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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission file number: 2-97254-NY
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FIRSTAMERICA AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
Delaware 88-0206732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 Brannan Street
San Francisco, California 94107
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (415) 284-0444
Securities registered pursuant to Section 12(b) of the Act: None
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 [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) 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 on March 31, 1998 was $1,002,579, based on the fair market value
of the Company's Common Stock as of that date as determined by the Board of
Directors. Shares of Common Stock held by each executive officer and director
and by each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
The number of shares of the registrant's Common Stock outstanding on March
31, 1998, was as follows: 11,179,029 shares of Class A Common Stock, par value
$0.00001 per share, and 3,032,000 shares of Class B Common Stock, par value
$0.00001 per share.
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FORWARD-LOOKING STATEMENTS
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This Annual Report on Form 10-K contains forward-looking statements that
have been made pursuant to the provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are based on current
expectations, estimates and projections about the Company's industry,
management's beliefs, and certain assumptions made by the Company's management.
Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict; therefore, actual results may differ
materially from those expressed or forecasted in any such forward-looking
statements. Such risks and uncertainties includes those set forth herein under
"Factors That May Affect Future Results" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Unless required by
law, the Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, readers should carefully review the risk factors set forth in other
reports or documents the Company will file from time to time with the Securities
and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K.
PART I
Item 1. Business
Overview
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FirstAmerica Automotive, Inc. (the "Company") is one of the largest
automotive retailers in Northern California, operating, as of December 31, 1997,
11 dealerships in Northern California and 3 dealerships in San Diego County.
The Company plans to open a multi-brand, vehicle and repair service center in
downtown San Francisco, in the second half of 1998. The Company sells new and
used cars and light trucks, sells replacement parts, provides vehicle
maintenance, warranty and repair services and arranges related financing and
insurance products ("F&I") for its customers. At its fifteen locations, certain
of which represent multiple new vehicle dealerships, the Company offers eleven
domestic and foreign product lines, which consist of Buick, Dodge, GMC, Honda,
Isuzu, Lexus, Mitsubishi, Nissan, Pontiac, Toyota and Volkswagen. On a pro
forma combined basis including the Company's 1997 dealership acquisitions, the
Company had revenues of $604 million and retail unit sales of 18,027 new and
8,664 used vehicles in 1997. Based on statistical ranking information published
by Automotive News, an industry trade publication, the Company believes that in
1997, it would have been the sixteenth largest dealer group nationwide, based on
pro forma retail new vehicle unit sales, and the twenty-sixth largest dealer
group nationwide based on pro forma gross revenues.
Effective July 11, 1997, the Company, which prior to such date had no
significant assets or operations, combined (the "Combination") with a group of
six automobile dealerships under the common ownership and control of Thomas A.
Price, the Company's President and Chief Executive Officer, and other
stockholders (the "Price Dealerships"). The stockholders of the Price
Dealerships received 5,526,000 shares of Class A Common Stock of the Company in
connection with the Combination, which shares represent a controlling interest
in the Company. During 1997, the Company acquired a dealership from Donald V.
Strough, the Company's Chairman, and an additional seven dealerships from
unrelated third parties.
In addition to its traditional dealership operations, the Company has (i)
commenced development of a multi-brand, full service vehicle maintenance and
repair center in the downtown San Francisco area, which is scheduled to open
during the second half of 1998, (ii) developed a "Used Car Auto Factory" concept
to centralize procurement, reconditioning and wholesale disposal of used cars,
and (iii) obtained authorization from Nissan Motor Company ("Nissan") to form
"Smart Nissan," a program to combine multiple Nissan dealerships with contiguous
markets in the San Francisco Bay Area (including the Nissan dealerships owned by
the Company) into a single regional dealership group that will have centralized
pricing, inventory management, marketing and other economies of scale.
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All financial information contained herein, unless indicated as being
presented on a pro forma basis, represents the historical financial information
of the Price Dealerships prior to July 1997 and financial information of each
other dealership from the respective dates of acquisition.
RECENT, PENDING AND FUTURE ACQUISITIONS
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The Company intends to continue to pursue a strategic acquisition strategy
led by a management team with extensive experience in the acquisition and
management of automotive retailing businesses and to capitalize on and continue
to enhance the excellent relationships the Company enjoys with the various
automobile manufacturers (the "Manufacturers") which the Company currently holds
dealer agreements.
The Company's Chairman, Donald V. Strough, has more than 35 years
experience in managing, acquiring and selling new car dealerships, having
acquired and operated more than 20 California dealerships representing more than
45 franchises. Thomas A. Price, the Company's President and Chief Executive
Officer, also has 35 years of automobile industry experience and has been a
consistent innovator and leader among automobile dealers in California. In
addition, the Company's other executive officers, regional general managers and
dealership general managers have on average more than 15 years of automotive
retailing experience. The Company's dealerships are among those dealerships
that have won the highest attainable manufacturer awards measuring quality and
customer satisfaction. Various members of the management team have been
recognized as leaders in the automotive retailing industry, serving at various
times in leadership positions in state and national industry organizations,
including several manufacturer dealer councils which act as liaisons between the
manufacturers and dealer groups.
The Company intends to pursue acquisitions using cash, debt, equity or a
combination thereof. Although the Company has identified and has held
preliminary discussions with several potential acquisition candidates, at this
time it does not have agreements to effect any such acquisitions other than the
pending acquisitions of Ritchey Fipp Chevrolet and Burgess Honda. There is no
assurance that the Company will consummate any future acquisitions, that they
will be on terms favorable to the Company or that financing for such
acquisitions will be available. All future acquisitions by the Company will be
contingent upon the consent of the applicable manufacturer. No assurance can be
given that any such consents will be obtained.
Since December 31, 1997, the Company has consummated or signed definitive
agreements to purchase three additional dealerships for an aggregate purchase
price of approximately $18.9 million. The acquisitions consist of Beverly Hills
BMW (consummated April 1, 1998), Ritchey Fipp Chevrolet and Burgess Honda (both
anticipated to close in late May 1998, subject to manufacturers' approval).
On April 1, 1998, the Company purchased substantially all of the assets of
Beverly Hills BMW, excluding real property for approximately $11.9 million. For
1997 Beverly Hills BMW had retail sales of 769 new and 183 used vehicles and
total revenues of approximately $54 million. This acquisition further
implements the Company's growth strategy by adding a high-profile, well-managed
luxury product dealership having significant presence in a new market.
Ritchey Fipp Chevrolet is located in the San Diego market, where the
Company has existing operations. For 1997, Ritchey Fipp had retail sales of
approximately 713 new and 511 used vehicles with total revenues of approximately
$30.3 million. This acquisition will fit into the Company's "fill-in" growth
strategy where single point dealerships can be acquired in existing markets
allowing for increased market penetration, leveraging of certain costs and
economies of scale. The Company has agreed to pay approximately $3.2 million
for substantially all of the assets of the Ritchey Fipp Chevrolet.
The Company plans to acquire the assets of Burgess Honda and relocate its
operations to the Company's existing Serramonte Boulevard location in Colma,
California. For 1997 Burgess Honda had retail sales of 1,023 new and 211 used
vehicles, and total revenues of approximately $18.2 million. The Company has
agreed to pay approximately $3.8 million for the assets of Burgess Honda.
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With the acquisition of Beverly Hills BMW, and upon the closing of the
acquisitions of Ritchey Fipp Chevrolet and Burgess Honda, the Company will own
17 dealerships selling 13 product lines.
Automobile retailing is highly competitive. The Company's competition
includes franchised automobile dealerships, some with greater resources than the
Company, selling the same or similar makes of vehicles offered by the Company.
Other competitors include private market buyers and sellers of used vehicles,
used vehicle dealers, service center chains and independent service and repair
shops. For further discussion of competition affecting the Company's business,
see "Factors That May Affect Future Results -- Competition" and "Business --
Competition."
The following table sets forth information relating to the Company's pro
forma gross revenues for the year ended December 31, 1997, as if all dealerships
owned as of December 31, 1997, were acquired on January 1, 1997:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
New vehicles.................................... $ 375,294
Used vehicles................................... 143,696
Parts and service............................... 74,780
Finance and insurance........................... 10,324
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Total.......................................... $ 604,094
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</TABLE>
STRATEGY
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The Company's long term objective is to participate in the consolidation of
the automotive retailing industry and to building a premier retail organization
of committed automotive professionals. Key elements of the Company's strategy
to achieve this objective include the acquisition of additional dealerships and
the enhancement of the Company's new vehicle dealerships by increasing sales of
higher margin products and services.
Acquire Profitable Dealerships. The Company intends to implement an aggressive,
well-disciplined, approach to acquisitions by pursuing (i) "platform
acquisitions" (large, profitable and well-managed dealerships) in large
metropolitan and high growth suburban geographic markets that the Company does
not currently serve and (ii) smaller "fill-in" acquisitions that will allow the
Company to enhance product line diversity, capitalize on economies of scale and
offer a greater breadth of products and services in each of the markets in which
the Company operates. With respect to "fill-in" acquisitions, the Company has
and will continue to consider the acquisition of dealerships which may not be
profitable but in the opinion of management represent strong opportunities for
enhanced performance under Company control. Acquisitions create opportunities
for economies of scale, including more favorable financing terms from lenders,
more sophisticated inventory management of new cars, used cars and parts, and
cost savings from the consolidation of administrative functions such as risk
management, employee training and employee benefits.
Leverage Strong Regional Presence. The Company has been focused and will
continue to focus initially on acquisition opportunities in California, where it
seeks to be the market leader. In addition, the Company believes its "Smart
Nissan" program will lead to the acquisition of several Nissan dealerships in
the San Francisco Bay Area. Although the Company has a strong market position
in Northern California, which it intends to expand, the Company's ultimate goal
is to develop a national chain of professionally-managed retail dealerships,
used car retail outlets, and supporting service businesses. The Company
initially intends to broaden its focus to include well-managed dealerships and
related businesses throughout the Western states.
Pursue Opportunities in Ancillary Products and Services. The Company intends to
pursue opportunities to increase its sales of higher-margin products and
services by expanding its service centers and after-market products businesses.
After-market products, such as custom wheels, anti-theft devices, telephones and
other accessories, enable dealerships to capture incremental revenue on new and
used vehicle sales.
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Expand Reconditioning and Service Center Business. The Company's reconditioning
and service business provides favorable margins and is not significantly
affected by economic cycles or consumer spending habits. As the Company
increases its penetration of regional markets, starting with the San Francisco
Bay Area, it intends to consolidate this business and possibly expand it to
include body repair work that is currently being referred to local specialty
shops.
Increase Wholesale Parts Business. Over time, the Company plans to capitalize
on its growing representation of numerous manufacturers to increase its sales of
factory authorized parts to wholesale buyers such as independent mechanical and
body repair garages, and rental and commercial fleet operators.
Enhance Profit Opportunities in Finance and Insurance. The Company offers its
customers a wide range of financing and leasing alternatives for the purchase of
vehicles and third-party extended warranty service contracts. As a result of
its size and scale, the Company believes it will be able to negotiate more
favorable terms with lending institutions. Likewise, the Company expects to
negotiate to increase the fees it earns on selling third party extended warranty
service contracts.
Used Vehicle Sales. The Company believes that the used vehicle departments at
several of its dealerships can be improved. In 1998, the Company intends to
develop used vehicle facilities where management believes opportunities exist.
On a pro forma basis, in 1997, the Company sold at retail 8,664 used vehicles
and its used vehicle operations generated $144 million in revenues, or 24% of
total auto dealership revenues. Retail used vehicle sales typically generate
higher gross margins than new car sales because of limited comparability among
used vehicles and the somewhat subjective nature of their valuation. The
Company believes that used vehicles sales represent an opportunity to enhance
profit because of (i) the increased availability of late-model, low-mileage used
automobiles from the large supply of vehicles coming off short-term leases and
from rental company fleets; (ii) the generally improved quality of motor
vehicles; and (iii) the increasing differential between new and used vehicle
prices.
OPERATING STRATEGY
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The Company's operating objectives are (i) to focus on customer
satisfaction throughout the organization in order to build long-term customer
relationships, and (ii) capitalize on operating efficiencies which will enhance
its financial performance. The Company seeks to achieve these objectives by
implementing the following operating strategies:
Establish Significant Presence in Each Geographic Market. The Company believes
that by establishing a significant market presence in operating regions,
beginning in Northern California, it will be able to provide superior customer
service through a market-specific sales, service, marketing and inventory
strategy. It is the Company's strategy, for instance, that the savings in a
market on reduced advertising costs will be re-deployed into customer service
and customer retention programs.
Achieve High Levels of Customer Satisfaction. Customer satisfaction has been
and will continue to be a focus of the Company. The Company's personalized
sales process is intended to satisfy customers by providing high-quality,
affordable vehicles in a positive, unpressured, "customer friendly" buying
environment. Among the innovations the Company is incorporating in selected
showrooms are child-care services, coffee bars and information kiosks. The
Company's service departments also seek to provide its customers with a
professional and reliable service experience of a consistently high standard.
Beyond establishing strong customer loyalty, this focus on customer satisfaction
engenders good relations with Manufacturers. Manufacturers generally measure
the customer satisfaction index ("CSI"), which is a result of a survey given to
new vehicle buyers. Some Manufacturers offer specific performance incentives,
on a per vehicle basis, if certain CSI levels (which vary by Manufacturer) are
achieved by a dealer. Manufacturers can withhold approval of acquisitions if a
dealer fails to maintain a minimum CSI score.
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To keep management focused on customer satisfaction, the Company includes CSI
results as a component of its incentive compensation program for general
managers and sales and service personnel in all of its dealerships. The
Company's most recent CSI scores indicate that the majority of its dealerships'
scores equaled or exceeded the average CSI scores for applicable regions.
Train and Develop Qualified Management. The Company requires all of its
employees, from service technicians to regional general managers, to participate
in in-house training programs. The Company leverages the experience of senior
management, along with third party trainers from manufacturers, industry
affiliates and vendors, to train all employees. This training regimen is a
convenient and effective way to share best practices among the Company's
employees at all levels of the various dealerships. The Company believes that
its comprehensive training of all employees at every level of their career path
offers the Company a competitive advantage over other dealership groups in the
development and retention of its workforce.
Offer a Diverse Range of Automotive Products and Services. The Company offers a
broad range of automotive products and services, including a wide selection of
new and used vehicles, vehicle financing and insurance programs, replacement
parts and maintenance and repair programs. As of December 31, 1997, the
Company's dealerships offered 11 product lines ranging from economy to luxury
brands consisting of Buick, Dodge, GMC, Honda, Isuzu, Lexus, Mitsubishi, Nissan,
Pontiac, Toyota and Volkswagen. The Company has subsequently acquired a BMW
dealership. The Company also offers a variety of used vehicles at a broad range
of prices. Offering numerous new vehicle product lines enables the Company to
satisfy a variety of customers, reduces dependence on any one Manufacturer and
reduces exposure to Manufacturer supply problems and product cycles as well as
changes in consumer preferences.
Capitalize on Efficiencies in Operations. Because management compensation is
based primarily on dealership performance and expense reduction, operating
efficiencies are a significant management focus. As the Company pursues its
acquisition strategy, the Company's size and market presence should provide it
with an opportunity to negotiate favorable terms for advertising, insurance,
purchasing, bank financings, employee benefit plans and other vendor contracts.
Utilize Professional Management Practices and Incentive-Based Compensation
Programs. As a result of the Company's size, the Company's senior management
has instituted a multi-tiered management structure to effectively supervise its
dealership operations. The Company maintains a series of wholly-owned
subsidiary corporations to own and operate its dealerships. Each such
subsidiary may hold a single dealer agreement from a single manufacturer or
multiple dealer agreements from several manufacturers. In an effort to align
management's interest with that of the Company's stockholders, a portion of the
incentive compensation program will be implemented for each executive officer,
regional general manager and other key employees in the form of stock options,
with additional incentives based on the performance of individual profit
centers. The Company believes that this organizational structure, with room for
advancement and a planned equity participation program, will effectively
motivate its employees.
Apply Technology Throughout Operations. The Company is focusing on enhanced
utilization of current technology throughout the dealerships. The Company uses
computer-based technology to monitor its dealerships' daily operating
performance, consolidate administrative functions and maximize cash management.
The Company has reached favorable agreements with automotive industry systems
providers to integrate custom software programs, such as customer tracking and
data warehousing programs. The programs will help manage inventory as well as
maximize efficiency in sales, F&I, parts and service operations. The Company
will continuously implement best practices and expand state of the art software
programs to its acquired dealerships. The Company is currently implementing a
wide area network that serves regional hubs with a goal to maximize efficiency
and reduce per user costs as the Company expands.
Market on the Internet. The Company's California customer base is very active
on the Internet and the Company has been utilizing the Internet for marketing
and communications since 1995. The Company currently offers a full range of
automotive products and services over the Internet and maintains exclusive
territories with leading referral services. Internet users can search the
Company's inventory for specific vehicles and view digital
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photographs of vehicles on line at the Company's proprietary web site
(www.anyauto.com.) The Company is aggressively expanding its Internet marketing
with the goal of increasing its market share while decreasing advertising and
other variable expenses. This technology will also streamline processes at the
dealership level allowing for support of higher closing ratios for sales
requests generated via on-line referral services such as Auto-by-Tel.
DEALERSHIP OPERATIONS
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New Vehicle Sales. The Company sells 11 product lines of cars, light trucks and
sport utility vehicles. The products have a broad range of prices from lower
priced, or economy vehicles, to luxury vehicles. The Company believes that its
product and price diversity reduces the risk of changes in customer preferences,
product supply shortages and aging products. Sales of new vehicles in 1997 were
approximately $375.3 million on a pro forma basis and approximately 6.8% of 1997
pro forma sales were of a luxury brand (Lexus). See "Factors That May Affect
Future Results -- Dependence on Automobile Manufacturers."
The following table sets forth, by product line, information relating to
the Company's pro forma new vehicle revenues for 1997 as if all dealerships had
been with the Company throughout the year:
<TABLE>
<CAPTION>
NEW VEHICLE REVENUES
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YEAR ENDED DECEMBER 31, 1997
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PERCENTAGE OF NEW
PRODUCT LINE NEW VEHICLE REVENUES VEHICLE REVENUES
- ------------ ---------------------- --------------------
(in thousands)
<S> <C> <C>
Buick.............................................. $ 3,815 1.0%
Dodge.............................................. 57,211 15.3%
GMC................................................ 3,707 1.0%
Honda.............................................. 40,577 10.8%
Isuzu.............................................. 6,436 1.7%
Lexus.............................................. 25,376 6.8%
Mitsubishi......................................... 19,711 5.3%
Nissan............................................. 143,501 38.2%
Pontiac............................................ 6,730 1.8%
Toyota............................................. 64,672 17.2%
Volkswagen......................................... 3,558 0.9%
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Total Total................................... $ 375,294 100%
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</TABLE>
The Company seeks to provide customer-oriented service and to build lasting
customer relationships that will result in repeat and referral business. Sales
techniques and processes vary depending on the product line and local market
conditions. All of the Company's dealerships use computer technology for
prospecting and customer follow-up and extensively train sales staff to meet the
needs of customers.
Substantially all of the Company's new vehicles are acquired from
Manufacturers. Manufacturers' allocation of vehicle inventory is based
primarily on sales volume and input from dealers. Vehicle purchases are
financed through revolving credit facilities known in the industry as floor plan
lending.
The Company has started a group sales and marketing effort for Nissan
vehicles called "Smart Nissan." Under the Smart Nissan effort, all advertising
costs will be leveraged across the Smart Nissan dealership group. Smart Nissan
consists of the following dealerships owned and operated by the Company:
Serramonte Nissan, Stevens Creek Nissan, Marin Nissan, Concord Nissan, Dublin
Nissan and Capitol Nissan. The Company is considering plans to acquire
additional Nissan dealers in the San
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Francisco Bay Area under Smart Nissan. The Company intends to grow the Smart
Nissan concept so that Smart Nissan will have multiple sales locations, parts
and service centers and computer links to credit unions.
Used Vehicle Sales. The Company sells a broad variety of makes and models of
used cars, vans, trucks and sport utility vehicles. On a pro forma basis in
1997, the Company sold 8,664 retail used vehicles. Used vehicle retail sales
for 1997 represented 32% of pro forma total retail unit sales.
The Company has formed a subsidiary, FAA Auto Factory, Inc. ("AFI") to
centralize the procurement, reconditioning, inventory management and wholesale
disposal of used vehicles. This streamlined process allows AFI to act as its
own internal auction house, providing for inventories that meet current consumer
market trends and maximizing the Company's profit on used vehicle sales. AFI
sets standardized operating policies across the Company's dealerships for used
vehicle operations. Additionally, AFI manages the market-driven redistribution
of used vehicles among the Company's dealerships. The Company believes the
establishment of AFI creates significant economies of scale, enhances control
over used vehicle inventory, and provides a competitive advantage over small
dealers.
Profits from used vehicle sales are dependent primarily on the ability to
source low-cost, high-quality used vehicles and to effectively manage inventory.
The Company's dealerships acquire their used vehicles through trade-ins, lease
expirations directly from rental car companies and auctions. Off-lease vehicles
are regarded as the highest quality in their age class due to their low mileage
and good condition relative to fleet and rental vehicles. When a leasing
customer declines to purchase the vehicle upon expiration of the lease, industry
practice is to offer it to the dealer that originated the transaction before
offering it to other dealers or selling it at auction. In addition, the Company
purchases a significant portion of its used vehicle inventory at auctions, which
offer off-lease, rental and fleet vehicles. Such auctions can be attended only
by new vehicle dealers.
The Company has taken several initiatives to enhance customer confidence in
the used vehicles that it sells, including offering third-party extended
warranties, stocking higher-quality, late-model used vehicles and participating
in manufacturer certification programs. Under such manufacturer certification
programs, which are available exclusively to new vehicle dealers, manufacturers
support used vehicles with extended manufacturer warranties and attractive
financing options. The Company performs the rigorous inspections and
reconditioning required for certification. Management believes that its size is
an advantage over smaller new vehicle dealers, who may not receive a sufficient
supply of used vehicles to justify dedicating resources to the certification
process. In addition, the Company believes that it can increase its margins on
used vehicle sales by utilizing AFI to centralize procurement, reconditioning,
inventory management and wholesale disposal of its used vehicles for its
dealerships.
The Company emphasizes retail sales of used vehicles in order to benefit
from the higher gross margins of used vehicle sales. To improve the
marketability of used vehicles, the Company is implementing a proprietary,
standard used vehicle certification program at each of its locations. The
certification program will include a 100 plus point inspection program, a three
day customer return policy, and a standard 60 day warranty.
Parts and Service. The Company provides service and parts at each of its
factory-authorized dealerships. The Company provides maintenance and repair
services at sixteen of its new vehicle dealership facilities. In the second half
of 1998, the Company intends to open its downtown San Francisco multi-brand,
full service vehicle maintenance and repair center. This 40,000 square foot, 38
service bay facility will utilize state of the art technology for both
information management and automotive equipment. The ability to service
multiple makes in one centralized location will provide an excellent recruitment
and training facility for technicians at the service center and for the
Company's dealerships. The service center is intended to provide convenience to
current sales customers, resulting in overall increased service retention, with
a goal of increasing revenues derived from higher margin products and services.
The Company utilizes a total of approximately 255 service bays at all of its
locations to provide both warranty and non-warranty services. Service and parts
sales provide higher gross margins than vehicle sales.
Historically, the automotive repair industry has been highly fragmented.
However, the Company believes the increased use of advanced technology in
vehicles has made it difficult for independent repair shops to perform
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major or technical repairs. Additionally, manufacturers permit warranty work to
be performed only at franchised dealerships. Given the increasing technological
complexity of motor vehicles and the trend to long term warranties, the Company
believes an increasing percentage of repair work will be performed at factory-
authorized new car dealerships.
The Company regards its service operations as an integral part of its
overall approach to customer service. Vehicle service provides additional
opportunities to build long-term customer relationships. The Company uses
service follow-up and other techniques to attract and retain service customers.
Although individual dealerships vary based on markets and product lines, many
Company dealerships use variable rate or "menu" pricing structures to improve
customer satisfaction with repair service.
Sales of factory authorized equipment and parts to wholesale customers are
an integral component of parts operations at certain of the Company's
dealerships. The Company plans to capitalize on its representation of numerous
manufacturers and its experience as a wholesale parts distributor in order to
increase sales of factory authorized equipment and parts to wholesale customers.
The Company's agreements with its Manufacturers authorize it to distribute
original equipment parts for all of the product lines it represents. The
Company is adopting uniform policies at all of its dealerships with respect to
pricing, returns and order processing, in order to improve service to its
wholesale customers. The Company also intends to introduce discount and
incentive programs for its wholesale customers based upon the overall volume of
parts purchased from all dealerships.
Finance and Insurance. The Company offers its customers a wide range of
financing and leasing alternatives for the purchase of vehicles. In addition,
as a part of each sale, the Company offers extended warranty service contracts,
a variety of custom accessories, anti-theft devices and chemical protection
treatments. The Company's revenue from financing, accessory sales and extended
warranty transactions was approximately $10.3 million in 1997, on a pro forma
basis. The Company believes that its customers' ability to obtain financing at
its dealerships significantly enhances the Company's ability to sell new and
used vehicles. The Company provides a variety of financing and leasing
alternatives in order to meet the specific needs of each potential customer.
The Company further believes that its ability to obtain custom-tailored
financing for each customer on a "same day" basis provides an advantage over
many of its competitors, particular smaller competitors, which do not generate
sufficient volume to attract the diversity of financing sources that are
available to the Company. The dealerships are able to provide a customer with a
broader array of lease payment alternatives and, consequently, appeal to a term
buyer who is trying to purchase a vehicle of choice at or below a specific
monthly payment. During 1997 the Company arranged financing for approximately
50% of its new vehicle sales and approximately 55% of its used vehicle sales.
New vehicle sales include retail lease transactions and lease-type
transactions, both of which are arranged by the Company. New vehicle leases
generally have terms of two to four years. Lease customers, therefore, return
to the new vehicle market more frequently. Leases also provide a source of
late-model, generally low mileage, vehicles for the Company's used vehicle
inventory at generally lower costs than other means of acquiring used vehicles.
Generally, leased vehicles are under warranty for the entire lease term, which
allows the Company to provide repair service to the lessee throughout the lease
term.
The Company sells its vehicle financing contracts and leases to other
parties, instead of directly financing sales, which reduces the Company's
exposure to losses from financing activities. The Company receives fees from
lenders for originating and assigning the loans and leases but is assessed a
charge back fee by lenders if a loan is canceled, in most cases, within 90 days
or within the first three payments of the loan origination. The Company
believes that its high volume of business makes its contracts more attractive to
lenders which may enable the Company to receive higher fees. Moreover, the
relatively low early payoff rate of the Company's sold contracts has allowed the
Company to negotiate better terms with lenders.
In addition to its financing activities, the Company offers extended
service contracts in connection with the sale of new and used vehicles.
Extended warranty service contracts on new vehicles supplement the warranties
offered by Manufacturers, and on used vehicles such contracts supplement any
remaining Manufacturer warranty or serve as the primary service contract.
9
<PAGE>
Dealership Management. The Company's non-luxury dealerships are divided into
geographic zones under the authority of a regional general manager. The
regional general manager is responsible for coordinating all sales, financial,
and customer satisfaction performance at each one of the dealerships under his
control. The regional general manager relies on a general manager to assist in
the selection, training, and retention of dealership personnel. All of the
individual operating subsidiaries of the Company report to the regional general
manager who then reports to the Company's Chief Operating Officer (the "COO") on
a regular basis and provides the COO with a comprehensive monthly financial and
operating statement of the dealerships under his control. General managers are
responsible for the day to day operation of their dealerships and the
development of personnel employed at their locations. General managers of the
luxury product dealerships report directly to the COO.
In an effort to better serve the Company's consumers and to address the
vast demographic differences in the geographic areas in which the Company
operates, the Company has regionalized its training programs for sales
personnel, service advisors, parts personnel, receptionists and cashiers. To
support these efforts, the Company is developing customer retention and
relationship management programs. The Company evaluates individual and
dealership performance against each Manufacturer's regional and national
established standards. Most personnel having customer contact in each
dealership have a portion of their compensation linked to customer satisfaction
requirements established by the Manufacturer and the Company.
SALES AND MARKETING
- -------------------
The Company's marketing and advertising activities vary among its
dealerships and its markets. The Company advertises primarily through
newspapers, radio and direct mail and regularly conducts special promotions
designed to focus vehicle buyers on its product offerings. Under arrangements
with manufacturers, the Company receives a subsidy for a portion of its
advertising expenses incurred in connection with a manufacturer's vehicles.
Because of its market presence in certain markets, the Company believes it has
been able to realize cost savings on its advertising expenses due to volume
discounts and other concessions from media. The Company also believes its
consolidated marketing campaigns within particular markets result in enhanced
name recognition of particular dealerships and sales volume when compared with
smaller competitors in the same markets. The Company has been utilizing the
Internet for marketing and communications since 1995. The Company currently
offers a full range of automotive products and services over the Internet and
maintains exclusive territories with leading referral services. The Company is
aggressively expanding its Internet marketing to maintain a leading edge
position with a goal of increasing its market share while decreasing advertising
and other variable expenses.
RELATIONSHIPS WITH MANUFACTURERS
- --------------------------------
Each of the Company's dealerships operates under one or more separate sales
and service or dealer agreements ("Dealer Agreements" and individually a "Dealer
Agreement") with one or more Manufacturers which govern the relationship between
the dealership and the Manufacturers. The Company, through its wholly owned
subsidiaries, currently has 21 separate Dealer Agreements with 9 manufacturers.
The Company has entered into one or more Dealer Agreements with American Honda
Motor Co., Inc. ("Honda"), Toyota Motor Sales, Inc. ("Toyota"), Chrysler
Corporation, General Motors Corporation, American Isuzu Motors, Inc., Mitsubishi
Motor Sales of America, Inc., Nissan Motor Corporation U.S.A. ("Nissan"),
Volkswagen of America, Inc., and BMW of North America, Inc. In general, each
Dealer Agreement specifies the location of the dealership for the sale of
vehicles and for the performance of certain approved services in a specified
market area. A Dealer Agreement requires the dealer to meet specified standards
regarding showrooms, facilities and equipment for servicing vehicles,
inventories, minimum net working capital, personnel training, and other aspects
of the business of operating the dealership. Each Dealer Agreement also gives
each Manufacturer the right to approve the dealership's general manager and any
material change in management or ownership of the dealership. Each Manufacturer
may terminate a Dealer Agreement under certain limited circumstances, such as a
change in control of the dealership without Manufacturer approval, material
impairment of the financial condition of the dealership, insolvency or
bankruptcy of the dealership or a material breach of other provisions of the
Dealer Agreement.
In addition to the customary Dealer Agreement between Nissan and the
Company, the Company has entered into a Contiguous Market Ownership Agreement
with Nissan and related agreements for the establishment
10
<PAGE>
of four Contiguous Market Ownership Areas (each a "CMO") in the San Francisco
Bay Area. Each CMO agreement provides for the Company to own and operate
multiple and contiguous Nissan Dealerships in each market. Such agreements
provide that in the event the Company desires to sell one Nissan dealership
within a specific CMO, Nissan has the right to require that the Company sell all
or none of such dealerships within such CMO. Further, in the event the Company
desires to sell or transfer one of its four San Francisco Bay Area CMO's without
Nissan's consent, Nissan in its reasonable discretion may require that the
Company sell or transfer one or all, or any combination, of the CMO's in the San
Francisco Bay Area to a proposed buyer acceptable to Nissan. Further, the Dealer
Agreements and CMO agreements and related agreements between the Company and
Nissan provide that disputes involving the agreements between Nissan and the
Company are not subject to California state regulations regarding
manufacture/dealer disputes, but subject to mediation and binding arbitration
between the Company and Nissan.
Manufacturers' policies regarding public ownership of dealerships continue
to evolve as the consolidation of automobile dealerships by publicly-held
companies moves forward. The Company believes that these policies will continue
to change as more dealership groups sell their stock to the public and as
established public dealership groups acquire more dealerships. All of the
Manufacturers with which the Company currently has Dealer Agreements have
approved the Company as a publicly-held entity. Certain of the Manufacturers
have, however, placed restrictions on the Company's ability to acquire
additional dealerships as well as on the transferability of the Company's common
stock, which policies could have a material adverse effect on the Company. See
"Factors Which May Affect Future Results -- Dependence on Automobile
Manufacturers," " -- Manufacturers' Restrictions on Acquisitions," " -- Stock
Ownership/Issuance Limits; Limitation on Ability to Issue Additional Equity" and
" -- Concentration of Voting Power."
Pursuant to an agreement between the Company and Toyota (the "Toyota
Agreement"), the number of Toyota dealerships which the Company may acquire is
restricted to: (i) the greater of one dealership or twenty percent of the
Toyota dealer count in a "Metro" market ("Metro" markets are multiple Toyota
dealership markets within certain geographic areas as defined by Toyota); (ii)
the lesser of five dealerships or five percent of the Toyota dealerships within
a Toyota region ("Toyota Region" refers to regional geographic areas as
designated by Toyota); and (iii) seven Toyota dealerships nationally. The
Toyota Agreement also limits the number of Lexus dealerships which may be
acquired by the Company to not more than: (i) two Lexus dealerships in any Area
("Area" referring to regional geographic areas as designated by Toyota) and (ii)
three Lexus dealerships nationally. The Company currently owns and operates two
Toyota dealerships and one Lexus dealership and, subject to the restrictions
limiting the acquisition by the Company of additional dealerships within
specified geographic regions, it is currently limited to acquiring not more than
five additional Toyota dealerships and two additional Lexus dealerships. The
Toyota Agreement grants Toyota the right to approve an acquisition by any
individual or entity of twenty percent or more of the ownership or voting rights
of the Company. In the event that any such acquisition occurs with respect to
an individual or entity not approved by Toyota, the Toyota Agreement requires
the Company to take action to remediate the unapproved acquisition. Such action
to remediate an unapproved stock acquisition shall include the acquisition by
the Company of the stock acquired by such unapproved person or entity. In the
event the Company fails to reacquire the stock acquired by the unapproved entity
or obtain the consent of Toyota to such acquisition, Toyota shall have the right
to require the Company to either sell its Toyota dealerships or Toyota will have
the right to purchase the Company's Toyota dealerships.
Subsequent to the execution by the Company of the Agreement with Toyota
referred to herein above, Toyota has modified its policy on public ownership of
multiple dealerships. Under the current Toyota Division Multiple Ownership
Policy, a single owner may own and operate in excess of seven Toyota dealerships
provided that the owner can demonstrate that it meets, on a consolidated basis,
capitalization and management requirements established by Toyota for multiple
level ownership. The multiple ownership policy limits the number of Toyota
dealerships in a region provided that the number of dealerships in a region
varies depending on whether the sales volume of such dealerships are less than
nine percent of the sales volume of the entire region. The San Francisco Region
provides for a limit of three Toyota dealerships, provided that such dealerships
have a combined sales volume of more than nine percent of the region or up to
four dealerships within the San Francisco Region, provided the sales volume of
the combined dealerships is less than nine percent of the region. Further, the
policy
11
<PAGE>
provides that no owner shall own or control dealerships that represent more than
twenty percent of the dealership count in a metro market as defined by Toyota.
In connection with its Honda dealerships, the Company has entered into an
Agreement with Honda (the "Honda Agreement") which limits the Company's ability
to acquire additional Honda dealerships and further restricts the
transferability of the Company's common stock. The Honda Agreement limits the
Company's ownership and acquisition of Honda dealerships to not more than: (i)
one Honda dealership in a Metro market (i.e., a geographical area designated by
Honda) having two to ten Honda dealerships; (ii) in a Metro market having eleven
to twenty Honda dealerships, to no more than two Honda dealerships; (iii) in a
Metro market having twenty-one or more Honda dealerships, to no more than three
Honda dealerships; (iv) to not more than four percent of the Honda dealerships
in any one of ten Honda zones (large geographic areas designated by Honda); and
(v) to not more than seven Honda dealerships nationally. The Honda Agreement
further limits the Company's ownership of Acura dealerships to not more than (i)
one Acura dealership in a Metro market having two or more Acura dealerships;
(ii) two Acura dealerships in any one of six Acura zones, (i.e. large
geographical areas designated by Honda); and (iii) three Acura dealerships
nationally. The Honda Agreement further requires that certain of the Company's
currently existing stockholders retain in the aggregate more than fifty percent
of the outstanding voting rights with respect to the Company. Honda also retains
the right to disapprove the acquisition by any individual or entity of more than
five percent of the Company's outstanding capital stock. If an individual or
entity which is not approved by Honda acquires in excess of five percent of the
Company's outstanding capital stock, Honda has the right to require the sale by
the Company of all of the assets of the Honda and Acura dealerships then owned
by the Company at their fair market value, which, in the event of dispute is to
be determined by binding arbitration. The Honda Agreement, by reason of its
requirement that certain of the Company's current shareholders retain more than
fifty percent of the voting control, restricts the number of voting shares of
the Company that can be offered for sale to the public.
In addition, Dealer Agreements generally provide that in the event that a
person or entity acquires more than twenty percent of the Company's common stock
and the applicable Manufacturer determines that such person or entity is not
qualified to hold an ownership interest, the Company may be required to take
action to remediate such disapproved ownership. Such action to remediate an
unapproved stock acquisition shall include the acquisition by the Company of the
stock acquired by such unapproved person or entity. In the event the Company
fails to reacquire the stock acquired by the unapproved entity or obtain the
consent of the various manufacturers to such acquisition, the manufacturers
shall have the right to require the Company to either sell such manufacturers'
dealerships or, in certain cases, such manufacturers will have the right to
purchase such manufacturers' dealerships.
COMPETITION
- -----------
The retail automotive industry is highly competitive and fragmented. The
new and used automobile sectors are characterized by a large number of
independent operators. Depending on the geographic market, the Company competes
with both dealers offering the same product lines as the Company and dealers
offering other manufacturers' vehicles. The Company also competes for vehicle
sales with auto brokers and leasing companies. The Company competes with small,
local dealerships and with large multi-franchise auto dealerships. Many of the
Company's larger competitors seeking to execute a similar consolidation strategy
as the Company's, such as Republic Industries, Inc., are larger and have greater
financial and marketing resources and are more widely known than the Company.
The Company also competes with regional and national car rental companies,
which sell their used rental cars, and used automobile "superstores," such as
AutoNation and CarMax. In the future, new competitors may enter the automotive
retailing market, including automobile manufacturers (such as Ford) that decide
to acquire direct ownership of retail dealerships. In addition, the used
vehicle superstores generally offer a greater and more varied selection of
vehicles than the Company's dealerships. As the Company seeks to acquire
dealerships in new markets, it may face significant competition (including
competition from other publicly-owned dealer groups) as it strives to gain
market share. See "Factors That May Affect Future Results -- Competition."
12
<PAGE>
The Company believes that the principal competitive factors in vehicle
sales are the marketing campaigns conducted nationally by manufacturers and
locally by the dealerships, the ability of dealerships to offer a wide selection
of the most popular vehicles, the location of dealerships and the quality of
customer service. Other competitive factors include customer preference for
makes of vehicles, pricing (including manufacturer rebates and other special
offers) and warranties. In addition to competition for vehicle sales, the
Company also competes with other auto dealers, service stores, auto parts
retailers and independent mechanics in providing parts and service. The Company
believes that the principal competitive factors in parts and service sales are
price, the use of factory-approved replacement parts, the familiarity with a
dealer's makes and models and the quality of customer service. A number of
regional and national chains offer selected parts and service at prices that may
be lower than the Company's prices. In arranging financing for its customers'
vehicle purchases, the Company competes with a broad range of financial
institutions offering comparable vehicle financing alternatives. The Company
believes that the principal competitive factors in providing financing are
convenience, interest rates and contract terms.
The Company's success depends, in part, on national and regional
automobile-buying trends, local and regional economic factors and other regional
competitive pressures. The Company sells its vehicles in the greater San
Francisco Bay Area, the San Jose Metropolitan Area, San Diego County and most
recently in the Los Angeles markets, all of which are in California. Conditions
and competitive pressures affecting these markets, such as price-cutting by
dealers in these areas, or in any new markets the Company enters, could
adversely affect the Company, although the retail automobile industry as a whole
might not be affected. See "Factors That May Affect Future Results --
Competition."
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
- -----------------------------------------------
The Company's operations are subject to various federal, state and local
laws and regulations including those related to taxing and licensing of
vehicles, consumer protection, insurance, advertising, used vehicle sales,
zoning and land use, and labor matters. The Company also is subject to laws and
regulations relating to business corporations generally.
Under California law as well as the laws of other states into which the
Company may expand, the Company must obtain a license in order to establish,
operate or relocate a dealership or operate an automotive repair service. These
laws also regulate the Company's conduct of business, including its advertising
and sales practices. Other states have similar requirements.
The relationship between an automobile dealership and a manufacturer is
governed by various federal and state laws established to protect dealerships
from the generally unequal bargaining power between the parties. Federal laws,
as well as California state law, prohibit a manufacturer from terminating or
failing to renew a dealer agreement without good cause. Under California law, a
manufacturer may not require a dealer to accept any vehicle, part or accessory
not voluntarily ordered by the dealer, to refuse to deliver any new vehicle,
part or accessory advertised by the manufacturer as available, or to require
monetary participation in any sales promotion or advertising campaign.
Manufacturers are entitled to approve or disapprove a proposed transferee in
connection with any transfer of a dealership. Further, a dealer is entitled to
seek judicial relief to prevent a manufacturer from establishing a competing
dealership of the same vehicle make within the dealer's relevant market area.
The Company's operations are also subject to laws governing consumer
protection. Automobile dealers and manufacturers are subject to so-called
"Lemon Laws" that require a manufacturer to 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. Federal laws require certain written disclosures to be provided on new
vehicles, including mileage and pricing information.
The Company's F&I activities with its customers are subject to federal
truth-in-lending, consumer leasing and equal credit opportunity regulations as
well as state and local motor vehicle finance laws, installment finance laws,
usury laws and other laws regarding installment credit. Some states regulate
finance fees that may be paid in
13
<PAGE>
connection with vehicle sales. State and federal environmental regulations,
including regulations governing air and water quality and the storage and
disposal of gasoline, oil and other materials, also apply to the Company.
The Company believes that it complies in all material respects with the
laws affecting its business. Possible penalties for violation of any of these
laws include revocation of the Company's licenses and fines. In addition, many
laws may give customers a private cause of action.
As with automobile dealerships generally, and service, parts and body shop
operations in particular, the Company's business involves the use, storage,
handling and contracting for recycling or disposal of hazardous or toxic
substances or wastes, including environmentally sensitive materials such as
motor oil, waste motor oil and filters, transmission fluid, antifreeze, freon,
waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing
agents, gasoline and diesel fuels. The Company's business also involves the
past and current operation and/or removal of above ground and underground
storage tanks containing such substances or wastes. Accordingly, the Company is
subject to regulation by federal, state and local authorities establishing
health and environmental quality standards, and liability related thereto, and
providing penalties for violations of those standards. The Company is also
subject to laws, ordinances and regulations governing remediation of
contamination at facilities it operates or to which it sends hazardous or toxic
substances or wastes for treatment, recycling or disposal.
The Company believes that it does not have any material environmental
liabilities and that compliance with environmental laws and regulations will
not, individually or in the aggregate, have a material adverse effect on the
Company's results of operations or financial condition. In addition, a certain
level of protection is provided with any potential environmental issues relating
to leased facilities in that a portion of such leases provide for indemnity by
the landlord with respect to any contamination or other similar condition
existing as of the commencement of the Company's lease. Notwithstanding the
Company's belief that it does not have any material environmental liabilities,
environmental laws and regulations are complex and subject to frequent change.
There can be no assurance that compliance with amended, new or more stringent
laws or regulations, stricter interpretations of existing laws or the future
discovery of problematic environmental conditions will not require additional
expenditures by the Company, or that such expenditures will not be material.
See "Factors That May Affect Future Results -- Adverse Effect of Government
Regulation; Environmental Regulation Compliance Costs."
EMPLOYEES
- ---------
As of December 31, 1997, the Company employed 1,034 people, of whom
approximately 135 were employed in executive and managerial positions, 320 were
employed in non-managerial sales positions, 443 were employed in non-managerial
parts, service and other positions and 136 were employed in administrative
support positions. Approximately 60 employees are covered by collective
bargaining agreements with labor unions. The Company's management believes that
it has good relations with its employees.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 601 Brannan
Street, San Francisco, California 94107 and its telephone number is (415) 284-
0444. The Company leases all of the facilities used in connection with its
business. The Company believes its facilities are currently adequate for its
needs and are in good repair. In connection with its acquisition strategy, the
Company seeks to structure its transactions to avoid owning real property.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is named in claims involving the manufacture
of automobiles, contractual disputes and other matters arising in the ordinary
course of the Company's business. Currently, no legal proceedings are pending
against or involve the Company that, in the opinion of management, could
reasonably be expected to have a material adverse effect on the Company's
business, financial condition or results of operations.
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
15
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for any class of the
Company's common stock. As of December 31, 1997, there were approximately 296
holders of record of the Company's Class A Common Stock and six holders of
record of the Company's Class B Common Stock. Because many of such shares of
Class A Common Stock are held by brokers and other institutions on behalf of
stockholders, the Company is unable to estimate the exact number of stockholders
represented by the holders of record, but it believes the actual number of
underlying holders of record to be in excess of 300.
The Company has not paid dividends on any class of its common stock for
the Company's two most recent fiscal years or any subsequent interim period,
excluding S corporation distributions for the Price Dealerships. The Company
currently intends to retain future earnings, if any, to finance the development
and expansion of its business and does not anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company's Certificate of
Incorporation restricts payment of dividends on the Company's capital.
Specifically, it prohibits the payment of dividends on its common stock so long
as any shares of the Company's 8% Cumulative Redeemable Preferred Stock due 2005
remain outstanding and any dividends owed thereon remain unpaid. Under the terms
of its financing arrangements, the Company is also subject to restrictions on
paying dividends on its common stock.
RECENT SALES OF UNREGISTERED SECURITIES
- ---------------------------------------
On July 1, 1997, the Company reincorporated from Nevada into Delaware
by merging into a wholly-owned Delaware subsidiary formed specifically for this
purpose. On June 16, 1997, one hundred shares of the Delaware subsidiary's
common stock were issued in connection with its formation under an exemption to
the registration requirements of the Securities Act of 1933, as amended (the
"Act"), found in Section 4(2) thereof. Because the Delaware corporation is
deemed as a matter of law to be the surviving corporation in the
reincorporation, these one hundred shares are deemed to have been issued by the
Company.
In connection with the reincorporation, the Company is also deemed to
have issued shares of the Delaware corporation to all of its stockholders in
exchange for their shares in the Nevada corporation. This issuance of shares was
made under an exemption to the registration requirements of the Act found in
Section (a)(2) of Rule 145 promulgated thereunder.
On March 31, 1997, the Company issued 200,000 shares of its Class A
Common Stock to Steven Hallock for $200 pursuant to an agreement between the
Company and Mr. Hallock dated November, 1996 and based on a valuation of the
Company's Class A Common Stock on such date. This issuance of the Company's
securities was made in reliance on Section 4(2) of the Act.
On March 31, 1997, the Company issued 20,000 shares of its Class A
Common Stock to Matthew Travis for $20.00. This issuance of the Company's
securities was made in reliance on Section 4(2) of the Act.
On April 23, 1997, the Company issued 479,000 shares of its Class A
Common Stock to the Price Trust u/d/t 10/5/88 for $479.00 in cash. This issuance
was pursuant to an agreement with the Company to issue such shares dated
November, 1996 and based on a valuation of the Company's Class A Common Stock on
such date. This issuance of the Company's securities was made in reliance on
Section 4(2) of the Act.
On July 10, 1997, the Company issued warrants to purchase 303,200
shares of its Class A Common Stock to Brown, Gibbons & Lang in partial
consideration for consulting services performed for the Company. The exercise
price of such warrants is $0.92 per share. These warrants are exercisable at any
time prior to July 10, 2002. This issuance of the Company's securities was made
in reliance on Section 4(2) of the Act.
16
<PAGE>
On July 10, 1997, the Company issued warrants to purchase 5,000 shares
of its Class A Common Stock to T.J. Hollerhoff in partial consideration for
services performed for the Company. The exercise price of such warrants is $0.92
per share. These warrants are exercisable at any time prior to July 10, 2002.
This issuance of the Company's securities was made in reliance on Section 4(2)
of the Act.
On July 10, 1997, the Company issued warrants to purchase 2,500 shares of
its Class A Common Stock to Carlanne Foushee in partial consideration for
services performed for the Company. The exercise price of such warrants is
$0.92 per share. These warrants are exercisable at any time prior to July 10,
2002. This issuance of the Company's securities was made in reliance on Section
4(2) of the Act.
On July 10, 1997, the Company issued warrants to purchase 1,000 shares of
its Class A Common Stock to Martha Walker in partial consideration for services
performed for the Company. The exercise price of such warrants is $0.92 per
share. These warrants are exercisable at any time prior to July 10, 2002. This
issuance of the Company's securities was made in reliance on Section 4(2) of the
Act.
In connection with the acquisition of the Mr. Thomas A. Price's interest in
the Price Dealerships by the Company on July 11, 1997, the Company issued
3,991,600 shares of its Class A Common Stock to the Price Trust u/d/t 10/5/88 in
exchange for shares of common stock of the corporations comprising the Price
Dealerships. This issuance of the Company's securities was made in reliance on
Section 4(2) of the Act.
In connection with the acquisition of Mr. Donald V. Strough's interest in a
Honda dealership located in Concord, California ("Concord Honda") by the Company
on October 15, 1997, the Company issued 1,330,000 shares of its Class A Common
Stock to the Strough Revocable Trust. This issuance was pursuant to an
agreement with the Company to issue such shares dated July 11, 1997 and based on
a valuation of Company's Class A Common Stock on such date. This issuance of
the Company's securities was made in reliance on Section 4(2) of the Act.
In connection with the acquisition of Mr. T. Al Babbington's interest in
the Price Dealerships by the Company on July 11, 1997, the Company issued
626,000 shares of its Class A Common Stock to Mr. Babbington in exchange for
shares of common stock of the corporations comprising the Price Dealerships.
This issuance of the Company's securities was made in reliance on Section 4(2)
of the Act, which exempts from the registration requirements of Section 5 of the
Act those transactions not involving a public offering.
In connection with the acquisition of Mr. Fred Cziska's interest in the
Price Dealerships by the Company on July 11, 1997, the Company issued 704,400
shares of its Class A Common Stock to Mr. Cziska in exchange for shares of
common stock of the corporations comprising the Price Dealerships. This
issuance of the Company's securities was made in reliance on Section 4(2) of the
Act.
In connection with the acquisition of Mr. John Driebe's interest in the
Price Dealerships by the Company on July 11, 1997, the Company issued 204,000
shares of its Class A Common Stock to Mr. Driebe in exchange for shares of
common stock of the corporations comprising the Price Dealerships. This issuance
of the Company's securities was made in reliance on Section 4(2) of the Act.
In connection with the acquisition of Valley Auto Center by the Company on
July 11, 1997, the Company issued 290,000 shares of its Class A Common Stock to
Asian Pacific Industries, a Washington corporation. This issuance of the
Company's securities was made in reliance on Section 4(2) of the Act.
On September 26, 1997, the Company issued warrants to purchase up to 20,000
shares of its Class A Common Stock to Capman, Inc. as partial consideration for
certain assets acquired by the Company. The exercise price of such warrants is
$0.92 per share. These warrants are exercisable at any time prior to September
26, 2002. This issuance of the Company's securities was made in reliance on
Section 4(2) of the Act.
In connection with the Company's lending arrangements, on July 11, 1997,
the Company issued $24,000,000 in notes, 3,032,000 shares of its Class B Common
Stock for an aggregate consideration of $2,789,440,
17
<PAGE>
a total of 3,500 shares of its 8% Cumulative Redeemable Preferred Stock due 2005
for an aggregate consideration of $3,500,000, and 500 shares of its Redeemable
Preferred Stock for an aggregate consideration of $500,000 to three affiliates
of the Trust Company of the West. These issuances of the Company's securities
were made in reliance on Section 4(2) of the Act. The Company's Preferred Stock
is not convertible into any other form of equity security. Each share of the
Class B Common Stock of the Company is convertible into one share of the Class A
Common Stock of the Company at either (i) the holder's option, or (ii)
automatically upon the closing of an initial public offering of any class of the
Company's common stock resulting in gross proceeds to the Company of $50,000,000
and a listing of that class on a nationally recognized stock exchange, including
Nasdaq.
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Financial Data should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and other financial information included elsewhere in this Form 10-
K. The following Selected Financial Data represents the historical financial
information of the Price Dealerships prior and subsequent to the Combination on
July 11, 1997, and the financial information of all other dealerships acquired
by the Company in 1997 from the date of acquisition through December 31, 1997.
Amounts are in thousands, except per share data.
Selected financial data for each of the five years ended December 31, 1997, is
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Twelve months ended December 31,
1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 474,048 $ 332,522 $ 248,185 $ 222,381 $ 183,684
Combination and related expenses(1) 2,268 - - - -
Operating income 5,072 3,919 4,475 614 (87)
Net income 64 1,693 1,391 1,709 540
Pro forma net income(2) - 1,027 836 1,025 324
Net loss per share(3),(4)
-basic and diluted (0.01) - - - -
Pro forma net income per share(4)
-basic and diluted - 0.19 0.15 0.19 0.06
Total assets 124,002 56,127 54,423 46,403 40,116
Long-term debt 21,938 - 112 686 1,136
Preferred stock 3,439 - - - -
Stockholders' equity (5) $ 6,563 $ 4,880 $ 6,644 $ 6,573 $ 6,806
</TABLE>
(1) The Company incurred $2.3 million in certain legal, accounting, consulting
and compensation expenses associated with the Combination and development
of its organization and business plan.
(2) The Company was an S Corporation until January 1, 1997, and accordingly was
not subject to federal income taxes prior to January 1, 1997. 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.
(3) For 1997, net loss per share is calculated by reducing net income of
$64,000 by cumulative redeemable preference dividends of $128,000,
redeemable preferred stock liquidation preference accretion of $40,000, and
preferred stock discount amortization of $45,000. This net loss available
to common stockholders of $149,000 is then divided by the weighted average
shares outstanding. Diluted earnings per shares does not include dilutive
securities, such as options and warrants as their inclusion would be anti-
dilutive.
(4) Prior to 1997, net income per share is presented on a pro forma basis using
the 5,526,000 shares issued to the Price Dealerships stockholders in the
Combination.
18
<PAGE>
(5) Stockholders' equity is presented net of advances to stockholders during
the years 1993-1996, accordingly, the change in stockholders' equity is
reflected net of stockholder's advances.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth selected condensed financial data for the Company
expressed as a percentage of total sales for the periods indicated below.
<TABLE>
<CAPTION>
Year-Ended December 31,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New vehicles 61.2% 60.2% 59.3%
Used vehicles 23.5% 24.6% 24.6%
Service, parts and other 15.3% 15.2% 16.1%
Total sales 100.0% 100.0% 100.0%
Gross profit 14.1% 12.9% 14.1%
Income before income taxes 0.1% 0.5% 0.6%
</TABLE>
Effective July 11, 1997, FirstAmerica Automotive, Inc., a public company with no
significant assets or operations, combined (the "Combination") with a group of
six automobile dealership entities under common ownership and control (the
"Price Dealerships"). The stockholders of the Price Dealerships received
5,526,000 shares of FirstAmerica Automotive, Inc.'s common stock, which
represented a majority of the total outstanding shares of capital stock of
FirstAmerica Automotive, Inc. immediately following the Combination which shares
represent a controlling interest in the Company. During 1997, the Company
acquired a dealership from Donald V. Strough, the Company's Chairman, and an
additional seven dealerships from unrelated third parties. The Combination was
accounted for as the acquisition of FirstAmerica Automotive, Inc. by the Price
Dealerships, and accordingly, the financial information for periods before the
Combination represent financial information of the Price Dealerships. The
Company has accounted for all of its dealership acquisitions using the purchase
method of accounting, and, as a result, does not include in its financial
statements the results of operations of those dealerships prior to the date of
acquisition. FirstAmerica Automotive, Inc. and the Price Dealerships are
collectively referred to as "FirstAmerica" or the "Company".
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Sales. Sales for the Company increased $141.5 million, or 42.6% to $474.0
million for the year ended December 31, 1997 from $332.5 million in 1996. The
Company acquired eight dealerships in 1997, which for the periods following
their acquisition accounted for $133.2 million or 40.9% of the increase in 1997
revenues. Sales increased at the Company's dealerships owned throughout 1997
and 1996 by 1.7%, due primarily to increases in new vehicle revenues.
New Vehicles. The Company sells eleven domestic and imported brands
ranging from economy to luxury vehicles, as well as sport utility vehicles,
minivans and light trucks. In 1997 and 1996, the Company sold 13,835 and
9,450 new vehicles, respectively, generating revenues of $290.3 million and
$200.2 million, which constituted 61.2% and 60.2% of the Company's total
sales, respectively. The increase in revenues and units is due primarily
to the dealerships acquired in 1997. The Company purchases substantially
all of its new vehicle inventory directly from manufacturers that allocate
new vehicles to dealerships based on the amounts sold by the dealership and
by the dealership's market area. The Company will also exchange vehicles
with other dealers to accommodate customer demand and to balance inventory.
Average unit prices decreased 1.0% from $21,185 to $20,982 per vehicle due
to the lower prices in the product mix of dealerships acquired in 1997.
Used Vehicles. The Company sells a variety of makes and models of used
vehicles and light trucks of varying model years and prices. In 1997 and
1996, the Company sold 9,462 and 7,415 retail and wholesale used vehicles,
respectively, generating revenues of $111.6 million and $81.7 million,
which
20
<PAGE>
constituted 23.5% and 24.6% of the Company's total revenue, respectively.
Average unit prices increased 7.1% from $11,019 to $11,796 per vehicle,
primarily due to the Company's ability to better distribute its used
vehicle inventories among dealerships with the introduction of AFI.
Service, parts and other revenues. Service, parts and other revenues
includes revenue from the sale of parts, accessories, maintenance and
repair services, and from fees earned on the sale of vehicle financing
notes and warranty service contracts. Finance fees are received for notes
sold to finance companies for customer vehicle financing. Warranty service
contract fees are earned on extended warranty service contracts that are
sold on behalf of insurance companies. Service, parts and other revenue
increased 42.5% in 1997 from $50.6 million in 1996 to $72.2 million, due to
a 7.1% increase in financing fees and a 35.4% increase in service
department maintenance and repairs, largely attributable to the dealerships
acquired. To a limited extent, revenues from the sale of parts,
maintenance and repair are counter-cyclical to new vehicle sales because
owners repair existing vehicles rather than buy new vehicles. The Company
believes this helps mitigate the effects of any downturns in the new
vehicle sales cycle.
GROSS PROFIT. The Company's overall gross profit margins increased from 12.9%
in 1996 to 14.1% in 1997, primarily due to increases in margins on sales, parts
and other, and to a lesser extent, increases in the used vehicle profit margins.
Gross profit increased 56.3% during 1997 and totaled $67.0 million, compared
with $42.9 million for 1996, because of the increase in new and used vehicle
unit sales as well as service, parts and other operating revenues contributed
from the dealerships acquired in 1997. The gross profit margin on new vehicle
sales during 1997 and 1996 was relatively consistent at 6.2% and 6.1%
respectively. The gross profit margin on used vehicle sales was 8.0% in 1997
and 6.8% in 1996. This increase is primarily due to the Company's emphasis on
improving the used vehicle reconditioning process and implementation of best
practices. Gross profit margins on service, parts and other operating revenue
increased from 49.7% of revenues in 1996 to 55.4% in 1997, primarily due to
higher profitability in service, parts and maintenance activities due to
increased emphasis on its service operations and profitability.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. The Company's selling, general and
administrative expense increased $20.7 million, or 53.1%, to $59.6 million for
1997 compared to $38.9 million for 1996. Selling, general and administrative
expense as a percentage of sales increased to 12.6% for 1997 from 11.7% for
1996. The increase was due primarily to an increase in compensation for
additional personnel and management required as a result of dealership
acquisitions and the activities associated with building a management structure
for executing the Company's acquisition strategies.
COMBINATION AND RELATED EXPENSES. The Company incurred $2.3 million in certain
legal, accounting, consulting and compensation expenses associated with the
Combination and the development of the Company's organization and business plan.
INTEREST EXPENSE. Floor plan interest expense increased $0.7 million or 25.6%
to $3.7 million for the year ended December 31, 1997 compared to $2.9 million
for 1996 primarily as a result of increased floor plan debt in 1997 from the
acquired dealerships. Interest expense other than floor plan increased due to
debt incurred for the combination and acquisition of additional dealerships
during 1997.
INCOME TAX EXPENSE. Income tax expense increased to $0.4 million in 1997 from
$48,000 in 1996 due to the Company's change in status from an S Corporation to a
C Corporation on January 1, 1997. The Company's effective tax rate for 1997 was
87.5% compared to 2.8% for 1996 due to certain non-deductible stock compensation
expenses incurred in 1997 and the Company's change in tax status from 1996. On
January 1, 1997, the Company's change in tax status resulted in the recognition
of $1.6 million in net deferred tax assets, which was offset by a $1.4 million
tax liability resulting from a LIFO inventory change recapture. In addition,
the Company incurred $0.3 million in nondeductible stock issuance expenses
associated with the Combination. The Company's effective tax rate in the future
may be affected by certain nondeductible expenses incurred as a result of the
acquisitions of additional dealerships.
21
<PAGE>
NET INCOME. Net income decreased from $1.7 million in 1996 to $64,000 in 1997,
primarily due to one-time Combination and related expenses discussed above.
1996 COMPARED TO 1995
The following discussion relates only to the results of operations of the Price
Dealerships and therefore is not directly comparable to the Company's results of
operations for the year ended December 31, 1997 which include the results of
operations of eight additional dealerships acquired by the Company in 1997 from
the date of their acquisition.
Sales. Sales increased $84.3 million, or 34.0% from $248.2 million for 1995, to
$332.5 million for the year ended December 31, 1996. The increase in sales was
primarily due to the acquisition of an additional dealership in the fourth
quarter of 1995, which resulted in increased vehicles sales, and service, parts
and other revenues.
New Vehicles. In 1996 and 1995, the Company sold 9,450 and 7,116 new
vehicles, respectively, generating revenues of $200.2 million and $147.1
million, which constituted 60.2% and 59.3%, respectively, of the Company's
total revenues. The average new vehicle unit price increased 2.5% from
$20,672 in 1995 to $21,184 in 1996 due to manufacturers' price increases.
Used Vehicles. In 1996 and 1995, the Company sold 7,415 and 6,460 used
vehicles, respectively, generating revenues of $81.7 million and $61.0
million, constituting 24.6% and 24.6%, respectively, of the Company's total
revenues. Average unit prices increased 16.8% from $9,438 to $11,019 per
vehicle due to increased sales of used luxury vehicles.
Service, parts and other. Service, parts and other revenue includes
revenue from the sale of parts, accessories, maintenance, and repair
services, and from fees earned on the sale of vehicle financing notes and
warranty service contracts. Revenues increased $10.5 million or 26.2%,
from $40.1 million in 1995 to $50.6 million in 1996, primarily due to
increased parts and service revenues.
GROSS PROFIT. Gross profit margins overall decreased from 14.1% to 12.9% of
sales, primarily due to an increased percentage of new vehicle sales which have
lower profit margins than used vehicles, service, parts and other. Gross profit
increased $7.9 million or 22.8% during 1996 to $42.9 million, compared with
$34.9 million for 1995, primarily due to the additional dealership acquired in
the fourth quarter of 1995. The gross profit margin on new vehicle sales during
1996 and 1995 was 6.1% and 6.8%, respectively. The decrease is primarily due to
changes in manufacturer incentive programs in 1996, as well as a Company effort
to increase new vehicle sales volume. The Company's gross profit margin on used
vehicle sales was 6.8% in 1996 and 6.5% in 1995, and margins on service, parts
and other revenue decreased from 52.4% in 1995 to 49.7% in 1996, due to a
decrease in parts and service margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased $8.5 million, or 27.9%, to $38.9 million for
1996 compared to $30.4 million for 1995, primarily due to a dealership acquired
in late 1995. Selling, general and administrative expense as a percentage of
sales decreased to 11.7% for 1996 from 12.3% for 1995, primarily due to
streamlining of operations and increased synergies between the operating
subsidiaries.
INTEREST EXPENSE. Floor plan interest expense decreased $0.2 million, or 6.5%
from $3.1 million to $2.9 million due to lower inventory levels and lower
average interest rates.
OTHER INCOME, NET. Other income, net, increased $0.6 million from $0.1 million
in 1995 to $0.7 million in 1996, primarily due to the sale of assets, as well as
other non-dealer services income.
INCOME TAX EXPENSE. Income tax expense increased from $26,000 to $48,000 from
1995 to 1996, for increases in minimum state income taxes. For 1996 and 1995,
the Company elected S corporation status and as a result the
22
<PAGE>
Company was not subject to federal income taxes. Income tax expense, presented
on a pro forma basis had the Company been a Corporation, would have been $0.7
million and $0.6 million, for 1996 and 1995, respectively.
NET INCOME. Net income was $1.7 million (0.5% of sales) for the year ended
December 31, 1996, compared to $1.4 million (0.6% of sales), for 1995, as a
result of the individual items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and liquidity requirements are primarily for acquiring new
dealerships, working capital, and expanding existing facilities. Historically,
the Company has relied primarily upon cash flows from operations, floor plan,
financing, and other borrowings under its credit facility to finance its
operations, and the proceeds from its private debt placements with finance
companies to finance its expansion. At December 31, 1997, the Company had
working capital of $15.8 million including $2.9 million in cash.
During 1997, operating activities resulted in net cash used in operations of
$7.6 million compared to $4.4 million provided by operations in 1996, a net use
of $24.8 million, primarily due to increases in inventories and receivables
resulting primarily from dealerships acquired during 1997. This increase was
largely offset by a $7.7 million increase in flooring notes payable and a $9.7
million increase in accounts payable and accrued liabilities.
In 1997, the net cash used in investing activities totaled $12.8 million, which
consisted of $11.7 million used for acquisitions and $1.1 million for expansion
and improvement of existing facilities. This compared to $0.8 million used in
1996 for expansion and improvement of facilities.
Net cash provided by financing activities totaled $22.7 million, which consisted
of $21.9 million resulting from the issuance of senior notes, $4.0 million
borrowed on secured lines of credit and $6.1 million from the issuance of common
and preferred stock. Proceeds were used to distribute $4.0 million to the
stockholders of the Price Dealerships as part of the Combination, repay $1.6
million in notes payable and $3.6 million in certain investment banking and loan
origination costs associated with the private placement of senior notes and
preferred stock discussed below.
Flooring Notes Payable and Secured Lines of Credit
At the time of the Combination, the Company entered into a three year $175
million Loan and Security Agreement (the "Loan Agreement") with a financial
company, replacing the Company's existing $37 million line of credit.
The Loan Agreement permits the Company to borrow up to $115 million in flooring
notes payable, restricted by new and certain used vehicle inventory and provides
an additional line of credit up to $35 million ("Revolver Advances"), restricted
by used vehicle and parts inventory. The Loan Agreement also provides a
discretionary line up to $25 million ("Discretionary Advances"), under which the
financial company will make advances in its absolute discretion upon request of
the Company.
As of December 31, 1997, the Company had flooring notes payable, Revolver
Advances, and Discretionary Advances outstanding of $66.5 million, $4.0 million,
and $0, respectively.
Flooring notes payable are due when vehicles are sold, leased, or delivered.
Revolver Advances are due whenever the borrowing base as defined in the Loan
Agreement is exceeded and are included in secured lines of credit in the
accompanying financial statements. The Loan Agreement grants a collateral
interest in substantially all of the Company's assets.
Interest rates on the flooring notes and the Revolver Advances are variable and
change based on movements in the prime rate. The interest rates equal the prime
rate minus 75 to 35 basis points; 7.75% to 8.15% at December 31, 1997,
respectively. During 1997, the average monthly borrowing on the flooring notes
and Revolver Advances was $44.0 million and $0.3 million, respectively, and the
aggregate average interest rate was 7.75%.
23
<PAGE>
The Loan Agreement contains various financial covenants such as minimum interest
coverage, working capital, and maximum debt to equity ratios.
Senior Notes
At the time of the Combination, the Company entered into a Securities Purchase
Agreement (the "Agreement") with a financial company to provide an aggregate
funding commitment of up to $40 million. In exchange for the $40 million, the
Company may issue on a pro-rata basis up to $36 million of 12.375% Senior Notes
(Notes), $3.5 million 8% Cumulative Redeemable Preferred Stock (CRPS), and $0.5
million Redeemable Preferred Stock (RPS), and up to 5 million shares of the
Company's Class B Common Stock, par value $0.00001 per share.
At the time of the Combination, the Company received $28 million from the
financial company. In exchange, the Company issued Notes with a principal
amount of $24 million at a discount of $2.2 million, 3.5 million shares of CRPS
at a discount of $0.6 million, 0.5 million shares of RPS at a discount of $0.1
million and 3 million shares of Class B Common Stock at $0.92 per share. The
Notes, CRPS and RPS are due June 30, 2005.
For financial reporting purposes, the difference between the issue price and the
face value of each security is recorded as a discount and is amortized over the
life of each security using the effective interest method. The Notes discount
amortization is included in interest expense and the CRPS and RPS discount
amortization is recorded as a deduction from retained earnings.
The Notes are unsecured and subordinated to all debts of the operating
subsidiaries, rank pari passu to the Company's other existing and future senior
indebtedness, and are senior in right of payment to any future subordinated debt
of the Company. The CRPS and RPS shares are subordinate to all the debt of the
Company and its subsidiaries and have priority over the common stock of the
Company. The Company can redeem all the Notes or any part thereof, at any time,
upon due notice to the holders of the Notes. The redemption price for the
period beginning July 1, 1997 to June 30, 1998 is 110% of the principal balance
and decreases by 1.25% for each year beginning July 1, thereafter. If the
aggregate outstanding principal balance, at any time, is less than $2 million,
the Company is required to redeem all outstanding Notes.
On July 1, 2003 and July 1, 2004, the Company must redeem Notes in the aggregate
principal amount equal to the lesser of (a) 30% of the aggregate principal
amount of Notes issued and (b) the aggregate amount of issued and outstanding
Notes on such date, at the applicable redemption price plus all accrued and
unpaid interest on the Notes to the redemption date. On June 30, 2005, the
Company must redeem all remaining issued and outstanding Notes, paying all
outstanding principal and accrued and unpaid interest.
If the Company has a public offering of its stock, the Company may within 45
days of the consummation thereof, redeem all the outstanding Notes. In such
circumstances, the redemption price for the period beginning July 1, 1997 to
June 30, 1998 is 105% of the principal balance and decreases by 0.75% for each
year beginning July 1, thereafter.
The Agreement contains various financial covenants such as minimum interest
coverage, and non-financial covenants including limitations on the Company's
ability to pay dividends, retire or acquire debt, make capital expenditures, and
sell assets.
The Company incurred $1.5 million in interest expense related to the Notes
during 1997, including $88,000 for the non-cash amortization of discount.
The Company's principal source of growth has been from acquisitions and this is
expected to continue. The Company believes that its existing capital resources
will be sufficient to fund its current acquisition commitments. In 1998, the
Company completed the acquisition of one dealership for $11.9 million, and
currently has two automobile dealership acquisitions pending for an aggregated
estimated purchase price of $7.0 million. To the extent the Company pursues
additional significant acquisitions, it will need to raise additional capital
through the public or private issuance of equity or debt securities or through
additional borrowings from financial institutions.
24
<PAGE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, the Company's sales have been lower in the first and fourth
quarters of each year largely due to consumer purchasing patterns during the
holiday season, inclement weather and the reduced number of business days during
the holiday season. As a result, financial performance for the Company is
generally lower during the first and fourth quarters than during the other
quarters of each fiscal year. However, this did not hold true for the fourth
quarters of 1997 and 1996. 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 also cause substantial fluctuations of
operating results from quarter to quarter.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income." This
statement establishes standards of reporting and presentation of comprehensive
income and its components in a full set of general-purpose financial statements.
This statement will be effective for the fiscal years ending after December 15,
1998, and the Company does not intend to adopt this statement prior to the
effective date.
In June 1997, the Financial Accounting Standards Board also issued Statement of
Financial Accounting Standard No. 131 "Disclosures about Segments of an
Enterprise and Related Information." This statement provides revised disclosure
guidelines for segments of an enterprise based on management's approach to
defining operating segments. This statement is effective for fiscal years
ending after December 15, 1998. The management of the Company believes that it
currently operates in only one industry segment and analyzes operations on a
Company-wide basis, therefore the statement is not expected to impact the
Company.
INFLATION
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on the Company's revenues or
profitability. In the past, the Company has been able to maintain its profit
margins during inflationary periods.
YEAR 2000 CONVERSION
The Company has assessed the ability of its software and other computer systems
to properly utilize dates beyond December 31, 1999 (the "Year 2000 Conversion").
Management believes that the costs of the modifications and conversions required
will not be material.
Although management believes it will not have material Year 2000 Conversion
issues, its future operations are dependent upon the ability of its vendors and
suppliers to successfully address the Year 2000 Conversion issues. There can be
no assurance that the computer systems of other companies upon which the
Company's own computer system relies or upon which its business is dependent,
will be timely converted, or that failure of another company to convert will not
adversely affect the Company.
25
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
DEPENDENCE ON AUTOMOBILE MANUFACTURERS
- --------------------------------------
Each of the Company's dealerships operates pursuant to a Dealer Agreement
between the applicable Manufacturer and the subsidiary of the Company that
operates such dealership. The Company is dependent to a significant extent on
its relationship with such Manufacturers.
Nissan, Toyota, Chrysler and Honda accounted for approximately 38.2%,
17.2%, 15.3%, and 10.8%, respectively of the Company's 1997 pro forma new
vehicle revenues. No other Manufacturer accounted for more than 10% of the new
vehicle revenues of the Company during 1997. See "Business -- New Vehicle
Sales," and " - Relationships with Manufacturers." Accordingly, a significant
decline in the popularity of Nissan, Toyota, Honda, and Chrysler new vehicles
could have a material adverse effect on the Company. Manufacturers exercise a
great degree of control over the operations of the Company's dealerships. Each
of the Dealer Agreements provides for termination or non-renewal for a variety
of causes, including any unapproved change of ownership or management and other
material breaches of the Dealer Agreement. The Company believes that it is in
compliance in all material respects with all its Dealer Agreements. The Company
has no reason to believe that it will not be able to renew all of its Dealer
Agreements upon expiration particularly given the applicable law which
substantially restricts the ability of a Manufacturer to decline to renew a
Dealer Agreement, but there can be no absolute assurance that such Dealer
Agreements will be renewed or that the terms and conditions of such renewals
will be favorable to the Company. In the unlikely event that a Manufacturer
declines to renew one or more of the Company's significant Dealer Agreements,
such action could have a material adverse effect on the Company and its
business. Actions taken by Manufacturers to exploit their superior bargaining
position in negotiating the terms of such renewals or otherwise could also have
a material adverse effect on the Company. See "Business -- Relationships with
Manufacturers."
The Company also depends on the Manufacturers to provide it with a
desirable mix of popular new vehicles that produce the highest profit margins
and which may be the most difficult to obtain from the Manufacturers. If the
Company is unable to obtain a sufficient allocation of the most popular
vehicles, its profitability may be materially adversely affected. In some
instances, in order to obtain additional allocations of these vehicles, the
Company purchases a larger number of less desirable models than it would
otherwise purchase and its profitability may be materially adversely affected
thereby. The Company's dealerships depend on the Manufacturers for certain
sales incentives and other programs that are intended to promote dealership
sales or support dealership profitability. Manufacturers have historically made
many changes to their incentive programs during each year. A reduction or
discontinuation of a Manufacturer's incentive programs may materially adversely
affect the results of operations of the Company.
The success of each of the Company's dealerships depends to a great extent
on the financial condition, marketing, vehicle design, production capabilities
and management of the Manufacturers which the Company represents. Events such
as strikes and other labor actions by unions, or negative publicity concerning a
particular Manufacturer or vehicle model, may materially and adversely affect
the Company. Similarly, the delivery of vehicles from Manufacturers later than
scheduled, which may occur particularly during periods when new products are
being introduced, can lead to reduced sales. Although, the Company has
attempted to lessen its dependence on any one Manufacturer by establishing
dealer relationships with a number of different domestic and foreign automobile
Manufacturers, adverse conditions affecting Nissan, Toyota, Honda, and Chrysler
in particular, could have a material adverse affect on the Company. In the
event that the Company is unable to obtain a satisfactory number or mix of
vehicle types from a Manufacturer, the Company may need to purchase inventory
from other automobile dealers at prices higher than it would be required to pay
to the Manufacturers in order to carry an adequate level and mix of inventory.
Consequently, such events could materially adversely affect the financial
results of the Company. See "Business -- New Vehicle Sales" and " --
Relationship with Manufacturers."
26
<PAGE>
Many Manufacturers attempt to measure customers' satisfaction with their
sales and warranty service experiences through systems which vary from
Manufacturer to Manufacturer but which are generally known as "CSI". These
Manufacturers may use a dealership's CSI scores as a factor in evaluating
applications for additional dealership acquisitions and other matters such as
vehicle inventory allocations. The components of CSI have been modified from
time to time in the past, and there is no assurance that such components will
not be further modified or replaced by different systems in the future. To
date, the Company has not been adversely affected by these standards and has not
been denied approval of any acquisition based on low CSI scores. However, there
can be no assurance that the Company will be able to comply with such standards
in the future. Failure of the Company's dealerships to comply with the
standards imposed by Manufacturers at any given time may have a material adverse
effect on the Company.
The Company must also obtain approvals by the applicable Manufacturer for
any of its acquisitions. See " -- Risks Associated with Acquisitions."
COMPETITION
- -----------
Automobile retailing is a highly competitive business with over 22,000
Manufacturer authorized automobile dealerships existing in the United States at
the beginning of 1997. The Company's competition includes authorized automobile
dealerships selling the same or similar makes of new and used vehicles offered
by the Company in the same markets as the Company and sometimes at lower prices
than those of the Company. These dealer competitors may be larger and have
greater financial and marketing resources than the Company. Other competitors
include other dealers, private market buyers and sellers of used vehicles, used
vehicle dealers, service center chains and independent service and repair shops.
Gross profit margins on sales of new vehicles have been declining for some time.
The Company could experience margin pressure on its used vehicle sales. The
used vehicle market faces increasing competition from non-traditional outlets
such as used-car "superstores," which use sales techniques such as one price
selling, and sales via the Internet. Several groups have begun to establish
nationwide networks of used vehicle superstores. In addition, certain
Manufacturers, such as Ford, have publicly announced that they may directly
enter the retail market in the future, which could have a material adverse
effect on the Company. The increased popularity of short-term vehicle leasing
also has resulted, as these leases expire, in a large increase in the number of
late model vehicles available in the market, which puts added pressure on
margins for new vehicle sales. As the Company seeks to acquire dealerships in
new markets and thus gain market share, it may face increasingly significant
competition including from other large dealer groups including dealer groups
that have publicly-traded equity.
The Company's Dealer Agreements do not give the Company the exclusive right
to sell a Manufacturer's product within a given geographic area. The Company
could be materially adversely affected if any of its Manufacturers award
dealerships to others in the same markets where the Company is operating,
although applicable law significantly limits the ability of a Manufacturer to
establish another dealership within close proximity to an existing dealer. A
similar adverse affect could occur if existing competing dealers increase their
market share in the Company's market area. Further, the Company's gross margins
may decline over time as it expands into markets where it does not have a
leading position. These and other competitive pressures could materially
adversely affect the Company's results of operations. See "Business --
Competition."
OPERATING CONDITION OF ACQUIRED BUSINESSES
- ------------------------------------------
Although the Company believes that as a matter of course it conducts a
prudent level of investigation regarding the operating condition of the
dealerships to be purchased in light of the circumstances of each transaction,
certain unavoidable levels of risk remain regarding the actual operating
condition of the dealerships being acquired. Until the Company actually assumes
operating control of any acquired assets, it may not be able to ascertain their
actual value and, therefore, may be unable to ascertain whether the price paid
for such assets represents a fair valuation.
27
<PAGE>
RISKS OF CONSOLIDATING OPERATIONS AS A RESULT OF THE ACQUISITIONS
- -----------------------------------------------------------------
Each dealership or group to be acquired by the Company will have been
operated and managed as a separate independent entity prior to its acquisition,
and the Company's future operating results will depend on its ability to
integrate the operations of these businesses and manage the combined enterprise.
There can be no assurance that the management group of the Company will be able
to effectively and profitably integrate in a timely manner each of its
dealership acquisitions, or to manage the combined entity without substantial
costs, delays or other operational or financial problems. The inability of the
Company to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS
- ----------------------------------
The retail automobile industry is considered a mature industry in which
minimal growth is expected in unit sales of new vehicles. Accordingly, the
Company's future growth will depend in large part on its ability to acquire
additional dealerships as well as on its ability to manage expansion, control
costs in its operations and consolidate dealership acquisitions into existing
operations. In pursuing a strategy of acquiring other dealerships, the Company
faces risks commonly encountered with growth through acquisitions. These risks
include, but are not limited to, incurring significantly higher capital
expenditures and operating expenses, failing to assimilate the operations and
personnel of the acquired dealerships, disrupting the Company's ongoing
business, dissipating the Company's limited management resources, failing to
maintain uniform standards, controls and policies, impairing relationships with
employees and customers as a result of changes in management and causing
increased expenses for accounting and computer systems, as well as integration
difficulties. The Company expects that it will take approximately one year to
fully integrate an acquired dealership into the Company's operations and realize
the full benefit of the Company's operating strategies and systems. There can
be no assurance that the Company will be successful in overcoming these risks or
any other problems encountered with such acquisitions. Acquisitions may also
result in significant goodwill and other intangible assets that are amortized in
future years and reduce future stated earnings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business --
Growth Strategy."
Although there are many potential acquisition candidates that fit the
Company's acquisition criteria, there can be no assurance that the Company will
be able to consummate any such transactions in the future or identify those
candidates that would result in the most successful combinations, or that future
acquisitions will be able to be consummated at acceptable prices and terms. In
addition, increased competition for acquisition candidates could result in fewer
acquisition opportunities for the Company and higher acquisition prices. The
magnitude, timing and nature of future acquisitions will depend upon various
factors, including the availability of suitable acquisition candidates,
competition with other dealer groups for suitable acquisitions, the negotiation
of acceptable terms, the Company's financial capabilities, the availability of
skilled employees to manage the acquired companies and general economic and
business conditions.
In addition, the Company's future growth as a result of its acquisition of
automobile dealerships will depend on its ability to obtain the requisite
Manufacturer approvals. There can be no assurance that it will be able to
obtain such consents in the future. See " -- Manufacturers' Restrictions on
Acquisitions" and "Business -- Relationships with Manufacturers."
In certain cases, the Company may be required to file applications and
obtain clearances under applicable federal antitrust laws before consummation of
an acquisition. These regulatory requirements may restrict or delay the
Company's acquisitions, and may increase the cost of completing such
transactions.
LIMITATIONS ON FINANCIAL RESOURCES AVAILABLE FOR ACQUISITIONS; POSSIBLE
- -----------------------------------------------------------------------
INABILITY TO REFINANCE EXISTING DEBT
- ------------------------------------
The Company intends to finance acquisitions with cash on hand, through
issuances of equity or debt securities and through borrowings under existing
credit arrangements. The Company anticipates the borrowing limit under its
long-term credit arrangements will be increased, although no assurance can be
given that any such increase will occur or that such increase will adequately
meet the Company's future financing needs. Similarly,
28
<PAGE>
there is no assurance that the Company will be able to obtain additional debt or
equity securities financing. Using cash to complete acquisitions could
substantially limit the Company's operating or financial flexibility. Using
stock to consummate acquisitions may result in significant dilution of
stockholders' percentage interest in the Company, which dilution may be
prohibited by the Company's Dealer Agreements with Manufacturers. See " -- Stock
Ownership/Issuance Limits." If the Company is unable to obtain financing on
acceptable terms, the Company may be required to reduce significantly the scope
of its presently anticipated expansion, which could materially adversely affect
the Company's business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources" and
"Business -- Growth Strategy."
In addition, the Company is dependent to a significant extent on its
ability to finance the purchase of inventory, which in the automotive retail
industry involves significant sums of money in the form of floor plan financing.
As of December 31, 1997, the Company had approximately $92.5 million of
indebtedness, which included $66.5 million of floor plan financing.
Substantially all the assets of the Company's dealerships are pledged to secure
such indebtedness, which may impede the Company's ability to borrow from other
sources. In addition, the Company must obtain new floor plan financing or
obtain consents to assume such financing in connection with its acquisition of
dealerships.
STOCK OWNERSHIP/ISSUANCE LIMITS; LIMITATION ON ABILITY TO ISSUE ADDITIONAL
- --------------------------------------------------------------------------
EQUITY
- ------
Standard automobile Dealer Agreements prohibit transfers of any ownership
interests of a dealership and its parent, such as the Company, and, therefore,
often do not by their terms accommodate public trading of the capital stock of a
dealership or its parent. The Company has obtained the consent of all the
appropriate Manufacturers in connection with its dealerships and has obtained
such consent on the basis of the Company being an entity having publicly listed
securities. Notwithstanding the approval of the Company by its various
Manufacturers (including American Honda) as an entity having publicly listed
securities, the Honda Agreement provides that prior to any public offering by
the Company of its securities the consent of American Honda will be required.
Although, it is anticipated that such consent will be obtained so long as
certain designated existing shareholders of the Company retain more than fifty
percent of the aggregate voting rights, there can be no assurance that such
consent will be obtained. In addition, the financial institution which provides
floor plan financing to the Company and certain other financing requires that
certain existing shareholders maintain at least twenty percent of the
outstanding capital stock of the Company which limitation may in some instances
limit the ability of the Company to make its public offerings of the Company's
securities. See "Business -- Relationships with Manufacturers" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Moreover, these issuance
limitations may impede the Company's ability to raise capital through equity
offerings or to issue Common Stock as consideration for, and therefore, to
consummate, future acquisitions. Such restrictions also may prevent or deter
prospective acquirers from acquiring control of the Company and, therefore, may
adversely impact the Company's equity value. See " -- Limitations on Financial
Resources Available for Acquisitions; Possible Inability to Refinance Existing
Debt."
MANUFACTURERS' RESTRICTIONS ON ACQUISITIONS
- -------------------------------------------
The Company is required to obtain the consent of the applicable
Manufacturer prior to the acquisition of any additional dealership. There can
be no assurance that Manufacturers will grant such approvals. Obtaining the
consent of the Manufacturers for acquisitions of dealerships could also take a
significant amount of time. Although no assurances can be given, the Company
believes that Manufacturer approvals of subsequent acquisitions from
Manufacturers with which the Company has previously completed applications and
agreements may take less time. The Company has received the approval of all of
the applicable Manufacturers in connection with its current dealerships. If the
Company experiences delays in obtaining, or fails to obtain, approvals of the
Manufacturers for acquisitions of dealerships, the Company's growth strategy
could be materially adversely affected. In determining whether to approve an
acquisition, the Manufacturers may consider many factors, including the moral
character, business experience, financial condition, ownership structure and CSI
scores of the Company and its management. Specifically the Manufacturer must
approve (i) the experience and past performance of the proposed general manager,
(ii) the proposed location as to size, condition and geographic location, (iii)
the financial structure of the dealership and the Company and (iv) the CSI
scores and sales
29
<PAGE>
penetration of the Company. In addition, under an applicable Dealership
Agreement or under state law a Manufacturer may have a right of first refusal to
acquire a dealership in the event the Company seeks to acquire a dealership.
In addition, a Manufacturer may limit the number of such Manufacturers'
dealerships that may be owned by the Company or the number that may be owned in
a particular geographic area. For example, Toyota Motor Sales limits the number
of Toyota dealerships which the Company may acquire to: (a) the greater of one
dealership or twenty percent of the Toyota dealer count in a "Metro" market
("Metro" markets are multiple Toyota dealership markets within certain
geographic areas as defined by Toyota); (b) the lesser of five dealerships or
five percent of the Toyota dealerships within a Toyota Region ("Toyota Region"
refers to regional geographic areas as designated by Toyota); and (c) seven
Toyota dealerships nationally. Toyota in addition limits the number of Lexus
dealerships which may be owned and operated by the Company and American Honda
limits the number of Honda and Acura dealerships which may be owned and operated
by the Company. See "Relationships with Manufacturers."
POTENTIAL CONFLICTS OF INTEREST
- -------------------------------
The Company has in the past and will likely in the future enter into
transactions with entities controlled by either Thomas Price, Donald Strough or
other affiliates of the Company. The Company believes that all of these
existing arrangements are favorable to the Company and were entered into on
terms that, taken as a whole, reflect arms'-length negotiations. Since no
independent appraisals evaluating these business transactions were obtained,
there can be no assurance that such transactions are on terms no less favorable
than could have been obtained from unaffiliated third parties. Potential
conflicts of interest could also arise in the future between the Company and
these affiliated parties in connection with the enforcement, amendment or
termination of these arrangements. See "Relationships and Related
Transactions." The Company anticipates renegotiating its leases with all
related parties at lease expiration at fair market rentals, which may be higher
than current rents. For further discussion of these related party leases, see
"Certain Relationships and Related Transactions -- Certain Dealership Leases."
LACK OF INDEPENDENT DIRECTORS
- -----------------------------
As of the date hereof, all of the members of the Company's Board of
Directors are employees and/or principal stockholders of the Company or
affiliates thereof. Although the Company intends to appoint at least two
independent directors, such directors will not constitute a majority of the
Board, and the Company's Board may not have a majority of independent directors
in the future. In the absence of a majority of independent directors, the
Company's executive officers, who also are principal stockholders and directors,
could establish policies and enter into transactions without independent review
and approval thereof, subject to certain restrictions required by Delaware law.
In addition, although the Company intends to establish audit and compensation
committees which will consist entirely of outside directors, until those
committees are established, audit and compensation policies could be approved
without independent review. These and other transactions could present the
potential for a conflict of interest between the Company and its stockholders
generally and the controlling officers, stockholders or directors.
DEPENDENCE ON KEY PERSONNEL AND LIMITED MANAGEMENT AND PERSONNEL RESOURCES
- --------------------------------------------------------------------------
The Company's success depends to a significant degree upon the continued
contributions of its management team (particularly its senior management) and
service and sales personnel. Additionally, Dealer Agreements require the prior
approval of the applicable Manufacturer before any change is made in a
dealership's general manager. The Company has entered into employment
agreements with members of its management team. In addition, as the Company
expands it may need to hire additional managers and may be dependent on the
senior management of any businesses acquired. The market for qualified
employees in the automotive retailing industry and in the region in which the
Company operates, particularly for general managers and sales and service
personnel, is highly competitive and may subject the Company to increased labor
costs. The loss of the services of key employees or the inability to attract
additional qualified managers could have a material adverse effect on the
30
<PAGE>
Company. In addition, the lack of qualified management or employees employed by
the Company's potential acquisition candidates may limit the Company's ability
to consummate future acquisitions. The Company maintains key man insurance on
Thomas Price, the Company's President and Chief Executive Officer. See
"Business -- Growth Strategy," and "Business -- Competition."
MATURE INDUSTRY; CYCLICAL AND LOCAL NATURE OF AUTOMOBILE SALES
- --------------------------------------------------------------
The United States automobile retailing industry generally is considered a
mature industry in which minimal growth is expected in unit sales of new
vehicles. As a consequence, growth in the Company's revenues and earnings are
likely to be significantly affected by the Company's success in acquiring and
integrating dealerships and the pace and size of such acquisitions. See " --
Risks Associated with Acquisitions" and "Business -- Growth Strategy."
The automobile industry is cyclical and historically has experienced
periodic downturns characterized by oversupply and weak demand. Many factors
affect the industry, including general economic conditions and consumer
confidence, the level of discretionary personal income, interest rates and
credit availability. For the year ended December 31, 1997, industry retail
sales were down from calendar 1996. There can be no assurance that the industry
will not experience periods of decline in vehicle sales, both new and used, in
the future. Any such decline may have a material adverse effect on the
Company's business.
Local economic, competitive and other conditions also affect the
performance of dealerships. All of the Company's dealerships are located in
California. While the Company intends to pursue acquisitions outside of this
market, the Company expects that the majority of its operations will continue to
be concentrated in this area for the foreseeable future. As a result, the
Company's results of operations will depend substantially on general economic
conditions and consumer spending habits in California, as well as various other
factors, such as tax rates and state and local regulations, specific to
California. There can be no assurance that the Company will be able to expand
geographically, or that any such expansion will adequately insulate it from the
adverse effects of local or regional economic conditions. See "Business --
Growth Strategy."
SEASONALITY
- -----------
The automobile retailing industry is subject to seasonal variations in
revenues with higher revenues occurring in the second and third quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
IMPORTED PRODUCT RESTRICTIONS AND FOREIGN TRADE RISKS
- -----------------------------------------------------
Certain vehicles sold by the Company, as well as certain major components
of vehicles sold by the Company, are manufactured outside the United States.
Accordingly, the Company is subject to the customary risks of importing
merchandise, including fluctuations in the value of currencies, import duties,
exchange controls, trade restrictions, work stoppages and general political and
economic conditions in foreign countries. The United States or the countries
from which the Company's products originate may, from time to time, adjust
existing or impose new quotas, tariffs, duties or other restrictions which could
affect the Company's operations and its ability to purchase imported vehicles
and/or parts.
ADVERSE EFFECT OF GOVERNMENTAL REGULATION; ENVIRONMENTAL REGULATION COMPLIANCE
- ------------------------------------------------------------------------------
COSTS
- -----
The Company is subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements, and consumer protection laws.
The violation of these laws and regulations can result in civil and criminal
penalties being levied against the Company or in a cease and desist order
against Company operations that are not in compliance. Future acquisitions by
the Company may also be subject to regulation, including antitrust reviews. The
Company believes that it complies in all material respects with all laws and
regulations applicable to its business, but future regulations may be more
stringent and require the Company to incur significant additional costs.
31
<PAGE>
The Company's facilities and operations are also subject to federal, state
and local laws and regulations relating to environmental protection and human
health and safety, including those governing wastewater discharges, air
emissions, the operation and removal of underground storage tanks, the use,
storage, treatment, transportation and disposal of solid and hazardous materials
and the remediation of contamination associated with such disposal. Certain of
these laws and regulations may impose joint and several liability on certain
statutory classes of persons for the costs of investigation or remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present or former owner or operator of a
contaminated property and companies that generated, disposed of or arranged for
the disposal of hazardous substances found at the property.
Past and present business operations of the Company subject to such laws
and regulations include the use, storage handling and contracting for recycling
or disposal of hazardous or toxic substances or wastes, including
environmentally sensitive materials such as motor oil, waste motor oil and
filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner,
batteries, solvents, lubricants, degreasing agents, gasoline and diesel fuels.
The Company is subject to other laws and regulations as a result of the past or
present existence of underground storage tanks at many of the Company's
properties. The Company, like many of its competitors, has incurred, and will
continue to incur, capital and operating expenditures and other costs in
complying with such laws and regulations.
Certain laws and regulations, including those governing air emissions and
underground storage tanks, have been amended so as to require compliance with
new or more stringent standards as of future dates. The Company cannot predict
what other environmental legislation or regulations will be enacted in the
future, how existing or future laws or regulations will be administered or
interpreted or what environmental conditions may be found to exist in the
future. Compliance with new or more stringent laws or regulations, stricter
interpretation of existing laws or the future discovery of environmental
conditions may require additional expenditures by the Company, some of which may
be material. See "Business -- Governmental Regulations and Environmental
Matters."
CONCENTRATION OF VOTING POWER
- -----------------------------
As of March 31, 1998, the directors, executive officers and their
affiliates of the Company beneficially owned or controlled approximately
11,757,233 shares of the Company's Class A Common Stock and Class B Common
Stock, or an aggregate of approximately 83% of the issued and outstanding shares
of Common Stock, on a fully-diluted basis. Acting together, such directors and
officers are able to control the election of the Company's directors and the
outcome of corporate actions requiring stockholder approval.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No disclosure is required for this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplemental Data of the Company required by
this item are set forth at the pages indicated at Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
32
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of January 1, 1998, the Company's directors and executive officers were
as follows:
<TABLE>
<CAPTION>
DIRECTOR OR
NAME AGE POSITION OFFICER SINCE
- -------------------------- ----- ---------------------------------------- ------------------
<S> <C> <C> <C>
Thomas A. Price 54 Chief Executive Officer, President and 1996
Director
Donald V. Strough 60 Chairman of the Board of Directors 1995
W. Bruce Bercovich 47 Secretary and Director 1995
Jean-Marc Chapus 39 Director 1997
Steven S. Hallock 42 Chief Operating Officer 1997
Debra Smithart 43 Chief Financial Officer 1997
</TABLE>
Thomas A. Price has been President, Chief Executive Officer and a director of
the Company since September, 1996. From March 1976 to June 1997, Mr. Price
owned and operated the Price Dealerships, which, when combined with the Company,
comprised six automotive dealerships and eleven new car franchises. Mr. Price
has worked in the automobile industry since 1963 in various capacities including
marketing and field assignments at Ford Motor Company. Mr. Price is currently
Chairman of the Lexus National Dealer Advisory Board and he is a charter member
of the J.D. Power Superdealer Roundtable. Mr. Price is the Chairman of the
Board of Directors of AutoChoice, Inc., a used car retailer.
Donald V. Strough has been a director and Chairman of the Board of Directors of
the Company since October, 1995. From 1963 to May 1990, Mr. Strough owned and
operated the Val Strough Dealership Group, which, upon its sale in 1990,
consisted of 12 separate automotive dealerships and 19 franchises. Mr. Strough
is a former President of the Northern California Chevrolet Dealers Association.
W. Bruce Bercovich has served as a director and secretary of the Company since
October, 1995. Mr. Bercovich has also served as a partner in the California law
firm Kay & Merkle since 1977. Mr. Bercovich has extensive experience in the
acquisition and sale of automobile dealerships having been included in the
acquisition or sale of over 100 dealerships. His law firm currently provides
legal services to many of the largest dealership groups in Northern California.
Jean-Marc Chapus has served as a director of the Company since July 1997. Mr.
Chapus has served as a Managing Director for Trust Company of the West and
President of TCW/Crescent Mezzanine L.L.C., a private investment fund, since
March 1995. From December 1991 to March 1995, Mr. Chapus was a Managing
Director of Crescent Capital Corp. Mr. Chapus has extensive experience in the
management and placement of public bonds, private debt, and equity securities.
Mr. Chapus serves as a director of Home Asset Management Company and is a
trustee of Starwood Hotels & Resorts Trust.
Steven S. Hallock. Mr. Hallock has served as Chief Operating Officer of the
company since March 1997. Mr. Hallock was for the last 15 years CEO of the HG
Dealership Group which consisted of 5 dealerships in the Concord, California
area.
33
<PAGE>
Debra Smithart. Ms. Smithart joined the Company as its Chief Financial Officer
in October 1997. From June 1985 to October 1997, Ms. Smithart served as
Executive Vice President and Chief Financial Officer of Brinker International, a
major restaurant operator and franchisor with over 800 locations and annual
sales of approximately $1.8 billion. Ms. Smithart earned a Bachelor of Science
degree in Accounting from the University of Texas and a Masters degree in
Business Administration from Southern Methodist University. Ms. Smithart is a
licensed Certified Public Accountant in the State of Texas.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of the
Chief Executive Officer of the Company and its other executive officers of the
Company as of December 31, 1997, for services in all capacities to the Company,
during the fiscal year ended December 31,1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION> LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------------- ----------------
AWARDS
----------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION YEAR(1) SALARY ($) BONUS($) COMPENSATION($)(2) OPTIONS (#)
- --------------------- --------- ------------ --------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Thomas A. Price, 1997 470,500(5) -- $9,885 --
President and
Chief Executive
Officer
Donald V. Strough, 1997 108,000 -- -- --
Chairman of the
Board
Steven S. Hallock, 1997 333,000 620,000(3) 5,000 280,000
Chief Operating
Officer
Debra L. Smithart, 1997 50,000 18,750(4) 1,100 200,000
Chief Financial
Officer
</TABLE>
- -------------------
(1) In the fiscal years ended December 31, 1996 and 1995, the Company did not
have material operations and no compensation was paid to Messrs. Price and
Strough. Amounts paid to Mr. Price by the Price Dealerships prior to the
Combination are not presented as they would not provide comparable or
meaningful information. Mr. Hallock joined the Company in March 1997 and
Ms. Smithart joined the Company in October 1997.
(2) Consists of car allowances.
(3) Includes a one time sign-on bonus of $500,000 and accrued guaranteed bonus
payments unpaid as of December 31, 1997.
(4) Consists of $18,750 of accrued guaranteed bonus payments unpaid as of
December 31, 1997.
(5) Includes $230,500 paid to Mr. Price prior to the Combination.
34
<PAGE>
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during 1997 to the executive
officers named in the Summary Compensation Table:
OPTION GRANTS IN 1997*
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS GRANTED EXERCISE ANNUAL RATES OF STOCK
OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION PRICE APPRECIATION FOR
NAME (SHARES)/(2)/ FISCAL YEAR/(3)/ ($/SH)/(2)/ DATE/(4)/ OPTION TERM/(1)/
- ----------------- ------------- -------------------- ------------- --------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
5%($) 10%($)
----- ------
Steven S. Hallock 280,000/(5)//(6)/ 29.7% 0.92 7/10/07 162,000 410,548
Debra L. Smithart 200,000/(5)/ 21.2% 4.00 10/27/07 - /(7)/ - /(7)/
</TABLE>
- -----------------------
(*) No stock appreciation rights were granted to executive officers for the
fiscal year ended December 31, 1997.
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. This table does
not take into account any appreciation in the price of the Common Stock to
date.
(2) All options granted in 1997 were granted under the Company's 1997 Stock
Option Plan (the "Option Plan"). Under such Option Plan, the Board of
Directors retains discretion to modify the terms, including the price, of
outstanding options. All options were granted at fair market value or
greater as determined by the Board of Directors of the Company on the date
of grant. See also "Management -- Termination and Change of Control
Arrangements."
(3) The Company granted options to purchase in aggregate of 942,000 shares of
Class A Common Stock for the fiscal year ended December 31, 1997.
(4) Options may terminate before their expiration date upon the termination of
optionee's status as an employee or upon the optionee's death or
disability.
(5) The options vest ratably over 60 months from the date of grant.
(6) In the event Mr. Hallock resigns for good reason following an acquisition
or change of control of the Company, the vesting of all options will be
accelerated and shall be exercisable in full.
(7) The exercise price of Ms. Smithart's options exceeded the fair market
value of the Class A Common Stock and therefore, at the assumed
appreciation rates, there is no potential positive realizable value of the
options.
35
<PAGE>
The following table provides the specified information concerning potential
positive realizable value of exercises of options to purchase the the Company's
Common Stock in 1997, and unexercised options held as of December 31, 1997, by
the executive officers named in the Summary Compensation Table:
AGGREGATE OPTION EXERCISES IN 1997
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT 12/31/97 MONEY OPTIONS AT 12/31/97/(1)//($)/
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE/(2)/ UNEXERCISABLE
- ------------------------ ------------- ------------ ------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Steven S. Hallock 0 0 46,795 233,205 41,180 205,221
Debra L. Smithart 0 0 7,123 192,877 -- --
</TABLE>
- ---------------------------------
(1) Based on a fair market value as determined by the Board of Directors of the
Company of $1.80 per share, as of December 31, 1997, minus the exercise
price.
(2) Options will become exercisable upon the filing by the Company of a
registration statement on Form S-8 with respect to shares of Class A Common
Stock which may be issued upon exercise of options granted under the
Company's 1997 Stock Option Plan.
EMPLOYMENT CONTRACTS TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
In July 1997, the Company entered into an employment agreement with Thomas
Price pursuant to which the Company will employ Mr. Price as its President and
Chief Executive Officer through July 1, 2002, which term may be extended upon
the mutual agreement of the parties. In accordance with the terms of the
agreement, Mr. Price will receive a base annual salary of $480,000 and an annual
performance bonus of up to 50% of base salary. The agreement also entitles Mr.
Price to a monthly car allowance of $1,200 and all standard benefits provided to
senior management of the Company. The salary, bonus and benefits provided under
the agreement are guaranteed unless he is terminated for cause, voluntarily
terminates his employment, dies or becomes disabled.
In July 1997, the Company entered into an employment agreement with Donald
Strough pursuant to which the Company will employ Mr. Strough as its Chairman of
the Board of Directors through July 1, 2002, which term may be extended upon the
mutual agreement of the parties. In accordance with the terms of the agreement,
Mr. Strough will receive a base annual salary of $250,000 and an annual
performance bonus of up to 50% of base salary. The agreement also entitles Mr.
Strough to a monthly car allowance of $600 and all standard benefits provided to
senior management of the Company. The salary, bonus and benefits provided under
the agreement are guaranteed unless he is terminated for cause, voluntarily
terminates his employment, dies or becomes disabled.
In March 1997, the Company entered into an at-will employment agreement
with Steven S. Hallock pursuant to which the Company will employ Mr. Hallock as
its Chief Operating Officer. In accordance with the terms of the agreement, Mr.
Hallock will receive a base annual salary of $400,000 and an annual performance
bonus of up to 90% of base salary. The agreement also entitles Mr. Hallock to a
monthly car allowance of $500 and all standard benefits provided to senior
management of the Company.
Mr. Hallock was granted options to purchase 280,000 shares of the Company's
Class A Common Stock at a price of $.92 per share under the Company's 1997 Stock
Option Plan. Such options vest monthly from the date of grant over a 60 month
period. In the event that Mr. Hallock terminates his employment agreement for
good
36
<PAGE>
reason following a change of control of the Company, his options shall become
immediately vested. In addition, Mr. Hallock will be entitled to receive fully
vested options to acquire up to 200,000 shares of Class A Common Stock upon the
acquisition by the Company of certain automobile dealerships. The exercise price
of such additional options shall be determined as of the date of grant.
In the event Mr. Hallock terminates his employment with the Company for
good reason following a change of control of the Company, he shall be entitled
to receive continued salary payments for a period of one year plus an amount
equal to the average of his previous performance bonuses, which amount shall be
paid in twelve equal monthly installments.
DIRECTOR COMPENSATION
Directors do not receive any cash compensation for their services as
members of the Board of Directors, although they are reimbursed for their
expenses in attending Board and committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company served as a member of a compensation
committee or board of directors of any other entity which has an executive
officer serving as a member of the Company's Board of Directors. Thomas Price,
the Company's President and Chief Executive Officer and a director of the
Company, participated in deliberations concerning executive compensation.
37
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 1998, with
respect to the beneficial ownership of the Company's capital stock by (i) all
persons known by the Company to be the beneficial owners of more than 5% of any
class of the outstanding capital stock of the Company, (ii) each director of the
Company, (iii) each executive officer of the Company named in the Summary
Compensation Table and (iv) all executive officers and directors of the Company
as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF CLASS A COMMON STOCK CLASS B COMMON STOCK
BENEFICIAL OWNERS (#) SHARES OWNED (1) SHARES OWNED (1)
- ------------------------- ----------------------------------------------- -----------------------------------------
DIRECTORS AND EXECUTIVE PERCENTAGE OF
OFFICERS NUMBER OF SHARES CLASS (2) NUMBER OF SHARES PERCENTAGE OF CLASS(2)
- ------------------------- -------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
W. Bruce Bercovich (3) 1,055,000 9.4%
Jean-Marc Chapus (4) 3,032,000 100.0%
Steven S. Hallock (5) 269,962 2.4%
Thomas A. Price (6) 5,921,600 52.9%
Debra Smithart (7) 23,671 *
Donald V. Strough (8) 1,455,000 13.1%
Executive officers and
directors as a group (six 8,725,233 77.4% 3,032,000 100%
persons) (9)
OTHER 5% STOCKHOLDERS
Bert Wollen (10) 590,000 5.3%
Al Babbington (11) 634,877 5.7%
Fred Cziska (12) 713,277 6.4%
Trust Company of the West (4) 3,032,000 100.0%
--------------------------------
#Unless otherwise provided,
the address for each
Beneficial Owner is
c/o Kay & Merkle
100 The Embarcadero
Penthouse Suite
San Francisco, CA
94105-1217.
* Less than 1%
</TABLE>
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable.
(2) For the Company's Class A Common Stock ("Class A Common") and Class B
Common Stock ("Class B Common"), the percentages listed were calculated on
the basis of 11,179,029 shares and 3,032,000 shares outstanding,
respectively. Shares of Class A Common underlying options exercisable
within 60 days of March 31, 1998 are deemed to be outstanding for purposes
of calculating the beneficial ownership of securities of the holders of
such options or of shares of Class A Common.
38
<PAGE>
(3) Includes 590,000 shares of Class A Common held by Embarcadero Automotive,
L.L.C., 340,000 shares of Class A Common held by BB Investments, and
125,000 shares of Class A Common held by Geary Plaza Irrevocable Trust.
Mr. Bercovich is a Managing Member of Embarcadero Automotive, LLC, a
General Partner of BB Investments, and a trustee of Geary Plaza Irrevocable
Trust, and as such may be deemed to be a beneficial owner of such shares.
Mr. Bercovich disclaims beneficial ownership of all shares of Geary Plaza
Irrevocable Trust. Alexandra Strough, daughter of Donald V. Strough,
Chairman of the Company's Board of Directors, is the sole beneficiary of
the Geary Plaza Irrevocable Trust.
(4) Number of shares which may be deemed beneficially owned includes shares
held by various funds, trusts and investment partnerships related to or
managed by Trust Company of the West, of which Mr. Chapus is a Managing
Director. The address of Trust Company of the West is 11100 Santa Monica
Blvd., Suite 2000, Los Angeles, CA 94025.
(5) Mr. Hallock is the Company's Chief Operating Officer. Includes 69,962
shares purchasable pursuant to outstanding options exercisable on or before
May 30, 1998.
(6) Includes 5,921,600 shares of Class A Common held by the Price Trust u/t/d
10/5/88. Mr. Price is a trustee of this trust and as such may be deemed to
be a beneficial owner of such shares.
(7) Ms. Smithart is the Company's Chief Financial Officer. Includes 23,671
shares purchasable pursuant to outstanding options exercisable on or before
May 30, 1998.
(8) Mr. Strough is the Chairman of the Company's Board of Directors. Includes
1,455,000 shares owned by the Strough Revocable Trust of 1983, as amended.
Mr. Strough and his wife are co-trustees of this trust.
(9) See footnotes (3) through (8). Includes 93,633 shares purchasable pursuant
to outstanding options exercisable on or before May 30, 1998.
(10) Includes 590,000 shares of Class A Common held by Raintree Capital. Mr.
Wollen is a member of Raintree Capital, L.L.C., and as such may be deemed
to be a beneficial owner of such shares.
39
<PAGE>
(11) Mr. Babbington is the Vice President of Marketing and Strategic Planning
for the Company. Includes 8,877 shares purchasable pursuant to outstanding
options exercisable on or before May 30, 1998.
(12) Mr. Cziska is the Vice President of Parts, Service and Purchasing for the
Company. Includes 8,877 shares purchasable pursuant to outstanding options
exercisable on or before May 30, 1998.
40
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Thomas A. Price, the President, Chief Executive Officer and a director of
the Company, transferred to the Company his holdings in the Price Dealerships on
July 11, 1997. Mr. Price received 3,991,600 shares of the Company's Class A
Common Stock and $4,424,023 in cash in connection with this transaction.
T. Al Babbington, Vice President of Marketing and Strategic Planning for
the Company, sold his interest in the Price Dealerships to the Company on July
11, 1997. Mr. Babbington received 626,000 shares of the Company's Class A
Common Stock and $165,000 in cash in connection with this transaction.
Fred Cziska, Vice President of Parts, Service and Purchasing for the
Company, sold his interest in the Price Dealerships to the Company on July 11,
1997. Mr. Cziska received 704,400 shares of the Company's Class A Common Stock
and $674,823 in cash in connection with this transaction.
Donald V. Strough, Chairman of the Company's Board of Directors, sold his
interest in a Honda dealership located in Concord, California to the Company on
July 11, 1997. Mr. Strough received 1,330,000 shares of the Company's Class A
Common Stock. In connection with this transaction, the Company recorded a
receivable in the amount of $470,000, which was subsequently repaid.
Steven A. Hallock, Cheif Operating Officer for the Company, sold his
interest in a Nissan dealership located in Concord, California to the Company on
July 11, 1997. Mr. Hallock received $2.9 million in cash in connection with this
transaction.
On April 23, 1997, the Company sold 457,000 shares of its Class A Common
Stock to the Price Trust u/t/d 10/5/88 to Thomas A. Price for $457, or a price
of $0.001 per share. Mr. Price is a trustee of this trust.
On March 31, 1997, the Company sold 200,000 shares of its Class A Common
Stock to Steven Hallock, the Company's Chief Operating Officer, for $200, or a
price of $0.001 per share.
The Tom Price Dealership Group, a company firm affiliated with Thomas A.
Price was compensated for these services provided to the Company prior to the
Combination. The Company paid approximately $800,000 for these services
performed during fiscal 1997. Mr. Price is the President of the Tom Price
Dealership Group.
During 1997, Rosewood Village Associates, a partnership in which Donald V.
Strough serves as general partner and holds an 85% equity interest, acquired
from a third party, certain real property which was being leased to the Company.
In addition, Rosewood Village Associates acquired approximately $0.8 million of
certain leasehold improvements from the Company. Rosewood Village Associates
leases this property, the leasehold improvements, and one other property to the
Company. Annual obligations on these leases total approximately $900,000.
W. Bruce Bercovich, Secretary and a director of the Company, is a partner
in the San Francisco, California law firm of Kay & Merkle. Kay & Merkle
received from the Company, as compensation for legal services performed during
fiscal 1997, approximately $360,000.
The Company leases two facilities under agreements from The Price Trust
u/t/d 10/5/88. Annual obligations on these leases total approximately
$1,680,000. Mr. Price and his spouse are the sole beneficiaries of this trust.
The Company leases one facility from Bay Automotive Properties LLC ("Bay
Automotive"). Annual obligations on this lease total approximately $576,000.
Thomas A. Price and Donald V. Strough are both members of Bay Automotive, with
interests therein of 50% and 50%, respectively.
The Price Trust owns the real property at 601 Brannan Street, San
Francisco, California, the site of the Company's executive offices and planned
service and repair center in downtown San Francisco. The Company has made or
intends to make leasehold improvements with an approximate value of $1,000,000
to this property. It is anticipated that these leasehold improvements will be
sold to Mr. Price at the cost to the Company, then leased back to the Company
with a ground lease. Mr. Price and his spouse are the sole beneficiaries of the
Price Trust.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Form:
1. Financial Statements: Page Number
-----------
Report of Independent Public Accountants F-1
Consolidated Balance Sheets -
As of December 31, 1997 and 1996 F-2
Consolidated Statements of Operations -
For the Three Years Ended December 31, 1997 F-3
Consolidated Statements of Stockholders' Equity
For the Three Years Ended December 31, 1997 F-4
Consolidated Statements of Cash Flows -
For the Three Years Ended December 31, 1997 F-5
Notes to Consolidated Financial Statements F-6
2. Financial Statement Schedules
All schedules are omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or notes thereto.
3. Exhibits:
EXHIBIT
- -------
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
2.1.1 Agreement and Plan of Reorganization dated July 1, 1997 by and among the
Company, California Carriage, Ltd., dba Concord Honda and Donald V.
Strough, Trustee of the Strough 1983 Revocable Trust.
2.1.2 Agreement and Plan of Reorganization dated July 1, 1997 by and among the
Company, Price Auto Holding, Inc., dba Melody Toyota, Price Trust utd
10/5/84, Fred Cziska and FAA San Bruno, Inc.
2.1.3 Agreement and Plan of Reorganization dated July 1, 1997 by and among the
Company, Serramonte Motorcars, Inc., dba Lexus of Serramonte, Price
Trust utd 10/5/84, Fred Cziska, John Driebe and FAA Serramonte L, Inc.
2.1.4 Agreement and Plan of Reorganization dated July 1, 1997 between the
Company, Cziska Price, Inc., dba Stevens Creek Nissan, the
shareholders of Cziska Price, Inc. and FAA Stevens Creek, Inc.
2.1.5 Agreement and Plan of Reorganization dated July 1, 1997 between the
Company, Transcar Leasing, Inc., dba Serramonte Auto Plaza, the
shareholders of Transcar Leasing, Inc. and FAA Serramonte GM, Inc.
2.1.6 Asset Purchase Agreement dated March 14, 1997 by and among FAA Concord
N, Inc., Concord Nissan, Inc. and Steven Hallock.
2.1.7 Stock Purchase Agreement dated July 1, 1997, by and between the Company,
The Price Trust u/t/d 10/5/84 and Smart Nissan, Inc.
2.1.8 Asset Purchase Agreement dated March 19, 1997 by and between the Company
and Asian Pacific Industries, Inc.
2.1.9 Asset Purchase Agreement dated January 23, 1997 by and among the
Company, Auto Center of Poway, Inc., Thomas Nokes and H. Matthew
Travis.
2.1.10 Asset Purchase Agreement dated January 23, 1997 by and among the
Company, Auto Center of North County, Inc., Thomas Nokes and H.
Matthew Travis.
3.1 Amended and Restated Certificate of Incorporation, as amended, filed
July 8, 1997.
3.2 By-Laws.
4.1 Stockholders' Agreement dated July 11, 1997 by and among the Company and
its stockholders, Thomas Price, Donald Strough, Steven Hallock, Fred
Cziska, Al Babbington, John Driebe, Embarcadero Automotive, LLC,
Raintree Capital LLC, BB Investments and certain affiliates of Trust
Company of the West.
4.1.1 Securities Purchase Agreement dated as of July 11, 1997 by and among the
Company, certain of its wholly-owned subsidiaries and Trust Company of
the West and certain of its affiliates, as Purchasers.
4.1.2 Amendment No. 1 to Securities Purchase Agreement dated as of January 9,
1998 by and among each of FAA Capitol N, Inc., FAA Auto Factory, Inc.
and each of the parties to the Securities Purchase Agreement dated as
of July 11, 1997.
10.1 Loan and Security Agreement by and between General Electric Capital
Corporation, and 13 subsidiaries of the Company dated as of July 2,
1997.
10.1.1 Intercreditor and Subordination Agreement dated as of July 8, 1997
by and among TCW/Crescent Mezzanine Partners, L.P., TCW/Crescent
Mezzanine Trust, TCW/Crescent Mezzanine Investment Partners, L.P., and
General Electric Capital Corporation.
10.2 Agreement between American Honda Motor Co., Inc. and the Company dated
as of May 1, 1997 by and among the Company, Donald V. Strough, Thomas
A. Price, Steven S. Hallock, Fred Cziska, Al Babbington, John Driebe,
Raintree Capital, LLC, BB Investments, Brown Gibbons & Lang, L.P. and
American Honda Motor Co., Inc.
10.3 Nissan Dealer Agreement Sales and Service Agreement Standard Provisions,
dated as of July 16, 1997 by and between Nissan Division, Nissan
Motor Corporation in U.S.A. and the Company.
10.3.1 Nissan Dealer Term Sales and Service Agreement dated June 30, 1997 by
and between Nissan Motor Corporation in U.S.A. and FAA Serramonte,
Inc.
10.3.2 Nissan Contiguous Market Ownership Holding Company Agreement dated June
30, 1997 by and among Nissan Motor Corporation in U.S.A., the Company,
FAA Concord N, Inc., and FAA Dublin N, Inc.
10.3.3 Nissan Dealer Term Sales and Service Agreement dated as of July 16, 1997
by and between Nissan Motor Corporation in U.S.A. and FAA Dublin N,
Inc.
10.3.4 Nissan Contiguous Market Ownership Addendum dated July 16, 1997 by and
among Nissan Motor Corporation in U.S.A., Thomas A. Price, FAA Dublin
N, Inc. and the Company.
10.3.5 Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
dated June 30, 1997 by and between Nissan Motor Corporation in U.S.A.
and the Company (FAA Dublin N, Inc.).
10.3.6 Nissan Dealer Term Sales and Service Agreement dated June 30, 1997 by
and between Nissan Motor Corporation in U.S.A. and Smart Nissan, Inc.
10.3.7 Nissan Contiguous Market Ownership Addendum dated June 30, 1997 by and
among Nissan Motor Corporation in U.S.A., Thomas A. Price, Smart
Nissan, Inc. and the Company.
10.3.8 Nissan Contiguous Market Holding Company Agreement dated June 30, 1997
by and between Nissan Motor Corporation in U.S.A. and the Company
(Smart Nissan, Inc.; FAA Serramonte, Inc.).
10.3.9 Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
dated June 30, 1997 by and between Nissan Motor Corporation in U.S.A.
and the Company (Smart Nissan, Inc.).
10.3.11 Nissan Contiguous Market Ownership Addendum dated June 30, 1997 by and
among Nissan Motor Corporation in U.S.A., Thomas A. Price, FAA
Serramonte, Inc., and the Company.
10.3.12 Nissan Contiguous Market Ownership Holding Company Agreement dated June
30, 1997 by and between Nissan Motor Corporation in U.S.A. and the
Company (FAA Serramonte, Inc.).
10.3.13 Nissan Dealer Term Sales and Service Agreement dated June 30, 1997 by
and between Nissan Motor Corporation in U.S.A. and FAA Stevens Creek,
Inc.
10.3.14 Nissan Contiguous Market Ownership Addendum dated June 30, 1997 by and
among Nissan Motor Corporation in U.S.A., Thomas A. Price, FAA Stevens
Creek, Inc. and the Company.
10.3.15 Nissan Contiguous Market Ownership Areas Formation and Linkage
Agreement dated June 30, 1997 by and between Nissan Motor Corporation
in U.S.A. and the Company (FAA Stevens Creek, Inc.).
10.3.16 Nissan Dealer Term Sales and Service Agreement dated as of September
25, 1997 by and between Nissan Motor Corporation in U.S.A. and FAA
Capitol N, Inc.
10.3.17 Nissan Contiguous Market Ownership Addendum dated September 25, 1997 by
and among Nissan Motor Corporation in U.S.A., Thomas A. Price, FAA
Capitol N, Inc. and the Company.
10.3.18 Nissan Contiguous Market Ownership Holding Company Agreement dated
September 25, 1997 by and between Nissan Motor Corporation in U.S.A. and
the Company (FAA Capitol N, Inc.).
10.3.19 Nissan Contiguous Market Ownership Addendum dated June 30, 1997 by and
among Nissan Motor Corporation in U.S.A., Thomas A. Price, FAA Concord
N, Inc. and the Company.
10.3.20 Nissan Dealer Term Sales and Service Agreement dated June 30, 1997 by
and between Nissan Motor Corporation in U.S.A. and FAA Concord N, Inc.
10.3.22 Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
dated June 30, 1997 by and between Nissan Motor Corporation in U.S.A.
and the Company (FAA Concord N, Inc.)
10.4 Toyota Dealer Agreement dated as of April 24, 1997 by and between Toyota
Motor Sales, U.S.A., Inc. and FAA Poway T, Inc.
10.4.1 Agreement dated as of May 2, 1997 between the Company and Toyota Motor
Sales, U.S.A., Inc.
10.4.2 Toyota Dealer Agreement dated as of June 30, 1997 by and between the
Company and Toyota Motor Sales, USA., Inc.
10.4.3 Lexus Dealer Agreement dated as of June 30, 1997 between Lexus and FAA
Serramonte L, Inc.
10.5 Dealer Sales and Service Agreement dated as of June 13, 1997 by and
between Mitsubishi Motor Sales of America, Inc. and FAA Serramonte,
Inc.
10.6 Isuzu Dealer Sales and Service Agreement effective May 1, 1997 by and
between American Isuzu Motors, Inc. and FAA Serramonte, Inc.
10.6.1 Supplemental Agreement to Dealer Sales and Service Agreement dated as of
May 1, 1997 by and among FAA Serramonte, Inc. dba Serramonte Auto
Plaza, the Company and American Isuzu Motors, Inc.
10.7 Master Agreement dated as of July 1, 1997 between FAA Serramonte, Inc.
d/b/a Dodge of Serramonte; FAA Poway D, Inc. d/b/a Poway Dodge; FAA
Dublin VWD, Inc., d/b/a Dublin Dodge; the Company; Thomas A. Price and
Chrysler Corporation.
10.7.1 Chrysler Corporation Dodge Sales and Services Agreement dated as of May
9, 1997 by and between FAA Poway D, Inc., dba Poway Dodge and Chrysler
Corporation.
10.7.2 Chrysler Corporation Dodge Sales and Services Agreement dated as of July
7, 1997 by and between FAA Serramonte Inc. D, Inc., dba Dodge of
Serramonte Dodge and Chrysler Corporation.
10.7.3 Chrysler Corporation Dodge Sales and Services Agreement dated as of July
18, 1997 between FAA Dublin VWD, Inc., dba Dublin Dodge and Chrysler
Corporation.
10.8 Pontiac-GMC Division Pontiac Dealer Sales and Service Agreement dated as
of June 30, 1997 between General Motors Corporation, Pontiac and
Transcar Leasing, Inc., dba Serramonte Pontiac-Buick-GMC.
10.9 Lease Agreement dated as of September 18, 1997 by and among Bay
Automotive Properties, LLC, the Company and FAA Capitol N, Inc.
10.9.1 Lease Agreement dated as of July 1, 1997 by and among the Price Trust
u/t/d 10/5/84, the Company and FAA Serramonte L, Inc.
10.9.2 Lease Agreement dated as of April 15, 1998 by and among Price Trust
u/t/d 10/5/84, the Company and FAA Serramonte H, Inc.
10.9.3 Lease Agreement dated as of July 1, 1997 among Price Trust u/t/d
10/5/84, the Company and FAA Serramonte L, Inc.
10.9.4 Lease Agreement dated as of July 1, 1997 among Rosewood Village
Associates, the Company and California Carriage Limited.
10.9.5 Lease dated as of July 1, 1997 among Rosewood Village Associates, the
Company and FAA Stevens Creek, Inc.
10.10 Executive Employment Agreement dated as of July 1, 1997 by and between
the Company and Donald V. Strough.
10.10.1 Executive Employment Agreement dated as of July 1, 1997 by and between
the Company and Thomas A. Price.
10.10.2 Employment Agreement dated as of March 1, 1997 by and between the
Company and Steven S. Hallock.
10.10.3 Noncompetition Agreement dated as of July 8, 1997 by and among Thomas
A. Price, Donald Strough and the Company.
10.11 FirstAmerica Automotive, Inc. 1997 Stock Option Plan, as amended.
21.1 Subsidiaries of the Company.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
42
<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>
<CAPTION>
<S> <C>
Date: May 11, 1998 FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Thomas A. Price
-------------------------------
President 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 May 11, 1998.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Thomas A. Price President, Chief Executive Officer and
- ------------------- Director (Principal Executive Officer)
Thomas A. Price
/s/ Debra Smithart Chief Financial Officer
- ------------------ (Principal Financial and Accounting Officer)
Debra Smithart
/s/ Donald V. Strough* Chairman of the Board of Directors
- ----------------------
Donald V. Strough
/s/ W. Bruce Bercovich* Director
- -----------------------
W. Bruce Bercovich
/s/ Jean Marc Chapus* Director
- ---------------------
Jean-Marc Chapus
*By: /s/ Debra Smithart
-------------------
Debra-Smithart
(Attorney-in-fact)
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(a) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
The Registrant has not provided an annual report to stockholders covering its
Fiscal year ended December 31, 1997 nor has it sent a proxy statement to its
stockholders with respect to any annual or special meeting of stockholders.
43
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Consolidated Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FirstAmerica Automotive, Inc.:
We have audited the accompanying consolidated balance sheets of FirstAmerica
Automotive, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related statements of operations, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997. In connection
with our audits of the consolidated financial statements, we also have audited
the related consolidated financial statement schedule listed in the Index at
Item 14(a)(2). These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule 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, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FirstAmerica
Automotive, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG Peat Marwick, LLP
San Francisco, California
April 27, 1998
F-2
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Consolidated Balance Sheets
As of December 31,
(In thousands)
<TABLE>
<CAPTION>
Assets 1997 1996
------ -------- --------
<S> <C> <C>
Cash and cash equivalents .......................................................................... $ 2,924 $ 668
Contracts in transit ............................................................................... 9,454 4,908
Accounts receivable, net of allowance for doubtful accounts of $320 in 1997 and
$182 in 1996 .................................................................................. 10,328 3,955
Inventories:
New vehicles .................................................................................. 58,344 28,342
Used vehicles ................................................................................. 14,027 7,698
Parts and accessories ......................................................................... 5,223 2,692
-------- --------
Total inventories .............................................................. 77,594 38,732
Prepaid costs-extended warranty service contracts .................................................. 848 855
Deferred income taxes .............................................................................. 618 --
Deposits, prepaid expenses and other ............................................................... 2,779 1,563
-------- --------
Total current assets ........................................................... 104,545 50,681
Property and equipment, net of accumulated depreciation of $2,133 in 1997 and
$1,804 in 1996 ................................................................................ 7,081 2,990
Other assets:
Prepaid costs-extended warranty service contracts ............................................. 1,287 1,394
Loan origination and other costs, net of amortization of $195 in 1997 and $0 in 1996 .......... 3,407 --
Other noncurrent assets ....................................................................... 1,342 385
Goodwill, net of accumulated amortization of $125 in 1997 and $23 in 1996 ..................... 6,340 677
-------- --------
Total assets ................................................................... $124,002 $ 56,127
======== ========
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Consolidated Balance Sheets, Continued
As of December 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1997 1996
------------------------------------ -------- --------
<S> <C> <C>
Current liabilities:
Accounts payable .................................................................... $ 6,137 $ 2,301
Accrued liabilities ................................................................. 8,804 3,881
Flooring notes payable .............................................................. 66,539 38,321
Secured lines of credit ............................................................. 4,000 --
Other notes payable ................................................................. 1,218 840
Deferred revenue-extended warranty service contracts ................................ 2,034 2,098
-------- --------
Total current liabilities ............................................ 88,732 47,441
Long-term liabilities:
Senior notes, net of discount of $2,062 in 1997 and
$0 in 1996 ....................................................................... 21,938 --
Deferred income taxes ............................................................... 269 --
Deferred revenue-extended warranty service contracts ................................ 3,061 3,484
Other ............................................................................... -- 322
-------- --------
Total liabilities .................................................... 114,000 51,247
-------- --------
Commitments and contingencies (Note 12)
8% cumulative redeemable preferred stock, $.00001 par value; 3,500 shares issued
and outstanding in 1997 and 0 in 1996 (net of discount of $526, liquidation
preference of $3,500) ............................................................... 2,974 --
Redeemable preferred stock, $.00001 par value; 500 shares issued and outstanding
in 1997 and 0 in 1996 (net of discount of $75, liquidation preference of $540) ...... 465 --
Stockholders' equity:
Common stock, $0.00001 par value:
Class A, 30,000,000 shares authorized, 11,201,152 shares issued and
outstanding in 1997 and 0 in 1996 ............................................... -- --
Class B, 5,000,000 shares authorized, 3,032,000 shares issued and
outstanding in 1997 and 0 in 1996 ............................................... -- --
Class C, 30,000,000 shares authorized, 0 issued and outstanding .................. -- --
Price Dealerships' equity (Note 1) .................................................. -- 4,880
Additional paid-in capital .......................................................... 6,544 --
Retained earnings ................................................................... 19 --
-------- --------
Total stockholders' equity ................................... 6,563 4,880
-------- --------
$124,002 $ 56,127
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Consolidated Statements of Operations
Years ended December 31,
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Sales:
Vehicle ................................................................... $ 401,896 $ 281,891 $ 208,055
Service, parts and other .................................................. 72,152 50,631 40,130
--------- --------- ---------
Total sales .................................................. 474,048 332,522 248,185
Cost of sales:
Vehicle ................................................................... 374,878 264,212 194,155
Service, parts and other .................................................. 32,196 25,450 19,115
--------- --------- ---------
Total cost of sales .......................................... 407,074 289,662 213,270
--------- --------- ---------
Gross profit ................................................. 66,974 42,860 34,915
Operating expenses:
Selling, general and administrative ....................................... 59,634 38,941 30,440
Combination and related expenses .......................................... 2,268 -- --
--------- --------- ---------
Operating income ............................................. 5,072 3,919 4,475
Other income (expense):
Interest expense, floor plan .............................................. (3,669) (2,922) (3,125)
Interest expense, other ................................................... (1,671) -- --
Other income, net ......................................................... 778 744 67
--------- --------- ---------
Income before income taxes ................................... 510 1,741 1,417
Income tax expense ............................................................. 446 48 26
--------- --------- ---------
Net income ................................................... $ 64 $ 1,693 $ 1,391
========= ========= =========
Pro forma net income (unaudited):
Income before income taxes, as reported ................................... $ 1,741 $ 1,417
Pro forma income tax expense .............................................. 714 581
--------- ---------
Pro forma net income ........................................................... $ 1,027 $ 836
========= =========
Pro forma (unaudited)
---------------------
Net income (loss) per share:
Basic and diluted (Note 1) ................................................ $ (0.01) $ 0.19 $ 0.15
Weighted average outstanding shares ....................................... 10,915 5,526 5,526
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
FirstAmerica Automotive, Inc. common stock
------------------------------------------
Price Class A Class B
Dealerships' ------------------------------------------ Paid-in Retained Total
equity Shares Amount Shares Amount capital earnings equity
------------ -------- -------- -------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 ............... $ 4,384 -- $ -- -- $ -- $ -- $ -- $ 4,384
Stock issuance ......................... 2,480 -- -- -- -- -- -- 2,480
Net income ............................. 1,391 -- -- -- -- -- -- 1,391
Distributions to stockholders .......... (1,611) -- -- -- -- -- -- (1,611)
-------- -------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1995 ............. 6,644 -- -- -- -- -- -- 6,644
Stock issuance ......................... 250 -- -- -- -- -- -- 250
Distributions to stockholders .......... (3,707) -- -- -- -- -- -- (3,707)
Net income ............................. 1,693 -- -- -- -- -- -- 1,693
-------- -------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1996 ............. 4,880 -- -- -- -- -- -- 4,880
Distributions to stockholders .......... (4,000) -- -- -- -- -- -- (4,000)
Exchange of stock related to Combination (880) 7,841 -- -- -- 880 -- --
Stock issuance for acquisitions ........ -- 1,620 -- -- -- 1,490 -- 1,490
Stock issuance relating to financing .. -- -- -- 3,032 -- 2,789 -- 2,789
Other stock issuance, net .............. -- 1,740 -- -- -- 1,554 -- 1,554
Preferred dividend and liquidation
preference ........................ -- -- -- -- -- (169) -- (169)
Amortization of discount ............... -- -- -- -- -- -- (45) (45)
Net income ............................. -- -- -- -- -- -- 64 64
======== ======== ======== ======== ======== ======== ======== ========
Balance, December 31, 1997 ............. $ -- 11,201 $ -- 3,032 $ -- $ 6,544 $ 19 $ 6,563
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Consolidated Statements of Cash Flows
Years ended December 31,
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 64 $ 1,693 $ 1,391
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................................... 873 611 381
Deferred income taxes ............................................. (349) -- --
Non-cash stock compensation ....................................... 701 -- --
Amortization of deferred warranty revenue ......................... (373) 1,048 2,219
Changes in operating assets and liabilities:
Receivables and contracts in transit .......................... (8,007) 550 (754)
Inventories ................................................... (16,782) (733) (6,677)
Other assets .................................................. (1,120) (26) (534)
Due from affiliates ........................................... -- 168 --
Flooring notes payable ........................................ 7,709 1,011 7,597
Accounts payable .............................................. 2,843 62 (3,407)
Accrued liabilities ........................................... 6,855 15 1,788
-------- -------- --------
Net cash provided by (used in)
operating activities .................................. (7,586) 4,399 2,004
-------- -------- --------
Cash flows from investing activities:
Capital expenditures .................................................... (1,090) (805)
(325)
Acquisitions, net of cash acquired ...................................... (11,726) -- (1,720)
-------- -------- --------
Net cash used in investing activities ................... (12,816) (805) (2,045)
-------- -------- --------
Cash flows from financing activities:
Borrowings on secured lines of credit ................................... 4,000 -- --
Proceeds from issuance of Senior Notes .................................. 21,851 -- --
Repayments on notes payable ............................................. (1,632) (35) (313)
Loan origination costs .................................................. (3,602) -- --
Proceeds from issuance of common stock .................................. 2,789 250 2,480
Proceeds from issuance of preferred stock ............................... 3,360 -- --
Distributions to shareholders ........................................... (4,000) (3,707) (1,611)
Preference dividend paid ................................................ (108) -- --
-------- -------- --------
Net cash provided by (used in)
financing activities .................................. 22,658 (3,492) 556
-------- -------- --------
Net increase in cash and equivalents .................... 2,256 102 515
Cash at beginning of period .................................................. $ 668 $ 566 $ 51
-------- -------- --------
Cash at end of period ........................................................ $ 2,924 $ 668 $ 566
======== ======== ========
Cash paid during the period for:
Interest ................................................................ $ 5,311 $ 2,941 $ 3,103
Income taxes ............................................................ $ 885 $ 16 $ 26
Non-cash activity was as follows:
Common stock issued at the time of acquisition .......................... $ 1,490 $ -- $ --
Common stock issued as compensation ..................................... $ 701 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Organization and Combination
Effective July 11, 1997, FirstAmerica Automotive, Inc., a public company
with no significant assets or operations, combined (the "Combination")
with a group of automobile dealership entities under common ownership
and control (the "Price Dealerships"). The stockholders of the Price
Dealerships received 5,526,000 shares of FirstAmerica Automotive, Inc.'s
common stock, which represented a majority of the total outstanding
shares of capital stock of FirstAmerica Automotive, Inc. immediately
following the Combination. The Combination was accounted for as the
acquisition of FirstAmerica Automotive, Inc. by the Price Dealerships,
and, accordingly, the financial statements for periods before the
Combination represent financial statements of the Price Dealerships.
FirstAmerica Automotive, Inc. and the Price Dealerships are collectively
referred to as "FirstAmerica" or the "Company".
(b) Business
The Company's plan is to acquire and operate numerous automotive
dealerships in the highly fragmented automotive retailing industry. The
Company operates 14 dealerships in California, of which, 11 are in
Northern California. The Company sells new vehicles, used vehicles,
light trucks, replacement parts, provides vehicle maintenance and repair
services, and arranges related financing and warranty products for its
automotive customers. The Company offers, collectively, eleven makes of
domestic and foreign vehicles including Buick, Dodge, GMC, Honda, Isuzu,
Lexus, Mitsubishi, Nissan, Pontiac, Toyota, and Volkswagen.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of
FirstAmerica and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
(d) Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to
be cash equivalents. Cash balances consist of demand deposits.
(e) Inventories
Inventories are stated at the lower of cost or market. Vehicle cost is
determined by using the specific identification method. Parts and
accessories cost is determined by using the first-in, first-out method
(FIFO).
F-8
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies (continued)
(f) Property and Equipment
Property and equipment, including improvements that significantly extend
useful lives, are stated at cost and are depreciated over the estimated
useful lives of the assets. Leasehold improvements are amortized using a
straight-line basis over the shorter of the lease term or estimated
useful lives of the assets.
The range of estimated useful lives are as follows:
Leasehold improvements 5 to 20 years
Equipment 5 to 10 years
Furniture, signs and fixtures 5 to 10 years
Company vehicles 5 years
The cost of 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 account, and any gain or
loss is credited or charged to income.
(g) Income Taxes
Prior to January 1, 1997, 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 are payable by the individual
stockholders rather than the corporation. The Company terminated its S
Corporation status effective January 1, 1997.
Income taxes for 1997 are accounted for under the asset and liability
method. Deferred 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 and operating loss and tax credit
carryforwards. Deferred 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 tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(h) Financial Instruments
The carrying amount of current assets and current liabilities
approximates fair value because of the short-term nature of these
instruments. The fair value of long-term debt was undeterminable.
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, involve uncertainties and matters of
significant judgment, and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
F-9
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies (continued)
(i) Goodwill
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over 40
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. The amount of goodwill
impairment, if any, is measured based on the fair value of the asset.
(j) Concentrations of Credit Risk
Concentrations of credit risk with respect to trade receivables are
limited due to the Company's large customer base.
(k) Use of Estimates
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
This requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(l) Revenue Recognition
Vehicle sales revenue is recognized upon delivery, when the sales
contract is signed and down payment has been received. Notes received
from buyers are generally sold to finance companies. Finance fees are
received for notes sold to finance companies and are recognized, net of
anticipated chargebacks, upon acceptance of the credit by the finance
companies. These fees are included in service, parts, and other revenues
in the consolidated statements of operations. Parts and service revenues
are recognized at the time of sale or service.
The Company recognizes fees from the sale of third party extended
warranty service contracts at the time of sale. For extended warranty
service contracts where the Company is the primary obligor of the
contract, the costs directly related to sales of the contracts are
deferred and charged to expense proportionately as the revenues are
recognized. Warranty service contract revenues are included in service,
parts, and other revenues in the consolidated statements of operations.
(m) Advertising
Advertising costs are expensed in the period in which advertising occurs
and is included in selling, general and administrative expenses in the
consolidated statements of operations.
F-10
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies (continued)
(n) Major Suppliers and Dealer Agreements
The Company purchases substantially all of its new vehicles and
inventory from various manufacturers at the prevailing prices charged by
the manufacturers. A manufacturer's inability or unwillingness to supply
the dealerships with an adequate supply of popular models could affect
the Company's overall sales.
The Company enters into dealer sales and service agreements (Dealer
Agreements) with each manufacturer. The Dealer Agreement generally
limits the location of the dealership and grants the manufacturer
approval rights over changes in dealership management and ownership. A
manufacturer is also entitled to cancel the Dealer Agreement if the
dealership is in material breach of its terms.
The Company's ability to acquire additional dealerships depends, in
part, on obtaining manufacturers' approval.
(o) Computation of Per Share Amounts
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
(SFAS No. 128) which is effective for fiscal years ending after December
15, 1997. The Company has adopted SFAS No. 128 in the accompanying
financial statements.
For purposes of calculating basic earnings per share for 1997, net
income of $64,000 is reduced by cumulative redeemable preference
dividends of $128,000, redeemable preferred stock liquidation preference
accretion of $40,000, and preferred stock discount amortization of
$45,000. This net loss available to common stockholders of $149,000 is
then divided by the weighted average shares outstanding. Diluted
earnings per share does not include dilutive securities, such as options
and warrants, as their inclusion would be anti-dilutive for 1997.
(p) Pro Forma 1996 and 1995 Net Income and Per Share Amounts
Pro forma 1996 and 1995 net income reflects income tax expense as if the
Company had terminated its S Corporation status on January 1, 1995, and
had normal statutory tax rates for 1996 and 1995 (see Note 6). In
addition, since the capital structure of the Price Dealerships prior to
the Combination is not comparable to the capital structure subsequent to
the Combination, pro forma net income per share for 1996 and 1995 is
presented based on the 5,526,000 shares issued to the Price Dealership
stockholders in the Combination.
F-11
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies (continued)
(q) New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income." This statement establishes standards of reporting and
presentation of comprehensive income and its components in a full set of
general purpose financial statements. This statement will be effective
for the fiscal years ending after December 15, 1998, and the Company
does not intend to adopt this statement prior to the effective date.
In June 1997, the Financial Accounting Standards Board also issued
Statement of Financial Accounting Standard No. 131 "Disclosures about
Segments of an Enterprise and Related Information." This statement
provides revised disclosure guidelines for segments of an enterprise
based on management's approach to defining operating segments. This
statement is effective for fiscal years ending after December 15, 1998.
The management of the Company believes that it currently operates in
only one industry segment and analyzes operations on a Company-wide
basis, therefore the statement is not expected to impact the Company.
(r) Reclassifications
Certain prior year amounts have been reclassified to conform with 1997
presentation.
(2) Senior Notes
At the time of the Combination (see Note 1), the Company entered into a
Securities Purchase Agreement (the "Agreement") with a financial company
to provide an aggregate funding commitment of up to $40 million. In
exchange for the $40 million, the Company may issue on a pro-rata basis
up to $36 million of 12.375% Senior Notes (Notes), $3.5 million 8%
Cumulative Redeemable Preferred Stock (CRPS), and $0.5 million
Redeemable Preferred Stock (RPS), and up to 5 million shares of the
Company's Class B Common Stock, par value $0.00001 per share.
At the time of the Combination, the Company had received $28 million
from the financial company. In exchange, the Company issued Notes with a
principal amount of $24 million at a discount of $2.2 million, 3.5
million shares of CRPS at a discount of $0.6 million, 0.5 million shares
of RPS at a discount of $0.1 million and 3 million shares of Class B
Common Stock at $0.92 per share. The Notes, CRPS and RPS are due June
30, 2005 (see Note 7).
For financial reporting purposes, the difference between the issue price
and the face value of each security is recorded as a discount and is
amortized over the life of each security using the effective interest
method. The Notes discount amortization is included in interest expense
and the CRPS and RPS discount amortization is recorded as a deduction
from retained earnings.
F-12
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(2) Senior Notes (continued)
The Notes are unsecured and subordinated to all debts of the operating
subsidiaries, rank pari passu to the Company's other existing and future
senior indebtedness, and are senior in right of payment to any future
subordinated debt of the Company. The CRPS and RPS shares will be
subordinate to all the debt of the Company and its subsidiaries and have
priority over the common stock of the Company. The Company can redeem
all the Notes or any part thereof, at any time, upon due notice to the
holders of the Notes. The redemption price for the period beginning July
1, 1997 to June 30, 1998 is 110% of the principal balance and decreases
by 1.25% for each year beginning July 1, thereafter. If the aggregate
outstanding principal balance, at any time, is less than $2 million, the
Company is required to redeem all outstanding Notes.
On July 1, 2003 and July 1, 2004, the Company shall redeem the Notes in
the aggregate principal amount equal to the lesser of (a) 30% of the
aggregate principal amount of Notes issued and (b) the aggregate amount
of issued and outstanding Notes on such date, at the applicable
redemption price plus all accrued and unpaid interest on the Notes to
the redemption date. On June 30, 2005 the Company shall redeem all
remaining issued and outstanding Notes, including accrued and unpaid
interest.
If the Company has a public offering of its stock, the Company may
within 45 days of consummation of public offering, redeem all the
outstanding Notes. In such circumstances, the redemption price for the
period beginning July 1, 1997 to June 30, 1998 is 105% of the principal
balance and decreases by 0.75% for each year beginning July 1,
thereafter.
The Agreement contains various financial covenants such as minimum
interest coverage, and non-financial covenants including limitations on
the Company's ability to pay dividends, retire or acquire debt, make
capital expenditures, and sell assets.
The Company incurred $1.5 million in interest expense related to the
Notes during 1997, including $88,000 for the non-cash amortization of
discount.
(3) Flooring Notes Payable and Secured Lines of Credit
At the time of the Combination, the Company entered into a three year
$175 million Loan and Security Agreement (the "Loan Agreement") with a
financial company, replacing an existing $37 million line of credit to
the Company.
The Loan Agreement permits the Company to borrow up to $115 million in
flooring notes payable, restricted by new and certain used vehicle
inventory and provides an additional line of credit up to $35 million
("Revolver Advances"), restricted by used vehicle and parts inventory.
The Loan Agreement also provides a discretionary line up to $25 million
("Discretionary Advances") which the financial company makes at its
absolute discretion upon request of the Company.
As of December 31, 1997, the Company had flooring notes payable,
Revolving Advances, and Discretionary Advances outstanding of $66.5
million, $4.0 million, and $0, respectively.
F-13
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(3) Flooring Notes Payable and Secured Lines of Credit (continued)
Flooring notes payable are due when vehicles are sold, leased, or
delivered. Revolver Advances are due whenever the borrowing base as
defined in the Loan Agreement is exceeded and are included in secured
lines of credit in the accompanying financial statements. The Loan
Agreement grants a collateral interest in substantially all of the
Company's assets.
Interest rates on the flooring notes and the Revolver Advances are
variable and change based on movements in the prime rate. The interest
rates equal the prime rate minus 35 to 75 basis points; 8.15% to 7.75%
at December 31, 1997. During 1997, the average monthly borrowing on the
flooring notes and Revolver Advances was $44.0 million and $0.3 million,
respectively, and the aggregate average interest rate was 7.75%.
The Loan Agreement contains various financial covenants such as minimum
interest coverage, working capital, and maximum debt to equity ratios.
(4) Acquisitions
During 1997, the Company acquired substantially all of the operating
assets of eight automobile dealerships. The aggregate consideration paid
for the acquired dealerships during 1997 was $11.7 million in cash, 1.6
million shares of Class A Common Stock and warrants to acquire up to
20,000 shares of Class A Common Stock.
All of the acquisitions were accounted for using the purchase method of
accounting and the operating results of these dealerships have been
included in the Company's results of operations since the date they were
acquired. The purchase prices have been allocated to assets acquired and
liabilities assumed based on the fair values on the acquisition dates.
Amounts recorded for these acquisitions were as follows: current assets,
net of cash, of $25.9 million, fixed assets of $3.4 million, non-current
assets of $0.1 million, flooring notes payable and current liabilities
of $21.0 million. Goodwill of $4.8 million was recorded and is being
amortized on a straight-line basis over 40 years. Amortization expense
for goodwill was approximately $101,000; $18,000 and $5,000 in 1997,
1996 and 1995, respectively.
The following unaudited pro forma financial data is presented as if the
acquisitions had occurred on January 1, 1996, for the year ended:
<TABLE>
<CAPTION>
(Unaudited)
(dollars in thousands except per share data)
1997 1996
---- ----
<S> <C> <C>
Total sales $ 604,980 $ 571,976
Operating (loss) income (493) 2,476
Net income (loss) (296) 1,486
Net income (loss) per share:
Basic and diluted $ (0.03) $ 0.27
</TABLE>
F-14
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(4) Acquisitions (continued)
The pro forma information presented above is for informational purposes
only and is not indicative of operating results that would have occurred
had the acquisitions been in effect for the entire periods presented,
nor are they necessarily indicative of future operating results and do
not reflect any synergies that might be achieved from the combined
operations.
(5) Combination and Related Expenses
The Company incurred $2.3 million in certain legal, accounting,
consulting and compensation expenses associated with the Combination and
development of its organization and business plan.
(6) Income Taxes
On January 1, 1997, the Company terminated its S Corporation election
and elected C Corporation status. This change in tax status resulted in
the immediate recognition of $214,000 in net deferred tax assets. In
connection with the change in tax status, the Company changed its method
of valuing inventories from the last-in first-out ("LIFO") method to the
specific identification method. This change resulted in a tax liability
of $1.4 million and is payable equally over the next six years ("LIFO
recapture"). The current portion of the LIFO liability is included in
accrued liabilities and the remainder is included in deferred income
taxes in the accompanying financial statements.
Income tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Year ended December 31, 1997:
Federal $ 625 $ (306) $ 319
State 170 (43) 127
--------------- --------------- ---------------
$ 795 $ (349) $ 446
=============== =============== ===============
</TABLE>
Income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34 percent to pretax income from
continuing operations as a result of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Computed tax expense $ 173
Increase (reduction) in income taxes resulting from:
Change in tax status to C Corporation (including LIFO
recapture) (214)
State income taxes 127
Non-deductible stock compensation 287
Other, net 73
-----------------
$ 446
=================
</TABLE>
F-15
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(6) Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997, are presented below (in thousands):
Deferred tax assets:
Extended warranty service contracts $ 1,184
Other 426
-------
Total deferred tax assets 1,610
-------
Deferred tax liabilities:
LIFO recapture (1,160)
Other (101)
-------
Total deferred liabilities (1,261)
-------
Total deferred tax asset, net $ 349
=======
Pro Forma Income Taxes
Prior to January 1, 1997, the Company was a S Corporation. The following
unaudited pro forma provision for income taxes reflects the components
of income tax expense that would have been reported if the Company had
been a C Corporation for the years ended December 31, 1996 and 1995,
respectively (in thousands):
Federal State Total
Year ended December 31, 1996 $ 592 $ 122 $ 714
===== ====== ======
Year ended December 31, 1995 $ 482 $ 99 $ 581
===== ====== ======
F-16
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(7) Preferred Stock
The Company has 10,000 shares of authorized Preferred Stock with par
value of $0.00001 per share. In connection with the Securities Purchase
Agreement (see Note 2), the Company issued 3,500 shares of Cumulative
Redeemable Preferred Stock ("CRPS"), due June 30, 2005, with a par value
of $0.00001 per share, and 500 shares of Redeemable Preferred Stock
("RPS"), due June 30, 2005, with a par value of $0.00001 per share. As
of December 31, 1997, 3,500 CRPS and 500 RPS were issued and
outstanding.
CRPS
The holders of CRPS are entitled to receive a dividend at an annual rate
of 8% of CRPS, payable, equally, on May 31, and November 30 of each year
("Dividend Payment Date"). Any unpaid dividends accrue cumulatively at
an annual rate of 14%. The Company is required to redeem the CRPS on
June 30, 2005, but may be redeemed, all or in part, at any time prior to
that date at the Company's election.
The liquidation preference for each share of CRPS is $1,000 ("CRPS
Liquidation Preference"). The redemption price per share (expressed as a
percentage of the CRPS Liquidation Preference) for the period beginning
June 30, 1997 to June 29, 1998, is 110% of the CRPS Liquidation
Preference and decreases by 1.25% for each year beginning June 30,
thereafter. The redemption price per share on June 30, 2005, is equal to
the CRPS Liquidation Preference.
RPS
The holders of RPS are not entitled to receive any dividends. Each RPS
share has an initial liquidation preference of $1,080 ("RPS Liquidation
Preference"), which increases by $80 per share each year beginning June
30, 1998. The RPS Liquidation Preference will be $1,720 on June 30,
2005. All the RPS, or any part thereof, may be redeemed for cash at the
Company's election. The redemption price per share (expressed as a
percentage of the RPS Liquidation Preference) for the period beginning
June 30, 1997 to June 29, 1998 is 110% of the RPS Liquidation Preference
and decreases by 1.25% for each year beginning June 30, thereafter. The
redemption price per share on June 30, 2005, is equal to the RPS
Liquidation Preference.
The Preferred Stock has no voting rights except (a) as required by the
law of the State of Delaware, (b) to approve certain transactions that
would otherwise violate the terms of Agreement governing the sale of
Preferred Stock by the Company (see Note 2), and (c) to elect a director
to the Board of Directors to represent the CRPS stockholders if
dividends on CRPS remain in arrears and unpaid for two semiannual
dividend periods, or, if the Company fails to mandatorily redeem the
Preferred Stock after June 30, 2005.
F-17
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(7) Preferred Stock (continued)
During 1997, the Company recorded $128,000 as CRPS preference dividend,
$40,000 for the accretion of the RPS Liquidation Preference with a
corresponding charge to paid in capital, and $45,000 for the non-cash
amortization of the discount with a corresponding charge to retained
earnings.
(8) Common Stock
The Company has authorized Class A Common Stock of 30 million shares,
Class B Common Stock of 5 million shares, and Class C Common Stock of 30
million shares, all with a par value of $0.00001 per share.
The Class A and Class B Common Stock have equal voting rights and the
Class C Common Stock is non-voting, except as otherwise required by
Delaware law. Class B Common Stockholders, voting as a separate class,
are entitled to elect one Director to the Board of Directors of the
Company. Each share of Class B Common Stock will be automatically
converted into one share of Class A Common Stock upon the closing of a
firm commitment to register at least $50 million of Common Stock under
the Securities Act of 1933. Class C Common Stock will be issued only
under certain conditions as defined in the Certificate of Incorporation.
The Company is prohibited from paying dividends on its common stock so
long as any shares of CRPS are outstanding. Under certain circumstances
pursuant to the terms of its financing agreements, the Company is
prohibited from paying dividends on its common stock.
(9) Stock Options and Warrants
The Company's Board of Directors has approved the 1997 Stock Option Plan
(the "Option Plan") pursuant to which an aggregate of shares of Class A
Common Stock were reserved for issuance to key employees of the Company.
The Option Plan permits awards of either incentive or non-qualified
stock options. The exercise price of the options may not be less than
the fair market value as determined by a committee of the Board of
Directors. As of December 31, 1997, the Company granted options to
employees covering an aggregate of 942,000 shares of Class A common
stock. The options vest over a five year period, and expire if
unexercised ten years from the date of grant.
During 1997, the Company issued warrants to purchase approximately
331,000 shares of Class A Common Stock at an exercise price of $0.92 per
share. The warrants expire in 2002 and were issued in connection with
obtaining financing (see Notes 2 and 6) and one of the acquisitions made
during 1997. The Company has elected the disclosure requirements of
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123") and applies Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") in accounting for its Option Plan.
F-18
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(9) Stock Options and Warrants (continued)
The fair value of each option grant is estimated based on the date of
grant using the Black-Scholes option valuation model with expected
volatility of 42%, risk-free interest of 6.25%, dividend yield of 0%,
and an expected option life of 5.5 years.
Had compensation expense of the Company's stock-based compensation plan
been determined based on the fair value method prescribed by SFAS No.
123, the Company's pro forma net loss and basic and diluted earnings per
share for the year ended December 31, 1997 would have been (in thousands
except per share amounts):
<TABLE>
<CAPTION>
As reported Pro forma
----------- ---------
<S> <C>
Net income: $64 Net income: $18
Net loss per share: $0.01 Net loss per share: $0.02
</TABLE>
At December 31, 1997, 103,000 options were vested and 558,000 options
were available for future grant under the Option Plan. The weighted
average contractual life of options outstanding at December 31, 1997,
was 4.5 years. The weighted average exercise price of options granted
during the year ended December 31, 1997, was $2.65.
(10) Property and Equipment
Property and equipment is comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Leasehold improvements $ 3,125 $ 2,095
Equipment 2,924 1,301
Furniture, signs and fixtures 2,333 1,002
Company vehicles 832 396
--------------- ---------------
Total property and equipment 9,214 4,794
Less accumulated depreciation 2,133 1,804
--------------- ---------------
Property and equipment, net $ 7,081 $ 2,990
=============== ===============
</TABLE>
(11) Employee Benefit Plans
Substantially all of the employees of the Company are eligible to
participate in the FirstAmerica Automotive, Inc. Retirement Savings Plan
("the Plan"), a defined contribution plan, after meeting minimum service
requirements. Employees of acquired companies are eligible to join the
Plan if or when the minimum service criteria has been met. Service
completed at the time of acquisition will apply towards the meeting of
the criteria. The Company has recorded matching contributions in the
amount of approximately $334,000, $196,000, and $191,000, in 1997, 1996
and 1995, respectively.
F-19
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(12) Commitments and Contingencies
Operating Leases
All of the Company's operations are conducted in leased facilities. The
Company leases certain facilities from certain officers of the Company
(see Note 13). The minimum future rental payments by the Company as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31, Related Parties Other Total
------------------------ --------------- ----- -----
<S> <C> <C> <C>
1998 $ 2,766 $ 4,946 $ 7,712
1999 2,766 4,586 7,352
2000 2,805 4,117 6,922
2001 2,862 3,527 6,389
2002 2,622 3,105 5,727
Thereafter through 2014 22,770 16,463 39,233
</TABLE>
Rental expense for operating leases was $5.8 million, $2.8 million, and
$2.4 million in 1997, 1996 and 1995, respectively.
Litigation
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material effect on
the Company's financial position or the future results of operations and
cash flows.
(13) Related Party Transactions
Operating Leases
The Company leases facilities under various agreements from a Trust
affiliated with the Chief Executive Officer ("CEO") of the Company (the
"Trust"), and from partnerships in which the Chairman of the Company and
the CEO are partners. During 1997, a partnership in which the Chairman
of the Company is a partner purchased a facility leased by the Company.
As part of the acquisition, the partnership reimbursed the Company $0.8
million for leasehold improvements.
These leases have an initial term of 15 years and are renewable at the
option of the Company. Selling, general and administrative expense
includes related party rental expense of $2.3 million, $1.7 million, and
$1.5 million in 1997, 1996, and 1995, respectively.
F-20
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements, Continued
(13) Related Party Transactions (continued)
Acquisitions
During 1997, the Company issued 1.3 million shares of its Class A Common
Stock in exchange for substantially all the operating assets of a
dealership owned by the Chairman of the Company. As a result of this
transaction, the Chairman of the Company owed $0.5 million, as of
December 31, 1997, which was subsequently paid.
During 1997, the Company acquired substantially all the operating assets
of a dealership owned by the Chief Operating Officer of the Company for
$2.9 million.
Management Services
Prior to the Combination, a Company affiliated with the CEO provided
management services to the Company. Selling, general and administrative
expense includes approximately $0.8 million, $1.8 million and $1.6
million, for the years ended December 31, 1997, 1996 and 1995,
respectively for data processing, executive compensation, professional,
and other services.
Legal Services
The law firm, in which one of the Directors of the Company is a partner,
provides legal services to the Company which amounted to approximately
$0.4 million in 1997.
Notes Payable
The Company had $0.6 million of notes payable due to a stockholder at
December 31, 1997.
(14) Subsequent Events
In April 1998, the Company acquired substantially all of the operating
assets of Beverly Hills BMW, Ltd. The purchase price of $11.9 million
includes goodwill and other operating assets, and was financed by the
Company's available lines of credit. The unaudited revenues for the year
ended December 31, 1997 were approximately $54 million. In addition, the
Company has entered into definitive agreements, subject to manufacturer
approval, to acquire two automobile dealerships for an aggregated
estimated purchase price of $7.0 million plus new vehicle inventory.
F-21
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
- -------
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
2.1.1 Agreement and Plan of Reorganization dated July 1, 1997 by and among the
Company, California Carriage, Ltd., dba Concord Honda and Donald V.
Strough, Trustee of the Strough 1983 Revocable Trust.
2.1.2 Agreement and Plan of Reorganization dated July 1, 1997 by and among the
Company, Price Auto Holding, Inc., dba Melody Toyota, Price Trust utd
10/5/84, Fred Cziska and FAA San Bruno, Inc.
2.1.3 Agreement and Plan of Reorganization dated July 1, 1997 by and among the
Company, Serramonte Motorcars, Inc., dba Lexus of Serramonte, Price
Trust utd 10/5/84, Fred Cziska, John Driebe and FAA Serramonte L, Inc.
2.1.4 Agreement and Plan of Reorganization dated July 1, 1997 between the
Company, Cziska Price, Inc., dba Stevens Creek Nissan, the
shareholders of Cziska Price, Inc. and FAA Stevens Creek, Inc.
2.1.5 Agreement and Plan of Reorganization dated July 1, 1997 between the
Company, Transcar Leasing, Inc., dba Serramonte Auto Plaza, the
shareholders of Transcar Leasing, Inc. and FAA Serramonte GM, Inc.
2.1.6 Asset Purchase Agreement dated March 14, 1997 by and among FAA Concord
N, Inc., Concord Nissan, Inc. and Steven Hallock.
2.1.7 Stock Purchase Agreement dated July 1, 1997, by and between the Company,
The Price Trust u/t/d 10/5/84 and Smart Nissan, Inc.
2.1.8 Asset Purchase Agreement dated March 19, 1997 by and between the Company
and Asian Pacific Industries, Inc.
2.1.9 Asset Purchase Agreement dated January 23, 1997 by and among the
Company, Auto Center of Poway, Inc., Thomas Nokes and H. Matthew
Travis.
2.1.10 Asset Purchase Agreement dated January 23, 1997 by and among the
Company, Auto Center of North County, Inc., Thomas Nokes and H.
Matthew Travis.
1
<PAGE>
3.1 Amended and Restated Certificate of Incorporation, as amended, filed
July 8, 1997.
3.2 By-Laws.
4.1 Stockholders' Agreement dated July 11, 1997 by and among the Company and
its stockholders, Thomas Price, Donald Strough, Steven Hallock, Fred
Cziska, Al Babbington, John Driebe, Embarcadero Automotive, LLC,
Raintree Capital LLC, BB Investments and certain affiliates of Trust
Company of the West.
4.1.1 Securities Purchase Agreement dated as of July 11, 1997 by and among the
Company, certain of its wholly-owned subsidiaries and Trust Company of
the West and certain of its affiliates, as Purchasers.
4.1.2 Amendment No. 1 to Securities Purchase Agreement dated as of January 9,
1998 by and among each of FAA Capitol N, Inc., FAA Auto Factory, Inc.
and each of the parties to the Securities Purchase Agreement dated as
of July 11, 1997.
10.1 Loan and Security Agreement by and between General Electric Capital
Corporation, and 13 subsidiaries of the Company dated as of July 2,
1997.
10.1.1 Intercreditor and Subordination Agreement dated as of July 8, 1997
by and among TCW/Crescent Mezzanine Partners, L.P., TCW/Crescent
Mezzanine Trust, TCW/Crescent Mezzanine Investment Partners, L.P., and
General Electric Capital Corporation.
10.2 Agreement between American Honda Motor Co., Inc. and the Company dated
as of May 1, 1997 by and among the Company, Donald V. Strough, Thomas
A. Price, Steven S. Hallock, Fred Cziska, Al Babbington, John Driebe,
Raintree Capital, LLC, BB Investments, Brown Gibbons & Lang, L.P. and
American Honda Motor Co., Inc.
10.3 Nissan Dealer Agreement Sales and Service Agreement Standard Provisions,
dated as of July 16, 1997 by and between Nissan Division, Nissan
Motor Corporation in U.S.A. and the Company.
10.3.1 Nissan Dealer Term Sales and Service Agreement dated June 30, 1997 by
and between Nissan Motor Corporation in U.S.A. and FAA Serramonte,
Inc.
2
<PAGE>
10.3.2 Nissan Contiguous Market Ownership Holding Company Agreement dated June
30, 1997 by and among Nissan Motor Corporation in U.S.A., the Company,
FAA Concord N, Inc., and FAA Dublin N, Inc.
10.3.3 Nissan Dealer Term Sales and Service Agreement dated as of July 16, 1997
by and between Nissan Motor Corporation in U.S.A. and FAA Dublin N,
Inc.
10.3.4 Nissan Contiguous Market Ownership Addendum dated July 16, 1997 by and
among Nissan Motor Corporation in U.S.A., Thomas A. Price, FAA Dublin
N, Inc. and the Company.
10.3.5 Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
dated June 30, 1997 by and between Nissan Motor Corporation in U.S.A.
and the Company (FAA Dublin N, Inc.).
10.3.6 Nissan Dealer Term Sales and Service Agreement dated June 30, 1997 by
and between Nissan Motor Corporation in U.S.A. and Smart Nissan, Inc.
10.3.7 Nissan Contiguous Market Ownership Addendum dated June 30, 1997 by and
among Nissan Motor Corporation in U.S.A., Thomas A. Price, Smart
Nissan, Inc. and the Company.
10.3.8 Nissan Contiguous Market Holding Company Agreement dated June 30, 1997
by and between Nissan Motor Corporation in U.S.A. and the Company
(Smart Nissan, Inc.; FAA Serramonte, Inc.).
10.3.9 Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
dated June 30, 1997 by and between Nissan Motor Corporation in U.S.A.
and the Company (Smart Nissan, Inc.).
10.3.11 Nissan Contiguous Market Ownership Addendum dated June 30, 1997 by and
among Nissan Motor Corporation in U.S.A., Thomas A. Price, FAA
Serramonte, Inc., and the Company.
10.3.12 Nissan Contiguous Market Ownership Holding Company Agreement dated June
30, 1997 by and between Nissan Motor Corporation in U.S.A. and the
Company (FAA Serramonte, Inc.).
10.3.13 Nissan Dealer Term Sales and Service Agreement dated June 30, 1997 by
and between Nissan Motor Corporation in U.S.A. and FAA Stevens Creek,
Inc.
3
<PAGE>
10.3.14 Nissan Contiguous Market Ownership Addendum dated June 30, 1997 by and
among Nissan Motor Corporation in U.S.A., Thomas A. Price, FAA Stevens
Creek, Inc. and the Company.
10.3.15 Nissan Contiguous Market Ownership Areas Formation and Linkage
Agreement dated June 30, 1997 by and between Nissan Motor Corporation
in U.S.A. and the Company (FAA Stevens Creek, Inc.).
10.3.16 Nissan Dealer Term Sales and Service Agreement dated as of September
25, 1997 by and between Nissan Motor Corporation in U.S.A. and FAA
Capitol N, Inc.
10.3.17 Nissan Contiguous Market Ownership Addendum dated September 25, 1997 by
and among Nissan Motor Corporation in U.S.A., Thomas A. Price, FAA
Capitol N, Inc. and the Company.
10.3.18 Nissan Contiguous Market Ownership Holding Company Agreement dated
September 25, 1997 by and between Nissan Motor Corporation in U.S.A. and
the Company (FAA Capitol N, Inc.).
10.3.19 Nissan Contiguous Market Ownership Addendum dated June 30, 1997 by and
among Nissan Motor Corporation in U.S.A., Thomas A. Price, FAA Concord
N, Inc. and the Company.
10.3.20 Nissan Dealer Term Sales and Service Agreement dated June 30, 1997 by
and between Nissan Motor Corporation in U.S.A. and FAA Concord N, Inc.
10.3.22 Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
dated June 30, 1997 by and between Nissan Motor Corporation in U.S.A.
and the Company (FAA Concord N, Inc.)
10.4 Toyota Dealer Agreement dated as of April 24, 1997 by and between Toyota
Motor Sales, U.S.A., Inc. and FAA Poway T, Inc.
10.4.1 Agreement dated as of May 2, 1997 between the Company and Toyota Motor
Sales, U.S.A., Inc.
10.4.2 Toyota Dealer Agreement dated as of June 30, 1997 by and between the
Company and Toyota Motor Sales, USA., Inc.
10.4.3 Lexus Dealer Agreement dated as of June 30, 1997 between Lexus and FAA
Serramonte L, Inc.
10.5 Dealer Sales and Service Agreement dated as of June 13, 1997 by and
between Mitsubishi Motor Sales of America, Inc. and FAA Serramonte,
Inc.
4
<PAGE>
10.6 Isuzu Dealer Sales and Service Agreement effective May 1, 1997 by and
between American Isuzu Motors, Inc. and FAA Serramonte, Inc.
10.6.1 Supplemental Agreement to Dealer Sales and Service Agreement dated as of
May 1, 1997 by and among FAA Serramonte, Inc. dba Serramonte Auto
Plaza, the Company and American Isuzu Motors, Inc.
10.7 Master Agreement dated as of July 1, 1997 between FAA Serramonte, Inc.
d/b/a Dodge of Serramonte; FAA Poway D, Inc. d/b/a Poway Dodge; FAA
Dublin VWD, Inc., d/b/a Dublin Dodge; the Company; Thomas A. Price and
Chrysler Corporation.
10.7.1 Chrysler Corporation Dodge Sales and Services Agreement dated as of May
9, 1997 by and between FAA Poway D, Inc., dba Poway Dodge and Chrysler
Corporation.
10.7.2 Chrysler Corporation Dodge Sales and Services Agreement dated as of July
7, 1997 by and between FAA Serramonte Inc. D, Inc., dba Dodge of
Serramonte Dodge and Chrysler Corporation.
10.7.3 Chrysler Corporation Dodge Sales and Services Agreement dated as of July
18, 1997 between FAA Dublin VWD, Inc., dba Dublin Dodge and Chrysler
Corporation.
10.8 Pontiac-GMC Division Pontiac Dealer Sales and Service Agreement dated as
of June 30, 1997 between General Motors Corporation, Pontiac and
Transcar Leasing, Inc., dba Serramonte Pontiac-Buick-GMC.
10.9 Lease Agreement dated as of September 18, 1997 by and among Bay
Automotive Properties, LLC, the Company and FAA Capitol N, Inc.
10.9.1 Lease Agreement dated as of July 1, 1997 by and among the Price Trust
u/t/d 10/5/84, the Company and FAA Serramonte L, Inc.
10.9.2 Lease Agreement dated as of April 15, 1998 by and among Price Trust
u/t/d 10/5/84, the Company and FAA Serramonte H, Inc.
10.9.3 Lease Agreement dated as of July 1, 1997 among Price Trust u/t/d
10/5/84, the Company and FAA Serramonte L, Inc.
10.9.4 Lease Agreement dated as of July 1, 1997 among Rosewood Village
Associates, the Company and California Carriage Limited.
10.9.5 Lease dated as of July 1, 1997 among Rosewood Village Associates, the
Company and FAA Stevens Creek, Inc.
5
<PAGE>
10.10 Executive Employment Agreement dated as of July 1, 1997 by and between
the Company and Donald V. Strough.
10.10.1 Executive Employment Agreement dated as of July 1, 1997 by and between
the Company and Thomas A. Price.
10.10.2 Employment Agreement dated as of March 1, 1997 by and between the
Company and Steven S. Hallock.
10.10.3 Noncompetition Agreement dated as of July 8, 1997 by and among Thomas
A. Price, Donald Strough and the Company.
10.11 FirstAmerica Automotive, Inc. 1997 Stock Option Plan, as amended.
21.1 Subsidiaries of the Company.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
6
<PAGE>
EXHIBIT 2.1.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into this 1st
day of July, 1997 by and among FIRSTAMERICA AUTOMOTIVE, INC., a Delaware
corporation ("FirstAmerica"), California Carriage, Ltd. dba Concord Honda, a
California corporation ("Company"), and Donald V. Strough, Trustee of the
Strough 1983 Revocable Trust (the "Shareholder").
R E C I T A L S:
A. The Company is an authorized Honda dealership franchisee located at
1300 Concord Boulevard, Concord, California.
B. The parties hereto desire to provide for the acquisition by
FirstAmerica of substantially all of the property of the Company.
C. The parties desire to complete such acquisition as a tax deferred
reorganization within the meaning of Sections 368(a)(1)(C) and 368(a)(2)(G)(i)
of the Internal Revenue Code of 1986, as from time to time amended (the "Code").
Now, therefore, the parties hereto agree as follows:
1. Asset Acquisition.
-----------------
1.1. Acquired Assets. The assets which are the subject of this
---------------
agreement (the "Acquired Assets") shall consist of substantially all of the
properties and assets owned by the Company, including, without limitation, all
of the assets and properties of the Company used in connection with or derived
from the Honda dealership franchise owned by the Company, which assets and
properties shall include, without limitation, all Honda special tools,
furniture, fixtures, equipment, tools, leasehold improvements, both new and used
motor vehicles, parts and accessories, tires, work in progress, oil, grease,
supplies, advertising literature, forms, customer files and databases, parts
return privileges, rights under new car purchase orders and deposits related
thereto, goodwill, the telephone number of the Company, the name "Concord Honda"
and all derivatives thereof, accounts and notes receivable, permits, licenses,
patents, trademarks, tradenames, all leases and rights of occupancy of the
premises at which the Company conducts the dealership, leasehold improvements,
the Honda franchise, and all contracts, agreements and commitments arising in
connection with the operation of the dealership. The assets of the Company shall
be set forth on Schedule 1.1 to be attached hereto prior to the Closing. A
physical inventory of motor vehicles and parts shall be taken by representatives
of both the Company and FirstAmerica immediately prior to the Closing, and shall
be initialed on behalf of both the Company and FirstAmerica and attached hereto
as part of Schedule 1.1.
1.2. Acquisition. The Company hereby agrees to convey, transfer,
-----------
assign and deliver to FirstAmerica, and FirstAmerica hereby agrees to acquire,
on the Closing Date, all of the Acquired Assets in accordance with and subject
to all of the terms and conditions of this Agreement.
1.3. Company Debt. Set forth on Schedules 3.6 and 3.7 attached hereto
------------
is a list of all the debts, obligations and liabilities of the Company (the
"Company Debt"). The term "Company Debt" shall not include any obligation owed
by the Company to Malindon, Ltd., a California corporation, and FirstAmerica
shall not assume or otherwise become responsible for the payment of any portion
of such obligation.
1.4. Consideration. As full consideration for the Acquired Assets,
-------------
FirstAmerica shall
<PAGE>
acquire the Acquired Assets subject to the Company debt and shall further
deliver to the Company 1,330,000 shares of common stock of FirstAmerica. Such
shares shall, upon delivery to the Company, be fully paid and non-assessable.
FirstAmerica shall deliver to the Company at the Closing one or more
certificates evidencing such number of shares of FirstAmerica common stock. Upon
receipt of such shares, the Company shall immediately distribute such shares,
together with all other assets of the Company, to the Shareholder in exchange
for all of the outstanding capital stock of the Company held by such
Shareholder. Such distribution shall constitute a material part of the plan of
reorganization provided for in this Agreement and Plan of Reorganization.
1.5. Tax Intent. Notwithstanding any of the provisions of this
----------
Agreement to the contrary, it is the intent of all of the parties hereto that
the transaction provided for herein qualify as a tax deferred reorganization
within the meaning of sections of 368(a)(1)(C) and 368(a)(2)(G)(i) of the Code.
It is further intended that the distribution of capital stock of FirstAmerica by
the Company to its Shareholder in exchange for the Company's outstanding shares,
shall constitute an exchange within Section 354(a)(1) of the Code. All of the
provisions of this Agreement shall be interpreted in a manner which is
consistent with the intent expressed in the immediately preceding sentence.
Further, each of the parties hereto shall undertake all actions as may be
necessary or appropriate to qualify the transactions provided for herein as a
tax deferred reorganization within the meaning of the sections of the Code
referenced immediately above. Each of the parties to this Agreement hereby
adopts this Agreement as a plan of reorganization, and agrees to report the
transaction provided for herein, for all tax reporting purposes, in a manner
which is consistent with the intent set forth in this section.
1.6. Transfer Restrictions; Legends. The shares of FirstAmerica 's
------------------------------
Common Stock to be issued pursuant to Section 1.4 shall not have been registered
and shall be characterized as "Restricted Securities" under the federal
securities laws, and under such laws such shares may be resold without
registration under the Securities Act of 1933, as amended, only in certain
limited circumstances. Each certificate evidencing shares of FirstAmerica's
Common Stock to be issued pursuant to Section 1.4 shall bear the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION UNLESS AN EXEMPTION FROM
THE REQUIREMENT OF REGISTRATION IS AVAILABLE AS
DEMONSTRATED BY AN OPINION OF LEGAL COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY.
1.7. Transfer Taxes. FirstAmerica shall pay any and all sales,
--------------
transfer or other similar taxes which may be imposed or payable on or in
connection with the transfer of the Acquired Assets.
2. Lease. Concurrently with the Closing, the Company shall enter into an
-----
amendment and restatement of the lease for that certain real property commonly
known as 1300 Concord Boulevard, Concord, California, at which the Company
operates its business immediately prior to the Closing, which lease shall be in
the form attached hereto as Schedule 2 and incorporated herein by this
reference.
3. Representations and Warranties of Company and Shareholder. The
---------------------------------------------------------
Company and Shareholder hereby jointly and severally represent and warrant to
FirstAmerica as follows:
3.1. Organization. The Company is a corporation duly organized,
------------
validly existing and
2
<PAGE>
in good standing under the laws of its state of incorporation, and is duly
authorized, qualified, and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to carry on its business in the
places and in the manner as now conducted, except (i) as set forth in Schedule
3.1 attached hereto; or (ii) where the failure to do so does not have a material
adverse effect on the business, operations, properties, assets, or condition of
the Company, taken as a whole.
3.2. Authorization. The Shareholder and the Company have the full
-------------
legal right, power and authority to enter into this Agreement. The execution
and delivery of this Agreement, and each other document, agreement and
instrument contemplated hereby and the consummation of the transactions provided
for in this Agreement have been duly authorized by the Company by all necessary
corporate action. This Agreement and each other agreement, document or
instrument, contemplated hereby has been duly executed and delivered by the
Shareholder and the Company. No approvals or consents of any person or entity
are necessary in connection with the power and authority of the Shareholder and
the Company to perform their respective obligations pursuant to this Agreement.
This Agreement constitutes the legal, valid and binding obligation of the
Shareholder and the Company enforceable against the Shareholder and the Company
in accordance with its terms, subject only to laws relating to bankruptcy,
insolvency or other similar provisions affecting creditors' rights.
3.3. Articles of Incorporation, By-Laws and Minute Books. True,
---------------------------------------------------
complete and correct copies of the Articles of Incorporation and By-Laws of the
Company, each as amended to date, have been furnished to FirstAmerica. The
stock records and minute books of the Company, all of which have been made
available to FirstAmerica, contain true and complete minutes and records of all
meetings, proceedings and other actions of the stockholders and directors of the
Company from the date of organization.
3.4. Authorized Capitalization. The authorized capital stock of the
-------------------------
Company consists solely of that number and classes or series of shares as is set
forth on Schedule 3.4 attached hereto. The number of issued and outstanding
shares of each class or series of stock of the Company are set forth on Schedule
3.4 attached. All the issued and outstanding shares of the Company are owned as
set forth on Schedule 3.4, and are validly issued and outstanding, fully paid
and non-assessable, free and clear of all liens, security interests, pledges,
charges, voting trusts, equities, restrictions, encumbrances and claims of every
kind. All of the outstanding shares of the Company were offered, issued, sold
and delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. None of the shares of the Company
which are outstanding were issued in violation of any preemptive rights held by
any past or present shareholder of the Company. The Company does not have any
outstanding options, warrants, rights or other securities, plans, contracts or
agreements which give the holder thereof or any other person the right to
purchase any shares of the Company's capital stock or which are convertible into
or exercisable for any shares of such capital stock or under which any such
option, warrant, or right or security may be issued in the future. The Company
does not have any obligation, whether contingent or otherwise, to purchase,
redeem, or otherwise acquire any of its equity securities or interests therein
or pay a dividend or make any distribution with respect thereto.
3.5. Subsidiaries. Except as set forth on Schedule 3.5 attached
------------
hereto, the Company does not own, whether of record or beneficially or control,
directly or indirectly, any capital stock, securities convertible into capital
stock, or any other equity interest in any corporation, association, or business
entity, and is not a party either directly or indirectly to any joint venture,
partnership, limited liability company, or any other entity.
3.6. Financial Statements. Attached hereto as Schedule 3.6 are copies
--------------------
of the financial statements of the Company, including statements of income, cash
flow, and retained earnings for each of the most recent three fiscal years of
the Company and for the period ending sixty (60) days prior to the date of this
Agreement. Also attached as a part of Schedule 3.6 is a copy of the most recent
dealer financial
3
<PAGE>
statement for the Company which dealer financial statement will be updated as of
the Closing. Such financial statements, including the dealer financial
statement, have been and will be prepared in accordance with generally accepted
accounting principles applied on a consistent basis and present fairly the
financial position of the Company as of the dates and for the periods indicated.
At the Closing Date, the Company shall have a net worth of not less than
$1,996,000.
3.7. Liabilities. Attached hereto as Schedule 3.7, is an accurate
-----------
list, as of the Closing, of all material liabilities and obligations of the
Company which are not reflected on the most recent dealer financial statement as
of the date of this Agreement. Schedule 3.7 shall be updated as of the Closing
to reflect all such material liabilities and obligations of the Company not
reflected on the dealer financial statement prepared concurrently with the
Closing. Such Schedule includes any and all liabilities and obligations,
whether accrued, absolute, secured or unsecured, contingent or otherwise.
Company has previously provided to FirstAmerica Company's reasonable estimate of
the maximum amount of potential exposure for any debt or liability which is not
fixed or is contested.
3.8. Receivables. Set forth on Schedule 3.8 attached hereto is an
-----------
accurate list as of the date of this Agreement of the accounts and notes
receivable of the Company, including receivables from and advances to employees
and shareholders. Such Schedule includes an aging of all accounts and notes
receivable. Such Schedule shall be updated as of the Closing.
3.9. Permits and Intangibles. Attached hereto as Schedule 3.9, is an
-----------------------
accurate list and summary description of all permits, licenses, franchises,
certificates, trademarks, tradenames, service marks, patents, and other similar
items owned by the Company. All such items are valid and in full force and
effect. There is no default, or the occurrence of any event, which with the
passage of time, the giving of notice or both will constitute a default, of any
such items. None of such items infringe upon the rights of any other person.
3.10. Assets. Attached hereto as Schedule 3.10 is an accurate list,
------
as of the date of this Agreement, of all personal property (other than
inventory) having a cost in excess of $10,000, owned or leased by the Company,
together with true, complete and correct copies of any and all leases for any
property leased by the Company. Except as otherwise set forth on Schedule 3.10,
all of such property is in good working order and condition, ordinary wear and
tear excepted. The leases referenced in Schedule 3.10 have been duly
authorized, executed and delivered, and constitute the legal, binding and valid
obligations of the Company, and, to the knowledge of the Shareholders, no other
party to any such leases is in default of any provision thereof, and such leases
constitute the legal, valid and binding obligations of the other parties
thereto. All of the assets used by the Company in the operation of the business
are either owned by the Company or leased by the Company. Schedule 3.10 shall
be updated as of the Closing.
3.11. Material Contracts. Set forth on Schedule 3.11 attached
------------------
hereto, is an accurate and complete list, as of the date of this Agreement, of
all material contracts, commitments and similar agreements to which the Company
is a party, or by which any of its assets or properties are bound. The Company
has delivered true and accurate copies of each such contract to FirstAmerica.
Except as otherwise set forth on Schedule 3.11, the Company has complied with
all material commitments and obligations pertaining to it, and is not in
material default, and has received no notice of default with respect to, and no
event has occurred which, with the passage of time, the giving of notice or both
would constitute a material default with respect to, any contracts set forth on
Schedule 3.11.
3.12. Unions. Except as set forth on Schedule 3.12 attached hereto,
------
the Company is not a party to any arrangement with any union, and no employees
of the Company are represented by any labor union or covered by any collective
bargaining agreement, nor, to the knowledge of the Company, is any effort to
establish such representation in progress. There is no pending or, to the
knowledge of the
4
<PAGE>
Company, threatened labor dispute involving the Company or any of its employees.
3.13. Insurance. Set forth on Schedule 3.13 attached hereto, is an
---------
accurate list as of the date of this Agreement, of all insurance policies of the
Company, including an accurate list of all insurance losses, including workers'
compensation claims, of the Company for the past three policy years.
3.14. Employee Plans. Set forth on Schedule 3.14 attached hereto is
--------------
a complete and accurate list of all employee benefit plans including without
limitation, all pension, profit sharing, deferred compensation, bonus, and
multi-employer plans and other plans currently maintained or sponsored by the
Company, or to which the Company contributes or has an obligation to contribute
in the future. The Company and, to the knowledge of the Shareholder, each of
the plans referenced on Schedule 3.14 attached is in substantial compliance with
all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). No plan has incurred an accumulated funding
deficiency, as defined for purposes of the Internal Revenue Code and ERISA, and
the Company does not have any direct or indirect obligation or liability to the
Pension Benefit Guaranty Corporation or to the Internal Revenue Service for any
excise tax or penalty. Neither the Company nor any ERISA Affiliate (i.e., each
business which is treated together with the Company as a single employer under
Section 4001(a)(14) of ERISA or Internal Revenue Code Section 414(b), (c), (m),
(n) or (o)) has incurred or expects to incur any withdrawal liability to any
multi-employer plan. Copies of all of the plans listed on Schedule 3.14,
together with current determination letters and the filings with the Internal
Revenue Service for the last two fiscal years of the plans, are attached to
Schedule 3.14.
3.15. Litigation: Conformity with the Law. Except as set forth on
------------------------------------
Schedule 3.15 attached hereto, there are no claims, actions, suits or
proceedings, pending or, to the knowledge of the Shareholder, threatened,
against or affecting the Company or any of its properties at law or in equity,
or before or by any federal, state, municipal, or any other governmental
department, commission, board, bureau, agency, or instrumentality, having
jurisdiction with respect to the Company, and no notice of any claim, action,
suit, or proceeding, whether pending or threatened has been received. The
Company has conducted its business in substantial compliance with all federal,
state and local statutes, ordinances, permits, licenses, orders, variances,
rules and regulations. Except as set forth on Schedule 3.15, the Company is not
subject to any order of any Court, or federal, state, municipal, governmental
department, commission, board, bureau, agency, or instrumentality.
3.16. Taxes. The Company has filed and will file all requisite
-----
federal, state, local and all other tax returns for all fiscal periods ended on
or before the Closing Date, except for any such tax returns not yet due. There
are no examinations in progress, or claims against the Company for federal or
other taxes, including penalties or interest, for any period or periods prior to
the Closing, except as otherwise set forth on Schedule 3.16 attached hereto.
Amounts reflected on the financial statements of the Company as of the Closing
as reserves for taxes not yet payable are sufficient for the payment of all
taxes, including penalties and interest, for all periods prior to the Closing.
3.17. Environmental Matters. None of the Company's assets has ever
---------------------
been used by the Company or, to the best of the Company's knowledge, by previous
owners or operators, in the disposal of, or to produce, store, handle, treat,
release, or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; none of the Company's assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any of the Company's property; the Company does not have any contingent
liability in connection with the release of any hazardous substances into the
environment, including third-party releases onto property that the Company owns
or operates; and the Company has not received a summons, citation, notice, or
directive from the
5
<PAGE>
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by the Company relating to the release
or disposal of hazardous waste or hazardous substances. Except as set forth on
Schedule 3.17 attached hereto, the Company has not at any time owned or leased
any real estate having underground storage tanks.
3.18. Shareholder Qualification. The Shareholder is an "accredited
-------------------------
investor" for purposes of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder. In addition, the Shareholder, by reason of
such Shareholder's business or financial experience or the business or financial
experience of such Shareholder's professional advisors who are not affiliated
with or compensated by FirstAmerica or FirstAmerica's affiliates, has the
capacity to protect such Shareholder's interests in connection with the
transactions contemplated hereunder.
3.19. Representations and Warranties on Closing Date. The
----------------------------------------------
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date with
the same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
4. Representations and Warranties of FirstAmerica. FirstAmerica
----------------------------------------------
represents and warrants as follows:
4.1. Organization. FirstAmerica is a corporation duly organized,
------------
validly existing and in good standing under the laws of its state of
incorporation and is duly authorized, qualified and licensed under all
applicable laws, regulations, ordinances, and orders of public authorities to
carry on its business in the places and in the manner as now conducted except in
states where the failure to be so authorized, qualified or licensed would not
have a material adverse effect on its business.
4.2. FirstAmerica Stock. The shares of common stock of FirstAmerica
------------------
to be delivered to the Company at the Closing hereunder, when delivered in
accordance with the terms of this Agreement, will constitute valid and legally
issued shares of FirstAmerica's capital stock, fully paid and nonassessable,
and, with the exception of restrictions upon resale, will be legally equivalent
in all respects to the majority of the capital stock of FirstAmerica issued and
outstanding as of the Closing Date.
4.3. Authorization. The representatives of FirstAmerica executing
-------------
this Agreement have the corporate authority to enter into and bind FirstAmerica
by the terms of this Agreement. FirstAmerica has the full legal right, power
and authority to enter into this Agreement. The execution and delivery of this
Agreement and each other agreement, document or instrument contemplated hereby,
and the consummation of the transaction provided for in this Agreement have been
duly authorized by all necessary corporate action on behalf of FirstAmerica.
This Agreement, and each other Agreement, document or instrument contemplated
hereby, has been duly executed and delivered by FirstAmerica. No approvals or
consents of any person or entity are necessary in connection with the power and
authority of FirstAmerica to perform its obligations pursuant to this Agreement.
This Agreement constitutes the legal, valid and binding obligation of
FirstAmerica enforceable against FirstAmerica in accordance with its terms,
subject only to laws relating to bankruptcy, insolvency or other similar
provisions affecting creditors' rights.
4.4. Representations and Warranties on Closing Date. The
----------------------------------------------
representations and warranties of FirstAmerica contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date with
the same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
5. Conditions to FirstAmerica's Obligations to Close. The obligations of
-------------------------------------------------
FirstAmerica under this Agreement are, at the option of FirstAmerica, subject to
the conditions set forth below. FirstAmerica
6
<PAGE>
shall have the right to waive in writing all or part of any one or more of the
following conditions without, however, releasing the Company or the Shareholder
from any liability for any loss or damage sustained by FirstAmerica by reason of
the breach by the Company or Shareholder of any covenant, obligation or
agreement contained herein, or by reason of any misrepresentation made by the
Company and upon such waiver may proceed with the transactions contemplated by
this Agreement.
5.1. Agreements and Conditions. On or before the Closing Date,
-------------------------
Company shall have complied with and duly performed in all material respects all
agreements and conditions on its part to be complied with and performed pursuant
to or in connection with this Agreement on or before the Closing Date.
5.2. Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in this Agreement, or otherwise made in
writing in connection with the transactions contemplated hereby, shall be true
and correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date.
5.3. No Legal Proceedings. No action or proceeding shall have been
--------------------
instituted or threatened to restrain or prohibit the transaction provided herein
and the Company or which might result in any material adverse change in the
business, prospects or financial or other condition of the assets of the
Company.
5.4. Consents. FAA Concord H, Inc. and America Honda Corporation
--------
("Franchisor") shall have entered into a customary dealer sales and service
agreement designating FAA Concord H, Inc. as the duly authorized dealer for the
sales and service of the Franchisor's vehicles at the location or locations at
which the Company operates its dealership immediately prior to the Closing, free
of any material condition which in the opinion of FirstAmerica would be adverse
to FAA Concord H, Inc. All permits and licenses necessary to enable FAA Concord
H, Inc. to conduct the dealership and service facilities at the location of the
Company's dealership immediately prior to the Closing shall have been obtained.
All other requisite consents and approvals shall have been obtained.
5.5. No Material Adverse Change. No material adverse change in the
--------------------------
results of operations or financial conditions of the Company shall have
occurred, and the Company shall not have suffered any material loss or damage to
its properties or assets, whether or not covered by insurance.
5.6. Lease. The Lease in form attached hereto as Schedule 2 shall
-----
have been executed by all of the parties thereto and delivered to the Company.
5.7. Floor Plan Financing. FAA Concord H, Inc. shall have obtained
--------------------
appropriate floor plan financing, as reasonably acceptable to FirstAmerica as
necessary for the operation of the automobile franchise which is operated by the
Company immediately prior to the Closing.
5.8. Bill of Sale. The Company shall have executed, acknowledged and
------------
delivered to FirstAmerica the Bill of Sale conveying all the Acquired Assets to
FirstAmerica, which Bill of Sale shall be in the form of Schedule 5.8 attached
hereto.
5.9. Assignment of Option. The Company shall have executed and
--------------------
delivered to FirstAmerica the Assignment of Option Agreement conveying to
FirstAmerica that certain Option Agreement entered into between California
Carriage, Ltd., a California corporation, and Concord Nissan, Inc., a California
corporation, dated September 12, 1995, which Assignment of Option shall be in
the form of Schedule 5.9 attached hereto.
7
<PAGE>
5.10. Bulk Sale. The Company shall furnish, in a timely manner, all
---------
affidavits and lists of creditors and such other instruments or documents as may
be required to comply with all applicable sales laws.
6. Conditions to Company's and Shareholder's Obligation to Close. The
-------------------------------------------------------------
obligation of the Company and the Shareholder under this Agreement is, at the
option of the Company and the Shareholder subject to the conditions set forth
below. The Company and the Shareholder shall have the right to waive in writing
all or part of any one or more of the following conditions without, however,
releasing FirstAmerica from any liability for any loss or damage sustained by
the Company by reason of the breach by FirstAmerica of any covenant, obligation
or agreement contained herein, or by reason of any misrepresentation made by
FirstAmerica and upon such waiver may proceed with the transactions contemplated
by this Agreement.
6.1. Agreements and Conditions. On or before the Closing Date,
-------------------------
FirstAmerica shall have complied with and duly performed in all material
respects all of the agreements and conditions on its part required to be
complied with or performed pursuant to this Agreement on or before the Closing
Date.
6.2. Representations and Warranties of FirstAmerica. The
----------------------------------------------
representations and warranties of FirstAmerica contained in this Agreement, or
otherwise made in writing in connection with the transactions contemplated
hereby, shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
6.3. No Legal Proceedings. No action or proceeding shall have been
--------------------
instituted or threatened to restrain or prohibit the transaction provided for
herein.
6.4. Consents. FAA Concord H, Inc. and Franchisor shall have entered
--------
into a customary dealer sales and service Agreement designating FAA Concord H,
Inc. as the duly authorized dealer for the sales and service of the Franchisor's
automobiles at the location or locations at which the Company operates its
dealership immediately prior to the Closing, free of any material condition
which is adverse to FAA Concord H, Inc. All permits and licenses necessary to
enable FAA Concord H, Inc. to conduct the automobile dealership and service
facilities at the location at the Company's dealership immediately prior to the
Closing shall have been obtained. All other requisite consents and approvals
shall have been obtained.
7. Deliveries by Company. The Company shall, upon the Closing, deliver
---------------------
to FirstAmerica the following:
7.1. A Bill of Sale in the form attached hereto as Schedule 5.9, duly
executed and acknowledged by the Company;
7.2. Copy of resolutions adopted by the Board of Directors of the
Company and by the Shareholder authorizing the execution and delivery by the
Company of this Agreement, the adoption of this Agreement as a plan of
reorganization and the consummation by the Company of the transactions
contemplated herein;
7.3. Certificate of Secretary for the Company certifying that the
resolutions referenced immediately above have been duly adopted by both the
Board of Directors of the Company and the shareholders of the Company; and
8
<PAGE>
7.4. Certificate of Incumbency for the President of the Company;
7.5. The Company shall deliver to FirstAmerica the Assignment of
Option Agreement in the form attached hereto as Schedule 5.10, duly executed by
the Company, which delivery shall occur on or about July 1, 1997,
notwithstanding that the Closing hereunder shall occur subsequent thereto. The
parties hereto acknowledge that the Closing hereunder shall not occur until the
Company is able to convey to FirstAmerica all of the Acquired Assets without
resulting in a default under certain existing agreements between the Company and
General Motors Corporation, and that the earliest date for such permissible
Closing is anticipated to be on or about September 4, 1997. Notwithstanding
such delay in the Closing, the parties hereto desire that FirstAmerica be in a
position, prior to such date, to exercise the Option Agreement to be transferred
to FirstAmerica pursuant to the Assignment of Option Agreement. Accordingly,
the Assignment of Option Agreement shall be executed and delivered as of the
date set forth above, and the balance of the Acquired Assets shall be conveyed
upon the Closing as otherwise provided herein. The delivery of the Assignment
of Option Agreement and the delivery of the balance of the Acquired Assets shall
constitute a single integrated transaction.
8. Deliveries by FirstAmerica. FirstAmerica shall, upon Closing, deliver
-----------------------------
to the Company the following:
8.1. Stock certificate or certificates representing the shares of
FirstAmerica Stock issuable to the Company hereunder;
8.2. The lease for the premises to be occupied by FAA Concord H, Inc.,
in the form attached hereto as Schedule 2, duly executed by the landlord thereof
and FAA Concord H, Inc.;
8.3. Copy of resolutions adopted by the Board of Directors of
FirstAmerica authorizing the execution and delivery of this Agreement, the
adoption of this Agreement as a plan of reorganization, and the consummation of
the transaction contemplated herein;
8.4. Certificate of Secretary certifying that the resolutions
referenced immediately above have been duly adopted by the Board of Directors of
FirstAmerica; and
8.5. Certificate of Incumbency for the President of FirstAmerica.
9. Escrow. The parties hereto, upon execution of this Agreement, shall
------
open an escrow with a mutually agreeable escrow company ("Escrow Holder"). The
parties shall properly provide to the Escrow Holder any and all documentation
necessary for Escrow Holder to publish such notice as may be required by the
bulk transfer laws of the State of California. Any costs of such escrow shall be
paid by Subsidiary.
10. Closing. The consummation of the transactions provided for in this
-------
Agreement ("Closing") shall occur at the offices of Kay & Merkle, 100 The
Embarcadero, Penthouse, San Francisco, California 94105 or at such other
location as the parties may agree in writing, on __________, 1997 at 10:00 a.m.,
or at such other date and time (the "Closing Date") as the parties hereto may
mutually agree in writing.
11. Additional Covenants.
--------------------
11.1. Access. Commencing on the date of this Agreement and
------
continuing through the Closing Date, the Company shall allow the officers and
authorized representatives of FirstAmerica reasonable access during normal
business hours to the business locations, properties and books and records of
the Company, and shall further provide to FirstAmerica all such additional
information as FirstAmerica may request with respect to the Company.
9
<PAGE>
11.2. Conduct of Business. Commencing on the date hereof and
-------------------
continuing through the Closing Date, the Company shall continue to manage,
operate and maintain all of its business and activities in substantially the
same manner as prior to the date hereof, and shall not introduce any new or
novel method of management, operation or accounting. Further, the Company shall
maintain its respective properties and facilities in as good a working condition
as exist as of the date hereof, ordinary wear and tear and loss by casualty
excepted. The Company shall use its best efforts to maintain and preserve its
business organization intact and to retain its present working relationship with
employees, suppliers and customers.
11.3. Accounting Method. FirstAmerica acknowledges that the Company
-----------------
currently uses the last-in first-out method of inventory accounting. The
Company shall continue to utilize the same method of accounting as currently
utilized by the Company, including the last-in first-out method of inventory
accounting.
11.4. Operations. Commencing upon delivery of the Assignment of
----------
Option Agreement as set forth in Section 7.5 hereof, and continuing thereafter
through the Closing, FirstAmerica shall be entitled to direct the management of
the Company, and shall receive the benefit and incur the cost of all profit and
loss generated by the Company, and in connection therewith, during such period
Donald Strough shall not receive any compensation or other payments from the
Company provided, however, that nothing herein shall prohibit the Company from
paying any and all obligations owed by the Company.
12. Notices. All notices, requests or demands to a party hereunder shall
-------
be in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier, charges prepaid, addressed as set forth below. Any such notice,
demand, request or other communication shall be deemed to have been received
upon the earlier of personal delivery thereof, three (3) business days after
having been mailed as provided above, or one (1) business day after delivery
through a commercial courier, as the case may be. Notices may be given by
facsimile and shall be effective upon the transmission of such facsimile notice
provided that the facsimile notice is transmitted on a business day and a copy
of the facsimile notice together with evidence of its successful transmission
indicating the date and time of transmission is sent on the day of transmission
by recognized overnight carrier for delivery on the immediately succeeding
business day. Each party shall be entitled to modify its address by notice given
in accordance with this Section.
To FirstAmerica: 100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
With Copy To: Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
To Company: 1300 Concord Avenue
Concord, California
Attn: Donald V. Strough
Fax No.: (510) 689-8924
To Shareholder: Donald V. Strough
10
<PAGE>
1300 Concord Avenue
Concord, California
Fax No.: (510) 689-8924
13. Indemnification.
---------------
13.1. Indemnification by Shareholder. The Shareholder agrees to
------------------------------
indemnify, defend and hold harmless FirstAmerica and its directors, officers,
employees, agents, affiliates, successors, assigns, representatives and
attorneys from and against any and all claims, actions, proceedings, demands,
assessments, damages, costs, liabilities and obligations of any nature
whatsoever including, without limitation, reasonable attorneys' fees arising out
of or relating to: (i) any breach of any representation or warranty made by the
Shareholder herein or on any Schedule or any other document attached hereto or
delivered in connection herewith; (ii) any nonfulfillment with any agreement or
covenant required to be performed by the Shareholder pursuant to this Agreement;
or (iii) any liability under the Securities Act of 1933, as amended, the
Securities Act of 1934, as amended, or any other federal or state law or
regulation arising out of any untrue statement of a material fact relating to
the Company or the Shareholder, and which is provided by the Company or the
Shareholder.
13.2. Indemnification by FirstAmerica. FirstAmerica hereby agrees
-------------------------------
to indemnify, defend, and hold harmless the Shareholder and its trustees,
beneficiaries, employees, agents, affiliates, successors, assigns,
representatives and attorneys, from and against any and all claims, actions,
proceedings, demands, assessments, damages, costs, liabilities and obligations
of any nature whatsoever, including without limitation, reasonable attorneys'
fees arising out of or relating to (i) any breach of any representation or
warranty made by FirstAmerica herein, or on any Schedule or any other document
attached hereto or delivered in connection herewith; (ii) any nonfulfillment of
any agreement or covenant required to be performed by FirstAmerica pursuant to
this agreement; or (iii) any liability under the Securities Act of 1933 as
amended, the Securities Act of 1934, as amended, or any other federal or state
law or regulation arising out of any untrue statement of a material fact
relating to FirstAmerica and which is provided by FirstAmerica.
13.3. Claim. For purposes of this section, the following terms
-----
shall have the definitions as set forth below:
13.3.1. "Indemnified Party" shall be defined as the party
entitled to indemnification under the provisions of Section 13.1 or 13.2;
13.3.2. "Indemnifying Party" shall be defined as the party
obligated to provide indemnification pursuant to the provisions of Section 13.1
or 13.2;
13.3.3. "Third Person" shall be defined as any person asserting
a claim against any party to this Agreement, which claim is subject to an
indemnification obligation set forth in this Section 13.3;
In the event that an Indemnified Party shall receive notice, or otherwise
have knowledge of any claim, or the commencement of any action or proceeding by
a Third Person, the Indemnified Party shall promptly give written notice thereof
to the Indemnifying Party. The provision of such written notice shall be a
condition precedent to the obligation of Indemnifying Party to provide any
indemnification under the provisions of this Section 13.3. The Indemnifying
Party shall have the right to defend, negotiate and settle any claim by a Third
Person hereunder at the expense and with counsel selected by the Indemnifying
Party which is reasonably acceptable to Indemnified Party, as long as it
diligently pursues such settlement,
11
<PAGE>
negotiation or defense in good faith. The Indemnified Party shall have the right
to participate with counsel of its choice and at its expense, in any settlement,
negotiation or defense, provided, however that the Indemnifying Party's counsel
shall at all times be lead counsel and shall determine all defense and
settlement strategies, actions, and the like. The Indemnified Party shall
cooperate on a reasonable basis with the Indemnifying Party and shall provide to
the Indemnifying Party all books, records and other information reasonably
requested by the Indemnifying Party.
14. Termination. If the Closing Date shall not have occurred on or prior
-----------
to April 30, 1997 as such date may be from time to time extended upon the mutual
consent of the parties, any party that is not in default in the performance of
its obligations under this Agreement may, thereafter terminate this Agreement by
giving written notice to the other parties hereto.
15. Miscellaneous.
-------------
15.1. Amendment. This Agreement shall not be changed, modified or
---------
amended except by a writing signed by the party to be charged.
15.2. Governing Law. This Agreement and its validity, construction
-------------
and performance shall be governed in all respects by the laws of the State of
California without giving effect to principles of conflict of laws.
15.3. Severability. If any provision of this Agreement or the
------------
application of any provision hereof to any person or circumstance is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
15.4. Benefit of Parties. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties hereto and their respective successors,
heirs, legal representatives and assigns.
15.5. Time. Time is of the essence with respect to this Agreement.
----
15.6. Headings. The headings in the paragraphs of this Agreement
--------
are inserted for convenience of reference only and shall not constitute a part
hereof.
15.7. Counterparts. This Agreement may be executed simultaneously in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.8. Further Assurances. Each of the parties hereto agrees to
------------------
perform such other acts, and to execute, acknowledge and deliver, prior to, at
or subsequent to Closing, such other instruments, documents and other materials
as any other may reasonably request and as shall be necessary in order to effect
the consummation of the transactions contemplated hereby.
15.9. Schedules. The parties acknowledge and agree that the
---------
schedules provided for herein shall be attached to the Agreement effective as of
the Closing Date and shall be a part of and incorporated into the Agreement as
though fully set forth in this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
FIRSTAMERICA: COMPANY:
FirstAmerica Automotive, Inc. California Carriage, Ltd.,
a Delaware corporation a California corporation
By: /s/ Thomas A. Price /s/ Donald V. Strough
____________________________ ____________________________
Thomas A. Price, President Donald V. Strough, President
SHAREHOLDER:
Strough 1983 Revocable Trust
By: /s/ Donald V. Strough
____________________________
Donald V. Strough, Trustee
13
<PAGE>
LIST OF SCHEDULES
Schedule 1.1 Acquired Assets
Schedule 2 Lease
Schedule 3.1 Organization
Schedule 3.4 Authorized Capitalization
Schedule 3.5 Subsidiaries
Schedule 3.6 Financial Statements
Schedule 3.7 Liabilities
Schedule 3.8 Receivables
Schedule 3.9 Permits and Intangibles
Schedule 3.10 Assets
Schedule 3.11 Material Contracts
Schedule 3.12 Unions
Schedule 3.13 Insurance
Schedule 3.14 Employee Plans
Schedule 3.15 Litigation
Schedule 3.16 Taxes
Schedule 3.17 Environmental Matters
Schedule 5.8 Bill of Sale
Schedule 5.9 Assignment of Option Agreement
<PAGE>
EXHIBIT 2.1.2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into this 1st
day of July, 1997 by and among FIRSTAMERICA AUTOMOTIVE, INC., a Delaware
corporation ("FirstAmerica"), Price Auto Holding, Inc. dba Melody Toyota, a
California corporation ("Company"), Price Trust utd 10/5/84 and Fred Cziska (the
"Shareholders"), and FAA San Bruno, Inc. a California corporation
("Subsidiary").
R E C I T A L S:
A. The Company is an authorized Toyota dealership franchisee located at
750 El Camino Real, San Bruno, CA.
B. The parties hereto desire to provide for the merger of the Company and
the Subsidiary and that such merger result in the Subsidiary acquiring all of
the business of the Company, and thereafter owned and operated as a wholly owned
subsidiary of FirstAmerica.
C. The parties desire to complete such merger as a tax deferred
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Internal Revenue Code of 1986, as amended (the "Code").
Now, therefore, the parties hereto agree as follows:
1. Merger.
-------
1.1. Intent. The Shareholders currently hold all of the outstanding
------
capital stock of the Company. FirstAmerica currently holds all of the
outstanding capital stock of the Subsidiary. It is the intent of the parties
that FirstAmerica indirectly acquire all of the business of the Company through
a merger of the Company into the Subsidiary. The Subsidiary shall thereafter be
owned and operated as a wholly owned subsidiary of FirstAmerica. Immediately
upon completion of such merger, it is intended that each of the following shall
have occurred:
1.1.1. The Company and the Subsidiary shall have been merged
together, as one corporation with the Subsidiary as the surviving corporation;
1.1.2. FirstAmerica shall hold all of the outstanding stock of
Subsidiary;
1.1.3. The Subsidiary shall hold all of the assets, and be
responsible for all of the liabilities, held or attributable to both the Company
and the Subsidiary immediately prior to the Closing, and
1.1.4. The Shareholders shall no longer hold shares of the
Company, but shall hold shares of FirstAmerica ("FirstAmerica Stock").
1.2. Tax Intent. Notwithstanding any of the provisions of this
----------
Agreement to the contrary, it is the intent of all of the parties hereto that
the transaction provided for herein qualify as a tax deferred reorganization
within the meaning of sections of 368(a)(1)(A) and 368(a)(2)(D) of the Code. All
of the provisions of this Agreement shall be interpreted in a manner which is
consistent with the intent expressed in the immediately preceding sentence.
Further, each of the parties hereto shall undertake all actions as may be
necessary or appropriate to qualify the transactions provided for herein as a
tax deferred reorganization within the meaning of the sections of the Code
referenced immediately above. Each
<PAGE>
corporation which is a party to this Agreement hereby adopts this Agreement as a
plan of reorganization, and each party to this Agreement shall report the
transaction provided for herein, for all tax reporting purposes, in a manner
which is consistent with the intent set forth in this section.
1.3. Corporate Merger. Effective as of the Closing Date, the Company
-----------------
shall be merged into and with the Subsidiary in accordance with the applicable
statutes of the State of California. Upon completion of such merger, the
Subsidiary shall be the surviving corporation, and shall be fully vested with
and possess all the rights, privileges, immunities, and franchises, of a public
as well as a private nature, and all property, real, personal and mixed, and all
debts due on whatever account, including subscriptions to shares, and all choses
in action, and all and every other interest of or belonging to or due to both
Subsidiary and the Company prior to the merger of such corporations. The
Subsidiary shall, as the surviving corporation, be responsible and liable for
all the liabilities and obligations of both Subsidiary and the Company and any
claim existing, or action or proceeding pending, by or against either the
Company or Subsidiary, may be prosecuted as if the merger had not taken place.
Neither the rights of creditors nor liens upon the property of either the
Subsidiary or the Company shall be impaired by the merger. Concurrently with
the Closing hereunder, the parties hereto shall cause to be executed,
acknowledged and filed with the Secretary of State of the State of California an
Agreement of Merger in the form attached hereto as Schedule 1.3 and incorporated
herein by this reference. Such Agreement of Merger shall provide for the merger
of Subsidiary and the Company in accordance with the provisions of this
Agreement, and for the change of the name of Subsidiary to FAA Serramonte, Inc.
1.4. Conversion of Shares. Concurrently with the Closing, all the
--------------------
shares of the Company issued and outstanding immediately prior to the Closing
shall as a result of the merger provided for above, and without further action
on the part of any Shareholder, automatically be exchanged for and converted
into fully paid and non-assessable shares of FirstAmerica Stock, and the right
to receive cash from FirstAmerica, if any, as set forth below. The number of
shares of the Company held by each Shareholder is set forth on Schedule 1.4
attached hereto and incorporated herein by this reference. In addition, the
number of shares of FirstAmerica Stock together with the amount of cash, if any,
to be distributed to each Shareholder upon the Closing is set forth on Schedule
1.4. The Shareholders shall deliver to FirstAmerica at the Closing, certificates
representing all the shares of the Company held by each Shareholder, duly
endorsed in blank by the Shareholders or accompanied by blank stock powers, with
signatures guaranteed by a national bank, and with all necessary transfer tax
and revenue stamps, at the Shareholders' expense, affixed and cancelled. The
Shareholders agree to cure any deficiencies with respect to the endorsement of
the certificates or other documents of conveyance with respect to the shares of
the Company's stock or with respect to the powers accompanying any Company's
stock. FirstAmerica shall deliver to the Shareholders at the Closing
certificates representing shares of FirstAmerica Stock duly executed for the
number of shares of FirstAmerica Stock acquired by each Shareholder as set forth
on Schedule 1.4.
1.5. Transfer Restrictions; Legends. The shares of FirstAmerica 's
------------------------------
Common Stock to be issued pursuant to Section 1.4 shall not have been registered
and shall be characterized as "Restricted Securities" under the federal
securities laws, and under such laws such shares may be resold without
registration under the Securities Act of 1933, as amended, only in certain
limited circumstances. Each certificate evidencing shares of FirstAmerica's
Common Stock to be issued pursuant to Section 1.4 shall bear the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION
2
<PAGE>
UNLESS AN EXEMPTION FROM THE REQUIREMENT OR REGISTRATION
IS AVAILABLE AS DEMONSTRATED BY AN OPINION OF LEGAL COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY.
1.6. Cash. In addition to the FirstAmerica stock, and subject to the
----
provisions of Section 2 below, each Shareholder shall receive upon Closing cash
consideration, if any, in the amount set forth opposite such Shareholder's name
on Schedule 1.4 attached. The payment of such cash will be made by wire
transfer, certified or cashier's check, or other form as may be reasonably
acceptable to each Shareholder. That portion of any cash, for each Shareholder,
which is not subject to the reserve provisions of Section 2 below, shall be
payable in full in cash upon the Closing. Any cash remaining in the reserve upon
the expiration of the time period set forth in Section 2 below shall promptly be
paid to the Shareholders.
2. Reserve. A portion of the cash consideration otherwise payable to
-------
each Shareholder as set forth on Schedule 1.4 attached shall be retained by
FirstAmerica as a reserve for a period of nine (9) months immediately following
the Closing. Upon expiration of such nine (9) month period, any amounts
withheld as a reserve, which have not been expended in satisfaction of
obligations provided in this Section 2, shall be paid to the Shareholders in
accordance with Section 1.5 above. Amounts withheld as a reserve pursuant to
this Section 2 may be expended by FirstAmerica to pay (i) amounts payable by the
Subsidiary in satisfaction of causes of action which identify the Subsidiary as
a defendant, and which arise from events relating to the Company which occur
prior to the Closing, (ii) chargebacks incurred by the Subsidiary subsequent to
the Closing, for vehicles sold or leased by the Company prior to the Closing,
and (iii) the internal cost to the Subsidiary of warranty repairs performed by
the Subsidiary for the benefit of its customers with respect to vehicles sold or
leased by the Company prior to the Closing the cost of which is not otherwise
reimbursable to the Subsidiary, but only to the extent that any amount described
in subparagraphs (i), (ii) or (iii) above exceeds amounts reserved therefore on
the financial statements attached hereto as Schedule 4.6, or the Schedule of
Liabilities attached as Schedule 4.7. The aggregate amounts of any payments
which are expended from the reserve provided for in this Section 2 (up to the
total amount of such reserve) shall constitute a reduction in the cash price
otherwise payable to the Shareholders pursuant to the provisions of Section 1.5
above, and shall thereafter not be payable to the Shareholders.
3. Lease. Concurrently with the Closing, the Subsidiary shall enter into
-----
assignments of the leases for the real property at which the Company operates
its business immediately prior to the Closing, which assignments shall be in the
form attached hereto as Schedule 3 and incorporated herein by this reference.
4. Representations and Warranties of Company and Shareholders. Each of
----------------------------------------------------------
the Shareholders and the Company hereby jointly and severally represents and
warrants to FirstAmerica as follows:
4.1. Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of its state of
incorporation, and is duly authorized, qualified, and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, except
(i) as set forth in Schedule 4.1 attached hereto and incorporated herein by this
reference; or (ii) where the failure to do so does not have a material adverse
effect on the business, operations, properties, assets, or condition of the
Company, taken as a whole.
4.2. Authorization. The Shareholders and the Company have the full
--------------
legal right, power and authority to enter into this Agreement, and the merger
provided for in this Agreement. The execution and delivery of this Agreement,
and each other document, agreement and instrument contemplated hereby and the
consummation of the transactions provided for in this Agreement have been duly
authorized by the
3
<PAGE>
Company by all necessary corporate action. The Agreement, and each other
agreement, document or instrument contemplated hereby has been duly executed and
delivered by the Shareholders and the Company. No approvals or consents of any
person or entity are necessary in connection with the power and authority of the
Shareholders and the Company to perform their respective obligations pursuant to
this Agreement. This Agreement constitutes the legal, valid and binding
obligations of the Shareholders and the Company enforceable against the
Shareholders and the Company in accordance with its terms, subject only to laws
relating to bankruptcy, insolvency or other similar provisions affecting
creditors' rights.
4.3. Articles of Incorporation, By-Laws and Minute Books. True,
---------------------------------------------------
complete and correct copies of the Articles of Incorporation and By-Laws of the
Company, each as amended to date, have been furnished to FirstAmerica. The
stock records and minute books of the Company, all of which have been made
available to FirstAmerica, contain true and complete minutes and records of all
meetings, proceedings and other actions of the stockholders and directors of the
Company from the date of organization.
4.4. Authorized Capitalization. The authorized capital stock of the
--------------------------
Company consists solely of that number and classes or series of shares as is set
forth on Schedule 4.4 attached hereto and incorporated herein by this reference.
The number of issued and outstanding shares of each class or series of stock of
the Company are set forth on Schedule 4.4 attached. All the issued and
outstanding shares of the Company are owned by the Shareholders as set forth on
Schedule 1.4, and are validly issued and outstanding, fully paid and non-
assessable, free and clear of all liens, security interests, pledges, charges,
voting trusts, equities, restrictions, encumbrances and claims of every kind.
All of the outstanding shares of the Company were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. None of the shares of the Company
which are outstanding were issued in violation of any preemptive rights held by
any past or present shareholder of the Company. The Company does not have any
outstanding options, warrants, rights or other securities, plans, contracts or
agreements which give the holder thereof or any other person the right to
purchase any shares of the Company's capital stock or which are convertible into
or exercisable for any shares of such capital stock or under which any such
option, warrant, or right or security may be issued in the future. The Company
does not have any obligation, whether contingent or otherwise, to purchase,
redeem, or otherwise acquire any of its equity securities or interests therein
or pay a dividend or make any distribution with respect thereto.
4.5. Subsidiaries. Except as set forth on Schedule 4.5 attached
-------------
hereto and incorporated herein by this reference, the Company does not own,
whether of record or beneficially or control, directly or indirectly, any
capital stock, securities convertible into capital stock, or any other equity
interest in any corporation, association, or business entity, and is not a party
either directly or indirectly to any joint venture, partnership, limited
liability company, or any other entity.
4.6. Financial Statements. Attached hereto as Schedule 4.6 and
---------------------
incorporated herein by this reference are copies of the financial statements of
the Company, including statements of income, cash flow, and retained earnings
for each of the most recent three fiscal years of the Company and for the period
ending sixty (60) days prior to the date of this Agreement. Also attached as a
part of Schedule 4.6 is a copy of the most recent dealer financial statement for
the Company which dealer financial statement will be updated as of the Closing.
Such financial statements, including the dealer financial statement, have been
and will be prepared in accordance with generally accepted accounting principles
applied on a consistent basis and present fairly the financial position of the
Company as of the dates and for the periods indicated. At the Closing Date, the
Company shall have a net worth of not less than $2,773,000.
4.7. Liabilities. Attached hereto as Schedule 4.7 and incorporated
-----------
herein by this reference, is an accurate list, as of the Closing, of all
material liabilities and obligations of the Company which are not reflected on
the most recent dealer financial statement as of the date of this Agreement.
4
<PAGE>
Schedule 4.7 shall be updated as of the Closing to reflect all such material
liabilities and obligations of the Company not reflected on the dealer financial
statement prepared concurrently with the Closing. Such Schedule includes any and
all liabilities and obligations, whether accrued, absolute, secured or
unsecured, contingent or otherwise. Company has previously provided to
FirstAmerica Company's reasonable estimate of the maximum amount of potential
exposure for any debt or liability which is not fixed or is contested.
4.8. Receivables. Set forth on Schedule 4.8 attached hereto and
-----------
incorporated herein by this reference is an accurate list as of the date of this
Agreement of the accounts and notes receivable of the Company, including
receivables from and advances to employees and shareholders. Such Schedule
includes an aging of all accounts and notes receivable. Such Schedule shall be
updated as of the Closing.
4.9. Permits and Intangibles. Attached hereto as Schedule 4.9 and
-----------------------
incorporated herein by this reference, is an accurate list and summary
description of all permits, licenses, franchises, certificates, trademarks,
tradenames, service marks, patents, and other similar items owned by the
Company. All such items are valid and in full force and effect. There is no
default, or the occurrence of any event, which with the passage of time, the
giving of notice or both will constitute a default, of any such items. None of
such items infringe upon the rights of any other person.
4.10. Assets. Attached hereto as Schedule 4.10 is an accurate list,
------
as of the date of this Agreement, of all personal property (other than
inventory) having a cost in excess of $10,000, owned or leased by the Company,
together with true complete and correct copies of any and all leases for any
property leased by the Company. Except as otherwise set forth on Schedule 4.10,
all of such property is in good working order and condition, ordinary wear and
tear excepted. The leases referenced in Schedule 4.10 have been duly
authorized, executed and delivered, and constitute the legal, binding and valid
obligations of the Company, and, to the knowledge of the Shareholders, no other
party to any such leases is in default of any provision thereof, and such leases
constitute the legal, valid and binding obligations of the other parties
thereto. All of the assets used by the Company in the operation of the business
are either owned by the Company or leased by the Company. Schedule 4.10 shall
be updated as of the Closing.
4.11. Material Contracts. Set forth on Schedule 4.11 attached hereto
------------------
and incorporated herein by this reference, is an accurate and complete list, as
of the date of this Agreement, of all material contracts, commitments and
similar agreements to which the Company is a party, or by which any of its
assets or properties are bound. The Company has delivered true and accurate
copies of each such contract to FirstAmerica. Except as otherwise set forth on
Schedule 4.11, the Company has complied with all material commitments and
obligations pertaining to it, and is not in material default, and has received
no notice of default with respect to, and no event has occurred which, with the
passage of time, the giving of notice or both would constitute a material
default with respect to, any contracts set forth on Schedule 4.11.
4.12. Unions. Except as set forth on Schedule 4.12 attached hereto
------
and incorporated herein by this reference, the Company is not a party to any
arrangement with any union, and no employees of the Company are represented by
any labor union or covered by any collective bargaining agreement, nor, to the
knowledge of the Shareholders, is any effort to establish such representation in
progress. There is no pending or, to the knowledge of the Shareholders,
threatened labor dispute involving the Company or any of its employees.
4.13. Insurance. Set forth on Schedule 4.13 attached hereto and
---------
incorporated herein by this reference, is an accurate list as of the date of
this Agreement, of all insurance policies of the Company, including an accurate
list of all insurance losses, including workers' compensation claims, of the
Company for the past three policy years.
4.14. Employee Plans. Set forth on Schedule 4.14 attached hereto and
--------------
incorporated
5
<PAGE>
herein by this reference, is a complete and accurate list of all employee
benefit plans including without limitation, all pension, profit sharing,
deferred compensation, bonus, and multi-employer plans and other plans currently
maintained or sponsored by the Company, or to which the Company contributes or
has an obligation to contribute in the future. The Company and, to the knowledge
of the Shareholders, each of the plans referenced on Schedule 4.14 attached is
in substantial compliance with all applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). No plan has
incurred an accumulated funding deficiency, as defined for purposes of the
Internal Revenue Code and ERISA, and the Company does not have any direct or
indirect obligation or liability to the Pension Benefit Guaranty Corporation or
to the Internal Revenue Service for any excise tax or penalty. Neither the
Company nor any ERISA Affiliate (i.e., each business which is treated together
with the Company as a single employer under Section 4001(a)(14) of ERISA or
Internal Revenue Code Section 414(b), (c), (m), (n) or (o)) has incurred or
expects to insure any withdrawal liability to any multiemployer plan. Copies of
all of the plans listed on Schedule 4.14, together with current determination
letters and the filings with the Internal Revenue Service for the last two
fiscal years of the plans, are attached to Schedule 4.14.
4.15. Litigation: Conformity with the Law. Except as set forth on
------------------------------------
Schedule 4.15 attached hereto and incorporated herein by this reference, there
are no claims, actions, suits or proceedings, pending or, to the knowledge of
the Shareholders, threatened, against or affecting the Company or any of its
properties at law or in equity, or before or by any federal, state, municipal,
or any other governmental department, commission, board, bureau, agency, or
instrumentality, having jurisdiction with respect to the Company, and no notice
of any claim, action, suit, or proceeding, whether pending or threatened has
been received. The Company has conducted its business in substantial compliance
with all federal, state and local statutes, ordinances, permits, licenses,
orders, variances, rules and regulations. Except as set forth on Schedule 4.15,
the Company is not subject to any order of any Court, or federal, state,
municipal, governmental department, commission, board, bureau, agency, or
instrumentality.
4.16. Taxes. The Company has filed and will file all requisite
-----
federal, state, local and all other tax returns for all fiscal periods ended on
or before the Closing Date, except for any such tax returns not yet due. There
are no examinations in progress, or claims against the Company for federal or
other taxes, including penalties or interest, for any period or periods prior to
the Closing, except as otherwise set forth on Schedule 4.16 attached hereto.
Amounts reflected on the financial statements of the Company as of the Closing
as reserves for taxes not yet payable are sufficient for the payment of all
taxes, including penalties and interest, for all periods prior to the Closing.
4.17. Environmental Matters. None of the Company's assets has ever
---------------------
been used by the Company or, to the best of the Company's knowledge, by previous
owners or operators, in the disposal of, or to produce, store, handle, treat,
release, or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; none of the Company's assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any of the Company's property; the Company does not have any contingent
liability in connection with the release of any hazardous substances into the
environment, including third-party releases onto property that the Company owns
or operates; and the Company has not received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by the Company relating to
the release or disposal of hazardous waste or hazardous substances. Except as
set forth on Schedule 4.17 attached hereto and incorporated herein by this
reference, the Company has not at any time owned or leased any real estate
having underground storage tanks.
4.18. Shareholder Qualification. Each Shareholder is an "accredited
-------------------------
investor" for purposes of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder. In
6
<PAGE>
addition, each Shareholder, by reason of such Shareholder's business or
financial experience or the business or financial experience of such
Shareholder's professional advisors who are not affiliated with or compensated
by FirstAmerica or FirstAmerica's affiliates, has the capacity to protect such
Shareholder's interests in connection with the transactions contemplated
hereunder.
4.19. Representations and Warranties on Closing Date. The
----------------------------------------------
representations and warranties of the Shareholders contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties had
been made on and as of the Closing Date.
5. Representations and Warranties of FirstAmerica and Subsidiary.
-------------------------------------------------------------
FirstAmerica and Subsidiary jointly and severally represent and warrant as
follows:
5.1. Organization. FirstAmerica and Subsidiary are corporations
------------
duly organized, validly existing and in good standing under the laws of their
respective States of incorporation and are duly authorized, qualified and
licensed under all applicable laws, regulations, ordinances, and orders of
public authorities to carry on their respective businesses in the places and in
the manner as now conducted except in States where the failure to be so
authorized, qualified or licensed would not have a material adverse effect on
their respective businesses.
5.2. FirstAmerica Stock. The FirstAmerica Stock to be delivered to
-------------------
the Shareholders at the Closing hereunder, when delivered in accordance with the
terms of this Agreement, will constitute valid and legally issued shares of
FirstAmerica's capital stock, fully paid and nonassessable, and, with the
exception of restrictions upon resale, will be legally equivalent in all
respects to the majority of the capital stock of FirstAmerica issued and
outstanding as of the Closing Date.
5.3. Authorization. The representatives of FirstAmerica and
--------------
Subsidiary executing this Agreement have the corporate authority to enter into
and bind FirstAmerica and Subsidiary by the terms of this Agreement.
FirstAmerica and Subsidiary have the full legal right, power and authority to
enter into this Agreement. The execution and delivery of this Agreement and each
other agreement, document or instrument contemplated hereby, and the
consummation of the transaction provided for in this Agreement have been duly
authorized by all necessary corporate action on behalf of both FirstAmerica and
Subsidiary. This Agreement, and each other Agreement, document or instrument
contemplated hereby, has been duly executed and delivered by FirstAmerica and
Subsidiary. No approvals or consents of any person or entity are necessary in
connection with the power and authority of FirstAmerica and Subsidiary to
perform their respective obligations pursuant to this Agreement. This Agreement
constitutes the legal, valid and binding obligation of FirstAmerica and
Subsidiary enforceable against FirstAmerica and Subsidiary in accordance with
its terms, subject only to laws relating to bankruptcy, insolvency or other
similar provisions affecting creditors' rights.
5.4. Representations and Warranties on Closing Date. The
----------------------------------------------
representations and warranties of FirstAmerica and Subsidiary contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
6. Conditions to FirstAmerica's and Subsidiary's Obligations to Close.
------------------------------------------------------------------
The obligations of FirstAmerica and Subsidiary under this Agreement are, at the
option of FirstAmerica and Subsidiary subject to the conditions set forth below.
FirstAmerica and Subsidiary shall have the right to waive in writing all or part
of any one or more of the following conditions without, however, releasing
Shareholders and the Company from any liability for any loss or damage sustained
by FirstAmerica or Subsidiary by reason of the breach by Shareholders and the
Company of any covenant, obligation or agreement contained herein, or
7
<PAGE>
by reason of any misrepresentation made by Shareholders and the Company and upon
such waiver may proceed with the transactions contemplated by this Agreement.
6.1. Agreements and Conditions. On or before the Closing Date,
-------------------------
Shareholders and Company shall have complied with and duly performed in all
material respects all agreements and conditions on their part to be complied
with and performed pursuant to or in connection with this Agreement on or before
the Closing Date.
6.2. Representations and Warranties. The representations and
------------------------------
warranties of Shareholders contained in this Agreement, or otherwise made in
writing in connection with the transactions contemplated hereby, shall be true
and correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date.
6.3. No Legal Proceedings. No action or proceeding shall have been
--------------------
instituted or threatened to restrain or prohibit the merger of Subsidiary and
the Company or which might result in any material adverse change in the
business, prospects or financial or other condition of the assets of the
Company.
6.4. Consents. Subsidiary and Toyota Motor Sales, U.S.A.
--------
("Franchisor") shall have entered into a customary dealer sales and service
agreement designating Subsidiary as the duly authorized dealer for the sales and
service of the Franchisor's vehicles at the location or locations at which the
Company operates its dealership immediately prior to the Closing, free of any
material condition which in the opinion of FirstAmerica would be adverse to
Subsidiary. All permits and licenses necessary to enable Subsidiary to conduct
the dealership and service facilities at the location of the Company's
dealership immediately prior to the Closing shall have been obtained. All other
requisite consents and approvals shall have been obtained.
6.5. No Material Adverse Change. No material adverse change in the
--------------------------
results of operations or financial conditions of the Company shall have
occurred, and the Company shall not have suffered any material loss or damage to
its properties or assets, whether or not covered by insurance.
6.6. Assignments of Leases. The Assignments of Leases in the form
--------------------
attached hereto as Schedule 3 shall have been executed by all of the parties
thereto and delivered to Subsidiary.
6.7. Floor Plan Financing. Subsidiary shall have obtained
--------------------
appropriate floor plan financing, as reasonably acceptable to FirstAmerica as
necessary for the operation of the automobile franchise which is operated by the
Company immediately prior to the Closing.
6.8. Certificate of Merger. The Agreement of Merger attached as
---------------------
Schedule 1.3 evidencing the merger of the Company and Subsidiary shall,
concurrently with the Closing, be executed and acknowledged by Subsidiary and
the Company and filed with the Secretary of State of the State of California.
7. Conditions to Company's and Shareholders' Obligations to Close. The
--------------------------------------------------------------
obligations of the Shareholders and the Company under this Agreement are, at the
option of the Shareholders, subject to the conditions set forth below. The
Shareholders shall have the right to waive in writing all or part of any one or
more of the following conditions without, however, releasing FirstAmerica or
Subsidiary from any liability for any loss or damage sustained by Shareholders
by reason of the breach by FirstAmerica or Subsidiary of any covenant,
obligation or agreement contained herein, or by reason of any misrepresentation
made by FirstAmerica or Subsidiary and upon such waiver may proceed with the
transactions contemplated by this
8
<PAGE>
Agreement.
7.1. Agreements and Conditions. On or before the Closing Date,
-------------------------
FirstAmerica and Subsidiary shall have complied with and duly performed in all
material respects all of the agreements and conditions on their part required to
be complied with or performed pursuant to this Agreement on or before the
Closing Date.
7.2. Representations and Warranties of FirstAmerica and Subsidiary.
-------------------------------------------------------------
The representations and warranties of FirstAmerica and Subsidiary contained in
this Agreement, or otherwise made in writing in connection with the transactions
contemplated hereby, shall be true and correct in all material respects on and
as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
7.3. No Legal Proceedings. No action or proceeding shall have been
--------------------
instituted or threatened to restrain or prohibit the merger between Subsidiary
and the Company.
7.4. Consents. Subsidiary and Franchisor shall have entered into a
--------
customary dealer sales and service Agreement designating Subsidiary as the duly
authorized dealer for the sales and service of the Franchisor's automobiles at
the location or locations at which the Company operates its dealership
immediately prior to the Closing, free of any material condition which is
adverse to Subsidiary. All permits and licenses necessary to enable Subsidiary
to conduct the automobile dealership and service facilities at the location at
the Company's dealership immediately prior to the Closing shall have been
obtained. All other requisite consents and approvals shall have been obtained.
7.5. Certificate of Merger. The Agreement of Merger attached as
---------------------
Schedule 1.3 evidencing the merger of the Company and Subsidiary shall,
concurrently with the Closing, be executed and acknowledged by Subsidiary and
the Company, and filed with the Secretary of State for the State of California.
8. Deliveries by Shareholders. The Shareholders shall, upon the Closing,
--------------------------
deliver to FirstAmerica the following:
8.1. A stock certificate or certificates evidencing all of the
outstanding capital stock of the Company in accordance with the provisions of
Section 1.4 hereof;
8.2. The certificate of merger in the form attached hereto as Schedule
1.3, duly executed by the Company;
8.3. Copy of resolutions adopted by the Board of Directors of the
Company and by the Shareholders authorizing the execution and delivery by the
Company of this Agreement, the adoption of this Agreement as a plan of
reorganization and the consummation by the Company of the transactions
contemplated herein;
8.4. Certificate of Secretary for the Company certifying that the
resolutions referenced immediately above have been duly adopted by both the
Board of Directors of the Company and the Shareholders; and
8.5. Certificate of Incumbency for the President of the Company;
9. Deliveries by FirstAmerica and Subsidiary. FirstAmerica and
-----------------------------------------
Subsidiary shall, upon Closing, deliver to the Shareholders the following:
9
<PAGE>
9.1. Stock certificate or certificates representing the shares of
FirstAmerica Stock issuable to the Shareholders hereunder;
9.2. Cashiers or Certified Checks payable to those Shareholders, and
in the amounts, as set forth on Schedule 1.4 attached or other evidence of
payment of such amounts in accordance with Section 1.5 hereof;
9.3. The lease for the premises to be occupied by Subsidiary upon the
Closing in the form attached hereto as Schedule 3, duly executed by the landlord
thereof and the Subsidiary;
9.4. Copy of resolutions adopted by the Boards of Directors of both
FirstAmerica and Subsidiary, and of First America as the sole shareholder of
Subsidiary authorizing the execution and delivery of this Agreement, the
adoption of this Agreement as a plan of reorganization, and the consummation of
the transaction contemplated herein;
9.5. Certificate of Secretary certifying that the resolutions
referenced immediately above have been duly adopted by the Boards of Directors
of FirstAmerica and Subsidiary, respectively and by the shareholder of
Subsidiary; and
9.6. Certificate of Incumbency for the President of FirstAmerica and
of Subsidiary.
10. Closing. The consummation of the transactions provided for in this
-------
Agreement ("Closing") shall occur at the offices of Kay & Merkle, 100 The
Embarcadero, Penthouse, San Francisco, California 94105 or at such other
location as the parties may agree in writing, on March 31, 1997 at 10:00 a.m.,
or at such other date and time (the "Closing Date") as the parties hereto may
mutually agree in writing.
11. Additional Covenants.
--------------------
11.1. Access. Commencing on the date of this Agreement and
------
continuing through the Closing Date, the Company and each of the Shareholders
shall allow the officers and authorized representatives of FirstAmerica
reasonable access during normal business hours to the business locations,
properties and books and records of the Company, and shall further provide to
FirstAmerica all such additional information as FirstAmerica may request with
respect to the Company.
11.2. Conduct of Business. Commencing on the date hereof and
-------------------
continuing through the Closing Date, the Company shall continue to manage,
operate and maintain all of its business and activities in substantially the
same manner as prior to the date hereof, and shall not introduce any new or
novel method of management, operation or accounting. Further, the Company shall
maintain its respective properties and facilities in as good a working condition
as exist as of the date hereof, ordinary wear and tear and loss by casualty
excepted. The Company shall use its best efforts to maintain and preserve its
business organization intact and to retain its present working relationship with
employees, suppliers and customers.
11.3. Accounting Method. Subsidiary acknowledges that the Company
-----------------
currently uses the last-in first-out method of inventory accounting. Subsidiary
shall adopt and utilize the same method of accounting as utilized by the
Company, including the last-in first-out method of inventory accounting.
12. Notices. All notices, requests or demands to a party hereunder shall
--------
be in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier,
10
<PAGE>
charges prepaid, addressed as set forth below. Any such notice, demand, request
or other communication shall be deemed to have been received upon the earlier of
personal delivery thereof, three (3) business days after having been mailed as
provided above, or one (1) business day after delivery through a commercial
courier, as the case may be. Notices may be given by facsimile and shall be
effective upon the transmission of such facsimile notice provided that the
facsimile notice is transmitted on a business day and a copy of the facsimile
notice together with evidence of its successful transmission indicating the date
and time of transmission is sent on the day of transmission by recognized
overnight carrier for delivery on the immediately succeeding business day. Each
party shall be entitled to modify its address by notice given in accordance with
this Section.
To FirstAmerica: 100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
To Subsidiary: 100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
With Copy To: Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
To Shareholders: 1500 Collins Avenue
Colma, CA 94014
Attn: Thomas A. Price
Fax No.: (415) 756-3945
To Company: 1500 Collins Avenue
Colma, CA 94014
Attn: Thomas A. Price
Fax No.: (415) 756-3945
13. Indemnification.
---------------
13.1. Indemnification by Shareholders. Each Shareholder jointly and
-------------------------------
severally agrees to indemnify, defend and hold harmless FirstAmerica, Subsidiary
and the Company and their respective directors, officers, employees, agents,
affiliates, successors, assigns, representatives and attorneys from and against
any and all claims, actions, proceedings, demands, assessments, damages, costs,
liabilities and obligations of any nature whatsoever including, without
limitation, reasonable attorneys' fees arising out of or relating to: (i) any
breach of any representation or warranty made by a Shareholder herein or on any
Schedule or any other document attached hereto or delivered in connection
herewith; (ii) any nonfulfillment with any agreement or covenant required to be
performed by any Shareholder pursuant to this Agreement; or (iii) any liability
under the Securities Act of 1933, as amended, the Securities Act of 1934, as
amended, or any other federal or state law or regulation arising out of any
untrue statement of a material fact relating to the Company or the Shareholders,
and which is provided by the Company or the Shareholders.
13.2. Indemnification by FirstAmerica. FirstAmerica hereby agrees
--------------------------------
to indemnify,
11
<PAGE>
defend, and hold harmless the Shareholders and their respective directors,
officers, employees, agents, affiliates, successors, assigns, representatives
and attorneys, from and against any and all claims, actions, proceedings,
demands, assessments, damages, costs, liabilities and obligations of any nature
whatsoever, including without limitation, reasonable attorneys' fees arising out
of or relating to (i) any breach of any representation or warranty made by
FirstAmerica herein, or on any Schedule or any other document attached hereto or
delivered in connection herewith; (ii) any nonfulfillment of any agreement or
covenant required to be performed by FirstAmerica or Subsidiary pursuant to this
agreement; or (iii) any liability under the Securities Act of 1933 as amended,
the Securities Act of 1934, as amended, or any other federal or state law or
regulation arising out of any untrue statement of a material fact relating to
FirstAmerica or Subsidiary and which is provided by FirstAmerica or Subsidiary.
13.3. Claim. For purposes of this section, the following terms
------
shall have the definitions as set forth below:
13.3.1. "Indemnified Party" shall be defined as the party
entitled to indemnification under the provisions of Section 13.1 or 13.2;
13.3.2. "Indemnifying Party" shall be defined as the party
obligated to provide indemnification pursuant to the provisions of Section 13.1
or 13.2;
13.3.3. "Third Person" shall be defined as any person
asserting a claim against any party to this Agreement, which claim is subject to
an indemnification obligation set forth in this Section 13.3;
In the event that an Indemnified Party shall receive notice, or otherwise
have knowledge of any claim, or the commencement of any action or proceeding by
a Third Person, the Indemnified Party shall promptly give written notice thereof
to the Indemnifying Party. The provision of such written notice shall be a
condition precedent to the obligation of Indemnifying Party to provide any
indemnification under the provisions of this Section 13.3. The Indemnifying
Party shall have the right to defend, negotiate and settle any claim by a Third
Person hereunder at the expense and with counsel selected by the Indemnifying
Party which is reasonably acceptable to Indemnified Party, as long as it
diligently pursues such settlement, negotiation or defense in good faith. The
Indemnified Party shall have the right to participate with counsel of its choice
and at its expense, in any settlement, negotiation or defense, provided, however
that the Indemnifying Party's counsel shall at all times be lead counsel and
shall determine all defense and settlement strategies, actions, and the like.
The Indemnified Party shall cooperate on a reasonable basis with the
Indemnifying Party and shall provide to the Indemnifying Party all books,
records and other information reasonably requested by the Indemnifying Party.
14. Termination. If the Closing Date shall not have occurred on or prior
-----------
to April 30, 1997 as such date may be from time to time extended upon the mutual
consent of the parties, any party that is not in default in the performance of
its obligations under this Agreement may, thereafter terminate this Agreement by
giving written notice to the other parties hereto.
15. Miscellaneous.
-------------
15.1. Amendment. This Agreement shall not be changed, modified or
---------
amended except by a writing signed by the party to be charged.
15.2. Governing Law. This Agreement and its validity, construction
-------------
and performance shall be governed in all respects by the laws of the State of
California without giving effect to principles of conflict of laws.
12
<PAGE>
15.3. Severability. If any provision of this Agreement or the
------------
application of any provision hereof to any person or circumstance is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
15.4. Benefit of Parties. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties hereto and their respective successors,
heirs, legal representatives and assigns.
15.5. Time. Time is of the essence with respect to this Agreement.
----
15.6. Headings. The headings in the paragraphs of this Agreement
--------
are inserted for convenience of reference only and shall not constitute a part
hereof.
15.7. Counterparts. This Agreement may be executed simultaneously in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.8. Further Assurances. Each of the parties hereto agrees to
------------------
perform such other acts, and to execute, acknowledge and deliver, prior to, at
or subsequent to Closing, such other instruments, documents and other materials
as any other may reasonably request and as shall be necessary in order to effect
the consummation of the transactions contemplated hereby.
15.9. Schedules. The parties acknowledge and agree that the
----------
schedules provided for herein shall be attached to the Agreement effective as of
the Closing Date.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
FIRSTAMERICA: COMPANY:
FirstAmerica Automotive, Inc. Price Auto Holding, Inc.
a Delaware corporation a California corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
________________________________ _____________________________
Thomas A. Price, President Thomas A. Price, President
SUBSIDIARY: SHAREHOLDERS:
FAA San Bruno, Inc. Price Trust u/t/d 10/5/84
a California corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
___________________________ _______________________
Thomas A. Price, President Thomas A. Price, Trustee
/s/ Fred Cziska
___________________________
Fred Cziska
14
<PAGE>
LIST OF SCHEDULES
Schedule 1.3 Certificate of Merger
Schedule 1.4 Shares
Schedule 3 Form of Assignment of Lease
Schedule 4.1 Exceptions to Due Organization
Schedule 4.4 Capitalization
Schedule 4.5 Subsidiaries
Schedule 4.6 Financial Statements
Schedule 4.7 Liabilities
Schedule 4.8 Receivables
Schedule 4.9 Permits and Licenses
Schedule 4.10 Personal Property
Schedule 4.11 Material Contracts
Schedule 4.12 Unions
Schedule 4.13 Insurance
Schedule 4.14 Benefit Plans
<PAGE>
EXHIBIT 2.1.3
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into this 1st
day of July, 1997 by and among FIRSTAMERICA AUTOMOTIVE, INC., a Delaware
corporation ("FirstAmerica"), Serramonte Motorcars, Inc. dba Lexus of
Serramonte, a California corporation ("Company"), Price Trust utd 10/5/84, Fred
Cziska and John Driebe (the "Shareholders"), and FAA Serramonte L, Inc. a
California corporation ("Subsidiary").
R E C I T A L S:
A. The Company is an authorized Lexus dealership franchisee located at 700
Serramonte Blvd., Colma, CA.
B. The parties hereto desire to provide for the merger of the Company and
the Subsidiary and that such merger result in the Subsidiary acquiring all of
the business of the Company, and thereafter owned and operated as a wholly owned
subsidiary of FirstAmerica.
C. The parties desire to complete such merger as a tax deferred
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Internal Revenue Code of 1986, as amended (the "Code").
Now, therefore, the parties hereto agree as follows:
1. Merger.
-------
1.1. Intent. The Shareholders currently hold all of the outstanding
------
capital stock of the Company. FirstAmerica currently holds all of the
outstanding capital stock of the Subsidiary. It is the intent of the parties
that FirstAmerica indirectly acquire all of the business of the Company through
a merger of the Company into the Subsidiary. The Subsidiary shall thereafter be
owned and operated as a wholly owned subsidiary of FirstAmerica. Immediately
upon completion of such merger, it is intended that each of the following shall
have occurred:
1.1.1. The Company and the Subsidiary shall have been merged
together, as one corporation with the Subsidiary as the surviving corporation;
1.1.2. FirstAmerica shall hold all of the outstanding stock of
Subsidiary;
1.1.3. The Subsidiary shall hold all of the assets, and be
responsible for all of the liabilities, held or attributable to both the Company
and the Subsidiary immediately prior to the Closing, and
1.1.4. The Shareholders shall no longer hold shares of the
Company, but shall hold shares of FirstAmerica ("FirstAmerica Stock").
1.2. Tax Intent. Notwithstanding any of the provisions of this
----------
Agreement to the contrary, it is the intent of all of the parties hereto that
the transaction provided for herein qualify as a tax deferred reorganization
within the meaning of sections of 368(a)(1)(A) and 368(a)(2)(D) of the Code. All
of the provisions of this Agreement shall be interpreted in a manner which is
consistent with the intent expressed in the immediately preceding sentence.
Further, each of the parties hereto shall undertake all actions as may be
necessary or appropriate to qualify the transactions provided for herein as a
tax deferred reorganization within the meaning of the sections of the Code
referenced immediately above. Each
<PAGE>
corporation which is a party to this Agreement hereby adopts this Agreement as a
plan of reorganization, and each party to this Agreement shall report the
transaction provided for herein, for all tax reporting purposes, in a manner
which is consistent with the intent set forth in this section.
1.3. Corporate Merger. Effective as of the Closing Date, the Company
----------------
shall be merged into and with the Subsidiary in accordance with the
applicable statutes of the State of California. Upon completion of such
merger, the Subsidiary shall be the surviving corporation, and shall be
fully vested with and possess all the rights, privileges, immunities, and
franchises, of a public as well as a private nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all choses in action, and all and every other
interest of or belonging to or due to both Subsidiary and the Company prior
to the merger of such corporations. The Subsidiary shall, as the surviving
corporation, be responsible and liable for all the liabilities and
obligations of both Subsidiary and the Company and any claim existing, or
action or proceeding pending, by or against either the Company or
Subsidiary, may be prosecuted as if the merger had not taken place. Neither
the rights of creditors nor liens upon the property of either the
Subsidiary or the Company shall be impaired by the merger. Concurrently
with the Closing hereunder, the parties hereto shall cause to be executed,
acknowledged and filed with the Secretary of State of the State of
California an Agreement of Merger in the form attached hereto as Schedule
1.3 and incorporated herein by this reference. Such Agreement of Merger
shall provide for the merger of Subsidiary and the Company in accordance
with the provisions of this Agreement, and for the change of the name of
Subsidiary to FAA Serramonte, Inc.
1.4. Conversion of Shares. Concurrently with the Closing, all the
--------------------
shares of the Company issued and outstanding immediately prior to the
Closing shall as a result of the merger provided for above, and without
further action on the part of any Shareholder, automatically be exchanged
for and converted into fully paid and non-assessable shares of FirstAmerica
Stock, and the right to receive cash from FirstAmerica, if any, as set
forth below. The number of shares of the Company held by each Shareholder
is set forth on Schedule 1.4 attached hereto and incorporated herein by
this reference. In addition, the number of shares of FirstAmerica Stock
together with the amount of cash, if any, to be distributed to each
Shareholder upon the Closing is set forth on Schedule 1.4. The Shareholders
shall deliver to FirstAmerica at the Closing, certificates representing all
the shares of the Company held by each Shareholder, duly endorsed in blank
by the Shareholders or accompanied by blank stock powers, with signatures
guaranteed by a national bank, and with all necessary transfer tax and
revenue stamps, at the Shareholders' expense, affixed and cancelled. The
Shareholders agree to cure any deficiencies with respect to the endorsement
of the certificates or other documents of conveyance with respect to the
shares of the Company's stock or with respect to the powers accompanying
any Company's stock. FirstAmerica shall deliver to the Shareholders at the
Closing certificates representing shares of FirstAmerica Stock duly
executed for the number of shares of FirstAmerica Stock acquired by each
Shareholder as set forth on Schedule 1.4.
1.5. Transfer Restrictions; Legends. The shares of FirstAmerica 's
------------------------------
Common Stock to be issued pursuant to Section 1.4 shall not have been
registered and shall be characterized as "Restricted Securities" under the
federal securities laws, and under such laws such shares may be resold
without registration under the Securities Act of 1933, as amended, only in
certain limited circumstances. Each certificate evidencing shares of
FirstAmerica's Common Stock to be issued pursuant to Section 1.4 shall bear
the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION
2
<PAGE>
UNLESS AN EXEMPTION FROM THE REQUIREMENT OR REGISTRATION IS
AVAILABLE AS DEMONSTRATED BY AN OPINION OF LEGAL COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY.
1.6. Cash. In addition to the FirstAmerica stock, and subject to the
----
provisions of Section 2 below, each Shareholder shall receive upon Closing cash
consideration, if any, in the amount set forth opposite such Shareholder's name
on Schedule 1.4 attached. The payment of such cash will be made by wire
transfer, certified or cashier's check, or other form as may be reasonably
acceptable to each Shareholder. That portion of any cash, for each Shareholder,
which is not subject to the reserve provisions of Section 2 below, shall be
payable in full in cash upon the Closing. Any cash remaining in the reserve
upon the expiration of the time period set forth in Section 2 below shall
promptly be paid to the Shareholders.
2. Reserve. A portion of the cash consideration otherwise payable to
-------
each Shareholder as set forth on Schedule 1.4 attached shall be retained by
FirstAmerica as a reserve for a period of nine (9) months immediately following
the Closing. Upon expiration of such nine (9) month period, any amounts
withheld as a reserve, which have not been expended in satisfaction of
obligations provided in this Section 2, shall be paid to the Shareholders in
accordance with Section 1.5 above. Amounts withheld as a reserve pursuant to
this Section 2 may be expended by FirstAmerica to pay (i) amounts payable by the
Subsidiary in satisfaction of causes of action which identify the Subsidiary as
a defendant, and which arise from events relating to the Company which occur
prior to the Closing, (ii) chargebacks incurred by the Subsidiary subsequent to
the Closing, for vehicles sold or leased by the Company prior to the Closing,
and (iii) the internal cost to the Subsidiary of warranty repairs performed by
the Subsidiary for the benefit of its customers with respect to vehicles sold or
leased by the Company prior to the Closing the cost of which is not otherwise
reimbursable to the Subsidiary, but only to the extent that any amount described
in subparagraphs (i), (ii) or (iii) above exceeds amounts reserved therefore on
the financial statements attached hereto as Schedule 4.6, or the Schedule of
Liabilities attached as Schedule 4.7. The aggregate amounts of any payments
which are expended from the reserve provided for in this Section 2 (up to the
total amount of such reserve) shall constitute a reduction in the cash price
otherwise payable to the Shareholders pursuant to the provisions of Section 1.5
above, and shall thereafter not be payable to the Shareholders.
3. Lease. Concurrently with the Closing, the Subsidiary shall enter into
------
assignments of the leases for the real property at which the Company operates
its business immediately prior to the Closing, which assignments shall be in the
form attached hereto as Schedule 3 and incorporated herein by this reference.
4. Representations and Warranties of Company and Shareholders. Each of
-----------------------------------------------------------
the Shareholders and the Company hereby jointly and severally represents and
warrants to FirstAmerica as follows:
4.1. Organization. The Company is a corporation duly organized,
-------------
validly existing and in good standing under the laws of its state of
incorporation, and is duly authorized, qualified, and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, except
(i) as set forth in Schedule 4.1 attached hereto and incorporated herein by this
reference; or (ii) where the failure to do so does not have a material adverse
effect on the business, operations, properties, assets, or condition of the
Company, taken as a whole.
4.2. Authorization. The Shareholders and the Company have the full
--------------
legal right, power and authority to enter into this Agreement, and the merger
provided for in this Agreement. The execution and delivery of this Agreement,
and each other document, agreement and instrument contemplated hereby and the
consummation of the transactions provided for in this Agreement have been duly
authorized by the
3
<PAGE>
Company by all necessary corporate action. The Agreement, and each other
agreement, document or instrument contemplated hereby has been duly executed and
delivered by the Shareholders and the Company. No approvals or consents of any
person or entity are necessary in connection with the power and authority of the
Shareholders and the Company to perform their respective obligations pursuant to
this Agreement. This Agreement constitutes the legal, valid and binding
obligations of the Shareholders and the Company enforceable against the
Shareholders and the Company in accordance with its terms, subject only to laws
relating to bankruptcy, insolvency or other similar provisions affecting
creditors' rights.
4.3. Articles of Incorporation, By-Laws and Minute Books. True,
----------------------------------------------------
complete and correct copies of the Articles of Incorporation and By-Laws of the
Company, each as amended to date, have been furnished to FirstAmerica. The
stock records and minute books of the Company, all of which have been made
available to FirstAmerica, contain true and complete minutes and records of all
meetings, proceedings and other actions of the stockholders and directors of the
Company from the date of organization.
4.4. Authorized Capitalization. The authorized capital stock of the
--------------------------
Company consists solely of that number and classes or series of shares as is set
forth on Schedule 4.4 attached hereto and incorporated herein by this reference.
The number of issued and outstanding shares of each class or series of stock of
the Company are set forth on Schedule 4.4 attached. All the issued and
outstanding shares of the Company are owned by the Shareholders as set forth on
Schedule 1.4, and are validly issued and outstanding, fully paid and non-
assessable, free and clear of all liens, security interests, pledges, charges,
voting trusts, equities, restrictions, encumbrances and claims of every kind.
All of the outstanding shares of the Company were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. None of the shares of the Company
which are outstanding were issued in violation of any preemptive rights held by
any past or present shareholder of the Company. The Company does not have any
outstanding options, warrants, rights or other securities, plans, contracts or
agreements which give the holder thereof or any other person the right to
purchase any shares of the Company's capital stock or which are convertible into
or exercisable for any shares of such capital stock or under which any such
option, warrant, or right or security may be issued in the future. The Company
does not have any obligation, whether contingent or otherwise, to purchase,
redeem, or otherwise acquire any of its equity securities or interests therein
or pay a dividend or make any distribution with respect thereto.
4.5. Subsidiaries. Except as set forth on Schedule 4.5 attached
-------------
hereto and incorporated herein by this reference, the Company does not own,
whether of record or beneficially or control, directly or indirectly, any
capital stock, securities convertible into capital stock, or any other equity
interest in any corporation, association, or business entity, and is not a party
either directly or indirectly to any joint venture, partnership, limited
liability company, or any other entity.
4.6. Financial Statements. Attached hereto as Schedule 4.6 and
---------------------
incorporated herein by this reference are copies of the financial statements of
the Company, including statements of income, cash flow, and retained earnings
for each of the most recent three fiscal years of the Company and for the period
ending sixty (60) days prior to the date of this Agreement. Also attached as a
part of Schedule 4.6 is a copy of the most recent dealer financial statement for
the Company which dealer financial statement will be updated as of the Closing.
Such financial statements, including the dealer financial statement, have been
and will be prepared in accordance with generally accepted accounting principles
applied on a consistent basis and present fairly the financial position of the
Company as of the dates and for the periods indicated. At the Closing Date, the
Company shall have a net worth of not less than $1,825,000.
4.7. Liabilities. Attached hereto as Schedule 4.7 and incorporated
-----------
herein by this reference, is an accurate list, as of the Closing, of all
material liabilities and obligations of the Company which are not reflected on
the most recent dealer financial statement as of the date of this Agreement.
4
<PAGE>
Schedule 4.7 shall be updated as of the Closing to reflect all such material
liabilities and obligations of the Company not reflected on the dealer financial
statement prepared concurrently with the Closing. Such Schedule includes any
and all liabilities and obligations, whether accrued, absolute, secured or
unsecured, contingent or otherwise. Company has previously provided to
FirstAmerica Company's reasonable estimate of the maximum amount of potential
exposure for any debt or liability which is not fixed or is contested.
4.8. Receivables. Set forth on Schedule 4.8 attached hereto and
-----------
incorporated herein by this reference is an accurate list as of the date of this
Agreement of the accounts and notes receivable of the Company, including
receivables from and advances to employees and shareholders. Such Schedule
includes an aging of all accounts and notes receivable. Such Schedule shall be
updated as of the Closing.
4.9. Permits and Intangibles. Attached hereto as Schedule 4.9 and
-----------------------
incorporated herein by this reference, is an accurate list and summary
description of all permits, licenses, franchises, certificates, trademarks,
tradenames, service marks, patents, and other similar items owned by the
Company. All such items are valid and in full force and effect. There is no
default, or the occurrence of any event, which with the passage of time, the
giving of notice or both will constitute a default, of any such items. None of
such items infringe upon the rights of any other person.
4.10. Assets. Attached hereto as Schedule 4.10 is an accurate list,
------
as of the date of this Agreement, of all personal property (other than
inventory) having a cost in excess of $10,000, owned or leased by the Company,
together with true complete and correct copies of any and all leases for any
property leased by the Company. Except as otherwise set forth on Schedule 4.10,
all of such property is in good working order and condition, ordinary wear and
tear excepted. The leases referenced in Schedule 4.10 have been duly
authorized, executed and delivered, and constitute the legal, binding and valid
obligations of the Company, and, to the knowledge of the Shareholders, no other
party to any such leases is in default of any provision thereof, and such leases
constitute the legal, valid and binding obligations of the other parties
thereto. All of the assets used by the Company in the operation of the business
are either owned by the Company or leased by the Company. Schedule 4.10 shall
be updated as of the Closing.
4.11. Material Contracts. Set forth on Schedule 4.11 attached hereto
------------------
and incorporated herein by this reference, is an accurate and complete list, as
of the date of this Agreement, of all material contracts, commitments and
similar agreements to which the Company is a party, or by which any of its
assets or properties are bound. The Company has delivered true and accurate
copies of each such contract to FirstAmerica. Except as otherwise set forth on
Schedule 4.11, the Company has complied with all material commitments and
obligations pertaining to it, and is not in material default, and has received
no notice of default with respect to, and no event has occurred which, with the
passage of time, the giving of notice or both would constitute a material
default with respect to, any contracts set forth on Schedule 4.11.
4.12. Unions. Except as set forth on Schedule 4.12 attached hereto
------
and incorporated herein by this reference, the Company is not a party to any
arrangement with any union, and no employees of the Company are represented by
any labor union or covered by any collective bargaining agreement, nor, to the
knowledge of the Shareholders, is any effort to establish such representation in
progress. There is no pending or, to the knowledge of the Shareholders,
threatened labor dispute involving the Company or any of its employees.
4.13. Insurance. Set forth on Schedule 4.13 attached hereto and
---------
incorporated herein by this reference, is an accurate list as of the date of
this Agreement, of all insurance policies of the Company, including an accurate
list of all insurance losses, including workers' compensation claims, of the
Company for the past three policy years.
4.14. Employee Plans. Set forth on Schedule 4.14 attached hereto and
--------------
incorporated
5
<PAGE>
herein by this reference, is a complete and accurate list of all employee
benefit plans including without limitation, all pension, profit sharing,
deferred compensation, bonus, and multi-employer plans and other plans currently
maintained or sponsored by the Company, or to which the Company contributes or
has an obligation to contribute in the future. The Company and, to the knowledge
of the Shareholders, each of the plans referenced on Schedule 4.14 attached is
in substantial compliance with all applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). No plan has
incurred an accumulated funding deficiency, as defined for purposes of the
Internal Revenue Code and ERISA, and the Company does not have any direct or
indirect obligation or liability to the Pension Benefit Guaranty Corporation or
to the Internal Revenue Service for any excise tax or penalty. Neither the
Company nor any ERISA Affiliate (i.e., each business which is treated together
with the Company as a single employer under Section 4001(a)(14) of ERISA or
Internal Revenue Code Section 414(b), (c), (m), (n) or (o)) has incurred or
expects to insure any withdrawal liability to any multiemployer plan. Copies of
all of the plans listed on Schedule 4.14, together with current determination
letters and the filings with the Internal Revenue Service for the last two
fiscal years of the plans, are attached to Schedule 4.14.
4.15. Litigation: Conformity with the Law. Except as set forth on
------------------------------------
Schedule 4.15 attached hereto and incorporated herein by this reference, there
are no claims, actions, suits or proceedings, pending or, to the knowledge of
the Shareholders, threatened, against or affecting the Company or any of its
properties at law or in equity, or before or by any federal, state, municipal,
or any other governmental department, commission, board, bureau, agency, or
instrumentality, having jurisdiction with respect to the Company, and no notice
of any claim, action, suit, or proceeding, whether pending or threatened has
been received. The Company has conducted its business in substantial compliance
with all federal, state and local statutes, ordinances, permits, licenses,
orders, variances, rules and regulations. Except as set forth on Schedule 4.15,
the Company is not subject to any order of any Court, or federal, state,
municipal, governmental department, commission, board, bureau, agency, or
instrumentality.
4.16. Taxes. The Company has filed and will file all requisite
-----
federal, state, local and all other tax returns for all fiscal periods ended on
or before the Closing Date, except for any such tax returns not yet due. There
are no examinations in progress, or claims against the Company for federal or
other taxes, including penalties or interest, for any period or periods prior to
the Closing, except as otherwise set forth on Schedule 4.16 attached hereto.
Amounts reflected on the financial statements of the Company as of the Closing
as reserves for taxes not yet payable are sufficient for the payment of all
taxes, including penalties and interest, for all periods prior to the Closing.
4.17. Environmental Matters. None of the Company's assets has ever
---------------------
been used by the Company or, to the best of the Company's knowledge, by previous
owners or operators, in the disposal of, or to produce, store, handle, treat,
release, or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; none of the Company's assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any of the Company's property; the Company does not have any contingent
liability in connection with the release of any hazardous substances into the
environment, including third-party releases onto property that the Company owns
or operates; and the Company has not received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by the Company relating to
the release or disposal of hazardous waste or hazardous substances. Except as
set forth on Schedule 4.17 attached hereto and incorporated herein by this
reference, the Company has not at any time owned or leased any real estate
having underground storage tanks.
4.18. Shareholder Qualification. Each Shareholder is an "accredited
-------------------------
investor" for purposes of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder. In
6
<PAGE>
addition, each Shareholder, by reason of such Shareholder's business or
financial experience or the business or financial experience of such
Shareholder's professional advisors who are not affiliated with or compensated
by FirstAmerica or FirstAmerica's affiliates, has the capacity to protect such
Shareholder's interests in connection with the transactions contemplated
hereunder.
4.19. Representations and Warranties on Closing Date. The
----------------------------------------------
representations and warranties of the Shareholders contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties had
been made on and as of the Closing Date.
5. Representations and Warranties of FirstAmerica and Subsidiary.
--------------------------------------------------------------
FirstAmerica and Subsidiary jointly and severally represent and warrant as
follows:
5.1. Organization. FirstAmerica and Subsidiary are corporations
-------------
duly organized, validly existing and in good standing under the laws of their
respective States of incorporation and are duly authorized, qualified and
licensed under all applicable laws, regulations, ordinances, and orders of
public authorities to carry on their respective businesses in the places and in
the manner as now conducted except in States where the failure to be so
authorized, qualified or licensed would not have a material adverse effect on
their respective businesses.
5.2. FirstAmerica Stock. The FirstAmerica Stock to be delivered to
-------------------
the Shareholders at the Closing hereunder, when delivered in accordance with the
terms of this Agreement, will constitute valid and legally issued shares of
FirstAmerica's capital stock, fully paid and nonassessable, and, with the
exception of restrictions upon resale, will be legally equivalent in all
respects to the majority of the capital stock of FirstAmerica issued and
outstanding as of the Closing Date.
5.3. Authorization. The representatives of FirstAmerica and
--------------
Subsidiary executing this Agreement have the corporate authority to enter into
and bind FirstAmerica and Subsidiary by the terms of this Agreement.
FirstAmerica and Subsidiary have the full legal right, power and authority to
enter into this Agreement. The execution and delivery of this Agreement and
each other agreement, document or instrument contemplated hereby, and the
consummation of the transaction provided for in this Agreement have been duly
authorized by all necessary corporate action on behalf of both FirstAmerica and
Subsidiary. This Agreement, and each other Agreement, document or instrument
contemplated hereby, has been duly executed and delivered by FirstAmerica and
Subsidiary. No approvals or consents of any person or entity are necessary in
connection with the power and authority of FirstAmerica and Subsidiary to
perform their respective obligations pursuant to this Agreement. This Agreement
constitutes the legal, valid and binding obligation of FirstAmerica and
Subsidiary enforceable against FirstAmerica and Subsidiary in accordance with
its terms, subject only to laws relating to bankruptcy, insolvency or other
similar provisions affecting creditors' rights.
5.4. Representations and Warranties on Closing Date. The
-----------------------------------------------
representations and warranties of FirstAmerica and Subsidiary contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
6. Conditions to FirstAmerica's and Subsidiary's Obligations to Close.
-------------------------------------------------------------------
The obligations of FirstAmerica and Subsidiary under this Agreement are, at the
option of FirstAmerica and Subsidiary subject to the conditions set forth below.
FirstAmerica and Subsidiary shall have the right to waive in writing all or part
of any one or more of the following conditions without, however, releasing
Shareholders and the Company from any liability for any loss or damage sustained
by FirstAmerica or Subsidiary by reason of the breach by Shareholders and the
Company of any covenant, obligation or agreement contained herein, or
7
<PAGE>
by reason of any misrepresentation made by Shareholders and the Company and upon
such waiver may proceed with the transactions contemplated by this Agreement.
6.1. Agreements and Conditions. On or before the Closing Date,
--------------------------
Shareholders and Company shall have complied with and duly performed in all
material respects all agreements and conditions on their part to be complied
with and performed pursuant to or in connection with this Agreement on or before
the Closing Date.
6.2. Representations and Warranties. The representations and
-------------------------------
warranties of Shareholders contained in this Agreement, or otherwise made in
writing in connection with the transactions contemplated hereby, shall be true
and correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date.
6.3. No Legal Proceedings. No action or proceeding shall have been
---------------------
instituted or threatened to restrain or prohibit the merger of Subsidiary and
the Company or which might result in any material adverse change in the
business, prospects or financial or other condition of the assets of the
Company.
6.4. Consents. Subsidiary and Toyota Motor Sales, U.S.A.
---------
("Franchisor") shall have entered into a customary dealer sales and service
agreement designating Subsidiary as the duly authorized dealer for the sales and
service of the Franchisor's Lexus vehicles at the location or locations at which
the Company operates its dealership immediately prior to the Closing, free of
any material condition which in the opinion of FirstAmerica would be adverse to
Subsidiary. All permits and licenses necessary to enable Subsidiary to conduct
the dealership and service facilities at the location of the Company's
dealership immediately prior to the Closing shall have been obtained. All other
requisite consents and approvals shall have been obtained.
6.5. No Material Adverse Change. No material adverse change in the
---------------------------
results of operations or financial conditions of the Company shall have
occurred, and the Company shall not have suffered any material loss or damage to
its properties or assets, whether or not covered by insurance.
6.6. Assignments of Leases. The Assignments of Leases in the form
---------------------
attached hereto as Schedule 3 shall have been executed by all of the parties
thereto and delivered to Subsidiary.
6.7. Floor Plan Financing. Subsidiary shall have obtained
--------------------
appropriate floor plan financing, as reasonably acceptable to FirstAmerica as
necessary for the operation of the automobile franchise which is operated by the
Company immediately prior to the Closing.
6.8. Certificate of Merger. The Agreement of Merger attached as
---------------------
Schedule 1.3 evidencing the merger of the Company and Subsidiary shall,
concurrently with the Closing, be executed and acknowledged by Subsidiary and
the Company and filed with the Secretary of State of the State of California.
7. Conditions to Company's and Shareholders' Obligations to Close. The
--------------------------------------------------------------
obligations of the Shareholders and the Company under this Agreement are, at the
option of the Shareholders, subject to the conditions set forth below. The
Shareholders shall have the right to waive in writing all or part of any one or
more of the following conditions without, however, releasing FirstAmerica or
Subsidiary from any liability for any loss or damage sustained by Shareholders
by reason of the breach by FirstAmerica or Subsidiary of any covenant,
obligation or agreement contained herein, or by reason of any misrepresentation
made by FirstAmerica or Subsidiary and upon such waiver may proceed with the
transactions contemplated by this
8
<PAGE>
Agreement.
7.1. Agreements and Conditions. On or before the Closing Date,
-------------------------
FirstAmerica and Subsidiary shall have complied with and duly performed in all
material respects all of the agreements and conditions on their part required to
be complied with or performed pursuant to this Agreement on or before the
Closing Date.
7.2. Representations and Warranties of FirstAmerica and Subsidiary.
--------------------------------------------------------------
The representations and warranties of FirstAmerica and Subsidiary contained in
this Agreement, or otherwise made in writing in connection with the transactions
contemplated hereby, shall be true and correct in all material respects on and
as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
7.3. No Legal Proceedings. No action or proceeding shall have been
--------------------
instituted or threatened to restrain or prohibit the merger between Subsidiary
and the Company.
7.4. Consents. Subsidiary and Franchisor shall have entered into a
--------
customary dealer sales and service Agreement designating Subsidiary as the duly
authorized dealer for the sales and service of the Franchisor's automobiles at
the location or locations at which the Company operates its dealership
immediately prior to the Closing, free of any material condition which is
adverse to Subsidiary. All permits and licenses necessary to enable Subsidiary
to conduct the automobile dealership and service facilities at the location at
the Company's dealership immediately prior to the Closing shall have been
obtained. All other requisite consents and approvals shall have been obtained.
7.5. Certificate of Merger. The Agreement of Merger attached as
---------------------
Schedule 1.3 evidencing the merger of the Company and Subsidiary shall,
concurrently with the Closing, be executed and acknowledged by Subsidiary and
the Company, and filed with the Secretary of State for the State of California.
8. Deliveries by Shareholders. The Shareholders shall, upon the Closing,
--------------------------
deliver to FirstAmerica the following:
8.1. A stock certificate or certificates evidencing all of the
outstanding capital stock of the Company in accordance with the provisions of
Section 1.4 hereof;
8.2. The certificate of merger in the form attached hereto as Schedule
1.3, duly executed by the Company;
8.3. Copy of resolutions adopted by the Board of Directors of the
Company and by the Shareholders authorizing the execution and delivery by the
Company of this Agreement, the adoption of this Agreement as a plan of
reorganization and the consummation by the Company of the transactions
contemplated herein;
8.4. Certificate of Secretary for the Company certifying that the
resolutions referenced immediately above have been duly adopted by both the
Board of Directors of the Company and the Shareholders; and
8.5. Certificate of Incumbency for the President of the Company;
9. Deliveries by FirstAmerica and Subsidiary. FirstAmerica and
-----------------------------------------
Subsidiary shall, upon Closing, deliver to the Shareholders the following:
9
<PAGE>
9.1. Stock certificate or certificates representing the shares of
FirstAmerica Stock issuable to the Shareholders hereunder;
9.2. Cashiers or Certified Checks payable to those Shareholders, and
in the amounts, as set forth on Schedule 1.4 attached or other evidence of
payment of such amounts in accordance with Section 1.5 hereof;
9.3. The lease for the premises to be occupied by Subsidiary upon the
Closing in the form attached hereto as Schedule 3, duly executed by the landlord
thereof and the Subsidiary;
9.4. Copy of resolutions adopted by the Boards of Directors of both
FirstAmerica and Subsidiary, and of First America as the sole shareholder of
Subsidiary authorizing the execution and delivery of this Agreement, the
adoption of this Agreement as a plan of reorganization, and the consummation of
the transaction contemplated herein;
9.5. Certificate of Secretary certifying that the resolutions
referenced immediately above have been duly adopted by the Boards of Directors
of FirstAmerica and Subsidiary, respectively and by the shareholder of
Subsidiary; and
9.6. Certificate of Incumbency for the President of FirstAmerica and
of Subsidiary.
10. Closing. The consummation of the transactions provided for in this
--------
Agreement ("Closing") shall occur at the offices of Kay & Merkle, 100 The
Embarcadero, Penthouse, San Francisco, California 94105 or at such other
location as the parties may agree in writing, on March 31, 1997 at 10:00 a.m.,
or at such other date and time (the "Closing Date") as the parties hereto may
mutually agree in writing.
11. Additional Covenants.
---------------------
11.1. Access. Commencing on the date of this Agreement and
-------
continuing through the Closing Date, the Company and each of the Shareholders
shall allow the officers and authorized representatives of FirstAmerica
reasonable access during normal business hours to the business locations,
properties and books and records of the Company, and shall further provide to
FirstAmerica all such additional information as FirstAmerica may request with
respect to the Company.
11.2. Conduct of Business. Commencing on the date hereof and
-------------------
continuing through the Closing Date, the Company shall continue to manage,
operate and maintain all of its business and activities in substantially the
same manner as prior to the date hereof, and shall not introduce any new or
novel method of management, operation or accounting. Further, the Company shall
maintain its respective properties and facilities in as good a working condition
as exist as of the date hereof, ordinary wear and tear and loss by casualty
excepted. The Company shall use its best efforts to maintain and preserve its
business organization intact and to retain its present working relationship with
employees, suppliers and customers.
11.3. Accounting Method. Subsidiary acknowledges that the Company
-----------------
currently uses the last-in first-out method of inventory accounting. Subsidiary
shall adopt and utilize the same method of accounting as utilized by the
Company, including the last-in first-out method of inventory accounting.
12. Notices. All notices, requests or demands to a party hereunder shall
--------
be in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier,
10
<PAGE>
charges prepaid, addressed as set forth below. Any such notice, demand, request
or other communication shall be deemed to have been received upon the earlier of
personal delivery thereof, three (3) business days after having been mailed as
provided above, or one (1) business day after delivery through a commercial
courier, as the case may be. Notices may be given by facsimile and shall be
effective upon the transmission of such facsimile notice provided that the
facsimile notice is transmitted on a business day and a copy of the facsimile
notice together with evidence of its successful transmission indicating the date
and time of transmission is sent on the day of transmission by recognized
overnight carrier for delivery on the immediately succeeding business day. Each
party shall be entitled to modify its address by notice given in accordance with
this Section.
To FirstAmerica: 100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
To Subsidiary: 100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
With Copy To: Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
To Shareholders: 1500 Collins Avenue
Colma, CA 94014
Attn: Thomas A. Price
Fax No.: (415) 756-3945
To Company: 1500 Collins Avenue
Colma, CA 94014
Attn: Thomas A. Price
Fax No.: (415) 756-3945
13. Indemnification.
---------------
13.1. Indemnification by Shareholders. Each Shareholder jointly and
--------------------------------
severally agrees to indemnify, defend and hold harmless FirstAmerica, Subsidiary
and the Company and their respective directors, officers, employees, agents,
affiliates, successors, assigns, representatives and attorneys from and against
any and all claims, actions, proceedings, demands, assessments, damages, costs,
liabilities and obligations of any nature whatsoever including, without
limitation, reasonable attorneys' fees arising out of or relating to: (i) any
breach of any representation or warranty made by a Shareholder herein or on any
Schedule or any other document attached hereto or delivered in connection
herewith; (ii) any nonfulfillment with any agreement or covenant required to be
performed by any Shareholder pursuant to this Agreement; or (iii) any liability
under the Securities Act of 1933, as amended, the Securities Act of 1934, as
amended, or any other federal or state law or regulation arising out of any
untrue statement of a material fact relating to the Company or the Shareholders,
and which is provided by the Company or the Shareholders.
13.2. Indemnification by FirstAmerica. FirstAmerica hereby agrees
--------------------------------
to indemnify,
11
<PAGE>
defend, and hold harmless the Shareholders and their respective directors,
officers, employees, agents, affiliates, successors, assigns, representatives
and attorneys, from and against any and all claims, actions, proceedings,
demands, assessments, damages, costs, liabilities and obligations of any nature
whatsoever, including without limitation, reasonable attorneys' fees arising out
of or relating to (i) any breach of any representation or warranty made by
FirstAmerica herein, or on any Schedule or any other document attached hereto or
delivered in connection herewith; (ii) any nonfulfillment of any agreement or
covenant required to be performed by FirstAmerica or Subsidiary pursuant to this
agreement; or (iii) any liability under the Securities Act of 1933 as amended,
the Securities Act of 1934, as amended, or any other federal or state law or
regulation arising out of any untrue statement of a material fact relating to
FirstAmerica or Subsidiary and which is provided by FirstAmerica or Subsidiary.
13.3. Claim. For purposes of this section, the following terms
------
shall have the definitions as set forth below:
13.3.1. "Indemnified Party" shall be defined as the party
entitled to indemnification under the provisions of Section 13.1 or 13.2;
13.3.2. "Indemnifying Party" shall be defined as the party
obligated to provide indemnification pursuant to the provisions of Section 13.1
or 13.2;
13.3.3. "Third Person" shall be defined as any person
asserting a claim against any party to this Agreement, which claim is subject to
an indemnification obligation set forth in this Section 13.3;
In the event that an Indemnified Party shall receive notice, or otherwise
have knowledge of any claim, or the commencement of any action or proceeding by
a Third Person, the Indemnified Party shall promptly give written notice thereof
to the Indemnifying Party. The provision of such written notice shall be a
condition precedent to the obligation of Indemnifying Party to provide any
indemnification under the provisions of this Section 13.3. The Indemnifying
Party shall have the right to defend, negotiate and settle any claim by a Third
Person hereunder at the expense and with counsel selected by the Indemnifying
Party which is reasonably acceptable to Indemnified Party, as long as it
diligently pursues such settlement, negotiation or defense in good faith. The
Indemnified Party shall have the right to participate with counsel of its choice
and at its expense, in any settlement, negotiation or defense, provided, however
that the Indemnifying Party's counsel shall at all times be lead counsel and
shall determine all defense and settlement strategies, actions, and the like.
The Indemnified Party shall cooperate on a reasonable basis with the
Indemnifying Party and shall provide to the Indemnifying Party all books,
records and other information reasonably requested by the Indemnifying Party.
14. Termination. If the Closing Date shall not have occurred on or prior
-----------
to April 30, 1997 as such date may be from time to time extended upon the mutual
consent of the parties, any party that is not in default in the performance of
its obligations under this Agreement may, thereafter terminate this Agreement by
giving written notice to the other parties hereto.
15. Miscellaneous.
-------------
15.1. Amendment. This Agreement shall not be changed, modified or
---------
amended except by a writing signed by the party to be charged.
15.2. Governing Law. This Agreement and its validity, construction
-------------
and performance shall be governed in all respects by the laws of the State of
California without giving effect to principles of conflict of laws.
12
<PAGE>
15.3. Severability. If any provision of this Agreement or the
------------
application of any provision hereof to any person or circumstance is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
15.4. Benefit of Parties. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties hereto and their respective successors,
heirs, legal representatives and assigns.
15.5. Time. Time is of the essence with respect to this Agreement.
----
15.6. Headings. The headings in the paragraphs of this Agreement
--------
are inserted for convenience of reference only and shall not constitute a part
hereof.
15.7. Counterparts. This Agreement may be executed simultaneously in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.8. Further Assurances. Each of the parties hereto agrees to
------------------
perform such other acts, and to execute, acknowledge and deliver, prior to, at
or subsequent to Closing, such other instruments, documents and other materials
as any other may reasonably request and as shall be necessary in order to effect
the consummation of the transactions contemplated hereby.
15.9. Schedules. The parties acknowledge and agree that the
----------
schedules provided for herein shall be attached to the Agreement effective as of
the Closing Date.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
FIRSTAMERICA: COMPANY:
FirstAmerica Automotive, Inc. Serramonte Motorcars, Inc.
a Delaware corporation a California corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
___________________________ ___________________________
Thomas A. Price, President Thomas A. Price, President
SUBSIDIARY: SHAREHOLDERS:
FAA Serramonte L, Inc. Price Trust u/t/d 10/5/84
a California corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
___________________________ __________________________
Thomas A. Price, President Thomas A. Price, Trustee
/s/ Fred Cziska
__________________________
Fred Cziska
/s/ John Driebe
__________________________
John Driebe
14
<PAGE>
LIST OF SCHEDULES
Schedule 1.1 Shareholders
Schedule 1.3 Certificate of Merger
Schedule 1.4 Shares
Schedule 3 Form of Assignment Lease
Schedule 4.1 Exceptions to Due Organization
Schedule 4.4 Capitalization
Schedule 4.5 Subsidiaries
Schedule 4.6 Financial Statements
Schedule 4.7 Liabilities
Schedule 4.8 Receivables
Schedule 4.9 Permits and Licenses
Schedule 4.10 Personal Property
Schedule 4.11 Material Contracts
Schedule 4.12 Unions
Schedule 4.13 Insurance
Schedule 4.14 Benefit Plans
15
<PAGE>
Schedule 4.15 Litigation
Schedule 4.16 Tax Matters
Schedule 4.17 Underground Tanks
16
<PAGE>
EXHIBIT 2.1.4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into this 1st
day of July, 1997 by and among FIRSTAMERICA AUTOMOTIVE, INC., a Delaware
corporation ("FirstAmerica"), Cziska Price, Inc. dba Stevens Creek Nissan, a
California corporation ("Company"), each of those persons listed as a
shareholder of the Company on Schedule 1.1 attached hereto and incorporated
herein by this reference (collectively the "Shareholders"), and FAA Stevens
Creek, Inc. a California corporation ("Subsidiary").
R E C I T A L S:
A. The Company is an authorized Nissan dealership franchisee located at 4855
Stevens Creek Boulevard, Santa Clara, California.
B. The parties hereto desire to provide for the merger of the Company and the
Subsidiary and that such merger result in the Subsidiary acquiring all of the
business of the Company, and thereafter owned and operated as a wholly owned
subsidiary of FirstAmerica.
C. The parties desire to complete such merger as a tax deferred
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Internal Revenue Code of 1986, as amended (the "Code").
Now, therefore, the parties hereto agree as follows:
1. Merger.
-------
1.1. Intent. The Shareholders, all of whom are listed on Schedule
------
1.1 attached hereto and incorporated herein by this reference, currently hold
all of the outstanding capital stock of the Company. FirstAmerica currently
holds all of the outstanding capital stock of the Subsidiary. It is the intent
of the parties that FirstAmerica indirectly acquire all of the business of the
Company through a merger of the Company into the Subsidiary. The Subsidiary
shall thereafter be owned and operated as a wholly owned subsidiary of
FirstAmerica. Immediately upon completion of such merger, it is intended that
each of the following shall have occurred:
1.1.1. The Company and the Subsidiary shall have been merged
together, as one corporation with the Subsidiary as the surviving corporation;
1.1.2. FirstAmerica shall hold all of the outstanding stock of
Subsidiary;
1.1.3. The Subsidiary shall hold all of the assets, and be
responsible for all of the liabilities, held or attributable to both the Company
and the Subsidiary immediately prior to the Closing, and
1.1.4. The Shareholders shall no longer hold shares of the
Company, but shall hold shares of FirstAmerica ("FirstAmerica Stock").
1.2. Tax Intent. Notwithstanding any of the provisions of this
-----------
Agreement to the contrary, it is the intent of all of the parties hereto that
the transaction provided for herein qualify as a tax deferred reorganization
within the meaning of sections of 368(a)(1)(A) and 368(a)(2)(D) of the Code. All
of the provisions of this Agreement shall be interpreted in a manner which is
consistent with the intent expressed in the immediately preceding sentence.
Further, each of the parties hereto shall undertake all
<PAGE>
actions as may be necessary or appropriate to qualify the transactions provided
for herein as a tax deferred reorganization within the meaning of the sections
of the Code referenced immediately above. Each corporation which is a party to
this Agreement hereby adopts this Agreement as a plan of reorganization, and
each party to this Agreement shall report the transaction provided for herein,
for all tax reporting purposes, in a manner which is consistent with the intent
set forth in this section.
1.3. Corporate Merger. Effective as of the Closing Date, the Company
-----------------
shall be merged into and with the Subsidiary in accordance with the applicable
statutes of the State of California. Upon completion of such merger, the
Subsidiary shall be the surviving corporation, and shall be fully vested with
and possess all the rights, privileges, immunities, and franchises, of a public
as well as a private nature, and all property, real, personal and mixed, and all
debts due on whatever account, including subscriptions to shares, and all choses
in action, and all and every other interest of or belonging to or due to both
Subsidiary and the Company prior to the merger of such corporations. The
Subsidiary shall, as the surviving corporation, be responsible and liable for
all the liabilities and obligations of both Subsidiary and the Company and any
claim existing, or action or proceeding pending, by or against either the
Company or Subsidiary, may be prosecuted as if the merger had not taken place.
Neither the rights of creditors nor liens upon the property of either the
Subsidiary or the Company shall be impaired by the merger. Concurrently with
the Closing hereunder, the parties hereto shall cause to be executed,
acknowledged and filed with the Secretary of State of the State of California an
Agreement of Merger in the form attached hereto as Schedule 1.3 and incorporated
herein by this reference. Such Agreement of Merger shall provide for the merger
of Subsidiary and the Company in accordance with the provisions of this
Agreement, and for the change of the name of Subsidiary to FAA Serramonte, Inc.
1.4. Conversion of Shares. Concurrently with the Closing, all the
---------------------
shares of the Company issued and outstanding immediately prior to the Closing
shall as a result of the merger provided for above, and without further action
on the part of any Shareholder, automatically be exchanged for and converted
into fully paid and non-assessable shares of FirstAmerica Stock, and the right
to receive cash from FirstAmerica, if any, as set forth below. The number of
shares of the Company held by each Shareholder is set forth on Schedule 1.4
attached hereto and incorporated herein by this reference. In addition, the
number of shares of FirstAmerica Stock together with the amount of cash, if any,
to be distributed to each Shareholder upon the Closing is set forth on Schedule
1.4. The Shareholders shall deliver to FirstAmerica at the Closing, certificates
representing all the shares of the Company held by each Shareholder, duly
endorsed in blank by the Shareholders or accompanied by blank stock powers, with
signatures guaranteed by a national bank, and with all necessary transfer tax
and revenue stamps, at the Shareholders' expense, affixed and cancelled. The
Shareholders agree to cure any deficiencies with respect to the endorsement of
the certificates or other documents of conveyance with respect to the shares of
the Company's stock or with respect to the powers accompanying any Company's
stock. FirstAmerica shall deliver to the Shareholders at the Closing
certificates representing shares of FirstAmerica Stock duly executed for the
number of shares of FirstAmerica Stock acquired by each Shareholder as set forth
on Schedule 1.4.
1.5. Transfer Restrictions; Legends. The shares of FirstAmerica's
------------------------------
Common Stock to be issued pursuant to Section 1.4 shall not have been registered
and shall be characterized as "Restricted Securities" under the federal
securities laws, and under such laws such shares may be resold without
registration under the Securities Act of 1933, as amended, only in certain
limited circumstances. Each certificate evidencing shares of FirstAmerica's
Common Stock to be issued pursuant to Section 1.4 shall bear the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
2
<PAGE>
AMENDED. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS
AN EXEMPTION FROM THE REQUIREMENT OR REGISTRATION IS
AVAILABLE AS DEMONSTRATED BY AN OPINION OF LEGAL
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY.
1.6. Cash. In addition to the FirstAmerica stock, and subject to the
----
provisions of Section 2 below, each Shareholder shall receive upon Closing cash
consideration, if any, in the amount set forth opposite such Shareholder's name
on Schedule 1.4 attached. The payment of such cash will be made by wire
transfer, certified or cashier's check, or other form as may be reasonably
acceptable to each Shareholder. That portion of any cash, for each Shareholder,
which is not subject to the reserve provisions of Section 2 below, shall be
payable in full in cash upon the Closing. Any cash remaining in the reserve
upon the expiration of the time period set forth in Section 2 below shall
promptly be paid to the Shareholders.
2. Reserve. A portion of the cash consideration otherwise payable to
-------
each Shareholder as set forth on Schedule 1.4 attached shall be retained by
FirstAmerica as a reserve for a period of nine (9) months immediately following
the Closing. Upon expiration of such nine (9) month period, any amounts
withheld as a reserve, which have not been expended in satisfaction of
obligations provided in this Section 2, shall be paid to the Shareholders in
accordance with Section 1.5 above. Amounts withheld as a reserve pursuant to
this Section 2 may be expended by FirstAmerica to pay (i) amounts payable by the
Subsidiary in satisfaction of causes of action which identify the Subsidiary as
a defendant, and which arise from events relating to the Company which occur
prior to the Closing, (ii) chargebacks incurred by the Subsidiary subsequent to
the Closing, for vehicles sold or leased by the Company prior to the Closing,
and (iii) the internal cost to the Subsidiary of warranty repairs performed by
the Subsidiary for the benefit of its customers with respect to vehicles sold or
leased by the Company prior to the Closing the cost of which is not otherwise
reimbursable to the Subsidiary, but only to the extent that any amount described
in subparagraphs (i), (ii) or (iii) above exceeds amounts reserved therefore on
the financial statements attached hereto as Schedule 4.6, or the Schedule of
Liabilities attached as Schedule 4.7. The aggregate amounts of any payments
which are expended from the reserve provided for in this Section 2 (up to the
total amount of such reserve) shall constitute a reduction in the cash price
otherwise payable to the Shareholders pursuant to the provisions of Section 1.5
above, and shall thereafter not be payable to the Shareholders.
