<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
-----------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---- ----
Commission file number: 000-21789
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LITHIA MOTORS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0572810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
360 E. JACKSON STREET, MEDFORD, OREGON 97501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 541-776-6899
-----------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class A Common stock without par value 6,081,715
Class B Common stock without par value 4,110,000
(Class) (Outstanding at August 7, 1998)
</TABLE>
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<PAGE>
LITHIA MOTORS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -- June 30, 1998 (unaudited)
and December 31, 1997 2
Consolidated Statements of Operations -- Three and Six Months Ended
June 30, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows -- Six Months Ended June 30,
1998 and 1997 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 27,136 $ 18,454
Trade receivables 11,942 7,655
Notes receivable, current portion 460 427
Inventories, net 138,137 89,845
Vehicles leased to others, current portion 755 738
Prepaid expenses and other 2,537 913
Deferred income taxes 1,825 1,855
---------- ------------
Total Current Assets 182,792 119,887
Property and Equipment, net of accumulated
depreciation of $3,454 and $2,822 29,650 16,265
Vehicles Leased to Others, less current portion 5,052 4,588
Notes Receivable, less current portion 286 309
Goodwill, net of accumulated amortization of
$696 and $293 32,844 24,062
Other Non-Current Assets, net of accumulated
amortization of $83 and $63 1,180 1,415
---------- ------------
Total Assets $251,804 $ 166,526
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Flooring notes payable $119,964 $ 82,598
Current maturities of long-term debt 3,781 2,688
Current portion of capital leases 94 99
Trade payables 5,966 3,874
Accrued liabilities 9,019 6,758
---------- ------------
Total Current Liabilities 138,824 96,017
Long-Term Debt, less current maturities 20,267 24,242
Long-Term Capital Lease Obligation, less current
portion 2,271 2,316
Deferred Revenue 2,135 2,519
Other Long-Term Liabilities 966 447
Deferred Income Taxes 2,959 3,108
---------- ------------
Total Liabilities 167,422 128,649
---------- ------------
---------- ------------
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 6,082 and 2,926 70,799 28,117
Class B common stock
authorized 25,000 shares; issued and
outstanding 4,110 and 4,110 511 511
Additional paid-in capital 140 59
Retained earnings 12,932 9,190
---------- ------------
Total Shareholders' Equity 84,382 37,877
---------- ------------
Total Liabilities and Shareholders' Equity $251,804 $166,526
---------- ------------
---------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
LITHIA MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Sales:
Vehicles $ 150,597 $ 57,405 $ 275,307 $ 104,875
Service, body, parts and other 22,944 9,017 44,433 16,251
---------- ----------- ---------- ----------
Net Sales 173,541 66,422 319,740 121,126
Cost of sales
Vehicles 136,638 51,570 249,631 94,049
Service, body, parts and other 10,040 4,136 20,521 7,413
---------- ----------- ---------- ----------
Cost of Sales 146,678 55,706 270,152 101,462
---------- ----------- ---------- ----------
Gross profit 26,863 10,716 49,588 19,664
Selling, general and administrative 20,195 8,195 38,111 15,190
Depreciation and amortization 569 222 1,067 391
---------- ----------- ---------- ----------
Operating income 6,099 2,299 10,410 4,083
Other income (expense)
Equity in income of affiliate 10 6 19 56
Interest income 20 33 74 61
Interest expense (2,657) (505) (4,867) (651)
Other, net 157 394 460 541
---------- ----------- ---------- ----------
(2,470) (72) (4,314) 7
---------- ----------- ---------- ----------
Income before income taxes 3,629 2,227 6,096 4,090
Income tax expense 1,407 859 2,354 1,579
---------- ----------- ---------- ----------
Net income $ 2,222 $ 1,368 $ 3,742 $ 2,511
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Basic net income per share $ 0.24 $ 0.20 $ 0.46 $ 0.36
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Diluted net income per share $ 0.24 $ 0.19 $ 0.45 $ 0.35
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
LITHIA MOTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,742 $ 2,511
Adjustments to reconcile net income to net cash flows
used in operating activities:
Depreciation and amortization 1,523 1,025
Compensation expense related to stock option issuances 69 -
Loss on sale of assets 9 -
Gain on sale of vehicles leased to others (54) (118)
Deferred income taxes (136) (19)
Equity in income of affiliate (19) (56)
(Increase) decrease in:
Trade and installment contract receivables, net (4,328) (1,597)
Inventories (28,354) (1,199)
Prepaid expenses and other (1,454) 478
Other noncurrent assets 228 (340)
Increase (decrease) in:
Trade payables 2,085 (734)
Accrued liabilities 2,261 320
Other liabilities 13 (2,245)
Proceeds from sale of vehicles leased to others 3,664 2,421
Expenditures for vehicles leased to others (4,579) (4,069)
----------- -----------
Net cash used in operating activities (25,330) (3,622)
Cash flows from investing activities:
Notes receivable issued (171) (203)
Principal payments received on notes receivable 161 192
Capital expenditures (2,420) (4,089)
Cash paid for acquisitions (25,935) (2,736)
----------- -----------
Net cash used in investing activities (28,365) (6,836)
Cash flows from financing activities:
Net borrowings on flooring notes payable 23,726 1,918
Principal payments on long-term debt (31,168) (3,363)
Proceeds from issuance of long-term debt 27,137 7,922
Proceeds from issuance of common stock 42,682 3,864
----------- -----------
Net cash provided by financing activities 62,377 10,341
----------- -----------
Increase (decrease) in cash and cash equivalents 8,682 (117)
Cash and cash equivalents:
Beginning of period 18,454 15,413
----------- -----------
End of period $ 27,136 $ 15,296
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
LITHIA MOTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS OR AS OTHERWISE INDICATED)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The financial information included herein for June 30, 1998 and December 31,
1997 and for the three and six-month periods ended June 30, 1998 and 1997 is
unaudited; however, such information reflects all adjustments consisting only
of normal recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods. The financial information
as of December 31, 1997 is derived from Lithia Motors, Inc.'s (the Company's)
1997 Annual Report on Form 10-K. The interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's 1997 Annual Report
on Form 10-K. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the full
year.
NOTE 2. INVENTORIES
Inventories are valued at cost, using the specific identification method for
vehicles and the first-in first-out (FIFO) method of accounting for parts
(collectively, the FIFO method).
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
New and demonstrator vehicles $ 105,853 $ 63,457
Used vehicles 26,283 21,524
Parts and accessories 6,001 4,864
--------- --------
$ 138,137 $ 89,845
--------- --------
--------- --------
</TABLE>
NOTE 3. CREDIT FACILITY
In May 1998, the Company's credit facility was amended to increase the total
available credit by $20 million to a total of $195 million, including $130
million in new, used and program flooring lines, $30 million in acquisition
capital and $35 million for other corporate purposes. See also Note 8.
Subsequent Event.
NOTE 4. ACQUISITIONS
The following table sets forth the total purchase price, cash paid, debt
incurred and the net investment for acquisitions made by the Company in the
first two quarters of 1998:
<TABLE>
<CAPTION>
TOTAL CASH DEBT NET
NAME MONTH PAID PAID INCURRED INVESTMENT(1)
- ------------------------ -------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Quality Nissan Jeep(2) January $ 8,404 $ 7,097 $ 1,307 $ 4,405
Reno Volkswagen February 1,400 411 989 293
Medford Nissan, BMW February 3,231 546 2,685 2,326
Haddad Jeep March 4,912 1,528 3,384 2,063
Rodway Chevrolet(2) June 11,488 5,094 6,394 3,783
Boyland Toyota(2) July 3,919 2,300 1,619 2,588
------- ------- ------- -------
Total $33,354 $16,976 $16,378 $15,458
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
5
<PAGE>
(1) Net investment consists of the amount of goodwill, working capital, any
notes issued to the seller and other initial investments.
(2) Excludes real property purchased for $5,560, $4,050 and $1,650,
respectively.
The above acquisitions were accounted for under the purchase method of
accounting. Pro forma results of operations, both individually and in
aggregate, are not material for the above acquisitions and therefore have not
been included herein.
NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash paid during the period for income taxes $ 2,155 $ 1,434
Cash paid during the period for interest 4,352 817
Property acquired through debt - 1,424
</TABLE>
NOTE 6. EARNINGS PER SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
computed using the methods prescribed by Statement of Financial Accounting
Standards 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>
Three Months Ended June 30, 1998 1997
- --------------------------------------- ------------------------------------- ------------------------------
Per Per
Share Share
BASIC EPS Income Shares Amount Income Shares Amount
------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income available to Common
Shareholders $2,222 9,102 $ 0.24 $1,368 7,006 $ 0. 20
------- -------
------- -------
DILUTED EPS
Effect of dilutive stock options - 324 - 303
---------------------- ---------------------
Net Income available to Common
Shareholders $2,222 9,426 $ 0.24 $1,368 7,309 $ 0.19
------- -------
------- -------
<CAPTION>
Six Months Ended June 30, 1998 1997
- --------------------------------------- -------------------------------------- ------------------------------
Per Per
Share Share
BASIC EPS Income Shares Amount Income Shares Amount
-------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income available to Common
Shareholders $ 3,742 8,075 $ 0.46 $2,511 6,957 $ 0.36
-------- -------
-------- -------
DILUTED EPS
Effect of dilutive stock options - 330 - 308
--------------------- -------------------
Net Income available to Common
Shareholders $ 3,742 8,405 $ 0.45 $2,511 7,265 $ 0.35
-------- -------
-------- -------
</TABLE>
6
<PAGE>
NOTE 7. SALE OF CLASS A COMMON STOCK
On May 1, 1998, the Company announced the sale of 3.0 million newly issued
shares of its Class A Common Stock in a public offering at a price of $14.50 per
share. On May 31, 1998, an additional 150 shares were sold through the
underwriters' overallotment option at a price of $14.50 per share. Net proceeds
from the sales were $42.7 million.
NOTE 8. SUBSEQUENT EVENT
In July 1998, the Company's credit facility was amended to increase the total
available credit by $45 million to a total of $240 million, including $175
million in new, used and program flooring lines, $30 million in acquisition
capital and $35 million for other corporate purposes. The amendment also
extended the expiration date of the credit facility to December 1, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This Form 10-Q contains forward-looking statements. These statements are
necessarily subject to risk and uncertainty. Actual results could differ
materially from those projected in these forward looking statements as a result
of certain risks including those set forth in the Company's offering prospectus
dated May 1, 1998 and in its 1997 Annual Report on Form 10-K. These risk
factors include, but are not limited to, the cyclical nature of automobile
sales, the intense competition in the automobile retail industry and the
Company's ability to negotiate profitable acquisitions and secure manufacturer
approvals for such acquisitions.
GENERAL
Lithia Motors is a leading automotive retailer offering a total of 23 brands in
26 locations in the western United States. The Company currently operates 14
dealerships in California, 9 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, it has acquired 21 dealerships
and is actively pursuing additional acquisitions.
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.
<TABLE>
<CAPTION>
AVERAGE U.S. DEALERSHIP YEAR ENDED DECEMBER 31,
STATEMENT OF OPERATIONS DATA: -----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Sales:
New vehicles 58.3% 57.7%
Used vehicles 29.8 30.4
Parts and service, other 11.9 11.9
---------- ----------
Total sales 100.0% 100.0%
Gross profit 12.7 12.9
Total dealership expense 11.4 11.3
Income before taxes 1.4% 1.5%
</TABLE>
Source: NADA INDUSTRY ANALYSIS DIVISION
7
<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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ---------------------
1998 1997 1998 1997
----- ----- ------ -----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales:
New vehicles 54.6% 47.6% 53.0% 46.6%
Used vehicles 32.2 38.8 33.1 40.0
Parts and service 9.3 8.4 9.6 8.4
Finance, insurance and other 3.9 5.2 4.3 5.0
------ ------ ------- ------
Total sales 100.0 100.0 100.0 100.0
Gross profit 15.5 16.1 15.5 16.2
Selling, general and administrative 11.6 12.3 11.9 12.5
Depreciation and amortization 0.3 0.3 0.3 0.3
------ ------ ------- ------
Operating income 3.5 3.5 3.3 3.4
Other expense, net (1.4) (0.1) (1.4) 0.0
------ ------ ------- ------
Income before taxes 2.1 3.4 1.9 3.4
Income taxes 0.8 1.3 0.7 1.3
------ ------ ------- ------
Net income 1.3% 2.1% 1.2% 2.1%
------ ------ ------- ------
------ ------ ------- ------
</TABLE>
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
SALES. Net sales for the Company increased $107.1 million, or 161 percent, to
$173.5 million for the quarter ended June 30, 1998 from $66.4 million for the
comparable period of 1997. Net sales increased $198.6 million, or 164 percent,
to $319.7 million for the six months ended June 30, 1998 compared to $121.1
million for the comparable period of 1997. The Company's sales mix shifted more
to new vehicle sales, with 54.6 percent and 53.0 percent, respectively of total
sales generated from new vehicle sales, 32.2 percent and 33.1 percent,
respectively, from used vehicle sales and 13.2 percent and 13.9 percent,
respectively, from other operating income for the three and six month periods
ended June 30, 1998. Same store sales growth was 18.3 percent and 14.5 percent,
respectively, for the three and six month periods ended June 30, 1998 compared
to the same periods of 1997.
NEW VEHICLE SALES. The Company sells 23 domestic and imported brands
ranging from economy to luxury cars, as well as sport utility vehicles, minivans
and light trucks. Revenue on new vehicle sales increased 199 percent to $94.7
million and 200 percent to $169.6 million, respectively, for the three and six-
month periods ended June 30, 1998 compared to $31.6 million and $56.5 million,
respectively, for the comparable periods of 1997. These increases were achieved
by a 193 percent and 190 percent increase, respectively, in units sold to 4,362
and 7,784, respectively, for the three and six-month periods ended June 30, 1998
and a 2.1 percent and 3.6 percent increase, respectively, in the average selling
price to $21,711 and $21,790, respectively, for the three and six-month
8
<PAGE>
periods ended June 30, 1998. The increases are primarily attributable to a
14.5 percent overall same store growth rate and the inclusion of 15 locations
acquired since June 1997.
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.
USED VEHICLE SALES. The Company offers a variety of makes and models of
used cars and light trucks of varying model years and prices. Revenue from
retail used vehicle sales increased 136 percent and 127 percent, respectively to
$44.6 million and $82.9 million for the three and six-month periods ended June
30, 1998 from $18.9 million and $36.5 million, respectively, for the comparable
periods of 1997. Retail used unit volume increased 124 percent and 117 percent,
respectively, to 3,439 units and 6,466 units, respectively, for the three and
six-month periods ended June 30, 1998. The average unit price increased 5.3
percent and 4.9 percent, respectively, to $12,977 and $12,824, respectively for
the three and six-month periods ended June 30, 1998. The increases are primarily
attributable to a 14.5% overall same store growth rate and the inclusion of 15
locations acquired since June 1997.
