all Suzuki Dealers, as the same may from time to time be amended,
revised or supplemented. DEALER further agrees to provide to SUZUKI by the
tenth (10th) day of each month, in the manner and form prescribed by SUZUKI,
complete and accurate financial and operating statements covering the
preceding month and showing calendar year-to-date operations of the Suzuki
Dealership.
3.05 Sales Records and Reports. DEALER shall keep an accurate record
of its sales of Suzuki Products, in conformity with any statutory and
regulatory requirements.
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3.06 Retail Delivery Report. DEALER shall immediately upon delivery
of a Suzuki Vehicle to a retail purchaser complete and transmit to SUZUKI a
report of the retail sale called the "Retail Delivery Report" and furnish
SUZUKI with other reports or records as may be reasonably required by SUZUKI
in its sole discretion.
3.07 Dealer Reports. DEALER shall furnish reprots of its sales and
inventory at intervals no greater than ten (10) days each for each calendar
month on the forms provided by SUZUKI. DEALER shall also furnish such
reports concerning its financial condition as SUZUKI may reasonably request,
including mnthly financial statements, accurately reflecting Suzuki
Dealership operations.
3.08 Electronic Data Processing Requirements. In order to promote
prompt and accurate reporting of relevant dealership operational and
financial information as SUZUKI may require hereunder, DEALER agrees to
install and maintain electronic data processing equipment which is compatible
with SUZUKI's computer network as it may from time to time be modified,
updated or supplemented.
3.09 Dealer Directives. DEALER shall faithfully comply with SUZUKI's
existing and future directives, bulletins and manuals pertaining to the sale
and servicing of Suzuki Products.
3.10 Promotions. To further expose and popularize the name "Suzuki"
and the "Suzuki" Vehicles, SUZUKI may from time to time sell Suzuki Products
directly to non-dealers for use in promotions of unrelated merchandise
through "give away", "premium", and other forms of promotional programs or in
payment for media advertising. DEALER shall cooperate by rendering
pre-delivery inspections, delivery and warranty services in connection with
such sales, for which DEALER will be compensated at the rates established
therefor by SUZUKI.
3.11 Suzuki Product Orders. All orders for suzuki Products shall be
submitted in writing by the DEALER to SUZUKI in accordance with Suzuki
directives and on the forms that SUZUKI shall supply. All orders are subject
to acceptance by SUZUKI's home office in whole or in part. All orders
submitted by DEALER shall be binding upon DEALER unless and until they are
rejected in writing by SUZUKI; provided, however, that in the event of a
partial acceptance by SUZUKI, it is understood that DEALER shall no longer be
bound in respect to the part of the order not accepted. SUZUKI will attempt
to fill all pre-sold retail orders but cannot be held responsible for its
failure to do so, nor for any lost profits or loss of business experienced by
DEALER from SUZUKI's inability to supply any pre-sold order.
3.12 Distribution and Delivery. SUZUKI shall endeavor, to the extent
practicable, to deliver the new Suzuki Products ordered by DEALER and
required in the fulfillment of DEALER's responsibilities under this
Agreement. DEALER acknowledges that SUZUKI also has an obligation to
endeavor to deliver to Suzuki Products to other Suzuki Dealers who are also
required by SUZUKI to fulfill their responsibilities under their Dealer
Agreements with SUZUKI. Because of numerous factors that affect the
distribution of the Suzuki Products and the relevance of such factors at any
given time, SUZUKI does hereby reserve to itself discretion in applying such
factors and in processing orders for Suzuki Products from its authorized
Dealers. The judgment and decisions of SUZUKI, therefore, shall be final in
all matters relating to the distribution and delivery of Suzuki Products to
DEALER.
3.13 Force Majeure. SUZUKI shall not be liable for failure to process
or for any delay in processing orders for any suzuki Products where such
failure or delay is due, in whole or in part, to any of the following: 1)
labor, material, transportation or utility shortage or curtailment; 2)
Japanese or United States governmental regulation; 3) any import or export
restriction; 4) discontinuance of sale by SUZUKI of the Suzuki Products
ordered; 5) any labor trouble in the plants of Suzuki Motor co., Ltd., or its
suppliers or the transportation and distribution system used by SUZUKI; 6)
any curtailment of production due to economic or trade conditions; or 7) any
cause beyond the control of, or without the fault or negligence of, SUZUKI.
3.14 Suggested Retail Prices. SUZUKI's Dealer Price Lists will set
forth Suggested Retail Prices for the Suzuki Products. The DEALER is under
no obligation to accept these Suggested Retail Prices and may sell for a
different retail price. If DEALER sells at prices less than, or more than,
those suggested, those sales will not affect its business relations with
SUZUKI or any other person over whom SUZUKI has control or influence.
3.15 Title. Title to suzuki Products shall pass to the DEALER from
SUZUKI only upon payment in full for the Suzuki Products shipped to DEALER.
Until payment in full for Suzuki Products is made, SUZUKI retains all right,
title, and a security interest in the Suzuki Products.
3.16 Security Interest. DEALER grants to SUZUKI a security interest
in all Suzuki Products delivered to DEALER to secure repayment of any
indebtedness owing from DEALER to SUZUKI. SUZUKI shall have all the rights
of a secured creditor under the Uniform Commercial Code, including the right
to take possession of Suzuki Products, without the necessity of legal
process, to satisfy outstanding indebtedness. DEALER shall execute all
documents and notices as may be required to perfect the security interest of
SUZUKI under applicable laws.
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3.17 Termination. Upon termination of this Agreement, SUZUKI may
cancel any or all pending orders of DEALER for Suzuki Products, whether or
not previously accepted by SUZUKI.
4.00 SERVICE
4.01 Service Records. DEALER shall keep an accurate record of its
servicing, in conformity with any requirements in the Suzuki Warranty Manual,
Dealer Updates and any statutory and regulatory requirements.
4.02 Recommended Service Procedures. DEALER shall faithfully comply
with SUZUKI's existing and future directives, bulletins and manuals
pertaining to the sale and servicing of Suzuki Products.
4.03 Records and Manuals. DEALER shall maintain and keep updated all
manuals, bulletins and records received from SUZUKI. DEALER and its service
personnel will have available and be familiar with all service and
maintenance manuals provided by SUZUKI.
4.04 Service Schools. DEALER will send Dealer personnel to and
participate in, service training classes, service schools, seminars and other
dealer employee training courses as provided by SUZUKI from time to time.
DEALER acknowledges the need for such school and training to keep current on
all Suzuki Products for the protection of DEALER's customers.
4.05 Service Personnel. Service personnel in the Dealership will be
competent and adequate to handle all service work on the DEALER's customers.
DEALER accepts the responsibility to provide fast, efficient and accurate
service work to its customers. From time to time, SUZUKI will make
suggestions regarding the improvement and upgrading of DEALER's Service
Department and personnel; however, DEALER is solely responsible for all work
performed in its Service Department by its service personnel.
4.06 Recall Procedures. If at any time DEALER receives from SUZUKI a
notification of certain procedures that DEALER is to follow concerning a
recall of any Suzuki Product in conformance with the requirements of the
National Highway Traffic Safety act or Consumer Product Safety Commission or
any other governmental agency, DEALER shall comply with it. If for any
reason DEALER fails or refuses to comply with the procedures outlined in any
Suzuki recall notice, DEALER shall be in violation of this Agreement. DEALER
acknowledges the necessity of complying with recall notices to insure the
protection of the consumer and to comply with government laws, rules and
regulations.
4.07 Dealer Distributed Literature. If the sate in which the DEALER
is franchised institutes programs which require distribution of material such
as Lemon Law disclosures, Consumer Rights brochures or general notices, the
DEALER shall in accordance with SUZUKI instructions complete, execute and
deliver said material.
4.08 Notice of Complaints. If at any time the DEALER receives any
customer complaints which apply to any consumer protection laws, rules or
regulations, the DEALER agrees to provide prompt notice to SUZUKI of such
complaints and take steps that SUZUKI may reasonably require. The DEALER
agrees to perform in a manner that will not adversely affect SUZUKI's rights
under such laws, rules and regulations.
5.00 CAPITALIZATION
5.01 Net Working Capital. Dealer agrees to establish and maintain
actual net working capital which in SUZUKI's judgment is sufficient to allow
the DEALER to effectively perform his obligations under the Agreement.
5.02 Flooring and Lines of Credit. At all times during the term of
this Agreement, it is DEALER's sole responsibility, which DEALER hereby
accepts and to which he agrees, to obtain and maintain adequate flooring
arrangements and lines of credit with a reputable financial institution
acceptable to SUZUKI to ensure the availability of sufficient funds to meet
DEALER's needs for payment of Suzuki Products ordered by DEALER from SUZUKI.
6.00 CREDIT, FINANCE AND PAYMENTS
6.01 Sales. All sales to DEALER will be at Dealer Prices published by
SUZUKI in the Dealer Price Lists.
6.02 Payment for Suzuki Vehicles. Unless financing is arranged with
respect to a particular shipment in advance, all payments for Suzuki vehicles
shall be made in full at the time of shipment.
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6.03 Open Account. Dealer may order Suzuki Products, promotional and
miscellaneous items, other than Suzuki Vehicles, on open account, so long as
SUZUKI determines DEALER is credit qualified. DEALER agrees to pay for all
items billed to its open account per monthly itemized statements. DEALER
agrees to pay all late charges, interest, attorneys' fees, court costs and
expenses that may be incurred as a result of default on DEALER's open account
obligations. Upon default, SUZUKI may suspend or terminate DEALER's open
account. SUZUKI may offset any credits due DEALER against debits for sums
due SUZUKI.
6.04 Security Interest. DEALER grants to SUZUKI a security interest
in all Suzuki Products delivered to DEALER to secure repayment of any
indebtedness owing from DEALER to SUZUKI. SUZUKI shall have all the rights
of a secured creditor under the Uniform Commercial Code, including the right
to take possession of Suzuki Products, without the necessity of legal
process, to satisfy outstanding indebtedness. DEALER shall execute all
documents and notices as may be required to perfect the security interest of
SUZUKI under applicable laws.
6.05 Title. Title to Suzuki Products passes to DEALER from SUZUKI
only upon payment in full for the Suzuki Products shipped to DEALER.
6.06 Costs of Return. In the event DEALER's inventory of Suzuki
Products is repossessed or returned to SUZUKI or to a financial institution
for repurchase by SUZUKI, DEALER agrees to pay reasonable handling costs
incurred by SUZUKI according to SUZUKI policy in effect at the time of the
return.
6.07 Effect of Termination. Termination of this Agreement, in
whatever manner, shall not release DEALER from any obligations or
indebtedness owing to SUZUKI.
7.00 ADVERTISING
7.01 Advertising Standards. SUZUKI and DEALER recognize the need to
maintain at all times the highest ethical standards in advertising and which
evoke an image consistent with the quality and reputation that SUZUKI and
Suzuki Products enjoy in order to maintain public confidence in, and respect
for, DEALER, SUZUKI and Suzuki Products. Accordingly, DEALER shall not
publish, nor cause or permit to be published, advertising relating to Suzuki
Products which is not in compliance with all federal, state and local laws,
ordinances, rules and regulations or that is likely to mislead or deceive the
public or impair the goodwill, good name and reputation of SUZUKI, Suzuki
Motor Co., Ltd. or Suzuki Products. If SUZUKI, in its sole judgment,
determines that any of the DEALER's advertising is inappropriate or which may
be injurious to SUZUKI's reputation or to the business of SUZUKI or DEALER,
it shall so advice DEALER. Upon receipt of such notice, DEALER agrees to
immediately discontinue all such inappropriate advertising.
7.02 Participation. DEALER shall participate in any existing or
future cooperative advertising program with SUZUKI. DEALER shall use its
best efforts to promote and sell Suzuki Products. In that regard, DEALER
shall also maintain an effective advertising program aimed at enhancing the
sale of Suzuki Products.
7.03 Voluntary Dealer Cooperative Advertising Association. SUZUKI and
DEALER recognize the benefits which may be derived from a comprehensive, join
advertising effort by Suzuki Dealers. Accordingly, DEALER may, if DEALER
elects to do so on a completely voluntary basis, participate in the formation
and effective operation of a voluntary cooperative dealer advertising
association. Each Suzuki Dealer Advertising Association will finance its
advertising programs through the voluntary assessment of a fixed charge of no
less than 2% or $150.00 of the total dealer price per vehicle, excluding
freight, for each new Suzuki Vehicle purchased by Suzuki Dealers who
voluntarily choose to participate as members of an advertising association.
AS a service to the dealer association, SUZUKI will collect the agreed upon
charge, provided that the dealer association maintains control over both the
amount of the assessment and manner in which such funds will be expended.
8.00 TRANSPORTATION
8.01 Delivery. SUZUKI shall select the distribution points, carriers
and methods of transportation in effecting delivery of Suzuki Products to
DEALER. DEALER agrees to reimburse SUZUKI for any delivery, freight handling
and other charges which appear on SUZUKI's invoice to DEALER.
8.02 Refusal of Delivery. If SUZUKI is required to divert any Suzuki
Products ordered by DEALER because of DEALER's failure or refusal to accept
such product, DEALER assumes responsibility for, and will pay charges
incurred by SUZUKI as a result of such diversion. In addition, DEALER shall
pay all charges for storage and other charges related to such diversion.
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8.03 Force Majeure. Although SUZUKI will use due diligence to
promptly ship orders accepted by it, SUZUKI shall not be liable for any delay
in shipment caused by a shortage of supply, riot, war, government regulation,
willful acts of a third party, labor problems, import or export restriction,
acts of God, or any other cause beyond SUZUKI's control. It is understood
and agreed that SUZUKI will attempt to fill all orders accepted by it, but
SUZUKI takes no responsibility for failure to fill any of DEALER's orders.
8.04 Risk of Loss. Notwithstanding the reservation of title in SUZUKI
as provided in Paragraphs 3.15, 6.04 and 6.05, all risks with respect to the
Suzuki Products shall pass to and be assumed by DEALER at the time of
delivery to the DEALER, or its agents, or to the carrier of the Suzuki
Products. DEALER shall insure Suzuki Products upon delivery to DEALER
against all risks and perils at DEALER's own expense.
8.05 Product Return. SUZUKI will not accept the return of Suzuki
Products except in cases where SUZUKI has agreed in writing to do so where
required by State law. Upon receipt of such written authorization from
SUZUKI, DEALER may return Suzuki Products under the following conditions:
(a) DEALER shall pay all transportation and handling charges; and
(b) DEALER shall pay to SUZUKI a restocking charge in accordance with
the terms and conditions of SUZUKI policy in effect at the time of return.
9.00 PRODUCT WARRANTY
9.01 Warranty Records. DEALER shall keep an accurate record of its
warranty servicing of Suzuki Products, in conformity with any requirement in
the Dealer Updates, Warranty Manual and any statutory and regulatory
requirements.
9.02 Warranty Responsibility. DEALER shall diligently perform all
warranty and servicing obligations in accordance with the scale of
remuneration established by SUZUKI from time to time, whether or not the
DEALER sold the Suzuki Products to the customer requiring such servicing.
9.03 Dealer Obligation. DEALER acknowledges its obligation to, and
shall provide all warranty service, consistent with the Suzuki Limited
Warranty applicable to each Suzuki Product, regardless of the origin of
purchase of said Suzuki Product.
9.04 Warranty Service and Credit. DEALER will install any replacement
parts and make certifications or verifications, perform maintenance and
service, and do all other things that may be required under the terms of the
Suzuki Limited Warranty, or inspection, correctional, or recall campaigns.
SUZUKI will credit DEALER's account for warranty service and inspection,
corrections or recalls DEALER performs at the request of SUZUKI.
9.05 No Other Warranties. DEALER acknowledges that the Suzuki Limited
Warranty is the only warranty made or deemed to have been made by SUZUKI or
Suzuki Motor Co., Ltd. and that neither DEALER, nor its agents or employees,
are authorized to extend or enlarge upon the Suzuki Limited Warranty by any
oral or written means. DEALER further acknowledges that SUZUKI will not
assume nor authorize any person to assume on its behalf, any other obligation
of liability in regard to the Suzuki Products.
10.00 PARTS
10.01 Inventory. DEALER agrees to maintain an adequate inventory of
Suzuki Parts to fulfill customer service and warranty requirements. If, in
the sole judgment of SUZUKI, DEALER fails to maintain an adequate inventory
of Suzuki Parts to satisfy customer needs, such failure will constitute a
violation of this Agreement.
10.02 Genuine Suzuki Replacement Parts. DEALER will not sell any part
to a customer as a Suzuki part, unless it is a genuine Suzuki Part. If
DEALER does so, it shall be a violation of this Agreement.
10.03 Shipment Acceptance. DEALER will accept all shipments of suzuki
Parts ordered by it. In the event of an error in a shipment by SUZUKI, the
DEALER must submit a parts discrepancy report and receive prior written
approval of SUZUKI before returning the parts.
11.00 TERMINATION
11.01 Termination by DEALER. DEALER may terminate this Agreement be
serving thirty (30) days' written notice of termination on SUZUKI.
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11.02 Termination by SUZUKI. In the event that DEALER breaches or
violates any of the duties, obligations or responsibilities set forth herein
or any of the terms, conditions or undertakings in the Dealer Application,
Dealer Updates, the Facility Standards Addendum or the Dealer Minimum
Standards Addendum, SUZUKI may terminate this Agreement be giving the DEALER
written notice as provided below. SUZUKI need not state all grounds on which
it relies for its termination of DEALER. SUZUKI's failure to refer to
additional grounds for termination shall not constitute a waiver of its right
to rely on such grounds.
11.03 Sixty (60) Days' Notice. SUZUKI may terminate this Agreement
with sixty (60) days' notice after the occurrence of any of the following
events:
(a) A disagreement or personal difficulty between or among the
owners, partners, shareholders, officers or managers of DEALER that, in the
opinion of SUZUKI, may adversely affect the ownership, operation, management
or business of DEALER, or the presence in the management of DEALER of any
person who, in the opinion of SUZUKI, does not have or no longer has the
requisite qualifications for his position;
(b) Any change in the legal or beneficial ownership or control of
DEALER without the prior written consent of SUZUKI to such changes, or any
misrepresentation thereof;
(c) The death, incapacity, removal, resignation, withdrawal,
elimination or disassociation from DEALER of any owner, partner, shareholder,
officer or manager identified herein.
(d) Failure of DEALER to properly obtain, erect, maintain, repair and
illuminate signs and other displays in a manner approved by SUZUKI as
required under the provisions of this Agreement.
(e) DEALER's failure to honor any commitment made to SUZUKI
including, but not limited to, those made in the Facility Standards Addendum,
Dealer Minimum Standards Addendum, Dealer Updates or any other document
incorporated by reference herein;
(f) DEALER's failure to submit any reports, financial or otherwise,
required by SUZUKI hereunder, or in any Update;
(g) DEALER's financial condition becoming such that, in the opinion
of SUZUKI, DEALER is unable to carry out his obligations hereunder
satisfactorily;
(h) The failure on the part of DEALER to pay any account, including
any monies for Suzuki Satisfaction System Contracts sold, owing to SUZUKI
when due;
(i) Any agreement, understanding or contract entered into by DEALER,
oral or written, with any other Dealer or Dealers for the purpose of fixing
retail prices of Suzuki Products.
(j) The imposition of a levy against DEALER under attachment,
garnishment, execution or other similar process, except those garnishments or
executions pertaining to obligations of DEALER's employees; or
(k) Any assignment or attempted assignment of this Agreement or any
part thereof without the prior written consent of SUZUKI.
11.04 Fifteen (15) Days' Notice. SUZUKI may terminate this Agreement
with fifteen (15) days' written notice after the occurrence of any of the
following events:
(a) DEALER or any of its owners, partners, shareholders, officers or
managers engaging in any practice or conduct or being convicted of any felony
or the violation of any law that, in the opinion of SUZUKI, may adversely
affect the operation or business of the DEALER or be injurious to the
goodwill or reputation of SUZUKI, Suzuki Products or other Suzuki Dealers;
(b) The closure of the Dealership for any reason for a period in
excess of ten (10) days;
(c) Any change in the location of the Dealer Premises or any portion
of its operation without the prior written consent of SUZUKI;
(d) Any submission by DEALER of a false or fraudulent application,
and/or any supporting claim or statement to SUZUKI, for payment by SUZUKI
related to warranty repairs, special or recall adjustments performed by the
DEALER, or for any other discount, allowance, refund, or credit under any
plan, provision or program offered by SUZUKI to the DEALER whether or not the
DEALER offers or makes to SUZUKI or SUZUKI seeks or obtains from the DEALER
restitution of any payment made to the DEALER on the basis of any false or
fraudulent applications, claims or statements;
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(e) Any sale or attempted sale of Dealership by DEALER without the
prior written approval of SUZUKI;
(f) The insolvency of the DEALER, the filing of a voluntary petition
in bankruptcy by the DEALER, the filing of an involuntary petition to have
DEALER declared bankrupt, the appointment of receiver or trustee for the
DEALER, or the execution by DEALER of an assignment for the benefit of
creditors;
(g) Any bulk sale or the attempted sale of the Dealership assets; or
(h) The dissolution of the Dealership if the Dealership is a
corporation or a partnership.
11.05 Operation of the Law. Notwithstanding the provisions above, the
Agreement will terminate automatically and without notice from either party
in the event of the occurrence of any of the following:
(a) The failure of DEALER to obtain any license required for the
operation of the Dealership in any jurisdiction where this Agreement is
performed; or
(b) The failure of DEALER to secure or maintain the license or
renewal thereof, or the suspension or revocation or the license, irrespective
of the cause or reason.
11.06 Termination Liability. Upon termination, DEALER shall cease to
be an authorized Suzuki Dealer and shall:
(a) Pay forthwith to SUZUKI all sums then outstanding and owing by
DEALER to SUZUKI;
(b) Allow SUZUKI to audit DEALER's records with regard to its sales
of the Suzuki Satisfaction System contracts and pay forthwith to SUZUKI all
sums due and owing for any and all Suzuki Satisfaction System contracts sold
for which monies have not been paid by DEALER. DEALER agrees that SUZUKI
shall have the right to debit DEALER's parts account for any such sums due
and owing on Suzuki Satisfaction System contracts sold by DEALER;
(c) Remove forthwith, at its own expense, all SUZUKI signs which are
displayed at Dealer's Premises;
(d) Refrain from all further use whatsoever of any tradename,
trademark, logo, service mark, or any word or design that SUZUKI has used or
uses in connection with or with respect to Suzuki Products, including in its
stationery and other printed material and, if necessary, including changing
its corporate or business name;
(e) Cease representing itself as an authorized Suzuki Dealer for
Suzuki Products; and
(f) Return to SUZUKI all technical and/or service literature,
advertising and other printed material in DEALER's possession which relate to
Suzuki Products.
11.07 SUZUKI Option to Repurchase. Upon the termination of this
Agreement, SUZUKI shall have the option to purchase from DEALER, free and
clear of all liens, charges and encumbrances, any of the follows:
(a) New, unused, unaltered, undamaged, unlicensed and marketable
current model Suzuki Vehicles, with mileage of 100 miles of less, which were
purchased by DEALER from SUZUKI, and are in DEALER's inventory, at DEALER's
vehicle price less destination charges and any voluntary advertising
associated assessments made on behalf of a Suzuki Advertising Association.
SUZUKI shall pick up said Suzuki Vehicles and pay all transportation charges
for return of said vehicles; and
(b) The new, current model Suzuki Parts and Accessories at SUZUKI's
invoice price to DEALER, less SUZUKI's prevailing restocking charge, but only
if delivered by DEALER at DEALER's expense, to SUZUKI's Parts Warehouse
located nearest DEALER provided however, that these Suzuki Parts and
Accessories must be in a new,unused,undamaged and saleable condition and in
the original package and original package quantity; provided further, that
SUZUKI will not purchase any Suzuki Parts or Accessories which SUZUKI deems
to be obsolete.
11.08 Application of Credit. If SUZUKI exercises its option to
repurchase, any indebtedness owed by DEALER to SUZUKI may be applied against
the purchase price and the balance if any, owing to DEALER shall be paid to
DEALER only after verification by SUZUKI of the inventory of purchased Suzuki
Products.
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12.00 INDEMNIFICATION
12.01 Indemnification by SUZUKI. SUZUKI agrees to assume the defense
of DEALER and to indemnify, and hold DEALER harmless in any lawsuit naming
DEALER as a defendant and involving any Suzuki Product when the lawsuit
involves allegation of:
(a) Breach of Suzuki warranty, or bodily injury or property damage
arising out of any occurrence allegedly caused solely by a defect in design,
manufacture or assembly of a Suzuki Product (except for tires), provided that
the defect could not reasonably have been discovered by DEALER during the
required pre-delivery service of the Suzuki Product.
Provided:
(b) The DEALER delivers to SUZUKI, within ten (10) days of the
service of any summons or complaint, copies of such documents, and requests
in writing a defense and/or indemnification;
(c) That the complaint does not involve allegations of DEALER
misconduct, including but not limited to, improper or unsatisfactory service
or repair, misrepresentation, or any claim of DEALER's unfair or deceptive
trade practice;
(d) That the Suzuki Product which is the subject of the lawsuit was
not altered by or for DEALER;
(e) The DEALER agrees to cooperate fully in the defense of such
action as SUZUKI may reasonably require; and
(f) The DEALER agrees that SUZUKI may offset any recovery on DEALER's
behalf against any indemnification that may be required hereunder.
12.02 Indemnification by DEALER. DEALER agrees to assume the defense
of SUZUKI and to indemnify and hold it harmless in any lawsuit naming SUZUKI
as a defendant when the lawsuit involves allegations of:
(a) DEALER's alleged failure to comply, in whole or in part, with any
obligation assumed by DEALER pursuant to this Agreement;
(b) DEALER's alleged negligent or improper repair or servicing of a
new or used Suzuki Vehicle or equipment, or such other motor vehicles or
equipment as may be sold or serviced by DEALER;
(c) DEALER's alleged breach of any contract or warranty other than
that provided by SUZUKI;
(d) DEALER's alleged misleading statements, misrepresentations, or
deceptive or unfair trade practices; and
(e) Any modification or alteration made by or on behalf of DEALER to
Suzuki Product, except those made pursuant to the express instruction or with
the express approval of SUZUKI.
Provided:
(f) That SUZUKI delivered to DEALER, within ten (10) days of the
proper service of any summons or complaint, copies of such documents, and
requests in writing a defense and/or indemnification;
(g) That SUZUKI agrees to cooperate fully in the defense of such
action as DEALER may reasonably require; and
(h) That the complaint does not involve allegations of liability
premised upon separate SUZUKI conduct or omissions.
13.00 MISCELLANEOUS PROVISIONS
13.01 Insurance. DEALER shall maintain at its own expense adequate
insurance against all types of risk and liability, including without
limitation, personal liability insurance. Such insurance shall be with an
accredited and reputable company. DEALER shall annually furnish SUZUKI with
certification for such insurance with evidence showing that premiums have
been paid in full.
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13.02 Expenses. Except as set forth herein, SUZUKI shall not be under
any liability whatsoever for any expenditure made or expense incurred by
DEALER with respect to DEALER;s performance of its obligations pursuant to
this Agreement.
13.03 Taxes. DEALER agrees that it shall be responsible for and shall
pay any and all sales taxes, use taxes, excise taxes, and other governmental
charges whenever imposed, levied or based upon the sale of Suzuki Products by
SUZUKI to DEALER and DEALER shall keep accurate and current records of the
foregoing for reporting purposes.
13.04 Set off. In addition to any other specific rights of set off
otherwise provided in documents affecting DEALER and SUZUKI, SUZUKI shall
have the right to set off any sums or accounts due or to become due from
DEALER to SUZUKI against any sums or accounts due or to become due from
SUZUKI to DEALER.
13.05 No Assignment. This Agreement, based on mutual trust between
DEALER and SUZUKI, may not be assigned or transferred by DEALER without the
prior written consent of SUZUKI. Any purported assignment without the prior
written consent of SUZUKI is null and void.
13.06 Waiver. The waiver by either party of any breach or violation or
any provision of this Agreement shall not be deemed to be a waiver by that
party of any subsequent breach or violation of any other provisions herein.
13.07 Notice. Whenever a notice, demand or other document is required
or permitted to be given by the terms of the Agreement, or any document
incorporated by reference, it shall be deemed sufficiently given if delivered
personally or by prepaid ordinary mail at the addresses set forth for SUZUKI
and DEALER on page one (1) of this Agreement. The addresses set forth may be
changed from time to time by notice in writing. Any notice or other
document, if sent by mail, shall be deemed to have been given to, and
received by the party to whom it was sent as of the date of mailing.
13.08 Survival. The obligations of DEALER upon termination as set
forth in Section 11.00 of this Agreement shall survive the termination of
this Agreement. Any termination of this Agreement shall be without prejudice
to rights accruing hereunder, provided however, that DEALER agrees that
SUZUKI shall not be reason of any termination, be liable to DEALER for any
compensation, reimbursement, damages or expenses arising from such
termination.
13.09 Modification. Any modification or amendment to this Agreement,
other than by amendments to the Facility Standards Addendum, the dealer
Minimum Standards Addendum and Dealer Updates and transactions under which
credit is extended by SUZUKI to DEALER, must be executed in the same manner
as the Agreement itself.
13.10 Arbitration. All disputes between the parties arising out of or
in any way related to this Agreement or the business relationship between the
parties shall be subject to and resolved by binding arbitration according to
the rules and under the administration of the American Arbitration
Association. The site of the arbitration shall be in any federal judicial
district where venue would be appropriate under federal law, without regard
to the amount allegedly in controversy.
The law of the State of California shall apply; however, the arbitrator
shall not have the power to award exemplary or punitive damages. Nothing in
this Agreement to arbitrate shall be construed to prevent either party's use
of a court forum for receivership, injunction, repossession, replevin,
sequestration, seizure, attachment or other provisional remedies allowed in
law or equity. Any award shall be enforceable in any state or federal court
having jurisdiction thereof.
13.11 Partial Invalidity. If any provision of this Agreement is
invalid under or in conflict with the laws of any jurisdiction where this
Agreement is to be performed, such provision shall be deemed to be deleted
and the remaining provisions of this Agreement shall remain valid and binding.
13.12 Attorneys' Fees. If SUZUKI is required to retain an attorney to
enforce its rights under the terms of this Agreement SUZUKI shall be entitled
to reasonable attorneys' fees.
13.13 Jurisdiction. This Agreement is entered into in Brea,
California. Therefore it shall be construed according to the laws of the
State of California and shall be treated in all respects as a California
contract. The parties hereby accept and accede to the jurisdiction and venue
of the federal and state courts in and for Orange County, California to
resolve any and all disputes arising under this Agreement not subject to the
arbitration clause set forth in subsection 13.10.
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13.14 Only Agreement. This Agreement when executed by SUZUKI and
DEALER shall supersede and cancel all other agreement at that time existing
between SUZUKI and DEALER with respect to Suzuki Products.
13.15 Entire Agreement. This Agreement as it may be amended by
Updates, etc. constitutes the entire agreement between the parties relating
to the matters set forth and there is no understanding between the parties,
either oral or written, which is in conflict with this Agreement.
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EX-10
Exhibit 10.13.1 BMW Dealer Agmt
EXHIBIT 10.13.1
BMW OF NORTH AMERICA, INC.
DEALER AGREEMENT
This DEALER AGREEMENT is effective as of the 3rd day of October, 1997,
by and between BMW of North America, Inc., a Delaware Corporation having its
principal place of business at Woodcliff Lake, New Jersey 07675 ("BMW NA") and
Dealer Name: Lithia BB, Inc.
Dealer Location: Bakersfield, California
Business Type: Corporation
(if a corporation or partnership) organized or incorporated under the laws of
the
State of : California
And Doing Business As: BMW of Bakersfield having its principal place of
business at
Address: 3201 Cattle Dr.
City/Town: Bakersfield, California
County of: Kern
State of: California (as "Dealer").
All terms defined in the Dealer Standard Provisions (Form 93/B) are
incorporated herein by reference.
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PURPOSE OF AGREEMENT
The purpose of this Agreement is to authorize Dealer to operate a BMW
automobile dealership and to set forth the responsibilities of both BMW NA
and Dealer in providing BMW Products and services to the consuming public.
The United States automotive market requires a fluid relationship
between BMW NA and authorized BMW dealers who represent BMW Products. Mutual
compliance with the terms of this Agreement will promote the interests of
both BMW NA and Dealer by providing each party an opportunity to earn a
reasonable return on its investment through developing and retaining
satisfied customers and by building a spirit of cooperation between BMW NA
and authorized BMW dealers (collectively the "BMW Dealers") which will
increase the value and customer perception of BMW trademarks.
BMW NA and Dealer have entered into this Agreement with confidence in
each other's integrity, ability and expressed intention to deal fairly with
the other party and the consuming public. Dealer is relying upon BMW NA's
commitment to distribute quality BMW Products which meet the needs and
expectations of the BMW customers in Dealer's primary market and to provide
Dealer with a broad range of support activities to assist Dealer in its
retail operations. BMW NA is relying upon Dealer's commitment to perform and
carry out the responsibilities of an authorized BMW dealer, as set forth in
this Agreement. Each party recognizes that it must rely upon the efforts of
the other party in performing successfully under this Agreement.
IN CONSIDERATION OF the foregoing and the mutual covenants herein
contained, the parties hereto agree as follows:
A. APPOINTMENT OF DEALER
BMW NA appoints Dealer as a dealer of BMW Products. Subject to the
terms of this Agreement, Dealer is granted the non-exclusive right to buy BMW
Products. Dealer accepts such appointment and agrees to be bound by this
Agreement.
While dealer recognizes that its performance will be primarily measured
based upon its activities in its Primary Market Area, Dealer agrees that this
appointment does not confer upon it the exclusive right to deal in BMW
Products in any specific geographic area within the 50 United States, nor
does it limit the persons within the 50 United States to whom Dealer may sell
BMW Products for use therein.
Dealer agrees that it will not sell BMW Products for resale or use
outside the 50 United States. Dealer further agrees to abide by any Export
Policy established by BMW NA.
Dealer acknowledges that BMW NA reserves the right to appoint
additional dealers, whether located near Dealer's location or elsewhere, as
BMW NA in its sole discretion deems necessary or appropriate. BMW NA agrees
that it will not explore additional representation without first conferring
individually with the BMW Dealer(s) surrounding the proposed location to
determine whether other alternatives to additional representation are
satisfactory to BMW NA. If a decision is made to proceed with establishment
of additional representation, BMW NA will provide such BMW Dealer(s) no less
than thirty (30) days written notice of such decision.
B. DEALER STANDARD PROVISIONS AND DEALER OPERATING REQUIREMENTS
The accompanying Dealer Standard Provisions (Form 93/B), Dealer
Operating Requirements, Dealer Facility Guidelines, and all currently
effective Addenda issued to Dealer by BMW NA, all of which may be amended,
canceled or superseded from time to time, are hereby incorporated into this
Dealer Agreement ("Incorporated Documents"). Unless the context otherwise
indicates, the term "Agreement" shall mean this document, the Incorporated
Documents, and the documents referred to therein. Dealer hereby acknowledges
receipt of this Agreement and agrees to become familiar with its terms.
While Dealer is not contractually required to comply with the BMW
Dealer Operating System, Dealer agrees to consider conforming its operations
to the guidelines and recommendations of the BMW Dealer Operating System.
C. DEALER OWNERSHIP AND MANAGEMENT
This is a PERSONAL SERVICES AGREEMENT. BMW NA is entering into this
Agreement in reliance upon the qualifications, abilities and integrity of the
Dealer Operator and upon the representation of the Dealer's Owner(s) that the
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Dealer Operator will have full managerial authority for operations and
activities of Dealer. In order to induce BMW NA to enter into this
Agreement, Dealer states that:
(i) Dealer's Owners. The beneficial owners, record owners and
partners, if any of Dealer are (include Record Owners if different from
Beneficial):
Name % Record Or Beneficial
Lithia Motors, Inc. 100% Record
Additional Names Attached ____
(ii) Dealer's Officers. The following persons are Dealer's Officers:
Name Title
Sidney B. DeBoer President
Secretary/Treasurer
M.L. Dick Heimann Vice-President
(iii) Dealer's Corporate Directors. If Dealer is a corporation, the
following are its Corporate Directors:
Name Title
Sidney B. DeBoer President
Secretary/Treasurer
M.L. Dick Heimann Vice-President
(iv) Dealer Operator. The following person shall be in complete
charge of Dealer's BMW Operations with authority to make all operating
decisions on behalf of Dealer with respect to Dealer's BMW Operations and is
the person upon whom BMW NA can rely to act on Dealer's behalf:
Name: James A. Yanco
(v) General Manager. The following is Dealer's General Manager (if
none, enter "NONE"):
Name: James A. Yanco
(vi) Successor. The Dealer's Owners have nominated the following
individual(s) as proposed Dealer Owner(s) of a Successor dealer to be
established if this Agreement is terminated because of the death or permanent
disability of any of the Dealers Owners (if none, enter "NONE"):
Name: None
Name:
Because of the importance that BMW NA places on the statements and
representations of the Dealer's Owners and the qualifications of the Dealer
Operator, Dealer agrees that there will be no change in the (a) identity of
the Dealer's Owners (i above); (b) the Dealer Operator (iv above); or (c)
Dealer's name, identity, business organization or structure without the prior
written consent of BMW NA.
To enable BMW NA to maintain effectively the BMW NA dealer network,
Dealer further agrees to provide BMW NA with forty-five (45) days prior
written notice of any proposed change in the ownership of Dealer, which would
change the majority interest or control of Dealer, or of any proposed
disposition of Dealer's BMW assets. Any such change in ownership or
disposition of Dealer's BMW assets shall not be effective without the prior
written consent of BMW NA which consent shall not be unreasonably withheld.
BMW NA shall respond to Dealer's notification within forty-five (45) days
after Dealer has furnished to BMW NA all applications and information
reasonably requested to evaluate the proposal.
Without limiting other considerations in determining whether BMW NA
will provide consent, this Agreement may not be transferred, assigned or
assumed until all indebtedness of Dealer to BMW NA, its subsidiaries or
affiliates has been fully satisfied and unless the transferee, assignee or
party assuming this Agreement agrees and commits to fulfill and complete all
of the obligations under this Agreement and the Improvement Addendum (if
applicable).
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Dealer recognizes that BMW NA has a vital interest in ensuring that
qualified personnel are employed by BMW Dealers. Therefore, Dealer agrees to
employ personnel who meet the qualifications for each position. BMW NA
agrees that Dealer has the right to decide all matters concerning management
and personnel.
Dealer has designated herein certain individuals as officers,
directors, managers and/or individuals with responsibility for Dealer's BMW
Operations. Dealer agrees to notify BMW NA in writing of any change in the
designated individuals (ii, iii and v above) and recognizes that such
designation shall not relieve Dealer of its responsibility for performance
under this Agreement.
Dealer agrees that BMW NA may rely upon the Dealer Operator and General
Manager (if applicable) to act on Dealer's behalf and that such reliance will
not alter Dealer's responsibilities under this Agreement.
D. DEALER'S FACILITIES
Dealer agrees that Dealer's Facilities shall satisfy all applicable
provisions of this Agreement, including reasonable space, facility and BMW
Corporate Identification requirements in the Dealer Operating Requirements
Addendum and/or Dealer Facilities Guidelines. BMW NA recognizes the
investment Dealer has in its facilities and hereby approves the location of
the following Dealer's Facilities for the exclusive purpose of:
1) A showroom and sales facility for BMW Vehicles at:
Address: 3201 Cattle Drive, Bakersfield, CA 93313
2) Service and Parts facilities for BMW Vehicles at:
Address: 3201 Cattle Drive, Bakersfield, CA 93313
3) Facilities for the display and sale of used BMW Vehicles at:
Address: 3201 Cattle Drive, Bakersfield, CA 93313
4) Other facilities (indicate the nature of the facility; e.g.,
storage facility):
Address: NONE
Unless otherwise provided herein, Dealer shall conduct Dealer's BMW
Operations and keep BMW Products exclusively at Dealer's Facilities
designated above.
In the event that Dealer desires to (i) change its principal place of
business from that first set forth in this Agreement; (ii) change any
location of Dealer's Facilities; (iii) establish any additional locations for
either operating its business or storage of BMW Products; (iv) make any major
structural or design change in Dealer's Facilities; or (v) change the usage
or function of any locations or facility approved herein or otherwise utilize
such locations or facilities for any functions other than the approved
functions, Dealer must obtain the prior written approval of BMW NA for any
such change or establishment.
In the event Dealer desires to establish or add any additional
automobile franchise, line, make or dealership at Dealer's Facilities
simultaneously with Dealer's BMW Operations, Dealer agrees to provide BMW NA
thirty (30) days prior written notice of such establishment or addition. At
the time notice is provided, Dealer shall demonstrate in writing to BMW NA
that Dealer will continue to comply with the Dealer Operating Requirements
Addendum and will not adversely impact the representation or sale of BMW
Products. If Dealer is unable to comply, Dealer shall not pursue such
establishment or addition, but may submit a detailed plan of compliance with
the Dealer Operating Requirements and Dealer Operating Requirements Addendum
to BMW NA. If BMW NA approves the detailed plan of compliance, Dealer may
proceed with the establishment or addition. Dealer understands that BMW NA
may, at its sole option, reject the plan or require issuance or modification
of an Improvement Addendum in the event the plan is approved. Such approval
shall not be unreasonably withheld.
E. EXCLUSION OF WARRANTIES
EXCEPT AS SPECIFICALLY PROVIDED FOR IN THE NEW CAR LIMITED WARRANTY,
THE LIMITED WARRANTY ON EMISSION CONTROLS, THE LIMITED WARRANTY AGAINST RUST
PERFORATION, THE LIMITED WARRANTY ON ORIGINAL BMW PARTS AND THE LIMITED
WARRANTY ON ORIGINAL PARTS SOLD OVER THE COUNTER, ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE ARE EXCLUDED. THE EXCLUSION ALSO APPLIES TO
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INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES FOR ANY BREACH OF
EXPRESS OR IMPLIED WARRANTY, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND/OR FITNESS, IF ANY, APPLICABLE TO BMW PRODUCTS.
F. BMW DEALER FORUM
BMW NA and Dealer agree that it is in their mutual interest to have an
independent group of BMW dealer representatives serve on the BMW Dealer Forum
("DEALER FORUM"). The DEALER FORUM shall represent BMW Dealers and will
communicate the position of BMW Dealers to BMW NA on various common issues.
BMW NA and the DEALER FORUM shall establish a mechanism to foster open and
frequent communication on substantive issues affecting BMW NA and BMW Dealers.
Each BMW dealer is entitled and encouraged to serve on the DEALER FORUM
or on a committee of the DEALER FORUM pursuant to its by-laws and each BMW
dealer is expected to support and participate in the DEALER FORUM.
The DEALER FORUM shall adopt by-laws as BMW Dealers deem reasonable and
necessary. The DEALER FORUM may establish committees to study various
aspects of the retail environment and the BMW NA - BMW Dealers' relationship.
Before any material change may be made to this Agreement, BMW NA agrees
to notify the DEALER FORUM and consider BMW Dealers' position regarding the
proposed change.
G. TERM
This Agreement shall continue in fill force and effect and shall govern
all relations and transactions between the parties commencing on the
effective date hereof and continuing as follows:
o If Dealer has fulfilled all of its obligations hereunder and no
Improvement Addendum is currently in force, this Agreement shall expire five
years from the effective date hereof, unless terminated earlier in accordance
with the applicable provisions of this Agreement. In such event BMW NA will
renew this Agreement or offer Dealer an opportunity to enter into a
superseding Agreement.
o If Dealer has outstanding obligations as of the effective date of
this Agreement and/or an Improvement Addendum is in force, this Agreement
shall expire on the earlier of three years from the effective date hereof or
sixty (60) days following the earliest "Compliance Date" specified in said
Addendum, unless otherwise terminated in accordance with the applicable
provisions of this Agreement.
H. ALTERNATE DISPUTE RESOLUTION
BMW NA and Dealer agree to minimize disputes between them. However, in
the event that disputes arise, BMW NA and Dealer agree that they will attempt
to resolve all matters between them before any formal action is taken to seek
any administrative or judicial adjudication or governmental review.
A BMW BOARD ("BOARD") will act as the Administrator of all disputes
between BMW NA and Dealer arising out of this Agreement. The BOARD will
consist of three representatives who will be selected by BMW NA and three
representatives of BMW Dealers who will be selected by the DEALER FORUM. The
BOARD will determine eligibility requirements, develop procedures to ensure a
fair and equitable decision ("ADR PROCEDURES") and select individuals to
participate in a DISPUTE RESOLUTION PANEL ("PANEL") to hear an eligible
dispute. The PANEL shall consist of at least one BMW NA employee, one BMW
dealer and one independent person selected by the BOARD.
The BOARD shall also monitor the dispute resolution process, report to
BMW NA and the DEALER FORUM annually on the effectiveness of this process
and, when required, make recommendations for changes in this process.
BMW NA and Dealer agree that the process outlined in this Article H and
developed by the BOARD in the ADR PROCEDURES will be mandatory. The PANEL's
recommendation will be non-binding, unless the parties agree to be bound by
the decision of the PANEL. The purpose of the PANEL will be to recommend a
resolution and work with the parties to reach a fair and equitable solution
to their dispute in a cost-effective, efficient manner and to avoid formal
adjudication or government intervention.
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If either party to this Agreement initiates any action in court or an
administrative agency prior to issuance of a PANEL recommendation on a
dispute, that party shall pay all costs, fees and expenses, including
attorneys fees, of the other party which arise out of the enforcement of this
Article H.
I. RIGHT OF FIRST REFUSAL
BMW NA recognizes the investment which Dealer has committed to remain a
BMW dealer. Dealer recognizes the importance to BMW NA of continuing
dealership operations from approved locations to provide for effective sale
and service of BMW Products. Accordingly, whenever Dealer intends to dispose
of Dealer's BMW assets or to change majority ownership from that listed in
Article C(i), BMW NA shall have the first right to purchase Dealer's BMW
assets or ownership interests pursuant to this Article. Dealer agrees to
disclose to the prospective buyer that any sale or disposition shall be
subject to the terms of this Dealer Agreement.
BMW NA will advise Dealer if it will exercise the right of first
refusal within forty-five (45) days after Dealer has furnished all
applications and information in accordance with Article C. If BMW NA
exercises the right, BMW NA will assume the proposed buyer's rights and
obligations under the written agreement the proposed buyer negotiated with
Dealer (the "Buy/Sell Agreement"). The purchase price shall be that set
forth in the Buy/Sell Agreement.
In the event BMW NA exercises its right of first refusal, BMW NA may
assign the Buy/Sell Agreement to any party. BMW NA shall remain responsible
to guarantee the purchase price to be paid by the assignee.
Dealer shall transfer the assets and any applicable real estate free
and clear of all liens and encumbrances. Any property shall be transferred
by Warranty Deed, where possible, conveying marketable title. Deeds will be
in the proper form for recording. Possession will be deemed transferred when
the deed is delivered. Dealer will furnish copies of, and will assign where
required, all agreements, licenses, easements, permits or other documents
necessary for the conduct of Dealer's BMW Operations.
If it exercises its right under this Article, BMW NA will reimburse
Dealer for all acceptable expenses, excluding brokerage commissions, incurred
by Dealer in connection with the development of the Buy/Sell Agreement.
Dealer will supply BMW NA with reasonable documentation to support all those
expenses and all copies of materials generated during the negotiation and
development of the Buy/Sell Agreement in anticipation of the sale (including
environmental reports, accounting reviews, among others.) Any dispute
regarding reimbursement shall be presented for review under Article H.
This Article shall not apply in the event that Dealer proposes to
change majority ownership, dispose of its assets or otherwise enter into a
proposed Buy/Sell Agreement with a member of Dealer's immediate family
(spouse, child, brother, sister, parent, grandchild, or spouse of child); to
an individual who is listed in the Successor Addendum; to an individual who
is currently employed by Dealer and has been actively employed by Dealer for
at least three consecutive years in the BMW Operations and is otherwise
qualified as a Dealer Operator; or to an individual who is currently listed
as a Dealer's Owner in Article C and has been so listed for the past three
consecutive years and is otherwise qualified as a Dealer Operator.
J. CUSTOMER SATISFACTION
BMW NA and Dealer agree to conduct their respective businesses to
promote and support the image and reputation of BMW NA, BMW Products and BMW
Dealers. BMW Products must be perceived as the finest available. BMW NA and
BMW Dealers must be recognized as providing the best service in the industry.
Dealer, as the direct link to the BMW customer, is responsible for
satisfying customers in all matters, except those directly related to product
design and manufacturing. Dealer will take reasonable steps to ensure that
each customer is satisfied with BMW Products, and with the services and the
practices of Dealer. Dealer will recommend to BMW NA methods of reasonably
satisfying customers. BMW NA will support Dealer's customer satisfaction
efforts through counseling, training opportunities and providing survey
results.
When requested by BMW NA, Dealer shall submit a plan detailing its
customer satisfaction programs. That plan shall include continuous
reinforcement to all dealership personnel of the importance of customer
satisfaction, necessary training for dealership personnel and methods of
conveying to customers that Dealer is committed to their satisfaction.
Following consultation with and notice from BMW NA or its authorized
representative, Dealer shall remedy to the satisfaction of BMW NA any
practice or method of operation which would have a detrimental effect upon
customer satisfaction or would impair the reputation or image of BMW NA, BMW
Products or Dealer.
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K. EXECUTION OF AGREEMENT
This Agreement shall not become effective until signed by a duly
authorized officer of Dealer, if a corporation; or by one of the general
partners of Dealer, if a partnership; or by the named individual if a sole
proprietorship; and countersigned by authorized representatives of BMW NA.
L. MODIFICATION OF AGREEMENT
No representative of BMW NA shall have the authority to waive any of
the provisions of this Agreement or to make any amendment or modification of
or any other change in, addition to, or deletion of any portion of this
Agreement or to make any other agreement which imposes any obligation on
either BMW NA or Dealer which is not specifically imposed by this Agreement
or which renews or extends this Agreement; unless such waiver, amendment,
modification, change, addition, deletion or agreement is reduced to writing
and signed by two authorized representatives of BMW NA and by the authorized
representative of Dealer as set forth in Article K of this Agreement.
BMW OF NORTH AMERICA, INC.
By: /s/ James J. Ryan 10/17/97
James J. Ryan
Title: Senior Vice President
General Manager
Western Region
By: /s/ William Stoeckel
William Stoeckel
Title: Market Manager
LITHIA BB, INC.
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
Title: President
Federal Tax ID #91-1835532
ATTEST (If Dealer Is A Corporation)
/s/ Sidney B. DeBoer
(Secretary)
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EX-10
Exhibit 10.14.1 Hyundai Dealer Sales & Serv Agmt
EXHIBIT 10.14.1
HYUNDAI MOTOR AMERICA
DEALER SALES AND SERVICE AGREEMENT
This is an Agreement between HYUNDAI MOTOR AMERICA (HMA), a California
corporation, and Lithia JEF, Inc. (DEALER), a corporation, duly incorporated
in the state of California and doing business as Lithia Hyundai of Fresno.
INTRODUCTION
HMA sells Hyundai Products which are manufactured or approved by
Hyundai Motor Company (FACTORY). HMA has established a network of authorized
Hyundai Dealers, operating at approved locations and according to Hyundai
standards, to sell and service Hyundai Products. HMA has selected its
Dealers based on their experience and commitment that they will sell and
service Hyundai Products in a manner which promotes and maintains Customer
confidence and satisfaction, and increases product acceptance and awareness.
DEALER represents that its Owner(s) and General Manager identified
herein have the skill, experience, capital and facilities to ensure that
DEALER operates a first-class dealership. HMA enters into this Agreement
upon DEALER's assurances of the continued personal services of said Owner(s)
and General Manager. The purpose of this Agreement is to memorialize such
assurances, to appoint DEALER as an authorized Hyundai Dealer, to provide for
the effective representation of Hyundai Products and to set forth the rights
and obligations of HMA and DEALER hereunder.
Accordingly, the parties agree as follows:
1. APPOINTMENT OF DEALER
Subject to the terms of this Agreement, HMA hereby grants DEALER the
non-exclusive right:
To buy the Hyundai Products identified in the Hyundai Product Addendum
attached hereto which HMA, in its sole discretion, may revise from time to
time; and
To identify itself as an authorized Hyundai Dealer using Hyundai Marks
in the promotion, sale and servicing of Hyundai Products and at the
location(s) approved herein.
DEALER accepts its appointment as an authorized Hyundai Dealer and
agrees to:
Conduct its business in a manner which will engender Customer
confidence and satisfaction and reflect positively upon HMA;
Effectively promote and sell Hyundai Products;
Professionally service Hyundai Products; and
Establish and maintain satisfactory dealership facilities at the
location(s) approved by HMA.
2. TERM OF THIS AGREEMENT
This Agreement will become effective on the date it is executed by HMA
and with continue in effect for a period of 2 years, unless terminated as
provided herein. This Agreement may not be extended or renewed except in
writing signed by the President and Executive Vice President of HMA.
3. DEALER OWNERSHIP
HMA enters into this Agreement in reliance upon the personal
qualifications and representations of the persons identified below and upon
DEALER's assurances that the following persons, and only the following
persons, will be the Owner(s) of DEALER.
OWNERSHIP
NAME ADDRESS TITLE INTEREST
Lithia Motors, Inc. 100%
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4. DEALER MANAGEMENT
DEALER recognizes that the effective performance of its obligations
hereunder requires that experienced DEALER management be actively involved at
all times. HMA enters into this Agreement in reliance upon the qualifications
of Joe Meyers to manage DEALER'S operations and upon DEALERS assurance that
such person, and no other person, will at all times function as General
Manager and be considered as Dealer Operator with complete authority to make
all decisions on behalf of DEALER with respect to DEALER's operations.
DEALER further agrees that the General Manager shall devote full time (100%)
to the management of DEALER's operations.
5. CHANGE IN DEALER OWNERSHIP OR MANAGEMENT
This is a personal services agreement. HMA has entered into this
Agreement in reliance upon DEALER's assurances of the active involvement of
the Owners and General Manager identified herein in DEALER's operations.
Accordingly, any change in ownership, regardless of the share or relationship
between parties, or any change in General Manager, from the person(s)
identified herein, requires the prior written consent of HMA, which HMA shall
not unreasonably withhold.
6. DEALER LOCATION
DEALER is free to sell Hyundai Products to Customers wherever they may
be located. However, in order for HMA to establish and maintain an effective
network of authorized Hyundai Dealers for the sale and servicing of Hyundai
Products and to maximize Customer convenience, HMA has approved the following
facilities as the exclusive location(s) for the sale and servicing of Hyundai
Products and for the display of Hyundai Marks:
HYUNDAI NEW VEHICLE SALES
AND SHOWROOM PARTS AND SERVICE
5590 N. Blackstone Ave. 155 E. Auto Center Dr.
Fresno, CA 93710 Fresno, CA 93710
SALES AND GENERAL OFFICES USED VEHICLE DISPLAY SALES
5590 N. Blackstone Ave. N/A
Fresno, CA 93710
BODY AND PAINT
N/A
DEALER agrees not to display Hyundai Marks or to conduct any dealership
operations, including the display, sale and/or service of Hyundai Products,
at any location other than at the location(s) approved herein, without the
prior written consent of HMA.
Moreover, each location is approved only for the activity indicated.
DEALER may not alter the activity of any location approved herein or
otherwise use such location for any activities other than the approved
activity, without the prior written consent of HMA.
7. STANDARD PROVISIONS
The HMA Dealer Sales and Service Agreement Standard Provisions are
incorporated herein
and made a part of this Agreement as if fully set forth herein.
8. ADDITIONAL PROVISIONS
In consideration of HMAs agreement to appoint DEALER as an authorized
Hyundai Dealer, DEALER further agrees:
HMA has entered into this Agreement based upon DEALER!s promise to
provide adequate representation in the current dealership facility, located
at 5590 Blackstone Avenue, Fresno, CA 93710. DEALER acknowledges that
adequate representation may include, but not be limited to, those standards
set forth in HMA's "DEALERSHIP FINANCIAL/FACILITY/SIGNAGE STANDARDS", signed
by DEALER on 12/1/97 and incorporated by reference herein.
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DEALER further acknowledges that HMA's approval of DEALER's current
operation, does not, in any way, constitute a promise by HMA that it will
sell DEALER any particular number of vehicles or an assurance by HMA that,
DEALER will achieve any particular level of sales, operate at a profit or
realize any return on investment. The actual profits to be realized will
depend to a great extent on the management of the dealership, as well as on
business and economic conditions. DEALER acknowledges that, as in any
investment in a competitive industry, there are no guarantees.
DEALER recognizes that the obligations incurred herein are material
terms of this Agreement. Failure to comply with any or all of these
provisions may be grounds for termination of this Agreement.
SERVICE WRITE-UP:
DEALER shall designate one (1) service write-up lane for the use of
Hyundai service customers. Including appropriate signage to identify the
service write-up lane as that for Hyundai service use.
SERVICE:
DEALER shall designate fourteen (14) service bays for the service of
Hyundai vehicles.
PARTS:
DEALER shall provide a parts ' counter designated for the sale of
Hyundai parts. Further DEALER shall provide a minimum of 3582 sq. ft. for
the storage of Hyundai parts.
SIGNAGE: DEALER shall obtain all signage as recommended by HMA's sole
authorized sip vendor including but not limited to the following:
1. One set of Hyundai building fascia letters (HL-24) shall be
installed right hand justified on the front fascia of the showroom.
2. All signage work shall be effectuated by Hyundai's authorized
sign vendor.
In recognition of his responsibilities hereunder, DEALER hereby agrees
to display a minimum of (3) Hyundai vehicles on the Showroom floor at all
times during the term of this Agreement.
DEALER is a corporation known as Lithia JEF, Inc. DEALER is owned by a
corporate entity known as Lithia Motors, Inc. ("LITHIA"). A majority of the
stock of LITHIA is held by Lithia Holding Company, L.L.C. ("LHC"), and the
remainder by sale of stock to the public. LHC is in turn owned by three
individuals, Sidney DeBoer, R. Bradford Gray, and M.L. Dick Heimann. All
voting stock of LHC is owned by Sidney DeBoer.
Pursuant to this agreement, LITHIA, LHC, and Sidney DeBoer, as
individuals through their respective Boards of Directors, appoint Sidney B.
DeBoer as dealer principal of DEALER with complete authority to make all
decisions and enter into all commitments on behalf of DEALER, and HMA will
rely completely on the authority of such person. LITHIA and LHC agree that
the foregoing person shall not be changed as dealer principal without prior
consent of HMA. LITHIA, LHC, and DEALER further agree that there will be no
change in majority direct ownership of DEALER without prior written consent
of HMA. In the event that LHC reduces its ownership in LITHIA below 50%,
such that the public shares own a majority of LHC, then DEALER, LITHIA, and
LHC shall inform HMA so as to amend this agreement accordingly.
DEALER recognizes that the obligations incurred herein are material
terms of this Agreement, and that failure to obtain such consent shall be
grounds for termination under Paragraph 16 of this Dealer Agreement.
9. EXECUTION OF AGREEMENT
This Agreement shall be valid and binding only if it is signed:
On behalf of DEALER by a duly authorized person; and
On behalf of HMA by the President, the Executive Vice President and the
General and/or Regional Manager, if any, of HMA.
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By their signatures hereto, the parties agree to abide by the terms and
conditions of this Agreement, including the Standard Provisions incorporated
herein, in good faith and for their mutual benefit.
Lithia JEF, Inc. dba Lithia Hyundai of Fresno
(Dealer Entity Name)
Date: By: /s/ Sidney B. DeBoer President
Signey B. DeBoer
Hyundai Motor America
Date: 1/26/98 By: /s/ R. J. Lueders General Manager
R. J. Lueders
Date: 1/26/98 By: /s/ R. A. Parker Executive Vice
President
R. A. Parker
Date: 1/26/98 By: /s/ M. Juhn President
M. Juhn
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PRODUCT ADDENDUM
TO
HYUNDAI MOTOR AMERICA
DEALER SALES AND SERVICE AGREEMENT
January 26, 1998
Pursuant to Paragraph 1 of the Hyundai Motor America (HMA) Dealer Sales
and Service Agreement, HMA grants DEALER the non-exclusive right to buy the
Hyundai Products identified below:
Accent, Elantra, Excel, Scoupe, Sonata, Tiburon
and all parts, accessories and equipment for such vehicle(s).
This Hyundai Product Addendum shall remain in effect unless and until
superseded by a new Hyundai Product Addendum furnished by HMA.
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EX-10
Exhibit 10.15.1 Nissan Dealer Sales & Serv Agmt
EXHIBIT 10.15.1
NISSAN
DEALER TERM SALES AND SERVICE AGREEMENT
THIS AGREEMENT is entered into effective the day last set forth
below by and between the Nissan Division of NISSAN MOTOR CORPORATION IN
U.S.A., a California corporation, hereinafter called "Seller," and the
entities and natural persons identified in the Final Article of this
Agreement.
INTRODUCTION
The purpose of this Agreement is to establish Dealer as an authorized
dealer of Nissan Products and to provide for the sale and servicing of Nissan
Products in a manner that will best serve owners, potential owners and
purchasers of Nissan Products as well as the interests of Seller, Dealer and
other Authorized Nissan Dealers. This Agreement sets forth: the rights which
Dealer will enjoy as an Authorized Nissan Dealer; the responsibilities which
Dealer assumes in consideration of its receipt of these rights; and the
respective conditions, rights and obligations of Seller and Dealer that apply
to Seller's grant to Dealer of such rights and Dealer's assumption of such
responsibilities. It is understood that each term and undertaking
hereinafter described is material, and relied upon, as the quid pro quo and
consideration for this Agreement.
This is a personal services Agreement. In entering into this Agreement
and appointing Dealer as provided below, Seller is relying, among other
things, upon the personal qualifications, expertise, reputation, integrity,
experience, ability and representations of the individual named in the Final
Article of this Agreement as Dealer Principal (the "Dealer Principal"), the
individual named in the Final Article of this Agreement as Executive Manager,
and the representations of Lithia Motors, Inc. ("Lithia") and Dealer. In
addition to Dealer, Seller intends to look to Lithia, the Dealer Principal,
and the Executive Manager for the performance of Dealer's obligations
hereunder.
Nissan Products are intended for discriminate owners with the
expectation that such owners will be loyal and proud, but also demanding
toward Seller and Dealer with respect to Nissan Products and the manner in
which they are sold and serviced. Owners, potential owners and purchasers of
Nissan Products are expected to want, and are entitled to do business with,
dealers who enjoy the highest reputation in their communities and have well
located, attractive and efficient places of business, courteous personnel and
outstanding service and parts facilities. Nissan Products must be sold by
enthusiastic dealers who are not interested in short term results only but
are willing to look toward long term goals and who are devoted to creating
and maintaining a positive total ownership experience for owners of Nissan
Products. Seller's standard of excellence for Nissan Products must be
matched by the dealers who sell them to the public and who service them
during their operative lives.
Achievement of the purposes of this Agreement is premised upon mutual
understanding and cooperation between Seller and Dealer. Dealer has entered
into this Agreement in reliance upon Seller's integrity and expressed
intention to deal fairly with Dealer and the consuming public. Seller has
entered into this Agreement in reliance upon the integrity and ability of the
Dealer Principal and Executive Manager and their expressed intention to deal
fairly with the consuming public and Seller.
It is the responsibility of Seller to market Nissan Products throughout
the Territory. It is the responsibility of Dealer to actively promote the
retail sale of Nissan Products and to provide courteous and efficient service
of Nissan Products. The success of both Seller and Dealer will depend on how
well they each fulfill their respective responsibilities under this
Agreement. It is recognized that: Seller will endeavor to provide motor
vehicles of excellent quality and workmanship and to establish a network of
Authorized Nissan Dealers that can provide an outstanding sales and service
effort at the retail level; and Dealer will endeavor to fulfill its
responsibilities through aggressive, sound, ethical selling practices and
through conscientious regard for customer service in all aspects of its
Nissan Dealership Operations.
Seller and Dealer shall refrain from engaging in conduct or activities
which might be detrimental to or reflect adversely upon the reputation of
Seller, Dealer or Nissan Products and shall engage in no discourteous,
deceptive, misleading or unethical practices or activities.
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For consistency and clarity, terms which are used frequently in this
Agreement have been defined in Section I of the Standard Provisions. All
terms used herein which are defined in the Standard Provisions shall have the
meaning stated in said Standard Provisions. These definitions should be read
carefully for a proper understanding of the provisions in which they appear.
To achieve the purposes referred to above, Seller, Lithia, Dealer, the
Dealer Principal and the Executive Manger agree as follows:
ARTICLE FIRST: Appointment of Dealer
Subject to the conditions and provisions of this Agreement, Seller:
(a) appoints Dealer as an Authorized Nissan Dealer and grants Dealer
the non-exclusive right to buy from Seller those Nissan Products specified in
Dealer's current Product Addendum hereto, for resale, rental or lease at or
from the Dealership Locations established and described in accordance with
Section 2 of the Standard Provisions; and
(b) grants Dealer a non-exclusive right, subject to and in accordance
with Section 6.K of the Standard Provisions, to identify itself as an
Authorized Nissan Dealer, to display the Nissan Marks in the conduct of its
Dealership Operations and to use the Nissan Marks in the advertising,
promotion and sale of Nissan Products in the manner provided in this
Agreement.
ARTICLE SECOND: Assumption of Responsibilities by Dealer
Dealer hereby accepts from Seller its appointment as an Authorized
Nissan Dealer and, in consideration of its appointment and subject to the
other conditions and provisions of this Agreement, hereby assumes the
responsibility for:
(a) establishing and maintaining at the Dealership Location the
Dealership Facilities in accordance with Section 2 of the Standard Provisions;
(b) actively and effectively promoting the sale at retail (and, if
Dealer elects, the leasing and rental) of Nissan Vehicles within Dealer's
Primary Market Area in accordance with Section 3 of the Standard Provisions;
(c) servicing Nissan Vehicles and for selling and servicing Nissan
Parts and Accessories in accordance with Section 5 of the Standard Provisions;
(d) building and maintaining consumer confidence in Dealer and in
Nissan Products in accordance with Section 5 of the Standard Provisions; and
(e) performance of the additional responsibilities set forth in this
Agreement, including those specified in Section 6 of the Standard Provisions.
ARTICLE THIRD: Ownership
(a) Owners. This Agreement has been entered into by Seller in
reliance upon, and in consideration of, among other things, the personal
qualifications, expertise, reputation, integrity, experience, ability and
representations with respect thereto of the Dealer Principal and Executive
Manager named in the Final Article of this Agreement and in reliance upon the
representations and agreements of Lithia and Dealer as follows:
(i) Lithia will at all times own I 00% of the capital stock of
Dealer and Dealer will at all times be maintained as a separate entity.
(ii) Lithia Motors, Inc., ("Lithia") owns 100% of the
outstanding stock of Lithia Inc. dba Nissan of Bakersfield ("Bakersfield" or
"Dealer"). (See Attachment "A" attached.)
(b) Changes in Ownership. In view of the fact that this is a
personal services agreement with the Dealer Principal and Executive Manager
and in view of its objectives and purposes, this Agreement and the rights and
privileges conferred on -Dealer hereunder are not assignable, transferable or
salable by Lithia and Dealer, and no property right or interest is or shall
be deemed to be sold, conveyed or transferred to Lithia and Dealer under this
Agreement. Lithia, Dealer, the Dealer Principal and the Executive Manager
agree that any change in the ownership of Dealer or in Lithia, other than
specified herein, requires the prior written consent of Seller IF DEALER
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DESIRES TO REMAIN AN AUTHORIZED NISSAN DEALER and that without the prior
written consent of Seller:
(i) no sale, pledge, hypothecation or other transfer of any of
the currently outstanding capital stock or partnership interest of Dealer
will be made and no additional shares of capital stock, partnership interest
or securities convertible into shares of capital stock of Dealer will be
issued or sold.
(ii) no sale, pledge, hypothecation or other transfer of any of
the currently outstanding capital stock of Dealer will be made and no
additional shares of capital stock, partnership interest or securities
convertible into shares of capital stock f Dealer will be issued or sold.
(iii) Dealer will not be merged with or into, or consolidate
with, any other entity and none of the principal assets necessary for the
performance of Dealer's obligations under this Agreement will be sold,
transferred or assigned.
(iv) Lithia will not enter into any transaction, including,
without limitation, any sale, pledge, hypothecation or other transfer of any
of the currently outstanding capital stock of Dealer, the issuance or sale of
additional shares of capital stock, partnership interest or securities
convertible into shares of capital stock, of Dealer, or the merger of and
Dealer with or into, or the consolidation of and Dealer with any other
entity, if as a result of such transaction, Lithia will cease to own at least
100% of the capital stock or interest of Dealer.
(v) If any person or entity acquires more than 20% of Lithia's
common stock issued and outstanding at any time and Nissan determines that
such person or entity does not have interests compatible with those of
Nissan, or is otherwise not qualified to have an ownership interest in a
Nissan dealership (an "Adverse Person"), Lithia must terminate its dealer
agreements with Nissan or transfer the Nissan dealerships to a third party
acceptable to Nissan unless, within 90 days after Nissan's determination, the
adverse Person's ownership interest is reduced to less than 20%.
Any transaction involving the capital stock of and Dealer which does
not violate subparagraph (iv) above may be effected without obtaining the
prior written consent of Seller and > without triggering a termination event
under Section 12.A.(2) of the Standard Provisions.
Dealer shall give Seller prior notice of any proposed change in said
ownership requiring the consent of Seller and immediate notice of the death
or incapacity of any Dealer Principal or Executive Manager. No such change,
and no assignment of this Agreement or of any right or interest herein, shall
be effective against Seller unless and until embodied in an appropriate
amendment to or assignment of this Agreement, as the case may be, duly
executed and delivered by Seller and by Dealer. Seller shall not, however,
unreasonably withhold its consent to any such change, subject to Seller's
Rights of First Refusal set forth in Article Tenth of this Agreement. Seller
shall have no obligation to transact business with any person who is not
named either as a Dealer Principal or Executive Manager of Dealer hereunder
or otherwise to give effect to any proposed sale or transfer of the
ownership, partnership interest or management of Dealer and (other than
changes in the ownership of and Dealer which are expressly permitted by this
Article Third) prior to having concluded the evaluation of such a proposal as
provided in Section 15 of the Standard Provisions. Dealer acknowledges
Seller's right to require consent to any change in the ownership of Dealer,
and agrees that any change or transfer without such consent from Seller is
void, and of no force and effect, and grounds for termination. Lithia and
Dealer further agree that they will not challenge, contest, dispute, or
litigate, except in accordance with Article Fifteenth(c) hereunder:
(i) any action taken by Seller (including, without limitation,
termination of this
Agreement) in response to an attempt to transfer ownership of Dealer
(except as provided by this Agreement) without Seller's consent; or
(ii) any decisions by Seller to withhold consent to a proposed
change in ownership of Dealer.
ARTICLE FOURTH: Management
(a) This Agreement has been entered into by Seller in reliance upon,
and in consideration of, among other things, the personal qualifications,
expertise, reputation, integrity, experience, ability and representations
with respect thereto of the person named as Dealer Principal in the Final
Article of this Agreement and in reliance on the following representations
and agreements of and Dealer that:
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(i) Dealer shall retain a qualified Executive Manager meeting
Seller's approval to be named under the Final Article of this Agreement.
The qualifications and performance of the individual proposed to be
named as the Executive Manager of Dealer shall be evaluated by Seller during
the first six (6) months of the term of this Agreement pursuant to Seller's
executive management evaluation program. If at the end of such six (6) month
period, the candidate -Y s and Dealer's performance in all departments of the
dealership (including sales, service, parts, and customer satisfaction) is
not satisfactory to Seller under the evaluation program guidelines, Dealer
shall be obligated to retain another individual who is a qualified Executive
Manager to be named under the Final Article of this Agreement within sixty
(60) days of the date that Seller notifies Dealer that the proposed
individual has not met the executive management requirements of Seller as
described above.
(ii) The Executive Manager of Dealer ("Executive Manager") will,
subject to any other obligations set forth in this Agreement, devote 100% of
his time to the day to day business operations of Dealer, and the Dealer
Principal will devote his time to the business and day-today operations of
the entity for which he is responsible.
(iii) Executive Manager will devote 100% of his time to the
affairs of Dealer.
(b) Dealer. Seller and Dealer agree that the retention by Dealer of
qualified management is of critical importance to the successful operation of
Dealer and to the achievement of the purposes and objectives of this
Agreement. This Agreement has been entered into by Seller in reliance upon,
and in consideration of, among other things, the personal qualifications,
expertise, reputation, integrity, experience, ability and representations
with respect thereto of the persons named as Dealer Principal and Executive
Manager in the Final Article of this Agreement and in reliance on the
following representations and agreements of Lithia and Dealer, that:
(i) There must be an approved Executive Manager, acceptable to
Nissan, employed by Dealer. As long as the Executive Manager is employed by
Dealer, he will have full and complete control over the Dealership
Operations, subject only to the powers of the Board of Directors of Dealer to
manage the business and affairs of Dealer, and he will at all times be a
member of the Board of Directors of Dealer. In addition, any replacements
for Dealer Principal and Executive Manager will, so long as such replacements
are employed by Lithia and Dealer, have full and complete control over the
Dealership Operations, subject only to the powers of the Board of Directors
of Dealer to manage the business and airs of Dealer, and such replacements
will at all times be members of the Board of Directors of Dealer.
(ii) the Board of Directors of Dealer shall delegate the
management of the Dealership Operations to the Executive Manager, and Lithia
will not amend its Certificate of Incorporation or By-laws to provide that
its Board of Directors is entitled to exercise any extraordinary powers or
interfere unduly in the Dealership Operations.
(iii) Executive Manager, subject to any other obligations set
forth in this Agreement, shall continually provide his personal services in
operating the dealership and will be physically present at the Dealership
Facilities on a full-time basis.
(c) Changes in Management. In view of the fact that this is a
personal services Agreement with the Dealer Principal and Executive Manager
and in view of its objectives and purposes, Dealer and agree that any change
in the Dealer Principal or Executive Manager from that specified in the Final
Article of this Agreement requires the prior written consent of Seller. In
addition, Lithia and Dealer agree that no chief executive officer, or person
performing services and having responsibilities similar to a chief executive
officer, of Dealer will be appointed, directly or indirectly, without the
prior written consent of Seller. Dealer shall give Seller prior notice of
any proposed change in Dealer Principal or Executive Manager or the
appointment of any chief executive or similar officer of and immediate notice
of the death or incapacity of any Dealer Principal or Executive Manager. No
change in Dealer Principal or Executive Manager and no appointment of a chief
executive or similar officer of shall be effective unless and until embodied
in an appropriate amendment to this Agreement duly executed and delivered by
all of the parties hereto. Subject to the foregoing, Dealer and Dealer
Principal shall make their own, independent decisions concerning the hiring
and firing of its employees, including, without limitation, the Dealer
Principal and Executive Manager.
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Dealer shall give Seller prior written notice of any proposed change in
Dealer Principal or Executive Manager and immediate notice of the death or
incapacity of Dealer Principal or Executive Manager. No change in Dealer
Principal or Executive Manager shall be effective unless and until embodied
in an appropriate amendment to this Agreement duly executed and delivered by
all of the parties hereto. Dealer acknowledges Seller's right (as set forth
herein and in the Standard Provisions) to require consent to any change in
the management of Dealer and agrees that a change without such consent from
Seller is void, of no force and effect, and grounds for termination. Lithia
and Dealer further agree that they will not challenge, contest, dispute, or
litigate, except in accordance with the dispute resolution procedures
contained in Article Fifteenth (c):
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to change the
management of Dealer without Seller's consent;or
(ii) any decision by Seller to withhold consent to a proposed
change in management of Dealer; or
(iii) any decision by Seller to withhold approval of a proposed
management candidate.
To enable Seller to evaluate and respond to Dealer concerning any
proposed change in Dealer Principal or Executive Manager or the appointment
of any chief executive or similar officer of Lithia, Dealer agrees to
provide, in the form requested by Seller and in a timely manner, all
applications and information customarily requested by Seller to evaluate the
proposed change. While Seller shall not unreasonably withhold its consent to
any such change, it is agreed that any successor Dealer Principal, Executive
Manager or chief executive or similar officer of must possess personal
qualifications, expertise, reputation, integrity, experience and ability
which are, in the opinion of Seller, satisfactory. Seller will determine
whether, in its opinion, the proposed change or appointment is likely to
result in a successful dealership operation with capable management that will
satisfactorily perform Dealer's obligations under this Agreement. Seller
shall have no obligation to transact business with any person who is not
named as a Dealer Principal or Executive Manager of Dealer hereunder prior to
having concluded its evaluation of such person.
Any successor Dealer Principal or Executive Manager and any chief
executive or similar officer of must meet the following minimum requirements
in order to be submitted to Seller for approval:
(i) At least three years of experience as a general manager of
an automobile dealer in a major metropolitan area or similar position
involving all aspects of the day-today operations of such an automobile
dealership (including, without limitation, new and used vehicle sales,
service, parts and administration); and
(ii) A demonstrated track record of success in his/her prior
automobile dealership activities as measured by the dealerships' performance
under his/her management. The dealership(s) shall have consistently
demonstrated at least the following:
1. An above average level of sales performance when
measured against regional or zone averages and as measured against sales
performance objectives established by the manufacturer; and
2. An above average level of customer satisfaction when
measured against regional or zone averages for the make; and
3. A history of cooperation and good relations
with manufacturer(s) and/or distributor(s).
(d) Evaluation of Management. Dealer and Seller understand and
acknowledge that the personal qualifications, expertise, reputation,
integrity, experience and ability of the Dealer Principal and Executive
Manager and their ability to effectively manage Dealer's day-today Dealership
Operations is critical to the success of Dealer in performing its obligations
under this Agreement. Seller may from time to time develop standards and/or
procedures for evaluating the performance of the Dealer Principal and
Executive Manager and of Dealer's personnel generally.
Seller may, from time to time, evaluate the performance of the Dealer
Principal and Executive Manager and will advise Dealer, the Dealer Principal
and the Executive Manager of the results of such evaluations and the way in
which any deficiencies affect Dealer's performance of its obligations under
this Agreement.
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(e) Compensation of Executive Manager. Executive Manager will have a
substantial portion of his compensation tied to Dealer's overall performance
with respect to objectives for sales, market penetration and customer service
which will be established at quarterly intervals.
ARTICLE FIFTH: Additional Provisions
The additional provisions set forth in the attached "Nissan Dealer
Sales and Service Agreement Standard Provisions," bearing form number
NDA-4S/9-88, as amended in Article Thirteenth of this Agreement, and
excepting only the provisions contained in Sections 4, 14 and 16, are hereby
incorporated in and made a part of this Agreement. The Notice of Primary
Market Area, Dealership Facilities Addendum, Product Addendum, Dealership
Identification Addendum, Holding Company Addendum, if applicable, and all
Guides and Standards referred to in this Agreement (including references
contained in the Standard Provisions referred to above) are hereby
incorporated in and made a part of this Agreement. Dealer further agrees to
be bound by and comply with: the Warranty Manual; Seller's Manuals or
Instructions heretofore or hereafter issued by Seller to Dealer; any
amendment, revision or supplement to any of the foregoing; and any other
manuals heretofore or hereafter issued by Seller to Dealer.
ARTICLE SIXTH: Termination of Prior Agreements
This Agreement cancels, supersedes and annuls all prior contracts,
agreements and understandings except as stated herein, all negotiations,
representations and understandings being merged herein. No waiver,
modification or change of any of the terms of this Agreement or change or
erasure of any printed part of this Agreement or addition to it (except
filling of blank spaces and lines) will be valid or binding on Seller unless
approved in writing by the President or an authorized Vice President of
Seller.
ARTICLE SEVENTH: Term
This Agreement shall have a term commencing on the effective date
hereof and, subject to its earlier termination in accordance with the
provisions of this Agreement, expiring on the expiration date indicated in
the Final Article of this Agreement. Subject to other applicable provisions
hereof, this Agreement shall automatically terminate at the end of such
stipulated term without any action by Dealer, Seller or any of the other
parties hereto.
ARTICLE EIGHTH: License of Dealer
If Dealer is required to secure or maintain a license for the conduct
of its business as contemplated by this Agreement in any state or
jurisdiction where any of its Dealership Operations are to be conducted or
any of its Dealership Facilities are located, this Agreement shall not be
valid until and unless Dealer shall have furnished Seller with written notice
specifying the date and number, if any, of such license or licenses issued to
Dealer, Dealer shall notify Seller immediately in writing if Dealer shall
fail to secure or maintain any and all such licenses or renewal thereof or,
if such license or licenses are suspended or revoked, specifying the
effective date of any such suspension or revocation.
ARTICLE NINTH: Additional Representations and Warranties
(a) All of the representations and covenants made to Seller by the
other parties to this Agreement have been made jointly and severally by each
of the parties hereto which has made any such representation or covenant.
(b) In addition to the representations set forth elsewhere in this
Agreement, Lithia and Dealer jointly and severally, represent to Seller that:
(i) All of the documents and correspondence provided to Seller
by Lithia and Dealer, or any of their agents in connection with the
solicitation of Seller's consent to this Agreement, are true and correct
copies of such documents.
(c) In addition to the covenants set forth elsewhere in this
Agreement, Lithia and Dealer, jointly and severally, agree with Seller that:
(i) Dealer will at all times be involved in the operation of
the Nissan dealership currently operated by it and Dealer will not conduct
any other type of business.
(ii) No distributions will be made to the stockholders or
partners of Dealer and if such distributions would cause Dealer to fail to
meet any of the Guides and Standards relating to the capitalization of
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Dealer. In particular, will not be permitted to voluntarily redeem any of
its preferred stock, if prior to and after giving effect to such redemption
Dealer fails to meet any of the Guides and Standards relating to
capitalization of Dealer.
(iii) Lithia and Dealer hereby, jointly and severally, indemnity
and hold harmless, Seller, its officers, directors, affiliates and agents,
and each person who controls Seller within the meaning of the Securities Act
of 1933, as amended (the "Act"), from and against any and all losses, claims,
damages or liabilities, to which they or any of them may become subject under
the Act, the Securities Exchange Act of 1934, as amended, or any other
federal or state securities law, rule or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise out
of the sale by Lithia or Dealer of any securities. The indemnification
provided for in this paragraph shall be exclusive of, and in addition to, any
indemnification pursuant to Section 10 of the Standard Provisions.
(iv) One of the conditions to the effectiveness of this
Agreement by Seller is the delivery of an opinion of counsel to all of the
parties hereto (other than Seller) to the effect that this Agreement has been
duly executed and delivered by each of the parties thereto (other than
Seller) and is the legal, valid and binding obligation of each of such
parties enforceable in accordance with its terms.
ARTICLE TENTH: Right of First Refusal, Exclusivity
A. Seller's Right of First Refusal
In addition to its rights under this Agreement, in the event that
Lithia or Dealer should desire to enter into a transaction, which if not
approved by Seller, would result in a breach of the covenants set forth in
Article Third, Sections (a)(i), (a)(ii), (a)(iii), (a)(iv) or (b) of this
Agreement or in the event that any of the covenants set forth in the fourth
full paragraph of Article Third, Section (b), Article Fourth, Section
(a)(vii) or Article Ninth, Section (c)(ii) of this Agreement are breached,
Seller shall have the additional right and option to purchase the dealership
assets or ownership interests pursuant to this Article Tenth.
(a) If Seller chooses to exercise its right of first refusal, it must
do so in its written refusal to consent to the proposed sale or transfer
pursuant to Section 15 of the Standard Provisions or, if Section 15 of the
Standard Provisions does not apply, within sixty (60) days of receipt of
notification that a event triggering Seller's right of first refusal
hereunder has occurred. Dealer agrees not to complete any proposed change or
sale prior to the expiration of the period for exercise of Seller's right of
first refusal and without Seller's prior written consent. Such exercise
shall be null and void if Dealer withdraws its proposal within thirty (30)
days following Dealer's receipt of Seller's notice exercising its rights of
first refusal.
(b) After being exercised, Seller's right to purchase may be assigned
to any party, and Seller hereby agrees to guarantee the full payment of the
purchase price by such assignee. Seller's rights under this Article Tenth
shall be binding on and enforceable against any assignee or successor in
interest of Dealer or purchaser of Dealer's assets. Seller shall have no
obligation to exercise its rights hereunder.
(c) If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Seller's right under this Article Tenth
shall be a right of first refusal, enabling Seller to assume the prospective
purchaser's purchase rights and obligations under such buy/sell agreement.
The purchase price and other terms of sale shall be those set forth in such
agreement and any related documents. Seller may request and Dealer agrees to
provide all other documents relating to Dealer and the proposed transfer,
including, but not limited to, those reflecting any other agreements or
understandings between the parties to the buy/sell agreement. If Dealer
refuses either to provide such documentation or to state in writing that no
such document exists, it shall be presumed that the agreement is not bona
fide.
(d) If Seller determines pursuant to paragraph (c) above that the
buy/sell agreement is not bona fide, Seller will so notify Dealer. Dealer
shall have ten (10) days from its receipt of such notice within which to
withdraw its proposal. Seller's exercise of its rights hereunder shall be
null and void if Dealer withdraws its proposal within such time period. If
the proposal is not withdrawn, Seller shall have the option, but no
obligation, under this Article Tenth to purchase the principal assets of
Dealer utilized in the Dealership Operations, including real estate and
leasehold interest or to purchase the ownership interests of Dealer, and to
terminate this Agreement and all rights granted Dealer hereunder. If the
Dealership Facilities are leased by Dealer from an affiliated company, the
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right to purchase the principal assets, or the ownership interests, of
Dealer, shall include the right to lease the Dealership Facilities. The
purchase price shall be at the then fair market value as determined by an
independent appraiser selected by Seller and reasonably acceptable to Dealer,
and the other terms of sale shall be those agreed by Seller, Dealer, and
Lithia.
(e) Dealer shall transfer the affected property free and clear of
liens, claims, mortgages, and encumbrances.
(f) In addition to any other rights Seller may have at law, in equity
or hereunder, any conveyance of the dealership in violation of this right of
first refusal shall be voidable by Seller.
(g) In the event that Seller elects not to exercise its right to
purchase the dealership assets or the ownership interests of the Dealer and
Lithia, Dealer and Lithia agree that it will offer to sell such assets or
interests to the Dealer's then current management team or to some other
entity or persons acceptable to Seller. If such individuals are not
interested in such a transaction and no other entity or individuals
acceptable to Seller can be found then this Agreement will be terminable at
Seller's option, by deliver of written notice to Dealer.
B. Right of First Re@ on Sale or Lease of Property to a Third Party.
(a) In addition to its rights under Articles Third and Fourth and
Section 15 of the Standard Provisions, Dealer agrees that should Dealer seek
to sell or lease all or substantially all of the Approved Site to a third
party for use as a Nissan New Motor Vehicle Dealership, Seller shall have the
additional right and option, but not the obligation, to purchase or lease the
Approved Site pursuant to this Article Thirteenth. A sale or lease for use
other than a Nissan New Motor Vehicle Dealership is void.
(b) If Seller chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within 60 days of Seller's
receipt of notice of the proposed sale or lease by Dealer. Dealer agrees not
to complete any proposed sale or lease prior to the expiration of the period
for exercise of Seller's right of first refusal and without Seller's prior
written consent, and agrees to allow Seller to perform an environmental study
of the property. Such exercise shall be null and void if Dealer withdraws
its sale or lease proposal within thirty (30) days following Dealer's receipt
of Seller's notice exercising its right of first refusal.
(c) After being exercised, Seller's right to purchase or lease may be
assigned to any party, and Seller hereby agrees to guarantee the full payment
of the purchase price or the rental payment by such assignee. Seller's
rights under this Article Thirteenth shall be binding on and enforceable
against any assignee or successor in interest of Dealer or purchaser of
Dealer's assets. Seller shall have no obligation to exercise its rights
hereunder, and Seller may rescind its offer if the property is determined to
be contaminated pursuant to an environmental study. Such contamination shall
be deemed a breach of this agreement by dealer.
(d) Should Seller actually purchase or lease the facility, Dealer
shall also furnish to Seller copies of any easements, licenses, environmental
studies or other documents affecting the property.
(e) Dealer shall transfer the affected property by deed conveying
marketable title free and clear of liens, claims, mortgages, encumbrances,
tenancies and occupancies, or, if applicable, by an assignment of any
existing lease. The Warranty Deed shall be in proper form for recording.
Dealer shall deliver complete possession of the property at the time of
delivery of the Deed or lease assignment. Dealer shall also furnish to
Seller copies of any easements, licenses, or other documents affecting the
property and shall assign any permits or licenses which are necessary for the
conduct of the Dealership Operations.
(f) In addition to any other rights Seller may have at law, in equity
or hereunder, any sale or lease of the Approved Site in violation of this
right of first refusal shall be voidable by Seller
C. Exclusivity Provisions.
In order for Dealer to maintain competitive Dealership Facilities to
effectively market Nissan Products, Dealer hereby agrees to abide by and
never challenge the following provisions (hereinafter "Exclusivity
Provisions"). These Exclusivity Provisions shall be effective on or before
the execution of the Agreement, and continue in effect thereafter so long as
Dealer (or its principals) are authorized Nissan dealers and these provisions
shall be binding on any successors-in-interest, assigns or purchasers of
Dealer:
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(a) The only line-make of new, unused motor vehicles which Dealer
shall display and sell at the Dealership Facilities shall be the Nissan line
and make of motor vehicles. Dealer shall not conduct any dealership
operations for any other make or line of new, unused vehicles from the
Dealership Facilities throughout the term of this Agreement.
(b) Dealer shall sell and maintain a full line of Genuine Nissan
Parts and Accessories at the Dealership Facilities and shall provide a full
range of automotive servicing for Nissan vehicles at the Dealership
Facilities pursuant to Section 5 of the Standard Provisions to the
Agreement. Nothing contained herein, however, shall preclude Dealer from
offering parts, accessories or servicing for vehicles of other lines or makes
so long as such products or services are incidental to Dealer's Nissan
Dealership Operations;
(c) Dealer shall not advertise or promote any make or line of new,
unused vehicles from the Dealership Facilities other than the Nissan line; and
(d) Dealer shall not install or maintain any sign at or near the
Dealership Facilities which would tend to lead the public into believing that
any line or make of vehicles other than the Nissan line is sold at the
Dealership Facilities.
ARTICLE ELEVENTH: Breach By Dealer
In the event (i) that any of the representations and warranties of
Dealer, Lithia, Dealer Principle or Executive Manager, contained in this
Agreement shall prove not to have been true and correct when made or (ii) of
any breach or violation of any of the covenants made by Dealer and Lithia,
Dealer Principal or Executive Manager, in Articles Third, Fourth and Ninth of
this Agreement or (iii) of the occurrence of any of the events warranting
termination of this Agreement as set forth in Section 12.A of the Standard
Provisions, Seller may terminate this Agreement, prior to the expiration date
hereof, by giving Dealer written notice thereof, such termination to be
effective upon the date specified in such notice, or such latter date as may
be required by any applicable statute with the effect set forth in Section 13
of the Standard Provisions.
ARTICLE TWELFTH: Execution of Agreement
This Agreement, and any Addendum or amendment or notice with respect
thereto, shall be valid and binding on Seller only when it bears the
signature of either the President or an authorized Vice President of Seller
and, when such signature is a facsimile, the manual countersignature of an
authorized employee of Seller at the Director level and a duplicate original
thereof is delivered personally or by mail to the Dealership Location. This
Agreement shall bind Dealer and the other parties hereto only when it is
signed by: a duly authorized officer or executive of Dealer or such party if
a corporation; one of the general partners of Dealer or such party if a
partnership; or Dealer or such party if an individual.
ARTICLE THIRTEENTH: Amendments to Standard Provisions
(a) Section 1.0 of the Standard Provisions is hereby amended to read
as follows:
"O. 'Principal Owners(s)' shall mean the persons named as Dealer
Principal in the Final Article of this Agreement upon whose personal
qualifications, expertise, integrity, experience, ability and
representations Seller has relied in entering into this Agreement."
(b) Section 6.I of the Standard Provisions is hereby amended to read
as follows:
"Seller shall have the right, at all reasonable times during
regular business hours, to inspect the Dealership Facilities and to
examine, audit and make and take copies of all records, accounts and
supporting data relating to the sale, sales reporting, service and
repair of Nissan Products by Dealer. Whenever possible, Seller shall
attempt to provide Dealer with advance notice of an audit or
examination of Dealers operations. Seller shall also have the right,
at all reasonable times during regular business hours and upon advance
notice, to examine, audit and make and take copies of all records,
accounts and supporting data of and Dealer relating to the business,
ownership or operations of Dealer."
(c) Section 12.A.(I) of the Standard Provisions is hereby amended to
read as follows:
"(1) Any actual or attempted sale, transfer, assignment or
delegation, whether by operation of law or otherwise, by Dealer or
Inc., of any interest in or right, privilege or obligation under this
Agreement, or of the principal assets necessary for the performance of
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Dealer's responsibilities under this Agreement, without, in either
case, the prior written consent of Seller having been obtained, which
consent shall not be unreasonably withheld;"
(d) Section 12.A.(3) of the Standard Provisions is hereby amended to
read as follows:
"(3) Removal, resignation, withdrawal or elimination from Dealer
for any reason of the Executive Manager, or removal, resignation,
withdrawal or elimination of Dealer Principal from operational control
of Dealer, or removal, resignation, withdrawal or elimination from
Dealer of Executive Manager; provided, however, in each case, Seller
shall give Dealer a reasonable period of time within which to replace
such person with a individual satisfactory to Dealer as the case may
be, and Seller in accordance with Article Fourth of this Agreement; or
the failure of Dealer to retain an Executive Manager who, in accordance
with Article Fourth of this Agreement, in Seller's reasonable opinion,
is competent, possesses the requisite qualifications for the position,
and who will act in a manner consistent with the continued interests of
both Seller and Dealer."
(e) Section 12.B.(2)(i) of the Standard Provisions is hereby amended to
read as follows:
"(i) any dispute, disagreement or controversy between or among
Dealer or Lithia and any third party or between the owners and
management personnel of Dealer relating to the management or ownership
of Dealer and Lithia develops or exists which, in the reasonable
judgment of Seller, tends to adversely affect the conduct of the
Dealership Operations or the interests of Dealer or Seller; or"
(f) Section 12.B.(2)(ii) of the Standard Provisions is hereby amended
to read as follows:
"(ii) any other act or activity of Dealer, and/or Lithia, or any
of their owners or management occurs, which substantially impairs the
reputation or financial standing of Dealer or any of its management
subsequent to the execution of this Agreement:"
(g) Exhibits A and B are hereby incorporated by reference.
ARTICLE FOURTEENTH: Branding / Business Name
The parties acknowledge and agree that Dealer shall do business as
Lithia Nissan of Bakersfield. Dealer agrees to include in its promotional,
marketing and advertising efforts the approved name of the Dealership or
another name approved by Nissan that includes the Nissan name. In all
television, radio, print and other advertising and marketing conducted by
dealer, Dealer shall refer to itself as "Lithia Nissan of Bakersfield" or
such other approved name. Dealer shall actively and effectively promote
primarily the "Nissan" name. Under no circumstances shall the name "Nissan"
be subordinated to or promoted less aggressively than any other name (e.g.,
"Lithia") by Dealer.
ARTICLE FIFTEENTH: Special Conditions
(a) Adequate Representation of Entire Line of Nissan Vehicles
Dealer shall actively and effectively promote the sale of Nissan's
entire line of vehicles and products to customers located throughout the
Primary Market Area. In evaluating Dealer's sales performance, in addition
to those factors established in the Standard Provisions, Nissan will evaluate
Dealer's performance by vehicle segment. Dealer is obligated to adequately
represent Nissan in each and every model line. Adequate representation is
the higher of national, regional, state or DMA average, adjusted for segment
popularity, as set forth in the Business plan.
(b) Nissan Products
The definition of "Nissan Products" in the Standard Provisions is
amended to mean Nissan Vehicles (defined as new Nissan Cars and new Nissan
Trucks, as well as "near-new" Nissan Vehicles of the current and three prior
model years), Genuine Parts and Accessories, Nissan Security+Plus and such
other products and services offered by Nissan to Dealer and designated by
Nissan as a Nissan Product. Dealer shall actively and effectively promote
the sale of Nissan Products. Effectiveness with respect to Nissan
Security+Plus sales is measured by the ratio of Security+Plus sales to new
vehicles sales, compared to the higher of national, regional, state or DMA
average as set forth in the Business plan.
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(c) Dispute Resolution Process
The parties acknowledge that, at the state and federal level, various
courts and agencies would, in the absence of this Article Fifteenth (c), be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to resolve
such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. SEC. 1 ET SEQ.), THE PARTIES TO THIS AGREEMENT
AGREE THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS SECTION, WHICH
INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING
ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING IN ANY WAY TO
THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN THE PARTIES, INCLUDING BUT NOT
LIMITED TO CLAIMS UNDER ANY STATE OR FEDERAL STATUTES (HEREINAFTER
"DISPUTES"). Section 16 of the Standard Provisions is deleted in its
entirety.
There are two steps in the Dispute Resolution Process: Mediation and
Binding Arbitration. All Disputes must first be submitted to Mediation,
unless that step is waived by written agreement of the parties. Mediation is
conducted by a panel consisting of an equal number of representatives of the
parties designated by Nissan and selected by Dealer. The Mediation Panel
will evaluate each position and recommend a solution. This recommended
solution is not binding.
If a dispute has not been resolved after Mediation, or if Dealer and
Nissan have agreed in writing to waive Mediation, the Dispute will be settled
by Binding Arbitration. SPECIFICALLY, THE PARTIES AGREE TO RESOLVE ALL SUCH
DISPUTES BY BINDING ARBITRATION CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL
ARBITRATION PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION, WITH THE
PREVAILING PARTY TO RECOVER ITS COSTS AND ATTORNEY'S FEES FROM THE OTHER
PARTY. ALL ARBITRATION AWARDS ARE BINDING AND NONAPPEALABLE, EXCEPT AS
OTHERWISE PROVIDED IN THE UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY
SUCH AWARD MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION.
(d) Business Plan
Dealer and Nissan shall execute a Business Plan in the form specified
in the Business Planning Process Workbook that describes how Dealer will
fulfill it sales, service, customer relations and other commitments
hereunder, including heightened performance standards that Dealer commits to
meet;
(e) Option to Purchase
If the Dealer Agreement is to expire or be terminated: i) Voluntarily
by Dealer; ii) By Nissan upon the occurrence of any of the events specified
in Section 12A. of the Standard Provisions to the Agreement (as modified
herein); or iii) As a result of the death or physical or mental incapacity of
Principal Owners, Nissan has the option to Purchase the principal assets of
Dealer utilized in the dealership business, including such real property as
Nissan may elect to purchase, and cancel the Agreement and all rights granted
Dealer thereunder. The purchase price of the dealership assets and real
property and other terms will be determined by agreement between the parties
or, if the parties are unable to reach agreement in a reasonable time, by
arbitration pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. Nissan must advise Dealer of its intent to exercise
this option within 30 days after one party notifies the other of its intent
to terminate the Agreement. Nissan may assign its right to exercise its
option to purchase under this paragraph to any third party.
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FINAL ARTICLE
The Dealer is LITHIA NB, INC. dba LITHIA NISSAN OF BAKERSFIELD a
corporation formed under the laws of the CALIFORNIA. Dealer is located in
Bakersfield, California.
The other parties to this Agreement are LITHIA MOTORS, INC. a
corporation incorporated under the laws of the state of Oregon, and Sidney B.
DeBoer.
The Dealer Principal is Sidney B. DeBoer
The Executive Manager is: See Article Fourth (a)(i) contained herein.
Expiration Date: October 2, 2002
Working Capital Guide Requirement: $ 1,050,000
Net Worth Guide Requirement: $ 1,840,000
Flooring Line: $ 4,943,200
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
triplicate effective as of the second day of October, 1997 at Carson,
California.
SELLER:
NISSAN DIVISION
NISSAN MOTOR DIVISION CORPORATION IN USA
By: /s/ Thomas H. Eastwood
Thomas H. Eastwood
Vice President
By: /s/ Brad Bradshaw
Brad Bradshaw
Regional Vice President
LITHIA MOTORS, INC.
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
President
LITHIA NB, INC. dba LITHIA NISSAN OF BAKERSFIELD
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
Dealer Principal
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NISSAN
HOLDING COMPANY ADDENDUM TO
NISSAN DEALER SALES AND SERVICE AGREEMENT
Pursuant to Article Third (b) of the Nissan Dealer Sales & Service
Agreement (the "Agreement") in effect between the authorized Nissan Dealer
named below and Nissan Motor Corporation in U.S.A. ("Seller"), Dealer
represents and agrees the following Principal Owner(s) of Dealer named in the
Final Article of the Agreement which is (are) a corporation, partnership, or
other entity and not a natural person, is (are) owned as follows:
Name of Owner: Lithia NB, Inc., a corporation, incorporated or formed under
the laws of the State of ___________.
PRINCIPAL OWNERS(S)/SETTLOR(S)
PERCENTAGE
NAME RESIDENCE INTEREST
Lithia Motors, Inc. 360 E. Jackson Street 100%
Medford, Oregon 97501
OTHER OWNER(S)/SETTLOR(S)
PERCENTAGE
NAME RESIDENCE INTEREST
TRUSTEE(S)
PERCENTAGE
NAME RESIDENCE INTEREST
OTHER RELEVANT INFORMATION:
This Holding Company Addendum cancels and supersedes any previous
Holding Company addendum between Dealer and Seller.
This Holding company Addendum is effective as of October 2, 1997.
DEALER:
Lithia NB of Bakersfield, Inc. dba Lithia Nissan of Bakersfield
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer, President
Bakersfield, California
Dealer Code: 3475
SELLER:
Nissan Division, Nissan Motor Corporation in U.S.A.
By: /s/ Vice President
Vice President, Nissan Division
By: /s/ Brad Bradshaw
Regional Vice President
(File this Addendum with Current Sales & Service Agreement)
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NISSAN
HOLDING COMPANY ADDENDUM TO
NISSAN DEALER SALES AND SERVICE AGREEMENT
Pursuant to Article Third (b) of the Nissan Dealer Sales & Service
Agreement (the "Agreement") in effect between the authorized Nissan Dealer
named below and Nissan Motor Corporation in U.S.A. ("Seller"), Dealer
represents and agrees the following Principal Owner(s) of Dealer named in the
Final Article of the Agreement which is (are) a corporation, partnership, or
other entity and not a natural person, is (are) owned as follows:
Name of Owner: Lithia Motors, Inc., a corporation, incorporated or formed
under the laws of the State of ___________.
PRINCIPAL OWNERS(S)/SETTLOR(S)
PERCENTAGE
NAME RESIDENCE INTEREST
Lithia Holding Company, L.L.C. 360 E. Jackson Street
53.5%
Medford, Oregon 97501
OTHER OWNER(S)/SETTLOR(S)
PERCENTAGE
NAME RESIDENCE INTEREST
Public Ownership 46.5%
TRUSTEE(S)
PERCENTAGE
NAME RESIDENCE INTEREST
OTHER RELEVANT INFORMATION:
This Holding Company Addendum cancels and supersedes any previous
Holding Company addendum between Dealer and Seller.
This Holding company Addendum is effective as of October 2, 1997.
DEALER:
Lithia NB of Bakersfield, Inc. dba Lithia Nissan of Bakersfield
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer, President
Bakersfield, California
Dealer Code: 3475
SELLER:
Nissan Division, Nissan Motor Corporation in U.S.A.
By: /s/ Vice President
Vice President, Nissan Division
By: /s/ Brad Bradshaw
Regional Vice President
(File this Addendum with Current Sales & Service Agreement)
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NISSAN
HOLDING COMPANY ADDENDUM TO
NISSAN DEALER SALES AND SERVICE AGREEMENT
Pursuant to Article Third (b) of the Nissan Dealer Sales & Service
Agreement (the "Agreement") in effect between the authorized Nissan Dealer
named below and Nissan Motor Corporation in U.S.A. ("Seller"), Dealer
represents and agrees the following Principal Owner(s) of Dealer named in the
Final Article of the Agreement which is (are) a corporation, partnership, or
other entity and not a natural person, is (are) owned as follows:
Name of Owner: Lithia Holding Company, L.L.C., a limited liability company
formed under the laws of the State of ___________.
PRINCIPAL OWNERS(S)/SETTLOR(S)
PERCENTAGE
NAME RESIDENCE INTEREST
Sidney B. DeBoer 234 Vista 58.125%
Ashland, OR 97520
OTHER OWNER(S)/SETTLOR(S)
PERCENTAGE
NAME RESIDENCE INTEREST
M.L. Dick Heimann 426 Roundelay Circle 34.875%
Medford, OR 97504
R. Bradford Gray 6764 Laurel Crest Drive 7.000%
Medford, OR 97504
TRUSTEE(S)
NAME RESIDENCE
OTHER RELEVANT INFORMATION:
This Holding Company Addendum cancels and supersedes any previous
Holding Company addendum between Dealer and Seller.
This Holding company Addendum is effective as of October 2, 1997.
DEALER:
Lithia NB of Bakersfield, Inc. dba Lithia Nissan of Bakersfield
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer, President
Bakersfield, California
Dealer Code: 3475
SELLER:
Nissan Division, Nissan Motor Corporation in U.S.A.
By: /s/ Vice President
Vice President, Nissan Division
By: /s/ Brad Bradshaw
Regional Vice President
(File this Addendum with Current Sales & Service Agreement)
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EX-10
Exhibit 10.15.2 Nissan Standard Provisions
EXHIBIT 10.15.2
NISSAN
DEALER SALES & SERVICE AGREEMENT
The following Standard Provisions have by reference been incorporated
in and made a part of the Nissan Dealer Sales & Service Agreement which they
accompany and which has been executed on behalf of Seller and Dealer.
1. Definitions
Seller and Dealer agree that the following terms, as used in this
Agreement, shall be defined exclusively as set forth below.
A. "Authorized Nissan Dealers" shall mean dealers located in the
Territory that are authorized by Seller to conduct Dealership Operations in
connection with the sale of Nissan Products, pursuant to a duly executed
Nissan Dealer Sales and Service Agreement.
B. "Nissan Cars" shall mean the new passenger cars specified in the
current Product Addendum.
C. "Nissan Trucks" shall mean the new trucks, cab and chassis,
utility vehicles, buses or vans specified in the current Product Addendum.
D. "Nissan Vehicles" shall mean Nissan Cars and Nissan Trucks.
E. "Genuine Nissan Parts and Accessories" shall mean such parts,
accessories and other products for Nissan Vehicles as are from time to time
offered for sale by Seller to Authorized Nissan Dealers for resale under this
Agreement.
F. "Nissan Products" shall mean Nissan Vehicles and Genuine Nissan
Parts and Accessories.
G. "Competitive Vehicles" shall mean those new vehicles which are
considered by Seller to be directly competitive with Nissan Vehicles.
H. "Industry Cars" shall mean all new cars of all manufacturers
which are sold and distributed within the United States, to the extent data
relating to registration thereof are reasonably available.
I. "Competitive Truck Segment" shall include all compact pickup
trucks, compact utility vehicles, and compact buses of all manufacturers
which are sold and distributed within the United States, to the extent data
relating to registration thereof are reasonably available.
J. "Dealership Location" shall mean the place or places of business
of Dealer established and described in accordance with Section 2 of this
Agreement.
K. "Dealership Facilities" shall mean the land areas at the
Dealership Location and the buildings and improvements erected thereon
provided by Dealer in accordance with Section 2 of this Agreement.
L. "Dealership Facilities Addendum" shall mean the addendum executed
by Seller and Dealer pursuant to Section 2 of this Agreement.
M. "Dealership Operations" shall mean all dealer functions
contemplated by this Agreement including, without limitation, sale and
servicing of Nissan Products, use and display of Nissan Marks and Nissan
Products, rental and leasing of Nissan Vehicles, sales of used vehicles, body
shop work, financing or insurance services and any other activities
undertaken by Dealer in connection with Nissan Products whether conducted
directly or indirectly by Dealer.
N. "Primary Market Area" shall mean the geographic area which is
designated from time to time as the area of Dealer's sales and service
responsibility for Nissan Products in a Notice of Primary Market Area issued
by Seller to Dealer. Seller reserves the right, in its reasonable
discretion, to issue new, superseding "Notices of Primary Market Area" to
Dealer from time to time. Such geographic area may at any time be applicable
to Dealer and to other Authorized Nissan Dealers.
O. "Principal Owner(s)" shall mean the person(s) named as Principal
Owner(s) in the Final Article of this Agreement upon whose personal
qualifications, expertise, reputation, integrity, experience, ability and
representations concerning the management and operation of Dealer, Seller has
relied in entering this Agreement.
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P. "Other Owner(s)" shall mean the person(s) named as Other Owner(s)
in the Final Article of this Agreement who will not be involved in the
operation or management of Dealer.
Q. "Executive Manager" shall mean the person named as Executive
Manager in the Final Article of this Agreement upon whose personal
qualifications, expertise, reputation, integrity, experience, ability and
representations that he or she shall devote his or her primary efforts to and
have full managerial authority and responsibility for the day-to-day
management and performance of Dealer, Seller has relied in entering into this
Agreement.
R. "Successor Addendum" shall mean the Successor Addendum, if any,
executed by Seller and Dealer pursuant to Section 14 of this Agreement.
S. "Guides" shall mean such reasonable standards as may be
established by Seller for Authorized Nissan Dealers from time to time under
its standard procedures with respect to such matters as dealership
facilities, tools, equipment, financing, capitalization, inventories,
operations and personnel. The execution of this Agreement or of any addenda
hereto (including, without limitation, any Dealership Facilities Addendum)
shall not, however, be construed as evidence of Dealer's fulfillment of or
compliance with said Guides or of Dealer's fulfillment of its
responsibilities under this Agreement.
T. "Warranty Manual" shall mean the publication or publications of
Seller, as the same may from time to time be amended, revised or
supplemented, which set forth Seller's policies and procedures concerning the
administration of Seller's warranties and related matters.
U. "Nissan Marks" shall mean those trademarks, service marks, names,
logos and designs that Seller may, from time to time, use or authorize for
use by Dealer in connection with Nissan Products or Dealership Operations
including, without limitation, the name "Nissan."
V. "Seller's Manuals and Instructions" shall mean those bulletins,
manuals or instructions issued by Seller to all Authorized Nissan Dealers
advising them of Seller's policies or procedures under this Agreement
including, without limitation, the Parts and Accessories Policy and
Procedures Manual and the Nissan Dealer Accounting System Manual.
W. "Territory" shall mean the geographic area in which Seller has
been authorized by Manufacturer to distribute Nissan Products.
X. "Product Addendum" shall mean the Product Addendum issued by
Seller to Dealer which specifies those Nissan Vehicles which shall be offered
for sale by Seller to Dealer for resale. Seller reserves the right, in its
sole discretion, to issue new, superseding Product Addenda to Dealer from
time to time.
Y. "Dealer Identification Addendum" shall mean the Dealer
Identification Addendum executed by Seller and Dealer pursuant to Section 6.C
of this Agreement.
2. Dealership Location and Dealership Facilities
A. Location and Facilities. Dealer shall provide, at the Dealership
Location approved by Seller in accordance with Section 2.B hereof, Dealership
Facilities that will enable Dealer to effectively perform its
responsibilities under this Agreement and which are reasonably equivalent to
those maintained by Dealer's principal competitors in the geographic area in
which Dealer's Primary Market Area is located. In addition, the Dealership
Facilities shall be satisfactory in space, appearance, layout, equipment,
signage and otherwise be substantially in accordance with the Guides therefor
established by Seller from time to time. Dealer shall conduct its Dealership
Operations only from the Dealership Location specified in the Dealership
Facilities Addendum. If the Dealership Location is comprised of more than
one place of business, Dealer shall use each such place of business only for
the purposes specified therefor in the current Dealership Facilities Addendum.
B. Dealership Facilities Addendum. Dealer and Seller will execute a
Dealership Facilities Addendum which will include a description of the
Dealership Location and the Dealership Facilities, the approved use for each
such place of business and facility, and the current Guides therefor.
C. Changes and Additions. Dealer shall not move, relocate, or
change the usage of the Dealership Location or any of the Dealership
Facilities, or substantially modify any of the Dealership Facilities, nor
shall Dealer or any person named in the Final Article of this Agreement
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directly or indirectly establish or operate any other locations or facilities
for the sale or servicing of Nissan Products or for the conduct of any other
of the Dealership Operations contemplated by this Agreement, without the
prior written consent of Seller. Any changes in the Dealership Location or
the Dealership Facilities that may be agreed to by Seller and Dealer shall be
reflected in a new, superseding Dealership Facilities Addendum executed by
Seller and Dealer.
D. Assistance Provided by Seller. To assist Dealer in planning,
establishing and maintaining the Dealership Facilities, Seller, at the
request of Dealer, will from time to time make its representatives available
to Dealer to provide standard building layout plans, facility planning
recommendations, and counsel and advice concerning location and facility
planning.
E. Evaluation of Dealership Facilities and Location. Seller will
periodically evaluate Dealer's performance of its responsibilities under this
Section 2. In making such evaluations, Seller will give consideration to:
the actual land and building space provided by Dealer for the performance of
its responsibilities under this Agreement; the current Guides established by
Seller for the Dealership Facilities; the appearance, condition and layout of
the Dealership Facilities; the location of the Dealership Facilities relative
to the sales opportunities and service requirements of the Primary Market
Area; equivalence with facilities maintained by Dealer's principal
competitors; and such other factors, if any, as may directly relate to
Dealer's performance of its responsibilities under this Section 2.
Evaluations prepared pursuant to this Section 2.E will be discussed with and
provided to Dealer, and Dealer shall have an opportunity to comment, in
writing, on such evaluations, and Seller will consider Dealer's comments.
Dealer shall promptly take such action as may be required to correct any
deficiencies in Dealer's performance of its responsibilities under this
Section 2.
3. Vehicle Sales Responsibilities of Dealer
A. General Obligations of Dealer. Dealer shall actively and
effectively promote through its own advertising and sales promotion
activities the sale at retail (and if Dealer elects, the leasing and rental)
of Nissan Vehicles to customers located within Dealer's Primary Market Area.
Dealer's Primary Market Area is a geographic area which Seller uses as a tool
to evaluate Dealer's performance of its sales obligations hereunder. Dealer
agrees: that it has no right or property interest in any such geographic area
which Seller may designate; that, subject to Section 4 of this Agreement,
Seller may add, relocate or replace dealers in Dealer's Primary Market Area;
and that Seller may, in its reasonable discretion, change Dealer's Primary
Market Area from time to time.
B. Sales of Nissan Cars and Nissan Trucks. Dealer's performance of
it sales responsibility for Nissan Cars and Nissan Trucks will be evaluated
by Seller on the basis of such reasonable criteria as Seller may develop from
time to time, including for example:
1. Achievement of reasonable sales objectives which may be
established from time to time by Seller for Dealer as standards for
performance;
2. Dealer's sales of Nissan Cars and Nissan Trucks in Dealer's
Primary Market Area and/or the metropolitan area in which Dealer is located,
as applicable, or Dealer's sales as a percentage of:
(i) registrations of Nissan Cars and Nissan Trucks;
(ii) registrations of Competitive Vehicles;
(iii) registrations of Industry Cars;
(iv) registrations of vehicles in the Competitive Truck
Segment;
3. A comparison of Dealer's sales and/or registrations to
sales and/or registrations of all other Authorized Nissan Dealers combined in
Seller's Sales Region and District in which Dealer is located and, where
Section 3.C applies, for all other Authorized Nissan Dealers combined in the
metropolitan area in which Dealer is located; and
4. A comparison of sales and/or registrations achieved by
Dealer to the sales or registrations of Dealer's competitors.
The sales and registration data referred to in this Section 3 shall be
those utilized in Seller's records or in reports furnished to Seller by
independent sources selected by it and generally available for such purpose
in the automotive industry. If such reports of registration and/or sales are
not generally available, Seller may rely on such other registration and/or
sales data as can be reasonably obtained by Seller.
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C. Metropolitan Markets. If Dealer is located in a metropolitan or
other marketing area where there are located one or more Authorized Nissan
Dealers other than Dealer, the combined sales performance of all Nissan
Dealers in such metropolitan or other marketing area may be evaluated as
indicated in Sections 3.B.2 and 3.B.3 above, and Dealer's sales performance
may also be evaluated on the basis of the proportion of sales and potential
sales of Nissan Vehicles in the metropolitan or other marketing area in which
Dealer is located for which Dealer fairly may be held responsible.