3. Lease. Concurrently with the Closing, the Subsidiary shall enter into
------
an amendment and restatement of the leases for that certain real property
commonly known as 4795, 4855, 4875, and 4885 Stevens Creek Blvd., Santa Clara,
CA, and 525 Sunol St., San Jose, CA at which the Company operates its business
immediately prior to the Closing, which leases shall be in the form attached
hereto as Schedule 3 and incorporated herein by this reference.
4. Representations and Warranties of Company and Shareholders. Each of
-----------------------------------------------------------
the Shareholders and the Company hereby jointly and severally represents and
warrants to FirstAmerica as follows:
4.1. Organization. The Company is a corporation duly organized,
-------------
validly existing and in good standing under the laws of its state of
incorporation, and is duly authorized, qualified, and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, except
(i) as set forth in Schedule 4.1 attached hereto and incorporated herein by this
reference; or (ii) where the failure to do so does not have a material adverse
effect on the business, operations, properties, assets, or condition of the
Company, taken as a whole.
4.2. Authorization. The Shareholders and the Company have the full
--------------
legal right, power
3
<PAGE>
and authority to enter into this Agreement, and the merger provided for in this
Agreement. The execution and delivery of this Agreement, and each other
document, agreement and instrument contemplated hereby and the consummation of
the transactions provided for in this Agreement have been duly authorized by the
Company by all necessary corporate action. The Agreement, and each other
agreement, document or instrument contemplated hereby has been duly executed and
delivered by the Shareholders and the Company. No approvals or consents of any
person or entity are necessary in connection with the power and authority of the
Shareholders and the Company to perform their respective obligations pursuant to
this Agreement. This Agreement constitutes the legal, valid and binding
obligations of the Shareholders and the Company enforceable against the
Shareholders and the Company in accordance with its terms, subject only to laws
relating to bankruptcy, insolvency or other similar provisions affecting
creditors' rights.
4.3. Articles of Incorporation, By-Laws and Minute Books. True,
----------------------------------------------------
complete and correct copies of the Articles of Incorporation and By-Laws of the
Company, each as amended to date, have been furnished to FirstAmerica. The
stock records and minute books of the Company, all of which have been made
available to FirstAmerica, contain true and complete minutes and records of all
meetings, proceedings and other actions of the stockholders and directors of the
Company from the date of organization.
4.4. Authorized Capitalization. The authorized capital stock of the
--------------------------
Company consists solely of that number and classes or series of shares as is set
forth on Schedule 4.4 attached hereto and incorporated herein by this reference.
The number of issued and outstanding shares of each class or series of stock of
the Company are set forth on Schedule 4.4 attached. All the issued and
outstanding shares of the Company are owned by the Shareholders as set forth on
Schedule 1.4, and are validly issued and outstanding, fully paid and non-
assessable, free and clear of all liens, security interests, pledges, charges,
voting trusts, equities, restrictions, encumbrances and claims of every kind.
All of the outstanding shares of the Company were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. None of the shares of the Company
which are outstanding were issued in violation of any preemptive rights held by
any past or present shareholder of the Company. The Company does not have any
outstanding options, warrants, rights or other securities, plans, contracts or
agreements which give the holder thereof or any other person the right to
purchase any shares of the Company's capital stock or which are convertible into
or exercisable for any shares of such capital stock or under which any such
option, warrant, or right or security may be issued in the future. The Company
does not have any obligation, whether contingent or otherwise, to purchase,
redeem, or otherwise acquire any of its equity securities or interests therein
or pay a dividend or make any distribution with respect thereto.
4.5. Subsidiaries. Except as set forth on Schedule 4.5 attached
-------------
hereto and incorporated herein by this reference, the Company does not own,
whether of record or beneficially or control, directly or indirectly, any
capital stock, securities convertible into capital stock, or any other equity
interest in any corporation, association, or business entity, and is not a party
either directly or indirectly to any joint venture, partnership, limited
liability company, or any other entity.
4.6. Financial Statements. Attached hereto as Schedule 4.6 and
---------------------
incorporated herein by this reference are copies of the financial statements of
the Company, including statements of income, cash flow, and retained earnings
for each of the most recent three fiscal years of the Company and for the period
ending sixty (60) days prior to the date of this Agreement. Also attached as a
part of Schedule 4.6 is a copy of the most recent dealer financial statement for
the Company which dealer financial statement will be updated as of the Closing.
Such financial statements, including the dealer financial statement, have been
and will be prepared in accordance with generally accepted accounting principles
applied on a consistent basis and present fairly the financial position of the
Company as of the dates and for the periods indicated. At the Closing Date, the
Company shall have a net worth of not less than $1,690,000.
4
<PAGE>
4.7. Liabilities. Attached hereto as Schedule 4.7 and incorporated
-----------
herein by this reference, is an accurate list, as of the Closing, of all
material liabilities and obligations of the Company which are not reflected on
the most recent dealer financial statement as of the date of this Agreement.
Schedule 4.7 shall be updated as of the Closing to reflect all such material
liabilities and obligations of the Company not reflected on the dealer financial
statement prepared concurrently with the Closing. Such Schedule includes any
and all liabilities and obligations, whether accrued, absolute, secured or
unsecured, contingent or otherwise. Company has previously provided to
FirstAmerica Company's reasonable estimate of the maximum amount of potential
exposure for any debt or liability which is not fixed or is contested.
4.8. Receivables. Set forth on Schedule 4.8 attached hereto and
-----------
incorporated herein by this reference is an accurate list as of the date of this
Agreement of the accounts and notes receivable of the Company, including
receivables from and advances to employees and shareholders. Such Schedule
includes an aging of all accounts and notes receivable. Such Schedule shall be
updated as of the Closing.
4.9. Permits and Intangibles. Attached hereto as Schedule 4.9 and
-----------------------
incorporated herein by this reference, is an accurate list and summary
description of all permits, licenses, franchises, certificates, trademarks,
tradenames, service marks, patents, and other similar items owned by the
Company. All such items are valid and in full force and effect. There is no
default, or the occurrence of any event, which with the passage of time, the
giving of notice or both will constitute a default, of any such items. None of
such items infringe upon the rights of any other person.
4.10. Assets. Attached hereto as Schedule 4.10 is an accurate list,
------
as of the date of this Agreement, of all personal property (other than
inventory) having a cost in excess of $10,000, owned or leased by the Company,
together with true complete and correct copies of any and all leases for any
property leased by the Company. Except as otherwise set forth on Schedule 4.10,
all of such property is in good working order and condition, ordinary wear and
tear excepted. The leases referenced in Schedule 4.10 have been duly
authorized, executed and delivered, and constitute the legal, binding and valid
obligations of the Company, and, to the knowledge of the Shareholders, no other
party to any such leases is in default of any provision thereof, and such leases
constitute the legal, valid and binding obligations of the other parties
thereto. All of the assets used by the Company in the operation of the business
are either owned by the Company or leased by the Company. Schedule 4.10 shall
be updated as of the Closing.
4.11. Material Contracts. Set forth on Schedule 4.11 attached hereto
------------------
and incorporated herein by this reference, is an accurate and complete list, as
of the date of this Agreement, of all material contracts, commitments and
similar agreements to which the Company is a party, or by which any of its
assets or properties are bound. The Company has delivered true and accurate
copies of each such contract to FirstAmerica. Except as otherwise set forth on
Schedule 4.11, the Company has complied with all material commitments and
obligations pertaining to it, and is not in material default, and has received
no notice of default with respect to, and no event has occurred which, with the
passage of time, the giving of notice or both would constitute a material
default with respect to, any contracts set forth on Schedule 4.11.
4.12. Unions. Except as set forth on Schedule 4.12 attached hereto
------
and incorporated herein by this reference, the Company is not a party to any
arrangement with any union, and no employees of the Company are represented by
any labor union or covered by any collective bargaining agreement, nor, to the
knowledge of the Shareholders, is any effort to establish such representation in
progress. There is no pending or, to the knowledge of the Shareholders,
threatened labor dispute involving the Company or any of its employees.
4.13. Insurance. Set forth on Schedule 4.13 attached hereto and
---------
incorporated herein by this reference, is an accurate list as of the date of
this Agreement, of all insurance policies of the Company, including an accurate
list of all insurance losses, including workers' compensation claims, of the
Company
5
<PAGE>
for the past three policy years.
4.14. Employee Plans. Set forth on Schedule 4.14 attached hereto and
--------------
incorporated herein by this reference, is a complete and accurate list of all
employee benefit plans including without limitation, all pension, profit
sharing, deferred compensation, bonus, and multi-employer plans and other plans
currently maintained or sponsored by the Company, or to which the Company
contributes or has an obligation to contribute in the future. The Company and,
to the knowledge of the Shareholders, each of the plans referenced on Schedule
4.14 attached is in substantial compliance with all applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). No plan
has incurred an accumulated funding deficiency, as defined for purposes of the
Internal Revenue Code and ERISA, and the Company does not have any direct or
indirect obligation or liability to the Pension Benefit Guaranty Corporation or
to the Internal Revenue Service for any excise tax or penalty. Neither the
Company nor any ERISA Affiliate (i.e., each business which is treated together
with the Company as a single employer under Section 4001(a)(14) of ERISA or
Internal Revenue Code Section 414(b), (c), (m), (n) or (o)) has incurred or
expects to insure any withdrawal liability to any multiemployer plan. Copies of
all of the plans listed on Schedule 4.14, together with current determination
letters and the filings with the Internal Revenue Service for the last two
fiscal years of the plans, are attached to Schedule 4.14.
4.15. Litigation: Conformity with the Law. Except as set forth on
------------------------------------
Schedule 4.15 attached hereto and incorporated herein by this reference, there
are no claims, actions, suits or proceedings, pending or, to the knowledge of
the Shareholders, threatened, against or affecting the Company or any of its
properties at law or in equity, or before or by any federal, state, municipal,
or any other governmental department, commission, board, bureau, agency, or
instrumentality, having jurisdiction with respect to the Company, and no notice
of any claim, action, suit, or proceeding, whether pending or threatened has
been received. The Company has conducted its business in substantial compliance
with all federal, state and local statutes, ordinances, permits, licenses,
orders, variances, rules and regulations. Except as set forth on Schedule 4.15,
the Company is not subject to any order of any Court, or federal, state,
municipal, governmental department, commission, board, bureau, agency, or
instrumentality.
4.16. Taxes. The Company has filed and will file all requisite
-----
federal, state, local and all other tax returns for all fiscal periods ended on
or before the Closing Date, except for any such tax returns not yet due. There
are no examinations in progress, or claims against the Company for federal or
other taxes, including penalties or interest, for any period or periods prior to
the Closing, except as otherwise set forth on Schedule 4.16 attached hereto.
Amounts reflected on the financial statements of the Company as of the Closing
as reserves for taxes not yet payable are sufficient for the payment of all
taxes, including penalties and interest, for all periods prior to the Closing.
4.17. Environmental Matters. None of the Company's assets has ever
---------------------
been used by the Company or, to the best of the Company's knowledge, by previous
owners or operators, in the disposal of, or to produce, store, handle, treat,
release, or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; none of the Company's assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any of the Company's property; the Company does not have any contingent
liability in connection with the release of any hazardous substances into the
environment, including third-party releases onto property that the Company owns
or operates; and the Company has not received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by the Company relating to
the release or disposal of hazardous waste or hazardous substances. Except as
set forth on Schedule 4.17 attached hereto and incorporated herein by this
reference, the Company has not at any time owned or leased any real estate
having underground storage tanks.
6
<PAGE>
4.18. Shareholder Qualification. Each Shareholder is an "accredited
-------------------------
investor" for purposes of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder. In addition, each Shareholder, by reason of
such Shareholder's business or financial experience or the business or financial
experience of such Shareholder's professional advisors who are not affiliated
with or compensated by FirstAmerica or FirstAmerica's affiliates, has the
capacity to protect such Shareholder's interests in connection with the
transactions contemplated hereunder.
4.19. Representations and Warranties on Closing Date. The
----------------------------------------------
representations and warranties of the Shareholders contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties had
been made on and as of the Closing Date.
5. Representations and Warranties of FirstAmerica and Subsidiary.
--------------------------------------------------------------
FirstAmerica and Subsidiary jointly and severally represent and warrant as
follows:
5.1. Organization. FirstAmerica and Subsidiary are corporations
-------------
duly organized, validly existing and in good standing under the laws of their
respective States of incorporation and are duly authorized, qualified and
licensed under all applicable laws, regulations, ordinances, and orders of
public authorities to carry on their respective businesses in the places and in
the manner as now conducted except in States where the failure to be so
authorized, qualified or licensed would not have a material adverse effect on
their respective businesses.
5.2. FirstAmerica Stock. The FirstAmerica Stock to be delivered to
-------------------
the Shareholders at the Closing hereunder, when delivered in accordance with the
terms of this Agreement, will constitute valid and legally issued shares of
FirstAmerica's capital stock, fully paid and nonassessable, and, with the
exception of restrictions upon resale, will be legally equivalent in all
respects to the majority of the capital stock of FirstAmerica issued and
outstanding as of the Closing Date.
5.3. Authorization. The representatives of FirstAmerica and
--------------
Subsidiary executing this Agreement have the corporate authority to enter into
and bind FirstAmerica and Subsidiary by the terms of this Agreement.
FirstAmerica and Subsidiary have the full legal right, power and authority to
enter into this Agreement. The execution and delivery of this Agreement and
each other agreement, document or instrument contemplated hereby, and the
consummation of the transaction provided for in this Agreement have been duly
authorized by all necessary corporate action on behalf of both FirstAmerica and
Subsidiary. This Agreement, and each other Agreement, document or instrument
contemplated hereby, has been duly executed and delivered by FirstAmerica and
Subsidiary. No approvals or consents of any person or entity are necessary in
connection with the power and authority of FirstAmerica and Subsidiary to
perform their respective obligations pursuant to this Agreement. This Agreement
constitutes the legal, valid and binding obligation of FirstAmerica and
Subsidiary enforceable against FirstAmerica and Subsidiary in accordance with
its terms, subject only to laws relating to bankruptcy, insolvency or other
similar provisions affecting creditors' rights.
5.4. Representations and Warranties on Closing Date. The
-----------------------------------------------
representations and warranties of FirstAmerica and Subsidiary contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
6. Conditions to FirstAmerica's and Subsidiary's Obligations to Close.
-------------------------------------------------------------------
The obligations of FirstAmerica and Subsidiary under this Agreement are, at the
option of FirstAmerica and Subsidiary subject to the conditions set forth below.
FirstAmerica and Subsidiary shall have the right to waive in writing all or
7
<PAGE>
part of any one or more of the following conditions without, however, releasing
Shareholders and the Company from any liability for any loss or damage sustained
by FirstAmerica or Subsidiary by reason of the breach by Shareholders and the
Company of any covenant, obligation or agreement contained herein, or by reason
of any misrepresentation made by Shareholders and the Company and upon such
waiver may proceed with the transactions contemplated by this Agreement.
6.1. Agreements and Conditions. On or before the Closing Date,
--------------------------
Shareholders and Company shall have complied with and duly performed in all
material respects all agreements and conditions on their part to be complied
with and performed pursuant to or in connection with this Agreement on or before
the Closing Date.
6.2. Representations and Warranties. The representations and
-------------------------------
warranties of Shareholders contained in this Agreement, or otherwise made in
writing in connection with the transactions contemplated hereby, shall be true
and correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date.
6.3. No Legal Proceedings. No action or proceeding shall have been
---------------------
instituted or threatened to restrain or prohibit the merger of Subsidiary and
the Company or which might result in any material adverse change in the
business, prospects or financial or other condition of the assets of the
Company.
6.4. Consents. Subsidiary and Nissan Motor Corporation U.S.A.
---------
(collectively "Franchisor") shall have entered into a customary dealer sales and
service agreement designating Subsidiary as the duly authorized dealer for the
sales and service of the Franchisor's vehicles at the location or locations at
which the Company operates its dealership immediately prior to the Closing, free
of any material condition which in the opinion of FirstAmerica would be adverse
to Subsidiary. All permits and licenses necessary to enable Subsidiary to
conduct the dealership and service facilities at the location of the Company's
dealership immediately prior to the Closing shall have been obtained. All other
requisite consents and approvals shall have been obtained.
6.5. No Material Adverse Change. No material adverse change in the
---------------------------
results of operations or financial conditions of the Company shall have
occurred, and the Company shall not have suffered any material loss or damage to
its properties or assets, whether or not covered by insurance.
6.6. Lease. The Lease in form attached hereto as Schedule 3 shall
-----
have been executed by all of the parties thereto and delivered to Subsidiary.
6.7. Floor Plan Financing. Subsidiary shall have obtained appropriate
--------------------
floor plan financing, as reasonably acceptable to FirstAmerica as necessary for
the operation of the automobile franchise which is operated by the Company
immediately prior to the Closing.
6.8. Certificate of Merger. The Agreement of Merger attached as
---------------------
Schedule 1.3 evidencing the merger of the Company and Subsidiary shall,
concurrently with the Closing, be executed and acknowledged by Subsidiary and
the Company and filed with the Secretary of State of the State of California.
7. Conditions to Company's and Shareholders' Obligations to Close. The
--------------------------------------------------------------
obligations of the Shareholders and the Company under this Agreement are, at the
option of the Shareholders, subject to the conditions set forth below. The
Shareholders shall have the right to waive in writing all or part of any one or
more of the following conditions without, however, releasing FirstAmerica or
Subsidiary from any liability
8
<PAGE>
for any loss or damage sustained by Shareholders by reason of the breach by
FirstAmerica or Subsidiary of any covenant, obligation or agreement contained
herein, or by reason of any misrepresentation made by FirstAmerica or Subsidiary
and upon such waiver may proceed with the transactions contemplated by this
Agreement.
7.1. Agreements and Conditions. On or before the Closing Date,
-------------------------
FirstAmerica and Subsidiary shall have complied with and duly performed in all
material respects all of the agreements and conditions on their part required to
be complied with or performed pursuant to this Agreement on or before the
Closing Date.
7.2. Representations and Warranties of FirstAmerica and Subsidiary.
--------------------------------------------------------------
The representations and warranties of FirstAmerica and Subsidiary contained in
this Agreement, or otherwise made in writing in connection with the transactions
contemplated hereby, shall be true and correct in all material respects on and
as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
7.3. No Legal Proceedings. No action or proceeding shall have been
--------------------
instituted or threatened to restrain or prohibit the merger between Subsidiary
and the Company.
7.4. Consents. Subsidiary and Franchisor shall have entered into a
--------
customary dealer sales and service Agreement designating Subsidiary as the duly
authorized dealer for the sales and service of the Franchisor's automobiles at
the location or locations at which the Company operates its dealership
immediately prior to the Closing, free of any material condition which is
adverse to Subsidiary. All permits and licenses necessary to enable Subsidiary
to conduct the automobile dealership and service facilities at the location at
the Company's dealership immediately prior to the Closing shall have been
obtained. All other requisite consents and approvals shall have been obtained.
7.5. Certificate of Merger. The Agreement of Merger attached as
---------------------
Schedule 1.3 evidencing the merger of the Company and Subsidiary shall,
concurrently with the Closing, be executed and acknowledged by Subsidiary and
the Company, and filed with the Secretary of State for the State of California.
8. Deliveries by Shareholders. The Shareholders shall, upon the Closing,
--------------------------
deliver to FirstAmerica the following:
8.1. A stock certificate or certificates evidencing all of the
outstanding capital stock of the Company in accordance with the provisions of
Section 1.4 hereof;
8.2. The certificate of merger in the form attached hereto as Schedule
1.3, duly executed by the Company;
8.3. Copy of resolutions adopted by the Board of Directors of the
Company and by the Shareholders authorizing the execution and delivery by the
Company of this Agreement, the adoption of this Agreement as a plan of
reorganization and the consummation by the Company of the transactions
contemplated herein;
8.4. Certificate of Secretary for the Company certifying that the
resolutions referenced immediately above have been duly adopted by both the
Board of Directors of the Company and the Shareholders; and
8.5. Certificate of Incumbency for the President of the Company;
9
<PAGE>
9. Deliveries by FirstAmerica and Subsidiary. FirstAmerica and
-----------------------------------------
Subsidiary shall, upon Closing, deliver to the Shareholders the following:
9.1. Stock certificate or certificates representing the shares of
FirstAmerica Stock issuable to the Shareholders hereunder;
9.2. Cashiers or Certified Checks payable to those Shareholders, and
in the amounts, as set forth on Schedule 1.4 attached or other evidence of
payment of such amounts in accordance with Section 1.5 hereof;
9.3. The lease for the premises to be occupied by Subsidiary upon the
Closing in the form attached hereto as Schedule 3, duly executed by the landlord
thereof and the Subsidiary;
9.4. Copy of resolutions adopted by the Boards of Directors of both
FirstAmerica and Subsidiary, and of First America as the sole shareholder of
Subsidiary authorizing the execution and delivery of this Agreement, the
adoption of this Agreement as a plan of reorganization, and the consummation of
the transaction contemplated herein;
9.5. Certificate of Secretary certifying that the resolutions
referenced immediately above have been duly adopted by the Boards of Directors
of FirstAmerica and Subsidiary, respectively and by the shareholder of
Subsidiary; and
9.6. Certificate of Incumbency for the President of FirstAmerica and
of Subsidiary.
10. Closing. The consummation of the transactions provided for in this
--------
Agreement ("Closing") shall occur at the offices of Kay & Merkle, 100 The
Embarcadero, Penthouse, San Francisco, California 94105 or at such other
location as the parties may agree in writing, on March 31, 1997 at 10:00 a.m.,
or at such other date and time (the "Closing Date") as the parties hereto may
mutually agree in writing.
11. Additional Covenants.
---------------------
11.1. Access. Commencing on the date of this Agreement and
-------
continuing through the Closing Date, the Company and each of the Shareholders
shall allow the officers and authorized representatives of FirstAmerica
reasonable access during normal business hours to the business locations,
properties and books and records of the Company, and shall further provide to
FirstAmerica all such additional information as FirstAmerica may request with
respect to the Company.
11.2. Conduct of Business. Commencing on the date hereof and
-------------------
continuing through the Closing Date, the Company shall continue to manage,
operate and maintain all of its business and activities in substantially the
same manner as prior to the date hereof, and shall not introduce any new or
novel method of management, operation or accounting. Further, the Company shall
maintain its respective properties and facilities in as good a working condition
as exist as of the date hereof, ordinary wear and tear and loss by casualty
excepted. The Company shall use its best efforts to maintain and preserve its
business organization intact and to retain its present working relationship with
employees, suppliers and customers.
11.3. Accounting Method. Subsidiary acknowledges that the Company
-----------------
currently uses the last-in first-out method of inventory accounting. Subsidiary
shall adopt and utilize the same method of accounting as utilized by the
Company, including the last-in first-out method of inventory accounting.
10
<PAGE>
12. Notices. All notices, requests or demands to a party hereunder shall
--------
be in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier, charges prepaid, addressed as set forth below. Any such notice,
demand, request or other communication shall be deemed to have been received
upon the earlier of personal delivery thereof, three (3) business days after
having been mailed as provided above, or one (1) business day after delivery
through a commercial courier, as the case may be. Notices may be given by
facsimile and shall be effective upon the transmission of such facsimile notice
provided that the facsimile notice is transmitted on a business day and a copy
of the facsimile notice together with evidence of its successful transmission
indicating the date and time of transmission is sent on the day of transmission
by recognized overnight carrier for delivery on the immediately succeeding
business day. Each party shall be entitled to modify its address by notice
given in accordance with this Section.
To FirstAmerica: 100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
To Subsidiary: 100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
With Copy To: Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
To Shareholders: 1500 Collins Avenue
Colma, CA 94014
Attn: Thomas A. Price
Fax No.: (415) 756-3945
To Company: 1500 Collins Avenue
Colma, CA 94014
Attn: Thomas A. Price
Fax No.: (415) 756-3945
13. Indemnification.
---------------
13.1. Indemnification by Shareholders. Each Shareholder jointly and
--------------------------------
severally agrees to indemnify, defend and hold harmless FirstAmerica, Subsidiary
and the Company and their respective directors, officers, employees, agents,
affiliates, successors, assigns, representatives and attorneys from and against
any and all claims, actions, proceedings, demands, assessments, damages, costs,
liabilities and obligations of any nature whatsoever including, without
limitation, reasonable attorneys' fees arising out of or relating to: (i) any
breach of any representation or warranty made by a Shareholder herein or on any
Schedule or any other document attached hereto or delivered in connection
herewith; (ii) any nonfulfillment with any agreement or covenant required to be
performed by any Shareholder pursuant to this Agreement; or (iii) any liability
under the Securities Act of 1933, as amended, the Securities Act of 1934, as
amended,
11
<PAGE>
or any other federal or state law or regulation arising out of any untrue
statement of a material fact relating to the Company or the Shareholders, and
which is provided by the Company or the Shareholders.
13.2. Indemnification by FirstAmerica. FirstAmerica hereby agrees
--------------------------------
to indemnify, defend, and hold harmless the Shareholders and their respective
directors, officers, employees, agents, affiliates, successors, assigns,
representatives and attorneys, from and against any and all claims, actions,
proceedings, demands, assessments, damages, costs, liabilities and obligations
of any nature whatsoever, including without limitation, reasonable attorneys'
fees arising out of or relating to (i) any breach of any representation or
warranty made by FirstAmerica herein, or on any Schedule or any other document
attached hereto or delivered in connection herewith; (ii) any nonfulfillment of
any agreement or covenant required to be performed by FirstAmerica or Subsidiary
pursuant to this agreement; or (iii) any liability under the Securities Act of
1933 as amended, the Securities Act of 1934, as amended, or any other federal or
state law or regulation arising out of any untrue statement of a material fact
relating to FirstAmerica or Subsidiary and which is provided by FirstAmerica or
Subsidiary.
13.3. Claim. For purposes of this section, the following terms
------
shall have the definitions as set forth below:
13.3.1. "Indemnified Party" shall be defined as the party
entitled to indemnification under the provisions of Section 13.1 or 13.2;
13.3.2. "Indemnifying Party" shall be defined as the party
obligated to provide indemnification pursuant to the provisions of Section 13.1
or 13.2;
13.3.3. "Third Person" shall be defined as any person asserting
a claim against any party to this Agreement, which claim is subject to an
indemnification obligation set forth in this Section 13.3;
In the event that an Indemnified Party shall receive notice, or otherwise
have knowledge of any claim, or the commencement of any action or proceeding by
a Third Person, the Indemnified Party shall promptly give written notice thereof
to the Indemnifying Party. The provision of such written notice shall be a
condition precedent to the obligation of Indemnifying Party to provide any
indemnification under the provisions of this Section 13.3. The Indemnifying
Party shall have the right to defend, negotiate and settle any claim by a Third
Person hereunder at the expense and with counsel selected by the Indemnifying
Party which is reasonably acceptable to Indemnified Party, as long as it
diligently pursues such settlement, negotiation or defense in good faith. The
Indemnified Party shall have the right to participate with counsel of its choice
and at its expense, in any settlement, negotiation or defense, provided, however
that the Indemnifying Party's counsel shall at all times be lead counsel and
shall determine all defense and settlement strategies, actions, and the like.
The Indemnified Party shall cooperate on a reasonable basis with the
Indemnifying Party and shall provide to the Indemnifying Party all books,
records and other information reasonably requested by the Indemnifying Party.
14. Termination. If the Closing Date shall not have occurred on or prior
-----------
to April 30, 1997 as such date may be from time to time extended upon the mutual
consent of the parties, any party that is not in default in the performance of
its obligations under this Agreement may, thereafter terminate this Agreement by
giving written notice to the other parties hereto.
15. Miscellaneous.
-------------
15.1. Amendment. This Agreement shall not be changed, modified or
---------
amended except by a writing signed by the party to be charged.
12
<PAGE>
15.2. Governing Law. This Agreement and its validity, construction
-------------
and performance shall be governed in all respects by the laws of the State of
California without giving effect to principles of conflict of laws.
15.3. Severability. If any provision of this Agreement or the
------------
application of any provision hereof to any person or circumstance is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
15.4. Benefit of Parties. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties hereto and their respective successors,
heirs, legal representatives and assigns.
15.5. Time. Time is of the essence with respect to this Agreement.
----
15.6. Headings. The headings in the paragraphs of this Agreement
--------
are inserted for convenience of reference only and shall not constitute a part
hereof.
15.7. Counterparts. This Agreement may be executed simultaneously in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.8. Further Assurances. Each of the parties hereto agrees to
------------------
perform such other acts, and to execute, acknowledge and deliver, prior to, at
or subsequent to Closing, such other instruments, documents and other materials
as any other may reasonably request and as shall be necessary in order to effect
the consummation of the transactions contemplated hereby.
15.9. Schedules. The parties acknowledge and agree that the
----------
schedules provided for herein shall be attached to the Agreement effective as of
the Closing Date.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
FIRSTAMERICA: COMPANY:
FirstAmerica Automotive, Inc. Cziska Price, Inc.
a Delaware corporation a California corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
______________________________ _____________________________
Thomas A. Price, President Thomas A. Price, President
SUBSIDIARY: SHAREHOLDERS:
FAA Stevens Creek, Inc. Price Trust u/t/d 10/5/84
a California corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
___________________________ _______________________
Thomas A. Price, President Thomas A. Price, Trustee
/s/ Fred Cziska
____________________________
Fred Cziska
14
<PAGE>
LIST OF SCHEDULES
Schedule 1.1 Shareholders
Schedule 1.3 Certificate of Merger
Schedule 1.4 Shares
Schedule 3 Schedule of Leases
Schedule 4.1 Exceptions to Due Organization
Schedule 4.4 Capitalization
Schedule 4.5 Subsidiaries
Schedule 4.6 Financial Statements
Schedule 4.7 Liabilities
Schedule 4.8 Receivables
Schedule 4.9 Permits and Licenses
Schedule 4.10 Personal Property
Schedule 4.11 Material Contracts
Schedule 4.12 Unions
Schedule 4.13 Insurance
Schedule 4.14 Benefit Plans
15
<PAGE>
EXHIBIT 2.1.5
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into this 1st
day of July, 1997 by and among FIRSTAMERICA AUTOMOTIVE, INC., a Delaware
corporation ("FirstAmerica"), Transcar Leasing, Inc. dba Serramonte Auto Plaza,
a California corporation ("Company"), each of those persons listed as a
shareholder of the Company on Schedule 1.1 attached hereto and incorporated
herein by this reference (collectively the "Shareholders"), and FAA Serramonte
GM, Inc. a California corporation ("Subsidiary").
R E C I T A L S:
A. The Company is an authorized Buick, Dodge, GMC Truck, Isuzu,
Mitsubishi, Nissan, and Pontiac dealership franchisee located at 1500 Collins
Boulevard, Colma, California.
B. The parties hereto desire to provide for the reverse merger of the
Company and the Subsidiary and that such merger result in the Subsidiary merging
into the Company, and the Company thereafter owned and operated as a wholly
owned subsidiary of FirstAmerica.
C. The parties desire to complete such merger as a tax deferred
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended (the "Code").
Now, therefore, the parties hereto agree as follows:
1. Merger.
-------
1.1. Intent. The Shareholders, all of whom are listed on
------
Schedule 1.1 attached hereto and incorporated herein by this reference,
currently hold all of the outstanding capital stock of the Company. FirstAmerica
currently holds all of the outstanding capital stock of the Subsidiary. It is
the intent of the parties that FirstAmerica acquire the Company through a
reverse merger of the Subsidiary into the Company. The Company shall thereafter
be owned and operated as a wholly owned subsidiary of FirstAmerica. Immediately
upon completion of such merger, it is intended that each of the following shall
have occurred:
1.1.1. The Company and the Subsidiary shall have been
merged together, as one corporation with the Company as the surviving
corporation;
1.1.2. FirstAmerica shall hold all of the outstanding
stock of the Company;
1.1.3. The Company shall hold all of the assets, and be
responsible for all of the liabilities, held or attributable to both the Company
and the Subsidiary immediately prior to the Closing, and
1.1.4. The Shareholders shall no longer hold shares of the
Company, but shall hold shares of FirstAmerica ("FirstAmerica Stock").
1.2. Tax Intent. Notwithstanding any of the provisions of this
----------
Agreement to the contrary, it is the intent of all of the parties hereto that
the transaction provided for herein qualify as a tax deferred reorganization
within the meaning of sections of 368(a)(1)(A) and 368(a)(2)(E) of the Code. All
of the provisions of this Agreement shall be interpreted in a manner which is
consistent with the intent expressed in the immediately preceding sentence.
Further, each of the parties hereto shall undertake all
<PAGE>
actions as may be necessary or appropriate to qualify the transactions provided
for herein as a tax deferred reorganization within the meaning of the sections
of the Code referenced immediately above. Each corporation which is a party to
this Agreement hereby adopts this Agreement as a plan of reorganization, and
each party to this Agreement shall report the transaction provided for herein,
for all tax reporting purposes, in a manner which is consistent with the intent
set forth in this section.
1.3. Corporate Merger. Effective as of the Closing Date, the
-----------------
Subsidiary shall be merged into and with the Company in accordance with the
applicable statutes of the State of California. Upon completion of such merger,
the Company shall be the surviving corporation, and shall be fully vested with
and possess all the rights, privileges, immunities, and franchises, of a public
as well as a private nature, and all property, real, personal and mixed, and all
debts due on whatever account, including subscriptions to shares, and all choses
in action, and all and every other interest of or belonging to or due to both
Subsidiary and the Company prior to the merger of such corporations. The Company
shall, as the surviving corporation, be responsible and liable for all the
liabilities and obligations of both Subsidiary and the Company and any claim
existing, or action or proceeding pending, by or against either the Company or
Subsidiary, may be prosecuted as if the merger had not taken place. Neither the
rights of creditors nor liens upon the property of either the Subsidiary or the
Company shall be impaired by the merger. Concurrently with the Closing
hereunder, the parties hereto shall cause to be executed, acknowledged and filed
with the Secretary of State of the State of California an Agreement of Merger in
the form attached hereto as Schedule 1.3 and incorporated herein by this
reference. Such Agreement of Merger shall provide for the merger of Subsidiary
and the Company in accordance with the provisions of this Agreement, and for the
change of the name of Company to FAA Serramonte GM, Inc.
1.4. Conversion of Shares. Concurrently with the Closing, all
--------------------
the shares of the Company issued and outstanding immediately prior to the
Closing shall as a result of the merger provided for above, and without further
action on the part of any Shareholder, automatically be exchanged for and
converted into fully paid and non-assessable shares of FirstAmerica Stock, and
the right to receive cash from FirstAmerica, if any, as set forth below. The
number of shares of the Company held by each Shareholder is set forth on
Schedule 1.4 attached hereto and incorporated herein by this reference. In
addition, the number of shares of FirstAmerica Stock together with the amount of
cash, if any, to be distributed to each Shareholder upon the Closing is set
forth on Schedule 1.4. The Shareholders shall deliver to FirstAmerica at the
Closing, certificates representing all the shares of the Company held by each
Shareholder, duly endorsed in blank by the Shareholders or accompanied by blank
stock powers, with signatures guaranteed by a national bank, and with all
necessary transfer tax and revenue stamps, at the Shareholders' expense, affixed
and cancelled. The Shareholders agree to cure any deficiencies with respect to
the endorsement of the certificates or other documents of conveyance with
respect to the shares of the Company's stock or with respect to the powers
accompanying any Company's stock. FirstAmerica shall deliver to the Shareholders
at the Closing certificates representing shares of FirstAmerica Stock duly
executed for the number of shares of FirstAmerica Stock acquired by each
Shareholder as set forth on Schedule 1.4.
1.5. Transfer Restrictions; Legends. The shares of
------------------------------
FirstAmerica's Common Stock to be issued pursuant to Section 1.4 shall not have
been registered and shall be characterized as "Restricted Securities" under the
federal securities laws, and under such laws such shares may be resold without
registration under the Securities Act of 1933, as amended, only in certain
limited circumstances. Each certificate evidencing shares of FirstAmerica's
Common Stock to be issued pursuant to Section 1.4 shall bear the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
2
<PAGE>
AMENDED. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
UNLESS AN EXEMPTION FROM THE REQUIREMENT OR
REGISTRATION IS AVAILABLE AS DEMONSTRATED BY AN
OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY.
1.6. Cash. In addition to the FirstAmerica stock, and subject to
----
the provisions of Section 2 below, each Shareholder shall receive upon Closing
cash consideration, if any, in the amount set forth opposite such Shareholder's
name on Schedule 1.4 attached. The payment of such cash will be made by wire
transfer, certified or cashier's check, or other form as may be reasonably
acceptable to each Shareholder. That portion of any cash, for each Shareholder,
which is not subject to the reserve provisions of Section 2 below, shall be
payable in full in cash upon the Closing. Any cash remaining in the reserve upon
the expiration of the time period set forth in Section 2 below shall promptly be
paid to the Shareholders.
2. Reserve. A portion of the cash consideration otherwise payable
-------
to each Shareholder as set forth on Schedule 1.4 attached shall be retained by
FirstAmerica as a reserve for a period of nine (9) months immediately following
the Closing. Upon expiration of such nine (9) month period, any amounts withheld
as a reserve, which have not been expended in satisfaction of obligations
provided in this Section 2, shall be paid to the Shareholders in accordance with
Section 1.5 above. Amounts withheld as a reserve pursuant to this Section 2 may
be expended by FirstAmerica to pay (i) amounts payable by the Company in
satisfaction of causes of action which identify the Company as a defendant, and
which arise from events relating to the Company which occur prior to the
Closing, (ii) chargebacks incurred by the Company subsequent to the Closing, for
vehicles sold or leased by the Company prior to the Closing, and (iii) the
internal cost to the Company of warranty repairs performed by or for the benefit
of its customers with respect to vehicles sold or leased by the Company prior to
the Closing the cost of which is not otherwise reimbursable to the Company, but
only to the extent that any amount described in subparagraphs (i), (ii) or (iii)
above exceeds amounts reserved therefore on the financial statements attached
hereto as Schedule 4.6, or the Schedule of Liabilities attached as Schedule 4.7.
The aggregate amounts of any payments which are expended from the reserve
provided for in this Section 2 (up to the total amount of such reserve) shall
constitute a reduction in the cash price otherwise payable to the Shareholders
pursuant to the provisions of Section 1.5 above, and shall thereafter not be
payable to the Shareholders.
3. Lease. Concurrently with the Closing, the Company shall enter
-----
into an amendment and restatement of the leases for that certain real property
commonly known as 435-485 Serramonte Blvd. Colma, CA, and 1500 Collins Avenue,
Colma, CA, at which the Company operates its business immediately prior to the
Closing, which leases shall be in the form attached hereto as Schedule 3 and
incorporated herein by this reference.
4. Representations and Warranties of Company and Shareholders. Each
-----------------------------------------------------------
of the Shareholders and the Company hereby jointly and severally represents and
warrants to FirstAmerica as follows:
4.1. Organization. The Company is a corporation duly organized,
-------------
validly existing and in good standing under the laws of its state of
incorporation, and is duly authorized, qualified, and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, except
(i) as set forth in Schedule 4.1 attached hereto and incorporated herein by this
reference; or (ii) where the failure to do so does not have a material adverse
effect on the business, operations, properties, assets, or condition of the
Company, taken as a whole.
4.2. Authorization. The Shareholders and the Company have the
-------------
full legal right, power
3
<PAGE>
and authority to enter into this Agreement, and the merger provided for in this
Agreement. The execution and delivery of this Agreement, and each other
document, agreement and instrument contemplated hereby and the consummation of
the transactions provided for in this Agreement have been duly authorized by the
Company by all necessary corporate action. The Agreement, and each other
agreement, document or instrument contemplated hereby has been duly executed and
delivered by the Shareholders and the Company. No approvals or consents of any
person or entity are necessary in connection with the power and authority of the
Shareholders and the Company to perform their respective obligations pursuant to
this Agreement. This Agreement constitutes the legal, valid and binding
obligations of the Shareholders and the Company enforceable against the
Shareholders and the Company in accordance with its terms, subject only to laws
relating to bankruptcy, insolvency or other similar provisions affecting
creditors' rights.
4.3. Articles of Incorporation, By-Laws and Minute Books. True,
----------------------------------------------------
complete and correct copies of the Articles of Incorporation and By-Laws of the
Company, each as amended to date, have been furnished to FirstAmerica. The
stock records and minute books of the Company, all of which have been made
available to FirstAmerica, contain true and complete minutes and records of all
meetings, proceedings and other actions of the stockholders and directors of the
Company from the date of organization.
4.4. Authorized Capitalization. The authorized capital stock of
--------------------------
the Company consists solely of that number and classes or series of shares as is
set forth on Schedule 4.4 attached hereto and incorporated herein by this
reference. The number of issued and outstanding shares of each class or series
of stock of the Company are set forth on Schedule 4.4 attached. All the issued
and outstanding shares of the Company are owned by the Shareholders as set forth
on Schedule 1.4, and are validly issued and outstanding, fully paid and non-
assessable, free and clear of all liens, security interests, pledges, charges,
voting trusts, equities, restrictions, encumbrances and claims of every kind.
All of the outstanding shares of the Company were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. None of the shares of the Company
which are outstanding were issued in violation of any preemptive rights held by
any past or present shareholder of the Company. The Company does not have any
outstanding options, warrants, rights or other securities, plans, contracts or
agreements which give the holder thereof or any other person the right to
purchase any shares of the Company's capital stock or which are convertible into
or exercisable for any shares of such capital stock or under which any such
option, warrant, or right or security may be issued in the future. The Company
does not have any obligation, whether contingent or otherwise, to purchase,
redeem, or otherwise acquire any of its equity securities or interests therein
or pay a dividend or make any distribution with respect thereto.
4.5. Subsidiaries. Except as set forth on Schedule 4.5 attached
-------------
hereto and incorporated herein by this reference, the Company does not own,
whether of record or beneficially or control, directly or indirectly, any
capital stock, securities convertible into capital stock, or any other equity
interest in any corporation, association, or business entity, and is not a party
either directly or indirectly to any joint venture, partnership, limited
liability company, or any other entity.
4.6. Financial Statements. Attached hereto as Schedule 4.6 and
---------------------
incorporated herein by this reference are copies of the financial statements of
the Company, including statements of income, cash flow, and retained earnings
for each of the most recent three fiscal years of the Company and for the period
ending sixty (60) days prior to the date of this Agreement. Also attached as a
part of Schedule 4.6 is a copy of the most recent dealer financial statement for
the Company which dealer financial statement will be updated as of the Closing.
Such financial statements, including the dealer financial statement, have been
and will be prepared in accordance with generally accepted accounting principles
applied on a consistent basis and present fairly the financial position of the
Company as of the dates and for the periods indicated. At the Closing Date, the
Company shall have a net worth of not less than $3,620,000.
4
<PAGE>
4.7. Liabilities. Attached hereto as Schedule 4.7 and
-----------
incorporated herein by this reference, is an accurate list, as of the Closing,
of all material liabilities and obligations of the Company which are not
reflected on the most recent dealer financial statement as of the date of this
Agreement. Schedule 4.7 shall be updated as of the Closing to reflect all such
material liabilities and obligations of the Company not reflected on the dealer
financial statement prepared concurrently with the Closing. Such Schedule
includes any and all liabilities and obligations, whether accrued, absolute,
secured or unsecured, contingent or otherwise. Company has previously provided
to FirstAmerica Company's reasonable estimate of the maximum amount of potential
exposure for any debt or liability which is not fixed or is contested.
4.8. Receivables. Set forth on Schedule 4.8 attached hereto and
-----------
incorporated herein by this reference is an accurate list as of the date of this
Agreement of the accounts and notes receivable of the Company, including
receivables from and advances to employees and shareholders. Such Schedule
includes an aging of all accounts and notes receivable. Such Schedule shall be
updated as of the Closing.
4.9. Permits and Intangibles. Attached hereto as Schedule 4.9
-----------------------
and incorporated herein by this reference, is an accurate list and summary
description of all permits, licenses, franchises, certificates, trademarks,
tradenames, service marks, patents, and other similar items owned by the
Company. All such items are valid and in full force and effect. There is no
default, or the occurrence of any event, which with the passage of time, the
giving of notice or both will constitute a default, of any such items. None of
such items infringe upon the rights of any other person.
4.10. Assets. Attached hereto as Schedule 4.10 is an accurate
------
list, as of the date of this Agreement, of all personal property (other than
inventory) having a cost in excess of $10,000, owned or leased by the Company,
together with true complete and correct copies of any and all leases for any
property leased by the Company. Except as otherwise set forth on Schedule 4.10,
all of such property is in good working order and condition, ordinary wear and
tear excepted. The leases referenced in Schedule 4.10 have been duly authorized,
executed and delivered, and constitute the legal, binding and valid obligations
of the Company, and, to the knowledge of the Shareholders, no other party to any
such leases is in default of any provision thereof, and such leases constitute
the legal, valid and binding obligations of the other parties thereto. All of
the assets used by the Company in the operation of the business are either owned
by the Company or leased by the Company. Schedule 4.10 shall be updated as of
the Closing.
4.11. Material Contracts. Set forth on Schedule 4.11 attached
------------------
hereto and incorporated herein by this reference, is an accurate and complete
list, as of the date of this Agreement, of all material contracts, commitments
and similar agreements to which the Company is a party, or by which any of its
assets or properties are bound. The Company has delivered true and accurate
copies of each such contract to FirstAmerica. Except as otherwise set forth on
Schedule 4.11, the Company has complied with all material commitments and
obligations pertaining to it, and is not in material default, and has received
no notice of default with respect to, and no event has occurred which, with the
passage of time, the giving of notice or both would constitute a material
default with respect to, any contracts set forth on Schedule 4.11.
4.12. Unions. Except as set forth on Schedule 4.12 attached
------
hereto and incorporated herein by this reference, the Company is not a party to
any arrangement with any union, and no employees of the Company are represented
by any labor union or covered by any collective bargaining agreement, nor, to
the knowledge of the Shareholders, is any effort to establish such
representation in progress. There is no pending or, to the knowledge of the
Shareholders, threatened labor dispute involving the Company or any of its
employees.
4.13. Insurance. Set forth on Schedule 4.13 attached hereto and
---------
incorporated herein by this reference, is an accurate list as of the date of
this Agreement, of all insurance policies of the Company, including an accurate
list of all insurance losses, including workers' compensation claims, of the
Company
5
<PAGE>
for the past three policy years.
4.14. Employee Plans. Set forth on Schedule 4.14 attached
--------------
hereto and incorporated herein by this reference, is a complete and accurate
list of all employee benefit plans including without limitation, all pension,
profit sharing, deferred compensation, bonus, and multi-employer plans and other
plans currently maintained or sponsored by the Company, or to which the Company
contributes or has an obligation to contribute in the future. The Company and,
to the knowledge of the Shareholders, each of the plans referenced on Schedule
4.14 attached is in substantial compliance with all applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). No plan
has incurred an accumulated funding deficiency, as defined for purposes of the
Internal Revenue Code and ERISA, and the Company does not have any direct or
indirect obligation or liability to the Pension Benefit Guaranty Corporation or
to the Internal Revenue Service for any excise tax or penalty. Neither the
Company nor any ERISA Affiliate (i.e., each business which is treated together
with the Company as a single employer under Section 4001(a)(14) of ERISA or
Internal Revenue Code Section 414(b), (c), (m), (n) or (o)) has incurred or
expects to insure any withdrawal liability to any multiemployer plan. Copies of
all of the plans listed on Schedule 4.14, together with current determination
letters and the filings with the Internal Revenue Service for the last two
fiscal years of the plans, are attached to Schedule 4.14.
4.15. Litigation: Conformity with the Law. Except as set forth
------------------------------------
on Schedule 4.15 attached hereto and incorporated herein by this reference,
there are no claims, actions, suits or proceedings, pending or, to the knowledge
of the Shareholders, threatened, against or affecting the Company or any of its
properties at law or in equity, or before or by any federal, state, municipal,
or any other governmental department, commission, board, bureau, agency, or
instrumentality, having jurisdiction with respect to the Company, and no notice
of any claim, action, suit, or proceeding, whether pending or threatened has
been received. The Company has conducted its business in substantial compliance
with all federal, state and local statutes, ordinances, permits, licenses,
orders, variances, rules and regulations. Except as set forth on Schedule 4.15,
the Company is not subject to any order of any Court, or federal, state,
municipal, governmental department, commission, board, bureau, agency, or
instrumentality.
4.16. Taxes. The Company has filed and will file all requisite
-----
federal, state, local and all other tax returns for all fiscal periods ended on
or before the Closing Date, except for any such tax returns not yet due. There
are no examinations in progress, or claims against the Company for federal or
other taxes, including penalties or interest, for any period or periods prior to
the Closing, except as otherwise set forth on Schedule 4.16 attached hereto.
Amounts reflected on the financial statements of the Company as of the Closing
as reserves for taxes not yet payable are sufficient for the payment of all
taxes, including penalties and interest, for all periods prior to the Closing.
4.17. Environmental Matters. None of the Company's assets has
---------------------
ever been used by the Company or, to the best of the Company's knowledge, by
previous owners or operators, in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance other
than in accordance with applicable law; none of the Company's assets has ever
been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any of the Company's property; the Company does not have any
contingent liability in connection with the release of any hazardous substances
into the environment, including third-party releases onto property that the
Company owns or operates; and the Company has not received a summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by the
Company relating to the release or disposal of hazardous waste or hazardous
substances. Except as set forth on Schedule 4.17 attached hereto and
incorporated herein by this reference, the Company has not at any time owned or
leased any real estate having underground storage tanks.
6
<PAGE>
4.18. Shareholder Qualification. Each Shareholder is an
-------------------------
"accredited investor" for purposes of the Securities Act of 1933, as amended,
and the regulations promulgated thereunder. In addition, each Shareholder, by
reason of such Shareholder's business or financial experience or the business or
financial experience of such Shareholder's professional advisors who are not
affiliated with or compensated by FirstAmerica or FirstAmerica's affiliates, has
the capacity to protect such Shareholder's interests in connection with the
transactions contemplated hereunder.
4.19. Representations and Warranties on Closing Date. The
----------------------------------------------
representations and warranties of the Shareholders contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties had
been made on and as of the Closing Date.
5. Representations and Warranties of FirstAmerica and Subsidiary.
--------------------------------------------------------------
FirstAmerica and Subsidiary jointly and severally represent and warrant as
follows:
5.1. Organization. FirstAmerica and Subsidiary are
------------
corporations duly organized, validly existing and in good standing under the
laws of their respective States of incorporation and are duly authorized,
qualified and licensed under all applicable laws, regulations, ordinances, and
orders of public authorities to carry on their respective businesses in the
places and in the manner as now conducted except in States where the failure to
be so authorized, qualified or licensed would not have a material adverse effect
on their respective businesses.
5.2. FirstAmerica Stock. The FirstAmerica Stock to be
------------------
delivered to the Shareholders at the Closing hereunder, when delivered in
accordance with the terms of this Agreement, will constitute valid and legally
issued shares of FirstAmerica's capital stock, fully paid and nonassessable,
and, with the exception of restrictions upon resale, will be legally equivalent
in all respects to the majority of the capital stock of FirstAmerica issued and
outstanding as of the Closing Date.
5.3. Authorization. The representatives of FirstAmerica and
--------------
Subsidiary executing this Agreement have the corporate authority to enter into
and bind FirstAmerica and Subsidiary by the terms of this Agreement.
FirstAmerica and Subsidiary have the full legal right, power and authority to
enter into this Agreement. The execution and delivery of this Agreement and
each other agreement, document or instrument contemplated hereby, and the
consummation of the transaction provided for in this Agreement have been duly
authorized by all necessary corporate action on behalf of both FirstAmerica and
Subsidiary. This Agreement, and each other Agreement, document or instrument
contemplated hereby, has been duly executed and delivered by FirstAmerica and
Subsidiary. No approvals or consents of any person or entity are necessary in
connection with the power and authority of FirstAmerica and Subsidiary to
perform their respective obligations pursuant to this Agreement. This Agreement
constitutes the legal, valid and binding obligation of FirstAmerica and
Subsidiary enforceable against FirstAmerica and Subsidiary in accordance with
its terms, subject only to laws relating to bankruptcy, insolvency or other
similar provisions affecting creditors' rights.
5.4. Representations and Warranties on Closing Date. The
-----------------------------------------------
representations and warranties of FirstAmerica and Subsidiary contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
6. Conditions to FirstAmerica's and Subsidiary's Obligations to
------------------------------------------------------------
Close. The obligations of FirstAmerica and Subsidiary under this Agreement are,
- -----
at the option of FirstAmerica and Subsidiary subject to the conditions set forth
below. FirstAmerica and Subsidiary shall have the right to waive in writing all
or
7
<PAGE>
part of any one or more of the following conditions without, however, releasing
Shareholders and the Company from any liability for any loss or damage sustained
by FirstAmerica or Subsidiary by reason of the breach by Shareholders and the
Company of any covenant, obligation or agreement contained herein, or by reason
of any misrepresentation made by Shareholders and the Company and upon such
waiver may proceed with the transactions contemplated by this Agreement.
6.1. Agreements and Conditions. On or before the Closing Date,
--------------------------
Shareholders and Company shall have complied with and duly performed in all
material respects all agreements and conditions on their part to be complied
with and performed pursuant to or in connection with this Agreement on or before
the Closing Date.
6.2. Representations and Warranties. The representations and
-------------------------------
warranties of Shareholders contained in this Agreement, or otherwise made in
writing in connection with the transactions contemplated hereby, shall be true
and correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date.
6.3. No Legal Proceedings. No action or proceeding shall have
--------------------
been instituted or threatened to restrain or prohibit the merger of Subsidiary
and the Company or which might result in any material adverse change in the
business, prospects or financial or other condition of the assets of the
Company.
6.4. Consents. The Company and General Motors Corporation,
--------
Chrysler Corporation, American Isuzu Motors, Inc., Mitsubishi Motor Sales of
America and Nissan Motor Corporation U.S.A. (collectively "Franchisor") shall
have entered into a customary dealer sales and service agreement designating the
Company as the duly authorized dealer for the sales and service of the
Franchisor's vehicles at the location or locations at which the Company operates
its dealership immediately prior to the Closing, free of any material condition
which in the opinion of FirstAmerica would be adverse to the Company. All
permits and licenses necessary to enable the Company to conduct the dealership
and service facilities at the location of the Company's dealership immediately
prior to the Closing shall have been obtained. All other requisite consents and
approvals shall have been obtained.
6.5. No Material Adverse Change. No material adverse change in
--------------------------
the results of operations or financial conditions of the Company shall have
occurred, and the Company shall not have suffered any material loss or damage to
its properties or assets, whether or not covered by insurance.
6.6. Lease. The Lease in form attached hereto as Schedule 3
-----
shall have been executed by all of the parties thereto and delivered to the
Company.
6.7. Floor Plan Financing. The Company shall have obtained
--------------------
appropriate floor plan financing, as reasonably acceptable to FirstAmerica as
necessary for the operation of the automobile franchise which is operated by the
Company immediately prior to the Closing.
6.8. Certificate of Merger. The Agreement of Merger attached
---------------------
as Schedule 1.3 evidencing the merger of the Company and Subsidiary shall,
concurrently with the Closing, be executed and acknowledged by Subsidiary and
the Company and filed with the Secretary of State of the State of California.
7. Conditions to Company's and Shareholders' Obligations to Close.
--------------------------------------------------------------
The obligations of the Shareholders and the Company under this Agreement are, at
the option of the Shareholders, subject to the conditions set forth below. The
Shareholders shall have the right to waive in writing all or part of any one or
8
<PAGE>
more of the following conditions without, however, releasing FirstAmerica or
Subsidiary from any liability for any loss or damage sustained by Shareholders
by reason of the breach by FirstAmerica or Subsidiary of any covenant,
obligation or agreement contained herein, or by reason of any misrepresentation
made by FirstAmerica or Subsidiary and upon such waiver may proceed with the
transactions contemplated by this Agreement.
7.1. Agreements and Conditions. On or before the Closing Date,
-------------------------
FirstAmerica and Subsidiary shall have complied with and duly performed in all
material respects all of the agreements and conditions on their part required to
be complied with or performed pursuant to this Agreement on or before the
Closing Date.
7.2. Representations and Warranties of FirstAmerica and Subsidiary.
--------------------------------------------------------------
The representations and warranties of FirstAmerica and Subsidiary contained in
this Agreement, or otherwise made in writing in connection with the transactions
contemplated hereby, shall be true and correct in all material respects on and
as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
7.3. No Legal Proceedings. No action or proceeding shall have been
--------------------
instituted or threatened to restrain or prohibit the merger between Subsidiary
and the Company.
7.4. Consents. The Company and Franchisor shall have entered into a
--------
customary dealer sales and service Agreement designating the Company as the duly
authorized dealer for the sales and service of the Franchisor's automobiles at
the location or locations at which the Company operates its dealership
immediately prior to the Closing, free of any material condition which is
adverse to the Company. All permits and licenses necessary to enable the
Company to conduct the automobile dealership and service facilities at the
location at the Company's dealership immediately prior to the Closing shall have
been obtained. All other requisite consents and approvals shall have been
obtained.
7.5. Certificate of Merger. The Agreement of Merger attached as
---------------------
Schedule 1.3 evidencing the merger of the Company and Subsidiary shall,
concurrently with the Closing, be executed and acknowledged by Subsidiary and
the Company, and filed with the Secretary of State for the State of California.
8. Deliveries by Shareholders. The Shareholders shall, upon the Closing,
--------------------------
deliver to FirstAmerica the following:
8.1. A stock certificate or certificates evidencing all of the
outstanding capital stock of the Company in accordance with the provisions of
Section 1.4 hereof;
8.2. The certificate of merger in the form attached hereto as Schedule
1.3, duly executed by the Company;
8.3. Copy of resolutions adopted by the Board of Directors of the
Company and by the Shareholders authorizing the execution and delivery by the
Company of this Agreement, the adoption of this Agreement as a plan of
reorganization and the consummation by the Company of the transactions
contemplated herein;
8.4. Certificate of Secretary for the Company certifying that the
resolutions referenced immediately above have been duly adopted by both the
Board of Directors of the Company and the Shareholders; and
9
<PAGE>
8.5. Certificate of Incumbency for the President of the Company;
9. Deliveries by FirstAmerica and Subsidiary. FirstAmerica and
-----------------------------------------
Subsidiary shall, upon Closing, deliver to the Shareholders the following:
9.1. Stock certificate or certificates representing the shares of
FirstAmerica Stock issuable to the Shareholders hereunder;
9.2. Cashiers or Certified Checks payable to those Shareholders, and
in the amounts, as set forth on Schedule 1.4 attached or other evidence of
payment of such amounts in accordance with Section 1.5 hereof;
9.3. The lease for the premises to be occupied by Subsidiary upon the
Closing in the form attached hereto as Schedule 3, duly executed by the landlord
thereof and the Subsidiary;
9.4. Copy of resolutions adopted by the Boards of Directors of both
FirstAmerica and Subsidiary, and of First America as the sole shareholder of
Subsidiary authorizing the execution and delivery of this Agreement, the
adoption of this Agreement as a plan of reorganization, and the consummation of
the transaction contemplated herein;
9.5. Certificate of Secretary certifying that the resolutions
referenced immediately above have been duly adopted by the Boards of Directors
of FirstAmerica and Subsidiary, respectively and by the shareholder of
Subsidiary; and
9.6. Certificate of Incumbency for the President of FirstAmerica and
of Subsidiary.
10. Closing. The consummation of the transactions provided for in this
--------
Agreement ("Closing") shall occur at the offices of Kay & Merkle, 100 The
Embarcadero, Penthouse, San Francisco, California 94105 or at such other
location as the parties may agree in writing, on __________, 1997 at 10:00 a.m.,
or at such other date and time (the "Closing Date") as the parties hereto may
mutually agree in writing.
11. Additional Covenants.
---------------------
11.1. Access. Commencing on the date of this Agreement and
-------
continuing through the Closing Date, the Company and each of the Shareholders
shall allow the officers and authorized representatives of FirstAmerica
reasonable access during normal business hours to the business locations,
properties and books and records of the Company, and shall further provide to
FirstAmerica all such additional information as FirstAmerica may request with
respect to the Company.
11.2. Conduct of Business. Commencing on the date hereof and
-------------------
continuing through the Closing Date, the Company shall continue to manage,
operate and maintain all of its business and activities in substantially the
same manner as prior to the date hereof, and shall not introduce any new or
novel method of management, operation or accounting. Further, the Company shall
maintain its respective properties and facilities in as good a working condition
as exist as of the date hereof, ordinary wear and tear and loss by casualty
excepted. The Company shall use its best efforts to maintain and preserve its
business organization intact and to retain its present working relationship with
employees, suppliers and customers.
11.3. Accounting Method. Subsidiary acknowledges that the Company
-----------------
currently uses the last-in first-out method of inventory accounting. The
Company shall continue to utilize the same method of accounting as currently
utilized by the Company, including the last-in first-out method of
10
<PAGE>
inventory accounting.
12. Notices. All notices, requests or demands to a party hereunder shall
--------
be in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier, charges prepaid, addressed as set forth below. Any such notice,
demand, request or other communication shall be deemed to have been received
upon the earlier of personal delivery thereof, three (3) business days after
having been mailed as provided above, or one (1) business day after delivery
through a commercial courier, as the case may be. Notices may be given by
facsimile and shall be effective upon the transmission of such facsimile notice
provided that the facsimile notice is transmitted on a business day and a copy
of the facsimile notice together with evidence of its successful transmission
indicating the date and time of transmission is sent on the day of transmission
by recognized overnight carrier for delivery on the immediately succeeding
business day. Each party shall be entitled to modify its address by notice
given in accordance with this Section.
To FirstAmerica: 100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
To Subsidiary: 100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
With Copy To: Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
To Shareholders: 1500 Collins Avenue
Colma, CA 94014
Attn: Thomas A. Price
Fax No.: (415) 756-3945
To Company: 1500 Collins Avenue
Colma, CA 94014
Attn: Thomas A. Price
Fax No.: (415) 756-3945
13. Indemnification.
---------------
13.1. Indemnification by Shareholders. Each Shareholder jointly and
--------------------------------
severally agrees to indemnify, defend and hold harmless FirstAmerica, Subsidiary
and the Company and their respective directors, officers, employees, agents,
affiliates, successors, assigns, representatives and attorneys from and against
any and all claims, actions, proceedings, demands, assessments, damages, costs,
liabilities and obligations of any nature whatsoever including, without
limitation, reasonable attorneys' fees arising out of or relating to: (i) any
breach of any representation or warranty made by a Shareholder herein or on any
Schedule or any other document attached hereto or delivered in connection
herewith; (ii) any nonfulfillment with any agreement or covenant required to be
performed by any Shareholder pursuant to this Agreement;
11
<PAGE>
or (iii) any liability under the Securities Act of 1933, as amended, the
Securities Act of 1934, as amended, or any other federal or state law or
regulation arising out of any untrue statement of a material fact relating to
the Company or the Shareholders, and which is provided by the Company or the
Shareholders.
13.2. Indemnification by FirstAmerica. FirstAmerica hereby agrees
--------------------------------
to indemnify, defend, and hold harmless the Shareholders and their respective
directors, officers, employees, agents, affiliates, successors, assigns,
representatives and attorneys, from and against any and all claims, actions,
proceedings, demands, assessments, damages, costs, liabilities and obligations
of any nature whatsoever, including without limitation, reasonable attorneys'
fees arising out of or relating to (i) any breach of any representation or
warranty made by FirstAmerica herein, or on any Schedule or any other document
attached hereto or delivered in connection herewith; (ii) any nonfulfillment of
any agreement or covenant required to be performed by FirstAmerica or Subsidiary
pursuant to this agreement; or (iii) any liability under the Securities Act of
1933 as amended, the Securities Act of 1934, as amended, or any other federal or
state law or regulation arising out of any untrue statement of a material fact
relating to FirstAmerica or Subsidiary and which is provided by FirstAmerica or
Subsidiary.
13.3. Claim. For purposes of this section, the following terms
------
shall have the definitions as set forth below:
13.3.1. "Indemnified Party" shall be defined as the party
entitled to indemnification under the provisions of Section 13.1 or 13.2;
13.3.2. "Indemnifying Party" shall be defined as the party
obligated to provide indemnification pursuant to the provisions of Section 13.1
or 13.2;
13.3.3. "Third Person" shall be defined as any person
asserting a claim against any party to this Agreement, which claim is subject to
an indemnification obligation set forth in this Section 13.3;
In the event that an Indemnified Party shall receive notice, or otherwise
have knowledge of any claim, or the commencement of any action or proceeding by
a Third Person, the Indemnified Party shall promptly give written notice thereof
to the Indemnifying Party. The provision of such written notice shall be a
condition precedent to the obligation of Indemnifying Party to provide any
indemnification under the provisions of this Section 13.3. The Indemnifying
Party shall have the right to defend, negotiate and settle any claim by a Third
Person hereunder at the expense and with counsel selected by the Indemnifying
Party which is reasonably acceptable to Indemnified Party, as long as it
diligently pursues such settlement, negotiation or defense in good faith. The
Indemnified Party shall have the right to participate with counsel of its choice
and at its expense, in any settlement, negotiation or defense, provided, however
that the Indemnifying Party's counsel shall at all times be lead counsel and
shall determine all defense and settlement strategies, actions, and the like.
The Indemnified Party shall cooperate on a reasonable basis with the
Indemnifying Party and shall provide to the Indemnifying Party all books,
records and other information reasonably requested by the Indemnifying Party.
14. Termination. If the Closing Date shall not have occurred on or prior
-----------
to April 30, 1997 as such date may be from time to time extended upon the mutual
consent of the parties, any party that is not in default in the performance of
its obligations under this Agreement may, thereafter terminate this Agreement by
giving written notice to the other parties hereto.
15. Miscellaneous.
-------------
15.1. Amendment. This Agreement shall not be changed, modified or
---------
amended except
12
<PAGE>
by a writing signed by the party to be charged.
15.2. Governing Law. This Agreement and its validity, construction
-------------
and performance shall be governed in all respects by the laws of the State of
California without giving effect to principles of conflict of laws.
15.3. Severability. If any provision of this Agreement or the
------------
application of any provision hereof to any person or circumstance is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
15.4. Benefit of Parties. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties hereto and their respective successors,
heirs, legal representatives and assigns.
15.5. Time. Time is of the essence with respect to this Agreement.
----
15.6. Headings. The headings in the paragraphs of this Agreement
--------
are inserted for convenience of reference only and shall not constitute a part
hereof.
15.7. Counterparts. This Agreement may be executed simultaneously in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.8. Further Assurances. Each of the parties hereto agrees to
------------------
perform such other acts, and to execute, acknowledge and deliver, prior to, at
or subsequent to Closing, such other instruments, documents and other materials
as any other may reasonably request and as shall be necessary in order to effect
the consummation of the transactions contemplated hereby.
15.9. Schedules. The parties acknowledge and agree that the
----------
schedules provided for herein shall be attached to the Agreement effective as of
the Closing Date.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
FIRSTAMERICA: COMPANY:
FirstAmerica Automotive, Inc. Transcar Leasing, Inc.
a Delaware corporation a California corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
______________________________ ____________________________
Thomas A. Price, President Thomas A. Price, President
SUBSIDIARY: SHAREHOLDERS:
FAA Serramonte GM, Inc. Price Trust u/t/d 10/5/84
a California corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
___________________________ ____________________________
Thomas A. Price, President Thomas A. Price, Trustee
/s/ Fred Cziska
____________________________
Fred Cziska
/s/ Al Babbington
____________________________
Al Babbington
14
<PAGE>
LIST OF SCHEDULES
Schedule 1.1 Shareholders
Schedule 1.3 Certificate of Merger
Schedule 1.4 Shares
Schedule 3 Lease
Schedule 4.1 Exceptions to Due Organization
Schedule 4.4 Capitalization
Schedule 4.5 Subsidiaries
Schedule 4.6 Financial Statements
Schedule 4.7 Liabilities
Schedule 4.8 Receivables
Schedule 4.9 Permits and Licenses
Schedule 4.10 Personal Property
Schedule 4.11 Material Contracts
Schedule 4.12 Unions
Schedule 4.13 Insurance
Schedule 4.14 Benefit Plans
15
<PAGE>
EXHIBIT 2.1.6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT dated as of this 14th day of March 1997, by
and among FAA Concord N, Inc. a California corporation or Nominee
("Purchaser") and Concord Nissan, Inc., a California corporation d/b/a Concord
Nissan, ("Seller") and Steven Hallock, ("Hallock").
R E C I T A L S
WHEREAS, Seller owns and operates a Nissan automobile dealership commonly
known as Concord Nissan at 1290 Concord Avenue, Concord, California 94520 (the
"Dealership").
WHEREAS, Hallock owns the majority of the outstanding stock of Seller.
WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to
purchase from Seller certain of the assets, properties and business of Seller
utilized in its authorized Nissan automobile dealership located in Concord,
California.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
A G R E E M E N T
1. DEFINITIONS. For the purposes of this Agreement, the following terms
shall have the following meanings:
1.1 ACQUIRED ASSETS. The "Acquired Assets" are the assets and
property to be purchased by Purchaser hereunder, as more fully described in
Section 2.1 hereof.
1.2 CLOSING DATE. Unless otherwise mutually agreed between Purchaser
and Seller, the "Closing Date" means five days after the date on which the
conditions specified in Sections 7 and 8 hereof are satisfied; subject, however,
to the provisions of Section 18 below. The closing shall take place at the
offices of Kay & Merkle, 100 The Embarcadero, San Francisco, California 94105,
on the Closing Date commencing at 10:00 a.m.
1.3 FRANCHISE. "Franchise" means the Nissan franchises as currently
held by Seller.
1.4 FRANCHISER. "Franchiser" means Nissan Motor Corporation.
<PAGE>
1.5 OBSOLETE PARTS. "Obsolete Parts" means factory parts which are
not listed in the most current manufacturers' wholesale price book or, if listed
therein, are valued at Zero Dollars ($0), parts which have been in stock more
than one (1) year and/or parts which are in excess of a one (1) year supply, or
parts indicated as discontinued, and broken or damaged parts, regardless of
whether listed in the most current manufacturers' wholesale price book.
2. SALE OF ASSETS.
2.1 ACQUIRED ASSETS. Seller hereby agrees to, sell, convey, transfer,
assign and deliver to Purchaser on the Closing Date, and Purchaser agrees to buy
and accept as hereinafter provided the Franchise and all rights thereunder and
all the assets related to or used in connection with the Franchise, including
but not limited to those assets to be listed on Schedule 2.1 to be prepared
prior to the Closing Date and then attached hereto, Nissan special tools,
furniture, fixtures and equipment, which special tools, furniture, fixtures and
equipment shall be in good working order, and leasehold improvements used by
Seller in operation of the Nissan franchise, motor vehicles (new and used)
(subject to exclusion of certain used vehicles in accordance with Section
3.2(c), parts and accessories (subject to exclusion of Obsolete Parts in
accordance with Section 3.2(d), tires, work-in-progress, advertising literature,
forms, supplies, customer files and data bases, parts return privileges from the
Franchiser, rights under new car purchase orders and deposits relating thereto,
goodwill, and Seller's customer files and books and records relating to the
Acquired Assets, telephone number of Seller, all contracts, agreements or
commitments as the same shall exist on the Closing Date; provided, however, that
Seller shall retain all other assets. The parties agree that they will prepare
Schedule 2.1 in conjunction with the physical inventory described in Section
3.2. hereinbelow.
3. CONSIDERATION FOR ACQUIRED ASSETS.
3.1 PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, the consideration to be paid by Purchaser for the Acquired Assets
shall be cash equal to the sum of the aggregate value of the Acquired Assets
determined in accordance with Section 3.2.
3.2 VALUATION OF ACQUIRED ASSETS. The assets set forth below shall be
valued as provided below:
(a) The price for all current and prior model year new
unregistered and undamaged Nissan model vehicles with not more than three
hundred (300) miles purchased hereunder shall be the sum of the following:
(i) The wholesale cost of each new vehicle determined in
accordance with the factory invoice, including advertising charges; plus
(ii) The wholesale cost of all optional parts and
accessories installed in the new vehicles plus the cost of labor (determined at
the internal rate pursuant to the standard factory formula) for installation of
the same; plus
(iii) The cost of pre-delivery expense actually performed
related to specific automobiles transferred at closing, but only to the extent
that such pre-delivery expense was not previously reimbursed to Seller, in which
event the right to such expense reimbursement shall be assigned to Purchaser at
the closing; LESS
(iv) The sum of all distributor's allowances as of the
Closing Date including, but not limited to, inventory carry-over allowances,
discounts, holdbacks, rebates, contests,
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model changes and similar distributor's allowances related to specific
automobiles transferred on the Closing Date.
(b) The price for all current model year unregistered Nissan
demonstrator vehicles with not more than three thousand (3,000) miles purchased
hereunder shall be valued in accordance with (a)(i) through (a)(iv) hereinabove
less 5%.
(c) All vehicles not described in subsections (a) and (b) above
which are to be purchased hereunder shall be valued at a price mutually agreed
upon by Seller and Purchaser; provided, however, that if Seller and Purchaser
are unable to agree on a price with respect to any individual vehicle prior to
the Closing Date, then such vehicle shall be excluded from the Acquired Assets
and not purchased hereunder.
(d) All new undamaged returnable genuine Nissan factory parts
and accessories which are in possession of Seller as of the Closing Date and
which are listed in the manufacturer's most current wholesale parts and
accessories price book shall be valued at dealer cost in accordance with the
manufacturer's most current wholesale parts and accessories price book as of the
Closing Date; provided, however, that Obsolete Parts shall be valued at Zero
Dollars ($0) and shall be retained by Seller.
(e) All non-factory parts, accessories and miscellaneous
inventory shall be valued at cost.
(f) All work-in-progress shall be valued at cost.
(g) All furniture, fixtures, equipment, special tools, and
service vehicles shall be valued by appraisal. Said appraisal shall be conducted
by an appraisal company mutually agreed upon by Purchaser and Seller; provided,
however, that in the event that any item of furniture, fixtures, equipment, or
special tools is materially damaged, destroyed or removed from the Dealership
between the date of the appraisal provided for herein and the Closing Date, the
value of said item damaged, destroyed or removed from the Dealership shall be
credited against the Purchase Price.
(h) In consideration for all other assets described in Section
2.1 hereinabove and goodwill Purchase shall pay to Seller the sum of Four
Hundred Seventy Five Thousand Dollars ($475,000).
(i) As of the close of business on the day immediately preceding
the Closing Date or on such other date as mutually agreed upon by Purchaser and
Seller, a physical inventory to determine the value of the new, used and
demonstrator vehicles, parts, accessories, and work-in-progress and
miscellaneous inventory shall be taken jointly by the parties. Each party shall
bear the expenses associated with its own personnel in connection with the
valuation of the assets.
3.3 PAYMENT OF PURCHASE PRICE. The purchase price to be paid by
Purchaser pursuant to this Agreement shall be paid in cash on the Closing Date.
3.4 CLOSING AND POST-CLOSING ADJUSTMENTS. All adjustments normal in
asset acquisitions, including but not limited to rents and employee
compensation, personal property taxes, customer prepayments, if relating to a
period before and after the Closing Date, shall be apportioned between Seller
and Purchaser according to the number of days in the period covered thereby
which occurred prior to and including the Closing Date and subsequent to the
Closing Date. The aggregate amount of any
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adjustment shall be determined and paid as of the Closing Date. Any additional
amounts determined after the Closing Date to be paid by either party under this
Section 3.4 shall be paid by certified check delivered within seven (7) days
following determination of the amount of any such adjustment.
3.5 LIABILITIES. Purchaser shall have no obligation for any
liabilities of any kind whatsoever of Seller except that Purchaser shall assume
Seller's obligations as set forth on Schedule 3.5 attached hereto and all
liabilities under contracts, agreements or commitments assumed by Purchaser in
each case for the period commencing on the Closing Date and continuing
thereafter. Seller shall be fully responsible for any and all costs or charges
of any kind whatsoever arising out of such agreements for the period prior to
the Closing Date.
3.6 TRANSFER TAXES. Purchaser agrees to pay any and all sales,
transfer or other similar taxes which may be imposed or payable on or in
connection with the transfer of the Acquired Assets.
3.7 ALLOCATION OF PURCHASE PRICE. The purchase price as provided for
herein shall be allocated as set forth on Schedule 3.7 attached hereto.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND HALLOCK. Seller and
Hallock hereby represent, warrant and agree with Purchaser as follows:
4.1 GOOD STANDING. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and is
entitled to and has the corporate power and authority to own or lease its
property and to carry on its business in the manner and in the places where such
property are now owned, leased or operated and such business is now conducted.
4.2 TITLE TO ASSETS; LIENS AND ENCUMBRANCES. Seller will convey to
Purchaser good and marketable title to the Acquired Assets, free and clear of
all security interests, liens, claims, restrictions, equities and encumbrances
whatsoever.
4.3 AUTHORIZATION. The execution and delivery of this Agreement and
the transactions contemplated hereby has been duly authorized by the Board of
Directors of the Seller and all other corporate action, including all
shareholders' approvals necessary to authorize the execution and delivery of
this Agreement and the transactions contemplated hereby, have also been taken.
Except for consent of the Franchiser, landlords under leases and floor plan
lenders, no consent of any lender, trustee, security holder, lessor or any other
person or entity is required to be obtained by Seller in connection with the
execution, delivery and performance of this Agreement by Seller and the
consummation of the transactions contemplated hereby. This Agreement constitutes
a valid and binding obligation of Seller and Hallock enforceable in accordance
with its terms. Except pursuant to the Franchise and floor plan financing, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby (a) do not violate or constitute a breach
of or default under any contract, agreement or commitment to which Seller or
Hallock is a party, under which they are obligated or to which any of the
Acquired Assets are subject to, (b) do not violate any judgment, order, statute,
rule or regulation to which Seller, Hallock or any of the Acquired Assets are
subject or the articles of incorporation or bylaws of the Seller, and (c) will
not result in the creation of any lien, charge or encumbrance on any of the
Acquired Assets.
4.4 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties of Seller and Hallock contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties
have been made on and as of the Closing Date.
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4.5 LITIGATION. Except as set forth on Schedule 4.5 attached hereto,
there is not pending, or, to best knowledge of Seller, threatened, any suit,
action, arbitration, or legal, administrative, or other proceeding, or
governmental investigation against or affecting any of the Acquired Assets. To
the best knowledge of Seller and Hallock, Seller is not in default with respect
to any order, writ, injunction, or decree of any federal, state, local, or
foreign court, department or instrumentality.
4.6 ENVIRONMENTAL COMPLIANCE NOTICES. Seller has received no written
notice advising Seller of any defects, defaults or non-compliance in connection
with the Acquired Assets pursuant to the laws, rules and regulations from any
governmental agency dealing with environmental laws, except notices which have
been previously complied with or waived by the governmental agency.
4.7 COMPLIANCE WITH LAW. To the actual knowledge of Seller, Seller
has complied with, and is not in violation of, applicable federal, state or
local statutes, laws or regulations the violation of which would have a material
adverse effect on the financial condition of the Dealership.
4.8 FINANCIAL REPORTS. Seller has delivered to Purchaser dealer
financial statements for Seller for the calendar year 1993 and 1994 ("Dealer
Financial Statements"). The Dealer Financial Statements have been prepared in
accordance with past practices of Seller and are true and correct in all
material respects.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents,
warrants and agrees with Seller and Hallock as follows:
5.1 GOOD STANDING. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and is
entitled to and has the corporate power and authority to own or lease its
property and to carry on its business in the manner and in the places where such
property are now owned, leased or operated and such business is now conducted.
5.2 AUTHORIZATION. The execution and delivery of this Agreement and
the transactions contemplated hereby has been duly authorized by the Board of
Directors of the Purchaser and all other corporate action, including all
shareholders' approvals necessary to authorize the execution and delivery of
this Agreement and the transactions contemplated hereby, have also been taken.
This Agreement is a valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms. Except for consent of the
Franchiser and lenders, no consent of any trustee, security holder or any other
person or entity is required to be obtained by Purchaser in connection with the
execution, delivery and performance of this Agreement by Purchaser and the
consummation of the transactions contemplated hereby. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby (a) do not violate or constitute a breach of or default
under any contract, agreement or commitment to which Purchaser is a party or
under which it is obligated, and (b) do not violate any judgment, order,
statute, rule or regulation to which Purchaser is subject.
5.3 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
6. CONDUCT PRIOR TO CLOSING DATE.
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6.1 ONGOING OPERATIONS. Seller will use its best effort to preserve
intact the Acquired Assets and to continue to operate the Dealership as a going
concern, including, but not limited to, maintaining commercially reasonable
inventories and receivables. Seller will not dispose of any of the Acquired
Assets except in the ordinary course of business consistent with past practices,
and will not, without limiting the foregoing, hold a "going-out-of-business" or
"liquidation" sale.
6.2 APPROVALS. Each of Purchaser and Seller will use its best efforts
to obtain all permits, approvals, authorizations and consents of third parties
necessary or desirable for the consummation of the transactions contemplated by
this Agreement and for the ownership and operation by Purchaser of the Acquired
Assets and the Dealership related thereto. Purchaser and Seller shall proceed as
promptly as practicable after the date hereof to prepare all materials necessary
to obtain the consent of the Franchiser as is necessary for Purchaser to acquire
the Acquired Assets and for consummation of the transactions contemplated
hereby.
6.3 COVENANT TO COMPLY. Seller shall not take any action or fail to
take any action which will make any of its representations and warranties not
true and correct in all material respects on the Closing Date. Seller and
Hallock shall use their best efforts to satisfy or cause to be satisfied all of
the conditions precedent to Purchaser's obligations hereunder. Seller shall give
Purchaser prompt written notice of any material change in any of the information
contained in the representations and warranties made in Section 4 hereof or the
schedules referred to herein which occur prior to the Closing Date; provided,
however, that any change in the information contained in the representations and
warranties or schedules will not relieve Seller of any obligations hereunder if
such changes result in a breach of the representations and warranties contained
herein.
6.4 ENVIRONMENTAL ASSESSMENT. During the thirty (30) day period after
the execution of this Agreement (the "Testing Period"), Buyer may conduct an
environmental assessment (the "Environmental Assessment") of the real property
at the Dealership (the "Real Property"). Expenses of any environmental
consultant engaged by Buyer to conduct the Environmental Assessment shall be
paid by Buyer. Buyer may terminate all of its obligations under this Agreement
by written notice to Seller on or before the expiration of the Testing Period,
if Buyer determines that a release or threatened release of a hazardous
substance has occurred on the Real Property. Failure to timely notify Seller
under this Section 6.4 is deemed to constitute a waiver of Buyer's right to
terminate this Agreement under this Section 6.4.
6.5 HYDRAULIC HOISTS. At Purchaser's request, Seller agrees that
Seller shall remove all of the hydraulic hoists located in and about the Real
Property prior to the Closing. Such work shall be done by a contractor approved
by Purchaser and such work shall be approved by Purchaser. Seller further agrees
to replace underground hydraulic hoists with above ground hoists as reasonably
selected by Purchaser and Seller. All such removal and installation of new
hoists shall be done at the sole cost and expense of Seller. Buyer shall
reimburse Seller at the Closing the cost of such removal up to the sum of Five
Thousand Dollars ($5,000.00).
7. CONDITIONS OF PURCHASER'S OBLIGATIONS TO CLOSE. The obligations of
Purchaser under this Agreement are subject fulfillment of the conditions set
forth below. Purchaser shall have the right to waive in writing all or part of
any one or more of the following conditions without releasing Seller or Hallock
from any liability for any loss or damage sustained by Purchaser by reason of
the breach by Seller or Hallock of any covenant, obligation or agreement
contained herein, or by reason of any misrepresentation made by Seller or
Hallock and upon such waiver may proceed with the transactions contemplated by
this Agreement.
7.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date, Seller
and Hallock shall have complied with and duly performed in all material respects
all agreements and conditions on its
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part to be complied with and performed pursuant to or in connection with this
Agreement on or before the Closing Date.
7.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller and Hallock contained in this Agreement, or otherwise made
in writing in connection with the transactions contemplated hereby, shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date and Purchaser shall have received a
certificate to that effect dated the Closing Date and executed by the President
of Seller.
7.3 NO LEGAL PROCEEDINGS. No action or proceeding shall have been
instituted or threatened to restrain or prohibit the acquisition by Purchaser or
the conveyance by Seller of the Acquired Assets or which might result in any
material adverse change in the business, prospects or financial or other
condition of the Acquired Assets.
7.4 LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and the
Closing Date, there shall not have been any material loss, damage or destruction
to or of any of the Acquired Assets, and there shall have been no development
which would have a material adverse effect on the Dealership.
7.5 CONSENTS. Purchaser shall have received the written approval of
the Franchiser designating Purchaser or its designee as the duly authorized
dealer for the sales and service of the Franchiser's automobiles at 1290 Concord
Avenue, Concord, California 94520, free of any material condition which is
adverse to Purchaser, and Purchaser and such Franchiser shall have entered into
a customary dealer sales and service agreement. All permits and licenses
necessary to enable Purchaser to conduct the Franchise and service facilities
shall have been obtained. All other requisite consents and approvals shall have
been obtained.
7.6 FINANCING. Purchaser shall have received floor plan financing and
capitalization financing as reasonably required by Purchaser.
7.7 ASSIGNMENT OF LEASE. Purchaser shall have received an assignment
of the leased property commonly known as 1290 Concord Avenue, Concord,
California 94520 together with Lessor's consent as provided for in Section 11
hereinbelow.
7.8 PHYSICAL AUDIT. On or before the Closing Date the valuation of
the Acquired Assets pursuant to the physical audit specified in Section 3.2
shall be completed.
7.9 TAX CLEARANCE. Seller shall have furnished to Purchaser,
certificates from all appropriate federal, state, county and local authorities
that all taxes and contributions payable by Seller have been paid in full. If
all appropriate tax certificates are not available on the Closing Date,
Purchaser shall withhold from the estimated amount of maximum unpaid tax
liability reasonably determined by Purchaser which sum shall be held by
Purchaser until such time as all certificates are presented in a form
satisfactory to Purchaser's counsel.
7.10 TELEPHONE CHARGES. Seller shall have obtained from its telephone
company a statement that all sums billed before the Closing Date have been paid
(Purchaser shall withhold from the Purchase Price, the estimated amount of the
maximum unbilled liability of Seller from said telephone company for all
services rendered before said date, less the pro rata amount of any billings
paid by Seller for services to be rendered after the Closing Date).
7.11 LIST OF EMPLOYEES. Seller shall furnish to Purchaser a list of
all employees, their
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rates of pay, including, separately, base pay, and incentive and commission
plans. Further Seller shall deliver to Purchaser a certificate from each of such
employees showing that such employee has received from Seller all compensation
including all sick leave, vacation, and any and all other compensation due such
employee through the Closing Date. In addition thereto, Seller shall have
complied with any and all obligation of Seller under any collective union
agreements and/or collective bargaining agreements.
7.12 BULK SALE. Seller shall furnish, in an appropriate time to
comply, all affidavits and lists of creditors and such other instruments or
documents as escrow holder shall require for Seller and Purchaser to comply with
all applicable bulk sales laws.
8. CONDITIONS OF SELLER'S OBLIGATIONS TO CLOSE. The obligations of Seller
under this Agreement are subject to fulfillment of the conditions set forth
below. Seller shall have the right to waive in writing all or part of any one or
more of the following conditions without, however, releasing Purchaser from any
liability for any loss or damage sustained by Seller by reason of the breach by
Purchaser of any covenant, obligation or agreement contained herein, or by
reason of any misrepresentation made by Purchaser and upon such waiver may
proceed with the transactions contemplated by this Agreement.
8.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date,
Purchaser shall have complied with and duly performed in all material respects
all of the agreements and conditions on its part required to be complied with or
performed pursuant to this Agreement on or before the Closing Date.
8.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. The representations
and warranties of Purchaser contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date and Seller shall have received a certificate to that
effect dated the Closing Date and executed by the President or a Vice President
of Purchaser.
8.3 PHYSICAL AUDIT. On or before the Closing Date the valuation of
the Acquired Assets pursuant to Section 3.2 shall be completed.
9. DELIVERIES OF SELLER ON THE CLOSING DATE. Seller agrees on the Closing
Date to deliver to Purchaser:
9.1 TITLE TO ACQUIRED ASSETS. All conveyances, covenants, warranties,
deeds, assignments, bills of sale, motor vehicle titles, confirmations, powers
of attorney, approvals, consents and any and all further instruments as may be
necessary, expedient or proper in order to complete any and all conveyances,
transfers and assignments herein provided for and to convey to Purchaser such
title to the Acquired Assets as Seller is obligated hereunder to convey.
9.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the
Seller setting forth a copy of the resolutions adopted by Seller's Board of
Directors and shareholders authorizing and approving the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby.
9.3 CERTIFICATE. Certificate of the President of Seller referred to
in Section 7.2.
9.4 ASSIGNMENT OF LEASE. The assignment of the lease as for the
property required in accordance with Section 11 hereinbelow.
9.5 CONSENTS. All consents, approvals, authorizations or orders of
any person or entity or court or governmental agency required or necessary for
the consummation of the transactions
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contemplated hereby, provided that Seller shall not be obligated to deliver the
consent of the Franchiser.
10. DELIVERIES OF PURCHASER ON THE CLOSING DATE. Purchaser agrees on the
Closing Date to deliver or cause to be delivered:
10.1 CONSIDERATION. The amounts to be delivered pursuant to Section
3.2 and 13.4 hereof.
10.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the
Purchaser setting forth a copy of the resolutions adopted by Purchaser's Board
of Directors and shareholders authorizing and approving the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
10.3 CERTIFICATE. The Certificate of the President or a Vice
President of the Purchaser referred to in Section 8.2.
11. LEASE. Seller and Hallock, as of the Closing, shall assign to
Purchaser the Lease Agreement for the property commonly known as 1290 Concord
Avenue, Concord, California 94520, which assignment shall include an
indemnification of Purchaser from any and all liability related to any toxic
materials brought on or about the premises prior to the Closing Date
("Assignment of Lease"). Said Lease shall be for a term ending June 30, 2014.
The rent shall be the sum of $35,000 per month triple net during the term of the
Lease. Such Lease shall contain an option to purchase said property at the fair
market value at the time of the exercise of the option. Such option may be
exercised at anytime during the term of the Lease after September 30, 2003. Such
consent shall be in a form and substance reasonably satisfactory to Purchaser
and its counsel.
12. ESCROW. The parties, upon execution of this Agreement shall open an
escrow with a mutually agreeable escrow company, ("Escrow Holder"). The parties
shall forthwith provide to Escrow Holder any and all documentation necessary for
Escrow Holder to publish its notices as required by the Bulk Sale Laws of the
State of California. Any and all costs of such escrow shall be paid fifty
percent 50% by Purchaser and 50% by Seller.
13. COVENANTS AFTER CLOSING DATE.
13.1 TRANSFER OF ACQUIRED ASSETS. Seller agrees, at any time and from
time to time after the Closing Date, upon the request of Purchaser, to do,
execute, acknowledge and deliver, or to cause to be done, executed, acknowledged
and delivered, all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required for the better
assigning, transferring, conveying, and confirming to Purchaser, or to its
successors and assigns, or for the aiding, assisting, collecting and reducing to
possession of, any or all of the Acquired Assets as provided herein.
13.2 COOPERATION. Seller will cooperate and use its best efforts to
have its officers and employees cooperate with Purchaser at Purchaser's request,
on and after the Closing Date, in furnishing information, evidence, testimony
and other assistance in connection with any actions, proceedings, arrangements
or disputes involving Purchaser and based upon contracts, arrangements,
commitments or acts of Seller which were in effect or occurred on or prior to
the Closing Date. From and after the Closing Date, Seller will permit Purchaser
and its representatives to have access to Seller's books and records relating to
the Acquired Assets for periods prior to the Closing Date.
14. INDEMNIFICATION.
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14.1 INDEMNIFICATION BY SELLER AND HALLOCK. Seller and Hallock agree
to indemnify and hold harmless Purchaser from and against any and all losses,
costs, damages, claims and expenses (including reasonable attorneys' fees) which
Purchaser may sustain at any time by reason of (a) any debt, liability or
obligation of Seller and/or Hallock except obligations assumed by Purchaser, (b)
any liability or obligation of any kind relating to the operations of the
Acquired Assets or Dealership prior to the Closing Date, (c) any presence of
hazardous materials or toxic substances located at the Closing Date in or around
the premises to be assigned from Seller to Purchaser related to the underground
storage tanks or other hazardous substances except related to the underground
hoists, (d) non-compliance with any applicable bulk sale laws or (e) the breach
or inaccuracy of or failure to comply with, or the existence of any facts
resulting in the inaccuracy of, any of the warranties, representations,
covenants or agreements of Seller or Hallock contained in this Agreement or in
any agreement or document delivered pursuant hereto or in connection herewith or
with the closing of the transactions contemplated hereby. The parties
acknowledge and agree that Purchaser shall have the right to repair automobiles
sold and/or serviced by Seller to correct miscellaneous customer complaints that
Purchaser determines in Purchaser's reasonable judgment are an obligation of
Seller provided that the total of all such repairs without Seller's prior
approval shall not exceed the sum of One Thousand Dollars ($1,000).
14.2 INDEMNIFICATION BY PURCHASER. Purchaser agrees to indemnify and
hold harmless Seller from and against any and all losses, cost, damages, claims
and expenses (including reasonable attorneys' fees) which Seller may sustain at
any time by reason of (a) any debt, liability or obligation of Purchaser, (b)
all liability related to the presence of toxic materials as a result of
underground hoists discovered prior to or after the closing date as provided for
herein, provided that the transaction actually closes, (c) any liability or
obligation of any kind relating to the operations of the Acquired Assets or
Dealership after the Closing Date, or (d) the breach or inaccuracy of or failure
to comply with, or the existence of any facts resulting in the inaccuracy of,
any of the warranties, representations, covenants or agreements of Purchaser
contained in this Agreement or in any agreement or document delivered pursuant
hereto or in connection herewith or with the closing of the transactions
contemplated hereby.
14.3 DEFENSE. Any party who receives notice of a claim for which it
will seek indemnification shall promptly notify the indemnifying party in
writing of such claim. The indemnifying party shall have the right to assume the
defense of such action at its cost with counsel reasonably satisfactory to the
indemnified party. The indemnified party shall have the right to participate in
such defense with its own counsel at its cost.
15. SURVIVAL OF REPRESENTATIONS. The parties hereto each agree that all
representations, warranties and agreements contained herein shall survive the
execution and delivery of this Agreement, the closing hereunder and any
investigation made by any party hereto.
16. NO BROKER. Purchaser on the one hand, and Seller and Hallock on the
other, represent to the other that no broker or finder has been connected with
the transactions contemplated by this Agreement. In the event of a claim by any
broker or finder based upon his representing or being retained by Seller or
Hallock on the one hand, or by Purchaser on the other, Seller, Hallock or
Purchaser, as the case may be, agrees to indemnify and save harmless the other
in respect of such claim.
17. USE OF THE NAME. Purchaser agrees that from and after the Closing
Date, Purchaser shall have the right to use the name "Concord Nissan" or any
derivative thereof or similar name in connection with the operation of the
Dealership acquired hereunder.
18. TERMINATION. If the Closing Date shall not have occurred within 135
days of the date of execution of this Agreement, or if Purchaser shall receive
disapproval from the Franchiser prior thereto, any party that is not in default
in the performance of its obligations under this Agreement may, thereafter,
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terminate this Agreement by giving written notice to the other party.
19. TELEPHONE/COMPUTER SYSTEMS. Purchaser shall purchase from H.G.
Automotive Systems, Inc., a California corporation and an affiliate of Seller
the telephone system and computer system currently used in the operation of the
Dealership, which equipment is listed on Schedule 19 attached hereto and
incorporated herein by this reference. The purchase price shall be the sum of
Thirty Thousand Dollars ($30,000) and shall be payable in cash simultaneously
with the Closing.
20. NOTICES. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and (unless otherwise
specifically provided herein) shall be deemed to have been given upon
transmission by telecopy (with receipt confirmed), upon hand delivery or
delivery by air freight or courier service, or three (3) days after the time
when mailed in any general or branch United States Post Office, enclosed in a
registered or certified postage-paid envelope, addressed to the address of the
parties stated below or to such changed address as such party may have fixed by
notice:
To Purchaser: FAA Concord N, Inc.
1300 Concord Avenue
Concord, CA 94563
With a copy to: W. Bruce Bercovich
Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94015
To Seller: Concord Nissan, Inc.
1290 Concord Avenue
Concord, CA
To Hallock: Steven S. Hallock
1290 Concord Avenue
Concord, CA
provided, however, that any notice of change of address shall be effective only
upon receipt.
21. MISCELLANEOUS.
21.1 ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto, sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature between them
and no party hereto shall be bound by any condition, definition, warranty or
representation other than as expressly provided for in this Agreement or as may
be on a date subsequent to the date hereof duly set forth in writing signed by
the party hereto which is to be bound thereby. This Agreement shall not be
changed, modified or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to be charged.
21.2 GOVERNING LAW. This Agreement and its validity, construction and
performance shall be governed in all respects by the laws of the State of
California, without giving effect to principles of conflict of laws.
21.3 SEVERABILITY. If any provision of this Agreement or the
application of any
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provision hereof to any person or circumstance is held invalid, the remainder of
this Agreement and the application of such provision to other persons or
circumstances shall not be affected unless the provision held invalid shall
substantially impair the benefits of the remaining portions of this Agreement.
21.4 BENEFIT OF PARTIES, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, heirs, legal representatives and assigns. This Agreement may not be
assigned by any party hereto, except with the prior written consent of the other
parties hereto.
21.5 NECESSARY DOCUMENTS. Each of the parties does hereby agree to do
any act and to execute any other or further documents necessary or convenient to
the carrying out of the provisions of this Agreement.
21.6 HEADINGS. The headings in the sections of this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.
21.7 ATTORNEYS' FEES. In the event that any action or proceeding is
brought to enforce or interpret any provision, covenant or condition contained
in this Agreement on the part of Purchaser, Seller or Hallock, the prevailing
party in such action or proceeding (whether after trial or appeal) shall be
entitled to recover from the party not prevailing its expenses therein,
including reasonable attorneys' fees and allowable costs.
21.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
PURCHASER: SELLER:
FAA CONCORD N, INC. CONCORD NISSAN, INC., A CALIFORNIA
A CALIFORNIA CORPORATION CORPORATION
By: /s/ Thomas A. Price By: /s/ Steven Hallock
________________________ ________________________
Thomas A. Price, President Steven Hallock, President
HALLOCK:
/s/ Steven Hallock
____________________________
Steven Hallock
13
<PAGE>
SCHEDULE 2.1
ACQUIRED ASSETS
<PAGE>
SCHEDULE 3.5
LIABILITIES
<PAGE>
SCHEDULE 3.7
ALLOCATION OF PURCHASE PRICE
<PAGE>
SCHEDULE 4.5
LITIGATION
<PAGE>
SCHEDULE 19
TELEPHONE/COMPUTER SYSTEMS EQUIPMENT
<PAGE>
EXHIBIT 2.1.7
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of July 1997, by and
between The Price Trust u/t/d 10/5/84 (the "Seller"), FirstAmerica Automotive,
Inc., a Delaware corporation (the "Purchaser") and Smart Nissan, Inc., a
California corporation (the "Corporation").
WHEREAS, Seller owns 40,000 shares of stock of the Corporation, which
represents 100% of the total outstanding capital stock of the Corporation.
WHEREAS, Purchaser desires to acquire the 40,000 shares of capital stock of
the Corporation held by the Seller in accordance with and subject to the terms
and conditions set forth herein.
NOW, THEREFORE, in recognition of the representations set forth above and
in consideration of the mutual covenants hereafter contained, the parties hereto
agree as follows:
1. INCORPORATION OF RECITALS. The recitals set forth hereinabove are
--------------------------
incorporated herein by this reference.
2. STOCK PURCHASE. Subject to the terms and conditions set forth in this
---------------
Agreement, Seller agrees to convey, transfer, assign and deliver to Purchaser,
and Purchaser agrees to acquire from Seller, 40,000 shares of the capital stock
of the Corporation (the "Shares").
3. PURCHASE PRICE.
---------------
3.1 AMOUNT. Purchaser shall pay to Seller as consideration for the
acquisition of the Shares hereunder, the sum of $600,000.00.
3.2 PAYMENT. The purchase price for the Shares shall be paid in cash upon
the Closing.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
--------------------------------------------
warrants to Seller as follows:
4.1 POWER AND AUTHORITY. Purchaser has the requisite power and authority
to enter into and perform this Agreement. This Agreement has been (and each
other agreement, document or instrument contemplated hereby, will at or prior to
the Closing be) duly executed and delivered by the Purchaser. No approvals or
consents of any person or entity other than the Purchaser are necessary in
connection with the Purchaser's power and authority to perform its obligations
pursuant to this Agreement. This Agreement constitutes (and at the Closing,
each other agreement, document or instrument contemplated hereby will
constitute) the legal, valid and binding obligation of the Purchaser enforceable
against the Purchaser in accordance with its terms.
4.2 NO MISREPRESENTATION. None of the representations and/or warranties
made by the Purchaser hereunder contains or will contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which they are made, not
misleading.
5. REPRESENTATIONS AND WARRANTIES OF SELLER. The Seller and the Corporation
----------------------------------------
jointly and severally represent and warrant to the Purchaser as follows:
5.1 POWER AND AUTHORITY. The Seller and the Corporation have the
requisite power and authority to enter into and perform this Agreement and to
convey and transfer the capital Shares of the
<PAGE>
Corporation as provided in this Agreement. This Agreement has been (and each
other agreement, document or instrument contemplated hereby, will at or prior to
the Closing be) duly executed and delivered by the Seller and the Corporation.
No approvals or consents of any person or entity is necessary in connection with
Seller's and the Corporation's power and authority to perform their respective
obligations pursuant to this Agreement. This Agreement constitutes (and at the
Closing, each other agreement, document or instrument contemplated hereby will
constitute) the legal, valid and binding obligation of the Seller and the
Corporation enforceable against Seller and the Corporation in accordance with
its terms.
5.2 CORPORATE ORGANIZATION AND GOOD STANDING. The Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, and is duly authorized, qualified, and licensed
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as now
conducted.
5.3 ARTICLES OF INCORPORATION, BY-LAWS AND MINUTE BOOKS. True, complete
and correct copies of the Articles of Incorporation and By-Laws of the
Corporation, each as amended to date, have been furnished to Purchaser. The
stock records and minute books of the Corporation, all of which have been made
available to Purchaser, contain true and complete minutes and records of all
meetings, proceedings and other actions of the stockholders and directors of the
Corporation from the date of organization.
5.4 AUTHORIZED CAPITALIZATION. The authorized capital stock of the
Corporation consists of 75,000 shares of common stock. The number of issued and
outstanding shares of stock of the Corporation is 40,000. All issued and
outstanding shares of the Corporation are owned by the Seller and are validly
issued and outstanding, fully paid and non-assessable, free and clear of all
liens, security interests, pledges, charges, voting trusts, equities,
restrictions, encumbrances and claims of every kind. All of the outstanding
shares of the Corporation were offered, issued, sold and delivered by the
Corporation in compliance with all applicable state and federal laws concerning
the issuance of securities. None of the shares of the Corporation which are
outstanding were issued in violation of any preemptive rights held by any past
or present shareholder of the Corporation. The Corporation does not have any
outstanding options, warrants, rights or other securities, plans, contracts or
agreements which give the holder thereof or any other person the right to
purchase any shares of the Corporation's capital stock or which are convertible
into or exercisable for any shares of such capital stock or under which any such
option, warrant, or right or security may be issued in the future. The
Corporation does not have any obligation, whether contingent or otherwise, to
purchase, redeem, or otherwise acquire any of its equity securities or interests
therein or pay a dividend or make any distribution with respect thereto.
5.5 UNIONS. Except as set forth on Schedule 5.5 attached hereto and
incorporated herein by this reference, the Corporation is not a party to any
arrangement with any union, and no employees of the Corporation are represented
by any labor union or covered by any collective bargaining agreement, nor, to
the knowledge of the Seller, is any effort to establish such representation in
progress. There is no pending or, to the knowledge of the Seller, threatened
labor dispute involving the Corporation or any of its employees.
5.6 INSURANCE. Set forth on Schedule 5.6 attached hereto and incorporated
herein by this reference is an accurate list, as of the date of this Agreement,
of all insurance policies of the Corporation, including an accurate list of all
insurance losses, including workers' compensation claims, of the Corporation for
the past three policy years.
5.7 EMPLOYEE PLANS. Set forth on Schedule 5.7 attached hereto and
incorporated herein by this reference is a complete and accurate list of all
employee benefit plans, including without limitation, all
2
<PAGE>
pension, profit sharing, deferred compensation, bonus, and multi-employer plans
and other plans currently maintained or sponsored by the Corporation, or to
which the Corporation contributes or has an obligation to contribute in the
future. To the knowledge of the Seller and the Corporation, each of the plans
referenced on Schedule 5.7 attached is in substantial compliance with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). No plan has incurred an accumulated funding deficiency, as
defined for purposes of the Internal Revenue Code and ERISA, and the Corporation
does not have any direct or indirect obligation or liability to the Pension
Benefit Guaranty Corporation or to the Internal Revenue Service for any excise
tax or penalty. Neither the Corporation nor any ERISA Affiliate (i.e., each
business which is treated together with the Corporation as a single employer
under Section 4001(a)(14) of ERISA or Internal Revenue Code Section 414(b), (c),
(m), (n) or (o)) has incurred or expects to insure any withdrawal liability to
any multiemployer plan.
5.8 LITIGATION; CONFORMITY WITH THE LAW. Except as set forth on Schedule
5.8 attached hereto and incorporated herein by this reference, there are no
claims, actions, suits or proceedings, pending or, to the knowledge of the
Seller, threatened against or affecting the Corporation or any of its properties
at law or in equity, or before or by any federal, state, municipal, or any other
governmental department, commission, board, bureau, agency, or instrumentality,
having jurisdiction with respect to the Corporation, and no notice of any claim,
action, suit, or proceeding, whether pending or threatened, has been received.
The Corporation has conducted its business in substantial compliance with all
federal, state and local statutes, ordinances, permits, licenses, orders,
variances, rules and regulations. Except as set forth on Schedule 5.8, the
Corporation is not subject to any order of any Court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality.
5.9 ENVIRONMENTAL MATTERS. None of the Corporation's assets has ever been
used by the Corporation or, to the best of the Corporation's knowledge, by
previous owners or operators, in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance other
than in accordance with applicable law; none of the Corporation's assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or property of the Corporation; the Corporation does not have any
contingent liability in connection with the release of any hazardous substances
into the environment, including third-party releases onto property that the
Corporation owns or operates; and the Corporation has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
the Corporation relating to the release or disposal of hazardous waste or
hazardous substances. Except as set forth on Schedule 5.9 attached hereto and
incorporated herein by this reference, the Corporation has not at any time owned
or leased any real estate having underground storage tanks.
5.10 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The representations
and warranties of the Seller contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date.
5.11 TITLE TO STOCK OF SELLER. The Seller has good title to all of the
Shares held by the Seller. All of the Shares are free and clear of restrictions
on or conditions to transfer or assignment, other than any restrictions imposed
by any governmental agency, and are free and clear of all mortgages, liens,
options, pledges, charges, encumbrances, equities, claims, easements or
restrictions.
3
<PAGE>
5.12 NO MISREPRESENTATION. None of the representations and/or warranties
made by the Seller and Corporation hereunder contains or will contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which are made, not
misleading.
5.13 FINANCIAL CONTRIBUTION. Seller has paid to the Corporation the sum
of $600,000.00 for the Shares. Seller has received no compensation or
distributions from the Corporation other than reimbursement for funds expended
by Seller or affiliates of Seller on behalf of the Corporation.
6. CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE. The obligations of
----------------------------------------------
Purchaser under this Agreement are subject to fulfillment of the conditions set
forth below. Purchaser shall have the right to waive in writing all or part of
any one or more of the following conditions without releasing Seller or the
Corporation from any liability for any loss or damage sustained by Purchaser by
reason of the breach by Seller or the Corporation of any covenant, obligation or
agreement contained herein, or by reason of any misrepresentation made by Seller
or the Corporation and upon such waiver may proceed with the transactions
contemplated by this Agreement.
6.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date, Seller and
the Corporation shall have complied with and duly performed in all material
respects all agreements and conditions on their part to be complied with and
performed pursuant to or in connection with this Agreement.
6.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller and the Corporation contained in this Agreement, or otherwise made in
writing in connection with the transactions contemplated hereby, shall be true
and correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date.
6.3 NO LEGAL PROCEEDINGS. No action or proceeding shall have been
instituted or threatened to restrain or prohibit the acquisition by Purchaser or
the conveyance by Seller of the Shares or which might result in any material
adverse change in the business, prospects or financial or other condition of the
Corporation.
6.4 LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and the Closing
Date, there shall not have been any material loss, damage or destruction of the
assets of the Corporation, and there shall have been no development which would
have a material adverse effect on the Corporation.
6.5 CONSENTS. Purchaser shall have received the written approval of
Nissan Motor Corporation U.S.A. ("Franchiser") designating Purchaser or its
designee as the duly authorized dealer for the sales and service of such
Franchiser's automobiles at 807 East Francisco Boulevard, San Rafael,
California, free of any material condition which is adverse to Purchaser, and
Purchaser and Franchiser shall have entered into a customary dealer sales and
service agreement. All permits and licenses necessary to enable Purchaser to
conduct the Franchise and service facilities shall have been obtained. All
other requisite consents and approvals shall have been obtained.
6.6 DELIVERIES. On the Closing Date, Seller shall deliver to Purchaser,
executed by Seller in blank for transfer to Purchaser, all issued and
outstanding share certificates evidencing the Shares, and all corporate
documentation and records, including Articles of Incorporation, Bylaws and
minute books. Seller shall further deliver to Seller a written resignation of
all offices and directorships held by Seller in the Corporation.
4
<PAGE>
7. CONDITIONS OF SELLER'S OBLIGATIONS TO CLOSE. The obligations of Seller
-------------------------------------------
under this Agreement are subject to fulfillment of the conditions set forth
below. Seller shall have the right to waive in writing all or part of any one
or more of the following conditions without, however, releasing Purchaser from
any liability for any loss or damage sustained by Seller by reason of the breach
by Purchaser of any covenant, obligation or agreement contained herein, or by
reason of any misrepresentation made by Purchaser and upon such waiver may
proceed with the transactions contemplated by this Agreement.
7.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date, Purchaser
shall have complied with and duly performed in all material respects all of the
agreements and conditions on its part required to be complied with or performed
pursuant to this Agreement.
7.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. The representations and
warranties of Purchaser contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date.
7.3 DELIVERIES. On the Closing Date, Purchaser shall deliver to Seller
the sum of $600,000.00 as and for the purchase price for the Shares, and any
executed transfer documentation form(s) required by the Department of
Corporations reflecting the transfer of the Shares.
8. NO OTHER REPRESENTATIONS. Except as specifically set forth herein, no party
-------------------------
to this Agreement makes any representations or warranties.
9. CLOSING. The closing of this transaction (the "Closing" or the "Closing
--------
Date") shall take place on satisfaction of the conditions set forth in Sections
6 and 7 above.
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The parties hereto agree that
-------------------------------------------
the representations and warranties contained herein and the obligations set
forth in Sections 6 and 7 hereof shall survive the execution and delivery hereof
and the Closing hereunder for a period of five (5) years subsequent to the
Closing.
11. FURTHER ASSURANCES. The parties hereto each agree to execute such other
-------------------
documents or agreements as may be necessary or desirable for the implementation
of this Agreement and the consummation of the transactions contemplated hereby.
12. NOTICES. Any notice or other communication required or permitted to be
--------
given under this Agreement ("Notices") shall be in writing and shall be (i)
personally delivered; (ii) delivered by a reputable overnight courier; or (iii)
delivered by certified mail, return receipt required and deposited in the U.S.
Mail, postage prepaid. Notices shall be deemed received at the earlier of
actual receipt or (i) one (1) business day after deposit with an overnight
courier as evidenced by a receipt of deposit; or (ii) three (3) business days
following deposit in the U.S. Mail, as evidenced by a return receipt. Notices
shall be directed to the parties at their respective addresses shown below and
to the Escrow Holder at the address shown below or such other address as either
party may, from time to time, specify in writing to the other in the manner
described above:
THE PURCHASER: FirstAmerica Automotive, Inc.
100 The Embarcadero, Penthouse
San Francisco, CA 94105
5
<PAGE>
Attn: W. Bruce Bercovich
Fax No.: (415) 512-9277
WITH COPY TO: W. Bruce Bercovich, Esq.
Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, California 94105
Fax No.: (415) 512-9277
THE SELLER: The Price Trust
1500 Collins Avenue
Colma, CA 94014
Attn: Thomas A. Price
Fax No.: (415) 756-3945
TO CORPORATION: 1500 Collins Avenue
Colma, CA 94014
Attn: Thomas A. Price
Fax No.: (415) 756-3945
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
-----------------
the parties pertaining to the subject matter contained in it and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties.
14. INUREMENT. This Agreement shall be binding on and shall inure to the
---------
benefit of the parties hereto, their respective heirs, legal representatives,
successors and assigns.
15. CALIFORNIA LAW. This Agreement shall be governed by and be construed
--------------
according to the laws of the State of California.
16. ATTORNEYS' FEES. In the event of any litigation or arbitration between the
----------------
parties, the prevailing party shall be entitled to recover reasonable attorneys'
fees and all other costs and expenses incurred in connection with such
litigation or arbitration.
17. SEVERABILITY. If any provision of this Agreement or the application of any
-------------
provision hereof to any person or circumstance is held invalid, the remainder of
this Agreement and the application of such provision to other persons or
circumstances shall not be affected unless the provision held invalid shall
substantially impair the benefits of the remaining portions of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each of
-------------
which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. This Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
PURCHASER: SELLER:
FirstAmerica Automotive, Inc. The Price Trust u/t/d 10/5/84
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
__________________________ _________________________
Thomas A. Price, President Thomas A. Price, Trustee
THE CORPORATION:
Smart Nissan, Inc.
By: /s/ Thomas A. Price
________________________
Thomas A. Price, President
7
<PAGE>
SCHEDULES
Schedule 5.5 Unions
Schedule 5.6 Insurance
Schedule 5.7 Employee Plans
Schedule 5.8 Litigation; Conformity with the Law
Schedule 5.9 Environmental Matters
8
<PAGE>
EXHIBIT 2.1.8
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered this 19th day of
March 1997, by and among FirstAmerica Automotive, Inc., a Nevada corporation
or nominee ("Purchaser") and Asian Pacific Industries, Inc., a Washington
corporation ("Seller").
R E C I T A L S
WHEREAS, Seller owns and operates a Nissan, Volkswagen, and Dodge
automobile dealership (the "Dealership") commonly known as Valley Auto Center,
located at 6015 Scarlett Court, Dublin, California 94568 (the "Premises").
WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to
purchase from Seller certain of the assets, properties and business of Seller
utilized in connection with the Dealership.
NOW, THEREFORE, in recognition of the foregoing representations, and in
consideration of the covenants set forth herein, the parties hereto agree as
follows:
A G R E E M E N T
1. DEFINITIONS. The capitalized terms as used in this Agreement shall
be defined as hereinafter set forth in this Section 1, or as otherwise provided
in this Agreement.
1.1 ACQUIRED ASSETS. The term "Acquired Assets" shall be defined as
all of the assets and property to be acquired by Purchaser hereunder, as
described in Section 2.1 hereof.
1.2 CLOSING. The term "Closing" shall be defined as the consummation
of all of the transactions provided for in this Agreement, including the
exchange of the Acquired Assets for the consideration provided for herein. The
Closing shall occur at the offices of Kay & Merkle, 100 The Embarcadero,
Penthouse, San Francisco, California, on the Closing Date commencing at 10:00
a.m.
1.3 CLOSING DATE. The "Closing Date" shall be defined as the date
which falls 5 business days following the earliest date on which the conditions
specified in Sections 7 and 8 hereof are satisfied; subject, however, to the
provisions of Section 18 below.
1.4 FRANCHISES. The term "Franchises" shall be defined as the
Nissan, Volkswagen, and Dodge franchises currently held by Seller. The term
"Franchise" shall refer to any one of the Franchises.
1.5 FRANCHISERS. The term "Franchisers" shall be defined as Nissan
Motor Corporation USA, Chrysler Corporation, and Volkswagen of America. The
term "Franchiser" shall refer to any one of the Franchisers.
1
<PAGE>
1.6 OBSOLETE PARTS. The term "Obsolete Parts" shall be defined as
all (i) factory parts which are not listed in the most current manufacturer's
wholesale price book or, if listed therein, are valued at ZERO DOLLARS ($0),
(ii) parts which are not returnable to the manufacturer (as defined by the
Franchiser), (iii) parts which have been in stock more than one (1) year and/or
parts which are in excess of a one (1) year supply, (iv) parts indicated as
discontinued, and (v) parts which are broken or damaged, regardless of whether
listed in the most current manufacturer's wholesale price book.
2. PURCHASE AND SALE OF ASSETS.
2.1 ACQUIRED ASSETS. The assets subject to this Agreement shall
consist of all the assets other than that property subject to the lease
contemplated under Schedule 11 related to or used in connection with the
Franchises, including but not limited to those assets to be listed on Schedule
2.1 to be prepared prior to the Closing Date and attached hereto, Nissan,
Volkswagen, and Dodge special tools, furniture, fixtures and equipment, which
special tools, furniture, fixtures and equipment shall be in good working order,
leasehold improvements used by Seller in operation of the Nissan, Volkswagen,
and Dodge franchise, motor vehicles (new and used) (subject to exclusion of
certain used vehicles in accordance with Section 3.2(c)), parts and accessories
(subject to exclusion of Obsolete Parts in accordance with Section 3.2(d) and
excess non-factory parts in accordance with Section 3.2(e)), tires,
work-in-progress, advertising literature, forms, supplies, customer files and
data bases, parts return privileges from the Franchisers, rights under new car
purchase orders and deposits relating thereto, goodwill, Seller's customer
files, books and records relating to the Acquired Assets, telephone number of
Seller, the names "Valley Auto Center," "Valley Dodge," "Valley Nissan," and
"Valley Volkswagen" or any derivative thereof, the right of occupancy of the
Premises and all contracts, agreements or commitments which are attached hereto
as Schedule 2.1. The parties agree that Schedule 2.1 shall be prepared in
conjunction with the physical inventory described in Section 3.2(h) hereinbelow.
2.2 PURCHASE. Seller hereby agrees to sell, convey, transfer, assign
and deliver to Purchaser, and Purchaser hereby agrees to purchase and acquire,
on the Closing Date, all of the Acquired Assets. Any assets which are not
Acquired Assets, shall be retained by Seller.
3. CONSIDERATION FOR ACQUIRED ASSETS.
3.1 PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, the purchase price to be paid by Purchaser for the Acquired Assets
shall be that amount which is equal to the aggregate value of the Acquired
Assets as of the Closing Date determined in accordance with Section 3.2.
3.2 VALUATION OF ACQUIRED ASSETS. Those Acquired Assets which are
listed below shall be valued as provided below in this Section 3.2.
(a) The price for each 1997 new unregistered and undamaged Nissan,
Volkswagen, and Dodge model vehicle with not more than five hundred (500) miles
shall be the sum of the following:
(i) The wholesale cost of each such vehicle determined in
accordance with the factory invoice, including advertising charges; plus
(ii) The wholesale cost of all optional parts and accessories
installed in such vehicle plus the cost of labor (determined at the internal
rate pursuant to the standard factory formula) for
2
<PAGE>
installation of the same; LESS
(iii) The sum of all distributor's allowances as of the
Closing Date including, but not limited to, inventory carry-over allowances,
discounts, holdbacks, rebates, contests, model changes and similar distributor's
allowances related to such vehicle.
(b) The price for each 1997 unregistered and undamaged Nissan,
Volkswagen, and Dodge demonstrator vehicle with not more than three thousand
(3,000) miles which is purchased hereunder shall be the value determined in
accordance with subsections (a)(i) through (a)(iii) hereinabove, less five
percent (5%) of such value.
(c) All vehicles not described in subsections (a) and (b) above which
are to be purchased hereunder shall be valued at a price mutually agreed upon by
Seller and Purchaser; provided, however, that if Seller and Purchaser are unable
to agree on a price with respect to any individual vehicle prior to the Closing
Date, then such vehicle shall be excluded from the Acquired Assets and not
purchased hereunder.
(d) All new undamaged returnable genuine Nissan, Volkswagen, and
Dodge factory parts and accessories which are in possession of Seller as of the
Closing Date and which are listed in the manufacturer's most current wholesale
parts and accessories price book shall be valued at dealer cost in accordance
with the manufacturer's most current wholesale parts and accessories price book
as of the Closing Date; provided, however, that Obsolete Parts shall be valued
at ZERO DOLLARS ($0) and shall be retained by Seller, and removed by Seller from
the Premises not later than ten (10) days following the Closing Date.
(e) All non-factory parts, accessories and miscellaneous inventory
which are in the possession of Seller as of the Closing Date, shall be valued at
dealer cost, provided, however, that Purchaser shall have no obligation to
purchase in excess of TWENTY THOUSAND DOLLARS ($20,000) of such items.
(f) All work-in-progress shall be valued at cost.
(g) All furniture, fixtures, equipment, leasehold improvements and
special tools shall be valued at NINE HUNDRED FIFTY THOUSAND DOLLARS ($950,000)
provided, however, that in the event that any item of furniture, fixtures,
equipment, special tools or leasehold improvement is materially damaged,
destroyed or removed from the Dealership between the date of execution of this
Agreement and the Closing Date, the value of said item damaged, destroyed or
removed from the Dealership shall be credited against the Purchase Price.
(h) As of the close of business on the day immediately preceding the
Closing Date or on such other date as mutually agreed upon by Purchaser and
Seller, a physical inventory to determine the value of the new, used and
demonstrator vehicles, and work-in-progress shall be taken jointly by the
parties. Each party shall bear the expenses associated with its own personnel in
connection with the valuation of the assets. The parties shall jointly employ an
independent inventory service to take a parts and accessories inventory
immediately prior to the Closing. The cost of such inventory shall be paid one-
half by Purchaser and one-half by Seller. In the event either party disputes the
accuracy of the physical inventory or the valuation of the assets or if for any
reason Schedule 2.1 is not prepared before Closing so as to meet with the
approval of both parties as is contemplated in Section 2.1, such dispute will be
submitted to binding arbitration in accordance with Section 20 hereof.
Notwithstanding the pendency of such dispute or arbitration proceeding, the
transaction shall nonetheless proceed to Closing as to all
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other matters.
3.3 PAYMENT OF PURCHASE PRICE. The purchase price shall be paid as
follows:
(a) The Purchaser shall pay to Seller in cash the sum equal to the
value of the Acquired Assets as determined pursuant to Section 3.2 above.
(b) The Purchaser shall further deliver to Seller a certificate
evidencing 290,000 fully paid and non-assessable shares of capital stock of
FirstAmerica Automotive, Inc. which shares the parties hereto agree shall have a
value of TWO MILLION DOLLARS ($2,000,000).
3.4 CLOSING AND POST-CLOSING ADJUSTMENTS. All expenses of a nature
which are customarily subject to proration in a transaction involving the
purchase and sale of assets of an ongoing business shall be apportioned between
Seller and Purchaser according to the number of days in the period covered
thereby which occurred prior to and including the Closing Date, and the number
of such days subsequent to the Closing Date. Those items subject to proration
hereunder shall include, without limitation, rent and all other amounts payable
with respect to any lease for the Premises, employee compensation, personal
property taxes, and customer prepayments. The aggregate amount of any
adjustment shall be determined and paid as of the Closing Date. Any additional
proration determined after the Closing Date to be paid by either party under
this Section 3.4 shall be paid by check delivered within seven (7) days
following determination of the amount of any such adjustment.
3.5 LIABILITIES. Purchaser shall have no obligation for any
liabilities of any kind whatsoever of Seller other than those liabilities which
Purchaser specifically agrees to assume all of which shall be set forth on
Schedule 3.5 attached hereto, including without limitation all contracts,
agreements and commitments of Seller, which Purchaser agrees to assume.
Purchaser shall be responsible solely for that portion of any such obligations,
which first accrue on or subsequent to the Closing Date. Purchaser shall have
no obligation with respect to any liability arising under any such contract,
agreement or commitment prior to the Closing Date, all of which liability shall
remain the responsibility of Seller. The parties acknowledge and agree that
Purchaser is not assuming any employment agreements, labor agreements,
collective bargaining agreements or other similar contracts.
3.6 TRANSFER TAXES. Purchaser agrees to pay any and all sales,
transfer or other similar taxes which may be imposed or payable on or in
connection with the transfer of the Acquired Assets.
3.7 ALLOCATION OF PURCHASE PRICE. The Purchase Price as provided for
herein shall be allocated as set forth on Schedule 3.7 attached hereto.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents,
warrants and agrees with Purchaser as follows:
4.1 GOOD STANDING. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington and is
entitled to and has the corporate power and authority to own or lease its
property and to carry on its business in the manner and in the places where such
property are now owned, leased or operated and such business is now conducted.
4.2 TITLE TO ASSETS; LIENS AND ENCUMBRANCES. Seller will convey to
Purchaser good and marketable title to the Acquired Assets, free and clear of
all security interests, liens, claims, restrictions, equities and
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encumbrances whatsoever, other than as set forth on Schedule 4.2 attached
hereto. Except as set forth in Schedule 4.2, all of the tangible Acquired Assets
are in good working order and condition, ordinary wear and tear excepted.
4.3 AUTHORIZATION. The execution and delivery of this Agreement
and each other document, agreement and instrument contemplated hereby, and the
consummation of the transactions contemplated hereby has been duly authorized by
the Board of Directors of the Seller and all other corporate action, including
all shareholders' approvals necessary to authorize the execution and delivery of
this Agreement and each other document, agreement and instrument contemplated
hereby, and the consummation of the transactions contemplated hereby, have also
been taken. Except for consent of the Franchisers, landlords under leases and
floor plan lenders, no consent of any lender, trustee, security holder, lessor
or any other person or entity is required to be obtained by Seller in connection
with the execution, delivery and performance of this Agreement by Seller and the
consummation of the transactions contemplated hereby. This Agreement
constitutes the valid and binding obligation of Seller enforceable in accordance
with its terms. Except as to the terms of the Franchise, leases and floor plan
financing, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby (a) do not violate or
constitute a breach of or default under any contract, agreement or commitment to
which Seller is a party, under which it is obligated or to which any of the
Acquired Assets are subject, (b) do not violate any judgment, order, statute,
rule or regulation to which Seller or any of the Acquired Assets are subject or
the articles of incorporation or bylaws of the Seller, and (c) will not result
in the creation of any lien, charge or encumbrance on any of the Acquired
Assets.
4.4 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties have been
made on and as of the Closing Date.
4.5 LITIGATION. Except as set forth on Schedule 4.5 attached hereto,
there is not pending, or, to best knowledge of Seller, threatened, any suit,
action, arbitration, or legal, administrative, or other proceeding, or
governmental investigation against or affecting any of the Acquired Assets. To
the best knowledge of Seller, Seller is not in default with respect to any
order, writ, injunction, or decree of any federal, state, or local court. To the
best knowledge of Seller, use of the names "Valley Auto Center," "Valley Dodge,"
"Valley Nissan," and "Valley Volkswagen" by Seller do not infringe upon the
rights of any other person and Seller is not aware of any claim of any nature to
the effect that any person other than Seller holds any rights with respect to
such names.
4.6 DEFAULTS. Seller is not in default, and no event has occurred
which, with the passage of time will constitute a default, with respect to any
obligation or liability to be assumed by Purchaser hereunder, which are listed
on Schedule 3.5 attached hereto. To the best knowledge of Seller, no other party
to any obligation or liability set forth in Schedule 3.5 is in default with
respect to any provision thereof.
4.7 ENVIRONMENTAL COMPLIANCE NOTICES. Seller has received no written
notice advising Seller of any defects, defaults or non-compliance in connection
with the Acquired Assets or the Premises from any governmental agency dealing
with environmental laws, except notices which have been previously complied with
or waived by the governmental agency.
4.8 COMPLIANCE WITH LAW. To the actual knowledge of Seller, Seller
has complied with, and is not in violation of, applicable federal, state or
local statutes, laws or regulations the violation of which would have a material
adverse effect on the financial condition of the Dealership.
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4.9 FINANCIAL REPORTS. Seller has delivered to Purchaser dealer
financial statements for Seller for the calendar year 1996 ("Dealer Financial
Statement"). The income and expenses reflected in the Dealer Financial Statement
has been prepared in accordance with past practices of Seller and are true and
correct in all material respects as of the date specified therein.
4.10 PURPOSE OF SHARE ACQUISITION. Seller is acquiring the capital
stock of FirstAmerica Automotive, Inc. for its own account, solely for
investment and not with a view to or for sale in connection with any
distribution of such capital stock.
4.11 ACCREDITED INVESTORS. Seller is an accredited investor for
purposes of Regulation D in that Seller is a corporation all of its outstanding
stock of which is owned by accredited investors. Further, Seller has such
knowledge and experience in financial and business matters that Seller is
capable of evaluating the merits and risks of investment in the capital stock of
FirstAmerica Automotive, Inc. and Seller is able to bear the economic risk of an
investment in such capital stock.
4.12 ACKNOWLEDGMENT. Seller acknowledges that no person has made any
representation regarding the value or potential future profit of FirstAmerica
Automotive, Inc., and that any investment in the capital stock of FirstAmerica,
Inc. involves high risks. Seller further acknowledges that the capital stock of
FirstAmerica Automotive, Inc. is subject to restrictions imposed on the
transferability thereof under the Securities Act of 1933, and may not be resold,
transferred or assigned except in compliance with such Act and any applicable
state securities laws. Seller acknowledges that a legend to the foregoing effect
may be placed upon any and all certificates representing such shares.
4.13 FRANCHISE NOTICES. Seller has received no written notice from
Nissan Motor Corporation USA, Volkswagen of America, or Chrysler Corporation
regarding any appointment of new Nissan, Volkswagen or Dodge dealerships within
a twenty (20) mile radius of the Dealership within the six months immediately
prior to the date of this Agreement.
4.14 UNIONS. Except as set forth on Schedule 4.14 as attached hereto,
Seller is not a party to any arrangement with any union, and no employees of the
Seller are represented by any labor union or covered by any collective
bargaining agreement or, to the knowledge of Seller, is any effort to establish
such representation in progress.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents,
warrants and agrees with Seller as follows:
5.1 GOOD STANDING. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada and
duly qualified to transact business in the State of California and is entitled
to and has the corporate power and authority to own or lease its property and to
carry on its business in the manner and in the places where such property are
now owned, leased or operated and such business is now conducted.
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5.2 AUTHORIZATION. The execution and delivery of this Agreement and
the consummation of transactions contemplated hereby has been duly authorized by
the Board of Directors of the Purchaser and all other corporate action,
including all shareholders' approvals necessary to authorize the execution and
delivery of this Agreement and the transactions contemplated hereby, have also
been taken. This Agreement is a valid and binding obligation of Purchaser
enforceable against Purchaser in accordance with its terms. Except for consent
of the Franchisers, landlords under leases, and lenders, no consent of any
trustee, security holder or any other person or entity is required to be
obtained by Purchaser in connection with the execution, delivery and performance
of this Agreement by Purchaser and the consummation of the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby (a) do not violate
or constitute a breach of or default under any contract, agreement or commitment
to which Purchaser is a party or under which it is obligated, and (b) do not
violate any judgment, order, statute, rule or regulation to which Purchaser is
subject.
5.3 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
6. CONDUCT PRIOR TO CLOSING DATE.
6.1 ONGOING OPERATIONS. Seller will use its best effort to preserve
intact the Acquired Assets and to continue to operate the Dealership as a going
concern, including, but not limited to, maintaining commercially reasonable
inventories and receivables. Seller will not dispose of any of the Acquired
Assets except in the ordinary course of business consistent with past practices,
and will not, without limiting the foregoing, hold a "going-out-of-business" or
"liquidation" sale.
6.2 APPROVALS. Each of Purchaser and Seller will use its best
efforts to obtain all permits, approvals, authorizations and consents of third
parties necessary or desirable for the consummation of the transactions
contemplated by this Agreement and for the ownership and operation by Purchaser
of the Acquired Assets and the Dealership related thereto. Purchaser and Seller
shall proceed as promptly as practicable after the date hereof to prepare all
materials necessary to obtain the consent of the Franchisers as is necessary for
Purchaser to acquire the Acquired Assets and for consummation of the
transactions contemplated hereby.
6.3 COVENANT TO COMPLY. Seller shall use its best efforts to satisfy
or cause to be satisfied all of the conditions precedent to Purchaser's
obligations hereunder. Seller shall give Purchaser prompt written notice of any
material change in any of the information contained in the representations and
warranties made in Section 4 hereof or the schedules referred to herein which
occur prior to the Closing Date; provided, however, that any change in the
information contained in the representations and warranties or schedules will
not relieve Seller of any obligations hereunder if such changes result in a
breach of the representations and warranties contained herein. Notwithstanding
the above, the parties acknowledge and agree that in the event Purchaser has
actual notice of any breach of a warranty prior to the Closing, Purchaser shall
have the right to terminate this Agreement provided however in the event
Purchaser continues to close the transaction Seller shall not be liable for such
breach of warranty discovered by Purchaser prior to the Closing.
7. CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE. The obligations of
Purchaser under this Agreement are subject to fulfillment of the conditions set
forth below. Purchaser shall have the right to waive in
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writing all or part of any one or more of the following conditions without
releasing Seller from any liability for any loss or damage sustained by
Purchaser by reason of the breach by Seller or Owner of any covenant, obligation
or agreement contained herein, or by reason of any misrepresentation made by
Seller and upon such waiver may proceed with the transactions contemplated by
this Agreement. Notwithstanding the above, the parties acknowledge and agree
that in the event Purchaser has actual notice of any breach of a warranty prior
to the Closing, Purchaser shall have the right to terminate this Agreement
provided however in the event Purchaser continues to close the transaction
Seller shall not be liable for such breach of warranty discovered by Purchaser
prior to the Closing.
7.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date, Seller
shall have complied with and duly performed in all material respects all
agreements and conditions on its part to be complied with and performed pursuant
to or in connection with this Agreement on or before the Closing Date.
7.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller contained in this Agreement, or otherwise made in writing
in connection with the transactions contemplated hereby, shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date and Purchaser shall have received a certificate to
that effect dated the Closing Date and executed by the President of Seller.
7.3 NO LEGAL PROCEEDINGS. No action or proceeding shall have been
instituted or threatened to restrain or prohibit the acquisition by Purchaser or
the conveyance by Seller of the Acquired Assets or is likely to result in a
substantial and material adverse change in the business, prospects or financial
or other condition of the Acquired Assets.
7.4 LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and the
Closing Date, there shall not have been any material loss, damage or destruction
to or of any of the Acquired Assets, and there shall have been no development
which would have a material adverse effect on the Dealership.
7.5 CONSENTS. Purchaser shall have received the written approval of
each Franchiser designating Purchaser or its designee as the duly authorized
dealer for the sales and service of such Franchiser's automobiles at 6015
Scarlett Court, Dublin, CA 94568 free of any material condition which is
adverse to Purchaser, and Purchaser and such Franchiser shall have entered into
a customary dealer sales and service agreement. All permits and licenses
necessary to enable Purchaser to conduct the Franchise and service facilities
shall have been obtained. All other requisite consents and approvals shall have
been obtained.
7.6 DUE DILIGENCE. Purchaser shall for a period of thirty (30) days
from the date of execution of this Agreement have the right to review the books
and records of the Dealership, the physical condition of the Dealership property
and any other items reasonably necessary or appropriate to evaluate the
Dealership. Such review shall be done at times and locations as mutually agreed
between Purchaser and Seller provided that Purchaser shall use all reasonable
efforts to have such review of books and records at locations away from the
Dealership. Seller shall cooperate and provide such information reasonably
necessary for Purchaser to conduct such due diligence review during such thirty
(30) day period. In the event Purchaser does not approve of the physical
condition of the Dealership and the review of the books and records by written
notice to Seller within such thirty (30) day period, this Agreement shall
terminate with all deposits returned to Purchaser and no further rights or
obligations to either party.
7.7 ENVIRONMENTAL ASSESSMENT. During the thirty (30) day period
after the execution of this
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Agreement (the "Testing Period"), Purchaser and Seller shall conduct an
environmental assessment (the "Environmental Assessment") of the real property
at the Dealership (the "Real Property"). Expenses of any environmental
consultant engaged by Purchaser and Seller to conduct the Environmental
Assessment shall be paid by Purchaser. Purchaser may terminate all of its
obligations under this Agreement by written notice to Seller on or before the
expiration of the Testing Period, if Purchaser determines that a release or
threatened release of a hazardous substance has occurred on the Real Property.
Failure to timely notify Seller under this Section 7.7 is deemed to constitute a
waiver of Purchaser's right to terminate this Agreement under this Section 7.7.
7.8 PHYSICAL AUDIT. On or before the Closing Date the valuation of
the Acquired Assets pursuant to the physical audit specified in Section 3.2
shall be completed.
7.9 TAX CLEARANCE. Seller shall have furnished to Purchaser,
certificates from all appropriate federal, state, county and local authorities
that all taxes and contributions payable by Seller have been paid in full. If
all appropriate tax certificates are not available on the Closing Date,
Purchaser shall withhold from the estimated amount of maximum unpaid tax
liability reasonably determined by Purchaser which sum shall be held by
Purchaser until such time as all certificates are presented in a form
satisfactory to Purchaser's counsel.
7.10 LIST OF EMPLOYEES. Seller shall furnish to Purchaser a list of
all employees, their rates of pay, including, separately, base pay, and
incentive and commission plans. Further Seller shall deliver to Purchaser a
certificate from each of such employees showing that such employee has received
from Seller all compensation including all sick leave, vacation, and any and all
other compensation due such employee through the Closing Date. In addition
thereto, Seller shall have complied with any and all obligation of Seller under
any collective union agreements and/or collective bargaining agreements.
7.11 BULK SALE. Seller shall furnish, in an appropriate time to
comply, all affidavits and lists of creditors and such other instruments or
documents as Escrow Holder shall require for Seller and Purchaser to comply with
all applicable bulk sales laws.
7.12 LEASE OF REAL PROPERTY. The owner of the real property commonly
known as 6015 Scarlett Court, Dublin California and Purchaser shall have
executed a lease containing, among other things, substantially the terms and
conditions contemplated under Section 11 hereof.
8. CONDITIONS OF SELLER'S OBLIGATIONS TO CLOSE. The obligations of
Seller under this Agreement are subject to fulfillment of the conditions set
forth below. Seller shall have the right to waive in writing all or part of any
one or more of the following conditions without, however, releasing Purchaser
from any liability for any loss or damage sustained by Seller by reason of the
breach by Purchaser of any covenant, obligation or agreement contained herein,
or by reason of any misrepresentation made by Purchaser and upon such waiver may
proceed with the transactions contemplated by this Agreement. Notwithstanding
the above, the parties acknowledge and agree that in the event Seller has actual
notice of any breach of a warranty prior to the Closing, Seller shall have the
right to terminate this Agreement provided however in the event Seller continues
to close the transaction Purchaser shall not be liable for such breach of
warranty discovered by Seller prior to the Closing.
8.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date,
Purchaser shall have complied with and duly performed in all material respects
all of the agreements and conditions on its part required to be complied with or
performed pursuant to this Agreement on or before the Closing Date.
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8.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. The representations
and warranties of Purchaser contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date and Seller shall have received a certificate to that
effect dated the Closing Date and executed by the President or a Vice President
of Purchaser.
8.3 PHYSICAL AUDIT. On or before the Closing Date the valuation of
the Acquired Assets pursuant to Section 3.2 shall be completed.
8.4 LEASE OF REAL PROPERTY. The owner of the real property commonly
known as 6015 Scarlett Court, Dublin California and Purchaser shall have
executed a lease containing, among other things, substantially the terms and
conditions contemplated under Section 11 hereof.
9. DELIVERIES OF SELLER ON THE CLOSING DATE. Seller agrees on the
Closing Date to deliver to Purchaser:
9.1 TITLE TO ACQUIRED ASSETS. All conveyances, covenants,
warranties, deeds, assignments, bills of sale, motor vehicle titles,
confirmations, powers of attorney, approvals, consents and any and all further
instruments as may be necessary, expedient or proper in order to complete any
and all conveyances, transfers and assignments herein provided for and to convey
to Purchaser such title to the Acquired Assets as Seller is obligated hereunder
to convey.
9.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the
Seller setting forth a copy of the resolutions adopted by Seller's Board of
Directors and shareholders authorizing and approving the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby.
9.3 CERTIFICATE. Certificate of the President of Seller referred to
in Section 7.2.
9.4 CONSENTS. All consents, approvals, authorizations or orders of
any person or entity or court or governmental agency required or necessary for
the consummation of the transactions contemplated hereby, provided that Seller
shall not be obligated to deliver the consent of the Franchisers.
10. DELIVERIES OF PURCHASER ON THE CLOSING DATE. Purchaser agrees on the
Closing Date to deliver or cause to be delivered:
10.1 CONSIDERATION. The amounts to be delivered pursuant to Section
3.3 hereof.
10.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the
Purchaser setting forth a copy of the resolutions adopted by Purchaser's Board
of Directors and shareholders authorizing and approving the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
10.3 CERTIFICATE. The Certificate of the President or a Vice
President of the Purchaser referred to in Section 8.2.
11. LEASES. The owner of the real property commonly known as 6015
Scarlett Court, Dublin,
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California 94568 and Purchaser shall have entered into a lease for said real
property. The lease shall provide for an initial monthly rent of SIXTY THOUSAND
DOLLARS ($60,000) per month. Commencing at the beginning of the eighth year the
rent shall increase by 50% of any increase in the Consumer Price Index during
the first seven years of the lease, subject to the limitation that the increase
in the monthly rent shall not exceed 20% of the initial monthly rent. Such rent
shall be fixed for the balance of the initial term of the lease. The lease shall
provide for an initial term of ten years, with two five year options. The
monthly rent on commencement of each option period shall be equal to the monthly
rent payable immediately prior to the commencement of such option, increased by
that proportion equal to 50% of any increase in the Consumer Price Index which
has occurred since the then most recent and prior increase in monthly rent,
provided that any increase in monthly rent hereunder shall be not greater than
3% per annum.
The lease shall be a triple net lease. Notwithstanding the foregoing,
landlord under such lease shall be responsible for the structural portions of
the buildings located on the property subject to such lease, including the roof,
sidewalls and foundation. Further, such lease shall specify that the landlord
thereof shall indemnify and defend tenant from any and all liabilities relating
to hazardous materials located in or about the premises prior to the
commencement of the term of the lease. The lease shall be in the form attached
hereto as Schedule 11.
12. ESCROW. The parties, upon execution of this Agreement shall open an
escrow with a mutually agreeable Escrow company, ("Escrow Holder"). The parties
shall forthwith provide to Escrow Holder any and all documentation necessary for
Escrow Holder to publish such notices as may be required by the bulk sale laws
of the State of California. Any and all costs of such escrow shall be paid one-
half by Purchaser and one-half by Seller.
13. COVENANTS AFTER CLOSING DATE.
13.1 TRANSFER OF ACQUIRED ASSETS. Seller agrees, at any time and from
time to time after the Closing Date, upon the request of Purchaser, to do,
execute, acknowledge and deliver, or to cause to be done, executed, acknowledged
and delivered, all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required for the better
assigning, transferring, conveying, and confirming to Purchaser, or to its
successors and assigns, or for the aiding, assisting, collecting and reducing to
possession of, any or all of the Acquired Assets as provided herein.
13.2 COOPERATION. Seller will cooperate and use its best efforts to
have its officers and employees cooperate with Purchaser at Purchaser's request,
on and after the Closing Date, in furnishing information, evidence, testimony
and other assistance in connection with any actions, proceedings, arrangements
or disputes involving Purchaser and based upon contracts, arrangements,
commitments or acts of Seller which were in effect or occurred on or prior to
the Closing Date. From and after the Closing Date, Seller will permit Purchaser
and its representatives to have access to Seller's books and records relating to
the Acquired Assets for periods prior to the Closing Date.
14. INDEMNIFICATION.
14.1 INDEMNIFICATION BY SELLER. Seller agrees to indemnify and hold
harmless Purchaser from and against any and all losses, costs, damages, claims
and expenses (including reasonable attorneys' fees) which Purchaser may sustain
at any time by reason of (a) any debt, liability or obligation of Seller except
obligations assumed by Purchaser, (b) any liability or obligation of any kind
relating to the operations of the Acquired Assets or Dealership prior to the
Closing Date, (c) any presence of hazardous materials or toxic substances
located at the
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Closing Date in or around the Premises including without limitation any such
related to the underground storage tanks, or (d) the breach or inaccuracy of or
failure to comply with, or the existence of any facts resulting in the
inaccuracy of, any of the warranties, representations, covenants or agreements
of Seller contained in this Agreement or in any agreement or document delivered
pursuant hereto or in connection herewith or with the closing of the
transactions contemplated hereby. The parties acknowledge and agree that
Purchaser shall have the right to repair automobiles sold and/or serviced by
Seller to correct miscellaneous customer complaints that Purchaser determines in
Purchaser's reasonable judgment are an obligation of Seller provided that the
total of repairs for any one automobile without Seller's prior approval shall
not exceed the sum of ONE THOUSAND DOLLARS ($1,000). The total amount to be paid
by Seller without Seller's prior approval shall not exceed FIVE THOUSAND DOLLARS
($5,000). Notwithstanding the above, Seller's liability hereunder shall be equal
to the amount of the value of the consideration received by Seller in this
transaction. Further the obligations of Seller as provided for herein shall be
limited to a period of three (3) years from the Closing.
14.2 INDEMNIFICATION BY PURCHASER. Purchaser agrees to indemnify and
hold harmless Seller from and against any and all losses, cost, damages, claims
and expenses (including reasonable attorneys' fees) which Seller may sustain at
any time by reason of (a) any debt, liability or obligation of Purchaser, (b)
any liability or obligation of any kind relating to the operations of the
Acquired Assets or Dealership on or after the Closing Date, or (c) the breach or
inaccuracy of or failure to comply with, or the existence of any facts resulting
in the inaccuracy of, any of the warranties, representations, covenants or
agreements of Purchaser contained in this Agreement or in any agreement or
document delivered pursuant hereto or in connection herewith or with the closing
of the transactions contemplated hereby.
14.3 DEFENSE. Any party who receives notice of a claim for which it
will seek indemnification shall promptly notify the indemnifying party in
writing of such claim. The indemnifying party shall have the right to assume
the defense of such action at its cost with counsel reasonably satisfactory to
the indemnified party. The indemnified party shall have the right to
participate in such defense with its own counsel at its cost.
15. SURVIVAL OF REPRESENTATIONS. The parties hereto each agree that all
representations, warranties and agreements contained herein shall survive the
execution and delivery of this Agreement, the closing hereunder.
16. NO BROKER. Purchaser on the one hand, and Seller on the other,
represent to the other that no broker or finder has been connected with the
transactions contemplated by this Agreement. In the event of a claim by any
broker or finder based upon his representing or being retained by Seller on the
one hand, or by Purchaser on the other, Seller or Purchaser, as the case may be,
agrees to indemnify and save harmless the other in respect of such claim.
17. USE OF THE NAME. Seller agrees that from and after the Closing Date,
Purchaser shall have the right to use the names "Valley Auto Center," "Valley
Dodge," "Valley Nissan," and "Valley Volkswagen" or any derivative thereof or
similar name in connection with the operation of the Dealership acquired
hereunder, and that Seller shall not subsequent to the Closing, use such names.
18. TERMINATION. If the Closing Date shall not have occurred on or prior
to June 30, 1997 or if Purchaser shall receive disapproval from the Franchisers
prior thereto, any party that is not in default in the performance of its
obligations under this Agreement may, thereafter, terminate this Agreement by
giving written notice to the other party.
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19. NOTICES. All notices, requests or demands to a party hereunder shall
be in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier, charges prepaid, addressed as set forth below. Any such notice, demand,
request or other communication shall be deemed to have been given upon the
earlier of personal delivery thereof, three (3) business days after having been
mailed as provided above, or one (1) business day after delivery through a
commercial courier, as the case may be. Notices may be given by facsimile and
shall be effective upon the transmission of such facsimile notice provided that
the facsimile notice is transmitted on a business day and a copy of the
facsimile notice together with evidence of its successful transmission
indicating the date and time of transmission is sent on the day of transmission
by recognized overnight carrier for delivery on the immediately succeeding
business day. Each party shall be entitled to modify its address by notice given
in accordance with this Section 19.
To Purchaser: FirstAmerica Automotive, Inc.
c/o Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Fax No.: 415-512-9277
With a copy to: W. Bruce Bercovich
Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Fax No.: 415-512-9277
To Seller: Asian Pacific Industries, Inc.
901 Van Ness Avenue
San Francisco, CA 94109
Attn: Bruce Qvale
Fax No.: 415-776-9826
20. DISPUTE RESOLUTION. Any controversy or claim arising out of relating
to this Agreement or the breach thereof shall be settled by arbitration
conducted in San Francisco, CA, by a single arbitrator selected by the San
Francisco office of the American Arbitration Association ("AAA") conducted in
accordance with the Commercial Rules of the AAA. Judgement on the award rendered
by the arbitrator may be entered in any court having jurisdiction.
21. MISCELLANEOUS.
21.1 ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto, sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature between them
and no party hereto shall be bound by any condition, definition, warranty or
representation other than as expressly provided for in this Agreement or as may
be on a date subsequent to the date hereof duly set forth in writing signed by
the party hereto which is to be bound thereby. This Agreement shall not be
changed, modified or amended except by a
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writing signed by the party to be charged and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged.
21.2 GOVERNING LAW. This Agreement and its validity, construction
and performance shall be governed in all respects by the laws of the State of
California, without giving effect to principles of conflict of laws.
21.3 SEVERABILITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstance is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
21.4 BENEFIT OF PARTIES. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
heirs, legal representatives and assigns.
21.5 NECESSARY DOCUMENTS. Each of the parties does hereby agree to do
any act and to execute any other or further documents necessary or convenient to
the carrying out of the provisions of this Agreement.
21.6 HEADINGS. The headings in the sections of this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.
21.7 ATTORNEYS' FEES. In the event that any action or proceeding is
brought to enforce or interpret any provision, covenant or condition contained
in this Agreement on the part of Purchaser, Seller, the prevailing party in such
action or proceeding (whether after trial or appeal) shall be entitled to
recover from the party not prevailing its expenses therein, including reasonable
attorneys' fees and allowable costs.
21.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
PURCHASER: SELLER:
FirstAmerica Automotive, Inc., Asian Pacific Industries, Inc.
a Nevada corporation a Washington corporation
By: /s/ Thomas A. Price By: /s/ Bruce Qvale
_________________________________ _________________________________
Thomas A. Price, President Bruce Qvale, Vice President
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LIST OF SCHEDULES
SCHEDULE 2.1 Acquired Assets
SCHEDULE 3.5 Liabilities
SCHEDULE 3.7 Allocation of Purchase Price
SCHEDULE 4.2 Title to Assets; Liens and Encumbrances
SCHEDULE 4.5 Litigation
SCHEDULE 4.14 Unions
SCHEDULE 11 Lease
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EXHIBIT 2.1.9
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT dated as of this 23rd day of January 1997,
by and among FirstAmerica Automotive, Inc., a Nevada corporation or Nominee
("Purchaser") and Auto Center of Poway, Inc., a California corporation
("Seller") and Thomas Nokes and H. Matthew Travis collectively ("Owners").
R E C I T A L S
WHEREAS, Seller owns and operates a Honda and Dodge automobile dealership
commonly known as Poway Honda and Poway Dodge, at 13750 Poway Road, Poway, CA
92064, 14100 Poway Road, Poway, CA 92064, and 14110 Poway Road, Poway, CA
92064 (the "Dealership").
WHEREAS, Owners own all of the outstanding stock of Seller.
WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to
purchase from Seller certain of the assets, properties and business of Seller
utilized in its authorized Honda and Dodge automobile dealerships located in
Poway, California.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
A G R E E M E N T
1. DEFINITIONS. For the purposes of this Agreement, the herein below
terms shall have the following meanings:
1.1 ACQUIRED ASSETS. The "Acquired Assets" are the assets and
property to be purchased by Purchaser hereunder, as more fully described in
Section 2.1 hereof.
1.2 CLOSING DATE. Unless otherwise mutually agreed between
Purchaser and Seller, the "Closing Date" shall be March 21, 1997 provided,
however, Purchaser or Seller shall have the right to extend the Closing Date
until 5 business days from the date the conditions specified in Sections 7 and 8
hereof are satisfied; subject, however, to the provisions of Section 18 below.
The Closing shall take place at the offices of Mission Valley Escrow, 2565
Camino Del Rio South, San Diego, California 92108 on the Closing Date commencing
at 10:00 a.m.
1.3 FRANCHISE. "Franchise" means the Honda and Dodge franchises as
currently held by Seller.
1.4 FRANCHISER. "Franchiser" means American Honda Corporation and
Chrysler Corporation.
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1.5 OBSOLETE PARTS. "Obsolete Parts" means factory parts which are
not listed in the most current manufacturer's wholesale price book or, if listed
therein, are valued at ZERO DOLLARS ($0), parts which are not returnable to the
manufacturer (as defined by the Franchiser), parts which have been in stock of
Seller more than one (1) year and/or parts which are in excess of a one (1) year
supply, or parts indicated as discontinued, and broken or damaged parts,
regardless of whether listed in the most current manufacturer's wholesale price
book.
2. SALE OF ASSETS.
2.1 ACQUIRED ASSETS. Seller hereby agrees to, sell, convey,
transfer, assign and deliver to Purchaser on the Closing Date, and Purchaser
agrees to buy and accept as hereinafter provided all the assets related to or
used in connection with the Franchise, including but not limited to those assets
to be listed on Schedule 2.1 to be prepared prior to the Closing Date and then
attached hereto, Honda and Dodge special tools, furniture, fixtures and
equipment, which special tools, furniture, fixtures and equipment shall be in
good working order, and leasehold improvements used by Seller in operation of
the Honda and Dodge franchise, motor vehicles (new and used) (subject to
exclusion of certain used vehicles in accordance with Section 3.2(c), parts and
accessories (subject to exclusion of Obsolete Parts in accordance with Section
3.2(d), tires, work-in-progress, advertising literature, forms, supplies,
customer files and data bases, parts return privileges from the Franchiser,
rights under new car purchase orders and deposits relating thereto, goodwill,
and Seller's customer files and books and records relating to the Acquired
Assets, telephone number of Seller, all contracts, agreements or commitments
which contracts, agreements are commitments have been approved and assumed by
Purchaser as the same shall exist on the Closing Date; provided, however, that
Seller shall retain all other assets. The parties agree that they will prepare
Schedule 2.1 in conjunction with the physical inventory described in Section
3.2. hereinbelow.
3. CONSIDERATION FOR ACQUIRED ASSETS.
3.1 PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, the consideration to be paid by Purchaser for the Acquired Assets
shall be cash equal to the sum of the aggregate value of the Acquired Assets
determined in accordance with Section 3.2.
3.2 VALUATION OF ACQUIRED ASSETS. The assets set forth below shall
be valued as provided below:
(a) The price for all 1996 and 1997 new unregistered and
undamaged Honda and Dodge model vehicles with not more than five hundred (500)
miles purchased hereunder and two (2) 1997 undamaged demonstrator vehicles with
not more than five thousand (5,000) miles shall be the sum of the following:
(i) The wholesale cost of each new vehicle determined in
accordance with the factory invoice, including advertising charges; plus
(ii) The wholesale cost of all optional parts and
accessories installed in the new vehicles plus the cost of labor (determined at
the internal rate pursuant to the standard factory formula) for installation of
the same; LESS
(iii) The sum of all distributor's allowances as of the
Closing Date including, but not limited to, inventory carry-over allowances,
discounts, holdbacks, rebates, contests, model changes and similar distributor's
allowances related to specific automobiles transferred on the Closing Date.
(b) All vehicles not described in subsection (a) above which are
to be purchased hereunder shall be valued at wholesale Kelly Blue Book Value as
of the Closing Date.
(c) All new undamaged returnable genuine Honda and Dodge factory
parts,
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accessories and jobber parts which are in possession of Seller as of the Closing
Date and which are listed in the manufacturer's most current wholesale parts and
accessories price book shall be valued at dealer cost in accordance with the
manufacturer's most current wholesale parts and accessories price book as of the
Closing Date; provided, however, that Obsolete Parts shall be valued at ZERO
DOLLARS ($0) and shall be retained by Seller, provided that Seller removes such
parts within ten (10) days of the Closing Date.
(d) All work-in-progress shall be valued at cost.
(e) All furniture, fixtures, equipment and special tools shall be
valued at appraisal value as of the Closing Date, provided, however, that in the
event that any item of furniture, fixtures, equipment, special tools or
leasehold improvement is materially damaged, destroyed or removed from the
Dealership between the date of the appraisal and the Closing Date, the value of
said item damaged, destroyed or removed from the Dealership shall be credited
against the Purchase Price. Purchaser and Seller shall obtain an appraisal from
a mutually agreeable appraisal party to determine the, as is, fair market value
of the furniture, fixtures and equipment. The cost of the appraisal shall be
paid one-half by Purchaser and one-half by Seller. The parties acknowledge that
there shall be no additional charge for leasehold improvements.
(f) In further consideration for all other assets described in
Section 2.1 hereinabove and goodwill Purchaser shall pay to Seller the sum of
ONE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($1,750,000).
(g) As of the close of business on the day immediately preceding
the Closing Date or on such other date as mutually agreed upon by Purchaser and
Seller, a physical inventory to determine the value of the new, used and
demonstrator vehicles, and work-in-progress shall be taken jointly by the
parties. Each party shall bear the expenses associated with its own personnel in
connection with the valuation of the assets. The parties shall jointly employ an
independent inventory service to take a parts and accessories inventory
immediately prior to the Closing. The cost of such inventory shall be paid one-
half by Purchaser and one-half by Seller.
3.3 PAYMENT OF PURCHASE PRICE. The Purchase Price to be paid by
Purchaser pursuant to this Agreement shall be paid as follows:
(a) Within five (5) business days of the day of execution of this
Agreement, Purchaser shall cause the sum of FIFTY THOUSAND DOLLARS ($50,000)
(the "Deposit") to be delivered to Escrow Holder as hereinafter defined. The
Deposit shall be held by the Escrow Holder as an earnest money deposit toward
the Purchase Price of the Dealership. The Deposit shall be held by Escrow
Holder in an interest bearing account with all interest accruing thereon to be
paid or credited to Purchaser. At the Closing, the Deposit shall be applied and
credited toward the payment of the Purchase Price. If escrow does not close,
and this Agreement is terminated in a manner governed by Section 7 does not
apply, the Deposit together with the interest accrued thereon shall be promptly
returned to Purchaser unless the provisions of Section 21 are applicable, in
which case the disposition of the Deposit shall be governed by the provisions of
Section 21. In the event the Closing Date has not occurred by March 21, 1997
through no fault of Seller, Purchaser shall make an additional deposit of FIFTY
THOUSAND DOLLARS ($50,000) into Escrow.
(b) The balance of the Purchase Price shall be paid in cash on
the Closing Date.
3.4 CLOSING AND POST-CLOSING ADJUSTMENTS. All adjustments normal in
asset acquisitions, including but not limited to rents and employee
compensation, telephone charges, personal property taxes, customer prepayments,
if relating to a period before and after the Closing Date, shall be apportioned
between Seller and Purchaser according to the number of days in the period
covered thereby which occurred prior to and including the Closing Date and
subsequent to the Closing Date. The aggregate amount of any adjustment shall be
determined and paid as of the Closing Date. Any additional amounts determined
after the Closing Date to be paid by either party
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under this Section 3.4 shall be paid by check delivered within seven (7) days
following determination of the amount of any such adjustment.
3.5 LIABILITIES. Purchaser shall have no obligation for any
liabilities of any kind whatsoever of Seller except that Purchaser shall assume
Seller's obligations for Equipment Leases as set forth on Schedule 3.5 attached
hereto or provided to Purchaser within seven (7) days of execution of this
Agreement and all liabilities under contracts, agreements or commitments assumed
by Purchaser in each case for the period commencing on the Closing Date and
continuing thereafter. Seller shall be fully responsible for any and all costs
or charges of any kind whatsoever arising out of such agreements for the period
prior to the Closing Date. The parties acknowledge and agree that Purchaser is
not assuming any employment agreements, labor agreements, collective bargaining
agreements or other similar contracts.
3.6 TRANSFER TAXES. Purchaser agrees to pay any and all sales,
transfer or other similar taxes which may be imposed or payable on or in
connection with the transfer of the Acquired Assets.
3.7 ALLOCATION OF PURCHASE PRICE. The Purchase Price as provided for
herein shall be allocated as set forth on Schedule 3.7 attached hereto.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND OWNERS. Seller and
Owners hereby represent, warrant and agree with Purchaser as follows:
4.1 GOOD STANDING. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and is
entitled to and has the corporate power and authority to own or lease its
property and to carry on its business in the manner and in the places where such
property are now owned, leased or operated and such business is now conducted.
4.2 TITLE TO ASSETS; LIENS AND ENCUMBRANCES. Seller will convey to
Purchaser good and marketable title to the Acquired Assets, free and clear of
all security interests, liens, claims, restrictions, equities and encumbrances
whatsoever.
4.3 AUTHORIZATION. The execution and delivery of this Agreement
and the transactions contemplated hereby has been duly authorized by the Board
of Directors of the Seller and all other corporate action, including all
shareholders' approvals necessary to authorize the execution and delivery of
this Agreement and the transactions contemplated hereby, have also been taken.
Except for consent of the Franchiser, landlords under leases and floor plan
lenders, no consent of any lender, trustee, security holder, lessor or any other
person or entity is required to be obtained by Seller in connection with the
execution, delivery and performance of this Agreement by Seller and the
consummation of the transactions contemplated hereby. This Agreement
constitutes a valid and binding obligation of Seller and Owners enforceable in
accordance with its terms. Except pursuant to the Franchise, Lessors, and floor
plan financing, the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby (a) do not violate or
constitute a breach of or default under any contract, agreement or commitment to
which Seller or Owners is a party, under which they are obligated or to which
any of the Acquired Assets are subject to, (b) do not violate any judgment,
order, statute, rule or regulation to which Seller, Owners or any of the
Acquired Assets are subject or the articles of incorporation or bylaws of the
Seller, and (c) will not result in the creation of any lien, charge or
encumbrance on any of the Acquired Assets.
4.4 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties of Seller and Owners contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties
have been made on and as of the Closing Date.
4.5 LITIGATION. Except as set forth on Schedule 4.5 attached
hereto, there is not pending, or,
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to best knowledge of Seller, threatened, any suit, action, arbitration, or
legal, administrative, or other proceeding, or governmental investigation
against or affecting any of the Acquired Assets. To the best knowledge of Seller
and Owners, Seller is not in default with respect to any order, writ,
injunction, or decree of any federal, state, or local court.
4.6 ENVIRONMENTAL COMPLIANCE NOTICES. Seller has received no
written notice advising Seller of any defects, defaults or non-compliance in
connection with the Acquired Assets pursuant to the laws, rules and regulations
from any governmental agency dealing with environmental laws, except notices
which have been previously complied with or waived by the governmental agency.
4.7 COMPLIANCE WITH LAW. To the actual knowledge of Seller, Seller
has complied with, and is not in violation of, applicable federal, state or
local statutes, laws or regulations the violation of which would have a material
adverse effect on the financial condition of the Dealership.
4.8 FINANCIAL REPORTS. Seller has delivered to Purchaser dealer
financial statements for Seller for the calendar year 1996 ("Dealer Financial
Statement"). The income and expenses reflected in the Dealer Financial
Statement has been prepared in accordance with past practices of Seller and are
true and correct in all material respects.
4.9 FRANCHISE NOTICES. Seller has received no written notice from
American Honda Corporation or Chrysler Corporation regarding any appointment of
new Honda or Dodge dealerships within a 20 mile radius of the Dealership.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents,
warrants and agrees with Seller and Owners as follows:
5.1 GOOD STANDING. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada and
is entitled to and has the corporate power and authority to own or lease its
property and to carry on its business in the manner and in the places where such
property are now owned, leased or operated and such business is now conducted.
5.2 AUTHORIZATION. The execution and delivery of this Agreement and
the transactions contemplated hereby has been duly authorized by the Board of
Directors of the Purchaser and all other corporate action, including all
shareholders' approvals necessary to authorize the execution and delivery of
this Agreement and the transactions contemplated hereby, have also been taken.
This Agreement is a valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms. Except for consent of the
Franchiser, Lessors, and lenders, no consent of any trustee, security holder or
any other person or entity is required to be obtained by Purchaser in connection
with the execution, delivery and performance of this Agreement by Purchaser and
the consummation of the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby (a) do not violate or constitute a breach of or
default under any contract, agreement or commitment to which Purchaser is a
party or under which it is obligated, and (b) do not violate any judgment,
order, statute, rule or regulation to which Purchaser is subject.
5.3 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
6. CONDUCT PRIOR TO CLOSING DATE.
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6.1 ONGOING OPERATIONS. Seller will use its best effort to preserve
intact the Acquired Assets and to continue to operate the Dealership as a going
concern, including, but not limited to, maintaining commercially reasonable
inventories and receivables. Seller will not dispose of any of the Acquired
Assets except in the ordinary course of business consistent with past practices,
and will not, without limiting the foregoing, hold a "going-out-of-business" or
"liquidation" sale.
6.2 APPROVALS. Each of Purchaser and Seller will use its best
efforts to obtain all permits, approvals, authorizations and consents of third
parties necessary or desirable for the consummation of the transactions
contemplated by this Agreement and for the ownership and operation by Purchaser
of the Acquired Assets and the Dealership related thereto. Purchaser and Seller
shall proceed as promptly as practicable after the date hereof to prepare all
materials necessary to obtain the consent of the Franchiser as is necessary for
Purchaser to acquire the Acquired Assets and for consummation of the
transactions contemplated hereby.
6.3 COVENANT TO COMPLY. Seller and Owners shall not take any action
or fail to take any action which will make any of their representations and
warranties not true and correct in all material respects on the Closing Date.
Seller and Owners shall use their best efforts to satisfy or cause to be
satisfied all of the conditions precedent to Purchaser's obligations hereunder.
Seller shall give Purchaser prompt written notice of any material change in any
of the information contained in the representations and warranties made in
Section 4 hereof or the schedules referred to herein which occur prior to the
Closing Date; provided, however, that any change in the information contained in
the representations and warranties or schedules will not relieve Seller of any
obligations hereunder if such changes result in a breach of the representations
and warranties contained herein.
7. CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE. The obligations of
Purchaser under this Agreement are subject fulfillment of the conditions set
forth below. Purchaser shall have the right to waive in writing all or part of
any one or more of the following conditions without releasing Seller or Owners
from any liability for any loss or damage sustained by Purchaser by reason of
the breach by Seller or Owners of any covenant, obligation or agreement
contained herein, or by reason of any misrepresentation made by Seller or Owners
and upon such waiver may proceed with the transactions contemplated by this
Agreement.
7.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date,
Seller and Owners shall have complied with and duly performed in all material
respects all agreements and conditions on its part to be complied with and
performed pursuant to or in connection with this Agreement on or before the
Closing Date.
7.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller and Owners contained in this Agreement, or otherwise made
in writing in connection with the transactions contemplated hereby, shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date and Purchaser shall have received a
certificate to that effect dated the Closing Date and executed by the President
of Seller.
7.3 NO LEGAL PROCEEDINGS. No action or proceeding shall have been
instituted or threatened to restrain or prohibit the acquisition by Purchaser or
the conveyance by Seller of the Acquired Assets or which might result in any
material adverse change in the business, prospects or financial or other
condition of the Acquired Assets.
7.4 LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and the
Closing Date, there shall not have been any material loss, damage or destruction
to or of any of the Acquired Assets, and there shall have been no development
which would have a material adverse effect on the Dealership.
7.5 CONSENTS. Purchaser shall have received the written approval of
the Franchiser designating Purchaser or its designee as the duly authorized
dealer for the sales and service of the Franchiser's automobiles at 13750 Poway
Road, Poway, CA 92064, 14100 Poway Road, Poway, CA 92064, 14110 Poway
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Road, Poway, CA 92064 free of any material condition which is adverse to
Purchaser, and Purchaser and such Franchiser shall have entered into a customary
dealer sales and service agreement. All permits and licenses necessary to enable
Purchaser to conduct the Franchise and service facilities shall have been
obtained. All other requisite consents and approvals shall have been obtained.
7.6 DUE DILIGENCE. Purchaser shall for a period of ten (10) days
from the date of execution of this Agreement have the right to review the books
and records of the Dealership, the physical condition of the Dealership property
and any other items reasonably necessary or appropriate to evaluate the
Dealership. Such review shall be done at times and locations as mutually agreed
between Purchaser and Seller provided that Purchaser shall use all reasonable
efforts to have such review of books and records at locations away from the
Dealership. Seller shall cooperate and provide such information reasonably
necessary for Purchaser to conduct such due diligence review during such ten
(10) day period. In the event Purchaser does not approve of the physical
condition of the Dealership and the review of the books and records by written
notice to Seller within such ten (10) day period, this Agreement shall terminate
with all deposits returned to Purchaser and no further rights or obligations to
either party.
7.7 ENVIRONMENTAL ASSESSMENT. During the ten (10) day period after
the execution of this Agreement (the "Testing Period"), Purchaser and Seller
shall conduct an environmental assessment (the "Environmental Assessment") of
the real property at the Dealership (the "Real Property"). Expenses of any
environmental consultant engaged by Purchaser and Seller to conduct the
Environmental Assessment shall be paid by Purchaser. Purchaser may terminate
all of its obligations under this Agreement by written notice to Seller on or
before the expiration of the Testing Period, if Purchaser determines that a
release or threatened release of a hazardous substance has occurred on the Real
Property. Failure to timely notify Seller under this Section 7.7 is deemed to
constitute a waiver of Purchaser's right to terminate this Agreement under this
Section 7.7.
7.8 PURCHASE OF POWAY TOYOTA. Purchaser shall have simultaneously
with the Closing of this transaction acquired the assets of Poway Toyota from
Auto Center of North County, Inc., a California corporation.
7.9 PHYSICAL AUDIT. On or before the Closing Date the valuation of
the Acquired Assets pursuant to the physical audit specified in Section 3.2
shall be completed.
7.10 TAX CLEARANCE. Seller shall have furnished to Purchaser,
certificates from all appropriate federal, state, county and local authorities
that all taxes and contributions payable by Seller have been paid in full. If
all appropriate tax certificates are not available on the Closing Date,
Purchaser shall withhold from the estimated amount of maximum unpaid tax
liability reasonably determined by Purchaser which sum shall be held by
Purchaser until such time as all certificates are presented in a form
satisfactory to Purchaser's counsel.
7.11 LIST OF EMPLOYEES. Seller shall furnish to Purchaser a list of
all employees, their rates of pay, including, separately, base pay, and
incentive and commission plans. Further Seller shall deliver to Purchaser a
certificate from each of such employees showing that such employee has received
from Seller all compensation including all sick leave, vacation, and any and all
other compensation due such employee through the Closing Date. In addition
thereto, Seller shall have complied with any and all obligation of Seller under
any collective union agreements and/or collective bargaining agreements.
7.12 BULK SALE. Seller shall furnish, in an appropriate time to
comply, all affidavits and lists of creditors and such other instruments or
documents as Escrow Holder shall require for Seller and Purchaser to comply with
all applicable bulk sales laws.
7.13 ASSIGNMENT OF LEASE. Purchaser and Seller shall enter into an
Assignment of Lease for the real property commonly known as 13750 Poway Road,
Poway, CA 92064, 14100 Poway Road, Poway, CA 92064, and 14110 Poway Road,
Poway, CA 92064 ("Lease Assignments") which Lease Assignments shall have
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been approved as required by the landlords of the properties.
8. CONDITIONS OF SELLER'S OBLIGATIONS TO CLOSE. The obligations of Seller
under this Agreement are subject to fulfillment of the conditions set forth
below. Seller shall have the right to waive in writing all or part of any one or
more of the following conditions without, however, releasing Purchaser from any
liability for any loss or damage sustained by Seller by reason of the breach by
Purchaser of any covenant, obligation or agreement contained herein, or by
reason of any misrepresentation made by Purchaser and upon such waiver may
proceed with the transactions contemplated by this Agreement.
8.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date,
Purchaser shall have complied with and duly performed in all material respects
all of the agreements and conditions on its part required to be complied with or
performed pursuant to this Agreement on or before the Closing Date.
8.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. The
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date and Seller shall have received a certificate
to that effect dated the Closing Date and executed by the President or a Vice
President of Purchaser.
8.3 PHYSICAL AUDIT. On or before the Closing Date the valuation of
the Acquired Assets pursuant to Section 3.2 shall be completed.
8.4 PURCHASE OF POWAY TOYOTA. Purchaser shall have simultaneously
with the Closing of this transaction acquired the assets of Poway Toyota from
Auto Center of North County, Inc., a California corporation.
8.5 ASSIGNMENT OF LEASE. Purchaser and Seller shall enter into an
Assignment of Lease for the real property commonly known as 13750 Poway Road,
Poway, CA 92064, 14100 Poway Road, Poway, CA 92064, and 14110 Poway Road,
Poway, CA 92064 ("Lease Assignments") which Lease Assignments shall have been
approved as required by the landlords of the properties.
9. DELIVERIES OF SELLER ON THE CLOSING DATE. Seller agrees on the
Closing Date to deliver to Purchaser:
9.1 TITLE TO ACQUIRED ASSETS. All conveyances, covenants,
warranties, deeds, assignments, bills of sale, motor vehicle titles,
confirmations, powers of attorney, approvals, consents and any and all further
instruments as may be necessary, expedient or proper in order to complete any
and all conveyances, transfers and assignments herein provided for and to convey
to Purchaser such title to the Acquired Assets as Seller is obligated hereunder
to convey.
9.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the
Seller setting forth a copy of the resolutions adopted by Seller's Board of
Directors and shareholders authorizing and approving the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby.
9.3 CERTIFICATE. Certificate of the President of Seller referred to
in Section 7.2.
9.4 CONSENTS. All consents, approvals, authorizations or orders of
any person or entity or court or governmental agency required or necessary for
the consummation of the transactions contemplated hereby, provided that Seller
shall not be obligated to deliver the consent of the Franchiser.
10. DELIVERIES OF PURCHASER ON THE CLOSING DATE. Purchaser agrees on the
Closing Date to deliver or cause to be delivered;
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10.1 CONSIDERATION. The amounts to be delivered pursuant to Section
3.3 hereof.
10.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the
Purchaser setting forth a copy of the resolutions adopted by Purchaser's Board
of Directors and shareholders authorizing and approving the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
10.3 CERTIFICATE. The Certificate of the President or a Vice
President of the Purchaser referred to in Section 8.2.
11. LEASES. Seller and Purchaser shall enter into an Assignment of Lease
for each property which Assignments of Lease shall be in the form and substance
reasonably satisfactory to Purchaser and its counsel. The Assignments of Lease
shall have been approved by the landlord of each of the properties as required
pursuant to existing leases ("Leases") which Assignments of Lease shall be
attached hereto as Schedule 11.
12. ESCROW. The parties, upon execution of this Agreement shall open an
escrow with Mission Valley Escrow ("Escrow Holder"). The parties shall
forthwith provide to Escrow Holder any and all documentation necessary for
Escrow Holder to publish its notices as required by the Bulk Sale Laws of the
State of California. Any and all costs of such escrow shall be paid one-half by
Purchaser and one-half by Seller.
13. COVENANTS AFTER CLOSING DATE.
13.1 TRANSFER OF ACQUIRED ASSETS. Seller agrees, at any time and
from time to time after the Closing Date, upon the request of Purchaser, to do,
execute, acknowledge and deliver, or to cause to be done, executed, acknowledged
and delivered, all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required for the better
assigning, transferring, conveying, and confirming to Purchaser, or to its
successors and assigns, or for the aiding, assisting, collecting and reducing to
possession of, any or all of the Acquired Assets as provided herein.
13.2 COOPERATION. Seller will cooperate and use its best efforts to
have its officers and employees cooperate with Purchaser at Purchaser's request,
on and after the Closing Date, in furnishing information, evidence, testimony
and other assistance in connection with any actions, proceedings, arrangements
or disputes involving Purchaser and based upon contracts, arrangements,
commitments or acts of Seller which were in effect or occurred on or prior to
the Closing Date. From and after the Closing Date, Seller will permit Purchaser
and its representatives to have access to Seller's books and records relating to
the Acquired Assets for periods prior to the Closing Date. From and after the
Closing Date, Purchaser will permit Seller and its representatives to have
access to Seller's books and records relating to the period prior to the Closing
Date.
14. INDEMNIFICATION.
14.1 INDEMNIFICATION BY SELLER AND OWNERS. Seller and Owners agree
to indemnify and hold harmless Purchaser from and against any and all losses,
costs, damages, claims and expenses (including reasonable attorneys' fees) which
Purchaser may sustain at any time by reason of (a) any debt, liability or
obligation of Seller and/or Owners except obligations assumed by Purchaser, (b)
any liability or obligation of any kind relating to the operations of the
Acquired Assets or Dealership prior to the Closing Date, (c) any presence of
hazardous materials or toxic substances located at the Closing Date in or around
the premises to be assigned from Seller to Purchaser related to the underground
storage tanks or other hazardous substances, or (d) the breach or inaccuracy of
or failure to comply with, or the existence of any facts resulting in the
inaccuracy of, any of the warranties, representations, covenants or agreements
of Seller or Owners contained in this Agreement or in any agreement or document
delivered pursuant hereto or in connection herewith or with the closing of the
transactions contemplated hereby. The parties acknowledge and agree that
Purchaser shall have the right to repair automobiles sold and/or serviced by
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Seller to correct miscellaneous customer complaints that Purchaser determines in
Purchaser's reasonable judgment are an obligation of Seller provided that the
total of all such repairs in the aggregate without Seller's prior approval shall
not exceed the sum of TWO THOUSAND FIVE HUNDRED DOLLARS ($2,500).
14.2 INDEMNIFICATION BY PURCHASER. Purchaser agrees to indemnify and
hold harmless Seller from and against any and all losses, cost, damages, claims
and expenses (including reasonable attorneys' fees) which Seller may sustain at
any time by reason of (a) any debt, liability or obligation of Purchaser, (b)
any liability or obligation of any kind relating to the operations of the
Acquired Assets or Dealership after the Closing Date, or (c) the breach or
inaccuracy of or failure to comply with, or the existence of any facts resulting
in the inaccuracy of, any of the warranties, representations, covenants or
agreements of Purchaser contained in this Agreement or in any agreement or
document delivered pursuant hereto or in connection herewith or with the closing
of the transactions contemplated hereby.
14.3 DEFENSE. Any party who receives notice of a claim for which it
will seek indemnification shall promptly notify the indemnifying party in
writing of such claim. The indemnifying party shall have the right to assume
the defense of such action at its cost with counsel reasonably satisfactory to
the indemnified party. The indemnified party shall have the right to participate
in such defense with its own counsel at its cost.
15. SURVIVAL OF REPRESENTATIONS. The parties hereto each agree that all
representations, warranties and agreements contained herein shall survive the
execution and delivery of this Agreement, the closing hereunder and any
investigation made by any party hereto.
16. NO BROKER. Purchaser on the one hand, and Seller and Owners on the
other, represent to the other that no broker or finder has been connected with
the transactions contemplated by this Agreement. In the event of a claim by any
broker or finder based upon his representing or being retained by Seller or
Owners on the one hand, or by Purchaser on the other, Seller, Owners or
Purchaser, as the case may be, agrees to indemnify and save harmless the other
in respect of such claim.
17. USE OF THE NAME. Seller agrees that from and after the Closing Date,
Purchaser shall have the right to use the name "Poway Honda and Poway Dodge" or
any derivative thereof or similar name in connection with the operation of the
Dealership acquired hereunder.
18. TERMINATION. If the Closing Date shall not have occurred on or prior
to May 2, 1997 or if Purchaser shall receive disapproval from the Franchiser
prior thereto, any party that is not in default in the performance of its
obligations under this Agreement may, thereafter, terminate this Agreement by
giving written notice to the other party.
19. NOTICES. All notices, requests or demands to a party hereunder shall
be in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier, charges prepaid, addressed as set forth below. Any such notice,
demand, request or other communication shall be deemed to have been given upon
the earlier of personal delivery thereof, three (3) business days after having
been mailed as provided above, or one (1) business day after delivery through a
commercial courier, as the case may be. Notices may be given by facsimile and
shall be effective upon the transmission of such facsimile notice provided that
the facsimile notice is transmitted on a business day and a copy of the
facsimile notice together with evidence of its successful transmission
indicating the date and time of transmission is sent on the day of transmission
by recognized overnight carrier for delivery on the immediately succeeding
business day. Each party shall be entitled to modify its address by notice
given in accordance with this Section 19.
To Purchaser: FirstAmerica Automotive, Inc.
c/o Kay & Merkle
100 The Embarcadero, Penthouse
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San Francisco, CA 94105
Fax No.: 415-512-9277
With a copy to: W. Bruce Bercovich
Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Fax No.: 415-512-9277
To Seller: Auto Center of Poway, Inc.
13760 Poway Road
Poway, CA 92064
Fax No.: 619-486-6322
To Nokes: Thomas Nokes
1810 Sommersville Road
Antioch CA 94509
Fax No.: 510-778-7679
To Travis: H. Matthew Travis
13760 Poway Road
Poway, CA 92064
Fax No.: 619-486-6322
With a copy to: Robert G. Allen, Esq.
Knox Ricksen
1999 Harrison Street, Suite 1700
Oakland, CA 94612
FX: 510-446-1946
20. MISCELLANEOUS.
20.1 ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto, sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature between them
and no party hereto shall be bound by any condition, definition, warranty or
representation other than as expressly provided for in this Agreement or as may
be on a date subsequent to the date hereof duly set forth in writing signed by
the party hereto which is to be bound thereby. This Agreement shall not be
changed, modified or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to be charged.
20.2 GOVERNING LAW. This Agreement and its validity, construction
and performance shall be governed in all respects by the laws of the State of
California, without giving effect to principles of conflict of laws.
20.3 SEVERABILITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstance is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
20.4 BENEFIT OF PARTIES. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
heirs, legal representatives and assigns.
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20.5 NECESSARY DOCUMENTS. Each of the parties does hereby agree to do
any act and to execute any other or further documents necessary or convenient to
the carrying out of the provisions of this Agreement.
20.6 HEADINGS. The headings in the sections of this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.
20.7 ATTORNEYS' FEES. In the event that any action or proceeding is
brought to enforce or interpret any provision, covenant or condition contained
in this Agreement on the part of Purchaser, Seller or Owners, the prevailing
party in such action or proceeding (whether after trial or appeal) shall be
entitled to recover from the party not prevailing its expenses therein,
including reasonable attorneys' fees and allowable costs.
20.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
21. LIQUIDATED DAMAGES. If Purchaser breaches this Agreement, and the
transaction contemplated by this Agreement fails to close solely by reason
thereof, Seller shall be entitled to terminate this Agreement and retain the
amount of the Deposit plus any accrued interest thereon (the "Specified Sum") as
liquidated damages. SELLER AND PURCHASER ACKNOWLEDGE THAT SELLER'S DAMAGES
WOULD BE DIFFICULT TO DETERMINE, AND THAT THE SPECIFIED SUM IS A REASONABLE
ESTIMATE OF SELLER'S DAMAGES. SELLER AND PURCHASER FURTHER AGREE THAT THIS
SECTION IS INTENDED TO AND DOES LIQUIDATE THE AMOUNT OF DAMAGES DUE SELLER, AND
SHALL BE SELLER'S EXCLUSIVE REMEDY AGAINST PURCHASER, BOTH A LAW AND IN EQUITY
ARISING FROM OR RELATED TO A BREACH BY PURCHASER OF ITS OBLIGATIONS TO
CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
/s/ /s/
____________________ _____________________
Purchaser's Initials Seller's Initials
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
PURCHASER: SELLER:
FirstAmerica Automotive, Inc., Auto Center of Poway, Inc.
a Nevada corporation a California corporation
By: /s/ Thomas A. Price By: /s/ Thomas Nokes
_____________________________ _________________________________
Thomas Nokes, President
OWNERS:
/s/ Thomas Nokes
_______________________________________
Thomas Nokes
/s/ H. Matthew Travis
_______________________________________
H. Matthew Travis
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EXHIBIT 2.1.10
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT dated as of this 23rd day of January 1997,
by and among FirstAmerica Automotive, Inc., a Nevada corporation or Nominee
("Purchaser") and Auto Center of North County, Inc., a California corporation
("Seller") and Thomas Nokes and H. Matthew Travis collectively ("Owners").
R E C I T A L S
WHEREAS, Seller owns and operates a Toyota automobile dealership commonly
known as Poway Toyota at 13760 Poway Road, Poway, CA 92064 (the "Dealership").
WHEREAS, Owners own all of the outstanding stock of Seller.
WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to
purchase from Seller certain of the assets, properties and business of Seller
utilized in its authorized Toyota automobile dealerships located in Poway,
California.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
A G R E E M E N T
1. DEFINITIONS. For the purposes of this Agreement, the herein below
terms shall have the following meanings:
1.1 ACQUIRED ASSETS. The "Acquired Assets" are the assets and
property to be purchased by Purchaser hereunder, as more fully described in
Section 2.1 hereof.
1.2 CLOSING DATE. Unless otherwise mutually agreed between
Purchaser and Seller, the "Closing Date" shall be March 21, 1997 provided,
however, Purchaser or Seller shall have the right to extend the Closing Date
until 5 business days from the date the conditions specified in Sections 7 and 8
hereof are satisfied; subject, however, to the provisions of Section 18 below.
The Closing shall take place at the offices of Mission Valley Escrow, 2565
Camino Del Rio South, San Diego, California 92108 on the Closing Date commencing
at 10:00 a.m.
1.3 FRANCHISE. "Franchise" means the Toyota franchise as currently
held by Seller.
1.4 FRANCHISER. "Franchiser" means Toyota Motor Sales, U.S.A., Inc.
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1.5 OBSOLETE PARTS. "Obsolete Parts" means factory parts which are
not listed in the most current manufacturer's wholesale price book or, if listed
therein, are valued at ZERO DOLLARS ($0), parts which are not returnable to the
manufacturer (as defined by the Franchiser), parts which have been in stock of
Seller more than one (1) year and/or parts which are in excess of a one (1) year
supply, or parts indicated as discontinued, and broken or damaged parts,
regardless of whether listed in the most current manufacturer's wholesale price
book.
2. SALE OF ASSETS.
2.1 ACQUIRED ASSETS. Seller hereby agrees to, sell, convey,
transfer, assign and deliver to Purchaser on the Closing Date, and Purchaser
agrees to buy and accept as hereinafter provided all the assets related to or
used in connection with the Franchise, including but not limited to those assets
to be listed on Schedule 2.1 to be prepared prior to the Closing Date and then
attached hereto, Toyota special tools, furniture, fixtures and equipment, which
special tools, furniture, fixtures and equipment shall be in good working order,
and leasehold improvements used by Seller in operation of the Toyota franchise,
motor vehicles (new and used) (subject to exclusion of certain used vehicles in
accordance with Section 3.2(c), parts and accessories (subject to exclusion of
Obsolete Parts in accordance with Section 3.2(d), tires, work-in-progress,
advertising literature, forms, supplies, customer files and data bases, parts
return privileges from the Franchiser, rights under new car purchase orders and
deposits relating thereto, goodwill, and Seller's customer files and books and
records relating to the Acquired Assets, telephone number of Seller, all
contracts, agreements or commitments which contracts, agreements are commitments
have been approved and assumed by Purchaser as the same shall exist on the
Closing Date; provided, however, that Seller shall retain all other assets. The
parties agree that they will prepare Schedule 2.1 in conjunction with the
physical inventory described in Section 3.2. hereinbelow.
3. CONSIDERATION FOR ACQUIRED ASSETS.
3.1 PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, the consideration to be paid by Purchaser for the Acquired Assets
shall be cash equal to the sum of the aggregate value of the Acquired Assets
determined in accordance with Section 3.2.
3.2 VALUATION OF ACQUIRED ASSETS. The assets set forth below shall
be valued as provided below:
(a) The price for all 1996 and 1997 new unregistered and
undamaged Toyota model vehicles with not more than five hundred (500) miles
purchased hereunder and two (2) 1997 undamaged demonstrator vehicles with not
more than five thousand (5,000) miles shall be the sum of the following:
(i) The wholesale cost of each new vehicle determined in
accordance with the factory invoice, including advertising charges; plus
(ii) The wholesale cost of all optional parts and
accessories installed in the new vehicles plus the cost of labor (determined at
the internal rate pursuant to the standard factory formula) for installation of
the same; LESS
(iii) The sum of all distributor's allowances as of the
Closing Date including, but not limited to, inventory carry-over allowances,
discounts, holdbacks, rebates, contests, model changes and similar distributor's
allowances related to specific automobiles transferred on the Closing Date.
(b) All vehicles not described in subsection (a) above which are
to be purchased hereunder shall be valued at wholesale Kelly Blue Book Value as
of the Closing Date.
(c) All new undamaged returnable genuine Toyota factory parts,
accessories and
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jobber parts which are in possession of Seller as of the Closing Date and which
are listed in the manufacturer's most current wholesale parts and accessories
price book shall be valued at dealer cost in accordance with the manufacturer's
most current wholesale parts and accessories price book as of the Closing Date;
provided, however, that Obsolete Parts shall be valued at ZERO DOLLARS ($0) and
shall be retained by Seller, provided that Seller removes such parts within ten
(10) days of the Closing Date.
(d) All work-in-progress shall be valued at cost.
(e) All furniture, fixtures, equipment and special tools shall be
valued at appraisal value as of the Closing Date, provided, however, that in the
event that any item of furniture, fixtures, equipment, special tools or
leasehold improvement is materially damaged, destroyed or removed from the
Dealership between the date of the appraisal and the Closing Date, the value of
said item damaged, destroyed or removed from the Dealership shall be credited
against the Purchase Price. Purchaser and Seller shall obtain an appraisal from
a mutually agreeable appraisal party to determine the, as is, fair market value
of the furniture, fixtures and equipment. The cost of the appraisal shall be
paid one-half by Purchaser and one-half by Seller. The parties acknowledge that
there shall be no additional charge for leasehold improvements.
(f) In further consideration for all other assets described in
Section 2.1 hereinabove and goodwill Purchaser shall pay to Seller the sum of
ONE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($1,750,000).
(g) As of the close of business on the day immediately preceding
the Closing Date or on such other date as mutually agreed upon by Purchaser and
Seller, a physical inventory to determine the value of the new, used and
demonstrator vehicles, and work-in-progress shall be taken jointly by the
parties. Each party shall bear the expenses associated with its own personnel in
connection with the valuation of the assets. The parties shall jointly employ an
independent inventory service to take a parts and accessories inventory
immediately prior to the Closing. The cost of such inventory shall be paid one-
half by Purchaser and one-half by Seller.
3.3 PAYMENT OF PURCHASE PRICE. The Purchase Price to be paid by
Purchaser pursuant to this Agreement shall be paid as follows:
(a) Within five (5) business days of the day of execution of this
Agreement, Purchaser shall cause the sum of FIFTY THOUSAND DOLLARS ($50,000)
(the "Deposit") to be delivered to Escrow Holder as hereinafter defined. The
Deposit shall be held by the Escrow Holder as an earnest money deposit toward
the Purchase Price of the Dealership. The Deposit shall be held by Escrow
Holder in an interest bearing account with all interest accruing thereon to be
paid or credited to Purchaser. At the Closing, the Deposit shall be applied and
credited toward the payment of the Purchase Price. If escrow does not close,
and this Agreement is terminated in a manner governed by Section 7 does not
apply, the Deposit together with the interest accrued thereon shall be promptly
returned to Purchaser unless the provisions of Section 21 are applicable, in
which case the disposition of the Deposit shall be governed by the provisions of
Section 21. In the event the Closing Date has not occurred by March 21, 1997
through no fault of Seller, Purchaser shall make an additional deposit of FIFTY
THOUSAND DOLLARS ($50,000) into Escrow.
(b) The balance of the Purchase Price shall be paid in cash on
the Closing Date.
3.4 CLOSING AND POST-CLOSING ADJUSTMENTS. All adjustments normal in
asset acquisitions, including but not limited to rents and employee
compensation, telephone charges, personal property taxes, customer prepayments,
if relating to a period before and after the Closing Date, shall be apportioned
between Seller and Purchaser according to the number of days in the period
covered thereby which occurred prior to and including the Closing Date and
subsequent to the Closing Date. The aggregate amount of any adjustment shall be
determined and paid as of the Closing Date. Any additional amounts determined
after the Closing Date to be paid by either party
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under this Section 3.4 shall be paid by check delivered within seven (7) days
following determination of the amount of any such adjustment.
3.5 LIABILITIES. Purchaser shall have no obligation for any
liabilities of any kind whatsoever of Seller except that Purchaser shall assume
Seller's obligations for Equipment Leases as set forth on Schedule 3.5 attached
hereto or provided to Purchaser within seven (7) days of execution of this
Agreement and all liabilities under contracts, agreements or commitments assumed
by Purchaser in each case for the period commencing on the Closing Date and
continuing thereafter. Seller shall be fully responsible for any and all costs
or charges of any kind whatsoever arising out of such agreements for the period
prior to the Closing Date. The parties acknowledge and agree that Purchaser is
not assuming any employment agreements, labor agreements, collective bargaining
agreements or other similar contracts.
3.6 TRANSFER TAXES. Purchaser agrees to pay any and all sales,
transfer or other similar taxes which may be imposed or payable on or in
connection with the transfer of the Acquired Assets.
3.7 ALLOCATION OF PURCHASE PRICE. The Purchase Price as provided for
herein shall be allocated as set forth on Schedule 3.7 attached hereto.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND OWNERS. Seller and
Owners hereby represent, warrant and agree with Purchaser as follows:
4.1 GOOD STANDING. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and is
entitled to and has the corporate power and authority to own or lease its
property and to carry on its business in the manner and in the places where such
property are now owned, leased or operated and such business is now conducted.
4.2 TITLE TO ASSETS; LIENS AND ENCUMBRANCES. Seller will convey to
Purchaser good and marketable title to the Acquired Assets, free and clear of
all security interests, liens, claims, restrictions, equities and encumbrances
whatsoever.
4.3 AUTHORIZATION. The execution and delivery of this Agreement
and the transactions contemplated hereby has been duly authorized by the Board
of Directors of the Seller and all other corporate action, including all
shareholders' approvals necessary to authorize the execution and delivery of
this Agreement and the transactions contemplated hereby, have also been taken.
Except for consent of the Franchiser, landlords under leases and floor plan
lenders, no consent of any lender, trustee, security holder, lessor or any other
person or entity is required to be obtained by Seller in connection with the
execution, delivery and performance of this Agreement by Seller and the
consummation of the transactions contemplated hereby. This Agreement
constitutes a valid and binding obligation of Seller and Owners enforceable in
accordance with its terms. Except pursuant to the Franchise, Lessors, and floor
plan financing, the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby (a) do not violate or
constitute a breach of or default under any contract, agreement or commitment to
which Seller or Owners is a party, under which they are obligated or to which
any of the Acquired Assets are subject to, (b) do not violate any judgment,
order, statute, rule or regulation to which Seller, Owners or any of the
Acquired Assets are subject or the articles of incorporation or bylaws of the
Seller, and (c) will not result in the creation of any lien, charge or
encumbrance on any of the Acquired Assets.
4.4 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties of Seller and Owners contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties
have been made on and as of the Closing Date.
4.5 LITIGATION. Except as set forth on Schedule 4.5 attached
hereto, there is not pending, or,
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to best knowledge of Seller, threatened, any suit, action, arbitration, or
legal, administrative, or other proceeding, or governmental investigation
against or affecting any of the Acquired Assets. To the best knowledge of Seller
and Owners, Seller is not in default with respect to any order, writ,
injunction, or decree of any federal, state, or local court.
4.6 ENVIRONMENTAL COMPLIANCE NOTICES. Seller has received no
written notice advising Seller of any defects, defaults or non-compliance in
connection with the Acquired Assets pursuant to the laws, rules and regulations
from any governmental agency dealing with environmental laws, except notices
which have been previously complied with or waived by the governmental agency.
4.7 COMPLIANCE WITH LAW. To the actual knowledge of Seller, Seller
has complied with, and is not in violation of, applicable federal, state or
local statutes, laws or regulations the violation of which would have a material
adverse effect on the financial condition of the Dealership.
4.8 FINANCIAL REPORTS. Seller has delivered to Purchaser dealer
financial statements for Seller for the calendar year 1996 ("Dealer Financial
Statement"). The income and expenses reflected in the Dealer Financial
Statement has been prepared in accordance with past practices of Seller and are
true and correct in all material respects.
4.9 FRANCHISE NOTICES. Seller has received no written notice from
Toyota Motor Sales, U.S.A., Inc. regarding any appointment of new Toyota
dealerships within a 20 mile radius of the Dealership.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents,
warrants and agrees with Seller and Owners as follows:
5.1 GOOD STANDING. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada and
is entitled to and has the corporate power and authority to own or lease its
property and to carry on its business in the manner and in the places where such
property are now owned, leased or operated and such business is now conducted.
5.2 AUTHORIZATION. The execution and delivery of this Agreement and
the transactions contemplated hereby has been duly authorized by the Board of
Directors of the Purchaser and all other corporate action, including all
shareholders' approvals necessary to authorize the execution and delivery of
this Agreement and the transactions contemplated hereby, have also been taken.
This Agreement is a valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms. Except for consent of the
Franchiser, Lessors, and lenders, no consent of any trustee, security holder or
any other person or entity is required to be obtained by Purchaser in connection
with the execution, delivery and performance of this Agreement by Purchaser and
the consummation of the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby (a) do not violate or constitute a breach of or
default under any contract, agreement or commitment to which Purchaser is a
party or under which it is obligated, and (b) do not violate any judgment,
order, statute, rule or regulation to which Purchaser is subject.
5.3 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
6. CONDUCT PRIOR TO CLOSING DATE.
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6.1 ONGOING OPERATIONS. Seller will use its best effort to preserve
intact the Acquired Assets and to continue to operate the Dealership as a going
concern, including, but not limited to, maintaining commercially reasonable
inventories and receivables. Seller will not dispose of any of the Acquired
Assets except in the ordinary course of business consistent with past practices,
and will not, without limiting the foregoing, hold a "going-out-of-business" or
"liquidation" sale.
6.2 APPROVALS. Each of Purchaser and Seller will use its best
efforts to obtain all permits, approvals, authorizations and consents of third
parties necessary or desirable for the consummation of the transactions
contemplated by this Agreement and for the ownership and operation by Purchaser
of the Acquired Assets and the Dealership related thereto. Purchaser and Seller
shall proceed as promptly as practicable after the date hereof to prepare all
materials necessary to obtain the consent of the Franchiser as is necessary for
Purchaser to acquire the Acquired Assets and for consummation of the
transactions contemplated hereby.
6.3 COVENANT TO COMPLY. Seller and Owners shall not take any action
or fail to take any action which will make any of their representations and
warranties not true and correct in all material respects on the Closing Date.
Seller and Owners shall use their best efforts to satisfy or cause to be
satisfied all of the conditions precedent to Purchaser's obligations hereunder.
Seller shall give Purchaser prompt written notice of any material change in any
of the information contained in the representations and warranties made in
Section 4 hereof or the schedules referred to herein which occur prior to the
Closing Date; provided, however, that any change in the information contained in
the representations and warranties or schedules will not relieve Seller of any
obligations hereunder if such changes result in a breach of the representations
and warranties contained herein.
7. CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE. The obligations of
Purchaser under this Agreement are subject fulfillment of the conditions set
forth below. Purchaser shall have the right to waive in writing all or part of
any one or more of the following conditions without releasing Seller or Owners
from any liability for any loss or damage sustained by Purchaser by reason of
the breach by Seller or Owners of any covenant, obligation or agreement
contained herein, or by reason of any misrepresentation made by Seller or Owners
and upon such waiver may proceed with the transactions contemplated by this
Agreement.
7.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date,
Seller and Owners shall have complied with and duly performed in all material
respects all agreements and conditions on its part to be complied with and
performed pursuant to or in connection with this Agreement on or before the
Closing Date.
7.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller and Owners contained in this Agreement, or otherwise made
in writing in connection with the transactions contemplated hereby, shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date and Purchaser shall have received a
certificate to that effect dated the Closing Date and executed by the President
of Seller.
7.3 NO LEGAL PROCEEDINGS. No action or proceeding shall have been
instituted or threatened to restrain or prohibit the acquisition by Purchaser or
the conveyance by Seller of the Acquired Assets or which might result in any
material adverse change in the business, prospects or financial or other
condition of the Acquired Assets.
7.4 LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and the
Closing Date, there shall not have been any material loss, damage or destruction
to or of any of the Acquired Assets, and there shall have been no development
which would have a material adverse effect on the Dealership.
7.5 CONSENTS. Purchaser shall have received the written approval of
the Franchiser designating Purchaser or its designee as the duly authorized
dealer for the sales and service of the Franchiser's automobiles at 13760 Poway
Road, Poway, CA 92064, free of any material condition which is adverse to
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Purchaser, and Purchaser and such Franchiser shall have entered into a customary
dealer sales and service agreement. All permits and licenses necessary to enable
Purchaser to conduct the Franchise and service facilities shall have been
obtained. All other requisite consents and approvals shall have been obtained.
7.6 DUE DILIGENCE. Purchaser shall for a period of ten (10) days
from the date of execution of this Agreement have the right to review the books
and records of the Dealership, the physical condition of the Dealership property
and any other items reasonably necessary or appropriate to evaluate the
Dealership. Such review shall be done at times and locations as mutually agreed
between Purchaser and Seller provided that Purchaser shall use all reasonable
efforts to have such review of books and records at locations away from the
Dealership. Seller shall cooperate and provide such information reasonably
necessary for Purchaser to conduct such due diligence review during such ten
(10) day period. In the event Purchaser does not approve of the physical
condition of the Dealership and the review of the books and records by written
notice to Seller within such ten (10) day period, this Agreement shall terminate
with all deposits returned to Purchaser and no further rights or obligations to
either party.
7.7 ENVIRONMENTAL ASSESSMENT. During the ten (10) day period after
the execution of this Agreement (the "Testing Period"), Purchaser and Seller
shall conduct an environmental assessment (the "Environmental Assessment") of
the real property at the Dealership (the "Real Property"). Expenses of any
environmental consultant engaged by Purchaser and Seller to conduct the
Environmental Assessment shall be paid by Purchaser. Purchaser may terminate
all of its obligations under this Agreement by written notice to Seller on or
before the expiration of the Testing Period, if Purchaser determines that a
release or threatened release of a hazardous substance has occurred on the Real
Property. Failure to timely notify Seller under this Section 7.7 is deemed to
constitute a waiver of Purchaser's right to terminate this Agreement under this
Section 7.7.
7.8 PURCHASE OF POWAY HONDA/DODGE. Purchaser shall have
simultaneously with the Closing of this transaction acquired the assets of Poway
Honda/Dodge from Auto Center of Poway, Inc., a California corporation.
7.9 PHYSICAL AUDIT. On or before the Closing Date the valuation of
the Acquired Assets pursuant to the physical audit specified in Section 3.2
shall be completed.
7.10 TAX CLEARANCE. Seller shall have furnished to Purchaser,
certificates from all appropriate federal, state, county and local authorities
that all taxes and contributions payable by Seller have been paid in full. If
all appropriate tax certificates are not available on the Closing Date,
Purchaser shall withhold from the estimated amount of maximum unpaid tax
liability reasonably determined by Purchaser which sum shall be held by
Purchaser until such time as all certificates are presented in a form
satisfactory to Purchaser's counsel.
7.11 LIST OF EMPLOYEES. Seller shall furnish to Purchaser a list of
all employees, their rates of pay, including, separately, base pay, and
incentive and commission plans. Further Seller shall deliver to Purchaser a
certificate from each of such employees showing that such employee has received
from Seller all compensation including all sick leave, vacation, and any and all
other compensation due such employee through the Closing Date. In addition
thereto, Seller shall have complied with any and all obligation of Seller under
any collective union agreements and/or collective bargaining agreements.
7.12 BULK SALE. Seller shall furnish, in an appropriate time to
comply, all affidavits and lists of creditors and such other instruments or
documents as Escrow Holder shall require for Seller and Purchaser to comply with
all applicable bulk sales laws.
7.13 ASSIGNMENT OF LEASE. Purchaser and Seller shall enter into an
Assignment of Lease for the real property commonly known as 13760 Poway Road,
Poway, CA 92064 ("Lease Assignment") which Lease Assignments shall have been
approved as required by the landlord of the Property.
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8. CONDITIONS OF SELLER'S OBLIGATIONS TO CLOSE. The obligations of
Seller under this Agreement are subject to fulfillment of the conditions set
forth below. Seller shall have the right to waive in writing all or part of any
one or more of the following conditions without, however, releasing Purchaser
from any liability for any loss or damage sustained by Seller by reason of the
breach by Purchaser of any covenant, obligation or agreement contained herein,
or by reason of any misrepresentation made by Purchaser and upon such waiver may
proceed with the transactions contemplated by this Agreement.
8.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date,
Purchaser shall have complied with and duly performed in all material respects
all of the agreements and conditions on its part required to be complied with or
performed pursuant to this Agreement on or before the Closing Date.
8.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. The representations
and warranties of Purchaser contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date and Seller shall have received a certificate to that
effect dated the Closing Date and executed by the President or a Vice President
of Purchaser.
8.3 PHYSICAL AUDIT. On or before the Closing Date the valuation of
the Acquired Assets pursuant to Section 3.2 shall be completed.
8.4 PURCHASE OF POWAY HONDA/DODGE. Purchaser shall have
simultaneously with the Closing of this transaction acquired the assets of Poway
Honda/Dodge from Auto Center of Poway, Inc., a California corporation.
8.5 ASSIGNMENT OF LEASE. Purchaser and Seller shall enter into an
Assignment of Lease for the real property commonly known as 13760 Poway Road,
Poway, CA 92064, ("Lease Assignment") which Lease Assignment shall have been
approved as required by the landlord of the Property.
9. DELIVERIES OF SELLER ON THE CLOSING DATE. Seller agrees on the
Closing Date to deliver to Purchaser:
9.1 TITLE TO ACQUIRED ASSETS. All conveyances, covenants,
warranties, deeds, assignments, bills of sale, motor vehicle titles,
confirmations, powers of attorney, approvals, consents and any and all further
instruments as may be necessary, expedient or proper in order to complete any
and all conveyances, transfers and assignments herein provided for and to convey
to Purchaser such title to the Acquired Assets as Seller is obligated hereunder
to convey.
9.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the
Seller setting forth a copy of the resolutions adopted by Seller's Board of
Directors and shareholders authorizing and approving the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby.
9.3 CERTIFICATE. Certificate of the President of Seller referred to
in Section 7.2.
9.4 CONSENTS. All consents, approvals, authorizations or orders of
any person or entity or court or governmental agency required or necessary for
the consummation of the transactions contemplated hereby, provided that Seller
shall not be obligated to deliver the consent of the Franchiser.
10. DELIVERIES OF PURCHASER ON THE CLOSING DATE. Purchaser agrees on the
Closing Date to deliver or cause to be delivered:
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10.1 CONSIDERATION. The amounts to be delivered pursuant to Section
3.3 hereof.
10.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the
Purchaser setting forth a copy of the resolutions adopted by Purchaser's Board
of Directors and shareholders authorizing and approving the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
10.3 CERTIFICATE. The Certificate of the President or a Vice
President of the Purchaser referred to in Section 8.2.
11. LEASE. Seller and Purchaser shall enter into an Assignment of Lease
for the Property which Assignment of Lease shall be in the form and substance
reasonably satisfactory to Purchaser and its counsel. The Assignments of Lease
shall have been approved by the landlord of the Property as required pursuant to
existing lease ("Lease") which Assignment of Lease shall be attached hereto as
Schedule 11.
12. ESCROW. The parties, upon execution of this Agreement shall open an
escrow with Mission Valley Escrow ("Escrow Holder"). The parties shall
forthwith provide to Escrow Holder any and all documentation necessary for
Escrow Holder to publish its notices as required by the Bulk Sale Laws of the
State of California. Any and all costs of such escrow shall be paid one-half by
Purchaser and one-half by Seller.
13. COVENANTS AFTER CLOSING DATE.
13.1 TRANSFER OF ACQUIRED ASSETS. Seller agrees, at any time and
from time to time after the Closing Date, upon the request of Purchaser, to do,
execute, acknowledge and deliver, or to cause to be done, executed, acknowledged
and delivered, all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required for the better
assigning, transferring, conveying, and confirming to Purchaser, or to its
successors and assigns, or for the aiding, assisting, collecting and reducing to
possession of, any or all of the Acquired Assets as provided herein.
13.2 COOPERATION. Seller will cooperate and use its best efforts to
have its officers and employees cooperate with Purchaser at Purchaser's request,
on and after the Closing Date in furnishing information, evidence, testimony and
other assistance in connection with any actions, proceedings, arrangements or
disputes involving Purchaser and based upon contracts, arrangements, commitments
or acts of Seller which were in effect or occurred on or prior to the Closing
Date. From and after the Closing Date, Seller will permit Purchaser and its
representatives to have access to Seller's books and records relating to the
Acquired Assets for periods prior to the Closing Date. From and after the
Closing Date, Purchaser will permit Seller and its representatives to have
access to Seller's books and records relating to the period prior to the Closing
Date.
14. INDEMNIFICATION.
14.1 INDEMNIFICATION BY SELLER AND OWNERS. Seller and Owners agree
to indemnify and hold harmless Purchaser from and against any and all losses,
costs, damages, claims and expenses (including reasonable attorneys' fees) which
Purchaser may sustain at any time by reason of (a) any debt, liability or
obligation of Seller and/or Owners except obligations assumed by Purchaser, (b)
any liability or obligation of any kind relating to the operations of the
Acquired Assets or Dealership prior to the Closing Date, (c) any presence of
hazardous materials or toxic substances located at the Closing Date in or around
the premises to be assigned from Seller to Purchaser related to the underground
storage tanks or other hazardous substances, or (d) the breach or inaccuracy of
or failure to comply with, or the existence of any facts resulting in the
inaccuracy of, any of the warranties, representations, covenants or agreements
of Seller or Owners contained in this Agreement or in any agreement or document
delivered pursuant hereto or in connection herewith or with the closing of the
transactions contemplated hereby. The parties acknowledge and agree that
Purchaser shall have the right to repair automobiles sold and/or serviced by
Seller to correct miscellaneous customer complaints that Purchaser determines in
Purchaser's reasonable judgment
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are an obligation of Seller provided that the total of all such repairs in the
aggregate without Seller's prior approval shall not exceed the sum of TWO
THOUSAND FIVE HUNDRED DOLLARS ($2,500).
14.2 INDEMNIFICATION BY PURCHASER. Purchaser agrees to indemnify and
hold harmless Seller from and against any and all losses, cost, damages, claims
and expenses (including reasonable attorneys' fees) which Seller may sustain at
any time by reason of (a) any debt, liability or obligation of Purchaser, (b)
any liability or obligation of any kind relating to the operations of the
Acquired Assets or Dealership after the Closing Date, or (c) the breach or
inaccuracy of or failure to comply with, or the existence of any facts resulting
in the inaccuracy of, any of the warranties, representations, covenants or
agreements of Purchaser contained in this Agreement or in any agreement or
document delivered pursuant hereto or in connection herewith or with the closing
of the transactions contemplated hereby.
14.3 DEFENSE. Any party who receives notice of a claim for which it
will seek indemnification shall promptly notify the indemnifying party in
writing of such claim. The indemnifying party shall have the right to assume
the defense of such action at its cost with counsel reasonably satisfactory to
the indemnified party. The indemnified party shall have the right to participate
in such defense with its own counsel at its cost.
15. SURVIVAL OF REPRESENTATIONS. The parties hereto each agree that all
representations, warranties and agreements contained herein shall survive the
execution and delivery of this Agreement, the closing hereunder and any
investigation made by any party hereto.
16. NO BROKER. Purchaser on the one hand, and Seller and Owners on the
other, represent to the other that no broker or finder has been connected with
the transactions contemplated by this Agreement. In the event of a claim by any
broker or finder based upon his representing or being retained by Seller or
Owners on the one hand, or by Purchaser on the other, Seller, Owners or
Purchaser, as the case may be, agrees to indemnify and save harmless the other
in respect of such claim.
17. USE OF THE NAME. Seller agrees that from and after the Closing Date,
Purchaser shall have the right to use the name "Poway Toyota" or any derivative
thereof or similar name in connection with the operation of the Dealership
acquired hereunder.
18. TERMINATION. If the Closing Date shall not have occurred on or prior
to May 2, 1997 or if Purchaser shall receive disapproval from the Franchiser
prior thereto, any party that is not in default in the performance of its
obligations under this Agreement may, thereafter, terminate this Agreement by
giving written notice to the other party.
19. NOTICES. All notices, requests or demands to a party hereunder shall
be in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier, charges prepaid, addressed as set forth below. Any such notice,
demand, request or other communication shall be deemed to have been given upon
the earlier of personal delivery thereof, three (3) business days after having
been mailed as provided above, or one (1) business day after delivery through a
commercial courier, as the case may be. Notices may be given by facsimile and
shall be effective upon the transmission of such facsimile notice provided that
the facsimile notice is transmitted on a business day and a copy of the
facsimile notice together with evidence of its successful transmission
indicating the date and time of transmission is sent on the day of transmission
by recognized overnight carrier for delivery on the immediately succeeding
business day. Each party shall be entitled to modify its address by notice
given in accordance with this Section 19.
To Purchaser: FirstAmerica Automotive, Inc.
c/o Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
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Fax No.: 415-512-9277
With a copy to: W. Bruce Bercovich
Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Fax No.: 415-512-9277
To Seller: Auto Center of North County, Inc.
1810 Sommersville Road
Antioch, CA 94509
Fax No.: 510-778-7679
To Nokes: Thomas Nokes
1810 Sommersville Road
Antioch CA 94509
Fax No.: 510-778-7679
To Travis: H. Matthew Travis
13760 Poway Road
Poway, CA 92064
Fax No.: 619-486-6322
With a copy to: Robert G. Allen, Esq.
Knox Ricksen
1999 Harrison Street, Suite 1700
Oakland, CA 94612
FX: 510-446-1946
20. MISCELLANEOUS.
20.1 ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto, sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature between them
and no party hereto shall be bound by any condition, definition, warranty or
representation other than as expressly provided for in this Agreement or as may
be on a date subsequent to the date hereof duly set forth in writing signed by
the party hereto which is to be bound thereby. This Agreement shall not be
changed, modified or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to be charged.
20.2 GOVERNING LAW. This Agreement and its validity, construction
and performance shall be governed in all respects by the laws of the State of
California, without giving effect to principles of conflict of laws.
20.3 SEVERABILITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstance is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
20.4 BENEFIT OF PARTIES. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
heirs, legal representatives and assigns.
20.5 NECESSARY DOCUMENTS. Each of the parties does hereby agree to do
any act and to execute
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any other or further documents necessary or convenient to the carrying out of
the provisions of this Agreement.
20.6 HEADINGS. The headings in the sections of this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.
20.7 ATTORNEYS' FEES. In the event that any action or proceeding is
brought to enforce or interpret any provision, covenant or condition contained
in this Agreement on the part of Purchaser, Seller or Owners, the prevailing
party in such action or proceeding (whether after trial or appeal) shall be
entitled to recover from the party not prevailing its expenses therein,
including reasonable attorneys' fees and allowable costs.
20.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
21. LIQUIDATED DAMAGES. If Purchaser breaches this Agreement, and the
transaction contemplated by this Agreement fails to close solely by reason
thereof, Seller shall be entitled to terminate this Agreement and retain the
amount of the Deposit plus any accrued interest thereon (the "Specified Sum") as
liquidated damages. SELLER AND PURCHASER ACKNOWLEDGE THAT SELLER'S DAMAGES
WOULD BE DIFFICULT TO DETERMINE, AND THAT THE SPECIFIED SUM IS A REASONABLE
ESTIMATE OF SELLER'S DAMAGES. SELLER AND PURCHASER FURTHER AGREE THAT THIS
SECTION IS INTENDED TO AND DOES LIQUIDATE THE AMOUNT OF DAMAGES DUE SELLER, AND
SHALL BE SELLER'S EXCLUSIVE REMEDY AGAINST PURCHASER, BOTH A LAW AND IN EQUITY
ARISING FROM OR RELATED TO A BREACH BY PURCHASER OF ITS OBLIGATIONS TO
CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
____________________ _____________________
Purchaser's Initials Seller's Initials
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
PURCHASER: SELLER:
FirstAmerica Automotive, Inc., Auto Center of North County, Inc.
a Nevada corporation a California corporation
By: /s/ Thomas A. Price By: /s/ Thomas Nokes
--------------------------- _________________________________
Thomas Nokes, President
OWNERS:
/s/ Thomas Nokes
_______________________________________
Thomas Nokes
/s/ H. Matthew Travis
_______________________________________
H. Matthew Travis
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EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FIRSTAMERICA AUTOMOTIVE, INC.
FirstAmerica Automotive, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is FirstAmerica Automotive, Inc., the
corporation was originally incorporated under the name of FirstAmerica
Automotive, Inc. Delaware, and the original Certificate of Incorporation of the
corporation was filed with the Secretary of State of the State of Delaware on
June 16, 1997.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of Incorporation
of this corporation.
3. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:
FIRST: The name of this corporation is FirstAmerica Automotive, Inc.
-----
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the State
------
of Delaware is Incorporating Services, Ltd., 15 East North Street, in the City
of Dover, County of Kent. The name of the registered agent at that address is
Incorporating Services, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:
------
(a) The corporation is authorized to issue two classes of shares,
designated "Preferred Stock" and "Common Stock," respectively. The number of
shares of Preferred Stock authorized to be issued is Ten Thousand (10,000), par
value $0.00001 per share. The number of
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shares of Common Stock authorized to be issued is Sixty-Five Million
(65,000,000), par value $0.00001 per share, which shares are divided into the
following classes:
(i) Thirty Million (30,000,000) shares of Class A Common Stock, par
value $0.00001 per share ("Class A Common Stock");
(ii) Five Million (5,000,000) shares of Class B Common Stock, par
value $0.00001 per share ("Class B Common Stock"); and
(iii) Thirty Million (30,000,000) shares of Class C Common Stock, par
value $0.00001 per share ("Class C Common Stock").
(b) The Preferred Stock may be divided into such number of series as the
Board of Directors may determine. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions granted
to and imposed upon any wholly unissued series of Preferred Stock, and to fix
the number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue of shares of that
series.
(c) Immediately upon the effectiveness of this Amended and Restated
Certificate of Incorporation (the "Effective Time"), each share of Common Stock
outstanding immediately prior to the Effective Time shall automatically convert
into one (1) share of Class A Common Stock. Following the Effective Time, each
stock certificate representing shares of Common Stock outstanding immediately
prior to the Effective Time shall represent the number of
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shares of Class A Common Stock into which the shares of Common Stock represented
by such stock certificate shall become hereunder.
(d) Except with respect to voting rights, as provided in Section (d)(i) of
this Article FOURTH, and conversion rights, as provided in Section (d)(ii) of
this Article FOURTH, the rights, preferences, privileges and restrictions of the
Class A Common Stock, the Class B Common Stock and the Class C Common Stock
(collectively, "Common Stock") shall be identical in all respects.
(i) Voting Rights of Common Stock.
-----------------------------
(A) So long as any shares of Class B Common Stock are
outstanding, the holders of outstanding shares of Class B Common Stock, voting
as a separate class, shall be entitled to elect one Director of the Corporation
(the "Class B Director Designee"). The Class B Director Designee shall be the
candidate receiving the highest number of affirmative votes (with each holder
of Class B Common Stock entitled to cast one vote for or against each candidate
with respect to each outstanding share of Class B Common Stock held by such
holder). The election of the Class B Director Designee shall occur at the
annual meeting of stockholders of the Corporation or any special meeting of
holders of Class B Common Stock called by holders of a majority of the
outstanding shares of Class B Common Stock, or by the written consent of all
such holders. If the Class B Director Designee should cease to be a Director of
the Corporation for any reason, the vacancy shall only be filled by the vote or
written consent of the holders of a majority of the outstanding shares of Class
B Common Stock, voting as a separate class as specified above.
(B) Subject to any voting rights provided to holders of then
outstanding Preferred Stock, the holders of outstanding shares of Class A Common
Stock and
3
<PAGE>
Class B Common Stock, voting together as a separate class, shall be entitled to
elect all Directors of the Corporation other than the Class B Director Designee
(the "Director Designees"), with the number of Directors of the Corporation to
be determined as provided in the Bylaws of the Corporation; provided, however,
that the number of Directors of the Corporation shall not be less than three
(3). The Director Designees shall be those candidates who receive the highest
number of affirmative votes (with each holder of Class A Common Stock and each
holder of Class B Common Stock entitled to cast one (1) vote for or against each
candidate with respect to each share of Class A Common Stock or Class B Common
Stock held by such holder) of the outstanding shares of Class A Common Stock and
Class B Common Stock, with votes cast against such candidates and votes withheld
having no legal effect. The election of the Director Designees by the holders of
the Class A Common Stock and Class B Common Stock shall occur at the annual
meeting of stockholders of the Corporation or any special meeting of holders of
Class A Common Stock and Class B Common Stock called by the holders of a
majority of the outstanding shares of Class A Common Stock and Class B Common
Stock, or by the written consent of all such holders.
(C) Except with respect to the election of Directors of the
Corporation (which shall be governed as otherwise specifically provided for
herein) and those matters otherwise set forth herein or required by law to be
submitted to a class vote, and subject to any voting rights provided to holders
of then outstanding Preferred Stock, the holders of outstanding shares of Class
A Common Stock and the holders of outstanding shares of Class B Common Stock
shall vote together upon any matter submitted to a vote of the stockholders of
the Corporation, with each such holder entitled to one (1) vote per share of
Class A Common Stock or Class B Common Stock held by such holder. Except as
otherwise required by law, each holder
4
<PAGE>
of Class C Common Stock shall not be entitled to cast any vote with respect to
shares of Class C Common Stock held by such holder, as the Class C Common Stock
is non-voting stock.
(ii) Conversion of Common Stock.
--------------------------
(A) Class A Common Stock. Each share of Class A Common Stock
--------------------
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any transfer
agent for such shares, into one (1) fully paid and nonassessable share of Class
C Common Stock (as adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations and the like). Before any holder of Class A Common Stock shall
be entitled to convert the same into shares of Class C Common Stock, such holder
shall surrender the certificates therefor, duly endorsed, at the office of the
Corporation or any transfer agent for such shares, and shall give written notice
to the Corporation at such office that it elects to convert the same. The
Corporation shall, as soon as practicable thereafter, issue and deliver to such
holder of Class A Common Stock certificates representing the number of shares of
Class C Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of surrender of the shares of Class A Common Stock to be
converted, and the person entitled to receive the shares of Class C Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Class C Common Stock on such date. Shares of Class A
Common Stock that have been converted hereunder shall return to the status of
authorized but unissued shares.
(B) Class B Common Stock.
--------------------
(1) Optional Conversion. Each share of Class B Common Stock
-------------------
shall be convertible, at the option of the holder thereof, at any time after the
date
5
<PAGE>
of issuance of such share at the office of the Corporation or any transfer agent
for such shares, into one (1) fully paid and nonassessable share of Class A
Common Stock (as adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations and the like).
(2) Automatic Conversion. Each share of Class B Common
--------------------
Stock shall automatically be converted into one (1) fully paid and nonassessable
share of Class A Common Stock (as adjusted to reflect subsequent stock
dividends, stock splits, recapitalizations and the like) immediately upon the
closing of a firm commitment underwritten public offering of any class of Common
Stock registered under the Securities Act of 1933, as amended, resulting in (i)
gross proceeds to the Corporation of at least Fifty Million Dollars
($50,000,000), and (ii) the listing of any class of Common Stock on a nationally
recognized stock exchange, including, without limitation, the Nasdaq National
Market System (a "Qualified IPO").
(3) Mechanics of Conversion. Before any holder of Class B
-----------------------
Common Stock shall be entitled to convert the same into shares of Class A Common
Stock, such holder shall surrender the certificates therefor, duly endorsed, at
the office of the Corporation or any transfer agent for such shares, and shall
give written notice to the Corporation at such office that it elects to convert
the same. The Corporation shall, as soon as practicable thereafter, issue and
deliver to such holder of Class B Common Stock certificates representing the
number of shares of Class A Common Stock to which such holder shall be entitled
as aforesaid. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of surrender of the shares of Class B
Common Stock to be converted, and the person entitled to receive the shares of
Class A Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Class A Common Stock on such
date. If the conversion is in connection with an underwritten offering of
securities pursuant to the
6
<PAGE>
Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering shares of Class B Common Stock for conversion, be conditioned
upon the closing of the sale of securities pursuant to such offering, in which
event the person entitled to receive the Class A Common Stock upon conversion of
the Class B Common Stock shall not be deemed to have converted such shares of
Class B Common Stock until immediately prior to the closing of such sale of
securities.
(4) No Reissuance of Class B Common Stock. No share or
-------------------------------------
shares of Class B Common Stock actually and legally acquired by the Corporation
by reason of redemption, purchase, conversion or otherwise shall be reissued,
and all such shares shall be cancelled, retired and eliminated from the shares
which the Corporation shall be authorized to issue.
(C) Class C Common Stock. In the event that any outstanding
--------------------
shares of Class C Common Stock shall be sold by the holder thereof in a bona
----
fide sale transaction for valuable consideration determined in good faith by
- ----
such holder to be the fair market value of such shares, then, immediately upon
the consummation of such transaction, each such share shall automatically be
converted into one (1) fully paid and nonassessable share of Class A Common
Stock (as adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations, and the like); provided, however, that such automatic
-------- -------
conversion shall occur only if such sale is either (i) a "broker's transaction"
(as defined in Rule 144(g) promulgated under the Securities Act of 1933, as
amended, or any successor to such rule that may be in effect from time to time),
or (ii) does not result in the sale by such holder (whether in a single
transaction or a series of transactions) of greater than five percent (5%) of
the then outstanding shares of capital stock of the Corporation to a single
purchaser. The conversion of shares of Class C Common Stock into shares of Class
A
7
<PAGE>
Common Stock in accordance with this Section (d)(ii)(C) of this Article FOURTH
shall be automatic, and the certificates representing such shares to be issued
and delivered to the purchaser thereof by the Corporation or any transfer agent
for such shares shall represent the number of shares of Class A Common Stock to
which such purchaser is entitled as aforesaid. The purchaser of the shares
converted from Class C Common Stock into Class A Common Stock in accordance with
this Section (d)(ii)(C) of this Article FOURTH shall be treated for all purposes
as the record holder of such shares of Class A Common Stock on the date of the
consummation of the transaction triggering the conversion thereof. Shares of
Class C Common Stock that have been converted hereunder shall return to the
status of authorized but unissued shares.
(D) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of shares of Class A Common Stock into Class C Common Stock and
shares of Class C Common Stock into Class A Common Stock, such number of shares
of Class C Common Stock and Class A Common Stock, respectively, as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
Class A Common Stock and Class C Common Stock; and if at any time the number of
authorized but unissued shares of Class C Common Stock or Class A Common Stock
shall not be sufficient to effect the conversion of all of the then outstanding
shares of Class A Common Stock or Class C Common Stock, respectively, in
addition to such other remedies as shall be available to the holder of such
stock, the Corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Class A Common Stock or Class C Common Stock to such number of shares as shall
be sufficient for such purposes.
8
<PAGE>
FIFTH: The business and affairs of the Corporation shall be managed by or
-----
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Amended and
Restated Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation. Election of
Directors need not be by written ballot unless the Bylaws so provide.
SIXTH: The Board of Directors is authorized to make, adopt, amend, alter or
-----
repeal the Bylaws of the Corporation. The stockholders shall also have power to
make, adopt, amend, alter or repeal the Bylaws of the Corporation.
SEVENTH: Notwithstanding the provisions of Articles FIFTH and SIXTH of this
-------
Amended and Restated Certificate of Incorporation, prior to the closing of a
Qualified IPO, the Corporation shall not, and the Corporation shall cause each
of its subsidiaries not to, take (or agree to take) action with respect to any
of the following matters without the affirmative vote of a majority of the
Directors of the Corporation then in the office and the affirmative vote of the
Class B Director Designee (if there is such a Director):
(a) any merger or consolidation of the Corporation or any subsidiary of
the Corporation, other than (i) any merger between the Corporation and any
direct or indirect wholly owned subsidiary of the Corporation, (ii) any merger
or consolidation between or among direct or indirect wholly owned subsidiaries
of the Corporation, or (iii) a transaction, approved or agreed to by the holders
of more than fifty percent (50%) of the outstanding voting securities of the
Corporation, including in such calculation securities issuable upon exercise of
then outstanding and then exercisable options, warrants or other rights, in
which all of the business, stock or assets of the Corporation are sold or
otherwise transferred to a party that is not a person controlling,
9
<PAGE>
controlled by, or under common control with (an "Affiliate") Thomas A. Price or
Donald V. Strough (the "Principals") or part of a group (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) including the
Principals in a bona fide arm's-length transaction in which the form and amount
of consideration per share, if any, payable to the holders of Common Stock is
distributed pro rata based on ownership of the Common Stock, and in which the
other significant terms of the transaction (including, but not limited to,
indemnification or escrow arrangements) apply, in all material respects, equally
to the Principals and their Affiliates and transferees of shares of Common Stock
held by them ("Principal Stockholders") on the one hand and the other
stockholders of the Corporation on the other hand. The assumption by the
Principal Stockholders of greater potential liability in such a transaction than
the other stockholders of the Corporation shall be deemed to constitute equal
treatment. Such a transaction may take the form of a sale of all of the
outstanding voting stock of the Corporation, a merger or consolidation in which
the holders of the outstanding voting stock of the Corporation, a merger or
consolidation in which the holders of the outstanding voting stock of the
Corporation before the transaction do not own a majority of the outstanding
voting stock of the combined entity, or a sale of all of the assets of the
Corporation (other than an insignificant amount of immaterial assets).
(b) any sale, assignment, encumbrance, gift, pledge, hypothecation or
other disposition of all or substantially all of the assets of the Corporation
and its subsidiaries, taken as a whole, or of any automotive dealership of the
Corporation or any of its subsidiaries (but excluding any pledge, hypothecation
or encumbrance of such assets to provide security for any bona fide debt);
10
<PAGE>
(c) any entry into a line of business other than the sale or service of
automobiles and other vehicles (whether by stock or asset purchase or otherwise)
by the Corporation or any of its subsidiaries; provided, however, that this
-------- -------
restriction shall not apply to (i) any direct, indirect or beneficial investment
by the Corporation, whether by means of share purchase, loan, advance, extension
of credit (other than accounts receivable and trade credits arising in the
ordinary course of business), capital contribution or otherwise, in or to any
individual, partnership, corporation, limited liability company, trust or
unincorporated organization or a government agency or political subdivision
thereof ("Person"), the guaranty by the Corporation of any Indebtedness of any
other Person or the subordination of any claim against any other Person to other
Indebtedness of such other Person ("Investment"), in (A) direct obligations of,
or obligations guaranteed as to timely payment by, the United States of America
for the payment (with respect to interest as well as principal) of which
obligation or guarantee the full faith and credit of the United States of
America is pledged, maturing within one (1) year of the date of acquisition
thereof, (B) commercial paper maturing within one (1) year from the date issued
and at the time of acquisition, having a rating of at least A-1 from Standard
and Poor's Corporation or at least P1 from Moody's Investors Service, Inc., (C)
certificates of deposit or bankers' acceptances maturing within one (1) year
from the date of issuance thereof issued by any commercial bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia, having combined capital and surplus of not less than Five Hundred
Million Dollars ($500,000,000) and not subject to setoff rights in favor of such
bank, (D) time deposits maturing no more than thirty (30) days from the date of
creation thereof with commercial banks having membership in the Federal Deposit
Insurance Corporation in amounts not exceeding the lesser of One Hundred
Thousand Dollars ($100,000) or the maximum amount of insurance
11
<PAGE>
applicable to the aggregate amount of the Corporation's deposits at such
institution, (E) repurchase obligations with a term of not more than seven (7)
days for underlying securities of the types described in clauses (A), (B) and
(C) above entered into with any commercial bank meeting the qualifications
specified in clause (C) above, (F) securities with maturities of one (1) year or
less from the date of acquisition issued or fully guaranteed by any state of the
United States or the District of Columbia, or by any political subdivision or
taxing authority of any such state or the District of Columbia, the securities
of which state, the District of Columbia, political subdivision or taxing
authority (as the case may be) are rated at least AAA by Standard and Poor's
Corporation or AAA by Moody's Investors Services, Inc., and (G) shares of money
market mutual or similar funds having assets in excess of One Hundred Million
Dollars ($100,000,000) and that invest exclusively in assets satisfying the
requirements of clauses (A) through (F) above, (ii) trade credit extended to
persons in the ordinary course of business, (iii) an Investment by the
Corporation or any of its subsidiaries in any subsidiary of the Corporation that
is engaged in the business of retail selling and/or servicing of automobiles and
light trucks, (iv) loans and advances to employees for moving, entertainment,
travel and other similar expenses in the ordinary course of business not to
exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate at any
time outstanding, (v) Investments in Premier Auto Finance, a limited
partnership, in an aggregate amount not to exceed Five Hundred Thousand Dollars
($500,000.00) at any one time, and (vi) any guaranty by any subsidiary of the
Corporation of Indebtedness of the Corporation. As used in this Section (c) of
this Article SEVENTH, the term "Indebtedness" means, with respect to any Person,
the aggregate amount of, without duplication, the following:
(i) all obligations for borrowed money;
12
<PAGE>
(ii) all obligations evidenced by bonds, debentures, notes or other
similar instruments;
(iii) all obligations to pay the deferred purchase price of property
or services (except Trade Payables, accrued commissions and other similar
accrued current liabilities in respect of such obligations, in any case, not
overdue, arising in the ordinary course of business);
(iv) all obligations to pay rent or other amounts under a lease of
any property (whether real, personal or mixed) that, in conformity with
GAAP, should be accounted for as a capital lease;
(v) all obligations or liabilities of others secured by a lien on
any asset owned by such Person or Persons regardless of whether such obligation
or liability is assumed;
(vi) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances; and
(vii) all guaranties.
(d) any acquisition of assets other than in the ordinary course of
business (including the acquisition of any automotive dealership or all or
substantially all of its assets), pursuant to a single transaction or a series
of related transactions, if the purchase price therefor (including any debt
assumed in connection therewith) exceeds Four Million Dollars ($4,000,000);
(e) any adoption or material amendment of an employee stock option plan or
stock purchase plan or a similar plan under which shares of capital stock of the
Corporation, or rights, options or warrants to acquire shares of capital stock
of the Corporation, of the Corporation or a subsidiary of the Corporation may be
issued;
(f) any issuance or sale of shares of capital stock of the Corporation or
rights, options or warrants to acquire shares of capital stock of the
Corporation or any of its subsidiaries,
13
<PAGE>
other than (i) issuances by the Corporation pursuant to a Qualified IPO, (ii)
the issuance of shares of capital stock of the Corporation or rights, options or
warrants to acquire shares of capital stock of the Corporation under employee
stock option or stock purchase plans, (iii) any such issuance or sale by a
subsidiary of the Corporation to the Corporation or a wholly owned subsidiary of
the Corporation, and (iv) the issuance of any shares of Common Stock upon the
exercise or conversion of any option, warrant or other convertible security;
(g) declaration or payment of any dividend on, distributions with respect
to, or repurchase or redemption of capital stock of the Corporation, other than
(i) pro rata dividends on the Common Stock paid from current earnings, (ii)
payments of dividends on or repurchases of shares of capital stock of the
Corporation's wholly owned subsidiaries, and (iii) repurchases of Common Stock
held by bona fide full-time employees of the Corporation or its subsidiaries
(other than the Principals) in connection with the death, disability or
termination of such employees in accordance with the terms of any employee stock
option or stock purchase plan; provided, however, that the aggregate amount of
all such repurchases from employees shall not exceed Two Hundred Fifty Thousand
Dollars ($250,000) in any fiscal year;
(h) any amendment to the Certificate of Incorporation or Bylaws of the
Corporation or to the Certificate or Articles of Incorporation or Bylaws any of
its subsidiaries;
(i) any dissolution, liquidation or bankruptcy filing of the Corporation
or any of its subsidiaries;
(j) any replacement of the Corporation's independent accountants;
(k) any transaction with an Affiliate of the Corporation; and
(l) any increase or reduction in the number of authorized members of the
Board of Directors of the Corporation or any creation of or appointment of
members to a
14
<PAGE>
committee of the Board of Directors of the Corporation, or any direct or
indirect payment to, or on behalf of, any Director as compensation for serving
thereon or as a member of any committee thereof (other than the reimbursement of
reasonable out-of-pocket expenses incurred in connection with services performed
in accordance with the Bylaws of the Corporation).
EIGHTH: This Corporation reserves the right to amend or repeal any of the
------
provisions contained in this Amended and Restated Certificate of Incorporation
in any manner now or hereafter permitted by law, and the rights of the
stockholders of this Corporation are granted subject to this reservation;
provided, however, that no such amended or repealed provision shall adversely
- -------- -------
affect the rights of the Class B Director Designee pursuant to Article SEVENTH
of this Amended and Restated Certificate of Incorporation without the
affirmative vote of the holders of a majority of the shares of Class B Common
Stock then outstanding.
NINTH: To the fullest extent permitted by the Delaware General Corporation
-----
Law, a director of this Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of the foregoing provisions of this
Article NINTH by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
15
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has
been executed by the undersigned duly authorized officer of the Corporation on
this 7th day of July, 1997.
FirstAmerica Automotive, Inc.
a Delaware corporation
By: /s/ Thomas A. Price
_____________________________________
Thomas A. Price, President
16
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 08:40 AM 07/08/1997
971225062 - 2761294
FirstAmerica Automotive, Inc.
Certificate of Designation of Preferences
of
Redeemable Preferred Stock due 2005
The undersigned does hereby certify that the following resolution was
duly adopted by the board of directors of FirstAmerica Automotive, Inc., a
Delaware corporation (the "Corporation"), pursuant to a unanimous written
-----------
consent dated as of July 7, 1997.
RESOLVED, that pursuant to the authority vested in the board of
directors of the Corporation by the Corporation's Certificate of Incorporation,
as amended, a series of preferred stock of the Corporation be, and it hereby is,
created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated Redeemable Preferred Stock due 2005
(the "RPS"), to consist of 500 shares, par value $0.00001 per share, which may
---
be issued only as whole shares, of which the preferences and relative and other
rights, and the qualifications, limitations or restrictions thereof, shall be
(in addition to those set forth in the Corporation's Certificate of
Incorporation, as amended) as set forth below.
1. Certain Definitions.
-------------------
Unless the context otherwise requires, the terms defined in this
paragraph 1 shall have, for all purposes of this resolution, the meanings herein
specified.
"Board of Directors" means the board of directors of the Corporation.
------------------
"Business Day" means any day which is not a Legal Holiday.
------------
"Capital Stock" means any and all shares, interests, participations
-------------
or other equivalents (however designated) of corporate stock, including without
limitation all common stock and preferred stock.
"Change of Control" means (i) the sale, lease or transfer of all or
-----------------
substantially all of the Corporation's assets to any Person or group (as such
term is used in Section 13(d)(3) of the Exchange Act, (ii) the liquidation or
dissolution of the Corporation, (iii) the acquisition by any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act) other than a
Permitted Holder) of a direct or indirect interest in Voting Securities of the
Corporation representing a majority (more than 50%) of the aggregate Voting
Power of the outstanding Voting Securities of the Corporation, by way of merger
or consolidation or otherwise, (iv) any transaction occurring prior to a
Corporation IPO, as the result of which (A) Permitted Holders do not own (and
have the exclusive power to vote with respect to), directly or indirectly,
Voting Securities representing at least thirty-five percent (35%) of the
aggregate Voting Power of the outstanding Voting Securities of the Corporation,
(B) any Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act) (other than Permitted Holders) owns (or has the power to vote with
respect to), directly or indirectly, Voting Securities representing more of the
aggregate Voting Power of the outstanding Voting Securities of the Corporation
than Permitted Holders or (C) Permitted Holders do not own Equity Interests of
the Corporation representing at least eighty-five percent (85%) of the Equity
Interests of the Corporation that are owned by
<PAGE>
the Permitted Holders on the Closing Date (including any Equity Interests of the
Corporation issued in respect thereof after the Closing Date pursuant to a stock
dividend, a stock split, recapitalization or otherwise), (v) any transaction
occurring after a Corporation IPO, as the result of which (A) any Person or
group (as such term is used in Section 13(d)(3) of the Exchange Act) owns,
directly or indirectly, Voting Securities representing more of the aggregate
Voting Power of the outstanding Voting Securities of the Corporation than
Permitted Holders, or (B) Permitted Holders do not own (and have the exclusive
power to vote with respect to), directly or indirectly, Voting Securities
representing at least twenty percent (20%) of the aggregate Voting Power of the
outstanding Voting Securities of the Corporation and Equity Interests of the
Corporation representing at least fifty percent (50%) of the Equity Interests of
the Corporation that are owned by the Permitted Holders on the Closing Date
(including any Equity Interests of the Corporation issued in respect thereof
after the Closing Date pursuant to a stock dividend, a stock split,
recapitalization or otherwise), (vi) any transaction, as the result of which the
Corporation owns (or has the exclusive power to vote with respect to), directly
or indirectly, less than 100% of the Capital Stock of its Subsidiaries or (vii)
the replacement of a majority of the Board of Directors over a two-year period
from the directors who constituted the Board of Directors at the beginning of
such period, and such replacement shall not have been approved by a vote of at
least a majority of the Board of Directors then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Common Equity" means all shares now or hereafter authorized of any class
-------------
of common stock of the Corporation and any other stock of the Corporation,
howsoever designated, authorized after the Initial Issue Date, that has the
right (subject always to prior rights of any class or series of preferred stock)
to participate in the distribution of the assets and earnings of the Corporation
without limit as to per share amount.
"Common Stock" means all classes of common stock of the Corporation.
------------
"Corporation IPO" means the first to the public of Capital Stock of the
---------------
Corporation pursuant to a registration statement under the Securities Act with a
public offering price of at least $50,000,000 pursuant to a registration
statement under the Securities Act, which shall result in the listing of such
Capital Stock on the New York Stock Exchange or the American Stock Exchange or
the quotation of such Capital Stock on the Nasdaq National Market.
"CRPS" means the 8% Cumulative Redeemable Preferred Stock due 2005 of the
----
Corporation.
"Equity Interest" means (i) with respect to a corporation, any and all
---------------
Capital Stock or warrants, options or other rights to acquire Capital Stock (but
excluding any debt security which is convertible into, or exchangeable or
exercisable for, Capital Stock) and (ii) with respect to a partnership, limited
liability company or similar Person, any and all units, interests, rights to
purchase, warrants, options or other equivalents of, or other ownership
interests in any such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, from
------------
time to time, and any successor statute or law thereto.
"Initial Issue Date" means the date on which shares of RPS are first
------------------
issued.
2
<PAGE>
"Junior Stock" means Common Equity and any class or series of stock of the
------------
Corporation authorized after the Initial Issue Date for which the Certificate of
Incorporation or the applicable certificate of designation does not expressly
provide that such class of series is entitled to receive any assets upon
liquidation, dissolution or winding up of the affairs of the Corporation on a
parity with or senior to the RPS.
"Legal Holiday" means a Saturday, Sunday or day on which banks and trust
-------------
companies in the principal place of business of the Corporation or in New York
are not required to be open.
"Liquidation Preference" means with respect to each share of RPS, on any
----------------------
date after the Initial Issue Date as of which the Liquidation Preference of the
RPS is being calculated (the "Calculation Date"), the amount shown in the table
----------------
below corresponding to the 12-month period beginning on June 30 of a year shown
below in which the Calculation Date occurs.
Year Liquidation Preference
- ---- ----------------------
1997 ..................................... $1080
1998 ..................................... 1160
1999 ..................................... 1240
2000 ..................................... 1320
2001 ..................................... 1400
2002 ..................................... 1480
2003 ..................................... 1560
2004 ..................................... 1640
2005 ..................................... 1720
"Parity Stock" means the CRPS and any class or series of stock of the
------------
Corporation authorized after the Initial Issue Date for which the Certificate of
Incorporation or the applicable Certificate of Designation expressly provides
that such class or series is entitled to receive assets upon liquidation,
dissolution or winding up of the affairs of the Corporation on a parity with the
RPS; provided that any such securities (other than the CRPS) that were not
approved by the holders of the RPS in accordance with this Certificate of
Designation shall be deemed to be Junior Stock and not Parity Stock.
"Permitted Holders" means Thomas A. Price and Donald V. Strough,
-----------------
collectively or any trustee in its capacity as trustee of a trust of which any
of the spouse, siblings, lineal descendants or parents of either of Mr. Price or
Mr. Strough is the beneficiary; provided that Mr. Price or Mr. Strough retains
sole Voting Power with respect to the securities held by such trustee in such
trust, unless such trust was established pursuant to and in conformity with
Section 4.4(c) of the Stockholders' Agreement dated as of July 8, 1997 among the
Company and its stockholders.
"Person" means any individual, corporation, partnership, limited liability
------
company, joint venture, association, trust, unincorporated organization or
government or any agency or political subdivision thereof.
3
<PAGE>
"Preferred Stock" means the CRPS and the RPS.
---------------
"Purchase Agreement" means that certain Securities Purchase Agreement,
------------------
dated as of July 8, 1997, by and among the Corporation, certain Subsidiaries of
the Corporation and the purchasers identified on the signature pages thereto,
relating to the issuance and sale by the Corporation of its 12 2/3% Senior Notes
due June 30, 2005, shares of CRPS, shares of RPS and shares of Common Stock, as
such agreement may be amended from time to time.
"Record Date" has the meaning given to such term in subparagraph 2(c)
-----------
below.
"SEC" means the Securities and Exchange Commission and any government
---
agency succeeding to its functions.
"Securities Act" means, the Securities Act of 1933, as amended, and all
--------------
rules and regulations promulgated by the SEC thereunder.
"Senior Stock" means any class or series of stock of the Corporation
------------
authorized after the Initial Issue Date for which the Certificate of
Incorporation or applicable Certificate of Designation expressly provides that
such class or series ranks senior to the RPS in respect of the right to
participate in any distribution upon liquidation, dissolution or winding up of
the affairs of the Corporation; provided that any such securities that were not
approved by the holders of RPS in accordance with this Certificate of
Designation shall be deemed to be Junior Stock and not Senior Stock.
"share" means a whole share of RPS.
-----
"Subsidiary" means, with respect to any Person, (i) a corporation, a
----------
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is, at the date of determination, directly or indirectly,
owned by such Person, by one or more Subsidiaries of such Person or by such
Person and one or more Subsidiaries of such Person or (ii) a partnership in
which such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but, in the
case of a limited partner, only if such Person or its Subsidiary is entitled to
receive more than 50% of the assets of such partnership upon its dissolution, or
(iii) any limited liability company or any other Person (other than a
corporation or a partnership) in which such Person, a Subsidiary of such Person
or such Person and one or more Subsidiaries of such Person, directly or
indirectly, at the date of determination, has (a) at least a majority ownership
interest or (b) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.
"Voting Securities" means any class of Equity Interests of a Person
-----------------
pursuant to which the holders thereof have, at the time of determination, the
general voting power ("Voting Power") under ordinary circumstances to vote for
------------
the election of directors, managers, trustees or general partners of such Person
(regardless of whether at such time any other class or classes will have or
might have voting power by reason of the happening of any contingency).
2. Dividends.
---------
The holders of RPS shall not be entitled to receive any dividends on
the RPS.
4
<PAGE>
3. Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
(a) If the Corporation or any Subsidiary of the Corporation shall commence
a voluntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or consent to the
entry of an order for relief in an involuntary case under any such law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or such Subsidiary
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation or such Subsidiary shall be entered by a court having
jurisdiction in the premises in an involuntary case under the United States
bankruptcy laws or any applicable bankruptcy, insolvency or similar law of any
other country, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or such
Subsidiary or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and on account of any such event the
Corporation or such Subsidiary shall liquidate, dissolve or wind up, or if the
Corporation or such Subsidiary shall otherwise liquidate, dissolve or wind up,
then no distribution shall be made to the holders of shares of Junior Stock
unless, prior thereto, the holders of shares of RPS shall have received the
Liquidation Preference per share of RPS.
(b) If, upon any such liquidation, dissolution or other winding up of the
affairs of the Corporation the assets of the Corporation shall be insufficient
to permit the payment in full of the amount payable pursuant to clause (a) of
this Section 3 and the full liquidating payments on all Parity Stock, then the
assets of the Corporation shall be ratably distributed among the holders of RPS
and of any Parity Stock in proportion to the full amounts to which they would
otherwise be respectively entitled if all amounts thereon were paid in full.
(c) Written notice of any such liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where the amounts distributable in such circumstances shall be payable, shall be
given by first class mail, postage pre-paid, not less than 30 nor more than 60
days' prior to the payment date stated therein, to each record holder of the
shares of RPS at the respective addresses of such holders as the same shall
appear on the stock transfer records of the Corporation.
(d) Neither the consolidation or merger of the Corporation into or with
another corporation or corporations, nor the sale of all or substantially all of
the assets of the Corporation to another corporation or any other entity shall
be deemed a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of this paragraph 3.
4. Optional Redemption.
-------------------
(a) All the RPS, or any part thereof, at any time outstanding, may be
redeemed by the Corporation, at any time or from time to time at its election
expressed by resolution of the Board of Directors upon not less than 30 nor more
than 60 days' previous notice to the holders of record of the RPS to be
redeemed, given by registered or certified mail, postage prepaid, at the
redemption prices per share (expressed in percentages of the Liquidation
Preference) set forth below during the 12-month periods beginning on June 30 of
the years shown below.
5
<PAGE>
Year Percentage
- ---- ----------
1997 ........................... 110.000%
1998 ........................... 108.750
1999 ........................... 107.500
2000 ........................... 106.250
2001 ........................... 105.000
2002 ........................... 103.750
2003 ........................... 102.500
2004 ........................... 101.250
2005 ........................... 100.000
(b) Any notice of redemption mailed to a holder of RPS at his address as
the same appears on the books of the Corporation shall be conclusively presumed
to have been given regardless of whether the holder receives the notice. Each
such notice shall state the redemption date; the number of shares of RPS to be
redeemed, and, if less than all shares of the RPS held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder and the fact
that a new certificate or certificates representing any unredeemed shares shall
be issued without cost to such holder; and that the redemption price applicable
to the shares to be redeemed shall cease to accrue and accumulate on the
redemption date. No defect in any such notice as to any shares of RPS shall
affect the validity of the proceedings for the redemption of any other shares of
RPS.
(c) The Corporation may not purchase or redeem less than all of the
outstanding shares of RPS and any other series of Parity Stock, unless all
cumulating or accrued dividends with respect any Parity Stock which shall not be
so redeemed or purchased have either been paid or set aside for payment.
(d) If less than all of the outstanding shares of RPS are to be
redeemed, the shares to be redeemed will be determined pro rata, except that the
Corporation may redeem such shares held by any holders of fewer than 10 shares
(or shares held by holders who would hold less than 10 shares as a result of
such redemption), as may be determined by the Corporation.
(e) Any shares of RPS called for redemption pursuant to this paragraph 4
shall not be deemed to be outstanding for the purposes of voting, determining
the total number of shares entitled to vote, or payment of dividends thereon on
or after the redemption date set forth in the notice of redemption mailed to the
holders thereof, unless the Corporation fails to pay the redemption price to the
holders of such shares on such date.
5. Mandatory Redemption.
--------------------
(a) The Corporation shall redeem for cash all of the shares of the RPS
then outstanding on June 30, 2005 (the "Mandatory Redemption Date"), at a
-------------------------
redemption price equal to the Liquidation Preference per share. The Corporation
shall send a written notice of redemption by first class mail to each holder of
record of a share of RPS, not fewer than 30 days nor more than 60 days prior to
the Mandatory Redemption Date. Notice shall be given pursuant to paragraph 4(b)
hereof.
6
<PAGE>
(b) From and after June 30, 2005 (unless a default shall be made by
the Corporation in paying the redemption price on the Mandatory Redemption
Date for the shares of RPS under this paragraph 5), said shares shall no
longer be deemed to be outstanding.
6. Voting Rights.
-------------
(a) The holders of the issued and outstanding shares of RPS shall
have no voting rights except as set forth below, in paragraph 14, and as
required by law.
(b)
(i) Without the affirmative vote or consent of the holders of
at least two-thirds of the votes entitled to be cast by the
outstanding shares of RPS, voting as a single class, the Corporation
may not amend, alter or repeal any provision of the Certificate of
Incorporation or this Certificate of Designation or the bylaws of the
Corporation or of any certificate amendatory thereof or supplemental
thereto so as to affect adversely any of the voting powers or other
rights, preferences, powers or privileges of the RPS or of the holders
of the shares of RPS; and
(ii) Without the affirmative vote or consent of the holders of
at least a majority of the votes entitled to be cast by the
outstanding shares of Preferred Stock, voting together as a single
class:
(A) the Corporation may not create any class of Parity
Stock or Senior Stock or issue any additional shares of
Preferred Stock; and
(B) the Corporation may not enter into any transaction
which violates, or otherwise violate, any of the covenants of
the Corporation set forth in Sections 5.2, 5.3, 5.4, 5.5, 5.6,
5.7, 5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.15, 5.16, 5.17, 5.18,
5.19, 5.20, 5.21, 5.22, 5.23, 5.24, 5.25, 5.28, 5.29, 5.30, 5.31
and 5.32 of the Purchase Agreement.
(c) For purposes of this paragraph 6, each share of Preferred Stock
shall have one vote per share.
7. Stated Capital. The Board of Directors shall allocate to the stated
--------------
capital account for the RPS an amount equal to the Liquidation Preference of the
RPS and shall not allow any reduction in the amount of stated capital for such
RPS except to the extent shares of RPS are redeemed in accordance with the terms
hereof.
8. Exclusion of Other Rights. Except as may otherwise be required by
-------------------------
law, the shares of RPS shall not have any preferences or relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Certificate of Incorporation of the Corporation, as amended.
The shares of RPS shall have no preemptive or subscription rights.
9. Headings of Subdivisions. The headings of the various subdivisions
------------------------
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
7
<PAGE>
10. Severability of Provisions. If any right, preference or limitation of
--------------------------
the RPS set forth in this Certificate of Designation (as such Certificate of
Designation may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
rights, preferences and limitations set forth in this resolution (as so amended)
which can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
11. Status of Reacquired Shares. Shares of RPS which have been issued and
---------------------------
reacquired shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued shares of
preferred stock of the Corporation issuable in series undesignated as to series
and may be redesigned and issued or reissued as the case may be, as part of any
series of preferred stock of the Corporation; except that such shares may not be
reissued or sold as shares of RPS, Parity Stock or Senior Stock.
12. Purchase Agreement and Indenture. The Corporation shall at all times
--------------------------------
keep a copy of the Purchase Agreement available at its corporate headquarters
for inspection by its stockholders and other Persons.
13. Change of Control.
-----------------
(a) In the event that there is a Change of Control (the date of such
Change of Control being the "Trigger Date"), the Corporation shall promptly
------------
notify the holders of the RPS in writing of such occurrence and shall make
an offer to redeem (the "Change of Control Offer") all the shares of RPS
-----------------------
then outstanding at a purchase price per share equal to 101% of the
Liquidation Preference for each outstanding share of RPS.
(b) Notice of a Change of Control Offer shall be mailed by the
Corporation by overnight courier not more than 30 days after the Trigger
Date to the holders of the RPS at their addresses as they appear on the
books of the Corporation. The Change of Control Offer shall remain open
from the time of mailing until the Change of Control Payment Date. The
notice shall contain all instructions and materials necessary to enable
such holders to tender shares of RPS pursuant to the Change of Control
Offer. The notice, which shall govern the terms of the Change of Control
Offer, shall state:
(i) that a Change of Control has occurred, including a
description in reasonable detail of such Change of Control;
(ii) that the Change of Control Offer is being made pursuant
to this paragraph 13, and that all shares of RPS will be accepted for
payment;
(iii) the purchase price for the RPS and the Change of Control
Payment Date, which shall be no earlier than 30 days nor later than 40
days from the date notice of the Change of Control Offer is mailed by
the Corporation (the "Change of Control Payment Date");
------------------------------
8
<PAGE>
(iv) that holders of RPS electing to have a share of RPS redeemed
pursuant to a Change of Control Offer will be required to surrender the
share of RPS to the paying agent at the address specified in the notice
(the "Paying Agent") prior to close of business on the third Business Day
------------
preceding the Change of Control Payment Date;
(v) that holders of RPS will be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a tele-
gram, telex, facsimile transmission or letter setting forth the name of the
holder of RPS, the number of shares of RPS delivered for redemption and a
statement that such holder is withdrawing his or her election to have such
shares of RPS redeemed; and
(vi) that a holder of RPS who does not accept in writing the
Corporation's offer to redeem the shares of RPS held by such holder by
submitting the shares of RPS shall be deemed to have declined to have its
shares of RPS so redeemed.
(c) On the Change of Control Payment Date, the Corporation shall, to the
extent lawful, (i) accept for payment shares of RPS tendered pursuant to the
Change of Control Offer and (ii) deposit with the Paying Agent money sufficient
to pay the redemption price of all shares of RPS so tendered. The Corporation
will notify the remaining holders of RPS of the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
14. Board of Directors.
------------------
(a) In the event that (i) dividends on the CRPS are in arrears and unpaid
for two or more consecutive Semiannual Dividend Periods (as defined in the
certificate of designation relating to the CRPS), regardless of whether declared
by the Board of Directors, or (ii) the Corporation shall have failed to
discharge its obligations to mandatorily redeem all of the outstanding Preferred
Stock at the price and time required by paragraph 5 (the occurrence of either
such event, a "Trigger Event"), then, and in any such event, the holders of the
-------------
Preferred Stock, voting separately as a class, shall be entitled, at the next
annual meeting of the stockholders or at any special meeting, to elect one
member of the Board of Directors. Upon election, such director shall become a
member of the Board of Directors and the authorized number of members of the
Board of Director shall thereupon be automatically increased by one. Such right
of the holders of Preferred Stock to elect such director may be exercised until,
as applicable, (i) all dividend to which the holders of CRPS shall have been
entitled for all previous Dividend Periods (as defined in the certificate of
designation relating to the CRPS), regardless of whether declared by the Board
of Directors, shall have been paid in full, and dividends for the current
Dividend Period declared and a sum of money sufficient for the payment thereof
have been set apart for payment or (ii) the Corporation fulfills its obligation
to redeem all the remaining outstanding shares of Preferred Stock under
paragraph 5 hereof, and when such events occur, the right of the holders of
Preferred Stock to elect such director shall cease, the term of such director
previously elected shall thereupon terminate, and the authorized number of
members of the Board of Directors shall thereupon return to the number of
authorized directors otherwise in effect, but subject always to the same
provisions for the renewal and divestment of such special voting rights in the
case of any such future default or defaults specified herein. The fact that
dividends have been paid and set apart as required by the preceding sentence
shall be evidenced by a certificate executed by the President and the Chief
Financial Officer of the Corporation and
9
<PAGE>
delivered to the Board of Directors. In the event a member of the Board of
Directors is elected due to a nonpayment of dividends as set forth herein,
the director so elected by holders of the Preferred Stock shall serve until
the certificate described in the preceding sentence shall have been
delivered to the Board of Directors or until their respective successors
shall be elected or appointed.
(b) At any time when such special voting rights have been so vested
in the holders of the Preferred Stock, the Secretary of the Corporation
may, and upon the written request of the holders of record of a majority of
the number of shares of the Preferred Stock then outstanding addressed to
such Secretary at the principal office of the Corporation shall, call a
special meeting of the holders of the Preferred Stock for the election of
the directors to be elected by them as hereinabove provided, to be held in
the case of such written request within 40 days after delivery of such
request, and in either case to be held at the place and upon the notice
provided by law and in the Corporation's Bylaws for the holding of meetings
of stockholders; provided, however, that the Secretary shall not be
required to call such a special meeting if any such request is received
less than 90 days before the date fixed for the next ensuing annual or
special meeting of stockholders.
(c) The Board of Directors may not, except to satisfy the
provisions of this paragraph 14, be increased to more than 6 members.
(d) The Corporation shall reimburse promptly all directors
elected pursuant to this paragraph 14 for all reasonable expenses incurred
by such directors in connection with their attendance at meetings of the
Board of Directors and any committees thereof.
15. Rank. The RPS shall, with respect to dividend distributions and
----
distributions upon liquidation, dissolution or winding up of the Corporation,
rank senior to all classes of Common Stock of the Corporation and, subject to
the preference and other rights of the Senior Stock and the Parity Stock, to
each other class of Capital Stock of the Corporation now or hereafter created.
10
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed by its President and attested by its Secretary on July 7, 1997.
FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Thomas A. Price
---------------------------
Thomas A. Price
President
Attest:
/s/ W. Bruce Bercovich
- --------------------------------
W. Bruce Bercovich
Secretary
11
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 08:35 AM 07/08/1997
971225058 - 2761294
FirstAmerica Automotive, Inc.
Certificate of Designation of Preferences
of
8% Cumulative Redeemable Preferred Stock due 2005
The undersigned does hereby certify that the following resolution was
duly adopted by the board of directors of FirstAmerica Automotive, Inc., a
Delaware corporation (the "Corporation"), pursuant to a unanimous written
consent dated as of July 7, 1997.
RESOLVED, that pursuant to the authority vested in the board of
directors of the Corporation by the Corporation's Certificate of Incorporation,
as amended, a series of preferred stock of the Corporation be, and it hereby is,
created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated 8% Cumulative Redeemable Preferred
Stock due 2005 (the "CRPS"), to consist of 3,500 shares, par value $0.00001 per
share, which may be issued only as whole shares, of which the preferences and
relative and other rights, and the qualifications, limitations or restrictions
thereof, shall be (in addition to those set forth in the Corporation's
Certificate of Incorporation, as amended) as set forth below.
1. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
paragraph 1 shall have, for all purposes of this resolution, the meanings herein
specified.
"Board of Directors" means the board of directors of the Corporation.
"Business Day" means any day which is not a Legal Holiday.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock, including
without limitation all common stock and preferred stock.
"Change of Control" means (i) the sale, lease or transfer of all or
substantially all of the Corporation's assets to any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), (ii) the
liquidation or dissolution of the Corporation, (iii) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than a Permitted Holder) of a direct or indirect interest in
Voting Securities of the Corporation representing a majority (more than
50%) of the aggregate Voting Power of the outstanding Voting Securities of
the Corporation, by way of merger or consolidation or otherwise, (iv) any
transaction occurring prior to a Corporation IPO, as the result of which
(A) Permitted Holders do not own (and have the exclusive power to vote with
respect to), directly or indirectly, Voting Securities representing at
least thirty-five percent (35%) of the aggregate Voting Power of the
outstanding voting Securities of the Corporation, (B) any Person or group
as such term is used in Section 13(d)(3) of the Exchange Act) (other than
Permitted Holders) owns (or has the power to vote with respect to),
directly or indirectly, Voting Securities representing more of the
aggregate Voting Power of the outstanding Voting Securities of the
Corporation than Permitted Holders or (C) Permitted Holders do not own
Equity Interests of the Corporation representing at least eighty-five
percent (85%) of the Equity Interests of the corporation that are owned by
<PAGE>
the Permitted Holders on the Closing Date (including any Equity Interests of the
Corporation issued in respect thereof after the Closing Date pursuant to a stock
dividend, a stock split, recapitalization or otherwise), (v) any transaction
occurring after a Corporation IPO, as the result of which (A) any Person or
group (as such term is used in Section 13(d)(3) of the Exchange Act) owns,
directly or indirectly, Voting Securities representing more of the aggregate
Voting Power of the outstanding Voting Securities of the Corporation than
Permitted Holders, or (B) Permitted Holders do not own (and have the exclusive
power to vote with respect to), directly or indirectly, Voting Securities
representing at least twenty percent (20%) of the aggregate Voting Power of the
outstanding Voting Securities of the Corporation and Equity Interests of the
Corporation representing at least fifty percent (50%) of the Equity Interests of
the Corporation that are owned by the Permitted Holders on the Closing Date
(including any Equity Interests of the Corporation issued in respect thereof
after the Closing Date pursuant to a stock dividend, a stock split,
recapitalization or otherwise), (vi) any transaction, as the result of which the
Corporation owns (or has the exclusive power to vote with respect to), directly
or indirectly, less than 100% of the Capital Stock of its Subsidiaries or (vii)
the replacement of a majority of the Board of Directors over a two-year period
from the directors who constituted the Board of Directors at the beginning of
such period, and such replacement shall not have been approved by a vote of at
least a majority of the Board of Directors then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Common Equity" means all shares now or hereafter authorized of any class
of common stock of the Corporation and any other stock of the Corporation,
howsoever designated, authorized after the Initial Issue Date, that has the
right (subject always to prior rights of any class or series of preferred stock)
to participate in the distribution of the assets and earnings of the Corporation
without limit as to per share amount.
"Common Stock" means all classes of common stock of the Corporation.
"Corporation IPO" means the first sale to the public of Capital Stock of
the Corporation pursuant to a registration statement under the Securities Act
with a public offering price of at least $50,000,000 pursuant to a registration
statement under the Securities Act, which shall result in the listing of such
Capital Stock on the New York Stock Exchange or the American Stock Exchange or
the quotation of such Capital Stock on the Nasdaq National Market.
"Dividend Payment Date" has the meaning given to such term in subparagraph
2(b) below.
"Dividend Period" has the meaning given to such term in subparagraph 2(c)
below.
"Equity Interest" means (i) with respect to a corporation, any and all
Capital Stock or warrants, options or other rights to acquire Capital Stock (but
excluding any debt security which is convertible into, or exchangeable or
exercisable for, Capital Stock) and (ii) with respect to a partnership, limited
liability company or similar Person, any and all units, interests, rights to
purchase, warrants, options or other equivalents of, or other ownership
interests in any such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, from
time to time, and any successor statute or law thereto.
2
<PAGE>
"Initial Issue Date" means the date on which shares of CRPS are fist
issued.
"Junior Stock" means Common Equity and any class or series of stock of the
Corporation authorized after the Initial Issue Date for which the Certificate of
Incorporation or the applicable certificate of designation does not expressly
provide that such class or series is entitled to receive (a) any dividends on a
parity with or senior to the CRPS and (b) any assets upon liquidation,
dissolution or winding up of the affairs of the Corporation on a parity with or
senior to the CRPS.
"Legal Holiday" means a Saturday, Sunday or day on which banks and trust
companies in the principal place of business of the Corporation or in New York
are not required to be open.
"Liquidation Preference" means with respect to each share of CRPS, $1,000.
"Parity Stock" means the RPS and any class or series of stock of the
Corporation authorized after the Initial Issue Date for which the Certificate of
Incorporation or the applicable Certificate of Designation expressly provides
that such class or series is entitled to receive (a) payment of dividends on a
parity with the CRPS or (b) assets upon liquidation, dissolution or winding up
of the affairs of the Corporation on a parity with the CRPS; provided that any
such securities (other than the RPS) that were not approved by the holders of
the CRPS in accordance with this Certificate of Designation shall be deemed to
be Junior Stock and not Parity Stock.
"Permitted Holders" means Thomas A. Price and Donald V. Strough,
collectively or any trustee in its capacity as trustee of a trust of which any
of the spouse, siblings, lineal descendants or parents of either of Mr. Price or
Mr. Strough is the beneficiary; provided that Mr. Price or Mr. Strough retains
sole Voting Power with respect to the securities held by such trustee in such
trust, unless such trust was established pursuant to and in conformity with
Section 4.4(c) of the Stockholders' Agreement dated as of July 8, 1997 among the
Company and its stockholders.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Stock" means the CRPS and the RPS.
"Purchase Agreement" means that certain Securities Purchase Agreement,
dated as of the July 8, 1997, by and among the Corporation, certain Subsidiaries
of the Corporation and the purchasers identified on the signature pages thereto,
relating to the issuance and sale by the Corporation of its 12-3/8% Senior Notes
due June 30, 2005, shares of CRPS, shares of RPS and shares of Common Stock, as
such agreement may be amended from time to time.
"Record Date" has the meaning given to such term in subparagraph 2(c)
below.
"RPS" means the Redeemable Preferred Stock due 2005 of the Corporation.
"SEC" means the Securities and Exchange Commission and any government
agency succeeding to its functions.
3
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations promulgated by the SEC thereunder.
"Semiannual Dividend Period" has the meaning given to such term in
subparagraph 2(c) below.
"Senior Stock" means any class or series of stock of the Corporation
authorized after the Initial Issue Date for which the Certificate of
Incorporation or applicable Certificate of Designation expressly provides that
such class or series ranks senior to the CRPS in respect of the right to receive
dividends or senior to the CRPS in respect of the right to participate in any
distribution upon liquidation, dissolution or winding up of the affairs of the
Corporation; provided that any such securities that were not approved by the
holders of CRPS in accordance with this Certificate of Designation shall be
deemed to be Junior Stock and not Senior Stock.
"share" means a whole share of CRPS.
"Subsidiary" means, with respect to any Person, (i) a corporation, a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is, at the date of determination, directly or indirectly,
owned by such Person, by one or more Subsidiaries of such Person or by such
Person and one or more Subsidiaries of such Person or (ii) a partnership in
which such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but, in the
case of a limited partner, only if such Person or its Subsidiary is entitled to
receive more than 50% of the assets of such partnership upon its dissolution, or
(iii) any limited liability company or any other Person (other than a
corporation or a partnership) in which such Person, a Subsidiary of such Person
or such Person and one or more Subsidiaries of such Person, directly or
indirectly, at the date of determination, has (a) at least a majority ownership
interest or (b) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.
"Voting Securities" means any class of Equity Interests of a Person
pursuant to which the holders thereof have, at the time of determination, the
general voting power ("Voting Power") under ordinary circumstances to vote for
the election of directors, managers, trustees or general partners of such Person
(regardless of whether at such time any other class or classes will have or
might have voting power by reason of the happening of any contingency).
2. Dividends.
(a) The record holders of CRPS shall be entitled to receive, when and as
declared by the Board of Directors, out of funds of the Corporation legally
available therefor, cash dividends on the CRPS, at an annual rate equal to 8% of
the Liquidation Preference (equivalent to $80.00 per annum per share of CRPS);
provided, however, that if any such dividends are not paid in full on any
Dividend Payment Date, regardless of whether they have been declared by the
Board of Directors, or any such dividends or the redemption price is not paid in
full on the Mandatory Redemption Date, then cash dividends on the CRPS shall
accrue and be cumulative at an annual rate of 14% of the Liquidation Preference
(equivalent to $140.00 per annum per share of CRPS), from the beginning of the
Semiannual Dividend Period with respect to which such dividends would have been
payable had they been declared by the Board of Directors through and including
the date on which all such dividends or redemption price, as the case may
4
<PAGE>
be, have been paid in full.
(b) Dividends shall accrue and be cumulative as to any share of CRPS from
the date on which such share is first issued. Dividends on the CRPS shall be
payable in arrears, regardless of whether declared by the Board of Directors, on
May 31 and November 30 of each year (a "Dividend Payment Date"), commencing on
November 30, 1997. Dividends shall be paid to the holders of record of the CRPS
as their names shall appear on the share register of the Corporation on the
Record Date for such dividend. Dividends on the CRPS payable in any Dividend
Period that is less than a full Semiannual Dividend Period in length will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Dividends on the CRPS on account of arrears for any past Dividend Periods may be
declared and paid at any time to holders of record on the Record Date for such
dividend on account of arrears.
(c) As used herein, the following terms shall have the respective meanings
set forth below:
(i) "Dividend Period" means as to any share of CRPS the initial
period from its date on which such share is first issued through and
including the next Dividend Payment Date or any Semiannual Dividend Period
thereafter, as the case may be;
(ii) "Semiannual Dividend Period" means each of the periods
commencing on June 1 and December 1 in each year and ending on (and
including) the day next preceding the first day of the next Semiannual
Dividend Period; and
(iii) "Record Date" means with respect to the dividend payable on May
31 or November 30 of each year, the preceding May 15 or November 15,
respectively, or such other date as may be designated by the Board of
Directors with respect to the dividend payable on such respective Dividend
Payment Date.
(d) So long as any shares of CRPS shall be outstanding, the Corporation
shall not declare or pay or set apart for payment any dividends or make any
other distributions on, or make payment on account of the purchase, redemption
or other retirement of, any Junior Stock, whether in cash, property or otherwise
(other than dividends or distributions payable in shares of the class or series
upon which such dividends or distributions are declared or paid, or payable in
shares of Common Stock with respect to Junior Stock other than Common Stock,
together with cash in lieu of fractional shares), nor shall the Corporation make
any distribution on any Junior Stock, nor shall any Junior Stock be purchased or
redeemed or otherwise acquired by the Corporation or any of its Subsidiaries,
nor shall any monies be paid or made available for a sinking fund for the
purchase or redemption of any Junior Stock, unless with respect to all of the
foregoing all dividends to which the holders of CRPS shall have been entitled
for all previous Dividend Periods, regardless of whether declared by the Board
of Directors, shall have been paid or declared and a sum of money sufficient for
payment thereof have been set apart.
(e) In the event that full dividends are not paid or made available to
the holders of all outstanding shares of CRPS and of any Parity Stock and funds
available for payment of dividends shall be insufficient to permit payment in
full to holders of all such stock of the full preferential amounts to which they
are then entitled, then the entire amount available for payment of dividends
shall be distributed ratably among all such holders of CRPS and of any Parity
Stock in proportion to the full amount to which they would otherwise be
respectively entitled.
5
<PAGE>
3. Distributions Upon Liquidation, Dissolution or Winding Up.
(a) If the Corporation or any Subsidiary of the Corporation shall commence
a voluntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or consent to the
entry of an order for relief in an involuntary case under any such law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or such Subsidiary
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation or such Subsidiary shall be entered by a court having
jurisdiction in the premises in an involuntary case under the United States
bankruptcy laws or any applicable bankruptcy, insolvency or similar law of any
other country, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or such
Subsidiary or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and on account of any such event the
Corporation or such Subsidiary shall liquidate, dissolve or wind up, or if the
Corporation or such Subsidiary shall otherwise liquidate, dissolve or wind up,
then no distribution shall be made to the holders of shares of Junior Stock
unless, prior thereto, the holders of shares of CRPS shall have received the
Liquidation Preference per share of CRPS plus all dividends accumulated and
unpaid thereon (regardless of whether earned or declared) to the date of such
liquidation or dissolution or such other winding up.
(b) If, upon any such liquidation, dissolution or other winding up of the
affairs of the Corporation the assets of the Corporation shall be insufficient
to permit the payment in full of the amount payable pursuant to clause (a) of
this Section 3 and the full liquidating payments on all Parity Stock, then the
assets of the Corporation shall be ratably distributed among the holders of CRPS
and of any Parity Stock in proportion to the full amounts to which they would
otherwise be respectively entitled if all amounts thereon were paid in full.
(c) Written notice of any such liquidation, dissolution or winding up of
the Corporation, stating the payments date or dates when, and the place or
places where the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage pre-paid, not less than 30 nor more
than 60 days' prior to the payment date stated therein, to each record holder of
the shares of CRPS at the respective addresses of such holders as the same shall
appear on the stock transfer records of the Corporation.
(d) Neither the consolidation or merger of the Corporation into or with
another corporation or corporations, nor the sale of all or substantially all of
the assets of the Corporation to another corporation or any other entity shall
be deemed a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of this paragraph 3.
4. Optional Redemption.
(a) All of the CRPS, or any part thereof, at any time outstanding, may be
redeemed by the Corporation, at any time or from time to time at its election
expressed by resolution of the Board of Directors upon not less than 30 nor more
than 60 days' previous notice to the holders of record of the CRPS to be
redeemed, given by registered or certified mail, postage prepaid, at the
redemption prices per share (expressed in percentage of the Liquidation
Preference) set forth below during the 12-month periods beginning on June 30 of
the years shown below, in each
6
<PAGE>
case plus accumulated and unpaid dividends to the date fixed for redemption,
regardless of whether declared by the Board of Directors.
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
1997................................ 110.000%
1998................................ 108.750
1999................................ 107.500
2000................................ 106.250
2001................................ 105.000
2002................................ 103.750
2003................................ 102.500
2004................................ 101.250
2005................................ 100.000
</TABLE>
(b) Any notice of redemption mailed to a holder of CRPS at his address as
the same appears on the books of the Corporation shall be conclusively presumed
to have been given regardless of whether the holder receives the notice. Each
such notice shall state the redemption date; the number of shares of CRPS to be
redeemed, and, if less than all shares of the CRPS held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder and the fact
that a new certificate or certificates representing any unredeemed shares shall
be issued without cost to such holder; and that the redemption price applicable
to the shares to be redeemed shall cease to accrue and accumulate on the
redemption date. No defect in any such notice as to any shares of CRPS shall
affect the validity of the proceedings for the redemption of any other shares of
CRPS.
(c) The Corporation may not purchase or redeem less than all of the
outstanding shares of CRPS and any other series of Parity Stock, unless all
cumulating or accrued dividends with respect to the shares of CRPS and any
Parity Stock which shall not be so redeemed or purchased have either been paid
or set aside for payment.
(d) If less than all of the outstanding shares of CRPS are to be redeemed,
the shares to be redeemed will be determined pro rata, except that the
Corporation may redeem such shares held by any holders of fewer than 10 shares
(or shares held by holders who would hold less than 10 shares as a result of
such redemption), as may be determined by the Corporation.
(e) Any shares of CRPS called for redemption pursuant to this paragraph 4
shall not be deemed to be outstanding for the purposes of voting, determining
the total number of shares entitled to vote, or payment of dividends thereon on
or after the redemption date set forth in the notice of redemption mailed to the
holders thereof, unless the Corporation fails to pay the redemption price to the
holders of such shares on such date.
5. Mandatory Redemption.
(a) The Corporation shall redeem for cash all of the shares of the CRPS
then outstanding on June 30, 2005 (the "Mandatory Redemption Date"), at a
redemption price equal to the Liquidation Preference per share plus accumulated
and unpaid dividends to such date, regardless of whether declared by the Board
of Directors. The Corporation shall send a written notice of redemption by first
class mail to each holder of record of a share of CRPS, not fewer
7
<PAGE>
than 30 days nor more than 60 days prior to the Mandatory Redemption Date.
Notice shall be given pursuant to paragraph 4(b) hereof.
(b) From and after June 30, 2005 (unless a default shall be made by
the Corporation in paying the redemption price on the Mandatory Redemption
Date for the shares of CRPS under this paragraph 5), dividends on the
shares of CRPS shall cease to accrue, and said shares shall no longer be
deemed to be outstanding.
6. Voting Rights.
(a) The holders of the issued and outstanding shares of CRPS shall
have no voting rights except as set forth below, in paragraph 14, and as
required by law.
(b)
(i) Without the affirmative vote or consent of the holders of at
least two-thirds of the votes entitled to be cast by the outstanding
shares of CRPS, voting as a single class, the Corporation may not
amend, alter or repeal any provision of the Certificate of
Incorporation or this Certificate of Designation or the bylaws of the
Corporation or of any certificate amendatory thereof or supplemental
thereto so as to affect adversely any of the voting powers or other
rights, preferences, powers or privileges of the CRPS or of the
holders of the shares of CRPS; and
(ii) Without the affirmative vote or consent of the holders of at
least a majority of the votes entitled to be cast by the outstanding
shares of Preferred Stock, voting together as a single class:
(A) the Corporation may not create any class of Parity Stock
or Senior Stock or issue any additional shares of Preferred
Stock; and
(B) the Corporation may not enter into any transaction which
violates, or otherwise violate, any of the covenants of the
Corporation set forth in Sections 5.2, 5.3, 5.4, 5.5, 5.6, 5.7,
5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.15, 5.16, 5.17, 5.18, 5.19,
5.20, 5.21, 5.22, 5.23, 5.24, 5.25, 5.28, 5.29, 5.30, 5.31, and
5.32 of the Purchase Agreement.
(c) For purposes of this paragraph 6, each share of Preferred Stock
shall have one vote per share.
7. Stated Capital. The Board of Directors shall allocate to the stated
capital account for the CRPS an amount equal to the Liquidation Preference of
the CRPS and shall not allow any reduction in the amount of stated capital for
such CRPS except to the extent shares of CRPS are redeemed in accordance with
the terms hereof.
8. Exclusion of Other Rights. Except as may otherwise be required by law,
the shares of CRPS shall not have any preferences or relative, participating,
optional or other special rights, other than those specifically set forth in
this resolution (as such resolution may be amended from time to time) and in the
Certificate of Incorporation of the Corporation, as amended. The shares of CRPS
shall have no preemptive or subscription rights.
8
<PAGE>
9. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
10. Severability of Provisions. If any right, preference or limitation of
the CRPS set forth in this Certificate of Designation (as such Certificate of
Designation may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
rights, preferences and limitations set forth in this resolution (as so amended)
which can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
11. Status of Reacquired Shares. Shares of CRPS which have been issued and
reacquired shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued shares of
preferred stock of the Corporation issuable in series undesignated as to series
and may be redesignated and issued or reissued as the case may be, as part of
any series of preferred stock of the Corporation; except that such shares may
not be reissued or sold as shares of CRPS, Parity Stock or Senior Stock.
12. Purchase Agreement and Indenture. The Corporation shall at all times
keep a copy of the Purchase Agreement available at its corporate headquarters
for inspection by its stockholders and other Persons.
13. Change of Control.
(a) In the event that there is a Change of Control (the date of such
Change of control being the "Trigger Date"), the Corporation shall
promptly notify the holders of the CRPS in writing of such occurrence and
shall make an offer to redeem (the "Change of Control Offer") all the
shares of CRPS then outstanding at a purchase price per share equal to 101%
of the Liquidation Preference for each outstanding share of CRPS, plus
accumulated and unpaid dividends thereon to and including the Change of
Control Payment Date (as defined below).
(b) Notice of a Change of Control Offer shall be mailed by the
Corporation by overnight courier not more than 30 days after the Trigger
Date to the holders of the CRPS at their addresses as they appear on the
books of the Corporation. The Change of Control Offer shall remain open
from the time of mailing until the Change of Control Payment Date. The
notice shall contain all instructions and materials necessary to enable
such holders to tender shares of CRPS pursuant to the Change of Control
Offer. The notice, which shall govern the terms of the Change of Control
Offer, shall state:
(i) that a Change of Control has occurred, including a
description in reasonable detail of such Change of Control;
(ii) that the Change of Control Offer is being made pursuant to
this paragraph 13, and that all shares of CRPS will be accepted for
payment;
(iii) The purchase price for the CRPS and the Change of Control
Payment Date, which shall be no earlier than 30 days nor later than 40
days from the date notice of the Change of Control Offer is mailed by
the Corporation (the "Change of Control Payment Date");
9
<PAGE>
(iv) that any shares of CRPS not tendered will continue to
accumulate dividends;
(v) that, unless the Corporation defaults in the payment of the
Change of Control Payment, any shares of CRPS accepted for redemption
pursuant to the Change of Control Offer shall cease to accumulate
dividends on and after the Change of Control Payment Date;
(vi) that holders of CRPS electing to have a share of CRPS
redeemed pursuant to a Change of Control Offer will be required to
surrender the share of CRPS to the paying agent at the address
specified in the notice (the "Paying Agent") prior to close of
business on the third Business Day preceding the Change of Control
Payment Date;
(vii) that holders of CRPS will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder of CRPS, the number of shares of
CRPS delivered for redemption and a statement that such holder is
withdrawing his or her election to have such shares of CRPS redeemed;
and
(viii) that a holder of CRPS who does not accept in writing the
Corporation's offer to redeem the shares of CRPS held by such holder
by submitting the shares of CRPS shall be deemed to have declined to
have its shares of CRPS so redeemed.
(c) On the Change of Control Payment Date, the Corporation shall, to
the extent lawful, (i) accept for payment shares of CRPS tendered pursuant
to the Change of Control Offer and (ii) deposit with the Paying Agent money
sufficient to pay the redemption price of all shares of CRPS so tendered.
The Corporation will notify the remaining holders of CRPS of the results of
the Change of Control Offer on or as soon as practicable after the Change
of Control Payment Date.
14. Board of Directors.
(a) In the event that (i) dividends on the CRPS are in arrears and
unpaid for two or more consecutive Semiannual Dividend Periods, regardless
of whether declared by the Board of Directors, or (ii) the Corporation
shall have failed to discharge its obligations to mandatorily redeem all of
the outstanding Preferred Stock at the price and time required by paragraph
5 (the occurrence of either such event, a "Trigger Event"), then, and in
any such event, the holders of the Preferred Stock, voting separately as a
class, shall be entitled, at the next annual meeting of the stockholders or
at any special meeting, to elect one member of the Board of Directors. Upon
election, such director shall become a member of the Board of Directors and
the authorized number of members of the Board of Directors shall thereupon
be automatically increased by one. Such right of the holders of Preferred
Stock to elect such director may be exercised until, as applicable, (i) all
dividends to which the holders of CRPS shall have been entitled for all
previous Dividend Periods, regardless of whether declared by the Board of
Directors, shall have been paid in full, and dividends for the current
Dividend Period declared and a sum of money sufficient for the payment
thereof have been set apart for payment or (ii) the Corporation fulfills
its obligation to redeem all the remaining outstanding shares of Preferred
Stock under paragraph 5 hereof, and
10
<PAGE>
when such events occur, the right of the holders of Preferred Stock to
elect such director shall cease, the term of such director previously
elected shall thereupon terminate, and the authorized number of members of
the Board of Directors shall thereupon return to the number of authorized
directors otherwise in effect, but subject always to the same provisions
for the renewal and divestment of such special voting rights in the case of
any such future default or defaults specified herein. The fact that
dividends have been paid and set apart as required by the preceding
sentence shall be evidenced by a certificate executed by the President and
the Chief Financial Officer of the Corporation and delivered to the Board
of Directors. In the event a member of the Board of Directors is elected
due to a nonpayment of dividends as set forth herein, the director so
elected by holders of the Preferred Stock shall serve until the certificate
described in the preceding sentence shall have been delivered to the Board
of Directors or until their respective successors shall be elected or
appointed.
(b) At any time when such special voting rights have been so vested
in the holders of the Preferred Stock, the Secretary of the Corporation
may, and upon the written request of the holders of record of a majority of
the number of shares of the Preferred Stock then outstanding addressed to
such Secretary at the principal office of the Corporation shall, call a
special meeting of the holders of the Preferred Stock for the election of
the directors to be elected by them as hereinabove provided, to be held in
the case of such written request within 40 days after delivery of such
request, and in either case to be held at the place and upon the notice
provided by law and in the Corporation's Bylaws for the holding of meetings
of stockholders; provided, however, that the Secretary shall not be
required to call such a special meeting if any such request is received
less than 90 days before the date fixed for the next ensuing annual or
special meeting of stockholders.
(c) The Board of Directors may not, except to satisfy the
provisions of this paragraph 14, be increased to more than 6 members.
(d) The Corporation shall reimburse promptly all directors elected
pursuant to this paragraph 14 for all reasonable expenses incurred by such
directors in connection with their attendance at meetings of the Board of
Directors and any committees thereof.
15. Rank. The CRPS shall, with respect to dividend distributions and
distributions upon liquidation, dissolution or winding up of the Corporation,
rank senior to all classes of Common Stock of the Corporation and, subject to
the preferences and other rights of the Senior Stock and the Parity Stock, to
each other class of Capital Stock of the Corporation now or hereafter created.
11
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and attested by its Secretary on July 7, 1997.
FIRST AMERICA AUTOMOTIVE, INC.
By: /s/ Thomas A. Price
----------------------
Thomas A. Price
President
Attest:
/s/ W. Bruce Barcovich
- ----------------------
W. Bruce Barcovich
Secretary
12
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
FIRSTAMERICA AUTOMOTIVE, INC.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I STOCKHOLDERS............................................. 1
1.1. Annual Meeting.......................................... 1
1.2. Special Meetings........................................ 1
1.3. Notice of Meetings...................................... 1
1.4. Quorum.................................................. 1
1.5. Organization............................................ 2
1.6. Conduct of Business..................................... 2
1.7. Proxies and Voting...................................... 2
1.8. Stock List.............................................. 2
1.9. Stockholder Action by Written Consent................... 3
ARTICLE II BOARD OF DIRECTORS...................................... 3
2.1. Number and Term of Office............................... 3
2.2. Vacancies and Newly Created Directorships............... 3
2.3. Removal................................................. 3
2.4. Regular Meetings........................................ 4
2.5. Special Meetings........................................ 4
2.6. Quorum.................................................. 4
2.7. Participation in Meetings by Conference Telephone....... 4
2.8. Conduct of Business..................................... 4
2.9. Powers.................................................. 4
2.10. Compensation of Directors............................... 5
2.11. Nomination of Director Candidates....................... 5
ARTICLE III COMMITTEES............................................. 5
3.1. Committees of the Board of Directors.................... 5
3.2. Conduct of Business..................................... 6
ARTICLE IV OFFICERS................................................ 6
4.1. Generally............................................... 6
4.2. Chairman of the Board................................... 6
4.3. President............................................... 6
4.4. Vice President.......................................... 6
4.5. Chief Financial Officer................................. 7
4.6. Secretary............................................... 7
4.7. Delegation of Authority................................. 7
4.8. Removal................................................. 7
4.9. Action With Respect to Securities of Other Corporations. 7
ARTICLE V STOCK.................................................... 8
5.1. Certificates of Stock................................... 8
5.2. Transfers of Stock...................................... 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.3. Record Date.............................................. 8
5.4. Lost, Stolen or Destroyed Certificates................... 8
5.5. Regulations.............................................. 8
ARTICLE VI NOTICES................................................. 8
6.1. Notices.................................................. 8
6.2. Waivers.................................................. 9
ARTICLE VII MISCELLANEOUS.......................................... 9
7.1. Facsimile Signatures..................................... 9
7.2. Corporate Seal........................................... 9
7.3. Reliance Upon Books, Reports and Records................. 9
7.4. Fiscal Year.............................................. 9
7.5. Time Periods............................................. 9
ARTICLE VIII....................................................... 9
8.1. Right to Indemnification................................. 9
8.2. Right of Claimant to Bring Suit.......................... 10
8.3. Non-Exclusivity of Rights................................ 11
8.4. Indemnification Contracts................................ 11
8.5. Insurance................................................ 11
8.6. Effect of Amendment...................................... 11
ARTICLE IX AMENDMENTS.............................................. 11
</TABLE>
2
<PAGE>
BY-LAWS
OF
FIRSTAMERICA AUTOMOTIVE, INC.
ARTICLE I
STOCKHOLDERS
------------
Section 1.1. Annual Meeting. An annual meeting of the stockholders of
--------------
FirstAmerica Automotive, Inc. (the "Corporation"), for the election of directors
and for the transaction of such other business as may properly come before the
meeting, shall be held at such place, on such date, and at such time as the
Board of Directors shall each year fix, which date shall be within thirteen
months subsequent to the later of the date of incorporation or the last annual
meeting of stockholders.