OTHER. The Company derives additional revenue from the sale of parts and
accessories, maintenance and repair services, auto body work and finance and
insurance ("F&I") transactions. Other operating revenue increased to $22.9
million and $44.4 million, respectively, for the three and six-month periods
ended June 30, 1998, from $9.0 million and $16.3 million, respectively, for the
comparable periods of 1997. This increase is primarily due to a 14.5 percent
overall growth rate in such revenue and the inclusion of 15 new locations since
June 1997. 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.
GROSS PROFIT. Gross profit increased to $26.9 million and $49.6 million,
respectively, for the three and six-month periods ended June 30, 1998, compared
with $10.7 million and $19.7 million, respectively, for the comparable periods
of 1997. These increases are primarily due to an increase in new and used
vehicle unit sales during the periods at the Company's new stores as discussed
above. The gross profit margin achieved by the Company on new vehicle sales was
9.7 percent and 9.9 percent, respectively, for the three and six month periods
ended June 30, 1998, compared to 11.3 percent and 11.7 percent, respectively, in
the comparable periods of 1997. This compares favorably with the average gross
profit margin of 6.4 percent realized by franchised automobile dealers in the
United States on sales of new vehicles in 1997. 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 10.9 percent and 10.7 percent,
respectively, for the three and six months ended June 30, 1998 compared to 12.0
percent and 11.5 percent in the comparable periods of 1997. The industry
average for 1996 was 10.9 percent. Overall gross
9
<PAGE>
profit margins were 15.5 percent and 15.5 percent, respectively, for the three
and six-month periods ended June 30, 1998 compared to 16.1 percent and 16.2
percent for the comparable periods of 1997. The decreases in the gross profit
margins were primarily a result of the acquisition of several new dealerships
during 1997 and early 1998, which were generating gross margins lower than those
of the Company's pre-existing stores. The Company has seen improvements in the
margins at stores that it has acquired and operated for a full year, bringing
them more in line with the Company's pre-existing stores. The Company's gross
profit margin continues to exceed the average U.S. dealership gross profit
margin of 12.7 percent for the full year of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ("SG&A"). The Company's SG&A
expense increased to $20.2 million and $38.1 million (11.6 percent and 11.9
percent, respectively, of total sales), respectively, for the three and six-
month periods ended June 30, 1998 compared to $8.2 million and $15.2 million
(12.3 percent and 12.5 percent, respectively, of total sales), respectively, for
the comparable periods of 1997. The increase in SG&A was due primarily to
increased selling, or variable, expense related to the increase in sales and the
number of total locations. 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 and from macro and micro economies of scale as the
Company consolidates multiple stores in a single market.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
to $0.6 million and $1.1 million, respectively, for the three and six month
periods ended June 30, 1998 compared to $0.2 million and $0.4 million,
respectively for the comparable periods of 1997, primarily as a result of
increased property and equipment and goodwill related to acquisitions in 1997
and 1998. Depreciation and amortization was 0.3 percent of sales for the three
and six month periods ended June 30, 1998 and 1997. These figures exclude
depreciation related to leased vehicles, which is included in cost of sales.
INTEREST EXPENSE. Interest expense increased to $2.7 million and $4.9 million,
respectively, for the three and six month periods ended June 30, 1998 from $0.5
million and $0.7 million, respectively, for the comparable period of 1997,
primarily as a result of increased flooring notes payable related to increased
inventories as a result of the increase in stores owned.
INCOME TAX EXPENSE. The Company's effective tax rate for the six month periods
ended June 30, 1998 and 1997 was 38.6 percent. The Company's effective tax rate
may be effected by the purchase of new stores in jurisdictions with tax rates
either higher or lower than the current estimated rate.
NET INCOME. Net income was $2.2 million and $3.7 million (1.3 percent and 1.2
percent, respectively, of total sales), respectively, for the three and six-
month periods ended June 30, 1998 compared to $1.4 million and $2.5 million (2.1
percent and 2.1 percent, respectively, of total sales), respectively, for the
comparable periods of 1997, as a result of the individual line item changes
discussed above.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal needs for capital resources are for 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. In May 1998,
the Company closed an offering of 3.15 million newly issued shares of its Class
A Common Stock for net proceeds of $42.7 million. The proceeds have been used
to pay down the Company's lines of credit until needed for future acquisitions.
At June 30, 1998 the Company had working capital of $44.0 million, which
included $27.1 million of cash and cash equivalents. The $8.7 million increase
in cash since December 31, 1997 is primarily a result of $42.7 million from the
sale of the Company's Common Stock and $23.7 million in advances under the
Company's flooring line, offset by $25.9 million used for acquisitions $25.3
million used in operations (primarily for increases in inventories), $2.4
million used for the purchase of property and equipment and $4.0 million net
payments on long-term debt. The current ratio at June 30, 1998 was 1.3:1
compared to 1.2:1 at December 31, 1997.
The Company's credit facility has a maturity date of December 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 June 30, 1998 were as follows (in thousands):
<TABLE>
<S> <C>
Flooring Line $ 119,964
Acquisition Line -
Lease Line 4,500
Equipment and Real Estate Lines 7,013
-----------
Total $ 131,477
-----------
-----------
</TABLE>
Loans under the credit facility bear interest at LIBOR (London Interbank Offered
Rate) plus 150 to 275 basis points, equivalent to 7.1875 percent to 8.4375
percent at June 30, 1998.
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.
Since December 1996 when the Company completed its initial public offering, the
Company has acquired 21 dealerships. The aggregate net investment by the
Company was approximately $58.6 million (excluding borrowings on its credit
lines to finance acquired vehicle inventories and equipment and the purchase of
any real estate).
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,
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financial performance for the Company is generally lower during the first and
fourth quarters than during the other quarters of each fiscal year. 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities (SFAS 133).
SFAS 133 establishes accounting and reporting standards for all derivative
instruments. SFAS 133 is effective for fiscal years beginning after June 15,
1999. The Company does not have any derivative instruments and, accordingly,
the adoption of SFAS 133 will have no impact on the Company's financial position
or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on May 14, 1998,
at which the following actions were taken:
1. The shareholders elected the five nominees for director to the Board of
Directors of the Company. The five directors elected, along with the
voting results are as follows:
<TABLE>
<CAPTION>
No. of Shares No. of Shares
Name Voting For(1) Withheld Voting
----------------------- -------------- ---------------
<S> <C> <C> <C>
Sidney B. DeBoer Class A 3,660 0
Class B 4,110,000 0
M. L. Dick Heimann Class A 3,660 0
Class B 4,110,000 0
Thomas Becker Class A 3,660 0
Class B 4,110,000 0
R. Bradford Gray Class A 3,660 0
Class B 4,110,000 0
William J. Young Class A 3,660 0
Class B 4,110,000 0
</TABLE>
(1) Each Class A share represents one vote and each Class B share
represents 10 votes.
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<PAGE>
(2) The shareholders approved an amendment to the Company's 1996 Stock
Incentive Plan to increase the number of shares of the Company's
Common Stock that may be issued thereunder by 415,000 shares to a
total of 1,085,000 shares. 3,660 Class A shares and 4,110,000 Class B
shares voted for and there were no shares voting against or abstaining
from vote.
(3) The shareholders approved the Company's 1998 Employee Stock Purchase
Plan. 3,660 Class A shares and 4,110,000 Class B shares voted for and
there were no shares voting against or abstaining from vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits filed as a part of this report are listed below and this list
constitutes the exhibit index.
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
2.1 Agreement for Purchase and Sale of Business Assets between Boyland
Auto Group dba Boyland Toyota, Dorian Boyland and Lithia Motors,
Inc., previously filed as Exhibit 10.34.1 to the Company's
Registration Statement No. 333-47525 on Form S-1 dated May 1, 1998
and is incorporated herein by reference.
2.2 Agreement for Purchase and Sale of Business Assets between Rodway
Chevrolet Co. and Lithia Motors, Inc., dated March 19, 1998.
2.3 Stock Purchase Agreement between William N. Hutchins, Hutchins Eugene
Nissan, Inc. and Hutchins Imported Motors and Lithia Motors, Inc.,
dated June 18, 1998.
10.1 Amendment No. 1, dated April 9, 1998 to Business Loan Agreement among
U.S. Bank National Association, as Agent and Lender, and Lithia
Motors, Inc. and its Affiliates and Subsidiaries dated December 22,
1997.
10.2 Amendment No. 2, dated April 29, 1998 to Business Loan Agreement among
U.S. Bank National Association, as Agent and Lender, and Lithia
Motors, Inc. and its Affiliates and Subsidiaries dated December 22,
1997.
10.3 Amendment No. 1 to the Lithia Motors, Inc. 1996 Stock Incentive Plan
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended June 30, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 10, 1998 LITHIA MOTORS, INC.
By /s/ Sidney B. Deboer
-------------------------
Sidney B. DeBoer
Chairman of the Board,
Chief Executive Officer and Secretary
(Principal Executive Officer)
By /s/ Brian R. Neill
-------------------------
Brian R. Neill
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT 2.2
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
THIS AGREEMENT is entered into by and between, RODWAY CHEVROLET CO., A
California corporation (hereinafter referred to as "Seller"), and LITHIA MOTORS,
INC., an Oregon corporation, or its nominee (hereinafter referred to as
"Buyer").
RECITALS:
Seller is a California business corporation engaged in the business of
selling and servicing Chevrolet, Mazda and Isuzu motor vehicles and related
parts and accessories from premises located at 200 E. Cypress Avenue, Redding,
California 96002 (the "Business Real PROPERTY"), and holds franchises issued by
Chevrolet Motor Division of General Motors Corporation, Mazda Motor Sales of
America, Inc. and American Isuzu Motors, Inc.
Buyer wishes to purchase from Seller, and Seller is willing to sell to
Buyer, all assets relating to Seller's Chevrolet, Mazda and Isuzu franchises at
the Business Real Property conditioned upon the above referenced Franchisors
granting to Buyer a franchise for the sale of new Chevrolet, Mazda and Isuzu
motor vehicles, respectively, in the same location as Seller's franchises.
Buyer (or a related entity) also wishes to purchase 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 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 June 18,1998.
(b) "SELLERS BUSINESS" shall refer to any and all activities
conducted by Seller in Redding, California, relating to the marketing and sale
of new Chevrolet, Mazda and Isuzu vehicles and associated parts and accessories,
and the repair and servicing of new or used Chevrolet, Mazda and Isuzu vehicles.
(c) "PURCHASED ASSETS" shall refer to those assets which are
identified in Paragraph 2 as being purchased and sold by the parties hereunder.
(d) Sellers "EQUIPMENT" shall refer to tangible personal property
owned or used by Seller in connection with Seller's business, including, but not
limited to, all of Seller's machinery, tools, signs, office equipment, computer
equipment, computer programs, microfiches, parts lists, repair manuals, sales or
service brochures, furniture and fixtures, and all of Seller's leasehold
improvements to the Business Real Property. Prior to the Closing Date, a list of
the "Equipment" shall be attached hereto as Exhibit "A". Buyer and Seller have
acknowledged that certain equipment used by Seller and included in this
definition is presently certain equipment used by Seller and included in this
definition is presently owned by All-Way Leasing, Inc., ("All-Way"), a
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<PAGE>
California corporation. Prior to the Closing Date, a listing prepared by Seller
of certain personal items being retained by Seller and NOT being purchased by
Buyer shall be attached hereto as Exhibit "B".
(e) Seller's "Intangible Assets" shall refer to Seller's telephone
and fax numbers, service customer lists, sales customer lists, all rights of
Seller under contracts assigned to and assumed by Buyer pursuant to this
Agreement, all goodwill associated with Seller's Business, and all other
intangible rights and interests of any value relating to Seller's Business;
provided, however, that Seller's business name ("Rodway Chevrolet, Mazda,
Isuzu") is not included within the Intangible Assets being sold by Seller
hereunder.
(f) "Business Real Property" shall refer to that certain real
property owned by Shasta Enterprises in Redding, California, which is a
portion of Assessor's Parcel Number 107-360-191 and more commonly known as
the Rodway Chevrolet-Mazda-Isuzu automobile dealership premises, the address
of which is 200 E. Cypress Avenue, Redding, California, as depicted on
Exhibit "D", which is attached hereto and incorporated herein by reference.
(g) "Franchisor(s)" shall refer to Chevrolet Motor Division of
General Motors Corporation, Mazda Motor Sales of America, Inc., and American
Isuzu Motors, Inc.
(h) "New Vehicle" shall refer to a Chevrolet, Mazda or Isuzu motor
vehicle which: (i) is unregistered and unused, (ii) is from the 1996, 1997 or
1998 model year, (iii) has been driven for less than 500 odometer miles, and
(iv) may be represented or warranted to consumers as "new" under California law.
"Rollback Vehicle" shall mean an unregistered vehicle from the 1996, 1997 or
1998 model year which has been sold to a customer by Seller but returned because
of the customer's inability for whatever reason, to complete the purchase.
"DEMONSTRATOR Vehicle" shall mean an unregistered vehicle from the 1996, 1997 or
1998 model year, which has been used and operated by Seller on dealer plates for
sales demonstration purposes. "Used Vehicle" shall mean any vehicle which is not
a "new vehicle", a "demonstrator vehicle" or a "rollback vehicle" as defined in
the three preceding sentences.
(i) "Date of this Agreement" shall refer to the first date upon which
this Agreement has been signed by all of the parties.
(1) 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 and 8 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 and 8
of this Agreement.
3. INVENTORY OF NEW VEHICLES, DEMONSTRATOR VEHICLES, ROLLBACK VEHICLES
AND USED VEHICLES. Buyer shall purchase Seller's entire inventory of new
Chevrolet, Mazda and Isuzu vehicles, as that inventory exists on the Closing
Date. Buyer also shall purchase Seller's entire
2
<PAGE>
inventory of demonstrator vehicles, rollback vehicles and used vehicles as that
inventory exists on the Closing Date.
(a) PRICE OF NEW VEHICLES. The purchase price for each of Sellers new
1996, 1997 and 1998 vehicles shall be equal to Seller's factory invoice cost
adjusted to reflect any holdback, carryover allowance, incentives, or price
adjustments which are received by or credited to Seller at the completion of the
new vehicle inventory (i.e., on the final day of the inventory at such time as
the inventory is reported to representatives of Lithia and Rodway), and further
adjusted for the addition (or removal) of accessories and/or equipment at
Seller's internal cost for parts and labor., With respect to vehicles "in
transit" (i.e., those vehicles which are not "on the ground" at the Business
Property at the completion of the new vehicle inventory), any holdback,
carryover allowance, incentives, price adjustments, advertising and flooring
allowance will be paid to Buyer at such time as Seller has received the same
from the manufacturer.