D. Additional Factors for Consideration. Where appropriate in
evaluating Dealer's sales performance, Seller will take into account such
reasonable criteria as Seller may determine from time to time, including, for
example, the following: the Dealership Location; the general shopping habits
of the public in such market area; the availability of Nissan Vehicles to
Dealer and to other Authorized Nissan Dealers; any special local marketing
conditions that would affect Dealer's sales performance differently from the
sale performance of other Authorized Nissan Dealers; the recent and long term
trends in Dealer's sales performance; the manner in which Dealer has
conducted its sales operations (including advertising, sales promotion, and
treatment of customers); and the other factors, if any, directly affecting
Dealer's sales opportunities and performance.
E. Used Motor Vehicle Sales. Dealer shall engage in used motor
vehicle operations as and to the extent reasonably required for Dealer to
effectively perform its responsibilities for the sale of Nissan Vehicles.
Subject to requirements and guidelines established by Seller, Dealer shall be
entitled to identify such used motor vehicle operations as a part of its
Dealership Operations and to apply the Nissan Marks relating to used motor
vehicle operations.
F. Dealer Sales Personnel. Dealer shall organize and maintain a
sales organization that includes a sufficient number of qualified and trained
sales managers and sales people to enable Dealer to effectively fulfill its
responsibilities under this Section 3. Seller may, from time to time,
comment on or advise Dealer concerning the qualifications, performance and
ability of Dealer's sales personnel as the same affect Dealer's performance
of its obligations under this Section 3.
G. Assistance Provided by Seller.
1. Sales Training Courses. Seller will offer from time to
time sales training courses for Dealer sales personnel. Based on its need
therefor, Dealer shall, without expense to Seller, have members of Dealer's
sales organization attend such training courses and Dealer shall cooperate in
such courses as may from time to time be offered by Seller.
2. Sales Personnel. To further assist Dealer, Seller will
provide to Dealer advice and counsel on matters relating to new vehicle
sales, sales personnel training and management, merchandising, and facilities
used for Dealer's vehicle sales operations.
H. Evaluation of Dealer's Sales Performance. Seller will
periodically evaluate Dealer's performance of its responsibilities under this
Section 3. Evaluations prepared pursuant to this Section 3.H will be
discussed with and provided to Dealer, and Dealer shall have an opportunity
to comment, in writing, on such evaluations. Dealer shall promptly take such
action as may be required to correct any deficiencies in Dealer's performance
of its responsibilities under this Section 3.
4. Determination of Dealer Representation
A. Development of Market Studies. Seller may, from time to time and
in its sole discretion, conduct studies of various geographic areas to
evaluate market conditions. Such market studies may, where appropriate, take
into account such factors as geographical characteristics, consumer shopping
patterns, existence of other automobile retail outlets, sales opportunities
and service requirements of the geographic area in which Dealer's Primary
Market Area is located, trends in marketing conditions, current and
prospective trends in population, income, occupation, and such other
demographic characteristics as may be determined by Seller to be relevant to
its study. Such studies will make recommendations concerning the market, the
Dealership Facilities, and the Dealership Location. Prior to conducting a
study which includes the geographic are in which Dealer's Primary Market Area
is located, Seller will notify Dealer of its intention to conduct such a
study. Dealer will be given the opportunity to present to Seller such
information pertaining to such study as Dealer believes may be relevant.
Seller will consider all relevant information timely provided by Dealer
before concluding its study.
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B. Appointment of New Authorized Nissan Dealers to Fill Open
Points.
1. If any study conducted pursuant to Section 4.A recommends
that an open point be established at a location that is within ten (10) miles
driving distance, by the shortest publicly traveled route, of Dealer's main
Dealership Location, Seller will so notify Dealer. Dealer will have thirty
(30) days from Dealer's receipt of notice of the recommendations of the study
in which to object to them. Upon Dealer's request, Seller will review the
results of the study with Dealer (excluding information considered by Seller
to be confidential). Seller will consider all objections to the recommended
open point timely made by Dealer. Prior to entering into a Nissan Dealer
Sales and Service Agreement with a New Authorized Nissan Dealer filling such
an open point, Seller will give Dealer written notice of its intent to fill
the open point (hereinafter the "Notice of Appointment"). If Dealer timely
files a Notice of Appeal (as defined in Section 16.B hereof) with the Policy
Review Board (as defined in Section 16.A hereof) in accordance with the
procedures established in Section 16.B therefor, Seller will not enter into a
Nissan Dealer Sales and Service Agreement appointing such New Authorized
Nissan Dealer until the Policy Review Board has rendered its decision on the
matter.
2. Nissan reserves the right to sell Nissan Products to others
to appoint Authorized Nissan Dealers within and outside the ten (10) miles
driving distance described above. However, Seller agrees that it will not
enter into a Nissan Dealer Sales and Service Agreement appointing a New
Authorized Nissan Dealer filling an open point which is located within the
ten (10) miles driving distance described above unless the study made
pursuant to Section 4.A demonstrates in Seller's good faith opinion that the
declaration of an open point is warranted by market or economic conditions.
3. Nothing in this Agreement shall be construed to require
Dealer's consent to the appointment of a New Authorized Nissan Dealer at a
location that is within the ten (10) miles driving distance described above.
Nothing in this Agreement shall be construed to grant Dealer any rights in
connection with the appointment of an Authorized Nissan Dealer at a location
that is not within the ten (10) miles driving distance described above. In
addition, this Section 4.B does not apply to, nor shall it be construed to
grant Dealer any rights in connection with any of the events or transactions
excluded from the definition of "New Authorized Nissan Dealer" in Section
4.B.4(a), (b) or (c) below.
4. "New Authorized Nissan Dealer" shall mean an Authorized
Nissan Dealer that has not previously executed a Nissan Dealer Sales and
Service Agreement or done business as an Authorized Nissan Dealer; provided,
however, that "New Authorized Nissan Dealer" shall not include an Authorized
Nissan Dealer who: (a) is a Successor Dealer appointed pursuant to Section
14, (b) is a purchaser or transferee of the assets of or ownership interests
in an Authorized Nissan Dealer that is appointed as an Authorized Nissan
Dealer pursuant to Section 15, or (c) who is approved as a Nissan Dealer
following or resulting from:
(i) a change in name or form of an Authorized Nissan
Dealer;
(ii) any other sale, exchange or other transfer of any
ownership interests in or any assets of any other Authorized Nissan Dealer,
by operation of law or otherwise and whether voluntary and involuntary;
(iii) an assignment, sale or other transfer of any interest
in a Nissan Dealer Sales and Service Agreement, by operation of law or
otherwise and whether voluntary or involuntary;
(iv) the relocation of an existing Authorized Nissan
Dealer; or
(v) the replacement of a former Authorized Nissan Dealer
where the appointment of such replacement Dealer takes place within two (2)
years of the date on which the former Dealer ceased doing business and where
such replacement Dealer's main Dealership Location is located within a five
(5) mile driving distance by the shortest publicly traveled route of the
former Dealer's main Dealership Location;
regardless of whether any of the foregoing actions, individually or
collectively, result in the appointment of an Authorized Nissan Dealer at a
location that is within or without the ten (10) miles driving distance
described above.
5. Responsibilities of Dealer with Respect to Service and Parts
A. General Service Obligations of Dealer. Dealer understands and
acknowledges that future sales of Nissan Products depend, in part, upon the
satisfaction of Dealer's customers with its servicing of such Products.
Dealer further recognizes that Seller has entered into this Agreement in
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reliance upon Dealer's representations concerning its ability and commitment
to fair dealing and professional servicing. Accordingly, Dealer shall
develop and maintain a quality service organization and shall render at the
Dealership Facilities prompt, efficient and courteous service to owners and
users of Nissan Products, regardless of the origin of purchase, including,
without limitation, the specific obligations described in Section 5.B. In
this regard, Dealer shall take all reasonable steps to insure that: the
service needs of its customer's Nissan Vehicles are accurately diagnosed;
Dealer's customers are advised of such needs and that each customer's consent
is obtained prior to initiation of any repairs; necessary repairs and
maintenance are professionally performed; and Dealer's customers are treated
courteously and fairly.
B. Specific Service Obligations of Dealer.
1. Pre-Delivery Inspections and Service. Dealer shall perform
or be responsible for the performance of pre-delivery inspections and service
on each Nissan Vehicle prior to sale and delivery thereof by Dealer, in
accordance with the standards and procedures relating thereto set forth in
the applicable pre-delivery inspection schedules furnished by Seller to
Dealer from time to time. The completion of such inspection and service
shall be verified by Dealer on forms supplied or approved by Seller for this
purpose. Dealer shall retain the original or a legible copy of each such
form in its records and shall furnish a copy to the purchaser.
2. Warranty Repairs and Goodwill Adjustments. Dealer shall
promptly, courteously and efficiently perform: (i) warranty repairs on each
Nissan Product which qualifies for such repairs under the provisions of any
warranty furnished therewith by Seller, Manufacturer or the manufacturer of
the Product; and (ii) such other inspections, repairs or corrections on
Nissan Products as may be approved or authorized by Seller to be made at
Seller's expense (hereinafter referred to as "goodwill adjustments"). Dealer
shall perform such repairs and service on each such Nissan Product as and
when required and requested by the owner or user (or in the case of goodwill
adjustments when requested by Seller), without regard to its origin of
purchase and in accordance with the provisions relating thereto set forth in
the Warranty Manual or in Seller's Manuals or Instructions issued to Dealer
from time to time. In performing such repairs and service on Nissan Products
for which Seller has agreed to reimburse Dealer, Dealer shall use Genuine
Nissan Parts and Accessories unless Dealer receives prior authorization from
Seller to use non-genuine parts or accessories. Dealer will provide to each
owner or user of a Nissan Product upon which any such repairs or service are
performed a copy of the repair order reflecting all services performed.
3. Campaign Inspection and Corrections. Dealer shall
promptly, courteously and efficiently perform such campaign inspections
and/or corrections for owners and users of Nissan Products, regardless of
their origin of purchase, as are (i) described in owner notifications and
recall campaigns conducted by Seller in furtherance of any federal or state
law, regulation, rule, or order; or (ii) requested by Seller on Nissan
Products that qualify for such inspections and/or corrections. Once Dealer
has been notified that a recall or service campaign affects a particular
class or type of Nissan Product, Dealer shall perform such campaign
inspections and/or corrections on all affected Nissan Products then in or
which thereafter come into Dealer's inventory or which are delivered to
Dealer for repair or service. Dealer shall inquire, through the Nissan
Datanet system or otherwise, with respect to each such Nissan Product to
determine whether all applicable campaign inspections and/or corrections have
been performed on such Nissan Product and, if they have not been performed,
Dealer shall perform them.
Dealer shall advise Seller as and when such campaign inspections
and/or corrections are performed, in accordance with Seller's Manuals or
Instructions relating thereto and in accordance with the provisions relating
thereto set forth in the Warranty Manual. To enable Dealer to perform
required corrections as promptly as practicable, parts and/or other materials
required for each such campaign may be shipped in quantity and billed to
Dealer. Dealer shall accept and retain such parts and/or other materials for
use in such campaign. Upon completion of the campaign program, Dealer shall
have the right to return excess parts shipped by Seller to Dealer for such
campaign, but only to the extent that Dealer has not ordered and received
additional parts from Seller, such a return of parts shall be apart from any
other parts return policies or programs which may be instituted by Seller.
In performing such campaign corrections for which Seller has agreed to
reimburse Dealer for parts and materials used in making such corrections,
Dealer shall use Genuine Nissan Parts and Accessories unless Dealer receives
prior authorization from Seller to use non-genuine parts and accessories.
4. Maintenance and Repair Service. Dealer shall promptly,
courteously and efficiently maintain and repair Nissan Products as and when
required and requested by the owner or user thereof, without regard to their
origin of purchase. Dealer shall provide all owners and users for whom
Dealer provides maintenance and repair service itemized invoices reflecting
all the services performed. In connection with its sale or offering for sale
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of any maintenance services recommended by Seller for the maintenance of a
Nissan Product, Dealer shall advise each customer requesting such recommended
maintenance service of: (i) a description of the items included in
maintenance recommended by Seller and Dealer's price therefor; and (ii) the
price and description of such additional maintenance or repair being sold or
recommended by Dealer which are in addition to that recommended by Seller in
published owner's manual.
5. Payments by Seller to Dealer. For pre-delivery inspections
and service, warranty repairs, goodwill adjustments, and campaign inspections
and corrections performed by Dealer in accordance with this Section 5.B,
Seller shall fairly and adequately reimburse Dealer for the parts and/or
other materials (or shall provide Dealer with the parts and/or other
materials) and the labor required and used in connection therewith in
accordance with the provisions relating thereto set forth in the Warranty
Manual. Dealer understands and acknowledges that such repairs are provided
for the benefit of owners and users of Nissan Products, and Dealer shall not
impose any charge on such owners or users for parts, materials, or labor for
which Dealer has received or will receive compensation from Seller hereunder.
Dealer shall comply with the disposition instructions contained
in the Warranty Manual with respect to any genuine Nissan Parts or
Accessories acquired by Dealer as a result of its performance of warranty
repairs, goodwill adjustments and campaign adjustments and/or corrections.
C. Service Operations of Dealer.
1. Dealer Personnel. Dealer shall organize and maintain,
substantially in accordance with Seller's Guides, a complete service
organization that includes a competent, trained service manager and a
sufficient number of trained service and customer relations personnel to
enable Dealer to fulfill its responsibilities for service and customer
relations under this Section 5. Dealer shall designate at least one member
of its staff who shall be responsible for resolving consumer complaints on
behalf of Dealer. Dealer shall, without expense to Seller, have members of
Dealer's service organization attend training courses offered by Seller and
Dealer shall cooperate with and participate in such training courses as may
from time to time be offered by Seller. Dealer agrees that its personnel
will meet such educational, management and technical training standards as
Seller may establish or approve. Seller may, from time to time, comment on
or advise Dealer concerning the qualifications, performance and ability of
Dealer's service personnel as the same affect Dealer's performance of its
obligations under this Section 5.
2. Compliance with Laws. In performing the maintenance and
service obligations specified in Section 5.B, Dealer shall comply with all
applicable provisions of federal, state and local laws, ordinances, rules,
regulations and orders affecting Nissan Products including, but not limited
to, laws relating to safety, emissions control, noise control and customer
service. Seller shall provide to Dealer, and Dealer shall provide to Seller,
such information and assistance as may be reasonably requested by the other
in connection with the performance of obligations of the parties under such
laws, ordinances, rules, regulations and orders. If applicable law requires
the installation or supply of equipment not installed or supplied as standard
equipment by Seller or the manufacturer of a Nissan Vehicle, Dealer shall,
prior to its sale of the Nissan Vehicles on or for which such equipment is
required, install or supply such equipment at its own expense and in
conformance with such standards as may be adopted by Seller. Dealer shall
comply with all applicable laws pertaining to the installation or supply of
such equipment including, without limitation, the reporting thereof.
3. Tools and Equipment. Dealer shall provide for use in its
service operations such service equipment and special tools, comparable to
the type and quality recommended by Seller from time to time, as are
necessary to meet Dealer's service responsibilities hereunder and as are
substantially in accordance with Seller's Guides. In addition, Dealer shall
obtain and maintain for use in its service operations all tools which are
essential to the proper service, repair and maintenance of Nissan Vehicles
and are identified by Seller as essential tools. Seller shall ship such
essential tools to Dealer as required due to new model and component
introductions and Dealer shall pay Seller therefor as invoiced. If Dealer is
in possession of a tool equivalent to any essential tool shipped by Seller,
Dealer may so notify Seller and Seller will exempt Dealer from purchasing
such essential tool from Seller upon Seller's determination that Dealer's
tool will satisfy the need for the specific repair procedure or procedures
for which the essential tool is intended. Dealer shall maintain all such
equipment and tools in good repair and proper calibration so as to enable
Dealer to meet its service responsibilities under this Section 5.
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4. Owner Relations. In providing service on Nissan Products,
Dealer shall make every effort to build and maintain good relations between
Dealer and owners and users of Nissan Products. Dealer shall promptly
investigate and handle all matters brought to its attention by Seller, owners
or users of Nissan Products, or any public or private agency, relating to the
sale or servicing of Nissan Products, so as to develop and maintain owner and
user confidence in Dealer, Seller and Nissan Products.
Dealer shall promptly report to Seller the details of each
inquiry or complaint received by Dealer relating to any Nissan Product which
Dealer cannot handle promptly and satisfactorily. Dealer will take such
other steps with respect to such customer complaints as Seller may reasonably
require. Dealer will do nothing to affect adversely Seller's rights or
obligations under applicable laws, rules and/or regulations. Furthermore,
Dealer shall participate in and cooperate with such dispute resolution
procedures as Seller may designate from time to time and such other
procedures as may be required by law.
Seller will promptly investigate all matters brought to its
attention by Dealer, owners or users of Nissan Products, or any public or
private agency, relating to the design, manufacture or sale by Seller of
Nissan Products, and Seller will take such action as it may deem necessary or
appropriate so as to develop and maintain owner confidence in Seller, Dealer
and Nissan Products.
D. Parts Operations of Dealer
1. Parts Sales Responsibility of Dealer. Dealer shall
actively and effectively promote through its own advertising and sales
promotion activities the sale of Genuine Nissan Parts and Accessories to
service, wholesale, retail and other customers within Dealer's Primary Market
Area.
2. Dealer Personnel. Dealer shall organize and maintain,
substantially in accordance with Seller's recommendations with respect
thereto, a complete parts organization that includes a competent, trained
parts manager and a sufficient number of trained parts personnel to enable
Dealer to fulfill its responsibilities under this Section 5. Based on its
need therefor, Dealer shall, without expense to Seller, have members of
Dealer's parts organization attend training courses offered by Seller and
Dealer shall cooperate in such training courses as may from time to time be
offered by Seller. Seller may, from time to time, comment on or advise
Dealer concerning the qualifications, performance and ability of Dealer's
parts personnel as the same affect Dealer's performance of its obligations
under this Section 5.
3. Inventories of Parts and Accessories. Dealer shall
maintain at all times a stock of parts and accessories which is adequate to
meet its service and wholesale and retail parts sales responsibilities under
this Section 5. Dealer shall also maintain, subject o the ability of Seller
to supply the products ordered by Dealer, a stock of Genuine Nissan Parts and
Accessories of an assortment and in quantities adequate to meet customer
demand and for warranty repairs, goodwill adjustments and campaign
corrections made pursuant to this Section 5.
E. Assistance Provided by Seller
1. Service and Parts Manuals. Seller will make available to
Dealer, for use by Dealer's service and parts personnel, Seller's Manuals or
Instructions concerning Dealer's service and parts operations and other
sources of information and technical data as Seller deems necessary to permit
Dealer to perform its service and parts responsibilities under this Section
5. Dealer shall keep such information and data current and available for
consultation by Dealer's service and parts employees.
2. Service and Parts Field Personnel. To further assist
Dealer, Seller will provide to Dealer the advice and counsel of its service
and parts field personnel on matters relating to service, parts and
accessories, including technical diagnosis, service and parts management,
merchandising, personnel training, owner relations, and facilities used for
Dealer's service and parts operations.
F. Evaluation of Dealer's Service and Parts Performance. Dealer's
performance of its service and parts responsibilities will be evaluated by
Seller on the basis of such reasonable criteria as Seller may develop from
time to time, including for example:
1. Dealer's performance in building and maintaining consumer
confidence in Dealer and in Nissan Products as measured by surveys or indices
of consumer satisfaction as compared with performance levels achieved by
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other Authorized Nissan Dealers in Seller's Region or District in which
Dealer is located or such other means as may be deemed appropriate by Seller;
2. Reasonable parts purchase or sales performance objectives
which may be established from time to time by Seller for Dealer;
3. Dealer's advertising and promotion of its parts and service
operations;
4. Dealer's performance of it service responsibilities and
Dealer's conduct of its service operations including, without limitation, the
financial results of its service operations, labor sales, warranty claims
practices training of service personnel, qualification, performance and
ability of service personnel, and inventory of special and essential tools
and service equipment, as compared with Seller's Guides therefor where such
have been established and/or as compared with performance levels achieved by
other Authorized Nissan Dealers in Seller's Region or District in which
Dealer is located;
5. Dealer's performance of its parts sales responsibilities
and Dealer's conduct of its parts operations including, without limitation,
the financial results of its parts operations, training of parts personnel,
and inventory of parts, as compared with Seller's Guides therefor where such
have been established and/or as compared with performance levels achieved by
other Authorized Nissan Dealers in Seller's Region or District in which
Dealer is located; and
6. Evaluation reports resulting from any audit or review of
Dealer's service or parts operations by Seller's representatives.
Seller will periodically evaluate Dealer's performance of its
responsibilities under this Section 5. Evaluations prepared pursuant to this
Section 5 will be discussed with and provided to Dealer, and Dealer shall
have an opportunity to comment, in writing, on such evaluations. Dealer
shall promptly take such action as may be required to correct any
deficiencies in Dealer's performance of its responsibilities under this
Section 5.
6. Other Seller and Dealer Responsibilities
A. Advertising and Promotion
1. Advertising Standards. Both Seller and Dealer recognize
the need for maintaining the highest standards of ethical advertising which
is of a quality and dignity consonant with the reputation and standing of
Nissan Products. Accordingly, neither Seller nor Dealer shall publish or
cause to be published any advertising relating to Nissan Products that is not
in compliance with all applicable federal, state and local laws, ordinances,
rules, regulations and orders or that is likely to mislead, confuse or
deceive the public or impair the goodwill of Manufacturer, Seller or Dealer
or the reputation of Nissan Products or the Nissan Marks.
2. Display by Dealer. Dealer shall prominently state upon its
stationery and other printed matter that it is an Authorized Nissan Dealer.
3. Sales Promotion. Seller will establish and maintain
comprehensive advertising programs to promote the sale of Nissan Vehicles and
will from time to time offer advertising, sales promotion and sales campaign
materials to Dealer. In addition, to effectively promote the sale of Nissan
Products and the availability of service for Nissan Vehicles, Dealer shall
establish and maintain its own advertising and sales promotion programs
including, but not limited to, effective showroom displays, and Dealer will
have available in showroom ready condition at least one vehicle in each model
line of Nissan Vehicles for purposes of demonstration to potential customers.
B. Dealer Disclosures and Representations Concerning Nissan Products
and Other Products or Services. Dealer understands and acknowledges that it
is of vital importance to Seller that Nissan Products are sold and serviced
in a manner which promotes consumer satisfaction and which meet the high
quality standards associated with Seller, Manufacturer, the Nissan Marks and
Nissan Products in general. Accordingly, Dealer shall fully and accurately
disclose to its customers all material information concerning the products
and services sold by Dealer and the terms of purchase and sale including,
without limitation: the items making up the purchase price; the source of
products sold; and all warranties affecting products sold. Dealer shall not
make any misleading statements or misrepresentations concerning the products
sold by Dealer, the terms of sale, the warranties applicable to such
products, the source of the products, or the recommendations or approvals of
Seller or Manufacturer.
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Nothing in this Agreement shall limit or be construed to limit the
products or services which Dealer may sell to its customers. Seller
acknowledges that Dealer is free to sell whatever products or services Dealer
may choose in connection with its sale and servicing of Nissan Products,
subject to Dealer obligations under Section 5 and 6 of this Agreement.
C. Signs. Dealer shall, at its expense, display at its Dealership
Location, in such number and at such locations as Seller may reasonably
require, signs which are compatible with the design standards established by
Seller and published in Seller's Manuals or Instructions from time to time.
Dealer's use and operation of signs displayed by Dealer at the Dealership
Location and Dealer's display of any Nissan Mark shall be subject to Seller's
approval and shall be in accordance with the terms and conditions of Section
6.K and the Dealership Identification Addendum.
D. Hours of Operations. Dealer recognizes that the service and
maintenance needs of the owners of Nissan Products and Dealer's own
responsibilities to actively and effectively promote the sale of Nissan
Products can be met properly only if Dealer keeps its Dealership Facilities
open and conducts all of its Dealership Operations required by this Agreement
during hours which are reasonable and convenient for Dealer's customers.
Accordingly, Dealer shall maintain its Dealership Facilities open for
business and shall conduct all Dealership Operations required under this
Agreement during such days and hours as automobile dealers' sales and service
facilities are customarily and lawfully open in Dealer's Primary Market Area
or in the metropolitan area in which Dealer is located.
E. Capital and Financing. Dealer recognizes that its ability to
conduct its Dealership Operations successfully on a day-to-day basis and to
effectively perform its other obligations under this Agreement including,
without limitation, its obligations with respect to Dealership Facilities,
new vehicle sales, and service and parts sales, depends to a great extent
upon the adequate capitalization of Dealer, including its maintaining
sufficient net working capital and net worth and employing the same in its
Dealership Operations. Dealer shall at all times maintain and employ such
amount and allocation of net working capital and net worth as are
substantially in accordance with Seller's Guides therefor and which will
enable Dealer to fulfill all of its responsibilities under this Agreement.
Dealer shall at all times during the term of this Agreement have flooring
arrangements (wholesale financing) satisfactory to Seller, in an amount
substantially in accordance with Seller's Guide therefor, with a financial
institution acceptable to Seller, and which will enable Dealer to fulfill its
obligations under this Agreement.
F. Accounting System. It is in the mutual interest of Seller and
Dealer that all Authorized Nissan Dealers install and maintain uniform
accounting systems and practices, so that Seller can develop standards of
operating performance which will assist Dealer in obtaining satisfactory
results from its Dealership Operations and which will assist Seller in
formulating policies in the interests of Seller and all Authorized Nissan
Dealers. Accordingly, Dealer shall install and maintain an accounting
system, not exclusive of any other system, in accordance with Seller's Nissan
Dealer Accounting System Manual, as the same may from time to time be
amended, revised or supplemented.
G. Records and Reports
1. Financial Statements. Dealer shall furnish to Seller, on
or before the tenth (10th) day of each month, in a manner acceptable to
Seller, complete and accurate financial and operating statements which fairly
present, in accordance with generally accepted accounting principles,
Dealer's financial condition as of the end of the preceding month and the
results of Dealer's Dealership Operations for the preceding month and for
that portion of Dealer's fiscal year then ended. Dealer shall also furnish
for such periods reports of Dealer's sales and inventory of Nissan Products.
Dealer shall also promptly furnish to Seller a copy of any adjusted annual
financial or operating statement prepared by or for Dealer.
2. Sales Records and Reports. Dealer shall prepare and retain
for a minimum of two (2) years, complete and up-to-date records covering its
sales of Nissan Products. To assist Seller in evaluating, among other
things, current market trends, to provide information for use in the
adjustment of production and distribution schedules, to provide information
used by Seller in providing Nissan Vehicles to Dealer, and to provide Seller
with accurate records of the ownership of Nissan Vehicles for various
purposes including warranty records and ownership notification, Dealer shall
accurately submit to Seller such information with respect to Dealer's sales
of Nissan Products as Seller may reasonably require as and in the form or
manner specified by Seller, at or as soon as possible after the close of each
business day on which such Nissan Products are sold by Dealer. If Dealer
becomes aware that any information submitted by Dealer to Seller hereunder is
or has become inaccurate, Dealer will immediately take all steps necessary to
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advise Seller of and to correct such inaccuracy. Should Seller determine or
discover that any report submitted hereunder by Dealer is or has become
inaccurate, Seller may take any steps it deems necessary or appropriate to
correct such inaccuracy and to adjust its records, calculations or procedures
with respect to Dealer's reported sales to correct the effect of such
inaccuracy or to prevent additional inaccurate reports from being made.
3. Service Records. Dealer shall prepare and retain for a
minimum of two (2) years, in accordance with the procedures specified in the
Warranty Manual: records in support of applications for payment for
pre-delivery inspection and service, warranty repairs and goodwill
adjustments, and campaign inspections and corrections performed by Dealer;
claims for parts compensation; and applications for discounts, allowances,
refunds or credits.
4. Other Reports. Dealer shall furnish to Seller such other
records or reports concerning its Dealership Operations as Seller may
reasonably require from time to time.
H. Nissan Datanet System. Seller has developed the Nissan Datanet
system, which is an electronic data communication and processing system
designed to facilitate accurate and prompt reporting of dealership
operational and financial data, submission of parts orders and warranty
claims and processing of information with respect to the Dealership
Operations. Such data is used by Seller, among other things, to develop
composite operating statistics which are useful to Dealer and Seller in
assessing Dealer's progress in meeting its obligations under this Agreement,
to provide a basis for recommendations which Seller may make to Dealer from
time to time to assist Dealer in improving Dealership Operations, to assist
Seller in developing standards of operating performance which will assist
Dealer in obtaining satisfactory results from its Dealership Operations, to
assist Seller in formulating policies in the interest of Seller and all
Authorized Nissan Dealers, and to provide sales reporting information relied
upon by Seller in providing Nissan Vehicles to Dealer. Accordingly, Dealer
shall install and maintain electronic data processing facilities which are
compatible with the Nissan Datanet system.
I. Right of Inspection. Seller shall have the right, at all
reasonable times during regular business hours, to inspect the Dealership
facilities and to examine, audit and make and take copies of all records,
accounts and supporting data relating to the sale, sales reporting, service
and repair of Nissan Products by Dealer. When practicable, Seller shall
attempt to provide Dealer with advance notice on an indealership audit of
Dealer's records or accounts.
J. Confidentiality. Seller will not furnish to any third party
financial statements or other confidential data, excluding sales records or
reports, submitted by Dealer to Seller, except as an unidentified part of a
composite or coded report, unless disclosure is authorized by Dealer or is
required by law, or unless such information is pertinent to judicial or
governmental administrative proceedings or to proceedings conducted pursuant
to Section 16 of this Agreement.
K. Use of Nissan Marks. Seller grants Dealer the non-exclusive
right to identify itself as an Authorized Nissan Dealer and to display at the
Dealership Location and use, in connection with the sale and service of
Nissan Products, the Nissan Marks. The Nissan Marks may not be used as part
of Dealer's name or trade name without Seller's written consent. No entity
owned by or affiliated with Dealer or any of its owners may use any Nissan
Mark without Seller's prior written consent. Dealer shall not make any use
of any Nissan Mark which is inconsistent with Seller's policies concerning
trademark use. Dealer may not, either directly or indirectly, display any
Nissan Marks at any location of facility other than those identified in the
Dealership Facilities Addendum to this Agreement, without the prior written
consent of Seller. Except as authorized herein, Dealer shall not make use of
any Nissan Mark, and Dealer shall neither have nor claim any rights in
respect of any Nissan Mark. Dealer shall comply with any of Seller's Manuals
or Instructions regarding the use of Nissan Marks as may be issued to Dealer
from time to time. Dealer shall promptly change or discontinue its use of
any Nissan Marks upon Seller's request. Any authorization granted may be
withdrawn by Seller at any time and, in any event, shall cease immediately
upon the effective date of termination of this Agreement.
If Seller institutes litigation to effect or enforce compliance with
this Section 6.K, the prevailing party in such litigation shall be entitled
to reimbursement for its costs and expenses in such litigation, including
reasonable attorney's fees.
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7. Purchase and Delivery
A. Dealer Purchases
1. Nissan Vehicles. From time to time Seller will advise
Dealer of the number and model lines of Nissan Vehicles which Seller has
available for sale to Dealer and, subject to this Section 7, Dealer shall
have the right to purchase such Nissan Vehicles. Seller will distribute
Nissan Vehicles to Authorized Nissan Dealers in accordance with Seller's
written distribution policies and procedures as the same may be in effect
from time to time. Seller will provide to Dealer an explanation of the
method used by Seller to distribute Nissan Vehicles to Authorized Nissan
Dealers. Dealer recognized that there are numerous factors which affect the
availability of Nissan Vehicles to Seller and to Dealer including, without
limitation, production capacity, sales potential in Dealer's and other
Primary Market Areas, varying consumer demand, weather and transportation
conditions, and state and federal government requirements. Since such
factors may affect individual dealers differently, Seller reserves to itself
sole discretion to distribute Nissan Vehicles in a fair and consistent
manner, and its decisions in such matters shall be final.
2. Genuine Nissan parts and Accessories. Dealer shall submit
to Seller firm orders for Genuine Nissan Parts and Accessories in such
quantity and variety as are reasonably necessary to fulfill Dealer's
obligations under this Agreement. All orders shall be submitted by Dealer in
the manner specified by Seller and in accordance with Seller's Parts and
Accessories Policy and Procedures Manual, may be accepted in whole or in part
by Seller, and shall be effective only upon acceptance thereof by Seller at
its home office in California (but without necessity of any notice of
acceptance by Seller to Dealer). Such orders shall not be cancellable by
Dealer after acceptance and shipment by Seller, except in accordance with
Section 8 of this Agreement.
B. Delays in Delivery. Seller shall not be liable for failure or
delay in delivery to Dealer of Nissan Products which Seller has previously
agreed to deliver to Dealer where such failure or delay is due to cause or
causes beyond the control or without the fault or negligence of Seller.
C. Shipment of Nissan Products
1. Nissan Vehicles. Seller will ship Nissan Vehicles to
Dealer by whatever mode of transportation, by whatever route, and from
whatever point Seller may select. Dealer shall pay to Seller in connection
with Nissan Vehicles delivered to Dealer the applicable destination charges
that are established for Dealer by Seller and that are in effect at the time
of shipment. Dealer shall bear the risk of loss and damage to Nissan
Vehicles during transportation from the point of shipment; however, Seller
will, if requested by Dealer in such manner and within such time as Seller
shall from time to time specify, prosecute claims for loss of or damage to
Nissan Vehicles during said transportation against the responsible carrier
for and on behalf of Dealer.
2. Genuine Nissan Parts and Accessories. Seller will ship
Genuine Nissan Parts and Accessories to Dealer by whatever mode of
transportation, by whatever route, and from whatever point Seller may
select. Dealer shall bear the risk of loss and damage to Genuine Nissan
Parts and Accessories during transportation from the point of shipment.
D. Passage of Title. Title to each Nissan Product shall pass from
Seller to Dealer, or to the financial institution designated by Dealer, upon
delivery of said Product to Dealer or to a carrier for transportation to
Dealer, whichever occurs first.
E. Security Interest
1. Grant of Security Interest. As security for the full
payment of all sums from time to time owed by Dealer to Seller under this
Agreement, whether such sums are now, or hereafter become, due and owing,
Dealer hereby grants to Seller a security interest in the following
(collectively referred to as "Collateral"):
(i) All non-vehicle inventory of Dealer including,
without limitation, all Genuine Nissan Parts and Accessories delivered by
Seller to Dealer hereunder on account (all such inventory hereinafter
referred to collectively as "Inventory" and individually as "Item of
Inventory"); and
(ii) All proceeds from any of the foregoing including,
without limitation, insurance payable by reason of the loss, damage or
destruction of any Item of Inventory; and all accounts and chattel paper of
Dealer arising from sale, lease, or other disposition of Inventory now
existing or hereafter arising, and all liens, securities, guarantees,
remedies and privileges pertaining thereto, together with all rights and
liens of Dealer relating thereto.
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2. Default in Payment. Dealer shall be in default of this
Section 7 if: (i) Dealer shall fail to pay any amounts secured hereby when
due or fail to perform any obligations under this Section 7 in a timely
manner; (ii) there shall occur any material adverse change in the financial
condition of Dealer; (iii) Dealer shall dissolve or become insolvent or
bankrupt; or (iv) Seller shall have determined in good faith that the
prospect of such payment or performance is impaired; and in any such case
Seller may declare all sums secured by this Section 7.E immediately due and
payable and Seller shall have all rights and remedies afforded to a secured
party after default under the Uniform Commercial Code or other applicable law
in effect on the date of this Agreement.
3. Assembly of Collateral, Payment of Costs, Notices. Dealer
shall, if requested by Seller upon the occurrence of any default under the
foregoing Section 7.E.2 assemble the Collateral and make it available to
Seller at a place or places designated by Seller. Dealer also shall pay all
costs of Seller including, without limitation, attorneys' fees incurred with
respect to the enforcement of any of Seller's rights under this Section 7.
4. Recording, Further Assurances. Dealer shall execute and
deliver such financing statements and such other instruments or documents and
take any other action as Seller may request in order to create or maintain
the security interest intended to be created by this Section 7.E or to enable
Seller to exercise and enforce its rights hereunder. A carbon, photographic
or other reproduction of this Agreement shall be sufficient as a financing
statement and may be filed in lieu of a financing statement in any and all
jurisdictions which accept such reproductions.
5. Records and Schedules of Inventory. Dealer shall keep
accurate records itemizing and describing the kind, type and quantity of
Inventory and shall furnish to Seller within five (5) days of receipt of
Seller's request therefor, with a current schedule of inventory in form and
substance satisfactory to Seller ("Schedule of Inventory"), which shall be
true and accurate in all respects. A physical inventory shall be conducted
no less than annually in connection with preparation of year-end financial
statements of Dealer and, at Seller's request, a report of such inventory
shall be promptly provided to Seller.
F. Charges for Storage and Diversions. Dealer shall be responsible
for and shall pay all charges for demurrage, storage and other expense
accruing after shipment to Dealer or to a carrier for transportation to
Dealer. If diversions of shipments are made upon Dealer's request or are
made by Seller as a result of Dealer's failure or refusal to accept shipments
made pursuant to Dealer's orders, Dealer agrees to pay all additional charges
and expenses incident to such diversion.
G. Changes in Nissan Products. Seller shall have the right in its
sole discretion to discontinue the supply, or make changes in the design or
component materials, of any Nissan Product at any time. Seller shall be
under no liability to Dealer on account of any such changes and shall not be
required as a result of any such changes to make any changes to Nissan
Products previously purchased by Dealer. No change shall be considered a
model year change unless so specified by Seller.
8. Pricing
A. Nissan Vehicles. At any time prior to shipment (or delivery to a
carrier for transportation to Dealer) of any Nissan Vehicle, Seller may,
without prior notice and without incurring any liability to Dealer or anyone
else, including any customer of Dealer, change at any time and from time to
time the price, discount, allowance or other terms of sale of any Nissan
Vehicle offered for sale by Seller. Except with respect to the establishment
of initial prices for a new model year vehicle or for any new model or body
type, Seller will notify Dealer by mailgram or other acceptable means of any
such change in price as soon as reasonably practicable, and Dealer may, by
notice to Seller within ten (10) days after such notification, cancel any
offer to purchase Nissan Vehicles affected by such change, provided that
Seller has not notified Dealer of its acceptance of Dealer's offer on or
prior to the date such notification by Dealer is received by Seller.
B. Genuine Nissan Parts and Accessories. Seller may, without prior
notice and without incurring any liability to Dealer or anyone else,
including any customer of Dealer, change at any time and from time to time
the price, discount, allowance or other terms of sale of any Genuine Nissan
Part or Accessory offered for sale by Seller, and any such change in price,
discount, allowance or other terms of sale shall apply to all such Genuine
Nissan Parts and Accessories whether or not an order has been submitted by
Dealer, but not by Genuine Nissan Parts and Accessories for which Seller has
accepted and processed Dealer's order prior to the effective date of such
change. Seller will notify Dealer of any such change in price as soon as is
reasonably practicable. Dealer may, by notice to Seller, cancel any order
for Genuine Nissan Parts and Accessories affected by such change which was
placed before such notification was given, provided that such Genuine Nissan
Parts and Accessories have not been shipped to Dealer or delivered to a
carrier for transportation to Dealer on or prior to the date such
notification by Dealer is received by Seller.
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9. Payment
A. Payment for Vehicles. Payment by Dealer for Nissan Vehicles must
be made in accordance with the applicable prices, charges, discounts,
allowances and other terms of sale established by Seller either: (i) in
accordance with the wholesale financing arrangements that at the time of
delivery to Dealer or to a carrier for transportation to Dealer of such
Nissan Vehicles, whichever shall first occur, are in effect between Seller,
Dealer and a financing institution; or (ii) prior to delivery to Dealer or to
a carrier for transportation to Dealer, whichever shall first occur, by cash
or such other medium of payment as Seller may agree to accept.
B. Payment for Parts and Accessories. Parts, equipment, accessories
and other products and services will normally be billed by Seller to Dealer
on Seller's invoices which shall be due the tenth (10th) of the month
following the month of shipment of such products and services; provided,
however, Seller reserves the right to place any and all sales of such items
on a C.O.D. or cash in advance basis, without notice; provided further,
however, that Seller will endeavor to provide Dealer with prior notice if in
Seller's sole judgement such notice would be practicable.
C. Accounts Payable.
1. Right of Set Off. In addition to any right of set off
provided by law, all sums due Dealer shall be considered net of indebtedness
of Dealer to Seller, and Seller may deduct any amounts due or to become due
from Dealer to Seller or any amounts held by Seller from any sums or accounts
due from Seller to Dealer.
2. Liquidated Damages.
(i) Liquidated Damages for Delinquent Payments. In the
event that Dealer fails to pay Seller in full any amounts owed by Dealer or
Seller when due, Dealer shall pay Seller a delinquency charge of one percent
(1%) per month of such amount or amounts to compensate Seller for its costs
of carrying and collection; provided, however, that Seller agrees that it
will not assess any delinquency charge on an overdue account which has a
total outstanding balance of less than $1,000.00, unless such account is more
than ninety (90) days overdue. Dealer and Seller agree that such charge is
to be assessed not as a penalty, but as liquidated damages under California
Civil Code s. 1671(b) based on Seller's reasonable estimate of the losses
which will be suffered by Seller as a result of such delinquent payment or
payments. The imposition of such delinquency charges shall not imply or
constitute any agreement to forbear collection of a delinquent account.
(ii) Liquidated Damages for Improper Payments to Dealer.
Seller may, from time to time, conduct audits or reviews of Dealer's books
and records pursuant to Section 6.I of this Agreement. If any such audit or
review results in a determination by Seller that Dealer was or is not
entitled to received payment from Seller, Seller may debit Dealer's account
in such amounts as Seller shall determine were improperly paid to Dealer.
Such a determination may be based on Dealer's failure to comply with
applicable rules or procedures or on Dealer's submission of false or
inaccurate information to Seller. In addition, Seller may assess and, if it
does, Dealer will pay a delinquency charge of one percent (1%) per month of
such amount or amounts improperly paid by Seller to Dealer to compensate
Seller for its costs of auditing, loss of funds and collection. Dealer and
Seller agree that such charge is to be assessed not as a penalty, but as
liquidated damages under California Civil Code s. 1671(b) based on Seller's
reasonable estimate of the losses which will be suffered by Seller as a
result of such improper payment or payments. The imposition of such
delinquency charges shall not imply or constitute any agreement to forbear
collection of a delinquent account.
D. Collection of Taxes by Dealer. Dealer hereby represents and
warrants that all Nissan Products purchased from Seller are purchased for
resale in the ordinary course of Dealer's business. Dealer further
represents and warrants that Dealer has obtained all licenses and complied
with all other requirements to collect sales, use and or other taxes incurred
in any such resale transaction, and that Dealer will furnish evidence thereof
to Seller, at Seller's request. If Dealer purchases any Nissan Products
other than for resale, or puts any Nissan Products to a taxable use, Dealer
shall pay directly to the appropriate taxing authority any sales, use or
similar taxes incurred as a result of such use or purchase, to file any tax
returns required in connection therewith and to hold Seller harmless from any
claims or demands with respect thereto.
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10. Warranties
The only warranties that shall be applicable to Nissan Products (or any
components thereof) shall be such written warranty or warranties as may be
furnished by Seller and as stated in the Warranty Manual or Seller's Parts
and Accessories Policy and Procedures Manual, as the same may be revised from
time to time. Except for its express limited liability under such written
warranties, neither Manufacturer nor Seller assumes, or authorizes any other
person or party including, without limitation, Dealer, to assume on their
behalf any other obligation or liability in connection with any Nissan
Product (or component thereof). Any obligations or liabilities assumed by
Dealer which are in addition to Seller's written warranties shall be solely
the responsibility of Dealer. Dealer shall expressly incorporate in full and
without modification any warranty furnished by Seller with a Nissan Vehicle
as a conspicuous part of each order form or other contract for the sale of
such Nissan Vehicle by Dealer to any buyer. Dealer shall make available to
the buyer of each Nissan Product prior to the purchase of such Nissan
Product, copies of such applicable warranties as may be furnished by Seller.
Dealer shall also provide to the buyer of each Nissan Product, in full and
without modification, any owner's manual, warranty booklet or other owner
information which Seller may provide to Dealer for delivery with such Nissan
Product. Dealer agrees to abide by and implement in all other respects
Seller's warranty procedures then in effect.
11. Indemnification
A. Indemnification of Dealer. Subject to Section 11.C, and upon
Dealer's written request, Seller shall:
1. Defend Dealer against any and all claims that during the
term of this Agreement may arise, commence or be asserted against Dealer in
any action concerning or alleging:
(a) Bodily injury or property damage arising out of an
occurrence caused solely by a manufacturing defect or alleged manufacturing
defect in a Nissan Product supplied by Seller, except for any manufacturing
defect in tires, provided that the defect could not have reasonably been
discovered by Dealer during the pre-delivery inspection of the product
required by Section 5.B.1 of this Agreement;
(b) Bodily injury or property damage arising out of an
occurrence caused solely by a defect or alleged defect in the design of a
Nissan Product supplied by Seller, except for a defect or alleged defect in
the design of tires; and
(c) Any substantial damage occurring to a new Nissan
Product and repaired by Seller from the time the product left the
manufacturer's assembly plant to the time it was delivered to Dealer's
designated location or to a carrier for transportation to Dealer, whichever
occurred first, provided Seller failed to notify Dealer of such damage and
repair prior to delivery of the product to the first retail customer; and
(d) Breach of Seller's warranty of a Nissan Product which
is not, in whole or part, the result of Dealer's sales, service or repair
practices or conduct; and
2. Indemnify and hold Dealer harmless from any and all
settlements made which are approved by Seller and final judgments rendered
with respect to any claims described in Section 11.A.1; provided, however,
that Seller shall have no obligation to indemnify or hold Dealer harmless
unless Dealer: (i) promptly notifies Seller of the assertion of such claim
and the commencement of such action against Dealer; (ii) cooperates fully in
the defense of such action in such manner and to such extent as Seller may
reasonably require; (iii) consents to the employment of attorneys selected by
Seller and agrees to waive any conflict of interest then existent or which
may later arise, thereby enabling Seller's selected attorneys to represent
Seller and/or the manufacturer of a Nissan Product throughout the defense of
the claim; and (iv) withdraws any actions (including cross-claims) filed
against Seller or the manufacturer of a Nissan Product arising out of the
circumstances for which Dealer seeks indemnity. Dealer shall pay all costs
of its own defense incurred prior to Seller's assumption of Dealer's defense
and thereafter to the extent that Dealer employs attorneys in addition to
those selected by Seller.
3. Seller may offset any recovery on Dealer's behalf against
any indemnification that may be required under this Section 11 including,
without limitation, attorneys' fees paid by Seller pursuant to this Section
11.A and the amount of any settlement or judgment paid by Seller.
B. Indemnification of Seller. Subject to Section 11.C and upon
Seller's written request, Dealer shall:
1. Defend Seller against any and all claims that during the
term of this Agreement may arise, commense or be asserted against Seller in
any action concerning or alleging:
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(a) Dealer's failure to comply, in whole or in part, with
any obligation of Dealer under this Agreement;
(b) Any negligence, error, omission or act of Dealer in
connection with the preparation, repair or service (including warranty
service, goodwill adjustments, and campaign inspections and corrections) by
Dealer of Nissan Products;
(c) Any modification or alteration made by or on behalf
of Dealer to a Nissan Product, except those made pursuant to the express
written instruction or with the express written approval of Seller;
(d) Dealer's breach of any agreement between Dealer and
Dealer's customer or other third party;
(e) Misleading, libelous or tortious statements,
misrepresentations or deceptive or unfair practices by Dealer, directly or
indirectly, to Seller, a customer or other third party including, without
limitation, Dealer's failure to comply with Section 6.B of this Agreement;
(f) Dealer's breach of any contract or warranty other
than a contract with or warranty of Seller or the manufacturer of a Nissan
Product; or
(g) Any change in the employment status or in the terms
of employment of any officer, employee or agent of Dealer or of any Principal
Owner, Other Owner or Executive Manager including but not limited to, claims
for breach of employment contract, wrongful termination or discharge,
tortious interference with contract or economic advantage, and similar
claims; and
2. Indemnify and hold Seller harmless from any and all
settlements made and final judgments rendered with respect to any claims
described in Section 11.B.1; provided, however, that Dealer shall have no
obligation to indemnify or hold Seller harmless unless Seller: (i) promptly
notifies Dealer of the assertion of such claim and the commencement of such
action against Seller; (ii) cooperates fully in the defense of such action in
such manner and to such extent as Dealer may reasonably required; (iii)
consents to the employment of attorneys selected by Dealer and agrees to
waive any conflict of interest then existent or which may later arise,
thereby enabling Dealer's selected attorneys to represent Dealer throughout
the defense of the claim; and (iv) withdraws any actions (including
cross-claims) filed against Dealer arising out of the circumstances for which
Seller seeks indemnity. Seller shall pay all costs of its own defense
incurred prior to Dealer's assumption of Seller's defense and thereafter to
the extent that Seller employs attorneys in addition to those selected by
Dealer.
C. Conditions and Exceptions to Indemnification.
1. If the allegations asserted in any action or if any facts
established during or with respect to any action would require Seller to
defend and indemnify Dealer under Section 11.A and Dealer to defend and
indemnify Seller under Section 11.B, Seller and Dealer shall each be
responsible for its own defense in such an action and there shall be no
obligation or responsibility in connection with any defense, judgment,
settlement or expenses of such action as between Seller and Dealer.
2. In undertaking its obligations to defend and/or indemnify
each other, Dealer and Seller may make their defense and/or indemnification
conditional not be continued existence of the state of facts as then known to
such party and may provide for the withdrawal of such defense and/or
indemnification at such time as facts arise which, if known at the time of
the original request for a defense and/or indemnification, would have caused
either Dealer or Seller to refuse such request. In the event that subsequent
developments in a case make clear that the allegations which initially
justified acceptance of a request for a defense and/or indemnification are no
longer at issue therein or that the claims no longer meet the description of
those for which indemnification is required hereunder, any party providing a
defense and/or indemnification hereunder may terminate such defense and/or
indemnification of the other party. The party withdrawing from its defense
and/or indemnification to defend and/or indemnify shall give notice of its
withdrawal to the indemnifying party. Moreover, the withdrawing party shall
be responsible for all costs and expenses of defense up to the date of the
other party's receipt of the notice of withdrawal.
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12. Termination
A. Termination Due to Certain Acts or Events. The following
represent events which are within the control of or originate from actions
taken by Dealer or its management or owners and which are so contrary to the
intent and purpose of this Agreement that they warrant its termination:
1. Any actual or attempted sale, transfer, assignment or
delegation,whether by operation of law or otherwise, by Dealer of an interest
in or right, privilege or obligation under this Agreement, or of the
principal assets necessary for the performance of Dealer's responsibilities
under this Agreement, without, in either case, the prior written consent of
Seller having been obtained, which consent shall not be unreasonably withheld;
2. Subject to the provisions of Section 14 hereof, a change,
by operation of law or otherwise, in the direct or indirect ownership of
Dealer, whether voluntary or involuntary, from that set forth in the Final
Article of this Agreement, except as expressly permitted herein, without the
prior written consent of Seller having been obtained, which consent shall not
be unreasonably withheld;
3. Removal, resignation, withdrawal or elimination from Dealer
for any reason of the Executive Manager of Dealer; provided, however, Seller
shall give Dealer a reasonable period of time within which to replace such
person with an Executive Manager satisfactory to Dealer and Seller in
accordance with Article Fourth of this Agreement; or the failure of Dealer to
retain an Executive Manager who, in accordance with Article Fourth of this
Agreement, in Seller's reasonable opinion, is competent, possesses the
requisite qualifications for the position, and who will act in a manner
consistent with the continued best interests of both Seller and Dealer;
4. The failure of Dealer to maintain the Dealership Facilities
open for business or to conduct all the Dealership Operations required by
this Agreement during and for not less than the hours customary and lawful in
Dealer's Primary Market Area or in the metropolitan area in which Dealer is
located for seven (7) consecutive days, unless such failure is caused by
fire, flood, earthquake or other act of God;
5. Any undertaking by Dealer to conduct, directly or
indirectly, any of the Dealership Operations at a location or facility other
than that which is specified in the current Dealership Facilities Addendum
for that Dealership Operation;
6. The failure of Dealer to establish or maintain wholesale
financing arrangements which are in accordance with Seller's Guides and which
are reasonably acceptable to Seller with banks or other financial
institutions approved by Seller of ruse in connection with Dealer's purchase
of Nissan Vehicles, unless Seller shall have agreed to accept another medium
of payment;
7. Insolvency of Dealer; voluntary institution by Dealer of
any proceeding under the federal bankruptcy laws or under any state
insolvency law; institution against Dealer of any proceeding under the
federal bankruptcy laws or under any state insolvency law which is not
vacated within thirty (30) days from the institution thereof; appointment of
a receiver, trustee or other officer having similar powers for Dealer or
Dealer's business, provided such appointment is not vacated within thirty
(30) days of the date of such appointment; execution by Dealer of an
assignment for the benefit of creditors; or any levy under attachment,
foreclosure, execution or similar process whereby a third party acquires
rights to a significant portion of the assets of Dealer necessary for the
performance of Dealer's responsibilities under this Agreement or to the
operation or ownership of Dealer, which is not within thirty (30) days from
the date of such levy vacated or removed by payment or bonding;
8. Any material misrepresentation by Dealer or any person
named in the Final Article of this Agreement as to any fact relied on by
Seller in entering into, amending or continuing with this Agreement
including, without limitation, any representation concerning the ownership,
management or capitalization of Dealer;
9. The conviction in a court of original jurisdiction of
Dealer or of any Principal Owner of Executive Manager of a crime affecting
the Dealership Operations or of any felony; provided, however, that a
convicted Executive Manager's ownership interest in Dealer shall not be an
event warranting termination of this Agreement if the individual is no longer
employed by Dealer or involved in any way in the management or operation of
Dealer and Dealer has made reasonable efforts to obtain the individual's
divestiture of his ownership interest in Dealer; or any willful failure of
Dealer to comply with the provisions of any laws, ordinances, rules,
regulation, or orders relating to the conduct of its Dealership Operations
including, without limitation, the sale and servicing of Nissan Products.
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10. Knowing submission by Dealer to Seller of: (i) a false or
fraudulent report or statement; (ii) a false or fraudulent claim (or
statement in support thereof), for payment, reimbursement or for any
discount, allowance, refund, rebate, credit or other incentive under any plan
that may be offered by Seller, whether or not Dealer offers or makes
restitution; (iii) false financial information; (iv) false sales reporting
date; or (v) any false report or statement relating to pre-delivery
inspection, testing, warranties, service, repair or maintenance required to
be performed by Dealer.
Upon the occurrence of any of the foregoing events, Seller may
terminate this Agreement by giving Dealer notice thereof, such termination to
be effective upon the date specified in such notice, or such later date as
may be required by any applicable statute.
B. Termination by Seller for Non-Performance by Dealer.
1. If, based upon the evaluations thereof made by Seller,
Dealer shall fail to substantially fulfill its responsibilities with respect
to:
a. Sales of new Nissan Vehicles and the other
responsibilities of Dealer set forth in Section 3 of this Agreement;
b. Maintenance of the Dealership Facilities and the
Dealership Location set forth in Section 2 of this Agreement;
c. Service of Nissan Vehicles and sale and service of
Genuine Nissan Parts and Accessories and the other responsibilities of Dealer
set forth in Section 5 of this Agreement;
d. The other responsibilities assumed by Dealer in this
Agreement including, without limitation, Dealer's failure to:
(i) Timely submit accurate sales, service and
financial information concerning its Dealership Operations, ownership or
management and related supporting data, as required under this Agreement or
as may be reasonably requested by Seller;
(ii) Permit Seller to make an examination or audit
of Dealer's accounts and records concerning its Dealership Operations after
receipt of notice from Seller requesting such permission or information;
(iii) Pay Seller for any Nissan Products or any other
products or services purchased by Dealer from Seller, in accordance with the
terms and conditions of sale; or
(iv) Maintain net worth and working capital
substantially in accordance with Seller's Guides therefor; or
2. In the event that any of the following occur:
(i) any dispute, disagreement or controversy between or
among Dealer and any third party or between or among the owners or management
personnel of Dealer relating to the management or ownership of Dealer
develops or exists which, in the reasonable opinion of Seller, tends to
adversely affect the conduct of the Dealership Operations or the interests of
Dealer or Seller; or
(ii) any other act or activity of Dealer, or any of its
owners or management occurs, which substantially impairs the reputation or
financial standing of Dealer or of any of its management subsequent to the
execution of this Agreement.
Seller will notify Dealer of such failure and will review with Dealer
the nature and extent of such failure and the reasons which, in Seller's or
Dealer's opinion, account for such failure.
Thereafter, Seller will provide Dealer with a reasonable opportunity to
correct the failure. If Dealer fails to make substantial progress towards
remedying such failure before the expiration of such period, Seller may
terminate this Agreement by giving Dealer notice of termination, such
termination to be effective at least ninety (90) days after such notice is
given.
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During such period Dealer will commence such actions as may be
necessary so that the termination obligations of Seller and Dealer set forth
in this Agreement may be fulfilled as promptly as practicable.
C. Termination Because of Death or Physical or Mental Incapacity of
Principal Owner. This Agreement is a personal services agreement and has
been entered into by Seller in reliance on Dealer's being owned by the
Principal Owner(s). Seller (subject to Section 14 hereof) may terminate this
Agreement by giving notice to Dealer upon the death of any of the Principal
Owner(s) or if Seller in good faith determines that any Principal Owner is so
physically or mentally incapacitated as to be unable to discharge his or her
responsibility to the operating management of Dealer. Unless deferred as
hereinafter provided, the effective date of such termination shall be not
less than ninety (90) days from the date of such notice is given to Dealer.
To facilitate the orderly termination of the business relationship
between Seller and Dealer and of the Dealership Operations, Seller may, in
its sole discretion, defer the effective date of such termination and
continue to operate with Dealer under the terms of this Agreement for a
period of time, to be determined by Seller, of up to one (1) year from the
date such notice of termination is given it within sixty (60) days from the
date of said notice, the executor or representative of the deceased or
incapacitated Principal Owner or a surviving Principal Owner shall give to
Seller written request for such deferment. This Agreement shall
automatically terminate without further notice or action by Seller upon the
expiration of any such deferment.
D. Termination for Failure of Seller or Dealer to be Licensed. If
Seller or Dealer shall fail to secure or maintain any license, permit or
authorization required by either of them for their performance of any
obligation under or in connection with this Agreement, or if such license,
permit or authorization is suspended or revoked, irrespective of the cause,
and such suspension or revocation continues for a period of seven (7) days,
either party may immediately terminate this Agreement by giving notice to the
other party.
E. Termination by Dealer. Dealer has the right to terminate this
Agreement at any time by giving notice to Seller, such termination to be
effective thirty (30) days after the giving of such notice (unless the thirty
(30) day notice period is waived in writing by Seller) or on such other date
as may be mutually agreed to in writing by Seller and Dealer.
F. Termination by Seller Because of a Change of Seller's Method of
Distribution or Decision by Seller to Cease Distribution of Nissan Vehicles.
If Seller should elect or be required to discontinue its present method of
distributing Nissan Vehicles, or if Seller should elect or be required to
cease selling or distributing Nissan Vehicles, Seller may terminate this
Agreement by giving Dealer notice and such termination will be effective not
less than one (1) year after such notice is given.
G. Termination Upon Entering Into a New Sales and Service
Agreement. Seller may terminate this Agreement at any time by giving Dealer
at lease ninety (90) days prior notice thereof and offering to enter into a
new or amended form of Agreement with Dealer in a form being offered
generally to Authorized Nissan Dealers.
Unless otherwise agreed in writing, the rights and obligations of
Dealer that may otherwise become applicable upon termination or expiration of
the term of this Agreement shall not be applicable if Seller and Dealer enter
into a new or superseding Dealer Sales and Service Agreement, and the rights
and obligations of the parties hereunder shall continue under the terms and
provisions of the new agreement.
Dealer's performance under any prior agreement may be considered by
Seller in evaluating Dealer's performance under this, or any succeeding,
agreement.
13. Rights and Liabilities Upon Termination
A. Termination Procedures
1. Upon termination of this Agreement by either Seller or
Dealer for any reason, Dealer shall cease to be an Authorized Nissan Dealer,
and Dealer shall: (i) immediately discontinue the distribution and sale of
Nissan Products as an Authorized Nissan Dealer; and (ii) at its own expense
(a) erase or obliterate all Nissan Marks and any word or words indicating
that Dealer is an Authorized Nissan Dealer from the stationery, forms and
other papers used by Dealer or any business associated or affiliated with
Dealer; (b) discontinue all advertising of Dealer as an Authorized Nissan
Dealer; (c) take all steps necessary to remove any listing in any telephone
directory yellow pages advertisement indicating that Dealer is an Authorized
Nissan Dealer; (d) discontinue any use of any Nissan Mark in Dealer's firm or
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trade name and take all steps necessary or appropriate in the opinion of
Seller to change such firm or trade name to eliminate any Nissan Mark
therefrom; (e) discontinue or cause to be discontinued all other use of the
Nissan Marks; (f) refrain from doing anything,whether or not specified above,
that would indicate that Dealer is or was an Authorized Nissan Dealer; and
(g) refrain from using, either directly or indirectly, any Nissan Marks or
any other confusingly similar marks, names, logos or designs in a manner
likely to cause confusion or mistake or to deceive the public. If Dealer
fails to comply with any requirement of this Section 13.A.1, Dealer shall
reimburse Seller for all costs and expenses, including reasonable attorney's
fees, incurred by Seller in effecting or enforcing compliance;
2. Termination of this Agreement will not release Dealer or
Seller from the obligation to pay any amounts owing the other;
3. Subject to Section 13.E, Seller shall process all claims
and make all payments due for all labor provided and all parts and/or other
materials used by Dealer pursuant to Sections 5.B.2 and 5.B.3 prior to the
effective date of termination as provided in the Warranty Manual. Dealer
shall cease, as of the effective date of termination, to be eligible to
receive reimbursement for any work thereafter performed or parts thereafter
supplied under any warranty, campaign inspections or corrections and any
other adjustment previously authorized by Seller.
4. Dealer shall, upon Seller's request, deliver to Seller or
its designee copies of Dealer's records with respect to pre-delivery,
warranty, goodwill campaign and other service work of Dealer.
B. Repurchases by Seller Upon Termination. Upon termination other
than pursuant to a sale or transfer, Seller shall buy from Dealer and Dealer
shall sell to Seller, within ninety (90) days after the effective date of
termination:
1. All new, unused, undamaged, unlicensed, then current and
immediate previous model year Nissan Vehicles which were purchased by Dealer
from Seller and are then the unencumbered property of and in the possession
of Dealer or Dealer's flooring and/or financing institution. The price for
such vehicles shall be the invoice price previously paid by Dealer therefor,
less Seller's destination charges, all allowances paid or applicable
allowances offered thereon by Seller, any amount paid by Seller to Dealer for
pre-delivery inspection and service with respect to such vehicles pursuant to
Section 5.B, any dealer association collection, and any other charge for
taxes or special items or service. Seller shall also repurchase Genuine
Nissan Accessories which have been installed in such Nissan Vehicles which
accessories are listed in the current parts and accessories price list
(except those items marked "not eligible") at the prices set forth on
Seller's then current parts and accessories price list.
2. Subject to Section 13.C, all new, unused, undamaged and
resalable Genuine Nissan Parts and Accessories which are still in the
original undamaged packages, were purchased from Seller, are listed in the
current parts and accessories price list (except those items marked "not
eligible"), and are then the unencumbered property of and in the possession
of Dealer. The prices for such Genuine Nissan Parts and Accessories shall be
the prices set forth on Seller's then current parts and accessories price
list.
3. Subject to Section 13.C, all special tools and equipment
owned by Dealer and which are unencumbered and in the possession of Dealer on
the effective date of termination which were designed especially for
servicing Nissan Vehicles, are of the type recommended in writing by Seller
and designated as "essential" tools in accordance with Seller's Guides or
other notices pertaining thereto from Seller, are in usable and good
condition, except for reasonable wear and tear, and were purchased by Dealer
from Seller with the three (3) year period preceding the date of
termination. Seller's purchase provide for such essential tools shall be
calculated at Dealer's purchase price reduced by straight-line depreciation
on the basis of a useful life of thirty-six (36) months.
Dealer's and Seller's obligations with respect to the signs
located at the Dealership Facilities shall be determined in accordance with
the Dealership Identification Addendum between Seller and Dealer.
C. Dealer's Responsibilities with Respect to Repurchase. Seller's
obligation to repurchase Genuine Nissan Vehicles, Genuine Nissan Parts and
Accessories, and essential tools from Dealer is conditioned on Dealer's
fulfilling its responsibilities under this Section 13.C as follows:
1. Immediately following the effective date of termination of
this Agreement, Dealer shall furnish to Seller a list of vehicle
identification numbers and such other information and documents as Seller may
require pertaining to the Nissan Vehicles subject to the repurchase
obligations of Section 13.B.1. Dealer shall deliver all such vehicles in
accordance with Seller's instructions.
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2. Within thirty (30) days after the effective date of
termination of this Agreement, Dealer shall deliver or mail to Seller a
detailed inventory of all of the items referred to in Sections 13.B.2 and
13.B.3. Within thirty (30) days of its receipt of such inventory, Seller
shall provide Dealer with instructions as to the procedures to be followed in
returning such items to Seller. Dealer shall, at its expense, tag, pack and
deliver all such items to Seller at Seller's designated parts distribution
center in accordance with such instructions.
Should Dealer fail to comply with the responsibilities listed above,
Seller shall have no obligation to repurchase any such items from dealer;
provided, however, that Seller shall have the right, but no obligation, to
enter into the Dealership Facilities for the purpose of compiling an
inventory, tagging, packing and shipping such items to Seller's designated
parts distribution center. If Seller undertakes any such responsibilities of
Dealer, the repurchase prices of such items shall be fifteen percent (15%)
less than the repurchase prices otherwise applicable under Section 13.B.
D. Title to Repurchased Property. With respect to any items of
property repurchased by Seller pursuant to this Section 13, Dealer shall take
such action and shall execute and deliver such instruments as may be
necessary: (i) to convey good and marketable title to all such items of
property; (ii) to comply with the requirements of any applicable law relating
to bulk sales and transfers; and (iii) to satisfy and discharge any liens or
encumbrances on such items of property prior to delivery thereof to Seller.
E. Payment. Seller shall make all payments to Dealer pursuant to
this Section 13 within ninety (90) days after Seller's receipt of all items
to be repurchased by it and provided Dealer has fulfilled all of its
obligations under this Section 13; provided, however, that Seller shall be
entitled to offset against such payments any and all indebtedness or other
obligations of Dealer to Seller. Seller may make any payment for any
property repurchased pursuant to this Section 13 directly to anyone having a
security or ownership interest therein.
F. Cancellation of Deliveries. Upon termination of this Agreement
Seller shall have the right to cancel all shipments of Nissan Products
scheduled for delivery to Dealer. After the effective date of termination,
if Seller shall voluntarily ship any Nissan Products to Dealer, or otherwise
transact business with Dealer, all such transactions will be governed by the
same terms provided in this Agreement, insofar as those terms would have been
applicable had the Agreement not been terminated. Nevertheless, neither the
shipping of such Nissan Products nor any other acts by Seller shall be
construed as a waiver of the termination or a renewal or extension of this
Agreement.
14. Establishment of Successor Dealer
A. Because of Death of Principal Owner. If Seller shall terminate
this Agreement pursuant to Section 12.C because of the death of a Principal
Owner, the following provisions shall apply:
1. Subject to the other provisions of this Section 14, Seller
shall offer a two (2) year Term Sales and Service Agreement to a successor
dealership ("Successor Dealership") comprised of the person nominated by such
deceased Principal Owner as his or her successor, together with the other
Principal Owner(s) and Other Owner(s), provided that:
(a) The nomination was submitted to Seller on a Successor
Addendum, was consented to by the remaining Principal Owner(s) and Other
Owner(s), and was approved by Seller prior to the death of such Principal
Owner;
(b) Either (i) there has been no change in the Executive
Manager of Seller; or (ii) Seller has approved a candidate for Executive
Manager having the required qualifications, expertise, integrity, experience
and ability to successfully operate the dealership and perform Dealer's
obligations under this Agreement; and
(c) The Successor Dealership has capital and facilities
substantially in accordance with Seller's Guides therefor at the time the
Term Sales and Service Agreement is offered.
2. If the deceased Principal Owner has not nominated a
successor in accordance with Section 14.A.1(a) above, but all of the
beneficial interest of the deceased Principal Owner has passed by will or the
laws of intestate succession directly to the deceased Principal Owner's
spouse and/or children or to one (1) or more other Principal Owners who each
held not less than a twenty-five percent (25%) beneficial ownership interest
in the dealership prior to the death of the deceased Principal Owner
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(collectively "proposed New Owners"), subject to the other provisions of this
Section 14, Seller shall offer a two (2) year Term Sales and Service
Agreement to a Successor Dealership composed of the Proposed New Owner(s),
together with the other Principal Owner(s) and Other Owner(s), provided that:
(a) Either (i) there has been no change in the Executive
Manager of Dealer; or (ii) Seller has approved a candidate for Executive
Manager having the required qualifications, expertise, integrity, experience
and ability to successfully operate the dealership and perform Dealer's
obligations under this Agreement; and
(b) The Successor Dealership has capital and facilities
substantially in accordance with Seller's Guides therefor at the time the
Term Sales and Service Agreement is offered.
B. Consideration of Successor Addendum. To be named in the
Successor Addendum, a proposed Principal Owner or Executive Manager must (i)
be employed by Dealer or a comparable automotive dealership as his principal
place of employment; (ii) be already qualified as a Principal Owner or
Executive Manager, as the case may be; and (iii) otherwise be acceptable to
Seller as provided below.
Upon receipt of a request from Dealer that one or more individuals be
named in a Successor Addendum, Seller shall request those named to submit an
application and to provide all personal and financial information that Seller
may reasonably and customarily require in connection with the review of such
applications. Seller, upon the submission of all requested information, will
determine whether to consent to a Successor Addendum naming such individuals
by applying its criteria for considering the qualifications of Principal
Owners or Executive Managers, as the case may be.
C. Termination of Successor Addendum. Dealer may, at any time,
withdraw a nomination of a Successor even if Seller previously has qualified
the candidate, or cancel an executed Successor Addendum by giving notice to
Seller of such withdrawal at any time prior to the death or incapacity of any
Principal Owner named in this Agreement. Seller may cancel an executed
Successor Addendum only if the proposed Principal Owner or Executive Manager
no longer complies with the requirements of this Section 14.
D. Evaluation of Successor Dealership. During the term of the Term
Sales and Service Agreement, Seller will evaluate the performance of the
Successor Dealership and periodically review with the new Dealer this
evaluation. If the Successor Dealership's performance is deemed to be
satisfactory to Seller during the Term Sales and Service Agreement, Seller
will give first consideration to such Successor Dealership with respect to a
new Sales and Service Agreement.
E. Termination of Market Representation. Notwithstanding anything
stated or implied to the contrary in this Section 14, Seller shall not be
obligated to offer a Term Sales and Service Agreement to any Successor
Dealership if Seller notified Dealer prior to the event causing the
termination of this Agreement that Seller's market representation plans do
not provide for continuation of representation in Dealer's Primary Market
Area.
F. Termination of Offer. If the person or persons comprising a
proposed Successor Dealership to which any offer of a Term Sales and Service
Agreement for Nissan Products shall have been made pursuant to this Section
14 do not accept same within thirty (30) days after notification to them of
such offer, such offer shall automatically expire.
15. Sale of Assets or Ownership Interests in Dealer.
A. Sale or Transfer. Article Third of this Agreement provides that
neither this Agreement nor any right or interest herein may be assigned
without the prior written consent of Seller. However, during the term of
this Agreement, Dealer may negotiate for the sale of the assets of Dealer, or
the owners of Dealer may negotiate the sale of their ownership interests in
Dealer, upon such terms as may be agreed upon by them and the prospective
purchaser. With respect to any sale or transfer which requires Seller's
prior written consent under Article Third of this Agreement, Dealer shall
notify Seller prior to any closing of this transaction called for by the
purchase and sale agreement, and the prospective purchaser shall apply to
Seller for a Sales and Service Agreement.
B. Seller's Evaluation. Seller is responsible for establishing and
maintaining an effective body of Authorized Nissan Dealers to promote the
sale and servicing of Nissan Products. Accordingly, Seller has the right and
obligation to evaluate each prospective dealer, its owner(s) and executive
manager, the dealership location and the dealership facilities to ensure that
each of the foregoing is adequate to enable Dealer to meet its
responsibilities hereunder. Seller will evaluate each prospective
purchaser's qualifications and proposal for the conduct of the Dealership
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Operations by applying the standards set forth or referred to in this
Agreement. In determining whether it shall consent to such a sale or
transfer, Seller will take into account factors such as the personal,
business and financial qualifications, expertise, reputation, integrity,
experience and ability of the proposed Principal Owner(s) and Executive
Manager as referred to in Articles Third and Fourth of this Agreement, the
capitalization and financial structure of the prospective dealer, the
prospective purchaser's proposal for conducting the Dealership Operations,
and Seller's interest in promoting and preserving competition.
In evaluating the prospective purchaser's application for a Sales and
Service Agreement, Seller may, without liability to Dealer, Dealer's Owners
or the prospective purchaser, consult with the prospective purchaser
regarding any matter relating to the proposed dealership.
Seller shall notify Dealer of Seller's consent or refusal to consent to
Dealer's proposed sale or transfer within sixty (60) days after Seller has
received from Dealer (i) Dealer's written request for Seller's approval; and
(ii) all applications and information customarily or reasonably requested by
Seller to evaluate such a proposal including without limitation, information
concerning each proposed owner's and/or the replacement dealer's identity,
character, business affiliations, business experience, financial
qualifications and proposals for conducting the Dealership Operations. Any
material change in such a proposal including, without limitation, any change
in the financial terms or in the proposed ownership or management of any
proposed replacement dealer, shall be treated as a new proposal for purposes
of this Section 15.B. If Seller does not consent to Dealer's proposed sale
or transfer, Seller will specify in its notice to Dealer the reasons for its
refusal to consent.
If Seller determines that the proposed dealership would not, at the
commencement of its operations, have capital or facilities in accordance with
Seller's Guides therefor and otherwise satisfactory to Seller, or if Seller
reasonably determines that the proposed dealership might not meet Seller's
performance standards in sales or service, Seller may, in its sole discretion
and in lieu of refusing to consent to the proposed sale or transfer, agree to
enter into a Term Sales and Service Agreement with the prospective
purchaser. If Seller has recommended, pursuant to a market study conducted
in accordance with Section 4.A, that Dealer relocate its Dealership
Facilities, Seller may offer to the proposed dealer a Term Sales and Service
Agreement subject to the condition that its Dealership Facilities shall be
relocated within a reasonable time to a location and in facilities acceptable
to Seller and in accordance with the market study recommendations.
Notwithstanding anything stated or implied to the contrary in this
Section 15, Seller shall not be obligated to enter into a Sales and Service
Agreement with any purchaser of the assets or ownership interests of Dealer
if Seller has notified Dealer prior to its having received notice of the
proposed sale or transfer that Seller's market representation plans do not
provide for continuation of representation in Dealer's Primary Market Area.
C. Effect of Termination. This Agreement shall end on the effective
date of termination and, except as otherwise set forth in Section 13, all
rights, obligations, duties and responsibilities of Dealer and Seller under
this Agreement shall cease as of the effective date of termination. No
assignment, transfer or sale of Dealer's right or interest in this Agreement
shall have the effect of granting the assignee, transferee or buyer any right
or interest in this Agreement that is greater than or in addition to that
then held by Dealer. Any such assignment, transfer or sale shall be subject
to the terms of any written notice of deficiency under Section 12.B or any
written notice of termination under Sections 12.A, 12.B, 12.C, 12.D, 12.E or
12.F that was previously received by Dealer, including but not limited to
Dealer's obligation to correct any failure before the expiration date of any
period established in any such notice of deficiency. No such assignment,
transfer or sale shall correct any such deficiency or extend the effective
date of termination specified in any written notice of termination.
16. Policy Review Board
A. Establishment of Policy Review Board. In the interest of
maintaining harmonious relations between Seller and Dealer and to provide for
the resolution of certain protests, controversies and claims with respect to
or arising out of Section 4, Section 12 or Section 13 of this Agreement,
Seller has established the Nissan Motor Corporation in U.S.A. Policy Review
Board ("Policy Review Board"). The procedures of the Policy Review Board, as
they may be revised by Seller from time to time, are incorporated herein by
reference. At the time of execution of this Agreement, Seller will have
furnished to Dealer such procedures, and Seller will furnish to Dealer a copy
of each revision or modification that Seller may thereafter make to such
procedures. Any decision of the Policy Review Board shall represent the
independent decision of Seller and shall be binding on Seller but not on
Dealer.
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B. Appeal of Dealer Appointment to Policy Review Board. Any
objections by Dealer to the proposed appointment of an additional Nissan
dealer within the ten (10) mile driving distance described in Section 4.B
shall be appealed to the Policy Review Board by filing a Notice of Appeal in
accordance with the procedures established therefor within thirty (30) days
from the date of Dealer's receipt of the Notice of Appointment.
C. Appeal of a Termination to Policy Review Board. Any protests,
controversies or claims by Dealer (whether for damages, stay of action, or
otherwise) with respect to any termination of this Agreement or the
settlement of the accounts of Dealer with Seller after termination of this
Agreement has become effective shall be appealed to the Policy Review Board
by filing an appeal in accordance with the procedures established therefor
within thirty (30) days after Dealer's receipt of notice of termination or,
as to settlement of accounts after termination, within one (1) year after the
termination has become effective.
D. Effect of Other Proceedings. Because the purpose of the Policy
Review Board is to assist in resolving issues between Seller and Dealer in a
non-adversarial setting and to avoid litigation, if Dealer institutes or
seeks any relief or remedy through legal, administrative or other proceedings
as to any matter that is or could be the subject of an appeal to the Policy
Review Board, then the Policy Review Board may, in its sole discretion, elect
to refuse to consider any appeal to the Policy Review Board then pending or
thereafter filed by Dealer relating to such subject matter.
Dealer further agrees that Dealer's seeking such relief or remedy shall
constitute a waiver of any right to an appeal to the Policy Review Board with
respect to such subject matter and Seller and the Policy Review Board shall
be forever released from any obligation that might otherwise have had to
conduct any proceedings, render any decision or take any other action in
connection with such subject matter.
17. General
A. Notices. All notices or notifications required or permitted to
be given by this Agreement to either party shall be sufficient only if given
in writing and delivered personally or by mail to Dealer at the address set
forth on the Dealership Facilities Addendum to this Agreement and to Seller
at its national headquarters, or at such other address as the party to be
addressed may have previously designated by written notice to the other
party. Unless otherwise specified in the Notice, such notices shall be
effective upon receipt.
B. No Implied Waivers. The waiver by either party, or the delay or
failure by either party to claim a breach, of any provision of this Agreement
shall not affect the right to require full performance thereafter, nor shall
it constitute a wavier of any subsequent breach, or affect in any way the
effectiveness of such provision.
C. No Agency. Dealer is an independently operated business entity
in which Seller has no ownership interest. This Agreement does not
constitute Dealer the agent or legal representative of Seller or Manufacturer
for any purpose whatsoever. Dealer is not granted any express or implied
right or authority to assume or create any obligation on behalf of or in the
name of Seller or Manufacturer or to bind Seller or Manufacturer in any
manner or thing whatsoever.
D. Limitations of Seller's Liability. This Agreement contemplates
that all investments by or in Dealer shall be made, and Dealer shall purchase
and resell Nissan Products, in conformity with the provisions hereof, but
otherwise in the discretion of Dealer. Except as herein specified, nothing
herein contained shall impose any liability on Seller in connection with the
business of Dealer or otherwise or for any expenditures made or incurred by
Dealer in preparation for performance or in performance of Dealer's
responsibilities under this Agreement.
E. Entire Agreement. This agreement contains the entire
understanding of the parties hereto with respect to the subject matter
contained herein and may be amended only by a written instrument executed by
each of the parties or their respective personal representatives, successors
and/or assigns. This Agreement supersedes any and all prior agreements with
respect to the subject matter hereof, and there are no restrictions,
promises, warranties, covenants or undertakings between the parties other
than those expressly set forth in this Agreement, provided, however, Seller
shall have the right to amend, modify or change this Agreement in case of
legislation, government regulations or changes in circumstances beyond the
control of Seller that might affect materially the relationship between
Seller and Dealer as further provided in Section 17.G.
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F. California Law. This Agreement shall be deemed to have been
entered into in the State of California, and all questions concerning the
validity, interpretation or performance of any of its terms or provisions, or
of any rights or obligations of the parties hereof, shall be governed by and
resolved in accordance with the internal laws of the State of California
including, without limitation, the statute of limitations.
G. Changes Required by Law. Should Seller determine that any
federal or state legislation or regulation or any condition referred to in
Section 17.E requires a change or changes in any of the provisions of this
Agreement, Seller may offer to Dealer an amendment or an amended Agreement
embodying such change or changes. If Dealer shall fail to execute such
amendment or amended Agreement and return it to Seller within thirty (30)
days after it is offered Dealer, Seller may terminate this Agreement by
giving notice to Dealer, such termination to effective upon receipt by Dealer
of such notice.
H. Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall to any extent be
found to be invalid, void or unenforceable, the remaining provisions and any
application thereof shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
I. Assignment. Dealer shall not transfer or assign any right or
transfer or delegate any obligation of Dealer under this Agreement without
the prior written approval of Seller. Any purported transfer, assignment or
delegation made without the prior written approval of Seller shall be null
and void.
J. No Franchise Fee. Dealer represents and warrants that it has
paid no fee, nor has it provided any goods or services in lieu of a fee, as
consideration for Seller's entering into this Agreement and that the sole
consideration for Seller's entering into this Agreement was Dealer's
Principal Owners' and Executive Manager's abilities, integrity, assurances of
personal services and expressed intention to deal fairly and equitably with
Seller and the public and any other promises recited in this Agreement.
K. Captions. The captions of the sections of this Agreement are for
convenience and reference only and shall in no way be construed to explain,
modify, amplify, or aid in the interpretation, construction or meaning of the
provisions of this Agreement or to be a part of this Agreement.
L. Benefit. This Agreement is entered into by and between Seller
and Dealer for their sole and mutual benefit. Neither this Agreement nor any
specific provision contained in it is intended or shall be construed to be
for the benefit of any third party.
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EX-10
Exhibit 10.16.1 VW Dealer Agmt
EXHIBIT 10.16.1
VOLKSWAGEN DEALER AGREEMENT
1. Appointment. Volkswagen United States, Inc. a division of
Volkswagen of America, Inc. ("Distributor"), having a place of business at
3800 Hamlin Road, Auburn Hills, MI 48326 appoints Lithia Motors, Inc.
("Dealer") doing business under the fictitious name Lithia Volkswagen, having
its place of business at 700 North Central, Medford, OR 97501, as an
authorized dealer in Volkswagen brand motor vehicles and genuine parts and
accessories therefor. Accordingly, the parties agree as follows:
2. Standard Provisions. The Dealer Agreement Standard Provisions
(the "Standard Provisions") (Form No. Deal 92VB) are part of this Agreement.
Any term not defined in this Agreement has the meaning given such term in the
Standard Provisions.
3. Ownership and Management. To induce Distributor to enter into
this Agreement, Dealer represents that the persons identified in the
Statement of Ownership and Management, which is attached as Exhibit A, are
Dealer's Owners and Executives. Distributor is entering into this Agreement
in reliance upon these representations, and upon the continued provision by
such persons of their personal services in fulfillment of Dealer's
obligations under this Agreement. Accordingly, Dealer agrees there will be
no charge in Dealer's Owners without Distributor's prior written consent, and
no change in Dealer's Executives without prior notice to Distributor.
4. Minimum Financial Requirements. Dealer agrees to comply and
maintain compliance with the minimum financial requirements established for
Dealer from time to time in accordance with the Operating Standards.
Throughout the term of this Agreement those minimum financial requirements
are subject to revision by Distributor, after review with Dealer, in light of
operating conditions and the development of Dealer's business and business
potential.
5. Dealer's Premises. Distributor has approved the location of
Dealer's Premises as specified in the Dealer Premises Addendum, attached as
Exhibit B. Dealer agrees that, without Distributor's prior written consent,
it will not (a) make any major structural change in any of Dealer's Premises,
(b) change the location of any of Dealer's Premises or (c) establish any
additional premises for Dealer's Operations.
6. EXCLUSION OF WARRANTIES. EXCEPT FOR DISTRIBUTOR'S WARRANTIES,
AND EXCEPT AS PROVIDED IN ARTICLE 9(1) OF THE STANDARD PROVISIONS, THERE ARE
NO EXPENSES OR IMPLIED WARRANTIES OR OBLIGATIONS OF THE MANUFACTURER OR
DISTRIBUTOR AS TO THE QUALITY OR CONDITION OF AUTHORIZED PRODUCTS, OR AS TO
THEIR MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND, TO THE
EXTENT PERMITTED BY LAW, DEALER WILL EXCLUDE ANY AND ALL SUCH WARRANTIES AND
OBLIGATIONS IN ITS SALES OF AUTHORIZED PRODUCTS.
7. Term. The term of this Agreement begins on the date of its
delivery to Dealer or on January 1, 1992, whichever is later. This Agreement
shall continue in effect until December 31, 1996, or XXXXXXXXXX, 19XX,
whichever is earlier, unless sooner terminated by either party or superseded
by a new Dealer Agreement with Distributor.
8. Governing Law. This Agreement will be construed in accordance
with the laws of the State of Oregon. Should the performance of any
obligation under this Agreement violate any valid law of such jurisdiction,
then this Agreement shall be deemed modified to the minimum extent necessary
to comply with such law.
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9. Additional Terms and Conditions. This Addenda attached hereto as
Exhibits A through B are part of this Agreement, and are incorporated into
this Agreement by this reference.
Dated: April 5, 1996
VOLKSWAGEN UNITED STATES, INC.
By: /s/ Colin Gour
Zone Manager -- Colin Gour
DEALER - LITHIA VOLKSWAGEN
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer, President
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EXHIBIT A TO
VOLKSWAGEN DEALER AGREEMENT
Dated April 5, 1996
Statement of Ownership and Management
1. Dealer firm name: Lithia Motors, Inc., d/b/a Lithia Volkswagen
2. Principal place of business: 700 North Central, Medford, OR 97501
3. Dealer is ( ) proprietorship
( ) partnership
(x) corporation, incorporated on December 23, 1995 under the laws
of the State of Oregon
4. The following persons are the beneficial and record owners of Dealer:
Name and Address of Each Percentage of
Record and Beneficial If a Corporation, Number Ownership of Record
Owner of Dealer and Class of Shares In Dealer
Number Class
Sidney B. DeBoer 75 62.5%
234 Vista
Ashland, OR 97520
Manfred L. Heimann 45 37.5%
426 Roundelay Circle
Medford, OR
5. The following persons are Dealer's Officers:
Name and Address Title
Sidney B. DeBoer President
(same as above)
Manfred L. Heimann Vice President
(same as above)
6. The following person functions as General Manager of Dealer. As such,
he is an agent of Dealer and is authorized, and Distributor is entitled to
rely on his authority, to make all decisions on behalf of Dealer with respect
to Dealer's Operations.
Name and Address Title
Bryan DeBoer General Manager
1 Eastwood Drive
Medford, OR 97504
Dealer hereby certifies that the forgoing information is true and complete as
of the date below. Distributor has entered into this Agreement in reliance
upon the qualifications, and the continued provision of personal services in
the ownership and management of Dealer by, the persons identified above.
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This Exhibit cancels any prior Statement of Ownership and Management.
Dated: April 5, 1998
Volkswagen United States, Inc.
By: /s/ Colin Gour
Zone Manager -- Colin Gour
Dealer - Lithia Volkswagen
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer, President
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EXHIBIT B TO
VOLKSWAGEN DEALER AGREEMENT
Dated April 5, 1996
Dealer Premises Addendum
1. Dealer firm name: Lithia Motors, Inc., dba Lithia Volkswagen
2. Distributor has approved the location of the following premises, and no
others, for Dealer's Operations:
a. Sales Facilities: 700 North Central, Medford, Oregon 97501.
b. Authorized Automobile Storage Facilities: Same as above.
c. Service Facilities: Same as above.
d. Genuine Parts Storage Facilities: Same as above.
e. Used Car Lot: Same as above.
Dealer hereby certifies that the foregoing information is true and complete
as of the date below. The Exhibit cancels any prior Dealer Premises Addendum.
Dated: April 5, 1996
Volkswagen United States, Inc.
By: /s/ Colin Gour
Zone Manager -- Colin Gour
Dealer -- Lithia Volkswagen
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer, President
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EX-10
Exhibit 10.16.2 VW Standard Provisions
Exhibit 10.16.2
Article 1
Basic Obligations of VWoA
Supply of Authorized Products
(1) VWoA will sell and deliver Authorized Products to Dealer in
accordance with this Agreement.
Assistance
(2) VWoA will actively assist Dealer in all aspects of Dealer's
Operations through such means as VWoA considers appropriate, including:
(a) Annual reviews of Dealer's compliance with this
Agreement, the Operating Standards;
(b) Recommendations; and
(c) Schools, special training and meetings for
Dealer's personnel.
Compliance with Ethical Standards
(3) In the conduct of its business, VWoA will:
(a) Safeguard and promote the reputation of
Authorized Products and the Manufacturer;
(b) Refrain from all conduct which might be harmful to the reputation
or marketing of Authorized Products or inconsistent with the public interest;
and
(c) Avoid all discourteous, deceptive, misleading,
unprofessional or unethical practices.
Article 2
Basic Obligations of Dealer
Sales, Service and Parts Supply
(1) Dealer assumes the responsibility in Dealer's Area for the
promotion and sale of Authorized Products and for the supply of Genuine Parts
and customer service for Authorized Products. This Agreement does not give
Dealer any exclusive right to sell or service Authorized Products in any area
or territory.
Compliance with Ethical Standards
(2) In the conduct of its business, Dealer will:
(a) Safeguard and promote the reputation of Authorized Products,
the Manufacturer and VWoA;
(b) Refrain from all conduct which might be harmful to the
reputation or marketing of Authorized Products or inconsistent with the public
interest; and
(c) Avoid all discourteous, deceptive, misleading,
unprofessional or unethical practices.
Operating Standards and Operating Plan
(3) The Operating Standards and Operating Plan are part of this
Agreement and are incorporated herein by this reference.
Disclaimer of Further Liability by VWoA
(4) Except as expressly provided in this Agreement, VWoA is not liable
for any expenditure made or liability incurred by Dealer in connection with
Dealer's performance of its obligations under this Agreement.
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Article 3
General Management and Facility Requirements
Dealer's General Management
(1) In the conduct of its business, Dealer will have the
following minimum staff:
(a) An Authorized Representative (provided, that such Authorized
Representative may be one of Dealer's Owners); and
(b) Such additional department managers and other employees as
set forth in the Operating Standards and the Operating Plan.
Dealer's Premises
(2) Dealer's Premises, in sales, service and parts, will conform to
the requirements of this Agreement, the Operating Standards, the Operating
Plan and such other reasonable standards as VWoA may prescribe from time to
time, after review with Dealer.
(3) Unless otherwise agreed by VWoA in writing, Dealer will operate
Dealer's Premises during the customary business hours of the trade in Dealer's
Area.
Article 4
Identification; Advertising
Use of Authorized Trademarks
(1) VWoA will supply Dealer, from time to time, with trademark
standards to assist Dealer in the proper usage of Authorized Trademarks.
Dealer will use Authorized Trademarks only in connection with the promotion
and sale of new Authorized Products and customer service for Authorized
Products pursuant to this Agreement, and only in the manner and for the
purposes VWoA specifies. Dealer will not use any Authorized Trademark as part
of its corporate or business name without the prior written consent of VWoA.
Dealer also may use Authorized Trademarks in connection with the sale of used
automobiles if Dealer complies fully with VWoA's requirements relating to used
car sales under the Authorized Trademarks. If Dealer does not comply fully
with these requirements, Dealer may not use any Authorized Trademarks in
connection with its used car sales, except that Dealer may use the word
"Volkswagen" to describe Authorized Automobiles, if this word appears in
characters and colors different from those usually employed by the
Manufacturer, VWoA and authorized dealers of VWoA. This Agreement does not
grant Dealer any license or permission to use Authorized Trademarks except as
mentioned herein, and Dealer has no right to grant any such permission or
interest.
Signs
(2) Dealer will display conspicuously at Dealer's Premises such
Authorized Signs at such locations as VWoA reasonably may require. Dealer
will use its best efforts to obtain all governmental approvals necessary for
such display. If Dealer transfers any of Dealer's Premises to another
location, Dealer immediately will remove all Authorized Signs and other
references to Authorized Products displayed at or around the prior location.
Stationery
(3) All stationery and business forms used in Dealer's Operations will
be prepared in accordance with Recommendations. Dealer's use of Authorized
Trademarks on stationery and business forms will be in accordance with
trademark standards supplied by VWoA.
Advertising
(4) Dealer will advertise Authorized Products and customer service for
Authorized Products only in accordance with reasonable guidelines and policies
established by VWoA. Dealer will refrain from all false, deceptive,
misleading or unlawful advertising. Dealer's advertising will include, among
other things, a listing in a principal local classified telephone directory in
Dealer's Area. Authorized Trademarks will be used for identification in all
2
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product and customer service advertising, in accordance with the provisions of
this Agreement. VWoA will provide or sell to Dealer sufficient quantities of
all legally required brochures, as well as all current sales, service and
parts literature and promotional materials, and Dealer shall prominently
display them and make them readily available.
Article 5
Sales
Sales Promotion
(1) Dealer will use its best efforts to promote the sale of Authorized
Automobiles in Dealer's Area, through regular contacts with owners, users, and
prospective owners and users of Authorized Products; through promotion,
prospecting, and follow-up programs; and through such means and at such levels
as may be indicated from time to time by the Operating Standards, Operating
Plan and Recommendations.
Sales Performance
(2) Dealer will achieve the best sales performance possible in
Dealer's Area for each model and type of Authorized Automobile. The
measurement for Dealer's yearly sales performance will be the objective
established in the applicable annual Operating Plan.
Sales Outside Area
(3) Subject to Dealer's performance of its obligations under Article
5(2), VWoA does not restrict Dealer's sale of Authorized Products within the
50 United States. VWoA hereby informs Dealer, however, that VWoA has no
authority to sell any products for distribution outside the United States, and
it is VWoA's policy not to do so. Dealer acknowledges its understanding that
this is intended to preserve the integrity of the orderly worldwide
distribution network for the products supplied to VWoA, and to maximize
customer satisfaction by ensuring that Authorized Products meet the
certification and operational standards to which they were designed. Dealer
therefore is authorized to sell new Authorized Products only in the 50 United
States, and is not authorized to, and agrees it will not, sell any new
Authorized Product for sale or use elsewhere.
Defective or Damaged Authorized Products
(4) If any Authorized Product sold by VWoA to Dealer should become
defective or damaged prior to its delivery by Dealer to a customer, Dealer
agrees to repair such defect or damage so that such Authorized Product is
placed in first-class salable condition prior to such delivery. Dealer
immediately will notify VWoA of any substantial defects or damage and will
follow such procedures for making damage claims as VWoA may establish from
time to time. VWoA shall have the option to repurchase any Authorized
Products with substantial defects or damage at the price at which they were
originally sold by VWoA, less any prior refunds or allowances made by VWoA and
less any insurance proceeds received by Dealer in respect of such defect or
damage. VWoA will make an equitable adjustment with respect to damage which
Dealer can demonstrate occurred prior to the time of delivery to Dealer. VWoA
will disclose to Dealer as may be required any damage which VWoA repaired
before delivering an Authorized Automobile to Dealer. Dealer will properly
disclose such repair prior to delivering such Authorized Automobile to a
customer, and will hold VWoA harmless from any claims that required disclosure
was not made.
Changes by Dealer to Authorized Products
(5) VWoA may request Dealer to make changes, or not to make changes,
to Authorized Products, and Dealer agrees to comply promptly with such
requests. Dealer also agrees to take such steps as VWoA may direct it to take
to comply with any law or regulation pertaining to safety, emissions, noise,
fuel economy or vehicle labeling. VWoA will reimburse Dealer at the
then-current rate of reimbursement specified by VWoA for Dealer for Genuine
Parts and for labor which may be used by Dealer in making such required
changes on Authorized Products. Parts and other materials necessary to make
such changes may be shipped to Dealer without Dealer's authorization and
Dealer will accept them. Dealer will receive credit for parts so shipped
which prove unnecessary, provided they are returned or disposed of in
accordance with VWoA's instructions. If the laws of the state in which Dealer
is located or a vehicle is to be registered require motor vehicles to carry
equipment not installed or supplied as standard equipment by the Manufacturer
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or VWoA, upon VWoA's request Dealer will, prior to selling any Authorized
Automobiles on which such installation is required, properly install at its
own or its customers' expense equipment conforming to such laws and to VWoA's
standards. Dealer agrees to indemnity the Manufacturer and VWoA and hold them
harmless against and from any and all liabilities that may arise out of
Dealer's failure or alleged failure to comply with any obligation assumed by
Dealer in this paragraph.
Product Changes by Dealer Neither Requested by VWoA nor Required by Law
(6) If Dealer installs on a new Authorized Automobile any equipment,
accessory or part other than a Genuine Part; sells any new Authorized
Automobile which has been modified; or sells in conjunction with a new
Authorized Automobile a service contract not offered or specifically endorsed
in writing by VWoA, then Dealer will advise the customer of the identity of
the warranter of such modification, equipment, accessory or part, or, in the
case of a service contract, of the identity of the provider of its coverage.
Dealer will indemnity VWoA against claims that may be asserted against VWoA in
any action by reason of such modification, equipment, accessory, part or
service contract. ANY UNAUTHORIZED MODIFICATION TO AUTHORIZED PRODUCTS BY
DEALER WHICH ADVERSELY AFFECTS THE SAFETY OR EMISSIONS OF AN AUTHORIZED
AUTOMOBILE WILL BE A VIOLATION OF THIS AGREEMENT AND CAUSE FOR TERMINATION
PURSUANT To ARTICLE 14(3).
Used Car Operations
(7) Dealer will use its best efforts to acquire, promote, and
sell at retail used Authorized Automobiles and other used automobiles.
Dealer's used car operations will conform to the requirements of the Operating
Standards, Operating Plan, Recommendations and such other reasonable standards
as VWoA may prescribe, after review with Dealer.
Article 6
Parts
Parts Promotion
(1) Dealer will use its best efforts to promote the sale of Genuine
Parts in Dealer's Area, through regular contacts with owners, users, and
prospective owners and users of Authorized Products; through promotion,
prospecting and follow-up programs; and through such means as may be indicated
from time to time by Recommendations.
Parts Department
(2) Dealer's parts department will conform to the requirements of the
Operating Standards, the Operating Plan and such other reasonable standards as
VWoA may prescribe, after review with Dealer.
Sales of Non-genuine Parts
(3) Dealer will not sell any parts which are not equivalent in quality
and design to Genuine Parts, if such parts are necessary to the mechanical
operation of Authorized Automobiles. Dealer will not represent as new Genuine
Parts any parts which are not new Genuine Parts. If Dealer sells a part or
accessory which is not a Genuine Part, Dealer will advise the customer of the
identity of the warrantor of such part or accessory.
Parts Inventory
(4) Dealer will maintain an inventory of Genuine Parts which is
sufficient to perform reasonably anticipated warranty -service and wholesale
trade requirements in Dealer's Area for Genuine Parts. VWoA will make
Recommendations for Dealer's inventory of Genuine Parts based on particular
conditions in Dealer's Area, and Dealer will give due consideration to such
Recommendations.
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Article 7
Service
Quality and Promotion of Service
(1) Dealer will provide the best possible customer service for all
owners of Authorized Automobiles and automobiles of the same make formerly
sold by VWoA, and will use its best efforts to promote its customer service.
Dealer's service facilities, equipment, and personnel will conform to the
requirements of the Operating Standards, Operating Plan and such other
reasonable standards as VWoA may prescribe, after review with Dealer.
Tools and Equipment
(2) Special tools and general workshop equipment meeting VWoA's
standards shall be available at Dealer's Premises in working condition.
VWoA's minimum standards shall be found in the Operating Standards and the
Operating Plan, which will be updated from time to time.
Use of Non-genuine Parts
(3) Dealer will not use in the repair or servicing of Authorized
Automobiles any parts which are not equivalent in quality and design to
Genuine Parts, if such parts are necessary to the mechanical operation of such
Authorized Automobiles. DEALER WILL USE ONLY GENUINE PARTS IN PERFORMING
WARRANTY SERVICE ON AUTHORIZED AUTOMOBILES DEALER WILL NOT REPRESENT AS NEW
GENUINE PARTS ANY PARTS USED BY IT IN THE REPAIR OR SERVICING OF AUTHORIZED
AUTOMOBILES WHICH ARE NOT NEW GENUINE PARTS.
Owner's Documents
(4) Upon delivering a new Authorized Automobile to a customer, Dealer
will provide the Owner's Documents supplied by VWoA for such Authorized
Automobile, properly completed by Dealer. Dealer will take all steps required
prior to delivery of the Authorized Automobile, and, in particular, will
perform properly the pre-delivery services specified by VWoA.
Maintenance and Other Services Without Customer Charge
(5) In accordance with bulletins, issued from time to time by VWoA and
VWoA's Warranties, certain maintenance services and other repairs following
delivery of a new Authorized Automobile may be free of charge to the
customer. Upon presentation of an appropriate Owner's Document, Dealer will
perform properly the services required, whether or not the Authorized
Automobile to be serviced was sold by Dealer. Upon the submission of
appropriate claims, VWoA will reimburse Dealer for performing such services at
the then-current rate of reimbursement specified by VWoA for Dealer. VWoA
will establish procedures for submitting and processing such claims and
transmitting reimbursements to Dealer. Dealer agrees to comply with these
procedures.
Requested Repairs
(6) Dealer will notify VWoA in writing or by electronic mail of
repairs to Authorized Automobiles pursuant to VWoA's Warranties under each of
the following circumstances:
(a) The Authorized Automobile has been brought to Dealer a
specified number of times for the same complaint; or
(b) The Authorized Automobile has been in Dealer's custody for
all repairs pursuant to VWoA's Warranties a specified number of days.
Such notification shall be made at the times and by the means VWoA
may have instructed in any then-current dealer warranty manual issued by VWoA.
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Article 8
Dealer's Purchases and Inventories
Purchase Prices
(1) VWoA will sell Authorized Products to Dealer at places and upon
terms established by VWoA from time to time. If VWoA increases its established
prices, Dealer may cancel all orders for Authorized Products affected by the
increase which are unfilled at the time Dealer receives notice of the
increase, by giving VWoA written notice of cancellation within ten days from
the time Dealer receives notice of the price increase.
Orders and Acceptance
(2) Dealer will transmit orders for Authorized Products to VWoA
electronically, at the times and for the periods, that VWoA reasonably
requires. With each order, Dealer represents that it is solvent. VWoA may
accept orders in whole or in part. Except as otherwise expressly provided in
Article 8(1), all orders of Dealer will be binding upon it until they are
rejected in writing by VWoA; however, in the event of a partial acceptance by
VWoA, Dealer will not be bound by the portion of the order not accepted.
Inventories
(3) Dealer will maintain in inventory at all times the assortment and
quantity of Authorized Products required by the Operating Standards, Operating
Plan or Recommendations.
Product Allocation
(4) Dealer recognizes that certain Authorized Products may not be
available in sufficient supply from time to time because of factors such as
product importation, consumer demand, component shortages, manufacturing
constraints, governmental regulations, or other causes. VWoA will endeavor to
make a fair and equitable allocation and distribution of the Authorized
Products available to it.
Taxes
(5) Dealer is responsible for any and all sales taxes, use taxes,
excise taxes (including luxury taxes) and other governmental charges imposed,
levied, or based upon the sale of Authorized Products by VWoA to Dealer.
Dealer represents and warrants, as of the date of the purchase of each
Authorized Product, that all Authorized Products purchased from VWoA are
purchased by Dealer for resale in the ordinary course of Dealer's business and
that Dealer has complied with all laws relating to the collection and payment
of all sales taxes, use taxes, excise taxes (including luxury taxes) and other
governmental charges applicable to the purchase of such products and will
furnish evidence thereof upon request. If any Authorized Products are put to
taxable use by Dealer, or are purchased by Dealer for purposes other than
resale in the ordinary course of Dealer's business, Dealer will make timely
return and payment to the appropriate taxing authorities of all applicable
taxes and other governmental charges imposed, levied, or based upon the sale
of such Authorized Products by VWoA to Dealer and will hold VWoA harmless with
respect thereto.
Payments to Dealer or Dealer's Personnel
(6) From time to time, VWoA may conduct incentive programs which
involve payments to Dealer or to Dealer's personnel. Dealer acknowledges that
regardless of the nature of such programs or payments, Dealer's personnel are
not employees, contractors or agents of VWoA. All matters relating to the
employment or retention of Dealer's personnel are solely Dealer's
responsibility. In the case of payments by VWoA to Dealer, Dealer alone will
be responsible for the payment of any and all applicable taxes. In the case
of payments to Dealer's personnel, VWoA will make appropriate information or
other returns to appropriate taxing authorities. In the event Dealer does not
want VWoA to make direct payments to Dealer's personnel, Dealer will notify
VWoA to that effect in writing. After receiving such written notice, VWoA
will pay directly to Dealer any subsequent payments coming due Dealer's
personnel. Dealer represents and warrants that it will pass such payments
directly through to Dealer's personnel as intended; that it will make any
necessary returns to any taxing authority; and that it will hold VWoA harmless
from any claims whatsoever that such payments were not received by the
intended recipients or that appropriate withholdings were not made. In the
event it is determined by any taxing authority that VWoA should not have made
payments to Dealer's personnel or that VWoA should have collected taxes in
respect of such payments, then VWoA will be responsible for such taxes.
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Payment by Dealer
(7) Dealer will pay for Authorized Products in the manner, at the
time, and upon the conditions specified in the terms of payment established
from time to time by VWoA. Delivery of instruments of payment other than cash
will not constitute payment until VWoA has collected the full amount in cash.
Dealer will pay all collection charges, including reasonable attorney's fees,
and costs of exchange, if any, incurred in connection with its payments.
Passing of Title; Security Interest
(8) Title to Authorized Products will remain with VWoA until VWoA has
collected their full purchase price in cash. Dealer will execute and deliver,
and VWoA is authorized to execute and deliver on behalf of Dealer or, to the
extent permitted by law, to file without the signature of Dealer, all
financing statements and other instruments which VWoA may deem necessary to
evidence its ownership of such Authorized Products. Dealer hereby grants VWoA
a purchase money security interest in all Authorized Products for which VWoA
has not collected in full, authorizes VWoA to take such steps as VWoA deems
necessary to perfect such security interests, and agrees to cooperate fully
with VWoA in connection therewith. VWoA may take possession at any time of
Authorized Products to which it has title.
Passing of Risks
(9) Authorized Products will be at Dealer's risk and peril from the
time of their delivery to Dealer or Dealer's agent. It will be up to Dealer
to insure such risks for its benefit and at its expense.
Responsibility for Defects and Damage
(10) VWoA assumes responsibility for the quality and condition of
Authorized Products, to the extent of (a) defects caused by its own negligence
and (b) damage caused or repaired prior to delivery of the Authorized Products
to Dealer or Dealer's agent. VWoA will make any required disclosure thereof
to Dealer. If VWoA has insured against such defects in or damage to
Authorized Products, VWoA's liability to Dealer for such damage will be
limited to the amount actually paid by the insurance carrier to VWoA by reason
of such defect of damage, together with any deductible amount applicable to
such claim. Dealer may decline to accept any Authorized Products delivered to
Dealer in damaged condition or with respect to which VWoA has notified Dealer
that VWoA has repaired damage; however, should Dealer accept such Authorized
Product Dealer will, subject to the provisions of Article 5(5), repair all
such defects and damage fully as required by VWoA before any defective or
damaged Authorized Product is delivered to a customer. Dealer will make any
required disclosure to Dealer's customers of damage or repairs, and will hold
VWoA harmless with respect thereto. VWoA will notify Dealer promptly of the
amount thereof, or any other amount due from VWoA pursuant to this paragraph,
following Dealer's submission of such proof of repair as VWoA may require.
Claims for Incomplete Delivery
(11) Dealer will make all claims for incomplete delivery of Authorized
Products (including the delivery of Authorized Products with damage) in
writing not later than three business days after Dealer's receipt of shipment;
provided, however, that Dealer will make claims as to Genuine Parts within the
period specified in policies established by VWoA from time to time; and
provided, further, that Dealer will note claims for visible damage to
Authorized Automobiles on the delivery receipt.
Changes of Specifications
(12) VWoA will deliver Authorized Products to Dealer in accordance with
specifications applicable at the time of their manufacture. In the event of
any change or modification with respect to any Authorized Products, Dealer
will not be entitled to have such change or modification made to any
Authorized Products manufactured prior to the introduction of such change or
modification. VWoA expressly reserves, and Dealer acknowledges, the right to
make such changes and modifications, and Dealer's only right in such event
shall be the cancellation of any orders for Authorized Products affected by
the change or modification and not yet accepted by VWoA-
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Failure of or Delay in Delivery by VWoA
(13) VWoA will not be liable to Dealer for failure of or delay in
delivery under orders of Dealer accepted by VWoA, other than failure or delay
resulting from willful misconduct or gross negligence of VWoA.
Return or Diversion on Dealer's Failure to Accept
(14) If Dealer fails or refuses for any reason to accept delivery of
any Authorized Products ordered by Dealer (except as permitted under Article
8(11)), Dealer will be liable to VWoA for all expenses incurred as a result of
such failure or refusal, and will store such Authorized Products at no charge
to VWoA until VWoA can arrange for their removal. Dealer's liability pursuant
to this paragraph will be in addition to, and not in lieu of any other
liabilities which may arise from Dealer's failure or refusal to accept
delivery.
Article 9
Warranty to Customers
VWoA's Warranties
(1) VWoA warrants each new Authorized Product as set forth in VWoA's
Warranties.
Incorporation of VWoA's Warranties in Dealer's Sales
(2) Dealer will make all sales of Authorized Automobiles and Genuine
Parts in such a way that its customers acquire all rights in accordance with
VWoA's Warranties and, to the extent permitted by law, no other express or
implied warranties. Dealer will make the text of VWoA's Warranties part of
its contracts for the sale of Authorized Products and will display the text of
the warranties of all products it sells in customer contact areas where
Authorized Products are offered.
Warranty Procedures
(3) Dealer agrees to comply with the provisions of the various dealer
warranty manuals which VWoA may issue from time to time, and will follow the
procedures established by VWoA for processing warranty claims and returning
and disposing of defective Genuine Parts. Dealer will also comply with all
requests of VWoA for the performance of services pursuant to warranty claims
and will maintain detailed records of time and parts consumption and any other
records used as the basis for submitting warranty claims. Dealer will submit
warranty claims to VWoA electronically, and in accordance with procedures
established by VWoA. Upon Dealer's compliance with such requests and
maintenance of such records, VWoA will reimburse Dealer within a reasonable
time for warranty claims at the then-current rate of reimbursement specified
by VWoA for Dealer. Strict adherence to the procedures and means established
for processing warranty claims is necessary for VWoA to process such claims
fairly and expeditiously. VWoA will be under no obligation with respect to
warranty claims not submitted electronically and not made strictly in
accordance with such procedures.
Article 10
Dealer's Record Keeping and Reports; Inspection of Dealer's Operations
Dealer's Forms, Business Machines, Office Equipment and Bookkeeping
(1) Dealer will use accounting, sales, bookkeeping and service
workshop forms; business machines; data processing and transmission equipment;
and other office equipment which meets specifications, and which enables
Dealer and VWoA to communicate electronically for all purposes and which
otherwise provides information and functions in the manner prescribed by VWoA
and its affiliates in the Operating Standards, the Operating Plan and by other
means. VWoA will advise Dealer, or ensure that suppliers to VWoA advise
Dealer, periodically of the hardware and software requirements, communications
protocols, and other specifications which Dealer's data processing and
transmission equipment must meet in order to satisfy the requirements of this
paragraph, and Dealer will timely adhere to such requirements, protocols and
specifications. Dealer will keep accurate and current records in accordance
with VWoA's uniform accounting system and with accounting practices and
procedures reasonably satisfactory to VWoA, in order to enable VWoA to develop
comparative data and to furnish Dealer business management assistance.
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Financial Statements to be Supplied by Dealer,
(2) Dealer will transmit to VWoA (a) on or before the tenth day of
each calendar month, in such form and by such methods as VWoA reasonably may
require, a financial and operating statement reflecting the consolidated
operations of Dealer for the preceding month and from the beginning of the
calendar year to the end of the preceding month and (b) within three and
one-half months after the close of Dealer's fiscal or calendar year, a
consolidated balance sheet and profit and loss statement of Dealer, which
documents shall be certified by a certified public accountant if so requested
by VWoA at least 30 days prior to the close of Dealer's fiscal or calendar
year. DEALER'S FAILURE TO PROVIDE FINANCIAL AND OPERATING STATEMENTS IN THE
FORMAT AND BY THE METHOD REQUIRED BY VWoA MAY RESULT IN THE REVOCATION OF
DEALER'S OPEN PARTS AND ACCESSORIES ACCOUNT.
Reports to be Supplied by Dealer
(3) Dealer will furnish to VWoA, on such forms and by such methods as
VwoA reasonably may require, accurate timely reports of dealer's sales and
transfers of new Authorized Automobiles. Dealer also will furnish to VWoA, on
a timely and accurate basis, such other reports and financial statements as
VWoA reasonably may require.
Inspection of Dealer's Operations and Records
(4) Until the expiration or termination of this Agreement, and
thereafter until consummation of all transactions referred to in Article 15,
VWoA, through its employees and other designees, at all reasonable times
during regular business hours, may inspect Dealer's Operations, Dealer's
Premises and the methods, records and accounts of Dealer relating to Dealer's
Operations.
Article I 1
Dealer Performance Review
Evaluation and Assistance
(1) Each year, VWoA will prepare objectives for Dealer and will use
them as a basis for evaluating Dealer's performance of its obligations in each
of the areas described in this Article 11 and in the Operating Standards and
the Operating Plan. VWoA may evaluate Dealer's performance during the year
through periodic reviews. VWoA's evaluations of Dealer shall take place at
least annually. VWoA will review its evaluations with Dealer, so that Dealer
may take prompt action, if necessary, to improve its performance to such
levels as VWoA reasonably may require. Any written comments received from
Dealer on VWoA's evaluation of Dealer will become a part of such evaluation.
Evaluation of Dealer's Vehicle Sales, Service and Parts Performance
(2) VWoA will evaluate the effectiveness of Dealer's vehicle sales,
service and parts performance in accordance with factors and measures set
forth in the Operating Standards, the Operating Plan and Recommendations.
Evaluation of Dealer's Promises
(3) VWoA will evaluate Dealer's performance of its responsibilities
pertaining to Dealer's Premises, analyzing both separately and collectively
Dealer's sales facilities, service facilities, parts facilities,
administrative offices, storage, parking and signage. In making such
evaluation, VWoA will consider the factors set forth in the Operating
Standards, the Operating Plan and Recommendations.
Evaluation of Dealer's Customer Satisfaction
(4) VWoA will evaluate Dealer's performance of its responsibilities
pertaining to customer satisfaction, analyzing both separately and
collectively the satisfaction of customers with Dealer's sales activities and
service activities. In making such evaluation, VWoA will utilize a uniform
measure of customer satisfaction, which will be disclosed to Dealer, and will
consider the factors set forth in the Operating Standards, the Operating Plan
and Recommendations.
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Dealer's Evaluation of VWoA
(5) VWoA will implement measures by which Dealer may periodically
evaluate the performance of VWoA, and in particular the performance of those
VWoA employees who are responsible for administering VWoA's relationship with
Dealer.
Article 12
Succeeding Dealers
Procedure
(1) If Dealer chooses to transfer its principal assets or change
owners, VWoA has the right to approve the proposed transferees, the new owners
and executives and, if different from Dealer's, their premises. VWoA will
consider in good faith any such proposal Dealer may submit to it during the
term of this Agreement. In determining whether the proposal is acceptable to
it, VWoA will take into account factors such as the personal, business and
financial qualifications of the proposed new owners and executives as well as
the proposal's effect on competition. In such evaluation, VWoA may consult
with the proposed new owners and executives on any aspect of the transaction
of their proposed dealership operations. Notwithstanding anything set forth
in this paragraph to the contrary, VWoA shall not be obligated to consider
such proposal if it previously had notified Dealer in writing that it would
not appoint a succeeding dealer in Dealer's Area; provided, however, that such
notice shall be given only if there is good cause for discontinuing
representation of Authorized Automobiles in Dealer's Area.