Section 1.2. Special Meetings. Special meetings of the stockholders,
----------------
for any purpose or purposes prescribed in the notice of the meeting, may be
called by (1) the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption), (2) the President or (3) the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting, and shall be held at such place, on such date, and at such time
as they shall fix. Business transacted at special meetings shall be confined to
the purpose or purposes stated in the notice.
Section 1.3. Notice of Meetings. Written notice of the place, date, and
------------------
time of all meetings of the stockholders shall be given not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 1.4. Quorum. At any meeting of the stockholders, the holders
------
of a majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law or by the Certificate of Incorporation or By-Laws of this
Corporation.
1
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
Section 1.5. Organization. Such person as the Board of Directors may
------------
have designated or, in the absence of such a person, the chief executive officer
of the Corporation or, in his absence, such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the Corporation,
the secretary of the meeting shall be such person as the chairman appoints.
Section 1.6. Conduct of Business. The chairman of any meeting of
-------------------
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order.
Section 1.7. Proxies and Voting. At any meeting of the stockholders,
------------------
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing filed in accordance with the procedure established for
the meeting.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law.
All voting, except where otherwise required by law, may be by a voice vote;
provided, however, that upon demand therefor by a stockholder entitled to vote
or by his or her proxy, a stock vote shall be taken. Every stock vote shall be
taken by ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established for the meeting. Every vote taken by ballots shall be counted by an
inspector or inspectors appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or these By-Laws, all other matters shall be
determined by a majority of the votes cast.
Section 1.8. Stock List. A complete list of stockholders entitled to
----------
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in his or her name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within
2
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the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting is
to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 1.9. Stockholder Action by Written Consent. Any action which may
-------------------------------------
be taken at any annual or special meeting of stockholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
actions so taken, is signed by the holders of outstanding shares having not less
than the minimum number of votes which would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. All such consents shall be filed with the secretary of the
Corporation and shall be maintained in the corporate records. Prompt notice of
the taking of a corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE II
BOARD OF DIRECTORS
------------------
Section 2.1. Number and Term of Office. The number of directors shall
-------------------------
initially be four, and, thereafter, shall be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution adopted by a majority of the
total number of authorized directors (whether or not there exist any vacancies
in previously authorized directorships at the time any such resolution is
presented to the Board for adoption). Each director shall hold office until his
successor is elected and qualified or until his earlier death, resignation,
retirement, disqualification or removal.
Section 2.2. Vacancies and Newly Created Directorships. Newly created
-----------------------------------------
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, or other cause (other then removal from office by
a vote of the stockholders) may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the next annual meeting of
stockholders. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 2.3. Removal. Subject to the limitations stated in the
-------
Certificate of Incorporation, any director, or the entire Board of Directors,
may be removed from office at any time, with or without cause, but only by the
affirmative vote of the holders of at least a majority of the voting power of
all of the then outstanding shares of stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
Vacancies in the Board of Directors resulting from such removal may be filled by
(i) a majority of the directors then in office, though less than a quorum, or
(ii) the stockholders at a special meeting of the stockholders properly called
for that purpose, by the vote of the holders of a majority of the
3
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shares entitled to vote at such special meeting. Directors so chosen shall hold
office until the next annual meeting of stockholders.
Section 2.4. Regular Meetings. Regular meetings of the Board of Directors
----------------
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all directors. A notice of each regular meeting shall not be required.
Section 2.5. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by a majority of the directors then in office, by the
chairman of the board or by the chief executive officer and shall be held at
such place, on such date, and at such time as they or he shall fix. Notice of
the place, date, and time of each such special meeting shall be given each
director by whom it is not waived by mailing written notice not less than five
(5) days before the meeting (one (1) day before the meeting if delivered by an
overnight courier service and two (2) days before the meeting if by overseas
courier service) or by telephoning, telecopying, telegraphing or personally
delivering the same not less than twenty-four (24) hours before the meeting.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Section 2.6. Quorum. At any meeting of the Board of Directors, a majority
------
of the total number of authorized directors shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 2.7. Participation in Meetings by Conference Telephone. Members
-------------------------------------------------
of the Board of Directors, or of any committee of the Board of Directors, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 2.8. Conduct of Business. At any meeting of the Board of
-------------------
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the vote
of a majority of the directors present, except as otherwise provided herein or
required by law. Action may be taken by the Board of Directors without a
meeting if all members thereof consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors.
Section 2.9. Powers. The Board of Directors may, except as otherwise
------
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
4
<PAGE>
(3) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in connection
therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to pass on the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these By-Laws, for the management of the Corporation's business and affairs.
Section 2.10. Compensation of Directors. Directors, as such, may receive,
-------------------------
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
Section 2.11. Nomination of Director Candidates. Nominations for the
---------------------------------
election of directors may be made by the Board of Directors or a proxy committee
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of directors.
ARTICLE III
COMMITTEES
----------
Section 3.1. Committees of the Board of Directors. The Board of
------------------------------------
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a director or
directors to serve as the member or members, designating, if it desires, other
directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a dividend, to
authorize the issuance of stock or to adopt an agreement of merger or
consolidation if the resolution which designates the committee or a supplemental
resolution of the Board of Directors shall so provide. In the absence or
disqualification of any member of any
5
<PAGE>
committee and any alternate member in his place, the member or members of the
committee present at the meeting and not disqualified from voting, whether or
not he or she or they constitute a quorum, may by unanimous vote appoint another
member of the Board of Directors to act at the meeting in the place of the
absent or disqualified member.
Section 3.2. Conduct of Business. Each committee may determine the
-------------------
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; one-
third of the authorized members shall constitute a quorum unless the committee
shall consist of one or two members, in which event one member shall constitute
a quorum; and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of such committee.
ARTICLE IV
OFFICERS
--------
Section 4.1. Generally. The officers of the Corporation shall consist of
---------
a President, a Secretary and a Chief Financial Officer. The Corporation may
also have, at the discretion of the Board of Directors, a Chairman of the Board,
one or more Vice Presidents, and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. Any number of offices may be held by the same person.
Section 4.2. Chairman of the Board. The Chairman of the Board, if there
---------------------
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or as provided by
these By-Laws.
Section 4.3. President. Subject to such supervisory powers, if any, as
---------
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the general manager and chief executive
officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
officers of the Corporation. He shall preside at all meetings of the
stockholders. He shall be ex officio a member of all the standing committees,
including the executive committee, if any, and shall have the general powers and
duties of management usually vested in the office of president of a Corporation,
and shall have such other powers and duties as may be prescribed by the Board of
Directors or by these By-Laws.
Section 4.4. Vice President. In the absence or disability of the
--------------
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Director, shall perform the duties of the President, and when so acting shall
have all the powers of, and be subject to all the restrictions upon, the
President.
6
<PAGE>
The Vice Presidents shall have such other powers and perform such other duties
as from time to time may be prescribed for them respectively by the Board of
Directors or these By-Laws.
Section 4.5. Chief Financial Officer. The Chief Financial Officer shall
-----------------------
keep and maintain or cause to be kept and maintained, adequate and correct books
and records of account in written form or any other form capable of being
converted into written form.
The Chief Financial Officer shall deposit all monies and other valuables in
the name and to the credit of the Corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse all funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by these By-Laws.
Section 4.6. Secretary. The Secretary shall keep, or cause to be kept, a
---------
book of minutes in written form of the proceedings of the Board of Directors,
committees of the Board, and stockholders. Such minutes shall include all
waivers of notice, consents to the holding of meetings, or approvals of the
minutes of meetings executed pursuant to these By-Laws or the Delaware General
Corporation Law. The Secretary shall keep, or cause to be kept at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of shares held by each.
The Secretary shall give or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by these By-Laws or by
law to be given, and shall keep the seal of the Corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or these By-Laws.
Section 4.7. Delegation of Authority. The Board of Directors may from
-----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.8. Removal. Any officer of the Corporation may be removed at
-------
any time, with or without cause, by the Board of Directors.
Section 4.9. Action With Respect to Securities of Other Corporations.
-------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
7
<PAGE>
ARTICLE V
STOCK
-----
Section 5.1. Certificates of Stock. Each stockholder shall be entitled to
---------------------
a certificate signed by, or in the name of the Corporation by, the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the Chief
Financial Officer, certifying the number of shares owned by him or her. Any of
or all the signatures on the certificate may be facsimile.
Section 5.2. Transfers of Stock. Transfers of stock shall be made only
------------------
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section
5.4 of these By-Laws, an outstanding certificate for the number of shares
involved shall be surrendered for cancellation before a new certificate is
issued therefor.
Section 5.3. Record Date. The Board of Directors may fix a record date,
-----------
which shall not be more than sixty (60) nor fewer than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for the other action hereinafter described, as of which there shall be
determined the stockholders who are entitled: to notice of or to vote at any
meeting of stockholders or any adjournment thereof; to receive payment of any
dividend or other distribution or allotment of any rights; or to exercise any
rights with respect to any change, conversion or exchange of stock or with
respect to any other lawful action.
Section 5.4. Lost, Stolen or Destroyed Certificates. In the event of
--------------------------------------
the loss, theft or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the Board of Directors may
establish concerning proof of such loss, theft or destruction and concerning the
giving of a satisfactory bond or bonds of indemnity.
Section 5.5. Regulations. The issue, transfer, conversion and
-----------
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
-------
Section 6.1. Notices . Except as otherwise specifically provided herein
-------
or required by law, all notices required to be given to any stockholder,
director, officer, employee or agent shall be in writing and may in every
instance be effectively given by hand delivery to the recipient thereof, by
depositing such notice in the mails, postage paid, or by sending such notice by
prepaid telegram, mailgram, telecopy or commercial courier service. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice shall be deemed to be given shall be the
time such notice is received by such stockholder, director, officer, employee or
agent, or by any person accepting such notice on behalf of such person, if hand
delivered, or the time such notice is dispatched, if delivered through the mails
or by telegram, courier or mailgram.
8
<PAGE>
Section 6.2. Waivers. A written waiver of any notice, signed by a
-------
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver. Attendance of a person at a meeting shall constitute a waiver
of notice for such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VII
MISCELLANEOUS
-------------
Section 7.1. Facsimile Signatures. In addition to the provisions for
--------------------
use of facsimile signatures elsewhere specifically authorized in these By-Laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 7.2. Corporate Seal. The Board of Directors may provide a
--------------
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the Chief
Financial Officer or by an Assistant Secretary or other officer designated by
the Board of Directors.
Section 7.3. Reliance Upon Books, Reports and Records. Each director,
----------------------------------------
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser.
Section 7.4. Fiscal Year. The fiscal year of the Corporation shall be as
-----------
fixed by the Board of Directors.
Section 7.5. Time Periods. In applying any provision of these By-Laws
------------
which require that an act be done or not done a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Section 8.1. Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or
9
<PAGE>
employee of another corporation, or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer or employee or in any other capacity while serving as a
director, officer or employee, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said Law permitted the
Corporation to provide prior to such amendment) against all expenses, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties, amounts paid or to be paid in settlement and amounts expended in
seeking indemnification granted to such person under applicable law, this By-law
or any agreement with the Corporation) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to a
person who has ceased to be a director, officer or employee and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
--------
however, that, except as provided in Section 8.2, the Corporation shall
- -------
indemnify any such person seeking indemnity in connection with an action, suit
or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit or
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or part
thereof) is brought to establish or enforce a right to indemnification under an
indemnity agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law. Such right shall be a
contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
-------- -------
then so requires, the payment of such expenses incurred by a director or officer
of the Corporation in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
Section 8.2. Right of Claimant to Bring Suit. If a claim under Section
-------------------------------
8.1 is not paid in full by the Corporation within ninety (90) days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if such suit is not frivolous or brought in bad faith, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any, has been
tendered to this Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors,
10
<PAGE>
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that a claimant has not met such applicable standard of conduct.
Section 8.3. Non-Exclusivity of Rights. The rights conferred on any
-------------------------
person by Sections 8.1 and 8.2 shall not be exclusive of any other right which
such persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 8.4. Indemnification Contracts. The Board of Directors is
-------------------------
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VIII.
Section 8.5. Insurance. The Corporation may maintain insurance to the
---------
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under Delaware
General Corporation Law.
Section 8.6. Effect of Amendment. Any amendment, repeal or modification
-------------------
of any provision of this Article VIII by the stockholders or the directors of
the Corporation shall not adversely affect any right or protection of a director
or officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE IX
AMENDMENTS
----------
The Board of Directors is expressly empowered to adopt, amend or repeal By-
Laws of the Corporation, subject to the right of the stockholders to adopt,
amend, alter or repeal the By-Laws of the Corporation. Any adoption, amendment
or repeal of By-Laws of the Corporation by the Board of Directors shall require
the approval of a majority of the total number of authorized directors (whether
or not there exist any vacancies in previously authorized directorships at the
time any resolution providing for adoption, amendment or repeal is presented to
the Board). The stockholders shall also have power to adopt, amend or repeal
the By-Laws of the Corporation.
11
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EXHIBIT 4.1
STOCKHOLDERS' AGREEMENT
BY AND AMONG
FIRSTAMERICA AUTOMOTIVE, INC.
AND
ITS STOCKHOLDERS
Dated as of July 11, 1997
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement dated as of July 11, 1997 (this
"Agreement") is entered into by and among FirstAmerica Automotive, Inc., a
---------
Delaware corporation (the "Company"), Thomas Price ("Price") and Donald Strough
------- -----
("Strough" and, together with Price, the "Principals"), Steven Hallock, Fred
------- ----------
Cziska, Al Babbington, John Driebe, Embarcadero Automotive, L.L.C., Raintree
Capital LLC and BB Investments (collectively, the "Restricted Holders") and each
of the other parties executing a counterpart signature page hereof. Capitalized
terms used herein shall have the meanings ascribed to them in Section 1.
RECITALS:
WHEREAS, the Company and TCW are parties to a Securities Purchase
Agreement dated as of the date hereof (the "Purchase Agreement"), pursuant to
------------------
which TCW is purchasing from the Company (i) 12% Senior Notes due June 30, 2005
(the "Notes"), (ii) shares of Preferred Stock, and (iii) shares of Common Stock;
WHEREAS, the Stockholders, after giving effect to the transactions
contemplated by the Purchase Agreement own the number of shares of Common Stock
set forth opposite their respective names on Appendix A; and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Purchase Agreement that the Company, TCW and the
Stockholders enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement, the parties hereto, intending to be legally bound, hereby agree as
follows:
SECTION 1. CERTAIN DEFINITIONS.
-------------------
As used in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" of a person shall mean any person, controlling,
---------
controlled by, or under common control with such person.
"beneficial ownership" shall have the meaning specified under
---------------------
Section 13(d) of the Exchange Act on the date hereof; provided, however, that a
person shall beneficially own shares of Common Stock which such person has the
right to acquire without regard to the time period referred to in Rule 13d-3(d)
under the Exchange Act.
"Cause" shall have the meaning set forth in the executive employment
-----
agreements between the Principals and the Company, as of the date hereof.
"Certificate of Designation" means collectively, the Certificate of
--------------------------
Designation of Preferences of Cumulative Redeemable Preferred Stock of the
Company and the Certificate of Designation of Preference of Redeemable Preferred
Stock of the Company.
<PAGE>
"Change of Control Transaction" means a transaction, approved or
-----------------------------
agreed to by the Majority Stockholders, in which all the business, stock or
assets of the Company are sold or otherwise transferred to a party that is not
an Affiliate of the Principals or part of a group (as defined in Section
13(d)(3) of the Exchange Act) including the Principals in a bona fide arm's-
length transaction in which the form and amount of consideration per share, if
any, payable to the holders of Common Stock is distributed pro rata based on
ownership of the Common Stock, and in which the other significant terms of the
transaction (including, but not limited to, indemnification or escrow
arrangements) apply, in all material respects, equally to the Principal
Stockholders and the Non-Principal Stockholders. The assumption by the
Principal Stockholders of greater potential liability in a Change of Control
Transaction than the Non-Principal Stockholders shall be deemed to constitute
equal treatment. A Change of Control Transaction may take the form of a sale of
all of the outstanding voting stock of the Company, a merger or consolidation in
which the holders of the outstanding voting stock of the Company before the
transaction do not own a majority of the outstanding voting stock of the
combined entity or a sale of all the assets of the Company (other than an
insignificant amount of immaterial assets).
"Charter Documents" means the Certificate of Incorporation and By-Laws
-----------------
of the Company, attached hereto as Exhibits A and B.
"Class B Common Stock" means the Class B Common Stock, par value
--------------------
$.00001 per share, of the Company.
"Class B Director" means the member of the Board of Directors of the
----------------
Company that the holders of the Class B Common Stock, voting separately as a
class, are entitled to designate.
"Common Stock" means all classes of common stock of the Company.
------------
"Company Debt" means all debt obligations of the Company and its
------------
subsidiaries (excluding debt incurred under Sections II.B, II.D and II.E of the
Loan Agreement, as in effect on the date hereof), and the aggregate liquidation
preference plus accrued and unpaid dividends on all capital stock of the Company
and its subsidiaries (other than Common Stock and capital stock held by the
Company or any of its wholly-owned subsidiaries).
"EBITDA" shall have the meaning ascribed thereto in the Purchase
------
Agreement less net interest and other costs associated with New Vehicle Advances
and Program Vehicle Advances, each as defined in the Purchase Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
SEC thereunder, all as the same shall be in effect at the time.
"Holder" or "Holders" means any person listed on Appendix A hereto
------ -------
holding Securities or Registrable Securities and any person holding Securities
or Registrable Securities to whom the registration rights under this Agreement
have been transferred in accordance with Section 5.10.
"Loan Agreement" means that certain Loan and Security Agreement, dated
--------------
as of July __, 1997, by and among General Electric Capital Corporation and the
borrowers listed on the signature pages
2
<PAGE>
thereto, as amended, modified or supplemented from time to time.
"Majority Stockholders" means the holders of more than 50% of the
---------------------
outstanding voting securities of the Company; provided, however, that for
purposes of this Agreement, a person will be deemed to be a holder of voting
securities of the Company if such person has the right to acquire, directly or
indirectly, such securities (upon exercise of warrants, options or otherwise, so
long as such warrants, options or other rights are then exercisable), regardless
of whether such acquisition has actually been effected.
"Non-Principal Stockholders" means any holder or holders of Common
--------------------------
Stock other than Principal Stockholders.
"Permitted Activities" means those activities set forth on Schedule
--------------------
10.2 hereto.
"Preferred Stock" means the Company's Cumulative Redeemable Preferred
---------------
Stock and Redeemable Preferred Stock.
"Principal Stockholders" means the Principals and their Affiliates and
----------------------
those persons to whom the Principals transfer Securities in a manner permitted
by this Agreement.
"Public Securities" shall have the meaning set forth in Section
-----------------
6.2(b).
"Qualified IPO" means a sale by the Company of shares of Common Stock
-------------
in an underwritten (firm commitment) public offering registered under the
Securities Act, with gross proceeds to the Company of not less than $50 million,
resulting in the listing of the Common Stock on a nationally recognized stock
exchange, including, without limitation, the Nasdaq National Market System.
"Restricted Holders" shall have the meaning ascribed thereto in the
------------------
recitals hereto.
"Registrable Securities" means shares of Common Stock (i) previously
----------------------
issued or issuable to the Stockholders, (ii) any Securities issued or issuable
with respect to such Common Stock referred to in clause (i) immediately above by
way of stock dividends or stock splits or in connection with a combination of
shares, recapitalization, merger, consolidation, other reorganization or
otherwise. Shares of Common Stock or other Securities issued with respect to
such Common Stock shall cease to be Registrable Securities (and shall be
excluded from the calculation of the number of outstanding Registrable
Securities) when they have been distributed to the public pursuant to an
offering registered under the Securities Act or sold to the public through a
broker, dealer or market maker in compliance with Rule 144 or Rule 145(d) under
the Securities Act or any successor rules. The foregoing notwithstanding, a
Security will not cease to be a Registrable Security until all stop transfer
instructions and notations and restrictive legends with respect to such Security
have been lifted or removed. For purposes of this Agreement, a person will be
deemed to be a Holder of Registrable Securities whenever such person has the
right to acquire, directly or indirectly, such securities, regardless of whether
such acquisition has actually been effected.
"Registration Expenses" means all expenses incurred by the Company in
---------------------
complying with Section 5, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and disbursements of a single special counsel to be
selected by TCW, in its sole discretion, for the Holders and Other Holders (as
defined in Section 5.3(a)),
3
<PAGE>
blue sky fees and expenses, and accounting and auditing expenses including the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company and excluding Selling Expenses).
"SEC" means the Securities and Exchange Commission or any other
---
federal agency at the time administering the Securities Act.
"Securities" means the shares of Preferred Stock and Common Stock
----------
owned as of any date of determination, directly or beneficially, by one or more
Stockholders (including all options or other securities convertible into, or
exchangeable or exercisable for, shares of Common Stock that are then owned,
directly or beneficially, by any Stockholder).
"Securities Purchase Agreement" means that certain Securities Purchase
-----------------------------
Agreement, dated as of July 8, 1997, by and among the Company and the parties
set forth on the signature page thereto.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time.
"Selling Expenses" means all underwriting discounts and selling
----------------
commissions applicable to the sale.
"Stockholders" means the persons named in Appendix A (including any
------------
person that is added to Appendix A after the date hereof) and any other person
who becomes a party hereto in accordance with the terms hereof.
"TCW" means collectively, TCW/Crescent Mezzanine Partners, L.P., a
---
Delaware limited partnership, TCW/Crescent Mezzanine Investment Partners, L.P.,
a Delaware limited partnership, TCW Mach I Partners, L.P., a Delaware limited
partnership and TCW Shared Opportunity Fund II, L.P., a Delaware limited
partnership, TCW Leveraged Income Trust, L.P., a Delaware limited partnership,
TCW/Crescent Mezanine Trust, a Delaware business trust (collectively, the
"Initial TCW Holders"), and such Persons to whom TCW Transfers Securities in a
manner permitted by this Agreement, provided, that the Principals and their
Affiliates shall not become "TCW" by acquiring Securities from TCW.
"TCW Stockholders" means each Stockholder that is included in the
----------------
definition of TCW.
"Transfer" means a sale, assignment, encumbrance, gift, pledge,
--------
hypothecation or other disposition of Securities or any interest therein.
SECTION 2. CONDUCT OF BUSINESS; CHARTER DOCUMENTS
--------------------------------------
2.1 Business Opportunities. Except as described in Schedule 2.1 hereto,
----------------------
none of the Principal Stockholders, their partners nor any Person controlled by
any of them (other than the Company or its subsidiaries) shall, directly or
indirectly, enter into, or agree or commit to enter into, any material
investment in or otherwise exploit any business opportunity primarily related to
the sale, service or financing of automobiles and other vehicles (other than an
investment in the shares of any public company representing less than 5% of such
company's fully diluted common equity) (a "Business Opportunity")
4
<PAGE>
except with the approval of TCW.
2.2 Management Fees. Neither the Company nor any of its subsidiaries shall
---------------
pay to any of the Principal Stockholders or any of their Affiliates compensation
for providing services to the Company and its subsidiaries (or reimbursement of
expenses in connection therewith) other than pursuant to the employment
agreements set forth on Schedule 2.2 hereto, or any similar agreement or
arrangement approved by the Board of Directors and the TCW Nominee or the Class
B Director.
2.3 Charter Documents.
-----------------
(a) Exhibits A and B set forth copies of the Charter Documents, each
in the form in which it is to be in effect on the date hereof, except that
the Company's Certificate of Incorporation shall also include, in addition
to the terms of Exhibit A hereto, the Certificate of Designation, which
shall have been filed with the Secretary of State of Delaware as part of
the Company's Certificate of Incorporation on or prior to the Effective
Date.
(b) The Company covenants that it will act, and each Stockholder
agrees to use its best efforts to cause the Company to act, in accordance
with its Charter Documents and Certificate of Designation in all material
respects. Each Stockholder shall vote all the shares of Common Stock owned
or held of record by it at any regular or special meeting of stockholders
of the Company or in any written consent executed in lieu of such a meeting
of stockholders, and shall take all action necessary, to ensure (to the
extent within the parties' collective control) that (i) the Charter
Documents and Certificate of Designation of the Company do not, at any
time, conflict with the provisions of this Agreement, and (ii) unless an
amendment is approved by the Board and, if required under Section 3.7(h),
the Class B Director, the Charter Documents of the Company continue to be
in effect in the form attached hereto as Exhibits A and B and the
Certificate of Designation continues to be in effect in the form attached
as an exhibit to the Securities Purchase Agreement.
2.4 Issuance of Class B Common Stock. The Company covenants that it will
--------------------------------
not issue Class B Common Stock to any individual or entity that is not an
Initial TCW Holder.
SECTION 3. BOARD OF DIRECTORS.
------------------
3.1 Board Composition. Throughout the term of this Agreement, (a) the
-----------------
Board of Directors (the "Board") of the Company shall consist of five members
-----
(or such lesser number if not all nominees are nominated or such greater number
as may be required by Section 14 of the Certificate of Designation), and (b)
unless otherwise provided in Section 3.7 hereof all actions to be taken by the
Board will require the affirmative vote of a majority of the members of the
Board then in office.
3.2 Nomination Rights. The Principal Stockholders shall be entitled, but
-----------------
not required, to designate four members to the Board (collectively, the
"Principal Nominees"). TCW (or any representative thereof designated by TCW)
shall be entitled, but not required, to designate one member to the Board (the
"TCW Nominee"). The holders of the Class B Common Stock shall be entitled to
designate one member to the Board (such Class B Director together with the TCW
Nominee and the Principal Nominees, the "Nominees"). TCW agrees not to designate
a TCW Nominee if there is a Class B Director.
5
<PAGE>
3.3 Election of Nominees. The Stockholders shall take appropriate actions
--------------------
to cause the appointment of the Nominees to become effective upon the date
hereof. The Stockholders shall vote all of the shares of Common Stock owned or
held of record by them at all regular and special meetings of the stockholders
of the Company called or held for the purpose of filling positions on the Board,
and in each written consent executed in lieu of such a meeting of stockholders,
and each party hereto shall take all actions otherwise necessary, to ensure (to
the extent within the parties' collective control) the election to the Board of
the Nominees.
3.4 Vacancies.
---------
(a) Each Nominee will hold his or her office as a director of the
Company for such term as is provided in the Charter Documents or until his
or her death, resignation or removal from the Board or until his or her
successor has been duly elected and qualified in accordance with the
provisions of this Agreement, the Charter Documents and applicable law. If
any Nominee ceases to serve as a director of the Company for any reason
during his or her term (a "Terminating Nominee"), a nominee for the vacancy
-------------------
resulting therefrom will be designated by the party that nominated the
Terminating Nominee.
(b) If any party fails at any time to nominate the maximum number of
persons for election to the Board that such party is entitled to nominate
pursuant to this Agreement, each directorship in respect of which such
party so failed to make a nomination will remain vacant unless such vacancy
results in there being fewer than the minimum number of directors required
by law, in which case such vacancy or vacancies will be filled by a person
or persons selected by a majority of the directors of the Company then in
office.
3.5 Removal of Nominees.
-------------------
(a) The Stockholders shall use their respective best efforts to call,
or cause the appropriate officers and directors of the Company to call, a
special meeting of stockholders of the Company and to vote all of the
shares of Common Stock owned or held of record by them for, or to take all
actions by written consent in lieu of any such meeting necessary to cause,
the removal (with or without cause) of (A) any TCW Nominee, if TCW requests
such director's removal in writing for any reason, and (B) any Principal
Nominee, if the Principals (acting together) request such director's
removal in writing for any reason. TCW and the Principals, shall have the
right to designate a new nominee in the event any TCW Nominee, or Principal
Nominee, respectively, shall be so removed under this Section 3.5(a) or
shall vacate his directorship for any other reason.
(b) The Company shall not, and shall not permit any of its
subsidiaries to, without the consent of holders of a majority of the shares
of Common Stock held by the Principal Stockholders or TCW, as the case may
be, take any action that under this Agreement requires the approval of one
or more Principal Nominees, Class B Director or TCW Nominee, as the case
may be, if any of the Principal Nominees, Class B Director or TCW Nominee,
as the case may be, approving such action are Persons whose removal from
the Board has been requested at or prior to the time of such action by the
party who nominated such director pursuant to this section. Each party
hereto shall use reasonable efforts to prevent any action from being taken
by the Board during the pendency of any vacancy due to death, resignation
or removal of a director, unless the Person entitled to have a person
nominated by it elected to fill such vacancy shall have failed, for a
period of 10 days after
6
<PAGE>
notice of such vacancy, to nominate a replacement; provided that the
--------
provisions of this Section 3.5(b) shall not apply in circumstances in which
action must be taken by the Board to protect the best interests of the
Company
.
(c) Subject to the foregoing, no Stockholder shall vote or cause to
be voted any securities that such Stockholder has the power to vote (or in
respect of which such Stockholder has the power to direct the vote) for the
removal of any Nominee nominated by any party without the prior written
consent of such party.
3.6 Committees. The Board may designate one or more committees in
----------
accordance with the bylaws of the Company; provided that at least one of the
members of each committee designated by the Board shall be a TCW Nominee or if
no TCW Nominee, the Class B Director.
3.7 Action by the Board of Directors. Notwithstanding anything to the
--------------------------------
contrary in the bylaws of the Company, all decisions of the Board shall require
the affirmative vote of a majority of the directors of the Company then in
office, or a majority of the members of a committee of the Board, to the extent
such decisions may be lawfully delegated to such committee.
Prior to the consummation of a Qualified IPO, the Company shall not, and
the Company shall cause each of its subsidiaries not to, take (or agree to take)
any action regarding the following matters without the affirmative vote of a
majority of the directors then in office and, if there is a Class B Director,
the affirmative vote of the Class B Director:
(a) any merger or consolidation of the Company or its successors or
any subsidiary of the Company or its successors, other than (i) any merger
between the Company and any direct or indirect wholly owned subsidiary, or
between direct or indirect wholly owned subsidiaries, or (ii) any merger
subject to the bring - along rights set forth in Section 6 hereof;
(b) any Transfer of all or substantially all of the assets of the
Company and its subsidiaries, taken as a whole, or of any automotive
dealership of the Company or any of its subsidiaries (but excluding any
pledge, hypothecation or encumbrance of such assets to provide security for
any bona fide debt);
---- ----
(c) any entry into a line of business other than the sale or service
of automobiles and other vehicles (whether by stock or asset purchase or
otherwise) by the Company or a subsidiary other than as a consequence of a
Permitted Investment (as defined in the Purchase Agreement);
(d) any acquisition of assets other than in the ordinary course of
business (including the acquisition of any automotive dealership or all or
substantially all of its assets), pursuant to a single transaction or
series of related transactions, if the purchase price therefor (including
any debt assumed in connection therewith) exceeds $4,000,000;
(e) any adoption or material amendment of an employee or similar plan
under which capital stock, or rights, options or warrants to acquire
capital stock, of the Company or a subsidiary may be issued;
(f) any issuance or sale of capital stock or rights, options or
warrants to acquire capital
7
<PAGE>
stock of the Company or any subsidiary (other than (1) issuances by the
Company pursuant to a Qualified IPO, (2) the issuance of capital stock of
the Company or rights, options or warrants to acquire capital stock of the
Company under employee stock option or stock purchase plans, (3) any such
issuance or sale by a subsidiary to the Company or a wholly owned
subsidiary of the Company, (4) the issuance of any shares of Common Stock
upon the exercise or conversion of any option, warrant or other convertible
security outstanding on the date hereof or issued hereafter in accordance
with the terms of this Agreement;
(g) declaration or payment of any dividend on, distributions with
respect to, or repur chase or redemption of capital stock other than (1)
pro rata dividends on the Common Stock paid from current earnings, (2)
--- ----
payments of dividends on or repurchases of shares of wholly owned
subsidiaries' capital stock or (3) repurchases of Common Stock held by bona
----
fide, full-time employees of the Company or its subsidiaries (other than
----
Tom Price or Donald Strough) in connection with the death, disability or
termination of such employees in accordance with the terms of any employee
stock option or stock purchase plan, provided that the aggregate amount of
--------
all such repurchases shall not exceed $250,000 per fiscal year;
(h) any amendment of the Charter Documents of the Company or any
subsidiary, except as necessary to accommodate a Qualified IPO
(i) any dissolution, liquidation or bankruptcy filing of the Company
or any subsidiary;
(j) any replacement of independent accountants;
(k) any transaction with an Affiliate;
(l) any increase or reduction in the number of authorized members of
the Board or any creation of or appointment of members to a committee of
the Board, or any direct or indirect payment to, or on behalf of, any
member of such board, as compensation for serving thereon or as a member of
any committee thereof (other than reimbursement of expenses in accordance
with Section 3.8 hereof).
3.8 Compensation. The directors shall be entitled to receive reasonable
------------
compensation for their services in accordance with the By-Laws of the Company
and shall be entitled to be reimbursed for reasonable out-of-pocket expenses
incurred in connection therewith; provided that any employee of the Company who
serves as a director, shall not be entitled to receive compensation for such
services but shall be entitled to reimbursement hereunder.
SECTION 4. Transferability.
---------------
4.1 Restrictions on Transferability.
-------------------------------
(a) No Securities may be Transferred except upon compliance with the
provisions of the Securities Act and this Agreement, and any attempted
Transfer other than in accordance with the terms hereof is void ab initio
and transfers no right, title or interest in or to such Securities to the
purported transferee, buyer, donee, assignee or encumbrance holder. A copy
of this Agreement shall be filed with the Secretary of the Company and kept
with the records of the Company.
8
<PAGE>
(b) The Company and the Stockholders, as the case may be, shall cause
each Person (other than a transferee of securities sold pursuant to a
registration statement or pursuant to Rule 144 under the Securities Act)
that acquires Securities (as a condition to such acquisition) to execute
this Agreement and be bound by its terms.
(c) Restrictive Legend. Each certificate representing any portion of
the Securities that is held by a party hereto shall be stamped or otherwise
imprinted with a legend in the following form (in addition to any legend
required under applicable state securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THE SECURITIES MAY
NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
DISTRIBUTED EXCEPT IN CONJUNCTION WITH AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT, OR IN COMPLIANCE WITH RULE 144 OR
PURSUANT TO ANOTHER EXEMPTION. THE SECURITIES ARE ALSO
SUBJECT TO PROVISIONS OF A STOCKHOLDERS' AGREEMENT
DATED JULY 8, 1997, AS IT MAY BE AMENDED FROM TIME TO
TIME IN ACCORDANCE WITH THE PROVISIONS THEREOF (THE
"AGREEMENT"), WHICH CONTAINS RESTRICTIONS ON TRANSFER,
AND BRING-ALONG PROVISIONS. COPIES OF THE AGREEMENT MAY
BE OBTAINED FROM THE SECRETARY OF THE COMPANY."
4.2 Notice of Proposed Transfers Securities Law Compliance. Prior to any
------------------------------------------------------
proposed Transfer, unless there is in effect a registration statement under the
Securities Act covering the proposed Transfer, the Holder thereof shall give
written notice to the Company of such Holder's intention to effect such
Transfer. Each such notice shall describe the manner and circumstances of the
proposed Transfer in sufficient detail, and, if requested by the Company, shall
be accompanied by either (i) a written opinion of legal counsel (who may be
internal counsel) who shall be reasonably satisfactory in form and substance to
the Company's counsel, to the effect that the proposed Transfer may be effected
without registration under the Securities Act, (ii) a "no action" letter from
the staff of the SEC to the effect that the distribution of such securities
without registration will not result in recommendation by the staff of the SEC
that action be taken with respect thereto, or (iii) such other showing that may
be reasonably satisfactory to legal counsel to the Company, whereupon the holder
of such Securities shall be entitled to Transfer such Securities in accordance
with the terms of the notice delivered by the holder to the Company.
Notwithstanding the foregoing, the requirements of clauses (i), (ii), or (iii)
above need not be satisfied with respect to the following transactions: (A)
transactions in compliance with Rule 144 under the Securities Act so long as the
Company is furnished with satisfactory evidence of compliance with such Rule;
(B) Transfers by a Holder which is a partnership or limited liability company on
a pro rata basis in accordance with the terms of the partnership or limited
liability company operating agreement to a general partner, limited partner or
member of such partnership or limited liability company; (C) Transfers by a
Holder which is a corporation to any wholly-owned subsidiary or parent of such
corporation that wholly owns such corporation. In addition, Transfers made by a
Holder that is a state sponsored employee benefit plan to a successor trust or
fiduciary is permitted, and the requirements of clauses (i), (ii) and (iii) of
this Section need not be satisfied.
9
<PAGE>
4.3 Permitted Transfers. Subject to compliance with the applicable
-------------------
provisions of the Securities Act and with Sections 4.1 and 4.2, if applicable,
the following Transfers may be made without compliance with the other
provisions of Section 4 or Section 8, subject to the transferee (other than in
the case of clause (A) of Section 4.2), agreeing in writing to be bound by the
terms of this Agreement to the same extent as if such transferee were a party
hereto and subject to any conditions set forth below: (i) Transfers described
in clauses (A), (B) and (C) and the last sentence of Section 4.2; (ii) Transfers
by an individual Stockholder by gift to his or her spouse or to the siblings,
lineal descendants, or parents of such individual or his or her spouse or to any
trust, partnership, limited liability company or other entity of which such
person or persons are the sole beneficiaries, provided, that with respect to all
such Transfers by a Principal, such Principal retains sole voting power of the
Transferred Securities; (iii) Transfers upon death of an individual Non-
Principal Stockholder to such Non-Principal Stockholder's heirs, executors,
administrators, testamentary trustees, legatees or beneficiaries; (iv) Transfers
by present or future management Stockholders to the Company upon termination of
employment or pursuant to agreements permitting the Company to make such
repurchases approved by the Board of Directors of the Company; (v) Transfers
contemplated by Section 6 and Section 8; (vi) redemptions or repurchases of the
Preferred Stock permitted or required by the Certificate of Incorporation of the
Company; or (vii) Transfers in a bona fide public offering pursuant to an
effective registration statement under the Securities Act.
4.4 Transfers by Principal Stockholders. (a) Notwithstanding anything to
-----------------------------------
the contrary in this Agreement, no Principal shall Transfer any Securities if as
a consequence thereof, (i) the Principal would have Transferred, together with
all prior Transfers by such Principal, beneficial ownership or voting power with
respect to more than 15% (if such Transfer occurs prior to a Qualified IPO) or
50% (if such Transfer occurs after a Qualified IPO) of the voting stock of the
Company set forth opposite such Principal's name on Appendix A, as of the date
hereof or (ii) such Transfer would cause a breach or violation of any provision
of any agreements between the Company or any of its subsidiaries and any
automobile manufacturer.
(b) In the event of the death of either Principal, the Company shall have
the option to purchase from such deceased Principal's successor-in-interest that
number of shares of Common Stock equal to 15% of the total number of shares of
Common Stock set forth opposite such Principal's name on Appendix A hereto. The
option provided for herein must be exercised, if at all, by written notice of
exercise given to the executor or other authorized representative of the estate
of such deceased Principal within 30 days of the date of appointment of such
executor or personal representative. Acquisition of the shares upon exercise of
the option is subject to applicable provisions of the Securities Act and
Sections 4.1 and 4.2 hereof. Further, exercise of the option hereunder shall be
subject to the condition that such exercise and purchase of shares shall not
result in a breach or violation of any provision of any agreement between the
Company or its subsidiaries and any automobile manufacturer. The price for each
share purchased upon exercise of the option shall be equal to the value of the
Company, as determined below, divided by the total number of fully diluted
shares (giving effect to the future exercise of all outstanding warrants,
options or any other rights to acquire shares of Common Stock or securities
convertible or exchangeable for Common Stock, regardless of whether such
exercise has occurred or the right to exercise has vested) of Common Stock. The
value of the Company shall be equal to the amount determined in accordance with
clause (i), unless clause (ii) is applicable: (i) the difference derived by
subtracting (y) the Company Debt, from (z) the product derived by multiplying
(a) the EBITDA of the Company for the 12-month period ended as of the last day
of the calendar quarter immediately preceding the death of the Principal (the
"Valuation Date"), by (b) seven, and (ii) if such death occurs after the closing
of a Qualified IPO, and the Common Stock is listed on a
10
<PAGE>
nationally recognized stock exchange, including, without limitation, the Nasdaq
National Market System, then 100% of the average closing price on such exchange
for the twenty trading days immediately preceding the death of the Principal. In
the event of a New Acquisition by the Company (or a subsidiary of the Company)
within the 12-months immediately preceding the Valuation Date, the calculation
of EBITDA shall give pro forma effect to such New Acquisition provided that (i)
in the case of a merger or acquisition of stock, such pro forma calculation
shall include the aggregate amount of EBITDA of such acquired company for the
four full fiscal quarters of such acquired company for which financial
information is available immediately preceding the Valuation Date; or (ii) in
the case of a purchase of assets, such pro forma calculation shall include the
EBITDA attributable to the assets acquired in such transaction for the four full
fiscal quarters for which financial information is available immediately
preceding the Valuation Date. The entire purchase price for the shares shall be
paid in full, in cash upon the close of purchase of the shares. Upon the close,
the executor or personal representative of the deceased Principal shall deliver
stock certificates and stock powers for the shares purchased hereunder, duly
endorsed, together with any necessary or appropriate probate or other court
confirmation of the sale. The close shall occur within 90 days or as soon as
practicable thereafter following the date on which notice of exercise is deemed
given by the Company hereunder.
(c) Each Principal shall cause any shares held by the Principal to be
transferred to a voting trust (which trust shall not effect any Transfer of
beneficial ownership or other interest in such shares other than the right to
vote such shares) effective upon the first to occur of the death or incompetence
(as defined below) of such Principal. Any shares held in the name of such
voting trust shall be subject to all of the provisions of this Agreement,
including the provisions of Section 4.4(b) above. The trustee of any such
voting trust established by Price, shall be his nephew, William Price. The
trustee of any such voting trust established by Strough shall be Jeannine
McMechen. In the event that such trust is not in effect or the designated
trustee shall for any reason fail to qualify or cease to act as the trustee of
the voting trust, then each share held in the name of such voting trust shall be
exchanged with the Company for one share of Class C Common Stock. The term
"incompetence" shall refer to the first to occur of (i) judicially declared
incompetence or (ii) certification of incompetence by 3 medical doctors, each of
whom is independent of the Company and the Principal and is qualified and
experienced in rendering determinations of incompetence.
4.5 Transfers by Restricted Holders. Notwithstanding anything to the
-------------------------------
contrary in this Agreement, the Restricted Holders shall not Transfer any
Securities if such Transfer would cause a breach or violation of any provision
of any agreements between the Company or any of its subsidiaries and any
automobile manufacturer.
SECTION 5. Registration Rights.
-------------------
5.1 Requested Registration. If, at any time after the earlier to occur (i)
----------------------
July __, 1998 and (ii) the sale pursuant to a registration statement of any
securities of the Company, the Company receives from TCW a written request to
effect a registration under the Securities Act, the Company will:
(a) promptly give written notice of the proposed registration to all
other Holders; and
(b) as soon as practicable, use its reasonable best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification
under applicable blue sky or other state securities laws, and appropriate
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compliance with applicable regulations issued under the Securities Act) as
may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request as
are specified in a written request given within fifteen (15) days after
receipt of such written notice from the Company; provided that (w) TCW is
entitled to three registrations pursuant to this Section 5.1, no more than
one of which may be effected in any given 12-month period; (x) if TCW
requests a shelf registration pursuant hereto and such Registration
Statement remains effective for less than one year, then if TCW sells less
than 75% of the securities registered in such shelf registration then TCW
shall be entitled to demand another registration in addition to those set
forth in clause (w) above; and (y) the Company shall not be obligated to
take any action to effect any such registration, qualification, or
compliance pursuant to this Section 5.1:
(i) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in
effecting such registration, qualification, or compliance unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act;
(ii) During the period of 90 days following the effective date
of the registration statement pertaining to a registered public
offering of equity securities of the Company for cash for its own
account (other than a registration relating solely to a transaction
pursuant to Rule 145 under the Securities Act or a registration
relating solely to employee benefit plans); or
(iii) unless TCW proposes to dispose of Registrable Securities
which it reasonably anticipates will have an aggregate disposition
price (before deduction of underwriting discounts and expenses of
sale) of at least $5,000,000.
Subject to the foregoing clauses (i) and (ii) and to Section 5.1(d),
the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after
receipt of the request of TCW, and in no event later than ninety (90) days
after receipt of such request.
(c) Underwriting. If TCW intends to distribute the Registrable
------------
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to this
Section 5.1 and the Company shall include such information in the written
notice referred to in Section 5.1(a). The right of each Holder to
registration pursuant to Section 5.1 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent requested
(unless otherwise mutually agreed by a majority in interest of the Holders
of Common Stock, the holders of a majority of the Common Stock owned by TCW
and such Holder) to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected
for such underwriting by TCW. Notwithstanding any other provision of this
Section 5.1, if the underwriter or underwriters determine that marketing
factors require the number of shares to be underwritten to be reduced and
so advise TCW, in writing, then
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TCW, shall so advise all Holders who have indicated to the Company that
they intend to participate in such underwriting and the number of
Registrable Securities that may be included in the registration and
underwriting shall be allocated as follows:
(i) Registrable Securities held by any person other than TCW
shall first be excluded on a pro rata basis on the basis of the number
of Registrable Securities requested to be included by such Holders;
(ii) If further reductions are required, Registered Securities
held by TCW shall be excluded.
No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such
registration.
If any Holder disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company,
the underwriter and TCW. The Registrable Securities and/or other
securities so withdrawn from such underwriting shall also be withdrawn from
such registration; provided, however, that, if by the withdrawal of such
Registrable Securities a greater-number of Registrable Securities held by
other Holders may be included in such registration (up to the maximum of
any limitation imposed by the underwriters), then the Company shall offer
to all Holders who have included Registrable Securities in the registration
the right to include additional Registrable Securities in the same
proportion used above in determining the underwriter limitation.
If the underwriter or underwriters have not limited the number of
Registrable Securities to be underwritten, the Company may include
securities for its own account or the account of others in such
registration if the underwriter or underwriters so agree and if the number
of Registrable Securities that would otherwise have been included in such
registration and underwriting will not thereby be limited.
(d) Delayed Filing. If the Company shall furnish to TCW a certificate
--------------
signed by the President of the Company stating that, in the good faith
discretion of the Board of Directors of the Company, it would not be in the
best interest of the Company for such registration statement to be filed on
or before the date filing would be required, then the Company may defer the
filing of the registration statement for a period or periods not in excess
of an aggregate of ninety (90) days, such right to delay a filing to be
exercised by the Company not more than once in any calendar year.
(e) Shelf Registration.
------------------
(i) If any registration pursuant to this Section 5.1 is
requested by TCW to be a shelf registration pursuant to Rule 415 under
the Securities Act (a "Shelf Registration"), the Company shall, within
------------------
ninety (90) days use all reasonable efforts to file pursuant to Rule
415 under the Securities Act, a shelf registration statement (a "Shelf
-----
Registration Statement") relating to the securities requested to be so
----------------------
registered. The Company shall keep such Shelf Registration Statement
continuously effective for a period of one hundred eighty (180) days
following the date on which the SEC declares such Shelf Registration
Statement effective under the Securities Act, or such shorter period
ending when all the
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Registrable Securities covered by such Shelf Registration Statement
have been sold.
(ii) Upon the occurrence of any event that would cause the Shelf
Registration Statement (A) to contain an untrue or alleged untrue
statement of material fact, or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statement therein not misleading, or (B) not to be effective and
usable for resale of the Registrable Securities covered by such Shelf
Registration Statement during the period that such Shelf Registration
Statement is required to be effective and usable, the Company shall
promptly file an amendment to the Shelf Registration Statement, in the
case of clause (A), to correct any such misstatement or omission and,
in the case of either clause. (A) or (B), use all reasonable efforts
to cause such amendment to be declared effective and such Shelf
Registration Statement to become usable as soon as practicable
thereafter.
(f) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this Section 5.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective;
provided, however, that if such registration statement does not become
effective after the Company has filed it solely by reason of the refusal to
proceed by TCW (other than a refusal to proceed based upon the advice of
counsel relating to a matter with respect to the Company or the
Registration Statement), then such registration shall be deemed to have
been effected unless TCW shall have elected to pay all Registration
Expenses referred to in Section 5.4 in connection with such registration,
(ii) if, after the registration statement that relates to such registration
has become effective, such registration statement becomes subject to any
stop order, injunction or any order or requirement of the SEC or other
governmental agency or court for any reason and such order, injunction or
requirement is not promptly withdrawn or lifted, or (iii) the conditions to
closing specified in the purchase agreement or underwriting agreement
entered into in connection with such registration are not satisfied, other
than by reason of some act or omission by such Holders.
5.2 Form S-3.
--------
(a) After the Company has qualified for the use of Form S-3, TCW
shall have the right to registrations on Form S-3 (but not more than one
registration in any twelve (12) month period shall be requested by TCW
including registrations requested pursuant to Section 5.1 hereunder) under
this section 5.2 (requests shall be in writing and shall state the number
of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such Holder or Holders); provided, however,
that the Company shall not be required to effect a registration pursuant to
this Section 5.2 unless (i) TCW proposes to dispose of Registrable
Securities which it reasonably anticipates will have an aggregate
disposition price (before deduction of underwriting discounts and expenses
of sale) of at least $5,000,000 and (ii) TCW is not entitled to sell all of
its shares within a three-month period under Rule 144.
(b) The Company shall give notice to all Holders of Registrable
Securities and all other Holders of the receipt of a request for
registration pursuant to this section 5.2 and shall provide a reasonable
opportunity for all Holders and all other Holders to participate in the
registration. Subject to the foregoing, the Company will use all reasonable
efforts to effect promptly the registration of all Registrable Securities
on Form S-3, as the case may be, to the extent
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requested by the Holder or Holders thereof for purposes of disposition.
5.3 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time, the
----------------------
Company shall determine to register any of its Common Stock (including in a
Qualified IPO), for its own account or for the account of others, other
than a registration pursuant to Section 5.1, a registration relating solely
to employee benefit plans or a registration relating solely to a
transaction pursuant to Rule 145 under the Securities Act or registration
on any registration form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) promptly give to (A) each Holder and (B) those other
shareholders of the Company who have "piggyback" registration rights
("Other Holders") written notice thereof; and
-------------
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities
specified in a written request or requests by any Holder or Holders,
and all shares of Common Stock specified in a written request or
requests by the Other Holders; provided such written requests are
received by the Company within twenty (20) days following receipt by
such Holders and the Other Holders of such notice from the Company.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving a firm commitment
underwriting, the Company shall so advise the Holders and the Other Holders
as a part of the written notice given pursuant to Section 5.3(a)(i). In
such event, the right of any Holder and the Other Holders to registration
pursuant to this section 5.3 shall be conditioned upon such Holder's and
the Other Holders' participation in such underwriting and the inclusion of
such Holder's Registrable Securities and such Other Holders' Common Stock
in the underwriting to the extent provided herein. All Holders and Other
Holders proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Section 5.3, if the Company and the underwriter or underwriters determine
that marketing factors require limitation of the number of shares to be
underwritten, the underwriter may exclude from such underwriting all or
some of the shares proposed for registration on the following basis:
(i) shares held by any person who does not have contractual
rights to cause the Company to register such shares shall first be
excluded;
(ii) if further reductions are required, any shares held by the
Other Holders will next be excluded, such reductions to be allocated
as nearly as practicable among each such Other Holder in the
proportion that the number of shares of Common Stock (on a fully
converted basis) held by such Other Holder bears to the total number
of shares of Common Stock (on a fully converted basis) held by all
Other Holders seeking to register their shares; and
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<PAGE>
(iii) if further reductions are required, Registrable Securities
and any shares held by the Holders (including TCW) will next be
excluded, such reductions to be allocated among the Holders such that
(A) one half of the shares that the underwriter believes can be
underwritten would be allocated solely to TCW and (B) the remaining
half would be allocated among TCW and the remaining Holders on a pro-
rata basis, based on the number of shares TCW and such Holders are
seeking to register (with TCW's share number adjusted to reflect the
shares that are allocated to it under clause (A)); provided, that if
any Registrable Securities held by TCW are excluded from registration
pursuant to this clause (iii), such Registrable Securities shall be
included in any overallotment option granted in connection with such
registration to the maximum extent possible.
Except as provided in the last sentence of this paragraph, no shares
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. If any Holder or other
Holder disapproves of the terms of any such underwriting, such person may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities and/or other securities so
withdrawn from such underwriting shall also be withdrawn from such
registration; provided, however, that, if by the withdrawal of such shares
a greater number of shares may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Company
shall offer to all Holders and Other Holders who have included shares in
the registration the right to include additional shares in the same
proportion used above in determining the underwriter limitation.
5.4 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with one registration per year pursuant to Section 5.1 requested by
TCW and all Registration Expenses incurred in connection with a registration
pursuant to Section 5.2 or Section 5.3, including the reasonable fees and
expenses of one counsel for and selected by TCW shall be borne by the Company;
and all Selling Expenses shall be borne by the Holders of the Registrable
Securities so registered pro-rata on the basis of the number of shares so
registered.
5.5 Registration Procedures. Whenever the Company is required to register
-----------------------
Registrable Securities pursuant to Sections 5.1, 5.2 or 5.3, the Company will
use all reasonable efforts to effect the registration to permit the sale of such
Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and file with the SEC as soon as practicable a
registration statement with respect to such Registrable Securities as
prescribed by Section 5 on a form available for the sale of the Registrable
Securities by the Holders thereof in accordance with the intended method or
methods of distribution thereof and use all reasonable efforts to cause
each such registration statement to become and remain effective; provided,
however; that before filing a registration statement, the Company will
furnish the Holders of Registrable Securities covered by such registration
statement, the underwriters, if any, and any attorney, accountant or other
agent required by any such Holders of Registrable Securities or
underwriters (a) copies of all such documents proposed to be filed, which
documents will be subject to the review and comment of such Holders, their
counsel and underwriters, if any, and (ii) if requested, financial and
other information required by the SEC to be included in such registration
statement and all financial and other records, pertinent corporate
documents and properties of the Company customarily reviewed in connection
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<PAGE>
with an underwritten registration; and shall cause the officers, directors
and employees of the Company, counsel to the Company and independent
certified public accountants to the Company, to respond to such inquiries
and supply all information, as shall be necessary, in the opinion of
respective counsel to such Holders and underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act, and will
not file any registration statement to which the holders of a majority of
the shares owned by TCW, the Holders of at least a majority of the
Registrable Securities covered by such registration statement or the
underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments, post-effective
amendments and prospectus supplements to such registration statement as may
be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement until the earlier
of (i) the period provided in Section 5.1 or (ii) such time as all such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement; provided, that the Company shall be deemed not to have used all
reasonable efforts to keep a registration statement effective during the
applicable period if it voluntarily takes any action that results in the
selling Holders of the Registrable Securities covered thereby not being
able to sell such Registrable Securities during that period;
(c) furnish to each Holder of Registrable Securities covered by a
registration statement and to each underwriter; if any, such number of
copies of such registration statement, each amendment and post-effective
amendment thereto, the prospectus included in such registration statement
(including each preliminary prospectus and any supplement to such
prospectus and any other prospectus filed under Rule 424 of the Securities
Act), in each case including all exhibits, and such other documents as such
seller or underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller or to be
disposed of by such underwriter (the Company hereby consenting to the use,
in accordance with all applicable laws, of each such registration statement
(or amendment or post-effective amendment thereto) and each such prospectus
(or preliminary prospectus or supplement thereto) by each such seller and
the underwriters, if any, in connection with the offering and sale of the
Registrable securities covered by such registration statement or
prospectus);
(d) use all reasonable efforts to register or qualify and, if
applicable, to cooperate with the selling Holders of Registrable
Securities, the underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of, the securities to be included in a
registration statement for offer and sale under the securities or blue sky
laws of such jurisdictions as any selling Holder or managing underwriters
(if any) shall reasonably request, to keep each such registration or
qualification (or exemption therefrom) effective during the period such
registration statement is required to be kept effective and to do any and
all other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the securities covered by the applicable
registration statement, provided, that the Company will not be required to
(i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph or (ii) consent to
general service of process in any such jurisdiction;
(e) cause all such Registrable Securities to be listed on each
securities exchange on
17
<PAGE>
which securities of the same class as the Registrable Securities are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use all
reasonable efforts to secure designation of all such Registrable Securities
covered by such registration statement as a NASDAQ "national market system
security" within the meaning of Rule llAa2-1 under the Exchange Act or,
failing that, to secure NASDAQ authorization for such Registrable
Securities and, without limiting the generality of the foregoing, to its
reasonable efforts to arrange for at least two market makers to register as
such with respect to such Registrable Securities with the NASD;
(f) provide a transfer agent and registrar for all such Registrable
Securities and a CUSIP number for all such Securities not later than the
effective date of such registration statement;
(g) comply with all applicable rules and regulations of the SEC and
make available to its security holders an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no later than 45
days after the end of any 12-month period (or ninety (90) days after the
end of any 12-month period if such period is a fiscal year) (or in each
case within such extended period of time as may be permitted by the SEC for
filing the applicable report with the SEC) (i) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in
a firm commitment or best efforts under written offering or (ii) if not
sold to underwriters in such an offering, commencing on the first day of
the first fiscal quarter of the Company after the effective date of a
registration statement, which earnings statement shall cover said 12-month
period;
(h) permit any Holder which, in its sole and exclusive judgment,
might be deemed to be an underwriter or a controlling person of the
Company, to participate in the preparation of such registration or
comparable statement and to require the insertion therein of material,
furnished to the Company in writing, which in the reasonable judgment of
such Holder and its counsel should be included;
(i) use all reasonable efforts to prevent the issuance of any order
suspending the effectiveness of a registration statement or suspending the
qualification (or exemption from qualification) of any of the securities
included therein for sale in any jurisdiction, and, in the event of the
issuance of any stop order suspending the effectiveness of a registration
statement, or of any order suspending the qualification of any securities
included in such registration statement for sale in any jurisdiction, the
Company will use all reasonable efforts promptly to obtain the withdrawal
of such order at the earliest possible moment;
(j) obtain "cold comfort" letters and updates thereof (which letters
and updates (in form, scope and substance) shall be reasonably satisfactory
to the managing underwriters, if any, and counsel to the selling Holders of
Registrable Securities) from the independent certified public accountants
of the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by
the Company for which financial statements and financial data are, or are
required to be, included in the registration statement), addressed to each
of the underwriters, if any, and each selling Holder of Registrable
Securities, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as the
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<PAGE>
underwriters, if any, or the Holders of a majority of the Registrable
Securities being sold may reasonably request;
(k) obtain opinions of independent counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and not
objected to by the Holders of a majority of the Registrable Securities
being sold), addressed to each selling Holder and each of the underwriters,
if any, covering the matters customarily covered in opinions of issuer's
counsel requested in underwritten offerings, such as the effectiveness of
the registration statement and such other matters as may be requested by
the underwriters, if any;
(l) promptly (but in any event, within two business days) notify the
selling Holders of Registrable Securities, their counsel and the managing
underwriters, if any, and confirm such notice in writing:
(i) when a prospectus or any supplement or post-effective
amendment to such prospectus has been filed, and, with respect to a
registration statement or any post-effective amendment thereto, when
the same has become effective;
(ii) of any request by the SEC or any other Federal or state
governmental authority for amendments or supplements to a registration
statement or related prospectus or for additional information;
(iii) of the issuance by the SEC of any stop order suspending
the effectiveness of a registration statement or of any order
preventing or suspending the use of any prospectus or the initiation
of any proceedings by any Person for that purpose;
(iv) if at any time the representations and warranties of the
Company contemplated by clause (i) of paragraph (q) below cease to be
true and correct in any material respect,
(v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of a registration statement or any of the Registrable
Securities for offer or sale under the securities or blue sky laws of
any jurisdiction, or the contemplation, initiation or threatening, of
any proceeding for such purpose;
(vi) of the happening of any event that makes any statement
made in such registration statement untrue in any material respect or
that requires the making of any changes in such registration statement
so that it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made (in the case of any
prospectus), not misleading; and
(vii) of the Company's reasonable determination that a post-
effective amendment to a registration statement would be appropriate.
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<PAGE>
(m) if requested by the managing underwriters, if any, or a Holder of
Registrable Securities being sold, promptly incorporate in a prospectus,
supplement or post-effective amendment and information as the managing
underwriters, if any and the Holders of a majority of the Registrable
Securities being sold reasonably request to be included therein relating to
the sale of the Registrable Securities, including, without limitation,
information with respect to the number of shares of Registrable Securities
being sold to underwriters, the purchase price being paid thereof or by
such underwriters and with respect to any other terms of the underwritten
offering of the Registrable Securities to be sold in such offering, and
make all required filings of such prospectus, supplement or post-effective
amendment promptly following notification of the matters to be incorporated
in such supplement or post-effective amendment;
(n) furnish to each selling Holder of Registrable Securities and the
managing underwriter, without charge, at least one signed copy of the
registration statement;
(o) cooperate with the selling Holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing the Registrable Securities to be sold
not bearing any restrictive legends and in a form eligible for deposit with
The Depository Trust Company and cause such Registrable Securities to be in
such denominations and registered in such names as the managing
underwriters, if any, or holder of Registrable Securities may request at
least three business days prior to any sale of Registrable Securities to
the underwriters;
(p) as promptly as practicable upon the occurrence of any event
contemplated by clause (l) (vi) above, prepare a supplement or post-
effective amendment to the registration statement, or file any other
required documents so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold hereunder, the prospectus will not
contain an untrue statement of a material fact or an omission to state a
material fact to be required to be stated in a registration statement or
prospectus or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(q) enter into such agreements (including underwriting agreements in
customary form, scope and substance) and take all such other actions in
connection therewith as the Holders of a majority of the Registrable
Securities being sold or the underwriters, if any, reasonably request in
order to expedite or facilitate the registration or the disposition of such
Registrable Securities, and in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration
is an underwritten registration:
(i) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, with respect
to the business of the Company and the registration statement, in
form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same, if and
when requested;
(ii) if an underwriting agreement is entered into, cause the
same to include the indemnification and contribution provisions and
procedures substantially similar to (and use all reasonable efforts to
assure that such provisions are no less favorable to the selling
Holders of Registrable Securities than) those contained in Section 5.6
with respect to all
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parties to be indemnified pursuant to said Section (or, with respect
to the indemnification of such underwriters, such similar
indemnification and contribution provisions as such underwriters shall
customarily require); and
(iii) deliver such documents and certificates as may be
requested by the Holders of a majority of the Registrable Securities
being sold and managing underwriters, if any, to evidence compliance
with clause (i) above and with any conditions contained in the
underwriting agreement or other similar agreement entered into by the
Company;
The above shall be done at each closing under such underwriting or
similar agreement or as and to the extent otherwise reasonably requested by
the Holders of a majority of the Registrable Securities being sold.
(r) cooperate with each seller of Registrable Securities covered by
any registration statement and each underwriter, if any, participating in
the disposition of such Registrable Securities and their respective counsel
in connection with any filings required to be made with the NASD;
(s) use all reasonable efforts to take all other steps necessary to
effect the registration of the Registrable Securities covered by the
registration statement contemplated hereby.
Each Holder agrees by the acquisition of such Registrable Securities
that, upon receipt of written notice from the Company of the happening of
any event of the kind described in Section 5.5(l) (ii), 5.5(l) (iii),
5.5(l)(v), 5.5(l) (vi), or 5.5(l) (vii), such Holder will forthwith
discontinue disposition of such Registrable Securities covered by such
registration statement until such Holder's receipt of the copies of the
supplemented or amended registration statement contemplated by Section
5.5(p), or until it is advised in writing (the "Advice") by the Company
------
that the use of the applicable prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such prospectus, and, if so
directed by the Company, such Holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in
such Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. If the Company
shall give any such notice, the time periods mentioned in Section 5.1 shall
be extended by the number of days during such periods from and including
the date of the giving of such notice to and including the date when each
seller of Registrable Securities covered by such registration statement
receives (x) the copies of the supplemented or amended prospectus
contemplated by Section 5.5(p) or (y) the Advice, as the case may be.
5.6 Indemnification and Contribution.
--------------------------------
(a) Company Indemnification. The Company will indemnify, to the
-----------------------
fullest extent permitted by law, each Holder (which term, for purposes of
this Section 5.6, shall be deemed to include Other Holders who include
shares in a registration), its Affiliates, each of its and its Affiliates'
officers, directors, employees, counsel, agents, representatives and
partners, and each person controlling within the meaning of Section 15 of
the Securities Act or Section 20 the Exchange Act, such Holder or its
Affiliates, participating in any registration, qualification, or compliance
effected pursuant to this Section 5.6 with respect to Registrable
Securities held by such
21
<PAGE>
Holder, each person controlling the Company who is not participating in
such registration, qualification or compliance and each underwriter, if
any, and each person who controls any underwriter, against all claims,
losses, damages, costs (including, without limitation, costs of
investigation and reasonable attorneys' fees and disbursements, expenses
and liabilities (or actions in respect thereof collectively "Losses"),
------
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, to which they may become subject under the
Securities Act, the Exchange Act, or other federal or state law, arising
out of or based on (i) any untrue statement (or alleged untrue statement)
of a material fact contained in any prospectus, offering circular or other
similar document (including any related registration statement,
notification, or the like) incident to any such registration, qualification
or compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under
which they were made, or (ii) any violation by the Company of any federal,
state, or common law rule or regulation applicable to the Company in
connection with any such registration, qualification, or compliance, and
will reimburse each such Holder, each of its Affiliates and its Affiliates'
officers, directors, employees, counsel, agents, representatives and
partners, and each person controlling such Holder or its Affiliates, each
such person controlling the Company who is not participating in such
registration, qualification or compliance, each such underwriter, and each
person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating or defending
any Losses, as incurred, provided that the Company will not be liable to
such Holder in any such case to the extent that any such Losses arise out
of or are based on any untrue statement or omission, made in reliance on
and in conformity with written information furnished to the Company
expressly for use in the registration statement by such Holder.
(b) Holder Indemnification. Each Holder will, if Registrable
----------------------
Securities held by such Holder are included in the securities as to which
such registration, qualification, or compliance is being effected,
indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act, each other Holder and
each Other Holder, and each of its officers, directors, and partners and
each person controlling such other Holder or Other Holder, against all
claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue
statement) by such Holder of a material fact contained in any such
registration statement, prospectus, offering circular, or other similar
document, or any omission (or alleged omission) by such Holder to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
under which they were made, and will reimburse the Company, such other
Holders, such directors, officers, persons, underwriters, or control
persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action, as incurred, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company expressly for
use in the registration statement by such Holder; provided, however, that
the obligations of each such Holder hereunder shall be limited to an amount
equal to the aggregate proceeds (net of payment of all expenses) received
by such Holder in such offering.
(c) Notice of Actions. Each party entitled to indemnification under
-----------------
this Section 5.6
22
<PAGE>
(the "Indemnified Party") shall give notice to the party required to
-----------------
provide indemnification (the "Indemnifying Party") promptly after such
------------------
Indemnified Party has received written notice of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense (including the payment of all fees and expenses incurred in
connection thereof) of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld). Each
Indemnified Party shall have the right to employ separate counsel in such
defense but the fees and expenses of such counsel shall be at the expense
of each such Indemnified party unless the representation of both parties by
the same counsel would be inappropriate due to actual or potential
conflicts of interest or if the Indemnifying Party fails to promptly assume
the defense. No Indemnified Party shall be liable for any settlement
effected without its written consent. Each Indemnifying party agrees,
jointly and severally, that it will not, without the indemnified Party's
prior written consent, consent to entry of any judgment or settle or
compromise any pending or threatened claim, action or proceeding in respect
of which indemnification or contribution may be sought hereunder unless the
foregoing contains an unconditional release, in form and substance
reasonably satisfactory to the Indemnified Party, of the Indemnified party
from all liability and obligation arising therefrom.
The Indemnifying Party's liability to any Indemnified Party hereunder
shall not be extinguished solely because any other Indemnified Party is not
entitled to indemnity hereunder.
The Indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf
of the Indemnified Party or any officer, director or controlling person of
such Indemnified Party, and will survive the Transfer of Registrable
Securities. The failure of any Indemnified Party or Parties to give notice
as provided herein shall relieve the Indemnifying Party of its obligations
under this Section 5.6 only to the extent that such failure to give notice
shall materially adversely prejudice the Indemnifying Party in the defense
of any such claim or any such litigation. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in this
------------
Section 5.6 is unavailable or insufficient to hold harmless an Indemnified
Party under Section 5.5(a) or (b) above, then each Indemnifying Party shall
contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in Section
5.6(a) or (b) above (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Indemnified Party on the other from the offering of the Shares and the
relative fault of the Company on the one hand and the Indemnified Party on
the other in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. Relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Indemnified Party and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
Company and the Holders agree that it would not be just and equitable if
contributions pursuant to this Section 5.6(d) were to be
23
<PAGE>
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to
in the first sentence of this Section 5.6(d). The amount paid or payable by
an Indemnified Party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this Section 5.6(d) shall
be deemed to include any legal or other expenses reasonably incurred by
such indemnified Party in connection with investigating or defending
against any action or claim which is the subject of this Section 5.6(d).
Notwithstanding the provisions of this Section 5.6(d), no Holder shall be
required to contribute any amount in excess of the proceeds (net of payment
of all expenses) received by such Holder in the registration. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations in this section 5.6(d) to contribute are several in proportion
to the number of shares sold by each Holder participating in a registration
and not joint. Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it
shall promptly give written notice of such service to the party or parties
from whom contribution may be sought, but the omission so to notify such
party or parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise (except as specifically provided in Section 5.6(c)). The
indemnity and contribution agreements contained in this Section 5.6 are in
addition to any indemnity that the Indemnifying Parties may have to the
Indemnified Parties.
5.7 Information by Holder. Each Holder of Registrable Securities included
---------------------
in any registration shall furnish to the Company such information regarding such
Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification, or compliance referred to in this Section 5.
5.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the SEC that may at any time permit the sale of
shares of Common Stock to the public without registration, after such time as a
public market exists for the Common Stock of the Company, the Company agrees to:
(a) use its best efforts to facilitate the sale of shares of Common
Stock to the public, without registration under the Securities Act,
pursuant to Rule 144 under the Securities Act, provided that this shall not
require the Company to file reports under the Securities Act or the
Exchange Act at any time prior to the Company's being otherwise required to
file such reports;
(b) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act at all times
after ninety (90) days after the effective date of the first registration
under the Securities Act filed by the Company for an offering of its
securities to the general public;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting
requirements);
(d) during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act, make available the information required to
be provided by Rule 144A(d)(4);
24
<PAGE>
(e) so long as a Holder owns any shares of Common Stock which
constitute restricted securities under Rule 144 to furnish to the Holder
forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the
general public), and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents so filed by the Company as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing a
Holder to sell any such securities without registration.
5.9 Market Stand-off Agreement. Each Holder and the Company agree
--------------------------
not to sell or otherwise transfer or dispose of any Common Stock or other
securities of the Company (other than in a private transaction) held by it
during a period of 180 days (or such shorter period as the Company and the
underwriters may agree upon in connection with a Qualified IPO) following the
effective date of a registration statement of the Company filed under the
Securities Act in connection with a Qualified IPO. The Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of such period.
5.10 Transfer of Registration Rights. Subject to compliance with
-------------------------------
Sections 2 and 4, the rights granted under this Section 5 may be assigned or
otherwise conveyed in whole or in part by any Holder of Registrable Securities
to any transferee; provided that in each case the Company is given written
notice of the transfer, stating the name and address of said transferee and said
transferee's agreement to be bound by the provisions of this Agreement.
5.11 Certain Limitations in Connection with Future Grants of
-------------------------------------------------------
Registration Rights. From and after the date of this Agreement, the Company
- -------------------
shall not enter into any agreement with any holder or prospective holder of any
securities of the Company providing for the granting to such holder of
registration rights unless such agreement:
(a) includes the equivalent of Section 5.9 as a term; and
(b) contains provisions substantially similar to and not in conflict
with those contained in Section 5.3(b) with respect to the allocation of
Registrable Securities to be included in an underwritten public offering if
marketing factors require a limitation on the number of such securities to
be included.
Notwithstanding the foregoing, from and after the date of this
Agreement, without the prior written consent of the Holders of a majority
of the Registrable Securities, and the holders of a majority of the
Registrable Securities owned by TCW, the Company shall not enter into any
agreement with any person or persons providing for the granting to such
holder of registration rights superior to those granted to Holders pursuant
to Section 5.1, 5.2 or 5.3.
5.12 Covenants of Holders.
--------------------
(a) In the event any shares of Common Stock are offered or sold by
any Holder in a registration, each such Holder will: (i) advise the Company
in writing of any offer, sale or other
25
<PAGE>
disposition by it of any Common Stock in any manner other than as set forth
in the registration statement or any prospectus included therein on or
before the respective dates thereof; (ii) not effect any stabilization
activity in connection with the Company's Common Stock other than in
transactions permitted pursuant to Regulation M under the Exchange Act;
(iii) not bid for or purchase, for any account in which it has a beneficial
interest, any Common Stock other than in transactions permitted pursuant to
Regulation M under the Exchange Act (if applicable); and (iv) not, until it
has sold all of such shares of Common Stock, attempt to induce any person
to purchase any Common Stock other than in transactions permitted pursuant
to Regulation M under the Exchange Act.
(b) Each Holder shall, if requested by the Company or the managing
underwriter(s) in connection with any proposed registration and
distribution pursuant to this Agreement, (i) agree to sell the Registrable
securities on the basis provided in any underwriting arrangements
satisfactory to such Holder entered into in connection therewith and (ii)
complete and execute all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents customary in similar offerings
(and the Company shall use all reasonable efforts to assure that such
agreements and documents contain provisions that are in no event less
favorable to such Holder than the indemnities provided herein).
SECTION 6. Bring-Along Rights.
------------------
6.1 In the event of a Change of Control Transaction approved by the
Board of Directors of the Company and the Principal Stockholders, then
(following transmittal of a notice to be provided by the Principal Stockholders
or the Company to the Non-Principal Stockholders no less than 20 days before the
consummation of the Change of Control Transaction), subject to the provisions of
this Section 6, all Stockholders shall cooperate in, and shall take all actions
which the Principal Stockholders and the Company deem reasonably necessary or
desirable to consummate the Change of Control Transaction, including, without
limitation, (x) entering into agreements with third parties on terms
substantially identical to or more favorable to the Non-Principal Stockholders
than those applicable to the Principal Stockholders (which agreements may,
subject to the provisions of this Section 6, require a Non-Principal Stockholder
to sell all of his, her or its Common Stock and may require, subject to the
provisions of this Section 6, representations, indemnities, holdbacks and
escrows), and (y) obtaining all governmental consents and approvals reasonably
necessary or desirable to consummate such Change of Control Transaction (to the
extent such consents and approvals may be obtained without any significant
effort or expense by the Non-Principal Stockholder)
6.2 The obligations of the Stockholders pursuant to this Section 6
are subject to the satisfaction of the following conditions, unless such
conditions are waived in writing by a particular Stockholder only with respect
to such Stockholder:
(a) Subject to Section 6.2(b) below, upon the consummation of the
Change of Control Transaction, all of the holders of any class of Preferred
Stock or Common Stock will receive the same form and amount of
consideration per share of such class of Preferred Stock or Common Stock,
respectively, or if any holders of Preferred Stock or Common Stock are
given an option as to the form and amount of consideration to be received,
all holders will be given the same option. Holders of Preferred Stock
shall receive consideration per share of Preferred Stock at least equal to
the face amount or liquidation preference of such Preferred Stock plus any
accrued but unpaid
26
<PAGE>
interest or dividends thereon.
(b) The TCW Stockholders shall not be required to accept
consideration in a Change of Control Transaction in which the rights set
forth in this Section 6 are exercised other than for cash or equity
securities registered under the Exchange Act and listed on the New York or
American Stock Exchange or the Nasdaq National Market ("Public
------
Securities"). A Change of Control Transaction involving consideration
----------
other than cash or Public Securities may be effected and the rights
provided in this Section 6 may be exercised if the TCW Stockholders receive
consideration consisting solely of cash and Public Securities in respect of
their Securities, with the value of the consideration receivable in such a
transaction to be determined in the manner described below. The value of
the Securities held by the TCW Stockholders initially shall be determined
in good faith by the Board of Directors of the Company, and the Company
shall provide written notice thereof to the TCW Stockholders. If no
objection is made to such determination within twenty (20) business days by
the TCW Stockholders then holding a majority of the Securities held by the
TCW Stockholders, the value determined by the Board of Directors of the
Company shall be final and binding on all parties. If the holders of a
majority of the Securities owned by the TCW Stockholders object in writing
to such valuation within twenty (20) business days after receipt of notice
from the Company, the Company shall select an independent financial
appraiser, the Holders of a majority of the Securities owned by TCW shall
select an independent financial appraiser, and the two financial appraisers
shall select a third independent financial appraiser to determine the value
of the Securities held by the TCW Stockholders. The cost and expense of
these appraisers shall be paid by the Company.
(c) No Principal Stockholder who holds any debt or other securities
issued by the Company (i.e., securities other than Common Stock) shall,
pursuant to the Change of Control Transaction, receive, in consideration of
such debt or other securities, an amount greater than the sum of, without
duplication, (X) the face amount or liquidation preference of such
securities, plus (Y) any accrued but unpaid interest or dividends thereon
(including cumulative dividends, if applicable), plus (Z) any prepayment or
redemption premium or penalty set forth in the terms of the agreements
evidencing such securities.
(d) No Non-Principal Stockholder shall be obligated to make any out
of pocket expenditure prior to the consummation of the Change of Control
Transaction (excluding modest expenditures for postage, copies, etc.), and
no Non-Principal Stockholder shall be obligated to pay more than his, her
or its pro-rata share of reasonable expenses incurred in connection with a
consummated Change of Control Transaction to the extent such costs are
incurred for the benefit of all Stockholders and are not otherwise paid by
the Company or the acquiring party. Costs incurred by or on behalf of a
Stockholder for his, her or its sole benefit will not be considered costs
of the transaction hereunder.
(e) The only representations, warranties or covenants that TCW shall
be required to make in connection with the Change of Control Transaction
are representations and warranties with respect to its own ownership of the
Securities to be sold by it and its ability to convey title thereto free
and clear of liens, encumbrances or adverse claims; the liability of TCW
with respect to any representation and warranty or covenant made in
connection with a Change of Control Transaction shall be several and not
joint with any other person; such liability shall be limited to the amount
of proceeds actually received by TCW in the Change of Control Transaction,
and TCW shall not be
27
<PAGE>
required to provide any indemnification or escrow to anyone in connection
with the Change of Control Transaction, other than with respect to the
representations, warranties and covenants made by TCW in connection with
the Change of Control Transaction; provided, however, that TCW shall not be
obligated to participate in a Change of Control Transaction unless TCW is
provided an opinion of counsel to the effect that the sale in connection
with such Change of Control Transaction is not in violation of the
registration or qualification requirements of federal or applicable state
securities laws, or, if TCW is not provided with such an opinion, the
Company shall indemnify TCW for any violation.
6.3 If the Principal Stockholders enter into any negotiation with respect
to a Change of Control Transaction for which Rule 506 under the Securities Act
(or any similar rule then in effect) may be available, each Non-Principal
Stockholder who is not an accredited investor (as such term is defined in Rule
501 under the Securities Act) will, at the request of the Principal
Stockholders, appoint a purchaser representative (as such term is defined in
Rule 501 of the Securities Act) reasonably acceptable to the Principal
Stockholders.
6.4 Section 6.1 of this Agreement provides that, subject to the provisions
thereof, the Stockholders must sell the Securities owned by them in connection
with a Change of Control Transaction. In order to implement the provisions of
this Section 6, each of the Stockholders by executing this Agreement hereby
agrees to vote or to execute and deliver written consents in respect of all
Securities now owned or hereafter registered in its name in connection with the
approval of such a Change of Control Transaction (provided that the conditions
of Section 6 are satisfied). Each of the Stockholders affirms that its agreement
to vote for the approval of a Change of Control Transaction is given as a
condition of this Agreement and as such is coupled with an interest and is
irrevocable. This voting agreement shall remain in full force and effect and be
enforceable against any donee, transferee or assignee of the Securities that is
required to become a party to this Agreement. This voting agreement shall remain
in full force and effect throughout the time that Section 6 of this Agreement is
in effect. It is understood that this voting agreement relates solely to such a
Change of Control Transaction and does not constitute the agreement to vote or
consent as to any other matters.
SECTION 7. [RESERVED]
SECTION 8. Tag-Along Rights.
----------------
8.1 The Tag-Along Rights Notice. If any Principal Stockholder "Selling
--------------------------- --------
Stockholder") negotiates or receives and elects to accept one or more bona fide
- ------------
offers to purchase or otherwise acquire for value shares of Preferred Stock or
Common Stock (a "Purchase Offer") , such Selling Stockholder, subject to other
--------------
restrictions contained herein, shall promptly notify in writing the TCW
Stockholders (the "Participating Stockholders") and the Company of the terms and
--------------------------
conditions of such Purchase Offer and the number of Securities proposed for sale
pursuant to the Purchase Offer (the "Tag-Along Rights Notice") and must include
-----------------------
therewith a copy of drafts of all materials relating to the Purchase Offer.
8.2 The Rights. The Participating Stockholders shall have the right,
----------
exercisable upon written notice to the Selling Stockholder within twenty (20)
days after the date of receipt of the Tag-Along Rights Notice, to participate in
accordance with the terms and conditions set forth below in the Selling
Stockholder's sale of Preferred Stock or Common Stock pursuant to the specified
terms and conditions of such Purchase Offer. To the extent the Participating
Stockholder exercises such right of participation, the
28
<PAGE>
number of shares of Preferred Stock or Common Stock that the Selling Stockholder
may sell pursuant to such Purchase Offer shall be correspondingly reduced. The
right of participation shall be subject to the following terms and conditions:
(a) Each Participating Stockholder may sell all or any part of that
number of Securities owned by such Participating Stockholder that is not in
excess of the product obtained by multiplying (i) the number of shares of
Preferred and/or Common Stock covered by the Purchase Offer that the
Selling Stockholder may sell by (ii) a fraction, the numerator of which is
the number of shares of Preferred and/or Common Stock of the Company at the
time owned by that Participating Stockholder, and the denominator of which
is the aggregate number of shares of Preferred and/or Common Stock of the
Company then outstanding held by the Selling Stockholder and all of the
Participating Stockholders. Fractions shall be computed separately for the
Preferred Stock and Common Stock.
(b) Nothing herein shall prevent the Holders of a majority of the
Securities held by the Principal Stockholders, or the Holders of a majority
of the Securities held by TCW from waiving the rights of such respective
group of Stockholders under this Section 8.
8.3 Procedures.
----------
(a) Each Participating Stockholder may effect his, her or its
participation in the sale by delivering to the Selling Stockholder, with a
copy to the Company, within the twenty-day period specified under Section
8.2 above, for transfer to the maker(s) of the Purchase Offer, one or more
certificates or other instruments, properly endorsed for transfer, which
shall be accompanied by a written election to participate in the sale with
respect to the number of shares of Preferred and/or Common Stock (the
"Election Number").
----------------
(b) The certificates and other instruments that the Participating
Stockholder delivers pursuant to Section 8.2 above shall be transferred by
the Company to the maker(s) of the Purchase Offer in consummation of the
sale of the applicable Securities pursuant to the terms and conditions
specified in the Tag-Along Rights Notice to the Participating Stockholder,
and the Company shall promptly thereafter remit to such Participating
Stockholder that portion of the sale proceeds to which such person is
entitled by reason of his participation in such sale and any stock
certificates representing any remaining securities not sold in such sale;
provided however, that if there is any material change in the terms and
conditions of the transaction described in the Tag-along Rights Notice
(including, without limitation, any decrease in the purchase price) after a
Selling Stockholder makes the election set forth above, then such Selling
Stockholder has the right to withdraw from participation in such
transaction any or all shares of Preferred and/or Common Stock.
8.4 Future Rights. The exercise or non-exercise of the rights of the
-------------
Participating Stockholders to participate in one or more sales of Securities
made by a Selling Stockholder shall not adversely affect the rights of the
Participating Stockholders to participate in subsequent sales by a Selling
Stockholder pursuant to this Section 8.
8.5 Limitation on Liability of TCW. If a sale pursuant to this Section 8
------------------------------
constitutes part of a Change of Control Transaction, then the limitations set
forth in Section 6.2(e) shall apply.
29
<PAGE>
SECTION 9. Preemptive Rights.
-----------------
9.1 Right to Purchase New Securities. The Company hereby grants to each
--------------------------------
Stockholder the right to purchase, pro rata, all New Securities (as defined in
Section 9.2) which the Company may, from time to time, propose to sell and issue
at the price and on the terms on which the Company proposes to sell such New
Securities. A Stockholder's pro rata share, for purposes of this Section 9,
shall be equal to a fraction (A) the numerator of which is the number of shares
of Common Stock (on a fully diluted basis assuming exercise of all outstanding
options and warrants to acquire Common Stock) held by such Stockholder on the
date of the Company's written notice pursuant to Section 9.3 below; and (B) the
denominator of which is the number of shares of Common Stock outstanding (on a
fully diluted basis assuming exercise of all outstanding options and warrants to
acquire Common Stock) on such date held by the Stockholders who agree to
purchase such New Securities. The right to purchase New Securities shall be
subject to the following additional provisions of this Section 9.
9.2 Definitions. "New Securities" shall mean any capital stock (including
-----------
Common Stock or Preferred Stock) of the Company whether now authorized or not,
and rights, options or warrants to purchase capital stock, and securities of any
type whatsoever that are, or may become, convertible into or exchangeable for
capital stock; provided, however, that the term New Securities shall not include
-------- -------
(i) securities issued in connection with the acquisition of another corporation
or entity by the Company by merger, purchase of substantially all of the assets
or other reorganization whereby the Company acquires more than fifty percent
(50%) of the voting power or assets of such corporation or entity (including
securities issued as a broker's or finder's fee upon the consummation of such an
acquisition); (ii) Common Stock (including options to purchase Common Stock),
issued to employees, consultants or directors of the Company pursuant to plans
or agreements approved by the board of Directors; (iii) securities issued
pursuant to any stock dividend, stock split, combination or other
reclassification by the Company or any of its capital stock; (iv) securities
covered by a registration statement which has been declared effective under the
Securities Act and sold pursuant to a firm commitment underwriting by a
nationally recognized investment bank; or (v) securities sold to TCW pursuant to
the Purchase Agreement.
9.3 Required Notices. In the event the Company proposed to undertake an
----------------
issuance of New Securities it shall give each Stockholder written notice,
pursuant to the provisions of Section 10.6 hereof, of its intention, describing
the type of New Securities, the price, the number of shares and the general
terms upon which the Company proposes to issue the same. Each Stockholder shall
have thirty (30) days from the date of receipt of any such notice to agree to
purchase any or all of such Stockholder's pro rata share of such New Securities
for the price and upon the general terms specified in the notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased.
9.4 Company's Right to Sell. In the event the existing Stockholders fail
-----------------------
to exercise the right of first refusal as to all New Securities offered within
said thirty (30) day period, the Company shall have sixty (60) days thereafter
to sell or enter into an agreement (pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within sixty (60) days from the date
of said agreement) to sell all such New Securities respecting which the right to
purchase provided in Section 9.1 was not exercised, at a price and upon the
general terms not more favorable in any material respect to the purchasers
thereof than specified in the Company's notice. In the event the Company has not
sold within said sixty (60) day period or entered into any agreement to sell all
such New Securities within said sixty (60) day period (or sold and issued all
such New Securities in accordance with the foregoing within sixty (60) days from
the date of said
30
<PAGE>
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities to the Stockholders in the manner
provided above.
9.5 Expiration of Right. The rights provided under Section 9 hereof
-------------------
shall not apply to a Qualified IPO and shall expire on the effective date of a
registration statement filed with the Commission in connection with a Qualified
IPO (provided, that such right shall be reinstated if equity securities of the
Company are not sold pursuant to such registration statement).
9.6 Assignment. The rights provided in Section 9 hereof are
----------
nonassessable, except that (a) such rights are assignable by each Stockholder to
another Stockholder (or to a person who becomes a Stockholder upon transfer of
shares to such person) or to an Affiliate of such Stockholder.
SECTION 10. Company and TCW Call Rights
---------------------------
10.1 Termination of the Principals for Cause. If the employment of
---------------------------------------
either of the Principals is terminated for Cause, the Company (and in the event
that the Company does not elect to fully exercise its rights hereunder, the
Initial TCW Holders) shall (within the time periods specified in Section 10.3
hereof) have the right to purchase from such Principal (and such Principal's
transferees of Common Stock pursuant to Section 4.3 hereof (collectively, the
"Permitted Transferees")) and such Principal (and such Principal's Permitted
Transferees) shall have the obligation to sell, up to 100% of the Common Stock
owned by such Principal (and its Permitted Transferees) for a purchase price per
share (such price, the "Reduced Call Price") equal to the amount determined in
accordance with clause (i) below unless clause (ii) is applicable:
(i) the quotient derived by dividing (y) the difference
derived by subtracting (a) Company Debt, from (b) the product
derived by multiplying (i) EBITDA of the Company for the 12-
month period ended as of the last day of the calendar quarter
immediately preceding the date notice is sent pursuant to Section
10.3 hereof, times (ii) four, by (z) the total number of fully
diluted shares (giving effect to the future exercise of all
outstanding warrants, options or any other rights to acquire
shares of Common Stock or securities convertible or exchangeable
for Common Stock, regardless of whether such exercise has
occurred or the right to exercise has vested, the "Fully Diluted
Shares") of Common Stock; and
(ii) if such termination occurs after the occurrence of a
Qualified IPO, and the Common Stock is listed on a nationally
recognized stock exchange, including, without limitation, the
Nasdaq National Market System (an "Exchange"), then 70% of the
average closing price for the Common Stock on such Exchange for
the twenty trading days immediately preceding the date the
employment of such Principal is terminated (the "Average Closing
Price").
10.2 Resignation of the Principals.
-----------------------------
(a) If either of the Principals retires or resigns prior to the
fifth annual anniversary of this Agreement for any reason other than due to
severe physical illness that prohibits such Principal from fulfilling his
obligations under his employment agreement with the Company, the Company (and in
the event that the Company does not elect to fully exercise its rights
hereunder, the Initial TCW Holders) shall (within the time periods specified in
Section 10.3 hereof) have the right to purchase from such Principal
31
<PAGE>
(and such Principal's Permitted Transferees) and such Principal (and such
Principal's Permitted Transferees) shall have the obligation to sell, up to 50%
of the Common Stock then owned by such Principal (and its Permitted Transferees)
for a purchase price per share equal to the amount determined in accordance with
clause (i) below unless clause (ii) is applicable:
(i) the quotient derived by dividing (y) the difference
derived by subtracting (a) Company Debt, from (b) the
product derived by multiplying (i) EBITDA of the Company for
the 12-month period ended as of the last day of the calendar
quarter immediately preceding the date notice is sent
pursuant to Section 10.3 hereof, times (ii) 5.5, by (z) the
total number of Fully Diluted Shares; and
(ii) if such termination occurs after the occurrence of a
Qualified IPO, and the Common Stock is listed on an
Exchange, 85% of the Average Closing Price for Common Stock.
(b) If either of the Principals retires or resigns and such
Principal enters into the business of selling, servicing or financing
automobiles or other vehicles (other than Permitted Activities) anywhere in the
United States (which shall include the ownership of greater than 5% of the
equity interests of an entity engaged in such business), the Company (and in the
event that the Company does not elect to fully exercise its rights hereunder,
the Initial TCW Holders) shall (within the time periods specified in Section
10.3 hereof) have the right to purchase from such Principal (and such
Principal's Permitted Transferees) and such Principal (and such Principal's
Permitted Transferees) shall have the obligation to sell, up to 100% of the
Common Stock owned by such Principal (and its Permitted Transferees) for a
purchase price per share equal to the Reduced Call Price, calculated as if the
employment of such Principal were terminated on the date notice is sent pursuant
to Section 10.3 hereof.
10.3 Call Procedures.
---------------
(a) If the Company desires to purchase any of the Principal's
and its Permitted Transferees' Common Stock pursuant to Section 10.1 or Section
10.2(a), it shall notify such Principal not later than ninety (90) calendar days
following the date such Principal's employment is terminated, or if the Company
desires to purchase any of such Common Stock pursuant to Section 10.2(b), it may
notify such Principal at any time, of its intention to purchase such Common
Stock, which notice, in either event, shall specify the number of shares of
Common Stock that the Company desires to purchase, and the price per share to be
paid. The Company shall send concurrently a copy of such notice (the "Company
Notice") to each of the Initial TCW Holders.
(b) Within fifteen (15) calendar days of the date the Company
sends notice pursuant to Section 10.3(a), it shall make payment for the Common
Stock by check to the address to which notices are to be sent under this
Agreement, or in immediately available funds to the account specified by the
Principal.
(c) If the notice provided by the Company pursuant to Section
10.3(a) hereof does not set forth all of the shares of Common Stock which the
Company has the right to purchase pursuant to this Section 10, and the Initial
TCW Holders desire to purchase any of the balance of such shares, the Initial
TCW Holders shall notify such Principal not later than forty-five (45) calendar
days following receipt of the Company Notice of their intention to purchase such
Common Stock, which notice shall specify the number of shares of Common Stock
that the Initial TCW Holders desire to purchase and the price per share to be
32
<PAGE>
paid.
(d) Within fifteen (15) calendar days of the date the Initial
TCW Holders send notice pursuant to Section 10.3(c), they shall make payment for
the Common Stock by check to the address to which notices are to be sent under
this Agreement, or in immediately available funds to the account specified by
the Principal.
(e) All shares sold pursuant to this Section 10 shall be free
and clear of liens, encumbrances and adverse claims.
10.4 Noncompetition Agreement. The rights and obligations of the
------------------------
parties with respect to this Section 10, are conditioned upon the execution by
each of the Principals simultaneous with or prior to the execution of this
Agreement of a noncompetition agreement, substantially in the form attached
hereto as Exhibit C.
SECTION 11. Miscellaneous.
-------------
11.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES THEREOF.
11.2 Certain Adjustments. The provisions of this Agreement shall
-------------------
apply to the full extent set forth herein with respect to any and all shares of
capital stock of the Company or any successor or assign of the Company (whether
by merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution for the shares of Common Stock,
by combination, recapitalization, reclassification, merger, consolidation or
otherwise and the term "Common Stock" shall include all such other securities.
------------
In the event of any change in the capitalization of the Company, as a result of
any stock split, stock dividend or stock combination or otherwise, the
provisions of this Agreement shall be appropriately adjusted.
11.3 Enforcement. The parties expressly agree that the provisions of
-----------
this Agreement may be specifically enforced against each of the parties hereto
in any court of competent jurisdiction.
11.4 Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the parties hereto, and their respective
successors and permitted assigns; provided that (i) neither this Agreement nor
--------
any rights or obligations hereunder may be transferred or assigned by the
Company (except by operation of law in any merger); (ii) neither this Agreement
nor any rights or obligations hereunder may be transferred or assigned by any
Stockholder except to any Person to whom it has Transferred Securities in
compliance with this Agreement and who has become bound by this Agreement
pursuant to Section 4.1(b) hereof; and (iii) the rights of the parties under
Section 3 hereof may not be assigned to any Person except as explicitly provided
therein. If any party hereto shall acquire additional Securities, such
Securities shall, except as otherwise expressly provided herein, be held subject
to (and entitled to all the benefits of) all of the terms of this Agreement.
11.5 Entire Agreement. This Agreement constitutes the full and
----------------
entire understanding and
33
<PAGE>
agreement between the parties with regard to the subject matter hereof and
supersede all prior oral or written (and all contemporaneous oral) agreements or
understandings with respect to the subject matter hereof, except as set forth in
the Purchase Agreement.
11.6 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, return receipt requested, postage prepaid or otherwise delivered
by hand, messenger or facsimile transmission, addressed: (a) if to a party
listed on Appendix A or a transferee of such party, at such party's address as
set forth on Appendix A, or at such other address as such party or its
transferee shall have furnished to the Company in writing, (b) if to the
Principals to Mr. Thomas Price, c/o Serramonte Auto Plaza, 1500 Collins Avenue,
Colma, California 94014, and Mr. Donald Strough, c/o Concord Honda, 1300 Concord
Avenue, Concord, California 94520 or (c) if to the Company, at c/o Kay & Merkle,
100 The Embarcadero, San Francisco 94105 Attn: W. Bruce Bercovich.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or as having been given when delivered, if
delivered by hand or by messenger (or overnight courier), 24 hours after
confirmed receipt if sent by facsimile transmission or at the earlier of its
receipt or on the fifth day after mailing, if mailed, as aforesaid.
11.7 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party hereto upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereunder occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default therefore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any party, shall be
cumulative and not alternative.
11.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the parties
hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
11.9 Severability. If any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.10 No Waivers; Amendments.
----------------------
(a) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
(b) This Agreement may not be amended or modified, nor may any
provision hereof
34
<PAGE>
be waived, other than by a written instrument signed by (x) the Principals,
and (y) the holders of a majority of the shares of Common Stock held by TCW
Stockholders.
The parties hereto shall use their best efforts not to effect any
amendments to the Charter Documents that would circumvent the provisions of
this Section 10.10.
11.11 Jurisdiction. The parties hereto irrevocably submit, in any
------------
legal action or proceeding relating to this Agreement, to the jurisdiction of
the courts of the United States or the State of California, in the city of Los
Angeles and consent that any such action or proceeding may be brought in such
courts and waive any objection that they may now or hereafter have to the venue
of such action or proceeding in any such court or that such action or proceeding
was brought in an inconvenient forum.
11.12 Termination. The provisions of this Agreement other than
-----------
Sections 3, 4.4, 5, 6, 8, 10 and 11 shall terminate upon the earlier of (a) the
closing of a Qualified IPO and (b) the tenth anniversary of the date of this
Agreement. All of the provisions of this Agreement shall terminate if the Notes
are no longer outstanding, all of the Preferred Stock has been retired, a
Qualified IPO has closed and the Initial TCW Holders beneficially own less than
20% of the shares of the Common Stock set forth opposite their names on Appendix
A hereto.
35
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
By:______________________________
Name:____________________________
Title:___________________________
/s/ Thomas Price
_________________________________
Thomas Price
/s/ Donald Strough
_________________________________
Donald Strough
/s/ Steven Hallock
_________________________________
Steven Hallock
/s/ Fred Cziska
_________________________________
Fred Cziska
/s/ Al Babbington
_________________________________
Al Babbington
/s/ John Driebe
_________________________________
John Driebe
EMBARCADERO AUTOMOTIVE, L.L.C.
By:______________________________
Name:____________________________
Title:___________________________
36
<PAGE>
RAINTREE CAPITAL, L.L.C.
By:______________________________
Name:
Title:
BB INVESTMENTS
By:______________________________
Name:
Title:
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW ADVISORS (BERMUDA),
LIMITED, as general partner
By:______________________________
Name:
Title:
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By:______________________________
Name:
Title:
37
<PAGE>
TCW/CRESCENT MEZZANINE
PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE
INVESTMENT PARTNERS, L.P.
By: TCW/CRESCENT MEZZANINE L.L.C.,
its general partner or managing
owner
By: /s/ Jean-Marc Chapus
______________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
______________________________
John C. Rocchio
Senior Vice President
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW INVESTMENT MANAGEMENT
COMPANY, its investment advisor
By: /s/ Jean-Marc Chapus
______________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
______________________________
John C. Rocchio
Senior Vice President
CRESCENT/MACH I PARTNERS, L.P.
By: TCW ASSEST MANAGEMENT COMPANY,
as investment manager and
attorney-in-fact
By: /s/ Jean-Marc Chapus
______________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
______________________________
John C. Rocchio
Senior Vice President
38
<PAGE>
EXHIBIT 4.1.1
FIRSTAMERICA AUTOMOTIVE, INC.
12_% Senior Notes due June 30, 2005
8% Cumulative Redeemable Preferred Stock due 2005
Redeemable Preferred Stock due 2005
and
Class B Common Stock
SECURITIES PURCHASE AGREEMENT
Dated as of July 11, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. PURCHASE AND SALE OF SECURITIES................................................ 1
1.1 Issue of Securities............................................................ 1
1.2 Purchase and Sale of Securities................................................ 2
1.3 Registration of Securities..................................................... 4
1.4 Delivery Expenses.............................................................. 5
1.5 Issue Taxes.................................................................... 5
1.6 Direct Payment................................................................. 5
1.7 Lost, Etc. Securities.......................................................... 6
1.8 Indemnification................................................................ 6
1.9 Further Actions................................................................ 8
1.10 Other Covenants................................................................ 9
SECTION 2. CLOSING CONDITIONS............................................................. 9
2.1 Delivery of Documents.......................................................... 9
2.2 Legal Investment; Purchase Permitted by Applicable Laws........................ 12
2.3 Payment of Fees................................................................ 12
2.4 Compliance with Agreements..................................................... 12
2.5 Completion of Other Transactions............................................... 12
2.6 Representations and Warranties................................................. 13
2.7 No Event of Default............................................................ 13
2.8 Proceedings Satisfactory....................................................... 13
2.9 Consents and Permits........................................................... 13
2.10 No Material Adverse Effect..................................................... 14
2.11 No Material Judgment or Order.................................................. 14
2.12 Financial Ratios............................................................... 14
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................. 15
3.1 Authorization; Capitalization.................................................. 15
3.2 No Violation or Conflict; No Default........................................... 16
3.3 Use of Proceeds................................................................ 17
3.4 No Material Adverse Change; Financial Statements............................... 17
3.5 Full Disclosure................................................................ 18
3.6 Third Party Consents........................................................... 18
3.7 No Violation of Regulations of Board of Governors of Federal Reserve System.... 19
3.8 Private Offering............................................................... 19
3.9 Governmental Regulations....................................................... 19
3.10 Brokers........................................................................ 19
3.11 Solvency....................................................................... 20
3.12 Representations and Warranties................................................. 20
3.13 Litigation..................................................................... 20
3.14 Labor Relations................................................................ 21
3.15 Taxes.......................................................................... 21
3.16 Environmental Matters.......................................................... 22
3.17 ERISA.......................................................................... 24
3.18 Intellectual Property.......................................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.19 Compliance with Laws........................................................... 25
3.20 Consummation of Pending Acquisitions........................................... 25
3.21 Leases......................................................................... 25
3.22 Franchise Agreements........................................................... 26
3.23 Survival of Representations and Warranties..................................... 26
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER............................... 26
4.1 Purchase for Own Account....................................................... 26
4.2 Accredited Investor............................................................ 26
4.3 Authorization.................................................................. 27
4.4 Securities Restricted.......................................................... 27
4.5 ERISA.......................................................................... 27
SECTION 5. COVENANTS...................................................................... 28
5.1 Payment of Notes; Satisfaction of Obligations.................................. 28
5.2 Financial Statements and Reports............................................... 28
5.3 Compliance Certificate......................................................... 30
5.4 Limitation on Restricted Payments.............................................. 31
5.5 Limitation on Additional Indebtedness and Issuance of Disqualified Stock....... 32
5.6 Limitation on Transactions With Affiliates..................................... 34
5.7 Restrictions on Liens.......................................................... 34
5.8 Limitation on Sale of Assets................................................... 35
5.9 Limitation on Capital Expenditures............................................. 37
5.10 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries... 38
5.11 Change of Control.............................................................. 38
5.12 Minimum Consolidated Interest Expense Coverage Ratio........................... 40
5.13 Fiscal Years................................................................... 41
5.14 Stay, Extension and Usury Laws................................................. 41
5.15 Corporate Existence; Merger; Successor Corporation............................. 41
5.16 Same Business.................................................................. 42
5.17 Taxes.......................................................................... 42
5.18 Investment Company Act......................................................... 43
5.19 Ownership of Subsidiaries...................................................... 43
5.20 Insurance...................................................................... 43
5.21 Employee Plans................................................................. 43
5.22 ERISA Notices.................................................................. 44
5.23 Inconsistent Agreements........................................................ 45
5.24 Compliance with Laws; Maintenance of Licenses.................................. 45
5.25 Inspection of Properties and Records........................................... 45
5.26 Board of Director Observation Rights........................................... 45
5.27 Maintenance of Agent........................................................... 46
5.28 Information to Prospective Purchasers.......................................... 46
5.29 Private Placement Number....................................................... 46
5.30 Dividends on Preferred Stock................................................... 46
5.31 Limitation on Acquisitions..................................................... 47
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.32 Employment, Non-Competition and Acquisition Agreements......................... 47
SECTION 6. REDEMPTION..................................................................... 48
6.1 The Company's Right to Redeem.................................................. 48
6.2 Selection of Notes to Be Redeemed.............................................. 48
6.3 Notice of Redemption........................................................... 48
6.4 Effect of Notice of Redemption................................................. 49
6.5 Payment of Redemption Price.................................................... 49
SECTION 7. DEFAULTS AND REMEDIES.......................................................... 49
7.1 Events of Default.............................................................. 49
7.2 Acceleration of Notes; Remedies................................................ 51
7.3 Premium on Acceleration........................................................ 52
7.4 Other Remedies................................................................. 52
7.5 Waiver of Past Defaults........................................................ 52
7.6 Rights of Holders to Receive Payment........................................... 53
7.7 Undertaking for Costs.......................................................... 53
SECTION 8. AMENDMENTS AND WAIVERS......................................................... 53
8.1 With Consent of Holders........................................................ 53
8.2 Revocation and Effect of Consents.............................................. 54
8.3 Notation on or Exchange of Notes............................................... 55
8.4 Payment of Expenses............................................................ 55
SECTION 9. DEFINITIONS.................................................................... 55
9.1 Definitions.................................................................... 55
9.2 Rules of Construction.......................................................... 71
SECTION 10. GUARANTY....................................................................... 72
10.1 Guaranty....................................................................... 72
10.2 Execution and Delivery of Subsidiary Guaranty.................................. 73
10.3 Future Subsidiary Guarantors................................................... 73
10.4 Certain Bankruptcy Events...................................................... 74
10.5 Releases of Subsidiary Guaranties.............................................. 74
SECTION 11. MISCELLANEOUS.................................................................. 74
11.1 Notices........................................................................ 74
11.2 Successors and Assigns......................................................... 74
11.3 Counterparts................................................................... 75
11.4 Headings....................................................................... 75
11.5 Governing Law; Submission to Jurisdiction...................................... 75
11.6 Entire Agreement............................................................... 75
11.7 Severability................................................................... 76
11.8 Further Assurances............................................................. 76
11.9 Disclosure of Financial Information............................................ 76
11.10 Reproduction of Documents...................................................... 76
</TABLE>
iii
<PAGE>
Page
----
Annexes:
- --------
Annex A-1 Form of Note
Annex A-2 Form of Guaranty
Annex B-1 CRPS Certificate of Designation
Annex B-2 RPS Certificate of Designation
Annex C Stockholders' Agreement
Annex D Form of Draw Down Notice
Annex E Opinion of Counsel to the Company
Schedules:
- ----------
1.1
1.2
2.10
3.1(b)
3.1(c)
3.3
3.4(b)
3.4(d)
3.8
3.14
3.17
3.21
5.6
9.1(a) (Pro Forma)
iv
<PAGE>
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement dated as of July 11, 1997 (this
"Agreement") is entered into by and among FirstAmerica Automotive, Inc., a
- ----------
Delaware corporation (the "Company"), the Guarantors and the purchasers listed
-------
on the signature pages hereto (each a "Purchaser" and collectively, the
---------
"Purchasers").
- -----------
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 9.1.
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company and the Guarantors
agree, and each of the Purchasers agrees, severally but not jointly, as follows:
SECTION 1. PURCHASE AND SALE OF SECURITIES.
-------------------------------
1.1 Issue of Securities.
-------------------
(a) On or before the Closing, the Company will have authorized the
issue and sale to the Purchasers, in the respective amounts set forth in
Schedule 1.1, of (i) up to $36,000,000 aggregate principal amount of its
------------
12% Senior Notes due June 30, 2005 (the "Notes"), to be substantially in
-----
the form attached hereto as Annex A-1, (ii) 3500 shares (the "CRPS Shares")
--------- -----------
of its 8% Cumulative Redeemable Preferred Stock due 2005 (the "CRPS"), with
----
the terms of the CRPS being set forth in the certificate of designation
relating thereto (the "CRPS Certificate of Designation") in the form
-------------------------------
attached hereto as Annex B-1 and 500 shares (the "RPS Shares" and together
--------- ----------
with the CRPS Shares, the "Preferred Shares") of its Redeemable Preferred
----------------
Stock due 2005 (the "RPS" and together with the CRPS, the "Preferred
--- ---------
Stock"), with the terms of the RPS being set forth in the certificate of
designation relating thereto (the "RPS Certificate of Designation" and
------------------------------
together with the CRPS Certificate of Designation, the Certificates of
Designation) in the form attached hereto as Annex B-2, and (iii) up to
---------
5,000,000 shares (the "Common Shares") of its Class B Common Stock, par
-------------
value $0.00001 per share. The Notes, the Preferred Shares and the Common
Shares shall individually be referred to herein as a "Security" and
--------
collectively referred to herein as the "Securities."
----------
(b) The Securities shall include such notations, legends or
endorsements set forth herein or required by law. The Notes will be in the
principal amount of $1,000 (except in the case of any redemption following
which the aggregate principal amount remaining is less than $1,000) or
integral multiples of $1,000 in excess thereof. Each Note shall be dated
the date of its issuance. Subject to Section 1.7, the aggregate principal
amount of the Notes outstanding at any one time may not exceed $36,000,000.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Agreement and, to the extent
applicable, the Company and the Holders, by their execution and delivery of
this Agreement, expressly agree to such terms and provisions and to be
bound thereby.
<PAGE>
(c) Each Holder of Common Shares will have certain rights and
obligations with respect to the Common Shares, as provided in the
Stockholders' Agreement in the form attached hereto as Annex C (the
-------
"Stockholders' Agreement"). The terms and provisions pertaining to the
-----------------------
Common Shares and contained in the Stockholders' Agreement shall
constitute, and are hereby expressly made, a part of this Agreement and, to
the extent applicable, the Company and the Holders, by their execution and
delivery of this Agreement, expressly agree to such terms and provisions
and to be bound thereby.
1.2 Purchase and Sale of Securities.
-------------------------------
(a) Purchase and Sale. At the Closing, the Company agrees to sell
-----------------
and, subject to the terms and conditions set forth herein and in reliance
on the representations and warranties of the Company contained or
incorporated herein, each of the Purchasers agrees, severally but not
jointly, to purchase the Securities set forth below such Purchaser's name
on the signature pages hereto at a purchase price of $910.43 per $1,000
principal amount of Notes, $840.09 per Preferred Share and $0.92 per Common
Share, which amounts are based on each Security's relative fair market
value at the time of issuance, for an aggregate purchase price of
$28,000,000 for the Notes, Preferred Shares and the Common Shares that
shall be purchased and sold at the Closing. The Company and the Purchasers
hereby agree that all Tax Returns filed by the Company and the Purchasers
shall be consistent in all material respects with such allocation
(including for purposes of Section 1271 et seq. of the Code). The
Securities that shall be purchased and sold pursuant to this Section 1.2(a)
are referred to collectively herein as the "Original Securities."
-------------------
(b) Closing. The purchase and sale of the Original Securities shall
-------
take place at a closing (the "Closing") at the offices of Skadden, Arps,
-------
Slate, Meagher & Flom LLP, Four Embarcadero Center, San Francisco,
California at 9:00 a.m. on July 8, 1997, or such other Business Day as may
be agreed upon by the Purchasers and the Company (the "Closing Date"). At
------------
the Closing, the Company will deliver to each of the Purchasers the
Original Securities to be purchased by such Purchaser (in such permitted
denomination or denominations and registered in such Purchaser's name or
the name of such nominee or nominees as such Purchaser may request), dated
the Closing Date, against payment of the purchase price therefor by intra-
bank or Federal funds bank wire transfer of same day funds to such bank
account which is identified on Schedule 1.2 or such other account as the
------------
Company shall designate at least two Business Days prior to the Closing.
(c) Additional Securities. At any time and from time to time on or
---------------------
before November 30, 1998, the Company may deliver to the Purchasers a
notice substantially in the form attached hereto as Annex D (a "Draw Down
------- ---------
Notice") of a request by Company to sell additional Notes ("Additional
------ ----------
Notes") and additional Common Shares ("Additional Common Shares" and
----- ------------------------
together with the Additional Notes, the "Additional Securities") to the
---------------------
Purchasers; provided, however, that the aggregate principal amount of
Additional Notes that may be sold pursuant to this Section 1.2(c)
(including all prior sales pursuant to this Section 1.2(c) shall not exceed
$12,000,000, and the minimum aggregate principal amount of Additional Notes
that the Company may sell pursuant to each Draw Down Notice shall be
$3,000,000; provided, further, that the aggregate principal amount of
Additional Notes that may be sold at any one time pursuant to this Section
1.2(c) shall be an integral multiple of $100,000. The Company agrees to
sell and, subject to the terms and conditions set forth herein and in
reliance on the representations and warranties of the Company contained or
2
<PAGE>
incorporated herein, each of the Purchasers agrees, severally but not
jointly, to purchase the percentage of the aggregate principal amount of
such Additional Notes specified in such Draw Down Notice equal to the
percentage of the aggregate principal amount of Notes purchased by such
Purchaser on the Closing Date; provided, however, that the Purchasers may
agree to any different allocation of the respective principal amounts of
Additional Notes to be purchased by each of them, as long as the aggregate
principal amount of Additional Notes to be so purchased by all the
Purchasers pursuant to each Draw Down Notice remains constant despite such
reallocation. In addition, the Company agrees to sell simultaneously with
each such sale of Additional Notes and, subject to the terms and conditions
set forth herein and in reliance on the representations and warranties of
the Company contained or incorporated herein, each of the Purchasers
agrees, severally but not jointly, to purchase simultaneously with each
such purchase by such Purchasers of Additional Notes, the number of
Additional Common Shares equal to the product of (a) the number of
Additional Common Shares that, after the issuance thereof, shall comprise
the percentage of fully diluted (giving effect to any Equity Interests to
be issued in connection with the New Acquisition to be funded with the
proceeds from such sale of Additional Securities and after giving effect to
the future exercise of all outstanding warrants, options any other rights
to acquire shares of Common Stock or securities convertible or exchangeable
for Common Stock, regardless of whether such exercise has occurred or the
right to exercise has vested) shares of Common Stock set forth in the table
below opposite the Enterprise Value of the Company at the time of such
purchase and sale (excluding any effect that the New Acquisition to be
funded with the proceeds from such sale of Additional Securities may have
on the Enterprise Value of the Company) times (b) the quotient of the
aggregate principal amount of Additional Notes to be purchased by such
Purchaser pursuant to such Draw Down Notice divided by $1,000,000. The
aggregate purchase price for all such Additional Notes and Additional
Common Shares shall be equal to the aggregate principal amount of such
Additional Notes. The amount of such purchase price allocable to the
Additional Common Shares shall be $0.92 per share.
Enterprise Value Additional Common Shares
---------------- ------------------------
up to $100,000,000 0.67%
$100,000,000 to $130,000,000 0.56%
Over $130,000,000 0.40%
(d) Additional Securities Closing. Each purchase and sale of the
-----------------------------
Additional Securities, if any, shall take place at a closing (each, an
"Additional Securities Closing") at the offices of Skadden, Arps, Slate, Meagher
- ------------------------------
& Flom, 300 South Grand Avenue, Los Angeles, California 90071 on such Business
Day (each, an "Additional Securities Closing Date") and at such time as shall be
----------------------------------
agreed upon by the Purchasers and the Company; provided, however, that each
Additional Securities Closing Date shall occur on a day that is no earlier than
the 20th, and no later than the 40th, Business Day after the day on which the
Purchasers receive the relevant Draw Down Notice. At each Additional Securities
Closing, the Company shall deliver to each of the Purchasers the Additional
Securities to be purchased by it (in such permitted denomination or
denominations and registered in the name of such Purchaser or the name of such
nominee or nominees as such Purchaser may request), dated the Additional
Securities Closing Date, against payment of the purchase price therefor by
intra-bank or federal funds bank wire transfer of same day funds to the
Company's bank account identified on Schedule 1.2 hereto or such other account
------------
as the Company shall designate at least two
3
<PAGE>
Business Days prior to such Additional Securities Closing.
(e) Fees and Expenses. Regardless of whether the Securities are sold,
-----------------
the Company agrees to pay or reimburse all reasonable expenses relating to this
Agreement, including but not limited to:
(i) each Purchaser's reasonable out-of-pocket expenses incurred in
connection with the transactions contemplated by this Agreement, the
Stockholders' Agreement and the other Documents including, without
limitation, travel and lodging expenses and all costs incurred in
connection with such Purchaser's review of each of the business and
operations of each of the Companies and the Founding Companies;
(ii) the reasonable fees and other charges and expenses of the
Purchasers' counsel, Skadden, Arps, Slate, Meagher & Flom LLP, in
connection herewith and with the other Documents;
(iii) the cost of printing, reproducing and delivering to each
Purchaser's home office or the office of such Purchaser's designee, insured
to such Purchaser's satisfaction, this Agreement, the Stockholders'
Agreement, the Securities and the other Documents;
(iv) any reasonable fees and expenses (including the reasonable fees
and expenses of counsel) in connection with any registration or
qualification of the Securities required in connection with the offer and
sale of the Securities pursuant to this Agreement under the securities or
"blue sky" laws of any jurisdiction requiring such registration or
qualification or in connection with obtaining any exemptions from such
requirements;
(v) each Purchaser's expenses (including the fees and expenses of
counsel) relating to any amendment to, or modification of, or any waiver or
consent or preservation of rights under, this Agreement or any of the other
Documents; and
(vi) all other expenses, including without limitation counsel's
fees, accountants' fees and any rating agency fees incurred by the Company
in connection with the transactions contemplated by this Agreement and the
other Documents.
The Company shall deliver to each of the Purchasers or to such other
Persons as such Purchaser shall direct, concurrently with the Closing, by intra-
bank or Federal funds bank wire transfer of same day funds, the fee set forth on
such Purchaser's signature page and payment for any out-of-pocket expenses for
which such Purchaser is entitled to reimbursement pursuant to this Section
1.2(e), including, without limitation, the fees and expenses of such Purchaser's
counsel.
(f) Other Purchasers. Each Purchaser's obligations hereunder are
----------------
subject to the execution and delivery of this Agreement by the other Purchasers
listed on the signature pages hereof. The obligations of each Purchaser shall
be several and not joint, and no Purchaser shall be liable or responsible for
the acts of any other Purchaser under this Agreement.
1.3 Registration of Securities.
--------------------------
4
<PAGE>
The Company shall cause to be kept at its principal office or at the
office of its duly authorized transfer agent a register for the registration and
transfer of the Notes (the "Note Register"), the CRPS (the "CRPS Register"), the
RPS (the "RPS Register") and the Common Stock (the "Common Stock Register"). The
names and addresses of the Holders of Notes, the transfer of Notes, and the
names and addresses of the transferees of the Notes shall be registered in the
Note Register. The names and addresses of the Holders of CRPS, RPS and Common
Stock, the transfer of CRPS, RPS and Common Stock and the names and addresses of
the transferees of CRPS, RPS and Common Stock shall be registered in the CRPS
Register, the RPS Register and the Common Stock Register, respectively.
The Person in whose name any registered Security shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes of
this Agreement, and the Company shall not be affected by any notice to the
contrary, until due presentment of such Security for registration of transfer as
provided in this Section 1.3. Payment of or on account of the principal,
premium, if any, and interest on any registered Securities shall be made to or
upon the written order of such registered Holder.
When Securities are presented to the Company, with a request to
register the transfer of such Securities or to exchange such Securities for an
equal principal amount (or number of shares, as applicable) of Securities of
other authorized denominations, the Company shall register the transfer or make
the exchange as requested if its reasonable requirements for such transaction
are met.
1.4 Delivery Expenses.
-----------------
If a Holder surrenders any Security to the Company for any reason, the
Company agrees to pay the cost of delivering to such Holder's home office, or to
the office of such Holder's designee, from the Company insured to such Holder's
satisfaction, the surrendered Security and each Security issued in substitution,
replacement or exchange for, or upon conversion of, the surrendered Security.
1.5 Issue Taxes.
-----------
The Company agrees to pay all Taxes (other than Taxes in the nature of
income, franchise or gift taxes) and governmental fees arising in connection
with the issuance, sale, delivery or transfer by the Company to each Holder of
the Securities and the execution and delivery of the other Documents and any
modification of any of such Securities and Documents and will save such Holder
harmless against any and all liabilities with respect to all such Taxes and
fees. The obligations of the Company under this Section 1.5 shall survive the
payment or prepayment of the Notes, at maturity, upon redemption or otherwise,
the redemption of the Preferred Shares and the termination of this Agreement and
the other Documents.
1.6 Direct Payment.
--------------
(a) The Company will pay or cause to be paid all amounts payable with
respect to any Note (without any presentment of such Note and without any
notation of such payment being made thereon) by crediting (before 12:00
Noon, New York time), by Federal funds bank wire transfer in same day funds
to each Holder's account in any bank in the United States of America as may
be designated and specified in writing by such Holder, which designation
and specification shall be made at least two Business Days prior thereto.
Each Purchaser's initial bank account for this purpose is on the signature
pages hereto.
5
<PAGE>
(b) Notwithstanding anything to the contrary contained in the Notes,
if any principal amount payable with respect to a Note is payable, at
maturity, upon redemption or otherwise, on a Legal Holiday, then the
Company shall pay such amount on the next succeeding Business Day, and
interest shall accrue on such amount until the date on which such amount is
paid and payment of such accrued interest shall be made concurrently with
the payment of such amount, provided that the Company may elect to pay in
full (but not in part) any such amount on the last Business Day prior to
the date such payment otherwise would be due, and no such additional
interest shall accrue on such amount. Notwithstanding anything to the
contrary contained in the Notes, if any interest payable with respect to a
Note is payable on a Legal Holiday, then the Company shall pay such
interest on the next succeeding Business Day, and such extension of time
shall be included in the computation of the interest payment, provided that
the Company may elect to pay in full (but not in part) any such interest on
the last Business Day prior to the date such payment otherwise would be
due, and such diminution in time shall be included in the computation of
the interest payment.
1.7 Lost, Etc. Securities.
---------------------
If a mutilated Security is surrendered to the Company or if the Holder
of a Security claims and submits an affidavit or other evidence, satisfactory to
the Company to the effect that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue a replacement Security if the
customary requirements relating to replacement securities are reasonably
satisfied. If required by the Company, such Holder must provide an indemnity
bond, or other form of indemnity, sufficient in the judgment of the Company, to
protect the Company from any loss which it may suffer if a Security is replaced.
If any Purchaser or any other institutional Holder (or nominee thereof) is the
owner of any such lost, stolen or destroyed Security, then the affidavit of an
authorized officer of such owner, setting forth the fact of loss, theft or
destruction and of its ownership of the Security at the time of such loss, theft
or destruction shall be accepted as satisfactory evidence thereof, and no
further indemnity shall be required as a condition to the execution and delivery
of a new Security, other than the unsecured written agreement of such owner
reasonably satisfactory to the Company to indemnify the Company, or at the
option of the Purchaser or other institutional Holder, an indemnity bond in the
amount of the Security remaining outstanding. Every replacement Security is an
obligation of the Company.
6
<PAGE>
1.8 Indemnification.
---------------
In addition to all other sums due hereunder or provided for in this
Agreement or any of the other Documents and any and all obligations of the
Company to indemnify any Purchaser hereunder or under any of the other
Documents, the Company hereby agrees, without limitation as to time, to
indemnify each Purchaser, each Affiliate of a Purchaser and each director,
officer, employee, counsel, agent or representative of such Purchaser and its
Affiliates (collectively, the "Indemnified Parties") against, and hold it and
-------------------
them harmless from, to the fullest extent lawful, all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees and disbursements) and expenses, including expenses of
investigation (collectively, "Losses"), incurred by it or them and arising out
------
of or in connection with this Agreement, the other Documents or the transactions
contemplated hereby or thereby (or any other document or instrument executed
herewith or pursuant hereto or thereto), regardless of whether the transactions
contemplated by this Agreement are consummated and regardless of whether any
Indemnified Party is a formal party to any proceeding; provided, however, that
the Company shall not be liable to any Indemnified Party for any Losses to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or review) that such Losses arose
from the gross negligence or willful misconduct of such Indemnified Party, which
(i) is independent of any wrongful act by the Company, its Affiliates or any of
their respective representatives and (ii) was not taken by such Indemnified
Party in reliance upon any of the representations, warranties, covenants or
promises of the Company herein (including, without limitation, those
incorporated by reference herein) or in the other Documents, including (without
limitation) the certificates delivered by the Company pursuant hereto or
thereto. The Company agrees to reimburse any Indemnified Party promptly for all
such Losses as they are incurred by such Indemnified Party (regardless of
whether it is or may be ultimately determined that an Indemnified Party is not
entitled to indemnification hereunder). The obligations of the Company to each
Indemnified Party hereunder shall be separate obligations, and the Company's
liability to any such Indemnified Party hereunder shall not be extinguished
solely because any other Indemnified Party is not entitled to indemnity
hereunder. The obligations of the Company under this Section 1.8 shall survive
the payment or prepayment of the Notes, at maturity, upon acceleration,
redemption or otherwise, the redemption or repurchase of the Common Shares
purchased by any Purchaser, the redemption of the Preferred Shares purchased by
any Purchaser, any transfer of the Securities by any Purchaser and the
termination of this Agreement, the Acquisition Documents, the Securities, the
Loan Agreement, the Stockholders' Agreement and any of the other Documents.
In addition, the Company shall, without limitation as to time,
indemnify, reimburse, defend, and hold harmless the Indemnified Parties for,
from, and against all Losses asserted against, resulting to, imposed on, or
incurred by any of the Indemnified Parties, directly or indirectly, in
connection with any of the following: (i) any pollution or threat to human
health or the environment that is related in any way to the management, use,
control, ownership or operation of the business or property in connection with
the business of the Company or any of its Subsidiaries, by the Company or any of
its Subsidiaries, or any Person for whom any of them is or may be responsible by
law or contract, including, without limitation, all on-site and off-site
activities involving Materials of Environmental Concern, and that occurred,
existed, arose out of conditions or circumstances that occurred or existed, or
was caused, in whole or in part, on or before the Closing Date; (ii) any
Environmental Claim against any Person whose liability for such Environmental
Claim the Company or any of its Subsidiaries has assumed or retained either
contractually or by operation of law, including without limitation, any
pollution or threat to human health or the
7
<PAGE>
environment, or any Federal, state, local or foreign approvals; or (iii) the
breach of any environmental representation or warranty set forth or incorporated
by reference herein.
In case any action, claim or proceeding shall be brought against any
Indemnified Party with respect to which indemnity may be sought against the
Company hereunder, such Indemnified Party shall promptly notify the Company in
writing and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party and
payment of all fees and expenses incurred in connection with the defense
thereof. The failure to so notify the Company shall not affect any obligation
it may have to any Indemnified Party under this Agreement or otherwise except to
the extent that (as finally determined by a court of competent jurisdiction
(which determination is not subject to review or appeal)) such failure
materially and adversely prejudiced the Company. Each Indemnified Party shall
have the right to employ separate counsel in such action, claim or proceeding
and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of each Indemnified Party unless: (i) the
Company has agreed to pay such expenses; or (ii) the Company has failed promptly
to assume the defense and employ counsel reasonably satisfactory to such
Indemnified Party; or (iii) the named parties to any such action, claim or
proceeding (including any impleaded parties) include any Indemnified Party and
the Company or an Affiliate of the Company, and such Indemnified Party shall
have been advised by counsel that either (x) there may be one or more legal
defenses available to it which are different from or in addition to those
available to the Company or such Affiliate or (y) a conflict of interest may
exist if such counsel represents such Indemnified Party and the Company or its
Affiliate; provided that, if such Indemnified Party notifies the Company in
writing that it elects to employ separate counsel in the circumstances described
in clause (i), (ii) or (iii) above, the Company shall not have the right to
assume the defense thereof and such counsel shall be at the expense of the
Company; provided, however, that the Company shall not, in connection with any
one such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the fees and expenses
of more than one such firm of separate counsel (in addition to any local
counsel), which counsel shall be designated by such Indemnified Party. The
Company shall not be liable for any settlement of any such action effected
without its written consent (which shall not be unreasonably withheld). The
Company agrees that it will not, without the Indemnified Party's prior written
consent, consent to entry of any judgment or settle or compromise any pending or
threatened claim, action or proceeding in respect of which indemnification or
contribution may be sought hereunder unless the foregoing contains an
unconditional release, in form and substance reasonably satisfactory to such
Indemnified Party, of such Indemnified Party from all liability and obligation
arising therefrom.
If the indemnification provided for in this Section 1.8 is unavailable
to, or insufficient to hold harmless, any Indemnified Party in respect of any
Losses referred to herein, then the Company shall have an obligation to
contribute to the amount paid or payable by such Persons as a result of such
Losses in such proportion as is appropriate to reflect the relative fault of the
Company, its subsidiaries and Affiliates, on the one hand, and such Indemnified
Party, on the other hand, in connection with the actions which resulted in such
Losses as well as any other relevant equitable considerations. The amount paid
or payable by any such Person as a result of the Losses referred to above shall
be deemed to include, subject to the limitations set forth in this Section 1.8,
any legal or other fees or expenses reasonably incurred by such Person in
connection with any investigation, lawsuit or legal or administrative action or
proceeding, other than legal expenses incurred after the Company assumes the
defense in accordance with the immediately preceding paragraph if the proviso in
such paragraph with respect to engagement of separate counsel for the
8
<PAGE>
Indemnified Party is not applicable.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 1.8 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who is not guilty of such fraudulent misrepresentation.
1.9 Further Actions.
---------------
During the period from the date hereof to the Closing Date, the
Company shall (i) take all actions necessary or appropriate to cause its
representations and warranties contained in Section 3 to be true and correct as
of the Closing Date (unless stated to refer to another date), both before and
after giving effect to the transactions contemplated by this Agreement and the
other Documents, as if made on and as of such date, and (ii) take, or cause to
be taken, all action, and do, or cause to be done, all things necessary, proper
or advisable under applicable law and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, obtaining all consents and approvals of all Persons and removing all
injunctive or other impediments or delays, legal or otherwise, which are
necessary to the consummation of the transactions contemplated by this Agreement
and the other Documents.
1.10 Other Covenants.
---------------
The Company further covenants and agrees not to, and will ensure that
no affiliate (as defined in Rule 501(b) of the Securities Act) of the Company
will, sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Securities Act) that would be
integrated with the sale of the Securities in a manner that would require the
registration under the Securities Act of the sale to the Purchasers of the
Securities.
SECTION 2. CLOSING CONDITIONS.
------------------
The obligations of each Purchaser to purchase and pay for the
Original Securities to be delivered to such Purchaser at the Closing shall be
subject to the satisfaction of each of the following conditions on or before the
Closing Date, and the obligations of each of the Purchasers to purchase and pay
for any Additional Securities to be delivered to such Purchaser at each
Additional Securities Closing, if any, shall be subject to the satisfaction of
the following conditions on or before the corresponding Additional Securities
Closing Date :
2.1 Delivery of Documents.
---------------------
The Company shall have delivered to each Purchaser, in form and
substance satisfactory to such Purchaser, the following:
(a) The Note or Notes being purchased by such Purchaser, duly executed
by the Company, in the aggregate principal amount set forth below such
Purchaser's name on the signature pages hereto (or the aggregate principal
amount of Additional Notes to be purchased by such Purchaser in response to
a Draw Down Notice), certificates representing the number of Common
9
<PAGE>
Shares being purchased by such Purchaser, as set forth below such
Purchaser's name on the signature pages hereto (or the aggregate number of
Additional Common Shares to be purchased by such Purchaser in response to a
Draw Down Notice) and certificates representing the number of Preferred
Shares being purchased by such Purchaser, as set forth below such
Purchaser's name on the signature pages hereto.
(b) (1) An Opinion of Counsel, dated the Closing Date or the
Additional Securities Closing Date, as the case may be, and addressed to
such Purchaser, from Gray, Cary, Ware & Freidenrich, counsel for the
Company, in form and substance satisfactory to the Purchasers, and with
respect to the Opinion of Counsel to be delivered on the Closing Date, in
substantially the form set forth on Annex E.
-------
(2) An opinion, dated the Closing Date or the Additional
Securities Closing Date, as the case may be, and addressed to such
Purchaser, from Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Purchasers, in form and substance satisfactory to the Purchasers.
(3) Such other opinions of counsel covering matters incidental
to the transactions contemplated by this Agreement and the other Documents
as any Purchaser may reasonably request.
In rendering such opinions, each counsel may rely as to factual
matters upon certificates or other documents furnished by officers and
directors of the Company and its Subsidiaries (copies of which shall be
delivered to such Purchaser) and by government officials, and upon such
other documents as such counsel deem appropriate as a basis for their
opinion. Such counsel shall opine, as applicable, as to the Federal laws of
the United States of America, the General Corporation Law of the State of
Delaware and the laws of the State of California.
(c) Resolutions of the Boards of Directors of the Companies,
certified by the Secretaries or Assistant Secretaries of the Companies, to
be duly adopted and in full force and effect on such date, authorizing (i)
the execution, delivery and performance of this Agreement, the Notes, the
Loan Agreement, the Stockholders' Agreement, the Acquisition Documents and
the other Documents to which the Companies are party and the consummation
of the transactions contemplated hereby and thereby, (ii) the issuance of
the Notes, the Common Shares and the Preferred Shares and (iii) specific
officers of the Companies to execute and deliver this Agreement, the Notes,
the Acquisition Documents, the Loan Agreement and any other Documents to
which the Companies are party.
(d) Certificates of the Chief Executive Officer or President and
Chief Financial Officer or Vice President of the Company, dated the Closing
Date or the Additional Securities Closing Date, as the case may be,
certifying that (i) all of the conditions set forth in Sections 2.3, 2.4,
2.5, 2.6, 2.7, 2.9, 2.10, 2.11 and 2.12 are satisfied on and as of such
date in all material respects and specifying as to each such condition the
satisfaction thereof, (ii) all of the representations and warranties of the
Company contained or incorporated by reference herein are true and correct
on and as of such date in all material respects as though made on and as of
such date (unless stated to relate to another date), after giving effect to
the transactions contemplated by this Agreement and the other Documents,
and no event has occurred and is continuing, or would result from the
10
<PAGE>
issuance of the Securities being sold on such date, which constitutes or
would constitute a Default or an Event of Default, (iii) concurrently with
the purchase of the Original Securities, the Companies (other than the
Company) shall have borrowed at least $35,000,000 aggregate principal
amount of indebtedness under the Loan Agreement, and the Companies are in
compliance with all terms and provisions of the Loan Agreement (iv) the
Companies have performed their obligations that are required to be
performed on or before the closing under the Acquisition Documents and the
Loan Agreement in accordance therewith and with all applicable law and (v)
as to such other matters as such Purchaser may reasonably request.
(e) On or before the Closing Date, (i) audited financial statements of
the Company (as described in the first sentence of Section 3.4 (b)) for the
fiscal years ended March 31, 1996, 1995 and 1994, (ii) audited financial
statements of each of the Founding Companies (other than the Non-Price
Founding Companies) (as described in the first sentence of Section 3.4 (b))
for the fiscal year ended December 31, 1996 and (iii) unaudited financial
statements of each of the Founding Companies (as described in the first
sentence of Section 3.4 (b)) for the 5-month period ended May 31, 1997;
provided that each of the financial statements referred to in clauses (i),
(ii) and (iii) above shall be accompanied by a certificate of the Chief
Financial Officer of the Company to the effect that such financial
statements fairly present the financial position, shareholders' equity and
income of the relevant entities as of the dates indicated. On or before
each Additional Securities Closing, unaudited combined financial statements
of the Company and all of its Subsidiaries (as described in the first
sentence of Section 3.4 (b)) from the beginning of the fiscal year in which
such Additional Securities Closing occurs to the end of the then most
recently ended fiscal quarter, together with a Certificate of the Chief
Financial Officer of the Company to the effect that such financial
statements fairly present the combined financial position, stockholders'
equity and income of the Company and its Subsidiaries as of such date and
for such interim period. The audited financials referred to above shall be
delivered together with a report thereon by the applicable independent
accountants, which report shall be unqualified, shall express no doubts
about the ability of the Companies or any of the relevant entities to
continue as a going concern, and shall state that such financial statements
fairly present the financial position of each such Person as of the dates
indicated, and the results of their operations and their cash flows for the
periods indicated in conformity with GAAP applied on a basis consistent
with prior years (except as otherwise disclosed in such financial
statements) and that the examination by such accountants in connection with
such financial statements has been made in accordance with United States
generally accepted auditing standards. The Company shall also provide such
accounting firm with instructions that it may communicate directly with
each such Purchaser.
(f) Governmental certificates, dated the most recent practicable date
prior to the Closing Date or Additional Securities Closing Date, as the
case may be, showing that the Company and each of its Subsidiaries is
organized and in good standing in the jurisdiction of its incorporation and
is qualified as a foreign corporation and in good standing in all other
jurisdictions in which it has executive offices or transacts business,
except where the failure to be so qualified could not reasonably be
expected to have a Material Adverse Effect.
(g) Copies of each consent, license and approval required in
connection with the execution, delivery and performance by the Companies of
this Agreement, the Securities, the Certificates of Designation and the
other Documents and the consummation of the transactions
11
<PAGE>
contemplated hereby and thereby, (except that on the Closing Date, such
consents, licenses and approvals relating to the acquisition of California
Carriage Limited, a California corporation need not be provided).
(h) Copies of the Charter Documents of the Company and each of its
Subsidiaries, certified as of a recent date by the Secretary of State of
the State of Delaware (or such other state in which any of such Persons is
formed), and certified by the Secretary or Assistant Secretary of each of
such Person, as true and correct as of the Closing Date or Additional
Securities Closing Date, as the case may be.
(i) Certificates of the Secretary or an Assistant Secretary of the
Company and of each of its Subsidiaries as to the incumbency and signatures
of the officers or representatives of such entity executing this Agreement,
the Securities, the Certificates of Designation, the other Documents and
any other certificate or other document to be delivered pursuant hereto or
thereto, together with evidence of the incumbency of such Secretary or
Assistant Secretary.
(j) A permit issued pursuant to the California Corporate Securities
Law of 1968 (the "CSL") that is sufficient to exempt, pursuant to Section
---
25116 of the CSL, the Notes and the Purchasers from the usury provisions of
the California Constitution.
(k) Such additional information and materials as any Purchaser may
reasonably request, including, without limitation, copies of any debt
agreements, security agreements and other contracts to which the Company or
any of its Subsidiaries is a party.
2.2 Legal Investment; Purchase Permitted by Applicable Laws.
-------------------------------------------------------
Each Purchaser's acquisition of the Securities (a) shall not be
prohibited by any applicable law or governmental regulation, release,
interpretation or opinion (including, without limitation, Regulations G, T, U
and X of the Board of Governors of the Federal Reserve System), (b) shall
constitute a legal investment as of the Closing Date or Additional Securities
Closing Date, as the case may be, under the laws and regulations and orders of
each jurisdiction to which such Purchaser may be subject (without resort to any
"basket" or "leeway" provision), and (c) shall not subject such Purchaser to any
penalty or, in its reasonable judgment, other onerous condition in or pursuant
to any such law, regulation or order; and such Purchaser shall have received
such certificates or other evidence as such Purchaser may reasonably request to
establish compliance with this condition.
2.3 Payment of Fees.
---------------
The Company shall have delivered to each of the Purchasers or to such
other Persons as such Purchaser shall direct on the signature pages hereto, at
the Closing, by intra-bank or Federal funds bank wire transfer of same day
funds, payment for such Purchaser's fee as is set forth on such Purchaser's
signature page hereto.
2.4 Compliance with Agreements.
--------------------------
The Company and each of its Subsidiaries shall have performed and
complied in all
12
<PAGE>
material respects with all agreements, covenants and conditions contained
herein, in each of the other Documents and in any other document contemplated
hereby or thereby which are required to be performed or complied with by the
Company or any of its Subsidiaries on or before the Closing Date or Additional
Securities Closing Date, as the case may be. The Purchasers shall have received
evidence, in form and substance satisfactory to them, that all transactions
contemplated by the Acquisition Documents to have occurred prior to or on the
Closing Date have been consummated and that all certificates, financial
statements, opinions and other documents delivered thereunder were delivered in
a form satisfactory to the Purchasers.
2.5 Completion of Other Transactions.
--------------------------------
(a) Simultaneously with or prior to the sale to each Purchaser of the
Securities to be purchased by such Purchaser on the Closing Date:
(i) The Company shall have executed and delivered the
Acquisition Documents and the Stockholders' Agreement and shall have
consummated the transactions contemplated thereby to be consummated on
or prior to the Closing Date (including, without limitation, the
Pending Acquisitions (except for consummation of the acquisition of
California Carriage Limited, a California corporation)), without
amendment, modification or waiver of any material condition.
(ii) All of the other Purchasers listed in the signature pages
hereof shall have consummated their purchase of Securities pursuant to
this Agreement.
(iii) The Company shall own directly, 100% of the outstanding
Equity Interests of each of its Subsidiaries. (iv) Each of the parties
to the Loan Agreement shall have executed and delivered the Loan
Agreement, which shall include an inventory financing facility of at
least $115,000,000 and none of the parties to the Loan Agreement shall
be in breach of any of their respective material obligations
thereunder, and all of the conditions precedent to the transactions
contemplated thereby shall have been duly satisfied without amendment,
modification or waiver of any material condition.
(v) The Company shall have purchased the directors and
officers liability insurance policy referred to in Section 5.20.
(b) Simultaneously with or prior to the sale to each Purchaser of the
Additional Securities to be purchased by such Purchaser on each Additional
Securities Closing Date, all of the net proceeds from the sale by the
Company of such Additional Securities shall be used to consummate a New
Acquisition or New Acquisitions (and pay related expenses and fees)
permitted pursuant to the provisions of Section 5.31.
13
<PAGE>
2.6 Representations and Warranties.
------------------------------
Unless stated to relate to another date, all of the representations
and warranties of each of the Companies contained or incorporated by reference
herein or in any of the other Documents shall be true and correct in all
material respects on and as of the Closing Date and each Additional Securities
Closing Date both before and after giving effect to the transactions
contemplated hereby and by the other Documents.
2.7 No Event of Default.
-------------------
No event shall have occurred and be continuing, or would result from
the consummation of the transactions contemplated to be consummated on or prior
to the Closing Date or Additional Securities Closing Date, as the case may be,
by this Agreement, the Acquisition Documents, the Loan Agreement or any of the
other Documents (including, without limitation, the purchase of the Securities
or the incurrence of indebtedness pursuant to the Loan Agreement), which
constitutes or would constitute a Default or an Event of Default.
2.8 Proceedings Satisfactory.
------------------------
All proceedings taken in connection with the sale of the Securities,
the transactions contemplated hereby (including, without limitation, the Pending
Acquisitions), and all documents and papers relating thereto, shall be
reasonably satisfactory to such Purchaser. Such Purchaser and its counsel shall
have received copies of such documents and papers as they may reasonably request
in connection therewith, or as a basis for the Closing opinions, all in form and
substance satisfactory to such Purchaser.
2.9 Consents and Permits.
--------------------
The Company and each of its Subsidiaries and each of the Founding
Companies shall have received all consents, permits, approvals and
authorizations and sent or made all notices, filings, registrations and
qualifications as may be required pursuant to any law, statute, regulation or
rule (Federal, state, local or foreign) or pursuant to any other agreement
(including without limitation all Franchise Agreements to which the Company, any
of its Subsidiaries or any of the Founding Companies is a party), order or
decree to which any of them is a party or to which any of them is subject, in
connection with the transactions to be consummated on or prior to the Closing
Date or Additional Securities Closing Date, as the case may be, as contemplated
by this Agreement or any of the other Documents. The Company and its
Subsidiaries shall have the unrestricted right and ability to continue the
conduct of the businesses conducted by the Founding Companies, as well as any
other businesses acquired in connection with a New Acquisition, in a manner
consistent with the manner in which such businesses were conducted prior to
their acquisition by the Company or any of its Subsidiaries.
14
<PAGE>
2.10 No Material Adverse Effect.
--------------------------
Subsequent to December 31, 1996: (A) none of the Company or any of its
Subsidiaries shall have suffered any adverse change in their properties,
business, operations, assets, condition (financial or otherwise) or prospects
which could reasonably be expected to result in a Material Adverse Effect (other
than those items set forth on Schedule 2.10 hereto); and (B) except as disclosed
-------------
in Schedule 2.10 hereto (i) there shall not have been any material change in the
-------------
capital stock or long-term debt, or material increase in short-term debt, of the
Company and its Subsidiaries and (ii) the Company and its Subsidiaries shall
not have incurred any liability or obligation, direct or contingent, that is
material to them, is required to be disclosed on a balance sheet in accordance
with GAAP and is not disclosed in the Financial Statements.
2.11 No Material Judgment or Order.
-----------------------------
There shall not be on the Closing Date or on any Additional Securities
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any agency of the Federal, state or local government that, in the
reasonable judgment of any Purchaser or its counsel, would prohibit the sale or
issuance of the Securities hereunder or subject the Company or any of its
Subsidiaries to any material penalty if the Securities were to be issued and
sold hereunder.
2.12 Financial Ratios.
----------------
With respect to the purchase and sale of Additional Securities on each
Additional Securities Closing Date, (a) the Consolidated Interest Expense
Coverage Ratio of the Company (after giving pro forma effect to the issuance and
sale of such Additional Securities and the consummation of the New Acquisition
to be funded with the proceeds of the issuance and sale of such Additional
Securities as if such issuance and sale and such consummation occurred at the
beginning of the applicable period referenced in the definition of the term
"Consolidated Interest Expense Coverage Ratio") on such Additional Securities
Closing Date exceeds the minimum ratio set forth in Section 5.12 opposite the
last day of the fiscal quarter in which such Additional Securities Closing Date
occurs and (b) the Total Debt Coverage Ratio of the Company (after giving pro
forma effect to the issuance and sale of such Additional Securities and the
consummation of the New Acquisition to be funded with the proceeds of the
issuance and sale of such Additional Securities as if such issuance and sale and
such consummation occurred at the beginning of the applicable period referenced
in the definition of the term "Total Debt Coverage Ratio") on such Additional
Securities Closing Date does not exceed 2.5.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants on the date hereof, as of the
Closing and as of each Additional Securities Closing, the following; provided,
however, that any information set forth in any Schedule referenced in this
Section 3 shall be deemed to be disclosure for purposes of each and all
representations made in this Section 3.
15
<PAGE>
3.1 Authorization; Capitalization.
-----------------------------
The Companies have taken all actions necessary to authorize them (i)
to execute, deliver and perform all of their obligations under this Agreement,
the Acquisition Documents, the Loan Agreement and the other Documents to which
each is a party, (ii) to issue and perform all of their obligations under the
Notes, the Preferred Shares and the Common Stock and (iii) to consummate the
transactions contemplated hereby and thereby. Each of this Agreement, the
Notes, the Preferred Shares, the Acquisition Documents, the Loan Agreement and
the other Documents to which the Companies and the Founding Companies are a
party is a legally valid and binding obligation of the Companies and the
Founding Companies, as the case may be, enforceable against each, respective,
party in accordance with its respective terms, except for (a) the effect thereon
of bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally and (b) limitations
imposed by equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
The total authorized Equity Interests of the Company consist of (a)
30,000,000 shares of Class A Common Stock, par value $0.00001 per share, of
which 4,055,152 shares were issued and outstanding immediately prior to the
consummation of the transactions contemplated by this Agreement and 14,017,519
shares will be issued and outstanding upon consummation of the transactions
contemplated hereby, including the additional issuances by the Company in
connection herewith, (b) 5,000,000 shares of Class B Common Stock, par value
$0.00001 per share, of which no shares were issued and outstanding on the date
hereof and 3,032,000 shares will be issued and outstanding upon consummation of
the transactions contemplated hereby, including the additional issuances by the
Company in connection herewith, (c) 30,000,000 shares of Class C Common Stock,
par value $0.00001 per share, of which no shares were issued and outstanding on
the date hereof and no shares will be issued and outstanding upon consummation
of the transactions contemplated hereby, including the additional issuances by
the Company in connection herewith and (d) 10,000 shares of preferred stock, par
value $0.00001 per share, of which no shares were issued and outstanding on the
date hereof and 3500 shares of CRPS and 500 shares of RPS will be issued and
outstanding upon consummation of the transactions contemplated hereby. The
total authorized Equity Interests of each of the Companies (other than the
Company) consist of 100,000 shares of common stock, in each case 10,000 shares
of which are issued, outstanding and owned by the Company, in each case free and
clear of any security interest, mortgage, pledge, transfer restriction, defect,
claim, lien, limitation on voting rights, encumbrance, equity or adverse
interest of any nature (each, a "Lien"). All of the outstanding Equity
----
Interests of the Companies and the Founding Companies have been duly authorized
and validly issued, are fully paid and nonassessable and were not issued in
violation of, and are not subject to, any preemptive or similar rights. Except
for the shares of capital stock of the other Companies, the Company does not own
any capital stock or any other securities of any corporation, nor does it have
any Equity Interest in any firm, partnership, association or other entity.
On the Closing Date or the Additional Securities Closing Dates, as the
case may be, the Securities will be duly authorized and validly issued, will be
fully paid and nonassessable and will not have been issued in violation of, nor
will they be subject to, any preemptive or similar rights, other than those in
favor of the Purchasers. Except as set forth on Schedule 3.1(b), there are no
---------------
outstanding (i) securities convertible into or exchangeable for any Equity
Interests of any of the Company or any of its Subsidiaries, (ii) options,
warrants or other rights to purchase or subscribe to Equity Interests of any of
the Companies or
16
<PAGE>
securities convertible into or exchangeable for Equity Interests of any of the
Companies or the Founding Companies, (iii) contracts, commitments, agreements,
understandings, arrangements, calls or claims of any kind relating to the
issuance of any Equity Interests of any of the Companies or the Founding
Companies, any such convertible or exchangeable securities or any such options,
warrants or rights or (iv) voting trusts, agreements, contracts, commitments,
understandings or arrangements with respect to the voting of any of the Equity
Interests of the Company or any of its Subsidiaries.
Except for the Stockholders' Agreement, none of the Companies or the
Founding Companies has entered into an agreement to register its securities
under the Securities Act. Except for this Agreement and as set forth on
Schedule 3.1(c), none of the Companies or the Founding Companies has entered
- ---------------
into any agreement to issue, purchase or sell any of its securities.
There are no securities any of the Companies registered under the
Exchange Act or listed on a national securities exchange registered under
Section 6 of the Exchange Act or quoted in a United States automated inter-
dealer quotation system.
3.2 No Violation or Conflict; No Default.
------------------------------------
(a) Neither the execution, delivery or performance of this Agreement,
the Securities, the Acquisition Documents, the Loan Agreement, the
Stockholders' Agreement, or any of the other Documents by the Company or
any of its Subsidiaries or any of the Founding Companies, nor the
compliance with their respective obligations hereunder or thereunder, nor
the consummation of the transactions contemplated hereby and thereby, nor
the issuance, sale or delivery of the Securities will:
(i) violate any provision of the Charter Documents of the
Company, any of its Subsidiaries or any of the Founding Companies;
(ii) violate any statute, law, rule or regulation or any
judgment, decree, order, regulation or rule of any court or
governmental authority or body to which any of the Company, any of its
Subsidiaries or the Founding Companies or any of their, respective,
properties may be subject, other than such violations that could not
reasonably be expected to result in a Material Adverse Effect;
(iii) permit or cause the acceleration of the maturity of any
debt or obligation of the Company, any of its Subsidiaries or the
Founding Companies; or
(iv) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any
Person under, or result in the creation or imposition of any Lien
(other than Permitted Liens) upon any property of the Company, any of
its Subsidiaries or the Founding Companies under, any mortgage,
indenture, loan agreement, note, debenture, agreement for borrowed
money or any other agreement to which any of them is a party or by
which any of them (or their respective properties) may be bound, other
than such violations, conflicts, defaults, terminations and Liens, or
such failures to obtain consents, which could not reasonably be
expected to result in a Material Adverse Effect.
17
<PAGE>
(b) None of the Company, any of its Subsidiaries or the Founding
Companies is in default (without giving effect to any grace or cure period
or notice requirement) under any agreement for borrowed money, any
Franchise Agreement or under any agreement pursuant to which any of its
securities were sold.
3.3 Use of Proceeds.
---------------
The net proceeds from the sale by the Company of the Original
Securities hereunder will be used solely as set forth in Schedule 3.3. The net
------------
proceeds from the sale by the Company of Additional Securities shall be used
solely and promptly to consummate New Acquisitions (and pay related expenses and
fees) permitted pursuant to the provisions of Section 5.31.
3.4 No Material Adverse Change; Financial Statements.
------------------------------------------------
(a) No Material Adverse Change. Since December 31, 1996, none of the
--------------------------
Company, any of its Subsidiaries or any of the Founding Companies has
suffered any material adverse change in their properties, business,
operations, assets, condition (financial or otherwise) or prospects which
could reasonably be expected to result in a Material Adverse Effect.
(b) Financial Statements. Attached hereto as Schedule 3.4(b) are (i)
-------------------- ---------------
the audited balance sheets of the Company as of March 31, 1996, 1995, and
1994 and the related statements of income, changes in shareholders' equity
and cash flows of the Company for the fiscal years ended March 31, 1996,
1995 and 1994 (ii) the audited balance sheets of each of the Founding
Companies (other than the Non-Price Founding Companies) as of December 31,
1996 and the related combined statements of income, changes in
shareholders' equity and cash flows of the Founding Companies (other than
the Non-Price Founding Companies)for the fiscal year ended December 31,
1996 and (iii) an unaudited balance sheets of each of the Founding
Companies as of May 31, 1997 and related statements of income, changes in
shareholders' equity and cash flows of the Company and each of the Founding
Companies for the 5-month period ended May 31, 1997. Such financial
statements (the "Financial Statements") present fairly the consolidated
--------------------
financial position, results of operations, shareholders' equity and cash
flows of the Companies and the Founding Companies (other than the Non-Price
Founding Companies) at the respective dates or for the respective periods
to which they apply. All financial statements concerning the Company and
its Subsidiaries that will hereafter be furnished by the Company and its
Subsidiaries to the Purchasers or any Holder pursuant to this Agreement
will be prepared in accordance with GAAP consistently applied (except as
disclosed therein) and will present fairly the financial condition of the
corporations covered thereby as at the dates thereof and the results of
their operations for the periods then ended.
(c) Pro Forma. The Pro Forma have been prepared by the Company on a
---------
basis consistent with the Financial Statements, except for the pro forma
adjustments specified thereon and are based on good faith reasonable
estimates and assumptions of the Company.
(d) Projections. Attached hereto as Schedule 3.4(d) are true and
----------- ---------------
complete copies of (i) projections of the consolidated revenues, earnings
before depreciation, interest and taxes, operating margins, net income and
capital expenditures of the Company and its Subsidiaries for
18
<PAGE>
each of the fiscal years ending December 31, 1997, 1998, 1999, 2000 and
2001, prepared by senior management of the Company assuming the
consummation of the transactions contemplated hereby and by the other
Documents (the "Projections") and (ii) the assumptions and supplemental
-----------
data used in preparing the Projections (collectively, the "Supplemental
------------
Data"). The Projections were prepared on the basis of the Supplemental Data
----
which represent a reasonable basis for such preparation. The Projections
and the Supplemental Data reflect the best reasonable estimates and
judgments of the Company's senior management as to the expected future
financial performance of the Company and its Subsidiaries.
3.5 Full Disclosure.
---------------
This Agreement (including, without limitation, the representations and
warranties incorporated herein by reference), the financial statements referred
to in Section 3.4, any Document, any other document, certificate or written
statement furnished by or on behalf of the Companies and Founding Companies to
any Purchaser in connection with the negotiation and sale of the Securities and
oral statements made by the Company to any TCW Group Member as a representative
of the Purchasers, when taken as a whole, do not contain any untrue statement of
a material fact or omit and will not omit to state a material fact necessary to
make the statements contained herein or therein not misleading in light of the
circumstances under which they were made. There is no material fact known to
the Company or any of its Subsidiaries or any of the Founding Companies that has
had or could reasonably be expected to have a Material Adverse Effect and that
has not been disclosed herein or in such other documents, certificates and
written statements furnished to the Purchasers for use in connection with the
transactions contemplated hereby.
3.6 Third Party Consents.
--------------------
Neither the nature of the Company or any of its Subsidiaries or any of
the Founding Companies nor of any of their businesses or properties, nor any
relationship between the Company or any of its Subsidiaries and any other
Person, nor any circumstance in connection with the offer, issuance, sale or
delivery of the Securities at the Closing nor the performance by the Company or
any of its Subsidiaries or any of the Founding Companies of their other
obligations hereunder or under, or the consummation of the transactions
contemplated by, the Securities, the Acquisition Documents, the Loan Agreement,
the Stockholders' Agreement, or any other Document, as the case may be, is such
as to require a consent, approval or authorization of, or notice to, or filing,
registration or qualification with, any governmental authority or other Person
on the part of the Company, any of its Subsidiaries or any of the Founding
Companies as a condition to the execution and delivery of this Agreement, the
Acquisition Documents, the Loan Agreement, the Stockholders' Agreement or any of
the other Documents or the offer, issuance, sale or delivery of the Securities
at the Closing or at each Additional Securities Closing other than (a) such
consents, approvals, authorizations, notices, filings, registrations or
qualifications that shall have been made or obtained on or prior to the Closing
Date (and copies of which will be delivered to the Purchasers) or the failure of
which to obtain could not reasonably be expected to result in a Material Adverse
Effect, and (b) such filings under Federal and state securities laws which are
permitted to be made after the Closing Date and which the Company hereby agrees
to file within the time period prescribed by applicable law. The Company and
its Subsidiaries have the unrestricted right and ability to continue the conduct
of the businesses conducted by the Founding Companies, as well as any other
businesses acquired in connection with a New Acquisition, in a manner consistent
with the manner in which such businesses were conducted
19
<PAGE>
prior to their acquisition by the Company or any of its Subsidiaries.
3.7 No Violation of Regulations of Board of Governors of Federal Reserve
--------------------------------------------------------------------
System.
- ------
None of the transactions contemplated by this Agreement (including,
without limitation, the use of the proceeds from the sale of the Securities)
will violate or result in a violation of Section 7 of the Exchange Act or any
regulation issued pursuant thereto, including, without limitation, Regulations
G, T, U and X of the Board of Governors of the Federal Reserve System.
3.8 Private Offering.
----------------
Assuming the truth and correctness of the representations and
warranties set forth in Section 4, the sale of the Securities hereunder is
exempt from the registration and prospectus delivery requirements of the
Securities Act. In the case of each offer or sale of the Securities, no form of
general solicitation or general advertising was used by any of the Company or
any of its Subsidiaries or their respective representatives, including, but not
limited to, advertisements, articles, notices or other communications published
in any newspaper, magazine or similar medium or broadcast over television or
radio, or any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
The Purchasers are the sole purchasers of the Securities. Except as
set forth on Schedule 3.8, no securities have been issued and sold by the
------------
Company within the six-month period immediately prior to the date hereof. None
of the securities issued within such six-month period could be integrated with
the issuance of the Securities as a single offering for purposes of the
Securities Act, and the Company agrees that neither it, nor anyone acting on its
behalf, will offer or sell the Securities, or any portion of them, if such offer
or sale might bring the issuance and sale of the Securities to any Purchaser
hereunder within the provisions of Section 5 of the Securities Act nor offer any
similar securities for issuance or sale to, or solicit any offer to acquire any
of the same from, or otherwise approach or negotiate with respect thereto with,
anyone if the sale of the Securities and any such securities could be integrated
as a single offering for the purposes of the Securities Act, including without
limitation Regulation D thereunder. It is not necessary, in connection with the
transactions contemplated hereby, to qualify an indenture under the Trust
Indenture Act of 1939, as amended.
3.9 Governmental Regulations.
------------------------
None of the Company or any of its Subsidiaries is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act, the Commodity Exchange Act or to any Federal or state
statute or regulation limiting its ability to incur indebtedness for borrowed
money or consummate the transactions contemplated hereby and by the other
Documents.
20
<PAGE>
3.10 Brokers.
-------
None of the Company or any of its Subsidiaries or any of the Founding
Companies has dealt with any broker, finder, commission agent or other such
intermediary other than Brown Gibbon & Lang in connection with the sale of the
Securities and the transactions contemplated by this Agreement and the other
Documents, and none of the Company or any of its Subsidiaries or any of the
Founding Companies is under any obligation to pay any broker's or finder's fee
or commission or similar payment in connection with such transactions other than
fees payable to Brown Gibbon & Lang in an amount not greater than $2,345,000.
The Company agrees to indemnify and hold the Holders harmless from and
against any and all actions, suits, claims, costs, expenses, losses, liabilities
and/or obligations in connection with or relating to any broker's or finder's
fees or commission or similar payment in connection with such transactions,
except with respect to such fees or commissions incurred by any Purchaser for
its account, so long as the Company receives notice of any such action, suit,
claim, etc., reasonably promptly after the Holders become aware thereof;
provided that the failure to give such notice as provided in this sentence shall
not relieve the Company of its obligations under this sentence except to the
extent, and only to the extent, that the Company is materially prejudiced by
such failure to give notice (as determined by a court of competent jurisdiction
in a final nonappealable judgment). Notwithstanding the foregoing, the Company
shall not be liable for any broker fees resulting from the activities of
representatives of the Purchasers.
3.11 Solvency.
--------
Immediately prior to and after giving effect to the consummation of
the Pending Acquisitions and any New Acquisition, the issuance of the Securities
and the execution, delivery and performance of this Agreement, the Acquisition
Documents, the Loan Agreement, the other Documents and any instrument governing
Indebtedness of the Company, the Company and each of its Subsidiaries is
Solvent.
3.12 Representations and Warranties.
------------------------------
All representations and warranties (and the related schedules) of any
of the Companies contained in the Stockholders' Agreement, the Loan Agreement,
the Acquisition Documents and the other Documents, and each of the
representations and warranties (and the related schedules) of each of the other
parties to the Acquisition Documents, each in the form as in effect on the date
hereof without amendment or waiver, shall be deemed to constitute
representations and warranties of the Company under this Agreement with the same
force and effect as the representations and warranties expressly set forth
herein. Such representations and warranties are true and correct on the date
hereof and will be true and correct as of the Closing Date as if made at and as
of such date, and are hereby incorporated by reference herein as if made hereby
by the Company to the Purchasers. Unless otherwise defined herein, for purposes
of this Section 3.12, the definitions contained in the Loan Agreement, the
Stockholders' Agreement, the Acquisition Documents and any other Documents
(insofar as they relate to the representations and warranties incorporated
herein) are hereby incorporated by reference herein and made a part hereof.
21
<PAGE>
3.13 Litigation.
----------
(a) There is no action, claim, suit, citation or proceeding
(including, without limitation, an investigation or partial proceeding,
such as a deposition), whether commenced, or to the knowledge of the
Company or any of its Subsidiaries or any of the Founding Companies,
threatened ("Proceedings") against or affecting the Company or any of its
-----------
Subsidiaries or any of the Founding Companies or any of their properties or
assets, except for such Proceedings that, if finally determined adversely
to any of such Persons, could not reasonably be expected to have a Material
Adverse Effect, and there is no Proceeding seeking to restrain, enjoin,
prevent the consummation of or otherwise challenge the Pending
Acquisitions, this Agreement or any of the other Documents or the
transactions contemplated hereby or thereby.
(b) None of the Company or any of its Subsidiaries or any of the
Founding Companies is subject to any judgment, order, decree, rule or
regulation of any court, governmental authority or arbitration board or
tribunal that has had a Material Adverse Effect or that could reasonably be
expected to have a Material Adverse Effect.
3.14 Labor Relations.
---------------
None of the Company or any of its Subsidiaries or any of the Founding
Companies, nor any Person for whom any of them is or may be responsible by law
or contract, is engaged in any unfair labor practice that could reasonably be
expected to have a Material Adverse Effect. Other than as set forth on Schedule
--------
3.14, there is (a) no unfair labor practice charge or complaint pending or
- ----
threatened against the Company, any of its Subsidiaries or any of the Founding
Companies, or any Person for whom any of them is or may be responsible by law or
contract, before the National Labor Relations Board or any corresponding state,
local or foreign agency, and no grievance or arbitration proceeding arising out
of or under any collective bargaining agreement is so pending or threatened, (b)
no strike, labor dispute, slowdown or stoppage pending or threatened against the
Company, any of its Subsidiaries or any of the Founding Companies, or any Person
for whom any of them is or may be responsible by law or contract, and (c) no
union representation claim or question existing with respect to the employees of
the Company, any of its Subsidiaries or any of the Founding Companies, or any
Person for whom any of them is or may be responsible by law or contract, and no
union organizing activities taking place. Except as disclosed on Schedule 3.14,
-------------
none of the Company, any of its Subsidiaries or any of the Founding Companies,
or any Person for whom any of them is or may be responsible by law or contract,
is a party to any collective bargaining agreement.
Except such as could not, singly or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, none of the Company, any of its
Subsidiaries or any of the Founding Companies, or any Person for whom any of
them is or may be responsible by law or contract has violated any applicable
Federal, state, provincial or foreign law relating to employment or employment
practices or the terms and conditions of employment, including, without
limitation, discrimination in the hiring, promotion or pay of employees, wages,
hours of work, plant closings and layoffs, collective bargaining, and
occupational safety and health, or any provisions of ERISA or the rules and
regulations promulgated thereunder or any other applicable law (whether foreign
or domestic) relating to or governing the operation or maintenance of any plan
or arrangement falling within the definition of an "employee benefit plan" (as
such term is defined in
22
<PAGE>
Section 3 of ERISA) or any other employee benefit plan or arrangement.
3.15 Taxes.
-----
(a) The Company and each of its Subsidiaries and each of the Founding
Companies has timely filed (or have had timely filed on their behalf) or
will timely file or cause to be timely filed, all Tax Returns required by
applicable law to be filed by any of them prior to or as of the Closing
Date. All such Tax Returns and amendments thereto are or will be true,
complete and correct in all material respects.
(b) The Company and each of its Subsidiaries and each of the
Founding Companies has paid (or have had paid on their behalf), or where
payment is not yet due, have established (or have had established on their
behalf and for their sole benefit and recourse), or will establish or cause
to be established on or before the Closing Date, an adequate accrual for
the payment of all Taxes due with respect to any period ending prior to or
as of the Closing Date.
(c) No Audit by a Tax Authority is pending or threatened with respect
to any Tax Returns filed by, or Taxes due from, the Company or any of its
Subsidiaries or any of the Founding Companies. No issue has been raised by
any Tax Authority in any Audit of the Company or any of its Subsidiaries or
any of the Founding Companies that if raised with respect to any other
period not so audited could be expected to result in a material proposed
deficiency for any period not so audited. No deficiency or adjustment for
any Taxes has been threatened, proposed, asserted or assessed against the
Company or any of its Subsidiaries or any of the Founding Companies. There
are no liens for Taxes upon the assets of the Company or any of its
Subsidiaries or any of the Founding Companies, except liens for current
Taxes not yet due.
(d) None of the Company or any of its Subsidiaries or any of the
Founding Companies has given or been requested to give any waiver of
statutes of limitations relating to the payment of Taxes or has executed
powers of attorney with respect to Tax matters, which will be outstanding
as of the Closing Date.
(e) None of the Company or any of its Subsidiaries or any of the
Founding Companies is party to or bound by any tax sharing, cost sharing,
or similar agreement or policy relating to Taxes.
(f) None of the Company or any of its Subsidiaries or any of the
Founding Companies has entered into agreements that would result in the
disallowance of any tax deductions pursuant to Section 280G of the Code.
No "consent" within the meaning of Section 341(f) of the Code has been
filed with respect to the Company or any of its Subsidiaries or any of the
Founding Companies.
23
<PAGE>
3.16 Environmental Matters.
---------------------
Except as could not reasonably be expected to have a Material Adverse
Effect:
(a) the Company and each of its Subsidiaries and each of the Founding
Companies, and any Person for whom any of them is or may be responsible by
law or contract (each such Subsidiary, each of the Founding Companies and
each such Person being included in the definition of "Company" for purposes
of this Section 3.16), is in full compliance with all Environmental Laws,
which compliance includes, but is not limited to, (1) compliance with all
standards, schedules and timetables therein, (2) the possession of all
permits, licenses, approvals and other authorizations required under the
Environmental Laws or with respect to the operation of the Company's
business, property and assets, and compliance with the terms and conditions
thereof and (3) any Federal, state, local or foreign approvals required
pursuant to any Environmental Laws that pertain or relate to the
transactions contemplated by this Agreement;
(b) the Company has not received any communication (written or oral),
whether from a governmental authority, citizens group, employee or
otherwise, that alleges that the Company is not in full compliance with any
Environmental Law, the Company has no liability under any Environmental
Law, and there are no past or present actions, activities, circumstances,
conditions, events or incidents that may be expected to prevent or
interfere with full compliance with applicable Environmental Laws in the
future;
(c) there is no Environmental Claim pending or threatened against the
Company;
(d) there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the
release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that could be expected to form the basis of any
Environmental Claim against the Company;
(e) no real property or facility owned, used, operated, leased,
managed or controlled by the Company, or any predecessor in interest, is
listed or proposed for listing on the National Priorities List or the
Comprehensive Environmental Response, Compensation, and Liability
Information System pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, or on any other similar state
or local list established pursuant to any Environmental Law;
(f) there have been no releases (including, without limitation, any
past or present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, disposing or dumping,
on-site or off-site) of Materials of Environmental Concern by the Company,
or any predecessor in interest, at, on, under, from or into any facility or
real property owned, operated, leased, managed or controlled by the
Company, and the Company has not incurred or reasonably expects to incur
liability for contamination at, on, under, from or into any on-site or off-
site locations where the Company has stored, disposed or arranged for the
disposal of Materials of Environmental Concern;
24
<PAGE>
(g) no underground storage tank or other underground storage
receptacle, or related piping, is located on a facility or property
currently owned, operated, leased, managed or controlled by the Company;
(h) there is no asbestos contained in or forming part of any building,
building component, structure or office space, and no polychlorinated
biphenyls (PCBs) or PCB-containing items are used or stored at any
property, owned, operated, leased, managed or controlled, whether currently
or in the past (for which such matters the Companies could be liable), by
the Company.
"Environmental Claim" means any claim, action, cause of action,
-------------------
investigation of which the Company, including any of its employees, is aware, or
notice (written or oral) by any Person alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from (a)
the presence, or release into the environment, of any Material of Environmental
Concern at any location, regardless of whether owned or operated by the Company,
or (b) circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.
"Environmental Laws" means all Federal, state, local and foreign laws
------------------
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
"Materials of Environmental Concern" means chemicals, pollutants,
----------------------------------
contaminants, industrial, toxic or hazardous wastes, substances or constituents,
petroleum and petroleum products (or any by-product or constituent thereof),
asbestos or asbestos-containing materials, or PCBs.
3.17 ERISA.
-----
Based upon the Purchasers' representation in Section 4.5, the
execution and delivery of this Agreement, the other Documents and the sale of
the Securities to be purchased by the Purchasers will not involve any non-exempt
"prohibited transaction." Except as set forth on Schedule 3.17, none of the
-------------
Company, any of its Subsidiaries or any of the Founding Companies, or any of
their ERISA Affiliates is a "party in interest" or a "disqualified person" with
respect to any "employee benefit plan." No condition exists or event or
transaction has occurred in connection with any "employee benefit plan"
maintained or contributed to by any of the Company, any of its Subsidiaries or
any of the Founding Companies, or any of their ERISA Affiliates (any such plan
being herein referred to as a "Company Plan") that has resulted or is reasonably
------------
likely to result in any of the Company, any of its Subsidiaries, any of the
Founding Companies, any such ERISA Affiliate incurring any liability, fine or
penalty except as could not reasonably be expected to have a Material Adverse
Effect. Except as set forth on Schedule 3.17, no Company Plan is subject to
-------------
Title IV of ERISA. There is no liability under Title IV of ERISA, whether actual
or contingent. No amounts payable pursuant to any plan, policy, scheme or
arrangement identified in any contract, arrangement or agreement will, in
connection with the transactions contemplated under this Agreement, the
Acquisition Documents or the other Documents, fail to be deductible for Federal
income tax purposes by virtue of Section 280G of the Code. The terms "employee
benefit plan" and "party in interest" shall have
25
<PAGE>
the meanings assigned to such terms in Section 3 of ERISA, the term
"disqualified person" shall have the meaning assigned to such term in Section
4975 of the Code, the term "prohibited transaction" shall have the meaning
assigned to such term in Section 406 of ERISA and Section 4975 of the Code, and
the term "ERISA Affiliate" shall have the meaning assigned to such term in
Section 407 of ERISA.
3.18 Intellectual Property.
---------------------
Except as could not, individually or in the aggregate, reasonably be
expected to result in any Material Adverse Effect, the Company and its
Subsidiaries own the entire and unencumbered right, title and interest in and
to, or possess adequate licenses or other rights to use, all intellectual
property, including but not limited to, trademarks, service marks, trade names,
copyrights, computer software and know-how used in the business previously
conducted by the Company or any of its Subsidiaries or any of the Founding
Companies. To the best knowledge of the Company or any of its Subsidiaries or
any of the Founding Companies, all intellectual property material to the
business now conducted by the Company or any of its Subsidiaries or any of the
Founding Companies is valid and enforceable and the Company and each of its
Subsidiaries and each of the Founding Companies have performed all acts and has
paid all required fees and taxes to maintain all registrations and applications
of such intellectual property in full force and effect. None of the Company or
any of its Subsidiaries or any of the Founding Companies has received any notice
of infringement of or conflict with (or knows or has known of such infringement
of or conflict with) asserted rights of others with respect to the use of
intellectual property, including but not limited to trademarks, service marks,
trade names, copyrights, computer software or know-how which, individually or in
the aggregate, could reasonably be expected to result in any Material Adverse
Effect. The Company and its Subsidiaries and the Founding Companies do not in
the conduct of their business as now conducted infringe or conflict with any
right of any third party, known to the Company or any of its Subsidiaries or any
of the Founding Companies, where such infringement or conflict could reasonably
be expected to result in any Material Adverse Effect. To the best knowledge of
the Company and each of its Subsidiaries and each of the Founding Companies,
none of the Company or any of its Subsidiaries or any of the Founding Companies
is, nor will any of them be as a result of the execution and delivery of this
Agreement or the performance of any obligations hereunder, in breach of any
license or other agreement relating to any intellectual property.
3.19 Compliance with Laws.
--------------------
The Company and each of its Subsidiaries and each of the Founding
Companies have obtained and have maintained in good standing any licenses,
permits, consents and authorizations required to be obtained by it under all
laws or regulations relating to the retail sale of new and used automobiles and
conducting maintenance on automobiles (collectively, the "Laws"), the absence of
which (individually or in the aggregate) could reasonably be expected to have a
Material Adverse Effect, and any such licenses, permits, consents and
authorizations remain in full force and effect, except as to any of the
foregoing the absence of which (individually or in the aggregate) could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its Subsidiaries and each of the Founding Companies are in compliance with
the Laws in all material respects, and there is no pending or, to the knowledge
of any of them, threatened, action or proceeding against the Company or any of
its Subsidiaries or any of the Founding Companies under any of the Laws, other
than any such actions or proceedings which, individually or in the aggregate, if
adversely determined, could not reasonably be expected to have a Material
Adverse Effect.
26
<PAGE>
3.20 Consummation of Pending Acquisitions.
------------------------------------
The Pending Acquisitions (other than, on the Closing Date, the
acquisition of California Carriage Limited, a California corporation) have been
duly consummated in accordance with the terms of the Acquisition Documents
without amendment or waiver of any material term or provision thereof. True and
correct copies of the Acquisition Documents have been delivered to a TCW Group
Member, acting on behalf of each Purchaser. The Companies, the Founding
Companies and their Affiliates are not in default under the Acquisition
Documents or under any instrument or document to be delivered in connection
therewith. All of the transactions engaged in by the Companies, the Founding
Companies and their Affiliates as part of the Pending Acquisitions were legal
and valid and in compliance with all applicable law.
3.21 Leases.
------
Attached hereto as Schedule 3.21 is a list of (i) all leases relating
-------------
to the properties used by the Company and its Subsidiaries (the "Leases"), (ii)
------
the commencement and expiration dates of the Leases, and (iii) the rents payable
under the Leases. Neither the Founding Companies, the Company nor any of their
respective Subsidiaries has breached materially any of the Leases. The Leases
have been provided to the Purchasers.
3.22 Franchise Agreements.
--------------------
The Company or any Subsidiary of the Company is an authorized dealer
franchisee for all the new vehicles sold by the Company or such Subsidiary,
pursuant to a valid and enforceable Franchise Agreement. All parties to each of
the Franchise Agreements to which the Company or any of its Subsidiaries is a
party are in compliance with such Franchise Agreement and no such party has
received any notice of default or termination relating to such Franchise
Agreement.
3.23 Survival of Representations and Warranties.
------------------------------------------
All of the Company's representations and warranties hereunder and
under the Loan Agreement, the Stockholders' Agreement, and the other Documents
shall survive the execution and delivery of the same, any investigation by any
Purchaser and the issuance of the Securities.
27
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER.
------------------------------------------------
Each Purchaser (as to itself only) and each Account Manager (as to
the managed accounts of Purchasers) represents and warrants to the Company that:
4.1 Purchase for Own Account.
------------------------
Such Purchaser or such Account Manager is purchasing the Securities
to be purchased by it solely for its own account (or in the case of Account
Managers, on behalf of managed accounts) and not as nominee or agent for any
other Person (other than for such managed accounts, if applicable) and not with
a view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state thereof, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of said Securities pursuant to a registration statement under
the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act, and subject, nevertheless, to the
disposition of its property being at all times within its control.
4.2 Accredited Investor.
-------------------
Such Purchaser or such Account Manager is knowledgeable,
sophisticated and experienced in business and financial matters; it has
previously invested in securities similar to the Securities and it acknowledges
that the Securities have not been registered under the Securities Act and
understands that the Securities must be held indefinitely unless they are
subsequently registered under the Securities Act or such sale is permitted
pursuant to an available exemption from such registration requirement; it (or,
in the case of an Account Manager, the managed account on behalf of which the
Account Manager is acting) is able to bear the economic risk of its investment
in the Securities and is presently able to afford the complete loss of such
investment; it (or, in the case of an Account Manager, the managed account on
behalf of which the Account Manager is acting) is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act; and it has been
afforded access to information about each of the Companies and their financial
condition and business sufficient to enable it to evaluate its investment in the
Securities.
4.3 Authorization.
-------------
Such Purchaser has taken all actions necessary to authorize it (or,
in the case of an Account Manager, such Account Manager is duly authorized by
the managed account for which it is acting) (i) to execute, deliver and perform
all of its obligations under this Agreement, (ii) to perform all of its
obligations under the Securities and (iii) to consummate the transactions
contemplated hereby and thereby. This Agreement is a legally valid and binding
obligation of such Purchaser enforceable against it in accordance with its
terms, except for (a) the effect thereon of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) limitations imposed by Federal or state
law or equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
28
<PAGE>
4.4 Securities Restricted.
---------------------
No transfer or sale (including, without limitation, by pledge or
hypothecation) of Securities by any Holder which is otherwise permitted
hereunder, other than a transfer or sale to the Company, shall be effective
unless such transfer or sale is made (A) pursuant to an effective registration
statement under the Securities Act and a valid qualification under applicable
state securities or "blue sky" laws or (B) without such registration or
qualification as a result of the availability of an exemption therefrom, and, if
reasonably requested by the Company, counsel for such Holder shall have
furnished the Company with an opinion, reasonably satisfactory in form and
substance to the Company, to the effect that no such registration is required
because of the availability of an exemption from the registration requirements
of the Securities Act; provided, however, that with respect to transfers by
Holders to their Affiliates, no such opinion shall be required. A transfer made
by a Holder which is a state-sponsored employee benefit plan to a successor
trust or fiduciary pursuant to a statutory reconstitution shall be expressly
permitted and no opinions of counsel shall be required in connection therewith.
4.5 ERISA.
-----
Such Purchaser represents that:
(a) it is not acquiring the Securities for or on behalf of any
employee pension benefit plan or employee welfare benefit plan (as defined
in Section 3 of ERISA) or any "plan" (as defined in Section 4975 of the
Code) (each hereafter a "Plan");
----
(b) the assets used to acquire the Securities are assets of an
insurance company general account and the purchase of the Notes and
Preferred Shares would be exempt under the provisions of the Prohibited
Transaction Class Exemption 95-60; or
(c) if it is acquiring the Securities on behalf of an employee pension
benefit plan, an employee welfare benefit plan or a "Plan," either directly
or through an investment fund (such as a bank collective investment fund or
insurance company pooled separate account), then, assuming that the plans
listed in Schedule 3.17 are the only employee benefit plans (as defined in
-------------
Section 3 of ERISA) or Plans with respect to which the Company is a "party
in interest" or "disqualified person" (as such terms are defined in Section
3 of ERISA and Section 4975 of the Code, respectively), either
(i) no part of the funds to be used to purchase the
Securities constitutes assets allocable to any trust that contains
assets of the employee benefit plans listed in Schedule 3.17, or
-------------
(ii) an exemption from the prohibited transaction rules applies
such that the use of such funds does not constitute a non-exempt
prohibited transaction in violation of Section 406 of ERISA or Section
4975 of the Code, which could be subject to a civil penalty assessed
pursuant to Section 502 of ERISA or a tax imposed under Section 4975
of the Code.
29
<PAGE>
The representations contained in this Section 4.5 are made in express
reliance on the list of employee benefit plans contained in Schedule 3.17.
-------------
SECTION 5. COVENANTS.
---------
So long as any of the Notes remain unpaid and outstanding, the
Company covenants to the Holders of outstanding Securities as follows:
5.1 Payment of Notes; Satisfaction of Obligations.
---------------------------------------------
The Company shall pay the principal of, premium, if any, and
interest on the Notes on the dates and in the manner provided in the Notes. To
the extent lawful, the Company shall pay interest (including interest accruing
after the commencement of any proceeding under any Bankruptcy Law) on all past
due and unpaid amounts outstanding under the Notes (including overdue
installments of principal or interest) at a rate equal to 14_% per annum,
compounded quarterly.
5.2 Financial Statements and Reports.
--------------------------------
(a) The Company will maintain, and will cause each of its
Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP. The Company
will deliver to each Holder the financial statements and other reports
described below:
(i) Monthly Financials. As soon as available and in any event
------------------
within thirty (30) days after the end of each month ending after the
Closing Date: (A) copies of the internal financial reports, with
respect to the results of operations for such month and balance sheet
balances at the end of such month, delivered to members of the
Company's management, setting forth in comparative form the
corresponding figures for the corresponding periods of the previous
fiscal year (to the extent available) and the corresponding figures
from the consolidated plan and financial forecast for the current
fiscal year delivered pursuant to subsections 5.2(a)(v), 5.2(a)(viii)
and 5.2(b), to the extent prepared on a monthly basis, (B)
consolidating financial statements for each of the automotive
dealerships owned by the Company and its Subsidiaries, that include
the operating data for each automotive dealership including the total
number of new and used automobiles sold during such month and for the
year to date, and (C) a schedule of the outstanding Indebtedness for
borrowed money of the Company and its Subsidiaries describing in
reasonable detail each such debt issue or loan outstanding and the
principal amount (excluding original issue discount) and amount of
accrued and unpaid interest with respect to each such debt issue or
loan;
(ii) Quarterly Financials. As soon as available and in any
--------------------
event within forty-five (45) days after the end of each fiscal quarter
(other than the last quarter of any fiscal year), the information
required by the Exchange Act to be contained in a Quarterly Report on
Form 10-Q (including all exhibits thereto);
(iii) Year-End Financials. As soon as available and in any
-------------------
event within ninety
30
<PAGE>
(90) days after the end of each fiscal year: (A) the consolidated
balance sheet of the Company and its Subsidiaries as of the end of
such year and the related consolidated statements of income,
shareholders' equity and cash flows of the Company and its
Subsidiaries for such fiscal year, setting forth in each case in
comparative form the corresponding figures for the previous fiscal
year and the corresponding figures from the consolidated plan and
financial forecast delivered pursuant to subsection 5.2(a)(v) and
5.2(b) for the fiscal year covered by such financial statements, all
in reasonable detail and certified by the chief financial officer of
the Company that they fairly present the financial condition of the
Company and its Subsidiaries as at the dates indicated and the results
of their operations and their cash flows for the periods indicated,
(B) a narrative report describing the operations of the Company and
its Subsidiaries in the form prepared for presentation to senior
management for such fiscal year, (C) a schedule of the outstanding
Indebtedness for borrowed money of the Company and its Subsidiaries
describing in reasonable detail each such debt issue or loan
outstanding and the principal amount (excluding original issue
discount) of accrued and unpaid interest with respect to each such
debt issue or loan, and (D) in the case of such consolidated financial
statements, a report thereon of KPMG Peat Marwick or other independent
certified public accountants of recognized national standing selected
by the Company, which report shall be unqualified, shall express no
doubts about the ability of the Company and its Subsidiaries to
continue as a going concern, and shall state that such consolidated
financial statements fairly present the consolidated financial
position of the Company and its Subsidiaries as of the dates indicated
and the results of their operations, shareholders' equity and their
cash flows for the periods indicated in conformity with GAAP applied
on a basis consistent with prior years (except as otherwise disclosed
in such financial statements) and that the examination by such
accountants in connection with such consolidated financial statements
has been made in accordance with United States generally accepted
auditing standards;
(iv) Promptly upon receipt thereof, copies of all management
letters submitted to the management of the Company by independent
public accountants in connection with their annual audit and any
similar reports submitted to the management of the Company by
independent public accountants, whether in connection with any interim
or special audit of the consolidated financial statements of the
Company or otherwise;
(v) Copies of any financial or other report or material notice
delivered to, or received from, any creditor pursuant to the Loan
Agreement not otherwise delivered to the Holders pursuant to this
Section 5.2;
(vi) Copies of all reports, letters and other correspondence
from local, state or Federal regulatory or other agencies relating to
business, licenses or operating contracts of the Company or any of its
Subsidiaries of a material nature;
(vii) Notice to each Holder of (i) any violation of or
noncompliance with any Environmental Laws that could reasonably be
expected to have a Material Adverse Effect, (ii) any communication
(written or oral) or Environmental Claim, whether from a governmental
authority, citizens group, employee or otherwise, alleging that the
Company or any of its Subsidiaries is not in compliance with any
Environmental law or asserting
31
<PAGE>
liability of the Company or any of its Subsidiaries for contamination
from or as a result (directly or indirectly) of any Materials of
Environmental Concern, which noncompliance or liability could
reasonably be expected to have a Material Adverse Effect, or (iii) any
releases or threatened releases (including, without limitation, any
releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing or dumping, on-
site or off-site) of any Materials of Environmental Concern for which
the Company or any of its Subsidiaries could be held liable, either in
fact or by law, which releases could reasonably be expected to have a
Material Adverse Effect; and
(viii) Copies of such other information and data with respect to
the Company or any of its Subsidiaries as from time to time may be
reasonably requested by any Holder.
(b) Each financial statement delivered pursuant to subsections
(a)(i), (ii) and (iii) of this Section 5.2 shall be in a form reasonably
acceptable to each Purchaser and, in the case of financial statements
delivered pursuant to subsections (a)(ii) and (iii), shall be accompanied
by a brief narrative description of business and financial trends and
developments material to the Company and its Subsidiaries and significant
transactions that have occurred in the appropriate period or periods
covered thereby.
5.3 Compliance Certificate.
----------------------
(a) The Company shall each deliver each of to the Holders, within 30
days after the end of each month, 45 days after the end of each fiscal
quarter and within 90 days after each fiscal year, an Officers' Certificate
stating that a review of the activities of the Company and its Subsidiaries
during the preceding month, fiscal quarter or fiscal year, as the case may
be, has been made under the supervision of the signing Officers with a view
to determining whether the Company and its Subsidiaries have kept,
observed, performed and fulfilled their respective obligations under this
Agreement and the Certificates of Designation, and further stating, as to
each such Officer signing such certificate, that to his or her knowledge,
the Company and its Subsidiaries each has kept, observed, performed and
fulfilled each and every covenant contained in this Agreement (or, if a
Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge) and
the Certificates of Designation and that to his or her knowledge no event
has occurred and remains in existence by reason of which payments on
account of the principal of or premium or interest, if any, on the Notes or
payments of dividends on the Preferred Shares are prohibited or if such
event has occurred, a description of the event. The Officers' Certificate
shall set forth all financial calculations for such fiscal quarter or
fiscal year necessary to demonstrate compliance with the covenants
contained in this Section 5.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the financial
statements delivered pursuant to Sections 5.2(a)(iii) shall be accompanied
by a written statement of KPMG Peat Marwick or other independent certified
public accountants of recognized national standing selected by the Company
that in making the examination necessary for certification of such
financial statements nothing has come to their attention which would lead
them to believe that the Company or any of its Subsidiaries has violated
any provisions of this Agreement or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood
that such accountants
32
<PAGE>
shall not be liable directly or indirectly to any Person for any failure to
obtain knowledge of any such violation.
(c) The Company will deliver to each of the Holders, forthwith upon
becoming aware of (i) any Default or Event of Default or (ii) any default
or event of default under the Loan Agreement or any other loan agreement,
mortgage, indenture or instrument referred to in Section 7.1(f), an
Officers' Certificate specifying in reasonable detail such Default, Event
of Default or default or event of default and the nature of any remedial or
corrective action the Company proposes to take with respect thereto.
5.4 Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not cause or permit any of its
Subsidiaries to:
(i) declare or pay any dividends, either in cash or property,
on, or make any distribution to the holders (as such) in respect of,
any class of Equity Interest in the Company or any of its respective
Subsidiaries (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or its
Subsidiaries or dividends or distributions payable to the Company or
dividends or distributions payable to Holders of Preferred Shares);
(ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any of its respective
Subsidiaries or any other Affiliate of the Company (other than the
Preferred Shares); provided that, as long as no Default or Event of
Default has occurred and is continuing, the Company may purchase
Equity Interests in the Company beneficially owned by directors,
officers and employees of the Company or any of its Subsidiaries, as
long as such purchases do not exceed $250,000 in any fiscal year;
(iii) purchase, redeem, defease or otherwise acquire or retire
for value any Indebtedness (other than the Notes and other than Seller
Indebtedness incurred pursuant to Section 5.5 (b)(viii)) that is pari
passu with or subordinated to the Notes; or
(iv) make any Investment other than a Permitted Investment (all
such payments and other actions set forth in clauses (i) through (iv)
of this Section 5.4(a) being collectively referred to as "Restricted
----------
Payments"), unless, at the time of such Restricted Payment:
--------
(1) no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof;
(2) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the
applicable four-fiscal quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Interest Expense Coverage Ratio test set forth in
Section 5.5(a)(ii); and
33
<PAGE>
(3) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company and its
Subsidiaries (excluding Restricted Payments permitted by clause
(b) of this Section 5.4) is less than 50% of the Consolidated Net
Income (or, if such Consolidated Net Income for such period is a
deficit, 100% of such deficit) of the Company for the period
(taken as one accounting period) from the beginning of the first
fiscal quarter immediately after the occurrence of a Company IPO
to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time
of such Restricted Payment.
(b) So long as no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence of such Restricted Payment,
the foregoing provision will not prohibit the defeasance, redemption or
repurchase of pari passu or subordinated Indebtedness with the net proceeds
from an incurrence within 60 days of such defeasance, redemption or
repurchase of unsecured Permitted Refinancing Indebtedness.
5.5 Limitation on Additional Indebtedness and Issuance of Disqualified Stock.
------------------------------------------------------------------------
(a) The Company will not, and will not permit any of its Subsidiaries
(including without limitation, upon the creation or acquisition of such
Subsidiary) to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable with respect to
(collectively, "incur") any Indebtedness or issue any Disqualified Stock,
-----
provided that the Company may incur Indebtedness and may issue
Disqualified Stock if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time or would occur as a consequence of the
incurrence of such Indebtedness or the issuance of such Disqualified
Stock;
(ii) the Consolidated Interest Expense Coverage Ratio of the
Company for the four fiscal quarters immediately preceding the date on
which such Indebtedness is incurred or Disqualified Stock is issued
would have been at least 2.5 to 1 (determined on a pro forma basis as
if such additional Indebtedness had been incurred (or Disqualified
Stock had been issued) at the beginning of such four-fiscal quarter
period);
(iii) such Indebtedness shall be Subordinated Indebtedness and
the maturity and the Weighted Average Life to Maturity of such
Subordinated Indebtedness are both greater than the maturity and the
Weighted Average Life to Maturity of the Notes; and
(iv) the Company shall have successfully completed a Company
IPO.
(b) The foregoing limitations will not apply to:
(i) the incurrence by the Company or any of its Subsidiaries of
Indebtedness under the Loan Agreement; provided that such Indebtedness
is incurred for the purpose of acquiring new car inventory in the
ordinary course of business and is secured by a purchase money
security interest in such inventory; provided, further that the
aggregate principal
34
<PAGE>
amount of such Indebtedness at any one time outstanding (including
loans, the nominal amount of outstanding letters of credit and all
unused commitments) shall not exceed the difference between (1) the
lesser of the New Vehicle Advance Rate and $135,000,000 and (2) any
permanent reductions in the credit available to the Company and its
Subsidiaries under the Loan Agreement in accordance with the
provisions of Section 5.8 hereof.
(ii) the incurrence by the Company or any of its Subsidiaries
of Acquisition Indebtedness under the Loan Agreement; provided,that
the aggregate principal amount at any one time outstanding (including
loans, the nominal amount of outstanding letters of credit and all
unused commitments) of such Indebtedness shall not exceed the
difference between (1) the lesser of the Revolver Advance Rate and
$35,000,000 and (2) any permanent reductions in the credit available
to the Company and its Subsidiaries under the Loan Agreement in
accordance with the provisions of Section 5.8 hereof;
(iii) the incurrence by the Company or any of its Subsidiaries
of Indebtedness under the Loan Agreement; provided, that such
Indebtedness is incurred for the purpose of acquiring Program Vehicles
(as defined in the Loan Agreement as in effect on the Closing Date)
inventory in the ordinary course of business and is secured by a
purchase money security interest in such inventory; provided, further,
that the aggregate principal amount of such Indebtedness at any one
time outstanding (including loans, the nominal amount of outstanding
letters of credit and all unused commitments) shall not exceed the
difference between (1) the lesser of the Program Vehicle Advance Rate
and $15,000,000 and (2) any permanent reductions in the credit
available to the Company and its Subsidiaries under the Loan Agreement
in accordance with the provisions of Section 5.8 hereof;
(iv) The incurrence by the Company of the Indebtedness
represented by the Notes;
(v) the incurrence by the Company of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company incurred pursuant to clause (a) above;
(vi) Indebtedness of the Company or its Subsidiaries in an
amount not to exceed $2,000,000 at any time outstanding representing a
Capitalized Lease Obligation or Purchase Money Indebtedness;
(vii) Subordinated Indebtedness of the Company to any
Wholly Owned Subsidiary of the Company or Indebtedness of any Wholly
Owned Subsidiary of the Company solely to the Company or to any Wholly
Owned Subsidiary of the Company provided that neither the Company nor
any Subsidiary of the Company shall become liable pursuant to such
Indebtedness, to any Person other than the Company or another Wholly
Owned Subsidiary of the Company; and
(viii) Seller Indebtedness in an aggregate amount not to exceed
$3,000,000 at any time outstanding.
35
<PAGE>
5.6 Limitation on Transactions With Affiliates.
------------------------------------------
The Company shall not and shall not permit any of its Subsidiaries to
sell, lease, transfer or otherwise dispose of any of its properties or assets to
or purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, an
Affiliate (an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
---------------------
on terms that are no less favorable to the Company or such Subsidiary than those
that could have been obtained in a comparable transaction by the Company or such
Subsidiary from an unrelated person and (ii) with respect to any Affiliate
Transaction (or series of related Affiliate Transactions) involving or having a
potential value of more than $500,000, in addition to compliance with clause
(i), such Affiliate Transaction shall also be approved by a majority of the
disinterested members of the Board of Directors of the Company after
determining, in their reasonable good faith judgment, that (A) such transaction
is in the best interest of the Company or such Subsidiary based on full
disclosure of all relevant facts and circumstances and (B) such transaction is
on fair and reasonable terms competitive with those that could be obtained from
an unrelated third party (such approval and determination to be evidenced by a
resolution of such disinterested directors of the Board of Directors of the
Company), and (iii) with respect to any Affiliate Transaction (or series of
related Affiliate Transactions) involving or having a potential value of more
than $5,000,000, in addition to compliance with clauses (i) and (ii), the Board
of Directors of the Company shall have obtained an opinion of a nationally
recognized investment banking firm or appraiser to the effect that such
transaction is fair, from a financial point of view, to the Company or such
Subsidiary. The foregoing notwithstanding, the Company and its Subsidiaries may
make payments with respect to the Affiliate Transactions contained in the
agreements listed on Schedule 5.6, provided that such agreements may not be
------------
amended after the date hereof (other than amendments which do not affect
adversely the rights of the Company or any of its Subsidiaries), and the Company
and its Subsidiaries shall enforce to the fullest extent available by law all of
their respective rights and remedies with respect to such agreements.
5.7 Restrictions on Liens.
---------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, create or suffer to exist any Liens upon any assets of the Company or any
such Subsidiaries or any shares of capital stock of such Subsidiaries, in each
case now owned or hereafter acquired; provided, however, that this Section 5.7
shall not prohibit the creation or continuing existence of any Permitted Lien.
5.8 Limitation on Sale of Assets.
----------------------------
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, make any Asset Sale unless: (i) no Default or Event of
Default exists and is continuing or is created by such disposition and (ii)
in the case of any Asset Sale (and with respect to clause (B) below, all
such Asset Sales taken as a whole) involving (A) assets for Net Proceeds
(whether in cash or property) in excess of $500,000 or with a fair market
value in excess of $500,000 or (B) assets for Net Proceeds (whether in cash
or property) or with a fair market value (when aggregated with the Net
Proceeds or fair market value of all other assets subject to any Asset
Sales during the same fiscal year) in excess of $2,000,000:
36
<PAGE>
(1) the Company or such Subsidiary receives consideration at the
time of such Asset Sale at least equal to the fair market value of
such assets (as determined in good faith by the Board of Directors of
the Company or such Subsidiary and evidenced by a resolution set forth
in an Officers' Certificate, including as to the value of all noncash
consideration);
(2) at least 85% of the consideration therefor received by the
Company or such Subsidiary, as the case may be, shall be in the form
of cash; provided, however, that for the purposes of this clause (2),
the following are deemed to be cash: (x) any liabilities (as shown on
the Company's or such Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or such Subsidiary that are assumed by
the transferee in connection with the Asset Sale (other than
liabilities that are incurred in connection with or in anticipation of
such Asset Sale); and (y) securities received by the Company or such
Subsidiary from such transferee that are immediately converted into
cash at the face amount or fair market value thereof by the Company or
such Subsidiary; and
(3) upon the consummation of an Asset Sale, the Company or such
Subsidiary shall apply the Net Proceeds (it being understood that the
entire Net Proceeds and not just the portion in excess of the amounts
set forth in subclauses (A) and (B) of clause (ii) above shall be
subject to this subsection (3)) of such Asset Sale within 270 days of
the consummation of an Asset Sale to reinvest in Productive Assets or
to prepay, purchase, defease or otherwise retire Indebtedness of the
Company or any of its Subsidiaries under the Loan Agreement, with a
permanent reduction in the amount of Indebtedness that may be incurred
thereunder not less than the amount of the Net Proceeds so applied.
Any Net Proceeds from an Asset Sale that are not applied or reinvested
as provided in this clause (3) of Section 5.8 constitute excess
proceeds ("Excess Net Proceeds") and shall be held in Cash or Cash
-------------------
Equivalents.
(b) When the aggregate amount of Excess Net Proceeds exceeds
$1,000,000, the Company shall promptly make an offer (the "Asset Sale
----------
Offer") to all Holders of the Notes to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Net Proceeds, at an
offer price in cash in an amount (the "Asset Sale Offer Price") equal to
----------------------
the percentages of principal set forth below (if the Asset Sale Date occurs
during the twelve-month period commencing on July 1 of the year set forth
below), plus accrued and unpaid interest thereon to the Asset Sale Date:
<TABLE>
<CAPTION>
% of Principal Amount
----------------------
<S> <C>
1997................. 110.000%
1998................. 108.750
1999................. 107.500
2000................. 106.250
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
2001................. 105.000
2002................. 103.750
2003................. 102.500
2004................. 101.250
2005................. 100.000
</TABLE>
If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Net Proceeds, the Company shall select
the Notes to be purchased on a pro rata basis. Upon completion of such
Asset Sale Offer, the amount of Excess Net Proceeds shall be reset at zero.
Simultaneously with the making of such Asset Sale Offer, the
Company shall provide the Holders with an Officers' Certificate setting
forth the Asset Sale Offer Price, the Asset Sale Date and the calculations
used in determining the amount of Excess Net Proceeds to be applied to the
repurchase of the Notes.
If the date on which the Asset Sale Offer closes (the "Asset Sale
----------
Date") is on or after an interest payment record date and on or before the
----
related interest payment date, any accrued interest will be paid to the
Person in whose name a Note is registered at the close of business on such
record date, and no additional interest will be payable to Holders who
tender Notes pursuant to the Asset Sale Offer.
(c) Notice of any Asset Sale Offer shall be mailed by the Company to
each Holder at its last registered address. The Asset Sale Offer shall
remain open from the time of mailing until 20 Business Days thereafter, and
no longer, unless a longer period is required by law. The notice shall
contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Asset Sale Offer. The notice, which shall
govern the terms of the Asset Sale Offer, shall state:
(i) that the Asset Sale Offer is being made pursuant to this
Section 5.8 and that Notes will be accepted for payment either (A) in
whole or (B) in part in integral multiples of $1,000;
(ii) the Asset Sale Offer Price and the Asset Sale Date;
(iii) that any Note not tendered will continue to accrue
interest;
(iv) that any Note accepted for payment pursuant to the Asset
Sale Offer shall cease to accrue interest from and after the Asset
Sale Date (so long as the Company does not default in its obligation
to promptly pay the Asset Sale Offer Price);
(v) that Holders electing to have a Note purchased pursuant to
the Asset Sale Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, at the address specified in the notice
38
<PAGE>
prior to the close of business on the Asset Sale Date;
(vi) that Holders will be entitled to withdraw their election on
the terms and subject to the conditions set forth in the notice;
(vii) that Holders whose Notes are purchased only in part will
be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; provided, however, that any portion
of a Note repurchased by the Company and any new Note issued to the
Holder in respect of the unpurchased portion thereof shall be in the
principal amount of $1,000 or an integral multiple thereof.
(d) On the Asset Sale Date, the Company shall (i) accept for payment
all Notes or portions thereof validly tendered pursuant to the Asset Sale
Offer and (ii) promptly thereafter mail or deliver to Holders of Notes
accepted for purchase payment in the amount equal to the aggregate Asset
Sale Offer Price for such Notes, and the Company shall execute and mail or
deliver to such Holders a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered. The Company will notify the
Holders of the results of the Asset Sale Offer on the Asset Sale Date.
5.9 Limitation on Capital Expenditures.
----------------------------------
Except for Capital Expenditures in an aggregate amount not greater
than $1,500,000 to be made in connection with an automobile service center
located at 501 Brannon Street, San Francisco, California, the Company shall not,
and shall not permit any of its Subsidiaries to, make or incur Capital
Expenditures in any fiscal year in an aggregate amount for the Company and its
Subsidiaries in excess of the amount set forth below alongside the applicable
fiscal year:
<TABLE>
<CAPTION>
Maximum Aggregate Amount
Fiscal Year of Permitted Capital Expenditures
----------- ---------------------------------
<S> <C>
1997 $2,000,000
1998 $3,000,000
1999 and thereafter $4,000,000
</TABLE>
39
<PAGE>
5.10 Limitation on Dividend and Other Payment Restrictions Affecting
---------------------------------------------------------------
Subsidiaries.
- ------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of any
Subsidiary of the Company to (a) pay dividends or make any other distributions
on its Capital Stock or any other interest or participation in, or measured by,
its profits owned by, or pay any Indebtedness owed to, the Company, (b) make
loans or advances to the Company, (c) transfer any of its properties or assets
to the Company, except for such encumbrances or restrictions existing under or
by reason of (i) any restrictions existing under or contemplated by this
Agreement and the Loan Agreement; (ii) any restrictions, with respect to a
Subsidiary of the Company that is not a Subsidiary of the Company on the date
hereof, in existence at the time such Person becomes a Subsidiary of the Company
(so long as such restrictions are not created in anticipation of such Person
becoming a Subsidiary of the Company); (iii) with respect to clause (c) above
only, any restrictions existing under Capital Lease Obligations, Purchase Money
Indebtedness or Indebtedness secured by Permitted Liens (provided that, in each
case, such prohibition shall only relate to the assets which are subject to such
Capital Lease Obligations or which secure such Indebtedness and the proceeds
therefrom); or (iv) any restrictions existing under any agreement that
refinances or replaces the agreements containing the restrictions in the
foregoing clauses (i), (ii) and (iii); provided, that the terms and conditions
of any such restrictions are no more restrictive than those under or pursuant to
the agreement evidencing the Indebtedness refinanced.
5.11 Change of Control.
-----------------
(a) Change of Control. Upon the occurrence of a Change of Control,
-----------------
the Company shall give each Holder prompt, and in any event within ten (10)
Business Days of the occurrence of the Change of Control, notice describing
in reasonable detail the nature of the Change of Control, offering to each
Holder the right to require the Company to repurchase all or any part of
such Holder's Notes (the "Change of Control Offer") at a purchase price
-----------------------
equal to 101% of the aggregate principal amount thereof, together with
unpaid interest to the date of repurchase (the "Change of Control Offer
-----------------------
Price").
-----
(b) Procedure. The notice of a Change of Control Offer shall state a
---------
date not less than thirty (30) days nor more than sixty (60) days after the
date of mailing of such notice by the Company for repurchase of the Notes
pursuant to the Change of Control Offer (the "Change of Control Payment
-------------------------
Date"). The notice, which shall govern the terms of the Change of Control
----
Offer, shall state:
(i) that the Change of Control Offer is being made pursuant to
this Section 5.11;
(ii) the Change of Control Offer Price and the Change of Control
Payment Date;
(iii) that, unless the Company defaults in the payment of the
Change of Control Offer Price, all Notes accepted for payment shall
cease to accrue interest on and after the Change of Control Payment
Date;
40
<PAGE>
(iv) that Holders electing to require the Company to repurchase
any Notes will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse side of
the Note completed and otherwise in proper form for transfer, to the
address specified in the notice prior to the close of business on the
Business Day preceding the Change of Control Payment Date;
(v) that the Holders will be entitled to withdraw their election
to require the Company to repurchase any Notes on the terms and
conditions set forth in such notice; and
(vi) that the Holders electing to require the Company to
repurchase any Notes in part will be issued a new Note in a principal
amount equal to the unpurchased portion of the Notes surrendered;
provided, however, that any portion of a Note repurchased by the
Company and any new Note issued to the Holder in respect of the
unpurchased portion thereof shall be in the principal amount of $1,000
or an integral multiple thereof.
(c) Acceptance of Notes. On a Change of Control Payment Date, the
-------------------
Company shall (i) accept for payment all Notes or portions thereof validly
tendered pursuant to the Change of Control Offer and (ii) promptly
thereafter mail or deliver to each Holder of Notes accepted for repurchase
payment in the amount equal to the aggregate Change of Control Offer Price
for such Notes, and the Company shall execute and mail or deliver to such
Holders a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered. As soon as practicable, the Company will notify the
Holders of the results of the Change of Control Offer on the Change of
Control Payment Date.
(d) "Change of Control" means (i) the sale, lease or transfer of all
-----------------
or substantially all of the Company's assets to any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), (ii) the
liquidation or dissolution of the Company, (iii) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than a Permitted Holder) of a direct or indirect interest in
Voting Securities of the Company representing a majority (more than 50%) of
the aggregate Voting Power of the outstanding Voting Securities of the
Company, by way of merger or consolidation or otherwise, (iv) any
transaction occurring prior to a Company IPO, as the result of which (A)
Permitted Holders do not own (and have the exclusive power to vote with
respect to), directly or indirectly, Voting Securities representing at
least thirty-five percent (35%) of the aggregate Voting Power of the
outstanding Voting Securities of the Company, (B) any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act) (other than
Permitted Holders) owns (or has the power to vote with respect to),
directly or indirectly, Voting Securities representing more of the
aggregate Voting Power of the outstanding Voting Securities of the Company
than Permitted Holders or (C) Permitted Holders do not own Equity Interests
of the Company representing at least eighty-five percent (85%) of the
Equity Interests of the Company that are owned by the Permitted Holders on
the Closing Date (including any Equity Interests of the Company issued in
respect thereof after the Closing Date pursuant to a stock dividend, a
stock split, recapitalization or otherwise), (v) any transaction occurring
after a Company IPO, as the result of which (A) any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act) owns, directly
or indirectly, Voting Securities representing more of the aggregate Voting
Power of the outstanding Voting Securities of the Company than Permitted
41
<PAGE>
Holders, or (B) Permitted Holders do not own (and have the exclusive power
to vote with respect to), directly or indirectly, Voting Securities
representing at least twenty percent (20%) of the aggregate Voting Power of
the outstanding Voting Securities of the Company and Equity Interests of
the Company representing at least fifty percent (50%) of the Equity
Interests of the Company that are owned by the Permitted Holders on the
Closing Date (including any Equity Interests of the Company issued in
respect thereof after the Closing Date pursuant to a stock dividend, a
stock split, recapitalization or otherwise), (vi) any transaction, as the
result of which the Company owns (or has the exclusive power to vote with
respect to), directly or indirectly, less than 100% of the Capital Stock of
its Subsidiaries or (vii) the replacement of a majority of the Board of
Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at
least a majority of the Board of Directors of the Company then still in
office who either were members of such Board of Directors at the beginning
of such period or whose election as a member of such Board of Directors was
previously so approved.
5.12 Minimum Consolidated Interest Expense Coverage Ratio.
----------------------------------------------------
The Company shall not permit the Consolidated Interest Expense
Coverage Ratio for the four fiscal quarters ending on or about the date listed
below, to be less than the correlative levels for such dates shown below;
provided, that for the September 30, 1997, December 31, 1997 and March 31, 1998
Measurement Dates, the Consolidated Interest Expense Coverage Ratio shall be
calculated for the one, two, and three fiscal quarters, respectively, ending on
such dates.
<TABLE>
<CAPTION>
Measurement Date Minimum Ratio
---------------- -------------
<S> <C>
September 30, 1997.................... 2.0
December 31, 1997..................... 2.0
March 31, 1998........................ 2.1
June 30, 1998......................... 2.1
September 30, 1998.................... 2.2
December 31, 1998..................... 2.2
March 31, 1999........................ 2.3
June 30, 1999......................... 2.3
September 30, 1999.................... 2.4
December 31, 1999..................... 2.4
March 31, 2000........................ 2.5
June 30, 2000 and thereafter.......... 2.6
</TABLE>
42
<PAGE>
5.13 Fiscal Years.
------------
The Company shall not change its fiscal year from a fiscal year ending
on December 31st.
5.14 Stay, Extension and Usury Laws
------------------------------
The Company covenants and agrees (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, and will use all
reasonable efforts to resist any attempts to claim or take the benefit of, any
stay, extension or usury law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of its obligations
under this Agreement, the Notes or the Preferred Shares, and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefit or advantage
of any such law, and covenants that it will not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Holders, but will suffer and permit the execution of every such power as though
no such law has been enacted.
5.15 Corporate Existence; Merger; Successor Corporation.
--------------------------------------------------
(a) The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its and its Subsidiaries'
corporate existence in accordance with its organizational documents and the
corporate rights (charter and statutory), licenses and franchises of the
Company and each of its Subsidiaries; provided, however, that the Company
shall not be required to preserve any such right, license or franchise, or
corporate existence, if the Board of Directors of the Company shall
determine in good faith that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not adverse in any material respect to any Holder.
(b) The Company shall not, and shall not permit any of its
Subsidiaries to, in a single transaction or through a series of related
transactions, (i) consolidate with or merge with or into any other person,
or transfer (by lease, assignment, sale or otherwise (other than a transfer
in accordance with Section 5.8)) all or substantially all of its properties
and assets as an entirety or substantially as an entirety to another person
or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless,
in either case:
(i) the Company or such Subsidiary, as the case may be, shall be
the continuing Person, or the Person (if other than the Company)
formed by such consolidation or into which the Company or such
Subsidiary, as the case may be, is merged or to which all or
substantially all of the properties and assets of the Company as an
entirety or substantially as an entirety are transferred (or, in the
case of a Plan of Liquidation, any Person to which assets are
transferred) (the Company or such Subsidiary, as the case may be, or
such other Person being hereinafter referred to as the "Surviving
---------
Person") shall be a corporation organized and validly existing under
------
the laws of the United States, any State thereof or the District of
Columbia, and shall expressly assume, by an amendment to this
Agreement, all the Obligations of the Company under the Notes and this
Agreement, and the Stockholders' Agreement, as the case may be;
43
<PAGE>
(ii) immediately after and giving effect to such transaction and
the assumption contemplated by clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in
connection therewith, (i) the Surviving Person shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of the Company or such Subsidiary, as the case may be,
immediately preceding the transaction and (ii) the Company (or the
Surviving Person in the case of a transaction relating to the
Company), shall be able to incur at least $1.00 of Indebtedness
pursuant to clause (ii) of Section 5.5(a);
(iii) immediately before and immediately after giving effect to
such transaction and the assumption of the Obligations as set forth in
clause (1) above and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, no Default or
Event of Default shall have occurred and be continuing; and
(iv) the Company, shall have delivered to each Holder an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, transfer or adoption and such amendment to
this Agreement comply with this Section 5.15, that the Surviving
Person agrees to be bound hereby, and that all conditions precedent
herein provided relating to such transaction have been satisfied.
(c) Upon any consolidation or merger, or any transfer of assets
(including pursuant to a Plan of Liquidation) in accordance with this
Section 5.15, the successor person formed by such consolidation or into
which the Company or such Subsidiary is merged or to which such transfer is
made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company or such Subsidiary under this Agreement with the
same effect as if such successor Person had been named herein as the
Company or such Subsidiary; provided, however, that the Company or such
Subsidiary shall be released from the Obligations and covenants under this
Agreement or under the Notes.
5.16 Same Business.
-------------
The Company and its Subsidiaries shall engage in the Retail Automobile
Dealership Business.
5.17 Taxes.
-----
The Company shall, and shall cause its respective Subsidiaries to, pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all Taxes levied or imposed upon the Company or such Subsidiary,
as the case may be, or upon the income, profits or property of the Company or
such Subsidiary, as the case may be, and (ii) all lawful claims, whether for
labor, materials, supplies, services or anything else, which, if unpaid, would
or may by law become a Lien, upon the property of the Company or such
Subsidiary, as the case may be; provided, however, that neither the Company, nor
any of its Subsidiaries shall be required to pay or discharge or cause to be
paid or discharged any such Tax, the applicability or validity of which is being
contested in good faith by appropriate proceedings which will prevent the
forfeiture or sale of any property of the Company or such Subsidiary, as the
case may be, and
44
<PAGE>
for which disputed amounts reserves have been established in accordance with
GAAP, in an amount which the Company or such Subsidiary, as the case may be,
believes in good faith is adequate.
5.18 Investment Company Act.
----------------------
Neither the Company nor any of its respective Subsidiaries shall
become an investment company subject to registration under the Investment
Company Act of 1940, as amended.
5.19 Ownership of Subsidiaries.
-------------------------
(a) The Company shall not create or cause to exist any Subsidiary;
provided, however, that the Company may create or acquire Subsidiaries if
(i) the Company shall at all times own 100% of the Equity Interests of such
Subsidiary and (ii) the Company shall cause such Subsidiary to guaranty the
Notes on a senior basis in accordance with Section 10.
(b) Except as permitted by Section 5.7, 5.8 or 5.15, the Company
shall maintain (along with one or more Subsidiaries in the case of an
indirect Subsidiary) good and valid title to the Equity Interests of each
of its Subsidiaries free and clear of any Lien other than Permitted Liens.
5.20 Insurance.
---------
The Company and its Subsidiaries shall maintain liability, casualty
and other insurance with a reputable insurer or insurers in such amounts and
against such risks as is carried by responsible companies engaged in similar
businesses and owning similar assets.
At all times after the 30th day after the Closing Date, the Company
shall maintain in effect a key man insurance policy in form and substance
acceptable to each of the Purchasers, purchased by the Company from an insurance
company acceptable to each of the Purchasers, which insurance policy shall be in
an amount not less than $15,000,000 and shall be payable to the Company upon the
death or disability of Thomas A. Price.
The Company shall maintain a directors and officers liability
insurance policy that is (a) in a coverage amount of at least $10,000,000, (b)
in form and substance acceptable to each of the Purchasers and (c) issued by an
insurance company acceptable to each of the Purchasers.
5.21 Employee Plans.
--------------
The Company shall not, directly or indirectly, (i) terminate any
employee pension benefit plan subject to Title IV of ERISA if as a result of
such termination the Company and its Subsidiaries, collectively, would incur a
liability with respect to such plan in excess of $1,000,000 in the aggregate, or
(ii) make a complete or partial withdrawal (within the meaning of Section 4201
of ERISA) from any multiemployer plan if as a result of such withdrawal (within
the meaning of Section 4201 of ERISA), the Company and its respective
Subsidiaries, collectively, would incur a liability with respect to such plan in
excess of $1,000,000 in the aggregate.
As used in this Section 5.21, the terms "employee pension benefit
plan" and
45
<PAGE>
"multiemployer plan" shall have the meanings assigned to such terms in Section 3
of ERISA.
5.22 ERISA Notices.
-------------
Promptly, but in any event within 15 days, the Company shall deliver
to the Purchasers (or, if no Purchaser continues to be a Holder, such Person as
the Majority Holders shall designate), if and when the Company or any of its
Subsidiaries (i) gives or is required to give notice to the Pension Benefit
Guaranty Corporation (the "PBGC") of any "reportable event" (as defined in
----
Section 4043 of ERISA) with respect to any employee pension benefit plan
maintained by the Company or, to the best knowledge of the officers or directors
of the Company, any entity which is a member of the same controlled group as the
Company, which "reportable event" might reasonably constitute grounds for a
termination of such plan under Title IV of ERISA or the imposition of a tax
under Section 4971 of the Code, or knows that the plan administrator of any such
plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to the
PBGC, (ii) receives notice of complete or partial withdrawal liability under
Title IV of ERISA or notice that any multiemployer plan to which the Company or,
to the best knowledge of the officers or directors of the Company, any entity
which is a member of the same controlled group as the Company contributes or is
obligated to contribute is in reorganization or has been terminated, a copy of
such notice, (iii) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate or appoint a trustee to administer any employee pension
benefit plan maintained by the Company or, to the best knowledge of the officers
or directors of the Company, any entity which is a member of the same controlled
group as the Company, a copy of such notice, (iv) applies for a waiver of the
minimum funding standard under Section 412 of the Code, a copy of such
application, (v) gives notice of intent to terminate any employee pension
benefit plan maintained by the Company or, to the best knowledge of the officers
or directors of the Company, any entity which is a member of the same controlled
group as the Company under Title IV of ERISA, a copy of such notice and other
information filed with the PBGC, (vi) fails to make any payment or contribution
to any employee pension benefit plan (or multiemployer plan or in respect of any
benefit arrangement) or makes any amendment to any employee benefit plan or
benefit arrangement which could reasonably result in the imposition of a lien or
the posting of a bond or other security, a certificate of the Chief Executive
Officer of the Company setting forth details as to such occurrence and action,
if any, which the Company or any of its Subsidiaries is required or proposes to
take, (vii) newly enters into any obligation to make contributions that are
material with respect to the Company to any employee benefit plan or
multiemployer plan, a certificate of the Chief Executive Officer of the Company
setting forth details as to such obligation, (viii) modifies any existing
employee benefit plan maintained by the Company or, to the best knowledge of the
officers or directors of the Company, any entity which is a member of the same
controlled group as the Company (other than any modification to medical, dental
or other employee welfare benefit plans in the ordinary course of business) so
as to materially increase its obligations thereunder, a certificate of the Chief
Executive Officer of the Company setting forth details as to such modification
or (ix) materially increases a contribution obligation to any multiemployer plan
maintained by the Company or, to the best knowledge of the officers or directors
of the Company, any entity which is a member of the same controlled group as the
Company, a certificate of the Chief Executive Officer of the Company setting
forth details as to such increase.
As used in this Section 5.22, the terms "employee pension benefit
plan," "multiemployer plan" and "employee benefit plan" shall have the meanings
assigned to such terms in Section 3 of ERISA and the term "controlled group"
shall have the meaning assigned to such term in Section 414 of the Code.
46
<PAGE>
5.23 Inconsistent Agreements.
-----------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, (i) enter into any agreement or arrangement which is inconsistent with, or
would impair the ability of the Company or any of its Subsidiaries to fulfill
the obligations of the Company or any of its Subsidiaries under this Agreement,
or (ii) supplement, amend or otherwise modify the terms of their respective
Charter Documents if the effect thereof would be materially adverse to the
Holders.
5.24 Compliance with Laws; Maintenance of Licenses.
---------------------------------------------
The Company shall, and shall cause each of its Subsidiaries to, comply
with all statutes, ordinances, governmental rules and regulations, judgments,
orders and decrees (including all Environmental Laws) to which any of them is
subject, and maintain, obtain and keep in effect all licenses, permits,
franchises and other governmental authorizations necessary to the ownership or
operation of their respective properties or the conduct of their respective
businesses, except to the extent that the failure to so comply or maintain,
obtain and keep in effect could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
5.25 Inspection of Properties and Records.
------------------------------------
The Company agrees to allow, and to cause its Subsidiaries to allow,
each Purchaser and each Holder of at least $4,000,000 in aggregate principal
amount of the Notes and Liquidation Preference of Preferred Shares or, in the
event there is no Holder of at least $4,000,000 in aggregate principal amount of
the Notes and Liquidation Preference of the Preferred Shares, each Purchaser and
the Holder who holds the greatest aggregate principal amount of the Notes and
the greatest aggregate Liquidation Preference of the Preferred Shares (and so
long as a Default or an Event of Default has occurred and is continuing, each
Purchaser and Holder) (or, in each case, such Persons as any of them may
designate) (individually and collectively, "Inspectors"), subject to appropriate
----------
agreements as to confidentiality, (i) to visit and inspect any of the properties
of the Company or any of its Subsidiaries, (ii) to examine all their books of
account, records, reports and other papers (including without limitation any
files, records or any similar items relating to Taxes of the Company or any of
its Subsidiaries) and to make copies and extracts therefrom, (iii) to discuss
their respective affairs, finances and accounts with their respective officers
and employees, and (iv) to discuss the financial condition of the Company and
its Subsidiaries with their independent accountants upon reasonable notice to
the Company of its intention to do so and so long as the Company shall be given
the reasonable opportunity to participate in such discussions (and by this
provision the Company authorizes said accountants to have such discussions with
the Inspectors). All such visits, examinations and discussions set forth in the
preceding sentence shall be at such reasonable times and as often as may be
reasonably requested; provided that unless a Default or an Event of Default
shall have occurred and be continuing such visits shall be limited to one visit
per fiscal quarter. If a Default or an Event of Default shall have occurred and
be continuing, the Company shall pay or reimburse all Inspectors for expenses
which such Inspectors may reasonably incur in connection with any such
visitations or inspections.
47
<PAGE>
5.26 Board of Director Observation Rights.
------------------------------------
Each of the Purchasers shall have the right to have one
representative, who shall be reasonably acceptable to the Company, present
(whether in person or by telephone) at all meetings of the Board of Directors of
the Company; provided that such representative shall not be entitled to vote at
such meetings. The Company shall send to each such representative all of the
notices, information and other materials that are distributed to the directors
of the Company, as the case may be, and shall provide the Purchasers with a
notice and agenda of each meeting of the Board of Directors of the Company at
least two weeks prior to such meeting; provided, however, that upon the request
of any such representative, the Company shall refrain from sending such notices,
information and other materials for so long as such representative shall
request. Such Purchasers shall provide notice to the Company of the identity and
address of, or any change with respect to the identity or address of, such
representative. The Company shall reimburse each such representative for the
reasonable out-of-pocket expenses of such representative incurred in connection
with the attendance at such meetings. The Company shall not take any action by
committee of the Board of Directors that is materially adverse to any of the
Holders, unless the Purchasers shall have been provided with the same notice and
opportunity to attend such committee meeting as are required with respect to
meetings of the Board of Directors. The Company will act in good faith with
respect to the allocation of responsibilities of the Board of Directors thereof
to one or more committees of the Board so as not to circumvent the intent of
this Section 5.26.
5.27 Maintenance of Agent.
--------------------
The Company shall retain and maintain an agent of the Holders (the
"Agent") for the purpose of receiving notices under the Intercreditor Agreement
- ------
on behalf of the Holders and for the purpose of forwarding such notices to the
Holders at their registered addresses, and the Company shall give written notice
to each of the Holders and the Lender (as defined in the Loan Agreement) of the
name and address of such Agent.
5.28 Information to Prospective Purchasers.
-------------------------------------
The Company shall, upon the request of any Purchaser or subsequent
Holder, deliver to such Purchaser or such Holder and any prospective purchaser
designated by such Purchaser or such Holder promptly following the request of
such Purchaser or such Holder or such prospective purchaser such information
which such Purchaser or such Holder or such prospective purchaser may reasonably
request in order to comply with the information requirements of Rule 144A.
5.29 Private Placement Number.
------------------------
The Company consents to (and shall pay the cost of) the filing of
copies of this Agreement with Standard & Poor's Corporation to obtain a private
placement number and with the National Association of Insurance Commissioners.
5.30 Dividends on Preferred Stock.
----------------------------
Any certificate of designation of the Company with respect to
Disqualified Stock (other
48
<PAGE>
than the Preferred Stock) shall provide that no dividends shall be paid or
accrued unless such dividends are otherwise permitted to be paid or accrued
pursuant to this Agreement.
5.31 Limitation on Acquisitions.
--------------------------
The Company shall not and shall not permit its Subsidiaries to make a
New Acquisition, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect, on a pro
forma basis, to, the consummation of such New Acquisition;
(b) the proposed New Acquisition (i) is effected by way of (A) merger
or consolidation of a Subsidiary of the Company in accordance with Section
5.15 with or into another Person, (B) acquisition by a Subsidiary of the
Company of assets or property (including related equipment) which
constitute all or substantially all of the assets of another Person (or
substantially all assets with respect to one or more automobile
dealerships), or (C) acquisition by the Company of all of the Equity
Interests in such other Person and (ii) relates only to acquisitions of
franchise automotive dealerships and is approved by the Board of Directors
of the acquired entity (if applicable); and
(c) the aggregate Purchase Price for such New Acquisition does not
exceed 5.5 times the amount of EBITDA for the most recently ended four
fiscal quarters that is attributable to the assets and Persons to be
acquired by the Company or any of its Subsidiaries pursuant to such New
Acquisition;
(d) the aggregate Purchase Price for such New Acquisition does not
exceed $6,000,000;
(e) the sum of the aggregate Purchase Prices paid for all such New
Acquisitions since the Closing Date does not exceed $50,000,000; and
(f) such New Acquisition has been approved, in writing, by all
franchisors of any acquired automotive dealership.
5.32 Employment, Non-Competition and Acquisition Agreements.
------------------------------------------------------
To the fullest extent possible under applicable law, the Company shall
and shall cause each of its Subsidiaries to enforce strictly all of the rights
of the Company or such Subsidiary under each of the Acquisition Agreements and
each employment agreement or non-competition agreement to which the Company or
such Subsidiary is a party and to pursue all remedies available to the Company
or such Subsidiary with respect to each such agreement. The Company shall not
and shall cause each of its Subsidiaries not to permit or effect any
modification to any such agreement, which modification could be disadvantageous
or detrimental to the Company or any of its Subsidiaries.
49
<PAGE>
SECTION 6. REDEMPTION.
----------
6.1 The Company's Right to Redeem.
-----------------------------
The Company may redeem the Notes or a portion thereof, in accordance
with the terms and conditions provided in Section 4 of the Notes. The Company
shall redeem the Notes as provided in Section 4(a) and Section 4(c) of the
Notes.
6.2 Selection of Notes to Be Redeemed.
---------------------------------
If fewer than all of the Notes are to be redeemed, the Company shall
redeem the Notes, pro rata, in such manner as complies with applicable legal
requirements, if any, provided that the Company shall be required to redeem all
of the Notes pursuant to Section 4(a) of the Notes if, at any time, the
aggregate principal amount of the outstanding Notes is less than $2,000,000.
Notes in denominations of $1,000 may be redeemed only in whole. The Company may
select for redemption portions (equal to $1,000 or any integral multiple
thereof) of the principal of Notes that have denominations larger than $1,000.
Provisions of this Agreement that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
6.3 Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption ("Notice of Redemption") by first-
--------------------
class mail (followed by fax copy) to each Holder whose Notes are to be redeemed
at such Holder's registered address. With respect to any redemption of Notes
being made at the option of the Company pursuant to the provisions of Section
4(a) or 4(b) of the Notes, the Redemption Date specified in any Notice of
Redemption and the obligation of the Company to redeem any Notes on such
Redemption Date may be subject to the satisfaction or waiver of conditions
determined by the Company in its sole discretion. Each notice for redemption
shall identify the Notes to be redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) the name and address of the Company;
(d) that Notes called for redemption must be surrendered to the
Company to collect the Redemption Price;
(e) that, unless the Company defaults in making the Redemption Price,
interest on Notes called for redemption ceases to accrue on and after the
Redemption Date, and the only remaining right of the Holders of such Notes
is to receive payment of the Redemption Price upon surrender to the Company
of the Notes redeemed;
(f) if any Note is being redeemed in part, the portion of the
principal amount or stated
50
<PAGE>
value of such Note to be redeemed and that, after the Redemption Date, and
upon surrender of such Note, a new Note or Notes in aggregate principal
amount or stated value equal to the unredeemed portion thereof will be
issued;
(g) if fewer than all the Notes are to be redeemed, the
identification of the particular Notes (or portion(s) thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be redeemed
and the aggregate principal amount of Note(s) to be outstanding after such
partial redemption; and
(h) the paragraph of the Notes pursuant to which the Notes are to be
redeemed.
6.4 Effect of Notice of Redemption.
------------------------------
Once Notice of Redemption is mailed in accordance with Section 6.3
above, Notes called for redemption become due and payable on the Redemption Date
and at the Redemption Price. Upon surrender to the Company, such Notes called
for redemption shall be paid at the Redemption Price.
6.5 Payment of Redemption Price.
---------------------------
On presentation and surrender of any Notes with respect to which a
notice of redemption has been given, at a place of payment specified in such
notice, such Notes or specified portions thereof shall be paid and redeemed by
the Company at the applicable Redemption Price.
If, on or prior to the Redemption Date, the Company deposits in a
segregated account or otherwise sets aside funds sufficient to pay the
Redemption Price of the Notes called for redemption, then, unless the Company
defaults in the payment of such Redemption Price, interest on the Notes to be
redeemed will cease to accrue on and after the applicable Redemption Date,
regardless of whether such Notes are presented for payment.
SECTION 7. DEFAULTS AND REMEDIES.
---------------------
7.1 Events of Default.
-----------------
An "Event of Default" occurs if:
----------------
(a) the Company defaults in the payment of the principal of or
premium, if any, on any Note when the same becomes due and payable at
maturity, upon redemption or otherwise (including, without limitation, the
failure to make a payment to purchase Notes tendered pursuant to a Change
of Control Offer or an Asset Sale Offer);
(b) the Company defaults in the payment of interest on any Note or
any other amount payable hereunder when the same becomes due and payable
and the Default continues for a period of five (5) Business Days;
(c) the Company or any Guarantor fails to comply with any of the
agreements, covenants, or provisions of this Agreement, the Notes or any
Subsidiary Guaranty and the Default
51
<PAGE>
continues for the period and after the notice specified below;
(d) if any of the representations or warranties of the Company made
in this Agreement (including those representations and warranties
incorporated by reference herein) are untrue in any respect, the result of
which could reasonably be expected to have a Material Adverse Effect;
(e) if a default which extends beyond any stated period of grace
applicable thereto occurs under any loan agreement, note, mortgage,
indenture or instrument under which there is outstanding any Indebtedness
of the Company or any of its Subsidiaries aggregating in excess of
$5,000,000 or a failure to pay such indebtedness at its stated maturity;
(f) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company
or any Subsidiary of the Company and such remains undischarged for a period
(during which execution shall not be effectively stayed) of 60 days,
provided that the aggregate of all such judgments not covered by insurance
exceeds $500,000;
(g) the filing by the Company or any of its Significant Subsidiaries
(any such Person, a "Debtor") of a petition commencing a voluntary case
------
under section 301 of title 11 of the United States Code, or the
commencement by a Debtor of a case or proceeding under any other Bankruptcy
Law seeking the adjustment, restructuring, or discharge of the debts of
such Debtor, or the liquidation of such Debtor, including without
limitation the making by a Debtor of an assignment for the benefit of
creditors; or the taking of any corporate action by a Debtor in furtherance
of or to facilitate, conditionally or otherwise, any of the foregoing;
(h) the filing against a Debtor of a petition commencing an
involuntary case under section 303 of title 11 of the United States Code,
with respect to which case (a) such Debtor consents or fails to timely
object to the entry of, or fails to seek the stay and dismissal of, an
order of relief, (b) an order for relief is entered and is pending and
unstayed on the 60th day after the filing of the petition commencing such
case, or if stayed, such stay is subsequently lifted so that such order for
relief is given full force and effect, or (c) no order for relief is
entered, but the court in which such petition was filed has not entered an
order dismissing such petition by the 60th day after the filing thereof; or
the commencement under any other Bankruptcy Law of a case or proceeding
against a Debtor seeking the adjustment, restructuring, or discharge of the
debts of such Debtor, or the liquidation of such Debtor, which case or
proceeding is pending without having been dismissed on the 60th day after
the commencement thereof;
(i) the entry by a court of competent jurisdiction of a judgment,
decree or order appointing a receiver, liquidator, trustee, custodian or
assignee of a Debtor or of the property of a Debtor, or directing the
winding up or liquidation of the affairs or property of a Debtor, and (a)
such Debtor consents or fails to timely object to the entry of, or fails to
seek the stay and dismissal of, such judgment, decree, or order, or (b)
such judgment, decree or order is in full force and effect and is not
stayed on the 60th day after the entry thereof, or, if stayed, such stay is
thereafter lifted so that such judgment, decree or order is given full
force and effect;
(j) any member of the controlled group of which the Company is a
member shall,
52
<PAGE>
directly or indirectly, (i) terminate any employee pension benefit plan
subject to Title IV of ERISA and such termination could reasonably be
expected to have a Material Adverse Effect or (ii) make a complete or
partial withdrawal (within the meaning of Section 4201 of ERISA) from any
multiemployer plan and such withdrawal (within the meaning of Section 4201
of ERISA) could reasonably be expected to have a Material Adverse Effect;
(k) the Company or any of its Subsidiaries shall breach any Franchise
Agreement to which it is now a party, or to which it becomes a party in the
future and such breach could reasonably be expected to have a Material
Adverse Effect;
(l) any Subsidiary Guaranty shall for any reason cease to be, or be
asserted in writing by any responsible officer of any Subsidiary of the
Company or the Company not to be, in full force and effect or enforceable
in accordance with its terms;
(m) the occurrence of any act or event that entitles a franchisor
under a Franchise Agreement to which the Company or any of its Subsidiaries
is a party to terminate such Franchise Agreement;
(n) the loss, termination, cancellation, revocation, forfeiture,
suspension, impairment of or failure to renew any Franchise Agreement to
which the Company or any of its Subsidiaries is a party, or any
governmental license, certificate any/or permit held by the Company or any
of its Subsidiaries that is necessary for the continued operations of the
Company or any of its Subsidiaries;
(o) the failure by the Company to make any payment on the Preferred
Stock within five (5) Business Days of when due pursuant to either of the
Certificates of Incorporation, including without limitation payment of
dividends, redemption price or purchase price on a Dividend Payment Date
(as defined in the CRPS Certificate of Designation), a Redemption Date (as
defined in each of the Certificates of Designation) or a Change of Control
Payment Date (as defined in each of the Certificates of Designation),
respectively.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
--------------
Federal or state law for the relief of debtors.
A Default under clause (c) of Section 7.1 (other than a Default under
Sections 5.4, 5.5, 5.6, 5.8, 5.9, 5.10, 5.11, 5.14, 5.16, 5.19, 5.20, 5.21 or
5.31 of this Agreement, which Default shall be an Event of Default without the
notice or passage of time specified in this paragraph) or under clause (f),
clause (k), clause (m) or clause (n) of Section 7.1 is not an Event of Default
until the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes notify the Company of the Default and the Company does not
cure the Default or the Default is not waived within 30 days after receipt of
the notice. The notice must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default."
53
<PAGE>
7.2 Acceleration of Notes; Remedies.
-------------------------------
Subject to the following paragraph, if an Event of Default (other than
an Event of Default specified in clause (g), (h) or (i) of Section 7.1) occurs
and is continuing, the Majority Holders, by notice to the Company, may declare
the unpaid principal of and any accrued interest on all the Notes to be due and
payable, and immediately upon such declaration, the principal, premium, if any,
and interest shall be due and payable. If an Event of Default specified in
clause (g), (h) or (i) of Section 7.1 occurs, such an amount shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of any Holder.
The Majority Holders, by notice to the Company, may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration.
7.3 Premium on Acceleration.
-----------------------
In the event of an acceleration of the Notes upon an Event of Default
occurring by reason of any willful action (or deliberate inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding payment of
the premium that the Company would have had to pay if the Company had elected to
redeem the Notes and such acceleration is not rescinded or annulled, the Holders
shall be entitled to receive, in addition to any other payments to which they
may be entitled, a premium equal to the percentages of principal set forth below
if the declaration date of the acceleration occurs during the twelve-month
period commencing on July 1 of the year set forth below:
<TABLE>
<CAPTION>
Year % of Principal Amount
- ---- ---------------------
<S> <C>
1997................................................ 110.000%
1998................................................ 108.750
1999................................................ 107.500
2000................................................ 106.250
2001................................................ 105.000
2002................................................ 103.750
2003................................................ 102.500
2004................................................ 101.250
2005................................................ 100.000
</TABLE>
54
<PAGE>
7.4 Other Remedies.
--------------
If an Event of Default occurs and is continuing, Holders of the Notes
may pursue any available remedy to collect the payment of principal or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Agreement.
A delay or omission by any Holder of any Notes in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
7.5 Waiver of Past Defaults.
-----------------------
The Majority Holders by notice to the Company may waive an existing
Default or Event of Default and its consequences except a continuing Event of
Default in the payment of the principal of or interest on any Notes.
7.6 Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Agreement, the right of
any Holder of a Note to receive payment of principal and interest on the Note,
on or after the respective due dates expressed in the Note, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of the Holder.
7.7 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
SECTION 8. AMENDMENTS AND WAIVERS.
----------------------
8.1 With Consent of Holders.
-----------------------
The Company, when authorized by a resolution of the Board of Directors
of the Company, with the written consent of the Majority Holders, may amend this
Agreement or the Notes provided that each Holder shall have received prior
notice of such proposed amendment. The Majority Holders may waive compliance by
the Company with any provision of this Agreement or the Notes, provided that
each Holder shall have received prior notice of such proposed amendment.
Notwithstanding the foregoing, no amendment or waiver that affects the rights of
any of the Holders of Preferred Shares may be affected, without the consent of
the Holders of a majority of the outstanding shares of Preferred Stock. Without
the consent of each Holder affected, however, no amendment or waiver may (with
respect to any Notes held by a nonconsenting Holder of Notes):
55
<PAGE>
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment or waiver of any provision of this Agreement or the Notes;
(b) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of Notes, reduce the
purchase price payable in connection with repurchases of the Notes pursuant
to Section 5.8 or Section 5.11 or reduce the premium payable pursuant to
Section 7.3;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or an Event of Default in the payment of
principal of or premium, if any, or interest on the Notes or that resulted
from a failure to comply with Section 5.8 or Section 5.11 (except a
rescission of acceleration of the Notes by the Majority Holders and a
waiver of the payment default that resulted from such acceleration);
(e) make the principal of, premium, if any, or the interest on, any
Note payable in any manner other than that stated in this Agreement and the
Notes;
(f) make any change in the provisions of this Agreement relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of, premium (if any) or interest on the Notes;
(g) waive the payment of the Redemption Price with respect to any
Note; or
(h) make any change in the foregoing amendment and waiver provisions.
It shall not be necessary for the consent of the Holders under this
Section 8 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section 8 becomes effective,
the Company shall mail to all the Holders a notice briefly describing the
amendment or waiver and a copy of the fully executed amendment or waiver. Any
failure of the Company to mail such notice and copy, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
amendment or waiver.
The Company agrees it will not solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the provisions of
this Agreement, the Certificates of Designation or any Note unless each Holder
(irrespective of the amount of Notes or Preferred Shares then owed by it) shall
substantially concurrently be informed thereof by the Company, and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information (including any offer of remuneration) to
enable it to make an informed decision with respect thereto, which information
shall be the same as that supplied to each other Holder. The Company will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any Holder as
consideration for or as an inducement to the entering into by any Holder of any
waiver or amendment of any of the terms and provisions of this Agreement, the
Certificates of Designation or any Note unless such remuneration is concurrently
paid, on the same terms, ratably to each Holder regardless of
56
<PAGE>
whether such Holder signs such waiver or consent; provided that the foregoing is
not intended to preclude the adoption of any amendment or the giving of any
waiver by the Holders of a majority in aggregate principal amount of the Notes
or shares of Preferred Stock to the extent permitted by the other provisions of
this Section 8.1.
8.2 Revocation and Effect of Consents.
---------------------------------
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note.
However, any such Holder or subsequent Holder may revoke the consent as to Note
or portion of Note by notice to the Company received before the date on which
the Majority Holders have consented (and not theretofore revoked such consent)
to the amendment or waiver. Unless the proposed amendment or waiver has become
effective, no such consent shall be valid or effective for more than 90 days
after the date such consent is given.
After an amendment or waiver becomes effective, it shall bind every
Holder, unless it makes a change described in any of clauses (a) through (h) of
Section 8.1, in which case, the amendment or waiver shall bind only each Holder
of a Note who has consented to it and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note;
provided that any such waiver shall not impair or affect the right of any Holder
to receive payment of principal of, premium (if any) and interest on a Note, on
or after the respective due dates expressed in such Note, or to bring suit for
the enforcement of any such payment on or after such respective dates without
the consent of such Holder.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver, consent or amendment, Notes owned
by the Company or any Affiliate of the Company shall be considered as though not
outstanding.
8.3 Notation on or Exchange of Notes.
--------------------------------
If an amendment or waiver changes the terms of a Note, the Company may
require the Holder of the Note to deliver it to the Company so that it may place
an appropriate notation on the Note about the changed terms and return it to the
Holder.
8.4 Payment of Expenses.
-------------------
The Company agrees to pay or reimburse each Holder's out-of-pocket
expenses (including the fees and expenses of counsel) relating to any amendment
or modification of, or any waiver or consent under, this Agreement, the
Securities, the Stockholders' Agreement, the Certificates of Designation and any
other Documents.
57
<PAGE>
SECTION 9. DEFINITIONS.
-----------
9.1 Definitions.
-----------
As used in this Agreement, the following terms shall have the
following meanings:
"Account Manager" means each Purchaser, if any, duly authorized to act
---------------
as attorney in-fact on behalf of any Person in purchasing, in the name of and
using funds provided by such Person, Securities hereunder.
"Acquisition Documents" mean, collectively, (x) the agreements and
---------------------
plans of merger, asset sale agreements, stock purchase agreements, certificates
of merger, consents and any other agreements relating to the Pending
Acquisitions, and (y) all exhibits, schedules and any other documents,
instruments and agreements delivered in connection with, or pursuant to, the
Pending Acquisitions or the transactions contemplated thereby.
"Acquisition Indebtedness" means Indebtedness incurred solely for and
------------------------
in connection with, or in contemplation of, and in an amount utilized for a New
Acquisition.
"Additional Common Shares" has the meaning given to such term in
------------------------
Section 1.2(c).
"Additional Notes" has the meaning given to such term in Section
----------------
1.2(c).
"Additional Securities" has the meaning given to such term in Section
---------------------
1.2(c).
"Additional Securities Closing" has the meaning given to such term in
-----------------------------
Section 1.2(d).
"Additional Securities Closing Date" has the meaning given to such
----------------------------------
term in Section 1.2(d).
"Affiliate" means, with respect to any referenced Person, a Person (i)
---------
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 10% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 10% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of the Company.
For purposes of this definition, "control" when used with respect to any person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such person, whether through the
ownership of Voting Securities, by agreement or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
"Affiliate Transaction" has the meaning given to such term in Section
---------------------
5.6.
"Agent" has the meaning given to such term in Section 5.27.
-----
58
<PAGE>
"Agreement" means this Securities Purchase Agreement dated as of July
---------
8, 1997, by and among the Company, the Guarantors and the Purchasers.
"Asset Sale" means (i) the sale, lease, conveyance or other
----------
disposition of assets (including by way of a sale and leaseback) of the Company
or any of its Subsidiaries, other than sales and leases of inventory in the
ordinary course of business consistent with industry practice or (ii) the
issuance or sale of Equity Interests of any of the Subsidiaries of the Company
to any Person other than the Company, in the case of either clause (i) or (ii)
above, whether in a single transaction or a series of related transactions.
"Asset Sale Offer" has the meaning given to such term in Section 5.8.
----------------
"Asset Sale Date" has the meaning given to such term in Section 5.8.
---------------
"Asset Sale Offer Price" has the meaning given to such term in Section
----------------------
5.8.
"Audit" means any audit, assessment of Taxes, other examination by any
-----
Tax Authority, proceeding or appeal of such proceeding relating to Taxes.
"Bankruptcy Law" has the meaning given to such term in Section 7.1.
--------------
"Business Day" means any day which is not a Legal Holiday.
------------
"Capital Expenditures" means, without duplication, for any Person for
--------------------
any period, the aggregate of all expenditures on a consolidated basis including
deposits (whether paid in cash or property or accrued as liabilities and
including the aggregate amount of all principal payments due for the entire term
of all Capital Leases that are required to be capitalized on the balance sheet)
made by such Person and its Subsidiaries that, in conformity with GAAP, are
required to be included in the property, plant, equipment, or similar fixed
asset account, minus the aggregate amount of Capital Expenditures representing
the Purchase Price of New Acquisitions permitted by Section 5.31; provided,
however, there shall be excluded from the calculation of Capital Expenditures
permitted under Section 5.9 that portion of all such expenditures the Company is
permitted to reinvest or use for replacement or restoration of assets through
the use of insurance proceeds, awards of compensation arising from condemnation
or eminent domain proceedings or from Net Proceeds of Asset Sales.
"Capital Lease" means any lease of any property (whether real,
-------------
personal or mixed) that, in conformity with GAAP, should be accounted for as a
capital lease.
"Capital Stock" means any and all shares, interests, participations or
-------------
other equivalents (however designated) of corporate stock, including, without
limitation, all common stock and preferred stock.
"Capitalized Lease Obligation" means, with respect to any Person for
----------------------------
any period, any obligation of such Person to pay rent or other amounts under a
Capital Lease; the amount of such obligation shall be the capitalized amount
thereof determined in accordance with GAAP.
59
<PAGE>
"Cash" means U.S. Legal Tender or U.S. Government Obligations having a
----
maturity of one year or less from the date of issuance thereof.
"Cash Equivalents" means (i) U.S. Government Obligations maturing
----------------
within one year of the date of acquisition thereof; (ii) commercial paper
maturing within one year from the date issued and at the time of acquisition,
having a rating of at least A-1 from Standard & Poor's Corporation or at least
P1 from Moody's Investors Service, Inc.; (iii) certificates of deposit or
bankers' acceptances maturing within one year from the date of issuance thereof
issued by any commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia having combined capital
and surplus of not less than $500,000,000 and not subject to setoff rights in
favor of such bank; (iv) time deposits maturing no more than thirty (30) days
from the date of creation thereof with commercial banks having membership in the
Federal Deposit Insurance Corporation in amounts not exceeding the lesser of
$100,000 or the maximum amount of insurance applicable to the aggregate amount
of the Company's deposits at such institution; (v) repurchase obligations with a
term of not more than seven (7) days for underlying securities of the types
described in clauses (i), (ii) and (iii) above entered into with any commercial
bank meeting the qualifications specified in clause (iii) above; (vi) securities
with maturities of one year or less from the date of acquisition issued or fully
guaranteed by any state of the United States or the District of Columbia, or by
any political subdivision or taxing authority of any such state or the District
of Columbia, the securities of which state, the District of Columbia, political
subdivision or taxing authority (as the case may be) are rated at least AAA by
Standard and Poor's Corporation or AAA by Moody's Investors Services, Inc.; and
(vii) shares of money market mutual or similar funds having assets in excess of
$100,000,000 and that invest exclusively in assets satisfying the requirements
of clauses (i) through (vi) above.
"Certificates of Designation" has the meaning given to such term in
---------------------------
Section 1.1(a).
"Change of Control" has the meaning given to such term in Section
-----------------
5.11(d).
"Change of Control Offer" has the meaning given to such term in
-----------------------
Section 5.11.
"Change of Control Offer Price" has the meaning given to such term in
-----------------------------
Section 5.11.
"Change of Control Payment Date" has the meaning in Section 5.11.
------------------------------
"Charter Documents" means the Articles of Organization, Articles of
-----------------
Incorporation or Certificate of Incorporation and Bylaws, as amended or restated
(or both) to date, of any of the Companies, or any of their respective
Subsidiaries, as applicable.
"Closing" has the meaning given to such term in Section 1.2(b).
-------
"Closing Date" has the meaning given to such term in Section 1.2(b).
------------
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and any successor statute or law thereto.
"Common Shares" has the meaning given to such term in Section 1.1(a).
-------------
60
<PAGE>
"Common Stock" means all classes of common stock of the Company.
------------
"Common Stock Register" has the meaning given to such term in Section
---------------------
1.3.
"Companies" means, collectively, the Company, FAA San Bruno, Inc., a
---------
California corporation, FAA Stevens Creek, Inc., a California corporation, Smart
Nissan, Inc., a California corporation, FAA Dealer Services, Inc., a California
corporation, Transcar Leasing, Inc., a California corporation, FAA Concord H,
Inc., a California corporation, FAA Concord N, Inc., a California corporation,
FAA Poway D, Inc., a California corporation, FAA Poway T, Inc., a California
corporation, FAA Poway H, Inc., a California corporation, FAA Dublin VWD, Inc.,
a California corporation, FAA Dublin N, Inc., a California corporation, FAA
Serramonte L, Inc., a California corporation, and FAA Serramonte, Inc., a
California corporation.
"Company IPO" means the first sale to the public of Capital Stock of
-----------
the Company pursuant to a registration statement under the Securities Act with a
public offering price of at least $50,000,000 pursuant to a registration
statement under the Securities Act, which shall result in the listing of such
Capital Stock on the New York Stock Exchange or the American Stock Exchange or
the quotation of such Capital Stock on the Nasdaq National Market.
"Consolidated" or "consolidated," when used with reference to any
------------ ------------
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated Interest Expense" means, when used with reference to any
-----------------------------
Person for any period, without duplication, (i) the aggregate of all interest
paid or accrued by such Person and its Subsidiaries in respect of Indebtedness
of any such Person and its Subsidiaries, including all interest, fees and costs
payable with respect to the obligations related to such Indebtedness (other than
fees and costs which may be capitalized as transaction costs in accordance with
GAAP and, without duplication, other than the amortization of any original issue
discount attributable to the issuance of Notes under this Agreement) and the
interest component of Capitalized Lease Obligations, all as determined in
accordance with GAAP, and (ii) an amount equal to the product of (A) the amount
of all dividend payments on any Priority Stock of such Person (including
dividends for such period which are accrued and unpaid) times (B) a fraction,
the numerator of which is one and the denominator of which is one minus the then
current effective consolidated Federal, state and local tax rate of such Person,
expressed as a decimal minus (iii) the aggregate amount of payments received
from vehicle manufacturers pursuant to agreements with such manufacturers that
provide for reimbursement of interest expense associated with the financing of
new vehicle inventories.
61
<PAGE>
"Consolidated Interest Expense Coverage Ratio" means, when used with
--------------------------------------------
reference to any Person, the ratio of:
(a) the aggregate amount of EBITDA of such Person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
four full fiscal quarters for which financial information in respect
thereof is available immediately prior to the date of the event (the
"Event") giving rise to the need to calculate the Consolidated Interest
-----
Expense Coverage Ratio (the "Event Date") minus Capital Expenditures for
----------
such Person for such period; and
(b) the sum of the aggregate Consolidated Interest Expense of such
Person during such period (exclusive of amounts attributable to operations
and businesses permanently discontinued or disposed of, but only to the
extent that the obligations giving rise to such Consolidated Interest
Expense would no longer be obligations contributing to such Person's
Consolidated Interest Expense subsequent to the Event Date); provided,
however, that for the periods ending September 30, 1997, December 31, 1997
and March 31, 1998 Consolidated EBITDA and Consolidated Interest Expense of
the Company and its Subsidiaries shall be calculated for the one- two- and
three-quarter periods (respectively) then ending, rather than for the four-
quarter periods then ending; provided, further, that if any such
calculation includes any period prior to the Closing Date, such calculation
for such period shall be made on a pro forma basis giving effect to the
transactions contemplated by the Acquisition Documents and the related
financings (including the Notes and the Indebtedness incurred under the
Loan Agreement) and the use of the proceeds, as if the same had occurred at
the beginning of such period.
In addition to and without limitation of the foregoing, for purposes
of this definition, "EBITDA" and "Consolidated Interest Expense" for the one,
two, three or four full fiscal quarters, as applicable, for which financial
information in respect thereof is available immediately prior to the Event Date
shall be calculated (without duplication) after giving effect on a pro forma
basis for the period of such calculation (as if each of the following, if
applicable, occurred at the beginning of the first of such one, two, three or
four fiscal quarters, as applicable) to:
(i) the incurrence of any Indebtedness (including, without
limitation, if applicable, any Indebtedness incurred, or Disqualified Stock
issued, with respect to the Event) during the period commencing at the
beginning of such one, two, three or four fiscal quarters, as applicable,
and ending on the Event Date (the "Reference Period");
----------------
(ii) the permanent repayment of any Indebtedness of such Person or
Subsidiary of such Person during the Reference Period with the proceeds of
any Indebtedness referred to in the immediately preceding clause (i) or
with the proceeds from the Asset Sale referred to in clause (iv) below (so
long as the Asset Sale is also given pro forma effect);
(iii) the acquisition by such Person or any Subsidiary of such Person
during the Reference Period of (a) the Equity Interests of any other Person
which, as a result of such acquisition, becomes a Subsidiary of such Person
(provided that such pro forma calculation shall include the aggregate
amount of EBITDA of such acquired Subsidiary for the one, two, three or
62
<PAGE>
four (as the case may be) full fiscal quarters of such acquired Subsidiary
for which financial information is available immediately preceding the
Event Date; provided, that, to the extent the Net Income of such acquired
Subsidiary is subject to restrictions, direct or indirect, on the payment
of dividends or the making of distributions, the Net Income of such
acquired Subsidiary shall be excluded from EBITDA to the extent of such
restrictions) or (b) assets from any Person which constitutes substantially
all of the operating unit or business of such Person (provided that such
pro forma calculation shall include the EBITDA attributable to the assets
acquired in such transaction for the one, two, three or four (as the case
may be) full fiscal quarters for which financial information is available
immediately preceding the Event Date); and
(iv) any Asset Sales occurring during the Reference Period (including
the effect, if any, on the Company's earnings for the Reference Period
resulting from the disposition of assets in such Asset Sale).
Furthermore, in calculating "Consolidated Interest Expense" (A)
interest on Indebtedness determined on a fluctuating basis as of the Event Date
and which will continue to be so determined thereafter shall be deemed to have
accrued during the Reference Period at a fixed rate per annum equal to the
average rate in effect from the beginning of the Reference Period to the Event
Date and (B) if interest on any Indebtedness incurred on the Event Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a Eurocurrency interbank offered rate, or other rates, then the
interest rate shall be deemed to be the lowest of such interest rates on the
Event Date which are actually available as options to the borrower of such
Indebtedness and (C) the principal amount of Indebtedness under a revolving
credit or similar arrangement that was in effect prior to the Event Date and
that will continue to be in effect following the Event shall be equal to the
average principal amount of Indebtedness outstanding during the Reference
Period.
"Consolidated Net Income" means, when used with reference to any
-----------------------
Person for any period, the aggregate of the Net Income of such Person and its
consolidated Subsidiaries for such period, on a consolidated basis, determined
in accordance with GAAP; provided that (i) the Net Income of any Person which is
not a Subsidiary or is accounted for by the Company by the equity method of
accounting shall be included in Consolidated Net Income only to the extent of
the amount of dividends or distributions actually paid by such Person to the
referent Person or a Subsidiary of the referent Person, (ii) the Net Income of
any Person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition shall be excluded from Consolidated Net Income,
(iii) the Net Income of any Subsidiary of the referent Person that is subject to
restrictions, direct or indirect, on the payment of dividends or the making of
distributions to the referent Person shall be excluded from Consolidated Net
Income to the extent of such restrictions. "Net Income" of any Person shall
----------
mean the net income (loss) of such Person, determined in accordance with GAAP,
excluding, however, any gain (but not loss) realized upon the sale or other
disposition (including, without limitation, dispositions pursuant to sale and
leaseback transactions) of any real property or equipment of such Person which
is not sold or otherwise disposed of in the ordinary course of business and any
gain (but not loss) realized upon the sale or other disposition of any capital
stock of such Person or a subsidiary of such Person and any other extraordinary
gain (but not extraordinary loss) realized over the relevant period.
"Consolidated Net Worth" means, with respect to any Person as of any
----------------------
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of
63
<PAGE>
such date plus (ii) the respective amounts reported on such Person's balance
sheet as of such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of any cash received by such Person upon issuance of such preferred
stock, less (to the extent otherwise included in (i) and (ii) above) (w) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the Closing Date in the
book value of any asset owned by such Person or a consolidated Subsidiary of
such Person, (x) all amounts attributable to interests in Subsidiaries of such
Person held by Persons other than such Person or its Subsidiaries, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries, and (z) all unamortized debt discount and expense and
unamortized deferred charges as of such date, all of the foregoing determined in
accordance with GAAP.
"CRPS" has the meaning given to such term in Section 1.1(a).
----
"CRPS Certificate of Designation" has the meaning given to such term
-------------------------------
in Section 1.1(a).
"CRPS Register" has the meaning given to such term in Section 1.3.
-------------
"Default" means any event which is, or after notice or passage of time
-------
would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, 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 is redeemable
at the sole option of the holder thereof, in whole or in part, on or prior to
the Maturity Date.
"Documents" means this Agreement, the Securities, the Stockholders'
---------
Agreement, the Intercreditor Agreement and, the Acquisition Documents
collectively, or each of such documents singularly, and any agreements
(including without limitation any employment agreements and any non-competition
agreements), documents or instruments contemplated by or executed in connection
with any of them or any of the transactions contemplated hereby or thereby.
"Draw Down Notice" has the meaning given to such term in Section
----------------
1.2(c).
"EBITDA" means, without duplication and with respect to any Person for
------
any period, the following, each calculated for such period: (a) Consolidated
Net Income of such Person for such period; plus (b) any provision for (or less
any benefit from) income or franchise taxes to the extent included in the
determination of Consolidated Net Income for such period; plus (c) Consolidated
Interest Expense (whether paid or accrued and including without limitation
amortization of original issue discount) to the extent deducted in the
determination of Consolidated Net Income for such period; plus (d) amortization,
depreciation and depletion to the extent deducted in the determination of
Consolidated Net Income; provided, however, that for purposes of this
definition, Consolidated Net Income shall be calculated without regard to the
provisions of Financial Accounting Standards Board Technical Bulletin
No. 90-1, issued on December 17, 1990, regarding accounting for separately
priced extended warranty and product maintenance contracts.
64
<PAGE>
"Enterprise Value" means, for any date, the product derived by
----------------
multiplying (a) the Company's EBITDA (less net interest and other costs
associated with New Vehicle Advances and Program Vehicle Advances) for the four
fiscal quarters immediately preceding such date (on a pro forma basis giving
effect to all New Acquisitions made during such period and all incurrences of
Indebtedness as if they occurred at the beginning of such period), by (b) 7.
"Equity Interest" means (i) with respect to a corporation, any and all
---------------
Capital Stock or warrants, options or other rights to acquire Capital Stock (but
excluding any debt security which is convertible into, or exchangeable or
exercisable for, Capital Stock) and (ii) with respect to a partnership, limited
liability company or similar Person, any and all units, interests, rights to
purchase, warrants, options or other equivalents of, or other ownership
interests in any such Person.
"ERISA" means The Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any successor statute or law thereto.
"Event" has the meaning given to such term in the definition of
-----
"Consolidated Interest Expense Coverage Ratio" in this Section 9.1.
"Event Date" has the meaning given to such term in the definition of
----------
"Consolidated Interest Expense Coverage Ratio" in this Section 9.1.
"Event of Default" has the meaning given to such term in Section 7.1.
----------------
"Excess Net Proceeds" has the meaning given to such term in Section
-------------------
5.8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
from time to time, and any successor statute or law thereto.
"Fair Market Value" of any property (other than cash) means the fair
-----------------
market value thereof, as determined by the Board of Directors of the Company in
its reasonable good faith judgment.
"Financial Statements" has the meaning given to such term in Section
--------------------
3.4(b).
"Founding Companies" means Price Auto Holdings, Inc., a California
------------------
corporation, Cziska Price, Inc., a California corporation, Smart Nissan, Inc., a
California corporation, Serramonte Motor Cars, Inc., a California corporation,
Transcar Leasing, Inc., a California corporation, and California Carriage
Limited, a California corporation.
"Franchise Agreement" means any franchise agreement between an
-------------------
automobile dealer and a vehicle manufacturer or its Affiliate pursuant to which
such vehicle dealer is granted the right to sell vehicles manufactured by such
manufacturer.
"GAAP" means those generally accepted accounting principles and
----
practices which are recognized as such on the Closing Date by the American
Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
65
<PAGE>
appropriate boards or committees thereof and which are consistently applied for
all periods after the date hereof so as to properly reflect the financial
conditions, and the results of operations, shareholders' equity and cash flows,
of the Company, and its consolidated subsidiaries.
"Government Body" means any Federal, state, local or foreign
---------------
governmental authority or regulatory body, any subdivision, agency, commission
or authority thereof or any quasi-governmental or private body exercising any
governmental regulatory authority thereunder and any Person directly or
indirectly owned by and subject to the control of any of the foregoing, or any
court, arbitrator or other judicial or quasi-judicial tribunal.
"Guarantors" means those Persons that execute a Subsidiary Guaranty in
----------
accordance with Section 10 hereof.
"guaranty" means, with respect to any Person, any contract, agreement
--------
or understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including, without limitation:
(a) agreements to purchase such Indebtedness or any property
constituting security therefor;
(b) agreements to advance or supply funds (i) for the purchase or
payment of such Indebtedness, or (ii) to maintain working capital, equity
capital or other balance sheet conditions;
(c) agreements to purchase property, securities or services primarily
for the purpose of assuring the holder of such Indebtedness of the ability
of the primary obligor to make payment of the Indebtedness;
(d) letters or agreements commonly known as "comfort" or "keepwell"
letters or agreements; or
(e) any other agreements to assure the holder of the Indebtedness of
the primary obligor against loss in respect thereof;
except that "guaranty" shall not include (i) the endorsement by a Person in the
ordinary course of business of negotiable instruments or documents for deposit
or collection, or (ii) indemnities given by the Company or its respective
Subsidiaries in brokerage, management and other agreements in the ordinary
course of business substantially consistent with past practices.
"Holder" or "Holders" means each Purchaser (so long as it holds any
------ -------
Securities) and any other holder of any of the Securities.
"Indebtedness" means, with respect to any Person, the aggregate amount
------------
of, without duplication, the following:
(a) all obligations for borrowed money;
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<PAGE>
(b) all obligations evidenced by bonds, debentures, notes or other
similar instruments;
(c) all obligations to pay the deferred purchase price of property or
services (except Trade Payables, accrued commissions and other similar
accrued current liabilities in respect of such obligations, in any case,
not overdue, arising in the ordinary course of business);
(d) all Capitalized Lease Obligations;
(e) all obligations or liabilities of others secured by a lien on any
asset owned by such Person or Persons regardless of whether such obligation
or liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances; and
(h) all guaranties.
"Inspectors" has the meaning given to such term in Section 5.25.
----------
"Intercreditor Agreement" means the Intercreditor and Subordination
-----------------------
Agreement dated as of July 2, 1997 by and between General Electric Capital
Corporation and the Purchasers.
"Investment" means, with respect to any Person, any direct, indirect
----------
or beneficial investment by such Person, whether by means of share purchase,
loan, advance, extension of credit (other than accounts receivable and trade
credits arising in the ordinary course of business), capital contribution or
otherwise, in or to any other Person, the guaranty by such Person of any
Indebtedness of any other Person or the subordination of any claim against any
other Person to other Indebtedness of such other Person.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
-------------
trust companies in the principal place of business of the Company or in
California are not required to be open.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or
----
adverse claim affecting title or resulting in a charge against real or personal
property, or security interest of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidation Preference" with respect to the CRPS, has the meaning
----------------------
given to such term in the CRPS Certificate of Designation, and with respect to
the RPS, has the meaning given to such term in the RPS Certificate of
Designation
"Loan Agreement" means that certain Loan and Security Agreement dated
--------------
as of July 2, 1997, by and among the Companies (other than the Company) and
General Electric Capital Corporation, a New York corporation ("GECC"), together
----
with that certain guaranty and that certain security agreement executed by the
Company and GECC in connection therewith, all of the same as may be amended,
modified or supplemented from time to time and pursuant to which Permitted
Refinancing Indebtedness is incurred
67
<PAGE>
with respect thereto.
"Majority Holders" means, at any time, the Holder or Holders of at
----------------
least a majority in aggregate principal amount of the then outstanding Notes.
"Material Adverse Effect" means (a) a material adverse effect upon the
-----------------------
business, operations, properties, assets, condition (financial or otherwise) or
prospects of any of the Companies taken as a whole or (b) a material adverse
effect on the ability of the Company to perform its obligations under this
Agreement or of any Purchaser or Holder to enforce or collect any of the
obligations hereunder. In determining whether any individual event could
reasonably be expected to result in a Material Adverse Effect, notwithstanding
that such event does not of itself have such effect, a Material Adverse Effect
shall be deemed to have occurred if the cumulative effect of such event and all
other then existing events could reasonably be expected to result in a Material
Adverse Effect.
"Maturity Date" means June 30, 2005.
-------------
"Net Proceeds" means, with respect to any sale or other disposition of
------------
any assets, (i) cash received by the Company or any of its Subsidiaries from
such sale or other disposition and (ii) promissory notes received by the Company
or any of its Subsidiaries from such sale or other disposition upon the
liquidation or conversion of such notes into cash, in each case after (a)
provision for all Taxes resulting from such sale or other disposition, (b)
payment of all brokerage commissions and other fees and expenses related to such
sale or other disposition, and (c) amounts applied to repayment of Indebtedness
secured by a Lien on the asset sold or disposed.
"New Acquisition" means the acquisition (including by way of merger or
---------------
consolidation or in a series of related transactions) of all or substantially
all of the assets or property of, or any Equity Interests in, another Person by
purchase in cash, exchange of property or securities, or by any other method.
"New Vehicle Advance Rate" means the amount permitted to be advanced
------------------------
to the Subsidiaries of the Company for the purpose of financing New Vehicles (as
defined in the Loan Agreement as in effect on the date hereof) pursuant to
Section II.B.(4) of the Loan Agreement (as in effect on the date hereof).
"New Vehicle Advances" means advances under Section II.B or II.E of
--------------------
the Loan Agreement (as in effect on the date hereof) for the purpose of
financing the acquisition of New Vehicles (as defined in such Loan Agreement).
"Non-Price Founding Companies" means Smart Nissan, Inc., a California
----------------------------
corporation, and California Carriage Limited, a California corporation.
"Note Register" has the meaning given to such term in Section 1.3.
-------------
"Notes" has the meaning given to such term in Section 1.1(a).
-----
"Notice of Redemption" has the meaning given to such term in Section
--------------------
6.3.
68
<PAGE>
"Obligations" means, with reference to any Indebtedness, any principal
-----------
of, premium, interest, penalties, fees and other liabilities payable from time
to time and obligations performable under the documentation governing such
Indebtedness.
"Officer" of a Person mean its Chairman of the Board, Chief Executive
-------
Officer, President, Treasurer, any Vice President, Secretary or any Assistant
Secretary.
"Officers' Certificate" means a certificate signed by any two
---------------------
Officers, one of whom must be the Chairman of the Board, the Chief Executive
Officer, the President, the Treasurer or a Vice President of the Company.
"Operating Lease" means any lease other than a Capital Lease.
---------------
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to each of the Purchasers. Unless otherwise required by
any of the Purchasers, the legal counsel may be an employee of or counsel to the
Company. For purposes of Section 4.4, "Opinion of Counsel" means a written
opinion from legal counsel who is reasonably acceptable to the Company and who
may be an employee of or counsel to any Purchaser or Holder.
"Original Securities" has the meaning given to such term in Section
-------------------
1.2(a).
"Pending Acquisitions" means the acquisition of all of the Equity
--------------------
Interests of, or substantially all of the assets of, each of the Founding
Companies and of Asian Pacific Industries, Inc., a Washington corporation,
through merger or purchase by Wholly Owned Subsidiaries of the Company in
accordance with the Acquisition Documents.
"Permitted Holders" means Thomas A. Price and Donald V. Strough,
-----------------
collectively or any trustee in its capacity as trustee of a trust of which any
of the spouse, siblings, lineal descendants or parents of either of Mr. Price or
Mr. Strough is the beneficiary; provided that Mr. Price or Mr. Strough retains
sole Voting Power with respect to the securities held by such trustee in such
trust, unless such trust was established pursuant to and in conformity with
Section 4.4(c) of the Stockholders' Agreement.
"Permitted Investment" means (a) an Investment in Cash Equivalents,
--------------------
(b) trade credit extended to persons in the ordinary course of business, (c) an
Investment by the Company or a Wholly Owned Subsidiary of the Company in a
Wholly Owned Subsidiary of the Company that is engaged in the Retail Automobile
Dealership Business, (d) loans and advances to employees for moving,
entertainment, travel and other similar expenses in the ordinary course of
business not to exceed $250,000 in the aggregate at any time outstanding, (e) an
Investment in the form of a limited partnership interest in Premiere Auto
Finance, a limited partnership, in an aggregate amount not to exceed $500,000
and (e) a Subsidiary Guaranty
"Permitted Liens" means with respect to any Person: (i) Liens for
---------------
Taxes either not yet due and payable or to the extent that nonpayment thereof is
permitted by the terms of Section 5.17; (ii) pledges or deposits securing
obligations under workers compensation, unemployment insurance, social security
or public liability laws or similar legislation; (iii) pledges or deposits
securing bids, tenders, contracts (other than contracts for the payment of
money) or leases to which the Company is a party as lessee made in the
69
<PAGE>
ordinary course of business; (iv) deposits securing public or statutory
obligations of the Company; (v) inchoate and unperfected workers', mechanics',
suppliers' or similar Liens arising in the ordinary course of business; (vi)
carriers', warehousemen's, or other similar possessory Liens arising in the
ordinary course of business and securing Indebtedness either not yet due and
payable or being contested in good faith and by appropriate proceedings and for
which adequate reserves with respect thereto are maintained on the books of the
Company in accordance with GAAP; (vii) Liens existing on the date hereof in an
amount not exceeding $500,000; (viii) deposits securing, or in lieu of, surety,
appeal or customs bonds in proceedings to which such Person is a party; (ix) an
attachment or judgment Lien, but only for a period of thirty (30) days following
attachment of such Lien and such attachment or judgment lien shall cease to be a
Permitted Lien if the obligation that it secures has not been satisfied or
bonded during such thirty (30) day period; (x) zoning restrictions, easements,
licenses, or other restrictions on the use of real property or other minor
irregularities in title (including leasehold title) thereto, so long as the same
do not materially impair the use, value, or marketability of such real property,
leases or leasehold estates and (xi) Liens granted under the Loan Agreement
(xii) Liens on fixed or capital assets acquired after the Closing Date, provided
that (a) such Lien is created solely for the purpose of securing Purchase Money
Indebtedness to finance the cost of such assets and such lien is created prior
to, at the time of, or within six months after the acquisition of such assets,
(b) the principal amount of the Purchase Money Indebtedness secured by such Lien
does not exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any assets other than such acquired asset.
"Permitted Refinancing Indebtedness" means, with respect to any
----------------------------------
Person, any Indebtedness of such Person issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of such Person; provided that: (1) the principal
amount of such Indebtedness does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
or, in the case of Indebtedness being refinanced that was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such refinancing, renewal, replacement, defeasance or
refunding (plus the amount of reasonable expenses incurred in connection
therewith); (2) such Indebtedness has a Maturity and a Weighted Average Life to
Maturity equal to or greater than the Maturity and a Weighted Average Life to
Maturity of the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (3) such Indebtedness is subordinated in right of payment
to the Notes on terms at least as favorable to the holders of Notes as those, if
any, contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded if such Indebtedness was
subordinated to the Indebtedness evidenced by the Notes; (4) the annual interest
rate with respect to such Indebtedness is less than or equal to, and is payable
no more frequently than, that of the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (5) such Indebtedness is incurred
by such Person who is an obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, corporation, limited
------
liability company, trust or unincorporated organization or a government agency
or political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
-------------------
provides for, contemplates or the effectuation of which is preceded or
accompanied by (regardless of whether substantially contemporaneously, in phases
or otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or
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<PAGE>
other disposition and all or substantially all of the remaining assets of such
Person to holders of Capital Stock of such Person.
"Preferred Shares" has the meaning given to such term in Section
----------------
1.1(a).
"Preferred Stock" has the meaning given to such term in Section
---------------
1.1(a).
"Principal" of any Note includes premium, if any.
---------
"Priority Stock" means, with respect to any corporation, any class or
--------------
classes (however designated) of Capital Stock of such Person which is preferred,
as to the payment of dividends or as to the distribution of assets upon any
voluntary or involuntary liquidation or distribution of such corporation, over
shares of such corporation or over any other class of shares of Capital Stock of
such corporation
"Productive Assets" means assets used in the same type of business
-----------------
engaged in by the Founding Companies immediately prior to the date hereof.
"Program Vehicle Advances" means advances under Section II.D of the
------------------------
Loan Agreement (as in effect on the date hereof) for the purpose of financing
the acquisition of Program Vehicles (as defined in such Loan Agreement).
"Pro Forma" means the unaudited combined balance sheets of the Company
---------
and its Subsidiaries as of the date hereof (or a date reasonable prior hereto)
after giving effect to this Agreement, the Loan Agreement, the Acquisition
Documents, the Stockholders' Agreement, the other Documents and the transactions
contemplated hereby and thereby, in the form attached hereto as Schedule 9.1(a).
---------------
Notwithstanding any other term contained in this Agreement, should the
application of purchase or other accounting principles permit the Company, in
accordance with GAAP, to characterize certain expenditures as capital items
rather than expense, then such expenditures shall be treated as expense in the
period such expenditures were incurred or paid for all purposes under this
Agreement unless such expenditure was identified and capitalized in the Pro
Forma.
"Program Vehicle Advances" has the meaning given to such term in
------------------------
Section III.D of the Loan Agreement as in effect on the date hereof.
"Program Vehicle Advance Rate" means the amount permitted to be
----------------------------
advanced to the Subsidiaries of the Company pursuant to Section II.D.(3) of the
Loan Agreement as in effect on the date hereof.
"Property" or "property" means any assets or property of any kind or
-------- --------
nature whatsoever, real, personal or mixed (including fixtures), whether
tangible or intangible, provided that the terms "Property" or "property," when
used with respect to any Person, shall not include securities issued by such
Person.
"Purchase Money Indebtedness" means Indebtedness incurred solely for
---------------------------
the purchase or financing of fixed or capital assets (other than assets owned by
the Company or any of its Subsidiaries on the Closing Date) directly related to
the business of the Company permitted hereunder provided that (1) (A)
71
<PAGE>
such Indebtedness is secured by purchase money Liens on such assets and (B) such
Liens do not extend to or cover any other asset of the Company or any of its
Subsidiaries, (2) such Liens secure the obligation to pay the purchase price and
acquisition costs of such asset and interest thereon only, (3) such Indebtedness
is incurred within nine months after the acquisition of such assets, and (4) the
fair market value of the assets so secured is at least equal to the amount of
the Indebtedness secured thereby.
"Purchase Price" means, with respect to any New Acquisition, the
--------------
aggregate consideration (including (without duplication) Cash, Cash Equivalents,
securities and other property (computed at the Fair Market Value thereof), and
any Indebtedness (including, without limitation, Acquired Debt, Acquisition Debt
and deferred consideration)) paid, to be paid or assumed by the Company and/or
its Subsidiaries in connection with such New Acquisition and all other expenses
and Capital Expenditures associated with such New Acquisition less the aggregate
amount of such consideration attributable to the cost of new vehicle inventory
included in such New Acquisition.
"Redemption Date" means, when used with respect to any Note to be
---------------
redeemed, the date fixed for such redemption pursuant to this Agreement and the
Notes.
"Redemption Price" means, when used with respect to any Note to be
----------------
redeemed, the price fixed for such redemption pursuant to this Agreement and the
Notes.
"Reference Period" has the meaning given to such term in the
----------------
definition of "Consolidated Interest Expense Coverage Ratio" in this Section
9.1.
"Related Transactions" means the Pending Acquisitions, the execution
--------------------
and delivery of the Documents, the funding of the loans under the Loan Agreement
on the Closing Date, the funding of the Notes on the Closing Date and the
payment of all fees, costs and expenses associated with all of the foregoing.
"Restricted Payments" has the meaning given to such term in Section
-------------------
5.4.
"Retail Automobile Dealership Business" means the business of retail
-------------------------------------
selling and servicing of automobiles and light trucks.
"Revolver Advance Rate" means the amount permitted to be advanced to
---------------------
the Subsidiaries of the Company pursuant to Section II.C.(1) of the Loan
Agreement as in effect on the date hereof.
"RPS" has the meaning given to such term in Section 1.1(a).
---
"RPS Certificate of Designation" has the meaning given to such term in
------------------------------
Section 1.1(a).
"RPS Register" has the meaning given to such term in Section 1.3.
------------
"Rule 144" means Rule 144 as promulgated by the SEC under the
--------
Securities Act, as amended from time to time, and any successor rule or
regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the SEC under the
---------
Securities Act, as
72
<PAGE>
amended from time to time, and any successor rule or regulation thereto.
"SEC" means the Securities and Exchange Commission and any successor
---
thereto.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time, and any successor statute or law thereto.
"Security" or "Securities" have the meanings given to such terms in
-------- ----------
Section 1.1(a).
"Seller Indebtedness" means, with respect to any Person, Indebtedness
-------------------
incurred in connection with the acquisition by such Person or a Subsidiary of
such Person of another Person or of assets from such other Person which
Indebtedness is owing to such other Person.
"Significant Subsidiary" has the meaning given to such term in
----------------------
Regulation S-X of the Rules and Regulations promulgated by the SEC.
"Solvent" means, with respect to any Person on a particular date, that
-------
on such date, (a) the fair saleable value of the assets of such Person exceeds
its probable liability on its debts as they become absolute and mature; (b) all
of such Person's assets, at a fair valuation, exceed the sum of such Person's
debts; (c) such Person is able to pay its debts or liabilities as such debts and
liabilities mature; and (d) such Person is not engaged in a business or
transaction, and is not about to engage in a business or transaction, for which
such Person's assets would constitute an unreasonably small capital.
"Stockholders' Agreement" has the meaning given to such term in
-----------------------
Section 1.1(c).
"Subordinated Indebtedness" means Indebtedness of the Company that is
-------------------------
expressly by its terms subordinate and junior in right of payment to the Notes
and all the Obligations of the Company under this Agreement, at least to the
extent that the Obligations of the Company and its Subsidiaries under the Notes
are subordinate and junior in right of payment to Obligations of the Company and
its Subsidiaries under the Loan Agreement, pursuant to the provisions of the
Intercreditor Agreement.
"Subsidiary" means, with respect to any Person, (i) a corporation a
----------
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is, at the date of determination, directly or indirectly,
owned by such Person, by one or more Subsidiaries of such Person or by such
Person and one or more Subsidiaries of such Person or (ii) a partnership in
which such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but, in the
case of a limited partner, only if such Person or its Subsidiary is entitled to
receive more than 50% of the assets of such partnership upon its dissolution, or
(iii) any limited liability company or any other Person (other than a
corporation or a partnership) in which such Person, a Subsidiary of such Person
or such Person and one or more Subsidiaries of such Person, directly or
indirectly, at the date of determination, has (a) at least a majority ownership
interest or (b) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.
"Subsidiary Guaranty" has the meaning given to such term in Section
-------------------
10.1(a).
"Surviving Person" has the meaning given to such term in Section
----------------
5.15(b)(i).
73
<PAGE>
"Taxes" means all Federal, state, local and foreign taxes, and other
-----
assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto.
"Tax Authority" means the Internal Revenue Service and any other
-------------
domestic or foreign governmental authority responsible for the administration of
any Taxes.
"Tax Returns" shall mean all Federal, state, local and foreign tax
-----------
returns, declarations, statements, reports, schedules, forms and information
returns and any amended Tax Return relating to Taxes.
"TCW Group Member" means any Affiliate of Trust Company of the West or
----------------
any Holder for whom Trust Company of the West or any Affiliate of Trust Company
of the West acts as an Account Manager.
"Total Debt Coverage Ratio" means as of any date, the ratio of (a) the
-------------------------
sum of the consolidated Indebtedness of the Company and its Subsidiaries (other
than New Vehicle Advances and Program Vehicle Advances) plus the liquidation
preference of all shares of capital stock of the Company or any of its
Subsidiaries (other than Common Stock and Capital Stock of Subsidiaries of the
Company owned by the Company or any Wholly Owned Subsidiary of the Company) to
(b) EBITDA of the Company for the four fiscal quarters immediately preceding
such date.
"Trade Payables" means, with respect to any Person, accounts payable
--------------
and other similar accrued current liabilities in respect of obligations or
indebtedness to trade creditors created, assumed or guaranteed by such Person or
any of its Subsidiaries in the ordinary course of business in connection with
the obtaining of property or services.
"U.S. Government Obligations" means direct obligations of, or
---------------------------
obligations guaranteed as to timely payment by, the United States of America for
the payment (with respect to interest as well as principal) of which obligation
or guarantee the full faith and credit of the United States of America is
pledged.
"U.S. Legal Tender" means such coin or currency of the United States
-----------------
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Voting Securities" means any class of Equity Interests of a Person
-----------------
pursuant to which the holders thereof have, at the time of determination, the
general voting power ("Voting Power") under ordinary circumstances to vote for
------------
the election of directors, managers, trustees or general partners of such Person
(regardless of whether at such time any other class or classes will have or
might have voting power by reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to
74
<PAGE>
the nearest one-twelfth) that will elapse between such date and the making of
such payment, by (b) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means, with respect to any Person, at any
-----------------------
time, a Subsidiary of such Person, all of the Equity Interests of which (except
director's qualifying shares) are at the time owned directly or indirectly by
such Person.
9.2 Rules of Construction.
---------------------
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the plural
include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof," "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular
Section or other subdivision; and.
(f) any reference to a "Section," "Annex" or "Schedule" refers to a
Section of, an Annex to, or a Schedule to this Agreement,
respectively.
SECTION 10. GUARANTY.
--------
10.1 Guaranty.
--------
(a) In consideration of good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, each of the Guarantors
hereby irrevocably and unconditionally guarantees (each a "Subsidiary
----------
Guaranty") to each Holder of a Note, irrespective of the validity and
--------
enforceability of this Agreement, the Notes or the obligations of the
Company under this Agreement or the Notes, that: (w) the principal and
premium (if any) of and interest on the Notes will be paid in full when
due, whether at the maturity or interest payment date, by acceleration,
call for redemption, upon a Change of Control, Asset Sale Offer, or
otherwise; (x) all other obligations of the Company to the Holders under
this Agreement or the Notes will be promptly paid in full or performed, all
in accordance with the terms of this Agreement and the Notes; and (y) in
case of any extension of time of payment or renewal of any Notes or any of
such other obligations, they will be paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity,
by acceleration, call for redemption, upon an Asset Sale Offer, Change of
Control or otherwise. Failing payment when due of any amount so guaranteed
for whatever reason, each Guarantor shall be obligated to pay the same
before failure so to pay becomes an Event of Default.
75
<PAGE>
(b) Each Guarantor hereby agrees that its obligations with regard to
this Subsidiary Guaranty shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or this Agreement, the
absence of any action to enforce the same, any delays in obtaining or
realizing upon or failures to obtain or realize upon collateral, the
recovery of any judgment against the Company, any action to enforce the
same or any other circumstances that might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company or right to require the
prior disposition of the assets of the Company to meet its obligations,
protest, notice and all demands whatsoever and covenants that this
Subsidiary Guaranty will not be discharged except by complete performance
of the obligations contained in the Notes and this Agreement.
(c) If any Holder is required by any court or otherwise to return to
either the Company or any Guarantor, or any custodian, trustee, or similar
official acting in relation to either the Company or such Guarantor, any
amount paid by either the Company or such Guarantor to or such Holder, this
Subsidiary Guaranty, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor agrees that it will
not be entitled to any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Guarantor further agrees that, as
between such Guarantor, on the one hand, and the Holders, on the other
hand, (i) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Section 7.2 for the purposes of this Subsidiary
Guaranty, notwithstanding any stay, injunction or other prohibition
preventing such acceleration as to the Company of the obligations
guaranteed hereby, and (ii) in the event of any declaration of acceleration
of those obligations as provided in Section 7.2, those obligations
(regardless of whether due and payable) will forthwith become due and
payable by each of the Guarantors for the purpose of this Subsidiary
Guaranty.
(d) It is the intention of each Guarantor and the Company that the
obligations of each Guarantor hereunder shall be in, but not in excess of,
the maximum amount permitted by applicable law. Accordingly, if the
obligations in respect of this Subsidiary Guaranty would be annulled,
avoided or subordinated to the creditors of any Guarantor by a court of
competent jurisdiction in a proceeding actually pending before such court
as a result of a determination both that such Subsidiary Guaranty was made
without fair consideration and that, at the time thereof, immediately after
giving effect thereto, or at the time that any demand is made thereupon
such Guarantor was insolvent or unable to pay its debts as they mature or
left with an unreasonably small capital, then the obligations of such
Guarantor under such Subsidiary Guaranty shall be reduced by such an
amount, if any, that would result in the avoidance of such annulment,
avoidance or subordination; provided, however, that any reduction pursuant
to this paragraph shall be made in the smallest amount as is necessary to
reach such result. For purposes of this paragraph, "fair consideration,"
"insolvency," "unable to pay its debts as they mature," "unreasonably small
capital" and the effective times of reductions, if any, required by this
paragraph shall be determined in accordance with applicable law.
10.2 Execution and Delivery of Subsidiary Guaranty.
---------------------------------------------
To evidence its Subsidiary Guaranty set forth in Section 10.1, each
Guarantor agrees that a
76
<PAGE>
notation of such Subsidiary Guaranty substantially in the form annexed hereto as
Annex A-2 shall be endorsed on each Note and that this Agreement shall be
- ---------
executed on behalf of such Guarantor by two Officers or by one Officer with an
attestation by another Officer, by manual or facsimile signature.
Each Guarantor agrees that its Subsidiary Guaranty set forth in
Section 10.1 shall remain in full force and effect and apply to all the Notes
notwithstanding any failure to endorse on each Note a notation of such Guaranty.
If an Officer whose signature is on a Note no longer holds that office
at the time the Note on which a Subsidiary Guaranty is endorsed and issued, the
Subsidiary Guaranty shall be valid nevertheless.
The delivery of any Note by the Company shall constitute due delivery
of the Subsidiary Guaranty set forth in this Agreement on behalf of each
Guarantor.
10.3 Future Subsidiary Guarantors.
----------------------------
The Company shall cause each Person that is or becomes a Subsidiary of
the Company after the Closing Date to execute a Subsidiary Guaranty in the form
of Annex A-2 hereto and cause such Subsidiary to execute an amendment to this
---------
Agreement for the purpose of adding such Subsidiary as a Guarantor hereunder.
10.4 Certain Bankruptcy Events.
-------------------------
Each Guarantor hereby covenants and agrees that in the event of the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company, such Guarantor shall not file (or join in any filing of), or otherwise
seek to participate in the filing of, any motion or request seeking to stay or
to prohibit (even temporarily) execution on the Subsidiary Guaranty and hereby
waives and agrees not to take the benefit of any such stay of execution, whether
under Section 362 or 105 of the United States Bankruptcy Code or otherwise.
10.5 Releases of Subsidiary Guaranties.
---------------------------------
If the Company or any Subsidiary of the Company shall sell or
otherwise transfer all of the Equity Interests of any Guarantor to a Person that
is not an Affiliate of the Company or any of its Subsidiaries, then the
Subsidiary Guaranty of such Guarantor shall be discharged, cancelled and
terminated, and such Subsidiary Guarantor shall be released from all liability
thereunder.
77
<PAGE>
SECTION 11. MISCELLANEOUS.
-------------
11.1 Notices.
-------
All notices and other communications provided for or permitted
hereunder shall be made by hand delivery, first-class mail, telex, telecopier,
or overnight air courier guaranteeing next day delivery:
(a) if to any Purchaser at the address or telecopy number set forth on
the signature pages hereto, with a copy to Skadden, Arps, Slate, Meagher &
Flom, LLP 300 S. Grand Avenue, Suite 3400, Los Angeles, California 90071,
Telecopy No. (213) 687-5600, Attention: Rod A. Guerra, Jr., Esq.; and
(b) if to the Company or any Guarantor, c/o Kay & Merkle, Penthouse,
100 The Embarcadero, San Francisco, California 94105, Telecopy No. (415)
512-9277 Attention: W. Bruce Bercovich.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed (so long as a
fax copy is sent and receipt acknowledged within two Business Days after
mailing); when answered back if telexed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery. The parties may
change the addresses to which notices are to be given by giving five days' prior
notice of such change in accordance herewith.
11.2 Successors and Assigns.
----------------------
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
11.3 Counterparts.
------------
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
11.4 Headings.
--------
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.5 Governing Law; Submission to Jurisdiction.
-----------------------------------------
THIS AGREEMENT, THE NOTES AND ALL ISSUES HEREUNDER AND THEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA (WITHOUT REFERENCE TO PRINCIPLES OF
78
<PAGE>
CONFLICTS OF LAW). TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, EACH OF THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMIT
TO THE JURISDICTION OF ANY CALIFORNIA STATE COURT SITTING IN THE CITY OF LOS
ANGELES OR ANY FEDERAL COURT SITTING IN THE CITY OF LOS ANGELES IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND
THE NOTES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY
GENERALLY AND UNCONDITIONALLY JURISDICTION OF THE AFORESAID COURTS. THE COMPANY
AND EACH GUARANTOR IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THEY MAY EFFECTIVELY
DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEEDING
AGAINST THE COMPANY OR ANY GUARANTOR IN ANY OTHER JURISDICTION.