(b) DEDUCTION FOR DAMAGE TO NEW VEHICLES. Immediately prior to
Closing, Buyer and Seller shall jointly inspect Seller's inventory of new
vehicles. If any new vehicle purchased by Buyer from Seller is damaged, and the
cost of repairing that damage would be more than $1,000.00, then that vehicle
shall be treated as a used vehicle for purposes of Paragraph 4 and this
Paragraph 3, rather than as a new vehicle. If any vehicle in Seller's inventory
of new vehicles is damaged, and the cost of repairing that damage is less than
$1,000.00, then Buyer shall be obligated to purchase that vehicle as a new
vehicle, and the price for that vehicle, as determined under subparagraph 3(a),
shall be reduced by the actual net cost to Buyer of repairing that damage. If
Buyer and Seller are unable to agree upon the actual net cost to Buyer of
repairing the damage to a vehicle, then Buyer and Seller shall select an
independent third party to determine that repair cost, which determination shall
be binding upon both Buyer and Seller.
(c) 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.
(d) PRICE FOR DEMONSTRATOR AND ROLLBACK VEHICLES. The price for each
demonstrator vehicle shall be determined as provided in subparagraphs 3(a) and
3(b) and then reduced by 25 cents per mile for each odometer mile in excess of
4,000 miles on that vehicle. The price for each rollback vehicle shall be
determined as provided in subparagraph 3(a), less ten percent (10%), and further
adjusted as set forth in paragraph 3(b).
(e) PRICE FOR USED VEHICLES. The purchase price for each of Seller's
used vehicles shall be the wholesale value of the vehicle as determined by the
then current edition of Kelley Blue Book (including adjustments for mileage,
equipment, reconditioning, etc...). If Buyer and Seller are unable to agree upon
the appropriate adjustments for reconditioning, Buyer and Seller shall select an
independent third party to determine that adjustment, which determination shall
be binding upon both Buyer and Seller.
3
<PAGE>
(f) USED VEHICLE DISCLOSURES. Prior to closing, Seller shall provide
Buyer with access to Seller's purchase and repair documentation for the used
vehicles, and at the closing provide to Buyer legal odometer statements and free
and clear title for each of the used vehicles. All vehicles are sold "As-Is"
without warranty, either express or implied.
(g) PAYMENT FOR NEW, DEMONSTRATOR, ROLLBACK AND USED VEHICLES. The
aggregate purchase price for all new, demonstrator, rollback and used vehicles
purchased by Buyer from Seller shall be paid in full outside of escrow.
4. INVENTORY OF NEW PARTS AND ACCESSORIES. Buyer shall purchase Seller's
entire inventory of new, undamaged and remanufactured Chevrolet, Mazda and Isuzu
vehicle parts and accessories manufactured by Franchisors and/or third party
suppliers listed on the current supplier's price list (including parts with
superceded numbers), as that inventory exists on the inventory date. Buyer shall
have no obligation to purchase from Seller any parts or accessories which are
used or damaged. Prior to Closing, Seller shall maintain Seller's inventory of
parts and accessories at a level consistent with good business practices and
Seller's normal and regular course of business.
(a) PRICE FOR PARTS AND ACCESSORIES. The purchase price for each item
in Seller's inventory of new, remanufactured and undamaged parts and accessories
for Chevrolet, Mazda and Isuzu vehicles (whether manufactured by Franchisors or
third party suppliers) shall be the net cost for that item as set forth in the
then most recent price book published by the supplier of that item.
(b) DETERMINATION OF INVENTORY OF PARTS AND ACCESSORIES. Seller's
inventory of new, remanufactured and undamaged Chevrolet, Mazda and Isuzu parts
and accessories (whether manufactured by Franchisor or third party suppliers)
shall be determined immediately prior to Closing (or on whatever earlier date
shall be selected by mutual agreement of the parties) by an inventory to be
conducted by appointees of Buyer and Seller. Buyer and Seller shall each be
responsible for the cost of their respective representatives. The inventory
shall be priced and extended as soon thereafter as possible.
(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.
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS. Seller agrees to sell all of the
Equipment to Buyer, and Buyer agrees to purchase the Equipment from Seller.
Seller warrants to Buyer that the items listed on Exhibit "A" constitute
tangible personal property (other than inventory, consumable supplies or those
items listed on Exhibit "B") which, during the six (6) months preceding Closing,
has owned or used by Seller in connection with Seller's Business. Buyer shall
have the right to fully inspect the Equipment. Any Parts delivery or shop
vehicles which may be included in this section will be purchased by Buyer as
part of Seller's Used Vehicle inventory
(a) PRICE FOR EGUIPMENT. The purchase price for Equipment purchased
by Seller or All-Way on or after January 1,1996, shall be the invoice amount
thereof. The purchase price for Equipment purchased by Seller or All-Way prior
to January 1, 1996, shall be the current fair market value. Notwithstanding the
foregoing, (i) the UCS computer system (and related hardware) owned by All-Way
and present at the Business Property and All-Way Leasing's corporate office
shall be purchased by Buyer for its fair market value or One Hundred Fifty
Thousand and 00/100 Dollars ($150,000.00), whichever is greater, and (ii) the
purchase price for the electronic message center owned by All-Way and located at
300 E. Cypress Avenue, Redding, California, shall be Fifty Thousand and 00/100
Dollars ($50,000.00). The current fair market shall be determined by an
appraisal; the decision of the appraiser
4
<PAGE>
shall be binding upon Buyer and Seller. The appraisal shall be determined prior
to the Closing on a date mutually agreeable to the parties. Buyer and Seller
shall each be responsible for 50% of the fees charged by the appraiser. Seller
agrees that Buyer shall have the right to allocate the aggregate purchase price
for the Equipment among the various items of Equipment in whatever manner Buyer,
in the exercise of its reasonable discretion, believes will best reflect the
relative fair market values of those items.
(b) PAYMENT FOR EQUIPMENT. The purchase price for the Equipment shall
be paid as follows:
(1) Prior to or simultaneously with the execution of this
Agreement, Buyer is making an earnest money deposit to Chicago Title Company, in
Redding, California, in the amount of $500,000.00, which earnest money deposit,
together with all interest earned thereon, shall be credited at Closing against
the purchase price for the Equipment.
(2) The balance of the purchase price for the Equipment shall be
paid in full at Closing.
(c) Buyer shall purchase Seller's leasehold improvements for the
sum of $166,371, which amount shall be paid in full at the closing. The
leasehold improvements are transferred to Buyer in as-is condition, without
warranty, either express or implied.
6. SUPPLIES. Buyer shall purchase all of the gas, oil, nuts, bolts,
and other supplies which are held for use in Seller's Business; provided,
however, that Buyer shall not be obligated to purchase used or damaged items
or supplies. The price for all such supplies shall be Seller's actual net
cost, as determined by mutual agreement of the parties, and shall be paid to
Seller at Closing. Buyer shall purchase prepaid expenses of Seller which are
assignable from Seller to Buyer.
7. REPAIR WORK IN PROGRESS. Buyer shall purchase all of Seller's
vehicle repair work in progress (in-house and subcontracted), at a price
equal to Seller's actual net cost (before profit and overhead) for all work
performed prior to Closing. The purchase price for work in progress shall be
paid at Closing.
8. INTANGIBLE ASSETS. Buyer shall purchase all of Seller's Intangible
Assets.
(a) The aggregate purchase price for Seller's Intangible Assets shall
be Two Million One Hundred Fifty Thousand and 00/100 Dollars ($2,150,000.00).
This $2,150,000.00 purchase price shall be allocated entirely to goodwill and
all other intangible assets shall be at no charge; provided, however, that no
value shall be allocated to the non-transferable Chevrolet, Mazda and Isuzu
franchises issued by the Franchisors. This $2,150,000.00 purchase price shall be
paid at the Closing.
(b) In order for Buyer to receive the full benefit of the intangible
goodwill being purchased by Buyer, it will be necessary for Seller to perform
no-charge repair work and vehicle warranty work with respect to vehicles
repaired or sold by Seller prior to Closing. In partial consideration of the
$2,150,000.00 amount being paid by Buyer for the Intangible Assets, Seller
agrees to reimburse Buyer for the full list price, less 25% of repair and
warranty services which were not covered by factory warranty and which are
performed by Buyer within ninety (90) days or three thousand (3,000) miles from
the date of completion of Seller's repairs as provided in Seller's warranty for
labor performed (as set forth on the reverse of Seller's repair orders). Buyer
agrees to obtain Seller's prior approval before performing any such repairs.
Seller agrees to reimburse Buyer pursuant to the preceding sentence on a monthly
basis, with
5
<PAGE>
payment to be made within ten (10) days after Buyer submits a billing for the
net cost of repair and warranty services performed during the preceding calendar
month.
9. BULK TRANSFERS. It is the intention of the parties that this
transaction comply with Division Six of the California Uniform Commercial Code,
more commonly known as Uniform Commercial Code - Bulk Transfers, and Seller
shall take all actions necessary to comply therewith. Seller will not commence
with the publishing of such notice until such time as Buyer has obtained
approval from Franchisors as an authorized Chevrolet, Mazda and Isuzu dealer.
10. LIMITATION ON LIABILITIES ASSUMED. Except as provided in subparagraph
3(d), Paragraph 7 and Paragraph 8, 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).
11. WARRANTIES OF SELLER. Seller makes the following warranties to Buyer,
with the intent that Buyer rely thereon:
(a) CORPORATE ORGANIZATION. Seller is a corporation organized,
validly existing, and in good standing under the laws of the State of
California. Seller is authorized to do business in the State of California, and
has full power and authority to own, use, and sell its assets.
(b) CORPORATE AUTHORITY. This agreement is subject to approval by
Seller's attorney and certified public accountant within five (5) days after the
date of this Agreement. This Agreement will not violate any judicial,
governmental or administrative decree, order, writ, injunction, or judgment, and
will not conflict with or constitute a default under Seller's bylaws, or any
contract, agreement, or other instrument to which Seller is a party or by which
it may be bound.
(c) EMPLOYEE ISSUES. To Seller's knowledge, no employees of Seller
are members of any union. Within ten (10) days after Franchisors' approval of
Buyer as a Chevrolet, Mazda and Isuzu dealer, Seller shall provide to Buyer the
following: (i) a list of Seller's employees, (ii) a written disclosure of all
benefits made available to Seller's employees (including qualified and
non-qualified retirement plans), and (iii) access to all personnel files for
seller's employees, unless the providing of such information would, in Seller's
reasonable discretion, be prohibited by State or Federal law. All employee
benefit plans maintained by Seller for its employees shall be fully funded prior
to Closing. Seller shall pay all wages, commissions, accrued vacation pay and
other accrued compensation earned by Seller's employees prior to Closing
(together with all accrued FICA and withholding taxes). Seller shall terminate
the employment of all of Seller's employees effective as of the close of
business on the Closing Date. Except as otherwise agreed between the parties,
Buyer may, in Buyer's sole discretion (but shall not be obligated to) hire any
of Seller's employees.
(d) UNDISCLOSED LIABILITIES AND CONTRACTUAL COMMITMENTS. Except as
otherwise disclosed in this Agreement (or in an attached Exhibit), the following
statements are true as of the date of this Agreement and shall be true at
Closing: (i) Seller does not have any liabilities which would materially impair
Buyer's use of the Purchased Assets, (ii) Seller is not a party to any contracts
or commitments which would materially impair Buyer's use of the Purchased
Assets, (iii) no law suit or action, administrative proceeding, arbitration
proceeding, governmental investigation, or other legal or equitable proceeding
of any kind is pending or threatened against Seller which would materially
affect the value of the Purchased Assets, and (iv) Seller has all licenses,
permits and authorizations required by any federal, state or local governmental
or regulatory agency in order to operate Seller's Business, and knows of no
6
<PAGE>
reason why any such license or permit might be subject to revocation. If any
claim is asserted against Buyer after Closing with respect to any obligation of
Seller which Seller has failed to disclose to Buyer in writing, or which Seller
has disclosed but failed to pay, then Buyer shall give prompt written notice of
that claim to Seller. Seller shall indemnify Buyer with respect to all such
obligations.
(e) CONDITION OF EQUIPMENT. Each item of the Equipment shall be in
good operating condition at Closing. Seller will continue to perform routine
maintenance and repairs with respect to the Equipment prior to Closing, Buyer
shall have thirty days prior to the Closing within which to advise Seller in
writing if any item of Equipment is not in good operating condition. Seller
shall thereupon have the option to repair or replace that item, or remove that
item from the items to be purchased by Buyer.
(f) GOOD TITLE. Seller has, and shall transfer to Buyer at
Closing, good and marketable title to all of the Purchased Assets, free and
clear of all security interests, liens, equitable interests, leases,
assessments, restrictions, reservations, or other burdens of any kind. All
current and accrued taxes which may become a lien against any of the
Purchased Assets shall have been paid by Seller prior to Closing (including
property taxes, sales taxes and excise taxes).
(g) NO TOXIC MATERIALS DISCHARGED. Except as disclosed by Seller
on Exhibit "C" attached hereto, (i) no activity in connection with Seller's
Business prior to Closing shall have produced any toxic materials, the
presence or use of which upon the Business Real Property would violate any
federal, state or other governmental law, regulation or order or would
require reporting to any governmental authority, and (ii) there are no
underground fuel tanks, or underground waste oil tanks located on the
Business Real Property, except the oil receptacles related to the underground
hoists and (iii) the Business Real Property is otherwise free and clear of
any toxic materials. For purposes of this subparagraph (h), the phrase "toxic
materials" shall include but not be limited to any and all substances deemed
to be pollutants, toxic materials or hazardous materials under any state or
federal law. Seller has furnished to Buyer, prior to the date of this
Agreement, copies of all environmental reports and certificates of compliance
relating to Seller's Business and the Business Real Property. Upon the
execution of this Agreement, Buyer MAY, at Buyer's sole expense, engage an
appropriate environmental firm which is acceptable to Buyer to conduct an
investigation and produce a Phase One and/or Two Environmental Report
regarding the Business Real Property. If a Phase Two environmental assessment
discloses that the Business Real Property is, or is likely to be, materially
contaminated by the presence of toxic materials, and if Buyer provides Seller
with a written demand to remediate, cleanup, detoxify and decontaminate any
and all such contamination as a condition of Closing, then Seller shall be
obligated (at Seller's sole expense) to either: (i) complete such
remediation, cleanup, detoxification and/or decontamination prior to, and as
a condition of, Closing, at Seller's sole expense, (ii) place sufficient
funds into escrow at Closing to cover the expense of the required remedy, or
(iii) cancel this transaction.
(h) FRANCHISOR'S CONSENT. Seller shall take all actions which are
reasonably necessary on Seller's part to obtain the consent of the
Franchisors to the issuance to Buyer of a franchise for the sale of new
Chevrolet, Mazda and Isuzu vehicles in the same geographical area as Seller's
current franchises in Redding, California.
(i) INDEMNIFICATION FOR BREACH OF WARRANTIES. The parties shall
indemnify and hold the other harmless from and against all losses, damages
and costs (including attorney fees and court costs) relating to any breach of
warranty made by that party in this Agreement (either on the date of this
Agreement or at the time of Closing).