Approvals
(2) VWoA will notify Dealer in writing of the approval or disapproval
of a proposal by Dealer for transfer of principal assets or change of owners
within 45 business days, or the exercise by VWoA of its right of first refusal
under Article 12(3) within 30 calendar days, after Dealer has furnished to
VWoA all applications and information reasonably requested by VWoA to evaluate
such proposal. If VWoA approves Dealer's proposal, VWoA shall be obligated to
grant the proposed transferees only a Dealer Agreement in substantially the
same form as this Agreement. If VWoA had previously notified Dealer in
writing that VWoA would not appoint a succeeding dealer in Dealer's Premises,
then VWoA's approval of Dealer's proposal may be conditioned on the proposed
transferees agreeing to provide different facilities for their dealership
operations. Upon the consummation of Dealer's approved proposal, Dealer will
deliver to VWoA a voluntary termination of this Agreement, a general release
in favor of VWoA and payment in full for any net balance then owing from
Dealer to VWoA.
Right of First Refusal
(3) Whenever Dealer proposes to transfer its principal assets or change
owners of a majority interest, VWoA shall have the right to purchase such
assets or ownership interest, as follows:
(a) VWoA may elect to exercise its purchase right by written
notice to Dealer within 30 calendar days after Dealer has furnished to VWoA
all applications and information reasonably requested by VWoA to evaluate
Dealer's proposal.
(b) If Dealer's proposed sale or transfer was to a successor
approved in advance by VWoA, to any of Dealer's Owners, to Dealer's employees
as a group or to Dealer's spouse, children or heirs, then Dealer may withdraw
its proposal within 30 calendar days following receipt of VWoA's notice of
election of its purchase right.
(c) VWoA's right under this Article 12(3) shall be a right of
first refusal, permitting VWoA to:
(i) assume the proposed transferee's rights and
obligations under its agreement with Dealer; and
(ii) cancel this Agreement and all rights granted Dealer
hereunder., except to the extent specifically inconsistent with the terms of
this Agreement, the price and all other terms of VWoA's purchase shall be as set
forth in any bona fide written purchase and sale agreement between Dealer and
its proposed transferee and in any related documents.
(d) Dealer shall furnish to VWoA copies of all applicable
liens, mortgages, encumbrances, leases, easements, licenses or other documents
affecting any of the property to be transferred, and shall assign to VWoA any
permits or licenses necessary for the continued conduct of Dealer's Operations.
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(e) VWOA may assign its right of first refusal to any party it
chooses, but in that event VWoA will remain primarily liable for payment of the
purchase price to Dealer.
(f) If VWoA exercises its purchase right, VWoA will reimburse
Dealer's proposed transferee for reasonable documented actual expenses which
such proposed transferee incurred through the date of such exercise which are
directly and solely attributable to the transaction Dealer proposed.
(g) Nothing contained in this Article 12(3) shall require VWoA
to exercise its right of first refusal in any case, nor restrict any right VWoA
may have to refuse to approve Dealer's proposed transfer.
Succession
(4) Article 14(l)(a) notwithstanding, in the event of the death of any
of Dealer's Owners, VWoA will not terminate this Agreement by reason of such
death if:
(a) The owner's interest in Dealer passes directly as specified
in any Successor Addendum to this Agreement; or
(b) The owner's interest in Dealer passes directly to his or her
surviving spouse or children, or any of them, and (i) Dealer's Authorized
Representative remains as stated in the Statement of Ownership and Management
or (ii) within 90 days after the death of such owner Dealer appoints another
qualified individual as Dealer's Authorized Representative; provided, however,
that in this event VWoA will evaluate Dealer's performance during the 12
months following the owner's death. After the expiration of this 12-month
period and VWoA's evaluation of the performance of Dealer's management during
such period, VWoA will review with Dealer the changes, if any, in the
management or equity interests of Dealer required by VWoA as a condition of
extending this Dealer Agreement with Dealer. Any new Dealer Agreement entered
into pursuant to this paragraph will be in substantially the same form as the
Dealer Agreements then currently offered by VWoA to its dealers in Authorized
Automobiles generally.
Modification of Terms of Payment
(5) Upon receipt of an application for a replacement dealer agreement,
VWoA may modify its terms of payment with respect to Dealer to the extent VWoA
deems appropriate, irrespective of Dealer's credit standing or payment
history.
Article 13
Dispute Resolution
General Policy
(1) VWoA and Dealer agree as a general matter to work together to
minimize disputes between them. While understanding that certain Federal and
state courts and agencies may be available to resolve any disputes, VWoA and
Dealer agree that it is in their mutual best interest to attempt to resolve
certain controversies first through arbitration. VWoA and Dealer therefore
agree that the dispute resolution process outlined in this Article shall be
used before seeking legal redress in a court of law or before an
administrative agency, for all disputes arising under the following: Article
9(3) (Warranty Procedures), Article 12 (Succeeding Dealers), Article 14
(Termination), Article 15 (Rights and Liabilities Upon Termination) and
payments to Dealer in connection with VWoA incentive programs. In the event
that a dispute arises in connection with any other provision of this
Agreement, VwoA and Dealer may mutually agree to first submit the dispute to
arbitration, in accordance with the provisions of this Article. Both VWoA and
Dealer agree that the ultimate mutual goal of arbitration is to obtain a fair
hearing and prompt decision of the dispute, in an efficient and cost-effective
manner, and both agree to work toward that goal at all times hereunder.
Involuntary Non-Binding Arbitration
(2) Upon the written request of either VWoA or Dealer, a dispute arising
in connection with this Agreement may be submitted to non-binding arbitration.
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Voluntary Binding Arbitration
(3) As an alternative to Article 13(2) above, upon the written request
of Dealer, a dispute arising in connection with this Agreement will be
submitted to binding arbitration.
Rules of Conduct
(4) Arbitrations will be adjudicated under the auspices and in
accordance with the rules of the American Arbitration Association or another
mutually acceptable arbitration service, as well as the following provisions:
(a) Written requests for arbitration shall set forth a clear and
complete statement of the nature of the claim and its basis; the amount
involved, if any; and the remedy sought.
(b) The place of arbitration shall be the state in which
Dealer's Premises are located, or such other place as may be agreed upon by
the parties.
(c) Both parties shall make every reasonable attempt to agree
upon one arbitrator, but if they are unable to agree each shall appoint an
arbitrator and these two shall appoint a third arbitrator.
(d) Expenses of arbitration shall be divided equally between the
parties. The prevailing party shall not be entitled to reasonable attorneys
fees.
(e) The arbitrator(s) shall pass finally upon all questions,
both of law and fact, and his or her (or their) findings shall be conclusive.
(f) Pre-arbitration discovery shall be available to both parties
and shall be governed by the Federal Rules of Civil Procedure. Information
obtained by either party during the course of discovery shall be kept
confidential, shall not be disclosed to any third party, shall not be used
except in connection with the arbitration proceeding, and at the conclusion of
the proceeding, shall be returned to the other party. Both Dealer and VWoA
shall make their agents and employees available upon reasonable times and
places for pre-trial depositions without the necessity of subpoenas or other
court orders. Such discovery may be used as evidence in the arbitration
proceeding to the same extent as if it were a court proceeding.
Time for Decision
(5) Unless VWoA and Dealer specifically agree to the contrary, and
subject to the rules and procedures of the arbitration service chosen, the
arbitration hearing shall be concluded not more than 60 days after the date of
the written request to arbitrate, and the arbitration decision shall be
rendered not more than 90 days after the written request to arbitrate.
Provisional Remedies
(6) Either VWoA or Dealer may, without prejudice to the above
procedures, file a complaint if in its sole judgment such action is necessary
to avoid irreparable damage or to preserve the status quo.
Despite such action the parties will continue to participate in good
faith in the procedures specified in this Article 13.
Tolling Statute of Limitations
(7) All applicable statutes of limitation and defenses based upon
passage of time shall be tolled while the procedures specified in this Article
13 are pending. The parties will take such action, if any, required to
effectuate such tolling.
Performance to Continue
(8) VWoA and Dealer agree to continue to perform their respective
obligations under this Agreement ending final resolution of any dispute
arising out of or relating to this Agreement.
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Article 14
Termination
Immediate Termination by VWoA
(1) Except to the extent a greater notice period is required by any
applicable statute, VwoA has the right to terminate this Agreement for cause,
with immediate effect, by sending notice of termination to Dealer, if any of
the following should occur:
(a) Death of any of Dealer's Owners or any change, whether
voluntary or by operation of law, in the record or beneficial ownership of
Dealer without VWoA!s prior written consent; any change in Dealer's Executives
without prior notice to VWoA; or the failure of Dealer's Executives to
continue to manage Dealer's Operations (unless, in any of these cases, the
provisions of Article 12(4) above have been satisfied);
(b) Dissolution or liquidation of Dealer, if a partnership or
corporation;
(c) Insolvency of Dealer or voluntary institution by Dealer of
any proceeding under the Bankruptcy Act or state insolvency law; or the
involuntary institution against Dealer of any proceeding under the Bankruptcy
Act or state insolvency law which is not vacated within ten days from the
institution thereof; or the appointment of a receiver or other officer having
similar powers for Dealer or Dealer's business who is not removed within ten
days of his appointment; or any levy under attachment, execution or similar
process which is not within ten days vacated or removed by payment or bonding.
(d) Any attempted transfer of this Agreement by Dealer, in whole
or in part, without VWoAs prior written consent;
(e) Any change in the location of any of Dealer's Premises or
the establishment of any additional premises for Dealer's Operations without
VWoAs prior written consent;
(f) Failure of Dealer to continue to operate any of Dealer's
Premises in the usual manner for a period of five consecutive business days,
unless caused by an Act of God, war, riot, strike, lockout, fire, explosion or
similar event;
(g) Dealer's failure, for a period of ten consecutive business
days, to have any license necessary for the conduct of Dealer's Operations;
(h) Conviction of Dealer or any of Dealer's Owners or Executives
of a felony or any misdemeanor involving fraud, deceit or an unfair business
practice, if in VWoAs opinion such conviction may adversely affect the conduct
of Dealer's business, or be harmful to the good will of the Manufacturer or
VWoA or to the reputation and marketing of Authorized Products;
(i) Any material misrepresentation by any of Dealer's Owners or
Executives as to any fact relied upon by VWoA in entering into this Agreement;
Submission by Dealer of fraudulent or knowingly false report
or statement or claim for reimbursement, refund or credit; or
(k) Failure or refusal of Dealer or Dealer's Owners, Executives,
agents or employees to provide VWoA, upon request, with access to and the
opportunity to inspect and copy all books, papers, instruments, certificates
or other documents evidencing the record or beneficial ownership of Dealer.
Termination by VWoA on 30 Days' Notice
(2) Except to the extent a greater notice period is required by any
applicable statute, VWoA has the right to terminate this Agreement upon 30
days' notice if any of the following shall occur:
(a) Any disagreement or personal difficulties of Dealer's Owners
or Executives which in VWoA's opinion may adversely affect the conduct of
Dealer's business, or the presence in the management of Dealer of any person
who in VWoA's opinion does not have appropriate qualifications for their
position;
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(b) impairment of the reputation or financial standing of Dealer
or any of Dealer's Owners or Executives or ascertainment by VWoA of any fact
existing at or prior to the time of execution of this Agreement which tends to
impair such reputation or financial standing; or
(c) The failure of Dealer to meet its minimum customer
satisfaction requirements, including, but not necessarily limited to, measures
for sales satisfaction and service satisfaction, as established by VWoA for
its dealers generally, from time to time, and as set forth in then current
Operating Standards issued by VWoA to its dealers generally, within 180 days
after notice by VWoA to Dealer that Dealer has not met such requirements.
Termination by VWoA on 90 Days' Notice
(3) Except to the extent a greater notice period is required by any
applicable statute, VWoA has the right to terminate this Agreement upon 90
days' notice in the event of the breach by Dealer of any obligation of Dealer
pursuant to this Agreement or any other agreement between VWoA or any of its
subsidiaries or affiliates and Dealer, other than those enumerated in Articles
14(1) or 14(2) above.
Discussions with Dealer
(4) Upon learning that any event or situation which would give VWoA
grounds to terminate this Agreement has occurred, VWoA will endeavor to
discuss such event or situation with Dealer. Thereafter, VWoA may give Dealer
written notice of termination.
Modification of Terms of Payment
(5) During the period a situation specified in Article 14(1), 14(2) or
14(3) continues to exist, VwoA may modify its terms of payment with respect to
Dealer to such extent as VWoA may consider appropriate, irrespective of
Dealer's credit standing or payment record.
No Waiver by Failure to Terminate
(6) Should VWoA be entitled to terminate this Agreement but fail to do
so, such failure shall not be considered a waiver of VWoA's right to terminate
this Agreement unless the situation entitling VWoA to terminate this Agreement
has ceased to exist and (a) six months have elapsed from the time VWoA
obtained knowledge of such situation or (b) VWoA has entered into a subsequent
written agreement with Dealer superseding this Agreement. Nevertheless, any
situation entitling VWoA to terminate this Agreement may be considered at any
subsequent time together with any subsequent events in determining VWoA's
right to terminate this Agreement.
Termination by Dealer
(7) Dealer has the right to terminate this Agreement without cause by
VWoA giving 60 days' written notice of such termination. Upon receipt of
Dealer's notice of termination, VWoA may, at VWoA's option, waive in writing
the 60 day notice period. In the event Dealer, in connection with its
termination of this Agreement, also wishes to terminate any other agreement
between Dealer and VWoA or any of VWoA's subsidiaries or affiliates, Dealer
must do so separately and subject to the provisions of Article 14(10) below.
Continuation of Business Relations after Termination
(8) Any business relations between VWoA and Dealer after the termination of
this Agreement without a written extension or renewal or a new written dealer
agreement will not operate as an extension or renewal of this Agreement or as a
new dealer agreement. Nevertheless, all such business relations, so long as they
are continued, will be governed by terms identical with the provisions of this
Agreement.
Superseding Agreements
(9) If any superseding form of Dealer Agreement is offered by VWoA to its
authorized dealers generally at any time, VWoA may, by written notice to Dealer,
terminate this Agreement and replace it with a Dealer Agreement in the
superseding form.
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Agreement with Affiliates of VWoA
(10) The termination of this Agreement by either party does not
necessarily waive or terminate any other agreement between Dealer and VWoA or
any of its subsidiaries or affiliates. Such other agreements may be
terminated only in accordance with their terms, and the parties' respective
obligations under any such other agreements will continue in accordance with
their terms until terminated.
Article 15
Rights and Liabilities upon Termination
VWoA's Obligations
(1) Within 90 days after the termination of this Agreement pursuant to
Article 14, VWoA will purchase from Dealer and (subject to the provisions of
Article 1 5(4) below) Dealer will sell to VWoA all the following:
Now Authorized Automobile Inventory
(a) All new, undamaged current model year Authorized Automobiles (introduced
in the United States no earlier than 12 months prior to the date of such
expiration or termination and not superseded by a later model year) in
Dealer's inventory on the date of such expiration or termination which are in
first-class salable condition, provided they (i) have 200 or fewer actual
miles; (ii) were sold by VWoA and purchased by Dealer from VWoA (or in the
ordinary course of business from other dealers of Authorized Automobiles
appointed by VWoA) and (iii) have never been sold by Dealer. The price for
such Authorized Automobiles will be the price at which they were originally
sold by VWoA, less all prior refunds or allowances made by VWoA, if any.
New Genuine Parts Inventory
(b) All the following new, unused and undamaged articles listed in VWoA's
current Genuine Parts Price List (other than articles listed as obsolete) in
Dealer's inventory on the date of such expiration or termination which are in
first-class salable condition and complete, provided they were purchased by
Dealer from VwoA and never sold by Dealer:
(i) New parts and new factory remanufactured replacement parts
supplied by VWoA for Authorized Automobiles;
(ii) Accessories considered by VWoA to be suitable for installation in
the current model year Authorized Automobiles specified in Article 1 5(l)(a);
and
(iii) other accessories, provided that VWoA has made sales of identical
articles during six of the last twelve full calendar months immediately
preceding such expiration or termination.
The price for all such articles will be the price then last established by
VWoA for the sale of identical articles, less a handling charge equal to ten
percent of such amount and less all prior refunds or allowances made by VWoA;
Tools and Equipment
(c) All special tools and equipment for servicing Authorized Automobiles
owned by Dealer on the date of expiration or termination which are in
operating condition and complete, provided they were purchased by Dealer from
VWoA or pursuant to written requests of VWoA. The price for such tools and
equipment will be the fair market value thereof; and
Authorized Signs
(d) All Authorized Signs which Dealer displayed publicly or at Dealer's
Premises. The price for such Authorized Signs will be the fair market value
thereof.
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Terms of Sale
(2) Any and all items to be sold by Dealer to VWoA pursuant to this
paragraph will be delivered by Dealer to VWoA at Dealer's place of business
suitably packed for transportation. For such periods of time as VWoA
reasonably may determine, VWoA may enter Dealer's Premises for the purpose of
taking an inventory of all or any part of Dealer's stock of Authorized
Products and special tools and equipment. At the request of VWoA, Dealer will
comply in all respects with the provisions of all applicable bulk sales acts
or similar statutes protecting a transferee of personal property with respect
to liabilities of the transferor. Promptly following performance by Dealer of
all its obligations pursuant to this Article 15, the completion by VWoA of
all steps required to obtain possession of such items and the delivery to VWoA
of a bill of sale, documents of title and a general release of VWoA and the
Manufacturer from Dealer and Dealer's Owners, all in form satisfactory to
VWoA, WoA will pay Dealer the specified prices for the said items, less all
amounts owed by Dealer to VWoA, its subsidiaries or affiliates. VWoA will not
be required to purchase any item from Dealer pursuant to this paragraph unless
Dealer is able to convey to VWoA, within such 90-day period, title to such
item free and clear of all liens, claims, encumbrances and security interests.
Pending Orders and Dealer's Obligations
(3) Upon the expiration or termination of this Agreement, all pending
orders of Dealer for Authorized Products previously accepted by VWoA will be
canceled and Dealer immediately will:
Removal of Authorized Signs
(a) Remove at its own expense all Authorized Signs which it
displayed publicly or at its premises;
Authorized Trademarks
(b) Cease all usage of the Authorized Trademarks, cease to hold
itself out as an authorized dealer in Authorized Automobiles, destroy all
stationery and other printed material bearing any Authorized Trademark, and,
if its corporate or business name contains any Authorized Trademark, take all
steps to remove the same therefrom;
Orders and Files
(c) Transfer to VwoA
(i) all orders for sale by Dealer of
Authorized Products then pending with Dealer,
(ii) all deposits made thereon, whether
in cash or property;
(iii) all Dealer's warranty records for Authorized Products
or complete copies of all such records and files; and
(iv) all Dealer's customer service files. Upon the written
request of Dealer, VWoA will return such customer service files to Dealer
after VWoA has made copies of such flies at VWoA's expense;
Customer Lists
(d) Make available to VWoA in writing the names and addresses of
all its service customers and prospective customers for Authorized Products;
and
Literature
(e) Deliver to VWoA at Dealer's place of business, free of
charge, all technical or service literature, advertising and other printed
material relating to Authorized Products, including sales instruction manuals
or promotional material, then in Dealer's possession and which were acquired
by Dealer from VWoA.
None of the foregoing will result in any liability of VWoA to
Dealer for damages, commissions, loss of profits or compensation for services,
or in any other liability of VWoA to Dealer of any kind of nature whatsoever.
Direct Sales by Dealer
(4) Upon Dealer's written request, VWoA may waive Dealer's obligation
to sell certain assets to VWoA and will consent to Dealer's sale of any of or
all its assets to any party of Dealer's choosing; provided, however, that
Dealer may not sell any new Authorized Automobile, Authorized Sign nor any new
Genuine Parts to any person or entity other than another dealer in the same
line-make authorized by VWoA.
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Specific Performance
(5) Since Dealer's obligations under this Article 15 are of such a
nature that it is impossible to measure in money the damages which will be
suffered by VWoA if Dealer should fail to perform any of them, Dealer agrees
that, in the event of any such failure of performance on its part, VWoA will
be entitled to maintain an action to compel the specific performance by Dealer
of these obligations and Dealer agrees not to assert in any such action the
defense that VWoA has an adequate remedy at law.
Article 16
Definitions
Throughout this Agreement various abbreviations and abbreviated phrases
have been used. Their meanings are:
Authorized Automobiles
(1) "Authorized Automobiles" means motor vehicles of the Volkswagen
brand and comprising such models and types as may be supplied by VWoA during
the term of this Agreement.
Authorized Products
(2) "Authorized Products" means Authorized Automobiles and Genuine
Parts.
Authorized Representative
(3) "Authorized Representative" means a qualified representative of
Dealer whose full-time professional efforts are devoted to the conduct of
Dealer's Operations and who is authorized on behalf of Dealer to execute
documents, make all operational decisions with respect to Dealer's Operations,
and on whose authority VWoA is entitled to rely.
Authorized Signs
(4) "Authorized Signs" means displays of any Authorized Trademark, in
such material, type, presentation and colors as VWoA may prescribe from time
to time.
Authorized Trademarks
(5) "Authorized Trademarks" means any trademark, service mark or trade
name now or any other time hereafter used or claimed by the Manufacturer or
VWoA.
Dealer's Area
(6) "Dealer's Area" means the area designated by VWoA in the Operating
Plan for Dealer's Operations, corresponding to U.S. census tract information.
Dealer's Executives
(7) "Dealer's Executives" means all the persons named in Paragraphs 5
and 6 of the Statement of Ownership and Management as officers or the
Authorized Representative of Dealer, as well as any other person who succeeds
to any position in Dealer referred to in such paragraphs in accordance with
the provisions of this Agreement.
Dealer's Operations
(8) "Dealer's Operations" means all activities of Dealer relating to
the promotion and sale of Authorized Products, the supply of Genuine Parts,
customer service for Authorized Products and all other activities of Dealer
pursuant to this Agreement.
Dealer's Owners
(9) "Dealer's Owners" means all the persons named in Paragraph 4 of
the Statement of Ownership and Management as beneficial or record owners of
Dealer, as well as any other person who acquires or succeeds to any beneficial
interest or record ownership in Dealer in accordance with the provisions of
this Agreement.
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Dealer's Promises
(10) "Dealer's Premises" means all premises referred to in the Dealer
Premises Addendum and used by Dealer for or in connection with Dealer's
Operations, including sales facilities, service workshops, offices, facilities
for storage of Authorized Automobiles and Genuine Parts, used car sales
facilities and parking facilities.
Genuine Parts
(11) "Genuine Parts" means new and factory rebuilt replacement parts,
accessories and optional equipment for Authorized Automobiles if such parts,
accessories and optional equipment are supplied by VWoA.
Manufacturer
(12) "Manufacturer" means any supplier of Authorized Products to VWoA,
including as appropriate, but not limited to, Audi AG, a German corporation,
and Volkswagen AG, a German corporation.
Not Working Capital, Owner's Equity and Wholesale Credit
(13) "Net Working Capital," "Owner's Equity" and "Wholesale Credit"
shall have the meanings set forth in the Operating Standards, the Operating
Plan and in accordance with generally accepted accounting principles.
Operating Plan
(14) "Operating Plan" means the Dealer Operating Plan then-currently
established by VWoA for dealers of Authorized products, determined in
cooperation with Dealer, as well as any amendments thereof or additions
thereto by VWoA during the term of this Agreement.
Operating Standards
(15) "Operating Standards" means the Volkswagen Dealer Operating
Standards issued by VWoA to its Volkswagen dealers, including any amendments,
revisions or additions, from time to time during the term of this Agreement.
Owner's Documents
(16) "Owner's Documents" means all the documents which are supplied by
VWoA in respect of each Authorized Automobile and which are intended for the
customer, including, but not limited to, the Owner's Manual, Warranty Booklet
and Maintenance Booklet.
Recommendations
(17) "Recommendations" means written suggestions provided by VWoA to
Dealer from time to time during the term of this Agreement, as well as all
currently applicable written suggestions previously provided by VWoA.
VWoA
(18) "VWoA" means Volkswagen of America, Inc., a New Jersey
corporation, and includes, as appropriate, all divisions of that corporation.
VWoAs Warranties
(19) "VWoAs Warranties" means, with respect to each Authorized Product,
those express written warranties provided with such product or as set forth in
the Dealer Warranty Manual for Authorized Products in effect at the time such
product is first sold at retail, as well as any express written warranties
which VWoA may issue with respect to any product during the course of its
service life.
Article 17
General Provisions
Dealer Not an Agent
(1) Dealer will conduct all Dealer's Operations on its own behalf and
for its own account. Dealer has no power or authority to act for the
Manufacturer or VWoA.
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Authority to Sign
(2) Dealer acknowledges that only an Area Executive is authorized on
behalf of VWoA to execute this Agreement or to agree to any variation,
modification or amendment of any of its provisions or to sign any notice of
termination, and that such Agreement, variation, modification, amendment or
notice of termination must be countersigned by the President, a Vice
President, the Secretary, an Assistant Secretary or a Regional Team Leader of
VWoA.
Variations; Modifications; Amendments
(3) This Agreement may not be varied, modified or amended except by an
express instrument in wilting to that effect signed on behalf of both VWoA and
Dealer.
Entire Agreement
(4) This instrument contains the entire agreement between the
parties. No representations or statements other than those expressly set
forth or referred to herein were made or relied upon in entering into this
Agreement.
Release of Claims under Prior Agreement
(5) This Agreement terminates and supersedes all prior agreements with
respect to Authorized Products between the parties, if any. The parties
hereby waive, abandon and relinquish any and all claims of any kind and nature
arising out of or in connection with any such prior agreement, except for any
accounts payable by one party to the other as a result of the purchase of any
Authorized Products, audit adjustments or reimbursement for any services.
Agreement Non-transferable
(6) No part of this Agreement nor any interest in this Agreement may
be transferred by Dealer without the prior written consent of VWoA.
Defense and Indemnification
(7) VWoA will, upon Dealer's written request:
(a) Defend Dealer against any and all claims for breach of VWoAs
Warranties, bodily injury or death, or for physical damage to or destruction
of property, that. during the term of this Agreement, may be asserted against
Dealer in any action solely by reason of a manufacturing defect or design
deficiency in
(i) an Authorized Product; or
(ii) a product of the same line-make formerly supplied by
VWoA pursuant to a former dealer agreement; and
(b) Hold Dealer harmless from any and all settlements made and
final judgments rendered with respect to such claims; provided, that in each
case Dealer promptly notifies VWoA in writing of the commencement of such
action against Dealer and cooperates fully in the defense of such action in
such manner and to such extent as VWoA may require. However, such defense
and indemnification by VWoA will not be required if any fact indicates that
any negligence, error, omission, act, failure, breach, statement or
representation of Dealer may have caused or contributed to the claim asserted
against Dealer or if VWoA determines that such action seeks recovery for
allegations other than those described in Article 17(7)(a).
Notices
(8) Any notices under or pursuant to the provisions of this Agreement
will be directed to the respective addresses of the parties stated herein, or,
if either party shall have specified another address by notice in writing to
the other party, to the address thus last specified. Unless otherwise provided
herein, notices shall be deemed effective if sent by certified mail with
return receipt requested; by overnight service having a reliable means of
confirming delivery; or by personal delivery to any of Dealer's Owners or
Executives. Notices shall be deemed effective when received.
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Waivers
(9) The waiver by either party of any breach or violation of or
default under any provision of this Agreement will not operate as a waiver of
such provision or of any subsequent breach or violation thereof or default
thereunder. The failure or refusal of VWoA to exercise any right or remedy
shall not be deemed to be a waiver or abandonment of any such right or remedy.
Titles
(10) The titles appearing in this Agreement have been inserted for
convenient reference only and do not in any way affect the construction,
interpretation or -meaning of the text.
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EX-10
Exhibit 10.23.2 Lease
EXHIBIT 10.23.2
LEASE
THIS AGREEMENT OF LEASE made and entered into by and between PAUL H.
SNIDER ("Lessor" hereinafter) and DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC.,
a Delaware corporation ("Lessee" hereinafter).
NOW THEREFORE, the parties agree as follows:
1. PREMISES:
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor
that certain real property and improvements in the County of Washoe, State of
Nevada, and more particularly described in Exhibit "A", attached hereto and
made a part hereof ("Leased Premises" hereinafter) also known as 7175 S.
Virginia, Reno, Nevada.
2. TERMS AND POSSESSION:
The term of the within lease shall be for ten (10) years, and shall
commence on October 17, 1989, and end on October 16, 1999.
3. RENT:
(a) Lessee shall pay to Lessor the sum of Thirty Thousand Dollars
($30,000) as and for minimum monthly rent during the term hereof, together
with such additional amounts as are otherwise provided herein. Minimum
monthly rent shall be payable in advance, in monthly installments of Thirty
Thousand Dollars ($30,000) per month, on the first day of each month, without
abatement, deduction, or offset. Prorated rent for the portion of the term
hereof commencing October 17, 1989 and ending October 31, 1989, in the sum of
Fourteen Thousand Seven Hundred Ninety Five Dollars ($14,795.00), shall be
due and payable on October 17, 1989. Minimum monthly rental installments of
Thirty Thousand Dollars ($30,000.00) shall be payable on the first day of
each month thereafter during the remainder of the term hereof.
(b) The minimum monthly rent provided for herein shall be subject to
adjustment at the commencement of the third, fifth, seventh and ninth years
(every two years) of the term hereof ("the Adjustment Date" hereinafter) as
follows:
The base for computing the adjustment is The Consumer Price Index for
All Urban Consumers (base year 1983-1984 = 100) for San Francisco-Oakland-San
Jose, California, published by the United States Department of Labor, Bureau
of Labor Statistics ("Index" hereinafter), which is in effect on the date of
the commencement of the original term ("Beginning Index" hereinafter). The
Index published most immediately preceding the Adjustment Date in question
("Extension Index" hereinafter) is to be used in determining the amount of
the adjustment. If the Extension Index has increased over the Beginning
Index, the minimum monthly rent for the third and fourth, fifth and sixth,
seventh and eighth, and ninth and tenth year periods of the term hereof,
shall be set by multiplying the minimum monthly rent for the month
immediately preceding the Adjustment Date by a fraction, the numerator of
which is the Extension Index and the denominator of which is the Beginning
Index. In no case shall the minimum monthly rent be less than the then
existing minimum monthly rent. On adjustment of the minimum monthly rent as
provided in this lease, the parties shall immediately execute an amendment of
this lease stating the new minimum monthly rent.
If the Index is changed so that the base year differs from that in
effect when the term commences, the Index shall be converted in accordance
with the conversion factor published by the United States Department of
Labor, Bureau of Labor Statistics. If the Index is discontinued or revised
during the term, such other government index or computation with which it is
replaced shall be used in order to obtain substantially the same result as
would be obtained if the Index had not been discontinued or revised.
4. ENTRY AND INSPECTION.
The Lessee shall permit Lessor and his agents, upon one day's prior
written notice to enter the demised premises at all reasonable times for any
of the following purposes: To inspect the same; to maintain the building in
which the said premises are located; to make such repairs to the demised
premises as Lessor is obligated or may elect to make; to post notices of
nonresponsibility for alterations or additions or repairs. Lessor shall have
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such right of entry and the right to fulfill the purpose thereof without any
rebate of rent to Lessee for any loss of occupancy or quiet enjoyment of the
demised premises thereby occasioned.
5. REPAIRS.
By entry hereunder, Lessee accepts the leased premises and leased
improvements as being in good and sanitary order, condition and repair, and
agrees on the last day of the term hereof, or sooner termination of this
Lease, to surrender unto Lessor all singular said premises and improvements
with the appurtenances in the same condition as when received, reasonable use
and wear thereof excepted. Throughout the term, Lessee shall, at Lessee's
sole cost and expense, maintain the premises and all improvements in good
condition and repair, required through misuse and ordinary wear and tear, and
in accordance with all applicable environmental laws, laws, rules,
ordinances, orders and regulations of (1) federal, state county, municipal,
and other governmental agencies and bodies having or claiming jurisdiction
and all their respective departments, bureaus, and officials; (2) the
insurance underwriting board or insurance inspection bureau having or
claiming jurisdiction; and (3) all insurance companies insuring all or any
part of the premises or improvements or both. In the event Lessee fails to
so keep and maintain the leased premises, Lessor may cause the same to be
done at the expense of Lessee, and Lessee shall reimburse Lessor upon written
demand. Lessor shall make and pay for all repairs required because of
original construction defects.
Nothing in this provision defining the duty of maintenance shall be
construed as limiting or enlarging any right given elsewhere in this lease to
alter, modify, demolish, remove, or replace any improvement, or as limiting
provision relating to condemnation or to damage or destruction of the
premises. No deprivation, impairment, or limitation or use resulting from an
event or work contemplated by this paragraph shall entitle Lessee to offset,
abatement, or reduction in rent nor to any termination or extension of the
term.
6. INSURANCE:
At all times during the original and any extended term hereof, Lessor
shall keep the leased premises so insured (and Lessee shall reimburse and pay
to Lessor) the premiums for all casualty loss with extended coverage, full
replacement cost insurance, on the building and improvements of the leased
premises. Annually, after the first insurance year, prior to the renewal
date of any such insurance, Lessor shall notify Lessee in writing of the full
replacement value as determined by Lessor, in Lessor's sole discretion, and
the anticipated premium for the insurance. Lessee shall have the option of
obtaining the required insurance at a more favorable premium, and, if
successful, shall so notify Lessor and obtain such insurance. Lessor shall
cause the insurance carrier to provide to Lessee a certificate of insurance
showing the coverage and limits, which shall name Lessor as a loss payee.
7. TAXES:
At all times during the term or any extension hereof, Lessor shall pay
all annual county taxes and assessments and/or any other taxes or assessments
of any governmental authority now or hereafter created, levied, or assessed
against the real property and/or improvements of which the leased premises
are a part. Lessee shall pay to Lessor as additional rental a sum equal to
the amount of such taxes and assessments. Said sum shall be paid by Lessee
to Lessor, on demand, at the option of Lessor, either in full or monthly in
twelve equal installments during the fiscal year when the same are incurred.
Lessee shall pay all taxes levied or assessed against its property, located
on the leased premises.
8. UTILITIES:
Lessee shall pay for all utilities and other services supplied to the
leased premises.
9. ASSIGNMENT AND SUBLETTING.
Except as hereinafter provided in an assignment or sublease to a
related entity or to a former stockholder or stockholders of Lessee, said
Lessee shall not voluntarily assign or encumber its interest in this lease or
in the premises, or sublease all or any part of the premises, or allow any
other person or entity (except Lessee's authorized representatives) to occupy
or use all or any part of the premises, without first obtaining Lessor's
consent. Except as hereinafter provided, any such assignment, encumbrance,
or sublease without Lessor's consent shall be voidable and, at Lessor's
election, shall constitute a default. The Lessor shall not unreasonably
withhold such consent. No consent to any assignment, encumbrance, or
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sublease shall constitute a further waiver of the provisions of this
paragraph. Lessee may assign, sublease all or any part of the premises, or
otherwise transfer the within lease to a corporation or partnership in which
Lessee or its shareholders maintain controlling interest.
Any dissolution, merger, consolidation, or other reorganization Lessee,
or the sale or other transfer of a controlling percentage of the capital
stock of Lessee, or the sale of Fifty One Percent (51%) of the value of the
assets of Lessee, shall be deemed a voluntary assignment. The phrase
"controlling percentage" means the ownership of, and the right to vote, stock
possessing at least Fifty One Percent (51%) of the total combined voting
power of all class of Lessee's capital stock issued, outstanding, and
entitled to vote for the election of directors.
10. INSOLVENCY:
If any proceedings in bankruptcy or insolvency be filed against Lessee,
or if any Writ of Attachment or Execution be levied upon the interest herein
of Lessee, and such proceedings or levy shall not be released or dismissed
within sixty (60) days thereafter, or if any sale of the leasehold interest
hereby created or any part thereof should be made under any execution or
other judicial process, or if Lessee shall make any assignment for benefit of
creditors, or shall voluntarily institute bankruptcy or insolvency
proceedings, Lessor at his election, may re-enter and take possession of said
premises and remove all persons therefrom, and may at this option terminate
this Lease.
11. NONWAIVER OF DEFAULT:
The subsequent acceptance of rent hereunder by Lessor shall not be
deemed a waiver of any preceding breach of any obligation hereunder by Lessee
other than the failure to pay the particular rental so accepted, and the
waiver of any breach of any covenant or condition by Lessor shall not
constitute a waiver of any other breach regardless of knowledge thereof.
12. INDEMNITY:
Except for claims arising out of the acts of the Lessor or its agents,
servants, employees or representatives, Lessee hereby agrees to indemnify and
defend Lessor against and to hold Lessor harmless from any and all claims or
demands for loss of or damage to property or for injury or death of any
person from any cause whatsoever (except the negligent or intentional act of
Lessor) and claims, demands, costs and expenses relating to all laws,
environmental laws, regulations, and court or administrative orders, arising
out of the Lessee's use or occupancy of the leased premises. Upon the
commencement of the term provided for herein, or sooner at the option of
Lessee, Lessee shall secure and maintain at his own expense at all times
during the term hereof, public liability insurance, insuring both Lessor and
Lessee against any claims for damages arising out of or connected with said
leased premises, with policy limits in the usual form in the sum of Three
Million Dollars ($3,000,000) single limit for personal injury, and the sum of
Five Hundred Thousand Dollars ($500,000) for property damage. Such policy or
policies for certificates for duplicates of existing policies shall
immediately upon their issuance be delivered by Lessee to Lessor and
thereafter held by Lessor.
13. ALTERATIONS:
(a) The Lessee shall not make, or suffer to be made, any alterations
of the said premises, or any part thereof, without the written consent of the
Lessor first had and obtained, and any additions to or alterations of, the
said premises shall become at once a part of the realty and belong to the
Lessor. Lessee shall retain title to all movable furniture and trade
fixtures and equipment placed in the property by it. Provided Lessee is not
in default hereunder, upon a surrender or expiration of the lease, Lessee may
remove such items of personal property owned and installed by Lessee. Upon
such removal, Lessee shall leave the leased premises in an undamaged
condition. If written consent of the Lessor to any proposed alterations by
Lessee shall have been obtained, Lessee agrees to advise Lessor in writing of
the date upon which such alterations will commence in order to permit Lessor
to post notice of nonresponsibility. Lessee shall keep the demised premises
free from any and all liens arising out of any work performed, materials
furnished, or obligations incurred by Lessee.
(b) Upon prior written notice to Lessor, Lessee may remove any
buildings or improvements constructed by it on the Leased Premises at the end
of the lease term if the real property can be restored to its condition prior
to such construction and without otherwise harming or devaluing the real
property.
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14. LAWS AND REGULATIONS:
(a) Lessee at its own cost and expense shall comply promptly with all
laws, rules, and orders, environmental or otherwise, of all federal, state,
and municipal governments, or departments, which may be applicable to its use
of the leased premises and any and all business and enterprises conducted
thereon by Lessee, and shall likewise promptly comply with the requirements
of the Fire Department of the City of Reno concerning the premises.
(b) Lessee shall at its own cost petition all the appropriate
governmental agencies for the purpose of obtaining all variances, use, and
other permits necessary for the conduct of Lessee's intended business at the
premises, and Lessee's use and occupancy of the leased premises.
15. HOLDING OVER:
Any holding over after the expiration of the said term, with the
consent of the Lessor, shall be construed to be a tenancy from month to
month, and shall be on the terms and conditions herein specified, so far as
applicable.
16. SUBORDINATION AGREEMENT:
This lease shall be subject and subordinate at all times to the lien of
any mortgage or mortgages or trust deed or trust deeds which may now exist
upon or which may be placed upon the leased premises or the property of which
the leased premises are a part, and Lessee agrees that it will execute and
deliver to Lessor, or to the nominee of Lessor, property subordination
agreements to this effect at any time upon the request of Lessor and without
payment being made therefor. Provided, however, so long as Lessee performs
its obligations under this Lease, its interest shall be recognized by the
holder of any such mortgage or trust deed, and no foreclosure of, deed given
in lieu of foreclosure of, or sale under the encumbrance, and no steps or
procedures taken under the encumbrance, shall affect Lessee's rights under
this Lease provided Lessee attorns to the holder of such encumbrance, or the
purchaser at any foreclosure sale, or to any grantee or transferee designated
in any deed given in lieu of foreclosure. Lessee agrees to execute any
written agreement and other documents required by any lender, purchaser, or
transferee, to accomplish the purpose of this paragraph.
17. SECURITY NOT A DEFENSE:
Nothing herein contained and no security or guarantee which may now or
hereafter be furnished to Lessor for the payment of the rental provided
herein or for the performance by the Lessee of the other terms or covenants
of this lease shall in any way be a bar or defense to any action in unlawful
detainer or for the recovery of said premises, or in any action which Lessor
may at any time commence for breach of any of the terms and covenants of this
Lease.
18. WAIVER OF DAMAGE AND INDEMNITY OF LESSOR:
Lessor shall not be liable for any failure of any heating or
air-conditioning apparatus of the leased premises, nor for the failure of the
supply of water, gas, electricity or power, nor for the stoppage of any or
all of the other machinery and equipment, if any, in the building in which
the leased premises are situated, nor for the stoppage, leakage or bursting
of any gas, water, steam, sewer or other pipe, tank, underground tank, line,
water closet or other fixture, nor for any annoyance, inconvenience or damage
caused by any electric or other wire, whether upon the said leased premises
or in other parts of the building, nor for any damage arising from any act or
neglect of any other tenant or occupant of said leased premises for any cause
whatever, and Lessee shall indemnify and save Lessor free and harmless from
any liability, damage, or expense by reason of the negligence of Lessee, his
agents, employees, patrons or invitees, and from all liability, damage or
expense by anything brought upon the leased premises by Lessee.
19. ATTORNEY'S FEES:
In the event of any action or proceeding between the parties hereto to
interpret, to enforce, for the breach or default of, or arising out of, this
lease, or the leased premises, the prevailing party therein shall be allowed
all reasonable attorney's fees and costs expended or incurred in such action
or proceeding.
20. NOTICES:
All notices to be given to the Lessee may be given in writing
personally or be depositing the same in the United States mail, postage
prepaid, and addressed to the Lessee at the said premises, whether or not the
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Lessee has departed from, abandoned, or vacated the premises. Notices by
Lessee to Lessor shall be in writing and served personally, or by depositing
the same in the United States mail, postage prepaid, addressed to Lessor at
5150 Madison Avenue, Sacramento, California 95841.
21. DESTRUCTION OF THE PREMISES:
(a) If, during the term, the premises are totally or partially
destroyed from a risk not covered by the insurance described in paragraph 6,
rendering the premises totally or partially inaccessible or unusable, Lessee
shall restore the premises to substantially the same condition as they were
in immediately before destruction. Such destruction shall not terminate this
lease. If the existing laws do not permit the restoration, either party can
terminate this lease immediately by giving notice to the other party.
(b) If the cost of restoration exceeds Fifty Percent (50%) of the
then replacement value of the premises destroyed, Lessee can elect to
terminate this lease by giving notice to Lessor within fifteen (15) days
after determining the restoration cost and replacement value. If Lessee
elects to terminate this lease, Lessor, within thirty (30) days after
receiving Lessee's notice to terminate, can elect to pay to Lessor, at the
time Lessor notifies Lessee of its election, the difference between Fifty
Percent (50%) in which case Lessee shall restore the premises.
22. USE OF PREMISES:
Lessee shall not use the lease premises, or any part thereof, for any
other purpose or purposes than those hereinafter designated without the prior
written consent of the Lessor obtained in writing, which consent shall not
unreasonably be withheld. Lessee shall use the premises for sales and
service of new and used vehicles and related activities or any other lawful
purpose. Lessee shall be responsible at this expense to obtain and maintain
all zoning and permits for such use.
23. REMEDIES ON DEFAULT:
In the event Lessee breaches the within lease, abandons the property,
or breaches the lease and abandons the property or in the event the Lessor
terminates the Lessee's right to possession because of this lease, Lessor
may, at his sole option, pursue one of the following remedies:
(a) Terminate the lease, declare it forfeited, remove all persons and
the Lessee's property therefrom, and recover from the Lessee:
(i) The worth at the time of award of the unpaid rent which had
been earned at the time of termination;
(ii) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; and
(iii) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that the Lessee proves could be reasonably
avoided; and
(iv) Any other amount necessary to compensate the Lessor for all
the detriment proximately caused by Lessee's failure to perform his
obligations under the lease or which in the ordinary course of things would
be likely to result therefrom.
(b) Not terminate the lease, or the Lessee's right to possession, but
allow the same to continue in full force and effect, and Lessor may thereby
enforce all rights and remedies under this lease, including, but not limited
to, the right to recover rent as it becomes due hereunder. No act of Lessor
in the maintenance or preservation of the property, or in efforts to relet
the property, or in the appointment of a receiver to protect the Lessor's
interest hereunder, shall be deemed to constitute a termination of the lease
or of the Lessee's right to possession; or
(c) Not terminate the lease, or the Lessee's right to possession, and
enter into and upon and take possession of said leased premises as agent and
for the account of said Lessee, and if said Lessor so elects to lease or rent
the whole or any part of said premises for the balance or any part of the
term of this lease, and retain all rents thus received, and, after deducting
therefrom all expenses incurred in the collection of said rents, apply the
balance of the payment of the rents payable hereunder by said Lessee, but the
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performance of all or any of the said acts by the said Lessor shall in nowise
release or discharge said Lessee from a full and strict compliance with and
performance of all of the terms, conditions and covenants of this lease on
the part of said amount of rent which said Lessee promised to pay as rental
for the said leased premises for and during the whole term of this lease;
(d) Terminate the lease whereupon the Lessor, at his option, shall be
entitled to recover from the Lessee the worth at the time of such
termination, of the excess, if any, of the amount of rent and charges
equivalent to rent reserved in the lease for the balance of the stated term
or any shorter period of time over the then reasonable rental value of the
property for the same period.
24. TIME IS OF THE ESSENCE:
Time is of the essence in this Agreement of Lease
25. CONDEMNATION:
If the premises or any portion thereof are taken under the power of
eminent domain, or sold under the threat of the exercise of said power (all
of which are herein called "condemnation"), this Lease shall terminate as to
the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than Twenty Percent (20%) of the
floor area of the buildings on the premises, or more than Twenty Five Percent
(25%) of the land area of the premises which is not occupied by any building,
is taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within ten
(10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion
of the premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the premises. No reduction of rent shall
occur if the only area taken is that which does not have a building located
thereon. Any award for the taking of all or any part of the premises under
the power of eminent domain or any payment made under threat of the exercise
of such power shall be the property of Lessor, whether such award shall be
made as compensation for diminution in value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any award for loss of or damage to Lessee's trade
fixtures and removable personal property. Lessee shall not be entitled to
any sum for leasehold bonus value. In the event that this lease is not
terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall pay any amount in excess of such severance damages required to
complete such repair.
26. COMMON AREA EXPENSES:
Lessee shall at all times at its own expense keep the walks, yard,
parking areas and driveways in and abut the Leased Premises neat, clean, and
free of all debris and obstructions. Lessor reserves the right at anytime
and during all times of the within Lease to control and direct the
maintenance and cleaning of such walkways, yard areas, driveway areas, and
parking areas, and to hire others to perform the same, with the cost thereof
to be borne and paid by Lessee upon receipt of a billing from Lessor for
Lessee's proportionate share of such common area expenses to be prorated
according to the portion of the common area occupied by the Lessee in
relation to the entire common area.
27. LESSOR'S USE OF ADJOINING REAL PROPERTY:
The parties to this Lease acknowledge that the leased premises
constitute only a portion of a larger parcel of real property owned by the
Lessor and that Lessor has retained all rights with regard to his use, sale
or lease of said remaining property, which remaining property (Lessor's
remaining property) is depicted in that certain map attached hereto as
Exhibit "B". The parties hereto further acknowledge that the use, sale or
lease of Lessor's remaining property for the purposes of conducting a new
automobile dealership thereon would be inimical to the interests of both the
Lessor and the Lessee. In view of such fact, and in consideration of
execution of this Lease by each of the parties hereto, the Lessor hereby
agrees that, prior to commencing such use, and prior to any sale or lease of
said Lessor's remaining property for the purpose of conducting a business
thereupon for the sale of new automobiles, said Lessor shall first obtain the
written permission of the Lessee as to any and all makes, models or brands of
automobiles which may be sold of leased on Lessor's remaining property by any
person or party whatsoever. This condition is for the benefit of both the
Lessor and Lessee hereunder.
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28. OPTION TO RENEW:
In the event Lessee is not in default in any of the terms, covenants or
condition herein contained, or in the payment of any sum or sums due
hereunder, Lessee shall be privileged to extend the within lease for an
additional period of ten (10) years, such renewal to be upon all of the same
terms, covenants and conditions hereof, except rent and option to renew.
Rent shall be such sum as the parties shall mutually agree upon. Lessee may
exercise this option by giving Lessor notice thereof not less than one
hundred twenty (120) days prior to the expiration of the term hereof. In the
event the parties are unable to agree, rent shall be fixed by arbitration.
Each party shall appoint an arbitrator, and the two arbitrators shall select
a third arbitrator. Rent shall be set by the decision of a majority of the
arbitrators. In the event the arbitrators are unable to agree, rent shall be
that sum fixed by the arbitrator who is neither highest nor lowest. The
arbitrators shall be selected not later than sixty (60) days prior to the
expiration of the Lease and rent shall be fixed by the arbitrators prior to
the expiration of the Lease. The decision of the arbitrators shall be
binding. The parties shall each pay one-half of the cost of the arbitration.
IN WITNESS WHEREOF, the parties have entered into this Lease on the ___
day of October, 1989.
PAUL H. SNIDER (LESSOR)
By: /s/ Paul H. Snider
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC. (LESSEE)
a Delaware corporation
By: /s/ Richard M. Donnelly
Richard M. Donnelly, President
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DESCRIPTION
All that real property situate in the City of Reno, County of Washoe, State
of Nevada, described as follows:
Parcel 4 of Parcel Map 991 for COUNTRY ESTATES, filed in the
office of the County Recorder of Washoe County, Nevada, on
November 27, 1979, as Filed No. 643822.
EXCEPTING THEREFROM that portion of the hereinabove described
parcel that certain strip of land along the Easterly boundary
dedicated to the City of Reno for South Virginia Street as
dedicated by Parcel Map 1161 entitled "2nd Parcel Map of COUNTRY
ESTATES" filed in the office of the County Recorder of Washoe
County, on September 24, 1980 as File No. 696068.
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MEMORANDUM AND ACKNOWLEDGEMENT OF EXISTENCE OF LEASE
This Memorandum and Acknowledgement of Existence of Lease is made and
entered into this _____ day of October, 1989, by and between PAUL H. SNIDER
("Lessor" hereinafter), and DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC., a
Delaware Corporation, ("Lessee" hereinafter).
W I T N E S S E T H:
WHEREAS, the parties hereto have heretofore entered into a Lease
effective the 17th day of October, 1989, in which said Lease, the Lessor has
leased unto the Lessee certain real property and improvements thereon,
located in the County of Washoe, State of Nevada, and more particularly
described in Exhibit "A", attached hereto and made a part hereof ("Leased
Premises" hereinafter), also known as 7175 South Virginia Street, Reno,
Washoe County, Nevada, and
WHEREAS, the parties to said Lease desire to enter into this Memorandum
and Acknowledgement of Existence of Lease in order that such document may be
recorded, in the Office of the County Recorder of Washoe County, Nevada, for
the purpose of informing all interested parties of the existence of such
Lease, as well as the length of the term thereof;
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Leased Premises.
Lessor has leased unto the Lessee and Lessee has leased from the
Lessor, that certain real property and the improvements thereon, located in
County of Washoe, State of Nevada, more particularly described in Exhibit "A"
and attached hereto and made part hereof.
2. Term.
The term of said Lease commences on the 17th day of October, 1989, and
ends on the 16th day of October, 1989.
3. Subordination Agreement.
The parties hereto hereby acknowledge that a Subordination Agreement
exists relative to the Leasehold Interest created by the aforementioned
mentioned Lease, under which the said Lease is subject and subordinate to the
lien of any Deeds of Trust now existing upon or which may be placed upon the
leased premises. In this regard, said Lease Agreement provides that, so long
as Lessee performs its obligations under said Lease, its interest shall be
recognized by the holder of any Deed of Trust relative to same, and no
foreclosure of, deed given in lieu of foreclosure, or sale under the
encumbrance, and no steps or procedures taken under the encumbrance, shall
affect Lessee's rights under this Lease, provided Lessee attorns to the
holder of such encumbrance, or the Purchaser at any foreclosure sale, or to
any Grantee or Transferee designated in any deed given in lieu of foreclosure.
4. Notices.
All notices given pursuant to the aforementioned Lease, or this
Memorandum and Acknowledgement of Lease, shall be given in writing and served
personally, or by depositing the same in United States mail, postage prepaid,
addressed to
Lessee at:
7175 South Virginia Street,
Reno, Nevada 89511.
and to Lessor at:
5150 Madison Avenue
Sacramento, CA 95841.
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5. Option to Renew.
The parties here do further acknowledge that, pursuant to the
aforementioned Lease, Lessee has the privilege to extend the said Lease for
an addition Ten (10) years, based upon certain terms and conditions contained
in said Lease.
6. Recording of This Document.
The parties hereto acknowledge that it is their intention to cause to
be recorded this Memorandum and Acknowledgement of Lease, with the office of
the Recorder of the County of Washoe, State of Nevada.
IN WITNESS WHEREOF, the parties hereto have executed the this
Memorandum and Acknowledgement of Existence of Lease on the _______ day of
October, 1989.
PAUL H. SNIDER (LESSOR)
By: /s/ Paul H. Snider
DICK DONNELLY AUTOMOTIVE ENTERPRISES, INC. (LESSEE)
a Delaware corporation
By: /s/ Richard M. Donnelly
Richard M. Donnelly, President
STATE OF CALIFORNIA )
) ss.
COUNTY OF SACRAMENTO )
On October ______, 1989, personally appeared before me, a Notary
Public, PAUL H. SNIDER, who acknowledged that he executerd the
above-instrument.
_____________________________________
NOTARY PUBLIC
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On October _____, 1989, personally appeared before me, a Notary Public,
RICHARD M. DONNELLY, who acknowledged that he executed the above-instrument.
_____________________________________
NOTARY PUBLIC
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DESCRIPTION
All that real property situate in the City of Reno, County of Washoe, State
of Nevada, described as follows:
Parcel 4 of Parcel Map 991 for COUNTRY ESTATES, filed in the
office of the County Recorder of Washoe County, Nevada, on
November 27, 1979, as Filed No. 643822.
EXCEPTING THEREFROM that portion of the hereinabove described
parcel that certain strip of land along the Easterly boundary
dedicated to the City of Reno for South Virginia Street as
dedicated by Parcel Map 1161 entitled "2nd Parcel Map of COUNTRY
ESTATES" filed in the office of the County Recorder of Washoe
County, on September 24, 1980 as File No. 696068.
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EX-10
Exhibit 10.23.3 Commercial Lease Agreement
EXHIBIT 10.23.3
COMMERCIAL LEASE AGREEMENT
THIS COMMERICAL LEASE AGREEMENT ("Lease") dated the 1st day of October,
1997 (the "Commencement Date"), is entered into by and between RICHARD M.
DONNELLY and SUSAN K. DONNELLY, husband and wife, of the County of Washoe,
State of Nevada (collectively referred to herein as "Landlord"), and LITHIA
REAL ESTATE, INC., an Oregon corporation qualified to do business in the
State of Nevada ("Tenant").
Section 1. Real Property and Improvement
1.1 Lease of Property. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, that certain 1.78 acre parcel of real property
located at 40 Victorian Avenue, Sparks, Nevada, and more particularly
described in Exhibit A attached hereto and made a part hereof (the "Real
Property"), which Real Property contains an automotive sales and service
facility comprising approximately ________ sq. ft. (the "Premises"). The
Real Property and the Premises are sometimes collectively referred to herein
as the "Property."
1.2 Purchase of Assets. The parties acknowledge that, concurrently
herewith, Tenant's affiliate is acquiring from Landlord certain assets used
by Landlord in connection with the operation of its business on the Premises
pursuant to the terms of that certain Agreement for purchase and Sale of
Business Assets, dated July 8, 1997 ("Asset Purchase Agreement"), between
Landlord (and Landlord's affiliate) and Tenant's affiliate. Capitalized
terms not specifically defined herein shall have the meanings set forth in
the Asset Purchase Agreement. This commencement of this Lease is conditioned
upon the closing of the Asset Purchase Agreement, and this Lease shall have
no effect unless and until the Asset Purchase Agreement is closed.
Section 2. Term
2.1 Initial Term. The initial term of this Lease (the "Initial
Term") is five (5) full years, unless terminated earlier or extended pursuant
to the provisions of this Lease. If the Commencement Date of this Lease is
other than the first (1st) day of a calendar month, then the Initial Term
shall be adjusted to include the initial partial month and the five (5) full
years beginning on the first day of the subsequent calendar month.
2.2 Renewal Option. Tenant shall have options to renew this Lease
(the "Renewal Options") for nine (9) successive periods of five (5) years
each (the "Renewal Terms"), for a total Lease term of fifty (50) years (plus
the partial month provided for in Section 2.1 above) if all Renewal Options
are exercised by Tenant.
2.3 Renewal Option Period. Tenant shall have the right to exercise
each Renewal Option granted hereunder at any time during the period (the
"Renewal Option Period") beginning on the Commencement Date and ending six
(6) months prior to the first day of that relevant Renewal Term.
2.4 Delivery of Notice. The Renewal Option may be exercised and is
effective only if (i) Landlord receives from Tenant written notice of the
exercise of the Renewal Option prior to the expiration of the applicable
Renewal Option Period, and (ii) Tenant is not in material default under the
terms of the Lease either on the date of the exercise of the Renewal Option
or on the date of the commencement of the Renewal Term. If Landlord wishes
to assert that Tenant's written notice of exercise of a Renewal Option is
ineffective on the grounds that Tenant is in material default under the terms
of the Lease, then Landlord shall be obligated to so notify Tenant in
writing, and Tenant thereafter shall have either 10 days (in case of a
default in payment) or 30 days (in case of any other form of default) within
which to cure the default; if Tenant so cures the default within said 10 day
or 30 day period, then notwithstanding the preceding sentence, Tenant's
exercise of the Renewal Option shall be effective as of the date when
originally exercised.
2.5 Terms on Conditions on Renewal. The terms and conditions set
forth in this Lease shall constitute the lease terms and conditions during
each Renewal Term, and the adjustments in the Base Rent set forth in Section
3.3 below shall apply, except that no additional renewals beyond the ninth
(9th) Renewal Term provided in Section 2.2 above shall be permitted, unless
agreed to in a writing by Landlord.
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Section 3. Rent
Tenant shall pay to Landlord, as rent for the Property, the following
amounts, determined and payable in the manner and at the times set forth
below:
3.1 Security Deposit. Initially, no security deposit shall be
required of Tenant. However, should Tenant commit a material default under
the terms of this Lease, Landlord shall then have the right to require Tenant
to pay to Landlord a security deposit equal to two (2) months' rent. If a
security deposit is paid, Landlord may use all or any part of the security
deposit for the payment of any loss or damage occasioned by Tenant's
default. If any portion of the security deposit is so used, Tenant shall,
upon receipt of notice from Landlord, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount. No
interest shall be paid on the security deposit, and Landlord shall not be
required to keep it separate from Landlord's general funds. Upon full and
timely performance of Tenant's obligations under this Lease, the security
deposit (or remaining balance thereof) shall be returned to Tenant at the
expiration of the Initial Term or Renewal Term (as applicable) and after
Tenant has vacated the Property. If Landlord sells the Property, the
security deposit shall be transferred to Landlord's successor, in which event
Tenant agrees that Landlord shall thereafter be released from all liability
with respect thereto. In the event Tenant exercises its option to purchase
the Property as provided in Exhibit C hereto (see Section 22.1 of this
Lease), the security deposit shall be applied to the purchase price of the
Property.
3.2 Rent. Tenant shall pay to Landlord, as annual rent, without
abatement or off-set unless expressly allowed by this Lease, the amount of
$192,000 ("Base Rent"), payable in twelve (12) equal monthly installments of
$16,000 each. Each monthly installment of Base Rent shall be payable in
advance on the first (1st) day of each calendar month beginning on the
Commencement Date. If the Commencement Date of this Lease is other than the
first (1st) day of a calendar month, Base Rent for the first (1st) month
shall be pro rated on a per diem basis for the remaining days of that month.
All rent shall be in lawful money of the United States of America. Each
monthly payment of Basic Rent is due on the first (1st) calendar day of each
month during the Lease term without the requirement of any notice or other
reminder from Landlord to Tenant.
3.3 Rent Escalation. The Base Rent shall be increased for each
Renewal Term in accordance with the provisions of Exhibit B attached hereto
and made a part hereof.
3.4 Additional Rent. All amounts in addition to Base Rent which,
pursuant to this Lease are to be paid by Tenant to or on behalf of Landlord,
shall be considered "additional rent" for all purposes under this Lease.
3.5 Place of Payment. Unless and until otherwise directed by
Landlord in writing, or except as otherwise specifically provided in this
Lease, Tenant shall deliver all notices and pay all rent to the order of
Landlord at the address and in the manner set forth in Section 20 hereof.
3.6 Late Fee. If a monthly Base Rent payment is not received by
Landlord by the tenth (10th) calendar day of the month, Tenant shall be
charged a late fee of $25.00 per day (but not to exceed $750.00) per monthly
payment) retroactive to the first (1st) day of the month for each separate
monthly Base Rent payment that is late. Late fees shall be additional rent
due with the monthly Base Rent payment. Tenant agrees that the late fee:
(i) is a reasonable estimate of the costs that Landlord would incur by reason
of a late payment, and (ii) is in addition to all other rights of Landlord
and shall not prevent Landlord from exercising any other right or remedy
available to Landlord by reason of Tenant's failure to pay rent when due.
3.7 Interest on Past Due Amounts. All rent or other payments
becoming due under this Lease and all amounts expended by Landlord for the
account of Tenant shall bear interest at the rate of one percent (1%) per
month (annual percentage rate of 12%) compounded monthly, or the highest rate
permitted by law, whichever is less. Interest shall be calculated from the
due date or the date of expense, whichever is earlier, until paid.
3.8 Application of Payments. Payments made by Tenant to Landlord
shall firs be applied to late fees, if any, then to additional rent, if any,
then to any other amounts due from Tenant to Landlord, if any, and last to
Base Rent, as adjusted.
3.9 Net Lease. The parties intend that this shall be a net Lease and
that all rent payable by Tenant to Landlord hereunder shall be net of all
costs and expenses relating to the Property, and that all such costs and
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expenses paid or incurred during the term of this Lease, including but not
limited to taxes, insurance, utilities, repairs and maintenance, shall be
paid by Tenant, unless otherwise expressly provided in this Lease.
Section 4. Use of the Property
4.1 Permitted Use. Initially, the sole permitted use of the Property
under this Lease shall be the operation of an automotive sales and service
dealership (the "Permitted Use"). Any different use of the Property by
Tenant shall require the prior written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed.
4.2 Limitations on Use. Except with the prior written consent of
Landlord (which consent shall not be unreasonably withheld, conditioned or
delayed), no industrial, manufacturing or processing activity (except as is
usual and incidental to the Permitted Use) shall be conducted on the
Premises. Tenant shall not: (i) use the Property in any manner that would
constitute waste nor shall Tenant allow the same to be committed thereon;
(ii) abuse walls, ceilings, partitions, floors, wood, stone, iron work,
landscaping or other parts of the Property; (iii) use plumbing, fire control,
fire sprinkler, electrical, security, telecommunications, heating, cooling,
ventilation, elevator or other Property services, systems or facilities for
any purpose other than that for which it was constructed; (iv) make or permit
any noise or odor objectionable to the public emit from the Property; (v)
create, maintain or permit a nuisance in or about the Property; (vi) permit
or do anything that is contrary to any statutes, ordinances, rules,
regulations and laws of any federal, state, or local governmental body or
agency; (vii) permit or do anything that is contrary to any applicable rules
and regulations of the National Fire Protection Association, the applicable
Fire Rating Bureau and any similar bodies; or (viii) permit or do anything
that is contrary to any covenant, condition or restriction contained in this
Lease.
4.3 Hazardous Material Use. Tenant shall not cause or permit any
Hazardous Material to be brought upon, kept, or used in or about the Premises
or Real Property by Tenant, its agents, employees, contractors, customers,
clients, guests or invitees, except as incidental to Tenant's Permitted Use
of the Property. Tenant shall comply with all applicable laws and
regulations regulating the use, reporting, storage, and disposal of Hazardous
Material.
4.4 Hazardous Material Definition. As used in this Lease, the term
"Hazardous Material" means any hazardous or toxic substance, material or
waste which is or becomes regulated by any federal, state or local
governmental authority or political subdivision. The term "Hazardous
Material" includes, without limitation, any material or substance that is (i)
defined as a "hazardous substance" under applicable federal, state or local
law, (ii) petroleum, (iii) asbestos, (iv) polychlorinated biphenyl ("PCB"),
(v) designated as a "hazardous substance" pursuant to Section 311 of the
Federal Water Pollution Control Act (33 U.S.C. S 1321), (vi) defined as a
"hazardous waste" pursuant to Section 1004 of the Solid Waste Disposal Act
(42 U.S.C. S6908), (vii) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. S9601), (viii) defined as a "regulated substance"
pursuant to Section 9001 of the Solid Waste Disposal Act (Regulation of
Underground Storage Tanks), 42 U.S.C. S6991, (ix) considered a "hazardous
chemical substance and mixture" pursuant to Section 6 of the Toxic Substance
Control Act (15 U.S.C. S2605), or (x) defined as a "pesticide" pursuant to
Section 2 of the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
S136).
4.5 Disposal of Refuse. Tenant shall store all trash and garbage
within the Leased Property or in an area designated as appropriate therefor
by Landlord. Tenant shall arrange for and bear the expense of prompt and
regular removal of trash and garbage from the Leased Property.
4.6 Approvals, Permits and Easements. During the term of this Lease,
Tenant shall have the right to apply for and obtain any approvals, permits or
licenses from any governmental entity required for the use of the Premises as
contemplated herein and, in connection therewith, Landlord agrees to
cooperate, provided that all costs and expenses therefor shall be the sole
obligation of Tenant.
4.7 Security Services.
(a) Limited Landlord Responsibility. Tenant acknowledges and
agrees that, except as specifically provided in this Section 4.7(a), Landlord
has no responsibility for security at the Property, and is not responsible
for providing armed or unarmed guards or watchmen, monitoring systems,
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security systems, fences, gates or any other security or security systems.
Landlord's sole responsibility for security for the Premises is to provide a
means to securely lock all doors to the Premises, and to provide lockable
entry doors to the Premises using a key lock system. If Tenant wished to
rekey the Premises, then the cost of such rekeying shall be paid by Tenant
and a copy of the new keys shall be provided to the Landlord.
(b) Tenant Obligations. Tenant is responsible for providing
all security except key locks provided by Landlord. Tenant shall provide and
maintain Security Services for the Property that are appropriate for Tenant's
use. The term "Security Services" includes, but is not limited to, any
watchmen, locks, fences, alarms, doors, or other services, devices,
procedures, barriers or other measures for the purpose of protecting,
safeguarding, defending, or policing persons or property from any theft,
vandalism or other loss or damage. Tenant may use or install fences, locks,
alarms, doors or other devices to provide Security Services, and the
installation of any Security Services shall be (i) consistent with the
overall design and use of the Premises and Real Property, and (ii) subject to
the terms of this Lease regarding "alterations, improvements and additions"
in Section 5 below.
Section 5. Improvements by Tenant. Tenant shall not make any alteration,
improvement or addition to the Property without the prior written consent of
Landlord which consent may not be unreasonably withheld, conditioned or
delayed. All alterations, improvements, and additions: (i) shall be
performed at the sole cost and expense of Tenant in compliance with all laws
and regulations of any federal, state, or local governmental body, and (ii)
shall become and remain the property of Landlord. In contracting for any
alterations, improvements or additions, Tenant shall not act as agent of
Landlord.
Section 6. Quiet Enjoyment. Landlord agrees that Tenant, upon paying the
rent and performing the terms of this Lease, may quietly have, hold and enjoy
the Property during the term hereof.
Section 7. Taxes and Assessments.
7.1 Payment of Taxes and Assessments. During the term of this Lease,
Tenant shall pay when due and before delinquency all ad valorem real property
taxes levied and assessed against the value of the Real Property and
improvements thereon, and all personal property taxes levied and assessed
against Tenant's trade fixtures and equipment and other personal property
placed upon, or owned by Tenant in, on or about the Premises or the Real
Property.
7.2 Right to Contest. Tenant, at Tenant's expense, shall have the
right to contest the amount or validity of all or any part of the ad valorem
real property taxes and assessments required to be paid by Tenant hereunder;
provided, however, that Tenant shall indemnify Landlord against any loss or
liability by reason of such contest. Notwithstanding such a contest, all
taxes otherwise due and payable to Landlord by Tenant shall be paid upon
demand, but any refund thereof by any taxing authority shall be the property
of Tenant.
7.3 New Taxes. Tenant shall reimburse to Landlord promptly upon
demand any and all taxes and other charges payable by Landlord to any
governmental entity (other than net income, estate and inheritance taxes)
whether or not now customarily paid or within the contemplation of the
parties hereto, by reason of or measured by the rent payable under this
Lease, or allocable to or measured by the area or value of the Premises
and/or Real Property, or upon the use and occupancy by Tenant of the Premises
and/or Real Property, or levied for services rendered by or on behalf of any
public, quasi-public or governmental entity.
Section 8. Maintenance of Property; Utilities
8.1 Routine Maintenance and Repair. Tenant shall, at its sole cost
and expense, at all times be responsible for routine repairs and maintenance
of the Property as shall be necessary to maintain the Property in the
condition not less than the condition of the Property existing as of the
Commencement Date, normal wear and tear excepted.
8.2 Structural and Systems Maintenance. In addition to routine
repairs and maintenance as provided in Section 8.1 above, Tenant shall be
responsible for paying for the structural and systems maintenance of the
Property and, in connection therewith, shall (i) make the repairs and
replacements necessary to maintain the structural integrity of the Premises,
including repairs and maintenance of the foundations and load-bearing walls,
(ii) repair and maintain in good working order the roof, paved parking areas,
and the heating, ventilating, air conditioning, plumbing, and electrical
systems, and (iii) maintain the light ballasts.
8.3 Tenant's Liability for Repairs and Maintenance. Notwithstanding
any other provisions of this Lease, Tenant shall be liable for and shall
promptly repair all damage to the Premises or Real Property caused by Tenant
or Tenant's partners, officers, directors, employees, invitees, guests,
customers, clients or licensees, regardless whether the damage is caused by
the negligence of Tenant or such other persons. All repairs made by Tenant
shall be at least equal to the original work in class and quality. If Tenant
fails to so maintain or repair, (i) Landlord (or its agents) may, but is not
required to, enter the Premises at any reasonable time to perform maintenance
or make repairs, and (ii) Tenant shall pay to Landlord the cost of the
maintenance or repairs performed by Landlord as additional rent due with the
next monthly Base Rent payment.
8.4 Utilities. Tenant shall pay for all heat, air conditioning,
water, light, power and/or other utility service, including garbage and trash
removal and sewage disposal, including all hookup fees or charges in
connection therewith, used by Tenant in or about the Premises and Real
Property during the term of this Lease. Tenant shall not be liable for any
interruption or failure in the supply of any utility or service to the
Property.
Section 9. Insurance
9.1 Tenant's Obligations. Tenant shall purchase and keep in force
the following types of insurance in the amounts specified and in the form
hereafter provided:
(a) Fire and Extended Coverage. A policy or policies of fire
and extended coverage insurance covering the Real Property and the Premises,
in an amount not less than ninety percent (90%) of the full replacement cost
(exclusive of the cost of excavations, foundations and roofing), against any
peril within the classification "fire and extended coverage" or, at
Landlord's election, "all-risk coverage." In addition, Tenant shall purchase
and keep in force rent insurance insuring Landlord against loss of rent
during the period of repair or replacement of all or any portion of the
Premises in the event of loss or damage. The insurance provided for in this
Section 9.1(a) may be brought within the coverage of a blanket policy or
policies of insurance carried and maintained by Tenant.
(b) Public Liability and Property Damage. A policy or policies
of comprehensive general liability insurance with broad form general
liability endorsement or equivalent, with limits of not less than $1,000,000
per person and $1,000,000 per occurrence of bodily injury and property damage
combined. The policy or policies shall also insure against liability arising
out of the use, occupancy or maintenance of the Premises and the Real
Property. Said policy or policies shall designate Landlord as an additional
insured and shall specifically insure the performance by Tenant of the
indemnity agreement(s) contained in Section 16.5 of this Lease.
(c) Tenant's Leasehold Improvements and Personal Property.
Insurance covering all the items comprising Tenant's leasehold improvements,
trade fixtures, equipment and personal property from time-to-time, in, on or
upon the Real Property and the Premises in an amount not less than ninety
percent (90%) of their full replacement cost from time-to-time, providing
protection against any peril included within the classification "fire and
extended coverage," together with insurance against sprinkler damage,
vandalism and malicious mischief and earthquakes. Any policy proceeds shall
be used for the repair or replacement of the property damaged or destroyed.
Landlord shall have no obligation to provide any insurance with respect to
the Real Property or the Premises. Except as provided herein, each of
Landlord and Tenant (i) is not obligated to obtain, (ii) is not obligated to
be named in, (iii) shall have no right to any proceeds of, and (iv) waives
all claims on, insurance purchased by or for the benefit of the other party.
9.2 Policy Form. All policies required to be provided by Tenant
shall be issued in the names of Landlord and Tenant and evidence thereof
shall be delivered to Landlord within ten (10) days after the Commencement
Date of this Lease and thereafter within thirty (30) days prior to the
expiration of the term of each policy. All policies shall be with an insurer
with a Best's rating of B+ or higher, and shall contain a provision hat the
insurer shall give Landlord twenty (20) days notice in writing in advance of
any cancellation or lapse or the effective date of any reduction in the
amounts of the insurance. All public liability, property damage and other
casualty policies required to be provided by Tenant shall be written as
primary policies, not contributing with and not in excess of coverage which
Landlord may carry.
9.3 Adjustment of Coverage. Not more frequently than every five (5)
years during the term of this Lease if, in the opinion of Landlord based on
industry and local standards and Tenant's use of the Premises, the amount of
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public liability and property damage insurance required to be provided by
Tenant is at that time not adequate, Tenant shall increase the insurance
coverage as reasonably determined by Landlord to be adequate.
9.5 Waiver of Subrogation. To the extent permitted by their
respective insurers, Landlord and Tenant (and each person claiming an
interest in the Property through Landlord or Tenant, including all subtenants
of Tenant) release and waive their entire right of recovery against the other
for direct, incidental or consequential or other loss or damage arising out
of, or incident to, the perils covered by insurance carried by each party,
whether due to the negligence of Landlord or Tenant. If necessary, all
insurance policies shall be endorsed to evidence this waiver.
9.6 Failure to Insure. If Tenant shall fail to purchase and keep in
force the insurance required by this Lease, (i) Tenant shall be in default
hereunder, shall be deemed to be self-insured and shall bear all risk of loss
or damage, and (ii) Landlord may, but shall not be required to, purchase and
keep in force the required insurance, or any portion thereof, in which event
Tenant shall reimburse Landlord the full amount of Landlord's cost with
respect thereto within five (5) days after written demand therefor is
delivered to Tenant.
Section 10. Damage or Destruction
10.1 Termination or Repair. If all or any portion of the Premises or
Real Property are damaged or destroyed by fire or other casualty, Landlord
shall deliver to Tenant written notice within thirty (30) days of the damage
or destruction stating whether the Premises and Real Property can be restored
within one hundred and eighty (180) days of the damage or destruction.
Landlord shall have no obligation to expend more in repairing, restoring or
rebuilding than the proceeds of insurance available for such purposes. If,
in Landlord's reasonable judgment, the insurance settlement, permit and
construction work for repairing and rebuilding the damaged or destroyed
portion of the Premises or Real Property can be completed within the 180-day
period with the available insurance proceeds, Landlord shall promptly proceed
to repair or rebuild the damaged or destroyed portion of the Premises or Real
Property. If, in Landlord's reasonable judgment, the insurance settlement,
permit and construction work for repairing and rebuilding the damaged or
destroyed portion of the Premises or Real Property cannot be completed within
the 180-day period with the available insurance proceeds, either Landlord or
Tenant may terminate this Lease upon thirty (30) days' written notice to the
other party.
10.2 Abatement or Apportionment of Rent. If the Lease is not
terminated, and if the damage or destruction to the Premises or Real Property
is not caused by the act or failure to act of Tenant, its partners, officers,
employees, agents, guests, customers, clients or invitees, then a just
portion of the rent shall abate as of the date of the damage or destruction
until the Premises and Real Property are repaired or rebuilt. If the Lease
is terminated, the rent shall be apportioned as of the date of the damage or
destruction.
10.3 Alterations, Improvements and Additions. With respect to any
damage or destruction of Tenant's alterations, improvements or additions made
to the Premises, (i) this Section 10 shall be inapplicable, (ii) no abatement
of rent shall occur, and (iii) Landlord shall not be obligated to repair or
rebuild Tenant's alterations, improvements, or additions.
Section 11. Condemnation. If all of the Premises and/or Real Property are
taken or condemned by any authority for any use or purposes, this Lease shall
terminate upon, and the rent shall be apportioned as of, the date when actual
possession of the Premises and/or Real Property is required for the condemned
use or purpose. If less than all of the Premises are taken or condemned by
any authority for any use of purpose, then (i) if the remainder of the
Property is not reasonably sufficient for Tenant's business purposes, then
either Landlord or Tenant may terminate this Lease upon thirty (30) days'
written notice of termination, or (ii) the parties may continue the Lease and
a just portion of the rent will abate as of the date when actual possession
of condemned portion of the Premises and/or Real Property is required for the
condemned use or purpose. All compensation and damages awarded for the
taking of all or any portion of the Property shall be apportioned between
Landlord and Tenant on the following basis: (i) if awarded separately and
not as part of the general award to landlord, Tenant shall be entitled to
receive a sum equal to the excess (if any) of the rental market value of the
Property for the remainder of the Lease term over the present value (as of
the date of taking) of the rent which is then payable for the remainder of
the Lease term, plus compensation for the loss of Tenant's trade fixtures,
removable personal property, loss of business and good will, and relocation
expenses, and (ii) Landlord shall be entitled to the balance of the award.
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Section 12. Landlord's Entry on Property
12.1 Right of Entry. Landlord, and Landlord's authorized
representatives, shall have the right to enter the Property at all reasonable
times during normal business hours for any of the following purposes:
(a) To determine whether the Property is in good condition and
whether Tenant is complying with this Lease;
(b) To serve, post and keep posted any notice required or
allowed under the provisions of this Lease;
(c) To show the Property to prospective brokers, agents, buyers
or tenants at any time during the term of this Lease.
12.2 No Liability. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance or other damage
arising out of Landlord's entry on the Property as set forth herein;
provided, however, Landlord shall conduct its activities on the Property as
allowed herein in a manner that will cause the least possible inconvenience,
annoyance or disturbance to Tenant.
Section 13. Covenant Against Liens
13.1 Liens Prohibited. Tenant agrees not to suffer or permit any lien
(including, but not limited to, tax liens and liens of mechanics or
materialmen) to be placed against the Premises or Real Property. If a lien
is placed against the Premises or Real Property that is directly or
indirectly related to an act or failure to act of Tenant, Tenant agrees to
pay off and remove such lien within five (5) days of receipt by Tenant of
notice of the lien, regardless whether Tenant contests the validity of the
lien. Tenant has no authority or power to cause or permit any lien or other
encumbrance created by act of Tenant, operation of laws, or otherwise to
attach to or be placed upon Landlord's title or interest in the Premises or
Real Property. Any lien or encumbrance shall attach only to Tenant's
leasehold interest in the Property.
13.3 Failure to Pay Lien. If Tenant shall default in the paying of a
prohibited lien and a suit to foreclose the same is filed, and if Tenant has
not given Landlord acceptable security to protect Landlord against any loss,
damage and expense with respect to such lien, Landlord may, but shall not be
required to, pay the lien and any related costs, and the amount so paid,
together with reasonable attorney's fees incurred in connection therewith,
shall be immediately paid by Tenant to Landlord together with interest
thereon at the rate provided in Section 3.7 hereof.
Section 14. Default
14.1 Default by Tenant. Tenant shall be in default under this Lease
if any of the following shall occur (any one or more of the following herein
constituting an "Event of Default"):
(a) Tenant fails to pay when due any monthly rent or other
payment required to be paid by Tenant under this Lease within ten (10) days
of its due date; provided, however, that before declaring any default in the
making of any payment required under this Lease, Landlord shall provide to
Tenant a written notice specifying that there has been a default in the
making of a required payment, and Tenant shall have three (3) business days
after receipt of that notice within which to pay the delinquent amount and
prevent a default hereunder, or
(b) Tenant shall default in the observance or performance of
any of Tenant's other covenants hereunder (other than the covenant to pay
rent or any other sum herein specified to be paid by Tenant) and such default
shall not have been cured within thirty (30) days after Landlord shall have
given to Tenant written notice specifying such default; provided, however,
that if the default complained of shall be of such a nature that the same
cannot be completely remedied or cured with such 30-day period, then such
default shall not be a default against Tenant for the purposes of this
paragraph so long as Tenant shall have promptly commenced curing such default
and shall proceed with all due diligence and in good faith to remedy the
default complained of; or
(c) Tenant shall have (i) file a voluntary petition in
bankruptcy, or (ii) be adjudicated bankrupt or insolvent, or (ii) have a
receiver or trustee appointed for all or substantially all of its business or
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assets on the ground of Tenant's insolvency, or (iv) suffer an order to be
entered approving a petition filed against Tenant seeking reorganization of
Tenant under the federal bankruptcy laws or any other applicable law or
statute of the United States or any state thereof, or (v) Tenant shall make a
general assignment or general arrangement for the benefit of its creditors,
or (vi) bankruptcy proceedings shall have been instituted against Tenant
which are not withdrawn or dismissed with sixty (60) days after the
institution of said proceedings; or
(d) Tenant shall remove or attempt to remove, with the prior
authorization of Landlord, any of Tenant's fixtures, equipment, appliances or
personal property from the Premises for any reason other than the normal and
usual operation of Tenant's business; or
(e) Tenant shall abandon the Premises.
14.2 Remedies of Landlord. In the event that Tenant commits, or
allows to occur, an Event of Default, Landlord shall have the following
remedies:
(a) Legal and Equitable Remedies. Landlord shall have all
remedies available at law or in equity.
(b) Termination. Landlord shall have the immediate right, but
not the obligation, to terminate Tenant's right of possession of the Property
and/or, at Landlord's election, this Lease and all rights of Tenant
hereunder, by giving Tenant written notice of Landlord's election to
terminate. In the event that Landlord shall elect to so terminate this
Lease, said election by Landlord shall, without being so expressly stated, be
deemed an election by Landlord to accelerate all future rents payable under
this Lease for the Initial Term or then-applicable Renewal Term to be
immediately due and payable, if such acceleration shall be required to permit
Landlord to enforce any of the rights and remedies hereafter provided. In
the event of such termination (and acceleration), Tenant agrees to pay to
Landlord and Landlord shall have the right to recover from Tenant the
following:
(i) The worth at the time of award of any unpaid rent
which has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss Tenant proves could have been
reasonably avoided; plus
(iii) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Initial Term or Renewal Term (as
applicable) after the time of award exceeds the amount of such rental loss
that Tenant proves could be reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for
all detriment, expense, loss or damage, including, but not limited to, all
costs and expenses to re-lease or sublet the Property, including the cost of
alterations and remodeling required by a new tenant, attorneys' fees and real
estate commissions paid or payable for this Lease or to re-lease or sublet
the Property, proximately caused by Tenant's failure to perform its
obligations under this Lease; plus
(v) Any other amount necessary to compensate Landlord for
all other detriment, expense, loss or damage proximately caused by Tenant's
failure to perform its obligations under this Lease (including, without
limitation, the payment of taxes, insurance, and operating costs to the
extent provided by this Lease); plus
(vi) Any other amounts owed to Landlord by Tenant,
including, without limitation, any sums of money or damages provided in
Sections 15.3, 15.4 or 21 of this Lease.
As used in this Section 14.2(b), the term "rent" shall be deemed to be and to
mean the monthly Basic Rent and all other sums required to be paid by Tenant
pursuant to the terms of this Lease. As used in paragraphs (i), (ii) and
(iii) of this Section, the "worth at the time of award" is computed by
allowing interest or discounting, as the case may be, at the rate equal to
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award. All rental amounts received from any re-letting of the Property
during the balance of the then-applicable term of this Lease (had termination
not occurred) shall be the property of Landlord, and Tenant shall have no
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right or claim to such rental amounts. The rental amounts received by
Landlord prior to the time of the award of damages as provided above shall
constitute rental loss avoided by Landlord.
(c) Advances. In the event of Tenant's breach hereof, Landlord may
remedy the breach for the account and at the expense of Tenant. If Landlord
at any time, by reason of such breach, is compelled to pay, or elects to pay,
any moneys or do any act which will require the payment of any moneys, or is
compelled to incur any expense, including reasonable attorneys' fees and
costs, in instituting or prosecuting any action or proceeding to enforce
Landlord's rights under this Lease, the moneys so paid by Landlord, with
interest from the date of payment, shall be additional rent and shall be due
from Tenant to Landlord as provided in Section 3 hereof.
14.3 Re-Entry on Termination. In the event of the termination of
Tenant's right of possession and/or this Lease by Landlord hereunder,
Landlord shall have the right to re-enter the Property and remove therefrom
all persons and property.
14.4 Re-Entry on Non-Termination. In addition to the other rights of
Landlord herein provided, Landlord shall have the right without terminating
this Lease, to re-enter and retake possession of the Property and collect
rents from any subtenants and/or sublet in the name of Landlord or Tenant the
whole or any part of the Property for the account of Tenant, upon any terms
or conditions determined by Landlord. In the event of such subleasing,
Landlord shall have the right to collect any rent which may become payable
under any sublease, and apply the same first to the payment of expenses
incurred by Landlord in dispossessing the Tenant and in subletting the
Property, including attorneys' fees, real estate commissions and repairs and,
thereafter, to the payment of the rent herein required to be paid by Tenant,
in fulfillment of Tenant's covenants hereunder, and Tenant shall be liable to
Landlord for the rent herein require to be paid, less any amount actually
received by Landlord from a sublease and, after payment of expenses incurred,
applied on account of the rent due hereunder. In the event of such election,
Landlord shall not be deemed to have terminated this Lease by taking
possession of the Property unless notice of termination, in writing, has been
given by Landlord to Tenant.
14.5 Right of Entry-Lien for Performance. In addition to any other
rights of Landlord as provided in this Section 14, upon the default of
Tenant, Landlord shall have the right to enter the Property, change the locks
on doors to the Premises and exclude Tenant therefrom and, in addition, take
and retain possession of any property on the Premises or Real Property owned
by or in the possession of Tenant as and for security for Tenant's
performance. Tenant hereby grants to Landlord a lien under applicable Nevada
law on all of said property, which lien shall secure the future performance
by Tenant of this Lease. No property subject to said lien shall be removed
by Tenant from the Property so long as Tenant is in default of any monetary
obligation under this Lease. No action taken by Landlord in connection with
the enforcement of its rights as provided in this Section 14 shall constitute
a trespass or conversion except as to persons holding prior security
interests in said property, and Tenant shall indemnify, save and hold
Landlord harmless from and against any such claim or demand on account
thereof.
14.6 Enforcement. In the event of a default by Tenant under this
Lease, Landlord may at any time, and from time-to-time, without terminating
this Lease, enforce all of its rights and remedies under this Lease, or
allowed by law or equity, including the right to recover all rent as it
becomes due. The enforcement by Landlord of any rights or remedies provided
in this Section 14, or allowed by law or equity, shall not constitute the
election by Landlord to terminate this Lease unless such election is in a
writing signed by Landlord (or Landlord's authorized agent) and delivered to
Tenant.
14.7 Security Deposits. If Landlord terminates this Lease because of
the default of Tenant as provided in this Section 14, or if Landlord
exercises its right of possession under Section 14.4 above, without
terminating this Lease, then Tenant shall immediately transfer to the Owner
all security deposits previously paid to Tenant by subtenants having a right
to occupy the Property at the date of said termination.
14.8 Additional Security. As additional security for Tenant's
performance of this Lease, Tenant hereby assigns and sets over to Landlord,
as security for the performance of Tenant's obligations under this Lease, all
subleases entered into by Tenant with respect to the Property, and all rents
due or to become due under said subleases, subject to the right of Tenant by
license granted to Tenant by Landlord, to collect and retain said rents, so
long as Tenant is not in default under this Lease.
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14.9 Mitigation. Nothing herein contained shall relieve Landlord from
the obligation to make reasonable efforts to mitigate the loss or damage
occasioned by a default of Tenant, provided that said obligation to mitigate
shall not relieve Tenant of the burden of proof as required in this Section
14 or otherwise affect the rights and remedies available to landlord in the
event of a default by Tenant as provided in this Section or otherwise allowed
by law or equity.
14.10 Default by Landlord. Landlord shall be in default under this
Lease if Landlord fails to perform or observe any covenant, agreement or
condition which Landlord is required to perform or observe and the failure
shall not be cured within thirty (30) days after delivery of written notice
to Landlord by Tenant of the failure.
14.11 Remedies of Tenant. In the event of Landlord's default as set
forth in Section 14.3, Tenant shall have all rights provided at law or in
equity, except Tenant expressly waives any right to the abatement or
withholding of rent payable to Landlord under this Lease. Tenant's
obligation to pay rent is independent of all other rights, and Tenant may not
withhold rent payments to Landlord or pay rent to other parties or into any
escrow or holding account because of the default or alleged default of
Landlord.
Section 15. Termination
15.1 Events of Termination. This Lease shall terminate upon the
occurrence of one or more of the following events: (i) by mutual agreement
of Landlord and Tenant; (ii) by Landlord pursuant to this Lease; (iii) by
Tenant pursuant to this Lease; (iv) upon lapse of the Initial Term or any
Renewal Term without Tenant exercising its Renewal Option related thereto; or
(v) by reason of Sections 10 or 11 relating to destruction or condemnation of
the Property.
15.2 Surrender of Possession. Upon termination of this Lease, Tenant
will immediately surrender possession of the Property to Landlord. If
possession is not immediately surrendered, Landlord may re-enter and
repossess the Property and remove all persons or property using such force as
may be necessary without being deemed guilty of, or liable for, any trespass,
forcible entry, detainer, breach of the peace, or damage to persons or
property.
15.3 Condition of Property Upon Termination or Abandonment. Tenant,
upon termination or abandonment of this Lease or termination of Tenant's
right of possession, agrees as follows:
(a) Remove Alterations. Tenant shall not remove any
alterations, improvements or additions made to the Property be Tenant or
others without the prior written consent of Landlord, which consent shall not
be unreasonably withheld. Tenant shall immediately remove, in a good and
workmanlike manner (i) all personal property of Tenant, and (ii) the
alterations, improvements and additions made to the Property by Tenant as
Landlord may request in writing to be removed. All damage occasioned by the
removal shall be promptly repaired by Tenant in a good and workmanlike
manner. If Tenant fails to remove any property, Landlord may (i) accept the
title to the property without credit or compensation to Tenant, or (ii)
remove and store the property, at Tenant's expense, in any reasonable manner
that Landlord may choose.
(b) Restore Premises. Tenant shall restore the Property to the
condition existing on the Commencement Date, with the exception of (i)
ordinary wear and tear, and (ii) alterations, improvements and additions
which Landlord has not directed to Tenant in writing to remove. If Tenant
fails to properly restore the Property, Landlord, at Tenant's expense, may
restore the Property in any reasonable manner that Landlord may choose.
15.4 Holding Over. Should Tenant continue to occupy the Property, or
any part thereof, after the expiration or earlier termination of this Lease,
whether with or against the consent of Landlord, such tenancy shall be from
month to month. In the event of such a holding over, the obligations of
Tenant shall be the same as were in effect at the date of said expiration or
termination and the monthly rent to be paid by Tenant to Landlord shall be
equal to one hundred twenty-five percent (125%) of the monthly rent in force
and effect for the last month of the term expired or terminated.
Section 16. Claims and Disputes
16.1 Rights and Remedies Cumulative. Except as expressly provided in
this Lease, each party's rights and remedies described in this Lease are
cumulative and not alternative remedies.
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16.2 Nonwaiver of Remedies. A waiver of any condition stated in this
Lease shall not be implied by the neglect of a party to enforce any remedy
available by reason of the failure to observe or perform the condition. A
waiver by a party shall not affect any condition other than the one specified
in the waiver and a waiver shall waive a specified condition only for the
time and in the manner specifically stated in the waiver. The acceptance by
Landlord of rent or other money from Tenant after termination of the Lease,
after termination of Tenant's right of possession, after the occurrence of a
default, or after institution of any remedy by Landlord shall not alter,
diminish, affect or waive the Lease termination, termination of possession,
default or remedy.
16.3 Waiver of Notice. Except as provided in Section 14.1(a), Tenant
expressly waives the services of any demand for payment of rent or for
possession.
16.4 Waiver of Claims. Exclusive of direct damages caused by the
negligence or willful misconduct of Landlord, Landlord and Landlord's
partners, directors, officers, agents, servants and employees shall not be
liable for any direct or consequential damages (including damages claimed for
actual or construction eviction) either to the person or property sustained
by Tenant or Tenant's partners, officers, directors, employees, invitees,
guests, customers, clients or licensees due to (i) any part of the Premises
or Real Property not being in repair, or (ii) the happening of any incident
on the Premises or Real Property. This waiver shall include, but not be
limited to, damage caused by cold, heat, water, snow, frost, sewage, gas, or
the malfunction of any plumbing, fire control, fire detection, fire
sprinkler, electrical, electronic, computer, security, telecommunication,
heating, cooling or ventilation systems, facilities or installations on the
Premises or Real Property.
16.5 Indemnification. To the extent caused by an act or failure to
act of Tenant or Tenant's partners, officers, employees, invitees, guests,
customers, clients or licensees, and regardless whether the act or failure to
act is negligent, Tenant shall defend, indemnify and hold harmless Landlord
and Landlord's partners, officers, directors, agents and employees from any
liabilities, damages and expenses (including attorneys' fees and costs)
arising out of or relating to (i) the Premises or Real Property, or (ii)
Tenant's use or occupancy of the Property.
16.6 Hazardous Material Indemnification. Tenant shall indemnify,
defend and hold Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses (including, without
limitation, diminution in value of the Premises or Real Property, damages for
the loss or restriction on use of rentable or useable space or any amenity of
the Premises or Real Property, damages arising from any adverse impact on
marketing of space, and sums paid in settlement of claims, attorneys' fees,
consultant fees and expert fees) which arise during or after the Term as a
result of Tenant's breach of the obligations stated in this Lease regarding
Hazardous Material. This indemnification of Landlord by Tenant includes,
without limitation, costs incurred in connection with any investigation of
site conditions or any cleanup, remedial, removal, or restoration work
required by any federal, state, or local governmental agency or political
subdivision because of Hazardous Material introduced during the Lease term
into the soil or ground water on or under the Premises or Real Property.
Without limiting the preceding, if the presence of any Hazardous Material on
the Premises or Property caused or permitted by Tenant results in any
contamination of the Premises or Real Property, Tenant shall promptly take
all actions at Tenant's sole expense as are necessary to return the Premises
or Property to the condition existing prior to the introduction of any
Hazardous Material to the Premises or Real Property.
(a) Notwithstanding any other provision of this Agreement or
any contrary provision of law, the obligations of Tenant pursuant to this
Section 16.6 shall remain in full force and effect until the expiration of
the latest period stated in any applicable statute of limitations during
which a claim, cause of action or prosecution relating to the matters
described herein may be brought, and until payment in full or satisfaction of
any and all losses, claims, causes of action, damages, liabilities, charges,
costs and expenses for which Tenant is liable hereunder shall have been
accomplished.
(b) If any claim, demand, action or proceeding is brought
against Landlord which is or may be subject to Tenant's obligation to
indemnify Landlord as set forth under this Section 16.6 Landlord shall
provide to Tenant immediate notice of that claim, demand, action or
proceeding, and Tenant thereafter shall defend Landlord at Tenant's expense
using attorneys and other counsel selected by Tenant and reasonably
acceptable to Landlord.
16.7 Effect of Landlord Insurance on Tenant Obligations. From time to
time and without obligation to do so, Landlord may purchase insurance against
damage or liability arising out of or related to the Premises or Real
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Property. The purchase or failure to purchase insurance shall not release or
waive the obligations of Tenant set forth in this Lease. Tenant waives all
claims on insurance purchased by Landlord.
16.8 Disputes. This Lease shall be governed by the laws of the State
of Nevada, without regard to conflicts of laws principles. The Nevada courts
have exclusive jurisdiction and Washoe County is the proper venue.
16.9 Landlord's Responsibility For Prior Contamination By Hazardous
Substances.
(a) Except as otherwise expressly disclosed in Exhibit D,
Landlord represents and warrants to Tenant that to the best of
Landlord's actual knowledge: (i) at all times prior to the commencement
of the Lease, Landlord and all of Landlord's predecessors in title, and
all lessees, tenants, employees, agents, sublessees, franchisees,
licensees, permitees, contractors, vendees and customers of Landlord
and/or Landlord's predecessors in title, and all other persons
permitted by Landlord and/or Landlord's predecessors in title to have
access to the Property, shall have used, stored, transported, disposed
of and treated Hazardous Materials in strict accordance with all
applicable federal, state and local laws and regulations (collectively
referred to for the remainder of this Section 16.9 as the "Laws"), and
(ii) the Property shall not, as of the commencement of the Lease, be
contaminated by the Presence on, under or about the Property of any
Hazardous Material.
(b) Landlord agrees to indemnify, defend, protect and hold
harmless Tenant and each of Tenant's members, partners, stockholders (if
any), employees, agents, successors and assigns (collectively referred to for
the remainder of this Section 16.9 as "Tenant"), from and against any and all
criminal and civil claims and causes of action (including but not limited to
claims resulting from, or causes of action incurred in connection with, the
death of or injury to any person or damage to any property), liabilities
(including but not limited to liabilities arising by reason of actions taken
by any governmental agency), penalties, forfeitures, prosecutions, losses and
expenses (including reasonable attorney fees) which directly or indirectly
arise from or are caused by either: (i) the presence, prior to the
commencement of the Lease, in, on, under or about the Real Property or the
Premises, of any Hazardous Materials, or (ii) any breach of the warranties
made by landlord in Section 16.9(a). Landlord's obligations under this
Section 16.9(b) shall include, but not be limited to, the obligation to bear
the expense of any and all costs, whether foreseeable or unforeseeable, of
any necessary (as required by the Laws) repair, cleanup, detoxification or
decontamination of all or any portion of the Property (or any improvements
located thereon), and the preparation and implementation of any closure,
remedial action or other required plan or plans in connection therewith.
Notwithstanding the preceding provisions of this Section 16.9(b), Landlord
shall have no obligation to indemnify, defend, protect and/or hold harmless
Tenant with respect to any release, spill, leak or discharge of Hazardous
Materials on the Property which occurs solely after the commencement of the
Lease.
(c) Notwithstanding any other provision of this Agreement or
any contrary provision of law, the obligations of Landlord pursuant to this
Section 16.9 shall remain in full force and effect after any closing of the
purchase of the Property by Tenant and until the expiration of the latest
period stated in any applicable statute of limitations during which a claim,
cause of action or prosecution relating to the matters described herein may
be brought, and until payment in full or satisfaction of any and all losses,
claims, causes of action, damages, liabilities, charges, costs and expenses
for which Landlord is liable hereunder shall have been accomplished.
(d) For purposes of this Section 16.9, any act or omission,
prior to the commencement of the Lease, of or by any one or more employees,
agents, assignees, sublessees, franchisees, licensee, permitees, customers,
vendees, contractors, successors-in-interest or other persons permitted by
Landlord or any of Landlord's predecessors in title to have access to the
Property or acting for or on behalf of Landlord or any of Landlord's
predecessors in title (whether or not the actions of such persons are
negligent, intentional, willful of unlawful) shall be strictly attributable
to Landlord.
(e) If any claim, demand, action or proceeding is brought
against Tenant which is or may be subject to Landlord's obligation to
indemnify Tenant as set forth under this Section 16.9, Tenant shall provide
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to Landlord immediate notice of that claim, demand, action or proceeding, and
Landlord thereafter shall defend Tenant at Landlord's expense using attorneys
and other counsel selected by Landlord and reasonably acceptable to Tenant.
Section 17. Assignment and Subletting
17.1 Restrictions on Assignment and Subletting. Except as expressly
provided in Section 17.2 below, Tenant shall not transfer, assign, sublet,
enter into license or concession agreements, change ownership or hypothecate
this Lease or Tenant's interest in and to the Property (hereafter "transfer")
without first obtaining the written consent of Landlord, which consent may
not be unreasonably withheld, conditioned or delayed. Any transfer of this
Lease, the leasehold estate created hereby, or the Property or any portion
thereof, either voluntarily or involuntarily, whether by operation of law or
otherwise, without the prior written consent of Landlord, shall be null and
void and shall, at the option of Landlord, constitute a material default
under this Lease. Tenant agrees to reimburse Landlord's reasonable
attorney's fees and other necessary costs incurred in connection with the
processing and documentation of any such requested transfer of this Lease or
Tenant's interest in and to the Property. The transfer of a majority of the
issued and outstanding capital stock of Tenant, however, accomplished, shall
be deemed an assignment of this Lease.
17.2 Permitted Assigns. Notwithstanding the provisions of Section
17.1 above, Tenant may assign this Lease to an Affiliate. For purposes
hereof, an "Affiliate" shall mean, with respect to Tenant, any other
corporation which directly or indirectly, through one or more intermediaries
controls or is controlled by or under common control with Tenant; and the
term "control" (including the terms "controlling", "controlled by" and "under
common control with") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
corporation, whether through the ownership of voting securities or otherwise.
17.3 Consent to Modifications. The assignment of this Lease by Tenant
with the consent of Landlord shall, without being specifically so stated or
agreed, constitute the express agreement by Tenant that subsequent
modifications of this Lease by Landlord and the assignee shall not (i)
require the prior consent or approval of Tenant (assignor), or (ii) release
or relieve Tenant (assignor) from liability hereunder; provided, however,
that if such modifications increase the rent or other obligations of Tenant
hereunder, Tenant's (assignor's) liability shall be limited to the terms of
this Lease as the same existed on the date of assignment.
Section 18. Waiver. The waiver by landlord of any breach of any term,
covenant or condition of this Lease shall not be deemed to be a waiver of any
past, present or future breach of the same or any other term, covenant or
condition of this Lease. The acceptance of rent by Landlord hereunder shall
not be construed to be a waiver of any term of this Lease. No payment by
Tenant of a lesser amount than shall be due according to the terms of this
Lease shall be deemed or construed to be other than a part payment on account
of the most recent rent due, nor shall any endorsement or statement on any
check or letter accompanying any payment be deemed to create an accord and
satisfaction.
Section 19. Relationship of Parties
19.1 Relationship of Parties. Nothing contained in this Lease shall
be construed as creating the relationship of principal or agent, partnership
or joint venture between Landlord and Tenant. Neither the method of
computation of rent nor any other provision of this Lease, nor any act of the
parties, shall be deemed to create any relationship other than that of
Landlord and Tenant.
19.2 Designation of Representative. Each party shall designate, in
writing, one representative to coordinate and implement the party's
obligations hereunder and to accept responsibility for that party's
compliance with this Lease. The representative shall have full authority to
represent the party. Initially, the person signing this Lease for the party
shall be the party's representative. If the representative is changed, then
the party shall notify the other party in writing and the other party shall
not be charged with knowledge of that change until receipt of that written
notice.
Section 20 Notices. Any notice or demand given under the terms of this
Lease shall be in writing and shall be deemed to be delivered on the date of
delivery if delivered in person or by facsimile, or on the date of receipt if
delivered by U.S. Mail or express courier. Proof of delivery shall be by
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affidavit of personal delivery, machine-generated confirmation of facsimile
transmission, or return receipt issued by the U.S. Postal Service or by
express courier. Until changed by notice in writing, notices, demands and
communications shall be addressed as follows:
LANDLORD: TENANT:
Richard M. Donnelly and Lithia Real Estate, Inc.
Susan K. Donnelly 360 E. Jackson
P.O. Box 7120 Medford, Oregon 97501
Reno, Nevada 89510 Attn: Stephen Matthews
with copy to:
Paul M. Boyd Stephen G. Jamieson, Esq.
Hawley Troxell Ennis & Hawley, LLP 2592 East Barnett Road
877 Main Street, Suite 1000 Medford, Oregon 97501
Boise, Idaho 83701-1617
Either party shall have the right to change its above address by notice in
writing delivered to the other party in accordance with the provisions of
this Section 20.
Section 21. Attorney Fees and Costs
21.1 General Default. If either party shall default in the payment to
the other party of any sum of money specified in this Lease to be paid, or if
either party shall default with respect to any other obligations in this
Lease, all attorneys' fees incurred by the other party shall be paid by the
defaulting party, and if said sum is collected or the default is cured before
the commencement of a suit thereon, as a part of curing said default,
reasonable attorneys' fees incurred by the other party shall be added to the
balance due and payable or, in the case of a non-monetary default, shall be
reimbursed to the other party upon demand.
21.2 Litigation. In the event either party to this Lease shall
interpret or enforce any of the provisions hereof by any action at law or in
equity, the non-prevailing party to such litigation agrees to pay to the
prevailing party all costs and expenses, including reasonable attorneys',
accountants' and appraisers' fees incurred therein by the prevailing party,
including all such costs and expenses incurred with respect to an appeal and
such may be included in the judgment entered in such action.
Section 22. Miscellaneous
22.1 Option to Purchase Property. Tenant shall have the option to
purchase the Property on the terms and conditions set forth on Exhibit C
attached hereto and made a part hereof.
22.2 Estoppel Certificate. Either party shall, at any time upon not
less than ten (10) days prior written notice from the other party (the
"requesting party"), execute, acknowledge and deliver to the other party a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification
and certifying that this Lease, as so modified, is in full force and effect)
and the date to which the rent and other charges are paid in advance, (ii)
acknowledging that there are not, to the other party's knowledge, any uncured
defaults on the part of the requesting party hereunder, or specifying such
defaults if they are claimed, and (iii) containing any other certifications,
acknowledgments and representations as may be reasonably requested by the
requesting party or the party for whose benefit such estoppel certificate is
requested by the requesting party or the party for whose benefit such
estoppel certificate is requested. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrances of the Property or
Tenant's leasehold estate therein. A party's failure to deliver such
statement within said time shall be conclusive upon the said party (i) that
this Lease is in full force and effect, without modification except as may be
represented by the requesting party, (ii) that there are no uncured defaults
in the requesting party's performance, (iii) that not more than an amount
equal to one (1) month's rent has been paid in advance, and (iv) that such
additional certifications, acknowledgments and representations as are
requested under clause (iii) of the preceding sentence are valid, true and
correct as shall be represented by the requesting party. If Landlord desires
to finance or refinance the Property, Tenant hereby agrees to deliver to any
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lender designated by Landlord such financial statements of Tenant as may be
reasonably required by such lender, and all such financial statements shall
be received by Landlord in confidence and shall be used only for the purpose
herein set forth.
22.3 Transfer of Landlord's Interest. In the event of a sale or
conveyance by Landlord of the Property, other than a transfer for security
purposes only, Landlord shall be relieved from all obligations and
liabilities accruing thereafter on the part of Landlord (with the exception
of the obligations imposed on Landlord under Section 16.9, which shall be
continuing), provided that any funds in the hands of Landlord at the time of
transfer in which Tenant has an interest shall be delivered to the successor
of Landlord. This Lease shall not be affected by any such sale and Tenant
agrees to attorn to the purchaser or assignee, provided all Landlord
obligations hereunder are assumed in writing by Landlord successor,
including, without limitation, the obligation of Landlord to sell the
Property to Tenant in the event Tenant exercises its option to purchase as
set forth in Exhibit C hereto.
23.4 Severability. If any term or provision of this Lease shall be
determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby and
each term and provision of this Lease shall be valid and be enforceable to
the fullest extent permitted by law; and it is the intention of the parties
that if any provision of this Lease is capable of two construction, one of
which would render the provision void and the other of which would render the
provision valid, then the provision shall be interpreted to have the meaning
which renders it valid.
23.5 Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, court orders, acts of God, inability to obtain
labor and materials or reasonable substitutes therefor, governmental
restrictions, governmental regulations, government controls, enemy or hostile
government action, civil commotion, fire or other casualty and other causes
beyond the reasonable control of the party obligated to perform shall excuse
the performance by such party for a period equal to any such prevention,
delay or stoppage, provided that this Section 23.5 shall not be applicable to
the obligations imposed with regard to rent and other charges to be paid by
Tenant pursuant to this Lease.
23.6 Construction. All parties hereto have either (i) been
represented by separate legal counsel or (ii) have had the opportunity to be
so represented. Thus, in all cases, the language herein shall be construed
simply and in accordance with its fair meaning and not strictly for or
against a party, regardless of which party prepared or caused the preparation
of this Lease.
23.7 Deleted by agreement of the parties.
23.8 Succession. This Lease and all obligations contained herein
shall be binding upon and shall inure to the benefit of the respective heirs,
personal representatives, successors and assigns of the parties hereto;
provided, however, that any assignment of this Lease or any part hereof shall
be subject to the provisions of Section 17, above.
23.9 Recording. Landlord shall, promptly upon request by Tenant,
execute a memorandum of lease which may be recorded by Tenant in Washoe
County, Nevada.
23.10 General. The words "Landlord" and "Tenant" as used herein, shall
include the plural as well as the singular. Words used in the neuter gender
include the masculine and feminine, and words in the masculine or feminine
gender include the neuter. If there be more than one Tenant, the obligations
hereunder imposed upon Landlord and Tenant shall be joint and several. The
term "Landlord" shall mean only the owner or owners at the time in question
of the fee title to the Property (except for purposes of Section 16.9, which
applies to those persons initially executing this Lease as Landlord). With
the exception of the obligations imposed under Section 16.9 (which shall
continue to be binding on the persons initially executing this Lease as
Landlord), the obligations contained in this Lease to be performed by
Landlord shall be binding only during Landlord's respective period of
ownership.
23.11 Section Headings. The Section headings titles and captions used
in this Lease are for convenience only and are not part of this Lease.
23.12 Entire Agreement. This Lease, including the Exhibits attached
hereto, and the Asset Purchase Agreement between Landlord (and Landlord's
affiliate) and Tenant's affiliate of even date herewith, contain the entire
agreement between the parties as of this date concerning the subject matter
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hereof and supersede any and all prior agreements, oral or written, between
the parties concerning the subject matter hereof. The execution hereof has
not been induced by either party, or any agent of either party, by
representations, promises or undertakings not expressed herein or in the
Asset Purchase Agreement and, further, there are no collateral agreements,
stipulations, covenants, promises, inducements or undertakings whatsoever
between the respective parties concerning the subject matter of this Lease or
the Property which are not expressly contained herein or in the Asset
Purchase Agreement.
23.13 Time is of the Essence. Time is of the essence with respect to
the obligations to be performed under this Lease.
IN WITNESS WHEREOF the parties have hereunto executed this Commercial Lease
Agreement
the day and year first above written.
LANDLORD: RICHARD and SUSAN K. DONNELLY
/s/ Richard M. Donnelly
Richard M. Donnelly
/s/ Susan K. Donnelly
Susan K. Donnelly
TENANT: LITHIA MOTORS, INC.
By: /s/ Brad Berg
Print Name:
Title:
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Exhibit A
DESCRIPTION OF REAL PROPERTY
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Exhibit B
RENT ESCALATION PROVISIONS
On the first (1st) day of the first Renewal Term, and on the first (1st) day
of each Renewal Term thereafter (hereafter "Rent Adjustment Date"), the
annual Base Rent to be paid by Tenant to Landlord under the Lease shall be
adjusted as follows:
The Base Rent, as adjusted, shall be equal to the greater of (i)
the Base Rent (as previously adjusted, if any) in the month prior
to the applicable Rent Adjustment Date, or (ii) the Base Rent (as
previously adjusted, if any) plus the CPI Adjustment. For
purposes of this Exhibit B, "CPI" refers to the Consumer Price
Index for All Urban Consumers, U.S. City Average. All items,
compiled by the Bureau of Labor Statistics, United States
Department of Labor, using the index for January, 1988 as a base
of 100. In the event the CPI is replaced or revised, a
comparable or replacement index shall be based upon or adjusted
to January 1988 base of 100. The "CPI Adjustment" is computed
using the following formula:
New period Base Rent, as adjusted = Prior period Base Rent +
(Percentage of CPI Increase x prior period Base Rent)
The "Percentage of CPI Increase" shall be determined by the
following formula:
Current CPI -- Prior Period CPI
Prior Period CPI
The Initial Term and each Renewal Term of the Lease is five (5)
years. The Prior Period CPI shall be the CPI for the first
calendar month of the Initial Term or prior Renewal Term, as
applicable. The Current CPI shall be the CPI for the last
calendar month immediately preceding the Rent Adjustment Date.
The maximum adjustment in the Base Rent at each time of
adjustment (i.e. over each five year Renewal Term) shall be ten
percent (10%).
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Exhibit C
OPTION TO PURCHASE PROPERTY
IN CONSIDERATION of the agreement by Tenant to lease from Landlord the
Property covered by the foregoing Lease, and for other good and valuable
consideration, THE PARTIES AGREE AS FOLLOWS:
1. Option to Purchase. Landlord hereby grants to Tenant an
irrevocable exclusive option (the "Option") to purchase the Property pursuant
to the terms set forth in this Exhibit C. The Option shall commence on the
Commencement Date of the Lease and shall terminate when the term of the Lease
terminates pursuant to its terms, either upon the expiration of the Initial
Term or any Renewal Term, as applicable (the "Option Period").
2. Exercise of Option. At any time during the Option Period, and
provided that this Option is in full force and effect, and provided further
that Tenant is not in default under the Lease, Tenant may elect to exercise
the Option to purchase the Property by delivering to Landlord a written
notice to that effect (the "Notice of Purchase").
3. Purchase Price. If Tenant exercises the Option herein granted
during the Initial Term of the Lease, the purchase price for the Property
shall be the sum of $1,850,000. If Tenant exercises the Option herein
granted during any Renewal Term of the Lease, the purchase price of the
Property shall be the fair market value of the Property, as determined by an
MAI appraisal, conducted by a state-certified appraiser acceptable to
Landlord and Tenant, the cost of which shall be borne equally by Landlord and
Tenant. The full purchase price for the Property shall be paid by Tenant to
Landlord in cash at the closing of the purchase.
4. Right of First Refusal. Notwithstanding anything to the contrary
in this Exhibit C, if Landlord receives a bona fide offer to purchase the
Property from an unaffiliated third party during the Option Period, Landlord
shall give written notice to Tenant of such offer ("Offer Notice"), which
such Offer Notice shall include (i) a description of the offer, (ii) the
identity of the real party in interest making the offer, (iii) the proposed
purchase price for the Property, and (iv) the other terms and conditions of
the offer. Tenant shall have thirty (30) days from receipt of such Offer
Notice from Landlord to exercise its Option to purchase the Property by
delivering to Landlord a Notice of Purchase in accordance with the provisions
of Paragraph 2 above. The purchase price of the Property in such event shall
be the lesser of the purchase price set forth in the offer or the amount
payable by Tenant pursuant to the provisions of Paragraph 3 above (e.g.
$1,850,000 during the Initial Term of the Lease, and fair market value during
any Renewal Term).
5. Commitment for Title Insurance. Within ten (10) business days
after Tenant delivers to Landlord a Notice of Purchase pursuant to Paragraph
2 or 4 above, Landlord shall obtain, at Landlord's cost and expense, and
deliver to Tenant a current commitment for title insurance ("Commitment")
issued by a title company selected by Landlord doing business in Washoe
County, Nevada (the "Title Company"). Such Commitment shall evidence that
the Property is free and clear of all liens, encumbrances or exceptions,
excepting current general taxes, assessments, easements of record, covenants
and restrictions of record, zoning regulations, and such other exceptions to
title as are usual and normal on property of the type and in the vicinity of
the Property and which have been specifically approved by Tenant in writing.
Said Commitment may also evidence an encumbrance or encumbrances which shall
be paid in full by Landlord at the closing of the purchase.
