<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
--------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 000-21789
LITHIA MOTORS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0572810
(State or other jurisdiction of (I.R.S. Employer
incorporation Identification No.)
or organization)
360 E. JACKSON STREET, MEDFORD, OREGON 97501
(Address of principal executive offices) (Zip Code)
541-776-6899
------------
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
CLASS A COMMON STOCK, WITHOUT PAR VALUE
Securities registered pursuant to Section 12(g) of the Act: NONE
(Title of Class)
--------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $54,895,978 as of February 26, 1999 based upon the last sales
price ($18.44) as reported by the New York Stock Exchange.
The number of shares outstanding of the Registrant's Common Stock as of March
12, 1999 was: Class A: 6,149,688 shares and Class B: 4,110,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K, by reference,
portions of its Proxy Statement for its 1999 Annual Meeting of Shareholders.
<PAGE>
LITHIA MOTORS, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1. Business 2
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related 12
Stockholder Matters
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 21
PART III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners and 22
Management
Item 13. Certain Relationships and Related Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 23
8-K
Signatures 30
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This Form 10-K contains forward-looking statements. These statements are
necessarily subject to risk and uncertainty. Actual results could differ
materially from those projected in these forward-looking statements. These risk
factors include, but are not limited to, the following:
- - The cyclical nature of automobile sales;
- - The Company's ability to negotiate profitable, accretive acquisitions;
- - The Company's ability to secure manufacturer approvals for acquisitions; nd
- - The Company's ability to retain existing management.
See Exhibit 99 for a discussion of risk factors.
GENERAL
Lithia is a leading operator and retailer in the highly fragmented automotive
industry. We offer 23 brands of new vehicles, through 56 franchises in 28
locations in the western United States. We currently operate 14 dealerships in
California, 9 in Oregon, 2 in Washington and 3 in Nevada. Lithia 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.
Lithia Motors, Inc. was founded in 1946 and its two senior executives have
managed Lithia for over 28 years. Management has developed and implemented its
acquisition and operating strategies which have enabled Lithia to successfully
identify, acquire and integrate dealerships, achieving financial performance
superior to industry averages. Since December 1996 when we completed our initial
public offering, we have acquired 23 dealerships and are actively pursuing
additional acquisitions. During 1998, the Company's skill in integrating
dealerships resulted in 22% sales growth and 44% pre tax income growth at the
first ten stores that were purchased since Lithia's initial public offering.
According to industry data, the number of franchised automobile dealerships has
declined from more than 36,000 dealerships in 1960 to approximately 22,000 in
1998. Currently, the largest 100 dealer groups generate less than 12% of total
industry sales and control approximately 5% of all franchised automobile
dealerships. Based on a current annual revenue run rate of $850 million, we
believe that we are one of the 20 largest automobile retailers in the country.
Further consolidation of the automotive retailing industry is expected due to:
- The high cost of entry into the franchised automobile business;
- Many dealerships owned by individuals who are nearing retirement age;
and
- The desire of manufacturers to strengthen their dealer networks
through consolidation.
2
<PAGE>
GROWTH STRATEGY
Lithia has become a leading acquiror and operator of automobile dealerships in
the western and inter-mountain United States. We target acquisitions in markets
where we have the opportunity to build a significant market presence. We
generally try to acquire an entire group at one time (a "Platform") or acquire
one or two stores at a time ("Fill-ins"). Lithia's current core markets are
South-Central Oregon, Northern California, South-Central Valley, California,
Northern Nevada and Eastern Washington. Lithia makes acquisitions on an
opportunistic basis with a keen focus on maximizing its return on investment.
As such, Lithia's acquisition pricing discipline has played a key role in its
acquisition activities. Lithia's strict discipline in purchasing stores,
combined with its ability to rapidly improve profitability by implementing the
Lithia operating model into acquired stores, has effectively allowed Lithia to
build its own dealership groups.
Since our initial public offering in December 1996, we have completed the
purchase of 23 dealerships with pre-acquisition annual revenues of approximately
$684 million.
OPERATING STRATEGY
After acquiring a new store, Lithia implements its proven operating model to
maximize the overall franchise value of each location. Lithia's operating
strategy consists of the following elements:
VALUE PARTNERSHIP WITH MANUFACTURERS. Lithia recognizes that the
manufacturers are true partners through the franchise system. They are all
large well-developed companies with enormous resources committed to the
franchise as the method of retailing their products. They lend support in
training Lithia's employees; in allocating vehicles; in designing systems for
operations; in selling slower-moving inventories through incentives and
rebates; and in advertising through regional and national sources. Lithia
relies on this help and encourages their assistance as a welcome partner.
Lithia cooperates in facility design, in marketing efforts and in program
support.
PROVIDE A BROAD RANGE OF PRODUCTS AND SERVICES. Lithia offers a broad range of
products and services including a wide selection of new and used cars and light
trucks, vehicle financing and insurance and replacement parts and service.
By offering new and used vehicles and an array of complementary services at each
of its locations, Lithia seeks to increase customer traffic and meet specific
customer needs. We believe that offering numerous new vehicle brands appeals to
a variety of customers, minimizes dependence on any one manufacturer, and
reduces our exposure to supply problems and product cycles.
EMPHASIZE SALES OF HIGHER MARGIN PRODUCTS AND SERVICES. Lithia generates
substantial incremental revenue and net income by arranging the financing for
the sale of vehicles and by selling insurance, extended service contracts and
vehicle maintenance. In 1998, Lithia arranged financing for 74% of its new
vehicle sales and 71% of its used vehicle sales, compared to 42% and 51%,
respectively, for the average automobile dealership in the United States (1997
data).
3
<PAGE>
EMPLOY PROFESSIONAL MANAGEMENT TECHNIQUES. Each dealership is its own profit
center and is managed by an experienced general manager who has primary
responsibility for inventory, advertising, pricing and personnel. In order to
provide additional support towards improving performance, each dealership has
available to it a 5-person team of specialists in new vehicle sales, used
vehicle sales, finance and insurance, service and parts, and back office
administration. Lithia compensates its general managers and department managers
based on the profitability of their dealerships and departments, respectively.
Senior management monitors each dealership's sales, profitability and inventory
on a daily basis.
FOCUS ON CUSTOMER SATISFACTION AND LOYALTY. Lithia emphasizes customer
satisfaction and a reputation for quality and fairness. Lithia trains its sales
personnel to identify an appropriate vehicle for each of its customers at an
affordable price.
Lithia's "Priority You" customer service plan provides:
- A customer credit check within 10 minutes;
- A used vehicle appraisal within 30 minutes;
- Paper work completed within 90 minutes for a vehicle purchase;
- A 10-day/500-mile "no questions asked" right of exchange on any used
vehicle sold;
- A 60-day/3,000 mile warranty on all used vehicles sold; and
- A donation to a local charity or educational organization for every
vehicle sold.
We believe that "Priority You" helps differentiate us from other dealerships.
We believe the application of this operating strategy provides us with a
competitive advantage over many dealerships and it is critical to our ability to
achieve levels of profitability superior to industry averages.
Lithia has received a number of dealer quality and customer satisfaction awards
from various manufacturers. Lithia's Medford and Grants Pass, Oregon Chrysler
product dealerships achieved Chrysler's highest recognition for dealer
excellence, the Five-Star Certification. The Medford location was the first to
receive this certification in the Pacific Northwest. Most recently, Lithia Dodge
of Eugene, Oregon became a National Charger Club member in recognition of high
sales volume and customer satisfaction. Also, Lithia Isuzu of Reno was
recognized as the number one retail Isuzu dealer in the country and Sendai Club
member as well as receiving the 1998 President's Cup.
4
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DEALERSHIP OPERATIONS
Lithia owns and operates 28 dealership locations, 14 in California, 9 in Oregon,
3 in Nevada and 2 in Washington. Each of Lithia's dealerships sell new and used
vehicles and related automotive parts and services.
Lithia's dealerships, brands sold and percentage of current annual revenues by
region are as follows:
<TABLE>
<CAPTION>
Number of % of Current
Region Location Franchises Brands Annual Revenues
- -------------------------- ---------------- ---------- ---------------------------------- ---------------
<S> <C> <C> <C> <C>
South-Central Oregon Medford, OR 4 Honda, Suzuki, Isuzu, Volkswagen 34%
Medford, OR 3 Toyota, Lincoln-Mercury
Medford, OR 6 Dodge, Dodge Truck, Chrysler,
Plymouth, Mazda, Jeep
Medford, OR 1 Saturn
Medford, OR 2 Nissan, BMW
Grants Pass, OR 5 Dodge, Dodge Truck, Chrysler,
Plymouth, Jeep
Eugene, OR 2 Dodge, Dodge Trucks
Eugene, OR 1 Toyota
Eugene, OR 1 Nissan
Northern California Vacaville, CA 1 Toyota 27%
Concord, CA 2 Dodge, Dodge Trucks
Concord, CA 2 Volkswagen, Isuzu
Concord, CA 1 Ford
Napa, CA 3 Ford, Lincoln-Mercury
Redding, CA 1 Chevrolet
Redding, CA 1 Toyota
South-Central Valley, CA Bakersfield, CA 1 Nissan 19%
Bakersfield, CA 2 BMW, Acura
Bakersfield, CA 1 Jeep
Fresno, CA 1 Ford
Fresno, CA 2 Mazda, Suzuki
Fresno, CA 1 Nissan
Fresno, CA 2 Jeep, Hyundai
Northern Nevada Reno, NV 5 Isuzu, Lincoln-Mercury, Suzuki, 10%
Audi Volkswagen
Reno, NV 1 Isuzu, Lincoln-Mercury, Suzuki
Sparks, NV -(1)
Eastern Washington Spokane, WA 1 Chevrolet 10%
Spokane, WA 3 Subaru, BMW, Volvo
</TABLE>
(1) The Sparks, Nevada location represents satellite franchises of the main Reno
location.
5
<PAGE>
NEW VEHICLE SALES. Lithia sells 23 domestic and imported brands ranging
from economy to luxury cars, sport utility vehicles, minivans and light trucks.
The following table sets forth, by manufacturer, the percentage of new vehicle
sales by Lithia during the fourth quarter of 1998.
<TABLE>
<CAPTION>
1998 FOURTH QUARTER
PERCENTAGE OF
MANUFACTURER NEW VEHICLE SALES
- -------------------------------------------------- -------------------
<S> <C>
Chrysler (Chrysler, Plymouth, Dodge, Jeep, Dodge 31.2
Trucks)
Ford (Ford, Lincoln, Mercury) 19.3
Toyota 12.0
General Motors (Chevrolet, Saturn) 8.8
Volkswagen, Audi 6.4
Isuzu 5.7
Nissan 5.6
BMW 3.2
Honda (Acura, Honda) 2.8
Subaru 1.8
Suzuki 1.0
Mazda 0.9
Volvo 0.8
Hyundai 0.5
------
100.0%
------
------
</TABLE>
The following table sets forth Lithia's unit and dollar sales of new vehicles
for each of the past five years:
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1995 1996 1997 1998
- ----------------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Units 2,744 2,715 3,274 7,493 17,708
Sales $51,154 $53,277 $65,092 $161,294 $388,431
</TABLE>
Lithia 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. Lithia also
exchanges vehicles with other dealers to accommodate customer demand and to
balance inventory.
As is customary in the automobile industry, the final sales price of a new
vehicle is generally negotiated with the customer. However, at Lithia's Saturn
dealership, the final sales price does not deviate from the posted price.
USED VEHICLE SALES. Used vehicle sales are an important part of our overall
profitability. Lithia retains a full-time used vehicle manager at each of its
locations.
Lithia acquires the majority of its used vehicles through customer trade-ins,
but also acquires them at "closed" auctions, which may be attended only by new
vehicle dealers and which offer off-lease, rental and fleet vehicles, and at
"open" auctions which offer repossessed vehicles and vehicles being sold by
other dealers.
Lithia 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.
6
<PAGE>
The following table sets forth Lithia's unit and dollar sales of used vehicles
for each of the past five years:
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1995 1996 1997 1998
- ----------------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Retail units 3,372 3,302 4,156 7,148 13,645
Retail sales $36,382 $36,997 $48,697 $88,571 $174,223
Wholesale units 1,834 1,842 2,348 4,990 9,532
Wholesale sales $ 5,999 $ 7,064 $ 9,914 $24,528 $46,321
Total units 5,206 5,144 6,504 12,138 23,177
Total sales $42,381 $44,061 $58,611 $113,099 $220,544
</TABLE>
Lithia's "Priority You" offers a 60-day/3,000-mile warranty and a
10-day/500-mile "no questions asked" exchange program on every used vehicle it
sells. We generally sell each used vehicle within 60 days of acquisition.
VEHICLE FINANCING AND LEASING. Lithia believes that the availability of
financing at its dealerships is critical to its ability to sell vehicles and
ancillary products and services. Lithia provides a variety of financing and
leasing alternatives to meet the needs of each customer. We believe our ability
to offer customer-tailored financing on a "same day" basis provides us with an
advantage over many of our competitors, particularly smaller competitors who do
not generate sufficient volume to attract the diversity of financing sources
that are available to us.
Because of the high profit margins which are typically generated through sales
of F&I products, Lithia seeks to arrange financing for every vehicle it sells.
Lithia has arranged financing for a larger percentage of its transactions than
the industry average. During 1998, Lithia financed or arranged for financing for
over 74% of its new vehicle sales and 71% of its used vehicle sales, compared to
an industry average of 42% and 51%, respectively (latest 1997 data).
Lithia maintains close relationships with a wide variety of financing sources
that are best suited to satisfy its customers' particular needs and that
maximize income. The interest rates available and the required down payment, if
any, depend to a large extent, upon the bank or other institution providing the
financing and the credit history of the particular customer.
Lithia generally arranges financing for its customers from third party sources
to avoid the risk of default. However, if we believe the credit risk is
manageable, we occasionally directly finance or lease the vehicle to the
customer. In these cases, Lithia bears the risk of default. Historically,
Lithia has directly financed only a limited number of vehicle sales.
SERVICE, BODY AND PARTS. Lithia considers its service, body and parts
operations to be an integral part of its customer service program and an
important element of establishing customer loyalty. Lithia provides parts and
service primarily for the new vehicle brands sold by its dealerships but may
also service other vehicles. In 1998, Lithia's service, body and parts
operations generated $72.2 million in revenues, or 10.1% of total revenues.
Lithia uses a variable pricing structure designed to reflect the difficulty and
sophistication of different types of repairs and the cost and availability of
parts.
7
<PAGE>
The service, body and parts business provides an important recurring revenue
stream to the dealerships. Lithia markets its parts and service products by
notifying the owners of vehicles purchased at its dealerships when their
vehicles are due for periodic service. This practice encourages preventive
maintenance rather than post-breakdown repairs. To a limited extent, revenues
from the service, body and parts departments are countercyclical to new car
sales as owners repair existing vehicles rather than buy new vehicles. We
believe this helps mitigate the effects of a downturn in the new vehicle sales
cycle.
Lithia operates three collision repair centers, one each in Northern California,
Eastern Washington and South-Central Oregon.
ANCILLARY SERVICES AND PRODUCTS. Lithia's F&I managers market a number of
ancillary products and services to every purchaser of a new or used vehicle.
Typically, these products and services yield high profit margins and contribute
significantly to Lithia's overall profitability.
Lithia sells third-party extended-service contracts, which cover all designated
repairs. While all new vehicles are sold with the automobile manufacturer's
standard warranty, service plans provide additional coverage beyond the time
frame or scope of the manufacturer's warranty. Purchasers of used vehicles can
purchase similar extended-service contracts.
Lithia offers its customers credit life, health and accident insurance when they
finance an automobile purchase. Lithia receives a commission on each policy
sold. The Company also offers other ancillary products such as protective
coatings and automobile alarms.
SALES AND MARKETING
We believe that our "Priority You" program described earlier helps differentiate
us from many other dealerships, thereby increasing customer traffic and
developing stronger customer loyalty.
Advertising and marketing play a significant role in our success. A large
portion of an auto retailers' advertising and marketing expenses are provided
for by the automobile manufacturers. The manufacturers also provide Lithia with
market research, which assists Lithia in developing its own advertising and
marketing campaigns.
Lithia utilizes most forms of media in its advertising, including television,
our internet web site, newspaper, radio and direct mail, including periodic
mailers to previous customers. Lithia uses advertising to develop its image as a
reputable dealer, offering quality service, affordable automobiles and financing
for all buyers. In addition, Lithia's individual dealerships sponsor price
discounts or other promotions designed to attract customers. By owning a
cluster of dealerships in a particular market, we can save money from volume
discounts and other media concessions. Lithia also participates as a member of a
number of advertising cooperatives or associations whose members pool their
resources and expertise together with those of the manufacturer to develop
advertising campaigns.
8
<PAGE>
Lithia has dedicated resources to developing and maintaining its web site
(www.lithia.com). We believe that our web site is a valuable lead-generation
tool. A visitor to Lithia's web site is able to do the following at each of
Lithia's locations:
- access the manufacturer sites for product information;
- order a new vehicle;
- view all used vehicle inventory;
- schedule a service appointment;
- order parts and accessories; and
- download customer discount coupons
We believe that regional and national auto retailers, such as Lithia, are best
positioned to take advantage of the internet as an effective marketing tool.
MANAGEMENT INFORMATION SYSTEM
Lithia's financial information, operational and accounting data, and other
related statistical information are consolidated, processed and maintained at
its headquarters in Medford, Oregon, on a network of computers and work
stations.
Senior management is able to access detailed information from all of its
locations regarding:
- inventory;
- total unit sales and mix of new and used vehicle sales;
- lease and finance transactions;
- sales of ancillary products and services;
- key cost items and profit margins; and
- the relative performance of the dealerships.
Each dealership's general manager can access the same information. With this
information, management can quickly analyze the results of operations, identify
trends in the business, and focus on areas that require attention or
improvement. We believe that our management information system also allows our
general managers to quickly respond to changes in consumer preferences and
purchasing patterns, thereby maximizing inventory turnover.
We believe that our management information system is a key factor in
successfully incorporating newly acquired businesses. Following each
acquisition, Lithia immediately installs its management information system at
the dealership location, thereby quickly making the financial, accounting and
other operational data easily accessible throughout the organization. With
access to such data, management can more efficiently execute Lithia's operating
strategy at the newly acquired dealership.
RELATIONSHIPS WITH AUTOMOBILE MANUFACTURERS
Lithia has, either directly or through its subsidiaries, entered into franchise
or dealer sales and service agreements with each manufacturer of the new
vehicles it sells.
The typical automobile franchise agreement specifies the locations within a
designated market area at which the dealer may sell vehicles and related
products and perform certain approved services. The designation of such areas
and the allocation of new vehicles among dealerships are subject to the
discretion of the manufacturer, which (except for Saturn) does not guarantee
exclusivity within a specified territory.
9
<PAGE>
A franchise agreement may impose requirements on the dealer concerning such
matters as:
- the showroom;
- service facilities and equipment;
- inventories of vehicles and parts;
- minimum working capital;
- training of personnel; and
- performance standards regarding sales volume and customer
satisfaction.
Each manufacturer closely monitors compliance with these requirements and
requires each dealership to submit monthly and annual financial statements of
operations. The franchise agreements also grant the dealer the non-exclusive
right to use and display manufacturers' trademarks, service marks and designs in
the form and manner approved by each manufacturer.
Most franchise agreements expire after a specified period of time, ranging from
one to five years; however, some franchise agreements, including those with
Chrysler, have no termination date. The typical franchise agreement provides for
early termination or non-renewal by the manufacturer if there is:
- a change of management or ownership without manufacturer consent;
- insolvency or bankruptcy of the dealership;
- death or incapacity of the dealer manager;
- conviction of a dealer manager or owner of certain crimes;
- misrepresentation of certain information by the dealership, dealer
manager or owner to the manufacturer;
- failure to adequately operate the dealership;
- failure to maintain any license, permit or authorization required for
the conduct of business; or
- poor sales performance or low customer satisfaction index
Each franchise agreement authorizes at least one person to manage the
dealership's operations. The manufacturer must approve changes in management or
transfers of ownership of the dealership.
COMPETITION
The automobile business is highly competitive. The automobile dealership
industry is fragmented and characterized by a large number of independent
operators, many of whom are individuals, families, and small groups. Lithia
principally competes with other automobile dealers, both publicly and privately
held, in the same general vicinity of its dealership locations, as well as
automobile "superstores." In addition, certain regional and national car rental
companies operate retail used car lots to dispose of their used rental cars.
REGULATION
Lithia's operations are subject to extensive regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations. Various state and federal regulatory agencies, such as the
Occupational Safety and Health Administration and the U.S. Environmental
Protection Agency, have jurisdiction over the operation of Lithia's dealerships,
service centers, collision repair shops and other operations, with respect to
matters such as consumer protection, workers' safety and laws regarding clean
air and water.
10
<PAGE>
The relationship between a franchised automobile dealership and a manufacturer
is governed by various federal and state laws established to protect dealerships
from the generally unequal bargaining power between the parties. A manufacturer
may not:
- terminate or fail to renew a franchise without good cause; or
- prevent any reasonable changes in the capital structure or the manner
in which a dealership is financed
Manufacturers may object to a sale or change of management based on character,
financial ability or business experience of the proposed transferee.
Automobile dealers and manufacturers are also subject to various federal and
state laws established to protect consumers, including so-called "Lemon Laws."
A manufacturer or the dealer must replace a new vehicle or accept it for a full
refund within one year after initial purchase if:
- the vehicle does not conform to the manufacturer's express warranties;
and
- the dealer or manufacturer, after a reasonable number of attempts, is
unable to correct or repair the defect.
We must provide written disclosures on new vehicles of mileage and pricing
information. In addition, financing and insurance activities are subject to
credit reporting, debt collection, and insurance industry regulation.
Imported automobiles are subject to United States customs duties. Lithia may,
from time to time, have to pay claims for duties, penalties or other charges.
Lithia's business, particularly parts, service and collision repair operations
involves hazardous or toxic substances or wastes. Lithia has been required to
remove storage tanks containing such substances or wastes. Federal, state and
local authorities establishing health and environmental quality standards
regulate the handling and storage of hazardous materials. These governmental
authorities also regulate remediation of contaminated sites, which could be
Lithia facilities or sites to which Lithia sends hazardous or toxic substances
or wastes for treatment, recycling or disposal. We believe that we do not have
any material environmental liabilities and that compliance with environmental
regulations will not, have a material adverse effect on Lithia's results of
operations or financial condition.
EMPLOYEES
As of December 31, 1998, we employed approximately 1,850 persons on a
full-time equivalent basis. The service department employees at Lithia
Concord Dodge and Lithia Sun Valley Ford, Volkswagen, Isuzu are bound by
collective bargaining agreements. The Company believes it has a good
relationship with its employees.
ITEM 2. PROPERTIES
Lithia's dealerships and other facilities consist primarily of automobile
showrooms, display lots, service facilities, three collision repair and paint
shops, rental agencies, supply facilities, automobile storage lots, parking lots
and offices. We believe our facilities are currently adequate for our needs and
are in good repair. Lithia owns some of its properties, but generally prefers to
lease its properties providing future flexibility to relocate its retail stores
as demographics change. Lithia also holds some undeveloped land for future
expansion.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Lithia is a party to litigation that arises in the normal course of its business
operations. We do not believe that we are presently a party to litigation that
will have a material adverse effect on our business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Lithia's shareholders during the quarter
ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Lithia's Class A Common Stock began trading on the New York Stock Exchange on
January 22, 1999 under the symbol LAD. Prior to that time, the Class A Common
Stock traded on the Nasdaq National Market under the symbol LMTR. The quarterly
high and low sales prices of the Class A Common Stock for the period from
January 1, 1997 through December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1997 High Low
- -------------------------------------------------- ----------- ----------
<S> <C> <C>
Quarter 1 $ 13.13 $ 10.50
Quarter 2 12.38 9.50
Quarter 3 14.25 10.50
Quarter 4 19.00 13.63
1998
- ------
Quarter 1 $ 17.25 $ 12.00
Quarter 2 17.00 13.13
Quarter 3 18.25 10.38
Quarter 4 17.88 9.25
</TABLE>
The number of shareholders of record and approximate number of beneficial
holders of Class A Common Stock at March 16, 1999 was 1,675 and 1,300,
respectively. All shares of Lithia's Class B Common Stock are held by Lithia
Holding Company LLC. There were no cash dividends declared or paid subsequent
to Lithia's initial public offering in December 1996. Lithia does not intend to
declare or pay cash dividends. Lithia intends to retain any earnings that it may
realize in the future to finance its acquisitions and operations. The payment of
any future dividends will be subject to the discretion of the Board of Directors
and will depend upon Lithia's results of operations, financial position and
capital requirements, general business conditions, restrictions imposed by
financing arrangements, if any, and legal restrictions on the payment of
dividends. Lithia's agreements with Ford Credit preclude the payment of cash
dividends without the prior consent of Ford Credit.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
(in thousands, except per share amounts) 1994 (1) 1995 (1) 1996 (1) 1997 1998
----------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
New vehicles $ 51,154 $ 53,277 $ 65,092 $ 161,294 $ 388,431
Used vehicles 42,381 44,061 58,611 113,099 220,544
Service, body and parts 9,972 10,961 13,197 29,828 72,216
Other revenues 5,916 5,897 5,944 15,574 33,549
----------- ----------- ---------- --------- ---------
Total revenues 109,423 114,196 142,844 319,795 714,740
Cost of sales 88,148 92,054 117,025 265,049 599,379
----------- ----------- ---------- --------- ---------
Gross profit 21,275 22,142 25,819 54,746 115,361
Selling, general and administrative 14,781 16,333 19,830 40,625 85,188
Depreciation and amortization 1,954 1,907 1,756 2,483 3,469
----------- ----------- ---------- --------- ---------
Income from operations 4,540 3,902 4,233 11,638 26,704
Floorplan interest expense (535) (957) (697) (2,179) (7,108)
Other interest expense (419) (433) (656) (824) (2,735)
Other income, net 1,001 1,215 1,349 862 921
----------- ----------- ---------- --------- ---------
Income before minority interest
and income taxes 4,587 3,727 4,229 9,497 17,782
Minority interest (458) (778) (687) - -
----------- ----------- ---------- --------- ---------
Income before income taxes (1) $ 4,129 $ 2,949 3,542 9,497 17,782
----------- ----------- ---------- --------- ---------
----------- -----------
Income tax (expense) benefit 813 (3,538) (6,993)
---------- --------- ---------
Net income $ 4,355 $ 5,959 $ 10,789
---------- --------- ---------
---------- --------- ---------
PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Income before taxes and minority interest,
as reported $ 4,587 $ 3,727 $ 4,229
Pro forma provision for taxes (2) (1,743) (1,430) (1,623)
----------- ----------- ---------
Pro forma net income $ 2,844 2,297 $ 2,606
----------- ----------- ---------
----------- ----------- ---------
Basic net income per share (3) $ 0.17 $ 0.50 $ 0.56 $ 0.85 $ 1.18
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Diluted net income per share (3) $ 0.16 $ 0.47 $ 0.52 $ 0.82 $ 1.14
----------- ----------- ---------- --------- ---------
----------- ----------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------------
(in thousands) 1994 (1) 1995 (1) 1996 (1) 1997 1998
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital $ 9,325 $ 10,626 $ 25,431 $ 23,870 $ 53,553
Total assets 41,981 44,117 68,964 166,526 294,398
Short-term debt 23,511 22,300 22,000 85,385 132,310
Long-term debt, less current maturities 6,748 10,743 6,160 26,558 41,420
Total shareholders' equity 6,094 3,716 27,914 37,877 91,511
</TABLE>
(1) Effective January 1, 1997, the Company converted from the LIFO method of
accounting for inventories to the FIFO method. Accordingly, the 1994, 1995 and
1996 data has been restated to reflect this change. See Note 1 of Notes to
Consolidated Financial Statements.
(2) The Company was an S Corporation and accordingly was not subject to federal
and state income taxes during the periods indicated. Pro forma net income
reflects federal and state income taxes as if the Company had been a
C Corporation, based on the effective tax rates that would have been in effect
during these periods. See "Company Restructuring and Prior S Corporation Status"
and Notes 1 and 8 to the Company's Consolidated Financial Statements.
(3) The per share amounts are pro forma for 1994, 1995 and 1996 and actual for
1997 and 1998.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
In 1998, Lithia generated record revenues, net income, EBITDA and unit sales of
new and used vehicles as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998 % INCREASE
-------- -------- -----------
<S> <C> <C> <C>
Revenues $319,795 $714,740 123%
EBITDA $14,983 $31,094 108%
Net income $5,959 $10,789 81%
Unit sales:
New 7,493 17,708 136%
Retail used 7,148 13,645 91%
</TABLE>
The following table shows selected condensed financial data expressed as a
percentage of total revenues for the periods indicated for the average
automotive dealer in the United States.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
AVERAGE U.S. DEALERSHIP ---------------------------
STATEMENT OF OPERATIONS DATA: 1996 1997
-------- --------
<S> <C> <C>
Revenues:
New vehicles 57.7 % 58.3 %
Used vehicles 30.4 29.8
Parts and service, other 11.9 11.9
-------- --------
100.0 % 100.0 %
Gross profit 12.9 12.7
Total dealership expense 11.3 11.4
Income before taxes 1.5 % 1.4 %
</TABLE>
Source: NADA INDUSTRY ANALYSIS DIVISION
The following table sets forth selected condensed financial data for Lithia
expressed as a percentage of total revenues for the periods indicated below.
<TABLE>
<CAPTION>
LITHIA MOTORS, INC. YEAR ENDED DECEMBER 31,
- ---------------------------------- ----------------------------------------
1996 (1) 1997 1998
--------- ------- --------
<S> <C> <C> <C>
Revenues:
New vehicles 45.6% 50.4% 54.3%
Used vehicles 41.0% 35.4% 30.9%
Service, body and parts 9.2% 9.3% 10.1%
Other revenues 4.2% 4.9% 4.7%
--------- ------- --------
Total revenues 100.0% 100.0% 100.0%
Gross profit 18.1% 17.1% 16.1%
Selling, general and 13.9% 12.7% 11.9%
administrative
Income from operations 3.0% 3.6% 3.7%
</TABLE>
Effective January 1, 1997, the Company converted from the LIFO method of
accounting for inventories to the FIFO method. Accordingly, the 1994, 1995 and
1996 data has been restated to reflect this change. See Note 1 of Notes to
Consolidated Financial Statements.
14
<PAGE>
1998 COMPARED TO 1997
REVENUES. Revenues increased $394.9 million, or 123% to $714.7 million for the
year ended December 31, 1998 from $319.8 million in 1997. Total vehicles sold
during 1998 increased by 21,254, or 108%, to 40,885 from 19,631 during 1997.
Same store sales growth was 14.7% in 1998 compared to industry growth for new
vehicles of 2.9% for 1998. During 1998, the Company's skill in integrating
dealerships resulted in 22% sales growth and 44% pre tax income growth at the
first ten stores that were purchased since Lithia's initial public offering.
NEW VEHICLES. In 1998 new vehicle sales of $388.4 million
constituted 54.3% of total revenues compared to $161.3 million,
or 50.4% of new vehicle sales, in 1997. The increase is
primarily a result of acquisitions, strong internal growth and a
1.9% increase in the average selling price of new vehicles during
1998 to $21,935 from $21,526 in 1997.
RETAIL USED VEHICLES. In 1998 and 1997, the Company sold 13,645
and 7,148 retail used vehicles, respectively, generating revenues
of $174.2 million and $88.6 million, respectively. Used vehicle
revenue constituted 24.4% and 27.7% of total revenue in 1998 and
1997, respectively. Average selling prices for retail used
vehicles increased 3.0% to $12,768 in 1998 from $12,391 in 1997.
SERVICE, BODY AND PARTS. Lithia derives additional revenue from
the sale of parts and accessories, maintenance and repair
services and collision repair work. Revenues from these types of
services increased 142% in 1998 to $72.2 million from $29.8
million in 1997. This increase is primarily the result of
internal growth and dealership acquisitions.
OTHER REVENUES. Other revenues consist primarily of financing and
insurance ("F&I") transactions. Other revenues increased 115% to
$33.5 million during 1998, from $15.6 million during 1997, due
primarily to internal growth and dealership acquisitions that
increased total sales.
GROSS PROFIT. Gross profit increased 111% during 1998 to $115.4 million,
compared with $54.7 million for 1997, primarily because of the increase in new
and used vehicle unit sales during the period. The overall gross profit margin
achieved was 16.1% for 1998 compared to 17.1% for 1997. The decrease in gross
profit margin was primarily a result of the acquisition of several new
dealerships during 1997 and 1998, which were generating gross margins lower than
those of Lithia's pre-existing stores. Lithia's overall gross margin percentage
increased throughout 1998 as it integrated its new dealerships into its existing
operations. The overall gross margin in the fourth quarter of 1998 was 16.9%.
Lithia's gross profit margin continues to exceed the average U.S. dealership
gross profit margin of 12.7% for the full year of 1997.
The gross profit margin achieved on new vehicle sales during 1998 and 1997 was
10.1% and 11.4%, respectively. This compares favorably with the average gross
profit margin of 6.4% realized by franchised automobile dealers in the United
States on sales of new vehicles in 1997. Excluding wholesale transactions, the
gross profit margin on used vehicle sales was 11.0% in 1998 and 11.4% in 1997,
as compared to the industry average for 1997 of 10.9%.
15
<PAGE>
Sales of used vehicles to other dealers and to wholesalers are frequently at,
or close to, cost.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative ("SG&A") expense increased $44.6 million, or 110%, to $85.2
million for 1998 compared to $40.6 million for 1997. SG&A as a percentage of
total revenues decreased to 11.9% for 1998 from 12.7% for 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 revenues is a result of economies of scale gained as the fixed
expenses are spread over a larger revenue base and from economies of scale as
Lithia consolidates multiple stores in a single market.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$1.0 million or 40% to $3.5 million for the year ended December 31, 1998
compared to $2.5 million for 1997 primarily as a result of increased property
and equipment and goodwill related to acquisitions in late 1997 and 1998.
Depreciation and amortization was 0.5% of total revenues in 1998 compared to
0.8% in 1997.
INCOME FROM OPERATIONS. Income from operations increased to $26.7 million (3.7%
of total revenues) for the year ended December 31, 1998 compared to $11.6
million (3.6% of total revenues) in 1997. In addition to gaining efficiencies
related to economies of scale, Lithia has seen improvements in the operating
margins at stores that it has acquired and operated for a full year, bringing
them more in line with its pre-existing stores. Income from operations was 4.4%
of total revenues in the fourth quarter of 1998.
INTEREST EXPENSE. Interest expense increased $6.8 million or 228% to
$9.8 million for the year ended December 31, 1998 compared to $3.0 million for
1997, primarily as a result of increased floorplan notes payable related to
increased inventories as a result of the increase in stores owned and vehicles
sold.
INCOME TAX EXPENSE. Lithia's effective tax rate for 1998 was 39.3% compared to
37.3% for 1997. Lithia's effective tax rate may be affected by the purchase of
new dealerships in jurisdictions with tax rates either higher or lower than the
current effective rate.
NET INCOME. Net income rose 81% to $10.8 million (1.5% of total revenues) for
the year ended December 31, 1998 compared to $6.0 million (1.9% of total
revenues) for 1997, as a result of the individual line item changes discussed
above.
1997 COMPARED TO 1996
REVENUES. Revenues increased $177.0 million, or 123.9% to $319.8 million for
the year ended December 31, 1997 from $142.8 million in 1996. Total vehicles
sold during 1997 increased by 9,853, or 100.8%, to 19,631 from 9,778 during
1996. Dealerships acquired in late 1996 and 1997 accounted for 9,836 of the
total vehicles sold in 1997. Same dealership sales growth was 4.8%, due to a
3.1% increase in vehicle sales, and a 20.7% increase in other operating sales.
NEW VEHICLES. In 1997 and 1996, Lithia sold 7,493 and 3,274 new
vehicles, generating revenues of $161.3 million and $65.1
million, which constituted 50.4% and 45.6% of total revenues,
respectively.
16
<PAGE>
RETAIL USED VEHICLES. In 1997 and 1996, Lithia sold 7,148 and
4,156 retail used vehicles, respectively, generating revenues of
$88.6 million and $48.7 million, which constituted 27.7% and
34.1% of total revenue, respectively. Average selling prices for
retail used vehicles increased 5.8% to $12,391 in 1997 from
$11,717 in 1996.
SERVICE, BODY AND PARTS. Lithia derives additional revenue from
the sale of parts and accessories, maintenance and repair
services and collision repair work. Revenues from these types of
services increased 126% in 1997 to $29.8 million from $13.2
million in 1996, primarily as a result of the increased number of
dealership locations.
OTHER REVENUES. Other revenues consist primarily of financing and
insurance ("F&I") transactions. Other revenues increased 162% to
$15.6 million during 1997, from $5.9 million during 1996, due
primarily to dealership acquisitions that increased total sales.
GROSS PROFIT. Gross profit increased 112% during 1997 to $54.7 million, compared
with $25.8 million for 1996, primarily because of the increase in new and used
vehicle unit sales during the period. Total gross profit margin decreased to
17.1% for 1997 from 18.1% for 1996. The decrease in gross profit margins was
primarily a result of the acquisition of several new dealerships during 1997
which were generating gross margins lower than those of Lithia's existing
stores.
The gross profit margin on new vehicle sales during 1997 and 1996 was 11.4% and
13.1%, respectively. This compares favorably with the average gross profit
margin of 6.5% realized by franchised automobile dealers in the United States on
sales of new vehicles in 1996. Excluding wholesale transactions, Lithia's gross
profit margin on used vehicle sales was 11.4% in 1997 and 12.8% in 1996,
compared to the industry average for 1996 of 11.0%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Lithia's selling, general and
administrative ("SG&A") expense increased $20.8 million, or 104.9%, to $40.6
million for 1997 compared to $19.8 million for 1996. SG&A as a percentage of
sales decreased to 12.7% for 1997 from 13.9% for 1996. The increase in SG&A was
due primarily to increased selling, or variable, expense related to the increase
in sales resulting from the acquisition of additional dealerships, and increased
costs associated with being a public company. The decrease in SG&A as a percent
of total sales is a result of economies of scale gained as the fixed expenses
are spread over a larger revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$0.7 million, or 41%, to $2.5 million for the year ended December 31, 1997
compared to $1.8 million for 1996 primarily as a result of increased property
and equipment and goodwill related to acquisitions in 1997. Depreciation and
amortization was 0.8% of sales in 1997 compared to 1.2% in 1996.
INTEREST EXPENSE. Interest expense increased $1.6 million or 122.0% to
$3.0 million for the year ended December 31, 1997 compared to $1.4 million for
1996, primarily as a result of increased debt in 1997 related to acquisitions,
partly offset by increased cash balances for a majority of the year related to
Lithia's initial public offering.
17
<PAGE>
INCOME TAX EXPENSE. Prior to December 18, 1996, Lithia and its affiliated
entities were treated as S Corporations or as partnerships under the Internal
Revenue Code for federal income tax purposes since their inception and, as a
result, have not been subject to federal or certain state income taxes.
Immediately before the completion of its initial public offering on December 18,
1996, and in connection with its restructuring, Lithia and its affiliated
entities that were S Corporations terminated their status as S Corporations and
became subject to federal and state income tax at applicable C Corporation
rates.
Lithia's effective tax rate for 1997 was 37.3% compared to 38.4% (on a pro forma
basis) for 1996. Lithia's effective tax rate may be affected by the purchase of
new dealerships in jurisdictions with tax rates either higher or lower than the
current effective rate.
NET INCOME. Net income rose 128.7% to $6.0 million (1.9% of total sales) for
the year ended December 31, 1997 compared to $2.6 million (1.8% of total
sales), on a pro forma basis, for 1996, as a result of the individual line item
changes discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Lithia's principal needs for capital resources are to finance acquisitions and
capital expenditures and for working capital. Lithia has relied primarily upon
internally generated cash flows from operations, borrowings under its credit
facilities and the proceeds from public equity offerings to finance its
operations and expansion. In May 1998, Lithia closed an offering of 3.15
million newly issued shares of its Class A Common Stock for net proceeds of
$42.5 million. The proceeds were used to pay down Lithia's lines of credit
until needed for future acquisitions.
Ford Credit, Toyota Motor Credit Corporation, Chrysler Financial Corporation
and General Motors Acceptance Corporation have agreed to floor all of
Lithia's new vehicles for their respective brands with Ford serving as the
primary lender for all other brands. There are no formal limits to these
commitments for new vehicle wholesale financing.
Ford Credit has also extended a $60 million revolving line of credit for used
vehicles and a $75 million acquisition line of credit to purchase dealerships
of any brand. These commitments have an expiration date of November 23, 2000
with interest due monthly. Lithia has the right to elect to extend the term
on these lines of credit for an additional two years at November 23, 1999.
Lithia also has the option to convert the acquisition line into a five-year
term loan on November 23, 1999 or November 23, 2000. In addition, U.S. Bank
N.A. has extended a $10 million revolving line of credit for leased vehicles.
The lines with Ford Credit are cross-collateralized and are secured by
inventory, accounts receivable, intangible assets and equipment. The other
new vehicle lines are secured by new vehicle inventory of the relevant
dealerships.
The Ford Credit lines of credit contain financial covenants requiring Lithia
to maintain compliance with, among other things, specified ratios of (i)
total debt to tangible base capital; (ii) total adjusted debt to tangible
base capital; (iii) current ratio; (iv) fixed charge coverage; and (v) net
cash. lithia is currently in compliance with all such financial
18
<PAGE>
covenants. The Ford Credit lines of credit agreements also preclude the
payment of cash dividends without the prior consent of Ford Credit.
Interest rates on all of the above facilities ranged from 6.5% to 8.0% at
december 31, 1998. Amounts outstanding on the lines at december 31, 1998 were
as follows (in thousands):
<TABLE>
<S> <C>
Acquisition Line $ -
Used Vehicle Line 5,000
New and Program Vehicle Lines 124,167
Leased Vehicle Line 4,000
----------
$ 133,167
----------
----------
</TABLE>
Since December 1996 when Lithia completed its initial public offering, it has
acquired 23 dealerships. The aggregate net investment was approximately $74.2
million (excluding borrowings on its credit lines to finance acquired vehicle
inventories and equipment and the purchase of any real estate).
Lithia anticipates that it will be able to satisfy its cash requirements at
least through December 31, 1999, including its currently anticipated growth,
primarily with cash flow from operations, borrowings under available credit
facilities and cash currently available.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, Lithia's sales have been lower in the first and fourth quarters of
each year largely due to consumer purchasing patterns during the holiday season,
inclement weather and the reduced number of business days during the holiday
season. As a result, financial performance may be 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.
YEAR 2000
GENERAL. Lithia has identified three major areas of concern:
(i) The functionality of its internal systems and the Company's
ability to run its daily business after January 1, 2000;
(ii) The visual representation of "2000;" and
(iii) Third party systems.
Lithia expects to be Year 2000 compliant by July 1, 1999. Lithia is utilizing
the NADA dealer guide to assist in resolving its Year 2000 issues and problems.
INTERNAL SYSTEMS. Lithia is in the process of analyzing and updating its
internal systems, including its dealer management systems, dealer communication
systems, personal computer systems, shared port systems and phone systems.
Lithia estimates that it is 90 percent complete with implementing various
manufacturer upgrades to its systems in order to make them Year 2000 compliant.
We estimate that our internal systems we will be fully Year 2000 compliant by
July 1, 1999.
19
<PAGE>
Like all businesses, Lithia is at risk from external infrastructure failures
that could arise from Year 2000 failures. It is not clear that electrical
power, telephone and computer networks, for example, will be fully functional
across the nation in the year 2000. Investigation and assessment of
infrastructures, like the nation's power grid, is beyond the scope and resources
of Lithia. Investors should use their own awareness of the issues in the
nation's infrastructure to make ongoing infrastructure risk assessments and
their potential impact to a company's performance.
VISUAL REPRESENTATION. Lithia is currently working on ensuring that all report
date stamps, timekeeping devices, etc. are Year 2000 compliant. We estimate
that we are approximately 95 percent complete with this process.
THIRD PARTIES. Lithia has begun a Year 2000 supplier audit program. It has
contacted all of its critical suppliers to inform them of its Year 2000
expectations, and requests have been made for each vendor's compliance program
and/or Year 2000 compliance assurance. In regard to the automobile
manufacturers, Lithia has received written or other confirmation that they are
Year 2000 compliant, except for Subaru. Subaru has assured Lithia that they
expect to be Year 2000 compliant prior to January 1, 2000.
It should be noted that there have been predictions of failures of key
components in the transportation infrastructure due to the Year 2000 problem.
It is possible that there could be delays in rail, over-the-road and air
shipments due to failure in transportation control systems. Investigation and
validation of the world's transportation infrastructure is beyond the scope and
the resources of Lithia. Investors should use their own awareness of the issues
in the transportation infrastructure to make ongoing infrastructure risk
assessments and their potential impact to a company's performance.
ACQUISITIONS. Acquisitions in 1999 will be subject to strict due diligence for
Year 2000 compliance.
COST. Lithia expects to incur costs totaling approximately $1,054,000 to ensure
Year 2000 compliance, approximately $810,000 of which has already been incurred
since the end of 1997. A majority of the $1,054,000 represents replacement of
non-compliant systems, and therefore will be capitalized and amortized over a
three to five year period. This estimate could change depending on variances not
anticipated in the initial bids.
RISK. The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect Lithia's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, Lithia is
unable to determine, at this time, whether the consequences of Year 2000
failures will have a material impact on the its results of operations, liquidity
or financial condition. Lithia's efforts to help ensure Year 2000 preparedness
have, and will continue to, significantly reduce its level of uncertainty about
the Year 2000 problem. We believe that, with completion of the above mentioned
plans, the possibility of significant interruptions of normal operations should
be reduced.
Lithia is currently developing contingency plans in regard to its internal
systems and supplier issues, as well as for the more global infrastructure
issues.
20
<PAGE>
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. Lithia does not have any derivative instruments and, accordingly, the
adoption of SFAS 133 will have no impact on its financial position or results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No disclosure is required under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The financial statements and notes thereto required by this item begin on page
F-1 as listed in Item 14 of Part IV of this document.
Quarterly financial data for each of the eight quarters in the two-year period
ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997
- -----
Total revenues $ 54,704 $ 66,422 $ 85,573 $ 113,096
Gross profit (1) 9,255 11,043 14,568 19,880
Income before income taxes 1,864 2,227 2,573 2,833
Income taxes 720 859 994 965
Net income 1,144 1,368 1,579 1,868
Basic net income per share 0.17 0.20 0.23 0.27
Diluted net income per share 0.16 0.19 0.22 0.25
1998
- -----
Total Revenues $ 146,198 $ 173,541 $ 195,914 $ 199,087
Gross profit (1) 22,946 27,098 31,752 33,565
Income before income taxes 2,466 3,629 5,965 5,722
Income taxes 947 1,407 2,307 2,333
Net income 1,519 2,222 3,658 3,390
Basic net income per share 0.22 0.24 0.36 0.33
Diluted net income per share 0.21 0.24 0.35 0.32
</TABLE>
(1) Restated to conform with current presentation.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is included under the captions ELECTION OF
DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE, respectively, in the Company's Proxy Statement for its
1999 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption EXECUTIVE
COMPENSATION in the Company's Proxy Statement for its 1999 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's Proxy
Statement for its 1999 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS in the Company's Information Statement
for its 1999 Annual Meeting of Shareholders and is incorporated herein by
reference.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
The Consolidated Financial Statements, together with the report thereon of KPMG
Peat Marwick LLP, are included on the pages indicated below:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-1
Consolidated Balance Sheets - December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the years ended
December 31, 1998,1997 and 1996 F-3
Consolidated Statements of Changes in Shareholders' Equity -
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
There are no schedules required to be filed herewith.
(b) REPORTS ON FORM 8-K
The Company filed the following reports on Form 8-K during the quarter ended
December 31, 1998:
1. Form 8-K dated October 15, 1998 under Items 2 and 7, as filed with the
Securities and Exchange Commission on October 28, 1998.
2. Form 8-K dated November 2, 1998 under Items 2 and 7, as filed with the
Securities and Exchange Commission on November 12, 1998.
3. Form 8-K/A dated October 15, 1998 under Items 2 and 7, as filed with
the Securities and Exchange Commission on December 30, 1998.
23
<PAGE>
(c) EXHIBITS
The following exhibits are filed herewith and this list is intended to
constitute the exhibit index:
<TABLE>
<CAPTION>
Exhibits Description
- -------- -----------
<S> <C> <C>
2.1 (d) Agreement for Purchase and Sale of Business Assets
between Magnussen Dodge, Inc. and Lithia Motors,
Inc. dated January 21, 1997
2.2 (c) Agreement for Purchase and Sale of Business Assets
between Magnussen-Barbee Ford, Lincoln-Mercury, Inc.
and Lithia Motors, Inc. dated February 21, 1997
2.3 (f) Agreement for Purchase and Sale of Business Assets
between Sun Valley Ford, Inc. and Lithia Motors,
Inc. dated April 2, 1997
2.4 (f) Agreement for Purchase and Sale of Business Assets
between Dick Donnelly Automotive Enterprises, Inc.
dba Dick Donnelly Lincoln-Mercury, Audi, Suzuki,
Isuzu and Lithia Motors, Inc. dated April 2, 1997
2.5 (f) Agreement for Purchase and Sale of Business Assets
between Nissan BMW, Inc. dba Bakersfield Nissan,
Acura, BMW and Lithia Motors, Inc. dated June 26,
1997
2.6 (i) Agreement for Purchase and Sale of Business Assets
between Century Ford, Inc. and Lithia Motors, Inc.
dated September 1, 1997
2.7 (j) Agreement for Purchase and Sale of Business Assets
between Daniel A. Haus Group, Inc. dba Quality
Nissan and Quality Jeep/Eagle Hyundai and Lithia
Motors, Inc. dated October 10, 1997
2.8 (k) Agreement for Purchase and Sale of Business Assets
between Medford Nissan, Inc. dba ""Medford Nissan BMW
Kia'', Lithia Motors, Inc, or its nominee, and James
D. Plummer, dated September 8, 1997.
2.9 (k) Agreement for Purchase and Sale of Business Assets
between United American Funding, Inc. dba ""Reno
Volkswagen'' and Lithia Motors, Inc., or its nominee,
dated December 31, 1997.
2.10 (m) Agreement for Purchase and Sale of Business Assets between
Boyland Auto Group dba Boyland Toyota, Dorian Boyland and
Lithia Motors, Inc.
2.11 (l) Agreement for Purchase and Sale of Business Assets between
Rodway Chevrolet Co. and Lithia Motors, Inc., dated
March 19, 1998.
2.12 (l) Stock Purchase Agreement between William N. Hutchins,
Hutchins Eugene Nissan, Inc. and Hutchins Imported Motors
and Lithia Motors, Inc., dated June 18, 1998.
2.13 (n) First, Second and Third Addenda to Stock Purchase Agreement
by and between William N. Hutchins, Hutchins Imported
Motors, Inc. and Hutchins Eugene Nissan, Inc. and Lithia
Motors, Inc., dated June 18, 1998.
2.14 (o) Restated Stock Purchase Agreement, by and between Phil S.
Camp, Jerry W. Camp, Jr., Julie A. Camp McKay, Chris E.
Camp, Travis W. Camp, Carter B. Camp and Camp Automotive,
Inc. and Lithia Motors, Inc., dated August 1, 1998.
3.1 (a) Restated Articles of Incorporation of Lithia Motors,
Inc.
3.2 (a) Bylaws of Lithia Motors, Inc.
4 (a) Specimen Common Stock certificate
10.1.1 (a) 1996 Stock Incentive Plan
10.1.2 (a) Form of Incentive Stock Option Agreement
10.1.3 (a) Form of Non-Qualified Stock Option Agreement
10.1.4 (a) Form of Incentive Stock Option Agreement
10.1.5 (l) Amendment No. 1 to the Lithia Motors, Inc. 1996
Stock Incentive Plan
10.2 (b) 1997 Non-Discretionary Stock Option Plan for
Non-Employee Directors
10.3 (k) Employee Stock Purchase Plan
10.4.1 (a) Chrysler Corporation Chrysler Sales and Service
Agreement, dated January 10, 1994, between Chrysler
Corporation and Lithia Chrysler Plymouth Jeep Eagle,
Inc. (Additional Terms and Provisions to the Sales
and Service Agreements are in Exhibit 10.4.2 hereto)
(1)
10.4.2 (a) Chrysler Corporation Dealer Agreement Additional
Terms and Provisions
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Exhibits Description
- -------- -----------
<S> <C> <C>
10.5.1 (k) Honda Automobile Dealer Sales and Service Agreement
dated October 14, 1997, between American Honda Motor
Company, Inc. and Lithia HPI, Inc. dba Lithia Honda
(standard provisions are in Exhibit 10.5.3 hereto).
10.5.2 (k) Acura Automobile Dealer Sales and Service Agreement
dated October 2, 1997, between American Honda Motor
Company, Inc. and Lithia BB, Inc. dba Lithia Acura
of Bakersfield (standard provisions are in Exhibit
10.5.3 hereto).
10.5.3 (k) American Honda Automobile Dealer Sales and Service
Agreement Standard Provisions.
10.5.4 (k) Agreement between American Honda Motor Company, Inc.
and Lithia Motors, Inc. et al. dated December 17,
1996.
10.5.5 (k) Amendment dated October 2, 1997, to Agreement
between American Honda Motor Company, Inc. and
Lithia Motors, Inc. et al. dated December 17, 1996.
10.6.1 (a) Isuzu Dealer Sales and Service Agreement, dated June
5, 1996 between American Isuzu Motors, Inc. and
Lithia Motors, Inc. (Additional Provisions to Dealer
Sales and Service Agreements are in Exhibit 10.6.2
hereto) (2) *
10.6.2 (a) Isuzu Dealer Sales and Service Agreement Additional
Provisions
10.6.3 (c) Supplemental Agreement, dated December 27, 1996 to
Isuzu Dealer Sales and Service Agreement (3)
10.7.1 (k) Mercury Sales and Service Agreement, dated June 1,
1997, between Ford Motor Company and Lithia TLM, LLC
dba Lithia Lincoln Mercury (general provisions are
in Exhibit 10.7.3 hereto) (4)
10.7.2 (k) Supplemental Terms and Conditions agreement between
Ford Motor Company and Lithia Motors, Inc. dated
June 12, 1997.
10.7.3 (a) Mercury Sales and Service Agreement General
Provisions
10.8 (a) General Motors Dealer Sales and Service Agreement
Standard Provisions
10.9 (a) Mazda Dealer Agreement, dated April 11, 1994 between
Mazda Motor of America, Inc. and Lithia Dodge,
L.L.C. dba Lithia Mazda
10.10.1 (k) Saturn Distribution Corporation Retailer Agreement,
dated June 16, 1997, between Saturn Distribution
Corporation and Saturn of Southwest Oregon, Inc.
10.10.2 (k) Supplemental Agreement to Saturn Retailer Agreement,
dated August 26, 1997, between Saturn of Southwest
Oregon, Inc., Lithia Motors, Inc., Sidney B. DeBoer,
Lithia Holding, LLC, and Saturn Distribution
Corporation.