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<PAGE>
(j) SHAREHOLDER WARRANTIES. Neither the shareholders or officers of
the Seller will be required to make any individual warranties. Further, Buyer
acknowledges that the Seller has made no representations or promises of any
description regarding the past, present or future profitability of the
franchises, that Buyer has conducted its own due diligence and has approached
Seller on its own and requested Seller to sell its assets, and that Seller shall
not be required to furnish any financial records nor allow any audit of
financial records or tax returns of the business and that the Buyer has not
relied upon any financial records or tax returns in making its decision to
purchase the business.
(k) ALL-WAY'S CONSENT. Seller warrants that it has obtained the
approval and consent of All-Way to offer for sale the equipment included in
subparagraph 1(d) and that All-Way shall transfer title to said equipment direct
to Buyer pursuant to this Agreement.
12. ADDITIONAL CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. THIS
AGREEMENT SHALL have been authorized by the board of directors of Seller within
five (5) days after the date of this Agreement.
13. CONDUCT OF BUSINESS PENDING CLOSING. Seller warrants that during the
period beginning on the date of this Agreement and ending at Closing: (i) Seller
shall continue to operate Seller's Business in the usual and ordinary course,
and in substantial conformity with all applicable laws, ordinances, regulations,
rules or orders; (ii) Seller shall not allow any liens to be placed against any
of the Purchased Assets unless those liens are discharged prior to Closing;
(iii) Seller shall not take any action which causes a material adverse change in
the operations of Seller's Business; (iv) Seller shall not conduct any sale
which shall use the words or phrase "Going Out of Business Sale"; (v) Seller
shall use its best efforts to preserve the value of the Chevrolet, Mazda and
Isuzu franchises in Redding, California.
13. 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 five (5) days after the date of this
Agreement. This Agreement does not violate the provision of any judicial,
governmental or administrative decree, order, writ, injunction, or judgment, or
conflict with or constitute a default under, the Article or bylaws of Lithia
Motors, Inc., or any contract, agreement, or other instrument to which Lithia
Motors, Inc. is a party. Seller has the right to rescind this Agreement until
accepted by Buyer's board of directors as herein set forth.
(c) Buyer will make all efforts to submit a completed dealer
application to Chevrolet Division, General Motors Corporation, within twenty
one (21) days from Buyer's execution of this Agreement, and Buyer will
diligently make all efforts to obtain a Dealer Sales and Service Agreement
from the Franchisors on or before June 1, 1998. /or as soon thereafter as is
reasonably practicable.
15. ADDITIONAL CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The obligation
of Buyer to close this transaction is subject to each of the following
conditions (each of which is for the benefit of Buyer and may be waived by
Buyer), and Buyer shall have the right to rescind this Agreement if any of the
following conditions is not satisfied in accordance with its terms:
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(a) Buyer shall have obtained from Franchisors, prior to the Final
Closing Date, a franchise to sell new Chevrolet, Mazda and Isuzu vehicles in the
same location as Seller's current franchises in Redding, California (as
evidenced by the issuance to Buyer by Franchisor of an appropriate Dealership
Sales and Service Agreement, and the approval of Buyer as the publicly owned
Dealer-Operator of the franchise), and Buyer agrees to use its best reasonable
efforts to obtain those franchises.
(b) Buyer shall have approved any facility improvement requirements
which may be imposed by Franchisors; provided, Buyer's approval shall not be
unreasonably withheld.
(c) Buyer shall have been permitted to inspect the Business Real
Property. All leases which are necessary for the beneficial use by Buyer of the
Business Real Property shall be closed concurrently with this transaction under
terms and conditions set forth in this Agreement.
(d) All of Seller's agreements and warranties set forth in this
Agreement shall be true and correct at Closing; provided that Buyers decision
to close this transaction shall not release Seller from liability to Buyer
for any warranty which is subsequently determined to be untrue or incorrect.
(e) This agreement shall have been authorized by the board of
directors of Lithia Motors Inc. within five (5) days after the date of this
Agreement.
16. CLOSING. The parties shall make all reasonable effort to close the
purchase and sale under this Agreement at or before 5:00 p.m., Pacific Standard
Time, on or before June 18, 1998, at the offices of Chicago Title Company, 1647
Court Street, Redding, California, or at such other location as shall be
selected by mutual agreement of the parties.
(a) Immediately upon execution of this Agreement by the parties, the
parties shall establish a closing escrow account at Chicago Title Company in
Redding, California, (the "Closing Escrow Agent"). Buyer and Seller each shall
pay one-half (1/2) of the closing escrow fees. Buyer and Seller agree to execute
whatever reasonable escrow instructions may be required by Closing Escrow Agent
in connection with this transaction. In the event of any conflict between those
escrow instructions and this Agreement, the terms of this Agreement shall
prevail. Upon the execution of this Agreement, Buyer shall deliver to Closing
Escrow Agent the sum of $500,000.00 (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 5, 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 June 18, 1998.
(c) If this transaction closes as provided herein, then actual
possession and all risk of loss, damage or destruction with respect to the
Purchased Assets, shall be deemed to have been delivered to Buyer at the close
of escrow.
(d) At Closing, and coincidentally with the performance of the
obligations to be performed by Buyer at Closing, Seller shall deliver to Buyer
the following: (i) all bills of sale, assignments and other instruments of
transfer, in form and substance reasonably satisfactory to Buyer,
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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 June 18, 1998,
because there has been a failure of any condition precedent set forth in
Paragraphs 12 or 15 or because Seller has elected to rescind the Agreement
pursuant to subparagraph 11(g), then: (i) all rights and obligations of both
parties under this Agreement shall terminate, (ii) Buyer shall be entitled to a
refund of the entire $500,000.00 earnest money deposit (and interest earned
thereon) referred to in subparagraph 5(b) and (iii) this Agreement and all
predecessor agreements shall thereafter be void and of no effect.
(f) If Closing does not take place on or before June 18, 1998,
because of Buyer's material breach of this Agreement, the parties recognize that
Seller may be entitled to damages for such breach. HOWEVER, THE PARTIES AGREE
THAT IT IS EXTREMELY DIFFICULT AND IMPRACTICAL TO ASCERTAIN THE EXTENT OF SUCH
DAMAGES AND, TO AVOID THIS PROBLEM, BUYER AND SELLER AGREE THAT IN THE EVENT OF
SUCH BREACH BY BUYER, THEN THE $500,000.00 EARNEST MONEY DEPOSIT DELIVERED BY
BUYER TO THE CLOSING ESCROW AGENT (TOGETHER WITH ALL INTEREST EARNED THEREON
WHILE HELD BY THE CLOSING ESCROW AGENT) SHALL BE FORFEITED TO SELLER AS SELLER'S
SOLE AND EXCLUSIVE REMEDY FOR BUYER'S BREACH, AND SELLER SHALL HAVE NO OTHER
RIGHTS OR REMEDIES AGAINST BUYER BY REASON OF THAT BREACH. THE ABOVE AMOUNT HAS
BEEN AGREED UPON THE PARTIES AS A REASONABLE ESTIMATE BY BUYER AND SELLER OF
SELLER'S DAMAGES IN THE EVENT OF SUCH A DEFAULT, AND THE PARTIES SPECIFICALLY
ACKNOWLEDGE THEIR AGREEMENT TO THE PROVISIONS OF THIS SECTION BY PLACING THEIR
INITIALS BELOW:
_________Buyer _______Seller.
In the event of such breach, escrow is directed to release said funds to Seller.
If Closing does not take place on or before the Final Closing Date because of
Seller's material breach of this Agreement, then Buyer shall be entitled to: (i)
a refund of the entire $500,000.00 earnest money deposit previously delivered by
Buyer to the Closing Escrow Agent (together with all interest earned thereon
while held by the Closing Escrow Agent), (ii) any and all other rights and
remedies for that breach which are specified in this Agreement or which may be
provided by law or in equity.
(h) Both parties agree to make a good faith effort to execute and
deliver all documents, with the exception of Seller's financial or tax records,
and complete all actions reasonably necessary to consummate this transaction.
17. SELLER'S ACCOUNTS RECEIVABLE. For a period of six (6) months after
Closing, Buyer shall, on Seller's behalf, and at no charge to Seller, accept any
payment with respect to Seller's customer receivables and other receivables
arising out of the operation of Seller's Business prior to Closing. All
collected receivables from vehicle sales shall be delivered to Seller within ten
(10) days after collection,
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and all other collected receivables shall be delivered to Seller on a monthly
basis. Buyer shall have no obligation to undertake collection efforts with
respect to Seller's receivables, and Buyer's only obligation shall be to account
for and pay over Seller's receivables which are actually received by Buyer.
Seller shall be provided with reasonable access to Buyer's Chevrolet, Mazda and
Isuzu communication equipment for the above time period, at no cost to Seller,
for purposes of processing claims with the Franchisors.
18. SURVIVAL OF REPRESENTATIONS. ALL REPRESENTATIONS, WARRANTIES,
INDEMNIFICATION obligations and covenants made in this Agreement shall survive
the Closing, and shall remain in effect until the expiration of the latest
period allowable in any applicable statute of limitations.
19. ASSIGNMENT BY BUYER. Subject to Seller's prior written consent, which
shall not be unreasonably withheld, Lithia Motors, Inc. shall have the right to
assign all rights and obligations of Lithia Motors, Inc. as "Buyer" under this
Agreement. Provided, Seller's consent shall not be required if the assignee is a
corporation, the stock of which is owned entirely by Buyer. In the event of any
such assignment, the assignee shall assume all rights and obligations of the
Buyer under this Agreement, and Lithia Motors, Inc., shall remain jointly and
severally liable for all obligations of the Buyer.
20. PURCHASE OF REAL PROPERTY. AS A CONDITION TO THE CLOSING of the
transaction contemplated under this Agreement, Buyer (or a related entity)
agrees to purchase the Business Real Property pursuant to the real estate
purchase agreement which is attached hereto as Exhibit "D" and incorporated
herein by reference.
21. MISCELLANEOUS.
(a) There are no oral agreements or representations between the
parties which affect this transaction, and this Agreement supercedes all
previous negotiations, warranties, representations and understandings between
the parties. True copies of all documents referenced in this Agreement are
attached hereto. If any provision of this Agreement shall be determined to be
void by any court of competent jurisdiction, then that determination shall not
affect any other provision of this Agreement, and all other provisions shall
remain in full force and effect. If any provision of this Agreement is capable
of two constructions, only one of which would render the provision valid, then
the provision shall have the meaning which renders it valid. The paragraph
headings in this Agreement are for convenience purposes only, and do not in any
way define or construe the contents of this Agreement.
(b) This Agreement shall be governed and performed in accordance with
the laws of the state of California. Each of the parties hereby irrevocably
submits to the jurisdiction of the courts of Shasta County, California, and
agrees that any legal proceedings with respect to this Agreement shall be filed
and heard in the appropriate court in Shasta 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.
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(e) All notices provided for herein shall be in writing and shall be
deemed to be duly given when mailed by United States certified mail, postage
prepaid, to the last-known address of the party entitled to receive the notice,
or when personally delivered to that party.
(f) Time is of the essence to this Agreement.
(g) Should any party hereto institute any action or proceedings to
enforce or interpret any provision hereof, or for damages by reason of any
alleged breach of any provision of this Agreement, the prevailing party shall be
entitled to recover from the losing party or parties such amount as the court
may adjudge to be reasonable attorney's fees for services rendered to the
prevailing party in such action or proceeding. The term "prevailing party" as
used in this section shall include, without limitation, any party who is made a
defendant in litigation in which damages and/or other relief may be sought
against such party and a final judgment or dismissal or decree is entered in
such litigation in favor of such party defendant.
(h) Seller and Buyer agree to hold the other party harmless from any
claims relative to their respective obligations or operation of the dealership.
Therefore, Seller would agree to hold Lithia Motors harmless from any claims
dealing with the opefation 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.
(i) The parties agree that all hard copies of customer service files
shall remain in the possession of Buyer at the Business Real Property for a
period of one (1) year following the Closing and that Seller shall have
unrestricted access thereto. Buyer shall maintain the files in good condition.
Upon expiration of the one (1) year period, the records shall be returned to
Seller.
(1) Subsequent to Buyer having obtained appointment as a franchised
Chevrolet, Mazda and Isuzu dealer, Buyer may interview Seller's employees for
prospective employment with Buyer.
(k) The parties agree that this Agreement shall become null and void
in the event Buyer shall fail to be appointed as a franchised Chevrolet, Mazda
and Isuzu dealer (or receive a similar commitment from said manufacturers) by
close of business on June 1, 1998.
(l) Each of the parties to this Agreement shall pay its respective
attorney's fees, consultant's fees and any other similar costs associated with
this transaction. Buyer and Seller represent that except as otherwise herein
provided, neither party has dealt with any broker, consultant or finder in
connection with this Agreement and that no fees are due and payable. The parties
agree to indemnify and hold the other harmless with respect to any such fee,
commission, or assertion therefor, alleged to be payable because of any act,
omission, or statement of the indemnifying party, and each party agrees to be
responsible for its respective fees, commissions and/or costs.
(m) The parties to this Agreement waive 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 Agreement had been jointly
conceived and drafted.
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(n) The terms of this Agreement shall be held in the strictest
confidence and shall not be disclosed by either party prior to the Closing,
except insofar as such information may be required by law to be disclosed to
Buyer's shareholders pursuant to the Securities and Exchange Act of 1934.
Subsequent to the Closing, all terms related to the price paid for
vehicles, equipment, inventory, leasehold improvements, goodwill, the Business
Real Property, or other assets under the Agreement shall not be disclosed by
either party, except insofar as may be required as may be set forth above or
pursuant to litigation between the parties related to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated below.
SELLER: RODWAY CHEVROLET CO., a California corporation
By /s/ Antonio Rodriguez,
-----------------------
/s/ Antonio Rodriguez, Attorney in Fact 3/19/98
--------------------------------------------- -------
Antonio Rodriguez, President Dated
BUYER: LITHIA MOTORS, INC., an Oregon corporation
By /s/ B Gray 3/19/98
--------------------------------------------- -------
Brad Gray, Executive Vice President
Dated
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EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into this 18 day
of JUNE, 1998, by and between LITHIA MOTORS, INC., an Oregon corporation
("Lithia"), and WILLIAM N. HUTCHINS, (the "Shareholders"), and HUTCHINS EUGENE
NISSAN, INC., an Oregon corporation. dba Hutchins Nissan, and HUTCHINS IMPORTED
MOTORS, an Oregon corporation, dba Hutchins Springfield Toyota, (collectively
referred to as the 'Company").
RECITALS
A. The Shareholders are the owners of all of the issued and outstanding
shares of capital stock of HUTCHINS EUGENE NISSAN, INC., and HUTCHINS IMPORTED
MOTORS (the "Shares").
B. The Company is engaged in the business of selling and servicing Nissan
and Toyota motor vehicles and related parts and accessories from premises
located at 2060 Centennial Blvd., Eugene, Oregon, (the "Eugene Real Property"),
and 863 Main Street, Springfield, Oregon, (the "Springfield Real Property")
(collectively the "Business Real Property").
C. Lithia desires to acquire 100% of the issued and outstanding capital
stock of the Company, and the Shareholders desire to sell their stock to Lithia,
for the consideration and upon the terms and conditions set forth in this
Agreement.