11.6 Entire Agreement.
----------------
This Agreement, together with the Securities, the Stockholders'
Agreement and Certificates of Designation (and any agreement between the Company
and any Holder relating to transfers), is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. This Agreement, together with
the Stockholders' Agreement and the Certificates of Designation, supersedes all
prior agreements and understandings between the parties hereto with respect to
the subject matter.
11.7 Severability.
------------
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that each Purchaser's rights and privileges shall be enforceable to the
fullest extent permitted by law.
11.8 Further Assurances.
------------------
The Company shall, and shall cause each of its Subsidiaries to, at its
cost and expense, upon request of any Purchaser or Holder, duly execute and
deliver, or cause to be duly executed and delivered, to such Purchaser or Holder
such further instruments and do or cause to be done such further acts as may be
necessary or proper in the reasonable opinion of such Purchaser or Holder to
carry out more effectually the provisions and purposes of this Agreement and the
other Documents.
11.9 Disclosure of Financial Information.
-----------------------------------
79
<PAGE>
Each Holder is hereby authorized to deliver a copy of any financial
statement or any other information relating to the business, operations or
financial condition of the Company and each of its Subsidiaries which may be
furnished to it hereunder or otherwise, to any other Holder, any court,
Governmental Body claiming to have jurisdiction over such Holder, to the
National Association of Insurance Commissioners or similar organizations, as may
be required or appropriate in response to any summons or subpoena in connection
with any litigation, to the extent necessary to comply with any law, order,
regulation or ruling applicable to such Holder, to any rating agency, in order
to protect its investment hereunder, or to any Person which shall, or shall have
any right or obligation to, succeed to all or any part of such Holder's interest
in any of the Securities and this Agreement or to any actual or prospective
purchaser or assignee thereof.
11.10 Reproduction of Documents.
-------------------------
Subject to Section 11.6, this Agreement and all documents relating
hereto, including without limitation, (a) consents, waivers and modifications
which may hereafter be executed, (b) documents received by the Holders at any
time, including, without limitation, in connection with the Closing (except the
Notes themselves), and (c) financial statements, certificates and other
information previously or hereafter furnished to the Holders, may be reproduced
by the Holders by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and the Holders may destroy any original
document so reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(regardless of whether the original is in existence and regardless of whether
such reproduction was made by the Holders in the regular course of business) and
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
80
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties set forth below as of the date first written above.
Company:
-------
FIRSTAMERICA AUTOMOTIVE, INC.
By:______________________________
Name:____________________________
Title:___________________________
Guarantors:
- ----------
FAA SAN BRUNO, INC. FAA STEVENS CREEK, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
_________________________________
SMART NISSAN, INC. FAA DEALER SERVICES, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
TRANSCAR LEASING, INC. FAA CONCORD H, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
FAA CONCORD N, INC. FAA POWAY D, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
<PAGE>
FAA POWAY T, INC. FAA POWAY H, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
FAA DUBLIN VWD, INC. FAA DUBLIN N, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
FAA SERRAMONTE L, INC. FAA SERRAMONTE, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
82
<PAGE>
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT PARTNERS, L.P.
By: TCW/CRESCENT MEZZANINE, L.L.C.,
its general partner or managing owner
By: /s/ Jean-Marc Chapus
_________________________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
_________________________________________
John C. Rocchio
Senior Vice President
Principal amount of Notes to be purchased:
- -----------------------------------------
$14,417,554 by TCW/Crescent Mezzanine Partners, L.P.
$4,388,476 by TCW/Crescent Mezzanine Trust
$393,970 by TCW/Crescent Mezzanine Investment Partners, L.P.
Number of Common Shares and Preferred Shares to be purchased:
- ------------------------------------------------------------
1,821,418 Common Shares and 2,403 CRPS Shares by TCW/Crescent Mezzanine
Partners, L.P.
554,411 Common Shares and 731 CRPS Shares by TCW/Crescent Mezzanine Trust
49,771 Common Shares and 66 CRPS Shares by TCW/Crescent Mezzanine Investment
Partners, L.P.
Aggregate purchase price of Notes, Common Shares and CRPS Shares to be
purchased: $22,400,000
Fee: $400,000, payable to TCW/Crescent Mezzanine, LLC by wire transfer to Bank
of America, 525 South Flower Street, Los Angeles, California 90071, ABA No.:
121-000-358, Account Name: TCW/Crescent Mezzanine, LLC, Account No.: 1459-1-
05940
<TABLE>
<CAPTION>
Initial Bank Account and Wire Instructions: Address for Notices:
- ------------------------------------------- -------------------
<S> <C>
State Street Bank and Trust (Boston) TCW/Crescent Mezzanine, LLC
Corporate Trust Department 11100 Santa Monica Boulevard
Two International Place Suite 2000
Boston, MA 02110 Los Angeles, CA 90025
ABA: 011000028 Attn: Jean-Marc Chapus
DDA: 9903-942-2 Telecopy No.: (310) 235-5967
Account No. Ref.:
with a copy to:
EW0620 TCW/Crescent Mezzanine Partners, L.P.
EW0621 TCW/Crescent Mezzanine Trust State Street Bank and Trust Company
EW0622 TCW/Crescent Mezzanine Investment Securities Processing Department
</TABLE>
<PAGE>
Partners, L.P. P.O. Box 2136
Attn: Ray Welliver Boston, MA 02106
(617) 664-5482 Telecopy No.: (617) 664-5366
84
<PAGE>
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW ADVISORS (BERMUDA), LIMITED,
as General Partner
By:________________________________
Name:______________________________
Title:_____________________________
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By:________________________________
Name:______________________________
Title:_____________________________
Principal amount of Notes to be purchased: $3,000,000
Number of RPS Shares to be purchased: 500
Number of Common Shares to be purchased: 379,000
Aggregate purchase price of Notes, RPS Shares and Common Shares to be purchased:
$3,500,000
Fee: $62,500, payable to TCW Leveraged Income Trust, L.P. by wire transfer to
the bank account described below.
Initial Bank Account and Wire Instructions:
- ------------------------------------------
State Street Bank and Trust (Boston)
Corporate Trust Department
Two International Place
Boston, MA 02110
ABA: 011000028
DDA: 99039422
Account No.: EW0877
Ref:TCW Leveraged Income Trust, L.P.
Attn: Ray Welliver
Telecopy No.: (617) 664-5482
Address for Notices:
- -------------------
Trust Company of the West
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
Telecopy No.: (310) 235-5967
<PAGE>
CRESCENT/MACH I PARTNERS, L.P.
By: TCW ASSET MANAGEMENT COMPANY,
as investment manager and attorney
-in-fact
By: /s/ Jean-Marc Chapus
___________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
___________________________
John C. Rocchio
Senior Vice President
Principal amount of Notes to be purchased: $1,500,000
Number of CRPS Shares to be purchased: 250
Number of Common Shares to be purchased: 189,500
Aggregate purchase price of Notes, CRPS Shares and Common Shares to be
purchased: $1,750,000
Fee: $31,250, payable to Crescent/Mach I Partners, L.P. by wire transfer to the
bank account described below.
Initial Bank Account and Wire Instructions:
- ------------------------------------------
State Street Bank and Trust (Boston)
Corporate Trust Department
Two International Place
Boston, MA 02110
ABA: 011000028
Account No Ref.: 99001265
Ref: Crescent/MACH I
Attn: Jackie Sweeney
Telecopy No.: (617) 664-5477
Address for Notices:
- -------------------
Trust Company of the West
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
Telecopy No.: (310) 235-5967
with a copy to:
<PAGE>
Trust Company of the West
200 Park Avenue, Suite 200
New York, NY 10166
Attn: Mark Gold
Telecopy No.: (212) 297-4159
<PAGE>
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW INVESTMENT MANAGEMENT
COMPANY, its investment advisor
By: /s/ Jean-Marc Chapus
_____________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
_____________________________
John C. Rocchio
Senior Vice President
Principal amount of Notes to be purchased: $300,000
Number of CRPS Shares to be purchased: 50
Number of Common Shares to be purchased: 37,900
Aggregate purchase price of Notes, CRPS Shares and Common Shares to be
purchased: $350,000
Fee: $6,250, payable to TCW Shared Opportunity Fund II, L.P. by wire transfer to
the bank account described below.
Initial Bank Account and Wire Instructions:
- ------------------------------------------
Citibank/NYC/Bear Stearns
111 Wall Street
New York, NY
ABA: 021000089
A/C: Bear Stearns/0925-3186
Account No. Ref.: 102-02730
FBO: TCW Shared Opportunity Fund II, L.P.
Address for Notices:
- -------------------
Trust Company of the West
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
Telecopy No.: (310) 235-5967
<PAGE>
Annex A-1
---------
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
--------------
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR AN EXEMPTION THEREFROM UNDER THE
SECURITIES ACT, THE RULES AND REGULATIONS THEREUNDER AND APPLICABLE STATE LAWS.
THE TRANSFER OF THIS NOTE IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE
SECURITIES PURCHASE AGREEMENT DATED AS OF JULY 8, 1997, BY AND AMONG
FIRSTAMERICA AUTOMOTIVE, INC., THE GUARANTORS PARTY THERETO AND THE PURCHASERS
PARTY THERETO.
THIS NOTE WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID") WITHIN THE MEANING
---
OF SECTION 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE ISSUE
DATE OF THIS NOTE IS JULY 8, 1997. INFORMATION REGARDING THE ISSUE PRICE, THE
TOTAL AMOUNT OF OID, AND THE YIELD TO MATURITY MAY BE OBTAINED BY WRITTEN
REQUEST OF THE HOLDER OF THIS NOTE FROM FIRSTAMERICA AUTOMOTIVE, INC.,
ATTENTION: W. BRUCE BERCOVICH, TELEPHONE NO. (415) 357-1200.
PAYMENT ON THIS NOTE IS SUBORDINATED TO THE CLAIMS OF GENERAL ELECTRIC CAPITAL
CORPORATION ("GECC") PURSUANT TO THE TERMS OF THE INTERCREDITOR AND
----
SUBORDINATION AGREEMENT DATED AS OF JULY 2, 1997 AMONG THE PURCHASERS AND GECC.
12_% Senior Note due June 30, 2005
No.____ $_________
FIRSTAMERICA AUTOMOTIVE, INC.
promises to pay to __________________________ or registered assigns, the
principal sum of __________ Dollars ($_________) on June 30, 2005 (the "Maturity
--------
Date") plus accrued and unpaid interest as provided below.
- ----
Interest Payment Dates: January 31, April 30, July 31 and October 31 of each
year; provided, that the first Interest Payment Date shall be October 31, 1997.
Record Dates: 15th day of each calendar month during which each Interest Payment
Date occurs.
Capitalized terms used herein shall have the meanings ascribed to them in
the Agreement (as defined below) unless otherwise indicated.
A-1-1
<PAGE>
1. INTEREST. FirstAmerica Automotive, Inc. (the "Company") promises to
-------
pay interest on the principal amount of this Note at 12_% per annum from July 8,
1997 until maturity. The Company will pay interest quarterly on January 31,
April 30, July 31 and October 31 of each year, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest Payment
----------------
Date"). Interest on the Notes will accrue from the most recent date on which
- ----
interest has been paid or, if no interest has been paid, from the date of
issuance; provided, that the first Interest Payment Date shall be October 31,
1997. The Company shall pay interest (including post-petition interest in any
proceeding under Bankruptcy Law) on all due and unpaid amounts outstanding under
the Notes (including overdue installments of principal, premium, if any, or
interest), from time to time on demand at a rate equal to 14_% per annum,
compounded quarterly, to the extent lawful. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes to the
Persons who are registered Holders of Notes at the close of business on the
January 15, April 15, July 15 or October 15 next preceding the Interest Payment
Date, even if such Notes are cancelled after such record date and on or before
such Interest Payment Date. The Notes will be payable both as to principal and
interest by Federal funds wire transfer of U.S. Legal Tender to each Holder's
account in any bank in the United States as may be designated and specified in
writing by such Holder at least two Business Days prior thereto.
3. SECURITIES PURCHASE AGREEMENT. The Company issued the Notes under the
Securities Purchase Agreement dated as of July 8, 1997 (the "Agreement") by and
---------
among the Company, the Guarantors, and the purchasers party thereto (the
"Purchasers"). The Notes are subject to, and qualified by, all such terms,
- -----------
certain of which are summarized herein, and Holders of Notes are referred to the
Agreement for a statement of such terms. The Notes are general obligations of
the Company. The Notes are limited to $36,000,000 in aggregate principal
amount.
4. REDEMPTION.
(a) The Company may redeem all or any of the Notes, in whole or in part,
at any time, at a redemption price equal to the percentages of the principal
amount thereof set forth below, plus accrued and unpaid interest to the
redemption date, if redeemed during the 12-month period beginning July 1 of the
years indicated below, provided that the Company shall be required to redeem all
outstanding Notes pursuant to this clause (a) if the aggregate principal amount
of the outstanding Notes is less than $2,000,000.
<TABLE>
<CAPTION>
Year Redemption Prices
--- ------------------
<S> <C>
1997 110.000%
1998 108.750
1999 107.500
2000 106.250
2001 105.000
2002 103.750
2003 102.500
2004 101.250
</TABLE>
(b) If there is a Company IPO, the Company may, within 45 days of the
consummation of such
A-1-2
<PAGE>
Company IPO, redeem up to 100% of the then outstanding Notes at a redemption
price equal to the percentages of the principal amount thereof set forth below,
plus accrued and unpaid interest to the redemption date, if redeemed during the
12-month period beginning July 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- -----------------
<S> <C>
1997 105.000%
1998 104.375
1999 103.750
2000 103.125
2001 102.500
2002 101.875
2003 101.250
2004 100.625
</TABLE>
(c) On July 1, 2003 and on July 1, 2004, the Company shall redeem Notes in
an aggregate principal amount equal to the lesser of (a) 30% of the aggregate
principal amount of Notes issued and (b) the aggregate amount of issued and
outstanding Notes on such date, at a redemption price equal to the aggregate
principal amount thereof plus accrued and unpaid interest on such Notes to the
redemption date. On June 30, 2005 the Company shall redeem all issued and
outstanding Notes, at a redemption price equal to the aggregate principal amount
thereof plus accrued and unpaid interest on such Notes to the redemption date.
5. OFFERS TO REPURCHASE. Following the occurrence of any Change of
Control, the Company will be required to offer to purchase all outstanding Notes
upon the terms set forth in the Agreement. Following the occurrence of an Asset
Sale, the Company will be required to apply the Excess Net Proceeds therefrom to
an offer to purchase outstanding Notes upon the terms set forth in the
Agreement.
6. NOTICE OF REDEMPTION. Notice of redemption pursuant to Section 4(a)
and 4(c) hereof shall be mailed at least 30 days but not more than 60 days
before a Redemption Date by first class mail to each Holder whose Notes are to
be redeemed at such Holder's registered address. Notice of redemption pursuant
to Section 4(b) hereof shall be mailed within 10 days of such Company IPO by
first class mail to each Holder whose Notes are to be redeemed at such Holder's
registered address. Notes in denominations larger than $1,000 may be redeemed
in part but only in whole multiples of $1,000, unless all of the Notes held by a
Holder are to be redeemed. If, on or prior to the Redemption Date, the Company
deposits in a segregated account or otherwise sets aside funds sufficient to pay
the Redemption Price of the Notes called for redemption, then, on and after the
Redemption Date, interest ceases to accrue on Notes or portions thereof called
for redemption, unless the Company defaults in paying the redemption price.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are without coupons in
the principal amount of $1,000 or integral multiples of $1,000 in excess
thereof. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Agreement. The Company may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Agreement. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period
A-1-3
<PAGE>
between a record date and the corresponding Interest Payment Date.
8. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
9. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Agreement
and the Notes may be amended or supplemented and any existing Default or Event
of Default under, or compliance with any provision of, the Agreement may be
waived with the written consent of the Holders of at least a majority in
aggregate principal amount of the outstanding Notes.
10. DEFAULTS AND REMEDIES. An Event of Default is, in general: default
in the payment of the principal or premium, if any, of any Note; default in the
payment of interest on any Note for a period of five Business Days; failure by
the Company for 30 days after notice to it to comply with provisions of the
Agreement or the Notes or, in the case of the failure to comply with certain
specified covenants, without such notice; if any of the representations or
warranties of the Company made in or in connection with the Agreement (including
those representations and warranties incorporated by reference therein) are
untrue in any respect, the result of which could reasonably be expected to have
a Material Adverse Effect; certain defaults under and/or acceleration prior to
maturity of certain other indebtedness of the Company; certain final judgments
which remain undischarged after notice; certain events of bankruptcy or
insolvency; certain occurrences with respect to Franchise Agreements or
governmental licenses, certificates or permits; if any Subsidiary Guaranty shall
for any reason cease to be, or be asserted in writing by any responsible officer
of any Subsidiary of the Company or the Company not to be, in full force and
effect or enforceable in accordance with its terms; or the failure by the
Company to make any payment on the Preferred Stock within 5 Business Days of
when due. If an Event of Default occurs and is continuing, the Holders of at
least a majority in aggregate principal amount (or, in certain circumstances, a
lesser amount) of the then outstanding Notes may declare all the Notes to be due
and payable immediately. The Company is obligated to furnish a quarterly
compliance certificate to the Holders.
11. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder of the Company, as such, shall not have any liability for any
obligations of the Company under the Notes or the Agreement or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
12. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
13. GOVERNING LAW; SUBMISSION TO JURISDICTION.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, EACH OF THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY CALIFORNIA STATE COURT SITTING IN THE CITY OF
LOS ANGELES OR ANY FEDERAL COURT SITTING IN THE CITY OF LOS ANGELES IN RESPECT
A-1-4
<PAGE>
OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY AND EACH
GUARANTOR IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO SO
UNDER APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF ANY HOLDER OF THIS NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEEDING
AGAINST THE COMPANY OR ANY GUARANTOR IN ANY OTHER JURISDICTION.
The Company will furnish to any Holder upon written request and without
charge a copy of the Agreement. Requests may be made to FirstAmerica
Automotive, Inc., c/o Kay & Merkle, Penthouse, 100 The Embarcadero, San
Francisco, California 94105, Attention: W. Bruce Bercovich, Telecopy No. (415)
412-9277.
FIRSTAMERICA AUTOMOTIVE, INC.
By:____________________________
Name:__________________________
Title:_________________________
Date: ______________
A-1-5
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
____________________________________________
________________________________________________________________________________
(Insert assignee's Soc. Sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint
_______________________________________________________________
to transfer this Note on the books of the Issuer. The agent may substitute
another to act for him.
________________________________________________________________________________
Date: _______________________________
Your Signature:___________________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee
A-1-6
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
Check the applicable box:
[_] If you want to elect to have this Note purchased by the Company pursuant to
Section 5.8 of the Agreement (Asset Sale Offer), state the amount you elect
to have purchased: $__________.
[_] If you want to elect to have this Note purchased by the Company pursuant to
Section 5.11 of the Agreement (Change of Control Offer), state the amount
you elect to have purchased: $_________.
Date:______________________
Your Signature:_______________________________________
(Sign exactly as your name appears on the
Note)
Tax Identification No.:______________
Signature Guarantee
By:_____________________________________________
(Bank or trust company having an office or
correspondent in the United States of
America or a broker or dealer which is a
member of a registered securities exchange
or the National Association of Securities
Dealers, Inc.)
A-1-7
<PAGE>
Annex A-2
---------
FORM OF GUARANTY
----------------
For value received, _________________, [a _________________
corporation], hereby unconditionally guarantees to the Holder of the Note upon
which this Guaranty is endorsed (a) the due and punctual payment, on the basis
set forth in the Agreement pursuant to which such Note and this Guaranty were
issued, of the principal of, premium (if any) and interest on such Note when and
as the same shall become due and payable for any reason according to the terms
of such Note and Section 10 of the Agreement, and (b) that all other obligations
of the Company under the Agreement or the Notes will be promptly paid in full or
performed in accordance with the terms of the Agreement and the Notes.
[NAME OF GUARANTOR]
By:_____________________________
Name:___________________________
Title:__________________________
Attest:____________________
A-2-1
<PAGE>
Annex B-1
---------
FirstAmerica Automotive, Inc.
Certificate of Designation of Preferences
of
8% Cumulative Redeemable Preferred Stock due 2005
The undersigned does hereby certify that the following resolution was
duly adopted by the board of directors of FirstAmerica Automotive, Inc., a
Delaware corporation (the "Corporation"), pursuant to a unanimous written
-----------
consent dated as of July 7, 1997.
RESOLVED, that pursuant to the authority vested in the board of
directors of the Corporation by the Corporation's Certificate of Incorporation,
as amended, a series of preferred stock of the Corporation be, and it hereby is,
created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated 8% Cumulative Redeemable Preferred
Stock due 2005 (the "CRPS"), to consist of 3,500 shares, par value $0.00001 per
----
share, which may be issued only as whole shares, of which the preferences and
relative and other rights, and the qualifications, limitations or restrictions
thereof, shall be (in addition to those set forth in the Corporation's
Certificate of Incorporation, as amended) as set forth below.
1. Certain Definitions.
-------------------
Unless the context otherwise requires, the terms defined in this
paragraph l shall have, for all purposes of this resolution, the meanings herein
specified.
"Board of Directors" means the board of directors of the Corporation.
------------------
"Business Day" means any day which is not a Legal Holiday.
------------
"Capital Stock" means any and all shares, interests, participations or
--------------
other equivalents (however designated) of corporate stock, including
without limitation all common stock and preferred stock.
"Change of Control" means (i) the sale, lease or transfer of all or
-----------------
substantially all of the Corporation's assets to any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), (ii) the
liquidation or dissolution of the Corporation, (iii) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than a Permitted Holder) of a direct or indirect interest in
Voting Securities of the Corporation representing a majority (more than
50%) of the aggregate Voting Power of the outstanding Voting Securities of
the Corporation, by way of merger or consolidation or otherwise, (iv) any
transaction occurring prior to a Corporation IPO, as the result of which
(A) Permitted Holders do not own (and have the exclusive power to vote with
B-1-1
<PAGE>
respect to), directly or indirectly, Voting Securities representing at
least thirty-five percent (35%) of the aggregate Voting Power of the
outstanding Voting Securities of the Corporation, (B) any Person or group
(as such term is used in Section 13(d)(3) of the Exchange Act) (other than
Permitted Holders) owns (or has the power to vote with respect to),
directly or indirectly, Voting Securities representing more of the
aggregate Voting Power of the outstanding Voting Securities of the
Corporation than Permitted Holders or (C) Permitted Holders do not own
Equity Interests of the Corporation representing at least eighty-five
percent (85%) of the Equity Interests of the Corporation that are owned by
the Permitted Holders on the Closing Date (including any Equity Interests
of the Corporation issued in respect thereof after the Closing Date
pursuant to a stock dividend, a stock split, recapitalization or
otherwise), (v) any transaction occurring after a Corporation IPO, as the
result of which (A) any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act) owns, directly or indirectly, Voting
Securities representing more of the aggregate Voting Power of the
outstanding Voting Securities of the Corporation than Permitted Holders, or
(B) Permitted Holders do not own (and have the exclusive power to vote with
respect to), directly or indirectly, Voting Securities representing at
least twenty percent (20%) of the aggregate Voting Power of the outstanding
Voting Securities of the Corporation and Equity Interests of the
Corporation representing at least fifty percent (50%) of the Equity
Interests of the Corporation that are owned by the Permitted Holders on the
Closing Date (including any Equity Interests of the Corporation issued in
respect thereof after the Closing Date pursuant to a stock dividend, a
stock split, recapitalization or otherwise), (vi) any transaction, as the
result of which the Corporation owns (or has the exclusive power to vote
with respect to), directly or indirectly, less than 100% of the Capital
Stock of its Subsidiaries or (vii) the replacement of a majority of the
Board of Directors over a two-year period from the directors who
constituted the Board of Directors at the beginning of such period, and
such replacement shall not have been approved by a vote of at least a
majority of the Board of Directors then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Common Equity" means all shares now or hereafter authorized of any
-------------
class of common stock of the Corporation and any other stock of the
Corporation, howsoever designated, authorized after the Initial Issue Date,
that has the right (subject always to prior rights of any class or series
of preferred stock) to participate in the distribution of the assets and
earnings of the Corporation without limit as to per share amount.
"Common Stock" means all classes of common stock of the Corporation.
------------
"Corporation IPO" means the first sale to the public of Capital Stock
---------------
of the Corporation pursuant to a registration statement under the
Securities Act with a public offering price of at least $50,000,000
pursuant to a registration statement under the Securities Act, which shall
result in the listing of such Capital Stock on the New York Stock Exchange
or the American Stock Exchange or the quotation of such Capital Stock on
the Nasdaq National Market.
"Dividend Payment Date" has the meaning given to such term in
---------------------
subparagraph 2(b) below.
"Dividend Period" has the meaning given to such term in subparagraph
---------------
2(c) below.
"Equity Interest" means (i) with respect to a corporation, any and all
---------------
Capital Stock or warrants, options or other rights to acquire Capital Stock
(but excluding any debt security which is convertible into, or exchangeable
or exercisable for, Capital Stock) and (ii) with respect to a partnership,
limited liability company or similar Person, any and all units, interests,
rights to
B-1-2
<PAGE>
purchase, warrants, options or other equivalents of, or other ownership
interests in any such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
from time to time, and any successor statute or law thereto.
"Initial Issue Date" means the date on which shares of CRPS are first
------------------
issued.
"Junior Stock" means Common Equity and any class or series of stock of
------------
the Corporation authorized after the Initial Issue Date for which the
Certificate of Incorporation or the applicable certificate of designation
does not expressly provide that such class or series is entitled to receive
(a) any dividends on a parity with or senior to the CRPS and (b) any assets
upon liquidation, dissolution or winding up of the affairs of the
Corporation on a parity with or senior to the CRPS.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
-------------
trust companies in the principal place of business of the Corporation or in
New York are not required to be open.
"Liquidation Preference" means with respect to each share of CRPS,
----------------------
$l,000.
"Parity Stock" means the RPS and any class or series of stock of the
------------
Corporation authorized after the Initial Issue Date for which the
Certificate of Incorporation or the applicable Certificate of Designation
expressly provides that such class or series is entitled to receive (a)
payment of dividends on a parity with the CRPS or (b) assets upon
liquidation, dissolution or winding up of the affairs of the Corporation on
a parity with the CRPS; provided that any such securities (other than the
RPS) that were not approved by the holders of the CRPS in accordance with
this Certificate of Designation shall be deemed to be Junior Stock and not
Parity Stock.
"Permitted Holders" means Thomas A. Price and Donald V. Strough,
-----------------
collectively or any trustee in its capacity as trustee of a trust of which
any of the spouse, siblings, lineal descendants or parents of either of Mr.
Price or Mr. Strough is the beneficiary; provided that Mr. Price or Mr.
Strough retains sole Voting Power with respect to the securities held by
such trustee in such trust, unless such trust was established pursuant to
and in conformity with Section 4.4(c) of the Stockholders' Agreement dated
as of July 8, 1997 among the Company and its stockholders.
"Person" means any individual, corporation, partnership, limited
------
liability company, joint venture, association, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means the CRPS and the RPS.
---------------
"Purchase Agreement" means that certain Securities Purchase Agreement,
------------------
dated as of July 8, 1997, by and among the Corporation, certain
Subsidiaries of the Corporation and the purchasers identified on the
signature pages thereto, relating to the issuance and sale by the
Corporation of its 12_% Senior Notes due June 30, 2005, shares of CRPS,
shares of RPS and shares of Common Stock, as such agreement may be amended
from time to time.
"Record Date" has the meaning given to such term in subparagraph 2(c)
-----------
below.
B-1-3
<PAGE>
"RPS" means the Redeemable Preferred Stock due 2005 of the
---
Corporation.
"SEC" means the Securities and Exchange Commission and any government
---
agency succeeding to its functions.
"Securities Act" means the Securities Act of 1933, as amended, and all
--------------
rules and regulations promulgated by the SEC thereunder.
"Semiannual Dividend Period" has the meaning given to such term in
--------------------------
subparagraph 2(c) below.
"Senior Stock" means any class or series of stock of the Corporation
------------
authorized after the Initial Issue Date for which the Certificate of
Incorporation or applicable Certificate of Designation expressly provides
that such class or series ranks senior to the CRPS in respect of the right
to receive dividends or senior to the CRPS in respect of the right to
participate in any distribution upon liquidation, dissolution or winding up
of the affairs of the Corporation; provided that any such securities that
were not approved by the holders of CRPS in accordance with this
Certificate of Designation shall be deemed to be Junior Stock and not
Senior Stock.
"share" means a whole share of CRPS.
-----
"Subsidiary" means, with respect to any Person, (i) a corporation, a
----------
majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is, at the date of determination,
directly or indirectly, owned by such Person, by one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries of such
Person or (ii) a partnership in which such Person or a Subsidiary of such
Person is, at the date of determination, a general or limited partner of
such partnership, but, in the case of a limited partner, only if such
Person or its Subsidiary is entitled to receive more than 50% of the assets
of such partnership upon its dissolution, or (iii) any limited liability
company or any other Person (other than a corporation or a partnership) in
which such Person, a Subsidiary of such Person or such Person and one or
more Subsidiaries of such Person, directly or indirectly, at the date of
determination, has (a) at least a majority ownership interest or (b) the
power to elect or direct the election of a majority of the directors or
other governing body of such Person.
"Voting Securities" means any class of Equity Interests of a Person
-----------------
pursuant to which the holders thereof have, at the time of determination,
the general voting power ("Voting Power") under ordinary circumstances to
------------
vote for the election of directors, managers, trustees or general partners
of such Person (regardless of whether at such time any other class or
classes will have or might have voting power by reason of the happening of
any contingency).
2. Dividends.
---------
(a) The record holders of CRPS shall be entitled to receive, when and
as declared by the Board of Directors, out of funds of the Corporation
legally available therefor, cash dividends on
B-1-4
<PAGE>
the CRPS, at an annual rate equal to 8% of the Liquidation Preference
(equivalent to $80.00 per annum per share of CRPS); provided, however, that
if any such dividends are not paid in full on any Dividend Payment Date,
regardless of whether they have been declared by the Board of Directors, or
any such dividends or the redemption price is not paid in full on the
Mandatory Redemption Date, then cash dividends on the CRPS shall accrue and
be cumulative at an annual rate of 14% of the Liquidation Preference
(equivalent to $140.00 per annum per share of CRPS), from the beginning of
the Semiannual Dividend Period with respect to which such dividends would
have been payable had they been declared by the Board of Directors through
and including the date on which all such dividends or redemption price, as
the case may be, have been paid in full.
(b) Dividends shall accrue and be cumulative as to any share of CRPS
from the date on which such share is first issued. Dividends on the CRPS
shall be payable in arrears, regardless of whether declared by the Board of
Directors, on May 31 and November 30 of each year (a "Dividend Payment
----------------
Date"), commencing on November 30, 1997. Dividends shall be paid to the
holders of record of the CRPS as their names shall appear on the share
register of the Corporation on the Record Date for such dividend.
Dividends on the CRPS payable in any Dividend Period that is less than a
full Semiannual Dividend Period in length will be computed on the basis of
a 360-day year comprised of twelve 30-day months. Dividends on the CRPS on
account of arrears for any past Dividend Periods may be declared and paid
at any time to holders of record on the Record Date for such dividend on
account of arrears.
(c) As used herein, the following terms shall have the respective
meanings set forth below:
(i) "Dividend Period" means as to any share of CRPS the initial
---------------
period from its date on which such share is first issued through and
including the next Dividend Payment Date or any Semiannual Dividend
Period thereafter, as the case may be;
(ii) "Semiannual Dividend Period" means each of the periods
--------------------------
commencing on June 1 and December 1 in each year and ending on (and
including) the day next preceding the first day of the next Semiannual
Dividend Period; and
(iii) "Record Date" means with respect to the dividend payable
-----------
on May 31 or November 30 of each year, the preceding May 15 or
November 15, respectively, or such other date as may be designated by
the Board of Directors with respect to the dividend payable on such
respective Dividend Payment Date.
(d) So long as any shares of CRPS shall be outstanding, the
Corporation shall not declare or pay or set apart for payment any dividends
or make any other distributions on, or make payment on account of the
purchase, redemption or other retirement of, any Junior Stock, whether in
cash, property or otherwise (other than dividends or distributions payable
in shares of the class or series upon which such dividends or distributions
are declared or paid, or payable in shares of Common Stock with respect to
Junior Stock other than Common Stock, together with cash in lieu of
fractional shares), nor shall the Corporation make any distribution on any
Junior Stock, nor shall any Junior Stock be purchased or redeemed or
otherwise acquired by the Corporation or any of its Subsidiaries, nor shall
any monies be paid or made available for a sinking fund for the purchase or
B-1-5
<PAGE>
redemption of any Junior Stock, unless with respect to all of the foregoing
all dividends to which the holders of CRPS shall have been entitled for all
previous Dividend Periods, regardless of whether declared by the Board of
Directors, shall have been paid or declared and a sum of money sufficient
for payment thereof have been set apart.
(e) In the event that full dividends are not paid or made available
to the holders of all outstanding shares of CRPS and of any Parity Stock
and funds available for payment of dividends shall be insufficient to
permit payment in full to holders of all such stock of the full
preferential amounts to which they are then entitled, then the entire
amount available for payment of dividends shall be distributed ratably
among all such holders of CRPS and of any Parity Stock in proportion to the
full amount to which they would otherwise be respectively entitled.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
(a) If the Corporation or any Subsidiary of the Corporation shall
commence a voluntary case under the United States bankruptcy laws or any
applicable bankruptcy, insolvency or similar law of any other country, or
consent to the entry of an order for relief in an involuntary case under
any such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the
Corporation or such Subsidiary or of any substantial part of its property,
or make an assignment for the benefit of its creditors, or admit in writing
its inability to pay its debts generally as they become due, or if a decree
or order for relief in respect of the Corporation or such Subsidiary shall
be entered by a court having jurisdiction in the premises in an involuntary
case under the United States bankruptcy laws or any applicable bankruptcy,
insolvency or similar law of any other country, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or such Subsidiary or of any substantial part
of its property, or ordering the winding up or liquidation of its affairs,
and on account of any such event the Corporation or such Subsidiary shall
liquidate, dissolve or wind up, or if the Corporation or such Subsidiary
shall otherwise liquidate, dissolve or wind up, then no distribution shall
be made to the holders of shares of Junior Stock unless, prior thereto, the
holders of shares of CRPS shall have received the Liquidation Preference
per share of CRPS plus all dividends accumulated and unpaid thereon
(regardless of whether earned or declared) to the date of such liquidation
or dissolution or such other winding up.
(b) If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation the assets of the Corporation shall be
insufficient to permit the payment in full of the amount payable pursuant
to clause (a) of this Section 3 and the full liquidating payments on all
Parity Stock, then the assets of the Corporation shall be ratably
distributed among the holders of CRPS and of any Parity Stock in proportion
to the full amounts to which they would otherwise be respectively entitled
if all amounts thereon were paid in full.
(c) Written notice of any such liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when, and the place
or places where the amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage pre-paid, not less
than 30 nor more than 60 days' prior to the payment date stated therein, to
each record holder of the shares of CRPS at the respective addresses of
such holders as the same shall appear on the stock transfer records of the
Corporation.
B-1-6
<PAGE>
(d) Neither the consolidation or merger of the Corporation into or
with another corporation or corporations, nor the sale of all or
substantially all of the assets of the Corporation to another corporation
or any other entity shall be deemed a liquidation, dissolution or winding
up of the affairs of the Corporation within the meaning of this paragraph
3.
4. Optional Redemption.
-------------------
(a) All the CRPS, or any part thereof, at any time outstanding, may
be redeemed by the Corporation, at any time or from time to time at its
election expressed by resolution of the Board of Directors upon not less
than 30 nor more than 60 days' previous notice to the holders of record of
the CRPS to be redeemed, given by registered or certified mail, postage
prepaid, at the redemption prices per share (expressed in percentages of
the Liquidation Preference) set forth below during the 12-month periods
beginning on June 30 of the years shown below, in each case plus
accumulated and unpaid dividends to the date fixed for redemption,
regardless of whether declared by the Board of Directors.
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1997........................ 110.000%
1998........................ 108.750
1999........................ 107.500
2000........................ 106.250
2001........................ 105.000
2002........................ 103.750
2003........................ 102.500
2004........................ 101.250
2005........................ 100.000
</TABLE>
(b) Any notice of redemption mailed to a holder of CRPS at his address
as the same appears on the books of the Corporation shall be conclusively
presumed to have been given regardless of whether the holder receives the
notice. Each such notice shall state the redemption date; the number of
shares of CRPS to be redeemed, and, if less than all shares of the CRPS
held by such holder are to be redeemed, the number of such shares to be
redeemed from such holder and the fact that a new certificate or
certificates representing any unredeemed shares shall be issued without
cost to such holder; and that the redemption price applicable to the shares
to be redeemed shall cease to accrue and accumulate on the redemption date.
No defect in any such notice as to any shares of CRPS shall affect the
validity of the proceedings for the redemption of any other shares of CRPS.
(c) The Corporation may not purchase or redeem less than all of the
outstanding shares of CRPS and any other series of Parity Stock, unless all
cumulating or accrued dividends with respect to the shares of CRPS and any
Parity Stock which shall not be so redeemed or purchased have either been
paid or set aside for payment.
(d) If less than all of the outstanding shares of CRPS are to be
redeemed, the shares to
B-1-7
<PAGE>
be redeemed will be determined pro rata, except that the Corporation may
redeem such shares held by any holders of fewer than 10 shares (or shares
held by holders who would hold less than 10 shares as a result of such
redemption), as may be determined by the Corporation.
(e) Any shares of CRPS called for redemption pursuant to this
paragraph 4 shall not be deemed to be outstanding for the purposes of
voting, determining the total number of shares entitled to vote, or payment
of dividends thereon on or after the redemption date set forth in the
notice of redemption mailed to the holders thereof, unless the Corporation
fails to pay the redemption price to the holders of such shares on such
date.
5. Mandatory Redemption.
--------------------
(a) The Corporation shall redeem for cash all of the shares of the
CRPS then outstanding on June 30, 2005 (the "Mandatory Redemption Date"),
-------------------------
at a redemption price equal to the Liquidation Preference per share plus
accumulated and unpaid dividends to such date, regardless of whether
declared by the Board of Directors. The Corporation shall send a written
notice of redemption by first class mail to each holder of record of a
share of CRPS, not fewer than 30 days nor more than 60 days prior to the
Mandatory Redemption Date. Notice shall be given pursuant to paragraph
4(b) hereof.
(b) From and after June 30, 2005 (unless a default shall be made by
the Corporation in paying the redemption price on the Mandatory Redemption
Date for the shares of CRPS under this paragraph 5), dividends on the
shares of CRPS shall cease to accrue, and said shares shall no longer be
deemed to be outstanding.
6. Voting Rights.
-------------
(a) The holders of the issued and outstanding shares of CRPS shall
have no voting rights except as set forth below, in paragraph 14, and as
required by law.
(b)
(i) Without the affirmative vote or consent of the holders of
at least two-thirds of the votes entitled to be cast by the
outstanding shares of CRPS, voting as a single class, the Corporation
may not amend, alter or repeal any provision of the Certificate of
Incorporation or this Certificate of Designation or the bylaws of the
Corporation or of any certificate amendatory thereof or supplemental
thereto so as to affect adversely any of the voting powers or other
rights, preferences, powers or privileges of the CRPS or of the
holders of the shares of CRPS; and
(ii) Without the affirmative vote or consent of the holders of
at least a majority of the votes entitled to be cast by the
outstanding shares of Preferred Stock, voting together as a single
class:
(A) the Corporation may not create any class of Parity
Stock or Senior Stock or issue any additional shares of Preferred
Stock; and
B-1-8
<PAGE>
(B) the Corporation may not enter into any transaction
which violates, or otherwise violate, any of the covenants of the
Corporation set forth in Sections 5.2, 5.3, 5.4, 5.5, 5.6, 5.7,
5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.15, 5.16, 5.17, 5.18, 5.19,
5.20, 5.21, 5.22, 5.23, 5.24, 5.25, 5.28, 5.29, 5.30, 5.31, and
5.32 of the Purchase Agreement.
(c) For purposes of this paragraph 6, each share of Preferred Stock
shall have one vote per share.
7. Stated Capital. The Board of Directors shall allocate to the stated
--------------
capital account for the CRPS an amount equal to the Liquidation Preference of
the CRPS and shall not allow any reduction in the amount of stated capital for
such CRPS except to the extent shares of CRPS are redeemed in accordance with
the terms hereof.
8. Exclusion of Other Rights. Except as may otherwise be required by law,
-------------------------
the shares of CRPS shall not have any preferences or relative, participating,
optional or other special rights, other than those specifically set forth in
this resolution (as such resolution may be amended from time to time) and in the
Certificate of Incorporation of the Corporation, as amended. The shares of CRPS
shall have no preemptive or subscription rights.
9. Headings of Subdivisions. The headings of the various subdivisions
------------------------
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
10. Severability of Provisions. If any right, preference or limitation of
--------------------------
the CRPS set forth in this Certificate of Designation (as such Certificate of
Designation may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
rights, preferences and limitations set forth in this resolution (as so amended)
which can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
11. Status of Reacquired Shares. Shares of CRPS which have been issued and
---------------------------
reacquired shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued shares of
preferred stock of the Corporation issuable in series undesignated as to series
and may be redesignated and issued or reissued as the case may be, as part of
any series of preferred stock of the Corporation; except that such shares may
not be reissued or sold as shares of CRPS, Parity Stock or Senior Stock.
12. Purchase Agreement and Indenture. The Corporation shall at all times
--------------------------------
keep a copy of the Purchase Agreement available at its corporate headquarters
for inspection by its stockholders and other Persons.
13. Change of Control.
-----------------
(a) In the event that there is a Change of Control (the date of such
Change of Control being the "Trigger Date"), the Corporation shall promptly
------------
notify the holders of the CRPS in writing
B-1-9
<PAGE>
of such occurrence and shall make an offer to redeem (the "Change of
---------
Control Offer") all the shares of CRPS then outstanding at a purchase price
-------------
per share equal to 101% of the Liquidation Preference for each outstanding
share of CRPS, plus accumulated and unpaid dividends thereon to and
including the Change of Control Payment Date (as defined below).
(b) Notice of a Change of Control Offer shall be mailed by the
Corporation by overnight courier not more than 30 days after the Trigger
Date to the holders of the CRPS at their addresses as they appear on the
books of the Corporation. The Change of Control Offer shall remain open
from the time of mailing until the Change of Control Payment Date. The
notice shall contain all instructions and materials necessary to enable
such holders to tender shares of CRPS pursuant to the Change of Control
Offer. The notice, which shall govern the terms of the Change of Control
Offer, shall state:
(i) that a Change of Control has occurred, including a
description in reasonable detail of such Change of Control;
(ii) that the Change of Control Offer is being made pursuant to
this paragraph 13, and that all shares of CRPS will be accepted for
payment;
(iii) the purchase price for the CRPS and the Change of Control
Payment Date, which shall be no earlier than 30 days nor later than 40
days from the date notice of the Change of Control Offer is mailed by
the Corporation (the "Change of Control Payment Date");
------------------------------
(iv) that any shares of CRPS not tendered will continue to
accumulate dividends;
(v) that, unless the Corporation defaults in the payment of
the Change of Control Payment, any shares of CRPS accepted for
redemption pursuant to the Change of Control Offer shall cease to
accumulate dividends on and after the Change of Control Payment Date;
(vi) that holders of CRPS electing to have a share of CRPS
redeemed pursuant to a Change of Control Offer will be required to
surrender the share of CRPS to the paying agent at the address
specified in the notice (the "Paying Agent") prior to close of
------------
business on the third Business Day preceding the Change of Control
Payment Date;
(vii) that holders of CRPS will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder of CRPS, the number of shares of
CRPS delivered for redemption and a statement that such holder is
withdrawing his or her election to have such shares of CRPS redeemed;
and
(viii) that a holder of CRPS who does not accept in writing the
Corporation's offer to redeem the shares of CRPS
held by such holder by submitting the shares of CRPS
B-1-10
<PAGE>
shall be deemed to have declined to have its shares of CRPS so
redeemed.
(c) On the Change of Control Payment Date, the Corporation shall, to
the extent lawful, (i) accept for payment shares of CRPS tendered pursuant
to the Change of Control Offer and (ii) deposit with the Paying Agent money
sufficient to pay the redemption price of all shares of CRPS so tendered.
The Corporation will notify the remaining holders of CRPS of the results of
the Change of Control Offer on or as soon as practicable after the Change
of Control Payment Date.
14. Board of Directors.
------------------
(a) In the event that (i) dividends on the CRPS are in arrears and
unpaid for two or more consecutive Semiannual Dividend Periods, regardless
of whether declared by the Board of Directors, or (ii) the Corporation
shall have failed to discharge its obligations to mandatorily redeem all of
the outstanding Preferred Stock at the price and time required by paragraph
5 (the occurrence of either such event, a "Trigger Event"), then, and in
-------------
any such event, the holders of the Preferred Stock, voting separately as a
class, shall be entitled, at the next annual meeting of the stockholders or
at any special meeting, to elect one member of the Board of Directors.
Upon election, such director shall become a member of the Board of
Directors and the authorized number of members of the Board of Director
shall thereupon be automatically increased by one. Such right of the
holders of Preferred Stock to elect such director may be exercised until,
as applicable, (i) all dividends to which the holders of CRPS shall have
been entitled for all previous Dividend Periods, regardless of whether
declared by the Board of Directors, shall have been paid in full, and
dividends for the current Dividend Period declared and a sum of money
sufficient for the payment thereof have been set apart for payment or (ii)
the Corporation fulfills its obligation to redeem all the remaining
outstanding shares of Preferred Stock under paragraph 5 hereof, and when
such events occur, the right of the holders of Preferred Stock to elect
such director shall cease, the term of such director previously elected
shall thereupon terminate, and the authorized number of members of the
Board of Directors shall thereupon return to the number of authorized
directors otherwise in effect, but subject always to the same provisions
for the renewal and divestment of such special voting rights in the case of
any such future default or defaults specified herein. The fact that
dividends have been paid and set apart as required by the preceding
sentence shall be evidenced by a certificate executed by the President and
the Chief Financial Officer of the Corporation and delivered to the Board
of Directors. In the event a member of the Board of Directors is elected
due to a nonpayment of dividends as set forth herein, the director so
elected by holders of the Preferred Stock shall serve until the certificate
described in the preceding sentence shall have been delivered to the Board
of Directors or until their respective successors shall be elected or
appointed.
(b) At any time when such special voting rights have been so vested in
the holders of the Preferred Stock, the Secretary of the Corporation may,
and upon the written request of the holders of record of a majority of the
number of shares of the Preferred Stock then outstanding addressed to such
Secretary at the principal office of the Corporation shall, call a special
meeting of the holders of the Preferred Stock for the election of the
directors to be elected by them as hereinabove provided, to be held in the
case of such written request within 40 days after delivery of such request,
and in either case to be held at the place and upon the notice provided by
law and in the Corporation's Bylaws for the holding of meetings of
stockholders; provided, however, that the
B-1-11
<PAGE>
Secretary shall not be required to call such a special meeting if any such
request is received less than 90 days before the date fixed for the next
ensuing annual or special meeting of stockholders.
(c) The Board of Directors may not, except to satisfy the provisions
of this paragraph 14, be increased to more than 6 members.
(d) The Corporation shall reimburse promptly all directors elected
pursuant to this paragraph 14 for all reasonable expenses incurred by such
directors in connection with their attendance at meetings of the Board of
Directors and any committees thereof.
15. Rank. The CRPS shall, with respect to dividend distributions and
----
distributions upon liquidation, dissolution or winding up of the Corporation,
rank senior to all classes of Common Stock of the Corporation and, subject to
the preference and other rights of the Senior Stock and the Parity Stock, to
each other class of Capital Stock of the Corporation now or hereafter created.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and attested by its Secretary on July 7, 1997.
FIRSTAMERICA AUTOMOTIVE, INC.
By:__________________________
Thomas A. Price
President
Attest:
___________________________
W. Bruce Bercovich
Secretary
B-1-12
<PAGE>
Annex B-2
---------
FirstAmerica Automotive, Inc.
Certificate of Designation of Preferences
of
Redeemable Preferred Stock due 2005
The undersigned does hereby certify that the following resolution was
duly adopted by the board of directors of FirstAmerica Automotive, Inc., a
Delaware corporation (the "Corporation"), pursuant to a unanimous written
-----------
consent dated as of July 7, 1997.
RESOLVED, that pursuant to the authority vested in the board of
directors of the Corporation by the Corporation's Certificate of Incorporation,
as amended, a series of preferred stock of the Corporation be, and it hereby is,
created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated Redeemable Preferred Stock due 2005
(the "RPS"), to consist of 500 shares, par value $0.00001 per share, which may
---
be issued only as whole shares, of which the preferences and relative and other
rights, and the qualifications, limitations or restrictions thereof, shall be
(in addition to those set forth in the Corporation's Certificate of
Incorporation, as amended) as set forth below.
1. Certain Definitions.
-------------------
Unless the context otherwise requires, the terms defined in this
paragraph l shall have, for all purposes of this resolution, the meanings herein
specified.
"Board of Directors" means the board of directors of the Corporation.
------------------
"Business Day" means any day which is not a Legal Holiday.
------------
"Capital Stock" means any and all shares, interests, participations or
--------------
other equivalents (however designated) of corporate stock, including
without limitation all common stock and preferred stock.
"Change of Control" means (i) the sale, lease or transfer of all or
-----------------
substantially all of the Corporation's assets to any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), (ii) the
liquidation or dissolution of the Corporation, (iii) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than a Permitted Holder) of a direct or indirect interest in
Voting Securities of the Corporation representing a majority (more than
50%) of the aggregate Voting Power of the outstanding Voting Securities of
the Corporation, by way of merger or consolidation or otherwise, (iv) any
transaction occurring prior to a Corporation IPO, as the result of which
(A) Permitted Holders do not own (and have the exclusive power to vote with
respect to), directly or indirectly, Voting Securities representing at
least thirty-five percent (35%) of the aggregate Voting Power of the
outstanding Voting Securities of the Corporation, (B) any Person or group
(as such term is used in Section 13(d)(3) of the Exchange Act) (other than
Permitted Holders) owns (or has the power to vote with
B-2-1
<PAGE>
respect to), directly or indirectly, Voting Securities representing more of
the aggregate Voting Power of the outstanding Voting Securities of the
Corporation than Permitted Holders or (C) Permitted Holders do not own
Equity Interests of the Corporation representing at least eighty-five
percent (85%) of the Equity Interests of the Corporation that are owned by
the Permitted Holders on the Closing Date (including any Equity Interests
of the Corporation issued in respect thereof after the Closing Date
pursuant to a stock dividend, a stock split, recapitalization or
otherwise), (v) any transaction occurring after a Corporation IPO, as the
result of which (A) any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act) owns, directly or indirectly, Voting
Securities representing more of the aggregate Voting Power of the
outstanding Voting Securities of the Corporation than Permitted Holders, or
(B) Permitted Holders do not own (and have the exclusive power to vote with
respect to), directly or indirectly, Voting Securities representing at
least twenty percent (20%) of the aggregate Voting Power of the outstanding
Voting Securities of the Corporation and Equity Interests of the
Corporation representing at least fifty percent (50%) of the Equity
Interests of the Corporation that are owned by the Permitted Holders on the
Closing Date (including any Equity Interests of the Corporation issued in
respect thereof after the Closing Date pursuant to a stock dividend, a
stock split, recapitalization or otherwise), (vi) any transaction, as the
result of which the Corporation owns (or has the exclusive power to vote
with respect to), directly or indirectly, less than 100% of the Capital
Stock of its Subsidiaries or (vii) the replacement of a majority of the
Board of Directors over a two-year period from the directors who
constituted the Board of Directors at the beginning of such period, and
such replacement shall not have been approved by a vote of at least a
majority of the Board of Directors then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Common Equity" means all shares now or hereafter authorized of any
-------------
class of common stock of the Corporation and any other stock of the
Corporation, howsoever designated, authorized after the Initial Issue Date,
that has the right (subject always to prior rights of any class or series
of preferred stock) to participate in the distribution of the assets and
earnings of the Corporation without limit as to per share amount.
"Common Stock" means all classes of common stock of the Corporation.
------------
"Corporation IPO" means the first sale to the public of Capital Stock
---------------
of the Corporation pursuant to a registration statement under the
Securities Act with a public offering price of at least $50,000,000
pursuant to a registration statement under the Securities Act, which shall
result in the listing of such Capital Stock on the New York Stock Exchange
or the American Stock Exchange or the quotation of such Capital Stock on
the Nasdaq National Market.
"CRPS" means the 8% Cumulative Redeemable Preferred Stock due 2005 of
----
the Corporation.
"Equity Interest" means (i) with respect to a corporation, any and all
---------------
Capital Stock or warrants, options or other rights to acquire Capital Stock
(but excluding any debt security which is convertible into, or exchangeable
or exercisable for, Capital Stock) and (ii) with respect to a partnership,
limited liability company or similar Person, any and all units, interests,
rights to purchase, warrants, options or other equivalents of, or other
ownership interests in any such Person.
B-2-2
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
from time to time, and any successor statute or law thereto.
"Initial Issue Date" means the date on which shares of RPS are first
------------------
issued.
"Junior Stock" means Common Equity and any class or series of stock of
-------------
the Corporation authorized after the Initial Issue Date for which the
Certificate of Incorporation or the applicable certificate of designation
does not expressly provide that such class or series is entitled to receive
any assets upon liquidation, dissolution or winding up of the affairs of
the Corporation on a parity with or senior to the RPS.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
-------------
trust companies in the principal place of business of the Corporation or in
New York are not required to be open.
"Liquidation Preference" means with respect to each share of RPS, on
-----------------------
any date after the Initial Issue Date as of which the Liquidation
Preference of the RPS is being calculated (the "Calculation Date"), the
----------------
amount shown in the table below corresponding to the 12-month period
beginning on June 30 of a year shown below in which the Calculation Date
occurs.
<TABLE>
<CAPTION>
Year Liquidation Preference
---- ----------------------
<S> <C>
1997 $1080
1998 1160
1999 1240
2000 1320
2001 1400
2002 1480
2003 1560
2004 1640
2005 1720
</TABLE>
"Parity Stock" means the CRPS and any class or series of stock of the
------------
Corporation authorized after the Initial Issue Date for which the
Certificate of Incorporation or the applicable Certificate of Designation
expressly provides that such class or series is entitled to receive assets
upon liquidation, dissolution or winding up of the affairs of the
Corporation on a parity with the RPS; provided that any such securities
(other than the CRPS) that were not approved by the holders of the RPS in
accordance with this Certificate of Designation shall be deemed to be
Junior Stock and not Parity Stock.
"Permitted Holders" means Thomas A. Price and Donald V. Strough,
-----------------
collectively or any trustee in its capacity as trustee of a trust of which
any of the spouse, siblings, lineal descendants or
B-2-3
<PAGE>
parents of either of Mr. Price or Mr. Strough is the beneficiary; provided
that Mr. Price or Mr. Strough retains sole Voting Power with respect to the
securities held by such trustee in such trust, unless such trust was
established pursuant to and in conformity with Section 4.4(c) of the
Stockholders' Agreement dated as of July 8, 1997 among the Company and its
stockholders.
"Person" means any individual, corporation, partnership, limited
------
liability company, joint venture, association, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means the CRPS and the RPS.
---------------
"Purchase Agreement" means that certain Securities Purchase Agreement,
------------------
dated as of July 8, 1997, by and among the Corporation, certain
Subsidiaries of the Corporation and the purchasers identified on the
signature pages thereto, relating to the issuance and sale by the
Corporation of its 12_% Senior Notes due June 30, 2005, shares of CRPS,
shares of RPS and shares of Common Stock, as such agreement may be amended
from time to time.
"Record Date" has the meaning given to such term in subparagraph 2(c)
-----------
below.
"SEC" means the Securities and Exchange Commission and any government
---
agency succeeding to its functions.
"Securities Act" means the Securities Act of 1933, as amended, and all
--------------
rules and regulations promulgated by the SEC thereunder.
"Senior Stock" means any class or series of stock of the Corporation
------------
authorized after the Initial Issue Date for which the Certificate of
Incorporation or applicable Certificate of Designation expressly provides
that such class or series ranks senior to the RPS in respect of the right
to participate in any distribution upon liquidation, dissolution or winding
up of the affairs of the Corporation; provided that any such securities
that were not approved by the holders of RPS in accordance with this
Certificate of Designation shall be deemed to be Junior Stock and not
Senior Stock.
"share" means a whole share of RPS.
-----
"Subsidiary" means, with respect to any Person, (i) a corporation, a
----------
majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is, at the date of determination,
directly or indirectly, owned by such Person, by one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries of such
Person or (ii) a partnership in which such Person or a Subsidiary of such
Person is, at the date of determination, a general or limited partner of
such partnership, but, in the case of a limited partner, only if such
Person or its Subsidiary is entitled to receive more than 50% of the assets
of such partnership upon its dissolution, or (iii) any limited liability
company or any other Person (other than a corporation or a partnership) in
which such Person, a Subsidiary of such Person or such Person and one or
more Subsidiaries of such Person, directly or indirectly, at the date of
determination, has (a) at least a majority ownership interest or (b) the
power to elect or direct the election of a majority of the
B-2-4
<PAGE>
directors or other governing body of such Person.
"Voting Securities" means any class of Equity Interests of a Person
-----------------
pursuant to which the holders thereof have, at the time of determination,
the general voting power ("Voting Power") under ordinary circumstances to
------------
vote for the election of directors, managers, trustees or general partners
of such Person (regardless of whether at such time any other class or
classes will have or might have voting power by reason of the happening of
any contingency).
2. Dividends.
---------
The holders of RPS shall not be entitled to receive any dividends on
the RPS.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
(a) If the Corporation or any Subsidiary of the Corporation shall
commence a voluntary case under the United States bankruptcy laws or any
applicable bankruptcy, insolvency or similar law of any other country, or
consent to the entry of an order for relief in an involuntary case under
any such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the
Corporation or such Subsidiary or of any substantial part of its property,
or make an assignment for the benefit of its creditors, or admit in writing
its inability to pay its debts generally as they become due, or if a decree
or order for relief in respect of the Corporation or such Subsidiary shall
be entered by a court having jurisdiction in the premises in an involuntary
case under the United States bankruptcy laws or any applicable bankruptcy,
insolvency or similar law of any other country, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or such Subsidiary or of any substantial part
of its property, or ordering the winding up or liquidation of its affairs,
and on account of any such event the Corporation or such Subsidiary shall
liquidate, dissolve or wind up, or if the Corporation or such Subsidiary
shall otherwise liquidate, dissolve or wind up, then no distribution shall
be made to the holders of shares of Junior Stock unless, prior thereto, the
holders of shares of RPS shall have received the Liquidation Preference per
share of RPS.
(b) If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation the assets of the Corporation shall be
insufficient to permit the payment in full of the amount payable pursuant
to clause (a) of this Section 3 and the full liquidating payments on all
Parity Stock, then the assets of the Corporation shall be ratably
distributed among the holders of RPS and of any Parity Stock in proportion
to the full amounts to which they would otherwise be respectively entitled
if all amounts thereon were paid in full.
(c) Written notice of any such liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when, and the place
or places where the amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage pre-paid, not less
than 30 nor more than 60 days' prior to the payment date stated therein, to
each record holder of the shares of RPS at the respective addresses of such
holders as the same shall appear on the stock transfer records of the
Corporation.
(d) Neither the consolidation or merger of the Corporation into or
with another
B-2-5
<PAGE>
corporation or corporations, nor the sale of all or substantially all of
the assets of the Corporation to another corporation or any other entity
shall be deemed a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this paragraph 3.
4. Optional Redemption.
-------------------
(a) All the RPS, or any part thereof, at any time outstanding, may be
redeemed by the Corporation, at any time or from time to time at its
election expressed by resolution of the Board of Directors upon not less
than 30 nor more than 60 days' previous notice to the holders of record of
the RPS to be redeemed, given by registered or certified mail, postage
prepaid, at the redemption prices per share (expressed in percentages of
the Liquidation Preference) set forth below during the 12-month periods
beginning on June 30 of the years shown below.
<TABLE>
<CAPTION>
Year Percentage
---- -----------
<S> <C>
1997.............................. 110.000%
1998.............................. 108.750
1999.............................. 107.500
2000.............................. 106.250
2001.............................. 105.000
2002.............................. 103.750
2003.............................. 102.500
2004.............................. 101.250
2005.............................. 100.000
</TABLE>
(b) Any notice of redemption mailed to a holder of RPS at his address
as the same appears on the books of the Corporation shall be conclusively
presumed to have been given regardless of whether the holder receives the
notice. Each such notice shall state the redemption date; the number of
shares of RPS to be redeemed, and, if less than all shares of the RPS held
by such holder are to be redeemed, the number of such shares to be redeemed
from such holder and the fact that a new certificate or certificates
representing any unredeemed shares shall be issued without cost to such
holder; and that the redemption price applicable to the shares to be
redeemed shall cease to accrue and accumulate on the redemption date. No
defect in any such notice as to any shares of RPS shall affect the validity
of the proceedings for the redemption of any other shares of RPS.
(c) The Corporation may not purchase or redeem less than all of the
outstanding shares of RPS and any other series of Parity Stock, unless all
cumulating or accrued dividends with respect any Parity Stock which shall
not be so redeemed or purchased have either been paid or set aside for
payment.
(d) If less than all of the outstanding shares of RPS are to be
redeemed, the shares to be redeemed will be determined pro rata, except
that the Corporation may redeem such shares held by any holders of fewer
than 10 shares (or shares held by holders who would hold less than 10
shares as a result of such redemption), as may be determined by the
Corporation.
B-2-6
<PAGE>
(e) Any shares of RPS called for redemption pursuant to this paragraph
4 shall not be deemed to be outstanding for the purposes of voting,
determining the total number of shares entitled to vote, or payment of
dividends thereon on or after the redemption date set forth in the notice
of redemption mailed to the holders thereof, unless the Corporation fails
to pay the redemption price to the holders of such shares on such date.
5. Mandatory Redemption.
--------------------
(a) The Corporation shall redeem for cash all of the shares of the RPS
then outstanding on June 30, 2005 (the "Mandatory Redemption Date"), at a
-------------------------
redemption price equal to the Liquidation Preference per share. The
Corporation shall send a written notice of redemption by first class mail
to each holder of record of a share of RPS, not fewer than 30 days nor more
than 60 days prior to the Mandatory Redemption Date. Notice shall be given
pursuant to paragraph 4(b) hereof.
(b) From and after June 30, 2005 (unless a default shall be made by
the Corporation in paying the redemption price on the Mandatory Redemption
Date for the shares of RPS under this paragraph 5), said shares shall no
longer be deemed to be outstanding.
6. Voting Rights.
-------------
(a) The holders of the issued and outstanding shares of RPS shall have
no voting rights except as set forth below, in paragraph 14, and as
required by law.
(b)
(i) Without the affirmative vote or consent of the holders of at
least two-thirds of the votes entitled to be cast by the outstanding
shares of RPS, voting as a single class, the Corporation may not
amend, alter or repeal any provision of the Certificate of
Incorporation or this Certificate of Designation or the bylaws of the
Corporation or of any certificate amendatory thereof or supplemental
thereto so as to affect adversely any of the voting powers or other
rights, preferences, powers or privileges of the RPS or of the holders
of the shares of RPS; and
(ii) Without the affirmative vote or consent of the holders of at
least a majority of the votes entitled to be cast by the outstanding
shares of Preferred Stock, voting together as a single class:
(A) the Corporation may not create any class of Parity Stock
or Senior Stock or issue any additional shares of Preferred
Stock; and
(B) the Corporation may not enter into any transaction which
violates, or otherwise violate, any of the covenants of the
Corporation set forth in Sections 5.2, 5.3, 5.4, 5.5, 5.6, 5.7,
5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.15, 5.16, 5.17, 5.18, 5.19,
5.20, 5.21, 5.22, 5.23, 5.24, 5.25, 5.28, 5.29, 5.30, 5.31 and
5.32 of the Purchase Agreement.
B-2-7
<PAGE>
(c) For purposes of this paragraph 6, each share of Preferred Stock
shall have one vote per share.
7. Stated Capital. The Board of Directors shall allocate to the stated
--------------
capital account for the RPS an amount equal to the Liquidation Preference of the
RPS and shall not allow any reduction in the amount of stated capital for such
RPS except to the extent shares of RPS are redeemed in accordance with the terms
hereof.
8. Exclusion of Other Rights. Except as may otherwise be required by law,
-------------------------
the shares of RPS shall not have any preferences or relative, participating,
optional or other special rights, other than those specifically set forth in
this resolution (as such resolution may be amended from time to time) and in the
Certificate of Incorporation of the Corporation, as amended. The shares of RPS
shall have no preemptive or subscription rights.
9. Headings of Subdivisions. The headings of the various subdivisions
------------------------
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
10. Severability of Provisions. If any right, preference or limitation of
--------------------------
the RPS set forth in this Certificate of Designation (as such Certificate of
Designation may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
rights, preferences and limitations set forth in this resolution (as so amended)
which can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
11. Status of Reacquired Shares. Shares of RPS which have been issued and
---------------------------
reacquired shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued shares of
preferred stock of the Corporation issuable in series undesignated as to series
and may be redesignated and issued or reissued as the case may be, as part of
any series of preferred stock of the Corporation; except that such shares may
not be reissued or sold as shares of RPS, Parity Stock or Senior Stock.
12. Purchase Agreement and Indenture. The Corporation shall at all times
--------------------------------
keep a copy of the Purchase Agreement available at its corporate headquarters
for inspection by its stockholders and other Persons.
13. Change of Control.
-----------------
(a) In the event that there is a Change of Control (the date of such
Change of Control being the "Trigger Date"), the Corporation shall promptly
------------
notify the holders of the RPS in writing of such occurrence and shall make
an offer to redeem (the "Change of Control Offer") all the shares of RPS
-----------------------
then outstanding at a purchase price per share equal to 101% of the
Liquidation Preference for each outstanding share of RPS.
(b) Notice of a Change of Control Offer shall be mailed by the
Corporation by overnight courier not more than 30 days after the Trigger
Date to the holders of the RPS at their
B-2-8
<PAGE>
addresses as they appear on the books of the Corporation. The Change of
Control Offer shall remain open from the time of mailing until the Change
of Control Payment Date. The notice shall contain all instructions and
materials necessary to enable such holders to tender shares of RPS pursuant
to the Change of Control Offer. The notice, which shall govern the terms of
the Change of Control Offer, shall state:
(i) that a Change of Control has occurred, including a
description in reasonable detail of such Change of Control;
(ii) that the Change of Control Offer is being made pursuant to
this paragraph 13, and that all shares of RPS will be accepted for
payment;
(iii) the purchase price for the RPS and the Change of Control
Payment Date, which shall be no earlier than 30 days nor later than 40
days from the date notice of the Change of Control Offer is mailed by
the Corporation (the "Change of Control Payment Date");
------------------------------
(iv) that holders of RPS electing to have a share of RPS
redeemed pursuant to a Change of Control Offer will be required to
surrender the share of RPS to the paying agent at the address
specified in the notice (the "Paying Agent") prior to close of
------------
business on the third Business Day preceding the Change of Control
Payment Date;
(v) that holders of RPS will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder of RPS, the number of shares of
RPS delivered for redemption and a statement that such holder is
withdrawing his or her election to have such shares of RPS redeemed;
and
(vi) that a holder of RPS who does not accept in writing the
Corporation's offer to redeem the shares of RPS held by such holder by
submitting the shares of RPS shall be deemed to have declined to have
its shares of RPS so redeemed.
(c) On the Change of Control Payment Date, the Corporation shall, to
the extent lawful, (i) accept for payment shares of RPS tendered pursuant
to the Change of Control Offer and (ii) deposit with the Paying Agent money
sufficient to pay the redemption price of all shares of RPS so tendered.
The Corporation will notify the remaining holders of RPS of the results of
the Change of Control Offer on or as soon as practicable after the Change
of Control Payment Date.
14. Board of Directors.
------------------
(a) In the event that (i) dividends on the CRPS are in arrears and
unpaid for two or more consecutive Semiannual Dividend Periods (as defined
in the certificate of designation relating to the CRPS), regardless of
whether declared by the Board of Directors, or (ii) the Corporation shall
have failed to discharge its obligations to mandatorily redeem all of the
outstanding Preferred Stock at the price and time required by paragraph 5
(the occurrence of either such event, a "Trigger
-------
B-2-9
<PAGE>
Event"), then, and in any such event, the holders of the Preferred Stock,
-----
voting separately as a class, shall be entitled, at the next annual meeting
of the stockholders or at any special meeting, to elect one member of the
Board of Directors. Upon election, such director shall become a member of
the Board of Directors and the authorized number of members of the Board of
Director shall thereupon be automatically increased by one. Such right of
the holders of Preferred Stock to elect such director may be exercised
until, as applicable, (i) all dividends to which the holders of CRPS shall
have been entitled for all previous Dividend Periods (as defined in the
certificate of designation relating to the CRPS), regardless of whether
declared by the Board of Directors, shall have been paid in full, and
dividends for the current Dividend Period declared and a sum of money
sufficient for the payment thereof have
been set apart for payment or (ii) the Corporation fulfills its obligation
to redeem all the remaining outstanding shares of Preferred Stock under
paragraph 5 hereof, and when such events occur, the right of the holders of
Preferred Stock to elect such director shall cease, the term of such
director previously elected shall thereupon terminate, and the authorized
number of members of the Board of Directors shall thereupon return to the
number of authorized directors otherwise in effect, but subject always to
the same provisions for the renewal and divestment of such special voting
rights in the case of any such future default or defaults specified herein.
The fact that dividends have been paid and set apart as required by the
preceding sentence shall be evidenced by a certificate executed by the
President and the Chief Financial Officer of the Corporation and delivered
to the Board of Directors. In the event a member of the Board of Directors
is elected due to a nonpayment of dividends as set forth herein, the
director so elected by holders of the Preferred Stock shall serve until the
certificate described in the preceding sentence shall have been delivered
to the Board of Directors or until their respective successors shall be
elected or appointed.
(b) At any time when such special voting rights have been so vested in
the holders of the Preferred Stock, the Secretary of the Corporation may,
and upon the written request of the holders of record of a majority of the
number of shares of the Preferred Stock then outstanding addressed to such
Secretary at the principal office of the Corporation shall, call a special
meeting of the holders of the Preferred Stock for the election of the
directors to be elected by them as hereinabove provided, to be held in the
case of such written request within 40 days after delivery of such request,
and in either case to be held at the place and upon the notice provided by
law and in the Corporation's Bylaws for the holding of meetings of
stockholders; provided, however, that the Secretary shall not be required
to call such a special meeting if any such request is received less than 90
days before the date fixed for the next ensuing annual or special meeting
of stockholders.
(c) The Board of Directors may not, except to satisfy the provisions
of this paragraph 14, be increased to more than 6 members.
(d) The Corporation shall reimburse promptly all directors elected
pursuant to this paragraph 14 for all reasonable expenses incurred by such
directors in connection with their attendance at meetings of the Board of
Directors and any committees thereof.
15. Rank. The RPS shall, with respect to dividend distributions and
----
distributions upon liquidation, dissolution or winding up of the Corporation,
rank senior to all classes of Common Stock of the Corporation and, subject to
the preference and other rights of the Senior Stock and the Parity Stock, to
each other class of Capital Stock of the Corporation now or hereafter created.
B-2-10
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and attested by its Secretary on July 7, 1997.
FIRSTAMERICA AUTOMOTIVE, INC.
By:_____________________________
Thomas A. Price
President
Attest:
__________________________________
W. Bruce Bercovich
Secretary
B-2-11
<PAGE>
Annex C
-------
Stockholders' Agreement
C-1
<PAGE>
Annex D
-------
Form of Draw Down Notice
TCW/Crescent Mezzanine Partners, L.P.
TCW/Crescent Mezzanine Trust
TCW/Crescent Mezzanine Investment Partners, L.P.
TCW Leveraged Income Trust, L.P.
Crescent Mach I Partners, L.P.
TCW Shared Opportunity Fund II, L.P.
[DATE]
__ Trust Company of the West
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
Attention: Jean-Marc Chapus
Telecopy No.: (310) 235-5967
Re: Securities Purchase Agreement dated as of July 8, 1997 among
First America Automotive, Inc., the guarantors named therein and
the purchasers named on the signature pages thereof.
Gentlemen:
Reference is made hereby to the Securities Purchase Agreement dated as
of July 8, 1997 (the "Securities Purchase Agreement") among First America
-----------------------------
Automotive, Inc., a Delaware corporation (the "Company"), the guarantors named
therein and the purchasers named on the signature pages thereof. Capitalized
terms used but not defined herein have the respective meanings given to such
terms in the Securities Purchase Agreement.
Pursuant to the provisions of Section 1.2(c) of the Securities
Purchase Agreement, the Company hereby provides notice to the Purchasers of the
request by the Company to sell to the Purchasers Additional Notes in an
aggregate principal amount equal to $______________ and ________ Additional
Common Shares. Such securities are referenced herein as the "Additional
----------
Securities."
- ----------
In accordance with the provisions of the Securities Purchase
Agreement, all of the net proceeds from the sale by the Company of the
Additional Securities will be used to consummate the New
D-1
<PAGE>
Acquisition(s) described below, which are permitted pursuant to Section 5.31 of
the Securities Purchase Agreement.
A. Combined Description of New Acquisition(s).
------------------------------------------
Set forth below is a combined description of the New Acquisitions for
which funding is requested hereby.
1. Combined sources and uses of cash with respect to all New Acquisitions
for which funding is hereby requested:
(a) Sources:
Cash: $______________________
Revolver advances under
Section II.C of Loan Agreement: $______________________
New Vehicle advances under
Section II.B of the Loan Agreement: $______________________
Program Vehicle advances under
Section II.D of the Loan Agreement: $______________________
Net Proceeds from sale
of Additional Securities: $______________________
Assumption of Liabilities: $______________________
Seller Indebtedness: $______________________
Stock issued to seller: $______________________
(b) Uses:
Cash consideration to Seller(s): $______________________
Refinancing of liabilities: $______________________
2. Consideration, Net Assets and Goodwill:
(a) Aggregate consideration to seller(s): $______________________
(b) Net assets acquired: $______________________
(c) Goodwill: $______________________
B. Individual Description of Each New Acquisition
----------------------------------------------
Set forth below is an individual description of each of the New
Acquisitions for which funding is requested hereby.
[Provide the following information with respect to each New Acquisition.]
1. Name of business or Person being acquired: _______________________
D-2
<PAGE>
2. Name of seller:
3. Sources and uses of cash:
(a) Sources:
Cash: $_________________
Revolver advances under
Section II.C of Loan Agreement: $_________________
New Vehicle advances under
Section II.B of the Loan Agreement: $_________________
Program Vehicle advances under
Section II.D of the Loan Agreement: $_________________
Net Proceeds from sale
of Additional Securities: $_________________
Assumption of Liabilities: $_________________
Seller Indebtedness: $_________________
Stock issued to seller: $_________________
(b) Uses:
Cash consideration to Seller(s): $_________________
Refinancing of liabilities: $_________________
4. Consideration, Net Assets and Goodwill:
(a) Aggregate consideration to seller(s):$_________________
(b) Net assets acquired: $_________________
(c) Goodwill: $_________________
5. Dealership description:
(a) Franchises acquired: __________________
(b) Location: __________________
(c) Three Year Operating History:
[Year] [Year] [Year]
------ ------ ------
Sales: ______ ______ ______
Gross Margin: ______ ______ ______
SG&A Expense: ______ ______ ______
EBITDA: ______ ______ ______
Addbacks: ______ ______ ______
D-3
<PAGE>
C. Pro Forma Calculations.
----------------------
1. Attached hereto is a consolidated balance sheet of the Company as
of [date], giving pro forma effect to the New Acquisitions(s) for
which funding is requested hereby and to the issuance and sale of
the Additional Securities.
2. Attached hereto is a consolidated income statement for the 12-
month period ending on [date], giving pro forma effect to the New
Acquisitions(s) for which funding is requested hereby and to the
issuance and sale of the Additional Securities, as if such New
Acquisition(s) were consummated and such Additional Securities
were issued and sold at the beginning of such period.
D. Enterprise Value Calculation.
----------------------------
1. The Enterprise Value of the Company at the time of the New
Acquisitions(s) for which funding is requested hereby (excluding
any effect that such New Acquisition(s) may have on the
Enterprise Value of the Company) is $ .
2. Such Enterprise Value was calculated as follows:
Enterprise Value = [Amount of EBITDA (less interest and other
costs associated with New Vehicle Advances
and Program Vehicle Advances) for the four
fiscal quarters immediately preceding the
purchase and sale of the Additional
Securities (on a pro forma basis giving
effect to all New Acquisitions made during
such period and all incurrences of
Indebtedness as if they occurred at the
beginning of such period; but excluding any
effect that the New Acquisition to be funded
with the proceeds from the sale of the
Additional Securities)] times 7.
D. Additional Common Shares Calculation.
------------------------------------
1. The number of fully diluted shares of Common Stock prior to the
New Acquisition to be funded with the proceeds of the sale of
Additional Securities is ____________________.
2. The effect of any Equity Interests to be issued in connection
with such New Acquisition is as follow:
(a) To sellers:_______________
(b) To others: _______________
D-4
<PAGE>
3. The number of fully diluted shares of Common Stock giving effect
to such New Acquisition and to the issuance of the Additional
Securities is _______________.
4. The number of Additional Common Shares is _________________.
Please contact the undersigned at your earliest convenience to provide
the Company with the allocation of Additional Securities to be purchased by the
several Purchasers and to schedule an Additional Securities Closing on an
Additional Securities Closing Date to be agreed upon by the Company and the
Purchasers in accordance with 1.2(d) of the Securities Closing Date.
Very truly yours,
FIRSTAMERICA AUTOMOTIVE, INC.
By:______________________________
Name:_______________________
Title:___________________________
D-5
<PAGE>
Annex E
-------
Opinion of Counsel to the Company
[Letterhead of Counsel to the Company]
July 8, 1997
To: The Purchasers named on the signature pages of the Securities Purchase
Agreement (as defined below) relating to the Notes (as defined below), the
Preferred Shares (as defined below) and the Common Shares (as defined
below) of the FirstAmerica Automotive, Inc.
Ladies and Gentlemen:
We have acted as counsel for FirstAmerica Automotive, Inc., a Delaware
corporation (the "Company"), in connection with the sale today by the Company to
you of an aggregate of (a) $28,000,000 principal amount of 12_% Senior Notes due
June 30, 2005 (the "Notes") of the Company, (b) 3500 shares (the "CRPS Shares")
----- -----------
of 8% Cumulative Redeemable Preferred Stock due 2005, par value $0.00001 per
share, of the Company, (c) 500 shares (the "RPS Shares" and together with the
----------
CRPS Shares, the "Preferred Shares") of Redeemable Preferred Stock due 2005, par
----------------
value $0.00001 per share, of the Company and (d) 3,032,000 shares (the "Common
------
Shares" and together with the Notes and the Preferred Shares, the "Securities")
- ------
of Class B Common Stock, par value $0.00001 per share, of the Company, pursuant
to the Securities Purchase Agreement dated as of July 8, 1997 (the "Securities
----------
Purchase Agreement") among the Company, the guarantors named therein and the
- ------------------
purchasers named on the signature pages thereof.
This opinion is being furnished pursuant to Section 2.1(b)(1) of the
Securities Purchase Agreement. Capitalized terms used and not otherwise defined
herein shall have the respective meanings given to such terms in the Securities
Purchase Agreement.
In so acting, we have examined such certificates of public officials
and certificates of officers of the Company and its Subsidiaries, and the
originals (or copies thereof, certified to our satisfaction) of such corporate
documents and records of the Company and its Subsidiaries, and such other
documents, records and papers as we have deemed relevant in order to give the
opinions hereinafter set forth. In this connection, we have assumed the
genuineness of signatures, the authenticity of all documents submitted to us as
originals and the conformity to authentic original documents of all documents
submitted to us as certified, conformed, facsimile or photostatic copies. In
addition, we have relied, to the extent that we deem such reliance proper, upon
such certificates of public officials and of officers of the Company and its
Subsidiaries with respect to the accuracy of material factual matters contained
therein which were not independently established.
Based upon the foregoing, it is our opinion that:
1. Each of the Company and each of its Subsidiaries (a) is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware, (b) has
E-1
<PAGE>
all requisite corporate power and authority to own or operate its
properties and to transact the business in which it is engaged and (c) has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other jurisdiction
in which it owns or leases properties or conducts any business so as to
require such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such
jurisdiction.
2. The Company has the corporate power and authority and has taken
all actions necessary to authorize it to (a) execute, deliver, perform all
of its obligations under, and consummate each of the transactions
contemplated by the Securities Purchase Agreement, the Notes, the
Stockholders' Agreement and the other Documents to which it is a party and
(b) issue and perform all of its obligations under the Securities.
3. Each of the Securities Purchase Agreement, the Notes, the
Stockholders' Agreement and the other Documents to which the Company is a
party has been duly authorized, executed and delivered by the Company and
is a valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
4. Each of the Subsidiaries of the Company has the corporate power
and authority and has taken all actions necessary to authorize it to
execute, deliver and perform all of its obligations under, and consummate
each of the transactions contemplated by each of the Documents to which it
is a party. Each of the Documents to which each such Subsidiary is a party
has been duly authorized, executed and delivered by such Subsidiary and is
a valid and binding obligation of such Subsidiary, enforceable against it
in accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
5. Neither the execution, delivery or performance of the Securities
Purchase Agreement, the Notes, the Acquisition Documents, the Stockholders'
Agreement, or any of the other Documents to which the Company or any of its
Subsidiaries is a party, nor the compliance with their respective
obligations thereunder, nor the consummation of the transactions
contemplated thereby, nor the issuance, sale or delivery of the Securities
will (a) violate any provision of the Charter Documents of the Company or
of any of its Subsidiaries, (b) violate any statute, law, rule or
regulation or any judgment, decree, order, regulation or rule of any court
or governmental authority, agency or body having jurisdiction over the
Company or any of its Subsidiaries or any of their properties, (c) permit
or cause the acceleration of the maturity of any debt or obligation of the
Company or any of its Subsidiaries, or (d) violate, or be in conflict with,
or constitute a breach or default under, or permit the termination of, or
require the consent of, notice to, or filing, registration or qualification
with any Person under, or result in the creation or imposition of any Lien
upon any property of the Company or any of its Subsidiaries under, any
mortgage, deed of trust, indenture, loan agreement, note, debenture,
agreement for borrowed money or any other agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound or to which any of the property or
assets of the Company or any of its Subsidiaries is subject.
E-2
<PAGE>
6. Neither the Company nor any of its Subsidiaries is in violation
of its Charter Documents or in default in the performance or observance of
any material obligation, covenant or condition contained in any mortgage,
deed of trust, indenture, loan agreement, note, debenture, agreement for
borrowed money or any other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or to which any of the property or assets of the
Company or any of its Subsidiaries is subject.
7. No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Securities or the consummation by
the Company or any of its Subsidiaries of the Pending Acquisitions or any
of the other transactions contemplated by the Securities Purchase Agreement
or the other Documents.
8. Immediately prior to and after giving effect to the Pending
Acquisitions, the Companies other than the Company are the only direct or
indirect Subsidiaries of the Company. The total authorized Capital Stock
of the Company consists of (a) [_________] shares of Class A Common Stock,
par value $0.00001 per share, of which [_________] shares will be issued
and outstanding upon consummation of the transactions contemplated by the
Securities Purchase Agreement, (b) [_________] shares of Class B Common
Stock, par value $0.00001 per share, of which [_________] shares will be
issued and outstanding upon consummation of the transactions contemplated
by the Securities Purchase Agreement, (c) [_________] shares of Class C
Common Stock, par value $0.00001 per share, of which [_________] shares
will be issued and outstanding upon consummation of the transactions
contemplated by the Securities Purchase Agreement and (d) [_________]
shares of preferred stock, par value $0.00001 per share, of which
[_________] shares of CRPS and [________] shares of RPS will be issued and
outstanding upon consummation of the transactions contemplated by the
Securities Purchase Agreement. The total authorized Capital Stock of each
Subsidiary of the Company consists of [_________] shares of common stock,
par value $[__] per share, of which [_________] shares will be issued and
outstanding upon consummation of the transactions contemplated by the
Securities Purchase Agreement. All of the outstanding Equity Interests of
the Company and of each of its Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and were not issued in
violation of, and are not subject to, any preemptive or similar rights
(other than those of the Purchasers or as contemplated in the Stockholders'
Agreement). All of the outstanding Equity Interests of each of the
Subsidiaries of the Company are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims.
Except for the shares of capital stock of the Companies other than the
Company, the Company does not directly own any capital stock or any other
securities of any corporation, nor, does it have any Equity Interest in any
firm, partnership, association or other entity.
E-3
<PAGE>
9. There are no outstanding (i) securities convertible into or
exchangeable for any Equity Interests of the Company or any of its
Subsidiaries, (ii) options, warrants or other rights to purchase or
subscribe to Equity Interests of the Company or any of its Subsidiaries or
securities convertible into or exchangeable for Equity Interests of the
Company or any of its Subsidiaries, (iii) contracts, commitments,
agreements, understandings, arrangements, calls or claims of any kind
relating to the issuance of any Equity Interests of the Company or any of
its Subsidiaries, any such convertible or exchangeable securities or any
such options, warrants or rights or (iv) voting trusts, agreements,
contracts, commitments, understandings or arrangements with respect to the
voting of any of the Equity Interests of the Company or any of its
Subsidiaries.
10. Except for the Stockholders' Agreement, neither the Company nor
any of its Subsidiaries has entered into an agreement to register any of
its capital stock under the Securities Act. Except for the Securities
Purchase Agreement, neither the Company nor any of its Subsidiaries has
entered into any agreement to issue, purchase or sell any of its
securities.
11. To the best of our knowledge (after due inquiry), there are no
legal or governmental proceedings pending to which the Company or any of
its Subsidiaries is a party or of which any property of the Company or any
of its Subsidiaries is the subject that (a) seek to restrain, enjoin,
prevent the consummation of or otherwise challenge the Pending
Acquisitions, the Securities Purchase Agreement or any of the other
Documents or the transactions contemplated by any of the Documents or (b)
if determined adversely to the Company or any of its Subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders' equity or
results of operations of the Company and its Subsidiaries. To the best of
our knowledge (after due inquiry), no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
12. There are no securities of the Company or any of its Subsidiaries
registered under the Exchange Act or listed on a national securities
exchange registered under Section 6 of the Exchange Act or quoted in a
United States automated inter-dealer quotation system.
13. None of the transactions contemplated by the Securities Purchase
Agreement (including, without limitation, the use of the proceeds from the
sale of the Securities) will violate or result in a violation of
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System. The Company is not subject to any regulation limiting its ability
to incur the indebtedness evidenced by the Notes.
14. Assuming the representations and warranties of the Purchasers
contained in Section 4 of the Securities Purchase Agreement are true and
correct, (a) it is not necessary to register the initial sale to the
Purchasers by the Issuer of the Securities or the issuance of the
Subsidiary Guaranties by the Guarantors under the Securities Act or, in
connection therewith, to qualify the Securities Purchase Agreement under
the Trust Indenture Act of 1939, as amended and (b) except for such actions
and filings as have been taken or made on or prior to the date hereof, no
action of, or filing with any governmental authority is required to be
obtained or made by the Company to authorize, or is otherwise required to
be obtained or made by the Company in connection with the execution and
delivery of the Securities Purchase Agreement or the other
E-4
<PAGE>
Documents to which it is a party or in connection with the consummation of
the transactions contemplated by any of the Documents.
15. Neither the Company nor any of its Subsidiaries is an "investment
company" or a company controlled by an "investment company," within the
meaning given to such terms in the Investment Company Act of 1940, as
amended.
16. The Pending Acquisitions have been consummated in accordance with
the California General Corporation Law.
17. The Notes and the certificates representing the Preferred Shares
and the Common Shares are in due and proper form and comply with all
applicable statutory requirements.
The opinions expressed herein are limited to questions arising under
the Federal laws of the United States of America, the laws of the State of
California and the General Corporation Law of the State of Delaware.
We express no opinion as to the enforceability of any indemnification
or contribution provision contemplated by the Securities Purchase Agreement or
by any document referred to therein to the extent the rights to indemnification
or contribution provided for therein are violative of any law, rule or
regulation (including any securities law, rule or regulation) or public policy
relating thereto.
This opinion may not be used or relied upon by or published or
communicated to any person or entity other than the addressees hereof for any
purpose whatsoever without our prior written consent in each instance.
Very truly yours,
E-5
<PAGE>
EXHIBIT 4.1.2
AMENDMENT NO. 1
TO
SECURITIES PURCHASE AGREEMENT
This Amendment No. 1 to Securities Purchase Agreement (this
"Amendment") dated as of January 9, 1998 is entered into by and among each of
---------
the New Subsidiaries (as defined below) and each of the parties to the
Securities Purchase Agreement dated as of July 11, 1997 (the "Securities
----------
Purchase Agreement") by and among FirstAmerica Automotive, Inc., a Delaware
- ------------------
corporation (the "Company"), the Guarantors (as defined therein) and the
-------
purchasers listed on the signature pages thereto.
WHEREAS, the parties hereto desire to amend certain provisions of the
Securities Purchase Agreement and to add each of the New Subsidiaries (as
defined below) as a party thereto, in the capacity as a Guarantor.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Definitions. For all purposes of this Amendment:
-----------
(a) Capitalized terms used but not defined herein shall have the
respective meanings assigned to such terms in the Securities Purchase
Agreement; and
(b) The terms "hereby," "hereto," "hereof" and "herewith" and other
words of similar import refer to this Amendment.
Section 2. New Subsidiary Guarantors.
-------------------------
(a) In accordance with the provisions of Section 10.3 of the
Securities Purchase Agreement, each of FAA Capitol N, Inc., a California
corporation, and FAA Auto Factory, Inc., a California corporation, (each, a
"New Subsidiary" and collectively, the "New Subsidiaries") is hereby joined
-------------- ----------------
as a party to the Securities Purchase Agreement and agrees that by its
execution hereof (i) it shall be deemed to have executed the Securities
Purchase Agreement, and is a Guarantor thereunder for all purposes thereof,
(ii) it hereby makes the Subsidiary Guaranty contained in the Securities
Purchase Agreement, and undertakes, covenants and agrees to all of the
obligations, agreements, waivers and other provisions under the Securities
Purchase Agreement as a Guarantor thereunder and (iii) it hereby affirms
and makes all of the representations and warranties made by each Guarantor
under the Securities Purchase Agreement. All references in the Securities
Purchase Agreement and in the Notes to a Guarantor shall hereafter include
each of the New Subsidiaries.
(b) For value received, each of the New Subsidiaries hereby
unconditionally guarantees to the Holders of the Notes (i) the due and
punctual payment, on the basis set forth in the Securities Purchase
Agreement pursuant to which the Notes and this guaranty were issued, of the
principal of, premium (if any) and interest on such Notes when and as the
same shall become due and payable for any reason according to the terms of
such Notes and Section 10 of the Securities Purchase Agreement, and (ii)
that all other obligations of the Company under the Securities Purchase
Agreement or the Notes will be promptly paid in full or performed in
accordance with the terms of the Securities Purchase Agreement and the
Notes.
(c) Each of the New Subsidiaries hereby acknowledges that its
execution of this Amendment satisfies the requirements of and constitutes
compliance with the terms of Section 10 of the Securities Purchase
Agreement (including without limitation Section 10.3 thereof).
<PAGE>
(d) Each of the Company and each of its Subsidiaries (including
without limitation each of the New Subsidiaries) represents and warrants to
the Holders that this Amendment has been duly authorized, executed and
delivered, by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms.
Section 3. Used Vehicle Financing. In order to allow the Company and its
----------------------
Subsidiaries to incur a limited amount of Indebtedness in connection with the
financing of the purchase of Used Vehicles (as defined in the Loan Agreement as
in effect on the Closing Date), the parties hereto agree to the following
amendments to the Securities Purchase Agreement:
(a) Section 5.5 of the Securities Purchase Agreement is hereby
amended and restated in its entirety to read as follows:
5.5 Limitation on Additional Indebtedness and Issuance of Disqualified Stock.
------------------------------------------------------------------------
(a) The Company will not, and will not permit any of its
Subsidiaries (including without limitation, upon the creation or
acquisition of such Subsidiary) to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to (collectively,
"incur") any Indebtedness or issue any Disqualified Stock,
provided that the Company may incur Indebtedness and may issue
Disqualified Stock if:
(i) no Default or Event of Default shall have
occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Indebtedness or the
issuance of such Disqualified Stock;
(ii) the Consolidated Interest Expense Coverage Ratio
of the Company for the four fiscal quarters immediately
preceding the date on which such Indebtedness is incurred or
Disqualified Stock is issued would have been at least 2.5 to
1 (determined on a pro forma basis as if such additional
Indebtedness had been incurred (or Disqualified Stock had
been issued) at the beginning of such four-fiscal quarter
period);
(iii) such Indebtedness shall be Subordinated
Indebtedness and the maturity and the Weighted Average Life
to Maturity of such Subordinated Indebtedness are both
greater than the maturity and the Weighted Average Life to
Maturity of the Notes; and
(iv) the Company shall have successfully completed a
Company IPO.
(b) The foregoing limitations will not apply to:
(i) the incurrence by the Company or any of its
Subsidiaries of Indebtedness under the Loan Agreement;
provided that such Indebtedness is incurred for the purpose
of acquiring new car inventory in the ordinary course of
business and is secured by a purchase money security
interest in such inventory; provided, further that the
aggregate principal amount of such Indebtedness at any one
time outstanding (including loans, the nominal amount of
outstanding letters of credit and all unused commitments)
shall not exceed the difference between (1) the lesser
2
<PAGE>
of the New Vehicle Advance Rate and $130,000,000 and (2) any
permanent reductions in the credit available to the Company
and its Subsidiaries under the Loan Agreement in accordance
with the provisions of Section 5.8 hereof;
(ii) the incurrence by the Company or any of its
Subsidiaries of Acquisition Indebtedness under the Loan
Agreement; provided, that the aggregate principal amount at
any one time outstanding (including loans, the nominal
amount of outstanding letters of credit and all unused
commitments) of such Indebtedness shall not exceed the
difference between (1) the lesser of the Revolver Advance
Rate and $35,000,000 and (2) any permanent reductions in the
credit available to the Company and its Subsidiaries under
the Loan Agreement in accordance with the provisions of
Section 5.8 hereof;
(iii) the incurrence by the Company or any of its
Subsidiaries of Indebtedness under the Loan Agreement;
provided, that such Indebtedness is incurred for the purpose
of acquiring Program Vehicles (as defined in the Loan
Agreement as in effect on the Closing Date) inventory in the
ordinary course of business and is secured by a purchase
money security interest in such inventory; provided,
further, that the aggregate principal amount of such
Indebtedness at any one time outstanding (including loans,
the nominal amount of outstanding letters of credit and all
unused commitments) shall not exceed the difference between
(1) the lesser of the Program Vehicle Advance Rate and
$15,000,000 and (2) any permanent reductions in the credit
available to the Company and its Subsidiaries under the Loan
Agreement in accordance with the provisions of Section 5.8
hereof;
(iv) the incurrence by the Company of the Indebtedness
represented by the Notes;
(v) the incurrence by the Company of Permitted
Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to extend, refinance, renew,
replace, defease or refund other Indebtedness of the Company
incurred pursuant to clause (a) above;
(vi) Indebtedness of the Company or its Subsidiaries
in an amount not to exceed $2,000,000 at any time
outstanding representing a Capitalized Lease Obligation or
Purchase Money Indebtedness;
(vii) Subordinated Indebtedness of the Company to any
Wholly Owned Subsidiary of the Company or Indebtedness of
any Wholly Owned Subsidiary of the Company solely to the
Company or to any Wholly Owned Subsidiary of the Company
provided that neither the Company nor any Subsidiary of the
Company shall become liable pursuant to such Indebtedness,
to any Person other than the Company or another Wholly Owned
Subsidiary of the Company;
(viii) Seller Indebtedness in an aggregate amount not to
exceed $3,000,000 at any time outstanding; and
3
<PAGE>
(ix) the incurrence by the Company or any of its
Subsidiaries of Indebtedness under the Loan Agreement;
provided that such Indebtedness is incurred for the purpose
of acquiring Used Vehicles (as defined in the Loan Agreement
as in effect on the Closing Date) inventory in the ordinary
course of business and is secured by a purchase money
security interest in such inventory; provided, further that
the aggregate principal amount of such Indebtedness at any
one time outstanding (including loans, the nominal amount of
outstanding letters of credit and all unused commitments)
shall not exceed the difference between (1) the lesser of
the Used Vehicle Advance Rate and $5,000,000 and (2) any
permanent reductions in the credit available to the Company
and its Subsidiaries under the Loan Agreement in accordance
with the provisions of Section 5.8 hereof.
(b) Section 9.1 of the Securities Purchase Agreement is hereby amended
by inserting the following definition immediately after the definition of
the term "U.S. Government Obligations" and immediately before the
definition of the term "U.S. Legal Tender":
"Used Vehicle Advance Rate" means the amount permitted to be
--------------------------
advanced to the Subsidiaries of the Company pursuant to Section II.G of the Loan
Agreement (as in effect on the date of, and after giving effect to the
provisions of, the Second Amendment to the Loan Agreement dated as of January 9,
1998).
Section 4. Miscellaneous.
-------------
(a) THIS AMENDMENT AND ALL ISSUES HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA
(WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW).
(b) Upon the execution and delivery of this Amendment, the Securities
Purchase Agreement shall be amended in accordance herewith and this Amendment
shall form a part of the Securities Purchase Agreement for all purposes, and the
parties hereto and every Holder shall be bound by the Securities Purchase
Agreement, as so amended.
(c) This Amendment may be executed in as many counterparts as may be
deemed necessary and convenient, and by the different parties hereto on separate
counterparts each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute one and the same instrument.
(d) The Section headings of this Amendment are for convenience of
reference only and shall not be deemed to modify, explain, restrict, alter or
affect the meaning or interpretation of any provision hereof.
4
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed by the
parties set forth below as of the date first written above.
Company:
-------
FIRSTAMERICA AUTOMOTIVE, INC.
By: _____________________________
Name:____________________________
Title:___________________________
Guarantors:
- ----------
FAA SAN BRUNO, INC. FAA STEVENS CREEK, INC.
By:____________________________ By:_______________________________
Name:__________________________ Name:____________________________
Title:_________________________ Title:___________________________
SMART NISSAN, INC. FAA DEALER SERVICES, INC.
By:____________________________ By:_____________________________
Name:__________________________ Name:___________________________
Title:_________________________ Title:__________________________
TRANSCAR LEASING, INC. FAA CONCORD H, INC.
By:____________________________ By:_____________________________
Name:__________________________ Name:___________________________
Title:_________________________ Title:__________________________
FAA CONCORD N, INC. FAA POWAY D, INC.
By:____________________________ By:_____________________________
Name:__________________________ Name:___________________________
Title:_________________________ Title:__________________________
5
<PAGE>
FAA POWAY T, INC. FAA POWAY H, INC.
By:_____________________________ By:_____________________________
Name:___________________________ Name:___________________________
Title:__________________________ Title:__________________________
FAA DUBLIN VWD, INC. FAA DUBLIN N, INC.
By:_____________________________ By:_____________________________
Name:___________________________ Name:___________________________
Title:__________________________ Title:__________________________
FAA SERRAMONTE L, INC. FAA SERRAMONTE, INC.
By:_____________________________ By:_____________________________
Name:___________________________ Name:___________________________
Title:__________________________ Title:__________________________
FAA CAPITOL N, INC. FAA AUTO FACTORY, INC.
By:_____________________________ By:_____________________________
Name:___________________________ Name:___________________________
Title:__________________________ Title:__________________________
6
<PAGE>
Holders:
-------
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT PARTNERS
By: TCW/CRESCENT MEZZANINE, L.L.C.,
its general partner or managing owner
By: /s/ Jean-Marc Chapus
________________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
________________________________
John C. Rocchio
Senior Vice President
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW ADVISORS (BERMUDA), LIMITED,
as General Partner
By:__________________________________
Name:________________________________
Title:_______________________________
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE>
CRESCENT/MACH I PARTNERS, L.P.
By: TCW ASSET MANAGEMENT COMPANY,
as investment manager and attorney-in-fact
By: /s/ Jean-Marc Chapus
_____________________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
_____________________________________
John C. Rocchio
Senior Vice President
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW INVESTMENT MANAGEMENT
COMPANY, its investment advisor
By: /s/ Jean-Marc Chapus
_____________________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
_____________________________________
John C. Rocchio
Senior Vice President
<PAGE>
EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made by and between
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation with an office
located at 1000 Hart Road, Barrington, Illinois 60010 ("Lender"), and the
following California corporations, being all of the subsidiaries of FAA (as
hereafter defined):
Transcar Leasing, Inc. FAA Serramonte, Inc.
dba Serramonte Auto Plaza 1500 Collins Avenue
1500 Collins Avenue Colma CA 94014
Colma CA 94014
FAA Poway T, Inc.
FAA San Bruno, Inc. 1500 Collins Avenue
1500 Collins Avenue Colma CA 94014
Colma CA 94014
FAA Poway H, Inc.
Smart Nissan, Inc. 1500 Collins Avenue
1500 Collins Avenue Colma CA 94014
Colma CA 94014
FAA Poway D, Inc.
FAA Serramonte L, Inc. 1500 Collins Avenue
1500 Collins Avenue Colma CA 94014
Colma CA 94014
FAA Concord N, Inc.
FAA Stevens Creek, Inc. 1500 Collins Avenue
1500 Collins Avenue Colma CA 94014
Colma CA 94014
FAA Concord H, Inc.
FAA Dublin VWD, Inc. 1500 Collins Avenue
1500 Collins Avenue Colma CA 94014
Colma CA 94014
FAA Dublin N, Inc.
1500 Collins Avenue
Colma CA 9401
The above corporations are referred to collectively herein as "Borrower." The
obligations of Borrower to Lender in this Agreement are the joint and several
liability of the Borrower corporations. Each reference to Borrower in this
Agreement means each of the Borrowers jointly and severally. The maximum loan
amounts and the payment obligations are stated as an aggregate combined total
for all of the Borrower corporations.
I. DEFINITIONS
-----------
As used herein, the following terms (both singular and plural) shall have
the following meanings:
-1-
<PAGE>
"Borrowing Base Certificate" means a certificate in form and content
acceptable to Lender from time to time in Lender's sole discretion, duly
completed and certified by a chief financial officer of Borrower or FAA to be
true and correct in all respects, which shall initially be in the form of
Exhibit A attached hereto and incorporated herein by this reference (subject,
however, to any future change(s) which GECC may require from time to time in its
sole and absolute discretion).
"Business Day" means any day other than a Saturday, Sunday or national
holiday.
"Collateral" has the meaning set forth in Section IV. A.
"Default" has the meaning set forth in Section VI. A.
"Demonstrator(s)" means a New Vehicle which has more than 2500 miles on its
odometer or a Used Vehicle which has been designated or used by Borrower as a
Demonstrator.
"Discretionary Advance(s)" means those advances (if any) which Lender may
elect in its sole and absolute discretion to make upon the request of Borrower
from time to time pursuant to Section II.E hereof.
"Eligible Parts" means new motor vehicle parts and accessories which: (i)
Borrower purchased from a motor vehicle manufacturer or the authorized
manufacturer or authorized distributor, (ii) Borrower holds in inventory for
sale or for use in servicing motor vehicles, (iii) are designed for use in
connection with the types of motor vehicles which Borrower sells, (iv) are not
obsolete, (v) are returnable to the manufacturer for full credit, and (vi) have
not been held by Borrower in inventory for more than 365 days. The value of
Borrower's inventory of Eligible Parts shall be equal to the lesser of
Borrower's cost, or the invoice amount, or the amount shown on Borrower's books
and records.
"Eligible Used Vehicle(s)" means Used Vehicle(s) which Borrower has not
held in inventory for more than 120 days, which have a NADA trade-in value
(without adds) of at least $3,500, and for which Borrower has presented to
Lender title and purchase documentation required by Lender within 30 days after
the earlier of Borrower's purchase or taking possession of the Used Vehicle
(provided that, if the title and purchase documentation is presented by Borrower
later than said 30-day period but not later than 90 days, then Lender has
inspected such Used Vehicle in the ordinary course of business and has approved
same as an Eligible Used Vehicle).
"FAA" means FirstAmerica Automotive, Inc., a Delaware corporation.
"Financed Vehicle(s)" means a Vehicle in connection with which Lender makes
an advance under Section II. B., II. C., II. D. or II. E. or in connection with
which Lender otherwise makes, or is deemed to have made, an advance.
"Index Rate" means, for each billing period, the highest of the rates
quoted as the "Prime Rate" in the column entitled "Money Rates" published in the
Wall Street Journal on the last Business Day of the calendar month preceding the
billing period. In the event the Wall Street Journal does not quote a "Prime
Rate," the Index Rate is the rate quoted as the "Prime Rate" in a publication
designated by Lender from time to time. In the event a "Prime Rate" is not
quoted on the last Business Day of a calendar month, the Index Rate shall be the
"Prime Rate" quoted in the
-2-
<PAGE>
most recent Business Day preceding the last Business Day of such month.
"Initial Advance" means the lesser of: (a) the amount of the principal
indebtedness owed to Lender and/or other lender(s) for the inventory financing
of all of Borrower's New Vehicles, (b) 100% of the manufacturer's invoice amount
(including freight) for such New Vehicles, or (c) the amount Borrower requests
that Lender advance to provide inventory financing for such New Vehicles.
"IPO" means an initial public offering of common stock of FAA, which
results in net equity proceeds to FAA of not less than $50,000,000.00.
"Maximum Lawful Rate" means the highest rate of interest permissible under
any law which a court of competent jurisdiction shall, in a final determination,
deem applicable hereto.
"New Vehicle(s)" means a Vehicle which (a) has not been titled, or sold or
leased at retail, or used as a regular means of transportation prior to purchase
by Borrower, (b) is purchased by Borrower from the manufacturer, or an
authorized distributor or a dealer with a New Vehicle franchise for such
Vehicle, (c) was manufactured by a manufacturer acceptable to Lender with which
Borrower is in good standing under a New Vehicle franchise agreement, and (d) is
held in inventory by Borrower for sale or lease to customers.
"Notice" means any notice, demand, request, consent, approval, declaration
or other communication required to be given to any person hereunder and as set
forth in Section VII.I.
"Program Vehicle(s)" means a Used Vehicle which is supplied by a
manufacturer to a motor vehicle auction company from a fleet or rental company
for sale at an auction which is authorized by the manufacturer, and which has a
NADA trade in value (without adds) of at least $10,000, has less than 20,000
miles on its odometer, and is a current model year or one year prior to the
current year.
"Revolver Advance(s)" means those advances (if any) which Lender makes from
time to time pursuant to section II. C. hereof.
"Revolver Borrowing Base" means the lesser of (a) the total of (i) 90% of
the lesser of NADA trade-in value (without adds) of Borrower's Eligible Used
Vehicle(s) or Borrower's cost to purchase the Eligible Used Vehicle(s), plus
(ii) 65% of Borrower's inventory of Eligible Parts, or (b) the amount Borrower
requested to be advanced; provided, however, that from and after the earlier of
completion of the IPO or fifteen (15) months after the Initial Advance, the
number "90%" in the preceding clause shall be replaced with the number "80%" and
the number "65%" in the preceding clause shall be replaced with the number
"50%".
"Stated Rate" means any interest rate to be paid by Borrower hereunder.
"TCW" means TCW/Crescent Mezzanine Partners, L.P., TCW/Crescent Mezzanine
Trust, and TCW/Crescent Mezzanine Investment Partners, L.P.
"Used Vehicle(s)" means a Vehicle which was titled or sold or leased at
retail and then acquired by Borrower by purchase or in trade, and which is held
in inventory by Borrower for sale or lease to customers.
-3-
<PAGE>
"Vehicle(s)" means a motor vehicle which: (1) is a passenger motor vehicle,
van, or light duty truck, which is not manufactured for a particular commercial
purpose; (2) complies with all applicable safety, environmental and construction
requirements, and is in good and operable condition; and (3) is capable of being
titled and registered for use on public highways.
II. LOAN
----
A. Total Loan. Borrower has requested to borrow from Lender up to One
-----------
Hundred Seventy-Five Million Dollars ($175,000,000) in connection with
Borrower's Vehicle inventory. Lender has agreed to loan this amount to Borrower
according to the terms of this Agreement. The loan shall consist of a series of
advances which shall constitute a single loan obligation of Borrower. For the
purpose of determining the amount available to be advanced, any commitment by
Lender to make an advance shall be treated as if the advance had been made.
Advances shall be made on a revolving basis. Advances shall be made and used
only for the purpose of financing New Vehicles as provided in Section II.B.,
Revolver Advances as provided in Section II.C., Program Vehicles as provided in
Section II.D., and/or Discretionary Advance(s) as provided in Section II.E. The
loan(s) to be made by Lender to Borrower are conditioned upon each of the above-
named Borrower corporations at all times actively conducting business as an
automobile dealership and each obtaining all of its inventory financing from
Lender.
Notwithstanding the foregoing, however, there shall be no failure of a
condition hereunder nor any event of default solely by reason of any corporation
reorganization(s) of the Borrower corporations, including without limitation,
merger(s) which may reduce the number of Borrowers from time to time, but only
so long as (a) FAA maintains Control (as hereafter defined) of all of the
automobile dealership businesses conducted by the Borrower corporations as of
prior to such corporate reorganization(s), (b) such surviving or successor
corporations after such corporate reorganization(s) continue to actively engage
in the automobile dealership business in substantially the same manner as the
corporate Borrower(s) existing prior to such corporate reorganization(s),
including without limitation, obtaining all inventory financing from Lender and
engaging in resale of the same manufacturers' vehicles at substantially the same
volume of sales as before such corporate reorganization(s), and (c) Lender has
provided its prior written consent to such corporate reorganization(s), which
shall not be unreasonably withheld or delayed.
In the event that there is a transfer of Control of any Borrower
corporation at any time, all advances and indebtedness attributable to such
transferred Borrower shall be immediately due and payable from the Borrowers
(including without limitation all interest, fees and expenses attributable to
such transferred Borrower, as determined by Lender in its sole and absolute
discretion), and GECC shall immediately upon any such transfer of Control be
under no further obligation (if any) to make any advances or provide any loans
or credit (or incur any obligations) with respect to such transferred Borrower.
Provided that the conditions set forth in the immediately preceding
sentence are satisfied upon any such transfer of Control of any Borrower, no
event of default shall occur hereunder by reason of such transfer of Control
until Lender shall have first attempted to negotiate with Borrower over the
period of time from the date of transfer of Control to the date which is sixty
(60) calendar days thereafter regarding adjustments to the terms hereof
(including without limitation reduction in available credit and increases in
interest rate(s)) to reflect the impact of such transfer
-4-
<PAGE>
of Control of a Borrower upon Lender. Borrower and Lender agree to negotiate in
good faith during such 90-day period based upon market conditions and other
similar transactions (if any). If Lender and Borrower fail to agree to
modification of the terms and conditions hereof by the end of such 90-day
period, then Lender may unilaterally impose such adjustments as it believes are
necessary or appropriate, or Lender may declare an immediate event of default
hereunder, or both.
As used in this Section, "Control" means the direct or indirect legal and
equitable ownership of 100% of the outstanding voting stock in a corporate
entity, or the actual or practical ability to control any person's or entity's
actions or decisions, regardless of ownership interests or other legal
relationships with such person or entity.
B. New Vehicle Advances.
--------------------
(1) Subject to the full and timely payment and performance by
Borrower of all conditions and covenants in this Agreement, upon the request(s)
of Borrower from time to time, Lender shall make New Vehicle Advances to
Borrower, provided that (a) advances for New Vehicles shall not exceed One
Hundred Million Dollars ($100,000,000) outstanding at any time, (b) New Vehicle
advances outstanding at the same time for motor vehicles to be included in a
fleet sale shall not exceed the lesser of (i) $350,000, or (ii) 20 motor
vehicles. As used in this Agreement, a fleet sale is a sale of more than one
motor vehicle in a single transaction, or in a series of related transactions,
to a single buyer for business use by the buyer. Lender shall not be obligated
to make advances of New Vehicles to be included in a fleet sale which exceeds
$350,000 unless Lender approves such advances in writing prior to Borrower's
purchase of the motor vehicles and the purchaser agrees to pay Lender directly,
and (c) advances shall not be outstanding at the same time for more than 50
Demonstrators.
(2) If, prior to June 26, 1997, Lender shall make an Initial Advance,
Lender may, at its option, disburse such funds (a) to Lender and/or any other
lender(s) then providing financing for Borrower's inventory of Vehicles, or (b)
to Borrower. If Borrower's debt or security interest held by any other
lender(s) is assigned to Lender, the terms and conditions of such debt and
security interest are hereby modified to be consistent with the terms and
conditions of this Agreement.
(3) If Borrower requests that Lender finance Borrower's purchase of a
New Vehicle, or if a manufacturer, distributor, or franchised dealer notifies
Lender that Borrower desires Lender to finance Borrower's purchase of a New
Vehicle from such seller, then Lender shall make an advance to enable Borrower
to purchase such New Vehicle, provided that all conditions precedent under this
Agreement are satisfied and no event of default exists hereunder. Any advance
made by Lender to pay for the purchase of a New Vehicle intended for Borrower
shall be deemed to be an advance requested by Borrower. Lender, at its option,
may disburse the advance to Borrower or to the seller of the New Vehicle. Any
invoice, notice of shipment, or schedule pertaining to New Vehicles received by
or sold to Borrower which indicates that Lender has an interest in or has
financed a New Vehicle for Borrower shall be conclusive evidence when so used by
Lender that Lender has financed the acquisition of such New Vehicle for Borrower
and that the purchase price (including freight) of the New Vehicle stated
thereon is the original principal amount of Borrower's obligation to Lender for
financing such New Vehicle. Future advances for New Vehicles shall only be made
if Lender makes the Initial Advance in Section B. 2.
-5-
<PAGE>
(4) Each advance made by Lender to finance Borrower's acquisition of
a New Vehicle shall be equal to the lesser of: (a) 100% of the manufacturer's
invoice amount (including freight), (b) Borrower's cost to purchase the New
Vehicle, or (c) the amount requested by Borrower to be advanced.
(5) Prepayment Advances. As provided in Section III.A.2, upon
-------------------
request by Borrower, Lender shall advance to Borrower an amount not exceeding
prepayments made on New Vehicle advances.
C. Revolver Advances.
------------------
(1) Subject to the full and timely payment and performance by
Borrower of all conditions and covenants in this Agreement, upon the request(s)
of Borrower from time to time, Lender shall make Revolver Advance(s) to
Borrower, provided that: (a) the total Revolver Advances outstanding at any
time shall not exceed the lesser of Thirty-Five Million Dollars ($35,000,000) or
the Revolver Borrowing Base, and (b) Revolver Advance(s) shall only be made if
Lender makes the Initial Advance in Section II.B.2.
(2) As a condition precedent to the making and continuation of each
Revolver Advance, Borrower shall have delivered to Lender an accurate and
completed Borrowing Base Certificate as required hereunder, demonstrating (among
other matters) the amount and availability of the Revolver Borrowing Base.
(3) Consignment. Borrower and Lender may enter into an agreement by
-----------
which they agree that Lender may consign Used Vehicles to Borrower for sale in
accordance with its terms. Such an agreement shall become incorporated herein
as though fully set forth in this subsection, except that defined terms in such
and agreement shall retain the meaning given therein. Consigned Vehicle(s)
shall not be considered to be Eligible Used Vehicles.
D. Program Vehicle Advances.
-------------------------
(1) Subject to the full and timely payment and performance by
Borrower of all conditions and covenants in this Agreement, upon the request(s)
of Borrower from time to time, Lender shall make Program Vehicle advances to
Borrower, provided that the total Program Vehicle advances outstanding at any
time shall not exceed Fifteen Million Dollars ($15,000,000).
(2) Advances. If Borrower requests that Lender finance Borrower's
--------
purchase of a Program Vehicle, or if the manufacturer or auctioneer notifies
Lender that Borrower desires Lender to finance Borrower's purchase of a Program
Vehicle, then Lender shall make an advance to enable Borrower to purchase the
Program Vehicle. Lender, at its option, may disburse the advance to Borrower,
the auctioneer, or the manufacturer. Advances for Program Vehicles shall only be
made if Lender has made the Initial Advance described in II.B.2. Any invoice,
notice of shipment, or schedule pertaining to motor vehicles received by or sold
to Borrower which indicates that Lender has an interest in or has financed a
Program Vehicle for Borrower shall be conclusive evidence when so used by Lender
that Lender has financed the acquisition of the motor vehicle for Borrower.
(3) Amount of Advance. Each advance made by Lender to finance
-----------------
Borrower's acquisition of a Program Vehicle shall be equal to the lesser of:
(i) 100% of Borrower's cost
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<PAGE>
(excluding freight) if the Vehicle has 5,000 miles or less, 95% of Borrower's
cost (excluding freight) if the Vehicle has 5,001 to 10,000 miles, or 90% of
Borrower's cost (excluding freight) if the Vehicle has more than 10,000 and less
than 20,000 miles, or (ii) the amount requested by Borrower to be advanced.
E. Discretionary Advance.
----------------------
Upon the request(s) of Borrower from time to time, and provided that all
conditions precedent hereunder are then satisfied and no default then exists
hereunder, Lender (in its sole and absolute discretion), may elect to make
Discretionary Advance(s) to Borrower, provided that (a) such Discretionary
Advance(s) shall be used solely to acquire New Vehicle(s) inventory of a vehicle
dealership which Borrower (or an affiliate acceptable to Lender in its sole and
absolute discretion) desires to acquire, (b) if an affiliate of Borrower
acquires such New Vehicle(s) inventory, such affiliate and Borrower have
executed this Agreement and executes and/or delivers to Lender such other
documents and agreements as Lender may require, and (c) the total of all
Discretionary Advances outstanding at any time shall not exceed Twenty-Five
Million Dollars ($25,000,000).
F. Conditions to Advances.
----------------------
(1) Notwithstanding any other provision of this Agreement, Lender is
not obligated to make any advance if: (a) Borrower is in default of this
Agreement or any other obligation to Lender, (b) Borrower's landlord(s) have not
waived any interest in the Collateral securing this Agreement, (c) a guarantor
of Borrower's obligations to Lender is in default of the guarantor's obligations
to Lender under the guaranty or under any other agreement(s), (d) the advance
will not be secured by a perfected first priority security interest in the
Financed Vehicle and in its proceeds, (e) Borrower's obligations to Lender
hereunder are not secured as required in Section III, (f) Borrower is not the
sole owner of the Financed Vehicle, free and clear of all liens other than
Lender's security interest, (g) an event occurs (including without limitation
the commencement or threat of any lawsuit against Borrower or any guarantor)
which Lender reasonably determines constitutes or could constitute a material
adverse change in the business, financial condition, operations, performance,
properties, management or prospects of Borrower or any guarantor or which Lender
determines materially and adversely affects the ability of Borrower or any
guarantor to perform its obligations to Lender or which Lender determines
materially impairs the value of the Collateral, (h) Borrower has not provided
Lender with: (i) a certified copy of Borrower's filed articles of incorporation,
(ii) a certificate of good standing for Borrower in all states in which it does
business, (iii) a certificate by Borrower's corporate secretary or treasurer
certifying the identity of the officers, directors and owners of Borrower and
its capital structure, and (iv) a certificate by Borrower's corporate secretary
certifying the adoption of a resolution of Borrower's board of directors which
authorizes Borrower to enter into and perform this Agreement, (i) any common
stock of any Borrower or the majority of its assets is sold without the prior
written consent of Lender, (j) all obligations of Borrower to the guarantors,
its owners and its affiliates have not been subordinated to Borrower's
obligations to Lender in form and content acceptable to Lender, (k) any joint
owner of a guarantor's assets has not subordinated its interest in such assets
to Lender in form and content acceptable to Lender, (l) all of Borrower's
obligations to Lender are not at all times unconditionally guaranteed by FAA,
(m) Borrower shall not have paid all of Lender's fees and costs incurred in
connection with this Agreement and the transactions contemplated hereby, (n) TCW
shall not have executed an intercreditor and/or subordination agreement with
Lender acceptable to Lender in its sole and absolute discretion, or TCW shall
have defaulted under
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<PAGE>
any such agreement(s), (o) FAA and/or Borrower shall not have entered into loan
and/or other financing agreements with TCW acceptable in form and content to
Lender in its sole and absolute discretion or shall not have received the
financing and/or funds committed by TCW thereunder, (p) Borrower and/or any
guarantor has not delivered to Lender all loan, security, guaranty and other
documents and agreements which Lender may require in its sole and absolute
discretion in connection herewith (including without limitation legal opinion(s)
of counsel for Borrower and each guarantor), or (q) Donald V. Strough and Thomas
A. Price shall have delivered to Lender a "best efforts" letter acceptable to
Lender stating (among other things) that FAA and Borrower shall attempt to
maintain automobile lease volume of 7.1% for total New Vehicle(s) sales and
10.0% for total Used Vehicle(s) sales.
III. PAYMENT
-------
A. Principal
---------
(1) Borrower shall pay to Lender the amount of the outstanding
advances made by Lender as follows:
(a) When a Financed Vehicle (including fleet sales but excluding
Eligible Used Vehicles) is sold, leased, delivered, or otherwise disposed of by
Borrower, Borrower shall pay to Lender the principal balance of the advance made
for such Vehicle no later than the earlier of: (i) two (2) Business Days after
Borrower receives payment or other proceeds of the Financed Vehicle, or (ii) ten
(10) calendar days after the Financed Vehicle is sold, leased, delivered, or
otherwise disposed of (whichever first occurs), or (iii) thirty (30) calendar
days after delivery of a fleet sale by Borrower;
(b) For each Demonstrator financed by Lender, Borrower shall pay
to Lender monthly an amount equal to 25% of the initial amount of Lender's
respective Demonstrator(s) advance commencing at the earlier of (i) six months
after the respective advance, or (ii) the date that such respective
Demonstrator(s) has accumulated 6,000 miles on its odometer;
(c) Unless previously repaid, 360 days after a respective
advance is made for a New Vehicle (including Demonstrators), Borrower shall pay
to Lender the principal balance of the advance;
(d) 90 calendar days after a respective advance is made in
connection with a Program Vehicle, Borrower shall pay to Lender the principal
balance of the advance;
(e) Whenever Revolver Advance(s) outstanding at any time exceed
the Revolver Borrowing Base (as determined by Lender or Borrower from time to
time), then Borrower shall pay the amount of such excess(es) to Lender within
two (2) Business Days thereafter;
(f) If a Financed Vehicle is missing or damaged beyond ordinary
means of repair, Borrower shall pay to Lender the principal balance of the
advance made for such vehicle within two (2) Business Days after the loss or
damage;
(g) Borrower shall pay to Lender the principal balance of all
Program
-8-
<PAGE>
Vehicle advances, Revolver Advances and Discretionary Advances at the first time
there is no advance outstanding for New Vehicles;
(h) Payment for any consigned Used Vehicle(s) shall be made in
accordance with the applicable consignment agreement;
(i) Immediately upon termination or default as defined in this
Agreement.
(2) Partial Prepayments. Borrower may, at its option, partially
-------------------
prepay New Vehicle(s) advances. Partial prepayments shall be made only in Fifty
Thousand Dollar ($50,000) increments, and shall not in the aggregate exceed 25%
of the outstanding principal balance of New Vehicle(s) advances. Any payments
made pursuant to this Section shall be made by wire transfer at Borrower's
expense. Borrower shall receive same day credit for funds received prior to
10:00 a.m. Central Standard Time on a banking business day. Borrower shall
receive credit on the next banking business day for funds not received prior to
10:00 a.m. Central Standard Time. To the extent Borrower has prepaid principal
as provided in this Section, upon Borrower's request, Lender shall, if all
conditions to advances are met, re-advance to Borrower in Fifty Thousand Dollar
($50,000) increments the lesser of: (i) the amount Borrower requests, or (ii)
the amount of prepayments made more than ten days prior to Borrower's request
for which there is no outstanding re-advance under this Section, minus the
amount of such prepayments which would have become required payments prior to
the time of the requested re-advance, or (iii) the amount then available for New
Vehicle advances. Re-advances requested by Borrower pursuant to this Section
shall be wire transferred by Lender to Borrower at Borrower's expense. The re-
advance shall be transferred on the day of Borrower's request if Borrower's
request is received before 10:00 a.m. Central Standard Time on a banking
business day. Requests not received before 10:00 a.m. Central Standard Time
shall be honored on the next banking business day. Re-advances shall be subject
to the limitations applicable to New Vehicle(s) advances.
B. Interest
--------
(1) Borrower shall pay to Lender interest on the average daily
balance of the following advances at the following respective per annum rate(s):
(a) as to New Vehicle(s) advances, the Index Rate minus three-quarters
percentage points (0.75%) per annum, (b) as to Program Vehicle(s) advances, the
Index Rate minus 45/100ths percentage points (0.45%) per annum, (c) as to
Revolver Advance(s), the Index Rate less 35/100ths percentage points (0.35%) per
annum, and (d) as to Discretionary Advance(s), the Index Rate minus three
quarters percentage point (0.75%) per annum.
(2) Unless a billing from Lender to Borrower indicates a later date,
the interest shall be due and payable monthly on the first day of each calendar
month for the interest accrued during the preceding calendar month. Interest
shall be in default and past due if payment in good funds is not received by
Lender by the 20th of each month for the interest accrued during the preceding
month. If the payment of interest is not received by Lender in good funds by
the 20th of the month, then Borrower shall pay to Lender a late charge equal to
5% of the interest which accrued during the preceding month. Any insurance
premiums billed by Lender shall be due and payable on the same date as the
interest and shall be subject to the same late charge. Unless the billing
indicates otherwise, each billing period shall be a calendar month. The average
daily balance which bears interest is the sum of the daily outstanding advances
for the billing period divided by the number of days in the billing period.
Where permitted, interest shall be calculated
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<PAGE>
on the basis of a 360 day year for the actual days elapsed. Any interest start
date shown on a manufacturer or distributor invoice is not binding on Lender.
Interest on advances shall begin to accrue on the earlier of the date of the
invoice from the seller to Borrower or when Lender issues a draft or is drafted
on.
C. Maximum Lawful Rate
-------------------
(1) Notwithstanding any provision in this Agreement, or in any other
document, if at any time before the payment in full of all advances made
hereunder any Stated Rate exceeds the Maximum Lawful Rate then, in such event
and so long as the Maximum Lawful Rate would be so exceeded, the rate of
interest payable on the advances shall be equal to the Maximum Lawful Rate;
provided, however, that if at any time thereafter the Stated Rate shall be less
than the Maximum Lawful Rate, then, subject to (2) below, Borrower shall
continue to pay interest at the Maximum Lawful Rate until such time as the total
interest received by Lender is equal to the total interest which Lender would
have received had the Stated Rate been (but for the operation of this Section C.
(1)) the interest rate payable; thereafter, the interest rate payable shall be
the Stated Rate unless and until the Stated Rate shall again exceed the Maximum
Lawful Rate, in which event this Section C. (1) shall again apply. In the event
interest payable hereunder is calculated at the Maximum Lawful Rate, such
interest shall be calculated at a daily rate equal to the Maximum Lawful Rate
divided by the number of days in the year in which such calculation is made.
(2) In no event shall the total interest contracted for, charged,
received or owed pursuant to the terms of this Agreement exceed the amount which
Lender may lawfully receive. In the event that a court of competent
jurisdiction, notwithstanding the provisions of this Section C, shall make a
final determination that Lender has received, charged, collected, or contracted
for interest hereunder in excess of the amount which Lender could lawfully have,
Lender shall, to the extent permitted by law, promptly apply such excess first
to any interest due (calculated at the Maximum Lawful Rate if applicable) and
not yet paid, then to the prepayment of principal, and any excess remaining
thereafter and after application to any other amounts Borrower owes Lender shall
be refunded to Borrower. In determining whether the interest exceeds the
Maximum Lawful Rate or the maximum amount which Lender could lawfully have
received, the total amount of interest shall, to the extent allowed by law, be
spread over the term of the total indebtedness. Any provisions of this
Agreement regarding the time during which interest accrues on advances are only
elements of the formula for calculating interest on the total indebtedness and
are not intended to cause interest to be applied to specific advances for usury
determination purposes.
D. Manner and Application of Payments. Times for payment specified in
-----------------------------------
Section III are due dates and indicate when the payments must be received by
Lender. Principal curtailment payments payable during a month are due at the
same time interest for the month is due. Borrower shall make all payments to
Lender by either, at Lender's option, ACH (Automated Clearing House) or an
electronic fund transfer method acceptable to Lender. Borrower shall pay any
fees charged for automated or electronic payment. Lender shall apply all
payments on the second Business Day following the Business Day on which they are
received. Lender reserves the right to apply payments in any order and to any of
the amounts due. If a payment by Borrower is not honored upon first presentment,
then Borrower shall pay to Lender a $25.00 handling fee for the dishonored
payment.
E. Handling Fee For Delayed Drafting. Whenever a manufacturer or
---------------------------------
distributor requests payment from, or drafts on, Lender for a vehicle more than
30 days after delivery of the vehicle to
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<PAGE>
Borrower, then Borrower shall pay Lender a $50.00 handling fee for each such
advance made by Lender unless the delay is the customary delay associated with
new model year introductions. In addition, if Borrower repays such an advance
after Lender is drafted on by, or issues a draft to, the manufacturer or
distributor for the vehicle, then interest shall accrue on the advance as
provided in Section II.B. If Borrower repays such an advance before Lender is
drafted on by, or issues a draft to, the manufacturer or distributor, then no
interest shall accrue on the advance. This section does not constitute Lender's
consent to delayed drafting. Borrower shall obtain Lender's consent to delayed
drafting before purchasing Vehicles to be financed by Lender on a delayed
drafting basis.
F. Statements of Account. Lender shall provide Borrower with statements of
---------------------
account on a monthly basis in the form of monthly billings. Each such statement
shall be conclusively deemed correct and accurate and shall constitute an
account stated between Borrower and Lender, absent manifest error, unless
thereafter waived in writing by Lender or unless, within thirty days after
Borrower's receipt of said statement, Borrower delivers to Lender written
objection thereto specifying the errors contained in the statement. In the event
of an error, Lender's sole liability shall be to make corrective adjustments to
Borrower's account. All amounts shown on a statement as currently due are due
and payable upon receipt of the statement. Lender's books and records shall be
sufficient proof of the amount of Borrower's obligations to Lender. At Lender's
option, Lender may provide statements on a computerized storage and retrieval
medium, or by electronically transmitting the information or allowing Borrower
computer access. Electronically transmitted or accessed information shall be
deemed received by Borrower when it is available to be accessed by Borrower.
IV. COLLATERAL
----------
A. Security Interest. To secure Borrower's existing and future
-----------------
obligations to Lender hereunder and to secure all other existing and future
obligations of Borrower to Lender, Borrower hereby grants to Lender a continuing
security interest in the following property (the "Collateral") in which Borrower
has or acquires an interest, whether new, used, or repossessed, now existing or
hereafter arising, and wherever located: (1) all motor vehicles; (2) all
inventory, including but not limited to motor vehicles, parts, and accessories;
(3) all accounts, contract rights, documents, instruments, deposit accounts,
general intangibles, chattel paper, rebates, reserves and deposits, including
but not limited to franchises and all amounts due from manufacturers and
distributors; (4) all equipment and fixtures; (5) all books and records,
including but not limited to customer lists, credit files, sale transaction
records, and computer programs and data; (6) all insurance policies, and
benefits and rights under insurance policies, which Borrower is solely or
jointly the owner of, insured under, or the beneficiary of; (7) all funds or
property in the possession of, under the control of, or in transit to or from,
Lender; and (8) all proceeds of, products of, accessions to, and substitutions
for, all of the foregoing. Except as specifically provided in this Section IV,
Borrower shall not grant or allow any person or entity other than Borrower to
have an ownership interest in the Collateral and Borrower shall not grant or
allow any person or entity other than Lender to have a lien or security interest
in the Collateral. Notwithstanding any provision in this Agreement or any
practice to the contrary, whenever Lender finances Borrower's acquisition of a
Vehicle, Lender shall have a purchase money security interest in the Vehicle. To
determine the extent of the purchase money security interest, Borrower payments
will be applied as specified in the Borrower billing statement or, if not
specified, the earliest purchased Vehicle shall be deemed paid for first. Lender
at its option may maintain possession of certificates of origin and certificates
of title.
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<PAGE>
B. Sale and Use of Inventory. Financed Vehicles shall be held by Borrower
-------------------------
in its inventory. Borrower may sell or lease such items of inventory if they are
sold or leased in the ordinary course of Borrower's business to buyers in the
ordinary course of business and if Lender is paid the outstanding amount of any
advance for Financed Vehicles sold or leased. Lender's security interest in sold
or leased Vehicles shall continue until Lender is so paid. All payments received
by Borrower in connection with a Financed Vehicle shall be held in trust by
Borrower for the benefit of Lender until they are paid to Lender. Except as
provided elsewhere in this Agreement, Borrower shall not consign or rent any
financed inventory without Lender's prior written consent.
C. Preservation of Inventory and Insurance. Borrower shall pay promptly
---------------------------------------
when due all taxes and transportation, storage, warehousing and other charges
assessed in connection with all of its inventory or the ownership or use of its
inventory, and shall keep all of its inventory in good and saleable condition.
Borrower shall keep its inventory insured with an insurer acceptable to Lender
for its full replacement value against any and all risk of loss or damage with
loss payable to Lender under a standard lienholder provision, or (at Lender's
election) as loss payee under an endorsement BFU 438 NS, to the extent of its
interest and with policies subject to cancellation or modification only upon ten
days written Notice to Lender. Should Borrower fail to provide required
insurance, keep the inventory in good condition or pay any of the taxes and
charges, Lender may, but shall not be obligated to, procure such insurance
and/or pay such amounts as are necessary to meet Borrower's obligations
hereunder. In such event, the cost will be added to Borrower's indebtedness
hereunder and be subject to the terms and conditions of this Agreement as an
advance, and Borrower shall immediately upon request reimburse Lender for such
cost plus interest at a per annum rate equal to the Index Rate plus 1.25%.
Borrower shall notify Lender in the event of damage to or loss of inventory
financed by Lender. In addition, Borrower shall maintain liability insurance on
terms and conditions acceptable to Lender from time to time in Lender's sole and
absolute discretion, which liability policies shall name Lender as an additional
insured thereunder.
D. Maintenance of Equipment. Borrower shall keep and maintain all of its
------------------------
equipment in good operating condition, except for ordinary wear and tear, and
shall repair and shall make all necessary replacements thereto so that the value
and operating efficiency thereof shall at all times be maintained. Borrower
shall maintain accurate records itemizing and describing the kind, quantity and
value of its equipment and shall furnish Lender upon request a current schedule
containing such information. Borrower may sell equipment if it is replaced with
similar or better equipment or if Borrower determines in good faith that the
equipment is no longer necessary. Borrower's presently owned equipment other
than Vehicles may be secured by existing purchase money security interests even
though such security interests may have a priority superior to Lender's security
interest. Borrower may grant a purchase money security interest superior to
Lender's security interest in equipment other than Vehicles which Borrower
hereafter purchases.
E. Inspection and Removal. Borrower hereby grants to Lender, for so long
----------------------
as Lender does not breach the peace, an irrevocable license to enter from time
to time and at any time upon any business location of Borrower for the purpose
of inspecting, auditing or securing or, in the event of default, repossessing
and foreclosing upon, Borrower's inventory or any other item of Collateral in
which Lender possesses a security interest or lien pursuant to this Agreement.
In the event that any of the Collateral is under the control of any third party,
Borrower shall use its best efforts to cause such parties to make such rights
available to Lender.
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<PAGE>
F. Offset. Lender has the right to offset against Borrower's obligations
------
hereunder any obligations of Lender to Borrower or any property of Borrower in
Lender's possession or control. Borrower has no right to offset its obligations
hereunder.
G. Costs Associated With Security Interests. Borrower shall pay, or shall
----------------------------------------
reimburse Lender upon request if Lender paid, all costs, fees (including
attorney fees), and taxes associated with obtaining, perfecting, achieving the
required priority for, and evaluating Lender's security interest in real
property. The costs, fees, and taxes shall include, but shall not be limited to,
filing fees and taxes for financing statements and mortgages, and costs of lien
searches, title opinions, title insurance, surveys, appraisals and environmental
reviews. Borrower's obligation for the costs, fees, and taxes shall be limited
to charges by third parties, including mailing costs.
V. FINANCIAL AND OPERATIONAL COVENANTS.
-----------------------------------
A. Financial Information. Lender may from time to time and at any time
---------------------
inspect, audit and copy Borrower's books and records to ascertain Borrower's
financial condition and compliance with this Agreement, and Borrower agrees to
cooperate fully with Lender in so doing (including without limitation delivering
to Lender upon request all documents and information Lender may request from
time to time). At any time at the request of Lender, Borrower shall furnish
within 30 days a balance sheet and a profit and loss statement reflecting the
financial condition of Borrower and the guarantors hereunder as of a date
specified by Lender. Within 12 days following the end of each month, Borrower
shall deliver to Lender financial statements for that month and a duly completed
Borrowing Base Certificate. Within 45 days after the end of each fiscal quarter
(commencing with the fiscal quarter ending September 30, 1997), Borrower shall
deliver to Lender consolidated financial statements for Borrower and all
guarantors for that fiscal quarter. Within 120 days of the end of each of
Borrower's fiscal years, Borrower shall deliver to Lender unqualified, audited
financial statements for Borrower and all guarantors for that fiscal year.
Within 5 days of the filing of a tax return by Borrower or a guarantor
hereunder, Borrower shall provide Lender with a copy of the tax return.
Borrower shall cause the guarantors hereunder to file tax returns annually.
Borrower shall exercise its best efforts to file its tax return within 120 days
of the end of its fiscal year. Borrower authorizes Lender to investigate
Borrower's creditworthiness and to obtain information about the Collateral, from
manufacturers and their affiliates or otherwise, whenever Lender determines it
to be necessary. Borrower further authorizes Lender to furnish information
concerning Borrower's account with Lender to credit reporting agencies, other
creditors of Borrower, manufacturers and all others who may lawfully receive
such information.
B. Location of Collateral. Borrower shall keep its inventory of Vehicles
-----------------------
and the other Collateral at the principal place of business shown in the first
paragraph of this Agreement. Borrower shall notify Lender in writing at least 60
days in advance of any intended changes in the location of its chief executive
office or principal place of business, the location of the Collateral, or
Borrower's sales locations. Borrower shall take such action prior to making the
change as is determined by Lender to be necessary, as a result of the intended
change, to preserve Borrower's obligations to Lender and Lender's security
interest in the Collateral.
C. Manner of Doing Business. Borrower shall conduct its business
-------------------------
operations in compliance with all applicable laws, shall remain in good standing
under its franchises, and shall maintain its corporate existence in good
standing with all required licenses. Borrower shall pay all
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<PAGE>
taxes and other obligations when due. Borrower shall not change its ownership,
structure, name, or trade style without at least 60 days' prior written Notice
to Lender. Borrower shall take such action prior to making the change as is
determined by Lender to be necessary, as a result of the intended change, to
preserve Borrower's obligations to Lender and Lender's security interest in the
Collateral. Borrower shall notify Lender immediately of any: (1) notice of
default or termination, or notice of intent to terminate, Borrower receives
regarding a New Vehicle franchise agreement, or (2) lawsuit, governmental
proceeding, or claim which, individually or in the aggregate, involves an amount
exceeding 10% of Borrower's net worth or which would impair Borrower's ability
to perform this Agreement if the relief requested were granted.
D. Power of Attorney. Borrower hereby irrevocably authorizes Lender, by
------------------
any employee or other person or entity of Lender's designation, to sign,
execute, endorse, transfer, file or deliver in the name of Borrower any
financing or other statements, or any certificates of title or origin or
application therefor, required by applicable law to perfect or realize on
Lender's security interest, and to endorse in the name of Borrower any notes,
checks, drafts or other instruments for the payment of money. This
authorization is limited to those acts necessary to reasonably effectuate this
Agreement and to those acts necessary or desirable in Lender's discretion to
secure and pay the indebtedness due hereunder and to realize on the Collateral.
A photostatic copy or other reproduction of this Agreement or of a financing
statement shall be sufficient as a financing statement.
E. Representations and Warranties. Borrower represents and warrants to
-------------------------------
Lender, upon the execution of this Agreement, continuing and at the time of each
advance hereunder, that:
(1) Borrower is duly organized, validly existing, and in good
standing in the states in which it does business, and the state of incorporation
and principal place of business shown in the first paragraph of this Agreement
are correct;
(2) Borrower's correct corporate name is shown in the first paragraph
of this Agreement and this has been its name since incorporation;
(3) Borrower uses and will use no trade names other than Serramonte
Auto Plaza, Serramonte Mitsubishi, Lexus of Serramonte, Stevens Creek Nissan,
Melody Toyota, Poway Dodge, Poway Toyota, Poway Honda, Concord Honda, Concord
Nissan, Dublin Volkswagen, Dublin Dodge, Dublin Nissan, Marin Nissan and
Serramonte Isuzu, Serramonte Nissan, Serramonte Dodge, Serramonte Buick -
Pontiac - GMC Truck, and Borrower has not used and will not use any other trade
names, unless Lender consents to such additional trade names at least ten (10)
Business Days prior to such use(s);
(4) Borrower is authorized to enter into this Agreement; this
Agreement is a valid and binding obligation of Borrower; the execution and
performance of this Agreement by Borrower is lawful and does not constitute a
default, acceleration, or termination of any other agreement to which Borrower
is a party;
(5) all information provided by Borrower to Lender at any time is
true, complete, and accurate;
(6) Borrower is the sole owner of all assets shown on Borrower's
financial statements delivered to Lender;
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<PAGE>
(7) Borrower is solvent and capable of paying its obligations as they
become due;
(8) there is no litigation or governmental proceeding pending against
Borrower, and Borrower is not aware of any such proceeding being threatened,
which could impair Borrower's ability to perform this Agreement;
(9) Borrower is in compliance with all applicable laws and New
Vehicle franchise agreements;
(10) Borrower maintains accurate business and financial records and
prepares its financial statements in accordance with generally accepted
accounting principles;
(11) Borrower is an authorized dealer franchisee for the New Vehicles
it sells and Borrower has not received any notice of default or termination
regarding the franchise;
(12) Borrower's obligations to its owners or affiliates are not
secured by any of Borrower's assets; and
(13) Borrower's sales locations are not in violation of any
environmental hazard laws. There has not been, nor shall Borrower cause or
permit, any Release of Hazardous Materials on or under the dealership property.
As used herein, "Release" means any spill, emission, leaking, disposal, pouring,
emptying or other discharge into the environment through the air, soil, surface
water, or ground water. "Hazardous Materials" means any substance the
generation, handling, storage, treatment or disposal of which is regulated by,
or forms the basis for liability now or hereafter under, any governmental
authority. Borrower shall, at all times, comply with all federal, state and
local law and regulation relating to the environment. Borrower shall indemnify
and hold harmless Lender and its affiliates, officer, directors, employees,
attorneys and agents from and against any and all suits, proceedings, claims,
damages, losses and expenses which may be asserted against them as a result of
credit having been extended to Borrower and in connection with any Release of
Hazardous Materials.
F. Financial Covenants. Borrower shall manage its finances in a sound and
--------------------
prudent manner and not impair its ability to perform this Agreement. Borrower
shall not guaranty, pay, or provide collateral for obligations of others, and
shall not become obligated for debts when it does not receive the loan for its
own use or receive the direct benefit of the consideration creating the debt.
Without Lender's prior written consent, Borrower shall not: (1) make any loans
or other advances of money or any loans or advances of inventory or other
property, to any person or entity other than advances against commissions and
other similar monetary advances to employees in the ordinary course of business,
(2) enter into, or be a party to, any transaction with any affiliate of
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms which are
fully disclosed to Lender, or (3) terminate any Borrower's New Vehicle franchise
agreement. All financial covenants herein shall be determined in accordance
with generally accepted accounting principles, consistently applied, and shall
be tested based upon the consolidated financial statements of Borrower and FAA.
Borrower shall maintain at all times a modified current ratio of greater than
1.30:1, calculated by dividing (a) total current assets plus LIFO reserve, if
any, less New Vehicle(s) inventory, less any inter-company transactions, by (b)
total current liabilities, less total New Vehicles(s) financing, less any inter-
company transactions. Borrower shall maintain at all times a ratio of debt to
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tangible net worth of less than 4.0:1.0, calculated by dividing (a) total
liabilities, less owner's, employees' and/or related parties' debt, less
subordinated debt, less inter-company debt, by (b) total net worth plus LIFO
reserve, if any, plus owner's, employees' and/or related parties' debt, plus
subordinated debt, less all intangible assets. Intangible assets can be, but not
limited to the following: owner and employee receivable accounts, any inter-
company receivable accounts, goodwill, non-business assets (i.e., collectibles),
trade names, and capital stock for non-publicly trade companies. Borrower shall
maintain at all times an interest coverage ratio as follows: (a) as of fiscal
year end 1997, of greater than 2.0:1.0; (b) as of fiscal year end 1998, of
greater than 2.5:1.0; (c) as of fiscal year end 1999, of greater than 3.0:1.0;
and (d) as of fiscal year end 2000, of greater than 3.5:1.0. Consolidated
interest coverage ratio shall be calculated by dividing (a) earnings before
interest and taxes, by (b) total interest expense less total non-cash interest
expense. Borrower shall deliver to Lender together with Borrower's quarterly
financial statements required hereunder a quarterly covenant compliance
certificate demonstrating compliance with the foregoing and in form and content
acceptable to Lender from time to time in Lender's sole and absolute discretion,
which shall initially be in the form of Exhibit B attached hereto and
incorporated herein by this reference (subject, however, to any future change(s)
which GECC may require from time to time in its sole and absolute discretion).
Furthermore, before GECC will consider making any Discretionary Advance(s)
(which Lender may do or not do in its sole and absolute discretion) Borrower
must maintain (a) a modified current ratio of greater than 1.40:1.0, (b) a ratio
of debt to tangible net worth of less than 3.50:1.0, and (c) a interest coverage
ratio of (i) as of fiscal year end 1997, of greater than 2.5:1.0, (ii) as of
fiscal year end 1998, of greater than 3.0:1.0, (iii) as of fiscal year end 1999,
of greater than 3.5:1.0, and (iv) as of fiscal year end 2000, of greater than
4.0:1.0. For purposes of this Section V. F., "inter-company" means any
transactions by, between or among any Borrower corporation and any other
Borrower corporation and/or FAA.
G. Additional Environmental Covenants. Borrower shall at all times comply
-----------------------------------
with any and all federal, state and local laws, rules, regulations and
directives now or hereafter existing concerning environmental matters and/or
hazardous substances or materials, and shall immediately inform Lender of any
alleged violation of such laws, rules, regulations or directives. Furthermore,
Borrower shall advise Lender immediately upon learning of any actual or
threatened release of any hazardous substance(s) or material(s) at, near or
concerning any of Borrower's dealership operations.
VI. DEFAULT AND REMEDIES
--------------------
A. Default. Any of the following events shall constitute a default of
-------
this Agreement by Borrower:
(1) Any Borrower or guarantor hereunder fails to make any payment
when due as required by this Agreement or the guaranty or any other agreement
with Lender;
(2) Any Borrower fails to perform any other obligation in this
Agreement or any other agreement with Lender, or a guarantor fails to perform
any other obligation in the guaranty or any other agreement with Lender, or if
any representation or warranty in this Agreement or any other agreement by any
Borrower or a guarantor with Lender is untrue;
(3) the occurrence of any material uninsured damage to, or loss,
theft, or destruction of, any of the Collateral or of any other assets of any
Borrower or its guarantors;
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(4) the filing by any Borrower or its guarantors of a voluntary
petition or answer seeking liquidation, reorganization, or any other relief
under the Bankruptcy Code, or under any other law pertaining to insolvency or
debtor relief; any agreement by any Borrower or its guarantors indicating
consent to, or acquiescence in, any such petition or proceeding; the making by
any Borrower or its guarantors of an assignment for the benefit of creditors;
the inability or failure generally of any Borrower or its guarantors to pay
debts as such debts come due; or the admission by any Borrower or its guarantors
in writing of an inability or failure generally to pay debts as such debts
become due;
(5) the filing of an involuntary petition against any Borrower or its
guarantors seeking liquidation, reorganization, or any other relief under the
Bankruptcy Code, or under any other law pertaining to insolvency or debtor
relief; the involuntary appointment of a receiver, custodian or trustee of any
Borrower or its guarantors or for all or a substantial part of any Borrower's or
its guarantors' property; the entry of a material judgment or the issuance of a
writ or warrant of attachment, execution or similar process against any
substantial part of the property of any Borrower or its guarantors; or the entry
of an order for relief under the Bankruptcy Code or any other insolvency or
debtor relief law; provided that, none of the foregoing events in this Section
VI. A. (5) shall constitute a default if the same shall be dismissed, vacated,
stayed, released or bonded on appeal within sixty (60) days after the filing,
appointment, entry or issuance thereof;
(6) a notice of lien, levy, assessment, or a notice of similar
effect, is filed of record with respect to all or any of Borrower's or its
guarantors' assets by any type of governmental entity or agency, or if any taxes
or debts owing to any governmental entity or agency becomes a lien or
encumbrance upon the Collateral or any other of Borrower's or its guarantors'
assets;
(7) the termination, revocation or limitation in any respect of a
guarantor's obligations under a guaranty of Borrower's obligations hereunder;
(8) the occurrence of any event or condition which Lender reasonably
determines constitutes or could constitute a material adverse change in the
business, financial condition, or prospects of Borrower or its guarantors or
which Lender determines materially and adversely affects the ability of Borrower
or its guarantors to perform its obligations to Lender or which Lender
determines materially impairs the value of the Collateral;
(9) the occurrence of any act or event which entitles the franchisor
of a New Vehicle franchise of any Borrower to terminate any Borrower's franchise
agreement after the expiration of any applicable cure period;
(10) the loss, termination, cancellation, revocation, forfeiture,
suspension, impairment of or failure to renew any Borrower's New Vehicle
franchise agreements, or any governmental licenses, certificates and/or permits
now held or hereafter acquired by any Borrower which are necessary for the
continued operation of its business;
(11) the entry of any order of a court enjoining, restraining or
otherwise preventing Borrower from conducting all or any material part of its
business affairs;
(12) the cessation of business by or the dissolution of any Borrower;
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(13) Thomas A. Price at all times shall not control at least twenty
percent (20%) of the voting common stock of FAA or at anytime shall fail to act
as Chief Executive Officer of FAA (unless his failure to act as Chief Executive
Officer is due to his death or disability, in which case no default shall occur
hereunder if a successor Chief Executive Officer reasonably acceptable to Lender
is appointed within six (6) months thereafter);
(14) Any default (or any event which with the giving of notice or
passage of time would be a default) shall have occurred by FAA or any Borrower
under any loan or other agreement with TCW; or
(15) Any default (or any event with the giving of notice or the
passage of time would be a default) shall have occurred by TCW under any
intercreditor or other agreement with Lender.
B. Default Rate of Interest. After an event of default, the advances shall
------------------------
bear interest at the rates provided in Section III. B. plus, at the option of
Lender evidenced by its written Notice to Borrower, to partially compensate
Lender for the additional credit risk, and not as a penalty, additional post-
default interest at the rate of 3.0% per annum until paid in full; provided,
however, that upon the occurrence of an event of default specified in Section
VI. A. (4) or (5), no such Notice shall be required, and such additional post-
default interest shall automatically accrue and be payable. For so long as the
post-default rate shall be in effect, the rates provided for in Section II. B.
plus such additional post-default interest shall be deemed the "Stated Rate" for
the purposes of Section III. C. of this Agreement. The automatic or elective
imposition of the post-default rate of interest shall not be a cure or
satisfaction of any default. This section shall not constitute a waiver of
Lender's right to accelerate and seek immediate payment of Borrower's
indebtedness to Lender upon default.
C. Remedies
--------
(1) Default by Lender. In the event of any default by Lender or any
-----------------
other claim by Borrower against Lender related to this loan, Borrower's sole and
exclusive remedy against Lender shall be a cause of action sounding in contract
with damages limited to actual and direct damages incurred. Lender shall in no
event be liable for ordinary negligence, delay in performance or any
consequential, special, punitive, incidental or indirect damages, including
without limitation, loss of profit or goodwill. Lender shall in no event be
liable for any loss or damage directly or indirectly resulting from the
furnishing of services or reports hereunder. LENDER MAKES NO WARRANTIES,
whether expressed or implied, including, without limitation, IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(2) Default by Borrower. In the event of any default by Borrower, at
-------------------
Lender's election Lender may, with or without Notice, demand, or legal process,
declare the entire net principal balance of Borrower's indebtedness to Lender
under this or any other agreement immediately due and payable, together with all
accrued interest and fees, and terminate any and all commitment(s) of Lender
hereunder. To the extent permitted by applicable law, Borrower hereby waives
presentment, protest, demand, notice of dishonor, notice of intent to accelerate
and notice of acceleration and all other notices and demands to which Borrower
might otherwise be entitled prior to Lender taking action to enforce any of its
rights. Lender shall have the following rights and remedies in addition to the
right to accelerate:
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(a) All of the rights and remedies of a secured party under the
Uniform Commercial Code of the State where such rights and remedies are
asserted, or under other applicable law, all of which rights and remedies shall
be cumulative, and none of which shall be exclusive, to the extent permitted by
law, in addition to any other rights and remedies contained in this Agreement;
(b) The right to appointment of a receiver;
(c) The right to: (i) enter upon the premises of Borrower, or
any other place or places where the Collateral is located and kept, through
self-help and without judicial process, without first obtaining a final judgment
or giving Borrower Notice and opportunity for a hearing on the validity of
Lender's claim and without any obligation to pay rent to Borrower, and remove
the Collateral therefrom to the premises of Lender or any agent of Lender, for
such time as Lender may desire, in order to effectively collect or liquidate the
Collateral; (ii) require Borrower to assemble the Collateral and make it
available to Lender at a place to be designated by Lender, in its sole
discretion; (iii) open and redirect Borrower's mail in order to take possession
of and realize on the Collateral; (iv) sell, lease or to otherwise dispose of
all or any Collateral in its then condition, or after any further repair or
modification thereof, at public or private sale or sales, with such notice as
may be required by law, in lots or in bulk, for cash or on credit, all as
Lender, in its sole discretion, may deem advisable; and such sales may be
adjourned from time to time with or without Notice; (v) terminate Borrower's
dealer agreements if necessary to accomplish manufacturer repurchase; and (vi)
enforce Borrower's rights under its dealer agreements, including the right to
manufacturer repurchase. Lender shall have the right to conduct such sales on
Borrower's premises or elsewhere and shall have the right to use Borrower's
premises without charge for such sales for such time or times as Lender may see
fit. Lender is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral, and Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit. Lender may
purchase all or any part of the Collateral at public or, if permitted by law,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against Borrower's obligations to Lender. The proceeds
realized from the sale of any Collateral shall be applied in the order
determined by Lender to the costs, expenses and attorneys' and paralegal fees
and expenses incurred by Lender for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Collateral; to the
interest and fees due hereunder; and to the principal of Borrower's debt to
Lender. Without limitation, Borrower agrees that any judicial sale of
Collateral, any repurchase of a motor vehicle by a seller pursuant to a
repurchase agreement between Lender or Borrower and the seller, and any private
or auction sale of inventory in "as is" condition to other dealers upon five (5)
days' written Notice to Borrower and within six months of repossession, shall be
a commercially reasonable method of disposition. Borrower shall be liable to
Lender for any deficiency following Lender's disposition of the Collateral
regardless of any subsequent disposition of the Collateral by the purchaser.
Borrower is not a beneficiary of, and has no right to compel Lender to enforce,
any repurchase agreement. If any surplus remains after the disposition of all of
the Collateral Lender shall remit the surplus to Borrower.
VII. TERMS OF AGREEMENT
------------------
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<PAGE>
A. Termination. This Agreement shall continue in full force for three
-----------
years. Payment in full of Borrower's obligations to Lender owed hereunder shall
constitute a termination. Lender has the right to terminate this Agreement at
any time without Notice if there is an event of default. Lender has the right
to terminate this Agreement on written Notice if there is a sale or other
transfer of the majority owner's interest in Borrower or a sale or other
transfer of a majority of the assets of Borrower. Notwithstanding the
foregoing, Lender and Borrower acknowledge and agree that FAA and/or one or more
Borrower(s) may desire from time to time to close and/or sell to third parties
certain of Borrower's dealership operations, and that no default shall occur
hereunder by reason of such closure(s) and/or sale(s) of dealership operations
provided that Borrower shall have first obtained Lender's advance written
consent to such closure(s) and sale(s). Termination in any manner shall in no
way affect Lender's security interest or Borrower's obligations to Lender. Upon
termination by either party or by lapse of time, Borrower shall pay to Lender
all amounts (including principal, interest, and reimbursable expenses)
outstanding hereunder. Payment shall be made at the earlier of: (1) the times
provided elsewhere in this Agreement, or (ii) the effective date of termination.
B. Modification of Agreement; Sale of Interest. This Agreement may not be
--------------------------------------------
modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer this Agreement
or any portion thereof. Borrower hereby consents to Lender's participation,
sale, assignment, transfer or other disposition of this Agreement or of any
portion hereof.
C. Attorneys' and Other Fees and Expenses. If at any time Lender employs
---------------------------------------
legal counsel, appraisers, environmental consultants or any other third person
or entity for advice, consultation or other representation, or Lender otherwise
incurs expenses, in connection with: (1) the preparation of this Agreement or
any other related document, the closing of the transactions contemplated hereby,
or any amendment of or modification of this Agreement; (2) the administration of
this Agreement and the transactions contemplated hereby; (3) any litigation,
contest, dispute, suit, proceeding or action (including but not limited to any
bankruptcy proceeding) in any way relating to the Collateral, this Agreement, or
Borrower's affairs; (4) any actual or attempted enforcement of any rights of
Lender against Borrower or any other person or entity which may be obligated to
Lender by virtue of this Agreement; and/or (5) any actual or attempted
inspection, verification, protection, collection, sale, liquidation or
disposition of the Collateral; then, in any such event, the fees, expenses, and
costs of such third party and Lender shall be payable, on demand, by Borrower to
Lender and shall be an obligation of Borrower hereunder. Without limiting the
generality of the foregoing, such expenses, costs, and fees may include
accountants' fees, costs and expenses; court costs and expenses; photocopying,
work processing and duplicating expenses; court reporter fees, costs and
expenses; long distance telephone charges; air express charges; telegram
charges; salary and hourly fees; secretarial overtime charges; and expenses for
travel, lodging and food incurred in connection with the performance of such
services. Additionally, if any taxes or fees shall be payable on account of the
execution or filing of this Agreement, or related documents, or the creation of
any of the obligations (other than taxes or fees assessed on the basis of
Lender's net income), Borrower shall pay all such taxes and fees, and will
indemnify and hold Lender harmless from and against liability in connection
therewith.
D. No Waiver by Lender. Time is of the essence in Borrower's performance
-------------------
of this Agreement. Lender's failure, at any time or times hereafter, to require
strict performance by Borrower of any provision of this Agreement shall not
waive, affect or diminish any right of Lender thereafter to demand strict
compliance and performance therewith. Any suspension or
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<PAGE>
waiver by Lender of any event of default hereunder shall not suspend, waive or
affect any other event of default, whether the same is prior or subsequent
thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement shall be deemed to have been suspended or waived by
Lender, unless such suspension or waiver is by an instrument in writing signed
by a duly authorized representative of Lender and directed to Borrower
specifying such suspension or waiver and any such event of default shall be
deemed to continue to exist after its occurrence, unless and until such written
suspension or waiver is signed by Lender. Lender's assessment or collection of
a late charge or handling fee for a late payment does not waive Lender's right
to treat the late payment as a default.
E. Severability. Wherever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
F. Parties. This Agreement shall be binding upon and inure to the benefit
-------
of the permitted successors and assigns of Borrower and Lender. To the fullest
extent permitted by law, Borrower waives as against any assignee any claim or
defense which Borrower may have against Lender.
G. Waivers by Borrower. Except as otherwise provided for in this
-------------------
Agreement, Borrower waives: (1) presentment, demand, protest, and notice of
presentment, protest, default, non-payment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties at any
time held by Lender on which Borrower may in any way be liable and hereby
ratifies and confirms whatever Lender may do in this regard; (2) Notice prior to
taking possession or control of the Collateral, and waives any bond or security
which might be required by any court prior to allowing Lender to exercise any of
Lender's remedies; and (3) the benefit of all valuation, appraisement and
exemption laws.
H. Governing Law. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND
-------------
DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE AT BARRINGTON, ILLINOIS. THE
ADVANCES PROVIDED FOR HEREIN ARE TO BE FUNDED AND REPAID AT AND THIS AGREEMENT
IS OTHERWISE TO BE PERFORMED AT BARRINGTON, ILLINOIS AND THIS AGREEMENT SHALL BE
INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. AS A MATERIAL INDUCEMENT TO
LENDER TO ENTER INTO THIS AGREEMENT, BORROWER WAIVES TRIAL BY JURY IN ANY ACTION
RELATED TO OR ARISING UNDER THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
I. Notice. Whenever it is provided herein that any Notice shall or may be
------
given to or served on either of the parties by the other, or whenever either of
the parties desires to give or serve upon the other any such Notice with respect
to this Agreement, it shall be in writing and either shall be delivered in
person by an employee or agent or private delivery mail service, by telecopy, or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
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(1) If to Lender, at:
General Electric Capital Corporation
1000 Hart Road
Barrington, IL 60010
Attention: Manager - Wholesale Operations
Telecopy: (800) 527-7558
(2) If to Borrower, at:
1500 Collins Avenue
Colma, California 94014
Telecopy: (415) 756-3945
or at such other address as may be substituted by Notice given as herein
provided. The giving of any Notice required hereunder may be waived in writing
by the party entitled to receive such Notice. Every Notice hereunder shall be
deemed to have been duly given or served on the date on which delivered or
telecopied or, if earlier, three Business Days after the same shall have been
deposited with the United States Postal Service. Failure or delay in delivering
copies of any Notice to the persons or entities designated above to receive
copies shall in no way adversely affect the effectiveness of such Notice.
J. Section Titles. The Section titles contained in this Agreement are and
--------------
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the Agreement.
K. Indemnity. Borrower agrees to indemnify Lender from and against any
---------
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including, without limitation, fees and disbursements of counsel)
which may be imposed on, incurred by, or asserted against Lender in any claim,
litigation, proceeding or investigation instituted or conducted by any
governmental agency or instrumentality or any other person or entity, and which
are related directly or indirectly to this Agreement, whether or not Lender is a
party thereto, except to the extent that any of the foregoing arises out of the
gross negligence or willful misconduct of Lender.
L. Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties as to the transactions contemplated hereby,
and it supersedes all prior negotiations, understandings and agreements between
such parties in respect of such transactions.
M. Publicity. Borrower authorizes Lender to publicize "tombstone" or
---------
similar announcements with respect to the financing contemplated hereunder, and
to use Borrower's name and logo in connection therewith.
N. Additional Documents and Action. Borrower shall execute such
-------------------------------
additional documents and take such further action as Lender may reasonably
request in order to carry out the provisions and intent of this Agreement.
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ THIS AGREEMENT, HAS CONSULTED
WITH COUNSEL TO THE EXTENT BORROWER DEEMS ADVISABLE AND THAT BORROWER
UNDERSTANDS ALL OF THE PROVISIONS
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<PAGE>
CONTAINED HEREIN AND DESIRES TO BE BOUND HEREBY. THIS AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of this 2nd
day of July, 1997.
GENERAL ELECTRIC CAPITAL
CORPORATION
FAA SAN BRUNO, INC.
By: /s/ By: /s/
_______________________ _______________________
Its: Commercial Account Manager Its: President
_______________________ _______________________
TRANSCAR LEASING, INC. FAA SERRAMONTE L, INC.
By: /s/ By: /s/
_______________________ _______________________
Its: President Its: President
_______________________ _______________________
SMART NISSAN, INC. FAA SERRAMONTE, INC.
By: /s/ By: /s/
_______________________ _______________________
Its: President Its: President
_______________________ _______________________
FAA STEVENS CREEK, INC. FAA CONCORD N, INC.
By: /s/ By: /s/
_______________________ _______________________
Its: President Its: President
_______________________ _______________________
FAA POWAY H, INC. FAA CONCORD H, INC.
By: /s/ By: /s/
_______________________ _______________________
Its: President Its: President
_______________________ _______________________
FAA POWAY T, INC. FAA DUBLIN N, INC.
By: /s/ By: /s/
_______________________ _______________________
Its: President Its: President
_______________________ _______________________
FAA POWAY D, INC. FAA DUBLIN VWD, INC.
By: /s/ By: /s/
_______________________ _______________________
Its: President Its: President
_______________________ _______________________
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EXHIBIT 10.1.1
INTERCREDITOR AND SUBORDINATION AGREEMENT
This Intercreditor and Subordination Agreement (this "Agreement"),
dated as of July 8, 1997, is entered into by and among TCW/CRESCENT
MEZZANINE PARTNERS, L.P., TCW/CRESCENT MEZZANINE TRUST, and TCW/CRESCENT
MEZZANINE INVESTMENT PARTNERS, L.P., each solely in their capacities as holders
(the "Initial Holder(s)") of Preferred Stock and Notes (each as hereinafter
defined), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, its
successors and assigns (jointly and severally, "GECC"), to determine the
parties' respective rights, remedies and interests with respect to FIRSTAMERICA
AUTOMOTIVE, INC., a Delaware corporation and each of its subsidiary corporations
now or hereafter existing and each of their respective successors and assigns
(jointly and severally herein, "BORROWER"). This Agreement is made with respect
to the following facts:
A. Initial Holder(s) are the owners of certain securities of Borrower, as
evidenced by [12.375%] (the "Notes") in the initial aggregate principal amount
of up to $36,000,000, and 3,500 shares of [8%] (the "Preferred Stock")
(collectively, the "Securities"), as defined in and issued pursuant to that
certain Securities Purchase Agreement, dated as of July 8, 1997 by and among
Borrower and Initial Holder(s), as such agreement exists as of the date hereof
(the "Securities Purchase Agreement").
B. GECC is proposing to extend various secured financial accommodations
to Borrower for the purposes of, among others, purchasing inventory, providing
working capital and repaying existing indebtedness. However, GECC is unwilling
to provide such financial accommodations unless Initial Holder(s) subordinate
their claims in the manner set forth below. Initial Holder(s) hereby acknowledge
and affirm that GECC's financial accommodations to Borrower constitute valuable
consideration to each Initial Holder(s).
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged by the parties hereto, and to induce GECC to extend such
financial accommodations to Borrower as GECC may determine, and to better secure
GECC with respect to the foregoing, GECC and the Initial Holders (together with
any other holder(s) of the Preferred Stock and/or the Notes from time to time in
its capacity as such a holder, collectively "Holder(s)") hereby agree as
follows:
1. DEFINITIONS.
(A) "SENIOR INDEBTEDNESS". The term "Senior Indebtedness" shall
mean, collectively, (i) all indebtedness and other obligations of Borrower now
or
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hereafter existing under that certain Loan and Security Agreement and/or
Guaranty of even date herewith between and among Borrower and GECC (jointly and
severally, the "Loan and Security Agreement"), and all other documents,
instruments and agreements executed by Borrower with or in favor of GECC in
connection therewith, as they may be amended, supplemented, extended, renewed,
modified or restated from time to time, whether for principal, premium, interest
(including all interest accruing after the initiation of any bankruptcy case,
whether or not allowed), fees, expenses (including without limitation attorneys'
fees and court costs), indemnities or otherwise; provided, that Senior
Indebtedness shall be limited to the maximum aggregate principal amount of $185
million (reduced by any permanent reduction(s) requested by the Borrower in a
writing acceptable to GECC in the maximum credit available to Borrower under the
Loan and Security Agreement), plus all accrued and unpaid interest, fees,
expenses and other amounts (other than principal) payable under the Loan and
Security Agreement; and further, provided, that Senior Indebtedness shall not
include any advance(s) by GECC to Borrower as to which GECC has actual knowledge
at the time of making such advance(s) that such advance(s) exceed the borrowing
base limitations on such advance(s) under the Loan and Security Agreement, as
such limitations exist as of the date hereof (and advances under Loan and
Security Agreement Section II.E. shall be deemed subject to the limitations of
Section II.B.(4) thereof).
(B) "SUBORDINATED INDEBTEDNESS". The term "Subordinated
Indebtedness" shall mean, collectively, all indebtedness and other obligations
of Borrower to Holder(s) under the Securities, or with respect to the Securities
under the Securities Purchase Agreement, any and all guaranties of such
obligations under the Securities Purchase Agreement and/or the Securities,
whether the sums represent principal, interest, dividends, costs, attorneys'
fees, charges, put obligations or other obligations due or not due, whether
incurred directly or indirectly and whether absolute or contingent.
(C) OTHER DEFINITIONS. Capitalized terms utilized herein and
not otherwise defined herein shall have the meaning(s) ascribed to same under
the Securities Purchase Agreement, as the same exists as of the date hereof.
2. SUBORDINATION
(A) SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS. The
Holder(s), by their acceptance of any Securities, agree that their right(s) to
receive any and all (a) payment(s) of the principal, interest, dividends and/or
any other Subordinated Indebtedness now or hereafter due under any Securities,
and (b) payment on account of the acquisition or redemption of any Securities by
the Borrower, is/are subordinated, to the extent and in the manner provided in
this Agreement, to the prior payment in full in cash (or in any other manner
acceptable to GECC) of all Senior Indebtedness of the Borrower and that these
subordination provisions are for the exclusive benefit of GECC. Each Holder
further agrees that, to the extent that Borrower makes a payment or payments to
GECC, which payment or payments or any parts thereof are subsequently avoided or
declared to be fraudulent or preferential and required to be repaid to a debtor-
in-possession, a trustee, a receiver or any other party under Title 11 of the
United States Code or any state law, then to the extent of such payment or
repayment, the obligation or part thereof intended to be satisfied shall be
revived and continued in full force and effect as a part of the obligations of
Borrower under the Loan and Security Agreement as if such payment had not been
made, and shall be subject in all respects to the subordination and other
provisions in favor of GECC hereunder. The Senior Indebtedness shall be deemed
not to have been paid in full until any such revived obligation shall be finally
satisfied.
(B) NO PAYMENT OR REMEDIES ON ANY SECURITIES IN CERTAIN
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<PAGE>
CIRCUMSTANCES.
(1) No payment(s) shall be received by or on behalf of the
Holder(s) on account of the principal, premium, if any, interest, dividends
and/or any other Subordinated Indebtedness now or hereafter due under any
Securities or to defease or acquire any Securities for cash or property, or on
account of the redemption provisions of any Securities, during the period (the
"Indefinite Blockage Period") beginning on the date(s) that the Agent receives
--------------------------
written notice from time to time (each a "Payment Notice") from GECC or its
--------------
representative (which notice will be promptly given by the Agent to the
Holder(s)) of any default in payment (a "Payment Default") of any principal,
---------------
premium, if any, or interest now or hereafter due under any Senior Indebtedness,
and ending on the earliest of: (A) the date on which the Senior Indebtedness is
paid in full in cash (or in any other manner acceptable to GECC) or such default
is cured pursuant to the terms of the agreement(s) evidencing such Senior
Indebtedness, and (B) the date on which such Payment Default is waived in
writing by GECC in accordance with the agreement(s) governing such Senior
Indebtedness. A "Payment Default" hereunder shall include without limitation any
failure by Borrower to pay all or any portion of principal due GECC, whether at
stated maturity or upon acceleration by GECC of all or any portion of the Senior
Indebtedness after a "Payment Default" or an "Other Default."
(2) If an event of default other than a Payment Default (an
"Other Default") with respect to any Senior Indebtedness, as such event of
-------------
default is defined in the agreements governing such Senior Indebtedness, has
occurred and is continuing, and permits GECC to declare all or any portion of
the Senior Indebtedness due and payable prior to the date on which it would
otherwise have become due and payable, then, during the period (the "Payment
-------
Blockage Period") commencing on the date that the Agent receives written notice
- ---------------
from time to time (each a "Default Notice") of the Other Default from GECC (or
--------------
its representative) (which notice will be promptly given by the Agent to the
Holder(s)) and ending on the earliest of: (A) 179 days after such date, (B) the
date, if any, on which the Senior Indebtedness is paid in full in cash (or in
any other manner acceptable to GECC), or the Other Default is cured by Borrower
or waived in writing by GECC in accordance with the agreements governing such
Senior Indebtedness, and (C) the date on which the Agent receives from GECC (or
its representative) written notice that the Payment Blockage Period has been
terminated, no payment shall be received by or on behalf of the Holder(s) on
account of the principal, premium, if any, or interest, dividends and/or any
other Subordinated Indebtedness now or hereafter due on any Securities, or to
defease or acquire any Securities for cash or property, or on account of the
redemption provisions of any Securities. During any consecutive 365-day period,
(X) not more than two Default Notices may be given, (Y) the total Payment
Blockage Period(s) shall not exceed 179 days, and (Z) such Payment Blockage
Periods may not block more than two payments of interest or one payment of
dividends. No Other Default that GECC actually knew existed on the date that any
Payment Blockage Period commenced shall be, or be made the basis for, the
commencement of any subsequent Payment Blockage Period.
(3) For purposes of this Agreement, the term "Standstill Period"
shall mean a period which commences on the date that the Agent receives a
Default Notice or a Payment Notice, as the case may be, together with a
Standstill Notice, and ends on the earliest to occur of (i) the termination of
the Payment Blockage Period relating to such Default Notice or the termination
of the Indefinite Blockage Period relating to such Payment Notice, as the case
may be, (ii) acceleration of the Senior Indebtedness to which such Default
Notice or Payment Notice, as the case may be, relates, (iii) 90 days after the
receipt by the Agent of such Default Notice or Payment Notice, as the case may
be, (iv) the written waiver or amendment by or on behalf of GECC of the
restrictions, during such Standstill Period,
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<PAGE>
on asset sales or dispositions by the Borrower so as to permit the Borrower to
transfer or apply the net proceeds from such asset sales or dispositions to or
for the benefit of any holders of long-term Indebtedness of the Borrower other
than to repay the Senior Indebtedness, (v) the written waiver or amendment,
during such Standstill Period, by or on behalf of GECC of the prohibition on the
creation or existence of liens on property, revenue or assets of the Borrower so
as to permit the creation or existence of liens (including, without limitation,
judgment liens) securing payment of Indebtedness of the Borrower which ranks
pari passu with any Securities or is subordinate or junior in right of payment
to any Securities, (vi) such time as GECC (or its representatives) consent in
writing to the termination of the Standstill Period, or (vii) an Event of
Default specified in clauses (g), (h), or (i) of Section 7.1 of the Securities
Purchase Agreement; provided, however, that if such Event of Default relates
solely to one or more of the Companies, then this clause (vii) shall only
terminate the Standstill Period with respect to enforcement of remedies against
or relating to such Companies. For purposes of this Agreement, the term
"Standstill Notice" means notice to the Agent (which may be expressly contained
within any Payment Notice or Default Notice) from GECC (or its representatives)
that a Standstill Period is in effect as a result of the occurrence of a Payment
Default or an Other Default, as the case may be. The Agent shall promptly send
to all Holder(s) any Standstill Notice which it receives. Upon receipt by the
Agent of a Standstill Notice, the Holder(s) shall be prohibited from
accelerating any Securities and shall be prohibited from enforcing any of their
default remedies with respect thereto (including any right to sue the Borrower
or to file or participate in the filing of any involuntary bankruptcy petition
against the Borrower) until the Standstill Period relating to such Standstill
Notice shall cease to be in effect; provided, that if a Holder had initiated an
enforcement action prior to receipt by such Holder of a Standstill Notice, then
such Holder shall not be prevented during the Standstill Period from taking any
steps with respect to such pending enforcement action as are required by law to
prevent dismissal of such action or violation of court order(s) or rule(s) or to
preserve such Holder(s)' rights to continue to pursue such action as soon as
otherwise permitted by this Section 2(b)(3). Upon the termination of any
Standstill Period, the Holder(s) may, at their sole election, exercise any and
all remedies (including acceleration of the maturity of any Securities)
available to them under this Agreement or applicable law; provided that the
Indefinite Blockage Period or the Payment Blockage Period, as the case may be,
shall (if not also terminated) continue notwithstanding the termination of the
Standstill Period. During any consecutive 365-day period, there may be no more
than two Standstill Period(s) and the aggregate of all Standstill Periods shall
not exceed 90 days.
(4) In the event that, notwithstanding the provisions of this
Agreement, any payment or distribution of assets on account of principal,
premium, if any, interest or any other amounts due under any Securities or to
defease or acquire any of any Securities for cash, property or securities, or on
account of the redemption provisions of any Securities, shall be received by any
Holder(s) or their representatives, at a time when such payment or distribution
was prohibited by the provisions of this Agreement, then, unless such payment or
distribution is no longer prohibited by this Agreement, such payment or
distribution shall be received and held in trust by such Holder(s) or their
representatives for the benefit of GECC, and shall be paid or delivered by such
Holder(s) or their representatives to GECC to the extent necessary to enable
payment in full in cash (or in any other manner acceptable to GECC) of all
Senior Indebtedness remaining unpaid, after giving effect to all concurrent
payments and distributions and all provisions therefor, to or for GECC, but only
to the extent that GECC (or a representative thereof) notifies the Agent that it
is entitled to receipt of not less than the amount being requested from the
Holder(s) and that at least such amount is due and owing on such Senior
Indebtedness held by GECC and only the amounts specified in such notices to the
Holder(s) shall be paid to GECC.
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<PAGE>
(5) The Holder(s) and the Agent each agrees to (i) promptly send
or cause to be sent to GECC a copy of any notice of default under the Securities
and/or Securities Purchase Agreement, and (ii) send or cause to be sent to GECC
a written notice of acceleration and/or notice of intent to undertake
enforcement action, at least fifteen (15) days prior to the exercise by the
Holder(s) or the Agent of any rights or remedies by reason of any alleged
default(s) under the Securities or the Subordinated Indebtedness; provided,
however, that the foregoing shall not prevent the Holder(s) from taking action
to accelerate the Securities prior to the expiration of such 15-day period if
any Senior Indebtedness is accelerated prior to the expiration of such 15-day
period.
(C) RESTRICTION ON TCW LIENS AND/OR SECURITY INTERESTS. Other than
attachment or judgment lien(s) which do not violate any Standstill Period(s),
without the prior written consent of GECC, the Holder(s) shall not take or
otherwise create, directly or indirectly, any liens (including without
limitation any attachment or judgment liens) or security interests in any of the
assets or property of Borrower or any other asset securing the Senior
Indebtedness. However, in the event that GECC provides such consent or the
Holder(s) otherwise obtains or holds any such liens or security interests
(including without limitation, attachment or judgment liens), any and all such
liens or security interests held by the Holder(s) in respect to the Securities,
whether now existing or hereafter arising, shall be subordinate to each and all
the rights, liens and interests held by GECC in such assets or property.
(D) HOLDER(S) MAY FILE PROOF OF CLAIM. Notwithstanding the provisions
of Section 2(b)(3) above, the Holder(s) may file a proof of claim in a
bankruptcy or insolvency proceeding involving Borrower, provided that such proof
of claim shall indicate Holder(s)' subordination and restrictions hereunder.
(E) NO PREPAYMENT. Until the Senior Indebtedness is paid in full in
cash (or in any manner acceptable to GECC), no Holder shall accept any amount in
payment of any Subordinated Indebtedness (other than scheduled payments of
principal under Section 4(c) of the Notes or Section 5 of the Preferred Stock,
premium, if any, interest or dividends as set forth in the Securities or the
Securities Purchase Agreement as of the date hereof, and/or attorneys' fees or
enforcement costs to the extent incurred by the Holder(s) in connection with a
workout or modification of the Subordinated Indebtedness of which the Holder(s)
have given GECC advance notice), except upon acceleration thereof or enforcement
of other remedies, in each case in accordance with the terms of this Agreement,
unless such prohibited payment(s) is/are accompanied by a certificate of the
president, chief executive officer, chief financial officer or any vice
president of Borrower certifying the validity of an accompanying notarized
document appearing on its face to be the written consent of GECC.
3. ALL SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION. Upon any
distribution of assets of the Borrower upon any dissolution, winding up, total
or partial liquidation or reorganization of the Borrower, whether voluntary or
involuntary, in bankruptcy, insolvency, receivership or similar proceeding or
upon assignment for the benefit of creditors:
(a) GECC shall first be entitled to receive payments in full in
cash (or in any manner acceptable to GECC) of all Senior Indebtedness before the
Holder(s) are entitled to receive any payment on account of the principal,
premium, if any, interest and all other Subordinated Indebtedness due on any
Securities;
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<PAGE>
(b) any payment or distribution of assets of the Borrower of any
kind or character, whether in cash, property or securities, to which the
Holder(s) would be entitled except for the provisions of this Agreement, shall
be paid by the liquidating trustee or agent or other person making such a
payment or distribution, directly to GECC or its representative, to the extent
necessary to make payment in full (or have such payment duly provided for) of
all such Senior Indebtedness remaining unpaid after giving effect to all
concurrent payments and distributions and all provisions therefor to or for
GECC; and
(c) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Borrower of any kind or character,
whether in cash, property or securities, shall be received by the Holder(s) or
their representatives on account of principal, premium, if any, interest or any
other Subordinated Indebtedness due under any Securities, as the case may be,
before all Senior Indebtedness is paid in full in cash (or in any other manner
acceptable to GECC), such payment or distribution shall be received and held in
trust by such Holder(s) or their representatives for the benefit of GECC, to the
extent necessary to make payment in full in cash (or in any other manner
acceptable to GECC), of all such Senior Indebtedness remaining unpaid after
giving effect to all concurrent payments and distributions and all provisions
therefor to or for GECC, but only to the extent that GECC notifies the Holder(s)
that GECC is entitled to receipt of not less than the amount being requested
from the Holder(s) and that at least such amount is due and owing on the Senior
Indebtedness, and only the amounts specified in such notices to the Holder(s)
shall be paid to GECC.
4. THE HOLDER(S) TO BE SUBROGATED TO RIGHTS OF GECC. Subject to the
payment in full of all Senior Indebtedness, the Holder(s) shall be subrogated to
the rights of GECC to receive payments or distributions of assets of the
Borrower applicable to the Senior Indebtedness until all amounts owing on the
Securities shall be paid in full, and for the purpose of such subrogation no
such payments or distributions to GECC by or on behalf of the Borrower, or by or
on behalf of the Holder(s) by virtue of this Agreement, which otherwise would
have been made to the Holder(s) shall, as between the Borrower and the
Holder(s), be deemed to be payment by the Borrower, to or on account of such
Senior Indebtedness, it being understood that the provisions of this Section 4
are and are intended solely for the purpose of defining the relative rights of
the Holder(s), on the one hand, and GECC, on the other hand.
If any payment or distribution to which the Holder(s) would otherwise
have been entitled but for the provisions of this Agreement shall have been
applied, pursuant to the provisions of this Agreement, to the payment of amounts
payable under Senior Indebtedness, then the Holder(s) shall be entitled to
receive from GECC any payments or distributions received by GECC in excess of
the amount sufficient to pay all amounts payable under or in respect of all
Senior Indebtedness in full in cash (or in any other manner acceptable to GECC).
5. OBLIGATIONS OF THE BORROWER UNCONDITIONAL. Nothing contained in
this Agreement or in any Securities is intended to or shall impair, as between
the Borrower and the Holder(s), the obligation of the Borrower, which is
absolute and unconditional, to pay to the Holder(s), principal, the premium, if
any, interest and any other amounts due under any Securities as and when the
same shall become due and payable in accordance with their terms, or is intended
to or shall affect the relative rights between the Holder(s) and creditors of
the Borrower other than GECC, nor shall anything herein or in any Securities
prevent any Holder(s) from exercising all remedies otherwise permitted by
applicable law upon default as provided under this Agreement, subject to the
rights, if any, of GECC under this Agreement in respect of cash, property or
securities of the Borrower received upon
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<PAGE>
the exercise of any such remedy. Upon any distribution of assets of the Borrower
referred to in this Agreement, the Holder(s) shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
or a certificate of the liquidating trustee or agent or other Person making any
distribution to the Holder(s) for the purpose of ascertaining the Persons
entitled to participate in such distribution, GECC and other Indebtedness of the
Borrower, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Agreement.
6. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE
BORROWER OR GECC. No right of GECC to enforce subordination or other provisions
contained in this Agreement shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Borrower, or by any act
or failure to act by GECC in compliance with law(s), or by any noncompliance by
the Borrower with the terms of this Agreement, regardless of any knowledge
thereof which GECC or the Holder(s) may have or be otherwise charged with. GECC
may extend, renew, modify or amend the terms of the Senior Indebtedness or any
security therefor and release, impair, sell or exchange such security and
otherwise deal freely with the Borrower all without affecting the liabilities
and obligations of the Holder(s) under this Agreement.
7. THIS AGREEMENT NOT TO PREVENT EVENTS OF DEFAULT. The failure to
make a payment on account of principal of, premium, if any, interest, dividend
or any other obligations due on or in respect of any Securities by reason of any
provision of this Agreement shall not be construed as preventing the occurrence
of a Default or an Event of Default under the Securities Purchase Agreement.
8. MODIFICATIONS OF INDEBTEDNESS.
(A) SENIOR INDEBTEDNESS. GECC shall have the right from time to
time, without notice to Holder(s), to amend, supplement or modify the Senior
Indebtedness, in any manner whatsoever, including, without limitation, any
extensions or shortening of time of payments (even if such shortening causes any
Senior Indebtedness to be due on demand or otherwise), any revision of any
amortization schedule with respect thereto.
(B) SECURITIES, SECURITIES PURCHASE AGREEMENT. Each Holder(s)
understands and agrees that neither the Securities Purchase Agreement nor any
Securities, nor any other document, instrument or agreement evidencing all or
any part of the Subordinated Indebtedness may be modified or amended without
GECC's prior written consent if such modification or amendment shortens the due
date of payments or increase(s) the amount(s) of principal, interest or
dividends due thereunder or changes the covenants in Section 5 of the Securities
Purchase Agreement in a manner materially adverse to the Borrower than as of the
date hereof.
9. SUBORDINATED INDEBTEDNESS OWED ONLY TO INITIAL HOLDER(S). Each
Initial Holder warrants and represents as of the date hereof that it has not
previously assigned any interest in the Subordinated Indebtedness that it is
purchasing pursuant to the Securities Purchase Agreement, that no other party
owns an interest in any of Initial Holder's Subordinated Indebtedness (whether
as joint holders, participants or otherwise) and that the entire Subordinated
Indebtedness is owing only to Initial Holder(s).
Each Initial Holder further warrants and represents that as of the
date hereof the only
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<PAGE>
indebtedness owing by Borrower to such Initial Holder is the Subordinated
Indebtedness; that to the best of such Initial Holder's knowledge as of the date
hereof, there is no default or breach with respect to any of such indebtedness.
10. INSTRUMENT LEGENDS. The faces of the Securities will be
forthwith inscribed with a legend conspicuously indicating that payment thereon
is subordinated to the claims of GECC pursuant to the terms of this Agreement,
and copies thereof will forthwith be delivered to GECC. Any instrument
evidencing any of the Subordinated Indebtedness or any portion thereof which is
hereafter executed will, on the date thereof, be inscribed with the aforesaid
legend, and copies thereof will be delivered to GECC on the date of its
execution or within five (5) business days thereafter.
11. ADDITIONAL REMEDIES. If Holder(s) violates any of the terms of
this Agreement, in addition to any remedies in law, equity or otherwise, GECC
may restrain such violation in any court of law and may interpose this Agreement
as a defense in any action by Holder(s) and may specifically enforce each and
all terms of this Agreement.
12. HOLDER(S)' WAIVERS. All of the Senior Indebtedness shall be
deemed to have been made or incurred in reliance upon this Agreement. Holder(s)
expressly waive all notice of the acceptance by GECC of the subordination and
other provisions of this Agreement and agree that GECC has made no warranties or
representations with respect to the legality, validity, enforceability,
collectability or perfection of the Senior Indebtedness or any liens or security
interests held in connection therewith.
Holder(s) agree that GECC shall be entitled to manage and supervise
GECC's loans in accordance with applicable law and its usual practices, modified
from time to time as GECC deems appropriate under the circumstances, without
regard to the existence of any rights that Holder(s) may now or hereafter have
in or to any assets. GECC shall have no liability to Holder(s) as a result of
any and all lawful actions which GECC takes or omits to take (including, without
limitation, actions with respect to the creation, perfection or continuation of
GECC's liens or security interest, actions with respect to the occurrence of any
default(s), actions with respect to the foreclosure upon, sale, release,
impairment or failure to realize upon, any of its collateral, and actions with
respect to the collection of any claim for all or any part of the Senior
Indebtedness from any account debtor or any other party), regardless of whether
any such actions or omissions may affect, impair or destroy GECC's rights to
deficiency or any Holder(s)' rights of subrogation or reimbursement (if any) or
any other rights. This Agreement shall be and remain enforceable against the
Holder(s), notwithstanding GECC's election from time to time to engage in any or
all of the acts or failure(s) to act as described in this section.
GECC may, from time to time, enter into agreements and settlements
with Borrower as it may determine, including, without limitation, any
substitution of collateral, any release of any lien or security interest and any
release of Borrower. Each Holder(s) waives any and all rights it may now or
hereafter have to request or require GECC to marshall assets.
13. WAIVERS. No waiver shall be deemed to be made by GECC or any
Holder(s) of any of their respective rights hereunder unless it is in writing
signed by the waiving party. Each such waiver shall be a waiver only with
respect to the specific instance involved and shall in no way impair the rights
of the waiving party or the obligations of the other party to the waiving party
in any other respect at any other time.
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<PAGE>
14. INFORMATION CONCERNING FINANCIAL CONDITION. Holder(s) hereby
assumes responsibility for keeping informed of the financial condition of
Borrower and of all other circumstances bearing upon the risk of nonpayment of
the Senior Indebtedness and/or the Securities, and agrees that GECC shall have
no duty to advise it of information known to GECC regarding such condition or
any such circumstances. In the event GECC, in its sole discretion, undertakes,
at any time or from time to time, to provide any such information to any
Holder(s), GECC, as the case may be, shall be under no obligation (i) to provide
any such information to any Holder(s) on any subsequent occasion, (ii) to
undertake any investigation not a part of its regular business routine, or (iii)
to disclose any information which, pursuant to its commercial finance practices,
GECC wishes to maintain confidential.
15. THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of GECC, Holder(s) and their respective successors and assigns, and
neither Borrower nor any other persons or entities are intended to be third
party beneficiaries hereunder or to have any right, benefit, priority or
interest under, or because of the existence of, or to have any right to enforce,
this Agreement. GECC and Holder(s) acting together shall have the right to
modify or terminate this Agreement in writing at any time without notice to or
approval of Borrower or any other person or persons.
Nothing in this Agreement is intended to or shall impair, as between
Borrower and its creditors other than GECC and Holder(s), the obligation of
Borrower, which is absolute and unconditional, to pay to Holder(s) the principal
of and interest on the Securities and all of the Subordinated Indebtedness as
and when the same shall become due and payable in accordance with their terms,
or affect the relative rights of Holder(s) and creditors of Borrower other than
GECC.
Notwithstanding any of the foregoing, if any third party satisfies the
Senior Indebtedness owing to GECC, GECC may assign its rights and remedies
hereunder to such third party, and such third party shall be deemed to be GECC
for all purposes of this Agreement.
16. NOTICES. For the purposes of this Agreement, written notices
shall be sent by U.S. first class mail, postage prepaid; or by U.S. certified
mail, return receipt requested, postage prepaid; or by personal delivery; or by
facsimile confirmed by the recipient; and addressed to the notified party at its
address set forth below its signature line, or such other address specified by
the party with like notice. Notices shall be deemed received three (3) business
days after deposit in the U.S. mail, if sent by first class mail; upon the date
set forth in the return receipt, if by certified mail; one (1) business day
after deposit with a nationally recognized overnight parcel delivery service; on
the day of confirmation of delivery by the recipient, if by facsimile; or on the
day of transmittal by personal delivery.
17. COSTS AND ATTORNEYS' FEES. If there are any dispute(s), claim(s)
or controversies between any of the parties hereto in connection with this
Agreement, the prevailing party(ies) in any such dispute(s) (whether by
settlement, judgment, arbitration award or dismissal(s) of claims) shall be
entitled to recover from the other party(ies) their reasonable costs and
attorneys' fees (including on appeal) incurred in connection with any such
dispute(s), including without limitation any claims for injunctive or
declaratory relief.
18. CONSENT TO JURISDICTION; ADDITIONAL WAIVERS. Holder(s) and GECC
each consents to the jurisdiction of any state or federal court located within
Cook County, Illinois. Holder(s) and GECC each waives, to the fullest extent
each may effectively do so, any defense or objection based upon forum non
conveniens and any defense or objection to venue of any action
-9-
<PAGE>
instituted within Cook County, Illinois. EACH OF THE PARTIES HERETO WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING
FROM OR RELATED TO THIS AGREEMENT.
19. GOVERNING LAW. This Agreement has been delivered and accepted at
and shall be deemed to have been made in the State of Illinois, and shall be
interpreted, and the rights and liabilities of the parties hereto determined, in
accordance with the internal laws (as opposed to conflicts of laws provisions)
of the State of Illinois.
20. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties' respective successors and assigns,
including without limitation receiver(s), trustee(s) in bankruptcy and/or
debtor(s) in possession, subject to the provisions hereof.
21. INTEGRATED AGREEMENT. This Agreement is an integrated agreement
which sets forth the entire understanding of the parties with respect to the
within matters and may not be modified or amended except by a writing signed by
all parties. All prior and/or contemporaneous understandings, negotiations and
representations are merged herein and are null and void to the extent not
contained herein.
22. AUTHORITY. Each of the signatories hereto certifies that such
party has all necessary authority to execute this Agreement.
-10-
<PAGE>
23. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each one of which when so executed shall be deemed to be an
original, and all of which taken together shall constitute one and the same
agreement.
"INITIAL HOLDER(S)"
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT PARTNERS, L.P.
By: TCW/CRESCENT MEZZANINE, L.L.C.
its general partner or managing owner
By: /s/
___________________________________________
Name:
Title:________________________________________
By: /s/ John C. Rocchio
___________________________________________
John C. Rocchio
Senior Vice President
Addresses for Notices:
Attn: Jean-Marc Chapus TCW/Crescent Mezzanine L.L.C.
______________________________________________
11100 Santa Monica Blvd., Suite 2000
______________________________________________
Los Angeles, CA 90025
______________________________________________
Telecopy No.: 310-235-5967
_____________
Confirming Telephone No.: 310-235-5902
_____________
with a copy to:
Attn: Rod Guera, Skadden Arps. Slate Meagher
______________________________________________
300 S. Grand Avenue, Ste 3400
______________________________________________
Los Angeles, CA 90071
______________________________________________
Telecopy No.: 213-687-5600
_____________
Confirming Telephone No.: 213-687-5217
_____________
-11-
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION,
A NEW YORK CORPORATION
By: /s/
__________________________________
Name: Francisco Galliano
Title: Commercial Account Manager
Address for notices:
Wholesale Operations
1000 Hart Road
Barrington, IL 60010
Attn: Vice President, Wholesale Operations
Telephone: (800) 688-7453
Telecopier: (800) 527-7558
All of the foregoing is consented
and agreed to as of the date first
set forth above:
"BORROWER"
[See signature pages attached hereto.]
-12-
<PAGE>
SIGNATURES
FIRSTAMERICA AUTOMOTIVE, INC. FAA SAN BRUNO, INC.
By: /s/ By: /s/
_________________________ _________________________
Its: President Its: President
_________________________ _________________________
TRANSCAR LEASING, INC. FAA SERRAMONTE L, INC.
By: /s/ By: /s/
_________________________ _________________________
Its: President Its: President
_________________________ _________________________
SMART NISSAN, INC. FAA SERRAMONTE, INC.
By: /s/ By: /s/
_________________________ _________________________
Its: President Its: President
_________________________ _________________________
FAA STEVENS CREEK, INC. FAA CONCORD N, INC.
By: /s/ By: /s/
_________________________ _________________________
Its: President Its: President
_________________________ _________________________
FAA POWAY H, INC. FAA CONCORD H, INC.
By: /s/ By: /s/
_________________________ _________________________
Its: President Its: Vice President
_________________________ _________________________
FAA POWAY T, INC. FAA DUBLIN N, INC.
By: /s/ By: /s/
_________________________ _________________________
Its: President Its: President
_________________________ _________________________
FAA POWAY D, INC. FAA DUBLIN VWD, INC.
By: /s/ By: /s/
_________________________ _________________________
Its: President Its: President
_________________________ _________________________
-13-
<PAGE>
EXHIBIT 10.2
AGREEMENT BETWEEN
AMERICAN HONDA MOTOR CO., INC.
AND
FIRSTAMERICA AUTOMOTIVE, INC. ET AL.
This Agreement, effective as of May 1, 1997, is entered into between
FirstAmerica Automotive, Inc., a Nevada corporation with its principal place of
business at 100 The Embarcadero, Penthouse, San Francisco, California 94105
("FirstAmerica"), Donald V. Strough, an individual residing at 14 Sycamore Road,
Orinda, California 94563 ("Strough"), Thomas A. Price, an individual residing at
55 Peninsula Road, Belvedere, California 94920 ("Price"), Steven S. Hallock, an
individual residing at 4258 Golden Oak Court, Danville, California 94506
("Hallock"), Fred Cziska, an individual residing at 27 Pio Pico Way,
Pacifica, _California 94044 ("Cziska"), Al Babbington, an individual residing at
29 Beachmont Drive, _San Francisco, California 94132 ("Babbington"), John
Driebe, an individual residing at 15 Geri Place, Redwood City, California 94061
("Driebe"), Embarcadero Automotive, LLC, a California limited liability company
with its principal place of business at 100 The Embarcadero, Penthouse, San
Francisco, California 94105 ("Embarcadero"), Raintree Capital, LLC, a Texas
limited liability company with its principal place of business at 2310 Pennzoil
Place, 711 Louisiana - South Tower, Houston, Texas 77002 ("Raintree"), BB
Investments, a California general partnership with its principal place of
business at 100 The Embarcadero, Penthouse, San Francisco, California 94105
("BB"), and Brown, Gibbons & Lang, L.P., an Illinois limited partnership with
its principal place of business at 225 West Washington Street, 9th Floor,
Chicago, Illinois ("Brown"), on the one hand (such parties being referred to
herein as the "Dealership Parties") and American Honda Motor Co., Inc. ("AHM"),
a California corporation, with its principal place of business at 1919 Torrance
Boulevard, Torrance, California 90501.
WHEREAS, the individuals and entities listed in Schedule A (the "Current
Owners") currently own and operate the authorized Honda and/or Acura automobile
dealership(s) listed in Schedule B (the "Listed Dealerships"); and
WHEREAS, the Current Owners want to transfer the Listed Dealerships to
FirstAmerica Automotive, Inc. (hereinafter, the "Ownership Entity"), a portion
of the stock of which is (or is anticipated to be) traded on a public stock
market or otherwise freely transferrable; and
WHEREAS, AHM has formulated the American Honda Motor Co., Inc. Policy on the
Public Ownership of Honda and Acura Dealerships (the "Policy"), a copy of which
was forwarded to and subsequently reviewed by the Current Owners; and
WHEREAS, in order to enable the Ownership Entity to acquire the Listed
Dealerships and, at the same time, adhere to the Policy, the Dealership Parties
desire to create and/or maintain a corporate structure, described herein and in
Schedule C hereto, in which one or more individuals or entities specified herein
(the "Dealership Principals") will retain majority ownership and control of the
Ownership Entity and the shares that are publicly traded will never constitute
more than a minority interest of the Ownership Entity; and
WHEREAS, AHM is willing to permit the Ownership Entity (as an entity of which a
minority portion is publicly owned and of which the majority portion is owned by
the Dealership Principals) to own the Listed Dealerships, provided that the
Dealership Parties adhere to the Policy and the terms and conditions set forth
in this Agreement; and
<PAGE>
WHEREAS, the Dealership Parties are willing to adhere to the Policy and the
terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants set forth herein and
other good and valuable consideration the sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. STRUCTURE OF RELATIONSHIP
-------------------------
1.1 Dealerships Are Separate Legal Entities. The Ownership Entity shall
---------------------------------------
establish and maintain a separate legal entity to own each Honda and Acura
dealership which it owns or controls, directly or through an Affiliate, shall
obtain a separate motor vehicle license for each dealership, and shall maintain
separate financial statements for each such dealership. Consistent with AHM
policy, the name "Honda" or "Acura," as applicable, shall appear in the d/b/a of
each dealership and shall not appear in the corporate name of the dealership or
the Ownership Entity. The Honda and/or Acura dealership(s) that will be owned
by the Ownership Entity (the "Listed Dealerships") are listed in Schedule B,
appended hereto. As used herein, "Affiliate" of, or a person or entity
"affiliated" with, a specified person or entity, means a person or entity that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, or shares substantial common
ownership with, the person or entity specified. For the purpose of this
definition, the term "control" (including the terms "controlling," "controlled
by" and "under common control with") means the possession, directly or
indirectly, of the power to direct or cause the direction of or influence the
management and policies of a person or entity, whether through the ownership of
securities, by contract or otherwise.
1.2 Agreement to Automobile Dealer Sales and Service Agreement. The
----------------------------------------------------------
Ownership Entity and, to the extent applicable, the other Dealership Parties
hereby agree to be bound by the terms of Honda Automobile Dealer Sales and
Service Agreement(s) and Acura Automobile Dealer Sales and Service Agreement(s)
including any addenda thereto (the "Dealer Agreements"), copies of which are
appended hereto as Schedule D. The Dealership Parties further agree that each
individual Honda and Acura dealership that the Ownership Entity owns, in whole
or in part, shall execute and be bound by the applicable Dealer Agreement.
1.3 Adherence to the Policy. Each of the Dealership Parties hereby agree
-----------------------
to be bound by the terms of the Policy, a copy of which is appended hereto as
Schedule E.
1.4 Transfer of Ownership of Listed Dealerships to the Ownership Entity.
-------------------------------------------------------------------
Each of the Dealership Parties understands and agrees that the transfer of the
Listed Dealerships to the Ownership Entity will constitute a change of ownership
of the Listed Dealerships that, pursuant to the Dealer Agreement, requires AHM's
prior written approval. Provided that the representations and warranties in
this Section are accurate and that each of the Dealership Parties adhere to the
terms and conditions of this Agreement, the Policy, and the applicable Dealer
Agreements, AHM hereby agrees to the transfer of the Listed Dealerships to the
Ownership Entity. Any and all shares of ownership interest in the Ownership
Entity, whether held by the Dealership Principals, by the public, or otherwise
is herein referred to as "Stock." Each of the Dealership Parties hereby
represents and warrants that AHM has been provided with all documentation
pertaining to the issuance of Stock in the Ownership Entity including but not
limited to all filings with the SEC and other federal and state regulatory
agencies (including, but not limited to, quarterly and annual financial
statement filings, prospectuses and other materials related to the Ownership
Entity), all agreements between or among any of the Dealership Parties and
financial institutions and underwriters, all agreements between or among any of
the Dealership Parties, and all
-2-
<PAGE>
agreements between or among any of the Dealership Parties, on the one hand, and
other shareholders of the Ownership Entity, on the other hand. One copy of this
documentation has been filed with AHM and labeled Schedule X. Notwithstanding
any statements in any of the documentation provided by the Dealership Parties to
AHM to the contrary (including but not limited to any statements in
prospectuses), the Dealership Parties hereby further represent, warrant and
covenant as follows:
1.4.1 Schedule A, appended hereto, is an accurate list of Current
Owners, as of the date hereof, the percentage interest in the Listed Dealerships
held by each, and the percentage ownership of the Ownership Entity (if any) held
by each.
1.4.2 Schedule C accurately identifies and depicts the corporate
structure of the Ownership Entity after the transfer of the Listed Dealerships.
1.4.3 Schedule F, appended hereto, is an accurate list of all
individuals and entities (including names, addresses and other information
reasonably requested by AHM) that will own Stock as of the date of the transfer
of the Listed Dealerships to the Ownership Entity, which Stock is subject to the
restrictions set forth in Section 1.5 hereof (such individuals and entities to
be referred to as the "Dealership Principals"; such Stock to be referred to as
"Restricted Stock"), the number of shares held by each, and the percentage
ownership of the Ownership Entity held by each.
1.4.4 The corporate structure depicted in Schedule C assures that at
all times a majority of the Stock of the Ownership Entity will be owned by the
Dealership Principals in the form of Restricted Stock.
1.4.5 The corporate structure depicted in Schedule C assures that at
all times the Dealership Principals through ownership of the Restricted Stock
will have more than fifty percent (50%) of the total aggregate voting power of
the Ownership Entity.
1.5 Restrictions on Transfer of Stock by Dealership Principals. Each of
----------------------------------------------------------
the Dealership Parties hereby agrees that the Dealership Principals shall not,
at any time, without the prior written approval of AHM sell, transfer or in any
manner encumber any of the Restricted Stock or enter into any agreement
providing for the voting of any of the Restricted Stock as directed by any
person or entity, or in a specified manner or pursuant to a specified procedure
or grant any voting proxy or otherwise enter into any arrangement the purpose or
effect of which is to vest in any other person or entity the voting rights of
any of the Restricted Stock. AHM will not approve any transfers of Restricted
Stock that it reasonably deems detrimental to AHM's interests as provided in
Section 1.8 below, and any approved transfer may only be made on the condition
that the transferee agrees in writing to be bound by the terms of this Agreement
to the same extent as if it had executed this Agreement as one of the Dealership
Parties. Each certificate representing Restricted Stock or any securities
issued in respect of such Restricted Stock shall be stamped or otherwise
imprinted with a legend substantially in the following form:
The shares represented by this certificate are subject to restrictions
on transfer set forth in an Agreement between American Honda Motor
Co., Inc. and the Corporation effective as of May 1, 1997, as amended,
a copy of which will be furnished by the Corporation without charge
upon written request.
Without limiting the generality of the foregoing restrictions, the Dealership
Parties specifically agree that transfers of shares of Restricted Stock are
subject to AHM's prior written approval even if transfer is
-3-
<PAGE>
permitted pursuant to the Ownership Entity's Articles of Incorporation, Bylaws,
or by an act of the board of directors or the shareholders or by any other
means. In the event that any Restricted Stock is transferred without the prior
written approval of AHM, including but not limited to transfer by operation of
law (e.g., upon the death of a Dealership Principal to an heir), the Ownership
Entity shall inform AHM of such transfer and either (a) request approval of such
transfer, (b) reacquire the shares or (c) arrange for the retransfer of the
shares to a previously approved Dealership Principal or to an individual or
entity that is approved in writing by AHM. In the event that the Ownership
Entity selects (a) above and AHM refuses to approve the transfer, then the
Ownership Entity must make its best efforts to effectuate (b) or (c). If AHM
refuses to approve the transfer and the Ownership Entity cannot effectuate (b)
or (c), then AHM may invoke the purchase procedures set forth in Section 9.3, as
though the Ownership Entity had breached this Agreement.
1.6 Restrictions on Transfer of the Ownership Interests in Dealership
-----------------------------------------------------------------
Principals. To the extent that the Dealership Principals are entities rather
- ----------
than individuals, the parties hereto acknowledge and agree that changes in the
ownership of such Dealership Principals could have the effect of transferring
actual control of the Ownership Entity without the prior approval of AHM. To
prevent such transfer, the parties have agreed to the restrictions on the
transfer of ownership of such Dealership Principals set forth in Schedule G
hereto.
1.7 Identification of Owners of the Ownership Entity. Schedule H,
------------------------------------------------
appended hereto, includes accurate documentation and information pertaining to
each individual or entity that owns or controls 5% or more of the Stock, whether
such Stock is Restricted Stock or otherwise. In the event of any change of
ownership that results in an individual or entity not listed on Schedule H
obtaining ownership or control of 5% or more of the Stock, the Ownership Entity
shall provide AHM with the documentation and information required by Schedule H
with respect to such person or entity to the extent it is publicly available.
The Ownership Entity will provide AHM with copies of all filings made with the
SEC and comparable filings made with state agencies by persons or entities that
own more than 5% of the Ownership Entity and/or any of its Affiliates. Without
limiting the foregoing, the Ownership Entity will use its best efforts to
provide such information regarding such stockholders as AHM may from time to
time request.
1.8 Right of AHM to Disapprove Acquisitions of Stock. Without limiting
------------------------------------------------
the restrictions set forth in Sections 1.5 and 1.6 above, AHM shall have the
irrevocable right to disapprove of the acquisition of more than 5% of Stock by
any individual or entity if such acquisition is reasonably deemed detrimental to
AHM's interests. Without limiting the foregoing, the parties agree that such
acquisition or attempted acquisition may reasonably be deemed to be detrimental
to AHM's interests if the acquiring individual or entity (a) competes with
American Honda or its parent, subsidiaries or Affiliates in manufacturing,
marketing, or selling automotive products or services or is owned or controlled
by or has a substantial economic interest in an entity that competes with AHM or
its parent, subsidiaries or Affiliates in manufacturing, marketing, or selling
automotive products or services (not including an interest in a dealership
selling products manufactured by a competing automobile manufacturer); (b) has
criminal affiliations or a criminal record; (c) has inadequate experience in the
automotive sales and service business; (d) has less than an excellent credit
rating or credit history; (e) has demonstrated unacceptable customer
satisfaction index performance; or (f) has had a prior relationship with AHM
which AHM deems to have been unsatisfactory. Unless AHM objects in writing to
such acquisition within 180 days of receiving completed documentation and
information from the Ownership Entity pertaining thereto, AHM shall be deemed to
have approved such acquisition. In the event AHM disapproves of such
acquisition, the Ownership Entity and its then current shareholders shall make
their best efforts to prevent such acquisition or, if it has already taken
place, to reacquire the shares so
-4-
<PAGE>
transferred. In the event that the Ownership Entity is unable to prevent such
acquisition or to reacquire the shares, AHM may invoke the purchase provisions
of Section 9.3 hereof.
1.9 Designation of the Ownership Entity's Executive Manager. The
-------------------------------------------------------
Ownership Entity shall designate as its Executive Manager the individual listed
in Schedule I hereto. The Executive Manager shall have operational control of
the Ownership Entity and shall have final authority to decide any dealership
matters not within the authority of the Dealer Manager. The Ownership Entity
agrees not to change its Executive Manager without the prior written approval of
AHM, which approval shall not be unreasonably withheld.
1.10 No Further Public Offerings of Stock Without AHM's Prior Written
----------------------------------------------------------------
Approval. The Ownership Entity shall not make any further public offerings of
- --------
Stock without AHM's prior written approval. The Ownership Entity shall submit
any proposals to make other public offerings of Stock to AHM in the manner set
forth in the Policy and AHM shall evaluate such proposal in accordance
therewith. The Dealership Parties understand and agree that AHM will not
approve of any public offering of Stock that will increase at any time the
number of shares of freely tradeable, unrestricted shares to fifty percent or
more of the total shares of Stock then outstanding.
1.11 No Public Ownership of Individual Dealerships. No Honda and/or Acura
---------------------------------------------
dealership(s) that the Ownership Entity owns or acquires shall be held or owned
by an entity required to file reports under Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934.
1.12 Change of Control of the Ownership Entity. The Dealership Parties
-----------------------------------------
acknowledge and agree that AHM has the right to ensure that its dealerships
remain under the control of persons and/or entities with a full-time commitment
to the sale and service of Honda Products or Acura Products (as the case may
be). The Dealership Parties recognize the legitimacy of AHM's concern (as more
fully set forth in the Policy) that public ownership of dealerships, if
unrestricted, could lead to the loss of AHM's control over the selection of the
individuals who sell and service AHM's products. Therefore, in the event that a
controlling interest in the Ownership Entity (or, as set forth in Schedule G, in
a Dealership Principal) or any of their Affiliates that own Honda or Acura
dealerships is acquired or threatened to be acquired by an individual or entity
not specifically approved by AHM, the Dealership Parties agree that AHM may
exercise the right to purchase set forth in Section 9.3. As used herein,
"controlling interest" means (a) ownership or practical control of shares of the
Ownership Entity or its Affiliates sufficient to appoint or control either the
management or the board of directors thereof or (b) the practical ability to
make the day-to-day and/or policy decisions of a Honda or Acura dealership.
2. FUTURE ACQUISITIONS BY THE DEALERSHIP PARTIES OF HONDA AND ACURA
----------------------------------------------------------------
DEALERSHIPS
-----------
2.1 Right of Approval by AHM. The Dealership Parties agree that neither
------------------------
any of them nor any of their Affiliates (as defined above) shall acquire any
interest in any Honda or Acura dealership not listed on Schedule B ("Listed
Dealerships") or Schedule M ("Other Dealerships Owned by Dealership Parties and
Affiliates") without AHM's prior written approval. Approval shall be at AHM's
sole discretion and will be evaluated in light of the then current Policy and
AHM's then current business interests. Without limiting the foregoing, in no
event will AHM approve any such acquisition unless all Honda and Acura
dealerships owned or controlled by any of the Dealership Parties and/or their
Affiliates are (a) in full compliance with all of the terms of the respective
Dealer Agreement(s) and this
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<PAGE>
Agreement; and (b) meet all of the applicable Honda and/or Acura policies and
performance expectations.
2.2 Ownership of Contiguous Dealerships. The Ownership Entity and/or its
-----------------------------------
Affiliates shall not own contiguous Honda dealerships or contiguous Acura
dealerships.
2.3 Ownership of Multiple Dealerships. The Dealership Parties
---------------------------------
cumulatively or individually shall not own or control, directly or through an
Affiliate, Honda or Acura dealerships in excess of the numbers set forth below:
2.3.1 Honda. The Dealership Parties shall not hold an ownership
-----
interest, directly or through an Affiliate, in a multiple number of Honda
dealerships as provided below: (a) in a "Metro" market (a "Metro" market is a
metropolitan market area represented by two or more Honda dealer points) with
two (2) to ten (10) Honda dealership points (inclusive), no Dealership Party or
combination of Dealership Parties may own, operate or a have an interest in more
than one (1) Honda dealership; (b) in a Metro market with eleven (11) to twenty
(20) Honda dealership points (inclusive), no Dealership Party or combination of
Dealership Parties may own, operate or have an interest in more than two (2)
Honda dealerships; (c) in a Metro market with twenty-one (21) or more Honda
dealership points (inclusive), no Dealership Party or combination of Dealership
Parties may own, operate or have an interest in more than three (3) Honda
dealerships; (d) in more than 4% of the Honda dealerships in any one of the ten
Honda Zones; and (e) in more than seven (7) Honda dealerships nationally.
2.3.2 Acura. The Dealership Parties shall not hold an ownership
-----
interest, directly or through an Affiliate, in more than: (a) one (1) Acura
dealership in a Metro market (as used herein, "Metro market" is a Metropolitan
market area represented by two or more Acura dealer points); (b) two (2) Acura
dealerships in any one of the six Acura Zones; and (c) three (3) Acura
dealerships nationally.
2.4 Proposed Acquisition in Excess of Limits. If the purchase of any
----------------------------------------
Honda or Acura dealership would result in exceeding the limits set forth in this
Section 2, AHM will reject the application for approval of the ownership
transfer until such time as the applicable Dealership Party shall divest itself
of the appropriate number of dealerships to bring it into compliance with the
requirements of this Agreement at which time AHM will reconsider the proposal in
light of the Policy. In case of such divestiture, AHM may invoke the right of
first refusal/option to purchase provisions of Section 8.2 hereof.
2.5 Agreements and Proposals Pertaining to Non-Listed Dealerships.
-------------------------------------------------------------
Agreements, if any, between AHM and any of the Dealership Parties pertaining to
Honda and/or Acura dealerships other than the Listed Dealerships (for example,
dealerships which AHM has agreed to permit the Ownership Entity to acquire upon
fulfillment of certain conditions) and proposals pending on the Effective Date
of the Agreement to acquire non-Listed Dealerships are set forth in Schedule J
hereto ("Pending Dealership Transactions").
3. SEPARATE, FREESTANDING, EXCLUSIVE DEALERSHIPS
---------------------------------------------
3.1 Maintenance of Exclusive Dealership Premises. Each Honda or Acura
--------------------------------------------
dealership owned by the Ownership Entity or its Affiliates shall be maintained
as separate, freestanding, exclusive Dealership Operations that completely and
timely comply with facility design and image enhancements to AHM's brand image,
functionality and capacity standards and guidelines, which standards and
guidelines AHM may reasonably modify from time to time, and shall exclusively
offer a full range of
-6-
<PAGE>
Honda Products and services or Acura Products and services and shall not offer
competing products or services from its Dealership Premises.
3.2 Full Line of Products and Services. The Ownership Entity shall make
----------------------------------
available to the customers at each of its Honda dealerships all Honda Products
and services, including, but not limited to, vehicles, Genuine Parts and
Accessories, American Honda Finance Corporation retail financing services
(whether for purchases or leases), Honda Vehicle Service Contracts, and Honda
Certified Used Car Program. The Ownership Entity shall make available to the
customers at each of its Acura dealerships all Acura Products and services,
including, but not limited to, vehicles, Genuine Parts and Accessories, American
Honda Finance Corporation retail financing services (whether for purchases or
leases), Acura Vehicle Service Contracts, and Acura Preferred Pre-Owned Program.
3.3 Treatment as Independent Dealerships. For allocation and other
------------------------------------
purposes, transfer of Honda or Acura Automobiles from one dealership to another
dealership owned by the same entity will be treated the same as a transfer
between separately-owned dealers. In no event may Acura Automobiles be
transferred to any non-Acura dealership. In no event may Honda Automobiles be
transferred to any non-Honda dealership.
3.4 Independent Reporting Requirements. Each Honda and Acura dealership
----------------------------------
that the Ownership Entity owns or acquires shall have the same reporting
requirements as all other Honda and Acura dealerships, including fully audited
dealership-specific financial information. Each individual dealership must at
all times meet the capitalization requirements and other requirements set forth
in its individual Dealer Agreement including any addenda thereto. The corporate
bylaws of the individual corporation that actually owns the Honda or Acura
dealership must restrict it from engaging in any activity other than the
ownership and maintenance of a Honda or Acura dealership, as the case may be.
4. DEALER MANAGERS
---------------
4.1 Approval by AHM. Each Honda and Acura dealership owned or controlled
---------------
by the Ownership Entity shall have a qualified Dealer Manager, approved by AHM
(subject to the exception noted in Section 4.2 below). Each Dealer Manager
shall work at the Honda or Acura Dealership Premises, shall devote all efforts
to the management of the dealership and shall have no other significant business
interests or management responsibilities.
4.2 Trial Period. Whenever the Ownership Entity nominates a new Dealer
------------
Manager candidate for a Honda or Acura dealership, AHM shall have the right to
withhold a decision concerning approval or rejection of the candidate for a
trial period of up to one year, at its sole discretion; provided, however, that
the candidate may operate in the capacity of Dealer Manager until AHM has
approved or rejected the candidate.
4.3 Authority of Dealer Manager. The Ownership Entity shall advise AHM in
---------------------------
writing of the limitations, by category and, where applicable, by specific
action, on the authority of the Dealer Manager regarding the operation of the
dealership. Without limiting the foregoing, the Dealer Manager must have the
authority to run the day-to-day operations of the dealership and the capacity to
enter into substantial transactions (e.g., the placement of orders for Honda or
Acura Automobiles and Genuine Parts and Accessories) on behalf of the
dealership.
-7-
<PAGE>
5. REPRESENTATION ON HONDA AND ACURA DEALER ORGANIZATIONS
------------------------------------------------------
No more than one representative each from the Honda, and separately, Acura
dealerships owned, directly or through an Affiliate, by any of the Dealership
Parties, may serve on the Honda National Dealer Advisory Board, the Acura
National Dealer Council or any future Honda or Acura national board(s) which may
be established, and no more than one representative each may serve on either a
Honda or Acura Zone Advisory Board/Council, or Honda Advertising Triad or Acura
advertising council (should one be established in the future). Such
representative must be involved on a full-time basis in the day-to-day operation
of the dealership which it is appointed to represent and must otherwise comply
with the bylaws of the applicable organization.
6. DEALERSHIP PERSONNEL TRAINING
-----------------------------
No Dealership Party shall substitute training courses of its own for those
provided or sponsored by AHM without the prior written approval of AHM, which
approval shall be at AHM's sole discretion. In no event will AHM approve
training courses unless the trainers are certified pursuant to Honda's or
Acura's certification programs, as applicable.
7. PROSPECTUS DISCLAIMER AND INDEMNIFICATION AGREEMENT
---------------------------------------------------
In the event that AHM approves a future offering of Stock, the Ownership
Entity shall place in its registration statement and its prospectus, as well as
in any other document offering Stock to public or private investors, the
following disclaimer:
No Manufacturer (as defined in this Prospectus) has been involved,
directly or indirectly, in the preparation of this Prospectus or in
the offering being made hereby. No Manufacturer has made any
statements or representations in connection with the offering or has
provided any information or materials that were used in connection
with the Offering, and no Manufacturer has any responsibility for the
accuracy or completeness of this Prospectus.
The Dealership Parties shall, jointly and severally, indemnify, defend and hold
harmless AHM pursuant to the terms of the Indemnification Agreement set forth in
Schedule K to this Agreement.
8. TRANSFER OF DEALERSHIPS BY THE OWNERSHIP ENTITY.
-----------------------------------------------
8.1 Sale of Ownership Interest in Dealership. This is a personal services
----------------------------------------
Agreement based upon personal skills, service, qualifications and commitment of
the Ownership Entity, its Executive Manager, and its Dealer Managers. For this
reason, and because AHM has entered into this Agreement in reliance upon the
Ownership Entity's, its Executive Manager's, and its Dealer Managers'
qualifications, without limiting any of the other restrictions on transfer of
ownership set forth in this Agreement, the Ownership Entity agrees to obtain
AHM's prior written approval of any proposed transfer of control or of any
ownership interest in a Honda or Acura dealership owned by the Ownership Entity.
Without limiting the foregoing, in the event of such proposed transfer, AHM
shall not be obligated to renew the applicable Dealer Agreement or to execute a
new Dealer Agreement with the Ownership Entity or the proposed transferee unless
(a) the Ownership Entity first makes arrangements acceptable to AHM to satisfy
any outstanding indebtedness to AHM; (b) the proposed transfer conforms
-8-
<PAGE>
to this Agreement and the Policy; and (c) the transferee agrees to the terms and
conditions of this Agreement and the Policy.
8.2 Right of First Refusal or Option to Purchase
--------------------------------------------
8.2.1 Rights Granted. If a proposal to sell a dealership's assets
--------------
or transfer its ownership is submitted by the Ownership Entity to AHM, AHM has a
right of first refusal or option to purchase the dealership assets or stock,
including any leasehold interest or realty. AHM's exercise of its right or
option under this Section supersedes the Ownership Entity's right to transfer
its interest in, or ownership of, the dealership. AHM's right or option may be
assigned by it to any third party and AHM hereby guarantees the full payment to
the Ownership Entity of the purchase price by such assignee. AHM may disclose
the terms of any pending ownership transfer agreement and any other relevant
dealership performance information to any potential assignee. AHM's rights
under this Section will be binding on and enforceable against any assignee or
successor in interest of the Ownership Entity or purchaser of the Ownership
Entity's assets.
8.2.2 Exercise of AHM's Rights. AHM shall have 180 days from AHM's
------------------------
receipt of all completed documentation and information customarily required by
it to evaluate a proposed transfer of ownership in which to exercise its right
of first refusal or option to purchase. AHM's exercise of its right of first
refusal under this Section shall neither be dependent upon nor require AHM's
prior disapproval of the proposed transfer.
8.2.3 Right of First Refusal. If the Ownership Entity has entered
----------------------
into a bona fide written ownership transfer agreement for its dealership
business or assets, AHM's right under this Section is a right of first refusal,
enabling AHM to assume the buyer's rights and obligations under such ownership
transfer agreement, and to cancel this Agreement and all rights granted the
Ownership Entity. Upon AHM's request, the Ownership Entity agrees to provide
other documents relating to the proposed transfer and any other information
which AHM deems appropriate, including, but not limited to, those reflecting
other agreements or understandings between the parties to the ownership transfer
agreement. Refusal to provide such documentation or to state that no such
documents exist shall create the presumption that the ownership transfer
agreement is not a bona fide agreement.
8.2.4 Option to Purchase. If the Ownership Entity submits a
------------------
proposal which AHM determines is not bona fide or in good faith, AHM has the
option to purchase the principal assets of the Ownership Entity utilizing the
dealership business, including real estate and leasehold interest, and to cancel
this Agreement and the rights granted the Ownership Entity. The purchase price
of the dealership assets will be determined by good faith negotiations between
the parties. If an agreement cannot be reached, the purchase price will be
exclusively determined as set forth in Section 9.3 of this Agreement.
8.2.5 The Ownership Entity's Obligations. Upon AHM's exercise of
----------------------------------
its right or option and tender of performance under the ownership transfer
agreement or upon whatever terms may be expressed in the ownership transfer
agreement, the Ownership Entity shall forthwith transfer the affected real
property by warranty deed conveying marketable title free and clear of all
liens, claims, mortgages, encumbrances, tenancies and occupancies. The warranty
deed shall be in proper form for recording, and the Ownership Entity shall
deliver complete possession of the property and deed at the time of closing.
The Ownership Entity shall also furnish to AHM all copies of any easements,
licenses or other documents affecting the property or Dealership Operations and
shall assign any permits or licenses that are necessary or desirable for the use
of or appurtenant to the property or the conduct of such Dealership Operations.
The Ownership Entity also agrees to execute and deliver to AHM
-9-
<PAGE>
instruments satisfactory to AHM conveying title to all personal property,
including leasehold interests, involved in the transfer or sale to AHM. If any
personal or real property is subject to any lien or charge of any kind
(including, without limitation, liabilities pursuant to any environmental law or
regulation), the Ownership Entity agrees to procure the discharge and
satisfaction thereof prior to the closing of sale of such property to AHM or, if
that is not possible, indemnify AHM for any liabilities incurred as a result
thereof.
8.3. Transfer Provisions Fair and Reasonable. In entering into this
---------------------------------------
Agreement, each of the Dealership Parties understands that AHM would not consent
to the transfer of Honda or Acura dealerships to an entity that is owned in part
by a publicly-held entity without the restrictions on subsequent transfer set
forth in this Agreement. The Dealership Parties have entered into this
Agreement to induce AHM to consent to such transfer to an entity that is owned
in part by a publicly-held entity and hereby acknowledge and agree that the
restrictions on subsequent transfer set forth herein are "fair" and "reasonable"
as those terms are used under state and federal laws governing the relationship
between automobile manufacturers and automobile dealers.
9. REMEDIES OF AHM.
---------------
9.1 Cumulative Remedies. All of AHM's remedies set forth herein are
-------------------
cumulative. No explicit listing of any remedy shall foreclose AHM from seeking
any remedy at law or in equity, including injunctive relief, that would
otherwise be available to it.
9.2 Injunctive Relief. The Ownership Entity agrees that any breach by any
-----------------
of the Dealership Parties or their Affiliates of the covenants set forth in this
Agreement that pertain to the ownership, control, transfer, and/or operation of
Honda or Acura dealerships would result in irreparable harm to AHM and therefore
agrees that AHM shall be entitled to emergency, preliminary and permanent
injunctive relief to prevent such breaches.
9.3 Right to Purchase. The Dealership Parties understand and acknowledge
-----------------
that AHM has the right to maintain a personal relationship with its dealers and
a healthy and competitive dealer network and that the Policy and this Agreement
are designed to ensure the protection of that right and the integrity of the
dealer network while at the same time enabling the Ownership Entity to raise
capital through the public offering of stock. Therefore, in the event that any
of the Dealership Parties materially breach the Policy or this Agreement or any
Dealer Agreement, in addition to any other remedies that AHM might have, upon
notice from AHM, the Dealership Parties agree that they will sell to AHM all
assets of the Honda and Acura dealerships that they own or control at their then
current fair market value and on the terms set forth in Section 8.2.5 and that
the applicable Dealer Agreements will terminate upon such sale. Any dispute as
to the fair market value of such dealerships will be resolved by arbitration as
described in Section 10 hereof. In such arbitration, the Arbitrator shall be
empowered only to determine (1) whether a material breach took place; and, (2)
if so, the fair market value of the dealerships at issue. The arbitrator in
such proceeding shall not have the power to award any other damages or other
relief. If the arbitrator finds a material breach, the Ownership Entity shall
transfer the dealerships to AHM or AHM's designee at the fair market value
determined by the arbitrator without the necessity of further legal action by
AHM. The arbitrator's decision shall be unappealable and unreviewable. If, in
violation of the terms hereof, any of the Dealership Parties require AHM to
obtain a court judgment to enforce the arbitrator's decision, the arbitrator's
decision shall be enforceable in any court of competent jurisdiction and the
Ownership Entity agrees to pay the costs and attorneys' fees expended in
connection therewith. The foregoing arbitration shall not, without the consent
of both parties, be consolidated with any other arbitration initiated by a party
pursuant to Section 10 hereof.
-10-
<PAGE>
9.4 Indemnification for Claims by Disappointed Buyer. The Dealership
------------------------------------------------
Parties, jointly and severally, hereby agree to indemnify and hold harmless AHM
and its affiliates from and against any and all losses, liabilities, judgments,
amounts paid in settlement, claims, damages and expenses whatsoever
(collectively a "Claim"), including, but not limited to, any and all expenses
whatsoever (including reasonable attorneys' fees) incurred in investigating,
preparing or defending against any litigation, commenced or threatened, to which
AHM may become subject as a result of AHM's exercise of the rights set forth in
Sections 8.2 and 9.3 of this Agreement. Without limiting the generality of the
immediately preceding sentence, this indemnification covers any Claim brought
against AHM by an individual or entity that alleges that the individual or
entity would have purchased an interest in a Honda or Acura dealership but for
AHM's interference with such proposed purchase.
10. DISPUTE RESOLUTION
------------------
Except as modified in Section 9.3 above, any controversy or claim arising
out of or relating to the Agreement, or the breach hereof, or any failure to
agree where agreement of the parties is necessary pursuant hereto, including the
determination of the scope of this agreement to arbitrate, shall be resolved by
the following procedures:
10.1 Attempt to Resolve Dispute. The parties shall use all reasonable
--------------------------
efforts to amicably resolve the dispute through direct discussions. The senior
management of each party commits itself to respond promptly to any such dispute.
Any party may send written notice to the other parties identifying the matter in
dispute and invoking the procedures of this article. Within ten (10) days after
such written notice is received, unless a delay is agreed to by both parties to
the dispute or the parties agree to confer by telephone, one or more senior
management of each party shall meet in Los Angeles, California to attempt to
amicably resolve the dispute by written agreement. If said dispute cannot be
settled through direct discussions, the parties agree to first endeavor to
settle the dispute in an amicable manner by mediation in Los Angeles and
administered by the American Arbitration Association ("AAA"), pursuant to the
Commercial Mediation Rules of the AAA at the time of submission prior to
resorting to binding arbitration.
10.2 Application to Binding Arbitration. If after forty-five (45) days
----------------------------------
from the first written notice of dispute, the parties fail to resolve the
dispute by written agreement or mediation, either party may submit the dispute
to final and binding arbitration administered by the AAA, pursuant to the
Commercial Arbitration Rules of the AAA at the time of submission. The
arbitration shall be held in Los Angeles before a single neutral, independent,
and impartial arbitrator (the "Arbitrator").
10.3 Binding Arbitration Procedure. Unless the parties have agreed upon
-----------------------------
the selection of the Arbitrator before then, the AAA shall appoint the
Arbitrator as soon as practicable, but in any event within thirty (30) days
after the submission to AAA for binding arbitration. The arbitration hearings
shall commence within forty-five (45) days after the selection of the
Arbitrator. Unless the Arbitrator otherwise directs, each party shall be
limited to three (3) pre-hearing depositions lasting no longer than six (6)
hours each. The parties shall exchange documents to be used at the hearing no
later than ten (10) days prior to the hearing date. Unless the Arbitrator
otherwise directs, each party shall have no longer than three (3) days to
present its position, the entire proceedings before the Arbitrator shall be on
no more than eight (8) hearing days within a three (3) week period. The
Arbitrator's award shall be made no more than thirty (30) days following the
close of the proceeding. The Arbitrator's award may not include consequential,
exemplary, or punitive damages. The Arbitrator's award shall be a final and
binding determination of the dispute and shall be fully enforceable in any court
of competent jurisdiction. The
-11-
<PAGE>
prevailing party shall be entitled to recover its reasonable attorneys' fees and
expenses, including arbitration administration fees, incurred in connection with
such proceeding. Except in a proceeding to enforce the results of the
arbitration, neither party nor the Arbitrator may disclose the existence,
content, or results of any arbitration hereunder without the prior written
consent of both parties.
10.4 Exceptions. Notwithstanding the foregoing, either party may, without
----------
recourse to arbitration, assert against the other party a third-party claim,
cross-claim or like claim in any action brought by a third party to which this
Agreement or the obligations of the parties hereunder may pertain. Nothing
herein shall prevent a party from seeking injunctive relief, where appropriate,
from a court of competent jurisdiction pending the outcome of any arbitration
concerning the subject of such arbitration or when authorized by an arbitrator's
award or when emergency relief is required.
-12-
<PAGE>
11. ENTIRE AGREEMENT OF THE PARTIES
-------------------------------
There are no prior agreements or understandings, either oral or written,
between the parties affecting this Agreement, except as otherwise specified or
referred to in this Agreement (including the Schedules hereto). No change or
addition to, or deletion of any portion of this Agreement shall be valid or
binding upon the parties hereto unless approved in writing signed by an officer
of each of the parties hereto. The parties acknowledge that each of them have
been represented by counsel and are substantial entities with considerable
resources. This Agreement has been fully negotiated. No provision of this
Agreement shall be construed against a party on the ground that the party or its
attorneys drafted it.
12. SEVERABILITY
------------
If any provision of this Agreement should be held invalid or unenforceable
for any reason whatsoever, or conflicts with any applicable law, this Agreement
will be considered divisible as to such provision(s), and such provision(s) will
be deemed amended to comply with such law, or if it (they) cannot be so amended
without materially affecting the tenor of the Agreement, then it (they) will be
deemed deleted from this Agreement in such jurisdiction, and in either case, the
remainder of the Agreement will be valid and binding. Notwithstanding the
foregoing, if, as a result of any provision of this Agreement being held invalid
or unenforceable, AHM's ability to control the selection of the Dealership
Principals, Executive Manager, or Dealer Managers or to otherwise maintain its
ability to exercise reasonable discretion over the selection of the actual
individual who is managing a Honda or Acura dealership is materially restricted
beyond the terms of this Agreement or the Dealer Agreement, AHM shall be
permitted to invoke the purchase provisions of Section 9.3 hereof.
13. NO IMPLIED WAIVERS
------------------
The failure of either party at any time to require performance by the other
party of any provision herein shall in no way affect the right of such party to
require such performance at any time thereafter, nor shall any waiver by any
party of a breach of any provision herein constitute a waiver of any succeeding
breach of the same or any other provision, nor constitute a waiver of the
provision itself.
14. AHM POLICIES
------------
AHM has adopted certain policies which are attached hereto as Schedule L.
The Ownership Entity hereby agrees to abide by these policies as attached hereto
and as reasonably amended by AHM from time to time, and other policies
promulgated in the future by AHM. In addition, AHM has expressed a commitment
to diversity in management and among employees. The Ownership Entity hereby
agrees to adhere to that commitment by seeking to achieve diversity among the
management personnel and employees it hires and/or appoints in connection with
the Honda and Acura dealerships it owns or controls. Without limiting the
generality of the foregoing, the Ownership Entity hereby agrees that its
dealerships will meet or exceed (with respect to both the applicable zone and
the United States as a whole) average Honda and/or Acura dealership performance
(as such performance is measured by AHM, now or in the future) with respect to
customer satisfaction, sales, and market share.
15. APPLICABLE LAW
--------------
This Agreement shall be governed by and construed according to the laws of
the State of California without applying its conflicts of law principles.
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<PAGE>
16. BENEFIT
-------
This Agreement is entered into by and between AHM and the Dealership
Parties for their sole and mutual benefit. Neither this Agreement nor any
specific provision contained in it is intended or shall be construed to be for
the benefit of any third party.
17. NOTICE TO THE PARTIES
---------------------
Any notices permitted or required under the terms of this Agreement shall
be directed to the following respective addresses of the parties, or if either
of the parties shall have specified another address by notice in writing to the
other party, then to the address last specified:
If to AHM:
AMERICAN HONDA MOTOR CO., INC.
Honda Division
1919 Torrance Boulevard
Torrance, California 90501
Attention: Dealer Placement Department
AMERICAN HONDA MOTOR CO., INC.
Acura Division
1919 Torrance Boulevard
Torrance, California 90501
Attention: Dealer Development Department
with a copy to:
Associate General Counsel
HONDA NORTH AMERICA, INC.
Law Department
700 Van Ness Avenue
Torrance, California 90509-2206
-14-
<PAGE>
If to any of the Dealership Parties:
FIRSTAMERICA AUTOMOTIVE, INC.
100 The Embarcadero, Penthouse
San Francisco, California 94105
with a copy to:
Mr. W. Bruce Bercovich, Esq.
KAY & MERKLE
100 The Embarcadero, Penthouse
San Francisco, California 94105
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
FIRSTAMERICA AUTOMOTIVE, INC.
By:____________________________
Title:
/s/ Donald V. Strough
________________________________
Donald V. Strough
/s/ Thomas A. Price
________________________________
Thomas A. Price
/s/ Steven S. Hallock
________________________________
Steven S. Hallock
/s/ Fred Cziska
________________________________
Fred Cziska
/s/ Al Babbington
________________________________
Al Babbington
/s/ John Driebe
________________________________
John Driebe
-15-
<PAGE>
Embarcadero Automotive, Inc.
By:______________________________
Title:
Raintree Capital, LLC
By:____________________________
Title:
BB Investments
By:____________________________
Title:
Brown, Gibbons & Lang, L.P.
BY:____________________________
Title:
-16-
<PAGE>
AMERICAN HONDA MOTOR CO., INC.
Honda Division
BY: /s/ Richard Colliver
____________________________
Richard Colliver
Senior Vice President
Automobile Sales Division
AMERICAN HONDA MOTOR CO., INC.
Acura Division
BY: /s/ Richard B. Thomas
____________________________
Richard B. Thomas
Executive Vice President
Acura Division
-17-
<PAGE>
SCHEDULE LIST
A. List of Current Owners and Ownership Information
B. Listed Dealerships; Affiliated Dealerships
C. Description of Corporate Structure
D. AHM Automobile Dealer Sales and Service Agreements
E. AHM Policy on the Public Ownership of Honda and Acura Dealerships
F. Dealership Principal Information
G. Additional Restrictions on Transfer of Interests in Dealership Principals
H. List of 5% Owners
I. Executive Manager Information
J. Pending Dealership Transactions
K. Indemnification Agreement
L. AHM Policies
M. Other Dealerships Owned by Dealership Parties and Affiliates
X. Transactional Documentation and Information Submitted (Retained by AHM)
<PAGE>
ADDENDUM TO HONDA AUTOMOBILE DEALER
SALES AND SERVICE AGREEMENT
This Addendum (the "Addendum") dated October 16, 1997, is entered into
between FAA Concord H, Inc. ("Dealer"), a California corporation, with its
principal place of business at 1300 Concord Avenue, Concord, California 94520,
and American Honda Motor Co., Inc. ("American Honda"), a California corporation,
with its principal place of business at 1919 Torrance Boulevard, Torrance,
California 90501.
WHEREAS, Dealer and American Honda are entering into the Honda Automobile Dealer
Sales and Service Agreement including the Standard Provisions (the "Dealer
Agreement"), a copy of which is attached hereto, as of the date hereof; and
WHEREAS, Dealer and American Honda are entering into the "Agreement Between
American Honda Motor Co., Inc. and FirstAmerica Automotive, Inc. et al."
effective as of May 1, 1997 (the "FirstAmerica Agreement"); and
WHEREAS, Dealer and American Honda desire that this Addendum and the
FirstAmerica Agreement be incorporated into and become part of the Dealer
Agreement;
NOW THEREFORE, in consideration of the mutual convenants set forth herein and in
the Dealer Agreement and other good and valuable consideration the sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. Status of the Addendum. This Addendum is hereby incorporated into and is made
----------------------
part of the Dealer Agreement. The Dealer Agreement and this Addendum shall,
when possible, be read as an integrated document; however, if there is any
conflict between the terms of this Addendum and the Dealer Agreement, this
Addendum shall govern.
2. Incorporation of the Applicable Terms of the FirstAmerica Agreement. Attached
-------------------------------------------------------------------
hereto as Schedule A is the FirstAmerica Agreement. Dealer represents and
warrants that it has read the FirstAmerica Agreement and acknowledges that
the FirstAmerica Agreement includes provisions that pertain to FirstAmerica's
management, ownership, and right to acquire and transfer Honda dealerships
and other matters. Dealer has executed the FirstAmerica Agreement and agrees
to be bound by all provisions of the FirstAmerica Agreement that are
applicable to or affect it and/or the actions of any Honda and Acura
dealership owned by Dealer. Dealer and American Honda agree that the terms
and
<PAGE>
ADDENDUM TO HONDA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT
FAA CONCORD H, INC.
PAGE 2 OF 5
conditions of the FirstAmerica Agreement are hereby incorporated into and
made part of the Dealer Agreement.
3. Additional Terms. Dealer shall satisfy the following terms on a continuing
----------------
basis during the term of the Dealer Agreement, as well as during any periods
following any renewal or extension of the Dealer Agreement:
a. Exclusive Facilities. As provided in Paragraph 3.1 of the FirstAmerica
--------------------
Agreement, Dealer shall maintain separate, exclusive, freestanding Honda
Dealership Operations that are in full and timely compliance with American
Honda standards and guidelines relating to Honda Dealership Operations,
facility design, functionality and capacity, and enhancements to American
Honda's brand image, which standards and guidelines American Honda may
reasonably modify from time to time, shall exclusively offer a full range
of Honda Products and services and shall not offer competing products or
services from its Dealership Premises. In addition, Dealer agrees that
even though the facilities may exceed AHM's minimum requirements now or in
the future, the separate, exclusive, freestanding Honda Dealership
Operations will remain separate, exclusive and freestanding for Honda
Products and Honda Dealership Operations.
b. Honda Exclusive Minimum Facility Requirements. The Dealership Premises
---------------------------------------------
shall provide the following Honda exclusive minimum square footage
requirements, arranged in a manner conducive to the reasonable sales and
service of Honda Automobiles, Honda Parts and accessories:
Building
--------
Honda New Vehicle Sales Showroom Display 1,600 Sq. Ft.
Sales Office 1,544 Sq. Ft.
General Office 2,459 Sq. Ft.
Honda Service Workshop and Support 4,450 Sq. Ft.
Stall/Lifts 10/7
Honda Parts and Accessories Department 3,965 Sq. Ft.
Total Building 14,018 Sq. Ft.
<PAGE>
ADDENDUM TO HONDA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT
FAA CONCORD H, INC.
PAGE 3 OF 5
Land
----
New Vehicle Display and Storage 23,467 Sq. Ft.
Used Car Display 18,333 Sq. Ft.
Customer and Employee Parking 10,080 Sq. Ft.
Honda Service Parking 3,040 Sq. Ft.
Circulation and Landscaping 25,000 Sq. Ft.
Total Land 79,920 Sq. Ft.
Total Land and Building 93,938 Sq. Ft.
c. Facility Remodeling. Complete initial consultation with the Honda Design
-------------------
Center no later than December 31, 1997. Dealer agrees to submit facility
remodeling plans for the Dealership Premises for prior written approval no
later than March 31, 1997. Such plans will comply with all American Honda
Minimum Requirements for Honda facilities, as well as completely and
timely comply with facility design and image enhancements to American
Honda's brand image, functionality and capacity standards and guidelines,
which standards and guidelines American Honda may reasonably modify from
time to time. The remodeling of the facility will begin by June 30, 1998
and be completed and open for business to the general public by December
31, 1998.
d. Minimum Capital Requirements. Dealer agrees that the Honda Dealership
----------------------------
Operations shall meet American Honda's minimum capital requirements at all
times. The minimum capital requirements shall be determined by American
Honda from time to time and, as of the date hereof, shall be the amounts
specified below:
. American Honda's current minimum working capital requirement is
$1,290,797 for the Honda dealership at the Dealership Premises. The
Honda dealership entity will be capitalized with not less than
$2,495,915 in equity of which $2,030,000 will be in the form of common
stock.
. Dealer's Long Term Debt (excluding Real Estate Mortgages and the
current portion of Long Term Debt) shall not exceed a ratio of 1:1 when
compared to Effective Net Worth (Total Net Worth less Total Other
Assets) of Dealer.
. A wholesale line of credit is to be established and maintained by
Dealer with a financial institution approved by American Honda for the
exclusive purpose of purchasing and maintaining a representative
inventory of new Honda Automobiles. The current minimum amount of such
line is $2,915,000.
<PAGE>
ADDENDUM TO HONDA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT
FAA CONCORD H, INC.
PAGE 4 OF 5
e. Financial Statement Submission. Dealer agrees to continue to comply with
------------------------------
American Honda's dealer financial requirements as specified in the
Dealer Agreement. These specifically provide that Dealer will furnish a
complete, timely and accurate financial statement on a monthly basis,
electronically, on the form required by American Honda.
f. Personnel Minimum Requirements. Dealer agrees to employ Honda service
------------------------------
and parts staff which meets at all times the minimum service and parts
training standards specified by American Honda for its authorized
dealers and whose members are properly licensed.
g. Communications Equipment. Dealer agrees to provide appropriate data
------------------------
communications equipment, compatible with American Honda's
specifications, which currently must accommodate HondaNet 2000.
4. No Guarantee of Financial Success. Dealer recognizes and acknowledges that
---------------------------------
American Honda's approval of Dealer's application and Dealership Premises
does not in any way constitute a representation, assurance, or guarantee by
American Honda that Dealer will achieve any particular level of sales,
operate at a profit, or realize any return on Dealer's investment.
5. Automobile Availability. Dealer recognizes and acknowledges that American
-----------------------
Honda cannot and does not guarantee a specific number of new Honda
Automobiles to be made available for resale by the Dealer. American Honda
assumes no liability in the event of losses incurred during periods of
unavailability, nor does unavailability excuse Dealer's performance.
6. Compliance with and Impact of Applicable Laws. Dealer shall comply at
---------------------------------------------
Dealer's own expense with all applicable state and federal laws including
those pertaining to vehicle dealerships. Dealer shall secure all licenses
and permissions in accordance with such laws and bear all the cost related
thereto.
7. Assumption of Costs. Dealer will complete the above actions solely at
-------------------
Dealer's own expense and without responsibility on the part of American
Honda.
<PAGE>
ADDENDUM TO HONDA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT
FAA CONCORD H, INC.
PAGE 5 OF 5
8. Severability. If any provision of this Addendum should be held invalid or
------------
unenforceable for any reason whatsoever, or conflicts with any applicable
law, this Addendum will be considered divisible as to such provision(s), and
such provision(s) will be deemed amended to comply with such law, or if it
(they) cannot be so amended without materially affecting the tenor of the
Dealer Agreement, then it (they) will be deemed deleted from the Dealer
Agreement in such jurisdiction, and in either case, the remainder of the
Dealer Agreement will be valid and binding. Notwithstanding the foregoing,
if, as a result of any provision of the Dealer Agreement (including this
Addendum) being held invalid or unenforceable, American Honda's ability to
control the selection of the Dealer Owner, Executive Manager, or the Dealer
Manager or to otherwise maintain its ability to exercise reasonable
discretion over the selection of the actual individual who is managing Dealer
is materially restricted beyond the terms of the Dealer Agreement or the
FirstAmerica Agreement, American Honda shall be permitted to invoke the
repurchase provisions of Section 9.3 of the FirstAmerica Agreement.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date
first above written.
FAA Concord H, Inc.
BY:/s/
-----------------------------------
AMERICAN HONDA MOTOR CO., INC.
BY:/s/
-----------------------------------
<PAGE>
EXHIBIT 10.3
[LOGO OF NISSAN APPEARS HERE]
NISSAN DEALER
SALES AND SERVICE AGREEMENT
STANDARD PROVISIONS
NISSAN DIVISION
NISSAN MOTOR CORPORATION IN U.S.A.
<PAGE>
NISSAN DEALER SALES AND SERVICE AGREEMENT
STANDARD PROVISIONS
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions................................................. 01
2. Dealership Location and
Dealership Facilities....................................... 03
A. Location and Facilities.................................. 03
B. Dealership Facilities Addendum........................... 03
C. Changes and Additions.................................... 03
D. Assistance Provided by Seller............................ 03
E. Evaluation of Dealership Facilities
and Location............................................. 03
3. Vehicle Sales Responsibilities of Dealer.................... 04
A. General Obligations of Dealer............................ 04
B. Sales of Nissan Cars and Nissan Trucks................... 04
C. Metropolitan Markets..................................... 04
D. Additional Factors for Consideration..................... 04
E. Used Motor Vehicle Sales................................. 05
F. Dealer Sales Personnel................................... 05
G. Assistance Provided by Seller............................ 05
H. Evaluation of Dealer's Sales
Performance.............................................. 05
4. Determination of Dealer
Representation.............................................. 05
A. Development of Market Studies............................ 05
B. Appointment of New Authorized
Nissan Dealers to Fill Open Points....................... 06
5. Responsibilities of Dealer With
Respect to Service and Parts................................ 07
A. General Service Obligations of Dealer.................... 07
B. Specific Service Obligations of Dealer................... 07
C. Service Operations of Dealer............................. 09
D. Parts Operations of Dealer............................... 10
E. Assistance Provided by Seller............................ 10
F. Evaluation of Dealer's Service
and Parts Performance.................................... 11
6. Other Seller and Dealer Responsibilities.................... 11
A. Advertising and Promotion................................ 11
B. Dealer Disclosures and Representations
Concerning Nissan Products and
Other Products or Services............................... 12
C. Signs.................................................... 12
D. Hours of Operation....................................... 12
E. Capital and Financing.................................... 12
F. Accounting System........................................ 13
G. Records and Reports...................................... 13
H. Nissan Datanet System.................................... 14
I. Right of Inspection...................................... 14
J. Confidentiality.......................................... 14
K. Use of Nissan Marks...................................... 14
7. Purchase and Delivery....................................... 15
A. Dealer Purchases......................................... 15
B. Delays in Delivery....................................... 15
C. Shipment of Nissan Products.............................. 15
D. Passage of Title......................................... 16
E. Security Interest........................................ 16
F. Charges For Storage and Diversions....................... 17
G. Changes in Nissan Products............................... 17
8. Pricing..................................................... 17
A. Nissan Vehicles.......................................... 17
B. Genuine Nissan Parts and Accessories..................... 17
9. Payment..................................................... 18
A. Payment for Vehicles..................................... 18
B. Payment for Parts and Accessories........................ 18
C. Accounts Payable......................................... 18
D. Collection of Taxes by Dealer............................ 19
10. Warranties.................................................. 19
11. Indemnification............................................. 19
A. Indemnification of Dealer................................ 19
B. Indemnification of Seller................................ 20
C. Conditions and Exceptions to Indemnification............. 21
12. Termination................................................. 21
A. Termination Due to Certain Acts or Events................ 21
B. Termination by Seller for Non-Performance by Dealer...... 23
C. Termination Because of Death or Physical or Mental
Incapacity of Principal Owner............................ 24
D. Termination for Failure of Seller or Dealer
to be Licensed........................................... 24
E. Termination by Dealer.................................... 24
F. Termination by Seller Because of
a Change of Seller's Method of
Distribution or Decision by Seller to
Cease Distribution of Nissan Vehicles.................... 24
G. Termination Upon Entering Into a
New Sales and Service Agreement.......................... 25
13. Rights and Liabilities Upon Termination..................... 25
A. Termination Procedures................................... 25
B. Repurchases by Seller Upon Termination................... 26
C. Dealer's Responsibilities with Respect to Repurchase......26
D. Title to Repurchased Property............................ 27
E. Payment.................................................. 27
F. Cancellation of Deliveries............................... 27
14. Establishment of Successor Dealer........................... 27
A. Because of Death of Principal Owner...................... 27
B. Consideration of Successor Addendum...................... 28
C. Termination of Successor Addendum........................ 28
D. Evaluation of Successor Dealership....................... 28
E. Termination of Market Representation..................... 28
F. Termination of Offer..................................... 29
15. Sale of Assets or Ownership
Interests in Dealer......................................... 29
A. Sale or Transfer......................................... 29
B Seller's Evaluation...................................... 29
C. Effect of Termination.................................... 30
16. Policy Review Board......................................... 30
A. Establishment of Policy Review Board..................... 30
B. Appeal of Dealer Appointment to Policy Review Board...... 31
C. Appeal of Termination to Policy Review Board............. 31
D. Effect of Other Proceedings.............................. 31
17. General..................................................... 31
A. Notices.................................................. 31
B. No Implied Waivers....................................... 31
C. No Agency................................................ 31
D. Limitations of Seller's Liability........................ 32
E. Entire Agreement......................................... 32
F. California Law........................................... 32
G. Changes Required by Law.................................. 32
H. Severability............................................. 32
I. Assignment............................................... 32
J. No Franchise Fee......................................... 32
K. Captions................................................. 33
L. Benefit.................................................. 33
</TABLE>
<PAGE>
NISSAN
DEALER SALES & SERVICE AGREEMENT
The following Standard Provisions have by reference been incorporated in and
made a part of the Nissan Dealer Sales & Service Agreement which they accompany
and which has been executed on behalf of Seller and Dealer.
SECTION 1. DEFINITIONS
Seller and Dealer agree that the following terms, as used in this Agreement,
shall be defined exclusively as set forth below.
A. "Authorized Nissan Dealers" shall mean dealers located in the Territory
that are authorized by Seller to conduct Dealership Operations in connection
with the sale of Nissan Products, pursuant to a duly executed Nissan Dealer
Sales and Service Agreement.
B. "Nissan Cars" shall mean the new passenger cars specified in the current
Product Addendum.
C. "Nissan Trucks" shall mean the new trucks, cab and chassis, utility
vehicles, buses or vans specified in the current Product Addendum.
D. "Nissan Vehicles" shall mean Nissan Cars and Nissan Trucks.
E. "Genuine Nissan Parts and Accessories" shall mean such parts, accessories
and other products for Nissan Vehicles as are from time to time offered for sale
by Seller to Authorized Nissan Dealers for resale under this Agreement.
F. "Nissan Products" shall mean Nissan Vehicles and Genuine Nissan Parts and
Accessories.
G. "Competitive Vehicles" shall mean those new vehicles which are considered
by Seller to be directly competitive with Nissan Vehicles.
H. "Industry Cars" shall mean all new cars of all manufacturers which are sold
and distributed within the United States, to the extent data relating to
registration thereof are reasonably available.
I. "Competitive Truck Segment" shall include all compact pickup trucks,
compact utility vehicles, and compact buses of all manufacturers which are sold
and distributed within the United States, to the extent data relating to
registration thereof are reasonably available.
J. "Dealership Location" shall mean the place or places of business of Dealer
established and described in accordance with Section 2 of this Agreement.
K. "Dealership Facilities" shall mean the land areas at the Dealership
Location and the buildings and improvements erected thereon provided by Dealer
in accordance with Section 2 of this Agreement.
L. "Dealership Facilities Addendum" shall mean the addendum executed by Seller
and Dealer pursuant to Section 2 of this Agreement.
M. "Dealership Operations" shall mean all dealer functions contemplated by
this Agreement including, without limitation, sale and servicing of Nissan
Products, use and display of Nissan Marks and Nissan Products, rental and
leasing of Nissan Vehicles, sales of used vehicles, body shop work, financing or
insurance services and any other activities undertaken by Dealer in connection
with Nissan Products whether conducted directly or indirectly by Dealer.
N. "Primary Market Area" shall mean the geographic area which is designated
from time to time as the area of Dealer's sales and service
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responsibility for Nissan Products in a Notice of Primary Market Area issued by
Seller to Dealer. Seller reserves the right, in its reasonable discretion, to
issue new, superseding "Notices of Primary Market Area" to Dealer from time to
time. Such geographic area may at any time be applicable to Dealer and to other
Authorized Nissan Dealers.
O. "Principal Owner(s)" shall mean the person(s) named as Principal Owner(s)
in the Final Article of this Agreement upon whose personal qualifications,
expertise, reputation, integrity, experience, ability and representations
concerning the management and operation of Dealer, Seller has relied in entering
this Agreement.
P. "Other Owner(s)" shall mean the person(s) named as Other Owner(s) in the
Final Article of this Agreement who will not be involved in the operation or
management of Dealer.
Q. "Executive Manager" shall mean the person named as Executive Manager in the
Final Article of this Agreement upon whose personal qualifications, expertise,
reputation, integrity, experience, ability and representations that he or she
shall devote his or her primary efforts to and have full managerial authority
and responsibility for the day-to-day management and performance of Dealer,
Seller has relied in entering into this Agreement.
R. "Successor Addendum" shall mean the Successor Addendum, if any, executed by
Seller and Dealer pursuant to Section 14 of this Agreement.
S. "Guides" shall mean such reasonable standards as may be established by
Seller for Authorized Nissan Dealers from time to time under its standard
procedures with respect to such matters as dealership facilities, tools,
equipment, financing, capitalization, inventories, operations and personnel. The
execution of this Agreement or of any addenda hereto (including, without
limitation, any Dealership Facilities Addendum) shall not, however, be construed
as evidence of Dealer's fulfillment of or compliance with said Guides or of
Dealer's fulfillment of its responsibilities under this Agreement.
T. "Warranty Manual" shall mean the publication or publications of Seller, as
the same may from time to time be amended, revised or supplemented, which set
forth Seller's policies and procedures concerning the administration of Seller's
warranties and related matters.
U. "Nissan Marks" shall mean those trademarks, service marks, names, logos and
designs that Seller may, from time to time, use or authorize for use by Dealer
in connection with Nissan Products or Dealership Operations including, without
limitation, the name "Nissan".
V. "Seller's Manuals and Instructions" shall mean those bulletins, manuals or
instructions issued by Seller to all Authorized Nissan Dealers advising them of
Seller's policies or procedures under this Agreement including, without
limitation, the Parts and Accessories Policy and Procedures Manual and the
Nissan Dealer Accounting System Manual.
W. "Territory" shall mean the geographic area in which Seller has been
authorized by Manufacturer to distribute Nissan Products.
X. "Product Addendum" shall mean the Product Addendum issued by Seller to
Dealer which specifies those Nissan Vehicles which shall be offered for sale by
Seller to Dealer for resale. Seller reserves the right, in its sole discretion,
to issue new, superseding Product Addenda to Dealer from time to time.
Y. "Dealer Identification Addendum" shall mean the Dealer Identification
Addendum executed by Seller and Dealer pursuant to Section 6.C of this
Agreement.
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SECTION 2. DEALERSHIP LOCATION AND DEALERSHIP FACILITIES
A. Location and Facilities.
Dealer shall provide, at the Dealership Location approved by Seller in
accordance with Section 2.B hereof, Dealership Facilities that will enable
Dealer to effectively perform its responsibilities under this Agreement and
which are reasonably equivalent to those maintained by Dealer's principal
competitors in the geographic area in which Dealer's Primary Market Area is
located. In addition, the Dealership Facilities shall be satisfactory in space,
appearance, layout, equipment, signage and otherwise be substantially in
accordance with the Guides therefor established by Seller from time to time.
Dealer shall conduct its Dealership Operations only from the Dealership Location
specified in the Dealership Facilities Addendum. If the Dealership Location is
comprised of more than one place of business, Dealer shall use each such place
of business only for the purposes specified therefor in the current Dealership
Facilities Addendum.
B. Dealership Facilities Addendum.
Dealer and Seller will execute a Dealership Facilities Addendum which will
include a description of the Dealership Location and the Dealership Facilities,
the approved use for each such place of business and facility, and the current
Guides therefor.
C. Changes and Additions.
Dealer shall not move, relocate, or change the usage of the Dealership Location
or any of the Dealership Facilities, or substantially modify any of the
Dealership Facilities, nor shall Dealer or any person named in the Final Article
of this Agreement directly or indirectly establish or operate any other
locations or facilities for the sale or servicing of Nissan Products or for the
conduct of any other of the Dealership Operations contemplated by this
Agreement, without the prior written consent of Seller. Any changes in the
Dealership Location or the Dealership Facilities that may be agreed to by Seller
and Dealer shall be reflected in a new, superseding Dealership Facilities
Addendum executed by Seller and Dealer.
D. Assistance Provided by Seller.
To assist Dealer in planning, establishing and maintaining the Dealership
Facilities, Seller, at the request of Dealer, will from time to time make its
representatives available to Dealer to provide standard building layout plans,
facility planning recommendations, and counsel and advice concerning location
and facility planning.
E. Evaluation of Dealership Facilities and Location.
Seller will periodically evaluate Dealer's performance of its responsibilities
under this Section 2. In making such evaluations, Seller will give consideration
to: the actual land and building space provided by Dealer for the performance of
its responsibilities under this Agreement; the current Guides established by
Seller for the Dealership Facilities; the appearance, condition and layout of
the Dealership Facilities; the location of the Dealership Facilities relative to
the sales opportunities and service requirements of the Primary Market Area;
equivalence with facilities maintained by Dealer's principal competitors; and
such other factors, if any, as may directly relate to Dealer's performance of
its responsibilities under this Section 2. Evaluations prepared pursuant to this
Section 2.E will be discussed with and provided to Dealer, and Dealer shall have
an opportunity to comment, in writing, on such evaluations, and Seller will
consider Dealer's comments. Dealer shall promptly take such action as may be
required to correct any deficiencies in Dealer's performance of its
responsibilities under this Section 2.
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SECTION 3. VEHICLE SALES RESPONSIBILITIES OF DEALER
A. General Obligations of Dealer.
Dealer shall actively and effectively promote through its own advertising and
sales promotion activities the sale at retail (and if Dealer elects, the leasing
and rental) of Nissan Vehicles to customers located within Dealer's Primary
Market Area. Dealer's Primary Market Area is a geographic area which Seller uses
as a tool to evaluate Dealer's performance of its sales obligations hereunder.
Dealer agrees: that it has no right or property interest in any such geographic
area which Seller may designate; that, subject to Section 4 of this Agreement,
Seller may add, relocate or replace dealers in Dealer's Primary Market Area; and
that Seller may, in its reasonable discretion, change Dealer's Primary Market
Area from time to time.
B. Sales of Nissan Cars and Nissan Trucks. Dealer's performance of its sales
responsibility for Nissan Cars and Nissan Trucks will be evaluated by Seller on
the basis of such reasonable criteria as Seller may develop from time to time,
including for example:
1. Achievement of reasonable sales objectives which may be established from
time to time by Seller for Dealer as standards for performance;
2. Dealer's sales of Nissan Cars and Nissan Trucks in Dealer's Primary Market
Area and/or the metropolitan area in which Dealer is located, as applicable, or
Dealer's sales as a percentage of:
(i) registrations of Nissan Cars and Nissan Trucks;
(ii) registrations of Competitive Vehicles;
(iii) registrations of Industry Cars;
(iv) registrations of vehicles in the Competitive Truck Segment;
3. A comparison of Dealer's sales and/or registrations to sales and/or
registrations of all other Authorized Nissan Dealers combined in Seller's Sales
Region and District in which Dealer is located and, where Section 3.C applies,
for all other Authorized Nissan Dealers combined in the metropolitan area in
which Dealer is located; and
4. A comparison of sales and/or registrations achieved by Dealer to the sales
or registrations of Dealer's competitors.
The sales and registration data referred to in this Section 3 shall be those
utilized in Seller's records or in reports furnished to Seller by independent
sources selected by it and generally available for such purpose in the
automotive industry. If such reports of registration and/or sales are not
generally available, Seller may rely on such other registration and/or sales
data as can be reasonably obtained by Seller.
C. Metropolitan Markets.
If Dealer is located in a metropolitan or other marketing area where there are
located one or more Authorized Nissan Dealers other than Dealer, the combined.
sales performance of all Nissan Dealers in such metropolitan or other marketing
area may be evaluated as indicated in Sections 3.B.2 and 3.B.3 above, and
Dealer's sales performance may also be evaluated on the basis of the proportion
of sales and potential sales of Nissan Vehicles in the metropolitan or other
marketing area in which Dealer is located for which Dealer fairly may be held
responsible.
D. Additional Factors for Consideration.
Where appropriate in evaluating Dealer's sales performance, Seller will take
into account such reasonable criteria as Seller may determine from time to time,
including, for example, the following: the Dealership Location; the general
shopping habits of the public in such market area; the
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availability of Nissan Vehicles to Dealer and to other Authorized Nissan
Dealers; any special local marketing conditions that would affect Dealer's sales
performance differently from the sales performance of other Authorized Nissan
Dealers; the recent and long term trends in Dealer's sales performance; the
manner in which Dealer has conducted its sales operations (including
advertising, sales promotion, and treatment of customers); and the other
factors, if any, directly affecting Dealer's sales opportunities and
performance.
E. Used Motor Vehicle Sales.
Dealer shall engage in used motor vehicle operations as and to the extent
reasonably required for Dealer to effectively perform its responsibilities for
the sale of Nissan Vehicles. Subject to requirements and guidelines established
by Seller, Dealer shall be entitled to identify such used motor vehicle
operations as a part of its Dealership Operations and to apply the Nissan Marks
relating to used motor vehicle operations.
F. Dealer Sales Personnel.
Dealer shall organize and maintain a sales organization that includes a
sufficient number of qualified and trained sales managers and sales people to
enable Dealer to effectively fulfill its responsibilities under this Section 3.
Seller may, from time to time, comment on or advise Dealer concerning the
qualifications, performance and ability of Dealer's sales personnel as the same
affect Dealer's performance of its obligations under this Section 3.
G. Assistance Provided by Seller.
1. Sales Training Courses.
Seller will offer from time to time sales training courses for Dealer sales
personnel. Based on its need therefor, Dealer shall, without expense to Seller,
have members of Dealer's sales organization attend such training courses and
Dealer shall cooperate in such courses as may from time to time be offered by
Seller.
2. Sales Personnel.
To further assist Dealer, Seller will provide to Dealer advice and counsel on
matters relating to new vehicle sales, sales personnel training and management,
merchandising, and facilities used for Dealer's vehicle sales operations.
H. Evaluation of Dealer's Sales Performance. Seller will periodically evaluate
Dealer's performance of its responsibilities under this Section 3. Evaluations
prepared pursuant to this Section 3.H will be discussed with and provided to
Dealer, and Dealer shall have an opportunity to comment, in writing, on such
evaluations. Dealer shall promptly take such action as may be required to
correct any deficiencies in Dealer's performance of its responsibilities under
this Section 3.
SECTION 4. DETERMINATION OF DEALER REPRESENTATION
A. Development of Market Studies.
Seller may, from time to time and in its sole discretion, conduct studies of
various geographic areas to evaluate market conditions. Such market studies may,
where appropriate, take into account such factors as geographical
characteristics, consumer shopping patterns, existence of other automobile
retail outlets, sales opportunities and service requirements of the geographic
area in which Dealer's Primary Market Area is located, trends in marketing
conditions, current and prospective trends in population, income, occupation,
and such other demographic characteristics as may be determined by Seller to be
relevant to its study. Such studies will make recommendations concerning the
market, the Dealership Facilities, and the Dealership Location. Prior to
conducting a study which includes the geographic area in which Dealer's
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Primary Market Area is located, Seller will notify Dealer of its intention to
conduct such a study. Dealer will be given the opportunity to present to Seller
such information pertaining to such study as Dealer believes may be relevant.
Seller will consider all relevant information timely provided by Dealer before
concluding its study.
B. Appointment of New Authorized Nissan Dealers to Fill Open Points.
1. If any study conducted pursuant to Section 4.A recommends that an open
point be established at a location that is within ten (10) miles driving
distance, by the shortest publicly traveled route, of Dealer's main Dealership
Location, Seller will so notify Dealer. Dealer will have thirty (30) days from
Dealer's receipt of notice of the recommendations of the study in which to
object to them. Upon Dealer's request, Seller will review the results of the
study with Dealer (excluding information considered by Seller to be
confidential). Seller will consider all objections to the recommended open point
timely made by Dealer. Prior to entering into a Nissan Dealer Sales and Service
Agreement with a New Authorized Nissan Dealer filling such an open point, Seller
will give Dealer written notice of its intent to fill the open point
(hereinafter the "Notice of Appointment"). If Dealer timely files a Notice of
Appeal (as defined in Section 16.B hereof) with the Policy Review Board (as
defined in Section 16.A hereof) in accordance with the procedures established in
Section 16.B therefor, Seller will not enter into a Nissan Dealer Sales and
Service Agreement appointing such New Authorized Nissan Dealer until the Policy
Review Board has rendered its decision on the matter.
2. Nissan reserves the right to sell Nissan Products to others and to
appoint Authorized Nissan Dealers within and outside the ten (10) miles driving
distance described above. However, Seller agrees that it will not enter into a
Nissan Dealer Sales and Service Agreement appointing a New Authorized Nissan
Dealer filling an open point which is located within the ten (10) miles driving
distance described above unless the study made pursuant to Section 4.A
demonstrates in Seller's good faith opinion that the declaration of an open
point is warranted by market or economic conditions.
3. Nothing in this Agreement shall be construed to require Dealer's consent
to the appointment of a New Authorized Nissan Dealer at a location that is
within the ten (10) miles driving distance described above. Nothing in this
Agreement shall be construed to grant Dealer any rights in connection with the
appointment of an Authorized Nissan Dealer at a location that is not within the
ten (10) miles driving distance described above. In addition, this Section 4.B
does not apply to, nor shall it be construed to grant Dealer any rights in
connection with any of the events or transactions excluded from the definition
of "New Authorized Nissan Dealer" in Section 4.B.4(a), (b) or (c) below.
4. "New Authorized Nissan Dealer" shall mean an Authorized Nissan Dealer
that has not previously executed a Nissan Dealer Sales and Service Agreement or
done business as an Authorized Nissan Dealer; provided, however, that "New
Authorized Nissan Dealer" shall not include an Authorized Nissan Dealer who: (a)
is a Successor Dealer appointed pursuant to Section 14, (0)is a purchaser or
transferee of the assets of or owner-ship interests in an Authorized Nissan
Dealer that is appointed as an Authorized Nissan Dealer pursuant to Section 15,
or (c) who is approved as a Nissan Dealer following or resulting from:
(i) a change in name or form of an Authorized Nissan Dealer;
(ii) any other sale, exchange or other transfer of any ownership interests in
or any assets of any other Authorized Nissan Dealer, by operation of law or
otherwise and whether voluntary and involuntary;
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(iii) an assignment, sale or other transfer of any interest in a Nissan
Dealer Sales and Service Agreement, by operation of law or otherwise and whether
voluntary or involuntary;
(iv) the relocation of an existing Authorized Nissan Dealer; or
(v) the replacement of a former Authorized Nissan Dealer where the
appointment of such replacement Dealer takes place within two (2) years of the
date on which the former Dealer ceased doing business and where such replacement
Dealer's main Dealership Location is located within a five (5) mile driving
distance by the shortest publicly traveled route of the former Dealer's main
Dealership Location; regardless of whether any of the foregoing actions,
individually or collectively, result in the appointment of an Authorized Nissan
Dealer at a location that is within or without the ten (10) miles driving
distance described above.
SECTION 5. RESPONSIBILITIES OF DEALER WITH RESPECT TO SERVICE AND PARTS
A. General Service Obligations of Dealer. Dealer understands and acknowledges
that future sales of Nissan Products depend, in part, upon the satisfaction of
Dealer's customers with its servicing of such Products. Dealer further
recognizes that Seller has entered into this Agreement in reliance upon Dealer's
representations concerning its ability and commitment to fair dealing and
professional servicing. Accordingly, Dealer shall develop and maintain a quality
service organization and shall render at the Dealership Facilities prompt,
efficient and courteous service to owners and users of Nissan Products,
regardless of the origin of purchase, including, without limitation, the
specific obligations described in Section 5.B. In this regard, Dealer shall take
all reasonable steps to insure that: the service needs of its customer's Nissan
Vehicles are accurately diagnosed; Dealer's customers are advised of such needs
and that each customer's consent is obtained prior to mitigation of any repairs;
necessary repairs and maintenance are professionally performed; and Dealer's
customers are treated courteously and fairly.
B. Specific Service Obligations of Dealer.
1. Pre-Delivery Inspections and Service.
Dealer shall perform or be responsible for the performance of pre-delivery
inspections and service on each Nissan Vehicle prior to sale and delivery
thereof by Dealer, in accordance with the standards and procedures relating
thereto set forth in the applicable pre-delivery inspection schedules furnished
by Seller to Dealer from time to time. The completion of such inspection and
service shall be verified by Dealer on forms supplied or approved by Seller for
this purpose. Dealer shall retain the original or a legible copy of each such
form in its records and shall furnish a copy to the purchaser.
2. Warranty Repairs and Goodwill Adjustments.
Dealer shall promptly, courteously and efficiently perform: (i) warranty repairs
on each Nissan Product which qualifies for such repairs under the provisions of
any warranty furnished therewith by Seller, Manufacturer or the manufacturer of
the Product; and (ii) such other inspections, repairs or corrections on Nissan
Products as may be approved or authorized by Seller to be made at Seller's
expense (hereinafter referred to as "goodwill adjustments"). Dealer shall
perform such repairs and service on each such Nissan Product as and when
required and requested by the owner or user (or in the case of goodwill
adjustments when requested by Seller), without regard to its origin of purchase
and in accordance with the provisions relating thereto set forth in the Warranty
Manual or in Seller's Manuals or Instructions issued to Dealer from time to
time. In performing such repairs and service on Nissan Products for which Seller
has agreed to reimburse Dealer, Dealer shall use Genuine Nissan Parts and
Accessories unless
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Dealer receives prior authorization from Seller to use non-genuine parts or
accessories. Dealer will provide to each owner or user of a Nissan Product upon
which any such repairs or service are performed a copy of the repair order
reflecting all services performed.
3. Campaign Inspections and Corrections. Dealer shall promptly, courteously
and efficiently perform such campaign inspections and/or corrections for owners
and users of Nissan Products, regardless of their origin of purchase, as are:
(i) described in owner notifications and recall campaigns conducted by Seller in
furtherance of any federal or state law, regulation, rule or order; or (ii)
requested by Seller on Nissan Products that qualify for such inspections and/or
corrections. Once Dealer has been notified that a recall or service campaign
affects a particular class or type of Nissan Product, Dealer shall perform such
campaign inspections and/or corrections on all affected Nissan Products then in
or which thereafter come into Dealer's inventory or which are delivered to
Dealer for repair or service. Dealer shall inquire, through the Nissan Datanet
system or otherwise, with respect to each such Nissan Product to determine
whether all applicable campaign inspections and/or corrections have been
performed on such Nissan Product and, if they have not been performed, Dealer
shall perform them.
Dealer shall advise Seller as and when such campaign inspections and/or
corrections are performed, in accordance with Seller's Manuals or Instructions
relating thereto and in accordance with the provisions relating thereto set
forth in the Warranty Manual. To enable Dealer to perform required corrections
as promptly as practicable, parts and /or other materials required for each such
campaign may be shipped in quantity and billed to Dealer. Dealer shall accept
and retain such parts and/or other materials for use in such campaign. Upon
completion of the campaign program, Dealer shall have the right to return excess
parts shipped by Seller to Dealer for such campaign, but only to the extent that
Dealer has not ordered and received additional parts from Seller. Such a return
of parts shall be apart from any other parts return policies or programs which
may be instituted by Seller. In performing such campaign corrections for which
Seller has agreed to reimburse Dealer for parts and materials used in making
such corrections, Dealer shall use Genuine Nissan Parts and Accessories unless
Dealer receives prior authorization from Seller to use non-genuine parts and
accessories.
4. Maintenance and Repair Service.
Dealer shall promptly, courteously and efficiently maintain and repair Nissan
Products as and when required and requested by the owner or user thereof,
without regard to their origin of purchase. Dealer shall provide all owners and
users for whom Dealer provides maintenance and repair service itemized invoices
reflecting all the services performed. In connection with its sale or offering
for sale of any maintenance services recommended by Seller for the maintenance
of a Nissan Product, Dealer shall advise each customer requesting such
recommended maintenance service of: (i) a description of the items included in
maintenance recommended by Seller and Dealer's price therefor; and (ii) the
price and description of such additional maintenance or repair being sold or
recommended by Dealer which are in addition to that recommended by Seller in
published owner's manuals.
5. Payments by Seller to Dealer.
For pre-delivery inspections and service, warranty repairs, goodwill
adjustments, and campaign inspections and corrections performed by Dealer in
accordance with this Section 5.B, Seller shall fairly and adequately reimburse
Dealer for the parts and/or other materials (or shall provide Dealer with the
parts and/or other materials) and the labor required and used in connection
therewith in accordance with the provisions relating thereto set forth in the
Warranty Manual. Dealer understands and acknowledges that such repairs are
provided for the benefit of owners and users of Nissan Products, and Dealer
shall not impose any charge on such owners or users for parts, materials, or
labor for
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which Dealer has received or will receive compensation from Seller hereunder.
Dealer shall comply with the disposition instructions contained in the
Warranty Manual with respect to any Genuine Nissan Parts or Accessories acquired
by Dealer as a result of its performance of warranty repairs, goodwill
adjustments and campaign adjustments and/or corrections.
C. Service Operations of Dealer.
1. Dealer Personnel.
Dealer shall organize and maintain, substantially in accordance with Seller's
Guides, a complete service organization that includes a competent, trained
service manager and a sufficient number of trained service and customer
relations personnel to enable Dealer to fulfill its responsibilities for service
and customer relations under this Section 5. Dealer shall designate at least one
member of its staff who shall be responsible for resolving consumer complaints
on behalf of Dealer. Dealer shall, without expense to Seller, have members of
Dealer's service organization attend training courses offered by Seller and
Dealer shall cooperate with and participate in such training courses as may from
time to time be offered by Seller. Dealer agrees that its personnel will meet
such educational, management and technical training standards as Seller may
establish or approve. Seller may, from time to time, comment on or advise Dealer
concerning the qualifications, performance and ability of Dealer's service
personnel as the same affect Dealer's performance of its obligations under this
Section 5.
2. Compliance with Laws.
In performing the maintenance and service obligations specified in Section 5.B,
Dealer shall comply with all applicable provisions of federal, state and local
laws, ordinances, rules, regulations and orders affecting Nissan Products
including, but not limited to, laws relating to safety, emissions control, noise
control and customer service. Seller shall provide to Dealer, and Dealer shall
provide to Seller, such information and assistance as may be reasonably
requested by the other in connection with the performance of obligations of the
parties under such laws, ordinances, rules, regulations and orders. If
applicable law requires the installation or supply of equipment not installed or
supplied as standard equipment by Seller or the manufacturer of a Nissan
Vehicle, Dealer shall, prior to its sale of the Nissan Vehicles on or for which
such equipment is required, install or supply such equipment at its own expense
and in conformance with such standards as may be adopted by Seller. Dealer shall
comply with all applicable laws pertaining to the installation or supply of such
equipment including, without limitation, the reporting thereof.
3. Tools and Equipment.
Dealer shall provide for use in its service operations such service equipment
and special tools, comparable to the type and quality recommended by Seller from
time to time, as are necessary to meet Dealer's service responsibilities
hereunder and as are substantially in accordance with Seller's Guides. In
addition, Dealer shall obtain and maintain for use in its service operations all
tools which are essential to the proper service, repair and maintenance of
Nissan Vehicles and are identified by Seller as essential tools. Seller shall
ship such essential tools to Dealer as required due to new model and component
introductions and Dealer shall pay Seller therefor as invoiced. If Dealer is in
possession of a tool equivalent to any essential tool shipped by Seller, Dealer
may so notify Seller and Seller will exempt Dealer from purchasing such
essential tool from Seller upon Seller's determination that Dealer's tool will
satisfy the need for the specific repair procedure or procedures for which the
essential tool is intended. Dealer shall maintain all such equipment and tools
in good repair and proper calibration- so as to enable Dealer to meet its
service responsibilities under this Section 5.
4. Owner Relations.
In providing service on Nissan Products, Dealer shall make every effort to build
and maintain good
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relations between Dealer and owners and users of Nissan Products. Dealer shall
promptly investigate and handle all matters brought to its attention by Seller,
owners or users of Nissan Products, or any public or private agency, relating to
the sale or servicing of Nissan Products, so as to develop and maintain owner
and user confidence in Dealer, Seller and Nissan Products.
Dealer shall promptly report to Seller the details of each inquiry or
complaint received by Dealer relating to any Nissan Product which Dealer cannot
handle promptly and satisfactorily. Dealer will take such other steps with
respect to such customer complaints as Seller may reasonably require. Dealer
will do nothing to affect adversely Seller's rights or obligations under
applicable laws, rules and/or regulations. Furthermore, Dealer shall participate
in and cooperate with such dispute resolution procedures as Seller may designate
from time to time and such other procedures as may be required by law.
Seller will promptly investigate all matters brought to its attention by
Dealer, owners or users of Nissan Products, or any public or private agency,
relating to the design, manufacture or sale by Seller of Nissan Products, and
Seller will take such action as it may deem necessary or appropriate so as to
develop and maintain owner confidence in Seller, Dealer and Nissan Products.
D. Parts Operations of Dealer.
1. Parts Sales Responsibility of Dealer.
Dealer shall actively and effectively promote through its own advertising and
sales promotion activities the sale of Genuine Nissan Parts and Accessories to
service, wholesale, retail and other customers within Dealer's Primary Market
Area.
2. Dealer Personnel.
Dealer shall organize and maintain, substantially in accordance with Seller's
recommendations with respect thereto, a complete parts organization that
includes a competent, trained parts manager and a sufficient number of trained
parts personnel to enable Dealer to fulfill its responsibilities under this
Section 5. Based on its need therefor, Dealer shall, without expense to Seller,
have members of Dealer's parts organization attend training courses offered by
Seller and Dealer shall cooperate in such training courses as may from time to
time be offered by Seller. Seller may, from time to time, comment on or advise
Dealer concerning the qualifications, performance and ability of Dealer's parts
personnel as the same affect Dealer's performance of its obligations under this
Section 5.
3. Inventories of Parts and Accessories.
Dealer shall maintain at all times a stock of parts and accessories which is
adequate to meet its service and wholesale and retail parts sales
responsibilities under this Section 5. Dealer shall also maintain, subject to
the ability of Seller to supply the products ordered by Dealer, a stock of
Genuine Nissan Parts and Accessories of an assortment and in quantities adequate
to meet customer demand and for warranty repairs, goodwill adjustments and
campaign corrections made pursuant to this Section 5.
E. Assistance Provided by Seller.
1. Service and Parts Manuals.
Seller will make available to Dealer, for use by Dealer's service and parts
personnel, Seller's Manuals or Instructions concerning Dealer's service and
parts operations and other sources of information and technical data as Seller
deems necessary to permit Dealer to perform its service and parts
responsibilities under this Section 5. Dealer shall keep such information and
data current and available for consultation by Dealer's service and parts
employees.
2. Service and Parts Field Personnel.
To further assist Dealer, Seller will provide to Dealer the advice and counsel
of its service and parts field personnel on matters relating to service,
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parts and accessories, including technical diagnosis, service and parts
management, merchandising, personnel training, owner relations, and facilities
used for Dealer's service and parts operations.
F. Evaluation of Dealer's Service and Parts Performance.
Dealer's performance of its service and parts responsibilities will be evaluated
by Seller on the basis of such reasonable criteria as Seller may develop from
time to time, including for example:
1. Dealer's performance in building and maintaining consumer confidence in
Dealer and in Nissan Products as measured by surveys or indices of consumer
satisfaction as compared with performance levels achieved by other Authorized
Nissan Dealers in Seller's Region or District in which Dealer is located or such
other means as may be deemed appropriate by Seller;
2. Reasonable parts purchase or sales performance objectives which may be
established from time to time by Seller for Dealer;
3. Dealer's advertising and promotion of its parts and service operations;
4. Dealer's performance of its service responsibilities and Dealer's conduct
of its service operations including, without limitation, the financial results
of its service operations, labor sales, warranty claims practices training of
service personnel, qualification, performance and ability of service personnel,
and inventory of special and essential tools and service equipment, as compared
with Seller's Guides therefor where such have been established and/or as
compared with performance levels achieved by other Authorized Nissan Dealers in
Seller's Region or District in which Dealer is located;
5. Dealer's performance of its parts sales responsibilities and Dealer's
conduct of its parts operations including, without limitation, the financial
results of its parts operations, training of parts personnel, and inventory of
parts, as compared with Seller's Guides therefor where such have been
established and/or as compared with performance levels achieved by other
Authorized Nissan Dealers in Seller's Region or District in which Dealer is
located; and
6. Evaluation reports resulting from any audit or review of Dealer's service
or parts operations by Seller's representatives.
Seller will periodically evaluate Dealer's performance of its responsibilities
under this Section 5. Evaluations prepared pursuant to this Section 5 will be
discussed with and provided to Dealer, and Dealer shall have an opportunity to
comment, in writing, on such evaluations. Dealer shall promptly take such action
as may be required to correct any deficiencies in Dealer's performance of its
responsibilities under this Section 5.
SECTION 6. OTHER SELLER AND DEALER RESPONSIBILITIES
A. Advertising and Promotion.
1. Advertising Standards.
Both Seller and Dealer recognize the need for maintaining the highest standards
of ethical advertising which is of a quality and dignity consonant with the
reputation and standing of Nissan Products. Accordingly, neither Seller nor
Dealer shall publish or cause to be published any advertising relating to Nissan
Products that is not in compliance with all applicable federal, state and local
laws, ordinances, rules, regulations and orders or that is likely to mislead,
confuse or deceive the public or impair the goodwill of Manufacturer, Seller or
Dealer or the reputation of Nissan Products or the Nissan Marks.
2. Display by Dealer.
Dealer shall prominently state upon its stationery and other printed matter that
it is an Authorized Nissan Dealer.
3. Sales Promotion.
Seller will establish and maintain comprehensive advertising programs to promote
the sale of Nissan
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Vehicles and will from time to time offer advertising, sales promotion and sales
campaign materials to Dealer. In addition, to effectively promote the sale of
Nissan Products and the availability of service for Nissan Vehicles, Dealer
shall establish and maintain its own advertising and sales promotion programs
including, but not limited to, effective showroom displays, and Dealer will have
available in showroom ready condition at least one vehicle in each model line of
Nissan Vehicles for purposes of demonstration to potential customers.
B. Dealer Disclosures and Representations Concerning Nissan Products and
Other Products or Services.
Dealer understands and acknowledges that it is of vital importance to Seller
that Nissan Products are sold and serviced in a manner which promotes consumer
satisfaction and which meet the high quality standards associated with Seller,
Manufacturer, the Nissan Marks and Nissan Products in general. Accordingly,
Dealer shall fully and accurately disclose to its customers all material
information concerning the products and services sold by Dealer and the terms of
purchase and sale including, without limitation: the items making up the
purchase price; the source of products sold; and all warranties affecting
products sold. Dealer shall not make any misleading statements or
misrepresentations concerning the products sold by Dealer, the terms of sale,
the warranties applicable to such products, the source of the products, or the
recommendations or approvals of Seller or Manufacturer.
Nothing in this Agreement shall limit or be construed to limit the products or
services which Dealer may sell to its customers. Seller acknowledges that Dealer
is free to sell whatever products or services Dealer may choose in connection
with its sale and servicing of Nissan Products, subject to Dealer obligations
under Sections 5 and 6 of this Agreement.
C. Signs.
Dealer shall, at its expense, display at its Dealership Location, in such number
and at such locations as Seller may reasonably require, signs which are
compatible with the design standards established by Seller and published in
Seller's Manuals or Instructions from time to time. Dealer's use and operation
of signs displayed by Dealer at the Dealership Location and Dealer's display of
any Nissan Mark shall be subject to Seller's approval and shall be in accordance
with the terms and conditions of Section 6.K and the Dealership Identification
Addendum.
D. Hours of Operations.
Dealer recognizes that the service and maintenance needs of the owners of Nissan
Products and Dealer's own responsibilities to actively and effectively promote
the sale of Nissan Products can be met properly only if Dealer keeps its
Dealership Facilities open and conducts all of its Dealership Operations
required by this Agreement during hours which are reasonable and convenient for
Dealer's customers. Accordingly, Dealer shall maintain its Dealership Facilities
open for business and shall conduct all Dealership Operations required under
this Agreement during such days and hours as automobile dealers' sales and
service facilities are customarily and lawfully open in Dealer's Primary Market
Area or in the metropolitan area in which Dealer is located.
E. Capital and Financing.
Dealer recognizes that its ability to conduct its Dealership Operations
successfully on a day-to-day basis and to effectively perform its other
obligations under this Agreement including, without limitation, its obligations
with respect to Dealership Facilities, new vehicle sales, and service and parts
sales, depends to a great extent upon the adequate capitalization of Dealer,
including its maintaining sufficient net working capital and net worth and
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employing the same in its Dealership Operations.
Dealer shall at all times maintain and employ such amount and allocation of net
working capital and net worth as are substantially in accordance with Seller's
Guides therefor and which will enable Dealer to fulfill all of its
responsibilities under this Agreement. Dealer shall at all times during the term
of this Agreement have flooring arrangements (wholesale financing) satisfactory
to Seller, in an amount substantially in accordance with Seller's Guides
therefor, with a financial institution acceptable to Seller, and which will
enable Dealer to fulfill its obligations under this Agreement.
F. Accounting System.
It is in the mutual interest of Seller and Dealer that all Authorized Nissan
Dealers install and maintain uniform accounting systems and practices, so that
Seller can develop standards of operating performance which will assist Dealer
in obtaining satisfactory results from its Dealership Operations and which will
assist Seller in formulating policies in the interests of Seller and all
Authorized Nissan Dealers. Accordingly, Dealer shall install and maintain an
accounting system, not exclusive of any other system, in accordance with
Seller's Nissan Dealer Accounting System Manual, as the same may from time to
time be amended, revised or supplemented.
G. Records and Reports.
1. Financial Statements.
Dealer shall furnish to Seller, on or before the tenth (10th) day of each month,
in a manner acceptable to Seller, complete and accurate financial and operating
statements which fairly present, in accordance with generally accepted
accounting principles, Dealer's financial condition as of the end of the
preceding month and the results of Dealer's Dealership Operations for the
preceding month and for that portion of Dealer's fiscal year then ended. Dealer
shall also furnish for such periods reports of Dealer's sales and inventory of
Nissan Products. Dealer shall also promptly furnish to Seller a copy of any
adjusted annual financial or operating statement prepared by or for Dealer.
2. Sales Records and Reports.
Dealer shall prepare and retain for a minimum of two (2) years, complete and up-
to-date records covering its sales of Nissan Products. To assist Seller in
evaluating, among other things, current market trends, to provide information
for use in the adjustment of production and distribution schedules, to provide
information used by Seller in providing Nissan Vehicles to Dealer, and to
provide Seller with accurate records of the ownership of Nissan Vehicles for
various purposes including warranty records and ownership notification, Dealer
shall accurately submit to Seller such information with respect to Dealer's
sales of Nissan Products as Seller may reasonably require as and in the form or
manner specified by Seller, at or as soon as possible after the close of each
business day on which such Nissan Products are sold by Dealer. If Dealer becomes
aware that any information submitted by Dealer to Seller hereunder is or has
become inaccurate, Dealer will immediately take all steps necessary to advise
Seller of and to correct such inaccuracy. Should Seller determine or discover
that any report submitted hereunder by Dealer is or has become inaccurate,
Seller may take any steps it deems necessary or appropriate to correct such
inaccuracy and to adjust its records, calculations or procedures with respect to
Dealer's reported sales to correct the effect of such inaccuracy or to prevent
additional inaccurate reports from being made.
