SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 14, 1999
Lithia Motors, Inc.
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(Exact Name of Registrant as specified in its charter)
Oregon 0-21789 93-0572810
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.
of incorporation)
360 E. Jackson St., Medford, Oregon 97501
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Address of Principal Executive Office Zip Code
Registrant's telephone number including area code 541-776-6899
(Former name or former address, if changed since last report) Not applicable
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LITHIA MORTORS, INC.
FORM 8-K
INDEX
Item Description Page
Item 2 Acquisition or Disposition of Assets 3
Item 7 Financial Statements and Exhibits 4
Signatures 6
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Item 2. Acquisition or Disposition of Assets
(a) On May 14, 1999, Lithia Motors, Inc. (the "Company"), acquired all of
the stock of seven commonly controlled automotive dealerships
constituting the Moreland Automotive Group ("Moreland"), and the personal
goodwill of their principals, pursuant to seven Agreements and Plans of
Reorganization and related documents (the "Agreements") dated effective
January 1, 1999. Each of the dealerships were controlled by W. Douglas
Moreland through various limited liability companies he formed. In four
dealerships, the general managers of such stores owned minority interests
in the dealerships.
The total initial purchase price consisted of approximately $35.2 million
in cash drawn from the Company's existing used vehicle line of credit,
1,272,919 shares of the Company's Class A Common Stock with a value of
approximately $24.1 million at the time of issuance, and 10,360 shares of
the Company's newly created Series M Preferred Stock with a value of
approximately $6.2 million at the time of issuance. Pursuant to the
Agreements, additional amounts will be payable by the Company to the
Moreland Shareholders if the performance of the Moreland Automotive Group
exceeds certain targets set for 1999, as enumerated in the Agreements.
The Agreements also grant to the Company the option to purchase in the
future certain other dealerships controlled by W. Douglas Moreland.
At closing, Moreland had approximately $18.2 million in used vehicles
available for flooring under the Company's used vehicle line of credit,
reducing the Company's net investment in the acquired dealerships by that
amount.
The Company is leasing the land and facilities at these dealerships from
principals of Moreland and certain unrelated third parties.
Pursuant to the Agreements, the Board of Directors of the Company
increased the size of the Board to six positions and appointed W. Douglas
Moreland to the vacant position effective May 21, 1999.
There was no previous relationship between the Company and W. Douglas
Moreland, nor any of the Company's or Moreland's affiliates, officers or
directors.
(b) Through the acquisition of the stock of Moreland, the Company acquired
vehicle, parts and supplies inventories, as well as other assets used in
the business of vehicle sales, service and support. The Company intends
to utilize the purchased assets in the same capacity.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of the Business Acquired
Financial statements for Moreland will be filed not later than sixty days
from the due date for the filing of this Form 8-K.
(b) Pro forma financial Information
Pro forma financial information for Moreland will be filed not later than
sixty days from the due date for the filing of this Form 8-K.
(c) Exhibits
10.1 Agreement and Plan of Reorganization dated January 1, 1999 by and
between Lithia Motors, Inc. and Moreland Auto Limited Partnership,
RLLP and G. Michael Downey and Moreland Auto Corp., previously filed
as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
March 31, 1999 as filed with the Securities and Exchange Commission
on May 12, 1999 and is incorporated herein by reference.
10.2 Agreement and Plan of Reorganization dated January 1, 1999 by and
between Lithia Motors, Inc. and L.A.H. Automotive Limited
Partnership, RLLP and L.A.H. Automotive Enterprises, Inc.,
previously filed as Exhibit 10.2 to the Company's Form 10-Q for the
quarter ended March 31, 1999 as filed with the Securities and
Exchange Commission on May 12, 1999 and is incorporated herein by
reference.
10.3 Agreement and Plan of Reorganization dated January 1, 1999 by and
between Lithia Motors, Inc. and William D. Limited Partnership, RLLP
and James Jannicelli and William D. Corp., previously filed as
Exhibit 10.3 to the Company's Form 10-Q for the quarter ended March
31, 1999 as filed with the Securities and Exchange Commission on May
12, 1999 and is incorporated herein by reference.
10.4 Agreement and Plan of Reorganization dated January 1, 1999 by and
between Lithia Motors, Inc. and Cherry Creek Dodge Limited
Partnership, RLLP and Cherry Creek Dodge, Incorporated, previously
filed as Exhibit 10.4 to the Company's Form 10-Q for the quarter
ended March 31, 1999 as filed with the Securities and Exchange
Commission on May 12, 1999 and is incorporated herein by reference.