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:
1.1 "CLOSING" shall refer to the consummation of the transaction
contemplated under this Agreement in accordance with the terms hereof, and
"CLOSING DATE" shall refer to the actual date of Closing. "TARGET CLOSING
DATE" shall refer to August 15, 1998. "FINAL CLOSING DATE" shall refer to
October 15, 1998.
1.2 "SHARES" shall mean the aggregate of all shares of capital stock
of the Company, regardless of class or series.
1.3 "AUDITED ACQUISITION BALANCE SHEET" shall mean the acquisition
balance sheet prepared by Moss Adams LLP pursuant to Section 3.2.
1.4 "NEW VEHICLES" shall mean vehicles from the 1998 or 1999 model
year, unregistered, not reported as sold to the factory, driven less than 200
miles, and meeting Oregon state requirements to be sold as a new vehicle.
1.5 "USED VEHICLE" shall mean any vehicle which is not a "New
Vehicle."
1.6 "PURCHASE PRICE" shall refer to the total price to be paid by
Lithia to the Shareholders for the Shares as determined by Section 4.
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2. SALE AND PURCHASE OF SHARES
2.1 SHARES AND SHAREHOLDERS. Exhibit 2.1 sets forth the name, as it
appears in the Company's corporate records, of each record owner of shares of
the Company's capital stock, the number and class or series of the shares of
capital stock held by each Shareholder, and the percentage of the Purchase
Price (in cash and notes) each Shareholder is to receive.
2.2 SALE OF SHARES. Subject to the terms and conditions set forth
in this Agreement, on the Closing Date the Shareholders shall sell, transfer,
convey, assign, and deliver to Lithia and Lithia shall purchase, acquire and
accept from the Shareholders, all of the right, title and interest in and to
the Shares, free and clear of all encumbrances, claims, liens or restrictions
on transfer. The obligation of Lithia to purchase the Shares is subject to
the Shareholders selling to Lithia, in the aggregate, all of the Shares.
3. PHYSICAL INVENTORY AND AUDIT
3.1 PHYSICAL INVENTORY. On or prior to the Closing Date, Lithia or
Lithia's representatives shall conduct physical inventories of all parts,
accessories, vehicles, equipment and supplies owned by the Company. The
Company shall have the right to have an agent present during each physical
inventory. The physical inventories shall be collectively referred to in this
Agreement as the "Physical Inventories." If a third party is utilized, the
costs will be shared equally between Lithia and the Company.
3.2 AUDIT. With the books and records of the Company, Moss Adams
LLP will prepare, as soon as possible after Closing, an Audited Acquisition
Balance Sheet. The Audited Acquisition Balance Sheet will be prepared using
generally accepted accounting principles with the understanding that all
vehicles and parts inventories will be valued on the Company's current LIFO
basis as adjusted inset forth in Sections 3.2.1, 3.2.2, and 3.2.3 below, but
will be further adjusted by all LIFO inventory reserve balances as they
existed on December 31, 1997. Fixed Assets (Machinery and Shop Equipment,
Parts and Accessories Equipment, Furniture, Fixtures and Leasehold
Improvements) will be valued at an agreed $800,000. Further, the Springfield
Real Property will be valued at $1,750,000. The cost of the audit will be
shared equally between Lithia and the Company and reflected in the Audited
Acquisition Balance Sheet.
3.2.1 NEW VEHICLES. The value of the new vehicles shall be equal
to the factory invoice price less the factory hold-backs, the net cost of
any accessory, equipment or parts missing, and the net cost to repair any
damage. The value will be increased for the actual net cost of parts and
accessories reasonably installed but will not include vehicle preparation
or other dealer charges.
3.2.2 USED VEHICLES. The Shareholder and Lithia shall agree to the
value of the used vehicle inventory at or prior to Closing. if the parties
fail to agree on the value of any used vehicles, the Shareholders shall
purchase such vehicles at book value as reflected on the books and records
of the Company at the time of closing. At the option of the Shareholders,
the cost of such vehicles may be deducted from the cash portion of the
purchase price.
3.2.3 NEW PARTS AND ACCESSORIES INVENTORY. The value of new parts
and accessories shall be the net cost for that item as set forth in the
then most recent price book, then reduced by any stock order discounts,
quantity discounts, and any other reductions that should be reasonably
taken to determine the true net cost. Excluded are the value of all used,
damaged or "obsolete" items included in the inventory. "Obsolete" items are
those not currently listed in price and parts books or not returnable to
supplier.
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4. PURCHASE PRICE
The Purchase Price shall be the stockholders' equity reflected on the
Audited Acquisition Balance Sheet plus $4,000,000. Lithia will receive a
redemption for all vehicle and parts rebates, incentives, and allowances that
have already been received for inventory that exists on the Closing Date. Said
redemption will be received in the form of a credit against the Purchase Price.
5. PAYMENT OF PURCHASE PRICE.
The Purchase Price shall be paid to the Shareholders as set forth in
Exhibit 2.1, as follows:
5.1 Cash at Closing. $6,000,000 by wire transfer or cashier's check
delivered at Closing.
5.2 Promissory Note. Promptly after determination of the Purchase
Price and after the credit set forth in Section 4, by delivery of, at the
sole option of Lithia, either (i) promissory notes in the form of Exhibit 5.2
or (ii) cash, of the remaining balance of the Purchase Price.
6. CLOSING
6.1 Date, Time, and Place of Closing. Subject to the terms and
conditions set forth in this Agreement, the closing ("Closing") of the
purchase and sale of the Shares shall take place at the offices of Lithia
Dodge in Eugene, Oregon, or at such other place as may be mutually agreed
upon by Lithia, the Shareholders and the Company, on the Targeted Closing
Date or as soon as practicable following that date on which all conditions to
the obligations of the parties (other than those requiring the taking of
action at the Closing) have been satisfied or waived. Any other provision of
this Agreement to the contrary notwithstanding, if the Company, the
Shareholders and Lithia have not obtained the consents required by this
Agreement prior to the Final Closing Date, either the Company, the
Shareholders or Lithia shall have the right to terminate this Agreement by
giving written notice to the other parties.
6.2 Documents to be Delivered at Closing by the Shareholders. At
Closing, the Shareholders will deliver or cause the Company to deliver to
Lithia the following instruments and other documents, in each case, in such
form as Lithia may reasonably request:
6.2.1 Stock Certificates for the shares together with executed
stock powers;
6.2.2 The lease relating to the Eugene Real Property as
outlined in Section 10.14;
6.2.3 Consents from all parties from whom consent is required
to be obtained (including all manufacturers) in order for the Company or the
Shareholders to enter into the transactions contemplated by this Agreement
and Lithia to acquire ownership of the Company;
6.2.4 Such other documents and instruments as Lithia may
reasonably require to effectuate or evidence the transfer of all of the Shares.
6.3 Documents to be Delivered at Closing by Lithia. At Closing, Lithia
will execute and deliver to the Shareholders the following instruments:
6.3.1 A cashier's check or wire transfer deposit confirmation
in the amounts as provided by Section 5.1; and
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6.3.2 The lease relating to the Springfield Real Property as
outlined in Section 10.14.
6.4 Transfer Taxes. The Shareholders will pay any transfer taxes and
excise taxes incurred by any party in connection with the transactions
contemplated by this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND EACH OF THE
SHAREHOLDERS
The Company and each of the Shareholders jointly and severally represent
and warrant to Lithia as follows:
7.1 AUTHORIZATION. The Company has the authority to execute and
deliver this Agreement and to perform the Company's obligations hereunder.
This Agreement is a valid and legally binding obligation of the Company and
the Shareholders, enforceable against the Company and the Shareholders in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to the enforcement of creditors, rights generally and
by general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). The Shareholders will have
at Closing (i) good, absolute, and marketable title to the Shares, free and
clear of any liens, claims, encumbrances, or restrictions of any kind, and
(ii) the complete and unrestricted right, power and authority to sell,
transfer, and assign the Shares in accordance with this Agreement.
7.2 INCORPORATION AND GOOD STANDING. The Company is duly organized,
validly existing and in good standing under the applicable laws of the state
of its incorporation and has all necessary power and authority to own, lease,
and operate its properties and assets and to conduct its business as its
business is now being conducted. The Company will delivered to Lithia as
Exhibit 7.2 complete and accurate copies of the Company's articles of
incorporation and bylaws, including all amendments thereto. The Company is
qualified to do business and is in good standing in each state in which it
transacts business. The Company does not have any subsidiaries nor any direct
or indirect equity interest in any corporation, partnership, or other entity.
7.3 CAPITALIZATION. The authorized capital stock of the Company
consists of______ shares of Common Stock in Hutchins Eugene Nissan, Inc., par
value $_______ per share, _______shares of which are outstanding and _______
shares of Common Stock in Hutchins Imported Motors, Inc., par value $_____
per share,________ shares of which are outstanding (collectively, the
"Shares"). The Shares constitute all of the issued and outstanding shares of
capital stock of the Company, have been validly authorized and issued, are
fully paid and non-assessable, and have not been issued in violation of any
preemptive rights. or of any federal or state securities law. On the date
hereof, the Shares are owned beneficially and of record by the Shareholders
as set forth on Exhibit 2.1. There are and will be on the Closing Date no
outstanding subscriptions, options, rights, warrants, convertible securities,
or other agreements or commitments obligating the Company or the Shareholders
to issue any additional shares of its capital stock of any class or any other
securities of any kind. There are no agreements that relate to the voting or
control of the Shares.
7.4 NO CONFLICTS. Neither the execution and delivery of this
Agreement nor the fulfillment of or compliance with the terms and provisions
hereof will violate, conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default or an event which, with
notice or lapse of time or both, would constitute a default under, the
articles of incorporation or bylaws of the Company, any contract, agreement,
mortgage, deed of trust, or other instrument or obligation to which either
the Shareholders or the Company are parties or by which any of them is bound,
or violate any provision of any applicable law or regulation or of any order,
decree, writ or injunction of any court or governmental body, or result in
the creation or imposition of any
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lien, charge, restriction, security interest or encumbrance of any nature
whatsoever on any property or asset of the Company or on the Shares.
7.5 CONSENTS. No consent from, or other approval of; any
governmental entity or agency or any other person or entity is necessary in
connection with the execution, delivery or performance of this Agreement by
the Company, other than consent from the Nissan Motor Corporation in U.S.A.
and Toyota Motor Sales, U.S.A., Inc.
7.6 REAL PROPERTY. Set forth in Exhibit 7.6 is a complete and
accurate legal description of the Business Real Property. The zoning of the
Business Real Property permits the presently existing improvements and the
continuation of the business presently being conducted on such real property.
To the best of the Company's and each of the Shareholders' knowledge, there
are no pending or proposed changes to such zoning.
7.7 TANGIBLE PERSONAL PROPERTY. Exhibit 7.7 sets forth a complete
and accurate description of all equipment, furniture, fixtures, and other
tangible personal property (except parts and supplies) owned by, in
possession of, or used by the Company in connection with its business and a
complete and accurate description of all tangible personal property in which
the Company has a leasehold interest, together with a complete and accurate
description of each lease under which the Company holds such leasehold
interests. Each of the leases is in full force and effect and constitutes a
legal, valid, and binding obligation of the parties thereto. The Company has
performed the covenants required to be performed by it under each of the
leases to which it is a party and is not in default under any of the leases
to which it is a party.
7.8 PARTS INVENTORIES. The parts inventories of the Company consist
of goods of a quality and in quantities that are salable in the ordinary
course of its business with normal mark-up at prevailing market prices. All
parts and accessories in the inventory of the Company are returnable and
undamaged parts and accessories that (i) are still in the original, resalable
merchandising package, and in unbroken lots, (ii) were listed for sale in the
then-current dealer parts and accessories price schedule for the represented
manufacturers, (iii) were purchased directly from the represented
manufacturers, and (iv) are returnable under the terms of the represented
manufacturers' sales and service agreement for credit to the account of the
Company.
7.9 LICENSES AND PERMITS. Exhibit 7.9 sets forth a complete and
accurate description of all permits, licenses, franchises, certificates, and
similar items and rights, owned or held by the Company (hereinafter
collectively referred to as the "Licenses and Permits"). The Licenses and
Permits are adequate for the operation of the Company's business; are valid
and in full force and effect, and no basis exists for a grantor of any such
Licenses or Permits to terminate the same. No additional permit, license,
franchise, certificate, or similar item or right is required by the Company
for the operation of its business.
7.10 INTELLECTUAL PROPERTY. Exhibit 7.10 sets forth a complete and
accurate description of all intellectual property presently in use by the
Company, which intellectual property includes (without limitation) patents,
trademarks, trade names, service marks, copyrights, trade secrets, customer
lists, inventions, formulas, methods, processes, advertising materials,
Internet sites, and any other proprietary information or property. There are
no outstanding licenses or consents to third parties granting the right to
use any intellectual property owned by the Company. To the best of the
Company's and each of the Shareholders' knowledge, the Company owns and has
the exclusive right to use its intellectual property free and clear of any
claims and without any conflict with the rights of others. No royalties or
fees are payable by the Company to any third party by reason of the use of
any intellectual property by the Company. No additional intellectual property
is required by the Company for the operation of its business. The
Shareholders each agree that they will not, either for their own benefit or
through any corporation, partnership, or other business entity in which they
have an interest, use the "Hutchins" name in association with the sale, lease
or service of automobiles or light trucks for a period of 10 years within 50
miles of Eugene, Oregon.
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7.11 TITLE TO PROPERTIES; ENCUMBRANCES. The Company has good,
absolute, and marketable title to (or, in the case of leased property, valid
and subsisting leasehold interests in) all of its properties and assets,
including (without limitation) the properties and assets that will be listed
on Schedules 7.6, 7.7, 7.8, 7.9, and 7.10 except for properties and assets
sold, consumed, or otherwise disposed of by the Company in the ordinary
course of its business, and will have good, absolute and marketable title to
all assets included in the Audited Acquisition Balance Sheet. The Company and
the Business Real Property are subject to no liens, mortgages, encumbrances,
conditional sales agreements, security interests, claims, or restrictions of
any kind or character, except for (i) the encumbrances that will be listed on
Exhibit 7.11 and (ii) liens for current taxes not yet due and payable.
7.12 FINANCIAL STATEMENTS. The Company has delivered to Lithia copies
of a balance sheet for the Company dated December 31, 1997 and June 30, 1998
(the "Balance Sheet Dates"), and the related statement of income for the
period ending December 31, 1997 and June 30, 1998 (hereinafter collectively
referred to as the "Financial Statements"). The Financial Statements fairly
present the financial condition of the Company at the dates mentioned and the
results of its operations for the periods specified, were prepared in
accordance with generally accepted accounting principles, and reflect
adequate reserves for all reasonably anticipated losses, claims, and costs.
The balance sheets in the Financial Statements discloses all of the debts,
liabilities, and obligations of any nature (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) of the Company as
of the Balance Sheet Dates and includes appropriate reserves for all taxes
and other liabilities accrued or due at such dates but not yet paid.