3. Service Records.
Dealer shall prepare and retain for a minimum of
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two (2) years, in accordance with the procedures specified in the Warranty
Manual: records in support of applications for payment for pre-delivery
inspection and service, warranty repairs and goodwill adjustments, and campaign
inspections and corrections performed by Dealer; claims for parts compensation;
and applications for discounts, allowances, refunds or credits.
4. Other Reports.
Dealer shall furnish to Seller such other records or reports concerning its
Dealership Operations as Seller may reasonably require from time to time.
H. Nissan Datanet System.
Seller has developed the Nissan Datanet system, which is an electronic data
communication and processing system designed to facilitate accurate and prompt
reporting of dealership operational and financial data, submission of parts
orders and warranty claims and processing of information with respect to the
Dealership Operations. Such data is used by Seller, among other things, to
develop composite operating statistics which are useful to Dealer and Seller in
assessing Dealer's progress in meeting its obligations under this Agreement, to
provide a basis for recommendations which Seller may make to Dealer from time to
time to assist Dealer in improving Dealership Operations, to assist Seller in
developing standards of operating performance which will assist Dealer in
obtaining satisfactory results from its Dealership Operations, to assist Seller
in formulating policies in the interest of Seller and all Authorized Nissan
Dealers, and to provide sales reporting information relied upon by Seller in
providing Nissan Vehicles to Dealer. Accordingly, Dealer shall install and
maintain electronic data processing facilities which are compatible with the
Nissan Datanet system.
I. Right of Inspection.
Seller shall have the right, at all reasonable times during regular business
hours, to inspect the Dealership Facilities and to examine, audit and make and
take copies of all records, accounts and supporting data relating to the sale,
sales reporting, service and repair of Nissan Products by Dealer. When
practicable, Seller shall attempt to provide Dealer with advance notice of an
in-dealership audit of Dealer's records or accounts.
J. Confidentiality.
Seller will not furnish to any third party financial statements or other
confidential data, excluding sales records or reports, submitted by Dealer to
Seller, except as an unidentified part of a composite or coded report, unless
disclosure is authorized by Dealer or is required by law, or unless such
information is pertinent to judicial or governmental administrative proceedings
or to proceedings conducted pursuant to Section 16 of this Agreement.
K. Use of Nissan Marks.
Seller grants Dealer the non-exclusive right to identify itself as an Authorized
Nissan Dealer and to display at the Dealership Location and use, in connection
with the sale and service of Nissan Products, the Nissan Marks. The Nissan Marks
may not be used as part of Dealer's name or trade name without Seller's written
consent. No entity owned by or affiliated with Dealer or any of its owners may
use any Nissan Mark without Seller's prior written consent. Dealer shall not
make any use of any Nissan Mark which is inconsistent with Seller's policies
concerning trademark use. Dealer may not, either directly or indirectly, display
any Nissan Marks at any location or facility other than those identified in the
Dealership Facilities Addendum to this Agreement, without the prior written
consent of Seller. Except as authorized herein, Dealer shall not make use of any
Nissan Mark, and Dealer shall neither have nor claim any rights in respect of
any Nissan Mark. Dealer shall comply with any of Seller's Manuals or
Instructions regarding the use of Nissan Marks as may be issued
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to Dealer from time to time. Dealer shall promptly change or discontinue its use
of any Nissan Marks upon Seller's request. Any authorization granted may be
withdrawn by Seller at any time and, in any event, shall cease immediately upon
the effective date of termination of this Agreement.
If Seller institutes litigation to effect or enforce compliance with this
Section 6.K, the prevailing party in such litigation shall be entitled to
reimbursement for its costs and expenses in such litigation, including
reasonable attorney's fees.
SECTION 7. PURCHASE AND DELIVERY
A. Dealer Purchases.
1. Nissan Vehicles.
From time to time Seller will advise Dealer of the number and model lines of
Nissan Vehicles which Seller has available for sale to Dealer and, subject to
this Section 7, Dealer shall have the right to purchase such Nissan Vehicles.
Seller will distribute Nissan Vehicles to Authorized Nissan Dealers in
accordance with Seller's written distribution policies and procedures as the
same may be in effect from time to time. Seller will provide to Dealer an
explanation of the method used by Seller to distribute Nissan Vehicles to
Authorized Nissan Dealers. Dealer recognizes that there are numerous factors
which affect the availability of Nissan Vehicles to Seller and to Dealer
including, without limitation, production capacity, sales potential in Dealer's
and other Primary Market Areas, varying consumer demand, weather and
transportation conditions, and state and federal government requirements. Since
such factors may affect individual dealers differently, Seller reserves to
itself sole discretion to distribute Nissan Vehicles in a fair and consistent
manner, and its decisions in such matters shall be final.
2. Genuine Nissan Parts and Accessories.
Dealer shall submit to Seller firm orders for Genuine Nissan Parts and
Accessories in such quantity and variety as are reasonably necessary to fulfill
Dealer's obligations under this Agreement. All orders shall be submitted by
Dealer in the manner specified by Seller and in accordance with Seller's Parts
and Accessories.. Policy and Procedures Manual, may be accepted in whole or in
part by Seller, and shall be effective only upon acceptance thereof by Seller at
its home office in California but without necessity of any notice of acceptance
by Seller to Dealer). Such orders shall not be cancellable by Dealer after
acceptance and shipment by Seller, except in accordance with Section 8 of this
Agreement.
B. Delays in Delivery.
Seller shall not be liable for failure or delay in delivery to Dealer of Nissan
Products which Seller has previously agreed to deliver to Dealer where such
failure or delay is due to cause or causes beyond the control or without the
fault or negligence of Seller.
C. Shipment of Nissan Products.
1. Nissan Vehicles.
Seller will ship Nissan Vehicles to Dealer by whatever mode of transportation,
by whatever route, and from whatever point Seller may select. Dealer shall pay
to Seller in connection with Nissan Vehicles delivered to Dealer the applicable
destination charges that are established for Dealer by Seller and that are in
effect at the time of shipment. Dealer shall bear the risk of loss and damage to
Nissan Vehicles during transportation from the point of shipment; however,
Seller will, if requested by Dealer in such manner and within such time as
Seller shall from time to time specify, prosecute claims for loss of or damage
to Nissan Vehicles during said transportation against the responsible carrier
for and on behalf of Dealer.
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2. Genuine Nissan Parts and Accessories.
Seller will ship Genuine Nissan Parts and Accessories to Dealer by whatever mode
of transportation, by whatever route, and from whatever point Seller may select.
Dealer shall bear the risk of loss and damage to Genuine Nissan Parts and
Accessories during transportation from the point of shipment.
D. Passage of Title.
Title to each Nissan Product shall pass from Seller to Dealer, or to the
financial institution designated by Dealer, upon delivery of said Product to
Dealer or to a carrier for transportation to Dealer, whichever occurs first.
E. Security Interest.
1. Grant of Security Interest
As security for the full payment of all sums from time to time owed by Dealer to
Seller under this Agreement, whether such sums are now, or hereafter become, due
and owing, Dealer hereby grants to Seller a security interest in the following
(collectively referred to as "Collateral"):
(i) All non-vehicle inventory of Dealer including, without limitation, all
Genuine Nissan Parts and Accessories delivered by Seller to Dealer hereunder on
account (all such inventory hereinafter referred to collectively as "Inventory"
and individually as "Item of Inventory"); and
(ii) All proceeds from any of the foregoing including, without limitation,
insurance payable by reason of the loss, damage or destruction of any Item of
Inventory; and all accounts and chattel paper of. Dealer arising from sale,
lease, or other disposition of Inventory now existing or hereafter arising, and
all liens, securities, guarantees, remedies and privileges pertaining thereto,
together with all rights and liens of Dealer relating thereto.
2. Default in Payment.
Dealer shall be in default of this Section 7 if: (i) Dealer shall fall to pay
any amounts secured hereby when due or fail to perform any obligations under
this Section 7 in a timely manner; (ii) there shall occur any material adverse
change in the financial condition of Dealer; (iii) Dealer shall dissolve or
become insolvent or bankrupt; or (iv) Seller shall have determined in good faith
that the prospect of such payment or performance is impaired; and in any such
case Seller may declare all sums secured by this Section 7.E immediately due and
payable and Seller shall have all rights and remedies afforded to a secured
party after default under the Uniform Commercial Code or other applicable law in
effect on the date of this Agreement.
3. Assembly of Collateral, Payment of Costs, Notices.
Dealer shall, if requested by Seller upon the occurrence of any default under
the foregoing Section 7.E.2 assemble the Collateral and make it available to
Seller at a place or places designated by Seller. Dealer also shall pay all
costs of Seller including, without limitation, attorneys' fees incurred with
respect to the enforcement of any of Seller's rights under this Section 7.
4. Recording, Further Assurances.
Dealer shall execute and deliver such financing statements and such other
instruments or documents and take any other action as Seller may request in
order to create or maintain the security interest intended to be created by this
Section 7.E or to enable Seller to exercise and enforce its rights hereunder. A
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a financing statement and may be filed in lieu of a financing statement in
any and all jurisdictions which accept such reproductions.
5. Records and Schedules of Inventory.
Dealer shall keep accurate records itemizing and describing the kind, type and
quantity of Inventory and shall furnish to Seller within five (5) days
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of receipt of Seller's request therefor, with a current schedule of inventory in
form and substance satisfactory to Seller ("Schedule of Inventory"), which shall
be true and accurate in all respects. A physical inventory shall be conducted no
less than annually in connection with preparation of year-end financial
statements of Dealer and, at Seller's request, a report of such inventory shall
be promptly provided to Seller.
F. Charges for Storage and Diversions.
Dealer shall be responsible for and shall pay all charges for demurrage, storage
and other expense accruing after shipment to Dealer or to a carrier for
transportation to Dealer. If diversions of shipments are made upon Dealer's
request or are made by Seller as a result of Dealer's failure or refusal to
accept shipments made pursuant to Dealer's orders, Dealer agrees to pay all
additional charges and expenses incident to such diversions.
G. Changes in Nissan Products.
Seller shall have the right in its sole discretion to discontinue the supply, or
make changes in the design or component materials, of any Nissan Product at any
time. Seller shall be under no liability to Dealer on account of any such
changes and shall not be required as a result of any such changes to make any
changes to Nissan Products previously purchased by Dealer. No change shall be
considered a model year change unless so specified by Seller.
SECTION 8. PRICING
A. Nissan Vehicles.
At any time prior to shipment (or delivery to a carrier for transportation to
Dealer) of any Nissan Vehicle, Seller may, without prior notice and without
incurring any liability to Dealer or anyone else, including any customer of
Dealer, change at any time and from time to time the price, discount, allowance
or other terms of sale of any Nissan Vehicle offered for sale by Seller. Except
with respect to the establishment of initial prices for a new model year vehicle
or for any new model or body type, Seller will notify Dealer by mailgram or
other acceptable means of any such change in price as soon as reasonably
practicable, and Dealer may, by notice to Seller within ten (10) days after such
notification, cancel any offer to purchase Nissan Vehicles affected by such
change, provided that Seller has not notified Dealer of its acceptance of
Dealer's offer on or prior to the date such notification by Dealer is received
by Seller.
B. Genuine Nissan Parts and Accessories.
Seller may, without prior notice and without incurring any liability to Dealer
or anyone else, including any customer of Dealer, change at any time and from
time to time the price, discount, allowance or other terms of sale of any
Genuine Nissan Part or Accessory offered for sale by Seller, and any such change
in price, discount, allowance or other terms of sale shall apply to all such
Genuine Nissan Parts and Accessories whether or not an order has been submitted
by Dealer, but not to Genuine Nissan Parts and Accessories for which Seller has
accepted and processed Dealer's order prior to the effective date of such
change. Seller will notify Dealer of any-such change in price as soon as is
reasonably practicable. Dealer may, by notice' to Seller, cancel any order for
Genuine Nissan Parts and Accessories affected by such change which was placed
before such notification was given, provided that such Genuine Nissan Parts and
Accessories have not been shipped to Dealer or delivered to a carrier for
transportation to Dealer on or prior to the date such notification by Dealer is
received by Seller.
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SECTION 9. PAYMENT
A. Payment for Vehicles.
Payment by Dealer for Nissan Vehicles must be made in accordance with the
applicable prices, charges, discounts, allowances and other terms of sale
established by Seller either: (i) in accordance with wholesale financing
arrangements that at the time of delivery to Dealer or to a carrier for
transportation to Dealer of such Nissan Vehicles, whichever shall first occur,
are in effect between Seller, Dealer and a financing institution; or (ii) prior
to delivery to Dealer or to a carrier for transportation to Dealer, whichever
shall first occur, by cash or such other medium of payment as Seller may agree
to accept.
B. Payment for Parts and Accessories.
Parts, equipment, accessories and other products and services will normally be
billed by Seller to Dealer on Seller's invoices, which shall be due the tenth
(10th) of the month following the month of shipment of such products and
services; provided, however, Seller reserves the right to place any and all
sales of such items on a C.O.D. or cash in advance basis, without notice;
provided further, however, that Seller will endeavor to provide Dealer with
prior notice if in Seller's sole judgement such notice would be practicable.
C. Accounts Payable.
1. Right of Set Off.
In addition to any right of set off provided by law, all sums due Dealer shall
be considered net of indebtedness of Dealer to Seller, and Seller may deduct any
amounts due or to become due from Dealer to Seller or any amounts held by Seller
from any sums or accounts due from Seller to Dealer.
2. Liquidated Damages.
(i) Liquidated Damages for Delinquent Payments.
In the event that Dealer fails to pay Seller in full any amounts owed by Dealer
to Seller when due, Dealer shall pay Seller a delinquency charge of one percent
(1%) per month of such amount or amounts to compensate Seller for its costs of
carrying and collection; provided, however, that Seller agrees that it will not
assess any delinquency charge on an overdue account which has a total
outstanding balance of less than $1,000.00, unless such account is more than
ninety (90) days overdue. Dealer and Seller agree that such charge is to be
assessed not as a penalty, but as liquidated damages under California Civil Code
(S) 1671(b) based on Seller's reasonable estimate of the losses which will be
suffered by Seller as a result of such delinquent payment or payments. The
imposition of such delinquency charges shall not imply or constitute any
agreement to forbear collection of a delinquent account.
(ii) Liquidated Damages for Improper Payments to Dealer.
Seller may, from time to time, conduct audits or reviews of Dealer's books and
records pursuant to Section 6.1 of this Agreement. If any such audit or review
results in a determination by Seller that Dealer was or is not entitled to
received payment from Seller, Seller may debit Dealer's account in such amounts
as Seller shall determine were improperly paid to Dealer. Such a determination
may be based on Dealer's failure to comply with applicable rules or procedures
or on Dealer's submission of false or inaccurate information to Seller. In
addition, Seller may assess and, if it does, Dealer will pay a delinquency
charge of one percent (1%) per month of such amount or amounts improperly paid
by Seller to Dealer to compensate Seller for its costs of auditing, loss of
funds and collection. Dealer and Seller agree that such charge is to be assessed
not as a penalty, but as liquidated damages under California Civil Code (S)
1671(b) based on Seller's reasonable estimate of the losses
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which will be suffered by Seller as a result of such improper payment or
payments. The imposition of such delinquency charges shall not imply or
constitute any agreement to forbear collection of a delinquent account.
D. Collection of Taxes by Dealer.
Dealer hereby represents and warrants that all Nissan Products purchased from
Seller are purchased for resale in the ordinary course of Dealer's business.
Dealer further represents and warrants that Dealer has obtained all licenses and
complied with all other requirements to collect sales, use and or other taxes
incurred in any such resale transaction, and that Dealer will furnish evidence
thereof to Seller, at Seller's request. If Dealer purchases any Nissan Products
other than for resale, or puts any Nissan Products to a taxable use, Dealer
shall pay directly to the appropriate taxing authority any sales, use or similar
taxes incurred as a result of such use or purchase, to file any tax returns
required in connection therewith and to hold Seller harmless from any claims or
demands with respect thereto.
SECTION 10. WARRANTIES
The only warranties that shall be applicable to Nissan Products (or any
components thereof) shall be such written warranty or warranties as may be
furnished by Seller and as stated in the Warranty Manual or Seller's Parts and
Accessories Policy and Procedures Manual, as the same may be revised from time
to time. Except for its express limited liability under such written warranties,
neither Manufacturer nor Seller assumes, or authorizes any other person or party
including, without limitation, Dealer, to assume on their behalf any other
obligation or liability in connection with any Nissan Product (or component
thereof). Any obligations or liabilities assumed by Dealer which are in addition
to Seller's written warranties shall be solely the responsibility of Dealer.
Dealer shall expressly incorporate in full and without modification any warranty
furnished by Seller with a Nissan Vehicle as a conspicuous part of each order
form or other contract for the sale of such Nissan Vehicle by Dealer to any
buyer. Dealer shall make available to the buyer of each Nissan Product prior to
the purchase of such Nissan Product, copies of such applicable warranties as may
be furnished by Seller. Dealer shall also provide to the buyer of each Nissan
Product, in full and without modification, any owner's manual, warranty booklet
or other owner information which Seller may provide to Dealer for delivery with
such Nissan Product. Dealer agrees to abide by and implement in all other
respects Seller's warranty procedures then in effect.
SECTION 11. INDEMNIFICATION
A. Indemnification of Dealer.
Subject to Section 11.C, and upon Dealer's written request, Seller shall:
1. Defend Dealer against any and all claims that during the term of this
Agreement may arise, commence or be asserted against Dealer in any action
concerning or alleging:
(a) Bodily injury or property damage arising out of an occurrence caused
solely by a manufacturing defect or alleged manufacturing defect in a Nissan
Product supplied by Seller, except for any manufacturing defect in tires,
provided that the defect could not have reasonably been discovered by Dealer
during the pre-delivery inspection of the product required by Section 5.B.1 of
this Agreement;
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(b) Bodily injury or property damage arising out of an occurrence caused
solely by a defect or alleged defect in the design of a Nissan Product supplied
by Seller, except for a defect or alleged defect in the design of tires; and
(c) Any substantial damage occurring to a new Nissan Product and repaired by
Seller from the time the product left the manufacturer's assembly plant to the
time it was delivered to Dealer's designated location or to a carrier for
transportation to Dealer, whichever occurred first, provided Seller failed to
notify Dealer of such damage and repair prior to delivery of the product to the
first retail customer; and
(d) Breach of Seller's warranty of a Nissan Product which is not, in whole or
part, the result of Dealer's sales, service or repair practices or conduct; and
2. Indemnify and hold Dealer harmless from any and all settlements made which
are approved by Seller and final judgments rendered with respect to any claims
described in Section 11.A.1; provided, however, that Seller shall have no
obligation to indemnify or hold Dealer harmless unless Dealer: (i) promptly
notifies Seller of the assertion of such claim and the commencement of such
action against Dealer; (ii) cooperates fully in the defense of such action in
such manner and to such extent as Seller may reasonably require; (iii) consents
to the employment of attorneys selected by Seller and agrees to waive any
conflict of interest then existent or which may later arise, thereby enabling
Seller's selected attorneys to represent Seller and/or the manufacturer of a
Nissan Product throughout the defense of the claim; and (iv) withdraws any
actions (including cross-claims) filed against Seller or the manufacturer of a
Nissan Product arising out of the circumstances for which Dealer seeks
indemnity. Dealer shall pay all costs of its own defense incurred prior to
Seller's assumption of Dealer's defense and thereafter to the extent that Dealer
employs attorneys in addition to those selected by Seller.
3. Seller may offset any recovery on Dealer's behalf against any
indemnification that may be required under this Section 11 including, without
limitation, attorneys' fees paid by Seller pursuant to this Section 11.A and the
amount of any settlement or judgment paid by Seller.
B. Indemnification of Seller.
Subject to Section 11.C and upon Seller's written request, Dealer shall:
1. Defend Seller against any and all claims that during the term of this
Agreement may arise, commence or be asserted against Seller in any action
concerning or alleging:
(a) Dealer's failure to comply, in whole or in part, with any obligation of
Dealer under this Agreement;
(b) Any negligence, error, omission or act of Dealer in connection with the
preparation, repair or service (including warranty service, goodwill
adjustments, and campaign inspections and corrections) by Dealer of Nissan
Products;
(c) Any modification or alteration made by or on behalf of Dealer to a Nissan
Product, except those made pursuant to the express written instruction or with
the express written approval of Seller;
(d) Dealer's breach of any agreement between Dealer and Dealer's customer or
other third party;
(e) Misleading, libelous or tortious statements, misrepresentations or
deceptive or unfair practices by Dealer, directly or indirectly, to Seller, a
customer or other third party including, without limitation, Dealer's failure to
comply with Section 6.B of this Agreement;
(f) Dealer's breach of any contract or warranty other than a contract with or
warranty of Seller or the manufacturer of a Nissan Product; or
(g) Any change in the employment status or in the terms of employment of any
officer, employee or agent of Dealer or of any Principal
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Owner, Other Owner or Executive Manager including but not limited to, claims for
breach of employment contract, wrongful termination or discharge, tortious
interference with contract or economic advantage, and similar claims; and
2. Indemnify and hold Seller harmless from any and all settlements made and
final judgments rendered with respect to any claims described in Section 11.B.1;
provided, however, that Dealer shall have no obligation to indemnify or hold
Seller harmless unless Seller: (i) promptly notifies Dealer of the assertion of
such claim and the commencement of such action against Seller; (ii) cooperates
fully in the defense of such action in such manner and to such extent as Dealer
may reasonably require; (iii) consents to the employment of attorneys selected
by Dealer and agrees to waive any conflict of interest then existent or which
may later arise, thereby enabling Dealer's selected attorneys to represent
Dealer throughout the defense of the claim; and (iv) withdraws any actions
(including cross-claims) filed against Dealer arising out of the circumstances
for which Seller seeks indemnity. Seller shall pay all costs of its own defense
incurred prior to Dealer's assumption of Seller's defense and thereafter to the
extent that Seller employs attorneys in addition to those selected by Dealer.
C. Conditions and Exceptions to Indemnification.
1. If the allegations asserted in any action or if any facts established
during or with respect to any action would require Seller to defend and
indemnify Dealer under Section 11.A and Dealer to defend and indemnify Seller
under Section 11.B, Seller and Dealer shall each be responsible for its own
defense in such an action and there shall be no obligation or responsibility in
connection with any defense, judgment, settlement or expenses of such action as
between Seller and Dealer.
2. In undertaking its obligations to defend and/or indemnify each other,
Dealer and Seller may make their defense and/or indemnification conditional on
the continued existence of the state of facts as then known to such party and
may provide for the withdrawal of such defense and/or indemnification at such
time as facts arise which, if known at the time of the original request for a
defense and/or indemnification, would have caused either Dealer or Seller to
refuse such request. In the event that subsequent developments in a case make
clear that the allegations which initially justified acceptance of a request for
a defense and/or indemnification are no longer at issue therein or that the
claims no longer meet the description of those for which indemnification is
required hereunder, any party providing a defense and/or indemnification
hereunder may terminate such defense and/or indemnification of the other party.
The party withdrawing from its defense and/or indemnification to defend and/or
indemnify shall give notice of its withdrawal to the indemnifying party.
Moreover, the withdrawing party shall be responsible for all costs and expenses
of defense up to the date of the other party's receipt of the notice of
withdrawal.
SECTION 12. TERMINATION
A. Termination Due to Certain Acts or Events.
The following represent events which are within the control of or originate from
actions taken by Dealer or its management or owners and which are so contrary to
the intent and purpose of this Agreement that they warrant its termination:
1. Any actual or attempted sale, transfer, assignment or delegation, whether
by operation of law or otherwise, by Dealer of an interest in or right,
privilege or obligation under this Agreement, or of the principal assets
necessary for the performance of Dealer's responsibilities under this Agreement,
without, in either case, the prior
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written consent of Seller having been obtained, which consent shall not be
unreasonably withheld;
2. Subject to the provisions of Section 14 hereof, a change, by operation of
law or otherwise, in the direct or indirect ownership of Dealer, whether
voluntary or involuntary, from that set forth in the Final Article of this
Agreement, except as expressly permitted herein, without the prior written
consent of Seller having been obtained, which consent shall not be unreasonably
withheld;
3. Removal, resignation, withdrawal or elimination from Dealer for any reason
of the Executive Manager of Dealer; provided, however, Seller shall give Dealer
a reasonable period of time within which to replace such person with an
Executive Manager satisfactory to Dealer and Seller in accordance with Article
Fourth of this Agreement; or the failure of Dealer to retain an Executive
Manager who, in accordance with Article Fourth of this Agreement, in Seller's
reasonable opinion, is competent, possesses the requisite qualifications for the
position, and who will act in a manner consistent with the continued best
interests of both Seller and Dealer;
4. The failure of Dealer to maintain the Dealership Facilities open for
business or to conduct all the Dealership Operations required by this Agreement
during and for not less than the hours customary and lawful in Dealer's Primary
Market Area or in the metropolitan area in which Dealer is located for seven (7)
consecutive days, unless such failure is caused by fire, flood, earthquake or
other act of God;
5. Any undertaking by Dealer to conduct, directly or indirectly, any of the
Dealership Operations at a location or facility other than that which is
specified in the current Dealership Facilities Addendum for that Dealership
Operation;
6. The failure of Dealer to establish or maintain wholesale financing
arrangements which are in accordance with Seller's Guides and which are
reasonably acceptable to Seller with banks or other financial institutions
approved by Seller for use in connection with Dealer's purchase of Nissan
Vehicles, unless Seller shall have agreed to accept another medium of payment;
7. Insolvency of Dealer; voluntary institution by Dealer of any proceeding
under the federal bankruptcy laws or under any state insolvency law; institution
against Dealer of any proceeding under the federal bankruptcy laws or under any
state insolvency law which is not vacated within thirty (30) days from the
institution thereof; appointment of a receiver, trustee or other officer having
similar powers for Dealer or Dealer's business, provided such appointment is not
vacated within thirty (30) days of the date of such appointment; execution by
Dealer of an assignment for the benefit of creditors; or any levy under
attachment, foreclosure, execution or similar process whereby a third party
acquires rights to a significant portion of the assets of Dealer necessary for
the performance of Dealer's responsibilities under this Agreement or to the
operation or ownership of Dealer, which is not within thirty (30) days from the
date of such levy vacated or removed by payment or bonding;
8. Any material misrepresentation by Dealer or any person named in the Final
Article of this Agreement as to any fact relied on by Seller in entering into,
amending or continuing with this Agreement including, without limitation, any
representation concerning the ownership, management or capitalization of Dealer;
9. The conviction in a court of original jurisdiction of Dealer or of any
Principal Owner or Executive Manager of a crime affecting the Dealership
Operations or of any felony; provided,
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however, that a convicted Executive Manager's ownership interest in Dealer shall
not be an event warranting termination of this Agreement if the individual is no
longer employed by Dealer or involved in any way in the management or operation
of Dealer and Dealer has made reasonable efforts to obtain the individual's
divestiture of his ownership interest in Dealer; or any willful failure of
Dealer to comply with the provisions of any laws, ordinances, rules,
regulations, or orders relating to the conduct of its Dealership Operations
including, without limitation, the sale and servicing of Nissan Products.
10. Knowing submission by Dealer to Seller of:
(i) a false or fraudulent report or statement; (ii) a false or fraudulent
claim (or statement in support thereof), for payment, reimbursement or for any
discount, allowance, refund, rebate, credit or other incentive under any plan
that may be offered by Seller, whether or not Dealer offers or makes
restitution; (ill) false financial information; (iv) false sales reporting data;
or (v) any false report or statement relating to pre-delivery inspection,
testing, warranties, service, repair or maintenance required to be performed by
Dealer.
Upon the occurrence of any of the foregoing events, Seller may terminate this
Agreement by giving Dealer notice thereof, such termination to be effective upon
the date specified in such notice, or such later date as may be required by any
applicable statute.
B. Termination by Seller for Non-Performance by Dealer.
1. If, based upon the evaluations thereof made by Seller, Dealer shall fail
to substantially fulfill its responsibilities with respect to:
a. Sales of new Nissan Vehicles and the other responsibilities of Dealer
set forth in Section 3 of this Agreement;
b. Maintenance of the Dealership Facilities and the Dealership Location set
forth in Section 2 of this Agreement;
c. Service of Nissan Vehicles and sale and service of Genuine Nissan Parts
and Accessories and the other responsibilities of Dealer set forth in Section 5
of this Agreement;
d. The other responsibilities assumed by Dealer in this Agreement
including, without limitation, Dealer's failure to:
(i) Timely submit accurate sales, service and financial information
concerning its Dealership Operations, ownership or management and related
supporting data, as required under this Agreement or as may be reasonably
requested by Seller;
(ii) Permit Seller to make an examination or audit of Dealer's accounts and
records concerning its Dealership Operations after receipt of notice from Seller
requesting such permission or information;
(iii) Pay Seller for any Nissan Products or any other products or services
purchased by Dealer from Seller, in accordance with the terms and conditions of
sale; or
(iv) Maintain net worth and working capital substantially in accordance with
Seller's Guides therefor; or
2. In the event that any of the following occur:
(i) any dispute, disagreement or controversy between or among Dealer and any
third party or between or among the owners or management personnel of Dealer
relating to the management or ownership of Dealer develops or exists which, in
the reasonable opinion of Seller, tends to adversely affect the conduct of the
Dealership Operations or the interests of Dealer or Seller; or
(ii) any other act or activity of Dealer, or any of its owners or management
occurs, which substantially impairs the reputation or financial standing of
Dealer or of any of its management subsequent to the execution of this
Agreement:
Seller will notify Dealer of such failure and will
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review with Dealer the nature and extent of such failure and the reasons which,
in Seller's or Dealer's opinion, account for such failure.
Thereafter, Seller will provide Dealer with a reasonable opportunity to
correct the failure. If Dealer falls to make substantial progress towards
remedying such failure before the expiration of such period, Seller may
terminate this Agreement by giving Dealer notice of termination, such
termination to be effective at least ninety (90) days after such notice is
given.
During such period Dealer will commence such actions as may be necessary so
that the termination obligations of Seller and Dealer set forth in this
Agreement may be fulfilled as promptly as practicable.
C. Termination Because of Death or Physical or Mental Incapacity of Principal
Owner.
This Agreement is a personal services agreement and has been entered into by
Seller in reliance on Dealer's being owned by the Principal Owner(s). Seller
(subject to Section 14 hereof) may terminate this Agreement by giving notice to
Dealer upon the death of any of the Principal Owner(s) or if Seller in good
faith determines that any Principal Owner is so physically or mentally
incapacitated as to be unable to discharge his or her responsibility to the
operating management of Dealer. Unless deferred as hereinafter provided, the
effective date of such termination shall be not less than ninety (90) days from
the date such notice is given to Dealer.
To facilitate the orderly termination of the business relationship between
Seller and Dealer and of the Dealership Operations, Seller may, in its sole
discretion, defer the effective date of such termination and continue to operate
with Dealer under the terms of this Agreement for a period of time, to be
determined by Seller, of up to one (1) year from the date such notice of
termination is given if within sixty (60) days from the date of said notice, the
executor or representative of the deceased or incapacitated Principal Owner or a
surviving Principal Owner shall give to Seller written request for such
deferment. This Agreement shall automatically terminate without further notice
or action by Seller upon the expiration of any such deferment.
D. Termination for Failure of Seller or Dealer to be Licensed.
If Seller or Dealer shall fail to secure or maintain any license, permit or
authorization required by either of them for their performance of any obligation
under or in connection with this Agreement, or if such license, permit or
authorization is suspended or revoked, irrespective of the cause, and such
suspension or revocation continues for a period of seven (7) days, either party
may immediately terminate this Agreement by giving notice to the other party.
E. Termination by Dealer.
Dealer has the right to terminate this Agreement at any time by giving notice to
Seller, such termination to be effective thirty (30) days after the giving of
such notice (unless the thirty (30) day notice period is waived in writing by
Seller) or on such other date as may be mutually agreed to in writing by Seller
and Dealer.
F. Termination by Seller Because of a Change of Seller's Method of
Distribution or Decision by Seller to Cease Distribution of Nissan Vehicles.
If Seller should elect or be required to discontinue its present method of
distributing Nissan Vehicles, or if Seller should elect or be required to cease
selling or distributing Nissan Vehicles, Seller may terminate this Agreement by
giving Dealer notice and such termination will be effective not less than one
(1) year after such notice is given.
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G. Termination Upon Entering Into a New Sales and Service Agreement.
Seller may terminate this Agreement at any time by giving Dealer at least
ninety (90) days prior notice thereof and offering to enter into a new or
amended form of Agreement with Dealer in a form being offered generally to
Authorized Nissan Dealers.
Unless otherwise agreed in writing, the rights and obligations of Dealer that
may otherwise become applicable upon termination or expiration of the term of
this Agreement shall not be applicable if Seller and Dealer enter into a new or
superseding Dealer Sales and Service Agreement, and the rights and obligations
of the parties hereunder shall continue under the terms and provisions of the
new agreement.
Dealer's performance under any prior agreement may be considered by Seller in
evaluating Dealer's performance under this, or any succeeding, agreement.
SECTION 13. RIGHTS AND LIABILITIES UPON TERMINATION
A. Termination Procedures.
1. Upon termination of this Agreement by either Seller or Dealer for any
reason, Dealer shall cease to be an Authorized Nissan Dealer, and Dealer shall:
(i) immediately discontinue the distribution and sale of Nissan Products as an
Authorized Nissan Dealer; and (ii) at its own expense (a) erase or obliterate
all Nissan Marks and any word or words indicating that Dealer is an Authorized
Nissan Dealer from the stationery, forms and other papers used by Dealer or any
business associated or affiliated with Dealer; (b) discontinue all advertising
of Dealer as an Authorized Nissan Dealer; (c) take all steps necessary to remove
any listing in any telephone directory yellow pages advertisement indicating
that Dealer is an Authorized Nissan Dealer; (d) discontinue any use of any
Nissan Mark in Dealer's firm or trade name and take all steps necessary or
appropriate in the opinion of Seller to change such firm or trade name to
eliminate any Nissan Mark therefrom; (e) discontinue or cause to be discontinued
all other use of the Nissan Marks; (f) refrain from doing anything, whether or
not specified above, that would indicate that Dealer is or was an Authorized
Nissan Dealer; and (g) refrain from using, either directly or indirectly, any
Nissan Marks or any other confusingly similar marks, names, logos or designs in
a manner likely to cause confusion or mistake or to deceive the public. If
Dealer falls to comply with any requirements of this Section 13.A.1, Dealer
shall reimburse Seller for all costs and expenses, including reasonable
attorney's fees, incurred by Seller in effecting or enforcing compliance;
2. Termination of this Agreement will not release Dealer or Seller from the
obligation to pay any amounts owing the other;
3. Subject to Section 13.E, Seller shall process all claims and make all
payments due for all labor provided and all parts and/or other materials used by
Dealer pursuant to Sections 5.B.2 and 5.B.3 prior to the effective date of
termination as provided in the Warranty Manual. Dealer shall cease, as of the
effective date of termination, to be eligible to receive reimbursement for any
work thereafter performed or parts thereafter supplied under any warranty,
campaign inspections or corrections and any other adjustment previously
authorized by Seller.
4. Dealer shall, upon Seller's request, deliver to Seller or its designee
copies of Dealer's records with respect to pre-delivery, warranty, goodwill
campaign and other service work of Dealer.
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B. Repurchases by Seller Upon Termination.
Upon termination other than pursuant to a sale or transfer, Seller shall buy
from Dealer and Dealer shall sell to Seller, within ninety (90) days after the
effective date of termination:
1. All new, unused, undamaged, unlicensed, then current and immediate
previous model year Nissan Vehicles which were purchased by Dealer from Seller
and are then the unencumbered property of and in the possession of Dealer or
Dealer's flooring and/or financing institution. The price for such vehicles
shall be the invoice price previously paid by Dealer therefor, less Seller's
destination charges, all allowances paid or applicable allowances offered
thereon by Seller, any amount paid by Seller to Dealer for pre-delivery
inspection and service with respect to such vehicles pursuant to Section 5.B,
any dealer association collection, and any other charge for taxes or special
items or service. Seller shall also repurchase Genuine Nissan Accessories which
have been installed in such Nissan Vehicles which accessories are listed in the
current parts and accessories price list (except those items marked "not
eligible") at the prices set forth on Seller's then current parts and
accessories price list.
2. Subject to Section 13.C, all new, unused, undamaged and resalable Genuine
Nissan Parts and Accessories which are still in the original and undamaged
packages, were purchased from Seller, are listed in the current parts and
accessories price list (except those items marked "not eligible"), and are then
the unencumbered property of and in the possession of Dealer. The prices for
such Genuine Nissan Parts and Accessories shall be the prices set forth on
Seller's then current parts and accessories price list.
3. Subject to Section 13.C, all special tools and equipment owned by Dealer
and which are unencumbered and in the possession of Dealer on the effective date
of termination which were designed especially for servicing Nissan Vehicles, are
of the type recommended in writing by Seller and designated as "essential" tools
in accordance with Seller's Guides or other notices pertaining thereto from
Seller, are in usable and good condition, except for reasonable wear and tear,
and were purchased by Dealer from Seller within the three (3) year period
preceding the date of termination. Seller's purchase price for such essential
tools shall be calculated at Dealer's purchase price reduced by straight-line
depreciation on the basis of a useful life of thirty-six (36) months.
Dealer's and Seller's obligations with respect to the signs located at the
Dealership Facilities shall be determined in accordance with the Dealership
Identification Addendum between Seller and Dealer.
C. Dealer's Responsibilities with Respect to Repurchase.
Seller's obligation to repurchase Genuine Nissan Vehicles, Genuine Nissan
Parts and Accessories, and essential tools from Dealer is conditioned on
Dealer's fulfilling its responsibilities under this Section 13.C as follows:
1. Immediately following the effective date of termination of this Agreement,
Dealer shall furnish to Seller a list of vehicle identification numbers and such
other information and documents as Seller may require pertaining to the Nissan
Vehicles subject to the repurchase obligations of Section 13.B.1. Dealer shall
deliver all such vehicles in accordance with Seller's instructions.
2. Within thirty (30) days after the effective date of termination of this
Agreement, Dealer shall deliver or mall to Seller a detailed inventory of all of
the items referred to in Sections 13.B.2 and 13.B.3. Within thirty (30) days of
its receipt of such inventory, Seller shall provide Dealer with instructions as
to the procedures to be followed in returning such items to Seller. Dealer
shall, at its
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expense, tag, pack and deliver all such items to Seller at Seller's designated
parts distribution center in accordance with such instructions.
Should Dealer fail to comply with the responsibilities listed above, Seller
shall have no obligation to repurchase any such items from Dealer; provided,
however, that Seller shall have the right, but no obligation, to enter into the
Dealership Facilities for the purpose of compiling an inventory, tagging,
packing and shipping such items to Seller's designated parts distribution
center. If Seller undertakes any such responsibilities of Dealer, the repurchase
prices of such items shall be fifteen percent (15%) less than the repurchase
prices otherwise applicable under Section 13.B.
D. Title to Repurchased Property.
With respect to any items of property repurchased by Seller pursuant to this
Section 13, Dealer shall take such action and shall execute and deliver such
instruments as may be necessary: (i) to convey good and marketable title to all
such items of property; (ii) to comply with the requirements of any applicable
law relating to bulk sales and transfers; and (iii) to satisfy and discharge any
liens or encumbrances on such items of property prior to delivery thereof to
Seller.
E. Payment.
Seller shall make all payments to Dealer pursuant to this Section 13 within
ninety (90) days after Seller's receipt of all items to be repurchased by it and
provided Dealer has fulfilled all of its obligations under this Section 13;
provided, however, that Seller shall be entitled to offset against such payments
any and all indebtedness or other obligations of Dealer to Seller. Seller may
make any payment for any property repurchased pursuant to this Section 13
directly to anyone having a security or ownership interest therein.
F. Cancellation of Deliveries.
Upon termination of this Agreement Seller shall have the right to cancel all
shipments of Nissan Products scheduled for delivery to Dealer. After the
effective date of termination, if Seller shall voluntarily ship any Nissan
Products to Dealer, or otherwise transact business with Dealer, all such
transactions will be governed by the same terms provided in this Agreement,
insofar as those terms would have been applicable had the Agreement not been
terminated. Nevertheless, neither the shipping of such Nissan Products nor any
other acts by Seller shall be construed as a waiver of the termination or a
renewal or extension of this Agreement.
SECTION 14. ESTABLISHMENT OF SUCCESSOR DEALER
A. Because of Death of Principal Owner.
If Seller shall terminate this Agreement pursuant to Section 12.C because of the
death of a Principal Owner, the following provisions shall apply:
1. Subject to the other provisions of this Section 14, Seller shall offer a
two (2) year Term Sales and Service Agreement to a successor dealership
("Successor Dealership") comprised of the person nominated by such deceased
Principal Owner as his or her successor, together with the other Principal
Owner(s) and Other Owner(s), provided that:
(a) The nomination was submitted to Seller on a Successor Addendum, was
consented to by the remaining Principal Owner(s) and Other Owner(s), and was
approved by Seller prior to the death of such Principal Owner;
(b) Either (i) there has been no change in the Executive Manager of Seller; or
(ii) Seller has approved a candidate for Executive Manager having the required
qualifications, expertise, integrity, experience and ability to successfully
operate the dealership and perform Dealer's obligations under this Agreement;
and
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(c) The Successor Dealership has capital and facilities substantially in
accordance with Seller's Guides therefor at the time the Term Sales and Service
Agreement is offered.
2. If the deceased Principal Owner has not nominated a successor in
accordance with Section 14.A.1(a) above, but all of the beneficial interest of
the deceased Principal Owner has passed by will or the laws of intestate
succession directly to the deceased Principal Owner's spouse and/or children or
to one (1) or more other Principal Owners who each held not less than a twenty-
five percent (25%) beneficial ownership interest in the dealership prior to the
death of the deceased Principal Owner (collectively "proposed New Owners"),
subject to the other provisions of this Section 14, Seller shall offer a two (2)
year Term Sales and Service Agreement to a Successor Dealership composed of the
Proposed New Owner(s), together with the other Principal Owner(s) and Other
Owner(s), provided that:
(a) Either (i) there has been no change in the Executive Manager of Dealer; or
(ii) Seller has approved a candidate for Executive Manager having the required
qualifications, expertise, integrity, experience and ability to successfully
operate the dealership and perform Dealer's obligations under this Agreement;
and
(b) The Successor Dealership has capital and facilities substantially in
accordance with Seller's Guides therefor at the time the Term Sales and Service
Agreement is offered.
(B) Consideration of Successor Addendum.
To be named in the Successor Addendum, a proposed Principal Owner or Executive
Manager must (i) be employed by Dealer or a comparable automotive dealership as
his principal place of employment; (ii) be already qualified as a Principal
Owner or Executive Manager, as the case may be; and (iii) otherwise be
acceptable to Seller as provided below.
Upon receipt of a request from Dealer that one or more individuals be named in
a Successor Addendum, Seller shall request those named to submit an application
and to provide all personal and financial information that Seller may reasonably
and customarily require in connection with the review of such applications.
Seller, upon the submission of all requested information, will determine whether
to consent to a Successor Addendum naming such individuals by applying its
criteria for considering the qualifications of Principal Owners or Executive
Managers, as the case may be.
C. Termination of Successor Addendum.
Dealer may, at any time, withdraw a nomination of a Successor even if Seller
previously has qualified the candidate, or cancel an executed Successor Addendum
by giving notice to Seller of such withdrawal at any time prior to the death or
incapacity of any Principal Owner named in this Agreement. Seller may cancel an
executed Successor Addendum only if the proposed Principal Owner or Executive
Manager no longer complies with the requirements of this Section 14.
D. Evaluation of Successor Dealership.
During the term of the Term Sales and Service Agreement, Seller will evaluate
the performance of the Successor Dealership and periodically review with the new
Dealer this evaluation. If the Successor Dealership's performance is deemed to
be satisfactory to Seller during the Term Sales and Service Agreement, Seller
will give first consideration to such Successor Dealership with respect to a new
Sales and Service Agreement.
E. Termination of Market Representation. Notwithstanding anything stated or
implied to the contrary in this Section 14, Seller shall not be obligated to
offer a Term Sales and Service Agree-
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ment to any Successor Dealership if Seller notified Dealer prior to the event
causing the termination of this Agreement that Seller's market representation
plans do not provide for continuation of representation in Dealer's Primary
Market Area.
F. Termination of Offer.
If the person or persons comprising a proposed Successor Dealership to which any
offer of a Term Sales and Service Agreement for Nissan Products shall have been
made pursuant to this Section 14 do not accept same within thirty (30) days
after notification to them of such offer, such offer shall automatically expire.
SECTION 15. SALE OF ASSETS OR OWNERSHIP INTERESTS IN DEALER.
A. Sale or Transfer.
Article Third of this Agreement provides that neither this Agreement nor any
right or interest herein may be assigned without the prior written consent of
Seller. However, during the term of this Agreement, Dealer may negotiate for the
sale of the assets of Dealer, or the owners of Dealer may negotiate the sale of
their ownership interests in Dealer, upon such terms as may be agreed upon by
them and the prospective purchaser. With respect to any sale or transfer which
requires Seller's prior written consent under Article Third of this Agreement,
Dealer shall notify Seller prior to any closing of the transaction called for by
the purchase and sale agreement, and the prospective purchaser shall apply to
Seller for a Sales and Service Agreement.
B. Seller's Evaluation.
Seller is responsible for establishing and maintaining an effective body of
Authorized Nissan Dealers to promote the sale and servicing of Nissan Products.
Accordingly, Seller has the right and obligation to evaluate each prospective
dealer, its owner(s) and executive manager, the dealership location and the
dealership facilities to ensure that each of the foregoing is adequate to enable
Dealer to meet its responsibilities hereunder. Seller will evaluate each
prospective purchaser's qualifications and proposal for the conduct of the
Dealership Operations by applying the standards set forth or referred to in this
Agreement. In determining whether it shall consent to such a sale or transfer,
Seller will take into account factors such as the personal, business and
financial qualifications, expertise, reputation, integrity, experience and
ability of the proposed Principal Owner(s) and Executive Manager as referred to
in Articles Third and Fourth of this Agreement, the capitalization and financial
structure of the prospective dealer, the prospective purchaser's proposal for
conducting the Dealership Operations, and Seller's interest in promoting and
preserving competition.
In evaluating the prospective purchaser's application for a Sales and Service
Agreement, Seller may, without liability to Dealer, Dealer's Owners or the
prospective purchaser, consult with the prospective purchaser regarding any
matter relating to the proposed dealership.
Seller shall notify Dealer of Seller's consent or refusal to consent to
Dealer's proposed sale or transfer within sixty (60) days after Seller has
received from Dealer (i) Dealer's written request for Seller's approval; and
(ii) all applications and information customarily or reasonably requested by
Seller to evaluate such a proposal including without limitation, information
concerning each proposed owner's and/or the replacement dealer's identity,
character, business affiliations, business experience, financial qualifications
and proposals for conducting the Dealership Operations. Any material change in
such a proposal including,
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without limitation, any change in the financial terms or in the proposed
ownership or management of any proposed replacement dealer, shall be treated as
a new proposal for purposes of this Section 15.B. If Seller does not consent to
Dealer's proposed sale or transfer, Seller will specify in its notice to Dealer
the reasons for its refusal to consent.
If Seller determines that the proposed dealership would not, at the
commencement of its operations, have capital or facilities in accordance with
Seller's Guides therefor and otherwise satisfactory to Seller, or if Seller
reasonably determines that the proposed dealership might not meet Seller's
performance standards in sales or service, Seller may, in its sole discretion
and in lieu of refusing to consent to the proposed sale or transfer, agree to
enter into a Term Sales and Service Agreement with the prospective purchaser. If
Seller has recommended, pursuant to a market study conducted in accordance with
Section 4.A, that Dealer relocate its Dealership Facilities, Seller may offer to
the proposed dealer a Term Sales & Service Agreement subject to the condition
that its Dealership Facilities shall be relocated within a reasonable time to a
location and in facilities acceptable to Seller and in accordance with the
market study recommendations.
Notwithstanding anything stated or implied to the contrary in this Section 15,
Seller shall not be, obligated to enter into a Sales and Service Agreement with
any purchaser of the assets or ownership interests of Dealer if Seller has
notified Dealer prior to its having received notice of the proposed sale or
transfer that Seller's market representation plans do not provide for
continuation of representation in Dealer's Primary Market Area.
C. Effect of Termination.
This Agreement shall end on the effective date of termination and, except as
otherwise set forth in Section 13, all rights, obligations, duties and
responsibilities of Dealer and Seller under this Agreement shall cease as of the
effective date of termination. No assignment, transfer or sale of Dealer's right
or interest in this Agreement shall have the effect of granting the assignee,
transferee or buyer any right or interest in this Agreement that is greater than
or in addition to that then held by Dealer. Any such assignment, transfer or
sale shall be subject to the terms of any written notice of deficiency under
Section 12.B or any written notice of termination under Sections 12.A, 12.B,
12.C, 12.D, 12.E or 12.F that was previously received by Dealer, including but
not limited to Dealer's obligation to correct any failure before the expiration
date of any period established in any such notice of deficiency. No such
assignment, transfer or sale shall correct any such deficiency or extend the
effective date of termination specified in any written notice of termination.
SECTION 16. POLICY REVIEW BOARD
A. Establishment of Policy Review Board.
In the interest of maintaining harmonious relations between Seller and Dealer
and to provide for the resolution of certain protests, controversies and claims
with respect to or arising out of Section 4, Section 12 or Section 13 of this
Agreement, Seller has established the Nissan Motor Corporation in U.S.A. Policy
Review Board ("Policy Review Board"). The procedures of the Policy Review Board,
as they may be revised by Seller from time to time, are incorporated herein by
reference. At the time of execution of this Agreement, Seller will have
furnished to Dealer a copy of such procedures, and Seller will furnish to Dealer
a copy of each revision or modification that Seller may thereafter make to such
procedures. Any decision of the
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Policy Review Board shall represent the independent decision of Seller and shall
be binding on Seller but not on Dealer.
B. Appeal of Dealer Appointment to Policy Review Board.
Any objections by Dealer to the proposed appointment of an additional Nissan
dealer within the ten (10) mile driving distance described in Section 4.B shall
be appealed to the Policy Review Board by filing a Notice of Appeal in
accordance with the procedures established therefor within thirty (30) days from
the date of Dealer's receipt of the Notice of Appointment.
C. Appeal of Termination to Policy Review Board.
Any protests, controversies or claims by Dealer (whether for damages, stay of
action, or otherwise) with respect to any termination of this Agreement or the
settlement of the accounts of Dealer with Seller after termination of this
Agreement has become effective shall be appealed to the Policy Review Board by
filing an appeal in accordance with the procedures established therefor within
thirty (30) days after Dealer's receipt of notice of termination or, as to
settlement of accounts after termination, within one (1) year after the
termination has become effective.
D. Effect of Other Proceedings.
Because the purpose of the Policy Review Board is to assist in resolving issues
between Seller and Dealer in a non-adversarial setting and to avoid litigation,
if Dealer institutes or seeks any relief or remedy through legal, administrative
or other proceedings as to any matter that is or could be the subject of an
appeal to the Policy Review Board, then the Policy Review Board may, in its sole
discretion, elect to refuse to consider any appeal to the Policy Review Board
then pending or thereafter filed by Dealer relating to such subject matter.
Dealer further agrees that Dealer's seeking such relief or remedy shall
constitute a waiver of any right to an appeal to the Policy Review Board with
respect to such subject matter and Seller and the Policy Review Board shall be
forever released from any obligation they might otherwise have had to conduct
any proceedings, render any decision or take any other action in connection with
such subject matter.
SECTION 17. GENERAL
A. Notices.
All notices or notifications required or permitted to be given by this Agreement
to either party shall be sufficient only if given in writing and delivered
personally or by mall to Dealer at the address set forth on the Dealership
Facilities Addendum to this Agreement and to Seller at its national
headquarters, or at such other address as the party to be addressed may have
previously designated by written notice to the other party. Unless otherwise
specified in the notice, such notices shall be effective upon receipt.
B. No Implied Waivers.
The waiver by either party, or the delay or failure by either party to claim a
breach, of any provision of this Agreement shall not affect the right to require
fall performance thereafter, nor shall it constitute a waiver of any subsequent
breach, or affect in any way the effectiveness of such provision.
C. No Agency.
Dealer is an independently operated business entity in which Seller has no
ownership interest. This Agreement does not constitute Dealer the agent or legal
representative of Seller or Manufacturer for any purpose whatsoever. Dealer is
not granted any express or implied right or authority to assume or create any
obligation on behalf of or in the name of Seller or Manufacturer or to bind
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Seller or Manufacturer in any manner or thing whatsoever.
D. Limitations of Seller's Liability.
This Agreement contemplates that all investments by or in Dealer shall be
made, and Dealer shall purchase and resell Nissan Products, in conformity with
the provisions hereof, but otherwise in the discretion of Dealer. Except as
herein specified, nothing herein contained shall impose any liability on Seller
in connection with the business of Dealer or otherwise or for any expenditures
made or incurred by Dealer in preparation for performance or in performance of
Dealer's responsibilities under this Agreement.
E. Entire Agreement.
This agreement contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and may be amended only by a
written instrument executed by each of the parties or their respective personal
representatives, successors and/or assigns. This Agreement supersedes any and
all prior agreements with respect to the subject matter hereof, and there are no
restrictions, promises, warranties, covenants or undertakings between the
parties other than those expressly set forth in this Agreement; provided,
however, Seller shall have the right to amend, modify or change this Agreement
in case of legislation, government regulations or changes in circumstances
beyond the control of Seller that might affect materially the relationship
between Seller and Dealer as further provided in Section 17.G.
F. California Law.
This Agreement shall be deemed to have been entered into in the State of
California, and all questions concerning the validity, interpretation or
performance of any of its terms or provisions, or of any rights or obligations
of the parties hereof, shall be governed by and resolved in accordance with the
internal laws of the State of California including, without limitation, the
statute of limitations.
G. Changes Required by Law.
Should Seller determine that any federal or state legislation or regulation or
any condition referred to in Section 17.E requires a change or changes in any of
the provisions of this Agreement, Seller may offer to Dealer an amendment or an
amended Agreement embodying such change or changes. If Dealer shall fail to
execute such amendment or amended Agreement and return it to Seller within
thirty (30) days after it is offered Dealer, Seller may terminate this Agreement
by giving notice to Dealer, such termination to effective upon receipt by Dealer
of such notice.
H. Severability.
If any term or provision of this Agreement, or the application thereof to any
person or circumstance, shall to any extent be found to be invalid, void or
unenforceable, the remaining provisions and any application thereof shall
nevertheless continue in full force and effect without being impaired or
invalidated in any way.
I. Assignment.
Dealer shall not transfer or assign any right or transfer or delegate any
obligation of Dealer under this Agreement without the prior written approval of
Seller. Any purported transfer, assignment or delegation made without the prior
written approval of Seller shall be null and void.
J. No Franchise Fee.
Dealer represents and warrants that it has paid no fee, nor has it provided any
goods or services in lieu of a fee, as consideration for Seller's entering into
this Agreement and that the sole consideration for Seller's entering into this
Agreement was Dealer's Principal Owners' and Executive Manager's abilities,
integrity, assurances of personal services and expressed intention to deal
fairly and equitably with Seller and the public and any
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other promises recited in this Agreement.
K. Captions.
The captions of the sections of this Agreement are for convenience and reference
only and shall in no way be construed to explain, modify, amplify, or aid in the
interpretation, construction or meaning of the provisions of this Agreement or
to be a part of this Agreement.
L. Benefit.
This Agreement is entered into by and between Seller and Dealer for their sole
and mutual benefit. Neither this Agreement nor any specific provision contained
in it is intended or shall be construed to be for the benefit of any third
party.
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EXHIBIT 10.3.1
[LOGO OF NISSAN MOTOR CORPORATION U.S.A APPEARS HERE]
NISSAN MOTOR CORPORATION U.S.A.
SERRAMONTE NISSAN
<PAGE>
NISSAN
DEALER TERM SALES AND SERVICE AGREEMENT
THIS AGREEMENT is entered into and effective the day last set forth below by and
between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a California
corporation, hereinafter called "Seller," and the entities and natural persons
identified in the Final Article of this Agreement.
INTRODUCTION
The purpose of this Agreement is to establish Dealer as an authorized dealer of
Nissan Products and to provide for the sale and servicing of Nissan Products in
a manner that will best serve owners, potential owners and purchasers of Nissan
Products as well as the interests of Seller, Dealer and other Authorized Nissan
Dealers. This Agreement sets forth: the rights which Dealer will enjoy as an
Authorized Nissan Dealer; the responsibilities which Dealer assumes in
consideration of its receipt of these rights; and the respective conditions,
rights and obligations of Seller and Dealer that apply to Seller's grant to
Dealer of such rights and Dealer's assumption of such responsibilities. It is
understood that each term and undertaking hereinafter described is material, and
relied upon, as the quid pro quo and consideration for this Agreement.
This is a personal services Agreement. In entering into this Agreement and
appointing Dealer as provided below, Seller is relying, among other things, upon
the personal qualifications, expertise, reputation, integrity, experience,
ability and representations of the individual named in the Final Article of this
Agreement as Dealer Principal (the "Dealer Principal") the individual named in
the Final Article of this Agreement as Executive Manager and the representations
of FirstAmerica Automotive, Inc., ("FAA"), and FAA Serramonte, Inc., ("Dealer"
or "Serramonte Nissan"). In addition to Dealer, Seller intends to look to FAA,
the Dealer Principal and the Executive Manager for the performance of Dealer's
obligations hereunder.
Nissan Products are intended for discriminate owners with the expectation that
such owners will be loyal and proud, but also demanding toward Seller and Dealer
with respect to Nissan Products and the manner in which they are sold and
serviced. Owners, potential owners and purchasers of Nissan Products are
expected to want, and are entitled to do business with, dealers who enjoy the
highest reputation in their communities and have well located, attractive and
efficient places of business, courteous personnel and outstanding service and
parts facilities. Nissan Products must be sold by enthusiastic dealers who are
not interested in short term results only but are willing to look toward long
term goals and who are devoted to creating and maintaining a positive total
ownership experience for owners of Nissan Products. Seller's standard of
excellence for Nissan Products must be matched by the dealers who sell them to
the public and who service them during their operative lives.
Achievement of the purposes of this Agreement is premised upon mutual
understanding and cooperation between Seller and Dealer. Dealer has entered into
this Agreement in reliance upon Seller's integrity and expressed intention to
deal fairly with Dealer and the consuming public. Seller has entered into this
Agreement in reliance upon the integrity and ability of the Dealer Principal and
Executive Manager and their expressed intention to deal fairly with the
consuming public and Seller.
<PAGE>
It is the responsibility of Seller to market Nissan Products throughout the
Territory. It is the responsibility of Dealer to actively promote the retail
sale of Nissan Products and to provide courteous and efficient service of Nissan
Products. The success of both Seller and Dealer will depend on how well they
each fulfill their respective responsibilities under this Agreement. It is
recognized that: Seller will endeavor to provide motor vehicles of excellent
quality and workmanship and to establish a network of Authorized Nissan Dealers
that can provide an outstanding sales and service effort at the retail level;
and Dealer will endeavor to fulfill its responsibilities through aggressive,
sound, ethical selling practices and through conscientious regard for customer
service in all aspects of its Nissan Dealership Operations.
Seller and Dealer shall refrain from engaging in conduct or activities which
might be detrimental to or reflect adversely upon the reputation of Seller,
Dealer or Nissan Products and shall engage in no discourteous, deceptive,
misleading or unethical practices or activities.
For consistency and clarity, terms which are used frequently in this Agreement
have been defined in Section 1 of the Standard Provisions. All terms used herein
which are defined in the Standard Provisions shall have the meaning stated in
said Standard Provisions. These definitions should be read carefully for a
proper understanding of the provisions in which they appear.
To achieve the purposes referred to above, Seller, FAA, Dealer, the Dealer
Principal and the Executive Manager agree as follows:
ARTICLE FIRST: Appointment of Dealer
Subject to the conditions and provisions of this Agreement, Seller:
(a) appoints Dealer as an Authorized Nissan Dealer and grants Dealer the
non-exclusive right to buy from Seller those Nissan Products specified in
Dealer's current Product Addendum hereto, for resale, rental or lease at or from
the Dealership Locations established and described in accordance with Section 2
of the Standard Provisions; and
(b) grants Dealer a non-exclusive right, subject to and in accordance with
Section 6.K of the Standard Provisions, to identify itself as an Authorized
Nissan Dealer, to display the Nissan Marks in the conduct of its Dealership
Operations and to use the Nissan Marks in the advertising, promotion and sale of
Nissan Products in the manner provided in this Agreement.
ARTICLE SECOND: Assumption of Responsibilities by Dealer
Dealer hereby accepts from Seller its appointment as an Authorized Nissan Dealer
and, in consideration of its appointment and subject to the other conditions and
provisions of this Agreement, hereby assumes the responsibility for:
(a) establishing and maintaining at the Dealership Location the Dealership
Facilities in accordance with Section 2 of the Standard Provisions;
(b) actively and effectively promoting the sale at retail (and, if Dealer
elects, the leasing and rental) of Nissan Vehicles within Dealer's Primary
Market Area in accordance with Section 3 of the Standard Provisions;
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(c) servicing Nissan Vehicles and for selling and servicing Nissan Parts
and Accessories in accordance with Section 5 of the Standard Provisions;
(d) building and maintaining consumer confidence in Dealer and in Nissan
Products in accordance with Section 5 of the Standard Provisions; and
(e) performance of the additional responsibilities set forth in this
Agreement, including those specified in Section 6 of the Standard Provisions.
ARTICLE THIRD: Ownership
(a) Owners. This Agreement has been entered into by Seller in reliance
------
upon, and in consideration of, among other things, the personal qualifications,
expertise, reputation, integrity, experience, ability and representations with
respect thereto of the Dealer Principal and Executive Manager named in the Final
Article of this Agreement and in reliance upon the representations and
agreements of FAA and Dealer as follows:
(i) FAA will at all times own 100% of the capital stock of Dealer and
Dealer will at all times be maintained as a separate entity.
(ii) The Executive Committee of Dealer is set forth in attached Schedule
"A".
(iii) The officers of Dealer are as set forth in attached Schedule "A".
(iv) FirstAmerica Automotive, Inc., ("FAA") owns 100% of the outstanding
stock of FAA Serramonte , Inc. (see Attachment "A" attached).
(b) Changes in Ownership. In view of the fact that this is a personal
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services agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, this Agreement and the rights and privileges
conferred on Dealer hereunder are not assignable, transferable or salable by FAA
and Dealer, and no property right or interest is or shall be deemed to be sold,
conveyed or transferred to FAA and Dealer under this Agreement. FAA, Dealer, the
Dealer Principal and the Executive Manager agree that any change in the
ownership of Dealer other than specified herein requires the prior written
consent of Seller IF DEALER DESIRES TO REMAIN AN AUTHORIZED NISSAN DEALER and
that without the prior written consent of Seller:
(i) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock or partnership interest of Dealer will be
made and no additional shares of capital stock, partnership interest or
securities convertible into shares of capital stock, of Dealer will be issued or
sold.
(ii) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer will be made and no additional
shares of capital stock, partnership interest or securities convertible into
shares of capital stock, of Dealer will be issued or sold.
(iii) Dealer will not be merged with or into, or consolidate with, any
other entity and none of the principal assets necessary for the performance of
Dealer's obligations under this Agreement will be sold, transferred or assigned.
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(iv) Dealer will not enter into any transaction, including, without
limitation, any sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer, the issuance or sale of
additional shares of capital stock, partnership interest or securities
convertible into shares of capital stock of Dealer, or the merger of Dealer with
or into, or the consolidation of FAA Serramonte , Inc., with any other entity,
if as a result of such transaction, that FAA will cease to own at least 100% of
the capital stock or interest of Dealer.
(v) If any person or entity, after the date of the initial public
offering, acquires more than 20% of FAA's common stock issued and outstanding at
any time and Nissan determines that such person or entity does not have
interests compatible with those of Nissan, or is otherwise not qualified to have
an ownership interest in a Nissan dealership (an "Adverse Person"), FAA, upon
written notification by Nissan, must cause any subsidiaries, owned, or
controlled entities to terminate its dealer agreements with Nissan or transfer
the Nissan dealerships to a third party acceptable to Nissan within 90 days
after such notification, unless, within 90 days after Nissan's determination,
the adverse Person's ownership interest is reduced to less than 20%.
Any transaction involving the capital stock of Serramonte Nissan, including
a public offering or trade of the shares of FAA, which does not violate
subparagraph (iv) above may be effected without obtaining the prior written
consent of Seller and without triggering a termination event under Section
12.A.(2) of the Standard Provisions.
Dealer shall give Seller prior notice of any proposed change in said
ownership requiring the consent of Seller and immediate notice of the death or
incapacity of any Dealer Principal or Executive Manager. No such change, and no
assignment of this Agreement or of any right or interest herein, shall be
effective against Seller unless and until embodied in an appropriate amendment
to or assignment of this Agreement, as the case may be, duly executed and
delivered by Seller and by Dealer. Seller shall not, however, unreasonably
withhold its consent to any such change, subject to Seller's Rights of First
Refusal set forth in Article Tenth of this Agreement. Seller shall have no
obligation to transact business with any person who is not named either as a
Dealer Principal or Executive Manager of Dealer hereunder, or in the event of
death or incapacity, those persons named as the successors to the Dealer
Principal and/or Executive Manager in the successorship plan hereafter (upon
mutual consent of the parties) or otherwise to give effect to any proposed sale
or transfer of the ownership, partnership interest or management of Dealer and
FAA (other than changes in the ownership of FAA and Dealer which are expressly
permitted by this Article Third) prior to having concluded the evaluation of
such a proposal as provided in Section 15 of the Standard Provisions. Nissan may
conduct routine, day to day business with the person named as the Location
Manager for the location so designated. Dealer acknowledges Seller's right to
require consent to any change in the ownership of Dealer, and agrees that any
change or transfer without such consent from Seller is void, and of no force and
effect, and grounds for termination. FAA and Dealer further agree that they
will not challenge, contest, dispute, or litigate, except as provided in Article
15(c) hereafter:
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to transfer ownership
of Dealer (except as provided by this Agreement) without Seller's consent; or
(ii) any decisions by Seller to withhold consent to a proposed change in
ownership of Dealer.
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ARTICLE FOURTH: Management
(a) This Agreement has been entered into by Seller in reliance upon, and
in consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the person named as Dealer Principal in the Final Article of this
Agreement and in reliance on the following representations and agreements of FAA
and Dealer that:
(i) The Executive Manager of Dealer, subject to the provisions of
Article 15(f), and Thomas A. Price ("Price") will, subject to any other
obligations set forth in this Agreement, devote their full time efforts to the
business and day-to-day operations of the entity for which they are responsible.
(ii) Location Manager will devote 100% of his time to the affairs of the
relevant Dealership location
(b) Dealer. Seller and Dealer agree that the retention by Dealer of
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qualified management is of critical importance to the successful operation of
Dealer and to the achievement of the purposes and objectives of this Agreement.
This Agreement has been entered into by Seller in reliance upon, and in
consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the persons named as Dealer Principal and Executive Manager in the
Final Article of this Agreement and in reliance on the following representations
and agreements of FAA and Dealer, that:
(i) There must be an approved Executive Manager, acceptable to Nissan.
There must be an approved Location Manager employed by Dealer to manage each
Dealership location. As long as Thomas A. Price and the Executive Manager
subject to the provisions of Article 15(f) are employed by FAA and the Location
Manager is employed by Dealer, they will have full and complete control over the
Dealership Operations, subject only to the powers of the Board of Directors of
Dealer to manage the business and affairs of Dealer, and they will at all times
be members of the Board of Directors of Dealer. In addition, any replacements
for Price and Executive Manager will, so long as such replacements are employed
by FAA and Dealer, have full and complete control over the Dealership
Operations, subject only to the powers of the Board of Directors of Dealer to
manage the business and affairs of Dealer, and such replacements will at all
times be members of the Board of Directors of Dealer.
(ii) the Board of Directors of Dealer shall delegate the management of
the Dealership Operations to the Executive Manager identified in Article 15(f),
and FAA will not amend its Certificate of Incorporation or By-laws to provide
that its Board of Directors is entitled to exercise any extraordinary powers or
interfere unduly in the Dealership Operations.
(iii) Location Manager, subject to any other obligations set forth in
this Agreement, shall continually provide his personal services in operating the
dealership and will be physically present at the Dealership Facilities on a
full-time basis.
(c) Changes in Management. In view of the fact that this is a personal
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services Agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, Dealer and FAA agree that any change in the
Dealer Principal from that specified in the Final Article of this Agreement
requires the prior written consent of Seller. Any change to the Executive
Manager requires notice to Seller and timely replacement with an Executive
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Manager acceptable to Seller. In addition, FAA and Dealer agree that no chief
executive officer, or person performing services and having responsibilities
similar to a chief executive officer, of FAA will be appointed, directly or
indirectly, without the prior written consent of Seller. Dealer shall give
Seller prior notice of any proposed change in Dealer Principal or Executive
Manager or the appointment of any chief executive or similar officer of FAA and
immediate notice of the death or incapacity of any Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager and no appointment
of a chief executive or similar officer of FAA shall be effective unless and
until embodied in an appropriate amendment to this Agreement duly executed and
delivered by all of the parties hereto. Subject to the foregoing, Dealer and FAA
shall make their own, independent decisions concerning the hiring and firing of
its employees, including, without limitation, the Dealer Principal and Executive
Manager.
Dealer shall give Seller prior written notice of any proposed change
in Dealer Principal, timely notice of any change to Executive Manger, and
immediate notice of the death or incapacity of Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager shall be effective
unless and until embodied in an appropriate amendment to this Agreement duly
executed and delivered by all of the parties hereto. Dealer acknowledges
Seller's right (as set forth herein and in the Standard Provisions) to require
consent to any change in the management of Dealer, and FAA and Dealer agree that
a change to the Dealer Principal or substitution of the Executive Manager,
without such consent from Seller is without effect upon Seller, of no force and
effect, and grounds for termination. FAA and Dealer further agree that they will
not challenge, contest, dispute, or litigate, except as provided by Article
Fifteenth (c):
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to change the
management of Dealer without Seller's consent; or
(ii) any decision by Seller to withhold consent to a proposed change in
management of Dealer; or
(iii) any decision by Seller to withhold approval of a proposed management
candidate.
To enable Seller to evaluate and respond to Dealer concerning any
proposed change in Dealer Principal or Executive Manager or the appointment of
any chief executive or similar officer of FAA agrees to provide, in the form
requested by Seller and in a timely manner, all applications and information
customarily requested by Seller to evaluate the proposed change. While Seller
shall not unreasonably withhold its consent to any such change, it is agreed
that any successor Dealer Principal, Executive Manager or Location Manager or
similar officer of FAA must possess personal qualifications, expertise,
reputation, integrity, experience and ability which are, in the opinion of
Seller, satisfactory. Seller will determine whether, in its opinion, the
proposed change or appointment is likely to result in a successful dealership
operation with capable management that will satisfactorily perform Dealer's
obligations under this Agreement. Seller shall have no obligation to transact
business with any person who is not named as a Dealer Principal or Executive
Manager of Dealer hereunder prior to having concluded its evaluation of such
person. Upon FAA's request, Seller may, but has no obligation to, transact
business with an individual proposed by Dealer and acceptable to Seller during a
prolonged incapacity or unavailability of Dealer Principal and Executive
Manager.
Any successor Dealer Principal or Executive Manager or similar
officer of FAA must meet the following minimum requirements in order to be
submitted to Seller for approval:
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(i) At least three years of experience as a general manager of an
automobile dealer in a major metropolitan area or similar position involving all
aspects of the day-to-day operations of such an automobile dealership
(including, without limitation, new and used vehicle sales, service, parts and
administration); and
(ii) A demonstrated track record of success in his/her prior automobile
dealership activities as measured by the dealerships' performance under his/her
management. The dealership(s) shall have consistently demonstrated at least the
following:
1. An above average level of sales performance when measured
against regional or zone averages and as measured against sales performance
objectives established by the manufacturer; and
2. An above average level of customer satisfaction when measured
against regional or zone averages for the make; and
3. A history of cooperation and good relations with
manufacturer(s) and/or distributor(s).
(d) Evaluation of Management. Dealer and Seller understand and acknowledge
------------------------
that the personal qualifications, expertise, reputation, integrity, experience
and ability of the Dealer Principal and Executive Manager and their ability to
effectively manage Dealer's day-to-day Dealership Operations is critical to the
success of Dealer in performing its obligations under this Agreement. Seller may
from time to time develop standards and/or procedures for evaluating the
performance of the Dealer Principal and Executive Manager and of Dealer's
personnel generally. Seller may, from time to time, evaluate the performance of
the Dealer Principal and Executive Manager and will advise Dealer, the Dealer
Principal and the Executive Manager of the results of such evaluations and the
way in which any deficiencies affect Dealer's performance of its obligations
under this Agreement.
(e) Compensation of Executive Manager. Executive Manager will have his
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compensation tied to Dealer's overall performance with respect to objectives for
sales, market penetration and customer service.
ARTICLE FIFTH: Additional Provisions
The additional provisions set forth in the attached "Nissan Dealer Sales
and Service Agreement Standard Provisions," bearing form number NDA-4S/9-88, as
amended in Article Thirteenth of this Agreement, and excepting only the
provisions contained in Sections 4, 14 and 16, are hereby incorporated in and
made a part of this Agreement. The Notice of Primary Market Area, Dealership
Facilities Addendum, Product Addendum, Dealership Identification Addendum,
Holding Company Addendum, if applicable, and all Guides and Standards referred
to in this Agreement (including references contained in the Standard Provisions
referred to above) are hereby incorporated in and made a part of this Agreement.
Dealer further agrees to be bound by and comply with: the Warranty Manual;
Seller's Manuals or Instructions heretofore or hereafter issued by Seller to
Dealer; any amendment, revision or supplement to any of the foregoing; and any
other manuals heretofore or hereafter issued by Seller to Dealer.
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ARTICLE SIXTH: Termination of Prior Agreements
This Agreement cancels, supersedes and annuls all prior contracts,
agreements and understandings except as stated herein, all negotiations,
representations and understandings being merged herein. No waiver, modification
or change of any of the terms of this Agreement or change or erasure of any
printed part of this Agreement or addition to it (except filling of blank spaces
and lines) will be valid or binding on Seller unless approved in writing by the
President or an authorized Vice President of Seller.
ARTICLE SEVENTH: Term
This Agreement shall have a term commencing on the effective date hereof
and, subject to its earlier termination in accordance with the provisions of
this Agreement, expiring on the expiration date indicated in the Final Article
of this Agreement. Subject to other applicable provisions hereto this Agreement
shall automatically terminate at the end of such stipulated term without any
action by Dealer, Seller or any of the other parties hereto. If this Agreement
is not terminated prior to the expiration date set forth in the Final Article,
and if dealer is in substantial compliance with all provisions of this
Agreement, Seller will offer to enter into a new Agreement with Dealer in
substantially the same form as this Agreement.
ARTICLE EIGHTH: License of Dealer
If Dealer is required to secure or maintain a license for the conduct of
its business as contemplated by this Agreement in any state or jurisdiction
where any of its Dealership Operations are to be conducted or any of its
Dealership Facilities are located, this Agreement shall not be valid until and
unless Dealer shall have furnished Seller with written notice specifying the
date and number, if any, of such license or licenses issued to Dealer, Dealer
shall notify Seller immediately in writing if Dealer shall fail to secure or
maintain any and all such licenses or renewal thereof or, if such license or
licenses are suspended or revoked, specifying the effective date of any such
suspension or revocation.
ARTICLE NINTH: Additional Representations and Warranties
(a) All of the representations and covenants made to Seller by the other
parties to this Agreement have been made jointly and severally by each of the
parties hereto which has made any such representation or covenant.
(b) In addition to the representations set forth elsewhere in this
Agreement, FAA and Dealer jointly and severally, represent to Seller that:
(i) All of the documents and correspondence provided to Seller by FAA and
Dealer, or any of their agents in connection with the solicitation of Seller's
consent to this Agreement, are true and correct copies of such documents.
(c) In addition to the covenants set forth elsewhere in this Agreement, FAA
and Dealer, jointly and severally, agree with Seller that:
(i) Dealer will at all times be involved in the operation of the Nissan
dealership currently operated by it and Dealer will not conduct any other type
of business.
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(ii) No distributions will be made to the stockholders or partners of
Dealer and FAA if such distributions would cause Dealer to fail to meet any of
the Guides and Standards relating to the capitalization of Dealer. In
particular, FAA will not be permitted to voluntarily redeem any of its preferred
stock, if prior to and after giving effect to such redemption Dealer fails to
meet any of the Guides and Standards relating to capitalization of Dealer.
(iii) FAA and Dealer hereby, jointly and severally, indemnify and hold
harmless, Seller, its officers, directors, affiliates and agents, and each
person who controls Seller within the meaning of the Securities Act of 1933, as
amended (the "Act"), from and against any and all losses, claims, damages or
liabilities, to which they or any of them may become subject under the Act, the
Securities Exchange Act of 1934, as amended, or any other federal or state
securities law, rule or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of the sale by FAA or Dealer of
any securities. The indemnification provided for in this paragraph shall be
exclusive of, and in addition to, any indemnification pursuant to Section 10 of
the Standard Provisions.
(iv) One of the conditions to the effectiveness of this Agreement by
Seller is the delivery of an opinion of counsel to all of the parties hereto
(other than Seller) to the effect that this Agreement has been duly executed and
delivered by each of the parties thereto (other than Seller) and is the legal,
valid and binding obligation of each of such parties enforceable in accordance
with its terms.
ARTICLE TENTH: Right of First Refusal, Option to Purchase, Exclusivity
A. Seller's Right of First Refusal and Option to Purchase
In addition to its rights under this Agreement in the event that FAA or
Dealer should desire to enter into a transaction which requires Seller's
consent, and without such consent would result in a breach of the covenants set
forth in Article Third, Sections (a)(i); (a)(ii); (a)(iii); (a)(iv); or (b) of
this Agreement or in the event that any of the covenants set forth in Article
Third, Section (b); Article Fourth, Section (a)(vii); or Article Ninth, Section
(c)(ii) of this Agreement are breached, Seller shall have the additional right
and option to purchase the dealership assets or ownership interests under this
Right of First Refusal or Option to Purchase pursuant to this Article Tenth.
(a) If Seller chooses to exercise its Right of First Refusal or Option
to Purchase, it must do so in its written refusal to consent to the proposed
sale or transfer pursuant to Section 15 of the Standard Provisions or, if
Section 15 of the Standard Provisions does not apply, within sixty (60) days of
receipt of notification that a event triggering Seller's right of first refusal
hereunder has occurred. FAA and Dealer agree not to complete any proposed change
or sale prior to the expiration of the period for exercise of Seller's right of
first refusal and without Seller's prior written consent. Such exercise shall be
null and void if FAA and/or Dealer withdraws its proposal within thirty (30)
days following Dealer's receipt of Seller's notice exercising its rights of
first refusal. If Seller elects to exercise its Option to Purchase, it must so
notify FAA and Dealer in writing, specifying the nature of the breach upon which
it is relying, and, if practicable, providing FAA and Dealer with a reasonable
opportunity to cure the breach. If FAA or Dealer is not able to cure the breach
relied upon in the notice, or does not cure that breach, then FAA and Dealer may
attempt to sell or otherwise transfer the relevant Dealer Assets to an entity
acceptable to Seller within 60 days. If Seller reasonably does not approve such
a
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transfer, or if Dealer and FAA are unable to complete such a transaction, Seller
may request an additional 30 days for this purpose. If, at the end of this
period Seller reasonably does not approve a transfer, or, if Seller reasonably
does not approve the extension, then Seller may execute this Option to Purchase.
(b) After being exercised, Seller's right to purchase may be assigned to
any party, and Seller hereby agrees to guarantee the full payment of the
purchase price by such assignee. Seller's rights under this Article Tenth shall
be binding on and enforceable against any assignee or successor in interest of
Dealer or purchaser of Dealer's assets. Seller shall have no obligation to
exercise its rights hereunder.
(c) If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Seller's right under this Article Tenth shall
be a right of first refusal, enabling Seller to assume the prospective
purchaser's purchase rights and obligations under such buy/sell agreement. The
purchase price and other terms of sale shall be those set forth in such
agreement and any related documents. Seller may request and Dealer agrees to
provide all other documents relating to Dealer and the proposed transfer,
including, but not limited to, those reflecting any other agreements or
understandings between the parties to the buy/sell agreement. If Dealer refuses
either to provide such documentation or to state in writing that no such
document exists, it shall be presumed that the agreement is not bona fide.
(d) If Seller determines pursuant to paragraph (c) above that the buy/sell
agreement is not bona fide, Seller will so notify Dealer. Dealer shall have
twenty (20) days from its receipt of such notice within which to withdraw its
proposal. Seller's exercise of its rights hereunder shall be null and void if
Dealer withdraws its proposal within such time period. If the proposal is not
withdrawn, Seller shall have the option, but no obligation, under this Article
Tenth to purchase the principal assets of Dealer utilized in the Dealership
Operations, including real estate and leasehold interest or to purchase the
ownership interests of Dealer, and to terminate this Agreement and all rights
granted Dealer hereunder. If the Dealership Facilities are leased by Dealer from
an affiliated company, the right to purchase the principal assets, or the
ownership interests, of Dealer, shall include the right to lease the Dealership
Facilities. The purchase price shall be at the then fair market value as
determined by an independent appraiser selected by Seller and reasonably
acceptable to FAA and Dealer, and the other terms of sale shall be those agreed
by Seller, Dealer and FAA
(e) Dealer shall transfer the affected property free and clear of liens,
claims, mortgages, and encumbrances.
(f) In addition to any other rights Seller may have at law, in equity or
hereunder, any conveyance of the dealership in violation of this right of first
refusal shall be voidable by Seller.
(g) In the event that Seller elects not to exercise its right of first
refusal to purchase the dealership assets or the ownership interests of the
Dealer; FAA and FAA Serramonte , Inc., agree that they will offer to sell such
assets or interests to an entity or persons acceptable to Seller. If such
individuals are not interested in such a transaction and no other entity or
individuals acceptable to Seller can be found, then, at Seller's option, Seller
may approve a buyer proposed by FAA, may waive the linkage requirements between
dealerships, if any, or may propose a buyer to assume a bona fide offer procured
by Dealer.
B. Right of First Refusal on Sale or Lease of Property to a Third Party.
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a) In addition to its rights under Articles Third and Fourth and
Section 15 of the Standard Provisions, Dealer agrees that should Dealer seek to
sell or lease all or substantially all of the Approved Site to a third party for
use as a Nissan New Motor Vehicle Dealership, Seller shall have the additional
right and option, but not the obligation, to purchase or lease the Approved Site
pursuant to this Article Thirteenth. A sale or lease for use other than a Nissan
New Motor Vehicle Dealership, without Seller's consent, is void.
b) If Seller chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within 60 days of Seller's receipt
of notice of the proposed sale or lease by Dealer. Dealer agrees not to
complete any proposed sale or lease prior to the expiration of the period for
exercise of Seller's right of first refusal and without Seller's prior written
consent, and agrees to allow Seller to perform an environmental study of the
property. Such exercise shall be null and void if Dealer withdraws its sale or
lease proposal within thirty (30) days following Dealer's receipt of Seller's
notice exercising its right of first refusal.
c) After being exercised, Seller's right to purchase or lease may be
assigned to any party, and Seller hereby agrees to guarantee the full payment of
the purchase price or the rental payment by such assignee. Seller's rights under
this Article Thirteenth shall be binding on and enforceable against any assignee
or successor in interest of Dealer or purchaser of Dealer's assets. Seller shall
have no obligation to exercise its rights hereunder, and Seller may rescind its
offer if the property is determined to be contaminated pursuant to an
environmental study. Such contamination shall be deemed a breach of this
agreement by dealer.
d) Should Seller actually purchase or lease the facility, Dealer
shall also furnish to Seller copies of any easements, licenses, environmental
studies or other documents affecting the property.
e) Dealer shall transfer the affected property by deed conveying
marketable title free and clear of liens, claims, mortgages, encumbrances,
tenancies and occupancies, or, if applicable, by an assignment of any existing
lease. The Warranty Deed shall be in proper form for recording. Dealer shall
deliver complete possession of the property at the time of delivery of the Deed
or lease assignment. Dealer shall also furnish to Seller copies of any
easements, licenses, or other documents affecting the property and shall assign
any permits or licenses which are necessary for the conduct of the Dealership
Operations.
f) In addition to any other rights Seller may have at law, in equity
or hereunder, any sale or lease of the Approved Site in violation of this right
of first refusal shall be voidable by Seller
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C. Exclusivity Provisions.
In order for Dealer to maintain competitive Dealership Facilities to
effectively market Nissan Products, Dealer hereby agrees to abide by and never
challenge, except as provided in Article Fifteenth (c), the following provisions
(hereinafter "Exclusivity Provisions"). These Exclusivity Provisions shall be
effective on or before the execution of the Agreement, and continue in effect
thereafter so long as Dealer (or its principals) are authorized Nissan dealers
and these provisions shall be binding on any successors-in-interest, assignors
or purchasers of Dealer:
a) The only line-make of new, unused motor vehicles which Dealer
shall display and sell at the Dealership Facilities shall be the Nissan line and
make of motor vehicles. Dealer shall not conduct any dealership operations for
any other make or line of new, unused vehicles from the Dealership Facilities
throughout the term of this Agreement.
b) Dealer shall sell and maintain a full line of Genuine Nissan Parts
and Accessories at the Dealership Facilities and shall provide a full range of
automotive servicing for Nissan vehicles at the Dealership Facilities pursuant
to Section 5 of the Standard Provisions to the Agreement. Nothing contained
herein, however, shall preclude Dealer from offering parts, accessories or
servicing for vehicles of other lines or makes so long as such products or
services are incidental to Dealer's Nissan Dealership Operations;
c) Dealer shall not advertise or promote any make or line of new,
unused vehicles from the Dealership Facilities other than the Nissan line; and
d) Dealer shall not install or maintain any sign at or near the
Dealership Facilities which would tend to lead the public into believing that
any line or make of vehicles other than the Nissan line is sold at the
Dealership Facilities.
ARTICLE ELEVENTH: Breach By Dealer
In the event (i) that any of the material representations and warranties of
Dealer, FAA, Thomas A. Price or Executive Manager, contained in this Agreement
shall prove not to have been true and correct when made or (ii) of any breach or
violation of any of the covenants made by Dealer and FAA, Thomas A. Price or
Executive Manager, in Articles Third, Fourth and Ninth of this Agreement or
(iii) of the occurrence of any of the events warranting termination of this
Agreement as set forth in Section 12.A of the Standard Provisions, Seller may
terminate this Agreement, prior to the expiration date hereof by giving Dealer
written notice thereof, specifying the nature of the breach; Dealer shall have
an opportunity to cure the breach within 45 days; at the expiration of this 45
day cure period, if the breach has not been satisfactorily cured, Seller may
terminate this Agreement by giving written notice to Dealer, such termination to
be effective upon the date specified in such notice, or such latter date as may
be required by any applicable statute with the effect set forth in Section 13 of
the Standard Provisions.
ARTICLE TWELFTH: Execution of Agreement
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This Agreement, and any Addendum or amendment or notice with respect
thereto, shall be valid and binding on Seller only when it bears the signature
of either the President or an authorized Vice President of Seller and, when such
signature is a facsimile, the manual countersignature of an authorized employee
of Seller at the Director level and a duplicate original thereof is delivered
personally or by mail to the Dealership Location. This Agreement shall bind
Dealer and the other parties hereto only when it is signed by: a duly authorized
officer or executive of Dealer or such party if a corporation; one of the
general partners of Dealer or such party if a partnership; or Dealer or such
party if an individual.
ARTICLE THIRTEENTH: Amendments to Standard Provisions
(a) Section 1.0 of the Standard Provisions is hereby amended to read as
follows:
"O. `Principal Owners(s)' shall mean the persons named as Dealer Principal
in the Final Article of this Agreement upon whose personal qualifications,
expertise, integrity, experience, ability and representations Seller has relied
in entering into this Agreement."
(b) Section 6.I of the Standard Provisions is hereby amended to read as
follows:
"Seller shall have the right, at all reasonable times during regular
business hours, to inspect the Dealership Facilities and to examine, audit and
make and take copies of all records, accounts and supporting data relating to
the sale, sales reporting, service and repair of Nissan Products by Dealer.
Whenever possible, Seller shall attempt to provide Dealer with advance notice of
an audit or examination of Dealer's operations. Seller shall also have the
right, at all reasonable times during regular business hours and upon advance
notice, to examine, audit and make and take copies of all records, accounts and
supporting data of FAA and Dealer relating to the business, ownership or
operations of Dealer."
(c) Section 12.A.(l) of the Standard Provisions is hereby amended to read
as follows:
"(1) Any actual or attempted sale, transfer, assignment or delegation,
whether by operation of law or otherwise, by Dealer or FAA of any interest in or
right, privilege or obligation under this Agreement, or of the principal assets
necessary for the performance of Dealer's responsibilities under this Agreement,
without, in either case, the prior written consent of Seller having been
obtained, which consent shall not be unreasonably withheld;"
(d) Section 12.A.(3) of the Standard Provisions is hereby amended to read
as follows:
"(3) Removal, resignation, withdrawal or elimination from Dealer for any
reason of the Executive Manager, or removal, resignation, withdrawal or
elimination from Dealer of Thomas A. Price as President, or removal,
resignation, withdrawal or elimination from Dealer of Thomas A. Babbington as
Executive Manager; provided, however, in each case, Seller shall give Dealer a
reasonable period of time within which to replace such person with a individual
satisfactory to Dealer as the case may be, and Seller in accordance with Article
Fourth of this Agreement; or the failure of Dealer to retain an Executive
Manager who, in accordance with Article Fourth of this Agreement, in Seller's
reasonable opinion, is competent, possesses the requisite qualifications for the
position, and who will act in a manner consistent with the continued interests
of both Seller and Dealer."
(e) Section 12.B.(2)(i) of the Standard Provisions is hereby amended to
read as follows:
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"(i) any dispute, disagreement or controversy between or among Dealer and
any third party or between the owners and management personnel of Dealer
relating to the management or ownership of Dealer develops or exists which, in
the reasonable judgment of Seller, tends to adversely affect the conduct of the
Dealership Operations or the interests of Dealer or Seller; or"
(f) Section 12.B.(2)(ii) of the Standard Provisions is hereby amended to
read as follows:
"(ii) any other act or activity of Dealer and/or FAA, or any of their
principal owners (ownership in excess of 20%) or senior management occurs, which
substantially impairs the reputation or financial standing of Dealer or its
executive management subsequent to the execution of this Agreement:"
(g) Exhibits A and B are hereby incorporated by reference.
ARTICLE FOURTEENTH: Branding / Business Name
The parties acknowledge and agree that Dealer shall do business as
Serramonte Nissan. Dealer agrees to include in its promotional, marketing and
advertising efforts the approved name of the Dealership or another name approved
by Nissan that includes the Nissan name. In all television, radio, print and
other advertising and marketing conducted by dealer, Dealer shall refer to
itself as "Serramonte Nissan" or such other approved name. Dealer shall actively
and effectively promote primarily the "Nissan" name. Under no circumstances
shall the name "Nissan" be subordinated to or promoted less aggressively than
any other name (eg. "FAA") by Dealer.
ARTICLE FIFTEENTH: Special Conditions
(a) Adequate Representation of Entire Line of Nissan Vehicles
Dealer shall actively and effectively promote the sale of Nissan's entire line
of vehicles and products to customers located throughout the Primary Market
Area. In evaluating Dealer's sales performance, in addition to those factors
established in the Standard Provisions, Nissan will evaluate Dealer's
performance by vehicle segment Dealer is obligated to adequately represent
Nissan in each and every model line. Adequate representation is the higher of
national, regional, state or DMA average, adjusted for segment popularity, as
set forth in the Business plan.
(b) Nissan Products
The definition of "Nissan Products" in the Standard Provisions is amended to
mean Nissan Vehicles (defined as Nissan Cars and Nissan Tucks as well as "near-
new" Nissan Vehicles of the current and three prior model years), Genuine Parts
and Accessories, Nissan Security+Plus and such other products and services
offered by Nissan to Dealer and designated by Nissan as a Nissan Product. Dealer
shall actively and effectively promote the sale of Nissan Products.
Effectiveness with respect to Nissan Security+Plus sales is measured by the
ratio of Security+Plus sales to new vehicles sales, compared to the higher of
national, regional, state or DMA average as set forth in the Business plan or as
otherwise set forth in the Business Plan.
(c) Dispute Resolution Process
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The parties acknowledge that, at the state and federal level, various
courts and agencies would, in the absence of this Article Fifteenth (d), be
available to them to resolve claims or controversies which might arise between
them. The parties agree that it is inconsistent with their relationship for
either to use courts or governmental agencies to resolve such claims or
controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. SEC. 1 ET SEQ.), THE PARTIES TO THIS AGREEMENT AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS SECTION, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING ANY DISPUTE,
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR
TO THE RELATIONSHIP BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS
UNDER ANY STATE OR FEDERAL STATUTES (HEREINAFTER "DISPUTES"). Section 16 of the
Standard Provisions is deleted in its entirety.
There are two steps in the Dispute Resolution Process: Mediation and Binding
Arbitration. All Disputes must first be submitted to Mediation, unless that step
is waived by written agreement of the parties. Mediation is conducted by a panel
consisting of an equal number of representatives of the parties designated by
Nissan and selected by Dealer. The Mediation Panel will evaluate each position
and recommend a solution. This recommended solution is not binding.
If a dispute has not been resolved after Mediation, or if Dealer and Nissan have
agreed in writing to waive Mediation, the Dispute will be settled by Binding
Arbitration. SPECIFICALLY, THE PARTIES AGREE TO RESOLVE ALL SUCH DISPUTES BY
BINDING ARBITRATION CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL
ARBITRATION PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION, WITH THE
PREVAILING PARTY TO RECOVER ITS COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY.
ALL ARBITRATION AWARDS ARE BINDING AND NON-APPEALABLE, EXCEPT AS OTHERWISE
PROVIDED IN THE UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY
BE ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION.
(d) Business Plan
Dealer and Nissan shall execute a Business Plan in the form specified in
the Business Planning Process Workbook that describes how Dealer will fulfill it
sales, service, customer relations and other commitments hereunder, including
heightened performance standards that Dealer commits to meet;
(e) Option to Purchase
If the Dealer Agreement is to expire or be terminated: i) Voluntarily by
Dealer; ii) By Nissan upon the occurrence of any of the events specified in
Section 12A. of the Standard Provisions to the Agreement (as modified herein);
or iii) As a result of the death or physical or mental incapacity of Principal
Owners, without a qualified successor under the successorship plan required in
the Business Plan under Section 6 of the Contiguous Market Ownership Addendum,
without a timely replacement, reasonably acceptable to Seller, Nissan has the
option to Purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan may elect to purchase, and
cancel the Agreement and all rights granted Dealer
15
<PAGE>
thereunder. The purchase price of the dealership assets and real property and
other terms will be determined by agreement between the parties or, if the
parties are unable to reach agreement in a reasonable time, by arbitration
pursuant to the Dispute Resolution Process established in Paragraph 12 hereof.
Nissan must advise Dealer of its intent to exercise this option within 30 days
after one party notifies the other of its intent to terminate the Agreement.
Nissan may assign its right to exercise its option to purchase under this
paragraph to any third party.
(f) Executive Manager Evaluation
Dealer shall retain a qualified Executive Manager meeting Seller's approval
to be named under the Final Article of this Agreement.
Dealer has proposed Thomas A. Babbington as Executive Manager.
16
<PAGE>
FINAL ARTICLE
-------------
The Dealer is FAA Serramonte , Inc., a corporation formed under the laws of the
California. Dealer is located in Colma, CA.
Other parties relevant to this Agreement are FirstAmerica Automotive, Inc., a
corporation incorporated under the laws of the Nevada, and Thomas A. Price.
The Dealer Principal is Thomas A. Price.
The Executive Manager is Thomas A. Babbington.
<TABLE>
<CAPTION>
<S> <C>
Expiration Date: 6/30/2002
-----------
Working Capital Guide Requirement: $ 856,400
Net Worth Guide Requirement: $1,471,000
Flooring Line: $3,679,640
</TABLE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
triplicate effective as of the ;30th day of June, 1997 at Carson, California.
SELLER:
NISSAN DIVISION
NISSAN MOTOR DIVISION CORPORATION IN USA
By: /s/ Thomas H. Eastwood By: /s/ Jules Clavadetscher
---------------------------- ---------------------------
Thomas H. Eastwood Jules Clavadetscher
Vice President Regional Vice President
FAA Serramonte , Inc.
By: /s/ Thomas A. Price
----------------------------
Thomas A Price
Its: President
ACKNOWLEDGED.
FIRSTAMERICA AUTOMOTIVE, INC.
By: Thomas A. Price
----------------------------
Its: President and CEO
17
<PAGE>
EXHIBIT 10.3.2
NISSAN CONTIGUOUS MARKET OWNERSHIP
----------------------------------
HOLDING COMPANY AGREEMENT
-------------------------
This Nissan Contiguous Market Ownership Holding Company Agreement (the "CMO
Holding Company Agreement") is entered into this 30th day of June, 1997, by and
among Nissan Motor Corporation in U.S.A. ("Nissan"), and FirstAmerica
Automotive, Inc., ("FAA" or "Holding Company") concerning the commitments and
obligations of FAA in respect to its subsidiaries, FAA Concord N, Inc.,
("Concord Nissan") and FAA Dublin N, Inc., ("Dublin Nissan"), and any other
entities which FAA may acquire within the designated area described hereinafter
as the "East Bay CMO".
RECITALS
--------
WHEREAS, Nissan has developed a distribution network plan that seeks to create a
Contiguous Market Ownership Area in the San Francisco Bay Area (the "East Bay
CMO");
WHEREAS, Nissan recognizes this new distribution plan is to be implemented over
time with consideration of existing dealers' rights;
WHEREAS, FAA has approached Nissan with a request to develop the East Bay CMO;
WHEREAS, Nissan has advised FAA that Nissan would approve their acquisition of
individual dealers, provided FAA satisfies Nissan's requirements for applicants;
and Nissan has advised FAA that Nissan cannot make existing dealers sell or
otherwise transfer their dealerships to FAA;
WHEREAS, FAA acknowledges the rights of existing dealers, yet commits to use its
best good faith and reasonable efforts to acquire dealerships within the East
Bay CMO, with an intent to form the complete East Bay CMO marketing territory;
WHEREAS, FAA acknowledges that Nissan's business concept for the CMO envisioned
entering into one Nissan Dealer Sales and Service Agreement with one corporate
entity for the entire CMO;
WHEREAS, FAA, while affirming its commitment to implement Nissan's CMO concept
in the East Bay CMO, has requested, in order to accommodate their business
purposes, that Nissan permit FAA to maintain the corporate entities they are
creating (or subsequently will acquire or create) to form the CMO and that
Nissan enter into separate, but related, dealer agreements with these entities;
WHEREAS, FAA owns 100% of the stock of the subsidiary dealer corporation
(currently FAA Concord N, Inc., and FAA Dublin N, Inc.).
WHEREAS, Nissan has communicated its willingness to accommodate FAA's request
subject to FAA's agreement to the terms and conditions set forth herein;
WHEREAS, based on the foregoing, Nissan will enter into separate, but related
dealer agreements with Concord Nissan and Dublin Nissan in connection with the
formation of the East Bay CMO;
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
AGREEMENT
---------
1. THE CMO HOLDING COMPANY AGREEMENT
---------------------------------
FAA acknowledges that while, technically, the East Bay CMO is comprised of
separate dealer corporations, as a practical matter, and consistent with
its intent as originally communicated, Nissan intends, and FAA agrees, that
Nissan will treat these wholly-owned subsidiary dealer corporations, and
their related Sales and Service Agreements, as part and parcel of one
single CMO entity for all purposes under this and those separate
Agreements. Specifically, the parties to this agreement acknowledge and
agree that, while the East Bay CMO is comprised of separate dealer
corporations, Holding Company and Nissan will treat those dealers and their
dealer agreements as one dealer with one agreement FOR ALL PURPOSES,
consistent with the CMO concept reflected in the CMO Addenda to those
dealer's agreements. Accordingly, with respect to allocation of vehicles,
financial reporting, sales incentives, business plans, performance
standards and evaluation and for all other purposes under the Sales &
Service Agreements, Nissan will treat Concord Nissan, Dublin Nissan, and
any and all subsequently acquired or created dealer entities within the
East Bay CMO, as if they were one dealer operating within the East Bay CMO.
Similarly, defaults or breaches of the Dealer Sales & Service Agreement by
either Concord Nissan or Dublin Nissan will constitute a breach of both
agreements. Holding Company shall cause Concord Nissan and Dublin Nissan,
and any subsequently acquired and/or created dealer entities, to cooperate
fully in accomplishing the objectives and intent of the CMO addenda to
their agreements, including the Business Plans and Market Area Plans
incorporated therein, and this Holding Company CMO Agreement. Moreover, FAA
agrees that it will exercise its control and ownership in ways consistent
with this agreement and will not take any actions or allow its subsidiaries
in the East Bay CMO to take any action inconsistent with the intent of this
Agreement.
ONE AGREEMENT OBJECTIVE
-----------------------
FAA agrees that when reasonable business considerations permit FAA to merge
Concord Nissan, Dublin Nissan, or any subsequently acquired or created
dealer entities acquired in the East Bay CMO, FAA will merge the companies
so as to achieve the joint business objective of one dealer company for the
East Bay CMO area.
Until such time, however, Nissan will not enforce its policy and the
contractual obligation that each and every dealer corporation appoint an
exclusively dedicated Executive Manager as manager of the dealer
corporation. Specifically, the appointment of a qualified Executive
Manager, acceptable to Nissan, as the Executive Manager of all CMO Nissan
dealerships will not be deemed a breach of the related dealer agreements.
2. CMO HOLDING COMPANY AGREEMENT TERM
----------------------------------
This Agreement shall have a term beginning with, running concurrent to, and
expiring simultaneously as, the Nissan Dealer Term Sales and Service
Agreements of all FAA owned dealer entities within the East Bay CMO
(currently including Concord Nissan and Dublin Nissan). Termination of any
of the Nissan Dealer Sales and Service Agreements of dealer entities owned
and controlled by FAA and constituting the East Bay CMO (currently
including those of Concord Nissan or Dublin Nissan) will constitute
termination of all dealer agreements of dealer entities within the East Bay
CMO, and will, at Nissan's option, cause this CMO Holding Company Agreement
to terminate with no further notice or act required by any party.
2
<PAGE>
3. TRANSFERS
---------
In view of the efforts and resources that Nissan has expended in order
to establish the East Bay CMO, if FAA, or dealer entities within the
East Bay CMO owned and controlled FAA (currently including Concord
Nissan or Dublin Nissan), proposes to sell those dealership assets
necessary for the conduct of appropriate and effective Dealership
Operations, or those Dealership Facilities necessary to conduct
Dealership Operations, without Nissan's consent, Nissan in its sole
discretion may require that FAA, and any FAA owned or controlled
dealer entities within the East Bay CMO (currently including Concord
Nissan or Dublin Nissan) sell all or none of such assets or Dealership
Facilities comprising the East Bay CMO to a proposed buyer acceptable
to Nissan.
Holding Company acknowledges and agrees to identical Rights of First
Refusal on Dealership Assets and Dealership Facilities as are
contained the Dealer Agreements for the subsidiary Dealer entities
within the East Bay CMO as well as identical Option to Purchase
provisions.
4. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 4, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN, FAA, IN ITS OWN
RIGHT AND AS THE OWNER OF THE EAST BAY CMO DEALER(s) (CURRENTLY
INCLUDING CONCORD NISSAN AND DUBLIN NISSAN) AGREE THAT THE DISPUTE
RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING
ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING IN ANY
WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN THE PARTIES,
INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR FEDERAL
STATUTES (hereinafter "Disputes").
There we two steps in the Dispute Resolution Process: a) Mediation and
b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, the HOLDING COMPANY or Nissan can submit the Dispute to
Binding Arbitration.
B. MEDIATION
---------
Any party to this Agreement can submit a Dispute to Mediation.
Mediation is conducted by a panel consisting of a Nissan
representative designated by Nissan, a HOLDING
3
<PAGE>
COMPANY representative designated by HOLDING COMPANY, and an
independent professional mediator chosen by the parties'
representatives. The Mediation Panel will evaluate each position and
recommend a solution. This recommended solution is not binding.
C. BINDING ARBITRATION
-------------------
If a Dispute has not been resolved after Mediation, or if HOLDING
COMPANY and Nissan have agreed in writing to waive Mediation, the
Dispute will be settled by Binding Arbitration in accordance with the
procedures in the Dealer Dispute Resolution Guide, with the prevailing
party to recover its costs and attorneys fees from the other party.
All awards of the arbitration are binding and non-appealable except as
otherwise provided in the United States Arbitration Act. Judgment upon
any award rendered by the arbitrator(s) may be entered and enforced in
any court having jurisdiction.
FIRSTAMERICA AUTOMOTIVE, INC. NISSAN MOTOR CORPORATION IN U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
-------------------------------- -----------------------------------
Thomas A. Price Thomas H. Eastwood, Vice President
President and CEO Nissan Division
By: /s/ Jules Clavadetscher
-----------------------------------
Jules Clavadetscher
Regional Vice President
Acknowledged:
FAA Concord N, Inc. FAA Dublin N, Inc.
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
-------------------------------- -----------------------------------
Thomas A. Price, President Thomas A. Price, President
4
<PAGE>
EXHIBIT 10.3.3
[LOGO APPEARS HERE] NISSAN MOTOR CORPORATION U.S.A.
DUBLIN NISSAN
<PAGE>
NISSAN
DEALER TERM SALES AND SERVICE AGREEMENT
THIS AGREEMENT is entered into and effective the day last set forth below by and
between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a California
corporation, hereinafter called "Seller," and the entities and natural persons
identified in the Final Article of this Agreement.
INTRODUCTION
The purpose of this Agreement is to establish Dealer as an authorized dealer of
Nissan Products and to provide for the sale and servicing of Nissan Products in
a manner that will best serve owners, potential owners and purchasers of Nissan
Products as well as the interests of Seller, Dealer and other Authorized Nissan
Dealers. This Agreement sets forth: the rights which Dealer will enjoy as an
Authorized Nissan Dealer; the responsibilities which Dealer assumes in
consideration of its receipt of these rights; and the respective conditions,
rights and obligations of Seller and Dealer that apply to Seller's grant to
Dealer of such rights and Dealer's assumption of such responsibilities. It is
understood that each term and undertaking hereinafter described is material, and
relied upon, as the quid pro quo and consideration for this Agreement.
This is a personal services Agreement. In entering into this Agreement and
appointing Dealer as provided below, Seller is relying, among other things, upon
the personal qualifications, expertise, reputation, integrity, experience,
ability and representations of the individual named in the Final Article of this
Agreement as Dealer Principal (the "Dealer Principal") the individual named in
the Final Article of this Agreement as Executive Manager and the representations
of FirstAmerica Automotive, Inc.. ("FAA"), and FAA Dublin N, Inc., ("Dealer" or
"Dublin Nissan"). In addition to Dealer, Seller intends to look to FAA, the
Dealer Principal and the Executive Manager for the performance of Dealer's
obligations hereunder.
Nissan Products are intended for discriminate owners with the expectation that
such owners will be loyal and proud, but also demanding toward Seller and Dealer
with respect to Nissan Products and the manner in which they are sold and
serviced. Owners, potential owners and purchasers of Nissan Products are
expected to want, and are entitled to do business with, dealers who enjoy the
highest reputation in their communities and have well located, attractive and
efficient places of business, courteous personnel and outstanding service and
parts facilities. Nissan Products must be sold by enthusiastic dealers who are
not interested in short term results only but are willing to look toward long
term goals and who are devoted to creating and maintaining a positive total
ownership experience for owners of Nissan Products. Seller's standard of
excellence for Nissan Products must be matched by the dealers who sell them to
the public and who service them during their operative lives.
Achievement of the purposes of this Agreement is premised upon mutual
understanding and cooperation between Seller and Dealer. Dealer has entered into
this Agreement in reliance upon Seller's integrity and expressed intention to
deal fairly with Dealer and the consuming public. Seller has entered into this
Agreement in reliance upon the integrity and ability of the Dealer Principal and
Executive Manager and their expressed intention to deal fairly with the
consuming public and Seller.
It is the responsibility of Seller to market Nissan Products throughout the
Territory. It is the responsibility of Dealer to actively promote the retail
sale of Nissan Products and to provide courteous and efficient service of Nissan
Products. The success of both Seller and Dealer will depend on how well they
each fulfill their respective responsibilities under this Agreement. It is
recognized that: Seller will endeavor to provide motor vehicles of excellent
quality and
1
<PAGE>
workmanship and to establish a network of Authorized Nissan Dealers that can
provide an outstanding sales and service effort at the retail level; and Dealer
will endeavor to fulfill its responsibilities through aggressive, sound, ethical
selling practices and through conscientious regard for customer service in all
aspects of its Nissan Dealership Operations.
Seller and Dealer shall refrain from engaging in conduct or activities which
might be detrimental to or reflect adversely upon the reputation of Seller,
Dealer or Nissan Products and shall engage in no discourteous, deceptive,
misleading or unethical practices or activities.
For consistency and clarity, terms which are used frequently in this Agreement
have been defined in Section 1 of the Standard Provisions. All terms used herein
which are defined in the Standard Provisions shall have the meaning stated in
said Standard Provisions. These definitions should be read carefully for a
proper understanding of the provisions in which they appear.
To achieve the purposes referred to above, Seller, FAA, Dealer, the Dealer
Principal and the Executive Manager agree as follows:
ARTICLE FIRST: Appointment of Dealer
Subject to the conditions and provisions of this Agreement, Seller:
(a) appoints Dealer as an Authorized Nissan Dealer and grants Dealer the
non-exclusive right to buy from Seller those Nissan Products specified in
Dealer's current Product Addendum hereto, for resale, rental or lease at or from
the Dealership Locations established and described in accordance with Section 2
of the Standard Provisions; and
(b) grants Dealer a non-exclusive right, subject to and in accordance with
Section 6.K of the Standard Provisions, to identify itself as an Authorized
Nissan Dealer, to display the Nissan Marks in the conduct of its Dealership
Operations and to use the Nissan Marks in the advertising, promotion and sale of
Nissan Products in the manner provided in this Agreement.
ARTICLE SECOND: Assumption of Responsibilities by Dealer
Dealer hereby accepts from Seller its appointment as an Authorized Nissan Dealer
and, in consideration of its appointment and subject to the other conditions and
provisions of this Agreement, hereby assumes the responsibility for:
(a) establishing and maintaining at the Dealership Location the Dealership
Facilities in accordance with Section 2 of the Standard Provisions;
(b) actively and effectively promoting the sale at retail (and, if Dealer
elects, the leasing and rental) of Nissan Vehicles within Dealer's Primary
Market Area in accordance with Section 3 of the Standard Provisions;
(c) servicing Nissan Vehicles and for selling and servicing Nissan Parts
and Accessories in accordance with Section 5 of the Standard Provisions;
(d) building and maintaining consumer confidence in Dealer and in Nissan
Products in accordance with Section 5 of the Standard Provisions; and
(e) performance of the additional responsibilities set forth in this
Agreement, including those specified in Section 6 of the Standard Provisions.
2
<PAGE>
ARTICLE THIRD: Ownership
(a) Owners. This Agreement has been entered into by Seller in reliance
------
upon, and in consideration of, among other things, the personal qualifications,
expertise, reputation, integrity, experience, ability and representations with
respect thereto of the Dealer Principal and Executive Manager named in the Final
Article of this Agreement and in reliance upon the representations and
agreements of FAA and Dealer as follows:
(i) FAA will at all times own 100% of the capital stock of Dealer and
Dealer will at all times be maintained as a separate entity.
(ii) The Executive Committee of Dealer is set forth in attached Schedule
"A".
(iii) The officers of Dealer are as set forth in attached Schedule "A".
(iv) FirstAmerica Automotive, Inc., ("FAA") owns 100% of the outstanding
stock of FAA Dublin N, Inc. (see Attachment "A" attached).
(b) Changes in Ownership. In view of the fact that this is a personal
--------------------
services agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, this Agreement and the rights and privileges
conferred on Dealer hereunder are not assignable, transferable or salable by FAA
and Dealer, and no property right or interest is or shall be deemed to be sold,
conveyed or transferred to FAA and Dealer under this Agreement. FAA, Dealer, the
Dealer Principal and the Executive Manager agree that any change in the
ownership of Dealer other than specified herein requires the prior written
consent of Seller IF DEALER DESIRES TO REMAIN AN AUTHORIZED NISSAN DEALER and
that without the prior written consent of Seller:
(i) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock or partnership interest of Dealer will be
made and no additional shares of capital stock, partnership interest or
securities convertible into shares of capital stock, of Dealer will be issued or
sold.
(ii) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer will be made and no additional
shares of capital stock, partnership interest or securities convertible into
shares of capital stock, of Dealer will be issued or sold.
(iii) Dealer will not be merged with or into, or consolidate with, any
other entity and none of the principal assets necessary for the performance of
Dealer's obligations under this Agreement will be sold, transferred or assigned.
(iv) Dealer will not enter into any transaction, including, without
limitation, any sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer, the issuance or sale of
additional shares of capital stock, partnership interest or securities
convertible into shares of capital stock of Dealer, or the merger of Dealer with
or into, or the consolidation of FAA Dublin N, Inc., with any other entity, if
as a result of such transaction, that FAA will cease to own at least 100% of the
capital stock or interest of Dealer.
(v) If any person or entity, after the date of the initial public
offering, acquires more than 20% of FAA's common stock issued and outstanding at
any time and Nissan determines that such person or entity does not have
interests compatible with those of Nissan, or is otherwise not qualified to have
an ownership interest in a Nissan dealership (an "Adverse Person"), FAA, upon
written notification by Nissan, must cause any subsidiaries, owned, or
controlled entities to
3
<PAGE>
terminate its dealer agreements with Nissan or transfer the Nissan dealerships
to a third party acceptable to Nissan within 90 days after such notification,
unless, within 90 days after Nissan's determination, the adverse Person's
ownership interest is reduced to less than 20%.
Any transaction involving the capital stock of Dublin Nissan, including a
public offering or trade of the shares of FAA, which does not violate
subparagraph (iv) above may be effected without obtaining the prior written
consent of Seller and without triggering a termination event under Section
12.A.(2) of the Standard Provisions.
Dealer shall give Seller prior notice of any proposed change in said
ownership requiring the consent of Seller and immediate notice of the death or
incapacity of any Dealer Principal or Executive Manager. No such change, and no
assignment of this Agreement or of any right or interest herein, shall be
effective against Seller unless and until embodied in an appropriate amendment
to or assignment of this Agreement, as the case may be, duly executed and
delivered by Seller and by Dealer. Seller shall not, however, unreasonably
withhold its consent to any such change, subject to Seller's Rights of First
Refusal set forth in Article Tenth of this Agreement. Seller shall have no
obligation to transact business with any person who is not named either as a
Dealer Principal or Executive Manager of Dealer hereunder, or in the event of
death or incapacity, those persons named as the successors to the Dealer
Principal and/or Executive Manager in the successorship plan hereafter (upon
mutual consent of the parties) or otherwise to give effect to any proposed sale
or transfer of the ownership, partnership interest or management of Dealer and
FAA (other than changes in the ownership of FAA and Dealer which are expressly
permitted by this Article Third) prior to having concluded the evaluation of
such a proposal as provided in Section 15 of the Standard Provisions. Nissan may
conduct routine, day to day business with the person named as the Location
Manager for the location so designated. Dealer acknowledges Seller's right to
require consent to any change in the ownership of Dealer, and agrees that any
change or transfer without such consent from Seller is void, and of no force and
effect, and grounds for termination. FAA and Dealer further agree that they will
not challenge, contest, dispute, or litigate, except as provided in Article
15(c) hereafter:
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to transfer ownership
of Dealer (except as provided by this Agreement) without Seller's consent; or
(ii) any decisions by Seller to withhold consent to a proposed change in
ownership of Dealer.
ARTICLE FOURTH: Management
(a) This Agreement has been entered into by Seller in reliance upon, and
in consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the person named as Dealer Principal in the Final Article of this
Agreement and in reliance on the following representations and agreements of FAA
and Dealer that:
(i) The Executive Manager of Dealer, subject to the provisions of
Article 15(f), and Thomas A. Price ("Price") will, subject to any other
obligations set forth in this Agreement, devote their full time efforts to the
business and day-to-day operations of the entity for which they are responsible.
(ii) Location Manager will devote 100% of his time to the affairs of the
relevant Dealership location.
4
<PAGE>
(b) Dealer. Seller and Dealer agree that the retention by Dealer of
------
qualified management is of critical importance to the successful operation of
Dealer and to the achievement of the purposes and objectives of this Agreement.
This Agreement has been entered into by Seller in reliance upon, and in
consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the persons named as Dealer Principal and Executive Manager in the
Final Article of this Agreement and in reliance on the following representations
and agreements of FAA and Dealer, that:
(i) There must be an approved Executive Manager, acceptable to Nissan.
There must be an approved Location Manager employed by Dealer to manage each
Dealership location. As long as Thomas A. Price and the Executive Manager
subject to the provisions of Article 15(f) are employed by FAA and the Location
Manager is employed by Dealer, they will have full and complete control over the
Dealership Operations, subject only to the powers of the Board of Directors of
Dealer to manage the business and affairs of Dealer, and they will at all times
be members of the Board of Directors of Dealer. In addition, any replacements
for Price and Executive Manager will, so long as such replacements are employed
by FAA and Dealer, have full and complete control over the Dealership
Operations, subject only to the powers of the Board of Directors of Dealer to
manage the business and affairs of Dealer, and such replacements will at all
times be members of the Board of Directors of Dealer.
(ii) the Board of Directors of Dealer shall delegate the management of
the Dealership Operations to the Executive Manager identified in Article 15(f),
and FAA will not amend its Certificate of Incorporation or By-laws to provide
that its Board of Directors is entitled to exercise any extraordinary powers or
interfere unduly in the Dealership Operations.
(iii) Location Manager, subject to any other obligations set forth in
this Agreement, shall continually provide his personal services in operating the
dealership and will be physically present at the Dealership Facilities on a
full-time basis.
(c) Changes in Management. In view of the fact that this is a personal
---------------------
services Agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, Dealer and FAA agree that any change in the
Dealer Principal from that specified in the Final Article of this Agreement
requires the prior written consent of Seller. Any change to the Executive
Manager requires notice to Seller and timely replacement with an Executive
Manager acceptable to Seller. In addition, FAA and Dealer agree that no chief
executive officer, or person performing services and having responsibilities
similar to a chief executive officer, of FAA will be appointed, directly or
indirectly, without the prior written consent of Seller. Dealer shall give
Seller prior notice of any proposed change in Dealer Principal or Executive
Manager or the appointment of any chief executive or similar officer of FAA and
immediate notice of the death or incapacity of any Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager and no appointment
of a chief executive or similar officer of FAA shall be effective unless and
until embodied in an appropriate amendment to this Agreement duly executed and
delivered by all of the parties hereto. Subject to the foregoing, Dealer and FAA
shall make their own, independent decisions concerning the hiring and firing of
its employees, including, without limitation, the Dealer Principal and Executive
Manager.
Dealer shall give Seller prior written notice of any proposed change
in Dealer Principal, timely notice of any change to Executive Manger, and
immediate notice of the death or incapacity of Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager shall be effective
unless and until embodied in an appropriate amendment to this Agreement duly
executed and delivered by all of the parties hereto. Dealer acknowledges
Seller's right (as set forth herein and in the Standard Provisions) to require
consent to any change in the management of Dealer, and FAA and Dealer agree that
a change to the Dealer Principal or substitution of the Executive Manager,
without such consent from Seller is without
5
<PAGE>
effect upon Seller, of no force and effect, and grounds for termination. FAA and
Dealer further agree that they will not challenge, contest, dispute, or
litigate, except as provided by Article Fifteenth (c):
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to change the
management of Dealer without Seller's consent; or
(ii) any decision by Seller to withhold consent to a proposed change in
management of Dealer; or
(iii) any decision by Seller to withhold approval of a proposed management
candidate.
To enable Seller to evaluate and respond to Dealer concerning any
proposed change in Dealer Principal or Executive Manager or the appointment of
any chief executive or similar officer of FAA agrees to provide, in the form
requested by Seller and in a timely manner, all applications and information
customarily requested by Seller to evaluate the proposed change. While Seller
shall not unreasonably withhold its consent to any such change, it is agreed
that any successor Dealer Principal, Executive Manager or Location Manager or
similar officer of FAA must possess personal qualifications, expertise,
reputation, integrity, experience and ability which are, in the opinion of
Seller, satisfactory. Seller will determine whether, in its opinion, the
proposed change or appointment is likely to result in a successful dealership
operation with capable management that will satisfactorily perform Dealer's
obligations under this Agreement. Seller shall have no obligation to transact
business with any person who is not named as a Dealer Principal or Executive
Manager of Dealer hereunder prior to having concluded its evaluation of such
person. Upon FAA's request, Seller may, but has no obligation to, transact
business with an individual proposed by Dealer and acceptable to Seller during a
prolonged incapacity or unavailability of Dealer Principal and Executive
Manager.
Any successor Dealer Principal or Executive Manager or similar
officer of FAA must meet the following minimum requirements in order to be
submitted to Seller for approval:
(i) At least three years of experience as a general manager of an
automobile dealer in a major metropolitan area or similar position involving all
aspects of the day-to-day operations of such an automobile dealership
(including, without limitation, new and used vehicle sales, service, parts and
administration); and
(ii) A demonstrated track record of success in his/her prior automobile
dealership activities as measured by the dealerships' performance under his/her
management. The dealership(s) shall have consistently demonstrated at least the
following:
1. An above average level of sales performance when
measured against regional or zone averages and as measured against sales
performance objectives established by the manufacturer; and
2. An above average level of customer satisfaction when
measured against regional or zone averages for the make; and
3. A history of cooperation and good relations with
manufacturer(s) and/or distributor(s).
(d) Evaluation of Management. Dealer and Seller understand and
------------------------
acknowledge that the personal qualifications, expertise, reputation, integrity,
experience and ability of the Dealer Principal and Executive Manager and their
ability to effectively manage Dealer's day-to-day Dealership Operations is
critical to the success of Dealer in performing its obligations under this
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Agreement. Seller may from time to time develop standards and/or procedures for
evaluating the performance of the Dealer Principal and Executive Manager and of
Dealer's personnel generally. Seller may, from time to time, evaluate the
performance of the Dealer Principal and Executive Manager and will advise
Dealer, the Dealer Principal and the Executive Manager of the results of such
evaluations and the way in which any deficiencies affect Dealer's performance of
its obligations under this Agreement.
(e) Compensation of Executive Manager. Executive Manager will have his
---------------------------------
compensation tied to Dealer's overall performance with respect to objectives for
sales, market penetration and customer service.
ARTICLE FIFTH: Additional Provisions
The additional provisions set forth in the attached "Nissan Dealer Sales
and Service Agreement Standard Provisions," bearing form number NDA-4519-88, as
amended in Article Thirteenth of this Agreement, and excepting only the
provisions contained in Sections 4, 14 and 16, are hereby incorporated in and
made a part of this Agreement. The Notice of Primary Market Area, Dealership
Facilities Addendum, Product Addendum, Dealership Identification Addendum,
Holding Company Addendum, if applicable, and all Guides and Standards referred
to in this Agreement (including references contained in the Standard Provisions
referred to above) are hereby incorporated in and made a part of this Agreement.
Dealer further agrees to be bound by and comply with: the Warranty Manual;
Seller's Manuals or Instructions heretofore or hereafter issued by Seller to
Dealer; any amendment, revision or supplement to any of the foregoing; and any
other manuals heretofore or hereafter issued by Seller to Dealer.
ARTICLE SIXTH: Termination of Prior Agreements
This Agreement cancels, supersedes and annuls all prior contracts,
agreements and understandings except as stated herein, all negotiations,
representations and understandings being merged herein. No waiver, modification
or change of any of the terms of this Agreement or change or erasure of any
printed part of this Agreement or addition to it (except filling of blank spaces
and lines) will be valid or binding on Seller unless approved in writing by the
President or an authorized Vice President of Seller.
ARTICLE SEVENTH: Term
This Agreement shall have a term commencing on the effective date hereof
and, subject to its earlier termination in accordance with the provisions of
this Agreement, expiring on the expiration date indicated in the Final Article
of this Agreement. Subject to other applicable provisions hereof, this Agreement
shall automatically terminate at the end of such stipulated term without any
action by Dealer, Seller or any of the other parties hereto. If this Agreement
is not terminated prior to the expiration date set forth in the Final Article,
and if dealer is in substantial compliance with all provisions of this
Agreement, Seller will offer to enter into a new Agreement with Dealer in
substantially the same form as this Agreement.
ARTICLE EIGHTH: License of Dealer
If Dealer is required to secure or maintain a license for the conduct of
its business as contemplated by this Agreement in any state or jurisdiction
where any of its Dealership Operations are to be conducted or any of its
Dealership Facilities are located, this Agreement shall not be valid until and
unless Dealer shall have furnished Seller with written notice specifying the
date and number, if any, of such license or licenses issued to Dealer, Dealer
shall
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notify Seller immediately in writing if Dealer shall fail to secure or maintain
any and all such licenses or renewal thereof or, if such license or licenses are
suspended or revoked, specifying the effective date of any such suspension or
revocation.
ARTICLE NINTH: Additional Representations and Warranties
(a) All of the representations and covenants made to Seller by the other
parties to this Agreement have been made jointly and severally by each of the
parties hereto which has made any such representation or covenant.
(b) In addition to the representations set forth elsewhere in this
Agreement, FAA and Dealer jointly and severally, represent to Seller that:
(i) All of the documents and correspondence provided to Seller by FAA
and Dealer, or any of their agents in connection with the solicitation of
Seller's consent to this Agreement, are true and correct copies of such
documents.
(c) In addition to the covenants set forth elsewhere in this Agreement, FAA
and Dealer, jointly and severally, agree with Seller that:
(i) Dealer will at all times be involved in the operation of the Nissan
dealership currently operated by it and Dealer will not conduct any other type
of business.
(ii) No distributions will be made to the stockholders or partners of
Dealer and FAA if such distributions would cause Dealer to fail to meet any of
the Guides and Standards relating to the capitalization of Dealer. In
particular, FAA will not be permitted to voluntarily redeem any of its preferred
stock, if prior to and after giving effect to such redemption Dealer fails to
meet any of the Guides and Standards relating to capitalization of Dealer.
(iii) FAA and Dealer hereby, jointly and severally, indemnify and hold
harmless, Seller, its officers, directors, affiliates and agents, and each
person who controls Seller within the meaning of the Securities Act of 1933, as
amended (the "Act"), from and against any and all losses, claims, damages or
liabilities, to which they or any of them may become subject under the Act, the
Securities Exchange Act of 1934, as amended, or any other federal or state
securities law, rule or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of the sale by FAA or Dealer of
any securities. The indemnification provided for in this paragraph shall be
exclusive of, and in addition to, any indemnification pursuant to Section 10 of
the Standard Provisions.
(iv) One of the conditions to the effectiveness of this Agreement by
Seller is the delivery of an opinion of counsel to all of the parties hereto
(other than Seller) to the effect that this Agreement has been duly executed and
delivered by each of the parties thereto (other than Seller) and is the legal,
valid and binding obligation of each of such parties enforceable in accordance
with its terms.
ARTICLE TENTH: Right of First Refusal, Option to Purchase, Exclusivity
A. Seller's Right of First Refusal and Option to Purchase
In addition to its rights under this Agreement, in the event that FAA or
Dealer should desire to enter into a transaction which requires Seller's
consent, and without such consent would result in a breach of the covenants set
forth in Article Third, Sections (a)(i); (a)(ii); (a)(iii); (a)(iv); or (b) of
this Agreement or in the event that any of the covenants set forth in Article
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Third, Section (b); Article Fourth, Section (a) (vii); or Article Ninth, Section
(c) (ii) of this Agreement are breached, Seller shall have the additional right
and option to purchase the dealership assets or ownership interests under this
Right of First Refusal or Option to Purchase pursuant to this Article Tenth.
(a) If Seller chooses to exercise its Right of First Refusal or Option to
Purchase, it must do so in its written refusal to consent to the proposed sale
or transfer pursuant to Section 15 of the Standard Provisions or, if Section 15
of the Standard Provisions does not apply, within sixty (60) days of receipt of
notification that a event triggering Seller's right of first refusal hereunder
has occurred. FAA and Dealer agree not to complete any proposed change or sale
prior to the expiration of the period for exercise of Seller's right of first
refusal and without Seller's prior written consent. Such exercise shall be null
and void if FAA and/or Dealer withdraws its proposal within thirty (30) days
following Dealer's receipt of Seller's notice exercising its rights of first
refusal. If Seller elects to exercise its Option to Purchase, it must so notify
FAA and Dealer in writing, specifying the nature of the breach upon which it is
relying, and, if practicable, providing FAA and Dealer with a reasonable
opportunity to cure the breach. If FAA or Dealer is not able to cure the breach
relied upon in the notice, or does not cure that breach, then FAA and Dealer may
attempt to sell or otherwise transfer the relevant Dealer Assets to an entity
acceptable to Seller within 60 days. If Seller reasonably does not approve such
a transfer, or if Dealer and FAA are unable to complete such a transaction,
Seller may request an additional 30 days for this purpose. If, at the end of
this period Seller reasonably does not approve a transfer, or, if Seller
reasonably does not approve the extension, then Seller may execute this Option
to Purchase.
(b) After being exercised, Seller's right to purchase may be assigned to
any party, and Seller hereby agrees to guarantee the full payment of the
purchase price by such assignee. Seller's rights under this Article Tenth shall
be binding on and enforceable against any assignee or successor in interest of
Dealer or purchaser of Dealer's assets. Seller shall have no obligation to
exercise its rights hereunder.
(c) If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Seller's right under this Article Tenth shall
be a right of first refusal, enabling Seller to assume the prospective
purchaser's purchase rights and obligations under such buy/sell agreement. The
purchase price and other terms of sale shall be those set forth in such
agreement and any related documents. Seller may request and Dealer agrees to
provide all other documents relating to Dealer and the proposed transfer,
including, but not limited to, those reflecting any other agreements or
understandings between the parties to the buy/sell agreement. If Dealer refuses
either to provide such documentation or to state in writing that no such
document exists, it shall be presumed that the agreement is not bona fide.
(d) If Seller determines pursuant to paragraph (c) above that the buy/sell
agreement is not bona fide, Seller will so notify Dealer. Dealer shall have
twenty (20) days from its receipt of such notice within which to withdraw its
proposal. Seller's exercise of its rights hereunder shall be null and void if
Dealer withdraws its proposal within such time period. If the proposal is not
withdrawn, Seller shall have the option, but no obligation, under this Article
Tenth to purchase the principal assets of Dealer utilized in the Dealership
Operations, including real estate and leasehold interest or to purchase the
ownership interests of Dealer, and to terminate this Agreement and all rights
granted Dealer hereunder. If the Dealership Facilities are leased by Dealer from
an affiliated company, the right to purchase the principal assets, or the
ownership interests, of Dealer, shall include the right to lease the Dealership
Facilities. The purchase price shall be at the then fair market value as
determined by an independent appraiser selected by Seller and reasonably
acceptable to FAA and Dealer, and the other terms of sale shall be those agreed
by Seller, Dealer and FAA
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<PAGE>
(e) Dealer shall transfer the affected property free and clear of liens,
claims, mortgages, and encumbrances.
(f) In addition to any other rights Seller may have at law, in equity or
hereunder, any conveyance of the dealership in violation of this right of first
refusal shall be voidable by Seller.
(g) In the event that Seller elects not to exercise its right of first
refusal to purchase the dealership assets or the ownership interests of the
Dealer; FAA and FAA Dublin N, Inc., agree that they will offer to sell such
assets or interests to an entity or persons acceptable to Seller. If such
individuals are not interested in such a transaction and no other entity or
individuals acceptable to Seller can be found, then, at Seller's option, Seller
may approve a buyer proposed by FAA, may waive the linkage requirements between
dealerships, if any, or may propose a buyer to assume a bona fide offer procured
by Dealer.
B. Right of First Refusal on Sale or Lease of Property to a Third Party.
a) In addition to its rights under Articles Third and Fourth and
Section 15 of the Standard Provisions, Dealer agrees that should Dealer seek to
sell or lease all or substantially all of the Approved Site to a third party for
use as a Nissan New Motor Vehicle Dealership, Seller shall have the additional
right and option, but not the obligation, to purchase or lease the Approved Site
pursuant to this Article Thirteenth. A sale or lease for use other than a Nissan
New Motor Vehicle Dealership, without Seller's consent, is void.
b) If Seller chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within 60 days of Seller's receipt
of notice of the proposed sale or lease by Dealer. Dealer agrees not to complete
any proposed sale or lease prior to the expiration of the period for exercise of
Seller's right of first refusal and without Seller's prior written consent, and
agrees to allow Seller to perform an environmental study of the property. Such
exercise shall be null and void if Dealer withdraws its sale or lease proposal
within thirty (30) days following Dealer's receipt of Seller's notice exercising
its right of first refusal.
c) After being exercised, Seller's right to purchase or lease may be
assigned to any party, and Seller hereby agrees to guarantee the full payment of
the purchase price or the rental payment by such assignee. Seller's rights under
this Article Thirteenth shall be binding on and enforceable against any assignee
or successor in interest of Dealer or purchaser of Dealer's assets. Seller shall
have no obligation to exercise its rights hereunder, and Seller may rescind its
offer if the property is determined to be contaminated pursuant to an
environmental study. Such contamination shall be deemed a breach of this
agreement by dealer.
d) Should Seller actually purchase or lease the facility, Dealer
shall also furnish to Seller copies of any easements, licenses, environmental
studies or other documents affecting the property.
e) Dealer shall transfer the affected property by deed conveying
marketable title free and clear of liens, claims, mortgages, encumbrances,
tenancies and occupancies, or, if applicable, by an assignment of any existing
lease. The Warranty Deed shall be in proper form for recording. Dealer shall
deliver complete possession of the property at the time of delivery of the Deed
or lease assignment. Dealer shall also furnish to Seller copies of any
easements, licenses, or other documents affecting the property and shall assign
any permits or licenses which are necessary for the conduct of the Dealership
Operations.
f) In addition to any other rights Seller may have at law, in equity
or hereunder, any sale or lease of the Approved Site in violation of this right
of first refusal shall be voidable by Seller.
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C. Exclusivity Provisions.
In order for Dealer to maintain competitive Dealership Facilities to
effectively market Nissan Products, Dealer hereby agrees to abide by and never
challenge, except as provided in Article Fifteenth (c), the following provisions
(hereinafter "Exclusivity Provisions"). These Exclusivity Provisions shall be
effective on or before the execution of the Agreement, and continue in effect
thereafter so long as Dealer (or its principals) are authorized Nissan dealers
and these provisions shall be binding on any successors-in-interest, assignors
or purchasers of
Dealer:
a) The only line-make of new, unused motor vehicles which Dealer
shall display and sell at the Dealership Facilities shall be the Nissan line and
make of motor vehicles. Dealer shall not conduct any dealership operations for
any other make or line of new, unused vehicles from the Dealership Facilities
throughout the term of this Agreement.
b) Dealer shall sell and maintain a full line of Genuine Nissan Parts
and Accessories at the Dealership Facilities and shall provide a full range of
automotive servicing for Nissan vehicles at the Dealership Facilities pursuant
to Section 5 of the Standard Provisions to the Agreement. Nothing contained
herein, however, shall preclude Dealer from offering parts, accessories or
servicing for vehicles of other lines or makes so long as such products or
services are incidental to Dealer's Nissan Dealership Operations;
c) Dealer shall not advertise or promote any make or line of new,
unused vehicles from the Dealership Facilities other than the Nissan line; and
d) Dealer shall not install or maintain any sign at or near the
Dealership Facilities which would tend to lead the public into believing that
any line or make of vehicles other than the Nissan line is sold at the
Dealership Facilities.
ARTICLE ELEVENTH: Breach By Dealer
In the event (i) that any of the material representations and warranties of
Dealer, FAA, Thomas A. Price or Executive Manager, contained in this Agreement
shall prove not to have been true and correct when made or (ii) of any breach or
violation of any of the covenants made by Dealer and FAA, Thomas A. Price or
Executive Manager, in Articles Third, Fourth and Ninth of this Agreement or
(iii) of the occurrence of any of the events warranting termination of this
Agreement as set forth in Section 12.A of the Standard Provisions, Seller may
terminate this Agreement, prior to the expiration date hereof, by giving Dealer
written notice thereof, specifying the nature of the breach; Dealer shall have
an opportunity to cure the breach within 45 days; at the expiration of this 45
day cure period, if the breach has not been satisfactorily cured, Seller may
terminate this Agreement by giving written notice to Dealer, such termination to
be effective upon the date specified in such notice, or such latter date as may
be required by any applicable statute with the effect set forth in Section 13 of
the Standard Provisions.
ARTICLE TWELFTH: Execution of Agreement
This Agreement, and any Addendum or amendment or notice with respect
thereto, shall be valid and binding on Seller only when it bears the signature
of either the President or an authorized Vice President of Seller and, when such
signature is a facsimile, the manual countersignature of an authorized employee
of Seller at the Director level and a duplicate original thereof is delivered
personally or by mail to the Dealership Location. This Agreement shall bind
Dealer and the other parties hereto only when it is signed by: a duly authorized
officer
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or executive of Dealer or such party if a corporation; one of the general
partners of Dealer or such party if a partnership; or Dealer or such party if an
individual.
ARTICLE THIRTEENTH: Amendments to Standard Provisions
(a) Section 1.O of the Standard Provisions is hereby amended to read as
follows:
"O. 'Principal Owners(s)' shall mean the persons named as Dealer Principal
in the Final Article of this Agreement upon whose personal qualifications,
expertise, integrity, experience, ability and representations Seller has relied
in entering into this Agreement."
(b) Section 6.1 of the Standard Provisions is hereby amended to read as
follows:
"Seller shall have the right, at all reasonable times during regular
business hours, to inspect the Dealership Facilities and to examine, audit and
make and take copies of all records, accounts and supporting data relating to
the sale, sales reporting, service and repair of Nissan Products by Dealer.
Whenever possible, Seller shall attempt to provide Dealer with advance notice of
an audit or examination of Dealer's operations. Seller shall also have the
right, at all reasonable times during regular business hours and upon advance
notice, to examine, audit and make and take copies of all records, accounts and
supporting data of FAA and Dealer relating to the business, ownership or
operations of Dealer."
(c) Section 12.A.(l) of the Standard Provisions is hereby amended to read
as follows:
"(1) Any actual or attempted sale, transfer, assignment or delegation,
whether by operation of law or otherwise, by Dealer or FAA of any interest in or
right, privilege or obligation under this Agreement, or of the principal assets
necessary for the performance of Dealer's responsibilities under this Agreement,
without, in either case, the prior written consent of Seller having been
obtained, which consent shall not be unreasonably withheld;"
(d) Section 12.A.(3) of the Standard Provisions is hereby amended to read
as follows:
"(3) Removal, resignation, withdrawal or elimination from Dealer for any
reason of the Executive Manager, or removal, resignation, withdrawal or
elimination from Dealer of Thomas A. Price as President, or removal,
resignation, withdrawal or elimination from Dealer of Steven A. Haworth as
Executive Manager; provided, however, in each case, Seller shall give Dealer a
reasonable period of time within which to replace such person with a individual
satisfactory to Dealer as the case may be, and Seller in accordance with Article
Fourth of this Agreement; or the failure of Dealer to retain an Executive
Manager who, in accordance with Article Fourth of this Agreement, in Seller's
reasonable opinion, is competent, possesses the requisite qualifications for the
position, and who will act in a manner consistent with the continued interests
of both Seller and Dealer."
(e) Section 12.B.(2)(i) of the Standard Provisions is hereby amended to
read as follows:
"(i) any dispute, disagreement or controversy between or among Dealer
and any third party or between the owners and management personnel of Dealer
relating to the management or ownership of Dealer develops or exists which, in
the reasonable judgment of Seller, tends to adversely affect the conduct of the
Dealership Operations or the interests of Dealer or Seller; or"
(f) Section 12.B.(2)(ii) of the Standard Provisions is hereby amended to
read as follows:
"(ii) any other act or activity of Dealer and/or FAA, or any of their
principal owners (ownership in excess of 20%) or senior management occurs, which
substantially impairs the
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reputation or financial standing of Dealer or its executive management
subsequent to the execution of this Agreement:"
(g) Exhibits A and B are hereby incorporated by reference.
ARTICLE FOURTEENTH: Branding / Business Name
The parties acknowledge and agree that Dealer shall do business as Dublin
Nissan. Dealer agrees to include in its promotional, marketing and advertising
efforts the approved name of the Dealership or another name approved by Nissan
that includes the Nissan name. In all television, radio, print and other
advertising and marketing conducted by dealer, Dealer shall refer to itself as
"Dublin Nissan" or such other approved name. Dealer shall actively and
effectively promote primarily the "Nissan" name. Under no circumstances shall
the name "Nissan" be subordinated to or promoted less aggressively than any
other name (eg. "FAA") by Dealer.
ARTICLE FIFTEENTH: Special Conditions
(a) Adequate Representation of Entire Line of Nissan Vehicles
Dealer shall actively and effectively promote the sale of Nissan's entire line
of vehicles and products to customers located throughout the Primary Market
Area. In evaluating Dealer's sales performance, in addition to those factors
established in the Standard Provisions, Nissan will evaluate Dealer's
performance by vehicle segment. Dealer is obligated to adequately represent
Nissan in each and every model line. Adequate representation is the higher of
national, regional, state or DMA average, adjusted for segment popularity, as
set forth in the Business plan.
(b) Nissan Products
The definition of "Nissan Products" in the Standard Provisions is amended to
mean Nissan Vehicles (defined as Nissan Cars and Nissan Trucks as well as "near-
new" Nissan Vehicles of the current and three prior model years), Genuine Parts
and Accessories, Nissan Security+Plus and such other products and services
offered by Nissan to Dealer and designated by Nissan as a Nissan Product. Dealer
shall actively and effectively promote the sale of Nissan Products.
Effectiveness with respect to Nissan Security+Plus sales is measured by the
ratio of Security+Plus sales to new vehicles sales, compared to the higher of
national, regional, state or DMA average as set forth in the Business plan or as
otherwise set forth in the Business Plan.
(c) Dispute Resolution Process
The parties acknowledge that, at the state and federal level, various
courts and agencies would, in the absence of this Article Fifteenth (d), be
available to them to resolve claims or controversies which might arise between
them. The parties agree that it is inconsistent with their relationship for
either to use courts or governmental agencies to resolve such claims or
controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. SEC. 1 ET SEQ.), THE PARTIES TO THIS AGREEMENT AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS SECTION, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING ANY DISPUTE,
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR
TO
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THE RELATIONSHIP BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER
ANY STATE OR FEDERAL STATUTES (HEREINAFTER "DISPUTES").
Section 16 of the Standard Provisions is deleted in its entirety.
There are two steps in the Dispute Resolution Process: Mediation and Binding
Arbitration. All Disputes must first be submitted to Mediation, unless that step
is waived by written agreement of the parties. Mediation is conducted by a panel
consisting of an equal number of representatives of the parties designated by
Nissan and selected by Dealer. The Mediation Panel will evaluate each position
and recommend a solution. This recommended solution is not binding.
If a dispute has not been resolved after Mediation, or if Dealer and Nissan have
agreed in writing to waive Mediation, the Dispute will be settled by Binding
Arbitration. SPECIFICALLY, THE PARTIES AGREE TO RESOLVE ALL SUCH DISPUTES BY
BINDING ARBITRATION CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION
PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION, WITH THE PREVAILING PARTY TO
RECOVER ITS COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY. ALL ARBITRATION
AWARDS ARE BINDING AND NON- APPEALABLE, EXCEPT AS OTHERWISE PROVIDED IN THE
UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY BE ENTERED AND
ENFORCED IN ANY COURT HAVING JURISDICTION.
(d) Business Plan
Dealer and Nissan shall execute a Business Plan in the form specified in
the Business Planning Process Workbook that describes how Dealer will fulfill it
sales, service, customer relations and other commitments hereunder, including
heightened performance standards that Dealer commits to meet;
(e) Option to Purchase
If the Dealer Agreement is to expire or be terminated: i) Voluntarily by
Dealer; ii) By Nissan upon the occurrence of any of the events specified in
Section 12A. of the Standard Provisions to the Agreement (as modified herein);
or iii) As a result of the death or physical or mental incapacity of Principal
Owners, without a qualified successor under the successorship plan required in
the Business Plan under Section 6 of the Contiguous Market Ownership Addendum,
without a timely replacement, reasonably acceptable to Seller, Nissan has the
option to Purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan may elect to purchase, and
cancel the Agreement and all rights granted Dealer thereunder. The purchase
price of the dealership assets and real property and other terms will be
determined by agreement between the parties or, if the parties are unable to
reach agreement in a reasonable time, by arbitration pursuant to the Dispute
Resolution Process established in Paragraph 12 hereof. Nissan must advise Dealer
of its intent to exercise this option within 30 days after one party notifies
the other of its intent to terminate the Agreement. Nissan may assign its right
to exercise its option to purchase under this paragraph to any third party.
(f) Executive Manager Evaluation
Dealer shall retain a qualified Executive Manager meeting Seller's approval
to be named under the Final Article of this Agreement.
Dealer has proposed Steven A. Haworth as Executive Manager.
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FINAL ARTICLE
-------------
The Dealer is FAA Dublin N, Inc., a corporation formed under the laws of the
California. Dealer is located in Dublin, CA.
Other parties relevant to this Agreement are FirstAmerica Automotive, Inc., a
corporation incorporated under the laws of the Nevada, and Thomas A. Price.
The Dealer Principal is Thomas A. Price.
The Executive Manager is Steven A. Haworth.
<TABLE>
<CAPTION>
<S> <C>
Expiration Date: 7/16/2002
--------------
Working Capital Guide Requirement: $ 723,000
Net Worth Guide Requirement: $1,186,000
Flooring Line: $3,237,204
</TABLE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
triplicate effective as of the 16th day of JULY , 1997 at Carson, California.
SELLER:
NISSAN DIVISION
NISSAN MOTOR DIVISION CORPORATION IN USA
By: /s/ Thomas H Eastwood By: /s/ Jules Clavadetscer
------------------------------ --------------------------------
Thomas H. Eastwood Jules Clavadetscher
Vice President Regional Vice President
FAA Dublin N, Inc.
By: /s/ Thomas A. Price
------------------------------
Thomas A. Price
President and CEO
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EXHIBIT 10.3.4
NISSAN CONTIGUOUS MARKET OWNERSHIP ADDENDUM
-------------------------------------------
This Nissan Contiguous Market Ownership Addendum (the "CMO Agreement") is
entered into this 16th day of JULY, 1997, by and among Nissan Motor Corporation
in U.S.A. ("Nissan"), Thomas A. Price ("Dealer Principal" or "Price"), FAA
Dublin N, Inc., ("Dublin Nissan" or "Dealer"), and FirstAmerica Automotive,
Inc., ("FAA").
RECITALS
--------
WHEREAS, Nissan, FAA and Dealer desire to create a Contiguous Market Ownership
Area in the San Francisco Bay Area, (the "East Bay CMO");
WHEREAS, Nissan, FAA and Dealer commit to develop and execute a Market Area Plan
that describes how Dealer will develop the East Bay CMO through the provision or
establishment of Dealership Facilities;
WHEREAS, Nissan, FAA and Dealer also commit to develop and execute a Business
Plan that describes how Dealer will fulfill its sales, service, customer
relations and other commitments hereunder, including heightened performance
standards that Dealer commits to meet;
WHEREAS, Dealer commits to operate in accordance with the Market Area Plan and
the Business Plan;
WHEREAS, Nissan, Price, FAA and Dealer acknowledge that this CMO Agreement
forges a new collaborative relationship in the automotive industry that is
uniquely and mutually beneficial to the parties, was negotiated by them in the
spirit of cooperation, and does not adversely affect their existing rights and
responsibilities;
WHEREAS, Price, FAA and Dealer, in exchange for the opportunities and other
consideration specified herein, agree to assume the obligations set forth
herein; and
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO AGREEMENT
-----------------
THE CMO Agreement supplements the Nissan Dealer Sales and Service Agreement
between Nissan and Dealer (the "Dealer Agreement"), including the Standard
Provisions thereto (the "Standard Provisions"). To the extent that the CMO
Agreement conflicts with the Dealer Agreement, the CMO Agreement controls
and shall govern the relationship between the parties. Subject to such
conflicts and except as otherwise provided herein, the Dealer Agreement
survives the execution of the CMO Agreement and remains in full force and
effect.
<PAGE>
2. DEFINITIONS
-----------
The parties agree that the following terms, as used in the CMO Agreement,
shall be defined exclusively as set forth below.
A. "NISSAN VEHICLES" shall mean Nissan Cars and Nissan Trucks as well
as near-new" Nissan Vehicles of the current and three prior model
years.
B. "NISSAN PRODUCTS" shall mean Nissan Vehicles, Genuine Parts and
Accessories, Nissan Security + Plus and such other products and
services offered by Nissan to Dealer and designated by Nissan as a
Nissan Product.
C. "PRIMARY MARKET AREA" shall mean the East Bay CMO, which shall
consist of the entire geographic area that is designated from time to
time as the area of Dealer's sales and service responsibility for
Nissan Products in a Notice of Primary Market Area issued by Nissan to
Dealer. Nissan reserves the right, in its reasonable discretion, to
issue a new, superseding "Notice of Primary Market Area" to Dealer
from time to time.
D. "EXECUTIVE MANAGER" shall mean the person named as Executive
Manager in the Final Paragraph of the Dealer Agreement upon whose
personal qualifications, expertise, reputation, integrity, experience,
ability and representations that he or she shall devote his or her
efforts to and have full managerial authority and responsibility for
the day-to-day management and performance of Dealer throughout the
East Bay CMO, or with Nissan's consent, any contiguous CMO(s),
including but not limited to the supervision of all Location Managers,
which Nissan has relied in entering into the CMO Agreement.
E. "LOCATION MANAGER" shall mean the persons named as Location
Managers in the Location Manager Addendum to the CMO Agreement upon
whose personal qualifications, expertise, reputation, integrity,
experience, ability and representations that he or she shall devote
his or her full-time efforts to and have managerial authority and
responsibility for the day-to-day management and performance of Dealer
at a particular Dealership Facility, Nissan has relied in entering
into the CMO Agreement.
F. "MARKET AREA PLAN" shall mean the written plan prepared and
executed by the parties that describes the number, location, type,
size and opening date of the Dealership Facilities to be provided by
Dealer hereunder.
G. "BUSINESS PLAN" shall mean the written plan prepared and executed
by the parties that contains Dealer's plan and commitment to develop
its business throughout the East Bay CMO, including but not limited to
its plan and commitment with respect to organizational, operational,
financial, succession and other issues, and certain standards on which
its performance hereunder will be evaluated.
2
<PAGE>
H. "DEALERSHIP FACILITIES" shall mean the land areas at each
Dealership Location and the buildings and improvements erected thereon
provided by Dealer in accordance with Section 2 of the Standard
Provisions and the Market Area Plan.
3. TERM
----
This Agreement and the Dealer Agreement shall have a renewable term
commencing on its effective date and continuing for a term of five years
unless terminated earlier in accordance with Section 12 of the Standard
Provisions or the CMO Agreement.
4. DEALERSHIP LOCATION AND DEALERSHIP FACILITIES
---------------------------------------------
A. DEALERSHIP FACILITIES
---------------------
In accordance with the Market Area Plan, FAA and Dealer shall provide
Dealership Facilities at each Dealership Location that are
satisfactory in space, appearance, usage, layout and signage; and
otherwise are substantially in accordance with the Guides therefor
established by Nissan from time to time. Dealer shall conduct its
Dealership Operations only from the Dealership Locations specified in
the Dealership Facilities Addendum and shall use each such place of
business only for the purposes specified therefor in the Dealership
Facilities Addendum. Where applicable, Dealer shall establish
additional Dealership Facilities in the time, place and manner agreed
to by Dealer and Nissan in the Market Area Plan. Dealer agrees that
the Dealership Facilities shall have a consistent image, appearance
and name.
B. DEALERSHIP FACILITIES ADDENDUM
------------------------------
FAA, Dealer and Nissan shall execute a Dealership Facilities Addendum
which will include a description of each Dealership Location and each
Dealership Facility as well as the approved use for each such place of
business and facility.
C. EXCLUSIVE NISSAN OPERATIONS
---------------------------
FAA and Dealer agree that each Dealership Facility and Dealership
Location shall be dedicated to the promotion of Nissan Products and
devoted exclusively to the conduct of Nissan sales, service, parts
and/or other operations as specified in the Dealership Facilities
Addendum. Dealer shall not conduct any sales, service, parts and/or
other operations for any other new line-make of vehicles at any of the
Dealership Facilities or Dealership Locations.
D. EAST BAY CMO OBLIGATIONS
------------------------
FAA shall develop, and Dealer shall devote its full efforts to
developing the East Bay CMO. Consequently, Dealer agrees that it will
not engage, either directly or indirectly, in any of the activities
contemplated by the CMO Agreement from facilities or locations outside
of the East Bay CMO. If Dealer fails to develop the
3
<PAGE>
East Bay CMO according to its Market Area Plan or to implement the
plans or meet the performance standards established in the Business
Plan, then Nissan, will provide written notice specifying the default
and a reasonable period of at least 45 days within which to cure the
default. Should the 45 day cure period expire without material remedy
of the breach, Nissan may (i) terminate the CMO Agreement under
Paragraph 11 hereof, (ii) restructure the East Bay CMO and reassign to
other Authorized Nissan Dealers any areas necessary to achieve the
maximum potential development of the East Bay CMO, or (iii) exercise
its option to purchase under Paragraph 10.C hereof.
5. MARKET AREA PLAN
----------------
FAA, Dealer and Nissan shall execute a Market Area Plan that describes how
Dealer will develop its Primary Market Area through the provision or
establishment of Dealership Facilities. The Market Area Plan is an
essential part of the CMO Agreement.
A. MARKET AREA DEVELOPMENT
-----------------------
FAA and Dealer agree to develop its Primary Market Area according to
the Market Area Plan, which shall include a detailed description of
the number, location, type, size, usage and opening date of the
Dealership Facilities to be provided.
B. PLAN MODIFICATIONS
------------------
The Market Area Plan may be modified only if Nissan, FAA and Dealer
agree that a material change in marketing conditions warrants the
proposed modification.
C. MARKET STUDIES
--------------
The parties agree that although Nissan may continue to perform market
studies of the Primary Market Area and any contiguous market areas, or
any portion thereof, pursuant to Section 4.A of the Standard
Provisions, they will base the Market Area Plan on their collaborative
review and analysis of all relevant data, including such market
studies. Section 4.B of the Standard Provisions is hereby deleted in
its entirety.
D. WAIVER OF CLAIMS BASED ON NISSAN'S ACTIONS OUTSIDE THE PRIMARY MARKET
---------------------------------------------------------------------
AREA
----
Nissan agrees that in taking action outside the Primary Market Area,
it will consider the impact of such action on Dealer's investment in
and plans for the Primary Market Area. Dealer agrees not to initiate
or prosecute any judicial, administrative or governmental proceeding
with respect to Nissan's actions outside the Primary Market Area,
including but not limited to its appointment or relocation of any
other Authorized Nissan Dealer.
4
<PAGE>
6. BUSINESS PLAN
-------------
FAA, Dealer and Nissan shall execute a Business Plan in the form specified
in the Business Planning Process Workbook that describes how Dealer will
fulfill its sales, service, customer relations, marketing and other
commitments hereunder. The Business Plan is an essential part of the CMO
Agreement.
A. BUSINESS PLANNING
-----------------
The Business Plan shall include the following elements:
i. a statement of Dealer's legal and financial structure, including
capitalization, line of credit and equity ownership;
ii. the sales, service, customer relations, marketing and other
standards on which Dealer's performance will be evaluated, which
standards Dealer acknowledges and agrees will be higher than
those established for Authorized Nissan Dealers that are not
responsible for a CMO;
iii. a detailed organizational structure and staffing plans, including
the number of certified sales, service and parts managers, sales
personnel, and technicians that shall be provided for the East
Bay CMO;
iv. specific plans for maximizing owner loyalty and customer
satisfaction, including hours of operation and customer
convenience systems;
v. advertising, merchandising, marketing and community relations
plans;
vi. successorship, including the identity of the proposed successors
to Dealer, Dealer Principal and/or Executive Manager; and
vii. other standards or plans as agreed by Nissan, FAA and Dealer.
B. OPERATIONS
----------
Dealer shall operate in accordance with the Business Plan and shall
actively and effectively promote the sale of Nissan Products to
customers located throughout the Primary Market Area. In particular,
Dealer shall implement the plans and meet the performance standards
established in the Business Plan.
C. ANNUAL BUSINESS PLAN REVIEW
---------------------------
Dealer shall review and update its Business Plan annually, or more
often if needed, and submit it to Nissan for joint review. Updated
Plans will include a performance evaluation and any proposed
modifications to the prior year's plan. If Nissan,
5
<PAGE>
FAA and Dealer agree that changes to the proposed Plan are necessary,
Dealer will make such changes and resubmit its Plan.
I. PERFORMANCE EVALUATION
----------------------
Dealer's performance of its obligations is essential to the
effective representation of Nissan Products, and to the
reputation and goodwill of Nissan, in the East Bay CMO.
Therefore, Dealer agrees to review its performance against the
prior year's Business Plan in its updated Business Plan. Nissan,
FAA and Dealer will use this analysis as a basis for jointly
evaluating Dealer's performance so that any necessary
improvements can be made. In evaluating Dealer's sales
performance, in addition to those factors established in the
Standard Provisions, Nissan will give consideration to: (a) sales
volume or market share objectives for Nissan Products set by the
parties, and (b) sales and market penetration achieved by Dealer
in each of the various segments in which Nissan Vehicles compete.
II. PLAN MODIFICATIONS
------------------
Plans for operations are subject to update, but modifications can
be implemented only if Nissan, FAA and Dealer agree thereto.
7. OTHER DEALER RESPONSIBILITIES
-----------------------------
A. FINANCIAL AND OPERATIONAL REPORTING
-----------------------------------
Dealer shall provide to Nissan financial statements and sales reports
pursuant to Section 6.G of the Standard Provisions for each Dealership
Facility and for Dealer for the entire Primary Market Area. Dealer
shall furnish to Nissan annual certified financial statements for
Dealer or for the entity that owns Dealer and shall otherwise disclose
to Nissan in a format reasonably satisfactory to Nissan the financial
and operational results of Dealer's Nissan business.
B. DISCLOSURE OF FINANCIAL INFORMATION TO AFFILIATED COMPANIES
-----------------------------------------------------------
Nissan shall be entitled to disclose to and receive from affiliated
companies, including but not limited to Nissan Motor Acceptance
Corporation, all financial statements and reports provided by Dealer
under the CMO Agreement and/or the Dealer Agreement or otherwise
relating to Dealership Operations.
C. DEALER'S LOAN ARRANGEMENTS FOR REAL PROPERTY
--------------------------------------------
Dealer's loan arrangements for its Dealership Facilities and/or
Dealership Locations shall grant to Nissan the right to notice of and
a reasonable opportunity
6
<PAGE>
to cure any default thereunder as well as the right to take possession
of such real property upon such cure, and shall otherwise be
satisfactory in form to Nissan.
8. NISSAN CAR AND NISSAN TRUCK ALLOCATIONS
---------------------------------------
Nissan's allocation of Nissan Cars and Nissan Trucks to Dealer shall be
based on the entire Primary Market Area in accordance with the procedures
established therefor by Nissan.
9. TRANSFERS
---------
A. SALE OF EAST BAY CMO DEALERSHIP
-------------------------------
In view of the efforts and resources that Nissan has expended in order
to establish the East Bay CMO, if Dealer proposes to sell certain
assets or Dealership Facilities, Nissan may require that Dealer sell
all East Bay CMO dealership assets, or none of such assets or
Dealership Facilities to the proposed buyer.
B. QUALIFICATIONS OF PROPOSED DEALER PRINCIPAL
-------------------------------------------
FAA and Dealer acknowledge and agree that, in view of the increased
responsibilities that Price has assumed as the principal of Dealer for
the East Bay CMO, Nissan has and will apply heightened standards with
respect to the personal, business and financial qualifications,
expertise, reputation, integrity, experience and ability of a proposed
Dealer Principal.
C. SUCCESSORSHIP
-------------
Section 14 of the Standard Provisions is hereby deleted in its
entirety. The parties shall address successorship in the Business Plan
prepared pursuant to Paragraph 6 hereof. Dealer shall identify the
proposed successor to Dealer, Dealer Principal and/or Executive
Manager in its successorship plan and shall provide such documents and
information as Nissan may reasonably require in evaluating such plans.
Nissan shall evaluate such plan and approve it only if it meets the
heightened standards applied by Nissan in connection with Nissan
Contiguous Market Ownership Agreements. Subject to Paragraph 10
hereof, the parties agree that if for any reason Dealer is unable to
implement its successorship plan upon the death or physical or mental
incapacity of Dealer Principal, then Dealer shall be given a
reasonable period of time not to exceed six (6) months in which to
transfer to person(s) acceptable to Nissan the principal assets of
Dealer utilized in the dealership business, including but not limited
to the Dealership Facilities, and for such person(s) to apply for a
Nissan Dealer Sales and Service Agreement and, if applicable, a Nissan
Contiguous Market Ownership Agreement.
7
<PAGE>
D. DEALER'S OBLIGATION TO REPAY FINANCIAL INTERVENTION FUNDING UPON
----------------------------------------------------------------
PUBLIC OFFERINGS
----------------
If Nissan has furnished financial intervention funding to FAA and/or
Dealer in connection with the establishment or development of the East
Bay CMO, then, upon the completion of any public offering of FAA
and/or Dealer's stock or other ownership interest, upon Nissan's
demand, Dealer shall repay to Nissan the full amount of such funding.
10. RIGHTS OF FIRST REFUSAL OR OPTION TO PURCHASE
---------------------------------------------
A. DEALERSHIP ASSETS OR OWNERSHIP INTERESTS
----------------------------------------
Whenever Dealer proposes to sell its principal assets or the owners of
Dealer propose to sell a majority ownership interest in Dealer, in
addition to its rights under Articles Third and Fourth of the Dealer
Agreement and Section 15.B of the Standard Provisions, Nissan shall
have the right and option to purchase the dealership assets or
ownership interests pursuant to this Paragraph 10.
i. If Nissan chooses to exercise its option, it must do so in its
written refusal to consent to the proposed sale or transfer
pursuant to Section 15.B. Dealer agrees not to complete any
proposed change or sale prior to the expiration of the period for
exercise of Nissan's option and without Nissan's prior written
consent. Such exercise shall be null and void if Dealer withdraws
its proposal within thirty (30) days following Dealer's receipt
of Nissan's notice exercising its option.
ii. After being exercised, Nissan's option may be assigned to any
party, and Nissan hereby agrees to guarantee the full payment of
the purchase price by such assignee. Nissan's rights under this
Paragraph 10 shall be binding on and enforceable against any
assignee or successor in interest of Dealer or purchaser of
Dealer's assets. Nissan shall have no obligation to exercise its
rights hereunder.
iii. If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Nissan's right under this
Paragraph 10 shall be a right of first refusal, enabling Nissan
to assume the prospective purchaser's rights and obligations
under such buy/sell agreement. The purchase price and other terms
of sale shall be those set forth in such agreement and any
related documents. Nissan may request, FAA and Dealer agrees to
provide all other documents relating to Dealer and to the
proposed transfer, including, but not limited to, those
reflecting any other agreements or understandings between the
parties to the buy/sell agreement. Nissan shall have sixty 960)
days from its receipt of all such documents in which to exercise
its right of first refusal hereunder. If Dealer refuses either to
8
<PAGE>
provide such documentation or to state in writing that no such
documents exist, it shall be presumed that the agreement is not
bona fide.
iv. In the absence of a bona fide written buy/sell agreement, Nissan
shall have the option, but no obligation, under this Paragraph 10
to purchase the principal assets of Dealer utilized in the
Dealership Operations, including real property and leasehold
interest, and to terminate this Agreement and all rights granted
Dealer hereunder. If the Dealership Facilities are leased by
Dealer from an affiliated company, the right to purchase the
principal assets of Dealer shall include the right to lease the
Dealership Facilities. The purchase price of Dealer's assets
shall be at their fair market value as a going concern as
negotiated by the parties and the other terms of sale shall be
those agreed by Dealer and Nissan. If Dealer and Nissan are
unable to reach a negotiated settlement in a reasonable time, the
price and other terms of sale shall be established by arbitration
pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. If Nissan determines that the buy/sell
agreement is not bona fide, Nissan will so notify Dealer. Dealer
shall have ten (10) days from its receipt of such notice within
which to withdraw its proposal. Nissan's exercise of its rights
hereunder shall be null and void if Dealer withdraws its proposal
within such time period.
v. Dealer shall transfer the affected property free and clear of
liens, claims, mortgages, encumbrances, tenancies and
occupancies. Dealer shall also furnish to Nissan copies of any
easements, licenses, or other documents affecting the dealership
and/or property and shall assign any permits or licenses which
are necessary for the conduct of the Dealership Operations.
B. REAL PROPERTY
-------------
Whenever Dealer proposes to sell or lease any of its Dealership
Facilities and/or Dealership Locations, in addition to its rights
under Article Third and Fourth of the Dealer Agreement and Section
15.B of the Standard Provisions, Nissan shall have the right and
option to purchase or lease said Dealership Facilities and/or
Dealership Locations pursuant to this Paragraph 10.B.
i) If Nissan chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within sixty (60)
days of Nissan's receipt of notice of the proposed sale or lease
by Dealer. Dealer agrees not to complete any proposed sale or
lease prior to the expiration of the period for exercise of
Nissan's right of first refusal and without Nissan's prior
written consent, and agrees to allow Nissan to perform an
environmental study of the property. Dealer also agrees to
furnish to Nissan copies of any easements, licenses,
environmental studies or other documents affecting the property
Such exercise shall be null and void if Dealer withdraws its sale
9
<PAGE>
or lease proposal within thirty (30) days following Dealer's
receipt of Nissan's notice exercising its right of first refusal.
ii) After being exercised, Nissan's right to purchase or lease may be
assigned to any party, and Nissan hereby agrees to guarantee the
full payment of the purchase price or the rental payment by such
assignee. Nissan's rights under this Paragraph l0.B shall be
binding on and enforceable against any assignee or successor in
interest of Dealer or purchaser of Dealer's assets. Nissan shall
have no obligation to exercise its rights hereunder, and Seller
may rescind its offer if the property is determined to be
contaminated pursuant to an environmental study. Such
contamination shall be deemed a breach of this agreement by
dealer.
iii) Dealer shall transfer the affected property by Warranty Deed
conveying marketable title free and clear of liens, claims,
mortgages, encumbrances, tenancies and occupancies, or, if
applicable, by an assignment of any existing lease. The Warranty
Deed shall be in proper form for recording. Dealer shall deliver
complete possession of the property at the time of delivery of
the Deed or lease assignment. Dealer shall also assign any permit
or licenses which are necessary for the conduct of the Dealership
Operations.
iv) In addition to any other rights Nissan may have at law, in equity
or hereunder, any sale or lease of the Dealership Facilities
and/or the Dealership Locations in violation of this right of
first refusal shall be voidable by Nissan.
C. OPTION TO PURCHASE
------------------
If the CMO Agreement or the Dealer Agreement is to expire or be
terminated for any reason, including but not limited to the death or
physical or mental incapacity, without replacement in accordance with
Section 9.C. hereinabove, of Dealer Principal, Nissan has the option
to purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan in its sole
discretion may elect to purchase, and cancel the CMO Agreement and the
Dealer Agreement and all rights granted Dealer thereunder. The
purchase price of the dealership assets and real property and other
terms will be determined by agreement between the parties or, if the
parties are unable to reach agreement in a reasonable time, by
arbitration pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. Nissan must advise Dealer of its intent to
exercise this option within 30 days prior to the expiration of the CMO
Agreement and/or the Dealer Agreement or within 30 days after one
party notifies the other of its intent to terminate the CMO Agreement
and/or the Dealer Agreement. Nissan may assign its right to exercise
its option to purchase under this Paragraph 10.C to any third party.
10
<PAGE>
11. TERMINATION
-----------
A. TERMINATION DUE TO ACTS OR EVENTS
---------------------------------
The following represent events which are within the control of or
originate from actions taken by Dealer or its management or owners and
which are so contrary to the intent and purpose of the CMO Agreement
that they warrant its termination and the termination of the Dealer
Agreement:
(i) Any conduct that warrants the termination of the Dealer
Agreement;
(ii) The termination of the Dealer Agreement;
(iii) The failure of Dealer to maintain at all times exclusive Nissan
sales, service, parts and/or other operations at the Dealership
Facilities and the Dealership Locations; or
(iv) Any actual or attempted sale or transfer of stock or any other
ownership interest in Dealer by way of a public offering without
Nissan's prior written consent;
Upon the occurrence of any of the foregoing events, Nissan may
terminate the CMO Agreement by giving Dealer notice thereof, such
termination to be effective upon the date specified in such notice, or
such later date as may be required by any applicable statute.
B. TERMINATION FOR NON-PERFORMANCE
-------------------------------
If, based on the evaluation thereof made by Nissan, Dealer shall fail
to substantially fulfill its responsibilities with respect to:
(i) the development of the East Bay CMO according to the Market Area
Plan;
(ii) the implementation of the plans set forth in the Business Plan,
including but not limited to any deviation therefrom; or
(iii) the performance of its sales, service, customer relations or
other obligations based on the standards established therefor in
the Business Plan;
Nissan will notify Dealer of such failure and will review with Dealer
the nature and extent of such failure and the reasons which, in
Nissan's or Dealer's opinion, account for such failure. Thereafter,
Nissan will provide Dealer with a reasonable opportunity to correct
the failure. If Dealer fails to make substantial progress towards
remedying such failure before the expiration of such period, Nissan,
may, direct Dealer to transfer its rights and obligations under this
Agreement to another entity, acceptable to Nissan, within a reasonable
time. Should Dealer fail to do so
11
<PAGE>
Nissan may (a) terminate this Agreement by giving Dealer notice of
termination, such termination to be effective at least sixty (60) days
after such notice is given, (b) exercise its option to purchase the
principal assets of Dealer utilized in the business, including such
real property as Nissan in its sole discretion may elect to purchase,
and cancel the CMO Agreement and the Dealer Agreement pursuant to
Paragraph 10.C hereof, or (c) restructure the East Bay CMO and
reassign to other Authorized Nissan Dealers any areas necessary to
achieve the maximum potential development of the East Bay CMO.
12. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 12, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN AND DEALER AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12,
WHICH INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM
FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN
THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR
FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation,
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, the Dealer or Nissan can submit the Dispute to Binding
Arbitration.
Section 16 of the Standard Provisions is deleted in its entirety.
B. MEDIATION
---------
Dealer or Nissan can submit a Dispute to Mediation. Mediation is
conducted by a panel consisting of a Nissan representative designated
by Nissan, a Dealer representative designated by Dealer, and an
independent professional mediator chosen by the parties'
representatives. The Mediation Panel will evaluate each position and
recommend a solution. This recommended solution is not binding.
12
<PAGE>
C. BINDING ARBITRATION
-------------------
If a dispute has not been resolved at mediation, or if Dealer and
Nissan have agreed in writing to waive Mediation, the Dispute will be
settled by Binding Arbitration. SPECIFICALLY THE PARTIES AGREE TO
RESOLVE ALL SUCH DISPUTES VIA BINDING ARBITRATION CONDUCTED IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION PROCEDURES OF THE AMERICAN
ARBITRATION ASSOCIATION WITH THE PREVAILING PARTY TO RECOVER ITS COSTS
AND ATTORNEY'S FEES FROM THE OTHER PARTY. ALL ARBITRATION AWARDS ARE
BINDING AND NON-APPEALABLE, EXCEPT AS OTHERWISE PROVIDED IN THE UNITED
STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY BE ENTERED
AND ENFORCED IN ANY COURT HAVING JURISDICTION.
13. RELEASE
-------
Dealer hereby releases Nissan from any and all claims and causes of action
that it may have against Nissan for money damages or other relief relating
to or arising out of any event occurring prior to the execution of the CMO
Agreement, except for any accounts payable by Nissan to Dealer in
connection with the provision of any services under the Dealer Agreement
and any claim described in Section 11.A.1 and 2 of the Standard Provisions.
In connection with this release, Dealer expressly acknowledges and waives
its rights under California Civil Code, Section 1542, which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST ? MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE ?.
13
<PAGE>
FAA DUBLIN N, INC. NISSAN MOTOR CORPORATION IN U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
------------------------------ -----------------------------------
Thomas A. Price, President Thomas H. Eastwood, Vice President
By: /s/ Jules Clavadetscher
-----------------------------------
Jules Clavadetscher
Regional Vice President
Acknowledged and Concur:
First Automotive, Inc.
By: /s/ Thomas A. Price
------------------------------
Thomas A. Price, President
President and CEO
14
<PAGE>
EXHIBIT 10.3.5
NISSAN CONTIGUOUS MARKET OWNERSHIP
----------------------------------
AREAS FORMATION AND LINKAGE AGREEMENT
-------------------------------------
This Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
(the "CMO Formation and Linkage Agreement") is entered into this 30th day of
June, 1997, by and among Nissan Motor Corporation in U.S.A. ("Nissan"), and
FirstAmerica Automotive, Inc., ("FAA") concerning the commitments and
obligations of FAA and Nissan in respect to the acquisition and formation of
Contiguous Market Ownership Areas ("CMO") in the San Francisco Bay Area,
specifically, the "Peninsula CMO", the "South Bay CMO", the "East Bay CMO" and
the "East Shore CMO".
RECITALS
--------
WHEREAS, Nissan has developed a distribution network plan that seeks to create
CMOs in the San Francisco Bay Area (the Peninsula CMO, South Bay CMO, East Bay
CMO, and East Shore CMO);
WHEREAS, Nissan recognizes this new distribution plan is to be implemented over
time with consideration of existing dealers' rights;
WHEREAS, FAA has approached Nissan with a request to acquire and develop these
CMOs;
WHEREAS, Nissan has advised FAA that Nissan would approve their acquisition of
individual dealers within the CMOs, provided FAA satisfies Nissan's requirements
for applicants; and Nissan has advised FAA that Nissan cannot make existing
dealers sell or otherwise transfer their dealerships to FAA;
WHEREAS, FAA acknowledges the rights of existing dealers, yet commits to use its
best good faith and reasonable efforts to acquire dealerships within the CMOs,
with an intent to form the complete San Francisco Bay Area CMO marketing
territories;
WHEREAS, FAA acknowledges that Nissan's business concept for the CMO envisioned
entering into one Nissan Dealer Sales and Service Agreement with one entity for
each CMO;
WHEREAS, FAA, desires affirm its commitment to implement Nissan's CMO concept in
each CMO;
WHEREAS, FAA will have dealer subsidiaries in operation in one or more of the
Bay Area CMOs, and FAA has committed to, and intends to continue to acquire
Nissan Dealers to complete the formation and operation of all San Francisco Bay
Area CMOs;
WHEREAS, Nissan and FAA have negotiated agreements to allow FAA's operation of
Bay Area CMOs, specifically, any CMO Holding Company Agreements, the Nissan
Dealer Term Sales and Service Agreements for each individual dealer entity, if
appropriate, and the relevant Nissan CMO Agreements for Bay Area CMOs;
WHEREAS, FAA and Nissan mutually agree and acknowledge that Nissan has placed
extraordinary trust in the qualifications, integrity, and ability of FAA and
Thomas A. Price; the
<PAGE>
parties mutually acknowledge that Nissan's agreement and intent to approve FAA
and Price as Contiguous Multiple CMO Operators ("CMCMO") is unique to FAA and
Price based upon Nissan's experience, relationship, and the commitments between
the parties; and, accordingly, that a prospective transferee of one or more of
the CMOs must have the same high qualifications, and, further, that even a
qualified CMO operator may not have the extraordinary qualifications necessary
to be approved as a CMCMO.
WHEREAS, FAA and Nissan desire to treat the San Francisco Bay Area CMOs as part
and parcel of a single market;
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO FORMATION AND LINKAGE AGREEMENT
---------------------------------------
FAA acknowledges that the San Francisco Bay Area market is a single
metropolitan market area which has been divided by Nissan into four CMOs
(Peninsula, South Bay, East Bay, and East Shore CMOs) for promotion and
marketing purposes. FAA agrees to use its best efforts to acquire all
Nissan dealership operations within the four CMO areas. Nissan and FAA
acknowledge that this will be a process that must occur over time, and that
Nissan cannot take any action adverse to current dealers in order to, or in
an effort to, require them to sell or transfer their dealerships to FAA.
Should FAA be successful in acquiring Nissan dealerships within the four
CMOs in the San Francisco Bay Area, Nissan agrees to approve that
acquisition, provided that FAA continues to possess the generally applied
qualifications necessary to become an Authorized Nissan Dealer.
Nissan and FAA acknowledge that each CMO, though a part of the San
Francisco Bay Market Area, has been designed to be sufficient to achieve
the benefits of a CMO as an independent entity. Nevertheless, as a
practical matter, and consistent with its intent as originally
communicated, Nissan intends, and FAA agrees, that Nissan will treat these
wholly-owned subsidiary dealer corporations, and their related Nissan
Dealer Term Sales and Service Agreements, the Nissan Contiguous Market
Ownership Agreements, and any relevant Nissan CMO Holding Company
Agreement, as part and parcel of the single marketing entity in the San
Francisco Bay Area market. Consistent with the CMO concept reflected in the
CMO Agreements for the constituent CMOs, FAA agrees that it will exercise
its control and ownership of each CMO in ways consistent with this
agreement and will not take any actions or allow its subsidiaries in the
San Francisco Bay Area CMOs to take any action inconsistent with the intent
of this Agreement.
2. CMO FORMATION AND LINKAGE AGREEMENT TERM
----------------------------------------
This Agreement shall be in effect while FAA, or any subsidiary dealer
entity, is operating as an Authorized Nissan Dealer within a CMO in the San
Francisco Bay Area, unless amended
<PAGE>
by the parties. Termination of all Nissan dealer activities owned or
controlled by FAA will constitute termination this CMO Formation and
Linkage Agreement with no further notice or act required by any party.
3. TRANSFERS
---------
In view of Nissan's distribution plan and the efforts and resources
that Nissan has expended in order to establish the San Francisco Bay
Area CMOs, if FAA proposes or attempts to sell or otherwise transfer
of any one of the four San Francisco Bay Area CMOs, or those
dealership assets necessary for the conduct of appropriate and
effective CMO Operations, without Nissan's consent, Nissan in its
reasonable discretion, may require that FAA, or any subsidiary entity,
sell, transfer or terminate, one, all, or any combination thereof, of
the CMOs in the San Francisco Bay Area, to a proposed buyer acceptable
to Nissan.
Further, Nissan reserves the right, that, should FAA desire to
transfer two or more of the San Francisco Bay Area CMOs, then Nissan,
in its sole discretion, may require FAA to transfer to an entity
possessing the same, unusually high qualifications. Should Nissan, in
its sole discretion, not consent to a transfer of two or more of the
San Francisco Bay Area CMOs to a single entity, then Nissan may
require FAA to transfer these CMOs, if at all, to separate CMO
operators, acceptable to Nissan.
FAA acknowledges and agrees to identical Rights of First Refusal in
the CMO interests that each individual dealer or dealer entity (on
specific Dealership Assets and Dealership Facilities) as are contained
the Dealer Agreements, as well as any Right of First Refusal contained
in the individual CMO Agreements, as well as identical Option to
Purchase provisions.
4. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 4, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN, FAA, IN ITS OWN
RIGHT AND AS THE OWNER OF THE PENINSULA CMO DEALER(s) (CURRENTLY
INCLUDING MARIN NISSAN AND SERRAMONTE NISSAN), THE EAST BAY CMO
DEALERS(s) (CURRENTLY INCLUDING CONCORD NISSAN AND DUBLIN NISSAN) THE
SOUTH BAY CMO DEALER(s) (CURRENTLY STEVENS CREEK) AND THE EAST SHORE
CMO (CURRENTLY NO FAA DEALERS WITHIN THIS CMO), AGREE THAT THE DISPUTE
RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 4, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE
<PAGE>
MECHANISM FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN THE
PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR FEDERAL
STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation and b)
Binding Arbitration. All Disputes must first be submitted to Mediation,
unless that step is waived by written agreement of the parties. If
Mediation does not resolve the Dispute to their mutual satisfaction, FAA or
Nissan can submit the Dispute to Binding Arbitration.
B. MEDIATION
---------
Any party to this Agreement can submit a Dispute to Mediation. Mediation is
conducted by a panel consisting of a Nissan representative designated by
Nissan, a FAA representative designated by FAA, and an independent
professional mediator chosen by the parties' representatives. The Mediation
Panel will evaluate each position and recommend a solution. This
recommended solution is not binding.
C. BINDING ARBITRATION
-------------------
If a Dispute has not been resolved after Mediation, or if FAA and Nissan
have agreed in writing to waive Mediation, the Dispute will be settled by
Binding Arbitration in accordance with the procedures in the Commercial
Arbitration Procedures of the American Arbitration Association, with the
prevailing party to recover its costs and attorneys fees from the other
party. All awards of the arbitration are binding and non-appealable except
as otherwise provided in the United States Arbitration Act. Judgment upon
any award rendered by the arbitrator(s) may be entered and enforced in any
court having jurisdiction.
FIRSTAMERICA AUTOMOTIVE, INC. NISSAN MOTOR CORPORATION IN U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
------------------------------- -----------------------------------
Thomas A. Price Thomas H. Eastwood, Vice President
President and CEO Nissan Division
By: /s/ Jules Clavadetscher
-----------------------------------
Jules Clavadetscher
Regional Vice President
<PAGE>
NISSAN DEALERSHIP FACILITIES ADDENDUM NISSAN MOTOR CORPORATION IN U.S.A.
[LOGO]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FACILITIES & LOCATION SIZE (Square Feet) REQUIREMENTS BASED ON TOTAL PLANNING VOLUME
- ----------------------------------------------------------------------------------------------------------------
Site Address New Vehicle New Vehicle Used Vehicle Used Vehicle
Sales Sales Sales Sales
Building Land Building and
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A. Main Location: 6015 Scarlett Court 1,892 25,369 0 0
- ----------------------------------------------------------------------------------------------------------------
B. Additional Location: 5787 Scarlett Court 8,000 2,000
- ----------------------------------------------------------------------------------------------------------------
C. Additional Location: 6055 Scarlett Court 3,213 26,061
- ----------------------------------------------------------------------------------------------------------------
D. Additional Location:
- ----------------------------------------------------------------------------------------------------------------
TOTALS BUILDING LAND BUILDING &
LAND
- ----------------------------------------------------------------------------------------------------------------
Actual 16,649 67,185 83,834 1,892 33,369 3,213 28,061
- ----------------------------------------------------------------------------------------------------------------
Guide 14,676 66,385 81,061 4,008 33,950 359 18,791
- ----------------------------------------------------------------------------------------------------------------
Actual 113.4% 101.2% 103.4% 47.2% 98.3% 895.0% 149.3%
% Guide
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------ -------------------
FACILITIES & LOCATION SIZE (Square Feet) REQUIREMENTS BASED ON TOTAL UNITS IN OPERATION
- ------------------------------------------------------------------------------------------------------------ --------------------
Site Address Service Service Service Parts Parts Body Body
Bays Building Land Building Land Shop Shop
Building Land
- ------------------------------------------------------------------------------------------------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A. Main Location: 6015 Scarlett Court 9 8,162 4,020 3,382 1,735 N/A N/A
- ------------------------------------------------------------------------------------------------------------ -------------------
B. Additional Location: 5787 Scarlett Court N/A N/A
- ------------------------------------------------------------------------------------------------------------ -------------------
C. Additional Location: 6055 Scarlett Court N/A N/A
- ------------------------------------------------------------------------------------------------------------ -------------------
D. Additional Location:
- ------------------------------------------------------------------------------------------------------------ -------------------
TOTALS BUILDING LAND BUILDING &
LAND
- ------------------------------------------------------------------------------------------------------------ -------------------
Actual 16,649 67,185 83,834 9 8,162 4,020 3,382 1,735 N/A N/A
- ------------------------------------------------------------------------------------------------------------ -------------------
Guide 14,676 66,385 81,061 14 6,567 12,069 3,742 1,575 N/A N/A
- ------------------------------------------------------------------------------------------------------------ -------------------
Actual 113.4% 101.2% 103.4% 64.3% 124.3% 33.3% 90.4% 110.2% N/A N/A
% Guide
- ------------------------------------------------------------------------------------------------------------ -------------------
</TABLE>
<TABLE>
----------------------------------------------------
Makes Planning Units In
Sold Volume Operation
----------------------------------------------------
<S> <C> <C>
1. Nissan 906 3155
----------------------------------------------------
2.
----------------------------------------------------
3.
----------------------------------------------------
4.
----------------------------------------------------
5.
----------------------------------------------------
6.
----------------------------------------------------
TOTALS 906 3155
----------------------------------------------------
900 3000
Guide
Figures
Utilized
----------------------------------------------------
</TABLE>
This Dealership Facilities Addendum is executed by Dealer and Seller pursuant to
Section 2.A of the Nissan Dealer Sales and Service Agreement in effect between
said parties and in effective as of the date set forth below. Dealer and Seller
agree that as of the effective date the information above accurately describes
the Dealership Location and Dealership Facilities, the purposes for which each
location is used and the current Guides for such facilities based on the
Planning Volumes stated herein. The execution of this Facilities Addendum shall
not be construed as evidence of Dealer's fulfillment of its responsibilities
under Section 2 of the Agreement. Changes in the Dealership Location, the
Dealership Facilities or their usage from the locations and specific uses stated
herein cannot be made by Dealer without the prior written consent of Seller.
Such changes and any changes in Seller's Guides will he reflected in a new
Dealership Facilities Addendum when deemed necessary by Seller. This Dealership
Facilities Addendum cancels and supersedes any prior Dealership Facilities
Addenda executed by Seller and Dealer.
DEALER:
- -------
FAA DUBLIN N, INC
- -----------------------------------------------------------------------------
Dealer Name
Dublin Nissan
- -----------------------------------------------------------------------------
Doing Business As
By /s/ DUBLIN CA 94520
-------------------------------- -------------------------------------
Signature City State Zip
Title PRESIDENT 3448
---------------------------- -------------------------------------
Dealer Code
Accuracy of information verified for SELLER:
------
NISSAN DIVISION
By /s/ NISSAN MOTOR CORPORATION IN U.S.A.
-------------------------------
Title ASSISTANT REGIONAL MANAGER By /s/
---------------------------- ----------------------------------
6/17/97 Title VICE PRESIDENT, NISSAN DIVISION
- ----------------------------------- --------------------------------
Date Verified
By /s/
----------------------------------
THIS ADDENDUM IS EFFECTIVE AS OF
7/16/97 Title REGIONAL VICE PRESIDENT
- ----------------------------------- --------------------------------
<PAGE>
EXHIBIT 10.3.6
[LOGO OF NISSAN APPEARS HERE]
NISSAN MOTOR CORPORATION U.S.A.
MARIN NISSAN
<PAGE>
NISSAN
DEALER TERM SALES AND SERVICE AGREEMENT
THIS AGREEMENT is entered into and effective the day last set forth below by and
between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a California
corporation, hereinafter called "Seller," and the entities and natural persons
identified in the Final Article of this Agreement.
INTRODUCTION
The purpose of this Agreement is to establish Dealer as an authorized dealer of
Nissan Products and to provide for the sale and servicing of Nissan Products in
a manner that will best serve owners, potential owners and purchasers of Nissan
Products as well as the interests of Seller, Dealer and other Authorized Nissan
Dealers. This Agreement sets forth: the rights which Dealer will enjoy as an
Authorized Nissan Dealer; the responsibilities which Dealer assumes in
consideration of its receipt of these rights; and the respective conditions,
rights and obligations of Seller and Dealer that apply to Seller's grant to
Dealer of such rights and Dealer's assumption of such responsibilities. It is
understood that each term and undertaking hereinafter described is material, and
relied upon, as the quid pro quo and consideration for this Agreement.
This is a personal services Agreement. In entering into this Agreement and
appointing Dealer as provided below, Seller is relying, among other things, upon
the personal qualifications, expertise, reputation, integrity, experience,
ability and representations of the individual named in the Final Article of this
Agreement as Dealer Principal (the "Dealer Principal") the individual named in
the Final Article of this Agreement as Executive Manager and the representations
of FirstAmerica Automotive, Inc., ("FAA"), and Smart Nissan, Inc., ("Dealer"
or "Marin Nissan"). In addition to Dealer, Seller intends to look to FAA, the
Dealer Principal and the Executive Manager for the performance of Dealer's
obligations hereunder.
Nissan Products are intended for discriminate owners with the expectation that
such owners will be loyal and proud, but also demanding toward Seller and Dealer
with respect to Nissan Products and the manner in which they are sold and
serviced. Owners, potential owners and purchasers of Nissan Products are
expected to want, and are entitled to do business with, dealers who enjoy the
highest reputation in their communities and have well located, attractive and
efficient places of business, courteous personnel and outstanding service and
parts facilities. Nissan Products must be sold by enthusiastic dealers who are
not interested in short term results only but are willing to look toward long
term goals and who are devoted to creating and maintaining a positive total
ownership experience for owners of Nissan Products. Seller's standard of
excellence for Nissan Products must be matched by the dealers who sell them to
the public and who service them during their operative lives.
Achievement of the purposes of this Agreement is premised upon mutual
understanding and cooperation between Seller and Dealer. Dealer has entered into
this Agreement in reliance upon Seller's integrity and expressed intention to
deal fairly with Dealer and the consuming public. Seller has entered into this
Agreement in reliance upon the integrity and ability of the Dealer Principal and
Executive Manager and their expressed intention to deal fairly with the
consuming public and Seller.
<PAGE>
It is the responsibility of Seller to market Nissan Products throughout the
Territory. It is the responsibility of Dealer to actively promote the retail
sale of Nissan Products and to provide courteous and efficient service of Nissan
Products. The success of both Seller and Dealer will depend on how well they
each fulfill their respective responsibilities under this Agreement. It is
recognized that: Seller will endeavor to provide motor vehicles of excellent
quality and workmanship and to establish a network of Authorized Nissan Dealers
that can provide an outstanding sales and service effort at the retail level;
and Dealer will endeavor to fulfill its responsibilities through aggressive,
sound, ethical selling practices and through conscientious regard for customer
service in all aspects of its Nissan Dealership Operations.
Seller and Dealer shall refrain from engaging in conduct or activities which
might be detrimental to or reflect adversely upon the reputation of Seller,
Dealer or Nissan Products and shall engage in no discourteous, deceptive,
misleading or unethical practices or activities.
For consistency and clarity, terms which are used frequently in this Agreement
have been defined in Section 1 of the Standard Provisions. All terms used herein
which are defined in the Standard Provisions shall have the meaning stated in
said Standard Provisions. These definitions should be read carefully for a
proper understanding of the provisions in which they appear.
To achieve the purposes referred to above, Seller, FAA, Dealer, the Dealer
Principal and the Executive Manager agree as follows:
ARTICLE FIRST: Appointment of Dealer
Subject to the conditions and provisions of this Agreement, Seller:
(a) appoints Dealer as an Authorized Nissan Dealer and grants Dealer the
non-exclusive right to buy from Seller those Nissan Products specified in
Dealer's current Product Addendum hereto, for resale, rental or lease at or from
the Dealership Locations established and described in accordance with Section 2
of the Standard Provisions; and
(b) grants Dealer a non-exclusive right, subject to and in accordance with
Section 6.K of the Standard Provisions, to identify itself as an Authorized
Nissan Dealer, to display the Nissan Marks in the conduct of its Dealership
Operations and to use the Nissan Marks in the advertising, promotion and sale of
Nissan Products in the manner provided in this Agreement.
ARTICLE SECOND: Assumption of Responsibilities by Dealer
Dealer hereby accepts from Seller its appointment as an Authorized Nissan Dealer
and, in consideration of its appointment and subject to the other conditions and
provisions of this Agreement, hereby assumes the responsibility for:
(a) establishing and maintaining at the Dealership Location the Dealership
Facilities in accordance with Section 2 of the Standard Provisions;
(b) actively and effectively promoting the sale at retail (and, if Dealer
elects, the leasing and rental) of Nissan Vehicles within Dealer's Primary
Market Area in accordance with Section 3 of the Standard Provisions;
2
<PAGE>
(c) servicing Nissan Vehicles and for selling and servicing Nissan Parts
and Accessories in accordance with Section 5 of the Standard Provisions;
(d) building and maintaining consumer confidence in Dealer and in Nissan
Products in accordance with Section 5 of the Standard Provisions; and
(e) performance of the additional responsibilities set forth in this
Agreement, including those specified in Section 6 of the Standard Provisions.
ARTICLE THIRD: Ownership
(a) Owners. This Agreement has been entered into by Seller in reliance
------
upon, and in consideration of, among other things, the personal qualifications,
expertise, reputation, integrity, experience, ability and representations with
respect thereto of the Dealer Principal and Executive Manager named in the Final
Article of this Agreement and in reliance upon the representations and
agreements of FAA and Dealer as follows:
(i) FAA will at all times own 100% of the capital stock of Dealer and
Dealer will at all times be maintained as a separate entity.
(ii) The Executive Committee of Dealer is set forth in attached Schedule
"A".
(iii) The officers of Dealer are as set forth in attached Schedule "A".
(iv) FirstAmerica Automotive, Inc., ("FAA") owns 100% of the outstanding
stock of Smart Nissan, Inc. (see Attachment "A" attached).
(b) Changes in Ownership. In view of the fact that this is a personal
--------------------
services agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, this Agreement and the rights and privileges
conferred on Dealer hereunder are not assignable, transferable or salable by FAA
and Dealer, and no property right or interest is or shall be deemed to be sold,
conveyed or transferred to FAA and Dealer under this Agreement. FAA, Dealer, the
Dealer Principal and the Executive Manager agree that any change in the
ownership of Dealer other than specified herein requires the prior written
consent of Seller IF DEALER DESIRES TO REMAIN AN AUTHORIZED NISSAN DEALER and
that without the prior written consent of Seller:
(i) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock or partnership interest of Dealer will be
made and no additional shares of capital stock, partnership interest or
securities convertible into shares of capital stock, of Dealer will be issued or
sold.
(ii) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer will be made and no additional
shares of capital stock, partnership interest or securities convertible into
shares of capital stock, of Dealer will be issued or sold.
(iii) Dealer will not be merged with or into, or consolidate with, any
other entity and none of the principal assets necessary for the performance of
Dealer's obligations under this Agreement will be sold, transferred or assigned.
3
<PAGE>
(iv) Dealer will not enter into any transaction, including, without
limitation, any sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer, the issuance or sale of
additional shares of capital stock, partnership interest or securities
convertible into shares of capital stock of Dealer, or the merger of Dealer with
or into, or the consolidation of Smart Nissan, Inc., with any other entity, if
as a result of such transaction, that FAA will cease to own at least 100% of the
capital stock or interest of Dealer.
(v) If any person or entity, after the date of the initial public
offering, acquires more than 20% of FAA's common stock issued and outstanding at
any time and Nissan determines that such person or entity does not have
interests compatible with those of Nissan, or is otherwise not qualified to have
an ownership interest in a Nissan dealership (an "Adverse Person"), FAA, upon
written notification by Nissan, must cause any subsidiaries, owned, or
controlled entities to terminate its dealer agreements with Nissan or transfer
the Nissan dealerships to a third party acceptable to Nissan within 90 days
after such notification, unless, within 90 days after Nissan's determination,
the adverse Person's ownership interest is reduced to less than 20%.
Any transaction involving the capital stock of Marin Nissan, including a
public offering or trade of the shares of FAA, which does not violate
subparagraph (iv) above may be effected without obtaining the prior written
consent of Seller and without triggering a termination event under Section
12.A.(2) of the Standard Provisions.
Dealer shall give Seller prior notice of any proposed change in said
ownership requiring the consent of Seller and immediate notice of the death or
incapacity of any Dealer Principal or Executive Manager. No such change, and no
assignment of this Agreement or of any right or interest herein, shall be
effective against Seller unless and until embodied in an appropriate amendment
to or assignment of this Agreement, as the case may be, duly executed and
delivered by Seller and by Dealer. Seller shall not, however, unreasonably
withhold its consent to any such change, subject to Seller's Rights of First
Refusal set forth in Article Tenth of this Agreement. Seller shall have no
obligation to transact business with any person who is not named either as a
Dealer Principal or Executive Manager of Dealer hereunder, or in the event of
death or incapacity, those persons named as the successors to the Dealer
Principal and/or Executive Manager in the successorship plan hereafter (upon
mutual consent of the parties) or otherwise to give effect to any proposed sale
or transfer of the ownership, partnership interest or management of Dealer and
FAA (other than changes in the ownership of FAA and Dealer which are expressly
permitted by this Article Third) prior to having concluded the evaluation of
such a proposal as provided in Section 15 of the Standard Provisions. Nissan may
conduct routine, day to day business with the person named as the Location
Manager for the location so designated. Dealer acknowledges Seller's right to
require consent to any change in the ownership of Dealer, and agrees that any
change or transfer without such consent from Seller is void, and of no force and
effect, and grounds for termination. FAA and Dealer further agree that they
will not challenge, contest, dispute, or litigate, except as provided in Article
15(c) hereafter:
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to transfer ownership
of Dealer (except as provided by this Agreement) without Seller's consent; or
(ii) any decisions by Seller to withhold consent to a proposed change in
ownership of Dealer.
4
<PAGE>
ARTICLE FOURTH: Management
(a) This Agreement has been entered into by Seller in reliance upon, and
in consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the person named as Dealer Principal in the Final Article of this
Agreement and in reliance on the following representations and agreements of FAA
and Dealer that:
(i) The Executive Manager of Dealer, subject to the provisions of
Article 15(f), and Thomas A. Price ("Price") will, subject to any other
obligations set forth in this Agreement, devote their full time efforts to the
business and day-to-day operations of the entity for which they are responsible.
(ii) Location Manager will devote 100% of his time to the affairs of the
relevant Dealership location
(b) Dealer. Seller and Dealer agree that the retention by Dealer of
------
qualified management is of critical importance to the successful operation of
Dealer and to the achievement of the purposes and objectives of this Agreement.
This Agreement has been entered into by Seller in reliance upon, and in
consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the persons named as Dealer Principal and Executive Manager in the
Final Article of this Agreement and in reliance on the following representations
and agreements of FAA and Dealer, that:
(i) There must be an approved Executive Manager, acceptable to Nissan.
There must be an approved Location Manager employed by Dealer to manage each
Dealership location. As long as Thomas A. Price and the Executive Manager
subject to the provisions of Article 15(f) are employed by FAA and the Location
Manager is employed by Dealer, they will have full and complete control over the
Dealership Operations, subject only to the powers of the Board of Directors of
Dealer to manage the business and affairs of Dealer, and they will at all times
be members of the Board of Directors of Dealer. In addition, any replacements
for Price and Executive Manager will, so long as such replacements are employed
by FAA and Dealer, have full and complete control over the Dealership
Operations, subject only to the powers of the Board of Directors of Dealer to
manage the business and affairs of Dealer, and such replacements will at all
times be members of the Board of Directors of Dealer.
(ii) the Board of Directors of Dealer shall delegate the management of
the Dealership Operations to the Executive Manager identified in Article 15(f),
and FAA will not amend its Certificate of Incorporation or By-laws to provide
that its Board of Directors is entitled to exercise any extraordinary powers or
interfere unduly in the Dealership Operations.
(iii) Location Manager, subject to any other obligations set forth in
this Agreement, shall continually provide his personal services in operating the
dealership and will be physically present at the Dealership Facilities on a
full-time basis.
(c) Changes in Management. In view of the fact that this is a personal
---------------------
services Agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, Dealer and FAA agree that any change in the
Dealer Principal from that specified in the Final Article of this Agreement
requires the prior written consent of Seller. Any change to the Executive
Manager requires notice to Seller and timely replacement with an Executive
5
<PAGE>
Manager acceptable to Seller. In addition, FAA and Dealer agree that no chief
executive officer, or person performing services and having responsibilities
similar to a chief executive officer, of FAA will be appointed, directly or
indirectly, without the prior written consent of Seller. Dealer shall give
Seller prior notice of any proposed change in Dealer Principal or Executive
Manager or the appointment of any chief executive or similar officer of FAA and
immediate notice of the death or incapacity of any Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager and no appointment
of a chief executive or similar officer of FAA shall be effective unless and
until embodied in an appropriate amendment to this Agreement duly executed and
delivered by all of the parties hereto. Subject to the foregoing, Dealer and FAA
shall make their own, independent decisions concerning the hiring and firing of
its employees, including, without limitation, the Dealer Principal and Executive
Manager.
Dealer shall give Seller prior written notice of any proposed change
in Dealer Principal, timely notice of any change to Executive Manger, and
immediate notice of the death or incapacity of Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager shall be effective
unless and until embodied in an appropriate amendment to this Agreement duly
executed and delivered by all of the parties hereto. Dealer acknowledges
Seller's right (as set forth herein and in the Standard Provisions) to require
consent to any change in the management of Dealer, and FAA and Dealer agree that
a change to the Dealer Principal or substitution of the Executive Manager,
without such consent from Seller is without effect upon Seller, of no force and
effect, and grounds for termination. FAA and Dealer further agree that they will
not challenge, contest, dispute, or litigate, except as provided by Article
Fifteenth (c):
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to change the
management of Dealer without Seller's consent; or
(ii) any decision by Seller to withhold consent to a proposed change in
management of Dealer; or
(iii) any decision by Seller to withhold approval of a proposed management
candidate.
To enable Seller to evaluate and respond to Dealer concerning any
proposed change in Dealer Principal or Executive Manager or the appointment of
any chief executive or similar officer of FAA agrees to provide, in the form
requested by Seller and in a timely manner, all applications and information
customarily requested by Seller to evaluate the proposed change. While Seller
shall not unreasonably withhold its consent to any such change, it is agreed
that any successor Dealer Principal, Executive Manager or Location Manager or
similar officer of FAA must possess personal qualifications, expertise,
reputation, integrity, experience and ability which are, in the opinion of
Seller, satisfactory. Seller will determine whether, in its opinion, the
proposed change or appointment is likely to result in a successful dealership
operation with capable management that will satisfactorily perform Dealer's
obligations under this Agreement. Seller shall have no obligation to transact
business with any person who is not named as a Dealer Principal or Executive
Manager of Dealer hereunder prior to having concluded its evaluation of such
person. Upon FAA's request, Seller may, but has no obligation to, transact
business with an individual proposed by Dealer and acceptable to Seller during a
prolonged incapacity or unavailability of Dealer Principal and Executive
Manager.
Any successor Dealer Principal or Executive Manager or similar
officer of FAA must meet the following minimum requirements in order to be
submitted to Seller for approval:
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(i) At least three years of experience as a general manager of an
automobile dealer in a major metropolitan area or similar position involving all
aspects of the day-to-day operations of such an automobile dealership
(including, without limitation, new and used vehicle sales, service, parts and
administration); and
(ii) A demonstrated track record of success in his/her prior automobile
dealership activities as measured by the dealerships' performance under his/her
management. The dealership(s) shall have consistently demonstrated at least the
following:
1. An above average level of sales performance when measured
against regional or zone averages and as measured against sales performance
objectives established by the manufacturer; and
2. An above average level of customer satisfaction when
measured against regional or zone averages for the make; and
3. A history of cooperation and good relations with
manufacturer(s) and/or distributor(s).
(d) Evaluation of Management. Dealer and Seller understand and
------------------------
acknowledge that the personal qualifications, expertise, reputation, integrity,
experience and ability of the Dealer Principal and Executive Manager and their
ability to effectively manage Dealer's day-to-day Dealership Operations is
critical to the success of Dealer in performing its obligations under this
Agreement. Seller may from time to time develop standards and/or procedures for
evaluating the performance of the Dealer Principal and Executive Manager and of
Dealer's personnel generally. Seller may, from time to time, evaluate the
performance of the Dealer Principal and Executive Manager and will advise
Dealer, the Dealer Principal and the Executive Manager of the results of such
evaluations and the way in which any deficiencies affect Dealer's performance of
its obligations under this Agreement.
(e) Compensation of Executive Manager. Executive Manager will have his
---------------------------------
compensation tied to Dealer's overall performance with respect to objectives for
sales, market penetration and customer service.
ARTICLE FIFTH: Additional Provisions
The additional provisions set forth in the attached "Nissan Dealer Sales
and Service Agreement Standard Provisions," bearing form number NDA-4S/9-88, as
amended in Article Thirteenth of this Agreement, and excepting only the
provisions contained in Sections 4, 14 and 16, are hereby incorporated in and
made a part of this Agreement. The Notice of Primary Market Area, Dealership
Facilities Addendum, Product Addendum, Dealership Identification Addendum,
Holding Company Addendum, if applicable, and all Guides and Standards referred
to in this Agreement (including references contained in the Standard Provisions
referred to above) are hereby incorporated in and made a part of this Agreement.
Dealer further agrees to be bound by and comply with: the Warranty Manual;
Seller's Manuals or Instructions heretofore or hereafter issued by Seller to
Dealer; any amendment, revision or supplement to any of the foregoing; and any
other manuals heretofore or hereafter issued by Seller to Dealer.
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ARTICLE SIXTH: Termination of Prior Agreements
This Agreement cancels, supersedes and annuls all prior contracts,
agreements and understandings except as stated herein, all negotiations,
representations and understandings being merged herein. No waiver, modification
or change of any of the terms of this Agreement or change or erasure of any
printed part of this Agreement or addition to it (except filling of blank spaces
and lines) will be valid or binding on Seller unless approved in writing by the
President or an authorized Vice President of Seller.
ARTICLE SEVENTH: Term
This Agreement shall have a term commencing on the effective date hereof
and, subject to its earlier termination in accordance with the provisions of
this Agreement, expiring on the expiration date indicated in the Final Article
of this Agreement. Subject to other applicable provisions hereof, this Agreement
shall automatically terminate at the end of such stipulated term without any
action by Dealer, Seller or any of the other parties hereto. If this Agreement
is not terminated prior to the expiration date set forth in the Final Article,
and if dealer is in substantial compliance with all provisions of this
Agreement, Seller will offer to enter into a new Agreement with Dealer in
substantially the same form as this Agreement.
ARTICLE EIGHTH: License of Dealer
If Dealer is required to secure or maintain a license for the conduct of
its business as contemplated by this Agreement in any state or jurisdiction
where any of its Dealership Operations are to be conducted or any of its
Dealership Facilities are located, this Agreement shall not be valid until and
unless Dealer shall have furnished Seller with written notice specifying the
date and number, if any, of such license or licenses issued to Dealer, Dealer
shall notify Seller immediately in writing if Dealer shall fail to secure or
maintain any and all such licenses or renewal thereof or, if such license or
licenses are suspended or revoked, specifying the effective date of any such
suspension or revocation.
ARTICLE NINTH: Additional Representations and Warranties
(a) All of the representations and covenants made to Seller by the other
parties to this Agreement have been made jointly and severally by each of the
parties hereto which has made any such representation or covenant.
(b) In addition to the representations set forth elsewhere in this
Agreement, FAA and Dealer jointly and severally, represent to Seller that:
(i) All of the documents and correspondence provided to Seller by FAA
and Dealer, or any of their agents in connection with the solicitation of
Seller's consent to this Agreement, are true and correct copies of such
documents.
(c) In addition to the covenants set forth elsewhere in this Agreement,
FAA and Dealer, jointly and severally, agree with Seller that:
(i) Dealer will at all times be involved in the operation of the Nissan
dealership currently operated by it and Dealer will not conduct any other type
of business.
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(ii) No distributions will be made to the stockholders or partners of
Dealer and FAA if such distributions would cause Dealer to fail to meet any of
the Guides and Standards relating to the capitalization of Dealer. In
particular, FAA will not be permitted to voluntarily redeem any of its preferred
stock, if prior to and after giving effect to such redemption Dealer fails to
meet any of the Guides and Standards relating to capitalization of Dealer.
(iii) FAA and Dealer hereby, jointly and severally, indemnify and hold
harmless, Seller, its officers, directors, affiliates and agents, and each
person who controls Seller within the meaning of the Securities Act of 1933, as
amended (the "Act"), from and against any and all losses, claims, damages or
liabilities, to which they or any of them may become subject under the Act, the
Securities Exchange Act of 1934, as amended, or any other federal or state
securities law, rule or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of the sale by FAA or Dealer of
any securities. The indemnification provided for in this paragraph shall be
exclusive of, and in addition to, any indemnification pursuant to Section 10 of
the Standard Provisions.
(iv) One of the conditions to the effectiveness of this Agreement by
Seller is the delivery of an opinion of counsel to all of the parties hereto
(other than Seller) to the effect that this Agreement has been duly executed and
delivered by each of the parties thereto (other than Seller) and is the legal,
valid and binding obligation of each of such parties enforceable in accordance
with its terms.
ARTICLE TENTH: Right of First Refusal, Option to Purchase, Exclusivity
A. Seller's Right of First Refusal and Option to Purchase
In addition to its rights under this Agreement, in the event that FAA or
Dealer should desire to enter into a transaction which requires Seller's
consent, and without such consent would result in a breach of the covenants set
forth in Article Third, Sections (a)(i); (a)(ii); (a)(iii); (a)(iv); or (b) of
this Agreement or in the event that any of the covenants set forth in Article
Third, Section (b); Article Fourth, Section (a)(vii); or Article Ninth, Section
(c)(ii) of this Agreement are breached, Seller shall have the additional right
and option to purchase the dealership assets or ownership interests under this
Right of First Refusal or Option to Purchase pursuant to this Article Tenth.
(a) If Seller chooses to exercise its Right of First Refusal or Option
to Purchase, it must do so in its written refusal to consent to the proposed
sale or transfer pursuant to Section 15 of the Standard Provisions or, if
Section 15 of the Standard Provisions does not apply, within sixty (60) days of
receipt of notification that a event triggering Seller's right of first refusal
hereunder has occurred. FAA and Dealer agree not to complete any proposed change
or sale prior to the expiration of the period for exercise of Seller's right of
first refusal and without Seller's prior written consent. Such exercise shall be
null and void if FAA and/or Dealer withdraws its proposal within thirty (30)
days following Dealer's receipt of Seller's notice exercising its rights of
first refusal. If Seller elects to exercise its Option to Purchase, it must so
notify FAA and Dealer in writing, specifying the nature of the breach upon which
it is relying, and, if practicable, providing FAA and Dealer with a reasonable
opportunity to cure the breach. If FAA or Dealer is not able to cure the breach
relied upon in the notice, or does not cure that breach, then FAA and Dealer may
attempt to sell or otherwise transfer the relevant Dealer Assets to an entity
acceptable to Seller within 60 days. If Seller reasonably does not approve such
a
9
<PAGE>
transfer, or if Dealer and FAA are unable to complete such a transaction, Seller
may request an additional 30 days for this purpose. If, at the end of this
period Seller reasonably does not approve a transfer, or, if Seller reasonably
does not approve the extension, then Seller may execute this Option to Purchase.
(b) After being exercised, Seller's right to purchase may be assigned to
any party, and Seller hereby agrees to guarantee the full payment of the
purchase price by such assignee. Seller's rights under this Article Tenth shall
be binding on and enforceable against any assignee or successor in interest of
Dealer or purchaser of Dealer's assets. Seller shall have no obligation to
exercise its rights hereunder.
(c) If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Seller's right under this Article Tenth shall
be a right of first refusal, enabling Seller to assume the prospective
purchaser's purchase rights and obligations under such buy/sell agreement. The
purchase price and other terms of sale shall be those set forth in such
agreement and any related documents. Seller may request and Dealer agrees to
provide all other documents relating to Dealer and the proposed transfer,
including, but not limited to, those reflecting any other agreements or
understandings between the parties to the buy/sell agreement. If Dealer refuses
either to provide such documentation or to state in writing that no such
document exists, it shall be presumed that the agreement is not bona fide.
(d) If Seller determines pursuant to paragraph (c) above that the
buy/sell agreement is not bona fide, Seller will so notify Dealer. Dealer shall
have twenty (20) days from its receipt of such notice within which to withdraw
its proposal. Seller's exercise of its rights hereunder shall be null and void
if Dealer withdraws its proposal within such time period. If the proposal is not
withdrawn, Seller shall have the option, but no obligation, under this Article
Tenth to purchase the principal assets of Dealer utilized in the Dealership
Operations, including real estate and leasehold interest or to purchase the
ownership interests of Dealer, and to terminate this Agreement and all rights
granted Dealer hereunder. If the Dealership Facilities are leased by Dealer from
an affiliated company, the right to purchase the principal assets, or the
ownership interests, of Dealer, shall include the right to lease the Dealership
Facilities. The purchase price shall be at the then fair market value as
determined by an independent appraiser selected by Seller and reasonably
acceptable to FAA and Dealer, and the other terms of sale shall be those agreed
by Seller, Dealer and FAA.
(e) Dealer shall transfer the affected property free and clear of liens,
claims, mortgages, and encumbrances.
(f) In addition to any other rights Seller may have at law, in equity or
hereunder, any conveyance of the dealership in violation of this right of first
refusal shall be voidable by Seller.
(g) In the event that Seller elects not to exercise its right of first
refusal to purchase the dealership assets or the ownership interests of the
Dealer; FAA and Smart Nissan, Inc., agree that they will offer to sell such
assets or interests to an entity or persons acceptable to Seller. If such
individuals are not interested in such a transaction and no other entity or
individuals acceptable to Seller can be found, then, at Seller's option, Seller
may approve a buyer proposed by FAA, may waive the linkage requirements between
dealerships, if any, or may propose a buyer to assume a bona fide offer procured
by Dealer.
B. Right of First Refusal on Sale or Lease of Property to a Third Party.
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a) In addition to its rights under Articles Third and Fourth and
Section 15 of the Standard Provisions, Dealer agrees that should Dealer seek to
sell or lease all or substantially all of the Approved Site to a third party for
use as a Nissan New Motor Vehicle Dealership, Seller shall have the additional
right and option, but not the obligation, to purchase or lease the Approved Site
pursuant to this Article Thirteenth. A sale or lease for use other than a Nissan
New Motor Vehicle Dealership, without Seller's consent, is void.
b) If Seller chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within 60 days of Seller's receipt
of notice of the proposed sale or lease by Dealer. Dealer agrees not to
complete any proposed sale or lease prior to the expiration of the period for
exercise of Seller's right of first refusal and without Seller's prior written
consent, and agrees to allow Seller to perform an environmental study of the
property. Such exercise shall be null and void if Dealer withdraws its sale or
lease proposal within thirty (30) days following Dealer's receipt of Seller's
notice exercising its right of first refusal.
c) After being exercised, Seller's right to purchase or lease may be
assigned to any party, and Seller hereby agrees to guarantee the full payment of
the purchase price or the rental payment by such assignee. Seller's rights under
this Article Thirteenth shall be binding on and enforceable against any assignee
or successor in interest of Dealer or purchaser of Dealer's assets. Seller shall
have no obligation to exercise its rights hereunder, and Seller may rescind its
offer if the property is determined to be contaminated pursuant to an
environmental study. Such contamination shall be deemed a breach of this
agreement by dealer.
d) Should Seller actually purchase or lease the facility, Dealer
shall also furnish to Seller copies of any easements, licenses, environmental
studies or other documents affecting the property.
e) Dealer shall transfer the affected property by deed conveying
marketable title free and clear of liens, claims, mortgages, encumbrances,
tenancies and occupancies, or, if applicable, by an assignment of any existing
lease. The Warranty Deed shall be in proper form for recording. Dealer shall
deliver complete possession of the property at the time of delivery of the Deed
or lease assignment. Dealer shall also furnish to Seller copies of any
easements, licenses, or other documents affecting the property and shall assign
any permits or licenses which are necessary for the conduct of the Dealership
Operations.
f) In addition to any other rights Seller may have at law, in equity
or hereunder, any sale or lease of the Approved Site in violation of this right
of first refusal shall be voidable by Seller.
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C. Exclusivity Provisions.
In order for Dealer to maintain competitive Dealership Facilities to
effectively market Nissan Products, Dealer hereby agrees to abide by and never
challenge, except as provided in Article Fifteenth (c), the following provisions
(hereinafter "Exclusivity Provisions"). These Exclusivity Provisions shall be
effective on or before the execution of the Agreement, and continue in effect
thereafter so long as Dealer (or its principals) are authorized Nissan dealers
and these provisions shall be binding on any successors-in-interest, assignors
or purchasers of Dealer:
a) The only line-make of new, unused motor vehicles which Dealer
shall display and sell at the Dealership Facilities shall be the Nissan line and
make of motor vehicles. Dealer shall not conduct any dealership operations for
any other make or line of new, unused vehicles from the Dealership Facilities
throughout the term of this Agreement.
b) Dealer shall sell and maintain a full line of Genuine Nissan
Parts and Accessories at the Dealership Facilities and shall provide a full
range of automotive servicing for Nissan vehicles at the Dealership Facilities
pursuant to Section 5 of the Standard Provisions to the Agreement. Nothing
contained herein, however, shall preclude Dealer from offering parts,
accessories or servicing for vehicles of other lines or makes so long as such
products or services are incidental to Dealer's Nissan Dealership Operations;
c) Dealer shall not advertise or promote any make or line of new,
unused vehicles from the Dealership Facilities other than the Nissan line; and
d) Dealer shall not install or maintain any sign at or near the
Dealership Facilities which would tend to lead the public into believing that
any line or make of vehicles other than the Nissan line is sold at the
Dealership Facilities.
ARTICLE ELEVENTH: Breach By Dealer
In the event (i) that any of the material representations and warranties of
Dealer, FAA, Thomas A. Price or Executive Manager, contained in this Agreement
shall prove not to have been true and correct when made or (ii) of any breach or
violation of any of the covenants made by Dealer and FAA, Thomas A. Price or
Executive Manager, in Articles Third, Fourth and Ninth of this Agreement or
(iii) of the occurrence of any of the events warranting termination of this
Agreement as set forth in Section 12.A of the Standard Provisions, Seller may
terminate this Agreement, prior to the expiration date hereof by giving Dealer
written notice thereof, specifying the nature of the breach; Dealer shall have
an opportunity to cure the breach within 45 days; at the expiration of this 45
day cure period, if the breach has not been satisfactorily cured, Seller may
terminate this Agreement by giving written notice to Dealer, such termination to
be effective upon the date specified in such notice, or such latter date as may
be required by any applicable statute with the effect set forth in Section 13 of
the Standard Provisions.
ARTICLE TWELFTH: Execution of Agreement
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This Agreement, and any Addendum or amendment or notice with respect
thereto, shall be valid and binding on Seller only when it bears the signature
of either the President or an authorized Vice President of Seller and, when such
signature is a facsimile, the manual countersignature of an authorized employee
of Seller at the Director level and a duplicate original thereof is delivered
personally or by mail to the Dealership Location. This Agreement shall bind
Dealer and the other parties hereto only when it is signed by: a duly authorized
officer or executive of Dealer or such party if a corporation; one of the
general partners of Dealer or such party if a partnership; or Dealer or such
party if an individual.
ARTICLE THIRTEENTH: Amendments to Standard Provisions
(a) Section 1.0 of the Standard Provisions is hereby amended to read as
follows:
"O. Principal Owners(s)' shall mean the persons named as Dealer Principal
in the Final Article of this Agreement upon whose personal qualifications,
expertise, integrity, experience, ability and representations Seller has relied
in entering into this Agreement."
(b) Section 6.I of the Standard Provisions is hereby amended to read as
follows:
"Seller shall have the right, at all reasonable times during regular
business hours, to inspect the Dealership Facilities and to examine, audit and
make and take copies of all records, accounts and supporting data relating to
the sale, sales reporting, service and repair of Nissan Products by Dealer.
Whenever possible, Seller shall attempt to provide Dealer with advance notice of
an audit or examination of Dealer's operations. Seller shall also have the
right, at all reasonable times during regular business hours and upon advance
notice, to examine, audit and make and take copies of all records, accounts and
supporting data of FAA and Dealer relating to the business, ownership or
operations of Dealer."
(c) Section 12.A.(l) of the Standard Provisions is hereby amended to read
as follows:
"(1) Any actual or attempted sale, transfer, assignment or delegation,
whether by operation of law or otherwise, by Dealer or FAA of any interest in or
right, privilege or obligation under this Agreement, or of the principal assets
necessary for the performance of Dealer's responsibilities under this Agreement,
without, in either case, the prior written consent of Seller having been
obtained, which consent shall not be unreasonably withheld;"
(d) Section 12.A.(3) of the Standard Provisions is hereby amended to read
as follows:
"(3) Removal, resignation, withdrawal or elimination from Dealer for any
reason of the Executive Manager, or removal, resignation, withdrawal or
elimination from Dealer of Thomas A. Price as President, or removal,
resignation, withdrawal or elimination from Dealer of Shane Griffin as Proposed
Executive Manager; provided, however, in each case, Seller shall give Dealer a
reasonable period of time within which to replace such person with a individual
satisfactory to Dealer as the case may be, and Seller in accordance with Article
Fourth of this Agreement; or the failure of Dealer to retain an Executive
Manager who, in accordance with Article Fourth of this Agreement, in Seller's
reasonable opinion, is competent, possesses the requisite qualifications for the
position, and who will act in a manner consistent with the continued interests
of both Seller and Dealer."
(e) Section 12.B.(2)(i) of the Standard Provisions is hereby amended to
read as follows:
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"(i) any dispute, disagreement or controversy between or among Dealer and
any third party or between the owners and management personnel of Dealer
relating to the management or ownership of Dealer develops or exists which, in
the reasonable judgment of Seller, tends to adversely affect the conduct of the
Dealership Operations or the interests of Dealer or Seller; or"
(f) Section 12.B.(2)(ii) of the Standard Provisions is hereby amended to
read as follows:
"(ii) any other act or activity of Dealer and/or FAA, or any of their
principal owners (ownership in excess of 20%) or senior management occurs, which
substantially impairs the reputation or financial standing of Dealer or its
executive management subsequent to the execution of this Agreement:"
(g) Exhibits A and B are hereby incorporated by reference.
ARTICLE FOURTEENTH: Branding / Business Name
The parties acknowledge and agree that Dealer shall do business as Marin
Nissan. Dealer agrees to include in its promotional, marketing and advertising
efforts the approved name of the Dealership or another name approved by Nissan
that includes the Nissan name. In all television, radio, print and other
advertising and marketing conducted by dealer, Dealer shall refer to itself as
"Marin Nissan" or such other approved name. Dealer shall actively and
effectively promote primarily the "Nissan" name. Under no circumstances shall
the name "Nissan" be subordinated to or promoted less aggressively than any
other name (eg. "FAA") by Dealer.
ARTICLE FIFTEENTH: Special Conditions
(a) Adequate Representation of Entire Line of Nissan Vehicles
Dealer shall actively and effectively promote the sale of Nissan's entire line
of vehicles and products to customers located throughout the Primary Market
Area. In evaluating Dealer's sales performance, in addition to those factors
established in the Standard Provisions, Nissan will evaluate Dealer's
performance by vehicle segment Dealer is obligated to adequately represent
Nissan in each and every model line. Adequate representation is the higher of
national, regional, state or DMA average, adjusted for segment popularity, as
set forth in the Business plan.
(b) Nissan Products
The definition of "Nissan Products" in the Standard Provisions is amended to
mean Nissan Vehicles (defined as Nissan Cars and Nissan Tucks as well as "near-
new" Nissan Vehicles of the current and three prior model years), Genuine Parts
and Accessories, Nissan Security+Plus and such other products and services
offered by Nissan to Dealer and designated by Nissan as a Nissan Product. Dealer
shall actively and effectively promote the sale of Nissan Products.
Effectiveness with respect to Nissan Security+Plus sales is measured by the
ratio of Security+Plus sales to new vehicles sales, compared to the higher of
national, regional, state or DMA average as set forth in the Business plan or as
otherwise set forth in the Business Plan.
(c) Dispute Resolution Process
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The parties acknowledge that, at the state and federal level, various
courts and agencies would, in the absence of this Article Fifteenth (d), be
available to them to resolve claims or controversies which might arise between
them. The parties agree that it is inconsistent with their relationship for
either to use courts or governmental agencies to resolve such claims or
controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. SEC. 1 ET SEQ.), THE PARTIES TO THIS AGREEMENT AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS SECTION, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING ANY DISPUTE,
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR
TO THE RELATIONSHIP BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS
UNDER ANY STATE OR FEDERAL STATUTES (HEREINAFTER "DISPUTES"). Section 16 of the
Standard Provisions is deleted in its entirety.
There are two steps in the Dispute Resolution Process: Mediation and Binding
Arbitration. All Disputes must first be submitted to Mediation, unless that step
is waived by written agreement of the parties. Mediation is conducted by a panel
consisting of an equal number of representatives of the parties designated by
Nissan and selected by Dealer. The Mediation Panel will evaluate each position
and recommend a solution. This recommended solution is not binding.
If a dispute has not been resolved after Mediation, or if Dealer and Nissan have
agreed in writing to waive Mediation, the Dispute will be settled by Binding
Arbitration. SPECIFICALLY, THE PARTIES AGREE TO RESOLVE ALL SUCH DISPUTES BY
BINDING ARBITRATION CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION
PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION, WITH THE PREVAILING PARTY TO
RECOVER ITS COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY. ALL ARBITRATION
AWARDS ARE BINDING AND NON-APPEALABLE, EXCEPT AS OTHERWISE PROVIDED IN THE
UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY BE ENTERED AND
ENFORCED IN ANY COURT HAVING JURISDICTION.
(d) Business Plan
Dealer and Nissan shall execute a Business Plan in the form specified in
the Business Planning Process Workbook that describes how Dealer will fulfill it
sales, service, customer relations and other commitments hereunder, including
heightened performance standards that Dealer commits to meet;
(e) Option to Purchase
If the Dealer Agreement is to expire or be terminated: i) Voluntarily by
Dealer; ii) By Nissan upon the occurrence of any of the events specified in
Section 12A. of the Standard Provisions to the Agreement (as modified herein);
or iii) As a result of the death or physical or mental incapacity of Principal
Owners, without a qualified successor under the successorship plan required in
the Business Plan under Section 6 of the Contiguous Market Ownership Addendum,
without a timely replacement, reasonably acceptable to Seller, Nissan has the
option to Purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan may elect to purchase, and
cancel the Agreement and all rights granted Dealer thereunder. The purchase
price of the dealership assets and real property and other terms will be
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determined by agreement between the parties or, if the parties are unable to
reach agreement in a reasonable time, by arbitration pursuant to the Dispute
Resolution Process established in Paragraph 12 hereof. Nissan must advise Dealer
of its intent to exercise this option within 30 days after one party notifies
the other of its intent to terminate the Agreement. Nissan may assign its right
to exercise its option to purchase under this paragraph to any third party.
(f) Executive Manager Evaluation
Dealer shall retain a qualified Executive Manager meeting Seller's approval
to be named under the Final Article of this Agreement.
Dealer has proposed Shane Griffin as Executive Manager. Shane Griffin is
currently enrolled in the Evaluation Program effective January 1, 1997. Although
Griffin has yet to be approved as Executive Manager by Nissan, Nissan is willing
to continue to evaluate him under its executive management evaluation program.
Accordingly, the qualifications and performance of Shane Griffin, the individual
proposed to be named as the Executive Manager of Dealer, shall be evaluated by
Seller for the remaining time period ending with the Region's receipt and review
of the June 1997 R.L. Polk Retail Sales Registration Information. Region will
complete a full review of Shane Griffin's qualifications within 30 days of
receipt of said Information.
If at the time of such evaluation Shane Griffin's and Dealer's performance in
all departments of the dealership (including sales, service, parts and customer
satisfaction) is not satisfactory to Seller under the evaluation program
guidelines, Dealer shall be obligated to retain another individual who is a
qualified Executive Manager to be named under the Final Article of this
Agreement within sixty (60) days of the date that Seller notifies Dealer that
Shane Griffin has not met the executive management requirements of Seller as
described above. If Shane Griffin and Dealer perform satisfactorily during this
evaluation period, then Nissan will approve him as Executive Manager.
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FINAL ARTICLE
-------------
The Dealer is Smart Nissan, Inc., a corporation formed under the laws of the
California. Dealer is located in San Rafael, CA.
Other parties relevant to this Agreement are FirstAmerica Automotive, Inc., a
corporation incorporated under the laws of the Nevada, and Thomas A. Price.
The Dealer Principal is Thomas A. Price.
The Proposed Executive Manager is Shane Griffin.
<TABLE>
<CAPTION>
<S> <C>
Expiration Date: 6/30/2002
---------
Working Capital Guide Requirement: $ 139,250
Net Worth Guide Requirement: $ 874,000
Flooring Line: $2,443,665
</TABLE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
triplicate effective as of the 30th day of June, 1997 at Carson, California.
---- -----
SELLER:
NISSAN DIVISION
NISSAN MOTOR DIVISION CORPORATION IN USA
By: /s/ Thomas H. Eastwood By: /s/ Jules Clavadetscher
---------------------------------- ---------------------------------
Thomas H. Eastwood Jules Clavadetscher
Vice President, Nissan Division Regional Vice President
Smart Nissan, Inc.
By: /s/ Thomas A. Price
----------------------------------
Thomas A Price
Its: President
ACKNOWLEDGED.
FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Thomas A. Price
-----------------------------
Thomas A. Price
Its: President and CEO
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EXHIBIT 10.3.7
NISSAN CONTIGUOUS MARKET OWNERSHIP ADDENDUM
-------------------------------------------
This Nissan Contiguous Market Ownership Addendum (the "CMO Agreement") is
entered into this 30th day of JUNE, 1997, by and among Nissan Motor Corporation
in U.S.A. ("Nissan"), Thomas A. Price ("Dealer Principal" or "Price"), Smart
Nissan, Inc., ("Marin Nissan" or "Dealer"), and FirstAmerica Automotive, Inc.,
("FAA").
RECITALS
--------
WHEREAS, Nissan, FAA and Dealer desire to create a Contiguous Market Ownership
Area in the San Francisco Bay Area, (the "Penisula CMO");
WHEREAS, Nissan, FAA and Dealer commit to develop and execute a Market Area Plan
that describes how Dealer will develop the Peninsula CMO through the provision
or establishment of Dealership Facilities;
WHEREAS, Nissan, FAA and Dealer also commit to develop and execute a Business
Plan that describes how Dealer will fulfill its sales, service, customer
relations and other commitments hereunder, including heightened performance
standards that Dealer commits to meet;
WHEREAS, Dealer commits to operate in accordance with the Market Area Plan and
the Business Plan;
WHEREAS, Nissan, Price, FAA and Dealer acknowledge that this CMO Agreement
forges a new collaborative relationship in the automotive industry that is
uniquely and mutually beneficial to the parties, was negotiated by them in the
spirit of cooperation, and does not adversely affect their existing rights and
responsibilities;
WHEREAS, Price, FAA and Dealer, in exchange for the opportunities and other
consideration specified herein, agree to assume the obligations set forth
herein; and
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO AGREEMENT
-----------------
The CMO Agreement supplements the Nissan Dealer Sales and Service Agreement
between Nissan and Dealer (the "Dealer Agreement"), including the Standard
Provisions thereto (the "Standard Provisions"). To the extent that the CMO
Agreement conflicts with the Dealer Agreement, the CMO Agreement controls
and shall govern the relationship between the parties. Subject to such
conflicts and except as otherwise provided herein, the Dealer Agreement
survives the execution of the CMO Agreement and remains in full force and
effect.
<PAGE>
2. DEFINITIONS
-----------
The parties agree that the following terms, as used in the CMO Agreement,
shall be defined exclusively as set forth below.
A. "NISSAN VEHICLES" shall mean Nissan Cars and Nissan Trucks as
well as "near-new" Nissan Vehicles of the current and three prior
model years.
B. "NISSAN PRODUCTS" shall mean Nissan Vehicles, Genuine Parts and
Accessories, Nissan Security + Plus and such other products and
services offered by Nissan to Dealer and designated by Nissan as a
Nissan Product.
C. "PRIMARY MARKET AREA" shall mean the Peninsula CMO, which shall
consist of the entire geographic area that is designated from time to
time as the area of Dealer's sales and service responsibility for
Nissan Products in a Notice of Primary Market Area issued by Nissan to
Dealer. Nissan reserves the right, in its reasonable discretion, to
issue a new, superseding "Notice of Primary Market Area" to Dealer
from time to time.
D. "EXECUTIVE MANAGER" shall mean the person named as Executive
Manager in the Final Paragraph of the Dealer Agreement upon whose
personal qualifications, expertise, reputation, integrity, experience,
ability and representations that he or she shall devote his or her
efforts to and have full managerial authority and responsibility for
the day-to-day management and performance of Dealer throughout the
Peninsula CMO, or with Nissan's consent, any contiguous CMO(s),
including but not limited to the supervision of all Location Managers,
which Nissan has relied in entering into the CMO Agreement.
E. "LOCATION MANAGER" shall mean the persons named as Location
Managers in the Location Manager Addendum to the CMO Agreement upon
whose personal qualifications, expertise, reputation, integrity,
experience, ability and representations that he or she shall devote
his or her full-time efforts to and have managerial authority and
responsibility for the day-to-day management and performance of Dealer
at a particular Dealership Facility, Nissan has relied in entering
into the CMO Agreement.
F. "MARKET AREA PLAN" shall mean the written plan prepared and
executed by the parties that describes the number, location, type,
size and opening date of the Dealership Facilities to be provided by
Dealer hereunder.
G. "BUSINESS PLAN" shall mean the written plan prepared and executed
by the parties that contains Dealer's plan and commitment to develop
its business throughout the Peninsula CMO, including but not limited
to its plan and commitment with respect to organizational,
operational, financial, succession and other issues, and certain
standards on which its performance hereunder will be evaluated.
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H. "Dealership Facilities" shall mean the land areas at each
Dealership Location and the buildings and improvements erected thereon
provided by Dealer in accordance with Section 2 of the Standard
Provisions and the Market Area Plan.
3. TERM
----
This Agreement and the Dealer Agreement shall have a renewable term
commencing on its effective date and continuing for a term of five years
unless terminated earlier in accordance with Section 12 of the Standard
Provisions or the CMO Agreement.
4. DEALERSHIP LOCATION AND DEALERSHIP FACILITIES
---------------------------------------------
A. DEALERSHIP FACILITIES
---------------------
In accordance with the Market Area Plan, FAA and Dealer shall provide
Dealership Facilities at each Dealership Location that are
satisfactory in space, appearance, usage, layout and signage; and
otherwise are substantially in accordance with the Guides therefor
established by Nissan from time to time. Dealer shall conduct its
Dealership Operations only from the Dealership Locations specified in
the Dealership Facilities Addendum and shall use each such place of
business only for the purposes specified therefor in the Dealership
Facilities Addendum. Where applicable, Dealer shall establish
additional Dealership Facilities in the time, place and manner agreed
to by Dealer and Nissan in the Market Area Plan. Dealer agrees that
the Dealership Facilities shall have a consistent image, appearance
and name.
B. DEALERSHIP FACILITIES ADDENDUM
------------------------------
FAA, Dealer and Nissan shall execute a Dealership Facilities Addendum
which will include a description of each Dealership Location and each
Dealership Facility as well as the approved use for each such place of
business and facility.
C. EXCLUSIVE NISSAN OPERATIONS
---------------------------
FAA and Dealer agree that each Dealership Facility and Dealership
Location shall be dedicated to the promotion of Nissan Products and
devoted exclusively to the conduct of Nissan sales, service, parts
and/or other operations as specified in the Dealership Facilities
Addendum. Dealer shall not conduct any sales, service, parts and/or
other operations for any other new line-make of vehicles at any of the
Dealership Facilities or Dealership Locations.
D. PENINSULA CMO OBLIGATIONS
-------------------------
FAA shall develop, and Dealer shall devote its full efforts to
developing the Peninsula CMO. Consequently, Dealer agrees that it will
not engage, either directly or indirectly, in any of the activities
contemplated by the CMO Agreement from facilities or locations outside
of the Peninsula CMO. If Dealer fails to
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develop the Peninsula CMO according to its Market Area Plan or to
implement the plans or meet the performance standards established in
the Business Plan, then Nissan, will provide written notice specifying
the default and a reasonable period of at least 45 days within which
to cure the default. Should the 45 day cure period expire without
material remedy of the breach, Nissan may (i) terminate the CMO
Agreement under Paragraph 11 hereof, (ii) restructure the Peninsula
CMO and reassign to other Authorized Nissan Dealers any areas
necessary to achieve the maximum potential development of the
Peninsula CMO, or (iii) exercise its option to purchase under
Paragraph 10.C hereof.
5. MARKET AREA PLAN
----------------
FAA, Dealer and Nissan shall execute a Market Area Plan that describes how
Dealer will develop its Primary Market Area through the provision or
establishment of Dealership Facilities. The Market Area Plan is an
essential part of the CMO Agreement.
A. MARKET AREA DEVELOPMENT
-----------------------
FAA and Dealer agree to develop its Primary Market Area according to the
Market Area Plan, which shall include a detailed description of the number,
location, type, size, usage and opening date of the Dealership Facilities
to be provided.
B. PLAN MODIFICATIONS
------------------
The Market Area Plan may be modified only if Nissan, FAA and Dealer agree
that a material change in marketing conditions warrants the proposed
modification.
C. MARKET STUDIES
--------------
The parties agree that although Nissan may continue to perform market
studies of the Primary Market Area and any contiguous market areas, or any
portion thereof pursuant to Section 4.A of the Standard Provisions, they
will base the Market Area Plan on their collaborative review and analysis
of all relevant data, including such market studies. Section 4.B of the
Standard Provisions is hereby deleted in its entirety.
D. WAIVER OF CLAIMS BASED ON NISSAN'S ACTIONS OUTSIDE THE PRIMARY
--------------------------------------------------------------
MARKET AREA
-----------
Nissan agrees that in taking action outside the Primary Market Area, it
will consider the impact of such action on Dealer's investment in and plans
for the Primary Market Area. Dealer agrees not to initiate or prosecute any
judicial, administrative or governmental proceeding with respect to
Nissan's actions outside the Primary Market Area, including but not limited
to its appointment or relocation of any other Authorized Nissan Dealer.
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6. BUSINESS PLAN
-------------
FAA, Dealer and Nissan shall execute a Business Plan in the form specified
in the Business Planning Process Workbook that describes how Dealer will
fulfill its sales, service, customer relations, marketing and other
commitments hereunder. The Business Plan is an essential part of the CMO
Agreement.
A. BUSINESS PLANNING
-----------------
The Business Plan shall include the following elements:
i. a statement of Dealer's legal and financial structure, including
capitalization, line of credit and equity ownership;
ii. the sales, service, customer relations, marketing and other
standards on which Dealer's performance will be evaluated, which
standards Dealer acknowledges and agrees will be higher than
those established for Authorized Nissan Dealers that are not
responsible for a CMO;
iii. a detailed organizational structure and staffing plans, including
the number of certified sales, service and parts managers, sales
personnel, and technicians that shall be provided for the
Peninsula CMO;
iv. specific plans for maximizing owner loyalty and customer
satisfaction, including hours of operation and customer
convenience systems;
v. advertising, merchandising, marketing and community relations
plans;
vi. successorship, including the identity of the proposed successors
to Dealer, Dealer Principal and/or Executive Manager; and
vii. other standards or plans as agreed by Nissan, FAA and Dealer.
B. OPERATIONS
----------
Dealer shall operate in accordance with the Business Plan and shall
actively and effectively promote the sale of Nissan Products to
customers located throughout the Primary Market Area. In particular,
Dealer shall implement the plans and meet the performance standards
established in the Business Plan.
C. ANNUAL BUSINESS PLAN REVIEW
---------------------------
Dealer shall review and update its Business Plan annually, or more
often if needed, and submit it to Nissan for joint review. Updated
Plans will include a performance evaluation and any proposed
modifications to the prior year's plan. If Nissan,
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FAA and Dealer agree that changes to the proposed Plan are necessary,
Dealer will make such changes and resubmit its Plan.
I. PERFORMANCE EVALUATION
----------------------
Dealer's performance of its obligations is essential to the
effective representation of Nissan Products, and to the
reputation and goodwill of Nissan, in the Peninsula CMO.
Therefore, Dealer agrees to review its performance against the
prior year's Business Plan in its updated Business Plan. Nissan,
FAA and Dealer will use this analysis as a basis for jointly
evaluating Dealer's performance so that any necessary
improvements can be made. In evaluating Dealer's sales
performance, in addition to those factors established in the
Standard Provisions, Nissan will give consideration to: (a) sales
volume or market share objectives for Nissan Products set by the
parties, and (b) sales and market penetration achieved by Dealer
in each of the various segments in which Nissan Vehicles compete.
II. PLAN MODIFICATIONS
------------------
Plans for operations are subject to update, but modifications can
be implemented only if Nissan, FAA and Dealer agree thereto.
7. OTHER DEALER RESPONSIBILITIES
-----------------------------
A. FINANCIAL AND OPERATIONAL REPORTING
-----------------------------------
Dealer shall provide to Nissan financial statements and sales reports
pursuant to Section 6.G of the Standard Provisions for each Dealership
Facility and for Dealer for the entire Primary Market Area. Dealer
shall furnish to Nissan annual certified financial statements for
Dealer or for the entity that owns Dealer and shall otherwise disclose
to Nissan in a format reasonably satisfactory to Nissan the financial
and operational results of Dealer's Nissan business.
B. DISCLOSURE OF FINANCIAL INFORMATION TO AFFILIATED COMPANIES
-----------------------------------------------------------
Nissan shall be entitled to disclose to and receive from affiliated
companies, including but not limited to Nissan Motor Acceptance
Corporation, all financial statements and reports provided by Dealer
under the CMO Agreement and/or the Dealer Agreement or otherwise
relating to Dealership Operations.
C. DEALER'S LOAN ARRANGEMENTS FOR REAL PROPERTY
--------------------------------------------
Dealer's loan arrangements for its Dealership Facilities and/or
Dealership Locations shall grant to Nissan the right to notice of and
a reasonable opportunity
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to cure any default thereunder as well as the right to take possession
of such real property upon such cure, and shall otherwise be
satisfactory in form to Nissan.
8. NISSAN CAR AND NISSAN TRUCK ALLOCATIONS
---------------------------------------
Nissan's allocation of Nissan Cars and Nissan Trucks to Dealer shall be
based on the entire Primary Market Area in accordance with the procedures
established therefor by Nissan.
9. TRANSFERS
---------
A. SALE OF PENINSULA CMO DEALERSHIP
--------------------------------
In view of the efforts and resources that Nissan has expended in order
to establish the Peninsula CMO, if Dealer proposes to sell certain
assets or Dealership Facilities, Nissan may require that Dealer sell
all Peninsula CMO dealership assets, or none of such assets or
Dealership Facilities to the proposed buyer.
B. QUALIFICATIONS OF PROPOSED DEALER PRINCIPAL
-------------------------------------------
FAA and Dealer acknowledge and agree that, in view of the increased
responsibilities that Price has assumed as the principal of Dealer for
the Peninsula CMO, Nissan has and will apply heightened standards with
respect to the personal, business and financial qualifications,
expertise, reputation, integrity, experience and ability of a proposed
Dealer Principal.
C. SUCCESSORSHIP
-------------
Section 14 of the Standard Provisions is hereby deleted in its
entirety. The parties shall address successorship in the Business Plan
prepared pursuant to Paragraph 6 hereof. Dealer shall identify the
proposed successor to Dealer, Dealer Principal an/or Executive Manager
in its successorship plan and shall provide such documents and
information as Nissan may reasonably require in evaluating such plans.
Nissan shall evaluate such plan and approve it only if it meets the
heightened standards applied by Nissan in connection with Nissan
Contiguous Market Ownership Agreements. Subject to Paragraph 10
hereof, the parties agree that if for any reason Dealer is unable to
implement its successorship plan upon the death or physical or mental
incapacity of Dealer Principal, then Dealer shall be given a
reasonable period of time not to exceed six (6) months in which to
transfer to person(s) acceptable to Nissan the principal assets of
Dealer utilized in the dealership business, including but not limited
to the Dealership Facilities, and for such person(s) to apply for a
Nissan Dealer Sales and Service Agreement and, if applicable, a Nissan
Contiguous Market Ownership Agreement.
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D. DEALER'S OBLIGATION TO REPAY FINANCIAL INTERVENTION FUNDING UPON
----------------------------------------------------------------
PUBLIC OFFERINGS
----------------
If Nissan has furnished financial intervention funding to FAA and/or
Dealer in connection with the establishment or development of the
Peninsula CMO, then, upon the completion of any public offering of FAA
and/or Dealer's stock or other ownership interest, upon Nissan's
demand, Dealer shall repay to Nissan the full amount of such funding.
10. RIGHTS OF FIRST REFUSAL OR OPTION TO PURCHASE
---------------------------------------------
A. DEALERSHIP ASSETS OR OWNERSHIP INTERESTS
----------------------------------------
Whenever Dealer proposes to sell its principal assets or the owners of
Dealer propose to sell a majority ownership interest in Dealer, in
addition to its rights under Articles Third and Fourth of the Dealer
Agreement and Section 15.B of the Standard Provisions, Nissan shall
have the right and option to purchase the dealership assets or
ownership interests pursuant to this Paragraph 10.
i. If Nissan chooses to exercise its option, it must do so in its
written refusal to consent to the proposed sale or transfer
pursuant to Section 15.B. Dealer agrees not to complete any
proposed change or sale prior to the expiration of the period for
exercise of Nissan's option and without Nissan's prior written
consent. Such exercise shall be null and void if Dealer withdraws
its proposal within thirty (30) days following Dealer's receipt
of Nissan's notice exercising its option.
ii. After being exercised, Nissan's option may be assigned to any
party, and Nissan hereby agrees to guarantee the full payment of
the purchase price by such assignee. Nissan's rights under this
Paragraph 10 shall be binding on and enforceable against any
assignee or successor in interest of Dealer or purchaser of
Dealer's assets. Nissan shall have no obligation to exercise its
rights hereunder.
iii. If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Nissan's right under this
Paragraph 10 shall be a right of first refusal, enabling Nissan
to assume the prospective purchaser's rights and obligations
under such buy/sell agreement. The purchase price and other terms
of sale shall be those set forth in such agreement and any
related documents. Nissan may request, FAA and Dealer agrees to
provide all other documents relating to Dealer and to the
proposed transfer, including, but not limited to, those
reflecting any other agreements or understandings between the
parties to the buy/sell agreement. Nissan shall have sixty (60)
days from its receipt of all such documents in which to exercise
its right of first refusal hereunder. If Dealer refuses either
to
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<PAGE>
provide such documentation or to state in writing that no such
documents exist, it shall be presumed that the agreement is not
bona fide.
iv. In the absence of a bona fide written buy/sell agreement, Nissan
shall have the option, but no obligation, under this Paragraph 10
to purchase the principal assets of Dealer utilized in the
Dealership Operations, including real property and leasehold
interest, and to terminate this Agreement and all rights granted
Dealer hereunder. If the Dealership Facilities are leased by
Dealer from an affiliated company, the right to purchase the
principal assets of Dealer shall include the right to lease the
Dealership Facilities. The purchase price of Dealer's assets
shall be at their fair market value as a going concern as
negotiated by the parties and the other terms of sale shall be
those agreed by Dealer and Nissan. If Dealer and Nissan are
unable to reach a negotiated settlement in a reasonable time, the
price and other terms of sale shall be established by arbitration
pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. If Nissan determines that the buy/sell
agreement is not bona fide, Nissan will so notify Dealer. Dealer
shall have ten (10) days from its receipt of such notice within
which to withdraw its proposal. Nissan's exercise of its rights
hereunder shall be null and void if Dealer withdraws its proposal
within such time period.
v. Dealer shall transfer the affected property free and clear of
liens, claims, mortgages, encumbrances, tenancies and
occupancies. Dealer shall also furnish to Nissan copies of any
easements, licenses, or other documents affecting the dealership
and/or property and shall assign any permits or licenses which
are necessary for the conduct of the Dealership Operations.
B. REAL PROPERTY
-------------
Whenever Dealer proposes to sell or lease any of its Dealership
Facilities and/or Dealership Locations, in addition to its rights
under Article Third and Fourth of the Dealer Agreement and Section
15.B of the Standard Provisions, Nissan shall have the right and
option to purchase or lease said Dealership Facilities and/or
Dealership Locations pursuant to this Paragraph 10.B.
i) If Nissan chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within sixty (60)
days of Nissan's receipt of notice of the proposed sale or lease
by Dealer. Dealer agrees not to complete any proposed sale or
lease prior to the expiration of the period for exercise of
Nissan's right of first refusal and without Nissan's prior
written consent, and agrees to allow Nissan to perform an
environmental study of the property. Dealer also agrees to
furnish to Nissan copies of any easements, licenses,
environmental studies or other documents affecting the property
Such exercise shall be null and void if Dealer withdraws its sale
9
<PAGE>
or lease proposal within thirty (30) days following Dealer's
receipt of Nissan's notice exercising its right of first refusal.
ii) After being exercised, Nissan's right to purchase or lease may be
assigned to any party, and Nissan hereby agrees to guarantee the
full payment of the purchase price or the rental payment by such
assignee. Nissan's rights under this Paragraph 10.B shall be
binding on and enforceable against any assignee or successor in
interest of Dealer or purchaser of Dealer's assets. Nissan shall
have no obligation to exercise its rights hereunder, and Seller
may rescind its offer if the property is determined to be
contaminated pursuant to an environmental study. Such
contamination shall be deemed a breach of this agreement by
dealer.
iii) Dealer shall transfer the affected property by Warranty Deed
conveying marketable title free and clear of liens, claims,
mortgages, encumbrances, tenancies and occupancies, or, if
applicable, by an assignment of any existing lease. The Warranty
Deed shall be in proper form for recording. Dealer shall deliver
complete possession of the property at the time of delivery of
the Deed or lease assignment. Dealer shall also assign any permit
or licenses which are necessary for the conduct of the Dealership
Operations.
iv) In addition to any other rights Nissan may have at law, in equity
or hereunder, any sale or lease of the Dealership Facilities
and/or the Dealership Locations in violation of this right of
first refusal shall be voidable by Nissan.
C. OPTION TO PURCHASE
------------------
If the CMO Agreement or the Dealer Agreement is to expire or be
terminated for any reason, including but not limited to the death or
physical or mental incapacity, without replacement in accordance with
Section 9.C. hereinabove, of Dealer Principal, Nissan has the option
to purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan in its sole
discretion may elect to purchase, and cancel the CMO Agreement and the
Dealer Agreement and all rights granted Dealer thereunder. The
purchase price of the dealership assets and real property and other
terms will be determined by agreement between the parties or, if the
parties are unable to reach agreement in a reasonable time, by
arbitration pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. Nissan must advise Dealer of its intent to
exercise this option within 30 days prior to the expiration of the CMO
Agreement and/or the Dealer Agreement or within 30 days after one
party notifies the other of its intent to terminate the CMO Agreement
and/or the Dealer Agreement. Nissan may assign its right to exercise
its option to purchase under this Paragraph 10.C to any third party.
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11. TERMINATION
-----------
A. TERMINATION DUE TO ACTS OR EVENTS
---------------------------------
The following represent events which are within the control of or
originate from actions taken by Dealer or its management or owners and
which are so contrary to the intent and purpose of the CMO Agreement
that they warrant its termination and the termination of the Dealer
Agreement:
(i) Any conduct that warrants the termination of the Dealer
Agreement;
(ii) The termination of the Dealer Agreement;
(iii) The failure of Dealer to maintain at all times exclusive Nissan
sales, service, parts and/or other operations at the Dealership
Facilities and the Dealership Locations; or
(iv) Any actual or attempted sale or transfer of stock or any other
ownership interest in Dealer by way of a public offering without
Nissan's prior written consent;
Upon the occurrence of any of the foregoing events, Nissan may
terminate the CMO Agreement by giving Dealer notice thereof, such
termination to be effective upon the date specified in such notice, or
such later date as may be required by any applicable statute.
B. TERMINATION FOR NON-PERFORMANCE
-------------------------------
If, based on the evaluation thereof made by Nissan, Dealer shall fail
to substantially fulfill its responsibilities with respect to:
(i) the development of the Peninsula CMO according to the Market
Area Plan;
(ii) the implementation of the plans set forth in the Business Plan,
including but not limited to any deviation therefrom; or
(iii) the performance of its sales, service, customer relations or
other obligations based on the standards established therefor in
the Business Plan;
Nissan will notify Dealer of such failure and will review with Dealer
the nature and extent of such failure and the reasons which, in
Nissan's or Dealer's opinion, account for such failure. Thereafter,
Nissan will provide Dealer with a reasonable opportunity to correct
the failure. If Dealer fails to make substantial progress towards
remedying such failure before the expiration of such period, Nissan,
may, direct Dealer to transfer its rights and obligations under this
Agreement to another entity, acceptable to Nissan, within a reasonable
time. Should Dealer fail to do so
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Nissan may (a) terminate this Agreement by giving Dealer notice of
termination, such termination to be effective at least sixty (60) days
after such notice is given, (b) exercise its option to purchase the
principal assets of Dealer utilized in the business, including such
real property as Nissan in its sole discretion may elect to purchase,
and cancel the CMO Agreement and the Dealer Agreement pursuant to
Paragraph 10.C hereof, or (c) restructure the Peninsula CMO and
reassign to other Authorized Nissan Dealers any areas necessary to
achieve the maximum potential development of the Peninsula CMO.
12. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 12, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN AND DEALER AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12,
WHICH INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM
FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN
THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR
FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation,
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, the Dealer or Nissan can submit the Dispute to Binding
Arbitration.
Section 16 of the Standard Provisions is deleted in its entirety.
B. MEDIATION
---------
Dealer or Nissan can submit a Dispute to Mediation. Mediation is
conducted by a panel consisting of a Nissan representative designated
by Nissan, a Dealer representative designated by Dealer, and an
independent professional mediator chosen by the parties'
representatives. The Mediation Panel will evaluate each position and
recommend a solution. This recommended solution is not binding.
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C. BINDING ARBITRATION
-------------------
If a dispute has not been resolved after Mediation, or if Dealer and
Nissan have agreed in writing to waive Mediation, the Dispute will be
settled by Binding Arbitration. SPECIFICALLY, THE PARTIES AGREE TO
RESOLVE ALL SUCH DISPUTES BY BINDING ARBITRATION CONDUCTED IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION PROCEDURES OF THE AMERICAN
ARBITRATION ASSOCIATION, WITH THE PREVAILING PARTY TO RECOVER ITS
COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY. ALL ARBITRATION AWARDS
ARE BINDING AND NON-APPEALABLE, EXCEPT AS OTHERWISE PROVIDED IN THE
UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY BE
ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION.
13. RELEASE
-------
Dealer hereby releases Nissan from any and all claims and causes of action
that it may have against Nissan for money damages or other relief relating
to or arising out of any event occurring prior to the execution of the CMO
Agreement, except for any accounts payable by Nissan to Dealer in
connection with the provision of any services under the Dealer Agreement
and any claim described in Section 11. A.1 and .2 of the Standard
Provisions. In connection with this release, Dealer expressly acknowledges
and waives its rights under California Civil Code, Section 1542, which
provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
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SMART NISSAN, INC NISSAN MOTOR CORPORATION IN U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
----------------------------- ------------------------------
Thomas A. Price, President Thomas H. Eastwood, Vice President
By: /s/ Jules Clavadetscher
------------------------------
Jules Clavadetscher
Regional Vice President
Acknowledged and Concur:
FirstAmerica Automotive, Inc.
By: /s/ Thomas A. Price
-----------------------------
Thomas A Price, President
President and CEO
14
<PAGE>
EXHIBIT 10.3.8
NISSAN CONTIGUOUS MARKET OWNERSHIP
----------------------------------
HOLDING COMPANY AGREEMENT
-------------------------
This Nissan Contiguous Market Ownership Holding Company Agreement (the "CMO
Holding Company Agreement") is entered into this 30th day of JUNE, 1997, by and
among Nissan Motor Corporation in U.S.A. ("Nissan"), and FirstAmerica
Automotive, Inc., ("FAA" or "Holding Company") concerning the commitments and
obligations of FAA in respect to its subsidiaries, Smart Nissan, Inc., ("Marin
Nissan") and FAA Serramonte, Inc., ("Serramonte Nissan"), and any other entities
which FAA may acquire within the designated area described hereinafter as the
"Peninsula CMO".
RECITALS
--------
WHEREAS, Nissan has developed a distribution network plan that seeks to create a
Contiguous Market Ownership Area in the San Francisco Bay Area (the "Peninsula
CMO");
WHEREAS, Nissan recognizes this new distribution plan is to be implemented over
time with consideration of existing dealers' rights;
WHEREAS, FAA has approached Nissan with a request to develop the Peninsula CMO;
WHEREAS, Nissan has advised FAA that Nissan would approve their acquisition of
individual dealers, provided FAA satisfies Nissan's requirements for applicants;
and Nissan has advised FAA that Nissan cannot make existing dealers sell or
otherwise transfer their dealerships to FAA;
WHEREAS, FAA acknowledges the rights of existing dealers, yet commits to use its
best good faith and reasonable efforts to acquire dealerships within the
Peninsula CMO, with an intent to form the complete Peninsula CMO marketing
territory;
WHEREAS, FAA acknowledges that Nissan's business concept for the CMO envisioned
entering into one Nissan Dealer Sales and Service Agreement with one corporate
entity for the entire CMO;
WHEREAS, FAA, while affirming its commitment to implement Nissan's CMO concept
in the Peninsula CMO, has requested, in order to accommodate their business
purposes, that Nissan permit FAA to maintain the corporate entities they are
creating (or subsequently will acquire or create) to form the CMO and that
Nissan enter into separate, but related, dealer agreements with these entities;
WHEREAS, FAA owns 100% of the stock of the subsidiary dealer corporation
(currently Smart Nissan, Inc., and FAA Serramonte, Inc.,).
WHEREAS, Nissan has communicated its willingness to accommodate FAA's request
subject to FAA's agreement to the terms and conditions set forth herein;
WHEREAS, based on the foregoing, Nissan will enter into separate, but related
dealer agreements with Marin Nissan and Serramonte Nissan in connection with the
formation of the Peninsula CMO;
<PAGE>
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO HOLDING COMPANY AGREEMENT
---------------------------------
FAA acknowledges that while, technically, the Peninsula CMO is comprised of
separate dealer corporations, as a practical matter, and consistent with
its intent as originally communicated, Nissan intends, and FAA agrees, that
Nissan will treat these wholly-owned subsidiary dealer corporations, and
their related Sales and Service Agreements, as part and parcel of one
single CMO entity for all purposes under this and those separate
Agreements. Specifically, the parties to this agreement acknowledge and
agree that, while the Peninsula CMO is comprised of separate dealer
corporations, Holding Company and Nissan will treat those dealers and their
dealer agreements as one dealer with one agreement FOR ALL PURPOSES,
consistent with the CMO concept reflected in the CMO Addenda to those
dealer's agreements. Accordingly, with respect to allocation of vehicles,
financial reporting, sales incentives, business plans, performance
standards and evaluation and for all other purposes under the Sales &
Service Agreements, Nissan will treat Marin Nissan, Serramonte Nissan, and
any and all subsequently acquired or created dealer entities within the
Peninsula CMO, as if they were one dealer operating within the Peninsula
CMO. Similarly, defaults or breaches of the Dealer Sales & Service
Agreement by either Marin Nissan or Serramonte Nissan will constitute a
breach of both agreements. Holding Company shall cause Marin Nissan and
Serramonte Nissan, and any subsequently acquired and/or created dealer
entities, to cooperate fully in accomplishing the objectives and intent of
the CMO addenda to their agreements, including the Business Plans and
Market Area Plans incorporated therein, and this Holding Company CMO
Agreement. Moreover, FAA agrees that it will exercise its control and
ownership in ways consistent with this agreement and will not take any
actions or allow its subsidiaries in the Peninsula CMO to take any action
inconsistent with the intent of this Agreement.
ONE AGREEMENT OBJECTIVE
-----------------------
FAA agrees that when reasonable business considerations permit FAA to merge
Marin Nissan, Serramonte Nissan, or any subsequently acquired or created
dealer entities acquired in the Peninsula CMO, FAA will merge the companies
so as to achieve the joint business objective of one dealer company for the
Peninsula CMO area.
Until such time, however, Nissan will not enforce its policy and the
contractual obligation that each and every dealer corporation appoint an
exclusively dedicated Executive Manager as manager of the dealer
corporation. Specifically, the appointment of a qualified Executive
Manager, acceptable to Nissan, as the Executive Manager of all CMO Nissan
dealerships will not be deemed a breach of the related dealer agreements.
2. CMO HOLDING COMPANY AGREEMENT TERM
----------------------------------
This Agreement shall have a term beginning with, running concurrent to, and
expiring simultaneously as, the Nissan Dealer Term Sales and Service
Agreements of all FAA owned
2
<PAGE>
dealer entities within the Peninsula CMO (currently including Marin Nissan
and Serramonte Nissan). Termination of any of the Nissan Dealer Sales and
Service Agreements of dealer entities owned and controlled by FAA and
constituting the Peninsula CMO (currently including those of Marin Nissan
or Serramonte Nissan) will constitute termination of all dealer agreements
of dealer entities within the Peninsula CMO, and will, at Nissan's option,
cause this CMO Holding Company Agreement to terminate with no further
notice or act required by any party.
3. TRANSFERS
---------
In view of the efforts and resources that Nissan has expended in order
to establish the Peninsula CMO, if FAA, or dealer entities within the
Peninsula CMO owned and controlled FAA (currently including Marin
Nissan or Serramonte Nissan), proposes to sell those dealership assets
necessary for the conduct of appropriate and effective Dealership
Operations, or those Dealership Facilities necessary to conduct
Dealership Operations, without Nissan's consent, Nissan in its sole
discretion may require that FAA, and any FAA owned or controlled
dealer entities within the Peninsula CMO (currently including Marin
Nissan or Serramonte Nissan) sell all or none of such assets or
Dealership Facilities comprising the Peninsula CMO to a proposed buyer
acceptable to Nissan.
Holding Company acknowledges and agrees to identical Rights of First
Refusal on Dealership Assets and Dealership Facilities as are
contained the Dealer Agreements for the subsidiary Dealer entities
within the Peninsula CMO as well as identical Option to Purchase
provisions.
4. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 4, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN, FAA, IN ITS OWN
RIGHT AND AS THE OWNER OF THE PENINSULA CMO DEALER(s) (CURRENTLY
INCLUDING MARIN NISSAN AND SERRAMONTE NISSAN) AGREE THAT THE DISPUTE
RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING
ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING IN ANY
WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN THE PARTIES,
INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR FEDERAL
STATUTES (hereinafter "Disputes").
3
<PAGE>
There are two steps in the Dispute Resolution Process: a) Mediation
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, the HOLDING COMPANY or Nissan can submit the Dispute to
Binding Arbitration.
B. MEDIATION
---------
Any party to this Agreement can submit a Dispute to Mediation.
Mediation is conducted by a panel consisting of a Nissan
representative designated by Nissan, a HOLDING COMPANY representative
designated by HOLDING COMPANY, and an independent professional
mediator chosen by the parties' representatives. The Mediation Panel
will evaluate each position and recommend a solution. This recommended
solution is not binding.
C. BINDING ARBITRATION
-------------------
If a Dispute has not been resolved after Mediation, or if HOLDING
COMPANY and Nissan have agreed in writing to waive Mediation, the
Dispute will be settled by Binding Arbitration in accordance with the
procedures in the Dealer Dispute Resolution Guide, with the prevailing
party to recover its costs and attorneys fees from the other party.
All awards of the arbitration are binding and non-appealable except as
otherwise provided in the United States Arbitration Act. Judgment upon
any award rendered by the arbitrator(s) may be entered and enforced in
any court having jurisdiction.
FIRSTAMERICA AUTOMOTIVE, INC. NISSAN MOTOR CORPORATION IN U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
---------------------------- ------------------------------------
Thomas A. Price Thomas H. Eastwood, Vice President
President and CEO Nissan Division
By: /s/ Jules Clavadetscher
------------------------------------
Jules Clavadetscher
Regional Vice President
Acknowledged
Smart Nissan, Inc. FAA Serramonte, Inc.
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
---------------------------- -------------------------------
Thomas A. Price President Thomas A. Price, President
4
<PAGE>
EXHIBIT 10.3.9
NISSAN CONTIGUOUS MARKET OWNERSHIP
----------------------------------
AREAS FORMATION AND LINKAGE AGREEMENT
-------------------------------------
This Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
(the "CMO Formation and Linkage Agreement") is entered into this 30th day of
JUNE, 1997, by and among Nissan Motor Corporation in U.S.A. ("Nissan"), and
FirstAmerica Automotive, Inc., ("FAA") concerning the commitments and
obligations of FAA and Nissan in respect to the acquisition and formation of
Contiguous Market Ownership Areas ("CMO") in the San Francisco Bay Area,
specifically, the "Peninsula CMO", the "South Bay CMO", the "East Bay CMO" and
the "East Shore CMO".
RECITALS
--------
WHEREAS, Nissan has developed a distribution network plan that seeks to create
CMOs in the San Francisco Bay Area (the Peninsula CMO, South Bay CMO, East Bay
CMO, and East Shore CMO);
WHEREAS, Nissan recognizes this new distribution plan is to be implemented over
time with consideration of existing dealers' rights;
WHEREAS, FAA has approached Nissan with a request to acquire and develop these
CMOs;
WHEREAS, Nissan has advised FAA that Nissan would approve their acquisition of
individual dealers within the CMOs, provided FAA satisfies Nissan's requirements
for applicants; and Nissan has advised FAA that Nissan cannot make existing
dealers sell or otherwise transfer their dealerships to FAA;
WHEREAS, FAA acknowledges the rights of existing dealers, yet commits to use its
best good faith and reasonable efforts to acquire dealerships within the CMOs,
with an intent to form the complete San Francisco Bay Area CMO marketing
territories;
WHEREAS, FAA acknowledges that Nissan's business concept for the CMO envisioned
entering into one Nissan Dealer Sales and Service Agreement with one entity for
each CMO;
WHEREAS, FAA, desires affirm its commitment to implement Nissan's CMO concept in
each CMO;
WHEREAS, FAA will have dealer subsidiaries in operation in one or more of the
Bay Area CMOs, and FAA has committed to, and intends to continue to acquire
Nissan Dealers to complete the formation and operation of all San Francisco Bay
Area CMOs;
WHEREAS, Nissan and FAA have negotiated agreements to allow FAA's operation of
Bay Area CMOs, specifically, any CMO Holding Company Agreements, the Nissan
Dealer Term Sales and Service Agreements for each individual dealer entity, if
appropriate, and the relevant Nissan CMO Agreements for Bay Area CMOs;
WHEREAS, FAA and Nissan mutually agree and acknowledge that Nissan has placed
extraordinary trust in the qualifications, integrity, and ability of FAA and
Thomas A. Price; the
<PAGE>
parties mutually acknowledge that Nissan's agreement and intent to approve FAA
and Price as Contiguous Multiple CMO Operators ("CMCMO") is unique to FAA and
Price based upon Nissan's experience, relationship, and the commitments between
the parties; and, accordingly, that a prospective transferee of one or more of
the CMOs must have the same high qualifications, and, further, that even a
qualified CMO operator may not have the extraordinary qualifications necessary
to be approved as a CMCMO.
WHEREAS, FAA and Nissan desire to treat the San Francisco Bay Area CMOs as part
and parcel of a single market;
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO FORMATION AND LINKAGE AGREEMENT
---------------------------------------
FAA acknowledges that the San Francisco Bay Area market is a single
metropolitan market area which has been divided by Nissan into four CMOs
(Peninsula, South Bay, East Bay, and East Shore CMOs) for promotion and
marketing purposes. FAA agrees to use its best efforts to acquire all
Nissan dealership operations within the four CMO areas. Nissan and FAA
acknowledge that this will be a process that must occur over time, and that
Nissan cannot take any action adverse to current dealers in order to, or in
an effort to, require them to sell or transfer their dealerships to FAA.
Should FAA be successful in acquiring Nissan dealerships within the four
CMOs in the San Francisco Bay Area, Nissan agrees to approve that
acquisition, provided that FAA continues to possess the generally applied
qualifications necessary to become an Authorized Nissan Dealer.
Nissan and FAA acknowledge that each CMO, though a part of the San
Francisco Bay Market Area, has been designed to be sufficient to achieve
the benefits of a CMO as an independent entity. Nevertheless, as a
practical matter, and consistent with its intent as originally
communicated, Nissan intends, and FAA agrees, that Nissan will treat these
wholly-owned subsidiary dealer corporations, and their related Nissan
Dealer Term Sales and Service Agreements, the Nissan Contiguous Market
Ownership Agreements, and any relevant Nissan CMO Holding Company
Agreement, as part and parcel of the single marketing entity in the San
Francisco Bay Area market. Consistent with the CMO concept reflected in the
CMO Agreements for the constituent CMOs, FAA agrees that it will exercise
its control and ownership of each CMO in ways consistent with this
agreement and will not take any actions or allow its subsidiaries in the
San Francisco Bay Area CMOs to take any action inconsistent with the intent
of this Agreement.
2. CMO FORMATION AND LINKAGE AGREEMENT TERM
----------------------------------------
This Agreement shall be in effect while FAA, or any subsidiary dealer
entity, is operating as an Authorized Nissan Dealer within a CMO in the San
Francisco Bay Area, unless amended
<PAGE>
by the parties. Termination of all Nissan dealer activities owned or
controlled by FAA will constitute termination this CMO Formation and
Linkage Agreement with no further notice or act required by any party.
3. TRANSFERS
---------
In view of Nissan's distribution plan and the efforts and resources
that Nissan has expended in order to establish the San Francisco Bay
Area CMOs, if FAA proposes or attempts to sell or otherwise transfer
of any one of the four San Francisco Bay Area CMOs, or those
dealership assets necessary for the conduct of appropriate and
effective CMO Operations, without Nissan's consent, Nissan in its
reasonable discretion, may require that FAA, or any subsidiary entity,
sell, transfer or terminate, one, all, or any combination thereof, of
the CMOs in the San Francisco Bay Area, to a proposed buyer acceptable
to Nissan.
Further, Nissan reserves the right, that, should FAA desire to
transfer two or more of the San Francisco Bay Area CMOs, then Nissan,
in its sole discretion, may require FAA to transfer to an entity
possessing the same, unusually high qualifications. Should Nissan, in
its sole discretion, not consent to a transfer of two or more of the
San Francisco Bay Area CMOs to a single entity, then Nissan may
require FAA to transfer these CMOs, if at all, to separate CMO
operators, acceptable to Nissan.
FAA acknowledges and agrees to identical Rights of First Refusal in
the CMO interests that each individual dealer or dealer entity (on
specific Dealership Assets and Dealership Facilities) as are contained
the Dealer Agreements, as well as any Right of First Refusal contained
in the individual CMO Agreements, as well as identical Option to
Purchase provisions.
4. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 4, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN, FAA, IN ITS OWN
RIGHT AND AS THE OWNER OF THE PENINSULA CMO DEALER(s) (CURRENTLY
INCLUDING MARIN NISSAN AND SERRAMONTE NISSAN), THE EAST BAY CMO
DEALERS(s) (CURRENTLY INCLUDING CONCORD NISSAN AND DUBLIN NISSAN) THE
SOUTH BAY CMO DEALER(s) (CURRENTLY STEVENS CREEK) AND THE EAST SHORE
CMO (CURRENTLY NO FAA DEALERS WITHIN THIS CMO), AGREE THAT THE DISPUTE
RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 4, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE
<PAGE>
MECHANISM FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT
OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP
BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY
STATE OR FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, FAA or Nissan can submit the Dispute to Binding
Arbitration.
B. MEDIATION
---------
Any party to this Agreement can submit a Dispute to Mediation.
Mediation is conducted by a panel consisting of a Nissan
representative designated by Nissan, a FAA representative designated
by FAA, and an independent professional mediator chosen by the
parties' representatives. The Mediation Panel will evaluate each
position and recommend a solution. This recommended solution is not
binding.
C. BINDING ARBITRATION
-------------------
If a Dispute has not been resolved after Mediation, or if FAA and
Nissan have agreed in writing to waive Mediation, the Dispute will be
settled by Binding Arbitration in accordance with the procedures in
the Commercial Arbitration Procedures of the American Arbitration
Association, with the prevailing party to recover its costs and
attorneys fees from the other party. All awards of the arbitration are
binding and non-appealable except as otherwise provided in the United
States Arbitration Act. Judgment upon any award rendered by the
arbitrator(s) may be entered and enforced in any court having
jurisdiction.
FIRSTAMERICA AUTOMOTIVE, INC. NISSAN MOTOR CORPORATION IN U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
------------------------------ ----------------------------------
Thomas A. Price Thomas H. Eastwood, Vice President
President and CEO Nissan Division
By: /s/ Jules Clavadetscher
----------------------------------
Jules Clavadetscher
Regional Vice President
<PAGE>
NISSAN DEALERSHIP FACILITIES ADDENDUM
NISSAN MOTOR CORPORATION IN U.S.A.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FACILITIES & LOCATION SIZE (Square Feet) REQUIREMENTS BASED ON TOTAL PLANNING VOLUME
- -----------------------------------------------------------------------------------------------------------------
New Vehicle Used Vehicle
Sales New Vehicle Sales Used Vehicle
Site Address Building Sales Land Building Sales Land
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A. Main Location: 2,952 5,810 0 4,656
- -----------------------------------------------------------------------------------------------------------------
B. Additional Location:. 5,000
- -----------------------------------------------------------------------------------------------------------------
C. Additional Location:
- -----------------------------------------------------------------------------------------------------------------
D. Additional Location:
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FACILITIES & LOCATION SIZE (Square Feet) REQUIREMENTS BASED ON TOTAL UNITS IN OPERATION
- --------------------------------------------------------------------------------------------------------------------------------
Service
Site Address Service Bays Building Service Land Parts Building Parts Land
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A. Main Location: 8 5,000 4,368 1,900 376
- --------------------------------------------------------------------------------------------------------------------------------
B. Additional Location:. 5 3,500 1,500 500 500
- --------------------------------------------------------------------------------------------------------------------------------
C. Additional Location:
- --------------------------------------------------------------------------------------------------------------------------------
D. Additional Location:
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------- ------------------------------
FACILITIES & LOCATION SIZE (Square Feet)
- -------------------------------------------------------- ------------------------------
Body Shop Body Shop
Site Address Building Land
- -------------------------------------------------------- ------------------------------
<S> <C> <C>
A. Main Location: N/A N/A
- -------------------------------------------------------- ------------------------------
B. Additional Location:. N/A N/A
- -------------------------------------------------------- ------------------------------
C. Additional Location:
- -------------------------------------------------------- ------------------------------
D. Additional Location:
- -------------------------------------------------------- ------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
BUILDING
&
TOTALS BUILDING LAND LAND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Actual 2,952 10,810 0 4,656 13
- -------------------------------------------------------------------------------------------------------------------------------
Guide 2,928 23,619 285 12,305 12
- -------------------------------------------------------------------------------------------------------------------------------
Actual 100.8% 45.8% 0.0% 37.8% 108.3%
% Guide
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
BUILDING
&
TOTALS BUILDING LAND LAND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8,500 5,858 2,400 876 N/A N/A
- ------------------------------------------------------------------------------------------------------------ ---------------------
Guide 5,762 9,710 3,247 1,575 N/A N/A
- ------------------------------------------------------------------------------------------------------------ ---------------------
Actual 147.5% 60.4% 73.9% 55.6% N/A N/A
% Guide
- ------------------------------------------------------------------------------------------------------------ ---------------------
</TABLE>
----------------------------------------------------
Makes Planning Units In
Sold Volume Operation
----------------------------------------------------
1. Nissan
----------------------------------------------------
2.
____________________________________________________
3.
____________________________________________________
4.
____________________________________________________
5.
____________________________________________________
6.
____________________________________________________
TOTALS
____________________________________________________
Guide
Figures
Utilized
_____________________________________________________
This Dealership Facilities Addendum is executed by Dealer and Seller pursuant to
Section 2.A of the Nissan Dealer Sales and Service Agreement in effect between
said parties and in effective as of the date set forth below. Dealer and Seller
agree that as of the effective date the information above accurately describes
the Dealership Location and Dealership Facilities, the purposes for which each
location is used and the current Guides for such facilities based on the
Planning Volumes stated herein. The execution of this Facilities Addendum shall
not be construed as evidence of Dealer's fulfillment of its responsibilities
under Section 2 of the Agreement. Changes in the Dealership Location, the
Dealership Facilities or their usage from the locations and specific uses stated
herein cannot be made by Dealer without the prior written consent of Seller.
Such changes and any changes in Seller's Guides will be reflected in a new
Dealership Facilities Addendum when deemed necessary by Seller. This Dealership
Facilities Addendum cancels and supersedes any prior Dealership Facilities
Addenda executed by Seller and Dealer.
DEALER:
------
SMART NISSAN, INC
--------------------------------------
Dealer Name
MARIN NISSAN
--------------------------------------
Doing Business As
By /s/ San Rafael Ca 94901
--------------------------------- ------------------------------------
Signature City State Zip
Title President 3408
------------------------------- ------------------------------------
Dealer Code
Accuracy of information verified for SELLER:
Seller ------
NISSAN DIVISION
By /s/ NISSAN MOTOR CORPORATION IN U.S.A.
----------------------------------
Title Assistant Regional Manager By /s/
------------------------------- ------------------------------------
3-25-97 Title Vice President, Nissan Division
- ------------------------------------ --------------------------------
By /s/
------------------------------------
THIS ADDENDUM IS EFFECTIVE AS OF Title Regional Vice President
--------------------------------
6/30/97
- ------------------------------------
<PAGE>
EXHIBIT 10.3.11
NISSAN CONTIGUOUS MARKET OWNERSHIP ADDENDUM
-------------------------------------------
This Nissan Contiguous Market Ownership Addendum (the "CMO Agreement") is
entered into this 30th day of JUNE, 1997, by and among Nissan Motor Corporation
in U.S.A. ("Nissan"), Thomas A. Price ("Dealer Principal" or "Price"), FAA
Serramonte, Inc., ("Serramonte Nissan" or "Dealer"), and FirstAmerica
Automotive, Inc., ("FAA").
RECITALS
--------
WHEREAS, Nissan, FAA and Dealer desire to create a Contiguous Market Ownership
Area in the San Francisco Bay Area, (the "East Bay CMO");
WHEREAS, Nissan, FAA and Dealer commit to develop and execute a Market Area Plan
that describes how Dealer will develop the Peninsula CMO through the provision
or establishment of Dealership Facilities;
WHEREAS, Nissan, FAA and Dealer also commit to develop and execute a Business
Plan that describes how Dealer will fulfill its sales, service, customer
relations and other commitments hereunder, including heightened performance
standards that Dealer commits to meet;
WHEREAS, Dealer commits to operate in accordance with the Market Area Plan and
the Business Plan;
WHEREAS, Nissan, Price, FAA and Dealer acknowledge that this CMO Agreement
forges a new collaborative relationship in the automotive industry that is
uniquely and mutually beneficial to the parties, was negotiated by them in the
spirit of cooperation, and does not adversely affect their existing rights and
responsibilities;
WHEREAS, Price, FAA and Dealer, in exchange for the opportunities and other
consideration specified herein, agree to assume the obligations set forth
herein; and
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO AGREEMENT
-----------------
The CMO Agreement supplements the Nissan Dealer Sales and Service Agreement
between Nissan and Dealer (the "Dealer Agreement"), including the Standard
Provisions thereto (the "Standard Provisions"). To the extent that the CMO
Agreement conflicts with the Dealer Agreement, the CMO Agreement controls
and shall govern the relationship between the parties. Subject to such
conflicts and except as otherwise provided herein, the Dealer Agreement
survives the execution of the CMO Agreement and remains in full force and
effect.
<PAGE>
2. DEFINITIONS
-----------
The parties agree that the following terms, as used in the CMO Agreement,
shall be defined exclusively as set forth below.
A. "NISSAN VEHICLES" shall mean Nissan Cars and Nissan Trucks as well
as "near-new" Nissan Vehicles of the current and three prior model
years.
B. "NISSAN PRODUCTS" shall mean Nissan Vehicles, Genuine Parts and
Accessories, Nissan Security + Plus and such other products and
services offered by Nissan to Dealer and designated by Nissan as a
Nissan Product.
C. "PRIMARY MARKET AREA" shall mean the Peninsula CMO, which shall
consist of the entire geographic area that is designated from time to
time as the area of Dealer's sales and service responsibility for
Nissan Products in a Notice of Primary Market Area issued by Nissan to
Dealer. Nissan reserves the right, in its reasonable discretion, to
issue a new, superseding "Notice of Primary Market Area" to Dealer
from time to time.
D. "EXECUTIVE MANAGER" shall mean the person named as Executive
Manager in the Final Paragraph of the Dealer Agreement upon whose
personal qualifications, expertise, reputation, integrity, experience,
ability and representations that he or she shall devote his or her
efforts to and have full managerial authority and responsibility for
the day-to-day management and performance of Dealer throughout the
Peninsula CMO, or with Nissan's consent, any contiguous CMO(s),
including but not limited to the supervision of all Location Managers,
which Nissan has relied in entering into the CMO Agreement.
E. "Location Manager" shall mean the persons named as Location
Managers in the Location Manager Addendum to the CMO Agreement upon
whose personal qualifications, expertise, reputation, integrity,
experience, ability and representations that he or she shall devote
his or her full-time efforts to and have managerial authority and
responsibility for the day-to-day management and performance of Dealer
at a particular Dealership Facility, Nissan has relied in entering
into the CMO Agreement.
F. "MARKET AREA PLAN" shall mean the written plan prepared and
executed by the parties that describes the number, location, type,
size and opening date of the Dealership Facilities to be provided by
Dealer hereunder.
G. "BUSINESS PLAN" shall mean the written plan prepared and executed
by the parties that contains Dealer's plan and commitment to develop
its business throughout the Peninsula CMO, including but not limited
to its plan and commitment with respect to organizational,
operational, financial, succession and other issues, and certain
standards on which its performance hereunder will be evaluated.
2
<PAGE>
H. "DEALERSHIP FACILITIES" shall mean the land areas at each
Dealership Location and the buildings and improvements erected thereon
provided by Dealer in accordance with Section 2 of the Standard
Provisions and the Market Area Plan.
3. TERM
----
This Agreement and the Dealer Agreement shall have a renewable term
commencing on its effective date and continuing for a term of five years
unless terminated earlier in accordance with Section 12 of the Standard
Provisions or the CMO Agreement.
4. DEALERSHIP LOCATION AND DEALERSHIP FACILITIES
---------------------------------------------
A. DEALERSHIP FACILITIES
---------------------
In accordance with the Market Area Plan, FAA and Dealer shall provide
Dealership Facilities at each Dealership Location that are
satisfactory in space, appearance, usage, layout and signage; and
otherwise are substantially in accordance with the Guides therefor
established by Nissan from time to time. Dealer shall conduct its
Dealership Operations only from the Dealership Locations specified in
the Dealership Facilities Addendum and shall use each such place of
business only for the purposes specified therefor in the Dealership
Facilities Addendum. Where applicable, Dealer shall establish
additional Dealership Facilities in the time, place and manner agreed
to by Dealer and Nissan in the Market Area Plan. Dealer agrees that
the Dealership Facilities shall have a consistent image, appearance
and name.
B. DEALERSHIP FACILITIES ADDENDUM
------------------------------
FAA, Dealer and Nissan shall execute a Dealership Facilities Addendum
which will include a description of each Dealership Location and each
Dealership Facility as well as the approved use for each such place of
business and facility.
C. EXCLUSIVE NISSAN OPERATIONS
---------------------------
FAA and Dealer agree that each Dealership Facility and Dealership
Location shall be dedicated to the promotion of Nissan Products and
devoted exclusively to the conduct of Nissan sales, service, parts
and/or other operations as specified in the Dealership Facilities
Addendum. Dealer shall not conduct any sales, service, parts and/or
other operations for any other new line-make of vehicles at any of the
Dealership Facilities or Dealership Locations, unless specifically
approved, in writing, by Nissan.
D. PENINSULA CMO OBLIGATIONS
------------------------
FAA shall develop, and Dealer shall devote its full efforts to
developing the Peninsula CMO. Consequently, Dealer agrees that it will
not engage, either directly or indirectly, in any of the activities
contemplated by the CMO Agreement
3
<PAGE>
from facilities or locations outside of the Peninsula CMO. If Dealer
fails to develop the Peninsula CMO according to its Market Area Plan
or to implement the plans or meet the performance standards
established in the Business Plan, then Nissan, will provide written
notice specifying the default and a reasonable period of at least 45
days within which to cure the default. Should the 45 day cure period
expire without material remedy of the breach, Nissan may (i) terminate
the CMO Agreement under Paragraph 11 hereof, (ii) restructure the
Peninsula CMO and reassign to other Authorized Nissan Dealers any
areas necessary to achieve the maximum potential development of the
Peninsula CMO, or (iii) exercise its option to purchase under
Paragraph 10.C hereof.
5. MARKET AREA PLAN
----------------
FAA, Dealer and Nissan shall execute A Market Area Plan that describes how
Dealer will develop its Primary Market Area through the provision or
establishment of Dealership Facilities. The Market Area Plan is an
essential part of the CMO Agreement.
A. MARKET AREA DEVELOPMENT
-----------------------
FAA and Dealer agree to develop its Primary Market Area according to
the Market Area Plan, which shall include a detailed description of
the number, location, type, size, usage and opening date of the
Dealership Facilities to be provided.
B. PLAN MODIFICATIONS
------------------
The Market Area Plan may be modified only if Nissan, FAA and Dealer
agree that a material change in marketing conditions warrants the
proposed modification.
C. MARKET STUDIES
--------------
The parties agree that although Nissan may continue to perform market
studies of the Primary Market Area and any contiguous market areas, or
any portion thereof, pursuant to Section 4.A of the Standard
Provisions, they will base the Market Area Plan on their collaborative
review and analysis of all relevant data, including such market
studies. Section 4.B of the Standard Provisions is hereby deleted in
its entirety.
D. WAIVER OF CLAIMS BASED ON NISSAN'S ACTIONS OUTSIDE THE PRIMARY MARKET
---------------------------------------------------------------------
AREA
----
Nissan agrees that in taking action outside the Primary Market Area,
it will consider the impact of such action on Dealer's investment in
and plans for the Primary Market Area. Dealer agrees not to initiate
or prosecute any judicial, administrative or governmental proceeding
with respect to Nissan's actions outside the Primary Market Area,
including but not limited to its appointment or relocation of any
other Authorized Nissan Dealer.
4
<PAGE>
6. BUSINESS PLAN
-------------
FAA, Dealer and Nissan shall execute a Business Plan in the form specified
in the Business Planning Process Workbook that describes how Dealer will
fulfill its sales, service, customer relations, marketing and other
commitments hereunder. The Business Plan is an essential part of the CMO
Agreement.
A. BUSINESS PLANNING
-----------------
The Business Plan shall include the following elements:
i. a statement of Dealer's legal and financial structure, including
capitalization, line of credit and equity ownership;
ii. the sales, service, customer relations, marketing and other
standards on which Dealer's performance will be evaluated, which
standards Dealer acknowledges and agrees will be higher than
those established for Authorized Nissan Dealers that are not
responsible for a CMO;
iii. a detailed organizational structure and staffing plans, including
the number of certified sales, service and parts managers, sales
personnel, and technicians that shall be provided for the
Peninsula CMO;
iv. specific plans for maximizing owner loyalty and customer
satisfaction, including hours of operation and customer
convenience systems;
v. advertising, merchandising, marketing and community relations
plans;
vi. successorship, including the identity of the proposed successors
to Dealer, Dealer Principal and/or Executive Manager; and
vii. other standards or plans as agreed by Nissan, FAA and Dealer.
B. OPERATIONS
----------
Dealer shall operate in accordance with the Business Plan and shall
actively and effectively promote the sale of Nissan Products to
customers located throughout the Primary Market Area. In particular,
Dealer shall implement the plans and meet the performance standards
established in the Business Plan.
C. ANNUAL BUSINESS PLAN REVIEW
---------------------------
Dealer shall review and update its Business Plan annually, or more
often if needed, and submit it to Nissan for joint review. Updated
Plans will include a performance evaluation and any proposed
modifications to the prior year's plan. If Nissan,
5
<PAGE>
FAA and Dealer agree that changes to the proposed Plan are necessary,
Dealer will make such changes and resubmit its Plan.
I. PERFORMANCE EVALUATION
----------------------
Dealer's performance of its obligations is essential to the
effective representation of Nissan Products, and to the
reputation and goodwill of Nissan, in the Peninsula CMO.
Therefore, Dealer agrees to review its performance against the
prior year's Business Plan in its updated Business Plan. Nissan,
FAA and Dealer will use this analysis as a basis for jointly
evaluating Dealer's performance so that any necessary
improvements can be made. In evaluating Dealer's sales
performance, in addition to those factors established in the
Standard Provisions, Nissan will give consideration to: (a) sales
volume or market share objectives for Nissan Products set by the
parties, and (b) sales and market penetration achieved by Dealer
in each of the various segments in which Nissan Vehicles compete.
II. PLAN MODIFICATIONS
------------------
Plans for operations are subject to update, but modifications can
be implemented only if Nissan, FAA and Dealer agree thereto.
7. OTHER DEALER RESPONSIBILITIES
-----------------------------
A. FINANCIAL AND OPERATIONAL REPORTING
-----------------------------------
Dealer shall provide to Nissan financial statements and sales reports
pursuant to Section 6.G of the Standard Provisions for each Dealership
Facility and for Dealer for the entire Primary Market Area. Dealer
shall furnish to Nissan annual certified financial statements for
Dealer or for the entity that owns Dealer and shall otherwise disclose
to Nissan in a format reasonably satisfactory to Nissan the financial
and operational results of Dealer's Nissan business.
B. DISCLOSURE OF FINANCIAL INFORMATION TO AFFILIATED COMPANIES
-----------------------------------------------------------
Nissan shall be entitled to disclose to and receive from affiliated
companies, including but not limited to Nissan Motor Acceptance
Corporation, all financial statements and reports provided by Dealer
under the CMO Agreement and/or the Dealer Agreement or otherwise
relating to Dealership Operations.
C. DEALER'S LOAN ARRANGEMENTS FOR REAL PROPERTY
--------------------------------------------
Dealer's loan arrangements for its Dealership Facilities and/or
Dealership Locations shall grant to Nissan the right to notice of and
a reasonable opportunity
6
<PAGE>
to cure any default thereunder as well as the right to take possession
of such real property upon such cure, and shall otherwise be
satisfactory in form to Nissan.
8. NISSAN CAR AND NISSAN TRUCK ALLOCATIONS
---------------------------------------
Nissan's allocation of Nissan Cars and Nissan Trucks to Dealer shall be
based on the entire Primary Market Area in accordance with the procedures
established therefor by Nissan.
9. TRANSFERS
---------
A. SALE OF PENINSULA CMO DEALERSHIP
--------------------------------
In view of the efforts and resources that Nissan has expended in order
to establish the East Bay CMO, if Dealer proposes to sell certain
assets or Dealership Facilities, Nissan in its sole discretion may
require that Dealer sell all or none of such assets or Dealership
Facilities to the proposed buyer.