10.11.1 (a) Toyota Dealer Agreement, dated January 30, 1990,
between Toyota Motor Distributors, Inc. and Lithia
Motors, Inc. dba Medford Toyota (5)
10.11.2 (a) Toyota Dealer Agreement Standard Provisions
10.11.3 (a) Agreement, dated September 30, 1996, between Toyota
Motor Sales, U.S.A., Inc. and Lithia Motors, Inc.
10.11.4 (c) Addendum dated December 26, 1996, to Section X [cad 229]
additional provisions to Toyota Dealer Agreement,
dated November 15, 1996 between Toyota Motor Sales,
USA, Inc. and Lithia TKV, Inc.
10.12.1 (k) Suzuki Term Dealer Sales and Service Agreement,
dated May 14, 1997, between American Suzuki Motor
Corporation and Lithia HPI, Inc. dba Lithia Suzuki
(standard provisions are in Exhibit 10.12.2 hereto)
(6)
10.12.2 (k) Suzuki Dealer Sales and Service Agreement Standard
Provisions.
10.13 (k) BMW Dealer Agreement, dated October 3, 1997, between
BMW of North America, Inc. and Lithia BB, Inc.
10.14 (k) Hyundai Motor America Dealer Sales and Service
Agreement, dated January 26, 1998, between Hyundai
Motor America and Lithia JEF, Inc.
10.15.1 (k) Nissan Dealer Term Sales and Service Agreement
between Lithia Motors, Inc., Lithia NF, Inc., and
the Nissan Division of Nissan Motor Corporation In
USA dated January 2, 1998. (standard provisions are
in Exhibit 10.15.2 hereto) (7)
10.15.2 (k) Nissan Standard Provisions
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Exhibits Description
- -------- -----------
<S> <C> <C>
10.16.1 (k) Volkswagen Dealer Agreement dated April 5, 1996,
between Volkswagen United States, Inc. and Lithia
Motors, Inc. dba Lithia Volkswagen. (standard
provisions are in Exhibit 10.16.2 hereto)
10.16.2 (k) Volkswagen Dealer Agreement Standard Provisions *
10.17.1 (a) Commercial Lease, dated September 20, 1996, between
Lithia Properties, L.L.C. and Lithia Motors, Inc. (8)
10.17.2 (a) Form of Commercial Lease, effective January 1, 1997,
between Lithia Properties, L.L.C. and Lithia Motors,
Inc. (9)
10.18 (a) Commercial Lease, dated April 1, 1992, between Billy
J. Wilson et al and Wilson/Malasoma, Inc. relating
to facility in Vacaville, California.
10.19 (d) Lease between Solano Way Partnership and Lithia Real
Estate, Inc. dated February 14, 1997
10.20 (e) Lease between John Ferrogiaro and Bernard L.
Magnussen et al., as amended by Second Amendment to
Lease, dated December 12, 1996, and Consent to
Assignment and Third Amendment to Lease, by and
among John Ferrogiaro, Magnussen Dealership Group
and Lithia Real Estate, Inc.
10.21.1 (g) Promissory Note for Leasehold Improvements issued by
Lithia Motors, Inc. to Sun Valley Ford, Inc. dated
August 8, 1997.
10.21.2 (g) Promissory Note for Intangible Assets issued by
Lithia Motors, Inc. to Sun Valley Ford, Inc. dated
August 8, 1997.
10.21.3 (h) Standard Industrial Lease, as amended and assignment
thereof, among Edmund C. Bartlett, Jr., Anna
Bartlett, Sun Valley Ford, Inc. and Lithia Motors,
Inc. dated July 16, 1997
10.21.4 (h) Lease Agreement and assignment thereof, among George
Valente and Lena E. Valente as trustees of the
George and Lena E. Valente Trust, Sun Valley Ford,
Inc. and Lithia Motors, Inc. dated August 4, 1997.
10.22.1 (k) Lease Agreement among Paul H. Snider and Dick
Donnelly Automotive Enterprises, Inc. dated October
17, 1989
10.22.2 (k) Lease Agreement among Richard M. Donnelly and Susan
K. Donnelly and Lithia Real Estate, Inc. dated
October 1, 1997
10.23 (k) Real Property Lease Agreement among Eloy C. Renfrow
and Lithia Real Estate, Inc. dated October 2, 1997
10.24 (k) Lease Agreement among BR Enterprises and Lithia
Motors, Inc. dated September 3, 1997
10.25 (k) Real Property Lease Agreement among James D. Plummer
and Lithia Real Estate, Inc. dated October 14, 1997
10.26 (k) Lease Agreement among Teddy Bear Havas Motors, Inc.
and United American Funding, Inc. dated July 28, 1992
10.27 (a) Management Contract between Lithia Leasing, Inc. and
Lithia Properties LLC.
10.28 (a) Purchase and Sale Agreement, dated December 13,
1996, between Lithia Properties and Lithia Real
Estate, Inc.
10.29 $75,000,000 Credit Agreement dated November 23, 1998
between Ford Motor Credit Company and Lithia Motors,
Inc.
10.30 $60,000,000 Credit Agreement dated November 23, 1998
between Ford Motor Credit Company and Lithia Motors,
Inc.
10.31 Chevrolet Dealer Sales and Service Agreement dated
October 13, 1998 between General Motors Corporation,
Chevrolet Motor Division and Camp Automotive, Inc.
10.32 Subaru Dealership Agreement dated October 16, 1998
by and between Subaru of America, Inc./Western
Region and Camp Automotive, Inc.
21 Subsidiaries of Lithia Motors, Inc.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99 Risk Factors
</TABLE>
26
<PAGE>
(a) Incorporated by reference from the Company's Registration
Statement on Form S-1, Registration Statement No.
333-14031, as declared effective by the Securities Exchange
Commission on December 18, 1996.
(b) Incorporated by reference from the Company's Registration
Statement on Form S-8, Registration Statement No.
333-45553, as filed with the Securities Exchange Commission
on February 4, 1998.
(c) Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1996, as
filed with the Securities Exchange Commission on March
31, 1997.
(d) Incorporated by reference from the Company's Form 8-K as
filed with the Securities Exchange Commission on June 6,
1997.
(e) Incorporated by reference from the Company's Form 8-K as
filed with the Securities Exchange Commission on July
16, 1997.
(f) Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997,
as filed with the Securities Exchange Commission on
August 12, 1997.
(g) Incorporated by reference from the Company's Form 8-K as
filed with the Securities Exchange Commission on August
21, 1997.
(h) Incorporated by reference from the Company's Form 8-K/A as
filed with the Securities Exchange Commission on October
14, 1997.
(i) Incorporated by reference from the Company's Form 8-K as
filed with the Securities Exchange Commission on
December 30, 1997.
(j) Incorporated by reference from the Company's Form 8-K as
filed with the Securities Exchange Commission on January
30, 1998.
(k) Incorporated by reference from the Company's Form 10-K for
the year ended December 31, 1997 as filed with the
Securities and Exchange Commission on March 31, 1998.
(l) Incorporated by reference from the Company's Form 10-Q for
the quarter ended June 30, 1998 as filed with the
Securities and Exchange Commission on August 13, 1998.
(m) Incorporated by reference from the Company's Registration
Statement No. 333-47525 on Form S-1 dated May 1, 1998.
(n) Incorporated by reference from the Company's Form 10-Q for
the quarter ended September 30, 1998 as filed with the
Securities and Exchange Commission on November 12, 1998.
(o) Incorporated by reference from the Company's Form 8-K dated
October 15, 1998 as filed with the Securities and
Exchange Commission on October 28, 1998.
(1) Substantially identical agreements exist between
Chrysler Corporation and Lithia Chrysler Plymouth Jeep
Eagle, Inc., with respect to Jeep, Eagle, and Plymouth
sales and service; between Chrysler Corporation and
Lithia's Grants Pass Auto Mart, with respect to Jeep,
Eagle, Dodge and Plymouth sales and service; between
Chrysler Corporation and Medford Dodge with respect to
Dodge sales and service; and between Chrysler
Corporation and Lithia DC, Inc., with respect to Dodge
sales and service.
(2) A substantially identical agreement exists between
American Isuzu Motors, Inc and Lithia SALMIR, Inc.
with respect to Isuzu sales and service.
(3) Substantially identical agreements exist between
American Isuzu Motors, Inc., Lithia Motors, Inc. and
Lithia DC, Inc. and between American Isuzu Motors,
Inc., Lithia Motors, Inc. and Lithia SALMIR, Inc.
(4) A substantially identical agreement exists between the
same parties with respect to Lincoln Sales and
Services; between Ford Motor Company and Lithia FN,
Inc. with respect to Lincoln and Mercury sales and
service; and between Ford Motor Company and Lithia
FVHC with respect to Ford sales and service.
(5) A substantially identical agreement exists between
Toyota Motor Sales, USA, Inc. and Lithia TKV, Inc. dba
Lithia Toyota Vacaville dated November 15, 1996 with
respect to Toyota Sales and Service.
(6) A substantially identical agreement exists between
American Suzuki Motor Corporation and Lithia SALMIR,
Inc., dated October 6, 1997, with respect to Suzuki
sales and service.
(7) A substantially identical agreement exists between
Nissan Motor Corporation and Lithia NB, Inc., dated
October 2, 1997, with respect to Nissan sales and
service.
27
<PAGE>
(8) Substantially identical leases of the same date exist
between Lithia Properties L.L.C. and (i) Lithia TLM,
L.L.C. and Lithia MTLM, Inc., relating to the
properties located in Medford, Oregon at 360 E.
Jackson St., 400 N. Central Ave., 325 E. Jackson St.,
343-345 Apple St., 440-448 Front St., 3rd & Front St.
and 344 Bartlett, collectively at a lease rate of
$42,828 per month; (ii) Lithia Motors, Inc. dba Lithia
Body and Paint, relating to the properties in Medford,
Oregon, located at 4th & Bartlett, 235 Bartlett, 220
N. Bartlett, and 275 E. 5th; and in Grants Pass,
Oregon, at 1470 N.E. 7th, collectively at a lease rate
of $16,890 per month; (iii) Discount Auto and Truck
Rental, Inc., relating to properties located in
Medford, Oregon, at 326 N. Bartlett, 315 & 321 Apple
St., and in Grants Pass, Oregon, at 1470 N.E. 7th,
collectively at a lease rate of $2,609 per month;
(iv) Lithia Dodge, L.L.C. and Lithia DM, Inc., relating to
properties located in Medford, Oregon, at 322 E. 4th,
315 & 324 E. 5th St., 225, 319 & 323 E. 6th,
Riverside & 4th, Riverside & 6th, and 129 N. Riverside,
collectively at a lease rate of $53,490 per month;
(v) Lithia Grants Pass Auto Center and L.L.C.,
LGPAC, Inc., relating to the property located in Grants
Pass, Oregon, at 1421 N.E. 6th at a lease rate of
$25,625 per month; (vi) Lithia Motors, Inc. and Lithia
SSO, Inc., relating to properties located in Medford,
Oregon, at 400, 705-717 N. Riverside Ave., 712 and 716
Pine St., and 502 Maple St., collectively at a lease
rate of $20,048 per month; (vii) Lithia Motors, Inc.
dba Thrift Auto Supply, relating to the properties
located in Medford, Oregon, at 801 N. Riverside Ave,
and 503 Maple St., collectively at a lease rate of
$6,265 per month; and (viii) Lithia Motors, Inc. and
Lithia HPI, Inc., relating to properties located in
Medford, Oregon, at 700 and 800 N. Central Ave, 217
and 220 N. Beatty St., 710 and 815-817 Niantic St.,
and 311 & 313 Maple St., collectively at a lease rate
of $30,350 per month.
(9) Substantially identical lease will exist between Lithia
Properties L.L.C. and (i) Lithia MTLM, Inc., relating
to the properties located in Medford, Oregon at 360 E.
Jackson St., 400 N. Central Ave., 325 E. Jackson St.,
343-345 Apple St., 440-448 Front St., 3rd & Front St.
and 344 Bartlett, 315 & 321 Apple St., and 401 E. 4th
St., collectively at a lease rate of $33,728 per
month; (ii) Lithia Auto Services, Inc. dba Lithia Body
and Paint, relating to the properties in Medford,
Oregon, located at 401 E. 4th St., 4th & Bartlett, 235
Bartlett, 220 N. Bartlett, and 275 E. 5th; and in
Grants Pass, Oregon, at 1470 N.E. 7th, and 801 N.
Riverside Ave, collectively at a lease rate of $17,439
per month; (iii) Lithia Rentals, Inc., dba Discount
Auto and Truck Rental, relating to properties located
in Medford, Oregon, at 971 Gilman Rd., and in Grants
Pass, Oregon, at 1470 N.E. 7th, collectively at a
lease rate of $962 per month; (iv) Lithia Dodge,
L.L.C. and Lithia DM, Inc., relating to properties
located in Medford, Oregon, at 322 E. 4th, 315 & 324
E. 5th St., 225, 319 & 323 E. 6th, Riverside & 4th,
Riverside & 6th, and 129 N. Riverside, collectively at
a lease rate of $53,490 per month; (v) LGPAC, Inc.,
relating to the property located in Grants Pass,
Oregon, at 1421 N.E. 6th and 1470 N.E. 7th,
collectively at a lease rate of $18,023 per month;
(vi) Lithia SSO, Inc., relating to properties located in
Medford, Oregon, at 400, 705-717 N. Riverside Ave.,
collectively at a lease rate of $16,364 per month;
(vii) Lithia DM, Inc., relating to properties located
in Medford, Oregon, at 324 E. 5th, 319 & 323 E. 6th
St., 6th & Riverside, 129 N. Riverside, 4th &
Riverside, 225 E. 6th, 315 E. 5th, 322 E. 4th, 201 N.
Riverside, 309, 315, 333, and 329 N. Riverside, 334 &
346 Apple St. and 401 E. 4th, collectively at a lease
rate of $30,557 per month; and (viii) Lithia
Motors, Inc., relating to properties located in Medford,
Oregon, at 360 E. Jackson, 325 E. Jackson, 345 B.
Bartlett, and 401 E. 4th St., collectively at a lease
rate of $5,309 per month. Substantially identical
lease agreements also exist between Lithia Real
Estate, Inc. and (i) Lithia FVHC, Inc. relating to the
properties in Concord, California, located at 1260
Diamond Way and 2285 Diamond Way; (ii) Lithia BB,
Inc., relating to the property in Bakersfield,
California, located at 3201 Cattle Drive; (iii) Lithia
DE, Inc., relating to properties in Eugene, Oregon,
located at 2121 Centennial Boulevard and 80 Centennial
Loop; (iv) Lithia TKV, Inc. relating to the property
in Vacaville, California, located at 100 Auto Center
Drive; (v) Lithia Auto Services, Inc. relating to the
property in Medford, Oregon, located at 2665 Bullock
Road; (vi) Lithia FN, Inc. relating to the property in
Napa, California, located at 300 Soscol Avenue; (vii)
Lithia NB, Inc. relating to the properties in
Bakersfield, California, located at 3101 and 3201
Cattle Drive and 2800 and 2808 Pacheco Road; (viii)
Lithia MMF, Inc. relating to the properties in Fresno,
California, located at 155 and 165 East Auto Center
Drive; (ix) Lithia FMF, Inc. relating to the
properties in Fresno, California, located at 175 and
195 East Auto Center Drive; (x) Lithia DC, Inc.
relating to the property in Concord, California,
located at 4901 Marsh Drive; (xi) Lithia SALMIR, Inc.
relating to the properties in Reno, Nevada, located at
7063 and 7175 South Virginia
28
<PAGE>
Street and the property
in Sparks, Nevada, located at 40 Victorian Avenue; and
(xii) Lithia NF, Inc., relating to the property in
Fresno, California, located at 5580 North Blackstone
Avenue.
(10) A substantially identical agreement (except for the
price paid and the purchase rather than the lease of
the business property) exists between Rodway Chevrolet
Co., and Lithia Motors, inc. dated March 19, 1998,
with respect to the purchase and sale of business
assets of Rodway Chevrolet located in Redding,
California.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
<TABLE>
<S> <C>
DATE: MARCH 29, 1999 LITHIA MOTORS, INC.
BY /S/ SIDNEY B. DEBOER
Sidney B. DeBoer
Chairman of the Board and
Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report Has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 29, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ SIDNEY B. DEBOER Chairman of the Board and
- -------------------- Chief Executive Officer
Sidney B. DeBoer (Principal Executive Officer)
/s/ BRIAN R. NEILL Senior Vice President and Chief
- ------------------ Financial Officer
Brian R. Neill (Principal Financial and Accounting
Officer)
/s/ M. L. DICK HEIMANN Director, President and
- ---------------------- Chief Operating Officer
M. L. Dick Heimann
/s/ R. BRADFORD GRAY Director and Executive Vice President
- --------------------
R. Bradford Gray
/s/ THOMAS BECKER Director
- -----------------
Thomas Becker
/s/ WILLIAM J. YOUNG Director
- --------------------
William J. Young
</TABLE>
30
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lithia Motors, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Lithia Motors,
Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Lithia
Motors, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for inventories, effective January 1, 1997.
KPMG PEAT MARWICK LLP
Portland, Oregon
February 19, 1999
F-1
<PAGE>
LITHIA MOTORS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 20,879 $ 18,454
Trade receivables 17,287 7,655
Notes receivable, current portion, net of allowance
for doubtful accounts of $714 and zero 3,074 427
Inventories, net 157,455 89,845
Vehicles leased to others, current portion 861 738
Prepaid expenses and other 1,933 913
Deferred income taxes 2,707 1,855
------------------ ------------------
Total Current Assets 204,196 119,887
Property and Equipment, net of accumulated
depreciation of $3,907 and $2,822 32,933 16,265
Vehicles Leased to Others, less current portion 5,647 4,588
Notes Receivable, less current portion 7,173 309
Goodwill, net of accumulated amortization of
$1,180 and $293 42,951 24,062
Other Non-Current Assets, net of accumulated
amortization of $103 and $63 1,498 1,415
------------------ ------------------
Total Assets $ 294,398 $ 166,526
------------------ ------------------
------------------ ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 515 $ -
Flooring notes payable 124,167 82,598
Current maturities of long-term debt 7,601 2,688
Current portion of capital leases 27 99
Trade payables 6,313 3,874
Accrued liabilities 12,020 6,758
------------------ ------------------
Total Current Liabilities 150,643 96,017
Long-Term Debt, less current maturities 38,994 24,242
Long-Term Capital Lease Obligation, less current
portion 2,426 2,316
Deferred Revenue 2,076 2,519
Other Long-Term Liabilities 1,606 447
Deferred Income Taxes 7,142 3,108
------------------ ------------------
Total Liabilities 202,887 128,649
------------------ ------------------
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 6,105 and 2,926 70,871 28,117
Class B common stock
authorized 25,000 shares; issued and
outstanding 4,110 and 4,110 511 511
Additional paid-in capital 150 59
Retained earnings 19,979 9,190
------------------ ------------------
Total Shareholders' Equity 91,511 37,877
------------------ ------------------
Total Liabilities and Shareholders' Equity $ 294,398 $ 166,526
------------------ ------------------
------------------ ------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
LITHIA MOTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1998 1997 1996(1)
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues:
New vehicle sales $ 388,431 $ 161,294 $ 65,092
Used vehicle sales 220,544 113,099 58,611
Service, body and parts 72,216 29,828 13,197
Other revenues 33,549 15,574 5,944
----------------- ----------------- ----------------
Total revenues 714,740 319,795 142,844
Cost of sales 599,379 265,049 117,025
----------------- ----------------- ----------------
Gross profit 115,361 54,746 25,819
Selling, general and administrative 85,188 40,625 19,830
Depreciation and amortization 3,469 2,483 1,756
----------------- ----------------- ----------------
Income from operations 26,704 11,638 4,233
Other income (expense)
Floorplan interest expense (7,108) (2,179) (697)
Other interest expense (2,735) (824) (656)
Other income, net 921 862 1,349
----------------- ----------------- ----------------
(8,922) (2,141) (4)
----------------- ----------------- ----------------
Income before minority interest and income taxes 17,782 9,497 4,229
Minority interest - - (687)
----------------- ----------------- ----------------
Income before income taxes 17,782 9,497 3,542
Income tax (expense) benefit (6,993) (3,538) 813
----------------- ----------------- ----------------
Net income $ 10,789 $ 5,959 $ 4,355
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Basic net income per share $ 1.18 $ 0.85 $ 0.94 (2)
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Diluted net income per share $ 1.14 $ 0.82 $ 0.88 (2)
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Pro Forma Net Income Data (unaudited)
- ------------------------------------------------------------------------------
Income before minority interest and income taxes, as reported $ 4,229
Pro forma income taxes (1,623)
----------------
----------------
Pro forma net income $ 2,606
----------------
Pro forma basic net income per share $ 0.56
----------------
----------------
Pro forma diluted net income per share $ 0.52
----------------
----------------
</TABLE>
(1) Restated, see Note 1 of Notes to Consolidated Financial Statements.
(2) Not comparable to 1998 and 1997 data due to S Corporation status in 1996,
therefore this is a pre-tax earnings per share amount. See Note 8 of
Notes to Consolidated Financial Statements.
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LITHIA MOTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Class A Class B Additional Total
------------------ ------------------ Paid In Retained Shareholders'
Shares Amount Shares Amount Capital Earnings (1) Equity
-------- -------- -------- -------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 - $ - 4,110 $ 801 $ - $ 2,915 $ 3,716
Net income - - - - - 4,355 4,355
Dividends - - - - - (4,460) (4,460)
Contribution of minority interest to Class
B Common Stock pursuant to
restructuring - - - 131 - - 131
Restructuring in connection with initial
public offering - - - (421) - 421 -
Issuance of Class A Common Stock,
net of offering expenses of $3,328 2,500 24,172 - - - - 24,172
-------- -------- -------- -------- --------- ------------- --------
Balance December 31, 1996 2,500 24,172 4,110 511 - 3,231 27,914
Net income - - - - - 5,959 5,959
Underwriters' overallotment option 375 3,783 - - - - 3,783
Compensation for stock option issuances - - - - 59 - 59
Exercise of stock options 51 162 - - - - 162
-------- -------- -------- -------- --------- ------------- --------
Balance at December 31, 1997 2,926 28,117 4,110 511 59 9,190 37,877
Net income - - - - - 10,789 10,789
Issuance of Class A Common Stock,
net of offering expenses of $594 3,151 42,498 - - - - 42,498
Compensation for stock option issuances - - - - 78 - 78
Tax benefit of disqualifying dispositions - - - - 13 13
Issuance of Class A Common Stock in
connection with acquisition 13 125 - - - - 125
Exercise of stock options 15 131 - - - - 131
-------- -------- -------- -------- --------- ------------- --------
Balance at December 31, 1998 6,105 $ 70,871 4,110 $ 511 $ 150 $ 19,979 $ 91,511
-------- -------- -------- -------- --------- ------------- --------
-------- -------- -------- -------- --------- ------------- --------
</TABLE>
(1) Restated, see Note 1 of Notes to Consolidated Financial Statements.
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LITHIA MOTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1998 1997 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,789 $ 5,959 $ 4,355
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 3,469 2,483 1,756
Compensation related to stock option issuances 78 59 -
(Gain) loss on sale of assets 30 (1) (239)
(Gain) loss on sale of vehicles leased to others 33 (286) -
Deferred income taxes 565 336 (906)
Minority interest in income - - 687
Equity in income of affiliate (7) (102) (44)
(Increase) decrease net of effect of acquisitions, in:
Trade and installment contract receivables, net (6,714) (5,087) (852)
Inventories (17,614) (9,009) (7,120)
Prepaid expenses and other (1,614) (678) (19)
Other noncurrent assets 204 (486) (196)
Increase (decrease) net of effect of acquisitions, in:
Floorplan notes payable 21,425 9,122 (3,283)
Trade payables (2,759) 1,440 979
Accrued liabilities 2,500 4,252 797
Other liabilities (1,039) (2,274) 3,095
------------------ ----------------- -----------------
Net cash provided by (used in) operating activities 9,346 5,728 (990)
Cash flows from investing activities:
Notes receivable issued (639) (249) (540)
Principal payments received on notes receivable 3,456 304 500
Capital expenditures (3,934) (8,801) (395)
Proceeds from sale of assets 223 16 765
Expenditures for vehicles leased to others (9,322) (6,750) (6,537)
Proceeds from sale of vehicles leased to others 8,481 5,330 5,760
Cash paid for acquisitions (36,531) (25,220) (6,937)
Distribution from affiliate - 204 -
------------------ ----------------- -----------------
Net cash used in investing activities (38,266) (35,166) (7,384)
Cash flows from financing activities:
Net borrowings on notes payable - - (625)
Net borrowings (repayments) on used vehicle line of credit (15,500) 15,500 -
Principal payments on long-term debt (39,083) (15,917) (25,336)
Proceeds from issuance of long-term debt 43,287 28,951 21,635
Proceeds from issuance of common stock and minority interest 42,641 3,945 24,172
Proceeds from minority interest share receivable - - 676
Dividends and distributions - - (6,441)
------------------ ----------------- -----------------
Net cash provided by financing activities 31,345 32,479 14,081
------------------ ----------------- -----------------
Increase in cash and cash equivalents 2,425 3,041 5,707
Cash and cash equivalents:
Beginning of period 18,454 15,413 9,706
------------------ ----------------- -----------------
End of period $ 20,879 $ 18,454 $ 15,413
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 9,728 $ 3,206 $ 1,823
Cash paid during the period for income taxes 6,482 3,011 -
Supplemental schedule of noncash investing and financing
activities:
Debt extinguishment upon transfer of property $ - $ - $ 1,112
Contribution of minority interest in S Corporation
earnings upon Restructuring to Class B Common Stock - - 131
Contribution of excess S Corporation retained earnings
upon Restructuring to Class B Common Stock - - 421
Stock issued in connection with acquisition 125 - -
Assumption of mortgage related to acquisition 1,345 - -
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LITHIA MOTORS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar and share amounts in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Lithia Motors is one of the larger retailers of new and used vehicles in
the western United States, offering 23 domestic and imported makes of new
automobiles and light trucks at 28 locations, 14 in California, nine in Oregon,
three in Nevada and two in Washington. As an integral part of its operations,
the Company arranges related financing (non-recourse) and insurance and sells
parts, service and ancillary products. The Company's headquarters are located in
Medford, Oregon, where it has a market share of over 40%. The Company has grown
primarily by successfully acquiring and integrating dealerships and by obtaining
new dealer franchises. The Company's strategy is to become a leading acquirer
and operator of dealerships in the western United States.
At its 28 locations, the Company offers, collectively, 23 makes of new
vehicles including Dodge, Dodge Trucks, Chrysler, Plymouth, Jeep, Ford,
Lincoln-Mercury, Toyota, Volkswagen, Audi, Isuzu, Chevrolet, Saturn, Nissan,
Honda, Acura, BMW, Mazda, Suzuki, Hyundai, Subaru and Volvo.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements reflect the results of operations,
the financial position, and the cash flows for Lithia Motors, Inc. and its
directly and indirectly wholly-owned subsidiaries. All significant intercompany
accounts and transactions, consisting principally of intercompany sales, have
been eliminated upon consolidation.
The financial results presented for periods prior to the Restructuring (see
note 11) have been restated to reflect the consolidated results of operations,
financial position and cash flows of the Company's dealerships and those of its
affiliated entities under common control whose operations were combined under
the Restructuring, using "as if" pooling of interest basis of accounting.
Lithia TLM LLC, Lithia Dodge LLC and Lithia Grants Pass Auto Center LLC
were limited liability corporations majority owned by Lithia Motors, Inc. The
20%, 25% and 25% minority interests in Lithia TLM LLC, Lithia Dodge LLC and
Lithia Grants Pass Auto Center LLC, respectively, have been recorded in the
accompanying financial statements to the date of Restructuring.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers contracts in
transit and all highly liquid debt instruments with a maturity of three months
or less when purchased to be cash equivalents.
F-6
<PAGE>
INVENTORIES
Effective January 1, 1997, the Company changed its method of accounting for
inventories from the last-in first-out (LIFO) method to the specific
identification method for vehicles and the first-in first-out (FIFO) method of
accounting for parts (collectively, the FIFO method). Management believes the
FIFO method is preferable because the FIFO method of valuing inventories more
accurately presents the Company's financial position as it reflects more recent
costs at the balance sheet date, more accurately matches revenues with costs
reported during the period presented and provides comparability to industry
information. The financial statements of prior periods have been restated to
apply the new method of accounting for inventories retroactively. The effect of
this restatement was to increase retained earnings as of January 1, 1996 by
$4,896 and to decrease net income by $426, or $0.09 per diluted share for the
year ended December 31, 1996.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and being depreciated
over their estimated useful lives, principally on the straight-line basis.
The range of estimated useful lives are as follows:
<TABLE>
<S> <C>
Building and improvements 40 years
Service equipment 5 to 10 years
Furniture, signs and fixtures 5 to 10 years
</TABLE>
The cost for maintenance, repairs and minor renewals is expensed as
incurred, while significant renewals and betterments are capitalized. When an
asset is retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss is credited or
charged to income.
Leased property meeting certain criteria is capitalized and the present
value of the related lease payments is recorded as a liability. Amortization of
capitalized leased assets is computed on a straight-line basis over the term of
the lease.
INVESTMENT IN AFFILIATE
The Company has a 20% interest in Lithia Properties, LLC, of which the
other members are Sidney DeBoer (35%), M. L. Dick Heimann (30%) and three of Mr.
DeBoer's children (5% each). The investment is accounted for using the equity
method, with a carrying value of $476 and $468 at December 31, 1998 and 1997,
respectively.
INCOME TAXES
Prior to the Company's initial public offering of its Common Stock in
December 1996 (see note 11), the Company was an S Corporation for federal and
state income tax reporting purposes. Federal and state income taxes on the
income of an S Corporation were payable by the individual stockholders rather
than the corporation.
The Company's S Corporation status terminated immediately prior to the
effectiveness of the Company's initial public offering. At that time, the
Company established a net deferred tax asset and recorded an accompanying credit
to income tax expense. The accompanying statement of operations for the year
ended December 31, 1996 reflects a provision for income taxes on an unaudited
pro forma basis, using the asset and liability method, as if the Company had
been a C Corporation, fully subject to federal and state income taxes for that
period.
F-7
<PAGE>
Under the asset and liability method, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of changes in tax rates is recognized in income in the period that includes the
enactment date.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters, if any, are recorded in operating
expenses when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. Accrued liabilities are
exclusive of claims against third parties and are not discounted.
In general, costs related to environmental remediation are charged to
expense. Environmental costs are capitalized if the costs increase the value of
the property and/or mitigate or prevent contamination from future operations.
COMPUTATION OF PER SHARE AMOUNTS
Beginning December 31, 1997, basic earnings per share (EPS) and diluted
EPS are computed using the methods prescribed by Statement of Financial
Accounting Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is
calculated using the weighted average number of common shares outstanding for
the period and diluted EPS is computed using the weighted average number of
common shares and dilutive common equivalent shares outstanding. Prior
period amounts have been restated to conform with the presentation
requirements of SFAS 128. Following is a reconciliation of basic EPS and
diluted EPS:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- ------------------------------ ----------------------------- ---------------------------- ------------------------------
Per Share Per Share Per Share
BASIC EPS Income Shares Amount Income Shares Amount Income Shares Amount
----------------------------- ---------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income available to Common
Shareholders $ 10,789 9,147 $ 1.18 $ 5,959 6,988 $0.85 $4,355 4,657 $0.94
------- --------- -------
------- --------- -------
EFFECT OF DILUTIVE SECURITIES
Stock Options - 323 - 315 - 316
---------------- ------------------ -------------------
DILUTED EPS
Income available to Common
Shareholders $ 10,789 9,470 $ 1.14 $ 5,959 7,303 $0.82 $4,355 4,973 $0.88
------- --------- -------
------- --------- -------
</TABLE>
108, zero and zero shares issuable pursuant to stock options have not been
included in the above calculations for 1998, 1997 and 1996, respectively, since
they would have been antidilutive.
FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, trade receivables, trade
payables, accrued liabilities and short term borrowings approximate fair
value because of the short-term nature of these instruments. The fair values
of long-term debt and notes receivable for leased vehicles accounted for as
sales-type leases were estimated by discounting the future cash flows using
market interest rates and do not differ significantly from that reflected in
the financial statements.
F-8
<PAGE>
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
ADVERTISING
The Company expenses production and other costs of advertising as
incurred. Advertising expense was $5,749, $2,678 and $1,297 for the years
ended December 31, 1998, 1997 and 1996, respectively.
GOODWILL
Goodwill, which represents the excess purchase price over fair value of
net assets acquired, is amortized on the straight-line basis over the
expected period to be benefited of forty years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation.
The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's
customer base.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash deposits. The
Company generally is exposed to credit risk from balances on deposit in
financial institutions in excess of the FDIC-insured limit.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related notes to financial statements. Changes in such
estimates may affect amounts reported in future periods.
REVENUE RECOGNITION
Revenue from the sale of vehicles is recognized upon delivery, when the
sales contract is signed and down payment has been received. Fleet sales of
vehicles whereby the Company does not take title are shown on a net basis in
other revenue.
Finance fees represent revenue earned by the Company for notes placed with
financial institutions in connection with customer vehicle financing net of
estimated chargebacks. Finance fees are recognized in income upon acceptance of
the credit by the financial institution. Insurance income represents
commissions earned on credit life, accident and disability insurance sold in
connection with the vehicle on behalf of third party insurance companies.
Commissions from third party service contracts are recognized upon sale.
Insurance commissions are recognized in income upon customer acceptance of the
insurance terms as evidenced by contract execution. Finance fees and insurance
commissions, net of charge-backs, are classified as other operating revenue in
the accompanying consolidated statements of operations.
F-9
<PAGE>
MAJOR SUPPLIER AND DEALER AGREEMENTS
The Company purchases substantially all of its new vehicles and inventory
from various manufacturers at the prevailing prices charged by the auto maker to
all franchised dealers. The Company's overall sales could be impacted by the
auto maker's inability or unwillingness to supply the dealership with an
adequate supply of popular models.
The Company enters into agreements (Dealer Agreements) with the
manufacturers. The Dealer Agreements generally limit the location of the
dealership and retain auto maker approval rights over changes in dealership
management and ownership. The auto makers are also entitled to terminate the
Dealer Agreements if the dealership is in material breach of the terms.
The Company's ability to expand operations depends, in part, on obtaining
consents of the manufacturers for the acquisition of additional dealerships.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plan under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). Effective January 1, 1996, the Company adopted the disclosure option of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 requires that companies which do not choose
to account for stock-based compensation as prescribed by this statement shall
disclose the pro forma effects on earnings and earnings per share as if SFAS 123
had been adopted. Additionally, certain other disclosures are required with
respect to stock compensation and the assumptions used to determine the pro
forma effects of SFAS 123.
SEGMENT REPORTING
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
for the year ended December 31, 1998. Based upon definitions contained within
SFAS 131, the Company has determined that it operates in one segment.
RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions
have been reclassified to conform with the current presentation.
F-10
<PAGE>
(2) INVENTORIES AND RELATED NOTES PAYABLE
Inventories are valued at cost, using the specific identification method
for vehicles and the first-in first-out (FIFO) method of accounting for parts
(collectively, the FIFO method). Certain inventories of dealerships acquired in
1998 amounting to $13,529 at December 31, 1998 are valued using the last-in
first-out (LIFO) method of accounting and have an insignificant LIFO reserve at
December 31, 1998.
The new and used vehicle inventory, collateralizing related notes payable,
and other inventory were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1998 1997
--------------------------- ---------------------------
INVENTORY NOTES INVENTORY NOTES
COST PAYABLE COST PAYABLE
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
New and program vehicles $ 112,990 $ 124,167 $ 63,457 $ 67,098
Used vehicles 34,599 5,000 21,524 15,500
Parts and accessories 9,866 - 4,864 -
--------- ----------- --------- ----------
Total inventories $ 157,455 $ 129,167 $ 89,845 $ 82,598
--------- ----------- --------- ----------
--------- ----------- --------- ----------
</TABLE>
The inventory balance is generally reduced by manufacturer's purchase
discounts. Such reduction is not reflected in the related floor plan liability.
All new vehicles are pledged to collateralize floor plan notes payable to
financial institutions. The floor plan notes payable bear interest, payable
monthly on the outstanding balance, at a rate of interest determined by the
lender, subject to incentives. The floor plan notes are due when the related
vehicle is sold. As such, these floor plan notes payable are shown as a current
liability in the accompanying consolidated balance sheets.
Used vehicles are pledged to collateralize a $60 million line of credit.
(3) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
----------------------------- ----------- ------------
<S> <C> <C>
Buildings and improvements $ 17,107 $ 7,449
Service equipment 5,566 3,992
Furniture, signs and fixtures 5,077 4,340
----------- ------------
27,750 15,781
Less accumulated depreciation (3,907) (2,822)
----------- ------------
23,843 12,959
Land 8,648 2,924
Construction in progress 442 382
----------- ------------
$ 32,933 $ 16,265
----------- ------------
----------- ------------
</TABLE>
(4) VEHICLES LEASED TO OTHERS AND RELATED LEASE RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
----------------------------- ---------- ---------
<S> <C> <C>
Vehicles leased to others $ 7,267 $ 6,531
Less accumulated depreciation (759) (1,205)
----------- ------------
6,508 5,326
Less current portion (861) (738)
----------- ------------
$ 5,647 $ 4,588
----------- ------------
----------- ------------
</TABLE>
F-11
<PAGE>
Vehicles leased to others are stated at cost and depreciated over their
estimated useful lives (5 years) on a straight-line basis. Lease receivables
result from customer, employee and fleet leases of vehicles under agreements
which qualify as operating leases. Leases are cancelable at the option of the
lessee after providing 30 days written notice.
(5) NOTES RECEIVABLE UNDER SALES-TYPE LEASES
At one of its locations, the Company leases vehicles to customers under
sales-type leases. The following lists the components of the net investment in
sales-type leases, classified as notes receivable in the consolidated balance
sheets.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- -------------------------------------------- ---------- ---------
<S> <C> <C>
Total minimum lease payments to be received $11,796 $ -
Allowance for uncollectible notes and
repossession losses (599) -
---------- ---------
11,197 -
Unearned interest income (1,960) -
---------- ---------
$ 9,237 $ -
---------- ---------
---------- ---------
</TABLE>
(6) LINES OF CREDIT AND LONG-TERM DEBT
Ford Credit, Toyota Motor Credit Corporation, Chrysler Financial
Corporation and General Motors Acceptance Corporation have agreed to floor all
of Lithia's new vehicles for their respective brands with Ford serving as the
primary lender for all other brands. There are no formal limits to these
commitments for new vehicle wholesale financing.
Ford Credit has also extended a $60 million revolving line of credit for
used vehicles and a $75 million acquisition line of credit to purchase
dealerships of any brand. These commitments have an expiration date of
November 23, 2000 with interest due monthly. Lithia has the right to elect
to extend the term on these lines of credit for an additional two years at
November 23, 1999. Lithia also has the option to convert the acquisition line
into a five-year term loan on November 23, 1999 or November 23, 2000. In
addition, U.S. Bank N.A. has extended a $10 million revolving line of credit
for leased vehicles.
The lines with Ford Credit are cross-collateralized and are secured by
inventory, accounts receivable, intangible assets and equipment. The other
new vehicle lines are secured by new vehicle inventory of the relevant
dealerships.
The Ford Credit lines of credit contain financial covenants requiring
Lithia to maintain compliance with, among other things, specified ratios of
(i) total debt to tangible base capital; (ii) total adjusted debt to tangible
base capital; (iii) current ratio; (iv) fixed charge coverage; and (v) net
cash. The Ford Credit lines of credit agreements also preclude the payment of
cash dividends without the prior consent of Ford Credit.
F-12
<PAGE>
Interest rates on all of the above facilities ranged from 6.5% to 8.0% at
December 31, 1998. Amounts outstanding on the lines at December 31, 1998 were
as follows (in thousands):
<TABLE>
<S> <C>
Acquisition Line $ -
Used Vehicle Line 5,000
New and Program Vehicle Lines 124,167
Leased Vehicle Line 4,000
--------------
$ 133,167
--------------
--------------
</TABLE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
------------------------------------ ----------- -----------
<S> <C> <C>
Lease vehicle line of credit $ 4,000 $ 5,211
Acquisition line of credit - 5,000
Used vehicle flooring line of credit 5,000 -
General corporate line of credit - 4,827
Mortgages payable in monthly
installments of $83, including
interest between 8.18% and 9.375%,
maturing fully September 2010; secured
by land and buildings 9,499 4,102
Notes payable in monthly installments
of $144 plus interest calculated daily
at LIBOR plus 2.20%, maturing fully
November 2003; secured by equipment 8,328 -
Notes payable in monthly installments
of $225 plus interest between 7.21%
and 8.50%, maturing at various dates
through 2004; secured by vehicles
leased to others 7,584 -
Notes payable related to acquisitions,
with interest rates between 7.00% and
9.00%, maturing at various dates
between November 1999 and November
2008 12,679 7,782
Note payable in monthly installments
of $3, including interest at 10.25%,
maturing fully August 2000 20 8
------------ -----------
47,110 26,930
Less current maturities (8,116) (2,688)
------------ -----------
$ 38,994 $ 24,242
------------ -----------
------------ -----------
</TABLE>
The schedule of future principal payments on long-term debt after
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------
<S> <C>
1999 $ 8,116
2000 15,407
2001 5,469
2002 4,694
2003 2,774
Thereafter 10,650
---------
Total principal payments $ 47,110
---------
---------
</TABLE>
F-13
<PAGE>
(7) SHAREHOLDERS' EQUITY
The shares of Class A common stock are not convertible into any other
series or class of the Company's securities. However, each share of Class B
common stock is freely convertible into one share of Class A common stock at
the option of the holder of the Class B common stock. All shares of Class B
common stock shall automatically convert to shares of Class A common stock
(on a share-for-share basis, subject to the adjustments) on the earliest
record date for an annual meeting of the Company shareholders on which the
number of shares of Class B common stock outstanding is less than 1% of the
total number of shares of common stock outstanding. Shares of Class B common
stock may not be transferred to third parties, except for transfers to
certain family members and in other limited circumstances.
Holders of Class A common stock are entitled to one vote for each share
held of record, and holders of Class B common stock are entitled to ten votes
for each share held of record. The Class A common stock and Class B common
stock vote together as a single class on all matters submitted to a vote of
shareholders.
(8) INCOME TAXES
At the date of the Company's restructuring (see note 11), the Company
terminated its S Corporation election and is now taxed as a C Corporation in
accordance with SFAS 109, ACCOUNTING FOR INCOME TAXES. Income taxes for 1998
and 1997 and pro forma income taxes on the Company's earnings for 1996
(unaudited) are as follows:
<TABLE>
<CAPTION>
(unaudited
pro forma)
DECEMBER 31, 1998 1997 1996
-------------------- --------- --------- ----------
<S> <C> <C> <C>
Current:
Federal $ 5,387 $ 2,967 $ 1,860
State 1,041 444 387
--------- --------- ----------
6,428 3,411 2,247
--------- --------- ----------
Deferred:
Federal 436 114 (517)
State 129 13 (107)
--------- --------- ----------
565 127 (624)
--------- --------- ----------
Total $ 6,993 $ 3,538 $ 1,623
--------- --------- ----------
--------- --------- ----------
</TABLE>
Individually significant components of the deferred tax assets and
liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
----------------------------------- ------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance and accruals $ 1,425 $ 470
Deferred revenue 1,282 1,126
------------ ------------
Total deferred tax assets 2,707 1,596
------------ ------------
Deferred tax liabilities:
LIFO recapture and acquired LIFO
inventories (4,398) (1,841)
Property and equipment,
principally due to
differences in depreciation (2,744) (1,008)
------------ ------------
Total deferred tax
liabilities (7,142) (2,849)
------------ ------------
Total $ (4,435) $ (1,253)
------------ ------------
------------ ------------
</TABLE>
F-14
<PAGE>
The reconciliation between the statutory federal income tax expense at
35% in 1998 and 34% in 1997 and 1996 and the Company's income tax expense for
1998, 1997 and 1996 is shown in the following tabulation. The following
tabulation also reconciles the expected corporate federal income tax expense
for 1996 (computed by multiplying the Company's income before minority
interest by 34%) with the Company's unaudited pro forma income tax expense:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
-------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Statutory federal taxes $ 6,224 $ 3,229 $ 1,438
State taxes, net of federal income 751 278 184
tax benefit
Other 18 31 1
------- ------- -------
Income tax expense $ 6,993 $ 3,538 $ 1,623
------- ------- -------
------- ------- -------
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
RECOURSE PAPER
The Company is contingently liable to banks for recourse paper from the
financing of vehicle sales. The contingent liability at December 31, 1998,
1997 and 1996 was approximately $3,824, $64 and $88, respectively.
The Company's potential loss is limited to the difference between the
present value of the installment contract at the date of the repossession and
the amount for which the vehicle is resold. Based upon historical loss
percentages, an estimated loss reserve of $255, $0 and $0 is reflected in the
Company's consolidated balance sheets as of December 31, 1998, 1997 and 1996.
OPERATING LEASES
Substantially all of the Company's operations are conducted in leased
facilities under noncancelable operating leases. These leases expire at
various dates through 2012. Beginning in 1998, certain lease commitments are
subject to escalation clauses of an amount equal to the cost of living based
on the "Consumer Price Index - U.S. Cities Average - All stems for all Urban
Consumers" published by the U.S. Department of Labor. The Company also
leases certain equipment under capital leases.
The minimum lease payments under the operating and capital leases after
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING CAPITAL
------------------------------------------- ------------- -------------
<S> <C> <C>
1999 $ 6,315 $ 309
2000 5,878 312
2001 5,832 312
2002 5,367 312
2003 4,942 312
Thereafter 36,573 5,200
------------- -------------
Total minimum lease payments $ 64,907 6,757
-------------
-------------
Less amounts representing interest (4,304)
-------------
Present value of future minimum lease $ 2,453
payments -------------
-------------
</TABLE>
Rental expense for all operating leases was $5,659, $2,764 and $2,353
for the years ended December 31, 1998, 1997 and 1996, respectively.
F-15
<PAGE>
LITIGATION
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
(10) PROFIT SHARING PLAN
The Company has a defined contribution plan and trust covering
substantially all full-time employees. The annual contribution to the plan
is at the discretion of the Board of Directors of Lithia Motors, Inc.
Contributions of $285, $138 and $100 were recognized for the years ended
December 31, 1998, 1997 and 1996, respectively. Employees may contribute to
the plan under certain circumstances.
(11) RESTRUCTURING AND OFFERINGS
On December 18, 1996, the Company offered 2,500 shares of its Class A
common stock to the public (the "Offering"). Prior to the Offering, the
Company consummated a restructuring (the Restructuring) which resulted in
each of the Company's dealerships and operating divisions becoming direct or
indirect wholly-owned subsidiaries of the Company with Lithia Holding
Company, LLC owning all the outstanding Class B common stock of the Company.
All shareholders prior to the Restructuring exchanged their interests in the
Company and its affiliated entities for shares of Lithia Holding Company, LLC
with the exception of (i) one shareholder who exchanged his interest in one
entity for cancellation of a note due to Lithia TLM, LLC and cash and (ii)
Lithia TKV, Inc. whose stock was purchased by the Company from the Company's
principals subsequent to the Offering.
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 $42.5 million. The
proceeds have been used to pay down the Company's lines of credit until
needed for future acquisitions.
(12) STOCK INCENTIVE PLANS
In April 1996, the Board of Directors (the Board) and the Company's
shareholders adopted the Company's 1996 Stock Incentive Plan, as amended, for
the granting of up to 1,085 incentive and nonqualified stock options to
officers, key employees and consultants of the Company and its subsidiaries,
and in 1997, the Board adopted a Non-Discretionary Stock Option Plan for
Non-Employee Directors and reserved 15 shares under that plan (collectively,
the "Plan"). Subject to shareholder approval at the Company's 1999 Annual
Meeting of Shareholders to be held in May 1999, the total number of options
that may be issued under the 1996 Stock Incentive Plan will be increased by
915, to a total of 2,000. The Plan is administered by the Board or by a
Compensation Committee of the Board and permits accelerated vesting of
outstanding options upon the occurrence of certain changes in control of the
Company. Options become exercisable over a period of up to ten years from
the date of grant as determined by the Board, at prices generally not less
than the fair market value at the date of grant. At December 31, 1998, 1,043
shares of Class A common stock were reserved for issuance under the Plan and
495 shares were available for future grant.
F-16
<PAGE>
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
Shares Shares Weighted
Available Subject to Average
for Grant Options Exercise Price
---------- ----------- --------------
<S> <C> <C> <C>
Balances, December 31, 1995 - - $ -
Shares reserved 685
Options granted (439) 439 3.11
Options canceled - - -
Options exercised - - -
---------- ----------- --------------
Balances, December 31, 1996 246 439 3.11
Options granted (45) 45 6.05
Options canceled - - -
Options exercised - (51) 3.20
---------- ----------- --------------
Balances, December 31, 1997 201 433 3.41
Additional shares reserved 415 - -
Options granted (155) 155 14.65
Options canceled 34 (34) 16.22
Options exercised - (6) 3.02
---------- ----------- --------------
Balances, December 31, 1998 495 548 $ 5.80
---------- ----------- --------------
---------- ----------- --------------
</TABLE>
The Company issued non-qualified options during 1998 and 1997 to certain
members of management at an exercise price of $1.00 per share. Compensation
expense, which is equal to the difference between the market price
and the exercise price, is recognized ratably in accordance with the 4-year
vesting schedule.
In 1998, the Board of Directors of the Company and the shareholders
approved the implementation of an Employee Stock Purchase Plan (the "Purchase
Plan"), and reserved a total of 250 shares of Class A Common Stock for
issuance under the Purchase Plan. The Purchase Plan is intended to qualify
as an "Employee Stock Purchase Plan" under Section 423 of the Internal
Revenue Code of 1986, as amended, and is administered by the Compensation
Committee of the Board. Eligible employees are entitled to contribute up to
10 percent of their base pay for the purchase of stock. The purchase price
for shares purchased under the Purchase Plan is 85 percent of the lesser of
the fair market value at the beginning or end of the purchase period. A
total of 9 shares of the Company's Class A common stock were issued under the
Purchase Plan during 1998.
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ACCOUNTING FOR STOCK-BASED
COMPENSATION (SFAS 123), which defines a fair value based method of
accounting for employee stock options and similar equity instruments. As
permitted under SFAS 123, the Company has elected to continue to account for
its stock-based compensation plans under Accounting Principal Board Opinion
No. 25 ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25), and related
interpretations. Accordingly, no compensation expense has been recognized
for the Plan or the Purchase Plan (collectively the "Plans").
F-17
<PAGE>
The Company has computed, for pro forma disclosure purposes, the value
of options granted under the Plans, using the Black-Scholes option pricing
model as prescribed by SFAS 123, using the weighted average assumptions for
grants as follows:
<TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
-------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Risk-free interest rate 5.50% 6.25% 6.50%
Expected dividend yield 0.00% 0.00% 0.00%
Expected lives 6.7 years 6.8 years 6.5 years
Expected volatility 53.41% 45.50% 60.00%
</TABLE>
Using the Black-Scholes methodology, the total value of options granted
during 1998, 1997 and 1996 was $1,119, $320 and $709, respectively, which
would be amortized on a pro forma basis over the vesting period of the
options, typically four to five years. The weighted average fair value of
options granted during 1998, 1997 and 1996 was $8.61, $7.20 per share and
$1.62 per share, respectively. If the Company had accounted for its
stock-based compensation plan in accordance with SFAS 123, the Company's net
income and net income per share would approximate the pro forma disclosures
below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------- ----------------- ----------------- -----------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income $10,789 $10,227 $ 5,959 $ 5,723 $ 4,355 $ 3,612
Basic net income per share $1.18 $1.12 $0.85 $0.82 $0.94 $0.78
Diluted net income per share $1.14 $1.09 $0.82 $0.79 $0.88 $0.73
</TABLE>
The following table summarizes stock options outstanding at December 31,
1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------ -----------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER OF WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE SHARES AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/98 LIFE (YEARS) PRICE AT 12/31/98 PRICE
- -------------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.00 28 7.7 $ 1.00 10 $ 1.00
3.02 - 3.32 382 4.4 3.11 219 3.17
10.75 - 11.00 27 6.9 10.80 7 10.80
14.31 - 14.75 87 7.1 14.73 3 14.31
16.23 24 4.0 16.23 - -
- -------------- ----------- ----------- -------- ----------- ---------
$1.00 - 16.23 548 5.1 $ 5.80 239 $ 3.44
- -------------- ----------- ----------- -------- ----------- ---------
- -------------- ----------- ----------- -------- ----------- ---------
</TABLE>
At December 31, 1997 and 1996, respectively, 151 and 167 shares were
exercisable at weighted average exercise prices of $3.28 and $3.27,
respectively.
F-18
<PAGE>
(13) RELATED PARTY TRANSACTIONS
Certain of the real property on which the Company's business is located
is owned by Lithia Properties, LLC. The Company leases such facilities under
various lease agreements from Lithia Properties, LLC (Note 9). Selling,
general and administrative expense includes rental expense of $1,464, $1,442
and $2,132 for the years ended December 31, 1998, 1997 and 1996, respectively
relating to these properties.
The Company provides management services to Lithia Properties, LLC.
Other income includes management fees of $12, $12 and $477 for the years
ended December 31, 1998, 1997 and 1996, respectively.
The Company has guaranteed certain indebtedness of Lithia Properties,
LLC incurred in connection with purchases of real property which secures the
loan. This indebtedness amounts to approximately $9,201 at December 31, 1998.
Lithia Properties constructed a new body and paint shop for use by the
Company, which was completed in April 1997. The Company purchased the
facility and improvements together with a 5.3 acre parcel held for future
development in Medford, Oregon, in 1997. The total purchase price for these
properties was $2.7 million. Lithia Properties retained and after purchase of
the facility, the Company continued to retain, Mark DeBoer Construction, Inc.
as the general contractor for the project. Mark DeBoer, the owner of Mark
DeBoer Construction, Inc., is the son of Sidney B. DeBoer and is one of the
members of Lithia Properties. The general contractor fee was $128, an
arrangement the Company believes is fair in comparison with fees negotiated
with independent third parties.
During 1998, Lithia Properties paid Mark DeBoer Construction, Inc. $821
for remodeling certain of the Company's facilities. The Company believes the
amount paid is fair in comparison with fees negotiated with independent third
parties.