7.13 INDEBTEDNESS FOR BORROWED MONEY; GUARANTIES. The Company will
delivered to Lithia a complete and accurate copy of all instruments
evidencing or relating to the Company's indebtedness for borrowed money. The
Company is not in default or violation of any provision of any agreement
evidencing or relating to its indebtedness for borrowed money. Exhibit 7.13
sets forth a complete and accurate description of all guaranties by the
Company of any obligation or liability of any person or entity, including
(without limitation) any guaranties of installment sales contracts, leases or
obligations under service contracts.
7.14 TAX MATTERS. The Company has duly filed all federal, state, and
local tax returns required to be filed by it. All federal, state, local, and
foreign income, ad valorem, excise, b&o, sales, use, payroll, unemployment,
and other taxes and assessments that are due and payable by the Company, or
by the Shareholders on behalf of the Company have been properly computed,
duly reported, fully paid, and discharged. The only unpaid taxes that require
payment by the Company or on behalf of the Company, are current taxes not yet
due and payable. All current taxes not yet due and payable by the Company
have been properly accrued and are accurately reflected in the Company's
balance sheet in the Financial Statements and will be properly accrued and
accurately reflected on the Audited Acquisition Balance Sheet. The Company
has not been delinquent in the payment of any tax, assessment or governmental
charge, nor has any tax deficiency been proposed or assessed against it, nor
has it executed any waiver of the statute of limitations on the assessment or
collection of any tax. The Shareholders and the Company jointly and severally
agree to indemnify and hold harmless Lithia with respect to any income or
other tax liabilities, penalties and interest which arise from the operation
of the Company prior to Closing or arise as a result of the transactions
contemplated by this Agreement.
7.15 TRANSACTIONS SINCE BALANCE SHEET DATE. Since the latest of the
Balance Sheet Dates or as anticipated by this Agreement, (i) the Company has
not incurred any debts, liabilities, or obligations except current
liabilities in the ordinary course of business; discharged or satisfied any
liens or encumbrances, or paid any debts, liabilities, or obligations, except
in the ordinary course of business; mortgaged, pledged, or otherwise
subjected to any lien or other encumbrance any of its properties or assets;
canceled any debt or claim; sold or transferred any properties or assets
except sales from inventory in the ordinary course of business; nor entered
into any transaction other than in the ordinary course of business; (ii)
there has not been any change in the financial condition, net
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income, assets, liabilities, operations, or business of the Company other than
changes in the ordinary course of business, none of which, individually or in
the aggregate, has been material; (iii) there has not been any declaration,
setting aside or payment of any dividend or other distribution in respect of, or
any repurchase or acquisition of; the capital stock of the Company; (iv) the
Company has not issued any securities or options to purchase any securities of
any nature whatsoever; (v) the Company has not increased the compensation,
commissions, bonuses, or other remuneration payable to any officer, director,
employee, or to any other person or entity, whether now or hereafter payable;
(vi) there has not been any damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting the assets, properties or
business of the Company; (vii) the Company has not made any capital expenditure
or commitment in excess of $20,000.00 for additions to property, plant, or
equipment; (viii) the Company has not made any loan or advance to any person or
entity; guaranteed any obligation or liability of any person or entity,
including (without limitation) any guaranties of any installment sales contracts
or leases, other than as will be set forth on Exhiit 7.15, or given any
indemnification to any person or entity; (ix) the Company has not made any sale,
assignment or transfer of; additions to or transactions involving any of its
tangible assets other than in the ordinary course of business; (x) the Company
has not made any change in its method of accounting or accounting practices
including (without limitation) any change in depreciation or amortization
policies or rates; (xi) the Company has not granted any waiver or release of any
claim or right, or canceled any debt or claim held by it; (ix) the Company has
not amended or terminated any material contract, agreement, or license to which
it is a party; or (ix) the Company has not agreed, in writing or otherwise, to
do or permit any of the foregoing.
7.16 LITIGATION. Exhibit 7.16 sets forth a complete and accurate
description of all legal actions, suits, arbitrations, condemnation actions,
or other proceedings pending or threatened against the Shareholders with
respect to their shares or the Company, or any of its properties, assets, or
business, and all orders, decrees, writs or injunctions of any court or
governmental body applicable to the Company. The Company is not aware of any
facts that might result in any other action, suit, arbitration, or proceeding.
7.17 COMPLIANCE WITH LAWS. To the best of the Company's and each of
the Shareholders' knowledge, there are no existing violations of federal,
state, or local laws, ordinances, rules, codes, regulations, or orders by the
Company which might materially affect the properties, assets, or business of
the Company. To the best of the Company's and each of the Shareholders'
knowledge, the Company is not subject to any restriction, judgment, order,
writ, injunction, decree, or award, which materially or adversely affects or
is likely to materially or adversely affect the business, operations,
properties, assets, or condition (financial or otherwise) of the Company.
7.18 CONTRACTS AND AGREEMENTS. Exhibit 7.18 sets forth a complete
and accurate description of all material contracts and agreements to which
the Company is a party or by which it or any of its property is bound. All
such contracts and agreements are in full force and affect and neither the
Company nor the other party are in breach of any of the provisions thereof.
Except as set forth on Exhibit 7.18, the Company is not a party to any
contract or agreement which materially or adversely affects or is likely to
materially or adversely affect the business, operations, properties, assets,
or condition (financial or otherwise) of the Company.
7.19 EMPLOYEE BENEFIT PLANS. Exhibit 7.19 sets forth a complete and
accurate description of all pension, profit sharing, bonus, deferred
compensation, percentage compensation, severance pay, retirement, health,
stock option, insurance and other employee benefit plans and arrangements
binding upon the Company. The Company has complied with the provisions of
and has performed the obligations required of it under such plans and
arrangements, and the Company is not in default under any provision thereof
in any manner. There have been no material defaults, breaches, or omissions
by the Company or any fiduciary under any of these plans or arrangements. The
Company has not incurred any liability of any nature whatsoever not reflected
in the Financial Statements under any employee benefit plan or arrangement.
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7.20 INSURANCE. Exhibit 7.20 sets forth a complete and accurate
description of all insurance, including (without limitation) worker's
compensation, maintained by the Company and summarizes the substantive terms
of each of the insurance policies, including (without limitation) whether the
insurance policies are "claims made" or "occurrence" policies. The Company is
carrying insurance that is reasonable in light of the risks attendant to the
business and activities in which the Company is engaged. All of the insurance
is in full force and effect, and the Company will keep such insurance in full
force and effect until the Closing Date.
7.21 PERSONNEL. Exhibit 7.21 sets forth a complete and accurate list
of all current employees of the Company and all independent contractors
regularly performing services on behalf of the Company and their respective
rates of compensation, including any salary, bonus or other payment
arrangement made with any of them. The Company does not have any employment
agreements or contracts between the Company and any person or entity. The
Company is not a party to or bound by any collective bargaining agreement,
nor has the Company experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining dispute. The Company has not
committed any unfair labor practice. There are no unions representing any
employees of the Company. The Company has no knowledge of any organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of the Company. The Company has paid or has made
provision for the payment of all compensation due any person or entity and
has complied in all material respects with all applicable laws, rules, and
regulations relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes,
and has withheld and paid to the appropriate governmental authority, or is
holding for payment not yet due to such authority, all amounts required by
law or agreement to be withheld from the compensation of its employees.
7.22 ACCOUNTS RECEIVABLE. Exhibit 7.22 sets forth a complete and
accurate list of all accounts receivable, notes receivable and vehicle leases
of the Company and an aging analysis of such accounts. Ml receivables of the
Company are valid and enforceable claims, arose in the ordinary course of
business, require no further performance by the Company, and are not subject
to claims or offset.
7.23 BROKERS AND FINDERS. The Company has not employed, directly or
indirectly, any broker or finder, or incurred any liability for any brokerage
fees or commissions or finders, fees, and no broker or finder has acted
directly or indirectly for the Company in connection with this Agreement or
the transactions contemplated by this Agreement.
7.24 DELIVERY OF DOCUMENTS. Complete and accurate copies of all
written instruments listed or described on the exhibits attached hereto have
been or will be furnished to Lithia. The Company will make available to
Lithia, to the extent requested by Lithia, all books, records, and facilities
of the Company.
7.25 POWERS OF ATTORNEY; AUTHORIZED SIGNATORIES. The Company has
provided to Lithia (i) the names and addresses of all persons holding a power
of attorney on behalf of the Company, and (ii) the account numbers and names
of all banks or other financial institutions in which the Company currently
has an account, deposit, or safe deposit box, with the names of all persons
authorized to draw on the accounts or deposits or to have access to the boxes.
7.26 FULL DISCLOSURE. No representation or warranty by the Company or
the Shareholders in this Agreement or in any of the exhibits attached hereto,
or other statement in writing or certificate furnished or to be furnished to
Lithia by or on behalf of the Company or the Shareholders in connection with
the transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements contained herein not
misleading.
7.27 ENVIRONMENTAL.
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7.27.1 There are no past or present events, conditions,
circumstances, activities, practices, incidents, plans or actions, based on or
resulting from the conduct of the business of the Company, including the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release, or threatened
release into the environment, of any pollutant, contaminant, chemical, or
industrial toxic or hazardous material, substance or waste, which will violate
any laws currently in effect relating to pollution or protection of the
environment (the "Environmental Laws") or any plan, order, decree, judgment,
injunction, notice or demand letter from a governmental entity applicable to the
Company, or which will give rise to any common law or other legal liability,
including, without limitation, liability under the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") or similar state or local
laws in effect as of the date hereof. To the best of the Company's and each of
the Shareholders' knowledge, the Business Real Property contains no spill,
deposit, or discharge of any hazardous substance (as that term is currently
defined under CERCLA or any applicable state law), as a result of which there
would be a materially adverse effect on the Company.
7.27.2 Exhibit 7.27 sets forth a complete and accurate description
of each underground storage tank of any kind or nature located on the Business
Real Property.
7.27.3 The Company has delivered to Lithia copies of all existing
environmental site audits on the Business Real Property and any other real
property currently owned, leased, or otherwise utilized by the Company. If a
Phase I report has not been prepared for the Business Real Property, such report
shall be prepared and presented to Lithia prior to Closing.
7.28 CONTINUATION OF BUSINESS. Neither the Company nor the
Shareholders know of any reason why the Company cannot continue its business
in the same manner following the execution of this Agreement and the Closing
as it has been operated prior thereto, except to the extent that Lithia
causes the business of the Company to change following the Closing. Neither
the Company nor the Shareholders has any reason to believe that at any time
in the foreseeable future the business of the Company shall be materially or
adversely affected by any event, except to the extent that Lithia causes the
business of the Company to change following the Closing.
7.29 CONTRACTS IN TRANSIT. At the time of Closing, the Company will
provide a complete and accurate description of all contracts in transit for
the Company.
8. REPRESENTATIONS AND WARRANTIES OF LITHIA.
Lithia represents and warrants to the Shareholders as follows:
8.1 INCORPORATION. Lithia has been duly incorporated, is validly
existing under the laws of the State of Oregon. At Closing Lithia will be
qualified to do business and will be in good standing in the State of Oregon.
8.2 AUTHORIZATION. Lithia has the authority to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement is a
valid and legally binding obligation of Lithia, enforceable against Lithia in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to the enforcement of creditors' rights generally and
by general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
8.3 NO CONFLICTS. The execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement will not
result in any breach or violation of or default under any agreement or other
instrument to which Lithia is a party or by which it is bound.
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9. PRE-CLOSING COVENANTS
The Shareholders and the Company agree that prior to the Closing Date:
9.1 NOTICES AND CONSENTS. The Company and the Shareholders shall use
their best efforts to obtain any required approvals or consents to this
Agreement and the transactions contemplated by this Agreement from all (i)
lenders, (ii) lessors, (iii) manufacturers represented by the Company, and
(iv) the Federal Trade Commission ("FTC") and the Justice Department under
the Hart-Scott-Rodino Act ("HSR Act") and all regulations promulgated
thereunder.
9.2 CONDUCT OF BUSINESS BY THE COMPANY PRIOR TO THE CLOSING DATE.
THE COMPANY and the Shareholders shall cause the Company to conduct its
operations according to the ordinary and usual course of business reasonably
consistent with past and current practices, to maintain and preserve its
assets, properties, insurance policies, business organization, and
advantageous business relationships, and to retain the services of its
officers, employees, agents, and independent contractors, and shall not allow
the Company to engage in any practice, take any action, or enter into any
transaction outside of the ordinary course of business. From the date of the
execution of this Agreement to the date of Closing of the transaction
contemplated hereby, neither the Shareholders nor the Company will commit to
or make any obligation which binds the Company to an expense in excess of
$20,000.00 without Lithia's prior consent.
9.3 LITHIA'S EXAMINATION. The Company and the Shareholders shall
cause the Company to permit representatives of Lithia to have full access to
and to examine, at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company, the books,
records, properties, and assets of the Company and the Business Real Property.
9.4 AUDIT. The Shareholders and the Company shall cause the Company
to permit an audit to be conducted under generally accepted auditing
standards, of the books, records, and financial statements of the Corporation
for 1996, 1997, and any additional years if required by applicable law, and
shall cause Audited Financial Statements to be prepared in accordance with
generally accepted accounting principles, which shall include reserves for
any deferred warranties, chargebacks, inventory write downs, repossessions,
contracts in transit, and any other appropriate reserves. The audits shall
hereinafter be referred to individually as an "Audit" and collectively as the
"Audits." As used in this Agreement, "Audited Financial Statements" shall
mean an audited consolidated balance sheet dated December 31, 1997, for the
Company. The Audit will be conducted by Lithia's accountants, KPMG Peat
Marwick, assisted by Moss Adams LLP. The Company and the Shareholders agree
to cause the full cooperation of the officers, directors and employees of the
Company in the Audit as requested by Lithia and shall sign the representation
letter requested by Lithia's accountant. The Company's accounting staff will
assist in gathering information and providing schedules and analyses in order
to have the Audit completed on or about the Closing Date.
9.5 NOTICE OF CHANGES. The Company shall give prompt written notice
to Lithia of any material adverse change in the financial condition, net
income, assets, liabilities, operations, or business of the Company.
9.6 DELIVERY OF EXHIBITS. The Company shall have delivered a
certified copy of all Exhibits required of it or the Shareholders under this
Agreement within 10 days from the date of this Agreement.
9.7 FURTHER ASSURANCES. The Shareholders and the Company shall from
time to time, upon the request of Lithia, execute and deliver to Lithia such
further instruments and take such other action as Lithia may reasonably
request, in order to more effectively transfer, convey, assign, and deliver,
or place Lithia in possession and control of the Shares, or to enable Lithia
to exercise and enjoy all rights and benefits with respect thereto.