6. Condition of Property. The parties acknowledge that Tenant,
having been in possession of the property pursuant to the Lease, is fully
familiar with and knowledgeable of the physical condition of the land and
improvements comprising the Property and shall purchase the same in an "AS
IS" condition, with all faults and without representation or warranty of any
kind from Landlord concerning condition, suitability or otherwise.
7. Closing of the Purchase.
(a) The closing of the purchase by Tenant shall occur not
earlier than six (6) months nor more than nine (9) months after the date of
the Notice of Purchase as provided in Paragraph 2 or 4 above.
(b) At the closing, which shall be conducted by the Title
Company issuing the Commitment described in Paragraph 5 above, Landlord shall
deliver a good and sufficient, executed and acknowledged Limited Warranty
Deed in favor of Tenant, and Tenant shall deliver to the Title Company as
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escrow/closing agent the purchase price, plus all rent and other amounts
payable to Tenant. Each party shall pay one-half (1/2) of the fee charged by
the Title Company for closing the transaction.
(c) Real estate taxes and assessments for the then current year
shall be paid by Tenant (as required under the Lease) and Landlord shall
purchase and provide to Tenant a Standard Coverage Owner's Policy of Title
Insurance (the "Title Policy"), which shall be in an amount equal to the
purchase price, insuring Tenant's title to the Property, subject only usual
printed exceptions, and the exceptions to title as set forth in the
Commitment (excluding any encumbrance which is to be paid by Landlord at
closing), which exceptions have been specifically approved by Tenant in
writing, and any encumbrance or other exception caused by or attributable to
Tenant. In the event the Title Policy as provided by this Paragraph 7(c)
cannot, following the closing, be issued by the Title Company in the form
herein required, this Option and any subsequent agreement between Landlord
and Tenant obligating Landlord to sell and Tenant to Purchase the Property
shall be null and void, Landlord shall be released from the obligation to
sell, and Tenant shall be released from the obligation to purchase and pay
for the Property. In such event, the Lease shall continue in full force and
effect for the remainder of its term; provided, however, that in that event
the provisions of Section 3.3 and Exhibit B of the Lease relating to CPI
indexed increases in the rental amount payable under the Lease thereafter
shall be void and of no effect, and the monthly rent payable by Tenant for
each and every month throughout the remainder of the Lease term shall be the
Base Rent in effect at the time of exercise by Tenant of its option to
purchase the Property.
(d) If the transaction fails to close because of the default of
a party, in addition to any other remedies at law or in equity available to
the other party, the defaulting party shall reimburse the other party for all
costs and expenses incurred by the other party in connection with the
transaction, including, but not limited to, reasonable attorneys' fees,
appraisal fees and Title Company charges, and the Lease shall continue in
full force and effect for the remainder of its term, if any.
8. Termination of Option. The Option shall terminate and be of no
further force or effect upon the occurrence of the following:
(a) The termination of the Lease between Landlord and Tenant,
as described above, for any reason, including, but not limited to, the
default of Tenant thereunder, prior to the exercise of the Option.
(b) The failure of Tenant to deliver to Landlord the Notice of
Purchase during the Option Period as provided in Paragraph 2 above or within
the time period described in Paragraph 4 above.
Upon such termination, the Option shall end and the rights and obligations of
the parties hereunder shall terminate and be of no further force and effect.
In the event the Option terminates as provided herein, the privilege to
purchase the Property shall no longer be available to Tenant and Landlord
shall have no obligation to sell or convey the Property to Tenant.
9. Notices. Any notice required to be given hereunder shall be in
writing and shall be mailed or delivered in the manner provided in Section 20
of the Lease.
10. Assignment. Tenant shall not have the right to assign the Option
or any interest herein, without the prior written consent of Landlord, which
consent by not be unreasonably withheld. In no event, however, shall any
rights hereunder be assigned by Tenant, unless the same are assigned in
connection with the assignment of the Lease, the assignment of which Lease
must also be approved by Landlord in accordance with the terms of the Lease.
Notwithstanding any other provision of this paragraph to the contrary, Tenant
may transfer and assign the Option to an "Affiliate" (as defined in the
Lease) without Landlord's prior consent; provided, that such transfer and
assignment is made in connection with the assignment of the Lease to the same
Affiliate.
11. Time. Time is of the essence of the Option granted by Landlord
to Tenant hereunder.
12. Certificate of Non-Foreign Status. Landlord is not a foreign
person, nonresident alien, foreign corporation, foreign partnership, foreign
trust or foreign estate, as those terms are defined in the Internal Revenue
Code of 1986, as amended (the "Code") and the Income Tax Regulations
promulgated thereunder. At the close of escrow, Landlord shall deliver to
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Tenant a certificate of non-foreign status in a form satisfactory to Tenant
("Non-Foreign Certification"). In the event Landlord shall not deliver such
Non-Foreign Certification to Tenant at the close of escrow, Tenant may
withhold 10% of the purchase price and pay such withholding to the Internal
Revenue Service pursuant to Section 1445 of the Code.
13. Escrow. On or before the date of the closing (as above
provided), the parties shall deposit the funds and documents hereafter
described into escrow:
(a) Landlord. Landlord shall deposit the following:
(i) The duly executed and acknowledged Landlord's limited
warranty deed;
(ii) The Non-Foreign Certification duly executed by
Landlord under penalty of perjury;
(iii) Evidence reasonably satisfactory to Tenant that all
necessary action on the part of Landlord has been taken with respect to the
execution and delivery of the limited warranty deed and the other ancillary
documents and instruments so that all of said documents are or will be
validly executed and delivered and will be binding on Landlord; and
(iv) Such other instruments and/or documents as may be
required to effect the agreement herein made.
(b) Tenant. Tenant shall deposit the following:
(i) The purchase price of the Property;
(ii) Additional cash in the amount necessary to pay all
amounts due and payable under the Lease and Tenant's share of the closing
costs and pro-rations, as above set fort; and
(iii) Such other instruments and/or documents as may be
required to effect the agreement herein made.
14. Close of Escrow. When the Title Company is in a position to
issue the Title Policy and all documents and funds have been deposited with
the Title Company as escrow holder, the Title Company shall immediately close
the escrow as provided for hereafter. The failure of Landlord or Tenant to
be in a position to close the escrow by the time for closing shall constitute
a default hereunder.
The Title Company as escrow holder and closing agent shall close
the escrow as follows:
(a) Record Landlord's Limited Warranty Deed with instructions
for the Washoe County Recorder to deliver such Deed to Tenant;
(b) Pay the purchase price to be paid at the close of escrow,
plus any amounts due and payable under the Lease, to Landlord (reduced by any
amount paid to release all monetary encumbrances on the Property and by
Landlord's share of the closing costs);
(c) Deliver the Title Policy to Tenant;
(d) Deliver the Non-Foreign Certification to Tenant; and
(e) Forward to Landlord and Tenant, in duplicate, a separate
accounting of all funds received and disbursed for each party and copies of
all executed and recorded or filed documents deposited into escrow, with such
recording and file data endorsed thereon.
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Exhibit D
ENVIRONMENTAL MATTERS
See the matters discussed in that certain Phase I Environmental Site
Assessment, dated as of August 1997, prepared by SEA Incorporated, relating
to 40 Victorian Avenue (APN 033-316-03), in the City of Sparks, Nevada
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EX-10
Exhibit 10.24.2 Real Prop Lease Agmt Optn to Purch
EXHIBIT 10.24.2
REAL PROPERTY LEASE AGREEMENT WITH OPTION TO PURCHASE
THIS LEASE AGREEMENT is entered into by and between ELOY C. RENFROW
(hereinafter referred to as "Lessor") and LITHIA REAL ESTATE, INC.
(hereinafter referred to as "Lessee").
RECITALS:
Lessor is the owner of parcels of real property of located at 3101 and
3201 Cattle Drive and 2800 and 2808 Pacheco Road in Bakersfield, California
(the "Leased Property"), which is being leased to and used by Nissan - BMW of
Bakersfield, Inc. in connection with the business of selling and servicing
new and used motor vehicles and selling parts and accessories for new and
used motor vehicles. By separate agreement, Lithia Motors, Inc. (or its
nominee) is agreeing to purchase all of the business assets owned and used by
Nissan - BMW of Bakersfield, Inc. As a condition concurrent to that sale of
assets, the Lessor is agreeing to lease the Leased Property to Lessee.
NOW, THEREFORE, IN CONSIDERATION OF the mutual promises, covenants and
agreements set forth herein, and for other good and valuable consideration,
Lessor and Lessee agree as follows:
1. Definitions. As used in this Agreement, the following words or
phrases shall have the indicated meanings:
(a) "Leased Property" shall refer both to the following
parcels of real property located in Bakersfield, California, which properties
are more fully described on Exhibit "A" attached hereto, together with all
buildings, improvements and fixtures constructed and existing on those
properties and all easements, rights, privileges and appurtenances attaching
to those properties: a parcel of approximately 4.02 acres which is commonly
identified as 3101 Cattle Drive, a parcel of approximately 1.50 acres which
is commonly identified as 3201 Cattle Drive; a parcel of approximately 1.26
acres which is commonly identified as 2800 Pacheco Road and a parcel of
approximately 1.04 acres which is commonly identified as 2808 Pacheco Road.
(b) "Lease Term" shall refer to the entire term of the lease,
including any extension elected by Lessee pursuant to Paragraph 3. "Lease
Month" shall refer to each of the successive one month periods during the
Lease Term which begin on the 1st day of a calendar month and end on the last
day of that month. "Initial Lease Date" shall refer to the first day of the
Lease Term, and shall be that certain date upon which Lessee closes the
purchase of all business assets of Nissan - BMW of Bakersfield, Inc. in
accordance with the terms of the Agreement for Purchase and Sale of Business
Assets which is attached hereto as Exhibit "B".
(c) "Base Rental Amount" shall have the meaning set forth in
Paragraph 4.
(d) "Index" shall refer to the following index published by
the Bureau of Labor Statistics of the United States Department of Labor,
Consumer Price Index, All Urban Consumers (CPI-U), Los
Angeles/Anaheim/Riverside Area, CPI-All Items ("standard reference base
period" (1982-84 = 100). "Base CPI Index Figure" shall refer to the index
number indicated for the month in which occurs the Initial Lease Date, and
the "CPI Index Figure" for any other month shall refer to the Index number
for that month. If the "Index" is no longer being published as of any date
in the future, then the "CPI Index Figure" for that date shall be the figure
reported in the U.S. Department of Labor's most recent comprehensive official
index then in use and most nearly answering the description of the Index (or,
if the U.S. Department of Labor is not then publishing any such similar
index, shall be determined under another comparable, authoritative, generally
recognized index to be selected by Lessor). If the index is calculated from
a base different from the base 1982-84 - 100, then the figures to be used in
calculating any adjustment mandated under this Agreement first shall be
converted (if possible, under a formula supplied by the Bureau of Labor
Statistics of the U.S. Department of Labor) to account for that difference.
(e) "Hazardous Materials" shall refer to and include: (i) any
and all substances defined as "hazardous substances", "hazardous materials",
or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 USC Section 9601, et.
seq.), the Hazardous Materials Transportation Act (49 USC Section 1801, et.
Seq.), and the Resource Conservation and Recovery Act (42 USC Section 6901,
et. Seq.); and (ii) any and all substances which now or in the future are
deemed to be pollutants, toxic materials or hazardous materials under any
other California or federal law.
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(f) "Date of this Agreement" shall mean the date when this
Agreement has been executed by both of the parties.
2. Lease. Lessor hereby leases the Leased Property to Lessee, and
Lessee leases the Leased Property from Lessor, subject to all of
the terms and conditions contained in this Agreement.
3. Term of Lease. The initial term of the lease (approximately
fifteen years) shall commence on the Initial Lease Date and shall terminate
on December 31, 2012, unless sooner terminated as provided in this Agreement.
(a) At any time during the 180 day period immediately
preceding December 31, 2012, Lessee shall have the right, if the lease has
not theretofore been terminated and if Lessee is not then in default with
respect to any material obligation under this Agreement, to notify Lessor in
writing that the term of the lease shall be extended for an additional five
(5) years, until December 31, 2017, in which case the term of the lease shall
be so extended.
(b) At any time during the 180 day period immediately
preceding December 31, 2017, Lessee shall have the right, if the lease has
not theretofore been terminated and if Lessee is not then in default with
respect to any material obligation under this Agreement, to notify Lessor in
writing that the term of the lease shall be extended for an additional five
(5) years, until December 31, 2022, in which case the term of the lease shall
be so extended.
(c) At any time during the 180 day period immediately
preceding December 31, 2022, Lessee shall have the right, if the lease has
not theretofore been terminated and if Lessee is not then in default with
respect to any material obligation under this Agreement, to notify Lessor in
writing that the term of the lease shall be extended for an additional five
(5) years, until December 31, 2027, in which case the term of the lease shall
be so extended.
(d) At any time during the 180 day period immediately
preceding December 31, 2027, Lessee shall have the right, if the lease has
not theretofore been terminated and if Lessee is not then in default with
respect to any material obligation under this Agreement, to notify Lessor in
writing that the term of the lease shall be extended for an additional five
(5) years, until December 31, 2032, in which case the term of the lease shall
be so.
(e) At any time during the 180 day period immediately
preceding December 31, 2032, Lessee shall have the right, if the lease has
not theretofore been terminated and if Lessee is not then in default with
respect to any material obligation under this Agreement, to notify Lessor in
writing that the term of the lease shall be extended for an additional five
(5) years, until December 31, 2037, in which case the term of the lease shall
be so extended.
4. Rental Payments Required.
(a) With respect to each Lease Month during the period
beginning with the Initial Lease Date and ending on December 31, 2002, Lessee
shall pay to Lessor a rental amount of Thirty-Six Thousand Five Hundred and
00/100 ($36,500.00) per month (hereinafter the "Base Rental Amount").
(b) With respect to each Lease Month during the period
beginning on January 1, 2003 and ending December 31, 2007, Lessee shall pay
to Lessor a monthly rental amount equal to the greater of: (i) the Base
Rental Amount, or (ii) the lesser of: (A) one hundred and ten percent (110%)
of the monthly rental amount in effect for the month of December, 2002, or
(B) the amount determined by multiplying the monthly rental amount in effect
for the month of December, 2002 by a fraction, the denominator of which is
the Base CPI Index Figure, and the numerator of which is the CPI Index Figure
for the month of December, 2002.
(c) With respect to each Lease Month during the period
beginning on January 1, 2008 and ending December 31, 2012, Lessee shall pay
to Lessor a monthly rental amount equal to the greater of: (i) the monthly
rental amount in effect for the month of December, 2007, or (ii) the lesser
of: (A) one hundred and ten percent (110%) of the monthly rental amount in
effect for the month of December, 2007, or(B) the amount determined by
multiplying the monthly rental amount in effect for the month of December,
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2007 by a fraction, the denominator of which is the CPI Index Figure for the
month of December, 2002, and the numerator of which is the CPI Index Figure
for the month of December, 2007.
(d) With respect to each Lease Month during the period
beginning on January 1, 2013 and ending December 31, 2017, Lessee shall pay
to Lessor a monthly rental amount equal to the greater of: (i) the monthly
rental amount in effect for the month of December, 2012, or (ii) the lesser
of: (A) one hundred ten percent (110%) of the monthly rental amount in
effect for the month of December, 2012, or (B) the amount determined by
multiplying the monthly rental amount in effect for the month of December,
2007, and the numerator of which is the CPI Index Figure for the month of
December, 2012.
(e) With respect to each Lease Month during the period
beginning on January 1, 2018 and ending December 31, 2022, Lessee shall pay
to Lessor a monthly rental amount equal to the greater of: (i) the monthly
rental amount in effect for the month of December, 2017, or (ii) the lesser
of: (A) one hundred and ten percent (110%) of the monthly rental amount in
effect for the month of December, 2017; or (B) the amount determined by
multiplying the monthly rental amount in effect for the month of December,
2017 by a fraction, the denominator of which is the CPI Index Figure for the
month of December, 2012, and the numerator of which is the CPI Index Figure
for the month of December, 2017.
(f) With respect to each Lease Month during the period
beginning on January 1, 2023 and ending December 31, 2027, Lessee shall pay
to Lessor a monthly rental amount equal to the greater of: (i) the monthly
rental amount in effect for the month of December, 2022, or (ii) the lesser
of: (A) one hundred and ten percent (110%) of the monthly rental amount in
effect for the month of December, 2022, or (B) the amount determined by
multiplying the monthly rental amount in effect for the month of December,
2022 by a fraction, the denominator of which is the CPI Index Figure for the
month of December, 2017, and the numerator of which is the CPI Index Figure
for the month of December, 2022.
(g) With respect to each Lease Month during the period
beginning on January 1, 2028 and ending December 31, 2032, Lessee shall pay
to Lessor a monthly rental amount equal to the greater of: (i) the monthly
rental amount in effect for the month of December, 2027, or (ii) the lesser
of: (A) one hundred and ten percent (110%) of the monthly rental amount in
effect for the month of December, 2027, or (B) the amount determined by
multiplying the monthly rental amount in effect for the month of December,
2027 by a fraction, the denominator of which is the CPI Index Figure for the
month of December, 2022, and the numerator of which is the CPI Index Figure
for the month of December, 2027.
(h) With respect to each Lease Month during the period
beginning on January 1, 2033 and ending December 31, 2037, Lessee shall pay
to Lessor a monthly rental amount equal to the greater of: (i) the monthly
rental amount in effect for the month of December, 2032, or (ii) the lesser
of: (A) one hundred and ten percent (110%) of the monthly rental amount in
effect for the month of December, 2032, or (B) the amount determined by
multiplying the monthly rental amount in effect for the month of December,
2032 by a fraction, the denominator of which is the CPI Index Figure for the
month of December, 2027, and the numerator of which is the CPI Index Figure
for the month of December, 2032.
(i) If the CPI Index Figure for the month of December in any
year identified in subparagraphs (b) through (h) is not available in time to
make the adjustment required under those subparagraphs, then Lessee agrees
that any deficiencies in rent resulting from the failure to make the
adjustment on a timely basis shall be paid by Lessor as soon as the
applicable CPI Index Figure is available to the parties.
(j) All amounts of monthly rent payable under this Agreement
shall be payable in advance on the first day of each calendar month, in
lawful money of the United States, and without notice, demand, offset or
deduction, at whatever address Lessor may specify in writing from time to
time.
(k) Lessee agrees that all amounts which Lessee is required to
pay under this Agreement (including but not limited to taxes, utility costs,
insurance premiums and maintenance expenses) shall be payable as additional
rent, and shall be paid promptly when due. This Lease is intended to be a
"triple net lease", and the rent received by lessor shall be net of all other
costs or expenses relating to ownership or operation of the Leased Property.
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(l) If Lessee fails to pay any installment of rent (including
but not limited to taxes, utility costs, insurance premiums and maintenance
expenses) within ten (10) days after the date when due, Lessee shall pay to
Lessor a late fee equal to five percent (5%) of the past-due amount. The
amount payable by Lessee to Lessor under the preceding sentence shall be
treated for all purposes under this Lease as additional rent. The provisions
of this subparagraph shall not limit Lessor's right to treat any late payment
as an event of default as provided in Paragraph 21.
5. Utilities. Lessee shall be responsible for and shall pay the
cost of all water, electricity, natural gas, heating oil, telephone service,
refuse collection, sewage and other utilities and services provided to the
Leased Property, or used on or in connection with the Leased Property, during
the Lease Term. Lessor shall not be liable to Lessee in the event of any
interruption in the supply of any utility or service to the Leased Property
(other than an interruption caused by the Lessor). In the event of any
interruption in the supply of any utility or service to the Leased Property
(other than an interruption caused by the Lessor), Lessee shall not be
entitled to an abatement of rent, and Lessee shall not be entitled to claim
constructive eviction or otherwise terminate the Lease. Lessee agrees that
it shall not install any equipment which will exceed or overload the capacity
of the existing utility facilities supplying the Leased Property. If any
equipment installed by Lessee shall require additional utility facilities,
those additional facilities shall be installed at Lessee's expense in
accordance with plans and specifications approved in advance and in writing
by Lessor (with lessor having the right to refuse to consent to any
installation which Lessor reasonably believes might adversely effect the
value of the Leased Property).
6. Taxes on Real and Personal Property. Lessee shall pay all real
property taxes, general and special assessments, supplemental taxes assessed
by reason of any change in ownership of the Leased Property, and other taxes
and charges which are levied on or assessed during the Lease Term against the
Leased Property or improvements located on the Leased Property (all of which
taxes, assessments and charges shall hereinafter be referred to as the "Real
Estate Taxes") as those taxes become due an payable, and before delinquency.
Lessee also shall pay all personal property taxes and other taxes and charges
which are levied on or assessed against leasehold improvements, fixtures,
equipment, furniture, inventories, merchandise and any other personal
property installed or located on the Leased Property during the Lease Term
(all of which taxes, assessments and charges shall hereinafter be referred to
as the "Personal Property Taxes"), as those taxes become due and payable, and
before delinquency, and regardless of whether the property has been installed
by Lessee or Lessor. Lessee shall make all personal property tax payments
directly to the taxing authorities. If any Real Estate Tax or Personal
Property Tax is permitted by a taxing authority to be paid in installments,
Lessee may elect to do so as long as each installment (together with any
interest charged) is paid before it becomes delinquent, and provided that
Lessee only shall be obligated to pay those installments due and payable
during the Lease Term. Lessee may contest in good faith the validity or
amount of any Real Estate Tax or Personal Property Tax in accordance with the
procedures established by applicable statute or administrative rule, as long
as the Leased Property is not subjected to any lien as a result of the
contest. Lessee shall furnish to Lessor receipts or other proof of payment
of all Real Estate Taxes or Personal Property Taxes payable by Lessee
hereunder, within ten (10) days after Lessor's written request for such
proof. If Lessee shall fail to pay any such Taxes, Lessor shall have the
right to pay the same, in which case Lessee shall repay such amount to Lessor
with Lessee's next rent installment, together with interest at the maximum
legal rate and any penalties against Lessor as a result of the delinquent
payment.
7. Use Of Leased Property. During the initial 15 year term of the
Lease, Lessee must operate a Nissan and BMW franchise, or one or more other
new car franchises, from the Leased Property. Throughout the entire Lease
Term, Lessee shall have the right to use the Leased Property for the purpose
of operating a facility for the sale and servicing of new and used motor
vehicles and motor vehicle parts. Lessee shall have the right to use the
Leased Property for any other reasonable purpose, without any requirement of
consent from Lessor.
(a) Lessee shall not use, or permit any other person or entity
to use, the Leased Property in any manner which would create or tend to
create waste or a nuisance or would be unreasonably offensive to owners or
users of neighboring premises. Lessee shall refrain from any activity which
would make it impossible for Lessee to insure against loss or damage to the
Leased Property or against personal injury or property damage. Lessee shall
not overload the floors of the improvements located upon the Leased Property
so as to cause any undue or serious stress or strain upon the improvements
located upon the Leased Property. Lessee shall not conduct any fire sale,
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bankruptcy sale or going-out-of-business sale on the Leased Property without
the prior consent of Lessor, which consent shall not be withheld unreasonably.
(b) Lessee shall promptly comply with all statutes and laws,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
licenses, directives and requirements of all federal, state, county,
municipal and other governments, commissions, boards, courts, authorities,
officials and companies or associations insuring the premises, which now or
at any time hereafter may be applicable to the Leased Property or any part
thereof, or to any use of or condition of the Leased Property or any part
thereof. Lessee shall remedy at Lessee's expense any failure of compliance
created through Lessee's fault or by reason of Lessee's use. Notwithstanding
the two preceding sentences, Lessee shall have no obligation to take any
action to bring the Leased Property into compliance with the Americans with
Disabilities Act of 1990 unless specifically directed to do so by the
administrative agency having responsibility for enforcement of that Act.
(c) Lessee shall be permitted to display on or about the
Leased Property, or affix to any improvement located on the Leased Property,
any signs or advertisements or notices relating to any business interests of
Lithia Motors, Inc. or its affiliates. Any such signs, advertisements or
notices shall comply with all applicable governmental rules and regulations
relating thereto. Upon expiration or sooner termination of the Lease. Lessee
shall be obligated to remove all signs from the Leased Property and repair
any damage to the Leased Property resulting from the installation or removal
of those signs.
8. Repairs And Maintenance. Lessee shall be responsible for
maintaining the roof, foundation and bearing walls of the Leased Property.
Lessee shall maintain in safe, workable and neat condition (free and clear of
foreign objects, papers, debris, obstructions, standing water, snow and ice),
all other elements and aspects of the Leased Property, including but not
limited to the lights, windows, plate glass, plumbing fixtures, electrical
fixtures, heating and air conditioning systems, doors, door frames, door
closures, floor coverings, showcases and fixtures, walls, floors, landscaping
and parking surfaces. Lessor shall have no responsibility to perform any
repairs or maintenance with respect to the Leased Property or any structures
or improvements located thereon. Lessor and its authorized agents shall have
the right to inspect the Leased Property during regular working hours upon
reasonable written notice to Lessee to determine whether Lessee is complying
with its obligations under this Agreement. If Lessor determines that Lessee
is failing to make any repairs which are necessary to protect the Leased
Property from waste or damage, then Lessor shall be authorized to cause those
repairs to be made and to charge the cost of those repairs to Lessee as
additional rent. Lessee waives the provisions of California Civil Code
Sections 1941 and 1942.
9. Lessor's Responsibility For Prior Contamination By Hazardous
Substances
(a) Except as otherwise expressly disclosed in Exhibit "D" or
in the Phase One Environmental Report on the Leased Property being provided
to Lessee by Nissan - BMW of Bakersfield, Inc. (the "Phase One Report"),
Lessor represents and warrants to Lessee that: (i) no business activities of
Nissan - BMW of Bakersfield, Inc. prior to the Initial Lease Date shall have
produced any Hazardous Materials, the presence or use of which upon the
Leased 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 Leased
Property, and (iii) the Leased Property is otherwise free and clear of any
Hazardous Materials.
(b) Lessor agrees to indemnify, defend, protect and hold
harmless Lessee and each of Lessee's members, partners, stockholders (if
any), employees, agents, successors and assigns (collectively referred to for
the remainder of this Paragraph 9 as "Lessee"), from and against any and all
criminal and civil claims and causes of action (including but not limited to
claims resulting from, or causes of action incurred in connection with, the
death of or injury to any person, or damage to any property), liabilities
(including but not limited to liabilities arising by reason of actions taken
by any governmental agency), penalties, forfeitures, prosecutions, losses and
expenses (including reasonable attorney fees) which directly or indirectly
arise from or are caused by either: (i) the presence, prior to the Initial
Lease Date, in, on, under or about the Leased Property or any improvements
located thereon, of any Hazardous Materials, or (ii) any breach of the
warranties made by Lessor in subparagraph 9(a). Lessor's obligations under
this subparagraph 9(b) shall include, but not be limited to, the obligation
to bear the expense of any and all costs, whether foreseeable or
unforeseeable, of any necessary (as required by the Laws) repair, cleanup,
detoxification or decontamination of all or any portion of the Leased
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Property (or any improvements located thereon), and the preparation and
implementation of any closure, remedial action or other required plan or
plans in connection therewith. Notwithstanding the preceding provisions of
this subparagraph 9(b), Lessor shall have no obligation to indemnify, defend,
protect and/or hold harmless Lessee with respect to any release, spill, leak
or discharge of Hazardous Materials on the Leased Property which occurs
solely after the Initial Lease Date.
(c) Notwithstanding any other provision of this Agreement or
any contrary provision of law, the obligations of Lessor pursuant to this
Paragraph 9 shall remain in full force and effect after any closing of the
purchase of the Leased Property by Lessee and until the expiration of the
latest period stated in any applicable statute of limitations during which a
claim, cause of action or prosecution relating to the matters described
herein may be brought, and until payment in full or satisfaction of any and
all losses, claims, causes of action, damages, liabilities, charges, costs
and expenses for which Lessor is liable hereunder shall have been
accomplished.
(d) For purposes of this Paragraph 9, any act or omission,
prior to the Initial Lease Date, of or by any one or more employees, agents,
assignees, sublessees, franchisees, licensees, permitees, customers, vendees,
contractors, successors-in-interest or other persons permitted by Lessor or
any of Lessor's predecessors in title to have access to the Leased Property
or acting for or on behalf of Lessor or any of Lessor's predecessors in title
(whether or not the actions of such persons are negligent, intentional,
willful or unlawful) shall be strictly attributable to Lessor.
(e) If any claim, demand, action or proceeding is brought
against Lessee which is or may be subject to Lessor's obligation to indemnify
Lessee as set forth under this Paragraph 9, Lessee shall provide to Lessor
immediate notice of that claim, demand, action or proceeding, and Lessor
thereafter shall defend Lessee at Lessor's expense using attorneys and other
counsel selected by Lessor and reasonably acceptable to Lessee.
10. Limited Warranties By Lessor. Except as provided in this
Paragraph 10 and in Paragraphs 9, 18 and 26, Lessor makes no warranty, either
express or implied, as to the condition, merchantability or fitness of the
Leased Property, or the suitability of the Leased Property for Lessee's
purposes or needs. Lessee agrees that neither Lessor nor any agent of Lessor
has made any representations or warranties as to any of the following: (i)
the suitability of the Leased Property for the conduct of Lessee's business,
or (ii) the expenses of operation of the Leased Property or any improvements
located thereon.
(a) Within thirty (30) days after executing this Agreement, Lessor
shall provide to Lessee a Disclosure Statement, in the form of Exhibit "E"
attached hereto, disclosing any and all defects with respect to the Leased
Property which are known to Lessor. Except as provided in the preceding
sentence, Lessee is entering into this Agreement in reliance upon Lessee's own
business judgment, after a full opportunity to inspect the Leased Property, and
after careful consultation with Lessee's own advisors, accountants and
attorneys, and not in reliance upon any statements, representations or
warranties made to Lessor other than as set forth in this Agreement. Prior to
the Initial Lease Date, Lessee shall inspect the Leased Property and become
thoroughly acquainted with the condition of the Leased Property. Lessee shall
have the right, at any time within 30 days after completing its inspection of
the Leased Property (but in no event later than the Initial Lease Date) to
notify Lessor in writing that Lessee is reasonably dissatisfied with the results
of its inspection and to terminate all further obligations of Lessee under this
Agreement. If Lessee does not so notify Lessor as provided in the preceding
sentence, then Lessee agrees to take and accept the Leased Property "AS IS". The
taking of possession of the Leased Property by Lessee shall be a conclusive
acknowledgment by Lessee that the Leased Property is in good and satisfactory
condition as of the date when possession is taken. Lessor shall not be required
to make any alterations or improvements of any kind to the Leased Property.
(b) Lessor warrants to Lessee that all mechanical equipment affixed to
the Leased Property shall be in good working condition on the Initial Lease
Date, and that the Leased Property will be in the same condition on the Initial
Lease Date as on the Date of this Agreement (ordinary wear and tear excepted).
11. No Liens. Lessee shall not allow the Leased Property to be
subjected to any mortgage or other lien as security for a loan or other
obligation of Lessee, without first obtaining the express written consent of
Lessor. Lessee shall keep the Leased Property free and clear of all personal
property tax liens and encumbrances. Lessee shall pay as due all claims for
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labor or work done on, and for services rendered or material furnished to,
the Leased Property, and Lessee shall keep the Leased Property free from any
mechanic's, workman's or materials lien of any kind. If Lessee receives
notice of the filing of any claim or lien against the Leased Property or the
commencement of any action which might affect the title to the Leased
Property, Lessee shall give prompt written notice thereof to Lessor.
12. Insurance.
(a) Lessee shall maintain and shall pay all premiums with respect to
insurance protecting Lessor and Lessee as the named insureds against loss or
liabilities arising from personal injury or death or damage to property caused
by any accident or occurrence in connection with the use, operation or condition
of the Leased Property, with limits of not less than $1,000,000 per accident or
occurrence on account of personal injury or death, and $1,000,000 per accident
or occurrence on account of damage to property, together with a blanket excess
liability policy in an amount of not less than $5,000,000. Such insurance also
shall include contractual liability coverage in a form satisfactory to Lessor.
In addition to the foregoing, Lessee shall obtain and maintain during the Lease
Term workers' compensation insurance as required by the laws of the State of
California. Any proceeds of the insurance referred to in this subparagraph shall
be applied towards extinguishment or satisfaction of the liabilities with
respect to which those insurance proceeds are paid.
(b) Lessee shall maintain and pay for all premiums for insurance
against loss or damage to the improvements located on the Leased Property by
fire, lightning, vandalism, malicious mischief, sprinkler leakage, breakage of
plate glass, or other perils or casualties, with an all risk endorsement. Such
insurance shall be in an amount not less than the full replacement cost of the
improvements. All such insurance shall be for the benefit of Lessee and Lessor,
and any proceeds shall be equitably apportioned between them in accordance with
their respective interests in the Leased Property.
(c) Lessee hereby releases Lessor and Lessor's agents and employees
from responsibility and liability for loss or damage occurring to, or in
connection with the use of, the Leased Property, if and to the extent that said
loss or damage is covered under any insurance policy maintained by Lessee with
respect to the Leased Property, and Lessee waives all right of recovery against
Lessor and Lessor's agents and employees for such loss or damage. Lessee agrees
to: (i) notify Lessee's insurance carrier(s) of the release and waiver set forth
in the preceding sentence, and (ii) obtain from Lessee's insurance carrier(s),
at Lessee's sole cost, a written waiver of all subrogation rights against Lessor
and Lessor's agents and employees.
(d) Lessor hereby releases Lessee and Lessee's agents and employees
from responsibility and liability for loss or damage occurring to, or in
connection with the use of, the Leased Property, if and to the extent that said
loss or damage is covered under any insurance policy maintained by Lessor with
respect to the Leased Property, and Lessor waives all right of recovery against
Lessee and Lessee's agents and employees for such loss or damage. Lessor agrees
to: (i) notify Lessor's insurance carrier(s), at Lessor's sole cost, a written
waiver of all subrogation rights against Lessee and Lessee's agents and
employees.
(e) All insurance required to be carried by Lessee under subparagraph
12(a) shall be issued by responsible insurance companies, qualified to do
business in the state of California. Each insurance policy shall name Lessor and
his lienholder as an additional insured. No insurance policy shall be subject to
cancellation or modification except after ten (10) days prior written notice to
Lessor. At least ten (10) days prior to the expiration of any insurance policy,
Lessee shall obtain renewals or binders for the issuance of one or more
replacement insurance policies.
(f) Nothing in this Paragraph 12 shall limit in any way Lessee's
liability under this Lease or affect Lessee's indemnification obligations to
Lessor as set forth in Paragraph 16.
13. Destruction Of Improvements. Except as specifically provided in
this Paragraph 13, Lessee shall not be entitled to any abatement of rent on
account of any damage to or destruction of improvements on the Leased
Property, and no other obligations of Lessee shall be altered or terminated
as a result of such damage or destruction.
(a) In the event of any damage or destruction to the improvements
located on the Leased Property which causes the fair market value of the
improvements located on the Leased Property to be reduced by twenty-five percent
(25%) or more, Lessee shall have the right to elect whether to terminate the
Lease or to cause Lessor to repair the damage.
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(1) If Lessee elects to terminate this lease, Lessee shall so
notify Lessor by written notice delivered to Lessor within forty-five (45) days
after the date of the damage or destruction. If Lessee does not elect to
terminate this Lease as provided in the preceding sentence, then Lessor shall
have the option at any time within (sixty) 60 days after the date of the damage
or destruction to elect to terminate the Lease. If either Lessee or Lessor
terminates the Lease as provided in the two preceding sentences, then the
termination shall be effective as of the date of damage or destruction. In the
event of any termination of the Lease under this subparagraph, Lessee's right of
possession and obligation to pay rent in connection with the tenancy created
hereunder shall cease as of the date of termination, and Lessee shall be
entitled to reimbursement of any prepaid rent, security deposits or other
amounts paid by Lessee and attributable to the portion of the anticipated Lease
Term which is subsequent to the termination date.
(2) If neither Lessee nor Lessor elects to terminate this Lease
as provided in subparagraph 13(a)(1), then Lessor shall proceed to restore the
improvements located on the Leased Property to substantially the same form and
condition as prior to the damage or destruction, so as to provide Lessee with
usable space equivalent in quantity and in character to the space available
prior to the damage or destruction. Repairs shall be accomplished with all
reasonable dispatch, subject to interruptions and delays from labor disputes and
matters beyond the control of lessor. Lessee's obligation to pay rent shall be
abated during any period of time when the Leased Property is so damaged as to
not be usable by Lessee for Lessee's normal business purposes.
(b) In the event of any damage or destruction to the improvements
located on the Leased Property which causes the fair market value of the
improvements located on the Leased Property to be reduced by less than
twenty-five percent (25%), Lessor shall be obligated to restore the damaged
improvements to substantially the same form and condition as prior to the damage
or destruction, so as to provide Lessee with usable space equivalent in quantity
and in character to the space available prior to the damage or destruction.
Repairs shall be accomplished with all reasonable dispatch, subject to
interruptions and delays from labor disputes and matters beyond the control of
Lessor.
(c) Lessee waives the provisions of California Civil Code Sections
1932(2) and 1933(4).
14. Eminent Domain. If, during the Lease Term, there shall be a
total taking of the Leased Property by any public authority under the power
of eminent domain, then the leasehold estate of Lessee in and to the Leased
Property shall cease and terminate as of the date when the condemning
authority takes possession of or title to (which ever occurs first) all or
any portion of the Leased Property. If, during the Lease Term, there shall
be a partial taking of the Leased Property by any public authority under the
power of eminent domain, then the leasehold estate of Lessee in and to the
portion of the Leased Property so taken shall terminate on the date when the
condemning authority takes possession of or title to (whichever occurs first)
that portion, but Lessee's leasehold estate shall continue in full force and
effect as to the reaminder of the Leased Property; in such event, the monthly
rent payable by Lessee for the balance of the Lease Term shall be equitably
abated by Lessor (based on the ratio between the value of the portion taken
and the value of the Leased Property prior to the taking), and Lessor shall
be responsible for applying all condemnation proceeds received by Lessor to
make all necessary repairs or alterations to the improvements located on the
Leased Property in order to continue using the Leased Property for the
purposes permitted to Lessee. Notwithstanding the preceding sentence, if
there is a partial taking of the Leased Property, and if the total cost of
making all necessary repairs or alterations to the Leased Property would
exceed the condemnation proceeds received by Lessor, then Lessor shall have
the right to terminate the Lease (effective as of the date of the partial
taking) unless Lessee agrees to bear the full amount of those excess costs
for repairing or altering the Leased Property. For purposes of the preceding
sentences of this Paragraph 14, the term "total taking" shall mean the taking
of such much of the Leased Property that the remainder of the Leased Property
is not suitable to conduct the business which Lessee intends to conduct on
the Leased Property, and the term "partial taking" shall mean the taking of a
portion of the Leased Property which does not constitute a total taking, and
the Lessee shall be responsible for making a reasonable determination as to
whether a taking is "total" or "partial". All compensation and damages
awarded for the taking of all or any portion of the Leased Property shall be
apportioned between Lessor and Lessee on the following basis: (i) Lessee
shall be entitled to receive a sum equal to the excess (if any) of the market
value of the Leased Property for the remainder of the Lease Term over the
present value (as of the date of taking) of the rent which is then payable
for the remainder of the Lease Term, plus compensation for the loss of
Lessee's trade fixtures, removable personal property, loss of business and
good will, and relocation expenses, and (ii) Lessor shall be entitled to the
balance of the award.
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(a) Sale of all or part of the Leased Property to a purchaser
with power of eminent domain, in the face of the threat or probability of the
exercise of the power of eminent domain, shall be treated for purposes of
this Agreement as a taking by condemnation.
(b) Lessee shall have the right, at its sole cost and expense,
to assert a separate claim in any condemnation proceedings for the value of
Lessee's leasehold interest. Whenever notice of a taking of all or any
portion of the Leased Property is received by either party, that party shall
notify the other party thereof, and Lessor and Lessee thereafter shall
jointly negotiate with the taking authority as to the value of their
respective interests in the Leased Property or the improvements located
thereon to the end of being fairly compensated therefor.
15. Alterations. Lessee shall not have the right to make
alterations, improvements, changes, modifications, utility installations and
other alterations (hereinafter referred to in the aggregate as "Alterations")
in, on or to all or any portion of the Leased Property without the written
consent of Lessor (which approval may not be withheld unreasonably). If
Lessee notifies Lessor in writing of Lessee's intention to make particular
Alterations to the Leased Property, and if Lessor does not, within ten days
after delivery of that notice from Lessee, notify Lessee in writing of
Lessor's reasonable objections to all or any portion of those Alterations,
then Lessor shall for all purposes be conclusively deemed to have consented
to all of those Alterations to which lessor has not so objected. No
Alterations shall be made to the Leased Property unless and until all
required permits have been obtained, and all Alterations shall comply with
all applicable governmental regulations. Any Alterations (excluding Lessee's
trade fixtures, furniture and equipment and any signs placed by Lessee on the
Leased Property) shall remain on and be surrendered with the leased Property
upon the expiration or earlier termination of the Lease Term, except that
Lessor can elect, within 30 days before expiration of the Lease Term (or
within five days after any earlier termination of the Lease Term) to require
Lessee to remove any Alterations which Lessee has made to the Leased
Property. Lessee shall be obligated to repair any damage to the Leased
Property caused by Lessee's removal of its trade fixtures, furniture,
equipment and signs.
16. Indemnification Against Damage Or Injury. Lessee hereby releases Lessor
from, agrees that Lessor shall not be liable for, and agrees to defend,
indemnify and hold Lessor harmless from and against, any and all losses, claims,
causes of action, damages, liabilities (including, without limitation, strict or
absolute liability in tort or imposed by statute), charges, costs, or expenses
(including, without limitation, reasonable counsel fees), incurred in connection
with or arising out of any loss or damage to property or injury or death to a
person or persons, that may be occasioned by any cause whatsoever pertaining to
the Leased Property during the Lease Term (other than the grossly negligent or
intentional acts of Lessor, its agents, employees, licensees and invitees)., The
defense and indemnities provided in this Paragraph 16 shall apply whether or not
the loss, claim, cause of action, damage, liability, charge, cost or expense is
based upon the breach of a statutory duty or obligation or any theory or rule of
comparative liability, subject to any specific prohibition relating to the scope
of indemnities imposed by statutory law (and except to the extent that Lessor
shall be liable as provided above). If any action or proceeding is brought
against Lessor which is or may be subject to Lessee's obligation to indemnify
Lessor as set forth under this Paragraph 16, Lessee shall, upon notice from
Lessor, defend that claim at Lessee's expense using attorneys and other counsel
satisfactory to Lessor. Any loss, liability, damage, claim or cause of action
arising by reason of contamination of the Leased Property by a hazardous
substance shall be subject to the indemnification provisions of Paragraph 23,
and shall not be subject to the indemnification provisions of this Paragraph 16.
17. Surrender Upon Termination. Upon expiration of the Lease Term, or upon
earlier termination of the lease for any reason, Lessee promptly and peaceably
shall remove any of Lessee's equipment and property (and shall repair any damage
caused by that removal), and shall surrender the Leased Property in good
condition. Depreciation and wear and tear from ordinary use permitted under this
Agreement need not be restored by Lessee. All repairs for which Lessee is
responsible shall be completed prior to the surrender of the Leased Property. If
Lessee remains in occupancy of the Leased Property after termination of the
Lease Term, then Lessor shall have the option to treat Lessee as a tenant from
month-to-month, subject to all of the provisions of this Agreement except the
provisions for rental amounts, term, and renewal, and in that event Lessee shall
be obligated to pay monthly rent to Lessor at a rate equal to the monthly rental
amount in effect as of the last month of the Lease Term. Acceptance by Lessor of
rent subsequent to termination of the Lease Term shall not result in a renewal
of the lease and shall not constitute a waiver of Lessor's right to re-enter the
Leased Property, remove Lessee or exercise any other rights available to Lessor
under this Agreement or provided by law. If Lessee fails to surrender the Leased
Property in accordance herewith upon termination of the Lease Term, Lessee shall
indemnify and hold Lessor harmless from all losses and liabilities, including
but not limited to any claims made by any succeeding tenant, which result from
or are based upon Lessee's failure to so surrender the Leased Property.
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18. Good Title. Lessor warrants that it has good right to leased the Leased
Property and will defend Lessee's right to quiet enjoyment of the Leased
Property against the lawful claims of all persons during the Lease Term.
19. Limitation On Assignment Or Sublease By Lessee. Lessee shall have the
right to assign all of its rights and obligations under this Agreement to Lithia
Motors, Inc. or any subsidiary of Lithia Motors, Inc. Except as provided in the
preceding sentence, Lessee shall not voluntarily or by operation of law assign
this Lease or sublease any portion of the Leased Property, or enter into any
license agreement, franchise agreement, or concession agreement with respect to
the Leased property, or mortgage, hypothecate or otherwise encumber all or any
portion of Lessee's interest in this Agreement or in the Leased Property, or in
any other manner permit the occupation of or shared possession of all or any
portion of the Leased Property, without obtaining in each instance the written
consent of Lessor, which consent may not be unreasonably withheld by Lessor. The
sale of greater than 50% of the stock of Lessee (or of Lithia Motors, Inc. or
any subsidiary of Lithia Motors, Inc. to whom this Lease is assigned under the
first sentence of this Paragraph 19) shall constitute an assignment of this
Lease subject to the provisions of this Paragraph 19. Consent by Lessor in any
one instance shall not constitute a waiver or consent to any subsequent
instance. Unless otherwise agreed by Lessor, the consent by Lessor to any
assignment, sublease, or encumbrance shall not relieve or otherwise affect the
continuing primary liability of Lessee under this Agreement, and Lessee shall
not be released from performing any of the terms, covenants and conditions of
this Agreement. If, during the Lease Term, Lessee shall receive from any
sublessee of all or a portion of the Leased Property an amount which exceeds the
regular monthly rental amount as determined under Paragraph 4, then Lessee
shall, in addition to the payment of that regular monthly rental amount, pay to
Lessor 50% of such excess received for each remaining month of the Lease Term,
less any amounts which Lessee shall incur in collecting such rentals (including,
without limitation, attorney's fees).
20. Landlord's Lien. Lessee hereby grants to Lessor a lien upon the
improvements, trade fixtures and furnishings of Lessee to secure full and
faithful performance of all of the terms of this Agreement.
21. Lessee's Default. The following shall be the "events of default" under
this Agreement, and the terms "event of default" or "default" shall mean,
whenever used in this Agreement, any one or more of the following events: (i)
the failure by Lessee to pay or cause to be paid the full amount of any rent or
other charge specified in this Agreement, within three (3) days after the date
when due, subject to the notice requirement set forth in subparagraph 21(b);
(ii) the insolvency of Lessee, an assignment by Lessee for the benefit of
creditors, the filing by Lessee of a voluntary petition of bankruptcy, an
adjudication that Lessee is bankrupt, the appointment of a receiver for the
properties of Lessee, the filing of an involuntary petition of bankruptcy and
the failure of Lessee to secure dismissal of the petition within thirty (30)
days after filing, or the attachment of or levying of execution upon Lessee's
leasehold interest and the failure of Lessee to secure discharge of the
attachment or release of the levy or execution within ten (10) days; (iii) any
abandonment of the Leased Property by Lessee (which shall include any absence of
Lessee from the Leased Property for a period of five (5) or more continuous
days); or (iv) the failure by Lessee to comply with any term or condition, or
fulfill any obligation of this Agreement (other than the payment of rent or
other charge) within thirty (30) days after written notice by Lessor specifying
the nature of the default with reasonable particularity and requesting that the
default be remedies; if the default is of such a nature that it cannot be
completely remedies within the 30-day period, this provision shall be complied
with if Lessee begins correction of the default within the thirty-day period and
thereafter proceeds with reasonable diligence and good faith to affect the
remedy as soon as possible.
(a) In the event of any default by Lessee, then Lessor shall have the
right either to terminate Lessee's right to possession of the Leased Property,
by giving notice of termination to Lessee, and thereby terminate this Lease, or
to have this Lease continue in full force and effect with Lessee at all times
having the right to possession of the Leased Property.
(i) If Lessor elects to have this Lease continue in full force
and effect, Lessee shall remain liable to perform all of its obligations under
this Lease, and Lessor may enforce all of Lessor's rights and remedies,
including the right to recover rent when it falls due, specifically intending to
mean that Lessor has the remedy described in Section 1951.4 of the California
Civil Code, as such section reads as of the date of this Lease. If Lessee
abandons the Leased Property or fails to maintain and protect the same as herein
provided, Lessor shall have the right (A) to do all things necessary or
appropriate to maintain, preserve and protect the Leased Property, including,
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without limitation, the installation of keepers or guards or the appointment of
a receiver, and (B) to relet the Leased Property as the agent of Lessee and for
Lessee's account and to do all things appropriate for such reletting. In the
event of such reletting, rent received by Lessor shall be credited to Lessee's
account. None of the foregoing acts shall be deemed to terminate Lessee's right
of possession, and Lessee agrees to reimburse Lessor on demand for all amounts
reasonably expended by Lessor in connection with the foregoing acts, together
with interest on all amounts expended by Lessor from time to time at the maximum
legal rate. Notwithstanding any such election to have this Lease remain in full
force and effect, Lessor may at any time thereafter elect to terminate Lessee's
right to possession of the Leased Property and thereby terminate this Lease for
any previous breach or default hereunder by Lessee which remains uncured or for
any subsequent breach of default.
(ii) If Lessor gives notice of election to terminate Lessee's
possession of the Leased Property, Lessor shall be entitled to recover from
Lessee the amounts specified in paragraphs (a)(1), (a)(2), and (a)(4) of Section
1951.2 of the California Civil Code, as such section reads as of the date of
this Lease, together with interest on said amounts at the maximum legal rate
from the dates they were due, computed as of the date the award, together with
the worth at the time of the award of the amount by which the unpaid rent for
the balance of the Lease Term after the time of the award exceeds the amount of
such rental loss for the same period that Lessee proves should be reasonably
avoided, in accordance with paragraph (a)(3) of Section 1951.2 of the California
Civil Code.
(iii) No right or remedy herein conferred upon or reserved to
Lessor is intended to be exclusive of any other right or remedy herein or by
law, provided that each shall be cumulative and in addition to every other right
or remedy given herein, or now or hereafter existing at law or in equity or by
statute.
(iv) In addition to the above remedies upon default, upon 10
days' prior written notice to Lessee by Lessor, Lessor may cure any default by
Lessee and, if necessary, may enter upon the Leased Property for such purpose,
and in such event the cost thereof with interest shall be deemed additional rent
payable by Lessee to Lessor and shall become immediately due and payable.
(v) In the event of any default by Lessor under this Lease,
Lessee may sue for damages or injunctive or other equitable relief, but Lessee
hereby waives and relinquishes any right which Lessee may have to terminate this
Lease or to withhold, reduce or offset any rent or other payment payable by
Lessee under this Lease, on account of Lessor's default.
(b) Before declaring any default in the making of any payment required
under this Agreement, Lessor shall provide to Lessee, by United States certified
mail and ordinary first class mail addressed to Lessee, a written notice
specifying that there has been a default in the making of a required payment,
and Lessee shall have three (3) business days from the date of mailing that
notice in which to pay the delinquent amount and prevent a default hereunder.
22. Time of Essence. Time is of the essence in the performance of all
obligations of Lessor and/or Lessee under this Agreement.
23. Lessee's Responsibility For Contamination By Hazardous Substances
(a) Lessee shall at all times during the Lease Term use, sell, store,
transport, dispose of and treat Hazardous Materials (as defined in Paragraph
1(e) of this Agreement) in strict accordance with all applicable federal, state
and local laws and regulations (collectively referred to in this Paragraph 23 as
the "Laws"). If, during the Lease Term and prior to completion by Lessee of the
obligations imposed under Paragraph 17, there occurs upon the Leased Property
any release, spill, leak or discharge of hazardous materials which is in
violation of any of the Laws and is caused by any activity or activities of
Lessee on or with respect to the Leased Property, then Lessee shall be obligated
to cause and complete the repair, cleanup, detoxification and/or decontamination
of the Leased Property (or any improvements thereon) and the preparation and
implementation of any closure, remedial action or other required plan or plans
in connection therewith, all as required by the Laws.
(b) Lessee shall indemnify, defend, protect and hold harmless Lessor
and each of Lessor's partners, employees, agents, successors and assigns
(collectively referred to in this Paragraph 23 as "Lessor"), from and against
any and all criminal and civil claims and causes of action (including but not
limited to claims resulting from, or causes of action incurred in connection
with, the death of or injury to any person, or damage to any property),
liabilities (including but not limited to liabilities arising by reason of
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actions taken by any governmental agency), penalties, forfeitures, prosecutions,
losses and expenses (including reasonable attorney fees) which directly or
indirectly arise from or are caused by the use, sale, storage, transportation,
disposal, release, threatened release, discharge or generation of Hazardous
Materials to, in, on, under, about or from the Leased Property or any
improvements located thereon during the Lease Term. Lessee's obligations under
this subparagraph 23(b) shall include, but not be limited to, the obligation to
bear the expense of any and all costs, whether foreseeable or unforeseeable, of
any necessary (as required by the Laws) repair, cleanup, detoxification or
decontamination of all or any portion of the Leased Property (or any
improvements located thereon), and the preparation and implementation of any
closure, remedial action or other required plan or plans in connection
therewith.
(c) Notwithstanding any other provision of this Agreement, the
obligations of Lessee pursuant to this Paragraph 23 shall remain in full force
and effect after the termination of the Lease Term and until the expiration of
the latest period stated in any applicable statute of limitations during which a
claim, cause of action or prosecution relating to the matters described herein
may be brought and until payment in full or satisfaction of any and all losses,
claims, causes of action, damages, liabilities, charges, costs and expenses for
which Lessee is liable hereunder shall have been accomplished.
(d) For purposes of subparagraph 23(a), any acts or omissions of or by
any one or more employees, agents, assignees, sublessees, franchisees,
licensees, permitees, customers, contractors, successors-in-interest or other
persons permitted by Lessee to have access to the property (other than Lessor or
Lessor's agents) or acting for or on behalf of Lessee (whether or not the
actions of such persons are negligent, intentional, willful or unlawful) shall
be strictly attributable to Lessee.
(e) If any claim, demand, action or proceeding is brought against
Lessor which is or may be subject to Lessee's obligation to indemnify Lessor as
set forth under this Paragraph 23, Lessor shall provide to Lessee immediate
notice of that claim, demand, action or proceeding, and Lessee thereafter shall
defend Lessor at Lessee's expense using attorneys and other counsel selected by
Lessee and reasonably acceptable to Lessor.
24. Expenses. Each of the parties shall pay its own expenses
incidental to the preparation and consummation of this Agreement, including
but not limited to the attorney fees and expenses.
25. Notices. Any notice required or permitted under this Agreement
shall be deemed to have been duly given when actually delivered or when
deposited in the United States mail, certified and return receipt requested,
postage prepaid, addressed to such addresses as may be specified from time to
time by the parties in writing.
26. Lessor's Option To Purchase. At any time during the Option
Period (as defined in subparagraph 25(a)), Lessee shall have the option to
purchase the Leased Property from Lessor, under the terms and conditions set
forth in this Paragraph 26.
(a) Definitions. For purposes of this Paragraph 26, "Closing"
shall refer to the consummation of the purchase and sale of the Leased
Property pursuant to this Paragraph 26, and "Closing Date" shall refer to the
actual date of Closing. "Option Period" shall mean and refer to the period
beginning on the Initial Lease Date and ending on December 31, 2002.
(b) Option may be Exercised Only during Option Period. Lessee
shall have no right to exercise the purchase option granted under this
Paragraph 26 after the last day of the Option Period. If Lessee exercises
the purchase option granted under this Paragraph 26 on or before the last day
of the Option Period, then Lessee shall have the right to close the purchase
of the Leased Property at any time during the period beginning six (6) months
and ending nine (9) months after the date of the notice exercising the option
(even if that closing does not occur during the Option Period).
(c) Notice of Exercise. If Lessee wishes to exercise the right
and option to purchase the Leased Property from Lessor pursuant to this
Paragraph 26, Lessee shall be required to deliver to Lessor a written notice
specifying: (i) Lessee's desire to exercise its right and option to purchase
the Leased Property pursuant to this Paragraph 26, and (ii) the proposed
closing date for the purchase (which closing date shall be not less than 6
months and not more than 9 months after the date of the written notice
exercising the option). Lessee shall be deemed to have exercised the option
to purchase the Leased Property pursuant to this Paragraph 26 when the
written notice referred to in the preceding sentence is delivered to Lessor.
If Lessee exercises the option to purchase the Leased Property from Lessor as
provided in this Paragraph 26, and if the purchase and sale of the Leased
Property subsequently closes in accordance with this Paragraph 26, then
Lessee shall be obligated to pay rent with respect to the Leased Property
through the date of closing of the purchase and sale.
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(d) Lessor's Obligation to Sell. If Lessee exercises the
option to purchase the Leased Property from Lessor as provided in this
Paragraph 26, and if Lessee tenders to Lessor (on or before the proposed
closing date) full payment of the Leased Property as provided in this
Paragraph 26, then Lessor shall be obligated to sell and deliver to Lessee
good and marketable title to the Leased Property, free and clear of all liens
and encumbrances not accepted by Lessee as provided in subparagraph 26(f).
(e) Purchase Price and Payment. If Lessee exercises the option
to purchase the Leased Property pursuant to this Paragraph 26, the price for
the Leased Property shall be Four Million Eight Hundred Thousand And 00/100
Dollars ($4,800,000.00). The $4,800,000.00 purchase price shall be payable
by Lessee at the closing of the purchase by cashier's check drawn against a
bank of Lessee's choice having offices located in Kern County, California, or
by any other method acceptable to Lessor.
(f) Title Report. Promptly after the Date of this Agreement,
Lessor shall furnish to Lessee a preliminary title report with respect to the
Leased Property. A copy of that preliminary title report shall be attached
to this Agreement as Exhibit "C". Lessee shall have ten (10) days after
receipt of the preliminary title report within which to examine that report
and notify Lessor of any objection(s) to any one or more of the exceptions
set forth on the preliminary title report. If Lessee does not notify Lessor
in writing, within that ten (10) day period, of Lessee's disapproval of any
one or more of the exceptions set forth on the preliminary title report, then
that exception (or those exceptions) shall be deemed to have been accepted
and approved by Lessee. If Lessee provides written notification to Lessor,
within that ten (10) day period, of Lessee's disapproval of any exception set
forth in the preliminary title report, then Lessor shall be obligated to
remove the disapproved exception prior to Closing. At Closing, Lessor shall
furnish to Lessee, at Lessor's expense, a C.L.T.A. policy of title insurance
(or an A.L.T.A. policy of title insurance if Lessee is willing to pay the
excess of the cost of an A.L.T.A. policy over the cost of a C.L.T.A. policy)
in the full amount of the purchase price ($4,800,000.00), showing title to
the Leased Property to be good and marketable, subject only to the usual
endorsements and exceptions contained in such policies and the specific
additional exceptions accepted by Lessee as provided in the preceding
sentences of this subparagraph (f).
(1) If Lessee does not elect to purchase the Leased
Property pursuant to this Paragraph 26, then Lessor shall be obligated to pay
all title insurance cancellation fees.
(2) If Lessor is unable at Closing to provide good and
marketable title to the Leased Property as provided in this subparagraph (f),
then (in addition to any and all other remedies which may be available to
Lessee at law or in equity by reason of that breach) the provisions of
subparagraphs 4(b) through 4(h) relating to a CPI indexed increase in the
rental amount payable under this Agreement shall be void and of no effect,
and the monthly rent payable by Lessee for each and every month throughout
the entire Lease Term shall be the Base Rental Amount. If, subsequent to the
date of Closing, Lessor is able to cure any title defects and provide good
and marketable title to the Leased Property as provided in this subparagraph
(f), then the provisions of the preceding sentence shall be void and of no
effect from and after the date when said defect(s) is/are cured.
(g) Closing Escrow. If Lessee elects to purchase the Leased
Property pursuant to this Paragraph 26, the parties agree to establish a
closing escrow account at Capital City Escrow, Inc., in Sacramento,
California (the "Closing Escrow Agent"). Lessee shall pay for the insurance
premiums and documentary transfer taxes, and Lessee and Lessor each shall pay
one-half (1/2) of all other closing costs and escrow fees. Lessee and Lessor
agree to execute whatever reasonable escrow instructions may be required by
Closing Escrow Agent in connection with the consummation of the purchase of
the Leased Property pursuant to this Paragraph 26. In the event of any
conflict between those escrow instructions and this Agreement, the terms of
this Agreement shall prevail, and nothing contained in the escrow
instructions shall be deemed to change or modify the terms, provisions or
conditions of this Agreement unless the parties expressly so state in writing.
(h) Closing. If Lessee elects to purchase the Leased Property
pursuant to this Paragraph 26, then:
(1) The parties agree to close the purchase and sale
hereunder at the offices of the Closing Escrow Agent, or at such other
location as shall be selected by mutual agreement of the parties.
(2) Actual possession of the Leased Property, and all
risk of loss, damage or destruction with respect to all or any portion of the
Leased Property, is passing to Lessee under the terms of this Lease.
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(3) At Closing, Lessor shall deliver to Lessee a grant
deed which conveys the Leased Property free and clear of all encumbrances,
except those encumbrances identified in the preliminary title report which
have been accepted and approved by Lessee pursuant to subparagraph 26(f),
fully executed by Lessor and naming Lessee as the grantee.
(4) Real property taxes, personal property taxes,
operating expenses, rental income, prepaid rents and deposits, and other
income and expenses with respect to the Leased Property shall be the
responsibility of Lessee.
(5) If Closing does not take place on or before the Final
Closing Date because of Lessor's failure or refusal to convey to Lessee good
title to the Leased Property, then Lessee shall be entitled to: (i) the
remedy specified in subparagraph 26(f)(2), and (ii) any and all other rights
and remedies for that breach which may be provided at law or in equity.
(6) Lessee shall have the right at Closing to convey and
assign its rights and obligations with respect to the purchase of the Leased
Property pursuant to this Paragraph 26 to Lithia Motors, Inc. or any
subsidiary of Lithia Motors, Inc.
(7) Prior to Closing, Lessor shall furnish to Lessee any and
all documentation required under Section 1445 of the Internal Code, including
but not limited to a "Certificate of Non-Foreign Status". If Lessor fails to
furnish Lessee a Certificate of Non-Foreign Status, Lessee shall be authorized
to withhold and deduct from the purchase price any and all amounts which are
required to be withheld under IRC S1445, and to transfer those sums to the
Internal Revenue Service in accordance with the provisions of IRC S1445. Lessor
also shall furnish to Lessee a duly completed and executed Form 590 in
compliance with California Revenue and Taxation Code SS18805 and 26131.
(8) Each party shall pay its own attorney fees incurred in
connection with the Closing of the purchase and sale of the Leased Property.
(9) Lessee will cooperate with Lessor (at no cost to Lessor)
in enabling Lessor to complete a tax-free exchange of the Leased Property under
IRC Section 1031.
(10) Any material default under this Lease must be cured by
Lessee prior to Closing.
(i) No Brokerage Commissions. Lessee and Lessor each warrants to the
other party that no brokerage commissions will be payable in connection with the
purchase and sale of the Leased Property in accordance with Paragraph 26.
27. Lessee's Right To Terminate Obligation to Lease. Lessee shall have the
right, at any time prior to the Initial Lease Date, to rescind Lessee's
obligation to lease the Leased Property under this Agreement if Lessee is
dissatisfied for any reason with either of the following matters: (i) any
studies or tests concerning the presence or possible presence on the Leased
Property of Hazardous Materials, and Lessee's determination as to the possible
financial impact on Lessee of any Hazardous Materials which are present on the
Leased Property; or (ii) the results of any examinations or inspections
completed by Lessee with respect to the Leased Property. Lessee shall be
responsible for the cost of all Hazardous Materials tests, reports, surveys,
studies, inspections and examinations conducted by Lessee pursuant to this
Paragraph 27. Lessor shall cooperate with Lessee in allowing Lessee and Lessee's
agents to fully inspect and examine the Leased Property for the presence of
Hazardous Materials Notwithstanding Lessee's right to inspect the Leased
Property for the presence of Hazardous Materials pursuant to this Paragraph 27,
Lessee is relying on, and Lessor agrees that Lessee has the right to rely on the
representations, warranties and agreements made by Lessor in Paragraph 9. All
inspections performed by Lessee pursuant to this Paragraph 27 shall be subject
to Lessee's indemnification obligations to Lessor as set forth in Paragraph 16,
and Lessee shall return the Leased Property to its original condition upon the
completion of any tests or inspections performed pursuant to this Paragraph 27.
28. Additional Conditions Precedent To Lessee's Obligations. In addition of
all other conditions to Lessee's obligation to close which are set forth in this
Agreement, the obligation of Lessee to lease the Leased Property from Lessor
pursuant to this Agreement is subject to the fulfillment, prior to the Initial
Lease Date, of each of the following conditions, each of which is for the
benefit of Lessee and may be waived by Lessee:
(a) Lessee shall have obtained from Nissan Motor Corporation in USA
and BMW of North American, Inc. prior to the Initial Lease Date, exclusive
franchises to sell new Nissan and BMW vehicles in Bakersfield, California (as
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evidenced by the issuance to Lessee of appropriate Dealership Sales and Service
Agreements, and the approval of Lessee as the publicly owned Dealer-Operator of
the franchises); and
(b) Lessee shall be reasonably satisfied with any facility improvement
requirements which are imposed by Nissan Motor Corporation in USA and BMW of
North America, Inc. in connection with the issuance to Lessee of franchises to
sell new Nissan and BMW vehicles in Bakersfield, California; and
(c) The purchase of business assets of Nissan - BMW of Bakersfield,
Inc. by Lessee shall be closed on or before the Initial Lease Date; and
(d) Lessee shall be reasonably satisfied that there have been no
material changes in the condition of the Leased Property between the Date of
this Agreement and the Initial Lease Date; and
(e) Lessee shall be reasonably satisfied that all of Lessor's
agreements, representations and warranties set forth in this Agreement shall be
true, correct, complete and not misleading as of the date of Initial Lease Date;
provided, however, that Lessee's decision to close this transaction shall not
excuse or release Lessor from liability to Lessee for any representation or
warranty which is subsequently determined to be incorrect, incomplete or
misleading.
29. Attornment And Subordination.
(a) Lessee shall execute, without further consideration, any and all
instruments desired by Lessor (or Lessor's mortgagee) subordinating this
Agreement in the manner requested by Lessor to the lien of any mortgage and/or
deed of trust or other encumbrance which may now or hereafter affect the Leased
Property, together with all renewals, modifications, consolidations,
replacements or extensions thereof; provided, however, that any lienor or
encumbrancer relying on such subordination of such additional agreements will
covenant with Lessee that Lessee's leasehold interests hereunder shall remain in
full force and effect, and that Lessee shall not be disturbed in the event of
sale, foreclosure or other action so long as Lessee is not in default hereunder.
Lessor is irrevocably appointed and authorized as agent and attorney-in-fact of
Lessee to execute all subordination instruments in the event Lessee fails to
execute said instruments within fifteen (15) days after notice from Lessor
demanding the execution thereof.
(b) If Lessor's interest is transferred to and owned by any lender as
a result of a foreclosure or other proceeding brought by the lender in lieu of
or pursuant to a foreclosure or in any other manner, and if the lender thereby
succeeds to the interest of Lessor hereunder, then Lessee shall be bound to the
lender under all of the terms, covenants and conditions hereof for the balance
of the remaining Lease Term, with the same force and effect as if the lender was
the original Lessor hereunder. Lessee hereby attorns to any such lender, with
the attornment to be effective and self-operative immediately upon the lender
succeeding to the interest of Lessor, and without the necessity of the execution
of any further instrument. If a lender shall succeed to the interest of Lessor,
the lender shall not be liable for any act or omission of Lessor, and shall not
be subject to any offsets or defenses which Lessee might assert against Lessor.
30. Estoppel Certificates. Within ten (10) days after request by Lessor,
Lessee shall execute and deliver to Lessor and estoppel certificate in such form
as Lessor may reasonably request, or as a prospective purchaser or encumbrancer
of the Leased Property may reasonably request, relating to the then current
status of the Lease and stating any claims, offsets or defenses asserted by
Lessee with respect to the Lease. Any such estoppel certificate may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Leased Property. If Lessee fails to deliver a requested estoppel certificate
within ten (10) days after Lessor's written request therefor, then Lessee shall
be deemed conclusively to have agreed that: (i) this Agreement is in full force
and effect, without modification except as may be represented by Lessor, (ii)
there are no uncured defaults in Lessor's performance under this Agreement,
(iii) not more than one monthly installment of the rental due under this
Agreement has been paid in advance, and (iv) any terms or conditions of an
estoppel certificate required by a prospective purchaser or encumbrances of the
Leased Property are satisfied and agreed to by Lessee. Any failure by Lessee to
deliver an estoppel statement (showing any exceptions to any of the statements
of fact required thereby) shall be material breach of this Agreement.
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31. Corporate Authority. Lessee's board of directors and shareholders have
authorized the execution and delivery of this Agreement to Lessor and the
carrying out of its provisions. This Agreement will not conflict with Seller's
bylaws.
32. Miscellaneous.
(a) No Waiver of Performance. The failure of any party at any time to
require performance of any provision hereof shall in no way affect that party's
right to enforce the same provision or any other provision at any subsequent
time. The consent or approval of either party to any act by the other party of a
nature requiring consent or approval should not be deemed to waive or render
unnecessary the consent to or approval of any subsequent similar act. All rights
and remedies provided under this Agreement are cumulative to one another and to
all other rights and remedies under applicable law or in equity, and no exercise
of any one right or remedy shall in any manner operate to prejudice or impair
any other right or remedy provided at law or in equity.
(b) Entire Agreement. This Agreement sets forth the entire, final and
complete agreement of the parties, and supersedes, replaces and integrates all
of the prior written and oral agreements of the parties. Any modifications,
amendments or supplements to this Agreement shall be executed in writing and
signed by all of the parties. Multiple copies of this Agreement may be executed
by the parties, each of which shall be deemed to be an original when signed by
all of the parties. The captions set forth in this Agreement are for reference
purposes only, and shall not be considered in construing the meaning of the
terms and conditions of this Agreement. Subject to the provisions of Paragraph
19, this Agreement shall be binding upon, and shall inure to the benefit of, the
respective successors, representatives and assigns of the parties. The documents
identified or referenced in this Agreement are all of the agreements respecting
the proposed sale or transfer, and there are no other oral or written side
agreements affecting the transaction. True copies of all documents identified or
referenced in this Agreement are attached hereto.
(c) Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the state of California. Any legal
proceedings relating to this Agreement shall be filed in the appropriate court
in Kern County, California, and the parties hereby irrevocably submit to the
jurisdiction of the Municipal or Superior Court of Kern County, California.
(d) Severability. 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 provisions of this Agreement, and all
such other provisions shall remain in full force and effect. It is the intention
of the parties that 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.
(e) Attorney Fees in Event Of Dispute. If action is instituted to
enforce any term of this Agreement, the prevailing party shall recover from the
losing party reasonable attorney fees incurred in that action as set by the
appellate courts.
30. Memorandum To Be Recorded. Simultaneously with the execution of this
Agreement the parties shall execute a Memorandum evidencing the execution of
this Agreement for purposes of recordation in Kern County, California, which
Memorandum shall be recordable by Lessee on or after the Initial Lease Date.
IN WITNESS WHEREOF, each of the parties has executed this Agreement on
the respective dates indicated below.
LESSEE: LITHIA REAL ESTATE, INC.
By: /s/ Lithia
Authorized Agent
Date 10-2-97
LESSOR: ELOY C. RENFROW
By /s/ Eloy C. Renfrow
Eloy C. Renfrow
Date 10-2-97
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EXHIBIT "B" TO REAL PROPERTY LEASE AGREEMENT WITH OPTION TO PURCHASE
Between ELOY C. RENFROW, as "Lessor", and
LITHIA REAL ESTATE, INC., as Lessee
COPY OF AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
[See ____ page(s) attached hereto.]
DISCLOSURE STATEMENT
Lessor hereby notifies Lessee that the Leased Property has the following
defects, which constitute all of the Leased Property defects which are known
to Lessor.
1.
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EX-10
Exhibit 10.25.2 Lease; Consent; Cont Guaranty
EXHIBIT 10.25.2
LEASE
THIS LEASE (hereinafter the "Lease") is entered into this 3 day of
September, 1997, at Redding, California, between BR ENTERPRISES, a General
Partnership, hereinafter referred to as "Lessor", and LITHIA MOTORS, INC.,
a(n) Oregon corporation, hereinafter referred to as "Lessee";
RECITALS
WHEREAS, Lessor is the owner of certain real property described as
Assessor's Parcel Number 418-050-50 and more commonly known as 155, 165, 175
and 195 East Auto Center Drive, Fresno, California, upon which has been
constructed buildings and improvements, hereinafter designated the
"Premises", as more fully described on Exhibit "A" which is attached hereto
and incorporated herein by reference;
WHEREAS, Lessee is desirous of obtaining a triple net lease of the
Premises from Lessor pursuant to the terms of this Lease;
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto do hereby agree as follows:
ARTICLE 1. PREMISES
Premises
Section 1.01 Lessor hereby leases to Lessee, and Lessee hereby
hires from Lessor, for the term, at the rental and upon the conditions
hereinafter set forth, the Premises as heretofore described.
Quiet Enjoyment
Section 1.02. Lessor covenants and agrees that Lessee, upon payment
of the rent and performance of the covenants herein contained, shall and may
peaceably and quietly hold and enjoy the Premises for the term of this Lease
without hindrance from Lessor, Lessor's agent or other person claiming under
Lessor.
ARTICLE 2. USE
Permitted Use
Section 2.01. The Premises are to be used for an automobile
dealership and associated uses and for no other use without the prior written
consent of Lessor, not to be unreasonably withheld.
Use To Comply With All Laws
Section 2.02. Lessee shall not do or permit anything to be done on
or about the Premises which shall in any way conflict with any law,
ordinance, rule or regulation affecting the occupancy and use of the
Premises, which is or may hereafter be enacted or promulgated by any public
authority. Lessee shall comply with all laws concerning the Premises or
Lessee's use of the Premises including, without limitation, the obligation at
Lessee's cost to alter, maintain, or restore the Premises in compliance and
conformity with all laws relating to the condition, use or occupancy of the
Premises during the term.
Within ten (10) days after receipt, Lessee shall advise Lessor in
writing, and provide Lessor with copies of (as applicable), any notice, claim
or action relating to or alleging violation of any State, Federal or other
governmental or quasi-governmental law, rule or regulation (including, but
not limited to, the Americans with Disabilities Act of 1990 ("ADA") relating
to the Premises.
Prohibition Against Assignment or Subletting
Section 2.03. Lessee shall not assign or encumber this Lease, or
any interest therein, or sublet the Premises or any of its parts, or permit
the Premises to be used by any person, persons, or entity other than Lessee,
Lessee's employees, customers or clients without the prior written consent of
Lessor, which consent shall not be unreasonably withheld. Lessor's consent
to any such assignment, subletting, encumbrance or use shall not operate as a
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waiver of the necessity for Lessee to obtain Lessor's consent to any
subsequent assignment, subletting, encumbrance or use and the terms of such
consent shall be binding upon any person or entity holding by, under or
through Lessee.
Any assignment, subletting, encumbrance or use without such consent
shall be voidable and shall, at the option of Lessor, constitute a default of
this Lease. This Lease shall not, nor shall any interest therein, be
assignable as to the interest of Lessee by operation of law without the prior
written consent of Lessor.
Lessee immediately and irrevocably assigns to Lessor, as security for
Lessee's obligations under this Lease, all rent from any subletting of all or
a part of the Premises as permitted by this Lease and Lessor, as assignee and
as attorney-in-fact for Lessee, or a receiver for Lessee appointed on
Lessor's application may, upon the occurrence of an act of default by Lessee,
collect such rent and apply it toward Lessee's obligations under this Lease;
except that, until the occurrence of an act of default by Lessee, Lessee
shall have the right to collect and retain such rent for Lessee's account.
Signs by Lessor
Section 2.04. During the last one hundred eighty (180) days of the
term of this Lease, Lessor shall have the right to place signs on or about
the Premises for the purpose of notifying prospective lessees that such
Premises may be rented or leased.
Signs by Lessee
Section 2.05. Lessee may permit or suffer any signs,
advertisements, or notices to be displayed, inscribed upon, or affixed to any
part of the Premises or the exterior of the building of which they are part,
provided that any such sign, advertisement, or notice shall comply with
any/all applicable government and/or quasi-governmental rules or regulations
affecting the Premises and/or such sign, advertisement or notice.
Waste
Section 2.06. Lessee shall not commit waste on the Premises, or any
public or private nuisance, or any act or thing which will interfere with or
disturb the quiet enjoyment of any other lessee or person, whether such
person or lessee shall be located about or adjacent to the Premises or the
surrounding real property.
ARTICLE 3. TERM
Term
Section 3.01 The term of this Lease shall be for a period of
fifteen (15) years. The term shall commence on the date of the Closing with
respect to that certain Agreement for the Sale of Certain Assets of Century
Ford, Inc., a California corporation, entered into between Century Ford,
Inc., and Lithia Motors, Inc., a(n) Oregon corporation, dated August 30,
1997, and shall expire fifteen (15) years subsequent thereto, unless
otherwise terminated as provided within this Lease.
Surrender of Premises
Section 3.02. Lessee agrees to surrender the Premises at the
termination of the tenancy herein created in the same condition as they have
been received, reasonable use and wear thereof excepted, along with any
improvements, modifications, or structures constructed thereon.
ARTICLE 4. LEASE PAYMENTS
Lease Payments
Section 4.01. Lessee shall pay monthly lease payments during the
term of this Lease, in advance, on or before the first day of each month, to
Lessor at 400 Redcliff Drive, Redding, California, 96002. In the event the
Closing (referenced in Section 3.01) shall occur on a date other than the
first day of a month, Lessee shall pay Lessor at the Closing a prorated
amount reflecting that portion of the monthly lease payment from the date of
the Closing until the final day of that month, along with the following
month's monthly lease payment.
Subject to further adjustment as provided within this Lease, the
monthly lease payment during the term of this Lease shall be as follows:
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LEASE YEAR MONTHLY LEASE PAYMENT
1 $39,000.00
2 76,000.00
3 76,000.00
4 76,000.00
5 76,000.00
6 79,000.00
7 79,000.00
8 79,000.00
9 79,000.00
10 79,000.00
11-15 See (a) Below
(a) The monthly lease payment shall be subject to an increase at the
commencement of the eleventh year of the term, as follows:
The Consumer Price Index-California, All Urban Consumers, All
Items (1982-84), San Francisco/Oakland Average, published by the United
States Department of Labor, Bureau of Labor Statistics, hereinafter
designated "Index," which is in effect on the date of the commencement
of the sixth year of the term, hereinafter designated "Beginning
Index", shall be compared with the Index figure which is in effect on
the date of the commencement of the eleventh year of the term,
hereinafter designated "Adjustment Index". If the Adjustment Index has
increased over the Beginning Index, the monthly lease payment shall be
determined by multiplying the monthly lease payment provided in Section
4.01 by a fraction, the numerator of which is the Adjustment Index and
the denominator of which is the Beginning Index.
Should the Index be changed such that the base year differs from
that in effect at the commencement of the initial term, the Index shall
be converted in accordance with the conversion factor published by the
United States Department of Labor, Bureau of Labor Statistics. If the
Index is discontinued or revised during the term, such other government
index or computation with which is replaced shall be used in order to
obtain substantially the same result as would be obtained if the Index
had not been discontinued or revised.
In no event shall the monthly lease payment, as adjusted, be less
than the monthly lease payment in effect during the immediately
preceding year of the term.
Not withstanding the foregoing, subject to further adjustment as
provided in this lease, the monthly lease payment as adjusted pursuant
to this Section 4.01 shall not exceed Eighty-Six Thousand Nine Hundred
Dollars ($86,900).
(b) In the event that Lessee become delinquent in the payment of the
monthly lease payment due hereunder, such amount shall bear interest from the
date of delinquency until paid at the rate of two percent (2%) above the
Prime rate as quoted by Bank of America on the first day of the preceding
month.
Costs and Assessments
Section 4.02. If during the term of this Lease any improvements are
made by a public agency which result in the imposition of a general or
special assessment against the Premises or the land upon which the Premises
are located, Lessee shall pay such accrued costs or assessments as additional
rent.
ARTICLE 5. TAXES, UTILITIES AND SERVICES
Taxes
Section 5.01. Lessee agrees to pay to Lessor not less than ten (10)
days prior to the delinquency date all taxes, fees and assessments of
whatever nature that are levied upon the Premises, or otherwise, including,
but not limited to, fees, taxes and assessments levied by any governmental
agency or agencies as reflected on statements provided by Lessor.
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The taxes, fees and assessments levied against the Premises during the
first and last years of this Lease shall be prorated between Lessor and
Lessee for purposes of this Section as of 12:01 a.m., on the date of
commencement and termination, respectively, of this Lease.
Lessee shall pay before delinquency all taxes, assessments, fees and
other charges that are levied and assessed against Lessee's personal property
installed or located in or on the Premises and that become payable during the
term. Upon demand of Lessor, Lessee shall furnish Lessor with satisfactory
evidence of these payments.
Utilities
Section 5.02. Lessee shall pay, in addition to the rents above
specified, all gas, electricity, sewer, water, trash disposal and any and all
other utility charges levied, taxed or charged against the Premises during
the term of this Lease. Lessor shall have no obligation to provide or make
available utility services of any nature. Lessor shall not be liable to
Lessee for the interruption of utility services.
ARTICLE 6. IMPROVEMENTS AND REPAIRS
Mechanics' Liens
Section 6.01. Lessee shall not suffer or permit any mechanic's
liens or materialmen's liens to be filed against the Premises nor against
Lessee's leasehold interest in the Premises. Lessor shall have the right at
all reasonable times to post and keep posted on the Premises such reasonable
notices which it deems necessary for protection from such liens. If any such
liens are so filed Lessor, at its election, may pay and satisfy the same and,
in such event, the sums so paid by Lessor, with interest at the maximum rate
an individual is permitted by law to charge per annum from the date of
payment, shall be deemed to be an additional lease payment due and payable by
Lessee at once without notice or demand.
Maintenance and Repairs by Lessee
Section 6.02. Lessee shall, at its own cost and expense, maintain
the Premises so that at all times the Premises and appurtenances thereto
shall be in good order, condition and repair. Lessee shall not make
alterations, modifications, additions or improvements to the Premises without
the prior written consent of Lessor, which consent shall not be unreasonably
withheld.
Should the Premises or any building or improvement thereon be damaged
or destroyed during the term of this Lease, Lessee shall, subject to the
provisions of this Section, at its own cost, forthwith rebuild, restore and
reconstruct the same to substantially the condition in which the same existed
immediately prior to such damage or destruction, and all insurance proceeds
received by Lessor or Lessee or both of them on account thereof shall be
used, in full, to defray such costs.
All alterations, improvements, or changes to the Premises shall become
the property of Lessor and shall remain upon and be surrendered with the
Premises at the end of the term of this Lease free and clear of all
encumbrances of any kind or nature. At the end of the term of this Lease,
Lessor shall have the right to require Lessee to remove all personal property
of Lessee. With the written consent of Lessor, Lessee shall have the right
to leave its personal property on the Premises. If Lessee's personal
property is left on the Premises without the written consent of Lessor the
title to such personal property shall automatically transfer to Lessor at the
end of the term of this Lease. Lessee hereby agrees to hold Lessor harmless
for the retention or disposition of such property.
Right of Inspection
Section 6.03. Lessor or any duly authorized agents of Lessor shall
have the right at all reasonable times to inspect the Premises during normal
business hours upon giving prior notice to Lessee. Lessee shall not modify,
replace, install, or otherwise change in any manner a locking mechanism,
security device or the key or combination associated therewith without the
prior written consent of Lessor. The provisions of this Section are not in
limitation of any other rights of Lessor as provided within this Lease.
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Condemnation
Section 6.04. If title to the entirety of the Premises is taken for
any public or quasi-public use under any statute or by right of eminent
domain, or other governmental authority of a similar nature, or if so much of
the Premises is taken as will render impractical the use of the remainder of
the Premises for the use and purpose for which the Premises are leased, this
Lease shall terminate on the date that the Premises are so taken. The
damages awarded for the taking of the Premises shall belong to Lessor and
Lessee shall make no claim for the value of the unexpired term hereof.
In the event of a partial taking, the rental amount contained within
Section 4.01 herein shall be reduced in a direct ratio as the value of the
portion taken bears to the value of the whole of the area of the Premises;
provided however, should the portion so taken render impractical the use of
the remainder of the Premises for the contemplated use thereof, then all
rents shall cease and this Lease shall be deemed terminated.
If any part of the Premises shall be so taken and the remaining part of
the Premises shall be reasonably suited for Lessee's continued occupancy for
the purpose and uses for which the Premises are leased, the Lease shall, as
to the part so taken, terminate as of the date that possession of such part
is taken, while continuing in effect for the remainder of the Premises.
A voluntary sale by Lessor to any body having power of eminent domain,
either under threat of condemnation or while condemnation proceedings are
pending, shall be deemed a taking by eminent domain for the purposes of this
article.
ARTICLE 7. INSURANCE AND INDEMNIFICATION
Duty of Lessee to Provide Liability Insurance
Section 7.01. Lessee agrees to, and shall, during the term of this
Lease, secure from a good, responsible company or companies doing insurance
business in the State of California and maintain during the term of this
Lease public liability insurance for the joint and several protection and
indemnity of Lessor and Lessee with limits for bodily injury or death of not
less than two hundred and fifty thousand dollars ($250,000.00) per person,
and one million dollars ($1,000,000.00) per occurrence in case of injury or
death to more than on person in the same accident and/or property damage.
Lessee further agrees to secure and maintain at its sole expense insurance
covering fire and special form, naming Lessor (and Lessor's lender) as
additional insured; said insurance shall be maintained at all times during
the term of this Lease in an amount equal to 100% of the present day
replacement cost of the improvements, and said amount of insurance coverage
shall be adjusted on each renewal, or at least every year, whichever occurs
first, in keeping with the then current building cost. Lessor and Lessor's
lender shall be provided with a certificate of insurance which verifies the
required coverage(s). The proceeds of the aforementioned fire and special
form insurance shall be used exclusively for restoration of the Premises
unless this Lease is terminated, in which case said proceeds shall be the
property of and paid to Lessor. Lessee shall further secure and maintain
pollution liability insurance in such form and with such limits as may be
reasonably required by Lessor or as required by governmental or
quasi-governmental rules and/or regulations; such policy shall name Lessor
(and Lessor's lender) as an additional insured.
Indemnification of Lessor
Section 7.02. Lessee agrees to hold Lessor harmless from and defend
Lessor against any and all claims or liability for any injury or damage to
any persons or property whatsoever occurring in, on, or about the Premises
which is in any part or in whole caused by the act, negligence or fault of,
or omission of, any duty of Lessee, its agents, servants, or employees.
Exculpation of Lessor
Section 7.03. Lessor shall not be liable to Lessee for any injury
or damage within the leased Premises which results to any person or the
personal properly of Lessee, or any other person, by or from any cause
whatsoever, unless caused by the gross negligence or willful misconduct of
Lessor.
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ARTICLE 8. DEFAULT
Acts of Default Defined
Section 8.01. The occurrence of any of the following shall be
deemed a default by Lessee:
(a) Use of the Premises for any use other than as authorized in this
Lease.
(b) Failure to pay the rent herein reserved or any other sums owing
when due.
(c) Failure by Lessee to observe, keep and perform any of the terms,
conditions, agreements and provisions contained in this Lease, if such
failure is not cured within thirty (30) days after written notice has been
provided to Lessee. If the default cannot reasonably be cured within said
thirty (30) days, Lessee shall not be in default of this Lease if Lessee
commences to cure the default within the thirty (30) day period and
diligently and in good faith continues to cure the default.
(d) The abandonment of the Premises by Lessee without rental payment;
the filing of either voluntary or involuntary proceedings by or against
Lessee in the bankruptcy court; the making by Lessee of a general assignment
for the benefit of creditors; the taking by Lessee of the benefit of any
insolvency act or law; the appointment of a permanent receiver or trustee in
bankruptcy for Lessee's property; the appointment of a temporary receiver
which is not vacated or set aside within ninety (90) days from the date of
such appointment.
Lessor's Remedies in Event of Default
Section 8.02. Lessor shall have the following remedies if Lessee
commits a default. These remedies are not exclusive; they are cumulative in
addition to any remedies now or later allowed by law:
(a) Lessor has the remedy described in California Civil Code Section
1951.4. (Lessor may continue lease in effect after Lessee's breach and
abandonment and recover rent as it becomes due, if Lessee has right to sublet
or assign, subject only to reasonable limitations). Lessor can continue in
effect, as long as Lessor does not terminate Lessee's right to possession,
and Lessor shall have the right to collect rent when due. During the period
Lessee is in default, Lessor can enter the Premises and relet them, or any
part of them, to third parties for Lessee's account. Lessee shall be liable
immediately to Lessor for all costs Lessor incurs in reletting the Premises
including, without limitation, broker's or Realtor's commissions and like
costs. Reletting can be for a period shorter or longer than the remaining
term of this Lease. Lessee shall pay to Lessor the rent due under this Lease
on the date the rent is due, less the rent Lessor received from any
reletting. In no event shall Lessee be entitled to any excess rent received
by Lessor. No act by Lessor allowed by this paragraph shall terminate this
Lease unless Lessor notifies Lessee that Lessor elects to terminate this
Lease. After Lessee's default and for as long as Lessor does not terminate
Lessee's right to possession of the Premises, if Lessee obtains Lessor's
prior written consent, Lessee shall have the right to assign or sublet its
interest in this Lease, but Lessee shall not be released from liability;
Lessor's consent to a proposed assignment or subletting shall not be
unreasonably withheld.
(b) Lessor can terminate Lessee's right to possession of the Premises
at any time. No act by Lessor other than giving notice to Lessee shall
terminate this Lease. Acts of maintenance, efforts to relet the Premises, or
the appointment of a receiver on Lessor's initiative to protect Lessor's
interest under this Lease shall not constitute a termination of Lessee's
right to possession. Upon termination, Lessor has the right to recover from
Lessee:
(1) The worth, at the time of the award, of the unpaid rent
that had been earned at the time of termination of this Lease;
(2) The worth, at the time of the award, of the amount by which
the unpaid rent that would have been earned after the date of termination of
this Lease until the time of award exceeds the amount of the loss of rent
that Lessee proves could have been reasonably avoided;
(3) The worth, at the time of the award, of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds
the amount of the loss of rent that Lessee proves could have been reasonably
avoided; and
(4) Any other amount and court costs necessary to compensate
Lessor for all detriment proximately caused by Lessee's default.
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"The worth, at the time of award," as used in (1) and (2) of this
subsection (b), is to be computed by allowing interest at the maximum
rate an individual is permitted by law to charge. "The worth, at the
time of award," as used in (3) of this subsection (b), is to be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one (1) percent.
(c) At any time during this Lease, rent not paid when due shall bear
interest at the maximum rate an individual is permitted by law to charge.
(d) If at any time during this Lease Lessee shall commit a default,
Lessor may cure the default at Lessee's cost. If Lessor at any time, by
reason of Lessee's default, pays any sums or does any act that requires the
payment of any sum, the sum paid by Lessor shall be due immediately from
Lessee to Lessor at the time the sum is paid and, if paid at a later date,
shall bear interest at the maximum rate an individual is permitted by law to
charge from the date the sum is paid by Lessor until Lessor is reimbursed by
Lessee. The sum, together with interest on it, shall be additional rent.
Delay or Omission Not A Waiver
Section 8.03. No delay or omission in the exercise of any right or
remedy of Lessor on any default by Lessee shall impair such a right or remedy
or be construed as a waiver.
The receipt and acceptance by Lessor of delinquent rent shall not
constitute a waiver of any other default; it shall constitute only a waiver
of timely payment for the particular rent payment involved.
No act or conduct other than a notice from Lessor to Lessee shall
constitute acceptance of the surrender of the Premises and accomplish a
termination of this Lease.
Lessor's consent to or approval of any act by Lessee requiring Lessor's
consent or approval shall not be deemed to waive or render unnecessary
Lessor's consent to or approval of any subsequent act by Lessee.
Any waiver by Lessor of any default shall not be a waiver of any other
default concerning the same or any other provision of this Lease.
ARTICLE 9. GENERAL PROVISIONS
Lessee's Certification
Section 9.01. Lessee shall at any time and from time to time, upon
not less than ten (10) days' prior request by Lessor, execute, acknowledge
and deliver to Lessor a statement in writing certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications) and, if so, the dates to which the fixed rent and any other
charges have been paid in advance, it being intended that any such statement
delivered pursuant to this Section may be relied upon by any prospective
purchaser or encumbrancer of the Premises.
Subordination
Section 9.02. This Lease is and shall be subordinate to any
encumbrance now of record or recorded after the date of this Lease affecting
the Premises. Such subordination is effective without any further act of
Lessee. Lessee shall from time to time at the request of Lessor execute and
deliver any documents or instruments that may be required by a lender to
effectuate any subordination. If Lessee fails to execute and deliver any
such documents or instruments, Lessee irrevocably constitutes and appoints
Lessor as Lessee's special attorney-in-fact to execute and deliver any such
documents or instruments. Notwithstanding the foregoing, with respect to the
Right of First Negotiation referenced in Section 9.17, if Lessor's lender
requires that this Lease be subordinate to any such encumbrance, Lessor shall
provide prior notice to Lessee and Lessee shall provide Lessee's consent to
such subordination.
Covenants
Section 9.03. It is mutually agreed that the letting hereunder is
made subject to the terms, covenants and conditions of this Lease and that
Lessee covenant as a material part of the consideration for this Lease to
keep and perform each and all of said terms, covenants, and conditions by
Lessee to be kept or performed and that this Lease is made upon the condition
of such performance. All provisions, whether covenants or conditions, on
part of Lessee shall be deemed to be both covenants and conditions.
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Time of Essence
Section 9.04. Time is of the essence in the performance of each of
the provisions of this Lease.
Attorney's Fees
Section 9.05. In the event of commencement of suit to enforce the
terms and conditions of this Lease, the prevailing party shall be entitled to
recover its reasonable attorney's fees and court costs, in addition to such
other award as may be made by the Court.
Notices
Section 9.06. Any notices, demands, or communication under, or in
connection with this Lease may be served upon Lessor by personal service, or
by mailing the same by registered or certified mail in the United States Post
Office, postage prepaid, and directed to Lessor at 400 Redcliff Drive,
Redding, California, 96002, and may likewise be served upon Lessee by
personal service or by so mailing by registered or certified mail and
directed to Lessee at 195 East Auto Center Drive, Fresno, California, 93710.
Either Lessor or Lessee may change such address by notifying the other party
in writing as to such new address as Lessee or Lessor may desire used and
which address shall continue as the address until further written notice.
Sole Agreement
Section 9.07. This instrument contains all of the agreements and
conditions made between the parties to this Lease and may not be modified
orally or in any other manner than by an agreement in writing signed by all
the parties to this Lease or their respective successors in interest.
Agency
Section 9.08. Nothing contained in this Lease shall be deemed or
construed by the parties hereto or by any third person to create the
relationship of principal and agent or of partnership or of joint venture or
of any other association other than Lessor and Lessee.
Interpretation
Section 9.09. This Lease shall be construed and interpreted in
accordance with the laws of the State of California.
Severability
Section 9.10. The unenforceability, invalidity or illegality of any
provision of this Lease shall not render the other provisions unenforceable,
invalid or illegal.
Paragraph Headings
Section 9.11. Paragraph headings are for convenience only and are
not to be construed as defining, limiting or modifying the provisions hereof.
Binding Nature of Agreement
Section 9.12. This Lease shall extend to and be binding upon and
inure to the benefit of the heirs, executors, administrators, successors and
assigns of the respective parties hereto.
Rule of Construction
Section 9.13. The parties to this Lease agree to waive any and all
rights to apply the rule of construction which provides that ambiguities are
to be resolved against the drafter of the agreement. The parties agree that
ambiguities, if any, are to be resolved in the same manner as would have been
the case if this Lease had been jointly conceived and drafted.
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Triple Net Lease
Section 9.14. All provisions of this Lease shall be construed to
the end that during the Lease, Lessor shall not be required to incur any
costs or expenses or make any payments with respect to the Premises except as
expressly herein set forth.
Reciprocal Access Rights
Section 9.15. Lessee shall provide unfettered access to Lessor and
its lessees and respective agents, assigns, and invitees for purposes of
ingress and egress to and upon the common driveway/entryway located at the
North and South boundaries of the Premises. Lessee further agrees that the
construction, placement or installation of fencing, walls, or other
obstruction (including landscaping) in excess of thirty (30) inches in height
between the Premises and the adjacent property is prohibited. The Lessee
acknowledged and agrees to stand in the place and stead of Lessor with
respect to any reciprocal grants of easement respecting the Premises,
including, but not limited to, those certain agreements entered into between
Lessor and Richard Kellejian and Krausz Enterprises. The parties further
agree that in the event Lessee shall exercise its option to purchase the
Premises as provided in this Lease, that prior to close of escrow the grant
deed shall contain a restriction and/or reciprocal access easement(s) which
will be recorded and contain language which is consistent with the subject
matter described in this Section. The parties agree to execute such
documents and take such steps as are reasonable and necessary in order to
further the foregoing. The Lessee acknowledges and agrees that this Lease is
subject to all matters of record.
Memorandum of Lease
Section 9.16. This Lease shall not be recorded. Upon the request
of either party, the parties agree to execute and record a Memorandum of
Lease in the form attached hereto as Exhibit "C".
Lessee's Right of First Negotiation
Section 9.17. If Lessor determines to sell or to relet the premises
for a term commencing subsequent to the expiration of this Lease, Lessor
shall notify Lessee in writing of the terms upon which Lessor shall be
willing to sell or relet. If Lessee, within fifteen (15) days after service
of Lessor's notice, indicates in writing Lessee's agreement to purchase or
relet the Premises on the terms stated in Lessor's notice or upon such terms
which may have been mutually agreed to by the parties Lessor shall sell and
convey, or relet, the Premises to Lessee upon those terms. If Lessee does
not indicate its agreement within fifteen (15) days, Lessor shall thereafter
have the right to sell and convey, or relet, the Premises to a third party
whether or not on the same terms as stated in the notice. Lessor shall have
no obligation to notify Lessee of any future transaction(s) and the
provisions of this Section shall not be applicable to any such transaction(s).
If Lessee purchases the Premises, this Lease shall terminate on the
date of recordation of the deed.
Lessee's right of first negotiation shall not apply to a transfer
between Lessor and a blood relative of Lessor, either outright or in trust,
or to a legal entity (i.e., partnership, corporation, trust, or like entity)
in which the majority interest is owned by Lessor.
Lessor's Consent Prior to Relinquishment/Sale of Franchise(s)
Section 9.18. Lessee acknowledges that an important aspect of
Lessor's consideration with regard to entering into this Lease is Lessee's
presently holding the franchises for the sale and servicing of new Ford
vehicles. Lessee agrees that it will not sell, transfer or relinquish the
above-reference franchise without the prior written consent of Lessor, which
consent shall not be unreasonably withheld.
Option to Purchase
Section 9.19.
(a) Exercise of Option. Provided Lessee is not in default under this
Lease, Lessee shall have an option to purchase the Premises during the option
period. The option period shall commence December 1, 1997, and shall expire
at the close of business on November 30, 1998. Lessee shall provide written
notice to Lessor during the option period of Lessee's exercise of its option
to purchase.
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(b) Purchase Price. In the event Lessee shall exercise its option to
purchase pursuant to this Section, the purchase price to be paid by Lessee
shall be Nine Million One Hundred Thousand Dollars ($9,100,000.00), all cash
net to Lessor. Payment of the purchase price by Lessee shall be in cash or
by certified or cashier's check to Lessor. The conveyance of the title to
Lessee shall be by Grant Deed and in form for recording and shall convey the
fee title to the Premises to Lessee, subject to all matters of record.
(c) Escrow. In the event Lessee shall provide the specified notice
of Lessee's option to purchase, Lessee shall, and hereby covenants and agrees
to, complete such purchase upon the terms herein indicated. Upon exercise of
such option by Lessee, the parties shall, within five (5) business days, open
an escrow at Chicago Title Company, 1647 Court Street, Redding, California,
for the consummation of the sale transaction. Said escrow shall be on the
terms provided in this Section. Lessee shall pay the cost of said escrow,
transfer stamps, title insurance and all other expenses, and Lessee shall
receive from escrow at the close thereof a standard owner's CLTA policy of
title insurance in the sum of the purchase price. The escrow instructions
shall provide that escrow shall close within sixty (60) days from opening of
escrow.
(d) Lessor's Right to Sell. Notwithstanding the option granted to
Lessee by this Section, Lessor shall have the right at any time to sell the
Premises to any person or entity, provided that any such sale shall not
invalidate Lessee's rights under this Section. Lessor shall first notify
Lessee promptly in writing of the fact, in order that Lessee may exercise his
rights pursuant to Section 9.17 herein.
(e) The sale of the Premises is made on "As-Is" basis, and Lessor
makes no warranty, either express or implied, with respect to the property.
Continuing Guaranty of Performance
Section 9.20. In the event of an assignment by Lessee pursuant to
the agreement referenced in Section 2.03, Lessee and any/all partners,
owners, or shareholders of the assignee agree to execute the Continuing
Guaranty of Performance which is attached hereto as Exhibit "B" and
incorporated herein by reference.
Execution
IN WITNESS WEHREOF, the parties hereto have executed this Lease as of
the date and the year first hereinabove set forth.
LESSOR:
BR ENTERPRISES
By: /s/ BR Enterprises
General Partner
LESSEE:
LITHIA MOTORS, INC.
By: /s/ B. Gray
Executive Vice President
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CONSENT TO ASSIGNMENT OF LEASE
155, 165, 175 AND 195 E. AUTO CENTER DRIVE
FRESNO, CALIFORNAI
BR Enterprises, as the Lessor under that certain Lease Agreement dated
September 3, 1997, between BR Enterprises (Lessor), and Lithia Motors, Inc.,
an Oregon corporation (Lessee), hereby consents to the assignment of Lessee's
interest to Lithia Real Estate, Inc., a wholly owned subsidiary of Lithia
Motors, Inc. Lessor also gives Lithia Real Estate, Inc., the right to
sublease the property to any other wholly owned subsidiary of Lithia Motors,
Inc., subject to obtaining the prior written consent of Lessor, which will
not be unreasonably withheld, and the owner(s), partners or shareholders of
said assignee(s) executing a Continuing Guaranty of Performance in the form
set forth in Exhibit B.
The Lessee has also executed a Continuing Guaranty of Performance,
which is attached hereto and incorporated herein by reference.
BR ENTERPRISES
/s/ BR Enterprises 11-25-97
LITHIA MOTORS, INC.
/s/ Sidney B. DeBoer 11-18-97
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CONTINUING GUARANTY OF PERFORMANCE
TO:
1. For valuable consideration the undersigned, hereinafter
designated "Guarantors", unconditionally guarantee and promise to perform for
or in favor of BR Enterprises, hereinafter designated "Lessor", or order, on
demand, any and all contractual obligations of Lithia Real Estate, Inc., an
Oregon corporation, hereinafter designated "Lessee", to Lessor. The words
"contractual obligations" as used herein include, but are not limited to, the
prompt and complete performance or satisfaction by Lessee of any and all
covenants, conditions, warranties, representations, promises and/or
undertakings contained in any lease agreement or addendum or modification
thereto, or other agreement relating thereto, hereinafter designated the
"Agreement", entered into between Lessee and Lessor, now existing or
hereafter entered into between Lessee and Lessor, and the payment of all
damages, costs, expenses and other losses which by virtue of the Agreement,
or any breach or non-performance thereunder, become recoverable by Lessor
from Lessee.
2. This Guaranty shall bind and obligate each of the undersigned,
their heirs, successors and assigns, with Lessee, jointly and severally, for
the performance of said contractual obligations precisely as of the same had
been contracted and was due and owing by them in person. The obligations
hereunder are independent of the obligations of Lessee and a separate action
or actions may be brought and prosecuted against any one or more Guarantors,
whether action is brought against Lessee; Guarantors waive the benefit of any
statute of limitations affecting their liability hereunder or the enforcement
thereof. Guarantors further waive any action required by any statute, upon
notice, against Lessee or Guarantors.
3. This Guaranty shall not be revocable at any times or times by the
undersigned Guarantors, and shall in all respects remain in force and effect
as to said contractual obligations.
4. Lessor may, without notice, assign this Guaranty in whole or in
part.
5. Guarantors waive any right to require Lessor to (a) proceed
against Lessee; or (b) pursue any other remedy in Lessor's power whatsoever.
Guarantors waive any defense arising by reason of any disability or other
defense of Lessee or by reason of the cessation, from any cause whatsoever,
of the liability of Lessee. Until all contractual obligations of Lessee
shall have been paid in full, Guarantors shall have no right to enforce any
remedy which Lessor now has, or may hereafter have, against Lessee, or to
participate in or have the benefit of any security now or hereafter held by
Lessor. Guarantors waive all demands for performance, notices of
non-performance and/or the existence, creation, or incurring of new or
additional contractual obligations between Lessor and Lessee.
6. Guarantors agree to pay a reasonable attorney's fee and all other
costs and expenses which may be incurred by Lessor in the enforcement of this
Guaranty.
7. All words used herein in the plural shall be deemed to have been
used in the singular and all words used in the masculine shall include the
feminine and neuter, where the context and construction so require; upon
execution of this Guaranty by more than one Guarantor, the word "Guarantors"
shall mean all and any one of them.
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IN WITNESS WHEREOF, the undersigned Guarantors have executed this
Guaranty this 18th day of November, 1997.
LITHIA MOTORS, INC.
By: /s/ Sidney B. DeBoer
President
(Shareholder of Lithia Real Estate Inc.)
By: /s/ Sidney B. DeBoer
President
(Shareholder of Lithia Real Estate Inc.)
By: __________________________
Its: __________________________
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EX-10
Exhibit 10.27.1 Purch/Sale Agmt Medford Nissan BMW
EXHIBIT 10.27.1
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
THIS AGREEMENT is entered into by and between MEDFORD NISSAN, INC. dba
"MEDFORD NISSAN BMW KIA" (hereinafter referred to as "Seller"), LITHIA
MOTORS, INC. or its nominee (hereinafter referred to as the "Buyer"), and
JAMES D. PLUMMER (hereinafter referred to as "Plummer").
RECITALS:
Seller is an Oregon business corporation engaged in the business of
selling and servicing Nissan, BMW and Kia automobiles and trucks and related
parts and accessories from premises located at 600 and 613 North Central,
Medford, Oregon, under franchises issued by Nissan Motor Corporation in USA,
BMW of North America, Inc. and Kia Motors America, Inc. Plummer 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 and BMW motor vehicle
franchises, conditioned upon the granting to Buyer of exclusive franchises
for the sale of new Nissan and BMW vehicles in the same geographical area as
Seller's current franchises.
Buyer (or a related entity) also wishes to lease (with an option to
purchase) and/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 a lease for the
Business Real Property by Buyer.
NOW, THEREFOR, 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) "Date of this Agreement" shall refer to the first date upon
which this Agreement has been signed by all of the parties.
(b) "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 January 2, 1998. "Final Closing Date"
shall refer to March 2, 1998.
(c) "Seller's Business" shall refer to any and all activities
conducted by Seller within Jackson county, Oregon, relating to the marketing
and sale of new Nissan and BMW vehicles and associated parts and accessories,
and the repair and servicing of new or used Nissan and BMW vehicles.
(d) "Purchased Assets" shall refer to those assets which are
identified in Paragraph 2 as being purchased and sold by the parties
hereunder.
(e) Seller's "Equipment" shall refer to all non-inventory items
of tangible personal property 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 assets listed on Seller's financial statements as of December
31, 1996.
(f) Seller's "Intangible Assets" shall refer to Seller's
business name ("Medford Nissan, BMW and Kia"), telephone and fax numbers,
service customer lists, sales customer lists, vehicle sales records, vehicle
service records, all Nissan and BMW franchise rights, all rights of Seller
under any and all contracts and agreements (including but not limited to
lease agreements and maintenance contracts) assigned to and assumed by Buyer
pursuant to this Agreement, all goodwill associated with Seller's business,
and any 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 in Jackson County, Oregon which has been used by Seller in
connection with Seller's Business, which real property is commonly identified
as 600 North Central and 613 North Central, Medford, Oregon, together with
the vacant parcel of approximately 2/3 acre located adjacent to the Nissan
dealership, and together with the property commonly identified as the "detail
shop" which is located behind and adjacent to the BMW dealership.
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(h) "Franchisors" shall refer to Nissan Motor Corporation in
USA and BMW of North America, Inc.
(i) "New Vehicles" shall refer to and include only those Nissan
and BMW motor vehicles which: (i) are unregistered and unused, (ii) are from
the 1997 or 1998 model year, (iii) have been driven for less than 500
odometer miles, and (iv) may be represented or warranted to consumers as
"new" under Oregon law. "Unused Vehicles" shall mean any vehicles which are
not new vehicles.
(j) All amounts payable by Buyer to Seller at Closing under the
terms of this Agreement 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 mans 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 10 of this Agreement.
3. Inventory of New Vehicles. Buyer shall purchase Seller's entire
inventory of new Nissan and BMW vehicles, as that inventory exists on the
Closing Date. Prior to the closing Date, Seller shall not purchase any new
vehicles, execute purchase orders for the purchase of any new vehicles, or
otherwise commit to the purchase of any new vehicles other than in the
ordinary course of business. The maximum price payable by Buyer for Seller's
new car inventory shall be $5,000,000.00, and Seller shall have the
responsibility to maintain Seller's new car inventory at or below that value.
(a) Price of New Vehicles. Subject to the adjustment required
under subparagraph 3(b), the purchase price for each of the new vehicles
shall be equal to Seller's factory invoice cost, reduced by any factory
hold-backs, factory rebates, factory incentives, carryover 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 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 shall be entitled to receive directly from
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
any new vehicle 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) Adjustment to Purchase Price for Vehicles form 1997 Model
Year. The purchase price for each new 1997 vehicle as determined under
subparagraph 3(a) shall be adjusted as follows:
(1) If Closing takes place on or before the 60th day
after the introduction of the 1998 model of a specific vehicle, then there
shall be no adjustment int he purchase price for the units of the 1997 model
of that vehicle which are purchased by Buyer from Seller.
(2) If Closing takes place after the 60th day but on or
before the 120th day after the introduction of the 1998 model of a specific
vehicle, then there shall be a $375.00 adjustment in the purchase price for
the units of the 1997 model of that vehicle which are purchased by Buyer from
Seller.
(3) If Closing takes place after the 120th day after the
introduction of the introduction of the 1998 model of a specific vehicle,
then there shall be a $750.00 adjustment in the purchase price for the units
of the 1997 model of that vehicle which are purchased by Buyer from Seller.
(c) 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 is less than $1,000.00, the Buyer
shall be obligated to purchase that vehicle as a new vehicle, and the price
for that vehicle, as determined under subparagraphs 3(a) and 3(b), shall be
reduced by the actual net cost to Buyer of repairing that damage. If Buyer
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and Seller are unable to agree upon the actual net cost to buyer of repairing
the damage to a new 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.
(d) Payment for New Vehicles. The aggregate purchase price for
all new vehicles purchased by Buyer from Seller hereunder shall be paid in
full at Closing.
(e) Purchase Orders for New Vehicles. Immediately prior to
Closing, Buyer and Seller shall jointly review Seller's outstanding purchase
orders for new vehicles ordered but not delivered prior to the Closing DATe.
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, buyer shall reimburse Seller for any and
all deposits or other payments made by Seller with respect to any ordered but
undelivered new vehicles.
4. Buyer's Option to Purchase Seller's Inventory of Used Vehicles.
Buyer shall have the option at Closing to purchase Seller's entire inventory
of used vehicles, as that inventory exists at Closing.
(a) Disclosures. If Buyer expresses an interest in purchasing
Seller's inventory of used vehicles, then Seller shall be obligated 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 purchased
vehicles.
(b) Price for Used Vehicles. If Buyer wishes to purchase
Seller's inventory of used vehicles, the aggregate purchase pride for those
vehicles shall be that certain price determined by mutual agreement of Buyer
and Seller. If Buyer and Seller are unable to agree upon a price for
Seller's inventory of used vehicles, then Buyer shall have not right or
obligations to purchase that inventory. Buyer and Seller agree to establish
the proposed purchase price for Seller's inventory of used vehicles at least
three business days prior to the anticipated Closing Date.
(c) No Right to Purchase Less than Entire Inventory of Used
Vehicles. buyer's only option with respect to Seller's inventory of used
vehicles shall be to purchase either all of those used vehicles or none of
those used vehicles, and Buyer shall have no right to compel Seller to sell
to Buyer only a portion of Seller's used vehicles.
(d) Payment for Used Vehicles. The aggregate purchase price
for all used vehicles purchased by Buyer from Seller hereunder shall be paid
in full at Closing.
(e) Storage of Unpurchased Used Vehicles. If Buyer does not
elect to purchase Seller's inventory of used vehicles, then Seller shall have
thirty (30) days after closing within which to remove Seller's inventory or
used vehicles from the Business Real Property. Seller shall have sole and
exclusive risk and liability for any damage or loss to Seller's inventory of
used vehicles while so stored on the Business Real Property after Closing,
and Buyer shall have not 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) and undamaged Nissan
and BMW 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 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 and BMW vehicles (whether manufactured by Franchisor
or third party suppliers) shall be the net cost for that item as set forth
int he most recent price book published by the supplier of that item, reduced
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by any discounts (including quantity purchase or stock order discount),
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 and BMW parts and
accessories (whether manufactured by a Franchisor or by third parties) shall
be determined immediately prior to Closing (or on whatever earlier date as
shall be selected by mutual agreement of the parties) by a third party
inventory service selected by mutual agreement of Buyer and Seller. Buyer
and Seller each shall be responsible for fifty percent (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 new parts and accessories shall be
paid in full at Closing.
6. Equipment. Buyer shall purchase from Seller all of the Equipment
other than the items listed on Exhibit "A" attached hereto (which items are
being retained by Seller and are not being purchased by Buyer). Seller
warrants to buyer that the items of Equipment being conveyed t Buyer
constitute all of the items of tangible personal property (other than
inventory, consumable supplies or those items listed in Exhibit "A") which,
during the six months preceding Closing, shall have been owned and used by
Seller in connection with Seller's Business. Buyer shall have the right to
fully inspect the Equipment. buyer shall have thirty (30) days after the
Date of this Agreement within which to notify Seller, in writing, of Buyer's
dissatisfaction with the kind, quality and/or value of the Equipment being
conveyed hereunder, and of Buyer's determination to rescind this transaction
based on that dissatisfaction. If Buyer rescinds as provided in the
preceding sentence, then any and all liabilities which either party might
have to the other party under this Agreement shall thereupon terminate.
Failure of Buyer to notify Seller in writing, within the thirty (30) day time
limit, of Buyer's dissatisfaction with the kind, quality and/or value of the
Equipment being conveyed hereunder shall be deemed an approval of the kind,
quality and value that Equipment.
(a) Price for Equipment. The aggregate purchase price for all
items of equipment being purchased by Buyer from Seller shall be One Hundred
Fifteen Thousand and 11/100 Dollars ($115,000.00). 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 aggregate purchase price for
the Equipment being purchased by Buyer from Seller shall be paid in full at
Closing.
7. Supplies. Buyer shall purchase all of the gas, oil, nuts, bolts,
paper products, office supplies, 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. Prior to
Closing, Seller shall maintain Seller's inventory of supplies at a level
consistent with good business practices and Seller's 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 i 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 "B" t be attached hereto.
Seller shall prepare and submit to Buyer, within 10 days after the date of
this Agreement, a proposed Exhibit "B". Buyer shall have the right to refuse
to permit any one or more of Seller's leases or other contracts to be
included on Exhibit "B" (and assumed by Buyer under this Agreement), and
Seller shall remain solely responsible for any such obligations refused by
Buyer. Seller warrants that all of Seller's obligations under each of the
contracts listed on Exhibit "B" shall be current at the time of closing.
Seller agrees to indemnify and hold harmless Buyer from and against any and
all claims, liabilities and obligations with respect to the contracts
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identified on exhibit "B" which relate to periods prior to Closing. Buyer
agrees to indemnify and hold harmless Seller from and against any and all
claims, liabilities and obligations with respect to the contracts identified
on Exhibit "B" which relate to periods subsequent to 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. Seller shall convey to Buyer all of Seller's
Intangible Assets.
(a) Purchase of Goodwill. Buyer shall purchase Seller's
goodwill for a purchase price of One Million Five Hundred Thousand and 00/100
Dollars (1,500,000.00).