10.5 Agreement and Plan of Reorganization dated January 1, 1999 by and
between Lithia Motors, Inc. and Colorando Springs Jeep Eagle Limited
Partnership, RLLP and Alex Jannicelli and Colorado Springs
Jeep/Eagle, Inc., previously filed as Exhibit 10.5 to the Company's
Form 10-Q for the quarter ended March 31, 1999 as filed with the
Securities and Exchange Commission on May 12, 1999 and is
incorporated herein by reference.
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10.6 Agreement and Plan of Reorganization dated January 1, 1999 by and
between Lithia Motors, Inc. and Foothills Automotive Plaza Limited
Partnership, RLLP and Jerry Cash and Foothills Automotive Plaza,
Inc., previously filed as Exhibit 10.6 to the Company's Form 10-Q
for the quarter ended March 31, 1999 as filed with the Securities
and Exchange Commission on May 12, 1999 and is incorporated herein
by reference.
10.7 Agreement and Plan of Reorganization dated January 1, 1999 by and
between Lithia Motors, Inc. and Reno Auto Sales Limited Partnership,
RLLP and Reno Auto Sales, Inc., previously filed as Exhibit 10.7 to
the Company's Form 10-Q for the quarter ended March 31, 1999 as
filed with the Securities and Exchange Commission on May 12, 1999
and is incorporated herein by reference.
10.8 Assignment and Licenses of Intangible Assets dated May 14, 1999 by
and between Lithia Motors, Inc., W. Douglas Moreland, Alex
Jannicelli, James Jannicelli, Jerry Cash, G. Michael Downey, and
certain Licensed Dealerships.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 26, 1999 LITHIA MOTORS, INC.
By: /s/ SIDNEY B. DEBOER
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Sidney B. DeBoer
Chairman of the Board,
Chief Executive Officer and Secretary
(Principal Executive Officer)
By: /s/ BRIAN R. NEILL
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Brian R. Neill
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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ASSIGNMENT AND LICENSES OF INTANGIBLE ASSETS
This Agreement, dated as of this 14th day of May, 1999, is made and
entered into by and among Lithia Motors, Inc., an Oregon corporation
("Lithia"), W. Douglas Moreland ("Moreland"), the other individuals who,
together with Moreland, are identified on Exhibit A attached hereto as the
"Dealer Managers" and the entities identified on Exhibit A attached hereto as
the "Licensed Dealerships."
RECITALS
A. Pursuant to certain Agreements and Plans of Reorganization dated
as of January 1, 1999 (the "Reorganization Agreements"), Lithia directly or
through wholly-owned subsidiaries is acquiring certain automobile and light
truck dealerships (the "Acquired Dealerships").
B. The Dealer Managers (including Moreland) have demonstrated
expertise in the industry, knowledge of the operation of automobile and
light-truck dealerships and a close and continuing relationship with the
manufacturers who provide the new automobiles and light-trucks sold at the
Acquired Dealerships. The Dealer Managers have entered into franchise
agreements with such manufacturers (the "Manufacturer's Agreements"). The
Manufacturer's Agreements are contracts between each manufacturer and the
Dealer Managers at that Acquired Dealership. In entering into each of the
Manufacturer's Agreements, the manufacturer relied upon the expertise and
knowledge and the manufacturer's relationship with the Dealer Managers. The
Acquired Dealerships are parties to these agreements merely in order to
permit them to sell and service the automobiles and light-trucks. The
expertise and knowledge of the Dealer Managers, their relationships with the
manufacturers and the Manufacturer's Agreements are referred to herein as the
"Supplier-Based Intangible Assets."
C. Moreland has developed certain trade names, trademarks, an
advertising campaign design and a persona (including but not limited to all
of such relating to "Dealing Doug") to establish customer relationships and
market recognition (the "Customer-Based Intangible Assets"). Moreland has
permitted the Acquired Dealerships and the Licensed Dealerships to use the
Customer-Based Intangible Assets only because of his ownership interest in
these entities. Moreland has not transferred to the Acquired Dealerships,
the Licensed Dealerships or any other person or entity any ownership interest
in or rights to the Customer-Based Intangible Assets. Moreland has retained
all rights to the Customer-Based Intangible Assets.