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10. CONDITIONS PRECEDENT TO OBLIGATION OF LITHIA
The obligation of Lithia to effect the transactions contemplated by this
Agreement is subject to the satisfaction on or prior to the Closing Date of the
following conditions, each of which may be waived by Lithia:
10.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND
EACH OF THE SHAREHOLDERS. All representations and warranties of the Company
and each of the Shareholders contained in this Agreement shall be true and
correct in all material respects as of the Closing Date with the same effect
as though such representations and warranties were made on the Closing Date,
except to the extent that such representations and warranties expressly
relate to any earlier date, and the Company and the Shareholders shall have
performed and complied with all the covenants and agreements and satisfied
all the conditions required by this Agreement to be performed, complied with
or satisfied by the Company and each of the Shareholders on or prior to the
Closing Date. The Company and each of the Shareholders must have delivered to
Lithia a certificate dated as of the Closing Date certifying that this
condition has been fulfilled.
10.2 NO ADVERSE Change. Lithia shall have determined, to its
satisfaction, that as of the Closing Date, there has been no material adverse
change in the financial condition, net income, assets, liabilities,
operations, or business of the Company.
10.3 TRANSFER OF SHARES. The certificates representing the Shares
shall have been transferred and conveyed by the Shareholders to Lithia in a
manner and by instruments acceptable to Lithia and its counsel, free and
clear of all liens, claims, encumbrances, or restrictions of any kind.
Contemporaneously with the consummation of the transfer, the Shareholders
shall put Lithia in full possession and enjoyment of all properties and
assets of the Company.
10.5 THIRD PARTY APPROVALS. This Agreement and the transactions
contemplated by this Agreement shall have received all required approvals and
consents from all (i) lenders, (ii) lessors, (iii) manufacturers represented
by the Company, (iv) the FTC and the Justice Department under the HSR Act and
the regulations promulgated hereunder, and (v) any other federal, state or
local regulatory agencies.
10.6 PHYSICAL INVENTORIES. Lithia shall have conducted the Physical
Inventories.
10.7 LITHIA'S REVIEW. Based on such examinations and inquiries as
Lithia shall have made or shall have caused to be made, the financial
condition, net income, assets, liabilities, operations, and business of the
Company, and the condition of the Business Real Property, shall be
satisfactory to Lithia, in Lithia's sole judgment and discretion.
10.8 APPROVAL OF DOCUMENTATION. The form and substance of all
opinions, certificates, instruments and other documents delivered to Lithia
in connection with this Agreement shall be satisfactory in all reasonable
respects to Lithia and Lithia's counsel.
10.9 RESIGNATION OF DIRECTORS AND OFFICERS. The Company shall have
delivered to Lithia the signed resignation of all directors and officers of
the Company.
10.10 HART-SCOTT-RODINO WAITING PERIOD. The applicable waiting period
under the HSR Act, and the regulations promulgated thereunder, shall have
expired.
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10.11 ADDITIONAL INFORMATION. The Company and the Shareholders shall
have furnished to Lithia and Lithia's counsel such additional information,
certificates, and other documents as Lithia shall have reasonably requested.
10.12 AUDIT. Moss Adams shall have advised they are prepared, promptly
after Closing, to deliver to Lithia, the Company and the Shareholders the
Audited Acquisition Balance Sheet.
10.13 APPROVAL OF LITHIA AS THE DEALER. Lithia shall have been
approved as the dealer by the manufacturers represented by the Company
without restrictions or requirements deemed unacceptable by Lithia at its
sole discretion.
10.14 LEASE OF EUGENE REAL PROPERTY. As a condition to the Closing of
the transaction contemplated under this Agreement, Lithia (or a related
entity) is leasing the Eugene Real Property, and Lithia's obligation to close
the transaction contemplated under this Agreement shall be subject to the
condition that Lithia is simultaneously able to enter into an agreement with
the owners of the Eugene Real Property which allows Lithia to lease the
Eugene Real Property under the following general terms and under such
additional terms as are reasonably satisfactory to Lithia:
(a) Five-year initial lease term, with Lithia having four subsequent
five-year options to renew (for a total potential lease term of twenty five
years).
(b) Monthly lease amount for first two years of $16,000.00 and
$18,000.00 for the next three years on a triple net basis. Increase in basic
lease amount for second five years based on changes in the "Consumer Price Index
for All Urban Consumers for the Portland, Oregon Metropolitan Area (Reference
Base 1982-84=100)" published by the United States Department of Labor, Bureau of
Labor Statistics ("CPI") during first five years, with the maximum increase
being 2 percent in any one year. Similar CPI adjustment (limited to 2 percent
over any previous year) for each successive five-year option period may be
included. In the event the CPI shall hereafter be converted to a different
standard reference base or otherwise revised, the determination of the
percentage increase shall be made with the use of such conversion factor,
formula or table for converting such index as may be published by the Bureau of
Labor Statistics. If publication of the CPI is discontinued, another index which
measures inflation in the Portland Oregon Metropolitan Area for the purposes of
making these calculations shall be selected.
(c) The owners of the Eugene Real Property shall execute, as
requested by Lithia, a landlord's waiver in form and substance satisfactory to
Lithia's lenders.
(d) Lithia will be granted a right of first refusal to purchase the
Eugene Real Property should the owners choose to sell it during the lease term.
(e) The lease must be approved in advance by Nissan Motor Corporation
in U.S.A.
11. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY AND THE SHAREHOLDERS
The obligation of the Shareholders and the Company to effect the
transactions contemplated by this Agreement is subject to the satisfaction on or
prior to the Closing Date of the following conditions, each of which may be
waived by the Company or the Shareholders:
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11.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF LITHIA. All
representations and warranties of Lithia contained in this Agreement shall be
true and correct in all material respects as of the Closing Date with the
same effect as though such representations and warranties were made on the
Closing Date, except to the extent that such representations and warranties
expressly relate to an earlier date, and Lithia shall have performed and
complied with all of the covenants and agreements and satisfied all the
conditions required by this Agreement to be performed, complied with or
satisfied by Lithia on or prior to the Closing Date. Lithia must have
delivered to the Company a certificate dated as of the Closing Date
certifying that this condition has been fulfilled.
11.2 DELIVERY OF PURCHASE PRICE. Lithia shall have delivered the
cash provided for in Section 5.1.
11.3 APPROVAL OF DOCUMENTATION. The form and substance of all
certificates and other documents required to be delivered to the Company and
the Shareholders in connection with this Agreement shall be satisfactory in
all reasonable respects to the Company and the Company's counsel.
11.4 ADDITIONAL INFORMATION. Lithia shall have furnished to the
Company and the Company's counsel such additional information, certificates,
and other documents as the Company shall have reasonably requested.
11.5 LEASE AGREEMENT. Lithia shall have executed the Lease set forth
in Exhibit 6.2.2.
11.6 BOARD APPROVAL. The Board of Directors of Lithia shall have
approved the consummation of the transactions contemplated by this Agreement.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made in this Agreement or in any
certificate, exhibit, document, or instrument furnished in connection with this
Agreement shall survive the Closing. Notwithstanding any investigation or
examination conducted before or after the Closing or the decision of any party
to complete the Closing, each party shall be entitled to rely upon the
representations and warranties set forth in this Agreement.
13. INDEMNIFICATION
13.1 GENERAL INDEMNITY. The Shareholders agree to jointly and
severally indemnify defend and hold harmless the Company and Lithia and its
respective successors and assigns (the "Lithia Indemnified Parties") from and
against any Claims. Claims, as used in this Agreement, include any claims,
damages, liabilities, penalties, actions, suits, proceedings, demands,
assessments, costs and expenses, including reasonable attorneys fees and
expenses of investigation, incurred by Lithia Indemnified Parties arising
from or related to (i) any breach of any representation, warranty, covenant
or agreement made by the Company or the Shareholders in this Agreement, (ii)
any debts, liabilities, or obligations of any nature (whether absolute,
accrued, contingent, or otherwise and whether due or to become due) of the
Company occurring or existing before Closing that are not reflected in the
Audited Acquisition Balance Sheet, (iii) any condition, activity or event,
caused in whole or in part, or engaged in, by the Company and that existed or
occurred prior to the Closing Date, (iv) the infringement or claimed
infringement by the Company on the rights or claimed rights of any person or
entity under or in respect to any intellectual property, and (v) any tax
audit of the Company by any federal, state, or local taxing authority for any
time period prior to the Closing Date.
13.2 ENVIRONMENTAL INDEMNIFICATION. With respect to any existing or
potential liability arising out of any condition, activity, or event existing
or occurring prior to the Closing Date with respect to any property
comprising part of the properties or assets of the Company for which there is
any material risk of liability to any governmental entity or agency or any
other person or entity for the violation of any Environmental Laws or for
13
<PAGE>
which there may be liability in tort, or otherwise, and which is related to or
arises out of an environmental condition, the Shareholders agree to indemnity,
defend, and hold harmless Lithia Indemnified Parties from and against all
claims, damages, liabilities, penalties, actions, suits, proceedings, demands,
assessments, costs and expenses, including reasonable attorneys fees and
expenses of investigation, incurred by Lithia Indemnified Parties as a result of
such environmental condition and further including, if necessary, the costs and
expenses of any remediation, transportation, incineration, treatment, or other
necessary and appropriate disposition or mitigation of such environmental
condition. In the event that any claim relating to a violation of Environmental
Laws shall arise, the Shareholders, upon notice from Lithia, shall have the
first right to address and implement remediation of the environmental condition.
13.3 OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any other
indemnification provisions in this Agreement, or any contractual, statutory,
equitable or common law remedy any party may have for the breach of any
representation, warranty or covenant.
14. HART-SCOTT-RODINO NOTIFICATION
Prior to the Closing Date, the parties shall, if and to the extent required
by law, file all reports or other documents required or requested by the FTC or
the Department of Justice under the HSR Act, and all regulations promulgated
thereunder, concerning the transactions contemplated by this Agreement, and
comply promptly with any request by the FTC or the Justice Department for
additional information concerning such transactions, so that the waiting period
specified in the HSR Act will expire an soon as reasonably possible after the
execution and delivery of this Agreement. The parties agree to furnish to one
another such information concerning Lithia, the Company, and the Shareholders as
the parties need to perform their obligations hereunder. Lithia and the Company
agree to share the filing fees and costs due governmental agencies with regard
to the HSR Act notification and compliance.
15. TERMINATION.
15.1 MUTUAL CONSENT. This Agreement may be terminated by the written
consent of the parties.
15.2 BY LITHIA. This Agreement may be terminated by written notice
of termination given by Lithia to the Company and the Shareholders if a
material default should be made by the Company or the Shareholders in the
observance of or in the due and timely performance by the Shareholders or the
Company of any of the agreements and covenants herein contained, or if there
shall have been a material breach by the Shareholders or the Company of any
of the warranties and representations herein contained, or if the conditions
of this Agreement to be complied with or performed by the Shareholders or the
Company at or before Closing shall not have been complied with or performed
at the time required for such compliance or performance and such
noncompliance or nonperformance shall not have been waived by Lithia. Lithia
may also terminate the Agreement within 15 days after receipt of all Exhibits
anticipated by Section 9.6 if, in its sole discretion, such exhibits reflect
any information deemed adverse to Lithia.
15.3 BY THE SHAREHOLDERS OR THE COMPANY. This Agreement may be
terminated by written notice of termination given by the Shareholders or the
Company to Lithia if a material default should be made by Lithia in the
observance of or in the due and timely performance by Lithia of any
agreements and covenants of Lithia herein contained, or if there shall have
been a material breach by Lithia of any of the warranties and representations
of Lithia, or if the conditions of this Agreement to be complied with or
performed by Lithia at or before Closing shall not have been complied with or
performed at the time required for such compliance or performance and such
noncompliance or nonperformance shall not have been waived by the Company or
the Shareholders. Further, the Shareholders may terminate the Agreement if
the Audited Acquisitions Balance Sheet should be more than
14
<PAGE>
$1,000,000.00 less than the Company's unaudited balance sheet as of the date of
closing (excluding any adjustment with respect to the Fixed Assets, Springfield
Real Property or Used Vehicles for which separate values have been or will be
agreed upon) unless Lithia agrees at the time the Purchase Price is finally
determined, to limit the adjustment of the non-excluded items to $1,000,000.00
16. DISPUTE RESOLUTION.
16.1 MEDIATION. The parties hope there will be no disputes arising
out of this transaction. To that end, each commits to cooperate in good faith
and to deal fairly in performing its duties under this Agreement in order to
accomplish their mutual objectives and avoid disputes. But if a dispute
arises, the parties agree to resolve all disputes by the following alternate
dispute resolution process. The parties will seek a fair and prompt
negotiated resolution, but if this is not successful, all shall be resolved
by binding arbitration; provided, however, that during this process, at the
request of either party made not later than twenty-five (25) days after the
initial arbitration demand, the parties will attempt to resolve any dispute
by nonbinding mediation (but without delaying the arbitration hearing date).
The parties recognize that negotiation or mediation may not be appropriate to
resolve some disputes and agree that either party may proceed with
arbitration without negotiating or mediating. The parties confirm that by
agreeing to this alternate dispute resolution process, they intend to give up
their right to have any dispute decided in court by a judge or jury.
16.2 BINDING ARBITRATION. Any claim between the parties, including
but not limited to those arising out of or relating to this Agreement and any
claim based on or arising from an alleged tort, shall be determined by
arbitration in Medford, Oregon (or some other place as the parties may
agree). If either party demands a total award greater than $250,000,
including interest, attorneys' fees and costs, then either party may require
that there be three (3) neutral arbitrators. If the parties cannot agree on
the identity of the arbitrator(s) within ten (10) days of the arbitration
demand, the arbitrator(s) shall be selected by the administrator of the
American Arbitration Association (AAA) office having jurisdiction over
Medford, Oregon, from its Large, Complex Case Panel (or have similar
professional credentials). Each arbitrator shall be an attorney with at least
fifteen (15) years' experience in commercial law and shall reside in Oregon.
Whether a claim is covered by this Agreement shall be determined by the
arbitrator(s). Ml statutes of limitations which would otherwise be applicable
shall apply to any arbitration proceeding hereunder.
16.3 PROCEDURES. The arbitration shall be conducted in accordance
with the AAA Commercial Arbitration Rules with Expedited Procedures, as
modified by this Agreement. There shall be no dispositive motion practice. As
may be shown to be necessary to ensure a fair hearing, the arbitrator(s) may
authorize limited discovery, and may enter pre-hearing orders regarding
(without limitation) scheduling, document exchange, witness disclosure and
issues to be heard. The arbitrator(s) shall not be bound by the rules of
evidence or of civil procedure, but may consider such writings and oral
presentations as reasonable business people would use in the conduct of their
day-to-day affairs, and may require the parties to submit some or all of
their case by written declaration or such other manner of presentation as the
arbitrator(s) may determine to be appropriate. The parties intend to limit
live testimony and cross-examination to the extent necessary to ensure a fair
hearing on material issues.