(b) Payment of Purchase Price for Goodwill. The $1,500,000.00
purchase price for Seller's goodwill shall be payable by Buyer as follows"
(1) At Closing, buyer shall pay to Seller a down payment
in the amount of Four Hundred Thousand and 00/100 Dollars ($400,000.00).
(2) The $1,100,000.00 balance of the purchase price for
Seller's goodwill ($1,500,000.00 minus $400,000.00) shall be amortized and
paid by Buyer as follows:
(i) During the period beginning on the Closing Date
and ending on December 31, 1998, interest shall accrue on the outstanding
balance of the purchase price at an interest rate equal to the "prime rate"
on the Closing Date, as that "prime rate" is published in the Wall Street
Journal (i.e. the base rate on corporate loans posted by at least 75% of the
nation's 30 largest banks). On January 1, 1999, and on the first day of the
months of April, July, October and January of each year thereafter until
payment in full, the interest rate applicable to the outstanding balance of
the purchase price for the calendar quarter beginning on that date shall be
adjusted so as to be equal to the "prime rate" (as defined above) on that
date(or, if the "prime rate" is not published in the Wall Street Journal on
that date, on the first subsequent date for which the "prime rate" is
published in the Wall Street Journal. If the Wall Street Journal stops
publishing the "prime rate" (as defined above), then the "prime rate" for
purposes of the adjustment required under the preceding sentence shall be
established by reference to the commercial prime loan rate of an Oregon bank
selected by mutual agreement to the parties.
(ii) The $1,100,000.00 deferred balance of the
purchase price, together with all interest accruing thereunder as provided in
subparagraph 10(b)(2)(i), shall be due and payable in equal monthly
installments of Thirteen Thousand Nine Hundred Thirty Four and 34/100 Dollars
($13,934.34) each, with the first installment being due and payable on the
date which is one calendar month after the Closing Date, and with subsequent
installments being due and payable at one-month intervals thereafter on the
same day of each month until the entire sum of principal and interest has
been paid in full. Notwithstanding the preceding sentence, the entire
deferred balance of the purchase price then outstanding shall be due and
payable in full on the tenth anniversary after the closing Date.
(A) Buyer shall have the right at any time to
prepay all or any portion of the unpaid balance of the purchase price,
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
principal or interest due pursuant to this subparagraph 10(b)(2)(ii) 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.
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(C) Buyer's deferred payment obligation as
set forth in this subparagraph 10(b)(2)(ii) shall be evidenced by a
negotiable promissory note (hereinafter the "Promissory Note") to be executed
by Buyer and delivered to Seller at Closing. The Promissory Note shall be
secured by a second deed of trust on the real property known as 600 and 613
North Central upon the exercise of the option to purchase described in
paragraph 23(c).
(D) All payments by Buyer under the
Promissory Note shall be paid to Jackson County Title Division Continental
Lawyers Title Company, Medford, Oregon as collection escrow agent. Each of
the parties agrees to execute whatever documents shall be necessary to
establish a collection escrow account with Jackson County Title Division
Continental Lawyers Title Company, Medford, Oregon as collection escrow agent
Seller shall pay all of the fees and expenses charged by the collection
escrow agent in connection with the establishment and maintenance of the
collection escrow account. The collection escrow agent shall forward to
Seller all payments received from Buyer.
(c) Reimbursement for No-Charge Repairs. Seller acknowledges
that in order for Buyer to receive the full benefit of the intangible
goodwill being purchased by Buyer hereunder, it will be necessary for Buyer
to perform no-charge repair work and/or vehicle warranty work with respect to
vehicles repaired or sold by Seller prior to Closing. In partial
consideration of the $1,500,000.00 amount being paid by Buyer for Seller's
goodwill, Seller agrees to reimburse Buyer for fifty percent (50%) of the
retail cost to Buyer of repair and/or 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 Seller's reimbursement payment for each month being
delivered to Buyer within ten (10) days after the date when Buyer submits to
Seller a billing for the full retail cost of all such repair and/or warranty
services performed by Buyer during that month.
(d) Conveyance of Intangible Assets other than Goodwill.
Seller agrees to convey to Buyer at closing, at no cost to Buyer, all of
Seller's Intangible assets other than goodwill.
11. Limitation on Liabilities Assumed. Except as specifically
provided in subparagraph 3(d), Paragraph 8 and Paragraph 9, Buyer shall not,
by reason of this Agreement or by reason of Buyer's purchase of the Purchased
Assets, assume or take responsibility for any liabilities, debts or
obligations of Seller (including Seller's trade payables, account payables,
obligations to employees, or tax liabilities).
12. Representations and Warranties of Seller. Seller and Plummer
make the following warranties to Buyer, with the intent that Buyer rely
thereon:
(a) Corporate Organization. Seller is a corporation organized,
validly existing,a nd in good standing under the laws of the State of
Oregon. Seller is qualified to do business in the State of Oregon, 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 provision. At Closing, Seller will furnish
to Buyer a copy of such authorization. This Agreement will not violate the
provision of 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 written disclosure of all benefits made
available to Seller's employee's (including qualified and non-qualified
retirement plans), (ii) a census of Seller's employees, 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.
Seller shall be responsible for and shall pay all FICA and withholding taxes
for employees which shall have accrued prior to Closing. Seller shall
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terminate the employment of all or 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.
(d) Financial Disclosures. Prior to the date of this
Agreement, Seller has provided to Buyer, an unaudited factor financial
statement (including balance sheets and income statements) for Seller's
Business for the 1996 calendar year. Seller shall promptly furnish to Buyer
such other financial and operating data and other information relating to
Seller's Business and the Business Real Property as Buyer shall request. The
review of such materials will be at Buyer's expense. Seller warrants that
all such financial statements and related materials provided to Seller shall
fairly present the financial position of Seller's Business and the results of
operation of Seller's Business for the periods covered thereby. Buyer (at
Buyer's expense) shall have the right, at any time prior to Closing, to
conduct 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 for 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),
the following statement 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.
(f) Condition of Equipment. Each item of the Equipment shall
be in good operating condition at Closing. Each item of the Equipment shall
be in no worse condition at Closing than on the Date of this Agreement
(reasonable wear and tear excepted). Seller will continue to perform routine
maintenance and repairs with respect to the Equipment prior to Closing.
(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, encumbrances, liens, equities, charges,
conditions of sale, leases, assessments, restrictions, reservations,
obligations, title retention documents 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
but not limited to property taxes, sales taxes and excise taxes; provided,
however, that Buyer shall be responsible for all such taxes accruing
subsequent to Closing.
(h) No Toxic Materials Discharged. To the best of Seller's and
Plummer's knowledge, and except as otherwise disclosed by Seller to Buyer in
writing 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 local or other governmental law, regulation or order
relating to toxic materials or would require reporting to any governmental
authority, and (ii) there are no underground gas 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. Prior to Closing, Seller shall cause any underground fuel tanks
and waste oil tanks which are located on or under the Business Real Property
t be removed and remediated in such a manner so as to comply with all federal
and state laws and regulations pertaining to the removal of underground
storage tanks (including but not limited to the obtaining of all necessary
releases from state or federal regulatory agencies). The cost of said
removal and remediation shall be borne by the Seller. 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. Within sixty (60) days after the Date of this
Agreement, Seller shall, at Seller's sole expense, provide to Buyer a Phase
One Environmental Report with respect to the Business Real Property. If the
Phase One Environmental Report discloses that the Business Real Property is,
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or is likely to be, materially contaminated by the presence of toxic
materials, and if Buyer, within ten (10) days after receipt of the Phase One
Environmental Report, provides Seller with a written demand 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) to complete such remediation, cleanup, detoxification and/or
decontamination prior to, and as a condition of, Closing. If Seller
thereafter notifies Buyer in writing that Seller has elected to breach this
Agreement by not completing such remediation, then Seller shall be obligated
(as Buyer's sole remedy for that breach) to reimburse Buyer for all expenses
incurred by Buyer in connection with this Agreement, and this Agreement
thereafter shall be deemed to have been rescinded by mutual agreement of the
parties, and neither party thereafter shall have any further rights or
obligations of any kind under this Agreement. If Buyer does not notify
Seller, within ten (10) days after receipt of the Phase One Environmental
Report, of Buyer's dissatisfaction with any matter disclosed in that
assessment, then Buyer shall have no authority to refuse to close the
transaction contemplated under this Agreement on the basis of any claimed
contamination of the Business Real Property by toxic materials which shall
have occurred prior to the Date of this Agreement. If, at any time
subsequent to the Date of this Agreement and prior to Closing, Seller or its
agents) shall directly or indirectly cause to occur upon the Business Real
Property any release, spill, leak or discharge of toxic materials, then
Seller shall (at Seller's sole expense) be obligated to cause and complete
the repair, cleanup, detoxification and/or decontamination of the Business
Real Property and the preparation and implementation of any closure, remedial
action or other required plan or plans in connection therewith, all as
required by all applicable laws and regulations.
(1) For purposes of this subparagraph (h), the phrase
"toxic materials" shall include but not be limited to: (i) asbestos, heavy
metals, petroleum products, solvents, pesticides or herbicides, (ii) any and
all substances defined as "hazardous substances", "hazardous materials", or
"toxic substances" in the Comprehensive Environmental response, Compensation
and Liability Act of 1980, as amended (42 USC Section 9601, et. seq.), the
Hazardous Materials Transportation Act (49 USC Section 1801, et. seq.), and
the Resource Conservation Recovery Act (42 USC Section 6901, et. seq.), and
(iii) any and all other substances which now or in the future are deemed to
be pollutants, toxic materials or hazardous materials under any other state
or federal law.
(2) Plummer guarantees performance by Seller of all
obligations imposed on Seller under the terms of this subparagraph (h). This
guarantee shall be unconditional and irrevocable, and shall terminate only
upon the satisfaction of all of Seller's obligations under this subparagraph
(h). It shall not be necessary for Buyer to initiate or exhaust any legal
remedies against Seller as a prerequisite to enforcing this guarantee, and
this guarantee may be enforced immediately upon any breach by Seller under
this subparagraph (h). This guarantee obligation shall not be released,
extinguished, modified or in any way affected by any failure by Buyer to
enforce against Seller all rights and remedies available to Buyer under this
subparagraph (h). The bankruptcy of Seller shall not relieve Plummer of this
guarantee obligation.
(i) Franchisor's Consent. Seller shall take all actions which
are reasonable necessary on Seller's part in order to obtain Franchisors'
consent to the issuance to Buyer of an exclusive franchises for the sale of
new Nissan and BMW vehicles in the same geographical area as Seller's current
franchises in Jackson County, Oregon.
(j) Indemnification for Breach of Warranties. Seller and
Plummer shall indemnify 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. If any claim, action or proceeding is filed or
brought against Buyer which is or may be subject to Seller's obligation to
indemnify Buyer as set forth in this subparagraph, then Buyer shall promptly
give Seller written notice of that claim, and Seller thereafter shall have
the option to defend that claim at Seller's expense using attorneys selected
by Seller. If Seller subsequently fails to pay that claim or dispute that
obligation or liability, and if buyer subsequently is required to pay that
claim, then Buyer have a right to offset that payment against the then next
accruing installments of principal and/or interest due to Seller under the
Promissory Note issued pursuant to subparagraph 10(b) of this Agreement, and
Seller and Plummer shall have joint and several liability to reimburse,
indemnify and hold harmless Buyer with respect to that claim, obligation or
liability.
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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 and
encumbrances are discharged prior to Closing; (iiv) Seller shall not take any
action which may cause a material adverse change in the operations or
financial condition of Seller's Business; (v) 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;
(vi) Seller shall use its best efforts to preserve the value of the Nissan
and BMW franchises in Jackson County, Oregon.
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 duly
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 shall be binding upon Lithia
Motors, Inc. only if 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 operating agreement of Lithia Motors, Inc., or any
contract, agreement, or other instrument to which Lithia Motors, Inc. is a
party.
15. Additional Conditions Precedent to Buyer's Obligations. In
addition of all other conditions to Buyer's obligation to close which are set
forth in this Agreement, 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 (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; and
(b) Buyer shall be reasonably satisfied with any facility
requirements imposed by franchisors in connection with the issuance to Buyer
of exclusive franchises to sell new Nissan and BMW vehicles; and
(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. 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; and
(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 close this transaction shall not release
Seller from liability to Buyer for any warranty which is subsequently
determined to be incorrect, incomplete or misleading; and
(e) Buyer shall be reasonably satisfied with the kind, quality
and/or value of the Equipment being conveyed to Buyer hereunder, and does not
notify Seller to the contrary pursuant to Paragraph 6; and
(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.
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 the Target Closing Date, at the offices of Jackson County
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Title Company in Medford, Oregon, or at such other location as shall be
selected by mutual agreement of the parties. In all events, the Closing of
the transaction contemplated under this Agreement shall occur (if at all) on
or before the Final Closing Date.
(a) The parties agree to establish a closing escrow account at
Jackson County Title Company, in Medford, Oregon (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 the
consummation of the transaction provided for in this Agreement. In the event
of any conflict between those escrow instructions and this Agreement, the
terms of this Agreement shall prevail, and nothing contained in the escrow
instructions shall be deemed to change or modify the terms, provisions or
conditions of this Agreement unless the parties expressly so state in writing.
(b) If this transactions closes as provided herein, then all
risk of loss, damage or destruction with respect to the Purchased Assets, and
actual possession of the Purchased Assets, shall be deemed to have been
delivered to Buyer at the time of Closing.
(c) 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 transfer and convey all of the Purchased
Assets to Buyer, and (ii) such other certificates and documents as may be
called for by the provisions of this Agreement.
(d) At Closing, and coincidentally with the performance of all
obligations required of Seller at Closing, Buyer shall deliver to Seller all
payments, certificates and documents which are called for by the provisions
of this Agreement.
(e) 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 15, then all rights and obligations of both parties under
this Agreement (other than any obligations of Seller or Plummer which arise
by reason of any material breach of warranty) shall terminate, and this
Agreement and all predecessor agreements shall thereafter be void and of no
effect.
(f) If Closing does not take place on or before the Final
Closing Date because of Buyer's material breach of this Agreement, then Buyer
shall be obligated to pay to Seller the sum of Two Hundred Thousand Dollars
($200,000.00) 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 Seller shall be obligated to pay to Buyer the sum of Two
Hundred Thousand Dollars ($200,000.00) as Buyer's sole and exclusive remedy
for Seller's breach, and Buyer shall have no other rights or remedies against
Seller by reason of that breach. This sum represents a reasonable estimate
by Buyer and Seller of Buyer's damages in the event of such a default, it
being extremely difficult to ascertain Buyer's precise damages.
(g) Both parties agree to make a good faith effort to execute
and deliver all documents and complete all actions necessary to consummate
this transaction.
(h) At Closing, Seller agrees to execute an Asset Acquisition
Statement (IRS Form 8694) 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.
17. Books and Records. For a period of three (3) years after
Closing, Seller shall maintain Seller's financial records for periods prior
to Closing, and Buyer and its agents shall have full reasonable access to
Seller's financial statements and general ledger and may make copies thereof.
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 Seller's customer receivables and other
receivables arising out of the operation of Seller's Business prior to
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Closing. All such receivables from vehicle sales which are collected by
Buyer shall be delivered to Seller within ten (10) days after the date of
collection by Buyer, and all other such receivables collected by Buyer 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 any pay over to Seller those
receivables of Seller which are actually received by Buyer.
19. Survival of Representations. All representations, warranties,
indemnification obligations, covenants and agreements made in this Agreement
shall survive the Closing, and shall remain in full force and effect until
the expiration of the latest period stated in any applicable statute of
limitations during which a claim, cause of action or prosecution relating to
the matters described herein may be brought.
20. Brokerage Commissions. Buyer and Seller each warrants to the
other party that no brokerage commissions will be payable in connection with
the purchase and sale of the Purchased Assets.
21. Assignment by Buyer. Lithia Motors, Inc. shall have the right to
assign to its nominee all rights and obligations of Lithia Motors, Inc. as
"Buyer" under this Agreement. In the event of any such assignment, said
nominee shall assume all rights and obligations of the Buyer under this
Agreement, and Lithia Motors, Inc. shall remain jointly liable for all
obligations of Buyer under this Agreement.
22. Preparation of Agreement. This Agreement has been prepared by
Stephen G. Jamieson, Esq. as attorney for Buyer. Seller and James D. Plummer
understand that they should seek the counsel of attorneys and other
professional advisors of their own choosing in connection with the
transactions contemplated under this Agreement.
23. 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 (other than the
detail shop which is located behind and adjacent to the BMW dealership and
which is being subleased under separate agreement) 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 that
portion of the Business Real Property which allows Buyer to lease that
portion of the Business Real Property under the following general terms and
under such additional terms as are reasonably satisfactory to Buyer:
(a) Fifteen year, initial lease term, with Buyer having one (1)
subsequent ten (10) year options to renew (for a total potential lease term
of 25 years), with the Lessee having the first right of negotiation after
this 25 year period.
(b) Lease amount for 600 and 613 North Central for first five
years will be $14,500.00 on a triple net basis, and lease amount for that
property for 2nd five years will be $16,300.00. Lease amount for vacant lot
adjacent to Nissan dealership for first five years will be $2,000.00 on a
triple net basis, and lease amount for that property for 2nd five years will
be $2,200.00. Increase for subsequent 5 year periods in both properties will
be based on changes in CPI during preceding 5 year period, with a maximum
increase of 10% over five year period.
(c) At any time during initial 15 year lease term, buyer will
have right to exercise an option to purchase 600 and 613 North Central for
$1,950,000.00 (with $90,000.00 increases in price at beginning of 3rd, 6th,
9th, 12th and 15th years). At any time during initial 15 year lease term,
Buyer will have right to exercise an option to purchase the vacant lot
adjacent to Nissan dealership for $250,000.00 (with $10,000.00 increases in
price at beginning of 3rd, 6th, 9th, 12th and 15th years). If Buyer
exercises option, parties obligated to close transaction no earlier than 90
days and no later than 120 days after date of notice of exercise of option).
Full purchase price for property shall be payable at closing of purchase.
Seller must convey the property free of all liens and encumbrances.
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24. Miscellaneous.
(a) There are nor oral agreements or representations between
the parties hereto which affect this Agreement, and this Agreement supersedes
and cancels any and all previous negotiations, arrangements, agreements,
warranties, representations and understandings, if any, between the parties.
The documents identified or referenced in this Agreement are all of the
agreements respecting the proposed sale or transfer, and there are no other
oral or written side agreements affecting the transaction. True copies of
all documents identified or referenced in this Agreement are attached hereto.
(b) This Agreement shall be governed and performed in
accordance with the laws of the state of Oregon. Each of the parties hereby
irrevocably submits to the jurisdiction of the courts of Jackson County,
Oregon, and agrees that any legal proceedings with respect to this Agreement
shall be filed and heard in the appropriate court in Jackson County, Oregon.
If suit or action is instituted in connection with any controversy arising
out of this Agreement, the prevailing party in that suit or action or any
appeal therefrom shall be entitled to recover, in addition to any other
relief, the sum which the court may judge to be reasonable attorney fees.
(c) This Agreement is being executed in two counterparts, each
of which shall be an original, and both 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, assigns, heirs
and personal representatives of the respective parties. 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.
(d) Waiver by either party of strict performance of any of the
provisions 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 be deemed to waive or render unnecessary the consent to or approval
of any subsequent similar act. In the event of any breach of this Agreement
by either party, the non-breaching party shall have all remedies for that
breach which are provided at law or in equity, including but not limited to
the specific remedies set forth in this Agreement.
(e) Time is of the essence to this Agreement.
(f) 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 provisions of this Agreement, and all such other
provisions shall remain in full force and effect. It is the intention of the
parties that 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 set forth in this Agreement are set forth for convenience purposes
only, and do not in any way define, limit or construe the contents of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates indicated below.
SELLER:
MEDFORD NISSAN, INC. dba "MEDFORD NISSAN BMW KIA"
By: /s/ James D. Plummer 9/8/97
James D. Plummer, President
BUYER:
LITHIA MOTORS, INC. (OR NOMINEE)
By: /s/ Bryan DeBoer 9/5/97
Bryan DeBoer, Authorized Agent
JAMES D. PLUMMER
/s/ James D. Plummer 9/8/97
James D. Plummer
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EXHIBIT "A" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between MEDFORD NISSAN, 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.]
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EXHIBIT "B" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between MEDFORD NISSAN, INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
LISTING OF LEASES AND AGREEMENTS BEING ASSUMED
[See ___ pages attached hereto.]
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EXHIBIT "C" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between MEDFORD NISSAN, INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
DISCLOSURE OF ANY CONTAMINATION OF BUSINESS REAL PROPERTY
[See ___ pages attached hereto.]
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Ex-10
Exhibit 10.27.2 Real Property Lease
Agreement With Option to Purchase
EXHIBIT 10.27.2
REAL PROPERTY LEASE AGREEMENT WITH OPTION TO PURCHASE
THIS LEASE AGREEMENT is entered into by and between JAMES D. PLUMMER
(hereinafter referred to as "Lessor") and LITHIA REAL ESTATE, INC.
(hereinafter referred to as "Lessee").
RECITALS:
Lessor is the owner of parcels of real property of located at 600 and
613 North Central, Medford, Oregon, and other adjacent parcels, which are
being leased to and used by Medford Nissan, Inc. dba "Medford Nissan BMW Kia"
in connection with the business of selling and servicing new and used motor
vehicles and selling parts and accessories for new and used motor vehicles.
By separate agreement, Lithia Motors, Inc. (or its nominee) is agreeing to
purchase substantially all of the business assets owned and used by Medford
Nissan, Inc. As a condition concurrent to that sale of assets, the Lessor is
agreeing to lease to Lessee all the parcels of real property presently being
used by Medford Nissan, Inc. in connection with its business operations.
NOW, THEREFORE, IN CONSIDERATION OF the mutual promises, covenants and
agreements set forth herein, and for other good and valuable consideration,
Lessor and Lessee agree as follows:
1. Definitions. As used in this Agreement, the following words or
phrases shall have the indicated meanings:
(a) "Leased Property" shall refer all of the following parcels
of real property located in Medford, Oregon, which properties are more fully
described on Exhibit "A" attached hereto, together with all buildings,
improvements and fixtures constructed and existing on those properties and
all easements, rights, privileges and appurtenances attaching to those
properties: the parcel which is commonly identified as 600 North Central
Avenue, which parcel shall be referred to in this Agreement as "Parcel A";
the parcel which is commonly identified as 613 North Central Avenue, which
parcel shall be referred to in this Agreement as "Parcel B"; and a parcel of
approximately 0.66 acres which is located adjacent to the Nissan dealership
operated by Medford Nissan, Inc., which parcel shall be referred to in this
Agreement as "Parcel C". "Parcel AB" shall refer to a combination of Parcel
A and Parcel B.
(b) "Lease Term" shall refer to the entire term of the lease,
including any extension elected by Lessee pursuant to Paragraph 3. "Initial
Lease Date" shall refer to the first day of the Lease Term, and shall be that
certain date upon which Lessee closes the purchase of all business assets of
Medford Nissan, Inc. in accordance with the terms of the Agreement for
Purchase and Sale of Business Assets which is attached hereto as Exhibit
"B". "Lease Month" shall refer to each of the successive one month periods
during the Lease Term which begin on the same day of each calendar month as
the Initial Lease Date.
(c) "Base Rental Amount" shall have the meaning set forth in
Paragraph 4.
(d) "Index" shall refer to the following index published by the
Bureau of Labor Statistics of the United States Department of Labor:
Consumer Price Index, All Urban Consumers (CPI-U), U.S. City Average, All
items ("standard reference base period" 1982-84 = 100). The "CPI Index
Figure" for any month shall refer to the Index number for that month. If the
"Index" is no longer being published as of any date in the future, then the
"CPI Index Figure" for that date shall be the figure reported in the U.S.
Department of Labor's most recent comprehensive official index then in use
and most nearly answering the description of the Index (or, if the U.S.
Department of Labor is not then publishing any such similar index, shall be
determined under another comparable, authoritative, generally recognized
index to be selected by Lessor). If the Index is calculated from a base
different from the base 1982-84 = 100, then the figures to be used in
calculating any adjustment mandated under this Agreement first shall be
converted (if possible, under a formula supplied by the Bureau of Labor
Statistics of the U.S. Department of Labor) to account for that difference.
(e) "Hazardous Materials" shall refer to and include: (i) any
and all substances defined as "hazardous substances", "hazardous materials",
or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 USC Section 9601, et.
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seq.), the Hazardous Materials Transportation Act (49 USE Section 1801, et.
seq.), and the Resource Conservation and Recovery Act (42 USC Section 6901,
et. seq.); and (ii) any and all substances which now or in the future are
deemed to be pollutants, toxic materials or hazardous materials under any
other Oregon or federal law.
(f) "Date of this Agreement" shall mean the date when this
Agreement has been executed by both of the parties.
2. Lease. Lessor hereby leases the Leased Property to Lessee, and
Lessee leases the Leased Property from Lessor, subject to all of the terms
and conditions contained in this Agreement.
3. Term of Lease. The initial term of the lease shall be fifteen
years and shall commence on the Initial Lease Date. Lessee shall have the
option to extend the term of the lease for one (1) additional period of ten
(10) years (so that the maximum potential lease term shall be twenty-five
(25) years). If Lessee wishes to exercise its option to extend the lease
term for that additional ten year period, then Lessee shall be obligated to
provide to Lessor, not less than 60 days prior to the expiration of the
initial fifteen year lease term, a written notice of Lessee's intention to so
exercise its option to extend the lease term; any such written notice by
Lessee to Lessor shall automatically extend the lease term for the 10 year
period specified in the notice. If Lessee exercises its option to extend the
lease term as provided in the preceding sentence, and if Lessee wishes to
continue to lease the Leased Property from Lessor after the expiration of
that ten year option period, then during the last six months of that ten year
option period Lessor must negotiate in good faith with Lessee for an
extension of the Lease for an additional lease period of at least ten years
at a fair market value lease rate and under contract terms which are
reasonably consistent with the terms of this Agreement.
4. Rental Payments Required.
(a) Parcel AB.
(1) With respect to each Lease Month during the five year
period beginning with the Initial Lease Date, Lessee shall pay to Lessor an
aggregate rental amount with respect to Parcel AB of $14,500.00 per month.
(2) With respect to each Lease Month during the five year
period beginning on the fifth anniversary after the Initial Lease Date,
Lessee shall pay to Lessor an aggregate rental amount with respect to Parcel
AB of $16,300.00 per month.
(3) With respect to each Lease Month during the five year
period beginning on the tenth anniversary after the Initial Lease Date,
Lessee shall pay to Lessor an aggregate rental amount with respect to Parcel
AB equal to the lesser of: (i) $17,930.00 per month (i.e. 110% of the
$16,300.00 monthly rental amount during the preceding 5 year period), or (ii)
the product determined by multiplying the monthly rental amount during the
preceding 5 year period ($16,300.00) by a fraction, the denominator of which
is the CPI Index Figure for the first Lease Month of the preceding 5 year
period, and the numerator of which is the CPI Index Figure for the last Lease
Month of the preceding 5 year period.
(4) With respect to each Lease Month during each of the
two five year periods during the ten year option term, Lessee shall pay to
Lessor an aggregate rental amount with respect to Parcel AB equal to the
lesser of: (i) 110% of the monthly rental amount during the preceding 5 year
period, or (ii) the product determined by multiplying the monthly rental
amount during the preceding 5 year period by a fraction, the denominator of
which is the CPI Index Figure for the first Lease Month of the preceding 5
year period, and the numerator of which is the CPI Index Figure for the last
Lease Month of the preceding 5 year period.
(b) Parcel C.
(1) With respect to each Lease Month during the five year
period beginning with the Initial Lease Date, Lessee shall pay to Lessor a
rental amount with respect to Parcel C of $2,000.00 per month.
(2) With respect to each Lease Month during the five year
period beginning on the fifth anniversary after the Initial Lease Date,
Lessee shall pay to Lessor a rental amount with respect to Parcel C of
$2,200.00 per month.
(3) With respect to each Lease Month during the five year
period beginning on the tenth anniversary after the Initial Lease Date,
Lessee shall pay to Lessor a rental amount with respect to Parcel C equal to
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the lesser of: (i) $2,420.00 per month (i.e. 110% of the $2,200.00 monthly
rental amount during the preceding 5 year period), or (ii) the product
determined by multiplying the monthly rental amount during the preceding 5
year period ($2,200.00) by a fraction, the denominator of which is the CPI
Index Figure for the first Lease Month of the preceding 5 year period, and
the numerator of which is the CPI Index Figure for the last Lease Month of
the preceding 5 year period.
(4) With respect to each Lease Month during each of the
two five year period during the ten year option term, Lessee shall pay to
Lessor a rental amount with respect to Parcel C equal to the lesser of: (i)
110% of the monthly rental amount during the preceding 5 year period, or (ii)
the product determined by multiplying the monthly rental amount during the
preceding 5 year period by a fraction, the denominator of which is the CPI
Index Figure for the first Lease Month of the preceding 5 year period, and
the numerator of which is the CPI Index Figure for the last Lease Month of
the preceding 5 year period.
(c) If the CPI Index Figure for the last Lease Month of the
preceding 5 year period is not available in time to make the adjustment
required under subparagraphs (a)(3), (a)(4), (b)(3) or (b)(4), the Lessee
agrees that any deficiencies in rent resulting from the failure to make the
adjustment on a timely basis shall be paid to Lessor by Lessee as soon as the
applicable CPI Index Figure is available to the parties.
(d) All amounts of monthly rent payable under this Agreement
shall be payable in advance on the first day of each Lease Month, at whatever
address Lessor may specify in writing from time to time. All amounts of
monthly rent payable under this Agreement shall be payable in lawful money of
the United States and without notice, demand, offset or deduction.
(e) Lessee agrees that all amounts which Lessee is required to
pay under this Agreement (including but not limited to taxes, utility costs,
insurance premiums and maintenance expenses) shall be payable as additional
rent, and shall be paid promptly when due.
(f) If Lessee fails to pay any installment of rent (including
but not limited to taxes, utility costs, insurance premiums and maintenance
expenses) within ten (10) days after the date when due, Lessee shall pay to
Lessor a late fee equal to two percent (2%) of the past-due amount. The
amount payable by Lessee to Lessor under the preceding sentence shall be
treated for all purposes under this Lease as additional rent. The provisions
of this subparagraph shall not limit Lessor's right to treat any late payment
as an event of default as provided in Paragraph 21.
5. Utilities. Lessee shall be responsible for and shall pay the
cost of all water, electricity, natural gas, heating oil, telephone service,
refuse collection, sewage and other utilities and services provided to the
Leased Property, or used on or in connection with the Leased Property, during
the Lease Term. Lessor shall not be liable to Lessee in the event of any
interruption in the supply of any utility or service to the Leased Property
(other than an interruption caused by the Lessor), and Lessee shall not be
entitled to any abatement of rent in the event of any interruption in the
supply of any utility or service to the Leased Property (other than an
interruption caused by the Lessor). Lessee agrees that it shall not install
any equipment which will exceed or overload the capacity of the existing
utility facilities supplying the Leased Property. If any equipment installed
by Lessee shall require additional utility facilities, those additional
facilities shall be installed at Lessee's expense in accordance with plans
and specifications approved in advance and in writing by Lessor (with Lessor
having the right to refuse to consent to any installation which Lessor
reasonably believes might adversely effect the value of the Leased Property).
6. Taxes on Real and Personal Property. Lessee shall pay all real
property taxes, general and special assessments, and other taxes and charges
which are levied on or assessed during the Lease Term against the Leased
Property or improvements located on the Leased Property (all of which taxes,
assessments and charges shall hereinafter be referred to as the "Real Estate
Taxes"). Lessee also shall pay all personal property taxes and other taxes
and charges which are levied on or assessed against leasehold improvements,
fixtures, equipment, furniture, inventories, merchandise and any other
personal property installed or located on the Leased Property during the
Lease Term (all of which taxes, assessments and charges shall hereinafter be
referred to as the "Personal Property Taxes"), as those taxes become due and
payable, and before delinquency, and regardless of whether such levy or
assessment is made against Lessee or against Lessor, and regardless of
whether the property has been installed by Lessee or by Lessor. Lessee shall
make all personal property tax payments directly to the taxing authorities.
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If any Real Estate Tax or Personal Property Tax is permitted by a taxing
authority to be paid in installments, Lessee may elect to do so as long as
each installment (together with any interest charged) is paid before it
becomes delinquent, and provided that Lessee only shall be obligated to pay
those installments due and payable during the Lease Term. Lessee may contest
in good faith the validity or amount of any Real Estate Tax or Personal
Property Tax in accordance with the procedures established by applicable
statute or administrative rule, as long as the Lease Property is not
subjected to any lien as a result of the contest, and Lessee shall be
entitled to all benefits derived during the Lease Term from any such
contest. Lessee shall furnish to Lessor receipts or other proof of payment
of all Real Estate Taxes or Personal Property Taxes payable by Lessee
hereunder, within ten (10) days after Lessor's written request for such proof.
7. Use of Leased Property. Lessee shall have the right to use the
Leased Property for the purpose of operating a facility for the sale and
servicing of new and used motor vehicles and motor vehicle parts. Lessee
shall not allow the Leased Property to be used for any other purpose without
first obtaining the written consent of Lessor, which consent shall not be
withheld unreasonably. For purposes of the preceding sentence, if Lessee
notifies Lessor in writing of Lessee's intention to make a particular use of
the Leased Property, and if Lessor does not, within ten days after delivery
of that notice from Lessee, notify Lessee in writing of Lessor's reasonable
objections to that use, then Lessor shall for all purposes be conclusively
deemed to have consented to that use.
(a) Lessee shall not use, or permit any other person or entity
to use, the Leased Property in any manner which would create or tend to
create waste or a nuisance or would be unreasonably offensive to owners or
users of neighboring premises. Lessee shall refrain from any activity which
would make it impossible for Lessee to insure against loss or damage to the
Leased Property or against personal injury or property damage. Lessee shall
not overload the floors of the improvements located upon the Leased Property
so as to cause any undue or serious stress or strain upon the improvements
located upon the Leased Property.
(b) Lessee shall promptly comply with all statutes, laws,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
licenses, directives and requirements of all federal, state, county,
municipal and other governments, commissions, boards, courts, authorities,
officials and companies or associations insuring the premises, which now or
at any time hereafter may be applicable to the Leased Property or any part
thereof, or to any use of or condition of the Leased Property or any part
thereof. Lessee shall remedy at Lessee's expense any failure of compliance
created through Lessee's fault or by reason of Lessee's use.
8. Repairs and Maintenance. Lessor shall be responsible for
maintaining the roof, foundation and bearing walls of the Leased Property,
except that Lessee shall be responsible for keeping the roof free of foreign
objects, papers, debris, obstructions, standing water, snow and ice. Lessee
shall maintain in safe, workable and neat condition (free and clear of
foreign objects, papers, debris, obstructions, standing water, snow and ice),
all other elements and aspects of the Leased Property, including but not
limited to the lights, windows, plate glass, plumbing fixtures, electrical
fixtures, heating and air conditioning systems, doors, door frames, door
closures, floor coverings, showcases and fixtures, walls, floors, landscaping
and parking surfaces. Except as provided in the first sentence of this
Paragraph 8, Lessor shall have no responsibility to perform any repairs or
maintenance with respect to the Leased Property or any structures or
improvements located thereon. Lessor and its authorized agents shall have
the right to inspect the Leased Property during regular working hours upon
reasonable written notice to Lessee to determine whether Lessee is complying
with its obligations under this Agreement.
9. Lessor's Responsibility for Prior Contamination by Hazardous
Substances
(a) Except as otherwise expressly disclosed in Exhibit "C",
Lessor represents and warrants to Lessee that: (i) the Leased Property has
not at any time prior to the Date of this Agreement been used for the
generation, manufacture, storing, treatment, disposal or release of any
Hazardous Material other than those Hazardous Materials customarily used in
the operation of an automobile dealership, and (ii) at all times prior to the
Initial Lease Date, Lessor and all of Lessor's predecessors in title, and all
lessees, tenants, employees, agents, sublessees, franchisees, licensees,
permitees, contractors, vendees and customers of Lessor and/or Lessor's
predecessors in title, and all other persons permitted by Lessor and/or
Lessor's predecessors in title to have access to the Leased Property, have
used, stored, transported, disposed of and treated Hazardous Materials in
strict accordance with all applicable federal, state and local laws and
regulations (collectively referred to for the remainder of this Paragraph 9
as the "Laws"), and (iii) the Leased Property shall not, as of the Initial
Lease Date, be contaminated by the presence on, under or about the Leased
Property of any Hazardous Material, and (iv) as of the Initial Lease Date no
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other parcel of real property (including but not limited to properties
adjacent to or in the immediate vicinity of the Leased Property) is or at any
time in the future will be contaminated by the presence on, under or about
that parcel of any Hazardous Material which was released to, on, under, about
or from the Leased Property prior to the Initial Lease Date.
(b) Lessor agrees to indemnify, defend, protect and hold
harmless Lessee and each of Lessee's members, partners, stockholders (if
any), employees, agents, successors and assigns (collectively referred to for
the remainder of this Paragraph 9 as "Lessee"), from and against any and all
criminal and civil claims and causes of action (including but not limited to
claims resulting from, or causes of action incurred in connection with, the
death of or injury to any person, or damage to any property), liabilities
(including but not limited to liabilities arising by reason of actions taken
by any governmental agency), penalties, forfeitures, prosecutions, losses and
expenses (including reasonable attorney fees) which directly or indirectly
arise from or are caused by either: (i) the presence, prior to the Initial
Lease Date, in, on or about the Leased Property or any improvements located
thereon, of any Hazardous Materials, or (ii) the use, sale, storage,
transportation, disposal, release, threatened release, discharge or
generation, prior to the Initial Lease Date, of Hazardous Materials to, in,
on, under, about or from the Leased Property or any improvements located
thereon, or (iii) any breach of the warranties made by Lessor in subparagraph
9(a). Lessor's obligations under this subparagraph 9(b) shall include, but
not be limited to, the obligation to bear the expense of any and all costs,
whether foreseeable or unforeseeable, of any necessary (as required by the
Laws) repair, cleanup, detoxification or decontamination of all or any
portion of the Leased Property (or any improvements located thereon), and the
preparation and implementation of any closure, remedial action or other
required plan or plans in connection therewith. Notwithstanding the
preceding provisions of this subparagraph 9(b), Lessor shall have no
obligation to indemnify, defend, protect and/or hold harmless Lessee with
respect to any release, spill, leak or discharge of Hazardous Materials on
the Leased Property which occurs solely after the Initial Lease Date.
(c) Notwithstanding any other provision of this Agreement or
any contrary provision of law, the obligations of Lessor pursuant to this
Paragraph 9 shall remain in full force and effect after any closing of the
purchase of the Leased Property by Lessee and until the expiration of the
latest period stated in any applicable statute of limitations during which a
claim, cause of action or prosecution relating to the matters described
herein may be brought, and until payment in full or satisfaction of any and
all losses, claims, causes of action, damages, liabilities, charges, costs
and expenses for which Lessor is liable hereunder shall have been
accomplished.
(d) For purposes of this Paragraph 9, any act or omission,
prior to the Initial Lease Date, of or by any one or more employees, agents,
assignees, sublessees, franchisees, licensees, permitees, customers, vendees,
contractors, successors-in-interest or other persons permitted by Lessor or
any of Lessor's predecessors in title to have access to the Leased Property
or acting for or on behalf of Lessor or any of Lessor's predecessors in title
(whether or not the actions of such persons are negligent, intentional,
willful or unlawful) shall be strictly attributable to Lessor.
(e) If any claim, demand, action or proceeding is brought
against Lessee which is or may be subject to Lessor's obligation to indemnify
Lessee as set forth under this Paragraph 9, Lessee shall provide to Lessor
immediate notice of that claim, demand, action or proceeding, and Lessor
thereafter shall defend Lessee at Lessor's expense using attorneys and other
counsel selected by Lessor and reasonably acceptable to Lessee.
10. Limited Warranties by Lessor. Except as provided in this
Paragraph 10 and in Paragraphs 9, 18 and 26, Lessor makes no warranty, either
express or implied, as to the condition, merchantability or fitness of the
Leased Property, or the suitability of the Leased Property for Lessee's
purposes or needs. Lessee agrees that neither Lessor nor any agent of Lessor
has made any representations or warranties as to any of the following: (i)
the suitability of the Leased Property for the conduct of Lessee's business,
or (ii) the expenses of operation of the Leased Property or any improvements
located thereon.
(a) Prior to November 1, 1997, Lessor shall provide to Lessee a
Disclosure Statement, disclosing any and all defects with respect to the
Leased Property which are known to Lessor. Except as provided in the
preceding sentence, Lessee is entering into this Agreement in reliance upon
Lessee's own business judgment, after a full opportunity to inspect the
Leased Property, and after careful consultation with Lessee's own advisors,
accountants and attorneys, and not in reliance upon any statements,
representations or warranties made to Lessor other than as set forth in this
Agreement. Prior the Initial Lease Date, Lessee shall inspect the Leased
Property and become thoroughly acquainted with the condition of the Leased
Property. Lessee shall have the right, at any time within 30 days after
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completing its inspection of the Leased Property (but in no event later than
November 10, 1997) to notify Lessor in writing that Lessee is reasonably
dissatisfied with the results of its inspection and to terminate all further
obligations of Lessee under this Agreement. If Lessee does not so notify
Lessor as provided in the preceding sentence, then Lessee agrees to take and
accept the Leased Property "AS IS". The taking of possession of the Leased
Property by Lessee shall be a conclusive acknowledgment by Lessee that the
Leased Property is in good and satisfactory condition as of the date when
possession is taken. Lessor shall not be required to make any alterations or
improvements of any kind to the Leased Property. The preceding sentences of
this subparagraph 10(a) shall not apply to any issues relating to the
contamination of the Leased Property by Hazardous Materials, and all such
issues shall be subject to the provisions of Paragraph 9 rather than the
provisions of this subparagraph 10(a).
(b) Lessor warrants to Lessee that all mechanical equipment
affixed to the Leased Property shall be in good working condition on the
Initial Lease Date, and that the Leased Property will be in the same
condition on the initial Lease Date as on the Date of this Agreement
(ordinary wear and tear excepted).
11. No Liens. Lessee shall not allow the Leased Property to be
subjected to any mortgage or other lien as security for a loan or other
obligation of Lessee, without first obtaining the express written consent of
Lessor. Lessee shall keep the Leased Property free and clear of all personal
property tax liens and encumbrances. Lessee shall pay as due all claims for
labor or work done on, and for services rendered or material furnished to,
the Leased Property, and Lessee shall keep the Leased Property free from any
mechanic's, workman's or materials lien of any kind. If Lessee receives
notice of the filing of any claim or lien against the Leased Property or the
commencement of any action which might affect the title to the Leased
Property, Lessee shall give prompt written notice thereof to Lessor.
12. Insurance
(a) Lessee shall maintain and shall pay all premiums with
respect to insurance protecting Lessor and Lessee as the named insureds
against loss or liabilities arising from personal injury or death or damage
to property caused by any accident or occurrence in connection with the use,
operation or condition of the Leased Property, with limits of not less than
$500,000 per accident or occurrence on account of personal injury or death,
and $500,000 per accident or occurrence on account of damage to property,
together with a blanket excess liability policy in an amount of not less than
$1,000,000. Any proceeds of the insurance referred to in this subparagraph
shall be applied towards extinguishment or satisfaction of the liabilities
with respect to which those insurance proceeds are paid.
(b) Lessee shall maintain and pay for all premiums for
insurance against loss or damage to the improvements located on the Leased
Property by fire, lightning, vandalism, malicious mischief, sprinkler
leakage, breakage of plate glass, or other perils or casualties, with an all
risk endorsement. All such insurance shall be for the benefit of Lessee
only, and any proceeds shall be paid solely to Lessee.
(c) Lessee hereby releases Lessor and Lessor's agents and
employees from responsibility and liability for loss or damage occurring to,
or in connection with the use of, the Leased Property, if and to the extent
that said loss or damage is covered under any insurance policy maintained by
Lessee with respect to the Leased Property, and Lessee waives all right of
recovery against Lessor and Lessor's agents and employees for such loss or
damage. Lessee agrees to: (i) notify Lessee's insurance carrier(s) of the
release and waiver set forth in the preceding sentence, and (ii) obtain from
Lessee's insurance carrier(s), at Lessee's sole cost, a written waiver of all
subrogation rights against Lessor and Lessor's agents and employees.
(d) All insurance required to be carried by Lessee under
subparagraph 12(a) shall be issued by responsible insurance companies,
qualified to do business in the state of Oregon. Each insurance policy shall
name Lessor as an additional insured. No insurance policy shall be subject
to cancellation or modification except after ten (10) days prior written
notice to Lessor. At least ten (10) days prior to the expiration of any
insurance policy, Lessee shall obtain renewals or binders for the issuance of
one or more replacement insurance policies.
13. Destruction of Improvements. In the event of any damage or
destruction to the improvements located on the Leased Property during the
Lease Term, Lessee shall proceed to restore the improvements located on the
Leased Property to substantially the same form and condition as prior to the
damage or destruction, so as to provide Lessee with usable space equivalent
in quantity and in character to the space available prior to the damage or
destruction. Repairs shall be accomplished with all reasonable dispatch,
subject to interruptions and delays from labor disputes and matters beyond
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the control of Lessee. Lessee's obligation to pay rent shall not be abated
on account of any damage to or destruction of improvements on the Leased
Property, and no other obligations of Lessee shall be altered or terminated
as a result of such damage or destruction.
14. Eminent Domain. If, during the Lease Term, there shall be a
total taking of the Leased Property by any public authority under the power
of eminent domain, then the leasehold estate of Lessee in and to the Leased
Property shall cease and terminate as of the date when the condemning
authority takes possession of or title to (whichever occurs first) all or any
portion of the Leased Property. If, during the Lease Term, there shall be a
partial taking of the Leased Property by any public authority under the power
of eminent domain, then the leasehold estate of Lessee in and to the portion
of the Leased Property so taken shall terminate on the date when the
condemning authority takes possession of or title to (whichever occurs first)
that portion, but Lessee's leasehold estate shall continue in full force and
effect as to the remainder of the Leased Property; in such event, the monthly
rent payable by Lessee for the balance of the Lease Term shall be equitably
abated by Lessor (based on the ratio between the value of the portion taken
and the value of the Leased Property prior to the taking), and Lessor shall
be responsible (at Lessor's sole cost and expense) for making all necessary
repairs or alterations to the improvements located on the Leased Property in
order to continue using the Leased Property for the purposes permitted to
Lessee. For purposes of the two preceding sentences, the term "total taking"
shall mean the taking of so much of the Leased Property that the remainder of
the Leased Property is not suitable to conduct the business which Lessee
intends to conduct on the Leased Property, and the term "partial taking"
shall mean the taking of a portion of the Leased Property which does not
constitute a total taking.
(a) All compensation and damages awarded for the taking of all
or any portion of the Leased Property shall be equitably apportioned between
Lessor and Lessee as their business interests may then appear. For purposes
of the preceding sentence, if there is a total taking of the Leased Property,
and if the total amount of the compensation and damage award for that taking
exceeds the total option price for the Leased Property as specified in
subparagraph 26(e), then that excess shall be divided equally between Lessor
and Lessee. Notwithstanding the two preceding sentences, if Lessee exercises
its option to purchase all of the Leased Property pursuant to subparagraph
26(c) prior to the effective date of a partial taking or total taking of the
Leased Property, then all compensation and damages awarded for that taking
shall be apportioned solely to Lessee.
(b) Sale of all or part of the Leased Property to a purchaser
with power of eminent domain, in the face of the threat or probability of the
exercise of the power of eminent domain, shall be treated for purposes of
this Agreement as a taking by condemnation, with the effective date of
condemnation being the date of closing of that sale.
(c) Lessee shall have the right, at its sole cost and expense,
to assert a separate claim in any condemnation proceedings for the value of
Lessee's leasehold interest. Whenever notice of a taking of all or any
portion of the Leased Property is received by either party, that party shall
notify the other party thereof, and Lessor and Lessee thereafter shall
jointly negotiate with the taking authority as to the value of their
respective interests in the Leased Property or the improvements located
thereon to the end of being fairly compensated therefor.
15. Alterations. Lessee shall not make any improvements, changes,
modifications, utility installations and other alterations (hereinafter
referred to in the aggregate as "Alterations") in, on or to all or any
portion of the Leased without first obtaining the written consent of Lessor
(which consent may not be withheld unreasonably). If Lessee notifies Lessor
in writing of Lessee's intention to make particular Alterations to the Leased
Property, and if Lessor does not, within ten days after delivery of that
notice from Lessee, notify Lessee in writing of Lessor's reasonable
objections to all or any portion of those Alterations, the Lessor shall for
all purposes be conclusively deemed to have consented to all of those
Alterations to which Lessor has not so objected.
16. Indemnification Against Damage or Injury. Lessee hereby releases
Lessor from, agrees that Lessor shall not be liable for, and agrees to
defend, indemnify and hold Lessor harmless from and against, any and all
uninsured losses, claims, causes of action, damages, liabilities (including,
without limitation, strict or absolute liability in tort or imposed by
statute), charges, costs, or expenses (including, without limitation,
reasonable counsel fees), incurred in connection with or arising out of any
loss or damage to property or injury or death to a person or persons, that
may be occasioned by any cause whatsoever pertaining to the Leased Property
during the Lease Term, or arising by reason of or in connection with the
occupation or use of the Leased Property or any person's presence on or about
the Leased Property during the Lease Term (other than the grossly negligent
or intentional acts of Lessor, its agents, employees, licensees and
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invitees). The defense and indemnities provided in this paragraph 16 shall
apply whether or not the loss, claim, cause of action, damage, liability,
charge, cost or expense is based upon the breach of a statutory duty or
obligation or any theory or rule of comparative liability, subject to any
specific prohibition relating to the scope of indemnities imposed by
statutory law (and except to the extent that Lessor shall be liable as
provided above). If any action or proceeding is brought against Lessor which
is or may be subject to Lessee's obligation to indemnify Lessor as set forth
under this Paragraph 16, Lessee shall, upon notice from Lessor, defend that
claim at Lessee's expense using attorneys and other counsel satisfactory to
Lessor. Any loss, liability, damage, claim, or cause of action arising by
reason of contamination of the Leased Property by a hazardous substance shall
be subject to the indemnification provisions of Paragraph 23, and shall not
be subject to the indemnification provisions of this Paragraph 16.
17. Surrender Upon Termination. Upon expiration of the Lease Term,
or upon earlier termination of the lease for any reason, Lessee promptly and
peaceably shall remove any of the Lessee's equipment and property, and shall
surrender the Leased Property in good condition (including the restoration of
any damage caused by the removal of Lessee's equipment and property),
Depreciation and wear and tear from ordinary use permitted under this
Agreement need not be restored by Lessee. All repairs for which Lessee is
responsible shall be completed prior to the surrender of the Leased
Property. If Lessee remains in occupancy of the Leased Property after
termination of the Lease Term, then Lessor shall have the option to treat
Lessee as a tenant from month-to-month, subject to all of the provisions of
this Agreement except the provisions for rental amounts, term, and renewal,
and in that event Lessee shall be obligated to pay monthly rent to Lessor at
a rate equal to the monthly rental amount in effect as of the last month of
the Lease Term. Acceptance by Lessor of rent subsequent to termination of
the Lease Term shall not result in a renewal of the lease and shall not
constitute a waiver of Lessor's right to re-enter the Leased Property, remove
Lessee or exercise any other rights available to Lessor under this Agreement
or provided by law. If Lessee fails to surrender the Leased Property in
accordance herewith upon termination of the Lease Term, Lessee shall
indemnify and hold Lessor harmless from all losses and liabilities, including
but not limited to any claims made by any succeeding tenant, which result
from or are based upon Lessee's failure to so surrender the Leased Property.
18. Good Title. Lessor warrants that it has good right to lease the
Leased Property and will defend Lessee's right to quiet enjoyment of the
Leased Property against the lawful claims of all persons during the Lease
Term.
19. Limitation on Assignment or Sublease by Lessee. Lessee shall
have the right to assign all of its rights and obligations under this
Agreement to Lithia Motors, Inc. or any subsidiary of Lithia Motors, Inc.
Except as provided in the preceding sentence, Lessee shall not voluntarily or
by operation of law assign this Lease or sublease any portion of the Leased
Property, or enter into any license agreement, franchise agreement, or
concession agreement with respect to the Leased Property, or mortgage,
hypothecate or otherwise encumber all or any portion of Lessee's interest in
this Agreement or in the Leased Property, or in any other manner permit the
occupation of or shared possession of all or any portion of the Leased
Property, without obtaining in each instance the written consent of Lessor,
which consent may not be unreasonably withheld by Lessor. Consent by Lessor
in any one instance shall not constitute a waiver or consent to any
subsequent instance. Unless otherwise agreed by Lessor, the consent by
Lessor to any assignment, sublease, or encumbrance shall not relieve or
otherwise affect the continuing primary liability of Lessee under this
Agreement, and Lessee shall not be released from performing any of the terms,
covenants and conditions of this Agreement.
20. Landlord's Lien. Lessee hereby grants to Lessor a lien upon the
improvements, trade fixtures and furnishings of Lessee to secure full and
faithful performance of all of the terms of this Agreement.
21. Lessee's Default. The following shall be "events of default"
under this Agreement, and the terms "event of default" or "default" shall
mean, whenever used in this Agreement, any one or more of the following
events: (i) the failure by Lessee to payor cause to be paid the full amount
of any rent or other charge specified in this Agreement, within ten (10) days
after the date when due, subject to the notice requirement set forth in
subparagraph 21(b); (ii) the failure by Lessee to comply with any term or
condition, or fulfill any obligation of this Agreement (other than the
payment of rent or other charge) within thirty (30) days after written notice
by Lessor specifying the nature of the default with reasonable particularity
and requesting that the default be remedied; if the default is of such a
nature that it cannot be completely remedied within the 30-day period, this
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provision shall be complied with if Lessee begins correction of the default
within the thirty-day period and thereafter proceeds with reasonable
diligence and good faith to affect the remedy as soon as possible.
(a) Whenever any event of default shall have occurred, Lessor
shall have the following rights and remedies (and no other rights or
remedies):
(1) The right to declare, by written notice to Lessee,
that all unpaid and delinquent installments of rent, and all other unpaid and
delinquent charges and payments due under this Agreement shall be immediately
due and payable, whereupon those amounts shall become immediately due any
payable.
(2) The right to terminate the lease and all rights of
Lessee under this Agreement, by giving written notice of termination to
Lessee. In the event of such termination, Lessor shall have the right to
reenter and take possession of the Leased Property and remove all persons and
property therefrom by summary proceedings or otherwise, and to recover from
Lessee: (i) any unpaid rent earned at the time of termination, plus (ii) the
fair market value of the amount by which the unpaid rent which would have
been earned after termination and prior to the end of the Lease Term exceeds
the amount of rent which Lessee proves can reasonably be earned by Lessor
during that time.
(3) To the extent permitted by law, the right to
terminate Lessee's possessory interest in the Leased Property, without
terminating Lessee's lease, in which case Lessor shall have the right to
enter and take possession of the Leased Property and to remove and exclude
Lessee from possession of the Leased Property and to use its best efforts to
lease the Leased Property to another person for the account of Lessee; any
such entry and other actions shall not operate as a waiver or satisfaction,
in whole or in part, of any claim or demand arising out of or connected with
any breach or default by Lessee of its obligations under this Agreement. If
Lessor re-enters the Leased Property but does not elect to terminate Lessee's
leasehold interest, then Lessor may from time to time, without terminating
Lessee's lease, either recover from Lessee all rentals as they become due, or
relet the Leased Property or any portion thereof for such term or terms and
at such rental or rentals and upon such other terms and conditions as Lessor
in its sole discretion may deem advisable. Lessee shall be obligated to
immediately reimburse to Lessor the amount of all costs which Lessor incurs
in reletting the Leased Property. Any rentals so received by Lessor from
such reletting to a third party shall be applied as follows: first, to the
payment of any costs which Lessor shall have incurred in reletting the Leased
Property for which Lessor shall not have received reimbursement from Lessee;
next to the rent due and unpaid by Lessee hereunder through the date of that
third party payment; next to the payment of reimbursement to Lessor for any
other costs, expenses or losses incurred by Lessor which are proximately
caused by Lessee's default; and next, to the payment of any future rent as
the same may become due and payable hereunder. If the portion of the rental
amount received from reletting which is applied to the payment of rent
hereunder is less than the monthly rent payable by Lessee, then Lessee
promptly shall pay the deficiency to Lessor
(4) In the event of any re-entry of the Leased Property
pursuant to subparagraph (2) or (3), Lessor may make any suitable alterations
or changes in the character or use of the Leased Property, provided that
Lessor shall not be required to relet the Leased Property for any use or
purpose other than that specified in this Agreement or for any use or purpose
which Lessor may reasonably consider injurious to the Leased Property.
Lessor may relet all or a portion of the Leased Property, either alone or
together with other properties, for a term longer or shorter than the term of
this Agreement, and upon any reasonable terms and conditions.
(b) Before declaring any default in the making of any payment
required under this Agreement, Lessor shall provide to Lessee, by United
States certified mail and ordinary first class mail addressed to Lessee, a
written notice specifying that there has been a default in the making of a
required payment, and Lessee shall have ten (10) days from the date of
mailing of that notice in which to pay the delinquent amount and prevent a
default hereunder. Notwithstanding the preceding sentence, Lessor shall not
be obligated to provide written notice of any delinquent payment if Lessor
has given to Lessee written notice of two prior delinquent payments at any
time during the then immediately preceding 365 day period; in that event
Lessor shall not be required to provide any notice to Lessee before declaring
a default arising out of Lessee's failure to make any payment required under
this Agreement, but no default shall be declared until ten (10) days after
that payment is due.
22. Time of Essence. Time is of the essence in the performance of
all obligations of Lessor and/or Lessee under this Agreement.
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23. Lessee's Responsibility for Contamination by Hazardous Substances.
(a) Lessee shall at all times during the Lease Term use, sell,
store, transport, dispose of and treat Hazardous Materials (as defined in
Paragraph 1(e) of this Agreement) in strict accordance with all applicable
federal, state and local laws and regulations (collectively referred to in
this Paragraph 23 as the "Laws"). If, during the Lease Term and prior to
completion by Lessee of the obligations imposed under Paragraph 17, there
occurs upon the Leased Property any release, spill, leak or discharge of
hazardous materials which is in violation of any of the Laws and is caused by
any activity or activities of Lessee on or with respect to the Leased
Property, then Lessee shall be obligated to cause and complete the repair,
cleanup, detoxification and/or decontamination of the Leased Property (or any
improvements thereon) and the preparation and implementation of any closure,
remedial action or other required plan or plans in connection therewith, all
as required by the Laws.
(b) Lessee shall indemnify, defend, protect and hold harmless
Lessor and each of Lessor's partners, employees, agents, successors and
assigns (collectively referred to in this Paragraph 23 as "Lessor"), from and
against any and all criminal and civil claims and causes of action (including
but not limited to claims resulting from, or causes of action incurred in
connection with, the death of or injury to any person, or damage to any
property), liabilities (including but not limited to liabilities arising by
reason of actions taken by any governmental agency), penalties, forfeitures,
prosecutions, losses and expenses (including reasonable attorney fees) which
directly or indirectly arise from or are caused by the use, sale, storage,
transportation, disposal, release, threatened release, discharge or
generation of Hazardous Materials to, in, on, under, about or from the Leased
Property or any improvements located thereon during the Lease Term. Lessee's
obligations under this subparagraph 23(b) shall include, but not be limited
to, the obligation to bear the expense of any and all costs, whether
foreseeable or unforeseeable, of any necessary (as required by the Laws)
repair, cleanup, detoxification or decontamination of all or any portion of
the Leased Property (or any improvements located thereon), and the
preparation and implementation of any closure, remedial action or other
required plan or plans in connection therewith.
(c) Notwithstanding any other provision of this Agreement, the
obligations of Lessee pursuant to this Paragraph 23 shall remain in full
force and effect after the termination of the Lease Term and until the
expiration of the latest period stated in any applicable statute of
limitations during which a claim, cause of action or prosecution relating to
the matters described herein may be brought, and until payment in full or
satisfaction of any and all losses, claims, causes of action, damages,
liabilities, charges, costs and expenses for which Lessee is liable hereunder
shall have been accomplished.
(d) For purposes of subparagraph 23(a), any acts or omissions
of or by any one or more employees, agents, assignees, sublessees,
franchisees, licensees, permitees, customers, contractors,
successors-in-interest or other persons permitted by Lessee to have access to
the property (other than Lessor or Lessor's agents) or acting for or on
behalf of Lessee (whether or not the actions of such persons are negligent,
intentional, wilful or unlawful) shall be strictly attributable to Lessee.
(e) If any claim, demand, action or proceeding is brought
against Lessor which is or may be subject to Lessee's obligation to indemnify
Lessor as set forth under this Paragraph 23, Lessor shall provide to Lessee
immediate notice of that claim, demand, action or proceeding, and Lessee
thereafter shall defend Lessor at Lessee's expense using attorneys and other
counsel selected by Lessee and reasonably acceptable to Lessor.
24. Expenses. Each of the parties shall pay its own expenses
incidental to the preparation and consummation of this Agreement, including
but not limited to the attorney fees and expenses.
25. Notices. Any notice required or permitted under this Agreement
shall be deemed to have been duly given when actually delivered or when
deposited in the United States mail, certified and return receipt requested,
postage prepaid, addressed to such addresses as may be specified from time to
time by the parties in writing.
26. Lessee's Option to Purchase Leased Property. At any time during
the Option Period (as defined in subparagraph 26(a)), Lessee shall have the
option to purchase the Leased Property from Lessor, under the terms and
conditions set forth in this Paragraph 26.
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(a) Definitions. For purposes of this Paragraph 26, "Option
Period" shall refer to the fifteen year period beginning on the Initial Lease
Date. "Closing" shall refer to the consummation of the purchase and sale of
Parcel AB and/or Parcel C pursuant to this Paragraph 26. "Closing Date"
shall refer to the actual date of Closing.
(b) Option may be Exercised Only during Period. Lessee shall
have no right to exercise the purchase option granted under this paragraph 26
after the last day of the Option Period (i.e. on or after the sixteen
anniversary after the Initial Lease Date). If Lessee exercises the purchase
option granted under this Paragraph 26 on or before the last day of the
Option Period, then Lessee shall have the right to close the purchase at any
time during the period beginning 90 days and ending 120 days after the date
of the notice exercising the option (even if that closing does not occur
during the Option Period).
(c) Notice of Exercise. If Lessee wishes to exercise its
option to purchase all or any portion of the Leased Property (i.e. Parcel AB
or Parcel C or both Parcels) from Lessor pursuant to this Paragraph 26,
Lessee shall be required to deliver to Lessor a written notice specifying:
(i) Lessee's desire to exercise the option, and (ii) the portion of the
Leased Property to be purchased (i.e. Parcel AB or Parcel C or both Parcels),
and (iii) the proposed closing date for the purchase (which closing date
shall be not less than 90 days and not more than 120 days after the date of
the written notice exercising the option). Lessee shall be deemed to have
exercised the option to purchase the designated portion of the Leased
Property pursuant to this Paragraph 26 when the written notice referred to in
the preceding sentence is delivered to Lessor. If Lessee exercises the
option to purchase all or a portion of the Leased Property from Lessor as
provided in this Paragraph 26, and if that purchase and sale subsequently
closes in accordance with this Paragraph 26, then Lessee shall be obligated
to pay rent with respect to the purchased portion of the Leased Property
though the date of closing of the purchase and sale. Lessee shall have the
option to purchase only Parcel AB or Parcel C (without any obligation to
purchase the other portion), and also shall have the option to purchase the
separate Parcels AB C at different times during the Option Period and in any
order.
(d) Lessor's Obligation to Sell. If Lessee exercises the
option to purchase all or a portion of the Leased Property from Lessor as
provided in this Paragraph 26, and if Lessee tenders to Lessor (on or before
the proposed closing date) full payment for the purchased portion of the
Leased Property, then Lessor shall be obligated to sell and deliver to Lessee
good and marketable title to the purchased portion of the Leased Property,
free and clear of all liens and encumbrances not accepted by Lessee as
provided in subparagraph 26(f).
(e) Purchase Price and Payment.
(1) If Lessee exercises the option to purchase Parcel AB
pursuant to this Paragraph 26, the price for Parcel AB shall be determined as
follows:
(i) If the option is exercised during the first two
years following the Initial Lease Date, then the aggregate price for Parcel
AB shall be $1,950,000.00.
(ii) If the option is exercised during the third,
fourth or fifth years following the Initial Lease Date, then the aggregate
price for Parcel AB shall be $2,040,000.00.
(iii) If the Option is exercised during the sixth,
seventh or eighth years following the Initial Lease Date, then the aggregate
price for Parcel AB shall be $2,130,000.00.
(iv) If the option is exercised during the ninth,
tenth or eleventh years following the Initial Lease Date, then the aggregate
price for Parcel AB shall be $2,200,000.00.
(v) If the option is exercised during the twelfth,
thirteenth or fourteenth years following the Initial Lease Date, then the
aggregate price for Parcel AB shall be $2,310,000.00.
(vi) If the option is exercised during the fifteenth
year following the Initial Lease Date, then the aggregate price for Parcel AB
shall be $2,400,000.00.
(2) If Lessee exercises the option to purchase Parcel C
pursuant to this Paragraph 26, the price for Parcel C shall be determined as
follows:
(i) If the option is exercised during the first two
years following the Initial Lease Date, then the price for Parcel C shall be
$250,000.00.
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(ii) If the option is exercised during the third,
fourth or fifth years following the Initial Lease Date, then the price for
Parcel C shall be $260,000.00.
(iii) If the option is exercised during the sixth,
seventh or eighth years following the Initial Lease Date, then the price for
Parcel C shall be $270,000.00.
(iv) If the option is exercised during the ninth,
tenth or eleventh years following the Initial Lease Date, then the price for
Parcel C shall be $280,000.00.
(v) If the option is exercised during the twelfth,
thirteenth or fourteenth years following the Initial Lease Date; then the
price for Parcel C shall be $290,000.00.
(vi) If the option is exercised during the fifteenth
year following the Initial Lease Date, then the price for Parcel C shall be
$300,000.00.
(3) The purchase price for any portion of the Leased
Property shall be payable by Lessee at the closing of the purchase by
cashier's check drawn against a bank of Lessee's choice having offices
located in Jackson County, Oregon, or by any other method acceptable to
Lessor.
(f) Title Report. Promptly after the Date of this Agreement,
Lessor shall furnish to Lessee a preliminary title report with respect to the
Leased Property. A copy of that preliminary title report shall be attached
to this Agreement as Exhibit "D". Lessee shall have ten (10) days after
receipt of the preliminary title report within which to examine that report
and notify Lessor of any objection(s) to any one or more of the exceptions
set forth on the preliminary title report. If Lessee does not notify Lessor
in writing, within that ten (10) day period, of Lessee's disapproval of any
one or more of the exceptions set forth on the preliminary title report, then
that exception (or those exceptions) shall be deemed to have been accepted
and approved by Lessee. If Lessee provides written notification to Lessor,
within that ten (10) day period, of Lessee's disapproval of any exception set
forth in the preliminary title report, then Lessor shall be obligated to
remove the disapproved exception prior to closing. At the closing of any
portion of the Leased Property, Lessor shall furnish to Lessee, at Lessor's
expense, an A.L.T.A. policy of title insurance in the full amount of the
purchase price, showing title to the conveyed portion of the Leased Property
to be good and marketable, subject only to the usual endorsements and
exceptions contained in such policies and the specific additional exceptions
accepted by Lessee as provided in the preceding sentences of this
subparagraph (f).
(1) If Lessee does not elect to purchase all or any
portion of the Leased Property pursuant to this Paragraph 26, then Lessee
shall be obligated to pay all title insurance cancellation fees.
(2) If Lessor is unable at Closing to provide good and
marketable title to the Leased Property as provided in this subparagraph (f),
then (in addition to any and all other remedies which may be available to
Lessee at law or in equity by reason of that breach) the provisions of
subparagraphs (a)(3), (a)(4), (b)(3) and (b)(4) of Paragraph 4 relating to a
CPI indexed increase in any subsequent rental amounts payable under this
Agreement shall be void and of no effect, and the monthly rent payable by
Lessee for each and every month throughout the remainder of the Lease Term
shall be the monthly rental amount then in effect.
(g) Closing Escrow. If Lessee elects to purchase all or a
portion of the Leased Property pursuant to this Paragraph 26, the parties
agree to establish a closing escrow account at Jackson County Title Division,
Continental Lawyers Title Company, of Medford, Oregon (the "Closing Escrow
Agent"). Lessee and Lessor each shall pay one-half (1/2) of the closing
escrow fees. Lessee and Lessor agree to execute whatever reasonable escrow
instructions may be required by Closing Escrow Agent in connection with the
consummation of the purchase of the Leased Property pursuant to this
Paragraph 26. In the event of any conflict between those escrow instructions
and this Agreement, the terms of this Agreement shall prevail, and nothing
contained in the escrow instructions shall be deemed to change or modify the
terms, provisions or conditions of this Agreement unless the parties
expressly so state in writing.
(h) Closing. If Lessee elects to purchase all or a portion of
the Leased Property pursuant to this Paragraph 26, then:
(1) The parties agree to close the transaction at the
offices of the Closing Escrow Agent, or at such other location as shall be
selected by agreement of the parties.
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(2) Possession of the purchased portion of the Leased
Property, and all risk of loss, damage or destruction with respect to the
purchased portion of the Leased Property, shall pass from Lessor to Lessee at
Closing.
(3) At Closing, Lessor shall deliver to Lessee a
statutory warranty deed which conveys the purchased portion of the Leased
Property free and clear of all encumbrances, except those encumbrances
identified in the preliminary title report which have been accepted and
approved by Lessee pursuant to subparagraph 26(f), fully executed by Lessor
and naming Lessee as the grantee.
(4) Real property taxes, personal property taxes,
operating expenses, rental income, prepaid rents and deposits, and other
income and expenses with respect to the purchased portion of the Leased
Property shall be prorated as of the date of Closing.
(5) If Closing does not take place on a timely basis
because of Lessor's failure or refusal to convey to Lessee good title to the
purchased portion of the Leased Property, then Lessee shall be entitled to:
(i) the remedy specified in subparagraph 26(f)(2), and (ii) any and all other
rights and remedies for that breach which may be provided at law or in equity.
(6) Lessee shall have the right at Closing to convey and
assign its rights and obligations with respect to the purchased portion of
the Leased Property to Lithia Motors, Inc. or to any subsidiary of Lithia
Motors, Inc.
(7) Prior to Closing, Lessor shall furnish to Lessee any
and all documentation required under Section 1445 of the Internal Code,
including but not limited to a "Certificate of Non-Foreign Status". If
Lessor fails to furnish Lessee a Certificate of Non-Foreign Status, Lessee
shall be authorized to withhold and deduct from the purchase price any and
all amounts which are required to be withheld under IRC S 1445, and to
transfer those sums to the Internal Revenue Service in accordance with the
provisions of IRC S 1445.
(8) Each party shall pay its own attorney fees incurred
in connection with the Closing of the transaction.
(9) Lessee will cooperate with Lessor (at no cost to
Lessor) in enabling Lessor to complete a tax-free exchange of the purchased
portion of the Leased Property under IRC Section 1031.
(i) No Brokerage Commissions. Lessee and Lessor each warrants
to the other party that no brokerage commissions will be payable in
connection with the purchase and sale of any portion of the Leased Property
in accordance with this Paragraph 26.
27. Lessee's Right to Terminate Obligation to Lease. Lessee shall
have the right, at any time prior to November 10, 1997, to rescind Lessee's
obligation to lease the Leased Property under this Agreement if Lessee is
dissatisfied for any reason with either of the following matters: (i) any
studies or tests concerning the presence or possible presence on the Leased
Property of Hazardous Materials, and Lessee's determination as to the
possible financial impact on Lessee of any Hazardous Materials which are
present on the Leased Property; or (ii) the results of any examinations or
inspections completed by Lessee with respect to the Leased Property. Lessee
shall be responsible for the cost of all Hazardous Materials tests, reports,
surveys, studies, inspections and examinations conducted by Lessee pursuant
to this Paragraph 27. Lessor shall cooperate with Lessee in allowing Lessee
and Lessee's agents to fully inspect and examine the Leased Property for the
presence of Hazardous Materials. Notwithstanding Lessee's right to inspect
the Leased Property for the presence of Hazardous Materials pursuant to this
Paragraph 27, Lessee is relying on, and Lessor agrees that Lessee has the
right to rely on, the representations, warranties and agreements made by
Lessor in Paragraph 9.
28. Additional Conditions Precedent to Lessee's Obligations. In
addition of all other conditions to Lessee's obligation to close which are
set forth in this Agreement, the obligation of Lessee to lease the Leased
Property from Lessor pursuant to this Agreement is subject to the
fulfillment, prior to the Initial Lease Date, of each of the following
conditions, each of which is for the benefit of Lessee and may be waived by
Lessee:
(a) Lithia Motors, Inc. shall have obtained from Nissan Motor
Corporation in USA and BMW of North America, Inc. prior to the Initial Lease
Date, exclusive franchises to sell new Nissan and BMW vehicles in Medford,
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Oregon (as evidenced by the issuance to Lithia Motors, Inc. of appropriate
Dealership Sales and Service Agreements, and the approval of Lithia Motors,
Inc. as the publicly owned Dealer-Operator of the franchises); and
(b) Lithia Motors, Inc. shall be reasonably satisfied with any
facility improvement requirements which are imposed by Nissan Motor
Corporation in USA and BMW of North America, Inc. in connection with the
issuance to Lithia Motors, Inc. of franchises to sell new Nissan and BMW
vehicles in Medford, Oregon; and
(c) The purchase of the business assets of Medford Nissan, Inc.
by Lithia Motors, Inc. shall be closed on or before the Initial Lease Date;
and if not so closed for any reason, Lessor shall have no obligation to
conclude this Lease with Lessee, even if this condition is waived by Lessee;
and
(d) Lessee shall be reasonably satisfied that there have been
no material changes in the condition of the Leased Property between the Date
of this Agreement and the Initial Lease Date; and
(e) Lessee shall be reasonably satisfied that all of Lessor's
agreements, representations and warranties set forth in this Agreement shall
be true, correct, complete and not misleading as of the date of Closing;
provided, however, that Lessee's decision to close this transaction shall not
excuse or release Lessor from liability to Lessee for any representation or
warranty which is subsequently determined to be incorrect, incomplete or
misleading.
29. Miscellaneous.
(a) No Waiver of Performance. The failure by any party at any
time to require performance of any provision hereof shall in no way affect
that party's right to enforce the same provision or any other provision at
any subsequent time. The consent or approval of either party to any act by
the other party of a nature requiring consent or approval should not be
deemed to waive or render unnecessary the consent to or approval of any
subsequent similar act. All rights and remedies provided under this
Agreement are cumulative to one another and to all other rights and remedies
under applicable law or in equity, and no exercise of anyone right or remedy
shall in any manner operate to prejudice or impair any other right or remedy
provided at law or in equity.
(b) Entire Agreement. This Agreement sets forth the entire,
final and complete agreement of the parties, and supersedes, replaces and
integrates all of the prior written and oral agreements of the parties. Any
modifications, amendments or supplements to this Agreement shall be executed
in writing and signed by all of the parties. Multiple copies of this
Agreement may be executed by the parties, each of which shall be deemed to be
an original when signed by all of the parties. The captions set forth in
this Agreement are for reference purposes only, and shall not be considered
in construing the meaning of the terms and conditions of this Agreement.
This Agreement shall be binding upon, and shall inure to the benefit of, the
respective successors, representatives and assigns of the parties. The
documents identified or referenced in this Agreement are all of the
agreements respecting the proposed sale or transfer, and there are no other
oral or written side agreements affecting the transaction. True copies of
all documents identified or referenced in this Agreement are attached hereto.
(c) Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the state of Oregon.
Any legal proceedings relating to this Agreement shall be filed in the
appropriate court in Jackson County, Oregon, and the parties hereby
irrevocably submit to the jurisdiction of the Circuit Court of Jackson
County, Oregon.
(d) Severability. 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 provisions of this Agreement, and
all such other provisions shall remain in full force and effect. It is the
intention of the parties that 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.
(e) Attorney Fees in Event of Dispute. If action is instituted
to enforce any term of this Agreement, the prevailing party shall recover
from the losing party reasonable attorney fees incurred in that action as set
by the trial court, and in the event of an appeal, as set by the appellate
courts.
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30. Memorandum to be Recorded. Simultaneously with the execution of
this Agreement the parties shall execute a Memorandum evidencing the
execution of this Agreement for purposes of recordation in Jackson County,
Oregon, which Memorandum shall be recordable by Lessee on or after the
Initial Lease Date.
IN WITNESS WHEREOF, each of the parties has executed this Agreement on
the respective dates indicated below.
LESSEE:
LITHIA REAL ESTATE, INC.
By: /s/ Brian B. DeBoer 9-26-97
Authorized Agent Brian B. DeBoer
LESSOR:
JAMES D. PLUMMER
By: /s/ James D. Plummer 10-14-97
James D. Plummer
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EXHIBIT "A" TO REAL PROPERTY LEASE AGREEMENT WITH OPTION TO PURCHASE
Between JAMES D. PLUMMER, as "Lessor", and
LITHIA REAL ESTATE, INC., as Lessee
LEGAL DESCRIPTION OF REAL PROPERTY
[See ___ page(s) attached hereto.]
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EXHIBIT "B" TO REAL PROPERTY LEASE AGREEMENT WITH OPTION TO PURCHASE
Between JAMES D. PLUMMER, as "Lessor", and
LITHIA REAL ESTATE, INC., as Lessee
COPY OF AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
[See ___ page(s) attached hereto.]
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EXHIBIT "C" TO REAL PROPERTY LEASE AGREEMENT WITH OPTION TO PURCHASE
Between JAMES D. PLUMMER, as "Lessor", and
LITHIA REAL ESTATE, INC., as Lessee
DOCUMENTS RELATING TO CONTAMINATION OF BUSINESS REAL PROPERTY
[See ___ page(s) attached hereto.]
1. Phase 1 Environmental Report
2. Disclosure Statement
3. Any and all other documents which are necessary in order for
Lessor to satisfy the disclosure requirements of Paragraph 9 of the Lease
Agreement
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EXHIBIT "D" TO REAL PROPERTY LEASE AGREEMENT WITH OPTION TO PURCHASE
Between JAMES D. PLUMMER, as "Lessor", and
LITHIA REAL ESTATE, INC., as Lessee
COPY OF PRELIMINARY TITLE REPORT
[See ___ page(s) attached hereto.]
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EX-10
Exhibit 10.28.1 Purch/Sale Agmt Reno VW
EXHIBIT 10.28.1
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
THIS AGREEMENT is entered into effective December 31, 1997, by and
between UNITED AMERICAN FUNDING, INC., a Nevada corporation, dba "RENO
VOLKSWAGEN" (hereinafter referred to as "Seller"), and LITHIA MOTORS, INC.,
or its nominee (hereinafter referred to as the "Buyer").
RECITALS:
Seller is a Nevada business corporation engaged in, among other
businesses, the business of selling and servicing Volkswagen motor vehicles
and related parts and accessories from premises located at 7063 S. Virginia
Street, Reno, Nevada 93313 (the "Business Real Property"), under franchise
issued by Volkswagen Motor Sales of America, Inc.
Buyer wishes to purchase from Seller, and Seller is willing to sell to
Buyer, certain assets relating to Seller's Volkswagen franchise at 7063 S.
Virginia Street, Reno, Nevada, conditioned upon the granting to Buyer of a
exclusive franchise for the sale of new Volkswagen motor vehicles in the same
geographical area as Seller's 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 February 15, 1998. "Final Closing Date"
shall refer to March 15, 1998.
(b) "Seller's Business" shall only refer to any and all
activities conducted by Seller in Reno, Nevada, relating to the marketing and
sale of new Volkswagen vehicles and associated parts and accessories, and the
repair and servicing of new or used Volkswagen vehicles. Seller's Business
as defined herein shall not include any other businesses of Seller (such as
Seller's automobile financing and leasing business of Seller), which other
businesses shall be referred to herein as "Seller's Other Business".
(c) "Purchased Assets" shall refer to those assets which are
identified in Paragraph 2 as begin 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, 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 assets listed on Seller's financial statements as of December
31, 1997, but excluding the items located at 7111 S. Virginia Street, Suite
A-13, Reno, Nevada, relating to Seller's Other Business. Within 20 days
after the date of this Agreement, Seller shall provide a Buyer the
following: (i) a list of the "Equipment", which list shall be attached
hereto by Exhibit "A" and (ii) a list of assets ad equipment located at 7111
S. Virginia Street, Suite A-13, Reno, Nevada, relating to Seller's Other
Business not being purchased by Buyer, which list 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,
vehicle sales records, and vehicle service records relating to Seller's
Business, and 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 interest of any value relating
to Seller's Business; including the Seller's business name ("Reno
Volkswagen").
(f) "Business Real Property" shall refer to all of the real
property located in Reno, Nevada which has been used in connection with
Seller's Business at 7062 S. Virginia Street, Reno, Nevada.
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(g) "Franchiser" shall refer to Volkswagen Motor Sales of
America, Inc.
(h) "New Vehicle" shall refer to Volkswagen 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 Nevada law. "Rollback
Vehicle" shall mean an unregistered vehicle from the 1997 or 1998 model year,
which has been sold to customer by Seller but returned because of the
customer's inability to obtain financing for the purchase. "Demonstrator
Vehicle" shall mean an unregistered Volkswagen 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 December 31, 1997.
(j) All amounts payable by Buyer to Seller at Closing shall be
paid by wire transfer.
2. Purchased Assets. Seller agrees to sell to Buyer, and Buyer
agrees to purchase from Seller, the assets identified in Paragraphs 3, 5, 6,
7, 8, and 10 of this Agreement (the "Purchased Assets"). Excluded from this
transaction are Seller's cash, accounts receivable, notes receivable, banking
accountants and deposits, and all other assets not identified in Paragraphs
3, 5, 6, 7, 8, and 10 of this Agreement or assets related to Seller's Other
Business.
3. Inventory Of New Vehicles, Demonstrator Vehicles and Rollback
Vehicles. Buyer shall purchase Seller's entire inventory of new Volkswagen
vehicles, as that inventory exists on the Closing Date. Buyer also shall
purchase Seller's entire inventory of Volkswagen demonstrator vehicles and
rollback vehicles (up to a maximum of two 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, floor plan allowances, finance cost allowances,
advertising allowances, and any other items which should reasonably be
deducted in order to establish Seller's 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 shall be entitled to
receive directly from Volkswagen Motor Sales all holdbacks, rebates,
incentives, allowances and other items referred to in the preceding sentence
which reduce Buyer's purchase price for Seller's new vehicles. Seller's
actual net costs 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 new vehicle purchased by Buyer from Seller is damaged, the
price for that vehicles, as determined under subparagraph 3(a), shall be
reduced by the actual net cost of Buyer of repairing that damage. If Buyer
and Seller are unable to agree upon the actual net cost to Buyer of repairing
that damage, 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 purchase by Buyer from Seller shall be paid in full for
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 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
not 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 the reduced by $.30 per mile for
each odometer mile on that vehicle in excess of 200 miles, and further
reduced by $750.00 for any vehicle with mileage in excess of 1000 miles. The
purchase price for demonstrator vehicles and rollback vehicles shall be paid
at Closing.
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4. Inventory Of Used Vehicles. Seller to retain Seller's entire
used vehicle inventory, and Buyer shall not be obligated to purchase any of
Seller's used vehicles.
5. Inventory of New Parts and Accessories. Buyer shall purchase
Seller's entire inventory of new, current (non-obsolete), undamaged
Volkswagen vehicle parts and accessories manufactured by Franchisor and/or
third party supplier, as that inventory exists on the Closing Date. Buyer
shall have no obligation to purchase from Seller any parts or accessories
which are used, damages 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 part 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 business.
(a) Price for Parts and Accessories. The purchase price for
each item in Seller's inventory of new, current and undamaged part and
accessories for Volkswagen 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,
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.
(b) Determination of Inventory of Parts and Accessories.
Seller's inventory of new, current and undamaged Volkswagen 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.
(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. Within twenty (2) days after the date of this
Agreement, Seller shall provide to Buyer a list of the Equipment being
purchased and sold hereunder, which list shall be attached hereto as "Exhibit
A". Prior to closing Buyer will have the right to inspect the equipment.
Seller is retaining, and is not selling to Buyer, those personal items of
Seller's Equipment that are listed on Exhibit "B" to be provided within
twenty (20) days after the date of this Agreement and 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 Two Hundred Fifty Thousand and 00/1000
Dollars $250,000.00). Seller agrees that buyer shall have the right, in
Buyer's reasonable discretion, to allocate the aggregate purchase price of
the Equipment among the various items of Equipment in the manner that 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 $25,000.00 which earnest
money deposit, together with all interest earned thereon, shall be credited
to Closing against the purchase price for the Equipment.
(2) The $225,000.00 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 supplies which are held for use in Seller's Business;
provided, however, that Buyer shall not be obligated to purchase used,
damages 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
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in the supplier's then current price books. Prior to closing, Seller shall
maintain Seller's inventory of supplies at a level consistent with good
business practices and Seller's 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 20 days after the
date of this Agreement. 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 indemnify Buyer against all obligations under the
contracts identified on Exhibit "C" which relate to periods prior to
Closing. Buyer agrees to indemnify Seller against all obligations under the
contracts identified on Exhibit "C" which relate to periods after Closing.
9. Repair Work in Progress. Buyer shall not be required to purchase
any of Seller's repair work in progress, but any repair work in progress
prior to Closing shall be an account receivable retained by Seller in
accordance with Paragraph 2.
10. Intangible Assets. Buyer shall not be required to purchase any
of Seller's repair work in progress, but any repair work in progress prior to
Closing shall be an account receivable retained by Seller in accordance with
Paragraph 2.
11. Limitation on Liabilities Assumed. Except as provided in
subparagraph 3(d), and Paragraphs 8, 9 and 21, 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
Nevada. Seller is qualified to do business in the State of Nevada, and has
full power and authority to own, use, and seller its assets.
(b) Corporate Authority. Seller's board of directors and
shareholders has 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
a Buyer the following: (i) a census of Seller's employees related to
Seller's Business that will be subject to this subparagraph ("Seller's
Covered Employees"), (ii) a written disclosure of all benefits made available
to Seller's employees (including qualified or non-qualified retirement plans,
and (iii) access to all personnel files for Seller's Covered Employees. All
employee benefit plans maintained by Seller for Seller's covered 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 Covered Employee prior to Closing (together with all accrued FICA
and withholding taxes). Seller shall terminate the employment of all of
Seller's Covered 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 Covered Employees. Seller will not, for a
period of two years following Closing, employ or offer employment to any of
Seller's Covered Employees who were an employee of Seller's Business at any
time within the 180 day period immediately preceding Closing unless either:
(1) Buyer consents in Writing to Seller's employment of that employee, or (2)
a period of at least 6 months shall have elapsed since the later of: (i) the
date of Closing, or (ii) the last date when that employee is employed by
Buyer.
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(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 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, permit and authorizations
required by any federal, state or local government or regulatory agency in
order to operate Seller's Business, and knows of no reasons 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. Buyer is purchasing all of
Seller's Equipment "AS IS" with no warranty as to the condition. Seller will
continue to perform routine maintenance and repairs with respect to the
Equipment prior to Closing.
(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, license, equitable interests, leases,
assessments, restrictions, reservations, or other burdens of any kind, except
as to leased equipment addressed in Paragraph 8. Seller prior to Closing
(including property taxes, sales taxes and excise taxes) shall have paid all
current and accrued taxes, which may become a lien against any of the
Purchased Assets.
(g) No Hazardous Materials Discharged. Except as disclosed by
Seller on Exhibit "D" to be attached hereto within 20 days of the date of
this Agreement, (i) to the best of Seller's knowledge, at all times during
Seller's ownership prior to Closing, Sellers and its employees, agents,
sublessees, franchisees, licensees, permitees, contractors, vendees and
customers of Seller, and all other persons permitted by Seller to have access
to the Business Real Property, shall have used, stored, transported, disposed
of and treated Hazardous Materials in strict accordance with all applicable
federal, state and local laws and regulations (collectively referred to for
the remainder of this Paragraph 13(g) as the "Laws"), and (ii) to the best of
Seller's knowledge, there currently are no underground gas tanks, underground
fuel tanks or underground waste oil tanks located on the Business Real
Property, and (iii) at the Closing, to the best of Seller's knowledge, Seller
shall not have caused the Business Real Property of any Hazardous Material,
and (iv) at Closing, to the best of Seller's knowledge, Seller shall not have
caused any other parcel of real property (including but not limited to
properties adjacent to or in the immediate vicinity of the Business Real
Property) to be contaminated by the presence on, under, or about the Business
Real Property by Seller prior to Closing. For purposes of this paragraph
(g), the phrase "Hazardous Material" shall refer to and include any hazardous
or toxic substance, material or waste which is or becomes regulated by any
federal, state or local governmental authority or political subdivision. The
term "Hazardous Materials" includes, without limitation, any material or
substance that is (i) defined as a "hazardous substance" under applicable
federal, state or local law, (ii) petroleum, (iii) asbestos, (iv)
polychlorinated biphenyl ("PCB"), (v) designated as a "hazardous substance"
pursuant to Section 31 of the Federal Water Pollution Control Act (33 U.S.C.
S 1321), (vi) defined as a "hazardous waste" pursuant to Section 1004 of
Solid Waste Disposal Act (42 U.S.C. S 6903), (vii) defined as a "hazardous
substance" pursuant to section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. S 6901), (viii) defined
as a "regulated substance" pursuant to Section 9001 of the Solid Waste
Disposal Act (Regulation Of Underground Storage Tanks), 42 U.S.C. S 6991,
(ix) considered a "hazardous chemical substance and mixture" pursuant to
Section 6 of the Toxic Substance Control Act (15 U.S.C S 2605), or (x)
defined as a "pesticide" pursuant to Section 2 of the Federal insecticide,
Fungicide and Rodenticide Act (7 U.S.C. S 136), and (xi) any and all
substances which now or in the future are deemed to be pollutants, toxic
materials or hazardous under any other state or federal law. Seller will
furnish to Buyer within twenty (20) days of this Agreement, copies of all
environmental reports and certificates of compliance relating to the Business
Real Property, if any. Upon the execution of this Agreement, Seller shall
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. Buyer and Seller shall each pay one
half of the cost of the Report. If the Phase One Environmental Report
discloses that the Business Real Property is, or is likely to be, materially
contaminated by the presence of Hazardous 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, then
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Seller any either: (i) complete such remediation, cleanup, detoxification
and/or decontamination at Seller's sole expense prior to Closing, or (i)
place sufficient funds into escrow at Closing to cover the expense of the
required remedy or (iii) rescind the transaction in its entirety. Buyer's
Closing of the transaction contemplated by this Agreement will (i) constitute
Buyer's acceptance of all known, discovered, or disclosed contamination of
the Business Real Property, and (ii) notwithstanding any other term of this
Agreement, constitute Buyer's waiver of all claims against Seller or its
officers, directors, agents, employees, and owners relating to any known,
discovered, or disclosed contamination of the Business Real Property.
(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 an exclusive franchise for the sale of
Volkswagen vehicles in the same geographical area as Seller's current
franchise in Reno, Nevada.
(i) Financial Disclosures. Seller shall promptly furnish to
Buyer such financial and operating data and other information relating to
Seller's Business and the Business Real Property, as Buyer shall request.
The review of such materials will be at Buyer's expense. To the best of
Seller's knowledge, all such financial statements and related materials
provided to Buyer fairly present the financial position of Seller's Business
and the results of operation of Seller's Business for the periods covered
thereby. Buyer (at Buyer's expenses) shall have the right at any time prior
to Closing, to conduct 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 for 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.
(j) Indemnification for Breach of Warranties. Seller shall
indemnify 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 to 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 is this Agreement
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.
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 order; (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 other words or phrases having similar meanings; (v)
Seller shall use its best efforts to preserve the value of the Volkswagen
franchise in Reno, Nevada.
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.
(b) Authority. The board of directors of Lithia Motors, Inc.
must authorize this Agreement 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.
15. Additional Conditions Precedent to Buyer's Obligations. The
obligation of Buyer to close hits 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, an exclusive franchise to sell new Volkswagen vehicles in
the same geographical area as Seller's current franchise in Reno, Nevada (as
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evidenced by the issuance to Buyer by Franchisor of an appropriate Dealership
Sales and Service Agreement, and the approval of Buyer as a publicly owned
Dealer-Operator of the franchise), the 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 Franchisor.
(c) Buyer shall have been permitted to fully 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 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 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.
16. Closing. The parties shall make 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 Closing Escrow Agent in
connection with this transaction may require. 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 $25,000.00 (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 closed 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 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 this 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 15 or because Seller has elected to rescind the Agreement
pursuant to subparagraph 12(g), then: (i) all rights and obligations of both
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parties under this Agreement shall terminate, (ii) Buyer shall be entitled to
a refund of the entire $25,000.00 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
$25,000.00 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. 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
$25,000.00 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), and (ii) Buyer's remedies shall be further limited to
actual damages up to a maximum of $25,000.00, and Buyer waives and shall not
be entitled to any other rights and remedies provided by law or in equity.
THE SUM OF $25,000 REPRESENTS A REASONABLE ESTIMATE OF BUYER'S AND SELLER'S
DAMAGES INT EH EVENT OF SUCH A DEFAULT, IT BEING EXTREMELY DIFFICULT TO
ASCERTAIN THE PARTIES'S PRECISE DAMAGES.
(h) Both parties agree to make a good faith effort to execute
and deliver all documents, including Seller's financial or taxes records and
complete all actions necessary to consummate this transaction.
17. 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 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.
18. Survival Of Representations. All representations, warranties,
indemnification obligations and covenants made in this Agreement shall
survive the Closing, and shall remain in effect upon the expiration of the
latest period allowable in any applicable statute of limitations.
19. 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 vent 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.
20. Lease of Real Property. As a condition of the Closing of the
transaction contemplated under this Agreement, Buyer (or a related entity)
agrees to assume Seller's lease of the Business Real Property. Buyer's and
Seller's obligation to close the transaction contemplated under this
Agreement shall be subject to the conditions that Buyer simultaneously to
enter into an agreement with the owner of the Business Real Property which
allows Buyer to assume Seller's lease of the Business Real Property and which
further fully releases and discharges Seller and any of Seller's guarantors
from any further liability under the lease of the Business Real Property.
21. 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 provisions 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 construction, 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 Nevada. Each of the parties hereby
irrevocably submits to the jurisdiction of the courts of Washoe County,
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Nevada, and agrees that any legal proceedings with 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, which 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. Facsimile signatures shall be deemed to be and
shall have the same force and effect as an original signature.
(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 other party to
any act by the other party of a nature requiring consent or approval shall
not rendered unnecessary the consent to or approval of any subsequent similar
act.
(e) All notices provide 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date indicated below.
SELLER:
UNITED AMERICAN FUNDING, INC., a Nevada corporation.
By: /s/ Peter Weschnell 12/31/97
Name: Peter Weschnell
Title: Vice President
BUYER:
LITHIA MOTORS, INC. (OR NOMINEE)
By: /s/ Brad Gray 12/31/97
Brad Gray, Executive Vice President
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EX-10
Exhibit 10.28.2 Lease; Assignment; Modification
EXHIBIT 10.28.2
CERTIFICATE OF AUTHORITY AND STOCKHOLDERS
CONSENT FOR CORPORATE GUARANTY
The undersigned hereby certifies that the following resolution was duly
adopted by the Board of Directors of UNITED AMERICAN FUNDING, INC, a
corporation existing under the laws of NEVADA, that the same has not been
modified or rescinded and is not in violation of the charter, by-laws or any
agreement of said corporation:
"Resolved that to induce Teddy Bear Havas Motors, Inc. (Lessor), at
its discretion, to make leases or otherwise extended credit to or deal
with United American Funding, Inc. (Lessee) on such terms in such
amounts and at such times as may be approved by Lessor, without notice
to or approval from this Corporation, which will be incidental to and
in furtherance of the business of this Corporation and to its direct
benefit and advantage, this Corporation guarantee to Lessor, its
successors and assigns, that said Lessee will promptly and fully pay
all sums and perform all obligations to be paid or performed by it in
connection with any such lease, credit or other transaction, and any
officer of this Corporation is authorized, in its name and on its
behalf, to execute and deliver to Lessor a guaranty in such form and
containing such provisions as may be acceptable to Lessor".
The undersigned further certifies that the officers of said Corporation and
the respective offices held by them are:
/s/ President /s/ Treasurer
President Treasurer
/s/ Vice President /s/ Secretary
Vice President Secretary
and that the persons who have signed the Consent of Stockholders below are
the holders of all the issued and the outstanding stock of said Corporation.
Signed and sealed this 28th day of July, 1992.
[Corporate Seal] /s/ Secretary
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LEASE AGREEMENT
LEASE, made this 28th day of July, 1992, by and between TEDDY BEAR
HAVAS MOTORS, INC. a Nevada corporation, (hereinafter called "Lessor") and
UNITED AMERICAN FUNDING, INC., a Nevada corporation (hereinafter called
"Lessee").
WITNESSETH:
For and in consideration of the covenants herein contained, and upon
the terms and conditions herein set forth, Lessor and Lessee agree as follows:
1. DESCRIPTION. Lessor hereby leases to Lessee, and Lessee hereby
hires and leases from Lessor, the real property described in Exhibit A,
attached hereto and by this reference made a part hereof, and the building
and other improvements, together with certain equipment and fixtures
described in Exhibit B attached hereto and made a part hereof, located on the
real property. Except as otherwise provided herein, the term "Premises" or
"Leased Premises" shall include the real property and the buildings,
improvements, fixtures, and equipment located thereon.. Lessee acknowledges
that it has fully examined the Leased Premises and accepts the Leased
Premises in a good condition. Lessor makes no warranties, express or
implied, relating to the equipment, fixtures, improvements and building, and
Lessee accepts such property "as is" and "where is."
2. TERM.
(a) Original Term. The Premises are leased for a term of give (5)
years, to commence on and pursuant to paragraph 42 below, and to end at 12:00
midnight of the day immediately preceding the fifth (5th) anniversary of the
commencement date ("Original Term").
(b) Renewal Term. If Lessee shall not be in default under this
Lease, Lessee shall have the option to renew and extend this Lease for an
additional term of five (5) years (hereinafter called the "Renewal Term")
commencing upon the expiration of the Original Term of this Lease provided in
paragraph 2(a) above which option is exercisable by Lessee giving Lessor
written notice of exercise of this option at least one hundred eighty (180)
days prior to the date of expiration of the Original Term; provided, however,
that all of the terms, covenants, promises, conditions and provisions of this
Lease shall apply fully and completely to such Renewal Term of the Lease,
except that the term shall be as herein provided for the Renewal Term and
except as herein provided with respect to the Basic Rent. The amount of the
annual Basic Rent as provided in paragraph 3(a) of this Lease shall be
changed to the rate provided in paragraph 3(b). For purposes of this Lease
"term of this Lease" or "Lease term" means the Original Term plus any
extension promptly elected by Lessee pursuant to this subparagraph 2(b).
3. RENT
(a) Basic Rent. During the Original Term of this Lease, Lessee shall
pay to Lessor, in advance, rent ("Basic Rent") in the sum of Six Thousand
Five Hundred and 00/100 Dollars ($6,500.00) per month plus any additional
rent or sum as provided herein, provided, however, that in the event that
Lessee becomes a manufacturer's franchisee dealer of new vehicles,
recreational vehicles, motor homes, campers, trailers or manufactured
housing, the Basic Rent shall be Nine Thousand Five Hundred and No/100
Dollars ($9,500.00) per month, plus any additional rent or sum as provided
herein, per month, payable on the fifteenth (15th) day of each month,
commencing on and pursuant to paragraph 42 below.
(b) Basic Rent Escalation. During the Renewal Term of this Lease,
Lessee shall pay to Lessor, in advance, the Basic Rent as set forth in
subparagraph 3(a) above adjusted to the greater of the Price Index Adjustment
or the Fair Market Rent Adjustment as hereinafter provided.
(i) Price Index Adjustment. For the purpose of this
calculation, the Basic Rent provided for in paragraph 3(a) shall be subject
to adjustment to reflect the increase, if any, in the Consumer Price Index
(all items) for the San Francisco-Oakland-San Jose metropolitan area,
published by the United States Department of Labor, Bureau of Labor
Statistics ("Index"), which is published for the month of June, 1992 (141.9)
in comparison with the Index for June, 1997. The Basic Rent for the Renewal
Term shall be set by multiplying the Basic Rent set forth in paragraph 3(a)
by a fraction, the numerator of which is the Index for June, 1997, and the
denominator of which is the Index for June, 1992 (141.9).
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If the Index is changed so that the base year differs from that
used as of the month immediately preceding the month in which the term
commences, the Index shall be converted in accordance with the conversion
factor published by the United States Department of Labor, bureau of Labor
Statistics. If the Index is discontinued or revised during the term, such
other government index or computation with which it is replaced shall be used
in order to obtain substantially the same result as would be obtained if the
Index had not been discontinued or revised.
The rent as thus adjusted at the commencement of the first year
of the Renewal Term shall be compared with the rent derived from the Fair
Market Rent Adjustment pursuant to subparagraph (ii) below and the greater of
those figures shall be the Basic Rent during the Renewal Term.
(ii) Fair Market Rent Adjustment. Within five (5) days
following notice by Lessee of the exercise of the option to renew and extend
this Lease as provided in paragraph 2(a) above, lessor and Lessee shall each
select an "MAI" certified appraiser licensed to practice in the State of
Nevada and within said period shall order an appraisal of the fair market
rent for the Leased Premises. The appraisers shall complete their appraisals
within ninety (90) days of their appointment. The Fair Market Rental shall
be the average of the two appraisals. Each party shall be solely responsible
for the fees and expenses of its appraiser.
(iii) Rent Adjustment - No Decrease. In no case shall the Basic
Rent be less than the Basic Rent set forth in paragraph 3(a). On adjustment
of the Basic Rent as provided in this Lease, the parties shall immediately
execute an amendment to the Lease stating the new Basic Rent.
(iv) Basic Rent Escalation - Payment. During the Renewal Term
Lessee shall pay, in advance, to Lessor monthly rental plus any additional
rent or sum as provided herein in the amount calculated pursuant to paragraph
3(b) commencing on the first (1st) day of the Renewal Term, provided,
however, that in no event shall the rent be payable during the Renewal Term
be less than the Basic Rent payable during the Original Term pursuant to
paragraph 3(a).
(v) Basic Rent Escalation - Disputes. In the event of any
dispute between the parties as to the manner of computing any adjustment in
the Basic Rent, or as to the Price Index to be used, or as to any other
matter arising under this paragraph, such dispute shall be determined by
arbitration in accordance with the Commercial Rules of the American
Arbitration Association, held in Reno, Nevada, and the arbitrators' award
shall be final and binding between the parties hereto, and judgment may be
entered in a Court of competent jurisdiction. During any such arbitration,
the Lessee shall continue to pay rent at the rent theretofore applicable
under the terms of this Lease.
4. USE OF PREMISES. Lessee shall use and occupy the Leased Premises
for automobile finance, sales and repair and no other purpose. Lessee shall
comply with any and all governmental laws, ordinances, rules and orders
applicable to Lessee's occupation or the use of the Premises or to Lessee's
business. Lessee shall be responsible for all costs associated with
obtaining all licenses or permits for the use and occupancy of the Premises,
for the conduct of its business or for making of repairs, maintenance,
alterations, additions or improvements, and Lessor, at Lessee's cost, will
cooperate with Lessee in applying for such permits or licenses.
5. UTILITIES, TAXES, ASSESSMENTS, AND EXPENSES.
(a) Utilities. Lessee shall pay all charges and connection fees for
utilities including, but not limited to, sewage, trash and garbage disposal,
electricity, telephone, water, and gas or other fuel or energy furnished to
Lessee or consumed by it upon the Leased Premises. Lessee's use of utility
services shall not, at any time, exceed the capacity of mains, feeders, ducts
and conduits bringing such services to the Premises, provided, however, that
Lessee may, at its expense, increase the capacities of mains, feeders, ducts
and conduits; further, provided that such increase complies with all
governmental laws, ordinances, orders and rules, and is done in a workmanlike
manner.
(b) Real Estate Taxes.
(i) The Lessee shall pay and discharge, prior to delinquency
all real estate (ad valorem) taxes, water rates, sewer rates, utility
payments, occupancy taxes, assessments and/or installments thereof and other
duties, charges or payments, ordinary or extraordinary, foreseen or
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unforeseen, general or special, as shall during the term be imposed,
assessed, levied, or become a charge or lien upon the Leased Premises, or any
part thereof.
(ii) Lessor shall not be required to pay any taxes or
assessments of any nature imposed or assessed upon fixtures, equipment
merchandise or other personal property installed on the Leased Premises at
the date of the execution of this Lease or brought thereon by Lessee or
others, but such shall be the obligation of Lessee, and Lessee shall promptly
pay or cause to be paid, prior to delinquency, all such taxes or assessments
as the same become due.
(iii) Regardless of the validity of the levy, Lessor may, at its
option, pay any tax or assessment levied against the Premises and Lessee
shall, on demand, immediately reimburse Lessor for such taxes or assessments.
(iv) Provided that Lessor's title to the Premises is not
adversely affected and no assessment or tax lien is allowed to exist thereon,
Lessee may contest in good faith, by appropriate proceedings, in the Lessor's
and/or Lessee's name, any such taxes, assessments or similar items. At
Lessee's request and expense, Lessor agrees to reasonably cooperate with
Lessee in any such contest. If Lessee contests taxes and does not pay such
taxes, Lessee shall furnish Lessor a surety bond by a qualified insurance
company in the full amount of the unpaid property taxes. The bond shall hold
the Lessor and the Premises harmless from any damages arising from the
contest and insure payment of any judgment.
(c) Expenses. Lessee shall pay all expenses of the Leased Premises,
including, without limitation, each and every item of cost and expense
incurred for the maintenance, operation, occupation and use of the Leased
Premises, including, without limitation, the cost of all direct labor,
supplies, materials, service contracts, equipment, landscaping care, and
janitorial service.
(d) Evidence of Payment. On demand by Lessor, Lessee shall furnish
Lessor with satisfactory evidence of any such payments made by Lessee
pursuant to subparagraphs 5(a), (b) and 9c) above.
(e) Net Lease. Lessor and Lessee agree that this Lease shall be
construed as, and is intended to be, a Net Lease in which rents shall be
absolutely net to Lessor, free of any deductions or setoffs [(except as
provided in paragraph 41(b)], and Lessee shall pay all costs, expenses and
obligations of every kind relating to the use of the Premises.
6. Property and Liability Insurance.
(a) Lessee shall procure, at its sole cost and expense, a standard
fire with extended coverage insurance policy with a recognized insurance
company authorized to do business in the State of Nevada, naming Lessor as an
additional insured, in the full amount of the replacement cost of the Leased
Premises but in no event less than Six Hundred Thousand and No/100 Dollars
($600,000.00).
(b) Lessee shall, at all times during the term hereof, at its sole
cost and expense, procure and maintain in full force and effect a policy of
comprehensive public liability hereof, at its sole cost and expense, procure
and maintain in full force and effect a policy of comprehensive public
liability insurance issued by an insurance carrier approved by Lessor
assuring against loss or damage to property occurring from any cause
whatsoever in connection with the Leased Premises and parcel no. 040-162-14
or Lessee's use thereof. Such liability shall be in amounts of not less than
One Million Dollars ($1,000,000) for bodily injuries to or death of any one
person whomsoever, One Million Dollars ($1,000,000) for bodily injuries to or
death of any two or more persons whomsoever, arising from the same
occurrence, or Six Hundred Thousand Dollars ($600,000) for damage to
property, including property of Lessee. All such insurance shall
specifically inure the performance by Lessee of the indemnity agreement as to
liability for injury to or death of persons and loss of or damage to property
contained in paragraph 11 below. Lessor and Lessee shall be named as
co-insureds.
(c) Lessee shall not be required to maintain plate glass insurance
but Lessee shall, at its sole cost and expense, replace any plate glass
broken or damaged during the term of this Lease.
(d) Should the Lessee fail to obtain insurance as provided herein,
Lessor may obtain such insurance and the premiums on such insurance shall be
deemed to be additional rental to be paid by Lessee to lessor on demand.
Lessee, at its option, may review, revise, and increase the coverage limits
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at two (2) year intervals hereunder during the term of this Lease to
commercially reasonably coverage limits. Lessee shall direct the insurance
company to provide notice of cancellation to be sent to Lessor ten (10) days
prior to cancellation of said insurance.
(e) To the extent permitted by law, each party hereby waives, on
behalf of itself and its insurer, all rights of subrogation and claims
against the other for loss or damage arising out of the perils normally
insured against by standard fire and extended coverage insurance. This
paragraph 6(d) is not intended to alter, amend or change the obligations of
the Lessee and the Lessor set forth in paragraph 7 hereinafter.
7. MAINTENANCE OF PREMISES
(a) Lessee, at its cost, shall maintain, in good condition, the
Leased Premises, which includes without limitation, all of the interior and
exterior of the building, fixtures, improvements, equipment, plumbing,
electrical, roof, walls, foundation, landscaping, paved areas, sidewalks and
vacant areas., Lessor shall not have any responsibility to maintain the
Leased Premises. All maintenance alterations, additions, improvements, and
repairs shall be at Lessee's expense, made in a good and workmanlike manner,
and in full compliance with all governmental rules, laws, orders, and
ordinances, whether now in existence or enacted or required during the term
of this lease. Lessee, at its cost, shall make any and all alterations,
additions, and improvements, (which may be made only upon the prior written
consent of Lessor, which Lessor shall not unreasonably withhold or delay, but
which may be given subject to such terms and conditions as Lessor may
reasonably require), maintenance and repairs to the Premises as required by
law, rule, order, ordinance or regulation of any governmental authority in
order to use the Leased Premises for purposes provided herein. Lessee agrees
that the failure of any component system or the inability to use the
Premises, due to the condition of the Premises or lack of any service, shall
not be construed as a constructive eviction.
(b) Should Lessee desire to make any alteration, addition or
improvement upon the Premises, it shall transmit to the Lessor a reasonably
detailed description of drawings, plans and bids of the work to be
performed. Within thirty (3) days of the receipt of the same, Lessor shall
notify Lessee in writing whether Lessor approves such work and whether Lessee
will be required to remove such alteration, addition or improvement at the
end of the Lease term, or whether such alteration, addition or improvement
shall remain and revert to the Lessor at the end of the Lease term.
(c) Lessee shall commit no act of waste.
8. INSPECTION BY LESSOR. Upon reasonable notice to lessee (except
that no notice need be given in case of emergency), Lessor shall have the
right to enter upon Leased Premises from time to time, at any reasonable time
during the normal business hours of Lessee, but Lessor shall not be obligated
to do so, in order to inspect the Premises and to perform any maintenance,
repairs, additions and replacements which Lessor deems necessary or
desirable, but this right to enter shall be exercised in such manner as to
not unreasonably interfere with Lessee's use and enjoyment of the Leased
Premises. Lessee shall have no claim or cause of action for or in the nature
of trespass against Lessor by reason thereof. In no event shall Lessee have
any claim against Lessor for interruption to Lessee's business, however
occurring.
9. DAMAGES TO BUILDING/WAIVER OF SUBROGATION.
(a) Conditions at Termination of Lease and Restoration. If the
buildings and/or improvements are damaged by fire or any other cause to such
extent that the cost of restoration, as reasonably estimated by Lessor, will
equal or exceed twenty-five percent (25%) of the replacement value of the
improvements and/or buildings (exclusive of foundations) just prior to the
occurrence of the damage, then Lessor may, no later than the sixtieth (60th)
day following the damage, give Lessee a notice of election to terminate this
Lease, or if the cost of restoration will equal or exceed fifty percent (50%)
of such replacement value and if the Premises shall not be reasonably usable
for the purposes for which they are leased hereunder, then Lessee may, no
later than the sixtieth (60th) day following the damage and prior to the
commitment by Lessor to substantial costs for repair and/or restoration, give
Lessor a notice of election to terminate this Lease. Upon the occurrence of
either election, this Lease shall be deemed to terminate on the thirtieth
(30th) day after the giving of said notice, and Lessee shall surrender
possession of the Premises within said thirty (30) days. Provided, however,
if the damage to the premises is caused or contributed to by Lessee, its
agents, representatives, affiliates, assign, successors, servants, invitees,
visitors or licensees, Lessee shall have no right to elect to terminate this
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Lease. if the cost or restoration as estimated by Lessor shall amount to
less than twenty-five percent (25%) of said replacement value of the
buildings and/or improvements, or if, despite the cost, neither Lessor or
Lessee elects to terminate this Lease, Lessor shall restore the buildings
and/or improvements and the Premises with all due promptness, subject to
force majeure, and the Lessee shall have no right to terminate this Lease.
Lessor need not restore fixtures and improvements owned or installed by
Lessee or others.
(b) Abatement of Rent. In any case in which use of the Premises is
affected by any damage to the improvements and/or buildings, there shall be
no abatement or an equitable reduction in rent.
10. EMINENT DOMAIN. If Lessee's use of the Premises is materially
affected due to the taking by eminent domain of (a) the Premises or any part
thereof or any estate therein, or (b) the improvements and/or buildings;
then, in either event, this Lease shall terminate on the date when title
vests pursuant to such taking. The rent, and any additional rent shall be
apportioned as of such termination date, and the rent, and any additional
rent shall be apportioned as of such termination date, and the rent, and any
additional rent, paid for any period beyond said ate by Lessee shall be
repaid to Lessee. Lessee shall not be entitled to any part of the award for
such taking or any payment in lieu thereof, but Lessee may file a separate
claim for any taking of fixtures and improvements owned by Lessee which have
not become the Lessor's property, and for moving expenses, provided the same
shall in no way affect or diminish Lessor's award. In the event of a partial
taking which does not effect a termination of this Lease does not deprive
Lessee of the use of a portion of the Premises, there shall either be an
abatement or an equitable reduction of the rent depending on the period for
which and the extent to which the Premises so taken are not reasonably unable
for the purpose for which they are leased hereunder.
11. INDEMNIFICATION AND LIABILITY INSURANCE. Lessee covenants that
Lessor shall not be liable to the Lessee for any damages or injuries to the
property of the Lessee or to the persons or property of any other person, and
Lessee agrees that Lessee will hold the Lessor harmless of and from and
against any and all claims, liabilities, demands, actions, costs, expenses
and attorneys' fees incurred of all persons, whomsoever, who may allege that
they have received injuries, or had property damaged, occurring in, on or
about the Premises.
12. SIGNS. Lessee shall the right to install or erect on the Leased
Premises or to affix to any building which is a part of the Leased Premises,
such signs as it may deem necessary or appropriate to advertise its name and
business; provided, however, that such signs and the erection, affixation and
maintenance thereof shall at all times be in compliance with all applicable
federal, state and local laws, regulations, rules, orders and ordinances.
Upon the termination of this Lease, Lessee shall remove all such signs and
shall repair all injury or damage to the Leased Premises done thereby and
shall restore, at Lessee's cost, the Leased Premises to its original
condition.
13. DEFAULT OF LESSEE. Any of the following events shall be a
default of Lessee: (a) Lessee's default in the payment on the due date of the
monthly rent and/or any other payment required of Lessee by this Lease,
unless Lessee shall cure such default within ten 910) days after written
notice of failure to pay when due such monthly rent and/or payment required
of Lessee hereunder; (b) Lessee's default in the performance of any of the
other covenants of Lessee or conditions of this Lease, unless Lessee shall
cure such default within ten (10) days after notice of such default given by
Lessor (or if any such default is of such nature that it cannot be completely
cured within such period, then unless Lessee shall commence such curing
within ten (10) days after notice of such default given by Lessor and shall
thereafter diligently and in good faith proceed and continue to cure such
default and shall succeed in curing such default within a reasonable period
of time, not to exceed forty-five (45) days; (c) a general assignment for the
benefit of Lessee's creditors; or the appointment of a receiver of any
property of Lessee or of Lessee's leasehold hereunder in any action, suit or
proceeding by or against Lessee if such appointment shall not be vacated or
annulled within ten (10) days, or if the interest of Lessee in the Leased
Premises shall be sold under execution or other legal process; (d) the sale
or attempted sale by or under execution or other legal process of Lessee's
leasehold interest hereunder and/or substantially all of Lessee's other
assets; (e) assignment by operation of law of Lessee's leasehold interest
hereunder other than pursuant to the federal bankruptcy laws, Title 11 USC.
no notice given by Lessor pursuant to this paragraph 13 shall be deemed a
forfeiture or termination of this Lease unless Lessor so expressly elects in
the Notice.