B. QUALIFICATIONS OF PROPOSED DEALER PRINCIPAL
-------------------------------------------
FAA and Dealer acknowledge and agree that, in view of the increased
responsibilities that Price has assumed as the principal of Dealer for
the Peninsula CMO, Nissan has and will apply heightened standards with
respect to the personal, business and financial qualifications,
expertise, reputation, integrity, experience and ability of a proposed
Dealer Principal.
C. SUCCESSORSHIP
-------------
Section 14 of the Standard Provisions is hereby deleted in its
entirety. The parties shall address successorship in the Business Plan
prepared pursuant to Paragraph 6 hereof, Dealer shall identify the
proposed successor to Dealer, Dealer Principal an/or Executive Manager
in its successorship plan and shall provide such documents and
information as Nissan may reasonably require in evaluating such plans.
Nissan shall evaluate such plan and approve it only if it meets the
heightened standards applied by Nissan in connection with Nissan
Contiguous Market Ownership Agreements. Subject to Paragraph 10
hereof, the parties agree that if for any reason Dealer is unable to
implement its successorship plan upon the death or physical or mental
incapacity of Dealer Principal, then Dealer shall be given a
reasonable period of time not to exceed six (6) months in which to
transfer to person(s) acceptable to Nissan the principal assets of
Dealer utilized in the dealership business, including but not limited
to the Dealership Facilities, and for such person(s) to apply for a
Nissan Dealer Sales and Service Agreement and, if applicable, a Nissan
Contiguous Market Ownership Agreement.
7
<PAGE>
D. DEALER'S OBLIGATION TO REPAY FINANCIAL INTERVENTION FUNDING UPON
----------------------------------------------------------------
PUBLIC OFFERINGS
----------------
If Nissan has furnished financial intervention funding to FAA and/or
Dealer in connection with the establishment or development of the
peninsula CMO, then, upon the completion of any public offering of FAA
and/or Dealer's stock or other ownership interest, upon Nissan's
demand, Dealer shall repay to Nissan the full amount of such funding.
10. RIGHTS OF FIRST REFUSAL OR OPTION TO PURCHASE
---------------------------------------------
A. DEALERSHIP ASSETS OR OWNERSHIP INTERESTS
----------------------------------------
Whenever Dealer proposes to sell its principal assets or the owners of
Dealer propose to sell a majority ownership interest in Dealer, in
addition to its rights under Articles Third and Fourth of the Dealer
Agreement and Section 15.B of the Standard Provisions, Nissan shall
have the right and option to purchase the dealership assets or
ownership interests pursuant to this Paragraph 10.
i. If Nissan chooses to exercise its option, it must do so in its
written refusal to consent to the proposed sale or transfer
pursuant to Section 15.B. Dealer agrees not to complete any
proposed change or sale prior to the expiration of the period for
exercise of Nissan's option and without Nissan's prior written
consent. Such exercise shall be null and void if Dealer withdraws
its proposal within thirty (30) days following Dealer's receipt
of Nissan's notice exercising its option.
ii. After being exercised, Nissan's option may be assigned to any
party, and Nissan hereby agrees to guarantee the full payment of
the purchase price by such assignee. Nissan's rights under this
Paragraph 10 shall be binding on and enforceable against any
assignee or successor in interest of Dealer or purchaser of
Dealer's assets. Nissan shall have no obligation to exercise its
rights hereunder.
iii. If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Nissan's right under this
Paragraph 10 shall be a right of first refusal, enabling Nissan
to assume the prospective purchaser's rights and obligations
under such buy/sell agreement. The purchase price and other terms
of sale shall be those set forth in such agreement and any
related documents. Nissan may request, FAA and Dealer agrees to
provide all other documents relating to Dealer and to the
proposed transfer, including, but not limited to, those
reflecting any other agreements or understandings between the
parties to the buy/sell agreement. Nissan shall have sixty (60)
days from its receipt of all such documents in which to exercise
its right of first refusal hereunder. If Dealer refuses either to
8
<PAGE>
provide such documentation or to state in writing that no such
documents exist, it shall be presumed that the agreement is not
bona fide.
iv. In the absence of a bona fide written buy/sell agreement, Nissan
shall have the option, but no obligation, under this Paragraph 10
to purchase the principal assets of Dealer utilized in the
Dealership Operations, including real property and leasehold
interest, and to terminate this Agreement and all rights granted
Dealer hereunder. If the Dealership Facilities are leased by
Dealer from an affiliated company, the right to purchase the
principal assets of Dealer shall include the right to lease the
Dealership Facilities. The purchase price of Dealer's assets
shall be at their fair market value as a going concern as
negotiated by the parties and the other terms of sale shall be
those agreed by Dealer and Nissan. If Dealer and Nissan are
unable to reach a negotiated settlement in a reasonable time, the
price and other terms of sale shall be established by arbitration
pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. If Nissan determines that the buy/sell
agreement is not bona fide, Nissan will so notify Dealer. Dealer
shall have ten (10) days from its receipt of such notice within
which to withdraw its proposal. Nissan's exercise of its rights
hereunder shall be null and void if Dealer withdraws its proposal
within such time period.
v. Dealer shall transfer the affected property free and clear of
liens, claims, mortgages, encumbrances, tenancies and
occupancies. Dealer shall also furnish to Nissan copies of any
easements, licenses, or other documents affecting the dealership
and/or property and shall assign any permits or licenses which
are necessary for the conduct of the Dealership Operations.
B. REAL PROPERTY
-------------
Whenever Dealer proposes to sell or lease any of its Dealership Facilities
and/or Dealership Locations, in addition to its rights under Article Third
and Fourth of the Dealer Agreement and Section 15.B of the Standard
Provisions, Nissan shall have the right and option to purchase or lease said
Dealership Facilities and/or Dealership Locations pursuant to this Paragraph
10.B.
i) If Nissan chooses to exercise its right of first refusal, it must do
so by written notice delivered to Dealer within sixty (60) days of
Nissan's receipt of notice of the proposed sale or lease by Dealer.
Dealer agrees not to complete any proposed sale or lease prior to the
expiration of the period for exercise of Nissan's right of first
refusal and without Nissan's prior written consent, and agrees to
allow Nissan to perform an environmental study of the property. Dealer
also agrees to furnish to Nissan copies of any easements, licenses,
environmental studies or other documents affecting the property Such
exercise shall be null and void if Dealer withdraws its sale
9
<PAGE>
or lease proposal within thirty (30) days following Dealer's receipt
of Nissan's notice exercising its right of first refusal.
ii) After being exercised, Nissan's right to purchase or lease may be
assigned to any party, and Nissan hereby agrees to guarantee the full
payment of the purchase price or the rental payment by such assignee.
Nissan's rights under this Paragraph 10.B shall be binding on and
enforceable against any assignee or successor in interest of Dealer or
purchaser of Dealer's assets. Nissan shall have no obligation to
exercise its rights hereunder, and Seller may rescind its offer if the
property is determined to be contaminated pursuant to an environmental
study. Such contamination shall be deemed a breach of this agreement
by dealer.
iii) Dealer shall transfer the affected property by Warranty Deed conveying
marketable title free and clear of liens, claims, mortgages,
encumbrances, tenancies and occupancies, or, if applicable, by an
assignment of any existing lease. The Warranty Deed shall be in proper
form for recording. Dealer shall deliver complete possession of the
property at the time of delivery of the Deed or lease assignment.
Dealer shall also assign any permit or licenses which are necessary
for the conduct of the Dealership Operations.
iv) In addition to any other rights Nissan may have at law, in equity or
hereunder, any sale or lease of the Dealership Facilities and/or the
Dealership Locations in violation of this right of first refusal shall
be voidable by Nissan.
C. OPTION TO PURCHASE
------------------
If the CMO Agreement or the Dealer Agreement is to expire or be
terminated for any reason, including but not limited to the death or
physical or mental incapacity, without replacement in accordance with
Section 9.C. hereinabove, of Dealer Principal, Nissan has the option
to purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan in its sole
discretion may elect to purchase, and cancel the CMO Agreement and the
Dealer Agreement and all rights granted Dealer thereunder. The
purchase price of the dealership assets and real property and other
terms will be determined by agreement between the parties or, if the
parties are unable to reach agreement in a reasonable time, by
arbitration pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. Nissan must advise Dealer of its intent to
exercise this option within 30 days prior to the expiration of the CMO
Agreement and/or the Dealer Agreement or within 30 days after one
party notifies the other of its intent to terminate the CMO Agreement
and/or the Dealer Agreement. Nissan may assign its right to exercise
its option to purchase under this Paragraph 10.C to any third party.
10
<PAGE>
11. TERMINATION
-----------
A. TERMINATION DUE TO ACTS OR EVENTS
---------------------------------
The following represent events which are within the control of or
originate from actions taken by Dealer or its management or owners and
which are so contrary to the intent and purpose of the CMO Agreement
that they warrant its termination and the termination of the Dealer
Agreement:
(i) Any conduct that warrants the termination of the Dealer
Agreement;
(ii) The termination of the Dealer Agreement;
(iii) The failure of Dealer to maintain at all times exclusive Nissan
sales, service, parts and/or other operations at the Dealership
Facilities and the Dealership Locations, except as Nissan
consents to in writing; or
(iv) Any actual or attempted sale or transfer of stock or any other
ownership interest in Dealer by way of a public offering
without Nissan's prior written consent;
Upon the occurrence of any of the foregoing events, Nissan may
terminate the CMO Agreement by giving Dealer notice thereof, such
termination to be effective upon the date specified in such notice, or
such later date as may be required by any applicable statute.
B. TERMINATION FOR NON-PERFORMANCE
-------------------------------
If, based on the evaluation thereof made by Nissan, Dealer shall fail
to substantially fulfill its responsibilities with respect to:
(i) the development of the Peninsula CMO according to the Market
Area Plan;
(ii) the implementation of the plans set forth in the Business Plan,
including but not limited to any deviation therefrom; or
(iii) the performance of its sales, service, customer relations or
other obligations based on the standards established therefor
in the Business Plan;
Nissan will notify Dealer of such failure and will review with Dealer
the nature and extent of such failure and the reasons which, in
Nissan's or Dealer's opinion, account for such failure. Thereafter,
Nissan will provide Dealer with a reasonable opportunity to correct
the failure. If Dealer fails to make substantial progress towards
remedying such failure before the expiration of such period, Nissan,
may, direct Dealer to transfer its rights and obligations under this
Agreement to another entity, acceptable to Nissan, within a reasonable
time. Should Dealer fail to do so
11
<PAGE>
Nissan may (a) terminate this Agreement by giving Dealer notice of
termination, such termination to be effective at least sixty (60) days
after such notice is given, (b) exercise its option to purchase the
principal assets of Dealer utilized in the business, including such
real property as Nissan in its sole discretion may elect to purchase,
and cancel the CMO Agreement and the Dealer Agreement pursuant to
Paragraph 10.C hereof, or (c) restructure the Peninsula CMO and
reassign to other Authorized Nissan Dealers any areas necessary to
achieve the maximum potential development of the Peninsula CMO.
12. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 12, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN AND DEALER AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12,
WHICH INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM
FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN
THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR
FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation,
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, the Dealer or Nissan can submit the Dispute to Binding
Arbitration.
Section 16 of the Standard Provisions is deleted in its entirety.
B. MEDIATION
---------
Dealer or Nissan can submit a Dispute to Mediation. Mediation is
conducted by a panel consisting of a Nissan representative designated
by Nissan, a Dealer representative designated by Dealer, and an
independent professional mediator chosen by the parties'
representatives. The Mediation Panel will evaluate each position and
recommend a solution. This recommended solution is not binding.
12
<PAGE>
C. BINDING ARBITRATION
-------------------
If a dispute has not been resolved after Mediation, or if Dealer and
Nissan have agreed in writing to waive Mediation, the Dispute will be
settled by Binding Arbitration. SPECIFICALLY, THE PARTIES AGREE TO
RESOLVE ALL SUCH DISPUTES BY BINDING ARBITRATION CONDUCTED IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION PROCEDURES OF THE AMERICAN
ARBITRATION ASSOCIATION, WITH THE PREVAILING PARTY TO RECOVER ITS
COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY. ALL ARBITRATION AWARDS
ARE BINDING AND NON-APPEALABLE, EXCEPT AS OTHERWISE PROVIDED IN THE
UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY BE
ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION.
13. RELEASE
-------
Dealer hereby releases Nissan from any and all claims and causes of action
that it may have against Nissan for money damages or other relief relating
to or arising out of any event occurring prior to the execution of the CMO
Agreement, except for any accounts payable by Nissan to Dealer in
connection with the provision of any services under the Dealer Agreement
and any claim described in Section 11.A.1 and .2 of the Standard
Provisions. In connection with this release, Dealer expressly acknowledges
and waives its rights under California Civil Code, Section 1542, which
provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
13
<PAGE>
FAA SERRAMONTE, INC. NISSAN MOTOR CORPORATION U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
-------------------------- -----------------------------
Thomas A. Price, President Thomas H. Eastwood,
Vice President
By: /s/ Jules Clavadetscher
------------------------------
Jules Clavadetscher
Regional Vice President
Acknowledged and Concur:
FirstAmerica Automotive, Inc.
By: /s/ Thomas A. Price
-----------------------------
Thomas A. Price, President
President and CEO
14
<PAGE>
EXHIBIT 10.3.12
NISSAN CONTIGUOUS MARKET OWNERSHIP
----------------------------------
HOLDING COMPANY AGREEMENT
-------------------------
This Nissan Contiguous Market Ownership Holding Company Agreement (the "CMO
Holding Company Agreement") is entered into this 30th day of JUNE, 1997, by
and among Nissan Motor Corporation in U.S.A. ("Nissan"), and FirstAmerica
Automotive, Inc., ("FAA" or "Holding Company") concerning the commitments
and obligations of FAA in respect to its subsidiaries, Smart Nissan, Inc.,
("Marin Nissan") and FAA Serramonte, Inc., ("Serramonte Nissan") and any
other entities which FAA may acquire within the designated area described
hereinafter as the "Peninsula CMO".
RECITALS
--------
WHEREAS, Nissan has developed a distribution network plan that seeks to
create a Contiguous Market Ownership Area in the San Francisco Bay Area
(the "Peninsula CMO");
WHEREAS, Nissan recognizes this new distribution plan is to be implemented
over time with consideration of existing dealers' rights;
WHEREAS, FAA has approached Nissan with a request to develop the Peninsula
CMO;
WHEREAS, Nissan has advised FAA that Nissan would approve their acquisition
of individual dealers, provided FAA satisfies Nissan's requirements for
applicants; and Nissan has advised FAA that Nissan cannot make existing
dealers sell or otherwise transfer their dealerships to FAA;
WHEREAS, FAA acknowledges the rights of existing dealers, yet commits to
use its best good faith and reasonable efforts to acquire dealerships
within the Peninsula CMO, with an intent to form the complete Peninsula CMO
marketing territory;
WHEREAS, FAA acknowledges that Nissan's business concept for the CMO
envisioned entering into one Nissan Dealer Sales and Service Agreement with
one corporate entity for the entire CMO;
WHEREAS, FAA, while affirming its commitment to implement Nissan's CMO
concept in the Peninsula CMO, has requested, in order to accommodate their
business purposes, that Nissan permit FAA to maintain the corporate
entities they are creating (or subsequently will acquire or create) to form
the CMO and that Nissan enter into separate, but related, dealer agreements
with these entities;
WHEREAS, FAA owns 100% of the stock of the subsidiary dealer corporation
(currently Smart Nissan, Inc., and FAA Serramonte, Inc.).
WHEREAS, Nissan has communicated its willingness to accommodate FAA's
request subject to FAA's agreement to the terms and conditions set forth
herein;
WHEREAS, based on the foregoing, Nissan will enter into separate, but
related dealer agreements with Marin Nissan and Serramonte Nissan in
connection with the formation of the Peninsula CMO;
<PAGE>
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
---------
1. THE CMO HOLDING COMPANY AGREEMENT
---------------------------------
FAA acknowledges that while, technically, the Peninsula CMO is comprised of
separate dealer corporations, as a practical matter, and consistent with
its intent as originally communicated, Nissan intends, and FAA agrees, that
Nissan will treat these wholly-owned subsidiary dealer corporations, and
their related Sales and Service Agreements, as part and parcel of one
single CMO entity for all purposes under this and those separate
Agreements. Specifically, the parties to this agreement acknowledge and
agree that, while the Peninsula CMO is comprised of separate dealer
corporations, Holding Company and Nissan will treat those dealers and their
dealer agreements as one dealer with one agreement FOR ALL PURPOSES,
consistent with the CMO concept reflected in the CMO Addenda to those
dealer's agreements. Accordingly, with respect to allocation of vehicles,
financial reporting, sales incentives, business plans, performance
standards and evaluation and for all other purposes under the Sales &
Service Agreements, Nissan will treat Marin Nissan, Serramonte Nissan, and
any and all subsequently acquired or created dealer entities within the
Peninsula CMO, as if they were one dealer operating within the Peninsula
CMO. Similarly, defaults or breaches of the Dealer Sales & Service
Agreement by either Marin Nissan or Serramonte Nissan will constitute a
breach of both agreements. Holding Company shall cause Marin Nissan and
Serramonte Nissan, and any subsequently acquired and/or created dealer
entities, to cooperate fully in accomplishing the objectives and intent of
the CMO addenda to their agreements, including the Business Plans and
Market Area Plans incorporated therein, and this Holding Company CMO
Agreement. Moreover, FAA agrees that it will exercise its control and
ownership in ways consistent with this agreement and will not take any
actions or allow its subsidiaries in the Peninsula CMO to take any action
inconsistent with the intent of this Agreement.
ONE AGREEMENT OBJECTIVE
-----------------------
FAA agrees that when reasonable business considerations permit FAA to merge
Marin Nissan, Serramonte Nissan, or any subsequently acquired or created
dealer entities acquired in the Peninsula CMO, FAA will merge the companies
so as to achieve the joint business objective of one dealer company for the
Peninsula CMO area.
Until such time, however, Nissan will not enforce its policy and the
contractual obligation that each and every dealer corporation appoint an
exclusively dedicated Executive Manager as manager of the dealer
corporation. Specifically, the appointment of a qualified Executive
Manager, acceptable to Nissan, as the Executive Manager of all CMO Nissan
dealerships will not be deemed a breach of the related dealer agreements.
2. CMO HOLDING COMPANY AGREEMENT TERM
----------------------------------
This Agreement shall have a term beginning with, running concurrent to, and
expiring simultaneously as, the Nissan Dealer Term Sales and Service
Agreements of all FAA owned
2
<PAGE>
dealer entities within the Peninsula CMO (currently including Marin Nissan
and Serramonte Nissan). Termination of any of the Nissan Dealer Sales and
Service Agreements of dealer entities owned and controlled by FAA and
constituting the Peninsula CMO (currently including those of Marin Nissan
or Serramonte Nissan) will constitute termination of all dealer agreements
of dealer entities within the Peninsula CMO, and will, at Nissan's option,
cause this CMO Holding Company Agreement to terminate with no further
notice or act required by any party.
3. TRANSFERS
---------
In view of the efforts and resources that Nissan has expended in order
to establish the Peninsula CMO, if FAA, or dealer entities within the
Peninsula CMO owned and controlled FAA (currently including Marin
Nissan or Serramonte Nissan), proposes to sell those dealership assets
necessary for the conduct of appropriate and effective Dealership
Operations, or those Dealership Facilities necessary to conduct
Dealership Operations, without Nissan's consent, Nissan in its sole
discretion may require that FAA, and any FAA owned or controlled
dealer entities within the Peninsula CMO (currently including Marin
Nissan or Serramonte Nissan) sell all or none of such assets or
Dealership Facilities comprising the Peninsula CMO to a proposed buyer
acceptable to Nissan.
Holding Company acknowledges and agrees to identical Rights of First
Refusal on Dealership Assets and Dealership Facilities as are
contained the Dealer Agreements for the subsidiary Dealer entities
within the Peninsula CMO as well as identical Option to Purchase
provisions.
4. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 4, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN, FAA, IN ITS OWN
RIGHT AND AS THE OWNER OF THE PENINSULA CMO DEALER(s) (CURRENTLY
INCLUDING MARIN NISSAN AND SERRAMONTE NISSAN) AGREE THAT THE DISPUTE
RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING
ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING IN ANY
WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN THE PARTIES,
INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR FEDERAL
STATUTES (hereinafter "Disputes").
3
<PAGE>
There are two steps in the Dispute Resolution Process: a) Mediation
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, the HOLDING COMPANY or Nissan can submit the Dispute to
Binding Arbitration.
B. MEDIATION
---------
Any party to this Agreement can submit a Dispute to Mediation.
Mediation is conducted by a panel consisting of a Nissan
representative designated by Nissan, a HOLDING COMPANY representative
designated by HOLDING COMPANY, and an independent professional
mediator chosen by the parties' representatives. The Mediation Panel
will evaluate each position and recommend a solution. This recommended
solution is not binding.
C. BINDING ARBITRATION
-------------------
If a Dispute has not been resolved after Mediation, or if HOLDING
COMPANY and Nissan have agreed in writing to waive Mediation, the
Dispute will be settled by Binding Arbitration in accordance with the
procedures in the Dealer Dispute Resolution Guide, with the prevailing
party to recover its costs and attorneys fees from the other party.
All awards of the arbitration are binding and non-appealable except as
otherwise provided in the United States Arbitration Act. Judgment upon
any award rendered by the arbitrator(s) may be entered and enforced in
any court having jurisdiction.
FIRSTAMERICA AUTOMOTIVE, INC. NISSAN MOTOR CORPORATION IN U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood, Vice President
-------------------- --------------------------------------
Thomas A Price Thomas H. Eastwood, Vice President
President and CEO Nissan Division
By: /s/ Jules Calavadetscher
------------------------------------------
Jules Clavadetscher
Regional Vice President
Acknowledged
Smart Nissan, Inc. FAA Serramonte, Inc
By: /s/ Thomas A. Price, President By: /s/ Thomas A. Price, President
------------------------------ ------------------------------
Thomas A Price President Thomas A Price, President
4
<PAGE>
NISSAN CONTIGUOUS MARKET OWNERSHIP
----------------------------------
AREAS FORMATION AND LINKAGE AGREEMENT
-------------------------------------
This Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
(the "CMO Formation and Linkage Agreement") is entered into this 30th day of
JUNE, 1997, by and among Nissan Motor Corporation in U.S.A. ("Nissan"), and
FirstAmerica Automotive, Inc., ("FAA") concerning the commitments and
obligations of FAA and Nissan in respect to the acquisition and formation of
Contiguous Market Ownership Areas ("CMO") in the San Francisco Bay Area,
specifically, the "Peninsula CMO", the "South Bay CMO", the "East Bay CMO" and
the "East Shore CMO".
RECITALS
--------
WHEREAS, Nissan has developed a distribution network plan that seeks to create
CMOs in the San Francisco Bay Area (the Peninsula CMO, South Bay CMO, East Bay
CMO, and East Shore CMO);
WHEREAS, Nissan recognizes this new distribution plan is to be implemented over
time with consideration of existing dealers' rights;
WHEREAS, FAA has approached Nissan with a request to acquire and develop these
CMOs;
WHEREAS, Nissan has advised FAA that Nissan would approve their acquisition of
individual dealers within the CMOs, provided FAA satisfies Nissan's requirements
for applicants; and Nissan has advised FAA that Nissan cannot make existing
dealers sell or otherwise transfer their dealerships to FAA;
WHEREAS, FAA acknowledges the rights of existing dealers, yet commits to use its
best good faith and reasonable efforts to acquire dealerships within the CMOs,
with an intent to form the complete San Francisco Bay Area CMO marketing
territories;
WHEREAS, FAA acknowledges that Nissan's business concept for the CMO envisioned
entering into one Nissan Dealer Sales and Service Agreement with one entity for
each CMO;
WHEREAS, FAA, desires affirm its commitment to implement Nissan's CMO concept in
each CMO;
WHEREAS, FAA will have dealer subsidiaries in operation in one or more of the
Bay Area CMOs, and FAA has committed to, and intends to continue to acquire
Nissan Dealers to complete the formation and operation of all San Francisco Bay
Area CMOs;
WHEREAS, Nissan and FAA have negotiated agreements to allow FAA's operation of
Bay Area CMOs, specifically, any CMO Holding Company Agreements, the Nissan
Dealer Term Sales and Service Agreements for each individual dealer entity, if
appropriate, and the relevant Nissan CMO Agreements for Bay Area CMOs;
WHEREAS, FAA and Nissan mutually agree and acknowledge that Nissan has placed
extraordinary trust in the qualifications, integrity, and ability of FAA and
Thomas A. Price; the
<PAGE>
parties mutually acknowledge that Nissan's agreement and intent to approve FAA
and Price as Contiguous Multiple CMO Operators ("CMCMO") is unique to FAA and
Price based upon Nissan's experience, relationship, and the commitments between
the parties; and, accordingly, that a prospective transferee of one or more of
the CMOs must have the same high qualifications, and, further, that even a
qualified CMO operator may not have the extraordinary qualifications necessary
to be approved as a CMCMO.
WHEREAS, FAA and Nissan desire to treat the San Francisco Bay Area CMOs as part
and parcel of a single market;
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO FORMATION AND LINKAGE AGREEMENT
---------------------------------------
FAA acknowledges that the San Francisco Bay Area market is a single
metropolitan market area which has been divided by Nissan into four CMOs
(Peninsula, South Bay, East Bay, and East Shore CMOs) for promotion and
marketing purposes. FAA agrees to use its best efforts to acquire all
Nissan dealership operations within the four CMO areas. Nissan and FAA
acknowledge that this will be a process that must occur over time, and that
Nissan cannot take any action adverse to current dealers in order to, or in
an effort to, require them to sell or transfer their dealerships to FAA.
Should FAA be successful in acquiring Nissan dealerships within the four
CMOs in the San Francisco Bay Area, Nissan agrees to approve that
acquisition, provided that FAA continues to possess the generally applied
qualifications necessary to become an Authorized Nissan Dearer.
Nissan and FAA acknowledge that each CMO, though a part of the San
Francisco Bay Market Area, has been designed to be sufficient to achieve
the benefits of a CMO as an independent entity. Nevertheless, as a
practical matter, and consistent with its intent as originally
communicated, Nissan intends, and FAA agrees, that Nissan will treat these
wholly-owned subsidiary dealer corporations, and their related Nissan
Dealer Term Sales and Service Agreements, the Nissan Contiguous Market
Ownership Agreements, and any relevant Nissan CMO Holding Company
Agreement, as part and parcel of the single marketing entity in the San
Francisco Bay Area market. Consistent with the CMO concept reflected in the
CMO Agreements for the constituent CMOs, FAA agrees that it will exercise
its control and ownership of each CMO in ways consistent with this
agreement and will not take any actions or allow its subsidiaries in the
San Francisco Bay Area CMOs to take any action inconsistent with the intent
of this Agreement.
2. CMO FORMATION AND LINKAGE AGREEMENT TERM
----------------------------------------
This Agreement shall be in effect while FAA, or any subsidiary dealer
entity, is operating as an Authorized Nissan Dealer within a CMO in the San
Francisco Bay Area, unless amended
<PAGE>
by the parties. Termination of all Nissan dealer activities owned or
controlled by FAA will constitute termination this CMO Formation and
Linkage Agreement with no further notice or act required by any party.
3. TRANSFERS
---------
In view of Nissan's distribution plan and the efforts and resources
that Nissan has expended in order to establish the San Francisco Bay
Area CMOs, if FAA proposes or attempts to sell or otherwise transfer
of any one of the four San Francisco Bay Area CMOs, or those
dealership assets necessary for the conduct of appropriate and
effective CMO Operations, without Nissan's consent, Nissan in its
reasonable discretion, may require that FAA, or any subsidiary entity,
sell, transfer or terminate, one, all, or any combination thereof of
the CMOs in the San Francisco Bay Area, to a proposed buyer acceptable
to Nissan.
Further, Nissan reserves the right, that, should FAA desire to
transfer two or more of the San Francisco Bay Area CMOs, then Nissan,
in its sole discretion, may require FAA to transfer to an entity
possessing the same, unusually high qualifications. Should Nissan, in
its sole discretion, not consent to a transfer of two or more of the
San Francisco Bay Area CMOs to a single entity, then Nissan may
require FAA to transfer these CMOs, if at all, to separate CMO
operators, acceptable to Nissan.
FAA acknowledges and agrees to identical Rights of First Refusal in
the CMO interests that each individual dealer or dealer entity (on
specific Dealership Assets and Dealership Facilities) as are contained
the Dealer Agreements, as well as any Right of First Refusal contained
in the individual CMO Agreements, as well as identical Option to
Purchase provisions.
4. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 4, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN, FAA, IN ITS OWN
RIGHT AND AS THE OWNER OF THE PENINSULA CMO DEALER(s) (CURRENTLY
INCLUDING MARIN NISSAN AND SERRAMONTE NISSAN), THE PENINSULA CMO
DEALERS (s) (CURRENTLY INCLUDING CONCORD NISSAN AND DUBLIN NISSAN) THE
SOUTH BAY CMO DEALER(s) (CURRENTLY STEVENS CREEK) AND THE EAST SHORE
CMO (CURRENTLY NO FAA DEALERS WITHIN THIS CMO), AGREE THAT THE DISPUTE
RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 4, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE
<PAGE>
MECHANISM FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT
OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP
BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY
STATE OR FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, FAA or Nissan can submit the Dispute to Binding
Arbitration.
B. MEDIATION
---------
Any party to this Agreement can submit a Dispute to Mediation.
Mediation is conducted by a panel consisting of a Nissan
representative designated by Nissan, a FAA representative designated
by FAA, and an independent professional mediator chosen by the
parties' representatives. The Mediation Panel will evaluate each
position and recommend a solution. This recommended solution is not
binding.
C. BINDING ARBITRATION
-------------------
If a Dispute has not been resolved after Mediation, or if FAA and
Nissan have agreed in writing to waive Mediation, the Dispute will be
settled by Binding Arbitration in accordance with the procedures in
the Commercial Arbitration Procedures of the American Arbitration
Association, with the prevailing party to recover its costs and
attorneys fees from the other party. All awards of the arbitration are
binding and non-appealable except as otherwise provided in the United
States Arbitration Act. Judgment upon any award rendered by the
arbitrator(s) may be entered and enforced in any court having
jurisdiction.
FirstAmerica Automotive, Inc. NISSAN MOTOR CORPORATION in U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood, Vice President
-------------------- --------------------------------------
Thomas A Price Thomas H. Eastwood, Vice President
President and CEO Nissan Division
By: /s/ Jules Clavadetscher
---------------------------------------
Jules Clavadetscher
Regional Vice President
<PAGE>
EXHIBIT 10.3.13
[LOGO OF NISSAN APPEARS HERE]
NISSAN MOTOR CORPORATION U.S.A.
STEVENS CREEK NISSAN
<PAGE>
NISSAN
DEALER TERM SALES AND SERVICE AGREEMENT
THIS AGREEMENT is entered into and effective the day last set forth below by and
between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a California
corporation, hereinafter called "Seller," and the entities and natural persons
identified in the Final Article of this Agreement.
INTRODUCTION
The purpose of this Agreement is to establish Dealer as an authorized dealer of
Nissan Products and to provide for the sale and servicing of Nissan Products in
a manner that will best serve owners, potential owners and purchasers of Nissan
Products as well as the interests of Seller, Dealer and other Authorized Nissan
Dealers. This Agreement sets forth: the rights which Dealer will enjoy as an
Authorized Nissan Dealer; the responsibilities which Dealer assumes in
consideration of its receipt of these rights; and the respective conditions,
rights and obligations of Seller and Dealer that apply to Seller's grant to
Dealer of such rights and Dealer's assumption of such responsibilities. It is
understood that each term and undertaking hereinafter described is material, and
relied upon, as the quid pro quo and consideration for this Agreement.
This is a personal services Agreement. In entering into this Agreement and
appointing Dealer as provided below, Seller is relying, among other things, upon
the personal qualifications, expertise, reputation, integrity, experience,
ability and representations of the individual named in the Final Article of this
Agreement as Dealer Principal (the "Dealer Principal") the individual named in
the Final Article of this Agreement as Executive Manager and the representations
of FirstAmerica Automotive, Inc.. ("FAA"), and FAA Stevens Creek, Inc.,
("Dealer" or "Stevens Creek Nissan"). In addition to Dealer, Seller intends to
look to FAA, the Dealer Principal and the Executive Manager for the performance
of Dealer's obligations hereunder.
Nissan Products are intended for discriminate owners with the expectation that
such owners will be loyal and proud, but also demanding toward Seller and Dealer
with respect to Nissan Products and the manner in which they are sold and
serviced. Owners, potential owners and purchasers of Nissan Products are
expected to want, and are entitled to do business with, dealers who enjoy the
highest reputation in their communities and have well located, attractive and
efficient places of business, courteous personnel and outstanding service and
parts facilities. Nissan Products must be sold by enthusiastic dealers who are
not interested in short term results only but are willing to look toward long
term goals and who are devoted to creating and maintaining a positive total
ownership experience for owners of Nissan Products. Seller's standard of
excellence for Nissan Products must be matched by the dealers who sell them to
the public and who service them during their operative lives.
Achievement of the purposes of this Agreement is premised upon mutual
understanding and cooperation between Seller and Dealer. Dealer has entered into
this Agreement in reliance upon Seller's integrity and expressed intention to
deal fairly with Dealer and the consuming public. Seller has entered into this
Agreement in reliance upon the integrity and ability of the Dealer Principal and
Executive Manager and their expressed intention to deal fairly with the
consuming public and Seller.
It is the responsibility of Seller to market Nissan Products throughout the
Territory. It is the responsibility of Dealer to actively promote the retail
sale of Nissan Products and to provide
<PAGE>
courteous and efficient service of Nissan Products. The success of both Seller
and Dealer will depend on how well they each fulfill their respective
responsibilities under this Agreement. It is recognized that: Seller will
endeavor to provide motor vehicles of excellent quality and workmanship and to
establish a network of Authorized Nissan Dealers that can provide an outstanding
sales and service effort at the retail level; and Dealer will endeavor to
fulfill its responsibilities through aggressive, sound, ethical selling
practices and through conscientious regard for customer service in all aspects
of its Nissan Dealership Operations.
Seller and Dealer shall refrain from engaging in conduct or activities which
might be detrimental to or reflect adversely upon the reputation of Seller,
Dealer or Nissan Products and shall engage in no discourteous, deceptive,
misleading or unethical practices or activities.
For consistency and clarity, terms which are used frequently in this Agreement
have been defined in Section 1 of the Standard Provisions. All terms used herein
which are defined in the Standard Provisions shall have the meaning stated in
said Standard Provisions. These definitions should be read carefully for a
proper understanding of the provisions in which they appear.
To achieve the purposes referred to above, Seller, FAA, Dealer, the Dealer
Principal and the Executive Manager agree as follows:
ARTICLE FIRST: Appointment of Dealer
Subject to the conditions and provisions of this Agreement, Seller:
(a) appoints Dealer as an Authorized Nissan Dealer and grants Dealer the
non-exclusive right to buy from Seller those Nissan Products specified in
Dealer's current Product Addendum hereto, for resale, rental or lease at or from
the Dealership Locations established and described in accordance with Section 2
of the Standard Provisions; and
(b) grants Dealer a non-exclusive right, subject to and in accordance with
Section 6.K of the Standard Provisions, to identify itself as an Authorized
Nissan Dealer, to display the Nissan Marks in the conduct of its Dealership
Operations and to use the Nissan Marks in the advertising, promotion and sale of
Nissan Products in the manner provided in this Agreement.
ARTICLE SECOND: Assumption of Responsibilities by Dealer
Dealer hereby accepts from Seller its appointment as an Authorized Nissan Dealer
and, in consideration of its appointment and subject to the other conditions and
provisions of this Agreement, hereby assumes the responsibility for:
(a) establishing and maintaining at the Dealership Location the Dealership
Facilities in accordance with Section 2 of the Standard Provisions;
(b) actively and effectively promoting the sale at retail (and, if Dealer
elects, the leasing and rental) of Nissan Vehicles within Dealer's Primary
Market Area in accordance with Section 3 of the Standard Provisions;
(c) servicing Nissan Vehicles and for selling and servicing Nissan Parts
and Accessories in accordance with Section 5 of the Standard Provisions;
2
<PAGE>
(d) building and maintaining consumer confidence in Dealer and in Nissan
Products in accordance with Section 5 of the Standard Provisions; and
(e) performance of the additional responsibilities set forth in this
Agreement, including those specified in Section 6 of the Standard Provisions.
ARTICLE THIRD: Ownership
(a) Owners. This Agreement has been entered into by Seller in reliance
------
upon, and in consideration of, among other things, the personal qualifications,
expertise, reputation, integrity, experience, ability and representations with
respect thereto of the Dealer Principal and Executive Manager named in the Final
Article of this Agreement and in reliance upon the representations and
agreements of FAA and Dealer as follows:
(i) FAA will at all times own 100% of the capital stock of Dealer and
Dealer will at all times be maintained as a separate entity.
(ii) The Executive Committee of Dealer is set forth in attached Schedule
"A".
(iii) The officers of Dealer are as set forth in attached Schedule "A".
(iv) FirstAmerica Automotive, Inc., ("FAA") owns 100% of the outstanding
stock of FAA Stevens Creek, Inc. (see Attachment "A" attached).
(b) Changes in Ownership. In view of the fact that this is a personal
--------------------
services agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, this Agreement and the rights and privileges
conferred on Dealer hereunder are not assignable, transferable or salable by FAA
and Dealer, and no property right or interest is or shall be deemed to be sold,
conveyed or transferred to FAA and Dealer under this Agreement. FAA, Dealer, the
Dealer Principal and the Executive Manager agree that any change in the
ownership of Dealer other than specified herein requires the prior written
consent of Seller IF DEALER DESIRES TO REMAIN AN AUTHORIZED NISSAN DEALER and
that without the prior written consent of Seller:
(i) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock or partnership interest of Dealer will be
made and no additional shares of capital stock, partnership interest or
securities convertible into shares of capital stock, of Dealer will be issued or
sold.
(ii) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer will be made and no additional
shares of capital stock, partnership interest or securities convertible into
shares of capital stock, of Dealer will be issued or sold.
(iii) Dealer will not be merged with or into, or consolidate with, any
other entity and none of the principal assets necessary for the performance of
Dealer's obligations under this Agreement will be sold, transferred or assigned.
(iv) Dealer will not enter into any transaction, including, without
limitation, any sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer, the issuance or sale of
additional shares of capital stock, partnership interest or securities
3
<PAGE>
convertible into shares of capital stock of Dealer, or the merger of Dealer with
or into, or the consolidation of FAA Stevens Creek, Inc., with any other entity,
if as a result of such transaction, that FAA will cease to own at least 100% of
the capital stock or interest of Dealer.
(v) If any person or entity, after the date of the initial public
offering, acquires more than 20% of FAA's common stock issued and outstanding at
any time and Nissan determines that such person or entity does not have
interests compatible with those of Nissan, or is otherwise not qualified to have
an ownership interest in a Nissan dealership (an "Adverse Person"), FAA, upon
written notification by Nissan, must cause any subsidiaries, owned, or
controlled entities to terminate its dealer agreements with Nissan or transfer
the Nissan dealerships to a third party acceptable to Nissan within 90 days
after such notification, unless, within 90 days after Nissan's determination,
the adverse Person's ownership interest is reduced to less than 20%.
Any transaction involving the capital stock of Stevens Creek Nissan,
including a public offering or trade of the shares of FAA, which does not
violate subparagraph (iv) above may be effected without obtaining the prior
written consent of Seller and without triggering a termination event under
Section 12.A.(2) of the Standard Provisions.
Dealer shall give Seller prior notice of any proposed change in said
ownership requiring the consent of Seller and immediate notice of the death or
incapacity of any Dealer Principal or Executive Manager. No such change, and no
assignment of this Agreement or of any right or interest herein, shall be
effective against Seller unless and until embodied in an appropriate amendment
to or assignment of this Agreement, as the case may be, duly executed and
delivered by Seller and by Dealer. Seller shall not, however, unreasonably
withhold its consent to any such change, subject to Seller's Rights of First
Refusal set forth in Article Tenth of this Agreement. Seller shall have no
obligation to transact business with any person who is not named either as a
Dealer Principal or Executive Manager of Dealer hereunder, or in the event of
death or incapacity, those persons named as the successors to the Dealer
Principal and/or Executive Manager in the successorship plan hereafter (upon
mutual consent of the parties) or otherwise to give effect to any proposed sale
or transfer of the ownership, partnership interest or management of Dealer and
FAA (other than changes in the ownership of FAA and Dealer which are expressly
permitted by this Article Third) prior to having concluded the evaluation of
such a proposal as provided in Section 15 of the Standard Provisions. Nissan may
conduct routine, day to day business with the person named as the Location
Manager for the location so designated. Dealer acknowledges Seller's right to
require consent to any change in the ownership of Dealer, and agrees that any
change or transfer without such consent from Seller is void, and of no force and
effect, and grounds for termination. FAA and Dealer further agree that they will
not challenge, contest, dispute, or litigate, except as provided in Article
15(c) hereafter:
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to transfer ownership
of Dealer (except as provided by this Agreement) without Seller's consent; or
(ii) any decisions by Seller to withhold consent to a proposed change in
ownership of Dealer.
ARTICLE FOURTH: Management
(a) This Agreement has been entered into by Seller in reliance upon, and
in consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the person named as Dealer
4
<PAGE>
Principal in the Final Article of this Agreement and in reliance on the
following representations and agreements of FAA and Dealer that:
(i) The Executive Manager of Dealer, subject to the provisions of Article
15(f), and Thomas A. Price ("Price") will, subject to any other obligations set
forth in this Agreement, devote their full time efforts to the business and day-
to-day operations of the entity for which they are responsible.
(ii) Location Manager will devote 100% of his time to the affairs of the
relevant Dealership location.
(b) Dealer. Seller and Dealer agree that the retention by Dealer of
------
qualified management is of critical importance to the successful operation of
Dealer and to the achievement of the purposes and objectives of this Agreement.
This Agreement has been entered into by Seller in reliance upon, and in
consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the persons named as Dealer Principal and Executive Manager in the
Final Article of this Agreement and in reliance on the following representations
and agreements of FAA and Dealer, that:
(i) There must be an approved Executive Manager, acceptable to Nissan.
There must be an approved Location Manager employed by Dealer to manage each
Dealership location. As long as Thomas A. Price and the Executive Manager
subject to the provisions of Article 15(f) are employed by FAA and the Location
Manager is employed by Dealer, they will have full and complete control over the
Dealership Operations, subject only to the powers of the Board of Directors of
Dealer to manage the business and affairs of Dealer, and they will at all times
be members of the Board of Directors of Dealer. In addition, any replacements
for Price and Executive Manager will, so long as such replacements are employed
by FAA and Dealer, have full and complete control over the Dealership
Operations, subject only to the powers of the Board of Directors of Dealer to
manage the business and affairs of Dealer, and such replacements will at all
times be members of the Board of Directors of Dealer.
(ii) the Board of Directors of Dealer shall delegate the management of the
Dealership Operations to the Executive Manager identified in Article 15(f), and
FAA will not amend its Certificate of Incorporation or By-laws to provide that
its Board of Directors is entitled to exercise any extraordinary powers or
interfere unduly in the Dealership Operations.
(iii) Location Manager, subject to any other obligations set forth in this
Agreement, shall continually provide his personal services in operating the
dealership and will be physically present at the Dealership Facilities on a
full-time basis.
(c) Changes in Management. In view of the fact that this is a personal
---------------------
services Agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, Dealer and FAA agree that any change in the
Dealer Principal from that specified in the Final Article of this Agreement
requires the prior written consent of Seller. Any change to the Executive
Manager requires notice to Seller and timely replacement with an Executive
Manager acceptable to Seller. In addition, FAA and Dealer agree that no chief
executive officer, or person performing services and having responsibilities
similar to a chief executive officer, of FAA will be appointed, directly or
indirectly, without the prior written consent of Seller. Dealer shall give
Seller prior notice of any proposed change in Dealer Principal or Executive
Manager or the appointment of any chief executive or similar officer of FAA and
immediate notice of the death or incapacity of any Dealer Principal or Executive
Manager. No change in Dealer
5
<PAGE>
Principal or Executive Manager and no appointment of a chief executive or
similar officer of FAA shall be effective unless and until embodied in an
appropriate amendment to this Agreement duly executed and delivered by all of
the parties hereto. Subject to the foregoing, Dealer and FAA shall make their
own, independent decisions concerning the hiring and firing of its employees,
including, without limitation, the Dealer Principal and Executive Manager.
Dealer shall give Seller prior written notice of any proposed change
in Dealer Principal, timely notice of any change to Executive Manager, and
immediate notice of the death or incapacity of Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager shall be effective
unless and until embodied in an appropriate amendment to this Agreement duly
executed and delivered by all of the parties hereto. Dealer acknowledges
Seller's right (as set forth herein and in the Standard Provisions) to require
consent to any change in the management of Dealer, and FAA and Dealer agree that
a change to the Dealer Principal or substitution of the Executive Manager,
without such consent from Seller is without effect upon Seller, of no force and
effect, and grounds for termination. FAA and Dealer further agree that they will
not challenge, contest, dispute, or litigate, except as provided by Article
Fifteenth (c):
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to change the
management of Dealer without Seller's consent; or
(ii) any decision by Seller to withhold consent to a proposed change in
management of Dealer; or
(iii) any decision by Seller to withhold approval of a proposed management
candidate.
To enable Seller to evaluate and respond to Dealer concerning any
proposed change in Dealer Principal or Executive Manager or the appointment of
any chief executive or similar officer of FAA agrees to provide, in the form
requested by Seller and in a timely manner, all applications and information
customarily requested by Seller to evaluate the proposed change. While Seller
shall not unreasonably withhold its consent to any such change, it is agreed
that any successor Dealer Principal, Executive Manager or Location Manager or
similar officer of FAA must possess personal qualifications, expertise,
reputation, integrity, experience and ability which are, in the opinion of
Seller, satisfactory. Seller will determine whether, in its opinion, the
proposed change or appointment is likely to result in a successful dealership
operation with capable management that will satisfactorily perform Dealer's
obligations under this Agreement. Seller shall have no obligation to transact
business with any person who is not named as a Dealer Principal or Executive
Manager of Dealer hereunder prior to having concluded its evaluation of such
person. Upon FAA's request, Seller may, but has no obligation to, transact
business with an individual proposed by Dealer and acceptable to Seller during a
prolonged incapacity or unavailability of Dealer Principal and Executive
Manager.
Any successor Dealer Principal or Executive Manager or similar
officer of FAA must meet the following minimum requirements in order to be
submitted to Seller for approval:
(i) At least three years of experience as a general manager of an
automobile dealer in a major metropolitan area or similar position involving all
aspects of the day-to-day operations of such an automobile dealership
(including, without limitation, new and used vehicle sales, service, parts and
administration); and
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(ii) A demonstrated track record of success in his/her prior automobile
dealership activities as measured by the dealerships' performance under his/her
management. The dealership(s) shall have consistently demonstrated at least the
following:
1. An above average level of sales performance when measured
against regional or zone averages and as measured against sales performance
objectives established by the manufacturer; and
2. An above average level of customer satisfaction when measured
against regional or zone averages for the make; and
3. A history of cooperation and good relations with
manufacturer(s) and/or distributor(s).
(d) Evaluation of Management. Dealer and Seller understand and
------------------------
acknowledge that the personal qualifications, expertise, reputation, integrity,
experience and ability of the Dealer Principal and Executive Manager and their
ability to effectively manage Dealer's day-to-day Dealership Operations is
critical to the success of Dealer in performing its obligations under this
Agreement. Seller may from time to time develop standards and/or procedures for
evaluating the performance of the Dealer Principal and Executive Manager and of
Dealer's personnel generally. Seller may, from time to time, evaluate the
performance of the Dealer Principal and Executive Manager and will advise
Dealer, the Dealer Principal and the Executive Manager of the results of such
evaluations and the way in which any deficiencies affect Dealer's performance of
its obligations under this Agreement.
(e) Compensation of Executive Manager. Executive Manager will have his
---------------------------------
compensation tied to Dealer's overall performance with respect to objectives for
sales, market penetration and customer service.
ARTICLE FIFTH: Additional Provisions
The additional provisions set forth in the attached "Nissan Dealer Sales
and Service Agreement Standard Provisions," bearing form number NDA-4S/9-88, as
amended in Article Thirteenth of this Agreement, and excepting only the
provisions contained in Sections 4, 14 and 16, are hereby incorporated in and
made a part of this Agreement. The Notice of Primary Market Area, Dealership
Facilities Addendum, Product Addendum, Dealership Identification Addendum,
Holding Company Addendum, if applicable, and all Guides and Standards referred
to in this Agreement (including references contained in the Standard Provisions
referred to above) are hereby incorporated in and made a part of this Agreement.
Dealer further agrees to be bound by and comply with: the Warranty Manual;
Seller's Manuals or Instructions heretofore or hereafter issued by Seller to
Dealer; any amendment, revision or supplement to any of the foregoing; and any
other manuals heretofore or hereafter issued by Seller to Dealer.
ARTICLE SIXTH: Termination of Prior Agreements
This Agreement cancels, supersedes and annuls all prior contracts,
agreements and understandings except as stated herein, all negotiations,
representations and understandings being merged herein. No waiver, modification
or change of any of the terms of this Agreement or change or erasure of any
printed part of this Agreement or addition to it (except filling of blank
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<PAGE>
spaces and lines) will be valid or binding on Seller unless approved in writing
by the President or an authorized Vice President of Seller.
ARTICLE SEVENTH: Term
This Agreement shall have a term commencing on the effective date hereof
and, subject to its earlier termination in accordance with the provisions of
this Agreement, expiring on the expiration date indicated in the Final Article
of this Agreement. Subject to other applicable provisions hereof, this Agreement
shall automatically terminate at the end of such stipulated term without any
action by Dealer, Seller or any of the other parties hereto. If this Agreement
is not terminated prior to the expiration date set forth in the Final Article,
and if dealer is in substantial compliance with all provisions of this
Agreement, Seller will offer to enter into a new Agreement with Dealer in
substantially the same form as this Agreement.
ARTICLE EIGHTH: License of Dealer
If Dealer is required to secure or maintain a license for the conduct of
its business as contemplated by this Agreement in any state or jurisdiction
where any of its Dealership Operations are to be conducted or any of its
Dealership Facilities are located, this Agreement shall not be valid until and
unless Dealer shall have furnished Seller with written notice specifying the
date and number, if any, of such license or licenses issued to Dealer, Dealer
shall notify Seller immediately in writing if Dealer shall fail to secure or
maintain any and all such licenses or renewal thereof or, if such license or
licenses are suspended or revoked, specifying the effective date of any such
suspension or revocation.
ARTICLE NINTH: Additional Representations and Warranties
(a) All of the representations and covenants made to Seller by the other
parties to this Agreement have been made jointly and severally by each of the
parties hereto which has made any such representation or covenant.
(b) In addition to the representations set forth elsewhere in this
Agreement, FAA and Dealer jointly and severally, represent to Seller that:
(i) All of the documents and correspondence provided to Seller by FAA and
Dealer, or any of their agents in connection with the solicitation of Seller's
consent to this Agreement, are true and correct copies of such documents.
(c) In addition to the covenants set forth elsewhere in this Agreement,
FAA and Dealer, jointly and severally, agree with Seller that:
(i) Dealer will at all times be involved in the operation of the Nissan
dealership currently operated by it and Dealer will not conduct any other type
of business.
(ii) No distributions will be made to the stockholders or partners of
Dealer and FAA if such distributions would cause Dealer to fail to meet any of
the Guides and Standards relating to the capitalization of Dealer. In
particular, FAA will not be permitted to voluntarily redeem any of its preferred
stock, if prior to and after giving effect to such redemption Dealer fails to
meet any of the Guides and Standards relating to capitalization of Dealer.
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<PAGE>
(iii) FAA and Dealer hereby, jointly and severally, indemnify and hold
harmless, Seller, its officers, directors, affiliates and agents, and each
person who controls Seller within the meaning of the Securities Act of 1933, as
amended (the "Act"), from and against any and all losses, claims, damages or
liabilities, to which they or any of them may become subject under the Act, the
Securities Exchange Act of 1934, as amended, or any other federal or state
securities law, rule or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of the sale by FAA or Dealer of
any securities. The indemnification provided for in this paragraph shall be
exclusive of, and in addition to, any indemnification pursuant to Section 10 of
the Standard Provisions.
(iv) One of the conditions to the effectiveness of this Agreement by
Seller is the delivery of an opinion of counsel to all of the parties hereto
(other than Seller) to the effect that this Agreement has been duly executed and
delivered by each of the parties thereto (other than Seller) and is the legal,
valid and binding obligation of each of such parties enforceable in accordance
with its terms.
ARTICLE TENTH: Right of First Refusal, Option to Purchase, Exclusivity
A. Seller's Right of First Refusal and Option to Purchase
In addition to its rights under this Agreement, in the event that FAA or
Dealer should desire to enter into a transaction which requires Seller's
consent, and without such consent would result in a breach of the covenants set
forth in Article Third, Sections (a)(i); (a)(ii); (a)(iii); (a)(iv); or (b) of
this Agreement or in the event that any of the covenants set forth in Article
Third, Section (b); Article Fourth, Section (a)(vii); or Article Ninth, Section
(c)(ii) of this Agreement are breached, Seller shall have the additional right
and option to purchase the dealership assets or ownership interests under this
Right of First Refusal or Option to Purchase pursuant to this Article Tenth.
(a) If Seller chooses to exercise its Right of First Refusal or Option to
Purchase, it must do so in its written refusal to consent to the proposed sale
or transfer pursuant to Section 15 of the Standard Provisions or, if Section 15
of the Standard Provisions does not apply, within sixty (60) days of receipt of
notification that a event triggering Seller's right of first refusal hereunder
has occurred. FAA and Dealer agree not to complete any proposed change or sale
prior to the expiration of the period for exercise of Seller's right of first
refusal and without Seller's prior written consent. Such exercise shall be null
and void if FAA and/or Dealer withdraws its proposal within thirty (30) days
following Dealer's receipt of Seller's notice exercising its rights of first
refusal. If Seller elects to exercise its Option to Purchase, it must so notify
FAA and Dealer in writing, specifying the nature of the breach upon which it is
relying, and, if practicable, providing FAA and Dealer with a reasonable
opportunity to cure the breach. If FAA or Dealer is not able to cure the breach
relied upon in the notice, or does not cure that breach, then FAA and Dealer may
attempt to sell or otherwise transfer the relevant Dealer Assets to an entity
acceptable to Seller within 60 days. If Seller reasonably does not approve such
a transfer, or if Dealer and FAA are unable to complete such a transaction,
Seller may request an additional 30 days for this purpose. If, at the end of
this period Seller reasonably does not approve a transfer, or, if Seller
reasonably does not approve the extension, then Seller may execute this Option
to Purchase.
(b) After being exercised, Seller's right to purchase may be assigned to
any party, and Seller hereby agrees to guarantee the full payment of the
purchase price by such assignee. Seller's rights under this Article Tenth shall
be binding on and enforceable against any assignee
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<PAGE>
or successor in interest of Dealer or purchaser of Dealer's assets. Seller shall
have no obligation to exercise its rights hereunder.
(c) If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Seller's right under this Article Tenth shall
be a right of first refusal, enabling Seller to assume the prospective
purchaser's purchase rights and obligations under such buy/sell agreement. The
purchase price and other terms of sale shall be those set forth in such
agreement and any related documents. Seller may request and Dealer agrees to
provide all other documents relating to Dealer and the proposed transfer,
including, but not limited to, those reflecting any other agreements or
understandings between the parties to the buy/sell agreement. If Dealer refuses
either to provide such documentation or to state in writing that no such
document exists, it shall be presumed that the agreement is not bona fide.
(d) If Seller determines pursuant to paragraph (c) above that the buy/sell
agreement is not bona fide, Seller will so notify Dealer. Dealer shall have
twenty (20) days from its receipt of such notice within which to withdraw its
proposal. Seller's exercise of its rights hereunder shall be null and void if
Dealer withdraws its proposal within such time period. If the proposal is not
withdrawn, Seller shall have the option, but no obligation, under this Article
Tenth to purchase the principal assets of Dealer utilized in the Dealership
Operations, including real estate and leasehold interest or to purchase the
ownership interests of Dealer, and to terminate this Agreement and all rights
granted Dealer hereunder. If the Dealership Facilities are leased by Dealer from
an affiliated company, the right to purchase the principal assets, or the
ownership interests, of Dealer, shall include the right to lease the Dealership
Facilities. The purchase price shall be at the then fair market value as
determined by an independent appraiser selected by Seller and reasonably
acceptable to FAA and Dealer, and the other terms of sale shall be those agreed
by Seller, Dealer and FAA
(e) Dealer shall transfer the affected property free and clear of liens,
claims, mortgages, and encumbrances.
(f) In addition to any other rights Seller may have at law, in equity or
hereunder, any conveyance of the dealership in violation of this right of first
refusal shall be voidable by Seller.
(g) In the event that Seller elects not to exercise its right of first
refusal to purchase the dealership assets or the ownership interests of the
Dealer; FAA and FAA Stevens Creek, Inc., agree that they will offer to sell such
assets or interests to an entity or persons acceptable to Seller. If such
individuals are not interested in such a transaction and no other entity or
individuals acceptable to Seller can be found, then, at Seller's option, Seller
may approve a buyer proposed by FAA, may waive the linkage requirements between
dealerships, if any, or may propose a buyer to assume a bona fide offer procured
by Dealer.
B. Right of First Refusal on Sale or Lease of Property to a Third Party.
a) In addition to its rights under Articles Third and Fourth and
Section 15 of the Standard Provisions, Dealer agrees that should Dealer seek to
sell or lease all or substantially all of the Approved Site to a third party for
use as a Nissan New Motor Vehicle Dealership, Seller shall have the additional
right and option, but not the obligation, to purchase or lease the Approved Site
pursuant to this Article Thirteenth. A sale or lease for use other than a Nissan
New Motor Vehicle Dealership, without Seller's consent, is void.
b) If Seller chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within 60 days of Seller's receipt
of notice of the proposed sale
10
<PAGE>
or lease by Dealer. Dealer agrees not to complete any proposed sale or lease
prior to the expiration of the period for exercise of Seller's right of first
refusal and without Seller's prior written consent, and agrees to allow Seller
to perform an environmental study of the property. Such exercise shall be null
and void if Dealer withdraws its sale or lease proposal within thirty (30) days
following Dealer's receipt of Seller's notice exercising its right of first
refusal.
c) After being exercised, Seller's right to purchase or lease may be
assigned to any party, and Seller hereby agrees to guarantee the full payment of
the purchase price or the rental payment by such assignee. Seller's rights under
this Article Thirteenth shall be binding on and enforceable against any assignee
or successor in interest of Dealer or purchaser of Dealer's assets. Seller shall
have no obligation to exercise its rights hereunder, and Seller may rescind its
offer if the property is determined to be contaminated pursuant to an
environmental study. Such contamination shall be deemed a breach of this
agreement by dealer.
d) Should Seller actually purchase or lease the facility, Dealer
shall also furnish to Seller copies of any easements, licenses, environmental
studies or other documents affecting the property.
e) Dealer shall transfer the affected property by deed conveying
marketable title free and clear of liens, claims, mortgages, encumbrances,
tenancies and occupancies, or, if applicable, by an assignment of any existing
lease. The Warranty Deed shall be in proper form for recording. Dealer shall
deliver complete possession of the property at the time of delivery of the Deed
or lease assignment. Dealer shall also furnish to Seller copies of any
easements, licenses, or other documents affecting the property and shall assign
any permits or licenses which are necessary for the conduct of the Dealership
Operations.
f) In addition to any other rights Seller may have at law, in equity
or
hereunder, any sale or lease of the Approved Site in violation of this right of
first refusal shall be voidable by Seller.
C. Exclusivity Provisions.
In order for Dealer to maintain competitive Dealership Facilities to
effectively market Nissan Products, Dealer hereby agrees to abide by and never
challenge, except as provided in Article Fifteenth (c), the following provisions
(hereinafter "Exclusivity Provisions"). These Exclusivity Provisions shall be
effective on or before the execution of the Agreement, and continue in effect
thereafter so long as Dealer (or its principals) are authorized Nissan dealers
and these provisions shall be binding on any successors-in-interest, assignors
or purchasers of Dealer:
a) The only line-make of new, unused motor vehicles which Dealer
shall display and sell at the Dealership Facilities shall be the Nissan line and
make of motor vehicles. Dealer shall not conduct any dealership operations for
any other make or line of new, unused vehicles from the Dealership Facilities
throughout the term of this Agreement.
b) Dealer shall sell and maintain a full line of Genuine Nissan Parts
and Accessories at the Dealership Facilities and shall provide a full range of
automotive servicing for Nissan vehicles at the Dealership Facilities pursuant
to Section 5 of the Standard Provisions to the Agreement. Nothing contained
herein, however, shall preclude Dealer from offering parts, accessories or
servicing for vehicles of other lines or makes so long as such products or
services are incidental to Dealer's Nissan Dealership Operations;
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<PAGE>
c) Dealer shall not advertise or promote any make or line of new,
unused vehicles from the Dealership Facilities other than the Nissan line; and
d) Dealer shall not install or maintain any sign at or near the
Dealership Facilities which would tend to lead the public into believing that
any line or make of vehicles other than the Nissan line is sold at the
Dealership Facilities.
ARTICLE ELEVENTH: Breach By Dealer
In the event (i) that any of the material representations and warranties of
Dealer, FAA, Thomas A. Price or Executive Manager, contained in this Agreement
shall prove not to have been true and correct when made or (ii) of any breach or
violation of any of the covenants made by Dealer and FAA, Thomas A. Price or
Executive Manager, in Articles Third, Fourth and Ninth of this Agreement or
(iii) of the occurrence of any of the events warranting termination of this
Agreement as set forth in Section 12.A of the Standard Provisions, Seller may
terminate this Agreement, prior to the expiration date hereof, by giving Dealer
written notice thereof, specifying the nature of the breach; Dealer shall have
an opportunity to cure the breach within 45 days; at the expiration of this 45
day cure period, if the breach has not been satisfactorily cured, Seller may
terminate this Agreement by giving written notice to Dealer, such termination to
be effective upon the date specified in such notice, or such latter date as may
be required by any applicable statute with the effect set forth in Section 13 of
the Standard Provisions.
ARTICLE TWELFTH: Execution of Agreement
This Agreement, and any Addendum or amendment or notice with respect
thereto, shall be valid and binding on Seller only when it bears the signature
of either the President or an authorized Vice President of Seller and, when such
signature is a facsimile, the manual countersignature of an authorized employee
of Seller at the Director level and a duplicate original thereof is delivered
personally or by mail to the Dealership Location. This Agreement shall bind
Dealer and the other parties hereto only when it is signed by: a duly authorized
officer or executive of Dealer or such party if a corporation; one of the
general partners of Dealer or such party if a partnership; or Dealer or such
party if an individual.
ARTICLE THIRTEENTH: Amendments to Standard Provisions
(a) Section 1.O of the Standard Provisions is hereby amended to read as
follows:
"O. 'Principal Owners(s)' shall mean the persons named as Dealer Principal
in the Final Article of this Agreement upon whose personal qualifications,
expertise, integrity, experience, ability and representations Seller has relied
in entering into this Agreement."
(b) Section 6.I of the Standard Provisions is hereby amended to read as
follows:
"Seller shall have the right, at all reasonable times during regular
business hours, to inspect the Dealership Facilities and to examine, audit and
make and take copies of all records, accounts and supporting data relating to
the sale, sales reporting, service and repair of Nissan Products by Dealer.
Whenever possible, Seller shall attempt to provide Dealer with advance notice of
an audit or examination of Dealer's operations. Seller shall also have the
right, at all reasonable times during regular business hours and upon advance
notice, to examine, audit and
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make and take copies of all records, accounts and supporting data of FAA and
Dealer relating to the business, ownership or operations of Dealer."
(c) Section 12.A.(l) of the Standard Provisions is hereby amended to read
as follows:
"(1) Any actual or attempted sale, transfer, assignment or delegation,
whether by operation of law or otherwise, by Dealer or FAA of any interest in or
right, privilege or obligation under this Agreement, or of the principal assets
necessary for the performance of Dealer's responsibilities under this Agreement,
without, in either case, the prior written consent of Seller having been
obtained, which consent shall not be unreasonably withheld;"
(d) Section 12.A.(3) of the Standard Provisions is hereby amended to read
as follows:
"(3) Removal, resignation, withdrawal or elimination from Dealer for any
reason of the Executive Manager, or removal, resignation, withdrawal or
elimination from Dealer of Thomas A. Price as President, or removal,
resignation, withdrawal or elimination from Dealer of Tim Van Binsbergen as
Executive Manager; provided, however, in each case, Seller shall give Dealer a
reasonable period of time within which to replace such person with a individual
satisfactory to Dealer as the case may be, and Seller in accordance with Article
Fourth of this Agreement; or the failure of Dealer to retain an Executive
Manager who, in accordance with Article Fourth of this Agreement, in Seller's
reasonable opinion, is competent, possesses the requisite qualifications for the
position, and who will act in a manner consistent with the continued interests
of both Seller and Dealer."
(e) Section 12.B.(2)(i) of the Standard Provisions is hereby amended to
read as follows:
"(i) any dispute, disagreement or controversy between or among Dealer and
any third party or between the owners and management personnel of Dealer
relating to the management or ownership of Dealer develops or exists which, in
the reasonable judgment of Seller, tends to adversely affect the conduct of the
Dealership Operations or the interests of Dealer or Seller; or"
(f) Section 12.B.(2)(ii) of the Standard Provisions is hereby amended to
read as follows:
"(ii) any other act or activity of Dealer and/or FAA, or any of their
principal owners (ownership in excess of 20%) or senior management occurs, which
substantially impairs the reputation or financial standing of Dealer or its
executive management subsequent to the execution of this Agreement:"
(g) Exhibits A and B are hereby incorporated by reference.
ARTICLE FOURTEENTH: Branding / Business Name
The parties acknowledge and agree that Dealer shall do business as Stevens
Creek Nissan. Dealer agrees to include in its promotional, marketing and
advertising efforts the approved name of the Dealership or another name approved
by Nissan that includes the Nissan name. In all television, radio, print and
other advertising and marketing conducted by dealer, Dealer shall refer to
itself as "Stevens Creek Nissan" or such other approved name. Dealer shall
actively and effectively promote primarily the "Nissan" name. Under no
circumstances shall the name "Nissan" be subordinated to or promoted less
aggressively than any other name (eg. "FAA") by Dealer.
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ARTICLE FIFTEENTH: Special Conditions
(a) Adequate Representation of Entire Line of Nissan Vehicles
Dealer shall actively and effectively promote the sale of Nissan's entire line
of vehicles and products to customers located throughout the Primary Market
Area. In evaluating Dealer's sales performance, in addition to those factors
established in the Standard Provisions, Nissan will evaluate Dealer's
performance by vehicle segment. Dealer is obligated to adequately represent
Nissan in each and every model line. Adequate representation is the higher of
national, regional, state or DMA average, adjusted for segment popularity, as
set forth in the Business plan.
(b) Nissan Products
The definition of "Nissan Products" in the Standard Provisions is amended to
mean Nissan Vehicles (defined as Nissan Cars and Nissan Trucks as well as "near-
new" Nissan Vehicles of the current and three prior model years), Genuine Parts
and Accessories, Nissan Security+Plus and such other products and services
offered by Nissan to Dealer and designated by Nissan as a Nissan Product. Dealer
shall actively and effectively promote the sale of Nissan Products.
Effectiveness with respect to Nissan Security+Plus sales is measured by the
ratio of Security+Plus sales to new vehicles sales, compared to the higher of
national, regional, state or DMA average as set forth in the Business plan or as
otherwise set forth in the Business Plan.
(c) Dispute Resolution Process
The parties acknowledge that, at the state and federal level, various
courts and agencies would, in the absence of this Article Fifteenth (d), be
available to them to resolve claims or controversies which might arise between
them. The parties agree that it is inconsistent with their relationship for
either to use courts or governmental agencies to resolve such claims or
controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. SEC. 1 ET SEQ.), THE PARTIES TO THIS AGREEMENT AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS SECTION, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING ANY DISPUTE,
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR
TO THE RELATIONSHIP BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS
UNDER ANY STATE OR FEDERAL STATUTES (HEREINAFTER "DISPUTES"). Section 16 of the
Standard Provisions is deleted in its entirety.
There are two steps in the Dispute Resolution Process: Mediation and Binding
Arbitration. All Disputes must first be submitted to Mediation, unless that step
is waived by written agreement of the parties. Mediation is conducted by a panel
consisting of an equal number of representatives of the parties designated by
Nissan and selected by Dealer. The Mediation Panel will evaluate each position
and recommend a solution. This recommended solution is not binding.
If a dispute has not been resolved after Mediation, or if Dealer and Nissan have
agreed in writing to waive Mediation, the Dispute will be settled by Binding
Arbitration. SPECIFICALLY, THE PARTIES AGREE TO RESOLVE ALL SUCH DISPUTES BY
BINDING ARBITRATION CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION
14
<PAGE>
PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION, WITH THE PREVAILING PARTY TO
RECOVER ITS COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY. ALL ARBITRATION
AWARDS ARE BINDING AND NON- APPEALABLE, EXCEPT AS OTHERWISE PROVIDED IN THE
UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY BE ENTERED AND
ENFORCED IN ANY COURT HAVING JURISDICTION.
(d) Business Plan
Dealer and Nissan shall execute a Business Plan in the form specified in
the Business Planning Process Workbook that describes how Dealer will fulfill it
sales, service, customer relations and other commitments hereunder, including
heightened performance standards that Dealer commits to meet;
(e) Option to Purchase
If the Dealer Agreement is to expire or be terminated: i) Voluntarily by
Dealer; ii) By Nissan upon the occurrence of any of the events specified in
Section 12A. of the Standard Provisions to the Agreement (as modified herein);
or iii) As a result of the death or physical or mental incapacity of Principal
Owners, without a qualified successor under the successorship plan required in
the Business Plan under Section 6 of the Contiguous Market Ownership Addendum,
without a timely replacement, reasonably acceptable to Seller, Nissan has the
option to Purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan may elect to purchase, and
cancel the Agreement and all rights granted Dealer thereunder. The purchase
price of the dealership assets and real property and other terms will be
determined by agreement between the parties or, if the parties are unable to
reach agreement in a reasonable time, by arbitration pursuant to the Dispute
Resolution Process established in Paragraph 12 hereof. Nissan must advise Dealer
of its intent to exercise this option within 30 days after one party notifies
the other of its intent to terminate the Agreement. Nissan may assign its right
to exercise its option to purchase under this paragraph to any third party.
(f) Executive Manager Evaluation
Dealer shall retain a qualified Executive Manager meeting Seller's approval
to be named under the Final Article of this Agreement.
Dealer has proposed Tim Van Binsbergen as Executive Manager.
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FINAL ARTICLE
-------------
The Dealer is FAA Stevens Creek, Inc., a corporation formed under the laws of
the California. Dealer is located in Santa Clara, CA.
Other parties relevant to this Agreement are FirstAmerica Automotive, Inc., a
corporation incorporated under the laws of the Nevada, and Thomas A. Price.
The Dealer Principal is Thomas A. Price.
The Executive Manager is Tim Van Binsbergen.
<TABLE>
<CAPTION>
<S> <C>
Expiration Date: 6/30/2002
----------
Working Capital Guide Requirement: $ 824,800
Net Worth Guide Requirement: $1,392,000
Flooring Line: $3,435,530
</TABLE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
triplicate effective as of the 30th day of JUNE, 1997 at Carson, California.
SELLER:
NISSAN DIVISION
NISSAN MOTOR DIVISION CORPORATION IN USA
By: /s/ Thomas H. Eastwood By: /s/ Jules Clavadetscher
---------------------- -----------------------
Thomas H. Eastwood Jules Clavadetscher
Vice President Regional Vice President
FAA Stevens Creek, Inc.
By: /s/ Thomas A. Price
-------------------
Thomas A. Price
Its: President
ACKNOWLEDGED:
FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Thomas A. price
-------------------
Thomas A. Price
Its: President and CEO
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EXHIBIT 10.3.14
NISSAN CONTIGUOUS MARKET OWNERSHIP ADDENDUM
-------------------------------------------
This Nissan Contiguous Market Ownership Addendum (the "CMO Agreement") is
entered into this 30th day of JUNE, 1997, by and among Nissan Motor Corporation
in U.S.A. ("Nissan"), Thomas A. Price ("Dealer Principal" or "Price"), FAA
Stevens Creek, Inc., ("Stevens Creek Nissan" or "Dealer"), and FirstAmerica
Automotive, Inc., ("FAA").
RECITALS
--------
WHEREAS, Nissan, FAA and Dealer desire to create a Contiguous Market Ownership
Area in the San Francisco Bay Area, (the "South Bay CMO");
WHEREAS, Nissan, FAA and Dealer commit to develop and execute a Market Area Plan
that describes how Dealer will develop the South Bay CMO through the provision
or establishment of Dealership Facilities;
WHEREAS, Nissan, FAA and Dealer also commit to develop and execute a Business
Plan that describes how Dealer will fulfill its sales, service, customer
relations and other commitments hereunder, including heightened performance
standards that Dealer commits to meet;
WHEREAS, Dealer commits to operate in accordance with the Market Area Plan and
the Business Plan;
WHEREAS, Nissan, Price, FAA and Dealer acknowledge that this CMO Agreement
forges a new collaborative relationship in the automotive industry that is
uniquely and mutually beneficial to the parties, was negotiated by them in the
spirit of cooperation, and does not adversely affect their existing rights and
responsibilities;
WHEREAS, Price, FAA and Dealer, in exchange for the opportunities and other
consideration specified herein, agree to assume the obligations set forth
herein; and
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO AGREEMENT
-----------------
THE CMO Agreement supplements the Nissan Dealer Sales and Service Agreement
between Nissan and Dealer (the "Dealer Agreement"), including the Standard
Provisions thereto (the "Standard Provisions"). To the extent that the CMO
Agreement conflicts with the Dealer Agreement, the CMO Agreement controls
and shall govern the relationship between the parties. Subject to such
conflicts and except as otherwise provided herein, the Dealer Agreement
survives the execution of the CMO Agreement and remains in full force and
effect.
<PAGE>
2. DEFINITIONS
-----------
The parties agree that the following terms, as used in the CMO Agreement,
shall be defined exclusively as set forth below.
A. "NISSAN VEHICLES" shall mean Nissan Cars and Nissan Trucks as well
as near-new" Nissan Vehicles of the current and three prior model
years.
B. "NISSAN PRODUCTS" shall mean Nissan Vehicles, Genuine Parts and
Accessories, Nissan Security + Plus and such other products and
services offered by Nissan to Dealer and designated by Nissan as a
Nissan Product.
C. "PRIMARY MARKET AREA" shall mean the South Bay CMO, which shall
consist of the entire geographic area that is designated from time to
time as the area of Dealer's sales and service responsibility for
Nissan Products in a Notice of Primary Market Area issued by Nissan to
Dealer. Nissan reserves the right, in its reasonable discretion, to
issue a new, superseding "Notice of Primary Market Area" to Dealer
from time to time.
D. "EXECUTIVE MANAGER" shall mean the person named as Executive
Manager in the Final Paragraph of the Dealer Agreement upon whose
personal qualifications, expertise, reputation, integrity, experience,
ability and representations that he or she shall devote his or her
efforts to and have full managerial authority and responsibility for
the day-to-day management and performance of Dealer throughout the
South Bay CMO, or with Nissan's consent, any contiguous CMO(s),
including but not limited to the supervision of all Location Managers,
which Nissan has relied in entering into the CMO Agreement.
E. "LOCATION MANAGER" shall mean the persons named as Location
Managers in the Location Manager Addendum to the CMO Agreement upon
whose personal qualifications, expertise, reputation, integrity,
experience, ability and representations that he or she shall devote
his or her full-time efforts to and have managerial authority and
responsibility for the day-to-day management and performance of Dealer
at a particular Dealership Facility, Nissan has relied in entering
into the CMO Agreement.
F. "MARKET AREA PLAN" shall mean the written plan prepared and
executed by the parties that describes the number, location, type,
size and opening date of the Dealership Facilities to be provided by
Dealer hereunder.
G. "BUSINESS PLAN" shall mean the written plan prepared and executed
by the parties that contains Dealer's plan and commitment to develop
its business throughout the South Bay CMO, including but not limited
to its plan and commitment with respect to organizational,
operational, financial, succession and other issues, and certain
standards on which its performance hereunder will be evaluated.
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<PAGE>
H. "DEALERSHIP FACILITIES" shall mean the land areas at each
Dealership Location and the buildings and improvements erected thereon
provided by Dealer in accordance with Section 2 of the Standard
Provisions and the Market Area Plan.
3. TERM
----
This Agreement and the Dealer Agreement shall have a renewable term
commencing on its effective date and continuing for a term of five years
unless terminated earlier in accordance with Section 12 of the Standard
Provisions or the CMO Agreement.
4. DEALERSHIP LOCATION AND DEALERSHIP FACILITIES
---------------------------------------------
A. DEALERSHIP FACILITIES
---------------------
In accordance with the Market Area Plan, FAA and Dealer shall provide
Dealership Facilities at each Dealership Location that are
satisfactory in space, appearance, usage, layout and signage; and
otherwise are substantially in accordance with the Guides therefor
established by Nissan from time to time. Dealer shall conduct its
Dealership Operations only from the Dealership Locations specified in
the Dealership Facilities Addendum and shall use each such place of
business only for the purposes specified therefor in the Dealership
Facilities Addendum. Where applicable, Dealer shall establish
additional Dealership Facilities in the time, place and manner agreed
to by Dealer and Nissan in the Market Area Plan. Dealer agrees that
the Dealership Facilities shall have a consistent image, appearance
and name.
B. DEALERSHIP FACILITIES ADDENDUM
------------------------------
FAA, Dealer and Nissan shall execute a Dealership Facilities Addendum
which will include a description of each Dealership Location and each
Dealership Facility as well as the approved use for each such place of
business and facility.
C. EXCLUSIVE NISSAN OPERATIONS
---------------------------
FAA and Dealer agree that each Dealership Facility and Dealership
Location shall be dedicated to the promotion of Nissan Products and
devoted exclusively to the conduct of Nissan sales, service, parts
and/or other operations as specified in the Dealership Facilities
Addendum. Dealer shall not conduct any sales, service, parts and/or
other operations for any other new line-make of vehicles at any of the
Dealership Facilities or Dealership Locations.
D. SOUTH BAY CMO OBLIGATIONS
-------------------------
FAA shall develop, and Dealer shall devote its full efforts to
developing the South Bay CMO. Consequently, Dealer agrees that it will
not engage, either directly or indirectly, in any of the activities
contemplated by the CMO Agreement from Facilities or locations outside
of the South Bay CMO. If Dealer fails to develop the
3
<PAGE>
South Bay CMO according to its Market Area Plan or to implement the
plans or meet the performance standards established in the Business
Plan, then Nissan, will provide written notice specifying the default
and a reasonable period of at least 45 days within which to cure the
default. Should the 45 day cure period expire without material remedy
of the breach, Nissan may (i) terminate the CMO Agreement under
Paragraph 11 hereof, (ii) restructure the South Bay CMO and reassign
to other Authorized Nissan Dealers any areas necessary to achieve the
maximum potential development of the South Bay CMO, or (iii) exercise
its option to purchase under Paragraph 10.C hereof.
5. MARKET AREA PLAN
----------------
FAA, Dealer and Nissan shall execute a Market Area Plan that describes how
Dealer will develop its Primary Market Area through the provision or
establishment of Dealership Facilities. The Market Area Plan is an
essential part of the CMO Agreement.
A. MARKET AREA DEVELOPMENT
-----------------------
FAA and Dealer agree to develop its Primary Market Area according to
the Market Area Plan, which shall include a detailed description of
the number, location, type, size, usage and opening date of the
Dealership Facilities to be provided.
B. PLAN MODIFICATIONS
------------------
The Market Area Plan may be modified only if Nissan, FAA and Dealer
agree that a material change in marketing conditions warrants the
proposed modification.
C. MARKET STUDIES
--------------
The parties agree that although Nissan may continue to perform market
studies of the Primary Market Area and any contiguous market areas, or
any portion thereof, pursuant to Section 4.A of the Standard
Provisions, they will base the Market Area Plan on their collaborative
review and analysis of all relevant data, including such market
studies. Section 4.B of the Standard Provisions is hereby deleted in
its entirety.
D. WAIVER OF CLAIMS BASED ON NISSAN'S ACTIONS OUTSIDE THE PRIMARY MARKET
---------------------------------------------------------------------
AREA
----
Nissan agrees that in taking action outside the Primary Market Area,
it will consider the impact of such action on Dealer's investment in
and plans for the Primary Market Area. Dealer agrees not to initiate
or prosecute any judicial, administrative or governmental proceeding
with respect to Nissan's actions outside the Primary Market Area,
including but not limited to its appointment or relocation of any
other Authorized Nissan Dealer.
4
<PAGE>
6. BUSINESS PLAN
-------------
FAA, Dealer and Nissan shall execute a Business Plan in the form specified
in the Business Planning Process Workbook that describes how Dealer will
fulfill its sales, service, customer relations, marketing and other
commitments hereunder. The Business Plan is an essential part of Agreement.
A. BUSINESS PLANNING
-----------------
The Business Plan shall include the following elements:
i. a statement of Dealer's legal and financial structure, including
capitalization, line of credit and equity ownership;
ii. the sales, service, customer relations, marketing and other
standards on which Dealer's performance will be evaluated, which
standards Dealer acknowledges and agrees will be higher than
those established for Authorized Nissan Dealers that are not
responsible for a CMO;
iii. a detailed organizational structure and staffing plans,
including the number of certified sales, service and parts
managers, sales personnel, and technicians that shall be provided
for the South Bay CMO;
iv. specific plans for maximizing owner loyalty and customer
satisfaction, including hours of operation and customer
convenience systems;
v. advertising, merchandising, marketing and community relations
plans;
vi. successorship, including the identity of the proposed successors
to Dealer, Dealer Principal and/or Executive Manager; and
vii. other standards or plans as agreed by Nissan, FAA and Dealer.
B. OPERATIONS
----------
Dealer shall operate in accordance with the Business Plan and shall
actively and effectively promote the sale of Nissan Products to
customers located throughout the Primary Market Area. In particular,
Dealer shall implement the plans and meet the performance standards
established in the Business Plan.
C. ANNUAL BUSINESS PLAN REVIEW
---------------------------
Dealer shall review and update its Business Plan annually, or more
often if needed, and submit it to Nissan for joint review. Updated
Plans will include a performance evaluation and any proposed
modifications to the prior year's plan. If Nissan,
5
<PAGE>
FAA and Dealer agree that changes to the proposed Plan are necessary,
Dealer will make such changes and resubmit its Plan.
I. PERFORMANCE EVALUATION
----------------------
Dealer's performance of its obligations is essential to the
effective representation of Nissan Products, and to the
reputation and goodwill of Nissan, in the South Bay CMO.
Therefore, Dealer agrees to review its performance against the
prior year's Business Plan in its updated Business Plan. Nissan,
FAA and Dealer will use this analysis as a basis for jointly
evaluating Dealer's performance so that any necessary
improvements can be made. In evaluating Dealer's sales
performance, in addition to those factors established in the
Standard Provisions, Nissan will give consideration to: (a) sales
volume or market share objectives for Nissan Products set by the
parties, and (b) sales and market penetration achieved by Dealer
in each of the various segments in which Nissan Vehicles compete.
II. PLAN MODIFICATIONS
------------------
Plans for operations are subject to update, but modifications can
be implemented only if Nissan, FAA and Dealer agree thereto.
7. OTHER DEALER RESPONSIBILITIES
-----------------------------
A. FINANCIAL AND OPERATIONAL REPORTING
-----------------------------------
Dealer shall provide to Nissan financial statements and sales reports
pursuant to Section 6.G of the Standard Provisions for each Dealership
Facility and for Dealer for the entire Primary Market Area. Dealer
shall furnish to Nissan annual certified financial statements for
Dealer or for the entity that owns Dealer and shall otherwise disclose
to Nissan in a format reasonably satisfactory to Nissan the financial
and operational results of Dealer's Nissan business.
B. DISCLOSURE OF FINANCIAL INFORMATION TO AFFILIATED COMPANIES
-----------------------------------------------------------
Nissan shall be entitled to disclose to and receive from affiliated
companies, including but not limited to Nissan Motor Acceptance
Corporation, all financial statements and reports provided by Dealer
under the CMO Agreements and/or the Dealer Agreement or otherwise
relating to Dealership Operations.
C. DEALER'S LOAN ARRANGEMENTS FOR REAL PROPERTY
--------------------------------------------
Dealer's loan arrangements for its Dealership Facilities and/or
Dealership Locations shall grant to Nissan the right to notice of and
a reasonable opportunity
6
<PAGE>
to cure any default thereunder as well as the right to take possession
of such real property upon such cure, and shall otherwise be
satisfactory in form to Nissan.
8. NISSAN CAR AND NISSAN TRUCK ALLOCATIONS
---------------------------------------
Nissan's allocation of Nissan Cars and Nissan Trucks to Dealer shall be
based on the entire Primary Market Area in accordance with the procedures
established therefor by Nissan.
9. TRANSFERS
---------
A. SALE OF SOUTH BAY CMO DEALERSHIP
--------------------------------
In view of the efforts and resources that Nissan has expended in order
to establish the South Bay CMO, if Dealer proposes to sell certain
assets or Dealership Facilities, Nissan may require that Dealer sell
all South Bay CMO dealership assets, or none of such assets or
Dealership Facilities to the proposed buyer.
B. QUALIFICATIONS OF PROPOSED DEALER PRINCIPAL
-------------------------------------------
FAA and Dealer acknowledge and agree that, in view of the increased
responsibilities that Price has assumed as the principal of Dealer for
the South Bay CMO, Nissan has and will apply heightened standards with
respect to the personal, business and financial qualifications,
expertise, reputation, integrity, experience and ability of a proposed
Dealer Principal.
C. SUCCESSORSHIP
-------------
Section 14 of the Standard Provisions is hereby deleted in its
entirety. The parties shall address successorship in the Business Plan
prepared pursuant to Paragraph 6 hereof. Dealer shall identify the
proposed successor to Dealer, Dealer Principal and/or Executive
Manager in its successorship plan and shall provide such documents and
information as Nissan may reasonably require in evaluating such plans.
Nissan shall evaluate such plan and approve it only if it meets the
heightened standards applied by Nissan in connection with Nissan
Contiguous Market Ownership Agreements. Subject to Paragraph 10
hereof, the parties agree that if for any reason Dealer is unable to
implement its successorship plan upon the death or physical or mental
incapacity of Dealer Principal, then Dealer shall be given a
reasonable period of time not to exceed six (6) months in which to
transfer to person(s) acceptable to Nissan the principal assets of
Dealer utilized in the dealership business, including but not limited
to the Dealership Facilities, and for such person(s) to apply for a
Nissan Dealer Sales and Service Agreement and, if applicable, a Nissan
Contiguous Market Ownership Agreement.
7
<PAGE>
D. DEALER'S OBLIGATION TO REPAY FINANCIAL INTERVENTION FUNDING UPON
----------------------------------------------------------------
PUBLIC OFFERINGS
----------------
If Nissan has furnished financial intervention funding to FAA and/or
Dealer in connection with the establishment or development of the
South Bay CMO, then, upon the completion of any public offering of FAA
and/or Dealer's stock or other ownership interest, upon Nissan's
demand, Dealer shall repay to Nissan the full amount of such funding.
10. RIGHTS OF FIRST REFUSAL OR OPTION TO PURCHASE
---------------------------------------------
A. DEALERSHIP ASSETS OR OWNERSHIP INTERESTS
----------------------------------------
Whenever Dealer proposes to sell its principal assets or the owners of
Dealer propose to sell a majority ownership interest in Dealer, in
addition to its rights under Articles Third and Fourth of the Dealer
Agreement and Section 15.B of the Standard Provisions, Nissan shall
have the right and option to purchase the dealership assets or
ownership interests pursuant to this Paragraph 10.
i. If Nissan chooses to exercise its option, it must do so in its
written refusal to consent to the proposed sale or transfer
pursuant to Section 15.B. Dealer agrees not to complete any
proposed change or sale prior to the expiration of the period for
exercise of Nissan's option and without Nissan's prior written
consent. Such exercise shall be null and void if Dealer withdraws
its proposal within thirty (30) days following Dealer's receipt
of Nissan's notice exercising its option.
ii. After being exercised, Nissan's option may be assigned to any
party, and Nissan hereby agrees to guarantee the full payment of
the purchase price by such assignee. Nissan's rights under this
Paragraph 10 shall be binding on and enforceable against any
assignee or successor in interest of Dealer or purchaser of
Dealer's assets. Nissan shall have no obligation to exercise its
rights hereunder.
iii. If Dealer has entered into a bona fide written buy/sell
agreement respecting its Nissan dealership, Nissan's right under
this Paragraph 10 shall be a right of first refusal, enabling
Nissan to assume the prospective purchaser's rights and
obligations under such buy/sell agreement. The purchase price and
other terms of sale shall be those set forth in such agreement
and any related documents. Nissan may request, FAA and Dealer
agrees to provide all other documents relating to Dealer and to
the proposed transfer, including, but not limited to, those
reflecting any other agreements or understandings between the
parties to the buy/sell agreement. Nissan shall have sixty 960)
days from its receipt of all such documents in which to exercise
its right of first refusal hereunder. If Dealer refuses either to
8
<PAGE>
provide such documentation or to state in writing that no such
documents exist, it shall be presumed that the agreement is not
bona fide.
iv. In the absence of a bona fide written buy/sell agreement, Nissan
shall have the option, but no obligation, under this Paragraph 10
to purchase the principal assets of Dealer utilized in the
Dealership Operations, including real property and leasehold
interest, and to terminate this Agreement and all rights granted
Dealer hereunder. If the Dealership Facilities are leased by
Dealer from an affiliated company, the right to purchase the
principal assets of Dealer shall include the right to lease the
Dealership Facilities. The purchase price of Dealer's assets
shall be at their fair market value as a going concern as
negotiated by the parties and the other terms of sale shall be
those agreed by Dealer and Nissan. If Dealer and Nissan are
unable to reach a negotiated settlement in a reasonable time, the
price and other terms of sale shall be established by arbitration
pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. If Nissan determines that the buy/sell
agreement is not bona fide, Nissan will so notify Dealer. Dealer
shall have ten (10) days from its receipt of such notice within
which to withdraw its proposal. Nissan's exercise of its rights
hereunder shall be null and void if Dealer withdraws its proposal
within such time period.
v. Dealer shall transfer the affected property free and clear of
liens, claims, mortgages, encumbrances, tenancies and
occupancies. Dealer shall also furnish to Nissan copies of any
easements, licenses, or other documents affecting the dealership
and/or property and shall assign any permits or licenses which
are necessary for the conduct of the Dealership Operations.
B. REAL PROPERTY
-------------
Whenever Dealer proposes to sell or lease any of its Dealership
Facilities and/or Dealership Locations, in addition to its rights
under Article Third and Fourth of the Dealer Agreement and Section
15.B of the Standard Provisions, Nissan shall have the right and
option to purchase or lease said Dealership Facilities and/or
Dealership Locations pursuant to this Paragraph l0.B.
i) If Nissan chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within sixty (60)
days of Nissan's receipt of notice of the proposed sale or lease
by Dealer. Dealer agrees not to complete any proposed sale or
lease prior to the expiration of the period for exercise of
Nissan's right of first refusal and without Nissan's prior
written consent, and agrees to allow Nissan to perform an
environmental study of the property. Dealer also agrees to
furnish to Nissan copies of any easements, licenses,
environmental studies or other documents affecting the property
Such exercise shall be null and void if Dealer withdraws its sale
9
<PAGE>
or lease proposal within thirty (30) days following Dealer's
receipt of Nissan's notice exercising its right of first refusal.
ii) After being exercised, Nissan's right to purchase or lease may be
assigned to any party, and Nissan hereby agrees to guarantee the
full payment of the purchase price or the rental payment by such
assignee. Nissan's rights under this Paragraph l0.B shall be
binding on and enforceable against any assignee or successor in
interest of Dealer or purchaser of Dealer's assets. Nissan shall
have no obligation to exercise its rights hereunder, and Seller
may rescind its offer if the property is determined to be
contaminated pursuant to an environmental study. Such
contamination shall be deemed a breach of this agreement by
dealer.
iii) Dealer shall transfer the affected property by Warranty Deed
conveying marketable title free and clear of liens, claims,
mortgages, encumbrances, tenancies and occupancies, or, if
applicable, by an assignment of any existing lease. The Warranty
Deed shall be in proper form for recording. Dealer shall deliver
complete possession of the property at the time of delivery of
the Deed or lease assignment. Dealer shall also assign any permit
or licenses which are necessary for the conduct of the Dealership
Operations.
iv) In addition to any other rights Nissan may have at law, in equity
or hereunder, any sale or lease of the Dealership Facilities
and/or the Dealership Locations in violation of this right of
first refusal shall be voidable by Nissan.
C. OPTION TO PURCHASE
------------------
If the CMO Agreement or the Dealer Agreement is to expire or be
terminated for any reason, including but not limited to the death or
physical or mental incapacity, without replacement in accordance with
Section 9.C. hereinabove, of Dealer Principal, Nissan has the option
to purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan in its sole
discretion may elect to purchase, and cancel the CMO Agreement and the
Dealer Agreement and all rights granted Dealer thereunder. The
purchase price of the dealership assets and real property and other
terms will be determined by agreement between the parties or, if the
parties are unable to reach agreement in a reasonable time, by
arbitration pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. Nissan must advise Dealer of its intent to
exercise this option within 30 days prior to the expiration of the CMO
Agreement and/or the Dealer Agreement or within 30 days after one
party notifies the other of its intent to terminate the CMO Agreement
and/or the Dealer Agreement. Nissan may assign its right to exercise
its option to purchase under this Paragraph 10.C to any third party.
10
<PAGE>
11. TERMINATION
-----------
A. TERMINATION DUE TO ACTS OR EVENTS
---------------------------------
The following represent events which are within the control of or
originate from actions taken by Dealer or its management or owners and
which are so contrary to the intent and purpose of the CMO Agreement
that they warrant its termination and the termination of the Dealer
Agreement:
(i) Any conduct that warrants the termination of the Dealer
Agreement;
(ii) The termination of the Dealer Agreement;
(iii) The failure of Dealer to maintain at all times exclusive Nissan
sales, service, parts and/or other operations at the Dealership
Facilities and the Dealership Locations; or
(iv) Any actual or attempted sale or transfer of stock or any other
ownership interest in Dealer by way of a public offering without
Nissan's prior written consent;
Upon the occurrence of any of the foregoing events, Nissan may
terminate the CMO Agreement by giving Dealer notice thereof, such
termination to be effective upon the date specified in such notice, or
such later date as may be required by any applicable statute.
B. TERMINATION FOR NON-PERFORMANCE
If, based on the evaluation thereof made by Nissan, Dealer shall fail
to substantially fulfill its responsibilities with respect to:
(i) the development of the South Bay CMO according to the Market
Area Plan;
(ii) the implementation of the plans set forth in the Business Plan,
including but not limited to any deviation therefrom; or
(iii) the performance of its sales, service, customer relations or
other obligations based on the standards established therefor in
the Business Plan;
Nissan will notify Dealer of such failure and will review with Dealer
the nature and extent of such failure and the reasons which, in
Nissan's or Dealer's opinion, account for such failure. Thereafter,
Nissan will provide Dealer with a reasonable opportunity to correct
the failure. If Dealer fails to make substantial progress towards
remedying such failure before the expiration of such period, Nissan,
may, direct Dealer to transfer its rights and obligations under this
Agreement to another
11
<PAGE>
entity, acceptable to Nissan, within a reasonable time. Should Dealer
fail to do so Nissan may (a) terminate this Agreement by giving Dealer
notice of termination, such termination to be effective at least sixty
(60) days after such notice is given, (b) exercise its option to
purchase the principal assets of Dealer utilized in the business,
including such real property as Nissan in its sole discretion may
elect to purchase, and cancel the CMO Agreement and the Dealer
Agreement pursuant to Paragraph 10.C hereof, or (c) restructure the
South Bay CMO and reassign to other Authorized Nissan Dealers any
areas necessary to achieve the maximum potential development of the
South Bay CMO.
12. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 12, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN AND DEALER AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12,
WHICH INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM
FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN
THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR
FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation,
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, the Dealer or Nissan can submit the Dispute to Binding
Arbitration.
Section 16 of the Standard Provisions is deleted in its entirety.
B. MEDIATION
---------
Dealer or Nissan can submit a Dispute to Mediation. Mediation is
conducted by a panel consisting of a Nissan representative designated
by Nissan, a Dealer representative designated by Dealer, and an
independent professional mediator chosen by the parties'
representatives. The Mediation Panel will evaluate each position and
recommend a solution. This recommended solution is not binding.
12
<PAGE>
C. BINDING ARBITRATION
-------------------
If a dispute has not been resolved after mediation, or if
Dealer and Nissan have agreed in writing to waive Mediation,
the Dispute will be settled by Binding Arbitration.
SPECIFICALLY, THE PARTIES AGREE TO RESOLVE ALL SUCH DISPUTES
BY BINDING ARBITRATION CONDUCTED IN ACCORDANCE WITH THE
COMMERCIAL ARBITRATION PROCEDURES OF THE AMERICAN
ARBITRATION ASSOCIATION, WITH THE PREVAILING PARTY TO RECOVER
ITS COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY. ALL
ARBITRATION AWARDS ARE BINDING AND NON-APPEALABLE, EXCEPT AS
OTHERWISE PROVIDED IN THE UNITED STATES ARBITRATION ACT.
JUDGMENT UPON ANY SUCH AWARD MAY BE ENTERED AND ENFORCED IN
ANY COURT HAVING JURISDICTION.
13. RELEASE
-------
Dealer hereby releases Nissan from any and all claims and causes of action
that it may have against Nissan for money damages or other relief relating
to or arising out of any event occurring prior to the execution of the CMO
Agreement, except for any accounts payable by Nissan to Dealer in
connection with the provision of any services under the Dealer Agreement
and any claim described in Section 11.A.1 and .2 of the Standard
Provisions. In connection with this release, Dealer expressly acknowledges
and waives its rights under California Civil Code, Section 1542, which
provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
13
<PAGE>
FAA STEVENS CREEK, INC. NISSAN MOTOR CORPORATION IN U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
----------------------------- --------------------------------------
Thomas A. Price, President Thomas H. Eastwood, Vice President
By: /s/ Jules Clavadetscher
--------------------------------------
Jules Clavadetscher
Regional Vice President
Acknowledged and Concur:
First Automotive, Inc.
By: /s/ Thomas A. Price
------------------------------
Thomas A. Price, President
President and CEO
14
<PAGE>
EXHIBIT 10.3.15
NISSAN CONTIGUOUS MARKET OWNERSHIP
----------------------------------
AREAS FORMATION AND LINKAGE AGREEMENT
-------------------------------------
This Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
(the "CMO Formation and Linkage Agreement") is entered into this 30th day of
JUNE, 1997, by and among Nissan Motor Corporation in U.S.A. ("Nissan"), and
FirstAmerica Automotive, Inc., ("FAA") concerning the commitments and
obligations of FAA and Nissan in respect to the acquisition and formation of
Contiguous Market Ownership Areas ("CMO") in the San Francisco Bay Area,
specifically, the "Peninsula CMO", the "South Bay CMO", the "East Bay CMO" and
the "East Shore CMO".
RECITALS
--------
WHEREAS, Nissan has developed a distribution network plan that seeks to create
CMOs in the San Francisco Bay Area (the Peninsula CMO, South Bay CMO, East Bay
CMO, and East Shore CMO);
WHEREAS, Nissan recognizes this new distribution plan is to be implemented over
time with consideration of existing dealers' rights;
WHEREAS, FAA has approached Nissan with a request to acquire and develop these
CMOs;
WHEREAS, Nissan has advised FAA that Nissan would approve their acquisition of
individual dealers within the CMOs, provided FAA satisfies Nissan's requirements
for applicants; and Nissan has advised FAA that Nissan cannot make existing
dealers sell or otherwise transfer their dealerships to FAA;
WHEREAS, FAA acknowledges the rights of existing dealers, yet commits to use its
best good faith and reasonable efforts to acquire dealerships within the CMOs,
with an intent to form the complete San Francisco Bay Area CMO marketing
territories;
WHEREAS, FAA acknowledges that Nissan's business concept for the CMO envisioned
entering into one Nissan Dealer Sales and Service Agreement with one entity for
each CMO;
WHEREAS, FAA, desires affirm its commitment to implement Nissan's CMO concept in
each CMO;
WHEREAS, FAA will have dealer subsidiaries in operation in one or more of the
Bay Area CMOs, and FAA has committed to, and intends to continue to acquire
Nissan Dealers to complete the formation and operation of all San Francisco Bay
Area CMOs;
WHEREAS, Nissan and FAA have negotiated agreements to allow FAA's operation of
Bay Area CMOs, specifically, any CMO Holding Company Agreements, the Nissan
Dealer Term Sales and Service Agreements for each individual dealer entity, if
appropriate, and the relevant Nissan CMO Agreements for Bay Area CMOs;
WHEREAS, FAA and Nissan mutually agree and acknowledge that Nissan has placed
extraordinary trust in the qualifications, integrity, and ability of FAA and
Thomas A. Price; the
<PAGE>
parties mutually acknowledge that Nissan's agreement and intent to approve FAA
and Price as Contiguous Multiple CMO Operators ("CMCMO") is unique to FAA and
Price based upon Nissan's experience, relationship, and the commitments between
the parties; and, accordingly, that a prospective transferee of one or more of
the CMOs must have the same high qualifications, and, further, that even a
qualified CMO operator may not have the extraordinary qualifications necessary
to be approved as a CMCMO.
WHEREAS, FAA and Nissan desire to treat the San Francisco Bay Area CMOs as part
and parcel of a single market;
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO FORMATION AND LINKAGE AGREEMENT
---------------------------------------
FAA acknowledges that the San Francisco Bay Area market is a single
metropolitan market area which has been divided by Nissan into four CMOs
(Peninsula, South Bay, East Bay, and East Shore CMOs) for promotion and
marketing purposes. FAA agrees to use its best efforts to acquire all
Nissan dealership operations within the four CMO areas. Nissan and FAA
acknowledge that this will be a process that must occur over time, and that
Nissan cannot take any action adverse to current dealers in order to, or in
an effort to, require them to sell or transfer their dealerships to FAA.
Should FAA be successful in acquiring Nissan dealerships within the four
CMOs in the San Francisco Bay Area, Nissan agrees to approve that
acquisition, provided that FAA continues to possess the generally applied
qualifications necessary to become an Authorized Nissan Dealer.
Nissan and FAA acknowledge that each CMO, though a part of the San
Francisco Bay Market Area, has been designed to be sufficient to achieve
the benefits of a CMO as an independent entity. Nevertheless, as a
practical matter, and consistent with its intent as originally
communicated, Nissan intends, and FAA agrees, that Nissan will treat these
wholly-owned subsidiary dealer corporations, and their related Nissan
Dealer Term Sales and Service Agreements, the Nissan Contiguous Market
Ownership Agreements, and any relevant Nissan CMO Holding Company
Agreement, as part and parcel of the single marketing entity in the San
Francisco Bay Area market. Consistent with the CMO concept reflected in the
CMO Agreements for the constituent CMOs, FAA agrees that it will exercise
its control and ownership of each CMO in ways consistent with this
agreement and will not take any actions or allow its subsidiaries in the
San Francisco Bay Area CMOs to take any action inconsistent with the intent
of this Agreement.
2. CMO FORMATION AND LINKAGE AGREEMENT TERM
----------------------------------------
This Agreement shall be in effect while FAA, or any subsidiary dealer
entity, is operating as an Authorized Nissan Dealer within a CMO in the San
Francisco Bay Area, unless amended
<PAGE>
by the parties. Termination of all Nissan dealer activities owned or controlled
by FAA will constitute termination this CMO Formation and Linkage Agreement with
no further notice or act required by any party.
3. TRANSFERS
---------
In view of Nissan's distribution plan and the efforts and resources
that Nissan has expended in order to establish the San Francisco Bay
Area CMOs, if FAA proposes or attempts to sell or otherwise transfer
of any one of the four San Francisco Bay Area CMOs, or those
dealership assets necessary for the conduct of appropriate and
effective CMO Operations, without Nissan's consent, Nissan in its
reasonable discretion, may require that FAA, or any subsidiary entity,
sell, transfer or terminate, one, all, or any combination thereof, of
the CMOs in the San Francisco Bay Area, to a proposed buyer acceptable
to Nissan.
Further, Nissan reserves the right, that, should FAA desire
to transfer two or more of the San Francisco Bay Area CMOs, then
Nissan, in its sole discretion, may require FAA to transfer to an
entity possessing the same, unusually high qualifications. Should
Nissan, in its sole discretion, not consent to a transfer of two or
more of the San Francisco Bay Area CMOs to a single entity, then
Nissan may require FAA to transfer these CMOs, if at all, to separate
CMO operators, acceptable to Nissan.
FAA acknowledges and agrees to identical Rights of First Refusal in
the CMO interests that each individual dealer or dealer entity (on
specific Dealership Assets and Dealership Facilities) as are contained
the Dealer Agreements, as well as any Right of First Refusal contained
in the individual CMO Agreements, as well as identical Option to
Purchase provisions.
4. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 4, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN, FAA, IN ITS OWN
RIGHT AND AS THE OWNER OF THE PENINSULA CMO DEALER(s) (CURRENTLY
INCLUDING MARIN NISSAN AND SERRAMONTE NISSAN), THE EAST BAY CMO
DEALERS (s) (CURRENTLY INCLUDING CONCORD NISSAN AND DUBLIN NISSAN) THE
SOUTH BAY CMO DEALER(s) (CURRENTLY STEVENS CREEK) AND THE EAST SHORE
CMO (CURRENTLY NO FAA DEALERS WITHIN THIS CMO), AGREE THAT THE DISPUTE
RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 4, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE
<PAGE>
MECHANISM FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT
OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP
BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY
STATE OR FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, FAA or Nissan can submit the Dispute to Binding
Arbitration.
B. MEDIATION
---------
Any party to this Agreement can submit a Dispute to Mediation.
Mediation is conducted by a panel consisting of a Nissan
representative designated by Nissan, a FAA representative designated
by FAA, and an independent professional mediator chosen by the
parties' representatives. The Mediation Panel will evaluate each
position and recommend a solution. This recommended solution is not
binding.
C. BINDING ARBITRATION
-------------------
If a Dispute has not been resolved after Mediation, or if FAA and
Nissan have agreed in writing to waive Mediation, the Dispute will be
settled by Binding Arbitration in accordance with the procedures in
the Commercial Arbitration Procedures of the American Arbitration
Association, with the prevailing party to recover its costs and
attorneys fees from the other party. All awards of the arbitration are
binding and non-appealable except as otherwise provided in the United
States Arbitration Act. Judgment upon any award rendered by the
arbitrator(s) may be entered and enforced in any court having
jurisdiction.
FirstAmerica Automotive, Inc. Nissan Motor Corporation in U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
--------------------- --------------------------------------
Thomas A. Price Thomas H. Eastwood, Vice President
President and CEO Nissan Division
By: /s/ Jules Calavadetscher
--------------------------------------
Jules Clavadetscher
Regional Vice President
<PAGE>
EXHIBIT 10.3.16
[LOGO OF NISSAN] NISSAN MOTOR CORPORATION U.S.A.
FAA CAPITOL N, INC.
<PAGE>
NISSAN
DEALER TERM SALES AND SERVICE AGREEMENT
THIS AGREEMENT is entered into and effective the day last set forth below by and
between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a California
corporation, hereinafter called "Seller," and the entities and natural persons
identified in the Final Article of this Agreement.
INTRODUCTION
The purpose of this Agreement is to establish Dealer as an authorized dealer of
Nissan Products and to provide for the sale and servicing of Nissan Products in
a manner that will best serve owners, potential owners and purchasers of Nissan
Products as well as the interests of Seller, Dealer and other Authorized Nissan
Dealers. This Agreement sets forth: the rights which Dealer will enjoy as an
Authorized Nissan Dealer; the responsibilities which Dealer assumes in
consideration of its receipt of these rights; and the respective conditions,
rights and obligations of Seller and Dealer that apply to Seller's grant to
Dealer of such rights and Dealer's assumption of such responsibilities. It is
understood that each term and undertaking hereinafter described is material, and
relied upon, as the quid pro quo and consideration for this Agreement.
This is a personal services Agreement. In entering into this Agreement and
appointing Dealer as provided below, Seller is relying, among other things, upon
the personal qualifications, expertise, reputation, integrity, experience,
ability and representations of the individual named in the Final Article of this
Agreement as Dealer Principal (the "Dealer Principal") the individual named in
the Final Article of this Agreement as Executive Manager ("Steven S. Hallock" or
"Executive Manager") and the representations of FirstAmerica Automotive, Inc.,
("FAA"), and FAA Capitol N, Inc.("Dealer"). In addition to Dealer, Seller
intends to look to FAA, the Dealer Principal and the Executive Manager for the
performance of Dealer's obligations hereunder.
Nissan Products are intended for discriminate owners with the expectation that
such owners will be loyal and proud, but also demanding toward Seller and Dealer
with respect to Nissan Products and the manner in which they are sold and
serviced. Owners, potential owners and purchasers of Nissan Products are
expected to want, and are entitled to do business with, dealers who enjoy the
highest reputation in their communities and have well located, attractive and
efficient places of business, courteous personnel and outstanding service and
parts facilities. Nissan Products must be sold by enthusiastic dealers who are
not interested in short term results only but are willing to look toward long
term goals and who are devoted to creating and maintaining a positive total
ownership experience for owners of Nissan Products. Seller's standard of
excellence for Nissan Products must be matched by the dealers who sell them to
the public and who service them during their operative lives.
Achievement of the purposes of this Agreement is premised upon mutual
understanding and cooperation between Seller and Dealer. Dealer has entered into
this Agreement in reliance upon Seller's integrity and expressed intention to
deal fairly with Dealer and the consuming public. Seller has entered into this
Agreement in reliance upon the integrity and ability of the Dealer Principal and
Executive Manager and their expressed intention to deal fairly with the
consuming public and Seller.
It is the responsibility of Seller to market Nissan Products throughout the
Territory. It is the responsibility of Dealer to actively promote the retail
sale of Nissan Products and to provide courteous and efficient service of Nissan
Products. The success of both Seller and Dealer will depend on how well they
each fulfill their respective responsibilities under this Agreement. It is
recognized that: Seller will endeavor to provide motor vehicles of excellent
quality and workmanship and to establish a network of Authorized Nissan Dealers
that can provide an outstanding sales and service effort at the retail level;
and Dealer will endeavor to fulfill its
<PAGE>
responsibilities through aggressive, sound, ethical selling practices and
through conscientious regard for customer service in all aspects of its Nissan
Dealership Operations.
Seller and Dealer shall refrain from engaging in conduct or activities which
might be detrimental to or reflect adversely upon the reputation of Seller,
Dealer or Nissan Products and shall engage in no discourteous, deceptive,
misleading or unethical practices or activities.
For consistency and clarity, terms which are used frequently in this Agreement
have been defined in Section 1 of the Standard Provisions. All terms used herein
which are defined in the Standard Provisions shall have the meaning stated in
said Standard Provisions. These definitions should be read carefully for a
proper understanding of the provisions in which they appear.
To achieve the purposes referred to above, Seller, FAA, Dealer, the Dealer
Principal, and the Executive Manager agree as follows:
ARTICLE FIRST: Appointment of Dealer
Subject to the conditions and provisions of this Agreement, Seller:
(a) appoints Dealer as an Authorized Nissan Dealer and grants Dealer the
non-exclusive right to buy from Seller those Nissan Products specified in
Dealer's current Product Addendum hereto, for resale, rental or lease at or from
the Dealership Locations established and described in accordance with Section 2
of the Standard Provisions; and
(b) grants Dealer a non-exclusive right, subject to and in accordance with
Section 6.K of the Standard Provisions, to identify itself as an Authorized
Nissan Dealer, to display the Nissan Marks in the conduct of its Dealership
Operations and to use the Nissan Marks in the advertising, promotion and sale of
Nissan Products in the manner provided in this Agreement.
ARTICLE SECOND: Assumption of Responsibilities by Dealer
Dealer hereby accepts from Seller its appointment as an Authorized Nissan Dealer
and, in consideration of its appointment and subject to the other conditions and
provisions of this Agreement, hereby assumes the responsibility for:
(a) establishing and maintaining at the Dealership Location the Dealership
Facilities in accordance with Section 2 of the Standard Provisions;
(b) actively and effectively promoting the sale at retail (and, if Dealer
elects, the leasing and rental) of Nissan Vehicles within Dealer's Primary
Market Area in accordance with Section 3 of the Standard Provisions;
(c) servicing Nissan Vehicles and for selling and servicing Nissan Parts
and Accessories in accordance with Section 5 of the Standard Provisions;
(d) building and maintaining consumer confidence in Dealer and in Nissan
Products in accordance with Section 5 of the Standard Provisions; and
(e) performance of the additional responsibilities set forth in this
Agreement, including those specified in Section 6 of the Standard Provisions.
2
<PAGE>
ARTICLE THIRD: Ownership
(a) Owners. This Agreement has been entered into by Seller in reliance
------
upon, and in consideration of, among other things, the personal qualifications,
expertise, reputation, integrity, experience, ability and representations with
respect thereto of the Dealer Principal and Executive Manager named in the Final
Article of this Agreement and in reliance upon the representations and
agreements of FAA and Dealer as follows:
(i) FAA will at all times own 100% of the capital stock of Dealer and
Dealer will at all times be maintained as a separate entity.
(ii) The Executive Committee of Dealer is set forth in attached Schedule
"A".
(iii) The officers of Dealer are as set forth in attached Schedule "A".
(iv) FirstAmerica Automotive, Inc., ("FAA") owns 100% of the outstanding
stock of FAA Capitol N, Inc. (see Attachment "A" attached).
(b) Changes in Ownership. In view of the fact that this is a personal
--------------------
services agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, this Agreement and the rights and privileges
conferred on Dealer hereunder are not assignable, transferable or salable by FAA
and Dealer, and no property right or interest is or shall be deemed to be sold,
conveyed or transferred to FAA and Dealer under this Agreement. FAA, Dealer, the
Dealer Principal and the Executive Manager agree that any change in the
ownership of Dealer other than specified herein requires the prior written
consent of Seller IF DEALER DESIRES TO REMAIN AN AUTHORIZED NISSAN DEALER and
that without the prior written consent of Seller:
(i) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock or partnership interest of Dealer will be
made and no additional shares of capital stock, partnership interest or
securities convertible into shares of capital stock, of Dealer will be issued or
sold.
(ii) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer will be made and no additional
shares of capital stock, partnership interest or securities convertible into
shares of capital stock, of Dealer will be issued or sold.
(iii) Dealer will not be merged with or into, or consolidate with, any
other entity and none of the principal assets necessary for the performance of
Dealer's obligations under this Agreement will be sold, transferred or assigned.
(iv) Dealer will not enter into any transaction, including, without
limitation, any sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer, the issuance or sale of
additional shares of capital stock, partnership interest or securities
convertible into shares of capital stock of Dealer, or the merger of Dealer with
or into, or the consolidation of FAA Capitol N, Inc., with any other entity, if
as a result of such transaction, that FAA will cease to own at least 100% of the
capital stock or interest of Dealer.
(v) If any person or entity, after the date of the initial public
offering, acquires more than 20% of FAA's common stock issued and outstanding at
any time and Nissan determines that such person or entity does not have
interests compatible with those of Nissan, or is otherwise not qualified to have
an ownership interest in a Nissan dealership (an "Adverse Person"), FAA, upon
written notification by Nissan, must cause any subsidiaries, owned, or
controlled entities to terminate its dealer agreements with Nissan or transfer
the Nissan dealerships to a third party
3
<PAGE>
acceptable to Nissan within 90 days after such notification, unless, within 90
days after Nissan's determination, the adverse Person's ownership interest is
reduced to less than 20%.
Any transaction involving the capital stock of Capitol Nissan, including a
public offering or trade of the shares of FAA, which does not violate
subparagraph (iv) above may be effected without obtaining the prior written
consent of Seller and without triggering a termination event under Section
12.A.(2) of the Standard Provisions.
Dealer shall give Seller prior notice of any proposed change in said
ownership requiring the consent of Seller and immediate notice of the death or
incapacity of any Dealer Principal or Executive Manager. No such change, and no
assignment of this Agreement or of any right or interest herein, shall be
effective against Seller unless and until embodied in an appropriate amendment
to or assignment of this Agreement, as the case may be, duly executed and
delivered by Seller and by Dealer. Seller shall not, however, unreasonably
withhold its consent to any such change, subject to Seller's Rights of First
Refusal set forth in Article Tenth of this Agreement. Seller shall have no
obligation to transact business with any person who is not named either as a
Dealer Principal or Executive Manager of Dealer hereunder, or in the event of
death or incapacity, those persons named as the successors to the Dealer
Principal and/or Executive Manager in the successorship plan hereafter (upon
mutual consent of the parties) or otherwise to give effect to any proposed sale
or transfer of the ownership, partnership interest or management of Dealer and
FAA (other than changes in the ownership of FAA and Dealer which are expressly
permitted by this Article Third) prior to having concluded the evaluation of
such a proposal as provided in Section 15 of the Standard Provisions. Nissan may
conduct routine, day to day business with the person named as the Location
Manager for the location so designated. Dealer acknowledges Seller's right to
require consent to any change in the ownership of Dealer, and agrees that any
change or transfer without such consent from Seller is void, and of no force and
effect, and grounds for termination. FAA and Dealer further agree that they
will not challenge, contest, dispute, or litigate, except as provided in Article
15(c) hereafter:
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to transfer ownership
of Dealer (except as provided by this Agreement) without Seller's consent; or
(ii) any decisions by Seller to withhold consent to a proposed change in
ownership of Dealer.
ARTICLE FOURTH: Management
(a) This Agreement has been entered into by Seller in reliance upon, and
in consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the person named as Dealer Principal in the Final Article of this
Agreement and in reliance on the following representations and agreements of FAA
and Dealer that:
(i) The Executive Manager of Dealer, subject to the provisions of Article
15(f), and Thomas A. Price ("Price") will, subject to any other obligations set
forth in this Agreement, devote their full time efforts to the business and day-
to-day operations of the entity for which they are responsible.
(ii) Location Manager will devote 100% of his time to the affairs of the
relevant Dealership location.
4
<PAGE>
(b) Dealer. Seller and Dealer agree that the retention by Dealer of
------
qualified management is of critical importance to the successful operation of
Dealer and to the achievement of the purposes and objectives of this Agreement.
This Agreement has been entered into by Seller in reliance upon, and in
consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the persons named as Dealer Principal and Executive Manager in the
Final Article of this Agreement and in reliance on the following representations
and agreements of FAA and Dealer, that:
(i) There must be an approved Executive Manager, acceptable to Nissan.
There must be an approved Location Manager employed by Dealer to manage each
Dealership location. As long as Thomas A. Price and the Executive Manager
subject to the provisions of Article 15(f) are employed by FAA and the Location
Manager is employed by Dealer, they will have full and complete control over the
Dealership Operations, subject only to the powers of the Board of Directors of
Dealer to manage the business and affairs of Dealer, and they will at all times
be members of the Board of Directors of Dealer. In addition, any replacements
for Price and Executive Manager will, so long as such replacements are employed
by FAA and Dealer, have full and complete control over the Dealership
Operations, subject only to the powers of the Board of Directors of Dealer to
manage the business and affairs of Dealer, and such replacements will at all
times be members of the Board of Directors of Dealer.
(ii) the Board of Directors of Dealer shall delegate the management of
the Dealership Operations to the Executive Manager identified in Article 15(f),
and FAA will not amend its Certificate of Incorporation or By-laws to provide
that its Board of Directors is entitled to exercise any extraordinary powers or
interfere unduly in the Dealership Operations.
(iii) Location Manager, subject to any other obligations set forth in
this Agreement, shall continually provide his personal services in operating the
dealership and will be physically present at the Dealership Facilities on a
full-time basis.
(c) Changes in Management. In view of the fact that this is a personal
---------------------
services Agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, Dealer and FAA agree that any change in the
Dealer Principal from that specified in the Final Article of this Agreement
requires the prior written consent of Seller. Any change to the Executive
Manager requires notice to Seller and timely replacement with an Executive
Manager acceptable to Seller. In addition, FAA and Dealer agree that no chief
executive officer, or person performing services and having responsibilities
similar to a chief executive officer, of FAA will be appointed, directly or
indirectly, without the prior written consent of Seller. Dealer shall give
Seller prior notice of any proposed change in Dealer Principal or Executive
Manager or the appointment of any chief executive or similar officer of FAA and
immediate notice of the death or incapacity of any Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager and no appointment
of a chief executive or similar officer of FAA shall be effective unless and
until embodied in an appropriate amendment to this Agreement duly executed and
delivered by all of the parties hereto. Subject to the foregoing, Dealer and FAA
shall make their own, independent decisions concerning the hiring and firing of
its employees, including, without limitation, the Dealer Principal and Executive
Manager.
Dealer shall give Seller prior written notice of any proposed change
in Dealer Principal, timely notice of any change to Executive Manger, and
immediate notice of the death or incapacity of Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager shall be effective
unless and until embodied in an appropriate amendment to this Agreement duly
executed and delivered by all of the parties hereto. Dealer acknowledges
Seller's right (as set forth herein and in the Standard Provisions) to require
consent to any change in the management of Dealer, and FAA and Dealer agree that
a change to the Dealer
5
<PAGE>
Principal or substitution of the Executive Manager, without such consent from
Seller is without effect upon Seller, of no force and effect, and grounds for
termination. FAA and Dealer further agree that they will not challenge, contest,
dispute, or litigate, except as provided by Article Fifteenth (c):
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to change the
management of Dealer without Seller's consent; or
(ii) any decision by Seller to withhold consent to a proposed change in
management of Dealer; or
(iii) any decision by Seller to withhold approval of a proposed management
candidate.
To enable Seller to evaluate and respond to Dealer concerning any
proposed change in Dealer Principal or Executive Manager or the appointment of
any chief executive or similar officer of FAA agrees to provide, in the form
requested by Seller and in a timely manner, all applications and information
customarily requested by Seller to evaluate the proposed change. While Seller
shall not unreasonably withhold its consent to any such change, it is agreed
that any successor Dealer Principal, Executive Manager or Location Manager or
similar officer of FAA must possess personal qualifications, expertise,
reputation, integrity, experience and ability which are, in the opinion of
Seller, satisfactory. Seller will determine whether, in its opinion, the
proposed change or appointment is likely to result in a successful dealership
operation with capable management that will satisfactorily perform Dealer's
obligations under this Agreement. Seller shall have no obligation to transact
business with any person who is not named as a Dealer Principal or Executive
Manager of Dealer hereunder prior to having concluded its evaluation of such
person. Upon FAA's request, Seller may, but has no obligation to, transact
business with an individual proposed by Dealer and acceptable to Seller during a
prolonged incapacity or unavailability of Dealer Principal and Executive
Manager.
Any successor Dealer Principal or Executive Manager or similar
officer of FAA must meet the following minimum requirements in order to be
submitted to Seller for approval:
(i) At least three years of experience as a general manager of an
automobile dealer in a major metropolitan area or similar position involving all
aspects of the day-to-day operations of such an automobile dealership
(including, without limitation, new and used vehicle sales, service, parts and
administration); and
(ii) A demonstrated track record of success in his/her prior automobile
dealership activities as measured by the dealerships' performance under his/her
management. The dealership(s) shall have consistently demonstrated at least the
following:
1. An above average level of sales performance when measured
against regional or zone averages and as measured against sales performance
objectives established by the manufacturer; and
2. An above average level of customer satisfaction when measured
against regional or zone averages for the make; and
3. A history of cooperation and good relations with
manufacturer(s) and/or distributor(s).
(d) Evaluation of Management. Dealer and Seller understand and acknowledge
------------------------
that the personal qualifications, expertise, reputation, integrity, experience
and ability of the Dealer
6
<PAGE>
Principal and Executive Manager and their ability to effectively manage Dealer's
day-to-day Dealership Operations is critical to the success of Dealer in
performing its obligations under this Agreement. Seller may from time to time
develop standards and/or procedures for evaluating the performance of the Dealer
Principal and Executive Manager and of Dealer's personnel generally. Seller may,
from time to time, evaluate the performance of the Dealer Principal and
Executive Manager and will advise Dealer, the Dealer Principal and the Executive
Manager of the results of such evaluations and the way in which any deficiencies
affect Dealer's performance of its obligations under this Agreement.
(e) Compensation of Executive Manager. Executive Manager will have his
---------------------------------
compensation tied to Dealer's overall performance with respect to objectives for
sales, market penetration and customer service.
ARTICLE FIFTH: Additional Provisions
The additional provisions set forth in the attached "Nissan Dealer Sales
and Service Agreement Standard Provisions," bearing form number NDA-4S/9-88, as
amended in Article Thirteenth of this Agreement, and excepting only the
provisions contained in Sections 4, 14 and 16, are hereby incorporated in and
made a part of this Agreement. The Notice of Primary Market Area, Dealership
Facilities Addendum, Product Addendum, Dealership Identification Addendum,
Holding Company Addendum, if applicable, and all Guides and Standards referred
to in this Agreement (including references contained in the Standard Provisions
referred to above) are hereby incorporated in and made a part of this Agreement.
Dealer further agrees to be bound by and comply with: the Warranty Manual;
Seller's Manuals or Instructions heretofore or hereafter issued by Seller to
Dealer; any amendment, revision or supplement to any of the foregoing; and any
other manuals heretofore or hereafter issued by Seller to Dealer.
ARTICLE SIXTH: Termination of Prior Agreements
This Agreement cancels, supersedes and annuls all prior contracts,
agreements and understandings except as stated herein, all negotiations,
representations and understandings being merged herein. No waiver, modification
or change of any of the terms of this Agreement or change or erasure of any
printed part of this Agreement or addition to it (except filling of blank spaces
and lines) will be valid or binding on Seller unless approved in writing by the
President or an authorized Vice President of Seller.
Price, Bay, Dealer, FAA, and Nissan intend that the contract between them
dated September 25, 1997 survive execution of this Agreement.
ARTICLE SEVENTH: Term
This Agreement shall have a term commencing on the effective date hereof
and, subject to its earlier termination in accordance with the provisions of
this Agreement, expiring on the expiration date indicated in the Final Article
of this Agreement. Subject to other applicable provisions hereof, this Agreement
shall automatically terminate at the end of such stipulated term without any
action by Dealer, Seller or any of the other parties hereto. If this Agreement
is not terminated prior to the expiration date set forth in the Final Article,
and if dealer is in substantial compliance with all provisions of this
Agreement, Seller will offer to enter into a new Agreement with Dealer in
substantially the same form as this Agreement.
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ARTICLE EIGHTH: License of Dealer
If Dealer is required to secure or maintain a license for the conduct of
its business as contemplated by this Agreement in any state or jurisdiction
where any of its Dealership Operations are to be conducted or any of its
Dealership Facilities are located, this Agreement shall not be valid until and
unless Dealer shall have furnished Seller with written notice specifying the
date and number, if any, of such license or licenses issued to Dealer, Dealer
shall notify Seller immediately in writing if Dealer shall fail to secure or
maintain any and all such licenses or renewal thereof or, if such license or
licenses are suspended or revoked, specifying the effective date of any such
suspension or revocation.
ARTICLE NINTH: Additional Representations and Warranties
(a) All of the representations and covenants made to Seller by the other
parties to this Agreement have been made jointly and severally by each of the
parties hereto which has made any such representation or covenant.
(b) In addition to the representations set forth elsewhere in this
Agreement, FAA and Dealer jointly and severally, represent to Seller that:
(i) All of the documents and correspondence provided to Seller by FAA and
Dealer, or any of their agents in connection with the solicitation of Seller's
consent to this Agreement, are true and correct copies of such documents.
(c) In addition to the covenants set forth elsewhere in this Agreement,
FAA and Dealer, jointly and severally, agree with Seller that:
(i) Dealer will at all times be involved in the operation of the Nissan
dealership currently operated by it and Dealer will not conduct any other type
of business.
(ii) No distributions will be made to the stockholders or partners of
Dealer and FAA if such distributions would cause Dealer to fail to meet any of
the Guides and Standards relating to the capitalization of Dealer. In
particular, FAA will not be permitted to voluntarily redeem any of its preferred
stock, if prior to and after giving effect to such redemption Dealer fails to
meet any of the Guides and Standards relating to capitalization of Dealer.
(iii) FAA and Dealer hereby, jointly and severally, indemnify and hold
harmless, Seller, its officers, directors, affiliates and agents, and each
person who controls Seller within the meaning of the Securities Act of 1933, as
amended (the "Act"), from and against any and all losses, claims, damages or
liabilities, to which they or any of them may become subject under the Act, the
Securities Exchange Act of 1934, as amended, or any other federal or state
securities law, rule or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of the sale by FAA or Dealer of
any securities. The indemnification provided for in this paragraph shall be
exclusive of, and in addition to, any indemnification pursuant to Section 10 of
the Standard Provisions.
(iv) One of the conditions to the effectiveness of this Agreement by
Seller is the delivery of an opinion of counsel to all of the parties hereto
(other than Seller) to the effect that this Agreement has been duly executed and
delivered by each of the parties thereto (other than Seller) and is the legal,
valid and binding obligation of each of such parties enforceable in accordance
with its terms.
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ARTICLE TENTH: Right of First Refusal, Option to Purchase, Exclusivity
A. Seller's Right of First Refusal and Option to Purchase
In addition to its rights under this Agreement, in the event that FAA or
Dealer should desire to enter into a transaction which requires Seller's
consent, and without such consent would result in a breach of the covenants set
forth in Article Third, Sections (a)(i); (a)(ii); (a)(iii); (a)(iv); or (b) of
this Agreement or in the event that any of the covenants set forth in Article
Third, Section (b); Article Fourth, Section (a)(vii); or Article Ninth, Section
(c)(ii) of this Agreement are breached, Seller shall have the additional right
and option to purchase the dealership assets or ownership interests under this
Right of First Refusal or Option to Purchase pursuant to this Article Tenth.
(a) If Seller chooses to exercise its Right of First Refusal or Option to
Purchase, it must do so in its written refusal to consent to the proposed sale
or transfer pursuant to Section 15 of the Standard Provisions or, if Section 15
of the Standard Provisions does not apply, within sixty (60) days of receipt of
notification that a event triggering Seller's right of first refusal hereunder
has occurred. FAA and Dealer agree not to complete any proposed change or sale
prior to the expiration of the period for exercise of Seller's right of first
refusal and without Seller's prior written consent. Such exercise shall be null
and void if FAA and/or Dealer withdraws its proposal within thirty (30) days
following Dealer's receipt of Seller's notice exercising its rights of first
refusal. If Seller elects to exercise its Option to Purchase, it must so notify
FAA and Dealer in writing, specifying the nature of the breach upon which it is
relying, and, if practicable, providing FAA and Dealer with a reasonable
opportunity to cure the breach. If FAA or Dealer is not able to cure the breach
relied upon in the notice, or does not cure that breach, then FAA and Dealer may
attempt to sell or otherwise transfer the relevant Dealer Assets to an entity
acceptable to Seller within 60 days. If Seller reasonably does not approve such
a transfer, or if Dealer and FAA are unable to complete such a transaction,
Seller may request an additional 30 days for this purpose. If, at the end of
this period Seller reasonably does not approve a transfer, or, if Seller
reasonably does not approve the extension, then Seller may execute this Option
to Purchase.
(b) After being exercised, Seller's right to purchase may be assigned to
any party, and Seller hereby agrees to guarantee the full payment of the
purchase price by such assignee. Seller's rights under this Article Tenth shall
be binding on and enforceable against any assignee or successor in interest of
Dealer or purchaser of Dealer's assets. Seller shall have no obligation to
exercise its rights hereunder.
(c) If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Seller's right under this Article Tenth shall
be a right of first refusal, enabling Seller to assume the prospective
purchaser's purchase rights and obligations under such buy/sell agreement. The
purchase price and other terms of sale shall be those set forth in such
agreement and any related documents. Seller may request and Dealer agrees to
provide all other documents relating to Dealer and the proposed transfer,
including, but not limited to, those reflecting any other agreements or
understandings between the parties to the buy/sell agreement. If Dealer refuses
either to provide such documentation or to state in writing that no such
document exists, it shall be presumed that the agreement is not bona fide.
(d) If Seller determines pursuant to paragraph (c) above that the buy/sell
agreement is not bona fide, Seller will so notify Dealer. Dealer shall have
twenty (20) days from its receipt of such notice within which to withdraw its
proposal. Seller's exercise of its rights hereunder shall be null and void if
Dealer withdraws its proposal within such time period. If the proposal is not
withdrawn, Seller shall have the option, but no obligation, under this Article
Tenth to purchase the principal assets of Dealer utilized in the Dealership
Operations, including real estate and
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leasehold interest or to purchase the ownership interests of Dealer, and to
terminate this Agreement and all rights granted Dealer hereunder. If the
Dealership Facilities are leased by Dealer from an affiliated company, the right
to purchase the principal assets, or the ownership interests, of Dealer, shall
include the right to lease the Dealership Facilities. The purchase price shall
be at the then fair market value as determined by an independent appraiser
selected by Seller and reasonably acceptable to FAA and Dealer, and the other
terms of sale shall be those agreed by Seller, Dealer and FAA
(e) Dealer shall transfer the affected property free and clear of liens,
claims, mortgages, and encumbrances.
(f) In addition to any other rights Seller may have at law, in equity or
hereunder, any conveyance of the dealership in violation of this right of first
refusal shall be voidable by Seller.
(g) In the event that Seller elects not to exercise its right of first
refusal to purchase the dealership assets or the ownership interests of the
Dealer; FAA and FAA Capitol N, Inc., agree that they will offer to sell such
assets or interests to an entity or persons acceptable to Seller. If such
individuals are not interested in such a transaction and no other entity or
individuals acceptable to Seller can be found, then, at Seller's option, Seller
may approve a buyer proposed by FAA, may waive the linkage requirements between
dealerships, if any, or may propose a buyer to assume a bona fide offer procured
by Dealer.
B. Right of First Refusal on Sale or Lease of Property to a Third Party.
a) In addition to its rights under Articles Third and Fourth and
Section 15 of the Standard Provisions, Dealer agrees that should Dealer seek to
sell or lease all or substantially all of the Approved Site to a third party for
use as a Nissan New Motor Vehicle Dealership, Seller shall have the additional
right and option, but not the obligation, to purchase or lease the Approved Site
pursuant to this Article Thirteenth. A sale or lease for use other than a Nissan
New Motor Vehicle Dealership, without Seller's consent, is void.
b) If Seller chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within 60 days of Seller's receipt
of notice of the proposed sale or lease by Dealer. Dealer agrees not to complete
any proposed sale or lease prior to the expiration of the period for exercise of
Seller's right of first refusal and without Seller's prior written consent, and
agrees to allow Seller to perform an environmental study of the property. Such
exercise shall be null and void if Dealer withdraws its sale or lease proposal
within thirty (30) days following Dealer's receipt of Seller's notice exercising
its right of first refusal.
c) After being exercised, Seller's right to purchase or lease may be
assigned to any party, and Seller hereby agrees to guarantee the full payment of
the purchase price or the rental payment by such assignee. Seller's rights under
this Article Thirteenth shall be binding on and enforceable against any assignee
or successor in interest of Dealer or purchaser of Dealer's assets. Seller shall
have no obligation to exercise its rights hereunder, and Seller may rescind its
offer if the property is determined to be contaminated pursuant to an
environmental study. Such contamination shall be deemed a breach of this
agreement by dealer.
d) Should Seller actually purchase or lease the facility, Dealer
shall also furnish to Seller copies of any easements, licenses, environmental
studies or other documents affecting the property.
e) Dealer shall transfer the affected property by deed conveying
marketable title free and clear of liens, claims, mortgages, encumbrances,
tenancies and occupancies, or, if applicable, by an assignment of any existing
lease. The Warranty Deed shall be in proper form
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for recording. Dealer shall deliver complete possession of the property at the
time of delivery of the Deed or lease assignment. Dealer shall also furnish to
Seller copies of any easements, licenses, or other documents affecting the
property and shall assign any permits or licenses which are necessary for the
conduct of the Dealership Operations.
f) In addition to any other rights Seller may have at law, in equity
or hereunder, any sale or lease of the Approved Site in violation of this right
of first refusal shall be voidable by Seller.
C. Exclusivity Provisions.
In order for Dealer to maintain competitive Dealership Facilities to
effectively market Nissan Products, Dealer hereby agrees to abide by and never
challenge, except as provided in Article Fifteenth (c), the following provisions
(hereinafter "Exclusivity Provisions"). These Exclusivity Provisions shall be
effective on or before the execution of the Agreement, and continue in effect
thereafter so long as Dealer (or its principals) are authorized Nissan dealers
and these provisions shall be binding on any successors-in-interest, assignors
or purchasers of Dealer:
a) The only line-make of new, unused motor vehicles which Dealer
shall display and sell at the Dealership Facilities shall be the Nissan line and
make of motor vehicles. Dealer shall not conduct any dealership operations for
any other make or line of new, unused vehicles from the Dealership Facilities
throughout the term of this Agreement.
b) Dealer shall sell and maintain a full line of Genuine Nissan Parts
and Accessories at the Dealership Facilities and shall provide a full range of
automotive servicing for Nissan vehicles at the Dealership Facilities pursuant
to Section 5 of the Standard Provisions to the Agreement. Nothing contained
herein, however, shall preclude Dealer from offering parts, accessories or
servicing for vehicles of other lines or makes so long as such products or
services are incidental to Dealer's Nissan Dealership Operations;
c) Dealer shall not advertise or promote any make or line of new,
unused vehicles from the Dealership Facilities other than the Nissan line; and
d) Dealer shall not install or maintain any sign at or near the
Dealership Facilities which would tend to lead the public into believing that
any line or make of vehicles other than the Nissan line is sold at the
Dealership Facilities.
ARTICLE ELEVENTH: Breach By Dealer
In the event (i) that any of the material representations and warranties of
Dealer, FAA, Thomas A. Price or Executive Manager, contained in this Agreement
shall prove not to have been true and correct when made or (ii) of any breach or
violation of any of the covenants made by Dealer and FAA, Thomas A. Price or
Executive Manager, in Articles Third, Fourth and Ninth of this Agreement or
(iii) of the occurrence of any of the events warranting termination of this
Agreement as set forth in Section 12.A of the Standard Provisions, Seller may
terminate this Agreement, prior to the expiration date hereof, by giving Dealer
written notice thereof, specifying the nature of the breach; Dealer shall have
an opportunity to cure the breach within 45 days; at the expiration of this 45
day cure period, if the breach has not been satisfactorily cured, Seller may
terminate this Agreement by giving written notice to Dealer, such termination to
be effective upon the date specified in such notice, or such latter date as may
be required by any applicable statute with the effect set forth in Section 13 of
the Standard Provisions.
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ARTICLE TWELFTH: Execution of Agreement
This Agreement, and any Addendum or amendment or notice with respect
thereto, shall be valid and binding on Seller only when it bears the signature
of either the President or an authorized Vice President of Seller and, when such
signature is a facsimile, the manual countersignature of an authorized employee
of Seller at the Director level and a duplicate original thereof is delivered
personally or by mail to the Dealership Location. This Agreement shall bind
Dealer and the other parties hereto only when it is signed by: a duly authorized
officer or executive of Dealer or such party if a corporation; one of the
general partners of Dealer or such party if a partnership; or Dealer or such
party if an individual.
ARTICLE THIRTEENTH: Amendments to Standard Provisions
(a) Section 1.O of the Standard Provisions is hereby amended to read as
follows:
"O. 'Principal Owners(s)' shall mean the persons named as Dealer Principal
in the Final Article of this Agreement upon whose personal qualifications,
expertise, integrity, experience, ability and representations Seller has relied
in entering into this Agreement."
(b) Section 6.I of the Standard Provisions is hereby amended to read as
follows:
"Seller shall have the right, at all reasonable times during regular
business hours, to inspect the Dealership Facilities and to examine, audit and
make and take copies of all records, accounts and supporting data relating to
the sale, sales reporting, service and repair of Nissan Products by Dealer.
Whenever possible, Seller shall attempt to provide Dealer with advance notice of
an audit or examination of Dealer's operations. Seller shall also have the
right, at all reasonable times during regular business hours and upon advance
notice, to examine, audit and make and take copies of all records, accounts and
supporting data of FAA and Dealer relating to the business, ownership or
operations of Dealer."
(c) Section 12.A.(l) of the Standard Provisions is hereby amended to read
as follows:
"(1) Any actual or attempted sale, transfer, assignment or delegation,
whether by operation of law or otherwise, by Dealer or FAA of any interest in or
right, privilege or obligation under this Agreement, or of the principal assets
necessary for the performance of Dealer's responsibilities under this Agreement,
without, in either case, the prior written consent of Seller having been
obtained, which consent shall not be unreasonably withheld;"
(d) Section 12.A.(3) of the Standard Provisions is hereby amended to read
as follows:
"(3) Removal, resignation, withdrawal or elimination from Dealer for any
reason of the Executive Manager, or removal, resignation, withdrawal or
elimination from Dealer of Thomas A. Price as President, or removal,
resignation, withdrawal or elimination from Dealer of Steven S. Hallock as
Executive Manager; provided, however, in each case, Seller shall give Dealer a
reasonable period of time within which to replace such person with a individual
satisfactory to Dealer as the case may be, and Seller in accordance with Article
Fourth of this Agreement; or the failure of Dealer to retain an Executive
Manager who, in accordance with Article Fourth of this Agreement, in Seller's
reasonable opinion, is competent, possesses the requisite qualifications for the
position, and who will act in a manner consistent with the continued interests
of both Seller and Dealer."
(e) Section 12.B.(2)(i) of the Standard Provisions is hereby amended to
read as follows:
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"(i) any dispute, disagreement or controversy between or among Dealer and
any third party or between the owners and management personnel of Dealer
relating to the management or ownership of Dealer develops or exists which, in
the reasonable judgment of Seller, tends to adversely affect the conduct of the
Dealership Operations or the interests of Dealer or Seller; or"
(f) Section 12.B.(2)(ii) of the Standard Provisions is hereby amended to
read as follows:
"(ii) any other act or activity of Dealer and/or FAA, or any of their
principal owners (ownership in excess of 20%) or senior management occurs, which
substantially impairs the reputation or financial standing of Dealer or its
executive management subsequent to the execution of this Agreement:"
(g) Exhibits A and B are hereby incorporated by reference.
ARTICLE FOURTEENTH: Branding / Business Name
The parties acknowledge and agree that Dealer shall do business as Capitol
Nissan. Dealer agrees to include in its promotional, marketing and advertising
efforts the approved name of the Dealership or another name approved by Nissan
that includes the Nissan name. In all television, radio, print and other
advertising and marketing conducted by dealer, Dealer shall refer to itself as
"Capitol" or such other approved name. Dealer shall actively and effectively
promote primarily the "Nissan" name. Under no circumstances shall the name
"Nissan" be subordinated to or promoted less aggressively than any other name
(eg. "FAA") by Dealer.
ARTICLE FIFTEENTH: Special Conditions
(a) Adequate Representation of Entire Line of Nissan Vehicles
Dealer shall actively and effectively promote the sale of Nissan's entire line
of vehicles and products to customers located throughout the Primary Market
Area. In evaluating Dealer's sales performance, in addition to those factors
established in the Standard Provisions, Nissan will evaluate Dealer's
performance by vehicle segment. Dealer is obligated to adequately represent
Nissan in each and every model line. Adequate representation is the higher of
national, regional, state or DMA average, adjusted for segment popularity, as
set forth in the Business plan.
(b) Nissan Products
The definition of "Nissan Products" in the Standard Provisions is amended to
mean Nissan Vehicles (defined as Nissan Cars and Nissan Trucks as well as
"near-new" Nissan Vehicles of the current and three prior model years), Genuine
Parts and Accessories, Nissan Security+Plus and such other products and services
offered by Nissan to Dealer and designated by Nissan as a Nissan Product. Dealer
shall actively and effectively promote the sale of Nissan Products.
Effectiveness with respect to Nissan Security+Plus sales is measured by the
ratio of Security+Plus sales to new vehicles sales, compared to the higher of
national, regional, state or DMA average as set forth in the Business plan or as
otherwise set forth in the Business Plan.
(c) Dispute Resolution Process
The parties acknowledge that, at the state and federal level, various
courts and agencies would, in the absence of this Article Fifteenth (d), be
available to them to resolve claims or controversies which might arise between
them. The parties agree that it is inconsistent
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with their relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. SEC. 1 ET SEQ.), THE PARTIES TO THIS AGREEMENT AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS SECTION, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING ANY DISPUTE,
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR
TO THE RELATIONSHIP BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS
UNDER ANY STATE OR FEDERAL STATUTES (HEREINAFTER "DISPUTES").
Section 16 of the Standard Provisions is deleted in its entirety.
There are two steps in the Dispute Resolution Process: Mediation and Binding
Arbitration. All Disputes must first be submitted to Mediation, unless that step
is waived by written agreement of the parties. Mediation is conducted by a panel
consisting of an equal number of representatives of the parties designated by
Nissan and selected by Dealer. The Mediation Panel will evaluate each position
and recommend a solution. This recommended solution is not binding.
If a dispute has not been resolved after Mediation, or if Dealer and Nissan have
agreed in writing to waive Mediation, the Dispute will be settled by Binding
Arbitration. SPECIFICALLY, THE PARTIES AGREE TO RESOLVE ALL SUCH DISPUTES BY
BINDING ARBITRATION CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION
PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION, WITH THE PREVAILING PARTY TO
RECOVER ITS COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY. ALL ARBITRATION
AWARDS ARE BINDING AND NON- APPEALABLE, EXCEPT AS OTHERWISE PROVIDED IN THE
UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY BE ENTERED AND
ENFORCED IN ANY COURT HAVING JURISDICTION.
(d) Business Plan
Dealer and Nissan shall execute a Business Plan in the form specified in
the Business Planning Process Workbook that describes how Dealer will fulfill it
sales, service, customer relations and other commitments hereunder, including
heightened performance standards that Dealer commits to meet;
(e) Option to Purchase
If the Dealer Agreement is to expire or be terminated: i) Voluntarily by
Dealer; ii) By Nissan upon the occurrence of any of the events specified in
Section 12A. of the Standard Provisions to the Agreement (as modified herein);
or iii) As a result of the death or physical or mental incapacity of Principal
Owners, without a qualified successor under the successorship plan required in
the Business Plan under Section 6 of the Contiguous Market Ownership Addendum,
without a timely replacement, reasonably acceptable to Seller, Nissan has the
option to Purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan may elect to purchase, and
cancel the Agreement and all rights granted Dealer thereunder. The purchase
price of the dealership assets and real property and other terms will be
determined by agreement between the parties or, if the parties are unable to
reach agreement in a reasonable time, by arbitration pursuant to the Dispute
Resolution Process established in Paragraph 12 hereof. Nissan must advise Dealer
of its intent to exercise this option within 30 days after one party notifies
the other of its intent to terminate the Agreement. Nissan may assign its right
to exercise its option to purchase under this paragraph to any third party.
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FINAL ARTICLE
-------------
The Dealer is FAA Capitol N, Inc., a corporation formed under the laws of
the California. Dealer is located in San Jose, CA.
Other parties relevant to this Agreement are FirstAmerica Automotive, Inc., a
corporation incorporated under the laws of the Nevada, and Thomas A. Price.
The Dealer Principal is Thomas A. Price.
The Executive Manager is Steven S. Hallock
Expiration Date: September 25, 2002
Working Capital Guide Requirement: $1,049,600
Net Worth Guide Requirement: $1,839,200
Flooring Line: $4,940,160
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
triplicate effective as of the 25th day of September, 1997 at Carson,
California.
SELLER:
NISSAN DIVISION
NISSAN MOTOR DIVISION CORPORATION IN USA
By: /s/ Thomas H. Eastwood By: /s/ Jules Clavadetscher
----------------------------- ----------------------------
Thomas H. Eastwood Jules Clavadetscher
Vice President Regional Vice President
Nissan Division Northwest Region
FAA Capitol N, Inc.
By: /s/ Thomas A. Price
-----------------------------
Thomas A. Price
Its: President
ACKNOWLEDGED:
FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Thomas A. Price
-----------------------------
Thomas A. Price
Its: President and CEO
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EXHIBIT 10.3.17
NISSAN CONTIGUOUS MARKET OWNERSHIP ADDENDUM
-------------------------------------------
This Nissan Contiguous Market Ownership Addendum (the "CMO Agreement") is
entered into this 25th day of September, 1997, by and among Nissan Motor
Corporation in U.S.A. ("Nissan"), Thomas A. Price ("Dealer Principal" or
"Price"), FAA Capitol, Inc., ("Capitol Nissan" or "Dealer"), and FirstAmerica
Automotive, Inc., ("FAA").
RECITALS
--------
WHEREAS, Nissan, FAA and Dealer desire to create a Contiguous Market Ownership
Area in the San Francisco Bay Area, (the "South Bay CMO");
WHEREAS, Nissan, FAA and Dealer commit to develop and execute a Market Area Plan
that describes how Dealer will develop the South Bay CMO through the provision
or establishment of Dealership Facilities;
WHEREAS, Nissan, FAA and Dealer also commit to develop and execute a Business
Plan that describes how Dealer will fulfill its sales, service, customer
relations and other commitments hereunder, including heightened performance
standards that Dealer commits to meet;
WHEREAS, Dealer commits to operate in accordance with the Market Area Plan and
the Business Plan;
WHEREAS, Nissan, Price, FAA and Dealer acknowledge that this CMO Agreement
forges a new collaborative relationship in the automotive industry that is
uniquely and mutually beneficial to the parties, was negotiated by them in the
spirit of cooperation, and does not adversely affect their existing rights and
responsibilities;
WHEREAS, Price, FAA and Dealer, in exchange for the opportunities and other
consideration specified herein, agree to assume the obligations set forth
herein; and
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO AGREEMENT
-----------------
The CMO Agreement supplements the Nissan Dealer Sales and Service Agreement
between Nissan and Dealer (the "Dealer Agreement"), including the Standard
Provisions thereto (the "Standard Provisions"). To the extent that the CMO
Agreement conflicts with the Dealer Agreement, the CMO Agreement controls
and shall govern the relationship between the parties. Subject to such
conflicts and except as otherwise provided herein, the Dealer Agreement
survives the execution of the CMO Agreement and remains in full force and
effect. Price, Dealer, FAA, and Nissan intend that the contract between
them dated September 25, 1997 survive execution of this Agreement.
<PAGE>
2. DEFINITIONS
-----------
The parties agree that the following terms, as used in the CMO Agreement,
shall be defined exclusively as set forth below.
A. "NISSAN VEHICLES" shall mean Nissan Cars and Nissan Trucks as well
as "near-new" Nissan Vehicles of the current and three prior model
years.
B. "NISSAN PRODUCTS" shall mean Nissan Vehicles, Genuine Parts and
Accessories, Nissan Security + Plus and such other products and
services offered by Nissan to Dealer and designated by Nissan as a
Nissan Product.
C. "PRIMARY MARKET AREA" shall mean the South Bay CMO, which shall
consist of the entire geographic area that is designated from time to
time as the area of Dealer's sales and service responsibility for
Nissan Products in a Notice of Primary Market Area issued by Nissan to
Dealer. Nissan reserves the right, in its reasonable discretion, to
issue a new, superseding "Notice of Primary Market Area" to Dealer
from time to time.
D. "EXECUTIVE MANAGER" shall mean the person named as Executive
Manager in the Final Paragraph of the Dealer Agreement upon whose
personal qualifications, expertise, reputation, integrity, experience,
ability and representations that he or she shall devote his or her
efforts to and have full managerial authority and responsibility for
the day-to-day management and performance of Dealer throughout the
South Bay CMO, or with Nissan's consent, any contiguous CMO(s),
including but not limited to the supervision of all Location Managers,
which Nissan has relied in entering into the CMO Agreement.
E. "LOCATION MANAGER" shall mean the persons named as Location
Managers in the Location Manager Addendum to the CMO Agreement upon
whose personal qualifications, expertise, reputation, integrity,
experience, ability and representations that he or she shall devote
his or her full-time efforts to and have managerial authority and
responsibility for the day-to-day management and performance of Dealer
at a particular Dealership Facility, Nissan has relied in entering
into the CMO Agreement.
F. "MARKET AREA PLAN" shall mean the written plan prepared and
executed by the parties that describes the number, location, type,
size and opening date of the Dealership Facilities to be provided by
Dealer hereunder.
G. "BUSINESS PLAN" shall mean the written plan prepared and executed
by the parties that contains Dealer's plan and commitment to develop
its business throughout the South Bay CMO, including but not limited
to its plan and commitment with respect to organizational,
operational, financial, succession and other issues, and certain
standards on which its performance hereunder will be evaluated.
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H. "DEALERSHIP FACILITIES" shall mean the land areas at each
Dealership Location and the buildings and improvements erected thereon
provided by Dealer in accordance with Section 2 of the Standard
Provisions and the Market Area Plan.
3. TERM
----
This Agreement and the Dealer Agreement shall have a renewable term
commencing on its effective date and continuing for a term of five years
unless terminated earlier in accordance with Section 12 of the Standard
Provisions or the CMO Agreement.
4. DEALERSHIP LOCATION AND DEALERSHIP FACILITIES
---------------------------------------------
A. DEALERSHIP FACILITIES
---------------------
In accordance with the Market Area Plan, FAA and Dealer shall provide
Dealership Facilities at each Dealership Location that are
satisfactory in space, appearance, usage, layout and signage; and
otherwise are substantially in accordance with the Guides therefor
established by Nissan from time to time. Dealer shall conduct its
Dealership Operations only from the Dealership Locations specified in
the Dealership Facilities Addendum and shall use each such place of
business only for the purposes specified therefor in the Dealership
Facilities Addendum. Where applicable, Dealer shall establish
additional Dealership Facilities in the time, place and manner agreed
to by Dealer and Nissan in the Market Area Plan. Dealer agrees that
the Dealership Facilities shall have a consistent image, appearance
and name.
B. DEALERSHIP FACILITIES ADDENDUM
------------------------------
FAA, Dealer and Nissan shall execute a Dealership Facilities Addendum
which will include a description of each Dealership Location and each
Dealership Facility as well as the approved use for each such place of
business and facility.
C. EXCLUSIVE NISSAN OPERATIONS
---------------------------
FAA and Dealer agree that each Dealership Facility and Dealership
Location shall be dedicated to the promotion of Nissan Products and
devoted exclusively to the conduct of Nissan sales, service, parts
and/or other operations as specified in the Dealership Facilities
Addendum. Dealer shall not conduct any sales, service, parts and/or
other operations for any other new line-make of vehicles at any of the
Dealership Facilities or Dealership Locations.
D. SOUTH BAY CMO OBLIGATIONS
-------------------------
FAA shall develop, and Dealer shall devote its full efforts to
developing the South Bay CMO. Consequently, Dealer agrees that it will
not engage, either directly or indirectly, in any of the activities
contemplated by the CMO Agreement from facilities or locations outside
of the South Bay CMO. If Dealer fails to develop the South Bay CMO
according to its Market Area Plan or to implement the plans or
3
<PAGE>
meet the performance standards established in the Business Plan, then
Nissan will provide written notice specifying the default and a
reasonable period of at least 45 days within which to cure the
default. Should the 45 day cure period expire without material remedy
of the breach, Nissan may (i) terminate the CMO Agreement under
Paragraph 11 hereof, (ii) restructure the South Bay CMO and reassign
to other Authorized Nissan Dealers any areas necessary to achieve the
maximum potential development of the South Bay CMO, or (iii) exercise
its option to purchase under Paragraph 10.C hereof.
5. MARKET AREA PLAN
----------------
FAA, Dealer and Nissan shall execute a Market Area Paln that describes how
Dealer will develop its Primary Market Area through the provision or
establishment of Dealership Facilities. The Market Area Plan is an
essential part of the CMO Agreement.
A. MARKET AREA DEVELOPMENT
-----------------------
FAA and Dealer agree to develop its Primary Market Area according to
the Market Area Plan, which shall include a detailed description of
the number, location, type, size, usage and opening date of the
Dealership Facilities to be provided.
B. PLAN MODIFICATIONS
------------------
The Market Area Plan may be modified only if Nissan, FAA and Dealer
agree that a material change in marketing conditions warrants the
proposed modification.
C. MARKET STUDIES
--------------
The parties agree that although Nissan may continue to perform market
studies of the Primary Market Area and any contiguous market areas, or
any portion thereof, pursuant to Section 4.A of the Standard
Provisions, they will base the Market Area Plan on their collaborative
review and analysis of all relevant data, including such market
studies. Section 4.B of the Standard Provisions is hereby deleted in
its entirety.
D. WAIVER OF CLAIMS BASED ON NISSAN'S ACTIONS OUTSIDE THE PRIMARY MARKET
---------------------------------------------------------------------
AREA
----
Nissan agrees that in taking action outside the Primary Market Area,
it will consider the impact of such action on Dealer's investment in
and plans for the Primary Market Area. Dealer agrees not to initiate
or prosecute any judicial, administrative or governmental proceeding
with respect to Nissan's actions outside the Primary Market Area,
including but not limited to its appointment or relocation of any
other Authorized Nissan Dealer.
4
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6. BUSINESS PLAN
-------------
FAA, Dealer and Nissan shall execute a Business Plan in the form specified
in the Business Planning Process Workbook that describes how Dealer will
fulfill its sales, service, customer relations, marketing and other
commitments hereunder. The Business Plan is an essential part of the CMO
Agreement.
A. BUSINESS PLANNING
-----------------
The Business Plan shall include the following elements:
i. a statement of Dealer's legal and financial structure, including
capitalization, line of credit and equity ownership;
ii. the sales, service, customer relations, marketing and other
standards on which Dealer's performance will be evaluated, which
standards Dealer acknowledges and agrees will be higher than
those established for Authorized Nissan Dealers that are not
responsible for a CMO;
iii. a detailed organizational structure and staffing plans, including
the number of certified sales, service and parts managers, sales
personnel, and technicians that shall be provided for the
South Bay CMO;
iv. specific plans for maximizing owner loyalty and customer
satisfaction, including hours of operation and customer
convenience systems;
v. advertising, merchandising, marketing and community relations
plans;
vi. successorship, including the identity of the proposed successors
to Dealer, Dealer Principal and/or Executive Manager; and
vii. other standards or plans as agreed by Nissan, FAA and Dealer.
B. OPERATIONS
----------
Dealer shall operate in accordance with the Business Plan and shall
actively and effectively promote the sale of Nissan Products to
customers located throughout the Primary Market Area. In particular,
Dealer shall implement the plans and meet the performance standards
established in the Business Plan.
C. ANNUAL BUSINESS PLAN REVIEW
---------------------------
Dealer shall review and update its Business Plan annually, or more
often if needed, and submit it to Nissan for joint review. Updated
Plans will include a performance evaluation and any proposed
modifications to the prior year's plan. If Nissan, FAA and Dealer
agree that changes to the proposed Plan are necessary, Dealer will
make such changes and resubmit its Plan.
5
<PAGE>
I. PERFORMANCE EVALUATION
----------------------
Dealer's performance of its obligations is essential to the effective
representation of Nissan Products, and to the reputation and goodwill
of Nissan, in the South Bay CMO. Therefore, Dealer agrees to review
its performance against the prior year's Business Plan in its updated
Business Plan. Nissan, FAA and Dealer will use this analysis as a
basis for jointly evaluating Dealer's performance so that any
necessary improvements can be made. In evaluating Dealer's sales
performance, in addition to those factors established in the Standard
Provisions, Nissan will give consideration to: (a) sales volume or
market share objectives for Nissan Products set by the parties, and
(b) sales and market penetration achieved by Dealer in each of the
various segments in which Nissan Vehicles compete.
II. PLAN MODIFICATIONS
------------------
Plans for operations are subject to update, but modifications can be
implemented only if Nissan, FAA and Dealer agree thereto.
7. OTHER DEALER RESPONSIBILITIES
-----------------------------
A. FINANCIAL AND OPERATIONAL REPORTING
-----------------------------------
Dealer shall provide to Nissan financial statements and sales reports
pursuant to Section 6.G of the Standard Provisions for each Dealership
Facility and for Dealer for the entire Primary Market Area. Dealer
shall furnish to Nissan annual certified financial statements for
Dealer or for the entity that owns Dealer and shall otherwise disclose
to Nissan in a format reasonably satisfactory to Nissan the financial
and operational results of Dealer's Nissan business.
B. DISCLOSURE OF FINANCIAL INFORMATION TO AFFILIATED COMPANIES
-----------------------------------------------------------
Nissan shall be entitled to disclose to and receive from affiliated
companies, including but not limited to Nissan Motor Acceptance
Corporation, all financial statements and reports provided by Dealer
under the CMO Agreement and/or the Dealer Agreement or otherwise
relating to Dealership Operations.
C. DEALER'S LOAN ARRANGEMENTS FOR REAL PROPERTY
--------------------------------------------
Dealer's loan arrangements for its Dealership Facilities and/or
Dealership Locations shall grant to Nissan the right to notice of and
a reasonable opportunity to cure any default thereunder as well as the
right to take possession of such real property upon such cure, and
shall otherwise be satisfactory in form to Nissan.
6
<PAGE>
8. NISSAN CAR AND NISSAN TRUCK ALLOCATIONS
---------------------------------------
Nissan's allocation of Nissan Cars and Nissan Trucks to Dealer shall be
based on the entire Primary Market Area in accordance with the procedures
established therefor by Nissan.
9. TRANSFERS
---------
A. SALE OF SOUTH BAY CMO DEALERSHIP
--------------------------------
In view of the efforts and resources that Nissan has expended in order
to establish the South Bay CMO, if Dealer proposes to sell certain
assets or Dealership Facilities, Nissan may require that Dealer sell
all South Bay CMO dealership assets, or none of such assets or
Dealership Facilities to the proposed buyer.
B. QUALIFICATIONS OF PROPOSED DEALER PRINCIPAL
-------------------------------------------
FAA and Dealer acknowledge and agree that, in view of the increased
responsibilities that Price has assumed as the principal of Dealer for
the South Bay CMO, Nissan has and will apply heightened standards with
respect to the personal, business and financial qualifications,
expertise, reputation, integrity, experience and ability of a proposed
Dealer Principal.
C. SUCCESSORSHIP
-------------
Section 14 of the Standard Provisions is hereby deleted in its
entirety. The parties shall address successorship in the Business Plan
prepared pursuant to Paragraph 6 hereof. Dealer shall identify the
proposed successor to Dealer, Dealer Principal and/or Executive
Manager in its successorship plan and shall provide such documents and
information as Nissan may reasonably require in evaluating such plans.
Nissan shall evaluate such plan and approve it only if it meets the
heightened standards applied by Nissan in connection with Nissan
Contiguous Market Ownership Agreements. Subject to Paragraph 10
hereof, the parties agree that if for any reason Dealer is unable to
implement its successorship plan upon the death or physical or mental
incapacity of Dealer Principal, then Dealer shall be given a
reasonable period of time not to exceed six (6) months in which to
transfer to person(s) acceptable to Nissan the principal assets of
Dealer utilized in the dealership business, including but not limited
to the Dealership Facilities, and for such person(s) to apply for a
Nissan Dealer Sales and Service Agreement and, if applicable, a Nissan
Contiguous Market Ownership Agreement.
D. DEALER'S OBLIGATION TO REPAY FINANCIAL INTERVENTION FUNDING UPON
----------------------------------------------------------------
PUBLIC OFFERINGS
----------------
If Nissan has furnished financial intervention funding to FAA and/or
Dealer in connection with the establishment or development of the
South Bay CMO, then, upon the completion of any public offering of FAA
and/or Dealer's stock or other
7
<PAGE>
ownership interest, upon Nissan's demand, Dealer shall repay to Nissan
the full amount of such funding.
10. RIGHTS OF FIRST REFUSAL OR OPTION TO PURCHASE
---------------------------------------------
A. DEALERSHIP ASSETS OR OWNERSHIP INTERESTS
----------------------------------------
Whenever Dealer proposes to sell its principal assets or the owners of
Dealer propose to sell a majority ownership interest in Dealer, in
addition to its rights under Articles Third and Fourth of the Dealer
Agreement and Section 15.B of the Standard Provisions, Nissan shall
have the right and option to purchase the dealership assets or
ownership interests pursuant to this Paragraph 10.
i. If Nissan chooses to exercise its option, it must do so in its
written refusal to consent to the proposed sale or transfer
pursuant to Section 15.B. Dealer agrees not to complete any
proposed change or sale prior to the expiration of the period for
exercise of Nissan's option and without Nissan's prior written
consent. Such exercise shall be null and void if Dealer withdraws
its proposal within thirty (30) days following Dealer's receipt
of Nissan's notice exercising its option.
ii. After being exercised, Nissan's option may be assigned to any
party, and Nissan hereby agrees to guarantee the full payment of
the purchase price by such assignee. Nissan's rights under this
Paragraph 10 shall be binding on and enforceable against any
assignee or successor in interest of Dealer or purchaser of
Dealer's assets. Nissan shall have no obligation to exercise its
rights hereunder.
iii. If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Nissan's right under this
Paragraph 10 shall be a right of first refusal, enabling Nissan
to assume the prospective purchaser's rights and obligations
under such buy/sell agreement. The purchase price and other terms
of sale shall be those set forth in such agreement and any
related documents. Nissan may request, FAA and Dealer agrees to
provide all other documents relating to Dealer and to the
proposed transfer, including, but not limited to, those
reflecting any other agreements or understandings between the
parties to the buy/sell agreement. Nissan shall have sixty (60)
days from its receipt of all such documents in which to exercise
its right of first refusal hereunder. If Dealer refuses either to
provide such documentation or to state in writing that no such
documents exist, it shall be presumed that the agreement is not
bona fide.
iv. In the absence of a bona fide written buy/sell agreement, Nissan
shall have the option, but no obligation, under this Paragraph 10
to purchase the principal assets of Dealer utilized in the
Dealership Operations, including real property and leasehold
interest, and to terminate this Agreement and all rights granted
Dealer hereunder. If the Dealership Facilities are leased
8
<PAGE>
by Dealer from an affiliated company, the right to purchase the
principal assets of Dealer shall include the right to lease the
Dealership Facilities. The purchase price of Dealer's assets
shall be at their fair market value as a going concern as
negotiated by the parties and the other terms of sale shall be
those agreed by Dealer and Nissan. If Dealer and Nissan are
unable to reach a negotiated settlement in a reasonable time, the
price and other terms of sale shall be established by arbitration
pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. If Nissan determines that the buy/sell
agreement is not bona fide, Nissan will so notify Dealer. Dealer
shall have ten (10) days from its receipt of such notice within
which to withdraw its proposal. Nissan's exercise of its rights
hereunder shall be null and void if Dealer withdraws its proposal
within such time period.
v. Dealer shall transfer the affected property free and clear of
liens, claims, mortgages, encumbrances, tenancies and
occupancies. Dealer shall also furnish to Nissan copies of any
easements, licenses, or other documents affecting the dealership
and/or property and shall assign any permits or licenses which
are necessary for the conduct of the Dealership Operations.
B. REAL PROPERTY
-------------
Whenever Dealer proposes to sell or lease any of its Dealership
Facilities and/or Dealership Locations, in addition to its rights
under Article Third and Fourth of the Dealer Agreement and Section
15.B of the Standard Provisions, Nissan shall have the right and
option to purchase or lease said Dealership Facilities and/or
Dealership Locations pursuant to this Paragraph 10.B.
i) If Nissan chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within sixty (60)
days of Nissan's receipt of notice of the proposed sale or lease
by Dealer. Dealer agrees not to complete any proposed sale or
lease prior to the expiration of the period for exercise of
Nissan's right of first refusal and without Nissan's prior
written consent, and agrees to allow Nissan to perform an
environmental study of the property. Dealer also agrees to
furnish to Nissan copies of any easements, licenses,
environmental studies or other documents affecting the property
Such exercise shall be null and void if Dealer withdraws its sale
or lease proposal within thirty (30) days following Dealer's
receipt of Nissan's notice exercising its right of first refusal.
ii) After being exercised, Nissan's right to purchase or lease may be
assigned to any party, and Nissan hereby agrees to guarantee the
full payment of the purchase price or the rental payment by such
assignee. Nissan's rights under this Paragraph 10.B shall be
binding on and enforceable against any assignee or successor in
interest of Dealer or purchaser of Dealer's assets. Nissan shall
have no obligation to exercise its rights hereunder, and Seller
may rescind its offer if the property is determined to be
contaminated
9
<PAGE>
pursuant to an environmental study. Such contamination shall be
deemed a breach of this agreement by dealer.
iii) Dealer shall transfer the affected property by Warranty Deed
conveying marketable title free and clear of liens, claims,
mortgages, encumbrances, tenancies and occupancies, or, if
applicable, by an assignment of any existing lease. The Warranty
Deed shall be in proper form for recording. Dealer shall deliver
complete possession of the property at the time of delivery of
the Deed or lease assignment. Dealer shall also assign any permit
or licenses which are necessary for the conduct of the Dealership
Operations.
iv) In addition to any other rights Nissan may have at law, in equity
or hereunder, any sale or lease of the Dealership Facilities
and/or the Dealership Locations in violation of this right of
first refusal shall be voidable by Nissan.
C. OPTION TO PURCHASE
------------------
If the CMO Agreement or the Dealer Agreement is to expire or be
terminated for any reason, including but not limited to the death or
physical or mental incapacity, without replacement in accordance with
Section 9.C. hereinabove, of Dealer Principal, Nissan has the option
to purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan in its sole
discretion may elect to purchase, and cancel the CMO Agreement and the
Dealer Agreement and all rights granted Dealer thereunder. The
purchase price of the dealership assets and real property and other
terms will be determined by agreement between the parties or, if the
parties are unable to reach agreement in a reasonable time, by
arbitration pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. Nissan must advise Dealer of its intent to
exercise this option within 30 days prior to the expiration of the CMO
Agreement and/or the Dealer Agreement or within 30 days after one
party notifies the other of its intent to terminate the CMO Agreement
and/or the Dealer Agreement. Nissan may assign its right to exercise
its option to purchase under this Paragraph 10.C to any third party.
11. TERMINATION
-----------
A. TERMINATION DUE TO ACTS OR EVENTS
---------------------------------
The following represent events which are within the control of or
originate from actions taken by Dealer or its management or owners and
which are so contrary to the intent and purpose of the CMO Agreement
that they warrant its termination and the termination of the Dealer
Agreement:
(i) Any conduct that warrants the termination of the Dealer
Agreement;
10
<PAGE>
(ii) The termination of the Dealer Agreement;
(iii) The failure of Dealer to maintain at all times exclusive
Nissan sales, service, parts and/or other operations at the
Dealership Facilities and the Dealership Locations; or
(iv) Any actual or attempted sale or transfer of stock or any
other ownership interest in Dealer by way of a public
offering without Nissan's prior written consent;
Upon the occurrence of any of the foregoing events, Nissan may
terminate the CMO Agreement by giving Dealer notice thereof, such
termination to be effective upon the date specified in such notice, or
such later date as may be required by any applicable statute.
B. TERMINATION FOR NON-PERFORMANCE
-------------------------------
If, based on the evaluation thereof made by Nissan, Dealer shall fail
to substantially fulfill its responsibilities with respect to:
(i) the development of the South Bay CMO according to the Market
Area Plan;
(ii) the implementation of the plans set forth in the Business Plan,
including but not limited to any deviation therefrom; or
(iii) the performance of its sales, service, customer relations or
other obligations based on the standards established therefor in
the Business Plan;
Nissan will notify Dealer of such failure and will review with Dealer
the nature and extent of such failure and the reasons which, in
Nissan's or Dealer's opinion, account for such failure. Thereafter,
Nissan will provide Dealer with a reasonable opportunity to correct
the failure. If Dealer fails to make substantial progress towards
remedying such failure before the expiration of such period, Nissan,
may, direct Dealer to transfer its rights and obligations under this
Agreement to another entity, acceptable to Nissan, within a reasonable
time. Should Dealer fail to do so Nissan may (a) terminate this
Agreement by giving Dealer notice of termination, such termination to
be effective at least sixty (60) days after such notice is given, (b)
exercise its option to purchase the principal assets of Dealer
utilized in the business, including such real property as Nissan in
its sole discretion may elect to purchase, and cancel the CMO
Agreement and the Dealer Agreement pursuant to Paragraph 10.C hereof,
or (c) restructure the South Bay CMO and reassign to other Authorized
Nissan Dealers any areas necessary to achieve the maximum potential
development of the South Bay CMO.
11
<PAGE>
12. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 12, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN AND DEALER AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12,
WHICH INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM
FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN
THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR
FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation,
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, the Dealer or Nissan can submit the Dispute to Binding
Arbitration.
Section 16 of the Standard Provisions is deleted in its entirety.
B. MEDIATION
---------
Dealer or Nissan can submit a Dispute to Mediation. Mediation is
conducted by a panel consisting of a Nissan representative designated
by Nissan, a Dealer representative designated by Dealer, and an
independent professional mediator chosen by the parties'
representatives. The Mediation Panel will evaluate each position and
recommend a solution. This recommended solution is not binding.
C. BINDING ARBITRATION
-------------------
If a dispute has not been resolved after Mediation, or if
Dealer and Nissan have agreed in writing to waive Mediation,
the Dispute will be settled by Binding Arbitration.
SPECIFICALLY, THE PARTIES AGREE TO RESOLVE ALL SUCH DISPUTES
BY BINDING ARBITRATION CONDUCTED IN ACCORDANCE WITH THE
COMMERCIAL ARBITRATION PROCEDURES OF THE AMERICAN
ARBITRATION ASSOCIATION, WITH THE PREVAILING PARTY TO
RECOVER ITS COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY.
ALL ARBITRATION AWARDS ARE BINDING
12
<PAGE>
AND NON-APPEALABLE, EXCEPT AS OTHERWISE PROVIDED IN THE
UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD
MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING
JURISDICTION.
13. RELEASE
-------
Dealer hereby releases Nissan from any and all claims and causes of action
that it may have against Nissan for money damages or other relief relating
to or arising out of any event occurring prior to the execution of the CMO
Agreement, except for any accounts payable by Nissan to Dealer in
connection with the provision of any services under the Dealer Agreement
and any claim described in Section 11 A. 1 and .2 of the Standard
Provisions. In connection with this release, Dealer expressly acknowledges
and waives its rights under California Civil Code, Section 1542, which
provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
FAA CAPITOL N, INC. NISSAN MOTOR CORPORATION U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
--------------------------- -----------------------------------
Thomas A. Price, President Thomas H. Eastwood, Vice President
Nissan Division
By: /s/ Jules Clavadetscher
------------------------------------
Jules Clavadetscher
Regional Vice President
Northwest Region
Acknowledged and Concur:
FirstAmerica Automotive, Inc.
By: /s/ Thomas A. Price
---------------------------
Thomas A. Price,
President and CEO
13
<PAGE>
EXHIBIT 10.3.18
NISSAN CONTIGUOUS MARKET OWNERSHIP
----------------------------------
HOLDING COMPANY AGREEMENT
-------------------------
This Nissan Contiguous Market Ownership Holding Company Agreement (the "CMO
Holding Company Agreement") is entered into this 25th day of September, 1997, by
and among Nissan Motor Corporation in U.S.A. ("Nissan"), and FirstAmerica
Automotive, Inc., ("FAA" or "Holding Company") concerning the commitments and
obligations of FAA in respect to its subsidiaries, FAA Stevens Creek, Inc.,
("Stevens Creek Nissan") and FAA Capitol N, Inc., ("Capitol Nissan"), and any
other entities which FAA may acquire within the designated area described
hereinafter as the "South Bay CMO".
RECITALS
--------
WHEREAS, Nissan has developed a distribution network plan that seeks to create a
Contiguous Market Ownership Area in the San Francisco Bay Area (the "South Bay
CMO");
WHEREAS, Nissan recognizes this new distribution plan is to be implemented over
time with consideration of existing dealers' rights;
WHEREAS, FAA has approached Nissan with a request to develop the South Bay CMO;
WHEREAS, Nissan has advised FAA that Nissan would approve their acquisition of
individual dealers, provided FAA satisfies Nissan's requirements for applicants;
and Nissan has advised FAA that Nissan cannot make existing dealers sell or
otherwise transfer their dealerships to FAA;
WHEREAS, FAA acknowledges the rights of existing dealers, yet commits to use its
best good faith and reasonable efforts to acquire dealerships within the
South Bay CMO, with an intent to form the complete South Bay CMO marketing
territory;
WHEREAS, FAA acknowledges that Nissan's business concept for the CMO envisioned
entering into one Nissan Dealer Sales and Service Agreement with one corporate
entity for the entire CMO;
WHEREAS, FAA, while affirming its commitment to implement Nissan's CMO concept
in the South Bay CMO, has requested, in order to accommodate their business
purposes, that Nissan permit FAA to maintain the corporate entities they are
creating (or subsequently will acquire or create) to form the CMO and that
Nissan enter into separate, but related, dealer agreements with these entities;
WHEREAS, FAA owns 100% of the stock of the subsidiary dealer corporation
(currently FAA Stevens Creek, Inc. and FAA Capitol N, Inc).
WHEREAS, Nissan has communicated its willingness to accommodate FAA's request
subject to FAA's agreement to the terms and conditions set forth herein;
WHEREAS, based on the foregoing, Nissan will enter into separate, but related
dealer agreements with Stevens Creek Nissan and Capitol Nissan in connection
with the formation of the South Bay CMO;
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
AGREEMENT
---------
1. THE CMO HOLDING COMPANY AGREEMENT
---------------------------------
FAA acknowledges that while, technically, the South Bay CMO is comprised of
separate dealer corporations, as a practical matter, and consistent with
its intent as originally communicated, Nissan intends, and FAA agrees, that
Nissan will treat these wholly-owned subsidiary dealer corporations, and
their related Sales and Service Agreements, as part and parcel of one
single CMO entity for all purposes under this and those separate
Agreements. Specifically, the parties to this agreement acknowledge and
agree that, while the South Bay CMO is comprised of separate dealer
corporations, Holding Company and Nissan will treat those dealers and their
dealer agreements as one dealer with one agreement FOR ALL PURPOSES,
consistent with the CMO concept reflected in the CMO Addenda to those
dealer's agreements. Accordingly, with respect to allocation of vehicles,
financial reporting, sales incentives, business plans, performance
standards and evaluation and for all other purposes under the Sales &
Service Agreements, Nissan will treat Stevens Creek Nissan, Capitol Nissan,
and any and all subsequently acquired or created dealer entities within the
South Bay CMO, as if they were one dealer operating within the South Bay
CMO. Similarly, defaults or breaches of the Dealer Sales & Service
Agreement by either Stevens Creek Nissan or Capitol Nissan will constitute
a breach of both agreements. Holding Company shall cause Stevens
Creek Nissan and Capitol Nissan, and any subsequently acquired and/or
created dealer entities, to cooperate fully in accomplishing the objectives
and intent of the CMO addenda to their agreements, including the Business
Plans and Market Area Plans incorporated therein, and this Holding Company
CMO Agreement. Moreover, FAA agrees that it will exercise its control and
ownership in ways consistent with this agreement and will not take any
actions or allow its subsidiaries in the South Bay CMO to take any action
inconsistent with the intent of this Agreement.
ONE AGREEMENT OBJECTIVE
-----------------------
FAA agrees that when reasonable business considerations permit FAA to merge
Stevens Creek Nissan, Capitol Nissan, or any subsequently acquired or
created dealer entities acquired in the South Bay CMO, FAA will merge the
companies so as to achieve the joint business objective of one dealer
company for the South Bay CMO area.
Until such time, however, Nissan will not enforce its policy and the
contractual obligation that each and every dealer corporation appoint an
exclusively dedicated Executive Manager as manager of the dealer
corporation. Specifically, the appointment of a qualified Executive
Manager, acceptable to Nissan, as the Executive Manager of all CMO Nissan
dealerships will not be deemed a breach of the related dealer agreements.
2. CMO HOLDING COMPANY AGREEMENT TERM
----------------------------------
This Agreement shall have a term beginning with, running concurrent to, and
expiring simultaneously as, the Nissan Dealer Term Sales and Service
Agreements of all FAA owned dealer entities within the South Bay CMO
(currently including Steven Creek Nissan and Capitol Nissan). Termination
of any of the Nissan Dealer Sales and Service Agreements of dealer entities
owned and controlled by FAA and constituting the South Bay CMO (currently
including those of Steven Creek Nissan or Capitol Nissan) will constitute
termination of all dealer agreements of dealer
2
<PAGE>
entities within the South Bay CMO, and will, at Nissan's option, cause this
CMO Holding Company Agreement to terminate with no further notice or act
required by any party.
3. TRANSFERS
---------
In view of the efforts and resources that Nissan has expended in order
to establish the South Bay CMO, if FAA, or dealer entities within the
South Bay CMO owned and controlled FAA (currently including Stevens
Creek Nissan or Capitol Nissan), proposes to sell those dealership
assets necessary for the conduct of appropriate and effective
Dealership Operations, or those Dealership Facilities necessary to
conduct Dealership Operations, without Nissan's consent, Nissan in its
sole discretion may require that FAA, and any FAA owned or controlled
dealer entities within the South Bay CMO (currently including Stevens
Nissan or Capitol Nissan) sell all or none of such assets or
Dealership Facilities comprising the South Bay CMO to a proposed buyer
acceptable to Nissan.
Holding Company acknowledges and agrees to identical Rights of First
Refusal on Dealership Assets and Dealership Facilities as are
contained the Dealer Agreements for the subsidiary Dealer entities
within the South Bay CMO as well as identical Option to Purchase
provisions.
4. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 4, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN, FAA, IN ITS OWN
RIGHT AND AS THE OWNER OF THE SOUTH BAY CMO DEALER(s) (CURRENTLY
INCLUDING STEVENS CREEK NISSAN AND CAPITOL NISSAN ) AGREE THAT THE
DISPUTE RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12, WHICH
INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR
RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING
IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN THE
PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR
FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, the HOLDING COMPANY or Nissan can submit the Dispute to
Binding Arbitration.
3
<PAGE>
B. MEDIATION
---------
Any party to this Agreement can submit a Dispute to Mediation.
Mediation is conducted by a panel consisting of a Nissan
representative designated by Nissan, a HOLDING COMPANY representative
designated by HOLDING COMPANY, and an independent professional
mediator chosen by the parties' representatives. The Mediation Panel
will evaluate each position and recommend a solution. This recommended
solution is not binding.
C. BINDING ARBITRATION
-------------------
If a Dispute has not been resolved after Mediation, or if HOLDING
COMPANY and Nissan have agreed in writing to waive Mediation, the
Dispute will be settled by Binding Arbitration in accordance with the
procedures in the Dealer Dispute Resolution Guide, with the prevailing
party to recover its costs and attorneys fees from the other party.
All awards of the arbitration are binding and non-appealable except as
otherwise provided in the United States Arbitration Act. Judgment upon
any award rendered by the arbitrator(s) may be entered and enforced in
any court having jurisdiction.
FIRSTAMERICA AUTOMOTIVE, INC. NISSAN MOTOR CORPORATION IN U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
------------------------------ -----------------------------------
Thomas A Price Thomas H. Eastwood, Vice President
President and CEO Nissan Division
By: /s/ Jules Clavadetscher
------------------------------------
Jules Clavadetscher
Regional Vice President
Northwest Region
Acknowledged:
FAA Stevens Creek, Inc. FAA Capitol N, Inc.
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
------------------------------ -----------------------------------
Thomas A Price, President Thomas A Price, President
4
<PAGE>
NISSAN DEALERSHIP FACILITIES ADDENDUM NISSAN MOTOR CORPORATION IN U.S.A.
[LOGO]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FACILITIES & LOCATION SIZE (Square Feet) REQUIREMENTS BASED ON TOTAL PLANNING VOLUME
- ----------------------------------------------------------------------------------------------------------------
New Vehicle New Vehicle Used Vehicle Used Vehicle
Site Address Sales Sales Sales Sales
Building Land Building Land
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A. Main Location:
1120 Capitol Expressway Auto Mall 9,212 70,946 735 62,146
- ----------------------------------------------------------------------------------------------------------------
B. Additional Location:
- ----------------------------------------------------------------------------------------------------------------
C. Additional Location:
- ----------------------------------------------------------------------------------------------------------------
D. Additional Location:
- ----------------------------------------------------------------------------------------------------------------
BUILDING
&
TOTALS BUILDING LAND LAND
- ----------------------------------------------------------------------------------------------------------------
Actual 45,662 185,301 230,963 9,212 70,946 735 62,146
- ----------------------------------------------------------------------------------------------------------------
Guide 23,846 106,486 130,332 5,305 50,261 451 29,164
- ----------------------------------------------------------------------------------------------------------------
Actual
% Guide 191.5% 174.0% 177.2% 173.6% 141.2% 163.0% 213.1%
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FACILITIES & LOCATION SIZE (Square Feet) REQUIREMENTS BASED ON TOTAL UNITS IN OPERATION
- ------------------------------------------------------------------------------------------------------------------------------------
Service Service Service Parts Parts Body Body
Site Address Bays Building Land Building Land Shop Shop
Building Land
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A. Main Location:
1120 Capitol Expressway Auto Mall 43 23,450 39,813 12,265 12,396 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
B. Additional Location: 445 Serramonte Blvd.
- ------------------------------------------------------------------------------------------------------------------------------------
C. Additional Location:
- ------------------------------------------------------------------------------------------------------------------------------------
D. Additional Location:
- ------------------------------------------------------------------------------------------------------------------------------------
BUILDING
&
TOTALS BUILDING LAND LAND
- ------------------------------------------------------------------------------------------------------------------------------------
Actual 43 23,450 39,813 12,265 12,396 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Guide 27 12,251 24,856 5,839 2,205 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Actual
% Guide 159.3% 191.4% 160.2% 210.1% 562.2% N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
----------------------------------------------------
MAKES PLANNING UNITS IN
SOLD VOLUME OPERATION
----------------------------------------------------
<S> <C> <C>
1. Nissan 1599 5795
----------------------------------------------------
2.
----------------------------------------------------
3.
----------------------------------------------------
4.
----------------------------------------------------
5.
----------------------------------------------------
6.
----------------------------------------------------
TOTALS 1599 5795
----------------------------------------------------
Guide
Figures 1500 6000
Utilized
----------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
This Dealership Facilities Addendum is executed by Dealer and Seller pursuant to
Section 2.A of the Nissan Dealer Sales and Service Agreement in effect between
said parties and is effective as of the date set forth below. Dealer and Seller
agree that as of the effective date the information above accurately describes
the Dealership Location and Dealership Facilities, the purposes for which each
location is used and the current Guides for such facilities based on the
Planning Volumes stated herein. The execution of this Facilities Addendum shall
not be construed as evidence of Dealer's fulfillment of its responsibilities
under Section 2 of the Agreement. Changes in the Dealership Location, the
Dealership Facilities or their usage from the locations and specific uses stated
herein cannot be made by Dealer without the prior written consent of Seller.
Such changes and any changes in Seller's Guides will he reflected in a new
Dealership Facilities Addendum when deemed necessary by Seller. This Dealership
Facilities Addendum cancels and supersedes any prior Dealership Facilities
Addenda executed by Seller and Dealer.
DEALER:
- ------
FAA CAPITOL N, INC.
-----------------------------------------------------------------------------
Dealer Name
CAPITOL NISSAN
- -----------------------------------------------------------------------------
Doing Business As
By /s/ San Jose CA 95136
--------------------------------- -------------------------------------
Signature City State Zip
Title President 3474
------------------------------ -------------------------------------
Dealer Code
Accuracy of information verified for SELLER
------
Seller NISSAN DIVISION
By /s/ NISSAN MOTOR CORPORATION IN U.S.A
--------------------------------
Title Assistant Regional Manager By /s/
---------------------------- ----------------------------------
9-25-97 Title Vice President, Nissan Division
- ----------------------------------- -------------------------------
Date Verified
By /s/
----------------------------------
THIS ADDENDUM IS EFFECTIVE AS OF
Title Regional Vice President
--------------------------------
9/25/97
- -----------------------------------
<PAGE>
EXHIBIT 10.3.19
NISSAN CONTIGUOUS MARKET OWNERSHIP ADDENDUM
-------------------------------------------
This Nissan Contiguous Market Ownership Addendum (the "CMO Agreement") is
entered into this 30th day of JUNE, 1997, by and among Nissan Motor Corporation
in U.S.A. ("Nissan"), Thomas A. Price ("Dealer Principal" or "Price"), FAA
Concord N, Inc., ("Concord Nissan" or "Dealer"), and FirstAmerica Automotive,
Inc., ("FAA").
RECITALS
--------
WHEREAS, Nissan, FAA and Dealer desire to create a Contiguous Market Ownership
Area in the San Francisco Bay Area, (the "East Bay CMO");
WHEREAS, Nissan, FAA and Dealer commit to develop and execute a Market Area Plan
that describes how Dealer will develop the East Bay CMO through the provision or
establishment of Dealership Facilities;
WHEREAS, Nissan, FAA and Dealer also commit to develop and execute a Business
Plan that describes how Dealer will fulfill its sales, service, customer
relations and other commitments hereunder, including heightened performance
standards that Dealer commits to meet;
WHEREAS, Dealer commits to operate in accordance with the Market Area Plan and
the Business Plan;
WHEREAS, Nissan, Price, FAA and Dealer acknowledge that this CMO Agreement
forges a new collaborative relationship in the automotive industry that is
uniquely and mutually beneficial to the parties, was negotiated by them in the
spirit of cooperation, and does not adversely affect their existing rights and
responsibilities;
WHEREAS, Price, FAA and Dealer, in exchange for the opportunities and other
consideration specified herein, agree to assume the obligations set forth
herein; and
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO AGREEMENT
-----------------
The CMO Agreement supplements the Nissan Dealer Sales and Service Agreement
between Nissan and Dealer (the "Dealer Agreement"), including the Standard
Provisions thereto (the "Standard Provisions"). To the extent that the CMO
Agreement conflicts with the Dealer Agreement, the CMO Agreement controls
and shall govern the relationship between the parties. Subject to such
conflicts and except as otherwise provided herein, the Dealer Agreement
survives the execution of the CMO Agreement and remains in full force and
effect.
<PAGE>
2. DEFINITIONS
-----------
The parties agree that the following terms, as used in the CMO Agreement,
shall be defined exclusively as set forth below.
A. "NISSAN VEHICLES" shall mean Nissan Cars and Nissan Trucks as well
as "near-new" Nissan Vehicles of the current and three prior model
years.
B. "NISSAN PRODUCTS" shall mean Nissan Vehicles, Genuine Parts and
Accessories, Nissan Security + Plus and such other products and
services offered by Nissan to Dealer and designated by Nissan as a
Nissan Product.
C. "PRIMARY MARKET AREA" shall mean the East Bay CMO, which shall
consist of the entire geographic area that is designated from time to
time as the area of Dealer's sales and service responsibility for
Nissan Products in a Notice of Primary Market Area issued by Nissan to
Dealer. Nissan reserves the right, in its reasonable discretion, to
issue a new, superseding "Notice of Primary Market Area" to Dealer
from time to time.
D. "EXECUTIVE MANAGER" shall mean the person named as Executive
Manager in the Final Paragraph of the Dealer Agreement upon whose
personal qualifications, expertise, reputation, integrity, experience,
ability and representations that he or she shall devote his or her
efforts to and have full managerial authority and responsibility for
the day-to-day management and performance of Dealer throughout the
East Bay CMO, or with Nissan's consent, any contiguous CMO(s),
including but not limited to the supervision of all Location Managers,
which Nissan has relied in entering into the CMO Agreement.
E. "LOCATION MANAGER" shall mean the persons named as Location
Managers in the Location Manager Addendum to the CMO Agreement upon
whose personal qualifications, expertise, reputation, integrity,
experience, ability and representations that he or she shall devote
his or her full-time efforts to and have managerial authority and
responsibility for the day-to-day management and performance of Dealer
at a particular Dealership Facility, Nissan has relied in entering
into the CMO Agreement.
F. "MARKET AREA PLAN" shall mean the written plan prepared and
executed by the parties that describes the number, location, type,
size and opening date of the Dealership Facilities to be provided by
Dealer hereunder.
G. "BUSINESS PLAN" shall mean the written plan prepared and executed
by the parties that contains Dealer's plan and commitment to develop
its business throughout the East Bay CMO, including but not limited to
its plan and commitment with respect to organizational, operational,
financial, succession and other issues, and certain standards on which
its performance hereunder will be evaluated.
2
<PAGE>
H. "Dealership Facilities" shall mean the land areas at each
Dealership Location and the buildings and improvements erected thereon
provided by Dealer in accordance with Section 2 of the Standard
Provisions and the Market Area Plan.
3. TERM
----
This Agreement and the Dealer Agreement shall have a renewable term
commencing on its effective date and continuing for a term of five years
unless terminated earlier in accordance with Section 12 of the Standard
Provisions or the CMO Agreement.
4. DEALERSHIP LOCATION AND DEALERSHIP FACILITIES
---------------------------------------------
A. DEALERSHIP FACILITIES
---------------------
In accordance with the Market Area Plan, FAA and Dealer shall provide
Dealership Facilities at each Dealership Location that are
satisfactory in space, appearance, usage, layout and signage; and
otherwise are substantially in accordance with the Guides therefor
established by Nissan from time to time. Dealer shall conduct its
Dealership Operations only from the Dealership Locations specified in
the Dealership Facilities Addendum and shall use each such place of
business only for the purposes specified therefor in the Dealership
Facilities Addendum. Where applicable, Dealer shall establish
additional Dealership Facilities in the time, place and manner agreed
to by Dealer and Nissan in the Market Area Plan. Dealer agrees that
the Dealership Facilities shall have a consistent image, appearance
and name.
B. DEALERSHIP FACILITIES ADDENDUM
------------------------------
FAA, Dealer and Nissan shall execute a Dealership Facilities Addendum
which will include a description of each Dealership Location and each
Dealership Facility as well as the approved use for each such place of
business and facility.
C. EXCLUSIVE NISSAN OPERATIONS
---------------------------
FAA and Dealer agree that each Dealership Facility and Dealership
Location shall be dedicated to the promotion of Nissan Products and
devoted exclusively to the conduct of Nissan sales, service, parts
and/or other operations as specified in the Dealership Facilities
Addendum. Dealer shall not conduct any sales, service, parts and/or
other operations for any other new line-make of vehicles at any of the
Dealership Facilities or Dealership Locations.
D. EAST BAY CMO OBLIGATIONS
------------------------
FAA shall develop, and Dealer shall devote its full efforts to
developing the East Bay CMO. Consequently, Dealer agrees that it will
not engage, either directly or indirectly, in any of the activities
contemplated by the CMO Agreement from facilities or locations outside
of the East Bay CMO. If Dealer fails to develop the
3
<PAGE>
East Bay CMO according to its Market Area Plan or to implement the
plans or meet the performance standards established in the Business
Plan, then Nissan, will provide written notice specifying the default
and a reasonable period of at least 45 days within which to cure the
default. Should the 45 day cure period expire without material remedy
of the breach, Nissan may (i) terminate the CMO Agreement under
Paragraph 11 hereof, (ii) restructure the East Bay CMO and reassign to
other Authorized Nissan Dealers any areas necessary to achieve the
maximum potential development of the East Bay CMO, or (iii) exercise
its option to purchase under Paragraph 10.C hereof.
5. MARKET AREA PLAN
----------------
FAA, Dealer and Nissan shall execute A Market Area Plan that describes how
Dealer will develop its Primary Market Area through the provision or
establishment of Dealership Facilities. The Market Area Plan is an
essential part of the CMO Agreement.
A. MARKET AREA DEVELOPMENT
-----------------------
FAA and Dealer agree to develop its Primary Market Area according to
the Market Area Plan, which shall include a detailed description of
the number, location, type, size, usage and opening date of the
Dealership Facilities to be provided.
B. PLAN MODIFICATIONS
------------------
The Market Area Plan may be modified only if Nissan, FAA and Dealer
agree that a material change in marketing conditions warrants the
proposed modification.
C. MARKET STUDIES
--------------
The parties agree that although Nissan may continue to perform market
studies of the Primary Market Area and any contiguous market areas, or
any portion thereof pursuant to Section 4.A of the Standard
Provisions, they will base the Market Area Plan on their collaborative
review and analysis of all relevant data, including such market
studies. Section 4.B of the Standard Provisions is hereby deleted in
its entirety.
D. WAIVER OF CLAIMS BASED ON NISSAN'S ACTIONS OUTSIDE THE PRIMARY MARKET
---------------------------------------------------------------------
AREA
----
Nissan agrees that in taking action outside the Primary Market Area,
it will consider the impact of such action on Dealer's investment in
and plans for the Primary Market Area. Dealer agrees not to initiate
or prosecute any judicial, administrative or governmental proceeding
with respect to Nissan's actions outside the Primary Market Area,
including but not limited to its appointment or relocation of any
other Authorized Nissan Dealer.
4
<PAGE>
6. BUSINESS PLAN
-------------
FAA, Dealer and Nissan shall execute a Business Plan in the form specified
in the Business Planning Process Workbook that describes how Dealer will
fulfill its sales, service, customer relations, marketing and other
commitments hereunder. The Business Plan is an essential part of the CMO
Agreement.
A. BUSINESS PLANNING
-----------------
The Business Plan shall include the following elements:
i. a statement of Dealer's legal and financial structure, including
capitalization, line of credit and equity ownership;
ii. the sales, service, customer relations, marketing and other
standards on which Dealer's performance will be evaluated, which
standards Dealer acknowledges and agrees will be higher than
those established for Authorized Nissan Dealers that are not
responsible for a CMO;
iii. a detailed organizational structure and staffing plans, including
the number of certified sales, service and parts managers, sales
personnel, and technicians that shall be provided for the East
Bay CMO;
iv. specific plans for maximizing owner loyalty and customer
satisfaction, including hours of operation and customer
convenience systems;
v. advertising, merchandising, marketing and community relations
plans;
vi. successorship, including the identity of the proposed successors
to Dealer, Dealer Principal and/or Executive Manager; and
vii. other standards or plans as agreed by Nissan, FAA and Dealer.
B. OPERATIONS
----------
Dealer shall operate in accordance with the Business Plan and shall
actively and effectively promote the sale of Nissan Products to
customers located throughout the Primary Market Area. In particular,
Dealer shall implement the plans and meet the performance standards
established in the Business Plan.
C. ANNUAL BUSINESS PLAN REVIEW
---------------------------
Dealer shall review and update its Business Plan annually, or more
often if needed, and submit it to Nissan for joint review. Updated
Plans will include a performance evaluation and any proposed
modifications to the prior year's plan. If Nissan,
5
<PAGE>
FAA and Dealer agree that changes to the proposed Plan are necessary,
Dealer will make such changes and resubmit its Plan.
I. PERFORMANCE EVALUATION
----------------------
Dealer's performance of its obligations is essential to the
effective representation of Nissan Products, and to the
reputation and goodwill of Nissan, in the East Bay CMO.
Therefore, Dealer agrees to review its performance against the
prior year's Business Plan in its updated Business Plan. Nissan,
FAA and Dealer will use this analysis as a basis for jointly
evaluating Dealer's performance so that any necessary
improvements can be made. In evaluating Dealer's sales
performance, in addition to those factors established in the
Standard Provisions, Nissan will give consideration to: (a) sales
volume or market share objectives for Nissan Products set by the
parties, and (b) sales and market penetration achieved by Dealer
in each of the various segments in which Nissan Vehicles compete.
II. PLAN MODIFICATIONS
------------------
Plans for operations are subject to update, but modifications can
be implemented only if Nissan, FAA and Dealer agree thereto.
7. OTHER DEALER RESPONSIBILITIES
-----------------------------
A. FINANCIAL AND OPERATIONAL REPORTING
-----------------------------------
Dealer shall provide to Nissan financial statements and sales reports
pursuant to Section 6.G of the Standard Provisions for each Dealership
Facility and for Dealer for the entire Primary Market Area. Dealer
shall furnish to Nissan annual certified financial statements for
Dealer or for the entity that owns Dealer and shall otherwise disclose
to Nissan in a format reasonably satisfactory to Nissan the financial
and operational results of Dealer's Nissan business.
B. DISCLOSURE OF FINANCIAL INFORMATION TO AFFILIATED COMPANIES
-----------------------------------------------------------
Nissan shall be entitled to disclose to and receive from affiliated
companies, including but not limited to Nissan Motor Acceptance
Corporation, all financial statements and reports provided by Dealer
under the CMO Agreement and/or the Dealer Agreement or otherwise
relating to Dealership Operations.
C. DEALER'S LOAN ARRANGEMENTS FOR REAL PROPERTY
--------------------------------------------
Dealer's loan arrangements for its Dealership Facilities and/or
Dealership Locations shall grant to Nissan the right to notice of and
a reasonable opportunity
6
<PAGE>
to cure any default thereunder as well as the right to take possession
of such real property upon such cure, and shall otherwise be
satisfactory in form to Nissan.
8. NISSAN CAR AND NISSAN TRUCK ALLOCATIONS
---------------------------------------
Nissan's allocation of Nissan Cars and Nissan Trucks to Dealer shall be
based on the entire Primary Market Area in accordance with the procedures
established therefor by Nissan.
9. TRANSFERS
---------
A. SALE OF EAST BAY CMO DEALERSHIP
-------------------------------
In view of the efforts and resources that Nissan has expended in order
to establish the East Bay CMO, if Dealer proposes to sell certain
assets or Dealership Facilities, Nissan in its sole discretion may
require that Dealer sell all or none of such assets or Dealership
Facilities to the proposed buyer.
B. QUALIFICATIONS OF PROPOSED DEALER PRINCIPAL
-------------------------------------------
FAA and Dealer acknowledge and agree that, in view of the increased
responsibilities that Price has assumed as the principal of Dealer for
the East Bay CMO, Nissan has and will apply heightened standards with
respect to the personal, business and financial qualifications,
expertise, reputation, integrity, experience and ability of a proposed
Dealer Principal.
C. SUCCESSORSHIP
-------------
Section 14 of the Standard Provisions is hereby deleted in its
entirety. The parties shall address successorship in the Business Plan
prepared pursuant to Paragraph 6 hereof. Dealer shall identify the
proposed successor to Dealer, Dealer Principal and/or Executive
Manager in its successorship plan and shall provide such documents and
information as Nissan may reasonably require in evaluating such plans.
Nissan shall evaluate such plan and approve it only if it meets the
heightened standards applied by Nissan in connection with Nissan
Contiguous Market Ownership Agreements. Subject to Paragraph 10 hereof
the parties agree that if for any reason Dealer is unable to implement
its successorship plan upon the death or physical or mental incapacity
of Dealer Principal, then Dealer shall be given a reasonable period of
time not to exceed six (6) months in which to transfer to person(s)
acceptable to Nissan the principal assets of Dealer utilized in the
dealership business, including but not limited to the Dealership
Facilities, and for such person(s) to apply for a Nissan Dealer Sales
and Service Agreement and, if applicable, a Nissan Contiguous Market
Ownership Agreement.
7
<PAGE>
D. DEALER'S OBLIGATION TO REPAY FINANCIAL INTERVENTION FUNDING UPON
----------------------------------------------------------------
PUBLIC OFFERINGS
----------------
If Nissan has furnished financial intervention funding to FAA and/or
Dealer in connection with the establishment or development of the East
Bay CMO, then, upon the completion of any public offering of FAA
and/or Dealer's stock or other ownership interest, upon Nissan's
demand, Dealer shall repay to Nissan the full amount of such funding.
10. RIGHTS OF FIRST REFUSAL OR OPTION TO PURCHASE
---------------------------------------------
A. DEALERSHIP ASSETS OR OWNERSHIP INTERESTS
----------------------------------------
Whenever Dealer proposes to sell its principal assets or the owners of
Dealer propose to sell a majority ownership interest in Dealer, in
addition to its rights under Articles Third and Fourth of the Dealer
Agreement and Section 15.B of the Standard Provisions, Nissan shall
have the right and option to purchase the dealership assets or
ownership interests pursuant to this Paragraph 10.
i. If Nissan chooses to exercise its option, it must do so in its
written refusal to consent to the proposed sale or transfer
pursuant to Section 15.B. Dealer agrees not to complete any
proposed change or sale prior to the expiration of the period for
exercise of Nissan's option and without Nissan's prior written
consent. Such exercise shall be null and void if Dealer withdraws
its proposal within thirty (30) days following Dealer's receipt
of Nissan's notice exercising its option.
ii. After being exercised, Nissan's option may be assigned to any
party, and Nissan hereby agrees to guarantee the full payment of
the purchase price by such assignee. Nissan's rights under this
Paragraph 10 shall be binding on and enforceable against any
assignee or successor in interest of Dealer or purchaser of
Dealer's assets. Nissan shall have no obligation to exercise its
rights hereunder.
iii. If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Nissan's right under this
Paragraph 10 shall be a right of first refusal, enabling Nissan
to assume the prospective purchaser's rights and obligations
under such buy/sell agreement. The purchase price and other terms
of sale shall be those set forth in such agreement and any
related documents. Nissan may request, FAA and Dealer agrees to
provide all other documents relating to Dealer and to the
proposed transfer, including, but not limited to, those
reflecting any other agreements or understandings between the
parties to the buy/sell agreement. Nissan shall have sixty (60)
days from its receipt of all such documents in which to exercise
its right of first refusal hereunder. If Dealer refuses either to
8
<PAGE>
provide such documentation or to state in writing that no such
documents exist, it shall be presumed that the agreement is not
bona fide.
iv. In the absence of a bona fide written buy/sell agreement, Nissan
shall have the option, but no obligation, under this Paragraph 10
to purchase the principal assets of Dealer utilized in the
Dealership Operations, including real property and leasehold
interest, and to terminate this Agreement and all rights granted
Dealer hereunder. If the Dealership Facilities are leased by
Dealer from an affiliated company, the right to purchase the
principal assets of Dealer shall include the right to lease the
Dealership Facilities. The purchase price of Dealer's assets
shall be at their fair market value as a going concern as
negotiated by the parties and the other terms of sale shall be
those agreed by Dealer and Nissan. If Dealer and Nissan are
unable to reach a negotiated settlement in a reasonable time, the
price and other terms of sale shall be established by arbitration
pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. If Nissan determines that the buy/sell
agreement is not bona fide, Nissan will so notify Dealer. Dealer
shall have ten (10) days from its receipt of such notice within
which to withdraw its proposal. Nissan's exercise of its rights
hereunder shall be null and void if Dealer withdraws its proposal
within such time period.
v. Dealer shall transfer the affected property free and clear of
liens, claims, mortgages, encumbrances, tenancies and
occupancies. Dealer shall also furnish to Nissan copies of any
easements, licenses, or other documents affecting the dealership
and/or property and shall assign any permits or licenses which
are necessary for the conduct of the Dealership Operations.
B. REAL PROPERTY
-------------
Whenever Dealer proposes to sell or lease any of its Dealership
Facilities and/or Dealership Locations, in addition to its rights
under Article Third and Fourth of the Dealer Agreement and Section
15.B of the Standard Provisions, Nissan shall have the right and
option to purchase or lease said Dealership Facilities and/or
Dealership Locations pursuant to this Paragraph 10.B.
i) If Nissan chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within sixty (60)
days of Nissan's receipt of notice of the proposed sale or lease
by Dealer. Dealer agrees not to complete any proposed sale or
lease prior to the expiration of the period for exercise of
Nissan's right of first refusal and without Nissan's prior
written consent, and agrees to allow Nissan to perform an
environmental study of the property. Dealer also agrees to
furnish to Nissan copies of any easements, licenses,
environmental studies or other documents affecting the property
Such exercise shall be null and void if Dealer withdraws its sale
9
<PAGE>
or lease proposal within thirty (30) days following Dealer's
receipt of Nissan's notice exercising its right of first refusal.
ii) After being exercised, Nissan's right to purchase or lease may be
assigned to any party, and Nissan hereby agrees to guarantee the
full payment of the purchase price or the rental payment by such
assignee. Nissan's rights under this Paragraph 10.B shall be
binding on and enforceable against any assignee or successor in
interest of Dealer or purchaser of Dealer's assets. Nissan shall
have no obligation to exercise its rights hereunder, and Seller
may rescind its offer if the property is determined to be
contaminated pursuant to an environmental study. Such
contamination shall be deemed a breach of this agreement by
dealer.
iii) Dealer shall transfer the affected property by Warranty Deed
conveying marketable title free and clear of liens, claims,
mortgages, encumbrances, tenancies and occupancies, or, if
applicable, by an assignment of any existing lease. The Warranty
Deed shall be in proper form for recording. Dealer shall deliver
complete possession of the property at the time of delivery of
the Deed or lease assignment. Dealer shall also assign any permit
or licenses which are necessary for the conduct of the Dealership
Operations.
iv) In addition to any other rights Nissan may have at law, in equity
or hereunder, any sale or lease of the Dealership Facilities
and/or the Dealership Locations in violation of this right of
first refusal shall be voidable by Nissan.
C. OPTION TO PURCHASE
------------------
If the CMO Agreement or the Dealer Agreement is to expire or be
terminated for any reason, including but not limited to the death or
physical or mental incapacity, without replacement in accordance with
Section 9.C. hereinabove, of Dealer Principal, Nissan has the option
to purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan in its sole
discretion may elect to purchase, and cancel the CMO Agreement and the
Dealer Agreement and all rights granted Dealer thereunder. The
purchase price of the dealership assets and real property and other
terms will be determined by agreement between the parties or, if the
parties are unable to reach agreement in a reasonable time, by
arbitration pursuant to the Dispute Resolution Process established in
Paragraph 12 hereof. Nissan must advise Dealer of its intent to
exercise this option within 30 days prior to the expiration of the CMO
Agreement and/or the Dealer Agreement or within 30 days after one
party notifies the other of its intent to terminate the CMO Agreement
and/or the Dealer Agreement. Nissan may assign its right to exercise
its option to purchase under this Paragraph 10.C to any third party.
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11. TERMINATION
-----------
A. TERMINATION DUE TO ACTS OR EVENTS
---------------------------------
The following represent events which are within the control of or
originate from actions taken by Dealer or its management or owners and
which are so contrary to the intent and purpose of the CMO Agreement
that they warrant its termination and the termination of the Dealer
Agreement:
(i) Any conduct that warrants the termination of the Dealer
Agreement;
(ii) The termination of the Dealer Agreement;
(iii) The failure of Dealer to maintain at all times exclusive Nissan
sales, service, parts and/or other operations at the Dealership
Facilities and the Dealership Locations; or
(iv) Any actual or attempted sale or transfer of stock or any other
ownership interest in Dealer by way of a public offering
without Nissan's prior written consent;
Upon the occurrence of any of the foregoing events, Nissan may
terminate the CMO Agreement by giving Dealer notice thereof, such
termination to be effective upon the date specified in such notice, or
such later date as may be required by any applicable statute.
B. TERMINATION FOR NON-PERFORMANCE
-------------------------------
If, based on the evaluation thereof made by Nissan, Dealer shall fail
to substantially fulfill its responsibilities with respect to:
(i) the development of the East Bay CMO according to the Market
Area Plan;
(ii) the implementation of the plans set forth in the Business Plan,
including but not limited to any deviation therefrom; or
(iii) the performance of its sales, service, customer relations or
other obligations based on the standards established therefor
in the Business Plan;
Nissan will notify Dealer of such failure and will review with Dealer
the nature and extent of such failure and the reasons which, in
Nissan's or Dealer's opinion, account for such failure. Thereafter,
Nissan will provide Dealer with a reasonable opportunity to correct
the failure. If Dealer fails to make substantial progress towards
remedying such failure before the expiration of such period, Nissan,
may, direct Dealer to transfer its rights and obligations under this
Agreement to another entity, acceptable to Nissan, within a reasonable
time. Should Dealer fail to do so
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Nissan may (a) terminate this Agreement by giving Dealer notice of
termination, such termination to be effective at least sixty (60) days
after such notice is given, (b) exercise its option to purchase the
principal assets of Dealer utilized in the business, including such
real property as Nissan in its sole discretion may elect to purchase,
and cancel the CMO Agreement and the Dealer Agreement pursuant to
Paragraph 10.C hereof, or (c) restructure the East Bay CMO and
reassign to other Authorized Nissan Dealers any areas necessary to
achieve the maximum potential development of the East Bay CMO.
12. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels, various
courts and agencies would, in the absence of this Paragraph 12, be
available to them to resolve claims or controversies which might arise
between them. The parties agree that it is inconsistent with their
relationship for either to use courts or governmental agencies to
resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN AND DEALER AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12,
WHICH INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM
FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN
THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR
FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation,
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, the Dealer or Nissan can submit the Dispute to Binding
Arbitration.
Section 16 of the Standard Provisions is deleted in its entirety.
B. MEDIATION
---------
Dealer or Nissan can submit a Dispute to Mediation. Mediation is
conducted by a panel consisting of a Nissan representative designated
by Nissan, a Dealer representative designated by Dealer, and an
independent professional mediator chosen by the parties'
representatives. The Mediation Panel will evaluate each position and
recommend a solution. This recommended solution is not binding.
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C. BINDING ARBITRATION
-------------------
If a dispute has not been resolved after Mediation, or if Dealer
and Nissan have agreed in writing to waive Mediation, the Dispute
will be settled by Binding Arbitration. SPECIFICALLY, THE PARTIES
AGREE TO RESOLVE ALL SUCH DISPUTES BY BINDING ARBITRATION
CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION
PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION, WITH THE
PREVAILING PARTY TO RECOVER ITS COSTS AND ATTORNEY'S FEES FROM
THE OTHER PARTY. ALL ARBITRATION AWARDS ARE BINDING AND NON-
APPEALABLE, EXCEPT AS OTHERWISE PROVIDED IN THE UNITED STATES
ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY BE ENTERED AND
ENFORCED IN ANY COURT HAVING JURISDICTION.
13. RELEASE
-------
Dealer hereby releases Nissan from any and all claims and causes of action
that it may have against Nissan for money damages or other relief relating
to or arising out of any event occurring prior to the execution of the CMO
Agreement, except for any accounts payable by Nissan to Dealer in
connection with the provision of any services under the Dealer Agreement
and any claim described in Section 11.A.1 and .2 of the Standard
Provisions. In connection with this release, Dealer expressly acknowledges
and waives its rights under California Civil Code, Section 1542, which
provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
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FAA CONCORD N, INC. NISSAN MOTOR CORPORATION U.S.A.
By: /s/ Thomas A. Price, By: /s/ Thomas H. Eastwood,
---------------------------- ----------------------------------
Thomas A. Price, President Thomas H. Eastwood, Vice President
By: /s/ Jules Clavadetscher
----------------------------------
Jules Clavadetscher
Regional Vice President
Acknowledged and Concur:
FirstAmerica Automotive, Inc.
By: /s/ Thomas A. Price,
-----------------------------
Thomas A. Price, President
President and CEO
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<PAGE>
EXHIBIT 10.3.20
[LOGO] NISSAN MOTOR CORPORATION U.S.A.
CONCORD NISSAN
<PAGE>
NISSAN
DEALER TERM SALES AND SERVICE AGREEMENT
THIS AGREEMENT is entered into and effective the day last set forth below by and
between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a California
corporation, hereinafter called "Seller," and the entities and natural persons
identified in the Final Article of this Agreement.
INTRODUCTION
The purpose of this Agreement is to establish Dealer as an authorized dealer of
Nissan Products and to provide for the sale and servicing of Nissan Products in
a manner that will best serve owners, potential owners and purchasers of Nissan
Products as well as the interests of Seller, Dealer and other Authorized Nissan
Dealers. This Agreement sets forth: the rights which Dealer will enjoy as an
Authorized Nissan Dealer; the responsibilities which Dealer assumes in
consideration of its receipt of these rights; and the respective conditions,
rights and obligations of Seller and Dealer that apply to Seller's grant to
Dealer of such rights and Dealer's assumption of such responsibilities. It is
understood that each term and undertaking hereinafter described is material, and
relied upon, as the quid pro quo and consideration for this Agreement.
This is a personal services Agreement. In entering into this Agreement and
appointing Dealer as provided below, Seller is relying, among other things, upon
the personal qualifications, expertise, reputation, integrity, experience,
ability and representations of the individual named in the Final Article of this
Agreement as Dealer Principal (the "Dealer Principal") the individual named in
the Final Article of this Agreement as Executive Manager and the representations
of FirstAmerica Automotive, Inc., ("FAA"), and FAA Concord N, Inc., ("Dealer" or
"Concord Nissan"). In addition to Dealer, Seller intends to look to FAA, the
Dealer Principal and the Executive Manager for the performance of Dealer's
obligations hereunder.
Nissan Products are intended for discriminate owners with the expectation that
such owners will be loyal and proud, but also demanding toward Seller and Dealer
with respect to Nissan Products and the manner in which they are sold and
serviced. Owners, potential owners and purchasers of Nissan Products are
expected to want, and are entitled to do business with, dealers who enjoy the
highest reputation in their communities and have well located, attractive and
efficient places of business, courteous personnel and outstanding service and
parts facilities. Nissan Products must be sold by enthusiastic dealers who are
not interested in short term results only but are willing to look toward long
term goals and who are devoted to creating and maintaining a positive total
ownership experience for owners of Nissan Products. Seller's standard of
excellence for Nissan Products must be matched by the dealers who sell them to
the public and who service them during their operative lives.
Achievement of the purposes of this Agreement is premised upon mutual
understanding and cooperation between Seller and Dealer. Dealer has entered into
this Agreement in reliance upon Seller's integrity and expressed intention to
deal fairly with Dealer and the consuming public. Seller has entered into this
Agreement in reliance upon the integrity and ability of the Dealer Principal and
Executive Manager and their expressed intention to deal fairly with the
consuming public and Seller.
<PAGE>
It is the responsibility of Seller to market Nissan Products throughout the
Territory. It is the responsibility of Dealer to actively promote the retail
sale of Nissan Products and to provide courteous and efficient service of Nissan
Products. The success of both Seller and Dealer will depend on how well they
each fulfill their respective responsibilities under this Agreement. It is
recognized that: Seller will endeavor to provide motor vehicles of excellent
quality and workmanship and to establish a network of Authorized Nissan Dealers
that can provide an outstanding sales and service effort at the retail level;
and Dealer will endeavor to fulfill its responsibilities through aggressive,
sound, ethical selling practices and through conscientious regard for customer
service in all aspects of its Nissan Dealership Operations.
Seller and Dealer shall refrain from engaging in conduct or activities which
might be detrimental to or reflect adversely upon the reputation of Seller,
Dealer or Nissan Products and shall engage in no discourteous, deceptive,
misleading or unethical practices or activities.
For consistency and clarity, terms which are used frequently in this Agreement
have been defined in Section 1 of the Standard Provisions. All terms used herein
which are defined in the Standard Provisions shall have the meaning stated in
said Standard Provisions. These definitions should be read carefully for a
proper understanding of the provisions in which they appear.
To achieve the purposes referred to above, Seller, FAA, Dealer, the Dealer
Principal and the Executive Manager agree as follows:
ARTICLE FIRST: Appointment of Dealer
Subject to the conditions and provisions of this Agreement, Seller:
(a) appoints Dealer as an Authorized Nissan Dealer and grants Dealer the
non-exclusive right to buy from Seller those Nissan Products specified in
Dealer's current Product Addendum hereto, for resale, rental or lease at or from
the Dealership Locations established and described in accordance with Section 2
of the Standard Provisions; and
(b) grants Dealer a non-exclusive right, subject to and in accordance with
Section 6.K of the Standard Provisions, to identify itself as an Authorized
Nissan Dealer, to display the Nissan Marks in the conduct of its Dealership
Operations and to use the Nissan Marks in the advertising, promotion and sale of
Nissan Products in the manner provided in this Agreement.
ARTICLE SECOND: Assumption of Responsibilities by Dealer
Dealer hereby accepts from Seller its appointment as an Authorized Nissan Dealer
and, in consideration of its appointment and subject to the other conditions and
provisions of this Agreement, hereby assumes the responsibility for:
(a) establishing and maintaining at the Dealership Location the Dealership
Facilities in accordance with Section 2 of the Standard Provisions;
(b) actively and effectively promoting the sale at retail (and, if Dealer
elects, the leasing and rental) of Nissan Vehicles within Dealer's Primary
Market Area in accordance with Section 3 of the Standard Provisions;
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(c) servicing Nissan Vehicles and for selling and servicing Nissan Parts
and Accessories in accordance with Section 5 of the Standard Provisions;
(d) building and maintaining consumer confidence in Dealer and in Nissan
Products in accordance with Section 5 of the Standard Provisions; and
(e) performance of the additional responsibilities set forth in this
Agreement, including those specified in Section 6 of the Standard Provisions.
ARTICLE THIRD: Ownership
(a) Owners. This Agreement has been entered into by Seller in reliance
------
upon, and in consideration of, among other things, the personal qualifications,
expertise, reputation, integrity, experience, ability and representations with
respect thereto of the Dealer Principal and Executive Manager named in the Final
Article of this Agreement and in reliance upon the representations and
agreements of FAA and Dealer as follows:
(i) FAA will at all times own 100% of the capital stock of Dealer and
Dealer will at all times be maintained as a separate entity.
(ii) The Executive Committee of Dealer is set forth in attached Schedule
"A".
(iii) The officers of Dealer are as set forth in attached Schedule "A".
(iv) FirstAmerica Automotive, Inc., ("FAA") owns 100% of the outstanding
stock of FAA Concord N, Inc. (see Attachment "A" attached).
(b) Changes in Ownership. In view of the fact that this is a personal
--------------------
services agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, this Agreement and the rights and privileges
conferred on Dealer hereunder are not assignable, transferable or salable by FAA
and Dealer, and no property right or interest is or shall be deemed to be sold,
conveyed or transferred to FAA and Dealer under this Agreement. FAA, Dealer, the
Dealer Principal and the Executive Manager agree that any change in the
ownership of Dealer other than specified herein requires the prior written
consent of Seller IF DEALER DESIRES TO REMAIN AN AUTHORIZED NISSAN DEALER and
that without the prior written consent of Seller:
(i) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock or partnership interest of Dealer will be
made and no additional shares of capital stock, partnership interest or
securities convertible into shares of capital stock, of Dealer will be issued or
sold.
(ii) no sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer will be made and no additional
shares of capital stock, partnership interest or securities convertible into
shares of capital stock, of Dealer will be issued or sold.
(iii) Dealer will not be merged with or into, or consolidate with, any
other entity and none of the principal assets necessary for the performance of
Dealer's obligations under this Agreement will be sold, transferred or assigned.
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<PAGE>
(iv) Dealer will not enter into any transaction, including, without
limitation, any sale, pledge, hypothecation or other transfer of any of the
currently outstanding capital stock of Dealer, the issuance or sale of
additional shares of capital stock, partnership interest or securities
convertible into shares of capital stock of Dealer, or the merger of Dealer with
or into, or the consolidation of FAA Concord N, Inc., with any other entity, if
as a result of such transaction, that FAA will cease to own at least 100% of the
capital stock or interest of Dealer.
(v) If any person or entity, after the date of the initial public
offering, acquires more than 20% of FAA's common stock issued and outstanding at
any time and Nissan determines that such person or entity does not have
interests compatible with those of Nissan, or is otherwise not qualified to have
an ownership interest in a Nissan dealership (an "Adverse Person"), FAA, upon
written notification by Nissan, must cause any subsidiaries, owned, or
controlled entities to terminate its dealer agreements with Nissan or transfer
the Nissan dealerships to a third party acceptable to Nissan within 90 days
after such notification, unless, within 90 days after Nissan's determination,
the adverse Person's ownership interest is reduced to less than 20%.
Any transaction involving the capital stock of Concord Nissan, including a
public offering or trade of the shares of FAA, which does not violate
subparagraph (iv) above may be effected without obtaining the prior written
consent of Seller and without triggering a termination event under Section
12.A.(2) of the Standard Provisions.
Dealer shall give Seller prior notice of any proposed change in said
ownership requiring the consent of Seller and immediate notice of the death or
incapacity of any Dealer Principal or Executive Manager. No such change, and no
assignment of this Agreement or of any right or interest herein, shall be
effective against Seller unless and until embodied in an appropriate amendment
to or assignment of this Agreement, as the case may be, duly executed and
delivered by Seller and by Dealer. Seller shall not, however, unreasonably
withhold its consent to any such change, subject to Seller's Rights of First
Refusal set forth in Article Tenth of this Agreement. Seller shall have no
obligation to transact business with any person who is not named either as a
Dealer Principal or Executive Manager of Dealer hereunder, or in the event of
death or incapacity, those persons named as the successors to the Dealer
Principal and/or Executive Manager in the successorship plan hereafter (upon
mutual consent of the parties) or otherwise to give effect to any proposed sale
or transfer of the ownership, partnership interest or management of Dealer and
FAA (other than changes in the ownership of FAA and Dealer which are expressly
permitted by this Article Third) prior to having concluded the evaluation of
such a proposal as provided in Section 15 of the Standard Provisions. Nissan may
conduct routine, day to day business with the person named as the Location
Manager for the location so designated. Dealer acknowledges Seller's right to
require consent to any change in the ownership of Dealer, and agrees that any
change or transfer without such consent from Seller is void, and of no force and
effect, and grounds for termination. FAA and Dealer further agree that they
will not challenge, contest, dispute, or litigate, except as provided in Article
15(c) hereafter:
(i) any action taken by Seller (including, without limitation, termination
of this Agreement) in response to an attempt to transfer ownership of Dealer
(except as provided by this Agreement) without Seller's consent; or
(ii) any decisions by Seller to withhold consent to a proposed change in
ownership of Dealer.
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ARTICLE FOURTH: Management
(a) This Agreement has been entered into by Seller in reliance upon, and
in consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the person named as Dealer Principal in the Final Article of this
Agreement and in reliance on the following representations and agreements of FAA
and Dealer that:
(i) The Executive Manager of Dealer, subject to the provisions of Article
15(f), and Thomas A. Price ("Price") will, subject to any other obligations set
forth in this Agreement, devote their full time efforts to the business and day-
to-day operations of the entity for which they are responsible.
(ii) Location Manager will devote 100% of his time to the affairs of the
relevant Dealership location
(b) Dealer. Seller and Dealer agree that the retention by Dealer of
------
qualified management is of critical importance to the successful operation of
Dealer and to the achievement of the purposes and objectives of this Agreement.
This Agreement has been entered into by Seller in reliance upon, and in
consideration of, among other things, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto of the persons named as Dealer Principal and Executive Manager in the
Final Article of this Agreement and in reliance on the following representations
and agreements of FAA and Dealer, that:
(i) There must be an approved Executive Manager, acceptable to Nissan.
There must be an approved Location Manager employed by Dealer to manage each
Dealership location. As long as Thomas A. Price and the Executive Manager
subject to the provisions of Article 15(f) are employed by FAA and the Location
Manager is employed by Dealer, they will have full and complete control over the
Dealership Operations, subject only to the powers of the Board of Directors of
Dealer to manage the business and affairs of Dealer, and they will at all times
be members of the Board of Directors of Dealer. In addition, any replacements
for Price and Executive Manager will, so long as such replacements are employed
by FAA and Dealer, have full and complete control over the Dealership
Operations, subject only to the powers of the Board of Directors of Dealer to
manage the business and affairs of Dealer, and such replacements will at all
times be members of the Board of Directors of Dealer.
(ii) the Board of Directors of Dealer shall delegate the management of the
Dealership Operations to the Executive Manager identified in Article 15(f), and
FAA will not amend its Certificate of Incorporation or By-laws to provide that
its Board of Directors is entitled to exercise any extraordinary powers or
interfere unduly in the Dealership Operations.
(iii) Location Manager, subject to any other obligations set forth in
this Agreement, shall continually provide his personal services in operating the
dealership and will be physically present at the Dealership Facilities on a
full-time basis.
(c) Changes in Management. In view of the fact that this is a personal
---------------------
services Agreement with the Dealer Principal and Executive Manager and in view
of its objectives and purposes, Dealer and FAA agree that any change in the
Dealer Principal from that specified in the Final Article of this Agreement
requires the prior written consent of Seller. Any change to the Executive
Manager requires notice to Seller and timely replacement with an Executive
5
<PAGE>
Manager acceptable to Seller. In addition, FAA and Dealer agree that no chief
executive officer, or person performing services and having responsibilities
similar to a chief executive officer, of FAA will be appointed, directly or
indirectly, without the prior written consent of Seller. Dealer shall give
Seller prior notice of any proposed change in Dealer Principal or Executive
Manager or the appointment of any chief executive or similar officer of FAA and
immediate notice of the death or incapacity of any Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager and no appointment
of a chief executive or similar officer of FAA shall be effective unless and
until embodied in an appropriate amendment to this Agreement duly executed and
delivered by all of the parties hereto. Subject to the foregoing, Dealer and FAA
shall make their own, independent decisions concerning the hiring and firing of
its employees, including, without limitation, the Dealer Principal and Executive
Manager.
Dealer shall give Seller prior written notice of any proposed change
in Dealer Principal, timely notice of any change to Executive Manger, and
immediate notice of the death or incapacity of Dealer Principal or Executive
Manager. No change in Dealer Principal or Executive Manager shall be effective
unless and until embodied in an appropriate amendment to this Agreement duly
executed and delivered by all of the parties hereto. Dealer acknowledges
Seller's right (as set forth herein and in the Standard Provisions) to require
consent to any change in the management of Dealer, and FAA and Dealer agree that
a change to the Dealer Principal or substitution of the Executive Manager,
without such consent from Seller is without effect upon Seller, of no force and
effect, and grounds for termination. FAA and Dealer further agree that they will
not challenge, contest, dispute, or litigate, except as provided by Article
Fifteenth (c):
(i) any action taken by Seller (including, without limitation,
termination of this Agreement) in response to an attempt to change the
management of Dealer without Seller's consent; or
(ii) any decision by Seller to withhold consent to a proposed change in
management of Dealer; or
(iii) any decision by Seller to withhold approval of a proposed management
candidate.
To enable Seller to evaluate and respond to Dealer concerning any
proposed change in Dealer Principal or Executive Manager or the appointment of
any chief executive or similar officer of FAA agrees to provide, in the form
requested by Seller and in a timely manner, all applications and information
customarily requested by Seller to evaluate the proposed change. While Seller
shall not unreasonably withhold its consent to any such change, it is agreed
that any successor Dealer Principal, Executive Manager or Location Manager or
similar officer of FAA must possess personal qualifications, expertise,
reputation, integrity, experience and ability which are, in the opinion of
Seller, satisfactory. Seller will determine whether, in its opinion, the
proposed change or appointment is likely to result in a successful dealership
operation with capable management that will satisfactorily perform Dealer's
obligations under this Agreement. Seller shall have no obligation to transact
business with any person who is not named as a Dealer Principal or Executive
Manager of Dealer hereunder prior to having concluded its evaluation of such
person. Upon FAA's request, Seller may, but has no obligation to, transact
business with an individual proposed by Dealer and acceptable to Seller during a
prolonged incapacity or unavailability of Dealer Principal and Executive
Manager.
Any successor Dealer Principal or Executive Manager or similar
officer of FAA must meet the following minimum requirements in order to be
submitted to Seller for approval:
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(i) At least three years of experience as a general manager of an
automobile dealer in a major metropolitan area or similar position involving all
aspects of the day-to-day operations of such an automobile dealership
(including, without limitation, new and used vehicle sales, service, parts and
administration); and
(ii) A demonstrated track record of success in his/her prior automobile
dealership activities as measured by the dealerships' performance under his/her
management. The dealership(s) shall have consistently demonstrated at least the
following:
1. An above average level of sales performance when measured
against regional or zone averages and as measured against sales performance
objectives established by the manufacturer; and
2. An above average level of customer satisfaction when measured
against regional or zone averages for the make; and
3. A history of cooperation and good relations with
manufacturer(s) and/or distributor(s).
(d) Evaluation of Management. Dealer and Seller understand and acknowledge
------------------------
that the personal qualifications, expertise, reputation, integrity, experience
and ability of the Dealer Principal and Executive Manager and their ability to
effectively manage Dealer's day-to-day Dealership Operations is critical to the
success of Dealer in performing its obligations under this Agreement. Seller may
from time to time develop standards and/or procedures for evaluating the
performance of the Dealer Principal and Executive Manager and of Dealer's
personnel generally. Seller may, from time to time, evaluate the performance of
the Dealer Principal and Executive Manager and will advise Dealer, the Dealer
Principal and the Executive Manager of the results of such evaluations and the
way in which any deficiencies affect Dealer's performance of its obligations
under this Agreement.
(e) Compensation of Executive Manager. Executive Manager will have his
---------------------------------
compensation tied to Dealer's overall performance with respect to objectives for
sales, market penetration and customer service.
ARTICLE FIFTH: Additional Provisions
The additional provisions set forth in the attached "Nissan Dealer Sales
and Service Agreement Standard Provisions," bearing form number NDA-4S/9-88, as
amended in Article Thirteenth of this Agreement, and excepting only the
provisions contained in Sections 4, 14 and 16, are hereby incorporated in and
made a part of this Agreement. The Notice of Primary Market Area, Dealership
Facilities Addendum, Product Addendum, Dealership Identification Addendum,
Holding Company Addendum, if applicable, and all Guides and Standards referred
to in this Agreement (including references contained in the Standard Provisions
referred to above) are hereby incorporated in and made a part of this Agreement.
Dealer further agrees to be bound by and comply with: the Warranty Manual;
Seller's Manuals or Instructions heretofore or hereafter issued by Seller to
Dealer; any amendment, revision or supplement to any of the foregoing; and any
other manuals heretofore or hereafter issued by Seller to Dealer.
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ARTICLE SIXTH: Termination of Prior Agreements
This Agreement cancels, supersedes and annuls all prior contracts,
agreements and understandings except as stated herein, all negotiations,
representations and understandings being merged herein. No waiver, modification
or change of any of the terms of this Agreement or change or erasure of any
printed part of this Agreement or addition to it (except filling of blank spaces
and lines) will be valid or binding on Seller unless approved in writing by the
President or an authorized Vice President of Seller.
ARTICLE SEVENTH: Term
This Agreement shall have a term commencing on the effective date hereof
and, subject to its earlier termination in accordance with the provisions of
this Agreement, expiring on the expiration date indicated in the Final Article
of this Agreement. Subject to other applicable provisions hereof this Agreement
shall automatically terminate at the end of such stipulated term without any
action by Dealer, Seller or any of the other parties hereto. If this Agreement
is not terminated prior to the expiration date set forth in the Final Article,
and if dealer is in substantial compliance with all provisions of this
Agreement, Seller will offer to enter into a new Agreement with Dealer in
substantially the same form as this Agreement.
ARTICLE EIGHTH: License of Dealer
If Dealer is required to secure or maintain a license for the conduct of
its business as contemplated by this Agreement in any state or jurisdiction
where any of its Dealership Operations are to be conducted or any of its
Dealership Facilities are located, this Agreement shall not be valid until and
unless Dealer shall have furnished Seller with written notice specifying the
date and number, if any, of such license or licenses issued to Dealer, Dealer
shall notify Seller immediately in writing if Dealer shall fail to secure or
maintain any and all such licenses or renewal thereof or, if such license or
licenses are suspended or revoked, specifying the effective date of any such
suspension or revocation.
ARTICLE NINTH: Additional Representations and Warranties
(a) All of the representations and covenants made to Seller by the other
parties to this Agreement have been made jointly and severally by each of the
parties hereto which has made any such representation or covenant.
(b) In addition to the representations set forth elsewhere in this
Agreement, FAA and Dealer jointly and severally, represent to Seller that:
(i) All of the documents and correspondence provided to Seller by FAA and
Dealer, or any of their agents in connection with the solicitation of Seller's
consent to this Agreement, are true and correct copies of such documents.
(c) In addition to the covenants set forth elsewhere in this Agreement,
FAA and Dealer, jointly and severally, agree with Seller that:
(i) Dealer will at all times be involved in the operation of the Nissan
dealership currently operated by it and Dealer will not conduct any other type
of business.
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(ii) No distributions will be made to the stockholders or partners of
Dealer and FAA if such distributions would cause Dealer to fail to meet any of
the Guides and Standards relating to the capitalization of Dealer. In
particular, FAA will not be permitted to voluntarily redeem any of its preferred
stock, if prior to and after giving effect to such redemption Dealer fails to
meet any of the Guides and Standards relating to capitalization of Dealer.
(iii) FAA and Dealer hereby, jointly and severally, indemnify and hold
harmless, Seller, its officers, directors, affiliates and agents, and each
person who controls Seller within the meaning of the Securities Act of 1933, as
amended (the "Act"), from and against any and all losses, claims, damages or
liabilities, to which they or any of them may become subject under the Act, the
Securities Exchange Act of 1934, as amended, or any other federal or state
securities law, rule or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of the sale by FAA or Dealer of
any securities. The indemnification provided for in this paragraph shall be
exclusive of, and in addition to, any indemnification pursuant to Section 10 of
the Standard Provisions.
(iv) One of the conditions to the effectiveness of this Agreement by
Seller is the delivery of an opinion of counsel to all of the parties hereto
(other than Seller) to the effect that this Agreement has been duly executed and
delivered by each of the parties thereto (other than Seller) and is the legal,
valid and binding obligation of each of such parties enforceable in accordance
with its terms.
ARTICLE TENTH: Right of First Refusal, Option to Purchase, Exclusivity
A. Seller's Right of First Refusal and Option to Purchase
In addition to its rights under this Agreement. in the event that FAA or
Dealer should desire to enter into a transaction which requires Seller's
consent, and without such consent would result in a breach of the covenants set
forth in Article Third, Sections (a)(i); (a)(ii); (a)(iii); (a)(iv); or (b) of
this Agreement or in the event that any of the covenants set forth in Article
Third, Section (b); Article Fourth, Section (a)(vii); or Article Ninth, Section
(c)(ii) of this Agreement are breached, Seller shall have the additional right
and option to purchase the dealership assets or ownership interests under this
Right of First Refusal or Option to Purchase pursuant to this Article Tenth.
(a) If Seller chooses to exercise its Right of First Refusal or Option to
Purchase, it must do so in its written refusal to consent to the proposed sale
or transfer pursuant to Section 15 of the Standard Provisions or, if Section 15
of the Standard Provisions does not apply, within sixty (60) days of receipt of
notification that a event triggering Seller's right of first refusal hereunder
has occurred. FAA and Dealer agree not to complete any proposed change or sale
prior to the expiration of the period for exercise of Seller's right of first
refusal and without Seller's prior written consent. Such exercise shall be null
and void if FAA and/or Dealer withdraws its proposal within thirty (30) days
following Dealer's receipt of Seller's notice exercising its rights of first
refusal. If Seller elects to exercise its Option to Purchase, it must so notify
FAA and Dealer in writing, specifying the nature of the breach upon which it is
relying, and, if practicable, providing FAA and Dealer with a reasonable
opportunity to cure the breach. If FAA or Dealer is not able to cure the breach
relied upon in the notice, or does not cure that breach, then FAA and Dealer may
attempt to sell or otherwise transfer the relevant Dealer Assets to an entity
acceptable to Seller within 60 days. If Seller reasonably does not approve such
a
9
<PAGE>
transfer, or if Dealer and FAA are unable to complete such a transaction, Seller
may request an additional 30 days for this purpose. If, at the end of this
period Seller reasonably does not approve a transfer, or, if Seller reasonably
does not approve the extension, then Seller may execute this Option to Purchase.
(b) After being exercised, Seller's right to purchase may be assigned to
any party, and Seller hereby agrees to guarantee the full payment of the
purchase price by such assignee. Seller's rights under this Article Tenth shall
be binding on and enforceable against any assignee or successor in interest of
Dealer or purchaser of Dealer's assets. Seller shall have no obligation to
exercise its rights hereunder.
(c) If Dealer has entered into a bona fide written buy/sell agreement
respecting its Nissan dealership, Seller's right under this Article Tenth shall
be a right of first refusal, enabling Seller to assume the prospective
purchaser's purchase rights and obligations under such buy/sell agreement. The
purchase price and other terms of sale shall be those set forth in such
agreement and any related documents. Seller may request and Dealer agrees to
provide all other documents relating to Dealer and the proposed transfer,
including, but not limited to, those reflecting any other agreements or
understandings between the parties to the buy/sell agreement. If Dealer refuses
either to provide such documentation or to state in writing that no such
document exists, it shall be presumed that the agreement is not bona fide.
(d) If Seller determines pursuant to paragraph (c) above that the buy/sell
agreement is not bona fide, Seller will so notify Dealer. Dealer shall have
twenty (20) days from its receipt of such notice within which to withdraw its
proposal. Seller's exercise of its rights hereunder shall be null and void if
Dealer withdraws its proposal within such time period. If the proposal is not
withdrawn, Seller shall have the option, but no obligation, under this Article
Tenth to purchase the principal assets of Dealer utilized in the Dealership
Operations, including real estate and leasehold interest or to purchase the
ownership interests of Dealer, and to terminate this Agreement and all rights
granted Dealer hereunder. If the Dealership Facilities are leased by Dealer from
an affiliated company, the right to purchase the principal assets, or the
ownership interests, of Dealer, shall include the right to lease the Dealership
Facilities. The purchase price shall be at the then fair market value as
determined by an independent appraiser selected by Seller and reasonably
acceptable to FAA and Dealer, and the other terms of sale shall be those agreed
by Seller, Dealer and FAA
(e) Dealer shall transfer the affected property free and clear of liens,
claims, mortgages, and encumbrances.
(f) In addition to any other rights Seller may have at law, in equity or
hereunder, any conveyance of the dealership in violation of this right of first
refusal shall be voidable by Seller.
(g) In the event that Seller elects not to exercise its right of first
refusal to purchase the dealership assets or the ownership interests of the
Dealer; FAA and FAA Concord N, Inc., agree that they will offer to sell such
assets or interests to an entity or persons acceptable to Seller. If such
individuals are not interested in such a transaction and no other entity or
individuals acceptable to Seller can be found, then, at Seller's option, Seller
may approve a buyer proposed by FAA, may waive the linkage requirements between
dealerships, if any, or may propose a buyer to assume a bona fide offer procured
by Dealer.
B. Right of First Refusal on Sale or Lease of Property to a Third Party.
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a) In addition to its rights under Articles Third and Fourth and
Section 15 of the Standard Provisions, Dealer agrees that should Dealer seek to
sell or lease all or substantially all of the Approved Site to a third party for
use as a Nissan New Motor Vehicle Dealership, Seller shall have the additional
right and option, but not the obligation, to purchase or lease the Approved Site
pursuant to this Article Thirteenth. A sale or lease for use other than a Nissan
New Motor Vehicle Dealership, without Seller's consent, is void.
b) If Seller chooses to exercise its right of first refusal, it must
do so by written notice delivered to Dealer within 60 days of Seller's receipt
of notice of the proposed sale or lease by Dealer. Dealer agrees not to
complete any proposed sale or lease prior to the expiration of the period for
exercise of Seller's right of first refusal and without Seller's prior written
consent, and agrees to allow Seller to perform an environmental study of the
property. Such exercise shall be null and void if Dealer withdraws its sale or
lease proposal within thirty (30) days following Dealer's receipt of Seller's
notice exercising its right of first refusal.
c) After being exercised, Seller's right to purchase or lease may be
assigned to any party, and Seller hereby agrees to guarantee the full payment of
the purchase price or the rental payment by such assignee. Seller's rights under
this Article Thirteenth shall be binding on and enforceable against any assignee
or successor in interest of Dealer or purchaser of Dealer's assets. Seller shall
have no obligation to exercise its rights hereunder, and Seller may rescind its
offer if the property is determined to be contaminated pursuant to an
environmental study. Such contamination shall be deemed a breach of this
agreement by dealer.
d) Should Seller actually purchase or lease the facility, Dealer
shall also furnish to Seller copies of any easements, licenses, environmental
studies or other documents affecting the property.
e) Dealer shall transfer the affected property by deed conveying
marketable title free and clear of liens, claims, mortgages, encumbrances,
tenancies and occupancies, or, if applicable, by an assignment of any existing
lease. The Warranty Deed shall be in proper form for recording. Dealer shall
deliver complete possession of the property at the time of delivery of the Deed
or lease assignment. Dealer shall also furnish to Seller copies of any
easements, licenses, or other documents affecting the property and shall assign
any permits or licenses which are necessary for the conduct of the Dealership
Operations.
f) In addition to any other rights Seller may have at law, in equity
or hereunder, any sale or lease of the Approved Site in violation of this right
of first refusal shall be voidable by Seller
C. Exclusivity Provisions.
In order for Dealer to maintain competitive Dealership Facilities to
effectively market Nissan Products, Dealer hereby agrees to abide by and never
challenge, except as provided in Article Fifteenth (c), the following provisions
(hereinafter "Exclusivity Provisions"). These Exclusivity Provisions shall be
effective on or before the execution of the Agreement, and continue in effect
thereafter so long as Dealer (or its principals) are authorized Nissan dealers
and these provisions shall be binding on any successors-in-interest, assignors
or purchasers of Dealer:
a) The only line-make of new, unused motor vehicles which Dealer
shall display and sell at the Dealership Facilities shall be the Nissan line and
make of motor vehicles.
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Dealer shall not conduct any dealership operations for any other make or line of
new, unused vehicles from the Dealership Facilities throughout the term of this
Agreement.
b) Dealer shall sell and maintain a full line of Genuine Nissan
Parts and Accessories at the Dealership Facilities and shall provide a full
range of automotive servicing for Nissan vehicles at the Dealership Facilities
pursuant to Section 5 of the Standard Provisions to the Agreement. Nothing
contained herein, however, shall preclude Dealer from offering parts,
accessories or servicing for vehicles of other lines or makes so long as such
products or services are incidental to Dealer's Nissan Dealership Operations;
c) Dealer shall not advertise or promote any make or line of new,
unused vehicles from the Dealership Facilities other than the Nissan line; and
d) Dealer shall not install or maintain any sign at or near the
Dealership Facilities which would tend to lead the public into believing that
any line or make of vehicles other than the Nissan line is sold at the
Dealership Facilities.
ARTICLE ELEVENTH: Breach By Dealer
In the event (i) that any of the material representations and warranties of
Dealer, FAA, Thomas A. Price or Executive Manager, contained in this Agreement
shall prove not to have been true and correct when made or (ii) of any breach or
violation of any of the covenants made by Dealer and FAA, Thomas A. Price or
Executive Manager, in Articles Third, Fourth and Ninth of this Agreement or
(iii) of the occurrence of any of the events warranting termination of this
Agreement as set forth in Section 12.A of the Standard Provisions, Seller may
terminate this Agreement, prior to the expiration date hereof by giving Dealer
written notice thereof, specifying the nature of the breach; Dealer shall have
an opportunity to cure the breach within 45 days; at the expiration of this 45
day cure period, if the breach has not been satisfactorily cured, Seller may
terminate this Agreement by giving written notice to Dealer, such termination to
be effective upon the date specified in such notice, or such latter date as may
be required by any applicable statute with the effect set forth in Section 13 of
the Standard Provisions.
ARTICLE TWELFTH: Execution of Agreement
This Agreement, and any Addendum or amendment or notice with respect
thereto, shall be valid and binding on Seller only when it bears the signature
of either the President or an authorized Vice President of Seller and, when such
signature is a facsimile, the manual countersignature of an authorized employee
of Seller at the Director level and a duplicate original thereof is delivered
personally or by mail to the Dealership Location. This Agreement shall bind
Dealer and the other parties hereto only when it is signed by: a duly authorized
officer or executive of Dealer or such party if a corporation; one of the
general partners of Dealer or such party if a partnership; or Dealer or such
party if an individual.
ARTICLE THIRTEENTH: Amendments to Standard Provisions
(a) Section 1.0 of the Standard Provisions is hereby amended to read as
follows:
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"O. Principal Owners(s)' shall mean the persons named as Dealer Principal
in the Final Article of this Agreement upon whose personal qualifications,
expertise, integrity, experience, ability and representations Seller has relied
in entering into this Agreement."
(b) Section 6.I of the Standard Provisions is hereby amended to read as
follows:
"Seller shall have the right, at all reasonable times during regular
business hours, to inspect the Dealership Facilities and to examine, audit and
make and take copies of all records, accounts and supporting data relating to
the sale, sales reporting, service and repair of Nissan Products by Dealer.
Whenever possible, Seller shall attempt to provide Dealer with advance notice of
an audit or examination of Dealer's operations. Seller shall also have the
right, at all reasonable times during regular business hours and upon advance
notice, to examine, audit and make and take copies of all records, accounts and
supporting data of FAA and Dealer relating to the business, ownership or
operations of Dealer."
(c) Section 12.A.(l) of the Standard Provisions is hereby amended to read
as follows:
"(1) Any actual or attempted sale, transfer, assignment or delegation,
whether by operation of law or otherwise, by Dealer or FAA of any interest in or
right, privilege or obligation under this Agreement, or of the principal assets
necessary for the performance of Dealer's responsibilities under this Agreement,
without, in either case, the prior written consent of Seller having been
obtained, which consent shall not be unreasonably withheld;"
(d) Section 12.A.(3) of the Standard Provisions is hereby amended to read
as follows:
"(3) Removal, resignation, withdrawal or elimination from Dealer for any
reason of the Executive Manager, or removal, resignation, withdrawal or
elimination from Dealer of Thomas A. Price as President, or removal,
resignation, withdrawal or elimination from Dealer of Steven S. Hallock as
Executive Manager; provided, however, in each case, Seller shall give Dealer a
reasonable period of time within which to replace such person with a individual
satisfactory to Dealer as the case may be, and Seller in accordance with Article
Fourth of this Agreement; or the failure of Dealer to retain an Executive
Manager who, in accordance with Article Fourth of this Agreement, in Seller's
reasonable opinion, is competent, possesses the requisite qualifications for the
position, and who will act in a manner consistent with the continued interests
of both Seller and Dealer."
(e) Section 12.B.(2)(i) of the Standard Provisions is hereby amended to
read as follows:
"(i) any dispute, disagreement or controversy between or among Dealer and
any third party or between the owners and management personnel of Dealer
relating to the management or ownership of Dealer develops or exists which, in
the reasonable judgment of Seller, tends to adversely affect the conduct of the
Dealership Operations or the interests of Dealer or Seller; or"
(f) Section 12.B.(2)(ii) of the Standard Provisions is hereby amended to
read as follows:
"(ii) any other act or activity of Dealer and/or FAA, or any of their
principal owners (ownership in excess of 20%) or senior management occurs, which
substantially impairs the reputation or financial standing of Dealer or its
executive management subsequent to the execution of this Agreement:"
(g) Exhibits A and B are hereby incorporated by reference.
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ARTICLE FOURTEENTH: Branding/Business Name
The parties acknowledge and agree that Dealer shall do business as Concord
Nissan. Dealer agrees to include in its promotional, marketing and advertising
efforts the approved name of the Dealership or another name approved by Nissan
that includes the Nissan name. In all television, radio, print and other
advertising and marketing conducted by dealer, Dealer shall refer to itself as
"Concord Nissan" or such other approved name. Dealer shall actively and
effectively promote primarily the "Nissan" name. Under no circumstances shall
the name "Nissan" be subordinated to or promoted less aggressively than any
other name (eg. "FAA") by Dealer.
ARTICLE FIFTEENTH: Special Conditions
(a) Adequate Representation of Entire Line of Nissan Vehicles
Dealer shall actively and effectively promote the sale of Nissan's entire line
of vehicles and products to customers located throughout the Primary Market
Area. In evaluating Dealer's sales performance, in addition to those factors
established in the Standard Provisions, Nissan will evaluate Dealer's
performance by vehicle segment. Dealer is obligated to adequately represent
Nissan in each and every model line. Adequate representation is the higher of
national, regional, state or DMA average, adjusted for segment popularity, as
set forth in the Business plan.
(b) Nissan Products
The definition of "Nissan Products" in the Standard Provisions is amended to
mean Nissan Vehicles (defined as Nissan Cars and Nissan Trucks as well as "near-
new" Nissan Vehicles of the current and three prior model years), Genuine Parts
and Accessories, Nissan Security+Plus and such other products and services
offered by Nissan to Dealer and designated by Nissan as a Nissan Product. Dealer
shall actively and effectively promote the sale of Nissan Products.
Effectiveness with respect to Nissan Security+Plus sales is measured by the
ratio of Security+Plus sales to new vehicles sales, compared to the higher of
national, regional, state or DMA average as set forth in the Business plan or as
otherwise set forth in the Business Plan.
(c) Dispute Resolution Process
The parties acknowledge that, at the state and federal level, various
courts and agencies would, in the absence of this Article Fifteenth (d), be
available to them to resolve claims or controversies which might arise between
them. The parties agree that it is inconsistent with their relationship for
either to use courts or governmental agencies to resolve such claims or
controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. SEC. 1 ET SEQ.), THE PARTIES TO THIS AGREEMENT AGREE
THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS SECTION, WHICH INCLUDES
BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING ANY DISPUTE,
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR
TO
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THE RELATIONSHIP BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER
ANY STATE OR FEDERAL STATUTES (HEREINAFTER "DISPUTES"). Section 16 of the
Standard Provisions is deleted in its entirety.
There are two steps in the Dispute Resolution Process: Mediation and Binding
Arbitration. All Disputes must first be submitted to Mediation, unless that step
is waived by written agreement of the parties. Mediation is conducted by a panel
consisting of an equal number of representatives of the parties designated by
Nissan and selected by Dealer. The Mediation Panel will evaluate each position
and recommend a solution. This recommended solution is not binding.
If a dispute has not been resolved after Mediation, or if Dealer and Nissan have
agreed in writing to waive Mediation, the Dispute will be settled by Binding
Arbitration. SPECIFICALLY, THE PARTIES AGREE TO RESOLVE ALL SUCH DISPUTES BY
BINDING ARBITRATION CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL
ARBITRATION PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION, WITH THE
PREVAILING PARTY TO RECOVER ITS COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY.
ALL ARBITRATION AWARDS ARE BINDING AND NON-APPEALABLE, EXCEPT AS OTHERWISE
PROVIDED IN THE UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY
BE ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION.
(d) Business Plan
Dealer and Nissan shall execute a Business Plan in the form specified in
the Business Planning Process Workbook that describes how Dealer will fulfill it
sales, service, customer relations and other commitments hereunder, including
heightened performance standards that Dealer commits to meet;
(e) Option to Purchase
If the Dealer Agreement is to expire or be terminated: i) Voluntarily by
Dealer; ii) By Nissan upon the occurrence of any of the events specified in
Section 12A. of the Standard Provisions to the Agreement (as modified herein);
or iii) As a result of the death or physical or mental incapacity of Principal
Owners, without a qualified successor under the successorship plan required in
the Business Plan under Section 6 of the Contiguous Market Ownership Addendum,
without a timely replacement, reasonably acceptable to Seller, Nissan has the
option to Purchase the principal assets of Dealer utilized in the dealership
business, including such real property as Nissan may elect to purchase, and
cancel the Agreement and all rights granted Dealer thereunder. The purchase
price of the dealership assets and real property and other terms will be
determined by agreement between the parties or, if the parties are unable to
reach agreement in a reasonable time, by arbitration pursuant to the Dispute
Resolution Process established in Paragraph 12 hereof. Nissan must advise Dealer
of its intent to exercise this option within 30 days after one party notifies
the other of its intent to terminate the Agreement. Nissan may assign its right
to exercise its option to purchase under this paragraph to any third party.
(f) Executive Manager Evaluation
Dealer shall retain a qualified Executive Manager meeting Seller's approval
to be named under the Final Article of this Agreement.
Dealer has proposed Steven S. Hallock as Executive Manager.
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FINAL ARTICLE
-------------
The Dealer is FAA Concord N, Inc., a corporation formed under the laws of the
California. Dealer is located in Concord, CA.
Other parties relevant to this Agreement are FirstAmerica Automotive, Inc., a
corporation incorporated under the laws of the Nevada, and Thomas A. Price.
The Dealer Principal is Thomas A. Price.
The Executive Manager is Steven S. Hallock.
Expiration Date: 6/30/2002
----------------
Working Capital Guide Requirement: $ 504,800
Net Worth Guide Requirement: $ 769,600
Flooring Line: $ 2,086,356
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
triplicate effective as of the 30th day of June, 1997 at Carson, California.
SELLER:
NISSAN DIVISION
NISSAN MOTOR DIVISION CORPORATION IN USA
By: /s/ Thomas H. Eastwood By: /s/ Jules Clavadetscher
----------------------------- ------------------------------
Thomas H. Eastwood Jules Clavadetscher
Vice President Regional Vice President
FAA Concord N, Inc.
By: /s/ Thomas A Price
-----------------------------
Thomas A. Price
Its: President
ACKNOWLEDGED:
FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Thomas A. Price
-----------------------------
Thomas A. Price
Its: President and CEO
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EXHIBIT 10.3.22
NISSAN CONTIGUOUS MARKET OWNERSHIP
----------------------------------
AREAS FORMATION AND LINKAGE AGREEMENT
-------------------------------------
This Nissan Contiguous Market Ownership Areas Formation and Linkage Agreement
(the "CMO Formation and Linkage Agreement") is entered into this 30th day of
JUNE, 1997, by and among Nissan Motor Corporation in U.S.A. ("Nissan"), and
FirstAmerica Automotive, Inc., ("FAA") concerning the commitments and
obligations of FAA and Nissan in respect to the acquisition and formation of
Contiguous Market Ownership Areas ("CMO") in the San Francisco Bay Area,
specifically, the "Peninsula CMO", the "South Bay CMO", the "East Bay CMO" and
the "East Shore CMO".
RECITALS
--------
WHEREAS, Nissan has developed a distribution network plan that seeks to create
CMOs in the San Francisco Bay Area (the Peninsula CMO, South Bay CMO, East Bay
CMO, and East Shore CMO);
WHEREAS, Nissan recognizes this new distribution plan is to be implemented over
time with consideration of existing dealers' rights;
WHEREAS, FAA has approached Nissan with a request to acquire and develop these
CMOs;
WHEREAS, Nissan has advised FAA that Nissan would approve their acquisition of
individual dealers within the CMOs, provided FAA satisfies Nissan's requirements
for applicants; and Nissan has advised FAA that Nissan cannot make existing
dealers sell or otherwise transfer their dealerships to FAA;
WHEREAS, FAA acknowledges the rights of existing dealers, yet commits to use its
best good faith and reasonable efforts to acquire dealerships within the CMOs,
with an intent to form the complete San Francisco Bay Area CMO marketing
territories;
WHEREAS, FAA acknowledges that Nissan's business concept for the CMO envisioned
entering into one Nissan Dealer Sales and Service Agreement with one entity for
each CMO;
WHEREAS, FAA, desires affirm its commitment to implement Nissan's CMO concept in
each CMO;
WHEREAS, FAA will have dealer subsidiaries in operation in one or more of the
Bay Area CMOs, and FAA has committed to, and intends to continue to acquire
Nissan Dealers to complete the formation and operation of all San Francisco Bay
Area CMOs;
WHEREAS, Nissan and FAA have negotiated agreements to allow FAA's operation of
Bay Area CMOs, specifically, any CMO Holding Company Agreements, the Nissan
Dealer Term Sales and Service Agreements for each individual dealer entity, if
appropriate, and the relevant Nissan CMO Agreements for Bay Area CMOs;
WHEREAS, FAA and Nissan mutually agree and acknowledge that Nissan has placed
extraordinary trust in the qualifications, integrity, and ability of FAA and
Thomas A. Price; the
<PAGE>
parties mutually acknowledge that Nissan's agreement and intent to approve FAA
and Price as Contiguous Multiple CMO Operators ("CMCMO") is unique to FAA and
Price based upon Nissan's experience, relationship, and the commitments between
the parties; and, accordingly, that a prospective transferee of one or more of
the CMOs must have the same high qualifications, and, further, that even a
qualified CMO operator may not have the extraordinary qualifications necessary
to be approved as a CMCMO.
WHEREAS, FAA and Nissan desire to treat the San Francisco Bay Area CMOs as part
and parcel of a single market;
NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. THE CMO FORMATION AND LINKAGE AGREEMENT
---------------------------------------
FAA acknowledges that the San Francisco Bay Area market is a single
metropolitan market area which has been divided by Nissan into four CMOs
(Peninsula, South Bay, East Bay, and East Shore CMOs) for promotion and
marketing purposes. FAA agrees to use its best efforts to acquire all
Nissan dealership operations within the four CMO areas. Nissan and FAA
acknowledge that this will be a process that must occur over time, and that
Nissan cannot take any action adverse to current dealers in order to, or in
an effort to, require them to sell or transfer their dealerships to FAA.
Should FAA be successful in acquiring Nissan dealerships within the four
CMOs in the San Francisco Bay Area, Nissan agrees to approve that
acquisition, provided that FAA continues to possess the generally applied
qualifications necessary to become an Authorized Nissan Dealer.
Nissan and FAA acknowledge that each CMO, though a part of the San
Francisco Bay Market Area, has been designed to be sufficient to achieve
the benefits of a CMO as an independent entity. Nevertheless, as a
practical matter, and consistent with its intent as originally
communicated, Nissan intends, and FAA agrees, that Nissan will treat these
wholly-owned subsidiary dealer corporations, and their related Nissan
Dealer Term Sales and Service Agreements, the Nissan Contiguous Market
Ownership Agreements, and any relevant Nissan CMO Holding Company
Agreement, as part and parcel of the single marketing entity in the San
Francisco Bay Area market. Consistent with the CMO concept reflected in the
CMO Agreements for the constituent CMOs, FAA agrees that it will exercise
its control and ownership of each CMO in ways consistent with this
agreement and will not take any actions or allow its subsidiaries in the
San Francisco Bay Area CMOs to take any action inconsistent with the intent
of this Agreement.
2. CMO FORMATION AND LINKAGE AGREEMENT TERM
----------------------------------------
This Agreement shall be in effect while FAA, or any subsidiary dealer
entity, is operating as an Authorized Nissan Dealer within a CMO in the San
Francisco Bay Area, unless amended
<PAGE>
by the parties. Termination of all Nissan dealer activities owned or controlled
by FAA will constitute termination this CMO Formation and Linkage Agreement with
no further notice or act required by any party.
3. TRANSFERS
---------
In view of Nissan's distribution plan and the efforts and
resources that Nissan has expended in order to establish the San
Francisco Bay Area CMOs, if FAA proposes or attempts to sell or
otherwise transfer of any one of the four San Francisco Bay Area
CMOs, or those dealership assets necessary for the conduct of
appropriate and effective CMO Operations, without Nissan's
consent, Nissan in its reasonable discretion, may require that
FAA, or any subsidiary entity, sell, transfer or terminate, one,
all, or any combination thereof, of the CMOs in the San Francisco
Bay Area, to a proposed buyer acceptable to Nissan.
Further, Nissan reserves the right, that, should FAA desire to
transfer two or more of the San Francisco Bay Area CMOs, then
Nissan, in its sole discretion, may require FAA to transfer to an
entity possessing the same, unusually high qualifications. Should
Nissan, in its sole discretion, not consent to a transfer of two
or more of the San Francisco Bay Area CMOs to a single entity,
then Nissan may require FAA to transfer these CMOs, if at all, to
separate CMO operators, acceptable to Nissan.
FAA acknowledges and agrees to identical Rights of First Refusal
in the CMO interests that each individual dealer or dealer entity
(on specific Dealership Assets and Dealership Facilities) as are
contained the Dealer Agreements, as well as any Right of First
Refusal contained in the individual CMO Agreements, as well as
identical Option to Purchase provisions.
4. DISPUTE RESOLUTION PROCESS
--------------------------
A. EXCLUSIVE REMEDY
----------------
The parties acknowledge that, at the state and federal levels,
various courts and agencies would, in the absence of this
Paragraph 4, be available to them to resolve claims or
controversies which might arise between them. The parties agree
that it is inconsistent with their relationship for either to use
courts or governmental agencies to resolve such claims or
controversies.
THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
ARBITRATION ACT (9 U.S.C. (S)(S) I et seq.), NISSAN, FAA, IN ITS
OWN RIGHT AND AS THE OWNER OF THE PENINSULA CMO DEALER(s)
(CURRENTLY INCLUDING MARIN NISSAN AND SERRAMONTE NISSAN), THE
EAST BAY CMO DEALERS (s) (CURRENTLY INCLUDING CONCORD NISSAN AND
DUBLIN NISSAN) THE SOUTH BAY CMO DEALER(s) (CURRENTLY STEVENS
CREEK) AND THE EAST SHORE CMO (CURRENTLY NO FAA DEALERS WITHIN
THIS CMO), AGREE THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN
THIS PARAGRAPH 4, WHICH INCLUDES BINDING ARBITRATION, SHALL BE
THE EXCLUSIVE
<PAGE>
MECHANISM FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT
OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP
BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY
STATE OR FEDERAL STATUTES (hereinafter "Disputes").
There are two steps in the Dispute Resolution Process: a) Mediation
and b) Binding Arbitration. All Disputes must first be submitted to
Mediation, unless that step is waived by written agreement of the
parties. If Mediation does not resolve the Dispute to their mutual
satisfaction, FAA or Nissan can submit the Dispute to Binding
Arbitration.
B. MEDIATION
---------
Any party to this Agreement can submit a Dispute to Mediation.
Mediation is conducted by a panel consisting of a Nissan
representative designated by Nissan, a FAA representative designated
by FAA, and an independent professional mediator chosen by the
parties' representatives. The Mediation Panel will evaluate each
position and recommend a solution. This recommended solution is not
binding.
C. BINDING ARBITRATION
-------------------
If a Dispute has not been resolved after Mediation, or if FAA and
Nissan have agreed in writing to waive Mediation, the Dispute will be
settled by Binding Arbitration in accordance with the procedures in
the Commercial Arbitration Procedures of the American Arbitration
Association, with the prevailing party to recover its costs and
attorneys fees from the other party. All awards of the arbitration are
binding and non-appealable except as otherwise provided in the United
States Arbitration Act. Judgment upon any award rendered by the
arbitrator(s) may be entered and enforced in any court having
jurisdiction.
FirstAmerica Automotive, Inc. NISSAN MOTOR CORPORATION in U.S.A.
By: /s/ Thomas A. Price By: /s/ Thomas H. Eastwood
------------------------------- ------------------------------------
Thomas A. Price, Thomas H. Eastwood, Vice President
President and CEO Nissan Division
By: /s/ Jules Clavadetscher
------------------------------------
Jules Clavadetscher
Regional Vice President
<PAGE>
NISSAN DEALERSHIP FACILITIES ADDENDUM NISSAN MOTOR CORPORATION IN U.S.A.
[LOGO]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FACILITIES & LOCATION SIZE (Square Feet) REQUIREMENTS BASED ON TOTAL PLANNING VOLUME
- ----------------------------------------------------------------------------------------------------------------------------------
Site Address New Vehicle New Vehicle Used Vehicle Used Vehicle Service
Sales Sales Sales Sales Bays
Building Land Building Land
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A. Main Location: 1290 Concord Avenue 4,000 73,120 0 16,876 26
- ----------------------------------------------------------------------------------------------------------------------------------
B. Additional Location:
- ----------------------------------------------------------------------------------------------------------------------------------
C. Additional Location:
- ----------------------------------------------------------------------------------------------------------------------------------
D. Additional Location:
- ----------------------------------------------------------------------------------------------------------------------------------
TOTALS BUILDING LAND BUILDING
&
LAND
- ----------------------------------------------------------------------------------------------------------------------------------
Actual 22,648 113,046 135,694 4,000 73,120 0 16,876 26
- ----------------------------------------------------------------------------------------------------------------------------------
Guide 11,979 41,084 53,063 2,685 19,426 285 10,373 12
- ----------------------------------------------------------------------------------------------------------------------------------
Actual 189.1% 275.2% 255.7% 149.0% 376.4% 0.0% 162.7% 216.7%
% Guide
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FACILITIES & LOCATION SIZE (Square Feet) REQUIREMENTS BASED ON TOTAL UNITS IN OPERATION
- ----------------------------------------------------------------------------------------------------------------------------------
Site Address Service Service Parts Parts Body Body
Building Land Building Land Shop Shop
Building Land
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A. Main Location: 1290 Concord Avenue 13,950 20,050 4,698 3,000 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
B. Additional Location:
- ----------------------------------------------------------------------------------------------------------------------------------
C. Additional Location:
- ----------------------------------------------------------------------------------------------------------------------------------
D. Additional Location:
- ----------------------------------------------------------------------------------------------------------------------------------
BUILDING
&
TOTALS BUILDING LAND LAND
- ----------------------------------------------------------------------------------------------------------------------------------
Actual 13,950 20,050 4,698 3,000 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Guide 5,762 9,710 3,247 1,575 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Actual 242.1% 206.5% 144.7% 190.5%
% Guide
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------
Makes Planning Units In
Sold Volume Operation
----------------------------------------------------
<S> <C> <C>
1. Nissan 508 2487
----------------------------------------------------
2.
----------------------------------------------------
3.
----------------------------------------------------
4.
----------------------------------------------------
5.
----------------------------------------------------
6.
----------------------------------------------------
TOTALS 508 2487
----------------------------------------------------
Guide 500 2500
Figures
Utilized
----------------------------------------------------
</TABLE>
This Dealership Facilities Addendum is executed by Dealer and Seller pursuant to
Section 2.A of the Nissan Dealer Sales and Service Agreement in effect between
said parties and in effective as of the date set forth below. Dealer and Seller
agree that as of the effective date the information above accurately describes
the Dealership Location and Dealership Facilities, the purposes for which each
location is used and the current Guides for such facilities based on the
Planning Volumes stated herein. The execution of this Facilities Addendum shall
not be construed as evidence of Dealer's fulfillment of its responsibilities
under Section 2 of the Agreement. Changes in the Dealership Location, the
Dealership Facilities or their usage from the locations and specific uses stated
herein cannot be made by Dealer without the prior written consent of Seller.
Such changes and any changes in Seller's Guides will he reflected in a new
Dealership Facilities Addendum when deemed necessary by Seller. This Dealership
Facilities Addendum cancels and supersedes any prior Dealership Facilities
Addenda executed by Seller and Dealer.
DEALER:
- -------
FAA CONCORD N, INC
- --------------------------------------------------------------------------------
Dealer Name
Concord Nissan
- --------------------------------------------------------------------------------
Doing Business As
By [SIGNATURE ILLEGIBLE] Concord CA 94520
----------------------------------------- ------------------------------------
Signature City State Zip
Title Dealer Principal 3449
-------------------------------------- ------------------------------------
Dealer Code
Accuracy of information verified for Seller SELLER:
-------
NISSAN DIVISION
By: [SIGNATURE ILLEGIBLE] NISSAN MOTOR CORPORATION IN U.S.A.
Title Assistant Regional Manager By [SIGNATURE ILLEGIBLE]
------------------------------------- ---------------------------------
4/24/97 Title Vice President, Nissan Division
- ------------------------------------------ -------------------------------
Date Verified
By [SIGNATURE ILLEGIBLE]
----------------------------------
THIS ADDENDUM IS EFFECTIVE AS OF
Title Regional Vice President
-------------------------------
<PAGE>
EXHIBIT 10.4
TOYOTA DEALER AGREEMENT
This is an Agreement between Toyota Motor Sales, U.S.A., Inc. (DISTRIBUTOR), and
----------------------------------
FAA Poway T, Inc. (DEALER), a(n) [_] individual, [_] partnership, [X]
- -----------------
corporation. If a corporation, DEALER is duly incorporated in the State of
California and doing business as Poway Toyota.
- ---------- ------------
PURPOSES AND OBJECTIVES OF THIS AGREEMENT
DISTRIBUTOR sells Toyota Products which are manufactured or approved by Toyota
Motor Corporation (FACTORY) and imported and/or sold to DISTRIBUTOR by Toyota
Motor Sales, U.S.A., Inc. (IMPORTER). It is of vital importance to DISTRIBUTOR
that Toyota Products are sold and serviced in a manner which promotes consumer
confidence and satisfaction and leads to increased product acceptance.
Accordingly, DISTRIBUTOR has established a network of authorized Toyota dealers,
operating at approved locations and pursuant to certain standards, to sell and
service Toyota Products. DEALER desires to become one of DISTRIBUTOR's
authorized dealers. Based upon the representations and promises of DEALER, set
forth herein, DISTRIBUTOR agrees to appoint DEALER as an authorized Toyota
dealer and welcomes DEALER to DISTRIBUTOR's network of authorized dealers of
Toyota Products.
This Agreement sets forth the rights and responsibilities of DISTRIBUTOR as
seller and DEALER as buyer of Toyota Products. DISTRIBUTOR enters into this
Agreement in reliance upon DEALER's integrity, ability, assurance of personal
services, expressed intention to deal fairly with the consuming public and with
DISTRIBUTOR, and promise to adhere to the terms and conditions herein. Likewise,
DEALER enters into this Agreement in reliance upon DISTRIBUTOR's promise to
adhere to the terms and conditions herein. DISTRIBUTOR and DEALER shall refrain
from conduct which may be detrimental to or adversely reflect upon the
reputation of the FACTORY; IMPORTER, DISTRIBUTOR, DEALER or Toyota Products in
general. The parties acknowledge that the success of the relationship between
DISTRIBUTOR and DEALER depends upon the mutual understanding and cooperation of
both DISTRIBUTOR and DEALER.
1
<PAGE>
I. RIGHTS GRANTED TO THE DEALER
Subject to the terms of this Agreement, DISTRIBUTOR hereby grants DEALER
the non-exclusive right:
A. To buy and resell the Toyota Products identified in the Toyota Product
Addendum hereto which may be periodically revised by IMPORTER;
B. To identify itself as an authorized Toyota dealer utilizing approved
signage at the location(s) approved herein;
C. To use the name Toyota and the Toyota Marks in the advertising,
promotion, sale and servicing of Toyota Products in the manner herein
provided.
DISTRIBUTOR reserves the unrestricted right to sell Toyota Products and to
grant the privilege of using the name Toyota or the Toyota Marks to other
dealers or entities, wherever they may be located.
II. RESPONSIBILITIES ACCEPTED BY THE DEALER
DEALER accepts its appointment as an authorized Toyota dealer and agrees
to:
A. Sell and promote Toyota Products subject to the terms and conditions of
this Agreement;
B. Service Toyota Products subject to the terms and conditions of this
Agreement;
C. Establish and maintain satisfactory dealership facilities at the
location(s) set forth herein; and
D. Make all payments to DISTRIBUTOR when due.
III. TERM OF AGREEMENT
This Agreement is effective this 9th day of May, 1997, and shall continue
--- --- ----
for a period of Two (2) Years, and shall expire on May 8, 1999 unless ended
------------- -----------
earlier by mutual agreement or terminated as provided herein. This
Agreement may not be continued beyond its expiration date except by written
consent of DISTRIBUTOR and IMPORTER.
2
<PAGE>
IV. OWNERSHIP OF DEALERSHIP
This Agreement is a personal service Agreement and has been entered into by
DISTRIBUTOR in reliance upon and in consideration of DEALER's
representation that only the following named persons are the Owners of
DEALER, that such persons will serve in the capacities indicated, and that
such persons are committed to achieving the purposes, goals and commitments
of this Agreement:
OWNERS' PERCENT OF
NAMES TITLE OWNERSHIP
FirstAmerica Automotive, Inc. 100%
----------------------------- ---------------------- --------------------
_____________________________ ______________________ ____________________
_____________________________ ______________________ ____________________
_____________________________ ______________________ ____________________
_____________________________ ______________________ ____________________
_____________________________ ______________________ ____________________
V. MANAGEMENT OF DEALERSHIP
DISTRIBUTOR and DEALER agree that the retention of qualified management is
of critical importance to satisfy the commitments made by DEALER in this
Agreement. DISTRIBUTOR, therefore, enters into this Agreement in reliance
upon DEALER's representation that H. Matthew Travis; and no other person,
-----------------
will exercise the function of General Manager, be in complete charge of
DEALER's operations, and will have authority to make all decisions on
behalf of DEALER with respect to DEALER's operations. DEALER further agrees
that the General Manager shall devote his or her full efforts to DEALER's
operations.
VI. CHANGE IN MANAGEMENT OR OWNERSHIP
This is a personal service contract. DISTRIBUTOR has entered into this
Agreement because DEALER has represented to DISTRIBUTOR that the Owners and
General Manager of DEALER identified herein possess the personal
qualifications, skill and commitment necessary to ensure that DEALER will
promote, sell and service Toyota Products in the most effective manner,
enhance the Toyota image and increase market acceptance of Toyota Products.
Because DISTRIBUTOR has entered into this Agreement in reliance upon these
representations and DEALER's assurances of the active involvement of such
persons in DEALER operations, any change in ownership, no matter what the
share or relationship between parties, or any changes in General Manager
from the person specified herein, requires the prior written consent of
DISTRIBUTOR, which DISTRIBUTOR shall not unreasonably withhold.
3
<PAGE>
DEALER agrees that factors which would make DISTRIBUTOR's withholding of
consent reasonable would include, without limitation, the failure of a new
Owner or General Manager to meet DISTRIBUTOR'S standards with regard to
financial capability, experience and success in the automobile dealership
business.
VII. APPROVED DEALER LOCATIONS
In order that DISTRIBUTOR may establish and maintain an effective network
of authorized Toyota dealers, DEALER agrees that it shall conduct its
Toyota operation only and exclusively in facilities and at locations
herein designated and approved by DISTRIBUTOR. DISTRIBUTOR hereby
designates and approves the following facilities as the exclusive
location(s) for the sale and servicing of Toyota Products and the display
of Toyota Marks:
New Vehicle Sales and Showroom Used Vehicle Display and Sales
------------------------------ ------------------------------
13760 Poway Road 13760 Poway Road
Poway, CA Poway, CA
Sales and General Office Body and Paint
------------------------ --------------
13760 Poway Road
Poway, CA
Parts Service
----- -------
13760 Poway Road 13760 Poway Road
Poway, CA Poway, CA
Other Facilities
----------------
DEALER may not, either directly or indirectly, display Toyota Marks or
establish or conduct any dealership operations contemplated by this
Agreement, including the display, sale and servicing of Toyota Products,
at any location or facility other than those approved herein without the
prior written consent of DISTRIBUTOR DEALER may not modify or change the
usage or function of any location or facility approved herein or otherwise
utilize such locations or facilities for any functions other than the
approved function(s) without the prior written consent of DISTRIBUTOR.
VIII. PRIMARY MARKET AREA
DISTRIBUTOR will assign DEALER a geographic area called a Primary Market
Area ("PMA"). The PMA is used by DISTRIBUTOR to evaluate DEALER's
performance of its obligations,
4
<PAGE>
among other things. DEALER agrees that it has no exclusive right to any
such PMA. DISTRIBUTOR may add new dealers, relocate dealers, or adjust
DEALER's PMA as it reason-ably determines is necessary. DEALER's PMA is
set forth on the PMA Addendum hereto.
Nothing contained in this Agreement, with the exception of Section XIV(B),
shall limit or be construed to limit the geographical area in which, or
the persons to whom, DEALER may sell or promote the sale of Toyota
products.
IX. STANDARD PROVISIONS
The "Toyota Dealer Agreement Standard Provisions" are incorporated herein
and made part of this Agreement as if fully set forth herein.
X. ADDITIONAL PROVISIONS
In consideration of DISTRIBUTOR's agreement to appoint DEALER as an
authorized Toyota dealer, DEALER further agrees:
I. DEALER AGREES THAT THIS AGREEMENT INCORPORATES, HERE BY THIS REFERENCE,
THE TERMS OF THE ADDENDUM TO SECTION X - ADDITIONAL PROVISIONS DATED MAY
---
9, 1997.
-------
5
<PAGE>
XI. EXECUTION OF AGREEMENT
Notwithstanding any other provision herein, the parties to this Agreement,
DISTRIBUTOR and DEALER, agree that this Agreement shall be valid and
binding only if it is signed:
A. On behalf of DEALER by a duly authorized person;
B. On behalf of DISTRIBUTOR by the President and/or an authorized General
Manager, if any, of DISTRIBUTOR; and
C. On behalf of IMPORTER, solely in connection with its limited
undertaking herein, by President of IMPORTER.
XII. CERTIFICATION
By their signatures hereto, the parties agree that they have read and
understand this Agreement, including the Standard Provisions incorporated
herein, are committed to its purposes and objectives and agree to abide by
all of its terms and conditions.
FAA Poway T, Inc. dba Poway Toyota DEALER
-------------------------------------------------------------
(Dealer Entity Name)
Date: 4/24/97 By: /s/ President
------------------- ---------------------- -------------------
Signature Title
Date:___________________ By:______________________ ___________________
Signature Title
Date:___________________ By:______________________ ___________________
Signature Title
Toyota Motor Sales. U.S.A.. Inc. DISTRIBUTOR
-----------------------------------------------------------
(Distributor Name)
Date:__________________ By: /s/ J. Byers Regional General Manager
--------------------- ------------------------
J. Byers Signature Title
Date:__________________ By:_____________________ _______________________
Signature Title
6
<PAGE>
Undertaking by IMPORTER: In the event of termination of this Agreement by virtue
of termination or expiration of DISTRIBUTOR's contract with IMPORTER, IMPORTER,
through its designee, will offer DEALER a new agreement of no less than one
year's duration and containing the terms of the Toyota Dealer Agreement then
prescribed by IMPORTER.
TOYOTA MOTOR SALES, U.S.A., INC.
Date: MAY 09 1997 By: /s/ Y. Ishizaka President
----------- ---------------------------- ---------------------
Y. Ishizaka Signature Title
7
<PAGE>
ADDENDUM TO SECTION X
---------------------
These Additional Provisions to Toyota Dealer Agreement ("Additional
Provisions") are entered into as of May 9,1997, among DISTRIBUTOR, DEALER, and
-----------
FIRSTAMERICA AUTOMOTIVE, INC., a Nevada corporation (hereinafter "FAA"), and
form a part of and are incorporated into the Dealer Agreement.
RECITALS
--------
1. DISTRIBUTOR and DEALER have entered into a Toyota Dealer Agreement
(the "Dealer Agreement") dated as of May 9, 1997.
-----------
2. FAA is the 100% shareholder of DEALER.
3. FAA and DEALER are hereinafter collectively referred to as the "Dealer
Parties". DISTRIBUTOR and the Dealer Parties are hereinafter collectively
referred to as the "Parties".
4. The Parties wish to enter into these Additional Provisions for the
purposes of agreeing to be bound by the terms of these Additional Provisions,
which are a part of and are incorporated into the Dealer Agreement.
5. The ownership of FAA shall be as follows:
Thomas A. Price: 41%
- ------------------------------------------------------------------------
Donald V. Strough: 11%
- ------------------------------------------------------------------------
TCW/Crescent Mezzanine Partners, L.P: 19%
- ------------------------------------------------------------------------
Others: 29%
- ------------------------------------------------------------------------
NOW THEREFORE, in consideration for the mutual agreements contained herein
and in the Dealer Agreement, the Parties agree as follows:
<PAGE>
A. General
-------
1. DISTRIBUTOR and FAA have entered into an Agreement dated May 2,
------
1997 (the "Agreement") relating, among other matters, to the number of Toyota
- ----
and Lexus dealerships which may be acquired by FAA and its affiliates and to
certain aspects of the management of Toyota and Lexus dealerships owned by FAA.
The Dealer Parties agree that the Agreement is incorporated into and forms a
part of the Dealer Agreement and these Additional Provisions. To the extent that
any provision of the Agreement is inconsistent with the Dealer Agreement or
these Additional Provisions, the provisions of the Agreement shall be
controlling.
2. The Dealer Parties acknowledge and agree that if any provision of
these Additional Provisions is violated in any material respect by any of the
Dealer Parties, DISTRIBUTOR will have the right to terminate the Dealer
Agreement on sixty (60) days' written notice to Dealer if Dealer fails to cure
such violation prior to the expiration of such sixty (60) days.
B. Provisions Relating to the Structure of DEALER
----------------------------------------------
1. Single Purpose Entity. DEALER will be maintained as a separate
---------------------
legal entity, and will not engage in any business other than operation of a
Toyota dealership and activities related thereto.
2. No Merger, Consolidation, Etc. DEALER will not be merged with or
-----------------------------
into, or be consolidated with, or acquire substantially all of the assets of,
any other entity, without the prior written consent of DISTRIBUTOR, in its sole
discretion.
-2-
<PAGE>
C. Provisions Relating to Management
---------------------------------
1. Role of the Responsible Executive. Pursuant to Section 8 of the
---------------------------------
Agreement, Thomas A. Price is hereby designated as the FAA executive who will
have responsibility and authority with respect to all matters concerning DEALER
and the relationship between DEALER and DISTRIBUTOR (the "FAA Executive"). The
FAA Executive will be actively involved in the management of all aspects of the
operations of DEALER.
(a) The FAA Executive will be an officer of DEALER. The FAA
Executive, in consultation with management of FAA, will have complete control
over all day-to-day management decisions of DEALER or relating to DEALER.
(b) The General Manager will report directly to and be
responsible to the FAA Executive.
(c) DISTRIBUTOR may rely on oral or written communications and
agreements from the FAA Executive as being the binding agreements of DEALER,
without any duty of DISTRIBUTOR to confirm that any such communication or
agreement has been duly authorized by the Board of Directors of DEALER, FAA, or
any other individual or entity.
2. Successors to the FAA Executive. In the event that the FAA
-------------------------------
Executive wishes to discontinue his role in the management of DEALER as set
forth in Section C.1., such action may be taken only with the prior written
consent of DISTRIBUTOR. Such consent of DISTRIBUTOR may be conditioned on
transfer of the FAA Executive's management responsibilities to an individual or
individuals approved by DISTRIBUTOR, taking into account such factors as
DISTRIBUTOR reasonably deems to be relevant and are consistent with applicable
laws.
3. Role of the General Manager.
---------------------------
(a) H. Matthew Travis or any subsequent General Manager of
-3-
<PAGE>
DEALER approved by DISTRIBUTOR, will serve exclusively as General Manager of
DEALER on a full time basis and will not have any management responsibilities
with respect to any other dealership or other business or appear as the General
Manager on any automobile dealership franchise agreement other than that of
DEALER.
(b) The General Manager will have responsibility for and
authority with respect to the day-to-day operations of DEALER in the ordinary
course of business, under the supervision of the FAA Executive, and the General
Manager will have the following authority, without the need for obtaining the
prior approval of any other individual or entity:
(i) the authority to hire or terminate any employee of DEALER;
(ii) the authority to order vehicles and other products;
(iii) the authority to place advertising;
(iv) the authority to communicate with DISTRIBUTOR with respect to
all aspects of the business of DEALER;
(v) the authority to approve expenditures by DEALER in the ordinary
course of business in amounts of less than $50,000 per item;
(vi) the authority to approve capital improvements or modifications
to the DEALER'S facilities in amounts not to exceed $100,000
with respect to any expenditure.
4. Membership of Executive Committee. There shall be no change in
---------------------------------
the membership of the Executive Committee, Board of Directors or other governing
body of DEALER without the prior written approval of DISTRIBUTOR.
5. FAA Directors. FAA shall provide a list of all current members
-------------
of its Board of Directors, and resumes for each member, to DISTRIBUTOR, and
provide such information for each new member of the Board of Directors of FAA.
-4-
<PAGE>
D. Provisions Relating to Capitalization and Accounting
----------------------------------------------------
1. No distributions will be made by DEALER to FAA if such
distributions would cause DEALER to fail to meet any of DISTRIBUTOR'S
capitalization guidelines, including but not limited to net working capital
requirements.
2. The operations and financial results of DEALER will be reported
to DISTRIBUTOR separately from those of any other entity, business or activity,
including but not limited to any of the Dealer Parties and any other dealerships
directly or indirectly owned or controlled by any of the Dealer Parties.
3. DEALER will maintain complete and separate departments for new
and used vehicle sales, service, parts sales, leasing and finance and insurance,
and will provide separate identifiable areas for each department. DEALER will
maintain a separate and permanent personnel staff and separate retail operations
from other dealerships directly or indirectly owned by any of the Dealer
Parties. DEALER shall not combine its used car operation with that of any other
entity, including any other dealerships directly or indirectly owned by any of
the Dealer Parties.
E. Provisions Relating to Ownership
--------------------------------
1. Successors and Assigns. In the event that any interest in DEALER
----------------------
is transferred in accordance with the provisions of the Dealer Agreement, the
Agreement and these Additional Provisions, as a condition to such transfer the
transferee must agree in writing to be bound by all of the terms and provisions
of the Dealer Agreement, the Agreement and these Additional Provisions, such
agreement to be in form and substance reasonably acceptable to DISTRIBUTOR.
-5-
<PAGE>
2. Competitors. In no event may any interest in DEALER be
-----------
transferred to an entity which is directly or indirectly engaged in the business
of manufacturing and/or distributing automobiles, or an affiliate thereof, and
no such entity may acquire an ownership interest FAA as described in Section
1 of the Agreement.
F. Provisions Relating to Performance
----------------------------------
1. Dealer agrees to achieve within nine (9) months of the
effective date of this Agreement and to thereafter maintain throughout the
duration of this Agreement, a satisfactory customer satisfaction performance, as
measured by all applicable standards established by Toyota Motor Sales, U.S.A.,
Inc., and which are modified from time to time.
2. Dealer agrees to achieve within nine (9) months of the
effective date of this Agreement and to thereafter maintain throughout the
duration of this Agreement, Toyota truck penetration in its Primary Market Area
that is at least equal to the Region's penetration rate.
3. Dealer agrees to achieve 100% car and truck sales efficiency
within nine (9) of the effective date of this Agreement and to thereafter
maintain 100% car and truck sales efficiency throughout the duration of this
Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed these Additional Provisions
as of the date first above written.
TOYOTA MOTOR SALES, USA, INC. TOYOTA MOTOR SALES, U.S.A., INC.
LOS ANGELES REGION
By: /s/ Y. Ishizaka By: /s/ J. Byers
-------------------------- -----------------------------
Title: President Title: GENERAL MANAGER
----------------------- --------------------------
FIRSTAMERICA AUTOMOTIVE, INC. FAA POWAY T., INC.
dba: POWAY TOYOTA
By: /s/ By: /s/
-------------------------- ---------------------------
Title: President Title: President
------------------------ -------------------------
-7-
<PAGE>
EXHIBIT 10.4.1
AGREEMENT BETWEEN
TOYOTA MOTOR SALES, U.S.A., INC.
AND
FIRSTAMERICA AUTOMOTIVE, INC.
Agreement, dated May 2 1997, entered between FirstAmerica
-------------------,
Automotive, Inc., a Nevada corporation, with its principal place of business at
100 The Embarcadero, Penthouse, San Francisco, CA, 94105, ("FAA"), and Toyota
Motor Sales, U.S.A., Inc.("TMS"), a California corporation, with its principal
place of business at 19001 South Western Avenue, Torrance, CA, 90509.
WHEREAS, FAA wishes to acquire, directly or through an Affiliate, certain Toyota
and Lexus dealerships; and
WHEREAS, FAA has issued securities traded on the NASDAQ Stock Exchange and
intends to issue additional securities to be traded on the NASDAQ Stock
Exchange; and
WHEREAS, FAA and TMS have agreed that FAA will not use a public ownership
structure for its Toyota and Lexus dealerships without TMS' prior consent, which
shall be given or withheld in TMS' sole discretion; and
WHEREAS, TMS has advised FAA of TMS' policy limiting the number of commonly
owned or controlled, directly or through an Affiliate (as defined below),
dealerships by a single entity, which is currently as follows:
A. TOYOTA
------
A single entity shall not hold an ownership interest, directly or
through an Affiliate, in more than: (a) the greater of one (1)
dealership or 20% of the Toyota dealer count in a "Metro" market
("Metro" markets are multiple Toyota dealership markets as defined by
TMS);(b) the lesser of five (5) dealerships or 5% of the Toyota
dealerships in any Toyota Region (Toyota Region" currently includes
nine TMS Regions, Central Atlantic Toyota, Southeast Toyota, and Gulf
States Toyota); and c) seven (7) Toyota dealerships nationally.