AGREEMENT
Lithia, Moreland, the other Dealer Managers and the Licensed
Dealerships therefore do hereby agree as follows:
SECTION 1. ASSIGNMENT OF INTANGIBLE ASSETS
1.1 Assignment of Supplier-Based Intangible Assets. The Dealer
Managers (including Moreland) do hereby assign to Lithia all right, title and
interest in all of the Supplier-Based Intangible Assets. Without in any way
limiting the foregoing, the Dealer Managers also agree to enter into new
Manufacturer's Agreements in connection with the ownership and operation by
Lithia or its affiliated entities of the automobile and light-truck
dealerships heretofore owned and operated by the Acquired Dealerships. This
obligation of a Dealer Manager shall continue for so long as he may be
requested to do so by Lithia provided that this obligation shall not extend
beyond a reasonable time after any termination of his employment (for
whatever reason) with Lithia or its affiliated entities.
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1.2 Assignment of Customer-Based Intangible Assets. Moreland does
hereby assign to Lithia all right, title and interest in all of the
Customer-Based Intangible Assets including all inventions, patent rights,
copyrights, trade secrets, know-how, designs, plans, photographs, audio
tapes, video tapes, drawings, sketches, advertising copy and advertising
campaign designs relating thereto. Without in any way limiting the
foregoing, it is understood and agreed that such assets will include the
right to use Moreland's name, likeness, voice, background information and
public persona as well as photographs of Moreland, audio tapes containing
Moreland's voice and film and video tapes of Moreland. Nothing contained in
this Agreement shall require Moreland to render any services to Lithia in
respect of the Customer-Based Intangible Assets.
SECTION 2. CONSIDERATION TO BE PAID FOR ASSIGNMENT OF INTANGIBLE ASSETS
In exchange for the assignment to it of the Supplier-Based Intangible
Assets pursuant to Section 1.1 and of the Customer-Based Intangible Assets
pursuant to Section 1.2, Lithia agrees to pay to Moreland and to each of the
other Dealer Managers the amounts set forth on Exhibit B attached hereto.
Such payments shall be made on the date of this Agreement by wire transfer in
accordance with such written instructions as Moreland and each of the other
Dealer Managers have given to Lithia. It is understood and agreed by the
parties that such payment is made solely for the assignment to Lithia of the
intangible assets as provided in Section 1 of this Agreement and is not made
in connection with any services performed by or to be performed by any of the
Dealer Managers. Although this Agreement is entered into in connection with
the Reorganization Agreements and is conditioned upon the closing and
effectiveness of the transactions contemplated therein, the payments set
forth in this Section 2 are not made in connection with the transfer of
ownership interests as provided for in the Reorganization Agreements and was
independently negotiated by Lithia with the Dealer Managers. Each of the
parties hereto, agrees to treat and report such payments in accordance with
the foregoing in all financial statements, tax returns and other filings.
SECTION 3. LICENSES OF CUSTOMER-BASED INTANGIBLE ASSETS
3.1 Initial Grant of License to Licensed Dealerships. Lithia hereby
grants to each of the Licensed Dealerships a non-exclusive, royalty-free
right and license to use the Customer-Based Intangible Assets in connection
with the Licensed Dealership's Licensed Activities (as defined in paragraph
(a) of Section 3.3 below) within its Market Territory (as defined in
paragraph (b) of Section 3.3 below). Subject to the following, the licenses
granted pursuant to this Section 3.1 shall be perpetual:
(a) Notwithstanding the foregoing, Lithia, in its sole
discretion, may terminate the license of any Licensed Dealership upon
written notice if Moreland ceases, for any reason, to be an employee of
Lithia or any of its affiliated entities; provided that this paragraph
shall not:
(1) apply at any time to the Licensed Dealership in
Avondale, Arizona referred to on Exhibit A or any successor to
such dealership in the same Market Territory ("Avondale"); or
(2) apply to any Licensed Dealership prior to the
expiration of Lithia's option to purchase and/or right of first
refusal rights with respect to the purchase of such Licensed
Dealership under a Dealer Option Agreement dated as of January
1, 1999.
(b) The licenses granted by Lithia pursuant to this Section 3.1
shall be personal to the Licensed Dealerships and may not be assigned,
in whole or in part, by it to any other person. If Moreland ceases,
for any reason, to be the Majority Owner (as defined in paragraph (c)
of Section 3.3 below) of a Licensed Dealership, the license granted
pursuant to this Section 3.1 shall immediately terminate without any
need for notice from Lithia.
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If the license granted pursuant to this Section 3.1 to a Licensed Dealership
is terminated for any reason, such Licensed Dealership will have no further
right or license to use the Customer-Base Intangible Assets except for
Transitional Rights (as defined in paragraph (e) of Section 3.3, below) or
unless there is a future grant of a license to such Licensed Dealership
pursuant to Section 3.2 below.