16.4 HEARING AND AWARD. The arbitrator(s) shall take such steps as
may be necessary to hold a private hearing within ninety (90) days of the
initial demand for arbitration and to conclude the hearing within three (3)
days; and the arbitrator(s)'s written decision shall be made not later than
fourteen (14) calendar days after the hearing. The parties have included
these time limits in order to expedite the proceeding, but they are not
jurisdictional, and the arbitrator(s) may for good cause afford or permit
reasonable extensions or delays, which shall not affect the validity of the
award. The written decision shall contain a brief statement of the claim(s)
determined and the award made on each claim. In making the decision and
award, the arbitrator(s) shall apply applicable substantive law. Absent
fraud, collusion or wilfull misconduct by an arbitrator, the award shall be
final, and
15
<PAGE>
judgment may be entered in any court having jurisdiction thereof. The
arbitrator(s) may award injunctive relief or any other remedy available from a
judge, including the joinder of parties or consolidation of this arbitration
with any other involving common issues of law or fact or which may promote
judicial economy, and may award attorneys' fees and costs to the prevailing
party but shall not have the power to award punitive or exemplary damages. The
decision and award of the arbitrators need not be unanimous; rather, the
decision and award of two arbitrators shall be final.
17. GENERAL PROVISIONS
17.1 ENTIRE AGREEMENT. This Agreement contains and constitutes the
entire agreement between the parties regarding the subject matter hereof and
supersedes all prior agreements and understandings between the parties relating
to the subject matter of this Agreement. There are no agreements,
understandings, restrictions, warranties representations between the parties
relating to the subject matter hereof other than those set forth in this
Agreement. This Agreement is not intended to have any legal effect whatsoever,
or to be a legally binding agreement, or any evidence thereof, until it has been
signed by the Shareholders, the Company and Lithia.
17.2 EXHIBITS. The exhibits to be provided by this Agreement are made a
part of this Agreement by this reference.
17.3 THIRD PARTY Consents. The Shareholders, the Company and Lithia
mutually agree to cooperate and use reasonable, good faith efforts to prepare
all documentation, to effect all filings and to obtain all permits, consents,
approvals, and authorizations of all third parties and governmental bodies as
may be necessary to consummate the transactions contemplated by this Agreement.
17.4 FURTHER Actions. From time to time, as and when requested by any
party hereto, the other party shall execute and deliver, or cause to be executed
and delivered, all such documents and instruments and shall take, or cause to be
taken, all such further or other actions as such other party may reasonably deem
necessary or desirable to consummate the transactions contemplated by this
Agreement.
17.5 PUBLICITY. The parties hereto agree that no public release or
announcement concerning the terms of the transactions contemplated by this
Agreement shall be issued by any party without the prior written consent of the
other party (which consent shall not be unreasonably withheld), except as such
release or announcement may be required by law.
17.6 AMENDMENT. This Agreement may not be amended, modified, or
terminated except by an instrument in writing signed by all parties to this
Agreement.
17.7 CONSTRUCTION. Ml pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter gender thereof or to the
plurals of each, as the identity of the person or persons or the context may
require. The descriptive headings contained in this Agreement are for reference
purposes only and are not intended to describe, interpret, define or limit the
scope, extent or intent of this Agreement or any provision contained in this
Agreement.
17.8 INVALIDITY. If any provision contained in this Agreement shall for
any reason be held to be invalid, illegal, void or unenforceable in any respect,
such provision shall be deemed modified so as to constitute a provision
conforming as nearly as possible to such invalid, illegal, void or unenforceable
provision while still remaining valid and enforceable; and the remaining terms
or provisions contained herein shall not be affected thereby.
16
<PAGE>
17.9 PAYMENT OF EXPENSES. Whether or not the transactions contemplated
by this Agreement are consummated, each of the parties to this Agreement shall
be responsible for its own costs and expenses incurred in connection with the
preparation and negotiation of this Agreement and the transactions-contemplated
hereby.
17.10 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective legal representatives, successors and permitted assigns. Lithia
may assign its rights under this Agreement to a related entity, and Lithia
and its assignee shall be fully obligated, responsible and liable for the
performance of Lithia's obligations hereunder regardless of any such
assignment. The Company and the Shareholders may not assign any of their
rights or delegate any of their obligations hereunder. Any assignment in
violation hereof shall be void.
17.11 ATTORNEYS' FEES. In the event any party instigates litigation or
any proceeding to enforce or protect its rights under this Agreement, the party
substantially prevailing in any such litigation or proceeding shall be entitled,
in addition to all other relief, to reasonable attorneys fees, out-of-pocket
costs and disbursements relating to such litigation or proceeding.
17.12 NOTICES. All notices and other communications hereunder shall be
(i) in writing, dated with the current date of such notice, and signed by the
party giving such notice, and (ii) mailed, postpaid, registered or certified,
return receipt requested, addressed to the party to be notified, or delivered by
personal delivery or by overnight courier. Notice shall be deemed given when
received by the party to be notified or when the party to be notified refuses to
accept delivery of the notice. The initial addresses of the parties shall be as
follows:
17
<PAGE>
If to Lithia:
Lithia Motors, Inc.
360 E. Jackson
Medford, Oregon 97501
Attn: Sidney B. DeBoer
If to the Company or Shareholders:
William N. Hutchins
2055 Oakmont Way
Eugene, OR 97401
The parties hereto shall have the right from time to time to change
their respective addresses by written notice to the other parties.
17.13 DEFINITION OF KNOWLEDGE. As used in this Agreement, the
Company's and the Shareholders' "knowledge" shall include the knowledge of
the Shareholders, the Company and the employees and agents of the Company.
17.14 TIME IS OF THE ESSENCE. Time shall be of the essence with
respect to this Agreement and the consummation of the transactions
contemplated hereby.
17.15 REMEDIES. None of the remedies provided for in this Agreement
shall be the exclusive remedy of either party for a breach of this Agreement.
The parties hereto shall have the right to seek any other remedy at law or in
equity in lieu of or in addition to any remedies provided for in this
Agreement.
17.16 SURVIVAL OF OBLIGATIONS. To the extent necessary to carry out
the terms and provisions of this Agreement, the obligations and rights
arising from or related to this Agreement shall survive the Closing and shall
not be merged into the various documents executed and delivered at the time
of the Closing.
17.17 WAIVER. No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving such
waiver, and no such waiver shall be deemed a waiver of any subsequent breach
or default of the same or similar nature.
17.18 GOVERNING LAW. This Agreement shall be construed, enforced, and
governed in accordance with the laws of the State of Oregon.
17.19 VENUE. The obligations of the parties to this Agreement are
performable, and venue for any legal action arising out of this Agreement
shall lie in Multnomah County, Oregon.
17.20 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
18
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO CREDIT AGREEMENT
Dated as of April 9, 1998
Lithia Motors, Inc. ("Borrower"), its Affiliates and Subsidiaries who are
from time to time parties thereto, including without limitation those signing
this Agreement (together with Borrower, the "Loan Parties"); the financial
institutions who are from time to time parties thereto ("Lenders"), including
without limitation those signing this Amendment ("Amendment"), and U.S. Bank
National Association, as agent for the Lenders, have entered into a Credit
Agreement dated as of December 22, 1997 ("Credit Agreement").
The parties have agreed to amend the Credit Agreement as set forth herein.
In consideration of the premises and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. INCREASE IN SWINGLINE COMMITMENT. The parties have agreed to
increase the Swingline Commitment from $10,000,000 to $30,000,000 without any
corresponding increase in the Total New Vehicle Commitment. Accordingly, to the
extent that the sum of the Swingline Loan Outstandings plus the Total New
Vehicle Loan Outstandings exceeds the Total New Vehicle Commitment, such amount
shall be maintained by Swingline Lender solely for its own account.
2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended
Commitment as follows:
2.1 DEFINITIONS. The definitions of Required Lenders, Swingline and
Total Commitment are deleted and replaced with the following:
REQUIRED LENDERS. As of any date the holders of sixty-six
and twothirds 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 up to $10,000,000 of Swingline
Loan Outstandings to the Lenders on the basis of their respective PRO
RATA Share of the Total New Vehicle Loan Outstandings and allocating
any Swingline Loan Outstandings over $10,000,000 to the Swingline
Lender).
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 as of April 9,
1998 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.
TOTAL COMMITMENT. At any time, the sum of the Total New Vehicle
Commitment (which includes $10,000,000 of the Swingline Commitment)
1
<PAGE>
$20,000,000 of the Swingline Commitment, Total Program and Used Vehicle
Commitment, Total Demonstrator Vehicle Commitment, and Total Acquisition
Loan Commitment.
2.2 NEW VEHICLE LOANS. Section 2.1 (a)(i)(A) is deleted and replaced
with the following:
(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 sum of the Total New
Vehicle Commitment plus $20,000,000 (representing a portion of the
Swingline Commitment).
2.3 SWINGLINE LOANS. Section 2.1 (b)(i)(B) is deleted and replaced
with the following:
(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 sum of the
Total New Vehicle Commitment plus $20,000,000 (representing a portion
of the Swingline Commitment).
2.4 FUNDING OF LOANS. THE following is hereby added to the Credit
Agreement as Section 2.4(b)(iv):
Notwithstanding anything to the contrary in this Agreement, including
but not limited to the fact that the sum of the Total Swingline Loan
Outstandings plus the Total New Vehicle Loan Outstandings may exceed the
Total New Vehicle Commitment, no Lender shall have any obligation
whatsoever, whether directly or indirectly, to fund New Vehicle Loans in
excess of such Lender's New Vehicle Commitment or to fund any other Loans
in excess of the applicable Commitment of such Lender.
2.5 PREPAYMENTS. The first sentence of Section 2.7(b) is deleted and
replaced with the following:
If at any time and for any reason (i) the aggregate of the Total New
Vehicle Loan Outstandings plus the Swingline Loan Outstandings shall exceed
the sum of the Total New Vehicle Commitment plus $20,000,000, or (ii) the
aggregate of the Total New Vehicle Loan Outstandings plus up to $10,000,000
of 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.
2.6 AMENDMENTS; WAIVERS, ETC. The second proviso to Section 11.7 is
deleted and replaced with the following:
2
<PAGE>
PROVIDED, FURTHER, that the Swingline Lender may increase the Fee
associated with the Swingline 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.
2.7 SCHEDULE 1-B. Schedule 1-B is replaced with the Schedule 1-B
attached hereto.
3. NO OTHER CHANGES. Except as amended previously or herein, all terms
and conditions of the Credit Agreement and each Loan Document shall remain in
full force and effect. Each Loan Party acknowledges and agrees that (a) each
Loan Document is and shall remain valid and enforceable in accordance with its
terms and (b) each Loan Party has no defenses, setoffs, counterclaims or claims
for recoupment against the indebtedness and obligations imposed by the Loan
Documents.
4. DEFINED TERMS. All capitalized terms used herein without definition
shall have the meanings given to such terms in the Credit Agreement.
5. CONDITIONS PRECEDENT. THE effectiveness of this Agreement is subject
to satisfaction of the following conditions:
5.1 Each party whose name appears on the signature pages hereto shall
execute and deliver this Amendment to Agent.
5.2 Borrower shall execute and deliver to Swingline Lender a new
Swingline Note in the amount of $30,000,000.
5.3 Borrower shall pay a $75,000 fee to Agent. $25,000 shall be
retained by Agent. $50,000 shall be distributed by the Agent to the Lenders.
Each Lender shall receive the amount set forth by such Lender's signature.
5.4 Each Loan Party shall execute such documents, provide such
information and satisfy such other requirements as Lender reasonably requires.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one document.
3
<PAGE>
7. DISCLOSURE.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY
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 LENDER TO BE ENFORCEABLE.
BORROWER:
4
<PAGE>
EXHIBIT 10.2
SECOND AMENDMENT TO CREDIT AGREEMENT
Dated as of: April 29, 1998
Lithia Motors, Inc. ("Borrower"), its Affiliates and Subsidiaries who are
from time to time parties thereto, including without limitation those signing
this Agreement (together with Borrower, the "Loan Parties"); the financial
institutions who are from time to time parties thereto ("Lenders"), including
without limitation those signing this Amendment ("Amendment"), and U.S. Bank
National Association, as agent for the Lenders, have entered into a Credit
Agreement dated as of December 22, 1997, as amended by First Amendment to Credit
Agreement dated as of April 9, 1998 ("Credit Agreement").
The parties have agreed to amend the Credit Agreement as set forth herein.
In consideration of the premises and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. Section 2.8(d) of the Credit Agreement is deleted and replaced with
the following:
(d) If the Cornniitments 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 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 payment of so much of the outstanding principal balance of the
Swingline Loans as is equal to the amount by which the Total Loan Outstandings
exceed the Total Commitment; (v) fifth, to payment of the outstanding balance of
the remainder of Loans (including any remaining balance on the Swingline Loans),
pro rata to the outstanding principal balance of each of the Loans, unless
otherwise specified in writing by each of the Lenders; (vi) sixth, any remaining
funds shall be paid to whoever shall be entitled thereto or as a court of
competent jurisdiction shall direct.
2. NO OTHER CHANGES. Except as amended previously or herein, all terms
and conditions of the Credit Agreement and each Loan Document shall remain in
full force and effect. Each Loan Party acknowledges and agrees that (a) each
Loan Document is and shall remain valid and enforceable in accordance with its
terms and (b) such Loan Party has no defenses, setoffs, counterclaims or claims
for recoupment against the indebtedness and obligations imposed by the Loan
Documents.
4. DEFINED TERMS. All capitalized terms used herein without definition
shall have the meanings given to such terms in the Credit Agreement.
1
<PAGE>
5. CONDITIONS PRECEDENT. This Amendment shall become effective upon
execution and delivery of this Amendment to Agent by each party whose name
appears on the signature pages hereof.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one document.
7. DISCLOSURE.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE
BY 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 LENDER TO BE ENFORCEABLE.
BORROWER:
LITHIA MOTORS, INC.
AGENT:
U.S. BANK NATIONAL ASSOCIATION
as Agent
2
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 1
To
Lithia Motors, Inc. 1996 Stock Incentive Plan
Section 4(a) of the Plan is amended to read as follows:
"The aggregate number of Common Shares that may be issued pursuant to all
Incentive Stock Options granted under this Plan shall not exceed 1,085,000,
subject to adjustment as provided in Section 7 hereof."
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 27,136
<SECURITIES> 0
<RECEIVABLES> 12,402
<ALLOWANCES> 0
<INVENTORY> 138,137
<CURRENT-ASSETS> 182,792
<PP&E> 33,104
<DEPRECIATION> 3,454
<TOTAL-ASSETS> 251,804
<CURRENT-LIABILITIES> 138,824
<BONDS> 146,377
0
0
<COMMON> 71,310
<OTHER-SE> 13,072
<TOTAL-LIABILITY-AND-EQUITY> 251,804
<SALES> 275,307
<TOTAL-REVENUES> 319,740
<CGS> 249,631
<TOTAL-COSTS> 270,152
<OTHER-EXPENSES> 39,178
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 4,867
<INCOME-PRETAX> 6,096
<INCOME-TAX> 2,354
<INCOME-CONTINUING> 3,742
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,742
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.45
</TABLE>