F-19
<PAGE>
(14) ACQUISITIONS
The following table sets forth the total purchase price, cash paid, debt
incurred and the net investment for acquisitions made by the Company during
1996, 1997 and 1998:
<TABLE>
<CAPTION>
TOTAL CASH DEBT NET
NAME DATE PAID PAID INCURRED INVESTMENT (1)
- ------------------------------- ------------- ------- ------- -------- --------------
<S> <C> <C> <C> <C> <C>
Roberts Dodge(2) December 1996 $ 5,751 $ 1,913 $ 3,838 $ 3,507
Melody Vacaville Toyota December 1996 5,740 2,946 2,794 3,854
------- ------- ------- -------
1996 TOTAL $11,491 $ 4,859 $ 6,632 $ 7,361
------- ------- ------- -------
------- ------- ------- -------
Magnussen Dodge Isuzu April 1997 $10,905 $ 2,822 $ 8,083 $ 3,760
Magnussen-Barbee Ford, L/M July 1997 7,916 3,093 4,823 3,720
Sun Valley Ford, Volkswagen August 1997 17,962 5,356 12,606 7,573
Dick Donnelly Lincoln/Mercury, October 1997 12,916 6,139 6,777 6,676
Isuzu, Suzuki, Audi
Bakersfield Nissan-BMW October 1997 9,240 4,274 4,966 5,814
Century Ford Mazda December 1997 12,915 4,023 8,892 5,314
------- ------- ------- -------
1997 TOTAL $71,854 $25,707 $46,147 $32,857
------- ------- ------- -------
------- ------- ------- -------
Quality Nissan Jeep(2) January 1998 $ 8,404 $ 7,097 $ 1,307 $ 4,405
Reno Volkswagen February 1998 1,400 411 989 293
Medford Nissan, BMW February 1998 3,231 546 2,685 2,326
Haddad Jeep/Eagle March 1998 4,912 1,528 3,384 2,063
Rodway Chevrolet(2) June 1998 11,488 5,094 6,394 3,783
Boyland Toyota(2) July 1998 3,919 2,300 1,619 2,588
Camp Automotive October 1998 11,535 8,000 3,535 11,535
Hutchins Toyota(2) November 1998 6,955 5,000 1,955 6,955
------- ------- ------- -------
1998 TOTAL $51,844 $29,976 $21,868 $33,948
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
(1) Net investment consists of the amount of goodwill, working capital, notes
issued to sellers and other initial investments.
(2) Excludes real property purchased for $2,330, $5,560, $4,050, $1,650 and
$1,750, respectively.
The unaudited pro forma results of operations including Camp Automotive,
Inc., Roberts Dodge, Inc., Melody Vacaville, Inc., Sun Valley Ford, Inc. and
Dick Donnelly Automotive Enterprises, Inc., are as follows. The results of
operations for the remaining acquisitions are not included in the unaudited pro
forma information as they are not materially different from actual results of
the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997 1996
---------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Total revenues $ 790,151 508,720 $ 440,058
Net income 12,118 8,682 3,429
Basic earnings per share 1.32 1.24 0.74
Diluted earnings per share 1.28 1.19 0.69
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually would have occurred had the acquisitions been in effect for the entire
periods presented. In addition, they are not intended to be a projection of
future results that may be achieved from the combined operations.
F-20
<PAGE>
(15) SUBSEQUENT EVENT (UNAUDITED)
In March 1999, the Company announced that it entered into definitive
agreements with the Moreland Automotive Group to acquire a seven-dealership
platform in four Colorado and Nevada markets. Lithia's net investment will be
approximately $50 million, paid for with a combination of cash, Class A Common
Stock and a new series of redeemable Preferred Stock. Upon completion of this
acquisition, which is expected in the second quarter of 1999, the Company will
have annualized revenues of over $1.2 billion.
F-21
<PAGE>
EXHIBIT 10.29
CREDIT AGREEMENT
This Credit Agreement (this "Agreement") dated November 23, 1998 is
entered into between LITHIA MOTORS, INC., an Oregon corporation, ("Borrower")
and FORD MOTOR CREDIT COMPANY, a Delaware corporation ("Lender"). The parties
hereto agree as follows:
Borrower has requested Lender to extend a revolving line of credit to
Borrower in the principal amount not to exceed $75,000,000.00 (the "Loan") in
order to fund dealership acquisitions.
Lender is willing to make the Loan to Borrower provided that Borrower
grants to Lender a security interest in the Collateral and provides such other
security as required by this Agreement and that Borrower complies with the
conditions precedent and other terms and conditions of this Agreement and the
Security Documents (as defined herein).
Now therefore, in consideration of the promises, covenants and
undertakings set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by the parties hereto,
Lender and Borrower hereby agree as follows:
1. DEFINITIONS
1.1 The following terms used in this Agreement shall have the following
meanings, applicable both to the singular and the plural forms of the terms
defined.
(a) "ACQUISITION" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or a subsidiary holding company (i) acquires any going business or all
or substantially all of the assets of any automobile dealership and/or related
operations (e.g. body shop and service repair centers), whether through purchase
of assets, merger or otherwise or (ii) directly or indirectly acquires (in one
transaction or as the most recent transaction in a series of transactions) at
least a majority (in number of votes) of the securities of such a corporation
which have ordinary voting power for the election of directors (other than
securities having such power only by reason of the happening of a contingency)
or a majority (by percentage of voting power) of the outstanding equity
interests of such an entity.
(b) "ACQUISITION DOCUMENTS" means all documents, instruments and
agreements entered into in connection with any Acquisition.
(c) "ADVANCE" means any loan made by the Lender under SECTION 2.1
hereof.
(d) "AFFILIATE" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
A Person shall be deemed to control another Person if the controlling Person is
the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of greater than five percent (5%) or more of any class of voting
securities (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether through ownership of
Capital Stock, by contract or otherwise.
(e) "AGREEMENT" means this Agreement, as it may be amended, restated
or otherwise modified and in effect from time to time.
(f) "AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted
accounting principles in effect from time to time, applied in a manner
consistent with that used in preparing the financial statements referred to in
SECTION 5.1(A) hereof, PROVIDED, HOWEVER, all PRO FORMA financial
<PAGE>
statements reflecting Acquisitions shall be prepared in accordance with the
requirements established by the Commission for acquisition accounting for
reporting acquisitions by public companies (whether or not such Acquisitions
are required to be publicly reported).
(g) "APPLICABLE COMMERCIAL PAPER RATE" means the Commercial Paper Rate
PLUS three percent (3.0%) per annum.
(h) "ASSET SALE" means, with respect to any Person, the sale, lease,
conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-leaseback transaction and including the sale or
other transfer of any of the Equity Interests of any Subsidiary of such Person).
(i) "AUTHORIZED OFFICER" means any of the chief executive officer,
president, chief financial officer orVice President of Accounting of the
Borrower, acting singly.
(j) "BENEFIT PLAN" means a defined benefit plan as defined in Section
3(35) of ERISA (other than a Multi-employer Plan) in respect of which the
Borrower or any other member of the Controlled Group is, or within the
immediately preceding six (6) years was, an "employer" as defined in Section
3(5) of ERISA.
(k) "BORROWER GUARANTY" means that certain Guaranty, dated as of even
date herewith, pursuant to which the Borrower guaranties all Lithia Dealership
obligations arising under any Wholesale Line, as it may be amended, restated or
otherwise modified and in effect from time to time.
(l) "BORROWER PLEDGES" means each of (i) that certain Pledge
Agreement, dated as of even date herewith, from the Borrower to the Lender
pursuant to which the Borrower pledges the Capital Stock of certain corporate
Subsidiaries, as it may be amended, restated or otherwise modified and in effect
from time to time, (ii) that certain Pledge Agreement, dated as of even date
herewith, from the Borrower to the Lender pursuant to which the Borrower pledges
the Capital Stock of certain limited liability company Subsidiaries, as it may
be amended, restated or otherwise modified and in effect from time to time and
(iii) any other pledge of Capital Stock delivered by a member of the Lithia
Group from time to time to the Lender.
(m) "BORROWER SECURITY AGREEMENT" means that certain Security
Agreement, dated as of even date herewith, from the Borrower to the Lender
pursuant to which the Borrower pledged all of its assets to secure the
Obligations hereunder and the obligations of each Lithia Dealership under any
Wholesale Line provided by the Lender to such Lithia Dealership, as it may be
amended, restated or otherwise modified and in effect from time to time.
(n) "CAPITAL EXPENDITURES" means, for any period, the aggregate of all
expenditures (other than in connection with Permitted Acquisitions), whether
paid in cash or accrued as liabilities, including Capitalized Lease Obligations,
by the Borrower and its Subsidiaries during that period that, in conformity with
Agreement Accounting Principles, are required to be included in or reflected by
the property, plant, equipment or similar fixed asset accounts reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries.
(o) "CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited), (iv) in the case of a limited liability
company, any and all membership interests or other equivalents (however
designated) and (v) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
2
<PAGE>
(p) "CAPITALIZED LEASE" of a Person means any lease of property by
such Person as lessee which would be capitalized on a balance sheet of such
Person prepared in accordance with Agreement Accounting Principles.
(q) "CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of
the obligations of such Person under Capitalized Leases which would be
capitalized on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
(r) "CASH EQUIVALENTS" means (i) marketable direct obligations
issued or unconditionally guaranteed by the United States government and
backed by the full faith and credit of the United States government; (ii)
domestic and Eurodollar certificates of deposit and time deposits, bankers'
acceptances and floating rate certificates of deposit issued by any
commercial bank organized under the laws of the United States, any state
thereof, the District of Columbia, or its branches or agencies; (iii) shares
of money market, mutual or similar funds having assets in excess of
$100,000,000 and the investments of which are limited to investment grade
securities (i.e., securities rated at least BAA by Moody's Investors Service,
Inc. or at least BBB by Standard & Poor's Corporation); (iv) commercial paper
of United States and foreign banks and bank holding companies and their
subsidiaries and United States and foreign finance, commercial industrial or
utility companies which, at the time of acquisition, are rated A-1 (or
better) by Standard & Poor's Ratings Group or P-1 (or better) by Moody's
Investors Services, Inc.; (v) corporate bonds, mortgage-backed securities and
municipal bonds in each case of a domestic issuer rated at the date of
acquisition not less than AAA by Moody's Investor Services, Inc. or AAA by
Standard & Poor's Corporation with maturities of no more than two (2) years
from the date of acquisition; and (vi) money market funds with respect to
which not less than 90% of such funds are invested in the type of investments
specified in clauses (i) through (v) above; PROVIDED, unless the context
otherwise requires, that the maturities of such Cash Equivalents shall not
exceed 365 days.
(s) "CHANGE OF CONTROL" means an event or series of events by which:
(i) Lithia Holding Company, L.L.C. ceases to own,
directly or indirectly, more than 51.0% of the voting power
of the Borrower's Capital Stock ordinarily having the right
to vote at an election of directors or the Principalceases
to control Lithia Holding Company, L.L.C.;
(ii) during any period of 24 consecutive calendar months,
individuals:
(a) who were directors of the Borrower on the first
day of such period, or
(b) whose election or nomination for election to
the board of directors of the Borrower was recommended
or approved by at least a majority of the directors then
still in office who were directors of the Borrower on
the first day of such period, or whose election or
nomination for election was so approved, shall cease to
constitute a majority of the board of directors of the
Borrower;
(iii) the Borrower consolidates with or merges into
another corporation or conveys, transfers or leases all or
substantially all of its property to any Person, or any corporation
consolidates with or merges into the Borrower, in either event
pursuant to a transaction in which the outstanding Capital Stock of
the Borrower is reclassified or changed into or exchanged for (A) cash
or Cash Equivalents or (B) securities, and the holders of the Capital
Stock in the Borrower immediately prior to such transaction do not, as
a result of such transaction, own, directly or indirectly, more than
fifty percent (50%) of the combined voting power of the Borrower's
Capital Stock or the Capital Stock of its successor entity in such
transaction; or
(iv) Borrower ceases to own, directly or indirectly,
80.0% of any Subsidiary;
3
<PAGE>
(t) "CHARTER DOCUMENTS" means (i) in the case of a corporation, such
entity's articles of incorporation and by-laws, (ii) in the case of a limited
liability company, such entity's articles of organization and operating
agreement or equivalent (however designated), (iii) in the case of a
partnership, such entity's partnership agreement or equivalent (however
designated) and (iv) in the case of an association or other business entity not
described above, such entity's founding documents (however designated).
(u) "CODE" means the Internal Revenue Code of 1986, as amended,
reformed or otherwise modified from time to time, or any successor statute.
(v) "COLLATERAL" means all property and interests in property now
owned or hereafter acquired by the Borrower or any of its Subsidiaries in or
upon which a security interest, lien or mortgage is granted to the Lender,
whether under the Borrower Security Agreement, under any of the other Collateral
Documents or under any of the other Loan Documents.
(w) "COLLATERAL DOCUMENTS" means all agreements, instruments and
documents executed in connection with this Agreement that are intended to create
or evidence Liens to secure the Obligations and all Floor Plan Indebtedness,
including, without limitation, the Borrower Security Agreement, the Borrower
Pledges, the subsidiary holding company pledges, each Dealership Security
Agreement and all other security agreements, mortgages, deeds of trust, loan
agreements, notes, guaranties, subordination agreements, pledges, powers of
attorney, consents, assignments, contracts, fee letters, notices, leases,
financing statements and all other written matter whether heretofore, now, or
hereafter executed by or on behalf of the Borrower or any of its Subsidiaries
and delivered to the Lender, together with all agreements and documents referred
to therein or contemplated thereby.
(x) "COMMERCIAL PAPER RATE" means the interest rate for "1-Month
Finance Paper Placed Directly" under the column entitled "Week Ending" for the
Friday preceding the last Monday of a calendar month as reported in the Federal
Reserve Statistical Release No. H.15 (519) issued by the Federal Reserve Board.
In the event such Release is discontinued or modified to eliminate the reporting
of a 30-day commercial paper rate, then Lender will substitute, in its sole
discretion, a comparable report or release of the 30-day commercial paper rate
published by a comparable source.
(y) "COMMISSION" means the Securities and Exchange Commission and any
Person succeeding to the functions thereof.
(z) "COMMITMENT" means $75,000,000 MINUS the amount of any Decision
Reserve, if any, in effect from time to time.
(aa) "CONSOLIDATED NET WORTH" means, at a particular date, the amount
by which the total consolidated assets (other than amounts for Equipment and
real estate) of the Borrower and its consolidated Subsidiaries exceeds the total
consolidated liabilities (other than liabilities for Equipment and real estate)
of the Borrower and its consolidated Subsidiaries.
(bb) "CONTAMINANT" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBS"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
(cc) "CONTINGENT OBLIGATION", as applied to any Person, means any
Contractual Obligation, contingent or otherwise, of that Person with respect to
any Indebtedness of another or other obligation or liability of another,
including, without limitation, any such Indebtedness, obligation or liability of
another directly or indirectly guaranteed, endorsed (otherwise than for
collection or
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deposit in the ordinary course of business), co-made or discounted or sold
with recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including Contractual Obligations (contingent
or otherwise) arising through any agreement to purchase, repurchase, or
otherwise acquire such Indebtedness, obligation or liability or any security
therefor, or to provide funds for the payment or discharge thereof (whether
in the form of loans, advances, stock purchases, capital contributions or
otherwise), or to maintain solvency, assets, level of income, or other
financial condition, or to make payment other than for value received.
(dd) "CONTRACTUAL OBLIGATION", as applied to any Person, means any
material provision of any equity or debt securities issued by that Person or any
material indenture, mortgage, deed of trust, security agreement, pledge
agreement, guaranty, contract, undertaking, agreement or instrument, in each
case in writing, to which that Person is a party or by which it or any of its
properties is bound, or to which it or any of its properties is subject.
(ee) "CONTRIBUTION AGREEMENT" means that certain Contribution
Agreement, dated as of even date herewith, as it may be amended, restated or
otherwise modified and in effect from time to time.
(ff) "CONTROLLED GROUP" means the group consisting of (i) any
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as the Borrower; (ii) a
partnership or other trade or business (whether or not incorporated) which is
under common control (within the meaning of Section 414(c) of the Code) with the
Borrower; and (iii) a member of the same affiliated service group (within the
meaning of Section 414(m) of the Code) as the Borrower, any corporation
described in CLAUSE (I) above or any partnership or trade or business described
in CLAUSE (II) above.
(gg) "CONTROLLED SUBSIDIARY" of any Person means a Subsidiary of such
Person (i) 80% or more of the total Equity Interests or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more wholly-owned Subsidiaries of such
Person and (ii) of which such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies, whether
through the ownership of voting securities, by agreement or otherwise.
(hh) "CURRENT ASSETS" means, at a particular date, all amounts which
would, in conformity with Agreement Accounting Principles, be included under
current assets on a balance sheet as at such date.
(ii) "CURRENT LIABILITIES" means, at a particular date, all amounts
which would, in conformity with Agreement Accounting Principles, be included
under current liabilities on a balance sheet as at such date.
(jj) "CUSTOMARY PERMITTED LIENS" means:
(i) Liens (other than Environmental Liens, liens in
favor of the IRS and liens in favor of the PBGC) with
respect to the payment of taxes, assessments or
governmental charges in all cases which are not yet due or
(if foreclosure, distraint, sale or other similar
proceedings shall not have been commenced) which are being
contested in good faith by appropriate proceedings properly
instituted and diligently conducted and with respect to
which adequate reserves or other appropriate provisions are
being maintained in accordance with Agreement Accounting
Principles;
(ii) statutory Liens of landlords and liens of
suppliers, mechanics, carriers, materialmen, warehousemen
or workmen and other similar liens imposed by law created
in the ordinary course of business for amounts not yet due
or which are being contested in good
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faith by appropriate proceedings properly instituted and
diligently conducted and with respect to which adequate
reserves or other appropriate provisions are being maintained
in accordance with Agreement Accounting Principles;
(iii) liens (other than Environmental liens, liens
in favor of the IRS and liens in favor of the PBGC)
incurred or deposits made, in each case, in the ordinary
course of business in connection with worker's
compensation, unemployment insurance or other types of
social security benefits or to secure the performance of
bids, tenders, sales, contracts (other than for the
repayment of borrowed money), surety, appeal and
performance bonds; PROVIDED that (A) all such liens do not
in the aggregate materially detract from the value of the
Borrower's or such Subsidiary's assets or property taken as
a whole or materially impair the use thereof in the
operation of the businesses taken as a whole, and (B) with
respect to liens securing bonds to stay judgments or in
connection with appeals do not secure at any time an
aggregate amount exceeding $250,000;
(iv) liens arising with respect to zoning
restrictions, easements, licenses, reservations, covenants,
rights-of-way, utility easements, building restrictions and
other similar charges or encumbrances on the use of real
property which do not in any case materially detract from
the value of the property subject thereto or interfere with
the ordinary conduct of the business of the Borrower or any
of its Subsidiaries;
(v) liens of attachment or judgment with respect to
judgments, writs or warrants of attachment, or similar
process against the Borrower or any of its Subsidiaries
which do not constitute an Event of Default under SECTION
6.1(H) hereof; and
(vi) any interest or title of the lessor in the
property subject to any operating lease entered into by the
Borrower or any of its Subsidiaries in the ordinary course
of business.
(kk) "DEALERSHIP GUARANTORS" means each Lithia Dealership, Lithia
Financial Corporation and Lithia Real Estate, Inc., providing a Dealership
Guaranty and/or a Dealership Security Agreement to the Lender, and their
respective successors and assigns.
(ll) "DEALERSHIP GUARANTY" means that certain Dealership Guaranty in
the form attached hereto as Exhibit C-1, provided by a Lithia Dealership to the
Lender, as the same may be amended, modified, supplemented and/or restated, and
as in effect from time to time.
(mm) "DEALERSHIP SECURITY AGREEMENT" means any Security Agreement in
the form attached hereto as Exhibit D-1, pursuant to which a Lithia Dealership
grants the Lender a security interest in all of its assets, as the same may be
amended, modified, supplemented and/or restated, and as in effect from time to
time.
(nn) "DISQUALIFIED STOCK" means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the Termination Date.
(oo) "DOL" means the United States Department of Labor and any Person
succeeding to the functions thereof.
(pp) "EBITDA" means, for any period, on a consolidated basis for the
Borrower and its Subsidiaries, the sum of the amounts for such period, without
duplication, of:
(i) Net Income,
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PLUS (ii) Interest Expense,
PLUS (iii) charges against income for foreign,
federal, state and local taxes, to the extent
deducted in computing Net Income,
PLUS (iv) depreciation expense, to the extent
deducted in computing Net Income,
PLUS (v) amortization expense, including,
without limitation, amortization of goodwill,
other intangible assets and Transaction
Costs, to the extent deducted in computing
Net Income,
PLUS (vi) other non-cash charges classified as
long-term deferrals in accordance with
Agreement Accounting Principles, to the
extent deducted in computing Net Income,
MINUS (vii) all extraordinary gains (and any
nonrecurring unusual gains arising in or
outside of the ordinary course of business
not included in extraordinary gains
determined in accordance with Agreement
Accounting Principles which have been
included in the determination of Net Income).
EBITDA shall be calculated for any period by including the actual amount for the
applicable period ending on such day, including the EBITDA attributable to
Permitted Acquisitions occurring during such period on a PRO FORMA basis for the
period from the first day of the applicable period through the date of the
closing of each Permitted Acquisition, utilizing (a) where available or required
pursuant to the terms of this Agreement, historical audited and/or reviewed
unaudited financial statements obtained from the seller, broken down by fiscal
quarter in the Borrower's reasonable judgment or (b) unaudited financial
statements (where no audited or reviewed financial statements are required
pursuant to the terms of this Agreement) reviewed internally by the Borrower,
broken down in the Borrower's reasonable judgment.
(qq) "EBITDAR" means, for any period, on a consolidated basis for the
Borrower and its Subsidiaries, the sum of the amounts for such period, without
duplication, of (i) EBITDA and (ii) Rentals.
(rr) "ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all
Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 ET SEQ., the Occupational Safety and Health Act of
1970, 29 U.S.C. Section 651 ET SEQ., and the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. Section 6901 ET SEQ., in each case including any
amendments thereto, any successor statutes, and any regulations or guidance
promulgated thereunder, and any state or local equivalent thereof.
(ss) "ENVIRONMENTAL PROPERTY TRANSFER ACT" means any applicable
requirement of law that conditions, restricts, prohibits or requires any
notification or disclosure triggered by the closure of any property or the
transfer, sale or lease of any property or deed or title for any property for
environmental reasons, including, but not limited to, any so-called "Industrial
Site Recovery Act" or "Responsible Property Transfer Act."
(tt) "EQUIPMENT" means all of the Borrower's and each Dealership
Guarantor's present and future furniture, machinery, service vehicles, supplies
and other equipment and any and all
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accessions, parts and appurtenances attached to any of the foregoing or used
in connection therewith, and any substitutions therefor and replacements,
products and proceeds thereof.
(uu) "EQUITY INTERESTS" means Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
(vv) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time including (unless the context otherwise requires)
any rules or regulations promulgated thereunder.
(ww) "FAIR VALUE" means (a) with respect to the Capital Stock of the
Borrower, the closing price for such Capital Stock on the trading date
immediately preceding the date of the applicable acquisition agreement; and (b)
with respect to other assets, the value of the relevant asset as of the date of
acquisition or sale determined in an arm's-length transaction conducted in good
faith between an informed and willing buyer and an informed and willing seller
under no compulsion to buy.
(xx) "FLOOR PLAN INDEBTEDNESS" means any and all loans, advances,
debts, liabilities and obligations owing by a Lithia Dealership to the Lender of
any kind or nature, present or future, arising under a Wholesale Line whether or
not evidenced by any note, guaranty or other instrument, whether or not for the
payment of money, whether arising by reason of an extension of credit, loan,
guaranty, indemnification, or in any other manner, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising and however acquired. The term
includes, without limitation, all interest, charges, expenses, fees, attorneys'
fees and disbursements, paralegals' fees (in each case whether or not allowed),
and any other sum chargeable to the Borrower or a Lithia Dealership under any
Wholesale Line.
(yy) "HEDGING OBLIGATIONS" of a Person means any and all obligations
of such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions
and modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of
the foregoing.
(zz) "INDEBTEDNESS" of any Person means, without duplication, such
Person's (a) obligations for borrowed money, (b) obligations representing the
deferred purchase price of property or services (other than accounts payable
arising in the ordinary course of such Person's business payable on terms
customary in the trade), (c) obligations, whether or not assumed, secured by
liens or payable out of the proceeds or production from property or assets now
or hereafter owned or acquired by such Person, (d) obligations which are
evidenced by notes, acceptances or other instruments, (e) Capitalized Lease
Obligations, (f) reimbursement obligations with respect to letters of credit
(other than commercial letters of credit) issued for the account of such Person,
(g) Hedging Obligations, (h) Off Balance Sheet Liabilities and (i) Contingent
Obligations in respect of obligations of another Person of the type described in
the foregoing clauses (a) through (h). The amount of Indebtedness of any Person
at any date shall be without duplication (i) the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability of any such Contingent Obligations at such date and (ii) in the case
of Indebtedness of others secured by a lien to which the property or assets
owned or held by such Person is subject, the lesser of the fair market value at
such date of any asset subject to a lien securing the Indebtedness of others and
the amount of the Indebtedness secured.
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(aaa) "INTEREST EXPENSE" means, for any period, the total interest
expense of the Borrower and its consolidated Subsidiaries, whether paid or
accrued (including the interest component of Capitalized Leases, commitment and
letter of credit fees), but excluding interest expense not payable in cash
(including amortization of discount), all as determined in conformity with
Agreement Accounting Principles.
(bbb) "INVENTORY" shall mean any and all motor vehicles, tractors,
trailers, service parts and accessories and other inventory of the Borrower and
each Dealership Guarantor.
(ccc) "INVESTMENT" means, with respect to any Person, (i) any purchase
or other acquisition by that Person of any Indebtedness, Equity Interests or
other securities, or of a beneficial interest in any Indebtedness, Equity
Interests or other securities, issued by any other Person, (ii) any purchase by
that Person of all or substantially all of the assets of a business conducted by
another Person, and (iii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, advances to employees and similar items made or incurred in the
ordinary course of business) or capital contribution by that Person to any other
Person, including all Indebtedness to such Person arising from a sale of
property by such Person other than in the ordinary course of its business.
(ddd) "IRS" means the Internal Revenue Service and any Person succeeding
to the functions thereof.
(eee) "LITHIA DEALERSHIP" means any Subsidiary dealership and/or related
body shop or service repair center owned, operated or acquired by the Borrower
or any Subsidiary of the Borrower.
(fff) "LITHIA GROUP" means each of the Borrower and each Subsidiary of
the Borrower.
(ggg) "LITHIA GUARANTIES" means each of the Borrower Guaranty, each
Dealership Guaranty and the Contribution Agreement.
(hhh) "LOAN DOCUMENTS" means this Agreement, the Note, the Lithia
Guaranties, the Collateral Documents and all other documents, instruments and
agreements executed in connection therewith or contemplated thereby, as the same
may be amended, restated or otherwise modified and in effect from time to time.
(iii) "MAINETENANCE CAPITAL EXPENDITURES" shall have the meaning set
forth in Section 5.4 (d).
(jjj) "MAJORITY ACQUISITION" means any Acquisition of Equity Interests
of an entity, in which Borrower is not permitted to hold !00% of such Equity
Interest because if limitations imposed by the relevant automotive manufacture's
franchise agreement.
(kkk) "MARGIN STOCK" shall have the meaning ascribed to such term in
Regulation U.
(lll) "MATERIAL SUBSIDIARY" means (a) any "Significant Subsidiary" as
defined in Regulation S-X issued pursuant to the Securities Act and the Exchange
Act and (b) any other Subsidiary of the Borrower which at any time comprises
five percent (5%) or more of the Borrower's Tangible Base Capital.
(mmm) "MAXIMUM RATE" means the maximum nonusurious interest rate under
applicable law.
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(nnn) "MINORITY HOLDER" means any holder of an Equity Interest in a
Subsidiary which such Equity Interest may not exceed 20% of the Capital Stock of
such Subsidiary.
(ooo) "MULTI-EMPLOYER PLAN" means a "Multi-employer Plan" as defined in
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
(6) years was, contributed to by either the Borrower or any member of the
Controlled Group.
(ppp) "NET CASH" means the value of (A) the difference between (i) the
inventory of Borrower and its Subsidiaries, including new vehicles and
demonstration vehicles, less (ii) the outstanding Indebtedness owed by Borrower
and its Subsidiaries for such new vehicles and demonstration vehicles plus (B)
cash of Borrower and its Subsidiaries (C) receivables of Borrowers and its
Subsidiaries for new finance contracts, plus (D) vehicle account receivable of
Borrower and its Subsidiaries (E) holdbacks of Borrower and its Subsidiaries,
less (F) customer deposits, less (G) the sum of one months principal payments on
all outstanding Indebtedness of Borrower of its Subsidiaries, less (H)
accommodations of Borrower and its Subsidiaries (I) average monthly expenses of
Borrower and its Subsidiaries, less (J) net cash excess of Borrower and its
Subsidiaries; as these terms are defined and reported on Borrower's and/or its
Subsidiaries Ford Motor Company Dealer Financial Statement and determined in
accordance with Agreement Accounting Principals.
(qqq) "NET INCOME" means, for any period, the net earnings (or loss)
after taxes of the Borrower and its Subsidiaries on a consolidated basis for
such period taken as a single accounting period determined in conformity with
Agreement Accounting Principles.
(rrr) "NOTE" means that certain promissory note, in substantially the
form of EXHIBIT A hereto, duly executed by the Borrower and payable to the order
of the Lender in the amount of $75,000,000.00 including any amendment,
restatement, modification, renewal or replacement thereof.
(sss) "OBLIGATIONS" means all Advances, debts, liabilities, obligations,
covenants and duties owing by the Borrower or a Lithia Dealership to the Lender
or any Indemnitee, of any kind or nature, present or future, arising under this
Agreement, the Note, the Collateral Documents or any other Loan Document,
whether or not evidenced by any note, guaranty or other instrument, whether or
not for the payment of money, whether arising by reason of an extension of
credit, loan, guaranty, indemnification, or in any other manner, whether direct
or indirect (including those acquired by assignment), absolute or contingent,
due or to become due, now existing or hereafter arising and however acquired.
The term includes, without limitation, all interest, charges, expenses, fees,
attorneys' fees and disbursements, paralegals' fees (in each case whether or not
allowed), and any other sum chargeable to the Borrower or a Lithia Dealership
under this Agreement or any other Loan Document.
(ttt) "OFF BALANCE SHEET LIABILITIES" of a Person means (a) any
repurchase obligation or liability of such Person or any of its Subsidiaries
with respect to accounts or notes receivable sold by such Person or any of its
Subsidiaries, (b) any liability under any sale and leaseback transactions which
do not create a liability on the consolidated balance sheet of such Person, (c)
any liability under any financing lease or so-called "synthetic" lease
transaction, or (d) any obligations arising with respect to any other
transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheets of such Person and its Subsidiaries.
(uuu) "OTHER FLOOR PLAN INDEBTEDNESS" means loans advances, debts,
liabilities and obligations owing by a Lithia Dealership to a floor plan lender
for the financing of new vehicle inventory.
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(vvv) "PAYMENT DATE" means the fifteenth day of each calendar month,
PROVIDED, HOWEVER if such day is not a business day, then the Payment Date shall
be the next succeeding business day following such fifteenth day.
(www) "PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
(xxx) "PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the
Borrower and its Subsidiaries identified as such on SCHEDULE 1 to this
Agreement.
(yyy) "PERMITTED EXISTING INVESTMENTS" means the Investments of the
Borrower and its Subsidiaries identified as such on SCHEDULE 2 to this
Agreement.
(zzz) "PERMITTED EXISTING LIENS" means the Liens on assets of the
Borrower and its Subsidiaries identified as such on SCHEDULE 3 to this
Agreement.
(aaaa) "PERMITTED REFINANCING INDEBTEDNESS" means any replacement,
renewal, refinancing or extension of any Indebtedness permitted by this
Agreement that (i) does not exceed the aggregate principal amount (plus
associated fees and expenses) of the Indebtedness being replaced, renewed,
refinanced or extended, (ii) does not rank at the time of such replacement,
renewal, refinancing or extension senior to the Indebtedness being replaced,
renewed, refinanced or extended, and (iii) does not contain terms (including,
without limitation, terms relating to security, amortization, interest rate,
premiums, fees, covenants, event of default and remedies) materially less
favorable to the Borrower or to the Lender than those applicable to the
Indebtedness being replaced, renewed, refinanced or extended.
(bbbb) "PERSON" means any individual, corporation, firm, enterprise,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability company or other entity of any kind, or
any government or political subdivision or any agency, department or
instrumentality thereof.
(cccc) "PLAN" means an employee benefit plan defined in Section 3(3) of
ERISA in respect of which the Borrower or any member of the Controlled Group is,
or within the immediately preceding six (6) years was, an "employer" as defined
in Section 3(5) of ERISA.
(dddd) "PRINCIPAL" means Sidney B. DeBoer or a successor, or successors,
reasonably acceptable to Lender.
(eeee) "RECEIVABLE(S)" means and includes all of the Borrower's and each
Dealership Guarantor's presently existing and hereafter arising or acquired
accounts, contract rights, chattel paper, instruments, notes, letters of credit,
documents, documents of title, investment property, deposit accounts, other bank
accounts, general intangibles, tax refunds and other obligations of third
persons of any kind, now or hereafter existing, whether arising out of or in
connection with the sale or lease of goods, the rendering of services or
otherwise, and all rights now or hereafter existing in and to all security
agreements, leases, and other contracts securing or otherwise relating to any
such accounts, contract rights, chattel paper, instruments, notes, letters of
credit, documents, documents of title, investment property, deposit accounts,
other bank accounts, general intangibles, tax refunds or obligations of third
persons.
(ffff) "REGULATION T" means Regulation T of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by and to brokers and dealers of securities for the purpose
of purchasing or carrying margin stock (as defined therein).
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(gggg) "REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying Margin
Stock applicable to member banks of the Federal Reserve System.
(hhhh) "REGULATION X" means Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by foreign lenders for the purpose of purchasing or carrying
margin stock (as defined therein).
(iiii) "RELATED PARTY" with respect to the Principal means (i) any spouse
or immediate family member of such Principal or (ii) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding the outstanding Equity Interest of which consist
of such Principal and/or such other Persons referred to in the immediately
preceding clause (i).
(jjjj) "RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including the movement of Contaminants
through or in the air, soil, surface water or groundwater.
(kkkk) "RENTALS" of a Person means the aggregate fixed amounts payable by
such Person under any lease of personal property but does not include any
amounts payable under Capitalized Leases of such Person.
(llll) "REPORTABLE EVENT" means a reportable event as defined in Section
4043 of ERISA and the regulations issued under such section, with respect to a
Plan, excluding, however, such events as to which the PBGC by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
after such event occurs, PROVIDED, HOWEVER, that a failure to meet the minimum
funding standards of Section 412 of the Code and of Section 302 of ERISA shall
be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
(mmmm) "RESTRICTED DEALERSHIP" means any Lithia Dealership, the franchise
agreement with respect to which contains restrictions on such Lithia
Dealership's ability to pledge its assets as collateral for the Obligations.
(nnnn) "RESTRICTED PAYMENT" means (i) any dividend or other distribution,
direct or indirect, on account of any Equity Interests of the Borrower now or
hereafter outstanding, except a dividend payable solely in the Borrower's
Capital Stock (other than Disqualified Stock) or in options, warrants or other
rights to purchase such Capital Stock, (ii) any redemption, retirement, purchase
or other acquisition for value, direct or indirect, of any Equity Interests of
the Borrower or any of its Subsidiaries now or hereafter outstanding, other than
in exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Borrower) of other Equity Interests of the
Borrower (other than Disqualified Stock), and (iii) any payment of a claim for
the rescission of the purchase or sale of, or for material damages arising from
the purchase or sale of any Equity Interests of the Borrower or any of the
Borrower's Subsidiaries, or of a claim for reimbursement, indemnification or
contribution arising out of or related to any such claim for damages or
rescission.
(oooo) "REVOLVING CREDIT AVAILABILITY" means, at any particular time, the
amount by which the Commitment at such time exceeds the Revolving Credit
Obligations at such time.
(ppppp) "REVOLVING CREDIT OBLIGATIONS" means, at any particular
time, the sum of the outstanding principal amount of all Advances at such time.
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(qqqq) "SCALED ASSETS" means with respect to the Lithia Group, the sum
of (A) an amount equal to 75% of the Lithia Group's Receivables which constitute
factory receivables, (B) an amount equal to 60% of the Lithia Group's
Receivables which constitute current finance receivables, (C) an amount equal to
60% of the Lithia Group's Receivables which constitute receivables for parts and
services (after netting any amounts payable in connection with such parts and
services by any member of the Lithia Group), (D) an amount equal to 55% of the
Lithia Group's Inventory which constitutes parts and accessories, (E) an amount
equal to 80% of the difference between (i) that portion of the Lithia Group's
Inventory which constitutes used vehicles and (ii) the amount of any Floor Plan
Indebtedness of any member of the Lithia Group incurred or available in
connection with such used vehicles, and (F) an amount equal to 45% of the
difference between (i) the value of the Lithia Group's Equipment and (ii) the
amount of Indebtedness of any member of the Lithia Group incurred in connection
with such Equipment. The value of the Lithia Group's Scaled Assets shall be
calculated by the Lender and shall be determined based on the financial
statements and monthly factory statements delivered to the Lender pursuant to
SECTION 5.1(A). Scaled Assets shall be measured as of the Effective Date and as
of the end of each calendar quarter.
(rrrr) "SECRETARY'S CERTIFICATE" with respect to any entity in the Lithia
Group, means any certificate, delivered by a secretary, assistant secretary,
managing member, general partner of such entity which certifies (i) the names
and true signatures of the incumbent officers or managers of such entity
authorized to sign each Transaction Document to which it is a party and the
other documents to be executed thereunder, (ii) a true and correct copy of such
entity's Certificate of Incorporation, or similar charter document and all
amendments thereto, (iii) a true and correct copy of the by-laws or similar
governing document of such entity and all amendments thereto, and (iv) a true
and correct copy of the resolutions of such entity's board of directors or
members approving and authorizing the execution, delivery and performance by
such entity of each Transaction Document to which it is a party and the other
documents to be executed thereunder;
(ssss) "SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or
any member of the Controlled Group for employees of the Borrower or any member
of the Controlled Group.
(tttt) "SUBSIDIARY" of a Person means (i) any corporation more
than 50% of the outstanding securities having ordinary voting power of which
shall at the time be owned or controlled, directly or indirectly, by such Person
or by one or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, association, joint venture or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled. Unless
otherwise expressly provided, all references herein to a "Subsidiary" shall mean
a Subsidiary of the Borrower. Provided, however, that "Subsidiary" , shall not
include Lithia Financial Corporation or Lithia Real Estate, Inc.
(uuuu) "TANGIBLE BASE CAPITAL" means, at a particular date of
calculation, the amount determined by the Lender to be equal to :
(i) Consolidated Net Worth
PLUS (ii) the sum of
(a) Indebtedness of the Borrower or its
Subsidiaries to officers of the Borrower,
which Indebtedness is subordinated in writing
to the Obligations on terms and conditions
acceptable to the Lender; and
(b) an amount equal to 64% of the LIFO reserve
(as determined in accordance with Agreement
Accounting Principles) reflected on the
Borrower's balance sheet;
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MINUS
(iii) the sum of
(a) Receivables with respect to which the account
debtor is a director, officer, employee,
Subsidiary or Affiliate of the Borrower or
other amounts (whether or not classified as
Receivables) from Affiliates of the Borrower
or its Subsidiaries (other than those payable
within 30 days and incurred in the ordinary
course of business); and
(b) that part of the Borrower's and its
Subsidiaries (on a consolidated basis)
capitalization or reserves attributable to
any writing up of book values on any fixed
assets after the date of the most recently
delivered financial statements of the
Borrower and its Subsidiaries;
(c) the aggregate amount of the Borrower's and
its Subsidiaries Investments in Affiliates
(other than the Borrower's Subsidiaries);
(d) organizational expenses related to start-up
of operations with respect to the Borrower
and its Subsidiaries;
(e) goodwill and other intangible assets (as
determined in accordance with Agreement
Accounting Principles);
(f) any amount paid to a third-party as
consideration for no-competition agreements;
(g) the value of daily rental franchise payments
made by the Borrower or its Subsidiaries
under any franchise agreements (net of any
amounts owed by a franchisor to Borrower or
its Subsidiaries); and
(h) other assets (including, without limitation,
airplanes, cattle, etc.) not related to the
operations of the Dealerships as automobile
dealerships.
(vvvv) "TERMINATION DATE" means the earlier of (a) two (2) years after
the date hereof and agreed to by the Lender and (b) the date of termination of
the Commitment pursuant to either of SECTION 2.3 or SECTION 7.1 hereof.
(wwww) "TERMINATION EVENT" means (i) a Reportable Event with respect
to any Benefit Plan; (ii) the withdrawal of the Borrower or any member of the
Controlled Group from a Benefit Plan during a plan year in which the Borrower
or such Controlled Group member was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA or the cessation of operations which results in
the termination of employment of twenty percent (20%) of Benefit Plan
participants who are employees of the Borrower or any member of the
Controlled Group; (iii) the imposition of an obligation on the Borrower or
any member of the Controlled Group under Section 4041 of ERISA to provide
affected parties written notice of intent to terminate a Benefit Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the
institution by the PBGC of proceedings to terminate a Benefit Plan; (v) any
event or condition which might constitute grounds under Section 4042 of ERISA
for the Termination of, or the appointment of a trustee to administer, any
Benefit Plan; or (vi) the partial or complete withdrawal of the Borrower or
any member of the Controlled Group from a Multi-employer Plan.
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(xxxx) "TOTAL ADJUSTED DEBT" means, for any period, on a consolidated
basis for the Borrower and its Subsidiaries, the amount of Total Debt less any
Floor Plan Indebtedness and less Indebtedness for Equipment and real estate.
(yyyy) "TOTAL DEBT" means, for any period, on a consolidated basis for
the Borrower and its Subsidiaries, the sum of Indebtedness of the Borrower and
its Subsidiaries, other than Hedging Obligations and other than Indebtedness for
Equipment and real estate.
(zzzz) "TRANSACTION COSTS" means the fees, costs and expenses payable by
the Borrower in connection with the execution, delivery and performance of the
Transaction Documents.
(aaaaa) "TRANSACTION DOCUMENTS" means the Loan Documents and the
Acquisition Documents.
(bbbbb) "UNFUNDED LIABILITIES" means (i) in the case of Single Employer
Plans, the amount (if any) by which the present value of all vested
nonforfeitable benefits under all Single Employer Plans exceeds the fair market
value of all such Plan assets allocable to such benefits, all determined as of
the then most recent valuation date for such Plans, and (ii) in the case of
Multi-employer Plans, the withdrawal liability that would be incurred by the
Controlled Group if all members of the Controlled Group completely withdrew from
all Multi-employer Plans.
(ccccc) "UNMATURED DEFAULT" means an event which, but for the lapse of
time or the giving of notice, or both, would constitute an Event of Default.
(ddddd) "UNRESTRICTED DEALERSHIP" means any Lithia Dealership other than
a Restricted Dealership.
(eeeee) "WHOLESALE LINE" means any wholesale credit line made by the
Lender to a Litiha Dealership.
Any accounting terms used in this Agreement which are not specifically
defined herein shall have the meanings customarily given them in accordance with
generally accepted accounting principles in existence as of the date hereof.
1.2 REFERENCES. The existence throughout the Agreement of references to
the Borrower's Subsidiaries is for a matter of convenience only. Any references
to Subsidiaries of the Borrower set forth herein shall (i) with respect to
representations and warranties which deal with historical matters be deemed to
include each of the Subsidiaries existing on the date hereof, and (ii) shall not
in any way be construed as consent by the Lender to the establishment,
maintenance or acquisition of any Subsidiary, except as may otherwise be
permitted hereunder.
1.3 EFFECTIVENESS OF THIS AGREEMENT. Upon the satisfaction of all of
the conditions precedent set forth in SECTION 3.1 of this Agreement (the date
upon which such conditions precedent are satisfied being hereinafter referred to
as the "EFFECTIVE DATE"), this Agreement shall become effective.
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2. THE LOAN
2.1 (a) ADVANCES. Upon the satisfaction of the conditions precedent
set forth in SECTIONS 3.1 and 3.2, from and including the date of this Agreement
and prior to the Termination Date, the Lender shall, on the terms and conditions
set forth in this Agreement, make Advances to the Borrower from time to time,
in an amount not to exceed the Revolving Credit Availability at such time;
PROVIDED, HOWEVER, at no time shall the Revolving Credit Obligations exceed the
Commitment at such time, and further provided that at no time shall the
aggregate amount of Advances as Working Capital Funds exceed one hundred percent
(100%) of the Scaled Assets value (as determined by Lender). Subject to the
terms of this Agreement, the Borrower may borrow, repay and reborrow Advances at
any time prior to the Termination Date. Any Advance of Working Capital Funds of
over $5,000,000.00 shall be subject to Lender's prior written consent, which
consent Lender may witheld for any reason.
(b) CONVERSION. Subject to therequirements of Sections 3.1
and 3.2, Borrower may elect, or Lender may require Borrower to, convert all
or any portion of the principal balance outstanding under the Loan on the
anniversary date of this Agreement and on the Maturity Date to a five year
amortizing loan. Either Borrower or Lender, as the case may be, shall notify
the other party of its election no earlier than 90 days and no later than 60
days prior to the anniversary dayte of this Agreement or the Maturity Date,
as the case may be, of the amount of the outstanding principal balance to be
converted to a term loan.
2.2 OPTIONAL PAYMENTS; MANDATORY PREPAYMENTS.
(a) OPTIONAL PAYMENTS. The Borrower may from time to time repay or
prepay, without penalty or premium all or any part of outstanding Advances;
PROVIDED, that the Borrower may not so prepay Advances unless it shall have
provided at least one business day's written notice to the Lender of such
prepayment.
(b) MANDATORY PREPAYMENTS. If at any time and for any reason the
Revolving Credit Obligations are greater than the Commitment then the Borrower
shall immediately make a mandatory prepayment of the Obligations in an amount
equal to such excess. If at any time and for any reason the aggregate amount of
Working Capital Funds advanced is greater than one hundred percent (100%) of the
Scaled Assets value (as determined by Lender) then Borrower shall immediately
make a mandatory prepayment of the Obligations in an amount equal to such
excess. Amounts equal to a Decision Reserve or net cash proceeds of an Asset
Sale in connection with or following restoration, rebuilding or replacement of
insured property shall be mandatorily applied against the Revolving Credit
Obligations in the amounts and in the manner set forth in SECTION 5.2(G) hereof.
All of the mandatory prepayments made under this SECTION 2.2(B) shall be applied
first to Advances maturing on such date and then to subsequently maturing
Advances in order of maturity.
2.3 CHANGES IN THE COMMITMENT. REDUCTION OF COMMITMENT. The Borrower
may permanently reduce the Commitment in whole, or in part, in an aggregate
minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of
that amount (unless the Commitment is reduced in whole), upon at least three (3)
business days' written notice to the Lender, which notice shall specify the
amount of any such reduction; PROVIDED, HOWEVER, that the amount of the
Commitment may not be reduced below the aggregate principal amount of the
outstanding Revolving Credit Obligations. All accrued commitment fees shall be
payable on the effective date of any partial or complete termination of the
obligations of the Lender to make Advances hereunder.
2.4 METHOD OF BORROWING. The Borrower shall give the Lender irrevocable
notice in substantially the form of EXHIBIT B hereto (a "BORROWING NOTICE") not
later than 10:00 a.m. (Eastern Standard Time) on the business day preceding the
Borrowing Date of each Advance, specifying: (i) the Borrowing Date (which shall
be a business day) of such Advance; (ii) the aggregate amount of such Advance;
(iii) the use of proceeds of such Advance, and (iv) the account or accounts into
which
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the Advances should be funded. Not later than 2:00 p.m. (Eastern Standard
Time) on each Borrowing Date, the Lender shall make available its Advance, in
funds immediately available to the Borrower at such account or accounts as
shall have been notified to the Lender. Each Advance shall bear interest
from and including the date of the making of such Advance to (but not
including) the date of repayment thereof at the Applicable Commercial Paper
Rate, changing when and as the underlying Commercial Paper Rate changes,
which such interest shall be payable in accordance with SECTION 2.9(B).
2.5 MINIMUM AMOUNT OF EACH ADVANCE. Each Advance shall be in the
minimum amount of $250,000 (and in multiples of $50,000 if in excess thereof),
PROVIDED, HOWEVER, that any Advance may be in the amount of the unused
Commitment.
2.6 DEFAULT RATE; LATE PAYMENT FEE. After the occurrence and during the
continuance of an Event of Default, at the option of the Lender, the interest
rate(s) applicable to the Advances shall be equal to the Applicable Commercial
Paper Rate PLUS three percent (3.0%) per annum. If any of the principal balance
or interest on the Note or other sum due thereunder is not paid within ten (10)
days of when due, Borrower shall pay to Lender a late charge payment equal to
five percent (5%) of the amount of such installment or the maximum rate
permitted by law, whichever is less.
2.7 METHOD OF PAYMENT. All payments of principal, interest, and fees
hereunder shall be made, without setoff, deduction or counterclaim, in
immediately available funds to the Lender at the Lender's address specified
pursuant to ARTICLE X, or at any other address specified in writing by the
Lender to the Borrower, by 2:00 p.m. (Eastern Standard Time) on the date when
due.
2.8 ADVANCES, TELEPHONIC NOTICES. The Lender is authorized to record
the principal amount of each Advance and each repayment with respect to its
Advances on the schedule attached to the Note; PROVIDED, HOWEVER, that the
failure to so record shall not affect the Borrower's obligations under the Note.
The Borrower authorizes the Lender to extend Advances and to transfer funds
based on telephonic notices made by any person or persons the Lender in good
faith believes to be authorized to act on behalf of the Borrower. The Borrower
agrees to deliver promptly to the Lender a written confirmation, signed by an
Authorized Officer, if such confirmation is requested by the Lender, of each
telephonic notice. If the written confirmation differs in any material respect
from the action taken by the Lender, (i) the telephonic notice shall govern
absent manifest error and (ii) the Lender shall promptly notify the Authorized
Officer who provided such confirmation of such difference.
2.9 PROMISE TO PAY; INTEREST AND COMMITMENT FEES; INTEREST PAYMENT
DATES; INTEREST AND FEE BASIS; TAXES.
(a) PROMISE TO PAY. The Borrower unconditionally promises to pay when
due the principal amount of each Advance and all other Obligations incurred by
it, and to pay all unpaid interest accrued thereon, in accordance with the terms
of this Agreement and the Note.
(b) INTEREST PAYMENT DATE.
(i) INTEREST PAYABLE ON ADVANCES. Interest accrued on
each Advance shall be payable on each Payment Date,
commencing with the first such date to occur after the date
hereof and at maturity (whether by acceleration or
otherwise). On each Payment Date, the Borrower shall pay
interest at the Applicable Commercial Paper Rate on each
Advance outstanding on such date.
(ii) INTEREST ON OTHER OBLIGATIONS. Interest accrued on
the principal balance of all other Obligations shall be
payable in arrears (i) on the last day of each calendar
month, commencing on the first such day following the
incurrence of such Obligation, (ii) upon repayment thereof
in full or in part, and (iii) if not theretofore paid in
full, at the time such other Obligation becomes due and
payable (whether by acceleration or otherwise).
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(c) COMMITMENT FEES. The Borrower shall pay to the Lender, from and
after the date hereof until the date on which the Commitment shall be terminated
in whole, a commitment fee equal to one-eighth of one percent (0.125%) per
annum, on the amount by which (A) the Commitment in effect from time to time
exceeds (B) the Revolving Credit Obligations in effect from time to time. All
such commitment fees payable under this CLAUSE (C) shall be payable annually in
arrears on each anniversary occurring after the Effective Date and, in addition,
on the date on which the Commitment shall be terminated in whole.
(d) INTEREST AND FEE BASIS. Interest and fees shall be calculated for
actual days elapsed on the basis of a 365 or when appropriate 366, day year.
Interest shall be payable for the day an Obligation is incurred but not for the
day of any payment on the amount paid if payment is received prior to 2:00 p.m.
(Eastern Standard Time) at the place of payment. If any payment of principal of
or interest on an Advance or any payment of any other Obligations shall become
due on a day which is not a business day, such payment shall be made on the next
succeeding business day and, in the case of a principal payment, such extension
of time shall be included in computing interest in connection with such payment.
2.10 TERMINATION DATE. This Agreement shall be effective until the
Termination Date. Notwithstanding the termination of this Agreement on the
Termination Date, until all of the Obligations (other than contingent indemnity
obligations, but including all Floor Plan Indebtedness) shall have been fully
and indefeasibly paid and satisfied and all financing arrangements between the
Borrower and the Lender in connection with this Agreement shall have been
terminated (other than with respect to Hedging Obligations), all of the rights
and remedies under this Agreement and the other Loan Documents shall survive and
the Lender shall be entitled to retain its security interest in and to all
existing and future Collateral.
2.11 TAXES. (a) Any and all payments by the Borrower hereunder shall
be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings or any
liabilities with respect thereto including those arising after the date hereof
as a result of the adoption of or any change in any law, treaty, rule,
regulation, guideline or determination of a governmental authority or any change
in the interpretation or application thereof by a governmental authority but
excluding such taxes (including income taxes, franchise taxes and branch profit
taxes) as are imposed on or measured by the Lender's income by the United States
of America or any governmental authority of the jurisdiction under the laws of
which the Lender is organized or having jurisdiction over the Lender by virtue
of the Lender's location(s) (other than solely as a result of the transaction
evidenced by this Agreement) (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings, and liabilities which the Lender determines
to be applicable to this Agreement, the other Loan Documents, the Commitment or
the Advances being hereinafter referred to as "TAXES"). If the Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the other Loan Documents to the Lender, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this SECTION 2.11(A)) the Lender receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions, and (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges, or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
other Loan Documents, the Commitment or the Advances (hereinafter referred to as
"OTHER TAXES").
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(c) The Borrower indemnifies the Lender for the full amount of Taxes and
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any governmental authority on amounts payable under this SECTION 2.11 paid by
the Lender and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification shall be made
within thirty (30) days after the date the Lender makes written demand therefor.
A certificate as to any additional amount payable to the Lender under this
SECTION 2.11 submitted to the Borrower by the Lender shall show in reasonable
detail the amount payable and the calculations used to determine such amount and
shall, absent manifest error, be final, conclusive and binding upon each of the
parties hereto. With respect to such deduction or withholding for or on account
of any Taxes and to confirm that all such Taxes have been paid to the
appropriate governmental authorities, the Borrower shall promptly (and in any
event not later than thirty (30) days after receipt) furnish to the Lender such
certificates, receipts and other documents as may be required (in the judgment
of the Lender) to establish any tax credit to which the Lender may be entitled.
(d) Within thirty (30) days after the date of any payment of Taxes or
Other Taxes by the Borrower, the Borrower shall furnish to the Lender the
original or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this SECTION 2.11 shall survive the payment in full of principal and interest
hereunder and the termination of this Agreement.
2.12 LOAN ACCOUNT. The Lender shall maintain in accordance with its
usual practice an account or accounts (a "LOAN ACCOUNT") evidencing the
Obligations of the Borrower to the Lender owing to the Lender from time to time,
including the amount of principal and interest payable and paid to the Lender
from time to time hereunder and under the Note. The entries made in the Loan
Account shall be conclusive and binding for all purposes, absent manifest error,
unless the Borrower objects to information contained in the Loan Account within
thirty (30) days of the Borrower's receipt of such information.