3.2 Possible Grant of License to Continue Use. If the license
granted to a Licensed Dealership pursuant to Section 3.1 has been or could be
terminated by Lithia pursuant to paragraph (a) of such section and Lithia has
Ceased to Use (as such term is defined in paragraph (d) of Section 3.3 below)
the Customer-Based Intangible Assets within any portion of a Licensed
Dealership's Market Territory, Lithia will automatically be deemed to have
granted to that Licensed Dealership a non-exclusive, royalty-free right and
license to use the Customer-Based Intangible Assets (notwithstanding the
occurrence of the condition set forth in paragraph (a) of Section 3.1) in
connection with the Licensed Dealership's Licensed Activities within that
Market Territory. The license granted under this Section 3.2 shall be
perpetual. Notwithstanding the foregoing, any license granted by Lithia
pursuant to this Section 3.2 shall be personal to the Licensed Dealership to
whom such license is granted and may not be assigned, in whole or in part, by
it to any other person. If Moreland ceases, for any reason, to be the
Majority Owner (as defined in Section 3.3 below) of such Licensed Dealership,
the license granted pursuant to this Section 3.2 shall immediately terminate
without any need for notice from Lithia. If any license granted pursuant to
this Section 3.2 is terminated for any reason, such Licensed Dealership will
have no further right or license to use the Customer-Based Intangible Assets
except for Transitional Rights (as defined in paragraph (e) of Section 3.3,
below).
3.3 Definitions in Connection with Licenses. For the purposes of
this Section 3, the following terms shall have the meanings indicated:
(a) The "Licensed Activities" for a Licensed Dealership shall
mean those businesses in which such Licensed Dealership is engaged as
of the date of this Agreement and other related businesses.
(b) The "Market Territory" for a Licensed Dealership shall mean
a territory within 100 miles of such Licensed Dealership's current
location. A Licensed Dealership shall not be in violation of this
Agreement if an advertisement or other promotional material intended
primarily for the Market Territory appears outside the Market Territory
because the media in which it is placed are distributed outside the
Market Territory. Nothing contained herein or in the Reorganization
Agreement shall restrict Moreland's right to relocate a Licensed
Dealership within the same Market Territory.
(c) Moreland shall be deemed to be the "Majority Owner" of a
Licensed Dealership if he controls a majority of each class of stock or
other units of ownership in the Licensed Dealership. For that purpose,
Moreland shall be deemed to control any ownership interest in a
Licensed Dealership owned by him, his spouse, any descendant (by blood
or adoption) of his or his spouse, the spouse or ex-spouse of any such
descendant, any trust of which any or all of the foregoing are the
primary beneficiaries or any partnership, limited partnership, limited
liability company or other entity owned solely by some or all of the
foregoing.
(d) Lithia shall be deemed to have "Ceased To Use" the
Customer-Based Intangible Assets in the Licensed Dealership's Market
Territory if Lithia (including any of the Acquired Dealerships and all
other entities affiliated with Lithia) fails, for whatever reason, to
use the Customer-Based Intangible Assets in any radio, television,
print, or other advertising media in that Market Territory for a period
of at least 18 consecutive months.
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(e) A Licensed Dealership's "Transitional Rights" shall mean the
continued production, broadcasting or publication of advertisements
utilizing the Customer-Based Intangible Assets under contracts exiting
as of the earlier of the notice of termination of the license or the
effective date of the termination of the license. The duration of such
contracts shall not extend beyond the terms which are reasonable and
customary in the industry and a Licensed Delaership shall not exercise
any renewal rights or options to extend after such notice or
termination.
SECTION 4. COORDINATION OF MARKETING ACTIVITIES WITH LICENSEES
During any period in which one or more Licensed Dealerships has a
license to use the Customer-Based Intangible Assets which has not been
terminated and Lithia continues to use the Customer-Based Intangible Assets,
Lithia and each such Licensed Dealership shall coordinate their marketing
activities to the extent that those activities utilize any or all of the
Customer-Based Intangible Assets and involve marketing activities by Lithia
in the Market Territory of one or more of such Licensed Dealerships or
involve marketing activities by one or more Licensed Dealerships. Such
coordination may include collaborative design of advertising, joint purchase
of advertising time or print space, coordinated promotional activities and
the sharing of the costs of such marketing activities in proportion to the
benefits received by each party.
SECTION 5. MISCELLANEOUS
5.1 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 set forth on Exhibit A. The parties hereto shall have
the right from time to time to change their respective addresses by written
notice to the other parties.