LEXUS
-----
A single entity shall not hold an ownership interest, directly or
through an Affiliate, in more than: (a) two (2) Lexus dealerships in
any Area ("Area" currently includes Eastern, Southern, Central and
Western); and (b) three (3) Lexus dealerships nationally.
1
<PAGE>
"Affiliate" of, or a person or entity "affiliated" with, a specified person
or entity, means a person or entity that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the person or entity specified. For the purpose of this
definition, the term "control" (including the terms "controlling,"
"controlled by" and "under common control with" means the possession,
directly or indirectly, or the power to direct or cause the direction of
the management and policies of a person or entity, whether through the
ownership of securities, by contract or otherwise.
B. In order for an entity to acquire additional Toyota or Lexus dealerships,
within the limits of this Agreement, each Toyota or Lexus dealership which
it owns, directly or through an Affiliate, must: a) be in full compliance
with all of the terms of its Dealer Agreement; b) meet all of the
applicable Toyota or Lexus Market Representation policies and standards;
and c) meet applicable performance criteria for the most recent twelve (12)
month period.
C. In order to allow TMS sufficient time to evaluate performance at its
existing dealerships, an entity may not acquire any additional Toyota or
Lexus dealership with nine (9) months of its prior acquisition of a similar
make dealership.
D. If the purchase of any Toyota or Lexus dealership would result in exceeding
the limits set forth in Paragraph 1 above, TMS will reject a dealer's
application for approval of the ownership transfer until such time as the
dealer shall divest itself of the appropriate number of dealerships to
bring it into compliance with the requirements of this Agreement.
WHEREAS, FAA and TMS are willing to resolve these issues in accordance with the
terms set forth herein,
NOW THEREFORE, FAA and TMS agree as follows:
1. CHANGE IN OWNERSHIP OF FAA
--------------------------
TMS shall have the right to approve any ownership or voting rights of FAA
of twenty percent (20%) or greater by any individual or entity; PROVIDED
HOWEVER, that if TMS reasonably determines that such individual or entity
is unqualified to own a Toyota or Lexus dealership, or has interests
incompatible with TMS, and such transfer is effected, FAA must, within
ninety (90) days from the date of notification by TMS of its determination,
either: a) transfer the assets of its Toyota and Lexus dealerships to a
third party acceptable to TMS; b) voluntarily terminate its Toyota and
Lexus Dealership Agreements; or c) demonstrate that such individual or
entity in fact owns less that 20% of the outstanding shares of FAA, or does
not have 20% of the voting rights in FAA.
2
<PAGE>
2. OWNERSHIP OF CONTIGUOUS DEALERSHIPS
-----------------------------------
FAA shall not own contiguous dealerships (as that term is defined in the
applicable Toyota or Lexus Dealer Agreement or policy) with common
boundaries.
3. SEPARATE LEGAL ENTITIES FOR EACH TOYOTA AND LEXUS DEALERSHIP
------------------------------------------------------------
FAA shall create separate legal entities for each Toyota and Lexus
dealership which it owns, directly or through an Affiliate, shall obtain a
separate motor vehicle license for each dealership, and shall maintain
separate financial statements for each such dealership. Consistent with TMS
policy, the name "Toyota" or "Lexus," as applicable shall appear in the
d/b/a of each dealership.
4. FACILITY STANDARDS
------------------
In no instance shall a Toyota or Lexus dealership or any department(s)
thereof be dualled with any other brand without TMS' prior written
approval.
5. GENERAL MANAGERS
----------------
Each Toyota and Lexus dealership owned or controlled by FAA shall have a
qualified, approved (subject to the exception noted in Paragraph 6 below)
General Manager. Each General Manager shall work at the Toyota or Lexus
dealership premises, shall devote all of his/her efforts to the management
of the dealership and shall have no other business interests or management
responsibilities.
6. APPROVAL OF THE GENERAL MANAGER
-------------------------------
Whenever FAA nominates a new General Manager candidate for a Toyota or
Lexus dealership, TMS shall have the right to withhold a decision
concerning approval or rejection of the candidate for a period of up to one
year, at its sole discretion; PROVIDED, HOWEVER, that the candidate may
operate in the capacity of General Manager until TMS has approved or
rejected him/her.
7. LIMITATIONS ON THE AUTHORITY OF THE GENERAL MANAGER
---------------------------------------------------
FAA shall advise TMS of the limitations, by category and, where applicable,
by specific action, on the authority of the General Manager regarding the
operation of the dealership, and shall provide the name of the individual
at FAA who has such authority with respect to each listed category or
specific action, in accordance with Paragraph 8 below.
3
<PAGE>
8. IDENTIFICATION OF FAA CONTACT OFFICIAL
--------------------------------------
FAA shall identify, in each Toyota and Lexus Dealer Agreement, the FAA
executive (other than the General Manager of the dealership) who will
respond directly to any Toyota or Lexus concerns regarding the operation or
performance of the dealership, which executive will have full authority, in
accordance with FAA management policies, to resolve issues raised by TMS in
connection with the operation of the dealership.
9. SELLING TOYOTA AND LEXUS PRODUCTS
---------------------------------
FAA shall make available to the customers at its Toyota and Lexus
dealerships, all Toyota and/or Lexus products, including vehicles, Genuine
Parts and Accessories, retail financing (whether for purchases or leases)
and extended service contracts.
10. REPRESENTATION ON TOYOTA AND LEXUS DEALER ORGANIZATIONS
-------------------------------------------------------
No more than one representative each from the Toyota, and, separately,
Lexus, dealerships owned, directly or through an Affiliate, by FAA, may
serve on the National Dealer Council or any future Toyota or Lexus national
board(s) which may be established, and no more than one representative each
may serve on either a Regional or Area Dealer Council, or Toyota or Lexus
Dealer Association Board of Directors.
11. DEALERSHIP PERSONNEL TRAINING
-----------------------------
FAA shall not substitute training courses or certification programs of its
own for those provided or sponsored by TMS without the prior approval of
TMS.
12. PUBLIC OFFERING OF SECURITIES BY FAA
------------------------------------
TMS shall not object to the transfer of Toyota and Lexus dealerships to
FAA, a public company, so long as the limitations on ownership of voting
control of FAA contained in this Agreement are not exceeded or breached in
any way.
13. FINANCIAL DISCLOSURES
---------------------
FAA shall provide TMS with copies of all information and materials filed
with the Securities Exchange Commission, including, but not limited to,
quarterly and annual financial statement filings, prospectuses and other
materials related to FAA.
4
<PAGE>
14. PROSPECTUS DISCLAIMER AND INDEMNIFICATION AND HOLD HARMLESS AGREEMENT
---------------------------------------------------------------------
FAA shall place in its registration statement and its prospectus, as well
as in any other document offering shares in FAA to public or private
investors, the following disclaimer:
No Manufacturer (as defined in this Prospectus) has been
involved, directly or indirectly, in the preparation of this
Prospectus or in the Offering being made hereby. No
Manufacturer has made any statements or representations in
connection with the Offering or has provided any information
or materials that were used in connection with the Offering,
and no Manufacturer has any responsibility for the accuracy
or completeness of this Prospectus.
FAA shall indemnify and hold harmless TMS pursuant to the terms of the
Indemnification and Hold Harmless Agreement set forth in Attachment 1 to
this Agreement.
15. SOLE AGREEMENT OF THE PARTIES
-----------------------------
There are no prior agreements or understandings, either oral or written,
between the Parties affecting this Agreement, except as otherwise specified
or referred to in this Agreement. No change or addition to, or deletion of
any portion of this Agreement shall be valid or binding upon the parties
hereto unless approved in writing signed by an officer of each of the
parties hereto.
16. SEVERABILITY
------------
If any provision of this Agreement should be held invalid or unenforceable
for any reason whatsoever, or conflicts with any applicable law, this
Agreement will be considered divisible as to such provision(s), and such
provision(s) will be deemed amended to comply with such law, or if it
(they) cannot be so amended without materially affecting the tenor of the
Agreement, then it (they) will be deemed deleted from this Agreement in
such jurisdiction, and in either case, the remainder of the Agreement will
be valid and binding.
17. NO IMPLIED WAIVERS
------------------
The failure of either party at any time to require performance by the other
party of any provision herein shall in no way affect the right of such
party to require such performance at any time thereafter, nor shall any
waiver by any party of a breach of any provision herein constitute a waiver
of any succeeding breach of the same or any other provision, nor constitute
a waiver of the provision itself.
5
<PAGE>
18. TMS POLICIES
------------
This Agreement refers to certain policies and standards. FAA acknowledges
that these policies and standards are prepared by TMS in its sole
discretion based upon TMS' evaluation of the marketplace. TMS may
reasonably amend its policies and standards from time to time.
19. APPLICABLE LAW
--------------
This Agreement shall be governed by and construed according to the laws of
California.
20. BENEFIT
-------
This Agreement is entered into by and between TMS and FAA for their sole
and mutual benefit. Neither this Agreement nor any specific provision
contained in it is intended or shall be construed to be for the benefit of
any third party.
21. NOTICE TO THE PARTIES
---------------------
Any notices permitted or required under the terms of this Agreement shall
be directed to the following respective addresses of the parties, or if
either of the parties shall have specified another address by notice in
writing to the other party, then to the address last specified:
TOYOTA MOTOR SALES, U.S.A., INC.
19001 South Western Avenue
Torrance, CA 90509
FIRSTAMERICA AUTOMOTIVE, INC.
100 The Embarcadero, Penthouse
San Francisco, CA 94105
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
FIRSTAMERICA AUTOMOTIVE, INC.
BY:/s/
-------------------------------
ITS:
------------------------------
TOYOTA MOTOR SALES, U.S.A., INC.
BY: /s/
-------------------------------
ITS:______________________________
7
<PAGE>
ADDENDUM TO PARAGRAPH X
-----------------------
These Additional Provisions to Toyota Dealer Agreement ("Additional
Provisions") are entered into as of June 30, 1997, among DISTRIBUTOR, DEALER,
-------------
and FIRSTAMERICA AUTOMOTIVE, INC., a Nevada corporation (hereinafter "FAA"), and
form a part of and are incorporated into the Dealer Agreement.
RECITALS
--------
1. DISTRIBUTOR and DEALER have entered into a Toyota Dealer Agreement
(the "Dealer Agreement") dated as of June 30, 1997 .
------------------
2. FAA is the 100% shareholder of DEALER.
3. FAA and DEALER are hereinafter collectively referred to as the "Dealer
Parties". DISTRIBUTOR and the Dealer Parties are hereinafter collectively
referred to as the "Parties".
4. The Parties wish to enter into these Additional Provisions for the
purposes of agreeing to be bound by the terms of these Additional Provisions,
which are a part of and are incorporated into the Dealer Agreement.
5. The ownership of FAA shall be approximately as follows:
Thomas A. Price: 41%
- --------------------------------------------------------------------------------
Donald V. Strough: 11%
- --------------------------------------------------------------------------------
TCW\Crescent Mezzanine Partners, L.P.: 19%
- --------------------------------------------------------------------------------
Others: 29%
- --------------------------------------------------------------------------------
NOW THEREFORE, in consideration for the mutual agreements contained herein
and in the Dealer Agreement, the Parties agree as follows:
1
<PAGE>
A. General
1. DISTRIBUTOR and FAA have entered into an Agreement dated June
--------
30, 1997 (the "Agreement") relating, among other matters, to the number
- ------------
of Toyota and Lexus dealerships which may be acquired by FAA and its affiliates
and to certain aspects of the management of Toyota and Lexus dealerships owned
by FAA. The Dealer Parties agree that the Agreement is incorporated into and
forms a part of the Dealer Agreement and these Additional Provisions. To the
extent that any provision of the Agreement is inconsistent with the Dealer
Agreement or these Additional Provisions, the provisions of the Agreement shall
be controlling.
2. The Dealer Parties acknowledge and agree that if any provision of
these Additional Provisions is violated in any material respect by any of the
Dealer Parties, DISTRIBUTOR will have the right to terminate the Dealer
Agreement on sixty (60) days' written notice to Dealer if Dealer fails to cure
such violation prior to the expiration of such sixty (60) days.
B. Provisions Relating to the Structure of DEALER
----------------------------------------------
1. Single Purpose Entity. DEALER will be maintained as a separate
---------------------
legal entity, and will not engage in any business other than operation of a
Toyota dealership and activities related thereto.
2. No Merger, Consolidation, Etc. DEALER will not be merged with or
-----------------------------
into, or be consolidated with, or acquire substantially all of the assets of,
any other entity, without the prior written consent of DISTRIBUTOR, in its sole
discretion.
2
<PAGE>
C. Provisions Relating to Management
---------------------------------
1. Role of the Responsible Executive. Pursuant to Section 8 of the
---------------------------------
Agreement, Thomas A. Price is hereby designated as the FAA executive who will
have responsibility and authority with respect to all matters concerning DEALER
and the relationship between DEALER and DISTRIBUTOR (the "FAA Executive"). The
FAA Executive will be actively involved in the management of all aspects of the
operations of DEALER.
(a) The FAA Executive will be an officer of DEALER. The FAA
Executive, in consultation with management of FAA, will have complete control
over all day-to-day management decisions of DEALER or relating to DEALER.
(b) The General Manager will report directly to and be
responsible to the FAA Executive.
(c) DISTRIBUTOR may rely on oral or written communications and
agreements from the FAA Executive as being the binding agreements of DEALER,
without any duty of DISTRIBUTOR to confirm that any such communication or
agreement has been duly authorized by the Board of Directors of DEALER, FAA, or
any other individual or entity.
2. Successors to the FAA Executive. In the event that the FAA
-------------------------------
Executive wishes to discontinue his role in the management of DEALER as set
forth in Section C.1., such action may be taken only with the prior written
consent of DISTRIBUTOR. Such consent of DISTRIBUTOR may be conditioned on
transfer of the FAA Executive's management responsibilities to an individual or
individuals approved by DISTRIBUTOR, taking into account such factors as
DISTRIBUTOR reasonably
3
<PAGE>
deems to be relevant and are consistent with applicable laws.
3. Role of the General Manager.
---------------------------
(a) Timothy M. Nelson or any subsequent General Manager of DEALER
approved by DISTRIBUTOR, will serve exclusively as General Manager of DEALER on
a full time basis and will not have any management responsibilities with respect
to any other dealership or other business or appear as the General Manager on
any automobile dealership franchise agreement other than that of DEALER.
(b) The General Manager will have responsibility for and
authority with respect to the day-to-day operations of DEALER in the ordinary
course Of business, under the supervision of the FAA Executive, and the General
Manager will have the following authority, without the need for obtaining the
prior approval of any other individual or entity:
(i) the authority to hire or terminate any employee of DEALER;
(ii) the authority to order vehicles and other products;
(iii) the authority to place advertising;
(iv) the authority to communicate with DISTRIBUTOR with respect to
all aspects of the business of DEALER;
(v) the authority to approve expenditures by DEALER in the ordinary
course of business in amounts of less than $50,000 per item;
(vi) the authority to approve capital improvements or modifications
to the DEALER'S facilities in amounts not to exceed $100,000
with respect to any expenditure.
4. Membership of Executive Committee. There shall be no change in
---------------------------------
4
<PAGE>
the membership of the Executive Committee, Board of Directors or other governing
body of DEALER without the prior written approval of DISTRIBUTOR.
5. FAA Directors. FAA shall provide a list of all current members of
-------------
its Board of Directors, and resumes for each member, to DISTRIBUTOR, and provide
such information for each new member of the Board of Directors of FAA.
D. Provisions Relating to Capitalization and Accounting
----------------------------------------------------
1. No distributions will be made by DEALER to FAA if such
distributions would cause DEALER to fail to meet any of DISTRIBUTOR'S
capitalization guidelines, including but not limited to net working capital
requirements.
2. The operations and financial results of DEALER will be reported
to DISTRIBUTOR separately from those of any other entity, business or activity,
including but not limited to any of the Dealer Parties and any other dealerships
directly or indirectly owned or controlled by any of the Dealer Parties.
3. DEALER will maintain complete and separate departments for new
and used vehicle sales, service, parts sales, leasing and finance and insurance,
and will provide separate identifiable areas for each department. DEALER will
maintain a separate and permanent personnel staff and separate retail operations
from other dealerships directly or indirectly owned by any of the Dealer
Parties. DEALER shall not combine its used car operation with that of any other
entity, including any other dealerships directly or indirectly owned by any of
the Dealer Parties.
5
<PAGE>
E. Provisions Relating to Ownership
--------------------------------
1. Successors and Assigns. In the event that any interest in DEALER
----------------------
is transferred in accordance with the provisions of the Dealer Agreement, the
Agreement and these Additional Provisions, as a condition to such transfer the
transferee must agree in writing to be bound by all of the terms and provisions
of the Dealer Agreement, the Agreement and these Additional Provisions, such
agreement to be in form and substance reasonably acceptable to DISTRIBUTOR.
2. Competitors. In no event may any interest in DEALER be
-----------
transferred to an entity which is directly or indirectly engaged in the business
of manufacturing and/or distributing automobiles, or an affiliate thereof, and
no such entity may acquire an ownership interest in FAA as described in Section
1 of the Agreement.
F. Provisions Relating to Performance
----------------------------------
1. Dealer agrees to achieve within nine (9) months from the
effective date of this Agreement and to thereafter maintain throughout the
duration of this Agreement, a satisfactory customer satisfaction performance, as
measured by all applicable standards established by Toyota Motor Sales, U.S.A.,
Inc., and which are modified from time to time.
2. Dealer agrees to achieve within nine (9) months from the
effective date of this Agreement and to thereafter maintain throughout the
duration of this Agreement, Toyota car and truck penetration in its Primary
Market Area that is at least equal to the Region's penetration rate.
6
<PAGE>
IN WITNESS WHEREOF, the Parties. have executed these Additional
Provisions as of the date first above written.
TOYOTA MOTOR SALES, USA, INC. TOYOTA MOTOR SALES, U.S.A., INC.
SAN FRANCISCO REGION
By: /s/ By: /s/
--------------------------- ---------------------------
Title: PRESIDENT Title: GENERAL MANAGER
------------------------ ------------------------
FIRSTAMERICA AUTOMOTIVE, INC. FAA SAN BRUNO, INC.
d.b.a. MELODY TOYOTA
By: /s/ By: /s/
--------------------------- ---------------------------
Title: [TITLE ILLEGIBLE] Title: [TITLE ILLEGIBLE]
------------------------ ------------------------
7
<PAGE>
EXHIBIT 10.4.2
[LOGO OF TOYOTA]
DEALER AGREEMENT
----------------
<PAGE>
TOYOTA DEALER AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PURPOSES AND OBJECTIVES OF THIS AGREEMENT............................. 1
I. RIGHTS GRANTED TO THE DEALER...................................... 2
II. RESPONSIBILITIES ACCEPTED BY THE DEALER........................... 2
III. TERM OF AGREEMENT................................................. 2
IV. OWNERSHIP OF DEALERSHIP........................................... 3
V. MANAGEMENT OF DEALERSHIP.......................................... 3
VI. CHANGE IN MANAGEMENT OR OWNERSHIP................................. 3
VII. APPROVED DEALER LOCATIONS......................................... 4
VIII. PRIMARY MARKET AREA............................................... 4
IX. STANDARD PROVISIONS............................................... 5
X. ADDITIONAL PROVISIONS............................................. 5
XI. EXECUTION OF AGREEMENT............................................ 6
XII. CERTIFICATION..................................................... 6
XIII. ACQUISITION, DELIVERY AND INVENTORY OF TOYOTA PRODUCTS
A. Acquisition of Toyota Products................................. 8
B. Availability and Allocation of Product......................... 8
C. Prices and Terms of Sale....................................... 8
D. Mode, Place and Charges for Delivery of Products............... 9
E. Inventory Damage Claims and Liability.......................... 9
F. Delay or Failure of Delivery................................... 9
G. Diversion Charges.............................................. 9
H. Changes of Design, Options or Specifications................... 10
I. Discontinuance of Manufacture or Importation................... 10
J. Minimum Vehicle Inventories.................................... 10
K. Product Modifications.......................................... 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
XIV. DEALER MARKETING OF TOYOTA PRODUCTS
A. DEALER's Sales Responsibilities.................................... 10
B. Export Prohibition................................................. 11
C. Used Vehicles...................................................... 11
D. Assistance Provided by DISTRIBUTOR................................. 11
1. Sales Training Assistance....................................... 11
2. Sales Promotion Assistance...................................... 12
3. Field Sales Personnel Assistance................................ 12
XV. DEALER SERVICE OBLIGATIONS
A. Customer Service Standards......................................... 12
B. New Motor Vehicle Pre-Delivery Service............................. 13
C. Warranty and Policy Service........................................ 13
D. Use of Parts and Accessories in Non-Warranty Servicing............. 13
E. Warranty Disclosures as to Non-Genuine Parts and Accessories....... 14
F. Service Campaign Inspections and Corrections....................... 14
G. Compliance With Safety and Emission Control Requirements........... 14
H. Compliance With Consumer Protection Statutes, Rules and
Regulations........................................................ 15
XVI. SERVICE AND PARTS OPERATIONS
A. Organization and Standards......................................... 15
B. Service Equipment and Special Tools................................ 16
C. Parts Inventory.................................................... 16
D. Assistance Provided by DISTRIBUTOR................................. 16
1. Service Training Assistance..................................... 16
2. Manuals and Materials........................................... 16
3. Field Personnel Assistance...................................... 16
XVII. CUSTOMER SATISFACTION RESPONSIBILITIES................................ 17
XVIII. DEALERSHIP FACILITIES AND IDENTIFICATION
A. Facilities......................................................... 17
B. DEALER's Operating Hours........................................... 18
C. Signs.............................................................. 18
D. Use of Toyota Marks................................................ 18
1. Use by DEALER................................................... 18
2. Discontinuance of Use........................................... 19
XIX. EVALUATION OF DEALER'S PERFORMANCE
A. Sales Performance Evaluation....................................... 20
B. Service Performance Evaluation..................................... 20
C. Parts Performance Evaluation....................................... 20
D. Customer Satisfaction Performance Evaluation....................... 20
E. Dealership Facilities Evaluation................................... 21
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
XX. CAPITAL, CREDIT, RECORDS AND UNIFORM SYSTEMS
A. Net Working Capital................................................ 21
B. Flooring Line...................................................... 21
C. Payment Terms and Settlement of Accounts........................... 22
D. Uniform Accounting System.......................................... 22
E. Records Maintenance................................................ 23
F. Examination of Dealership Accounts and Records..................... 23
G. Taxes.............................................................. 23
H. Confidentiality.................................................... 23
I. Information Communication Systems.................................. 24
J. Sales Reporting.................................................... 24
XXI. RIGHT OF FIRST REFUSAL OR OPTION TO PURCHASE
A. Rights Granted..................................................... 24
B. Exercise of DISTRIBUTOR's Rights................................... 24
C. Right of First Refusal............................................. 25
D. Option to Purchase................................................. 25
E. DEALER's Obligations............................................... 25
F. No Applicability to Nominated Successor............................ 26
XXII. SUCCESSION RIGHTS UPON DEATH OR INCAPACITY
A. Succession to Ownership After Death of Owner....................... 26
B. Incapacity of Owner................................................ 27
C. Nomination of Successor Prior to Death or Incapacity of Owner...... 27
XXIII. TERMINATION
A. Voluntary Termination by DEALER.................................... 28
B. Termination for Cause.............................................. 28
1. Immediate Termination........................................... 28
2. Termination Upon Sixty Days Notice.............................. 29
3. Termination for Failure of Performance.......................... 30
4. Termination Upon Death or Incapacity............................ 30
C. Notice of Termination.............................................. 31
D. Continuance of Business Relations.................................. 31
E. Repurchase Provisions.............................................. 31
1. DISTRIBUTOR's Obligations....................................... 31
2. Responsibilities of DEALER...................................... 32
3. Payment by DISTRIBUTOR.......................................... 32
XXIV. MANAGEMENT OF DISPUTES
A. Alternative Dispute Resolution Programs............................ 33
B. Applicable Law..................................................... 33
C. Mutual Release..................................................... 33
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
XXV. DEFENSE AND INDEMNIFICATION
A. Defense and Indemnification by DISTRIBUTOR........................ 34
B. Defense and Indemnification by DEALER............................. 34
C. Conditional Defense and/or Indemnification........................ 35
XXVI. GENERAL PROVISIONS
A. Notices........................................................... 36
B. No Implied Waivers................................................ 37
C. Sole Agreement of the Parties..................................... 37
D. Dealer Not an Agent or Representative............................. 37
E. Assignment of Rights or Delegation of Duties...................... 38
F. No Franchise Fee.................................................. 38
G. Severability...................................................... 38
H. New and Superseding Dealer Agreements............................. 38
I. Benefit........................................................... 38
J. No Fiduciary Relationship......................................... 39
K. No Joint Employment............................................... 39
L. Consent of DISTRIBUTOR............................................ 39
M. DISTRIBUTOR's Policies............................................ 39
XXVII. DEFINITIONS
A. Owner............................................................. 40
B. General Manager................................................... 40
C. Dealer Facilities................................................. 40
D. Approved Location(s).............................................. 40
E. Toyota Marks...................................................... 40
F. Toyota Products................................................... 40
G. Toyota Motor Vehicles............................................. 40
H. Genuine Toyota Parts and Accessories.............................. 40
</TABLE>
iv
<PAGE>
TOYOTA DEALER AGREEMENT
This is an Agreement between TOYOTA MOTOR SALES, USA., INC. (DISTRIBUTOR), and
FAA San Bruno, Inc. (DEALER), a(n) [_] individual, [_] partnership, [X]
corporation. If a corporation, DEALER is duly incorporated in the State of
California and doing business as MELODY TOYOTA.
PURPOSES AND OBJECTIVES OF THIS AGREEMENT
DISTRIBUTOR sells Toyota Products which are manufactured or approved by Toyota
Motor Corporation (FACTORY) and imported and/or sold to DISTRIBUTOR by Toyota
Motor Sales, U.S.A., Inc. (IMPORTER). It is of vital importance to DISTRIBUTOR
that Toyota Products are sold and serviced in a manner which promotes consumer
confidence and satisfaction and leads to increased product acceptance.
Accordingly, DISTRIBUTOR has established a network of authorized Toyota dealers,
operating at approved locations and pursuant to certain standards, to sell and
service Toyota Products. DEALER desires to become one of DISTRIBUTOR's
authorized dealers. Based upon the representations and promises of DEALER, set
forth herein, DISTRIBUTOR agrees to appoint DEALER as an authorized Toyota
dealer and welcomes DEALER to DISTRIBUTOR's network of authorized dealers of
Toyota Products.
This Agreement sets forth the rights and responsibilities of DISTRIBUTOR as
seller and DEALER as buyer of Toyota Products. DISTRIBUTOR enters into this
Agreement in reliance upon DEALER's integrity, ability, assurance of personal
services, expressed intention to deal fairly with the consuming public and with
DISTRIBUTOR, and promise to adhere to the terms and conditions herein. Likewise,
DEALER enters into this Agreement in reliance upon DISTRIBUTOR's promise to
adhere to the terms and conditions herein. DISTRIBUTOR and DEALER shall refrain
from conduct which may be detrimental to or adversely reflect upon the
reputation of the FACTORY, IMPORTER, DISTRIBUTOR, DEALER or Toyota Products in
general. The parties acknowledge that the success of the relationship between
DISTRIBUTOR and DEALER depends upon the mutual understanding and cooperation of
both DISTRIBUTOR and DEALER.
Dealer Code 04062
-----------
1
<PAGE>
I. RIGHTS GRANTED TO THE DEALER
Subject to the terms of this Agreement, DISTRIBUTOR hereby grants DEALER
the non-exclusive right:
A. To buy and resell the Toyota Products identified in the Toyota Product
Addendum hereto which may be periodically revised by IMPORTER;
B. To identity itself as an authorized Toyota dealer utilizing approved
signage at the location(s) approved herein;
C. To use the name Toyota and the Toyota Marks in the advertising,
promotion, sale and servicing of Toyota Products in the manner herein
provided.
DISTRIBUTOR reserves the unrestricted right to sell Toyota Products and to
grant the privilege of using the name Toyota or the Toyota Marks to other
dealers or entities, wherever they may be located.
II. RESPONSIBILITIES ACCEPTED BY THE DEALER
DEALER accepts its appointment as an authorized Toyota dealer and agrees
to:
A. Sell and promote Toyota Products subject to the terms and conditions of
this Agreement;
B. Service Toyota Products subject to the terms and conditions of this
Agreement;
C. Establish and maintain satisfactory dealership facilities at the
location(s) set forth herein; and
D. Make all payments to DISTRIBUTOR when due.
III. TERM OF AGREEMENT
This Agreement is effective this 30th day of June, 1997, and shall
continue for a period of 24 Months, and shall expire on June 29, 1999
unless ended earlier by mutual agreement or terminated as provided herein.
This Agreement may not be continued beyond its expiration date except by
written consent of DISTRIBUTOR and IMPORTER.
2
<PAGE>
IV. OWNERSHIP OF DEALERSHIP
This Agreement is a personal service Agreement and has been entered into
by DISTRIBUTOR in reliance upon and in consideration of DEALER's
representation that only the following named persons are the Owners of
DEALER, that such persons will serve in the capacities indicated, and that
such persons are committed to achieving the purposes, goals and
commitments of this Agreement:
<TABLE>
<CAPTION>
OWNERS' PERCENT OF
NAMES TITLE OWNERSHIP
<S> <C> <C>
FirstAmerica Automotive, Inc. Holding Company 100%
------------------------------ ------------------------------ -----------------------------
Thomas A. Price President 0%
------------------------------ ------------------------------ -----------------------------
______________________________ ______________________________ _____________________________
______________________________ ______________________________ _____________________________
______________________________ ______________________________ _____________________________
______________________________ ______________________________ _____________________________
</TABLE>
V. MANAGEMENT OF DEALERSHIP
DISTRIBUTOR and DEALER agree that the retention of qualified management is
of critical importance to satisfy the commitments made by DEALER in this
Agreement. DISTRIBUTOR, therefore, enters into this Agreement in reliance
upon DEALER's representation that Timothy M. Nelson, and no other person,
will exercise the function of General Manager, be in complete charge of
DEALER's operations, and will have authority to make all decisions on
behalf of DEALER with respect to DEALER's operations. DEALER further
agrees that the General Manager shall devote his or her full efforts to
DEALER's operations.
VI. CHANGE IN MANAGEMENT OR OWNERSHIP
This is a personal service contract. DISTRIBUTOR has entered into this
Agreement because DEALER has represented to DISTRIBUTOR that the Owners
and General Manager of DEALER identified herein possess the personal
qualifications, skill and commitment necessary to ensure that DEALER will
promote, sell and service Toyota Products in the most effective manner,
enhance the Toyota image and increase market acceptance of Toyota
Products. Because DISTRIBUTOR has entered into this Agreement in reliance
upon these representations and DEALER's assurances of the active
involvement of such persons in DEALER operations, any change in ownership,
no matter what the share or relationship between parties, or any changes
in General Manager from the person specified herein, requires the prior
written consent of DISTRIBUTOR, which DISTRIBUTOR shall not unreasonably
withhold.
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DEALER agrees that factors which would make DISTRIBUTOR's withholding of
consent reasonable would include, without limitation, the failure of a new
Owner or General Manager to meet DISTRIBUTOR'S standards with regard to
financial capability, experience and success in the automobile dealership
business.
VII. APPROVED DEALER LOCATIONS
In order that DISTRIBUTOR may establish and maintain an effective network
of authorized Toyota dealers, DEALER agrees that it shall conduct its
Toyota operation only and exclusively in facilities and at locations
herein designated and approved by DISTRIBUTOR. DISTRIBUTOR hereby
designates and approves the following facilities as the exclusive
location(s) for the sale and servicing of Toyota Products and the display
of Toyota Marks:
New Vehicle Sales and Showroom Used Vehicle Display and Sales
------------------------------ ------------------------------
740 El Camino Real 620 El Camino Real
& &
750 El Camino Real 650 El Camino Real
San Bruno, California San Bruno, California
Sales and General Office Body and Paint
------------------------ --------------
750 El Camino Real NONE
San Bruno, California
Parts Service
----- -------
222 W. San Bruno Ave. 222 W. San Bruno Ave.
San Bruno, California San Bruno, California
Other Facilities
----------------
740 El Camino Real
San Bruno, California
DEALER may not, either directly or indirectly, display Toyota Marks or
establish or conduct any dealership operations contemplated by this
Agreement, including the display, sale and servicing of Toyota Products,
at any location or facility other than those approved herein without the
prior written consent of DISTRIBUTOR. DEALER may not modify or change the
usage or function of any location or facility approved herein or otherwise
utilize such locations or facilities for any functions other than the
approved function(s) without the prior written consent of DISTRIBUTOR.
VIII. PRIMARY MARKET AREA
DISTRIBUTOR will assign DEALER a geographic area called a Primary Market
Area ("PMA"). The PMA is used by DISTRIBUTOR to evaluate DEALER's
performance of its obligations,
4
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among other things. DEALER agrees that it has no exclusive right to any
such PMA. DISTRIBUTOR may add new dealers, relocate dealers, or adjust
DEALER's PMA as it reasonably determines is necessary. DEALER's PMA is set
forth on the PMA Addendum hereto.
Nothing contained in this Agreement, with the exception of Section XIV(B),
shall limit or be construed to limit the geographical area in which, or the
persons to whom, DEALER may sell or promote the sale of Toyota products.
IX. STANDARD PROVISIONS
The "Toyota Dealer Agreement Standard Provisions" are incorporated herein
and made part of this Agreement as if fully set forth herein.
X. ADDITIONAL PROVISIONS
In consideration of DISTRIBUTOR's agreement to appoint DEALER as an
authorized Toyota dealer, DEALER further agrees:
1. DEALER agrees that this Agreement incorporates, here by this reference,
the terms of the Addendum to Section X Additional Provisions dated June
30, 1997
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XI. EXECUTION OF AGREEMENT
Notwithstanding any other provision herein, the parties to this Agreement,
DISTRIBUTOR and DEALER, agree that this Agreement shall be valid and
binding only if it is signed:
A. On behalf of DEALER by a duly authorized person;
B. On behalf of DISTRIBUTOR by the President and/or an authorized General
Manager, if any, of DISTRIBUTOR; and
C. On behalf of IMPORTER, solely in connection with its limited
undertaking herein, by President of IMPORTER
XII. CERTIFICATION
By their signatures hereto, the parties agree that they have read and
understand this Agreement, including the Standard Provisions incorporated
herein, are committed to its purposes and objectives and agree to abide by
all of its terms and conditions.
FAA San Bruno, Inc. dba MELODY TOYOTA DEALER
-------------------------------------------------------------------
(Dealer Entity Name)
Date:________By:/s/ President
---------------------------------------- ---------------
Signature T. Price Title
Date:________By:________________________________________ _______________
Signature Title
Date:________By:________________________________________ _______________
Signature Title
TOYOTA MOTOR SALES, USA., INC. DISTRIBUTOR
--------------------------------------------------------------
(Distributor Name)
Date:________By: /s/ J. Lentz General Manager
---------------------------------------- ---------------
Signature J. Lentz Title
Date:________By:________________________________________ _______________
Signature Title
6
<PAGE>
Undertaking by IMPORTER: In the event of termination of this Agreement by
virtue of termination or expiration of DISTRIBUTOR's contract with IMPORTER,
IMPORTER, through its designee, will offer DEALER a new agreement of no less
than one year's duration and containing the terms of the Toyota Dealer Agreement
then prescribed by IMPORTER.
TOYOTA MOTOR SALES, U.S.A., INC.
Date: JUN 30, 1997 By: /s/ Yoshio Ishizaka President
-------------- -------------------------------- ----------------------
Signature Yoshio Ishizaka Title
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<PAGE>
ADDENDUM TO PARAGRAPH X
-----------------------
These Additional Provisions to Toyota Dealer Agreement ("Additional
Provisions") are entered into as of June 30, 1997, among DISTRIBUTOR, DEALER,
and FIRST AMERICA AUTOMOTIVE, INC., a Nevada corporation (hereinafter "FAA"),
and form a part of and are incorporated into the Dealer Agreement.
RECITALS
1. DISTRIBUTOR and DEALER have entered into a Toyota Dealer
Agreement (the "Dealer Agreement") dated as of June 30, 1997.
2. FAA is the 100% shareholder of DEALER.
3. FAA and DEALER are hereinafter collectively referred to as the
"Dealer Parties". DISTRIBUTOR and the Dealer Parties are hereinafter
collectively referred to as the "Parties".
4. The Parties wish to enter into these Additional Provisions for
the purposes of agreeing to be bound by the terms of these Additional
Provisions, which are a part of and are incorporated into the Dealer Agreement.
5. The ownership of FAA shall be approximately as follows:
Thomas A. Price: 41%
- --------------------------------------------------------------------------------
Donald V. Strough: 11%
- --------------------------------------------------------------------------------
TCW\Crescent Mezzanine Partners, L.P.: 19%
- --------------------------------------------------------------------------------
Others: 29%
- --------------------------------------------------------------------------------
NOW THEREFORE, in consideration for the mutual agreements contained
herein and in the Dealer Agreement, the Parties agree as follows:
1
<PAGE>
A. General
-------
1. DISTRIBUTOR and FAA have entered into an Agreement dated June 30,
1997 (the "Agreement") relating, among other matters, to the number of Toyota
and Lexus dealerships which may be acquired by FAA and its affiliates and to
certain aspects of the management of Toyota and Lexus dealerships owned by FAA.
The Dealer Parties agree that the Agreement is incorporated into and forms a
part of the Dealer Agreement and these Additional Provisions. To the extent that
any provision of the Agreement is inconsistent with the Dealer Agreement or
these Additional Provisions, the provisions of the Agreement shall be
controlling.
2. The Dealer Parties acknowledge and agree that if any provision of
these Additional Provisions is violated in any material respect by any of the
Dealer Parties, DISTRIBUTOR will have the right to terminate the Dealer
Agreement on sixty (60) days' written notice to Dealer if Dealer fails to cure
such violation prior to the expiration of such sixty (60) days.
B. Provisions Relating to the Structure of DEALER
----------------------------------------------
1. Single Purpose Entity. DEALER will be maintained as a separate
---------------------
legal entity, and will not engage in any business other than operation of a
Toyota dealership and activities related thereto.
2. No Merger, Consolidation, Etc. DEALER will not be merged with or
-----------------------------
into, or be consolidated with, or acquire substantially all of the assets of,
any other entity, without the prior written consent of DISTRIBUTOR, in its sole
discretion.
2
<PAGE>
C. Provisions Relating to Management
---------------------------------
1. Role of the Responsible Executive. Pursuant to Section 8 of the
---------------------------------
Agreement, Thomas A. Price is hereby designated as the FAA executive who will
have responsibility and authority with respect to all matters concerning DEALER
and the relationship between DEALER and DISTRIBUTOR (the "FAA Executive"). The
FAA Executive will be actively involved in the management of all aspects of the
operations of DEALER.
(a) The FAA Executive will be an officer of DEALER. The FAA
Executive, in consultation with management of FAA, will have complete control
over all day-to-day management decisions of DEALER or relating to DEALER.
(b) The General Manager will report directly to and be
responsible to the FAA Executive.
(c) DISTRIBUTOR may rely on oral or written communications and
agreements from the FAA Executive as being the binding agreements of DEALER,
without any duty of DISTRIBUTOR to confirm that any such communication or
agreement has been duly authorized by the Board of Directors of DEALER, FAA, or
any other individual or entity.
2. Successors to the FAA Executive. In the event that the FAA
-------------------------------
Executive wishes to discontinue his role in the management of DEALER as set
forth in Section C.1., such action may be taken only with the prior written
consent of DISTRIBUTOR. Such consent of DISTRIBUTOR may be conditioned on
transfer of the FAA Executive's management responsibilities to an individual or
individuals approved by DISTRIBUTOR, taking into account such factors as
DISTRIBUTOR reasonably
3
<PAGE>
deems to be relevant and are consistent with applicable laws.
3. Role of the General Manager.
---------------------------
(a) Timothy M. Nelson or any subsequent General Manager of
DEALER approved by DISTRIBUTOR, will serve exclusively as General Manager of
DEALER on a full time basis and will not have any management responsibilities
with respect to any other dealership or other business or appear as the General
Manager on any automobile dealership franchise agreement other than that of
DEALER.
(b) The General Manager will have responsibility for and
authority with respect to the day-to-day operations of DEALER in the ordinary
course of business, under the supervision of the FAA Executive, and the General
Manager will have the following authority, without the need for obtaining the
prior approval of any other individual or entity:
(i) the authority to hire or terminate any employee of DEALER;
(ii) the authority to order vehicles and other products;
(iii) the authority to place advertising;
(iv) the authority to communicate with DISTRIBUTOR with respect to
all aspects of the business of DEALER;
(v) the authority to approve expenditures by DEALER in the ordinary
course of business in amounts of less than $50,000 per item;
(vi) the authority to approve capital improvements or modifications
to the DEALER'S facilities in amounts not to exceed $100,000
with respect to any expenditure.
4. Membership of Executive Committee. There shall be no change in
---------------------------------
4
<PAGE>
the membership of the Executive Committee, Board of Directors or other governing
body of DEALER without the prior written approval of DISTRIBUTOR.
5. FAA Directors. FAA shall provide a list of all current members of
-------------
its Board of Directors, and resumes for each member, to DISTRIBUTOR, and provide
such information for each new member of the Board of Directors of FAA.
D. Provisions Relating to Capitalization and Accounting
----------------------------------------------------
1. No distributions will be made by DEALER to FAA if such
distributions would cause DEALER to fail to meet any of DISTRIBUTOR'S
capitalization guidelines, including but not limited to net working capital
requirements.
2. The operations and financial results of DEALER will be reported
to DISTRIBUTOR separately from those of any other entity, business or activity,
including but not limited to any of the Dealer Parties and any other dealerships
directly or indirectly owned or controlled by any of the Dealer Parties.
3. DEALER will maintain complete and separate departments for new
and used vehicle sales, service, parts sales, leasing and finance and insurance,
and will provide separate identifiable areas for each department. DEALER will
maintain a separate and permanent personnel staff and separate retail operations
from other dealerships directly or indirectly owned by any of the Dealer
Parties. DEALER shall not combine its used car operation with that of any other
entity, including any other dealerships directly or indirectly owned by any of
the Dealer Parties.
5
<PAGE>
E. Provisions Relating to Ownership
--------------------------------
1. Successors and Assigns. In the event that any interest in DEALER
----------------------
is transferred in accordance with the provisions of the Dealer Agreement, the
Agreement and these Additional Provisions, as a condition to such transfer the
transferee must agree in writing to be bound by all of the terms and provisions
of the Dealer Agreement, the Agreement and these Additional Provisions, such
agreement to be in form and substance reasonably acceptable to DISTRIBUTOR.
2. Competitors. In no event may any interest in DEALER be
-----------
transferred to an entity which is directly or indirectly engaged in the business
of manufacturing and/or distributing automobiles, or an affiliate thereof, and
no such entity may acquire an ownership interest in FAA as described in Section
1 of the Agreement.
F. Provisions Relating to Performance
----------------------------------
1. Dealer agrees to achieve within nine (9) months from the
effective date of this Agreement and to thereafter maintain throughout the
duration of this Agreement, a satisfactory customer satisfaction performance, as
measured by all applicable standards established by Toyota Motor Sales, U.S.A.,
Inc., and which are modified from time to time.
2. Dealer agrees to achieve within nine (9) months from the
effective date of this Agreement and to thereafter maintain throughout the
duration of this Agreement, Toyota car and truck penetration in its Primary
Market Area that is at least equal to the Region's penetration rate.
6
<PAGE>
IN WITNESS WHEREOF, the Parties have executed these Additional
Provisions as of the date first above written.
TOYOTA MOTOR SALES, USA, INC. TOYOTA MOTOR SALES, U.S.A., INC.
SAN FRANCISCO REGION
By: By:
----------------------------- -------------------------------
Title: President Title: GENERAL MANAGER
-------------------------- ----------------------------
FIRSTAMERICA AUTOMOTIVE, INC. FAA SAN BRUNO, INC.
d.b.a. MELODY TOYOTA
By: By:
----------------------------- -------------------------------
Title: Pres Title: Pres
-------------------------- ----------------------------
7
<PAGE>
TOYOTA DEALER AGREEMENT
STANDARD PROVISIONS
The following Standard Provisions are expressly incorporated in and made a
part of the Toyota Dealer Agreement.
XIII. ACQUISITION, DELIVERY AND INVENTORY OF TOYOTA PRODUCTS
A. ACQUISITION OF TOYOTA PRODUCTS
DEALER shall have the right to purchase Toyota Products from
DISTRIBUTOR in accordance with the provisions set forth herein and
such other requirements as may be established from time to time by
DISTRIBUTOR.
B. AVAILABILITY AND ALLOCATION OF PRODUCT
DISTRIBUTOR agrees to use its best efforts to provide Toyota Products
to DEALER in such quantities and types as may be required by DEALER to
fulfill its obligations with respect to the sale and servicing of
Toyota Products under this Agreement, subject to available supply from
IMPORTER, DISTRIBUTOR's requirements, and any change or discontinuance
with respect to any Toyota Product. DISTRIBUTOR will endeavor to
allocate Toyota Products among its dealers in a fair and equitable
manner, which it shall determine in its sole discretion. DISTRIBUTOR
agrees to provide DEALER with an explanation of the method used to
distribute such products and, upon written request, will advise DEALER
of DISTRIBUTOR's total wholesale sales of new motor vehicles, by
series, in DISTRIBUTOR's area and to DEALER individually, for a
reasonable time frame.
C. PRICES AND TERMS OF SALE
DISTRIBUTOR shall have the right to establish and revise prices and
other terms for the sale of Toyota Products to DEALER. Ownership and
title of Toyota Products sold by DISTRIBUTOR to DEALER shall pass upon
payment therefor by DEALER to DISTRIBUTOR and DEALER shall have no
ownership interest in such Products until such payment is received.
Risk of loss for Toyota Products sold by DISTRIBUTOR to DEALER shall
pass upon delivery of such Products to DEALER. Revised prices and
terms shall apply to any Toyota Products not invoiced to DEALER by
DISTRIBUTOR at the time the notice of such change is given to DEALER
(in the case of Toyota Motor Vehicles), or upon issuance of a new or
modified Parts Price List or through change notices, letters,
bulletins, or revision sheets (in the case of parts, options and
accessories), or at such other times as may be designated in writing
by DISTRIBUTOR.
8
<PAGE>
Payment for all Toyota Products shall be made when billed, unless
other terms are established by DISTRIBUTOR in writing.
D. MODE, PLACE AND CHARGES FOR DELIVERY OF PRODUCTS
DISTRIBUTOR shall designate the distribution points and the mode of
transportation and shall select carrier(s) for the transportation of
Toyota Products to DEALER. DEALER shall pay DISTRIBUTOR such charges
as DISTRIBUTOR in its sole discretion establishes for such
transportation services.
E. INVENTORY DAMAGE CLAIMS AND LIABILITY
DEALER shall promptly notify DISTRIBUTOR of any damage occurring
during transit and shall, if so directed by DISTRIBUTOR, file claims
on DISTRIBUTOR's behalf against transportation carrier for damage.
DEALER agrees to assist DISTRIBUTOR in obtaining recovery against any
transportation carrier or insurer for loss or damage to Toyota
Products shipped hereunder.
To the extent required by law, DEALER shall notify the purchaser of a
vehicle of any damage sustained by such vehicle prior to sale. DEALER
shall indemnify and hold DISTRIBUTOR harmless from any liability
resulting from DEALER's failure to so notify such purchasers.
F. DELAY OR FAILURE OF DELIVERY
DISTRIBUTOR shall not be liable for delay or failure to deliver Toyota
Products which it has previously agreed to deliver, where such delay
or failure to deliver is the result of any event beyond the control of
DISTRIBUTOR, IMPORTER or FACTORY, including but not limited to fire,
floods, storms or other acts of God, any law or regulation of any
governmental entity, foreign or civil wars, riots, interruptions of
navigation, shipwrecks, strikes, lockouts or other labor troubles,
embargoes, blockades, or delay or failure of FACTORY to deliver Toyota
Products.
G. DIVERSION CHARGES
If after delivery DEALER fails or refuses to accept Toyota Products
that it has agreed to purchase, DEALER shall pay all charges incurred
by DISTRIBUTOR as a result of such refusal. Such charges shall not
exceed the charge of returning any such product to the point of
original shipment by DISTRIBUTOR plus all charges for demurrage,
storage or other charges related to such refusal.
9
<PAGE>
DEALER also agrees to assume responsibility for, and shall pay any and
all reasonable charges for, demurrage, storage or other charges
accruing after arrival of shipment at the point of original shipment.
H. CHANGES OF DESIGN, OPTIONS OR SPECIFICATIONS
DISTRIBUTOR, IMPORTER or FACTORY may change the design or
specifications of any Toyota Product or the options in any Toyota
Product and shall be under no obligation to provide notice of same or
to make any similar change upon any product previously purchased by or
shipped to DEALER. No change shall be considered a model year change
unless so specified by DISTRIBUTOR.
I. DISCONTINUANCE OF MANUFACTURE OR IMPORTATION
FACTORY, IMPORTER and/or DISTRIBUTOR may discontinue the manufacture,
importation or distribution of all or part of any Toyota Product,
whether motor vehicle, parts, options, or accessories, including any
model, series, or body style of any Toyota Motor Vehicle at any time
without any obligation or liability to DEALER by reason thereof.
J. MINIMUM VEHICLE INVENTORIES
Subject to the ability of DISTRIBUTOR to supply Toyota Motor Vehicles
to DEALER, DEALER agrees that it shall, at all times, maintain at
least the minimum inventory of Toyota Motor Vehicles as may be
established by DISTRIBUTOR from time to time. DEALER also agrees that
it shall have available at all times, for purposes of display and
demonstration, the number of Toyota Motor Vehicles of the most current
models as may be established by DISTRIBUTOR from time to time, and
shall, at all times, maintain such Motor Vehicles in showroom ready
condition.
K. PRODUCT MODIFICATIONS
DEALER agrees that it will not make any modifications to Toyota
Products that may impair or adversely affect a vehicle's safety,
emissions or structural integrity.
XIV. DEALER MARKETING OF TOYOTA PRODUCTS
A. DEALER'S SALES RESPONSIBILITIES
DEALER recognizes that customer satisfaction and the successful
promotion and sale of Toyota Products are significantly dependent on
DEALER's advertising and sales promotion activities. DEALER shall
actively and effectively promote, through DEALER's own
10
<PAGE>
advertising and sales promotion activities, the purchase of Toyota
Products by customers. Therefore, DEALER at all times shall:
1. Actively and effectively advertise, merchandise, promote and sell
Toyota Products;
2. Maintain an adequate, stable and trained sales organization, and,
to that end, make all reasonable efforts to ensure that its sales
personnel attend all sales training courses prescribed by
DISTRIBUTOR at DEALER's expense;
3. Maintain high standards of ethics in advertising, promoting and
selling Toyota Products and avoid engaging in any
misrepresentation or unfair or deceptive practices; and
4. Accurately represent to customers the total selling price of
Toyota Products. DEALER agrees to explain to customers of Toyota
Products the items that make up the total selling price and to
give the customers itemized statements and all other information
required by law. DEALER understands and hereby acknowledges that
it may sell Toyota Products at whatever price DEALER desires.
B. EXPORT PROHIBITION
DEALER is authorized to sell Toyota Motor Vehicles only to customers
located in the continental United States. DEALER agrees that it will
not sell Toyota Motor Vehicles for resale or use outside the
continental United States. DEALER agrees to abide by any export policy
established by DISTRIBUTOR.
C. USED VEHICLES
DEALER agrees to display, promote and sell used vehicles at the
Approved Location. DEALER shall maintain for resale an inventory of
used vehicles.
D. ASSISTANCE PROVIDED BY DISTRIBUTOR
1. SALES TRAINING ASSISTANCE
To assist DEALER in the fulfillment of its sales responsibilities
under this Agreement, DISTRIBUTOR agrees to offer general and
specialized sales management and sales training programs for the
benefit and use of DEALER's sales organization. When requested by
DISTRIBUTOR, DEALER's personnel shall participate in such
programs at DEALER's expense.
11
<PAGE>
2. SALES PROMOTION ASSISTANCE
In order that authorized Toyota dealers may be assured of the
benefits of comprehensive advertising and promotion of Toyota
Products, DISTRIBUTOR agrees to establish and maintain general
advertising and promotion programs and will from time to time
make sales promotion and campaign materials available to DEALER
to promote the sales of such Toyota Products at a reasonable
charge where applicable.
3. FIELD SALES PERSONNEL ASSISTANCE
To assist DEALER in handling its sales responsibilities under
this Agreement, DISTRIBUTOR agrees to provide trained field sales
personnel to advise and counsel DEALER on sales-related subjects,
including merchandising, training and sales management.
XV. DEALER SERVICE OBLIGATIONS
A. CUSTOMER SERVICE STANDARDS
DEALER and DISTRIBUTOR agree that the success and future growth of
DISTRIBUTOR and DEALER are substantially dependent upon the customer's
ability to obtain high-quality vehicle servicing. Therefore, DEALER
agrees to:
1. Take all reasonable steps to provide service of the highest
quality for all Toyota Motor Vehicles, regardless of where
purchased and whether or not under warranty;
2. Ensure that the customer is advised of the necessary repairs and
that his or her consent is obtained prior to the initiation of
any repairs;
3. Ensure that problems on Toyota Motor Vehicles are accurately
diagnosed and repairs are promptly and professionally performed;
and
4. Ensure that the customer is treated courteously and fairly at all
times.
12
<PAGE>
B. NEW MOTOR VEHICLE PRE-DELIVERY SERVICE
DEALER agrees that prior to delivery of a new Toyota Motor Vehicle to
a customer it shall perform, as directed by DISTRIBUTOR, pre-delivery
service on each Toyota Motor Vehicle in accordance with Toyota
standards. DISTRIBUTOR shall pay DEALER for such pre-delivery service
according to such directives and the applicable provisions of the
Toyota Warranty Policy and Procedures Manual.
C. WARRANTY AND POLICY SERVICE
DEALER acknowledges that the only warranties of DISTRIBUTOR or FACTORY
applicable to Toyota Products shall be the New Vehicle Limited
Warranty or such other written warranties that may be expressly
furnished or sold by DISTRIBUTOR or FACTORY. Except for its limited
liability under such written warranty or warranties, DISTRIBUTOR and
FACTORY do not assume any other warranty obligation or liability.
DEALER is not authorized to assume any additional warranty obligations
or liabilities on behalf of DISTRIBUTOR, IMPORTER or FACTORY. Any such
additional obligations assumed by DEALER shall be the sole
responsibility of DEALER. Any extended service contract sold by
IMPORTER, DISTRIBUTOR or Toyota-affiliated entity shall be governed
by its own terms.
DEALER shall perform warranty service specified by DISTRIBUTOR in
accordance with the Toyota Warranty Policy and Procedures Manual.
DISTRIBUTOR agrees to compensate DEALER for all warranty work,
including labor, diagnosis and Genuine Toyota Parts and Accessories,
in accordance with procedures and at rates to be announced from time
to time by DISTRIBUTOR. Unless otherwise approved in writing in
advance by DISTRIBUTOR, DEALER shall use only Genuine Toyota Parts and
Accessories when performing Toyota warranty repairs. Warranty service
is provided for the benefit of customers and DEALER agrees that the
customer shall not be obligated to pay any charges for warranty work
or any other services for which DEALER is reimbursed or paid by
DISTRIBUTOR.
D. USE OF PARTS AND ACCESSORIES IN NON-WARRANTY SERVICING
Subject to the provisions set forth below, DEALER has the right to
sell, install or use, for making non-warranty repairs, products that
are not Genuine Toyota Parts or Accessories.
DEALER acknowledges, however, that its customers expect that any parts
or accessories that DEALER sells, installs or uses in the sale, repair
or servicing of Toyota Motor Vehicles are, or meet the high quality
standards of, Genuine Toyota Parts or
13
<PAGE>
Accessories. DEALER agrees that in sales, repairs or servicing where
DEALER does not use Genuine Toyota Parts or Accessories, DEALER will
only utilize such other parts or accessories that will not adversely
affect the mechanical operation of the Toyota Motor Vehicle being
sold, repaired or serviced, and that are equivalent in quality and
design to Genuine Toyota Parts or Accessories.
E. WARRANTY DISCLOSURES AS TO NON-GENUINE PARTS AND ACCESSORIES
In order to avoid confusion and to minimize potential customer
dissatisfaction, in any instance where DEALER sells, installs or uses
other than Genuine Toyota Parts or Accessories, DEALER shall disclose
such fact to the customer and shall advise the customer that these
items are not included in warranties furnished by DISTRIBUTOR. Such
disclosure shall be written, conspicuous and stated on the customer's
copy of the service or repair order or sale document. In addition,
DEALER will clearly explain to the customer the extent of any warranty
covering the parts or accessories involved and will deliver a copy of
the warranty to the customer.
F. SERVICE CAMPAIGN INSPECTIONS AND CORRECTIONS
DEALER agrees to perform service campaign inspections and/or
corrections for owners or users of all Toyota Products that qualify
for such inspections and/or corrections. DEALER further agrees to
comply with all DISTRIBUTOR's directives and with the applicable
procedures in the Toyota Warranty Policy and Procedures Manual
relating to those inspections and/or corrections. DISTRIBUTOR agrees
to reimburse DEALER for all replacement parts and/or other materials
required and used in connection with such work and for labor according
to such directives and the applicable provisions of the Toyota
Warranty Policy and Procedures Manual.
G. COMPLIANCE WITH SAFETY AND EMISSION CONTROL REQUIREMENTS
DEALER agrees to comply and operate consistently with all applicable
provisions of the National Traffic and Motor Vehicle Safety Act of
1966 and the Federal Clean Air Act, as amended, including applicable
rules and regulations issued from time to time thereunder, and all
other applicable federal, state and local motor vehicle safety and
emission control statutes, rules and regulations.
In the event that the laws of the state in which DEALER is located
require motor vehicle dealers or distributors to install in new or
used motor vehicles, prior to their retail sale, any safety devices or
other equipment not installed or supplied as standard equipment by
FACTORY, then DEALER, prior to the sale of any Toyota Motor Vehicle on
which such
14
<PAGE>
installations are required, shall properly install such devices or
equipment on such Toyota Motor Vehicles. DISTRIBUTOR agrees to
reimburse DEALER for all parts and/or other materials required and
used in connection with such work and for labor according to the
applicable provisions of the Toyota Warranty Policy and Procedures
Manual. DEALER shall comply with state and local laws pertaining to
the installation and reporting of such equipment.
In the interest of motor vehicle safety and emission control,
DISTRIBUTOR and DEALER agree to provide to each other such information
and assistance as may reasonably be requested by the other in
connection with the performance of obligations imposed on either party
by the National Traffic and Motor Vehicle Safety Act of 1966 and the
Federal Clean Air Act, as amended, and their rules and regulations,
and all other applicable federal, state and local motor vehicle safety
and emissions control statutes, rules and regulations.
H. COMPLIANCE WITH CONSUMER PROTECTION STATUTES, RULES AND REGULATIONS
Because certain customer complaints may impose liability upon
DISTRIBUTOR under various repair or replace laws or other consumer
protection laws and regulations, DEALER agrees to provide prompt
notice to DISTRIBUTOR of such complaints and take such other steps as
DISTRIBUTOR may reasonably require. DEALER will do nothing to affect
adversely DISTRIBUTOR's rights under such laws and regulations.
Subject to any law or any regulation to the contrary, DEALER shall be
liable to DISTRIBUTOR for any refunds or vehicle replacements provided
to customer where DISTRIBUTOR reasonably establishes that DEALER
failed to carry out vehicle repairs in accordance with DISTRIBUTOR's
written published policies and procedures or its express oral
instructions subsequently confirmed in writing. DEALER also agrees to
provide applicable required customer notifications and disclosures as
pre-scribed by repair or replacement laws or other consumer laws or
regulations.
XVI. SERVICE AND PARTS OPERATIONS
A. ORGANIZATION AND STANDARDS
DEALER agrees to organize and maintain an adequate, stable and trained
service and parts organization of the highest quality, including a
qualified Service Manager and a qualified Parts Manager, and a number
of competent customer relations, service and parts personnel
sufficient to meet the needs of the marketplace in the reasonable
opinion of DISTRIBUTOR. DEALER's personnel will meet the educational,
management and technical training standards established by
DISTRIBUTOR.
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B. SERVICE EQUIPMENT AND SPECIAL TOOLS
DEALER agrees to acquire and properly maintain adequate service
equipment and such special service tools and instruments as are
specified by DISTRIBUTOR.
C. PARTS INVENTORY
DEALER and DISTRIBUTOR recognize that the owners and users of Toyota
Motor Vehicles may reasonably expect that DEALER will have Genuine
Toyota Parts or Accessories immediately available for purchase or
installation. DEALER, therefore, agrees to carry in stock at all times
during the term of this Agreement an adequate inventory of Genuine
Toyota Parts or Accessories, as listed in DISTRIBUTOR's current
inventory guide, to enable DEALER to meet its customers' needs and to
fulfill its service responsibilities under this Agreement.
D. ASSISTANCE PROVIDED BY DISTRIBUTOR
1. SERVICE TRAINING ASSISTANCE
To assist DEALER in fulfilling its service and parts
responsibilities under this Agreement, DISTRIBUTOR agrees to
offer general and specialized service and parts training programs
for the benefit and use of DEALER's service and parts
organizations. When requested by DISTRIBUTOR, DEALER's personnel
shall participate in such programs at DEALER's expense.
2. MANUALS AND MATERIALS
DISTRIBUTOR agrees to make available to DEALER, at DEALER's
expense, copies of such dealer manuals, catalogs, bulletins,
publications and technical data as DISTRIBUTOR shall deem to be
necessary for the needs of DEALER's service and parts
organization. DEALER shall be responsible for keeping such
manuals, publications and data current and available for
consultation by its employees.
3. FIELD PERSONNEL ASSISTANCE
To assist DEALER in handling its parts and service
responsibilities under this Agreement, DISTRIBUTOR agrees to make
available qualified field parts and service personnel who will,
from time to time, advise and counsel DEALER on parts and
service-related subjects, including parts and service policies,
product quality, technical adjustments, repair and replacement of
product components, customer relations,
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warranty administration, service and parts merchandising, and
personnel/management training.
XVII. CUSTOMER SATISFACTION RESPONSIBILITIES
A goal of DISTRIBUTOR and DEALER is to be recognized as marketing the
finest products and providing the best service in the automobile
industry. The Toyota name should be synonymous with the highest level of
customer satisfaction. DEALER will take all reasonable steps to ensure
that each customer is completely satisfied with his or her Toyota
Products and the services and practices of DEALER.
Whenever requested by DISTRIBUTOR, DEALER shall:
A. Designate an employee responsible for customer satisfaction
commensurate with the needs of the marketplace; and
B. Provide a detailed written plan of DEALER's customer satisfaction
program to DISTRIBUTOR and implement such program on a continuous
basis. This plan shall include an ongoing system for:
1. Emphasizing customer satisfaction to all DEALER's employees;
2. Training DEALER's employees, including participation in
DISTRIBUTOR's customer satisfaction training at DEALER's
expense; and
3. Responding immediately to, and resolving promptly, requests for
customer assistance, and conveying to customers that DEALER is
committed to the highest possible level of customer satisfaction.
XVIII. DEALERSHIP FACILITIES AND IDENTIFICATION
A. FACILITIES
1. In order for DISTRIBUTOR to establish an effective network of
authorized Toyota dealers, DEALER shall provide, and at all times
maintain, attractive dealership facilities at the Approved
Location(s) that satisfy the image, size, layout, interior
design, color, equipment, identification and other factors
established by DISTRIBUTOR. DEALER shall meet the minimum
facility standards and policies established by DISTRIBUTOR which
can be amended from time to time.
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2. To assist DEALER in planning, building, or remodeling dealership
facilities, DISTRIBUTOR will provide DEALER, upon request, a
Toyota Dealer Facility Planner and will assist in identifying
sources from which DEALER may purchase architectural materials
and furnishings that meet Toyota standards and guidelines. In
addition, representatives of DISTRIBUTOR will be available to
DEALER from time to time to counsel and advise DEALER in
connection with DEALER's planning and equipping the dealership
premises.
B. DEALER'S OPERATING HOURS
DEALER agrees to keep all of its dealership operations open for
business during all days and hours that are customary and lawful for
such operations in the community or locality in which DEALER is
located and in accordance with industry standards. The dealership
shall not be considered open unless all sales, service and parts
operations are open to the public and dealership personnel are present
to assist customers.
C. SIGNS
Subject to applicable governmental ordinances, regulations, and
statutes, DEALER agrees to comply with IMPORTER's signage program and
to display only standard authorized signage which conforms to the
approved corporate identification program.
D. USE OF TOYOTA MARKS
1. USE BY DEALER
DISTRIBUTOR grants to DEALER the non-exclusive privilege of
displaying or otherwise using authorized Toyota Marks as
specified in the Toyota Brand Graphic Standards Manual at the
Approved Location(s) in connection with the selling or servicing
of Toyota Products.
DEALER further agrees that it promptly shall discontinue the
display and use of any Toyota Marks, or shall change the manner
in which any Toyota Marks are displayed and used, when for any
reason it is requested to do so by DISTRIBUTOR DEALER may use the
Toyota Marks as specified in the Toyota Brand Graphic Standards
Manual only at Approved Location(s) and for such purposes as are
specified in this Agreement. DEALER agrees that such Toyota Marks
may be used as part of the name under which DEALER's business is
conducted only with the prior written approval of DISTRIBUTOR.
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DEALER shall discontinue any advertising that DISTRIBUTOR may
find to be injurious to DISTRIBUTOR's business or reputation or
the Toyota Marks.
2. DISCONTINUANCE OF USE
Upon termination, non-renewal, or expiration of this Agreement,
DEALER agrees that it shall immediately:
a. Discontinue the use of Toyota Marks, or any semblance of same,
including without limitation, the use of all stationery,
telephone directory listing, and other printed material
referring in any way to Toyota or bearing any Toyota Mark;
b. Discontinue the use of the Toyota Marks, or any semblance of
same, as part of its business or corporate name, and file a
change or discontinuance of such name with appropriate
authorities;
c. Remove all product signs bearing Toyota Marks. Product signs
owned by DEALER shall be removed and disposed of at DEALER's
sole cost and expense. Product signs leased to DEALER by or
through IMPORTER or its representative shall be removed from
DEALER's premises at IMPORTER's sole cost and expense. DEALER
hereby grants permission for DISTRIBUTOR to enter upon
DEALER's premises to remove signs leased to DEALER by
IMPORTER;
d. Cease representing itself as an authorized Toyota Dealer; and
e. Refrain from any action, including without limitation, any
advertisement, statement or implication that it is authorized
to sell or distribute Toyota Products.
In the event DEALER fails to comply promptly with the terms and
conditions of this Section, DISTRIBUTOR shall have the right to
enter upon DEALER's premises and remove, without notice or
liability, all such product signs and identification bearing the
Toyota Marks. DEALER agrees that it shall reimburse DISTRIBUTOR
for any costs and expenses incurred in the removal of signs owned
by DEALER bearing the Toyota Marks, including reasonable attorney
fees.
XIX. EVALUATION OF DEALER'S PERFORMANCE
DEALER acknowledges the importance of its overall performance in relation
to the purposes and objectives of this Agreement. DISTRIBUTOR will
periodically evaluate DEALER's performance of its responsibilities in the
areas of sales, service and parts, facili-
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ties and customer satisfaction, based upon such reasonable criteria as
DISTRIBUTOR may establish from time to time. DISTRIBUTOR agrees to review
all such evaluations with DEALER and will provide DEALER a copy thereof.
Where performance is below acceptable standards of DISTRIBUTOR, DEALER
agrees to take prompt action to improve its performance and, if requested
by DISTRIBUTOR, to notify DISTRIBUTOR in writing of its detailed plans and
timetables for accomplishing those improvements.
A. SALES PERFORMANCE EVALUATION
Pursuant to Section XIV herein, DISTRIBUTOR will evaluate DEALER's
sales performance under criteria established by DISTRIBUTOR, which
may include, but is not limited to, the achievement of reasonable
sales objectives as DISTRIBUTOR may establish; comparisons of DEALER's
sales and/or registrations to those of comparable Toyota dealers and
other line makes within DEALER's Primary Market Area or such area(s)
which DISTRIBUTOR believes is a reasonable basis for comparison; sales
performance trends over a reasonable period of time; and the manner in
which DEALER has conducted its sales and marketing operations.
B. SERVICE PERFORMANCE EVALUATION
Pursuant to Sections XV and XVI herein, DISTRIBUTOR will evaluate
DEALER's service performance in such areas as, without limitation,
warranty management, compliance with the Toyota Warranty Policy and
Procedures Manual, service management, service operating procedures,
service staffing and training, administration, service facilities and
equipment, new vehicle pre-delivery service, customer handling and
customer retention.
C. PARTS PERFORMANCE EVALUATION
Pursuant to Section XVI herein, DISTRIBUTOR will evaluate DEALER'S
parts performance in such areas as, without limitation, general parts
management, parts operating procedures, parts staffing and training,
parts facilities, parts inventory management, parts sales, accessory
sales, parts merchandising and parts availability to customers.
D. CUSTOMER SATISFACTION PERFORMANCE EVALUATION
Pursuant to Section XVII, herein, DISTRIBUTOR will evaluate DEALER's
performance of its responsibilities in the area of customer
satisfaction based on the following considerations:
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1. DISTRIBUTOR will provide DEALER with customer satisfaction
reports or such other equivalent data as will permit DEALER to
assess its performance and maintain the highest level of customer
satisfaction. DEALER agrees to review with its employees on a
regular basis the results of the customer satisfaction reports or
other data it receives.
2. DEALER agrees to develop, implement and review with DISTRIBUTOR
specific action plans for improving results in the event that
DEALER is below the average customer satisfaction levels for
other Toyota dealers in such areas that DISTRIBUTOR believes are
a reasonable basis for comparison. DEALER shall respond on a
timely basis to requests from DISTRIBUTOR to take action on
unsatisfactory customer satisfaction matters and to commit
necessary resources to remedy deficiencies reasonably specified
by DISTRIBUTOR, and DEALER shall remedy those deficiencies.
DISTRIBUTOR reserves the right to establish reasonable, uniform
criteria to be used to evaluate DEALER.
E. DEALERSHIP FACILITIES EVALUATION
Pursuant to Section XVIII, herein, DISTRIBUTOR will evaluate DEALER's
performance of its responsibilities in the area of dealership
facilities.
XX. CAPITAL, CREDIT, RECORDS AND UNIFORM SYSTEMS
A. NET WORKING CAPITAL
The amount and structure of the net working capital required to
properly conduct the business of DEALER depends upon many factors,
including the nature, size and volume of DEALER's vehicle sales,
service and parts operations. Therefore, DEALER agrees to establish
and maintain actual net working capital in an amount not less than the
minimum net working capital specified in a separate Minimum Net
Working Capital Agreement executed by DEALER and DISTRIBUTOR
concurrently with this Agreement. If, either because of changed
conditions or because DISTRIBUTOR adopts a new net working capital
formula, DISTRIBUTOR shall have the right to revise DEALER's minimum
net working capital requirement to be used in DEALER's operation. If
so revised, DEALER agrees to enter into the revised Minimum Net
Working Capital Agreement and to meet the new standard within a
reasonable period of time as established by DISTRIBUTOR.
B. FLOORING LINE
DEALER recognizes that its ability to fulfill its obligations under
this Agreement is dependent upon its maintenance of flooring which is
sufficient to sustain its ongoing
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operations. DEALER agrees to obtain and maintain at all times a
confirmed and adequate flooring line with a bank or financial
institution or other method of financing acceptable to DISTRIBUTOR to
enable DEALER to perform its obligations pursuant to this Agreement.
Subject to the foregoing obligations, DEALER is free to do its
financing business, wholesale, retail or both, with whomever it
chooses and to the extent it desires.
C. PAYMENT TERMS AND SETTLEMENT OF ACCOUNTS
All monies or accounts due DEALER from DISTRIBUTOR will be considered
net of DEALER's obligations to DISTRIBUTOR on DEALER's parts/open
account. DISTRIBUTOR may deduct or offset any amounts due or to become
due from DEALER to DISTRIBUTOR, or any amounts held by DISTRIBUTOR,
from or against any sums or accounts due or to become due from
DISTRIBUTOR to DEALER. Payments by DEALER to DISTRIBUTOR shall be made
by electronic bank draft or in any other manner prescribed by
DISTRIBUTOR and shall be applied against DEALER's indebtedness in
accordance with DISTRIBUTOR's policies and practices. DISTRIBUTOR
shall have the right to apply payments received from DEALER to any
amount owed to DISTRIBUTOR, in DISTRIBUTOR's sole discretion. All
obligations owed by DEALER to DISTRIBUTOR shall be due and payable
when billed, unless other terms are established by DISTRIBUTOR in
writing.
Under no circumstances will DISTRIBUTOR enter into a new Agreement
with a proposed transferee unless DEALER first makes arrangements
acceptable to DISTRIBUTOR to satisfy any outstanding obligations to
DISTRIBUTOR on DEALER's parts/open account.
D. UNIFORM ACCOUNTING SYSTEM
DEALER agrees to maintain its financial books and records in
accordance with the Toyota Dealer Accounting Manual, as amended from
time to time by DISTRIBUTOR In addition, DEALER shall furnish to
DISTRIBUTOR, who may also furnish it to IMPORTER and FACTORY, complete
and accurate financial and operating information by the tenth (10th)
of each month in a format prescribed by DISTRIBUTOR. This information
shall include, without limitation, a complete and accurate financial
and operating statement covering the preceding month and calendar
year-to-date operations, including any adjusted year-end statements,
showing the true condition of DEALER's business. All such information
shall be furnished by DEALER to DISTRIBUTOR via DISTRIBUTOR's
electronic communications network and/or in hard copy and/or in any
other manner designated by DISTRIBUTOR.
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E. RECORDS MAINTENANCE
DEALER agrees to keep complete, accurate and current records regarding
its sale, lease and servicing of Toyota Products for a minimum of five
(5) years, regardless of any retention period required by any
governmental entity. DEALER shall prepare, keep current and retain
records in support of requests for reimbursement for warranty and
policy work performed by DEALER in accordance with the IMPORTER's
Toyota Warranty Policy and Procedures Manual.
F. EXAMINATION OF DEALERSHIP ACCOUNTS AND RECORDS
DISTRIBUTOR, in its sole discretion, without notice and for any reason
whatsoever, shall have the right during regular business hours to
inspect DEALER's facilities and to examine, audit and to reproduce all
records, accounts and supporting data relating to the operations of
DEALER, including without limitation, sales, sales reporting, service
and repair of Toyota Products by DEALER. If requested by DEALER,
DISTRIBUTOR agrees to review any report with DEALER and to provide a
copy of any report of the examination or audit of DEALER.
G. TAXES
DEALER shall be responsible for and duly pay all taxes of any kind,
including, but not limited to, sales taxes, use taxes, excise taxes
and other governmental municipal charges imposed, levied or based upon
the sale of Toyota Products by DEALER, and shall maintain accurate
records of the same.
H. CONFIDENTIALITY
Except as provided in Sections XX(D) above and XXI(A), below,
DISTRIBUTOR agrees that it shall not provide any financial
information, documents or other information submitted to it by DEALER
to any third party, other than subsidiary and parent corporations of
DISTRIBUTOR, unless authorized by DEALER, required by law, required to
effectuate the terms and conditions of this Agreement, or required to
generate composite or comparative data for analytical purposes.
DEALER agrees to keep confidential and not to disclose, directly or
indirectly, any information that DISTRIBUTOR designates as
confidential,
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I. INFORMATION COMMUNICATION SYSTEMS
To facilitate the accurate and prompt reporting of such relevant
dealership operational and financial information as DISTRIBUTOR may
require, DEALER agrees to install and maintain electronic
communication processing facilities which are compatible with and
which will facilitate the transmission and reception of such
information on the electronic communications network utilized by
DISTRIBUTOR.
J. SALES REPORTING
DEALER agrees to report accurately to DISTRIBUTOR, together with such
information as DISTRIBUTOR may reasonably require, the delivery of
each new motor vehicle to a purchaser by the end of the day in which
the vehicle is delivered to the purchaser thereof; and to furnish
DISTRIBUTOR with such other reports in such form as DISTRIBUTOR may
reasonably require from time to time.
XXI. RIGHT OF FIRST REFUSAL OR OPTION TO PURCHASE
A. RIGHTS GRANTED
If a proposal to sell the dealership's assets or transfer its
ownership is submitted by DEALER to DISTRIBUTOR, or in the event of
the death of the majority Owner of DEALER, DISTRIBUTOR has a right of
first refusal or option to purchase the dealership assets or stock,
including any leasehold interests or realty. DISTRIBUTOR's exercise of
its right or option under this Section supersedes any right or attempt
by DEALER to transfer its interest in, or ownership of, the
dealership. DISTRIBUTOR's right or option may be assigned by it to any
third party and DISTRIBUTOR hereby guarantees the full payment to
DEALER of the purchase price by such assignee. DISTRIBUTOR may
disclose the terms of any pending buy/sell agreement and any other
relevant dealership performance information to any potential assignee.
DISTRIBUTOR's rights under this Section will be binding on and
enforceable against any successor in interest of DEALER or purchaser
of DEALER's assets or stock.
B. EXERCISE OF DISTRIBUTOR'S RIGHTS
DISTRIBUTOR shall have thirty (30) days from the following events
within which to exercise its right of first refusal or option to
purchase: (i) DISTRIBUTOR's receipt of all data and documentation
customarily required by it to evaluate a proposed transfer of
ownership; (ii) DISTRIBUTOR's receipt of written notice from DEALER of
the death of the majority Owner of DEALER, or (iii) DISTRIBUTOR's
disapproval of any application submitted by
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an Owner's heirs pursuant to Section XXII. DISTRIBUTOR's exercise of
its right of first refusal under this Section shall neither be
dependent upon nor require its prior consideration of or refusal to
approve the proposed buyer or transferee.
C. RIGHT OF FIRST REFUSAL
If DEALER has entered into a bona fide written agreement to sell its
dealership stock or assets, DISTRIBUTOR's right under this Section is
a right of first refusal, enabling DISTRIBUTOR to assume the buyer's
rights and obligations under such agreement, and to terminate this
Agreement and all rights granted DEALER. Upon DISTRIBUTOR's request,
DEALER agrees to provide other documents relating to the proposed
transfer and any other information which DISTRIBUTOR deems
appropriate, including, but not limited to, those reflecting other
agreements or understandings between the parties to the buy/sell
agreement. Refusal to provide such documentation or to state in
writing that no such documents exist shall create the presumption that
the buy/sell agreement is not a bona fide agreement.
D. OPTION TO PURCHASE
In the event of the death of the majority Owner of DEALER or if DEALER
submits a proposal which DISTRIBUTOR reasonably believes is not bona
fide, DISTRIBUTOR has the option to purchase the principal assets of
DEALER utilized in the dealership business, including real estate and
leasehold interests, and to cancel this Agreement and the rights
granted DEALER. The terms and conditions of the purchase of the
dealership assets will be determined by good faith negotiations
between the parties. If an agreement cannot be reached, those terms
will be exclusively determined by arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association.
The site of the arbitration shall be the office of the American
Arbitration Association in the locality of DISTRIBUTOR's principal
place of business.
E. DEALER'S OBLIGATIONS
Upon DISTRIBUTOR's exercise of its right or option and tender of
performance hereunder, DEALER shall forthwith transfer the affected
real property by warranty deed or its equivalent, conveying marketable
title free and clear of all liens, claims, mortgages, encumbrances,
interests and occupancies. The warranty deed or its equivalent shall
be in proper form for recording, and DEALER shall deliver complete
possession of the property and deed at the time of closing. DEALER
shall also furnish to DISTRIBUTOR all copies of any easements,
licenses or other documents affecting the property or dealership
operations and shall assign any permits or licenses that are necessary
or desirable for the
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use of or appurtenant to the property or the conduct of such
dealership operations. DEALER shall also forthwith execute and deliver
to DISTRIBUTOR instruments satisfactory to DISTRIBUTOR conveying title
to all affected personal property and leasehold interests involved in
the transfer or sale to DISTRIBUTOR. If any personal property is
subject to any lien or charge of any kind, DEALER agrees to procure
the discharge and satisfaction thereof prior to the closing of sale of
such property to DISTRIBUTOR.
F. NO APPLICABILITY TO NOMINATED SUCCESSOR
Section XXI shall not apply to any DEALER whose proposed transfer of
assets or ownership is to a candidate who is currently approved by
DISTRIBUTOR to be DEALER's nominated successor pursuant to Section
XXII(C).
XXII. SUCCESSION RIGHTS UPON DEATH OR INCAPACITY
A. SUCCESSION TO OWNERSHIP AFTER DEATH OF OWNER
In the event that Owner dies and his or her interest in Dealership
passes directly to any person or persons ("Heirs") who wish to succeed
to Owner's interest, then Owner's legal representative must notify
DISTRIBUTOR within sixty (60) days of the death of the Owner of such
Heir's or Heirs' intent to succeed Owner. The legal representative
also must then designate a proposed General Manager for DISTRIBUTOR
approval. The effect of such notice from Owner's legal representative
will be to suspend any notice of termination provided for in Section
XXIII(B)(4) issued hereunder.
Upon delivery of such notice, Owner's legal representative shall
immediately request any person(s) identified by it as intending to
succeed Owner and the designated candidate for General Manager to
submit an application and to provide all personal and financial
information that DISTRIBUTOR may reasonably and customarily require in
connection with its review of such applications. All requested
information must be provided promptly to DISTRIBUTOR and in no case
later than thirty (30) days after receipt of such request from Owner's
legal representative. Upon the submission of all requested
information, DISTRIBUTOR agrees to review such application(s) pursuant
to the then current criteria generally applied by DISTRIBUTOR in
qualifying dealer Owners and/or General Managers. DISTRIBUTOR shall
either approve or disapprove the application(s) within ninety (90)
days of full compliance with all DISTRIBUTOR's requests for
information. If DISTRIBUTOR approves the application(s), it shall
offer to enter into a new Toyota Dealer Agreement with Owner's Heir(s)
in the form then currently in use, subject to such additional
conditions and for such a term as DISTRIBUTOR deems appropriate.
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In the event that DISTRIBUTOR does not approve the designated Heir(s)
or designated candidate for General Manager, or if the Owner's legal
representative withdraws his or her notice of the Heir(s) intent to
succeed as Owner(s), or if the legal representative or any proposed
owners or General Manager fails to timely provide the required
information, DISTRIBUTOR may reinstate or issue a notice of
termination. Nothing in this Section shall constitute a waiver of
DISTRIBUTOR's right under Section XXI to exercise its right of first
refusal or option to purchase.
B. INCAPACITY OF OWNER
The parties agree that, as used herein, incapacity shall refer to any
physical or mental ailment that, in DISTRIBUTOR's opinion, adversely
affects Owner's ability to meet his or her obligations under this
Agreement. DISTRIBUTOR may terminate this Agreement when an
incapacitated Owner also is the General Manager identified herein.
Prior to the effective date of any notice of termination, an
incapacitated Owner who is also the General Manager, or his or her
legal representative, may propose a new candidate for the position of
General Manager. Such proposal shall be in writing and shall suspend
any pending notice of termination until DISTRIBUTOR advises DEALER of
its approval or disapproval of the new candidate. Upon receipt of such
notice, DISTRIBUTOR and DEALER shall follow the qualification
procedures set forth in subsection (A) above.
C. NOMINATION OF SUCCESSOR
PRIOR TO DEATH OR INCAPACITY OF OWNER
An Owner owning a majority of DEALER's stock may nominate a candidate
to assume ownership and/or the position of General Manager of the
dealership upon his or her death or incapacity.
As soon as practicable after such nomination, DISTRIBUTOR will request
such personal and financial information from the nominated Owner
and/or General Manager candidate as it reasonably and customarily may
require in evaluating such candidates. DISTRIBUTOR shall apply
criteria then currently used by DISTRIBUTOR in qualifying Owners
and/or General Managers of authorized dealers. Upon receipt of all
requested information, DISTRIBUTOR shall either approve or disapprove
such candidate. Approval by DISTRIBUTOR will not be unreasonably
withheld. In the event of the death or incapacity of the nominating
Owner, DISTRIBUTOR will enter into a new Toyota Dealer Agreement with
the approved nominee of a length to be determined by DISTRIBUTOR.
DISTRIBUTOR agrees that DEALER may renominate the candidate
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after the expiration of this Agreement, and DISTRIBUTOR will approve
such nomination provided: (1) DISTRIBUTOR and DEALER have entered into
a new Toyota Dealer Agreement; and (2) the proposed candidate
continues to comply with the then current criteria used by DISTRIBUTOR
in qualifying such candidates. If DISTRIBUTOR does not initially
qualify the candidate, DISTRIBUTOR agrees to review the reason(s) for
its decision with Owner. Owner is free at any time to renew its
nomination. However, in such instances, the candidate must again
qualify pursuant to the then current criteria. Owner may, by written
notice, withdraw a nomination at any time, even if DISTRIBUTOR has
previously qualified said candidate.
XXIII. TERMINATION
A. VOLUNTARY TERMINATION BY DEALER
DEALER may voluntarily terminate this Agreement at any time by written
notice to DISTRIBUTOR. Termination shall be effective thirty (30) days
after receipt of the notice by DISTRIBUTOR, unless otherwise mutually
agreed in writing.
B. TERMINATION FOR CAUSE
1. IMMEDIATE TERMINATION
DEALER and DISTRIBUTOR agree that the following conduct is within
DEALER's control and is so contrary to the goals, purposes and
objectives of this Agreement as to warrant its immediate
termination. Accordingly, DEALER agrees that if it engages in any
of the following types of conduct, DISTRIBUTOR shall have the
right to terminate this Agreement immediately:
a. If DEALER fails to conduct any customary dealership operations
for seven consecutive business days during DEALER's customary
business hours, except in the event such closure or cessation
of operation is caused by some physical event beyond the
control of DEALER, such as fires, floods, earthquakes, or
other acts of God;
b. If DEALER becomes insolvent, or files any petition under
bankruptcy law, or executes an assignment for the benefit of
creditors, or appoints a receiver or trustee or another
officer having similar powers is appointed for DEALER and is
not removed within thirty (30) days from his appointment
thereto or there is any levy under attachment or execution or
similar process which is not vacated or removed by payment or
bonding within ten (10) days;
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c. If DEALER, or any Owner or officer or parent company of
DEALER, is convicted of any felony;
d. If DEALER or any Owner, officer or General Manager of DEALER
makes any material misrepresentation to DISTRIBUTOR,
including, but not limited to, any misrepresentations made by
DEALER to DISTRIBUTOR in applying for this Agreement or for
approval as Owner or General Manager of DEALER;
e. If DEALER fails to obtain or maintain any license, permit or
authorization necessary for the conduct by DEALER of his or
her business pursuant to this Agreement, or such license,
permit or authorization is suspended or revoked; or
f. If DEALER makes any attempted or actual sale, transfer or
assignment by DEALER of this Agreement or any of the rights
granted DEALER hereunder, or upon any attempted or actual
transfer, assignment or delegation by DEALER of any of the
responsibilities assumed by it under this Agreement without
the prior written approval of DISTRIBUTOR.
2. TERMINATION UPON SIXTY DAYS NOTICE
The following conduct violates the terms and conditions of this
Agreement and, if DEALER engages in such conduct, DISTRIBUTOR
shall have the right to terminate this Agreement upon sixty (60)
days notice:
a. Appointment of a new General Manager without the prior written
approval of DISTRIBUTOR;
b. Conducting, directly or indirectly, any Toyota dealership
operation at any location other than at the Approved
Location(s);
c. Failure of DEALER to make any payments to DISTRIBUTOR when
due;
d. Failure of DEALER to establish or maintain during the
existence of this Agreement the required net working capital
or adequate flooring line;
e. Any dispute, disagreement or controversy among Owners,
partners, managers, officers or stockholders of DEALER that,
in the reasonable opinion of DISTRIBUTOR, adversely affects
the ownership, operation, management, business, reputation or
interests of DEALER or DISTRIBUTOR;
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f. Impairment of the reputation or financial standing of DEALER,
Owner, officer or parent company subsequent to the execution
of this Agreement;
g. Refusal to permit DISTRIBUTOR to examine or audit DEALER's
accounting records as provided herein upon receipt by DEALER
from DISTRIBUTOR of written notice requesting such permission
or information;
h. Failure of DEALER to furnish all required sales or financial
information and related supporting information in a timely
manner;
i. Any civil, criminal or administrative liability found against
DEALER or any Owner, officer or parent company of DEALER for
any automotive-related matter which adversely affects the
ownership, operation, management, reputation, business or
interests of DEALER, or impairs the goodwill associated with
the Toyota Marks; or
j. Breach or violation by DEALER of any other term or provision
of this Agreement.
3. TERMINATION FOR FAILURE OF PERFORMANCE
If, upon evaluation of DEALER's performance pursuant to Section
XIX, herein, DISTRIBUTOR concludes that DEALER has failed to
perform adequately its sales, service, parts or customer
satisfaction responsibilities or to provide adequate dealership
facilities, DISTRIBUTOR shall notify DEALER in writing of such
failure(s) and will endeavor to review promptly with DEALER the
nature and extent of such failure(s), and will grant DEALER 180
days or such other period as may be required by law to correct
such failure(s). If DEALER fails or refuses to correct such
failure(s) or has not made substantial progress towards remedying
such failure(s) at the expiration of such period, DISTRIBUTOR may
terminate this Agreement upon sixty (60) days notice or such
other notice as may be required by law. Section XXIII(B)(3) shall
not be applicable where DEALER has relocated without
DISTRIBUTOR's approval.
4. TERMINATION UPON DEATH OR INCAPACITY
DISTRIBUTOR may terminate this Agreement in the event of the death of
an Owner or upon the incapacity of any Owner who is also the General
Manager identified herein, upon written notice to DEALER and/or such
Owner's legal representative. Termination upon either of these events
shall be effective ninety (90) days from the date of such notice.
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C. NOTICE OF TERMINATION
Any notice of termination under this Agreement shall be in writing and
shall be mailed to DEALER or its General Manager at DEALER's Approved
Location by certified mail, return receipt requested, or shall be
delivered in person to the dealership. Such notice shall be effective
upon the date of receipt. DISTRIBUTOR need not state all grounds on
which it relies in its termination of DEALER, and shall have the right
to amend such notice as appropriate. DISTRIBUTOR's failure to refer to
any additional grounds for termifiation shall not constitute a waiver
of its right later to rely upon such grounds.
D. CONTINUANCE OF BUSINESS RELATIONS
Upon receipt of any notice of termination or non-renewal, DEALER
agrees to conduct itself and its operation until the effective date of
termination or non-renewal in a manner that will not injure the
reputation or goodwill of the Toyota Marks or DISTRIBUTOR
E. REPURCHASE PROVISIONS
1. DISTRIBUTOR'S OBLIGATIONS
Upon the expiration or termination of this Agreement (other than
pursuant to an approved agreement to sell the dealership business
or assets or to otherwise transfer the ownership of DEALER),
DISTRIBUTOR shall repurchase from DEALER the following:
a. New; unused, never titled, unmodified, undamaged, current
model year Toyota Motor Vehicles with less than 100 miles,
then unsold in DEALER's inventory. The prices of such Motor
Vehicles shall be the same as those at which they were
originally purchased by DEALER, less all prior refunds or
other allowances made by DISTRIBUTOR to DEALER with respect
thereto.
b. New, unused and undamaged Toyota parts and accessories,
contained in the original packaging, then unsold in DEALER's
inventory that are in good and saleable condition. The prices
for such parts and accessories shall be the prices last
established by DISTRIBUTOR for the sale of identical parts or
accessories to dealers in the area in which DEALER is located.
c. Special service tools recommended by DISTRIBUTOR and then
owned by DEALER and that are especially designed for servicing
Toyota Motor Vehicles. The prices for such special service
tools will be the price paid by DEALER less appropriate
depreciation, or such other price as the parties may
negotiate.
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d. Signs that DISTRIBUTOR has recommended for identification of
DEALER and are owned by DEALER. The price of such signs shall
be the price paid by DEALER less appropriate depreciation or
such other price as the parties may negotiate.
2. RESPONSIBILITIES OF DEALER
DISTRIBUTOR's obligations to repurchase the items set forth in this
Section are contingent upon DEALER fulfilling the following
obligations:
a. Within thirty (30) days after the date of expiration or the
effective date of termination of this Agreement, DEALER shall
deliver or mail to DISTRIBUTOR a detailed inventory of all items
referred to in this Section which it requests DISTRIBUTOR to
repurchase and shall certify that such list is true and accurate.
b. DEALER shall be entitled to request repurchase of only those
items which it purchased from DISTRIBUTOR, unless DISTRIBUTOR
agrees otherwise.
c. Products and special service tools to be repurchased by
DISTRIBUTOR from DEALER shall be delivered by DEALER to
DISTRIBUTOR's place of business at DEALER's expense.
d. DEALER will execute and deliver to DISTRIBUTOR instruments
satisfactory to DISTRIBUTOR conveying good and marketable title
to the aforesaid items to DISTRIBUTOR. If such items are subject
to any lien or charge of any kind, DEALER will procure the
discharge in satisfaction thereof prior to their repurchase by
DISTRIBUTOR.
e. DEALER will remove, at its own expense, all signage bearing
Toyota marks which it owns from DEALER's Approved Location(s)
before it is eligible for payment for any repurchased items
pursuant to Section XXIII(E).
3. PAYMENT BY DISTRIBUTOR
DISTRIBUTOR will pay DEALER for such items as DEALER may request be
repurchased and that qualify hereunder as soon as practicable upon
DEALER's compliance with the obligations set forth herein and upon
computation of any outstanding indebtedness of DEALER to DISTRIBUTOR.
DISTRIBUTOR shall have the right to offset from any amounts due to
DEALER hereunder the total sum of DEALER's outstanding indebtedness to
DISTRIBUTOR.
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If DEALER disagrees with DISTRIBUTOR's valuation of any item herein,
and DEALER and DISTRIBUTOR have not resolved their disagreement within
sixty (60) days of the effective date of termination or expiration of
this Agreement, DISTRIBUTOR shall pay to DEALER the amount to which it
reasonably believes DEALER is entitled. DEALER's exclusive remedy to
recover any additional sums that it believes is due under this Section
shall be by resort to any existing Alternative Dispute Resolution
program established by DISTRIBUTOR that is binding on DISTRIBUTOR. If
no Alternative Dispute Resolution program is then existing, DEALER's
exclusive remedy shall be by resort to arbitration in accordance with
the commercial arbitration rules of the American Arbitration
Association (AAA). The site of the arbitration shall be the office of
the AAA in the locality of DISTRIBUTOR's principal place of business.
XXIV. MANAGEMENT OF DISPUTES
A. ALTERNATIVE DISPUTE RESOLUTION PROGRAMS
DISTRIBUTOR and DEALER acknowledge that disputes involving the
performance of this Agreement may from time to time arise that cannot
be resolved at the DISTRIBUTOR level. In order to minimize the effects
of such disputes on their business relationship, the parties agree to
participate in such Alternative Dispute Resolution programs, including
mediation, as may be established by DISTRIBUTOR in its sole
discretion.
It is expressly understood that, unless otherwise specified in this
Agreement, the results of any Alternative Dispute Resolution program
will not be binding upon DEALER, but shall be binding upon
DISTRIBUTOR. The parties' commitment to support and participate in
Alternative Dispute Resolution programs specifically is not a waiver
of DEALER's right to later resort to litigation before any judicial or
administrative forum.
B. APPLICABLE LAW
This Agreement shall be governed by and construed according to the
laws of the state in which DEALER is located.
C. MUTUAL RELEASE
Each party hereby releases the other from any and all claims and
causes of action that it may have against the other for money damages
arising from any event occurring prior to the date of execution of
this Agreement, except for any accounts payable by one
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party to the other as a result of the purchase of any Toyota Products,
audit adjustments or reimbursement for any services. This release does
not extend to claims which either party does not know or reasonably
suspect to exist in its favor at the time of the execution of this
Agreement.
XXV. DEFENSE AND INDEMNIFICATION
A. DEFENSE AND INDEMNIFICATION BY DISTRIBUTOR
DISTRIBUTOR agrees to assume the defense of DEALER and to indemnify
and hold harmless DEALER, expressly conditioned and subject to all
provisions of Section XXV(C), against loss in any lawsuit or claim
naming DEALER for bodily injury, property damage or breach of warranty
caused solely by an alleged defect in design, manufacture or assembly
of a Toyota Product (except for tires not manufactured by FACTORY)
sold by DISTRIBUTOR to DEALER for resale that has not been altered,
converted or modified by or for DEALER, provided that the alleged
defect could not reasonably have been discovered by DEALER during pre-
delivery inspection or service or installation of Toyota Products,
less any offset. DISTRIBUTOR agrees to defend, to indemnify and hold
harmless DEALER for alleged misrepresentations, misleading statements,
unfair or deceptive trade practices of DISTRIBUTOR, IMPORTER or
FACTORY or any substantial damage to a Toyota Product purchased by
DEALER from DISTRIBUTOR which was improperly repaired by DISTRIBUTOR
unless DEALER has been notified of such damage in writing prior to
retail delivery of the affected Toyota Product. Notwithstanding any
provision of this Agreement, DISTRIBUTOR shall not be required to
defend, to indemnify or hold harmless DEALER against loss resulting
from any claim, complaint, or action alleging DEALER misconduct,
including but not limited to, improper or unsatisfactory service or
repair, or misrepresentations, or any claim of DEALER's unfair or
deceptive trade practices or any claim of improper environmental or
work place practices or conditions.
B. DEFENSE AND INDEMNIFICATION BY DEALER
DEALER agrees to assume the defense of DISTRIBUTOR, IMPORTER or
FACTORY and to indemnify and hold them harmless, expressly conditioned
and subject to all provisions of Section XXV(C), against loss in any
lawsuit or claim naming DISTRIBUTOR, IMPORTER or FACTORY, or their
subsidiaries or affiliates, when the claim or lawsuit directly or
indirectly involves any allegations of: (1) DEALER's alleged failure
to comply, in whole or in part, with any obligation assumed by DEALER
pursuant to this Agreement; or (2) DEALER's alleged negligent or
improper repairing or servicing or installation of a new or used
Toyota Motor Vehicle or Toyota Product, or any loss related to other
motor vehicles or equipment, other than Toyota Motor Vehicles or
Products, as may be
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sold, serviced, repaired or installed by DEALER; or (3) DEALER's
alleged breach of any contract or warranty other than that provided by
DISTRIBUTOR, IMPORTER or FACTORY; or (4) DEALER's alleged misleading
statements, misrep-resentations, or deceptive or unfair trade
practices; or (5) any modification, conversion or alteration made by
or for DEALER to a Toyota Product, except those made pursuant to the
express written approval and instruction of DISTRIBUTOR, IMPORTER or
FACTORY; or (6) any and all claims arising out of or in any way
connected to the hiring, retention or termination of any person by
DEALER, including but not limited to, claims of employment
discrimination, age, race or sex discrimination or harassment,
wrongful discharge or termination, breach of the covenant of good
faith and fair dealing, breach of contract, interference with
contractual relations, intentional and/or negligent infliction of
emotional distress, defamation, negligent hiring, violations of or
non-compliance with: the Occupational Safety and Health Act, the Fair
Labor Standards Act, or the Employment Retirement Income and Security
Act ("ERISA") or any similar state or local laws.
C. CONDITIONAL DEFENSE AND/OR INDEMNIFICATION
The obligations of the DEALER, DISTRIBUTOR, IMPORTER or FACTORY to
defend, to indemnify and hold harmless are expressly conditioned and
subject to all of the following terms:
1. The party initially requesting defense and/or indemnification
shall make such request in writing and deliver to the other party
within twenty (20) days of service of any legal process or within
twenty (20) days of discovery of facts giving rise to
indemnification, whichever is sooner.
2. The party requesting defense and/or indemnification covenants,
represents and warrants that it, its agents or employees have not
permitted a default judgment to be entered and have not made any
direct or indirect admissions of liability, and are not aware of
any credible evidence to support any independent claim of
liability or lack of unity of interest. Said party further agrees
to cooperate fully in the defense of such action as may be
reasonably required.
3. The party requested to defend and/or indemnify shall have sixty
(60) days from receipt of a request in writing to conduct an
investigation or otherwise determine whether or not, or under
what conditions, it will agree to defend and/or indemnify
4. During the pendency of a request for defense and/or
indemnification, and there-after, the requesting party shall have
a continuing duty to avoid undue prejudice to
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the other party and to mitigate damages. The party requesting
indemnification shall protect its own interests until a decision
has been made to assume the defense and/or provide
indemnification.
5. The party accepting the request for defense and/or
indemnification shall have the right to engage and direct counsel
of its own choosing and shall have the obligation to reimburse
the requesting party for all reasonable costs and expenses,
including reasonable attorneys' fees, incurred prior to such
assumption except where the request is made under the
circumstances described in XXV(C)(6), and subject to the
provisions of XXV(C) (9).
6. If subsequent developments in a case, supported by credible
evidence, cause a party to reasonably conclude that the
allegations which initially preclude a request or acceptance of a
request for defense and/or indemnification are meritless or no
longer at issue, then the request may be retendered.
7. No party shall be required to agree to such a subsequent request
or retender of defense and/or indemnification where that party
would be unduly prejudiced by such delay. Initial acceptance by
any party of defense and/or indemnification is not a waiver of
the right to retender timely.
8. A party agreeing to defend and/or indemnify may make its written
agreement conditioned upon the continued existence of the state
of facts as then known as well as such other reasonable
conditions as may be dictated by the particular allegations or
claims.
9. Any party withdrawing from its agreement to defend and/or
indemnify, shall give timely written notice which shall be
effective upon receipt. The withdrawing party shall be
responsible for all costs and expenses of defense prior to
receipt of notice of withdrawal, except for those reasonable
costs and expenses, including reasonable attorneys' fees,
incurred solely for the benefit of the other party.
10. The defense, indemnification and hold harmless obligations of
this Agreement shall survive the termination of this Agreement.
XXVI. GENERAL PROVISIONS
A. NOTICES
Except as otherwise specifically provided herein, any notice required
to be given by either party to the other shall be in writing and
delivered personally to the dealership or by certi-
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fled mail, return receipt requested, and shall be effective on the
date of receipt. Notices to DEALER shall be directed to DEALER or its
General Manager at DEALER's Approved Location. Notices to DISTRIBUTOR
shall be directed to the General Manager of DISTRIBUTOR.
B. NO IMPLIED WAIVERS
The failure of either party at any time to require performance by the
other party of any provision herein shall in no way affect the right
of such party to require such performance at any time thereafter, nor
shall any waiver by any party of a breach of any provision herein
constitute a waiver of any succeeding breach of the same or any other
provision, nor constitute a waiver of the provision itself.
Any continuation of business relations between the parties following
expiration of this Agreement shall not be deemed a waiver of the
expiration nor shall it imply that either party has committed to
continue to do business with the other at any time in the future.
Should this Agreement be renewed or any other form of agreement be
offered to DEALER, DISTRIBUTOR reserves the right to offer an
agreement of a length and upon such additional terms and conditions as
it deems reasonable.
C. SOLE AGREEMENT OF THE PARTIES
There are no prior agreements or understandings, either oral or
written, between the parties affecting this Agreement or relating to
the sale or service of Toyota Products, except as otherwise
specifically provided for or referred to in this Agreement. DEALER
acknowledges that no representations or statements other than those
expressly set forth herein were made by DISTRIBUTOR or any officer,
employee, agent or representative thereof, or were relied upon by
DEALER in entering into this Agreement. This Agreement cancels and
supersedes all previous agreements between the parties relating to the
subject matters covered herein. No change or addition to, or deletion
of, any portion of this Agreement (except as provided in Section III)
shall be valid or binding upon the parties hereto unless the same is
approved in writing by an officer of each of the parties hereto.
D. DEALER NOT AN AGENT OR REPRESENTATIVE
DEALER is an independent business. This Agreement is not a property
right and does not constitute DEALER, Owners or employees of DEALER as
the agent or legal representatives of DISTRIBUTOR for any purpose
whatsoever. DEALER, Owners and employees of DEALER or any other
persons acting on behalf of DEALER are not granted
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any express or implied right or authority to assume or create any
obligation on behalf of or in the name of DISTRIBUTOR or to bind
DISTRIBUTOR in any manner whatsoever.
E. ASSIGNMENT OF RIGHTS OR DELEGATION OF DUTIES
This is a personal service agreement and may not be assigned or sold
in whole or in part, directly or indirectly, voluntarily or by
operation of law, without the prior written approval of DISTRIBUTOR.
Any attempted transfer, assignment or sale without DISTRIBUTOR's prior
written approval will be void and not binding upon DISTRIBUTOR
E. NO FRANCHISE FEE
DEALER warrants that it has paid no fee, nor has it provided any goods
or services in lieu of same, to DISTRIBUTOR or any other party in
consideration of entering into this Agreement. The sole consideration
for DISTRIBUTOR's entering into this Agreement is DEALER's ability,
integrity, assurance of personal services and expressed intention to
deal fairly and equitably with DISTRIBUTOR and the public.
G. SEVERABILITY
If any provision of this Agreement should be held invalid or
unenforceable for any reason whatsoever, or conflicts with any
applicable law, this Agreement will be considered divisible as to such
provisions, and such provisions will be deemed amended to comply with
such law, or if it cannot be so amended without materially affecting
the tenor of the Agreement, then it will be deemed deleted from this
Agreement in such jurisdiction, and in either case, the remainder of
the Agreement will be valid and binding.
H. NEW AND SUPERSEDING DEALER AGREEMENTS
In the event any new and superseding form of dealer Agreement is
offered by DISTRIBUTOR to authorized Toyota dealers generally at any
time prior to the expiration of the term of this Agreement,
DISTRIBUTOR may, by written notice to DEALER, replace this Agreement
with a new agreement in a new and superseding form for a term not less
than the then unexpired term of this Agreement.
I. BENEFIT
This Agreement is entered into by and between DISTRIBUTOR and DEALER
for their sole and mutual benefit. Neither this Agreement nor any
specific provision contained in it is intended or shall be construed
to be for the benefit of any third party.
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J. NO FIDUCIARY RELATIONSHIP
This Agreement shall not be construed to create a fiduciary
relationship between DEALER and DISTRIBUTOR.
K. NO JOINT EMPLOYMENT
DEALER acknowledges that it has assumed obligations under this
Agreement to use its best efforts to sell and service Toyota Products,
to increase the future growth in Toyota Product sales through
increased customer satisfaction and other obligations related to the
operation of the dealership and recognizes the necessity to employ and
train qualified personnel to satisfy these commitments. To this end,
DEALER agrees to employ only qualified persons who will fulfill the
commitments made by DEALER to DISTRIBUTOR in this Agreement.
Notwithstanding the foregoing, DEALER retains the sole and exclusive
right to determine whom to hire and their qualifications, to direct,
control and supervise DEALER's employees, and to establish all terms
and conditions of employment of DEALER's employees. All supervision,
control and direction of DEALER's employees shall be the sole and
exclusive responsibility of DEALER. DEALER shall at all times remain
the sole employer of persons employed by DEALER and, to this end,
DEALER and DISTRIBUTOR agree that no act or omission of DEALER or
DISTRIBUTOR shall be construed to make or render them joint employer,
co-employer or alter ego of each other.
L. CONSENT OF DISTRIBUTOR
Any time that this Agreement provides that DEALER must obtain
DISTRIBUTOR's consent to any proposed conduct or change, DEALER must
provide all information requested by DISTRIBUTOR concerning the
proposal, and DISTRIBUTOR shall have a reasonable amount of time in
which to evaluate the proposal.
M. DISTRIBUTOR'S POLICIES
This Agreement, from time to time, refers to certain policies and
standards. DEALER acknowledges that these policies and standards are
prepared by DISTRIBUTOR in its sole discretion based upon
DISTRIBUTOR's evaluation of the marketplace. DISTRIBUTOR may
reasonably amend its policies and standards as the marketplace changes
from time to time.
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XXVII. DEFINITIONS
As used in this Agreement, the parties agree that the following terms
shall be defined as exclusively set forth below.
A. OWNER: The persons identified in Section IV hereof.
B. GENERAL MANAGER: The person identified in Section V hereof.
C. DEALER FACILITIES: The buildings, improvements, fixtures, and
equipment situated at the Approved Location(s).
D. APPROVED LOCATION(S): The location(s) and any facilities thereon,
designated in Section VII that DISTRIBUTOR has approved for the
dealership operation(s) specified therein.
E. TOYOTA MARKS: The various Toyota trademarks, service marks, names,
logos and designs that DEALER is authorized by DISTRIBUTOR to use in
the sale and servicing of Toyota Products as specified in the current
Toyota Brand Graphic Standards Manual.
F. TOYOTA PRODUCTS: All Toyota Motor Vehicles, parts, accessories and
equipment which IMPORTER, in its sole discretion, sells to DISTRIBUTOR
for resale to authorized Toyota dealers.
G. TOYOTA MOTOR VEHICLES: All motor vehicles identified in the current
Toyota Product Addendum that DISTRIBUTOR sells to DEALER for resale.
H. GENUINE TOYOTA PARTS AND ACCESSORIES: All Toyota brand Parts and
Accessories manufactured by or on behalf of DISTRIBUTOR or FACTORY or
other parts and accessories specifically approved by FACTORY for use
in servicing Toyota Motor Vehicles and sold by DISTRIBUTOR to DEALER
for resale.
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ADDENDUM TO PARAGRAPH X
-----------------------
These Additional Provisions to Toyota Dealer Agreement ("Additional
Provisions") are entered into as of June 30, 1997, among DISTRIBUTOR, DEALER,
-------------
and FIRSTAMERICA AUTOMOTIVE, INC., a Nevada corporation (hereinafter "FAA"), and
form a part of and are incorporated into the Dealer Agreement.
RECITALS
--------
1. DISTRIBUTOR and DEALER have entered into a Toyota Dealer Agreement
(the "Dealer Agreement") dated as of June 30, 1997 .
------------------
2. FAA is the 100% shareholder of DEALER.
3. FAA and DEALER are hereinafter collectively referred to as the "Dealer
Parties". DISTRIBUTOR and the Dealer Parties are hereinafter collectively
referred to as the "Parties".
4. The Parties wish to enter into these Additional Provisions for the
purposes of agreeing to be bound by the terms of these Additional Provisions,
which are a part of and are incorporated into the Dealer Agreement.
5. The ownership of FAA shall be approximately as follows:
Thomas A. Price: 41%
- --------------------------------------------------------------------------------
Donald V. Strough: 11%
- --------------------------------------------------------------------------------
TCW\Crescent Mezzanine Partners, L.P.: 19%
- --------------------------------------------------------------------------------
Others: 29%
- --------------------------------------------------------------------------------
NOW THEREFORE, in consideration for the mutual agreements contained herein
and in the Dealer Agreement, the Parties agree as follows:
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A. General
1. DISTRIBUTOR and FAA have entered into an Agreement dated June
--------
30, 1997 (the "Agreement") relating, among other matters, to the number
- ------------
of Toyota and Lexus dealerships which may be acquired by FAA and its affiliates
and to certain aspects of the management of Toyota and Lexus dealerships owned
by FAA. The Dealer Parties agree that the Agreement is incorporated into and
forms a part of the Dealer Agreement and these Additional Provisions. To the
extent that any provision of the Agreement is inconsistent with the Dealer
Agreement or these Additional Provisions, the provisions of the Agreement shall
be controlling.
2. The Dealer Parties acknowledge and agree that if any provision of
these Additional Provisions is violated in any material respect by any of the
Dealer Parties, DISTRIBUTOR will have the right to terminate the Dealer
Agreement on sixty (60) days' written notice to Dealer if Dealer fails to cure
such violation prior to the expiration of such sixty (60) days.
B. Provisions Relating to the Structure of DEALER
----------------------------------------------
1. Single Purpose Entity. DEALER will be maintained as a separate
---------------------
legal entity, and will not engage in any business other than operation of a
Toyota dealership and activities related thereto.
2. No Merger, Consolidation, Etc. DEALER will not be merged with or
-----------------------------
into, or be consolidated with, or acquire substantially all of the assets of,
any other entity, without the prior written consent of DISTRIBUTOR, in its sole
discretion.
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C. Provisions Relating to Management
---------------------------------
1. Role of the Responsible Executive. Pursuant to Section 8 of the
---------------------------------
Agreement, Thomas A. Price is hereby designated as the FAA executive who will
have responsibility and authority with respect to all matters concerning DEALER
and the relationship between DEALER and DISTRIBUTOR (the "FAA Executive"). The
FAA Executive will be actively involved in the management of all aspects of the
operations of DEALER.
(a) The FAA Executive will be an officer of DEALER. The FAA
Executive, in consultation with management of FAA, will have complete control
over all day-to-day management decisions of DEALER or relating to DEALER.
(b) The General Manager will report directly to and be
responsible to the FAA Executive.
(c) DISTRIBUTOR may rely on oral or written communications and
agreements from the FAA Executive as being the binding agreements of DEALER,
without any duty of DISTRIBUTOR to confirm that any such communication or
agreement has been duly authorized by the Board of Directors of DEALER, FAA, or
any other individual or entity.
2. Successors to the FAA Executive. In the event that the FAA
-------------------------------
Executive wishes to discontinue his role in the management of DEALER as set
forth in Section C.1., such action may be taken only with the prior written
consent of DISTRIBUTOR. Such consent of DISTRIBUTOR may be conditioned on
transfer of the FAA Executive's management responsibilities to an individual or
individuals approved by DISTRIBUTOR, taking into account such factors as
DISTRIBUTOR reasonably
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deems to be relevant and are consistent with applicable laws.
3. Role of the General Manager.
---------------------------
(a) Timothy M. Nelson or any subsequent General Manager of DEALER
approved by DISTRIBUTOR, will serve exclusively as General Manager of DEALER on
a full time basis and will not have any management responsibilities with respect
to any other dealership or other business or appear as the General Manager on
any automobile dealership franchise agreement other than that of DEALER.
(b) The General Manager will have responsibility for and
authority with respect to the day-to-day operations of DEALER in the ordinary
course Of business, under the supervision of the FAA Executive, and the General
Manager will have the following authority, without the need for obtaining the
prior approval of any other individual or entity:
(i) the authority to hire or terminate any employee of DEALER;
(ii) the authority to order vehicles and other products;
(iii) the authority to place advertising;
(iv) the authority to communicate with DISTRIBUTOR with respect to
all aspects of the business of DEALER;
(v) the authority to approve expenditures by DEALER in the ordinary
course of business in amounts of less than $50,000 per item;
(vi) the authority to approve capital improvements or modifications
to the DEALER'S facilities in amounts not to exceed $100,000
with respect to any expenditure.
4. Membership of Executive Committee. There shall be no change in
---------------------------------
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the membership of the Executive Committee, Board of Directors or other governing
body of DEALER without the prior written approval of DISTRIBUTOR.
5. FAA Directors. FAA shall provide a list of all current members of
-------------
its Board of Directors, and resumes for each member, to DISTRIBUTOR, and provide
such information for each new member of the Board of Directors of FAA.
D. Provisions Relating to Capitalization and Accounting
----------------------------------------------------
1. No distributions will be made by DEALER to FAA if such
distributions would cause DEALER to fail to meet any of DISTRIBUTOR'S
capitalization guidelines, including but not limited to net working capital
requirements.
2. The operations and financial results of DEALER will be reported
to DISTRIBUTOR separately from those of any other entity, business or activity,
including but not limited to any of the Dealer Parties and any other dealerships
directly or indirectly owned or controlled by any of the Dealer Parties.
3. DEALER will maintain complete and separate departments for new
and used vehicle sales, service, parts sales, leasing and finance and insurance,
and will provide separate identifiable areas for each department. DEALER will
maintain a separate and permanent personnel staff and separate retail operations
from other dealerships directly or indirectly owned by any of the Dealer
Parties. DEALER shall not combine its used car operation with that of any other
entity, including any other dealerships directly or indirectly owned by any of
the Dealer Parties.
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E. Provisions Relating to Ownership
--------------------------------
1. Successors and Assigns. In the event that any interest in DEALER
----------------------
is transferred in accordance with the provisions of the Dealer Agreement, the
Agreement and these Additional Provisions, as a condition to such transfer the
transferee must agree in writing to be bound by all of the terms and provisions
of the Dealer Agreement, the Agreement and these Additional Provisions, such
agreement to be in form and substance reasonably acceptable to DISTRIBUTOR.
2. Competitors. In no event may any interest in DEALER be
-----------
transferred to an entity which is directly or indirectly engaged in the business
of manufacturing and/or distributing automobiles, or an affiliate thereof, and
no such entity may acquire an ownership interest in FAA as described in Section
1 of the Agreement.
F. Provisions Relating to Performance
----------------------------------
1. Dealer agrees to achieve within nine (9) months from the
effective date of this Agreement and to thereafter maintain throughout the
duration of this Agreement, a satisfactory customer satisfaction performance, as
measured by all applicable standards established by Toyota Motor Sales, U.S.A.,
Inc., and which are modified from time to time.
2. Dealer agrees to achieve within nine (9) months from the
effective date of this Agreement and to thereafter maintain throughout the
duration of this Agreement, Toyota car and truck penetration in its Primary
Market Area that is at least equal to the Region's penetration rate.
6
<PAGE>
IN WITNESS WHEREOF, the Parties. have executed these Additional
Provisions as of the date first above written.
TOYOTA MOTOR SALES, USA, INC. TOYOTA MOTOR SALES, U.S.A., INC.
SAN FRANCISCO REGION
By: /s/ By: /s/
--------------------------- ---------------------------
Title: PRESIDENT Title: GENERAL MANAGER
------------------------ ------------------------
FIRSTAMERICA AUTOMOTIVE, INC. FAA SAN BRUNO, INC.
d.b.a. MELODY TOYOTA
By: /s/ By: /s/
--------------------------- ---------------------------
Title: [TITLE ILLEGIBLE] Title: [TITLE ILLEGIBLE]
------------------------ ------------------------
7
<PAGE>
EXHIBIT 10.4.3
LEXUS DEALER AGREEMENT
This is an Agreement between LEXUS, A Division of TOYOTA MOTOR SALES, U.S.A.,
INC., ("LEXUS" or "DISTRIBUTOR") and FAA Serramonte L, Inc. ("DEALER"), a
closely held corporation, incorporated in the State of California and doing
business as Lexus of Serramonte
LEXUS GOALS AND COMMITMENTS
LEXUS is committed to creating luxury automobiles which are and will be among
the finest ever built anywhere in the world. LEXUS is equally committed to
setting a new standard for extraordinary customer satisfaction throughout the
ownership cycle. To achieve this goal, LEXUS intends to maintain the finest
dealer network in the industry.
This Agreement embodies the LEXUS commitment to promote fairness within a
harmonious and mutually profitable business relationship between LEXUS and
DEALER. The ultimate goal shared by all parties to this Agreement is the
satisfaction of the LEXUS customer.
PURPOSES OF AGREEMENT
LEXUS is the exclusive distributor in the continental United States of LEXUS
Products which are manufactured or approved by TOYOTA MOTOR CORPORATION
("FACTORY"). The principal purposes of this Agreement are to set forth and
affirm the commitment of LEXUS and DEALER to the goals of LEXUS; authorize
DEALER to sell and service LEXUS Products; and identify the rights and
responsibilities of LEXUS and DEALER.
I. TERM OF AGREEMENT
This Agreement is effective on the date signed by LEXUS and shall continue
for a period of 24 months unless ended earlier by mutual agreement or
terminated as provided herein. This Agreement may not be extended except by
written consent of LEXUS. Any continuation of business relations between
the parties following expiration of this Agreement shall be on a day-to-day
basis and subject to the provisions of this Agreement. Such a continuation
shall not be deemed a waiver of the right of termination nor shall it imply
that either party has committed to continue to do business with the other
at any time in the future.
Upon the expiration of this Agreement, DISTRIBUTOR shall have no obligation
to renew the Agreement or to extend DEALER a subsequent Agreement. However,
should this Agreement be renewed or any other form of agreement be offered
to DEALER, DISTRIBUTOR reserves the right to offer an agreement of a term
to be determined at DISTRIBUTOR'S sole discretion.
II. OWNERSHIP AND OFFICERS
This is a personal service Agreement and has been entered into by LEXUS
upon, and in consideration of, DEALER'S representation that only the
following named persons are the owners and officers of DEALER, and that
such persons are committed to achieving the purposes, goals and commitments
of this Agreement:
1
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
OWNERS NAMES ADDRESS OWNERSHIP
100 The Embarcadero, Penthouse
FirstAmerica Automotive, Inc. San Francisco, CA 94105 100%
<S> <C> <C>
- ------------------------------- ------------------------------ ----------
_______________________________ ______________________________ __________
_______________________________ ______________________________ __________
_______________________________ ______________________________ __________
OFFICERS NAMES ADDRESS TITLE
100 The Embarcadero, Penthouse
Thomas A. Price San Francisco, CA 94105 President
- ------------------------------- ------------------------------ --------------
100 The Embarcadero, Penthouse
Steven S. Hallock San Francisco, CA 94105 Vice President
- ------------------------------- ------------------------------ --------------
700 Serramonte Blvd.
John M. Driebe Colma, CA 94014 Secretary/Treasurer
- ------------------------------- ------------------------------ --------------
_______________________________ ______________________________ ______________
</TABLE>
III. MANAGEMENT
LEXUS and DEALER agree that qualified dealership management and active,
day-to-day owner involvement are critical to the successful operation of
DEALER. OWNERS agree, and LEXUS enters into this Agreement on the
condition that at least one OWNER will be involved on a full-time basis in
the day-to-day operations of the dealership. If no OWNER is involved on a
full-time basis in DEALER's day-to-day operations, the General Manager
named below shall devote his or her personal services on a full-time basis
to the general management of the dealership.
DEALER appoints John Driebe as General Manager. The General Manager has
full managerial authority to make all operating decisions on behalf of
DEALER. DEALER shall make no change in the dealership's ownership or
General Manager without the prior written approval of LEXUS.
IV. APPROVED DEALER LOCATIONS
In order that DISTRIBUTOR may establish and maintain an effective network
of authorized LEXUS dealers, DEALER agrees that it shall conduct its LEXUS
operations only in facilities and at locations herein designated and
approved by DISTRIBUTOR. DISTRIBUTOR hereby designates and approves the
following facilities as the exclusive location(s) for the sale and
servicing of LEXUS Products and the display of LEXUS Marks:
New Vehicle Sales and Showroom Used Vehicle Display and Sales
700 Serramonte Blvd. 700 Serramonte Blvd.
Colma, CA 94014 Colma, CA 94014
2
<PAGE>
Sales and General Office Body and Paint
700 Serramonte Blvd. N/A
Colma, CA 94014
Parts and Service Other Facilities
700 Serramonte Blvd. N/A
Colma, CA 94014
DEALER shall not modify or change the designated usage or function of any
facility without the prior written consent of LEXUS.
V. CERTIFICATION
By their signatures hereto, the parties certify that they have read and
understood this Agreement, including the Standard Provisions which are
incorporated herein, and agree to abide and be bound by all of its terms
and conditions.
Lexus Of Serramonte, DEALER
--------------------
DBA
DATE: 4/2/97 By: /s/ President
--------------------------- ----------
SIGNATURE TITLE
LEXUS, A Division of
TOYOTA MOTOR SALES, U.S.A., INC.
DATE: June 30, 1997 By: /s/ Yoshio Ishizaka President
------------------- -------------------
SIGNATURE TITLE
Yoshio Ishizaka
3
<PAGE>
AGREEMENT BETWEEN
TOYOTA MOTOR SALES, U.S.A., INC.
AND
FIRSTAMERICA AUTOMOTIVE, INC.
Agreement, dated May 2, 1997, entered between FirstAmerica Automotive, Inc., a
Nevada corporation, with its principal place of business at 100 The Embarcadero,
Penthouse, San Francisco, CA, 94105, ("FAA"), and Toyota Motor Sales, U.S.A.,
Inc. ("TMS"), a California corporation, with its principal place of business at
19001 South Western Avenue, Torrance, CA, 90509.
WHEREAS, FAA wishes to acquire, directly or through an Affiliate, certain Toyota
and Lexus dealerships; and
WHEREAS, FAA has issued securities traded on the NASDAQ Stock Exchange and
intends to issue additional securities to be traded on the NASDAQ Stock
Exchange; and
WHEREAS, FAA and TMS have agreed that FAA will not use a public ownership
structure for its Toyota and Lexus dealerships without TMS' prior consent, which
shall be given or withheld in TMS' sole discretion; and
WHEREAS, TMS has advised FAA of TMS' policy limiting the number of commonly
owned or controlled, directly or through an Affiliate (as defined below),
dealerships by a single entity, which is currently as follows:
A. TOYOTA
------
A single entity shall not hold an ownership interest, directly or
through an Affiliate, in more than: (a) the greater of one (1)
dealership or 20% of the Toyota dealer count in a "Metro" market
("Metro" markets are multiple Toyota dealership markets as defined by
TMS);(b) the lesser of five (5) dealerships or 5% of the Toyota
dealerships in any Toyota Region ("Toyota Region" currently includes
nine TMS Regions, Central Atlantic Toyota, Southeast Toyota, and Gulf
States Toyota); and c) seven (7) Toyota dealerships nationally.
LEXUS
-----
A single entity shall not hold an ownership interest, directly or
through an Affiliate, in more than: (a) two (2) Lexus dealerships in
any Area ("Area" currently includes Eastern, Southern, Central and
Western); and (b) three (3) Lexus dealerships nationally.
1
<PAGE>
"Affiliate" of, or a person or entity "affiliated" with, a specified person
or entity, means a person or entity that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the person or entity specified. For the purpose of this
definition, the term "control" (including the terms "controlling,"
"controlled by" and "under common control with" means the possession,
directly or indirectly, or the power to direct or cause the direction of the
management and policies of a person or entity, whether through the ownership
of securities, by contract or otherwise.
B. In order for an entity to acquire additional Toyota or Lexus dealerships,
within the limits of this Agreement, each Toyota or Lexus dealership which
it owns, directly or through an Affiliate, must: a) be in full compliance
with all of the terms of its Dealer Agreement; b) meet all of the applicable
Toyota or Lexus Market Representation policies and standards; and c) meet
applicable performance criteria for the most recent twelve (12) month
period.
C. In order to allow TMS sufficient time to evaluate performance at its
existing dealerships, an entity may not acquire any additional Toyota or
Lexus dealership within nine (9) months of its prior acquisition of a
similar make dealership.
D. If the purchase of any Toyota or Lexus dealership would result in exceeding
the limits set forth in Paragraph 1 above, TMS will reject a dealer's
application for approval of the ownership transfer until such time as the
dealer shall divest itself of the appropriate number of dealerships to bring
it into compliance with the requirements of this Agreement.
WHEREAS, FAA and TMS are willing to resolve these issues in accordance with the
terms set forth herein,
NOW THEREFORE, FAA and TMS agree as follows:
1. CHANGE IN OWNERSHIP OF FAA
--------------------------
TMS shall have the right to approve any ownership or voting rights of FAA of
twenty percent (20%) or greater by any individual or entity; PROVIDED
HOWEVER, that if TMS reasonably determines that such individual or entity is
unqualified to own a Toyota or Lexus dealership, or has interests
incompatible with TMS, and such transfer is effected, FAA must, within
ninety (90) days from the date of notification by TMS of its determination,
either: a) transfer the assets of its Toyota and Lexus dealerships to a
third party acceptable to TMS; b) voluntarily terminate its Toyota and Lexus
Dealership Agreements; or c) demonstrate that such individual or entity in
fact owns less that 20% of the outstanding shares of FAA, or does not have
20% of the voting rights in FAA.
2
<PAGE>
2. OWNERSHIP OF CONTIGUOUS DEALERSHIPS
-----------------------------------
FAA shall not own contiguous dealerships (as that term is defined in the
applicable Toyota or Lexus Dealer Agreement or policy) with common
boundaries.
3. SEPARATE LEGAL ENTITIES FOR EACH TOYOTA AND LEXUS DEALERSHIP
------------------------------------------------------------
FAA shall create separate legal entities for each Toyota and Lexus
dealership which it owns, directly or through an Affiliate, shall obtain a
separate motor vehicle license for each dealership, and shall maintain
separate financial statements for each such dealership. Consistent with TMS
policy, the name "Toyota" or "Lexus," as applicable shall appear in the
d/b/a of each dealership.
4. FACILITY STANDARDS
------------------
In no instance shall a Toyota or Lexus dealership or any department(s)
thereof be dualled with any other brand without TMS' prior written
approval.
5. GENERAL MANAGERS
----------------
Each Toyota and Lexus dealership owned or controlled by FAA shall have a
qualified, approved (subject to the exception noted in Paragraph 6 below)
General Manager. Each General Manager shall work at the Toyota or Lexus
dealership premises, shall devote all of his/her efforts to the management
of the dealership and shall have no other business interests or management
responsibilities.
6. APPROVAL OF THE GENERAL MANAGER
-------------------------------
Whenever FAA nominates a new General Manager candidate for a Toyota or
Lexus dealership, TMS shall have the right to withhold a decision
concerning approval or rejection of the candidate for a period of up to one
year, at its sole discretion; PROVIDED, HOWEVER, that the candidate may
operate in the capacity of General Manager until TMS has approved or
rejected him/her.
7. LIMITATIONS ON THE AUTHORITY OF THE GENERAL MANAGER
---------------------------------------------------
FAA shall advise TMS of the limitations, by category and, where applicable,
by specific action, on the authority of the General Manager regarding the
operation of the dealership, and shall provide the name of the individual
at FAA who has such authority with respect to each listed category or
specific action, in accordance with Paragraph 8 below.
3
<PAGE>
8. IDENTIFICATION OF FAA CONTACT OFFICIAL
--------------------------------------
FAA shall identify, in each Toyota and Lexus Dealer Agreement, the FAA
executive (other than the General Manager of the dealership) who will
respond directly to any Toyota or Lexus concerns regarding the operation or
performance of the dealership, which executive will have full authority, in
accordance with FAA management policies, to resolve issues raised by TMS in
connection with the operation of the dealership.
9. SELLING TOYOTA AND LEXUS PRODUCTS
---------------------------------
FAA shall make available to the customers at its Toyota and Lexus
dealerships, all Toyota and/or Lexus products, including vehicles, Genuine
Parts and Accessories, retail financing (whether for purchases or leases)
and extended service contracts.
10. REPRESENTATION ON TOYOTA AND LEXUS DEALER ORGANIZATIONS
-------------------------------------------------------
No more than one representative each from the Toyota, and, separately,
Lexus, dealerships owned, directly or through an Affiliate, by FAA, may
serve on the National Dealer Council or any future Toyota or Lexus national
board(s) which may be established, and no more than one representative each
may serve on either a Regional or Area Dealer Council, or Toyota or Lexus
Dealer Association Board of Directors.
11. DEALERSHIP PERSONNEL TRAINING
-----------------------------
FAA shall not substitute training courses or certification programs of its
own for those provided or sponsored by TMS without the prior approval of
TMS.
12. PUBLIC OFFERING OF SECURITIES BY FAA
------------------------------------
TMS shall not object to the transfer of Toyota and Lexus dealerships to
FAA, a public company, so long as the limitations on ownership of voting
control of FAA contained in this Agreement are not exceeded or breached in
any way.
13. FINANCIAL DISCLOSURES
---------------------
FAA shall provide TMS with copies of all information and materials filed
with the Securities Exchange Commission, including, but not limited to,
quarterly and annual financial statement filings, prospectuses and other
materials related to FAA.
4
<PAGE>
14. PROSPECTUS DISCLAIMER AND INDEMNIFICATION AND HOLD HARMLESS AGREEMENT
---------------------------------------------------------------------
FAA shall place in its registration statement and its prospectus, as well
as in any other document offering shares in FAA to public or private
investors, the following disclaimer:
No Manufacturer (as defined in this Prospectus) has been
involved, directly or indirectly, in the preparation of
this Prospectus or in the Offering being made hereby. No
Manufacturer has made any statements or representations in
connection with the Offering or has provided any
information or materials that were used in connection with
the Offering, and no Manufacturer has any responsibility
for the accuracy or completeness of this Prospectus.
FAA shall indemnify and hold harmless TMS pursuant to the terms of the
Indemnification and Hold Harmless Agreement set forth in Attachment 1 to
this Agreement.
15. SOLE AGREEMENT OF THE PARTIES
-----------------------------
There are no prior agreements or understandings, either oral or written,
between the Parties affecting this Agreement, except as otherwise specified
or referred to in this Agreement. No change or addition to, or deletion of
any portion of this Agreement shall be valid or binding upon the parties
hereto unless approved in writing signed by an officer of each of the
parties hereto.
16. SEVERABLLITY
------------
If any provision of this Agreement should be held invalid or unenforceable
for any reason whatsoever, or conflicts with any applicable law, this
Agreement will be considered divisible as to such provision(s), and such
provision(s) will be deemed amended to comply with such law, or if it
(they) cannot be so amended without materially affecting the tenor of the
Agreement, then it (they) will be deemed deleted from this Agreement in
such jurisdiction, and in either case, the remainder of the Agreement will
be valid and binding.
17. NO IMPLIED WAIVERS
------------------
The failure of either party at any time to require performance by the other
party of any provision herein shall in no way affect the right of such
party to require such performance at any time thereafter, nor shall any
waiver by any party of a breach of any provision herein constitute a waiver
of any succeeding breach of the same or any other provision, nor constitute
a waiver of the provision itself.
5
<PAGE>
18. TMS POLICIES
------------
This Agreement refers to certain policies and standards. FAA acknowledges
that these policies and standards are prepared by TMS in its sole
discretion based upon TMS' evaluation of the marketplace. TMS may
reasonably amend its policies and standards from time to time.
19. APPLICABLE LAW
--------------
This Agreement shall be governed by and construed according to the laws of
California.
20. BENEFIT
-------
This Agreement is entered into by and between TMS and FAA for their sole
and mutual benefit. Neither this Agreement nor any specific provision
contained in it is intended or shall be construed to be for the benefit of
any third party.
21. NOTICE TO THE PARTIES
---------------------
Any notices permitted or required under the terms of this Agreement shall
be directed to the following respective addresses of the parties, or if
either of the parties shall have specified another address by notice in
writing to the other party, then to the address last specified:
TOYOTA MOTOR SALES, U.S.A., INC.
19001 South Western Avenue
Torrance, CA 90509
FIRSTAMERICA AUTOMOTIVE, INC.
100 The Embarcadero, Penthouse
San Francisco, CA 94105
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
FIRSTAMERICA AUTOMOTIVE, INC.
BY:/s/
------------------------------
ITS: President
----------------------------
TOYOTA MOTOR SALES, U.S.A., INC.
BY:/s/
-----------------------------
ITS:____________________________
7
<PAGE>
[LOGO OF LEXUS APPEARS HERE]
LEXUS
DEALER AGREEMENT
<PAGE>
LEXUS DEALER AGREEMENT
AND
STANDARD PROVISIONS
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. TERM OF AGREEMENT................................................... 1
II. OWNERSHIP AND OFFICERS.............................................. 1
III. MANAGEMENT.......................................................... 2
IV. APPROVED DEALER LOCATIONS........................................... 2
V. CERTIFICATION....................................................... 3
VI. ACQUISITION, DELIVERY AND INVENTORY OF LEXUS PRODUCTS............... 4
A. APPOINTMENT OF DEALER.......................................... 4
B. AVAILABILITY AND ALLOCATION OF PRODUCT......................... 4
C. PRICES AND TERMS OF SALE....................................... 4
D. MODE, PLACE AND CHARGES FOR DELIVERY OF PRODUCTS............... 4
E. DAMAGE CLAIMS AGAINST TRANSPORTATION CARRIERS.................. 5
F. DELAY OR FAILURE OF DELIVERY................................... 5
G. DIVERSION CHARGES.............................................. 5
H. CHANGES OF DESIGN, OPTIONS OR SPECIFICATIONS................... 5
I. DISCONTINUANCE OF MANUFACTURE OR IMPORTATION................... 5
J. MINIMUM VEHICLE INVENTORIES.................................... 6
K PRODUCT MODIFICATIONS.......................................... 6
VII. DEALER MARKETING OF LEXUS PRODUCTS.................................. 6
A. DEALER'S SALES RESPONSIBILITIES................................ 6
B. EXPORT POLICY.................................................. 7
C. LEXUS DEALER ASSOCIATION....................................... 7
D. USED VEHICLES.................................................. 7
E. PRIMARY AREA OF RESPONSIBILITY................................. 7
F. EVALUATION OF DEALER'S SALES AND MARKETING PERFORMANCE...... .. 7
VIII. DEALER SERVICE OBLIGATIONS.......................................... 7
A. CUSTOMER SERVICE STANDARDS..................................... 7
B. NEW MOTOR VEHICLE PRE-DELIVERY SERVICE......................... 8
C. WARRANTY AND POLICY SERVICE.................................... 8
IX. USE OF PARTS AND ACCESSORIES IN NON-WARRANTY SERVICE................ 8
A. WARRANTY DISCLOSURES AS TO NON-GENUINE PARTS AND
ACCESSORIES.................................................... 9
B. ROADSIDE ASSISTANCE PROGRAM.................................... 9
C. SERVICE CAMPAIGN INSPECTIONS AND CORRECTIONS................... 9
D. COMPLIANCE WITH SAFETY AND EMISSION CONTROL
REQUIREMENTS................................................... 9
E. COMPLIANCE WITH CONSUMER PROTECTION STATUTES, RULES
AND REGULATIONS................................................10
X. SERVICE AND PARTS ORGANIZATION......................................10
A. ORGANIZATION AND STANDARDS.....................................10
B. SERVICE EQUIPMENT AND SPECIAL TOOLS............................10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
C. PARTS STOCKING LEVEL...........................................11
D. AFTER-HOURS DELIVERY...........................................11
E. ASSISTANCE PROVIDED BY DISTRIBUTOR.............................11
1. Service Manuals And Materials...............................11
2. Field Service Personnel Assistance..........................11
F. EVALUATION OF DEALER'S SERVICE AND PARTS PERFORMANCE...........11
XI. CUSTOMER SATISFACTION RESPONSIBILITIES..............................12
A. DEALER'S CUSTOMER SATISFACTION OBLIGATIONS.....................12
1. DEALER'S Customer Satisfaction Plan.........................12
2. Employee Training...........................................12
3. Customer Satisfaction Manager...............................12
4. Customer Assistance Response System.........................12
B. EVALUATION OF DEALER'S CUSTOMER SATISFACTION PERFORMANCE.......12
XII. DEALERSHIP FACILITIES AND IDENTIFICATION............................13
A. FACILITIES.....................................................13
B. SERVICE RECEPTION AREA.........................................13
C. DEALER'S OPERATING HOURS.......................................13
D. SIGNS..........................................................14
E. EVALUATION OF DEALERSHIP FACILITIES............................14
F. USE OF LEXUS MARKS.............................................14
1. Use By DEALER...............................................14
2. Discontinuance of Use.......................................14
XIII. CAPITAL, CREDIT, RECORDS AND UNIFORM SYSTEMS........................15
A NET WORKING CAPITAL............................................15
B FLOORING AND LINES OF CREDIT...................................15
C. PAYMENT TERMS..................................................15
D UNIFORM ACCOUNTING SYSTEM......................................16
E RECORDS MAINTENANCE............................................16
F EXAMINATION OF DEALERSHIP ACCOUNTS AND RECORDS.................16
G TAXES..........................................................16
H CONFIDENTIALITY................................................16
I DATA TRANSMISSION SYSTEMS......................................17
J SALES REPORTING................................................17
XIV. TRANSFERS...........................................................17
A. SALE OF OWNERSHIP INTEREST IN DEALERSHIP.......................17
B. RIGHT OF FIRST REFUSAL OR OPTION TO PURCHASE...................17
1. Rights Granted..............................................17
2. Exercise of Distributor's Rights............................18
3. Right of First Refusal......................................18
4. Option to Purchase..........................................18
5. Dealer's Obligations........................................19
XV. SUCCESSION RIGHTS UPON DEATH OR INCAPACITY..........................19
A. SUCCESSION TO OWNERSHIP AFTER DEATH OF OWNER...................19
B. INCAPACITY OF OWNER............................................20
C. NOMINATION OF SUCCESSOR PRIOR TO DEATH OR INCAPACITY OF
OWNER..........................................................20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
XVI. TERMINATION........................................................21
A. VOLUNTARY TERMINATION BY DEALER................................21
B. TERMINATION FOR CAUSE..........................................21
1. Immediate Termination.......................................21
2. Termination Upon Sixty Days Notice..........................22
3. Termination for Failure of Performance......................23
4. Termination Upon Death or Incapacity........................23
C. NOTICE OF TERMINATION..........................................23
D. CONTINUANCE OF BUSINESS RELATIONS..............................23
E. REPURCHASE PROVISIONS..........................................23
1. DISTRIBUTOR'S Obligations...................................23
2. Responsibilities of DEALER..................................24
3. Payment by DISTRIBUTOR......................................25
XVII. MANAGEMENT OF DISPUTES.............................................25
A. ALTERNATIVE DISPUTE RESOLUTION PROGRAMS........................25
B. APPLICABLE LAW.................................................26
C. MUTUAL RELEASE.................................................26
XVIII. DEFENSE AND INDEMNIFICATION........................................26
A. DEFENSE AND INDEMNIFICATION BY DISTRIBUTOR.....................26
B. DEFENSE AND INDEMNIFICATION BY DEALER..........................27
C. CONDITIONAL DEFENSE AND/OR INDEMNIFICATION.....................28
D. THE EFFECT OF SUBSEQUENT DEVELOPMENTS..........................28
E. TIME TO RESPOND AND RESPONSIBILITIES OF THE PARTIES............28
XIX. GENERAL PROVISIONS.................................................29
A. NOTICES........................................................29
B. NO IMPLIED WAIVERS.............................................29
C. SOLE AGREEMENT OF THE PARTIES..................................29
D. DEALER NOT AN AGENT OR REPRESENTATIVE..........................29
E. ASSIGNMENT OF RIGHTS OR DELEGATION OF DUTIES...................29
F. NO FRANCHISE FEE...............................................30
G. SEVERABILITY...................................................30
H. NEW AND SUPERSEDING DEALER AGREEMENTS..........................30
I. BENEFIT........................................................30
XX. DEFINITIONS........................................................31
A. DEALER.........................................................31
B. OWNER..........................................................31
C. GENERAL MANAGER................................................31
D. DEALER FACILITIES..............................................31
E. APPROVED LOCATION(S)...........................................31
F. LEXUS MARKS....................................................31
G. LEXUS MOTOR VEHICLES...........................................31
H. GENUINE LEXUS PARTS AND ACCESSORIES............................31
I. LEXUS PRODUCTS.................................................31
XXI. ADDITIONAL PROVISIONS..............................................32
</TABLE>
<PAGE>
LEXUS
PRODUCT ADDENDUM
LEXUS hereby grants DEALER the non-exclusive right to buy and resell the LEXUS
Motor Vehicles as defined in the LEXUS Dealer Agreement and identified below:
GS 300
ES 300
LS 400
SC 300
SC 400
LX 450
and all Genuine Lexus Parts and Accessories for such vehicles.
This LEXUS Product Addendum shall remain in effect unless and until superseded
by a new LEXUS Product Addendum furnished DEALER by DISTRIBUTOR.
33
<PAGE>
LEXUS DEALER AGREEMENT
STANDARD PROVISIONS
The following Standard Provisions are expressly incorporated in and made a part
of the LEXUS Dealer Agreement.
VI. ACQUISITION, DELIVERY AND INVENTORY OF LEXUS PRODUCTS
A. APPOINTMENT OF DEALER
DISTRIBUTOR hereby appoints DEALER and grants unto it the non-exclusive
right to buy and resell the LEXUS Products identified in the LEXUS
Product Addendum. DEALER accepts such appointment and understands that
its appointment as a DEALER does not grant it an exclusive right to sell
LEXUS Products in any specified geographical area.
DEALER shall have the right to purchase LEXUS Products from DISTRIBUTOR
in accordance with the provisions set forth herein and such other
requirements as may be established from time to time by LEXUS.
B. AVAILABILITY AND ALLOCATION OF PRODUCT
DISTRIBUTOR will allocate LEXUS Products among its dealers in a fair and
equitable manner. DEALER acknowledges and agrees that DISTRIBUTOR may
consider, among other things, DEALER'S service capacity, customer
satisfaction performance, sales performance, sales potential and
facilities in determining the quantity of Product to offer to DEALER.
DISTRIBUTOR will, upon DEALER'S request, explain the considerations and
method used to distribute LEXUS Products to DEALER.
C. PRICES AND TERMS OF SALE
DISTRIBUTOR, from time to time, shall establish and revise prices and
other terms for the sale of LEXUS Products to DEALER. Revised prices,
terms, or provisions shall apply to any LEXUS Product not invoiced to
DEALER by DISTRIBUTOR at the time the notice of such change is given to
DEALER (in the case of LEXUS Motor Vehicles), or upon issuance of a new
or modified Parts Price List or through change notices, letters,
bulletins, or revision sheets (in the case of parts, options and
accessories), or at such other times as may be designated in writing by
DISTRIBUTOR.
D. MODE, PLACE AND CHARGES FOR DELIVERY OF PRODUCTS
DISTRIBUTOR shall designate the distribution points and the mode of
transportation and shall select carrier(s) for the delivery of LEXUS
Products to DEALER. DEALER shall pay DISTRIBUTOR such charges as
DISTRIBUTOR in its sole discretion establishes for such transportation
services.
4
<PAGE>
E. DAMAGE CLAIMS AGAINST TRANSPORTATION CARRIERS
DEALER shall promptly notify DISTRIBUTOR of any damage occurring during
transit and shall, if so directed by DISTRIBUTOR, file claims against
transportation carrier for damage. DEALER agrees to assist DISTRIBUTOR
in obtaining recovery against any transportation carrier or insuree for
loss or damage to LEXUS Products shipped hereunder. DISTRIBUTOR shall
not be liable for loss or damage to LEXUS Products sold hereunder
occurring after delivery thereof to premises of DEALER.
To the extent required by law, DEALER shall notify the purchaser of a
vehicle of any damage sustained by such vehicle prior to sale. DEALER
shall indemnify and hold DISTRIBUTOR harmless from any liability
resulting from DEALER'S failure to so notify such purchasers.
F. DELAY OR FAILURE OF DELIVERY
DISTRIBUTOR shall not be liable for delay or failure to deliver LEXUS
Products which it has previously agreed to deliver, where such delay or
failure to deliver is the result of any event beyond the control of
DISTRIBUTOR, including but not limited to any law or regulation of any
governmental entity, acts of God, foreign or civil wars, riots,
interruptions of navigation, shipwrecks, fires, floods, storms, strikes,
lockouts or other labor troubles, embargoes, blockades, or delay or
failure of FACTORY to deliver LEXUS Products.
G. DIVERSION CHARGES
If after shipment DEALER fails or refuses to accept LEXUS Products that
it had agreed to purchase, DEALER shall pay all charges incurred by
DISTRIBUTOR as a result of such diversion. Such charges shall not exceed
the charge of returning any such product to the point of original
shipment by DISTRIBUTOR plus all charges for demurrage, storage or other
charges related to such diversion.
DEALER also agrees to assume responsibility for, and shall pay any and
all reasonable charges for, demurrage, storage or other charges accruing
after arrival of shipment at the diversion point established by
DISTRIBUTOR.
H. CHANGES OF DESIGN, OPTIONS OR SPECIFICATIONS
DISTRIBUTOR may change the design or specifications of any LEXUS Product
or the options in any LEXUS Product and shall be under no obligation to
provide notice of same or to make any similar change upon any product
previously purchased by or shipped to DEALER. No change shall be
considered a model year change unless so specified by DISTRIBUTOR.
I. DISCONTINUANCE OF MANUFACTURE OR IMPORTATION
FACTORY and/or DISTRIBUTOR may discontinue the manufacture, importation
or distribution of all or part of any LEXUS Product, whether motor
vehicle, parts, options, or accessories, including any model, series, or
body style of any
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LEXUS Motor Vehicle at any time without any obligation or liability to
DEALER by reason thereof.
J. MINIMUM VEHICLE INVENTORIES
DEALER agrees that it shall, at all times, maintain in showroom ready
condition at least the minimum inventory of LEXUS Motor Vehicles as may
be established by DISTRIBUTOR from time to time.
K. PRODUCT MODIFICATIONS
DEALER agrees that it will not install aftermarket accessories or make
any modifications to LEXUS vehicles that may impair or adversely affect
a vehicle's safety, emissions, structural integrity or performance.
VII. DEALER MARKETING OF LEXUS PRODUCTS
A. DEALER'S SALES RESPONSIBILITIES
DEALER recognizes that customer satisfaction and the successful
promotion and sale of LEXUS Products are significantly dependent on
DEALER'S advertising and sales promotion activities. Therefore, DEALER
at all times shall:
1. Use its best efforts to promote, sell and service new and used LEXUS
Products;
2. Advertise and merchandise LEXUS Products and use current LEXUS
showroom displays;
3. Ensure that its sales personnel meet the educational and management
standards established by DISTRIBUTOR and have such personnel, as are
appropriate, attend all sales training courses prescribed by
DISTRIBUTOR at DEALER'S expense;
4. Maintain a high standard of ethics in advertising, promoting and
selling LEXUS Products and avoid engaging in any misrepresentation or
unfair or deceptive practices. DEALER shall discontinue any
advertising that DISTRIBUTOR may find to be injurious to
DISTRIBUTOR'S business or reputation or to the LEXUS Marks, or that
are likely to be violative of applicable laws or regulations;
5. Advertise in the local classified telephone directories identifying
itself as an authorized LEXUS DEALER. Such ad(s) shall properly
display the LEXUS Marks; and
6. Accurately represent to customers the total selling price of LEXUS
Products. DEALER agrees to explain to customers of LEXUS Products the
items that make up the total selling price and to give the customers
itemized invoices and all other information required by law. DEALER
understands and hereby acknowledges that it may sell LEXUS Products
at whatever price DEALER desires.
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B. EXPORT POLICY
DEALER is authorized to sell LEXUS Motor Vehicles only to customers
located in the United States. DEALER agrees that it will not sell LEXUS
Motor Vehicles for resale or use outside the United States. DEALER
agrees to abide by any export policy established by DISTRIBUTOR.
C. LEXUS DEALER ASSOCIATION
Except where prohibited by law, DEALER will participate in a LEXUS
Dealer Advertising Association. DEALER agrees to cooperate in the
establishment of such an association and to fund its fair share of
advertising and merchandising programs undertaken by the association.
D. USED VEHICLES
DEALER agrees to display and sell used vehicles at the Approved
Location(s). DEALER shall maintain for resale an adequate inventory of
used vehicles.
E. PRIMARY AREA OF RESPONSIBILITY
DISTRIBUTOR will assign DEALER a geographic area called a Primary Market
Area ("PMA"). DEALER'S PMA may be altered or adjusted by DISTRIBUTOR at
any time. The PMA is a tool used by DISTRIBUTOR to evaluate DEALER'S
performance of its obligations. DEALER agrees that it has no right or
interest in any PMA that DISTRIBUTOR, in its sole discretion, may
designate. As permitted by local law, DISTRIBUTOR may add new dealers
to, or relocate dealers in or into the PMA assigned to DEALER.
F. EVALUATION OF DEALER'S SALES AND MARKETING PERFORMANCE
DISTRIBUTOR periodically will evaluate DEALER'S sales and marketing
performance under this Agreement. DEALER'S evaluation will be based on
such reasonable criteria as DISTRIBUTOR may establish including, without
limitation, comparisons of DEALER'S sales with those of other LEXUS
dealers. DISTRIBUTOR will review such evaluations with DEALER and DEALER
shall take prompt corrective action, if required, to improve its
performance.
VIII. DEALER SERVICE OBLIGATIONS
A. CUSTOMER SERVICE STANDARDS
DEALER and DISTRIBUTOR agree that the success and future growth of the
LEXUS franchise is substantially dependent upon the customers' ability
to obtain responsive, high-quality vehicle servicing. Therefore, DEALER
agrees to:
1. Take all reasonable steps to provide service of the highest quality
for all LEXUS Motor Vehicles, regardless of where purchased and
whether or not under warranty;
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2. Ensure that the customer is advised of the necessary repairs and
his or her consent is obtained prior to the initiation of any
repairs;
3. Ensure that necessary repairs on LEXUS Motor Vehicles are
accurately diagnosed and professionally performed; and
4. Assure that the customer is treated courteously and fairly at all
times.
B. NEW MOTOR VEHICLE PRE-DELIVERY SERVICE
DEALER agrees that, prior to delivery of a new LEXUS Motor Vehicle to
a customer, it shall perform, if directed by DISTRIBUTOR, pre-delivery
service on each LEXUS Motor Vehicle in accordance with LEXUS
standards. DISTRIBUTOR shall reimburse DEALER for such pre-delivery
service according to such directives and the applicable provisions of
the LEXUS Warranty Policies and Procedures Manual.
C. WARRANTY AND POLICY SERVICE
DEALER acknowledges that the only warranties of DISTRIBUTOR or FACTORY
applicable to LEXUS Products shall be the New Vehicle Limited Warranty
or such other written warranties that may be expressly furnished by
DISTRIBUTOR or FACTORY. Except for its limited liability under such
written warranty or warranties, DISTRIBUTOR and FACTORY do not assume
any other warranty, obligation or liability. DEALER is not authorized
to assume any additional warranty obligations or liabilities on behalf
of DISTRIBUTOR or FACTORY. Any such additional obligations assumed by
DEALER shall be the sole responsibility of DEALER.
DEALER shall perform warranty and policy service specified by
DISTRIBUTOR, in accordance with the LEXUS Warranty Policies and
Procedures Manual. DISTRIBUTOR agrees to compensate DEALER for all
warranty and policy work, including labor, diagnosis and Genuine LEXUS
Parts and Accessories, in accordance with procedures and at rates to
be announced from time to time by DISTRIBUTOR and in accordance with
applicable law. Unless otherwise approved in advance by DISTRIBUTOR,
DEALER shall use only Genuine LEXUS Parts and Accessories when
performing LEXUS warranty repairs. Warranty and policy service is
provided for the benefit of customers and DEALER agrees that the
customer shall not be obligated to pay any charges for warranty or
policy work or any other services for which DEALER is reimbursed by
DISTRIBUTOR, except as required by law.
IX. USE OF PARTS AND ACCESSORIES IN NON-WARRANTY SERVICE
Subject to the provisions of Sections VI(k) and VIII(c), DEALER has the
right to sell, install or use for making non-warranty repairs products that
are not Genuine LEXUS Parts or Accessories.
DEALER acknowledges, however, that its customers expect that any parts or
accessories that DEALER sells, installs or uses in the sale, repair or
servicing of LEXUS vehicles are, or meet the high quality standards of,
Genuine LEXUS Parts or Acces-
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sories. DEALER agrees that in sales, repairs or servicing where DEALER does
not use Genuine LEXUS Parts or Accessories, DEALER only will utilize such
other parts or accessories as:
1. Will not adversely affect the mechanical operation of the LEXUS
vehicle being sold, repaired or serviced; and
2. Are equivalent in quality and design to Genuine LEXUS Parts or
Accessories.
DEALER further agrees that it will not offer to sell any parts or
accessories that for reasons of quality or image are reasonably objected to
by LEXUS.
A. WARRANTY DISCLOSURES AS TO NON-GENUINE PARTS AND ACCESSORIES
In order to avoid confusion and to minimize potential customer
dissatisfaction, in any non-warranty instance where DEALER sells,
installs or uses non-Genuine LEXUS Parts or Accessories, DEALER shall
disclose such fact to the customer and shall advise the customer that
the item is not included in warranties furnished by DISTRIBUTOR or
FACTORY. Such disclosure shall be written, conspicuous and stated on
the customer's copy of the service or repair order or sale document.
In addition, DEALER will clearly explain to the customer the extent of
any warranty covering the parts or accessories involved and will
deliver a copy of the warranty to the customer.
B. ROADSIDE ASSISTANCE PROGRAM
Dealer agrees to participate in the LEXUS Roadside Assistance Program
as specified by DISTRIBUTOR.
C. SERVICE CAMPAIGN INSPECTIONS AND CORRECTIONS
DEALER agrees to perform service campaign inspections and/or
corrections for owners or users of all LEXUS Products that qualify for
such inspections and/or corrections. DEALER further agrees to comply
with all DISTRIBUTOR'S directives and with the applicable procedures
in the LEXUS Warranty Policies and Procedures Manual relating to those
inspections and/or corrections. DISTRIBUTOR agrees to reimburse DEALER
for all replacement parts and/or other materials required and used in
connection with such work and for labor according to such directives
and the applicable provisions of the LEXUS Warranty Policies and
Procedures Manual.
D. COMPLIANCE WITH SAFETY AND EMISSION CONTROL REQUIREMENTS
DEALER agrees to comply and operate consistently with all applicable
provisions of the National Traffic and Motor Vehicle Safety Act of
1966 and the Federal Clean Air Act, as amended, including applicable
rules and regulations issued from time to time thereunder, and all
other applicable federal, state and local motor vehicle safety and
emission control statutes, rules and regulations.
In the event that the laws of the state in which DEALER is located
require motor vehicle dealers or distributors to install in new or
used motor vehicles,
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prior to their retail sale, any safety devices or other equipment not
installed or supplied as standard equipment by FACTORY, then DEALER,
prior to the sale of any LEXUS Motor Vehicle on which such
installations are required, shall properly install such devices or
equipment on such LEXUS Motor Vehicles. DEALER shall comply with state
and local laws pertaining to the installation and reporting of such
equipment.
In the interest of motor vehicle safety and emission control,
DISTRIBUTOR and DEALER agree to provide to each other such information
and assistance as may reasonably be requested by the other in
connection with the performance of obligations imposed on either party
by the National Traffic and Motor Vehicle Safety Act of 1966 and the
Federal Clean Air Act, as amended, and their rules and regulations,
and all other applicable federal, state and local motor vehicle safety
and emissions control statutes, rules and regulations.
E. COMPLIANCE WITH CONSUMER PROTECTION STATUTES, RULES AND REGULATIONS
Because certain customer complaints may impose liability upon
DISTRIBUTOR under various repair or replace laws or other consumer
protection laws and regulations, DEALER agrees to provide prompt
notice to DISTRIBUTOR of such complaints and take such other steps as
DISTRIBUTOR may require. DEALER will do nothing to affect adversely
DISTRIBUTOR'S rights under such laws and regulations. Subject to any
law or any regulation to the contrary, DEALER shall be liable to
DISTRIBUTOR for any refunds or vehicle replacements provided to
customer where DISTRIBUTOR reasonably establishes that DEALER failed
to carry out vehicle repairs in accordance with DISTRIBUTOR'S written
published policies and procedures or its express oral instructions
subsequently confirmed in writing. DEALER also agrees to provide
applicable required customer notifications and disclosures as
prescribed by repair or replacement laws or other consumer laws or
regulations.
X. SERVICE AND PARTS ORGANIZATION
A. ORGANIZATION AND STANDARDS
DEALER agrees to organize and maintain a complete service and parts
organization of the highest quality, including a qualified Service
Manager, Parts Manager, Diagnostic Specialists, Technicians and a
sufficient complement of qualified customer relations, service and
parts personnel as recommended in the LEXUS Dealer Facility Planner.
DEALER'S personnel will meet the educational, management and technical
training standards established by DISTRIBUTOR, and will attend all
service, parts and customer satisfaction training courses prescribed
by DISTRIBUTOR at DEALER'S expense.
B. SERVICE EQUIPMENT AND SPECIAL TOOLS
DEALER agrees to acquire and properly maintain adequate service
equipment and such special service tools and instruments as are
specified by DISTRIBUTOR.
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C. PARTS STOCKING LEVEL
DEALER agrees to maintain its parts stock at minimum stocking levels
established by DISTRIBUTOR. In consideration for DEALER'S maintenance
of the Dealer Stocking Guide, DISTRIBUTOR grants DEALER a one hundred
percent (100%) obsolescence parts return policy. For non-stocking
guide parts, parts orders will accrue a five percent (5%) obsolescence
eligibility.
D. AFTER-HOURS DELIVERY
Dealer agrees to provide DISTRIBUTOR, upon request, access to a secure
area for after-hours parts or vehicle delivery.
E. ASSISTANCE PROVIDED BY DISTRIBUTOR
1. SERVICE MANUALS AND MATERIALS
DISTRIBUTOR agrees to make available to DEALER copies of such
service manuals and bulletins, publications and technical data as
DISTRIBUTOR shall deem to be necessary for the needs of DEALER'S
service and parts organization. DEALER shall be responsible for
keeping such manuals, publications and data current and available
for consultation by its employees.
2. FIELD SERVICE PERSONNEL ASSISTANCE
To assist DEALER in handling service responsibilities under this
Agreement, DISTRIBUTOR agrees to make available qualified field
service personnel who will, from time to time, advise and counsel
DEALER on service-related subjects, including service policies,
product and technical adjustments, repair and replacement of
product components, customer relations, warranty administration,
service and parts merchandising, and personnel/management
training.
F. EVALUATION OF DEALER'S SERVICE AND PARTS PERFORMANCE
DISTRIBUTOR will evaluate periodically DEALER'S: (i) service
performance in areas such as customer satisfaction, warranty
administration, service repairs, service management, facilities,
operating procedures, new vehicle pre-delivery service; and (ii) parts
operations, facilities, tools and equipment. DISTRIBUTOR agrees to
review such evaluations with DEALER and DEALER agrees to take prompt
action to improve the service and parts performance to satisfactory
levels as DISTRIBUTOR may require. Such action shall, if requested by
DISTRIBUTOR, include an action plan by DEALER for improvement of
service and parts performance within a specific time period approved
by DISTRIBUTOR.
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XI. CUSTOMER SATISFACTION RESPONSIBILITIES
A goal of DISTRIBUTOR and DEALER is to be recognized as marketing the
finest products and providing the best service in the automobile industry.
The LEXUS name should be synonymous with the highest level of customer
satisfaction.
A. DEALER'S CUSTOMER SATISFACTION OBLIGATIONS
DEALER will be responsible for satisfying LEXUS customers in all
matters except those that are directly related to product design and
manufacturing or are otherwise out of DEALER'S control. DEALER will
take all reasonable steps to ensure that each customer is completely
satisfied with his or her LEXUS Products and the services and
practices of DEALER. DEALER will not engage in any practice or method
of operation if its nature or quality may impair the reputation of
LEXUS or LEXUS Products and it has been reasonably objected to by
DISTRIBUTOR.
1. DEALER'S CUSTOMER SATISFACTION PLAN
DEALER shall provide a detailed plan of DEALER'S customer
satisfaction program to DISTRIBUTOR and shall implement such
program on a continuous basis. This plan shall include an ongoing
system for emphasizing customer satisfaction to all DEALER'S
employees, for training DEALER employees and for conveying to
customers that DEALER is committed to the highest possible level
of customer satisfaction.
2. EMPLOYEE TRAINING
DEALER agrees to participate and to have its employees
participate in LEXUS customer satisfaction training as required
by DISTRIBUTOR, at DEALER'S expense.
3. CUSTOMER SATISFACTION MANAGER
If requested by DISTRIBUTOR, DEALER agrees to employ a full-time
Customer Satisfaction Manager with the necessary authority to
make all decisions regarding customer satisfaction and to resolve
all customer problems.
4. CUSTOMER ASSISTANCE RESPONSE SYSTEM
DEALER agrees to implement a system, approved by DISTRIBUTOR,
that will respond immediately to requests for customer assistance
from DISTRIBUTOR.
B. EVALUATION OF DEALER'S CUSTOMER SATISFACTION PERFORMANCE
DISTRIBUTOR periodically will evaluate DEALER'S customer satisfaction
performance based on the following considerations and efforts by
DEALER.
1. DISTRIBUTOR will provide DEALER with Owner Satisfaction Index
("OSI") reports or such other equivalent data as will permit
DEALER to assess its performance and maintain the highest level
of customer satisfaction.
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DEALER agrees to review with its employees on a regular basis the
results of the customer satisfaction reports or other data it
receives.
2. DEALER agrees to develop and implement specific action plans to
improve results in the event that DEALER is below the average for
other LEXUS dealers. The plans are to be reviewed with
DISTRIBUTOR on a basis that DISTRIBUTOR deems appropriate. DEALER
will use its best efforts to respond on a timely basis to
requests from DISTRIBUTOR to take action on unsatisfactory
customer satisfaction matters and to commit necessary resources
to remedy deficiencies reasonably specified by DISTRIBUTOR.
XII. DEALERSHIP FACILITIES AND IDENTIFICATION
A. FACILITIES
1. In order for DISTRIBUTOR to establish an effective network of
authorized LEXUS dealers, DEALER shall provide, and at all times
maintain, attractive dealership facilities at the Approved
Location(s) that satisfy the image, size, layout, interior
design, color; equipment and identification required by
DISTRIBUTOR. DEALER'S facility shall meet the minimum facility
standards established by LEXUS.
2. To assist DEALER in planning, building, remodeling, or
maintaining dealership facilities, DISTRIBUTOR will provide
DEALER a LEXUS Dealer Facility Planner and will identify sources
from which DEALER may purchase facility consultation and planning
services, and architectural materials and furnishings that meet
LEXUS standards and guidelines. DISTRIBUTOR will also make
available to DEALER, upon request, sample copies of building
layout plans, facility planning recommendations, and an
applicable identification program covering the placement,
installation and maintenance of required signs. In addition,
representatives of DISTRIBUTOR will be available to DEALER from
time to time to counsel and advise DEALER and dealership
personnel in connection with DEALER'S planning and equipping the
dealership premises.
B. SERVICE RECEPTION AREA
DEALER agrees to maintain a service reception area that meets all
requirements set forth in the LEXUS Dealer Facility Planner, that is
consistent with the LEXUS image and that will promote a high level of
customer satisfaction.
C. DEALER'S OPERATING HOURS
DEALER agrees to keep its dealership operations open for business
during all days and hours that are customary and lawful for such
operations in the community or locality in which DEALER is located and
in accordance with industry standards.
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D. SIGNS
Subject to applicable governmental statutes, ordinances and
regulations, DEALER agrees to erect, display and maintain, at Approved
Location(s) only and at DEALER'S sole expense, such standard
authorized product and service signs as specified by DISTRIBUTOR.
E. EVALUATION OF DEALERSHIP FACILITIES
DISTRIBUTOR periodically will evaluate DEALER'S facilities. In making
such evaluations, DISTRIBUTOR may consider, among other things: the
actual building and land provided by DEALER for the performance of its
responsibilities under this Agreement; compliance with DISTRIBUTOR'S
current requirements for dealership operations; the appearance,
condition, layout and signage of the dealership facilities; and such
other factors as in DISTRIBUTOR'S opinion may relate to DEALER'S
performance of its responsibilities under this Agreement. DISTRIBUTOR
will discuss such evaluations with DEALER and DEALER shall take prompt
action to comply with DISTRIBUTOR'S recommendations and minimum
facility standards.
F. USE OF LEXUS MARKS
1. USE BY DEALER
DISTRIBUTOR grants to DEALER the nonexclusive privilege of
displaying or otherwise using authorized LEXUS Marks as specified
in the LEXUS Graphic Standards Manual at the Approved Location(s)
in connection with the selling or servicing of LEXUS Products.
DEALER further agrees that it promptly shall discontinue the
display and use of any such LEXUS Marks, and shall change the
manner in which any LEXUS Marks are displayed and used, when for
any reason it is requested to do so by DISTRIBUTOR. DEALER may
use the LEXUS Marks only at Approved Location(s) and for such
purposes as are specified in this Agreement. DEALER agrees that
such LEXUS Marks may be used as part of the name under which
DEALER'S business is conducted only with the prior written
approval of DISTRIBUTOR.
2. DISCONTINUANCE OF USE
Upon termination, non-renewal, or expiration of this Agreement,
DEALER agrees that it shall immediately:
a. Discontinue the use of the word LEXUS and the LEXUS Marks, or
any semblance of same, including without limitation, the use
of all stationery, telephone directory listing, and other
printed material referring in any way to LEXUS or bearing any
LEXUS Mark;
b. Discontinue the use of the word LEXUS or the LEXUS Marks, or
any semblance of same, as part of its business or corporate
name, and file a change or discontinuance of such name with
appropriate authorities;
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c. Remove all product signs bearing said word(s) or LEXUS Marks
at DEALER'S sole cost and expense;
d. Cease representing itself as an authorized LEXUS Dealer; and
e. Refrain from any action, including without limitation, any
advertising, stating or implying that it is authorized to
sell or distribute LEXUS Products.
In the event DEALER fails to comply with the terms and conditions
of this Section, DISTRIBUTOR shall have the right to enter upon
DEALER'S premises and remove, without liability, all such product
signs and identification bearing the word LEXUS or any LEXUS
Marks. DEALER agrees that it shall reimburse DISTRIBUTOR for any
costs and expenses incurred in such removal, including reasonable
attorney fees.
XIII. CAPITAL, CREDIT, RECORDS AND UNIFORM SYSTEMS
A. NETWORKING CAPITAL
DEALER agrees to establish and maintain actual net working capital in
an amount not less than the minimum net working capital specified by
DISTRIBUTOR. DISTRIBUTOR will have the right to increase the minimum
net working capital required, and DEALER agrees promptly to establish
and maintain the increased amount.
B. FLOORING AND LINES OF CREDIT
DEALER agrees to obtain and maintain at all times a confirmed and
adequate flooring line with a bank or financial institution or other
method of financing acceptable to DISTRIBUTOR to enable DEALER to
perform its obligations pursuant to this Agreement.
DISTRIBUTOR may increase the required amounts of flooring or lines of
credit, and DEALER agrees promptly to establish and maintain the
increased amount.
Subject to the foregoing obligations, DEALER is free to do its
financing business, wholesale, retail or both, with whomever it
chooses and to the extent it desires.
C. PAYMENT TERMS
All monies or accounts due DEALER from DISTRIBUTOR will be considered
net of DEALER'S indebtedness to DISTRIBUTOR. DISTRIBUTOR may deduct or
offset any amounts due or to become due from DEALER to DISTRIBUTOR, or
any amounts held by DISTRIBUTOR, from or against any sums or accounts
due or to become due from DISTRIBUTOR to DEALER. Any amounts owed by
DEALER to DISTRIBUTOR that are not paid when due shall bear interest
as established by DISTRIBUTOR and permitted by law. Payments by DEALER
to DISTRIBUTOR shall be made in such a manner as prescribed by
DISTRIBUTOR and shall be applied against DEALER'S indebtedness in
accordance with DISTRIBUTOR'S policies and practices.
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D. UNIFORM ACCOUNTING SYSTEM
DEALER agrees to maintain its financial books and records in
accordance with the LEXUS Accounting Manual, as amended from time to
time by DISTRIBUTOR. In addition, DEALER shall furnish to DISTRIBUTOR
complete and accurate financial or operating information, including
without limitation, a financial and/or operating statement covering
the current month and calendar year-to-date operations and showing the
true and accurate condition of DEALER'S business. DEALER shall
promptly furnish to DISTRIBUTOR copies of any adjusted financial
and/or operating statements, including any and all adjusted, year-end
statements prepared for tax or any other purposes. All such
information shall be furnished by DEALER to DISTRIBUTOR via
DISTRIBUTOR'S electronic communications network and in such a format
and at such times as prescribed by DISTRIBUTOR.
E. RECORDS MAINTENANCE
DEALER agrees to keep complete, accurate and current records regarding
its sale, leasing and servicing of LEXUS Products for a minimum of
five (5) years, exclusive of any retention period required by any
governmental entity. DEALER shall prepare, keep current and retain
records in support of requests for reimbursement for warranty and
policy work performed by DEALER in accordance with the LEXUS Warranty
Policies and Procedures Manual.
F. EXAMINATION OF DEALERSHIP ACCOUNTS AND RECORDS
DISTRIBUTOR shall have the right at all reasonable times and during
regular business hours to inspect DEALER'S facilities and to examine,
audit and to reproduce all records, accounts and supporting data
relating to the operations of DEALER, including without limitation,
sales reporting, service and repair of LEXUS Products by DEALER.
G. TAXES
DEALER shall be responsible for and duly pay all sales taxes, use
taxes, excise taxes and other governmental or municipal charges
imposed, levied or based upon the purchase or sale of LEXUS Products
by DEALER, and shall maintain accurate records of the same.
H. CONFIDENTIALITY
DISTRIBUTOR agrees that it shall not provide any financial data or
documents submitted to it by DEALER to any third party unless
authorized by DEALER, required by law, or required to generate
composite or comparative data for analytical purposes.
DEALER agrees to keep confidential and not to disclose, directly or
indirectly, any information that DISTRIBUTOR designates as
confidential.
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I. DATA TRANSMISSION SYSTEMS
DISTRIBUTOR has established a national, private, centralized database
of information about all LEXUS vehicles and customers. In order to
provide the highest level of service and support and to facilitate
accurate and timely reporting of relevant DEALER operational and
financial data, DEALER shall provide information to DISTRIBUTOR as
specified by DISTRIBUTOR from time to time, including, but not limited
to, customer service, sales, parts inventory and accounting
information. All information shall be submitted by DEALER via the
LEXUS electronic communications network. DEALER will acquire, install
and maintain at its expense the necessary equipment and systems
compatible with the LEXUS electronic communications network.
DISTRIBUTOR will recommend to DEALER an independent source for
purchasing the required equipment and systems. DEALER, however, may
purchase equipment from any source, provided the equipment meets the
LEXUS electronic communications network specifications.
J. SALES REPORTING
DEALER agrees to accurately report to DISTRIBUTOR, with such relevant
information as DISTRIBUTOR may reasonably require, the delivery of
each new motor vehicle to a purchaser by the end of the day in which
the vehicle is delivered to the purchaser thereof, and to furnish
DISTRIBUTOR with such other reports as DISTRIBUTOR may reasonably
require from time to time.
XIV. TRANSFERS
A. SALE OF OWNERSHIP INTEREST IN DEALERSHIP
This is a personal services Agreement based upon the personal skills,
service, qualifications and commitment of DEALER'S OWNERS and General
Manager. For this reason, and because DISTRIBUTOR has entered into
this Agreement in reliance upon DEALER'S, OWNERS' and General
Manager's qualifications, DEALER agrees to obtain DISTRIBUTOR'S prior
written approval of any proposed change in its ownership, General
Manager or any proposed disposition of DEALER'S principal assets.
DISTRIBUTOR shall not be obligated to renew this Agreement or to
execute a new Agreement to a proposed transferee unless DEALER first
makes arrangements acceptable to DISTRIBUTOR to satisfy any
outstanding indebtedness to DISTRIBUTOR.
B. RIGHT OF FIRST REFUSAL OR OPTION TO PURCHASE
1. RIGHTS GRANTED
If a proposal to sell the dealership's assets or transfer its
ownership is submitted by DEALER to DISTRIBUTOR, or in the event
of the death of the majority owner of DEALER, DISTRIBUTOR has a
right of first refusal or option to purchase the dealership
assets or stock, including any leasehold
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interest or realty. DISTRIBUTOR'S exercise of its right or option
under this Section supercedes DEALER'S right to transfer its
interest in, or ownership of, the dealership. DISTRIBUTOR'S right
or option may be assigned by it to any third party and
DISTRIBUTOR hereby guarantees the full payment to DEALER of the
purchase price by such assignee. DISTRIBUTOR may disclose the
terms of any pending buy/sell agreement and any other relevant
dealership performance information to any potential assignee.
DISTRIBUTOR'S rights under this Section will be binding on and
enforceable against any assignee or successor in interest of
DEALER or purchaser of DEALER'S assets.
2. EXERCISE OF DISTRIBUTOR'S RIGHTS
DISTRIBUTOR shall have thirty (30) days from the following events
within which to exercise its option to purchase or right of first
refusal: (i) DISTRIBUTOR'S receipt of all data and documentation
customarily required by it to evaluate a proposed transfer of
ownership; (ii) DISTRIBUTOR'S receipt of notice from DEALER of
the death of the majority owner of DEALER; or (iii) DISTRIBUTOR'S
disapproving of any application submitted by an OWNER'S heirs
pursuant to Section XIV. DISTRIBUTOR'S exercise of its right of
first refusal under this Section neither shall be dependent upon
nor require its prior refusal to approve the proposed transfer.
3. RIGHT OF FIRST REFUSAL
If DEALER has entered into a bona fide written buy/sell agreement
for its dealership business or assets, DISTRIBUTOR'S right under
this Section is a right of first refusal, enabling DISTRIBUTOR to
assume the buyer's rights and obligations under such buy/sell
agreement, and to cancel this Agreement and all rights granted
DEALER. Upon DISTRIBUTOR'S request, DEALER agrees to provide
other documents relating to the proposed transfer and any other
information which DISTRIBUTOR deems appropriate, including, but
not limited to, those reflecting other agreements or
understandings between the parties to the buy/sell agreement.
Refusal to provide such documentation or to state that no such
documents exist shall create the presumption that the buy/sell
agreement is not a bona fide agreement.
4. OPTION TO PURCHASE
In the event of the death of a majority OWNER or if DEALER
submits a proposal which DISTRIBUTOR determines is not bona fide
or in good faith, DISTRIBUTOR has the option to purchase the
principal assets of DEALER utilizing the dealership business,
including real estate and leasehold interest, and to cancel this
Agreement and the rights granted DEALER. The purchase price of
the dealership assets will be determined by good faith
negotiations between the parties. If an agreement cannot be
reached, the purchase price will be exclusively determined by
binding arbitration in accordance with the commercial arbitration
rules of the American Arbitration Association. The site of the
arbitration shall be the office of the American
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Arbitration Association in the locality of DISTRIBUTOR'S
principal place of business.
5. DEALER'S OBLIGATIONS
Upon DISTRIBUTOR'S exercise of its right or option and tender of
performance under the buy/sell agreement or upon whatever terms
may be expressed in the buy/sell agreement, DEALER shall
forthwith transfer the affected real property by warranty deed
conveying marketable title free and clear of all liens, claims,
mortgages, encumbrances, tenancies and occupancies. The warranty
deed shall be in proper form for recording, and DEALER shall
deliver complete possession of the property and deed at the time
of closing. DEALER shall also furnish to DISTRIBUTOR all copies
of any easements, licenses or other documents affecting the
property or dealership operations and shall assign any permits or
licenses that are necessary or desirable for the use of or
appurtenant to the property or the conduct of such dealer
operations. DEALER also agrees to execute and deliver to
DISTRIBUTOR instruments satisfactory to DISTRIBUTOR conveying
title to all personal property, including leasehold interests,
involved in the transfer or sale to DISTRIBUTOR. If any personal
property is subject to any lien or charge of any kind, DEALER
agrees to procure the discharge and satisfaction thereof prior to
the closing of sale of such property to DISTRIBUTOR.
XV. SUCCESSION RIGHTS UPON DEATH OR INCAPACITY
A. SUCCESSION TO OWNERSHIP AFTER DEATH OF OWNER
In the event that OWNER dies and his or her interest in Dealership
passes directly to any person or persons ("Heirs") who wish to succeed
to OWNER'S interest, then OWNER'S legal representative must notify
DISTRIBUTOR within sixty (60) days of the death of the OWNER of such
Heir's or Heirs' intent to succeed OWNER. The legal representative
also must then designate a proposed General Manager for DISTRIBUTOR
approval. The effect of such notice from OWNER'S legal representative
will be to suspend any notice of termination provided for in Section
XVI (B)(4) issued hereunder.
Upon delivery of such notice, OWNER'S legal representative shall
immediately request any person(s) identified by it as intending to
succeed OWNER and the designated candidate for General Manager to
submit an application and to provide all personal and financial
information that DISTRIBUTOR may reasonably and customarily require in
connection with its review of such applications. All requested
information must be provided promptly to DISTRIBUTOR and in no case
later than thirty (30) days after receipt of such request from OWNER'S
legal representative. Upon the submission of all requested
information, DISTRIBUTOR agrees to review such application(s) pursuant
to the then current criteria generally applied by DISTRIBUTOR in
qualifying dealer OWNERS and/or General Managers. DISTRIBUTOR shall
either approve or disapprove the application(s) within ninety (90)
days of full compliance with all DISTRIBUTOR'S requests for
information. If DISTRIBUTOR approves the application(s), it shall
offer to enter into a new LEXUS Dealer
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Agreement with OWNER'S Heir(s) in the form then currently in use,
subject to such additional conditions and for such term as DISTRIBUTOR
deems appropriate.
In the event that DISTRIBUTOR does not approve the designated Heir(s)
or designated candidate for Manager, or if the OWNER'S legal
representative withdraws his or her notice of the Heir(s) intent to
succeed as OWNER(S) or if the legal representative or any proposed
OWNERS or General Manager fails to timely provide the required
information, DISTRIBUTOR may reinstate or issue a notice of
termination. Nothing in this Section shall waive DISTRIBUTOR'S right
to exercise its Option to Purchase set forth in Section XIV herein.
B. INCAPACITY OF OWNER
The parties agree that, as used herein, incapacity shall refer to any
physical or mental ailment that, in DISTRIBUTOR'S opinion, adversely
affects OWNER'S ability to meet his or her obligations under this
Agreement. DISTRIBUTOR may terminate this Agreement when an
incapacitated OWNER also is the General Manager identified herein.
Prior to the effective date of any notice of termination, an
incapacitated OWNER who is also the General Manager, or his or her
legal representative, may propose a new candidate for the position of
General Manager. Such proposal shall be in writing and shall suspend
any pending notice of termination until DISTRIBUTOR advises DEALER of
its approval or disapproval of the new candidate. Upon receipt of such
notice, DISTRIBUTOR and DEALER shall follow the qualification
procedures set forth in subsection A above.
C. NOMINATION OF SUCCESSOR PRIOR TO DEATH OR INCAPACITY OF OWNER
An OWNER owning a majority of DEALER'S stock may nominate a candidate
to assume ownership and/or the position of General Manager of the
dealership upon his or her death or incapacity.
As soon as practicable after such nomination, DISTRIBUTOR will request
such personal financial information from the nominated OWNER and/or
General Manager candidate as it reasonably and customarily may require
in evaluating such candidates. DISTRIBUTOR shall apply criteria then
currently used by DISTRIBUTOR in qualifying OWNERS and/or General
Managers of authorized dealers. Upon receipt of all requested
information, DISTRIBUTOR shall either approve or disapprove such
candidate. If DISTRIBUTOR initially approves the candidate, said
approval shall remain in effect for the duration of the current
Agreement. DISTRIBUTOR agrees that DEALER may renominate the candidate
after the expiration of this Agreement, and DISTRIBUTOR will approve
such nomination provided: (i) DISTRIBUTOR and DEALER have entered into
a new LEXUS Dealer Agreement; and (ii) the proposed candidate
continues to comply with the then current criteria used by DISTRIBUTOR
in qualifying such candidates. If DISTRIBUTOR does not initially
qualify the candidate, DISTRIBUTOR agrees to review the reason(s) for
its decision with OWNER. OWNER is
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is free at any time to renew its nomination. However, in such
instances, the candidate must again qualify pursuant to the then
current criteria. OWNER may, by written notice, withdraw a nomination
at any time, even if DISTRIBUTOR has previously qualified said
candidate.
XVI. TERMINATION
A. VOLUNTARY TERMINATION BY DEALER
DEALER may voluntarily terminate this Agreement at any time by written
notice to DISTRIBUTOR. Termination shall be effective thirty (30) days
after receipt of the notice by DISTRIBUTOR, unless otherwise mutually
agreed in writing.
B. TERMINATION FOR CAUSE
1. IMMEDIATE TERMINATION
DEALER and DISTRIBUTOR agree that the following conduct is within
DEALER'S control and is so contrary to the goals, purposes and
objectives of this Agreement as to warrant its immediate
termination. Accordingly, DEALER agrees that if it engages in any
of the following types of conduct, DISTRIBUTOR shall have the
right to terminate this Agreement immediately:
a. If DEALER fails to conduct any customary dealership
operations for seven consecutive business days, except in the
event such closure or cessation of operation is caused by
some physical event beyond the control of the DEALER, such as
strikes, civil war, riots, fires, floods, earthquakes, or
other acts of God;
b. If DEALER becomes insolvent, or files any petition under
bankruptcy law, or executes an assignment for the benefit of
creditors, or appoints a receiver or trustee or another
officer having similar powers is appointed for DEALER and is
not removed within thirty (30) days from his appointment
thereto or there is any levy under attachment or execution or
similar process which is not vacated or removed by payment or
bonding within ten (10) days;
c. If DEALER, or any OWNER or Officer of DEALER is convicted of
any felony;
d. If DEALER or any OWNER, Officer or General Manager of Dealer
makes any material misrepresentation to DISTRIBUTOR; or
e. If DEALER fails to obtain or maintain any license, permit or
authorization necessary for the conduct by DEALER of his or
her business pursuant to this Agreement, or such license,
permit or authorization is suspended or revoked.
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2. TERMINATION UPON SIXTY DAYS NOTICE
The following conduct violates the terms and conditions of this
Agreement and, if DEALER engages in such conduct, DISTRIBUTOR shall
have the right to terminate this Agreement upon sixty (60) days
notice:
a. Any attempted or actual sale, transfer or assignment by DEALER of
this Agreement or any of the rights granted DEALER hereunder, or
any attempted or actual transfer, assignment or delegation by
DEALER of any of the responsibilities assumed by it under this
Agreement without the prior written approval of DISTRIBUTOR;
b. Any unreasonable removal of the General Manager;
c. Appointment of a new General Manager without the prior written
approval of DISTRIBUTOR;
d. The conducting, directly or indirectly, of any LEXUS dealer
operation other than at the Approved Location(s);
e. Failure of DEALER to pay DISTRIBUTOR for any LEXUS Products;
f. Failure of DEALER to establish or maintain during the existence
of this Agreement the required net working capital or adequate
flooring and lines of credit;
g. Any dispute, disagreement or controversy among managers, officers
or stockholders of DEALER that, in the reasonable opinion of
DISTRIBUTOR, adversely affects the ownership, operation,
management, business, reputation or interests of DEALER or
DISTRIBUTOR;
h. Retention by DEALER of any General Manager, who, in DISTRIBUTOR'S
reasonable opinion, is not competent or, if previously approved
by DISTRIBUTOR, no longer possesses the requisite qualifications
for the position, or who has acted in a manner contrary to the
continued best interest of both DEALER and DISTRIBUTOR;
i. Impairment of the reputation or financial standing of DEALER
subsequent to the execution of this Agreement;
j. Refusal to permit DISTRIBUTOR to examine or audit DEALER'S
accounting records as provided herein upon receipt by DEALER from
DISTRIBUTOR of written notice requesting such permission or
information;
k. Failure of DEALER to timely furnish accurate sales or financial
information and related supporting data;
l. Breach or violation by DEALER of any other term or provision of
this Agreement; or
m. Any civil or administrative liability found against DEALER or any
OWNER or Officer of DEALER for any automotive related matter
which in DISTRIBUTOR'S opinion tends to seriously and adversely
affect the
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ownership, operation, management, reputation, business or
interests of DEALER, or to impair the goodwill associated with
the LEXUS Marks.
3. TERMINATION FOR FAILURE OF PERFORMANCE
If, upon evaluation of DEALER's performance pursuant to paragraphs
VII(F), X(F), XI(B) or XII(E) herein, DISTRIBUTOR concludes that
DEALER has failed to perform adequately its sales, service or customer
satisfaction responsibilities or to provide adequate dealership
facilities, DISTRIBUTOR shall notify DEALER in writing of such
failure(s) and will endeavor to review promptly with DEALER the nature
and extent of such failure(s), and will grant DEALER 180 days or such
other period as may be required by law to correct such failure(s). If
DEALER fails or refuses to correct such failure(s) or has not made
substantial progress towards remedying such failure(s) at the
expiration of such period, DISTRIBUTOR may terminate this Agreement
upon sixty (60) days notice or such other notice as may be required by
law.
4. TERMINATION UPON DEATH OR INCAPACITY
Subject to certain exceptions identified in Section XV, DISTRIBUTOR
may terminate this Agreement in the event of the death of an OWNER or
upon the incapacity of any OWNER who is also the General Manager
identified herein, upon written notice to DEALER and such OWNER'S
legal representative. Termination, upon either of these events shall
be effective ninety (90) days from the date of such notice.
C. NOTICE OF TERMINATION
Any notice of termination under this Agreement shall be in writing and
shall be mailed to the person(s) designated to receive such notice, via
certified mail, or shall be delivered in person. Such notice shall be
effective upon the date of receipt. DISTRIBUTOR shall state the grounds on
which it relies in its termination of DEALER, and shall have the right to
amend such notice as appropriate. DISTRIBUTOR'S failure to refer to
additional grounds for termination shall not constitute a waiver of its
right later to rely upon such grounds.
D. CONTINUANCE OF BUSINESS RELATIONS
Upon receipt of any notice of termination or non-renewal, DEALER agrees to
conduct itself and its operation until the effective date of termination or
non-renewal in a manner that will not injure the reputation or goodwill of
the LEXUS Marks or DISTRIBUTOR.
E. REPURCHASE PROVISIONS
1. DISTRIBUTOR'S OBLIGATIONS
Upon the expiration or termination of this Agreement, DISTRIBUTOR
shall have the right to cancel any and all shipments of LEXUS Products
scheduled for delivery to DEALER, and DISTRIBUTOR shall repurchase
from DEALER the following:
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a. New, unused, unmodified and undamaged LEXUS Motor Vehicles then
unsold in DEALER'S inventory. The prices of such Motor Vehicles
shall be the same as those at which they were originally
purchased by DEALER, less all prior refunds or other allowances
made by DISTRIBUTOR to DEALER with respect thereto.
b. New, unused and undamaged LEXUS parts and accessories then unsold
in DEALER'S inventory that are in good and saleable condition.
The prices for such parts and accessories shall be the prices
last established by DISTRIBUTOR for the sale of identical parts
or accessories to dealers in the area in which DEALER is located.
c. Special service tools recommended by DISTRIBUTOR and then owned
by DEALER and that are especially designed for servicing LEXUS
Motor Vehicles. The prices for such special service tools will be
the price paid by DEALER less appropriate depreciation, or such
other price as the parties may negotiate.
d. Signs that DISTRIBUTOR has recommended for identification of
DEALER. The price of such signs shall be the price paid by DEALER
less appropriate depreciation or such other price as the parties
may negotiate.
2. RESPONSIBILITIES OF DEALER
DISTRIBUTOR'S obligations to repurchase the items set forth in this
Section are contingent upon DEALER fulfilling the following
obligations:
a. Within thirty (30) days after the date of expiration or the
effective date of termination of this Agreement, DEALER shall
deliver or mail to DISTRIBUTOR a detailed inventory of all items
referred to in this Section which it requests DISTRIBUTOR
repurchase and shall certify that such list is true and accurate.
b. DEALER shall be entitled to request repurchase of only those
items which it purchased from DISTRIBUTOR, unless DISTRIBUTOR
agrees otherwise.
c. Products and special service tools to be repurchased by
DISTRIBUTOR from DEALER shall be delivered by DEALER to
DISTRIBUTOR'S place of business at DEALER'S expense. If DEALER
fails to do so, DISTRIBUTOR may transfer such items and deduct
the cost therefor from the repurchase price.
d. DEALER will execute and deliver to DISTRIBUTOR instruments
satisfactory to DISTRIBUTOR conveying good and marketable title
to the aforesaid items to DISTRIBUTOR. If such items are subject
to any lien or charge of any kind, DEALER will procure the
discharge in satisfaction thereof prior to their repurchase by
DISTRIBUTOR. DEALER will comply with the requirements of any
state or federal laws that relate to the repurchase including
bulk sales or transfer laws.
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e. DEALER will remove, at its own expense, all signage from
DEALER'S approved locations including all LEXUS Marks before
it is eligible for payment hereunder.
3. PAYMENT BY DISTRIBUTOR
DISTRIBUTOR will pay DEALER for such items as DEALER may request
be repurchased and that qualify hereunder as soon as practicable
upon DEALER'S compliance with the obligations set forth herein
and upon computation of any outstanding indebtedness of DEALER to
DISTRIBUTOR.
DISTRIBUTOR shall have the right to offset from any amounts due
to DEALER hereunder the total sum of DEALER'S outstanding
indebtedness to DISTRIBUTOR.
If DEALER disagrees with DISTRIBUTOR'S valuation of any item
herein, and DEALER and DISTRIBUTOR have not resolved their
disagreement within sixty (60) days of the effective date of
termination or expiration of this Agreement, DISTRIBUTOR shall
pay to DEALER the amount to which it reasonably believes DEALER
is entitled. DEALER'S exclusive remedy to recover any additional
sums that it believes is due under this Section shall be by
resort to an Alternative Dispute Resolution program, including
arbitration, that is binding on both parties.
XVII. MANAGEMENT OF DISPUTES
A. ALTERNATIVE DISPUTE RESOLUTION PROGRAMS
1. DISTRIBUTOR and DEALER acknowledge that disputes involving the
performance of this Agreement may from time to time arise. In
order to minimize the effects of such disputes on their business
relationship, the parties agree to participate in such
Alternative Dispute Resolution programs as may be established by
DISTRIBUTOR.
2. Such Alternative Dispute Resolution programs may be established
to resolve disputes in matters including, but not limited to,
sales reporting and/or sales credit disputes, product allocation
disputes, DEALER liability for repair/replace claims, warranty
and service campaign reimbursement, sales contests and
merchandising incentive programs, and accounts of debt between
the parties.
3. In all disputes between DEALER and DISTRIBUTOR, the parties shall
first resort to such Alternative Dispute Resolution programs,
including mediation, as may have been established by DISTRIBUTOR.
4. It is expressly understood that, unless otherwise specified in
this Agreement, the results of any Alternative Dispute Resolution
program will not be binding upon DEALER or DISTRIBUTOR.
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5. The parties' commitment to support and participate in non-binding
Alternative Dispute Resolution programs specifically is not a
waiver of DEALER'S DISTRIBUTOR'S right to later resort to
litigation before any judicial or administrative forum.
B. APPLICABLE LAW
This Agreement shall be governed by and construed according to the
laws of the state in which DEALER is located.
C. MUTUAL RELEASE
Each party hereby releases the other from any and all claims and
causes of action that it may have against the other for money damages
arising from any event occurring prior to the date of execution of
this Agreement, except for any accounts payable by one party to the
other as a result of the purchase of any LEXUS Products, audit
adjustments or reimbursement for any services. This release does not
extend to claims which either party does not know or reasonably
suspect to exist in its favor at the time of the execution of this
Agreement.
XVIII. DEFENSE AND INDEMNIFICATION
A. DEFENSE AND INDEMNIFICATION BY DISTRIBUTOR
DISTRIBUTOR agrees to assume the defense of DEALER and to indemnify
and hold DEALER harmless in any lawsuit naming DEALER as a defendant
and involving any LEXUS Product when the lawsuit also involves
allegations of:
1. Breach of warranty provided by DISTRIBUTOR, bodily injury or
property damage arising out of an occurrence allegedly caused
solely by a defect or failure to warn of a defect in design,
manufacture or assembly of a LEXUS Product (except for tires not
manufactured by FACTORY), provided that the defect could not
reasonably have been discovered by DEALER during the pre-delivery
service of the LEXUS Product;
2. Any misrepresentation or misleading statement or unfair or
deceptive trade practice of DISTRIBUTOR; or
3. Any damage to a LEXUS Product purchased by DEALER from
DISTRIBUTOR that was repaired by DISTRIBUTOR and where DEALER had
not been notified of such damage in writing prior to the delivery
of the subject vehicle, part or accessory to a retail Customer;
and Provided:
4. That DEALER delivers to DISTRIBUTOR, in a manner to be designated
by DISTRIBUTOR, within twenty (20) days of the service of any
summons or complaint, copies of such documents and requests in
writing a defense and/or indemnification therein (except as
provided in Paragraph (D) below;
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5. That the complaint does not involve allegations of DEALER misconduct,
including but not limited to, improper or unsatisfactory service or
repair, misrepresentation, or any claim of DEALER'S unfair or
deceptive trade practice;
6. That the LEXUS Product which is the subject of the lawsuit was not
altered by or for DEALER;
7. That DEALER agrees to cooperate fully in the defense of such action
as DISTRIBUTOR may reasonably require; and
8. That DEALER agrees that DISTRIBUTOR may offset any recovery on
DEALER'S behalf against any indemnification that may be required
hereunder.
B. DEFENSE AND INDEMNIFICATION BY DEALER
DEALER agrees to assume the defense of DISTRIBUTOR or FACTORY and to
indemnify and hold them harmless in any lawsuit naming DISTRIBUTOR or
FACTORY as a defendant when the lawsuit involves allegations of:
1. DEALER'S alleged failure to comply, in whole or in part, with any
obligations assumed by DEALER pursuant to this Agreement;
2. DEALER'S alleged negligent or improper repairing or servicing of a
new or used LEXUS Motor Vehicle or equipment, or such other motor
vehicles or equipment as may be sold or serviced by DEALER;
3. DEALER'S alleged breach of any contract or warranty other than that
provided by DISTRIBUTOR or FACTORY;
4. DEALER'S alleged misleading statements, misrepresentations, or
deceptive or unfair trade practices;
5. Any modification or alteration made by or on behalf of DEALER to a
LEXUS Product, except those made pursuant to the express instruction
or with the express approval of DISTRIBUTOR; and Provided:
6. That DISTRIBUTOR delivers to DEALER, within twenty (20) days of the
service of any summons or complaint, copies of such documents, and
requests in writing a defense and/or indemnification therein (except
as provided in Paragraph (D) below);
7. That DISTRIBUTOR agrees to cooperate fully in the defense of such
action as DEALER may reasonably require; and,
8. That the complaint does not involve allegations of liability premised
upon separate DISTRIBUTOR'S conduct or omissions.
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C. CONDITIONAL DEFENSE AND/OR INDEMNIFICATION
In agreeing to defend and/or indemnify each other, DEALER and DISTRIBUTOR may
make their agreement conditional on the continued existence of the state of
facts as then known to such party and may provide for the withdrawal of such
defense and/or indemnification at such time as facts arise which, if known at
the time of the original request for a defense and/or indemnification, would
have caused either DEALER or DISTRIBUTOR to refuse such request.
The party withdrawing from its agreement to defend and/or indemnify shall
give timely notice of its intent to withdraw. Such notice shall be in writing
and shall be effective upon receipt. The withdrawing party shall be
responsible for all costs and expenses of defense up to the date of receipt
of its notice of withdrawal.
D. THE EFFECT OF SUBSEQUENT DEVELOPMENTS
In the event that subsequent developments in a case make clear that the
allegations which initially preclude a request or an acceptance of a request
for a defense and/or indemnification are no longer at issue therein or are
without foundation, any party having a right to a defense and/or
indemnification hereunder may tender such request for a defense and
indemnification to the other party. Neither DEALER nor DISTRIBUTOR shall be
required to agree to such subsequent request for a defense and/or
indemnification where that party would be unduly prejudiced by such delay.
E. TIME TO RESPOND AND RESPONSIBILITIES OF THE PARTIES
DEALER and DISTRIBUTOR shall have sixty (60) days from the receipt of a
request for a defense and/or indemnification to conduct an investigation to
determine whether or not, or under what conditions, it may agree to defend
and/or indemnify pursuant to this Section.
If local rules require a response to the complaint in the lawsuit prior to
the time provided hereunder for a response to such request, the requesting
party shall take all steps necessary, including obtaining counsel, to protect
its own interest in the lawsuit until DEALER or DISTRIBUTOR assumes the
requested defense and/or indemnification. In the event that DEALER or
DISTRIBUTOR agrees to assume the defense and/or indemnification of a lawsuit,
it shall have the right to engage and direct counsel of its own choosing and,
except in cases where the request is made pursuant to Paragraph (D) above,
shall have the obligation to reimburse the requesting party for all
reasonable costs and expense, including actual attorneys' fees, incurred
prior to such assumption.
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ADDENDUM TO PARAGRAPH XXI
-------------------------
These Additional Provisions to Lexus Dealer Agreement ("Additional
Provisions") are entered into as of JUN 30 1997, among DISTRIBUTOR, DEALER, and
FIRSTAMERICA AUTOMOTIVE, INC., a Nevada corporation (hereinafter "FAA"), and
form a part of and are incorporated into the Dealer Agreement.
RECITALS
--------
1. DISTRIBUTOR and DEALER have entered into a Lexus Dealer Agreement
(the "Dealer Agreement") dated as of JUN 3 0 1997
2. FAA is the 100% shareholder of DEALER.
3. FAA and DEALER are hereinafter collectively referred to as the
"Dealer Parties". DISTRIBUTOR and the Dealer Parties are hereinafter
collectively referred to as the "Parties".
4. The Parties wish to enter into these Additional Provisions for the
purposes of agreeing to be bound by the terms of these Additional Provisions,
which are a part of and are incorporated into the Dealer Agreement.
5. The ownership of FAA shall be approximately as follows:
Thomas A. Price: 41%
- --------------------------------------------------------------------------------
Donald V. Strough: 11%
- --------------------------------------------------------------------------------
TCW/Crescent Mezzanine Partners L.P.19%
- --------------------------------------------------------------------------------
Others: 29%
- --------------------------------------------------------------------------------
NOW THEREFORE, in consideration for the mutual agreements contained
herein and in the Dealer Agreement, the Parties agree as follows:
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A. General
-------
1. DISTRIBUTOR and FAA have entered into an Agreement dated
__________________________(the "Agreement") relating, among other matters, to
the number of Toyota and Lexus dealerships which may be acquired by FAA and its
affiliates and to certain aspects of the management of Toyota and Lexus
dealerships owned by FAA. The Dealer Parties agree that the Agreement is
incorporated into and forms a part of the Dealer Agreement and these Additional
Provisions. To the extent that any provision of the Agreement is inconsistent
with the Dealer Agreement or these Additional Provisions, the provisions of the
Agreement shall be controlling.
2. The Dealer Parties acknowledge and agree that if any provision of
these Additional Provisions is violated in any material respect by any of the
Dealer Parties, DISTRIBUTOR will have the right to terminate the Dealer
Agreement on sixty (60) days' written notice to Dealer if Dealer fails to cure
such violation prior to the expiration of such sixty (60) days.
B. Provisions Relating to the Structure of DEALER
----------------------------------------------
1. Single Purpose Entity. DEALER will be maintained as a separate
---------------------
legal entity, and will not engage in any business other than operation of a
Lexus dealership and activities related thereto.
2. No Merger, Consolidation, Etc. DEALER will not be merged with or
-----------------------------
into, or be consolidated with, or acquire substantially all of the assets of,
any other entity, without the prior written consent of DISTRIBUTOR, in its sole
discretion.
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C. Provisions Relating to Management
---------------------------------
1. Role of the Responsible Executive. Pursuant to Section 8 of the
---------------------------------
Agreement, Thomas A. Price is hereby designated as the FAA executive who will
have responsibility and authority with respect to all matters concerning DEALER
and the relationship between DEALER and DISTRIBUTOR (the "FAA Executive"). The
FAA Executive will be actively involved in the management of all aspects of the
operations of DEALER.
(a) The FAA Executive will be an officer of DEALER. The FAA
Executive, in consultation with management of FAA, will have complete control
over all day-to-day management decisions of DEALER or relating to DEALER.
(b) The General Manager will report directly to and be
responsible to the FAA Executive.
(c) DISTRIBUTOR may rely on oral or written communications and
agreements from the FAA Executive as being the binding agreements of DEALER,
without any duty of DISTRIBUTOR to confirm that any such communication or
agreement has been duly authorized by the Board of Directors of DEALER, FAA, or
any other individual or entity.
2. Successors to the FAA Executive. In the event that the FAA
-------------------------------
Executive wishes to discontinue his role in the management of DEALER as set
forth in Section C.1., such action may be taken only with the prior written
consent of DISTRIBUTOR. Such consent of DISTRIBUTOR may be conditioned on
transfer of the FAA Executive's management responsibilities to an individual or
individuals approved by DISTRIBUTOR, taking into account such factors as
DISTRIBUTOR reasonably deems to be relevant and are consistent with applicable
laws.
3
<PAGE>
3. Role of the General Manager.
---------------------------
(a) John M. Driebe or any subsequent General Manager of DEALER
approved by DISTRIBUTOR, will serve exclusively as General Manager of DEALER on
a full time basis and will not have any management responsibilities with respect
to any other dealership or other business or appear as the General Manager on
any automobile dealership franchise agreement other than that of DEALER.
(b) The General Manager will have responsibility for and
authority with respect to the day-to-day operations of DEALER in the ordinary
course of business, under the supervision of the FAA Executive, and the General
Manager will have the following authority, without the need for obtaining the
prior approval of any other individual or entity:
(i) the authority to hire or terminate any employee of DEALER;
(ii) the authority to order vehicles and other products;
(iii) the authority to place advertising;
(iv) the authority to communicate with DISTRIBUTOR with respect to
all aspects of the business of DEALER;
(v) the authority to approve expenditures by DEALER in the ordinary
course of business in amounts of less than $50,000 per item;
(vi) the authority to approve capital improvements or modifications
to the DEALER'S facilities in amounts not to exceed $100,000
with respect to any expenditure.
4. Membership of Executive Committee. There shall be no change in
---------------------------------
the membership of the Executive Committee, Board of Directors or other governing
body of DEALER without the prior written approval of DISTRIBUTOR.
4
<PAGE>
5. FAA Directors. FAA shall provide a list of all current members
-------------
of its Board of Directors, and resumes for each member, to DISTRIBUTOR, and
provide such information for each new member of the Board of Directors of FAA.
D. Provisions Relating to Capitalization and Accounting
----------------------------------------------------
1. No distributions will be made by DEALER to FAA if such
distributions would cause DEALER to fail to meet any of DISTRIBUTOR'S
capitalization guidelines, including but not limited to net working capital
requirements.
2. The operations and financial results of DEALER will be reported
to DISTRIBUTOR separately from those of any other entity, business or activity,
including but not limited to any of the Dealer Parties and any other dealerships
directly or indirectly owned or controlled by any of the Dealer Parties.
3. DEALER will maintain complete and separate departments for new
and used vehicle sales, service, parts sales, leasing and finance and insurance,
and will provide separate identifiable areas for each department. DEALER will
maintain a separate and permanent personnel staff and separate retail operations
from other dealerships directly or indirectly owned by any of the Dealer
Parties. DEALER shall not combine its used car operation with that of any other
entity, including any other dealerships directly or indirectly owned by any of
the Dealer Parties.
E. Provisions Relating to Ownership
--------------------------------
1. Successors and Assigns. In the event that any interest in DEALER
----------------------
is transferred in accordance with the provisions of the Dealer Agreement, the
Agreement and these Additional Provisions, as a condition to such transfer the
5
<PAGE>
transferee must agree in writing to be bound by all of the terms and provisions
of the Dealer Agreement, the Agreement and these Additional Provisions, such
agreement to be in form and substance reasonably acceptable to DISTRIBUTOR.
2. Competitors. In no event may any interest in DEALER be
-----------
transferred to an entity which is directly or indirectly engaged in the business
of manufacturing and/or distributing automobiles, or an affiliate thereof, and
no such entity may acquire an ownership interest in FAA as described in Section
1 of the Agreement.
F. Provisions Relating to Performance
----------------------------------
1 Dealer will achieve and thereafter sustain, within six months of
the effective date of this Agreement, customer satisfaction performance levels,
as measured by the New Vehicle Sales and Delivery Survey (NVSDS), Lexus Service
Survey (LSS) and the Owner Satisfaction Index (OSI), such that each of the
indices equal or exceed the Western Area's averages or the Elite of Lexus
standards of excellence, whichever is lower.
2. Dealer will achieve and thereafter sustain, within twelve months
of the effective date of this Agreement, Lexus luxury-car market share within
its Primary Market Area equal to or higher than the Lexus Western Area average.
3. Dealer will achieve and thereafter sustain, within twelve
months of the effective date of this Agreement, retail sales efficiency of at
least 100%.
6
<PAGE>
IN WITNESS WHEREOF, the Parties have executed these Additional
Provisions as of the date first above written.
TOYOTA MOTOR SALES, USA, INC. LEXUS DIVISION OF
TOYOTA MOTOR SALES, U.S.A., INC.
LEXUS WESTERN AREA
By:____________________________ By: Y. Ishizaka
-------------------
Title:_________________________ Title: President
----------------
FIRSTAMERICA AUTOMOTIVE, INC. FAA SERRAMONTE L, INC.
d.b.a. LEXUS OF SERRAMONTE
By:/s/ By:/s/
------------------- -------------------
Title: President Title:President
---------------- -----------------
7
<PAGE>
EXHIBIT 10.5
[LOGO] MITSUBISHI
MOTOR SALES OF AMERICA. Inc.
- --------------------------------------------------------------------------------
DEALER SALES AND SERVICE AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT is made and entered into by and between MITSUBISHI MOTOR SALES OF
AMERICA, INC. a California corporation, with headquarters at 6400 Katella
Avenue, Cypress, California 90630 (hereinafter referred to as "MMSA"), and
FAA SERRAMONTE, INC.
- --------------------------------------------------------------------------------
(Name of Dealer)
a California Corporation x, Partnership , Individual
---------------------- --------- ------ ______,
(State)
doing business as Serramonte Mitsubishi
-------------------------------------------------------------
(Name)
at 1500 Collins Avenue, Colma,
-------------------------------------------- ------------------------------
(Number and Street) (City)
San Mateo County, California 94014
- --------------------------- ------------------------------------------
(County) (State) (Zip)
(hereinafter referred to as "DEALER").
1. BASIS OF AGREEMENT
This Agreement provides for the nonexclusive right of DEALER to sell and
service motor vehicles which are listed on the most recent MMSA Product List as
issued by MMSA from time to time, and related parts, accessories and options
distributed in the United States by MMSA. DEALER acknowledges that Mitsubishi
Motors Corporation and other manufacturers supplying motor vehicles to MMSA may
now or in the future distribute motor vehicles or related products in the United
States through distributors other than MMSA, and that entering into this
Agreement confers no rights or benefits upon DEALER with respect to the sale or
servicing of such motor vehicles or products.
2. TERM
This Agreement shall continue in effect for a period of three (3) years
from its effective date, unless earlier terminated by DEALER pursuant to Section
X.A. of the accompanying MMSA DEALER Sales and Service Agreement Standard
Provisions (hereinafter referred to as the ("Standard Provisions")or earlier
terminated by MMSA pursuant to Section X.B. of the Standard Provisions. Unless
earlier terminated by MMSA or DEALER, MMSA shall, not less than three (3) months
prior to the expiration of this Agreement, conduct an evaluation of DEALER'S
performance to determine whether DEALER qualifies for renewal of this Agreement
for an additional three (3) year term. Criteria considered in such evaluation
shall be as set forth in the Dealer Development Plan then in effect for DEALER.
If MMSA determines that DEALER qualifies for renewal of its MMSA Dealership,
DEALER and MMSA shall execute an MMSA DEALER Sales and Service Agreement in the
form then used by MMSA, which agreement will include similar provisions for
further re-qualification and renewal.
If, at any time, MMSA determines that a different or revised form of DEALER
sales and service agreement would better serve the interests of the parties,
MMSA may, upon a minimum of thirty (30) days' notice to DEALER, terminate this
Agreement and offer the new or amended form of agreement to DEALER in its stead.
DEALER must accept the new or amended form of agreement within thirty (30) days
of receipt thereof.
Agreement Date JUN 13 1997
------------------- 1
<PAGE>
3. OWNERSHIP OF DEALER
MMSA and DEALER recognize that the ability of DEALER to satisfactorily
perform this Agreement is conditioned upon the continued active involvement in
and/or ownership of DEALER by the following person(s) in the percentage(s) shown
(hereinafter referred to as the "Owners"):
<TABLE>
<CAPTION>
Involvement
Percentage of in Management
Name Title Ownership (Active or Inactive)
---- ----- --------- -------------------
<S> <C> <C> <C>
FirstAmerica Automotive, - 100% No
Inc.
- ---------------------------------------------------------------------------------------
Thomas A. Price President - Yes
- ---------------------------------------------------------------------------------------
Steven S. Hallock Vice-President - Yes
- ---------------------------------------------------------------------------------------
Al Babbington Secretary/Treasurer - Yes
- ---------------------------------------------------------------------------------------
_______________________________________________________________________________________
</TABLE>
This Agreement has been entered into by MMSA in reliance upon, and in
consideration of, the personal qualifications and representations of the above-
named Owners. Accordingly, except as otherwise provided herein, no change in the
active involvement in DEALER'S management by the Owners and no change in the
ownership of DEALER by the Owners which results in a change in majority control
or interest shall be permitted by DEALER or any Owner without the prior written
approval of MMSA, which approval shall not be unreasonably withheld.
4. MANAGEMENT OF DEALER
DEALER represents that Al Babbington exercises the functions of general
----------------
manager and Tom Price exercises the functions of Dealer Principal
------------- -------------------------
(hereinafter referred to as the "Executive Managers") of its MMSA Dealership and
that each has complete authority to make all decisions on behalf of DEALER with
respect to the Dealership operations.
MMSA has entered into this Agreement in reliance upon, and in consideration
of, the personal qualifications and representations of the above-named Executive
Managers. Accordingly, DEALER agrees that there shall be no change in the
Executive Managers without MMSA'S prior written consent. DEALER shall give MMSA
prior written notice of any proposed change in Executive Managers (including the
name and qualifications of the person proposed to be appointed as a replacement
Executive Manager) and MMSA shall have the right, in its sole and reasonable
discretion, to determine whether the proposed candidate possesses the requisite
qualifications and experience for the position.
5. SALES LOCALITY
Subject to and in accordance with the terms and conditions hereof, MMSA has
established the following Sales Locality as the non-exclusive, primary area of
responsibility for DEALER'S promotion and sale of MMSA Products:
City of: Colma
-----------------------------------------------------------------------
County or Parish of San Mateo State of California
-------------------------- ------------------------
Except as may be otherwise required by applicable law, MMSA reserves the
right to sell and/or lease MMSA Products to others (including, without
limitation, public or private fleet purchasers and employees of MMSA or its
affiliates) and to enter into MMSA Dealer Sales and Service Agreements with
others within and without the Sales Locality. MMSA and DEALER agree that
additional MMSA Dealers may be appointed in or near the Sales Locality when MMSA
determines, in accordance with applicable law, that additional MMSA sales and
service facilities are warranted.
Nothing contained in this Agreement shall require or be construed to
require Dealer's approval of MMSA entering into MMSA Dealer Sales and Service
Agreements or any other agreements with others within or without the Sales
Locality.
[LOGO] MITSUBISHI
Agreement Date JUN 13 1997 MOTORS SALES OF AMERICA, INC. 2
-----------------
<PAGE>
6. DEALERSHIP PREMISES
MMSA has approved the following premises as the location of DEALER'S MMSA
sales and service operations (hereinafter referred to as the "Dealership
Premises").
MMSA NEW VEHICLE SALES FACILITIES
1500 Collins Avenue
- --------------------------------------------------------------------------------
Colma, California 94014
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PARTS AND SERVICE FACILITIES
455 Serramonte Boulevard
- --------------------------------------------------------------------------------
Colma, California 94014
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALES AND GENERAL OFFICES
1500 Collins Avenue
- --------------------------------------------------------------------------------
Colma, California 94014
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
USED VEHICLE DISPLAY AND SALES FACILITIES
1500 Collins Avenue
- --------------------------------------------------------------------------------
Colma, California 94014
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STORAGE FACILITIES
1500 Collins Avenue
- --------------------------------------------------------------------------------
Colma, California 94014
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO] MITSUBISHI
Agreement Date JUN 13 1997 MOTOR SALES OF AMERICA, INC. 3
-------------------
<PAGE>
BODY AND PAINT FACILITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OTHER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MMSA and DEALER recognize that DEALER may sell MMSA Products to customers
wherever they may be located. However, in order that MMSA may establish and
maintain an effective network of MMSA Dealers for the sale and servicing of MMSA
Products, DEALER specifically agrees that, without the prior written approval of
MMSA, it shall not display MMSA Trademarks or, either directly or indirectly,
establish any place or places of business for the conduct of any of its MMSA
Dealership operations, except on the Dealership Premises in the manner and for
the purposes described above.
DEALER shall maintain all requirements and conditions of this MMSA Dealer
Sales and Service Agreement as outlined in DEALER'S most recent Dealer
Development Plan, including but not limited to exclusive facility, management
and capital requirements.
7. LICENSES
DEALER agrees to secure and maintain all licenses required for the
operation of its business as contemplated by this Agreement in any state or
jurisdiction where its MMSA Dealership operations are to be conducted. If any
such license or licenses are required, this Agreement shall not become
effective, unless and until all such required licenses have been obtained and
DEALER furnishes MMSA with a copy of all such licenses together with written
notice specifying the date and number, if any, of all such licenses. DEALER
shall notify MMSA immediately in writing if DEALER fails to secure, maintain or
renew any such license. If any required license is suspended or revoked, DEALER
shall notify MMSA immediately in writing of the effective date of such
suspension or revocation.
8. SCOPE OF AGREEMENT
DEALER agrees to be bound by and comply with each and every term of this
MMSA Dealer Sales and Service Agreement, all schedules hereto, the Standard
Provisions, the Dealer Development Plan, the most recent Product List and all
Product Addenda, the Warranty Manual and all other manuals heretofore or
hereafter issued by MMSA, all modifications, extensions or renewals of any of
the foregoing, and each and every bulletin or directive heretofore or hereafter
issued to DEALER by MMSA. MMSA may from time to time deliver to DEALER a Product
Addendum setting forth special terms and conditions applicable to particular
MMSA Vehicles designated in the Product Addendum. Such special terms and
conditions shall supersede and control any inconsistent terms and conditions in
this Agreement with respect to the MMSA Vehicles designated in the Product
Addendum. Each Product Addendum shall be effective as of the date specified in
the Product Addendum and shall remain effective (1) until it is amended or
terminated by its own terms or by a new Product Addendum, (2) until the MMSA
Vehicles designated in the Product Addendum are no longer distributed by MMSA,
or (3) until termination of this Agreement.
9. DEFINITIONS
Italicized terms used herein shall have the meanings set forth in Section
II of the Standard Provisions
10. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
[LOGO] MITSUBISHI
Agreement Date JUN 13 1997 MOTOR SALES OF AMERICA, INC. 4
---------------
<PAGE>
11. JURISDICTION
MMSA and DEALER agree that all litigation between MMSA and DEALER which may
arise out of or in connection with this Agreement or any transaction between
them shall be subject to the exclusive jurisdiction of the courts of the State
of California or of the federal courts sitting therein, and each hereby consents
to the jurisdiction of such courts. DEALER agrees that any and all process
directed to it in any such litigation may be served upon it outside of
California with the same force and effect as if such service had been made
within California.
12. LEGAL EFFECT
This Agreement terminates and supersedes all prior written or oral
agreements and understandings, if any, between MMSA and DEALER, except (1) any
agreements expressly referred to and incorporated herein, (2) any indebtedness
which may be owing by either MMSA or DEALER to the other, and (3) any of
DEALER'S unfilled orders with MMSA for any MMSA Products placed with MMSA
pursuant to the provisions of any sales agreement terminated or superseded by
this Agreement. Except as herein otherwise provided, upon execution of this
Agreement by DEALER and in consideration of MMSA'S entering into this Agreement,
DEALER releases MMSA from any and all claims, demands, contracts and liabilities
(including, but not limited to, statutory liabilities), known or unknown, of any
kind or nature whatsoever, arising from or out of or in connection with any such
prior agreements, business transactions, course of dealing, discussions or
negotiations between the parties prior to the effective date hereof. DEALER
expressly acknowledges and waives the application of California Civil Code
(S)1542 which provides as follows: "A general release does not extend to claims
which the creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor."
13. NOTICES
Any notice to be given hereunder may be delivered to the party if a sole
proprietor, to a partner of the party if a partnership, or to an officer of the
party if a corporation, or may be given by sending such notice by registered or
certified mail or by telegram or tested telex addressed, if to DEALER, to its
principal office as above stated, and if to MMSA, to its headquarters as above
stated, marked "Attention President". Except as otherwise provided in this
Agreement, any notice so given shall be considered to have been given when
delivered or mailed as provided above.
14. AUTHORITY OF DEALER
If DEALER is a partnership or corporation, DEALER shall provide MMSA with a
certified copy of the partnership authorization, corporate resolution or other
document evidencing the authority of DEALER to enter into and adhere to the
terms of this Agreement.
15. VALIDITY
No representative of MMSA shall have authority, other than by a writing
signed by the President or an Executive Vice President or two Vice Presidents of
MMSA, to renew, extend or terminate this Agreement, or to amend, modify or waive
any provision of this Agreement or any performance required hereby, or to make
any agreement which imposes obligations on either MMSA or DEALER not
specifically imposed by this Agreement.
[LOGO] MITSUBISHI
Agreement Date JUN 13 1997 MOTOR SALES OF AMERICA, Inc. 5
------------------
<PAGE>
IN WITNESS OF THE FOREGOING, the parties hereto have executed this
Agreement in duplicate. THIS AGREEMENT SHALL NOT BECOME EFFECTIVE UNTIL IT HAS
BEEN SIGNED BY THE PRESIDENT OR AN EXECUTIVE VICE PRESIDENT OR TWO VICE
PRESIDENTS OF MMSA. DEALER WILL BE NOTIFIED IN WRITING BY MMSA WHEN THIS
AGREEMENT HAS BEEN SO SIGNED, WHICH NOTICE WILL SPECIFY THE EFFECTIVE DATE OF
THIS AGREEMENT.
FAA SERRAMONTE, INC.
dba Serramonte Mitsubishi
- --------------------------------------
(DEALER'S Firm Name)
By /s/ Date 6/2/97
------------------------------- ------------------------------
Title President
-------------------------------
By _______________________________ Date ______________________________
Title _______________________________ /s/ 6/2/97
------------------------------------
(Witness)
MITSUBISHI MOTOR SALES OF AMERICA, INC.
By ___________________________________ Date ______________________________
(President)
OR
By /s/ Date JUN 13 1997
----------------------------------- ------------------------------
(Executive Vice President)
OR
By ___________________________________ Date ______________________________
(Vice President)
and
By ___________________________________ Date ______________________________
(Vice President)
[LOGO] MITSUBISHI
Agreement Date JUN 13 1997 MOTOR SALES OF AMERICA, Inc. 6
-----------------
<PAGE>
EXHIBIT 10.6
ISUZU DEALER SALES
AND
SERVICE AGREEMENT
AGREEMENT effective the 1st day of May 1997,
---- --- ----
by and between
AMERICAN ISUZU MOTORS INC.,
a California Corporation (hereinafter called "Distributor")
and
FAA Serramonte, Inc.
-------------------------------
[an individual] [partnership formed in the State of ___________________________]
[corporation incorporated in the State of California
--------------------------------------]
[doing business as Serramonte Isuzu
------------------------------------------------------------]
whose business location is 1500 Collins Avenue, Colma, CA 94014
-----------------------------------------------------
(hereinafter called "Dealer").
PURPOSE
The purpose of this Agreement is to set forth the basic rights, duties and
procedures that apply to the relationship and business transactions between
Distributor and Dealer, and to provide for the sale and servicing of Isuzu
Products in a manner that will best serve the interests of Distributor, Dealer,
and owners and purchasers of Isuzu Products. This Agreement sets forth the
rights which Dealer will enjoy as an Authorized Isuzu Dealer; the
responsibilities which Dealer assumes in consideration of these rights; and the
respective rights and obligations of Distributor and Dealer to each other. The
parties recognize that the success of Distributor and Dealer depends upon mutual
understanding and cooperation between Distributor and Dealer and how well they
each fulfill their respective responsibilities.
Distributor's basic responsibility is to promote and market Isuzu Products in
the United States and to endeavor to establish a sales network of dealers that
can provide effective sales and service efforts at the retail level. Dealer's
basic responsibility is to actively and effectively promote the retail sale of
Isuzu Products and to provide courteous and efficient service of lsuzu Products.
Distributor and Dealer will endeavor to fulfill their respective
responsibilities through aggressive, sound, ethical selling practices and
through conscientious regard for customer service.
Distributor and Dealer shall refrain from engaging In conduct or activities
which might be detrimental to or reflect adversely upon the reputation of
Distributor, Manufacturer, Dealer or Isuzu Products and shall engage in no
discourteous, deceptive, misleading or unethical practices or activities.
NOW THEREFORE, in consideration of the foregoing and the promises and agreements
herein contained, it is hereby mutually agreed between the parties hereto as
follows:
<PAGE>
SECTION 1. APPOINTMENT OF DEALER
Subject to the conditions and provisions set forth in this Agreement,
Distributor hereby:
(1) appoints Dealer as an Authorized Isuzu Dealer;
(2) grants Dealer the non-exclusive right to buy Isuzu Cars, Isuzu Trucks and
Isuzu Parts and Accessories from Distributor for resale at or from Dealer's
Dealership Location; and
(3) grants Dealer a non-exclusive right, subject to and in accordance with the
provisions of this Agreement, to identify itself as an Isuzu Dealer and to
use and to display, in the conduct of its dealership operations, the
various trademarks, trade names, service marks and other word and design
marks that Distributor uses or will use in connection with the promotion or
sale of or are or will be applied to Isuzu Products.
SECTION 2. ACCEPTANCE BY DEALER
Dealer hereby accepts said appointment and grants and acknowledges that:
(1) Except as otherwise provided by applicable laws, Distributor shall have the
absolute right to appoint other persons to conduct dealership operations in
connection with Isuzu Products and to contract with such persons in
connection therewith;
(2) Except as expressly provided in this Agreement or with the prior written
consent of Distributor (which consent shall not be unreasonably withheld),
neither said appointment, said grants nor this Agreement may be
transferred, assigned or sold to any third party, whether separately or in
connection with any sale of the assets of or ownership interests in Dealer,
by Dealer or its management or owners;
(3) No fee or other monetary consideration has been paid by Dealer to
Distributor for said appointment or grants or as consideration for
Distributor's entering into this Agreement and no property right or
interest, direct or indirect, is sold, conveyed or transferred to Dealer by
this Agreement.
SECTION 3. ASSUMPTION OF RESPONSIBILITY BY DEALER
In consideration of said appointment and grants and subject to the conditions
and provisions of this Agreement, Dealer agrees to:
(1) establish and maintain at Dealer's Dealership Location the Dealership
Facilities described in this Agreement in the manner set forth in this
Agreement;
(2) actively and effectively promote the sale at retail (and, if Dealer elects,
the leasing and rental) of Isuzu Products at and from Dealer's Dealership
Location in accordance with the provisions of this Agreement;
(3) conduct quality service for Isuzu Vehicles in accordance with the
provisions of this Agreement;
(4) perform all additional responsibilities specified in this Agreement; and
(5) secure and maintain all licenses required for the conduct of an Isuzu
dealership at and from Dealer's Dealership Location and to furnish
Distributor with written notice of securing such licenses. This Agreement
will not be valid until and unless Dealer shall have furnished Distributor
with written notice specifying the date and the identifying number, if any,
of each such license secured by Dealer. Dealer shall notify Distributor
immediately in writing if Dealer shall fail to secure any such license or
if any such license shall expire and Dealer shall fail to obtain a renewal
thereof or if any such license is suspended or revoked, specifying the
effective date of any such expiration, suspension or revocation.
Page 2
<PAGE>
SECTION 4. OWNERSHIP AND MANAGEMENT
(a) This Agreement has been entered into by Distributor in reliance upon:
(I) DEALER'S REPRESENTATION AND AGREEMENT THAT THE FOLLOWING NAMED PERSONS
ARE ALL OF THE PERSONS WHO HAVE AN OWNERSHIP INTEREST IN DEALER:
Percentage Interest.
1. (Name) First America Automotive, Inc.
-------------------------------------------------
100 (%)
--------------------
(Residence Address) 100 The Embarcadero, Penthouse, San Francisco, CA 94105
---------------------------------------------------------------------------
2. (Name)
-------------------------------------------------
(%)
--------------------
(Residence Address)
-------------------------------------------------
3. (Name)
-------------------------------------------------
(%)
--------------------
(Residence Address)
-------------------------------------------------
4. (Name)
-------------------------------------------------
(%)
--------------------
(Residence Address)
-------------------------------------------------
5. (Name)
-------------------------------------------------
(%)
--------------------
(Residence Address)
-------------------------------------------------
6. (Name)
-------------------------------------------------
(%)
--------------------
(Residence Address)
-------------------------------------------------
(II) DEALER'S REPRESENTATION AND AGREEMENT THAT THE FOLLOWING NAMED PERSON,
AND ONLY THE FOLLOWING NAMED PERSON SHALL BE DEALER'S EXECUTIVE
MANAGER AND SHALL HAVE FULL AUTHORITY AND RESPONSIBILITY FOR THE
OPERATING MANAGEMENT OF DEALER IN PERFORMANCE PURSUANT TO THIS
AGREEMENT:
(Name) Al Babbington Title Executive Manager
- ------------------------------------------------------ ------------------------
(Residence Address)
- --------------------------------------------------------------------------------
(b) This Agreement has been entered into by Distributor in reliance upon, and
in consideration of, the personal qualifications and representations with
respect thereto of the above-named persons. In view of the personal nature
of this Agreement and its objectives and purposes, this Agreement and the
rights and privileges conferred on Dealer hereunder are not assignable,
transferable or saleable by Dealer. Dealer agrees that any change in the
ownership or operating management of Dealer specified herein requires the
prior written consent of Distributor. Dealer shall give Distributor prior
notice of any proposed change in said ownership or management and immediate
notice of the death or incapacity of any Owner or Executive Manager. No
such change, and no assignment of this Agreement or of any right or
interest herein, shall be effective against Distributor unless and until
embodied in an appropriate amendment to or assignment of this Agreement, as
the case may be, duly executed and delivered by Distributor and by Dealer.
Distributor shall not unreasonably withhold its consent to any such change.
Page 3
<PAGE>
SECTION 5. PROVISIONS
The "ISUZU DEALER SALES AND SERVICE AGREEMENT ADDITIONAL PROVISIONS" are hereby
incorporated herein and made a part of this Agreement with the same force and
effect as if set forth at length herein and the term "this Agreement" as used
herein, includes said "ISUZU DEALER SALES AND SERVICE AGREEMENT ADDITIONAL
PROVISIONS". Dealer agrees to be bound by and comply with the provisions of the
Service Policies and Procedures Manual, the Parts Policies and Procedures Manual
and all other manuals heretofore or hereafter issued by Distributor to Dealer
and all amendments, revisions and supplements thereto, and all bulletins and
instructions heretofore or hereafter issued by Distributor to Dealer.
SECTION 6. ENTIRE AGREEMENT
Unless expressly referred to, and incorporated herein, this Agreement cancels,
supersedes and annuls all prior agreements, contracts and understandings between
Distributor and Dealer, and there are no representations, promises, agreements
or understandings except as described herein, all negotiations, representations
and understandings being merged herein.
SECTION 7. WAIVER OR MODIFICATION OF THIS AGREEMENT
(a) The failure of either party at any time to require performance by the other
party of any provisions hereof shall in no way affect the full right to
require such performance at any time thereafter. Nor shall the waiver by
either party of a breach of any provision hereof constitute a waiver of any
succeeding breach of the same or any other such provisions nor constitute
a waiver of the provision itself.
(b) No waiver, modification or change of any of the terms of this Agreement or
change or erasure of any printed part of this Agreement or addition to it
(except filling of blank spaces and lines) will be valid or binding on
Distributor unless approved in writing by the President or the Senior Vice
President and General Manager of Distributor.
SECTION 8. TERM
This Agreement shall have a term commencing on the effective date hereof and
shall continue in effect until terminated in accordance with the provisions of
this Agreement.
SECTION 9. APPLICABLE LAW
This Agreement shall be deemed to have been made in and shall be governed by and
construed in accordance with the laws of the State of California; provided,
however:
(a) Unless Dealer's Dealership Location is situated in California, Dealer shall
have none of the rights or duties provided for in the California Statutes
regulating the relationship between motor vehicle manufacturers,
distributors and dealers, but shall have the rights and duties provided in
the like laws, if any, of the state in which Dealer's Dealership Location
is situated; and
(b) If performance by either Distributor or Dealer of any provision of this
Agreement contravenes a law of any state or jurisdiction where such
performance is to take place, the performance of such provision shall be in
accordance with the requirements of such law to the extent, and only to the
extent, that such performance contravenes such law and only to the extent
and while such law is deemed or held to be valid and applicable to such
performance.
SECTION 10. EXECUTION OF AGREEMENT
This Agreement, and any addendum or amendment, or notice with respect thereto,
shall be valid and binding on Distributor only when it bears the signature of
either the President or the Senior Vice President and General Manager of
Distributor. This Agreement shall bind Dealer only when signed by a duly
authorized officer of Dealer if a corporation; by one or more of the general
partners of Dealer if a partnership; or by Dealer if an individual.
IN WITNESS WHEREOF, the parties have executed this Agreement in triplicate as of
the day and year first above written at Whittier, California.
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DEALER DISTRIBUTOR
FAA Serramonte, Inc.
dba Serramonte Isuzu AMERICAN ISUZU MOTORS INC.
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By /s/ By /s/ J.T. Maloney
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J.T. Maloney
Title President Title Sr. V.P. and General Manager,
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Light Vehicles
Page 4
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EXHIBIT A
DEALER
SALES AND SERVICE
AGREEMENT
ISUZU
AMERICAN ISUZU MOTORS INC.
<PAGE>
(ATTACH ISUZU DEALER SALES AND SERVICE AGREEMENT TO THIS PAGE)
<PAGE>
ISUZU DEALER SALES
AND
SERVICE AGREEMENT
ADDITIONAL PROVISIONS
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I. DEFINITIONS........................................................ 1
II. SALES TO DEALER.................................................... 3
A. DEALER'S ORDERS................................................ 3
B. SHIPMENT AND RISK OF LOSS...................................... 3
C. PASSAGE OF TITLE............................................... 3
D. FREIGHT........................................................ 3
E DIVERSIONS..................................................... 3
F. CHANGES IN AND DISCONTINUANCE OF ISUZU PRODUCTS................ 4
G. PRICING AND OTHER TERMS OF SALE................................ 4
H. PAYMENT........................................................ 4
1. PAYMENT FOR VEHICLES....................................... 4
2. PAYMENT FOR PARTS, ACCESSORIES AND
OTHER PRODUCTS............................................. 4
3. TAXES...................................................... 5
I. WARRANTIES..................................................... 5
J. FAILURE OR DELAY IN FILLING ORDERS............................. 5
K. ALTERATION OF ISUZU PRODUCTS................................... 5
III. DEALERSHIP OPERATIONS.............................................. 6
A. DEALERSHIP LOCATION AND FACILITIES............................. 6
1. DEALERSHIP FACILITIES...................................... 6
2. CHANGES IN DEALERSHIP LOCATION OR FACILITIES............... 6
3. HOURS OF BUSINESS.......................................... 6
4. IDENTIFICATION OF DEALERSHIP FACILITIES.................... 6
5. EVALUATION OF DEALER'S PERFORMANCE WITH
RESPECT TO DEALERSHIP FACILITIES........................... 6
B. VEHICLE SALES OPERATIONS....................................... 6
1. RESPONSIBILITY OF DEALER................................... 6
2. SALES PERSONNEL............................................ 7
3. INVENTORY.................................................. 7
4 MODIFICATION OF ISUZU VEHICLES............................. 7
5. EVALUATION OF DEALER'S SALES PERFORMANCE................... 7
6. EVALUATION OF SALES OF ISUZU TRUCKS........................ 7
C. USED VEHICLE SALES OPERATIONS.................................. 6
D. RENTAL AND LEASING OPERATIONS.................................. 8
E. PARTS AND ACCESSORIES SALES OPERATIONS......................... 8
1 RESPONSIBILITY OF DEALER................................... 8
2. SALES PERSONNEL............................................ 8
3. INVENTORY.................................................. 9
4. REPRESENTATIONS CONCERNING PARTS AND ACCESSORIES........... 9
5. EVALUATION OF DEALER'S PARTS AND ACCESSORIES
SALES PERFORMANCE.......................................... 9
F. SERVICE OPERATIONS ............................................ 9
1. GENERAL SERVICE RESPONSIBILITIES OF DEALER................. 9
2. SPECIFIC SERVICE OBLIGATIONS OF DEALER..................... 9
(A) NEW VEHICLE PRE-DELIVERY INSPECTIONS
AND ADJUSTMENTS........................................ 9
(B) COMPLIMENTARY MAINTENANCE SERVICE...................... 10
(C) WARRANTY REPAIRS....................................... 10
(D) CAMPAIGN INSPECTIONS AND CORRECTIONS................... 10
(E) DISPOSITION OF REPLACED PARTS.......................... 10
(F) MAINTENANCE AND REPAIR SERVICE......................... 11
(G) PAYMENTS BY DISTRIBUTOR TO DEALER...................... 11
3. OTHER SERVICE RESPONSIBILITIES OF DEALER................... 11
(A) COMPLIANCE WITH LAWS REGULATING
VEHICLES AND OTHER PRODUCTS............................ 11
(B) SERVICE PERSONNEL...................................... 11
(C) SERVICE EQUIPMENT AND SPECIAL AND
ESSENTIAL TOOLS........................................ 11
4. EVALUATIONS OF DEALER'S SERVICE PERFORMANCE................ 11
G ADVERTISING, PROMOTIONAL AND PUBLIC RELATIONS OPERATIONS....... 12
1 ADVERTISING STANDARDS...................................... 12
2 DEALER'S ADVERTISING PROGRAMS.............................. 12
3 PARTICIPATION IN DISTRIBUTOR'S ADVERTISING
PROGRAMS................................................... 12
4 CUSTOMER RELATIONS......................................... 12
(A) INFORMING CUSTOMERS AS TO DETAILS
OF CHARGES............................................. 12
(B) RIGHT OF RETAIL PURCHASER TO BUY
VEHICLE WITHOUT PURCHASING OPTIONAL
EQUIPMENT OR ACCESSORIES............................... 12
(C) INFORMING RETAIL PURCHASERS AS TO OPTIONAL
EQUIPMENT OR ACCESSORIES INSTALLED BY DEALER........... 12
H. CAPITAL........................................................ 13
I ACCOUNTING SYSTEM.............................................. 13
J. RECORDS AND REPORTS............................................ 13
1. FINANCIAL STATEMENTS....................................... 13
2. OWNERSHIP AND MANAGEMENT RECORDS........................... 13
3 SALES AND SERVICE RECORDS AND REPORTS...................... 13
4. RECORDS CONCERNING APPLICATIONS AND CLAIMS FOR PAYMENTS.... 14
K. INSPECTION OF ACCOUNTS AND RECORDS............................. 14
L. TRADEMARKS AND SERVICE MARKS................................... 14
IV. INDEMNIFICATION.................................................... 15
A. INDEMNIFICATION OF DISTRIBUTOR................................. 15
B. INDEMNIFICATION OF DEALER...................................... 15
C. EXCEPTION TO INDEMNIFICATION................................... 15
V. TERMINATION........................................................ 17
A TERMINATION OF AGREEMENT....................................... 17
1. VOLUNTARY TERMINATION BY DEALER............................ 17
2. TERMINATION DUE TO ACTS OR EVENTS CONTROLLED
BY DEALER, ITS OWNER(S) OR MANAGER(S)...................... 17
3. TERMINATION BY DISTRIBUTOR FOR FAILURE OF
PERFORMANCE BY DEALER...................................... 18
4. TERMINATION BECAUSE OF DEATH OR INCAPACITY
OF OWNER AND/OR EXECUTIVE MANAGER.......................... 19
5. TERMINATION FOR FAILURE OF DEALER OR
DISTRIBUTOR TO BE LICENSED................................. 19
6. TERMINATION BY MUTUAL AGREEMENT............................ 20
7. RIGHT TO RELY ON ANY APPLICABLE TERMINATION
PROVISION.................................................. 20
B. TRANSACTIONS AFTER TERMINATION................................. 20
1. EFFECT OF TERMINATION ON ORDERS .......................... 20
2. EFFECT OF TRANSACTIONS AFTER TERMINATION................... 20
3. PURCHASES OF ELIGIBLE ITEMS................................ 20
4. RESPONSIBILITIES OF DEALER................................. 21
5. PAYMENT BY DISTRIBUTOR..................................... 21
VI. SUCCEEDING AND NEW AND SUPERSEDING SALES AND
SERVICE AGREEMENTS................................................. 23
A. SUCCEEDING AGREEMENTS.......................................... 23
B. NEW AND SUPERSEDING DEALER AGREEMENTS.......................... 23
C. EFFECT OF NEW OR SUPERSEDING AGREEMENT ON
RESPONSIBILITIES AND OBLIGATIONS UNDER THIS AGREEMENT.......... 23
VII. ESTABLISHMENT OF SUCCESSOR DEALER.................................. 25
A BECAUSE OF DEATH OF OWNER...................................... 25
B BECAUSE OF DEATH OR INCAPACITY OF EXECUTIVE MANAGER............ 25
C. EVALUATION OF SUCCESSOR DEALER................................. 26
D TERMINATION OF MARKET REPRESENTATION........................... 26
E TERMINATION OF OFFER........................................... 26
VIII. GENERAL PROVISIONS................................................. 27
A DEALER NOT MADE AGENT OR LEGAL REPRESENTATIVE.................. 27
B DEALER'S RESPONSIBILITY FOR ITS OPERATIONS.
EXPENDITURES. LIABILITIES AND OBLIGATIONS...................... 27
C. NOTICES........................................................ 27
D. OFFSETS AND SET OFFS........................................... 27
E. CHANGES REQUIRED BY LAW........................................ 27
</TABLE>
<PAGE>
ISUZU DEALER SALES
AND
SERVICE AGREEMENT
ADDITIONAL PROVISIONS
The following Additional Provisions have by reference been incorporated in and
made a part of the ISUZU DEALER SALES AND SERVICE AGREEMENT which they accompany
and which has been executed on behalf of Distributor and Dealer.
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
A. "Authorized Isuzu Dealers" shall mean dealers located in the United States
that are authorized by Distributor to conduct dealership operations in
connection with the sale of Isuzu Products.
B. "Isuzu Cars" shall mean such new passenger cars manufactured by or on
behalf of Manufacturer as are from time to time offered for sale by
Distributor to Dealer for resale.
C. "Isuzu Trucks" shall mean such new light duty trucks and chassis
manufactured by or on behalf of Manufacturer as are from time to time
offered for sale by Distributor to Dealer for resale.
D. "Isuzu Vehicles" shall mean Isuzu Cars and Isuzu Trucks.
E. "Isuzu Parts and Accessories" shall mean such parts and accessories
manufactured by or on behalf of Manufacturer or Distributor as are from
time to time offered for sale by Distributor to Dealer.
F. "Isuzu Products" shall mean Isuzu Vehicles and Isuzu Parts and Accessories.
G. "Competitive Cars" shall mean those new cars which are designated by
Distributor as directly competitive with Isuzu Cars.
H. "Import Industry Cars" shall mean all new cars manufactured other than
within the United States which are imported into the United States for
sale, to the extent data relating to registration thereof are reasonably
available.
I. "Industry Cars" shall mean all new cars of all manufacturers which are sold
and distributed within
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the United States, to the extent data relating to registration thereof are
reasonably available.
J. "Competitive Trucks" shall mean those new light duty trucks which are
designated by Distributor as directly competitive with Isuzu Trucks.
K. "Import Industry Trucks" shall mean all new light duty trucks manufactured
other than within the United States which are imported into the United
States for sale, to the extent data relating to registration thereof are
reasonably available.
L. "Industry Trucks" shall mean light duty trucks of all manufacturers which
are sold and distributed within the United States, to the extent data
relating to registration thereof are reasonably available.
M. "Dealership Location" shall mean the business location of Dealer described
in the initial paragraph of this Agreement.
N. "Dealership Facilities" shall mean the land areas at the Dealership
Location and the buildings and improvements erected thereon.
0. "Dealer's Market" shall mean the geographical area within which potential
purchasers and owners of Isuzu Products which Dealer can most readily serve
are located. Such area, or portions thereof, may at any time be a part of
the Market of other Authorized Isuzu Dealers as well as Dealer.
P. "Owner(s)" shall mean the person(s) named as Owner(s) in Section 4 of this
Agreement.
Q. "Executive Manager" shall mean the person named as Executive Manager in
Section 4 of this Agreement.
R. "Successor Addendum" shall mean the Successor Addendum, if any, executed by
Distributor and Dealer pursuant to the provisions of Article VII of this
Agreement.
S. "Dealership Standards" shall mean such reasonable standards as may be
established by Distributor for Authorized Isuzu Dealers from time to time
under its standard procedures with respect to such matters as dealership
facilities, tools, equipment, capitalization, inventories and personnel.
T. "Service Policies and Procedures Manual" shall mean the publication or
publications of Distributor, as the same may from time to time be amended,
revised or supplemented, which set forth Distributor's policies and
procedures concerning and administration of Distributor's warranties and
related matters.
U. "Manufacturer" shall mean ISUZU MOTORS LIMITED.
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ARTICLE II. SALES TO DEALER
A. DEALER'S ORDERS
At such times as Distributor may from time to time designate, Dealer shall
submit to Distributor orders for Isuzu Products in such quantities and varieties
as may be reasonably necessary for Dealer to fulfill its obligations under this
Agreement. All orders shall be on forms supplied by Distributor, shall be
subject to acceptance by Distributor, and may be accepted in whole or in part.
Orders may be accepted by written notice to Dealer or by actual delivery of the
products ordered to Dealer or to a carrier for transportation to Dealer. Except
as otherwise provided in this Agreement, orders shall not be cancellable by
Dealer after acceptance by Distributor. Distributor will process and fill
Dealer's orders in accordance with procedures relating thereto established by
Distributor.
Because of the number of factors that affect the distribution of products and
the relevancy thereof at any given time, Distributor necessarily reserves to
itself discretion in applying such factors and in processing orders for Isuzu
Products it receives from Dealer. The judgment and decisions of Distributor
shall be, final in all matters relating to the distribution and delivery of
Isuzu Products to Dealer.
B. SHIPMENT AND RISK OF LOSS
Distributor will ship Isuzu Products by whatever mode of transportation, by
whatever route, and from whatever point Distributor may select. Distributor
will, if requested by Dealer in such manner and within such time as Distributor
shall from time to time specify, prosecute claims for loss of or damage to Isuzu
Products during transportation from said point of shipment against the
responsible carrier for and on behalf of Dealer.
C. PASSAGE OF TITLE
Title to Isuzu Products shall pass from Distributor to Dealer, or, if
applicable, to the financial institution designated by Dealer, upon delivery of
said product to Dealer or to a carrier for transportation to Dealer, whichever
occurs first. Distributor shall retain a security interest in, and the right to
repossess, any such product until paid in full therefor.
D. FREIGHT
In addition to the prices and charges otherwise provided for herein, Dealer will
pay Distributor in connection with Isuzu Vehicles delivered to Dealer the
applicable destination charges that are in effect at the time of shipment.
Dealer shall pay such transportation charges for Isuzu Parts and Accessories as
may be in effect at the time of shipment.
E. DIVERSIONS
Dealer shall pay all charges accruing after delivery of Isuzu Products to Dealer
or to carrier for transportation to Dealer, including, but not limited to,
charges for demurrage and storage. If diversions of shipments are made upon
Dealer's request or because of Dealer's failure or refusal to accept delivery
thereof, Dealer shall be responsible for and pay any additional costs or
expenses thereby incurred.
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F. CHANGES IN AND DISCONTINUANCE OF ISUZU PRODUCTS
Distributor shall have the right in its sole discretion to discontinue the
supply, or make changes in the design or component materials, of any Isuzu
Product at any time. Distributor shall be under no liability to Dealer on
account of any such changes and shall not be required to make any changes to
Isuzu Products previously purchased by Dealer.
G. PRICING AND OTHER TERMS OF SALE
All sales of Isuzu Products shall be in accordance with the prices and other
applicable terms of sale in effect on the date said products are shipped by
Distributor to Dealer. Distributor may, without incurring any liability to
Dealer or to anyone else, at any time and from time to time change the prices,
charges, discounts, allowances and other terms of sale applicable to any Isuzu
Product. Except as otherwise provided in notices thereof sent to Dealer by
Distributor, any such change shall apply to all orders accepted but not shipped
by Distributor on the effective date of such change.
Except with respect to the pricing of any new model or body type of Isuzu
Vehicle at the introduction thereof, Distributor shall give written notice to
Dealer of any change increasing the price of any Isuzu Product to which such
change is applicable before shipping the same. Dealer may cancel or modify
orders for any such Isuzu Product by giving notice thereof to Distributor within
ten (10) days after receipt by Dealer of Distributor's notice of such change.
All unshipped orders for Isuzu Products not so cancelled or modified shall
remain in effect for shipment in accordance with said change.
H. PAYMENT
1. PAYMENT FOR VEHICLES
Dealer shall at all times during the term of this Agreement have flooring
arrangements (wholesale financing) satisfactory to Distributor with financial
institutions acceptable to Distributor. Payment by Dealer for Isuzu Vehicles
must be made in accordance with the applicable prices, charges, discounts,
allowances and other terms of sale established by Distributor either (i)
pursuant to wholesale financing arrangements in effect between Distributor,
Dealer and a financial institution at the time of delivery of said vehicles to
Dealer or to a carrier for transportation to Dealer, whichever shall first
occur, or (ii) by cash or such other medium of payment as Distributor may agree
to accept paid by Dealer to Distributor prior to delivery of said vehicles to
Dealer or to a carrier for transportation to Dealer, whichever shall first
occur.
2. PAYMENT FOR PARTS, ACCESSORIES AND OTHER PRODUCTS
Parts, equipment, accessories and other products and services sold by
Distributor to Dealer will normally be billed by Distributor to Dealer on
Distributor's invoices, which shall be due the tenth (10th) day of the month
following the month of delivery of such products and services; provided.
however, Distributor reserves the right to place any and all sales of such items
on a C.O.D. or cash in advance basis, without notice. A late payment charge will
be assessed on any obligation not paid when due at a rate equal to 1 1/2% per
month; provided, however, that such late payment charge shall not be assessed at
a rate which exceeds the maximum permitted by applicable law. Dealer shall,
promptly upon Distributor's demand, execute such security
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agreements, chattel mortgages, commercial code financing statements and other
instruments acknowledging and giving notice of Distributor's security interest
in Isuzu Products purchased by Dealer from Distributor for which Dealer is
indebted to Distributor.
3. TAXES
Dealer hereby represents and warrants that all Isuzu Products purchased from
Distributor are purchased for resale in the ordinary course of Dealer's
business. Dealer further represents and warrants that Dealer has obtained all
licenses and complied with all other requirements to collect sales, use or other
taxes incurred in any such resale transaction, and that Dealer will furnish
evidence thereof to Distributor, at Distributor's request. Dealer agrees, as to
any Isuzu Products put to a taxable use by Dealer or in fact purchased by Dealer
other than for resale, to pay directly to the appropriate taxing authority any
sales, use or similar taxes incurred as a result of such use or purchase, to
file any tax returns required in connection therewith, and to hold Distributor
harmless from any claims or demands with respect thereto.
I. WARRANTIES
The only warranties of Manufacturer or Distributor that shall be applicable to
Isuzu Products (or any component thereof) shall be such written warranties as
may be made and furnished by Distributor. Except for the express liability under
such written warranties, neither Manufacturer nor Distributor assumes or
authorizes any other person to assume for it any obligations or liabilities in
connection with any Isuzu Product. Dealer shall comply with Distributor's
instructions and with all applicable laws with respect to pre-sale availability
and delivery of statements of warranties to its customers and prospective
customers.
J. FAILURE OR DELAY IN FILLING ORDERS
Distributor shall not be liable for any failure or delay in delivery or shipment
of orders for any Isuzu Products where such failure or delay is due, in whole or
in part, to non-receipt of said products from the Manufacturer or other supplier
thereof or to shortage or curtailment of labor, material, transportation, or
utility services, strikes, labor disputes or other labor difficulties in
connection with the operations of Distributor, Manufacturer or any other person,
acts or regulations of any government or to any cause or causes beyond the
control of Distributor.
K. ALTERATION OF ISUZU PRODUCTS
Unless directed in writing by Distributor or required to do so to comply with an
applicable law or rule, regulation or order of a governmental body, Dealer shall
not alter any Isuzu Product or change or substitute any of its components.
Dealer shall promptly notify Distributor in writing of any such alterations made
by Dealer.
A.
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ARTICLE III. DEALERSHIP OPERATIONS
A. DEALERSHIP LOCATION AND FACILITIES
1. DEALERSHIP FACILITIES
Dealer shall provide, at the Dealership Location, Dealership Facilities that
will enable Dealer to effectively perform its responsibilities under this
Agreement The Dealership Facilities shall be satisfactory as to appearance and
layout, properly equipped and substantially in accordance with the applicable
Dealership Standards.
2. CHANGE IN DEALERSHIP LOCATION OR FACILITIES
Dealer shall not move, relocate, modify or change the Dealership Location or any
of the Dealership Facilities, nor shall Dealer or any Owner or Manager directly
or indirectly establish or operate any other locations or facilities for the
sale or servicing of Isuzu Products or for the conduct of any other of the
dealership operations contemplated by this Agreement without the prior written
consent of Distributor.
3. HOURS OF BUSINESS
In order to serve the needs of potential purchasers and the service requirements
of owners and users of Isuzu Products, Dealer shall keep its Dealership
Facilities open and operating for business during such days and hours as
automobile dealers' sales, parts and service facilities are customarily open in
the community wherein the Dealership Location is situated.
4. IDENTIFICATION OF DEALERSHIP FACILITIES
Insofar as permitted by local laws and regulations, Dealer shall display at its
Dealership Location, in such number and at such locations as Distributor may
reasonably require, signs which are compatible with the design standards
established by Distributor from time to time. Dealer shall maintain all such
signs in good condition at all times.
5. EVALUATION OF DEALER'S PERFORMANCE WITH RESPECT TO DEALERSHIP FACILITIES
Distributor shall periodically evaluate Dealer's performance of its
responsibilities with respect to Dealership Facilities and shall discuss its
evaluation with Dealer. Dealer shall promptly take such action as may be
required to correct any deficiencies in its performance of these
responsibilities.
B. VEHICLE SALES OPERATIONS
1. RESPONSIBILITY OF DEALER
Dealer shall actively and effectively promote the sale at retail (and, if Dealer
elects, the leasing and rental) of Isuzu Vehicles to potential customers located
in Dealer's Market. However, nothing contained in this Agreement shall limit or
be construed to limit the geographical area within which or the persons to whom
Dealer may sell or promote the sale of Isuzu Vehicles.
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2. SALES PERSONNEL
Dealer shall at all times employ the number of trained and competent new vehicle
managerial and sales personnel reasonably required to fulfill its
responsibilities with respect to the sales of Isuzu Vehicles.
Dealer shall, without expense to Distributor, have its said employees attend
such vehicle sales training sessions as Distributor may from time to time
conduct.
3. INVENTORY
Subject to the ability of the Distributor to supply the same, Dealer shall
maintain at all times stocks of Isuzu Vehicles of an assortment and in
quantities adequate to meet its responsibilities with respect to sales of Isuzu
Vehicles. Dealer shall also have available at all times an adequate number and
variety of Isuzu Vehicles for purposes of display and demonstration and shall,
at all times, maintain the same in first class condition.
4. MODIFICATION OF ISUZU VEHICLES
If the laws of the state in which the Dealership Location is situated or of the
states in which customers of Dealer are located require the installation on
vehicles of equipment not installed or supplied as standard equipment by
Distributor, Dealer shall, prior to its sale of the Isuzu Vehicles on which such
installation is required, install at its own expense such additional equipment.
Dealer shall indemnify and hold Distributor harmless from and against any and
all liabilities arising from Dealer's failure to install such additional
equipment on said vehicles.
5. EVALUATION OF DEALER'S SALES PERFORMANCE
Distributor shall periodically evaluate Dealer's performance of its
responsibilities with respect to sales of Isuzu Cars and shall discuss its
evaluation with Dealer. Dealer shall promptly take such action as may be
required to correct any deficiencies in its performance of these
responsibilities. Dealer's performance of these responsibilities shall be
evaluated by Distributor on the basis of such reasonable factors as Distributor
shall establish and furnish Dealer from time to time. Such factors shall
include:
(a) Reasonable sales objectives for Isuzu Cars which may be established from
time to time by Distributor for Dealer;
(b) Dealer's sales of Isuzu Cars as compared to:
(i) registrations of Isuzu Cars in Dealer's Market;
(ii) registrations of Competitive Cars in Dealer's Market;
(iii) registrations of Import Industry Cars in Dealer's Market;
(iv) registrations of Industry Cars in Dealer's Market; and
(v) the average sale of Isuzu Cars by comparable groupings of Authorized
Isuzu Dealers.
6. EVALUATION OF SALES OF ISUZU TRUCKS
Distributor shall periodically evaluate Dealer's performance of its
responsibilities with respect to sales of Isuzu Trucks and shall discuss its
evaluation with
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Dealer. Dealer shall promptly take such action as may be required to correct any
deficiencies in its performance of these responsibilities. Dealer's performance
of these responsibilities shall be evaluated by Distributor on the basis of such
reasonable factors as Distributor shall establish and furnish Dealer from time.
to time. Such factors shall include:
(a) Reasonable sales objectives for Isuzu Trucks which may be established from
time to time by Distributor for Dealer;
(b) Dealer's sales of Isuzu Trucks as compared to;
(i) registrations of Isuzu Trucks in Dealer's Market;
(ii) registrations of Competitive Trucks in Dealer's Market;
(iii) registrations of Import Industry Trucks in Dealer's Market;
(iv) registrations of Industry Trucks in Dealer's Market; and
(v) the average sales of Isuzu Trucks by comparable groupings of
Authorized Isuzu Dealers.
C. USED VEHICLE SALES OPERATIONS
To enhance Dealer's opportunities to operate successfully, Dealer will engage in
such used vehicle operations as Dealer may deem appropriate. Dealer shall be
entitled to identify such used vehicle operations as a part of its dealership
operations and to apply the trademarks, trade names and service marks of
Distributor relating to used vehicle operations, but only as and to the extent
Dealer subscribes to and fulfills all requirements of programs relating thereto
offered Dealer by Distributor.
D. RENTAL AND LEASING OPERATIONS
Since the rental and leasing of Isuzu Vehicles will offer Dealer additional
opportunities to improve its effectiveness in fulfilling its responsibilities
with respect to sales of Isuzu Vehicles, Dealer will explore such opportunities
and will establish rental and leasing operations if such additional
opportunities are apparent. Dealer shall be entitled to identify such rental and
leasing operations as a part of its dealership operations and to apply the
trademarks, trade names and service marks of Distributor relating to rental and
leasing operations, but only as and to the extent Dealer subscribes to and
fulfills all requirements of programs relating thereto offered Dealer by
Distributor.
E. PARTS AND ACCESSORIES SALES OPERATIONS
1. RESPONSIBILITY OF DEALER
Dealer shall actively and effectively promote the sale of Isuzu Parts and
Accessories to service, wholesale and other customers located in Dealer's
Market. However, nothing contained in this Agreement shall limit or be construed
to limit the geographical area within which or the persons to whom Dealer may
sell Isuzu Parts and Accessories.
2. SALES PERSONNEL
Dealer shall at all times employ the number of trained and competent parts and
accessories managerial and sales personnel reasonably required to fulfill its
responsibilities with respect to the sales of Isuzu Parts and Accessories.
Dealer shall, with-
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out expense to Distributor, have its said employees attend such parts and
accessories sales training sessions as Distributor may from time to time
conduct.
3. INVENTORY
Dealer shall maintain at all times stocks of parts and accessories adequate to
meet its responsibilities with respect to service of Isuzu Products. Dealer
shall also maintain, subject to the ability of Distributor to supply the same,
stocks of Isuzu Parts and Accessories of an assortment and in quantities
adequate to meet customer demands and for warranty repairs, special policy
service and campaign corrections. Dealer shall maintain a proper and adequate
system of parts and accessories inventory control.
4. REPRESENTATIONS CONCERNING PARTS AND ACCESSORIES
In connection with its sale or offering for sale or use in the repair or service
of Isuzu Products, Dealer shall not represent as an Isuzu Part or Accessory any
part or accessory that in fact is not an Isuzu Part or Accessory.
5. EVALUATION OF DEALER'S PARTS AND ACCESSORIES SALES PERFORMANCE
Distributor shall periodically evaluate Dealer's performance of its
responsibilities with respect to the sale of Isuzu Parts and Accessories and
shall discuss its evaluation with Dealer. Dealer shall promptly take such action
as may be required to correct any deficiencies in its performance of these
responsibilities.
F. SERVICE OPERATIONS
1. GENERAL SERVICE RESPONSIBILITIES OF DEALER
Dealer shall provide prompt, efficient and courteous service to owners and users
of Isuzu Products regardless of the origin of purchase thereof, including,
without limitation, the specific obligations described below. All service
performed by Dealer pursuant to this Agreement shall be performed in a good and
workmanlike manner and in accordance with the requirements, specifications and
instructions relating thereto set forth in the Service Policies and Procedures
Manual and bulletins and instructions furnished Dealer by Distributor from time
to time.
2. SPECIFIC SERVICE OBLIGATIONS OF DEALER
(A) NEW VEHICLE PRE-DELIVERY INSPECTIONS AND ADJUSTMENTS
Dealer shall perform pre-delivery inspections and adjustments on each Isuzu
Vehicle prior to sale and delivery thereof by Dealer. Such inspections and
adjustments shall be performed by Dealer without charge to the purchaser and in
accordance with the provisions relating thereto set forth in the Service
Policies and Procedures Manual and bulletins and instructions furnished Dealer
by Distributor from time to time.
The completion of such inspections and adjustments on each such Vehicle shall be
verified by Dealer on forms supplied or approved by Distributor for this
purpose, a copy of which shall be retained in Dealer's files and a copy of which
shall be furnished to the purchaser.
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(B) COMPLIMENTARY MAINTENANCE SERVICE
Dealer shall perform or be responsible for the performance of such complimentary
maintenance or other services following delivery of Isuzu Vehicles (including
labor for lubrication) as may be prescribed for such vehicle in Distributor's
applicable service bulletins, in accordance with the provisions relating thereto
set forth in the Service Policies and Procedures Manual or in bulletins or
instructions issued by Distributor to Dealer from time to time. Dealer will
perform such services as and when required and requested by the owner or user of
the vehicle, without regard to its origin of purchase.
(C) WARRANTY REPAIRS
Dealer shall perform (i) warranty repairs on each Isuzu Product which qualifies
for such repairs under the provisions of any warranty furnished therewith by
Distributor or by the manufacturer thereof and (ii) such other inspections,
repairs or adjustments as may be approved or authorized by Distributor.
Dealer shall perform such repairs and adjustments on each such Isuzu Product as
and when required thereon and requested by the owner, without regard to its
origin of purchase, and in accordance with the provisions relating thereto set
forth in the Service Policies and Procedures Manual and in bulletins and
instructions furnished by Distributor to Dealer from time to time.
Dealer shall provide each owner or user for whom Dealer performs such repairs or
adjustments with a copy of the repair order covering the same.
(D) CAMPAIGN INSPECTIONS AND CORRECTIONS
Dealer shall perform campaign inspections and/or corrections, including those
described in owner notifications and recall campaigns conducted by Distributor
in furtherance of Federal or state laws or regulations, on Isuzu Products that
qualify for such inspections and/or corrections and those on which such campaign
inspections and corrections are requested by Distributor, regardless of their
origin of purchase.
Dealer shall perform such campaign inspections and/or corrections and shall
advise Distributor as and when the same are performed, all in accordance with
the bulletins and instructions relating thereto furnished Dealer by Distributor
and as set forth in the Service Policies and Procedures Manual.
To enable Dealer to perform required corrections as promptly as practical, and
for the convenience of Dealer, parts and/or other materials required for each
such campaign may be pre-shipped to Dealer. Dealer will accept and retain such
parts and/or materials for use in such campaign. Upon completion of the
campaign, Dealer may return or dispose of any such parts and/or materials that
are in excess of Dealer's requirements for the campaign in accordance with
disposition instructions relating thereto furnished by Distributor and Dealer
shall receive credit therefor.
(E) DISPOSITION OF REPLACED PARTS
Dealer shall comply with the instructions set forth in the Service Policies and
Procedures Manual with respect to retention and disposition of parts replaced
by Dealer in the performance of repairs,
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adjustments and services pursuant to Article III F 2, (a), (b), (c) and (d) of
this Agreement.
(F) MAINTENANCE AND REPAIR SERVICE
Dealer shall provide, at its Dealership Facilities, prompt maintenance and
repair service to owners and users of Isuzu Products. Such service shall include
only those services specifically requested by the owner or user that are
discussed in advance by the Dealer with the owner or user as being required.
Dealer shall provide all owners and users for whom Dealer provides maintenance
and repair service itemized invoices covering the details thereof.
(G) PAYMENTS BY DISTRIBUTOR TO DEALER
For Dealer's performance of pre-delivery inspections and adjustments,
complimentary maintenance service, warranty repairs, special policy adjustments,
and campaign inspections and corrections under and pursuant to the above
provisions, Distributor shall pay Dealer for the Parts and Accessories and/or
other materials or shall provide Dealer with the Parts and Accessories and or
other materials required in connection therewith and shall pay for labor in
accordance with the provisions relating thereto set forth in the Service
Policies and Procedures Manual.
3. OTHER SERVICE RESPONSIBILITIES OF DEALER
(A) COMPLIANCE WITH LAWS REGULATING VEHICLES AND OTHER PRODUCTS
Dealer will comply with all applicable provisions of Federal, state and local
laws and governmental orders, rules and regulations, including but not limited
to laws, orders, rules and regulations relating to safety, emission, noise
control, damageability and customer service.
In furtherance of facilitating compliance with such laws, orders, rules and
regulations by Distributor and Dealer, Distributor will provide to Dealer, and
Dealer will provide to Distributor, as the case may be, such information and
assistance as may reasonably be requested by the other in connection with the
performance of their respective obligations under such laws, orders, rules and
regulations.
(B) SERVICE PERSONNEL
Dealer shall at all times employ the number of trained and competent service
managerial and technical personnel reasonably required to fulfill its
responsibilities with respect to the service of Isuzu Products. Dealer shall,
without expense to Distributor, have its said employees attend such service
training sessions as Distributor may from time to time conduct.
(C) SERVICE EQUIPMENT AND SPECIAL AND ESSENTIAL TOOLS
Dealer shall provide adequate service equipment and such special and essential
tools as are required to fulfill its responsibilities for service of Isuzu
Products.
4. EVALUATIONS OF DEALER'S SERVICE PERFORMANCE
Distributor shall periodically evaluate Dealer's performance of its
responsibilities with respect to the servicing of Isuzu Products and shall
discuss its evaluation with Dealer. Dealer shall promptly take such action as
may be required to correct any deficiencies in its performance of these
responsibilities
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G. ADVERTISING, PROMOTIONAL AND PUBLIC RELATIONS OPERATIONS
1. ADVERTISING STANDARDS
In order to secure and maintain the confidence and respect of the public in
Dealer, Distributor, Manufacturer and Isuzu Products, Dealer will at all times
maintain the highest standards of ethical advertising and will not publish or
cause or permit to be published any advertising relating to any of its
dealership operations or to any Isuzu Product which is not in compliance with
all applicable federal, state and local laws, rules, regulations and orders or
that is likely to mislead or deceive the public or impair the goodwill of
Dealer, Distributor or Manufacturer or the good reputation of Isuzu Products.
2. DEALER'S ADVERTISING PROGRAMS
Dealer shall develop and utilize advertising and promotion programs, including,
but not limited to effective displays of Isuzu Products and use of demonstration
Isuzu Vehicles.
3. PARTICIPATION IN DISTRIBUTOR'S ADVERTISING PROGRAMS.
Dealer shall participate in advertising and promotion programs developed from
time to time by Distributor, as and when requested by Distributor.
4. CUSTOMER RELATIONS
(A) INFORMING CUSTOMERS AS TO DETAILS OF CHARGES
In effecting sales or service of Isuzu Products, Dealer will inform the
customers of details covering the items which make up the purchase price or
charges, will give them itemized invoices covering the details thereof and will
provide them with such other information and documents relating thereto as may
be required under any applicable laws, rules, regulations or orders.
Dealer will not make any false, misleading or deceptive representations as to
the items making up the purchase price or charges, nor will Dealer make any
statements intended to lead any purchaser to believe that a greater portion of
the selling price of a Vehicle represents destination, factory delivery and
handling, or other charges than the amounts thereof actually charged to and paid
for by Dealer.
(B) RIGHT OF RETAIL PURCHASER TO BUY VEHICLE WITHOUT PURCHASING
OPTIONAL EQUIPMENT OR ACCESSORIES
Dealer shall not include, in any retail order for an Isuzu Vehicle taken by
Dealer nor in any order covering an Isuzu Vehicle submitted by Dealer to
Distributor, any item of optional equipment or accessories, unless the retail
purchaser thereof has requested such item and has knowledge that such item will
be included in such order or unless such item is required on such vehicle under
applicable laws, rules, regulations or orders.
(C) INFORMING RETAIL PURCHASERS AS TO OPTIONAL EQUIPMENT OR ACCESSORIES
INSTALLED BY DEALER
In order to avoid disparagement of any trademark that is applied by Distributor
to items of optional equipment and accessories manufactured by or for
Distributor and in order to avoid misleading any retail purchasers who may
assume that all items of optional equipment and accessories included in Isuzu
Vehicles have been manufactured by or for
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Distributor, Dealer shall, if it installs on any Isuzu Vehicle any item of
optional equipment or accessory that has not been manufactured by or for
Distributor, disclose to the retail purchaser thereof that such item of optional
equipment or accessory has not been manufactured by or for Distributor and that
it is not included in any warranty furnished by Distributor. Such disclosure by
Dealer shall be included in writing by Dealer on the retail purchaser's order
for any such Isuzu Vehicle, if one is signed by the retail purchaser thereof,
but in any event in the itemized invoice covering the details of such purchase
furnished the retail purchaser by Dealer.
H. CAPITAL
Dealer shall at all times maintain and employ in the operations of its
dealership at least that amount and allocation of net working capital needed for
Dealer to effectively fulfill its responsibilities under this Agreement, as
agreed upon in writing by Distributor and Dealer from time to time.
I. ACCOUNTING SYSTEM
Dealer will install and maintain an accounting system of a type designated by
Distributor. Dealer will maintain said system in accordance with instructions to
be issued by Distributor from time to time.
J. RECORDS AND REPORTS
1. FINANCIAL STATEMENTS
Dealer shall furnish to Distributor, on or before the tenth day of each month,
on such forms as Distributor may designate, complete and accurate financial and
operating statements reflecting Dealer's true financial condition as of the end
of the preceding month and the results of Dealer's, operations during the
preceding month and for that portion of Dealer's fiscal year then ended, with
supporting data, and shall, within two (2) months after the closing date of
Dealer's fiscal year, furnish to Distributor complete and accurate financial and
operating statements for said fiscal year. Distributor shall not furnish to any
third party any financial statements or data submitted to it hereunder, except
as an unidentified part of a composite or coded report. unless authorized by
Dealer or required to do so by law or unless they are pertinent to judicial or
governmental administrative proceedings.
2. OWNERSHIP AND MANAGEMENT RECORDS
Dealer shall keep and maintain complete and up-to-date records covering (a) the
names of all persons who are Owner(s) of Dealer and the dates and manner in
which any such ownership interests of such persons are transferred or changed in
any manner whatsoever; (b) the election, appointment or selection of each person
having a management position with Dealer, including the duly elected officers
and directors of Dealer if Dealer is a corporation; and (c) the persons or
parties who have either directly or indirectly supplied funds, on either a
secured or unsecured basis, to those having any ownership interests in Dealer in
connection with their acquisition of such ownership interests.
3. SALES AND SERVICE RECORDS AND REPORTS
Dealer shall prepare and maintain complete and up-
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to-date records covering its sales of and service performed by it on Isuzu
Products. Promptly upon the sale of each Isuzu Vehicle, Dealer shall accurately
and fully complete and send to Distributor the vehicle retail delivery report
supplied by Distributor with respect to said vehicle. Dealer will furnish
Distributor with such other and further reports covering sales and service of
Isuzu Products by Dealer in such form or forms and within such times as is
specified in notices or bulletins relating thereto furnished Dealer by
Distributor.
4. RECORDS CONCERNING APPLICATIONS AND CLAIMS FOR PAYMENTS
Dealer shall prepare and retain, for a minimum period of two (2) years, in
accordance with the procedures set forth in the Service Policies and Procedures
Manual, records in support of applications for payment for pre-delivery
inspections and adjustment, warranty repairs and policy adjustments and campaign
inspections and corrections performed by Dealer, claims for parts compensation
and applications for discounts, allowances, refunds or credits.
K. INSPECTION OF ACCOUNTS AND RECORDS
Distributor shall have the right at any reasonable time during Dealer's regular
business hours to inspect the Dealership Facilities and to examine, audit and
make copies of all accounts and records relating to the sale and service of
Isuzu Products.
L. TRADEMARKS AND SERVICE MARKS
Distributor grants Dealer the non-exclusive privilege to identify itself as an
Authorized Isuzu Dealer and to display and otherwise use in connection with the
sale and service of Isuzu Products, the various trademarks, tradenames, service
marks and other word and design marks which Manufacturer or Distributor may use
in connection with or apply to Isuzu Products during the term of this Agreement.
Except as provided herein, Dealer shall make no use of any such trademark,
tradename, service mark, or other word and design mark. Dealer shall not use any
mark, word or name which is similar to any of the various trademarks,
tradenames, service marks and other word and design marks which Manufacturer or
Distributor may use in connection with or apply to Isuzu Pro-ducts. Dealer shall
neither have nor claim to have any rights in or to any such trademark,
tradename, service mark or other word and design mark. Upon Distributor's
request and, in any case, upon termination of this Agreement, Dealer shall
promptly discontinue, or cause to be discontinued, the display and use of all
such trademarks, tradenames, service marks and other word and design marks.
Dealer shall promptly change the manner in which such trademarks, tradenames,
service marks and other word and design marks are displayed and used when
requested to do so by Distributor. No such trademark, tradename, service mark or
other word and design mark may be used as part of the name under which Dealer's
business is conducted, except with Distributor's prior written consent.
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ARTICLE IV. INDEMNIFICATION
A. INDEMNIFICATION OF DISTRIBUTOR
Dealer shall:
1. Upon Distributor's written request defend Distributor against claims that
during the term of this Agreement may arise, commence or be asserted against
Distributor in an action concerning:
(a) Dealer's failure or alleged failure to comply, in whole or in part, with
any obligation of Dealer under this Agreement;
(b) Any actual or alleged negligence, error, omission or act of Dealer in
connection with the preparation, repair or service (including warranty service)
by Dealer of Isuzu Products;
(c) Any modification made by or on behalf of Dealer to Isuzu Products, except
those made pursuant to the express instruction or with the express approval of
Distributor;
(d) Dealer's breach or alleged breach of any agreement between Dealer and
Dealer's customer or other third party; or
(e) Misleading statements, misrepresentations or deceptive or unfair practices
or allegations of misleading statements, misrepresentations or deceptive or
unfair practices by Dealer, directly or indirectly, to Distributor, a customer
or other third party.
2. Indemnify and hold Distributor harmless from any and all settlements made
and final judgments rendered with respect to any of the claims described in
Section A.1. of this Article IV.
B. INDEMNIFICATION OF DEALER
Distributor shall, upon Dealer's written request
1 Defend Dealer against claims that during the term of this Agreement may
arise, commence or be asserted against Dealer in an action concerning bodily
injury or property damage arising out of an occurrence caused solely by a defect
or alleged defect existing or claimed to have existed in an Isuzu Product at the
time title to said product passed to Dealer, provided:
(i) that the defect could not have reasonably been discovered by Dealer during
the pre-delivery inspection of the product required by this Agreement; and
(ii) Distributor did not notify Dealer in writing of such defect prior to
delivery of the product to the first retail customer.
2. Indemnify and hold Dealer harmless from any and all settlements made which
are approved by Distributor and final judgments rendered with respect to any of
the claims described in Section B.1. of this Article IV; provided, however,
Dealer promptly notifies Distributor in writing of the assertion of such claim
and the commencement of such action against Dealer and cooperates fully in the
defense of such action in such manner and to such extent as Distributor may
require.
C. EXCEPTION TO INDEMNIFICATION
If the allegations asserted in any action or if any facts established during or
with respect to any
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action would require Dealer to defend and indemnify Distributor under Section A,
above, and Distributor to defend and indemnify Dealer under Section B, above,
Distributor and Dealer shall each be responsible for its own defense in such an
action and there shall be no obligation or responsibility in connection with any
defense, judgment, settlement or expenses of such action as between Distributor
and Dealer, except to the extent that such an obligation or responsibility may
be imposed by applicable law.
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ARTICLE V. TERMINATION
A. TERMINATION OF AGREEMENT
1. VOLUNTARY TERMINATION BY DEALER
Dealer may terminate this Agreement at any time upon 30 days' written notice to
Distributor.
2. TERMINATION DUE TO ACTS OR EVENTS CONTROLLED BY DEALER, ITS OWNER(S) OR
MANAGER(S)
Each of the following represents an act or event that is within the control of
or originates from action taken by Dealer or its Owner(s) or Manager(s) and over
which Distributor has no control, but which, when contrary to the spirit,
nature, purpose or objectives of this Agreement, warrant its termination:
(a) Any misrepresentation to Distributor by Dealer or by its Owner(s) or
Executive Manager in applying for this Agreement or any misrepresentation to
Distributor by Dealer or any such person as to the persons who are or will be
Owner(s) or Manager(s) of Dealer.
(b) Any attempted sale, transfer or assignment by Dealer of this Agreement or
any of the rights or privileges granted Dealer by this Agreement; or any
attempted transfer, assignment or delegation by Dealer of any of the
responsibilities assumed by Dealer under this Agreement, without in either case
the prior written consent of Distributor, which consent shall not be
unreasonably withheld.
(c) Any sale, transfer, relinquishment, voluntary or involuntary, by operation
of law or otherwise, of any ownership interest in Dealer without the prior
written consent of Distributor, which consent shall not be unreasonably
withheld.
(d) Any change of the Dealer's Executive Manager without the prior written
consent of Distributor, which consent shall not be unreasonably withheld.
(e) Any attempt by Dealer to conduct, either directly or indirectly, any of the
dealership operations contemplated by this Agreement at any facilities other
than the Dealership Facilities.
(f) Any sale or other transfer, by operation of law or otherwise, to any third
party or parties, or any relinquishment or discontinuance of use by Dealer, of
any of the Dealership Facilities or other principal assets that are employed and
required by Dealer in the conduct of the dealership operations without the prior
written consent of Distributor, which consent shall not be unreasonably
withheld.
(g) Any dispute, disagreement, or controversy between or among the Owner(s) or
Executive Manager (or, if Dealer is a corporation, its directors or officers) of
Dealer relating to the ownership or management of Dealer or to its dealership
operations which, in the opinion of Distributor, may adversely affect the
dealership operations or the interest of Dealer or Distributor.
(h) Insolvency of Dealer; filing of a voluntary petition in bankruptcy by
Dealer; filing of a petition to have Dealer declared bankrupt, provided that it
is not vacated within one (1) month after filing; appointment of a receiver or
trustee for Dealer, provided such appointment is not vacated within one
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(1) month after such appointment; or execution by Dealer of an assignment for
the benefit of creditors.
(i) Failure of Dealer to maintain the Dealership Facilities open for business
as required under the provisions of this Agreement, for seven (7) consecutive
business days.
(j) Conviction of Dealer or any Owner(s), Executive Manager or, if Dealer is a
corporation, any of its directors or officers, of any crime which, in the
opinion of Distributor, may adversely affect the reputation or interests of
Dealer or Distributor.
(k) Any submission by Dealer to Distributor of a false or fraudulent
application, or any claim or statement in support thereof, for payment related
to predelivery inspection or adjustment, or warranty repairs, special policy or
campaign adjustments performed by Dealer, or for parts compensation or for any
other discount, allowance, refund or credit whether or not Dealer offers or
makes to Distributor or Distributor seeks or obtains from Dealer restitution of
any payments made to Dealer on the basis of any such false or fraudulent
applications, claims or statements.
(l) Failure of Dealer to furnish Distributor with the financial and operating
statements or reports required to be furnished under this Agreement or refusal
by Dealer to permit Distributor to make any inspection or audit of Dealer's
facilities, accounts and records as provided in this Agreement, if such failure
or refusal shall continue for a period of one (1) month after receipt by Dealer
from Distributor of a written request for such statements or reports or
permission to make any such inspection or audit.
(m) Willful failure of Dealer to comply with the provisions of any laws, rules,
regulations or orders of a government body relating to Isuzu Products or the
advertising, promotion, sale or service thereof.
When Distributor has established to its satisfaction that any such act or event
has occurred, Distributor may terminate this Agreement by giving Dealer written
notice of termination, such termination to be effective upon receipt by Dealer
of such notice.
3. TERMINATION BY DISTRIBUTOR FOR FAILURE OF PERFORMANCE BY DEALER
If, based on the evaluations thereof made by Distributor, Distributor determines
that Dealer has failed to fulfill any one or more of the responsibilities
assumed by Dealer under Article III of this Agreement by failing to fulfill the
responsibilities and obligations of Dealer relating thereto set forth in said
Article, Distributor will endeavor to review with Dealer the nature and extent
of such failure(s) and the reasons which, in Distributor's opinion, account for
such failure(s). Thereafter, based upon such plan or plans of action as may be
proposed by Dealer to remedy such failure or failures and upon such other
factors as Distributor deems relevant in the circumstances, Distributor will
determine whether it can be reasonably expected that Dealer can and will remedy
such failure or failures and the period of time that Dealer may reasonably
require to effect such remedy or remedies.
As soon as practicable thereafter, Distributor will notify Dealer in writing of
the nature and extent of Dealer's failure or failures of performance and of the
period of time, if any, during which Dealer will be expected to remedy such
failure or failures of performance.
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If, at the expiration of the period, if any, specified in such notice, such
failure or failures of performance have not been substantially remedied by
Dealer, Distributor may terminate this Agreement by giving Dealer written notice
of termination, with such termination to be effective three (3) months after
receipt by Dealer of such notice.
In the interest of providing continuing service to owners of Vehicles,
Distributor may, if it elects, process during such three (3) month period
applications for an Isuzu Dealer Sales and Service Agreement to replace Dealer;
provided, however, that such Isuzu Dealer Sales and Service Agreement shall not
become effective until after the effective date of termination of this
Agreement.
During such three (3) month period, Distributor and Dealer will commence such
actions as may be necessary or desirable so that the termination obligations of
Distributor and Dealer set forth in this Agreement may be fulfilled as promptly
as practicable.
4. TERMINATION BECAUSE OF DEATH OR INCAPACITY OF OWNER AND/OR EXECUTIVE
MANAGER
Since this Agreement is in the nature of a personal service agreement and its
continuation is conditioned upon Dealer being owned and managed as provided in
Section 4 hereof, Distributor (subject to the provisions of Article VII of this
Agreement) may terminate this Agreement by written notice to Dealer in the event
of the death of an Owner or the Executive Manager or in the event Distributor
determines that the Executive Manager is physically or mentally incapacitated so
as to be unable to actively exercise full managerial authority for the operating
management of Dealer. The effective date of any such termination shall be the
date set forth in such written notice, which shall be not less than three (3)
months after receipt by Dealer of such notice.
In the interest of providing continuing service to owners of Vehicles,
Distributor may, if it elects, process, during the period from the receipt by
Dealer of such notice to the effective date of such termination applications for
an Isuzu Dealer Sales and Service Agreement to replace Dealer; provided,
however, that such Isuzu Dealer Sales and Service Agreement shall not become
effective until after the effective date of termination of this Agreement.
During the period from Dealer's receipt of such notice to the effective date of
such termination, Distributor and Dealer will commence such actions as may be
necessary or desirable so that the termination obligations of Distributor and
Dealer set forth in this Agreement may be fulfilled as promptly as practicable.
5. TERMINATION FOR FAILURE OF DEALER OR DISTRIBUTOR TO BE LICENSED
If Distributor or Dealer requires a license for the performance of any
obligation under or in connection with this Agreement in any state or
jurisdiction where this Agreement is to be performed and if either of the
parties shall fail to secure or maintain such license or a renewal thereof or if
such license shall be suspended or revoked, irrespective of the cause or reason
therefor, either party may immediately terminate this Agreement by giving to the
other party written notice of such termination.
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6. TERMINATION BY MUTUAL AGREEMENT
This Agreement may be terminated at any time by written mutual agreement between
Distributor and Dealer in the event (1) any person named as an Owner or
Executive Manager wishes to retire, (2) Distributor and Dealer desire to effect
either a discontinuance or a relocation of Dealer's Dealership facilities or (3)
Distributor and Dealer deem it desirable for any other cause or reason.
The Provisions of Section B of this Article V shall be deemed applicable to a
termination under this Section A.6. only to the extent and in the manner set
forth in such written mutual agreement of termination.
7. RIGHT TO RELY ON ANY APPLICABLE TERMINATION PROVISION
Because the notice periods may be different with respect to, and the rights and
obligations of the parties may vary depending upon, the particular provisions
under which this Agreement is terminated, the terminating party shall have the
right to select the provision of this Section A under which it elects to
terminate this Agreement without reference in its notice of termination to any
other provision of this Section A that may also be applicable in the
circumstances. The exercise of such right shall not preclude the terminating
party from at any time asserting or establishing that the termination of this
Agreement is also supportable under another provision of this Section A.
B. TRANSACTIONS AFTER TERMINATION
1. EFFECT OF TERMINATION ON ORDERS
In the event that this Agreement is terminated in accordance With any provision
of Section A of this Article V (other than Section A.6.), Distributor may cancel
all unshipped orders received from Dealer for Isuzu Products.
Termination of this Agreement shall not release Dealer, however, from the
obligation to pay any sum which may then be owing Distributor.
2. EFFECT OF TRANSACTIONS AFTER TERMINATION
Neither the processing by Distributor of orders from Dealer nor the continuation
of sales of Isuzu Products or any other products to Dealer nor any other act of
Distributor after termination of this Agreement shall be construed as a waiver
of the termination, or as a renewal, extension or continuation of this
Agreement.
3. PURCHASES OF ELIGIBLE ITEMS
Distributor shall purchase, subject to and upon compliance with the provisions
hereinafter set forth in subsections 4 and 5 of this Section B, all or any of
the following Eligible Items from Dealer:
(i) Vehicles
All new, unused, unlicensed, undamaged Isuzu Vehicles of the then current model
year purchased by Dealer from Distributor then unsold which are the unencumbered
property and in the possession
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of Dealer or of Dealer's financing institution at Dealer's net cost or the price
last established by Distributor for the sale of identical vehicles by
Distributor to Authorized Isuzu Dealers, whichever is lower, plus destination
charges paid by Dealer thereon, less all refunds or allowances paid thereon by
Distributor, any amount paid by Distributor for pre-delivery inspection and
service thereon and any costs required to place said vehicles in new condition.
(ii) Parts
All new, unused, undamaged, resalable Isuzu Parts (except Publications and parts
listed in Distributor's Parts List as "non-returnable"), which are still in the
original and undamaged package, are for the then current and three (3)
immediately preceding vehicle model years and are the unencumbered property of
and in the possession of Dealer at the dealer prices set forth in Distributor's
then-current price list.
(iii) Accessories
All new, unused, undamaged, resalable Isuzu Accessories which are still in the
original and undamaged package, are for the then current vehicle model year and
are the unencumbered property of and in the possession of Dealer at the dealer
prices set forth in Distributor's then current price list.
(iv) Signs
Any signs owned by Dealer of a type recommended in writing by Distributor at a
price established in accordance with Distributor's pricing formula then in
effect.
(v) Special Tools
Any special tools of a type recommended by Distributor and designed specifically
for service of any Isuzu Vehicles that were offered for sale by Distributor to
Isuzu Dealers during the three (3) year period immediately preceding termination
and were purchased by Dealer from Distributor, at prices therefor established in
accordance with the pricing formula set forth in the then current Service
Policies and Procedures Manual.
4. RESPONSIBILITIES OF DEALER
Immediately following the effective date of a termination of this Agreement,
Dealer shall furnish Distributor with a list of the identification numbers of
and such other information as Distributor may require concerning eligible
vehicles to be purchased by Distributor in accordance with subsection 3 of this
Section B. Dealer will deliver all such vehicles in accordance with
Distributor's instructions. Within one (1) month following the effective date of
a termination of this Agreement, Dealer shall mail or deliver to Distributor a
list of eligible special tools and eligible signs. Within two (2) months
following effective date of a termination of this Agreement, Dealer shall mail
or deliver to Distributor a complete list of eligible parts and accessories.
Dealer shall retain possession of all such eligible items until receipt of
written shipping instructions from Distributor. Within one (1) month after
receipt of such instructions, Dealer shall tag, pack and ship such eligible
items, transportation charges prepaid, to the destination(s) specified in such
instructions. Dealer shall take such action and shall execute and deliver such
instruments as may be
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necessary (a) to convey to Distributor good marketable title to all eligible
items to be purchased hereunder, (b) to comply with the requirements of any
applicable state law relating to bulk sales or transfers and (c) to satisfy and
discharge any liens or encumbrances on such eligible items prior to delivery
thereof to Distributor.
5. PAYMENT BY DISTRIBUTOR
Subject to its right to offset any amounts owing Distributor from Dealer,
Distributor shall pay Dealer for the eligible items purchased by it under the
provisions of this Section B as soon as practicable following delivery thereof
to Distributor; provided, however, that any payment for such eligible items may
be made by Distributor, at its option, directly to any financing institution or
other person or concern which shall have a security or ownership interest
therein.
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<PAGE>
ARTICLE VI. SUCCEEDING AND NEW AND SUPERSEDING
SALES AND SERVICE AGREEMENTS
A. SUCCEEDING AGREEMENTS
So that the dealer sales and service agreements offered to Authorized Isuzu
Dealers, will reflect changes in conditions applicable to the sales and service
of Isuzu Products as well as changes in applicable laws or regulations, or in
the interpretations thereof, Distributor will review the provisions of its
current forms of Isuzu Dealer Sales and Service Agreement on a periodic basis
and will prepare new forms of Isuzu Dealer Sales and Service Agreements that
will be offered to those Authorized Isuzu Dealers who receive an offer from
Distributor of a succeeding Isuzu Dealer Sales and Service Agreement. Dealer
acknowledges, therefore, that any new form of Isuzu Dealer Sales and Service
Agreement that may be offered Dealer may reflect therein any changes and
modifications that are deemed necessary or desirable by Distributor.
B. NEW AND SUPERSEDING DEALER AGREEMENTS
In the event a new and superseding form of Isuzu Dealer Sales and Service
Agreement is offered by Distributor to Authorized Isuzu Dealers generally at any
time, Distributor may terminate this Agreement upon prior written notice to
Dealer, provided that, at the same time, Distributor offers Dealer such new and
superseding form of Isuzu Dealer Sales and Service Agreement.
C. EFFECT OF NEW OR SUPERSEDING AGREEMENT ON RESPONSIBILITIES AND OBLIGATIONS
UNDER THIS AGREEMENT
Although the execution by Distributor and Dealer of any new or superseding
Dealer Sales and Service Agreement, whether it is executed in accordance with
the provisions of Section A and B of this Article VI or for any other reason,
will, by the terms thereof, cancel and supersede this Agreement, such succeeding
or new and superseding Isuzu Dealer Sales and Service Agreement generally
contemplates continuation of the business relations contemplated by this
Agreement. Accordingly, unless otherwise expressly agreed in writing by
Distributor and Dealer, the rights and obligations of Dealer that may otherwise
become applicable upon any termination of this Agreement shall not be applicable
in the event of the execution by Distributor and Dealer of any such new or
superseding Isuzu Dealer Sales and Service Agreement. Any evaluation of the
effectiveness of Dealer's performance of any of its responsibilities under this
Agreement may be reflected and considered together with any evaluation made of
the effectiveness of Dealer's performance of similar responsibilities under any
such succeeding or new and superseding form of Isuzu Dealer Sales and Service
Agreement. Except insofar as they may be inconsistent with the provisions of
such succeeding or new and superseding form of Isuzu Dealer Sales and Service
Agreement, any outstanding rights and obligations of Distributor
-23-
<PAGE>
and Dealer that arose under this Agreement, or under any separate agreements
executed by Distributor and Dealer under this Agreement, shall be deemed
continued under such succeeding or new and superseding form of Isuzu Dealer
Sales and Service Agreement.