3. CONDITIONS PRECEDENT
3.1 CONDITIONS OF EFFECTIVENESS. The Effective Date of this Agreement
shall be on the date on which all of the following conditions shall have been
satisfied:
(a) no law, regulation, order, judgment or decree of any
governmental authority shall, and the Lender shall not have
received any notice that litigation is pending or
threatened which is likely to, (A) enjoin, prohibit or
restrain the making of an Advance hereunder or (B) impose
or result in the imposition of a material adverse effect;
(b) all due diligence materials requested by the Lender
from the Borrower shall have been delivered to the Lender
and such due diligence materials shall be in form and
substance reasonably satisfactory to the Lender;
(c) the Borrower has furnished to the Lender each of the
following, all in form and substance satisfactory to the
Lender:
(i) this Agreement, duly executed by the Borrower;
(ii) the Note, duly executed by the Borrower in favor
of the Lender;
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(iii) a Dealership Guaranty executed by each Lithia
Dealership which has not heretofore provided a Dealership
Guaranty to the Lender, it being understood that if such
Lithia Dealership is an Unrestricted Dealership, such
Dealership Guaranty will be substantially in the form of
the Dealership Guaranty attached hereto as EXHIBIT C-1, and
if such Lithia Dealership is a Restricted Dealership, such
Dealership Guaranty will be substantially in the form of
the Dealership Guaranty attached hereto as EXHIBIT C-2;
(iv) a Dealership Security Agreement executed by
each Lithia Dealership which has not heretofore provided a
Dealership Security Agreement to the Lender, it being
understood that if such Lithia Dealership is an
Unrestricted Dealership, such Dealership Security Agreement
will be substantially in the form of the Dealership
Security Agreement attached hereto as EXHIBIT D-1, and if
such Lithia Dealership is a Restricted Dealership, such
Dealership Security Agreement will be substantially in the
form of the Dealership Security Agreement attached hereto
as EXHIBIT D-2;
(v) to the extent any Lithia Dealership has any
Indebtedness other than Permitted Existing Indebtedness,
pay-out letters, releases and UCC-3 Termination Statements,
where applicable, from all third-party creditors releasing
all liens securing any such Indebtedness;
(vi) certificates of good standing for the Borrower
and each of the Dealership Guarantors from its jurisdiction
of incorporation and each other jurisdiction where the
nature of its business requires it to be qualified as a
foreign corporation;
(vii) a Secretary's Certificate from the Borrower
and each Lithia Dealership acquired by the Borrower on or
prior to the date hereof.
(viii) a certificate, in form and substance
satisfactory to the Lender, signed by the chief financial
officer of the Borrower stating that as of the Effective
Date, no Event of Default or Unmatured Default has occurred
and is continuing and setting forth the calculation of the
Lithia Group's Scaled Assets as of the Effective Date, and
the representations and warranties of the Borrower are true
and correct with full force and effect as if made on the
Effective Date;
(ix) a written opinion of the Borrower's and
Dealership Guarantors' counsel, addressed to the Lender, in
form and substance satisfactory to the Lender;
(x) to the extent not included in the foregoing,
the documents, instruments and agreements set forth on the
closing list attached as EXHIBIT E hereto; and
(xi) such other documents as the Lender or its
counsel may have reasonably requested.
3.2 CONDITIONS PRECEDENT TO EACH ADVANCE. The Lender shall not be
required to make any Advance, unless on the applicable Borrowing Date:
(i) There exists no Event of Default or Unmatured
Default; and
(ii) The representations and warranties contained
in ARTICLE IV are true and correct as of such Borrowing
Date (unless such representation and warranty expressly
relates to an earlier date or is no longer true solely as a
result of transactions permitted by this Agreement).
Each Borrowing Notice with respect to each such Advance shall constitute
a representation and warranty by the Borrower that the conditions contained in
SECTIONS 3.2(I) and (II) have been satisfied. If the Lender has a reasonable
basis for believing an Event of Default or Unmatured Default may have occurred
and is continuing or that the Borrower is not able to make one or more of the
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representations and warranties set forth in ARTICLE IV, the Lender may require a
duly completed officer's certificate in substantially the form of EXHIBIT F
hereto as a condition to making an Advance.
3.3 CONDITION PRECEDENT TO ADDITIONAL ADVANCE. Notwithstanding anything
to the contrary in this Agreement, the Lender shall be under no obligation to
make an Advance to the Borrower hereunder until and unless the following
requirements shall have been satisfied:
(i) There shall exist no liens on the Collateral other
than Permitted Existing Liens and those Permitted Existing
Liens appearing on SCHEDULE 1.1.3 marked with an asterisk
shall have been released and or terminated, and the
Borrower shall have confirmed delivery of such releases,
UCC-3 termination statements or other documentation
reasonably requested by the Lender evidencing such release
or termination;
(ii) The loss payable endorsements referenced in
SECTION 5.2(G) shall have been delivered to the Lender.
4. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows to the Lender as of the
date hereof and as of the Effective Date and thereafter on each date as required
by SECTION 4.2:
4.1 ORGANIZATION; CORPORATE POWERS. The Borrower and each of its
Subsidiaries (i) is a corporation, limited liability company or limited
partnership duly organized, validly existing under the laws of the jurisdiction
of its organization, (ii) is duly qualified to do business and is in good
standing under the laws of each jurisdiction in which failure to be so qualified
and in good standing could reasonably be expected to have a material adverse
effect and (iii) has all requisite corporate, company or partnership power and
authority to own, operate and encumber its property and to conduct its business
as presently conducted and as proposed to be conducted.
4.2 AUTHORITY.
(a) The execution, delivery, performance and filing, as the case may be,
of each of the Transaction Documents which must be executed or filed by the
Borrower as required by this Agreement on or prior to the Effective Date and to
which the Borrower or any of its Subsidiaries is party, and the consummation of
the transactions contemplated thereby, have been duly approved by the respective
boards of directors or managers, or by the partners, as applicable, and, if
necessary, the shareholders, members or partners, as applicable, of the Borrower
and its Subsidiaries, and such approvals have not been rescinded. No other
corporate, company or partnership action or proceedings on the part of the
Borrower or its Subsidiaries are necessary to consummate such transactions.
(b) Each of the Transaction Documents to which the Borrower or any of
its Subsidiaries is a party has been duly executed, delivered or filed, as the
case may be, by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, is in full force and effect
and no material term or condition thereof has been amended, modified or waived
without the prior written consent of the Lender, and the Borrower and its
Subsidiaries have, and, to the best of the Borrower's and its Subsidiaries'
knowledge, all other parties thereto have, performed and complied with all the
material terms, provisions, agreements and conditions set forth therein and
required to be performed or complied with by such parties on or before the date
hereof, and no unmatured default, default or breach of any material covenant by
any such party exists thereunder.
4.3 NO CONFLICT; GOVERNMENTAL CONSENTS. The execution, delivery and
performance of each of the Loan Documents and other Transaction Documents to
which the Borrower or any of its Subsidiaries is a party do not and will not (i)
conflict with the Charter Documents of the Borrower or
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any such Subsidiary, (ii) constitute a tortious interference with any
Contractual Obligation of any Person or conflict with, result in a breach of
or constitute (with or without notice or lapse of time or both) a default
under any requirement of law (including, without limitation, any
Environmental Property Transfer Act) or Contractual Obligation of the
Borrower or any such Subsidiary, or require termination of any Contractual
Obligation, (iii) result in or require the creation or imposition of any lien
whatsoever upon any of the property or assets of the Borrower or any such
Subsidiary, other than liens permitted by the Loan Documents, or (iv) require
any approval of the Borrower's or any such Subsidiary's shareholders except
such as have been obtained. The execution, delivery and performance of each
of the Transaction Documents to which the Borrower or any of its Subsidiaries
is a party do not and will not require any registration with, consent or
approval of, or notice to, or other action to, with or by any governmental
authority, including under any Environmental Property Transfer Act, except
(i) filings, consents or notices which have been made, obtained or given, or
which, if not made, obtained or given, individually or in the aggregate could
not reasonably be expected to have a material adverse effect and (ii) filings
necessary to create or perfect security interests in the Collateral.
4.4 FINANCIAL STATEMENTS.
(a) FINANCIAL INFORMATION. All balance sheets, statements of profit
and loss and other financial data that have been given to Lender by or on behalf
of Borrower (the "Financial Information") are complete and correct in all
material respects, accurately present the financial condition of Borrower as of
the dates, and the results of its operations for the periods specified in the
Financial Information, and have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
covered thereby. Except as specifically disclosed, as to amount, (and if over
$500,000,as to creditor or debtor , amount and security ) by the Financial
Information, Borrower does not have outstanding any loan or indebtedness,
direct or contingent, to any party, other than the indebtedness due and owing to
Lender, and none of its assets is subject to any security interest, lien or
other encumbrance in favor of anyone other than Lender (except for the Permitted
Existing Liens and liens premitted under Section 5.3 (c) arising subsequent to
the date of this Agreement). There has been no change in the assets,
liabilities or financial condition of Borrower from that set forth in the
Financial Information other than changes in the ordinary course of affairs, none
of which changes has been materially adverse to Borrower.
4.5 TAXES.
(a) TAX EXAMINATIONS. All deficiencies which have been asserted against
the Borrower or any of the Borrower's Subsidiaries as a result of any federal,
state, local or foreign tax examination for each taxable year in respect of
which an examination has been conducted have been fully paid or finally settled
or are being contested in good faith, and as of the date hereof no issue has
been raised by any taxing authority in any such examination which, by
application of similar principles, can be expected to result in assertion by
such taxing authority of a material deficiency for any other year not so
examined which has not been reserved for in the Borrower's consolidated
financial statements to the extent, if any, required by Agreement Accounting
Principles.
(b) PAYMENT OF TAXES. All tax returns and reports of the Borrower and
its Subsidiaries required to be filed have been timely filed, and all taxes,
assessments, fees and other governmental charges thereupon and upon their
respective property, assets, income and franchises which are shown in such
returns or reports to be due and payable have been paid except those items which
are being contested in good faith and have been reserved for in accordance with
Agreement Accounting Principles or for which the failure to file could not be
reasonably expected to result in the payment of amounts by the Borrower and its
Subsidiaries in the aggregate in excess of $250,000. The Borrower has no
knowledge of any proposed tax assessment against the Borrower or any of its
Subsidiaries that will have or could reasonably be expected to have a material
adverse effect.
4.6 LITIGATION; LOSS CONTINGENCIES AND VIOLATIONS. There is no action,
suit, proceeding, arbitration or investigation before or by any governmental
authority or private arbitrator pending or
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threatened against the Borrower or any of its Subsidiaries or any property of
any of them (i) challenging the validity or the enforceability of any
material provision of the Transaction Documents or (ii) which will have or
could be expected to have a material adverse effect. There is no material
loss contingency within the meaning of Agreement Accounting Principles which
has not been reflected in the consolidated financial statements of the
Borrower and its Subsidiaries prepared and delivered pursuant to SECTION
5.1(A) for the fiscal period during which such material loss contingency was
incurred. Neither the Borrower nor any of its Subsidiaries is (A) in
violation of any applicable requirements of law which violation will have or
could be expected to have a material adverse effect, or (B) subject to or in
default with respect to any final judgment, writ, injunction, restraining
order or order of any nature, decree, rule or regulation of any court or
governmental authority which will have or could be expected to have a
material adverse effect.
4.7 SUBSIDIARIES. SCHEDULE 4.8 to this Agreement (i) contains a
description as of the Effective Date (or as of the date of any supplement
thereto) of the corporate structure of, the Borrower and its Subsidiaries and
any other Person in which the Borrower or any of its Subsidiaries holds an
Equity Interest; and (ii) accurately sets forth as of the Effective Date (or as
of the date of any supplement thereto) (A) the correct legal name, the
jurisdiction of incorporation or formation and the jurisdictions in which each
of the Borrower and the Subsidiaries of the Borrower is qualified to transact
business as a foreign corporation or other foreign entity and (B) a summary of
the direct and indirect partnership, joint venture, or other Equity Interests,
if any, of the Borrower and each Subsidiary of the Borrower in any Person that
is not a corporation. After the formation or acquisition of any New Subsidiary
permitted under SECTION 5.3(F)(II), if requested by the Lender, the Borrower
shall provide a supplement to SCHEDULE 4.8 to this Agreement. None of the
issued and outstanding Capital Stock of the Borrower or any of its Subsidiaries
is subject to any redemption or repurchase agreement. The outstanding Capital
Stock of the Borrower and each of the Borrower's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and, is not (other than
Capital Stock of Borrower) Margin Stock. The Borrower has no Subsidiaries other
(i) the Subsidiaries set forth on SCHEDULE 4.8 and (ii) any Subsidiaries
acquired in connection with a Permitted Acquisition, in connection with which
the Borrower shall have provided all of the documents, instruments and
agreements as required by this Agreement.
4.8 ERISA. No Benefit Plan has incurred any accumulated funding
deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code)
whether or not waived. Neither the Borrower nor any member of the Controlled
Group has incurred any liability to the PBGC which remains outstanding other
than the payment of premiums, and there are no premium payments which have
become due which are unpaid. Schedule B to the most recent annual report filed
with the IRS with respect to each Benefit Plan and, if so requested, furnished
to the Lender, is complete and accurate. Since the date of each such Schedule
B, there has been no material adverse change in the funding status or financial
condition of the Benefit Plan relating to such Schedule B. Neither the Borrower
nor any member of the Controlled Group has (i) failed to make a required
contribution or payment to a Multiemployer Plan or (ii) made a complete or
partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer
Plan, in either event which could result in any liability. Neither the Borrower
nor any member of the Controlled Group has failed to make a required installment
or any other required payment under Section 412 of the Code, in either case
involving any material amount, on or before the due date for such installment or
other payment. Neither the Borrower nor any member of the Controlled Group is
required to provide security to a Benefit Plan under Section 401(a)(29) of the
Code due to a Plan amendment that results in an increase in current liability
for the plan year. Neither the Borrower nor any of its Subsidiaries maintains
or contributes to any employee welfare benefit plan within the meaning of
Section 3(1) of ERISA which provides benefits to employees after termination of
employment other than as required by Section 601 of ERISA. To the best of
Borrower's knowledge, each Plan which is intended to be qualified under Section
401(a) of the Code as currently in effect is so qualified, and each trust
related to any such Plan is exempt from federal income tax under Section 501(a)
of the Code as currently in effect. To the best of Borrower's knowledge, the
Borrower and all Subsidiaries are in compliance in all respects with the
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responsibilities, obligations and duties imposed on them by ERISA and the Code
with respect to all Plans. To the best of Borrower's knowledge, neither the
Borrower nor any of its Subsidiaries nor any fiduciary of any Plan has engaged
in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975
of the Code which could be expected to subject the Borrower or any Dealership
Guarantor to material liability. Neither the Borrower nor any member of the
Controlled Group has taken or failed to take any action which would constitute
or result in a Termination Event, which action or inaction could be expected to
subject the Borrower to liability. Neither the Borrower nor any Subsidiary is
subject to any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of
ERISA and no other member of the Controlled Group is subject to any liability
under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA which could be
expected to subject the Borrower or any Dealership Guarantor to liability.
Neither the Borrower nor any of its Subsidiaries has, by reason of the
transactions contemplated hereby, any obligation to make any payment to any
employee pursuant to any Plan or existing contract or arrangement. (For
purposes of this SECTION 4.9 "material" means any noncompliance or basis for
liability which could reasonably be likely to subject the Borrower or any of its
Subsidiaries to liability individually or in the aggregate for all such matters
in excess of $250,000.)
4.9 ACCURACY OF INFORMATION. The information, exhibits and reports
furnished by or on behalf of the Borrower and any of its Subsidiaries to the
Lender in connection with the negotiation of, or compliance with, the Loan
Documents, the representations and warranties of the Borrower and its
Subsidiaries contained in the Transaction Documents, and all certificates and
documents delivered to the Lender pursuant to the terms thereof, taken as a
whole, do not contain as of the date furnished any untrue statement of fact or
omit to state a fact necessary in order to make the statements contained herein
or therein, taken as a whole, in light of the circumstances under which they
were made, not misleading.
4.10 SECURITIES ACTIVITIES. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
4.11 MATERIAL AGREEMENTS. Neither the Borrower nor any of its
Subsidiaries is a party to any Contractual Obligation or subject to any charter
or other corporate restriction which individually or in the aggregate will have
or could be expected to have a material adverse effect. Neither the Borrower
nor any of its Subsidiaries has received notice or has knowledge that (i) it is
in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Contractual Obligation
applicable to it, or (ii) any condition exists which, with the giving of notice
or the lapse of time or both, would constitute a default with respect to any
such Contractual Obligation, in each case, except where such default or
defaults, if any, individually or in the aggregate will not have or could not
reasonably be expected to have a material adverse effect.
4.12 COMPLIANCE WITH LAWS; COMPLIANCE WITH FRANCHISE AGREEMENTS. The
Borrower and its Subsidiaries are in compliance with all requirements of law
applicable to them and their respective businesses, in each case where the
failure to so comply individually or in the aggregate could be expected to have
a material adverse effect. The execution, delivery and performance by each
Lithia Dealership of any Loan Document to which it is a party does not and will
not conflict with the franchise agreement to which it is a party. Each Lithia
Dealership is operating under a valid and enforceable franchise agreement, which
such franchise agreements prohibit certain transfers of ownership or control
without the consent of the manufacturer.
4.13 ASSETS AND PROPERTIES. The Borrower and each of its Subsidiaries
has good and marketable title to all of its assets and properties (tangible and
intangible, real or personal) owned by it or a valid leasehold interest in all
of its leased assets (except insofar as marketability may be limited by any laws
or regulations of any governmental authority affecting such assets), except
where the failure to have any such title will not have or could not be expected
to have a material adverse effect, and all such assets and property are free and
clear of all liens, except liens permitted under SECTION 5.3(C). Substantially
all of the assets and properties owned by, leased to or used by the Borrower
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and/or each such Subsidiary of the Borrower are in adequate operating condition
and repair, ordinary wear and tear excepted. Neither this Agreement nor any
other Transaction Document, nor any transaction contemplated under any such
agreement, will affect any right, title or interest of the Borrower or such
Subsidiary in and to any of its assets in a manner that will have or could
reasonably be expected to have a material adverse effect.
4.14 STATUTORY INDEBTEDNESS RESTRICTIONS. Neither the Borrower nor any
of its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the
Investment Company Act of 1940, or any other federal, state or local statute,
ordinance or regulation which limits its ability to incur indebtedness or its
ability to consummate the transactions contemplated hereby.
4.15 INSURANCE. The Borrower's and its Subsidiaries' insurance policies
and programs reflect coverage that is reasonably consistent with prudent
industry practice.
4.16 LABOR MATTERS. As of the date hereof, to the Borrower's and its
Subsidiaries' knowledge, there are no labor disputes to which the Borrower or
any of its Subsidiaries may become a party, including, without limitation, any
strikes, lockouts or other disputes relating to such Persons' plants and other
facilities.
4.17 ENVIRONMENTAL MATTERS. (a)(i) The operations of the Borrower's
Subsidiaries, Lithia Financial Corporation, Lithia Real Estate, Inc.
(collectively, the "Lithia Subsidiaries") and Borrower comply in all respects
with Environmental, Health or Safety Requirements of Law;
(ii) the Borrower and the Lithia Subsidiaries have
all permits, licenses or other authorizations required
under Environmental, Health or Safety Requirements of Law
and are in compliance with such permits;
(iii) neither the Borrower,any of the Lithia
Subsidiaries nor any of their respective present property
or operations, or any of their respective past property or
operations, are subject to or the subject of, any
investigation known to the Borrower or any of the Lithia
Subsidiaries, any judicial or administrative proceeding,
order, judgment, decree, settlement or other agreement
respecting: (A) any violation of Environmental, Health or
Safety Requirements of Law; (B) any remedial action under
any Environmental, Health or Safety Requirements of Law; or
(C) any claims or liabilities arising from the Release or
threatened Release of a Contaminant into the environment;
(iv) there is not now, nor has there ever been on
or in the property of the Borrower or any of the Lithia
Subsidiaries any landfill, waste pile, underground storage
tanks, aboveground storage tanks, surface impoundment or
hazardous waste storage facility of any kind, any
polychlorinated biphenyls (PCBs) used in hydraulic oils,
electric transformers or other equipment, or any asbestos
containing material that in the case of any of the
foregoing could be expected to result in any claims or
liabilities in excess of $500,000.00; and
(v) neither the Borrower nor any of the Lithia
Subsidiaries has any Contingent Obligation in connection
with any Release or threatened Release of a Contaminant
into the environment.
4.18 BENEFITS. Each of the Borrower and its Subsidiaries will benefit
from the financing arrangement established by this Agreement. The Lender has
stated and the Borrower acknowledges that, but for the agreement by each of the
Dealership Guarantors to execute and deliver its respective Dealership Guaranty
and Dealership Security Agreements, the Lender would not have made available the
credit facilities established hereby on the terms set forth herein.
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5. COVENANTS
The Borrower covenants and agrees that so long as any Commitment is
outstanding and thereafter until payment in full of all of the Obligations
(other than contingent indemnity obligations, but including Floor Plan
Indebtedness), unless the Lender shall otherwise give its prior written consent:
5.1 REPORTING. The Borrower shall:
(a) FINANCIAL REPORTING. Furnish to the Lender:
(i) QUARTERLY REPORTS. As soon as practicable, and in
any event within forty-five (45) days after the end of each fiscal
quarter in each fiscal quarter, the consolidated and consolidating
balance sheet of the Borrower and the Lithia Subsidiaries as at the
end of such period and the related consolidated and consolidating
statements of income and cash flows of the Borrower and the Lithia
Subsidiaries for such fiscal quarter and for the period from the
beginning of the then current fiscal year to the end of such fiscal
quarter, certified by the chief financial officer of the Borrower on
behalf of the Borrower as fairly presenting the consolidated and
consolidating financial position of the Borrower and the Lithia
Subsidiaries as at the dates indicated and the results of their
operations and cash flows for the periods indicated in accordance with
Agreement Accounting Principles, subject to normal year end
adjustments.
(ii) ANNUAL REPORTS. As soon as practicable, and in
any event within ninety (90) days after the end of each fiscal year,
(a) the consolidated and consolidating balance sheet of the Borrower
and the Lithia Subsidiaries as at the end of such fiscal year and the
related consolidated and consolidating statements of income,
stockholders' equity and cash flows of the Borrower and the Lithia
Subsidiaries for such fiscal year, and in comparative form the
corresponding figures for the previous fiscal year and (b) an audit
report on the items listed in CLAUSE (A) hereof (other than the
consolidating statements) of independent certified public accountants
of recognized national standing, which audit report shall be
unqualified and shall state that such financial statements fairly
present the consolidated financial position of the Borrower and the
Lithia Subsidiaries as at the dates indicated and the results of their
operations and cash flows for the periods indicated in conformity with
Agreement Accounting Principles and that the examination by such
accountants in connection with such consolidated financial statements
has been made in accordance with generally accepted auditing
standards. The deliveries made pursuant to this CLAUSE (II) shall be
accompanied by any management letter prepared by the above-referenced
accountants.
(iii) MONTHLY STATEMENTS. As soon as practicable, and
in any event by the 25th day of each following month certified copies
of direct (factory) statements provided to a manufacturer by any
Lithia Dealership.
(iv) OFFICER'S CERTIFICATE. Together with each
delivery of any financial statement pursuant to CLAUSES (I) and (II)
of this SECTION 5.1(A), an Officer's Certificate of the Borrower,
substantially in the form of EXHIBIT F attached hereto and made a part
hereof, stating that no Event of Default or Unmatured Default exists,
or if any Event of Default or Unmatured Default exists, stating the
nature and status thereof and setting forth (X) such financial
statements and information as shall be reasonably acceptable to the
Lender and (Y) a valuation of the Collateral.
(b) NOTICE OF EVENT OF DEFAULT. Promptly upon any of the chief
executive officer, president, chief financial officer, treasurer of the Borrower
or any of the Lithia Subsidiaries obtaining knowledge (i) of any condition or
event which constitutes an Event of Default or Unmatured Default, or (ii) that
any Person has given any written notice to the Borrower or any Lithia Subsidiary
of the Borrower or taken any other action with respect to a claimed default or
event or condition of the type referred to in
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SECTION 6.1(E), deliver to the Lender a notice specifying (a) the nature and
period of existence of any such claimed default, Event of Default, Unmatured
Default, condition or event, (b) the notice given or action taken by such
Person in connection therewith, and (c) what action the Borrower has taken,
is taking and proposes to take with respect thereto.
(c) LAWSUITS. (i) Promptly upon the Borrower obtaining knowledge of
the institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration against or affecting the Borrower or
any of the Lithia Subsidiaries or any property of the Borrower or any of the
Lithia Subsidiaries, which action, suit, proceeding, governmental investigation
or arbitration exposes, or in the case of multiple actions, suits, proceedings,
governmental investigations or arbitrations arising out of the same general
allegations or circumstances which expose, in the Borrower's reasonable
judgment, the Borrower or any of the Lithia Subsidiaries to liability in an
amount aggregating $500,000 or more, give written notice thereof to the Lender
and provide such other information as may be reasonably available to enable the
Lender and its counsel to evaluate such matters; and (ii) in addition to the
requirements set forth in CLAUSE (I) of this SECTION 5.1(C), upon request of the
Lender, promptly give written notice of the status of any action, suit,
proceeding, governmental investigation or arbitration covered by a report
delivered pursuant to CLAUSE (I) above or disclosed in any filing with the
Commission and provide such other information as may be available to it that
would not violate any attorney-client privilege by disclosure to the Lender to
enable the Lender and its counsel to evaluate such matters.
(d) ERISA NOTICES. Deliver or cause to be delivered to the Lender, at
the Borrower's expense, the following information and notices as soon as
possible, and in any event:
(i) (a) within ten (10) business days after the
Borrower obtains knowledge that a Termination Event has
occurred, a written statement of the chief financial
officer of the Borrower describing such Termination Event
and the action, if any, which the Borrower has taken, is
taking or proposes to take with respect thereto, and when
known, any action taken or threatened by the IRS, DOL or
PBGC with respect thereto and (b) within ten (10) business
days after any member of the Controlled Group obtains
knowledge that a Termination Event has occurred which could
reasonably be expected to subject the Borrower or any
member of the Controlled Group to liability individually or
in the aggregate in excess of $250,000, a written statement
of the chief financial officer of the Borrower describing
such Termination Event and the action, if any, which the
member of the Controlled Group has taken, is taking or
proposes to take with respect thereto, and when known, any
action taken or threatened by the IRS, DOL or PBGC with
respect thereto;
(ii) within ten (10) business days after the
Borrower or any of the Lithia Subsidiaries obtains
knowledge that a prohibited transaction (defined in
Sections 406 of ERISA and Section 4975 of the Code) has
occurred, a statement of the chief financial officer of the
Borrower describing such transaction and the action which
the Borrower or such Lithia Subsidiary has taken, is taking
or proposes to take with respect thereto;
(iii) within ten (10) business days after the
Borrower or any of the Lithia Subsidiaries receives notice
of any unfavorable determination letter from the IRS
regarding the qualification of a Plan under Section 401(a)
of the Code, copies of each such letter;
(iv) within ten (10) business days after the filing
thereof with the IRS, a copy of each funding waiver request
filed with respect to any Benefit Plan and all
communications received by the Borrower or a member of the
Controlled Group with respect to such request;
(v) within ten (10) business days after receipt by
the Borrower or any member of the Controlled Group of the
PBGC's intention to terminate a Benefit Plan or to have a
trustee appointed to administer a Benefit Plan, copies of
each such notice;
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(vi) within ten (10) business days after receipt by
the Borrower or any member of the Controlled Group of a
notice from a Multi-employer Plan regarding the imposition
of withdrawal liability, copies of each such notice;
(vii) within ten (10) business days after the
Borrower or any member of the Controlled Group fails to
make a required installment or any other required payment
under Section 412 of the Code on or before the due date for
such installment or payment, a notification of such
failure; and
(viii) within ten (10) business days after the
Borrower or any member of the Controlled Group knows or has
reason to know that (a) a Multi-employer Plan has been
terminated, (b) the administrator or plan sponsor of a
Multi-employer Plan intends to terminate a Multi-employer
Plan, or (c) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate a
Multi-employer Plan.
For purposes of this SECTION 5.1(D), the Borrower, any of its Subsidiaries and
any member of the Controlled Group shall be deemed to know all facts known by
the Administrator of any Plan of which the Borrower or any member of the
Controlled Group or such Subsidiary is the plan sponsor.
(e) LABOR MATTERS. Notify the Lender in writing, promptly upon the
Borrower's learning thereof, of (i) any labor dispute to which the Borrower or
any of its Subsidiaries may become a party, including, without limitation, any
strikes, lockouts or other disputes relating to such Persons' plants and other
facilities and (ii) any liability incurred under the Worker Adjustment and
Retraining Notification Act with respect to the closing of any plant or other
facility of the Borrower or any of its Subsidiaries.
(f) OTHER INDEBTEDNESS. Deliver to the Lender (i) a copy of each notice
or communication regarding potential or actual defaults (including any
accompanying officer's certificate) delivered by or on behalf of the Borrower or
any of its Subsidiaries to the holders of funded Indebtedness pursuant to the
terms of the agreements governing such Indebtedness, such delivery to be made at
the same time and by the same means as such notice or other communication is
delivered to such holders, and (ii) a copy of each notice or other communication
regarding potential or actual defaults received by the Borrower or any of its
Subsidiaries from the holders of funded Indebtedness pursuant to the terms of
such Indebtedness, such delivery to be made promptly after such notice or other
communication is received by the Borrower or any such Subsidiary.
(g) OTHER REPORTS. Deliver or cause to be delivered to the Lender
copies of all financial statements, reports and notices, if any, sent or made
available generally by the Borrower to its securities holders or filed with the
Commission by the Borrower, all press releases made available generally by the
Borrower or any of the Borrower's Subsidiaries to the public concerning
developments in the business of the Borrower or any such Subsidiary and all
notifications received from the Commission by the Borrower or its Subsidiaries
pursuant to the Securities Exchange Act of 1934 and the rules promulgated
thereunder (other than customary comment letters received in connection with
registration statements or other routine communications between the Commission
and the Borrower).
(h) ENVIRONMENTAL NOTICES. As soon as possible and in any event within
ten (10) days after receipt by the Borrower or any of its Subsidiaries, a copy
of (i) any notice or claim to the effect that the Borrower or any of its
Subsidiaries is or may be liable to any Person as a result of the Release by the
Borrower, any of its Subsidiaries, or any other Person of any Contaminant into
the environment, and (ii) any notice alleging any violation of any
Environmental, Health or Safety Requirements of Law by the Borrower or any of
its Subsidiaries if, in either case, such notice or claim relates to an event
which
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could reasonably be expected to subject the Borrower or any Subsidiary to
liability individually or in the aggregate in excess of $500,000.
(i) OTHER INFORMATION. Promptly upon receiving a request therefor from
the Lender, prepare and deliver to the Lender such other information with
respect to the Borrower, any of its Subsidiaries, or the Collateral, including,
without limitation, schedules identifying and describing the Collateral and any
dispositions thereof, as from time to time may be reasonably requested by the
Lender.
5.2 AFFIRMATIVE COVENANTS.
(a) EXISTENCE, ETC. Except for mergers permitted pursuant to SECTION
5.3(H), the Borrower shall, and shall cause each of its Subsidiaries to, at all
times maintain its corporate, company or partnership existence, as applicable,
and preserve and keep, or cause to be preserved and kept, in full force and
effect its rights and franchises material to its businesses.
(b) POWERS; CONDUCT OF BUSINESS. The Borrower shall, and shall cause
each of its Subsidiaries to, qualify and remain qualified to do business in each
jurisdiction in which the nature of its business requires it to be so qualified
and where the failure to be so qualified will have or could reasonably be
expected to have a material adverse effect. The Borrower will, and will cause
each Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted.
(c) COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall cause its
Subsidiaries to, (a) comply with all requirements of law and all restrictive
covenants affecting such Person or the business, properties, assets or
operations of such Person, and (b) obtain as needed all permits necessary for
its operations and maintain such permits in good standing, unless failure to
comply or obtain could not be expected to have a material adverse effect.
(d) PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. The Borrower shall
pay, and cause each Lithia Subsidiaries to pay, (i) all taxes, assessments and
other governmental charges imposed upon it or on any of its properties or assets
or in respect of any of its franchises, business, income or property before any
penalty or interest accrues thereon, and (ii) all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a lien (other
than a lien permitted by SECTION 5.3(C)) upon any of the Borrower's or such
Lithia Subsidiary's property or assets, prior to the time when any penalty or
fine shall be incurred with respect thereto; PROVIDED, HOWEVER, that no such
taxes, assessments and governmental charges referred to in CLAUSE (I) above or
claims referred to in CLAUSE (II) above (and interest, penalties or fines
relating thereto) need be paid if being contested in good faith by appropriate
proceedings diligently instituted and conducted and if such reserve or other
appropriate provision, if any, as shall be required in conformity with Agreement
Accounting Principles shall have been made therefor. The Borrower will not, nor
will it permit any of the Lithia Subsidiaries to, file or consent to the filing
of any consolidated income tax return with any other Person other than the
consolidated return of the Borrower.
(e) INSURANCE. The Borrower shall maintain for itself and the Lithia
Subsidiaries, or shall cause each of the Lithia Subsidiaries to maintain in full
force and effect, insurance policies and programs reflecting coverage that is
reasonably consistent with prudent industry practice.
(f) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The
Borrower shall permit and cause each of the Borrower's Lithia Subsidiaries to
permit, any authorized representative(s) designated by the Lender to visit and
inspect any of the properties of the Borrower or any of the Lithia
Subsidiaries, to examine, audit, check and make copies of their respective
financial and accounting records, books, journals, orders, receipts and any
correspondence and other data relating to their respective businesses or the
transactions contemplated hereby or by the Acquisitions (including,
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without limitation, in connection with environmental compliance, hazard or
liability), and to discuss their affairs, finances and accounts with their
officers and independent certified public accountants, all upon notice and at
such times during normal business hours, as often as may be requested;
PROVIDED, that while no Event of Default exists, all of the foregoing shall
be at the expense of the Lender. The Borrower shall keep and maintain, and
cause each of the Borrower's Lithia Subsidiaries to keep and maintain, in all
respects, proper books of record and account in which entries in conformity
with Agreement Accounting Principles shall be made of all dealings and
transactions in relation to their respective businesses and activities,
including, without limitation, transactions and other dealings with respect
to the Collateral. If an Event of Default has occurred and is continuing,
the Borrower, upon the Lender's request, shall turn over any such records to
the Lender or its representatives. Neither Borrower nor any Lithia
Subsidiary shall be required to violate any attorney-client privileged by
disclosure to Lender.
(g) INSURANCE AND CONDEMNATION PROCEEDS. The Borrower directs (and,
if applicable, shall cause its Subsidiaries to direct) all insurers under
policies of property damage, boiler and machinery and business interruption
insurance and payors of any condemnation claim or award relating to the
property to pay all proceeds payable under such policies or with respect to
such claim or award for any loss with respect to the Collateral directly to
the Lender; PROVIDED, HOWEVER, in the event that such proceeds or award are
less than $250,000 ("EXCLUDED PROCEEDS"), unless an Event of Default shall
have occurred and be continuing, the Lender shall remit such Excluded
Proceeds to the Borrower or Subsidiary, as applicable. Each such policy
shall contain a long-form loss-payable endorsement naming the Lender as loss
payee, which endorsement shall be in form and substance reasonably acceptable
to the Lender. The Lender shall, upon receipt of such proceeds (other than
Excluded Proceeds) and at the Borrower's direction, either apply the same to
the principal amount of the Advances outstanding at the time of such receipt
and create a corresponding reserve against the Commitment in an amount equal
to such application (the "DECISION RESERVE") or hold them as cash collateral
for the Obligations in an interest bearing account. For up to 150 days from
the date of any loss (the "DECISION PERIOD"), the Borrower may notify the
Lender that it intends to restore, rebuild or replace the property subject to
any insurance payment or condemnation award and shall, as soon as practicable
thereafter, provide the Lender detailed information, including a construction
schedule and cost estimates. Should an Event of Default occur at any time
during the Decision Period, should the Borrower notify the Lender that it has
decided not to rebuild or replace such property during the Decision Period,
or should the Borrower fail to notify the Lender of the Borrower's decision
during the Decision Period, then the amounts held as cash collateral pursuant
to this SECTION 5.2(G) or as the Decision Reserve shall be applied as a
mandatory prepayment of the Advances pursuant to SECTION 2.2(B). Proceeds
held as cash collateral pursuant to this SECTION 5.2(G) or constituting the
Decision Reserve shall be disbursed as payments for restoration, rebuilding
or replacement of such property become due; PROVIDED, HOWEVER, should an
Event of Default occur after the Borrower has notified the Lender that it
intends to rebuild or replace the property, the Decision Reserve or amounts
held as cash collateral shall be applied as a mandatory prepayment of the
Advances pursuant to SECTION 2.2(B). In the event the Decision Reserve is to
be applied as a mandatory prepayment to the Advances, the Borrower shall be
deemed to have requested Advances in an amount equal to the Decision Reserve,
and such Advances shall be made regardless of any failure of the Borrower to
meet the conditions precedent set forth in ARTICLE III. Upon completion of
the restoration, rebuilding or replacement of such property, the unused
proceeds shall constitute net cash proceeds of an Asset Sale and shall be
applied as a mandatory prepayment of the Advances pursuant to SECTION 2.2(B).
(h) ERISA COMPLIANCE. The Borrower shall, and shall cause each of the
Borrower's Subsidiaries to, establish, maintain and operate all Plans, if any,
to comply in all material respects with the provisions of ERISA, the Code, all
other applicable laws, and the regulations and interpretations thereunder and
the respective requirements of the governing documents for such Plans, except
where the failure to comply will not or could not reasonably be expected to
subject the Borrower and its Subsidiaries to liability individually or in the
aggregate in excess of $250,000.
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(i) MAINTENANCE OF PROPERTY. The Borrower shall cause all property used
or useful in the conduct of its business or the business of any Lithia
Subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and shall cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Borrower may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; PROVIDED, HOWEVER, that nothing in this SECTION 5.2(I) shall
prevent the Borrower from discontinuing the operation or maintenance of any of
such property if such discontinuance is, in the judgment of the Borrower,
desirable in the conduct of its business or the business of any Lithia
Subsidiary and not disadvantageous in any material respect to the Lender.
(j) ENVIRONMENTAL COMPLIANCE. The Borrower and the Lithia Subsidiaries
shall comply with all Environmental, Health or Safety requirements of law,
except where noncompliance could not be expected to subject the Borrower and the
Lithia Subsidiaries to liability individually or in the aggregate in excess of
$500,000. Neither the Borrower nor any of the Lithia Subsidiaries shall be the
subject of any proceeding or investigation pertaining to (i) the Release by the
Borrower or any of the Lithia Subsidiaries of any Contaminant into the
environment or (ii) the liability of the Borrower or any of the Lithia
Subsidiaries arising from the Release by any other Person of any Contaminant
into the environment, which, in either case, subjects or is likely to subject
the Borrower and the Lithia Subsidiaries individually or in the aggregate to
liability in excess of the amount set forth above.
(k) USE OF PROCEEDS. The Borrower shall use the proceeds of the
Advances to fund Permitted Acquisitions or for any other purpose related to
Borrower's or Dealership Guarantor's business ("Working Capital Funds"),
provided, however, that the aggregate amount of Advances outstanding at any
given time as Working Capital Funds shall not exceed one hundred percent (100%)
of the Scaled Assets value (as determined by Lender) . The proceeds of Advances
hereunder may not be used to make any mandatory prepayment under SECTION 2.2(B).
The Borrower will not nor will it permit any Subsidiary to, use any of the
proceeds of the Loans to purchase or carry any Margin Stock or to make any
Acquisition, other than any Permitted Acquisition pursuant to SECTION 5.3(F).
(l) ADDITION OF DEALERSHIP GUARANTORS. The Borrower shall cause each
Lithia Dealership which has not heretofore provided a Dealership Guaranty to the
Lender, to deliver to the Lender a Dealership Guaranty, in the form of Exhibit
C-1, a Dealership Security Agreement in the form of Exhibit D-1, UCC-1 Financing
Statements and an acknowledgment to be bound by the Contribution Agreement,
together with appropriate corporate resolutions, opinions and other
documentation in form and substance reasonably satisfactory to the Lender. Each
Lithia Dealership shall provide such Dealership Guaranty and Collateral
Documents prior to or simultaneously with its Acquisition.
(m) FUTURE LIENS ON REAL PROPERTY. The Borrower shall, and shall cause
each of its Subsidiaries that is required to guarantee the Obligations and
Lithia Financial Corporation and Lithia Real Estate, Inc., to deliver to Lender,
immediately upon its acquisition or leasing of any real property after the date
hereof, copies of any mortgage, deed of trust, collateral assignment or other
appropriate instrument evidencing a lien upon any such acquired property that
would be other than a Customary Permitted Lien if the real property were
included in the Collateral (in the case of any acquisition of real property), or
copies of a lease (in the case of a real property lease) and the Borrower or the
applicable Subsidiary, as the case may be, shall use their best efforts provide
the Lender with such opinions, landlord and mortgagee waivers as the Lender
shall have reasonably requested in connection with such acquisition or leasing
of real property,only if the term of such lease (without regard to any
extension thereof at then current market rent) is more than five years or (ii)
such lease has a material value by reason of a purchase option, below-market
rent or otherwise.
(n) FRANCHISE AGREEMENTS. The Borrower shall use its best efforts to
obtain waivers under existing and future franchise agreements on terms and
conditions acceptable to the Lender sufficient to permit the security interests
and liens contemplated hereunder. To the extent any franchise
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agreement materially limits the security interests and liens contemplated
hereunder or under any Collateral Document, the Borrower shall notify the
Lender of such restriction or limitation and to the extent such franchise
agreement relates to an Acquisition to be effected by the Borrower, prior to
such Acquisition becoming a Permitted Acquisition, the Lender shall have
provided its written approval of such franchise agreement.
(o) MINORITY HOLDERS. Borrower shall cause any minority holder holding
an Equity Interest in a Subsidiary pursuant to a Majority Acquisition to pledge
its Equity Interest to Lender in connection with said Permitted Acquisition
(provided, however, that Phillip Camp shall not be required to pledge his 20%
equity interest in Lithia VS, L.L.C.).
5.3 NEGATIVE COVENANTS.
(a) INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries
shall directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except:
(i) the Obligations;
(ii) Permitted Existing Indebtedness and Permitted
Refinancing Indebtedness;
(iii) Indebtedness in respect of obligations secured by
Customary Permitted Liens;
(iv) Indebtedness constituting Contingent Obligations in
respect of Indebtedness otherwise permitted hereunder;
(v) Indebtedness arising from intercompany loans from the
Borrower to any Dealership Guarantor or from any Subsidiary to the
Borrower or any Dealership Guarantor; PROVIDED that in each case such
Indebtedness is subordinated upon terms satisfactory to the Lender to
the obligations of the Borrower and its Subsidiaries with respect to
the Obligations;
(vi) Guaranties by the Borrower of Indebtedness permitted to
be incurred by any Subsidiary;
(vii) Indebtedness with respect to surety, appeal and
performance bonds obtained by the Borrower or any of its Subsidiaries
in the ordinary course of business;
(viii) Indebtedness arising under the Borrower Guaranty or any
Dealership Guaranty;
(ix) Indebtedness (evidenced by a promissory note or notes)
constituting that portion of the deferred purchase price payable by
the Borrower in connection with a Permitted Acquisition, and
Indebtedness (evidenced by a promissory note or notes) to
shareholders, members or partners of a Subsidiary or a predecessor of
such a subsidiary acquired in a Permitted Acquisition that are
credited against the purchase price (the "Seller's Notes");
(x) Other Floor Plan Indebtedness;
(xi) Indebtedness incurred in connection with Capital
Expenditures; and renewals and refinancings thereof;
(xii) Guaranties by Borrower of operating leases of
Subsidiaries, including but not limited to leases of real property;
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(xiii) Guaranties by Borrower of Indebtedness incurred by
Lithia Financial Corporation and Lithia Real Estate, Inc.;
(xiv) Indebtedness of a dealership Subsidiary acquired in a
Permitted Acquisition, including but not limited to:
(a) recourse liability to purchasers of
automobile chattel paper retail leases; and
(b) Indebtedness to lenders providing wholesale
lease financing.
(xv) Indebtedness not in excess of $250,000 in connection
with the liens set forth in Section 5.3(C)(v).
(b) SALES OF ASSETS. Neither the Borrower nor any of its
Subsidiaries shall sell, assign, transfer, lease, convey or otherwise dispose
of any property (including the Capital Stock of any Subsidiary), whether now
owned or hereafter acquired, or any income or profits therefrom, or enter
into any agreement to do so, except:
(i) sales of inventory in the ordinary course of business
(and sales of automotive chattel paper and leases generated thereby);
(ii) the disposition in the ordinary course of business of
equipment that is obsolete, excess or no longer useful in the
Borrower's or its Subsidiaries' business;
(iii) transfers by a Dealership Guarantor to Lithia
Financial Corporation of equipment, fixtures and vehicles to be leased
by Lithia Financial Corporation to a Dealership Guarantor;
(iv) transfers by a Dealership Guarantor to Lithia Real
Estate, Inc. of real property to be leased by Lithia Real Estate, Inc.
to a Dealership Guarantor; and
(v) sales, assignments, transfers, leases, conveyances or
other dispositions of other assets (including sales of Capital Stock
of a Subsidiary) if such transaction (a) is for all cash
consideration, (b) is for not less than Fair Value, (c) when combined
with all such other transactions (each such transaction being valued
at book value) (i) during the immediately preceding twelve-month
period, represents the disposition of not greater than $250,000, and
(ii) during the period from the date hereof to the date of such
proposed transaction, represents the disposition of not greater than
$500,000 and (d) if a sale by the Borrower of Capital Stock in any
Subsidiary, except as provided in subclause (c) above, the Borrower
shall continue to own, of record and beneficially, with sole voting
and dispositive power, 100% (unless required by the Subsidiary's
franchise agreement to be less, in which event at least 80%) of the
outstanding shares of Capital Stock of any such Subsidiary.
(c) LIENS. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or permit to exist any Lien on or
with respect to any of their respective property or assets, except:
(i) Permitted Existing Liens;
(ii) Customary Permitted Liens;
(iii) Liens securing the Obligations;
(iv) Liens securing the Indebtedness described in Section
(a)(ix), provided the amount of such liens shall not at any time
exceed $10,000,000;
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(v) liens, for the purpose of securing Indebtedness
described in Section 5.3 (a)(xiv) above, in chattel paper, vehicle
leases to retail customers, the vehicles sold or leased thereunder,
returns or repossessions of such vehicles, and proceeds of such
collateral;
(vi) liens of General Motors Acceptance Corporation ("GMAC")
in present and future contracts held by GMAC (in the case of a Lithia
Dealership that sells chattel paper to GMAC);
(vii) liens of wholesalers or refiners of oil or other
petroleum products in equipment supplied to Borrower or a Subsidiary
in connection with contracts to supply such products;
(viii) liens securing the Other Floor Plan Indebtedness; and
(ix) Liens (other than on the stock of any Subsidiaries)
securing other obligations not exceeding $250,000 in the aggregate
at any time outstanding.
In addition, neither the Borrower nor any of its Subsidiaries shall become a
party to any agreement, note, indenture or other instrument, or take any other
action, which would prohibit the creation of a lien on any of its properties or
other assets in favor of the Lender as collateral for the Obligations; PROVIDED
that any agreement, note, indenture or other instrument in connection with liens
permitted pursuant to CLAUSE (I) above may prohibit the creation of a lien in
favor of the Lender on the items of property subject to such lien.
(d) INVESTMENTS. Except to the extent permitted pursuant to PARAGRAPH
(G) below, neither the Borrower nor any of its Subsidiaries shall directly or
indirectly make or own any Investment except:
(i) Investments in Cash Equivalents;
(ii) Permitted Existing Investments in an amount not greater
than the amount thereof on the date hereof;
(iii) Investments in trade receivables or received in
connection with the bankruptcy or reorganization of suppliers and
customers and in settlement of delinquent obligations of, and other
disputes with, customers and suppliers arising in the ordinary course
of business;
(iv) Investments consisting of intercompany loans from any
Subsidiary to the Borrower or any other Subsidiary permitted by
SECTION 5.3(A)(V);
(v) Investments in any Dealership Guarantor;
(vi) Investments constituting Permitted Acquisitions; and
(vii) Investments in addition to those referred to elsewhere
in this SECTION 5.3(D) in an amount not to exceed $500,000 in the
aggregate at any time outstanding;
PROVIDED, HOWEVER, that the Investments described in CLAUSE (VII) above shall
not be permitted if either an Event of Default or Unmatured Default shall have
occurred and be continuing on the date thereof or would result therefrom.
(e) RESTRICTED PAYMENTS. Neither the Borrower nor any of its
Subsidiaries shall declare or make any Restricted Payment, except:
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(i) where the consideration therefor consists solely of
Equity Interests (but excluding Disqualified Stock) of the Borrower or
its Subsidiaries provided no Change of Control would occur as a result
thereof; and
(ii) in connection with the payment of dividends by a
Subsidiary to the Borrower.
(f) CONDUCT OF BUSINESS; SUBSIDIARIES; ACQUISITIONS. (i) Neither the
Borrower nor any of its Subsidiaries shall engage in any business other than the
businesses engaged in by the Borrower and its subsidiaries, collectively, on the
date hereof and any business or activities which are substantially similar,
related or incidental thereto.
(ii) The Borrower may create, acquire and/or capitalize any
Subsidiary (a "NEW SUBSIDIARY") after the date hereof pursuant to any
transaction that is permitted by or not otherwise prohibited by this
Agreement; PROVIDED that upon the creation or acquisition of each New
Subsidiary, the requirements set forth in SECTION 5.2(L) hereof shall have
been satisfied and all New Subsidiaries that are Material Subsidiaries shall
be Controlled Subsidiaries.
(iii) The Borrower shall not make any Acquisitions, other than
Acquisitions meeting the following requirements (each such Acquisition
constituting a "PERMITTED ACQUISITION"):
(a) no Event of Default or Unmatured Default shall have
occurred and be continuing or would result from such Acquisition or
the incurrence of any Indebtedness in connection therewith;
(b) in the case of an Acquisition of Equity Interests of an
entity, such Acquisition shall be of one hundred percent (100%) of the
Equity Interests of such entity except that in the case of a Majority
Acquisition, such Acquisition shall be of at least eighty percent
(80.0%) of the Equity Interests of such entity provided that the
provisions of Section 5.2 (o) are complied with;
(c) the businesses being acquired shall be substantially
similar, related or incidental to the businesses or activities engaged
in by the Borrower and its Subsidiaries on the date hereof;
(d) prior to each such Acquisition, the Borrower shall deliver
to the Lender a certificate from one of the Authorized Officers,
demonstrating to the reasonable satisfaction of the Lender that after
giving effect to such Acquisition and the incurrence of any
Indebtedness hereunder and in connection herewith, on a PRO FORMA
basis (both historically and on a projected basis), as if the
Acquisition and such incurrence of Indebtedness had occurred on the
first day of the twelve-month period ending on the last day of the
Borrower's most recently completed fiscal quarter, the Borrower would
have been in compliance with all of the covenants contained in this
Agreement, including, without limitation, the financial covenants set
forth in SECTION 5.4;
(f) the purchase is consummated pursuant to a negotiated
acquisition agreement on a non-hostile basis;
(g) after giving effect to such Acquisition, the
representations and warranties set forth in ARTICLE IV hereof shall be
true and correct in all respects on and as of the date of such
Acquisition with the same effect as though made on and as of such
date; and
(h) the written consent of the Lender shall have been obtained
in connection with any Acquisition if the acquisition price therefore
(including the maximum amount of any deferred
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portion thereof or contingency payments payable in connection
therewith) (computed with any non-cash portion of the acquisition
price being valued at the fair value thereof as of the date of
computation) exceeds $5,000,000 (such amount being net of new and used
vehicle inventory, if such inventory is financed with a floor plan
lender) for such Acquisition or series of related Acquisitions.
(i) the Borrower shall have obtained (and shall have based the
calculations set forth above on)the most current year end audited
financial statement and current direct statement for the target (in
the event that audited statements are unavailable, Borrower will
provide details with respect to the transactions and financial
statements acceptable to Lender in its discretion), in each case
obtained from the seller or provided by independent certified public
accountants retained for the purposes of such Acquisition, broken down
by fiscal quarter in the Borrower's reasonable judgment, copies of
which shall be provided to the Lender.
(j) the Borrower shall have obtained either (i) a written
approval for a new franchise agreement between the Lithia Dealership
and the manufacturer on substantially the same terms as the franchise
agreement entered into between the manufacturer and the entity to be
acquired in such Permitted Acquisition or (ii) any consent required
from a manufacturer for the continued enforceability and validity of
such franchise agreement after the completion of a Permitted
Acquisition shall have been obtained.
(g) TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Neither
the Borrower nor any of its Subsidiaries shall directly or indirectly enter
into or permit to exist any transaction (including, without limitation, the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any holder or holders of any of the Equity Interests of the
Borrower, or with any Affiliate of the Borrower which is not a Dealership
Guarantor, on terms that are less favorable to the Borrower or any of its
Subsidiaries, as applicable, than those that might be obtained in an arm's
length transaction at the time from Persons who are not such a holder or
Affiliate.
(h) RESTRICTION ON FUNDAMENTAL CHANGES. Neither the Borrower
nor any of its Subsidiaries shall enter into any merger or consolidation, or
liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or
convey, lease, sell, transfer or otherwise dispose of, in one transaction or
series of transactions, all or substantially all of the Borrower's or any
such Subsidiary's business or property, whether now or hereafter acquired,
except (i) transactions permitted under SECTIONS 5.3(B) or 5.3(G) (ii) the
merger of a Subsidiary of the Borrower into a Person acquired or being
acquired in connection with a Permitted Acquisition; (iii) the merger of a
wholly-owned Subsidiary of the Borrower with and into the Borrower; and (iv)
the merger of a Subsidiary of the Borrower with another Subsidiary of the
Borrower; PROVIDED, HOWEVER, (i) with respect to any such permitted mergers
involving any Dealership Guarantor, the surviving corporation in the merger
shall also be or become a Dealership Guarantor; and (ii) after the
consummation of any such transaction, the Borrower shall be in compliance
with the provisions of SECTIONS 5.2(K) and 5.3(E).
(i) SALES AND LEASEBACKS. Neither the Borrower nor any of the
Lithia Subsidiaries shall become liable, directly, by assumption or by
Contingent Obligation, with respect to any lease, whether an operating lease
or a Capitalized Lease, of any property (whether real or personal or mixed)
(i) which it or one of the Lithia Subsidiaries sold or transferred or is to
sell or transfer to any other Person, or (ii) which it or one of the Lithia
Subsidiaries intends to use for substantially the same purposes as any other
property which has been or is to be sold or transferred by it or one of the
Lithia Subsidiaries to any other Person in connection with such lease, other
than a (A) Dealership Guarantor's sale to, and lease of Equipment from,
Lithia Financial Corporation and (B) a Dealership Guarantor's sale to, and
lease of real estate from, Lithia Real Estate, Inc.
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(j) MARGIN REGULATIONS. Neither the Borrower nor any of its
Subsidiaries, shall use all or any portion of the proceeds of any credit
extended under this Agreement to purchase or carry Margin Stock.