14. LESSOR'S REMEDIES ON DEFAULT OF LEASE. Upon any default of
Lessee as set forth in paragraph 13 of this Lease, Lessor, at Lessor's sole
option, may elect and enforce any one or more of the remedies provided herein
or allowed, now or later, by law or equity; or currently, elect and enforce
multiple remedies from among those remedies provided herein or allowed, now
or later, by law or equity. The remedies provided herein are not exclusive,
are cumulative and are in addition to any remedies, now or later, allowed by
law or equity.
(a) Termination and Lessee's Liabilities. Lessor shall have the
right to terminate this Lease upon giving written notice specifically
providing for termination of this Lease. No act by Lessor, including,
without limitation, appointment of receiver, acts of maintenance or efforts
to relet, shall terminate this Lease. Upon termination of this Lease,
Lessee's right to possession, use and enjoyment of the Leased Premises shall
cease, and Lessee shall immediately quit and surrender the Leased Premises to
Lessor, but Lessee shall remain liable to Lessor as hereinafter provided.
Upon termination of this Lease, Lessor may at any time thereafter re-enter
and resume possession of the Premises by any lawful means and remove Lessee
and/or other occupants and their goods and chattels. In any case where
Lessor has recovered possession of the Premises by reason of Lessee's
default, Lessor may, Lessor's sole option, occupy the Premises or cause the
Premises to be redecorated, altered, remodeled, divided, consolidated with
other adjoining premises, or otherwise changed or prepared for reletting, and
may elect the Premises or any part thereof as agent of Lessee of otherwise,
for a term or terms to expire prior to, at the same time as, or subsequent
to, the original expiration date of this Lease, at Lessor's sole option, and
Lessor shall receive the rent therefor. Rent so received shall be applied
first to the payment of such expenses as Lessor may have incurred in
connection with the recovery of possession, redecorating, altering, dividing,
consolidating with other adjoining premises, or otherwise changing or
preparing for reletting, and the reletting, including brokerage and
reasonable attorney's fees, and then to the payment of damages in amounts
equal to the rent and other payments required to Lessee hereunder and to the
costs and expenses of performance of the other covenants of Lessee as herein
provided. Lessee agrees, in any such case, whether or not Lessor has relet,
to pay to lessor damages equal to the rent and other sums herein agreed to be
paid by Lessor plus the costs incurred by Lessor in recovering possession,
changing and/or preparing the Premises for reletting and the as hereinabove
described, as well as the costs and expenses, if any, of performance of other
covenants of Lessee as provided in this Lease, less the net proceeds of the
reletting, if any, as ascertained from time to time, and the same shall be
payable by Lessee on the several rent days as specified in this Lease. Lessee
shall not be entitled to any surplus accruing as a result of any such
reletting. In reletting the Premises as aforesaid, Lessor may grant rent
concessions, and Lessee shall not be credited therewith. No such reletting
shall constitute a surrender and acceptance or be deemed evidence thereof.
If Lessor elects, pursuant hereto, actually to occupy and use the Premises or
any part thereof during any part of the balance of the term as originally
fixed or since extended, there shall be allowed against Lessee's obligation
for rent, other payments and damages as herein defined, during the period of
Lessor's occupancy, the reasonable value of such occupancy, not to exceed in
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any event the rent and additional rent and other payments herein reserved.
In no event shall such occupancy by Lessor be construed as a release of
Lessee's liability hereunder. If Lessee is in default of this Lease, Lessor
shall have the right to have a receiver appointed to collect rent and conduct
Lessee's business. Neither filing of a petition for appointment of a
receiver nor appointment of receiver shall constitute an election by Lessor
to terminate this Lease, nor shall it constitute a release of Lessee's
liability hereunder.
(b) Acceleration of the Rents. Lessor shall have the right to
declare the entire remaining unpaid rents and all other then known payments
required of Lessee by this Lease for the full balance of the Lease term to be
immediately due and payable. Such declaration of acceleration shall be made
by notice provisions of this Lease. Upon notice of declaration of
acceleration, Lessee shall immediately pay to Lessor, without further demand
or notice, an amount equal to the sum of the entire remaining unpaid rents,
renewed and extended term, plus all unpaid other payments required of Lessee
by this Lease for the entire Lease term, to the extent the amount of such
unpaid rents and other payments can then be determined. Upon timely payment
of all the sums and performance of all covenants provided in this Lease,
Lessee shall have the right to continue to possess, occupy and enjoy the
Leased Premises for the remaining balance of the Lease term, subject to
strict observance by Lessee of all the covenants, conditions and other
provisions of this Lease and provided that Lessee has not vacated or
abandoned the Premises. Lessor shall have the right to immediately enforce
the declaration of acceleration as hereinabove provided by means of written
notice or any legal action. The foregoing notwithstanding, Lessor shall have
the right to declare an acceleration and collection upon same and, in
addition, to disposes Lessee and re-enter and take possession of the Premises
if Lessee has vacated or abandoned the Premises or if Lessor is dispossessing
and evicting Lessee for the purpose of ultimately reducing Lessee's
liabilities under this Lease. In the event Lessor shall declare an
acceleration and the amounts due are not paid forthwith, then Lessor, at
Lessor's sole option, may exercise Lessor's right to terminate this Lease.
(c) Damages. In any case where Lessor has recovered possession of
the Premises by reason of Lessee's default, Lessor may at Lessor's option,
and at any time thereafter, and without notice or other action by Lessor, and
without prejudice to any other rights or remedies it might have hereunder or
at law or equity, become entitled to recover from Lessee, as damages for such
default, in addition to such other sums herein agreed to be paid by Lessee,
an amount equal to the difference between (i) the sum of the rents and other
payments reserved in this Lease and required of Lessee hereunder from the
date of such default to the date of expiration of the original term demised,
and (ii) the then fair and reasonable rental value of the Premises for the
same period as proven by Lessee. Said damages shall become due and payable
to Lessor immediately upon such default of this Lease and without regard to
whether this Lease be terminated or not, and if the Lease be terminated,
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without regard to the manner in which it is terminated. In the computation
such damages, the difference between any installments of rent and other
payments thereafter becoming due and the fair and reasonable rental value of
the Premises for the period for which such installment was payable shall not
be discounted.
15. Right to Cure Lessee's Defaults. If Lessee fails to perform any
covenant or condition of this Lease, Lessor may, on five (5) days advance
notice to Lessee (except that no notice need to be given in case of
emergency), cure such default at the expense of Lessee and the reasonable
amount of all expenses, including, without limitation, attorney's fees,
incurred by Lessor in so doing shall be deemed additional rent payable on
demand. Lessee also agrees to pay interest to Lessor on any sums expended
by lessor at the rate of twelve percent (12%) per annum from date of payment
by Lessor until repaid.
16. Mechanics' Liens/Encumbrances. Lessee shall keep the buildings,
improvements and Premises free and clear of all mechanics' liens,
encumbrances, or security interest which result from any work, labor,
material, equipment, services furnished to or for Lessee. Lessee shall,
within fifteen (15) days after notice from Lessor, discharge or satisfy by
bonding (in the full amount of the claim, including fees and costs, and in
full compliance with Chapter 108 of Nevada Revised Statutes), any mechanics'
liens, encumbrances, security interest or other liens for equipment,
material, labor, goods or services claimed to have been furnished to the
Premises.
17. ASSIGNMENT; SUBLETTING.
(a) In the event that Lessee desires to assign this Lease or to
sublease any or all of the Premises to any other party, Lessee shall
communicate all of the terms and conditions of the proposed transaction,
including (1) the name, address, financial statement and business of the
proposed use of the Premises by the proposed assignee or subleesse, and (2)
the proposed use of the Premises by the proposed assignee or sublessee to
Lessor, in writing, at least ninety (90) days prior to the effective date of
any such assignment or sublease.
(b) Lessee shall not assign this Lease, without the written consent
of Lessor, which consent shall not be unreasonably withheld, but which
consent shall be subject to the following terms and conditions:
(i) The assignee, the assignee's financial statement and the
assignee's business and proposed use of the Premises (which shall be limited
to an automobile dealership as set forth in paragraph 4 of this Lease) must
be a commercially reasonable substitute for Lessee, Lessee's financial
statement and Lessee's business and use of the Premises for the purposes of
this Lease.
(ii) No assignment of this Lease, or any interest therein or
part thereof, shall relieve Lessee from its duty to perform fully all of the
agreements, covenants, and conditions set forth in this Lease.
(iii) At the option of Lessor, execution by assignee or
transferee of a counterpart of this Agreement in which assignee or transferee
agrees to be bound by the terms of this Lease.
(iv) If Lessee or assignee of Lessee is a corporation then, in
the event of any dissolution, merger, consolidation, or other reorganization
of Lessee, or the sale or other transfer of a "controlling percentage" of the
stock of Lessee, or the sale of fifty-one percent (51%) of the value of the
assets of Lessee, then such event shall be deemed an assignment pursuant to
paragraph 17(a). For purposes of this Lease, "controlling percentage" means
the ownership of and the right to vote stock possessing at least fifty-one
percent (51%) of the total combined voting power of all classes of Lessee's
capital stock issued, outstanding and entitled to vote.
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(v) In the event that any consideration received by Lessee in
respect of any valid assignment of this Lease, or any interest therein or
part thereof, is in excess of any prepayments of Lessee's rent and other
payments under this Lease as of the effective date of the assignment, then
Lessor shall have the option either (a) to release Lessee from its duties and
obligations, accruing subsequent to the date of valid assignment of this
Lease, to perform fully all of the agreements, covenants, and conditions set
forth in this Lease, or with respect to the interest therein or part thereof
assigned, and to look solely to the assignee for the remaining duties and
obligations pursuant to this Lease, in which event Lessor shall be entitled
to receive all consideration paid and payable by the assignee (or its
affiliates) in connection with the assignment of this Lease, or the interest
therein or part thereof, in excess of any prepayments under this lease, but
Lessor shall nevertheless be entitled to receive all rent and other payments
on account of this Lease, or (b) to continue to hold Lessee liable and
responsible for its duties and obligations accruing subsequent to the
effective date of the assignment, in which event Lessee shall be entitled to
the excess of any rent and other consideration under the sublease over the
rent and other payments required to be paid by Lessee pursuant to this Lease
for the area sublet.
(c) Lessee may sublease any portion of the Premises (but not all or
substantially all of the Premises); provided, that Lessor consents in
writing, which consent shall not be unreasonably withheld, but which consent
shall be subject to the following conditions and limitations:
(i) The sublessee's use of the Premises shall be limited to an
automobile dealership as set forth in paragraph 4 of this Lease.
(ii) The sublessee shall assume, by written instrument, all of
the obligations of this Lease, and a fully executed copy of the sublease
shall be furnished to the Lessor within ten (10) days of its execution.
(iii) The Lessee and sublessee, jointly and severally, shall be
and remain liable for the observance of all the covenants and provisions of
this Lease, including, but not limited to, the payment of rent reserved
herein, through the entire term of this Lease.
(iv) In the event that rent and/or other consideration
receivable by Lessee for any subletting shall be in excess of the rent and
other payments required to be paid by Lessee pursuant to this Lease for the
area sublet, computed on the basis of an average rent per rentable square
foot of area sublet, such excess shall be equally divided between Lessor and
Lessee, but in all respects this Lease shall remain in full force and
effect. lessee shall remit Lessor's portion of such excess payments to
Lessor within two (2) business days of the receipt thereof by Lessee.
Nothing herein contained shall extend, vary or modify the date upon which
rental payments are to be made by Lessee under this Lease as provided in
paragraph 3(a) above.
18. SURRENDER. When this Lease shall terminate in accordance with
the terms hereof, Lessee shall deliver up possession of the Leased Premises
to Lessor without notice from Lessor other than as may be specifically
required by any provision of this Lease. Lessee expressly waives the benefit
of all laws now or hereafter in force requiring notice from Lessor with
respect to termination.. Except for the equipment and fixtures described in
Exhibit B, Lessee shall deliver up possession of the Leased Premises,
(including the buildings and improvements), in good condition. Lessee shall
return the equipment and fixtures described in Exhibit B in good condition
less reasonable wear, tear and obsolescence. Lessee shall, not later than
the last day of the term of this Lease, at Lessee's expense, (i) remove from
the Leased Premises all personal property of Lessee, (ii) remove from the
Leased Premises all fixtures and signs of Lessee, (iii) remove any
alterations, additions or improvements made by Lessee that Lessee is required
to remove pursuant to subparagraph 7(b) above, (iv) repair all injury or
damage done to the Premises by or in connection with installation and/or
removal of any and all personal property, fixtures, alterations, additions
and/or improvements of Lessee and Lessee, at its cost, shall restore the
Leased Premises to the same condition it was in prior to commencement of this
Lease. All personal property, fixtures, signs, alterations, additions and
improvements not removed by Lessee as hereinabove required, shall be
conclusively deemed abandoned and may be kept or removed by Lessor, and
Lessee shall reimburse Lessor for the cost of such removal and repair and
restoration of any injury or damage resulting from removal. Lessor may have
any such personal property or fixtures stored at Lessee's risk and expense.
19. LESSEE'S ESTOPPEL. Lessee shall, from time to time, on ten (10)
days' prior written request by Lessor, execute, acknowledge and deliver to
Lessor a tenant estoppel certificate certifying (i) that the Lease is in full
force and effect; (ii) that the Lessee is not in default on this Lease or if
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Lessee is in default, specifying the nature and extent of the alleged
default(s); (ii) that Lessee is in possession of the Premises or if not
identifying who is in possession; and (iv) that the Lease has not been
assigned and the Premises have not been sublet, or if there has been an
assignment or subletting, specifying all of the details.
20. HOLDOVER TENANCY. If Lessee holds possession of the Premises
after the term of this Lease, Lessee shall become a tenant from month to
month under the provisions of this Lease, but at a monthly rental of two
hundred percent (200%) of the rent for the last month of the Lease term or
any renewed or extended term, payable monthly in advance and other payments
as provided in this Lease, and such tenancy shall continue until terminated
by Lessor upon fifteen (15) days prior notice, or until Lessee shall have
given to Lessor a written notice, at least sixty (60) days prior to the
intended date of termination, of intent to terminate such tenancy.
21. ABANDONMENT. During the term of this Lease, Lessee shall not,
without first obtaining the written consent of Lessor, abandon the Leased
premises, or allow the Leased Premises to become vacant or deserted.
Lessee's failure to occupy and operate the Premises for fifteen (15)
consecutive days shall be considered an abandonment or vacation of Premises
unless Lessee continues to perform all of its obligations, covenants and
duties provided by this Lease and provides reasonable physical security of
the Leased Premises by means of watchmen or a security service or other
arrangement reasonably satisfactory to Lessor.
22. RIGHT TO SHOW PREMISES. During the nine (9) months prior to the
end of this Lease or at any times when Lessee is in default, Lessor or its
representatives may show the Premises to prospective purchasers and Lessee
during all usual business hours.
23. LATE CHARGE. Lessee agrees that any payment due hereunder on
rent not paid when due shall bear interest at the rate of twelve percent
(12%) per annum from the date due until paid.
24. QUIET ENJOYMENT. Lessor covenants that if, and so long as,
Lessee pays the rent and any additional rent and other payments as herein
provided and performs the covenants hereof, Lessor shall do nothing to affect
Lessee's right to peaceably and quietly have, hold and enjoy the Premises for
the term herein provided, subject to the provisions of this Lease.
25. LESSOR'S LIABILITY FOR LOSS OF PROPERTY. Lessor shall not be
liable for any loss of property from any cause whatsoever, including, but not
limited to, theft or burglary from the Premises, and Lessee covenants and
agrees to make no claim against Lessor for any such loss at any time.
26. BROKER. Lessee and Lessor represent to each other that each
party has not had any dealings or commitments with any broker or finder with
respect to this Lease other than Pat Champbell and Associates, Pat
Campbell-Cozzi, Broker. Each party shall indemnify and hold the other
harmless from any and all claims of any other brokers arising out of or in
connection with the negotiations or the entering into this Lease by Lessee
and Lessor.
27. PERSONAL LIABILITY. Notwithstanding anything to the contrary
provided in this Lease, Lessee specifically acknowledges and agrees, that
there shall be absolutely no personal liability on the part of Lessor, its
successors, assigns or any mortgagee in possession (for the purposes of this
paragraph, collectively referred to as "Lessor"), with respect to any of the
terms, covenants and conditions of this Lease and that Lessee shall look
solely to the equity of Lessor in the Premises for the satisfaction of each
and every remedy of Lessee in the event of any breach by Lessor of any of the
terms, covenants and conditions of this Lease to be performed by Lessor, such
exculpation of liability to be absolute and without any exceptions whatsoever.
28. NO OPTION. The submission of this lease for examination does not
constitute a reservation of, or option for, the Premises, and this Lease
becomes effective as a Lease only upon execution and delivery thereof by
Lessor and Lessee.
29. NOTICES. Any notice by either party to the other shall be in
writing and shall be deemed to have been duly given only if delivered
personally or sent by registered mail or certified mail in a postpaid
envelope addressed, if to Lessee , at __________________________; if to
Lessor, at 1500 South Virginia, Reno, NV 89502, with a copy to Mortimer
Sourwine Mousel & Sloane, Ltd., Attention: Douglas A. Sloane, 333 Marsh
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Avenue, Reno, Nevada 89509; or to such other address as Lessee or Lessor,
respectively, may designate by written notice in accordance with this
paragraph. Notice shall be deemed to have been effective and duly given, if
delivered personally, on delivery thereof, and if mailed, upon the fifth
(5th) day after mailing thereof. Any notice to terminate Lessee's possession
shall be given pursuant to statute.
30. ATTORNEY FEES. In the event either party hereto shall employ an
attorney to enforce any of the conditions of this Lease, at law or in equity,
the prevailing party (as determined by the Court or an Arbitrator) shall be
entitled to reimbursement from the other party of all costs and expenses
incurred or paid in so doing, including, but not by way of limitation, all
attorney fees and costs incurred or paid at any time or times in connection
therewith, whether the matter is handled by arbitration or by legal action at
the trial court level and at any and all appellate court levels.
31. AMENDMENTS, MODIFICATIONS, ETC. No change, modification or
termination of any of the terms, provisions, covenants, promises or
conditions of this Lease agreement shall be effective unless made in writing
and signed or initialed by all parties hereto, their successors or assigns.
32. ENTIRE AGREEMENT. This Lease agreement, including all exhibits
and schedules referenced herein and attached hereto, constitutes the entire
agreement between the parties hereto, pertaining to the subject matters
hereof, and it supersedes all negotiations, preliminary agreements, and all
prior and contemporaneous discussions and understandings of the parties in
connection with the subject matters hereof. Except as otherwise expressly
provided herein, no covenant, representation, promise or condition not
expressed in this Lease agreement, or in an amendment hereto made and
executed in accordance with this Lease agreement, shall be binding upon the
parties hereto or shall affect or be effective to interpret, change or
restrict the provisions of this Lease agreement.
33. APPLICABILITY TO HEIRS, ASSIGNS AND SUCCESSORS. The provisions
of this Lease apply to, bind and inure to the benefit of Lessor and Lessee,
and their respective heirs, successors, legal representatives and assigns.
34. WAIVER. Lessee agrees that the failure of Lessor in one or more
instances to insist upon strict performance or observance of one or more of
the covenants or conditions hereunder, or in any other Lease, or to exercise
any rights, remedies, privileges, or option provided by law or in equity or
provided or reserved to Lessor in this lease, or in any other Lease, shall
not operate or be construed as a relinquishment or waiver for the future of
such covenant or condition or of the right to enforce the same or to exercise
such right, remedy, privilege or option, but rather, the same shall continue
in full force and effect. The receipt and acceptance by Lessor of rents
and/or additional rents and/or other payments hereunder, or any part or
portion thereof, shall not be a waiver of any other rents and/or additional
rents and/or any other payments hereunder, or any part or portion thereof,
and such receipt and acceptance by Lessor, though with knowledge on the part
of Lessor of the waiver of such breach or a waiver of any right, remedy,
privilege or option of Lessor arising hereunder or at law or in equity on
account of such breach in the absence of such receipt or acceptance. The
receipt and acceptance by Lessor of delinquent rent shall not constitute a
waiver of any default, but it shall constitute only a waiver of timely
payment of the particular monthly rental payment due, and shall not prevent
Lessor from enforcing, in the future, timely payment of rent. No waiver by
lessor of any of the provisions of this Lease, or of any of Lessor's rights,
remedies, privileges or options under this Lease shall be deemed to have been
made unless the Lessor specifies such waiver in writing. If Lessor shall
consent to the assignment of this Lease or to a subletting of all or a
portion of the Premises, or if any such assignment or subletting may be made
hereunder without Lessor's consent, no further assignment or subletting shall
be made without the prior written consent of Lessor. This provision with
respect to an assignment or subletting without Lessor's consent shall not
constitute a waiver, or in any way lessen Lessor's rights and remedies with
respect to an assignment or subletting made without Lessor's consent.
35. GOVERNING LAW. This Lease agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
36. SEVERABILITY. If any paragraph, subparagraph or other provision
of this Lease agreement, or application of such paragraph, subparagraph or
provision, is held invalid, then the remainder of the Lease agreement, and
the application of such paragraph, subparagraph or provisions to persons,
parties or circumstances other than those with respect to which it is held
invalid, shall not be affected thereby.
37. PARAGRAPH HEADINGS. The paragraph headings in this Lease and
position of its provisions are intended for convenience only and shall not be
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taken into consideration in any construction or interpretation of this Lease
or any of its provisions. The words "hereof", "herein", "hereunder: and
words of similar import, refer to this Lease agreement as a whole.
38. SECURITY DEPOSIT. Lessee, concurrently with the execution of this
Lease, has deposited with Lessor the sum of Six Thousand Five Hundred Dollars
($6,500.00) receipt of which is hereby acknowledged by Lessor. Said deposit
shall be held by Lessor as security for the full and faithful performance by
Lessee to be kept and performed during the term hereof, provided that Lessee
shall not be excused from the payment of any rent herein reserved or any
other charge herein provided. If Lessee defaults with respect to any
provision of this Lease, Lessor may, but shall not be required to, use or
retain all of part of such security deposit for payment of any rent, to
repair damages to the Leased Premises, to clean the Leased Premises or to
compensate Lessor for any reason of Lessee's default. If any portion of said
deposit is so used or applied, Lease shall, within five (5) days after
written demand therefor, deposit cash with Lessor in an amount sufficient to
restore the security deposit to its original amount.
Lessor shall not be required to keep such security deposit separate
from its general funds, and Lessee shall not be entitled to interest on such
deposit. Should Lessee comply with all of said terms, covenants and
conditions and promptly pay all the rental provided for as it falls due, and
all other sums payable by Lessee to Lessor hereunder, then the said deposit
shall be returned to Lessee thirty (30) days after the end of the term of
this Lease or after the last payment due from Lessee to Lessor, whichever
last occurs. In the event of sale or transfer of the center or any portion
thereof containing the Leased Premises, if Lessor transfers the security to
the vendee or transferee for the benefit of Lessee, or if such vendee or
transferee assumes all liability with respect to such security, Lessee shall
be considered released by Lessee from all liability for the return of such
security, and Lessee agrees to look solely to the new lessor for the return
of the security, and it is agreed that this paragraph 38 shall apply to every
transfer or assignment to a new lessor. Said deposit shall not be assigned,
transferred or encumbered by Lessee, and any attempt to do so by Lessee shall
not be binding upon Lessor.
39. AGREEMENT TO BE CONSTRUED IN ACCORDANCE WITH INTENT. Lessor and
Lessee agree that this Lease shall be construed in accordance with its intent
and without regard to any presumption or other rule requiring construction
against the Lessor or the party causing the same to be drafted.
40. LESSOR'S LIEN. Lessor shall have a first and prior lien for the
rents and charges herein reserved upon the furniture, fixtures and personal
property of Lessee situated upon the premises and said furniture, fixtures,
machinery and personal property shall not be removed from said Premises until
said rent and charges are fully paid.
41. SUBORDINATION OF LEASE.
(a) Subordination. This Lease shall be subject and subordinate to
any mortgages and/or deeds of trust which may now or hereafter affect the
real property of which the Premises form a part, and also to all renewals,
modifications, amendments, consolidations and replacements of said mortgages
or deeds of trust. Although no instrument or act on the part of Lessee shall
be necessary to effectuate such subordination, Lessee will, nevertheless,
execute and deliver such further instruments confirming such subordination of
this Lease as may be desired by Lessor, or by the holders of said mortgages
or deeds of trust. Lessee hereby appoints Lessor attorney-in-fact, coupled
with an interest, irrevocably, to execute and deliver any such instrument for
Lessee. Lessor, at its option, may record this Lease and Lessee shall, upon
reasonable request of Lessor, execute duplicate originals in recordable form.
(b) Non-Disturbance. In the event, Lessor seeks financing in which
the lender requires a mortgage or deed of trust on the Premises, then:
(i) Lessor shall use its best efforts to obtain from the lender
an agreement to the effect that so long as Lessee is not in default under
this Lease then the holder of said mortgage or deed of trust shall not
unreasonably interfere with Lessee's use or occupancy of the Premises.
(ii) If Lessor fails to obtain said agreement from the lender
then Lessee shall have the right, but without obligation to do so, to cure
any default of Lessor under the terms of any mortgage or deed of trust given
on the Premises and offset the cost to cure the default against the rent due
hereunder; provided, that Lessee gives Lessor fifteen 915) days advance
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notice, and such notice provides (1) that Lessee will cure the default, (2)
the date Lessee will cure the default; (3) whether Lessee intends to offset
the cost to cure against rent due hereunder, and (4) a reasonably detailed
description of the cost involved in curing the default; and, further
provided, that Lessor does not cure such default within fifteen 915) days
after receipt of such notice.
(c) Cooperation by Lessee. Upon the request of any lender, Lessee
shall provide information so requested, including, without limitation,
Lessee's financial statement.
42. LEASE COMMENCEMENT. Lessee may enter the Leased Premises upon
acquisition of all insurance required by paragraph 6 and following the
preparation by Lessor of an inventory of the equipment and fixtures to be
included in Exhibit B for the purposes of preparing to commence business.
Notwithstanding the foregoing, the term of this Lease shall commence, and the
first monthly installment of rent shall become due and payable on the earlier
to occur of the following events: (i) Lessee's commencement of business; or
(ii) August 15, 1992. In the event that Lessee becomes a manufacturer's
franchisee dealer of new vehicles, recreational vehicles, motor homes, mobile
homes, campers, trailers or manufactured housing, Lessee shall pay Basic Rent
at the rate of Nine Thousand Five Hundred and 00/100 Dollars ($9,500.00) per
month commencing with the month in which Lessee achieves such status pro
rated for the actual number of days in that month that Lessee so conducts
business and for each month thereafter during the Original Term.
43. HAZARDS SUBSTANCES.
(a) Lessee shall not cause or permit any Hazardous Material to be
brought upon, kept or used in or about the Leased Premises by Lessee, its
agents, employees, contractors, or invitees, except for such Hazardous
Material as is necessary or useful to Lessee's business.
(b) Any Hazardous Material permitted on the Leased Premises as
provided in subparagraph (a) above, and all containers therefor, shall be
used, kept, stored and disposed of in a manner that complies with all
federal, state and local laws or regulations applicable to any such Hazardous
Materiel.
(c) Lessee shall not discharge, leak or emit, or permit to be
discharged, leaked or emitted, any material into the atmosphere, ground,
sewer system or any body of water, if such material (as determined by the
Lessor or any governmental authority) does or may pollute or contaminate the
same, or may adversely affect (1) the health, welfare or safety of persons,
whether located on the Leased Premises or elsewhere; or (2) the condition,
use or enjoyment of the Leased Premises or any other real or personal
property.
(d) At the commencement of each Lease Year, Lessee shall disclose to
Lessor the names and approximate amounts of all Hazardous Material which
Lessee intends to store, use or dispose of on the Leased Premises in the
coming Lease Year. In addition, at the commencement of each Lease Year,
beginning with the second Lease Year. Lessee shall disclose to Lessor the
name and amounts of all Hazardous Materials which were actually used, stored
or disposed of on the Leased Premises if such materials were not previously
identified to Lessor at the commencement of the previous Lease Year.
(e) As used herein, the term "Hazardous Material" means:
(i) Any "hazardous waste" as defined by the Resource
Conservation and Recovery Act of 1976, as amended from time to time, and
regulations promulgated thereunder.
(ii) Any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
from time to time, and regulations promulgated thereunder;
(iii) Any oil, petroleum products, and their byproducts; and
(iv) Any substance which is or becomes regulated by any federal,
state or local governmental authority.
(f) Lessee agrees that it shall be fully liable for all costs and
expenses related to the use, storage and disposal of Hazardous Material kept
on the Leased Premises by Lessee, and the Lessee shall give immediate notice
to the Lessor of any violation or potential violation of the provisions of
this paragraph 43. Lessee shall defend, indemnify and hold harmless Lessor
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and its Agents from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs or expenses (including, without
limitation, attorneys' and consultant fees, court costs, and litigation
expenses) of which kind or nature, known or unknown, contingent or arising
out of or in any way related to:
(i) The presence, disposal, release or threatened release of
any such Hazardous Material which is on, from or affects soil, water,
vegetables, buildings, personal property, persons, animals or otherwise;
(ii) Any personal injury (including wrongful death) or property
damage (real or personal) arising out of or related to such Hazardous
Material;
(iii) Any lawsuit brought or threatened, settlement reached, or
government order relating to such Hazardous Material; or
(iv) Any violation of any laws applicable thereto. The
provisions of this paragraph 43 shall be in addition to any other obligations
and liabilities Lessee may have to Lessor at law or equity and shall survive
the transactions contemplated herein and shall survive the termination of
this Lease.
44. EMERGENCY ACCESS. Lessee shall have the non-exclusive right, in
common with Lessor and all others to whom Lessor has or may hereafter grant
similar rights, to access to parcel no. 040-162-14 for emergency egress and
ingress to the Leased Premises. Lessee does hereby covenant and agree to
indemnify, save and hold Lessor free, clear and harmless from any and all
liability, loss, damages, costs, expenses, including attorneys' fees,
judgments, claims, liens and demands of any kind whatsoever on connection
with, arising out of, or by reason of the exercise of Lessee's right of
access hereby granted and Lessee agrees to include the exercise of such right
within the coverages of the policy of liability insurance to be procured by
Lessee under and pursuant to paragraph 6(b) above.
45. INTERRUPTION OF SERVICES OR USE. Lessee's inability to use any
of the equipment or fixtures listed in Exhibit B or interruption of any
service to the Premises shall not entitle Lessee to any claim against Lessor
or to any abatement in rent, and shall not constitute a constructive or
partial eviction. In no event shall Lessee be entitled to claim a
constructive eviction from the Premises, unless Lessee shall first have
notified Lessor in writing of the condition or conditions giving rise
thereto, and, if the complaints be justified, unless Lessor shall have failed
within a reasonable time, after receipt of such notice, to commence and
proceed with due diligence to remedy the condition.
46. AGENCY DISCLOSURE. Attached hereto as Exhibit C is an Agency
Disclosure Statement which is by this reference incorporated herein as if set
forth in haec verba.
47. COUNTERPARTS. This Lease may be executed in counterparts, each
of which shall be an original and all of which shall constitute but one and
the same instrument.
IN WITNESS WHEREOF , the parties have hereunto set their hands the day
and year first above written.
LESSOR
TEDDY BEAR HAVAS MOTORS, INC., a Nevada corporation
By: /s/ Paul P. Havas
PAUL P. HAVAS
Its President
LESSEE
UNITED AMERICAN FUNDING, INC., a Nevada corporation
By: /s/ United American Funding, Inc.
Its President
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STATE OF NEVADA )
) ss.
County of Washoe )
On this 28th day of July, 1992, personally appeared before me, a Notary
Public, PAUL P. HAVAS, known to me or proved to me on the basis of
satisfactory evidence to be the President of TEDDY BEAR HAVAS MOTORS, INC., a
Nevada corporation, the person whose name is subscribed to the within Lease
Agreement, and who acknowledged that he/she executed the foregoing Lease
Agreement on behalf of said corporation.
/s/ Notary Public
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EX-10
Exhibit 10.30.1 Credit Agmt with US Bank
EXHIBIT 10.30.1
CREDIT AGREEMENT
AMONG
U.S. BANK NATIONAL ASSOCIATION,
As Agent and lender
AND
LITHIA MOTORS, INC. and its
AFFILIATES AND SUBSIDIARIES
Dated December 22, 1997
THIS CREDIT AGREEMENT is entered into as of December 22, 1997 (this
"Agreement") by and among LITHIA MOTORS, INC., an Oregon corporation, having
its chief executive office at 360 East Jackson Street, Medford, Oregon 97501
(the "Borrower") and the Borrower's Affiliates and Subsidiaries listed on
Schedule 1-A attached to this Agreement or who subsequently become a party to
this Agreement (each, jointly and severally with the Borrower, a "Loan
Party" and together with the Borrower, the "Loan Parties"); U.S. BANK NATIONAL
ASSOCIATION, a national bank having an office at 131 East Main Street,
Medford, Oregon 97501 ("U.S. Bank") and the other financial institutions
listed on Schedule 1-B attached to this Agreement or who subsequently become
a party to this Agreement (together with U.S. Bank, the "Lenders"); and
U.S. Bank National Association, as agent for the Lenders (in such capacity,
the "Agent").
A. Borrower owns and operates through its various Subsidiaries and
Affiliates automobile dealerships and desires to finance the acquisition of
its inventory pursuant to the terms and conditions of this Agreement. The
Borrower also desires to have the Lenders finance its acquisition of other
automobile dealerships.
B. The Lenders are willing to finance the acquisition of the
Borrower's inventory and the acquisition of other automobile dealerships by
making loans or advances to the Borrower and its Subsidiaries and Affiliates
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are by this
Agreement acknowledged, the parties to this Agreement agree as follows:
SECTION I.
DEFINITIONS
1.1 Definitions. All capitalized terms used in this Agreement, or in
the Notes, Loan Documents, or in any certificate, report or other document
made or delivered pursuant to this Agreement (unless otherwise defined
therein) shall have the meanings assigned to them below:
Acquisition. See Section 5.17.
Acquisition Approval Documents. A Pro Forma Compliance Certificate
indicating the Loan Parties' compliance with the terms, conditions and
covenants of this Agreement after giving effect to the Acquisition and such
other documents as the Agent may reasonably request including without
limitation financial statements of the Acquisition Target.
Acquisition Loan. An Acquisition Revolving Loan and/or the Acquisition
Term Loan.
Acquisition Revolving Loan. See Section 2.1(e).
Acquisition Target. See Section 5.17.
Acquisition Term Loan. See Section 2.1(e).
Affected Loans. See Section 2.11(a).
Affiliate. With reference to any Person, (i) any director, officer or
employee of that Person, (ii) any other Person controlling, controlled by or
under direct or indirect common control of that Person, (iii) any other
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Person directly or indirectly holding 5% or more of any class of the capital
stock or other equity interests (including options, warrants, convertible
securities and similar rights) of that Person and (iv) any other Person 5% or
more of any class of whose capital stock or other equity interests (including
options, warrants, convertible securities and similar rights) is held
directly or indirectly by that Person other than a person who has acquired
such securities in the ordinary course of business and not with the purpose
nor with the effect of changing or influencing the control of the Borrower,
nor in connection with or as a participant in any transaction having such
purposes, and that person is a broker or dealer registered under the
Securities Exchange Act of 1934, as amended, and otherwise qualifies as a
passive investor entitled to file a Schedule 13G Disclosure with the
Securities and Exchange Commission; a bank or trust company; an insurance
company; an investment company registered under the Investment Company Act of
1940, as amended; an investment adviser registered under the Investment
Advisers Act of 1940, as amended, or under the securities laws of any state
or the District of Columbia; or an employee benefit plan or pension plan
which is subject to the provisions of ERISA, or a trust fund of such a plan,
for which no Loan Party is a participating employer; provided, however, that
for purposes of the definitions of "Plan" and "Multiemployer Plan" in this
Section 1.1 and for purposes of Sections 4.15, 5.10, 7.8 and 8.1(h) of this
Agreement, "Affiliate" shall mean, within the meaning of Section 414(b), (c),
(m) or (o) of the Internal Revenue Code of 1986, as amended, only (i) any
member of a controlled group of corporations which includes the Borrower or
any Subsidiary of the Borrower, (ii) any trade or business, whether or not
incorporated, under common control with the Borrower or any Subsidiary of the
Borrower, (iii) any member of an affiliated service group which includes the
Borrower or any Subsidiary of the Borrower, and (iv) any member of a group
treated as a single employer by regulation with the Borrower or a Subsidiary
of the Borrower.
Agreement. This Credit Agreement, including the Exhibits and Schedules
to this Agreement, as the same may be supplemented or amended from time to
time.
Applicable Margin. As of any date, with respect to a LIBOR Loan that
is a New Vehicle Loan, Program and Used Vehicle Loan, or an Acquisition Loan,
the applicable percentage set forth below opposite the applicable Debt to
Cash Flow Ratio:
Applicable Margin
New Vehicle Program and Acquisition
Debt to Cash Loans Used Vehicle Revolving
Flow Ratio Loans Loans and
Acquisition
Term Loan
greater than 3.00:1.00 1.75% 2.75% 2.75%
3.00:1.00 or less and 1.50% 2.25% 2.25%
greater than 2.50:1.00
2.50:1.00 or less and 1.50% 2.15% 2.15%
greater than 1.00:1.00
1.00:1.00 or less 1.50% 2.05% 2.05%
Swingline Loans and Demonstrator Vehicle Loans shall not be LIBOR Loans.
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As of any date, with respect to any Prime Rate Loan that is a New
Vehicle Loan, a Swingline Loan, a Program and Used Vehicle Loan, a
Demonstrator Vehicle Loan, or an Acquisition Loan, the applicable percentage
set forth below opposite the applicable Debt to Cash Flow Ratio:
Applicable Margin
Debt to Cash New Vehicle Program and Demonstrator Acquisition
Flow Ratio Loans or Used Vehicle Vehicle Loans Revolving
Swingline Loans Loans Loans or
Acquisition
Term Loan
greater than 0% .25% 0% .25%
3.00:1.00
3.00:1.00 or 0% .25% 0% .25%
less
Assignee. See Section 9.1.
Attorneys' Fees. See Section 11.2.
Borrower. See Preamble.
Borrower's Accountants. Independent certified public accountants
selected by the Borrower and reasonably acceptable to the Agent.
Borrowing Base. (i) With respect to New Vehicle Loans or Swingline
Loans, 100% of the value, equal to the lower of cost using the specific
identification method or Reserve Adjusted Value, of (a) that portion of the
inventory consisting of New Vehicles in which the Lenders have a perfected
first-priority security interest, and (b) without duplication, Sold New
Vehicles; (ii) with respect to Program and Used Vehicle Loans, 80% of the
combined value, equal to the lower of cost using the specific identification
method or Reserve Adjusted Value, of that portion of the inventory consisting
of Program Vehicles and Used Vehicles in which the Lenders have a perfected
first-priority security interest; and (iii) with respect to Acquisition
Loans, an amount equal to the sum of (a) 70% of Vehicle Equity, (b) 70% of
Fixed Asset Value, (c) 70% of Franchise Value, and (d) 70% of Leased Vehicle
Equity. Notwithstanding anything to the foregoing, the value of any Vehicle
shall not be included in the calculation of more than one Borrowing Base or
Commitment at any given time, and the value of any Vehicle owned by Lithia
Financial Corporation shall not be included in the calculation of any
Borrowing Base applicable to a Vehicle Loan.
Business Day. (i) For all purposes other than as covered by clause
(ii) below, any day other than a Saturday, Sunday or legal holiday on which
banks in Portland, Oregon, Minneapolis, Minnesota and New York, New York are
open for the conduct of a substantial part of their commercial banking
business; and (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on, LIBOR Loans, any
day that is a Business Day described in clause (i) and that is also a day on
which trading may be carried on by the Agent in the interbank eurodollar
market.
Capital Expenditures. Without duplication, any expenditure for fixed
or capital assets, leasehold improvements, capital leases, installment
purchases of machinery and equipment, acquisitions of real estate and other
similar expenditures including (i) in the case of a purchase, the entire
purchase price, whether or not paid during the fiscal period in question,
(ii) in the case of a capital lease, the entire rental amount for the lease
term, and (iii) expenditures in any construction in progress account of any
Loan Party.
Closing Date. The first date on which the conditions set forth in
Sections 3.1 and 3.2 have been satisfied and any Loans are to be made under
this Agreement.
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Code. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively, as the same may from time to time be supplemented
or amended and remain in effect.
Collateral. See Section 5.19.
Commitment. With respect to each Lender, such Lender's New Vehicle
Commitment, Swingline Commitment, Program and Used Vehicle Commitment,
Demonstrator Vehicle Commitment, or Acquisition Loan Commitment, as the
context requires.
Commitment Fee. See Section 2.6(a).
Consolidated Current Assets. The consolidated current assets (other
than cash or cash equivalents) of the Borrower and its Subsidiaries as
determined in accordance with GAAP.
Consolidated Current Liabilities. The consolidated current liabilities
of the Borrower and its Subsidiaries as determined in accordance with GAAP.
Consolidated Earnings Available for Fixed Charges. With respect to the
Borrower and its Subsidiaries on a consolidated basis, for any period for
which the amount thereof is to be determined, EBITDA, plus all payments due,
whether made or accrued, under real or personal property leases during the
applicable period, less income taxes paid.
Consolidated Fixed Charges. With respect to the Borrower and its
Subsidiaries on a consolidated basis, for any period for which the amount
thereof is to be determined, the sum of Interest Expense, plus all payments
due, whether made or accrued, under real or personal property leases during
the applicable period, plus scheduled principal payments with respect to any
Indebtedness (excluding payments, whether made or accrued, to sellers on
Indebtedness associated with an Acquisition, to the extent such payments are
made with the proceeds of a Loan), plus Restricted Payments paid in cash,
plus Capital Expenditures paid in cash for tangible personal property and
intangible personal property (excluding Capital Expenditures for
Acquisitions).
Consolidated Net Income. For any fiscal period, the consolidated net
income of the Borrower and its Subsidiaries for such period determined in
accordance with GAAP, but in any event there shall be excluded or deducted
from such net income: (i) any gain or loss arising from any write-up,
re-appraisal or re-evaluation of assets; (ii) earnings of any Subsidiary
accrued prior to the date it became a Subsidiary; (iii) any extraordinary or
nonrecurring gains; (iv) any deferred or other credit representing any excess
of the equity of any Subsidiary at the date of acquisition thereof over the
amount invested in such Subsidiary; (v) the net earnings of any business
entity (other than a Subsidiary) in which the Borrower or any Subsidiary has
an ownership interest, except to the extent such net earnings shall have
actually been received by the Borrower or such Subsidiary in the form of cash
distributions; (vi) the proceeds of any life insurance policy; and (vii) any
reversal of any contingency reserve, except to the extent that provision for
such contingency reserve shall be made from income arising during such period.
Consolidated Net Worth. At any date as of which the amount thereof
shall be determined, the consolidated total assets of the Borrower and its
Subsidiaries, as determined in accordance with GAAP, with inventory of
vehicles valued at the lower of cost using the specific identification method
or Reserve Adjusted Value, and other inventory valued at the lower of cost of
goods or market value determined on a "first in, first out" basis consistent
with the Borrower's past practices, minus (a) Consolidated Total Liabilities
and (b) the sum of any amounts attributable to (i) all reserves not already
deducted from assets or included in Consolidated Total Liabilities, (ii) any
write-up in the book value of assets resulting from any revaluation thereof
subsequent to the Closing Date, (iii) the value of any minority interests in
Subsidiaries, (iv) intercompany accounts with Subsidiaries and Affiliates
(including receivables due from Subsidiaries and Affiliates), (v) the value,
if any, attributable to any capital stock of the Borrower or any Subsidiary
held in treasury, and (vi) the value, if any, attributable to any notes or
subscriptions receivable due from stockholders with respect to capital stock.
Consolidated Total Liabilities. At any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP, be classified as liabilities on the consolidated balance sheet of the
Borrower and its Subsidiaries.
4
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Contracts in Transit. The amount owed to a Loan Party by a financial
institution for the purchase by such financial institution of a retail
installment contract arising from the sale of a Vehicle by such Loan Party.
Debt to Cash Flow Ratio. See Section 6.2.
Default. An Event of Default or event or condition that, but for the
requirement that time elapse or notice be given, or both, would constitute an
Event of Default.
Demonstrator Vehicle. A Vehicle which has never been titled and has
500 or more miles; provided, however, that a Vehicle shall cease to be a
Demonstrator Vehicle on June 30 of the calendar year following its model year.
Demonstrator Vehicle Loan. See Section 2.1(d).
Drawdown Date. The Business Day on which any Loan is made.
EBITDA. For any period, an amount equal to Consolidated Net Income for
such period, plus the following, to the extent deducted or excluded in
computing such Consolidated Net Income: (i) Interest Expense, (ii) income
taxes, (iii) depreciation, and (iv) amortization.
Encumbrances. See Section 7.3.
ERISA. The Employee Retirement Income Security Act of 1974 and the
rules and regulations thereunder, collectively, as the same may from time to
time be supplemented or amended and remain in effect.
Environmental Laws. Any and all applicable federal, state and local
environmental, health or safety statutes, laws, regulations, rules and
ordinances (whether now existing or hereafter enacted or promulgated), of all
governmental agencies, bureaus, or departments to the extent the foregoing
may now or subsequently have jurisdiction over any of the Loan Parties and
all applicable judicial and administrative and regulatory decrees, judgments
and orders, including common law rulings and determinations, relating to
injury to, or the protection of, real or personal property or human health or
the environment, including, without limitation, all requirements pertaining
to reporting, licensing, permitting, investigation, remediation and removal
of emissions, discharges, releases or threatened releases of Hazardous
Materials into the environment or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
such Hazardous Materials.
Event of Default. Any event described in Section 8.1.
Federal Funds Rate. For any day, a fluctuating interest rate per annum
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day that is a Business
Day, the average of the quotations for such day on such transactions received
by the Agent from three Federal funds brokers of recognized standing selected
by the Agent.
Fees. Commitment Fees and other fees agreed to between the Borrower
and the Agent and/or the Lenders.
Fixed Asset Value. As of any date of determination, the difference
between (a) the book value of the Loan Parties' fixed assets (excluding any
interest in real property other than fixtures) in which the Lenders have a
perfected first-priority security interest (or a perfected second-priority
security interest with respect to the fixed assets (excluding any interest
in real property other than fixtures) of Lithia Financial Corporation) and
(b) the amount of any Indebtedness (excluding Total Loan Outstandings)
secured by a lien or other interest against the Loan Parties' fixed assets
(excluding any interest in real property other than fixtures).
Floor Plan Financings. As of the date of determination, an amount
equal to the sum of the outstanding principal balances of the Vehicle Loans.
Franchise Value. The portion of goodwill included on the consolidated
balance sheet of the Borrower and its Subsidiaries, which represents the
excess of purchase price over the fair value of the assets acquired in
connection with an Acquisition, in accordance with GAAP and in accordance
with the Borrower's past practices.
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Funded Indebtedness. As applied to the Borrower and its Subsidiaries,
without duplication, (i) Indebtedness for borrowed money, (ii) Indebtedness
with respect to capitalized lease obligations and synthetic lease
obligations, (iii) all obligations with respect to letters of credit
(including without limitation the maximum amount available for drawing under
letters of credit plus all unpaid reimbursement obligations), (iv) all other
interest bearing obligations which, in accordance with GAAP, would be
included as a liability on the consolidated balance sheet of the Borrower and
its Subsidiaries, and (v) all Guarantees.
GAAP. Generally accepted accounting principles, consistently applied,
and as in effect as of the date of application thereof.
Guarantees. As applied to the Loan Parties, all guarantees,
endorsements or other contingent or surety obligations with respect to
obligations of others whether not reflected on the consolidated balance sheet
of the Borrower or its Subsidiaries, including any obligation to furnish
funds, directly or indirectly (whether by virtue of partnership arrangements,
by agreement to keep-well or otherwise), through the purchase of goods,
supplies or services, or by way of stock purchase, capital contribution,
advance or loan, or to enter into a contract for any of the foregoing, for
the purpose of payment of obligations of any other Person or entity. The
amount of any Guarantee shall be deemed to be the amount of the primary
obligation in respect of which such Guarantee is made.
Guaranty. The Guaranty, dated as of the Closing Date, executed by each
of the Loan Parties in favor of the Agent for the benefit of the Lenders,
guarantying all of the Obligations under this Agreement.
Hazardous Material. Any substance (i) the presence of which requires
or may hereafter require notification, removal or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste,"
"dangerous waste," "extremely hazardous waste," "hazardous material" or
"hazardous substance" under any present or future Environmental Law or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C.
Section 9601 et seq.) and any applicable local statutes and the regulations
promulgated thereunder; (iii) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and which is or becomes regulated pursuant to any Environmental Law
by any governmental authority, agency, department, commission, board, agency
or instrumentality of the United States, any state of the United States, or
any political subdivision thereof; or (iv) without limitation, which contains
gasoline, diesel fuel or other petroleum products, asbestos or
polychlorinated biphenyls ("PCB's").
Indebtedness. As applied to the Loan Parties, without duplication,
(i) all obligations for borrowed money or other extensions of credit, whether
secured or unsecured, absolute or contingent, including, without limitation,
synthetic and capital leases, unmatured reimbursement obligations with
respect to letters of credit or guarantees issued for the account of or on
behalf of any Loan Party, all obligations under conditional sale or other
title retention agreement, and all obligations representing the deferred
purchase price of property, other than accounts payable and accrued
liabilities arising in the ordinary course of business, (ii) all obligations
evidenced by bonds, notes, debentures or other similar instruments, (iii) all
obligations secured by any mortgage, pledge, security interest or other lien
on property owned or acquired by any of the Loan Parties, whether or not the
obligations secured thereby shall have been assumed, (iv) that portion of all
obligations arising under leases that is required to be capitalized on the
consolidated balance sheet of the Borrower and its Subsidiaries, (v) all
Guarantees, (vi) all obligations that are immediately due and payable out of
the proceeds of property now or hereafter owned or acquired by any of the
Loan Parties, and (vii) all other obligations which, in accordance with GAAP,
would be included as a liability on the consolidated balance sheet of the
Loan Parties but excluding anything in the nature of capital stock, capital
surplus and retained earnings.
Initial Financial Statement. See Section 4.7.
Initial Lenders. U.S. Bank and the other financial institutions who
have signed this Agreement and have become Lenders on the date of this
Agreement.
Interest Expense. For any period, the consolidated interest expense
(including imputed interest on capitalized lease obligations and synthetic
lease obligations) and amortized debt discount on Indebtedness of the Loan
Parties for such period.
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Interest Period. With respect to each LIBOR Loan, the period
commencing on the date of the making or continuation of or conversion to such
LIBOR Loan and ending one (1), two (2), or three (3) months thereafter, as
the Borrower may elect in the applicable Notice of Borrowing or Conversion;
provided that:
(i) any Interest Period that would otherwise end on a day that
is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in the next calendar month, in which
case such Interest Period shall end on the immediately preceding
Business Day;
(ii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month;
(iii) no Interest Period shall end after the Maturity Date; and
(iv) no Interest Period shall extend beyond the date that any
payment of principal under the Acquisition Term Loan is due, unless the
sum of the principal amounts of the Acquisition Term Loan bearing
interest at (A) the LIBOR Rate (plus the Applicable Margin) with
Interest Periods ending on or before such due date, plus (B) the Prime
Rate (plus the Applicable Margin), at least equals the amount of such
principal payment.
Investment. As applied to the Loan Parties, the purchase or
acquisition of any share of capital stock, partnership interest, evidence of
indebtedness or other equity security of any other Person (including any
Subsidiary), any loan, advance or extension of credit (excluding Accounts
Receivable arising in the ordinary course of business) to, or contribution to
the capital of, any other Person (including any Subsidiary), any real estate
held for sale or investment, any securities or commodities futures contracts
held, any other investment in any other Person (including any Subsidiary),
and the making of any commitment or acquisition of any option to make an
Investment.
Leased Vehicle Equity. The difference between (a) the value, equal to
the lower of cost using the specific identification method, or Reserve
Adjusted Value of the Vehicles owned by Lithia Financial Corporation and
leased to its customers (including another Loan Party) in which the Lenders
have a perfected second-priority security interest, less (b) the amount of
any Indebtedness (excluding Total Loan Outstandings) secured by a lien or
other interest against such Vehicles.
Lenders. U.S. Bank, the other financial institutions listed on
Schedule 1-B attached to this Agreement and each other Person that may after
the date of this Agreement become a party to this Agreement as a "Lender"
under this Agreement. Unless the context clearly indicates otherwise, the
term "Lenders" shall include the Swingline Lender.
LIBOR. The average offered rate for deposits in United States Dollars
(rounded upwards, if necessary, to the nearest 1/16 of 1%) for delivery of
such deposits on the first day of an Interest Period of a LIBOR Loan, for the
number of days comprised therein, which appears on the Reuters Screen LIBO
Page as of 11:00 a.m., London time (or such other time as of which such rate
appears) on the day that is two (2) Business Days preceding the first day of
the Interest Period or the rate for such deposits determined by the Agent at
such time based on such other published service of general application as
shall be selected by the Agent for such purpose; provided, that in lieu of
determining the rate in the foregoing manner, the Agent may determine the
rate based on rates offered to the Agent for deposits in United States
Dollars (rounded upwards, if necessary, to the nearest 1/16 of 1%) in the
interbank eurodollar market at such time for delivery on the first day of the
Interest Period for the number of days comprised therein.
LIBOR Loan. Any Loan bearing interest at a rate determined with
reference to the LIBOR Rate plus the Applicable Margin; provided, however,
that no Swingline Loan or Demonstrator Vehicle Loan shall be a LIBOR Loan;
LIBOR Rate. A rate per annum (rounded upward, if necessary, to the
nearest 1/16 of 1%) calculated for the Interest Period of a LIBOR Loan in
accordance with the following formula:
LR = LIBOR
1-LRP
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In such formula, "LRP" means "LIBOR Reserve Percentage" and "LR" means "LIBOR
Rate," in each instance determined by the Agent for the applicable Interest
Period. The Agent's determination of all such rates for any Interest Period
shall be conclusive in the absence of manifest error.
LIBOR Reserve Percentage. For any Interest Period, the aggregate of
the maximum reserve percentages (including any basic, marginal, special,
emergency or supplemental reserves), expressed as a decimal, established, or
as may be modified or adopted, by the Board of Governors of the Federal
Reserve System and any other banking authority, domestic or foreign, to which
any Lender is subject with respect to "Eurocurrency Liabilities" (as defined
in regulations issued from time to time by such Board of Governors) or
applicable to extensions of credit by the Lenders the rate of interest on
which is determined with regard to rates applicable to "Eurocurrency
Liabilities." The LIBOR Reserve Percentage shall be adjusted automatically
on and as of the effective date of any change in any such reserve percentage.
Loan Commitment. Any or all of the Total New Vehicle Commitment, the
Swingline Commitment, the Total Program and Used Vehicle Commitment, the
Total Demonstrator Vehicle Commitment, or the Total Acquisition Loan
Commitment, as the context requires.
Loan Documents. This Agreement, the Notes, and the Security Documents,
including without limitation the Security Agreement, the Guaranty, and the
UCC Financing Statements, together with any agreements, certificates,
instruments or documents executed and delivered pursuant to or in connection
with any of the foregoing.
Loan Party. Each party to this Agreement or any Loan Document other
than the Agent or a Lender.
Loan(s). The loans made or to be made by the Lenders to the Borrower
pursuant to Section II of this Agreement, including the New Vehicle Loans,
the Swingline Loans, the Program and Used Vehicle Loans, the Demonstrator
Vehicle Loans, and the Acquisition Loans.
Maturity Date. October 1, 1998.
Material Agreement. See Section 4.23.
Medford Office. Agent's office in Medford, Oregon located at 131 East
Main Street, Medford, Oregon 97501, or such other office as Agent may
designate from time to time for any particular purpose under this Credit
Agreement.
Minimum Net Worth. See Section 6.1.
Multiemployer Pension Plan. A Multiemployer Plan that is subject to
Subtitle E of Title IV of ERISA.
Multiemployer Plan. An employee benefit plan that is a Multiemployer
Plan within the meaning of Section 3(37) of ERISA to which the Borrower or
any Affiliate of the Borrower contributes or has been obligated to contribute.
Net Worth Ratio. See Section 6.4.
New Vehicle. A Vehicle, which has never been titled and has less than
500 miles; provided, however, that a Vehicle shall cease to be a New Vehicle
on June 30 of the calendar year following its model year.
New Vehicle Loan. See Section 2.1(a).
Note Record. Any internal record, including a computer record,
maintained by any Lender with respect to any Loan.
Notes. Any or all of the New Vehicle Notes, the Swingline Notes, the
Program and Used Vehicle Notes, the Demonstrator Vehicle Notes, the
Acquisition Revolving Notes, and the Acquisition Term Loan Notes.
Notice of Borrowing or Conversion. The notices, substantially in the
forms of Exhibits B-1 and B-2 to this Agreement, to be signed by a
Responsible Officer and given by the Borrower to the Agent to request a Loan,
in accordance with Section 2.3 or a Seller's invoice and/or draft for a
Swingline Loan.
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Obligations. Any and all obligations of any Loan Party to the Agent
and the Lenders of every kind and description pursuant to or in connection
with the Loan Documents, direct or indirect, absolute or contingent, primary
or secondary, due or to become due, now existing or hereafter arising,
regardless of how they arise or by what agreement or instrument, if any, and
including obligations to perform acts and refrain from taking action as well
as obligations to pay money, whether for principal, interest, Fees,
Attorneys' Fees, expenses or otherwise.
Other Purpose Loan. A New Vehicle Loan used for any purpose other
than to acquire a New Vehicle.
Parent. Lithia Holding Company, LLC, an Oregon limited liability
company.
Participant. See Section 9.2.
PBGC. The Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
Pension Plan. Any Plan which is an "employee pension benefit plan" (as
defined in ERISA).
Permitted Encumbrances. See Section 7.3.
Person. Any individual, corporation, limited liability company,
partnership, trust, unincorporated association, other legal entity, and any
government or governmental agency or political subdivision thereof.
Plan. Any "employee pension benefit plan" or "employee welfare benefit
plan" (each as defined in ERISA) maintained by the Borrower or any Affiliate
of the Borrower.
Prime Rate. The rate of interest that U.S. Bank from time to time
establishes as its prime rate, which is not, for example, the lowest rate of
interest that U.S. Bank collects from any Borrower or class of Borrowers.
When the Prime Rate is applicable, the interest rate shall be adjusted
without notice effective on the day U.S. Bank's Prime Rate changes.
Prime Rate Loan. Any Loan bearing interest at the Prime Rate plus the
Applicable Margin.
Pro Forma Consolidated EBITDA. For any period for which the amount
thereof is to be determined, consolidated EBITDA of the Borrower and its
Subsidiaries plus (or minus), without duplication, the EBITDA of any
Subsidiary acquired during such period for each full fiscal quarter included
in the applicable computation period prior to such Acquisition (plus the
fiscal quarter during which it was acquired), determined on a consolidated
basis. EBITDA of any such acquired Subsidiary shall be adjusted for those
identifiable and quantifiable items of income and expense that will increase
or decrease subsequent to the date of Acquisition, such adjustments to be
reasonably acceptable to Agent and set forth by Borrower in the applicable
Compliance Certificate delivered pursuant to Section 5.1.
Pro Forma Floor Plan Interest Expense. For any period for which the
amount thereof is to be determined, the Interest Expense for such period with
respect to the Floor Plan Financings of the Loan Parties plus, without
duplication, the Interest Expense of any Subsidiary acquired during such
period for each full fiscal quarter included in the applicable computation
period prior to such Acquisition (plus the fiscal quarter during which it was
acquired), determined on a consolidated basis. Interest Expense of any such
acquired Subsidiary shall be adjusted for those identifiable and quantifiable
items of expense that will increase or decrease subsequent to the date of
Acquisition, such adjustments to be reasonably acceptable to Agent and set
forth by Borrower in the applicable Compliance Certificate delivered pursuant
to Section 5.1.
Pro Rata Share. With respect to any Lender, a fraction (expressed as a
percentage), the numerator of which shall be the amount of such Lender's
Commitment for any Loan and the denominator of which shall be the aggregate
amount of all the Commitments of the Lenders for that Loan, as adjusted from
time to time in accordance with Sections 2.1 and 8.2 of this Agreement.
Program and Used Vehicle Loan. See Section 2.1(c).
Program Vehicle. A Vehicle not older than the then current model year
or the immediately preceding model year, but previously in service and with
fewer than 30,000 miles, purchased at closed auctions or from rental
companies, manufacturers, national fleet vehicles, and rental service
companies; or a Vehicle, which was a New Vehicle or Demonstrator Vehicle,
after June 30 of the year after the Vehicle's model year. Any vehicle which
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becomes a Program Vehicle will no longer be a Program Vehicle when its
mileage exceeds 30,000 miles or it is older than the then current model year
or the immediately preceding model year.
Prohibited Transaction. Any "prohibited transaction" as defined in
ERISA and Section 4975 of the Code.
Qualified Investments. As applied to the Loan Parties, investments in
(i) notes, bonds or other obligations of the United States of America or any
agency thereof that as to principal and interest constitute direct
obligations of or are guaranteed by the United States of America;
(ii) certificates of deposit, demand deposit accounts or other deposit
instruments or accounts maintained in the ordinary course of business with
banks or trust companies organized under the laws of the United States or any
state thereof that have capital and surplus of at least $100,000,000,
(iii) commercial paper that is rated not less than prime-one or A-1 or their
equivalents by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, respectively, or their successors, (iv) any repurchase agreement
secured by any one or more of the foregoing, and (v) advances to employees
for business related expenses to be incurred in the ordinary course of
business and consistent with past practices in an amount not to exceed
$100,000 in the aggregate outstanding at any one time, provided that advances
to any single employee shall not exceed $10,000 in the aggregate.
Real Property Security Documents. Any and all documents required by
the Agent in connection with any Acquisition Loan, the proceeds of which will
be used to acquire an interest in real property, including without
limitation, deeds of trust, assignments of rents and leases, security
agreements, fixture filings, Uniform Commercial Code Financing Statements,
indemnity agreements regarding hazardous materials and access laws, and
collateral assignment of permits, licenses, approvals and contracts, between
the Borrower and the Agent, and title, damage, and liability insurance
policies, in each case as amended and in effect from time to time.
Repurchase Agreements. See Section 5.20.
Required Lenders. As of any date the holders of sixty-six and
two-thirds percent (66 2/3%) of the Total Commitment or, if the Commitments
have been terminated, the holders of sixty-six and two-thirds percent
(66 2/3%) of the principal amount of the Total Loan Outstandings on such date
(allocating outstanding Swingline Loans to the Lenders on the basis of their
respective Pro Rata Share of the Total New Vehicle Loan Outstandings).
Reserve Adjusted Value. The cost of a Vehicle less the markdowns or
reductions taken in accordance with the Borrower's past practices as of the
date of the Initial Financial Statements.
Responsible Officer. The chief financial officer of the Borrower and
any other officer of the Borrower, who by written notice to the Agent, is
designated by such chief financial officer to sign Notices of Borrowing or
Conversion or request Loans pursuant to the terms of this Agreement.
Restricted Payment. Any dividend, distribution, loan, advance,
guaranty, extension of credit, increase in salary or compensation, or other
payment, whether in cash or property to or for the benefit of any Person who
holds an equity interest in the Borrower or any of its Subsidiaries, whether
or not such interest is evidenced by a security, and any purchase,
redemption, retirement or other acquisition for value of any capital stock or
equity interest of the Borrower or any of its Subsidiaries, whether now or
hereafter outstanding, or of any options, warrants or similar rights to
purchase such capital stock or equity interest or any security convertible
into or exchangeable for such capital stock or equity interest, but not
including (i) a loan or extension of credit made in the ordinary course of
business to a person who is not an Affiliate of a Loan Party for the purchase
or lease of a Vehicle to be operated by such person for personal or business
use or (ii) increase in salary or compensation in the ordinary course of
business made to employees of Borrower or employees of a Loan Party other
than the chief executive officer, president, chief financial officer, and
other senior management position of Borrower or another Loan Party.
Reuters Screen LIBO Page. The display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace the
LIBO Page on that service for the purpose of displaying London interbank
offered rates of major banks for United States dollar deposits).
Security Agreement. The Security Agreement between the Loan Parties
and the Agent, dated the Closing Date, as amended and in effect from time to
time.
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Security Documents. The Security Agreement, the Real Property Security
Documents, the Guaranty, Title Documents, Uniform Commercial Code Financing
Statements, and any additional documents evidencing or perfecting the Agent's
lien on the Collateral on and subsequent to the Closing Date, in each case as
amended and in effect from time to time.
Seller. The manufacturer, distributor, or other seller of a Vehicle or
Vehicles from which a Loan Party acquires Vehicle inventory in the normal
course of its business or the Acquisition Target from which a Loan Party
acquires Vehicles pursuant to an Acquisition.
Sold New Vehicle. A New Vehicle sold by any Loan Party in the ordinary
course of such Loan Party's business (and in which the Lenders' held a
perfected first-priority security interest immediately prior to such sale)
for which payment is not yet due pursuant to Section 2.7(c).
Stockholders' Equity. The consolidated stockholders' equity (including
paid-in capital and retained earnings) of the Borrower and its Subsidiaries
determined in accordance with GAAP.
Subsidiary. Any corporation, association, limited liability company,
joint stock company, business trust or other similar organization of which
50% or more of the ordinary voting power for the election of a majority of
the members of the board of directors or other governing body of such entity
is held or controlled by the Borrower or a Subsidiary of the Borrower; or any
other such organization the management of which is directly or indirectly
controlled by the Borrower or a Subsidiary of the Borrower through the
exercise of voting power or otherwise; or any joint venture, whether
incorporated or not, or partnership in which the Borrower has a 50% or
greater ownership interest.
Swingline Commitment. The commitment of the Swingline Lender, as in
effect from time to time, to advance Swingline Loans, which as of the Closing
Date shall be $5,000,000 and which may be any lesser amount, including zero,
resulting from a termination or reduction of such amount in accordance with
Sections 2.1 and 8.2 of this Agreement, or a greater amount in accordance
with the proviso to Section 11.7(b).
Swingline Lender. U.S. Bank.
Swingline Loan. See Section 2.1(b).
Swingline Loan Outstandings. At any time, the aggregate outstanding
balance of the Swingline Loans.
Title Documents. All manufacturers' certificate of origin,
manufacturers' statement of origin, certificates of title and/or any and all
other title documents for each item of inventory.
Total Acquisition Loan Commitment. The sum of the Lenders' Acquisition
Loan Commitments, as in effect from time to time, to advance Acquisition
Loans, which as of the Closing Date shall be $30,000,000 and which may be any
lesser amount, including zero, resulting from a termination or reduction of
such amount in accordance with Sections 2.1 and 8.2 of this Agreement. Each
Lender's Acquisition Loan Commitment shall equal its pro rata share of the
Total Acquisition Loan Commitment, based on the amounts listed on Schedule
1-B to this Agreement, as modified from time to time pursuant to Section IX
of this Agreement.
Total Acquisition Loan Outstandings. At any time, the aggregate
outstanding principal balance of the Acquisition Loans.
Total Commitment. At any time, the sum of the Total New Vehicle
Commitment (which includes the Swingline Commitment), Total Program and Used
Vehicle Commitment, Total Demonstrator Vehicle Commitment, and Total
Acquisition Loan Commitment.
Total Debt Service. For any period, the sum of (i) Interest Expense
for such period, plus (ii) the aggregate amount of all principal payments
made, accrued or becoming due during such period with respect to any
Indebtedness of the Loan Parties, plus (iii) declared or paid cash dividends,
(iv) cash taxes paid, plus (v) Capital Expenditures.
Total Demonstrator Vehicle Commitment. The sum of the Lenders'
Demonstrator Vehicle Commitments, as in effect from time to time, to advance
Demonstrator Vehicle Loans, which as of the Closing Date shall be $750,000
and which may be any lesser amount, including zero, resulting from a
termination or reduction of such amount in accordance with Sections 2.1 and
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8.2 of this Agreement. Each Lender's Demonstrator Vehicle Commitment shall
equal its pro rata share of the Total Demonstrator Vehicle Commitment, based
on the amounts listed on Schedule 1-B to this Agreement, as modified from
time to time pursuant to Section IX of this Agreement.
Total Demonstrator Vehicle Loan Outstandings. At any time, the
aggregate outstanding principal balance of the Demonstrator Vehicle Loans.
Total Loan Outstandings. At any time, the aggregate outstanding
balance of the Loans.
Total New Vehicle Commitment. The sum of the Lenders' New Vehicle
Commitments, as in effect from time to time, to advance New Vehicle Loans,
which as of the Closing Date shall be $80,000,000 and which may be any lesser
amount, including zero, resulting from a termination or reduction of such
amount in accordance with Sections 2.1 and 8.2 of this Agreement. Each
Lender's New Vehicle Commitment shall equal its pro rata share of the Total
New Vehicle Commitment, based on the amounts listed on Schedule 1-B to this
Agreement, as modified from time to time pursuant to Section IX of this
Agreement.
Total New Vehicle Loan Outstandings. At any time, the aggregate
outstanding principal balance of the New Vehicle Loans.
Total Program and Used Vehicle Commitment. The sum of the Lenders'
Program and Used Vehicle Commitments, as in effect from time to time, to
advance of the Program and Used Vehicle Loans, which as of the Closing Date
shall be $30,000,000 and which may be any lesser amount, including zero,
resulting from a termination or reduction of such amount in accordance with
Sections 2.1 and 8.2 of this Agreement. Each Lender's Program and Used
Vehicle Commitment shall equal its pro rata share of the Total Program and
Used Vehicle Commitment, based on the amounts listed on Schedule 1-B to this
Agreement, as modified from time to time pursuant to Section IX of this
Agreement.
Total Program and Used Vehicle Loan Outstandings. At any time, the
aggregate outstanding principal balance of the Program and Used Vehicle Loans.
Type. The type of a Loan is either a Prime Rate Loan or a LIBOR Loan.
Used Vehicle. A Vehicle previously in service, which has been titled,
that is not a Program Vehicle.
Vehicle. Cars, vans, pick-ups, sport utility vehicles, and other light
trucks sold in the ordinary course of a Loan Party's business (or leased to
others in the ordinary course of Lithia Financial Corporation's business.)
Vehicle Equity. With respect to the Loan Parties, an amount equal to
(a) cash deposited in an account with the Agent as of the date of
determination (plus, in the Agent's discretion, the cash deposited in a
non-Agent bank account on such date), plus (b) Contracts in Transit from the
sale of Vehicles by a Loan Party, plus (c) the value, equal to the lower of
cost using the specific identification method or Reserve Adjusted Value, of
Vehicles in which the Lenders have a perfected first-priority security
interest (excluding Vehicles owned by Lithia Financial Corporation) less an
amount equal to the Floor Plan Financings.
Vehicle Loan. Any New Vehicle Loan, Swingline Loan, Program and Used
Vehicle Loan, or Demonstrator Vehicle Loan.
Working Capital. The excess of Consolidated Current Assets over
Consolidated Current Liabilities.
1.2 Rules of Interpretation.
(a) All terms of an accounting character used in this Agreement
but not defined in this Agreement shall have the meanings assigned to them by
GAAP. All calculations for the purposes of this Agreement shall be made in
accordance with GAAP. If GAAP changes during the term of this Agreement such
that any covenants contained in this Agreement would then be calculated in a
materially different manner or using materially different components, the
Loan Parties, the Lenders, and the Agent agree to negotiate in good faith to
amend this Agreement in such respects as are necessary to conform those
covenants as criteria for evaluating the Loan Parties' financial condition to
substantially the same criteria as were in effect before such change in GAAP;
provided, however, that until the Loan Parties, the Lenders, and the Agent so
amend this Agreement, all such covenants shall be calculated in accordance
with GAAP as in effect on the date of this Agreement.
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(b) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented and in effect from
time to time in accordance with its terms and the terms of this Agreement.
(c) The singular includes the plural and the plural includes
the singular.
(d) A reference to any Person includes its permitted successors
and permitted assigns.
(e) The words "include", "includes" and "including" are not
limiting.
(f) The words "herein", "hereof", "hereunder" and words of like
import shall refer to this Agreement as a whole and not to any particular
section or subdivision of this Agreement.
(g) All terms not specifically defined in this Agreement or by
GAAP that are defined in the Uniform Commercial Code as in effect in the
State of Oregon, have the meanings assigned to them in such Uniform
Commercial Code.
(h) The term "to the best knowledge of" or any other term of
similar import, means to the actual knowledge of any executive officer of a
Loan Party or any officer of a Loan Party with management responsibility for
the subject matter as to which a Loan Party's knowledge is relevant after due
inquiry.
SECTION II.
DESCRIPTION OF CREDIT
2.1 Loans.
(a) New Vehicle Loans.
(i) Upon the terms and subject to the conditions of this
Agreement, and in reliance upon the representations, warranties and covenants
of the Loan Parties in this Agreement and the other Loan Documents, each of
the Lenders agrees, severally and not jointly, to make "New Vehicle Loans" to
the Borrower. The Borrower may borrow, repay, prepay and reborrow New
Vehicle Loans for any purpose (except to acquire any interest in real
property other than fixtures), subject to the terms of this Agreement and up
to the limits imposed by this Section 2.1(a), from time to time between the
Closing Date and the Maturity Date upon request given to the Agent pursuant
to Section 2.3(b), provided that:
(A) After giving effect to all requested New
Vehicle Loans, the Total New Vehicle Loan Outstandings (which equals the sum
of (x) the outstanding principal amount of New Vehicle Loans specifically
advanced to finance the purchase of New Vehicles for inventory, plus (y) the
outstanding principal amount of Other Purpose Loans) plus the Swingline Loan
Outstandings, shall not at any time exceed the Total New Vehicle Commitment;
(B) The sum of the aggregate principal amount of
outstanding New Vehicle Loans made by each Lender shall not at any time
(after giving effect to all requested New Vehicle Loans) exceed such Lender's
New Vehicle Commitment;
(C) No Other Purpose Loan shall be made if the
Total New Vehicle Loan Outstanding plus the Swingline Loan Outstandings
(after giving effect to all requested New Vehicle Loans) would exceed the
applicable Borrowing Base; and
(D) No New Vehicle Loan used to purchase a New
Vehicle for inventory shall exceed the cost of the New Vehicle to be
acquired, as stated on the Seller's invoice to the Loan Party, which cost
shall not include any additional charges except charges for delivery of the
Vehicle to the Loan Party if the invoice includes such charges. All Vehicles
acquired with a New Vehicle Loan shall be stored and exhibited for sale (but
not lease) in the ordinary course of a Loan Party's business, and the Loan
Party shall not use the Vehicles for any other purpose.
(ii) Each request for a New Vehicle Loan under this
Agreement shall constitute a representation and warranty by the Borrower and
the other Loan Parties (A) that the conditions set forth in Sections 3.1 and
3.2 have been satisfied as of the date of such request, and (B) that if the
New Vehicle Loan is advanced to finance the purchase of a Vehicle, (x) the
Vehicle is a New Vehicle, (y) the Vehicle is either in the applicable Loan
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Party's possession or has been ordered and shipped to the Loan Party for
whose benefit the New Vehicle Loan was advanced, and (z) the Seller's invoice
correctly states the amount of the purchase price for the Vehicle and such
amount is reasonable.
(iii) Each New Vehicle Loan may be either a Prime Rate Loan
or a LIBOR Loan and, subject to the provisions of Section 2.5(d), shall bear
interest as provided in Section 2.5(a) or 2.5(b), respectively.
(b) Swingline Loans.
(i) Upon the terms and subject to the conditions of this
Agreement, and in reliance upon the representations, warranties and covenants
of the Loan Parties in this Agreement and the other Loan Documents, the
Swingline Lender agrees to make "Swingline Loans" to the Borrower. The
Borrower may borrow, repay, prepay and reborrow Swingline Loans, subject to
the terms of this Agreement and up to the limits imposed by this
Section 2.1(b), from time to time between the Closing Date and the Maturity
Date upon request given to the Agent pursuant to Section 2.3(a)(ii), provided
that:
(A) The Total Swingline Loan Outstandings (after
giving effect to all requested Swingline Loans) shall not at any time exceed
the Swingline Commitment in the aggregate;
(B) The sum of the Total Swingline Loan
Outstandings plus the Total New Vehicle Loan Outstandings (after giving
effect to all requested New Vehicle Loans and Swingline Loans) shall not
exceed the Total New Vehicle Commitment; and
(C) Except as contemplated by Section 2.7(a)(ii), a
Swingline Loan shall only be used to finance the purchase of a New Vehicle
from a Seller for inventory. No Swingline Loan shall exceed the cost of the
New Vehicle to be acquired, as stated on the Seller's invoice to the Loan
Party, which cost shall not include any additional charges except charges for
delivery of the Vehicle to the Loan Party if the invoice includes such
charges. All Vehicles acquired with a Swingline Loan shall be stored and
exhibited for sale (but not lease) in the ordinary course of a Loan Party's
business, and the Loan Party shall not use the Vehicles for any other
purpose.
(ii) Each request for a Swingline Loan under this
Agreement shall constitute a representation and warranty by the Borrower and
the other Loan Parties (A) that the conditions set forth in Sections 3.1 and
3.2 have been satisfied as of the date of such request, and (B) unless the
Swingline Loan is advanced pursuant to Section 2.7(a)(ii) that as to the
Vehicle to be acquired with the advance of the Swingline Loan (I) the Vehicle
is a New Vehicle, (II) the Vehicle is either in the applicable Loan Party's
possession or has been ordered and shipped to the Loan Party for whose
benefit the Swingline Loan was advanced, and (III) the Seller's invoice
correctly states the amount of the purchase price for the Vehicle and such
amount is reasonable.
(iii) Each Swingline Loan shall be a Prime Rate Loan and,
subject to the provisions of Section 2.5(d), shall bear interest as provided
in Section 2.5(a).
(c) Program and Used Vehicle Loans.
(i) Upon the terms and subject to the conditions of this
Agreement, and in reliance upon the representations, warranties and covenants
of the Loan Parties in this Agreement and the other Loan Documents, each of
the Lenders agrees, severally and not jointly, to make "Program and Used
Vehicle Loans" to the Borrower. The Borrower may borrow, repay, prepay and
reborrow Program and Used Vehicle Loans for any purpose (except to acquire
any interest in real property other than fixtures), subject to the terms of
this Agreement and up to the limits imposed by this Section 2.1(c), from time
to time between the Closing Date and the Maturity Date upon request given to
the Agent pursuant to Section 2.3(b), provided that:
(A) After giving effect to all requested Program
and Used Vehicle Loans, the Total Program and Used Vehicle Loan Outstandings
shall not at any time exceed the lesser of Total Program and Used Vehicle
Commitment or the applicable Borrowing Base;
(B) The sum of the aggregate principal amount of
outstanding Program and Used Vehicle Loans made by each Lender shall not at
any time (after giving effect to all requested Program and Used Vehicle
Loans) exceed such Lender's Program and Used Vehicle Commitment; and
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(C) All Vehicles acquired with a Program and Used
Vehicle Loan shall be stored and exhibited for sale (but not lease) in the
ordinary course of a Loan Party's business, and the Loan Party shall not use
the Vehicles for any other purpose.
(ii) Each request for a Program and Used Vehicle Loan
under this Agreement shall constitute a representation and warranty by the
Borrower and the other Loan Parties (A) that the conditions set forth in
Sections 3.1 and 3.2 have been satisfied as of the date of such request, and
(B) that if the Program and Used Vehicle Loan is advanced to finance the
purchase of a Vehicle, (x) the Vehicle is a Program Vehicle or a Used
Vehicle, (y) the Vehicle is either in the applicable Loan Party's possession
or has been ordered and shipped to the Loan Party for whose benefit the
Program and Used Vehicle Loan was advanced, and (z) the Seller's invoice or
other sales documentation correctly states the amount of the purchase price
for the Vehicle and such amount is reasonable and does not include any other
costs except for the cost of delivery or a reasonable amount for
reconditioning.
(iii) Each Program and Used Vehicle Loan may be either a
Prime Rate Loan or a LIBOR Loan and, subject to the provisions of Section
2.5(d), shall bear interest as provided in Section 2.5(a) or 2.5(b),
respectively.
(d) Demonstrator Vehicle Loans.
(i) Upon the terms and subject to the conditions of this
Agreement, and in reliance upon the representations, warranties and covenants
of the Loan Parties in this Agreement and the other Loan Documents, each of
the Lenders agrees, severally and not jointly, to make "Demonstrator Vehicle"
Loans to the Borrower. The Borrower may borrow, repay, prepay and reborrow
Demonstrator Vehicle Loans to acquire Demonstrator Vehicles or to refinance a
New Vehicle Loan with respect to a New Vehicle that becomes a Demonstrator
Vehicle, subject to the terms of this Agreement and up to the limits imposed
by this Section 2.1(d), from time to time between the Closing Date and the
Maturity Date upon request given to the Agent pursuant to Section 2.3(b),
provided that:
(A) After giving effect to all requested
Demonstrator Vehicle Loans, the Total Demonstrator Vehicle Loan Outstandings
shall not at any time exceed the Total Demonstrator Vehicle Commitment;
(B) The sum of the aggregate principal amount of
outstanding Demonstrator Vehicle Loans made by each Lender shall not at any
time (after giving effect to all requested Demonstrator Vehicle Loans) exceed
such Lender's Demonstrator Vehicle Commitment; and
(C) No Demonstrator Vehicle Loan used to purchase a
Demonstrator Vehicle for inventory shall exceed the cost of the Demonstrator
Vehicle to be acquired, as stated on the Seller's invoice to the Loan Party,
which cost shall not include any additional charges except charges for
delivery of the Vehicle to the Loan Party if the invoice includes such
charges. All Vehicles acquired with a Demonstrator Vehicle Loan or that
become Demonstrator Vehicles shall be stored and exhibited for sale (but not
lease) in the ordinary course of a Loan Party's business, and the Loan Party
shall not use the Vehicles for any other purpose.
(ii) Each request for a Demonstrator Vehicle Loan under
this Agreement shall constitute a representation and warranty by the Borrower
and the other Loan Parties (A) that the conditions set forth in Sections 3.1
and 3.2 have been satisfied as of the date of such request, (B) that the
Vehicle is a Demonstrator Vehicle, (C) the Vehicle is either in the
applicable Loan Party's possession or has been ordered and shipped to the
Loan Party for whose benefit the Demonstrator Vehicle Loan was advanced, and
(D) the Seller's invoice correctly states the amount of the purchase price
for the Vehicle and such amount is reasonable.
(iii) Each Demonstrator Vehicle Loan shall be a Prime Rate
Loan and, subject to the provisions of Section 2.5(d), shall bear interest as
provided in Section 2.5(a).
(e) Acquisition Loans.
(i) Upon the terms and subject to the conditions of this
Agreement, and in reliance upon the representations, warranties and covenants
of the Loan Parties in this Agreement and the other Loan Documents, each of
the Lenders agrees, severally and not jointly, to make "Acquisition Revolving
Loans" to the Borrower. The Borrower may borrow, repay, prepay and reborrow
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Acquisition Revolving Loans for any purpose, subject to the terms of this
Agreement and up to the limits imposed by this Section 2.1(e)(i), from time
to time between the Closing Date and the Maturity Date upon request given to
the Agent pursuant to Section 2.3(b), provided that:
(A) After giving effect to all requested
Acquisition Loans, the Total Acquisition Loan Outstandings shall not at any
time exceed the lesser of the Total Acquisition Loan Commitment or the
applicable Borrowing Base; and
(B) The sum of the aggregate principal amount of
outstanding Acquisition Loans made by each Lender shall not at any time
(after giving effect to all requested Acquisition Loans) exceed such Lender's
Acquisition Loan Commitment.
In connection with an Acquisition, the Lenders shall make advances under the
Acquisition Loan from time to time provided the Loan Parties specifically
comply with the requirements of Section 5.17 of this Agreement in addition to
the other requirements of this Agreement. If any portion of the Acquisition
Revolving Loan is used to acquire any interest in real property other than
fixtures, that portion of the Acquisition Revolving Loan cannot exceed 75% of
the appraised value of the real property interest to be acquired (not
including the value of the fixtures to be acquired). Inventory acquired from
any portion of Acquisition Revolving Loan shall be used exclusively for the
purpose of storing and exhibiting the inventory for sale (but not for lease)
in the ordinary course of the Loan Parties' business. The Loan Parties shall
not use the inventory for any other purpose. Each request for a Acquisition
Revolving Loan under this Agreement shall constitute a representation and
warranty by the Borrower and the other Loan Parties that the conditions set
forth in Sections 3.1 and 3.2 have been satisfied as of the date of such
request. Each Acquisition Revolving Loan may be either a Prime Rate Loan or
a LIBOR Loan and, subject to the provisions of Section 2.5(d), shall bear
interest as provided in Section 2.5(a) or 2.5(b), respectively.
(ii) Subject to the provisions of Section 3.2 and this
Section 2.1(e)(ii), the Borrower may elect to convert all or a portion of the
Acquisition Revolving Loans to an amortizing term loan (the "Acquisition Term
Loan") on the Maturity Date. No earlier than sixty (60) days and no later
than thirty (30) days prior to the Maturity Date, the Borrower shall give the
Agent written notice, which notice shall be irrevocable, of the portion of
the outstanding principal balance of all Acquisition Revolving Loans that it
intends to convert to the Acquisition Term Loan; provided, however, that on
the Maturity Date the Borrower shall pay to the Agent for the benefit of the
Lenders:
(A) An amount equal to the amount of each
Acquisition Revolving Loan used to purchase an interest in real property
(other than fixtures);
(B) The unpaid principal balance of all Acquisition
Revolving Loans that do not convert to the Acquisition Term Loan (or the
entire unpaid principal balance of all Acquisition Revolving Loans if the
Borrower failed to give the notice required by this Section 2.1(e)(ii)); and
(C) All accrued and unpaid interest on the
outstanding principal balance of all Acquisition Revolving Loans and all Fees
and other Obligations with respect thereto.
The Total Acquisition Loan Outstandings may not at any time, including
without limitation on or after the Maturity Date, exceed the applicable
Borrowing Base, and no Acquisition Loans shall be made after the Maturity
Date. The Acquisition Term Loan shall be either a Prime Rate Loan or LIBOR
Loan and, subject to the provisions of Section 2.5(d), shall bear interest as
provided in Section 2.5(a) or 2.5(b), respectively .
(f) Limitations. No LIBOR Loan shall be requested or made for
less than a minimum of $500,000 in principal amount and in integral multiples
of $500,000 in excess of such minimum amount. No more than five (5) LIBOR
Loans under each of the Total New Vehicle Loan Commitment, the Total Program
and Used Vehicle Loan Commitment, or the Total Acquisition Loan Commitment
may be outstanding at any time. No Prime Rate Loan that is a New Vehicle
Loan or a Program and Used Vehicle Loan shall be requested or made for less
than a minimum of $500,000 in principal amount. With respect to Swingline
Loans requested pursuant to Section 2.3(a)(ii) but not with respect to
Swingline Loans advanced pursuant to Sections 2.3(a)(i) or 2.7(a)(ii), the
maximum principal amount advanced by the Swingline Lender on any Business Day
shall not exceed $250,000.
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(g) Conversion of Loans. Upon the terms and subject to the
conditions of this Agreement, the Borrower may convert all or any part (in
integral multiples of $500,000) of any outstanding Loan (other than a
Swingline Loan or a Demonstrator Vehicle Loan) of one Type into a Loan of
another Type on any Business Day (which, in the case of a conversion of an
outstanding LIBOR Loan, shall be the last day of the Interest Period
applicable to such LIBOR Loan). The Borrower shall give the Agent prior
notice of each such conversion (which notice shall be effective upon receipt)
in accordance with Section 2.3.
(h) Termination or Limitations of Commitments.
(i) Each of the Lenders' New Vehicle Commitment, Program
and Used Vehicle Commitment, Demonstrator Vehicle Commitment, and Acquisition
Loan Commitments shall terminate on the Maturity Date. The Swingline
Lender's Swingline Commitment shall terminate on the Maturity Date.
(ii) From time to time, the Agent, in its sole discretion
without consent or approval of any other Lender, may place or modify
limitations on the maximum amount of the New Vehicle Loan Outstandings, the
Program and Used Vehicle Loan Outstandings, the Demonstrator Vehicle Loan
Outstandings and/or the Acquisition Loan Outstandings to be advanced for the
benefit of any one Loan Party other than the Borrower. Additionally, from
time to time, the Swingline Lender, at its sole discretion, may place or
modify limitations on the maximum amount payable to any Seller or other
appropriate party under a debit or draft authorization (or similar instrument
or arrangement). The Agent or the Swingline Lender, respectively, shall
notify Borrower of any such limits not less than 24 hours prior to the time
they become effective. Nothing in this Section 2.1(h)(ii) shall alter the
provisions of Section 11.7(b)(ii)(A).
(iii) The Swingline Lender or the Agent may give notice to
any Seller or other appropriate party terminating any debit or
draft authorization (or similar instrument or arrangement) so
that the Swingline Lender has no obligation to honor any debit or
draft authorization (or similar instrument or arrangement) on or
after the Maturity Date. Additionally, if an Event of Default
has occurred, the Swingline Lender may give notice to any Seller
or other appropriate party terminating any debit or draft
authorization (or similar instrument or arrangement).
(iv) No termination of any Commitment may be reinstated.
2.2 The Notes.
(a) The New Vehicle Loans shall be evidenced by separate
promissory notes for each Lender in a principal amount equal to such Lender's
New Vehicle Commitment, each such note to be substantially in the form of
Exhibit A-1 to this Agreement, dated as of the Closing Date, and completed
with appropriate insertions (each such note being referred to in this
Agreement as a "New Vehicle Note" and collectively as the "New Vehicle
Notes").
(b) The Swingline Loan shall be evidenced by a Promissory Note
for the Swingline Lender in a principal amount equal to the Swingline
Lender's Swingline Commitment, substantially in the form of Exhibit A-2 to
this Agreement, dated as of the Closing Date, and completed with appropriate
insertions (the "Swingline Note").
(c) The Program and Used Vehicle Loans shall be evidenced by
separate promissory notes for each Lender in a principal amount equal to such
Lender's Program and Used Vehicle Commitment, each such note to be in
substantially the form of Exhibit A-3 to this Agreement, dated as of the
Closing Date, and completed with appropriate insertions (each such note being
referred to as a "Program and Used Vehicle Note" and collectively as the
"Program and Used Vehicle Notes").
(d) The Demonstrator Vehicle Loans shall be evidenced by
separate promissory notes for each Lender in a principal amount equal to such
Lender's Demonstrator Vehicle Commitment, if any, each such note to be in
substantially the form of Exhibit A-4 to this Agreement, dated as of the
Closing Date, and completed with appropriate insertions (each such note being
referred to as a "Demonstrator Vehicle Note" and collectively as the
"Demonstrator Vehicle Notes").
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(e) The Acquisition Revolving Loans shall be evidenced by
separate promissory notes for each Lender in a principal amount equal to such
Lender's Acquisition Loan Commitment, each such note to be in substantially
the form of Exhibit A-5A to this Agreement, dated as of the Closing Date, and
completed with appropriate insertions (each such note being referred to as an
"Acquisition Revolving Note" and collectively as the "Acquisition Revolving
Notes"). The Acquisition Term Loan shall be evidenced by separate promissory
notes for each Lender in a principal amount equal to such Lender's Pro Rata
Share of each Acquisition Term Loan (based on the Lender's Pro Rata Share of
the Total Acquisition Loan Commitment), each such note to be in substantially
the form of Exhibit A-5B to this Agreement, dated as of the Maturity Date,
and completed with appropriate insertions (each such note being referred to
as an "Acquisition Term Note" and collectively as the "Acquisition Term
Notes").
(f) The Borrower irrevocably authorizes the Agent and each of
the Lenders to make or cause to be made, at or about the time of the Drawdown
Date of any Loan or at the time of receipt of any payment of principal on the
Notes, an appropriate notation on its Note Record reflecting the making of
such Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the Loans set forth on the Note Records shall be prima
facie evidence of the principal amount thereof owing and unpaid to the
Lenders, but the failure to record, or any error in so recording, any such
amount on the Agent's or on any Lender's Note Record shall not limit or
otherwise affect the obligations of the Borrower under this Agreement, any
Loan Document, or under any Note to make payments of principal of or interest
on any Note when due.
2.3 Notice and Manner of Borrowing or Conversion of Loans.
(a) With respect to Swingline Loans:
(i) Subject to Sections 2.1(b) and (h), the Swingline
Lender may from time to time advance sums of money on behalf of the Loan
Parties to any Seller for whose benefit U.S. Bank has executed a debit or
draft authorization (or similar instrument or arrangement) for the purpose of
enabling the Loan Parties to acquire Vehicle inventory. Presentation of
drafts or other requests for payment by a Seller shall be in lieu of a Notice
of Borrowing for the amount of the Swingline Loan. The invoices or other
sales documentation submitted by the Sellers from whom the Loan Parties
purchase inventory and/or the drafts or debits paid by the Swingline Lender
shall serve as conclusive evidence of each such Swingline Loan. The Loan
Parties irrevocably authorize the Swingline Lender to pay all drafts or
invoices upon presentation by a Seller supplying the Vehicle to the Loan
Parties.
(ii) Whenever the Borrower desires to obtain a Swingline
Loan under this Agreement other than pursuant to Section 2.3(a)(i) or
2.7(a)(ii), the Borrower shall give the Agent a written Notice of Borrowing
or Conversion (or a telephonic notice promptly confirmed by a written Notice
of Borrowing or Conversion), which Notice shall be irrevocable and which must
be received no later than 9:00 a.m. (Portland, Oregon time) on the Business
Day on which the requested Swingline Loan is to be made. Such Notice of
Borrowing or Conversion shall specify the effective date and amount of each
Swingline Loan to be made. If the written confirmation of any telephonic
notification differs in any material respect from the action taken by the
Agent, the records of the Agent shall control absent manifest error. The
Swingline Lender shall initiate the transfer of funds representing the
Swingline Loan to the Borrower (or to the entity that the Borrower designates
in writing in the Notice) by 4:00 p.m. (Portland, Oregon time) on the
Business Day of the requested advance.
(b) Whenever the Borrower desires to obtain a Loan under this
Agreement (other than a Swingline Loan), to continue an outstanding LIBOR
Loan for a new Interest Period, or to convert an outstanding Loan into a Loan
of another Type, the Borrower shall give the Agent a written Notice of
Borrowing or Conversion (or a telephonic notice promptly confirmed by a
written Notice of Borrowing or Conversion), which Notice shall be irrevocable
and which must be received no later than 9:00 a.m. (Portland, Oregon time)
(and a Borrowing Base Certificate if such Notice relates to a Program and
Used Vehicle Loan or an Acquisition Revolving Loan) on the date (i) one
Business Day before the day on which the requested Loan is to be made as or
converted to a Prime Rate Loan, and (ii) three Business Days before the day
on which the requested Loan is to be made or continued as or converted to a
LIBOR Loan. Such Notice of Borrowing or Conversion shall specify (x) the
effective date and amount of each Loan or portion thereof requested to be
made, continued or converted, subject to the limitations set forth in Section
2.1, (y) the interest rate option requested to be applicable thereto, and (z)
the duration of the applicable Interest Period, if any (subject to the
provisions of the definition of the term "Interest Period"). If such Notice
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fails to specify the interest rate option to be applicable to the requested
Loan, then the Borrower shall be deemed to have requested a Prime Rate Loan.
If the written confirmation of any telephonic notification differs in any
material respect from the action taken by the Agent, the records of the Agent
shall control absent manifest error.
(c) Subject to the provisions of the definition of the term
"Interest Period" in this Agreement, the duration of each Interest Period for
a LIBOR Loan shall be as specified in the applicable Notice of Borrowing or
Conversion. If no Interest Period is specified in a Notice of Borrowing or
Conversion with respect to a requested LIBOR Loan, then the Borrower shall be
deemed to have selected an Interest Period of one month's duration. If the
Agent receives a Notice of Borrowing or Conversion after the time specified
in subsection (a) above, such Notice shall not be effective. If the Agent
does not receive an effective Notice of Borrowing or Conversion with respect
to an outstanding LIBOR Loan, or if, when such Notice must be given prior to
the end of the Interest Period applicable to such outstanding Loan, the
Borrower shall have failed to satisfy any of the conditions of this
Agreement, the Borrower shall be deemed to have elected to convert such
outstanding Loan in whole into a Prime Rate Loan on the last day of the then
current Interest Period with respect thereto.
(d) Notwithstanding any contrary provision of this Agreement
and without limiting any other rights of any Lender if a Default or Event of
Default has occurred and is continuing, the Borrower (i) may not select a
LIBOR Loan, (ii) may not convert a Prime Rate Loan to a LIBOR Loan, and
(iii) no LIBOR Loan may continue as a LIBOR Loan for a new Interest Period.
If a Default or Event of Default has occurred and is continuing, each LIBOR
Loan shall automatically convert to a Prime Rate Loan at the expiration of
the applicable Interest Period.
(e) If at any time the Borrower desires to transfer a New
Vehicle, acquired using a New Vehicle Loan, to a Program Vehicle or a
Demonstrator Vehicle, or the Borrower desires to transfer a Demonstrator
Vehicle, acquired or refinanced using a Demonstrator Vehicle Loan, to a
Program Vehicle, then the Borrower must refinance an amount equal to such New
Vehicle Loan or Demonstrator Vehicle Loan advanced with respect to the
Vehicle, together with all accrued and unpaid interest thereon and all Fees
with respect thereto, with a Program and Used Vehicle Loan or Demonstrator
Vehicle Loan, as the case may be, by providing the Agent with a written
Notice of Borrowing or Conversion (or telephonic notice promptly confirmed by
a written Notice of Borrowing or Conversion), which notice shall be
irrevocable and which must be received no later than 9:00 a.m. (Portland,
Oregon time), at least three Business Days before the day on which the
Vehicle will be placed as a Program Vehicle or a Demonstrator Vehicle, and a
Borrowing Base Certificate if the New Vehicle Loan or the Demonstrator Loan
will be converted to a Program and Used Vehicle Loan. The Notice of
Borrowing or Conversion shall also specify for each such Vehicle the make,
model and model year, Loan Party in possession of the Vehicle, serial and
motor number
(f) Each Loan Party (other than the Borrower) hereby appoints the
Borrower as its agent with respect to the receiving and giving of any
notices, requests, instructions, reports, schedules, revisions, financial
statements or any other written or oral communications under this Agreement
or any other Loan Document. The Borrower shall keep complete, correct and
accurate records of all Loans and the application of proceeds thereof and all
payments with respect to the Loans and other amounts due under this Agreement
or any other Loan Document. The Borrower shall determine the allocation of
proceeds of Loans among the Loan Parties, subject to the other terms and
conditions of this Agreement. The Lenders are hereby entitled to rely on any
communications given or transmitted by the Borrower as if such communication
were given or transmitted by each and every Loan Party; provided, however,
that any communication given or transmitted by any Loan Party other than the
Borrower shall be binding with respect to such Loan Party. Any communication
given or transmitted by the Agent or any Lender to the Borrower shall be
deemed given and transmitted to each and every Loan Party. Notwithstanding
the foregoing, all Obligations of the Loan Parties under this Agreement shall
be joint and several.
2.4 Funding of Loans.
(a) Loans shall be made by the Lenders pro rata in accordance
with their respective Commitments, provided, however that the failure of any
Lender to make any Loan shall not relieve any other Lender of its obligation
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to lend under this Agreement (it being understood, however, that no Lender
shall be responsible for the failure of any other Lender to make any Loan
required to be made by such other Lender).
(b) From time to time, the Swingline Lender at its discretion
may demand repayment of its Swingline Loans by an advance of any other Prime
Rate Loan, in which case the Borrower shall be deemed to have requested such
Prime Rate Loan in accordance with Section 2.3 of this Agreement. With
respect to a demand resulting in an advance for a New Vehicle Loan or a
Program and Used Vehicle Loan, each demand shall be in an amount not less
than $500,000. Each such demand by the Swingline Lender shall be deemed to
have been given one Business Day prior to the Maturity Date, on the date of
occurrence of any Default or Event of Default, or on the exercise of any
remedies under Section 8.2 of this Agreement, as the case may be. To the
extent that the Swingline Lender demands repayment of any portion of its
Swingline Loans, the Swingline Lender shall notify the Lenders on any
Business Day and require the Lenders to advance their respective Pro Rata
Shares of the Loan based on the Lender's Pro Rata Share of the Loan
Commitment of the Loan to be advanced. Such notice shall specify the Loan
and the aggregate amount of the Loan that Lenders will advance. Each Lender
absolutely and unconditionally agrees that immediately on receipt of such
notice to pay the Swingline Lender such Lender's Pro Rata Share of such Loan.
(i) Each Lender acknowledges and agrees that its
obligation to pay its Pro Rata Share of the Loan pursuant to this Section
2.4(b) is absolute, irrevocable and unconditional and shall not be affected
by any circumstance whatsoever, including:
(A) the occurrence and continuance of a Default or
Event of Default,
(B) the fact that the amount of such advance does
not comply with any minimum requirement;
(C) whether any conditions specified in Section 3.1
and 3.2 are then satisfied;
(D) the failure of any such request or deemed
request for a Loan to be made by the time otherwise required under this
Agreement;
(E) the fact that the date of borrowing is not a
date on which such Loan is otherwise permitted to be made under this
Agreement;
(F) in the case of an advance to honor a debit or
draft authorization (or similar instrument or arrangement) on presentation by
a Seller or other appropriate party, any termination of the Loan Commitment
relating thereto occurring less than thirty days prior to the advance, or
contemporaneously with the advance;
(G) the fact that the Swingline Loan Outstandings
exceed the Total Swingline Commitment (as the Lenders acknowledge that the
primary purpose of the Swingline Commitment is to honor drafts of Sellers
with respect to the purchase of Vehicle inventory by the Loan Parties and
that, subject to the draft authorizations from the Swingline Lender in favor
of various Sellers, it may be difficult for the Swingline Lender to confirm
at any given time the Swingline Loan Outstandings; provided, however, that
notwithstanding anything to the contrary contained in this Agreement, the
Lenders shall have no obligation whatsoever, whether directly or indirectly,
to fund any amount in excess of their respective Commitments); and
(H) the fact that the request for the Loan is made
after the Maturity Date so long as the applicable Swingline Loans are
advanced pursuant to Section 2.3(a)(i) on or before the Maturity Date; and
(ii) Each Lender further acknowledges and agrees that each
such payment shall be made without any offset, abatement, withholding or
reduction whatsoever.
(iii) Each Lender shall comply with its obligation under
this Section 2.4(b)(iii) by wire transfer of immediately available funds, in
the same manner as provided in Section 2.4(c) with respect to the Loans made
by such Lender, and such Section 2.4(c) shall generally apply to the payment
obligations of the Lenders arising under this Section 2.4(b)(iii), with
appropriate changes in details as may be required by Agent to reflect the
terms of this Section 2.4(b)(iii). The repayment of any Swingline Loan
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pursuant to this paragraph shall not relieve the Borrower (or other party
liable for obligations of the Borrower) of any default in the payment
thereof. In the event that any Loan cannot for any reason be made on the
date otherwise required in this Section 2.4(b)(iii) (including without
limitation as a result of the commencement of a proceeding under Title 11,
United States Code, with respect to any Loan Party), then each Lender agrees
that it shall immediately purchase (as of the date such advance would
otherwise have occurred, but adjusted for any payments received from the
Borrower on or after such date and prior to such purchase) from the Swingline
Lender such participation in the outstanding Swingline Loans as shall be
necessary to cause each such Lender to share in such Swingline Loans ratably
based on its Pro Rata Share of the Total New Vehicle Commitment (determined
before giving effect to any termination of the Commitments), provided that
all interest payable on the Swingline Loans shall be for the account of the
Swingline Lender until the date as of which the respective participation is
purchased.
(c) The Agent shall promptly notify the Lenders of any
requested Loan and of the Drawdown Date thereof and the amount of each
Lender's Pro Rata Share of such Loan. If the Agent gives such notice before
12:00 p.m. (Portland, Oregon time) on the Business Day immediately preceding
the proposed Drawdown Date, each Lender will, not later than 1:00 p.m.
(Portland, Oregon time) on the proposed Drawdown Date of such Loan, make
available to the Agent, at 10800 NE 8th, Suite 900, Bellevue, Washington
98004, in immediately available funds, the amount of such Lender's Pro Rata
Share of the amount of such requested Loan. Upon receipt by the Agent of
such amount, and upon receipt of the documents required by Section 3 and the
satisfaction of the other conditions set forth therein (to the extent
applicable), the Agent will make available to the Borrower the aggregate
amount of such Loan. The failure or refusal of any Lender to make available
to the Agent at the aforesaid time and place on any Drawdown Date the amount
of its Pro Rata Share of any requested Loans shall not relieve any other
Lender from its several obligation under this Agreement to make available to
the Agent the amount of such other Lender's Pro Rata Share of any requested
Loans. The Agent may, unless notified to the contrary by any Lender prior to
a Drawdown Date, assume that each such Lender has made available to the Agent
on such Drawdown Date the amount of such Lender's Pro Rata Share of the Loans
to be made on such Drawdown Date, and the Agent may (but it shall not be
required to), in reliance upon such assumption, make available to the
Borrower a corresponding amount. If any Lender makes available to the Agent
such amount on a date after such Drawdown Date, such Lender shall pay to the
Agent on demand an amount equal to the product of (i) the average, computed
for the period referred to in clause (iii) below, of the Federal Funds Rate
for each day included in such period, times (ii) the amount of such Lender's
Pro Rata Share of any such Loans times (iii) a fraction, the numerator of
which is the number of days that elapse from and including such Drawdown Date
to the date on which the amount of such Lender's Pro Rata Share of such Loans
shall become immediately available to the Agent, and the denominator of which
is 360. A statement of the Agent submitted to such Lender with respect to
any amounts owing under this paragraph shall be prima facie evidence of the
amount due and owing to the Agent by such Lender. If the amount of such
Lender's Pro Rata Share of such Loans is not made available to the Agent by
such Lender with three (3) Business Days following such Drawdown Date, the
Agent shall be entitled to recover such amount from the Borrower on demand,
with interest thereon at the rate per annum applicable to the Loans made on
such Drawdown Date.
(d) The failure or refusal of any Lender to make available to
the Agent at the aforesaid time and place on any Drawdown Date the amount of
its Pro Rata Share of any Loans shall not relieve any other Lender from its
several obligation under this Agreement to make available to the Agent the
amount of such other Lender's Pro Rata Share of any Loans.
2.5 Interest Rates and Payments of Interest.
(a) Each Loan, which is a Prime Rate Loan, shall bear interest
on the outstanding principal amount thereof at a rate per annum equal to the
Prime Rate plus the Applicable Margin, which rate shall change
contemporaneously with any change in the Prime Rate or the Applicable Margin,
as provided below. All interest accrued during each calendar month shall be
paid on or before the tenth day of the following calendar month.
(b) Each Loan, which is a LIBOR Loan, shall bear interest on
the outstanding principal amount thereof, for each Interest Period applicable
thereto, at a rate per annum equal to the LIBOR Rate plus the Applicable
Margin, which rate shall change with any change in the LIBOR Rate or the
Applicable Margin, as provided below. All interest accrued during each
calendar month shall be paid on or before the tenth day of the following
calendar month.
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(c) If the Borrower chooses a LIBOR Loan, the Borrower shall
pay interest based at the LIBOR Rate plus the Applicable Margin, together
with any other applicable taxes or charges under this Agreement, even though
any Lender may have obtained the funds loaned to the Borrower from sources
other than the applicable eurodollar market and at interest rates other than
the LIBOR Rate. The Agent's determination of the LIBOR Rate shall be
conclusive in the absence of manifest error.
(d) If a Default or Event of Default occurs and is continuing,
then (i) all LIBOR Loans shall bear interest at a rate equal to the LIBOR
Rate plus the Applicable Margin plus 3% per annum until the end of the
applicable LIBOR Interest Period and shall be automatically converted into a
Prime Rate Loan at the end of the applicable LIBOR Interest Period, and
(ii) all Prime Rate Loans shall bear interest at the Prime Rate plus the
Applicable Margin plus 3%.
(e) The Applicable Margin under any Type of Loan shall be
automatically adjusted as of the first day of the calendar month following
the Agent's receipt of a Compliance Certificate, pursuant to Section 5.1(g)
of this Agreement, based on the Debt to Cash Flow Ratio as of the last day of
the fiscal quarter for which the Compliance Certificate was prepared;
provided, however, that if the Borrower does not timely furnish any
Compliance Certificate to the Lenders, the Applicable Margin shall increase
without notice to the highest percentage for the applicable Type of Loan as
of the first day of the calendar month following the due date of the
Compliance Certificate. On the first Business Day of the second calendar
month after the date the Agent receives the late Compliance Certificate, the
Applicable Margin will change to the Applicable Margin, based on the Debt to
Cash Flow Ratio, for the applicable Type of Loan.
2.6 Fees.
(a) The Borrower shall pay to the Agent for the ratable benefit
of the Lenders a commitment fee (the "Commitment Fee"), payable quarterly in
arrears on the first Business Day of each calendar quarter and on the
Maturity Date for the quarter just completed (or if the Maturity Date occurs
during a fiscal quarter, from the end of the prior fiscal quarter through the
Maturity Date), equal to the sum of (i) .125% multiplied by the average daily
amount for such quarter just completed or partial quarter, as the case may
be, of the difference between (A) the Total New Vehicle Commitment and
(B) the Total New Vehicle Loan Outstandings (the Swingline Loan Outstandings
shall not be included in this calculation), plus (ii) .125% multiplied by the
average daily amount for such quarter just completed or partial quarter, as
the case may be, of the difference between (A) the Total Program and Used
Vehicle Commitment and (B) the Total Program and Used Vehicle Loan
Outstandings, plus (iii) .125% multiplied by the average daily amount for
such quarter just completed or partial quarter, as the case may be, of the
difference between (A) the Total Acquisition Loan Commitment and (B) the
Total Acquisition Loan Outstandings.
(b) The Borrower shall pay to the Swingline Lender for its sole
account a fee in an amount agreed to between the Borrower and the Swingline
Lender pursuant to the terms of any fee letter.
(c) The Borrower shall pay to the Agent, solely for the account
of the Agent, such other fees pursuant to the terms of any fee letter.
(d) On or before the Closing Date, the Borrower shall pay to
the Agent for the benefit of the Initial Lenders an up-front fee in the
amount of $150,000 in connection with the Total Acquisition Loan Commitment.
(e) The Borrower authorizes the Agent and the Lenders to charge
(no such charge shall be deemed to be a set-off) to their Note Records, as of
the date due to the Lender or paid by the Lender, the interest, fees,
charges, taxes and expenses provided for in this Agreement, the Security
Documents or any other document executed or delivered in connection with this
Agreement.
2.7 Payments and Prepayments of the Loans.
(a) Cash Sweep Service.
(i) In addition to Swingline Loans requested pursuant to
Section 2.1(b), the Borrower may also receive and repay advances in
accordance with the provisions of this Section 2.7(a) (the "Cash Sweep
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Service"). Such advances shall be Swingline Loans and shall be subject to
the limits set forth in Section 2.1(b).
(ii) Subject to Section 2.7(a)(iii), funds will be
transferred between the Borrower's deposit account number 025-000-1187
("DDA") maintained with U.S. Bank and Swingline Lender at the close of each
Business Day so that the DDA maintains a collected balance equal to a
pre-established balance (the "Peg Balance"). Any amounts advanced by
Swingline Lender to increase the collected balance in the DDA to the Loan Peg
Balance shall be Swingline Loans. Any collected funds in the DDA that exceed
the Peg Balance ("Excess Collected Funds") will be applied as payments to
reduce the Total Swingline Loan Outstandings. The Swingline Lender may limit
the amount of Excess Collected Funds that it will transfer to or from the
Swingline Commitment on any particular day. Should the collected funds in
the DDA be less than the Peg Balance, a Swingline Loan will be made to
restore the DDA to the Peg Balance. Should Swingline Loan Outstandings be
zero, and should Excess Collected Funds exceed $1,000,000, the full amount
collected shall be applied to Prime Rate Loans in the following order:
(w) first, to the New Vehicle Loan Outstandings, (x) second, to the Total
Program and Used Vehicle Loan Outstandings, and (y) third, to the portion of
the Total Acquisition Loan Outstandings attributable to Acquisition Revolving
Loans. Any remaining Excess Collected Funds shall be maintained in the DDA
unless otherwise agreed.
(iii) All Swingline Loans made pursuant to this Section
2.7(a) shall be deemed to have been requested by Borrower and shall be
subject to the terms and conditions of this Agreement and the Loan Documents.
(iv) The Peg Balance for the DDA will be the amount agreed
upon from time to time between Swingline Lender and the Borrower. On the
date of this Agreement, the amount of the Peg Balance shall equal $0.00. The
Swingline Lender shall not be accountable for errors in judgment in
performing any service hereunder.
(v) The Swingline Lender shall not be required to comply
with any direction of the Borrower that in its judgment may subject it to
liability, or to defend or prosecute any suit or action unless indemnified in
a manner and amount satisfactory to it. The Swingline Lender is authorized
to accept oral instructions, including telephone instructions, from any
Responsible Officer.
(vi) The Borrower may terminate the Cash Sweep Service by
written notice executed by Borrower and delivered to the Swingline Lender and
indemnifying Swingline Lender to its satisfaction against liabilities
incurred in the administration of the account. The Swingline Lender may
change the terms of or discontinue the Cash Sweep Service at any time upon
written notice. On the termination of the Cash Sweep Service, the Swingline
Commitment shall terminate, and the Borrower shall pay in full the unpaid
principal balance of the Swingline Loans, together with all accrued and
unpaid interest thereon and all Fees and other amounts due with respect
thereto.
(b) Prepayments. If at any time and for any reason the
aggregate of the Total New Vehicle Loan Outstandings plus the Swingline Loan
Outstandings shall exceed the Total New Vehicle Commitment, the Borrower
shall immediately pay the amount of such excess to the Agent for application
in accordance with the terms of Section 2.8(d) of this Agreement. If at any
time Total New Vehicle Loan Outstandings include amounts advanced as Other
Purpose Loans and for any reason the aggregate amount outstanding of Total
New Vehicle Loan Outstandings plus Swingline Loan Outstandings shall exceed
the applicable Borrowing Base (whether reflected on a Borrowing Base
Certificate, determined by a Collateral inspection, or otherwise), the
Borrower shall immediately pay the amount of such excess to the Agent for
application in accordance with the terms of Section 2.8(d) of this
Agreement. If at any time and for any reason the aggregate of the Swingline
Loan Outstandings shall exceed the Swingline Commitment, the Borrower shall
immediately pay the amounts of such excess to the Agent for application in
accordance with the terms of Section 2.8(d) of this Agreement. If at any
time and for any reason the aggregate of the Total Program and Used Vehicle
Loan Outstandings shall exceed the lesser of the Total Program and Used
Vehicle Commitment or the applicable Borrowing Base (whether reflected on a
Borrowing Base Certificate, determined by a Collateral inspection, or
otherwise), the Borrower shall immediately pay the amount of such excess to
the Agent for application in accordance with the terms of Section 2.8(d) of
this Agreement. If at any time and for any reason the aggregate of the Total
Demonstrator Vehicle Loan Outstandings shall exceed the Total Demonstrator
Vehicle Commitment, the Borrower shall immediately pay the amount of such
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excess to the Agent for application in accordance with the terms of
Section 2.8(d) of this Agreement. If at any time and for any reason the
aggregate of the Total Acquisition Loan Outstandings shall exceed the lesser
of the Total Acquisition Loan Commitment or the applicable Borrowing Base
(whether reflected on a Borrowing Base Certificate, determined by a
Collateral inspection, or otherwise), the Borrower shall immediately pay the
amount of such excess to the Agent for application in accordance with the
terms of Section 2.8(d) of this Agreement.
(c) Proceeds of Vehicle Sales. Within five Business Days
following the sale of a Vehicle, or on the receipt of proceeds with respect
to such sale, whichever occurs first, the Borrower or the applicable Loan
Party shall remit to the Agent an amount at least equal to the amount of any
Loan advanced for that Vehicle. If (i) a New Vehicle has not been sold on or
before the earlier of the Maturity Date or June 30 of the calendar year after
its model year, (ii) if a New Vehicle becomes a Demonstrator Vehicle, a
Program Vehicle or a Used Vehicle, or (iii) if a Demonstrator Vehicle becomes
a Program Vehicle or a Used Vehicle, the Borrower shall pay to the Agent on
the first of those dates to occur, an amount equal to the amount advanced for
the Vehicle. In addition, the Borrowers shall immediately pay to the Agent
an amount equal to the amount of any refund, rebate, credit or similar item
received by any Loan Party with respect to a Vehicle.