5.2 Successors and Assigns. Lithia may assign its rights under this
agreement to any wholly-owned subsidiary or any other entity controlled by
Lithia. However, any such Assignment by Lithia will not, without the consent
of the other parties, relieve Lithia of its obligations hereunder. No party
to this Agreement may otherwise assign his or its rights hereunder, either in
whole or in part, without the prior written consent of Lithia, which consent
may be withheld by Lithia in its sole discretion. Subject to the foregoing,
this Agreement will be binding upon, inure to the benefit of, and be
enforceable by each of the parties and their respective heirs, personal
representatives, successors and assigns.
5.3 Entire Agreement. The entire agreement between the parties
pertaining to the ownership or use of the Supplier-Based Intangible Assets or
the Customer-Based Intangible Assets is contained herein and supersedes and
replaces all other agreements between the parties pertaining to such subject
matter.
5.4 Modification. No amendment, modification or change to this
Agreement shall be valid unless in writing and duly executed by the party to
be charged therewith.
5.5 Governing Law. This Agreement will be interpreted, construed,
and enforced in accordance with the laws of the State of Oregon without
reference to its choice of law rules, except to the extent preempted by the
laws of the United States of America.
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5.6 Arbitration. Any and all disputes arising from or pertaining to
this Agreement or the interpretation or enforcement thereof, shall be
resolved by binding arbitration in Reno, Nevada. The arbitration shall be
conducted by an independent and neutral arbiter, mutually agreed upon by the
parties. If the parties fail to agree on the selection of an arbiter within
30 days after any party requests arbitration, the arbiter shall be appointed,
upon petition by either party, by the American Arbitration Association in
Reno, Nevada. The fees and expenses of the arbiter shall be shared equally
by the parties. The decision of the arbiter shall be final and binding and
judgment thereon may be entered into any court of competent jurisdiction.
5.7 Attorneys' Fees. In the event any arbitration proceedings are
commenced under this Agreement, the prevailing party shall be entitled to
their reasonable attorneys' fees and costs as may be awarded by the court or
arbitrator in such proceeding and in any appeal therefrom.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed effective as of the date written above.
LITHIA MOTORS, INC.
By: /s/ Bryan B. DeBoer
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Bryan B. DeBoer, Vice President
W. DOUGLAS MORELAND
/s/ W. Douglas Moreland
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James Jannicelli Jerry Cash
/s/ James Jannicelli /s/ Jerry Cash
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Alex Jannicelli G. Michael Downey
/s/ Alex Jannicelli /s/ G. Michael Downey
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Avondale Automotive, Inc. Grand Auto, Inc.
By: /s/ W. Douglas Moreland By: /s/ W. Douglas Moreland
------------------------- ---------------------------------
Its: President Its: President
Skyline Automotive, Inc. The Bill Berry Motor Company
By: /s/ W. Douglas Moreland By: /s/ W. Douglas Moreland
------------------------- ---------------------------------
Its: President Its: President
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EXHIBIT A
Identification of Parties
LITHIA
Lithia Motors, Inc.
360 E. Jackson
Medford, OR 97501
Attn: Sidney B. DeBoer
MORELAND
W. Douglas Moreland
2727 S. Havana
Aurora, CO 80014
DEALER MANAGERS
Alex Jannicelli
1250 S. Nevada
Colorado Springs, CO 80903
James Jannicelli
350 S. Havana
Aurora, CO 80012
Jerry Cash
3835 S. College
Fort Collins, CO 80525
G. Michael Downey
505 S. Havana
Aurora, CO 80012
LICENSED DEALERSHIPS
The Bill Berry Motor Company Skyline Automotive, Inc.
3151 E. Highway 50 2040 W. 104th Avenue
Canon City, CO 81212 Thornton, CO 80345
Avondale Automotive Inc. North Avenue Auto, Inc.
803 E. Van Buren 300 West Grand Avenue
Avondale, AZ 85323 Elmhurst, IL 60126
Grand Auto, Inc.
2000 W. 104th Avenue
Thornton, CO 80234
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EXHIBIT B
Allocation of Consideration Among Parties
The consideration to be paid by Lithia for the Supplier-Based
Intangible Assets and for the Customer-Based Intangible Assets shall be
allocated among Moreland and the other Dealer Managers as follows:
Name of Recipient Amount to be Paid
W. Douglas Moreland $10,625,000
Jerry Cash $ 641,250
G. Michael Downey $ 765,000
Alex Jannicelli $ 971,250
James Jannicelli $ 300,000
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