(k) ERISA. The Borrower shall not
(i) engage, or permit any of its Subsidiaries to
engage, in any prohibited transaction described in Sections 406
of ERISA or 4975 of the Code for which a statutory or class
exemption is not available or a private exemption has not been
previously obtained from the DOL;
(ii) permit to exist any accumulated funding
deficiency (as defined in Sections 302 of ERISA and 412 of
the Code), with respect to any Benefit Plan, whether or not
waived;
(iii) fail, or permit any Controlled Group member to
fail, to pay timely required contributions or annual
installments due with respect to any waived funding
deficiency to any Benefit Plan;
(iv) terminate, or permit any Controlled Group
member to terminate, any Benefit Plan which would result in
any liability of the Borrower or any Controlled Group
member under Title IV of ERISA;
(v) fail to make any contribution or payment to any
Multiemployer Plan which the Borrower or any Controlled
Group member may be required to make under any agreement
relating to such Multiemployer Plan, or any law pertaining
thereto;
(vi) fail, or permit any Controlled Group member to
fail, to pay any required installment or any other payment
required under Section 412 of the Code on or before the due
date for such installment or other payment; or
(vii) amend, or permit any Controlled Group member
to amend, a Plan resulting in an increase in current
liability for the plan year such that the Borrower or any
Controlled Group member is required to provide security to
such Plan under Section 401(a)(29) of the Code,
except where such transactions, events, circumstances, or failures will not have
or is not likely to subject the Borrower and its Subsidiaries to liability
individually or in the aggregate in excess of $250,000.
(l) ISSUANCE OF EQUITY INTERESTS. The Borrower shall not issue any
Equity Interests if as a result of such issuance a Change of Control shall
occur. None of the Borrower's Subsidiaries shall issue any Equity Interests
other than to the Borrower except as permitted in connection with a Majority
Acquisition or as required to comply with the terms of the relevant franchise
agreement with a particular automotive manufacturer.
(m) CORPORATE DOCUMENTS; FRANCHISE AGREEMENTS. Neither the Borrower nor
any of its Subsidiaries shall amend, modify or otherwise change any of the terms
or provisions in any of their respective constituent documents as in effect on
the date hereof in any manner adverse in any respect to the interests of the
Lender without the prior written consent of the Lender. The Borrower shall not
permit any Lithia Dealership to amend, modify or otherwise change any of the
terms or provisions of such Lithia Dealership's franchise agreement in any
manner adverse in any respect to the interests of the Lender without the prior
written consent of the Lender.
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(n) FISCAL YEAR. Neither the Borrower nor any of its consolidated
Subsidiaries shall change its fiscal year for accounting or tax purposes from a
period consisting of the 12-month period ending on December 31 of each calendar
year.
(o) SUBSIDIARY COVENANTS. The Borrower will not, and will not permit
any Lithia Subsidiary to, create or otherwise cause to become effective any
consensual encumbrance or restriction of any kind on the ability of any Lithia
Subsidiary to (i) pay dividends or make any other distribution on its stock,
(ii) make any other Restricted Payment, (iii) pay any Indebtedness or other
Obligation owed to the Borrower or any other Lithia Subsidiary, (iv) make loans
or advances or other Investments in the Borrower or any other Lithia Subsidiary,
or (v) sell, transfer or otherwise convey any of its property to the Borrower or
any other Lithia Subsidiary, except as may be required to comply with any
applicable financial covenants under the terms of the franchise or dealer
agreement that Borrower or each of its Dealership Subsidiaries has with vehicle
manufactuerers.
(p) HEDGING OBLIGATIONS. The Borrower shall not and shall not permit
any of its Subsidiaries to enter into any interest rate, commodity or foreign
currency exchange, swap, collar, cap or similar agreements evidencing Hedging
Obligations, other than interest rate, foreign currency or commodity exchange,
swap, collar, cap or similar agreements entered into by the Borrower or a
Subsidiary pursuant to which the Borrower or such Subsidiary has hedged its
actual interest rate, foreign currency or commodity exposure.
(r) NEGATIVE PLEDGE. With respect to any Dealership Guarantor
operating under a franchise agreement with Toyota Motor Sales in USA, Inc,
American Honda Motor Corporation, or Nissan in USA, Inc., Borrower hereby agrees
that it shall not pledge or otherwise transfer its Capital Stock in such
Dealership to any Person.
5.4 FINANCIAL COVENANTS. The Borrower shall comply with the following:
(a) TOTAL DEBT TO TANGIBLE BASE CAPITAL RATIO. The Borrower shall not
at any time permit the ratio ("TBC RATIO") of Total Debt of the Lithia Group on
a consolidated basis to Tangible Base Capital of the Lithia Group on a
consolidated basis to be greater than 30:1.
(b) TOTAL ADJUSTED DEBT TO TANGIBLE BASE CAPITAL RATIO. The Borrower
shall not at any time permit the ratio ("ADJUSTED TBC RATIO") of Total Adjusted
Debt of the Lithia Group on a consolidated basis to Tangible Base Capital of the
Lithia Group on a consolidated basis to be greater than 15:1.
(c) CURRENT RATIO. The Borrower shall not at any time permit the ratio
(the "CURRENT RATIO") of Current Assets of the Lithia Group on a consolidated
basis to Current Liabilities of the Lithia Group on a consolidated basis to be
less than 1.2:1.
(d) FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain a ratio
("FIXED CHARGE COVERAGE RATIO") of (i) EBITDAR LESS Capital Expenditures for
tangible or intangible personal property paid in cash ("Maintenance Capital
Expenditures"), to (ii) (a) Interest Expense PLUS (b) scheduled amortization of
the principal portion of all Indebtedness for money borrowed (except for
Seller's Notes) PLUS (c) Rentals PLUS (d) taxes paid in cash during such period
of the Borrower and its consolidated Subsidiaries of at least 1.2:1 for each
fiscal quarter ending from and after the Effective Date. In each case the Fixed
Charge Coverage Ratio shall be determined as of the last day of each fiscal
quarter for the four-quarter period ending on such day.
(e) NET CASH. Borrower shall maintain positive Net Cash.
All financial covenants set forth in this SECTION 5.4 shall be
calculated by the Lender based on the calculations set forth in and the
financial statements attached to Officer's Certificates
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delivered hereunder and shall be binding on the Borrower for all purposes of
this Agreement absent manifest error.
6. EVENT OF DEFAULTS
6.1 EVENT OF DEFAULTS. Each of the following occurrences shall
constitute an Event of Default under this Agreement:
(a) FAILURE TO MAKE PAYMENTS WHEN DUE. The Borrower shall (i) fail to
pay when due any of the Obligations consisting of principal with respect to the
Advances or (ii) shall fail to pay within ten (10) days of the date when due any
of the other Obligations under this Agreement or the other Loan Documents.
(b) BREACH OF CERTAIN COVENANTS. The Borrower shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under SECTIONS 5.2(F), 5.2(K), 5.3 or 5.4.
(c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or
warranty made or deemed made by the Borrower to the Lender herein or by the
Borrower or any of its Subsidiaries in any of the other Loan Documents or in any
written certificate of any Authorized Officer at any time given by any such
Person pursuant to any of the Loan Documents shall be false or misleading in any
respect on the date as of which made (or deemed made).
(d) OTHER DEFAULTS. The Borrower shall default in the performance of or
compliance with any term contained in this Agreement (other than as covered by
PARAGRAPHS (A), (B) or (C) of this SECTION 6.1), or the Borrower or any of the
LIthia Subsidiaries shall default in the performance of or compliance with any
term contained in any of the other Loan Documents, and such default shall
continue for thirty (30) days after the occurrence thereof.
(e) DEFAULT AS TO OTHER INDEBTEDNESS. The Borrower or any of the Lithia
Subsidiaries shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) with respect
to any Indebtedness (other than Indebtedness constituting the deferred portion
of the purchase price of an asset which is subject to a good faith dispute,
which, together with all such other outstanding disputed Indebtedness, is not in
excess of $500,000 and which is being contested by the Borrower, and provided
that the Borrower has set aside adequate reserves covering such disputed
Indebtedness) the outstanding principal amount of which Indebtedness is in
excess of $100,000; or any breach, default or event of default shall occur, or
any other condition shall exist under any instrument, agreement or indenture
pertaining to any such Indebtedness, if the effect thereof is to cause an
acceleration, mandatory redemption, a requirement that the Borrower offer to
purchase such Indebtedness or other required repurchase of such Indebtedness, or
permit the holder(s) of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any such Indebtedness shall be otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or otherwise
repurchased by the Borrower or any of the Lithia Subsidiaries (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof.
(f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) An involuntary case shall be commenced against
the Borrower or any of the Borrower's Subsidiaries and the
petition shall not be dismissed, stayed, bonded or
discharged within sixty (60) days after commencement of the
case; or a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the
Borrower or any of the
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Borrower's Subsidiaries in an involuntary case, under any
applicable bankruptcy, insolvency or other similar law now or
hereinafter in effect; or any other similar relief shall be
granted under any applicable federal, state, local or foreign
law.
(ii) A decree or order of a court having
jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Borrower or
any of the Borrower's Subsidiaries or over all or a
substantial part of the property of the Borrower or any of
the Borrower's Subsidiaries shall be entered; or an interim
receiver, trustee or other custodian of the Borrower or any
of the Borrower's Subsidiaries or of all or a substantial
part of the property of the Borrower or any of the
Borrower's Subsidiaries shall be appointed or a warrant of
attachment, execution or similar process against any
substantial part of the property of the Borrower or any of
the Borrower's Subsidiaries shall be issued and any such
event shall not be stayed, dismissed, bonded or discharged
within sixty (60) days after entry, appointment or
issuance.
(g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Borrower or
any of the Borrower's Subsidiaries shall (i) commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) consent to the entry of an order for relief in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, under any such
law, (iii) consent to the appointment of or taking possession by a receiver,
trustee or other similar custodian for the benefit of creditors for all or a
substantial part of its property, (iv) make any assignment for the benefit of
creditors or (v) take any corporate action to authorize any of the foregoing.
(h) JUDGMENTS AND ATTACHMENTS. Any money judgment(s) (other than a
money judgment covered by insurance as to which the insurance company has not
disclaimed coverage or if it has reserved the right to disclaim coverage, such
letter reserving the right to disclaim coverage is outstanding twelve months
after such money judgment was rendered), writ or warrant of attachment, or
similar process against the Borrower or any of its Subsidiaries or any of their
respective assets involving in any single case or in the aggregate an amount in
excess of $250,000 is or are entered and shall remain undischarged, unvacated,
unbonded or unstayed for a period of sixty (60) days or in any event later than
fifteen (15) days prior to the date of any proposed sale thereunder.
(i) DISSOLUTION. Any order, judgment or decree shall be entered against
the Borrower or any of its Subsidiaries decreeing its involuntary dissolution or
split up and such order shall remain undischarged and unstayed for a period in
excess of sixty (60) days; or the Borrower or any of its Subsidiaries shall
otherwise dissolve or cease to exist except as specifically permitted by this
Agreement.
(j) LOAN DOCUMENTS; FAILURE OF SECURITY. At any time, for any reason,
(i) any Loan Document as a whole that affects the ability of the Lender to
enforce the Obligations or enforce its rights against the Collateral ceases to
be in full force and effect or the Borrower or any of the Borrower's
Subsidiaries party thereto seeks to repudiate its obligations thereunder and the
liens intended to be created thereby are, or the Borrower or any such Subsidiary
seeks to render such liens, invalid or unperfected, or (ii) any lien on
Collateral in favor of the Lender contemplated by the Loan Documents shall, at
any time, for any reason, be invalidated or otherwise cease to be in full force
and effect or such lien shall not have the priority contemplated by this
Agreement or the Loan Documents and such failure shall continue for three (3)
days after the occurrence thereof.
(k) TERMINATION EVENT. Any Termination Event occurs which is reasonably
likely to subject the Borrower or any of its Subsidiaries to liability
individually or in the aggregate in excess of $250,000, and such Termination
Event shall continue for three (3) days after the occurrence thereof, PROVIDED
HOWEVER, if such Termination Event is a Reportable Event, then prior to such
Termination
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Event causing an Event of Default under this SECTION 6.1(K), such Termination
Event shall continue for ten (10) days after the occurrence thereof.
(l) WAIVER OF MINIMUM FUNDING STANDARD. If the plan administrator of
any Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and the Lender believes the
substantial business hardship upon which the application for the waiver is based
could reasonably be expected to subject either the Borrower or any Controlled
Group member to liability individually or in the aggregate in excess of
$250,000.
(m) CHANGE OF CONTROL. A Change of Control shall occur.
(n) HEDGING AGREEMENTS. Nonpayment by the Borrower or any Subsidiary of
any obligation under any contract with respect to Hedging Obligations entered
into by the Borrower or such Subsidiary with the Lender (or Affiliate thereof)
or the breach by the Borrower or Subsidiary of any other term, provision or
condition contained in any agreement and such nonpayment or breach shall
continue for ten (10) days after the occurrence thereof.
(o) GUARANTOR DEFAULT OR REVOCATION. Any Lithia Guaranty shall fail to
remain in full force or effect or any action shall be taken by the Borrower or
any Dealership Guarantor to discontinue or to assert the invalidity or
unenforceability of any Lithia Guaranty or the Borrower or any Dealership
Guarantor shall fail to comply with any of the terms or provisions of any Lithia
Guaranty to which it is a party, or the Borrower or any Dealership Guarantor
denies that it has any further liability under any Lithia Guaranty to which it
is a party, or gives notice to such effect.
(p) ENVIRONMENTAL MATTERS. The Borrower or any of the LIthia
Subsidiaries shall be the subject of any proceeding or investigation pertaining
to (i) the Release by the Borrower or any of the Lithia Subsidiaries of any
Contaminant into the environment, (ii) the liability of the Borrower or any of
the LIthia Subsidiaries arising from the Release by any other person of any
Contaminant into the environment, or (iii) any violation of any Environmental,
Health or Safety Requirements of Law by the Borrower or any of its Subsidiaries,
which, in any case, has subjected or is reasonably likely to subject the
Borrower or any of the Lithia Subsidiaries to liability individually or in the
aggregate in excess of $500,000.
An Event of Default shall be deemed "continuing" until cured or until
waived in writing in accordance with SECTION 7.3.
7. ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
7.1 TERMINATION OF COMMITMENTS; ACCELERATION. If any Event of Default
described in SECTION 6.1(F) or 6.1(G) occurs with respect to the Borrower, the
obligation of the Lender to make Advances hereunder shall automatically
terminate and the Obligations shall immediately become due and payable without
any election or action on the part of the Lender. If any other Event of Default
occurs, the Lender may terminate or suspend its obligations to make Advances
hereunder, or declare the Obligations to be due and payable, or both, whereupon,
after written notice to the Borrower, the Obligations shall become immediately
due and payable, without presentment, demand, protest or other notice of any
kind, all of which the Borrower expressly waives.
7.2 AMENDMENTS. No amendment, waiver or modification of any provision
of this Agreement shall be effective unless signed by each of the parties hereto
and then only to the extent in such writing specifically set forth.
7.3 PRESERVATION OF RIGHTS. No delay or omission of the Lender to
exercise any right under the Loan Documents shall impair such right or be
construed to be a waiver of any Event of Default or
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an acquiescence therein, and the making of an Advance notwithstanding the
existence of an Event of Default or the inability of the Borrower to satisfy
the conditions precedent to such Advance shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions
or provisions of the Loan Documents whatsoever shall be valid unless in
writing signed by the Lender, and then only to the extent in such writing
specifically set forth. All remedies contained in the Loan Documents or by
law afforded shall be cumulative and all shall be available to the Lender
until the Obligations have been paid in full.
8. GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Note and
the making of the Advances herein contemplated.
8.2 GOVERNMENTAL REGULATION. Anything contained in this Agreement to
the contrary notwithstanding, the Lender shall not be obligated to extend credit
to the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
8.3 PERFORMANCE OF OBLIGATIONS. The Borrower agrees that the Lender
may, but shall have no obligation to (i) at any time, pay or discharge taxes,
liens, security interests or other encumbrances levied or placed on or
threatened against any Collateral, unless such claims are being contested in
good faith by the Borrower and the Borrower has set aside adequate reserves
covering such tax, lien, security interest or other encumbrance and no Event of
Default has occurred and is outstanding and (ii) after the occurrence and during
the continuance of an Event of Default to make any payment or perform any act
required of the Borrower under any Loan Document or take any other action which
the Lender in its discretion deems necessary or desirable to protect or preserve
the Collateral, including, without limitation, any action to (y) effect any
repairs or obtain any insurance called for by the terms of any of the Loan
Documents and to pay all or any part of the premiums therefor and the costs
thereof and (z) pay any rents payable by the Borrower which are more than 30
days past due, or as to which the landlord has given notice of termination,
under any lease. The Lender shall use its efforts to give the Borrower notice
of any action taken under this SECTION 8.3 prior to the taking of such action or
promptly thereafter provided the failure to give such notice shall not affect
the Borrower's obligations in respect thereof. The Borrower agrees to pay the
Lender, upon demand, the principal amount of all funds advanced by the Lender
under this SECTION 8.3, together with interest thereon at the rate from time to
time applicable to Advances from the date of such advance until the outstanding
principal balance thereof is paid in full. All outstanding principal of, and
interest on, advances made under this SECTION 8.3 shall constitute Obligations
for purposes hereof.
8.4 HEADINGS. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
8.5 ENTIRE AGREEMENT. The Loan Documents embody the entire agreement
and understanding among the Borrower and the Lender and the Loan Documents
delivered on the Effective Date supersede all prior agreements and
understandings among the Borrower and the Lender relating to the subject matter
thereof.
8.6 EXPENSES; INDEMNIFICATION.
(a) EXPENSES. The Borrower shall reimburse the Lender for any
reasonable costs, internal charges and out-of-pocket expenses (including
reasonable attorneys' and paralegals' fees and time charges of attorneys and
paralegals for the Lender, which attorneys and paralegals may be employees of
the Lender) paid or incurred by the Lender in connection with the preparation,
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negotiation, execution, delivery, review, amendment, modification, and
administration of the Loan Documents. The Borrower also agrees to reimburse the
Lender for any costs, internal charges and out-of-pocket expenses (including
attorneys' and paralegals' fees and time charges of attorneys and paralegals for
the Lender, which attorneys and paralegals may be employees of the Lender) paid
or incurred by the Lender in connection with the collection of the Obligations
and enforcement of the Loan Documents. In addition to expenses set forth above,
the Borrower agrees to reimburse the Lender, promptly after the Lender's request
therefor, for each audit or other business analysis performed by it in
connection with this Agreement or the other Loan Documents at a time when an
Event of Default exists in an amount equal to the Lender's then reasonable and
customary charges for each person employed to perform such audit or analysis,
plus all costs and expenses (including without limitation, travel expenses)
incurred by the Lender in the performance of such audit or analysis. Lender
shall provide the Borrower with a detailed statement of all reimbursements
requested under this SECTION 8.6(A).
(b) INDEMNITY. The Borrower further agrees to defend, protect,
indemnify, and hold harmless the Lender and each of its Affiliates, and each of
the Lender's, or Affiliate's respective officers, directors, employees,
attorneys and agents (including, without limitation, those retained in
connection with the satisfaction or attempted satisfaction of any of the
conditions set forth in ARTICLE III) (collectively, the "INDEMNITEES") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses of any kind or nature
whatsoever (including, without limitation, the fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitees shall be designated a party
thereto), imposed on, incurred by, or asserted against such Indemnitees in any
manner relating to or arising out of:
(i) this Agreement, the other Loan Documents or any of
the Transaction Documents, or any act, event or transaction related or
attendant thereto the making of the Advances, hereunder, the
management of such Advances, the use or intended use of the proceeds
of the Advances hereunder, or any of the other transactions
contemplated by the Transaction Documents; or
(ii) any liabilities, obligations, responsibilities,
losses, damages, personal injury, death, punitive damages, economic
damages, consequential damages, treble damages, intentional, willful
or wanton injury, damage or threat to the environment, natural
resources or public health or welfare, costs and expenses (including,
without limitation, attorney, expert and consulting fees and costs of
investigation, feasibility or remedial action studies), fines,
penalties and monetary sanctions, interest, direct or indirect, known
or unknown, absolute or contingent, past, present or future relating
to violation of any Environmental, Health or Safety requirements of
law arising from or in connection with the past, present or future
operations of the Borrower, its Subsidiaries or any of their
respective predecessors in interest, or, the past, present or future
environmental, health or safety condition of any respective property
of the Borrower or its Subsidiaries, the presence of
asbestos-containing materials at any respective property of the
Borrower or its Subsidiaries or the Release or threatened Release of
any Contaminant into the environment (collectively, the "INDEMNIFIED
MATTERS");
PROVIDED, HOWEVER, the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Matters caused by or resulting from the
willful misconduct or gross negligence of such Indemnitee as determined by the
final non-appealed judgment of a court of competent jurisdiction. If the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion which it is permitted
to pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Indemnitees.
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(c) Notwithstanding anything else in this Agreement to the contrary, no
party shall have any obligation to reimburse any person for attorneys' fees and
expenses unless such fees and expenses are (i) reasonable in amount, (ii)
determined without reference to any statutory presumption and (iii) calculated
using the actual time expended and the standard hourly rate for the attorneys
and paralegals performing the tasks in question and the actual out-of-pocket
expenses incurred.
(d) WAIVER OF CERTAIN CLAIMS; SETTLEMENT OF CLAIMS. The Borrower
further agrees to assert no claim against any of the Indemnitees on any theory
of liability for consequential, special, indirect, exemplary or punitive
damages. No settlement shall be entered into by the Borrower or any if its
Subsidiaries with respect to any claim, litigation, arbitration or other
proceeding relating to or arising out of the transactions evidenced by this
Agreement or the other Loan Documents (whether or not the Lender or any
Indemnitee is a party thereto) unless such settlement releases all Indemnitees
from any and all liability with respect thereto.
(e) SURVIVAL OF AGREEMENTS. The obligations and agreements of the
Borrower under this SECTION 8.6 shall survive the termination of this Agreement.
8.7 ACCOUNTING. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
8.8 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
8.9 NONLIABILITY OF LENDER. The relationship between the Borrower and
the Lender shall be solely that of borrower and lender. The Lender shall have
no fiduciary responsibilities to the Borrower and the Lender does not take any
responsibility to the Borrower to review or inform the Borrower of any matter in
connection with any phase of the Borrower's business or operations.
8.10 GOVERNING LAW. ANY DISPUTE BETWEEN THE BORROWER AND THE LENDER, OR
ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR
OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT
REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF OREGON.
8.11 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(a) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH
OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN OREGON, BUT THE PARTIES HERETO
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF OREGON.
(b) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE LENDER OR ANY
INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY
IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN
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PERSONAL JURISDICTION OVER THE BORROWER OR (2) REALIZE ON THE COLLATERAL OR
ANY OTHER SECURITY FOR THE OBLIGATIONS OR ENFORCE A JUDGMENT OR OTHER COURT
ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY OBJECTION
THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS
COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B).
(c) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY
PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS,
PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY
THE LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER
ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO
LIMIT THE ABILITY OF THE LENDER TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN
ANY OTHER MANNER PERMITTED BY APPLICABLE LAW THE BORROWER IRREVOCABLY WAIVES ANY
OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE.
(d) WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) WAIVER OF BOND. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY
HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT
OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION,
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(f) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER
PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE
PROVISIONS OF THIS SECTION 8.11, WITH ITS COUNSEL.
8.12 NO STRICT CONSTRUCTION. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
8.13 SUBORDINATION OF INTERCOMPANY INDEBTEDNESS. The Borrower agrees
that any and all claims of the Borrower against any Dealership Guarantor, any
endorser or any other guarantor of all
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or any part of the Obligations, or against any of its properties, including,
without limitation, pursuant to the any intercompany Indebtedness permitted
under SECTION 5.3(A)(VI), shall be subordinate and subject in right of
payment to the prior payment, in full and in cash, of all Obligations.
Notwithstanding any right of the Borrower to ask, demand, sue for, take or
receive any payment from any Dealership Guarantor, all rights, liens and
security interests of the Borrower, whether now or hereafter arising and
howsoever existing, in any assets of any Dealership Guarantor shall be and
are subordinated to the rights, if any, of the Lender in those assets. The
Borrower shall have no right to possession of any such asset or to foreclose
upon any such asset, whether by judicial action or otherwise, unless and
until all of the Obligations shall have been paid in full in cash and
satisfied and all financing arrangements under this Agreement and the other
Loan Documents between the Borrower and the Lender have been terminated. If,
during the continuance of an Event of Default, all or any part of the assets
of any Dealership Guarantor, or the proceeds thereof, are subject to any
distribution, division or application to the creditors of any Dealership
Guarantor, whether partial or complete, voluntary or involuntary, and whether
by reason of liquidation, bankruptcy, arrangement, receivership, assignment
for the benefit of creditors or any other action or proceeding, then, and in
any such event, any payment or distribution of any kind or character, either
in cash, securities or other property, which shall be payable or deliverable
upon or with respect to any indebtedness of any Dealership Guarantor to the
Borrower, including, without limitation, pursuant to the any intercompany
Indebtedness permitted under SECTION 5.3(A)(VI) ("INTERCOMPANY INDEBTEDNESS")
shall be paid or delivered directly to the Lender for application on any of
the Obligations, due or to become due, until such Obligations shall have
first been paid in full in cash and satisfied; PROVIDED, HOWEVER, ordinary
course payments or distributions made by any Dealership Guarantor to the
Borrower shall be required to be paid or delivered to the Lender only upon
the Lender's request. The Borrower irrevocably authorizes and empowers the
Lender to demand, sue for, collect and receive every such payment or
distribution and give acquittance therefor and to make and present for and on
behalf of the Borrower such proofs of claim and take such other action, in
the Lender's own name or in the name of the Borrower or otherwise, as the
Lender may deem necessary or advisable for the enforcement of this SECTION
8.13. The Lender may vote such proofs of claim in any such proceeding,
receive and collect any and all dividends or other payments or disbursements
made thereon in whatever form the same may be paid or issued and apply the
same on account of any of the Obligations. Should any payment, distribution,
security or instrument or proceeds thereof be received by the Borrower upon
or with respect to the Intercompany Indebtedness during the continuance of an
Event of Default and prior to the satisfaction of all of the Obligations and
the termination of all financing arrangements under this Agreement and the
other Loan Documents between the Borrower and the Lender, the Borrower shall
receive and hold the same in trust, as trustee, for the benefit of the Lender
and shall forthwith deliver the same to the Lender, in precisely the form
received (except for the endorsement or assignment of the Borrower where
necessary), for application to any of the Obligations, due or not due, and,
until so delivered, the same shall be held in trust by the Borrower as the
property of the Lender; PROVIDED, HOWEVER, ordinary course payments or
distributions made to or by any Dealership Guarantor to the Borrower shall be
required to be paid or delivered to the Lender only upon the Lender's request
after the occurrence and Continuance of an Event of Default. If the Borrower
fails to make any such endorsement or assignment to the Lender, the Lender or
any of its officers or employees are irrevocably authorized to make the same.
The Borrower agrees that until the Obligations have been paid in full in cash
and satisfied and all financing arrangements under this Agreement and the
other Loan Documents between the Borrower and the Lender have been
terminated, the Borrower will not assign or transfer to any Person (other
than the Lender) any claim the Borrower has or may have against any
Dealership Guarantor.
8.14 USURY NOT INTENDED. It is the intent of the Borrower and the
Lender in the execution and performance of this Agreement and the other Loan
Documents to contract in strict compliance with applicable usury laws, including
conflicts of law concepts, governing the Advances of the Lender including such
applicable laws of the State of Oregon and the United States of America from
time-to-time in effect. In furtherance thereof, the Lender and the Borrower
stipulate and agree that none of the terms and provisions contained in this
Agreement or the other Loan Documents shall ever
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be construed to create a contract to pay, as consideration for the use,
forbearance or detention of money, interest at a rate in excess of the
Maximum Rate and that for purposes hereof "interest" shall include the
aggregate of all charges which constitute interest under such laws that are
contracted for, charged or received under this Agreement; and in the event
that, notwithstanding the foregoing, under any circumstances the aggregate
amounts taken, reserved, charged, received or paid on the Advances, include
amounts which by applicable law are deemed interest which would exceed the
Maximum Rate, then such excess shall be deemed to be a mistake and the Lender
receiving same shall credit the same on the principal of its Note (or if the
Note shall have been paid in full, refund said excess to the Borrower). In
the event that the maturity of the Note is accelerated by reason of any
election of the holder thereof resulting from any Event of Default under this
Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never
include more than the Maximum Rate and excess interest, if any, provided for
in this Agreement or otherwise shall be canceled automatically as of the date
of such acceleration or prepayment and, if theretofore paid, shall be
credited on the applicable Note (or, if the Note shall have been paid in
full, refunded to the Borrower of such interest). In determining whether or
ot the interest paid or payable under any specific contingencies exceeds the
Maximum Rate, the Borrower and the Lender shall to the maximum extent
permitted under applicable law amortize, prorate, allocate and spread in
equal parts during the period of the full stated term of the Note all amounts
considered to be interest under applicable law at any time contracted for,
charged, received or reserved in connection with the Obligations. The
provisions of this Section shall control over all other provisions of this
Agreement or the other Loan Documents which may be in apparent conflict
herewith.
9. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
9.1 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights or obligations under the Loan
Documents.
9.2 PARTICIPATIONS.
(a) PERMITTED PARTICIPANTS; EFFECT. Subject to the terms set forth in
this SECTION 9.2, the Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
financial institutions ("PARTICIPANTS") participating interests in any Advance
owing to the Lender, the Note, the Commitment or any other interest of the
Lender under the Loan Documents on a pro rata or non-pro rata basis. Notice of
such participation to the Borrower shall be required prior to any participation
becoming effective. In the event of any such sale by the Lender of
participating interests to a Participant, the Lender's obligations under the
Loan Documents shall remain unchanged, the Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
the Lender shall remain the holder of the Note for all purposes under the Loan
Documents, all amounts payable by the Borrower under this Agreement shall be
determined as if the Lender had not sold such participating interests, and the
Borrower shall continue to deal solely and directly with the Lender in
connection with the Lender's rights and obligations under the Loan Documents.
(b) VOTING RIGHTS. The Lender shall retain the sole right to approve,
without the consent of any participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Advance or Commitment in which such participant has
an interest.
9.3 ASSIGNMENTS. The Lender may, in the ordinary course of its business
and in accordance with applicable law, at any time assign to one or more banks
or other financial institutions approved by the Borrower within 10 days of
notice to the Borrower by the Lender of such assignment (which such
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approval shall not be unreasonably withheld) all or a portion of its rights
and obligations under this Agreement (including, without limitation, its
Commitment and all Advances owing to it) pursuant to an assignment agreement
in form and substance satisfactory to the Lender. Notwithstanding the
foregoing, the Borrower shall not have any right to approve an assignee under
this SECTION 9.3, after the occurrence and continuance of an Event of Default
or to the extent such assignee is an Affiliate of the Lender, PROVIDED,
HOWEVER, that to the extent the Lender assigns its obligations hereunder,
such Affiliate shall be a United States Person and the Lender shall have
provided such financial statements as the Borrower shall have reasonably
requested.
9.4 CONFIDENTIALITY. Subject to SECTION 9.5, the Lender shall hold all
nonpublic information obtained pursuant to the requirements of this Agreement
and identified as such by the Borrower in accordance with the Lender's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure reasonably required by a prospective Transferee in connection with
the contemplated participation or as required or requested by any governmental
authority or representative thereof or pursuant to legal process and shall
require any such Transferee to agree (and require any of its Transferees to
agree) to comply with this SECTION 9.4. In no event shall the Lender be
obligated or required to return any materials furnished by the Borrower;
PROVIDED, HOWEVER, each prospective Transferee shall be required to agree that
if it does not become a participant it shall return all materials furnished to
it by or on behalf of the Borrower in connection with this Agreement.
9.5 DISSEMINATION OF INFORMATION. The Borrower authorizes the Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any
prospective Transferee any and all information in the Lender's possession
concerning the Borrower and its Subsidiaries; PROVIDED that prior to any such
disclosure, such prospective Transferee shall agree to preserve in accordance
with SECTION 9.4 the confidentiality of any confidential information described
therein.
10. NOTICES
10.1 GIVING NOTICE. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic, telex or cable
communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to the Borrower, at its address at 360 East Jackson Street,
Medford, Oregon 97501, if to the Lender, at its address specified in the Credit
Agreement; or, as to each party, at such other address as shall be designated by
such party in a written notice to the other party. All such notices and
communications shall be effective, upon receipt, or in the case of (i) notice by
mail, five days after being deposited in the United States mails, first class
postage prepaid, (ii) notice by overnight courier, one business day after being
deposited with a national overnight courier service, (iii) notice by telex, when
telexed against receipt of answer back or (iv) notice by facsimile copy, when
transmitted against mechanical confirmation of successful transmission.
10.2 CHANGE OF ADDRESS. The Borrower and the Lender may each change the
address for service of notice upon it by a notice in writing to the other
parties hereto.
11. COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Borrower and the
Lender.
12. CAPITAL STOCK PLEDGES
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With respect to all Capital Stock in any Lithia Dealerships pledged to
Lender, Lender agrees that upon written notice from Borrower that an automotive
manufacturer objects to such pledge, Lender shall fully release any interest it
may have in such Capital Stock and return pledged certificates, if any, to
Borrower.
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IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement as of the date first above written.
LITHIA MOTORS, INC., as the Borrower
By:
-----------------------------------
M. L. Dick, Heimann, President
Attest
--------------------------------
Sidney B. DeBoer, Secretary
Address: 360 East Jackson Street
Medford, Oregon
Attention:
----------------------------
Telephone No.:
------------------------
Facsimile No.:
------------------------
FORD MOTOR CREDIT COMPANY, as Lender
By:
-----------------------------------
B. W. Evans, National
Account Manager
Address:
------------------------------
------------------------------
Attention: B. W. Evans
----------------------------
Telephone No.:
------------------------
Facsimile No.:
------------------------
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EXHIBIT 10.30
CREDIT AGREEMENT
This Credit Agreement (this "Agreement") dated November 23, 1998 is
entered into between LITHIA MOTORS, INC., an Oregon corporation, ("Borrower")
and FORD MOTOR CREDIT COMPANY, a Delaware corporation ("Lender"). The parties
hereto agree as follows:
Borrower has requested Lender to extend a revolving line of credit to
Borrower in the principal amount not to exceed $60,000,000.00 (the "Loan") in
order to fund the used floor plan financing for certain dealership Subsidiaries
(as defined herein) of Borrower.
Lender is willing to make the Loan to Borrower provided that Borrower
grants to Lender a security interest in the Collateral and provides such other
security as required by this Agreement and that Borrower complies with the
conditions precedent and other terms and conditions of this Agreement and the
Security Documents (as defined herein).
Now therefore, in consideration of the promises, covenants and
undertakings set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by the parties hereto,
Lender and Borrower hereby agree as follows:
1. DEFINITIONS
1.1 The following terms used in this Agreement shall have the following
meanings, applicable both to the singular and the plural forms of the terms
defined.
(a) "ACQUISITION" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or a subsidiary holding company (i) acquires any going business or all
or substantially all of the assets of any automobile dealership and/or related
operations (e.g. body shop and service repair centers), whether through purchase
of assets, merger or otherwise or (ii) directly or indirectly acquires (in one
transaction or as the most recent transaction in a series of transactions) at
least a majority (in number of votes) of the securities of such a corporation
which have ordinary voting power for the election of directors (other than
securities having such power only by reason of the happening of a contingency)
or a majority (by percentage of voting power) of the outstanding equity
interests of such an entity.
(b) "ACQUISITION DOCUMENTS" means all documents, instruments and
agreements entered into in connection with any Acquisition.
(c) "ADVANCE" means any loan made by the Lender under SECTION 2.1
hereof.
(d) "AFFILIATE" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
A Person shall be deemed to control another Person if the controlling Person is
the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of greater than five percent (5%) or more of any class of voting
securities (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether through ownership of
Capital Stock, by contract or otherwise.
(e) "AGREEMENT" means this Agreement, as it may be amended, restated
or otherwise modified and in effect from time to time.
<PAGE>
(f) "AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted
accounting principles in effect from time to time, applied in a manner
consistent with that used in preparing the financial statements referred to in
SECTION 5.1(A) hereof, PROVIDED, HOWEVER, all PRO FORMA financial statements
reflecting Acquisitions shall be prepared in accordance with the requirements
established by the Commission for acquisition accounting for reporting
acquisitions by public companies (whether or not such Acquisitions are required
to be publicly reported).
(g) "APPLICABLE COMMERCIAL PAPER RATE" means the Commercial Paper Rate
PLUS two and fifty hundredths percent (2.50%) per annum.
(h) "ASSET SALE" means, with respect to any Person, the sale, lease,
conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-leaseback transaction and including the sale or
other transfer of any of the Equity Interests of any Subsidiary of such Person).
(i) "AUTHORIZED OFFICER" means any of the chief executive officer,
president, chief financial officer or vice president of accounting of the
Borrower, acting singly.
(j) "BENEFIT PLAN" means a defined benefit plan as defined in Section
3(35) of ERISA (other than a Multi-employer Plan) in respect of which the
Borrower or any other member of the Controlled Group is, or within the
immediately preceding six (6) years was, an "employer" as defined in Section
3(5) of ERISA.
(k) "BORROWER GUARANTY" means that certain Guaranty, dated as of even
date herewith, pursuant to which the Borrower guaranties all Lithia Dealership
obligations arising under any Wholesale Line, as it may be amended, restated or
otherwise modified and in effect from time to time.
(l) "BORROWER PLEDGES" means each of (i) that certain Pledge
Agreement, dated as of even date herewith, from the Borrower to the Lender
pursuant to which the Borrower pledges the Capital Stock of certain corporate
Subsidiaries, as it may be amended, restated or otherwise modified and in effect
from time to time, (ii) that certain Pledge Agreement, dated as of even date
herewith, from the Borrower to the Lender pursuant to which the Borrower pledges
the Capital Stock of certain limited liability company Subsidiaries, as it may
be amended, restated or otherwise modified and in effect from time to time and
(iii) any other pledge of Capital Stock delivered by a member of the Lithia
Group from time to time to the Lender.
(m) "BORROWER SECURITY AGREEMENT" means that certain Security
Agreement, dated as of even date herewith, from the Borrower to the Lender
pursuant to which the Borrower pledged all of its assets to secure the
Obligations hereunder and the obligations of each Lithia Dealership under any
Wholesale Line provided by the Lender to such Lithia Dealership, as it may be
amended, restated or otherwise modified and in effect from time to time.
(n) "CAPITAL EXPENDITURES" means, for any period, the aggregate of all
expenditures (other than in connection with Permitted Acquisitions), whether
paid in cash or accrued as liabilities, including Capitalized Lease Obligations,
by the Borrower and its Subsidiaries during that period that, in conformity with
Agreement Accounting Principles, are required to be included in or reflected by
the property, plant, equipment or similar fixed asset accounts reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries.
(o) "CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited), (iv) in the case of a limited liability
company, any and all membership interests or other equivalents (however
designated) and (v) any other interest or
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participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
(p) "CAPITALIZED LEASE" of a Person means any lease of property by
such Person as lessee which would be capitalized on a balance sheet of such
Person prepared in accordance with Agreement Accounting Principles.
(q) "CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of
the obligations of such Person under Capitalized Leases which would be
capitalized on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
(r) "CASH EQUIVALENTS" means (i) marketable direct obligations
issued or unconditionally guaranteed by the United States government and
backed by the full faith and credit of the United States government; (ii)
domestic and Eurodollar certificates of deposit and time deposits, bankers'
acceptances and floating rate certificates of deposit issued by any
commercial bank organized under the laws of the United States, any state
thereof, the District of Columbia, or its branches or agencies; (iii) shares
of money market, mutual or similar funds having assets in excess of
$100,000,000 and the investments of which are limited to investment grade
securities (i.e., securities rated at least BAA by Moody's Investors Service,
Inc. or at least BBB by Standard & Poor's Corporation); (iv) commercial paper
of United States and foreign banks and bank holding companies and their
subsidiaries and United States and foreign finance, commercial industrial or
utility companies which, at the time of acquisition, are rated A-1 (or
better) by Standard & Poor's Ratings Group or P-1 (or better) by Moody's
Investors Services, Inc.; (v) corporate bonds, mortgage-backed securities and
municipal bonds in each case of a domestic issuer rated at the date of
acquisition not less than AAA by Moody's Investor Services, Inc. or AAA by
Standard & Poor's Corporation with maturities of no more than two (2) years
from the date of acquisition; and (vi) money market funds with respect to
which not less than 90% of such funds are invested in the type of investments
specified in clauses (i) through (v) above; PROVIDED, unless the context
otherwise requires, that the maturities of such Cash Equivalents shall not
exceed 365 days.
(s) "CHANGE OF CONTROL" means an event or series of events by which:
(i) Lithia Holding Company, L.L.C. ceases to own,
directly or indirectly, more than 51.0% of the voting power of the
Borrower's Capital Stock ordinarily having the right to vote at an
election of directors or the Principal, , ceases to control Lithia
Holding Company, L.L.C.;
(ii) during any period of 24 consecutive calendar
months, individuals:
(a) who were directors of the Borrower on the first
day of such period, or
(b) whose election or nomination for election to
the board of directors of the Borrower was recommended
or approved by at least a majority of the directors then
still in office who were directors of the Borrower on
the first day of such period, or whose election or
nomination for election was so approved, shall cease to
constitute a majority of the board of directors of the
Borrower;
(iii) the Borrower consolidates with or merges into
another corporation or conveys, transfers or leases all or
substantially all of its property to any Person, or any corporation
consolidates with or merges into the Borrower, in either event
pursuant to a transaction in which the outstanding Capital Stock of
the Borrower is reclassified or changed into or exchanged for (A) cash
or Cash Equivalents or (B) securities, and the holders of the Capital
Stock in the Borrower immediately prior to such transaction do not, as
a result of such transaction, own, directly or indirectly, more than
fifty percent (50%) of the combined voting
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power of the Borrower's Capital Stock or the Capital Stock of its
successor entity in such transaction;
(iv) Borrower ceases to own, directly or indirectly, 80%
of any Subsidiary.
(u) "CHARTER DOCUMENTS" means (i) in the case of a corporation, such
entity's articles of incorporation and by-laws, (ii) in the case of a limited
liability company, such entity's articles of organization and operating
agreement or equivalent (however designated), (iii) in the case of a
partnership, such entity's partnership agreement or equivalent (however
designated) and (iv) in the case of an association or other business entity not
described above, such entity's founding documents (however designated).
(v) "CODE" means the Internal Revenue Code of 1986, as amended,
reformed or otherwise modified from time to time, or any successor statute.
(w) "COLLATERAL" means all property and interests in property now
owned or hereafter acquired by the Borrower or any of its Subsidiaries in or
upon which a security interest, lien or mortgage is granted to the Lender,
whether under the Borrower Security Agreement, under any of the other Collateral
Documents or under any of the other Loan Documents.
(x) "COLLATERAL DOCUMENTS" means all agreements, instruments and
documents executed in connection with this Agreement that are intended to create
or evidence Liens to secure the Obligations and all Floor Plan Indebtedness,
including, without limitation, the Borrower Security Agreement, the Borrower
Pledges, the subsidiary holding company pledges, each Dealership Security
Agreement and all other security agreements, mortgages, deeds of trust, loan
agreements, notes, guaranties, subordination agreements, pledges, powers of
attorney, consents, assignments, contracts, fee letters, notices, leases,
financing statements and all other written matter whether heretofore, now, or
hereafter executed by or on behalf of the Borrower or any of its Subsidiaries
and delivered to the Lender, together with all agreements and documents referred
to therein or contemplated thereby.
(y) "COMMERCIAL PAPER RATE" means the interest rate for "1-Month
Finance Paper Placed Directly" under the column entitled "Week Ending" for the
Friday preceding the last Monday of a calendar month as reported in the Federal
Reserve Statistical Release No. H.15 (519) issued by the Federal Reserve Board.
In the event such Release is discontinued or modified to eliminate the reporting
of a 30-day commercial paper rate, then Lender will substitute, in its sole
discretion, a comparable report or release of the 30-day commercial paper rate
published by a comparable source.
(z) "COMMISSION" means the Securities and Exchange Commission and any
Person succeeding to the functions thereof.
(aa) "COMMITMENT" means the lesser of (i) $60,000,000 MINUS the amount
of any Decision Reserve, if any, in effect from time to time, or (ii) 100% of
Used Vehicle Value MINUS the amount of any Decision Reserve, if any, in effect
from time to time.
(bb) "CONSOLIDATED NET WORTH" means, at a particular date, the amount
by which the total consolidated assets (other than amounts for Equipment and
real estate) of the Borrower and its consolidated Subsidiaries exceeds the total
consolidated liabilities (other than liabilities for Equipment and real estate)
of the Borrower and its consolidated Subsidiaries.
(cc) "CONTAMINANT" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBS"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
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(dd) "CONTINGENT OBLIGATION", as applied to any Person, means any
Contractual Obligation, contingent or otherwise, of that Person with respect to
any Indebtedness of another or other obligation or liability of another,
including, without limitation, any such Indebtedness, obligation or liability of
another directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable, including Contractual Obligations
(contingent or otherwise) arising through any agreement to purchase, repurchase,
or otherwise acquire such Indebtedness, obligation or liability or any security
therefor, or to provide funds for the payment or discharge thereof (whether in
the form of loans, advances, stock purchases, capital contributions or
otherwise), or to maintain solvency, assets, level of income, or other financial
condition, or to make payment other than for value received.
(ee) "CONTRACTUAL OBLIGATION", as applied to any Person, means any
material provision of any equity or debt securities issued by that Person or any
material indenture, mortgage, deed of trust, security agreement, pledge
agreement, guaranty, contract, undertaking, agreement or instrument, in each
case in writing, to which that Person is a party or by which it or any of its
properties is bound, or to which it or any of its properties is subject.
(ff) "CONTRIBUTION AGREEMENT" means that certain Contribution
Agreement, dated as of even date herewith, as it may be amended, restated or
otherwise modified and in effect from time to time.
(gg) "CONTROLLED GROUP" means the group consisting of (i) any
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as the Borrower; (ii) a
partnership or other trade or business (whether or not incorporated) which is
under common control (within the meaning of Section 414(c) of the Code) with the
Borrower; and (iii) a member of the same affiliated service group (within the
meaning of Section 414(m) of the Code) as the Borrower, any corporation
described in CLAUSE (I) above or any partnership or trade or business described
in CLAUSE (II) above.
(hh) "CONTROLLED SUBSIDIARY" of any Person means a Subsidiary of such
Person (i) 80% or more of the total Equity Interests or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more wholly-owned Subsidiaries of such
Person and (ii) of which such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies, whether
through the ownership of voting securities, by agreement or otherwise.
(ii) "CURRENT ASSETS" means, at a particular date, all amounts which
would, in conformity with Agreement Accounting Principles, be included under
current assets on a balance sheet as at such date.
(jj) "CURRENT LIABILITIES" means, at a particular date, all amounts
which would, in conformity with Agreement Accounting Principles, be included
under current liabilities on a balance sheet as at such date.
(kk) "CUSTOMARY PERMITTED LIENS" means:
(i) Liens (other than Environmental Liens, liens in
favor of the IRS and liens in favor of the PBGC) with respect to the
payment of taxes, assessments or governmental charges in all cases
which are not yet due or (if foreclosure, distraint, sale or other
similar proceedings shall not have been commenced) which are being
contested in good faith by appropriate proceedings properly instituted
and diligently conducted and with respect to which adequate
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<PAGE>
reserves or other appropriate provisions are being maintained in
accordance with Agreement Accounting Principles;
(ii) statutory liens of landlords and liens of
suppliers, mechanics, carriers, materialmen, warehousemen or workmen
and other similar liens imposed by law created in the ordinary course
of business for amounts not yet due or which are being contested in
good faith by appropriate proceedings properly instituted and
diligently conducted and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with
Agreement Accounting Principles;
(iii) Liens (other than Environmental Liens, Liens in
favor of the IRS and Liens in favor of the PBGC) incurred or deposits
made, in each case, in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other types of
social security benefits or to secure the performance of bids,
tenders, sales, contracts (other than for the repayment of borrowed
money), surety, appeal and performance bonds; PROVIDED that (A) all
such Liens do not in the aggregate materially detract from the value
of the Borrower's or such Subsidiary's assets or property taken as a
whole or materially impair the use thereof in the operation of the
businesses taken as a whole, and (B) with respect to Liens securing
bonds to stay judgments or in connection with appeals do not secure at
any time an aggregate amount exceeding $250,000;
(iv) Liens arising with respect to zoning restrictions,
easements, licenses, reservations, covenants, rights-of-way, utility
easements, building restrictions and other similar charges or
encumbrances on the use of real property which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Borrower or
any of its Subsidiaries;
(v) Liens of attachment or judgment with respect to
judgments, writs or warrants of attachment, or similar process against
the Borrower or any of its Subsidiaries which do not constitute an
Event of Default under SECTION 6.1(H) hereof; and
(vi) any interest or title of the lessor in the property
subject to any operating lease entered into by the Borrower or any of
its Subsidiaries in the ordinary course of business.
(ll) "DEALERSHIP GUARANTORS" means each Lithia Dealership, Lithia
Fiancial Corporation and Lithia Real Estate, Inc. providing a Dealership
Guaranty and/or a Dealership Security Agreement to the Lender, and their
respective successors and assigns.
(mm) "DEALERSHIP GUARANTY" means that certain Dealership Guaranty in
the form attached hereto as Exhibit C-1, provided by a Lithia Dealership to the
Lender, as the same may be amended, modified, supplemented and/or restated, and
as in effect from time to time.
(nn) "DEALERSHIP SECURITY AGREEMENT" means any Security Agreement in
the form attached hereto as Exhibit D-1, pursuant to which a Lithia Dealership
grants the Lender a security interest in all of its assets, as the same may be
amended, modified, supplemented and/or restated, and as in effect from time to
time.
(oo) "DISQUALIFIED STOCK" means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or
6
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the date that is 91 days after the Termination Date.
(pp) "DOL" means the United States Department of Labor and any Person
succeeding to the functions thereof.<PAGE>
(qq) "EBITDA" means, for any period, on a consolidated basis for the
Borrower and its Subsidiaries, the sum of the amounts for such period, without
duplication, of:
(i) Net Income,
PLUS (ii) Interest Expense,
PLUS (iii) charges against income for foreign,
federal, state and local taxes, to the extent
deducted in computing Net Income,
PLUS (iv) depreciation expense, to the extent
deducted in computing Net Income,
PLUS (v) amortization expense, including,
without limitation, amortization of goodwill,
other intangible assets and Transaction
Costs, to the extent deducted in computing
Net Income,
PLUS (vi) other non-cash charges classified as
long-term deferrals in accordance with
Agreement Accounting Principles, to the
extent deducted in computing Net Income,
MINUS (vii) all extraordinary gains (and any
nonrecurring unusual gains arising in or
outside of the ordinary course of business
not included in extraordinary gains
determined in accordance with Agreement
Accounting Principles which have been
included in the determination of Net Income).
EBITDA shall be calculated for any period by including the actual amount for the
applicable period ending on such day, including the EBITDA attributable to
Permitted Acquisitions occurring during such period on a PRO FORMA basis for the
period from the first day of the applicable period through the date of the
closing of each Permitted Acquisition, utilizing (a) where available or required
pursuant to the terms of this Agreement, historical audited and/or reviewed
unaudited financial statements obtained from the seller, broken down by fiscal
quarter in the Borrower's reasonable judgment or (b) unaudited financial
statements (where no audited or reviewed financial statements are required
pursuant to the terms of this Agreement) reviewed internally by the Borrower,
broken down in the Borrower's reasonable judgment.
(rr) "EBITDAR" means, for any period, on a consolidated basis for the
Borrower and its Subsidiaries, the sum of the amounts for such period, without
duplication, of (i) EBITDA and (ii) Rentals.
(ss) "ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all
Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 ET SEQ., the Occupational Safety and Health Act of
1970, 29 U.S.C. Section 651 ET SEQ., and the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. Section 6901 ET SEQ., in each case including any
amendments thereto, any successor statutes, and any regulations or guidance
promulgated thereunder, and any state or local equivalent thereof.
(tt) "ENVIRONMENTAL PROPERTY TRANSFER ACT" means any applicable
requirement of law that conditions, restricts, prohibits or requires any
notification or disclosure triggered by the closure of any property or the
transfer, sale or lease of any property or deed or title for any property for
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<PAGE>
environmental reasons, including, but not limited to, any so-called "Industrial
Site Recovery Act" or "Responsible Property Transfer Act."
(uu) "EQUIPMENT" means all of the Borrower's and each Dealership
Guarantor's present and future furniture, machinery, service vehicles, supplies
and other equipment and any and all accessions, parts and appurtenances attached
to any of the foregoing or used in connection therewith, and any substitutions
therefor and replacements, products and proceeds thereof.
(vv) "EQUITY INTERESTS" means Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
(ww) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time including (unless the context otherwise requires)
any rules or regulations promulgated thereunder.
(xx) "FAIR VALUE" means (a) with respect to the Capital Stock of the
Borrower, the closing price for such Capital Stock on the trading date
immediately preceding the date of the applicable acquisition agreement; and (b)
with respect to other assets, the value of the relevant asset as of the date of
acquisition or sale determined in an arm's-length transaction conducted in good
faith between an informed and willing buyer and an informed and willing seller
under no compulsion to buy.
(yy) "FLOOR PLAN INDEBTEDNESS" means any and all loans, advances,
debts, liabilities and obligations owing by a Lithia Dealership to the Lender of
any kind or nature, present or future, arising under a Wholesale Line, whether
or not evidenced by any note, guaranty or other instrument, whether or not for
the payment of money, whether arising by reason of an extension of credit, loan,
guaranty, indemnification, or in any other manner, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising and however acquired. The term
includes, without limitation, all interest, charges, expenses, fees, attorneys'
fees and disbursements, paralegals' fees (in each case whether or not allowed),
and any other sum chargeable to the Borrower or a Lithia Dealership under any
Wholesale Line.
(zz) "HEDGING OBLIGATIONS" of a Person means any and all obligations
of such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions
and modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of
the foregoing.
(aaa) "INDEBTEDNESS" of any Person means, without duplication, such
Person's (a) obligations for borrowed money, (b) obligations representing the
deferred purchase price of property or services (other than accounts payable
arising in the ordinary course of such Person's business payable on terms
customary in the trade), (c) obligations, whether or not assumed, secured by
Liens or payable out of the proceeds or production from property or assets now
or hereafter owned or acquired by such Person, (d) obligations which are
evidenced by notes, acceptances or other instruments, (e) Capitalized Lease
Obligations, (f) reimbursement obligations with respect to letters of credit
(other than commercial letters of credit) issued for the account of such Person,
(g) Hedging Obligations, (h) Off Balance Sheet Liabilities and (i) Contingent
Obligations in respect of obligations of another Person of the type described in
the foregoing clauses (a) through (h). The amount of Indebtedness of any Person
at any date shall be without duplication (i) the outstanding balance at
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<PAGE>
such date of all unconditional obligations as described above and the maximum
liability of any such Contingent Obligations at such date and (ii) in the case
of Indebtedness of others secured by a lien to which the property or assets
owned or held by such Person is subject, the lesser of the fair market value at
such date of any asset subject to a lien securing the Indebtedness of others and
the amount of the Indebtedness secured.