(d) Mandatory Payments of Vehicle Loans. On the Maturity Date,
the Borrower shall pay in full to the Agent (i) the unpaid principal balance
of the New Vehicle Loans, together with all accrued and unpaid interest
thereon and all Fees and other amounts due with respect thereto, (ii) the
unpaid principal balance of the Swingline Loans, together with all accrued
and unpaid interest thereon and all Fees and other amounts due with respect
thereto, (iii) the unpaid principal balance of the Program and Used Vehicle
Loans, together with all accrued and unpaid interest thereon and all Fees and
other amounts due with respect thereto, and (iv) the unpaid principal balance
of the Demonstrator Vehicle Loans, together with all accrued and unpaid
interest thereon and all Fees and other amounts due with respect thereto.
(e) Mandatory and Optional Payments of Acquisition Loans. On
the Maturity Date, the Borrower shall pay in full to the Agent the amounts
required by Section 2.1(e)(ii) of this Agreement. The Acquisition Term Loan
shall be repaid in fifty-nine (59) equal monthly installments of principal
plus all interest accrued through the end of the preceding month and one
final installment of the entire then outstanding principal balance, together
with all accrued and unpaid interest thereon and all Fees with respect
thereto. Each monthly principal payment shall be in the amount of one
sixtieth (1/60th) of the original principal balance of the Acquisition Term
Loan. The first payment shall be due on the tenth day of the month following
the date that the aggregate unpaid principal balance of all Acquisition
Revolving Loans converts to the Acquisition Term Loan, and each subsequent
payment will be due on the same day of each consecutive month until the last
month when the entire unpaid principal balance, together with all accrued and
unpaid interest thereon and all Fees with respect thereto, shall be due and
payable.
(f) Collateral Issues. The Agent may reject as Collateral any
item of inventory received by any Loan Party in damaged condition. Neither
the Agent, nor any Lender, has any obligation to inspect inventory for damage
before advancing a Loan. If the Lenders have advanced a Loan on damaged
inventory, the Borrower shall direct the Seller who received the amount of
the Loan advanced, to refund the Loan directly to the Agent. If the Seller
fails to refund the Loan within 5 days, the Borrower shall immediately repay
the Loan with respect to the damaged Vehicle. In any event, the Borrower
shall pay the Lenders all accrued and unpaid interest on the amount of the
Loan advanced with respect to the damaged Vehicle and all Fees with respect
thereto. Additionally, the Loan Parties shall be responsible for the
quantity, quality, condition and value of the inventory selected by the Loan
Parties financed under this Agreement. The Lenders shall have no liability
of any nature because of the failure of any item of inventory to conform to
any of the Loan Parties' specifications, and any dispute between the
manufacturer (or other entity from whom a Loan Party acquired an item of
inventory) and a Loan Party with respect to such inventory shall not in any
way change, modify, affect, or alter the Loan Parties' obligations under this
Agreement. Inspections of inventory will be conducted from time to time in
accordance with Section 5.5. Within five Business Days following a request
from the Agent, the Borrower agrees to pay in full to the Agent for the
benefit of the Lenders, together with all accrued and unpaid interest thereon
and all Fees with respect thereto, an amount equal to the amount of the Loan
advanced, plus 1% of the total amount due, for any item or unit of Collateral
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(i) not located on the premises of the Loan Party (except for a Vehicle sold
the proceeds of which sale are not yet due under Section 2.7(c) of this
Agreement) or (ii) for which the Loan Party no longer has the requisite Title
Documents.
(g) Breakage Charge. The Borrower may prepay Loans that are
LIBOR Loans on three Business Days' written notice and on payment of the
amounts required by Section 2.9. The Borrower may prepay Loans that are
Prime Rate Loans at any time, without premium or penalty, upon one Business
Day's notice. Any such notice of prepayment shall be irrevocable.
Prepayments will not postpone the date or reduce the amount of any regularly
scheduled payment on the Acquisition Term Loan.
(h) Late Charge. Without limiting any of the Lender's other
rights under this Agreement or by law, if any Loan or portion thereof, or any
interest thereon or any Fees with respect thereto, or any other amount
payable under this Agreement or any other Loan Document is not paid within 10
days after its due date, then the Borrower shall pay to the Agent for the
benefit of the Lenders or demand a late payment charge equal to 5% of the
amount of the payment due.
2.8 Method and Allocation of Payments.
(a) All payments by the Borrower under this Agreement and under
any of the other Loan Documents shall be made without set-off or counterclaim
and free and clear of and without deduction for any taxes, levies, imposts,
duties, charges, fees, deductions, withholdings, compulsory loans,
restrictions or conditions of any nature now or hereafter imposed or levied
by any jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Borrower is compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the
Borrower with respect to any amount payable by it under this Agreement or
under any of the other Loan Documents, the Borrower will pay to each Lender
such additional amount in U.S. Dollars as shall be necessary to enable such
Lender to receive the same net amount which such Lender would have received
on such due date had no such obligation been imposed upon the Borrower. The
Borrower will deliver promptly to each Lender certificates or other valid
vouchers or other evidence of payment reasonably satisfactory to the Agent
for all taxes or other charges deducted from or paid with respect to payments
made by the Borrower under this Agreement or under such other Loan Document.
The Lenders may, and the Borrower by this Agreement authorizes the Lenders
to, debit the amount of any payment not made by such time to the demand
deposit accounts of the Borrower with the Lenders or to their Note Records.
(b) All payments of principal of and interest with respect to
the Loans shall be made to the Agent, for the benefit of the Lenders, pro
rata in accordance with their respective Commitments for such Loans, all
payments of Commitment Fees shall be made to the Agent for the benefit of the
Lenders, pro rata in accordance with their respective Commitments for the
Loans, and payment of any other amounts due under this Agreement shall be
made to the Agent to be allocated among the Agent and the Lenders as their
respective interests appear. All such payments shall be made at the Agent's
office at 10800 NE 8th, Suite 900, Bellevue, Washington 98004 or at such
other location that the Agent may from time to time designate, in each case
in immediately available funds.
(c) Each Lender shall maintain in accordance with its usual
practice a Note Record evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender from time to time,
including the amounts of principal and interest payable and paid to such
Lender from time to time under this Agreement. The Agent shall maintain a
Note Record in which it will record (i) the amount of each Loan made
hereunder, the Type thereof and the Interest Period applicable thereto, (ii)
the amount of any principal or interest due and payable or to become due and
payable from the Borrower to each Lender hereunder and (iii) the amount of
any sum received by the Agent hereunder from the Borrower or any Loan Party
on behalf of the Borrower and each Lender's share thereof. The entries made
in the accounts maintained pursuant to subparagraphs (i), (ii) and (iii)
above shall be prima facie evidence of the existence and amount of the
obligations therein recorded; provided, however, that the failure of any
Lender or the Agent to maintain such accounts or any error therein shall not
in any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms.
(d) If the Commitments shall have been terminated or the
Obligations shall have been declared immediately due and payable pursuant to
Section 8.2, all funds received from or on behalf of the Borrower (including
as proceeds of Collateral) by any Lender with respect to Obligations (except
funds received by any Lenders as a result of a purchase of a participant
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interest pursuant to Section 2.8(e) below) shall be remitted to the Agent,
and all such funds, together with all other funds received by the Agent from
or on behalf of the Borrower (including proceeds of Collateral) with respect
to Obligations, shall be applied by the Agent in the following manner and
order: (i) first, to reimburse the Agent and the Lenders, in that order, for
any amounts payable pursuant to Sections 11.2 and 11.3 of this Agreement;
(ii) second, to the payment of the Fees; (iii) third, to the payment of
interest due on the Loans; (iv) fourth, to the payment of the outstanding
principal balance of the Swingline Loans and then the other Loans, pro rata
to the outstanding principal balance of each of the Loans, unless otherwise
specified in writing by all of the Lenders; (v) fifth, to the payment of any
other Obligations payable by the Borrower; and (vi) any remaining funds shall
be paid to whoever shall be entitled thereto or as a court of competent
jurisdiction shall direct.
(e) Each of the Lenders and the Agent by this Agreement agrees
that if it should receive any amount (whether by voluntary payment, by
realization upon security, by the exercise of the right of set-off or
banker's lien, by counterclaim or cross action, by the enforcement of any
right under the Loan Documents, or otherwise) with respect to principal of,
or interest on, any Loans or any Fees which are to be shared pro rata among
the Lenders, which, as compared to the amounts thereto received by the other
Lenders with respect to such principal, interest or Fees, is in excess of
such Lender's Pro Rata Share of such principal interest or Fees, such Lender
shall share such excess, less the costs and expenses (including, reasonable
Attorneys' Fees and disbursements) incurred by such Lender in connection with
such realization, exercise, claim or action, pro rata with the other Lenders
in proportion to their respective Commitments for such Loans, and such
sharing shall be deemed a purchase (without recourse) by such sharing party
of participant interests in such Loans or such Fees, as the case may be, owed
to the recipients of such shared payments to the extent of such shared
payments; provided, however, that if all or any portion of such excess amount
is thereafter recovered from such Lender, such purchase shall be rescinded
and the purchase price restored to the extent of such recovery, but without
interest.
2.9 LIBOR Indemnity. If the Borrower for any reason (including,
without limitation, pursuant to Sections 2.7, 2.11 and 8.2 of this Agreement)
makes any payment of principal with respect to any LIBOR Loan on any day
other than the last day of an Interest Period applicable to such LIBOR Loan,
or fails to borrow or continue or convert to a LIBOR Loan after giving a
Notice of Borrowing or Conversion thereof pursuant to Section 2.3, or fails
to prepay a LIBOR Loan after having given notice thereof, the Borrower shall
pay to the Agent for the benefit of the Lenders any amount required to
compensate the Lenders for any lost profit, additional losses, costs or
expenses which they may reasonably incur as a result of such payment or
failure, including, without limitation, any loss (including loss of
anticipated profits), costs or expense incurred by reason of the liquidation
or re-employment of deposits or other funds required by the Lenders to fund
or maintain such LIBOR Loan. The Borrower shall pay such amount upon
presentation by the Agent of a statement setting forth the amount and the
Agent's (or the affected Lenders') calculation thereof pursuant to this
Agreement, which statement shall be deemed true and correct absent manifest
error.
2.10 Computation of Interest and Fees. Interest and all Fees payable
under this Agreement shall be computed daily on the basis of a year of 360
days and paid for the actual number of days for which due. If the due date
for any payment of principal is extended by operation of law, interest shall
be payable for such extended time. If any payment required by this Agreement
becomes due on a day that is not a Business Day such payment may be made on
the next succeeding Business Day (subject to the definition of the term
"Interest Period"), and such extension shall be included in computing
interest in connection with such payment.
2.11 Changed Circumstances; Illegality.
(a) Notwithstanding any other provision of this Agreement, in
the event that:
(i) on any date on which the LIBOR Rate would otherwise
be set the Agent shall have determined in good faith (which determination
shall be final and conclusive) that adequate and fair means do not exist for
ascertaining the LIBOR Rate, or
(ii) at any time the Agent or any Lender shall have
determined in good faith (which determination shall be final and conclusive
and, if made by any Lender, shall have been communicated to the Agent in
writing) that:
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(A) the making or continuation of or conversion of
any Loan to a LIBOR Loan has been made impracticable or unlawful by (1) the
occurrence of a contingency that materially and adversely affects the
interbank LIBOR market, or (2) compliance by the Agent or such Lender in good
faith with any applicable law or governmental regulation, guideline or order
or interpretation or change thereof by any governmental authority charged
with the interpretation or administration thereof or with any request or
directive of any such governmental authority (whether or not having the force
of law); or
(B) The LIBOR Rate shall no longer represent the
effective cost to the Agent or such Lender on U.S. dollar deposits in the
Interbank market for deposits in which it regularly participates;
then, and in any such event, the Agent shall promptly notify the Borrower
thereof. Until the Agent notifies the Borrower that the circumstances giving
rise to such notice no longer apply, the obligation of the Lenders to allow
selection by the Borrower of the Type of Loan affected by the contingencies
described in this Section (the "Affected Loans") shall be suspended. If, at
the time the Agent so notifies the Borrower, the Borrower has previously
given the Agent a Notice of Borrowing or Conversion with respect to one or
more Affected Loans but such Loans have not yet gone into effect, such
notification shall be deemed to be a request for Prime Rate Loans.
(b) In the event of a determination of illegality pursuant to
subsection (a)(ii)(A) above, the Borrower shall, with respect to the
outstanding Affected Loans, prepay the same, together with interest thereon
and any amounts required to be paid pursuant to Section 2.9, on such date as
shall be specified in such notice (which shall not be earlier than the date
such notice is given) and may, subject to the conditions of this Agreement,
borrow a Loan of another Type in accordance with section 2.1 of this
Agreement by giving a Notice of Borrowing or Conversion pursuant to Section
2.3 of this Agreement.
2.12 Increased Costs. In case any change in law, regulation, treaty
or official directive or the interpretation or application thereof by any
court or by any governmental authority charged with the administration
thereof or the compliance with any guideline or request of any central bank
or other governmental authority (whether or not having the force of law):
(i) subjects any Lender to any tax with respect to payments of
principal or interest or any other amounts payable under this Agreement
by the Borrower or otherwise with respect to the transactions
contemplated by this Agreement (except for taxes on the overall net
income of such Lender imposed by the United States of America or any
political subdivision thereof), or
(ii) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, any
Lender (other than such requirements as are already included in the
determination of the LIBOR Rate), or
(iii) imposes upon any Lender any other condition with respect to
its obligations or performance under this Agreement, and
(iv) the result of any of the foregoing is to increase the cost
to the Lender, reduce the income receivable by such Lender or impose
any expense upon such Lender with respect to any Loans or its
obligations under this Agreement, such Lender shall notify the Borrower
and the Agent thereof. The Borrower agrees to pay to such Lender the
amount of such increase in cost, reduction in income or additional
expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by such Lender of a statement in the
amount and setting forth in reasonable detail such Lender's calculation
thereof and the assumptions upon which such calculation was based,
which statement shall be deemed true and correct absent manifest error.
2.13 Capital Requirements. If after the date of this Agreement any
Lender determines that (i) the adoption of or change in any law, rule,
regulation or guideline regarding capital requirements for banks or bank
holding companies, or any change in the interpretation or application thereof
by any governmental authority charged with the administration thereof, or
(ii) compliance by such Lender or its parent bank holding company with any
guideline, request or directive of any such entity regarding capital adequacy
(whether or not having the force of law), has the effect of reducing the
return on such Lender's or such holding company's capital as a consequence of
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such Lender's Commitments or Loans under this Agreement to a level below that
which such Lender or such holding company could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's or
such holding company's then existing policies with respect to capital
adequacy and assuming the full utilization of such entity's capital) by any
amount deemed by such Lender to be material, then such Lender shall notify
the Borrower and the Agent thereof. The Borrower agrees to pay to such
Lender the amount of such reduction of return on capital as and when such
reduction is determined, payable within 30 days after presentation by such
Lender of a statement in the amount and setting forth in reasonable detail
such Lender's calculation thereof and the assumptions upon which such
calculation was based (which statement shall be deemed true and correct
absent manifest error) unless within such 30 day period the Borrower shall
have prepaid in full all Obligations to such Lender, in which event no amount
shall be payable to such Lender under this Section. In determining such
amount, such Lender may use any reasonable averaging and attribution methods.
SECTION III.
CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Loans. The obligation of the
Lenders to make the initial Loans is subject to the satisfaction of the
following conditions precedent on or prior to the Closing Date:
(a) The Agent shall have received the following agreements,
documents, certificates and opinions in form and substance reasonably
satisfactory to the Agent and the Initial Lenders and duly executed and
delivered by the parties to this Agreement:
(i) this Agreement;
(ii) the Notes, substantially in the form of Exhibits A-1, A-2,
A-3, A-4, and A-5A to this Agreement;
(iii) the Security Documents, including the Security Agreement,
and a guaranty of the Obligations under this Agreement from the Loan
Parties;
(iv) UCC-1 and UCC 1-A and similar Financing Statements;
(v) UCC-3 and UCC 3-A and similar Termination Statements;
(vi) true and correct copies of all Material Agreements and
amendments thereto;
(vii) landlord's consents and waivers from each lessor who leases
any interest in real property to any Loan Party;
(viii) Certificates of insurance or insurance binders
evidencing compliance with Section 5.3 of this Agreement and the
applicable provisions of the Loan Documents;
(ix) a Notice or Notices of Borrowing or Conversion as of the
Closing Date as to initial Loans;
(x) a certificate with respect to the solvency of each of the
Loan Parties, a Borrowing Base Certificate for each applicable Loan
Commitment, and a Compliance Certificate, each signed by the Borrower's
Chief Financial Officer;
(xi) a certificate of the Secretary or an Assistant Secretary of
each Loan Party with respect to resolutions of the Board of Directors
as to a corporation or the Managers as to a limited liability company
authorizing the execution and delivery of the Loan Documents and
identifying the officer(s) authorized to execute, deliver and take all
other actions required under this Agreement, and providing specimen
signatures of such officers;
(xii) the Articles of Incorporation (or the equivalent document
depending on the form of entity) of each Loan Party and all amendments
and supplements thereto, as filed in the office of the Secretary of
State of its jurisdiction of incorporation, certified by said Secretary
of State as being a true and correct copy thereof;
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(xiii) the Bylaws (or the equivalent document depending on
the form of entity) of each Loan Party and all amendments and thereto,
certified by the Secretary or an Assistant Secretary of each Loan Party
as being a true and correct copy thereof;
(xiv) a certificate of the Secretary of State of each Loan
Party's jurisdiction of incorporation or organization as to the legal
existence and status of each Loan Party in such state;
(xv) a certificate of the Secretaries of State of each
jurisdiction identified in Section 4.1 of this Agreement as to the due
qualification and good standing of each Loan Party as a foreign
corporation or entity in such states;
(xvi) consents to the security interests granted to the Lenders
by Lithia Financial Corporation from each Affiliate which leases a
Vehicle or other property from Lithia Financial Corporation;
(xvii) an opinion addressed to the Lenders from Foster,
Pepper & Shefelman, counsel to the Borrower, in such form and substance
acceptable to the Agent in its sole discretion;
(xviii) the acknowledgments required by Section 5.20 hereof
and the waivers and consents required by Section 5.21 hereof; and
(xix) such other documents, instruments, opinions and
certificates and completion of such other matters, as the Agent or any
Initial Lender may reasonably deem necessary or appropriate.
(b) No litigation, arbitration, proceeding or investigation shall be
pending or threatened which questions the validity or legality of the
transactions contemplated by any Loan Document or seeks a restraining order,
injunction or damages in connection therewith, or which, in the judgment of
the Agent or the Initial Lenders, might adversely affect the transactions
contemplated by this Agreement or might have a materially adverse effect on
the assets, business, financial condition or prospects of any Loan Party.
(c) All necessary filings and recordings against the Collateral shall
have been completed and the Agent's liens on the Collateral shall have been
perfected, as contemplated by the Security Documents, which liens shall
constitute a first-priority security interest (except as contemplated by
Section 9.3 of this Agreement), and no other Encumbrance, except Permitted
Encumbrances, shall exist against the Collateral.
(d) The Agent and the Initial Lenders shall have received the
Borrower's pro forma consolidated balance sheet as of the Closing Date and
its projections of future consolidated results of operations, all in form and
substance satisfactory to the Agent and the Initial Lenders.
(e) The Agent and the Initial Lenders shall be satisfied with the
Borrower's and the Parent's capital structure.
(f) The Borrower shall have delivered the Initial Financial Statement
to the Initial Lenders.
(g) Any obligation of any Loan Party to U.S. Bank outstanding prior
to the date of this Agreement (except for such amounts loaned from U.S. Bank
directly to Lithia Financial Corporation or under letters of credit issued by
U.S. Bank for the benefit of a Loan Party) and any other Indebtedness not
permitted by this Agreement shall have been repaid in full.
(h) The Borrower shall have paid to the Agent all Fees to be paid
under this Agreement (including without limitation pursuant to Section 2.6(d)
of this Agreement) or agreed to between the Borrower and the Agent on or
prior to the Closing Date.
(i) The representations and warranties of Section IV are true and
correct.
3.2 Conditions Precedent to All Loans. The obligation of the Lenders
to make any Loan, including the initial Loans, or continue or convert a Loan
is further subject to the following conditions:
(a) timely receipt by the Agent of the Notice of Borrowing;
(b) the outstanding Loans do not and, after giving effect to
any requested Loan, will not exceed the limitations set forth in Sections 2.1;
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(c) the representations and warranties contained in Section IV
shall be true and accurate in all material respects on and as of the date of
such Notice of Borrowing and on the effective date of the making,
continuation or conversion of each Loan as though made at and as of each such
date (except to the extent that such representations and warranties expressly
relate to an earlier date);
(d) no Default or Event of Default shall have occurred and be
continuing at the time of and immediately after the making of such requested
Loan;
(e) the resolutions referred to in Section 3.1 shall remain in
full force and effect;
(f) each of the Loan Parties shall have complied in full with
all covenants and conditions and the Lenders shall have received all of the
documents, including without limitation the Security Documents, the Real
Property Security Documents, the Acquisition Approval Documents and any other
documents reasonably required by the Lenders in connection with the making of
the Loan;
(g) with respect to the Acquisition Term Loan, the Borrower
shall have executed and delivered to the Agent the Acquisition Term Notes for
each Lender; and
(h) for a particular Lender, no change shall have occurred in
any law or regulation or interpretation thereof that, in the opinion of
counsel for that Lender, would make it illegal or against the policy of any
governmental agency or authority for such Lender to make Loans under this
Agreement (as the case may be).
The making or continuation or conversion of each Loan shall be deemed
to be a representation and warranty by the Borrower on the date of the making
or continuation of such Loan as to the accuracy of the facts referred to in
subsection (c) of this Section 3.2 and of the satisfaction of all of the
conditions set forth in this Section 3.2.
SECTION IV.
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this
Agreement and to make Loans under this Agreement, the Loan Parties, jointly
and severally, represent and warrant to the Agent and the Lenders that except
as set forth on Exhibit C attached to this Agreement (Exhibit C shall be
arranged in sections corresponding to the lettered and numbered sections
contained in this Section IV):
4.1 Organization; Qualification; Business.
(a) The Borrower (i) is a corporation duly organized and
validly existing under the laws of the state of Oregon, (ii) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated and (iii) is duly qualified and in
good standing as a foreign corporation and is duly authorized to do business
in each jurisdiction (all of which are listed on Exhibit C attached to this
Agreement) where the nature of its properties or business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, financial condition, assets or
properties of the Borrower or of the Borrower and its Subsidiaries taken as a
whole.
(b) Each of the Parent and the other Loan Parties (i) is duly
organized and validly existing under the laws of its jurisdiction of
organization, (ii) has all requisite power to own its property and conduct
its business as now conducted and as presently contemplated and (iii) is duly
qualified and in good standing as a foreign corporation or entity and is duly
authorized to do business in each jurisdiction (all of which are listed on
Exhibit C attached to this Agreement) where the nature of its properties or
business requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business, financial
condition, assets or properties of the Borrower or of the Borrower and its
Subsidiaries taken as a whole.
(c) Since the date of the Initial Financial Statement, each of
the Loan Parties has continued to engage in substantially the same business
as that in which it was then engaged and is engaged in no unrelated
business. The Loan Parties' sole line of business is new and used automotive
retailing and parts, service, and financing related thereto.
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4.2 Authority.
(a) The execution, delivery and performance of the Loan
Documents and the transactions contemplated by the Loan Documents are within
the corporate power and authority of the Borrower, have been authorized by
all necessary corporate action, and do not and will not (i) contravene any
provision of the Articles of Incorporation or bylaws of the Borrower or any
law, rule or regulation applicable to the Borrower, (ii) contravene any
material provision of, or constitute an event of default or event that, but
for the requirement that time elapse or notice be given, or both, would
constitute an event of default under, any other material agreement,
instrument, order or undertaking binding on the Borrower, or (iii) result in
or require the imposition of any Encumbrance on any of the properties, assets
or rights of the Borrower, except in favor of the Agent and the Lenders.
(b) The execution, delivery and performance of the Loan
Documents and the transactions contemplated by the Loan Documents are within
the power and authority of each Loan Party other than Borrower, have been
authorized by all necessary action, and do not and will not (i) contravene
any provision of the Articles of Incorporation or bylaws (or Articles of
Organization or Operating Agreement if the Loan Party is a limited liability
company) of the Loan Party or the Parent, or any law, rule or regulation
applicable to the Loan Party or the Parent, (ii) contravene any material
provision of, or constitute an event of default or event that, but for the
requirement that time elapse or notice be given, or both, would constitute an
event of default under, any other material agreement, instrument, order or
undertaking binding on the Loan Party or the Parent, or (iii) result in or
require the imposition of any Encumbrance on any of the properties, assets or
rights of the Loan Party or the Parent, except in favor of the Agent and the
Lenders.
4.3 Valid Obligations. The Loan Documents have been duly and validly
executed and delivered and all of their respective terms and provisions are
the legal, valid and binding obligations of the Borrower or the Loan Party,
as the case may be, enforceable in accordance with their respective terms
except as limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally,
and except as the remedy of specific performance or of injunctive relief is
subject to the discretion of the court before which any proceeding therefor
may be brought. The Security Documents have effectively created in favor of
the Agent and the Lenders legal, valid and binding security interests in the
Collateral enforceable in accordance with their terms, and such security
interests are fully perfected first priority security interests (except with
respect to the fixed assets owned by Lithia Financial Corporation and
Vehicles owned by Lithia Financial Corporation leased to others, which
security interest shall be a perfected second priority security interest),
subject only to Permitted Encumbrances.
4.4 Consents or Approvals. The execution, delivery and performance
of the Loan Documents and the transactions contemplated by this Agreement do
not require any approval or consent of, or filing or registration with, any
governmental or other agency or authority, or any other Person, except under
or as contemplated by the Security Documents, all of which have been obtained.
4.5 Title to Properties; Absence of Encumbrances. Each of the Loan
Parties has good and marketable title to all of the properties, assets and
rights of every type and nature now purported to be owned by it, including,
without limitation, such properties, assets and rights as are reflected in
the Initial Financial Statement (except such properties, assets or rights as
have been disposed of in the ordinary course of business since the date
thereof), free from all Encumbrances except Permitted Encumbrances, and,
except as so disclosed, free from all defects of title that might materially
adversely affect the properties, assets or rights of the Loan Parties, taken
as a whole. All material property owned or leased by the Borrower, the
Parent, or any other Loan Party is described in Exhibit C to this Agreement.
Exhibit C also contains a true and complete list of each Loan Party's deposit
or similar accounts.
4.6 Location of Real Property and Leased Premises. Section 4.6(a) of
Exhibit C lists completely and correctly all material real property owned by
any Loan Party and the addresses thereof. The Loan Parties own in fee all
the real property set forth on Section 4.6(a) of Exhibit C. Section 4.6(b)
of Exhibit C lists completely and correctly all real property leased by any
Loan Party and the owners and addresses thereof. The Loan Parties have valid
leases in all the real property listed on Section 4.6(b) of Exhibit C.
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4.7 Financial Statements. The Borrower has furnished to the Lenders
its consolidated balance sheet as of December 31, 1996 and its consolidated
statements of income, changes in stockholders' equity and cash flow for the
fiscal year then ended, and related footnotes audited and certified by the
Borrower's Accountants, and its consolidated balance sheet as of
September 30, 1997 and its consolidated statements of income, changes in
stockholders' equity and cash flow for the current fiscal year through such
date, and related footnotes (the "Initial Financial Statement"). All such
financial statements were prepared in accordance with GAAP applied on a
consistent basis throughout the periods specified and present fairly the
financial position of the Borrower and its Subsidiaries as of such dates and
the results of the operations of the Borrower and its Subsidiaries for such
periods. The Borrower has also furnished to the Lenders its pro forma
balance sheet, of September 30, 1997, and as of the Closing Date and
projections of its future results of operations, all of which were reasonable
when made and continue to be reasonable at the date of this Agreement. At
the date of this Agreement, no Loan Party has any Indebtedness or other
material liabilities, debts or obligations, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, including, but not
limited to, liabilities or obligations on account of taxes or other
governmental charges, that are not set forth on Exhibit C to this Agreement,
and the security interests and the Obligations secured by such security
interests shall rank senior to the Indebtedness. None of the Loan Parties
finance any of its Vehicle inventory with any other source or acquire
inventory from any entity on credit except as set forth on Exhibit C to this
Agreement.
4.8 Changes. Since the date of the Initial Financial Statement,
there have been no changes in the assets, liabilities, financial condition,
business or prospects of any Loan Party other than changes in the ordinary
course of business, the effect of which has not, in the aggregate, been
materially adverse to the Borrower and its Subsidiaries taken as a whole.
4.9 Insurance. Exhibit C sets forth a true, complete and correct
description of all material insurance maintained by the Borrower or any Loan
Party as of the Closing Date. As of such date, such insurance is in full
force and effect and all premiums have been duly paid. The Borrower and the
Loan Parties have insurance in such amounts and covering such risks and
liabilities as are in accordance with the requirements of the Agent.
4.10 Solvency. After giving effect to the Loans and after giving
effect to the application of the proceeds of such Loans, (a) the fair value
of the assets of each Loan Party, at a fair valuation, will exceed its debts
and liabilities, subordinated, unliquidated, unmatured, contingent (except
for that portion of the Guaranty in excess of the proceeds of Loans received
by such Loan Party) or otherwise; (b) the present fair saleable value of the
property of each Loan Party will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, unliquidated, unmatured, contingent (except for that portion of
the Guaranty in excess of the proceeds of Loans received by such Loan Party)
or otherwise, as such debts and other liabilities become absolute and mature;
(c) each Loan Party will be able to pay (and does not intend to incur debts
beyond its ability to pay) its debts and liabilities, subordinated,
unliquidated, unmatured, contingent (except for that portion of the Guaranty
in excess of the proceeds of Loans received by such Loan Party) or otherwise,
as such debts and liabilities become absolute and mature; and (d) each Loan
Party will not have unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted following the Closing Date.
4.11 Defaults. As of the date of this Agreement, no Default exists.
4.12 Taxes. The Loan Parties have filed all federal, state and other
material tax returns required to be filed, and all taxes, assessments and
other governmental charges due from the Loan Parties have been fully paid,
except for such taxes, assessments or charges that are being contested in
good faith by appropriate proceedings and with respect to which (a) adequate
reserves have been established and are being maintained in accordance with
GAAP and (b) no lien has been filed to secure such taxes, assessments or
charges. All such contests at the date of this Agreement are described on
Exhibit C to this Agreement. No Loan Party has executed any waiver that
would have the effect of extending the applicable statute of limitations with
respect to tax liabilities. The federal and state income tax returns of the
Loan Parties have not been audited or otherwise examined by any federal or
state taxing authority. The Loan Parties have established on their books
reserves adequate for the payment of all federal, state and other tax
liabilities.
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4.13 Litigation. There is no litigation, arbitration, proceeding or
investigation pending, or, to the knowledge of the any of the Loan Parties'
officers, threatened against any Loan Party that, if adversely determined,
may reasonably be expected to result in a material judgment not fully covered
by insurance, may reasonably be expected to result in a forfeiture of all or
any substantial part of the property of any Loan Party, or may reasonably be
expected to have a material adverse effect on the assets, business or
prospects of the Borrower and its Subsidiaries taken as a whole.
4.14 Subsidiaries. Exhibit C sets forth the name, address,
jurisdiction of incorporation or organization and stockholders or equity or
ownership interest holders of each Loan Party, other than public shareholders
of the Borrower who are not Affiliates, and the shares of capital stock or
other equity interests owned by each Loan Party. The Borrower or
Subsidiaries of the Borrower are the owners, free and clear of all
Encumbrances, of all of the issued and outstanding stock or equity or other
ownership interests of each Subsidiary. All shares of such stock or equity
or other ownership interests have been validly issued and are fully paid and
nonassessable, and no rights to subscribe to any additional shares or equity
or other ownership interests have been granted, and no options, warrants or
similar rights are outstanding.
4.15 Investment Company Act. None of the Loan Parties are subject to,
or controlled by an entity that is subject to, regulation under the
Investment Company Act of 1940, as amended.
4.16 Compliance. Each Loan Party has all necessary permits,
approvals, authorizations, consents, licenses, franchises, distributorships,
registrations and other rights and privileges (including patents, trademarks,
trade names and copyrights) necessary to the conduct of its business and to
allow it to own and operate its business without any violation of law or the
rights of others, except to the extent that any such violation would not have
a material adverse effect on the business, financial condition or results of
operations of the Borrower and its Subsidiaries taken as a whole; and each
Loan Party is duly authorized, qualified and licensed under and in compliance
with all applicable laws, regulations, authorizations and orders of public
authorities (including, without limitation, Environmental Laws as provided in
Section 4.18), except to the extent that any such failure to be so
authorized, qualified, licensed or in compliance would not have a material
adverse effect on the business, financial condition or results of operations
of the Borrower and its Subsidiaries taken as a whole. The Loan Parties have
performed all obligations required to be performed by them under, and are not
(or would not be with the passage of time or the giving of notice) in default
under or in violation of, their Articles of Incorporation or Bylaws (or
Articles of Organization or Operating Agreement if the Loan Party is a
limited liability company), or any contract, agreement, lease, mortgage,
note, bond, indenture, license, permit or other instrument or undertaking to
which any of them is a party or by which any of them or any of their
properties are bound, except for violations none of which, either
individually or in the aggregate, would have any material adverse effect on
the business, condition (financial or otherwise) or assets of the Borrower
and its Subsidiaries taken as a whole.
4.17 ERISA. The Borrower and each of its Affiliates are in compliance
in all material respects with ERISA and the provisions of the Code applicable
to the Plans; neither the Borrower nor any of its Affiliates have engaged in
a Prohibited Transaction which would subject the Borrower, any of its
Affiliates or any Plan to a material tax or penalty imposed on a Prohibited
Transaction; no Plan has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived; except as set forth in the Initial Financial Statement, the aggregate
fair market value of all assets of the Plans which are single-employer plans
is at least equal to the aggregate present value of all accrued benefits
under such Plans, both as determined in the most recent actuarial reports for
such Plans using the actuarial assumptions used for funding purposes therein;
neither the Borrower nor any of its Affiliates have incurred any liability to
the Pension Benefit Guaranty Corporation over and above premiums required by
law; and neither the Borrower nor any of its Affiliates have terminated any
Plan in a manner which could result in the imposition of a lien on the
property of the Borrower or any of its Affiliates. None of the Borrower or
its Affiliates have contributed, or been obligated to contribute, to any
Multiemployer Pension Plan on or after September 26, 1980.
4.18 Environmental Matters.
(a) The Loan Parties have obtained all permits, licenses and
other authorizations which are required under all Environmental Laws, except
to the extent failure to have any such permit, license or authorization would
not have a material adverse effect on the business, financial condition or
results of operations of the Borrower and any of its Subsidiaries, taken as a
whole. The Loan Parties are in compliance with the terms and conditions of
all such permits, licenses and authorizations, and are also in compliance
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with all applicable orders, decrees, judgments and injunctions, issued,
entered, promulgated or approved under any Environmental Law, except to the
extent failure to comply would not have a material adverse effect on the
business, financial condition or results of operations of the Borrower and
its Subsidiaries, taken as a whole.
(b) No written notice, notification, demand, request for
information, citation, summons or order has been issued, no complaint has
been filed, no penalty has been assessed and no investigation or review is
pending or threatened by any governmental or other entity (i) with respect to
any alleged failure by any Loan Party to comply with any Environmental Laws
or to have any permit, license or authorization required by any Environmental
Law in connection with the conduct of its business or (ii) regarding the
presence of any Hazardous Material at, on or under any property now or
previously owned, leased or used by any Loan Party or any other location to
which Hazardous Materials from such property had been transported or at which
they have been disposed of.
(c) No material oral or written notification of a release of a
Hazardous Material has been filed by or on behalf of any Loan Party and no
property now or previously owned, leased or used by any Loan Party is listed
or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, or on any similar state list of sites requiring investigation or
clean-up.
(d) There are no liens or Encumbrances arising under or
pursuant to any Environmental Law on any of the real property or properties
owned, leased or used by any Loan Party and no governmental actions have been
taken or are in process which could subject any of such properties to such
liens or Encumbrances.
(e) No Loan Party nor any previous owner, tenant, occupant or
user of any property owned, leased or used by any Loan Party have (i) engaged
in or permitted any operations or activities upon or any use or occupancy of
such property, or any portion thereof, for the handling, manufacture,
treatment, storage, use, generation, release, discharge, refining, dumping or
disposal of any Hazardous Materials on, under, in or about such property,
except to the extent commonly used in day-to-day operations of such property
and in such case only in compliance in all material respects with all
Environmental Laws, or (ii) transported any Hazardous Materials to, from or
across such property except to the extent commonly used in day-to-day
operations of such property and, in such case, in compliance in all material
respects with all Environmental Laws; nor to the knowledge of the officers of
Borrower and other Loan Parties have any Hazardous Materials migrated from
other properties upon, about or beneath such property, nor are any Hazardous
Materials presently constructed, deposited, stored or otherwise located on,
under, in or about such property except to the extent commonly used in
day-to-day operations of such property and, in such case, in compliance in
all material respects with all Environmental Laws.
4.19 Restrictions on the Borrower. None of the Loan Parties is a
party to or bound by any contract, agreement or instrument, nor subject to
any charter or other corporate restriction which will, under current or
foreseeable conditions, materially and adversely affect the business,
property, assets, operations or conditions, financial or otherwise, of the
Borrower or any of its Subsidiaries.
4.20 Labor Relations. There is (i) no unfair labor practice complaint
pending or threatened against any Loan Party before the National Labor
Relations Board, and no grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is so pending or threatened against
any Loan Party except for such complaints, grievances and arbitration
proceedings which, if adversely decided, would not have a material and
adverse effect on the condition (financial or otherwise), properties,
business or results of operations of the Borrower and its Subsidiaries, taken
as a whole, (ii) no strike, labor dispute, slowdown or stoppage pending or
threatened against any Loan Party, except for any such labor action as would
not have a material and adverse effect on the condition (financial or
otherwise), properties, business or results of operations of the Borrower and
its Subsidiaries, taken as a whole and (iii) no union representation question
existing with respect to the employees of any Loan Party and no union
organizing activities are taking place, except for any such question or
activities as would not have a material and adverse effect on the condition
(financial or otherwise), properties, business or results of operations the
Borrower and its Subsidiaries, taken as a whole.
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4.21 Margin Rules. None of the Loan Parties own or have any present
intention of purchasing or carrying, and no portion of any Loan shall be
used, whether directly or indirectly, and whether immediately, incidentally
or ultimately, (a) for purchasing or carrying, any "margin security" or
"margin stock" as such terms are used in Regulations G, T, U or X of the
Board of Governor's of the Federal Reserve System, or (b) otherwise for any
purpose that entails any violation of, or that is inconsistent with, the
provisions of the regulations of the Board of Governor's of the Federal
Reserve System, including Regulations G, T, U or X.
4.22 SEC Documents. The Borrower has furnished to the Agent true and
complete copies of (a) its Registration Statement on Form S-1, as declared
effective by the U.S. Securities and Exchange Commission (the "SEC") on
December 18, 1996, and (b) all reports and registration statements filed with
the SEC under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), since such date, all in the form (including exhibits) so
filed (collectively, the "SEC Documents"). As of their respective filing
dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not
misleading, except to the extent corrected by a subsequently filed SEC
Document. As of the date of this Agreement, no additional filings or
amendments to previously filed SEC Documents are required pursuant to such
rules and regulations.
4.23 Material Agreements. Exhibit C lists all material agreements to
which any Loan Party is a party, including without limitation those
agreements (any of which will be considered material) relating to the lease
of real property, the right to use a third party's intellectual property, the
purchase of inventory, the ability or license to sell or distribute inventory
(including without limitation franchise agreements, distributorship
agreements, or similar agreements), the financing of inventory, or the
re-purchase of inventory (each a "Material Agreement"). The Borrower has
furnished to the Agent true and complete copies of these agreements. With
respect to each such agreement: (a) the agreement is legal, valid, binding,
enforceable, and in full force and effect in all material respects; (b) no
party is in material breach or default, and no event has occurred which with
notice or lapse of time would constitute a material breach or default, or
permit termination, modification, or acceleration, under the agreement; (c)
no party has repudiated any material provision of the agreement; and (d) no
Loan Party has assigned or granted any Person a right or an interest in the
agreement.
4.24 Disclosure. No representation or warranty made by any of the
Loan Parties in any Loan Document and no document or information furnished to
the Lenders by or on behalf of or at the request of any of the Loan Parties
in connection with any of the transactions contemplated by the Loan Documents
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained therein not
misleading in light of the circumstances in which they are made. There is no
fact known to any Loan Party that is reasonably likely to have a material
adverse effect on the assets, business or prospects of any Loan Party, which
has not been disclosed to Lenders in writing prior to the date of this
Agreement.
SECTION V.
AFFIRMATIVE COVENANTS
Each Loan Party covenants that so long as any Loan or other Obligation
remains outstanding, any debit or draft authorization (or similar instrument
or arrangement) remains in effect, or the Lenders have any obligation to lend
under this Agreement:
5.1 Financial Statements. The Loan Parties shall furnish to the
Lenders at their sole cost and expense:
(a) as soon as available to the Loan Parties, but in any event
within 95 days after the end of each fiscal year, the Parent's and the
Borrower's consolidated balance sheet as of the end of, and related
consolidated statements of income, retained earnings and cash flow for, such
year, prepared in accordance with GAAP and audited and certified by the
Borrower's Accountants; and, concurrently with such financial statements, a
copy of the Borrower's Accountants management report and a written statement
by the Borrower's Accountants that, in the making of the audit necessary for
their report and opinion upon such financial statements they have obtained no
knowledge of any breach of a Financial Covenant under Section VI hereof or,
if in the opinion of such accountants any such breach exists, they shall
disclose in such written statement the nature and status thereof;
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(b) as soon as available to the Loan Parties, but in any event
within 50 days after the end of each fiscal quarter, a consolidated balance
sheet as of the end of, and related consolidated statements of income,
retained earnings and cash flow for, the fiscal quarter then ended and the
portion of the year then ended, in each case setting forth in comparative
form the projections provided for such period pursuant to Section 5.1(d),
prepared in accordance with GAAP and certified by the chief financial officer
of the Borrower, subject to normal, recurring year-end adjustments that shall
not in the aggregate be material in amount;
(c) promptly after the receipt thereof by any Loan Party,
copies of any management report submitted to the Loan Party by independent
public accountants in connection with any annual or interim review of the
accounts of the Loan Party made by such accountants;
(d) on the Closing Date and 60 days before the beginning of
each fiscal year, projections and budget, certified by the Borrower's chief
financial officer, prepared on a quarterly basis for the following fiscal
year, including consolidated balance sheets and statements of income,
retained earnings and cash flows;
(e) within five Business Days after the same are delivered to
its stockholders or the Securities and Exchange Commission, copies of all
proxy statements, financial statements and reports or other documents as the
Borrower shall send to its stockholders or as the Borrower may file with the
Securities and Exchange Commission or any similar document filed with any
state or District of Columbia securities regulatory authority at any time
having jurisdiction over the Borrower or its Subsidiaries;
(f) on the first Business Day of each week, a report,
substantially in the form of Exhibit D to this Agreement signed on behalf of
the Loan Parties by the Borrower's chief financial officer, involving among
other things the amounts contained in each of the Loan Parties' deposit or
similar accounts as of the end of the prior week;
(g) as soon as available, but in any event within 50 days after
the end of each fiscal quarter, the Borrower shall deliver to the Agent and
each Lender a Compliance Certificate, substantially in the form attached as
Exhibit E, signed by its chief financial officer;
(h) as soon as available to the Loan Parties, but in any event
within 20 days after the end of each calendar month and with each Notice of
Borrowing or Conversion with respect to an Other Purpose Loan, a Program and
Used Vehicle Loan or an Acquisition Revolving Loan, the Borrower shall
deliver to the Agent and each Lender a Borrowing Base Certificate,
substantially in the form attached as Exhibit F, signed by its chief
financial officer;
(i) projections and budget, dated no earlier than July 1, 1998
and no later than July 31, 1998, and certified by the Borrower's chief
financial officer, prepared on a quarterly basis for each of the following
five years, including consolidated balance sheets and statements of income,
retained earnings and cash flows;
(j) as soon as available, but in any event within 15 days after
the end of each month, a "factory" franchise statement for each Subsidiary;
and
(k) from time to time, such other financial data and
information about any of the Loan Parties as the Agent or the Lenders may
reasonably request.
5.2 Conduct of Business. The Loan Parties shall:
(a) duly observe and comply in all material respects with all
applicable laws, regulations, decrees, orders, judgments and valid
requirements of any governmental authorities relative to their corporate
existence, rights and franchises, to the conduct of their business and to
their property and assets (including without limitation all Environmental
Laws and ERISA), and shall maintain and keep in full force and effect and
comply with all licenses and permits necessary in any material respect to the
proper conduct of their business;
(b) maintain their corporate or other organizational, as the
case may be, existence and remain in the same business as that in which they
are now engaged, and in no unrelated business, as described in Section 4.1(c);
(c) maintain all of its deposit and similar accounts at a
branch of U.S. Bank, provided that U.S. Bank has a branch within a reasonable
geographic area of the Loan Party's place of business; and
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(d) maintain each of the deposit or similar accounts listed on
Schedule 4.5 to Exhibit C of this Agreement and provide the Agent with
written notice before opening any new deposit or similar account.
5.3 Maintenance and Insurance.
(a) The Loan Parties shall maintain their properties (including all
Collateral) in good repair, working order and condition as required for the
normal conduct of their business. The Loan Parties shall maintain all
assets, licenses, patents, copyrights, trademarks, service marks, trade
names, permits and other governmental approvals necessary to conduct its
business.
(b) The Loan Parties shall at all times maintain liability and
casualty insurance on their properties with financially sound and reputable
insurers in such amounts and with such coverages, endorsements, deductibles
and expiration dates as the Agent reasonably deems appropriate, including,
without limitation, casualty and liability insurance, as are customary in the
industry for companies of established reputation engaged in the same or
similar business and owning or operating similar properties. The Agent shall
be named as loss payee and additional insured as under such insurance as the
Agent shall require from time to time, and the Borrower shall provide to the
Agent lender's loss payable endorsements in form and substance reasonably
satisfactory to the Agent. The Agent shall be given thirty (30) days advance
notice of any cancellation of insurance. In the event of failure to provide
and maintain insurance as provided in this Agreement, the Agent may, at its
option, provide such insurance and charge the amount thereof to the Borrower
as any Type of Loan under any Commitment that Agent chooses in its sole
discretion. On an annual basis, the Loan Parties shall furnish to the Agent
certificates, duplicate copies of the policies, or other evidence
satisfactory to the Agent of compliance with the foregoing insurance
provisions. The Agent shall not, by the fact of approving, disapproving or
accepting any such insurance, incur any liability for the form or legal
sufficiency of insurance contracts, solvency of insurance companies or
payment of law suits, and the Loan Parties by this Agreement expressly assume
full responsibility therefor and liability, if any, thereunder.
WARNING
Unless each Loan Party provides the Agent with evidence of the
insurance coverage as required by the Credit Agreement or any Loan Document,
the Agent may purchase insurance at the Loan Party's expense to protect the
Lenders' interest. This insurance may, but need not, also protect the Loan
Party's interest. If the Collateral becomes damaged, the coverage the Agent
purchases may not pay any claim any Loan Party makes or any claim made
against any Loan Party. Each Loan Party may later cancel this coverage by
providing evidence that the Loan Party has obtained property coverage
elsewhere.
Each Loan Party is responsible for the cost of any insurance purchased
by the Agent. The cost of this insurance may be added to the Total Loan
Outstandings. If the cost is added to the Total Loan Outstandings, the
highest interest rate on the underlying Loan will apply to this added
amount. The effective date of coverage may be the date any Loan Party's
prior coverage lapsed or the date the Loan Party failed to provide proof of
coverage.
The coverage the Agent purchases may be considerably more expensive
than insurance any Loan Party can obtain on its own and may not satisfy any
need for property damage coverage or any mandatory liability insurance
requirements imposed by applicable law.
5.4 Taxes. The Loan Parties shall pay or cause to be paid all taxes,
assessments or governmental charges on or against any of them or their
properties on or prior to the time when they become delinquent, except for
any tax, assessment or charge that is being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
established and are being maintained in accordance with GAAP if no
Encumbrance (other than a Permitted Encumbrance) shall have been filed to
secure such tax, assessment or charge.
5.5 Inspections. The Loan Parties shall permit the Agent, any Lender
and their designees, at any time with or without notice, (a) to visit and
inspect the properties of the Loan Parties for the purpose, among other
things, to inspect and verify the Collateral under procedures established by
the Agent, (b) examine and make copies of and take abstracts from the books
and records (maintained in any format) of the Loan Parties, and (c) during
regular business hours, to discuss the affairs, finances and accounts of the
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Loan Parties with their appropriate officers, employees and accountants, all
at the expense of the Loan Parties. Without limiting the generality of the
foregoing, the Loan Parties will permit periodic reviews (as determined by
the Agent) of their books and records (maintained in any format) of the Loan
Parties to be carried out by the Agent's commercial finance examiners, and
Agent will conduct, and each Loan Party will permit, audits of Collateral at
least four times during each calendar year, which audits will be conducted by
the Agent's collateral examiners. The inspections and examinations under
this Section 5.5 shall be at the expense of the Loan Parties; provided,
however, that, unless a Default or Event of Default has occurred and is
continuing, the Agent shall pay for the first two inspections described in
subclause 5.5(a) in any calendar year.
5.6 Maintenance of Books and Records. The Loan Parties at their sole
cost and expense shall keep adequate books and records of account, in which
true and complete entries will be made reflecting all of their business and
financial transactions, in accordance with GAAP and applicable law. The Loan
Parties shall at all times keep correct and accurate records itemizing and
describing the kind, type, location, quality and quantity of inventory, the
Loan Parties' cost for the inventory, in accordance with procedures
established by the Agent, all of which records shall be updated at least
weekly (or more frequently if reasonably requested by the Agent or, after
Default, by any Lender) and shall be available during the Loan Parties' usual
business hours at the request of any of the Agent's officers, employees or
agents. The Loan Parties shall at their sole cost and expense conduct a
physical count of the vehicle inventory at least once each month (or more
often if deemed prudent by the Agent in its sole discretion), and promptly
following such physical vehicle inventory count shall supply the Agent with
the information required by Section 5.19(d) of this Agreement. The Borrower
shall also conduct a physical vehicle inventory count whenever reasonably
requested to do so by the Agent or by the Required Lenders.
5.7 Use of Proceeds.
(a) The Borrower will use the proceeds of Loans solely for the
purpose described in this Agreement with respect to each type of Loan, and
such proceeds shall not be used to acquire inventory for or to benefit any
Person who is not a Loan Party.
(b) No portion of any Loan shall be used for the "purpose of
purchasing or carrying" any "margin stock" or "margin security" as such terms
are used in Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System, or otherwise in violation of such regulations.
5.8 Further Assurances. At any time and from time to time each Loan
Party shall execute and deliver such further documents and instruments and
take such further action as may reasonably be requested by the Agent to
effect the purposes of the Loan Documents and in order to grant, preserve,
protect and perfect the validity and priority of the security interest
created or intended to be created by the Security Documents. The Borrower
will cause any subsequently acquired, created, or organized Subsidiary to
execute and deliver a Joinder Agreement, substantially in the form attached
as Exhibit G to this Agreement, and execute all other Loan Documents,
including but not limited to Uniform Commercial Code financing statements and
other Security Documents, required by the Agent. The Loan Parties will also
deliver or cause to be delivered to the Agent all information regarding the
condition (financial or otherwise), business, properties and results of
operations of such Subsidiary as the Agents or any Lender reasonably deems
appropriate. From time to time, the Loan Parties will, at their cost and
expense, promptly secure the Obligations by pledging or creating, or causing
to be pledged or created, a perfected security interest with respect to each
of their respective assets and properties as the Agent or the Required
Lenders shall designate. Such security interest will be created under the
Security Documents and other security agreements, Title Documents, Uniform
Commercial Code financing statements, mortgages, deeds of trust and other
instruments and documents in form and substance satisfactory to the Agent,
and the Loan Parties shall deliver or cause to be delivered to the Lenders
all such instruments and documents as the Agent shall reasonably request as
evidence of compliance with this Section 5.8. The Loan Parties agree to
provide such evidence as the Agent shall reasonably request as to the
perfection and priority status of each such security interest. Without
limiting the generality of the foregoing (a) on the reasonable request of the
Agent or the Required Lenders, the Loan Parties shall execute, or cause the
appropriate Subsidiary of the Borrower to execute, a mortgage in form
reasonably satisfactory to the Agent and deliver other instruments and
documents reasonably requested by the Agent or the Required Lenders in
connection with creating a security interest in favor of the Agent for the
benefit of the Lenders with respect to any real property interest acquired
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using any portion of any Loan, and (b) the Loan Parties shall insure that the
applicable security interest created under this Agreement and the Loan
Documents with respect to any property acquired using the proceeds of any
Loan shall be a binding, first-priority perfected security interest.
5.9 Notification Requirements. The Loan Parties shall furnish to the
Agent and the Lenders:
(a) immediately upon becoming aware of the existence of any
condition or event that constitutes a Default, written notice of the Default
specifying the nature and duration of the Default and the action being or
proposed to be taken with respect to the Default;
(b) promptly upon becoming aware of any litigation or of any
investigative proceedings by a governmental agency or authority commenced or
threatened against any Loan Party of which it has notice, in which the amount
of damages claimed (excluding punitive damages) exceeds $500,000 or the
outcome of which would or could reasonably be expected to have a materially
adverse effect on the assets, business or prospects of any Loan Party or the
Borrower and its Subsidiaries on a consolidated basis, written notice of the
litigation or proceeding and the action being or proposed to be taken with
respect to the litigation or proceeding; and
(c) promptly after any occurrence or after becoming aware of
any condition affecting any Loan Party which constitutes or could reasonably
be expected to constitute a material adverse change in or which has or could
reasonable be expected to have a material adverse effect on the business,
properties or condition (financial or otherwise) of any Loan Party or the
Borrower and its Subsidiaries, taken as a whole, written notice of the
condition.
5.10 ERISA Reports. With respect to any Plan, the Loan Parties shall,
or shall cause their Affiliates to, furnish to the Agent and the Lenders
promptly (i) written notice of the occurrence of a "reportable event" (as
defined in Section 4043 of ERISA), excluding any such event notice of which
has been waived by regulation, (ii) a copy of any request for a waiver of the
funding standards or an extension of the amortization periods required under
Section 412 of the Code and Section 302 of ERISA, (iii) a copy of any notice
of intent to terminate any Pension Plan, (iv) notice that the Borrower or any
Affiliate will or may incur any liability to or on account of a Plan under
Sections 4062, 4063, 4064, 4201 or 4204 of ERISA, (v) a copy of the annual
report of each Pension Plan (Form 5500 or comparable form) required to be
filed with the IRS and/or the Department of Labor; (vi) notice of any
complete or partial withdrawal from any Multiemployer Pension Plan, (vii) a
copy of any notice with respect to a Multiemployer Pension Plan that such
plan is terminated or is "insolvent" (as defined in Section 4245 of ERISA),
or in "reorganization" (as defined in Section 4241 of ERISA, and a (viii) a
copy of any assessment of withdrawal liability (or preliminary estimate
thereof following a complete or partial withdrawal by a Borrower or
Affiliate) with respect to a multiemployer Pension Plan. Any notice to be
provided to the Agent and the Lenders under this Section shall include a
certificate of the chief financial officer of the Borrower setting forth
details as to such occurrence and the action, if any, which such Borrower or
the Affiliate is required or proposes to take, together with any notices
required or proposed to be filed with or by the Borrower, any Affiliate, the
PBGC, the IRS, the trustee or the plan administrator with respect thereto.
Promptly after the adoption of any Pension Plan, the Loan Parties shall
notify the Agent and the Lenders of such adoption.
5.11 Environmental Compliance.
(a) The Loan Parties will comply in all material respects with
all applicable Environmental Laws in all jurisdictions in which any of them
operates now or in the future, and the Loan Parties will comply in all
material respects with all such Environmental Laws that may in the future be
applicable to any of their business, properties and assets.
(b) If any Loan Party shall (i) receive notice that any
material violation of any Environmental Law may have been committed or is
about to be committed by any Loan Party, (ii) receive notice that any
administrative or judicial complaint or order has been filed or is about to
be filed against any Loan Party alleging a material violation of any
Environmental Law or requiring any Loan Party to take any action in
connection with the release of Hazardous Materials into the environment,
(iii) receive any notice from a federal, state or local government agency or
private party alleging that any Loan Party may be liable or responsible for
any material amount of costs associated with a response to or cleanup of a
release of Hazardous Materials into the environment or any damages caused
thereby, or (iv) become aware of any investigative proceedings by a
governmental agency or authority commenced or threatened against any Loan
Party regarding any potential violation of Environmental Laws or any spill,
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release, discharge or disposal of any Hazardous Material the Borrower shall,
within 10 days thereof, notify the Agent and the Lenders thereof (together
with a copy of any such notice) and of any action being or proposed to be
taken with respect thereto.
(c) Within thirty (30) days after any Loan Party has learned of
the enactment or promulgation of any Environmental Law which could reasonably
be expected to result in any material adverse change in the condition,
financial or otherwise, of any Loan Party, the Loan Party shall notify the
Agent and the Lenders.
(d) No later than thirty (30) days following the end of each
calendar quarter, the Loan Parties shall deliver to the Agent and the Lenders
a written report, in a form and with such specificity as is reasonably
satisfactory to the Agent and the Lenders, describing the Loan Parties'
actions taken during such calendar quarter to assure their compliance with
all applicable Environmental Laws (including the receipt of any notice that
any administrative or judicial complaint or order has been filed or is about
to be filed against any Loan Party, regardless of whether such notice is
required to be delivered by any Loan Party pursuant to subsection (b) above)
as well as the status of any pending environmental matters described in
Exhibit C attached to this Agreement.
5.12 Material Agreements. The Loan Parties shall timely and
diligently pursue the enforcement of each material covenant or obligation of
each other party to each Material Agreement. The Borrower will promptly
notify the Agent in writing of any material default under any such agreement
or any revocation, termination, cancellation or expiration thereof,
specifying the nature and period of existence thereof and what action the
Loan Parties are taking or propose to take with respect thereto. Promptly
upon becoming available, the Borrower shall deliver to the Agent copies of
all notices and other documents received by any Loan Party that describe any
event which would materially and adversely affect (i) the condition
(financial or otherwise), operations, business, or properties of any Loan
Party or the ability of any Loan Party to perform timely its obligations
under any such Material Agreement or any Loan Document, or (ii) the ability
of any other party to any such Material Agreement to perform timely its
obligations under any such material agreement to which it is a party.
5.13 Management. Maintain in the positions of chief executive
officer, president, chief financial officer, and other senior management or
executive positions of the Borrower persons of demonstrated skill and
experience in the duties of such position, and, in the event that any person
holding such a position leaves the employ of or otherwise ceases to hold such
a position with the Borrower, the Borrower shall promptly notify the Agent of
such vacancy and shall, immediately upon employing a replacement, and in no
event later than five (5) Business Days thereafter, so notify the Agent.
5.14 Loss or Depreciation of Collateral. The Loan Parties shall
notify the Agent promptly of the occurrence at any time of the following
event if, individually or in the aggregate, the amount involved in connection
with such events exceeds $500,000: (i) loss or depreciation in value of
inventory resulting from events, other than changes in the market price for
such inventory, and the amount of the loss or depreciation; (ii) rejection or
return of any inventory either from a customer to any Loan Party or from any
Loan Party to the Seller from whom the Loan Party acquired the item of
inventory; (iii) repossession, loss of or damage to any inventory; or
(iv) any other event materially and adversely affecting inventory or the
value or amount thereof. In the event of any loss or depreciation in the
value of any Vehicle which exceeds five percent of the value of the Vehicle
reflected on the most recent Borrowing Base Certificate or other report
delivered to the Agent, the Loan Parties shall immediately notify the Agent
of such loss or depreciation in the amount of the Vehicle affected thereby.
5.15 Title Documents. All Title Documents shall remain in possession
of the Borrower; provided, however, that the Borrower shall keep the Title
Documents in a reasonable and accessible manner. The Borrower shall deliver
any and all Title Documents to the Agent immediately on receipt of a written
request from the Agent, whether or not there has been a Default or Event of
Default. All Certificates of Title with respect to any Vehicle shall be
marked "U.S. Bank National Association, as Agent," to indicate the Agent's
security interest in the Vehicle.
5.16 Commodity Transactions. Neither any Borrower nor any of its
Subsidiaries shall, at any time, engage in any speculative transactions with
respect to commodities.
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5.17 Acquisitions. Without the prior written consent of the Required
Lenders, no Loan Party will, and will not permit any Subsidiary to, acquire
by purchase, merger or consolidation (a) the power to direct or cause the
direction of the management and policies of any other Person (the
"Acquisition Target"), directly or indirectly, whether through the ownership
of voting securities or by contract or otherwise or (b) more than 20% of the
capital stock or other equity interest of any such other Person or all or
substantially all of the assets or properties of any such other Person (the
events described in clauses (a) and (b) of this Section 5.17 of this
Agreement referred to as "Acquisitions"), except that the Borrower may make
such Acquisitions if:
(i) the Acquisition Target, if such Acquisition Target
becomes a Subsidiary, (A) executes and delivers a Joinder
Agreement, substantially in the form attached as Exhibit G to
this Agreement, (B) executes and delivers all other Loan
Documents, including but not limited to Uniform Commercial Code
financing statements and other Security Documents, required by
the Agent, and (C) unless waived by the Agent in writing without
the consent of the Required Lenders, obtains a landlord's waiver
and consent from the Acquisition Target's lessor in such form and
substance satisfactory to the Agent in its sole discretion;
(ii) prior to and immediately after making such
Acquisition, no Default or Event of Default has occurred and is
continuing or would exist; and
(iii) the Borrower delivers to the Agent the Acquisition
Approval Documents at least three Business Days before the
closing of the Acquisition.
5.18 Real Estate. If the Borrower uses any portion of any Loan to
acquire any interest in real property, then the real property interest shall
be owned and recorded in the name of the Borrower until the applicable
portion of the Acquisition Revolving Loan is paid in full, together with all
accrued and unpaid interest thereon and with all Fees with respect thereto.
Any and all acquisitions of any interest in real property using any portion
of any Acquisition Revolving Loan shall be secured by the real property
acquired and shall conform fully to all of the Agent's real estate financing
policies and procedures, including without limitation, those items listed on
Exhibit H to this Agreement.
5.19 Personal Property Collateral.
(a) All present and future indebtedness and Obligations of the
Loan Parties to the Lenders under this Agreement, the Notes, and the Loan
Documents shall be secured by a perfected first priority security interest
(except as set forth in Section 9.3 with respect to certain fixed assets,
leased vehicles, leases and chattel paper owned by Lithia Financial
Corporation, in which instance the security interest created pursuant to this
Agreement shall be a perfected second priority security interest) all of each
Loan Parties' right, title, and interest in and to the following personal
property whether now owned or existing or subsequently acquired or arising or
in which any Loan Party now has or subsequently acquires any rights
(collectively, the "Collateral"):
All of each Loan Parties' (i) accounts (including
without limitation account receivables and rebates,
credits, refunds, and similar items), instruments,
chattel paper, documents, contracts (including
without limitation the Material Agreements), general
intangibles, goods (including without limitation
inventory, equipment and consumer goods), proceeds of
letters of credit, and fixtures; (ii) all products,
proceeds, rents and profits thereof; (iii) all of the
books and records related to any of the foregoing.
(b) The security interest in the Collateral shall be evidenced
by such security agreements, Uniform Commercial Code financing statements,
Title Documents, Real Estate Security Documents, and other Security Documents
covering the Collateral as the Agent may at any time reasonably require.
(c) Notwithstanding any contrary provision of any Security
Document executed by any Loan Party, if it is asserted in any action or
proceeding that any security interest granted to the Agent and the Lenders by
any Loan Party is subject to avoidance as a fraudulent transfer or fraudulent
conveyance or any similar term under any applicable state or federal law, the
security interest of the Agent and the Lenders in the Collateral shall be
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limited to the Collateral having a value equal to the maximum amount that can
or could be transferred to the Agent and the Lenders without rendering such
Loan Party's grant of a security interest subject to avoidance under such law
and such action or proceeding.
(d) Within ten (10) days following the end of each month, the
Borrower shall provide the Agent with a list of the Vehicles owned by or in
the possession of each Loan Party, which list shall specify for each Vehicle:
(i) its make, model, model year, and mileage;
(ii) its vehicle identification number and license number
(if applicable);
(iii) the amount advanced under this Agreement to purchase
the Vehicle; and
(iv) its cost or Reserve Adjusted Value.
(e) A Loan Party shall notify the Agent within one (1) Business
Day following the sale of a Vehicle, which Notice shall state the total sale
price and the vehicle identification number for the Vehicle.
5.20 Repurchase Agreements. On or before the Closing Date, each Loan
Party shall obtain from any Seller an acknowledgment from the Seller that any
agreement between the Seller and the Loan Party and/or U.S. Bank with respect
to the repurchase of Vehicles by the Seller (the "Repurchase Agreements")
shall be extended to the Agent for the benefit of the Lenders under this
Agreement. Additionally, prior to entering into any franchise agreement,
distributorship agreement or similar agreement, each Loan Party shall obtain
from that Seller a Repurchase Agreement in accordance with that Seller's
normal business practices for the benefit of the Agent on behalf of the
Lenders. Notwithstanding the foregoing, the Agent without obtaining the
consent of the Required Lenders may waive in any particular instance the
requirements of this Section 5.20.
5.21 Leases. On or before the Closing Date, each Loan Party shall
obtain from any lessor or other holder of any interest in real property a
landlord's or interest holder's waiver and consent in form and substance
satisfactory to the Agent in its sole discretion. Additionally, prior to
entering into assuming, or guaranteeing any lease pertaining to any interest
in real property, each Loan Party shall obtain from the lessor a landlord's
waiver and consent in such form and substance satisfactory to the Agent in
its sole discretion. Notwithstanding the foregoing, the Agent without
obtaining the consent of the Required Lenders may waive in any particular
instance the requirements of this Section 5.21.
5.22 Guarantees. All present and future Obligations of the Loan
Parties to the Lenders shall be guaranteed by each of the other Loan
Parties. Notwithstanding any contrary provision of any guarantee executed by
a Loan Party in favor of the Lenders, if any action or proceeding is
commenced asserting that any such guarantee is subject to avoidance as a
fraudulent transfer or fraudulent conveyance or any similar term under any
applicable state or federal law, the obligations of such Loan Party under
such guarantee shall be limited to the maximum amount that would not render
such Loan Party's obligations subject to avoidance under such law and such
action or proceeding.
5.23 Solvency. The fair value of the assets of each Loan Party, at a
fair valuation, shall exceed its debts and liabilities, subordinated,
unliquidated, unmatured, contingent (except for that portion of the Guaranty
in excess of the proceeds of Loans received by such Loan Party) or
otherwise. The present fair salable value of the property of each Loan Party
will be greater than the amount that will be required to pay the probable
liability of its debts and other liabilities, subordinated, unliquidated,
unmatured, contingent (except for that portion of the Guaranty in excess of
the proceeds of Loans received by such Loan Party) or otherwise, as such
debts and other liabilities become absolute and mature. Each Loan Party will
be able to pay (and does not intend to incur debts beyond its ability to pay)
its debts and liabilities, subordinated, unliquidated, unmatured, contingent
(except for that portion of the Guaranty in excess of the proceeds of Loans
received by such Loan Party) or otherwise, as such debts and liabilities
become absolute and mature. Each Loan Party will not have unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted following the
Closing Date.
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SECTION VI.
FINANCIAL COVENANTS
Each Loan Party covenants that so long as any Loan or other Obligation
remains outstanding, any debit or draft authorization (or similar instrument
or arrangement) remains in effect, or the Lenders have any obligation to make
any Loan under this Agreement:
6.1 Minimum Net Worth. Consolidated stockholders' equity (including
paid-in-capital and retained earnings) of the Borrower and its Subsidiaries,
determined in accordance with GAAP, shall at all times be greater than the
Minimum Net Worth. "Minimum Net Worth" shall mean an amount equal to the sum
of (a) $29,660,400, which equals 90 percent of the consolidated stockholders'
equity (including paid-in-capital and retained earnings) of the Borrower and
its Subsidiaries, determined in accordance with GAAP as of March 31, 1997,
plus (b) 75 percent of any positive Consolidated Net Income subsequent to
March 31, 1997, plus (c) 100 percent of the value of the net proceeds (cash
or non-cash) received by the Borrower from the issuance of capital stock
after the Closing Date.
6.2 Debt to Cash Flow Ratio. The Loan Parties shall not permit the
Debt to Cash Flow Ratio as of any date after the Closing Date to exceed
3.50:1. The "Debt to Cash Flow Ratio" shall be determined as of the last day
of each fiscal quarter and shall mean the ratio of (a) Funded Indebtedness as
of such date less the principal amount outstanding under Floor Plan
Financings as of such date to (b) the difference between (i) Pro Forma
Consolidated EBITDA for the four consecutive fiscal quarters ended on such
date less (ii) Pro Forma Floor Plan Interest Expense for the four consecutive
fiscal quarters ended on such date. The Loan Parties shall furnish to the
Agent supporting calculations for Pro Forma Consolidated EBITDA and such
other information as the Agent may reasonably request to determine the
accuracy of such calculation, including, without limitation, financial
statements of any Acquisition Target acceptable to the Agent in its
discretion for the periods to be included in the computation period.
6.3 Fixed Charge Coverage. The Loan Parties shall not permit the
ratio of Consolidated Earnings Available for Fixed Charges to Consolidated
Fixed Charges to be less than 1.50:1 as of the last day of any fiscal quarter
for the four consecutive fiscal quarters ended on such date.
6.4 Net Worth Ratio. The Loan Parties shall not permit the Net Worth
Ratio as of any date after the Closing Date to exceed 4.50:1.00. For
purposes of this Agreement, the Net Worth Ratio shall mean Consolidated Total
Liabilities less the outstanding principal balance of any amount owed by the
Borrower for money borrowed which, by agreement acceptable to the Agent, is
subordinate in the right of payment to any Loan or other Obligation and if
secured, is secured by a lien junior to the Lender's security interest in the
Collateral (the "Subordinated Debt") to (b) Consolidated Net Worth plus the
Subordinated Debt.
6.5 Capital Expenditures. During the period from the Closing Date
through the Maturity Date, or during any twelve consecutive month period
after the Maturity Date, the Loan Parties shall not make aggregate Capital
Expenditures in excess of $5,000,000 other than with a Loan without the
consent of the Required Lenders. This limitation shall not prohibit the
Borrower from incurring Indebtedness for Capital Expenditures directly
arising from the financing of the purchase price for the acquisition of a
Vehicle dealership, including real estate associated with a Vehicle
dealership, through another Person.
SECTION VII.
NEGATIVE COVENANTS
Except with the prior written consent of the Lenders in accordance with
Section 11.7 of this Agreement, the Loan Parties covenant that so long as any
Loan or other Obligation remains outstanding, any debit or draft
authorization (or similar instrument or arrangement) remains in effect, or
the Lenders have any obligation to make any Loan under this Agreement:
7.1 Indebtedness. None of the Loan Parties shall create, incur,
assume, guarantee or be or remain liable with respect to any Indebtedness
other than the following:
(a) Obligations;
(b) Indebtedness existing on the Closing Date and disclosed in
Section 4.7 of Exhibit C to this Agreement, but not any increase of the
principal amounts thereof;
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(c) Indebtedness for taxes, assessments or governmental charges
to the extent that payment therefor shall at the time not be required to be
made in accordance with Section 5.4;
(d) current liabilities on open account for the purchase price
of services, materials and supplies incurred by the Borrower in the ordinary
course of business (not as a result of borrowing), so long as all of such
open account Indebtedness shall be promptly paid and discharged when due or
in conformity with customary trade terms and practices, except for any such
open account Indebtedness which is being contested in good faith by the
Borrower, as to which adequate reserves required by GAAP have been
established and are being maintained and as to which no Encumbrance has been
placed on any property of the Borrower or any of its Subsidiaries;
(e) Indebtedness for Capital Expenditures incurred in the
ordinary course of the Borrower's business and renewals and refinancings
thereof, provided that:
(i) such Indebtedness for Capital Expenditures does not
exceed $750,000 in the aggregate at any time outstanding or does not exceed
$500,000 in any fiscal year; or
(ii) such Indebtedness for Capital Expenditures directly
arises from the financing of the purchase for the acquisition of a Vehicle
dealership, including real estate associated with a Vehicle dealership; and
(f) Indebtedness with respect to any loans made by U.S. Bank
directly to Lithia Financial Corporation.
7.2 Contingent Liabilities. None of the Loan Parties shall create,
incur, assume, guarantee or be or remain liable with respect to any
Guarantees, except under the Guaranty.
7.3 Encumbrances. None of the Loan Parties shall create, incur,
assume or suffer to exist any mortgage, pledge, security interest, lien or
other charge or encumbrance of any kind, including the lien or retained
security title of a conditional vendor upon or with respect to any of their
property or assets ("Encumbrances"), or assign or otherwise convey any right
to receive income, including the sale or discount of Accounts Receivable with
or without recourse, except the following ("Permitted Encumbrances"):
(a) Encumbrances in favor of the Agent or any of the Lenders to
secure Obligations;
(b) Encumbrances existing as of the date of this Agreement and
disclosed in Exhibit C to this Agreement, which secures Indebtedness
permitted under Section 7.1(b);
(c) Encumbrances securing Indebtedness for Capital Expenditures
to the extent such Indebtedness is permitted by Section 7.1(e), provided that
(i) each such Encumbrance is given solely to secure the purchase price of
such property, does not extend to any other property and is given
contemporaneously with the acquisition of the property, and (ii) the
Indebtedness secured thereby does not exceed the lesser of the cost of such
property or its fair market value at the time of acquisition;
(d) liens for taxes, fees, assessments and other governmental
charges to the extent that payment of the same may be postponed or is not
required in accordance with the provisions of Section 5.4;
(e) landlords' and lessors' liens with respect to rent not in
default or liens with respect to pledges or deposits under workmen's
compensation, unemployment insurance, social security laws, or similar
legislation (other than ERISA) or in connection with appeal and similar bonds
incidental to litigation; mechanics', warehouseman's, laborers' and
materialmen's and similar liens, if the obligations secured by such liens are
not then delinquent; liens securing the performance of bids, tenders,
contracts (other than for the payment of money); and liens securing statutory
obligations or surety, indemnity, performance, or other similar bonds
incidental to the conduct of the Loan Party's business in the ordinary course
and that do not in the aggregate materially detract from the value of its
property or materially impair the use thereof in the operation of its
business;
(f) judgment liens securing judgments that (i) are fully
covered by insurance, and (ii) shall not have been in existence for a period
longer than 10 days after the creation of this Agreement or, if a stay of
execution shall have been obtained, for a period longer than 10 days after
the expiration of such stay;
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(g) rights of lessors under capital leases to the extent such
capital leases are permitted under this Agreement;
(h) easements, rights of way, restrictions and other similar
charges or Encumbrances relating to real property and not interfering in a
material way with the ordinary conduct of the Borrower's business; and
(i) liens constituting a renewal, extension or replacement of
any Permitted Encumbrance other than those Permitted Encumbrances described
in Section 7.3(f).
7.4 Merger; Consolidation; Sale or Lease of Assets. None of the Loan
Parties shall liquidate, dissolve, reorganize, merge or consolidate into or
with any other Person or entity, or sell, lease or otherwise dispose of any
assets or properties, other than in the ordinary course of business. For
purposes of this Section 7.4, (i) sales of inventory consistent with past
practice, (ii) Qualified Investments, and (iii) sales of obsolete or replaced
equipment shall be considered to be in the ordinary course of business.
7.5 Stock Issuances. The Loan Parties shall not amend their Articles
of Incorporation or bylaws (or Articles of Organization or Operating
Agreement if the Loan Party is a limited liability company) or issue any
additional shares of their capital stock or other equity securities, any
options therefor or any securities convertible thereto, other than issuances
by a Subsidiary to the Borrower. Neither the Parent, Borrower nor any of its
Subsidiaries shall sell, transfer or otherwise dispose of any of the capital
stock or other equity securities or ownership interests of a Subsidiary,
except to another Loan Party. The following issuances and transfers of
publicly traded, Class A Common Stock in the Borrower are also permitted:
(a) Issuances and transfers pursuant to the Borrower's existing
stock option plan; and
(b) Issuances and transfers in furtherance of prudent business
practices pursuant to an employee stock purchase plan or a 401(k) pension
plan which is subject to ERISA, in which plan(s) the Borrower or another Loan
Party is a participating employer, and which plan(s) are designed as
supplemented compensation for all full time employees of Borrower or a Loan
Party.
Notwithstanding the foregoing, the issuances and transfers
under Section 7.5(a) and (b) above are not permitted to the extent that they
would have the effect of, whether singularly, cumulatively or in combination
with other issuances or transfers of any kind, making the recipient an
Affiliate, or would result in a breach of the ownership and control
requirements set forth in Article 8, Section 8.1(k) or (l).
7.6 Restricted Payments. None of the Loan Parties shall pay, make,
declare or authorize any Restricted Payment other than:
(a) compensation paid to employees, officers and directors in
the ordinary course of business and consistent with prudent business
practices;
(b) dividends payable solely in capital stock;
(c) dividends paid by any Subsidiary to the Borrower for
purposes of making any payment required by this Agreement; and
(d) stock splits affecting all outstanding shares of a class of
stock.
7.7 Investments; Purchases of Assets. None of the Loan Parties shall
make or maintain any Investments or purchase or otherwise acquire any
material amount of assets other than:
(a) Qualified Investments;
(b) Capital Expenditures;
(c) purchases of inventory in the ordinary course of business;
and
(d) normal trade credit extended in the ordinary course of
business and consistent with prudent business practice.
7.8 ERISA Compliance. Neither the Borrower nor any of its Affiliates
nor any Plan shall (i) engage, or shall have engaged, in any Prohibited
Transaction which would have a material adverse effect on the business,
financial condition or operations of the Borrower and its Subsidiaries taken
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as a whole, (ii) incur any "accumulated funding deficiency" (as defined in
Section 412(a) of the Code and Section 302 of ERISA) whether or not waived
which would have a material adverse effect on the business, financial
condition or operations of the Borrower and its Subsidiaries taken as a
whole, (iii) fail to satisfy any additional funding requirements set forth in
Section 412 of the Code and Section 302 of ERISA or to make any other
contribution required under the terms of any Pension Plan or any collective
bargaining agreement with respect to a Multiemployer Plan which would have a
material adverse effect on the business, financial condition or operations of
the Borrower and its Subsidiaries taken as a whole, (iv) terminate any
Pension Plan in a manner which could result in the imposition of a lien on
any property of the Borrower or any of its Subsidiaries; or (v) withdraw (in
a complete or partial withdrawal within the meaning of Section 4203 or
Section 4205 of ERISA, respectively) from a Multiemployer Pension Plan if
such withdrawal would have a material adverse effect on the business,
financial condition or operations of the Borrower and its Subsidiaries taken
as a whole. Each Plan shall comply in all material respects with ERISA,
except to the extent failure to comply in any instance would not have a
material adverse effect on the business, financial condition or operations of
the Borrower and its Subsidiaries taken as a whole.
7.9 Transactions with Affiliates. The Loan Parties shall not,
directly or indirectly, enter into any purchase, sale, lease or other
transaction with any Affiliate except (i) transactions in the ordinary course
of business on terms that are no less favorable to the Borrower than those
which might be obtained at the time in a comparable arm's-length transaction
with any Person who is not an Affiliate, and (ii) employment contracts with
senior management of the Borrower entered into in the ordinary course of
business and consistent with prudent business practices. Notwithstanding the
foregoing, the Borrower will not, and will not permit any Subsidiary to,
directly or indirectly, pay any management, consulting, overhead, indemnity,
guarantee or other similar fee or charge to any Affiliate.
7.10 Sale and Lease-Back Transactions. No Loan Party shall enter into
any arrangement, directly or indirectly, with any Person pursuant to which it
shall sell or transfer any property, real or personal, used or useful in its
business, whether now owned or subsequently acquired, and thereafter rent or
lease such property or other property that it intends to use for
substantially the same purpose or purposes as the property being sold or
transferred. Subject to the provisions of Section 7.9, nothing in this
Section 7.10 will prohibit any Loan Party from entering into any of the
transactions described in this Section 7.10 with another Loan Party or with
Lithia Real Estate, Inc. or Lithia Properties, Inc. as to real property and
fixtures.
7.11 Material Agreements. No Loan Party will cause, or suffer to
exist, any termination, expiration, revocation, or cancellation of, or
material default under, any Material Agreement, regardless of cause, or
cause, or suffer to exist, any such Material Agreement to not be in full
force and effect or not constitute the legal, valid and binding obligations
of the parties thereto, or assign or grant to a Person any right or interest
arising therefrom and will not, without the prior written consent of the
Required Lenders, materially modify or amend any such Material Agreement,
other than Material Agreements that are purchase and sale agreements relating
to Acquisitions.
7.12 Structure. None of the Loan Parties shall make any change in its
corporate or organizational structure and shall not create or acquire any
Subsidiary except in connection with an Acquisition and provided that such
new Subsidiary becomes a Loan Party and executes and delivers a Joinder
Agreement and such other applicable Loan Documents.
7.13 Fiscal Year and Accounting Policies. The Loan Parties shall not
change their fiscal year without the prior written consent of the Required
Lenders. Neither the Borrower nor any other Loan Party shall make any
significant change in accounting policies or reporting practices other than
changes required by GAAP or otherwise required by law.
SECTION VIII.
DEFAULTS
8.1 Events of Default. There shall be an Event of Default under this
Agreement if any of the following events occurs:
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(a) The Borrower shall fail to pay any principal or interest
with respect to any Loan, Fees or other amounts owing under any Loan Document
or with respect to any Obligation when the same shall become due and payable,
whether at maturity, at any accelerated date of maturity or at any other date
fixed for payment;
(b) (i) Any Loan Party shall breach, shall fail to perform or
shall fail to be in full compliance with any term, covenant or agreement
contained in Section VI of this Agreement, or (ii) any Loan Party shall
breach, shall fail to perform or shall fail to be in full compliance with any
term, covenant or agreement applicable to them contained in this Agreement or
any other Loan Document and such Default shall continue for 10 days; or
(c) Any representation or warranty of any Loan Party made in
this Agreement or any other Loan Document or in any certificate, notice or
other writing delivered under this Agreement or under any other Loan Document
shall prove to have been false or misleading in any material respect upon the
date when made or deemed to have been made; or
(d) Default or termination (or the occurrence of any other
event which gives another party thereto a right of acceleration or
termination) under any Material Agreement; or
(e) Any Loan Party shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or similar official of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the United States Bankruptcy
Code (as now or hereafter in effect), (iv) take any action or commence any
case or proceeding under any law relating to bankruptcy, insolvency,
reorganization, winding-up or composition or adjustment of debts, or any
other law providing for the relief of debtors, (v) fail to contest in a
timely or appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the United States Bankruptcy Code or
other law, (vi) take any action under the laws of its jurisdiction of
incorporation or organization similar to any of the foregoing, or (vii) take
any corporate action for the purpose of effecting any of the foregoing; or
(f) a proceeding or case shall be commenced against any Loan
Party without the application or consent of such Loan Party in any court of
competent jurisdiction, seeking (i) the liquidation, reorganization,
dissolution, winding up, or composition or readjustment of its debts,
(ii) the appointment of a trustee, receiver, custodian, liquidator or the
like of it or of all or any substantial part of its assets, or (iii) similar
relief with respect to it, under any law relating to bankruptcy, insolvency,
reorganization, winding-up or composition or adjustment of debts or any other
law providing for the relief of debtors, and such proceeding or case shall
continue undismissed, or unstayed and in effect, for a period of 45 days; or
an order for relief shall be entered in an involuntary case under the United
States Bankruptcy Code, against such Loan Party; or action under the laws of
the jurisdiction of incorporation or organization of any Loan Party similar
to any of the foregoing shall be taken with respect to the Loan Party and
shall continue unstayed and in effect for a period of 45 days; or
(g) a judgment or order for the payment of money shall be
entered against any Loan Party by any court, or a warrant of attachment or
execution or similar process shall be issued or levied against property of
the Loan Party, that in the aggregate exceeds $100,000 in value, the payment
of which is not fully covered by insurance in excess of any deductibles not
exceeding $10,000 in the aggregate, and such judgment, order, warrant or
process shall continue undischarged or unstayed for 30 days; or
(h) any default by any Loan Party under any Indebtedness the
effect of which permits the holder of such Indebtedness to cause such
Indebtedness to become due and payable prior to its maturity date; or
(i) the Borrower or any Affiliate shall fail to pay when due
any amount that they shall have become liable to pay to the PBGC or to a Plan
under Title IV of ERISA, unless such liability is being contested in good
faith by appropriate proceedings, the Borrower or the Affiliate, as the case
may be, has established and is maintaining adequate reserves in accordance
with GAAP and no lien shall have been filed to secure such liability; or the
PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any such Plan or Plans; or a
condition shall exist by reason of which the PBGC would be entitled to obtain
a decree adjudicating that any such Plan or Plans must be terminated; or
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(j) any of the Loan Documents shall be canceled, terminated,
revoked or rescinded otherwise then in accordance with the express terms
hereof or thereof or with the express prior written agreement, consent or
approval of the Lenders, or any action at law or in equity or other legal
proceeding to cancel, revoke or rescind any Loan Document shall be commenced
by or on behalf of any Loan Party, or any court or other governmental or
regulatory authority or agency of competent jurisdiction shall make a
determination that, or shall issue a judgment, order, decree or ruling to the
effect that, any one or more of the Loan Documents is illegal, invalid or
unenforceable in accordance with the terms thereof; or
(k) Sidney B. DeBoer, or a successor or successors reasonably
acceptable to Agent and Required Lenders, shall fail to own and control, free
and clear of Encumbrances (except Encumbrances pursuant to the Security
Documents), a sufficient percentage of the voting interests of Parent to
enable him at all times to approve any matter to be voted by the managers or
members of the Parent, including, without limitation, the right at all times
to elect the managers of the Parent; or
(l) the Parent shall fail to own of record and beneficially,
free and clear of any and all Encumbrances (except Encumbrances pursuant to
the Security Documents), sufficient issued and outstanding voting securities
of the Borrower to have the unfettered ability at all times to approve any
matter to be voted upon by the stockholders of the Borrower (except for those
matters on which the holders of the Borrower's Class A Common Stock have the
sole right to vote), and at all times to designate a majority of the Board of
Directors of the Borrower; or
(m) the Borrower shall fail to own beneficially, directly or
indirectly, 100 percent of the issued and outstanding capital stock or equity
or other ownership interests of any Loan Party other than the Parent; or
(n) the Lenders cease to have a valid, perfected first priority
security interest in the Collateral (except with respect to the fixed assets
owned by Lithia Financial Corporation or the Vehicles owned by Lithia
Financial Corporation leased to others, which security interest shall be a
valid, perfected second priority security interest); or
(o) the interruption or cessation of a material portion of the
ordinary business operations of the Borrower and its Subsidiaries, taken as a
whole; or
(p) the occurrence of any material adverse change in the
condition or affairs (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole, or of any endorser, guarantor or surety for
any of the obligations and which is not a Loan Party, which materially
adverse change causes the Lenders reasonably to deem themselves insecure.
8.2 Remedies. Upon the occurrence of a Default or Event of Default
described in subsections 8.1(e) and (f), immediately and automatically, and
upon the occurrence of any other Event of Default, at any time thereafter
while such Event of Default is continuing, at the option of the Agent or the
Required Lenders (or the Swingline Lender in connection with Section 8.2(b))
and upon the Agent's declaration (which shall be given if the Required
Lenders (or the Swingline Lender in connection with Section 8.2(b)) so
directs):
(a) the obligation of the Lenders to make any further Loans
under this Agreement, including without limitation the obligation of the
Swingline Lender to honor any debits or draft authorizations (or similar
instruments or arrangements), and all Loan Commitments shall terminate;
(b) the Swingline Lender, in its sole discretion or at the
direction of the Required Lenders, may give notice to any Seller or other
appropriate party terminating any debit or draft authorization (or similar
instrument or arrangement); provided, however, that if the Loan Commitments
have terminated, then the Swingline Lender shall immediately take such action
as is necessary to terminate such debit or draft authorizations (or similar
instruments or arrangements), and on receipt of a copy of any such notice or
notice of any other action taken in connection with this Section 8.2(b), the
Borrower shall immediately deliver cash collateral to the Swingline Lender in
an amount that the Swingline Lender shall determine in its reasonable
discretion (based on the aggregate amount of debit or draft authorizations
(or similar instruments or arrangements) then in effect) as collateral for
the payment and performance of any and all debit or draft authorizations (or
similar instruments or arrangements) until all such debit or draft
authorizations (or similar instruments or arrangements) are terminated (and
all outstanding obligations have been honored) according to their respective
terms.
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(c) the unpaid principal amount of the Loans together with
accrued and unpaid interest, all Fees, and all other Obligations shall become
immediately due and payable without presentment, demand, protest or further
notice of any kind, all of which are by this Agreement expressly waived; and
(d) the Agent and the Lenders may exercise any and all rights
they have under this Agreement, the other Loan Documents, under the
applicable Uniform Commercial Code, or at law or in equity, and proceed to
protect and enforce their respective rights by any action at law or in equity
or by any other appropriate proceeding.
No remedy conferred upon the Agent and the Lenders in the Loan Documents is
intended to be exclusive of any other remedy, and each and every remedy shall
be cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or by statute or
by any other provision of law. Without limiting the generality of the
foregoing or of any of the terms and provisions of any of the Security
Documents, if and when the Agent exercises remedies under the Security
Documents with respect to Collateral, the Agent may, in its sole discretion,
determine which items and types of Collateral to dispose of and in what order
and may dispose of Collateral in any order the Agent shall select in its sole
discretion, and the Borrower consents to the foregoing and waives all rights
of marshaling with respect to all Collateral. Nothing in this Agreement or
any Loan Document shall require the Agent to operate the business of any Loan
Party in connection with the disposition of any Collateral.
SECTION IX.
ASSIGNMENT AND PARTICIPATION
9.1 Assignment.
(a) Each Lender shall have the right to assign at any time any
portion of its Commitments under this Agreement and its interests in the risk
relating to any Loans in an amount equal to or greater than $10,000,000 (or
less than $10,000,000 with the Agent's prior written consent which will not
be unreasonably withheld) to other Lenders or to banks or financial
institutions reasonably acceptable to the Agent (each an "Assignee"),
provided that any Lender which proposes to assign less than all of its
Commitments must retain a Commitment of at least $10,000,000. Each Assignee
shall execute and deliver to the Agent and the Borrower an Assignment and
Acceptance Agreement substantially in the form of Exhibit I to this
Agreement, and the assigning Lender shall pay to the Agent, solely for the
account of the Agent, an assignment fee of $3,500. Upon the execution and
delivery of such Assignment and Acceptance Agreement and the Agent's receipt
of the assignment fee, (a) such Assignee shall, on the date and to the extent
provided in such Assignment and Acceptance Agreement, become a "Lender" party
to this Agreement and the other Loan Documents for all purposes of this
Agreement and the other Loan Documents and shall have all rights and
obligations of a "Lender" with Commitments as set forth in such Assignment
and Acceptance Agreement, and the assigning Lender shall, on the date and to
the extent provided in such Assignment and Acceptance Agreement, be released
from its obligations under this Agreement and under the other Loan Documents
to a corresponding extent (and, in the case of an assignment covering all of
the remaining portion of an assigning Lender's rights and obligations under
this Agreement, such transferor shall cease to be a party to this Agreement
but shall continue to be entitled to the benefits of Section 11.3 and to any
Fees accrued for its account under this Agreement and not yet paid); (b) the
assigning Lender, if it holds any Notes, shall promptly surrender such Notes
to the Agent for cancellation and delivery to the Borrower, provided that if
the assigning Lender has retained any Commitment, the Borrower shall, on the
request of the Agent, execute and deliver to the Agent for delivery to such
assigning Lender new Notes in the amount of the assigning Lender's retained
Commitment; (c) the Borrower shall issue to such Assignee Notes in the amount
of such Assignee's Commitments dated the Closing Date or such other date as
may be specified by such Assignee and otherwise completed in substantially
the form of Exhibits A-1, A-2, A-3, A-4, A-5A, and A-5B to this Agreement;
(d) this Agreement (including Schedule 1-B to this Agreement) shall be deemed
appropriately amended to reflect (i) the status of such Assignee as a party
to this Agreement and (ii) the status and rights of the Lenders under this
Agreement; and (e) the Borrower shall take such action as the Agent may
reasonably request to perfect any security interests or mortgages in favor of
the Lenders, including any Assignee which becomes a party to this Agreement.
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(b) If the Assignee, or any Participant pursuant to Section 9.2
of this Agreement, is organized under the laws of a jurisdiction other than
the United States or any state thereof, such Assignee shall execute and
deliver to the Borrower, simultaneously with or prior to such Assignee's
execution and delivery of the Assignment and Acceptance Agreement described
above in Section 9.1(a), and such Participant shall execute and deliver to
the Lender granting the participation, a United States Internal Revenue
Service Form 4224 or Form 1001 (or any successor form), appropriately
completed, wherein such Assignee or Participant claims entitlement to
complete exemption from United States Federal Withholding Tax on all interest
payments under this Agreement and all Fees and other charges payable pursuant
to any of the Loan Documents. The Borrower shall not be required to pay any
increased amount to any Assignee or other Lender on account of taxes to the
extent such taxes would not have been payable if the Assignee or Participant
had furnished one of the Forms referenced in this Section 9.1(b) unless the
failure to furnish such a Form results from (i) a condition or event
affecting the Borrower or an act or failure to act of the Borrower or (ii)
the adoption of or change in any law, rule, regulation or guideline affecting
such Assignee or Participant occurring (x) after the date on which any such
Assignee executes and delivers the Assignment and Acceptance Agreement, or
(y) after the date such Assignee shall otherwise comply with the provisions
of Section 9.1(a), or (z) after the date a Participant is granted a
participation and Borrower would otherwise have been obligated to pay such
taxes under this Agreement.
9.2 Participations. Each Lender shall have the right to grant
participations to one or more banks or other financial institutions (each a
"Participant") in all or any part of any Loans owing to such Lender and the
Notes held by such Lender; provided that each participation shall be in the
minimum principal amount of $5,000,000. Each Lender shall retain the sole
right to approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents, provided that
the documents representing any such participation may provide that, except
with the consent of such Participant, such Lender will not consent to (a) the
reduction in or forgiveness of the stated principal of, rate of interest on,
or Commitment Fee, with respect to the portion of any Loan subject to such
participation, (b) the extension or postponement of any stated date fixed for
payment of principal or interest or Commitment Fee with respect to the
portion of any Loan subject to such participation, (c) the waiver or
reduction of any right to indemnification of such Lender under this
Agreement, or (d) except as otherwise permitted under this Agreement, the
release of any Collateral. Notwithstanding the foregoing, no participation
shall operate to increase the Total Commitment or the commitment available
under any Loan or otherwise alter the substantive terms of this Agreement.
In the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under this Agreement shall remain
unchanged, such Lender shall remain solely responsible for the performance
thereof, such Lender shall remain the holder of such Notes for all purposes
under this Agreement and the Borrower and Agent shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. The Borrower agrees that if amounts
outstanding under this Agreement and the Notes are due or unpaid, or shall
have been declared or shall have become due and payable on the occurrence of
a Default or an Event of Default, each Participant shall be deemed to have
the right of setoff in respect of its participating interest in amounts owing
under this Agreement or any Note to the same extent as if the amount of its
participating interest were owing directly to it under this Agreement or any
Note; provided that such right of setoff shall be subject to the obligation
of such Participant to share with the Lenders, and the Lenders agree to share
with such Participant, as provided in Section 2.8(e) of this Agreement. In
addition, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.9, 2.10, 2.11, 2.12, and 2.13 of this Agreement with
respect to its participation in the Loans outstanding from time to time;
provided that no Participant shall be entitled to receive any greater amount
than such Lender would have been entitled to receive with respect to the
amount transferred if no such transfer occurred.
9.3 Intercreditor Agreement. The Lenders acknowledge that U.S. Bank
has prior lending relationships with Lithia Financial Corporation, which will
continue after the Closing Date, secured by perfected first-priority liens
against a portion of the Collateral. Notwithstanding, to the extent
permitted by law, the date, manner or order of perfection of the security
interests and liens granted to the Lenders or U.S. Bank, and, to the extent
permitted by law, notwithstanding any provisions of the Uniform Commercial
Code of any state or any applicable law or decision, or the Loan Documents or
agreements entered into between U.S. Bank and the Lithia Financial
Corporation, or whether either the Lenders or U.S. Bank holds possession of
all or any part of the Collateral, the Lenders and U.S. Bank agree as follows:
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The Lenders' security interests and liens in the following items
included in the Collateral shall be subordinate to the security interests and
liens granted by Lithia Financial Corporation to U.S. Bank, other than in
U.S. Bank's capacity as Agent or Lender under this Agreement, to secure the
obligations of Lithia Financial Corporation to U.S. Bank, other than in U.S.
Bank's capacity as Agent or Lender under this Agreement whether now owned or
existing or hereafter acquired or arising:
(a) the fixed assets owned by Lithia Financial
Corporation,
(b) the Vehicles owned by Lithia Financial Corporation
and leased to its customers in the ordinary course of its business,
(c) the fixed assets owned by a Loan Party to secure an
obligation of the Loan Party to Lithia Financial Corporation, which security
interest Lithia Financial Corporation assigned to U.S. Bank, other than in
U.S. Bank's capacity as Agent or Lender under this Agreement, and
(d) leases and chattel paper evidencing Lithia Financial
Corporation's lease of Vehicles or fixed assets to a Loan Party or other
Person.
SECTION X.
THE AGENT
10.1 Appointment of Agent; Powers and Immunities.
(a) Each Lender by this Agreement irrevocably appoints and
authorizes the Agent to act as its agent under this Agreement and under the
other Loan Documents and to execute the Loan Documents (other than this
Agreement) and all other instruments relating thereto. Each Lender
irrevocably authorizes the Agent to take such action on behalf of each of the
Lenders and to exercise all such powers as are expressly delegated to the
Agent under this Agreement and in the other Loan Documents and all related
documents, together with such other powers as are reasonably incidental
thereto. The obligations of the Agent under this Agreement are only those
expressly set forth in this Agreement. The Agent shall not have any
fiduciary relationship with any Lender and shall have no duties or
responsibilities except those expressly set forth in this Agreement.
(b) Neither the Agent nor any of its directors, officers,
employees or agents shall be responsible for any action taken or omitted to
be taken by any of them under this Agreement or in connection with this
Agreement, except for their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, neither the Agent nor any
of its Affiliates shall be responsible to the Lenders for, have any duty to
ascertain, inquire into or verify, or be deemed to have knowledge or notice
of: (i) any recitals, statements, representations or warranties made by any
Loan Party or any other Person whether contained in this Agreement or
otherwise; (ii) the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, the other Loan Documents or
any other document referred to or provided for in this Agreement or therein;
(iii) any failure by any Loan Party or any other Person to perform its
obligations under any of the Loan Documents; (iv) the satisfaction of any
conditions specified in Section 3 of this Agreement, other than receipt of
the documents, certificates and opinions specified in Section 3.1(a) of this
Agreement; (v) the existence or the possible existence of any Default or
Event of Default, (vi) the existence, value, collectibility or adequacy of
the Collateral or any part thereof or the validity, effectiveness, perfection
or relative priority of the liens and security interests of the Lenders
therein; or (vii) the filing, recording, refiling, continuing or re-recording
of any financing statement or other document or instrument evidencing or
relating to the security interests or liens of the Lenders in the Collateral.
(c) The Agent may employ agents, attorneys and other experts,
shall not be responsible to any Lender for the negligence or misconduct of
any such agents, attorneys or experts selected by it with reasonable care and
shall not be liable to any Lender for any action taken, omitted to be taken
or suffered in good faith by it in accordance with the advice of such agents,
attorneys and other experts. U.S. Bank in its separate capacity as a Lender
shall have the same rights and powers under the Loan Documents as any other
Lender and may exercise or refrain from exercising the same as though it were
not the Agent, and U.S. Bank and its Affiliates may accept deposits from,
lend money to and generally engage in any kind of business with the Loan
Parties as if it were not the Agent.
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10.2 Actions by Agent.
(a) The Agent shall be fully justified in failing or refusing
to take any action under this Agreement as it reasonably deems appropriate
unless it shall first have received such advice or concurrence of the Lenders
and shall be indemnified to its reasonable satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in
all cases be fully protected in acting, or in refraining from acting, under
this Agreement or any of the Loan Documents in accordance with a request of
the Lenders or the Required Lenders, as the case may be, and such request and
any action taken or failure to act pursuant to this Agreement shall be
binding on the Lenders and all holders of the Notes. The Agent shall not be
required to take any action which exposes the Agent to personal liability or
which is contrary to the Loan Documents or applicable law. In absence of
instructions from the Lenders, the Agent shall have authority, in its sole
discretion, to take or not to take any action, and any such action or failure
to act shall be binding on the Lenders and on all holders of the Notes. Each
Lender and each holder of any Notes shall execute and delivery such
additional instruments, including powers of attorney in favor of the Agent,
as may be necessary or desirable to enable the Agent to exercise its powers
under this Agreement and under the Loan Documents.
(b) Whether or not a Default or Event of Default shall have
occurred, the Agent may from time to time exercise such rights of the Agent
and the Lenders under the Loan Documents as it determines may be necessary or
desirable to protect the Collateral and the interests of the Agent and the
Lenders therein and under the Loan Documents. In addition, the Agent may,
without the consent of the Lenders, release the Lender's security interest in
Collateral having an aggregate value equal to or less than $1,000,000 (as
valued by the Agent in its reasonable discretion) in any consecutive 12-month
period, which amount shall be in addition to the releases of security
interests with respect to sales which are otherwise permitted by this
Agreement.
(c) Neither the Agent nor any of its directors, officers,
employees or agents shall incur any liability by acting in reliance on any
notice, consent, certificate, statement or other writing (which may be a bank
wire, telex, facsimile or similar writing) believed by any of them to be
genuine or to be signed by the proper party or parties.
10.3 Indemnification. Without limiting the obligations of the
Borrower under this Agreement or under any other Loan Document, the Lenders
jointly and severally agree to indemnify the Agent (to the extent not
reimbursed by the Borrower), ratably in accordance with their Pro Rata Share
of their respective Loan Commitments (or if the Loan Commitments have
terminated, their Pro Rata Share of Total Loans Outstanding), jointly and
severally, for any and all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may at any time be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement or any other Loan Document or any documents contemplated by or
referred to in this Agreement or therein or the transactions contemplated by
this Agreement or thereby or the enforcement of any of the terms of this
Agreement or thereof or of any such other documents; provided, that no Lender
shall be liable for any of the foregoing to the extent they result from the
gross negligence or willful misconduct of the Agent. Without limiting the
foregoing, each Lender agrees to reimburse the Agent promptly on demand in
proportion to its share of its respective Commitments for any out-of-pocket
expenses, including attorney fees, including, without limitation at trial, on
appeal or review, or in a bankruptcy proceeding, incurred by the Agent in
connection with the negotiations, preparation, execution, delivery,
modification, administration or enforcement or preservation of any Loan
Document.
10.4 Reimbursement. Without limiting the provisions of Section 10.3,
the Lenders and the Agent by this Agreement agree that the Agent shall not be
obliged to make available to any Person any sum which the Agent is expecting
to receive for the account of that Person until the Agent has determined that
it has received that sum. The Agent may, however, disburse funds prior to
determining that the sums which the Agent expects to receive have been
finally and unconditionally paid to the Agent if the Agent wishes to do so.
If and to the extent that the Agent does disburse funds and it later becomes
apparent that the Agent did not then receive a payment in an amount equal to
the sum paid out, then any Person to whom the Agent made the funds available
shall, on demand from the Agent refund to the Agent the sum paid to that
Person. If the Agent in good faith reasonably concludes that the
distribution of any amount received by it in such capacity under this
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Agreement or under the other Loan Documents might involve it in liability, it
may refrain from making the distribution until its right to make the
distribution shall have been adjudicated by a court of competent
jurisdiction. If a court of competent jurisdiction shall adjudge that any
amount received and distributed by the Agent is to be repaid, each Person to
whom any such distribution shall have been made shall either repay to the
Agent its proportionate share of the amount so adjudged to be repaid or shall
pay over the same in such manner and to such Persons as shall be determined
by such court.
10.5 Non-Reliance on Agent and Other Lenders. Each Lender represents
that it has, independently and without reliance on the Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of the financial condition and affairs of
the Loan Parties and decision to enter into this Agreement and the other Loan
Documents and agrees that it will, independently and without reliance upon
the Agent or any other Lender, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own appraisals
and decisions in taking or not taking action under this Agreement or any
other Loan Document. The Agent shall not be required to keep informed as to
the performance or observance by the Loan Parties thereof, the other Loan
Documents or any other document referred to or provided for in this Agreement
or therein or by any other Person of any other agreement or to make inquiry
of, or to inspect the properties or books of, any Person. Except for
notices, reports and other documents and information expressly required to be
furnished to the Lenders by the Agent under this Agreement, the Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning any Person which may come into the possession of
the Agent or any of its affiliates. Unless any Lender shall, promptly after
obtaining knowledge thereof, object to any action taken by the Agent under
this Agreement (other than actions to which the provisions of Section 11.7(b)
are applicable and other than actions which constitute gross negligence or
willful misconduct by the Agent), such Lender shall conclusively be presumed
to have approved the same.
10.6 Resignation or Removal of Agent. The Agent may resign at any
time by giving 30 days prior written notice thereof to the Lenders and the
Borrower. Upon 30 days prior written notice from all Lenders except Agent
requesting that Agent resign, Agent will resign. In the event of
resignation, Agent may require that any successor Agent replace Agent as the
Swingline Lender. Upon any such resignation, the Required Lenders shall have
the right to appoint a successor Agent. If no successor Agent shall have
been so appointed by the Lenders and shall have accepted such appointment
within 30 days after the retiring Agent's giving of notice of resignation or
within 30 days after Agent's resignation if requested by all Lenders except
Agent, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent. Upon the acceptance of any appointment as Agent under this
Agreement by a successor Agent, such successor Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of
the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations under this Agreement. After any retiring Agent's
resignation, the provisions of this Agreement shall continue in effect for
its benefit with respect to any actions taken or omitted to be taken by it
while it was acting as Agent.
SECTION XI.
MISCELLANEOUS
11.1 Notices. Unless otherwise specified in this Agreement, all
notices under this Agreement to any party to this Agreement shall be in
writing and shall be deemed to have been given when delivered, if hand
delivered, and shall be deemed to have been given: when sent, if sent by
confirmed electronic facsimile transmission; when sent, if sent by telex
answer back received; on the first Business Day after being delivery to any
overnight delivery service for guaranteed next business day delivery; or
three days after being mailed, if sent by certified or registered mail,
return receipt requested, postage pre-paid; in each case addressed to such
party at its address indicated below:
If to the Borrower, at
360 East Jackson Street
Medford, Oregon 97501
Attention: Sidney B. DeBoer
Telephone: (541) 776-6401
Facsimile: (541) 776-6861
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with a copy to:
Foster, Pepper & Shefelman
101 SW Main Street, 15th Floor
Portland, Oregon 97204
Attention: Kenneth E. Roberts, Jr.
Telephone: (503) 221-1151
Facsimile: (503) 221-1510
If to the Agent or U.S. Bank, at
131 East Main Street
Medford, Oregon 97501
Attention: Laurence L. Rivelli
Telephone: (541) 770-1124
Facsimile: (800) 962-0059
with a copy to:
U.S. Bank National Association
Ninth Floor
1420 Fifth Avenue, WWH749
Seattle, Washington 98101
Attention: Caron Carlyon
Telephone: (206) 344-3605
Facsimile: (206) 344-2882
If to any other Lender, to its address set forth on Schedule 1-B
attached to this Agreement; or at any other address specified by such party
in writing.
11.2 Expenses. Whether or not the transactions contemplated by this
Agreement shall be consummated, the Loan Parties jointly and severally
promise to reimburse (a) the Agent, and the Initial Lenders for all
reasonable out-of-pocket fees and disbursements (including all Attorneys'
Fees, appraisal and collateral examination fees, due diligence investigation
expenses and syndication expenses) incurred or expended in connection with
the negotiation, preparation, execution, delivery, filing or recording, or
the administration or interpretation of this Agreement and the other Loan
Documents, or the consummation of the transactions contemplated by this
Agreement, or any amendment, modification, approval, consent or waiver of
this Agreement or thereof, and (b) the Agent and all of the Lenders for all
reasonable out-of-pocket costs, fees and disbursements (including all
Attorneys' Fees, appraisal and collateral examination fees, and collection
expenses) incurred or expended in connection with the enforcement of any
Obligations, the exercise of any remedies under any Loan Documents or with
respect to the Collateral or the satisfaction of any Indebtedness of the
Borrower under this Agreement or thereunder, or in connection with any
litigation, proceeding or dispute in any way related to the credit under this
Agreement. The Borrower will pay any taxes (including any interest and
penalties in respect thereof), other than any Lender's federal and state
income taxes, payable on or with respect to the transactions contemplated by
the Loan Documents (the Borrower by this Agreement agreeing to indemnify the
Agent and the Lenders with respect thereto). For purposes of this Agreement
and the other Loan Documents, "Attorneys' Fees" shall mean the reasonable
fees and disbursements of attorneys (including all paralegals and other staff
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employed by such attorneys and the reasonably allocated costs of internal
counsel), whether incurred at trial, on appeal or review, in a bankruptcy
proceeding or in any other way relating to Obligations, the Loan Documents
and the transactions contemplated by this Agreement, including, without
limitation as provided in Sections 11.2 and 11.3 of this Agreement.
11.3 Indemnification. The Loan Parties agrees to indemnify and hold
harmless the Agent and the Lenders, as well as their respective shareholders,
directors, offices, agents, attorneys, subsidiaries and affiliates, from and
against all damages, losses, settlement payments, obligations, liabilities,
claims, suits, penalties, assessments, citations, directives, demands,
judgments, actions or causes of action, whether statutorily created or under
the common law, all reasonable costs and expenses (including, without
limitation, Attorneys' Fees and reasonable fees and disbursements of
engineers and consultants) and all other liabilities whatsoever (including,
without limitation, liabilities under Environmental Laws) which shall at any
time or times be incurred, suffered, sustained or required to be paid by any
such indemnified Person (except any of the foregoing which result from the
gross negligence or willful misconduct of the indemnified Person) on account
of or in relation to or any way in connection with any of the arrangements or
transactions contemplated by, associated with or ancillary to this Agreement,
the other Loan Documents or any other documents executed or delivered in
connection herewith or therewith, all as the same may be amended from time to
time, whether or not all or part of the transactions contemplated by,
associated with or ancillary to this Agreement, any of the other Loan
Documents or any such other documents are ultimately consummated. In any
investigation, proceeding or litigation, or the preparation therefor, the
Lenders shall select their own counsel and, in addition to the foregoing
indemnity, the Borrower agrees to pay promptly the reasonable fees and
expenses of such counsel. In the event of the commencement of any such
proceeding or litigation, the Borrower shall be entitled to participate in
such proceeding or litigation with counsel of its choice at its own expense,
provided that such counsel shall be reasonably satisfactory to the Agent.
The Borrower authorizes the Agent and the Lenders to charge any deposit
account or Note Record which it may maintain with any of them for any of the
foregoing. The covenants of this Section 11.3 shall survive payment or
satisfaction of payment of all amounts owing with respect to the Notes, any
other Loan Document or any other Obligation.
11.4 Survival of Covenants, Etc. Unless otherwise stated in this
Agreement, all covenants, agreements, representations and warranties made in
this Agreement, in the other Loan Documents or in any documents or other
papers delivered by or on behalf of any Loan Party pursuant to this Agreement
shall be deemed to have been relied upon by the Agent and the Lenders,
notwithstanding any investigation thereto or hereafter made by any of them,
and shall survive the making by the Lenders of the Loans as in this Agreement
contemplated, and shall continue in full force and effect so long as any
Obligation remains outstanding and unpaid or any Lender has any obligation to
make any Loans under this Agreement. All statements contained in any
certificate or other writing delivered by or on behalf of the Borrower
pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement shall constitute representations and
warranties by the Borrower under this Agreement.
11.5 Set-Off. Regardless of the adequacy of any Collateral or other
means of obtaining repayment of the Obligations, but subject to the
provisions of Section 2.8(d) of this Agreement, any deposits, balances or
other sums credited by or due from the head office of any Lender or any of
its branch offices to the Borrower may, at any time and from time to time
after the occurrence of a Default under this Agreement, upon notice to the
Agent but without notice to the Borrower or compliance with any other
condition precedent now or hereafter imposed by statute, rule of law, or
otherwise (all of which are by this Agreement expressly waived) be set off,
appropriated, and applied by such Lender against any and all Obligations of
the Borrower in such manner as the head office of such Lender or any of its
branch offices in its sole discretion may determine, and the Borrower by this
Agreement grants each such Lender a continuing security interest in such
deposits, balances or other sums for the payment and performance of all such
Obligations.
11.6 No Waivers. No failure or delay by the Agent or any Lender in
exercising any right, power or privilege under this Agreement, under the
Notes or under any other Loan Document shall operate as a waiver thereof; nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. No
waiver shall extend to or affect any Obligation not expressly waived or
impair any right consequent thereon. No course of dealing or omission on the
part of the Agent or the Lenders in exercising any right shall operate as a
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waiver thereof or otherwise be prejudicial to this Agreement. No notice to
or demand upon the Borrower shall entitle the Borrower to other or further
notice or demand in similar or other circumstances. The rights and remedies
in this Agreement and in the Notes and the other Loan Documents are
cumulative and not exclusive of any rights or remedies otherwise provided by
agreement or law.
11.7 Amendments, Waivers, Etc.
(a) Except as otherwise set forth in this Agreement with
respect to actions by the Agent or as otherwise set forth in any Loan
Document, neither this Agreement, the Notes nor any other Loan Document nor
any provision of this Agreement, the Notes, or the Loan Documents may be
amended, waived, discharged or terminated except by a written instrument
signed by the Agent on behalf of the Lenders or by the Required Lenders, and
in the case of amendments, by the Borrower.
(b) (i) Except where this Agreement or any of the other Loan
Documents authorizes or permits the Agent to act alone and except as
otherwise expressly provided in this Section 11.7(b), any action to be taken
(including the giving of notice) by the Lenders may be taken, and any consent
or approval required or permitted by this Agreement or any other Loan
Document to be given by the Lenders may be given, and any term of this
Agreement, any other Loan Document or any other instrument, document or
agreement related to this Agreement or the other Loan Documents or mentioned
therein may be amended, and the performance or observance by the Borrower or
any other Person of any of the terms thereof and any Default or Event of
Default (as defined in any of the above-referenced documents or instruments)
may be waived (either generally or in a particular instance and either
retroactively or prospectively), in each case only with the written consent
of the Required Lenders; provided, however, that (a) no amendment, waiver or
consent shall, unless in writing and signed by the Agent in addition to the
Required Lenders or all the Lenders, as the case may be, affect the rights,
duties or liabilities of the Agent under this Agreement or any other Loan
Document, (b) any fee or other amount payable solely to the Agent may be
amended with the consent of Borrower and the Agent, (c) no amendment, waiver
or consent, unless in writing and signed by the Swingline Lender in addition
to the Required Lenders or all Lenders as the case may be, shall affect the
rights, duties or liabilities of the Swingline Lender under this Agreement or
any other Loan Document, and (d) no amendment, waiver or consent, unless in
writing and signed by U.S. Bank in addition to the Required Lenders or all
Lenders, as the case may be, shall affect the rights, duties or liabilities
of U.S. Bank under this Agreement or any other Loan Document with respect to
the Total Demonstrator Vehicle Commitment; provided, further, that the
Swingline Lender may increase the Swingline Commitment (not to exceed
$10,000,000) and the Fee associated with such Commitment without the consent
of any other Lender, and U.S. Bank may increase the Fee associated with the
Total Demonstrator Vehicle Commitment without the consent of any other Lender.