(bbb) "INTEREST EXPENSE" means, for any period, the total interest
expense of the Borrower and its consolidated Subsidiaries, whether paid or
accrued (including the interest component of Capitalized Leases, commitment and
letter of credit fees), but excluding interest expense not payable in cash
(including amortization of discount), all as determined in conformity with
Agreement Accounting Principles.
(ccc) "INVENTORY" shall mean any and all motor vehicles, tractors,
trailers, service parts and accessories and other inventory of the Borrower and
each Dealership Guarantor.
(ddd) "INVESTMENT" means, with respect to any Person, (i) any purchase
or other acquisition by that Person of any Indebtedness, Equity Interests or
other securities, or of a beneficial interest in any Indebtedness, Equity
Interests or other securities, issued by any other Person, (ii) any purchase by
that Person of all or substantially all of the assets of a business conducted by
another Person, and (iii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, advances to employees and similar items made or incurred in the
ordinary course of business) or capital contribution by that Person to any other
Person, including all Indebtedness to such Person arising from a sale of
property by such Person other than in the ordinary course of its business.
(eee) "IRS" means the Internal Revenue Service and any Person succeeding
to the functions thereof.
(fff) "LITHIA DEALERSHIP" means any Subsidiary dealership and/or related
body shop or service repair center owned, operated or acquired by the Borrower
or any Subsidiary of the Borrower.
(ggg) "LITHIA GROUP" means each of the Borrower and each Subsidiary of
the Borrower.
(hhh) "LITHIA GUARANTIES" means each of the Borrower Guaranty, each
Dealership Guaranty and the Contribution Agreement.
(iii) "LOAN DOCUMENTS" means this Agreement, the Note, the Lithia
Guaranties, the Collateral Documents and all other documents, instruments and
agreements executed in connection therewith or contemplated thereby, as the same
may be amended, restated or otherwise modified and in effect from time to time.
(jjj) "MAINETENANCE CAPITAL EXPENDITURES" shall have the meaning set
forth in Section 5.4 (d) hereof.
(kkk) "MAJORITY ACQUISITION" shall mean any Acquisition of Equity
Interests of an entity, in which Borrower is not permitted to hold 100% of such
Equity Interest because of limitations imposed by the relevant automotive
manufacturer's franchise agreement.
(lll) "MARGIN STOCK" shall have the meaning ascribed to such term in
Regulation U.
(mmm) "MATERIAL SUBSIDIARY" means (a) any "Significant Subsidiary" as
defined in Regulation S-X issued pursuant to the Securities Act and the Exchange
Act and (b) any other Subsidiary of the Borrower which at any time comprises
five percent (5%) or more of the Borrower's Tangible Base Capital.
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<PAGE>
(nnn) "MAXIMUM RATE" means the maximum nonusurious interest rate under
applicable law.
(ooo) "MULTI-EMPLOYER PLAN" means a "Multi-employer Plan" as defined in
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
(6) years was, contributed to by either the Borrower or any member of the
Controlled Group.
(ppp) "NET CASH" means the value of (A) the difference between (i) the
inventory of Borrower and its Subsidiaries, including new vehicles and
demonstration vehicles, less (ii) the outstanding Indebtedness owed by Borrower
and its Subsidiaries for such new vehicles and demonstration vehicles plus (B)
cash of Borrower and its Subsidiaries (C) receivables of Borrowers and its
Subsidiaries for new finance contracts, plus (D) vehicle account receivable of
Borrower and its Subsidiaries (E) holdbacks of Borrower and its Subsidiaries,
less (F) customer deposits, less (G) the sum of one months principal payments on
all outstanding Indebtedness of Borrower of its Subsidiaries, less (H)
accommodations of Borrower and its Subsidiaries (I) average monthly expenses of
Borrower and its Subsidiaries, less (J) net cash excess of Borrower and its
Subsidiaries; as these terms are defined and reported on Borrower's and/or its
Subsidiaries Ford Motor Company Dealer Financial Statement and determined in
accordance with Agreement Accounting Principals.
(qqq) "NET INCOME" means, for any period, the net earnings (or loss)
after taxes of the Borrower and its Subsidiaries on a consolidated basis for
such period taken as a single accounting period determined in conformity with
Agreement Accounting Principles.
(rrr) "NOTE" means that certain promissory note, in substantially the
form of EXHIBIT A hereto, duly executed by the Borrower and payable to the order
of the Lender in the amount of $60,000,000.00 including any amendment,
restatement, modification, renewal or replacement thereof.
(sss) "OBLIGATIONS" means all Advances, debts, liabilities, obligations,
covenants and duties owing by the Borrower or a Lithia Dealership to the Lender
or any Indemnitee, of any kind or nature, present or future, arising under this
Agreement, the Note, the Collateral Documents or any other Loan Document,
whether or not evidenced by any note, guaranty or other instrument, whether or
not for the payment of money, whether arising by reason of an extension of
credit, loan, guaranty, indemnification, or in any other manner, whether direct
or indirect (including those acquired by assignment), absolute or contingent,
due or to become due, now existing or hereafter arising and however acquired.
The term includes, without limitation, all interest, charges, expenses, fees,
attorneys' fees and disbursements, paralegals' fees (in each case whether or not
allowed), and any other sum chargeable to the Borrower or a Lithia Dealership
under this Agreement or any other Loan Document.
(ttt) "OFF BALANCE SHEET LIABILITIES" of a Person means (a) any
repurchase obligation or liability of such Person or any of its Subsidiaries
with respect to accounts or notes receivable sold by such Person or any of its
Subsidiaries, (b) any liability under any sale and leaseback transactions which
do not create a liability on the consolidated balance sheet of such Person, (c)
any liability under any financing lease or so-called "synthetic" lease
transaction, or (d) any obligations arising with respect to any other
transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheets of such Person and its Subsidiaries.
(uuu) "OTHER FLOOR PLAN INDEBTEDNESS" means loans advances, debts,
liabilities and obligations owing by a Lithia Dealership to a floor plan lender
for the financing of new vehicle inventory.
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(vvv) "PAYMENT DATE" means the fifteenth day of each calendar month,
PROVIDED, HOWEVER if such day is not a business day, then the Payment Date shall
be the next succeeding business day following such fifteenth day.
(www) "PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
(xxx) "PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the
Borrower and its Subsidiaries identified as such on SCHEDULE 1 to this
Agreement.
(yyy) "PERMITTED EXISTING INVESTMENTS" means the Investments of the
Borrower and its Subsidiaries identified as such on SCHEDULE 2 to this
Agreement.
(zzz) "PERMITTED EXISTING LIENS" means the Liens on assets of the
Borrower and its Subsidiaries identified as such on SCHEDULE 3 to this
Agreement.
(aaaa) "PERMITTED REFINANCING INDEBTEDNESS" means any replacement,
renewal, refinancing or extension of any Indebtedness permitted by this
Agreement that (i) does not exceed the aggregate principal amount (plus
associated fees and expenses) of the Indebtedness being replaced, renewed,
refinanced or extended, (ii) does not rank at the time of such replacement,
renewal, refinancing or extension senior to the Indebtedness being replaced,
renewed, refinanced or extended, and (iii) does not contain terms (including,
without limitation, terms relating to security, amortization, interest rate,
premiums, fees, covenants, event of default and remedies) materially less
favorable to the Borrower or to the Lender than those applicable to the
Indebtedness being replaced, renewed, refinanced or extended.
(bbbb) "PERSON" means any individual, corporation, firm, enterprise,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability company or other entity of any kind, or
any government or political subdivision or any agency, department or
instrumentality thereof.
(cccc) "PLAN" means an employee benefit plan defined in Section 3(3) of
ERISA in respect of which the Borrower or any member of the Controlled Group is,
or within the immediately preceding six (6) years was, an "employer" as defined
in Section 3(5) of ERISA.
(dddd) "PRINCIPAL" means Sidney B. DeBoer, or a successor reasonably
acceptable to Lender.
(eeee) "RECEIVABLE(S)" means and includes all of the Borrower's and each
Dealership Guarantor's presently existing and hereafter arising or acquired
accounts, contract rights, chattel paper, instruments, notes, letters of credit,
documents, documents of title, investment property, deposit accounts, other bank
accounts, general intangibles, tax refunds and other obligations of third
persons of any kind, now or hereafter existing, whether arising out of or in
connection with the sale or lease of goods, the rendering of services or
otherwise, and all rights now or hereafter existing in and to all security
agreements, leases, and other contracts securing or otherwise relating to any
such accounts, contract rights, chattel paper, instruments, notes, letters of
credit, documents, documents of title, investment property, deposit accounts,
other bank accounts, general intangibles, tax refunds or obligations of third
persons.
(fffff) "REGULATION T" means Regulation T of the Board of Governors
of the Federal Reserve System as from time to time in effect and any successor
or other regulation or official interpretation of said Board of Governors
relating to the extension of credit by and to brokers and dealers of securities
for the purpose of purchasing or carrying margin stock (as defined therein).
(gggg) "REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official
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<PAGE>
interpretation of said Board of Governors relating to the extension of credit
by banks for the purpose of purchasing or carrying Margin Stock applicable to
member banks of the Federal Reserve System.
(hhhh) "REGULATION X" means Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by foreign lenders for the purpose of purchasing or carrying
margin stock (as defined therein).
(iiii) "RELATED PARTY" with respect to the Principal means (i) any spouse
or immediate family member of such Principal or (ii) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding the outstanding Equity Interest of which consist
of such Principal and/or such other Persons referred to in the immediately
preceding clause (i).
(jjjj) "RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including the movement of Contaminants
through or in the air, soil, surface water or groundwater.
(kkkk) "RENTALS" of a Person means the aggregate fixed amounts payable by
such Person under any lease of personal property but does not include any
amounts payable under Capitalized Leases of such Person.
(llll) "REPORTABLE EVENT" means a reportable event as defined in Section
4043 of ERISA and the regulations issued under such section, with respect to a
Plan, excluding, however, such events as to which the PBGC by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
after such event occurs, PROVIDED, HOWEVER, that a failure to meet the minimum
funding standards of Section 412 of the Code and of Section 302 of ERISA shall
be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
(mmmm) "RESTRICTED DEALERSHIP" means any Lithia Dealership, the franchise
agreement with respect to which contains restrictions on such Lithia
Dealership's ability to pledge its assets as collateral for the Obligations.
(nnnn) "RESTRICTED PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any Equity Interests of the
Borrower now or hereafter outstanding, except a dividend payable solely in
the Borrower's Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase such Capital Stock, (ii) any redemption,
retirement, purchase or other acquisition for value, direct or indirect, of
any Equity Interests of the Borrower or any of its Subsidiaries now or
hereafter outstanding, other than in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the
Borrower) of other Equity Interests of the Borrower (other than Disqualified
Stock), and (iii) any payment of a claim for the rescission of the purchase
or sale of, or for material damages arising from the purchase or sale of any
Equity Interests of the Borrower or any of the Borrower's Subsidiaries, or of
a claim for reimbursement, indemnification or contribution arising out of or
related to any such claim for damages or rescission.
(oooo) "REVOLVING CREDIT AVAILABILITY" means, at any particular time, the
amount by which the Commitment at such time exceeds the Revolving Credit
Obligations at such time.
(pppp) "REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the
sum of the outstanding principal amount of all Advances at such time.
(qqqq) "SCALED ASSETS" means with respect to the Lithia Group, the sum of
(A) an amount equal to 75% of the Lithia Group's Receivables which constitute
factory receivables, (B) an amount
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<PAGE>
equal to 60% of the Lithia Group's Receivables which constitute current
finance receivables, (C) an amount equal to 60% of the Lithia Group's
Receivables which constitute receivables for parts and services (after
netting any amounts payable in connection with such parts and services by any
member of the Lithia Group), (D) an amount equal to 55% of the Lithia Group's
Inventory which constitutes parts and accessories, (E) an amount equal to 80%
of the difference between (i) that portion of the Lithia Group's Inventory
which constitutes used vehicles and (ii) the amount of any Floor Plan
Indebtedness of any member of the Lithia Group incurred or available in
connection with such used vehicles, and (F) an amount equal to 45% of the
difference between (i) the value of the Lithia Group's Equipment and (ii) the
amount of Indebtedness of any member of the Lithia Group incurred in
connection with such Equipment. The value of the Lithia Group's Scaled
Assets shall be calculated by the Lender and shall be determined based on the
financial statements and monthly factory statements delivered to the Lender
pursuant to SECTION 5.1(A). Scaled Assets shall be measured as of the
Effective Date and as of the end of each calendar quarter.
(rrrr) "SECRETARY'S CERTIFICATE" with respect to any entity in the Lithia
Group, means any certificate, delivered by a secretary, assistant secretary,
managing member, general partner or governor of such entity which certifies (i)
the names and true signatures of the incumbent officers or managers of such
entity authorized to sign each Transaction Document to which it is a party and
the other documents to be executed thereunder, (ii) a true and correct copy of
such entity's Certificate of Incorporation, or similar charter document and all
amendments thereto, (iii) a true and correct copy of the by-laws or similar
governing document of such entity and all amendments thereto, and (iv) a true
and correct copy of the resolutions of such entity's board of directors or
members approving and authorizing the execution, delivery and performance by
such entity of each Transaction Document to which it is a party and the other
documents to be executed thereunder;
(ssss) "SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or
any member of the Controlled Group for employees of the Borrower or any member
of the Controlled Group.
(tttt) "SUBSIDIARY" of a Person means (i) any corporation more than 50%
of the outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one or
more of its Subsidiaries or by such Person and one or more of its Subsidiaries,
or (ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower, except that Lithia Financial Corporation and Lithia
Real Estate, Inc. shall be excluded therefrom.
(uuuu) "TANGIBLE BASE CAPITAL" means, at a particular date of
calculation, the amount determined by the Lender to be equal to :
(i) Consolidated Net Worth
PLUS
(ii) the sum of
(a) Indebtedness of the Borrower or its
Subsidiaries to officers of the Borrower,
which Indebtedness is subordinated in writing
to the Obligations on terms and conditions
acceptable to the Lender; and
(b) an amount equal to 64% of the LIFO reserve (as
determined in accordance with Agreement
Accounting Principles) reflected on the
Borrower's balance sheet;
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<PAGE>
MINUS
(iii) the sum of
(a) Receivables with respect to which the account debtor
is a director, officer, employee, Subsidiary
or Affiliate of the Borrower or other amounts
(whether or not classified as Receivables)
from Affiliates of the Borrower or its
Subsidiaries (other than those payable within
30 days and incurred in the ordinary course
of business); and
(b) that part of the Borrower's and its Subsidiaries (on
a consolidated basis) capitalization or
reserves attributable to any writing up of
book values on any fixed assets after the
date of the most recently delivered financial
statements of the Borrower and its
Subsidiaries;
(c) the aggregate amount of the Borrower's and its
Subsidiaries Investments in Affiliates (other
than the Borrower's Subsidiaries);
(d) organizational expenses related to start-up of
operations with respect to the Borrower and
its Subsidiaries;
(e) goodwill and other intangible assets (as determined
in accordance with Agreement Accounting
Principles);
(f) any amount paid to a third-party as consideration
for no-competition agreements;
(g) the value of daily rental franchise payments made by
the Borrower or its Subsidiaries under any
franchise agreements (net of any amounts owed
by a franchisor to Borrower or its
Subsidiaries); and
(h) other assets (including, without limitation,
airplanes, cattle, etc.) not related to the
operations of the Dealerships as automobile
dealerships.
(vvvv) "TERMINATION DATE" means the earlier of (a) two (2) years after
the date hereof and agreed to by the Lender and (b) the date of termination of
the Commitment pursuant to either of SECTION 2.3 or SECTION 7.1 hereof.
(wwww) "TERMINATION EVENT" means (i) a Reportable Event with respect to
any Benefit Plan; (ii) the withdrawal of the Borrower or any member of the
Controlled Group from a Benefit Plan during a plan year in which the Borrower or
such Controlled Group member was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the cessation of operations which results in the
termination of employment of twenty percent (20%) of Benefit Plan participants
who are employees of the Borrower or any member of the Controlled Group; (iii)
the imposition of an obligation on the Borrower or any member of the Controlled
Group under Section 4041 of ERISA to provide affected parties written notice of
intent to terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to
terminate a Benefit Plan; (v) any event or condition which might constitute
grounds under Section 4042 of ERISA for the Termination of, or the appointment
of a trustee to administer, any Benefit Plan; or (vi) the partial or complete
withdrawal of the Borrower or any member of the Controlled Group from a
Multi-employer Plan.
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(xxxx) "TOTAL ADJUSTED DEBT" means, for any period, on a consolidated
basis for the Borrower and its Subsidiaries, the amount of Total Debt less any
Floor Plan Indebtedness and less Indebtedness for Equipment and real estate.
(yyyy) "TOTAL DEBT" means, for any period, on a consolidated basis for
the Borrower and its Subsidiaries, the sum of Indebtedness of the Borrower and
its Subsidiaries, other than Hedging Obligations and other than Indebtedness for
Equipment and real estate.
(zzzz) "TRANSACTION COSTS" means the fees, costs and expenses payable by
the Borrower in connection with the execution, delivery and performance of the
Transaction Documents.
(aaaaa) "TRANSACTION DOCUMENTS" means the Loan Documents and the
Acquisition Documents.
(bbbbb) "UNFUNDED LIABILITIES" means (i) in the case of Single Employer
Plans, the amount (if any) by which the present value of all vested
nonforfeitable benefits under all Single Employer Plans exceeds the fair market
value of all such Plan assets allocable to such benefits, all determined as of
the then most recent valuation date for such Plans, and (ii) in the case of
Multi-employer Plans, the withdrawal liability that would be incurred by the
Controlled Group if all members of the Controlled Group completely withdrew from
all Multi-employer Plans.
(cccccc) "UNMATURED DEFAULT" means an event which, but for the lapse of
time or the giving of notice, or both, would constitute an Event of Default.
(ddddd) "UNRESTRICTED DEALERSHIP" means any Lithia Dealership other than
a Restricted Dealership.
(eeeee) "USED VEHICLE VALUE" means the value of Dealership Guarantors'
used vehicle inventory, as such amounts are reported on the ledger kept in
accordance with Section 5.2(o) hereof; such amount, however, not to exceed 100%
of the used vehicle current trade in value, as reported in N.A.D.A. OFFICIAL
USED CAR GUIDE.
(fffff) "WHOLESALE LINE" means any wholesale credit line made by the
Lender to a Litiha Dealership.
Any accounting terms used in this Agreement which are not specifically
defined herein shall have the meanings customarily given them in accordance with
generally accepted accounting principles in existence as of the date hereof.
1.2 REFERENCES. The existence throughout the Agreement of references to
the Borrower's Subsidiaries is for a matter of convenience only. Any references
to Subsidiaries of the Borrower set forth herein shall (i) with respect to
representations and warranties which deal with historical matters be deemed to
include each of the Subsidiaries existing on the date hereof, and (ii) shall not
in any way be construed as consent by the Lender to the establishment,
maintenance or acquisition of any Subsidiary, except as may otherwise be
permitted hereunder.
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1.3 EFFECTIVENESS OF THIS AGREEMENT. Upon the satisfaction of all of
the conditions precedent set forth in SECTION 3.1 of this Agreement (the date
upon which such conditions precedent are satisfied being hereinafter referred to
as the "EFFECTIVE DATE"), this Agreement shall become effective.
2. THE LOAN
2.1 ADVANCES. Upon the satisfaction of the conditions precedent set
forth in SECTIONS 3.1 and 3.2, from and including the date of this Agreement and
prior to the Termination Date, the Lender shall, on the terms and conditions set
forth in this Agreement, make Advances to the Borrower from time to time, in an
amount not to exceed the Revolving Credit Availability at such time; PROVIDED,
HOWEVER, at no time shall the Revolving Credit Obligations exceed the Commitment
at such time. Any Advance over $5,000,000 shall be subject to Lender's prior
written consent, which consent may be withheld for any reason. Subject to the
terms of this Agreement, the Borrower may borrow, repay and reborrow Advances at
any time prior to the Termination Date. Borrower shall repay in full the
outstanding principal balance of the Loan on the Termination Date.
2.2 OPTIONAL PAYMENTS; MANDATORY PREPAYMENTS.
(a) OPTIONAL PAYMENTS. The Borrower may from time to time repay or
prepay, without penalty or premium all or any part of outstanding Advances;
PROVIDED, that the Borrower may not so prepay Advances unless it shall have
provided at least one business day's written notice to the Lender of such
prepayment.
(b) MANDATORY PREPAYMENTS. If at any time and for any reason the
Revolving Credit Obligations are greater than the Commitment then the Borrower
shall immediately make a mandatory prepayment of the Obligations in an amount
equal to such excess. Amounts equal to a Decision Reserve or net cash proceeds
of an Asset Sale in connection with or following restoration, rebuilding or
replacement of insured property shall be mandatorily applied against the
Revolving Credit Obligations in the amounts and in the manner set forth in
SECTION 5.2(G) hereof. All of the mandatory prepayments made under this SECTION
2.2(B) shall be applied first to Advances maturing on such date and then to
subsequently maturing Advances in order of maturity.
2.3 CHANGES IN THE COMMITMENT. REDUCTION OF COMMITMENT. The Borrower
may permanently reduce the Commitment in whole, or in part, in an aggregate
minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of
that amount (unless the Commitment is reduced in whole), upon at least three (3)
business days' written notice to the Lender, which notice shall specify the
amount of any such reduction; PROVIDED, HOWEVER, that the amount of the
Commitment may not be reduced below the aggregate principal amount of the
outstanding Revolving Credit Obligations. All accrued commitment fees shall be
payable on the effective date of any partial or complete termination of the
obligations of the Lender to make Advances hereunder.
2.4 METHOD OF BORROWING. The Borrower shall give the Lender irrevocable
notice in substantially the form of EXHIBIT B hereto (a "BORROWING NOTICE") not
later than 10:00 a.m. (Eastern Standard Time) on the business day preceding the
Borrowing Date of each Advance, specifying: (i) the Borrowing Date (which shall
be a business day) of such Advance; (ii) the aggregate amount of such Advance;
(iii) the use of proceeds of such Advance, and (iv) the account or accounts into
which the Advances should be funded. Not later than 2:00 p.m. (Eastern Standard
Time) on each Borrowing Date, the Lender shall make available its Advance, in
funds immediately available to the Borrower at such account or accounts as shall
have been notified to the Lender. Each Advance shall bear interest from and
including the date of the making of such Advance to (but not including) the date
of repayment thereof at the Applicable Commercial Paper Rate, changing when and
as the underlying Commercial Paper Rate changes, which such interest shall be
payable in accordance with SECTION 2.9(B).
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2.5 MINIMUM AMOUNT OF EACH ADVANCE. Each Advance shall be in the
minimum amount of $250,000 (and in multiples of $50,000 if in excess thereof),
PROVIDED, HOWEVER, that any Advance may be in the amount of the unused
Commitment.
2.6 DEFAULT RATE; LATE PAYMENT FEE. After the occurrence and during the
continuance of an Event of Default, at the option of the Lender, the interest
rate(s) applicable to the Advances shall be equal to the Applicable Commercial
Paper Rate PLUS three percent (3.0%) per annum. If any of the Principal
Balance or interest on this Note or other sum due hereunder is not paid within
ten (10) days of when due, Borrower shall pay to Lender a late charge payment
equal to five percent (5%) of the amount of such installment or the maximum rate
permitted by law, whichever is less.
2.7 METHOD OF PAYMENT. All payments of principal, interest, and fees
hereunder shall be made, without setoff, deduction or counterclaim, in
immediately available funds to the Lender at the Lender's address specified
pursuant to ARTICLE X, or at any other address specified in writing by the
Lender to the Borrower, by 2:00 p.m. (Eastern Standard Time) on the date when
due.
2.8 ADVANCES, TELEPHONIC NOTICES. The Lender is authorized to record
the principal amount of each Advance and each repayment with respect to its
Advances on the schedule attached to the Note; PROVIDED, HOWEVER, that the
failure to so record shall not affect the Borrower's obligations under the Note.
The Borrower authorizes the Lender to extend Advances and to transfer funds
based on telephonic notices made by any person or persons the Lender in good
faith believes to be authorized to act on behalf of the Borrower. The Borrower
agrees to deliver promptly to the Lender a written confirmation, signed by an
Authorized Officer, if such confirmation is requested by the Lender, of each
telephonic notice. If the written confirmation differs in any material respect
from the action taken by the Lender, (i) the telephonic notice shall govern
absent manifest error and (ii) the Lender shall promptly notify the Authorized
Officer who provided such confirmation of such difference.
2.9 PROMISE TO PAY; INTEREST AND COMMITMENT FEES; INTEREST PAYMENT
DATES; INTEREST AND FEE BASIS; TAXES.
(a) PROMISE TO PAY. The Borrower unconditionally promises to pay when
due the principal amount of each Advance and all other Obligations incurred by
it, and to pay all unpaid interest accrued thereon, in accordance with the terms
of this Agreement and the Note.
(b) INTEREST PAYMENT DATE.
(i) INTEREST PAYABLE ON ADVANCES. Interest accrued on each Advance
shall be payable on each Payment Date, commencing with the first such
date to occur after the date hereof and at maturity (whether by
acceleration or otherwise). On each Payment Date, the Borrower shall
pay interest at the Applicable Commercial Paper Rate on each Advance
outstanding on such date.
(ii) INTEREST ON OTHER OBLIGATIONS. Interest accrued on the
principal balance of all other Obligations shall be payable in arrears
(i) on the last day of each calendar month, commencing on the first
such day following the incurrence of such Obligation, (ii) upon
repayment thereof in full or in part, and (iii) if not theretofore
paid in full, at the time such other Obligation becomes due and
payable (whether by acceleration or otherwise).
(c) COMMITMENT FEES. The Borrower shall pay to the Lender, from and
after the date hereof until the date on which the Commitment shall be terminated
in whole, a commitment fee equal to one-eighth of one percent (0.125%) per
annum, on the amount by which (A) the Commitment in effect from time to time
exceeds (B) the Revolving Credit Obligations in effect from time to time. All
such commitment fees payable under this CLAUSE (C) shall be payable annually in
arrears on each
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anniversary occurring after the Effective Date and, in addition, on the date on
which the Commitment shall be terminated in whole.
(d) INTEREST AND FEE BASIS. Interest and fees shall be calculated for
actual days elapsed on the basis of a 365 or when appropriate 366, day year.
Interest shall be payable for the day an Obligation is incurred but not for the
day of any payment on the amount paid if payment is received prior to 2:00 p.m.
(Eastern Standard Time) at the place of payment. If any payment of principal of
or interest on an Advance or any payment of any other Obligations shall become
due on a day which is not a business day, such payment shall be made on the next
succeeding business day and, in the case of a principal payment, such extension
of time shall be included in computing interest in connection with such payment.
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2.10 TERMINATION DATE. This Agreement shall be effective until the
Termination Date. Notwithstanding the termination of this Agreement on the
Termination Date, until all of the Obligations (other than contingent indemnity
obligations, but including all Floor Plan Indebtedness) shall have been fully
and indefeasibly paid and satisfied and all financing arrangements between the
Borrower and the Lender in connection with this Agreement shall have been
terminated (other than with respect to Hedging Obligations), all of the rights
and remedies under this Agreement and the other Loan Documents shall survive and
the Lender shall be entitled to retain its security interest in and to all
existing and future Collateral.
2.11 TAXES. (a) Any and all payments by the Borrower hereunder shall
be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings or any
liabilities with respect thereto including those arising after the date hereof
as a result of the adoption of or any change in any law, treaty, rule,
regulation, guideline or determination of a governmental authority or any change
in the interpretation or application thereof by a governmental authority but
excluding such taxes (including income taxes, franchise taxes and branch profit
taxes) as are imposed on or measured by the Lender's income by the United States
of America or any governmental authority of the jurisdiction under the laws of
which the Lender is organized or having jurisdiction over the Lender by virtue
of the Lender's location(s) (other than solely as a result of the transaction
evidenced by this Agreement) (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings, and liabilities which the Lender determines
to be applicable to this Agreement, the other Loan Documents, the Commitment or
the Advances being hereinafter referred to as "TAXES"). If the Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the other Loan Documents to the Lender, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this SECTION 2.11(A)) the Lender receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions, and (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges, or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
other Loan Documents, the Commitment or the Advances (hereinafter referred to as
"OTHER TAXES").
(c) The Borrower indemnifies the Lender for the full amount of Taxes and
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any governmental authority on amounts payable under this SECTION 2.11 paid by
the Lender and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification shall be made
within thirty (30) days after the date the Lender makes written demand therefor.
A certificate as to any additional amount payable to the Lender under this
SECTION 2.11 submitted to the Borrower by the Lender shall show in reasonable
detail the amount payable and the calculations used to determine such amount and
shall, absent manifest error, be final, conclusive and binding upon each of the
parties hereto. With respect to such deduction or withholding for or on account
of any Taxes and to confirm that all such Taxes have been paid to the
appropriate governmental authorities, the Borrower shall promptly (and in any
event not later than thirty (30) days after receipt) furnish to the Lender such
certificates, receipts and other documents as may be required (in the judgment
of the Lender) to establish any tax credit to which the Lender may be entitled.
(d) Within thirty (30) days after the date of any payment of Taxes or
Other Taxes by the Borrower, the Borrower shall furnish to the Lender the
original or a certified copy of a receipt evidencing payment thereof.
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(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this SECTION 2.11 shall survive the payment in full of principal and interest
hereunder and the termination of this Agreement.
2.12 LOAN ACCOUNT. The Lender shall maintain in accordance with its
usual practice an account or accounts (a "LOAN ACCOUNT") evidencing the
Obligations of the Borrower to the Lender owing to the Lender from time to time,
including the amount of principal and interest payable and paid to the Lender
from time to time hereunder and under the Note. The entries made in the Loan
Account shall be conclusive and binding for all purposes, absent manifest error,
unless the Borrower objects to information contained in the Loan Account within
thirty (30) days of the Borrower's receipt of such information.
3. CONDITIONS PRECEDENT
3.1 CONDITIONS OF EFFECTIVENESS. The Effective Date of this Agreement
shall be on the date on which all of the following conditions shall have been
satisfied:
(a) no law, regulation, order, judgment or decree of any
governmental authority shall, and the Lender shall not have
received any notice that litigation is pending or
threatened which is likely to, (A) enjoin, prohibit or
restrain the making of an Advance hereunder or (B) impose
or result in the imposition of a material adverse effect;
(b) all due diligence materials requested by the Lender
from the Borrower shall have been delivered to the Lender
and such due diligence materials shall be in form and
substance reasonably satisfactory to the Lender;
(c) the Borrower has furnished to the Lender each of the
following, all in form and substance satisfactory to the
Lender:
(i) this Agreement, duly executed by the Borrower;
(ii) the Note, duly executed by the Borrower in favor
of the Lender;
(iii) a Dealership Guaranty executed by each Lithia
Dealership which has not heretofore provided a Dealership
Guaranty to the Lender, it being understood that if such
Lithia Dealership is an Unrestricted Dealership, such
Dealership Guaranty will be substantially in the form of
the Dealership Guaranty attached hereto as EXHIBIT C-1, and
if such Lithia Dealership is a Restricted Dealership, such
Dealership Guaranty will be substantially in the form of
the Dealership Guaranty attached hereto as EXHIBIT C-2;
(iv) a Dealership Security Agreement executed by
each Lithia Dealership which has not heretofore provided a
Dealership Security Agreement to the Lender, it being
understood that if such Lithia Dealership is an
Unrestricted Dealership, such Dealership Security Agreement
will be substantially in the form of the Dealership
Security Agreement attached hereto as EXHIBIT D-1, and if
such Lithia Dealership is a Restricted Dealership, such
Dealership Security Agreement will be substantially in the
form of the Dealership Security Agreement attached hereto
as EXHIBIT D-2;
(v) to the extent any Lithia Dealership has any
Indebtedness other than Permitted Existing Indebtedness,
pay-out letters, releases and UCC-3 Termination Statements,
where applicable, from all third-party creditors releasing
all Liens securing any such Indebtedness;
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(vi) certificates of good standing for the Borrower
and each of the Dealership Guarantors from its jurisdiction
of incorporation and each other jurisdiction where the
nature of its business requires it to be qualified as a
foreign corporation;
(vii) a Secretary's Certificate from the Borrower
and each Lithia Dealership acquired by the Borrower on or
prior to the date hereof.
(viii) a certificate, in form and substance
satisfactory to the Lender, signed by the chief financial
officer of the Borrower stating that as of the Effective
Date, no Event of Default or Unmatured Default has occurred
and is continuing and setting forth the calculation of the
Lithia Group's Scaled Assets as of the Effective Date, and
the representations and warranties of the Borrower are true
and correct with full force and effect as if made on the
Effective Date;
(ix) a written opinion of the Borrower's and
Dealership Guarantors' counsel, addressed to the Lender, in
form and substance satisfactory to the Lender;
(x) to the extent not included in the foregoing,
the documents, instruments and agreements set forth on the
closing list attached as EXHIBIT E hereto; and
(xi) such other documents as the Lender or its
counsel may have reasonably requested.
3.2 CONDITIONS PRECEDENT TO EACH ADVANCE. The Lender shall not be
required to make any Advance, unless on the applicable Borrowing Date:
(i) There exists no Event of Default or Unmatured
Default; and
(ii) The representations and warranties contained
in ARTICLE IV are true and correct as of such Borrowing
Date (unless such representation and warranty expressly
relates to an earlier date or is no longer true solely as a
result of transactions permitted by this Agreement).
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Each Borrowing Notice with respect to each such Advance shall constitute
a representation and warranty by the Borrower that the conditions contained in
SECTIONS 3.2(I) and (II) have been satisfied. If the Lender has a reasonable
basis for believing an Event of Default or Unmatured Default may have occurred
and is continuing or that the Borrower is not able to make one or more of the
representations and warranties set forth in ARTICLE IV, the Lender may require a
duly completed officer's certificate in substantially the form of EXHIBIT F
hereto as a condition to making an Advance.
3.3 CONDITION PRECEDENT TO ADDITIONAL ADVANCE. Notwithstanding anything
to the contrary in this Agreement, the Lender shall be under no obligation to
make an Advance to the Borrower hereunder until and unless the following
requirements shall have been satisfied:
(i) There shall exist no liens on the Collateral other
than Permitted Existing Liens and those Permitted Existing
Liens appearing on SCHEDULE 1.1.3 marked with an asterisk
shall have been released and or terminated, and the
Borrower shall have confirmed delivery of such releases,
UCC-3 termination statements or other documentation
reasonably requested by the Lender evidencing such release
or termination;
(ii) The loss payable endorsements referenced in SECTION
5.2(G) shall have been delivered to the Lender.
4. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows to the Lender as of the
date hereof and as of the Effective Date and thereafter on each date as required
by SECTION 4.2:
4.1 ORGANIZATION; CORPORATE POWERS. The Borrower and each of its
Subsidiaries (i) is a corporation, limited liability company or limited
partnership duly organized, validly existing under the laws of the jurisdiction
of its organization, (ii) is duly qualified to do business and is in good
standing under the laws of each jurisdiction in which failure to be so qualified
and in good standing could reasonably be expected to have a material adverse
effect and (iii) has all requisite corporate, company or partnership power and
authority to own, operate and encumber its property and to conduct its business
as presently conducted and as proposed to be conducted.
4.2 AUTHORITY.
(a) The execution, delivery, performance and filing, as the case may be,
of each of the Transaction Documents which must be executed or filed by the
Borrower as required by this Agreement on or prior to the Effective Date and to
which the Borrower or any of its Subsidiaries is party, and the consummation of
the transactions contemplated thereby, have been duly approved by the respective
boards of directors or managers, or by the partners, as applicable, and, if
necessary, the shareholders, members or partners, as applicable, of the Borrower
and its Subsidiaries, and such approvals have not been rescinded. No other
corporate, company or partnership action or proceedings on the part of the
Borrower or its Subsidiaries are necessary to consummate such transactions.
(b) Each of the Transaction Documents to which the Borrower or any of
its Subsidiaries is a party has been duly executed, delivered or filed, as the
case may be, by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, is in full force and effect
and no material term or condition thereof has been amended, modified or waived
without the prior written consent of the Lender, and the Borrower and its
Subsidiaries have, and, to the best of the Borrower's and its Subsidiaries'
knowledge, all other parties thereto have, performed and complied with all the
material terms, provisions, agreements and conditions set forth therein and
required to be
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performed or complied with by such parties on or before the date hereof, and
no unmatured default, default or breach of any material covenant by any such
party exists thereunder.
4.3 NO CONFLICT; GOVERNMENTAL CONSENTS. The execution, delivery and
performance of each of the Loan Documents and other Transaction Documents to
which the Borrower or any of its Subsidiaries is a party do not and will not (i)
conflict with the Charter Documents of the Borrower or any such Subsidiary, (ii)
constitute a tortious interference with any Contractual Obligation of any Person
or conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under any requirement of law (including,
without limitation, any Environmental Property Transfer Act) or Contractual
Obligation of the Borrower or any such Subsidiary, or require termination of any
Contractual Obligation, (iii) result in or require the creation or imposition of
any lien whatsoever upon any of the property or assets of the Borrower or any
such Subsidiary, other than liens permitted by the Loan Documents, or (iv)
require any approval of the Borrower's or any such Subsidiary's shareholders
except such as have been obtained. The execution, delivery and performance of
each of the Transaction Documents to which the Borrower or any of its
Subsidiaries is a party do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by any
governmental authority, including under any Environmental Property Transfer Act,
except (i) filings, consents or notices which have been made, obtained or given,
or which, if not made, obtained or given, individually or in the aggregate could
not reasonably be expected to have a material adverse effect and (ii) filings
necessary to create or perfect security interests in the Collateral.
4.4 FINANCIAL STATEMENTS.
(a) FINANCIAL INFORMATION. All balance sheets, statements of
profit and loss and other financial data that have been given to Lender by or on
behalf of Borrower (the "Financial Information") are complete and correct in all
material respects, accurately present the financial condition of Borrower as of
the dates, and the results of its operations for the periods specified in the
Financial Information, and have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
covered thereby. Except as specifically disclosed, as to amount, (and if over
$500,000,as to creditor or debtor , amount and security ) by the Financial
Information, Borrower does not have outstanding any loan or indebtedness,
direct or contingent, to any party, other than the indebtedness due and owing to
Lender, and none of its assets is subject to any security interest, lien or
other encumbrance in favor of anyone other than Lender (except for the Permitted
Existing Liens and liens premitted under Section 5.3 (c) arising subsequent to
the date of this Agreement). There has been no change in the assets,
liabilities or financial condition of Borrower from that set forth in the
Financial Information other than changes in the ordinary course of affairs, none
of which changes has been materially adverse to Borrower.
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4.5 TAXES.
(a) TAX EXAMINATIONS. All deficiencies which have been asserted against
the Borrower or any of the Borrower's Subsidiaries as a result of any federal,
state, local or foreign tax examination for each taxable year in respect of
which an examination has been conducted have been fully paid or finally settled
or are being contested in good faith, and as of the date hereof no issue has
been raised by any taxing authority in any such examination which, by
application of similar principles, can be expected to result in assertion by
such taxing authority of a material deficiency for any other year not so
examined which has not been reserved for in the Borrower's consolidated
financial statements to the extent, if any, required by Agreement Accounting
Principles.
(b) PAYMENT OF TAXES. All tax returns and reports of the Borrower and
its Subsidiaries required to be filed have been timely filed, and all taxes,
assessments, fees and other governmental charges thereupon and upon their
respective property, assets, income and franchises which are shown in such
returns or reports to be due and payable have been paid except those items which
are being contested in good faith and have been reserved for in accordance with
Agreement Accounting Principles or for which the failure to file could not be
reasonably expected to result in the payment of amounts by the Borrower and its
Subsidiaries in the aggregate in excess of $250,000. The Borrower has no
knowledge of any proposed tax assessment against the Borrower or any of its
Subsidiaries that will have or could reasonably be expected to have a material
adverse effect.
4.6 LITIGATION; LOSS CONTINGENCIES AND VIOLATIONS. There is no action,
suit, proceeding, arbitration or investigation before or by any governmental
authority or private arbitrator pending or threatened against the Borrower or
any of its Subsidiaries or any property of any of them (i) challenging the
validity or the enforceability of any material provision of the Transaction
Documents or (ii) which will have or could be expected to have a material
adverse effect. There is no material loss contingency within the meaning of
Agreement Accounting Principles which has not been reflected in the consolidated
financial statements of the Borrower and its Subsidiaries prepared and delivered
pursuant to SECTION 5.1(A) for the fiscal period during which such material loss
contingency was incurred. Neither the Borrower nor any of its Subsidiaries is
(A) in violation of any applicable requirements of law which violation will have
or could be expected to have a material adverse effect, or (B) subject to or in
default with respect to any final judgment, writ, injunction, restraining order
or order of any nature, decree, rule or regulation of any court or governmental
authority which will have or could be expected to have a material adverse
effect.
4.7 SUBSIDIARIES. SCHEDULE 4.8 to this Agreement (i) contains a
description as of the Effective Date (or as of the date of any supplement
thereto) of the corporate structure of, the Borrower and its Subsidiaries and
any other Person in which the Borrower or any of its Subsidiaries holds an
Equity Interest; and (ii) accurately sets forth as of the Effective Date (or as
of the date of any supplement thereto) (A) the correct legal name, the
jurisdiction of incorporation or formation and the jurisdictions in which each
of the Borrower and the Subsidiaries of the Borrower is qualified to transact
business as a foreign corporation or other foreign entity and (B) a summary of
the direct and indirect partnership, joint venture, or other Equity Interests,
if any, of the Borrower and each Subsidiary of the Borrower in any Person that
is not a corporation. After the formation or acquisition of any New Subsidiary
permitted under SECTION 5.3(F)(II), if requested by the Lender, the Borrower
shall provide a supplement to SCHEDULE 4.8 to this Agreement. None of the
issued and outstanding Capital Stock of the Borrower or any of its Subsidiaries
is subject to any redemption or repurchase agreement. The outstanding Capital
Stock of the Borrower and each of the Borrower's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and, is not (other than
Capital Stock in Borrower) Margin Stock. The Borrower has no Subsidiaries other
(i) the Subsidiaries set forth on SCHEDULE 4.8 and (ii) any Subsidiaries
acquired in connection with a Permitted Acquisition, in connection with which
the Borrower shall have provided all of the documents, instruments and
agreements as required by this Agreement.
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4.8 ERISA. No Benefit Plan has incurred any accumulated funding
deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code)
whether or not waived. Neither the Borrower nor any member of the Controlled
Group has incurred any liability to the PBGC which remains outstanding other
than the payment of premiums, and there are no premium payments which have
become due which are unpaid. Schedule B to the most recent annual report filed
with the IRS with respect to each Benefit Plan and, if so requested, furnished
to the Lender, is complete and accurate. Since the date of each such Schedule
B, there has been no material adverse change in the funding status or financial
condition of the Benefit Plan relating to such Schedule B. Neither the Borrower
nor any member of the Controlled Group has (i) failed to make a required
contribution or payment to a Multiemployer Plan or (ii) made a complete or
partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer
Plan, in either event which could result in any liability. Neither the Borrower
nor any member of the Controlled Group has failed to make a required installment
or any other required payment under Section 412 of the Code, in either case
involving any material amount, on or before the due date for such installment or
other payment. Neither the Borrower nor any member of the Controlled Group is
required to provide security to a Benefit Plan under Section 401(a)(29) of the
Code due to a Plan amendment that results in an increase in current liability
for the plan year. Neither the Borrower nor any of its Subsidiaries maintains
or contributes to any employee welfare benefit plan within the meaning of
Section 3(1) of ERISA which provides benefits to employees after termination of
employment other than as required by Section 601 of ERISA. To the best of
Borrower's knowledge, each Plan which is intended to be qualified under Section
401(a) of the Code as currently in effect is so qualified, and each trust
related to any such Plan is exempt from federal income tax under Section 501(a)
of the Code as currently in effect. To the best of Borrower's knowledge, the
Borrower and all Subsidiaries are in compliance in all respects with the
responsibilities, obligations and duties imposed on them by ERISA and the Code
with respect to all Plans. To the best of Borrower's knowledge, neither the
Borrower nor any of its Subsidiaries nor any fiduciary of any Plan has engaged
in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975
of the Code which could be expected to subject the Borrower or any Dealership
Guarantor to material liability. Neither the Borrower nor any member of the
Controlled Group has taken or failed to take any action which would constitute
or result in a Termination Event, which action or inaction could be expected to
subject the Borrower to liability. Neither the Borrower nor any Subsidiary is
subject to any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of
ERISA and no other member of the Controlled Group is subject to any liability
under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA which could be
expected to subject the Borrower or any Dealership Guarantor to liability.
Neither the Borrower nor any of its Subsidiaries has, by reason of the
transactions contemplated hereby, any obligation to make any payment to any
employee pursuant to any Plan or existing contract or arrangement. (For
purposes of this SECTION 4.9 "material" means any noncompliance or basis for
liability which could reasonably be likely to subject the Borrower or any of its
Subsidiaries to liability individually or in the aggregate for all such matters
in excess of $250,000.)
4.9 ACCURACY OF INFORMATION. The information, exhibits and reports
furnished by or on behalf of the Borrower and any of its Subsidiaries to the
Lender in connection with the negotiation of, or compliance with, the Loan
Documents, the representations and warranties of the Borrower and its
Subsidiaries contained in the Transaction Documents, and all certificates and
documents delivered to the Lender pursuant to the terms thereof, taken as a
whole, do not contain as of the date furnished any untrue statement of fact or
omit to state a fact necessary in order to make the statements contained herein
or therein, taken as a whole, in light of the circumstances under which they
were made, not misleading.
4.10 SECURITIES ACTIVITIES. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
4.11 MATERIAL AGREEMENTS. Neither the Borrower nor any of its
Subsidiaries is a party to any Contractual Obligation or subject to any charter
or other corporate restriction which individually or in the aggregate will have
or could be expected to have a material adverse effect. Neither the Borrower
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nor any of its Subsidiaries has received notice or has knowledge that (i) it is
in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Contractual Obligation
applicable to it, or (ii) any condition exists which, with the giving of notice
or the lapse of time or both, would constitute a default with respect to any
such Contractual Obligation, in each case, except where such default or
defaults, if any, individually or in the aggregate will not have or could not
reasonably be expected to have a material adverse effect.
4.12 COMPLIANCE WITH LAWS; COMPLIANCE WITH FRANCHISE AGREEMENTS. The
Borrower and its Subsidiaries are in compliance with all requirements of law
applicable to them and their respective businesses, in each case where the
failure to so comply individually or in the aggregate could be expected to have
a material adverse effect. The execution, delivery and performance by each
Lithia Dealership of any Loan Document to which it is a party does not and will
not conflict with the franchise agreement to which it is a party. Each Lithia
Dealership is operating under a valid and enforceable franchise agreement, which
such franchise agreements prohibit certain transfers of ownership or control
without the consent of the relevant manufacturer.
4.13 ASSETS AND PROPERTIES. The Borrower and each of its Subsidiaries
has good and marketable title to all of its assets and properties (tangible and
intangible, real or personal) owned by it or a valid leasehold interest in all
of its leased assets (except insofar as marketability may be limited by any laws
or regulations of any governmental authority affecting such assets), except
where the failure to have any such title will not have or could not be expected
to have a material adverse effect, and all such assets and property are free and
clear of all liens, except liens permitted under SECTION 5.3(C). Substantially
all of the assets and properties owned by, leased to or used by the Borrower
and/or each such Subsidiary of the Borrower are in adequate operating condition
and repair, ordinary wear and tear excepted. Neither this Agreement nor any
other Transaction Document, nor any transaction contemplated under any such
agreement, will affect any right, title or interest of the Borrower or such
Subsidiary in and to any of its assets in a manner that will have or could
reasonably be expected to have a material adverse effect.
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4.14 STATUTORY INDEBTEDNESS RESTRICTIONS. Neither the Borrower nor any
of its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the
Investment Company Act of 1940, or any other federal, state or local statute,
ordinance or regulation which limits its ability to incur indebtedness or its
ability to consummate the transactions contemplated hereby.
4.15 INSURANCE. The Borrower's and its Subsidiaries' insurance policies
and programs reflect coverage that is reasonably consistent with prudent
industry practice.
4.16 LABOR MATTERS. As of the date hereof, to the Borrower's and its
Subsidiaries' knowledge, there are no labor disputes to which the Borrower or
any of its Subsidiaries may become a party, including, without limitation, any
strikes, lockouts or other disputes relating to such Persons' plants and other
facilities.
4.17 ENVIRONMENTAL MATTERS. (a)(i) The operations of the Borrower's
Subsidiaries, Lithia Financial Corporation, Lithia Real Estate, Inc.
(collectively, the "Lithia Subsidiaries") and Borrower comply in all respects
with Environmental, Health or Safety Requirements of Law;
(ii) the Borrower and the Lithia Subsidiaries have
all permits, licenses or other authorizations required
under Environmental, Health or Safety Requirements of Law
and are in compliance with such permits;
(iii) neither the Borrower,any of the Lithia
Subsidiaries nor any of their respective present property
or operations, or any of their respective past property or
operations, are subject to or the subject of, any
investigation known to the Borrower or any of the Lithia
Subsidiaries, any judicial or administrative proceeding,
order, judgment, decree, settlement or other agreement
respecting: (A) any violation of Environmental, Health or
Safety Requirements of Law; (B) any remedial action under
any Environmental, Health or Safety Requirements of Law; or
(C) any claims or liabilities arising from the Release or
threatened Release of a Contaminant into the environment;
(iv) there is not now, nor has there ever been on
or in the property of the Borrower or any of the Lithia
Subsidiaries any landfill, waste pile, underground storage
tanks, aboveground storage tanks, surface impoundment or
hazardous waste storage facility of any kind, any
polychlorinated biphenyls (PCBs) used in hydraulic oils,
electric transformers or other equipment, or any asbestos
containing material that in the case of any of the
foregoing could be expected to result in any claims or
liabilities in excess of $500,000.00; and
(v) neither the Borrower nor any of the Lithia
Subsidiaries has any Contingent Obligation in connection
with any Release or threatened Release of a Contaminant
into the environment.
4.18 BENEFITS. Each of the Borrower and its Subsidiaries will benefit
from the financing arrangement established by this Agreement. The Lender has
stated and the Borrower acknowledges that, but for the agreement by each of the
Dealership Guarantors to execute and deliver its respective Dealership Guaranty
and Dealership Security Agreements, the Lender would not have made available the
credit facilities established hereby on the terms set forth herein.
5. COVENANTS
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The Borrower covenants and agrees that so long as any Commitment is
outstanding and thereafter until payment in full of all of the Obligations
(other than contingent indemnity obligations, but including Floor Plan
Indebtedness), unless the Lender shall otherwise give its prior written consent:
5.1 REPORTING. The Borrower shall:
(a) FINANCIAL REPORTING. Furnish to the Lender:
(i) QUARTERLY REPORTS. As soon as practicable, and
in any event within forty-five (45) days after the end of
each fiscal quarter in each fiscal quarter, the
consolidated and consolidating balance sheet of the
Borrower and the Lithia Subsidiaries as at the end of such
period and the related consolidated and consolidating
statements of income and cash flows of the Borrower and the
Lithia Subsidiaries for such fiscal quarter and for the
period from the beginning of the then current fiscal year
to the end of such fiscal quarter, certified by the chief
financial officer of the Borrower on behalf of the Borrower
as fairly presenting the consolidated and consolidating
financial position of the Borrower and the Lithia
Subsidiaries as at the dates indicated and the results of
their operations and cash flows for the periods indicated
in accordance with Agreement Accounting Principles, subject
to normal year end adjustments.
(ii) ANNUAL REPORTS. As soon as practicable, and
in any event within ninety (90) days after the end of each
fiscal year, (a) the consolidated and consolidating balance
sheet of the Borrower and the Lithia Subsidiaries as at the
end of such fiscal year and the related consolidated and
consolidating statements of income, stockholders' equity
and cash flows of the Borrower and the Lithia Subsidiaries
for such fiscal year, and in comparative form the
corresponding figures for the previous fiscal year and (b)
an audit report on the items listed in CLAUSE (A) hereof
(other than the consolidating statements) of independent
certified public accountants of recognized national
standing, which audit report shall be unqualified and shall
state that such financial statements fairly present the
consolidated financial position of the Borrower and the
Lithia Subsidiaries as at the dates indicated and the
results of their operations and cash flows for the periods
indicated in conformity with Agreement Accounting
Principles and that the examination by such accountants in
connection with such consolidated financial statements has
been made in accordance with generally accepted auditing
standards. The deliveries made pursuant to this CLAUSE
(II) shall be accompanied by any management letter prepared
by the above-referenced accountants.
(iii) MONTHLY STATEMENTS. As soon as practicable,
and in any event by the 25th day of each following month,
certified copies of direct (factory) statements provided to
a manufacturer by any Lithia Dealership.
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(iv) OFFICER'S CERTIFICATE. Together with each
delivery of any financial statement pursuant to CLAUSES (I)
and (II) of this SECTION 5.1(A), an Officer's Certificate
of the Borrower, substantially in the form of EXHIBIT F
attached hereto and made a part hereof, stating that no
Event of Default or Unmatured Default exists, or if any
Event of Default or Unmatured Default exists, stating the
nature and status thereof and setting forth (X) such
financial statements and information as shall be reasonably
acceptable to the Lender and (Y) a valuation of the
Collateral.
(b) NOTICE OF EVENT OF DEFAULT. Promptly upon any of the chief
executive officer, president, chief financial officer, treasurer of the Borrower
or any of its Subsidiaries obtaining knowledge (i) of any condition or event
which constitutes an Event of Default or Unmatured Default, or (ii) that any
Person has given any written notice to the Borrower or any LithiaSubsidiary of
the Borrower or taken any other action with respect to a claimed default or
event or condition of the type referred to in SECTION 6.1(E), deliver to the
Lender a notice specifying (a) the nature and period of existence of any such
claimed default, Event of Default, Unmatured Default, condition or event, (b)
the notice given or action taken by such Person in connection therewith, and (c)
what action the Borrower has taken, is taking and proposes to take with respect
thereto.
(c) LAWSUITS. (i) Promptly upon the Borrower obtaining knowledge of
the institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration against or affecting the Borrower or
any of the Lithia Subsidiaries or any property of the Borrower or any of the
Lithia Subsidiaries, which action, suit, proceeding, governmental investigation
or arbitration exposes, or in the case of multiple actions, suits, proceedings,
governmental investigations or arbitrations arising out of the same general
allegations or circumstances which expose, in the Borrower's reasonable
judgment, the Borrower or any of the Lithia Subsidiaries to liability in an
amount aggregating $500,000 or more, give written notice thereof to the Lender
and provide such other information as may be reasonably available to enable the
Lender and its counsel to evaluate such matters; and (ii) in addition to the
requirements set forth in CLAUSE (I) of this SECTION 5.1(C), upon request of the
Lender, promptly give written notice of the status of any action, suit,
proceeding, governmental investigation or arbitration covered by a report
delivered pursuant to CLAUSE (I) above or disclosed in any filing with the
Commission and provide such other information as may be available to it that
would not violate any attorney-client privilege by disclosure to the Lender to
enable the Lender and its counsel to evaluate such matters.
(d) ERISA NOTICES. Deliver or cause to be delivered to the Lender, at
the Borrower's expense, the following information and notices as soon as
possible, and in any event:
(i) (a) within ten (10) business days after the
Borrower obtains knowledge that a Termination Event has
occurred, a written statement of the chief financial
officer of the Borrower describing such Termination Event
and the action, if any, which the Borrower has taken, is
taking or proposes to take with respect thereto, and when
known, any action taken or threatened by the IRS, DOL or
PBGC with respect thereto and (b) within ten (10) business
days after any member of the Controlled Group obtains
knowledge that a Termination Event has occurred which could
reasonably be expected to subject the Borrower or any
member of the Controlled Group to liability individually or
in the
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aggregate in excess of $250,000, a written statement of the
chief financial officer of the Borrower describing such
Termination Event and the action, if any, which the member of
the Controlled Group has taken, is taking or proposes to take
with respect thereto, and when known, any action taken or
threatened by the IRS, DOL or PBGC with respect thereto;
(ii) within ten (10) business days after the Borrower
or any of the Lithia Subsidiaries obtains knowledge that a
prohibited transaction (defined in Sections 406 of ERISA and
Section 4975 of the Code) has occurred, a statement of the
chief financial officer of the Borrower describing such
transaction and the action which the Borrower or such Lithia
Subsidiary has taken, is taking or proposes to take with
respect thereto;
(iii) within ten (10) business days after the
Borrower or any of the Lithia Subsidiaries receives notice
of any unfavorable determination letter from the IRS
regarding the qualification of a Plan under Section 401(a)
of the Code, copies of each such letter;
(iv) within ten (10) business days after the filing
thereof with the IRS, a copy of each funding waiver request
filed with respect to any Benefit Plan and all
communications received by the Borrower or a member of the
Controlled Group with respect to such request;
(v) within ten (10) business days after receipt by
the Borrower or any member of the Controlled Group of the
PBGC's intention to terminate a Benefit Plan or to have a
trustee appointed to administer a Benefit Plan, copies of
each such notice;
(vi) within ten (10) business days after receipt by
the Borrower or any member of the Controlled Group of a
notice from a Multi-employer Plan regarding the imposition
of withdrawal liability, copies of each such notice;
(vii) within ten (10) business days after the
Borrower or any member of the Controlled Group fails to
make a required installment or any other required payment
under Section 412 of the Code on or before the due date for
such installment or payment, a notification of such
failure; and
(viii) within ten (10) business days after the
Borrower or any member of the Controlled Group knows or has
reason to know that (a) a Multi-employer Plan has been
terminated, (b) the administrator or plan sponsor of a
Multi-employer Plan intends to terminate a Multi-employer
Plan, or (c) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate a
Multi-employer Plan.
For purposes of this SECTION 5.1(D), the Borrower, any of its Subsidiaries and
any member of the Controlled Group shall be deemed to know all facts known by
the Administrator of any Plan of which the Borrower or any member of the
Controlled Group or such Subsidiary is the plan sponsor.
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(e) LABOR MATTERS. Notify the Lender in writing, promptly upon the
Borrower's learning thereof, of (i) any labor dispute to which the Borrower or
any of its Subsidiaries may become a party, including, without limitation, any
strikes, lockouts or other disputes relating to such Persons' plants and other
facilities and (ii) any liability incurred under the Worker Adjustment and
Retraining Notification Act with respect to the closing of any plant or other
facility of the Borrower or any of its Subsidiaries.
(f) OTHER INDEBTEDNESS. Deliver to the Lender (i) a copy of each notice
or communication regarding potential or actual defaults (including any
accompanying officer's certificate) delivered by or on behalf of the Borrower or
any of its Subsidiaries to the holders of funded Indebtedness pursuant to the
terms of the agreements governing such Indebtedness, such delivery to be made at
the same time and by the same means as such notice or other communication is
delivered to such holders, and (ii) a copy of each notice or other communication
regarding potential or actual defaults received by the Borrower or any of its
Subsidiaries from the holders of funded Indebtedness pursuant to the terms of
such Indebtedness, such delivery to be made promptly after such notice or other
communication is received by the Borrower or any such Subsidiary.
(g) OTHER REPORTS. Deliver or cause to be delivered to the Lender
copies of all financial statements, reports and notices, if any, sent or made
available generally by the Borrower to its securities holders or filed with the
Commission by the Borrower, all press releases made available generally by the
Borrower or any of the Borrower's Subsidiaries to the public concerning
developments in the business of the Borrower or any such Subsidiary and all
notifications received from the Commission by the Borrower or its Subsidiaries
pursuant to the Securities Exchange Act of 1934 and the rules promulgated
thereunder (other than customary comment letters received in connection with
registration statements or other routine communications between the Commission
and the Borrower).
(h) ENVIRONMENTAL NOTICES. As soon as possible and in any event within
ten (10) days after receipt by the Borrower or any of its Subsidiaries, a copy
of (i) any notice or claim to the effect that the Borrower or any of its
Subsidiaries is or may be liable to any Person as a result of the Release by the
Borrower, any of its Subsidiaries, or any other Person of any Contaminant into
the environment, and (ii) any notice alleging any violation of any
Environmental, Health or Safety Requirements of Law by the Borrower or any of
its Subsidiaries if, in either case, such notice or claim relates to an event
which could reasonably be expected to subject the Borrower or any Subsidiary to
liability individually or in the aggregate in excess of $500,000.
(i) OTHER INFORMATION. Promptly upon receiving a request therefor from
the Lender, prepare and deliver to the Lender such other information with
respect to the Borrower, any of its Subsidiaries, or the Collateral, including,
without limitation, schedules identifying and describing the Collateral and any
dispositions thereof, as from time to time may be reasonably requested by the
Lender.
(j) USED VEHICLE INVENTORY. On each Payment Date, an itemized list of
used vehicle inventory, showing the vehicle identification number of each
vehicle, the make and model of each vehicle, and the value of each vehicle and
the aggregate value of all used vehicle inventory.
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5.2 AFFIRMATIVE COVENANTS.
(a) EXISTENCE, ETC. Except for mergers permitted pursuant to SECTION
5.3(H), the Borrower shall, and shall cause each of its Subsidiaries to, at all
times maintain its corporate, company or partnership existence, as applicable,
and preserve and keep, or cause to be preserved and kept, in full force and
effect its rights and franchises material to its businesses.
(b) POWERS; CONDUCT OF BUSINESS. The Borrower shall, and shall cause
each of its Subsidiaries to, qualify and remain qualified to do business in each
jurisdiction in which the nature of its business requires it to be so qualified
and where the failure to be so qualified will have or could reasonably be
expected to have a material adverse effect. The Borrower will, and will cause
each Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted.
(c) COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall cause its
Subsidiaries to, (a) comply with all requirements of law and all restrictive
covenants affecting such Person or the business, properties, assets or
operations of such Person, and (b) obtain as needed all permits necessary for
its operations and maintain such permits in good standing, unless failure to
comply or obtain could not be expected to have a material adverse effect.
(d) PAYMENT OF TAXES AND CLAIMS; TAX. The Borrower shall pay, and cause
each of the Lithia Subsidiaries to pay, (i) all taxes, assessments and other
governmental charges imposed upon it or on any of its properties or assets or in
respect of any of its franchises, business, income or property before any
penalty or interest accrues thereon, and (ii) all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a lien (other
than a lien permitted by SECTION 5.3(C)) upon any of the Borrower's or such
LithiaSubsidiary's property or assets, prior to the time when any penalty or
fine shall be incurred with respect thereto; PROVIDED, HOWEVER, that no such
taxes, assessments and governmental charges referred to in CLAUSE (i) above or
claims referred to in CLAUSE (ii) above (and interest, penalties or fines
relating thereto) need be paid if being contested in good faith by appropriate
proceedings diligently instituted and conducted and if such reserve or other
appropriate provision, if any, as shall be required in conformity with Agreement
Accounting Principles shall have been made therefor. The Borrower will not, nor
will it permit any of the Lithia Subsidiaries to, file or consent to the filing
of any consolidated income tax return with any other Person other than the
consolidated return of the Borrower.
(e) INSURANCE. The Borrower shall maintain for itself and its
Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force
and effect, insurance policies and programs reflecting coverage that is
reasonably consistent with prudent industry practice.
(f) INSPECTION OF PROPERTY; BOOKS AND RECORDS. The Borrower shall
permit and cause each of the Borrower's Lithia Subsidiaries to permit, any
authorized representative(s) designated by the Lender to visit and inspect any
of the properties of the Borrower or any of its Lithia Subsidiaries, to examine,
audit, check and make copies of their respective financial and accounting
records, books, journals, orders, receipts and any correspondence and other data
relating to their respective businesses or the transactions contemplated hereby
or by the Acquisitions (including, without limitation, in connection with
environmental compliance, hazard or liability), and to discuss their affairs,
finances and accounts with their officers and independent certified public
accountants, at such times during normal business hours, as often as may be
requested; PROVIDED, that while no Event of Default exists, all of the foregoing
shall be at the expense of the Lender. The Borrower shall keep and maintain,
and cause each of the Borrower's Lithia Subsidiaries to keep and maintain, in
all respects, proper books of record and account in which entries in conformity
with Agreement Accounting Principles shall be made of all dealings and
transactions in relation to their respective businesses and activities,
including, without limitation, transactions and other dealings with respect to
the Collateral.
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If an Event of Default has occurred and is continuing, the Borrower, upon the
Lender's request, shall turn over any such records to the Lender or its
representatives. Neither Borrower nor any Lithia Subsidiary shall be
required to violate any attorney-client privilege by disclosure to Lender
(g) INSURANCE AND CONDEMNATION PROCEEDS. The Borrower directs (and,
if applicable, shall cause its Subsidiaries to direct) all insurers under
policies of property damage, boiler and machinery and business interruption
insurance and payors of any condemnation claim or award relating to the
property to pay all proceeds payable under such policies or with respect to
such claim or award for any loss with respect to the Collateral directly to
the Lender; PROVIDED, HOWEVER, in the event that such proceeds or award are
less than $250,000 ("EXCLUDED PROCEEDS"), unless an Event of Default shall
have occurred and be continuing, the Lender shall remit such Excluded
Proceeds to the Borrower or Subsidiary, as applicable. Each such policy
shall contain a long-form loss-payable endorsement naming the Lender as loss
payee, which endorsement shall be in form and substance reasonably acceptable
to the Lender. The Lender shall, upon receipt of such proceeds (other than
Excluded Proceeds) and at the Borrower's direction, either apply the same to
the principal amount of the Advances outstanding at the time of such receipt
and create a corresponding reserve against the Commitment in an amount equal
to such application (the "DECISION RESERVE") or hold them as cash collateral
for the Obligations in an interest bearing account. For up to 150 days from
the date of any loss (the "DECISION PERIOD"), the Borrower may notify the
Lender that it intends to restore, rebuild or replace the property subject to
any insurance payment or condemnation award and shall, as soon as practicable
thereafter, provide the Lender detailed information, including a construction
schedule and cost estimates. Should an Event of Default occur at any time
during the Decision Period, should the Borrower notify the Lender that it has
decided not to rebuild or replace such property during the Decision Period,
or should the Borrower fail to notify the Lender of the Borrower's decision
during the Decision Period, then the amounts held as cash collateral pursuant
to this SECTION 5.2(G) or as the Decision Reserve shall be applied as a
mandatory prepayment of the Advances pursuant to SECTION 2.2(B). Proceeds
held as cash collateral pursuant to this SECTION 5.2(G) or constituting the
Decision Reserve shall be disbursed as payments for restoration, rebuilding
or replacement of such property become due; PROVIDED, HOWEVER, should an
Event of Default occur after the Borrower has notified the Lender that it
intends to rebuild or replace the property, the Decision Reserve or amounts
held as cash collateral shall be applied as a mandatory prepayment of the
Advances pursuant to SECTION 2.2(B). In the event the Decision Reserve is to
be applied as a mandatory prepayment to the Advances, the Borrower shall be
deemed to have requested Advances in an amount equal to the Decision Reserve,
and such Advances shall be made regardless of any failure of the Borrower to
meet the conditions precedent set forth in ARTICLE III. Upon completion of
the restoration, rebuilding or replacement of such property, the unused
proceeds shall constitute net cash proceeds of an Asset Sale and shall be
applied as a mandatory prepayment of the Advances pursuant to SECTION 2.2(B).
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(h) ERISA COMPLIANCE. The Borrower shall, and shall cause each of
the Borrower's Subsidiaries to, establish, maintain and operate all Plans, if
any, to comply in all material respects with the provisions of ERISA, the
Code, all other applicable laws, and the regulations and interpretations
thereunder and the respective requirements of the governing documents for
such Plans, except where the failure to comply will not or could not
reasonably be expected to subject the Borrower and its Subsidiaries to
liability individually or in the aggregate in excess of $250,000.
(i) MAINTENANCE OF PROPERTY. The Borrower shall cause all property used
or useful in the conduct of its business or the business of any Lithia
Subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and shall cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Borrower may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; PROVIDED, HOWEVER, that nothing in this SECTION 5.2(H) shall
prevent the Borrower from discontinuing the operation or maintenance of any of
such property if such discontinuance is, in the judgment of the Borrower,
desirable in the conduct of its business or the business of any Lithia
Subsidiary and not disadvantageous in any material respect to the Lender.
(j) ENVIRONMENTAL COMPLIANCE. The Borrower and the Lithia Subsidiaries
shall comply with all Environmental, Health or Safety requirements of law,
except where noncompliance could not be expected to subject the Borrower and the
Lithia Subsidiaries to liability individually or in the aggregate in excess of
$500,000. Neither the Borrower nor any of the Lithia Subsidiaries shall be the
subject of any proceeding or investigation pertaining to (i) the Release by the
Borrower or any of the Lithia Subsidiaries of any Contaminant into the
environment or (ii) the liability of the Borrower or any of the Lithia
Subsidiaries arising from the Release by any other Person of any Contaminant
into the environment, which, in either case, subjects or is likely to subject
the Borrower and the Lithia Subsidiaries individually or in the aggregate to
liability in excess of the amount set forth above.
(k) USE OF PROCEEDS. The Borrower shall use the proceeds of the
Advances to fund the Dealership Guarantors' used automotive inventory. The
proceeds of Advances hereunder may not be used to make any mandatory prepayment
under SECTION 2.2(B). The Borrower will not nor will it permit any Subsidiary
to, use any of the proceeds of the Loans to purchase or carry any Margin Stock.
(l) ADDITION OF DEALERSHIP GUARANTORS. The Borrower shall cause each
Lithia Dealership which has not heretofore provided a Dealership Guaranty to the
Lender, to deliver to the Lender a Dealership Guaranty, in the form of Exhibit
C-1, a Dealership Security Agreement in the form of Exhibit D-1, UCC-1 Financing
Statements and an acknowledgment to be bound by the Contribution Agreement,
together with appropriate corporate resolutions, opinions and other
documentation in form and substance reasonably satisfactory to the Lender. Each
Lithia Dealership shall provide such Dealership Guaranty and Collateral
Documents prior to or simultaneously with its Acquisition.
(m) FUTURE LIENS ON REAL PROPERTY. The Borrower shall, and shall cause
each of its Subsidiaries that is required to guarantee the Obligations and
Lithia Financial Corporation and Lithia Real Estate, Inc., to deliver to Lender,
immediately upon its acquisition or leasing of any real property after the date
hereof, copies of any mortgage, deed of trust, collateral assignment or other
appropriate instrument evidencing a lien upon any such acquired property that
would be other than a Customary Permitted Lien if the real property were
included in the Collateral (in the case of any acquisition of real property), or
copies of a lease (in the case of a real property lease) and the Borrower or the
applicable Subsidiary, as the case may be, shall use their best efforts provide
the Lender with such opinions, landlord and mortgagee waivers as the Lender
shall have reasonably requested in connection with such acquisition or leasing
of real property,only if the term of such lease (without regard to any
extension thereof at then current market rent) is more than five years or (ii)
such lease has a material value by reason of a purchase option, below-market
rent or otherwise.
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(n) FRANCHISE AGREEMENTS. The Borrower shall use its best efforts to
obtain waivers under existing and future franchise agreements on terms and
conditions acceptable to the Lender sufficient to permit the security interests
and liens contemplated hereunder. To the extent any franchise agreement
materially limits the security interests and liens contemplated hereunder or
under any Collateral Document, the Borrower shall notify the Lender of such
restriction or limitation and to the extent such franchise agreement relates to
an Acquisition to be effected by the Borrower, prior to such Acquisition
becoming a Permitted Acquisition, the Lender shall have provided its written
approval of such franchise agreement.
(o) MINORITY HOLDERS. Borrower shall cause any minority holder holding
an Equity Interest in a Subsidiary pursuant to a Majority Acquisition to pledge
its Equity Interest to Lender in connection with said Permitted Acquisition
(provided, however, that Phillip Camp shall not be required to pledge his 20%
equity interest in Lithia VS, L.L.C.).
(p) USED VEHICLE LEDGER. Borrower and/or each Dealership Guarantor shall
maintain a current ledger of used vehicle inventory, noting the make, mode,
vehicle identification number and value of each used vehicle.
5.3 NEGATIVE COVENANTS.
(a) INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries
shall directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except:
(i) the Obligations;
(ii) Permitted Existing Indebtedness and Permitted
Refinancing Indebtedness;
(iii) Indebtedness in respect of obligations
secured by Customary Permitted Liens;
(iv) Indebtedness constituting Contingent
Obligations in respect of Indebtedness otherwise permitted
hereunder;
(v) Indebtedness arising from intercompany loans
from the Borrower to any Dealership Guarantor or from any
Subsidiary to the Borrower or any Dealership Guarantor;
PROVIDED that in each case such Indebtedness is
subordinated upon terms satisfactory to the Lender to the
obligations of the Borrower and its Subsidiaries with
respect to the Obligations;
(vi) Guaranties by the Borrower of Indebtedness
permitted to be incurred by any Subsidiary;
(vii) Indebtedness with respect to surety, appeal
and performance bonds obtained by the Borrower or any of
its Subsidiaries in the ordinary course of business;
(viii) Indebtedness arising under the Borrower
Guaranty or any Dealership Guaranty;
(ix) Indebtedness (evidenced by a promissory note
or notes) constituting that portion of the deferred
purchase price payable by the Borrower in connection with a
Permitted Acquisition, and Indebtedness (evidenced by a
promissory note or notes) to shareholders, members or
partners of a Subsidiary or a predecessor of such a
subsidiary acquired in a Permitted Acquisition that are
credited against the purchase price (the "Seller's Notes");
(x) Other Floor Plan Indebtedness;
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(xi) Indebtedness incurred in connection with Capital
Expenditures; and renewals and refinancings thereof;
(xii) Guaranties by Borrower of operating leases of
Subsidiaries, including but not limited to leases of real
property;
(xiii) Guaranties by Borrower of Indebtedness incurred by
Lithia Financial Corporation and Lithia Real Estate, Inc.;
(xiv) Indebtedness of a dealership Subsidiary acquired in a
Permitted Acquisition, including but not limited to:
(a) recourse liability to purchasers of automobile
chattel paper and retail leases; and
(b) Indebtedness to lenders providing wholesale
lease financing.
(xv) Indebtedness not in excess of $250,000 in
connection with the liens set forth in Section 5.3(C)(v).
(b) SALES OF ASSETS. Neither the Borrower nor any of its Subsidiaries
shall sell, assign, transfer, lease, convey or otherwise dispose of any property
(including the Capital Stock of any Subsidiary), whether now owned or hereafter
acquired, or any income or profits therefrom, or enter into any agreement to do
so, except:
(i) sales of inventory in the ordinary course of
business (and sales of automotive chattel paper and leases
generated thereby);
(ii) the disposition in the ordinary course of
business of equipment that is obsolete, excess or no longer
useful in the Borrower's or its Subsidiaries' business;
(iii) transfers by a Dealership Guarantor to
Lithia Financial Corporation of equipment, fixtures and
vehicles to be leased by Lithia Financial Corporation to a
Dealership Guarantor;
(iv) transfers by a Dealership Guarantor to Lithia Real
Estate, Inc. of real property to be leased by Lithia Real Estate,
Inc. to a Dealership Guarantor; and
(v) sales, assignments, transfers, leases, conveyances
or other dispositions of other assets (including sales of
Capital Stock of a Subsidiary) if such transaction (a) is for
all cash consideration, (b) is for not less than Fair Value,
(c) when combined with all such other transactions (each such
transaction being valued at book value) (i) during the
immediately preceding twelve-month period, represents the
disposition of not greater than $250,000, and (ii) during the
period from the date hereof to the date of such proposed
transaction, represents the disposition of not greater than
$500,000 and (d) if a, a sale by the Borrower of Capital Stock
in any Subsidiary, except as provided in subclause (c) above,
the Borrower shall continue to own, of record and beneficially,
with sole voting and dispositive power, 100% (unless required
by the Subsidiary's franchise agreement to be less, in which
event at least 80%) of the outstanding shares of Capital Stock
of any such Subsidiary.
(c) LIENS. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or permit to exist any Lien on or
with respect to any of their respective property or assets, except:
(i) Permitted Existing Liens;
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(ii) Customary Permitted Liens;
(iii) Liens securing the Obligations;
(iv) Liens securing the Indebtedness described in
Section (a)(ix), provided the amount of such liens shall
not at any time exceed $10,000,000;
(v) liens, for the purpose of securing Indebtedness
described in Section 5.3 (a)(xiv) above, in chattel paper,
vehicle leases to retail customers, the vehicles sold or leased
thereunder, returns or repossessions of such vehicles, and
proceeds of such collateral;
(vi) liens of General Motors Acceptance Corporation
("GMAC") in present and future contracts held by GMAC (in the
case of a Lithia Dealership that sells chattel paper to GMAC);
(vii) liens of wholesalers or refiners of oil or other
petroleum products in equipment supplied to Borrower or a
Subsidiary in connection with contracts to supply such
products;
(viii) liens securing the Other Floor Plan Indebtedness; and
(ix) Liens (other than on the stock of any
Subsidiaries) securing other obligations not exceeding $250,000
in the aggregate at any time outstanding.
In addition, neither the Borrower nor any of its Subsidiaries shall become a
party to any agreement, note, indenture or other instrument (other than any
franchise agreement with Ford Motor Company), or take any other action, which
would prohibit the creation of a lien on any of its properties or other assets
in favor of the Lender as collateral for the Obligations; PROVIDED that any
agreement, note, indenture or other instrument in connection with liens
permitted pursuant to CLAUSE (I) above may prohibit the creation of a lien in
favor of the Lender on the items of property subject to such lien.
(d) INVESTMENTS. Except to the extent permitted pursuant to PARAGRAPH
(G) below, neither the Borrower nor any of its Subsidiaries shall directly or
indirectly make or own any Investment except:
(i) Investments in Cash Equivalents;
(ii) Permitted Existing Investments in an amount
not greater than the amount thereof on the date hereof;
(iii) Investments in trade receivables or received
in connection with the bankruptcy or reorganization of
suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and
suppliers arising in the ordinary course of business;
(iv) Investments consisting of intercompany loans
from any Subsidiary to the Borrower or any other Subsidiary
permitted by SECTION 5.3(A)(V);
(v) Investments in any Dealership Guarantor;
(vi) Investments constituting Permitted Acquisitions; and
(vii) Investments in addition to those referred to
elsewhere in this SECTION 5.3(D) in an amount not to exceed
$500,000 in the aggregate at any time outstanding;
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PROVIDED, HOWEVER, that the Investments described in CLAUSE (VII) above shall
not be permitted if either an Event of Default or Unmatured Default shall have
occurred and be continuing on the date thereof or would result therefrom.
(e) RESTRICTED PAYMENTS. Neither the Borrower nor any of its
Subsidiaries shall declare or make any Restricted Payment, except:
(i) where the consideration therefor consists solely
of Equity Interests (but excluding Disqualified Stock) of
the Borrower or its Subsidiaries provided no Change of
Control would occur as a result thereof; and
(ii) in connection with the payment of dividends by
a Subsidiary to the Borrower.
(f) CONDUCT OF BUSINESS; SUBSIDIARIES. (i) Neither the Borrower nor
any of its Subsidiaries shall engage in any business other than the businesses
engaged in by the Borrower and its Subsidiaries, collectively, on the date
hereof and any business or activities which are substantially similar, related
or incidental thereto.
(ii) The Borrower may create, acquire and/or capitalize any
Subsidiary (a "NEW SUBSIDIARY") after the date hereof pursuant to any
transaction that is permitted by or not otherwise prohibited by this Agreement;
PROVIDED that upon the creation or acquisition of each New Subsidiary, the
requirements set forth in SECTION 5.2(L) hereof shall have been satisfied and
all New Subsidiaries that are Material Subsidiaries shall be Controlled
Subsidiaries.
(iii) The Borrower shall not make any Acquisitions, other than
Acquisitions meeting the requirements set forth in Section 5.3(f)(iii) of the
Credit Agreement between Borrower and Lender dated as of even date herewith,
pursuant to which Lender extended an acquisition line of credit to Borrower
(each such Acquisition constituting a "PERMITTED ACQUISITION").
(g) TRANSACTIONS WITH SHAREHOLDERS AND. Neither the Borrower nor any of
its Subsidiaries shall directly or indirectly enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any holder or
holders of any of the Equity Interests of the Borrower, or with any Affiliate of
the Borrower which is not a Dealership Guarantor, on terms that are less
favorable to the Borrower or any of its Subsidiaries, as applicable, than those
that might be obtained in an arm's length transaction at the time from Persons
who are not such a holder or Affiliate.
(h) RESTRICTION ON FUNDAMENTAL CHANGE. Neither the Borrower nor any of
its Subsidiaries shall enter into any merger or consolidation, or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution), or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or series of
transactions, all or substantially all of the Borrower's or any such
Subsidiary's business or property, whether now or hereafter acquired, except (i)
transactions permitted under SECTIONS 5.3(B) or 5.3(G) (ii) the merger of a
Subsidiary of the Borrower into or with a Person acquired or being acquired in
connection with a Permitted Acquisition; (iii) the merger of a wholly-owned
Subsidiary of the Borrower with and into the Borrower; and (iv) the merger of a
Subsidiary of the Borrower with another Subsidiary of the Borrower; PROVIDED,
HOWEVER, (i) with respect to any such permitted mergers involving any Dealership
Guarantor, the surviving corporation in the merger shall also be or become a
Dealership Guarantor; and (ii) after the consummation of any such transaction,
the Borrower shall be in compliance with the provisions of SECTIONS 5.2(K) and
5.3(E).
(i) SALES AND LEASEBACKS. Neither the Borrower nor any of the Lithia
Subsidiaries shall become liable, directly, by assumption or by Contingent
Obligation, with respect to any lease, whether an operating lease or a
Capitalized Lease, of any property (whether real or personal or mixed) (i) which
it or one of the Lithia Subsidiaries sold or transferred or is to sell or
transfer to any other Person,
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or (ii) which it or one of the Lithia Subsidiaries intends to use for
substantially the same purposes as any other property which has been or is to
be sold or transferred by it or one of the Lithia Subsidiaries to any other
Person in connection with such lease, other than a (A) Dealership Guarantor's
sale to, and lease of Equipment from, Lithia Financial Corporation and (B) a
Dealership Guarantor's sale to, and lease of real estate from, Lithia Real
Estate, Inc.
(j) MARGIN REGULATIONS. Neither the Borrower nor any of its
Subsidiaries, shall use all or any portion of the proceeds of any credit
extended under this Agreement to purchase or carry Margin Stock.
(k) ERISA. The Borrower shall not
(i) engage, or permit any of its Subsidiaries to
engage, in any prohibited transaction described in Sections
406 of ERISA or 4975 of the Code for which a statutory or
class exemption is not available or a private exemption has
not been previously obtained from the DOL;
(ii) permit to exist any accumulated funding
deficiency (as defined in Sections 302 of ERISA and 412 of
the Code), with respect to any Benefit Plan, whether or not
waived;
(iii) fail, or permit any Controlled Group member to
fail, to pay timely required contributions or annual
installments due with respect to any waived funding
deficiency to any Benefit Plan;
(iv) terminate, or permit any Controlled Group
member to terminate, any Benefit Plan which would result in
any liability of the Borrower or any Controlled Group
member under Title IV of ERISA;
(v) fail to make any contribution or payment to any
Multiemployer Plan which the Borrower or any Controlled
Group member may be required to make under any agreement
relating to such Multiemployer Plan, or any law pertaining
thereto;
(vi) fail, or permit any Controlled Group member to
fail, to pay any required installment or any other payment
required under Section 412 of the Code on or before the due
date for such installment or other payment; or
(vii) amend, or permit any Controlled Group member
to amend, a Plan resulting in an increase in current
liability for the plan year such that the Borrower or any
Controlled Group member is required to provide security to
such Plan under Section 401(a)(29) of the Code,
except where such transactions, events, circumstances, or failures will not have
or is not likely to subject the Borrower and its Subsidiaries to liability
individually or in the aggregate in excess of $250,000.
(l) ISSUANCE OF EQUITY INTERESTS. The Borrower shall not issue any
Equity Interests if as a result of such issuance a Change of Control shall
occur. None of the Borrower's Subsidiaries shall issue any Equity Interests
other than to the Borrower except as permitted in connection with a Majority
Acquisition or as required to comply with the terms of the relevant franchise
agreement with a particular automotive manufacturer.
(m) CORPORATE DOCUMENTS; FRANCHISE AGREEMENTS. Neither the Borrower nor
any of its Subsidiaries shall amend, modify or otherwise change any of the terms
or provisions in any of their respective constituent documents as in effect on
the date hereof in any manner adverse in any respect to the interests of the
Lender without the prior written consent of the Lender. The Borrower
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shall not permit any Lithia Dealership to amend, modify or otherwise change
any of the terms or provisions of such Lithia Dealership's franchise
agreement in any manner adverse in any respect to the interests of the Lender
without the prior written consent of the Lender.
(n) FISCAL YEAR. Neither the Borrower nor any of its consolidated
Subsidiaries shall change its fiscal year for accounting or tax purposes from a
period consisting of the 12-month period ending on December 31 of each calendar
year.
(o) SUBSIDIARY COVENANTS. The Borrower will not, and will not permit
any Lithia Subsidiary to, create or otherwise cause to become effective any
consensual encumbrance or restriction of any kind on the ability of any Lithia
Subsidiary to (i) pay dividends or make any other distribution on its stock,
(ii) make any other Restricted Payment, (iii) pay any Indebtedness or other
Obligation owed to the Borrower or any other Lithia Subsidiary, (iv) make loans
or advances or other Investments in the Borrower or any other Lithia Subsidiary,
or (v) sell, transfer or otherwise convey any of its property to the Borrower or
any other Lithia Subsidiary, except as may be required to comply with any
applicable financial covenants under the terms of the franchise or dealer
agreement that Borrower or each of its Dealership Subsidiaries has with vehicle
manufactuerers.
(p) HEDGING OBLIGATIONS. The Borrower shall not and shall not permit
any of its Subsidiaries to enter into any interest rate, commodity or foreign
currency exchange, swap, collar, cap or similar agreements evidencing Hedging
Obligations, other than interest rate, foreign currency or commodity exchange,
swap, collar, cap or similar agreements entered into by the Borrower or a
Subsidiary pursuant to which the Borrower or such Subsidiary has hedged its
actual interest rate, foreign currency or commodity exposure.
( r) NEGATIVE PLEDGE. With respect to any Dealership Guarantor
operating under a franchise agreement with Toyota Motor Sales in USA, Inc,
American Honda Motor Corporation, or Nissan in USA, Inc., Borrower hereby agrees
that it shall not pledge or otherwise transfer its Capital Stock in such
Dealership to any Person.
5.4 FINANCIAL COVENANTS. The Borrower shall comply with the following:
(a) TOTAL DEBT TO TANGIBLE BASE CAPITAL. The Borrower shall not at any
time permit the ratio ("TBC RATIO") of Total Debt of the Lithia Group on a
consolidated basis to Tangible Base Capital of the Lithia Group on a
consolidated basis to be greater than 30:1.
(b) TOTAL ADJUSTED DEBT TO TANGIBLE BASE CAPITAL. The Borrower shall
not at any time permit the ratio ("ADJUSTED TBC RATIO") of Total Adjusted Debt
of the Lithia Group on a consolidated basis to Tangible Base Capital of the
Lithia Group on a consolidated basis to be greater than 15:1.
(c) CURRENT RATIO. The Borrower shall not at any time permit the ratio
(the "CURRENT RATIO") of Current Assets of the Lithia Group on a consolidated
basis to Current Liabilities of the Lithia Group on a consolidated basis to be
less than 1.2:1.
(d) FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain a ratio
("FIXED CHARGE COVERAGE RATIO") of (i) EBITDAR LESS Capital Expenditures for
tangible and intangible personal property paid in cash, to (ii) (a) Interest
Expense PLUS (b) scheduled amortization of the principal portion of all
Indebtedness for money borrowed (except for Seller's Notes) PLUS (c) Rentals
PLUS (d) taxes paid in cash during such period of the Borrower and its
consolidated Subsidiaries of at least 1.2:1 for each fiscal quarter ending from
and after the Effective Date. In each case the Fixed Charge Coverage Ratio
shall be determined as of the last day of each fiscal quarter for the
four-quarter period ending on such day.
(e) NET CASH. Borrower shall maintain positive Net Cash.
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All financial covenants set forth in this SECTION 5.4 shall be
calculated by the Lender based on the calculations set forth in and the
financial statements attached to Officer's Certificates delivered hereunder and
shall be binding on the Borrower for all purposes of this Agreement absent
manifest error.
6. EVENT OF DEFAULTS
6.1 EVENT OF DEFAULTS. Each of the following occurrences shall
constitute an Event of Default under this Agreement:
(a) FAILURE TO MAKE PAYMENTS WHEN DUE. The Borrower shall (i) fail to
pay when due any of the Obligations consisting of principal with respect to the
Advances or (ii) shall fail to pay within ten (10) days of the date when due any
of the other Obligations under this Agreement or the other Loan Documents.
(b) BREACH OF CERTAIN COVENANTS. The Borrower shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under SECTIONS 5.2(F), 5.2(K), 5.3 or 5.4.
(c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or
warranty made or deemed made by the Borrower to the Lender herein or by the
Borrower or any of its Subsidiaries in any of the other Loan Documents or in any
written certificate of any Authorized Officer at any time given by any such
Person pursuant to any of the Loan Documents shall be false or misleading in any
respect on the date as of which made (or deemed made).
(d) OTHER DEFAULTS. The Borrower shall default in the performance of or
compliance with any term contained in this Agreement (other than as covered by
PARAGRAPHS (A), (B) or (C) of this SECTION 6.1), or the Borrower or any of its
Subsidiaries shall default in the performance of or compliance with any term
contained in any of the other Loan Documents, and such default shall continue
for thirty (30) days after the occurrence thereof.
(e) DEFAULT AS TO OTHER INDEBTEDNESS. The Borrower or any of the
LithiaSubsidiaries shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) with respect
to any Indebtedness (other than Indebtedness constituting the deferred portion
of the purchase price of an asset which is subject to a good faith dispute,
which, together with all such other outstanding disputed Indebtedness, is not in
excess of $500,000 and which is being contested by the Borrower, and provided
that the Borrower has set aside adequate reserves covering such disputed
Indebtedness) the outstanding principal amount of which Indebtedness is in
excess of $100,000; or any breach, default or event of default shall occur, or
any other condition shall exist under any instrument, agreement or indenture
pertaining to any such Indebtedness, if the effect thereof is to cause an
acceleration, mandatory redemption, a requirement that the Borrower offer to
purchase such Indebtedness or other required repurchase of such Indebtedness, or
permit the holder(s) of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any such Indebtedness shall be otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or otherwise
repurchased by the Borrower or any of the Lithia Subsidiaries (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof.
(f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
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(i) An involuntary case shall be commenced against
the Borrower or any of the Borrower's Subsidiaries and the
petition shall not be dismissed, stayed, bonded or
discharged within sixty (60) days after commencement of the
case; or a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the
Borrower or any of the Borrower's Subsidiaries in an
involuntary case, under any applicable bankruptcy,
insolvency or other similar law now or hereinafter in
effect; or any other similar relief shall be granted under
any applicable federal, state, local or foreign law.
(ii) A decree or order of a court having
jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Borrower or
any of the Borrower's Subsidiaries or over all or a
substantial part of the property of the Borrower or any of
the Borrower's Subsidiaries shall be entered; or an interim
receiver, trustee or other custodian of the Borrower or any
of the Borrower's Subsidiaries or of all or a substantial
part of the property of the Borrower or any of the
Borrower's Subsidiaries shall be appointed or a warrant of
attachment, execution or similar process against any
substantial part of the property of the Borrower or any of
the Borrower's Subsidiaries shall be issued and any such
event shall not be stayed, dismissed, bonded or discharged
within sixty (60) days after entry, appointment or
issuance.
(g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Borrower or
any of the Borrower's Subsidiaries shall (i) commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) consent to the entry of an order for relief in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, under any such
law, (iii) consent to the appointment of or taking possession by a receiver,
trustee or other similar custodian for the benefit of creditors for all or a
substantial part of its property, (iv) make any assignment for the benefit of
creditors or (v) take any corporate action to authorize any of the foregoing.
(h) JUDGMENTS AND ATTACHMENTS. Any money judgment(s) (other than a
money judgment covered by insurance as to which the insurance company has not
disclaimed coverage or if it has reserved the right to disclaim coverage, such
letter reserving the right to disclaim coverage is outstanding twelve months
after such money judgment was rendered), writ or warrant of attachment, or
similar process against the Borrower or any of its Subsidiaries or any of their
respective assets involving in any single case or in the aggregate an amount in
excess of $250,000 is or are entered and shall remain undischarged, unvacated,
unbonded or unstayed for a period of sixty (60) days or in any event later than
fifteen (15) days prior to the date of any proposed sale thereunder.
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(i) DISSOLUTION. Any order, judgment or decree shall be entered against
the Borrower or any of its Subsidiaries decreeing its involuntary dissolution or
split up and such order shall remain undischarged and unstayed for a period in
excess of sixty (60) days; or the Borrower or any of its Subsidiaries shall
otherwise dissolve or cease to exist except as specifically permitted by this
Agreement.
(j) LOAN DOCUMENTS; FAILURE OF SECURITY. At any time, for any reason,
(i) any Loan Document as a whole that affects the ability of the Lender to
enforce the Obligations or enforce its rights against the Collateral ceases to
be in full force and effect or the Borrower or any of the Borrower's
Subsidiaries party thereto seeks to repudiate its obligations thereunder and the
liens intended to be created thereby are, or the Borrower or any such Subsidiary
seeks to render such liens, invalid or unperfected, or (ii) any lien on
Collateral in favor of the Lender contemplated by the Loan Documents shall, at
any time, for any reason, be invalidated or otherwise cease to be in full force
and effect or such lien shall not have the priority contemplated by this
Agreement or the Loan Documents and such failure shall continue for three (3)
days after the occurrence thereof.
(k) TERMINATION EVENT. Any Termination Event occurs which is reasonably
likely to subject the Borrower or any of its Subsidiaries to liability
individually or in the aggregate in excess of $250,000, and such Termination
Event shall continue for three (3) days after the occurrence thereof, PROVIDED
HOWEVER, if such Termination Event is a Reportable Event, then prior to such
Termination Event causing an Event of Default under this SECTION 6.1(K), such
Termination Event shall continue for ten (10) days after the occurrence thereof.
(l) WAIVER OF MINIMUM FUNDING STANDARD. If the plan administrator of
any Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and the Lender believes the
substantial business hardship upon which the application for the waiver is based
could reasonably be expected to subject either the Borrower or any Controlled
Group member to liability individually or in the aggregate in excess of
$250,000.
(m) CHANGE OF CONTROL. A Change of Control shall occur.
(n) HEDGING AGREEMENTS. Nonpayment by the Borrower or any Subsidiary of
any obligation under any contract with respect to Hedging Obligations entered
into by the Borrower or such Subsidiary with the Lender (or Affiliate thereof)
or the breach by the Borrower or Subsidiary of any other term, provision or
condition contained in any agreement and such nonpayment or breach shall
continue for ten (10) days after the occurrence thereof.
(o) GUARANTOR DEFAULT OR REVOCATION. Any Lithia Guaranty shall fail to
remain in full force or effect or any action shall be taken by the Borrower or
any Dealership Guarantor to discontinue or to assert the invalidity or
unenforceability of any Lithia Guaranty or the Borrower or any Dealership
Guarantor shall fail to comply with any of the terms or provisions of any Lithia
Guaranty to which it is a party, or the Borrower or any Dealership Guarantor
denies that it has any further liability under any Lithia Guaranty to which it
is a party, or gives notice to such effect.
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(p) ENVIRONMENTAL MATTERS. The Borrower or any of the Lithia
Subsidiaries shall be the subject of any proceeding or investigation pertaining
to (i) the Release by the Borrower or any of the Lithia Subsidiaries of any
Contaminant into the environment, (ii) the liability of the Borrower or any of
the Lithia Subsidiaries arising from the Release by any other person of any
Contaminant into the environment, or (iii) any violation of any Environmental,
Health or Safety Requirements of Law by the Borrower or any of the Lithia
Subsidiaries, which, in any case, has subjected or is reasonably likely to
subject the Borrower or any of the Lithia Subsidiaries to liability individually
or in the aggregate in excess of $500,000.
An Event of Default shall be deemed "continuing" until cured or until
waived in writing in accordance with SECTION 7.3.
7. ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
7.1 TERMINATION OF COMMITMENTS; ACCELERATION. If any Event of Default
described in SECTION 6.1(F) or 6.1(G) occurs with respect to the Borrower, the
obligation of the Lender to make Advances hereunder shall automatically
terminate and the Obligations shall immediately become due and payable without
any election or action on the part of the Lender. If any other Event of Default
occurs, the Lender may terminate or suspend its obligations to make Advances
hereunder, or declare the Obligations to be due and payable, or both, whereupon,
after written notice to the Borrower, the Obligations shall become immediately
due and payable, without presentment, demand, protest or other notice of any
kind, all of which the Borrower expressly waives.
7.2 AMENDMENTS. No amendment, waiver or modification of any provision
of this Agreement shall be effective unless signed by each of the parties hereto
and then only to the extent in such writing specifically set forth.
7.3 PRESERVATION OF RIGHTS. No delay or omission of the Lender to
exercise any right under the Loan Documents shall impair such right or be
construed to be a waiver of any Event of Default or an acquiescence therein, and
the making of an Advance notwithstanding the existence of an Event of Default or
the inability of the Borrower to satisfy the conditions precedent to such
Advance shall not constitute any waiver or acquiescence. Any single or partial
exercise of any such right shall not preclude other or further exercise thereof
or the exercise of any other right, and no waiver, amendment or other variation
of the terms, conditions or provisions of the Loan Documents whatsoever shall be
valid unless in writing signed by the Lender, and then only to the extent in
such writing specifically set forth. All remedies contained in the Loan
Documents or by law afforded shall be cumulative and all shall be available to
the Lender until the Obligations have been paid in full.
8. GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Note and
the making of the Advances herein contemplated.
8.2 GOVERNMENTAL REGULATION. Anything contained in this Agreement to
the contrary notwithstanding, the Lender shall not be obligated to extend credit
to the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
8.3 PERFORMANCE OF OBLIGATIONS. The Borrower agrees that the Lender
may, but shall have no obligation to (i) at any time, pay or discharge taxes,
liens, security interests or other encumbrances levied or placed on or
threatened against any Collateral, unless such claims are being contested in
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good faith by the Borrower and the Borrower has set aside adequate reserves
covering such tax, lien, security interest or other encumbrance and no Event of
Default has occurred and is outstanding and (ii) after the occurrence and during
the continuance of an Event of Default to make any payment or perform any act
required of the Borrower under any Loan Document or take any other action which
the Lender in its discretion deems necessary or desirable to protect or preserve
the Collateral, including, without limitation, any action to (y) effect any
repairs or obtain any insurance called for by the terms of any of the Loan
Documents and to pay all or any part of the premiums therefor and the costs
thereof and (z) pay any rents payable by the Borrower which are more than 30
days past due, or as to which the landlord has given notice of termination,
under any lease. The Lender shall use its efforts to give the Borrower notice
of any action taken under this SECTION 8.3 prior to the taking of such action or
promptly thereafter provided the failure to give such notice shall not affect
the Borrower's obligations in respect thereof. The Borrower agrees to pay the
Lender, upon demand, the principal amount of all funds advanced by the Lender
under this SECTION 8.3, together with interest thereon at the rate from time to
time applicable to from the date of such advance until the outstanding principal
balance thereof is paid in full. All outstanding principal of, and interest on,
advances made under this SECTION 8.3 shall constitute Obligations for purposes
hereof.
8.4 HEADINGS. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
8.5 ENTIRE AGREEMENT. The Loan Documents embody the entire agreement
and understanding among the Borrower and the Lender and the Loan Documents
delivered on the Effective Date supersede all prior agreements and
understandings among the Borrower and the Lender relating to the subject matter
thereof.
8.6 EXPENSES; INDEMNIFICATION.
(a) EXPENSES. The Borrower shall reimburse the Lender for any
reasonable costs, internal charges and out-of-pocket expenses (including
reasonable attorneys' and paralegals' fees and time charges of attorneys and
paralegals for the Lender, which attorneys and paralegals may be employees of
the Lender) paid or incurred by the Lender in connection with the preparation,
negotiation, execution, delivery, review, amendment, modification, and
administration of the Loan Documents. The Borrower also agrees to reimburse the
Lender for any costs, internal charges and out-of-pocket expenses (including
attorneys' and paralegals' fees and time charges of attorneys and paralegals for
the Lender, which attorneys and paralegals may be employees of the Lender) paid
or incurred by the Lender in connection with the collection of the Obligations
and enforcement of the Loan Documents. In addition to expenses set forth above,
the Borrower agrees to reimburse the Lender, promptly after the Lender's request
therefor, for each audit or other business analysis performed by it in
connection with this Agreement or the other Loan Documents at a time when an
Event of Default exists in an amount equal to the Lender's then reasonable and
customary charges for each person employed to perform such audit or analysis,
plus all costs and expenses (including without limitation, travel expenses)
incurred by the Lender in the performance of such audit or analysis. Lender
shall provide the Borrower with a detailed statement of all reimbursements
requested under this SECTION 8.6(A).
(b) INDEMNITY. The Borrower further agrees to defend, protect,
indemnify, and hold harmless the Lender and each of its Affiliates, and each of
the Lender's, or Affiliate's respective officers, directors, employees,
attorneys and agents (including, without limitation, those retained in
connection with the satisfaction or attempted satisfaction of any of the
conditions set forth in ARTICLE III) (collectively, the "INDEMNITEES") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses of any kind or nature
whatsoever (including, without limitation, the fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or
judicial proceeding, whether or not such
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Indemnitees shall be designated a party thereto), imposed on, incurred by, or
asserted against such Indemnitees in any manner relating to or arising out of:
(i) this Agreement, the other Loan Documents or any
of the Transaction Documents, or any act, event or
transaction related or attendant thereto the making of the
Advances, hereunder, the management of such Advances, the
use or intended use of the proceeds of the Advances
hereunder, or any of the other transactions contemplated by
the Transaction Documents; or
(ii) any liabilities, obligations, responsibilities,
losses, damages, personal injury, death, punitive damages,
economic damages, consequential damages, treble damages,
intentional, willful or wanton injury, damage or threat to
the environment, natural resources or public health or
welfare, costs and expenses (including, without limitation,
attorney, expert and consulting fees and costs of
investigation, feasibility or remedial action studies),
fines, penalties and monetary sanctions, interest, direct
or indirect, known or unknown, absolute or contingent,
past, present or future relating to violation of any
Environmental, Health or Safety requirements of law arising
from or in connection with the past, present or future
operations of the Borrower, its Subsidiaries or any of
their respective predecessors in interest, or, the past,
present or future environmental, health or safety condition
of any respective property of the Borrower or its
Subsidiaries, the presence of asbestos-containing materials
at any respective property of the Borrower or its
Subsidiaries or the Release or threatened Release of any
Contaminant into the environment (collectively, the
"INDEMNIFIED MATTERS");
PROVIDED, HOWEVER, the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Matters caused by or resulting from the
willful misconduct or gross negligence of such Indemnitee as determined by the
final non-appealed judgment of a court of competent jurisdiction. If the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion which it is permitted
to pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Indemnitees.
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(c) Notwithstanding anything else in this Agreement to the contrary, no
party shall have any obligation to reimburse any person for attorneys' fees and
expenses unless such fees and expenses are (i) reasonable in amount, (ii)
determined without reference to any statutory presumption and (iii) calculated
using the actual time expended and the standard hourly rate for the attorneys
and paralegals performing the tasks in question and the actual out-of-pocket
expenses incurred.
(d) WAIVER OF CERTAIN CLAIMS; SETTLEMENT OF CLAIMS. The Borrower
further agrees to assert no claim against any of the Indemnitees on any theory
of liability for consequential, special, indirect, exemplary or punitive
damages. No settlement shall be entered into by the Borrower or any if its
Subsidiaries with respect to any claim, litigation, arbitration or other
proceeding relating to or arising out of the transactions evidenced by this
Agreement or the other Loan Documents (whether or not the Lender or any
Indemnitee is a party thereto) unless such settlement releases all Indemnitees
from any and all liability with respect thereto.
(e) SURVIVAL OF AGREEMENTS. The obligations and agreements of the
Borrower under this SECTION 8.6 shall survive the termination of this Agreement.
8.7 ACCOUNTING. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
8.8 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
8.9 NONLIABILITY OF LENDER. The relationship between the Borrower and
the Lender shall be solely that of borrower and lender. The Lender shall have
no fiduciary responsibilities to the Borrower and the Lender does not take any
responsibility to the Borrower to review or inform the Borrower of any matter in
connection with any phase of the Borrower's business or operations.
8.10 GOVERNING LAW. ANY DISPUTE BETWEEN THE BORROWER AND THE LENDER, OR
ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR
OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT
REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF OREGON.
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8.11 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL
(a) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH
OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN OREGON, BUT THE PARTIES HERETO
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF OREGON. (b) OTHER JURISDICTIONS. THE BORROWER AGREES THAT
THE LENDER OR ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE
BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1)
OBTAIN PERSONAL JURISDICTION OVER THE BORROWER OR (2) REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR ENFORCE A JUDGMENT OR OTHER COURT
ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY OBJECTION THAT
IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A
PROCEEDING DESCRIBED IN THIS SUBSECTION (B).
(c) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY
PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS,
PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY
THE LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER
ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO
LIMIT THE ABILITY OF THE LENDER TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN
ANY OTHER MANNER PERMITTED BY APPLICABLE LAW THE BORROWER IRREVOCABLY WAIVES ANY
OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE.
(d) WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) WAIVER OF BOND. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY
HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT
OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION,
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
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(f) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER
PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE
PROVISIONS OF THIS SECTION 8.11, WITH ITS COUNSEL.
8.12 NO STRICT CONSTRUCTION. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
8.13 SUBORDINATION OF INTERCOMPANY INDEBTEDNESS. The Borrower agrees
that any and all claims of the Borrower against any Dealership Guarantor, any
endorser or any other guarantor of all or any part of the Obligations, or
against any of its properties, including, without limitation, pursuant to the
any intercompany Indebtedness permitted under SECTION 5.3(A)(VI), shall be
subordinate and subject in right of payment to the prior payment, in full and in
cash, of all Obligations. Notwithstanding any right of the Borrower to ask,
demand, sue for, take or receive any payment from any Dealership Guarantor, all
rights, liens and security interests of the Borrower, whether now or hereafter
arising and howsoever existing, in any assets of any Dealership Guarantor shall
be and are subordinated to the rights, if any, of the Lender in those assets.
The Borrower shall have no right to possession of any such asset or to foreclose
upon any such asset, whether by judicial action or otherwise, unless and until
all of the Obligations shall have been paid in full in cash and satisfied and
all financing arrangements under this Agreement and the other Loan Documents
between the Borrower and the Lender have been terminated. If, during the
continuance of an Event of Default, all or any part of the assets of any
Dealership Guarantor, or the proceeds thereof, are subject to any distribution,
division or application to the creditors of any Dealership Guarantor, whether
partial or complete, voluntary or involuntary, and whether by reason of
liquidation, bankruptcy, arrangement, receivership, assignment for the benefit
of creditors or any other action or proceeding, then, and in any such event, any
payment or distribution of any kind or character, either in cash, securities or
other property, which shall be payable or deliverable upon or with respect to
any indebtedness of any Dealership Guarantor to the Borrower, including, without
limitation, pursuant to the any intercompany Indebtedness permitted under
SECTION 5.3(A)(VI) ("INTERCOMPANY INDEBTEDNESS") shall be paid or delivered
directly to the Lender for application on any of the Obligations, due or to
become due, until such Obligations shall have first been paid in full in cash
and satisfied; PROVIDED, HOWEVER, ordinary course payments or distributions made
by any Dealership Guarantor to the Borrower shall be required to be paid or
delivered to the Lender only upon the Lender's request. The Borrower
irrevocably authorizes and empowers the Lender to demand, sue for, collect and
receive every such payment or distribution and give acquittance therefor and to
make and present for and on behalf of the Borrower such proofs of claim and take
such other action, in the Lender's own name or in the name of the Borrower or
otherwise, as the Lender may deem necessary or advisable for the enforcement of
this SECTION 8.13. The Lender may vote such proofs of claim in any such
proceeding, receive and collect any and all dividends or other payments or
disbursements made thereon in whatever form the same may be paid or issued and
apply the same on account of any of the Obligations. Should any payment,
distribution, security or instrument or proceeds thereof be received by the
Borrower upon or with respect to the Intercompany Indebtedness during the
continuance of an Event of Default and prior to the satisfaction of all of the
Obligations and the termination of all financing arrangements under this
Agreement and the other Loan Documents between the Borrower and the Lender, the
Borrower shall receive and hold the same in trust, as trustee, for the benefit
of the Lender and shall forthwith deliver the same to the Lender, in precisely
the form received (except for the endorsement or assignment of the Borrower
where necessary), for application to any of the Obligations, due or not due,
and, until so delivered, the same shall be held in trust by the Borrower as the
property of the Lender; PROVIDED, HOWEVER, ordinary course payments or
distributions made to or by any Dealership Guarantor to the Borrower shall be
required to be paid or delivered to the Lender only upon the Lender's request
after the occurrence and Continuance of an Event of Default. If the Borrower
fails to make any such endorsement or
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assignment to the Lender, the Lender or any of its officers or employees are
irrevocably authorized to make the same. The Borrower agrees that until the
Obligations have been paid in full in cash and satisfied and all financing
arrangements under this Agreement and the other Loan Documents between the
Borrower and the Lender have been terminated, the Borrower will not assign or
transfer to any Person (other than the Lender) any claim the Borrower has or
may have against any Dealership Guarantor.