(ii) Notwithstanding the foregoing, no amendment, waiver
or consent shall do any of the following unless in writing and signed by ALL
of the Lenders:
(A) increase the amount of or extend the Maturity
Date or the termination date of any Commitment of any Lender, or increase the
Total New Vehicle Commitment, Total Program and Used Vehicle Commitment, the
Total Demonstrator Vehicle Commitment, or the Acquisition Loan Commitment;
(B) postpone or delay any date fixed by this
Agreement or any other Loan Document for any payment of principal, interest,
fees or other amounts due to any Lender under this Agreement or under any
other Loan Document (except as they relate to Swingline Loans or Demonstrator
Vehicle Loans, which shall only require the consent of the Lender(s) having a
Swingline Loan Commitment or a Demonstrator Vehicle Loan Commitment,
respectively);
(C) reduce the principal of, or the rate of
interest on any Obligations, including any Loan, or any fees or other amounts
payable under this Agreement or under any other Loan Document (except as they
relate to Swingline Loans or Demonstrator Vehicle Loans, which shall only
require the consent of the Lender(s) having a Swingline Loan Commitment or a
Demonstrator Vehicle Loan Commitment, respectively);
(D) change the definition of Required Banks which
are required to take any action under this Agreement;
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(E) amend this Section 11.7(b), or any provision in
this Agreement which requires consent on other action by all Lenders;
(F) release all or a substantial part of the
Collateral for the Obligations; or
(G) release any Guarantor.
11.8 Binding Effect of Agreement. This Agreement shall be binding
upon and inure to the benefit of the Loan Parties, the Agent, the Lenders and
their respective successors and assigns; provided that the Loan Parties may
not assign or transfer its rights or obligations under this Agreement.
11.9 Captions; Counterparts. The captions in this Agreement are for
convenience of reference only and shall not define or limit the provisions of
this Agreement. This Agreement and any amendment of this Agreement may be
executed in several counterparts and by each party on a separate counterpart,
each of which when so executed and delivered shall be an original, but all of
which together shall constitute one instrument. In proving this Agreement it
shall not be necessary to produce or account for more than one such
counterpart signed by the party against whom enforcement is sought.
11.10 Attorney-in-Fact. Each Loan Party irrevocably appoints the Agent
as its attorney-in-fact to execute, deliver and file from time to time in the
name of any Loan Party or the Lenders, any trust receipts, security
agreements, financing statements, continuation statements and amendments
thereto and any and all other documents and instruments that the Lenders may
require in connection with evidencing and securing the Obligations under this
Agreement and implementing the provisions of this Agreement, which
appointment shall be deemed to be a power coupled with an interest.
11.11 Entire Agreement, Etc. The Loan Documents and any other
documents executed in connection herewith or therewith express the entire
understanding of the parties with respect to the transactions contemplated by
this Agreement and replace and supersede the Commitment Letter, dated
August 27, 1997, signed by the Borrower and U.S. Bank and any other agreement
between the Borrower and U.S. Bank specifically providing the Borrower with a
line of credit from U.S. Bank with respect to the financing of the Loan
Parties' inventory.
11.12 Waiver of Jury Trial. EACH LOAN PARTY, THE AGENT AND THE LENDERS
BY THIS AGREEMENT WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT,
THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS UNDER
THIS AGREEMENT OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, EACH LOAN PARTY BY THIS AGREEMENT
WAIVE ANY RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED
TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES. EACH LOAN PARTY (a) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE AGENT OR THE LENDERS HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT THE AGENT OR LENDERS WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS AND (b) ACKNOWLEDGE THAT THE AGENT AND THE
LENDERS HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS TO WHICH EACH IS A PARTY BECAUSE OF, AMONG OTHER THINGS, EACH LOAN
PARTY'S WAIVERS AND CERTIFICATIONS CONTAINED IN THIS AGREEMENT.
11.13 Governing Law. THIS AGREEMENT IS A CONTRACT UNDER THE LAWS OF
THE STATE OF OREGON AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF OREGON (EXCLUDING THE LAWS APPLICABLE TO
CONFLICTS OF LAW OR CHOICE OF LAW, RULES OR PRINCIPLES). EACH LOAN PARTY
CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ANY OF THE FEDERAL OR STATE
COURTS LOCATED IN MULTNOMAH COUNTY IN THE STATE OF OREGON IN CONNECTION WITH
ANY SUIT TO ENFORCE THE RIGHTS OF THE LENDERS UNDER THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS. EACH LOAN PARTY IRREVOCABLY WAIVES ANY OBJECTION
WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH
ACTION BROUGHT IN THE COURTS REFERRED TO IN THE PRECEDING SENTENCE AND
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH ACTION THAT
SUCH ACTION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
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11.14 Payments Set Aside. To the extent any payments on the
Obligations or proceeds of any Collateral or the proceeds of such enforcement
or setoff or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other Person under any law or equitable cause, then,
to the extent of such recovery, the Obligation or part thereof originally
intended to be satisfied, and all rights and remedies therefor, shall be
revived and shall continue in full force and effect, and the Agent's and the
Lenders' rights, powers and remedies under this Agreement and each other Loan
Document shall continue in full force and effect, as if such payment had not
been made or such enforcement or setoff had not occurred. In such event,
each Loan Document shall be automatically reinstated and the Loan Parties
shall take such action as may be reasonably requested by the Agent and the
Lenders to effect such reinstatement.
11.15 Credit Agreement Controls. If there are any conflicts or
inconsistencies among this Agreement and any of the other Loan Documents, the
provisions of this Agreement shall prevail and control.
11.16 Severability. The provisions of this Agreement are severable and
if any one clause or provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity
or unenforceability shall affect only such clause or provision, or part of
this Agreement, in such jurisdiction, and shall not in any manner affect such
clause or provision in any other jurisdiction, or any other clause or
provision of this Agreement in any jurisdiction.
11.17 Disclosure. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND
COMMITMENTS MADE BY THE LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND
OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD
PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING,
EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE.
11.18 Confidentiality. Agent and each Lender agree to take normal and
reasonable precautions and exercise due care to maintain the confidentiality
of all information identified as "confidential" or "secret" by Borrower and
provided to it by Borrower, or by the Agent on Borrower's behalf, under this
Agreement or any other Loan Document, and it shall not use any such
information other than in connection with or in enforcement of this Agreement
and the other Loan Documents or in connection with other business now or
hereafter existing or contemplated with Borrower; except to the extent such
information (a) was or becomes generally available to the public other than
as a result of disclosure by Agent or the Lender, or (b) was or becomes
available on a non-confidential basis from a source other than Agent or
Borrower; provided, however, that Agent and any Lender may disclose such
information (i) at the request or pursuant to any requirement of any
governmental body or regulatory or self-regulatory body to which the Agent or
Lender is subject or in connection with an examination of such Agent or
Lender by any such authority; (ii) pursuant to subpoena or other court
process; (iii) when required to do so in accordance with the provisions of
any applicable law; (iv) to the extent reasonably required in connection with
any litigation or proceeding to which the Agent, any Lender or their
respective Affiliates may be party; (v) to the extent reasonably required in
connection with the exercise of any remedy hereunder or under any other Loan
Document; (vi) to such Agent or Lender's independent auditors and other
professional advisors provided that such Person agrees to keep such
information confidential to the same extent required of the Lenders
hereunder; (vii) to any Participant or Assignee, actual or potential,
provided that such Person agrees to keep such information confidential to the
same extent required of the Lenders hereunder; (viii) as to Agent or any
Lender or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Borrower is a
party or is deemed a party with such Lender or such Affiliate; and (ix) to
its Affiliates provided that such Person agrees to keep such information
confidential to the same extent required of the Lenders hereunder; provided,
that with respect to disclosures under clauses (ii), (iv), and (v), Agent and
such Lender shall use commercially reasonable efforts to notify the Borrower
(unless such notification is prohibited by any applicable law) of the
proposed disclosure before such disclosure is made to reasonably afford the
Borrower the opportunity to seek to prevent such disclosure. Agent and each
Lender acknowledge that Borrower has designated its projections, budgets and
pro forma financial statements as "confidential."
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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date set forth in the preamble to this Agreement.
BORROWER:
LITHIA MOTORS, INC.
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
Chairman of the Board and
Chief Executive Officer
AGENT:
U.S. BANK NATIONAL ASSOCIATION
By:
Name:
Title:
LENDERS:
U.S. BANK NATIONAL ASSOCIATION
By:
Name:
Title:
U.S. BANK (for purposes of Section 9.3):
U.S. BANK NATIONAL ASSOCIATION
By:
Name:
Title:
AFFILIATES AND SUBSIDIARIES:
LITHIA HOLDING COMPANY, L.L.C.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: Manager
LITHIA TLM, L.L.C.
By: Lithia Motors, Inc., as Manager
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: Chairman of the Board and
Chief Executive Officer
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LITHIA'S GRANTS PASS AUTO CENTER, L.L.C.
By: Lithia Motors, Inc., as Manager
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: Chairman of the Board and
Chief Executive Officer
LITHIA DODGE, L.L.C.
By: Lithia Motors, Inc., as Manager
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: Chairman of the Board and
Chief Executive Officer
LITHIA CHRYSLER PLYMOUTH JEEP EAGLE, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA MTLM, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LGPAC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA DM, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
SATURN OF SOUTHWEST OREGON, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
60
<PAGE>
LITHIA HPI, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA DE, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA DC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA FN, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA TKV, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA FVHC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA VWC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA NB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA BB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
61
<PAGE>
LITHIA MB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA JEB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA RENTALS, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA AUTO SERVICES, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA SALMIR, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA BNM, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA MMF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA FMF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA JEF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
62
<PAGE>
LITHIA NF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA FINANCIAL CORPORATION
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
63
<PAGE>
SCHEDULE 1-A
AFFILIATES AND SUBSIDIARIES
LITHIA HOLDING COMPANY, L.L.C.
LITHIA TLM, L.L.C.
Medford, OR
LITHIA'S GRANTS PASS AUTO CENTER, L.L.C.
Grants Pass, OR
LITHIA DODGE, L.L.C.
Medford, OR
LITHIA CHRYSLER PLYMOUTH JEEP EAGLE, INC.
Medford, OR
LITHIA MTLM, INC.
Medford, OR
LGPAC, INC.
Grants Pass, OR
LITHIA DM, INC.
Medford, OR
SATURN OF SOUTHWEST OREGON, INC.
Medford, OR
LITHIA HPI, INC.
Medford, OR
LITHIA DE, INC.
Eugene, OR
LITHIA DC, INC.
Concord, CA
LITHIA FN, INC.
Napa, CA
LITHIA TKV, INC.
Vacaville, CA
LITHIA FVHC, INC.
Concord, CA
LITHIA VWC, INC.
Concord, CA
LITHIA NB, INC.
Bakersfield, CA
LITHIA BB, INC.
Bakersfield, CA
LITHIA MB, INC.
Bakersfield, CA
LITHIA JEB, INC.
Bakersfield, CA
LITHIA RENTALS, INC.
Medford, OR
64
<PAGE>
LITHIA AUTO SERVICES, INC.
Medford, OR
LITHIA SALMIR, INC.
Reno, NV
LITHIA BNM, INC.
Medford, OR
LITHIA MMF, INC.
Fresno, CA
LITHIA FMF, INC.
Fresno, CA
LITHIA JEF, INC.
Fresno, CA
LITHIA NF, INC.
Fresno, CA
LITHIA FINANCIAL CORPORATION
Medford, OR
65
<PAGE>
SCHEDULE 1-B
COMMITMENTS OF THE LENDERS
<TABLE>
<CAPTION>
Program and Demonstrator Acquisition
New Vehicle Swingline Used Vehicle Vehicle Loan
Commitment Commitment Commitment Commitment Commitment
<S> <C> <C> <C> <C> <C>
U.S. Bank National 100% 100% 100% 100% 100%
Association
111 SW Fifth Avenue
Suite 400
Portland, OR 97208
Total 100% 100% 100% 100% 100%
</TABLE>
66
<PAGE>
EXHIBIT A-1
FORM OF
NEW VEHICLE NOTE
$80,000,000 December 22, 1997
FOR VALUE RECEIVED, the undersigned (the "Borrower") absolutely and
unconditionally promises to pay to the order of [LENDER] ("Payee") at the
office of U.S. Bank National Association, 10800 NE 8th, Suite 900, Bellevue,
WA 98004, or at any such other place as the Agent may specify from time to
time, in lawful money of the United States of America:
(a) on the Maturity Date, the principal amount of EIGHTY
MILLION DOLLARS ($80,000,000) or, if less, the aggregate unpaid principal
amount of New Vehicle Loans advanced by the Payee to the Borrower pursuant to
the Credit Agreement, dated as of December 22, 1997, as amended or
supplemented from time to time (the "Credit Agreement"), by and among the
Borrower, the Agent and the Lenders (as defined therein); and
(b) interest on the principal balance thereof from time to time
outstanding from the date thereof through and including the date on which
such principal amount is paid in full, at the times and at the rates provided
in the Credit Agreement.
This Note evidences borrowings under, is subject to the terms and
conditions of and has been issued by the Borrower in accordance with the
terms of the Credit Agreement and is one of the New Vehicle Notes referred to
therein. The Payee and any holder thereof is entitled to the benefits and
subject to the conditions of the Credit Agreement and may enforce the
agreements of the Borrower contained therein, and any holder thereof may
exercise the respective remedies provided for by this Agreement or otherwise
available in respect thereof, all in accordance with the respective terms
thereof. This Note is secured by the Security Documents described in the
Credit Agreement.
All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to repay or prepay the whole or part of the
principal of this Note on the terms and conditions specified in the Credit
Agreement.
The Lender is hereby authorized to record (i) the date and amount of
each Loan made by it, (ii) the interest rate option selected, (iii) the
interest rate, (iv) the Interest Period applicable to LIBOR Loans and (v) the
date and amount of each continuation or conversion of, and each payment or
prepayment of principal of, any Loans, on its Note Record. No failure so to
record or any error in so recording shall affect the obligation of the
Borrower to repay the Lender's Loans, together with interest thereon, as
provided in the Credit Agreement.
If any Event of Default shall occur, the entire unpaid principal amount
of this Note and all of the unpaid interest accrued thereon may become or be
declared due and payable in the manner and with the effect provided in the
Credit Agreement.
The Borrower and every endorser and guarantor of this Note or the
obligation represented by this Agreement waive presentment, demand, notice,
protest and all other demands and notice in connection with the delivery,
acceptance, performance, default or enforcement of this Note, assent to any
extension or postponement of the time of payment or any other indulgence, to
any substitution, exchange or release of collateral and to the addition or
release of any other party or Person primarily or secondarily liable.
This Note may only be amended by an instrument in writing executed
pursuant to the provisions of Section 11.7 of the Credit Agreement.
Transfer, sale or assignment of any rights under this Note is subject to the
provision of Sections 9.1 and 9.2 of the Credit Agreement.
This Note shall be deemed to take effect under the laws of the state of
Oregon and for all purposes shall be construed in accordance with such laws
(without regard to conflicts of laws or choice of laws, rules or principles).
67
<PAGE>
Each Loan Party acknowledges receipt of a copy of this Agreement.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE
LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE
SIGNED BY THE LENDERS TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed by
its duly authorized officer as of the day and year first above written.
LITHIA MOTORS, INC.
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
Chairman of the Board and Chief Executive Officer
68
<PAGE>
EXHIBIT A-2
FORM OF
SWINGLINE NOTE
$5,000,000 December 22, 1997
FOR VALUE RECEIVED, the undersigned (the "Borrower") absolutely and
unconditionally promises to pay to the order of [LENDER] ("Payee") at the
office of U.S. Bank National Association, 10800 NE 8th, Suite 900, Bellevue,
WA 98004, or at any such other place as the Agent may specify from time to
time, in lawful money of the United States of America:
(a) on the Maturity Date, the principal amount of FIVE MILLION
DOLLARS ($5,000,000) or, if less, the aggregate unpaid principal amount of
Swingline Loans advanced by the Payee to the Borrower pursuant to the Credit
Agreement, dated as of December 22, 1997, as amended or supplemented from
time to time (the "Credit Agreement"), by and among the Borrower, the Agent
and the Lenders (as defined therein); and
(b) interest on the principal balance thereof from time to time
outstanding from the date thereof through and including the date on which
such principal amount is paid in full, at the times and at the rates provided
in the Credit Agreement.
This Note evidences borrowings under, is subject to the terms and
conditions of and has been issued by the Borrower in accordance with the
terms of the Credit Agreement and is one of the Swingline Notes referred to
therein. The Payee and any holder thereof is entitled to the benefits and
subject to the conditions of the Credit Agreement and may enforce the
agreements of the Borrower contained therein, and any holder thereof may
exercise the respective remedies provided for by this Agreement or otherwise
available in respect thereof, all in accordance with the respective terms
thereof. This Note is secured by the Security Documents described in the
Credit Agreement.
All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to repay or prepay the whole or part of the
principal of this Note on the terms and conditions specified in the Credit
Agreement.
The Lender is hereby authorized to record (i) the date and amount of
each Loan made by it, (ii) the interest rate, and (iii) the date and amount
of each payment or prepayment of principal of, any Loans, on its Note
Record. No failure so to record or any error in so recording shall affect
the obligation of the Borrower to repay the Lender's Loans, together with
interest thereon, as provided in the Credit Agreement.
If any Event of Default shall occur, the entire unpaid principal amount
of this Note and all of the unpaid interest accrued thereon may become or be
declared due and payable in the manner and with the effect provided in the
Credit Agreement.
The Borrower and every endorser and guarantor of this Note or the
obligation represented by this Agreement waive presentment, demand, notice,
protest and all other demands and notice in connection with the delivery,
acceptance, performance, default or enforcement of this Note, assent to any
extension or postponement of the time of payment or any other indulgence, to
any substitution, exchange or release of collateral and to the addition or
release of any other party or Person primarily or secondarily liable.
This Note shall be deemed to take effect under the laws of the state of
Oregon and for all purposes shall be construed in accordance with such laws
(without regard to conflicts of laws or choice of laws, rules or principles).
This Note may only be amended by an instrument in writing executed
pursuant to the provisions of Section 11.7 of the Credit Agreement.
Transfer, sale or assignment of any rights under this Note is subject to the
provision of Sections 9.1 and 9.2 of the Credit Agreement.
69
<PAGE>
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE
LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE
SIGNED BY THE LENDERS TO BE ENFORCEABLE.
Each Loan Party acknowledges receipt of a copy of this Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed by
its duly authorized officer as of the day and year first above written.
LITHIA MOTORS, INC.
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
Chairman of the Board and Chief Executive Officer
70
<PAGE>
EXHIBIT A-3
FORM OF
PROGRAM AND USED VEHICLE NOTE
$30,000,000 December 22, 1997
FOR VALUE RECEIVED, the undersigned (the "Borrower") absolutely and
unconditionally promises to pay to the order of [LENDER] ("Payee") at the
office of U.S. Bank National Association, 10800 NE 8th, Suite 900, Bellevue,
WA 98004, or at any such other place as the Agent may specify from time to
time, in lawful money of the United States of America:
(a) on the Maturity Date, the principal amount of THIRTY
MILLION DOLLARS ($30,000,000) or, if less, the aggregate unpaid principal
amount of Program and Used Vehicle Loans advanced by the Payee to the
Borrower pursuant to the Credit Agreement, dated as of December 22, 1997, as
amended or supplemented from time to time (the "Credit Agreement"), by and
among the Borrower, the Agent and the Lenders (as defined therein); and
(b) interest on the principal balance thereof from time to time
outstanding from the date thereof through and including the date on which
such principal amount is paid in full, at the times and at the rates provided
in the Credit Agreement.
This Note evidences borrowings under, is subject to the terms and
conditions of and has been issued by the Borrower in accordance with the
terms of the Credit Agreement and is one of the Program and Used Vehicle
Notes referred to therein. The Payee and any holder thereof is entitled to
the benefits and subject to the conditions of the Credit Agreement and may
enforce the agreements of the Borrower contained therein, and any holder
thereof may exercise the respective remedies provided for by this Agreement
or otherwise available in respect thereof, all in accordance with the
respective terms thereof. This Note is secured by the Security Documents
described in the Credit Agreement.
All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to repay or prepay the whole or part of the
principal of this Note on the terms and conditions specified in the Credit
Agreement.
The Lender is hereby authorized to record (i) the date and amount of
each Loan made by it, (ii) the interest rate option selected, (iii) the
interest rate, (iv) the Interest Period applicable to LIBOR Loans and (v) the
date and amount of each continuation or conversion of, and each payment or
prepayment of principal of, any Loans, on its Note Record. No failure so to
record or any error in so recording shall affect the obligation of the
Borrower to repay the Lender's Loans, together with interest thereon, as
provided in the Credit Agreement.
If any Event of Default shall occur, the entire unpaid principal amount
of this Note and all of the unpaid interest accrued thereon may become or be
declared due and payable in the manner and with the effect provided in the
Credit Agreement.
The Borrower and every endorser and guarantor of this Note or the
obligation represented by this Agreement waive presentment, demand, notice,
protest and all other demands and notice in connection with the delivery,
acceptance, performance, default or enforcement of this Note, assent to any
extension or postponement of the time of payment or any other indulgence, to
any substitution, exchange or release of collateral and to the addition or
release of any other party or Person primarily or secondarily liable.
This Note shall be deemed to take effect under the laws of the state of
Oregon and for all purposes shall be construed in accordance with such laws
(without regard to conflicts of laws or choice of laws, rules or principles).
This Note may only be amended by an instrument in writing executed
pursuant to the provisions of Section 11.7 of the Credit Agreement.
Transfer, sale or assignment of any rights under this Note is subject to the
provision of Sections 9.1 and 9.2 of the Credit Agreement.
71
<PAGE>
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE
LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE
SIGNED BY THE LENDERS TO BE ENFORCEABLE.
Each Loan Party acknowledges receipt of a copy of this Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed by
its duly authorized officer as of the day and year first above written.
LITHIA MOTORS, INC.
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
Chairman of the Board and Chief Executive Officer
72
<PAGE>
EXHIBIT A-4
FORM OF
DEMONSTRATOR VEHICLE NOTE
$750,000 December 22, 1997
FOR VALUE RECEIVED, the undersigned (the "Borrower") absolutely and
unconditionally promises to pay to the order of [LENDER] ("Payee") at the
office of U.S. Bank National Association, 10800 NE 8th, Suite 900, Bellevue,
WA 98004, or at any such other place as the Agent may specify from time to
time, in lawful money of the United States of America:
(a) on the Maturity Date, the principal amount of SEVEN HUNDRED
FIFTY THOUSAND ($750,000) or, if less, the aggregate unpaid principal amount
of Demonstrator Vehicle Loans advanced by the Payee to the Borrower pursuant
to the Credit Agreement, dated as of December 22, 1997, as amended or
supplemented from time to time (the "Credit Agreement"), by and among the
Borrower, the Agent and the Lenders (as defined therein); and
(b) interest on the principal balance thereof from time to time
outstanding from the date thereof through and including the date on which
such principal amount is paid in full, at the times and at the rates provided
in the Credit Agreement.
This Note evidences borrowings under, is subject to the terms and
conditions of and has been issued by the Borrower in accordance with the
terms of the Credit Agreement and is one of the Demonstrator Vehicle Notes
referred to therein. The Payee and any holder thereof is entitled to the
benefits and subject to the conditions of the Credit Agreement and may
enforce the agreements of the Borrower contained therein, and any holder
thereof may exercise the respective remedies provided for by this Agreement
or otherwise available in respect thereof, all in accordance with the
respective terms thereof. This Note is secured by the Security Documents
described in the Credit Agreement.
All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to repay or prepay the whole or part of the
principal of this Note on the terms and conditions specified in the Credit
Agreement.
The Lender is hereby authorized to record (i) the date and amount of
each Loan made by it, (ii) the interest rate, and (iii) the date and amount
of each payment or prepayment of principal of, any Loans, on its Note
Record. No failure so to record or any error in so recording shall affect
the obligation of the Borrower to repay the Lender's Loans, together with
interest thereon, as provided in the Credit Agreement.
If any Event of Default shall occur, the entire unpaid principal amount
of this Note and all of the unpaid interest accrued thereon may become or be
declared due and payable in the manner and with the effect provided in the
Credit Agreement.
The Borrower and every endorser and guarantor of this Note or the
obligation represented by this Agreement waive presentment, demand, notice,
protest and all other demands and notice in connection with the delivery,
acceptance, performance, default or enforcement of this Note, assent to any
extension or postponement of the time of payment or any other indulgence, to
any substitution, exchange or release of collateral and to the addition or
release of any other party or Person primarily or secondarily liable.
This Note shall be deemed to take effect under the laws of the state of
Oregon and for all purposes shall be construed in accordance with such laws
(without regard to conflicts of laws or choice of laws, rules or principles).
This Note may only be amended by an instrument in writing executed
pursuant to the provisions of Section 11.7 of the Credit Agreement.
Transfer, sale or assignment of any rights under this Note is subject to the
provision of Sections 9.1 and 9.2 of the Credit Agreement.
73
<PAGE>
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE
LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE
SIGNED BY THE LENDERS TO BE ENFORCEABLE.
Each Loan Party acknowledges receipt of a copy of this Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed by
its duly authorized officer as of the day and year first above written.
LITHIA MOTORS, INC.
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
Chairman of the Board and Chief Executive Officer
74
<PAGE>
EXHIBIT A-5A
FORM OF
ACQUISITION REVOLVING NOTE
$30,000,000 December 22, 1997
FOR VALUE RECEIVED, the undersigned (the "Borrower") absolutely and
unconditionally promises to pay to the order of [LENDER] ("Payee") at the
office of U.S. Bank National Association, 10800 NE 8th, Suite 900, Bellevue,
WA 98004, or at any such other place as the Agent may specify from time to
time, in lawful money of the United States of America:
(a) on the Maturity Date, the principal amount of THIRTY
MILLION DOLLARS ($30,000,000) or, if less, the aggregate unpaid principal
amount of Acquisition Revolving Loans advanced by the Payee to the Borrower
pursuant to the Credit Agreement, dated as of December 22, 1997, as amended
or supplemented from time to time (the "Credit Agreement"), by and among the
Borrower, the Agent and the Lenders (as defined therein); and
(b) interest on the principal balance thereof from time to time
outstanding from the date thereof through and including the date on which
such principal amount is paid in full, at the times and at the rates provided
in the Credit Agreement.
This Note evidences borrowings under, is subject to the terms and
conditions of and has been issued by the Borrower in accordance with the
terms of the Credit Agreement and is one of the Acquisition Revolving Notes
referred to therein. The Payee and any holder thereof is entitled to the
benefits and subject to the conditions of the Credit Agreement and may
enforce the agreements of the Borrower contained therein, and any holder
thereof may exercise the respective remedies provided for by this Agreement
or otherwise available in respect thereof, all in accordance with the
respective terms thereof. This Note is secured by the Security Documents
described in the Credit Agreement.
All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to repay or prepay the whole or part of the
principal of this Note on the terms and conditions specified in the Credit
Agreement.
The Lender is hereby authorized to record (i) the date and amount of
each Loan made by it, (ii) the interest rate option selected, (iii) the
interest rate, (iv) the Interest Period applicable to LIBOR Loans and (v) the
date and amount of each continuation or conversion of, and each payment or
prepayment of principal of, any Loans, on its Note Record. No failure so to
record or any error in so recording shall affect the obligation of the
Borrower to repay the Lender's Loans, together with interest thereon, as
provided in the Credit Agreement.
If any Event of Default shall occur, the entire unpaid principal amount
of this Note and all of the unpaid interest accrued thereon may become or be
declared due and payable in the manner and with the effect provided in the
Credit Agreement.
The Borrower and every endorser and guarantor of this Note or the
obligation represented by this Agreement waive presentment, demand, notice,
protest and all other demands and notice in connection with the delivery,
acceptance, performance, default or enforcement of this Note, assent to any
extension or postponement of the time of payment or any other indulgence, to
any substitution, exchange or release of collateral and to the addition or
release of any other party or Person primarily or secondarily liable.
This Note shall be deemed to take effect under the laws of the state of
Oregon and for all purposes shall be construed in accordance with such laws
(without regard to conflicts of laws or choice of laws, rules or principles).
This Note may only be amended by an instrument in writing executed
pursuant to the provisions of Section 11.7 of the Credit Agreement.
Transfer, sale or assignment of any rights under this Note is subject to the
provision of Sections 9.1 and 9.2 of the Credit Agreement.
75
<PAGE>
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE
LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE
SIGNED BY THE LENDERS TO BE ENFORCEABLE.
Each Loan Party acknowledges receipt of a copy of this Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed by
its duly authorized officer as of the day and year first above written.
LITHIA MOTORS, INC.
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
Chairman of the Board and Chief Executive Officer
76
<PAGE>
EXHIBIT A-5B
FORM OF
ACQUISITION TERM NOTE
[$________________] December 22, 1997
FOR VALUE RECEIVED, the undersigned (the "Borrower") absolutely and
unconditionally promises to pay to the order of [LENDER] ("Payee") at the
office of U.S. Bank National Association, 10800 NE 8th, Suite 900, Bellevue,
WA 98004.
(a) the principal amount of [_______________________________
DOLLARS ($_______________)] in installments as provided in the Credit
Agreement, dated as of December 22, 1997, as amended or supplemented from
time to time (the "Credit Agreement"), by and among the Borrower, the Agent
and the Lenders (as defined therein), with the unpaid balance thereof due and
payable in full on the date five years from the Maturity Date; and
(b) interest on the principal balance thereof from time to time
outstanding from the date thereof through and including the date on which
such principal amount is paid in full, at the times and at the rates provided
in the Credit Agreement.
This Note evidences borrowings under, is subject to the terms and
conditions of and has been issued by the Borrower in accordance with the
terms of the Credit Agreement and is one of the Acquisition Term Notes
referred to therein. The Payee and any holder thereof is entitled to the
benefits and subject to the conditions of the Credit Agreement and may
enforce the agreements of the Borrower contained therein, and any holder
thereof may exercise the respective remedies provided for by this Agreement
or otherwise available in respect thereof, all in accordance with the
respective terms thereof. This Note is secured by the Security Documents
described in the Credit Agreement.
All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to repay or prepay the whole or part of the
principal of this Note on the terms and conditions specified in the Credit
Agreement.
If any Event of Default shall occur, the entire unpaid principal amount
of this Note and all of the unpaid interest accrued thereon may become or be
declared due and payable in the manner and with the effect provided in the
Credit Agreement.
The Borrower and every endorser and guarantor of this Note or the
obligation represented by this Agreement waive presentment, demand, notice,
protest and all other demands and notice in connection with the delivery,
acceptance, performance, default or enforcement of this Note, assent to any
extension or postponement of the time of payment or any other indulgence, to
any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondarily liable.
This Note shall be deemed to take effect under the laws of the state of
Oregon and for all purposes shall be construed in accordance with such laws
(without regard to conflicts of laws or choice of laws, rules or principles).
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UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE
LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE
SIGNED BY THE LENDERS TO BE ENFORCEABLE.
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed by
its duly authorized officer as of the day and year first above written.
LITHIA MOTORS, INC.
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
Chairman of the Board and Chief Executive Officer
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EX-10
Exhibit 10.30.2 Security Agmt with US Bank
EXHIBIT 10.30.2
SECURITY AGREEMENT
AMONG
U.S. BANK NATIONAL ASSOCIATION,
as Agent and Lender
AND
LITHIA MOTORS, INC., and its
AFFILIATES and SUBSIDIARIES
Dated: December 22, 1997
This SECURITY AGREEMENT, dated as of December 22, 1997 (this
"Agreement"), is entered into by and among LITHIA MOTORS, INC., LITHIA
HOLDING COMPANY, L.L.C., LITHIA TLM, L.L.C., LITHIA'S GRANTS PASS AUTO
CENTER, L.L.C., LITHIA DODGE, L.L.C., LITHIA CHRYSLER PLYMOUTH JEEP EAGLE,
INC., LITHIA MTLM, INC., LGPAC, INC., LITHIA DM, INC., SATURN OF SOUTHWEST
OREGON, INC., LITHIA HPI, INC., LITHIA DE, INC., LITHIA DC, INC., LITHIA FN,
INC., LITHIA TKV, INC., LITHIA FVHC, INC., LITHIA VWC, INC., LITHIA NB, INC.,
LITHIA BB, INC., LITHIA MB, INC., LITHIA JEB, INC., LITHIA RENTALS, INC.,
LITHIA AUTO SERVICES, INC., LITHIA SALMIR, INC., LITHIA BNM, INC., LITHIA
MMF, INC., LITHIA FMF, INC., LITHIA JEF, INC., LITHIA NF, INC., and LITHIA
FINANCIAL CORPORATION, (each a "Loan Party" and collectively, the "Loan
Parties") and the Lenders (each as defined below), and U.S. Bank National
Association, as agent for the Lenders, as defined below, (in such capacity,
the "Agent"). The Agent's address for purposes hereof is U.S. Bank National
Association, 131 East Main Street, Medford, Oregon 97501. The mailing
address for all Loan Parties for purposes of this Security Agreement and any
financing statements is 360 East Jackson Street, Medford, Oregon 97504.
A. Concurrently with execution of this Agreement, Lithia Motors,
Inc. (the "Borrower") and the Loan Parties have entered a Credit Agreement
with U.S. Bank National Association and the financial institutions who are
from time to time parties thereto (the "Lenders") and U.S. Bank National
Association, as agent for the Lenders (in such capacity, the "Agent"), (as
the same may be amended, modified, supplemented or extended from time to time
and any number of substitutions, renewals and replacements thereof or
therefor, the "Credit Agreement"), pursuant to which the Lenders have agreed
to extend credit to the Borrower for the benefit of the Loan Parties from
time to time.
B. It is a condition precedent to the Agent and the Lenders entering
into the Credit Agreement and making extensions of credit under the Credit
Agreement that the Loan Parties execute and deliver this Agreement and grant
the security interests provided in this Agreement;
NOW, THEREFORE, to induce the Agent and the Lenders to enter into the
Credit Agreement and the Lenders to make or extend to the Borrower one or
more loans, advances or other extensions of credit upon the terms and subject
to the conditions set forth therein, and in consideration thereof, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, each Loan Party agrees as follows:
Section 1. Definitions.
(a) Capitalized terms used in this Agreement but not defined in this
Agreement shall have the meaning ascribed to them in the Credit Agreement.
All terms defined in the UCC shall have the meanings ascribed in the UCC.
(b) Collateral. All of each Loan Parties' right, title, and interest
in and to the following personal property, whether now owned or existing or
subsequently acquired or arising or in which any Loan Party now has or
subsequently acquires any rights: (i) accounts (including without limitation
accounts receivable and rebates, credits, refunds, and similar items),
instruments, chattel paper, documents, contracts (including without
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limitation the Material Agreements), general intangibles, goods (including
without limitation all Vehicles and all other inventory, equipment and
consumer goods), proceeds of letters of credit, and fixtures; (ii) all
products, proceeds, rents and profits thereof; and (iii) all of the books and
records related to any of the foregoing.
(c) Security Interests. The security interests and liens granted
pursuant to Section 2 of this Agreement, as well as all other security
interests created or assigned as additional security for the Obligations
pursuant to this Agreement or any other Loan Document.
(d) UCC. The Uniform Commercial Code as the same may, from time to
time, be in effect in the state of Oregon; provided however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the security interest in any Collateral is governed
by the Uniform Commercial Code as in effect in the jurisdiction other than
the State of Oregon, the term "UCC" shall mean the Uniform Commercial Code as
in effect in such other jurisdiction for purposes of the provisions of this
Agreement relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
Section 2. Grant.
To secure the full and punctual payment and performance of the
Obligations (including, without limitation, arising under or relating to the
Notes or the Guaranty), each Loan Party hereby assigns and pledges to the
Agent for the benefit of the Lenders all of its respective rights, title and
interest in, and grants to the Agent for the benefit of the Lenders a
continuing security interest in the Collateral. The Security Interests are
granted as security only and shall not subject the Agent or the Lenders to,
or transfer to the Agent or the Lenders or in any way affect or modify, any
obligation or liability of any Loan Party with respect to any of the
Collateral or any transaction in connection therewith. Each of the Lenders
shall be deemed to hold an equitable interest, proportionate to such Lender's
Commitment in relation to the Total Commitment, in the Collateral.
Section 3. Representations, Warranties and Covenants.
The Loan Parties do hereby, jointly and severally, make the following
representations and warranties and agree to the following covenants, each of
which representations, warranties and covenants shall be continuing and in
force so long as this Agreement is in effect or any Obligation remains
outstanding:
3.1 Name; Location; Changes.
(a) The name of each Loan Party set forth in Section 1(a) of its
Perfection Certificate, in the form attached hereto as Exhibit A is the true
and correct legal name of such Loan Party and, except as otherwise disclosed
to the Agent in the Perfection Certificate, such Loan Party has not done
business as or used any other name.
(b) The address of each Loan Party set forth in Section 2(a) of its
Perfection Certificate is such Loan Party's chief executive office and the
place where its business records are kept. Except as disclosed in the
Perfection Certificate, all tangible Collateral of such Loan Party is located
at such chief executive office.
(c) No Loan Party will change its name, identity or chief executive
office or place where its business records are kept; or move any tangible
Collateral to a location other than those set forth in its Perfection
Certificate unless the Borrower shall have given the Agent at least 30 days'
prior written notice thereof and such Loan Party shall have delivered to the
Agent such new UCC financing statements or other documentation as may be
necessary or required by the Agent to ensure the continued perfection and
priority of the Security Interest.
(d) If any Collateral is leased or held for lease to customers of any
Loan Party and is of a type normally used in more than one state (such as
Vehicles and similar items), the Loan Party's chief executive office is the
address shown at the beginning of this Agreement.
3.2 Ownership of Collateral; Absence of Liens and Restrictions. Each
Loan Party is, and in the case of property acquired after the date of this
Agreement will be, the sole legal and equitable owner of the Collateral of
such Loan Party, holding good and marketable title to the same, free and
clear of all Encumbrances except for the Security Interests and Permitted
Encumbrances, and has good right and legal authority to assign, deliver and
create a security interest in such Collateral in the manner contemplated by
this Agreement. The Collateral is genuine and is what it is purported to
be. The Collateral is not subject to any restriction that would prohibit or
restrict the assignment, delivery or creation of the Security Interests
contemplated under this Agreement.
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3.3 First Priority Security Interest. This Agreement creates a valid
and continuing lien on and security interest in the Collateral, and upon the
filing of UCC financing statements in the appropriate offices for the
locations of Collateral listed in each Loan Party's Perfection Certificate,
the Security Interests will be perfected (except to the extent a security
interest may not be perfected by filing under the UCC) before all other
Encumbrances, except for Permitted Encumbrances and as contemplated by
Section 9.3 of the Credit Agreement, and will be enforceable as such against
creditors of the Loan Party, any owner of the real property where any of the
Collateral is located, any purchaser of such real property and any present or
future creditor obtaining a lien on such real property.
3.4 No Conflicts. Neither any Loan Party nor any of the Loan Party's
respective predecessors has performed any acts or is bound by any agreements
that might prevent the Agent from enforcing the Security Interests or any of
the terms of this Agreement or that would limit the Agent in any such
enforcement. Except as specifically disclosed in a Perfection Certificate,
no financing statement under the UCC of any state or other instrument
evidencing a lien that names any Loan Party as debtor is on file in any
jurisdiction, and no Loan Party has signed any such document or any agreement
authorizing the filing of any such financing statement or instrument.
3.5 Sales and Further Encumbrances. No Loan Party will sell, grant,
assign or transfer any interest in, or permit to exist any Encumbrance on,
any of the Collateral of such Loan Party, except the Security Interests and
as permitted by the Credit Agreement.
3.6 Fixture Conflicts; Required Waivers. Each Loan Party intends
that the Collateral of such Loan Party shall remain personal property of such
Loan Party and shall not be deemed to be a fixture irrespective of the manner
of its attachment to any real estate. Each Loan Party will deliver to the
Agent such disclaimers, waivers, or other documents as the Agent may request
to confirm the foregoing, executed by each person having an interest in such
real estate.
3.7 Validity of Receivables. Each account, document chattel paper,
instrument and general intangible (collectively, "Receivable") constituting
Collateral arises and will arise in the ordinary course of a Loan Party's
business out of or in connection with the sale or lease of goods or the
rendering of services and is and shall be a valid, legal and binding
obligation of the party purported to be obligated thereon, enforceable in
accordance with its terms and free of material setoffs, defenses or
counterclaims. No Loan Party has any knowledge of any fact that would
materially impair the validity or collectibility of any Receivable.
3.8 Inspection; Verification of Receivables. Each Loan Party shall
keep complete and accurate books and records relating to the Collateral, and
upon request of the Agent shall stamp or otherwise mark such books and
records in such manner as the Agent may reasonably request to reflect the
Security Interests. Each Loan Party will allow the Agent or its designees to
examine, inspect and make extracts from or copies of such Loan Party's books
and records, inspect the Collateral and arrange for verification of
Receivables constituting Collateral directly with any debtors or by other
methods, under reasonable procedures established by the Agent after
consultation with such Loan Party. The Agent may require each Loan Party to
assemble the Collateral for such inspection in a reasonably convenient place,
and in all other ways each Loan Party shall assist the Agent in making such
inspection. The Borrower agrees to pay in full any item or unit of
Collateral that is not located at a Loan Party's premises or accounted for by
a Loan Party to the Agent in accordance with the terms of the Credit
Agreement.
3.9 Receivables: Collection and Delivery of Proceeds. Each Loan
Party will diligently collect all of its Receivables constituting Collateral
until the Agent exercises its rights to collect the Receivables pursuant to
this Agreement. If any Receivables are at any time evidenced by promissory
notes, trade acceptances or other instruments for the payment of money, such
Loan Party will promptly deliver the same to the Agent appropriately endorsed
to the Agent's order, and, regardless of the form of such endorsement, each
Loan Party hereby waives presentment, demand, notice of dishonor, protest,
notice of protest and all other notices with respect thereto. Each Loan
Party shall, at the request of the Agent at any time, notify debtors, and the
Agent may itself, after the occurrence and during the continuance of a
Default, notify debtors directly of the security interest of the Agent in any
Receivable and that payment thereof is to be made directly to the Agent. Any
proceeds of Receivables or inventory constituting Collateral received by each
Loan Party, whether in the form of cash, checks, notes or other instruments,
shall be held in trust for the Agent, and, if requested by the Agent, such
Loan Party shall deliver said proceeds daily to the Agent, without
commingling, in the identical form received (properly endorsed or assigned
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where required to enable the Agent to collect same). Upon request of the
Agent at any time, each Loan Party will (i) enter into a lockbox arrangement
with one or more financial institutions (which may include the Agent or any
of the Lenders) deemed acceptable by the Agent for the collection of such
proceeds and/or (ii) maintain its deposit accounts at the Agent or at another
financial institution that has agreed to accept drafts drawn on it by the
Agent under a written depository transfer agreement or other arrangement with
the Agent and to block such account and waive its own rights as against such
account.
3.10 Inventory. At least monthly and whenever else reasonably
requested by the Agent, each Loan Party shall make a physical count of all
Vehicle inventory and shall furnish to the Agent a report (certified by an
authorized officer of the Loan Party to be true, correct and complete) of
such physical count, such report to be in such form and with such specificity
as may be reasonably requested by the Agent.
3.11 Insurance. Each Loan Party will keep the Collateral of such Loan
Party insured at all times by insurance in such form and amounts as may be
reasonably satisfactory to the Agent, and in any event (without specific
request by the Agent) will insure such Collateral against physical hazard on
an "all risks" basis, including fire, theft and, in the case of Vehicles,
collision. Such insurance shall be with insurance companies reasonably
satisfactory to the Agent and shall be payable to the Agent as loss payee and
such Loan Party, as their respective interests may appear. Such insurance
shall provide for not less than 30 days' prior notice of cancellation, change
in form or nonrenewal to the Agent and shall insure the interest of the Agent
regardless of any breach or violation by such Loan Party or any other person
of the warranties, declarations or covenants contained in such policies.
Each Loan Party shall insure the Collateral in amounts sufficient to prevent
the application of any co-insurance provisions and shall insure the
Collateral at all times in an amount at least equal to the amount of the
Obligations. Each Loan Party shall evidence its compliance with the
foregoing by delivering a certificate with respect to each policy
concurrently with the execution of this Agreement, annually thereafter, and
from time to time upon the request of the Agent.
WARNING
Unless each Loan Party provides the Agent with evidence of the
insurance coverage as required by the Credit Agreement or any Loan Document,
the Agent may purchase insurance at the Loan Party's expense to protect the
Lenders' interest. This insurance may, but need not, also protect the Loan
Party's interest. If the Collateral becomes damaged, the coverage the Agent
purchases may not pay any claim any Loan Party makes or any claim made
against any Loan Party. Each Loan Party may later cancel this coverage by
providing evidence that the Loan Party has obtained property coverage
elsewhere.
Each Loan Party is responsible for the cost of any insurance purchased
by the Agent. The cost of this insurance may be added to the Total Loan
Outstandings. If the cost is added to the Total Loan Outstandings, the
highest interest rate on the underlying Loan will apply to this added
amount. The effective date of coverage may be the date any Loan Party's
prior coverage lapsed or the date the Loan Party failed to provide proof of
coverage.
The coverage the Agent purchases may be considerably more expensive
than insurance any Loan Party can obtain on its own and may not satisfy any
need for property damage coverage or any mandatory liability insurance
requirements imposed by applicable law.
3.12 Maintenance and Use; Payment of Taxes. Each Loan Party will
preserve, protect and keep the Collateral of such Loan Party in good order
and repair, will not use the same in violation of law or any policy of
insurance thereon and will pay promptly when due all taxes and assessments on
such Collateral or on its use or operation, except as otherwise permitted by
the Credit Agreement.
3.13 General Intangibles.
(a) Each Loan Party will apply for, and diligently pursue
applications for, registration of its ownership of the general intangibles
constituting Collateral and for which registration is appropriate, and will
use such other measures as are appropriate to preserve its rights in its
other general intangibles constituting Collateral. Each Loan Party will, at
the reasonable request of the Agent, retain off-site current copies of all
materials created by or furnished to such Loan Party on which is recorded
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then-current information about any computer programs or data bases that such
Loan Party has developed or otherwise has the right to use from time to
time. Such materials include, without limitation, magnetic or other computer
media on which object, source or other code is recorded or that contain
documentation of those computer programs or data bases, in the nature of
listing printouts, narrative descriptions, flow diagrams and similar things.
Each Loan Party will, at the request of the Agent, deliver a set of such
copies to the Agent for safekeeping and retention or transfer in the event of
foreclosure.
(b) The Loan Parties shall timely and diligently pursue the
enforcement of each material covenant or obligation of each other party to
each Material Agreement. The Borrower will promptly notify the Agent in
writing of any material default under any such agreement or any revocation,
termination, cancellation or expiration thereof (other than with respect to
Material Agreements that are purchase and sale agreements in connection with
an Acquisition), specifying the nature and period of existence thereof and
what action the Loan Parties are taking or propose to take with respect
thereto. Promptly upon becoming available, the Borrower shall deliver to the
Agent copies of all notices and other documents received by any Loan Party
that describe any event which would materially and adversely affect (i) the
condition (financial or otherwise), operations, business, or properties of
any Loan Party or the ability of any Loan Party to perform timely its
obligations under any such material agreement or any Loan Document, or
(ii) the ability of any other party to any such Material Agreement to perform
timely its obligations under any such Material Agreement to which it is a
party.
No Loan Party will cause, or suffer to exist, any expiration,
termination, revocation, or cancellation of, or material default under, any
Material Agreement, regardless of cause, or cause, or suffer to exist, any
such Material Agreement to not be in full force and effect or not constitute
the legal, valid and binding obligations of the parties thereto, or assign or
grant to a Person any right or interest arising therefrom and will not,
without the prior written consent of the Required Lenders, materially modify
or amend any such Material Agreement.
3.14 Further Assurances. Upon the reasonable request of the Agent,
and at the sole expense of such Loan Party, the Loan Party will promptly
execute and deliver such further instruments and documents and take such
further actions as the Agent may deem desirable to obtain the full benefits
of this Agreement and of the rights and powers in this Agreement granted,
including, without limitation, filing of any financing statement or notice
under the UCC or other applicable law, execution of assignments or mortgages
of general intangibles and transfer of Collateral (other than inventory and
equipment) to the Agent's possession. Each Loan Party authorizes the Agent
to file any such financing or continuation statement, or amendments thereto,
without the signature of such Loan Party to the extent permitted by
applicable law and to file a copy of this Agreement in lieu of a financing
statement. If any amount payable under or in connection with any of the
Collateral of any Loan Party shall be or become evidenced by any promissory
note or other instrument, such note or instrument shall be immediately
delivered to the Agent, duly endorsed in a manner satisfactory to it. If any
Receivables of any Loan Party arise from contracts with the United States of
America or any department, agency or instrumentality thereof, such Loan Party
will immediately notify the Agent thereof and execute any assignments and
take any steps reasonably requested by the Agent in order that all monies due
and to become due thereunder shall be assigned and paid to the Agent under
the Assignment of Claims Act of 1940. If any Collateral is at any time in
the possession or control of any warehouseman, bailee or agents of any Loan
Party or processors, such Loan Party shall, upon request of the Agent, notify
such warehouseman, bailee, agent or processor of the Security Interests and
to hold all such Collateral for the Agent's Receivable subject to the Agent's
instructions.
3.15 Obligation to Enter Into the Guaranty Agreement. The Loan
Parties shall promptly sign the Guaranty as required by the Credit Agreement.
Section 4. Notices and Reports Pertaining to Collateral.
Each Loan Party will, with respect to the Collateral:
(a) promptly furnish to the Agent, from time to time upon request,
reports in form and detail satisfactory to the Agent;
(b) promptly notify the Agent of (i) any Encumbrance (except
Permitted Encumbrances) asserted against the Collateral, including any
attachment, levy, execution or other legal process levied against any of the
Collateral, (ii) any default or event of default (including any occurrence
that with the giving of notice or the passage of time would constitute a
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default) under any Material Agreement, and (iii) of any information received
by the Loan Party relating to the Collateral, including the Receivables, the
debtors or other persons obligated in connection therewith, that may in any
way adversely affect the value of the Collateral or the rights and remedies
of the Agent with respect thereto;
(c) promptly notify the Agent when it obtains knowledge of actual or
imminent bankruptcy or other insolvency proceeding of any account debtor or
issuer of securities;
(d) deliver to the Agent, as the Agent may from time to time request,
delivery receipts, customers' purchase orders, shipping instructions, bills
of lading and any other evidence of shipping arrangements;
(e) concurrently with the reports required to be furnished under
subsection (a) of this Section, and immediately if material in amount, notify
the Agent of any return or adjustment, rejection, repossession or loss or
damage of or to merchandise represented by Receivables or constituting
inventory and of any credit, adjustment or dispute arising in connection with
the goods or services represented by Receivables or constituting inventory;
and
(f) promptly after the application by such Loan Party for
registration of any general intangibles, or promptly after the execution and
delivery of any Material Agreement, notify the Agent thereof.
Each Loan Party authorizes the Agent to destroy all invoices, delivery
receipts, reports and other types of documents and records submitted to the
Agent in connection with the transactions contemplated in this Agreement at
any time after 12 months from the time such items are delivered to the Agent.
Section 5. Agent's Rights and Remedies in General.
(a) So long as any Event of Default has occurred and is continuing:
(i) the Agent may, at its option, without notice or demand,
cause all of the Obligations to become immediately due and payable and take
immediate possession of the Collateral, and for that purpose the Agent may,
so far as any Loan Party can give authority therefor, enter upon any premises
on which any of the Collateral is situated and remove the same therefrom or
remain on such premises and in possession of such Collateral for purposes of
conducting a sale or enforcing the rights of the Agent;
(ii) each Loan Party will, upon demand, assemble the Collateral
and make it available to the Agent at a place and time designated by the
Agent that is reasonably convenient to both parties;
(iii) the Agent may collect and receive all income and proceeds
in respect of any Collateral and exercise all rights of any Loan Party with
respect thereto;
(iv) the Agent may sell, lease or otherwise dispose of any
Collateral at a public or private sale, with or without having such
Collateral at the place of sale and upon such terms and in such manner as the
Agent may determine, and the Agent may purchase any Collateral at any such
sale. Unless such Collateral threatens to decline rapidly in value or is of
the type customarily sold on a recognized market, the Agent shall send to the
Loan Party owning such Collateral prior written notice (which, if given
within five (5) days of any sale, shall be deemed to be reasonable) of the
time and place of any public sale of such Collateral or of the time after
which any private sale or other disposition thereof is to be made. Each Loan
Party agrees that upon any such sale such Collateral shall be held by the
purchaser free from all claims or rights of every kind and nature, including
any equity of redemption or similar rights, and all such equity of redemption
and similar rights are hereby expressly waived and released by such Loan
Party. In the event any consent, approval or authorization of any
governmental agency is necessary to effectuate any such sale, such Loan Party
shall execute all applications or other instruments as may be required; and
(v) in any jurisdiction where the enforcement of its rights
under this Agreement is sought, the Agent shall have, in addition to all
other rights and remedies, the rights and remedies of an Agent under the
Uniform Commercial Code and other applicable law.
(b) The Agent may perform any covenant or agreement of any Loan Party
contained in this Agreement that the Loan Party has failed to perform, and in
so doing the Agent may expend such sums as it may reasonably deem advisable
in the performance thereof, including, without limitation, the payment of any
taxes or insurance premiums, payment to obtain a release of an Encumbrance or
potential Encumbrance, expenditures made in defending against any adverse
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claim and all other expenditures that the Agent may make for the protection
of any Collateral or that it may be compelled to make by operation of law.
All such sums and amounts so expended shall be repaid by the Loan Party upon
demand, shall constitute additional Obligations and shall bear interest from
the date such amounts are expended at the highest rate per annum provided in
the Credit Agreement to be paid on Prime Rate Loans after the occurrence of
an Event of Default. No such performance of any covenant or agreement by the
Agent on behalf of such Loan Party, and no such advance or expenditure
therefor, shall relieve the Loan Party of any Event of Default under the
terms of this Agreement or the other Loan Documents.
(c) Before any disposition of Collateral pursuant to this Agreement,
the Agent may, at its option, cause any of the Collateral to be repaired or
reconditioned (but not upgraded unless mutually agreed) in such manner and to
such extent as to make it saleable.
(d) The Agent is hereby granted a license or other right to use,
without charge, each Loan Party's labels, patents, copyrights, rights of use
of any name, trade secrets, trade names, trademarks and advertising matter,
or any property of a similar nature, relating to the Collateral in completing
the production of, advertising for sale and selling any Collateral; and each
Loan Party's rights under all licenses and all franchise agreements shall
inure to the Agent's benefit (provided, however, that nothing in this
Agreement shall require the Agent to operate the business of any Loan Party
in connection with the sale of any Collateral).
(e) The Agent shall be entitled to retain the proceeds of any
disposition of the Collateral and to apply them, first, to its reasonable
expenses of retaking, holding, protecting and maintaining and preparing for
disposition and disposing of the Collateral, including attorneys' fees and
other legal expenses incurred by it in connection therewith; and second, to
the payment of the Obligations in such order of priority as the Agent shall
determine. Any surplus remaining after such application shall be paid to the
Loan Parties or to whomever may be legally entitled thereto, provided that in
no event shall the Loan Parties be credited with any part of the proceeds of
the disposition of the Collateral until such proceeds shall have been
received in cash by the Agent. The Loan Parties shall remain liable for any
deficiency.
(f) Each Loan Party hereby appoints the Agent and each of the Agent's
designees or agents as attorney-in-fact of such Loan Party, irrevocably and
with power of substitution, with full authority in the name of such Loan
Party, the Agent or otherwise, for sole use and benefit of the Agent, but at
such Loan Party's expense, so long as an Event of Default is continuing, to
take any and all of the actions specified above in this Section and elsewhere
in this Agreement. This power of attorney is a power coupled with an
interest and shall be irrevocable for so long as any of the Obligations or
Commitments remain outstanding.
Section 6. Agent's Rights and Remedies with Respect to Collateral.
The Agent may, at its option, at any time and from time to time after
the occurrence and during the continuance of an Event of Default, without
notice to or demand on any Loan Party, take the following actions with
respect to the Collateral:
(a) with respect to any Receivable (i) demand, collect and receipt
for any amounts relating thereto, as the Agent may determine; (ii) commence
and prosecute any actions in any court for the purposes of collecting any
such Receivables and enforcing any other rights in respect thereof;
(iii) defend, settle or compromise any action brought and, in connection
therewith, give such discharges or releases as the Agent may deem
appropriate; (iv) receive, open and dispose of mail addressed to any Loan
Party and endorse title documents, checks, notes, drafts, acceptances, money
orders, bills of lading, warehouse receipts or other instruments or documents
evidencing payment, shipment or storage of the goods giving rise to such
Receivables or securing or relating to such Receivables, on behalf of and in
the name of such Loan Party; and (v) sell, assign, transfer, make any
agreement in respect of, or otherwise deal with or exercise rights in respect
of, any such Receivables or the goods or services that have given rise
thereto, as fully and completely as though the Agent were the absolute owner
thereof for all purposes; and
(b) with respect to any equipment and inventory (i) make, adjust and
settle claims under any insurance policy related thereto and place and pay
for appropriate insurance thereon; (ii) discharge taxes and other
Encumbrances at any time levied or placed thereon; (iii) make repairs or
provide maintenance with respect thereto; and (iv) pay any necessary filing
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fees and any taxes arising as a consequence of any such filing. The Agent
shall have no obligation to make any such expenditures, nor shall the making
thereof relieve the Loan Party of its obligation to make such expenditures.
Section 7. The Agent's Duties.
The powers conferred on the Agent under this Agreement are solely to
protect its and the Lenders' interest in the Collateral and shall not impose
any duty upon it to exercise any such powers. Except for the safe custody of
any Collateral in its possession and the accounting for moneys actually
received by it under this Agreement, the Agent shall have no duty as to
maturities, tenders, or other matters relative to any Collateral, whether or
not the Agent or any Lender has or is deemed to have knowledge of such
matters, or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. The
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which it accords its own
property.
Section 8. Setoff Rights.
Regardless of the adequacy of any Collateral or any other means of
obtaining repayment for any Obligations, the Agent may at any time and from
time to time, after the occurrence of an Event of Default and without notice
to the Borrower or any other Loan Party (any such notice being expressly
waived by the Borrower and each other Loan Party) and to the fullest extent
permitted by law, set off and apply any and all deposits (general or special,
time or demand, provisional or final) and other sums credited by or due from
the Agent to the Borrower or any other Loan Party or subject to withdrawal by
the Borrower or any other Loan Party and any other property and securities at
any time in the possession or control of the Agent against any Obligations,
whether or not the Agent shall have made any demand for such Obligations and
although such Obligations may be contingent or unmatured.
Section 9. Security Interest Absolute.
All rights of the Agent or the Lenders and the Security Interest
granted under this Agreement, and all obligations of each Loan Party under
this Agreement, shall be absolute and unconditional, notwithstanding:
9.1 Any lack of validity, regularity, or enforceability of the Credit
Agreement, the Notes, any other Loan Document or any other agreement or
instrument relating thereto;
9.2 Any change in the time, manner, or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Credit Agreement, the
Notes or the other Loan Documents, including, without limitation, any
increase in the Obligations resulting from the extension of any additional
credit to any Loan Party;
9.3 Any taking, exchange, substitution, release, or nonperfection of
any other Collateral, or taking, release, or amendment or waiver of or
consent to departure from any Guaranty, for all or any of the Obligations;
Section 10. Continuing Security Interest.
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the later of
(i) the payment in full of the Obligations and all other amounts payable
under this Agreement and the complete performance of all other Obligations
and (ii) the expiration or termination of the Commitments; (b) be binding on
each Loan Party, and its successors and assigns; and (c) inure to the benefit
of, and be enforceable by, the Agent and its successors, transferees, and
assigns. To the extent any payments on the Obligations or proceeds of any
Collateral or the proceeds of such enforcement or setoff or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside and/or required to be repaid to a trustee, receiver or any other Person
under any law or equitable cause, then, to the extent of such recovery, the
Obligation or part thereof originally intended to be satisfied, and all
rights and remedies therefor, shall be revived and shall continue in full
force and effect, and the Agent's and the Lenders' rights, powers and
remedies under this Agreement and each other Loan Document shall continue in
full force and effect, as if such payment had not been made or such
enforcement or setoff had not occurred. In such event, each Loan Document
shall be automatically reinstated and the Loan Parties shall take such action
as may be reasonably requested by the Agent and the Lenders to effect such
reinstatement.
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Section 11. Waivers.
Each Loan Party waives presentment, demand, notice, protest, notice of
acceptance of this Agreement, notice of any loans made, credit or other
extensions granted, Collateral received or delivered and any other action
taken in reliance hereon and all other demands and notices of any
description, except for such demands and notices as are expressly required to
be provided to such Loan Party under this Agreement or any other document
evidencing the Obligations. Each Loan Party waives, to the full extent
permitted by law, the benefit of all appraisement, valuation, stay, extension
and redemption laws now or hereafter in force and all rights of marshaling in
the event of any sale or disposition of any of the Collateral. With respect
to both the Obligations and any Collateral, each Loan Party assents to any
extension or postponement of the time of payment or any other forgiveness or
indulgence; to any substitution, exchange or release of Collateral; to the
addition or release of any party or person primarily or secondarily liable;
and to the acceptance of partial payment thereon and the settlement,
compromise or adjustment of any thereof, all in such manner and at such time
or times as the Agent may deem advisable. The Agent may exercise its rights
with respect to any Collateral without resorting, or regard, to other
collateral or sources of reimbursement for Obligations. The Agent shall not
be deemed to have waived any of its rights with respect to the Obligations or
the Collateral unless such waiver is in writing and signed by the Agent. No
delay or omission on the part of the Agent in exercising any right and no
course of dealing shall operate as a waiver of such right or any other
right. A waiver on any one occasion shall not bar or waive the exercise of
any right on any future occasion. All rights and remedies of the Agent in
the Obligations or the Collateral, whether evidenced hereby or by any other
instrument or papers, are cumulative and not exclusive of any remedies
provided by law or any other agreement and may be exercised separately or
concurrently.
Section 12. Expenses.
Each Loan Party agrees to indemnify, defend, reimburse, and hold the
Agent and Each Lender harmless from and against any and all claims, losses,
damages, judgments, liabilities, penalties, fines, fees, costs and expenses
(including attorneys' fees and expenses) arising from or relating to this
Agreement (including, without limitation, enforcement of this Agreement).
Each Loan Party shall, on demand, pay or reimburse the Agent for all
reasonable expenses (including attorneys' fees and disbursements of outside
counsel and allocated costs of in-house counsel) (whether or not there is a
lawsuit, and including without limitation for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or injunction),
appeals, petitions for review and any anticipated post judgment collection
services) incurred or paid by the Agent in connection with the preparation,
negotiation, and closing and the administration or enforcement of this
Agreement; its periodic examinations of the Collateral and any other amounts
permitted to be expended by the Agent hereunder, including, without
limitation, such expenses as are incurred to preserve the value of the
Collateral and the validity, perfection, priority and value of any Security
Interest created by this Agreement; the custody, collection, sale,
realization or other disposition of, or the use or operation of, any of the
Collateral; or the exercise by the Agent of any of the rights conferred upon
it under this Agreement. The obligation to pay any such amount shall be an
additional Obligation secured hereby, and each such amount shall bear
interest from the time of demand at the rate per annum equal to the Prime
Rate plus the Applicable Margin plus 3%.
Section 13. Notices.
Any demand or notice to be given pursuant to this Agreement shall be
given in accordance with the terms of Section 11.1 ("Notices") of the Credit
Agreement.
Section 14. Joinder.
Each Loan Party agrees that from time to time in the event that it
shall acquire or form any Subsidiary or Affiliate, it shall cause such
Subsidiary or Affiliate to execute and deliver the Joinder Agreement and a
Perfection Certificate, and that upon the execution and delivery of the
Joinder Agreement, this Agreement shall become the binding obligation of such
Subsidiary or Affiliate and shall create a valid and continuing lien on and
security interest in the Collateral of such Subsidiary or Affiliate.
Section 15. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of each
Loan Party and its respective successors and assigns, and shall be binding
upon, inure to the benefit of and be enforceable by the Agent, the Lenders
and their respective successors and assigns; provided that no Loan Party
shall assign or transfer its rights or obligations under this Agreement.
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Section 16. Governing Law.
THIS AGREEMENT IS A CONTRACT UNDER THE LAWS OF THE STATE OF OREGON AND
SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OR OREGON (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OF
LAW OR CHOICE OF LAW PROVISIONS, RULES, OR PRINCIPLES). EACH LOAN PARTY
CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ANY OF THE FEDERAL OR STATE
COURTS LOCATED IN MULTNOMAH COUNTY IN THE STATE OF OREGON IN CONNECTION WITH
ANY ACTION TO ENFORCE THE RIGHTS OF THE AGENT UNDER THIS AGREEMENT. EACH
LOAN PARTY IRREVOCABLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF VENUE OF ANY SUCH ACTION BROUGHT IN THE COURTS REFERRED TO
IN THE PRECEDING SENTENCE AND HEREBY IRREVOCABLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH ACTION THAT SUCH ACTION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
Section 17. Waiver of Jury Trial.
EACH LOAN PARTY AND THE AGENT HEREBY WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW,
EACH LOAN PARTY HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN
ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION
TO, ACTUAL DAMAGES. EACH LOAN PARTY (a) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF THE AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE AGENT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVERS AND (b) ACKNOWLEDGES THAT THE AGENT HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BECAUSE OF, AMONG OTHER THINGS, SUCH LOAN PARTY'S
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS AGREEMENT.
Section 18. Credit Agreement Controls.
If there are any conflicts or inconsistencies among the Credit
Agreement and this Agreement, the provisions of the Credit Agreement shall
prevail and control.
Section 19. Severability.
The provisions of this Agreement are severable and if any one clause or
provision of this Agreement shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability
shall affect only such clause or provision, or part of this Agreement, in
such jurisdiction, and shall not in any manner affect such clause or
provision in any other jurisdiction, or any other clause or provision of this
Agreement in any jurisdiction.
Section 20. General.
This Agreement and the other Loan Documents constitute the entire
understanding and agreement of the parties with respect to the matters set
forth in this Agreement. This Agreement may not be amended or modified
except by a writing signed by the Borrower, the Agent and the Loan Party
against whom enforcement is sought. This Agreement and any amendment of this
Agreement may be executed in several counterparts and by each party on a
separate counterpart, each of which when so executed and delivered shall be
an original, but all of which together shall constitute one instrument.
Section headings are for convenience of reference only and are not a part of
this Agreement. In the event that any Collateral or any deposit or other sum
due from or credited by the Agent is held or stands in the name of any Loan
Party and another or others jointly, the Agent may deal with the same for all
purposes as if it belonged to or stood in the name of such Loan Party alone.
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Section 21. Disclosure.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE
LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE
SIGNED BY THE LENDERS TO BE ENFORCEABLE.
IN WITNESS WHEREOF, each Loan Party has duly executed this Agreement as
of the date set forth in the preamble to this Agreement.
LITHIA MOTORS, INC.
By: /s/ Sidney B. DeBoer
Sidney B. DeBoer
Chairman of the Board and
Chief Executive Officer
AFFILIATES AND SUBSIDIARIES:
LITHIA HOLDING COMPANY, L.L.C.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: Manager
LITHIA TLM, L.L.C.
By: Lithia Motors, Inc. as Manager
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: Chairman of the Board and
Chief Executive Officer
LITHIA'S GRANTS PASS AUTO CENTER, L.L.C.
By: Lithia Motors, Inc. as Manager
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: Chairman of the Board and
Chief Executive Officer
LITHIA DODGE, L.L.C.
By: Lithia Motors, Inc. as Manager
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: Chairman of the Board and
Chief Executive Officer
LITHIA CHRYSLER PLYMOUTH JEEP EAGLE, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA MTLM, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
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LGPAC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA DM, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
SATURN OF SOUTHWEST OREGON, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA HPI, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA DE, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA DC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA FN, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA TKV, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA FVHC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA VWC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
12
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LITHIA NB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA BB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA MB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA JEB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA RENTALS, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA AUTO SERVICES, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA SALMIR, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA BNM, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA MMF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA FMF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
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<PAGE>
LITHIA JEF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA NF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
LITHIA FINANCIAL CORPORATION
By: /s/ Sidney B. DeBoer
Name: Sidney B.DeBoer
Title: President
ACCEPTED IN PORTLAND,
OREGON AS OF THE DATE
FIRST ABOVE WRITTEN
U.S. BANK NATIONAL ASSOCIATION, as Agent
By: /s/ U.S. Bank National Association
Name:
Title:
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<PAGE>
Exhibit A
PERFECTION CERTIFICATE
TO
SECURITY AGREEMENT
dated _____________________
of _______________________
The undersigned, ________________________________________, a
[corporation/llc] (the "Loan Party"), hereby certifies to U.S. Bank National
Association, with reference to a certain Security Agreement dated December
22, 1997 between the Borrower, the other Loan Parties, and the Agent (terms
defined in such Security Agreement shall have the same meanings in this
Perfection Certificate as specified in the Security Agreement), as follows:
Section 1. Names.
(a) The exact corporate name of the Loan Party as it appears on its
organizational documents and its taxpayer identification number are as
follows:
(b) The following is a list of all other names (including trade names
or similar appellations) used by the Loan Party, and any other businesses or
organizations to which the Loan Party became the successor by merger,
consolidation, acquisition, change in form, nature or jurisdiction of
organization or otherwise, now or at any previous time:
Section 2. Locations.
(a) The chief executive office of the Loan Party is located at the
following address:
(b) The following is a list of all other locations in the United
States of America in which the Loan Party maintains any books or records
relating to any of the Collateral consisting of Accounts, chattel paper,
General Intangibles or mobile goods:
Currently:
Street and Number County State Zip Code
Within the last four months, if different:
Street and Number County State Zip Code
(c) The following is a list of all other places of business of the
Loan Party in the United States of America:
Currently:
Street and Number County State Zip Code
Within the last four months, if different:
Street and Number County State Zip Code
(d) The following is a list of all other locations in the United
States of America where any of the Collateral is located:
Currently:
Street and Number County State Zip Code
Within the last four months, if different:
Street and Number County State Zip Code
(e) The following are the names and addresses of all persons or
entities other than the Loan Party, such as lessees, consignees, warehousemen
or purchasers of chattel paper, that have possession or are intended to have
possession of any of the Collateral consisting of chattel paper, inventory or
equipment:
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Currently:
Street and Number County State Zip Code
Within the last four months, if different:
Street and Number County State Zip Code
Section 3. Fixtures.
Set forth below is the information required by UCC ? 9-402(5) of each
state in which any of the Collateral consisting of fixtures are or are to be
located and the name and address of each real estate recording office where a
mortgage on the real estate on which such fixtures are or are to be located
would be recorded:
Section 4.
Other UCC Filings. Financing statements in favor of secured parties
other than the Agent have been filed in the Uniform Commercial Code filing
offices in the jurisdictions and real estate recording offices identified
below:
Filing No. Date Filing Office Secured Party
Collateral
IN WITNESS WHEREOF, the undersigned executes this Perfection
Certificate on ________________, 199_.
[LOAN PARTY]
By: ____________________________________
Name:
Title:
<PAGE>
EX-10
Exhibit 10.30.3 Guaranty with US Bank
EXHIBIT 10.30.3
GUARANTY
AMONG
U.S. BANK NATIONAL ASSOCIATION,
as Agent and Lender
AND
LITHIA MOTORS, INC., and its
AFFILIATES and SUBSIDIARIES
Dated: December 22, 1997
This Guaranty is entered into as of this December 22, 1997, by LITHIA
HOLDING COMPANY, L.L.C., LITHIA TLM, L.L.C., LITHIA'S GRANTS PASS AUTO
CENTER, L.L.C., LITHIA DODGE, L.L.C., LITHIA CHRYSLER PLYMOUTH JEEP EAGLE,
INC., LITHIA MTLM, INC., LGPAC, INC., LITHIA DM, INC., SATURN OF SOUTHWEST
OREGON, INC., LITHIA HPI, INC., LITHIA DE, INC., LITHIA DC, INC., LITHIA FN,
INC., LITHIA TKV, INC., LITHIA FVHC, INC., LITHIA VWC, INC., LITHIA NB, INC.,
LITHIA BB, INC., LITHIA MB, INC., LITHIA JEB, INC., LITHIA RENTALS, INC.,
LITHIA AUTO SERVICES, INC., LITHIA SALMIR, INC., LITHIA BNM, INC., LITHIA
MMF, INC., LITHIA FMF, INC., LITHIA JEF, INC., LITHIA NF, INC., and LITHIA
FINANCIAL CORPORATION, (each a "Guarantor" and collectively, the
"Guarantors") in favor of the Agent and the Lenders (each as defined below).
RECITALS:
A. Concurrently with execution of this Guaranty, Lithia Motors, Inc.
(the "Borrower") and the Guarantors have entered into a Credit Agreement with
U.S. Bank National Association and the financial institutions who are from
time to time parties thereto (the "Lenders"), and U.S. Bank National
Association, as agent for the Lenders (in such capacity, the "Agent"), (as
the same may be amended, modified, supplemented or extended from time to time
and any number of substitutions, renewals and replacements thereof or
therefor, the "Credit Agreement"), pursuant to which the Lenders have agreed
to extend credit to the Borrower for the benefit of the Loan Parties from
time to time.
B. The Lenders' obligations to extend credit to the Borrower are
subject, among other things, to execution of this Guaranty by the Guarantors.
For valuable consideration, the Guarantors hereby agree as follows:
1. Definitions and Other Interpretive Provisions. Capitalized terms
used but not defined in this Guaranty shall have the meanings ascribed to
them in the Credit Agreement. The "Rules of Interpretation" in section 1.2
of the Credit Agreement shall be applicable to this Guaranty and are hereby
incorporated into this Guaranty.
2. Continuing Guaranty. The Guarantors absolutely, irrevocably, and
unconditionally, jointly and severally, guarantee the full and punctual
payments and performance of the Obligations whether any such Obligation is
voluntarily or involuntarily incurred, due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined; whether
the Borrower may be liable individually or jointly with others; whether
recovery on the Obligations may be or may become barred or unenforceable
against the Borrower or any other Loan Party for any reason whatsoever; and
whether the Obligations arise from transactions which may be voidable on
account of ultra vires, or otherwise; together with all costs, expenses and
Attorney Fees incurred in connection with or relating to, the collection of
the Obligations, the collection and sale of any Collateral for the
Obligations or this Guaranty, or the enforcement of this Guaranty. The
provisions of this Guaranty shall extend and be applicable to all renewals,
replacements, amendments, extensions, consolidations and modifications of the
Obligations and the Loan Documents underlying the Obligations, and any and
all references in this Guaranty to the Obligations or any Loan Document shall
be deemed to include any such renewals, replacements, amendments, extensions,
consolidations, or modifications thereof.
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3. Nature of Guaranty. The Guarantors' liability under this
Guaranty shall be open, continuous, direct and immediate and not conditional
or contingent on the pursuit of any remedies against the Borrower or any Loan
Party or any other Person. The Guarantors intend to guarantee at all times
the performance and prompt payment when due, whether at maturity or earlier
by reason of acceleration or otherwise, of all Obligations. Accordingly, no
payments made upon the Obligations will discharge or diminish the continuing
liability of the Guarantors in connection with any remaining portions of the
Obligations or any of the Obligations which subsequently arise or is
thereafter incurred or contracted. Even if this Guaranty has been
terminated, if any payment or other transfer to any Lender on account of any
Obligations guaranteed hereby is avoided or set aside under any applicable
bankruptcy, insolvency or fraudulent conveyance law or law for the relief of
debtors or on any other basis, or if any Lender in its sole discretion
consents in good faith to any such avoidance or set aside, such Obligations
and the liability of the Guarantors under this Guaranty shall be deemed to
continue or be reinstated to the extent of such payment or transfer.
The Guarantors acknowledge that they are liable for the full amount of
all Obligations for the reason that in addition to receiving loan proceeds
from the Borrower, the Guarantors are receiving substantial corporate
benefits by the Agent making this credit facility available to Lithia Motors,
Inc., its Subsidiaries and Affiliates. The corporate benefits include the
ability of the Loan Parties to consolidate credit so that the Loan Parties
may take advantage of lower interest rates, including the ability to obtain
LIBOR Loans.
The Guarantors acknowledge that the Agent is relying on the Guarantors
to guaranty all the Obligations hereunder even though the Guarantors may not
directly receive all the loan proceeds under the Credit Agreement.
4. Duration of Guaranty. This Guaranty will take effect when
received by the Agent without the necessity of any acceptance by any Lender,
or any notice to the Guarantors or to the Borrower, and will continue in full
force until all Obligations incurred or contracted shall have been fully and
finally paid and satisfied and all other obligations of the Guarantors under
this Guaranty shall have been performed in full. Release of any other
guarantor for or termination of any other guaranty of the Obligations shall
not affect the liability of any other Guarantor under this Guaranty. It is
anticipated that fluctuations may occur in the aggregate amount of
Obligations covered by this Guaranty, and it is specifically acknowledged and
agreed by the Guarantors that reductions in the amount of Obligations, even
to zero dollars ($0.00), shall not constitute a termination of this
Guaranty. This Guaranty is binding upon the Guarantors and the Guarantors'
successors and assigns as to any guaranteed Obligations at all times, and
remains binding even though the Obligations guaranteed may from time to time
equal zero dollars ($0.00).
5. Guarantors' Authorization to Lenders. Each Guarantor authorizes,
the Agent and each Lender without notice or demand and without lessening the
Guarantor's liability under this Guaranty, from time to time: (a) to make
one or more additional secured or unsecured loans to the Borrower, to lease
equipment or other goods to the Borrower, or otherwise to extend additional
credit to the Borrower; (b) to alter, compromise, renew, extend, accelerate,
or otherwise change one or more times the time for payment or other terms of
the Obligations or any part of the Obligations, including increases and
decreases of the rate of interest on the Obligations; extensions may be
repeated and may be for longer than the original loan term; (c) to take and
hold security for the payment of this Guaranty or the Obligations, and
exchange, enforce, waive, subordinate, fail or decide not to perfect, and
release any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue, or deal with any
one or more of the Loan Parties or any Loan Party's sureties, endorsers, or
other guarantors on any terms or in any manner Agent may choose; (e) to
determine how, when and what application of payments and credits shall be
made on the Obligations; (f) to apply such security and direct the order or
manner of sale thereof, including without limitation, any nonjudicial sale
permitted by the terms of the controlling security agreement or deed of
trust, as Agent in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in any or any part of the Obligations; and
(h) to assign or transfer this Guaranty in whole or in part.
6. Guarantors' Representations and Warranties. Each Guarantor
jointly and severally represents and warrants to the Lenders that (a) no
representations or agreements of any kind have been made to the Guarantors
which would limit or qualify in any way the terms of this Guaranty; (b) this
Guaranty is executed at the Borrower's and each other Loan Party's request
and not at the request of the Lenders; (c) each Guarantor has full power,
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right and authority to enter into this Guaranty; (d) the provisions of this
Guaranty do not conflict with or result in a default under any agreement or
other instrument binding upon any Guarantor and do not result in a violation
of any law, regulation, court decree or order applicable to the Guarantor;
(e) such Guarantor has not and will not, without the prior written consent of
the Lenders, sell, lease, assign, encumber, hypothecate, transfer, or
otherwise dispose of its assets, or any interest therein, except as may be
permitted by the Credit Agreement; (f) upon the Lenders' request, a Guarantor
will provide to the Lenders financial and credit information in form
acceptable to the Lenders, and all such financial information which currently
has been, and all future financial information which will be provided to the
Lenders is and will be true and correct in all material respects and fairly
presents the financial condition of the Guarantor as of the dates the
financial information is provided; (g) no material adverse change has
occurred in any Guarantor's financial condition since the date of the most
recent financial statements provided to the Lenders and no event has occurred
which may materially adversely affect a Guarantor's financial condition; (h)
no litigation, claim, investigation, administrative proceeding or similar
action (including those for unpaid taxes) against any Guarantor is pending or
threatened; (i) the Lenders have made no representation to any Guarantor as
to the creditworthiness of the Borrower or any other Loan Party; and (j)
the Guarantors have established adequate means of obtaining from the Borrower
or any other Loan Party on a continuing basis information regarding the
Borrower's and each other Loan Party's financial condition. The Guarantors
agree to keep adequately informed from such means of any facts, events, or
circumstances which might in any way affect the Guarantors' risks under this
Guaranty, and the Guarantors further agree that the Lenders shall have no
obligation to disclose to the Guarantors any information or documents
acquired by the Lenders in the course of their relationship with the Borrower
or any other Loan Party.
7. Guarantors' Waivers.
7.1 Except as prohibited by applicable law, each Guarantor
waives any right to require the Lenders (a) to continue lending money or to
extend other credit to the Borrower or any other Loan Party; (b) to make any
presentment, protest, demand, or notice of any kind, including notice of any
nonpayment of the Obligations or of any nonpayment related to any collateral,
or notice of any action or nonaction on the part of the Borrower or any other
Loan Party, any Lender, any surety, endorser, or other guarantor in
connection with the Obligations or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any Person, including the Borrower, any other
Loan Party, or any other Guarantor; (d) to proceed directly against or
exhaust any collateral held by the Lenders from the Borrower, any other Loan
Party, any other Guarantor, or any other Person; (e) to give notice of the
terms, time, and place of any public or private sale of personal property
security from the Borrower or any other Loan Party held by the Lenders or to
comply with any other applicable provisions of the Uniform Commercial Code;
(f) to pursue any other remedy within any Lender's power; or (g) to commit
any act or omission of any kind, or at any time, with respect to any matter
whatsoever.
7.2 If now or hereafter (a) the Borrower or any other Loan
Party shall be or become insolvent, and (b) the Obligations shall not at all
times until paid be fully secured by Collateral pledged by the Borrower or
any other Loan Party, each Guarantor hereby forever waives and relinquishes
in favor of each Lender and Borrower, or such other Loan Party, and their
respective successors, any claim or right to payment the Guarantor may now
have or hereafter have or acquire against the Borrower or such other Loan
Party, by subrogation or otherwise, so that at no time shall the Guarantor be
or become a "creditor" of the Borrower, or such other Loan Party, within the
meaning of 11 U.S.C. Section 547(b), or any successor provision of the
Federal bankruptcy laws.
7.3 Each Guarantor waives any and all rights or defenses
arising by reason of (a) any "one action" or "anti-deficiency" law or any
other law which may prevent the Lenders from bringing any action, including a
claim for deficiency, against a Guarantor, before or after any Lender's
commencement or completion of any foreclosure action, either the judicially
or by exercise of a power of sale; (b) any election of remedies by any Lender
which destroys or otherwise adversely affects a Guarantor's subrogation
rights or a Guarantor's rights to proceed against the Borrower, or any other
Loan Party, for reimbursement, including without limitation, any loss of
rights the Guarantor may suffer by reason of any law limiting, qualifying, or
discharging the Obligations; (c) any disability or other defense of the
Borrower, of any other Loan Party, of any other Guarantor of the Obligations,
or of any other Person, or by reason of the cessation of the Borrower's or
any other Loan Party's liability from any cause whatsoever, other than
payment in full in legal tender, of the Obligations; (d) any right to claim
discharge of the Obligations on the basis of unjustified impairment of any
collateral for the Obligations; (e) any lack of notice to which the Guarantor
might otherwise be entitled; (f) the inaccuracy of any representation or
warranty by the Borrower or any other Loan Party contained in any Loan
Document; (g) any assertion or claim that the automatic stay provided by 11
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U.S.C. 362 (arising on the voluntary or involuntary bankruptcy proceeding
of the Borrower or any other Loan Party) or any other stay provided under any
other debtor relief law (whether statutory, common law, case law or
otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which
may be or become applicable, shall operate or be interpreted to stay,
interdict, condition, reduce or inhibit the ability of the Agent to enforce
any rights, whether now existing or hereafter acquired, which the Agent may
have against the Borrower or any other Loan Party; (h) any statute of
limitations, if at any time any action or suit brought by any Lender against
a Guarantor is commenced, there are outstanding Obligations of the Borrower
or any other Loan Party to any Lender which are not barred by any applicable
statute of limitations; or (i) any defenses given to any Guarantor at law or
in equity other than actual payment and performance of the Obligations. If
payment is made by the Borrower or any other Loan Party, whether voluntarily
or otherwise, or by any third party, on the Obligations and thereafter the
Lenders are forced to remit the amount of that payment to the Borrower's or
such other Loan Party's trustee in bankruptcy or to any similar person under
any federal or state bankruptcy law or law for the relief of debtors, the
Obligations shall be considered unpaid for the purpose of enforcement of this
Guaranty.
7.4 Guarantors warrant and agree that each of the waivers set
forth above is made with the Guarantors' full knowledge of its significance
and consequences and that, under the circumstances, the waivers are
reasonable and not contrary to public policy or law. If any such waiver is
determined to be contrary to any applicable law or public policy, such waiver
shall be effective only to the extent permitted by law or public policy.
8. Lenders' Right of Setoff. In addition to all liens upon and
rights of setoff against the moneys, securities or other property of any
Guarantor given to the Lenders by law, the Lenders shall have, with respect
to the Guarantor's obligations to the Lenders under this Guaranty and to the
extent permitted by law, a contractual possessory security interest in and a
right of setoff against, and the Guarantor hereby assigns, conveys, delivers,
pledges, and transfers to the Lenders all of its right, title and interest in
and to, all deposits, moneys, securities and other property now or hereafter
in the possession of or on deposit with the Lenders, whether held in a
general or special account or deposit, whether held jointly with someone
else, or whether held for safekeeping or otherwise. Every such security
interest and right of setoff may be exercised without demand upon or notice
to the Guarantor. No security interest or right of setoff shall be deemed to
have been waived by any act or conduct on the part of the Lenders or by any
neglect to exercise such right of setoff or to enforce such security interest
or by any delay in so doing. Every right of setoff and security interest
shall continue in full force and effect until such right of setoff or
security interest is specifically waived or released by the Lenders in
accordance with the terms of the applicable Loan Documents.
9. Subordination of Borrower's Debt to Guarantors. The Guarantors
agree that the Obligations of the Borrower or any other Loan Party to the
Lenders, whether now existing or hereafter created, shall be prior to any
claim that any Guarantor may now have or hereafter acquire against the
Borrower or such other Loan Party, whether or not the Borrower or such other
Loan Party becomes insolvent. Each Guarantor hereby expressly subordinates
any claim it may have against the Borrower or any other Loan Party, upon any
account whatsoever, to any claim that the Lenders may now or hereafter have
against the Borrower or such other Loan Party. In the event of insolvency
and consequent liquidation of the assets of the Borrower or any other Loan
Party, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of the Borrower or such other
Loan Party applicable to the payment of the claims of both Lenders and the
Guarantors shall be paid to the Agent or the Lenders and shall be first
applied to the Obligations of the Borrower or such other Loan Party to
Lenders. Each Guarantor hereby assigns to Lenders all claims which they may
have or acquire against the Borrower or any other Loan Party or against any
assignee or trustee in bankruptcy of the Borrower or such other Loan Party;
provided, however, that such assignment shall be effective only for the
purpose of assuring to Lenders full payment in legal tender of the
Obligations. If the Lenders so request, any notes or credit agreements now
or hereafter evidencing any debts or obligations of the Borrower or any other
Loan Party to any Guarantor shall be marked with a legend that the same are
subject to this Guaranty and shall be delivered to the Lenders. The
Guarantors agree, and the Lenders hereby are authorized, in the name of any
Guarantor, from time to time to execute and file financing statements and
continuation statements and to execute such other documents and to take such
other actions as the Lenders deem necessary or appropriate to perfect,
preserve and enforce its rights under this Guaranty.
10. Amendments. This Guaranty and the other Loan Documents
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Guaranty and may be amended only by an agreement in
writing entered into in accordance with the provisions of the Credit
Agreement.
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11. Attorney Fees; Expenses. The Guarantors agree to pay upon demand
all of Lenders' costs and expenses, including Lenders' legal fees and
expenses, incurred in connection with the enforcement of this Guaranty. The
Lenders may pay someone else to help enforce this Guaranty, and the
Guarantors shall pay the costs and expenses of such enforcement. Costs and
expenses include the Lenders' attorneys' fees and legal expenses and
disbursements whether or not there is a lawsuit, of outside counsel, and
allocated costs of in-house counsel, including attorneys' fees and legal
expenses for bankruptcy proceedings (and including efforts to modify or
vacate any automatic stay or injunction), appeals, petitions for review, and
any anticipated post-judgment collection services. The Guarantors also shall
pay all court costs and such additional fees as may be directed by the court.
12. Notices. Any demand or notice to be given pursuant to this
Guaranty shall be given in accordance with the terms of Section 11.1
("Notices") of the Credit Agreement.
13. Successors and Assigns. This Guaranty may be assigned and
transferred by any Lender to any assignee and transferee of any Obligations;
however, the duties and obligations of the Guarantors may not be delegated or
transferred by the Guarantors without the written consent of all Lenders.
The rights and privileges of the Lenders shall inure to the benefit of their
respective successors and assigns, and the duties and obligations of the
Guarantors shall bind their respective successors and assigns.
14. No Waiver by Lender. No Lender shall be deemed to have waived
any rights under this Guaranty unless such waiver is given in writing and
signed by the Lender. No failure or delay on the part of any Lender in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege. Failure by any Lender to
insist upon strict performance hereof shall not constitute a relinquishment
of its right to demand strict payment by any person on any Obligations, with
knowledge of a default on any Obligations or of a breach of this Guaranty, or
both, shall not be construed as a waiver of the default or breach.
15. Interpretation; Partial Invalidity. Whenever possible each
provision of this Guaranty shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provisions
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Guaranty.
16. Joinder. Each Guarantor agrees that from time to time in the
event that it shall acquire or form any Subsidiary or Affiliate, it shall
cause such Subsidiary or Affiliate to execute and deliver a Joinder
Agreement, and that upon such execution and delivery, this Guaranty shall
become the binding obligation of such Subsidiary or Affiliate.
17. Governing Law. THIS GUARANTY IS A CONTRACT UNDER THE LAWS OF THE
STATE OF OREGON AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OR OREGON (EXCLUDING THE LAWS
APPLICABLE TO CONFLICTS OF LAW OR CHOICE OF LAW PROVISIONS, RULES, OR
PRINCIPLES). EACH GUARANTOR CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY OF THE FEDERAL OR STATE COURTS LOCATED IN MULTNOMAH COUNTY IN THE STATE
OF OREGON IN CONNECTION WITH ANY ACTION TO ENFORCE THE RIGHTS OF THE AGENT
UNDER THIS GUARANTY. EACH GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION BROUGHT
IN THE COURTS REFERRED TO IN THE PRECEDING SENTENCE AND HEREBY IRREVOCABLY
WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH ACTION THAT SUCH ACTION
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
18. Waiver of Jury Trial. EACH GUARANTOR AND THE AGENT HEREBY WAIVES
ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF
ANY DISPUTE IN CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS UNDER
THIS GUARANTY OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT AS
PROHIBITED BY LAW, EACH GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER
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THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH GUARANTOR (a) CERTIFIES THAT
NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE AGENT HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT THE AGENT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS AND (b) ACKNOWLEDGES THAT THE AGENT HAS BEEN
INDUCED TO ENTER INTO THIS GUARANTY BECAUSE OF, AMONG OTHER THINGS, SUCH
GUARANTOR'S WAIVERS AND CERTIFICATIONS CONTAINED IN THIS GUARANTY.
19. Credit Agreement Controls. If there are any conflicts or
inconsistencies among the Credit Agreement and this Guaranty, the provisions
of the Credit Agreement shall prevail and control.
20. Disclosure.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE
LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE
SIGNED BY THE LENDERS TO BE ENFORCEABLE.
THE GUARANTORS ACKNOWLEDGE RECEIPT OF A COPY OF THIS GUARANTY, AND EACH
UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS
THAT THIS GUARANTY IS EFFECTIVE UPON THE GUARANTOR'S EXECUTION AND DELIVERY
OF THIS GUARANTY TO THE LENDERS AND THAT THE GUARANTY WILL CONTINUE UNTIL
TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF
GUARANTY." NO FORMAL ACCEPTANCE BY THE LENDERS IS NECESSARY TO MAKE THIS
GUARANTY EFFECTIVE.
IN WITNESS WHEREOF, the undersigned have duly executed this Guaranty as
of the date set forth in the preamble to this Guaranty.
LITHIA HOLDING COMPANY, L.L.C.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: Manager
LITHIA TLM, L.L.C.
By: Lithia Motors, Inc., as Manager
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: Chairman of the Board and
Chief Executive Officer
LITHIA'S GRANTS PASS AUTO CENTER, L.L.C.
By: Lithia Motors, Inc., as Manager
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: Chairman of the Board and
Chief Executive Officer
LITHIA DODGE, L.L.C.
By: Lithia Motors, Inc., as Manager
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: Chairman of the Board and
Chief Executive Officer
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LITHIA CHRYSLER PLYMOUTH JEEP EAGLE, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA MTLM, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LGPAC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA DM, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
SATURN OF SOUTHWEST OREGON, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA HPI, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA DE, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA DC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA FN, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA TKV, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
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LITHIA FVHC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA VWC, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA NB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA BB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA MB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA JEB, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA RENTALS, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA AUTO SERVICES, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA SALMIR, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA BNM, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA MMF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
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LITHIA FMF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA JEF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA NF, INC.
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
LITHIA FINANCIAL CORPORATION
By: /s/ Sidney B. DeBoer
Name: Sidney B. DeBoer
Title: President
ACCEPTED IN PORTLAND OREGON AS OF THE DATE FIRST ABOVE WRITTEN
U.S. BANK NATIONAL ASSOCIATION, as Agent
By: ________________________________
Name:
Title:
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EX-10
Exhibit 10.33.1 Purch/Sale Agmt of Haddad
EXHIBIT 10.33.1
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
THIS AGREEMENT is entered into by and between E.W.H. GROUP, INC., a
California corporation, dba "HADDAD JEEP/EAGLE AND CHUCK HADDAD MITSUBISHI"
(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 Jeep/Eagle and Mitsubishi motor vehicles and related
parts and accessories from premises located at 4500 Rudnick Court and 5200
Gasoline Alley, Bakersfield, California 93313 (the "Business Real Property"),
under franchise issued by Chrysler Corporation and Mitsubishi 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 Jeep/Eagle and Mitsubishi franchise at
4500 Rudnick Court and 5200 Gasoline Alley, Bankersfield, California,
conditioned upon the granting to Buyer of an exclusive franchise for the sale
of new Jeep/Eagle and Mitsubishi motor vehicles in the same geographical area
as Seller's 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 September 1, 1997. "Final Closing Date"
shall refer to September 30, 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 Jeep/Eagle and Mitsubishi vehicles and associates parts and
accessories, and the repair and servicing of new or used Jeep/Eagle and
Mitsubishi 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.
Within 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". Attached to this Agreement as Exhibit "B" is a listing prepared
by Seller of certain personal items being retained by Seller and not being
purchased by Buyer.
(e) Seller's "Intangible Assets" shall refer to Seller's
telephone and fax numbers, service customer lists, sales customer lists,
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 interest of any value
relating to Seller's Business; provided, however, that Seller's business name
("Haddad Jeep/Eagle and Chuck Haddad Mitsubishi") is not included within the
Intangible Assets being sold by Seller hereunder.
(f) "Business Real Property" shall refer to all of the real
property located in Bakersfield, California which has been used in connection
with Seller's business, including but not limited to the premises at 4500
Rudnick Court and 5200 Gasoline Alley, Bakersfield, California.
(g) "Franchisor" shall refer to Chrysler Corporation and
Mitsubishi Motor Sales of America, Inc.
(h) "New Vehicle" shall refer to a Jeep/Eagle and Mitsubishi
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 customer's inability to obtain financing for the
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purchase "Demonstrator Vehicle" shall mean an unregistered vehicle form 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) "Data 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, 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 Jeep/Eagle
and Mitsubishi 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, floor plan allowances, finance cost allowances,
advertising allowances, and any other items which should reasonably be
deducted in order to establish Seller's 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 shall be entitled to
receive directly from Chrysler Corporation all holdbacks, rebates,
incentives, allowances and other items referred to in the preceding sentence
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 costs 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 new 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 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. At Closing, Buyer shall
reimburse Seller 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 reduced by $.30 per mile for
each odometer mile on that vehicle. The purchase price for demonstrator
vehicles and rollback vehicles shall be paid at Closing.
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.
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(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 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, current (non-obsolete), undamaged
Jeep/Eagle and Mitsubishi 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 Jeep/Eagle and Mitsubishi 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, 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.
(b) Determination of Inventory of Parts and Accessories.
Seller's inventory of new, current and undamaged Jeep/Eagle and Mitsubishi
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.
(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. Within twenty (20) days after the date of this
Agreement, Seller shall provide to Buyer a list of the Equipment being
purchased and sold hereunder, which list shall be attached hereto as Exhibit
"A". Prior to closing Buyer will have the right to inspect the equipment.
Seller is retaining, and is not selling to Buyer, those personal items of
Seller's Equipment which are listed on Exhibit "B" 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 Four Hundred Thousand and 00/100 Dollars
($400,000.00). 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
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money deposit, together with all interest earned thereon, shall be credited
at Closing against the purchase price for the Equipment.
(2) The $300,000.00 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 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 Seller's 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 "C" attached hereto, which
Exhibit "C" shall be prepared and attached hereto within 20 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). 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 indemnify buyer
against all obligations under the contracts identified on Exhibit "C" which
relate to periods prior to Closing. Buyer agrees to indemnify Seller against
all obligations under the contracts identified on Exhibit "C" 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
$400,000.00 purchase price for the Equipment.
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 One Million Five Hundred Thousand and 00/100 Dollars
($1,500,000.00). This $1,500,000.00 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; provided, however, that no
value shall be allocated to the non-transferable Jeep/Eagle and Mitsubishi
franchise issued by the Franchisor. This $1,500,000.00 purchase price shall
be paid at Closing.
(b) In order for Buyer to receive the full benefit of the
intangible good will 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 $1,500,000.00 amount being paid by Buyer for the
Intangible Assets, Seller agrees to perform the no-charge repair in his own
shop (Haddad Dodge) for a period of 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.
11. 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.
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. Elias W. Haddad 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 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,
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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 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. Buyer also
represents and warrants to Seller that it has conducted its own independent
investigation and due diligence of all of Seller's employees, Buyer does so
based upon its own investigation without any representations, disclosures or
warranties of any description by Seller. Further, both Buyer and Seller
agree that they shall not, for a period of two (2) years following Closing,
employ or offer employment to any of each others employees except (1) if such
employee was terminated by his/her respective employer or (2) if such
employee voluntarily terminates his/her employment, then the former employer
must consent to such employment.
(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 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 indemnify Buyer with respect to
all such obligations.
(e) Condition of Equipment. Buyer is to verify at the time of
Closing that each item of Equipment shall be in good operating condition and
following Closing the Buyer has agreed that the purchase of Equipment is "as
is" without any warranty of any description by Seller.
(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 or 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 contamination, Seller shall have until the 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 can 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 "D" 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
governmental 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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(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 an exclusive franchise for the sale of
new Jeep/Eagle and Mitsubishi vehicles in the same geographical area as
Seller's current franchise in Bakersfield, California.
(i) Indemnification for Breach of Warranties. Elias W. Haddad
and Seller shall indemnify 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 is
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.
(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 it own due
diligence and has approached Seller on its own and requested Seller to sell
its franchises, 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.
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 other words or phrases having similar meanings; (v)
Seller shall use its best efforts to preserve the value of the Jeep/Eagle and
Mitsubishi franchise in Bakersfield, California.
15. 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.
(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 Franchisor, prior to the
Final Closing Date, an exclusive franchise to sell new Jeep/Eagle and
Mitsubishi vehicles in the same geographical area as Seller's current
franchise in Bakersfield, 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
that franchise.
(b) Buyer shall be reasonably satisfied with any facility
improvement requirements which are imposed by Franchisor.
(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.
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(d) All of Seller's agreement and warranties set forth in this
Agreement shall be true, correct, complete and not misleading 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 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 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 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 $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 provide by law or in equity.
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(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 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 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 an pay only
Seller's receivables with 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 vent of any such assignment, the assignee shall
assume all rights and obligations of Buyer under this Agreement, and Lithia
Motors, Inc. shall remain jointly liable for all obligations of the Buyer.
21. Lease of Real Property. As a condition to the Closing of the
transaction contemplated under this Agreement, Buyer (or a related entity)
agrees to sublease the 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
Business Real Property which allows Buyer to sublease the Business Real
Property under the following general terms and under such additional terms as
are reasonably satisfactory to Buyer:
(a) Buyer has reviewed the Westwind Properties lease for the
Mitsubishi Store and the Charles and Shirley Leggio lease for the Jeep/Eagle
Store and accepts the terms and conditions of the leases.
22. First Right of Refusal. Seller agrees to grant Buyer "First
Right of Refusal" to any purchase offer for Bakersfield Dodge dba "Haddad
Dodge" located at 3000 Harris Road, Bakersfield, California. Any purchase
offer must be a signed written agreement, Buyer must respond to offer within
10 days from date Buyer is notified. Further should Seller desire to sell
but has no offer then Seller agrees to contact Buyer first.
23. 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 id
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 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 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.
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(f) Time 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 agrees 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates indicated below.
SELLER: E.W.H. GROUP, INC., a California corporation
By: /s/ Elias W. Haddad 7-14-97
Elias W. Haddad, President
ELIAS W. HADDAD
By: /s/ Elias W. Haddad 7-14-97
Elias W. Haddad
BUYER: LITHIA MOTORS, INC. (OR NOMINEE)
By: /s/ Brad Gray 7-14-97
Brad Gray, Executive Vice President
9
<PAGE>
EXHIBIT "A" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between E.W.H. GROUP, 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.]
10
<PAGE>
EXHIBIT "B" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between E.W.H. GROUP, 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.]
11
<PAGE>
EXHIBIT "C" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between E.W.H. GROUP, INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
LISTING OF LEASES AND AGREEMENTS BEING ASSUMED
[See pages attached hereto.]
12
<PAGE>
EXHIBIT "D" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between E.W.H. GROUP, INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
DISCLOSURE OF TOXIC MATERIALS
[See pages attached hereto.]
13
<PAGE>
ADDENDUM TO
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
This Addendum is entered into by and between E.W.H. Group, Inc., a
California corporation, dba "Haddad Jeep/Eagle" (hereinafter referred to as
the "Seller"), and Lithia Motors, Inc. or its nominee (hereinafter referred
to as the "Buyer").
RECITALS:
Buyer and Seller have entered into an Agreement for Purchase and Sale
of Business Assets dated July 14, 1997, relating to assets owned by Seller
used in connection with the operation of Jeep/Eagle and Mitsubishi motor
vehicle franchises (the "Original Agreement"). (The Original Agreement and
this Addendum are referred to collectively herein as the "Agreement".)
The asset purchase contemplated by the Original Agreement did not close
by the "Final Closing Date" of September 30, 1997. Nevertheless, Buyer and
Seller desire to proceed with purchase and sale of certain of the assets
covered by the Original Agreement under the terms of the Original Agreement,
as modified as by this Addendum. The parties desire to modify the Original
Agreement to establish a new Closing Date; to specify that only the Seller's
assets relating to the marketing and sale of Jeep/Eagle vehicles and related
business activities are included in the purchase, and the assets relating
solely to Seller's business of sales of Mitsubishi vehicles will be excluded;
to modify the purchase price to reflect the change in assets being acquired;
to increase the amount placed in escrow to $200,000.00; and to modify certain
of the terms of the escrow.
AGREEMENT
In consideration of the mutual promises set forth herein and in the
Original Agreement, the parties hereby agree that the Original Agreement is
reinstated and is amended as provided as follows:
1. The definition of "Target Closing Date" in Subparagraph 1(a) is
modified to refer to March 16, 1998. The definition of "Final Closing Date"
in Subparagraph 1(a) is modified to refer to March 30, 1998.
2. The Original Agreement is amended throughout to eliminate
references to Mitsubishi vehicles and to Seller's franchise issued by
Mitsubishi Motor Sales of America, Inc., including, but not limited to the
specific changes set forth in this Addendum. The following definitions are
so amended:
2.1 The definition of "Seller's Business" in Subparagraph 1(b)
is modified to delete "and Mitsubishi".
2.2 The definition of "Franchisor" in Subparagraph 1(g) of the
Original Agreement shall refer to Chrysler Corporation. References to
"Mitsubishi Motor Sales of America, Inc." are deleted.
2.3 The definition of "New Vehicle" in Subparagraph 1(h) is
modified to eliminate "and Mitsubishi."
3. The definition of "Business Real Property" in Subparagraph 1(f)
is amended to delete "and 5200 Gasoline Alley", and other references in the
Agreement to the 5200 Gasoline Alley property are also deleted.
4. Reference to purchases of inventory in Paragraph 3 of the
Original Agreement are modified to delete "and Mitsubishi."
5. Paragraph 5 of the Original Agreement relating to purchase of new
parts and accessories is modified to eliminate "and Mitsubishi."
6. Paragraph 6 of the Original Agreement dealing with purchase and
sale of Equipment is modified as follows:
6.1 Prior to the Closing date, Buyer and Seller shall review
the list of Equipment being purchased and sold designated as Exhibit A and
shall delete from Exhibit A any Equipment related solely to operation of
Seller's Mitsubishi franchise.
6.2 The purchase price for the Equipment stated in Subparagraph
6(a) is reduced to Two Hundred Thousand and No/100 Dollars ($200,000.00).
14
<PAGE>
6.3 The earnest money deposit referred to in Subparagraph
6(b)(1) shall be increased by Buyer from $100,000.00 to $200,000.00, which
amount shall be credited at Closing against the purchase price for the
equipment and all interest earned shall be credited to the purchase price for
Intangible Assets.
6.4 Subparagraph 6(b)(2) of the Original Agreement is deleted.
7. The gas, oil, nuts, bolts and other automotive supplies purchased
by Buyer pursuant to Paragraph 7, shall not be separately priced. The price
of such items is part of the purchase price for the Equipment.
8. Between the date of this Addendum and the Closing Date, Buyer and
Seller shall review equipment leases and other contracts identified in
Exhibit C. Buyer may eliminate any contracts which relate to the Mitsubishi
franchise. The amount of any obligation assumed by Buyer pursuant to
Paragraph 8 shall be credited at Closing against the purchase price for
Intangible Assets.
9. The vehicle repair work in progress (in-house and subcontracted)
purchased by Buyer pursuant to Section 9 shall not be separately priced, but
shall be included in the purchase price for the Equipment.
10. In Subparagraph 10(a), the purchase price for Seller's Intangible
Assets is modified to be One Million Three Hundred Thousand and No/100
Dollars ($1,300,000.00). References to "and Mitsubishi" are deleted from
Paragraph 10.
11. In Subparagraph 13(h) reference to "and Mitsubishi" is deleted.
12. In Paragraph 14 "and Mitsubishi" is deleted.
13. The conditions to Buyer's obligations to close in Paragraph 16
are modified as follows:
13.1 In Subparagraph 16(a) the reference to "and Mitsubishi" is
deleted.
13.2 In the absence of new requirements imposed by Franchisor
prior to the Closing Date, the condition in Subparagraph 16(b) is deemed
satisfied and shall not an additional condition to Closing.
13.3 Subparagraph 16(c) is amended to read "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." The other provisions of that
Subparagraph have been satisfied and are no longer conditions to Closing.
13.4 The condition in Subparagraph 16(d) remains unmodified.
13.5 The conditions in Subparagraph 16(e) and 16(f) are
satisfied and are no longer conditions to Closing.
14. Paragraph 17, dealing with the Closing, is amended as follows:
14.1 Upon execution of this Addendum, Buyer shall deliver to
escrow agent an additional sum of $100,000.00 increasing the escrow deposit
to $200,000.00. The deposit plus interest shall be credited to Buyer and
shall be applied against the purchase price, first, for the Equipment at
Closing as provided in Paragraph 6, with any additional amount shall be
applied to the purchase price for intangible assets, or if the Closing fails
to occur then the deposit shall be disbursed as set forth in Paragraph 17, as
amended by this section.
14.2 Subparagraph 17(f) is amended to change $100,000.00 to
$200,000.00.
14.3 Subparagraph 17(g) is amended to replace $100,000.00 with
$200,000.00 in each place it appears.
14.4 Subparagraph 17(h) is renumbered as 17(i) and a new
Subparagraph 17(h) is added as follows:
"(h) Buyer agrees that the Escrow Agent is authorized and
instructed to release the $200,000.00 deposit to Seller on March 31, 1998 if
Buyer fails or refuses to close the transaction on or before that date for
any reason other than (i) a material breach of the Agreement by Seller, or
(ii) a failure of any of the remaining conditions precedent in Paragraph 16
of the Agreement, as modified by this Addendum. If Buyer wishes to prevent
release of the $200,000.00 deposit to Seller on March 31, 1998 on the basis
that there has been a material breach of the Agreement by Seller, then Buyer
must both (a) on or before March 30, 1998, notify the Closing Escrow Agent
and Seller in writing (which may be by fax) that there has been a material
15
<PAGE>
breach of the Agreement by Seller, and (b) on or before May 1, 1998, submit
to the Closing Escrow Agent and to Seller a written statement (which may be
by fax) specifying each and every alleged material breach (in sufficient
detail to provide reasonable notice to Seller as to the specific nature of
each alleged material breach). If Buyer wishes to prevent release of the
$200,000.00 deposit to Seller on March 31, 1998, on the basis that there has
been a failure of any of the remaining conditions precedent set forth in
Paragraph 16 of the Agreement, as modified by this Addendum, then Buyer must
both (a) on or before March 30, 1998, notify Closing Escrow Agent and Seller
in writing (which may be by fax) that such condition has not been satisfied,
and (b) on or before May 1, 1998, deliver to Closing Escrow Agent and Seller
a written statement (which may be by fax) specifying the condition or
conditions which were not satisfied (in sufficient detail to provide
reasonable notice to Seller of each condition). In the event of any
litigation between the parties regarding the failure to consummate the
transaction, Buyer's claims or defenses shall be limited to those matters
identified in the detailed written statement (due May 1, 1998), and the
failure to include an alleged breach or condition in the detailed written
statement shall constitute a waiver of that alleged breach or unsatisfied
condition."
15. In Paragraph 21 of the Agreement, the reference in
Subparagraph 21(a) to Buyer's review of the "Westwind Properties lease for
the Mitsubishi Store" is deleted.
16. Between the date of this Addendum and the Closing Date,
Seller will permit Buyer's representatives to have access to Seller's
business premises and employees for the purpose of installing its systems and
making preparation for Buyer to commence immediate operation of the business
following the Closing.
17. Buyer has submitted a franchise application to Franchisor.
Buyer will submit an extension request not later than five business days
following the receipt of this Addendum executed by Seller.
18. Each of the parties hereby waives and releases, any and all
claims it may have against the other party relating to the failure of the
transactions contemplated by the Agreement to close by September 30, 1997.
19. This Addendum may be executed and delivered by exchange of
facsimile copies showing signatures of the parties hereto, and those
signatures need not be affixed to the same copy. The facsimile copies
showing the signatures of the parties hereto will constitute originally
signed copies of the same agreement requiring no further execution. The
parties agree that they will promptly forward signed originals of this
Addendum. However, signed facsimile documents will remain binding even if
the originals are not sent or received.
20. Except as amended by the Addendum, the Agreement remains in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Addendum on the
dates indicated below.
SELLER: E.W.H. GROUP, INC., a California corporation
By: /s/ Elias W. Haddad Dated:
Elias W. Haddad, President
ELIAS W. HADDAD
By: /s/ Elias W. Haddad Dated:
Elias W. Haddad
BUYER: LITHIA MOTORS, INC. (OR NOMINEE)
By: /s/ Brad Gray Dated:
Brad Gray, Executive Vice President
16
<PAGE>
EX-21
Exhibit 21.1 Subsidiaries List
EXHIBIT 21.1
SUBSIDIARIES OF LITHIA MOTORS, INC.
Jurisdiction of Name under which
Name of Subsidiary Incorporation Business is Conducted
Lithia TLM, LLC Oregon Lithia Toyota Lincoln
Mercury; Lithia Lincoln
Mercury
Lithia Grants Pass Auto Oregon Lithia's Grants Pass Auto
Center, LLC Center; Xprsss Lube
Lithia Dodge, LLC Oregon Lithia Dodge; Lithia
Mazda; Xpress Lube;
Lithia Dodge Chry Ply
Mazda Jeep Eagle
Lithia Properties, LLC Oregon Lithia Insurance
Lithia MTLM, Inc. Oregon Lithia Toyota Lincoln
Mercury
LGPAC, Inc. Oregon Lithia's Grants Pass Auto
Center
Lithia DM, Inc. Oregon Lithia Chrysler Plymouth
Jeep Eagle, Inc.; Lithia
Dodge Chry Ply Mazda Jeep
Eagle
Lithia HPI, Inc. Oregon Lithia Honda Pontiac
Suzuki Isuzu; Lithia
Honda; Honda Automobiles
of Medford; Lithia Isuzu;
Lithia Pontiac; Lithia
Suzuki; Lithia Volkswagen
Audi
Saturn of Southwest Oregon Saturn of Southwest Oregon
Oregon, Inc.
Lithia DE, Inc. Oregon Lithia Dodge of Eugene
Lithia Chrysler Plymouth Oregon Lithia Chrysler Plymouth;
Jeep Eagle, Inc. Lithia Dodge Chry Ply
Mazda Jeep Eagle
Lithia BNM, Inc. Oregon Lithia Nissan; Medford BMW
Lithia DC, Inc. California Lithia Dodge of Concord;
Lithia Isuzu of Concord
Lithia FN, Inc. California Lithia Ford of Napa
1
<PAGE>
Lithia TKV, Inc. California Lithia Toyota of Vacaville
Lithia FVHC, Inc. California Lithia Sun Valley Ford
Lithia VWC, Inc. California Lithia Sun Valley
Volkswagen
Lithia NB, Inc. California Lithia Nissan of
Bakersfield
Lithia BB, Inc. California Lithia BMW of
Bakersfield; Lithia Acura
of Bakersfield
Lithia MB, Inc. California Lithia Mitsubishi of
Bakersfield
Lithia JEB, Inc. California Lithia Jeep Eagle of
Bakersfield
Lithia JEF, Inc. California Lithia Jeep Eagle of
Fresno
Lithia NF, Inc. California Lithia Nissan of Fresno
Lithia FMF, Inc. California Lithia Ford of Fresno
Lithia MMF, Inc. California Lithia Mazda of Fresno
Lithia Real Estate, Inc. Oregon Lithia Real Estate, Inc.
Lithia Financial Oregon Lithia Financial
Corporation Corporation
Lithia Rentals, Inc. Oregon Avis Rent A Car; Discount
Rent-A-Car
Lithia Auto Services, Inc. Oregon Cellular World; Lithia
Body & Paint; Thrift Auto
Supply
Lithia Auto Services of California Lithia Auto Services of
California, Inc. California, Inc.
Lithia Aircraft, Inc. Oregon Lithia Aircraft, Inc.
Lithia SALMIR, Inc. Nevada Dick Donnelly Isuzu; Dick
Donnelly Suzuki; Dick
Donnelly Audi; Dick
Donnelly Lincoln/Mercury
2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Lithia Motors, Inc. and Subsidiaries
We consent to incorporation by reference in the registration statements (Nos.
333-45553 and 333-43593) on Form S-8 of Lithia Motors, Inc. of our report dated
February 6, 1998, relating to the consolidated balance sheets of Lithia Motors,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997,
which report appears in the December 31, 1997 annual report on Form 10-K of
Lithia Motors, Inc.
KPMG PEAT MARWICK LLP
Portland, Oregon,
March 20, 1998
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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0
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<COMMON> 28,628
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<PERIOD-START> JAN-01-1996
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<CASH> 15,413
<SECURITIES> 0
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0
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<COMMON> 24,683
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<TOTAL-LIABILITY-AND-EQUITY> 63,754
<SALES> 142,844
<TOTAL-REVENUES> 142,844
<CGS> 118,647
<TOTAL-COSTS> 118,647
<OTHER-EXPENSES> 20,277
<LOSS-PROVISION> 29
<INTEREST-EXPENSE> 1,353
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<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
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<SECURITIES> 0 0 0
<RECEIVABLES> 3,630 4,055 6,381
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<INVENTORY> 39,100 42,626 50,748
<CURRENT-ASSETS> 58,637 64,438 68,080
<PP&E> 11,739 12,568 15,833
<DEPRECIATION> 3,481 3,752 3,900
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0 0 0
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<LOSS-PROVISION> 11 31 58
<INTEREST-EXPENSE> 146 651 1,374
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<INCOME-TAX> 720 1,579 2,573
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<NET-INCOME> 1,144 2,511 4,090
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