8.14 USURY NOT INTENDED. It is the intent of the Borrower and the
Lender in the execution and performance of this Agreement and the other Loan
Documents to contract in strict compliance with applicable usury laws, including
conflicts of law concepts, governing the Advances of the Lender including such
applicable laws of the State of Oregon and the United States of America from
time-to-time in effect. In furtherance thereof, the Lender and the Borrower
stipulate and agree that none of the terms and provisions contained in this
Agreement or the other Loan Documents shall ever be construed to create a
contract to pay, as consideration for the use, forbearance or detention of
money, interest at a rate in excess of the Maximum Rate and that for purposes
hereof "interest" shall include the aggregate of all charges which constitute
interest under such laws that are contracted for, charged or received under this
Agreement; and in the event that, notwithstanding the foregoing, under any
circumstances the aggregate amounts taken, reserved, charged, received or paid
on the Advances, include amounts which by applicable law are deemed interest
which would exceed the Maximum Rate, then such excess shall be deemed to be a
mistake and the Lender receiving same shall credit the same on the principal of
its Note (or if the Note shall have been paid in full, refund said excess to the
Borrower). In the event that the maturity of the Note is accelerated by reason
of any election of the holder thereof resulting from any Event of Default under
this Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the Maximum Rate and excess interest, if any, provided for in this
Agreement or otherwise shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore paid, shall be credited on the
applicable Note (or, if the Note shall have been paid in full, refunded to the
Borrower of such interest). In determining whether or ot the interest paid or
payable under any specific contingencies exceeds the Maximum Rate, the Borrower
and the Lender shall to the maximum extent permitted under applicable law
amortize, prorate, allocate and spread in equal parts during the period of the
full stated term of the Note all amounts considered to be interest under
applicable law at any time contracted for, charged, received or reserved in
connection with the Obligations. The provisions of this Section shall control
over all other provisions of this Agreement or the other Loan Documents which
may be in apparent conflict herewith.
9. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
9.1 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights or obligations under the Loan
Documents.
9.2 PARTICIPATIONS.
(a) PERMITTED PARTICIPANTS; EFFEC. SUBJECT TO THE TERMS SET FORTH IN
THIS SECTION 9.2, the Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
financial institutions ("PARTICIPANTS") participating interests in any Advance
owing to the Lender, the Note, the Commitment or any other interest of the
Lender under the Loan Documents on a pro rata or non-pro rata basis. Notice of
such participation to the Borrower shall be required prior to any participation
becoming effective. In the event of any such sale by the Lender of
participating interests to a Participant, the Lender's obligations under the
Loan Documents shall remain unchanged, the Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
the Lender shall remain the holder of the Note for all purposes under
51
<PAGE>
the Loan Documents, all amounts payable by the Borrower under this Agreement
shall be determined as if the Lender had not sold such participating
interests, and the Borrower shall continue to deal solely and directly with
the Lender in connection with the Lender's rights and obligations under the
Loan Documents.
(b) VOTING RIGHTS. The Lender shall retain the sole right to approve,
without the consent of any participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Advance or Commitment in which such participant has
an interest.
9.3 ASSIGNMENTS. The Lender may, in the ordinary course of its business
and in accordance with applicable law, at any time assign to one or more banks
or other financial institutions approved by the Borrower within 10 days of
notice to the Borrower by the Lender of such assignment (which such approval
shall not be unreasonably withheld) all or a portion of its rights and
obligations under this Agreement (including, without limitation, its Commitment
and all Advances owing to it) pursuant to an assignment agreement in form and
substance satisfactory to the Lender. Notwithstanding the foregoing, the
Borrower shall not have any right to approve an assignee under this SECTION 9.3,
after the occurrence and continuance of an Event of Default or to the extent
such assignee is an Affiliate of the Lender, PROVIDED, HOWEVER, that to the
extent the Lender assigns its obligations hereunder, such Affiliate shall be a
United States Person and the Lender shall have provided such financial
statements as the Borrower shall have reasonably requested.
9.4 CONFIDENTIALITY. Subject to SECTION 9.5, the Lender shall hold all
nonpublic information obtained pursuant to the requirements of this Agreement
and identified as such by the Borrower in accordance with the Lender's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure reasonably required by a prospective Transferee in connection with
the contemplated participation or as required or requested by any governmental
authority or representative thereof or pursuant to legal process and shall
require any such Transferee to agree (and require any of its Transferees to
agree) to comply with this SECTION 9.4. In no event shall the Lender be
obligated or required to return any materials furnished by the Borrower;
PROVIDED, HOWEVER, each prospective Transferee shall be required to agree that
if it does not become a participant it shall return all materials furnished to
it by or on behalf of the Borrower in connection with this Agreement.
9.5 DISSEMINATION OF INFORMATION. The Borrower authorizes the Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any
prospective Transferee any and all information in the Lender's possession
concerning the Borrower and its Subsidiaries; PROVIDED that prior to any such
disclosure, such prospective Transferee shall agree to preserve in accordance
with SECTION 9.4 the confidentiality of any confidential information described
therein.
10. NOTICES
10.1 GIVING NOTICE. Except as otherwise permitted by SECTION 2.8 with
respect to borrowing notices, all notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic, telex or cable
communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to the Borrower, at its address at 360 East Jackson Street,
Medford, Oregon 97501, if to the Lender, at its address specified in the Credit
Agreement; or, as to each party, at such other address as shall be designated by
such party in a written notice to the other party. All such notices and
communications shall be effective, upon receipt, or in the case of (i) notice by
mail, five days after being deposited in the United States mails, first class
postage prepaid, (ii) notice by overnight courier, one business day after being
deposited with a national overnight courier service, (iii)
52
<PAGE>
notice by telex, when telexed against receipt of answer back or (iv) notice
by facsimile copy, when transmitted against mechanical confirmation of
successful transmission.
10.2 CHANGE OF ADDRESS. The Borrower and the Lender may each change the
address for service of notice upon it by a notice in writing to the other
parties hereto.
11. COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Borrower and the
Lender.
12. CAPITAL STOCK PLEDGES
With respect to all Capital Stock in any Lithia Dealerships pledged to
Lender, Lender agrees that upon written notice from Borrower that an automotive
manufacturer objects to such pledge, Lender shall fully release any interest it
may have in such Capital Stock and return pledged certificates, if any, to
Borrower.
53
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement as of the date first above written.
LITHIA MOTORS, INC., as the Borrower
By:
-----------------------------------
M. L. Dick, Heimann, President
Attest
-------------------------------
Sidney B. DeBoer, Secretary
Address: 360 East Jackson Street
Medford, Oregon
Attention:
-----------------------------
Telephone No.:
-------------------------
Facsimile No.:
-------------------------
FORD MOTOR CREDIT COMPANY, as Lender
By:
------------------------------------
B. W. Evans, National
Account Manager
Address:
--------------------------------
--------------------------------
Attention: B. W. Evans
Telephone No.:
--------------------------
Facsimile No.:
--------------------------
54
<PAGE>
GMMS 1012-1
USA 11-95
CHEV 05/31/94 CHEVROLET [LOGO]
DEALER SALES AND SERVICE AGREEMENT
In reliance upon the Agreement by the parties to fulfill their respective
commitments, this Agreement, effective OCTOBER 13, 1998, is entered into by
----------------
General Motors Corporation, Chevrolet Motor Division ("Chevrolet"), a
Delaware Corporation and
CAMP AUTOMOTIVE, INC. , a
- ---------------------------------------------------------------------
Dealer Firm Name
[x]DELAWARE corporation, incorporated on APRIL 13, 1961;
--------- --------------
[ ]proprietorship;
[ ]partnership;
[ ]other - specify ---------------------------------------------
doing business at 101 E MONTGOMERY AVE
---------------------------------------------------
SPOKANE, WASHINGTON 99207-2220 ("Dealer").
---------------------------------------------------
OVERVIEW AND PURPOSE OF THE
CHEVROLET DEALER SALES AND SERVICE AGREEMENT
The principle purposes of this Agreement are to:
A. Authorize the Dealer to sell and service Chevrolet products and
to represent itself as a Chevrolet Dealer.
B. Provide a framework within which Dealer and Chevrolet may
accomplish their mutual objectives.
C. Provide a means whereby Chevrolet and Dealer may identify specific
sales, CSI, facility and other requirements by which Dealer's performance
under this Agreement may be evaluated.
D. Identify other commitments, rights and responsibilities of
Chevrolet and Dealer.
Achieving Chevrolet's vision of market leadership while exceeding customer
expectations in selling and serving Chevrolet products is dependent in a
large part upon the maintenance of a quality network of authorized Dealers.
Since Dealer represents Chevrolet to the public, it is fundamental to the
success of Chevrolet that Dealer maintain its operations facilities and
business methods in a manner which will support the Chevrolet Dealer
Agreement. Chevrolet will conduct its operations and provide assistance, as
practicable within the scope and terms of this Agreement, to assist Dealer to
accomplish the requirements of this Agreement and the Chevrolet vision.
Chevrolet will from time to time provide instructions, programs, requirements
and suggestions developed in accordance with this Agreement to both
supplement the Agreement and assist Dealer and Dealer network.
Chevrolet's vision is to be America's automotive leader providing Total
Customer Enthusiasm through:
- Empowered people,
- Exceptional products,
- Excellent purchase and ownership experience,
providing outstanding value and a superior return on investment for
all stakeholders.
<PAGE>
GMMS 1012-3
USA 11-95
CHEV 05/31/94
FOURTH
Chevrolet and dealers recognize that the decisions made by Chevrolet Motor
Division directly impact the business and livelihood of its Dealer Body as
well as the ultimate satisfaction of its customers. Chevrolet, in accord with
members representing the Chevrolet dealer body, seek to enhance its decision
making process by establishing certain methods for the inclusion of the
collective Dealer Body input in all are as directly affecting our mutual
business concerns. The forum for this is generally provided through three
principle processes: The National Dealer Council, The National Dealer Council
Work Teams, and The Partnership Council.
A. NATIONAL DEALER COUNCIL
The purpose of the National Dealer Council is to establish a forum for
Chevrolet and its dealers to partner in determining Chevrolet's future
direction and strategies. Council members will participate in work teams and
other joint policy-making groups affecting our business. Much progress has
been made as a result of the National Dealer Council involvement, and
Chevrolet is committed to ensuring that this avenue continues.
- The National Dealer Council will consist of elected Chevrolet dealer
representatives from each Zone and serve a three year term. A dealer
operator must have at least three years experience as a Chevrolet dealer
and be involved in the day to day operations of the dealership business
in order to qualify for election.
- Council representatives will communicate with the dealer body in the
Zone they are representing by providing feedback on dealer council
activities and informing the Dealer Council and Chevrolet of dealer
body concerns.
- Dealer Council formally convenes up to three times a year. Individual
Council members may be asked to attend additional meeting throughout the
year in connection with their team assignments. Dealer Council members
will serve on work teams and participate in the decision making process
with Chevrolet Motor Division.
- Any training deemed necessary by the National Dealer Council to assist
in fulfilling their responsibilities will be provided by Chevrolet.
B. NATIONAL DEALER COUNCIL WORK TEAMS
National Dealer Council representatives, Chevrolet/GM management, and
Chevrolet Dealers will serve jointly on work teams which are created to focus
on issues of mutual concern to dealers and Chevrolet. The work teams will
utilize the consensus decision making process to achieve a best value
decision depending on the defined role of each group and the requirements of
each issue under consideration.
- Work teams will cover areas such as: Dealer Organization, Education and
Training, Product, Service/Parts, Distribution, Sales/Financial,
Marketing, and Total Customer Enthusiasm. The National Dealer Council
and Chevrolet may establish, change or discontinue teams as deemed
necessary.
- Dealers may serve on a work team for up to a three year term. Meetings
will take place on an as needed basis through phone conversations, fax
system, or in person.
C. PARTNERSHIP COUNCIL
The responsibility of the Partnership Council is to coordinate work team
structures and activities of the National Dealer Council. The Partnership
Council is comprised of an equal number of Chevrolet Dealer Council members
and Chevrolet representatives which operate as a policy making body. The
Partnership Council will also address issues from the National Dealer Council
and inform the necessary work teams as needed.
<PAGE>
GMMS 1012-5
USA 11-95
CHEV 05/31/94
SEVENTH
d) Software:
From time to time during the term of this Agreement, GM will make available
to Dealer certain information, data, software or firmware ("software")
electronically, incorporated into tools or other products or by other means.
This Software may be owned outright by GM, or jointly with, or wholly by, a
GM affiliated company or authorized supplier. Dealer agrees to limit its use
of the Software to Dealership Operations and comply with any other
restrictions on its use.
TRAINING
EIGHTH
Chevrolet will from time to time provide training which Chevrolet believes
will enhance Dealers ability to meet the requirements of the Dealer
Agreement. Dealer will, to the extent practicable, participate in that
training. Further, Chevrolet will on occasion designate certain training that
will be required in accordance with Article 8 of the additional provisions.
Dealer agrees that it will participate in any training so designated.
Decisions on training requirements will be determined in accordance with
Paragraph Fourth of this agreement.
DEALER IDENTIFICATION, IMAGE AND FACILITIES
NINTH
Dealer and Chevrolet recognize that the appearance, signs, environment and
quality of Dealer's facility have significant impact on Chevrolet products
and Dealer. Dealer, therefore, agrees that its dealership premises will be
properly equipped and maintained, and that the interior and exterior retail
environment and signs will comply with reasonable requirements Chevrolet will
establish to promote and preserve the image of Chevrolet and its Dealers.
Decisions on any material changes to the image, sign and/or dealership
facility requirements will be determined in accordance with Paragraph Fourth
of this agreement.
DISPUTE RESOLUTION
TENTH
Chevrolet recogonizes that the mutual respect, trust and confidence which has
been the cornerstones of Chevrolet-Dealer relations are essential to
accomplishing the objectives of this Agreement. While the relationship
between Chevrolet and Dealer is a very positive one, Chevrolet recognizes
that from time to time there may be disagreements between Chevrolet and
Dealer concerning rights and obligations arising under this Dealer Agreement.
It is contemplated that most disagreements that may arise between Dealer and
Chevrolet will be resolved through discussion between Dealer and Chevrolet
field management. In fact, Dealer is strongly encouraged to discuss and to
resolve any differences through the local field office, the Chevrolet entity
most familiar with Dealer and its operations. However, in those instances
where a disagreement between Dealer and Chevrolet cannot be resolved, Dealer
may choose to seek review through the Dispute Resolution Process, which
provides for senior sales management review and Binding Arbitration. This
process is always voluntary on the part of Dealer and is voluntary on the
part of Chevrolet except as provided in the details of the. Dispute
Resolution Process as set forth in a separate booklet (GMMS-1019).
BUSINESS MANAGEMENT RESPONSIBILITY
ELEVENTH
If Dealer is an authorized Dealer for more than one division of General
Motors, Chevrolet will be primarily responsible for administering the
provisions of the Dealer Agreements relating to the Dealer Statement of
Ownership, dealership location and premises addendum and capital standard
addendum. Chevrolet will execute or extend those documents for all divisions.
<PAGE>
GMMS 1033
USA 11-90
DNPS 3/22/90 MULTIPLE DEALER OPERATOR ADDENDUM
TO
GENERAL MOTORS CORPORATION
DEALER SALES AND SERVICE AGREEMENT
This Multiple Dealer Operator ("MDO") Addendum executed by General Motors
Corporation is effective as of OCTOBER 13, 1998
----------------
General Motors Corporation, acting in reliance upon the information provided
by Dealer, agrees with Dealer as follows:
1. General Motors, at the request of Dealer, approves SIDNEY B. DEBOER
----------------
as the Multiple Dealer Operator of Dealer based upon representations by
Dealer that SIDNEY B. DEBOER has majority ownership and voting control of
----------------
Dealer and will continue to do so for the term of this Dealer Agreement.
2. Dealer has executed a "Successor Addendum" identifying a replacement
Dealer Operator acceptable to General Motors in the event of the death or
incapacity of SIDNEY B. DEBOER. Dealer will continue the existing Successor
----------------
Addendum, or some other Successor Addendum acceptable to General Motors, in
effect during the full term of this Dealer Agreement.
3. General Motors, at the request of Dealer, approves PHILIP S. CAMP as the
--------------
Executive Manager ("EM") of Dealer based upon the representations made
in the Executive Manager Application and related documents. General Motors
also relies on representations by Dealer that the EM has the managerial
authority and responsibility to conduct all day-to-day dealership
operation.
4. The personal qualifications of PHILIP S. CAMP as Executive Manager are a
--------------
valuable consideration upon which General Motors enters this Dealer
Agreement. Dealer will not replace its Executive Manager without a prior
written request to and written approval from General Motors.
5. Failure of Dealer to retain an Executive Manager approved by General
Motors will constitute a failure of performance and material breach of this
MDO Addendum and the Dealer Agreement. Such failure will constitute good
cause for termination of the Dealer Agreement.
6. The terms of this Addendum constitute the only agreement between the
parties, either oral or written, regarding either the Multiple Dealer
Operator or Executive Manager of Dealer.
This MDO Addendum may be terminated at any time by written agreement between
General Motors and Dealer. It will automatically expire upon termination or
non-renewal of the Dealer Agreement. This Addendum cancels, replaces, and
supersedes any previous MDO Addendum executed by Dealer and General Motors
for this dealership location. The terms of this Addendum are in addition to
the terms contained in the Dealer Agreement.
CAMP AUTOMOTIVE, INC.
- -------------------------------------------------------------------------------
Dealer Firm Name
SPOKANE, WASHINGTON
- ------------------------------------------------
City, State
By /s/ CHEVROLET MOTOR DIVISION
-------------------------------------- GENERAL MOTORS CORPORATION
Signature Date
By By /s/
-------------------------------------- -------------------------------
Signature Date ZONE MANAGER
GLOSSARY: THE TERMS BELOW, AS USED BY THE PARTIES TO THIS MDO ADDENDUM, ARE
DEFINED AS INDICATED:
1. "Multiple Dealer Operator" - the person so designated is the
majority owner of Dealer recognized as a Dealer Operator in more than one
General Motors Dealer company, whether or not that person is also the
Executive Manager of Dealer. The "MDO" is responsible for the overall
management of Dealer and compliance with the Dealer Agreement.
2. "Executive Manager" - the person so designated is personally responsible
for the day-to-day management of Dealer operations and compliance with the
Dealer Agreement. The "EM" has no management responsibilities at any
other Dealer company.
<PAGE>
GSD 206
USA 11-90
DNPS 4/06/90 CHEVROLET MOTOR DIVISION
MOTOR VEHICLE ADDENDUM
TO
GENERAL MOTORS CORPORATION
DEALER SALES AND SERVICE AGREEMENT
CAMP AUTOMOTIVE, INC.
- ------------------------------------------------------------------------------
Dealer Firm Name
SPOKANE, WASHINGTON
-------------------------------------------------------------------
City, State
Effective OCTOBER 13, 1998, Dealer, as an authorized Chevrolet dealer, has a
----------------
non-exclusive right to buy the following new Motor Vehicles marketed by
Chevrolet Motor Division of General Motors Corporation, subject to the terms
listed on the reverse side of this addendum. As long as dealer continues to
comply, Chevrolet will process dealer's orders in accordance with established
procedures.
PASSENGER CARS
CAMARO, CAVALIER, CORVETTE, IMPALA, LUMINA, MALIBU, METRO,
MONTE CARLO, PRIZM
LIGHT DUTY TRUCKS
ASTRO, BLAZER, C 3500 HD, C/K 1500-3500,
CHEVY EXPRESS CARGO VAN, CHEVY EXPRESS PASSENGER VAN,
P MODELS (P12, P32, P42), S-10, SILVERADO, SUBURBAN,
TAHOE, TRACKER, VENTURE
This Motor Vehicle Addendum shall remain in effect unless and until
superseded by a new Motor Vehicle Addendum furnished Dealer by Chevrolet.
This Motor Vehicle Addendum cancels and supersedes any previous Motor Vehicle
Addendum furnished Dealer by Chevrolet.
CHEVROLET MOTOR DIVISION
ACKNOWLEDGED General Motors Corporation
By /s/ By
- -------------------------------------- -------------------------------
Dealer Date Signature Date
/s/
-------------------------------
ZONE MANAGER
-------------------------------
General Sales & Service Manager
(Dealer should file this Motor Vehicle Addendum with Dealer's current Dealer
Agreement.)
<PAGE>
GSD 206K
USA 11-90
DNPS 6/01/90
CHEVROLET MOTOR DIVISION
MOTOR VEHICLE ADDENDUM
TO
GENERAL MOTORS CORPORATION
DEALER SALES AND SERVICE AGREEMENT
CAMP AUTOMOTIVE, INC.
- ------------------------------------------------------------------------------
Dealer Firm Name
SPOKANE, WASHINGTON
---------------------------------------------------------
City, State
Effective OCTOBER 13, 1998, Dealer, as an authorized Chevrolet dealer, has a
----------------
non-exclusive right to buy the following new Medium Duty Truck Motor Vehicles
marketed by Chevrolet Motor Division of General Motors Corporation:
C6H SERIES CONVENTIONAL CAB/CHASSIS,
C7H SERIES CONVENTIONAL CAB/CHASSIS,
P6 SERIES FORWARD CONTROL CHASSIS
This Motor Vehicle Addendum shall remain in effect unless cancelled or until
superseded by a new Motor Vehicle Addendum furnished Dealer by Chevrolet.
CHEVROLET MOTOR DIVISION
General Motors Corporation
By /s/
-----------------------------------
Signature Date
-----------------------------------
ZONE MANAGER
(Dealer should file this Motor Vehicle Addendum with Dealer's current Dealer
Agreement.)
<PAGE>
GSD 206M
USA 11-90
DNPS 2/01/96
CHEVROLET MOTOR DIVISION
MOTOR VEHICLE ADDENDUM
TO
GENERAL MOTORS CORPORATION
DEALER SALES AND SERVICE AGREEMENT
CAMP AUTOMOTIVE, INC.
- ------------------------------------------------------------------------------
Dealer Firm Name
SPOKANE, WASHINGTON
-----------------------------------------------------------------
City, State
Effective OCTOBER 13, 1998, Dealer, as an authorized Chevrolet dealer, has a
----------------
non-exclusive right to buy the following new Medium Duty Track Motor Vehicles
marketed by Chevrolet Motor Division of General Motors Corporation:
TILT CAB - T5500, T6500, T7500 AND T8500 SERIES
This Motor Vehicle Addendum shall remain in effect unless cancelled or until
superseded by a new Motor Vehicle Addendum furnished Dealer by Chevrolet.
This Motor Vehicle Addendum cancels and supersedes any previous Motor Vehicle
Addendum furnished Dealer by Chevrolet relating to T-Series Vehicles.
CHEVROLET MOTOR DIVISION
General Motors Corporation
By /s/
----------------------------
Signature Date
----------------------------
ZONE MANAGER
(Dealer should file this Motor Vehicle Addendum with Dealer's current Dealer
Agreement.)
<PAGE>
GMMS 1006
USA 11-90
DNPS 5/01/90
SUCCESSOR ADDENDUM
TO
GENERAL MOTORS CORPORATION
DEALER SALES AND SERVICE AGREEMENT
This Successor Addendum is effective OCTOBER 13, 1998 and is executed
----------------
pursuant to the provisions of Article 12.1 of the current Dealer Agreement in
effect between the undersigned Dealer and Division of General Motors.
On the basis of the information provided by Dealer, in connection with the
Request for Execution of Successor Addendum, Division and Dealer Agree that:
1. Subject to paragraphs 2 and 3 below, the proposed dealer operator(s)
for purposes of designating and establishing a proposed successor
dealer as provided in Article 12.1 of the Dealer Agreement shall be
BRYAN DEBOER
-------------------------------------------------------------------
-------------------------------------------------------------------
2. If more than one current Dealer Operator is named in 1 above,
a. the remaining Dealer Operator alone shall have the right to
designate a proposed successor dealer, or [ ] Yes
b. all of the preposed dealer operators who remain or survive,
including the remaining Dealer Operator, shall acting together
have such rights, [ ] Yes
3. The following person(s), if any, shall be proposed owner(s)
(indicate "none", if applicable):
NONE
---------------------------------------------------------------------
---------------------------------------------------------------------
4. Dealer may cancel an executed Successor Addendum at any time
prior to the death of any party named as Dealer Operator in Paragraph
THIRD of this Agreement. General Motors may cancel an executed
Successor Addendum only if the proposed dealer operator no longer
complies with the requirements of Article 12.1.1. The parties may
execute a new and superseding Successor Addendum by mutual agreement.
If Division has previously notified Dealer that it does not plan to
continue Dealership Operations at the Dealership Location, Division
shall have no obligation to execute a Successor Addendum, except
for a renewal of an existing Successor Addendum with the same proposed
dealer operator provided Dealer and the Proposed Dealer Operator
comply with the requirements of Article 12.1.1.
5. This Addendum shall become null and void upon the execution of a
new Dealer Agreement by Dealer and Division.
6. This Successor Addendum cancels and supersedes any previous
Successor Addendum between the parties.
CAMP AUTOMOTIVE, INC.
- ------------------------------------------------------------------------------
Dealer Firm Name
SPOKANE, WASHINGTON
--------------------------------------------------------------------
City, State
CHEVROLET MOTOR DIVISION
General Motors Corporation
By /s/ By
------------------------------------- --------------------------------
Signature and Title Date ZONE MANAGER Date
The undersigned, as all Dealer Operator(s) and Owner(s) of Dealer, hereby
individually signify their concurrence with the above agreements and waive
any rights in conflict with the above agreements they may have or acquire
under either the Dealer Agreement or applicable law.
/s/
- --------------------------------- -------------------------------
Date Date
- --------------------------------- -------------------------------
Date Date
<PAGE>
SUBARU [LOGO]
[LOGO]
DEALERSHIP
AGREEMENT
CAMP AUTOMOTIVE, INC.
<PAGE>
1. PARTIES TO THIS AGREEMENT is made the 16th day of OCTOBER, 1998,
AGREEMENT by and between SUBARU OF AMERICA, INC./WESTERN REGION, a NJ
corporation ("Distributor"), having a place of business
at 2235 ROUTE 70 WEST, CHERRY HILL, NJ 08002, and CAMP
AUTOMOTIVE, INC. ("Dealer"),
[x] a Oregon corporation [] a partnership [] an individual
Doing or intending to do business as CAMP SUBARU, having its
principal place of business at E. 215 MONTGOMERY AVENUE,
SPOKANE, WA 99207
2. STANDARD The Subaru Dealership Agreement Standard Provisions booklet,
PROVISIONS marked MSA No. 732-C 4/88 (hereinafter the "Standard
Provisions") is incorporated by reference as part of this
Agreement with the same force and effect as if all of the
definitions and provisions contained in the Standard
Provisions were fully set forth in this Agreement. The
definition of the term "Fuji" appearing in Paragraph 2.1 of
the Standard Provisions is amended by adding the following
sentence at the end of that definition: "For purposes of this
Agreement, the term "Fuji" shall also include Subaru-Isuzu
Automotive, Inc,, an Indiana Corporation." The conduct of
business by Dealer under this Agreement is expressly subject
to the Standard Provisions and all the documents referred to,
or incorporated by reference in, the Standard Provisions.
Dealer hereby acknowledges receipt of a copy of this Agreement
and of the Standard Provisions without any addition to, or
modification of, the printed text of either, except as may be
set forth in any other written documents agreed upon between
Distributor and Dealer, which documents are attached hereto
and identified as follows (or if none, so state below):
(a) RIGHT TO FIRST ADDENDUM TO SUBARU DEALERSHIP AGREEMENT
(b) HOLDING COMPANY ADDENDUM
(c) NONE
3. APPOINTMENT Distributor hereby appoints Dealer as an authorized dealer of
AND Subaru Products and Dealer accepts the appointment under the
ACCEPTANCE terms and conditions of this Agreement.
4. AREA OF Dealer assumes responsibility for the promotion, sale and
RESPONSIBILITY service of Subaru Products within the area (hereinafter
referred to as the "Area of Responsibility") consisting of the
following post office communities:
SPOKANE/WEST, WA PRIMARY MARKET AREA OF RESPONSIBILITY
#14-303B. REFER TO THE ATTACHED SUBARU ZIP STRUCTURE LIST
DATED 10/98.
The Area of Responsibility described above is not necessarily
exclusive to Dealer and one or more other authorized Subaru
dealers may share the same Area of Responsibility because of
its size and market potential, the appointment of any
additional dealers being subject in all events to the
requirements of applicable law. If other Subaru dealers do
share the same Area of Responsibility, Dealer's responsibility
for the Area of Responsibility shall be determined from time
to time on a proportionate basis by Distributor after
reviewing in consultation with Dealer relevant statistics and
available information concerning population size,
demographics, consumer shopping habits, traffic patterns, and
other geographical factors applicable to the Area of
Responsibility.
5. OWNERSHIP Dealer represents and Distributor enters into this Agreement
in reliance upon the representation that the following
individuals are the sole record and beneficial owners of
Dealer and own Dealer in the following percentages:
<TABLE>
<CAPTION>
Percentage Of Name of Each Respective
Names Of Beneficial Record Owner, If Different
Beneficial Owners Interest From Beneficial Owner
<S> <C> <C>
LITHIA MOTORS, INC. 100.00% LITHIA HOLDING COMPANY, LLC
(SEE ATTACHED OWNERSHIP CHART)
</TABLE>
6. CHANGE IN This is a personal service agreement. There shall be no change
OWNERSHIP in the beneficial ownership of Dealer, or transfer of any
OR TRANSFER rights or obligations under this Agreement, without the prior
OF AGREEMENT written consent of Distributor, which consent (except as
provided in Section 18.4 of the Standard Provisions) shall not
be unreasonably withheld. Any Significant Change of Ownership
Interest (as defined in Section 2.11 of the Standard
Provisions) will also require the consent of SOA under
Paragraph 14 of this Agreement.
<PAGE>
LITHIA MOTORS, INC.
-------------------
POST-IPO Structure
SIDNEY B. DEBOER
53.639% Beneficial Interest
M.L. DICK HEIMANN DEBOER INSURANCE, LLC
34.875% Beneficial Interest 3.761% Beneficial Interest
R. BRADFORD GRAY SID & KAREN DEBOER FOUNDATION
7% Beneficial Interest .725% Beneficial Interest
SIDNEY B. DEBOER
100% Voting
Managing Member
LITHIA HOLDING COMPANY, LLC THE PUBLIC
35.5% of shares (or more) 64.4% of shares (or less) Class "A"
Class "B" Common Common
10 Votes per share 1 vote per share
84.7% Control 15.3% Control
Tax ID 93-1171867
LITHIA MOTORS, INC.
-------------------
100% Control
100 Shares Each
Tax ID 93-0572810
CAMP AUTOMOTIVE, INC.
DBA CAMP SUBARU
<TABLE>
<CAPTION>
LITHIA STOCK HOLDING VOTES
-------------------- -----
<S> <C> <C> <C> <C>
Class A Shares 2,925,550 25.362% 2,925,550 6.029%
Class A Employee Authorized Stock Options* 1,049,450 9.098% 1,049,450 2.163%
Class A Secondary Issue 3,000,00 26.008% 3,000,000 6.182%
Class A Secondary Issue Over-Allotment 450,00 3.901% 450,000 0.927%
Total Class A Shares 7,425,00 64.369% 7,425,000 15.301%
Class B Restricted Shares** 4,110,000 35.361% 41,100,000 84.699%
Total Shares Outstanding 11,535,000 100.000% 48,525,000 100.000%
</TABLE>
*All employee stock options may not currently be issued
rev: 08/04/98
<PAGE>
7. EXECUTIVE Dealer represents and Distributor enters into this Agreement
MANAGEMENT in reliance upon the representation that the following
persons, and no other persons, shall constitute the executive
management of Dealer:
<TABLE>
<CAPTION>
TITLE OR OFFICE NAME
---------------
<S> <C>
PRESIDENT SIDNEY B. DEBOER
VICE PRESIDENT (IF ANY) M.L. DICK HEIMANN
VICE PRESIDENT (IF ANY)
TREASURER SIDNEY B. DEBOER
SECRETARY SIDNEY B. DEBOER
GENERAL MANAGER PHILIP S. CAMP
OTHER OFFICERS (IF ANY)
OTHER OFFICERS (IF ANY)
</TABLE>
Dealer further represents that, unless otherwise indicated at
the end of this sentence, any member of executive management,
as well as Dealer's Sales, Service and Parts Managers, may
transact business with Distributor on behalf of Dealer and
that in so doing each such person shall legally bind Dealer:
Dealer recognizes and agrees that retention of a qualified
and experienced General Manager is required if other
full-time member of executive management do not possess, in
the sole discretion of Distributor, the qualifications and
experience necessary to adequately supervise the general
management of the dealership.
8. CHANGE IN There shall be no charge in Dealer executive management
MANAGEMENT without the prior written consent of distributor which
consent shall not be unreasonably withheld. With respect to
all other changes in management personnel, Dealer agrees to
give notice to Distributor upon the occurrence of any such
change.
9. FACILITIES Distributor approved the following facilities, containing the
areas specified below, which Dealer will Provide and use
exclusively for Dealer's Subaru operations:
New Car Showroom
Address: E. 215 MONTGOMERY AVENUE, SPOKANE, WA 99207
Exclusive Subaru Area: 1,280 sq. ft.
Sales and General Office Area
Address: E. 215 MONTGOMERY AVENUE, SPOKANE, WA 99207
Exclusive Subaru Area: 880 sq. ft.
Parts Facility
Address: E. 215 MONTGOMERY AVENUE, SPOKANE, WA 99207
Exclusive Subaru Area: 1,600 sq. ft.
Service Facility
Address: E. 215 MONTGOMERY AVENUE, SPOKANE, WA 99207
Exclusive Subaru Area: 4,000 sq. ft.
New Car Outside Display and Storage
Address: E. 215 MONTGOMERY AVENUE, SPOKANE, WA 99207
Exclusive Subaru Area: 22,280 sq. ft.
Used Vehicle Display and Storage
Address: E. 215 MONTGOMERY AVENUE, SPOKANE, WA 99207
Exclusive Subaru Area: 12,680 sq. ft.
10. TERM AND The term of this Agreement begins on the 16TH day of OCTOBER,
RENEWAL 1998, and ends on the 15TH day of OCTOBER, 1999. (THE TERM
OF THIS AGREEMENT SHALL NOT BE FOR A PERIOD LONGER THAN
THIRTY-SIX (36) MONTHS.) The expiration or prior termination
of this Agreement shall not affect or extinguish any
unsatisfied account balances between Distributor and Dealer,
any claims for indemnification under Sections 10.5, 13.2,
13.4, 17.1 or 17.2 of the Standard Provisions, any claims
asserted in legal actions or proceedings then pending and
involving the parties hereto, or the respective rights and
obligations of Dealer and Distributor under Article 16 of the
Standard Provisions. Any renewal of this Agreement must be
formally entered into by means of a fully executed Subaru
Dealership Agreement in the form then current, incorporating
the Subaru Dealership Agreement Standard Provisions in the
form then current.
11. PRIOR Dealer may terminate this Agreement prior to the expiration
TERMINATION date by giving at least sixty (60) days prior written notice
to Distributor by certified or registered mail. Distributor
may, prior to the expiration date, terminate this Agreement
for cause as set forth in Article 15 of the Standard
Provisions. This Agreement shall automatically terminate upon
notice to Dealer of the termination, expiration or
relinquishment of Distributor's authority to act as a
distributor of Subaru Products for the Area of Responsibility.
<PAGE>
12. CAPITALIZATION Dealer agrees to establish and maintain adequate Net Cash,
Net Working Capital, Total Net Worth and Operating
Investment, in accordance with all applicable Minimum
Standards, so as to effectively perform its obligations
under this Agreement. If this Agreement is for the
appointment of a New Dealer Candidate, then Dealer hereby
represents that it now possesses the initial required
amounts of capitalization indicated below, available
exclusively for Subaru operations. In all other cases,
Dealer hereby represents that it now possesses in its total
operations the amounts of capitalization indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net Cash: $10,684,787 Total Net Worth: $9,935,330
Net Working Capital: $13,721,272 Operating Investment: $16,424,996
</TABLE>
13. CREDIT Dealer agrees to make arrangements for and to maintain,
ARRANGEMENTS throughout the term of this Agreement, a committed floor
plan line of credit in an amount adequate to fulfill the
requirements set forth in the applicable Minimum Standards
and adequate to finance Dealer's anticipated inventory of
Cars. Whenever required by Distributor, Dealer shall
furnish Distributor with documentation that such committed
floor plan line of credit is available from a financial
institution approved by and in a form acceptable to
Distributor for use in connection with Dealer's purchases
of, and carrying of inventory in, Cars. Dealer hereby
represents that it now possesses a committed floor plan
line of credit, from a financial institution approved by
Distributor, available exclusively for Subaru operations,
in the initial required amount of $2,000,000.
14. SOA The consent of SOS is required for the appointment of a
CONSENT New Dealer Candidate, for a Significant Change of Ownership
Interest, or for a relocation of facilities in addition to
those identified in Paragraph 9 of this Agreement SOA's
decision to grant or withhold consent shall be communicated
to the Distributor in writing and the Distributor will in
turn promptly notify the New Dealer Candidate, the proposed
transferee of the Interest to be transferred, or the dealer
as the case may be. If a New Dealer Candidate engages in
any Subaru operation prior to SOA's consent, or if a
Significant Change of Ownership Interest or a change in
facilities location is effectuated prior to SOA's consent,
such consent may be denied notwithstanding the
qualifications of the New Dealer Candidate or proposed
transferee, notwithstanding the condition of the new
facility and notwithstanding any contrary representations
which may have been made by Distributor, SOA consent also
may be defined in the 'event that SOA determines, in its
sole discretion, that either: (a) the agreement and related
documents when presented to SOA for review are not fully
and properly completed or do not conform to the requirement
set forth in the then current Subaru Dealer Appointment
Procedures Manual; (b) the New Dealer Candidate, proposed
transferee or proposed new facility does not meet or
fulfill the standards set forth in the then current Subaru
Dealer National Operating Standards Manual, including the
Subaru Dealership National Minimum Standards; or (c) the
New Dealer Candidate or proposed transferee does not
evidence the honesty, integrity, sales and service energy
or proven sales, market penetration and service
performance, and skills, experience or cooperative attitude
which are likely to promote the long term success and
reputation of Subaru Products. If applicable law requires
that a New Dealer Candidate or proposed transferee be
approved or disapproved within a prescribed time period,
such time period shall be calculated from and after the
date upon which the agreement and all related documents are
first presented for review by Distributor to SOA.
15. DEALER'S Effective for the term of this Agreement only, Dealer's
MINIMUM Planning Volume shall be 359 Cars per year and the number
STANDARDS of Units in Operation ("UIO") assigned to Dealer is
LEVEL 1,822, so that UIO plus one (1) year's Planning Volume
equals 2,181 and UIO plus three (3) years' Planning Volume
equals 2,899 If this Agreement is renewed or if Dealer
relocates its facilities or if there is a change in
the percentage share of responsibility for Dealer's Area of
Responsibility, both Planning Volume and UIO will be
re-evaluated by Distributor at the time of such renewal,
relocation or percentage change, and Dealer will be
required to comply with the Minimum Standards in effect at
that time for the re-evaluated Planning Volume and UIO
levels.
The parties hereto, intending to be legally bound, have
executed this Agreement, or have caused this Agreement to
be executed by their proper and duly authorized officers,
on the date and year first above written.
<TABLE>
<S> <C>
SUBARU OF AMERICA, INC/WESTERN REGION CAMP AUTOMOTIVE INC.
BY: /s/ Tim Parzybok BY: /s/ Sidney B. DeBoer
--------------------------------- ----------------------------------
Tim Parzybok Sidney B. DeBoer
Regional Vice President
BY: /s/ Steve Allen TITLE President
---------------------------------
Steve Allen
Regional Market Development Manager
WITNESS OR
ATTEST: /s/
---------------------------------
</TABLE>
<PAGE>
[LETTERHEAD]
RIGHT OF FIRST REFUSAL ADDENDUM TO SUBARU DEALERSHIP AGREEMENT
This addendum is made this 16th day of October, 1998, by and between Camp
Automotive, Inc. ("Dealer") and Subaru of America, Inc./Western Region
("Distributor").
WHEREAS, Dealer's Subaru Dealership Agreement and Standard Provisions
("Agreement") commenced on October 16, 1998, which Agreement is incorporated
herein by reference as though set forth at length; and
WHEREAS, Dealer and Distributor desire to amend the Agreement to provide
Distributor a right of first refusal should a proposal be submitted by Dealer
under article six (6) of the Dealership Agreement.
NOW THEREFORE, in consideration of these premises, Dealer and Distributor
agree as follows:
1. Distributor may elect to exercise its purchase right by written notice to
Dealer within thirty (30) calendar days after Dealer has furnished to
Distributor all applications and information reasonably requested by
Distributor to evaluate Dealer's proposal. If Dealer's proposed sale or
transfer was to a successor approved in advance by Distributor, then Dealer
may reject Distributor's exercise to purchase.
2. If Dealer's proposed sale or transfer was to Dealer's nominee, to any of
Dealer's owners, to Dealer's employees as a group, or to Dealer's spouse,
children or heirs, other than a successor approved in advance by Distributor,
then Dealer may withdraw its proposal within thirty (30) calendar days
following receipt of Distributor's notice of election of its purchase right.
3. Distributor's right under this Addendum shall be a right of first refusal,
permitting Distributor to (a) assume the proposed transferee's rights and
obligations under its Agreement with Dealer and (b) cancel this Agreement and
all rights granted Dealer hereunder. Except to the extent specifically
inconsistent with the terms of this Agreement, the price and all other terms
of Distributor's purchase shall be as set forth in any bonafide written
purchase and sale agreement between Dealer and its proposed transferee and
in any related documents.
4. Dealer shall furnish to Distributor an itemized fair market valuation for
all of the Subaru assets to be purchased, copies of all applicable liens,
mortgages, encumbrances, leases, easements, licenses or other documents
affecting any of the property to be transferred and shall assign to
Distributor and permit or license as necessary for the continued conduct of
Dealer's operation.
5. Distributor may assign each right of first refusal to any party it chooses,
but in that event Distributor will remain primarily liable for payment of the
purchase price to Dealer.
6. If Distributor exercises its purchase right, Distributor will reimburse
Dealer's proposed transferee for reasonable documented actual expenses which
such proposed transferee incurred through the date of such exercise which are
directly and solely attributable to the transaction Dealer proposed.
<PAGE>
[LETTERHEAD]
RIGHT OF FIRST REFUSAL ADDENDUM TO SUBARU DEALERSHIP AGREEMENT
PAGE 2
7. Nothing contained in this Addendum shall require Distributor to exercise its
right of first refusal in any case, nor restrict any right Distributor may
have to refuse to approve Dealer's proposed transfer.
8. This Addendum is not intended to confer any right, benefit or claim upon any
person or entity other than Dealer or Distributor.
9. Except as modified by this Addendum, all terms, conditions and provisions of
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF the parties have hereunto set their signatures on the date
first hereinabove written.
<TABLE>
<S> <C>
SUBARU OF AMERICA, INC./ CAMP AUTOMOTIVE, INC.
WESTERN REGION SPOKANE, WA
By: By:
/s/ Tim Parzybok /s/ Sidney B. DeBoer
- -------------------------------- --------------------------------
Tim Parzybok Sidney B. DeBoer
Regional Vice President President
Witness: Witness:
/s/ Steve Allen /s/
- -------------------------------- --------------------------------
Steve Allen Name/Title
Regional Market Development Manager
</TABLE>
<PAGE>
[LETTERHEAD]
HOLDING COMPANY ADDENDUM TO SUBARU DEALERSHIP AGREEMENT
This Addendum is made this 16th day of October, 1998, by and between Camp
Automotive, Inc. ("Dealer") and Subaru of America, Inc./Western Region
("Distributor").
WHEREAS, Dealer has submitted to Distributor an application for the
Subaru Dealership Agreement and Standard Provisions ("Agreement") in order to
operate as an authorized Subaru dealer;
WHEREAS, Dealer is a wholly-owned subsidiary of Lithia Motors, Inc.
("Parent Company"), an Oregon corporation, which is a wholly-owned subsidiary
of Lithia Holding Company, LLC ("Holding Company"), an Oregon limited
liability company;
WHEREAS, Dealer desires to operate as an authorized Subaru dealer and
has designated Sidney B. DeBoer as Dealer Principal and Philip S. Camp as
General Manager.
NOW THEREFORE in consideration of these premises, Dealer, Parent Company, and
Holding Company acknowledge that Dealer must notify Distributor in writing
prior to any change in the ownership of Dealer and/or Parent Company and
prior to any change in Dealer Principal and/or General Manager.
Definition: Dealer Principal - The individual designated by Dealer, as
approved by Distributor, to have sole authority and responsibility in the
conduct of all Subaru business dealings between Dealer and Distributor.
Definition: General Manager - The individual designated by Dealer, as
approved by Distributor, to conduct the day-to-day operations of Dealer.
1. Following notification to Distributor of proposed changes, Distributor will
require certain documentation for its review and approval of any change.
Distributor will reasonably provide approval of changes following
satisfactory receipt and review of the required documentation. Changes in
Dealer Principal or General Manager must satisfy Distributor's then current
requirements for a new dealer applicant.
2. Furthermore, Parent Company and/or Holding Company agree never to seek or
obtain:
More than two (2) Agreements within the same Nielsen Station Index
Designated Market Area as defined by the A.C. Nielsen Company; or
More than four (4) Agreements within the same Distributor; or
More than twelve (12) Agreements within SOA's entire area of
distribution.
3. Dealer, Parent Company, and Holding Company agree that their failure to
abide by one or more of the requirements set forth in paragraphs 1 and 2
of this Addendum shall constitute a material breach of the Agreement.
<PAGE>
[LETTERHEAD]
HOLDING COMPANY ADDENDUM TO SUBARU DEALERSHIP AGREEMENT
PAGE 2
4. Dealer agrees to voluntarily terminate the Agreement, in writing,
immediately upon Distributor's determination of Dealer's material breach
of the Agreement. If Distributor does not find sufficient cause to permit
Dealer to immediately correct a material breach of the Agreement, Dealer
will surrender all Subaru assets to Distributor at acquisition cost within
a period of no more than thirty (30) days following Distributor's
acceptance of Dealer's resignation.
5. This Addendum is not intended to confer any right, benefit or claim upon
any person or entity other than Dealer or Distributor.
6. Except as modified by this Addendum, all terms, conditions and provisions
of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF the parties have hereunto set their signatures on the date
first herein above written.
<TABLE>
<S> <C>
SUBARU OF AMERICA, INC./ CAMP AUTOMOTIVE, INC.
WESTERN REGION SPOKANE, WA
By: By:
/s/ Tim Parzybok /s/ Sidney B. DeBoer
- -------------------------------- --------------------------------
Tim Parzybok Sidney B. DeBoer
Regional Vice President President
Witness: Witness:
/s/ Steve Allen /s/
- -------------------------------- --------------------------------
Steve Allen Name/Title
Regional Market Development Manager
</TABLE>
<PAGE>
EXHIBIT 21
List of Subsidiaries
1. Lithia Financial Corporation
2. Lithia Rentals, Inc.
3. Lithia Auto Services, Inc.
4. Lithia Real Estate, Inc.
5. Lithia Aircraft, Inc.
6. Lithia MTLM, Inc.
7. LGPAC, Inc.
8. Lithia DM, Inc.
9. Saturn of Southwest Oregon, Inc.
10. Lithia HPI, Inc.
11. Lithia DE, Inc.
12. Lithia Chrysler Plymouth Jeep Eagle, Inc.
13. Lithia BNM, Inc.
14. Lithia TLM, L.L.C.
15. Lithia Dodge, L.L.C.
16. Lithia's Grants Pass Auto Center, L.L.C.
17. Hutchins Imported Motors, Inc.
18. Hutchins Eugene Nissan, Inc.
19. Lithia BB, Inc.
20. Lithia CIMR, Inc.
21. Lithia DC, Inc.
22. Lithia FMF, Inc.
23. Lithia FN, Inc.
24. Lithia FVHC, Inc.
25. Lithia JEB, Inc.
26. Lithia JEF, Inc.
27. Lithia MMF, Inc.
28. Lithia NB, Inc.
29. Lithia NF, Inc.
30. Lithia TKV, Inc.
31. Lithia TR, Inc.
32. Lithia VWC, Inc.
33. Lithia Auto Services of California, Inc.
34. Camp Automotive, Inc.
35. Lithia SALMIR, Inc.
36. Lithia VS, LLC
37. Lithia Properties, LLC
38. Medford Reinsurance Company, Ltd.
39. Lithia Reinsurance Company, Ltd.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Lithia Motors, Inc. and Subsidiaries
We consent to incorporation by reference in the registration statements (Nos.
333-45553 and 333-43593, 333-69167, 333-69169 and 333-69225) on Form S-8 of
Lithia Motors, Inc. of our report dated February 19, 1999, relating to the
consolidated balance sheets of Lithia Motors, Inc. and Subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998, which report appears in
the December 31, 1998 annual report on Form 10-K of Lithia Motors, Inc.
KPMG PEAT MARWICK LLP
Portland, Oregon,
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 20,879
<SECURITIES> 0
<RECEIVABLES> 25,174
<ALLOWANCES> 714
<INVENTORY> 157,455
<CURRENT-ASSETS> 204,196
<PP&E> 36,840
<DEPRECIATION> 3,907
<TOTAL-ASSETS> 294,398
<CURRENT-LIABILITIES> 150,643
<BONDS> 49,563
0
0
<COMMON> 71,382
<OTHER-SE> 19,979
<TOTAL-LIABILITY-AND-EQUITY> 294,398
<SALES> 608,975
<TOTAL-REVENUES> 714,740
<CGS> 557,302
<TOTAL-COSTS> 599,379
<OTHER-EXPENSES> 88,657
<LOSS-PROVISION> 208
<INTEREST-EXPENSE> 9,843
<INCOME-PRETAX> 17,782
<INCOME-TAX> 6,993
<INCOME-CONTINUING> 10,789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,789
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.14
</TABLE>
<PAGE>
EXHIBIT 99
RISK FACTORS
The following summarizes certain risks which Lithia's management believes are
specific to its business. These should not be viewed as including all risks to
Lithia.
LITHIA OPERATING RESULTS ARE AFFECTED BY SEASONALITY AND THE TIMING OF ITS
ACQUISITIONS.
Lithia's business is seasonal with a disproportionate amount of sales occurring
in the second and third quarters. Further, Lithia incurs a significant amount
of training and integration costs upon the acquisition of each new dealership.
Accordingly, due to such seasonality and the timing and frequency of
acquisitions, Lithia will likely experience quarter-to-quarter fluctuations in
its operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Selected Consolidated Quarterly
Financial Data."
FUTURE FUNDING WILL BE NEEDED TO FINANCE FUTURE ACQUISITIONS.
Acquisitions of additional dealerships will require substantial capital
investment and could have a significant impact on Lithia's financial position
and operating results. Any such acquisitions may involve the use of cash
generated through operations, from borrowings or from the issuance of debt or
equity securities, either in the public market or to sellers. The use of any
financing source could have the effect of reducing the per share earnings of
Lithia. Future acquisitions will likely result in the accumulation of
additional goodwill and intangible assets, which would result in higher
amortization charges to Lithia, and could also reduce earnings.
NEW ACQUISITIONS REQUIRE THE CONSENT OF MANUFACTURERS.
Lithia is required to obtain consent from each relevant manufacturer prior to
the acquisition of a dealership franchise. In determining whether to approve an
acquisition, a manufacturer considers many factors including the financial
condition and ownership structure of the applicant, the number of dealerships
owned by the company and the company's performance with those dealerships. Most
major manufacturers have now established limitations on the acquisition of new
franchisee locations. These include limitations on:
- the total number of such manufacturers' dealerships that may be
acquired by a company;
- the number of dealerships that may be acquired in any market or
region;
- the percentage of total sales that may be controlled by one dealer
group;
- the ownership of contiguous dealerships;
- the dualing of a franchise with any other brand without consent; and
- the frequency of acquisitions
Lithia's ability to meet manufacturer's requirements for acquisitions in the
future will have a direct bearing on its ability to complete acquisitions and
continue its growth strategy. Because of the public ownership structure of
Lithia, management does not believe it could secure approval to acquire any new
Saturn, Honda or Acura dealerships without a change in the current policies of
the manufacturer or the granting of ownership interests in the subsidiary
operating the individual dealerships to the designated dealer principal.
1
<PAGE>
In determining whether to approve an acquisition by Lithia, a manufacturer also
considers factors such as the company's past performance as measured by the
manufacturer's customer satisfaction index ("CSI") scores and sales performance
at the company's existing franchises. At any point in time, a small percentage
of Lithia's franchises will have CSI scores below the manufacturers' sales zone
averages or achieved sales performances below the target set by the
manufacturer. Failure to maintain satisfactory CSI scores and sales performance
goals may adversely affect Lithia's ability to complete additional acquisitions.
LITHIA IS DEPENDENT ON ITS CURRENT KEY PERSONNEL AND ITS SUCCESS IN ATTRACTING
ADDITIONAL MANAGEMENT PERSONNEL.
Lithia's success will depend largely on the efforts and abilities of its senior
management, particularly Sidney B. DeBoer, Lithia's Chairman and Chief Executive
Officer, M. L. Dick Heimann, Lithia's President and Chief Operating Officer, and
R. Bradford Gray, Lithia's Executive Vice-President. Lithia does not have
employment or non-compete agreements with any of its key management personnel.
Further, Mr. DeBoer and Mr. Heimann are identified in Lithia's dealership
franchise agreements as the individuals who control the franchises and upon
whose financial resources and management expertise the manufactures have relied
upon when awarding such franchises. The loss of either of those individuals
could materially adversely affect Lithia's on-going relationship with its
vehicle manufacturers. See "Business--Relationships with Automobile
Manufacturers."
In addition, Lithia places substantial responsibility on the general managers of
its dealerships for the profitability of such dealerships. Lithia has increased
its number of dealerships from 7 in December 1996 to 28 as of March 1999. This
rapid expansion has resulted in the need to hire additional managers and, as
Lithia continues to expand, the need for additional experienced managers will
become even more critical. Many dealerships are offered for sale to enable the
owner/manager to retire. These potential acquisitions are viable to Lithia only
if replacement management can be retained. The market for qualified general
mangers is highly competitive. The loss of the services of key management
personnel or the inability to attract additional qualified managers could have a
material adverse effect on Lithia's business and the execution of its growth
strategy.
LITHIA NEEDS TO IMPROVE OPERATIONS IN SOME DEALERSHIPS IT ACQUIRES.
Lithia sometimes acquires dealerships with net profit margins which are
materially below the its historical average net profit margin. In order to
maintain its current net profit margin and to make the acquisitions profitable,
Lithia needs to successfully install new management and sales technicians in the
dealership. No assurance can be given that Lithia will be able to improve the
profitability of those dealerships.
LITHIA IS DEPENDENT ON FUTURE ACQUISITIONS FOR ITS GROWTH.
The U.S. automobile industry is considered a mature industry in which minimal
growth is expected in unit sales of new vehicles. Accordingly, a principal
component of Lithia's growth in sales is to make additional acquisitions in its
existing and new geographic markets.
Lithia's future growth and financial success will be dependent upon a number of
factors including its ability to identify acceptable acquisition candidates,
negotiate favorable terms, obtain the consent of automobile manufacturers, hire
and train professional management and sales personnel at each new dealership,
and promptly and profitably integrate the acquired operation into the company.
See "Business Growth Strategy."
2