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<PAGE>
ARTICLE VII. ESTABLISHMENT OF SUCCESSOR DEALER
A. BECAUSE OF DEATH OF OWNER
In the event of termination of this Agreement by Distributor pursuant to Section
A.4 of Article V because of the death of an Owner, the following provisions
shall apply:
1. Subject to the other provisions of this Article, Distributor shall offer a
provisional Sales and Service Agreement the term of which shall not exceed two
(2) years to a successor dealer ("Successor Dealer") comprised of the person
nominated by such deceased Owner as his or her successor, together with the
surviving Owner(s), provided that:
(a) the nomination was submitted to Distributor on a Successor Addendum, was
consented to by the remaining Owner(s) and was approved by Distributor prior to
the death of the deceased Owner;
(b) Either (i) there has been no change in the Executive Manager of Dealer or
(ii) the provisions of Section B, below, have been complied with; and
(c) The Successor Dealer has capital and facilities substantially in accordance
with Distributor's Standards therefor at the time the provisional Sales and
Service Agreement is offered.
2. If the deceased Owner has not nominated a successor in accordance with the
provisions of Section A.1. (a), above, but all of the beneficial interest of the
deceased Owner has passed by will or the laws of intestate succession directly
to the deceased Owner's spouse and/or children or to one or more surviving
Owners who each held not less than a twenty-five percent (25%) beneficial owner-
ship interest in the dealership prior to the death of the deceased Owner
(collectively "Proposed New Owners"), subject to the other provisions of this
Article, Distributor shall offer a provisional Sales and Service Agreement the
term of which shall not exceed two (2) years to Successor Dealer ("Successor
Dealer") composed of the Proposed New Owners, together with the surviving Owners
provided that:
(a) Either (i) there has been no change in the Executive Manager of Dealer or
(ii) the provisions of Section B, below, have been complied with; and
(b) The Successor Dealer has capital and facilities substantially in accordance
with Distributor's Standards therefor at the time the provisional Sales and
Service Agreement is offered.
B. BECAUSE OF DEATH OR INCAPACITY OF EXECUTIVE MANAGER
In the event of the termination of this Agreement by Distributor pursuant to
Section A.4. of Article V because of the death, physical or mental incapacity
("Disability Event") of the Executive Manager ("Disabled Executive Manager"),
subject to the other provisions of this Article, Distributor shall offer a
provisional Sales and Service Agreement the term of which shall not exceed two
(2) years to a Successor Dealer composed of the Owner(s), provided that:
1. Either (i) the Owner(s) had nominated. in a Successor Addendum, which was
approved by Distributor prior to such Disability Event, a person to succeed the
Disabled Executive Manager or (ii) not
-25-
<PAGE>
later than two (2) months after the occurrence of such Disability Event a new
Executive Manager is proposed to Distributor by all of the Owner(s) and such a
person is approved by Distributor;
2. The new Executive Manager owns in the aggregate beneficial interests in the
Successor Dealer of not less than twenty-five percent (25%) or is given the
right to acquire and does acquire within twelve (12) months beneficial interests
in the Successor Dealer of not less than twenty-five percent (25%); and
3. The Successor Dealer has capital and facilities substantially in accordance
with Distributor's Standards therefor at the time the provisional Sales and
Service Agreement is offered.
C. EVALUATION OF SUCCESSOR DEALER
During the term of the provisional Sales and Service Agreement, Distributor will
evaluate the performance of the Successor Dealer and periodically review with
the Successor Dealer this evaluation. If the Successor Dealer's performance is
deemed to be satisfactory to Distributor continuously during the last three (3)
months of the provisional Sales and Service Agreement, Distributor will give
first consideration to such Successor Dealer with respect to a new Sales and
Service Agreement.
D. TERMINATION OF MARKET REPRESENTATION
Notwithstanding anything stated or implied to the contrary in this Article,
Distributor shall not be obligated to offer a provisional or new Sales and
Service Agreement to any Successor Dealer if Distributor notified Dealer in
writing prior to the event causing the termination of this Agreement that
Distributor's market representation plans do not provide for continuation of
representation in Dealer's Market.
E. TERMINATION OF OFFER
If the person or persons comprising a proposed Successor Dealer to which any
offer of a provisional or new Sales and Service Agreement shall have been made
pursuant to this Article shall not accept same within thirty (30) days after
notification to them of such offer, such offer shall automatically expire.
-26-
<PAGE>
ARTICLE VIII. GENERAL PROVISIONS
A. DEALER NOT MADE AGENT OR LEGAL REPRESENTATIVE
This Agreement does not constitute Dealer the agent or legal representative of
Distributor or Manufacturer for any purpose whatsoever. Dealer is not granted
any express or implied right or authority to assume or to create any obligation
in behalf of or in the name of Distributor or Manufacturer or to bind
Distributor or Manufacturer in any manner or thing whatsoever.
B. DEALER'S RESPONSIBILITY FOR ITS OPERATIONS, EXPENDITURES, LIABILITIES AND
OBLIGATIONS
Dealer acknowledges that, as an independently owned and operated enterprise, its
success will be determined substantially by how effectively its management
manages and conducts its operations and affairs. This Agreement, therefore,
contemplates that all investments made by or in Dealer shall be made, and Dealer
shall fulfill its responsibilities and obligations under this Agreement, in
conformity with the provisions hereof, but otherwise at the discretion of
Dealer, its management and Owner(s). Nothing herein contained shall impose any
liability on Distributor or Manufacturer in connection with the establishment or
conduct of Dealer's facilities or operations, and Dealer shall be solely
responsible for any and all expenditures, liabilities and obligations made,
incurred or assumed by Dealer in preparation for performance or in the
performance of Dealer's responsibilities and obligations under this Agreement.
C. NOTICES
All notices required or permitted to be given by either party to the other under
or in connection with this Agreement shall be in writing and delivered
personally or by mail to Dealer at its Dealership Location and to Distributor at
its national headquarters, or to such other address as the party to receive the
notice may have previously designated by written notice to the other party.
Notices shall be effective upon receipt. If mailed, such notices shall be
postage prepaid and sent by registered or certified mail, return receipt
requested.
D. OFFSETS AND SET OFFS
In addition to any other specific rights of offset or set off provided for
otherwise in any documents affecting Dealer and Distributor, Distributor shall
have the right to offset or set off any sums or accounts due or to become due
from Dealer to Distributor against any sums or accounts due or to become due
from Distributor to Dealer.
E. CHANGES REQUIRED BY LAW
Should Distributor at any time determine that Federal or state laws, or
regulations adopted thereunder, or any new interpretation thereof, as any
thereof may be validly applied, require changes in any of the provisions of this
Agreement. Distributor may offer Dealer a new and superseding Isuzu Dealer Sales
and Service Agreement that has been appropriately modified to reflect changes
that are required by such new laws, regulations or interpretations, or, in lieu
thereof, Distributor may
-27-
<PAGE>
offer Dealer an amendatory agreement to this Agreement reflecting such changes.
If Dealer shall fail to execute such new and superseding Isuzu Dealer Sales and
Service Agreement or such amendatory agreement and return it to Distributor
within thirty (30) days after it is offered Dealer, this Agreement may be
terminated by Distributor upon written notice thereof to Dealer, with such
termination to be effective upon receipt by Dealer of such notice.
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<PAGE>
EXHIBIT 10.6.1
SUPPLEMENTAL AGREEMENT TO
DEALER SALES AND SERVICE AGREEMENT
(PUBLICLY TRADED COMPANY)
THIS SUPPLEMENTAL AGREEMENT (this "Supplemental Agreement"), dated as of
May 1, 1997, is entered into among FAA Serramonte, Inc., dba Serramonte Isuzu,
dba Serramonte Auto Plaza ("Dealer"), FirstAmerica Automotive, Inc. ("Public
Company") and American lsuzu Motors Inc. ("Distributor").
WHEREAS, Distributor and Dealer are entering into a Dealer Sales and
Service Agreement of even date herewith (the "Dealer Agreement") which
authorizes Dealer to conduct dealership operations from the Dealership Locations
identified in the Dealer Agreement;
WHEREAS, the organization and ownership of Dealer is such that the terms of
the Dealer Agreement are not wholly adequate to address the legitimate business
needs and concerns of Distributor and Dealer;
WHEREAS, Distributor and Dealer have entered into the Dealer Agreement in
consideration for, and in reliance upon, certain understandings, assurances and
representations which the parties wish to document.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereby agree as follows:
1. LIMITATIONS UPON CHANGE OF EXECUTIVE MANAGER
--------------------------------------------
A. Designation of Executive Manager. As set forth in Section 4 of
--------------------------------
the Dealer Agreement, Al Babbington shall be Executive Manager of Dealer. Dealer
agrees that Executive Manager shall have complete and irrevocable authority to
make all decisions, and enter into any and all necessary business commitments,
required in the normal course of conducting dealership operations on behalf of
Dealer. Dealer shall not revoke, modify or otherwise impose limitations upon
such authority without the prior written consent of Distributor.
B. Change of Executive Manager. Without limiting the restrictions
---------------------------
set forth in the Dealer Agreement, the removal or withdrawal of Executive
Manager without Distributor's prior written consent shall constitute grounds for
termination of the Dealer Agreement, subject to applicable state law.
2. LIMITATIONS UPON CHANGES IN OWNERSHIP
-------------------------------------
A. Change in Ownership. Dealer and Public Company hereby represent
-------------------
and warrant that Dealer is a wholly-owned subsidiary of Public Company. Given
the control of Public Company over Dealer, and Distributor's strong interest in
assuring that those who own and control Distributor's dealerships have interests
consistent with those of Distributor, Dealer and Public Company agree that (i)
any change in the ownership of Dealer, or (ii) the acquisition by any person, or
any persons acting as a group, of more than 20% of the issued and outstanding
capital stock of Public Company from and after the date hereof, shall be
considered a change in ownership of Dealer under the terms of the Dealer
Agreement, and shall be subject to the provisions of the Dealer Agreement and
subparagraph B below.
B. Distributor's Rights Upon Change in Ownership. Upon the
---------------------------------------------
occurrence of any event described in subparagraph A above, if Distributor
reasonably concludes that the transferee or acquiring person or entity does not
have interests compatible with those of Distributor or is otherwise not
qualified to have an ownership interest in the dealerships at the Dealership
Locations, then within 90 days of receipt of written notice from Distributor,
Dealer agrees to: (i) transfer the assets associated with Dealer to a third
party acceptable to the Distributor, (ii) voluntarily terminate the Dealer
Agreement, or (iii) provide evidence to Distributor that such person or entity
no longer has such an ownership interest in Dealer or Public Company. In the
event that Dealer enters into an agreement to transfer its assets to a third
party as set forth in (i) above,
1
<PAGE>
Distributor shall have a right of first refusal to purchase such assets in
accordance with the terms and procedures set forth in subparagraph C below, and
subject to the terms of applicable state law. Dealer and Public Company agree
that if an ownership interest is acquired in Public Company by a person or
entity which notifies Public Company via Schedule 13D filed with the Securities
and Exchange Commission, Dealer shall advise Distributor in writing, and attach
a copy of that Schedule.
C. Exercise of Right of First Refusal. Prior to exercising its right
----------------------------------
of first refusal pursuant to subparagraph B above, Distributor shall have a
reasonable opportunity to inspect the assets, including real estate, before
making its decision. If Dealer has entered into a bona fide written buy/sell
agreement, the purchase price and other terms of sale will be those set forth in
such agreement and any related documents, unless Dealer and Distributor agree to
other terms. Upon Distributor's request, Dealer agrees to provide all documents
relating to the proposed transfer. If Dealer refuses to provide such
documentation or states that such documents do not exist, it will be presumed
that the agreement is not bona fide. In the absence of a bona fide written
buy/sell agreement, the purchase price of the dealership assets will be
determined by good faith negotiations by Dealer and Distributor. If agreement
cannot be reached within a reasonable time, the price and other terms of sale
will be established by arbitration according to the rules of the American
Arbitration Association. Dealer agrees to transfer the assets by Warranty Deed
where possible, conveying marketable title free and clear of liens and
encumbrances. The Deed will be in proper form for recording and Dealer will
deliver complete possession of the assets when the Deed is delivered. Dealer
will also furnish copies of any easements, licenses or other documents affecting
the property and assign any permits or licenses necessary for the conduct of
Dealer's operations. Distributor's rights under this section may be assigned to
any third party and in connection with any such assignment, Distributor will
guarantee full payment of the purchase price by the assignee. Distributor's
rights under this paragraph C shall be subject to the terms of applicable state
law.
3. LIMITATIONS UPON NUMBER AND LOCATIONS OF DEALERSHIPS
----------------------------------------------------
Public Company acknowledges that Distributor's consent is required for
the acquisition of each new Isuzu point and the Distributor's consent to the
number and locations of dealerships which may be owned by Public Company or any
subsidiary of Public Company will be given on a case by case basis. Dealer shall
provide such documentation as is reasonably requested by Distributor regarding
the ownership interests of all such persons and entities in Distributor's
dealerships. In the event that Dealer or Public Company shall acquire ownership
or control of more than one of Distributor's dealerships, then Dealer and/or
Public Company shall obtain separate motor vehicle licenses, and shall maintain
separate financial statements, for each dealership.
4. WORKING CAPITAL REQUIREMENTS
----------------------------
Dealer shall maintain, at all times, sufficient working capital to
meet or exceed the minimum net working capital standards for Dealer as
determined from time to time by Distributor consistent with its standard
policies. Dealer shall provide such documentation as is reasonably requested by
Distributor to assure compliance with this requirement. Public Company agrees to
submit an annual consolidated balance sheet for the combined dealership
operations of Public Company. Public Company agrees, upon Distributor's request,
to provide Distributor with copies of the materials filed by Public Company with
the Securities and Exchange Commission.
5. INDEMNITY
---------
Public Company further agrees to indemnify and hold Distributor
harmless from and against any and all claims of the shareholders of Public
Company, and all liabilities, losses, damages, costs and expenses incurred in
connection therewith, unless a final determination is made that Distributor was
in fact liable for such claims, liabilities, losses, damages, costs or expenses.
2
<PAGE>
6. MISCELLANEOUS
-------------
A. Effect of Supplemental Agreement. The parties agree that this
--------------------------------
Supplemental Agreement is intended to supplement the terms of the Dealer
Agreement and not to limit the rights and obligations of the parties contained
therein. This Supplemental Agreement is hereby incorporated into the Dealer
Agreement and made a part thereof. In the event that any of the provisions of
this Supplemental Agreement are in actual conflict with other provisions of the
Dealer Agreement, the provisions contained in this Supplemental Agreement shall
govern. In the event that the policies of Distributor with regard to the issues
addressed herein are hereinafter modified, the parties agree to review such
modifications to determine whether modifications of this Supplemental Agreement
are appropriate.
B. Construction. This Supplemental Agreement shall be governed by
------------
and construed in accordance with the laws of the State of California. The
failure of either party to enforce any of the provisions of this Supplemental
Agreement or the failure to exercise any election provided for herein shall in
no way be considered to be a waiver of such provisions or elections. All
capitalized terms used herein and not defined herein shall have the meanings set
forth in the Dealer Agreement.
C. Alternative Dispute Resolution. In the event of any dispute
------------------------------
between the parties regarding the Dealer Agreement or this Supplemental
Agreement, Dealer and Public Company agree to participate in any alternative
dispute resolution procedures specified in the standard policies of Distributor.
Upon final determination through such dispute resolution, each party shall have
recourse to a review de novo by the appropriate state court or administrative
agency consistent with the provisions of state law. The parties agree that
should a party making such appeal lose the issues presented on appeal, then that
party shall pay the reasonable expenses, including attorneys' fees, of the other
party for the defense of such de novo review.
D. No Third Party Beneficiaries. Nothing in this Supplemental
----------------------------
Agreement or the Dealer Agreement shall be construed to confer any rights upon
any person not a party hereto or thereto, nor shall it create in any party an
interest as a third party beneficiary of this Supplemental Agreement or the
Dealer Agreement. Dealer and Public Company agree to indemnify and hold harmless
Distributor, its affiliates, subsidiaries, directors, officers, employees,
agents and representatives from and against all claims, actions, liabilities,
damages, costs and expenses (including reasonable attorneys' fees) arising from
or in connection with any action by a third party in its capacity as a
stockholder of Public Company other than through a derivative stockholder suit
authorized by the Board of Directors of Public Company.
IN WITNESS WHEREOF, the parties have executed this Supplemental Agreement
effective as of the date set forth in the introductory paragraph hereof.
AMERICAN ISUZU MOTORS INC. FAA SERRAMONTE, INC.
By: /s/ J. T. Maloney By: /s/
------------------------------- ------------------------------
J. T. Maloney
Name: /s/ Thomas A. Price
----------------------------
Title: Senior Vice President
General Manager, Light Vehicles Title: President
---------------------------
FIRSTAMERICA AUTOMOTIVE INC.
By: /s/
------------------------------
Name: /s/ Thomas A. Price
----------------------------
Title: President
---------------------------
3
<PAGE>
DEALERSHIP STANDARDS ADDENDUM
FOR
FAA SERRAMONTE, INC.
DBA SERRAMONTE ISUZU
EFFECTIVE FROM AND AFTER May 1 1997 UNTIL AMENDED
----------
In accordance with Section 5 of our Isuzu Dealer Sales and Service Agreement
with you dated May 1 1997, and Article III of the Isuzu Dealer Sales and Service
----------
Agreement Additional Provisions thereto, you agree to:
1. Furnish to us, on or before the tenth day of each month, on such forms or by
such means as we may designate, complete and accurate financial and operating
statements reflecting your true financial condition as of the end of the
preceding month and for that portion of the fiscal year then ended.
2. Maintain flooring arrangements with an approved bank or financial institution
providing a minimum wholesale flooring line of $600,000 exclusively for the
purchase of Isuzu vehicles.
3. Providing and maintaining an exclusive new vehicle sales showroom located at
1500 Collins Avenue Colma CA 94014 for the exclusive display and sale of
----------------------------------
Isuzu vehicles, said showroom to be a minimum of 1,400 square feet and
sufficient for the display of three (3) Isuzu vehicles.
4. Install and maintain standard signs as required by us for an Isuzu
dealership, including brand, fascia, exterior service and parts, and interior
parts signs where allowable under the then current local sign ordinance.
5. Having your service management and technicians attend specified Isuzu
sponsored service training programs.
6. Having your sales and management personnel attend Isuzu sponsored product
training sessions.
7. Maintain a designated area in the Service Department located at 445
---
Serramonte Blvd. Colma CA 94014 for servicing Isuzu vehicles. This shall be
-------------------------------
coordinated with our designated representative and subject to our approval.
8. Maintain a specified area in the Parts Department located at 445 Serramonte
--------------
Blvd. Colma CA 94014, for storage of Isuzu parts. This shall be coordinated
--------------------
with our designated representative and subject to our approval.
<PAGE>
FAA SERRAMONTE, INC.
DBA SERRAMONTE ISUZU
PAGE 2
9. Maintain Net Working Capital of $94,850 in excess of the combined current
Net Working Capital requirement of other manufacturers you may also
represent. Additionally, having and maintaining Net Working Capital in the
amount required by Isuzu as determined by a revised standard working capital
formula.
10. Maintain and utilize the Isuzu Communication System for the submission of
required monthly financial statements, parts orders, warranty claims, retail
sales reporting, and all other functions which from time to time American
Isuzu Motors Inc. may deem necessary.
American Isuzu Motors Inc. reserves the right to amend the foregoing dealership
standards at any time upon written notice to you.
FAA SERRAMONTE, INC.
DBA SERRAMONTE ISUZU
1500 Collins Avenue
Colma, CA 94014
BY: /s/
------------------------------------
ITS: President
-----------------------------------
AMERICAN ISUZU MOTORS INC.
BY: /s/
------------------------------------
ITS Sr. Vice President & General Manager
-----------------------------------
Light Vehicles
<PAGE>
EXHIBIT 10.7
MASTER AGREEMENT
This Master Agreement ("Agreement") is entered into by and between FAA
Serramonte, Inc. d/b/a Dodge of Serramonte ("SERRAMONTE DODGE"), a California
corporation; FAA Poway D, Inc., d/b/a Poway Dodge ("POWAY DODGE"), a California
corporation; FAA Dublin VWD, Inc., d/b/a Dublin Dodge ("DUBLIN DODGE"), a
California corporation; First America Automotive, Inc. ("FAA"), a Nevada
corporation; Thomas A. Price, President of SERRAMONTE DODGE and POWAY DODGE and
forty-one (41%) percent stockholder of FAA ("PRICE"); and Chrysler Corporation
("CHRYSLER"), a Delaware corporation.
Following is a statement of facts underlying this Agreement:
FAA proposes to purchase Asian Pacific Industries, Inc., d/b/a Valley
Dodge, and become an authorized Dodge dealer in Dublin, California by forming
the new corporation, DUBLIN DODGE.
FAA'S proposal to purchase Valley Dodge is contingent upon the approval of
CHRYSLER.
FAA owns the majority interest in a CHRYSLER Dealership, SERRAMONTE DODGE,
in Colma, California, which has poor customer satisfaction performance. FAA has
recently purchased the assets of POWAY DODGE in Poway, California and is now
seeking to purchase the assets of Valley Dodge under its new corporation to be
formed, DUBLIN DODGE, and has agreed to execute a Master Agreement concerning
the improvement of Customer Satisfaction Index ("CSI") at SERRAMONTE DODGE and
achievement of CSI requirements at POWAY DODGE and DUBLIN DODGE.
SERRAMONTE DODGE, POWAY DODGE, and PRICE desire FAA to purchase the assets
of Valley Dodge and operate the Dodge dealership under the new corporation,
DUBLIN DODGE.
NOW, THEREFORE, in consideration as set forth below, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. CHRYSLER agrees to approve the sale of Valley Dodge to FAA
notwithstanding the poor CSI performance at SERRAMONTE DODGE. CHRYSLER further
agrees to award DUBLIN DODGE a Dodge Sales and Service Agreement, a copy of
which is attached hereto as Exhibit "A", which will give FAA the right to
conduct business operations as a Dodge dealer, in Dublin, California.
2. In consideration for CHRYSLER'S approval of FAA'S purchase of Valley
Dodge and for CHRYSLER awarding DUBLIN DODGE the Sales and Service Agreement,
1
<PAGE>
SERRAMONTE DODGE, POWAY DODGE and DUBLIN DODGE, FAA and PRICE agree to the
following:
(a) FAA shall achieve a twelve (12) month CSI score at each of its
CHRYSLER dealerships - SERRAMONTE DODGE, POWAY DODGE and DUBLIN
DODGE - which is equal to or greater than the average rating for the
Zone Group Levels in which each dealership is included within its
dealership's sales zone.
(b) FAA and any of its companies, subsidiaries, affiliated companies,
successor companies, or companies in which any of its current officers
and directors have a controlling interest shall (1) not seek to
purchase a new CHRYSLER dealership or to purchase stock or a
partnership interest of an existing CHRYSLER dealership or seek to
become an authorized dealer of any of CHRYSLER vehicle tines until FAA
-----
meets the CSI requirement in Paragraph (a) above, at each of its
dealerships, and (2) at the time it seeks to purchase, the twelve (12)
month CSI score at each of its CHRYSLER dealerships must be equal to
or greater than the average rating for the Zone Group Levels in which
each dealership is included within its dealership's sales zones.
3. This Agreement cannot be altered, modified, waived or amended, in
whole or in part, except in writing signed by a duly authorized officer or agent
of SERRAMONTE DOD GE, POWAY DODGE, DUBLIN DODGE and, FAA, PRICE and an officer
or the National Dealer Placement Manager of CHRYSLER
4. The failure of any party hereto to enforce any rights arising under
this Agreement on one or more occasion shall not operate as a waiver of that or
any other right on that or any other occasion.
5. This Agreement sets forth the entire agreement and understanding
between the parties hereto pertaining to the matters referred to herein except
and to the extent that other documents specifically referred to in this
Agreement might also contain additional agreements and understandings
between the panties hereto. To the extent that there is any conflict between
this Agreement and any other such document, the terms of this Agreement will
prevail. It is specifically understood and agreed by all parties that this
Agreement is totally separate, distinct and apart from all such other agreements
and understandings. Furthermore, there are no other promises, representations or
inducements pertaining to the subject matter of this agreement except as
expressed herein. The terms of this Agreement are contractual and not mere
recitals.
6. This Agreement has been fully and completely negotiated and shall not
be construed more strictly against any parry hereto.
7. The meaning, performance, operation, construction and legal effect of
this Agreement shall be construed according to the laws of the State of Michigan
applicable to
2
<PAGE>
agreements made and wholly performed therein.
8. Should SERRAMONTE DODGE, POWAY DODGE, DUBLIN DODGE, FAA, or PRICE
breach any provision of this Agreement, CHRYSLER may pursue any and all remedies
at law or equity including, but not limited to, specific performance of this
Agreement and FAA and PRICE shall be liable for any and all attorneys fees and
court costs incurred by CHRYSLER in the pursuit of those remedies.
9. SERRAMONTE DODGE, POWAY DODGE, DUBLIN DODGE, FAA and PRICE shall each
do and perform or cause to be done and performed all such further acts and
things and shall execute and deliver all such other agreements, certificates,
instruments and documents as CHRYSLER may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
10. This Agreement will be fully binding on the heirs, successors and
assigns of the parties hereto.
11. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one and the same document.
12. This Agreement is deemed to have been signed by the parties hereto,
coincidental with the effective date of the CHRYSLER Sales and Service Agreement
for DUBLIN DODGE and this Agreement will not be canceled or superseded by this
Sales and Service Agreement
13. The parties hereby agree that they have read and they understand the
terms of this Agreement and have had the advice of legal counsel.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by a duly authorized corporate officer or agent and, upon signature by
all parties, this Agreement shall be binding upon them all.
FAA SERRAMONTE, INC. FAA POWAY D, INC.
D/B/A DODGE OF SERRAMONTE D/B/A POWAY DODGE
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
---------------------------- ----------------------------
Thomas A. Price Thomas A. Price
Its: President Its: President
Dated: 6/25/97 Dated: 6/25/97
--------------------------- ----------------------------
3
<PAGE>
FAA DUBLIN VWD, INC. FIRST AMERICA AUTOMOTIVE, INC.
D/B/A DUBLIN DODGE
By: /s/ Thomas A. Price By: Thomas A. Price
---------------------------- ------------------------------
Thomas A. Price Thomas A. Price
Its: President Its: President
Dated: 6/25/97 Dated: 6/25/97
--------------------------- -----------------------------
THOMAS A. PRICE CHRYSLER CORPORATION
By: /s/ Thomas A. Price By: /s/ Van W. Gray
---------------------------- ------------------------------
Thomas A. Price Van W. Gray
Individually Its: Dealer Placement Manager
Dated: 6/25/97 Dated: 7/1/97
--------------------------- -----------------------------
4
<PAGE>
EXHIBIT 10.7.1
CHRYSLER CORPORATION
DODGE
SALES AND SERVICE AGREEMENT
FAA Poway D, Inc. dba Poway Dodge
- --------------------------------------------------------------------------------
(DEALER Firm Name and D/B/A, if applicable)
located at 13750 Poway Rd. Poway, CA.
----------------------------------------------------------------------
(STREET) (CITY) (STATE)
a(n) Corporation hereinafter called DEALER, and
---------------------------------------------
(INDIVIDUAL, CORPORATION OR PARTNERSHIP)
Chrysler Corporation, a Delaware corporation, hereinafter sometimes referred to
as "CC" , have entered into this Chrysler Corporation Dodge Sales and Service
Agreement, hereinafter referred to as "Agreement", the terms of which are as
follows:
________________________________________________________________________________
INTRODUCTION
The purpose of the relationship established by this Agreement is to provide a
means for the sale and service of specified Dodge vehicles and the sale of CC
vehicle parts and accessories in a manner that will maximize customer
satisfaction and be of benefit to DEALER and CC.
While the following provisions, each of which is material, set forth the
undertakings of this relationship, the success of those undertakings rests on a
recognition of the mutuality of interests of DEALER and CC, and a spirit of
understanding and cooperation by both parties in the day to day performance of
their respective functions. As a result of such considerations, CC has entered
into this Agreement in reliance upon and has placed its trust in the personal
abilities, expertise, knowledge and integrity of DEALER's principal owners and
management personnel, which CC anticipates will enable DEALER to perform the
personal services contemplated by this Agreement.
It is the mutual goal of this relationship to promote the sale and service of
specified CC products by maintaining and advancing their excellence and
reputation by earning, holding and furthering the public regard for CC and all
CC dealers.
________________________________________________________________________________
1. PRODUCTS COVERED
DEALER has the right to order and purchase from CC and to sell at retail only
those specific models of CC vehicles, sometimes referred to as "specified CC
vehicles," listed on the Motor Vehicle Addendum, attached hereto and
incorporated herein by reference. CC may change the models of CC vehicles listed
on the Motor Vehicle Addendum by furnishing DEALER a superseding Motor Vehicle
Addendum. Such a superseding Motor Vehicle Addendum will not be deemed or
construed to be an amendment to this Agreement.
________________________________________________________________________________
2. DEALER'S MANAGEMENT
CC has entered into this Agreement relying on the active, substantial and
continuing personal participation in the management of DEALER's organization by:
NAME POSITION
Hardy M. Travis Secretary/Treasurer
- ------------------------- -----------------------------
_________________________ _____________________________
<PAGE>
DEALER represents and warrants that at least one of the above named individuals
will be physically present at the DEALER's facility (sometimes referred to as
"Dealership Facilities") during most of its operating hours and will manage all
of DEALER's business relating to the sale and service of CC products. DEALER
shall not change the personnel holding the above described position(s) or the
nature and extent of his/her/their management participation without the prior
written approval of CC.
________________________________________________________________________________
3. DEALER'S CAPITAL STOCK OR PARTNERSHIP INTEREST
If DEALER is a corporation or partnership, DEALER represents and agrees that the
persons named below own beneficially the capital stock or partnership interest
of DEALER in the percentages indicated below. DEALER warrants there will be no
change affecting more than 50% of the ownership interest of DEALER, nor will
there be any other change in the ownership interest of DEALER which may affect
the managerial control of DEALER without CC's prior written approval.
<TABLE>
<CAPTION>
Voting Non-Voting Partnership Active
Name Stock Stock Interest Yes/No
<S> <C> <C> <C> <C>
First America Automotive, Inc. 100% ________% ________% No
- ----------------------------- ------ -------
_____________________________ ______% ________% ________% _______
_____________________________ ______% ________% ________% _______
_____________________________ ______% ________% ________% _______
_____________________________ ______% ________% ________% _______
Total 100% ________% ________%
------
</TABLE>
________________________________________________________________________________
4. SALES LOCALITY
DEALER shall have the non-exclusive right, subject to the provisions of this
Agreement, to purchase from CC those new specified CC vehicles, vehicle parts,
accessories and other CC products for resale at the DEALER's facilities and
location described in the Dealership Facilities and Location Addendum, attached
hereto and incorporated herein by reference. DEALER will actively and
effectively sell and promote the retail sale of CC vehicles, vehicle parts and
accessories in DEALER's Sales Locality. As used herein, "Sales Locality" shall
mean the area designated in writing to DEALER by CC from time to time as the
territory of DEALER's responsibility for the sale of CC vehicles, vehicle parts
and accessories, although DEALER is free to sell said products to customers
wherever they may be located. Said Sales Locality may be shared with other CC
dealers of the same line-make as CC determines to be appropriate.
________________________________________________________________________________
5. ADDITIONAL TERMS AND PROVISIONS
The additional terms and provisions set forth in the document entitled "Chrysler
Corporation Sales and Service Agreement Additional Terms and Provisions" marked
"Form 91 (C-P-D)," as may hereafter be amended from time to time, constitute a
part of this Agreement with the same force and effect as if set forth at length
herein, and the term "this Agreement" includes said additional terms and
provisions.
________________________________________________________________________________
6. FORMER AGREEMENTS, REPRESENTATIONS OR STATEMENTS
This Chrysler Corporation Dodge Sales and Service Agreement and other documents,
(or their successors as specifically provided for herein) which are specifically
incorporated herein by reference constitute the entire agreement between the
parties relating to the purchase by DEALER of those new specified CC vehicles,
parts and accessories from CC for resale; and it cancels and supersedes all
earlier agreements, written or oral, between CC and DEALER relating to the
purchase by DEALER of Dodge vehicles, parts and accessories, except for (a)
amounts owing by CC to DEALER, such as payments for warranty service performed
and incentive programs, or (b) amounts owing or which may be determined to be
owed, as a result of an audit or investigation, by DEALER to CC due to DEALER's
purchase from CC of vehicles, parts, accessories and other goods or services, or
(c) amounts DEALER owes
<PAGE>
to CC as a result of other extensions of credit by CC to DEALER. No
representations or statements, other than those expressly set forth herein or
those set forth in the applications for this Agreement submitted to CC by DEALER
or DEALER's representatives, are made or relied upon by any party hereto in
entering into this Agreement.
________________________________________________________________________________
7. WAIVER AND MODIFICATION
No waiver, modification or change of any of the terms of this Agreement or
change or erasure of any printed part of this Agreement or addition to it
(except the filling in of blank spaces and lines) will be valid or binding on CC
unless approved in writing by the President or a Vice President or the National
Dealer Placement Manager of Chrysler Corporation.
________________________________________________________________________________
8. AMENDMENT
DEALER and CC recognize that this Agreement does not have an expiration date and
will continue in effect unless terminated under the limited circumstances set
forth in Paragraph 28. DEALER and CC further recognize that the passage of time,
changes in the industry ways of doing business and other unforeseen
circumstances may cause CC to determine that it should amend all Chrysler
Corporation Dodge Sales and Service Agreements. Therefore, CC will have the
right to amend this Agreement to the extent that CC deems advisable, provided
that CC makes the same amendment in Chrysler Corporation Dodge Sales and Service
Agreements generally. Each such amendment will be issued in a notice sent by
certified mail or delivered in person to DEALER and signed by the President or a
Vice President or the National Dealer Placement Manager of Chrysler Corporation.
Thirty-five (35) days after mailing or delivery of such notice to DEALER, this
Agreement will be deemed amended in the manner and to the extent set forth in
the notice.
________________________________________________________________________________
9. ARBITRATION
Any and all disputes arising out of or in connection with the interpretation,
performance or non-performance of this Agreement or any and all disputes arising
out of or in connection with transactions in any way related to this Agreement
(including, but not limited to, tile validity, scope and enforceability of this
arbitration provision, or disputes under rights granted pursuant to the statutes
of the state in which DEALER is licensed) shall be finally and completely
resolved by arbitration pursuant to the arbitration laws of the United States of
America as codified in Title 9 of the United States Code, (S)(S) 1-14, under the
Rules of Commercial Arbitration of the American Arbitration Association
(hereinafter referred to as the "Rules") by a majority vote of a panel of three
arbitrators. One arbitrator will be selected by DEALER (DEALER's arbitrator).
One arbitrator will be selected by CC (CC's arbitrator). These arbitrators must
be selected by the respective parties within ten (10) business days after
receipt by either DEALER or CC of a written notification from the other party of
a decision to arbitrate a dispute pursuant to this Agreement. Should either CC
or DEALER fail to select an arbitrator within said ten-day period, the party who
so fails to select an arbitrator will have its arbitrator selected by the
American Arbitration Association upon the application of the other party. The
third arbitrator must be an individual who is familiar with business
transactions and be a licensed attorney admitted to the practice of law within
the United States of America, or a judge. The third arbitrator will be selected
by DEALER's and CC's arbitrators. If said arbitrators cannot agree on a third
arbitrator within thirty (30) days from the date of the appointment of the last
selected arbitrator, then either DEALER's or CC's arbitrator may apply to the
American Arbitration Association to appoint said third arbitrator pursuant to
the criteria set forth above. The arbitration panel shall conduct the
proceedings pursuant to the then existing Rules.
Notwithstanding the foregoing, to the extent any provision of the Rules conflict
with any provision of this Paragraph 9, the provisions of this Paragraph 9 will
be controlling.
CC and DEALER agree to facilitate the arbitration by: (a) each party paying to
the American Arbitration Association one-half(112) of the required deposit
before the proceedings commence; (b) making available to one another and to the
arbitration panel, for inspection and photocopying all documents, books and
records, if determined by the arbitrator to be relevant to the dispute; (c)
making available to one another and to the arbitration panel personnel directly
or in directly under their control, for testimony during hearings and prehearing
proceedings if determined by the arbitration panel to be relevant to the
dispute; (d) conducting arbitration hearings to the greatest extent possible on
consecutive business days; and (e) strictly observing the time periods
established by the Rules or by the arbitration panel for the submission of
evidence and of briefs.
<PAGE>
Unless otherwise agreed to by CC and DEALER, a steno-graphic record of the
arbitration shall be made and a transcript there of shall be ordered for each
party, with each party paying one-half (1/2) of the total cost of such recording
and transcription. The stenographer shall be state-certified, if certification
is made by the state, and the party to whom it is most convenient shall be
responsible for securing and notifying such stenographer of the time and place
of the arbitration hearing(s).
If the arbitration provision is invoked when the dispute between the parties is
either the legality of terminating this Agreement or of adding a new CC dealer
of the same line make or relocating an existing CC dealer of the same line make,
CC will stay the implementation of the decision to terminate this Agreement or
add such new CC dealer or approve the relocation of an existing CC dealer of the
same line-make until the decision of the arbitrator has been announced,
providing DEALER does not in any way attempt to avoid the obligations of this
Paragraph 9, in which case the decision at issue will be immediately
implemented.
Except as limited hereby, the arbitration panel shall have all powers of law and
equity, which it can lawfully assume, necessary to resolve the issues in dispute
including, without limiting the generality of the foregoing, making awards of
compensatory damages issuing both prohibitory and mandatory orders in the nature
of injunctions and compelling the production of documents and witnesses for pre-
arbitration discovery and/or presentation at the arbitration hearing on the
merits of the case. The arbitration panel shall not have legal or equitable
authority to issue a mandatory or prohibitory order which: (a) extends or has
effect beyond the subject matter of this Agreement or (b) will govern the
activities of either party for a period of more than two years; nor shall the
arbitration panel have authority to award punitive consequential or any damages
whatsoever beyond or in addition to the compensatory damages allowed to be
awarded under this Agreement.
The decision of the arbitration panel shall be in written form and shall include
findings of fact and conclusions of law.
It is the intent and desire of DEALER and CC to hereby and forever renounce and
reject any and all recourse to litigation before any judicial or administrative
forum and to accept the award of the arbitration panel as final and binding,
subject to no judicial or administrative review, except on those grounds set
forth in 9 USC (S) 10 and (S) 11. Judgment on the award and/or orders may be
entered in any court having jurisdiction over the parties or their assets. In
the final award and/or order, the arbitration panel shall divide all costs
(other than attorney fees, which shall be borne by the party incurring such fees
and other costs specifically provided for herein) incurred in conducting the
arbitration in accordance with what the arbitration panel deems just and
equitable under the circumstances. The fees of DEALER's arbitrator shall be paid
by DEALER. The fees of CC's arbitrator shall be paid by CC.
________________________________________________________________________________
10. SIGNATURE
This Agreement becomes valid only when signed by the President or a Vice
President or the National Dealer Placement Manager of Chrysler Corporation and
by a duly authorized officer or executive of DEALER if a corporation; or by one
of the general partners of DEALER if a partnership; or by DEALER if an
individual.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement which is
finally executed at AUBURN HILLS ,Michigan, in
---------------------------
triplicate, on May 09, 1997
-------------------------------
FAA POWAY D, Inc.
dba Poway Dodge
- --------------------------------------------------------------------------------
(Dealer Firm Name and D/B/A/, if applicable)
By: /s/
-----------------------------------------------------------------
(Individual Duly Authorized to Sign)
President
- --------------------------------------------------------------------
(Title)
CHRYSLER CORPORATION
By: /s/
-----------------------------------------------------------------
National Dealer Placement Manager
- --------------------------------------------------------------------
(Title)
<PAGE>
MOTOR VEHICLE ADDENDUM
TO
CHRYSLER CORPORATION
SALES AND SERVICE AGREEMENT
FAA Poway D,Inc.
---------------------------------------------------
(Dealer Firm Name)
Poway Dodge
---------------------------------------------------
(DBA)
Poway CA
---------------------------------------------------
(City) (State)
As of the effective date of this Motor Vehicle Addendum to the Chrysler
Corporation Sales and Service Agreement between Dealer and Chrysler Corporation,
Dealer, as an authorized Chrysler Corporation dealer, has a non-exclusive right
to purchase the following new models of Motor Vehicles:
All Passenger cars of the Dodge line make.
All trucks of the Dodge line make.
This Motor Vehicle Addendum shall remain in effect unless and until superseded
by a new Motor Vehicle Addendum furnished Dealer by Chrysler Corporation.
Effective Date: MAY 09 1997
-----------------
CHRYSLER CORPORATION
By /s/
----------------------------------------
(Signature)
National Dealer Placement Manager
------------------------------------------
(Title)
<PAGE>
NOTICE OF SALES LOCALITY DESCRIPTION
TO
CHRYSLER CORPORATION
SALES AND SERVICE AGREEMENT(S)
Effective MAY 09 1997, DEALER will have the non-exclusive right, subject
to the provisions of the Chrysler Corporation Sales and Service Agreement(s), to
purchase from CC for resale at retail (which includes lease and rental units)
such new CC vehicles as are described in the Motor Vehicle Addendum to DEALER'S
Chrysler Corporation Sales and Service Agreement(s), and parts and accessories
therefor, in the following communities and/or areas of which some or all may be
defined by census tracts as defined by the U.S. Department of Commerce or by
the service areas of the U.S. Post Office Stations servicing said communities
and/or areas which will constitute DEALER'S Sales Locality.
<TABLE>
<CAPTION>
STATE COUNTY CITY STATE COUNTY CITY STATE COUNTY CITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALIF SAN DIEGO ALPINE CALIF SAN DIEGO BONITA CALIF SAN DIEGO CHULA VIST
CALIF SAN DIEGO CORONADO CALIF SAN DIEGO DEL MAR CALIF SAN DIEGO EL CAJON
CALIF SAN DIEGO IMPRIL BCH CALIF SAN DIEGO JAMUL CALIF SAN DIEGO LA JOLLA
CALIF SAN DIEGO LAKESIDE CALIF SAN DIEGO LA MESA CALIF SAN DIEGO LEMON GR
CALIF SAN DIEGO NATL CTY CALIF SAN DIEGO NESTOR CALIF SAN DIEGO PACIFIC BC
CALIF SAN DIEGO POWAY CALIF SAN DIEGO SAN DIEGO CALIF SAN DIEGO SANTEE
CALIF SAN DIEGO SOLANA BCH CALIF SAN DIEGO SPRING VLY
</TABLE>
The above Sales Locality is hereby designated as the territory of DEALER'S
responsibility for the sale of CC vehicles and vehicle parts and accessories
therefor, and will be used by CC to determine DEALER'S Minimum Sales
Responsibility (MSR) and to measure DEALER'S sales performance in relation to
such MSR, and to evaluate DEALER'S performance pertaining to other matters
relating to DEALER'S operations.
The Sales Locality described above will continue to be employed for the
foregoing purposes until changed by written notice to DEALER.
CHRYSLER Corporation
FAA POWAY D, INC. POWAY DODGE By: /s/
- ---------------------------------------- -------------------------------
(Dealer Firm Name) (DBA Name)
POWAY , CA Title: NATIONAL DEALER PLACEMENT MGR
- ---------------------------------------- -------------------------------
(City) (State)
<PAGE>
EXHIBIT 10.7.2
CHRYSLER CORPORATION
DODGE
SALES AND SERVICE AGREEMENT
FAA Serramonte Inc. D, Inc. dba DODGE OF SERRAMONTE DODGE
- --------------------------------------------------------------------------------
(DEALER Firm Name and D/B/A, if applicable)
located at 1500 Collins Ave. Colma CA
---------------------------------------------------------------------
(STREET) (CITY) (STATE)
a(n) XX Corporation hereinafter called DEALER, and
---------------------------------------------
(INDIVIDUAL, CORPORATION OR PARTNERSHIP)
Chrysler Corporation, a Delaware corporation, hereinafter sometimes referred to
as "CC", have entered into this Chrysler Corporation Dodge Sales and Service
Agreement, hereinafter referred to as "Agreement", the terms of which are as
follows:
________________________________________________________________________________
INTRODUCTION
The purpose of the relationship established by this Agreement is to provide a
means for the sale and service of specified Dodge vehicles and the sale of CC
vehicle parts and accessories in a manner that will maximize customer
satisfaction and be of benefit to DEALER and CC.
While the following provisions, each of which is material, set forth the
undertakings of this relationship, the success of those undertakings rests on a
recognition of the mutuality of interests of DEALER and CC, and a spirit of
understanding and cooperation by both parties in the day to day performance of
their respective functions. As a result of such considerations, CC has entered
into this Agreement in reliance upon and has placed its trust in the personal
abilities, expertise, knowledge and integrity of DEALER's principal owners and
management personnel, which CC anticipates will enable DEALER to perform the
personal services contemplated by this Agreement.
It is the mutual goal of this relationship to promote the sale and service of
specified CC products by maintaining and advancing their excellence and
reputation by earning, holding and furthering the public regard for CC and all
CC dealers.
________________________________________________________________________________
1 PRODUCTS COVERED
DEALER has the right to order and purchase from CC and to sell at retail only
those specific models of CC vehicles, sometimes referred to as "specified CC
vehicles," listed on the Motor Vehicle Addendum, attached hereto and
incorporated herein by reference. CC may change the models of CC vehicles listed
on the Motor Vehicle Addendum by furnishing DEALER a superseding Motor Vehicle
Addendum. Such a superseding Motor Vehicle Addendum will not be deemed or
construed to be an amendment to this Agreement.
________________________________________________________________________________
2 DEALER'S MANAGEMENT
CC has entered into this Agreement relying on the active, substantial and
continuing personal participation in the management of DEALER's organization by:
NAME POSITION
Thomas A. Price CEO/President
- ----------------------------- ---------------------------------
Thomas Al Babbington General Manager
- ----------------------------- ---------------------------------
<PAGE>
DEALER represents and warrants that at least one of the above named individuals
will be physically present at the DEALER's facility (sometimes referred to as
"Dealership Facilities") during most of its operating hours and will manage all
of DEALER's business relating to the sale and service of CC products. DEALER
shall not change the personnel holding the above described position(s) or the
nature and extent of his/her/their management participation without the prior
written approval of CC.
________________________________________________________________________________
3 DEALER'S CAPITAL STOCK OR PARTNERSHIP INTEREST
If DEALER is a corporation or partnership, DEALER represents and agrees that the
persons named below own beneficially the capital stock or partnership interest
of DEALER in the percentages indicated below. DEALER warrants there will be no
change affecting more than 50% of the ownership interest of DEALER, nor will
there be any other change in the ownership interest of DEALER which may affect
the managerial control of DEALER without CC's prior written approval.
<TABLE>
<CAPTION>
Voting Non-Voting Partnership Active
Name Stock Stock Interest Yes/No
<S> <C> <C> <C> <C>
_______________________________ _______% __________% ___________% _______
First America Automotive, Inc. 100% __________% ___________% NO
- ------------------------------- ------- -------
_______________________________ _______% __________% ___________% _______
_______________________________ _______% __________% ___________% _______
_______________________________ _______% __________% ___________% _______
Total 100% __________% ___________%
-------
</TABLE>
________________________________________________________________________________
4 SALES LOCALITY
DEALER shall have the non-exclusive right, subject to the provisions of this
Agreement, to purchase from CC those new specified CC vehicles, vehicle parts,
accessories and other CC products for resale at the DEALER's facilities and
location described in the Dealership Facilities and Location Addendum, attached
hereto and incorporated herein by reference. DEALER will actively and
effectively sell and promote the retail sale of CC vehicles, vehicle parts and
accessories in DEALER's Sales Locality. As used herein, "Sales Locality" shall
mean the area designated in writing to DEALER by CC from time to time as the
territory of DEALER's responsibility for the sale of CC vehicles, vehicle parts
and accessories, although DEALER is free to sell said products to customers
wherever they may be located. Said Sales Locality may be shared with other CC
dealers of the same line-make as CC determines to be appropriate.
________________________________________________________________________________
5 ADDITIONAL TERMS AND PROVISIONS
The additional terms and provisions set forth in the document entitled "Chrysler
Corporation Sales and Service Agreement Additional Terms and Provisions" marked
"Form 91 (C-P-D)," as may hereafter be amended from time to time, constitute a
part of this Agreement with the same force and effect as if set forth at length
herein, and the term "this Agreement" includes said additional terms and
provisions.
________________________________________________________________________________
6 FORMER AGREEMENTS, REPRESENTATIONS OR STATEMENTS
This Chrysler Corporation Dodge Sales and Service Agreement and other documents,
(or their successors as specifically provided for herein) which are specifically
incorporated herein by reference constitute the entire agreement between the
parties relating to the purchase by DEALER of those new specified CC vehicles,
parts and accessories from CC for resale; and it cancels and supersedes all
earlier agreements, written or oral, between CC and DEALER relating to the
purchase by DEALER of Dodge vehicles, parts and accessories, except for (a)
amounts owing by CC to DEALER, such as payments for warranty service performed
and incentive programs, or (b) amounts owing or which may be determined to be
owed, as a result of an audit or investigation, by DEALER to CC due to DEALER's
purchase from CC of vehicles, parts, accessories and other goods or services, or
(c) amounts DEALER owes
<PAGE>
to CC as a result of other extensions of credit by CC to DEALER. No
representations or statements, other than those expressly set forth herein or
those set forth in the applications for this Agreement submitted to CC by DEALER
or DEALER's representatives, are made or relied upon by any party hereto in
entering into this Agreement.
________________________________________________________________________________
7 WAIVER AND MODIFICATION
No waiver, modification or change of any of the terms of this Agreement or
change or erasure of any printed part of this Agreement or addition to it
(except the filling in of blank spaces and lines) will be valid or binding on CC
unless approved in writing by the President or a Vice President or the National
Dealer Placement Manager of Chrysler Corporation.
________________________________________________________________________________
8 AMENDMENT
DEALER and CC recognize that this Agreement does not have an expiration date and
will continue in effect unless terminated under the limited circumstances set
forth in Paragraph 28. DEALER and CC further recognize that the passage of time,
changes in the industry ways of doing business and other unforeseen
circumstances may cause CC to determine that it should amend all Chrysler
Corporation Dodge Sales and Service Agreements. Therefore, CC will have the
right to amend this Agreement to the extent that CC deems advisable, provided
that CC makes the same amendment in Chrysler Corporation Dodge Sales and Service
Agreements generally. Each such amendment will be issued in a notice sent by
certified mail or delivered in person to DEALER and signed by the President or a
Vice President or the National Dealer Placement Manager of Chrysler Corporation.
Thirty-five (35) days after mailing or delivery of such notice to DEALER, this
Agreement will be deemed amended in the manner and to the extent set forth in
the notice.
________________________________________________________________________________
9 ARBITRATION
Any and all disputes arising out of or in connection with the interpretation,
performance or non-performance of this Agreement or any and all disputes arising
out of or in connection with transactions in any way related to this Agreement
(including, but not limited to, the validity, scope and enforceability of this
arbitration provision, or disputes under rights granted pursuant to the statutes
of the state in which DEALER is licensed) shall be finally and completely
resolved by arbitration pursuant to the arbitration laws of the United States of
America as codified in Title 9 of the United States Code, (S)(S) 1-14, under the
Rules of Commercial Arbitration of the American Arbitration Association
(hereinafter referred to as the "Rules") by a majority vote of a panel of three
arbitrators. One arbitrator will be selected by DEALER (DEALER's arbitrator).
One arbitrator will be selected by CC (CC's arbitrator). These arbitrators must
be selected by the respective parties within ten (10) business days after
receipt by either DEALER or CC of a written notification from the other party of
a decision to arbitrate a dispute pursuant to this Agreement. Should either CC
or DEALER fail to select an arbitrator within said ten-day period, the party who
so fails to select an arbitrator will have its arbitrator selected by the
American Arbitration Association upon the application of the other party. The
third arbitrator must be an individual who is familiar with business
transactions and be a licensed attorney admitted to the practice of law within
the United States of America, or a judge. The third arbitrator will be selected
by DEALER's and CC's arbitrators. If said arbitrators cannot agree on a third
arbitrator within thirty (30) days from the date of the appointment of the last
selected arbitrator, then either DEALER's or CC's arbitrator may apply to the
American Arbitration Association to appoint said third arbitrator pursuant to
the criteria set forth above. The arbitration panel shall conduct the
proceedings pursuant to the then existing Rules.
Notwithstanding the foregoing, to the extent any provision of the Rules conflict
with any provision of this Paragraph 9, the provisions of this Paragraph 9 will
be controlling.
CC and DEALER agree to facilitate the arbitration by: (a) each party paying to
the American Arbitration Association one-half(1/2) of the required deposit
before the proceedings commence; (b) making available to one another and to the
arbitration panel, for inspection and photocopying all documents, books and
records, if determined by the arbitrator to be relevant to the dispute; (c)
making available to one another and to the arbitration panel personnel directly
or indirectly under their control, for testimony during hearings and prehearing
proceedings if determined by the arbitration panel to be relevant to the
dispute; (d) conducting arbitration hearings to the greatest extent possible on
consecutive business days; and (e) strictly observing the time periods
established by the Rules or by the arbitration panel for the submission of
evidence and of briefs.
<PAGE>
Unless otherwise agreed to by CC and DEALER, a stenographic record of the
arbitration shall be made and a transcript thereof shall be ordered for each
party, with each party paying one-half (1/2) of the total cost of such recording
and transcription. The stenographer shall be state-certified, if certification
is made by the state, and the party to whom it is most convenient shall be
responsible for securing and notifying such stenographer of the time and place
of the arbitration hearing(s).
If the arbitration provision is invoked when the dispute between the parties is
either the legality of terminating this Agreement or of adding a new CC dealer
of the same line-make or relocating an existing CC dealer of the same line-make,
CC will stay the implementation of the decision to terminate this Agreement or
add such new CC dealer or approve the relocation of an existing CC dealer of the
same line-make until the decision of the arbitrator has been announced,
providing DEALER does not in any way attempt to avoid the obligations of this
Paragraph 9, in which case the decision at issue will be immediately
implemented.
Except as limited hereby, the arbitration panel shall have all powers of law and
equity, which it can lawfully assume, necessary to resolve the issues in dispute
including, without limiting the generality of the foregoing, making awards of
compensatory damages issuing both prohibitory and mandatory orders in the nature
of injunctions and compelling the production of documents and witnesses for pre-
arbitration discovery and/or presentation at the arbitration hearing on the
merits of the case. The arbitration panel shall not have legal or equitable
authority to issue a mandatory or prohibitory order which: (a) extends or has
effect beyond the subject matter of this Agreement, or (b) will govern the
activities of either party for a period of more than two years; nor shall the
arbitration panel have authority to award punitive consequential or any
damages whatsoever beyond or in addition to the compensatory damages allowed to
be awarded under this Agreement.
The decision of the arbitration panel shall be in written form and shall include
findings of fact and conclusions of law.
It is the intent and desire of DEALER and CC to hereby and forever renounce and
reject any and all recourse to litigation before any judicial or administrative
forum and to accept the award of the arbitration panel as final and binding,
subject to no judicial or administrative review, except on those grounds set
forth in 9 USC (S) 10 and (S) 11. Judgment on the award and/or orders may be
entered in any court having jurisdiction over the parties or their assets. In
the final award and/or order, the arbitration panel shall divide all costs
(other than attorney fees, which shall be borne by the party incurring such fees
and other costs specifically provided for herein) incurred in conducting the
arbitration in accordance with what the arbitration panel deems just and
equitable under the circumstances. The fees of DEALER's arbitrator shall be paid
by DEALER. The fees of CC's arbitrator shall be paid by CC.
________________________________________________________________________________
10 SIGNATURE
This Agreement becomes valid only when signed by the President or a Vice
President or the National Dealer Placement Manager of Chrysler Corporation and
by a duly authorized officer or executive of DEALER if a corporation; or by one
of the general partners of DEALER if a partnership; or by DEALER if an
individual.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement which is
finally executed at
AUBURN HILLS ,Michigan, in
- -----------------------------------------------------------------
triplicate, on July 07, 1997
-------------------------------------------------------
FAA Serramonte, Inc. dab DODGE OF SERRAMONTE
- ----------------------------------------------------------------------
(Dealer Firm Name and D/B/A/, if applicable)
By: /s/
-------------------------------------------------------------------
(Individual Duly Authorized to Sign)
CEO/President
- ----------------------------------------------------------------------
(Title)
CHRYSLER CORPORATION
By: /s/
-------------------------------------------------------------------
National Dealer
Placement Manager
- ----------------------------------------------------------------------
(Title)
<PAGE>
EXHIBIT 10.7.3
CHRYSLER CORPORATION
DODGE
SALES AND SERVICE AGREEMENT
FAA Dublin VWB, Inc., dba Dublin Dodge
- --------------------------------------------------------------------------------
(DEALER Firm Name and D/B/A, if applicable)
located at 6015 Scarlett Court Dublin, CA
----------------------------------------------------------------------
(STREET) (CITY) (STATE)
a(n) X Corporation hereinafter called DEALER, and
-------------------------------------------
(INDIVIDUAL, CORPORATION OR PARTNERSHIP)
Chrysler Corporation, a Delaware corporation, hereinafter sometimes referred to
as "CC", have entered into this Chrysler Corporation Dodge Sales and Service
Agreement, hereinafter referred to as "Agreement", the terms of which are as
follows:
________________________________________________________________________________
INTRODUCTION
The purpose of the relationship established by this Agreement is to provide a
means for the sale and service of specified Dodge vehicles and the sale of CC
vehicle parts and accessories in a manner that will maximize customer
satisfaction and be of benefit to DEALER and CC.
While the following provisions, each of which is material, set forth the
undertakings of this relationship, the success of those undertakings rests on a
recognition of the mutuality of interests of DEALER and CC, and a spirit of
understanding and cooperation by both parties in the day to day performance of
their respective functions. As a result of such considerations, CC has entered
into this Agreement in reliance upon and has placed its trust in the personal
abilities, expertise, knowledge and integrity of DEALER's principal owners and
management personnel, which CC anticipates will enable DEALER to perform the
personal services contemplated by this Agreement.
It is the mutual goal of this relationship to promote the sale and service of
specified CC products by maintaining and advancing their excellence and
reputation by earning, holding and furthering the public regard for CC and all
CC dealers.
________________________________________________________________________________
1 PRODUCTS COVERED
DEALER has the right to order and purchase from CC and to sell at retail only
those specific models of CC vehicles, sometimes referred to as "specified CC
vehicles," listed on the Motor Vehicle Addendum, attached hereto and
incorporated herein by reference. CC may change the models of CC vehicles listed
on the Motor Vehicle Addendum by furnishing DEALER a superseding Motor Vehicle
Addendum. Such a superseding Motor Vehicle Addendum will not be deemed or
construed to be an amendment to this Agreement.
________________________________________________________________________________
2 DEALER'S MANAGEMENT
CC has entered into this Agreement relying on the active, substantial and
continuing personal participation in the management of DEALER's organization by:
NAME POSITION
Thomas A. Price President
- ----------------------------- --------------------------------
Steven S. Hallock Sec/Tres
- ----------------------------- --------------------------------
<PAGE>
DEALER represents and warrants that at least one of the above named individuals
will be physically present at the DEALER's facility (sometimes referred to as
"Dealership Facilities") during most of its operating hours and will manage all
of DEALER's business relating to the sale and service of CC products. DEALER
shall not change the personnel holding the above described position(s) or the
nature and extent of his/her/their management participation without the prior
written approval of CC.
________________________________________________________________________________
3. DEALER'S CAPITAL STOCK OR PARTNERSHIP INTEREST
If DEALER is a corporation or partnership, DEALER represents and agrees that the
persons named below own beneficially the capital stock or partnership interest
of DEALER in the percentages indicated below. DEALER warrants there will be no
change affecting more than 50% of the ownership interest of DEALER, nor will
there be any other change in the ownership interest of DEALER which may affect
the managerial control of DEALER without CC's prior written approval.
<TABLE>
<CAPTION>
Voting Non-Voting Partnership Active
Name Stock Stock Interest Yes/No
<S> <C> <C> <C> <C>
______________________________ ________% __________% ___________% ___________
First America Automotive, Inc. 100% __________% ___________% NO
- ------------------------------ -------- ----------
______________________________ ________% __________% ___________% __________
______________________________ ________% __________% ___________% __________
______________________________ ________% __________% ___________% __________
Total 100% __________% ___________%
--------
</TABLE>
________________________________________________________________________________
4. SALES LOCALITY
DEALER shall have the non-exclusive right, subject to the provisions of this
Agreement, to purchase from CC those new specified CC vehicles, vehicle parts,
accessories and other CC products for resale at the DEALER's facilities and
location described in the Dealership Facilities and Location Addendum, attached
hereto and incorporated herein by reference. DEALER will actively and
effectively sell and promote the retail sale of CC vehicles, vehicle parts and
accessories in DEALER's Sales Locality. As used herein, "Sales Locality" shall
mean the area designated in writing to DEALER by CC from time to time as the
territory of DEALER's responsibility for the sale of CC vehicles, vehicle parts
and accessories, although DEALER is free to sell said products to customers
wherever they may be located. said Sales Locality may be shared with other CC
dealers of the same line-make as CC determines to be appropriate.
________________________________________________________________________________
5. ADDITIONAL TERMS AND PROVISIONS
The additional terms and provisions set forth in the document entitled "Chrysler
Corporation Sales and Service Agreement Additional Terms and Provisions" marked
"Form 91 (C-P-D)," as may hereafter be amended from time to time, constitute a
part of this Agreement with the same force and effect as if set forth at length
herein, and the term "this Agreement" includes said additional terms and
provisions.
________________________________________________________________________________
6. FORMER AGREEMENTS, REPRESENTATIONS OR STATEMENTS
This Chrysler Corporation Dodge Sales and Service Agreement and other documents,
(or their successors as specifically provided for herein) which are specifically
incorporated herein by reference constitute the entire agreement between the
parties relating to the purchase by DEALER of those new specified CC vehicles,
parts and accessories from CC for resale; and it cancels and supersedes all
earlier agreements, written or oral, between CC and DEALER relating to the
purchase by DEALER of Dodge vehicles, parts and accessories, except for (a)
amounts owing by CC to DEALER, such as payments for warranty service performed
and incentive programs, or (b) amounts owing or which may be determined to be
owed, as a result of an audit or investigation, by DEALER to CC due to DEALER's
purchase from CC of vehicles, parts, accessories and other goods or services, or
(c) amounts DEALER owes
<PAGE>
to CC as a result of other extensions of credit by CC to DEALER. No
representations or statements, other than those expressly set forth herein or
those set forth in the applications for this Agreement submitted to CC by DEALER
or DEALER's representatives, are made or relied upon by any party hereto in
entering into this Agreement.
________________________________________________________________________________
7. WAIVER AND MODIFICATION
No waiver, modification or change of any of the terms of this Agreement or
change or erasure of any printed part of this Agreement or addition to it
(except the filling in of blank spaces and lines) will be valid or binding on CC
unless approved in writing by the President or a Vice President or the National
Dealer Placement Manager of Chrysler Corporation.
________________________________________________________________________________
8. AMENDMENT
DEALER and CC recognize that this Agreement does not have an expiration date and
will continue in effect unless terminated under the limited circumstances set
forth in Paragraph 28. DEALER and CC further recognize that the passage of time,
changes in the industry, ways of doing business and other unforeseen
circumstances may cause CC to determine that it should amend all Chrysler
Corporation Dodge Sales and Service Agreements. Therefore, CC will have the
right to amend this Agreement to the extent that CC deems advisable, provided
that CC makes the same amendment in Chrysler Corporation Dodge Sales and Service
Agreements generally. Each such amendment will be issued in a notice sent by
certified mail or delivered in person to DEALER and signed by the President or a
Vice President or the National Dealer Placement Manager of Chrysler Corporation.
Thirty-five (35) days after mailing or delivery of such notice to DEALER, this
Agreement will be deemed amended in the manner and to the extent set forth in
the notice.
________________________________________________________________________________
9. ARBITRATION
Any and all disputes arising out of or in connection with the interpretation,
performance or non-performance of this Agreement or any and all disputes arising
out of or in connection with transactions in any way related to this Agreement
(including, but not limited to, the validity, scope and enforceability of this
arbitration provision, or disputes under rights granted pursuant to the statutes
of the state in which DEALER is licensed) shall be finally and completely
resolved by arbitration pursuant to the arbitration laws of the United States of
America as codified in Title 9 of the United States Code, (S)(S) 1-14, under the
Rules of Commercial Arbitration of the American Arbitration Association
(hereinafter referred to as the "Rules") by a majority vote of a panel of three
arbitrators. One arbitrator will be selected by DEALER (DEALER's arbitrator).
One arbitrator will be selected by CC (CC's arbitrator). These arbitrators must
be selected by the respective parties within ten (10) business days after
receipt by either DEALER or CC of a written notification from the other party of
a decision to arbitrate a dispute pursuant to this Agreement. Should either CC
or DEALER fail to select an arbitrator within said ten-day period, the party who
so fails to select an arbitrator will have its arbitrator selected by the
American Arbitration Association upon the application of the other party. The
third arbitrator must be an individual who is familiar with business
transactions and be a licensed attorney admitted to the practice of law within
the United States of America, or a judge. The third arbitrator will be selected
by DEALER's and CC's arbitrators. If said arbitrators cannot agree on a third
arbitrator within thirty (30) days from the date of the appointment of the last
selected arbitrator, then either DEALER's or CC's arbitrator may apply to the
American Arbitration Association to appoint said third arbitrator pursuant to
the criteria set forth above. The arbitration panel shall conduct the
proceedings pursuant to the then existing Rules.
Notwithstanding the foregoing, to the extent any provision of the Rules conflict
with any provision of this Paragraph 9, the provisions of this Paragraph 9 will
be controlling.
CC and DEALER agree to facilitate the arbitration by: (a) each party paying to
the American Arbitration Association one-half(1 1/2) of the required deposit
before the proceedings commence; (b) making available to one another and to the
arbitration panel, for inspection and photocopying all documents, books and
records, if determined by the arbitrator to be relevant to the dispute; (c)
making available to one another and to the arbitration panel personnel directly
or in directly under their control, for testimony during hearings and prehearing
proceedings if determined by the arbitration panel to be relevant to the
dispute; (d) conducting arbitration hearings to the greatest extent possible on
consecutive business days; and (e) strictly observing the time periods
established by the Rules or by the arbitration panel for the submission of
evidence and of briefs.
<PAGE>
Unless otherwise agreed to by CC and DEALER, a steno-graphic record of the
arbitration shall be made and a transcript there of shall be ordered for each
party, with each part) paying one-half (1/2) of the total cost of such recording
and transcription. The stenographer shall be state-certified, if certification
is made by the state, and the party to whom it is most convenient shall be
responsible for securing and notifying such stenographer of the time and place
of the arbitration hearing(s).
If the arbitration provision is invoked when the dispute between the parties is
either the legality of terminating this Agreement or of adding a new CC dealer
of the same line make or relocating an existing CC dealer of the same line make,
CC will stay the implementation of the decision to terminate this Agreement or
add such new CC dealer or approve the relocation of an existing CC dealer of the
same line-make until the decision of the arbitrator has been announced,
providing DEALER does not in any way attempt to avoid the obligations of this
Paragraph 9, in which case the decision at issue will be immediately
implemented.
Except as limited hereby, the arbitration panel shall have all powers of law and
equity, which it can lawfully assume, necessary to resolve the issues in dispute
including, without limiting the generality of the foregoing, making awards of
compensatory damages issuing both prohibitory and mandatory orders in the nature
of injunctions and compelling the production of documents and witnesses for pre-
arbitration discovery and/or presentation at the arbitration hearing on the
merits of the case. The arbitration panel shall not have legal or equitable
authority to issue a mandatory or prohibitory order which: (a) extends or has
effect beyond the subject matter of this Agreement, or (b) will govern the
activities of either party for a period of more than two years; nor shall the
arbitration panel have authority to award punitive consequential or any damages
whatsoever beyond or in addition to the compensatory damages allowed to be
awarded under this Agreement.
The decision of the arbitration panel shall be in written form and shall include
findings of fact and conclusions of law.
It is the intent and desire of DEALER and CC to hereby and forever renounce and
reject any and all recourse to litigation before any judicial or administrative
forum and to accept the award of the arbitration panel as final and binding,
subject to no judicial or administrative review, except on those grounds set
forth in 9 USC (S) 10 and (S) 11. Judgment on the award and/or orders may be
entered in any court having jurisdiction over the parties or their assets. In
the final award and/or order, the arbitration panel shall divide all costs
(other than attorney fees, which shall be borne by the party incurring such fees
and other costs specifically provided for herein) incurred in conducting the
arbitration in accordance with what the arbitration panel deems just and
equitable under the circumstances. The fees of DEALER's arbitrator shall be paid
by DEALER. The fees of CC's arbitrator shall be paid by CC.
________________________________________________________________________________
10. SIGNATURE
This Agreement becomes valid only when signed by the President or a Vice
President or the National Dealer Placement Manager of Chrysler Corporation and
by a duly authorized officer or executive of DEALER if a corporation; or by one
of the general partners of DEALER if a partnership; or by DEALER if an
individual.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement which is
finally executed at
AUBURN HILLS Michigan, in triplicate, on July 18, 1997
- ------------------------- ----------------
FAA DUBLIN VWD, Inc., dda Dublin Dodge
- -----------------------------------------------
(DEALER Firm Name and D/B/A/, if applicable)
By /s/
- -----------------------------------------------
(Individual Duly Authorized to Sign)
President
- -----------------------------------------------
(Title)
CHRYSLER CORPORATION
By /s/
--------------------------------------------
National Dealer
Placement Manager
- -----------------------------------------------
(Title)
<PAGE>
EXHIBIT 10.8
================================================================================
PONTIAC-GMC DIVISION
PONTIAC DEALER SALES AND SERVICE AGREEMENT
In reliance upon the agreement by the parties to fulfill their respective
commitments, this Agreement, effective JUNE 30, 1997, is entered into by
General Motors Corporation, Pontiac ("PONTIAC"), a Delaware corporation, and
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC , a
--------------------------------------------------------------------------
[X] CALIFORNIA corporation, incorporated on NOVEMBER 20, 1980;
[_] proprietorship;
[_] partnership;
[_] other - specify_______________________________________________________
doing business at 600 SERRAMONTE BLVD.
--------------------------------------------------
COLMA, CALIFORNIA 94014-3218 ("Dealer").
--------------------------------------------------
PREAMBLE
--------
The future of PONTIAC and PONTIAC dealers depends on setting and meeting high
standards of excellence. We will succeed by achieving total customer enthusiasm
through selling and servicing vehicles with innovative styling and engineering
as well as outstanding performance and roadability.
PONTIAC'S Dealer Sales and Service Agreement is intended to clarify and
strengthen the business relationship between PONTIAC and PONTIAC dealers.
PONTIAC recognizes the need for open and candid communication with dealers so
that mutual goals are achieved. Sharing responsibility and accountability will
improve cooperation.
PONTIAC will offer and promote innovative and exciting Products and provide
competitive programs and services that assist dealers. Dealers will ethically
promote and advertise PONTIAC vehicles and related products and provide quality
sales and service through a professional staff that includes knowledgeable and
well-trained service technicians and sales personnel.
First TERM OF AGREEMENT
- ----- -----------------
This Agreement shall expire on OCTOBER 31, 2000, or ninety days after the death
or incapacity of a Dealer Operator or Dealer Owner, whichever occurs first,
unless earlier terminated. Dealer is assured the opportunity to enter into a new
Dealer Agreement with PONTIAC at the expiration date if PONTIAC determines
Dealer has fulfilled its obligations under this Agreement.
Second INCORPORATION OF STANDARD PROVISIONS
- ------ ------------------------------------
The "Standard Provisions" (Form GMMS 1013) are incorporated as a part of this
Agreement.
================================================================================
<PAGE>
Eighth ADVERTISING AND PROMOTIONAL ACTIVITIES
- ------ --------------------------------------
Dealer shall promote the reputation of PONTIAC Products in the conduct of its
business. PONTIAC and Dealer shall not use any advertising or promotional
activity that may be harmful to that reputation. PONTIAC and Dealer shall not
engage in any unethical practices.
Ninth TRAINING
- ----- --------
PONTIAC and Dealer agree that professional and knowledgeable sales and service
personnel are essential to a satisfactory customer sales and service experience.
PONTIAC commits to providing training to its personnel. PONTIAC also agrees to
make available new Product and service training to all dealers. Dealer agrees
that it will require its personnel to attend training identified by PONTIAC as
necessary. If PONTIAC identifies Dealer deficiencies, Dealer agrees that its
sales and service personnel will complete courses specified by PONTIAC to
address those deficiencies. PONTIAC agrees to consult with the established
dealer advisory committee before adopting additional required training. PONTIAC
will consider the committee's recommendations as to content, cost and frequency
of additional required training.
Tenth DEALER FACILITY APPEARANCE
- ----- --------------------------
Customers have high expectations for PONTIAC, its Products and dealers. As the
point of customer contact with PONTIAC Products, dealership Premises play a
significant role in determining whether a customer's sales and service
experience is consistent with these expectations. PONTIAC and Dealer recognize
it is essential that PONTIAC'S image and identity be reinforced at the
dealership level. Dealer therefore agrees to provide facilities that meet, in
appearance and quality, PONTIAC'S reasonable requirements. To assist Dealer,
PONTIAC will counsel and advise Dealer concerning facility appearance and
design. PONTIAC agrees to consult with the established dealer advisory committee
when developing appearance guidelines.
Eleventh TOOLS AND EQUIPMENT
- -------- -------------------
PONTIAC and Dealer acknowledge that a properly equipped dealership promotes
customer satisfaction and sale of PONTIAC Products. PONTIAC agrees to provide
Dealer with lists of essential tools and necessary equipment. PONTIAC will
endeavor to select tools and equipment whose acquisition cost is reasonable.
Dealer agrees that it will acquire and use essential tools and necessary
equipment identified by PONTIAC. PONTIAC agrees to consult with the established
dealer advisory committee prior to recommending or requiring tools or equipment
other than those determined by PONTIAC to be essential or necessary.
Twelfth BUSINESS PLANNING
- ------- -----------------
PONTIAC has established a business planning process to assist dealers. Dealer
agrees to prepare and submit any reasonable business plan required by PONTIAC.
PONTIAC agrees to provide Dealer with information specific to its dealership and
to assist Dealer in its business planning. PONTIAC agrees to improve the
business planning process based on experience with it and to consult with the
established dealer advisory committee before making substantive changes to the
process.
Thirteenth DEALER SALES AND SERVICE REVIEW
- ---------- -------------------------------
PONTIAC'S willingness to enter into this agreement with Dealer is based in part
on Dealer's commitment to effectively sell and promote the purchase, lease and
use of PONTIAC Products in Dealer's Area of Primary Responsibility ("APR"). The
success of PONTIAC and Dealer depends to a substantial degree on Dealer's taking
advantage of available sales opportunities.
<PAGE>
EXECUTION OF AGREEMENT
----------------------
This Agreement and related agreements are valid only if signed:
(a) on behalf of Dealer by its duly authorized representative and, in the
case of this Agreement, by its Dealer Operator; and
(b) this Agreement as set forth below, on behalf of PONTIAC by its General
Sales and Service Manager and his authorized representative. All
related agreements will be executed by the General Sales and Service
Manager or his authorized representative.
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC
-----------------------------------------------------------------------------
Dealer Firm Name
PONTIAC-GMC DIVISION
General Motors Corporation
By /s/ 6/30/97 By /s/
------------------------------------- ----------------------------------
Dealer Operator Date General Sales an Service Manager
By /s/ 7/14/97
---------------------------------
Authorized Representative Date
<PAGE>
================================================================================
PONTIAC-GMC DIVISION
GMC DEALER SALES AND SERVICE AGREEMENT
This Agreement, effective JUNE 30, 1997, is entered into by General Motors
Corporation, GMC ("GMC"), a Delaware corporation, and
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC , a
------------------------------------------------------------------------
[X] CALIFORNIA corporation, incorporated on NOVEMBER 20, 1980;
[_] proprietorship;
[_] partnership;
[_] other - specify_______________________________________________________
doing business at 600 SERRAMONTE BLVD.
--------------------------------------------------
COLMA, CALIFORNIA 94014-3218 ("Dealer").
--------------------------------------------------
PREAMBLE
--------
GMC and its Dealer Partners... Leaders in Delivering Best-In-Class Trucks, Vans
and Innovative Services with a Personal Touch Achieving Total Customer
Enthusiasm.
To attain these goals, GMC and its Dealer Partners firmly acknowledge:
That achieving total customer enthusiasm must be the objective of
every endeavor;
That continuous improvement is critical to our ongoing success;
That teamwork is essential to our survival;
That mutual trust and respect are absolute.
GMC is committed to providing good value to dealers and customers through sound
marketing, sales and service programs, quality products, effective resource
deployment, simplified administrative activities, and effective communications.
GMC is committed to building a business relationship of preference for General
Motors dealers.
In pursuit of total customer enthusiasm, it is essential that GMC and its Dealer
Partners work closely in a spirit of mutual trust and continuous improvement.
This Agreement is founded on these mutually shared business goals, and is based
upon certain mutual commitments:
================================================================================
<PAGE>
Fifth
- -----
DEALER SALES AND SERVICE REPORTS
--------------------------------
At least once a year GMC will provide to Dealer written reports on Dealer's
sales, service and customer satisfaction performance.
The sales report will provide Dealer with specific information relating to the
minimum number of retail units GMC expected to register as its percentage of
market share and compare Dealer's retail sales to those Expected registrations.
A Retail Sales Index of 100 is the minimum standard for Dealer to be considered
in compliance with its commitment under Article 5.1 to effectively sell and
promote the purchase, lease and use of GMC Products. GMC also expects Dealer to
pursue available sales opportunities exceeding the minimum acceptable standard.
Dealers authorized to sell and service GMC medium duty product will be provided
specific information relating to the total medium truck business available in
the Dealer's APR. GMC will review the service and customer satisfaction
performance of Dealer and provide Dealer with a written report or reports at
least once a year. The reports will be based primarily on customer responses to
owner survey questions. GMC will consult with the National Dealer Council before
deciding to materially change the way these reports are developed.
Dealer's performance based upon expected performance levels will become the
target toward which Dealer attains continuous improvement. The Business Plan
provides the process by which Dealer continually improves.
GMC will provide periodic updates of marketing data that reflect market
conditions within Dealer's APR.
Sixth
- -----
CUSTOMER ENTHUSIASM
-------------------
GMC and Dealer recognize that it is in our mutual interest to deliver products
and services that exceed customer expectations. GMC and Dealer will use the
procedures designated in GM's Service Policies and Procedures Manual to resolve
customer complaints. Periodically, GMC will survey customers of Dealers to
determine their overall satisfaction with their selling and servicing dealer.
GMC will review Dealer's performance of the Standards for customer enthusiasm.
At least annually GMC will inform Dealer in writing of its Customer Satisfaction
Information ("CSI") for overall satisfaction based upon both purchase/delivery
experience and service experience. GMC will relate this index to comparable
indices representing local and national geography. If Dealer's index places
Dealer in an unsatisfactory position when compared to other dealers for more
than one year, Dealer will, at GMC's request, participate in a comprehensive
review of Dealer's performance and plan for improvement. Before making any
changes to the CSI procedure, GMC will consult with the appropriate Dealer
Council committee.
Seventh
- -------
COMMUNICATIONS/DEALERSHIP EQUIPMENT
-----------------------------------
To improve Dealer and GMC communications and customer enthusiasm, and to enhance
value to Dealer, Dealer will install and maintain the systems, equipment and
supporting software as required by GMC. Such systems, equipment and support
software includes but may not be limited to:
. Dealer Communication System (DCS) and trained DCS operators
. GM Pulsat Network
. GM PROSPEC
<PAGE>
Ninth
- -----
Dealer will prominently use GMC's marks on all Dealer advertising, merchandising
and other literature. Dealer will also include GMC in its name whenever Dealer
name includes the name of other vehicle name plates or brands.
GMC will consult with the National Dealer Council before deciding to modify
facility requirements.
Tenth
- -----
DEALER ADVERTISING
------------------
GMC supports dealer advertising associations and encourages Dealer to support
and participate in an advertising association in its respective area.
Eleventh
- --------
DEALER COUNCIL REPRESENTATION
-----------------------------
GMC will support two National Dealer Councils comprised of a representative
number of dealers, elected by GMC and Chevrolet Medium Duty Truck dealers as
appropriate, who will convey the concerns of dealers to GMC. A Light Duty
National Dealer Council will be comprised of GMC light truck dealers, and a
Medium Duty National Dealer Council comprised of GMC and Chevrolet Medium Truck
dealers. The National Dealer Council representatives, GMC management, and GMC
dealers will serve jointly on committees which are created to focus on issues of
mutual concern to dealers and GMC. Chevrolet Medium Truck dealers will serve on
Medium Duty Council committees. GMC will meet with its National Dealer Council
periodically to review those concerns and other mutual business issues.
The responsibility of the GMC National Dealer Council is to develop and maintain
a business relationship between GMC and the dealer body that fosters the mutual
interests of both Dealer and GMC. Council representatives will communicate with
the dealer body in the Zone/Area they are representing by providing feedback on
dealer council activities and informing the Dealer Council and GMC of dealer
body concerns.
Twelfth
- -------
BUSINESS MANAGEMENT RESPONSIBILITY
----------------------------------
If Dealer is an authorized dealer for more than one division of General Motors,
PONTIAC-GMC DIVISION 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. PONTIAC-GMC DIVISION will execute or extend those documents for all
divisions.
Thirteenth
- ----------
DISPUTE RESOLUTION
------------------
GMC and Dealer expect their differences will be few. If Dealer believes that a
decision by GMC is unfair, Dealer may have it reviewed by GMC management so that
it can be addressed and, if possible, resolved. Management review will promote a
better understanding of the positions of GMC and Dealer and will provide for the
mutually satisfactory resolution of most issues. However, if Dealer is not
satisfied with the results of management review, Dealer is encouraged to submit
the dispute to arbitration under the Dispute Resolution Process. The steps by
which Dealer can seek management review and arbitration are described in a
separate booklet (currently, GMMS 1019).
<PAGE>
[LETTERHEAD OF PONTIAC . GMC]
June 30, 1997
Serramonte Pontiac-Buick-GMC
600 Serramonte Blvd.
Colma, CA 94014-3218
Attention: Dealer Operator
Dear Mr. Thomas A. Price:
This letter is written by Pontiac-GMC Division (hereinafter called "Pontiac")
with Pontiac as Business Management Responsibility and will confirm our
discussions regarding your request that Pontiac approve the ownership of your
dealer entity by a Holding Company known as FirstAmerica Automotive, Inc.
The General Motors Corporation Dealer Sales and Service Agreement is a personal
service contract and is entered into in reliance on the agreement of Pontiac and
Dealer that certain person or persons specifically named in Paragraph THIRD
therein as Dealer Operator will actively exercise full managerial authority in
the Dealership Operations of Dealer, and that all Owners of Dealer will each
continue to own both of record and beneficially, the percentage of ownership
represented by Dealer in the Dealer Statement of Ownership approved by General
Motors.
Experience over the years has shown that successful dealerships, in general, are
those in which the individual or individuals who operate the dealership are also
the ones who enjoy the financial benefits resulting from their successful
management. It has also been found that a dealership cannot generally be
operated satisfactorily where the handling of operating details are subject to
actual or potential interference by parties who are solely financial
participants.
Further, it has been Pontiac's policy for many years that Pontiac be able to
identify and approve each party participating in the financial ownership and
general management of dealerships selling and servicing its automotive products.
Occasionally, Pontiac receives requests from a dealer or the owners of a
dealership that they be authorized to have some of the stock interest in the
dealer entity held by or assigned or transferred to a holding company. Past
experience indicates that the holding of a stock interest in the dealer entity
by such groups tends to create operating problems and other difficulties in the
dealership's business operations, and such type of ownership would, in many
instances, be inconsistent with the intent and purpose of the successor and
replacement dealer provisions of the Dealer Agreement.
For reasons such as these, Pontiac has had an operating policy that a Dealer
Agreement would not be executed with an entity whose ownership is held
indirectly. However, it is recognized that occasionally a situation may arise
where indirect ownership is composed of the same person or persons as those with
whom Pontiac is doing business in the particular dealership. In such cases, this
policy provides that Pontiac may approve the holding of stock in the dealer
entity by such group, with the express provision that there be no change unless
such change has first been accepted in writing by Pontiac, and further
<PAGE>
provided that the dealer operator shall own an unencumbered interest in the
dealer company and/or the parent company that is at least equivalent to 15% of
the dealer company net worth.
You have represented and certified to Pontiac that all of the ownership of
FirstAmerica Automotive, Inc., a Holding Company organized on 1/25/85, in the
State of Nevada, is as set forth on Attachment "A" hereto.
After considering all matters relevant to your request, Pontiac hereby approves
your request subject to the condition and understanding that the ownership of
Transcar Leasing, Inc, as set forth on Attachment "A" hereto, will not be
changed without the prior written approval of Pontiac which will be evidenced
solely by means of an accepted replacement Attachment "A" duly signed on behalf
of Pontiac. It is recognized that failure to obtain such prior written approval
will constitute cause for termination of the Dealer Agreement under Article 14.5
thereof. Transcar Leasing, Inc. agrees to maintain accurate records reflecting
the owners and manager of Transcar Leasing, Inc. and to provide a new Attachment
"A" to Dealer and Pontiac upon request.
Very truly yours,
PONTIAC-GMC DIVISION
General Motors Corporation
/s/ Maurice Williams
Maurice Williams
Regional Manager
cc: Buick Division
Attachments
Agreed and Acknowledged
This 30 day of June, 1997
Transcar Leasing, Inc.
By: /s/ Thomas A. Price
--------------------------
Thomas A. Price
<PAGE>
ATTACHMENT "A" TO "LETTER AGREEMENT"
WITH PONTIAC-GMC DIVISION
Dated: June 30, 1997
---------------------------------------------------------
Statement of Ownership of
TRANSCAR LEASING, INC.
As of June 30, 1997
In accordance with the provisions of the Letter Agreement dated June 30, 1997,
between Pontiac-GMC Division, General Motors Corporation, and Transcar Leasing,
Inc., the undersigned hereby represents and certifies to Pontiac-GMC Division
that the following information pertaining to record and/or beneficial ownership
of the Transcar Leasing, Inc. and the Holding Company known as FirstAmerica
Automotive, Inc. are true, accurate and complete:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Owner/Entity Shares % Owned
- --------------------------------------------------------------------------------
<S> <C> <C>
Thomas A. Price 6,012,000 39.93%
TCW/Crescent Mezzinine Partners, L.P. 3,032,000 20.14%
Donald V. Strough 1,580,000 10.49%
Fred Cziska 688,000 4.57%
Al Babbington 626,000 4.16%
Steven Hallock 480,000 3.19%
John Driebe 204,000 1.36%
Management Options 455,000 3.02%
Embarcadero Automotive, LLC 590,000 3.92%
Raintree Capital, LLC 590,000 3.92%
Brown, Gibbons & Lang, LLC 303,000 2.01%
BB Investments 340,000 2.26%
H. Matthew Travis 20,000 .13%
Minority Shareholders 340,000 .90%.
</TABLE>
Total - 100%
----
Net Worth As of April, 1997 - $2,411,476
----------
Transcar Leasing, Inc.
By: /s/ Thomas A. Price
--------------------------------
Thomas A. Price, President
Ownership of Transcar Leasing, Inc. and FirstAmerica Automotive, Inc. are
accepted as represented above.
PONTIAC-GMC DIVISION
GENERAL MOTORS CORPORATION
By: /s/ Maurice Williams
------------------------------------
Maurice Williams, Regional Manager
7/14/97
-------------------------------------
Date
<PAGE>
================================================================================
DEALER STATEMENT OF OWNERSHIP
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC
--------------------------------------------------------------------
Dealer Firm Name
COLMA, CALIFORNIA
------------------------------------------------------
City, State
[_] a proprietorship, [_] a partnership or [X] a corporation incorporated on
NOVEMBER 20, 1980 in the State of CALIFORNIA
[_] other - specify __________________________________________________________
The undersigned Dealer hereby certifies that the following information is true,
accurate and complete, as of JUNE 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Names and Titles of all individuals, Active If a Corporation, Show Number Value of the Owner- Percentage
beneficiaries of trust or other entities in of Shares and Class ship Interest of Each of
owning 5% or more of Dealer and entitled Dealer- ------------------------------ Person Listed Based Ownership
to receive dividends or profits from ship Type* Voting on Dealership's of Record
Dealer as a result of ownership. (Yes or Number or (Yes or Current Net Worth in Dealer
No) Shares Class No)
(Identify Holding Company owners on GMMS 1014-4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIRSTAMERICA AUTOMOTIVE, INC. NO 5,055,152.00 COMM A YES $ 2,411,476 100.00 %
- ------------------------------------------------------------------------------------------------------------------------------------
THOMAS A. PRICE
PRESIDENT YES $ 0 0 %
- ------------------------------------------------------------------------------------------------------------------------------------
$ %
- ------------------------------------------------------------------------------------------------------------------------------------
$ %
- ------------------------------------------------------------------------------------------------------------------------------------
$ %
- ------------------------------------------------------------------------------------------------------------------------------------
$ %
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL XXX 5,055,152.00 COMM A XXX $ 2,411,476 100.00 %
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Indicate various classes of common or preferred stock issued. State Par Value
of each share of preferred stock
Remarks:
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC
-------------------------------------------------------------------------
Dealer Firm Name
PONTIAC-GMC DIVISION
GENERAL MOTORS CORPORATION
By [SIGNATURE ILLEGIBLE] 6/30/97 By [SIGNATURE ILLEGIBLE] 7/14/97
------------------------------------ ---------------------------------
Signature and Title Date ZONE MANAGER Date
================================================================================
<PAGE>
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC
------------------------------------------------------------------------
Dealer Firm Name
COLMA, CALIFORNIA
--------------------------------------------------
City, State
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
List below any person named on Page 1 that has any ownership in, or is active in the management of, any other
entity that merchandises motor vehicles other than those marketed by General Motors.
- --------------------------------------------------------------------------------------------------------------------------
Name Firm Name, Address and Position and Product Line(s)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
THOMAS A. PRICE STEVENS CREEK NISSAN
SANTA CLARA , CALIFORNIA
PRESIDENT
NISSA
THOMAS A. PRICE DODGE OF SERRAMONTE
COLMA , CALIFORNIA
PRESIDENT
DODGE
THOMAS A. PRICE NISSAN OF SERRAMONTE
COLMA , CALIFORNIA
PRESIDENT
NISSA
THOMAS A. PRICE ISUZU OF SERRAMONTE
COLMA , CALIFORNIA
PRESIDENT
ISUZU
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF HOLDING COMPANY OWNERSHIP
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC
------------------------------------------------------------------------
Dealer Firm Name
COLMA, CALIFORNIA
----------------------------------------------------
City, State
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
INVESTORS FOR PERCENT OF
FIRSTAMERICA AUTOMOTIVE, INC. OWNERSHIP
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
THOMAS A. PRICE 39.93 %
- -----------------------------------------------------------------------------------------------------------------------
TCW/CRESCENT MEZZININE PARTNER 20.14 %
- -----------------------------------------------------------------------------------------------------------------------
DONALD V. STROUGH 10.49 %
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
CAPITAL STANDARD ADDENDUM
TO
GENERAL MOTORS CORPORATION
DEALER SALES AND SERVICE AGREEMENT
This Capital Standard Addendum, effective JUNE 30 1997, is pursuant to Article
10 of the Dealer Sales and Service Agreement in effect between General Motors
and Dealer.
General Motors has determined that the minimum net working capital (standard)
necessary for this Dealer to adequately conduct Dealership Operations
consistent with the Dealer's responsibilities is $ 1,000,000.00.
Dealer has established, or will, within a reasonable time, establish and
maintain actual dealer net working capital in an amount not less than the
minimum amount specified above.
GENERAL MOTORS
DEALER CAPITAL STANDARD PROGRAM
General Motors Corporation has endeavored, through the General Motors Capital
Standard Program, to help dealers develop sound financial positions. Over the
years, this Program has contributed substantially to the effectiveness and
relative permanency of General Motors dealers as a whole.
The purpose of the General Motors Dealers Capital Standard Program is to
establish the minimum amount of regularly needed net working capital which
should be provided by the owners through capital stock, other investment and
earnings.
A minimum net working capital standard is established for each dealer based on
the dealership operations it is expected to conduct under its Dealer Sales and
Service Agreement(s). Dealer having actual net working capital equal to the
standard established for the dealership operations contemplated at its
dealership location should have net working capital sufficient to operate
through normal variations in the business cycle, provided its management
prudently maximizes the use of those funds.
Net working capital, as it is commonly understood, is the difference between
current assets and current liabilities without reference to the source from
which the working capital has been obtained. As used herein, however, the
actual dealer net working capital to be compared to the standard shall be
determined by arriving at the sum of Total Current Assets plus Driver Training
Vehicles, Lease and Rental Units and Total Accumulated LIFO Writedown minus the
sum of Total Liabilities excluding those listed below.
Those liabilities which are not subtracted are:
1. Long term notes payable which are qualified long term debt. Qualified
long term debt is defined by the following criteria:
a. The note must be payable to an owner of Dealer.
b. Principal payments must be restricted to profits.
c. The amount to be excluded is limited to 50% of the standard.
This exception is made because an owner would be less inclined to collect
on a note payable at maturity than an outside creditor when payment of
such a note would place the dealership in financial jeopardy.
2. Long term notes payable secured by real property.
This exception is made because dealers are not required to own land and
buildings which they use. Many dealers, however, elect to acquire and
hold title to all or a portion of such real property, thereby investing a
portion of the total equity capital in land and buildings which would
otherwise be available for working capital purposes.
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC
---------------------------------------------------------------------------
Dealer Firm Name
COLMA, CALIFORNIA
--------------------------------------------
City, State
PONTIAC-GMC DIVISION
GENERAL MOTORS CORPORATION
By /s/
----------------------------------------
ZONE MANAGER Date
================================================================================
<PAGE>
================================================================================
DEALER STATEMENT OF OWNERSHIP
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC
--------------------------------------------------------------------------
Dealer Firm Name
COLMA, CALIFORNIA
------------------------------------------------------
City, State
[_] a proprietorship, [_] a partnership or [X] a corporation incorporated on
NOVEMBER 20, 1980 in the State of CALIFORNIA
[_] other - specify __________________________________________________________
The undersigned Dealer hereby certifies that the following information is true,
accurate and complete, as of JUNE 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Names and Titles of all individuals, Active If a Corporation, Show Number Value of the Owner- Percentage
beneficiaries of trust or other entities in of Shares and Class ship Interest of Each of
------------------------------
owning 5% or more of Dealer and entitled Dealer- Person Listed Based Ownership
to receive dividends or profits from ship Type* Voting on Dealership's of Record
Dealer as a result of ownership. (Yes or Number or (Yes or Current Net Worth in Dealer
No) Shares Class No)
(Identify Holding Company owners on GMMS 1014-4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIRSTAMERICA AUTOMOTIVE, INC. NO 5,055,152.00 COMM A YES $ 2,599,013 100.00 %
- ------------------------------------------------------------------------------------------------------------------------------------
THOMAS A. PRICE
PRESIDENT YES $ 0 0 %
- ------------------------------------------------------------------------------------------------------------------------------------
$ %
- ------------------------------------------------------------------------------------------------------------------------------------
$ %
- ------------------------------------------------------------------------------------------------------------------------------------
$ %
- ------------------------------------------------------------------------------------------------------------------------------------
$ %
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL XXX 5,055,152.00 COMM A XXX $ 2,599,013 100.00 %
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Indicate various classes of common or preferred stock issued. State Par Value
of each share of preferred stock
Remarks:
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC
--------------------------------------------------------------------------
Dealer Firm Name
BUICK MOTOR DIVISION
GENERAL MOTORS CORPORATION
By /s/ 7/21/97 By /s/ 7/28/97
----------------------------------- --------------------------------
Signature and Title Date ZONE/BRANCH MANAGER Date
<PAGE>
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC
------------------------------------------------------------------------------
Dealer Firm Name
COLMA, CALIFORNIA
--------------------------------------------------------
City, State
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
List below any person named on Page 1 that has any ownership in, or is active in the management of,
any other entity that merchandises General Motors Automotive Products.
- ----------------------------------------------------------------------------------------------------
Name Firm Name, Address and Position and Product Line(s)
<S> <C>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
List below any person named on Page 1 that has any ownership in, or is active in the management
of, any other entity that merchandises motor vehicles other than those marketed by General Motors.
- ----------------------------------------------------------------------------------------------------
Name Firm Name, Address and Position and Product Line(s)
- ----------------------------------------------------------------------------------------------------
<S> <C>
THOMAS A. PRICE LINCOLN-MERCURY OF SERRAMONTE
COLMA , CALIFORNIA
PRESIDENT
LINCO
THOMAS A. PRICE LEXUS OF SERRAMONTE
COLMA , CALIFORNIA
PRESIDENT
LEXUS
THOMAS A. PRICE SERRAMONTE LINCOLN-MERCURY
COLMA , CALIFORNIA
PRESIDENT
LINCO
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TRANSCAR LEASING, INC.
DBA SERRAMONTE PONTIAC-BUICK-GMC
---------------------------------------------------------------------------
Dealer Firm Name
COLMA, CALIFORNIA
-------------------------------------------------
City, State
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
List below any person named on Page 1 that has any ownership in, or is active in
the management of, any other entity that merchandises motor vehicles other than
those marketed by General Motors.
- ----------------------------------------------------------------------------------------------
Name Firm Name, Address and Position and Product Line(s)
- ----------------------------------------------------------------------------------------------
<S> <C>
THOMAS A. PRICE STEVENS CREEK NISSAN
SANTA CLARA , CALIFORNIA
PRESIDENT
NISSA
THOMAS A. PRICE DODGE OF SERRAMONTE
COLMA , CALIFORNIA
PRESIDENT
DODGE
THOMAS A. PRICE NISSAN OF SERRAMONTE
COLMA , CALIFORNIA
PRESIDENT
NISSA
THOMAS A. PRICE ISUZU OF SERRAMONTE
COLMA , CALIFORNIA
PRESIDENT
ISUZU
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.9
LEASE AGREEMENT
This Lease ("LEASE") is entered into this 18th day of September 1997 in the
City of San Jose, County of Santa Clara, State of California, between Bay
Automotive Properties, LLC ("LANDLORD") and FirstAmerica Automotive, Inc., a
Delaware corporation ("FIRSTAMERICA"), and FAA Capitol N, Inc. ("SUBSIDIARY")
(collectively, "TENANT").
1. PREMISES. On and subject to the terms, covenants and conditions set forth
in this Lease, Landlord leases to Tenant and Tenant rents from Landlord that
certain real property, including all buildings, improvements and appurtenances
existing thereon, commonly known as 1120 West Capitol Expressway, San Jose,
California and as more particularly described and shown on Exhibit A hereto (the
"PREMISES").
2. TERM.
2.1 PERIOD. Subject to Section 2.2 below, the term of this Lease (the
"TERM") shall be for a period of fifteen (15) years commencing on October 1,
1997 (the "COMMENCEMENT DATE") and ending on September 30, 2012 (the
"TERMINATION DATE"), unless sooner terminated pursuant to any provision of this
Lease. Except as otherwise expressly set forth in this Lease, Tenant hereby
accepts the Premises in the condition existing as of the date of execution
hereof and Tenant acknowledges that neither Landlord, nor any representative of
Landlord has made any representation or warranty as to the suitability of the
Premises for the conduct of Tenant's business. If Landlord, for any reason,
cannot deliver possession of the Premises to Tenant on the Commencement Date,
this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant
for any loss or damage resulting from such delay. In that event, however, there
shall be an abatement of Rent (as defined below) covering the period between the
Commencement Date and the date when Landlord delivers possession to Tenant and
such date on which possession is delivered shall be the Commencement Date and
the Termination Date shall be the day immediately preceding the tenth
anniversary of the Commencement Date. If a delay in possession is caused by
Tenant's failure to perform any obligation in accordance with this Lease, the
Term shall commence as of the Commencement Date, and there shall be no reduction
of Rent between the Commencement Date and the time Tenant takes possession.
2.2 EXTENDED TERM. Tenant shall have the option to extend the Term for
two (2) consecutive five (5) year periods (the "FIRST EXTENDED TERM" and "SECOND
EXTENDED TERM", respectively) on all the terms and conditions contained in this
Lease including, without limitation, continuation of the adjustment of the Base
Rent on an annual basis as provided in Section 3.3 below (provided only that
upon commencement of the First Extended Term the only remaining option to extend
the Term shall be the Second Extended Term and upon exercise of the option with
respect to the Second Extended Term, no further right to extend the Term shall
exist). Tenant shall deliver, if at all, written notice of its exercise of the
option ("OPTION NOTICE") to Landlord at least six (6) months but not more than
one (1) year before the expiration of the Term or First Extended Term, as the
case may be. In the event Tenant fails to deliver the applicable Option Notice
within the time allowed, Landlord shall deliver written notice to Tenant of
Tenant's failure to deliver the Option Notice, and Tenant shall then have thirty
(30) days from receipt of such notice within which to deliver the Option Notice,
if at all, to Landlord. In the event (and only in the event) that, Tenant fails
to deliver an Option Notice to Landlord within such thirty (30) days, Tenant
shall be considered to have elected not to extend the Term of this Lease and
thereafter, Tenant shall have no further right to extend the Term of this Lease.
References in this Lease to the "Term" shall include the initial Term of
fifteen (15) years and shall, in addition, include the First Extended Term and
the Second Extended Term, if applicable.
<PAGE>
3. RENT.
3.1 BASE RENT. Tenant shall pay to Landlord as monthly base rent ("BASE
RENT") for the Premises, in advance on the Commencement Date and on the first
(1st) day of each and every calendar month of the Term thereafter, without
deduction, set-off, prior notice or demand in a lawful currency of the United
States of America, the Base Rent as described in this Lease. The Base Rent
commencing as of the Commencement Date and continuing through the last day of
the month in which the third anniversary of the Commencement Date occurs, shall
be the sum of $48,000 per month. Commencing on the first day of the calendar
month immediately thereafter, and continuing for the balance of the Term
(including the First Extended Term and the Second Extended Term, if applicable)
the Base Rent shall be adjusted as provided in Section 3.3.
3.2 LATE CHARGE. Tenant acknowledges that late payment by Tenant to
Landlord of any Base Rent shall cause Landlord to incur costs not contemplated
by this Lease, the exact amount of such cost being extremely difficult and
impracticable to ascertain. Such costs include, without limitation, processing
and accounting charges and late charges that may be imposed on Landlord by the
terms of any encumbrance or note secured by the Premises. Therefor, if any Base
Rent is not received by Landlord within ten (10) days of its due date, Tenant
shall pay to Landlord a late charge equal to Five Hundred Dollars ($500).
Landlord and Tenant hereby agree that such late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of any such
late payment and that the late charge is in addition to any and all remedies
available to the Landlord and that the assessment and/or collection of the late
charge shall not be deemed a waiver of any other default.
3.3 ADJUSTMENT TO BASE RENT. The Base Rent, commencing on the first day
of the calendar month immediately following the calendar month in which the
third anniversary of the Commencement Date occurs ("INITIAL ADJUSTMENT DATE")
shall be adjusted in accordance with the provisions of this Section 3.3 and
shall, thereafter, be adjusted annually on each anniversary of the Initial
Adjustment Date (each date an "ADJUSTMENT DATE") during the balance of the Term
(including the First Extended Term and the Second Extended Term, if applicable).
Such adjustment to Base Rent shall reflect two-thirds (2/3) of any increase in
the Consumer Price Index and shall be calculated as follows:
The base for computing the adjustment is the Consumer Price Index (All
Items) for Urban Consumers for the San Francisco-Oakland-San Jose Metropolitan
Area, published by the United States Department of Labor, Bureau of Labor
Statistics ("INDEX") which is in effect immediately prior to the second
anniversary of the Commencement Date ("BEGINNING INDEX"). The Index published
and in effect on the 30th day preceding the Initial Adjustment Date and on the
30th day preceding each Adjustment Date thereafter ("ADJUSTMENT INDEX") is to be
used in determining the amount of the increase from one year to the next.
Beginning as of the Initial Adjustment Date and continuing on each Adjustment
Date thereafter, the Base Rent shall be increased to equal the product achieved
by multiplying the initial Base Rent amount by a fraction, the numerator of
which shall be an amount equal to the sum of (i) the Beginning Index plus (ii)
two-thirds (2/3) of the amount, if any, by which the Adjustment Index is greater
than the Beginning Index, and the denominator of which will be the Beginning
Index. Notwithstanding the foregoing, the Base Rent shall not be increased by
more than six percent (6%) nor less than four percent (4%) of the Base Rent for
the immediately preceding year in any one year period.
If the Index is changed so that the base year differs from that described
above, the Index shall be
2
<PAGE>
converted in accordance with the conversion factor published by the United
States Department of Labor, Bureau of Labor Statistics. If the Index is
discontinued or revised during the Term, such other government index or
computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised.
On adjustment of the Base Rent as provided in Section 3.3 above, the
parties shall immediately execute an amendment to the Lease stating the new Base
Rent.
3.4 PRORATION. If the Term begins or ends on a day other than the first
or last day of a calendar month, the Base Rent payable for such calendar month
of the Term shall be prorated on the basis which the number of days of the Term
in the calendar month bears to the total number of days in such month. The term
"RENT" as used in this Lease shall refer to Base Rent, prepaid rent, if any,
real property taxes, insurance costs, repairs and maintenance costs, utilities,
late charges and other similar charges payable by Tenant pursuant to this Lease,
either directly to Landlord or otherwise.
4. TAXES.
4.1 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon Tenant owned leasehold improvements,
trade fixtures, furnishings, equipment and all personal property of Tenant
contained in the Premises or elsewhere. When possible, Tenant shall cause its
leasehold improvements, trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Landlord.
4.2 REAL PROPERTY TAXES. Tenant shall pay prior to delinquency all Real
Property Taxes (as defined below) which accrue in connection with the Premises
during the Term of this Lease. Upon request, Tenant shall furnish Landlord with
satisfactory evidence that all Real Property Taxes are paid and current. If any
Real Property Taxes paid by Tenant cover any period of time prior to the
Commencement Date or after expiration of the Term, Tenant's share of the Real
Property Taxes shall be equitably prorated to cover only the period of time this
Lease is in effect, and Landlord shall reimburse Tenant for any overpayment by
reason of such proration. If Tenant shall fail to pay any Real Property Taxes
required by this Lease to be paid by Tenant, Landlord shall have the right to
pay the same upon ten (10) days written notice to Tenant, and Tenant shall
reimburse Landlord therefor, including any interest and penalties upon demand.
As used herein, the term "REAL PROPERTY TAXES" shall include any form of
real estate tax, any general, special, ordinary or extraordinary assessment, any
improvement bond, levy or similar tax (or any other fee, charge, or excise which
may be imposed as a substitute for any of the foregoing) imposed upon the
Premises by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district, levied against
any legal or equitable interest of Landlord in the Premises. Tenant shall not
be responsible for the payment of any portion of Real Property Taxes which
result from a transfer of an ownership interest in the Premises during the Term
or any tax levied against Landlord's leasing of the Premises.
5. USES.
5.1 AUTHORIZED. The Premises shall be used by Tenant for the sale,
leasing, servicing and repair of new and used automobiles, and all uses
incidental and related thereto, or any other lawful use.
3
<PAGE>
5.2 COMPLIANCE WITH LAWS. Tenant shall not do or suffer anything to be
done in or on the Premises which will in any way conflict with any law, statute,
ordinance or other governmental rule, regulation or requirement applicable to
the Premises during the Term, or cause or create any nuisance. Tenant shall, at
its sole cost and expense, promptly comply with each and all of said
governmental measures existing now or in the future.
6. HAZARDOUS MATERIALS.
6.1 PERMITTED USE. Landlord acknowledges that the use of the Premises
contemplated by Section 5 above necessarily requires that Tenant have and
maintain certain petroleum-based and other substances on the Premises during the
Term which constitute Hazardous Materials (as defined below). At all times,
Tenant shall store, handle and otherwise maintain all Hazardous Materials kept
on the Premises in full compliance with all applicable laws and regulations, and
Tenant shall take every commercially reasonable caution in connection with the
presence and handling of Hazardous Materials on the Premises.
6.2 INDEMNIFICATION OF LANDLORD. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Landlord
arising from or relating to the release of Hazardous Materials in, on or under
the Premises, or any neighboring property, resulting from Tenant's use or
storage of Hazardous Materials at the Premises. Tenant's indemnification
obligations created by this section shall include, without limitation, all costs
of (i) site investigation and testing, (ii) clean-up, remediation, removal or
restoration work, and (iii) all monitoring activities which are required by any
federal, state or local governmental agency with jurisdiction over the matter as
a result of use or storage of Hazardous Materials at the Premises by Tenant.
6.3 INDEMNIFICATION OF TENANT. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Tenant
arising from or relating to the release or presence of Hazardous Materials in,
on or under the Premises, or any neighboring property, occurring or existing in
connection with the Premises prior to the Commencement Date. Landlord's
indemnification obligations created by this Section shall include, without
limitation, all costs of (i) site investigation and testing, (ii) clean-up,
remediation, removal or restoration work, and (iii) all monitoring activities
which are required by any federal, state or local governmental agency.
6.4 HAZARDOUS MATERIALS DEFINED. As used herein, the term "HAZARDOUS
MATERIALS" means any hazardous or toxic substance, material or waste which is or
becomes regulated by any local governmental authority, the State of California
or the United States Government. The term "hazardous material" includes, without
limitation, any material or substance which is (i) defined as a "hazardous
waste," "extremely hazardous waste" or "restricted hazardous waste" under
Section 25115, 25117 or 25122.7, or listed pursuant to Section 25140, of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law), (ii) defined as a "hazardous substance" under Section 25316 of the
California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-
Tanner Hazardous Substance Account Act), (iii) defined as a "hazardous
material," "hazardous substance," or "hazardous waste" under Section 25501 of
the California Health and Safety Code, Division 20, Chapter 6.95
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(Hazardous Materials Release Response Plans and Inventory), (iv) defined as a
"hazardous substance" under Section 25281 of the California Health and Safety
Code, Division 20, Chapter 6.7 (Under Storage of Hazardous Substances), (v)
petroleum, (vi) friable asbestos not in compliance with applicable laws or
regulations, (vii) listed under Article 9 or defined as hazardous or extremely
hazardous pursuant to Article 11 of Title 22 of the California Administrative
Code, Division 4, Chapter 20, (viii) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C.
Section 1317), (ix) defined as a "hazardous waste" pursuant to Section 1004 of
the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq. (42 U.S.C. Section 6903), or (x) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C.
Section 9601).
7. SERVICES AND UTILITIES. Tenant shall pay prior to delinquency all charges
for water, gas, heat, light, power, telephone, sewage, air conditioning and
ventilating, scavenger, janitorial, landscaping, and all other materials and
utilities supplied to the Premises. Landlord shall not be liable, and Tenant
shall not be entitled to any abatement of Rent (including without limitation,
Base Rent) for the reduction, interruption or suspension of any utility service
to the Premises unless caused by the negligent act or omission of Landlord or
its agents. No such interruption, reduction or suspension of utilities shall
constitute an eviction of Tenant from the Premises.
8. ALTERATIONS.
8.1 TENANT IMPROVEMENTS. Tenant shall obtain Landlord's written consent
prior to performing any alteration, addition or improvement on or to the
Premises; provided, however, that Landlord's consent shall not be required where
the contemplated work (i) does not include any alteration of the structural
components of the Premises, and (ii) will not cost more than Two Hundred Fifty
Thousand Dollars ($250,000.00) to complete. In the event Landlord's consent is
required, such consent shall not be unreasonably withheld, conditioned or
delayed. In all events, Tenant shall provide to Landlord a written description
of any alterations (other than alterations involving expenditure of less than
$10,000). All alterations, additions and improvements shall be constructed in a
good and workmanlike manner by licensed contractors and in compliance with all
applicable laws, regulations, CC&R's, zoning ordinances and building codes.
Except as provided immediately below, all alterations, additions and
improvements constructed in or on the Premises by Tenant shall remain on the
Premises without compensation of any kind to Tenant upon expiration of the Term.
Tenant shall not be required to remove any of the alterations, additions or
improvements made to the Premises during the Term except only those alterations,
additions or improvements requiring Landlord's consent, to the extent Landlord
conditioned its consent upon removal of the subject alteration, addition or
improvement by Tenant at the expiration of the Term. With respect to such
alterations, additions or improvements only, Tenant upon the written request of
Landlord, shall upon the expiration of the Term, remove such alteration,
addition or improvement at its cost and restore the Premises to its condition
prior to such alteration, addition or improvement. Tenant shall maintain
insurance as required by Section 11.2 covering any improvements, alterations or
additions to the Premises made by Tenant under the provisions of this Section
8.1, it being understood and agreed that none of such improvements shall be
insured by Landlord.
8.2 LIENS. Tenant shall keep the Premises free from any liens arising out
of work performed, materials furnished, or obligations incurred by Tenant and
shall indemnify, hold harmless and defend Landlord from any liens and
encumbrances arising out of any work performed or materials furnished by or
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at the direction of Tenant. Landlord shall have the right to post and keep
posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord and the Premises, and
any other party having an interest therein, from mechanics' and materialmen's
liens. Tenant shall give Landlord written notice at least twenty (20) days prior
to the expected date of commencement of any work done or materials delivered to
the Premises for the purpose of posting notices.
9. MAINTENANCE AND REPAIRS.
9.1 AS IS. Tenant acknowledges that it accepts possession of the Premises
from Landlord in its "AS-IS" condition, without representation or warranty from
Landlord as to any component of the Premises unless otherwise expressly set
forth in this Lease.
9.2 TENANT'S OBLIGATIONS.
9.2.1 Tenant shall, at all times during the Term and at Tenant's sole
cost and expense, keep the Premises and every part thereof including structural
and non-structural in good order, condition and repair, ordinary wear and tear
and casualty as described in Section 18 excepted. Tenant shall exercise and
perform good maintenance practices. Tenant's repair and maintenance obligations
shall include all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roof, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about or adjacent
to the Premises (whether or not such portion of the Premises requiring repairs,
or the means of repairing same, are reasonably or readily accessible to Tenant,
and whether or not the need for such repairs occurs as a result of Tenant's use,
any prior use, the elements or the age of such portion of the Premises).
Tenant's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. If, inclusive of Tenant's occupancy
pursuant to earlier lease agreement(s) and amendments thereto, Tenant has
occupied the Premises for seven (7) years or more, Landlord may require Tenant
to repaint the exterior of the buildings on the Premises as reasonably required,
but not more frequently than once every seven (7) years.
9.2.2 Upon the expiration or earlier termination of this Lease,
Tenant shall surrender the Premises in the same condition as delivered on the
Commencement Date, subject to permitted alterations, additions and improvements,
and ordinary wear and tear and casualty, and Tenant shall promptly remove or
cause to be removed, at Tenant's expense, all of Tenant's signs, displays, trade
fixtures and personal property from the Premises.
9.3 LANDLORD'S OBLIGATIONS. During the Term of this Lease, Landlord shall
have no obligation of any kind whatsoever to repair or maintain the Premises, or
any equipment therein, whether structural or non-structural, all of which
obligations are intended to be that of Tenant pursuant to Section 9.2 hereof.
It is the intention of the parties that the terms of this Lease govern the
respective obligations of the parties as to the maintenance and repair of the
Premises. Tenant expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford the Tenant the right to make repairs at
Landlord's expense or to terminate this Lease because of Landlord's failure to
keep the Premises in good order,
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condition and repair.
9.4 COMPLIANCE WITH LAW. Tenant shall each do all acts required to comply
with all present and future applicable laws, ordinances, regulations and rules
of any public authority relating to its maintenance obligations as set forth
herein.
10. INDEMNITY.
10.1 TENANT'S OBLIGATIONS. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Landlord arising from or related to (i) Tenant's breach of any
material covenant or condition contained in this Lease, (ii) Tenant's use and
occupancy of the Premises, and/or (iii) the negligent or willful misconduct of
Tenant. In the event any action or proceeding is brought against Landlord which
falls within the scope of this section, Tenant, upon written notice from
Landlord, shall defend Landlord in such action at Tenant's expense by counsel
reasonably satisfactory to Landlord. For purposes of this paragraph, "Tenant"
shall include all of the employees, agents, officers and directors of Tenant.
10.2 LANDLORD'S OBLIGATIONS. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Tenant arising from or related to (i) Landlord's breach of any
material covenant or condition contained in this Lease, and/or (ii) the
negligent or willful misconduct of Landlord. In the event any action or
proceeding is brought against Tenant which falls within the scope of this
section, Landlord, upon written notice from Tenant, shall defend Tenant in such
action at Landlord's expense by counsel reasonably satisfactory to Tenant. For
purposes of this paragraph, "Landlord" shall include all of the employees,
agents, officers and directors of Landlord.
11. INSURANCE.
11.1 GENERAL. All insurance required to be carried by Tenant hereunder
shall be issued by responsible insurance companies reasonably acceptable to
Landlord and the holder of any mortgage or deed of trust secured by any portion
of the Premises (referred to herein as a "MORTGAGEE"). All policies of insurance
provided for in this Lease shall be issued by insurance companies licensed to do
business in the State of California, with general policy holder's rating of not
less than "A-" and a financial rating of not less than "Class X" as rated in the
most current available "Best's Insurance Reports." Each policy shall name
Landlord and at Landlord's request any Mortgagee as an additional insured, as
their respective interests may appear, and a duplicate original of all policies
or certificates evidencing the existence and amounts of such insurance shall be
delivered to Landlord upon Landlord's written request. All policies of
insurance delivered to Landlord shall contain a provision that the company
writing said policy will give Landlord (and any Mortgagee with respect to
property insurance) thirty (30) days written notice in advance of any
cancellation or lapse of or any change in such insurance. All public liability,
property damage and other casualty insurance policies shall be written as
primary policies, not contributing with, and not in excess of coverage which
Landlord may carry. Tenant shall furnish Landlord with renewals or "binders" of
any such policy at least thirty (30) days prior to the expiration thereof. If
Tenant does not procure and maintain such insurance, Landlord may (but shall not
be required to) obtain such insurance on Tenant's behalf and charge
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Tenant the premiums therefor which shall be payable upon demand, and no such
action by Landlord shall constitute a waiver of Tenant's default hereunder.
Tenant may carry such insurance under a blanket policy, provided such blanket
policy expressly affords the coverage required by this Lease by a Landlord's
protective liability endorsement or otherwise.
11.2 PROPERTY INSURANCE. Tenant shall obtain and keep in force during the
Term a policy of insurance in the name of Landlord and Tenant, with loss payable
to Landlord and to any Mortgagee insuring loss or damage to the Premises. The
amount of such insurance shall be equal to the full replacement cost of the
Premises, exclusive of foundations, as the same shall exist from time to time,
or the amount required by any lender(s), but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Such insurance shall, in addition, include
earthquake coverage to the extent required by any Mortgagee provided that such
coverage is available at reasonable commercial rates and shall, in addition,
include flood coverage if the Premises is within a designated flood zone. The
insurance required by this section shall, in addition, include coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises required
to be demolished, and shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, then Tenant shall be liable for
such deductible amount provided that, in no event, shall Tenant be liable for a
deductible amount in excess of $20,000.
11.3 LIABILITY INSURANCE. Tenant shall obtain and keep in force during
the Term of this Lease a commercial general liability policy of insurance
protecting Tenant and Landlord (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than Two Million Dollars
($2,000,000) per occurrence with an "Additional Insured-Managers or Landlords of
Premises" endorsement and contain an "Amendment of the Pollution Exclusion" for
damage caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations. All insurance to be carried by Tenant shall be primary to and
not contributory with any similar insurance carried by Landlord, whose insurance
shall be considered excess insurance only.
11.4 RENTAL VALUE. Tenant shall, in addition, obtain and keep in force
during the Term of this Lease a policy or policies in the name of Landlord, with
loss payable to Landlord and any Mortgagee, insuring the loss of the full rental
or other charges payable by Tenant to Landlord pursuant to this Lease for a
period of not less than one year. Such insurance shall provide that in the
event that the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of Rent from the date of any such loss. Said insurance shall contain an agreed
evaluation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected Rent payable by
Tenant for the next twelve (12) month period. Tenant shall be liable for any
deductible amount in the event of such loss.
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11.5 MUTUAL WAIVER. Notwithstanding any provision to the contrary
contained in this Lease, to the extent that this release and waiver does not
invalidate or impair their respective insurance policies, the parties hereto
release each other and their respective agents, employees, officers, directors,
shareholders, successors and assigns from all liability for injury to any person
or damage to any property that is caused by or results from a risk which is
actually insured against pursuant to the provisions of this Lease without regard
to the negligence or willful misconduct of the parties so released. Each party
shall use its best efforts to cause each insurance policy it obtains to provide
that the insurer thereunder waives all right of recovery by way of subrogation
as required herein in connection with any injury or damage covered by the
policy. If such insurance policy cannot be obtained with such waiver of
subrogation, or if such a waiver of subrogation is only available at additional
cost and the party for whose benefit the waiver is not obtained does not pay
such additional cost after reasonable notice, then the party obtaining such
insurance shall promptly notify the other party of the inability to obtain
insurance coverage with the waiver of subrogation.
12. ASSIGNMENT AND SUBLETTING.
12.1 ASSIGNMENT TO AFFILIATE. Tenant shall have the right to assign its
interest in this Lease, or sublet any portion of the Premises, to any entity in
which FirstAmerica and/or Subsidiary hold either directly or indirectly an
ownership interest without the prior consent of Landlord, provided that such
entity agrees to be bound by the terms and conditions of this Lease. Tenant
shall give Landlord written notice of the effective date of such assignment or
subletting as soon as practicable. In connection with any such assignment,
Tenant shall continue to be jointly and separately liable with the assignee for
the obligations of tenant pursuant to this Lease.
12.2 ASSIGNMENT TO THIRD PARTIES. Except as provided in Section 12.1
above, Tenant shall not assign or encumber its interest in this Lease or the
Premises or sublease all or any portion of the Premises without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld.
Landlord shall give written notice of its consent or its determination not to
consent within thirty (30) days following written request for such consent given
by Tenant to Landlord. Any assignment, encumbrance or sublease without
Landlord's prior written consent shall be voidable and at Landlord's election
shall constitute a default.
12.3 INVOLUNTARY ASSIGNMENT. No interest of Tenant in this Lease shall be
assignable by operation of law including, without limitation, the transfer of
this Lease by will or intestacy. Each of the following acts shall be considered
an involuntary assignment: (a) if Tenant is or becomes bankrupt or insolvent,
makes an assignment for the benefit of creditors, or institutes or becomes the
subject of a proceeding under the Bankruptcy Code in which Tenant is the debtor
and such proceeding remains undismissed for a period of sixty (60) days; (b) if
a writ of attachment or execution is levied on this Lease and not released
within sixty (60) days; (c) if, in any proceeding or action to which Tenant is a
party, a receiver is appointed with authority to take possession of the
Premises. An involuntary assignment shall be deemed to constitute a material
default by Tenant and Landlord shall have the right to elect to terminate this
Lease, in which case this Lease shall not be treated as an asset of Tenant.
12.4 NO RELEASE OF TENANT. Notwithstanding any assignment or subletting
of any interest in this Lease or the Premises by Tenant, unless Landlord
otherwise consents in writing, Tenant shall continue to be liable for the full
performance of all Tenant obligations set forth in the Lease.
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13. SALE OF PREMISES OR BUILDING. Each conveyance by Landlord or its successor
in interest of Landlord's interest in the Premises prior to the expiration or
termination of this Lease shall be subject to this Lease and shall relieve the
grantor of all further liability or obligations as Landlord, except for such
liability or obligations accruing prior to the date of such conveyance. Tenant
agrees to attorn to Landlord's successors in interest, whether such interest is
acquired by sale, transfer, foreclosure, deed in lieu of foreclosure or
otherwise.
14. ENTRY BY LANDLORD. Landlord and its authorized representatives shall have
the right to enter the Premises during business hours and after reasonable
notice (except in the event of an emergency in which case entry may be at any
time and with such prior notice to Tenant as is reasonable under the
circumstances): (a) to inspect the Premises; (b) to supply any service provided
to Tenant hereunder; (c) to show the Premises to prospective lenders,
purchasers, or broker and agents in connection with a sale of the building; (d)
to show the Premises to prospective tenants or brokers and agents in connection
with a leasing of the Premises, but only during the last twelve (12) months of
the Term; (e) to post notices of non-responsibility; (f) to alter, improve or
repair the Premises (to the extent permitted or required hereunder); and (g) to
erect scaffolding and other necessary structures, where required by the work to
be performed, all without reduction or abatement of rent.
15. INSOLVENCY OR BANKRUPTCY.
15.1 ACTS OF DEFAULT. Without limitation, the following events shall
constitute a default under this Lease: (a) if Tenant shall admit in writing its
inability to pay its debts as they mature; (b) if Tenant shall make an
assignment for the benefit of creditors or take any other similar action for the
protection or benefit of creditors; (c) if Tenant shall give notice to any
governmental body of insolvency or pending insolvency, or suspension or pending
suspension of operations; (d) if Tenant shall file a voluntary petition in
bankruptcy or shall be adjudicated a bankrupt or insolvent; (e) if Tenant shall
file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or other similar relief for
itself under any present or future applicable federal, state or other statute or
law relative to bankruptcy, insolvency or other relief for debtors; (f) if a
court of competent jurisdiction shall enter an order, judgment or decree
approving a petition filed against Tenant seeking any relief described in the
preceding clause (e), and (i) Tenant acquiesces in the entry of such order,
judgment or decree (the term "ACQUIESCE" as used in this Section shall include,
without limitation, Tenant's failure to file a petition or motion to vacate or
discharge any order, judgment or decree within sixty (60) days after entry of
such order, judgment or decree), or (ii) such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of sixty (60) days, whether or
not consecutive, from the date of entry thereof; (g) if Tenant shall seek or
consent to or acquiesce in the appointment of any trustee, receiver, conservator
or liquidator of Tenant of all or any substantial part of Tenant's properties or
its interest in the Premises; (h) if any trustee, receiver, conservator or
liquidator of Tenant or of all or any substantial part of its property or its
interest in the Premises shall be appointed without the consent or acquiescence
of Tenant and such appointment shall remain unvacated and unstayed for an
aggregate of sixty (60) days, whether or not consecutive; or (i) if this Lease
or any estate of Tenant hereunder shall be levied upon under any attachment or
execution and such attachment or execution shall remain unvacated and unstayed
for an aggregate of sixty (60) days, whether or not consecutive. Notwithstanding
the foregoing, the above described events shall not constitute a default under
this Lease where Tenant has assigned the Premises as permitted in this Lease,
such assignee has assumed this Lease, and such assignee is not otherwise in
default hereunder.
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15.2 RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE. Upon the filing of
a petition by or against Tenant under the United States Bankruptcy Code, Tenant,
as debtor in possession, and any trustee who may be appointed agree as follows:
(a) to perform each and every obligation of Tenant under this Lease until such
time as this Lease is either rejected or assumed by order of the United States
Bankruptcy Court; (b) to pay monthly in advance on the first day of each month
as reasonable compensation for use and occupancy of the Premises the sum
required under Section 3, and all other charges otherwise due pursuant to this
Lease; (c) to reject or assume this Lease within sixty (60) days of the filing
of such petition; (d) to give Landlord at least forty-five (45) days prior
written notice of any abandonment of the Premises, any such abandonment to be
deemed a rejection of this Lease; (e) to do all other things of benefit to
Landlord otherwise required under the Bankruptcy Code; (f) to be deemed to have
rejected this Lease in the event of the failure to comply with any of the above;
and (g) to have consented to the entry of an order by an appropriate United
States Bankruptcy Court providing all of the above, waiving notice and hearing
of the entry of same.
16. DEFAULT BY TENANT.
16.1 ACTS CONSTITUTING DEFAULTS. In addition to the events specified as a
default under Section 15.1 or elsewhere in this Lease, the material failure of
Tenant to perform each and every material covenant made under this Lease,
including any abandonment of the Premises by Tenant, shall constitute a default
hereunder. However, Landlord shall not commence any action to terminate Tenant's
right of possession as a consequence of a default until any period of grace with
respect thereto has elapsed and Landlord has given Tenant's floor plan lender
written notice of such default and a period of fifteen (15) days to cure such
default; provided, such period of grace shall be in lieu of and not in addition
to the period during which Tenant may cure such default following the delivery
of notice pursuant to California Code of Civil Procedure Section 1161.
16.1.1 Tenant shall have a period of ten (10) days from the date of
written notice from Landlord to Tenant within which to cure any default in the
payment of Base Rent.
16.1.2 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any default in the
payment of any monetary obligation of Tenant pursuant to this Lease other than
the payment of Base Rent.
16.1.3 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any nonmonetary default
under this Lease; provided, however, that with respect to any default which
cannot reasonably be cured within thirty (30) days, the default shall not be
deemed to be uncured if Tenant commences to cure within thirty (30) days from
Landlord's notice and thereafter prosecutes diligently and continuously to
completion all acts required to cure the default.
16.1.4 A default by Tenant in the Loan and Security Agreement or
other similar financing agreements between Tenant and General Electric Capital
Corporation ("GECC"), provided that GECC has accelerated the principal, interest
or other obligations under the agreement between Tenant and GECC.
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16.2 LANDLORD'S REMEDIES. If Tenant fails to cure a default within the
time allowed, Landlord shall have the following rights and remedies in addition
to any other rights and remedies available to Landlord at law or in equity.
16.2.1 Landlord may, pursuant to Civil Code (S) 1951.4, continue
this Lease in full force and effect, and this Lease will continue in effect so
long as Landlord does not terminate Tenant's right to possession, and Landlord
shall have the right to collect Rent (including, without limitation, Base Rent)
as it becomes due. During the period Tenant is in default, Landlord can enter
the Premises and relet the Premises, or any part of the Premises, to third
parties for Tenant's account. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises, including without
limitation, brokers' commissions, expenses of remodeling the Premises required
by the reletting, and like costs. Reletting can be for a period shorter or
longer than the remaining Term of this Lease. Tenant shall pay to Landlord the
Rent due under this Lease on the dates the Rent is due, less the rental amounts
Landlord receives from any reletting. No act by Landlord allowed by this section
shall terminate this Lease unless Landlord notifies Tenant in writing that
Landlord elects to terminate this Lease. After Tenant's default and for so long
as Landlord does not terminate Tenant's right to possession of the Premises, if
Tenant obtains Landlord's consent, Tenant shall have the right to assign or
sublet its interest in this Lease, but Tenant shall not be released from
liability. Landlord's consent to such a proposed assignment or subletting shall
not be unreasonably withheld. If Landlord elects to relet the Premises as
provided in this section, any rental amounts that Landlord receives from
reletting shall be applied to the payment of: first, any indebtedness from
Tenant to Landlord other than Rent due from Tenant; second, all costs, including
for maintenance incurred by Landlord in reletting; and third, Rent due and
unpaid under this Lease. After deducting the payments referred to in this
section, any sum remaining from the rental amounts Landlord receives from
reletting shall be held by Landlord and applied in payment of future Rent as
Rent becomes due under this Lease. In no event shall Tenant be entitled to any
excess rental received by Landlord. If, on the date Rent is due under this
Lease, the rent received from the reletting is less than the Rent due on that
date, Tenant shall pay to Landlord, in addition to the remaining Rent due, all
costs including for maintenance Landlord incurred in reletting that remain after
applying the rent received from the reletting as provided in this section.
16.2.2 Landlord may, pursuant to Civil Code (S) 1951.2, terminate
Tenant's right to possession of the Premises at any time. No act by Landlord
other than giving express written notice thereof to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises, or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. Upon
termination of Tenant's right to possession, Landlord has the right to recover
from Tenant: (1) the Worth of the unpaid Rent that had been earned at the time
of termination of Tenant's right to possession; (2) the Worth of the amount by
which the unpaid Rent that would have been earned after the date of termination
until the time of award exceeds the amount of the loss of Rent that Tenant
proves could have been reasonably avoided; (3) the Worth of the amount of the
unpaid Rent that would have been earned after the award throughout the remaining
Term of the Lease to the extent such unpaid Rent exceeds the amount of the loss
of Rent that Tenant proves could have been reasonably avoided; and (4) any other
amount, including but not limited to, expenses incurred to relet the Premises,
court costs, attorneys' fees and collection costs necessary to compensate
Landlord for all detriment caused by Tenant's default. The "Worth", as used
above in (1) and (2) in this subsection is to be computed by allowing interest
at the lesser of ten percent (10%) per annum or the maximum legal interest rate
permitted by law. The "Worth", as used above in (3) in this subsection is to be
computed by discounting the amount
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at the discount rate of the Federal Reserve Bank of San Francisco at the time of
the award, plus one percent (1%).
16.3 LANDLORD'S RIGHT TO CURE DEFAULT. All covenants and agreements to be
performed by Tenant under the terms of this Lease shall be performed by Tenant
at Tenant's sole cost and expense and without any reduction of Rent. If Tenant
shall be in default of its obligations under this Lease to pay any money other
than rental or to perform any other act hereunder, and if such default is not
cured within the applicable grace period (if any) provided in this Section 16,
Landlord may, but shall not be obligated to, make any such payment or perform
any such act on Tenant's part without waiving its rights based upon any default
of Tenant and without releasing Tenant from any of its obligations. All sums so
paid and all costs incurred by Landlord shall be paid to Landlord on demand.
17. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in default in the
performance of any obligation under this Lease unless and until it has failed to
perform such obligation within thirty (30) days after receipt of written notice
by Tenant to Landlord specifying such failure; provided, however, that if the
nature of Landlord's default is such that more than thirty (30) days are
required for its cure, then Landlord shall not be deemed to be in default if
Landlord meaningfully commences such cure within the thirty (30) day period and
thereafter diligently prosecutes such cure to completion. Tenant agrees to give
any Mortgagee a copy, by registered mail, of any notice of default served upon
Landlord, provided that prior to such notice Tenant has been notified in writing
(by way of Notice of Assignment of Rents and Leases, or otherwise), of the
address of such Mortgagee. Any time during which such Mortgagee may cure
Landlord's default hereunder may, at Tenant's election, run concurrently with
Landlord's time to cure.
18. DAMAGE AND DESTRUCTION
18.1 DAMAGE - INSURED. In the event that the Premises is damaged by fire
or other casualty which is covered under insurance pursuant to the provisions of
Section 11 above, Landlord shall restore such damage provided that: (i)
insurance proceeds are available (inclusive of any deductible amounts) to pay
one hundred percent (100%) of the cost of restoration; and (ii) in the
reasonable judgment of Landlord, the restoration can be completed within three
hundred and sixty (360) days after the date of the damage or casualty under the
laws and regulations of the state, federal, county and municipal authorities
having jurisdiction. The deductible amount of any insurance coverage shall be
paid by Tenant except in the case of flood or earthquake and in such case the
deductible amount in excess of $20,000 per occurrence shall be paid by Landlord.
If such conditions apply so as to require Landlord to restore such damage
pursuant to this Section 18.1, this Lease shall continue in full force and
effect, unless otherwise agreed to in writing by Landlord and Tenant. Tenant
shall be entitled to a proportionate reduction of Rent at all times during which
Tenant's use of the Premises is interrupted, such proportionate reduction to be
based on the extent to which the damage and restoration efforts interfere with
Tenant's business in the Premises. Tenant's right to a reduction of Rent
hereunder shall be Tenant's sole and exclusive remedy in connection with any
such damage.
18.2 DAMAGE - UNINSURED. In the event that the Premises is damaged by a
fire or other casualty and Landlord is not required to restore such damage in
accordance with the provisions of Section 18.1 immediately above, Landlord shall
have the option to either (i) repair or restore such damage, with the Lease
continuing in full force and effect, but Rent to be proportionately abated as
provided in Section 18.1 above; or (ii) give notice to Tenant at any time within
thirty (30) days after the occurrence of such damage
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terminating this Lease as of a date to be specified in such notice which date
shall not be less than thirty (30) nor more than sixty (60) days after the date
on which such notice of termination is given. In the event of the giving of such
notice of termination, this Lease shall expire and all interest of Tenant in the
Premises shall terminate on the date so specified in such notice and the Rent,
reduced by any proportionate reduction in Rent as provided for in Section 18.1
above, shall be paid to the date of such termination. Notwithstanding the
foregoing, if Tenant delivers to Landlord the funds necessary to make up the
shortage (or absence) in insurance proceeds and the restoration can be completed
in a three hundred sixty (360) day period, as reasonably determined by Landlord,
Landlord shall restore the Premises as provided in Section 18.1 above.
18.3 END OF TERM CASUALTY. Notwithstanding the provisions of Sections
18.1 and 18.2 above, either Landlord or Tenant may terminate this Lease if the
Premises is damaged by fire or other casualty (and Landlord's reasonably
estimated cost of restoration of the Premises exceeds ten percent (10%) of the
then replacement value of the Premises) and such damage or casualty occurs
during the last twelve (12) months of the Term of this Lease (or the Term of
any renewal option, if applicable) by giving the other notice thereof at any
time within thirty (30) days following the occurrence of such damage or
casualty. Such notice shall specify the date of such termination which date
shall not be less than thirty (30) nor more than sixty (60) days following the
date on which such notice of termination is given. In the event of the giving
of such notice of termination, this Lease shall expire and all interest of
Tenant in the Premises shall terminate on the date so specified in such notice
and the Rent shall be paid to the date of such termination. Notwithstanding the
foregoing to the contrary, Landlord shall not have the right to terminate this
Lease if damage or casualty occurs during the last twelve (12) months of the
Term if Tenant timely exercises its option to extend the Term pursuant to
Section 2.2 of this Lease within twenty (20) days after the date of such damage
or casualty.
18.4 TERMINATION BY TENANT. In the event that the destruction to the
Premises cannot be restored as required herein under applicable laws and
regulations within two hundred seventy (270) days of the damage or casualty,
notwithstanding the availability of insurance proceeds, Tenant shall have the
right to terminate this Lease by giving the Landlord notice thereof within
thirty (30) days of date of the occurrence of such casualty specifying the date
of termination which shall not be less than thirty (30) days nor more than sixty
(60) days following the date on which such notice of termination is given. In
the event of the giving of such notice of termination, this Lease shall expire
and all interest of Tenant in the Premises shall terminate on the date so
specified in such notice and the Rent, reduced by any proportionate reduction in
Rent as provided for in Section 18.1 above, shall be paid to the date of such
termination.
18.5 RESTORATION. Landlord agrees that, in any case in which Landlord is
required to, or otherwise agrees to restore the Premises, that Landlord shall
proceed with due diligence to make all appropriate claims and applications for
the proceeds of insurance and to apply for and obtain all permits necessary for
the restoration of the Premises. Landlord shall restore the Premises to the
condition existing prior to the date of the damage if permitted by applicable
law. Landlord shall not be required to restore alterations made by Tenant,
Tenant's improvements, Tenant's trade fixtures, and Tenant's personal property,
such excluded items being the sole responsibility of Tenant to restore provided,
however, that Landlord shall, to the extent of available insurance proceeds,
restore Tenant Improvements to the Premises made by Tenant.
18.6 WAIVER. Tenant waives the provisions of Civil Code (S)1932(2) and
Civil Code (S)1933(4) with respect to any destruction of the Premises.
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19. CONDEMNATION.
19.1 DEFINITIONS. The following definitions shall apply: (1)
"CONDEMNATION" means (a) the exercise of any governmental power of eminent
domain, whether by legal proceedings or otherwise by condemnor, or (b) the
voluntary sale or transfer by Landlord to any condemnor either under threat of
condemnation or while legal proceedings for condemnation are proceeding; (2)
"DATE OF TAKING" means the date the condemnor has right to possession of the
property being condemned; (3) "AWARD" means all compensation, sums or anything
of value awarded, paid or received on a total or partial condemnation; and (4)
"CONDEMNOR" means any public or quasi-public authority, or private corporation
or individual, having power of condemnation.
19.2 OBLIGATIONS TO BE GOVERNED BY LEASE. If during the Term of the Lease
there is any Condemnation of all or any part of the Premises, the rights and
obligations of the parties shall be determined strictly pursuant to this Lease.
Each party waives the provisions of Code of Civil Procedure (S)1265.130 allowing
either party to petition the Superior Court to terminate this Lease in the event
of a partial Condemnation of the Premises.
19.3 TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
Condemnation, this Lease shall terminate on the Date of Taking. If any portion
of the Premises is taken by Condemnation, this Lease shall remain in effect,
except that Tenant can elect to terminate this Lease if the remaining portion of
the Premises is rendered unsuitable for Tenant's continued use of the Premises.
If Tenant elects to terminate this Lease, Tenant must exercise its right to
terminate by giving notice to Landlord within thirty (30) days after the nature
and extent of the Condemnation have been finally determined. If Tenant elects
to terminate this Lease, Tenant shall also notify Landlord of the date of
termination, which date shall not be earlier than thirty (30) days nor later
than ninety (90) days after Tenant has notified Landlord of its election to
terminate; except that this Lease shall terminate on the Date of Taking if the
Date of Taking falls on a date before the date of termination as designated by
Tenant. If any portion of the Premises is taken by Condemnation and this Lease
remains in full force and effect, on the Date of Taking the Base Rent shall be
reduced by an amount in the same ratio as the total number of square feet in the
building(s) which are a part of the Premises taken bears to the total number of
square feet in the building(s) which are a part of the Premises immediately
before the Date of Taking. Any Award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Landlord, whether such Award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Tenant
shall be entitled to any compensation separately awarded to Tenant for Tenant's
relocation expenses and/or loss of Tenant's trade fixtures
20. HOLDING OVER. Any holding over after the expiration of the Term shall be a
tenancy from month to month. The terms, covenants and conditions of such tenancy
shall be the same as provided herein, except that the Base Rent shall be one
hundred three percent (103%) of the Base Rent in effect immediately prior to the
commencement of such holding over. Acceptance by Landlord of Rent after such
expiration shall not result in any other tenancy or any renewal of the Term of
this Lease, and the provisions of this section are in addition to and do not
affect Landlord's right of reentry or other rights provided under this Lease or
by applicable law.
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21. ESTOPPEL CERTIFICATES. Within ten (10) business days following any written
request which Landlord and Tenant may make from time to time, Tenant or
Landlord, without any charge therefor, shall execute, acknowledge and deliver to
the other a statement certifying: (a) the Commencement Date of this Lease; (b)
the fact that this Lease is unmodified and in full force and effect (or, if
there have been modifications hereto, that this Lease is in full force and
effect, as modified, and stating the date and nature of such modifications); (c)
the date to which the Base Rent and other sums payable under this Lease have
been paid; (d) the fact that there are no current defaults under this Lease by
either Landlord or Tenant except as specified in the statement; and (e) such
other reasonable matters requested by Landlord or Tenant. Landlord and Tenant
intend that any statement delivered pursuant to this Section may be relied upon
by a mortgagee, beneficiary, purchaser or prospective purchaser of the Premises
or any interest therein, or any financial institution, investment banker,
underwriter or the counsel of each of the foregoing, providing credit or seeking
capital for Tenant or Landlord. The failure of Landlord or Tenant to deliver any
such statement within said ten (10) day period shall constitute a material
default, and the defaulting party shall indemnify and hold the other party
harmless from and against any and all liability, loss, cost, damage and expense
which such party may sustain or incur as a result of or in connection with the
defaulting party's failure or delay in delivering such statement.
22. SUBORDINATION AND ATTORNMENT.
22.1 SUBORDINATION. Upon the written request of Landlord or any
Mortgagee, Tenant will in writing subordinate its rights under this Lease to the
lien of any mortgage or deed of trust now or hereafter in force against the
Premises, and to all advances made or hereafter to be made upon the security
thereof, and to all extensions, modifications and renewals thereunder. Tenant
shall also, upon Landlord's request, subordinate its rights hereunder to any
ground or underlying lease which may now exist or hereafter be executed
affecting the Premises and/or the underlying land. Tenant shall have the right
to condition its subordination upon the execution and delivery of an attornment
and non-disturbance agreement, as described in Subsection 22.2, between the
Mortgagee or the lessor under any such ground or underlying lease and Tenant.
22.2 ATTORNMENT AND NON-DISTURBANCE. Upon the written request of the
Landlord or any Mortgagee or any lessor under a ground or underlying lease,
Tenant shall attorn to any such Mortgagee or beneficiary, provided such
Mortgagee or lessor agrees that if Tenant is not in material default under this
Lease, Tenant's possession of the Premises in accordance with the terms of this
Lease shall not be disturbed. Such agreement shall provide, among other things,
(a) that this Lease shall remain in full force and effect, (b) that Tenant pay
rent to said Mortgagee or lessor from the date of said attornment, (c) that said
Mortgagee or lessor shall not be responsible to Tenant under this Lease except
for obligations accruing subsequent to the date of such attornment, and (d) that
Tenant, in the event of foreclosure or a deed in lieu thereof or a termination
of the ground or underlying lease, will enter into and will have the right to, a
new lease with the Mortgagee, lessor or other person having or acquiring title
on the same terms and conditions as this Lease and for the balance of the Term.
22.3 NONMATERIAL AMENDMENTS. If any lender should require any nonmaterial
modification of this Lease as a condition of loans secured by a lien on the
Premises, or the land underlying the Premises, or if any such nonmaterial
modification is required as a condition to a ground or underlying lease, Tenant
will approve and execute any such modifications, promptly after request by
Landlord provided no such modification shall relate to the net effective rent
payable hereunder, the length of the Term or otherwise
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materially change the rights or obligations of Landlord or Tenant.
23. WAIVER. If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be deemed
to be a waiver of the term, covenant or condition itself or a waiver of any
subsequent breach of the same or any other term, covenant or condition contained
herein. Furthermore, the acceptance of rent by Landlord shall not constitute a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, regardless of Landlord's knowledge of such preceding breach at the
time Landlord accepts such rent. Failure by either Landlord or Tenant to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or to decrease the right to insist thereafter upon
strict performance by the nonperforming party. Waiver by either party to this
Lease may only be made by a written document signed by the waiving party.
24. ATTORNEYS' FEES. In the event that any action or proceeding (including
arbitration) is brought to enforce or interpret any term, covenant or condition
of this Lease on the part of Landlord or Tenant, the prevailing party in such
action or proceeding (whether after trial or appeal) shall be entitled to
recover from the party not prevailing its expenses therein, including reasonable
attorneys' fees and all allowable costs.
25. NOTICES. All notices, requests or demands to a party hereunder shall be
in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier, charges prepaid, addressed as set forth below. Any such notice, demand,
request or other communication shall be deemed to have been given upon the
earlier of personal delivery thereof, three (3) business days after having been
mailed as provided above, or one (1) business day after delivery through a
commercial courier, as the case may be. Notices may be given by facsimile and
shall be effective upon the transmission of such facsimile notice provided that
the facsimile notice is transmitted on a business day and a copy of the
facsimile notice together with evidence of its successful transmission
indicating the date and time of transmission is sent on the day of transmission
by recognized overnight carrier for delivery on the immediately succeeding
business day. Each party shall be entitled to modify its address by notice given
in accordance with this Section 25.
If to Landlord: Bay Automotive Properties, LLC
c/o Donald V. Strough
1300 Concord Avenue
Concord, CA 4520
Fax: 510-689-8924
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If to Tenant: FirstAmerica Automotive, Inc.
100 The Embarcadero, PH
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax: 415-512-9277
If to Tenant: FAA Capitol N, Inc. dba Capitol Nissan
(Subsidiary) 1120 West Capitol Expressway
San Jose, CA 95136
Fax: 408-
With a copy to: Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich, Esq.
Fax: 415-512-9277
26. MERGER. Notwithstanding the acquisition (if same should occur) by the same
party of the title and interests of both Landlord and Tenant under this Lease,
there shall not be a merger of the estates of Landlord and Tenant under this
Lease, but instead the separate estates, rights, duties and obligations of
Landlord and Tenant, as existing hereunder, shall remain unextinguished and
continue, separately, in full force and effect until this Lease expires or
otherwise terminates in accordance with the express provisions herein contained.
27. DEFINED TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used in neuter
gender include the feminine and masculine, where applicable. If there is more
than one Tenant, the obligations imposed under this Lease upon Tenant shall be
joint and several. The headings and titles to the sections and paragraphs of
this Lease are used for convenience only and shall have no effect upon the
construction or interpretation of this Lease.
28. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of
its provisions. This Lease shall in all respects be governed by and interpreted
in accordance with the laws of the State of California.
29. SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 12 and the
limitation expressed below, the terms, covenants and conditions contained herein
shall be binding upon and inure to the benefit of the heirs, successors,
executors, administrators and assigns of the parties hereto. However, the
obligations imposed on Landlord under this Lease shall be binding upon
Landlord's successors and assigns only with respect to obligations arising
during their respective periods of ownership of the Premises.
30. ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all the
agreements of the parties hereto and supersedes any previous negotiations. There
have been no representations made by the Landlord or Tenant or understandings
made between the parties other than those set forth in this Lease and its
exhibits.
31. SEVERABILITY. If any provision of this Lease or the application thereof to
any person or
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circumstance shall be invalid or unenforceable to any extent, the remainder of
this Lease and the application of such provision to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
32. SIGNS. Tenant shall have the exclusive right, at its own cost and expense,
to install and affix to the Premises such signs (the "Signs") as Tenant may
desire. The location, construction, size and appearance of the Signs shall
comply with all applicable laws, ordinances and regulations and the requirements
of any governmental agency or authority having jurisdiction thereof. The Signs
shall remain the property of Tenant and may be removed by Tenant at any time
provided that Tenant, at its expense, shall repair any damage caused by reason
of such removal and shall restore the Premises to its original condition. Tenant
shall, at its own expense, maintain the Signs in good condition and working
order, shall comply with all laws, ordinances and regulations with respect
thereto (including the requirements of any governmental agency or authority
having jurisdiction thereof), and shall pay for all utility service to the
Signs. Upon the expiration of the Term or earlier termination of this Lease, or
upon the vacation of the Premises by Tenant, Tenant shall remove the Signs,
shall repair any damage caused by reason of such removal and shall restore the
Premises to its original condition, all at Tenant's sole cost and expense.
33. RECORDABILITY OF LEASE. Landlord and Tenant agree that a Memorandum of
Lease, in a form reasonably acceptable to both Landlord and Tenant, may be
recorded at the request of either party.
34. CONSTRUCTION. All provisions hereof, whether covenants or conditions,
shall be deemed to be both covenants and conditions. The definitions contained
in this Lease shall be used to interpret the Lease. All rights and remedies of
Landlord and Tenant shall, except as otherwise expressly provided, be cumulative
and non-exclusive of any other remedy at law or in equity.
35. CONSENT. Whenever in this Lease the consent of a party is required to any
act by or for the other party, such consent shall not be unreasonably withheld
or delayed.
36. LIABILITY TO PERFORM. This Lease and the obligations of Tenant or
Landlord hereunder as the case may be, shall not be affected or impaired because
the other party is unable to fulfill any of its obligations hereunder, other
than the payment of money, or is delayed in doing so, if such inability or delay
is caused by reason of force majeure, strike, labor troubles, acts of God, acts
of government, unavailability of materials or labor, or any other cause beyond
the control of such other party.
37. CORPORATE AUTHORITY. Each individual executing this Lease on behalf of
Tenant, represents and warrants that Tenant is duly incorporated, in good
standing and qualified to do business in California, and that he or she is duly
authorized to execute and deliver this Lease on behalf of Tenant and that he or
she will deliver appropriate certification to that effect if requested.
38. QUIET ENJOYMENT. So long as Tenant is not in default under this Lease,
Tenant shall have quiet enjoyment of the Premises for the Term, subject to all
the terms and conditions of this Lease and all liens and encumbrances prior to
this Lease.
39. WAIVER. As material consideration to Landlord, Tenant agrees that
Landlord shall not be liable to Tenant for any damage to Tenant or Tenant's
property from any cause, except for damages resulting from Landlord's gross
negligence or willful misconduct, and Tenant waives all claims against Landlord
for damage to persons or property arising for any reason, except for damage
resulting directly
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from Landlord's breach of its express obligations under this Lease which
Landlord has not cured within a reasonable time after written notice of such
breach from Tenant.
40. AMENDMENT. This lease may be modified only in writing, signed by the
parties in interest at the time of the modification.
41. CONSTRUCTION. The Landlord and Tenant acknowledge that each has had its
counsel review this Lease and hereby agree that the normal rule of construction
to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Lease or in any amendments
or exhibits hereto.
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Wherefore, Landlord and Tenant enter into this Lease as of the day and year
first above written.
LANDLORD: TENANT:
BAY AUTOMOTIVE PROPERTIES, LLC FIRSTAMERICA AUTOMOTIVE, INC.
BY: /s/ Donald V. Strough BY: /s/
___________________________ __________________________
Donald V. Strough, Manager
FAA CAPITOL N, INC.
BY: /s/
___________________________
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Exhibit A
Legal Description
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EXHIBIT 10.9.1
LEASE AGREEMENT
This Lease ("LEASE") is entered into this 1st day of July 1997 in the City
of Colma, County of San Mateo, State of California, between Price Trust u/t/d
10/5/84 ("LANDLORD") and FirstAmerica Automotive, Inc., a Delaware corporation
("FIRSTAMERICA"), and FAA Serramonte L, Inc. a California corporation
("SUBSIDIARY") (collectively, "TENANT").
1. PREMISES. On and subject to the terms, covenants and conditions set forth
in this Lease, Landlord leases to Tenant and Tenant rents from Landlord that
certain real property, including all buildings, improvements and appurtenances
existing thereon, commonly known as 700 Serramonte Boulevard, Colma, California
and as more particularly described and shown on Exhibit A hereto (the
"PREMISES").
2. TERM.
2.1 PERIOD. Subject to Section 2.2 below, the term of this Lease (the
"TERM") shall be for a period of fifteen (15) years commencing on July 1, 1997
(the "COMMENCEMENT DATE") and ending on June 30, 2012 (the "TERMINATION DATE"),
unless sooner terminated pursuant to any provision of this Lease. Except as
otherwise expressly set forth in this Lease, Tenant hereby accepts the Premises
in the condition existing as of the date of execution hereof and Tenant
acknowledges that neither Landlord, nor any representative of Landlord has made
any representation or warranty as to the suitability of the Premises for the
conduct of Tenant's business. If Landlord, for any reason, cannot deliver
possession of the Premises to Tenant on the Commencement Date, this Lease shall
not be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting from such delay. In that event, however, there shall be an
abatement of Rent (as defined below) covering the period between the
Commencement Date and the date when Landlord delivers possession to Tenant and
such date on which possession is delivered shall be the Commencement Date and
the Termination Date shall be the day immediately preceding the tenth
anniversary of the Commencement Date. If a delay in possession is caused by
Tenant's failure to perform any obligation in accordance with this Lease, the
Term shall commence as of the Commencement Date, and there shall be no reduction
of Rent between the Commencement Date and the time Tenant takes possession.
2.2 EXTENDED TERM. Tenant shall have the option to extend the Term for two
(2) consecutive five (5) year periods (the "FIRST EXTENDED TERM" and "SECOND
EXTENDED TERM", respectively) on all the terms and conditions contained in this
Lease including, without limitation, continuation of the adjustment of the Base
Rent on an annual basis as provided in Section 3.3 below (provided only that
upon commencement of the First Extended Term the only remaining option to extend
the Term shall be the Second Extended Term and upon exercise of the option with
respect to the Second Extended Term, no further right to extend the Term shall
exist). Tenant shall deliver, if at all, written notice of its exercise of the
option ("OPTION NOTICE") to Landlord at least six (6) months but not more than
one (1) year before the expiration of the Term or First Extended Term, as the
case may be. In the event Tenant fails to deliver the applicable Option Notice
within the time allowed, Landlord shall deliver written notice to Tenant of
Tenant's failure to deliver the Option Notice, and Tenant shall then have thirty
(30) days from receipt of such notice within which to deliver the Option Notice,
if at all, to Landlord. In the event (and only in the event) that, Tenant fails
to deliver an Option Notice to Landlord within such thirty (30) days, Tenant
shall be considered to have elected not to extend the Term of this Lease and
thereafter, Tenant shall have no further right to extend the Term of this Lease.
References in this Lease to the "Term" shall include the initial Term of
fifteen (15) years and shall, in addition, include the First Extended Term and
the Second Extended Term, if applicable.
<PAGE>
3. RENT.
3.1 BASE RENT. Tenant shall pay to Landlord as monthly base rent ("BASE
RENT") for the Premises, in advance on the Commencement Date and on the first
(1st) day of each and every calendar month of the Term thereafter, without
deduction, set-off, prior notice or demand in a lawful currency of the United
States of America, the Base Rent as described in this Lease. The Base Rent
commencing as of the Commencement Date and continuing through the last day of
the month in which the third anniversary of the Commencement Date occurs, shall
be the sum of $ 50,000 per month. Commencing on the first day of the calendar
month immediately thereafter, and continuing for the balance of the Term
(including the First Extended Term and the Second Extended Term, if applicable)
the Base Rent shall be adjusted as provided in Section 3.3.
3.2 LATE CHARGE. Tenant acknowledges that late payment by Tenant to
Landlord of any Base Rent shall cause Landlord to incur costs not contemplated
by this Lease, the exact amount of such cost being extremely difficult and
impracticable to ascertain. Such costs include, without limitation, processing
and accounting charges and late charges that may be imposed on Landlord by the
terms of any encumbrance or note secured by the Premises. Therefor, if any Base
Rent is not received by Landlord within ten (10) days of its due date, Tenant
shall pay to Landlord a late charge equal to Five Hundred Dollars ($500).
Landlord and Tenant hereby agree that such late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of any such
late payment and that the late charge is in addition to any and all remedies
available to the Landlord and that the assessment and/or collection of the late
charge shall not be deemed a waiver of any other default.
3.3 ADJUSTMENT TO BASE RENT. The Base Rent, commencing on the first day of
the calendar month immediately following the calendar month in which the third
anniversary of the Commencement Date occurs ("INITIAL ADJUSTMENT DATE") shall be
adjusted in accordance with the provisions of this Section 3.3 and shall,
thereafter, be adjusted annually on each anniversary of the Initial Adjustment
Date (each date an "ADJUSTMENT DATE") during the balance of the Term (including
the First Extended Term and the Second Extended Term, if applicable). Such
adjustment to Base Rent shall reflect two-thirds (2/3) of any increase in the
Consumer Price Index and shall be calculated as follows:
The base for computing the adjustment is the Consumer Price Index (All
Items) for Urban Consumers for the San Francisco-Oakland-San Jose Metropolitan
Area, published by the United States Department of Labor, Bureau of Labor
Statistics ("INDEX") which is in effect immediately prior to the second
anniversary of the Commencement Date ("BEGINNING INDEX"). The Index published
and in effect on the 30th day preceding the Initial Adjustment Date and on the
30th day preceding each Adjustment Date thereafter ("ADJUSTMENT INDEX") is to be
used in determining the amount of the increase from one year to the next.
Beginning as of the Initial Adjustment Date and continuing on each Adjustment
Date thereafter, the Base Rent shall be increased to equal the product achieved
by multiplying the initial Base Rent amount by a fraction, the numerator of
which shall be an amount equal to the sum of (i) the Beginning Index plus (ii)
two-thirds (2/3) of the amount, if any, by which the Adjustment Index is greater
than the Beginning Index, and the denominator of which will be the Beginning
Index. Notwithstanding the foregoing, the Base Rent shall not be increased by
more than six percent (6%) nor less than four percent (4%) of the Base Rent for
the immediately preceding year in any one year period.
If the Index is changed so that the base year differs from that described
above, the Index shall be
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converted in accordance with the conversion factor published by the United
States Department of Labor, Bureau of Labor Statistics. If the Index is
discontinued or revised during the Term, such other government index or
computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised.
On adjustment of the Base Rent as provided in Section 3.3 above, the
parties shall immediately execute an amendment to the Lease stating the new Base
Rent.
3.4 PRORATION. If the Term begins or ends on a day other than the first or
last day of a calendar month, the Base Rent payable for such calendar month of
the Term shall be prorated on the basis which the number of days of the Term in
the calendar month bears to the total number of days in such month. The term
"RENT" as used in this Lease shall refer to Base Rent, prepaid rent, if any,
real property taxes, insurance costs, repairs and maintenance costs, utilities,
late charges and other similar charges payable by Tenant pursuant to this Lease,
either directly to Landlord or otherwise.
4. TAXES.
4.1 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon Tenant owned leasehold improvements,
trade fixtures, furnishings, equipment and all personal property of Tenant
contained in the Premises or elsewhere. When possible, Tenant shall cause its
leasehold improvements, trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Landlord.
4.2 REAL PROPERTY TAXES. Tenant shall pay prior to delinquency all Real
Property Taxes (as defined below) which accrue in connection with the Premises
during the Term of this Lease. Upon request, Tenant shall furnish Landlord with
satisfactory evidence that all Real Property Taxes are paid and current. If any
Real Property Taxes paid by Tenant cover any period of time prior to the
Commencement Date or after expiration of the Term, Tenant's share of the Real
Property Taxes shall be equitably prorated to cover only the period of time this
Lease is in effect, and Landlord shall reimburse Tenant for any overpayment by
reason of such proration. If Tenant shall fail to pay any Real Property Taxes
required by this Lease to be paid by Tenant, Landlord shall have the right to
pay the same upon ten (10) days written notice to Tenant, and Tenant shall
reimburse Landlord therefor, including any interest and penalties upon demand.
As used herein, the term "REAL PROPERTY TAXES" shall include any form of
real estate tax, any general, special, ordinary or extraordinary assessment, any
improvement bond, levy or similar tax (or any other fee, charge, or excise which
may be imposed as a substitute for any of the foregoing) imposed upon the
Premises by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district, levied against
any legal or equitable interest of Landlord in the Premises. Tenant shall not be
responsible for the payment of any portion of Real Property Taxes which result
from a transfer of an ownership interest in the Premises during the Term or any
tax levied against Landlord's leasing of the Premises.
5. USES.
5.1 AUTHORIZED. The Premises shall be used by Tenant for the sale,
leasing, servicing and repair of new and used automobiles, and all uses
incidental and related thereto, or any other lawful use.
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5.2 COMPLIANCE WITH LAWS. Tenant shall not do or suffer anything to be
done in or on the Premises which will in any way conflict with any law, statute,
ordinance or other governmental rule, regulation or requirement applicable to
the Premises during the Term, or cause or create any nuisance. Tenant shall, at
its sole cost and expense, promptly comply with each and all of said
governmental measures existing now or in the future.
6. HAZARDOUS MATERIALS.
6.1 PERMITTED USE. Landlord acknowledges that the use of the Premises
contemplated by Section 5 above necessarily requires that Tenant have and
maintain certain petroleum-based and other substances on the Premises during the
Term which constitute Hazardous Materials (as defined below). At all times,
Tenant shall store, handle and otherwise maintain all Hazardous Materials kept
on the Premises in full compliance with all applicable laws and regulations, and
Tenant shall take every commercially reasonable caution in connection with the
presence and handling of Hazardous Materials on the Premises.
6.2 INDEMNIFICATION OF LANDLORD. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Landlord
arising from or relating to the release of Hazardous Materials in, on or under
the Premises, or any neighboring property, resulting from Tenant's use or
storage of Hazardous Materials at the Premises. Tenant's indemnification
obligations created by this section shall include, without limitation, all costs
of (i) site investigation and testing, (ii) clean-up, remediation, removal or
restoration work, and (iii) all monitoring activities which are required by any
federal, state or local governmental agency with jurisdiction over the matter as
a result of use or storage of Hazardous Materials at the Premises by Tenant.
6.3 INDEMNIFICATION OF TENANT. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Tenant
arising from or relating to the release or presence of Hazardous Materials in,
on or under the Premises, or any neighboring property, occurring or existing in
connection with the Premises prior to the Commencement Date. Landlord's
indemnification obligations created by this Section shall include, without
limitation, all costs of (i) site investigation and testing, (ii) clean-up,
remediation, removal or restoration work, and (iii) all monitoring activities
which are required by federal, state or local governmental agency.
6.4 HAZARDOUS MATERIALS DEFINED. As used herein, the term "HAZARDOUS
MATERIALS" means any hazardous or toxic substance, material or waste which is or
becomes regulated by any local governmental authority, the State of California
or the United States Government. The term "hazardous material" includes, without
limitation, any material or substance which is (i) defined as a "hazardous
waste," "extremely hazardous waste" or "restricted hazardous waste" under
Section 25115, 25117 or 25122.7, or listed pursuant to Section 25140, of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law), (ii) defined as a "hazardous substance" under Section 25316 of the
California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-
Tanner Hazardous Substance Account Act), (iii) defined as a "hazardous
material," "hazardous substance," or "hazardous waste" under Section 25501 of
the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous
Materials Release Response Plans and Inventory), (iv) defined as a "hazardous
substance"
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under Section 25281 of the California Health and Safety Code, Division 20,
Chapter 6.7 (Under Storage of Hazardous Substances), (v) petroleum, (vi) friable
asbestos not in compliance with applicable laws or regulations, (vii) listed
under Article 9 or defined as hazardous or extremely hazardous pursuant to
Article 11 of Title 22 of the California Administrative Code, Division 4,
Chapter 20, (viii) designated as a "hazardous substance" pursuant to Section 311
of the Federal Water Pollution Control Act (33 U.S.C. Section 1317), (ix)
defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section
6903), or (x) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq. (42 U.S.C. Section 9601).
7. SERVICES AND UTILITIES. Tenant shall pay prior to delinquency all charges
for water, gas, heat, light, power, telephone, sewage, air conditioning and
ventilating, scavenger, janitorial, landscaping, and all other materials and
utilities supplied to the Premises. Landlord shall not be liable, and Tenant
shall not be entitled to any abatement of Rent (including without limitation,
Base Rent) for the reduction, interruption or suspension of any utility service
to the Premises unless caused by the negligent act or omission of Landlord or
its agents. No such interruption, reduction or suspension of utilities shall
constitute an eviction of Tenant from the Premises.
8. ALTERATIONS.
8.1 TENANT IMPROVEMENTS. Tenant shall obtain Landlord's written consent
prior to performing any alteration, addition or improvement on or to the
Premises; provided, however, that Landlord's consent shall not be required where
the contemplated work (i) does not include any alteration of the structural
components of the Premises, and (ii) will not cost more than Two Hundred Fifty
Thousand Dollars ($250,000.00) to complete. In the event Landlord's consent is
required, such consent shall not be unreasonably withheld, conditioned or
delayed. In all events, Tenant shall provide to Landlord a written description
of any alterations (other than alterations involving expenditure of less than
$10,000). All alterations, additions and improvements shall be constructed in a
good and workmanlike manner by licensed contractors and in compliance with all
applicable laws, regulations, CC&R's, zoning ordinances and building codes.
Except as provided immediately below, all alterations, additions and
improvements constructed in or on the Premises by Tenant shall remain on the
Premises without compensation of any kind to Tenant upon expiration of the Term.
Tenant shall not be required to remove any of the alterations, additions or
improvements made to the Premises during the Term except only those alterations,
additions or improvements requiring Landlord's consent, to the extent Landlord
conditioned its consent upon removal of the subject alteration, addition or
improvement by Tenant at the expiration of the Term. With respect to such
alterations, additions or improvements only, Tenant upon the written request of
Landlord, shall upon the expiration of the Term, remove such alteration,
addition or improvement at its cost and restore the Premises to its condition
prior to such alteration, addition or improvement. Tenant shall maintain
insurance as required by Section 11.2 covering any improvements, alterations or
additions to the Premises made by Tenant under the provisions of this Section
8.1, it being understood and agreed that none of such improvements shall be
insured by Landlord.
8.2 LIENS. Tenant shall keep the Premises free from any liens arising out
of work performed, materials furnished, or obligations incurred by Tenant and
shall indemnify, hold harmless and defend Landlord from any liens and
encumbrances arising out of any work performed or materials furnished by or at
the direction of Tenant. Landlord shall have the right to post and keep posted
on the Premises any notices
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permitted or required by law, or which Landlord shall deem proper, for the
protection of Landlord and the Premises, and any other party having an interest
therein, from mechanics' and materialmen's liens. Tenant shall give Landlord
written notice at least twenty (20) days prior to the expected date of
commencement of any work done or materials delivered to the Premises for the
purpose of posting notices.
9. MAINTENANCE AND REPAIRS.
9.1 AS IS. Tenant acknowledges that it accepts possession of the Premises
from Landlord in its "AS-IS" condition, without representation or warranty from
Landlord as to any component of the Premises unless otherwise expressly set
forth in this Lease.
9.2 TENANT'S OBLIGATIONS.
9.2.1 Tenant shall, at all times during the Term and at Tenant's sole
cost and expense, keep the Premises and every part thereof including structural
and non-structural in good order, condition and repair, ordinary wear and tear
and casualty as described in Section 18 excepted. Tenant shall exercise and
perform good maintenance practices. Tenant's repair and maintenance obligations
shall include all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roof, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about or adjacent
to the Premises (whether or not such portion of the Premises requiring repairs,
or the means of repairing same, are reasonably or readily accessible to Tenant,
and whether or not the need for such repairs occurs as a result of Tenant's use,
any prior use, the elements or the age of such portion of the Premises).
Tenant's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. If, inclusive of Tenant's occupancy
pursuant to earlier lease agreement(s) and amendments thereto, Tenant has
occupied the Premises for seven (7) years or more, Landlord may require Tenant
to repaint the exterior of the buildings on the Premises as reasonably required,
but not more frequently than once every seven (7) years.
9.2.2 Upon the expiration or earlier termination of this Lease,
Tenant shall surrender the Premises in the same condition as delivered on the
Commencement Date, subject to permitted alterations, additions and improvements,
and ordinary wear and tear and casualty, and Tenant shall promptly remove or
cause to be removed, at Tenant's expense, all of Tenant's signs, displays, trade
fixtures and personal property from the Premises.
9.3 LANDLORD'S OBLIGATIONS. During the Term of this Lease, Landlord shall
have no obligation of any kind whatsoever to repair or maintain the Premises, or
any equipment therein, whether structural or non-structural, all of which
obligations are intended to be that of Tenant pursuant to Section 9.2 hereof. It
is the intention of the parties that the terms of this Lease govern the
respective obligations of the parties as to the maintenance and repair of the
Premises. Tenant expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford the Tenant the right to make repairs at
Landlord's expense or to terminate this Lease because of Landlord's failure to
keep the Premises in good order, condition and repair.
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9.4 COMPLIANCE WITH LAW. Tenant shall each do all acts required to comply
with all present and future applicable laws, ordinances, regulations and rules
of any public authority relating to its maintenance obligations as set forth
herein.
10. INDEMNITY.
10.1 TENANT'S OBLIGATIONS. Tenant shall defend, indemnify and hold Landlord
harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Landlord arising from or related to (i) Tenant's breach of any
material covenant or condition contained in this Lease, (ii) Tenant's use and
occupancy of the Premises, and/or (iii) the negligent or willful misconduct of
Tenant. In the event any action or proceeding is brought against Landlord which
falls within the scope of this section, Tenant, upon written notice from
Landlord, shall defend Landlord in such action at Tenant's expense by counsel
reasonably satisfactory to Landlord. For purposes of this paragraph, "Tenant"
shall include all of the employees, agents, officers and directors of Tenant.
10.2 LANDLORD'S OBLIGATIONS. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Tenant arising from or related to (i) Landlord's breach of any
material covenant or condition contained in this Lease, and/or (ii) the
negligent or willful misconduct of Landlord. In the event any action or
proceeding is brought against Tenant which falls within the scope of this
section, Landlord, upon written notice from Tenant, shall defend Tenant in such
action at Landlord's expense by counsel reasonably satisfactory to Tenant. For
purposes of this paragraph, "Landlord" shall include all of the employees,
agents, officers and directors of Landlord.
11. INSURANCE.
11.1 GENERAL. All insurance required to be carried by Tenant hereunder
shall be issued by responsible insurance companies reasonably acceptable to
Landlord and the holder of any mortgage or deed of trust secured by any portion
of the Premises (referred to herein as a "MORTGAGEE"). All policies of insurance
provided for in this Lease shall be issued by insurance companies licensed to do
business in the State of California, with general policy holder's rating of not
less than "A-" and a financial rating of not less than "Class X" as rated in the
most current available "Best's Insurance Reports." Each policy shall name
Landlord and at Landlord's request any Mortgagee as an additional insured, as
their respective interests may appear, and a duplicate original of all policies
or certificates evidencing the existence and amounts of such insurance shall be
delivered to Landlord upon Landlord's written request. All policies of insurance
delivered to Landlord shall contain a provision that the company writing said
policy will give Landlord (and any Mortgagee with respect to property insurance)
thirty (30) days written notice in advance of any cancellation or lapse of or
any change in such insurance. All public liability, property damage and other
casualty insurance policies shall be written as primary policies, not
contributing with, and not in excess of coverage which Landlord may carry.
Tenant shall furnish Landlord with renewals or "binders" of any such policy at
least thirty (30) days prior to the expiration thereof. If Tenant does not
procure and maintain such insurance, Landlord may (but shall not be required to)
obtain such insurance on Tenant's behalf and charge Tenant the premiums therefor
which shall be payable upon demand, and no such action by Landlord shall
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constitute a waiver of Tenant's default hereunder. Tenant may carry such
insurance under a blanket policy, provided such blanket policy expressly affords
the coverage required by this Lease by a Landlord's protective liability
endorsement or otherwise.
11.2 PROPERTY INSURANCE. Tenant shall obtain and keep in force during the
Term a policy of insurance in the name of Landlord and Tenant, with loss payable
to Landlord and to any Mortgagee insuring loss or damage to the Premises. The
amount of such insurance shall be equal to the full replacement cost of the
Premises, exclusive of foundations, as the same shall exist from time to time,
or the amount required by any lender(s), but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Such insurance shall, in addition, include
earthquake coverage to the extent required by any Mortgagee provided that such
coverage is available at reasonable commercial rates and shall, in addition,
include flood coverage if the Premises is within a designated flood zone. The
insurance required by this section shall, in addition, include coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises required
to be demolished, and shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, then Tenant shall be liable for
such deductible amount provided that, in no event, shall Tenant be liable for a
deductible amount in excess of $20,000.
11.3 LIABILITY INSURANCE. Tenant shall obtain and keep in force during the
Term of this Lease a commercial general liability policy of insurance protecting
Tenant and Landlord (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than Two Million Dollars
($2,000,000) per occurrence with an "Additional Insured-Managers or Landlords of
Premises" endorsement and contain an "Amendment of the Pollution Exclusion" for
damage caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations. All insurance to be carried by Tenant shall be primary to and not
contributory with any similar insurance carried by Landlord, whose insurance
shall be considered excess insurance only.
11.4 RENTAL VALUE. Tenant shall, in addition, obtain and keep in force
during the Term of this Lease a policy or policies in the name of Landlord, with
loss payable to Landlord and any Mortgagee, insuring the loss of the full rental
or other charges payable by Tenant to Landlord pursuant to this Lease for a
period of not less than one year. Such insurance shall provide that in the event
that the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of Rent from the date of any such loss. Said insurance shall contain an agreed
evaluation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected Rent payable by
Tenant for the next twelve (12) month period. Tenant shall be liable for any
deductible amount in the event of such loss.
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11.5 MUTUAL WAIVER. Notwithstanding any provision to the contrary contained
in this Lease, to the extent that this release and waiver does not invalidate or
impair their respective insurance policies, the parties hereto release each
other and their respective agents, employees, officers, directors, shareholders,
successors and assigns from all liability for injury to any person or damage to
any property that is caused by or results from a risk which is actually insured
against pursuant to the provisions of this Lease without regard to the
negligence or willful misconduct of the parties so released. Each party shall
use its best efforts to cause each insurance policy it obtains to provide that
the insurer thereunder waives all right of recovery by way of subrogation as
required herein in connection with any injury or damage covered by the policy.
If such insurance policy cannot be obtained with such waiver of subrogation, or
if such a waiver of subrogation is only available at additional cost and the
party for whose benefit the waiver is not obtained does not pay such additional
cost after reasonable notice, then the party obtaining such insurance shall
promptly notify the other party of the inability to obtain insurance coverage
with the waiver of subrogation.
12. ASSIGNMENT AND SUBLETTING.
12.1 ASSIGNMENT TO AFFILIATE. Tenant shall have the right to assign its
interest in this Lease, or sublet any portion of the Premises, to any entity in
which FirstAmerica and/or Subsidiary hold either directly or indirectly an
ownership interest without the prior consent of Landlord, provided that such
entity agrees to be bound by the terms and conditions of this Lease. Tenant
shall give Landlord written notice of the effective date of such assignment or
subletting as soon as practicable. In connection with any such assignment,
Tenant shall continue to be jointly and separately liable with the assignee for
the obligations of tenant pursuant to this Lease.
12.2 ASSIGNMENT TO THIRD PARTIES. Except as provided in Section 12.1 above,
Tenant shall not assign or encumber its interest in this Lease or the Premises
or sublease all or any portion of the Premises without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld.
Landlord shall give written notice of its consent or its determination not to
consent within thirty (30) days following written request for such consent given
by Tenant to Landlord. Any assignment, encumbrance or sublease without
Landlord's prior written consent shall be voidable and at Landlord's election
shall constitute a default.
12.3 INVOLUNTARY ASSIGNMENT. No interest of Tenant in this Lease shall be
assignable by operation of law including, without limitation, the transfer of
this Lease by will or intestacy. Each of the following acts shall be considered
an involuntary assignment: (a) if Tenant is or becomes bankrupt or insolvent,
makes an assignment for the benefit of creditors, or institutes or becomes the
subject of a proceeding under the Bankruptcy Code in which Tenant is the debtor
and such proceeding remains undismissed for a period of sixty (60) days; (b) if
a writ of attachment or execution is levied on this Lease and not released
within sixty (60) days; (c) if, in any proceeding or action to which Tenant is a
party, a receiver is appointed with authority to take possession of the
Premises. An involuntary assignment shall be deemed to constitute a material
default by Tenant and Landlord shall have the right to elect to terminate this
Lease, in which case this Lease shall not be treated as an asset of Tenant.
12.4 NO RELEASE OF TENANT. Notwithstanding any assignment or subletting of
any interest in this Lease or the Premises by Tenant, unless Landlord otherwise
consents in writing, Tenant shall continue to be liable for the full performance
of all Tenant obligations set forth in the Lease.
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13. SALE OF PREMISES OR BUILDING. Each conveyance by Landlord or its successor
in interest of Landlord's interest in the Premises prior to the expiration or
termination of this Lease shall be subject to this Lease and shall relieve the
grantor of all further liability or obligations as Landlord, except for such
liability or obligations accruing prior to the date of such conveyance. Tenant
agrees to attorn to Landlord's successors in interest, whether such interest is
acquired by sale, transfer, foreclosure, deed in lieu of foreclosure or
otherwise.
14. ENTRY BY LANDLORD. Landlord and its authorized representatives shall have
the right to enter the Premises during business hours and after reasonable
notice (except in the event of an emergency in which case entry may be at any
time and with such prior notice to Tenant as is reasonable under the
circumstances): (a) to inspect the Premises; (b) to supply any service provided
to Tenant hereunder; (c) to show the Premises to prospective lenders,
purchasers, or broker and agents in connection with a sale of the building; (d)
to show the Premises to prospective tenants or brokers and agents in connection
with a leasing of the Premises, but only during the last twelve (12) months of
the Term; (e) to post notices of non-responsibility; (f) to alter, improve or
repair the Premises (to the extent permitted or required hereunder); and (g) to
erect scaffolding and other necessary structures, where required by the work to
be performed, all without reduction or abatement of rent.
15. INSOLVENCY OR BANKRUPTCY.
15.1 ACTS OF DEFAULT. Without limitation, the following events shall
constitute a default under this Lease: (a) if Tenant shall admit in writing its
inability to pay its debts as they mature; (b) if Tenant shall make an
assignment for the benefit of creditors or take any other similar action for the
protection or benefit of creditors; (c) if Tenant shall give notice to any
governmental body of insolvency or pending insolvency, or suspension or pending
suspension of operations; (d) if Tenant shall file a voluntary petition in
bankruptcy or shall be adjudicated a bankrupt or insolvent; (e) if Tenant shall
file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or other similar relief for
itself under any present or future applicable federal, state or other statute or
law relative to bankruptcy, insolvency or other relief for debtors; (f) if a
court of competent jurisdiction shall enter an order, judgment or decree
approving a petition filed against Tenant seeking any relief described in the
preceding clause (e), and (i) Tenant acquiesces in the entry of such order,
judgment or decree (the term "ACQUIESCE" as used in this Section shall include,
without limitation, Tenant's failure to file a petition or motion to vacate or
discharge any order, judgment or decree within sixty (60) days after entry of
such order, judgment or decree), or (ii) such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of sixty (60) days, whether or
not consecutive, from the date of entry thereof; (g) if Tenant shall seek or
consent to or acquiesce in the appointment of any trustee, receiver, conservator
or liquidator of Tenant of all or any substantial part of Tenant's properties or
its interest in the Premises; (h) if any trustee, receiver, conservator or
liquidator of Tenant or of all or any substantial part of its property or its
interest in the Premises shall be appointed without the consent or acquiescence
of Tenant and such appointment shall remain unvacated and unstayed for an
aggregate of sixty (60) days, whether or not consecutive; or (i) if this Lease
or any estate of Tenant hereunder shall be levied upon under any attachment or
execution and such attachment or execution shall remain unvacated and unstayed
for an aggregate of sixty (60) days, whether or not consecutive. Notwithstanding
the foregoing, the above described events shall not constitute a default under
this Lease where Tenant has assigned the Premises as permitted in this Lease,
such assignee has assumed this Lease, and such assignee is not otherwise in
default hereunder.
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15.2 RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE. Upon the filing of a
petition by or against Tenant under the United States Bankruptcy Code, Tenant,
as debtor in possession, and any trustee who may be appointed agree as follows:
(a) to perform each and every obligation of Tenant under this Lease until such
time as this Lease is either rejected or assumed by order of the United States
Bankruptcy Court; (b) to pay monthly in advance on the first day of each month
as reasonable compensation for use and occupancy of the Premises the sum
required under Section 3, and all other charges otherwise due pursuant to this
Lease; (c) to reject or assume this Lease within sixty (60) days of the filing
of such petition; (d) to give Landlord at least forty-five (45) days prior
written notice of any abandonment of the Premises, any such abandonment to be
deemed a rejection of this Lease; (e) to do all other things of benefit to
Landlord otherwise required under the Bankruptcy Code; (f) to be deemed to have
rejected this Lease in the event of the failure to comply with any of the above;
and (g) to have consented to the entry of an order by an appropriate United
States Bankruptcy Court providing all of the above, waiving notice and hearing
of the entry of same.
16. DEFAULT BY TENANT.
16.1 ACTS CONSTITUTING DEFAULTS. In addition to the events specified as a
default under Section 15.1 or elsewhere in this Lease, the material failure of
Tenant to perform each and every material covenant made under this Lease,
including any abandonment of the Premises by Tenant, shall constitute a default
hereunder. However, Landlord shall not commence any action to terminate Tenant's
right of possession as a consequence of a default until any period of grace with
respect thereto has elapsed; provided, such period of grace shall be in lieu of
and not in addition to the period during which Tenant may cure such default
following the delivery of notice pursuant to California Code of Civil Procedure
Section 1161.
16.1.1 Tenant shall have a period of ten (10) days from the date of
written notice from Landlord to Tenant within which to cure any default in the
payment of Base Rent.
16.1.2 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any default in the
payment of any monetary obligation of Tenant pursuant to this Lease other than
the payment of Base Rent.
16.1.3 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any nonmonetary default
under this Lease; provided, however, that with respect to any default which
cannot reasonably be cured within thirty (30) days, the default shall not be
deemed to be uncured if Tenant commences to cure within thirty (30) days from
Landlord's notice and thereafter prosecutes diligently and continuously to
completion all acts required to cure the default.
16.1.4 A default by Tenant in the Loan and Security Agreement or
other similar financing agreements between Tenant and General Electric Capital
Corporation ("GECC"), provided that GECC has accelerated the principal, interest
or other obligations under the agreement between Tenant and GECC.
16.2 LANDLORD'S REMEDIES. If Tenant fails to cure a default within the time
allowed, Landlord shall have the following rights and remedies in addition to
any other rights and remedies available to Landlord at law or in equity.
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16.2.1 Landlord may, pursuant to Civil Code (S) 1951.4, continue
this Lease in full force and effect, and this Lease will continue in effect so
long as Landlord does not terminate Tenant's right to possession, and Landlord
shall have the right to collect Rent (including, without limitation, Base Rent)
as it becomes due. During the period Tenant is in default, Landlord can enter
the Premises and relet the Premises, or any part of the Premises, to third
parties for Tenant's account. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises, including without
limitation, brokers' commissions, expenses of remodeling the Premises required
by the reletting, and like costs. Reletting can be for a period shorter or
longer than the remaining Term of this Lease. Tenant shall pay to Landlord the
Rent due under this Lease on the dates the Rent is due, less the rental amounts
Landlord receives from any reletting. No act by Landlord allowed by this section
shall terminate this Lease unless Landlord notifies Tenant in writing that
Landlord elects to terminate this Lease. After Tenant's default and for so long
as Landlord does not terminate Tenant's right to possession of the Premises, if
Tenant obtains Landlord's consent, Tenant shall have the right to assign or
sublet its interest in this Lease, but Tenant shall not be released from
liability. Landlord's consent to such a proposed assignment or subletting shall
not be unreasonably withheld. If Landlord elects to relet the Premises as
provided in this section, any rental amounts that Landlord receives from
reletting shall be applied to the payment of: first, any indebtedness from
Tenant to Landlord other than Rent due from Tenant; second, all costs, including
for maintenance incurred by Landlord in reletting; and third, Rent due and
unpaid under this Lease. After deducting the payments referred to in this
section, any sum remaining from the rental amounts Landlord receives from
reletting shall be held by Landlord and applied in payment of future Rent as
Rent becomes due under this Lease. In no event shall Tenant be entitled to any
excess rental received by Landlord. If, on the date Rent is due under this
Lease, the rent received from the reletting is less than the Rent due on that
date, Tenant shall pay to Landlord, in addition to the remaining Rent due, all
costs including for maintenance Landlord incurred in reletting that remain after
applying the rent received from the reletting as provided in this section.
16.2.2 Landlord may, pursuant to Civil Code (S) 1951.2, terminate
Tenant's right to possession of the Premises at any time. No act by Landlord
other than giving express written notice thereof to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises, or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. Upon
termination of Tenant's right to possession, Landlord has the right to recover
from Tenant: (1) the Worth of the unpaid Rent that had been earned at the time
of termination of Tenant's right to possession; (2) the Worth of the amount by
which the unpaid Rent that would have been earned after the date of termination
until the time of award exceeds the amount of the loss of Rent that Tenant
proves could have been reasonably avoided; (3) the Worth of the amount of the
unpaid Rent that would have been earned after the award throughout the remaining
Term of the Lease to the extent such unpaid Rent exceeds the amount of the loss
of Rent that Tenant proves could have been reasonably avoided; and (4) any other
amount, including but not limited to, expenses incurred to relet the Premises,
court costs, attorneys' fees and collection costs necessary to compensate
Landlord for all detriment caused by Tenant's default. The "Worth", as used
above in (1) and (2) in this subsection is to be computed by allowing interest
at the lesser of ten percent (10%) per annum or the maximum legal interest rate
permitted by law. The "Worth", as used above in (3) in this subsection is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award, plus one percent (1%).
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16.3 LANDLORD'S RIGHT TO CURE DEFAULT. All covenants and agreements to be
performed by Tenant under the terms of this Lease shall be performed by Tenant
at Tenant's sole cost and expense and without any reduction of Rent. If Tenant
shall be in default of its obligations under this Lease to pay any money other
than rental or to perform any other act hereunder, and if such default is not
cured within the applicable grace period (if any) provided in this Section 16,
Landlord may, but shall not be obligated to, make any such payment or perform
any such act on Tenant's part without waiving its rights based upon any default
of Tenant and without releasing Tenant from any of its obligations. All sums so
paid and all costs incurred by Landlord shall be paid to Landlord on demand.
17. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in default in the
performance of any obligation under this Lease unless and until it has failed to
perform such obligation within thirty (30) days after receipt of written notice
by Tenant to Landlord specifying such failure; provided, however, that if the
nature of Landlord's default is such that more than thirty (30) days are
required for its cure, then Landlord shall not be deemed to be in default if
Landlord meaningfully commences such cure within the thirty (30) day period and
thereafter diligently prosecutes such cure to completion. Tenant agrees to give
any Mortgagee a copy, by registered mail, of any notice of default served upon
Landlord, provided that prior to such notice Tenant has been notified in writing
(by way of Notice of Assignment of Rents and Leases, or otherwise), of the
address of such Mortgagee. Any time during which such Mortgagee may cure
Landlord's default hereunder may, at Tenant's election, run concurrently with
Landlord's time to cure.
18. DAMAGE AND DESTRUCTION
18.1 DAMAGE - INSURED. In the event that the Premises is damaged by fire or
other casualty which is covered under insurance pursuant to the provisions of
Section 11 above, Landlord shall restore such damage provided that: (i)
insurance proceeds are available (inclusive of any deductible amounts) to pay
one hundred percent (100%) of the cost of restoration; and (ii) in the
reasonable judgment of Landlord, the restoration can be completed within three
hundred and sixty (360) days after the date of the damage or casualty under the
laws and regulations of the state, federal, county and municipal authorities
having jurisdiction. The deductible amount of any insurance coverage shall be
paid by Tenant except in the case of flood or earthquake and in such case the
deductible amount in excess of $20,000 per occurrence shall be paid by Landlord.
If such conditions apply so as to require Landlord to restore such damage
pursuant to this Section 18.1, this Lease shall continue in full force and
effect, unless otherwise agreed to in writing by Landlord and Tenant. Tenant
shall be entitled to a proportionate reduction of Rent at all times during which
Tenant's use of the Premises is interrupted, such proportionate reduction to be
based on the extent to which the damage and restoration efforts interfere with
Tenant's business in the Premises. Tenant's right to a reduction of Rent
hereunder shall be Tenant's sole and exclusive remedy in connection with any
such damage.
18.2 DAMAGE - UNINSURED. In the event that the Premises is damaged by a
fire or other casualty and Landlord is not required to restore such damage in
accordance with the provisions of Section 18.1 immediately above, Landlord shall
have the option to either (i) repair or restore such damage, with the Lease
continuing in full force and effect, but Rent to be proportionately abated as
provided in Section 18.1 above; or (ii) give notice to Tenant at any time within
thirty (30) days after the occurrence of such damage terminating this Lease as
of a date to be specified in such notice which date shall not be less than
thirty (30) nor more than sixty (60) days after the date on which such notice of
termination is given. In the event of the giving of such notice of termination,
this Lease shall expire and all interest of Tenant in the Premises shall
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terminate on the date so specified in such notice and the Rent, reduced by any
proportionate reduction in Rent as provided for in Section 18.1 above, shall be
paid to the date of such termination. Notwithstanding the foregoing, if Tenant
delivers to Landlord the funds necessary to make up the shortage (or absence) in
insurance proceeds and the restoration can be completed in a three hundred sixty
(360) day period, as reasonably determined by Landlord, Landlord shall restore
the Premises as provided in Section 18.1 above.
18.3 END OF TERM CASUALTY. Notwithstanding the provisions of Sections 18.1
and 18.2 above, either Landlord or Tenant may terminate this Lease if the
Premises is damaged by fire or other casualty (and Landlord's reasonably
estimated cost of restoration of the Premises exceeds ten percent (10%) of the
then replacement value of the Premises) and such damage or casualty occurs
during the last twelve (12) months of the Term of this Lease (or the Term of any
renewal option, if applicable) by giving the other notice thereof at any time
within thirty (30) days following the occurrence of such damage or casualty.
Such notice shall specify the date of such termination which date shall not be
less than thirty (30) nor more than sixty (60) days following the date on which
such notice of termination is given. In the event of the giving of such notice
of termination, this Lease shall expire and all interest of Tenant in the
Premises shall terminate on the date so specified in such notice and the Rent
shall be paid to the date of such termination. Notwithstanding the foregoing to
the contrary, Landlord shall not have the right to terminate this Lease if
damage or casualty occurs during the last twelve (12) months of the Term if
Tenant timely exercises its option to extend the Term pursuant to Section 2.2 of
this Lease within twenty (20) days after the date of such damage or casualty.
18.4 TERMINATION BY TENANT. In the event that the destruction to the
Premises cannot be restored as required herein under applicable laws and
regulations within two hundred seventy (270) days of the damage or casualty,
notwithstanding the availability of insurance proceeds, Tenant shall have the
right to terminate this Lease by giving the Landlord notice thereof within
thirty (30) days of date of the occurrence of such casualty specifying the date
of termination which shall not be less than thirty (30) days nor more than sixty
(60) days following the date on which such notice of termination is given. In
the event of the giving of such notice of termination, this Lease shall expire
and all interest of Tenant in the Premises shall terminate on the date so
specified in such notice and the Rent, reduced by any proportionate reduction in
Rent as provided for in Section 18.1 above, shall be paid to the date of such
termination.
18.5 RESTORATION. Landlord agrees that, in any case in which Landlord is
required to, or otherwise agrees to restore the Premises, that Landlord shall
proceed with due diligence to make all appropriate claims and applications for
the proceeds of insurance and to apply for and obtain all permits necessary for
the restoration of the Premises. Landlord shall restore the Premises to the
condition existing prior to the date of the damage if permitted by applicable
law. Landlord shall not be required to restore alterations made by Tenant,
Tenant's improvements, Tenant's trade fixtures, and Tenant's personal property,
such excluded items being the sole responsibility of Tenant to restore provided,
however, that Landlord shall, to the extent of available insurance proceeds,
restore Tenant Improvements to the Premises made by Tenant.
18.6 WAIVER. Tenant waives the provisions of Civil Code (S)1932(2) and
Civil Code (S)1933(4) with respect to any destruction of the Premises.
19. CONDEMNATION.
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19.1 DEFINITIONS. The following definitions shall apply: (1) "CONDEMNATION"
means (a) the exercise of any governmental power of eminent domain, whether by
legal proceedings or otherwise by condemnor, or (b) the voluntary sale or
transfer by Landlord to any condemnor either under threat of condemnation or
while legal proceedings for condemnation are proceeding; (2) "DATE OF TAKING"
means the date the condemnor has right to possession of the property being
condemned; (3) "AWARD" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation; and (4)
"CONDEMNOR" means any public or quasi-public authority, or private corporation
or individual, having power of condemnation.
19.2 OBLIGATIONS TO BE GOVERNED BY LEASE. If during the Term of the Lease
there is any Condemnation of all or any part of the Premises, the rights and
obligations of the parties shall be determined strictly pursuant to this Lease.
Each party waives the provisions of Code of Civil Procedure (S)1265.130 allowing
either party to petition the Superior Court to terminate this Lease in the event
of a partial Condemnation of the Premises.
19.3 TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
Condemnation, this Lease shall terminate on the Date of Taking. If any portion
of the Premises is taken by Condemnation, this Lease shall remain in effect,
except that Tenant can elect to terminate this Lease if the remaining portion of
the Premises is rendered unsuitable for Tenant's continued use of the Premises.
If Tenant elects to terminate this Lease, Tenant must exercise its right to
terminate by giving notice to Landlord within thirty (30) days after the nature
and extent of the Condemnation have been finally determined. If Tenant elects to
terminate this Lease, Tenant shall also notify Landlord of the date of
termination, which date shall not be earlier than thirty (30) days nor later
than ninety (90) days after Tenant has notified Landlord of its election to
terminate; except that this Lease shall terminate on the Date of Taking if the
Date of Taking falls on a date before the date of termination as designated by
Tenant. If any portion of the Premises is taken by Condemnation and this Lease
remains in full force and effect, on the Date of Taking the Base Rent shall be
reduced by an amount in the same ratio as the total number of square feet in the
building(s) which are a part of the Premises taken bears to the total number of
square feet in the building(s) which are a part of the Premises immediately
before the Date of Taking. Any Award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Landlord, whether such Award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Tenant
shall be entitled to any compensation separately awarded to Tenant for Tenant's
relocation expenses and/or loss of Tenant's trade fixtures
20. HOLDING OVER. Any holding over after the expiration of the Term shall be a
tenancy from month to month. The terms, covenants and conditions of such tenancy
shall be the same as provided herein, except that the Base Rent shall be one
hundred three percent (103%) of the Base Rent in effect immediately prior to the
commencement of such holding over. Acceptance by Landlord of Rent after such
expiration shall not result in any other tenancy or any renewal of the Term of
this Lease, and the provisions of this section are in addition to and do not
affect Landlord's right of reentry or other rights provided under this Lease or
by applicable law.
21. ESTOPPEL CERTIFICATES. Within ten (10) business days following any written
request which Landlord and Tenant may make from time to time, Tenant or
Landlord, without any charge therefor, shall execute, acknowledge and deliver to
the other a statement certifying: (a) the Commencement Date of this
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Lease; (b) the fact that this Lease is unmodified and in full force and effect
(or, if there have been modifications hereto, that this Lease is in full force
and effect, as modified, and stating the date and nature of such modifications);
(c) the date to which the Base Rent and other sums payable under this Lease have
been paid; (d) the fact that there are no current defaults under this Lease by
either Landlord or Tenant except as specified in the statement; and (e) such
other reasonable matters requested by Landlord or Tenant. Landlord and Tenant
intend that any statement delivered pursuant to this Section may be relied upon
by a mortgagee, beneficiary, purchaser or prospective purchaser of the Premises
or any interest therein, or any financial institution, investment banker,
underwriter or the counsel of each of the foregoing, providing credit or seeking
capital for Tenant or Landlord. The failure of Landlord or Tenant to deliver any
such statement within said ten (10) day period shall constitute a material
default, and the defaulting party shall indemnify and hold the other party
harmless from and against any and all liability, loss, cost, damage and expense
which such party may sustain or incur as a result of or in connection with the
defaulting party's failure or delay in delivering such statement.
22. SUBORDINATION AND ATTORNMENT.
22.1 SUBORDINATION. Upon the written request of Landlord or any Mortgagee,
Tenant will in writing subordinate its rights under this Lease to the lien of
any mortgage or deed of trust now or hereafter in force against the Premises,
and to all advances made or hereafter to be made upon the security thereof, and
to all extensions, modifications and renewals thereunder. Tenant shall also,
upon Landlord's request, subordinate its rights hereunder to any ground or
underlying lease which may now exist or hereafter be executed affecting the
Premises and/or the underlying land. Tenant shall have the right to condition
its subordination upon the execution and delivery of an attornment and non-
disturbance agreement, as described in Subsection 22.2, between the Mortgagee or
the lessor under any such ground or underlying lease and Tenant.
22.2 ATTORNMENT AND NON-DISTURBANCE. Upon the written request of the
Landlord or any Mortgagee or any lessor under a ground or underlying lease,
Tenant shall attorn to any such Mortgagee or beneficiary, provided such
Mortgagee or lessor agrees that if Tenant is not in material default under this
Lease, Tenant's possession of the Premises in accordance with the terms of this
Lease shall not be disturbed. Such agreement shall provide, among other things,
(a) that this Lease shall remain in full force and effect, (b) that Tenant pay
rent to said Mortgagee or lessor from the date of said attornment, (c) that said
Mortgagee or lessor shall not be responsible to Tenant under this Lease except
for obligations accruing subsequent to the date of such attornment, and (d) that
Tenant, in the event of foreclosure or a deed in lieu thereof or a termination
of the ground or underlying lease, will enter into and will have the right to, a
new lease with the Mortgagee, lessor or other person having or acquiring title
on the same terms and conditions as this Lease and for the balance of the Term.
22.3 NONMATERIAL AMENDMENTS. If any lender should require any nonmaterial
modification of this Lease as a condition of loans secured by a lien on the
Premises, or the land underlying the Premises, or if any such nonmaterial
modification is required as a condition to a ground or underlying lease, Tenant
will approve and execute any such modifications, promptly after request by
Landlord provided no such modification shall relate to the net effective rent
payable hereunder, the length of the Term or otherwise materially change the
rights or obligations of Landlord or Tenant.
23. WAIVER. If either Landlord or Tenant waives the performance of any term,
covenant or condition
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contained in this Lease, such waiver shall not be deemed to be a waiver of the
term, covenant or condition itself or a waiver of any subsequent breach of the
same or any other term, covenant or condition contained herein. Furthermore, the
acceptance of rent by Landlord shall not constitute a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time Landlord accepts such
rent. Failure by either Landlord or Tenant to enforce any of the terms,
covenants or conditions of this Lease for any length of time shall not be deemed
to waive or to decrease the right to insist thereafter upon strict performance
by the nonperforming party. Waiver by either party to this Lease may only be
made by a written document signed by the waiving party.
24. ATTORNEYS' FEES. In the event that any action or proceeding (including
arbitration) is brought to enforce or interpret any term, covenant or condition
of this Lease on the part of Landlord or Tenant, the prevailing party in such
action or proceeding (whether after trial or appeal) shall be entitled to
recover from the party not prevailing its expenses therein, including reasonable
attorneys' fees and all allowable costs.
25. NOTICES. All notices, requests or demands to a party hereunder shall be in
writing and shall be given or served upon the other party by personal service,
by certified return receipt requested or registered mail, postage prepaid, or by
Federal Express or other nationally recognized commercial courier, charges
prepaid, addressed as set forth below. Any such notice, demand, request or other
communication shall be deemed to have been given upon the earlier of personal
delivery thereof, three (3) business days after having been mailed as provided
above, or one (1) business day after delivery through a commercial courier, as
the case may be. Notices may be given by facsimile and shall be effective upon
the transmission of such facsimile notice provided that the facsimile notice is
transmitted on a business day and a copy of the facsimile notice together with
evidence of its successful transmission indicating the date and time of
transmission is sent on the day of transmission by recognized overnight carrier
for delivery on the immediately succeeding business day. Each party shall be
entitled to modify its address by notice given in accordance with this Section
25.
If to Landlord: The Price Trust u/t/d
1500 Collins Avenue
Colma, CA 94014
Attention: Thomas A. Price
FAX: 415-756-3945
If to Tenant: FirstAmerica Automotive, Inc.
100 The Embarcadero, PH
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax: 415-512-9277
If to Tenant: FAA Serramonte L, Inc.
(Subsidiary) 700 Serramonte Blvd.
Colma, CA 94014
Attn: Thomas A. Price
Fax: 415-756-3945
With a copy to: Kay & Merkle
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100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich, Esq.
Fax: 415-512-9277
26. MERGER. Notwithstanding the acquisition (if same should occur) by the same
party of the title and interests of both Landlord and Tenant under this Lease,
there shall not be a merger of the estates of Landlord and Tenant under this
Lease, but instead the separate estates, rights, duties and obligations of
Landlord and Tenant, as existing hereunder, shall remain unextinguished and
continue, separately, in full force and effect until this Lease expires or
otherwise terminates in accordance with the express provisions herein contained.
27. DEFINED TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used in neuter
gender include the feminine and masculine, where applicable. If there is more
than one Tenant, the obligations imposed under this Lease upon Tenant shall be
joint and several. The headings and titles to the sections and paragraphs of
this Lease are used for convenience only and shall have no effect upon the
construction or interpretation of this Lease.
28. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of
its provisions. This Lease shall in all respects be governed by and interpreted
in accordance with the laws of the State of California.
29. SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 12 and the
limitation expressed below, the terms, covenants and conditions contained herein
shall be binding upon and inure to the benefit of the heirs, successors,
executors, administrators and assigns of the parties hereto. However, the
obligations imposed on Landlord under this Lease shall be binding upon
Landlord's successors and assigns only with respect to obligations arising
during their respective periods of ownership of the Premises.
30. ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all the
agreements of the parties hereto and supersedes any previous negotiations. There
have been no representations made by the Landlord or Tenant or understandings
made between the parties other than those set forth in this Lease and its
exhibits.
31. SEVERABILITY. If any provision of this Lease or the application thereof to
any person or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Lease and the application of such provision to other persons
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
32. SIGNS. Tenant shall have the exclusive right, at its own cost and expense,
to install and affix to the Premises such signs (the "Signs") as Tenant may
desire. The location, construction, size and appearance of the Signs shall
comply with all applicable laws, ordinances and regulations and the requirements
of any governmental agency or authority having jurisdiction thereof. The Signs
shall remain the property of Tenant and may be removed by Tenant at any time
provided that Tenant, at its expense, shall repair any damage caused by reason
of such removal and shall restore the Premises to its original condition. Tenant
shall, at its own expense, maintain the Signs in good condition and working
order, shall comply with all laws, ordinances and regulations with respect
thereto (including the requirements of any governmental agency or
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authority having jurisdiction thereof), and shall pay for all utility service to
the Signs. Upon the expiration of the Term or earlier termination of this Lease,
or upon the vacation of the Premises by Tenant, Tenant shall remove the Signs,
shall repair any damage caused by reason of such removal and shall restore the
Premises to its original condition, all at Tenant's sole cost and expense.
33. RECORDABILITY OF LEASE. Landlord and Tenant agree that a Memorandum of
Lease, in a form reasonably acceptable to both Landlord and Tenant, may be
recorded at the request of either party.
34. CONSTRUCTION. All provisions hereof, whether covenants or conditions, shall
be deemed to be both covenants and conditions. The definitions contained in this
Lease shall be used to interpret the Lease. All rights and remedies of Landlord
and Tenant shall, except as otherwise expressly provided, be cumulative and non-
exclusive of any other remedy at law or in equity.
35. CONSENT. Whenever in this Lease the consent of a party is required to any
act by or for the other party, such consent shall not be unreasonably withheld
or delayed.
36. LIABILITY TO PERFORM. This Lease and the obligations of Tenant or Landlord
hereunder as the case may be, shall not be affected or impaired because the
other party is unable to fulfill any of its obligations hereunder, other than
the payment of money, or is delayed in doing so, if such inability or delay is
caused by reason of force majeure, strike, labor troubles, acts of God, acts of
government, unavailability of materials or labor, or any other cause beyond the
control of such other party.
37. CORPORATE AUTHORITY. Each individual executing this Lease on behalf of
Tenant, represents and warrants that Tenant is duly incorporated, in good
standing and qualified to do business in California, and that he or she is duly
authorized to execute and deliver this Lease on behalf of Tenant and that he or
she will deliver appropriate certification to that effect if requested.
38. QUIET ENJOYMENT. So long as Tenant is not in default under this Lease,
Tenant shall have quiet enjoyment of the Premises for the Term, subject to all
the terms and conditions of this Lease and all liens and encumbrances prior to
this Lease.
39. WAIVER. As material consideration to Landlord, Tenant agrees that Landlord
shall not be liable to Tenant for any damage to Tenant or Tenant's property from
any cause, except for damages resulting from Landlord's gross negligence or
willful misconduct, and Tenant waives all claims against Landlord for damage to
persons or property arising for any reason, except for damage resulting directly
from Landlord's breach of its express obligations under this Lease which
Landlord has not cured within a reasonable time after written notice of such
breach from Tenant.
40. AMENDMENT. This lease may be modified only in writing, signed by the
parties in interest at the time of the modification.
41. CONSTRUCTION. The Landlord and Tenant acknowledge that each has had its
counsel review this Lease and hereby agree that the normal rule of construction
to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Lease or in any amendments
or exhibits hereto.
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Wherefore, Landlord and Tenant enter into this Lease as of the day and year
first above written.
LANDLORD: TENANT:
Price Trust u/t/d 10/5/84 FirstAmerica Automotive, Inc.
a Delaware corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
_________________________ ____________________________
Thomas A. Price, Trustee Thomas A. Price, President
FAA Serramonte L, Inc.
a California corporation
By: /s/ Thomas A. Price
_____________________________
Thomas A. Price, President
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EXHIBIT 10.9.2
LEASE AGREEMENT
This Lease ("LEASE") is entered effective as of April 15, 1998 in the City
of Colma, County of San Mateo, State of California, between Price Trust u/t/d
10/5/84 ("LANDLORD") and FirstAmerica Automotive, Inc., a Delaware corporation
("FIRSTAMERICA"), and FAA Serramonte H, Inc. a California corporation
("SUBSIDIARY") (collectively, "TENANT").
1. PREMISES. On and subject to the terms, covenants and conditions set forth
in this Lease, Landlord leases to Tenant and Tenant rents from Landlord that
certain real property consisting of appoximately four (4) acres, including all
buildings, improvements and appurtenances existing thereon, commonly known as
485 Serramonte Boulevard, Colma, California and as more particularly described
and shown on Exhibit A hereto (the "PREMISES").
2. TERM.
2.1 PERIOD. Subject to Section 2.2 below, the term of this Lease (the
"TERM") shall be for a period of fifteen (15) years commencing on April 15, 1998
(the "COMMENCEMENT DATE") and ending on April 14, 2013 (the "TERMINATION DATE"),
unless sooner terminated pursuant to any provision of this Lease. Except as
otherwise expressly set forth in this Lease, Tenant hereby accepts the Premises
in the condition existing as of the date of execution hereof and Tenant
acknowledges that neither Landlord, nor any representative of Landlord has made
any representation or warranty as to the suitability of the Premises for the
conduct of Tenant's business. If Landlord, for any reason, cannot deliver
possession of the Premises to Tenant on the Commencement Date, this Lease shall
not be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting from such delay. In that event, however, there shall be an
abatement of Rent (as defined below) covering the period between the
Commencement Date and the date when Landlord delivers possession to Tenant and
such date on which possession is delivered shall be the Commencement Date and
the Termination Date shall be the day immediately preceding the tenth
anniversary of the Commencement Date. If a delay in possession is caused by
Tenant's failure to perform any obligation in accordance with this Lease, the
Term shall commence as of the Commencement Date, and there shall be no reduction
of Rent between the Commencement Date and the time Tenant takes possession.
2.2 EXTENDED TERM. Tenant shall have the option to extend the Term for
two (2) consecutive five (5) year periods (the "FIRST EXTENDED TERM" and "SECOND
EXTENDED TERM", respectively) on all the terms and conditions contained in this
Lease including, without limitation, continuation of the adjustment of the Base
Rent on an annual basis as provided in Section 3.3 below (provided only that
upon commencement of the First Extended Term the only remaining option to extend
the Term shall be the Second Extended Term and upon exercise of the option with
respect to the Second Extended Term, no further right to extend the Term shall
exist). Tenant shall deliver, if at all, written notice of its exercise of the
option ("OPTION NOTICE") to Landlord at least six (6) months but not more than
one (1) year before the expiration of the Term or First Extended Term, as the
case may be. In the event Tenant fails to deliver the applicable Option Notice
within the time allowed, Landlord shall deliver written notice to Tenant of
Tenant's failure to deliver the Option Notice, and Tenant shall then have thirty
(30) days from receipt of such notice within which to deliver the Option Notice,
if at all, to Landlord. In the event (and only in the event) that, Tenant fails
to deliver an Option Notice to Landlord within such thirty (30) days, Tenant
shall be considered to have elected not to extend the Term of this Lease and
thereafter, Tenant shall have no further right to extend the Term of this Lease.
References in this Lease to the "Term" shall include the initial Term of
fifteen (15) years and shall, in addition, include the First Extended Term and
the Second Extended Term, if applicable.
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3. RENT.
3.1 BASE RENT. Tenant shall pay to Landlord as monthly base rent ("BASE
RENT") for the Premises, in advance on the Commencement Date and on the first
(1st) day of each and every calendar month of the Term thereafter, without
deduction, set-off, prior notice or demand in a lawful currency of the United
States of America, the Base Rent as described in this Lease. The Base Rent
commencing as of the Commencement Date and continuing through the last day of
the month in which the third anniversary of the Commencement Date occurs, shall
be the sum of $ ____________ per month. Commencing on the first day of the
calendar month immediately thereafter, and continuing for the balance of the
Term (including the First Extended Term and the Second Extended Term, if
applicable) the Base Rent shall be adjusted as provided in Section 3.3.
3.2 LATE CHARGE. Tenant acknowledges that late payment by Tenant to
Landlord of any Base Rent shall cause Landlord to incur costs not contemplated
by this Lease, the exact amount of such cost being extremely difficult and
impracticable to ascertain. Such costs include, without limitation, processing
and accounting charges and late charges that may be imposed on Landlord by the
terms of any encumbrance or note secured by the Premises. Therefor, if any Base
Rent is not received by Landlord within ten (10) days of its due date, Tenant
shall pay to Landlord a late charge equal to Five Hundred Dollars ($500).
Landlord and Tenant hereby agree that such late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of any such
late payment and that the late charge is in addition to any and all remedies
available to the Landlord and that the assessment and/or collection of the late
charge shall not be deemed a waiver of any other default.
3.3 ADJUSTMENT TO BASE RENT. The Base Rent, commencing on the first day
of the calendar month immediately following the calendar month in which the
third anniversary of the Commencement Date occurs ("INITIAL ADJUSTMENT DATE")
shall be adjusted in accordance with the provisions of this Section 3.3 and
shall, thereafter, be adjusted annually on each anniversary of the Initial
Adjustment Date (each date an "ADJUSTMENT DATE") during the balance of the Term
(including the First Extended Term and the Second Extended Term, if applicable).
Such adjustment to Base Rent shall reflect two-thirds (2/3) of any increase in
the Consumer Price Index and shall be calculated as follows:
The base for computing the adjustment is the Consumer Price Index (All
Items) for Urban Consumers for the San Francisco-Oakland-San Jose Metropolitan
Area, published by the United States Department of Labor, Bureau of Labor
Statistics ("INDEX") which is in effect immediately prior to the second
anniversary of the Commencement Date ("BEGINNING INDEX"). The Index published
and in effect on the 30th day preceding the Initial Adjustment Date and on the
30th day preceding each Adjustment Date thereafter ("ADJUSTMENT INDEX") is to be
used in determining the amount of the increase from one year to the next.
Beginning as of the Initial Adjustment Date and continuing on each Adjustment
Date thereafter, the Base Rent shall be increased to equal the product achieved
by multiplying the initial Base Rent amount by a fraction, the numerator of
which shall be an amount equal to the sum of (i) the Beginning Index plus (ii)
two-thirds (2/3) of the amount, if any, by which the Adjustment Index is greater
than the Beginning Index, and the denominator of which will be the Beginning
Index. Notwithstanding the foregoing, the Base Rent shall not be increased by
more than six percent (6%) nor less than four percent (4%) of the Base Rent for
the immediately preceding year in any one year period.
If the Index is changed so that the base year differs from that described
above, the Index shall be
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converted in accordance with the conversion factor published by the United
States Department of Labor, Bureau of Labor Statistics. If the Index is
discontinued or revised during the Term, such other government index or
computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised.
On adjustment of the Base Rent as provided in Section 3.3 above, the
parties shall immediately execute an amendment to the Lease stating the new Base
Rent.
3.4 PRORATION. If the Term begins or ends on a day other than the first
or last day of a calendar month, the Base Rent payable for such calendar month
of the Term shall be prorated on the basis which the number of days of the Term
in the calendar month bears to the total number of days in such month. The term
"RENT" as used in this Lease shall refer to Base Rent, prepaid rent, if any,
real property taxes, insurance costs, repairs and maintenance costs, utilities,
late charges and other similar charges payable by Tenant pursuant to this Lease,
either directly to Landlord or otherwise.
4. TAXES.
4.1 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon Tenant owned leasehold improvements,
trade fixtures, furnishings, equipment and all personal property of Tenant
contained in the Premises or elsewhere. When possible, Tenant shall cause its
leasehold improvements, trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Landlord.
4.2 REAL PROPERTY TAXES. Tenant shall pay prior to delinquency all Real
Property Taxes (as defined below) which accrue in connection with the Premises
during the Term of this Lease. Upon request, Tenant shall furnish Landlord with
satisfactory evidence that all Real Property Taxes are paid and current. If any
Real Property Taxes paid by Tenant cover any period of time prior to the
Commencement Date or after expiration of the Term, Tenant's share of the Real
Property Taxes shall be equitably prorated to cover only the period of time this
Lease is in effect, and Landlord shall reimburse Tenant for any overpayment by
reason of such proration. If Tenant shall fail to pay any Real Property Taxes
required by this Lease to be paid by Tenant, Landlord shall have the right to
pay the same upon ten (10) days written notice to Tenant, and Tenant shall
reimburse Landlord therefor, including any interest and penalties upon demand.
As used herein, the term "REAL PROPERTY TAXES" shall include any form of
real estate tax, any general, special, ordinary or extraordinary assessment, any
improvement bond, levy or similar tax (or any other fee, charge, or excise which
may be imposed as a substitute for any of the foregoing) imposed upon the
Premises by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district, levied against
any legal or equitable interest of Landlord in the Premises. Tenant shall not
be responsible for the payment of any portion of Real Property Taxes which
result from a transfer of an ownership interest in the Premises during the Term
or any tax levied against Landlord's leasing of the Premises.
5. USES.
5.1 AUTHORIZED. The Premises shall be used by Tenant for the sale,
leasing, servicing and repair of new and used automobiles, and all uses
incidental and related thereto, or any other lawful use.
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5.2 COMPLIANCE WITH LAWS. Tenant shall not do or suffer anything to be
done in or on the Premises which will in any way conflict with any law, statute,
ordinance or other governmental rule, regulation or requirement applicable to
the Premises during the Term, or cause or create any nuisance. Tenant shall, at
its sole cost and expense, promptly comply with each and all of said
governmental measures existing now or in the future.
6. HAZARDOUS MATERIALS.
6.1 PERMITTED USE. Landlord acknowledges that the use of the Premises
contemplated by Section 5 above necessarily requires that Tenant have and
maintain certain petroleum-based and other substances on the Premises during the
Term which constitute Hazardous Materials (as defined below). At all times,
Tenant shall store, handle and otherwise maintain all Hazardous Materials kept
on the Premises in full compliance with all applicable laws and regulations, and
Tenant shall take every commercially reasonable caution in connection with the
presence and handling of Hazardous Materials on the Premises.
6.2 INDEMNIFICATION OF LANDLORD. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Landlord
arising from or relating to the release of Hazardous Materials in, on or under
the Premises, or any neighboring property, resulting from Tenant's use or
storage of Hazardous Materials at the Premises. Tenant's indemnification
obligations created by this section shall include, without limitation, all costs
of (i) site investigation and testing, (ii) clean-up, remediation, removal or
restoration work, and (iii) all monitoring activities which are required by any
federal, state or local governmental agency with jurisdiction over the matter as
a result of use or storage of Hazardous Materials at the Premises by Tenant.
6.3 INDEMNIFICATION OF TENANT. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Tenant
arising from or relating to the release or presence of Hazardous Materials in,
on or under the Premises, or any neighboring property, occurring or existing in
connection with the Premises prior to the Commencement Date. Landlord's
indemnification obligations created by this Section shall include, without
limitation, all costs of (i) site investigation and testing, (ii) clean-up,
remediation, removal or restoration work, and (iii) all monitoring activities
which are required by any federal, state or local governmental agency.
6.4 HAZARDOUS MATERIALS DEFINED. As used herein, the term "HAZARDOUS
MATERIALS" means any hazardous or toxic substance, material or waste which is or
becomes regulated by any local governmental authority, the State of California
or the United States Government. The term "hazardous material" includes, without
limitation, any material or substance which is (i) defined as a "hazardous
waste," "extremely hazardous waste" or "restricted hazardous waste" under
Section 25115, 25117 or 25122.7, or listed pursuant to Section 25140, of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law), (ii) defined as a "hazardous substance" under Section 25316 of the
California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-
Tanner Hazardous Substance Account Act), (iii) defined as a "hazardous
material," "hazardous substance," or "hazardous waste" under Section 25501 of
the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous
Materials Release Response Plans and Inventory), (iv) defined as a "hazardous
substance" under Section 25281 of the California Health and Safety Code,
Division 20, Chapter 6.7 (Under Storage of
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Hazardous Substances), (v) petroleum, (vi) friable asbestos not in compliance
with applicable laws or regulations, (vii) listed under Article 9 or defined as
hazardous or extremely hazardous pursuant to Article 11 of Title 22 of the
California Administrative Code, Division 4, Chapter 20, (viii) designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1317), (ix) defined as a "hazardous waste"
pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903), or (x) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42
U.S.C. Section 9601).
7. SERVICES AND UTILITIES. Tenant shall pay prior to delinquency all charges
for water, gas, heat, light, power, telephone, sewage, air conditioning and
ventilating, scavenger, janitorial, landscaping, and all other materials and
utilities supplied to the Premises. Landlord shall not be liable, and Tenant
shall not be entitled to any abatement of Rent (including without limitation,
Base Rent) for the reduction, interruption or suspension of any utility service
to the Premises unless caused by the negligent act or omission of Landlord or
its agents. No such interruption, reduction or suspension of utilities shall
constitute an eviction of Tenant from the Premises.
8. ALTERATIONS.
8.1 TENANT IMPROVEMENTS. Tenant shall obtain Landlord's written consent
prior to performing any alteration, addition or improvement on or to the
Premises; provided, however, that Landlord's consent shall not be required where
the contemplated work (i) does not include any alteration of the structural
components of the Premises, and (ii) will not cost more than Two Hundred Fifty
Thousand Dollars ($250,000.00) to complete. In the event Landlord's consent is
required, such consent shall not be unreasonably withheld, conditioned or
delayed. In all events, Tenant shall provide to Landlord a written description
of any alterations (other than alterations involving expenditure of less than
$10,000). All alterations, additions and improvements shall be constructed in a
good and workmanlike manner by licensed contractors and in compliance with all
applicable laws, regulations, CC&R's, zoning ordinances and building codes.
Except as provided immediately below, all alterations, additions and
improvements constructed in or on the Premises by Tenant shall remain on the
Premises without compensation of any kind to Tenant upon expiration of the Term.
Tenant shall not be required to remove any of the alterations, additions or
improvements made to the Premises during the Term except only those alterations,
additions or improvements requiring Landlord's consent, to the extent Landlord
conditioned its consent upon removal of the subject alteration, addition or
improvement by Tenant at the expiration of the Term. With respect to such
alterations, additions or improvements only, Tenant upon the written request of
Landlord, shall upon the expiration of the Term, remove such alteration,
addition or improvement at its cost and restore the Premises to its condition
prior to such alteration, addition or improvement. Tenant shall maintain
insurance as required by Section 11.2 covering any improvements, alterations or
additions to the Premises made by Tenant under the provisions of this Section
8.1, it being understood and agreed that none of such improvements shall be
insured by Landlord.
8.2 LIENS. Tenant shall keep the Premises free from any liens arising out
of work performed, materials furnished, or obligations incurred by Tenant and
shall indemnify, hold harmless and defend Landlord from any liens and
encumbrances arising out of any work performed or materials furnished by or at
the direction of Tenant. Landlord shall have the right to post and keep posted
on the Premises any notices permitted or required by law, or which Landlord
shall deem proper, for the protection of Landlord and the Premises, and any
other party having an interest therein, from mechanics' and materialmen's liens.
Tenant
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shall give Landlord written notice at least twenty (20) days prior to the
expected date of commencement of any work done or materials delivered to the
Premises for the purpose of posting notices.
9. MAINTENANCE AND REPAIRS.
9.1 AS IS. Tenant acknowledges that it accepts possession of the Premises
from Landlord in its "AS-IS" condition, without representation or warranty from
Landlord as to any component of the Premises unless otherwise expressly set
forth in this Lease.
9.2 TENANT'S OBLIGATIONS.
9.2.1 Tenant shall, at all times during the Term and at Tenant's sole
cost and expense, keep the Premises and every part thereof including structural
and non-structural in good order, condition and repair, ordinary wear and tear
and casualty as described in Section 18 excepted. Tenant shall exercise and
perform good maintenance practices. Tenant's repair and maintenance obligations
shall include all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roof, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about or adjacent
to the Premises (whether or not such portion of the Premises requiring repairs,
or the means of repairing same, are reasonably or readily accessible to Tenant,
and whether or not the need for such repairs occurs as a result of Tenant's use,
any prior use, the elements or the age of such portion of the Premises).
Tenant's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. If, inclusive of Tenant's occupancy
pursuant to earlier lease agreement(s) and amendments thereto, Tenant has
occupied the Premises for seven (7) years or more, Landlord may require Tenant
to repaint the exterior of the buildings on the Premises as reasonably required,
but not more frequently than once every seven (7) years.
9.2.2 Upon the expiration or earlier termination of this Lease,
Tenant shall surrender the Premises in the same condition as delivered on the
Commencement Date, subject to permitted alterations, additions and improvements,
and ordinary wear and tear and casualty, and Tenant shall promptly remove or
cause to be removed, at Tenant's expense, all of Tenant's signs, displays, trade
fixtures and personal property from the Premises.
9.3 LANDLORD'S OBLIGATIONS. During the Term of this Lease, Landlord shall
have no obligation of any kind whatsoever to repair or maintain the Premises, or
any equipment therein, whether structural or non-structural, all of which
obligations are intended to be that of Tenant pursuant to Section 9.2 hereof.
It is the intention of the parties that the terms of this Lease govern the
respective obligations of the parties as to the maintenance and repair of the
Premises. Tenant expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford the Tenant the right to make repairs at
Landlord's expense or to terminate this Lease because of Landlord's failure to
keep the Premises in good order, condition and repair.
9.4 COMPLIANCE WITH LAW. Tenant shall each do all acts required to comply
with all present and future applicable laws, ordinances, regulations and rules
of any public authority relating to its
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maintenance obligations as set forth herein.
10. INDEMNITY.
10.1 TENANT'S OBLIGATIONS. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Landlord arising from or related to (i) Tenant's breach of any
material covenant or condition contained in this Lease, (ii) Tenant's use and
occupancy of the Premises, and/or (iii) the negligent or willful misconduct of
Tenant. In the event any action or proceeding is brought against Landlord which
falls within the scope of this section, Tenant, upon written notice from
Landlord, shall defend Landlord in such action at Tenant's expense by counsel
reasonably satisfactory to Landlord. For purposes of this paragraph, "Tenant"
shall include all of the employees, agents, officers and directors of Tenant.
10.2 LANDLORD'S OBLIGATIONS. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Tenant arising from or related to (i) Landlord's breach of any
material covenant or condition contained in this Lease, and/or (ii) the
negligent or willful misconduct of Landlord. In the event any action or
proceeding is brought against Tenant which falls within the scope of this
section, Landlord, upon written notice from Tenant, shall defend Tenant in such
action at Landlord's expense by counsel reasonably satisfactory to Tenant. For
purposes of this paragraph, "Landlord" shall include all of the employees,
agents, officers and directors of Landlord.
11. INSURANCE.
11.1 GENERAL. All insurance required to be carried by Tenant hereunder
shall be issued by responsible insurance companies reasonably acceptable to
Landlord and the holder of any mortgage or deed of trust secured by any portion
of the Premises (referred to herein as a "MORTGAGEE"). All policies of insurance
provided for in this Lease shall be issued by insurance companies licensed to do
business in the State of California, with general policy holder's rating of not
less than "A-" and a financial rating of not less than "Class X" as rated in the
most current available "Best's Insurance Reports." Each policy shall name
Landlord and at Landlord's request any Mortgagee as an additional insured, as
their respective interests may appear, and a duplicate original of all policies
or certificates evidencing the existence and amounts of such insurance shall be
delivered to Landlord upon Landlord's written request. All policies of
insurance delivered to Landlord shall contain a provision that the company
writing said policy will give Landlord (and any Mortgagee with respect to
property insurance) thirty (30) days written notice in advance of any
cancellation or lapse of or any change in such insurance. All public liability,
property damage and other casualty insurance policies shall be written as
primary policies, not contributing with, and not in excess of coverage which
Landlord may carry. Tenant shall furnish Landlord with renewals or "binders" of
any such policy at least thirty (30) days prior to the expiration thereof. If
Tenant does not procure and maintain such insurance, Landlord may (but shall not
be required to) obtain such insurance on Tenant's behalf and charge Tenant the
premiums therefor which shall be payable upon demand, and no such action by
Landlord shall constitute a waiver of Tenant's default hereunder. Tenant may
carry such insurance under a blanket policy, provided such blanket policy
expressly affords the coverage required by this Lease by a Landlord's protective
liability endorsement or otherwise.
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11.2 PROPERTY INSURANCE. Tenant shall obtain and keep in force during the
Term a policy of insurance in the name of Landlord and Tenant, with loss payable
to Landlord and to any Mortgagee insuring loss or damage to the Premises. The
amount of such insurance shall be equal to the full replacement cost of the
Premises, exclusive of foundations, as the same shall exist from time to time,
or the amount required by any lender(s), but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Such insurance shall, in addition, include
earthquake coverage to the extent required by any Mortgagee provided that such
coverage is available at reasonable commercial rates and shall, in addition,
include flood coverage if the Premises is within a designated flood zone. The
insurance required by this section shall, in addition, include coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises required
to be demolished, and shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, then Tenant shall be liable for
such deductible amount provided that, in no event, shall Tenant be liable for a
deductible amount in excess of $20,000.
11.3 LIABILITY INSURANCE. Tenant shall obtain and keep in force during
the Term of this Lease a commercial general liability policy of insurance
protecting Tenant and Landlord (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than Two Million Dollars
($2,000,000) per occurrence with an "Additional Insured-Managers or Landlords of
Premises" endorsement and contain an "Amendment of the Pollution Exclusion" for
damage caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations. All insurance to be carried by Tenant shall be primary to and
not contributory with any similar insurance carried by Landlord, whose insurance
shall be considered excess insurance only.
11.4 RENTAL VALUE. Tenant shall, in addition, obtain and keep in force
during the Term of this Lease a policy or policies in the name of Landlord, with
loss payable to Landlord and any Mortgagee, insuring the loss of the full rental
or other charges payable by Tenant to Landlord pursuant to this Lease for a
period of not less than one year. Such insurance shall provide that in the
event that the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of Rent from the date of any such loss. Said insurance shall contain an agreed
evaluation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected Rent payable by
Tenant for the next twelve (12) month period. Tenant shall be liable for any
deductible amount in the event of such loss.
11.5 MUTUAL WAIVER. Notwithstanding any provision to the contrary
contained in this Lease, to the extent that this release and waiver does not
invalidate or impair their respective insurance policies, the parties hereto
release each other and their respective agents, employees, officers, directors,
shareholders, successors and assigns from all liability for injury to any person
or damage to any property that is caused by or results from a risk which is
actually insured against pursuant to the provisions of this Lease without
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regard to the negligence or willful misconduct of the parties so released. Each
party shall use its best efforts to cause each insurance policy it obtains to
provide that the insurer thereunder waives all right of recovery by way of
subrogation as required herein in connection with any injury or damage covered
by the policy. If such insurance policy cannot be obtained with such waiver of
subrogation, or if such a waiver of subrogation is only available at additional
cost and the party for whose benefit the waiver is not obtained does not pay
such additional cost after reasonable notice, then the party obtaining such
insurance shall promptly notify the other party of the inability to obtain
insurance coverage with the waiver of subrogation.
12. ASSIGNMENT AND SUBLETTING.
12.1 ASSIGNMENT TO AFFILIATE. Tenant shall have the right to assign its
interest in this Lease, or sublet any portion of the Premises, to any entity in
which FirstAmerica and/or Subsidiary hold either directly or indirectly an
ownership interest without the prior consent of Landlord, provided that such
entity agrees to be bound by the terms and conditions of this Lease. Tenant
shall give Landlord written notice of the effective date of such assignment or
subletting as soon as practicable. In connection with any such assignment,
Tenant shall continue to be jointly and separately liable with the assignee for
the obligations of tenant pursuant to this Lease.
12.2 ASSIGNMENT TO THIRD PARTIES. Except as provided in Section 12.1
above, Tenant shall not assign or encumber its interest in this Lease or the
Premises or sublease all or any portion of the Premises without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld.
Landlord shall give written notice of its consent or its determination not to
consent within thirty (30) days following written request for such consent given
by Tenant to Landlord. Any assignment, encumbrance or sublease without
Landlord's prior written consent shall be voidable and at Landlord's election
shall constitute a default.
12.3 INVOLUNTARY ASSIGNMENT. No interest of Tenant in this Lease shall be
assignable by operation of law including, without limitation, the transfer of
this Lease by will or intestacy. Each of the following acts shall be considered
an involuntary assignment: (a) if Tenant is or becomes bankrupt or insolvent,
makes an assignment for the benefit of creditors, or institutes or becomes the
subject of a proceeding under the Bankruptcy Code in which Tenant is the debtor
and such proceeding remains undismissed for a period of sixty (60) days; (b) if
a writ of attachment or execution is levied on this Lease and not released
within sixty (60) days; (c) if, in any proceeding or action to which Tenant is a
party, a receiver is appointed with authority to take possession of the
Premises. An involuntary assignment shall be deemed to constitute a material
default by Tenant and Landlord shall have the right to elect to terminate this
Lease, in which case this Lease shall not be treated as an asset of Tenant.
12.4 NO RELEASE OF TENANT. Notwithstanding any assignment or subletting
of any interest in this Lease or the Premises by Tenant, unless Landlord
otherwise consents in writing, Tenant shall continue to be liable for the full
performance of all Tenant obligations set forth in the Lease.
13. SALE OF PREMISES OR BUILDING. Each conveyance by Landlord or its successor
in interest of Landlord's interest in the Premises prior to the expiration or
termination of this Lease shall be subject to this Lease and shall relieve the
grantor of all further liability or obligations as Landlord, except for such
liability or obligations accruing prior to the date of such conveyance. Tenant
agrees to attorn to Landlord's successors in interest, whether such interest is
acquired by sale, transfer, foreclosure, deed in lieu of foreclosure or
otherwise.
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14. ENTRY BY LANDLORD. Landlord and its authorized representatives shall have
the right to enter the Premises during business hours and after reasonable
notice (except in the event of an emergency in which case entry may be at any
time and with such prior notice to Tenant as is reasonable under the
circumstances): (a) to inspect the Premises; (b) to supply any service provided
to Tenant hereunder; (c) to show the Premises to prospective lenders,
purchasers, or broker and agents in connection with a sale of the building; (d)
to show the Premises to prospective tenants or brokers and agents in connection
with a leasing of the Premises, but only during the last twelve (12) months of
the Term; (e) to post notices of non-responsibility; (f) to alter, improve or
repair the Premises (to the extent permitted or required hereunder); and (g) to
erect scaffolding and other necessary structures, where required by the work to
be performed, all without reduction or abatement of rent.
15. INSOLVENCY OR BANKRUPTCY.
15.1 ACTS OF DEFAULT. Without limitation, the following events shall
constitute a default under this Lease: (a) if Tenant shall admit in writing its
inability to pay its debts as they mature; (b) if Tenant shall make an
assignment for the benefit of creditors or take any other similar action for the
protection or benefit of creditors; (c) if Tenant shall give notice to any
governmental body of insolvency or pending insolvency, or suspension or pending
suspension of operations; (d) if Tenant shall file a voluntary petition in
bankruptcy or shall be adjudicated a bankrupt or insolvent; (e) if Tenant shall
file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or other similar relief for
itself under any present or future applicable federal, state or other statute or
law relative to bankruptcy, insolvency or other relief for debtors; (f) if a
court of competent jurisdiction shall enter an order, judgment or decree
approving a petition filed against Tenant seeking any relief described in the
preceding clause (e), and (i) Tenant acquiesces in the entry of such order,
judgment or decree (the term "ACQUIESCE" as used in this Section shall include,
without limitation, Tenant's failure to file a petition or motion to vacate or
discharge any order, judgment or decree within sixty (60) days after entry of
such order, judgment or decree), or (ii) such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of sixty (60) days, whether or
not consecutive, from the date of entry thereof; (g) if Tenant shall seek or
consent to or acquiesce in the appointment of any trustee, receiver, conservator
or liquidator of Tenant of all or any substantial part of Tenant's properties or
its interest in the Premises; (h) if any trustee, receiver, conservator or
liquidator of Tenant or of all or any substantial part of its property or its
interest in the Premises shall be appointed without the consent or acquiescence
of Tenant and such appointment shall remain unvacated and unstayed for an
aggregate of sixty (60) days, whether or not consecutive; or (i) if this Lease
or any estate of Tenant hereunder shall be levied upon under any attachment or
execution and such attachment or execution shall remain unvacated and unstayed
for an aggregate of sixty (60) days, whether or not consecutive. Notwithstanding
the foregoing, the above described events shall not constitute a default under
this Lease where Tenant has assigned the Premises as permitted in this Lease,
such assignee has assumed this Lease, and such assignee is not otherwise in
default hereunder.
15.2 RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE. Upon the filing of
a petition by or against Tenant under the United States Bankruptcy Code, Tenant,
as debtor in possession, and any trustee who may be appointed agree as follows:
(a) to perform each and every obligation of Tenant under this Lease until such
time as this Lease is either rejected or assumed by order of the United States
Bankruptcy Court; (b) to pay monthly in advance on the first day of each month
as reasonable compensation for use and occupancy of the Premises the sum
required under Section 3, and all other charges otherwise due pursuant to this
Lease; (c) to reject or assume this Lease within sixty (60) days of the filing
of such petition; (d) to
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give Landlord at least forty-five (45) days prior written notice of any
abandonment of the Premises, any such abandonment to be deemed a rejection of
this Lease; (e) to do all other things of benefit to Landlord otherwise required
under the Bankruptcy Code; (f) to be deemed to have rejected this Lease in the
event of the failure to comply with any of the above; and (g) to have consented
to the entry of an order by an appropriate United States Bankruptcy Court
providing all of the above, waiving notice and hearing of the entry of same.
16. DEFAULT BY TENANT.
16.1 ACTS CONSTITUTING DEFAULTS. In addition to the events specified as a
default under Section 15.1 or elsewhere in this Lease, the material failure of
Tenant to perform each and every material covenant made under this Lease,
including any abandonment of the Premises by Tenant, shall constitute a default
hereunder. However, Landlord shall not commence any action to terminate Tenant's
right of possession as a consequence of a default until any period of grace with
respect thereto has elapsed; provided, such period of grace shall be in lieu of
and not in addition to the period during which Tenant may cure such default
following the delivery of notice pursuant to California Code of Civil Procedure
Section 1161.
16.1.1 Tenant shall have a period of ten (10) days from the date of
written notice from Landlord to Tenant within which to cure any default in the
payment of Base Rent.
16.1.2 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any default in the
payment of any monetary obligation of Tenant pursuant to this Lease other than
the payment of Base Rent.
16.1.3 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any nonmonetary default
under this Lease; provided, however, that with respect to any default which
cannot reasonably be cured within thirty (30) days, the default shall not be
deemed to be uncured if Tenant commences to cure within thirty (30) days from
Landlord's notice and thereafter prosecutes diligently and continuously to
completion all acts required to cure the default.
16.1.4 A default by Tenant in the Loan and Security Agreement or
other similar financing agreements between Tenant and General Electric Capital
Corporation ("GECC"), provided that GECC has accelerated the principal, interest
or other obligations under the agreement between Tenant and GECC.
16.2 LANDLORD'S REMEDIES. If Tenant fails to cure a default within the
time allowed, Landlord shall have the following rights and remedies in addition
to any other rights and remedies available to Landlord at law or in equity.
16.2.1 Landlord may, pursuant to Civil Code (S) 1951.4, continue this
Lease in full force and effect, and this Lease will continue in effect so long
as Landlord does not terminate Tenant's right to possession, and Landlord shall
have the right to collect Rent (including, without limitation, Base Rent) as it
becomes due. During the period Tenant is in default, Landlord can enter the
Premises and relet the Premises, or any part of the Premises, to third parties
for Tenant's account. Tenant shall be liable immediately to Landlord for all
costs Landlord incurs in reletting the Premises, including without limitation,
brokers' commissions, expenses of remodeling the Premises required by the
reletting, and like
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costs. Reletting can be for a period shorter or longer than the remaining Term
of this Lease. Tenant shall pay to Landlord the Rent due under this Lease on the
dates the Rent is due, less the rental amounts Landlord receives from any
reletting. No act by Landlord allowed by this section shall terminate this Lease
unless Landlord notifies Tenant in writing that Landlord elects to terminate
this Lease. After Tenant's default and for so long as Landlord does not
terminate Tenant's right to possession of the Premises, if Tenant obtains
Landlord's consent, Tenant shall have the right to assign or sublet its interest
in this Lease, but Tenant shall not be released from liability. Landlord's
consent to such a proposed assignment or subletting shall not be unreasonably
withheld. If Landlord elects to relet the Premises as provided in this section,
any rental amounts that Landlord receives from reletting shall be applied to the
payment of: first, any indebtedness from Tenant to Landlord other than Rent due
from Tenant; second, all costs, including for maintenance incurred by Landlord
in reletting; and third, Rent due and unpaid under this Lease. After deducting
the payments referred to in this section, any sum remaining from the rental
amounts Landlord receives from reletting shall be held by Landlord and applied
in payment of future Rent as Rent becomes due under this Lease. In no event
shall Tenant be entitled to any excess rental received by Landlord. If, on the
date Rent is due under this Lease, the rent received from the reletting is less
than the Rent due on that date, Tenant shall pay to Landlord, in addition to the
remaining Rent due, all costs including for maintenance Landlord incurred in
reletting that remain after applying the rent received from the reletting as
provided in this section.
16.2.2 Landlord may, pursuant to Civil Code (S) 1951.2, terminate
Tenant's right to possession of the Premises at any time. No act by Landlord
other than giving express written notice thereof to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises, or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. Upon
termination of Tenant's right to possession, Landlord has the right to recover
from Tenant: (1) the Worth of the unpaid Rent that had been earned at the time
of termination of Tenant's right to possession; (2) the Worth of the amount by
which the unpaid Rent that would have been earned after the date of termination
until the time of award exceeds the amount of the loss of Rent that Tenant
proves could have been reasonably avoided; (3) the Worth of the amount of the
unpaid Rent that would have been earned after the award throughout the remaining
Term of the Lease to the extent such unpaid Rent exceeds the amount of the loss
of Rent that Tenant proves could have been reasonably avoided; and (4) any other
amount, including but not limited to, expenses incurred to relet the Premises,
court costs, attorneys' fees and collection costs necessary to compensate
Landlord for all detriment caused by Tenant's default. The "Worth", as used
above in (1) and (2) in this subsection is to be computed by allowing interest
at the lesser of ten percent (10%) per annum or the maximum legal interest rate
permitted by law. The "Worth", as used above in (3) in this subsection is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award, plus one percent (1%).
16.3 LANDLORD'S RIGHT TO CURE DEFAULT. All covenants and agreements to be
performed by Tenant under the terms of this Lease shall be performed by Tenant
at Tenant's sole cost and expense and without any reduction of Rent. If Tenant
shall be in default of its obligations under this Lease to pay any money other
than rental or to perform any other act hereunder, and if such default is not
cured within the applicable grace period (if any) provided in this Section 16,
Landlord may, but shall not be obligated to, make any such payment or perform
any such act on Tenant's part without waiving its rights based upon any default
of Tenant and without releasing Tenant from any of its obligations. All sums so
paid and all costs incurred by Landlord shall be paid to Landlord on demand.
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17. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in default in the
performance of any obligation under this Lease unless and until it has failed to
perform such obligation within thirty (30) days after receipt of written notice
by Tenant to Landlord specifying such failure; provided, however, that if the
nature of Landlord's default is such that more than thirty (30) days are
required for its cure, then Landlord shall not be deemed to be in default if
Landlord meaningfully commences such cure within the thirty (30) day period and
thereafter diligently prosecutes such cure to completion. Tenant agrees to give
any Mortgagee a copy, by registered mail, of any notice of default served upon
Landlord, provided that prior to such notice Tenant has been notified in writing
(by way of Notice of Assignment of Rents and Leases, or otherwise), of the
address of such Mortgagee. Any time during which such Mortgagee may cure
Landlord's default hereunder may, at Tenant's election, run concurrently with
Landlord's time to cure.
18. DAMAGE AND DESTRUCTION
18.1 DAMAGE - INSURED. In the event that the Premises is damaged by fire
or other casualty which is covered under insurance pursuant to the provisions of
Section 11 above, Landlord shall restore such damage provided that: (i)
insurance proceeds are available (inclusive of any deductible amounts) to pay
one hundred percent (100%) of the cost of restoration; and (ii) in the
reasonable judgment of Landlord, the restoration can be completed within three
hundred and sixty (360) days after the date of the damage or casualty under the
laws and regulations of the state, federal, county and municipal authorities
having jurisdiction. The deductible amount of any insurance coverage shall be
paid by Tenant except in the case of flood or earthquake and in such case the
deductible amount in excess of $20,000 per occurrence shall be paid by Landlord.
If such conditions apply so as to require Landlord to restore such damage
pursuant to this Section 18.1, this Lease shall continue in full force and
effect, unless otherwise agreed to in writing by Landlord and Tenant. Tenant
shall be entitled to a proportionate reduction of Rent at all times during which
Tenant's use of the Premises is interrupted, such proportionate reduction to be
based on the extent to which the damage and restoration efforts interfere with
Tenant's business in the Premises. Tenant's right to a reduction of Rent
hereunder shall be Tenant's sole and exclusive remedy in connection with any
such damage.
18.2 DAMAGE - UNINSURED. In the event that the Premises is damaged by a
fire or other casualty and Landlord is not required to restore such damage in
accordance with the provisions of Section 18.1 immediately above, Landlord shall
have the option to either (i) repair or restore such damage, with the Lease
continuing in full force and effect, but Rent to be proportionately abated as
provided in Section 18.1 above; or (ii) give notice to Tenant at any time within
thirty (30) days after the occurrence of such damage terminating this Lease as
of a date to be specified in such notice which date shall not be less than
thirty (30) nor more than sixty (60) days after the date on which such notice of
termination is given. In the event of the giving of such notice of termination,
this Lease shall expire and all interest of Tenant in the Premises shall
terminate on the date so specified in such notice and the Rent, reduced by any
proportionate reduction in Rent as provided for in Section 18.1 above, shall be
paid to the date of such termination. Notwithstanding the foregoing, if Tenant
delivers to Landlord the funds necessary to make up the shortage (or absence) in
insurance proceeds and the restoration can be completed in a three hundred sixty
(360) day period, as reasonably determined by Landlord, Landlord shall restore
the Premises as provided in Section 18.1 above.
18.3 END OF TERM CASUALTY. Notwithstanding the provisions of Sections
18.1 and 18.2 above, either Landlord or Tenant may terminate this Lease if the
Premises is damaged by fire or other casualty (and Landlord's reasonably
estimated cost of restoration of the Premises exceeds ten percent (10%) of the
then replacement value of the Premises) and such damage or casualty occurs
during the last twelve (12) months
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of the Term of this Lease (or the Term of any renewal option, if applicable) by
giving the other notice thereof at any time within thirty (30) days following
the occurrence of such damage or casualty. Such notice shall specify the date of
such termination which date shall not be less than thirty (30) nor more than
sixty (60) days following the date on which such notice of termination is given.
In the event of the giving of such notice of termination, this Lease shall
expire and all interest of Tenant in the Premises shall terminate on the date so
specified in such notice and the Rent shall be paid to the date of such
termination. Notwithstanding the foregoing to the contrary, Landlord shall not
have the right to terminate this Lease if damage or casualty occurs during the
last twelve (12) months of the Term if Tenant timely exercises its option to
extend the Term pursuant to Section 2.2 of this Lease within twenty (20) days
after the date of such damage or casualty.
18.4 TERMINATION BY TENANT. In the event that the destruction to the
Premises cannot be restored as required herein under applicable laws and
regulations within two hundred seventy (270) days of the damage or casualty,
notwithstanding the availability of insurance proceeds, Tenant shall have the
right to terminate this Lease by giving the Landlord notice thereof within
thirty (30) days of date of the occurrence of such casualty specifying the date
of termination which shall not be less than thirty (30) days nor more than sixty
(60) days following the date on which such notice of termination is given. In
the event of the giving of such notice of termination, this Lease shall expire
and all interest of Tenant in the Premises shall terminate on the date so
specified in such notice and the Rent, reduced by any proportionate reduction in
Rent as provided for in Section 18.1 above, shall be paid to the date of such
termination.
18.5 RESTORATION. Landlord agrees that, in any case in which Landlord is
required to, or otherwise agrees to restore the Premises, that Landlord shall
proceed with due diligence to make all appropriate claims and applications for
the proceeds of insurance and to apply for and obtain all permits necessary for
the restoration of the Premises. Landlord shall restore the Premises to the
condition existing prior to the date of the damage if permitted by applicable
law. Landlord shall not be required to restore alterations made by Tenant,
Tenant's improvements, Tenant's trade fixtures, and Tenant's personal property,
such excluded items being the sole responsibility of Tenant to restore provided,
however, that Landlord shall, to the extent of available insurance proceeds,
restore Tenant Improvements to the Premises made by Tenant.
18.6 WAIVER. Tenant waives the provisions of Civil Code (S)1932(2) and
Civil Code (S)1933(4) with respect to any destruction of the Premises.
19. CONDEMNATION.
19.1 DEFINITIONS. The following definitions shall apply: (1)
"CONDEMNATION" means (a) the exercise of any governmental power of eminent
domain, whether by legal proceedings or otherwise by condemnor, or (b) the
voluntary sale or transfer by Landlord to any condemnor either under threat of
condemnation or while legal proceedings for condemnation are proceeding; (2)
"DATE OF TAKING" means the date the condemnor has right to possession of the
property being condemned; (3) "AWARD" means all compensation, sums or anything
of value awarded, paid or received on a total or partial condemnation; and (4)
"CONDEMNOR" means any public or quasi-public authority, or private corporation
or individual, having power of condemnation.
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19.2 OBLIGATIONS TO BE GOVERNED BY LEASE. If during the Term of the Lease
there is any Condemnation of all or any part of the Premises, the rights and
obligations of the parties shall be determined strictly pursuant to this Lease.
Each party waives the provisions of Code of Civil Procedure (S)1265.130 allowing
either party to petition the Superior Court to terminate this Lease in the event
of a partial Condemnation of the Premises.
19.3 TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
Condemnation, this Lease shall terminate on the Date of Taking. If any portion
of the Premises is taken by Condemnation, this Lease shall remain in effect,
except that Tenant can elect to terminate this Lease if the remaining portion of
the Premises is rendered unsuitable for Tenant's continued use of the Premises.
If Tenant elects to terminate this Lease, Tenant must exercise its right to
terminate by giving notice to Landlord within thirty (30) days after the nature
and extent of the Condemnation have been finally determined. If Tenant elects
to terminate this Lease, Tenant shall also notify Landlord of the date of
termination, which date shall not be earlier than thirty (30) days nor later
than ninety (90) days after Tenant has notified Landlord of its election to
terminate; except that this Lease shall terminate on the Date of Taking if the
Date of Taking falls on a date before the date of termination as designated by
Tenant. If any portion of the Premises is taken by Condemnation and this Lease
remains in full force and effect, on the Date of Taking the Base Rent shall be
reduced by an amount in the same ratio as the total number of square feet in the
building(s) which are a part of the Premises taken bears to the total number of
square feet in the building(s) which are a part of the Premises immediately
before the Date of Taking. Any Award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Landlord, whether such Award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Tenant
shall be entitled to any compensation separately awarded to Tenant for Tenant's
relocation expenses and/or loss of Tenant's trade fixtures
20. HOLDING OVER. Any holding over after the expiration of the Term shall be a
tenancy from month to month. The terms, covenants and conditions of such tenancy
shall be the same as provided herein, except that the Base Rent shall be one
hundred three percent (103%) of the Base Rent in effect immediately prior to the
commencement of such holding over. Acceptance by Landlord of Rent after such
expiration shall not result in any other tenancy or any renewal of the Term of
this Lease, and the provisions of this section are in addition to and do not
affect Landlord's right of reentry or other rights provided under this Lease or
by applicable law.
21. ESTOPPEL CERTIFICATES. Within ten (10) business days following any written
request which Landlord and Tenant may make from time to time, Tenant or
Landlord, without any charge therefor, shall execute, acknowledge and deliver to
the other a statement certifying: (a) the Commencement Date of this Lease; (b)
the fact that this Lease is unmodified and in full force and effect (or, if
there have been modifications hereto, that this Lease is in full force and
effect, as modified, and stating the date and nature of such modifications); (c)
the date to which the Base Rent and other sums payable under this Lease have
been paid; (d) the fact that there are no current defaults under this Lease by
either Landlord or Tenant except as specified in the statement; and (e) such
other reasonable matters requested by Landlord or Tenant. Landlord and Tenant
intend that any statement delivered pursuant to this Section may be relied upon
by a mortgagee, beneficiary, purchaser or prospective purchaser of the Premises
or any interest therein, or any financial institution, investment banker,
underwriter or the counsel of each of the foregoing, providing credit or seeking
capital for Tenant or Landlord. The failure of Landlord or Tenant to deliver any
such
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statement within said ten (10) day period shall constitute a material default,
and the defaulting party shall indemnify and hold the other party harmless from
and against any and all liability, loss, cost, damage and expense which such
party may sustain or incur as a result of or in connection with the defaulting
party's failure or delay in delivering such statement.
22. SUBORDINATION AND ATTORNMENT.
22.1 SUBORDINATION. Upon the written request of Landlord or any
Mortgagee, Tenant will in writing subordinate its rights under this Lease to the
lien of any mortgage or deed of trust now or hereafter in force against the
Premises, and to all advances made or hereafter to be made upon the security
thereof, and to all extensions, modifications and renewals thereunder. Tenant
shall also, upon Landlord's request, subordinate its rights hereunder to any
ground or underlying lease which may now exist or hereafter be executed
affecting the Premises and/or the underlying land. Tenant shall have the right
to condition its subordination upon the execution and delivery of an attornment
and non-disturbance agreement, as described in Subsection 22.2, between the
Mortgagee or the lessor under any such ground or underlying lease and Tenant.
22.2 ATTORNMENT AND NON-DISTURBANCE. Upon the written request of the
Landlord or any Mortgagee or any lessor under a ground or underlying lease,
Tenant shall attorn to any such Mortgagee or beneficiary, provided such
Mortgagee or lessor agrees that if Tenant is not in material default under this
Lease, Tenant's possession of the Premises in accordance with the terms of this
Lease shall not be disturbed. Such agreement shall provide, among other things,
(a) that this Lease shall remain in full force and effect, (b) that Tenant pay
rent to said Mortgagee or lessor from the date of said attornment, (c) that said
Mortgagee or lessor shall not be responsible to Tenant under this Lease except
for obligations accruing subsequent to the date of such attornment, and (d) that
Tenant, in the event of foreclosure or a deed in lieu thereof or a termination
of the ground or underlying lease, will enter into and will have the right to, a
new lease with the Mortgagee, lessor or other person having or acquiring title
on the same terms and conditions as this Lease and for the balance of the Term.
22.3 NONMATERIAL AMENDMENTS. If any lender should require any nonmaterial
modification of this Lease as a condition of loans secured by a lien on the
Premises, or the land underlying the Premises, or if any such nonmaterial
modification is required as a condition to a ground or underlying lease, Tenant
will approve and execute any such modifications, promptly after request by
Landlord provided no such modification shall relate to the net effective rent
payable hereunder, the length of the Term or otherwise materially change the
rights or obligations of Landlord or Tenant.
23. WAIVER. If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be deemed
to be a waiver of the term, covenant or condition itself or a waiver of any
subsequent breach of the same or any other term, covenant or condition contained
herein. Furthermore, the acceptance of rent by Landlord shall not constitute a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, regardless of Landlord's knowledge of such preceding breach at the
time Landlord accepts such rent. Failure by either Landlord or Tenant to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or to decrease the right to insist thereafter upon
strict performance by the nonperforming party. Waiver by either party to this
Lease may only be made by a written document signed by the waiving party.
24. ATTORNEYS' FEES. In the event that any action or proceeding (including
arbitration) is brought to
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enforce or interpret any term, covenant or condition of this Lease on the part
of Landlord or Tenant, the prevailing party in such action or proceeding
(whether after trial or appeal) shall be entitled to recover from the party not
prevailing its expenses therein, including reasonable attorneys' fees and all
allowable costs.
25. NOTICES. All notices, requests or demands to a party hereunder shall be
in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier, charges prepaid, addressed as set forth below. Any such notice,
demand, request or other communication shall be deemed to have been given upon
the earlier of personal delivery thereof, three (3) business days after having
been mailed as provided above, or one (1) business day after delivery through a
commercial courier, as the case may be. Notices may be given by facsimile and
shall be effective upon the transmission of such facsimile notice provided that
the facsimile notice is transmitted on a business day and a copy of the
facsimile notice together with evidence of its successful transmission
indicating the date and time of transmission is sent on the day of transmission
by recognized overnight carrier for delivery on the immediately succeeding
business day. Each party shall be entitled to modify its address by notice given
in accordance with this Section 25.
If to Landlord: The Price Trust u/t/d 10/5/84
55 Peninsula Road
Belevedere, CA 94920
Attn: Thomas A. Price
Fax: 650-756-3945
If to Tenant: FirstAmerica Automotive, Inc.
100 The Embarcadero, PH
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax: 415-512-9277
If to Tenant: FAA Serramonte H, Inc.
(Subsidiary) 485 Serramonte Blvd.
Colma, CA 94014
Attn: Thomas A. Price
Fax: 650-756-3945
With a copy to: Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich, Esq.
Fax: 415-512-9277
26. MERGER. Notwithstanding the acquisition (if same should occur) by the same
party of the title and interests of both Landlord and Tenant under this Lease,
there shall not be a merger of the estates of Landlord and Tenant under this
Lease, but instead the separate estates, rights, duties and obligations of
Landlord and Tenant, as existing hereunder, shall remain unextinguished and
continue, separately, in full force and effect until this Lease expires or
otherwise terminates in accordance with the express provisions herein contained.
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27. DEFINED TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used in neuter
gender include the feminine and masculine, where applicable. If there is more
than one Tenant, the obligations imposed under this Lease upon Tenant shall be
joint and several. The headings and titles to the sections and paragraphs of
this Lease are used for convenience only and shall have no effect upon the
construction or interpretation of this Lease.
28. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of
its provisions. This Lease shall in all respects be governed by and interpreted
in accordance with the laws of the State of California.
29. SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 12 and the
limitation expressed below, the terms, covenants and conditions contained herein
shall be binding upon and inure to the benefit of the heirs, successors,
executors, administrators and assigns of the parties hereto. However, the
obligations imposed on Landlord under this Lease shall be binding upon
Landlord's successors and assigns only with respect to obligations arising
during their respective periods of ownership of the Premises.
30. ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all the
agreements of the parties hereto and supersedes any previous negotiations. There
have been no representations made by the Landlord or Tenant or understandings
made between the parties other than those set forth in this Lease and its
exhibits.
31. SEVERABILITY. If any provision of this Lease or the application thereof to
any person or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Lease and the application of such provision to other persons
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
32. SIGNS. Tenant shall have the exclusive right, at its own cost and expense,
to install and affix to the Premises such signs (the "Signs") as Tenant may
desire. The location, construction, size and appearance of the Signs shall
comply with all applicable laws, ordinances and regulations and the requirements
of any governmental agency or authority having jurisdiction thereof. The Signs
shall remain the property of Tenant and may be removed by Tenant at any time
provided that Tenant, at its expense, shall repair any damage caused by reason
of such removal and shall restore the Premises to its original condition. Tenant
shall, at its own expense, maintain the Signs in good condition and working
order, shall comply with all laws, ordinances and regulations with respect
thereto (including the requirements of any governmental agency or authority
having jurisdiction thereof), and shall pay for all utility service to the
Signs. Upon the expiration of the Term or earlier termination of this Lease, or
upon the vacation of the Premises by Tenant, Tenant shall remove the Signs,
shall repair any damage caused by reason of such removal and shall restore the
Premises to its original condition, all at Tenant's sole cost and expense.
33. RECORDABILITY OF LEASE. Landlord and Tenant agree that a Memorandum of
Lease, in a form reasonably acceptable to both Landlord and Tenant, may be
recorded at the request of either party.
34. CONSTRUCTION. All provisions hereof, whether covenants or conditions,
shall be deemed to be both covenants and conditions. The definitions contained
in this Lease shall be used to interpret the Lease. All rights and remedies of
Landlord and Tenant shall, except as otherwise expressly provided, be cumulative
and non-exclusive of any other remedy at law or in equity.
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35. CONSENT. Whenever in this Lease the consent of a party is required to any
act by or for the other party, such consent shall not be unreasonably withheld
or delayed.
36. LIABILITY TO PERFORM. This Lease and the obligations of Tenant or
Landlord hereunder as the case may be, shall not be affected or impaired because
the other party is unable to fulfill any of its obligations hereunder, other
than the payment of money, or is delayed in doing so, if such inability or delay
is caused by reason of force majeure, strike, labor troubles, acts of God, acts
of government, unavailability of materials or labor, or any other cause beyond
the control of such other party.
37. CORPORATE AUTHORITY. Each individual executing this Lease on behalf of
Tenant, represents and warrants that Tenant is duly incorporated, in good
standing and qualified to do business in California, and that he or she is duly
authorized to execute and deliver this Lease on behalf of Tenant and that he or
she will deliver appropriate certification to that effect if requested.
38. QUIET ENJOYMENT. So long as Tenant is not in default under this Lease,
Tenant shall have quiet enjoyment of the Premises for the Term, subject to all
the terms and conditions of this Lease and all liens and encumbrances prior to
this Lease.
39. WAIVER. As material consideration to Landlord, Tenant agrees that
Landlord shall not be liable to Tenant for any damage to Tenant or Tenant's
property from any cause, except for damages resulting from Landlord's gross
negligence or willful misconduct, and Tenant waives all claims against Landlord
for damage to persons or property arising for any reason, except for damage
resulting directly from Landlord's breach of its express obligations under this
Lease which Landlord has not cured within a reasonable time after written notice
of such breach from Tenant.
40. AMENDMENT. This lease may be modified only in writing, signed by the
parties in interest at the time of the modification.
41. CONSTRUCTION. The Landlord and Tenant acknowledge that each has had
its counsel review this Lease and hereby agree that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Lease or in
any amendments or exhibits hereto.
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Wherefore, Landlord and Tenant enter into this Lease as of the day and year
first above written.
LANDLORD: TENANT:
Price Trust u/t/d 10/5/84 FirstAmerica Automotive, Inc.
a Delaware corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
_________________________ ____________________________
Thomas A. Price, Trustee Thomas A. Price, President
FAA Serramonte H, Inc.,
a California corporation
By: /s/ Thomas A. Price
_______________________________
Thomas A. Price, Vice-President
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EXHIBIT 10.9.3
LEASE AGREEMENT
This Lease ("LEASE") is entered into this 1st day of July 1997 in the City
of Colma, County of San Mateo, State of California, between Price Trust u/t/d
10/5/84 ("LANDLORD") and FirstAmerica Automotive, Inc., a Delaware corporation
("FIRSTAMERICA"), and FAA Serramonte L, Inc. a California corporation
("SUBSIDIARY") (collectively, "TENANT").
1. PREMISES. On and subject to the terms, covenants and conditions set forth
in this Lease, Landlord leases to Tenant and Tenant rents from Landlord that
certain real property, including all buildings, improvements and appurtenances
existing thereon, commonly known as 700 Serramonte Boulevard, Colma, California
and as more particularly described and shown on Exhibit A hereto (the
"PREMISES").
2. TERM.
2.1 PERIOD. Subject to Section 2.2 below, the term of this Lease (the
"TERM") shall be for a period of fifteen (15) years commencing on July 1, 1997
(the "COMMENCEMENT DATE") and ending on June 30, 2012 (the "TERMINATION DATE"),
unless sooner terminated pursuant to any provision of this Lease. Except as
otherwise expressly set forth in this Lease, Tenant hereby accepts the Premises
in the condition existing as of the date of execution hereof and Tenant
acknowledges that neither Landlord, nor any representative of Landlord has made
any representation or warranty as to the suitability of the Premises for the
conduct of Tenant's business. If Landlord, for any reason, cannot deliver
possession of the Premises to Tenant on the Commencement Date, this Lease shall
not be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting from such delay. In that event, however, there shall be an
abatement of Rent (as defined below) covering the period between the
Commencement Date and the date when Landlord delivers possession to Tenant and
such date on which possession is delivered shall be the Commencement Date and
the Termination Date shall be the day immediately preceding the tenth
anniversary of the Commencement Date. If a delay in possession is caused by
Tenant's failure to perform any obligation in accordance with this Lease, the
Term shall commence as of the Commencement Date, and there shall be no reduction
of Rent between the Commencement Date and the time Tenant takes possession.
2.2 EXTENDED TERM. Tenant shall have the option to extend the Term for two
(2) consecutive five (5) year periods (the "FIRST EXTENDED TERM" and "SECOND
EXTENDED TERM", respectively) on all the terms and conditions contained in this
Lease including, without limitation, continuation of the adjustment of the Base
Rent on an annual basis as provided in Section 3.3 below (provided only that
upon commencement of the First Extended Term the only remaining option to extend
the Term shall be the Second Extended Term and upon exercise of the option with
respect to the Second Extended Term, no further right to extend the Term shall
exist). Tenant shall deliver, if at all, written notice of its exercise of the
option ("OPTION NOTICE") to Landlord at least six (6) months but not more than
one (1) year before the expiration of the Term or First Extended Term, as the
case may be. In the event Tenant fails to deliver the applicable Option Notice
within the time allowed, Landlord shall deliver written notice to Tenant of
Tenant's failure to deliver the Option Notice, and Tenant shall then have thirty
(30) days from receipt of such notice within which to deliver the Option Notice,
if at all, to Landlord. In the event (and only in the event) that, Tenant fails
to deliver an Option Notice to Landlord within such thirty (30) days, Tenant
shall be considered to have elected not to extend the Term of this Lease and
thereafter, Tenant shall have no further right to extend the Term of this Lease.
References in this Lease to the "Term" shall include the initial Term of
fifteen (15) years and shall, in addition, include the First Extended Term and
the Second Extended Term, if applicable.
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3. RENT.
3.1 BASE RENT. Tenant shall pay to Landlord as monthly base rent ("BASE
RENT") for the Premises, in advance on the Commencement Date and on the first
(1st) day of each and every calendar month of the Term thereafter, without
deduction, set-off, prior notice or demand in a lawful currency of the United
States of America, the Base Rent as described in this Lease. The Base Rent
commencing as of the Commencement Date and continuing through the last day of
the month in which the third anniversary of the Commencement Date occurs, shall
be the sum of $ 50,000 per month. Commencing on the first day of the calendar
month immediately thereafter, and continuing for the balance of the Term
(including the First Extended Term and the Second Extended Term, if applicable)
the Base Rent shall be adjusted as provided in Section 3.3.
3.2 LATE CHARGE. Tenant acknowledges that late payment by Tenant to
Landlord of any Base Rent shall cause Landlord to incur costs not contemplated
by this Lease, the exact amount of such cost being extremely difficult and
impracticable to ascertain. Such costs include, without limitation, processing
and accounting charges and late charges that may be imposed on Landlord by the
terms of any encumbrance or note secured by the Premises. Therefor, if any Base
Rent is not received by Landlord within ten (10) days of its due date, Tenant
shall pay to Landlord a late charge equal to Five Hundred Dollars ($500).
Landlord and Tenant hereby agree that such late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of any such
late payment and that the late charge is in addition to any and all remedies
available to the Landlord and that the assessment and/or collection of the late
charge shall not be deemed a waiver of any other default.
3.3 ADJUSTMENT TO BASE RENT. The Base Rent, commencing on the first day of
the calendar month immediately following the calendar month in which the third
anniversary of the Commencement Date occurs ("INITIAL ADJUSTMENT DATE") shall be
adjusted in accordance with the provisions of this Section 3.3 and shall,
thereafter, be adjusted annually on each anniversary of the Initial Adjustment
Date (each date an "ADJUSTMENT DATE") during the balance of the Term (including
the First Extended Term and the Second Extended Term, if applicable). Such
adjustment to Base Rent shall reflect two-thirds (2/3) of any increase in the
Consumer Price Index and shall be calculated as follows:
The base for computing the adjustment is the Consumer Price Index (All
Items) for Urban Consumers for the San Francisco-Oakland-San Jose Metropolitan
Area, published by the United States Department of Labor, Bureau of Labor
Statistics ("INDEX") which is in effect immediately prior to the second
anniversary of the Commencement Date ("BEGINNING INDEX"). The Index published
and in effect on the 30th day preceding the Initial Adjustment Date and on the
30th day preceding each Adjustment Date thereafter ("ADJUSTMENT INDEX") is to be
used in determining the amount of the increase from one year to the next.
Beginning as of the Initial Adjustment Date and continuing on each Adjustment
Date thereafter, the Base Rent shall be increased to equal the product achieved
by multiplying the initial Base Rent amount by a fraction, the numerator of
which shall be an amount equal to the sum of (i) the Beginning Index plus (ii)
two-thirds (2/3) of the amount, if any, by which the Adjustment Index is greater
than the Beginning Index, and the denominator of which will be the Beginning
Index. Notwithstanding the foregoing, the Base Rent shall not be increased by
more than six percent (6%) nor less than four percent (4%) of the Base Rent for
the immediately preceding year in any one year period.
If the Index is changed so that the base year differs from that described
above, the Index shall be
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converted in accordance with the conversion factor published by the United
States Department of Labor, Bureau of Labor Statistics. If the Index is
discontinued or revised during the Term, such other government index or
computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised.
On adjustment of the Base Rent as provided in Section 3.3 above, the
parties shall immediately execute an amendment to the Lease stating the new Base
Rent.
3.4 PRORATION. If the Term begins or ends on a day other than the first or
last day of a calendar month, the Base Rent payable for such calendar month of
the Term shall be prorated on the basis which the number of days of the Term in
the calendar month bears to the total number of days in such month. The term
"RENT" as used in this Lease shall refer to Base Rent, prepaid rent, if any,
real property taxes, insurance costs, repairs and maintenance costs, utilities,
late charges and other similar charges payable by Tenant pursuant to this Lease,
either directly to Landlord or otherwise.
4. TAXES.
4.1 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon Tenant owned leasehold improvements,
trade fixtures, furnishings, equipment and all personal property of Tenant
contained in the Premises or elsewhere. When possible, Tenant shall cause its
leasehold improvements, trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Landlord.
4.2 REAL PROPERTY TAXES. Tenant shall pay prior to delinquency all Real
Property Taxes (as defined below) which accrue in connection with the Premises
during the Term of this Lease. Upon request, Tenant shall furnish Landlord with
satisfactory evidence that all Real Property Taxes are paid and current. If any
Real Property Taxes paid by Tenant cover any period of time prior to the
Commencement Date or after expiration of the Term, Tenant's share of the Real
Property Taxes shall be equitably prorated to cover only the period of time this
Lease is in effect, and Landlord shall reimburse Tenant for any overpayment by
reason of such proration. If Tenant shall fail to pay any Real Property Taxes
required by this Lease to be paid by Tenant, Landlord shall have the right to
pay the same upon ten (10) days written notice to Tenant, and Tenant shall
reimburse Landlord therefor, including any interest and penalties upon demand.
As used herein, the term "REAL PROPERTY TAXES" shall include any form of
real estate tax, any general, special, ordinary or extraordinary assessment, any
improvement bond, levy or similar tax (or any other fee, charge, or excise which
may be imposed as a substitute for any of the foregoing) imposed upon the
Premises by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district, levied against
any legal or equitable interest of Landlord in the Premises. Tenant shall not be
responsible for the payment of any portion of Real Property Taxes which result
from a transfer of an ownership interest in the Premises during the Term or any
tax levied against Landlord's leasing of the Premises.
5. USES.
5.1 AUTHORIZED. The Premises shall be used by Tenant for the sale,
leasing, servicing and repair of new and used automobiles, and all uses
incidental and related thereto, or any other lawful use.
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5.2 COMPLIANCE WITH LAWS. Tenant shall not do or suffer anything to be
done in or on the Premises which will in any way conflict with any law, statute,
ordinance or other governmental rule, regulation or requirement applicable to
the Premises during the Term, or cause or create any nuisance. Tenant shall, at
its sole cost and expense, promptly comply with each and all of said
governmental measures existing now or in the future.
6. HAZARDOUS MATERIALS.
6.1 PERMITTED USE. Landlord acknowledges that the use of the Premises
contemplated by Section 5 above necessarily requires that Tenant have and
maintain certain petroleum-based and other substances on the Premises during the
Term which constitute Hazardous Materials (as defined below). At all times,
Tenant shall store, handle and otherwise maintain all Hazardous Materials kept
on the Premises in full compliance with all applicable laws and regulations, and
Tenant shall take every commercially reasonable caution in connection with the
presence and handling of Hazardous Materials on the Premises.
6.2 INDEMNIFICATION OF LANDLORD. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Landlord
arising from or relating to the release of Hazardous Materials in, on or under
the Premises, or any neighboring property, resulting from Tenant's use or
storage of Hazardous Materials at the Premises. Tenant's indemnification
obligations created by this section shall include, without limitation, all costs
of (i) site investigation and testing, (ii) clean-up, remediation, removal or
restoration work, and (iii) all monitoring activities which are required by any
federal, state or local governmental agency with jurisdiction over the matter as
a result of use or storage of Hazardous Materials at the Premises by Tenant.
6.3 INDEMNIFICATION OF TENANT. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Tenant
arising from or relating to the release or presence of Hazardous Materials in,
on or under the Premises, or any neighboring property, occurring or existing in
connection with the Premises prior to the Commencement Date. Landlord's
indemnification obligations created by this Section shall include, without
limitation, all costs of (i) site investigation and testing, (ii) clean-up,
remediation, removal or restoration work, and (iii) all monitoring activities
which are required by federal, state or local governmental agency.
6.4 HAZARDOUS MATERIALS DEFINED. As used herein, the term "HAZARDOUS
MATERIALS" means any hazardous or toxic substance, material or waste which is or
becomes regulated by any local governmental authority, the State of California
or the United States Government. The term "hazardous material" includes, without
limitation, any material or substance which is (i) defined as a "hazardous
waste," "extremely hazardous waste" or "restricted hazardous waste" under
Section 25115, 25117 or 25122.7, or listed pursuant to Section 25140, of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law), (ii) defined as a "hazardous substance" under Section 25316 of the
California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-
Tanner Hazardous Substance Account Act), (iii) defined as a "hazardous
material," "hazardous substance," or "hazardous waste" under Section 25501 of
the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous
Materials Release Response Plans and Inventory), (iv) defined as a "hazardous
substance"
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under Section 25281 of the California Health and Safety Code, Division 20,
Chapter 6.7 (Under Storage of Hazardous Substances), (v) petroleum, (vi) friable
asbestos not in compliance with applicable laws or regulations, (vii) listed
under Article 9 or defined as hazardous or extremely hazardous pursuant to
Article 11 of Title 22 of the California Administrative Code, Division 4,
Chapter 20, (viii) designated as a "hazardous substance" pursuant to Section 311
of the Federal Water Pollution Control Act (33 U.S.C. Section 1317), (ix)
defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section
6903), or (x) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq. (42 U.S.C. Section 9601).
7. SERVICES AND UTILITIES. Tenant shall pay prior to delinquency all charges
for water, gas, heat, light, power, telephone, sewage, air conditioning and
ventilating, scavenger, janitorial, landscaping, and all other materials and
utilities supplied to the Premises. Landlord shall not be liable, and Tenant
shall not be entitled to any abatement of Rent (including without limitation,
Base Rent) for the reduction, interruption or suspension of any utility service
to the Premises unless caused by the negligent act or omission of Landlord or
its agents. No such interruption, reduction or suspension of utilities shall
constitute an eviction of Tenant from the Premises.
8. ALTERATIONS.
8.1 TENANT IMPROVEMENTS. Tenant shall obtain Landlord's written consent
prior to performing any alteration, addition or improvement on or to the
Premises; provided, however, that Landlord's consent shall not be required where
the contemplated work (i) does not include any alteration of the structural
components of the Premises, and (ii) will not cost more than Two Hundred Fifty
Thousand Dollars ($250,000.00) to complete. In the event Landlord's consent is
required, such consent shall not be unreasonably withheld, conditioned or
delayed. In all events, Tenant shall provide to Landlord a written description
of any alterations (other than alterations involving expenditure of less than
$10,000). All alterations, additions and improvements shall be constructed in a
good and workmanlike manner by licensed contractors and in compliance with all
applicable laws, regulations, CC&R's, zoning ordinances and building codes.
Except as provided immediately below, all alterations, additions and
improvements constructed in or on the Premises by Tenant shall remain on the
Premises without compensation of any kind to Tenant upon expiration of the Term.
Tenant shall not be required to remove any of the alterations, additions or
improvements made to the Premises during the Term except only those alterations,
additions or improvements requiring Landlord's consent, to the extent Landlord
conditioned its consent upon removal of the subject alteration, addition or
improvement by Tenant at the expiration of the Term. With respect to such
alterations, additions or improvements only, Tenant upon the written request of
Landlord, shall upon the expiration of the Term, remove such alteration,
addition or improvement at its cost and restore the Premises to its condition
prior to such alteration, addition or improvement. Tenant shall maintain
insurance as required by Section 11.2 covering any improvements, alterations or
additions to the Premises made by Tenant under the provisions of this Section
8.1, it being understood and agreed that none of such improvements shall be
insured by Landlord.
8.2 LIENS. Tenant shall keep the Premises free from any liens arising out
of work performed, materials furnished, or obligations incurred by Tenant and
shall indemnify, hold harmless and defend Landlord from any liens and
encumbrances arising out of any work performed or materials furnished by or at
the direction of Tenant. Landlord shall have the right to post and keep posted
on the Premises any notices
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permitted or required by law, or which Landlord shall deem proper, for the
protection of Landlord and the Premises, and any other party having an interest
therein, from mechanics' and materialmen's liens. Tenant shall give Landlord
written notice at least twenty (20) days prior to the expected date of
commencement of any work done or materials delivered to the Premises for the
purpose of posting notices.
9. MAINTENANCE AND REPAIRS.
9.1 AS IS. Tenant acknowledges that it accepts possession of the Premises
from Landlord in its "AS-IS" condition, without representation or warranty from
Landlord as to any component of the Premises unless otherwise expressly set
forth in this Lease.
9.2 TENANT'S OBLIGATIONS.
9.2.1 Tenant shall, at all times during the Term and at Tenant's sole
cost and expense, keep the Premises and every part thereof including structural
and non-structural in good order, condition and repair, ordinary wear and tear
and casualty as described in Section 18 excepted. Tenant shall exercise and
perform good maintenance practices. Tenant's repair and maintenance obligations
shall include all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roof, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about or adjacent
to the Premises (whether or not such portion of the Premises requiring repairs,
or the means of repairing same, are reasonably or readily accessible to Tenant,
and whether or not the need for such repairs occurs as a result of Tenant's use,
any prior use, the elements or the age of such portion of the Premises).
Tenant's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. If, inclusive of Tenant's occupancy
pursuant to earlier lease agreement(s) and amendments thereto, Tenant has
occupied the Premises for seven (7) years or more, Landlord may require Tenant
to repaint the exterior of the buildings on the Premises as reasonably required,
but not more frequently than once every seven (7) years.
9.2.2 Upon the expiration or earlier termination of this Lease,
Tenant shall surrender the Premises in the same condition as delivered on the
Commencement Date, subject to permitted alterations, additions and improvements,
and ordinary wear and tear and casualty, and Tenant shall promptly remove or
cause to be removed, at Tenant's expense, all of Tenant's signs, displays, trade
fixtures and personal property from the Premises.
9.3 LANDLORD'S OBLIGATIONS. During the Term of this Lease, Landlord shall
have no obligation of any kind whatsoever to repair or maintain the Premises, or
any equipment therein, whether structural or non-structural, all of which
obligations are intended to be that of Tenant pursuant to Section 9.2 hereof. It
is the intention of the parties that the terms of this Lease govern the
respective obligations of the parties as to the maintenance and repair of the
Premises. Tenant expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford the Tenant the right to make repairs at
Landlord's expense or to terminate this Lease because of Landlord's failure to
keep the Premises in good order, condition and repair.
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9.4 COMPLIANCE WITH LAW. Tenant shall each do all acts required to comply
with all present and future applicable laws, ordinances, regulations and rules
of any public authority relating to its maintenance obligations as set forth
herein.
10. INDEMNITY.
10.1 TENANT'S OBLIGATIONS. Tenant shall defend, indemnify and hold Landlord
harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Landlord arising from or related to (i) Tenant's breach of any
material covenant or condition contained in this Lease, (ii) Tenant's use and
occupancy of the Premises, and/or (iii) the negligent or willful misconduct of
Tenant. In the event any action or proceeding is brought against Landlord which
falls within the scope of this section, Tenant, upon written notice from
Landlord, shall defend Landlord in such action at Tenant's expense by counsel
reasonably satisfactory to Landlord. For purposes of this paragraph, "Tenant"
shall include all of the employees, agents, officers and directors of Tenant.
10.2 LANDLORD'S OBLIGATIONS. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Tenant arising from or related to (i) Landlord's breach of any
material covenant or condition contained in this Lease, and/or (ii) the
negligent or willful misconduct of Landlord. In the event any action or
proceeding is brought against Tenant which falls within the scope of this
section, Landlord, upon written notice from Tenant, shall defend Tenant in such
action at Landlord's expense by counsel reasonably satisfactory to Tenant. For
purposes of this paragraph, "Landlord" shall include all of the employees,
agents, officers and directors of Landlord.
11. INSURANCE.
11.1 GENERAL. All insurance required to be carried by Tenant hereunder
shall be issued by responsible insurance companies reasonably acceptable to
Landlord and the holder of any mortgage or deed of trust secured by any portion
of the Premises (referred to herein as a "MORTGAGEE"). All policies of insurance
provided for in this Lease shall be issued by insurance companies licensed to do
business in the State of California, with general policy holder's rating of not
less than "A-" and a financial rating of not less than "Class X" as rated in the
most current available "Best's Insurance Reports." Each policy shall name
Landlord and at Landlord's request any Mortgagee as an additional insured, as
their respective interests may appear, and a duplicate original of all policies
or certificates evidencing the existence and amounts of such insurance shall be
delivered to Landlord upon Landlord's written request. All policies of insurance
delivered to Landlord shall contain a provision that the company writing said
policy will give Landlord (and any Mortgagee with respect to property insurance)
thirty (30) days written notice in advance of any cancellation or lapse of or
any change in such insurance. All public liability, property damage and other
casualty insurance policies shall be written as primary policies, not
contributing with, and not in excess of coverage which Landlord may carry.
Tenant shall furnish Landlord with renewals or "binders" of any such policy at
least thirty (30) days prior to the expiration thereof. If Tenant does not
procure and maintain such insurance, Landlord may (but shall not be required to)
obtain such insurance on Tenant's behalf and charge Tenant the premiums therefor
which shall be payable upon demand, and no such action by Landlord shall
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constitute a waiver of Tenant's default hereunder. Tenant may carry such
insurance under a blanket policy, provided such blanket policy expressly affords
the coverage required by this Lease by a Landlord's protective liability
endorsement or otherwise.
11.2 PROPERTY INSURANCE. Tenant shall obtain and keep in force during the
Term a policy of insurance in the name of Landlord and Tenant, with loss payable
to Landlord and to any Mortgagee insuring loss or damage to the Premises. The
amount of such insurance shall be equal to the full replacement cost of the
Premises, exclusive of foundations, as the same shall exist from time to time,
or the amount required by any lender(s), but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Such insurance shall, in addition, include
earthquake coverage to the extent required by any Mortgagee provided that such
coverage is available at reasonable commercial rates and shall, in addition,
include flood coverage if the Premises is within a designated flood zone. The
insurance required by this section shall, in addition, include coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises required
to be demolished, and shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, then Tenant shall be liable for
such deductible amount provided that, in no event, shall Tenant be liable for a
deductible amount in excess of $20,000.
11.3 LIABILITY INSURANCE. Tenant shall obtain and keep in force during the
Term of this Lease a commercial general liability policy of insurance protecting
Tenant and Landlord (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than Two Million Dollars
($2,000,000) per occurrence with an "Additional Insured-Managers or Landlords of
Premises" endorsement and contain an "Amendment of the Pollution Exclusion" for
damage caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations. All insurance to be carried by Tenant shall be primary to and not
contributory with any similar insurance carried by Landlord, whose insurance
shall be considered excess insurance only.
11.4 RENTAL VALUE. Tenant shall, in addition, obtain and keep in force
during the Term of this Lease a policy or policies in the name of Landlord, with
loss payable to Landlord and any Mortgagee, insuring the loss of the full rental
or other charges payable by Tenant to Landlord pursuant to this Lease for a
period of not less than one year. Such insurance shall provide that in the event
that the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of Rent from the date of any such loss. Said insurance shall contain an agreed
evaluation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected Rent payable by
Tenant for the next twelve (12) month period. Tenant shall be liable for any
deductible amount in the event of such loss.
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11.5 MUTUAL WAIVER. Notwithstanding any provision to the contrary contained
in this Lease, to the extent that this release and waiver does not invalidate or
impair their respective insurance policies, the parties hereto release each
other and their respective agents, employees, officers, directors, shareholders,
successors and assigns from all liability for injury to any person or damage to
any property that is caused by or results from a risk which is actually insured
against pursuant to the provisions of this Lease without regard to the
negligence or willful misconduct of the parties so released. Each party shall
use its best efforts to cause each insurance policy it obtains to provide that
the insurer thereunder waives all right of recovery by way of subrogation as
required herein in connection with any injury or damage covered by the policy.
If such insurance policy cannot be obtained with such waiver of subrogation, or
if such a waiver of subrogation is only available at additional cost and the
party for whose benefit the waiver is not obtained does not pay such additional
cost after reasonable notice, then the party obtaining such insurance shall
promptly notify the other party of the inability to obtain insurance coverage
with the waiver of subrogation.
12. ASSIGNMENT AND SUBLETTING.
12.1 ASSIGNMENT TO AFFILIATE. Tenant shall have the right to assign its
interest in this Lease, or sublet any portion of the Premises, to any entity in
which FirstAmerica and/or Subsidiary hold either directly or indirectly an
ownership interest without the prior consent of Landlord, provided that such
entity agrees to be bound by the terms and conditions of this Lease. Tenant
shall give Landlord written notice of the effective date of such assignment or
subletting as soon as practicable. In connection with any such assignment,
Tenant shall continue to be jointly and separately liable with the assignee for
the obligations of tenant pursuant to this Lease.
12.2 ASSIGNMENT TO THIRD PARTIES. Except as provided in Section 12.1 above,
Tenant shall not assign or encumber its interest in this Lease or the Premises
or sublease all or any portion of the Premises without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld.
Landlord shall give written notice of its consent or its determination not to
consent within thirty (30) days following written request for such consent given
by Tenant to Landlord. Any assignment, encumbrance or sublease without
Landlord's prior written consent shall be voidable and at Landlord's election
shall constitute a default.
12.3 INVOLUNTARY ASSIGNMENT. No interest of Tenant in this Lease shall be
assignable by operation of law including, without limitation, the transfer of
this Lease by will or intestacy. Each of the following acts shall be considered
an involuntary assignment: (a) if Tenant is or becomes bankrupt or insolvent,
makes an assignment for the benefit of creditors, or institutes or becomes the
subject of a proceeding under the Bankruptcy Code in which Tenant is the debtor
and such proceeding remains undismissed for a period of sixty (60) days; (b) if
a writ of attachment or execution is levied on this Lease and not released
within sixty (60) days; (c) if, in any proceeding or action to which Tenant is a
party, a receiver is appointed with authority to take possession of the
Premises. An involuntary assignment shall be deemed to constitute a material
default by Tenant and Landlord shall have the right to elect to terminate this
Lease, in which case this Lease shall not be treated as an asset of Tenant.
12.4 NO RELEASE OF TENANT. Notwithstanding any assignment or subletting of
any interest in this Lease or the Premises by Tenant, unless Landlord otherwise
consents in writing, Tenant shall continue to be liable for the full performance
of all Tenant obligations set forth in the Lease.
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13. SALE OF PREMISES OR BUILDING. Each conveyance by Landlord or its successor
in interest of Landlord's interest in the Premises prior to the expiration or
termination of this Lease shall be subject to this Lease and shall relieve the
grantor of all further liability or obligations as Landlord, except for such
liability or obligations accruing prior to the date of such conveyance. Tenant
agrees to attorn to Landlord's successors in interest, whether such interest is
acquired by sale, transfer, foreclosure, deed in lieu of foreclosure or
otherwise.
14. ENTRY BY LANDLORD. Landlord and its authorized representatives shall have
the right to enter the Premises during business hours and after reasonable
notice (except in the event of an emergency in which case entry may be at any
time and with such prior notice to Tenant as is reasonable under the
circumstances): (a) to inspect the Premises; (b) to supply any service provided
to Tenant hereunder; (c) to show the Premises to prospective lenders,
purchasers, or broker and agents in connection with a sale of the building; (d)
to show the Premises to prospective tenants or brokers and agents in connection
with a leasing of the Premises, but only during the last twelve (12) months of
the Term; (e) to post notices of non-responsibility; (f) to alter, improve or
repair the Premises (to the extent permitted or required hereunder); and (g) to
erect scaffolding and other necessary structures, where required by the work to
be performed, all without reduction or abatement of rent.
15. INSOLVENCY OR BANKRUPTCY.
15.1 ACTS OF DEFAULT. Without limitation, the following events shall
constitute a default under this Lease: (a) if Tenant shall admit in writing its
inability to pay its debts as they mature; (b) if Tenant shall make an
assignment for the benefit of creditors or take any other similar action for the
protection or benefit of creditors; (c) if Tenant shall give notice to any
governmental body of insolvency or pending insolvency, or suspension or pending
suspension of operations; (d) if Tenant shall file a voluntary petition in
bankruptcy or shall be adjudicated a bankrupt or insolvent; (e) if Tenant shall
file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or other similar relief for
itself under any present or future applicable federal, state or other statute or
law relative to bankruptcy, insolvency or other relief for debtors; (f) if a
court of competent jurisdiction shall enter an order, judgment or decree
approving a petition filed against Tenant seeking any relief described in the
preceding clause (e), and (i) Tenant acquiesces in the entry of such order,
judgment or decree (the term "ACQUIESCE" as used in this Section shall include,
without limitation, Tenant's failure to file a petition or motion to vacate or
discharge any order, judgment or decree within sixty (60) days after entry of
such order, judgment or decree), or (ii) such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of sixty (60) days, whether or
not consecutive, from the date of entry thereof; (g) if Tenant shall seek or
consent to or acquiesce in the appointment of any trustee, receiver, conservator
or liquidator of Tenant of all or any substantial part of Tenant's properties or
its interest in the Premises; (h) if any trustee, receiver, conservator or
liquidator of Tenant or of all or any substantial part of its property or its
interest in the Premises shall be appointed without the consent or acquiescence
of Tenant and such appointment shall remain unvacated and unstayed for an
aggregate of sixty (60) days, whether or not consecutive; or (i) if this Lease
or any estate of Tenant hereunder shall be levied upon under any attachment or
execution and such attachment or execution shall remain unvacated and unstayed
for an aggregate of sixty (60) days, whether or not consecutive. Notwithstanding
the foregoing, the above described events shall not constitute a default under
this Lease where Tenant has assigned the Premises as permitted in this Lease,
such assignee has assumed this Lease, and such assignee is not otherwise in
default hereunder.
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15.2 RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE. Upon the filing of a
petition by or against Tenant under the United States Bankruptcy Code, Tenant,
as debtor in possession, and any trustee who may be appointed agree as follows:
(a) to perform each and every obligation of Tenant under this Lease until such
time as this Lease is either rejected or assumed by order of the United States
Bankruptcy Court; (b) to pay monthly in advance on the first day of each month
as reasonable compensation for use and occupancy of the Premises the sum
required under Section 3, and all other charges otherwise due pursuant to this
Lease; (c) to reject or assume this Lease within sixty (60) days of the filing
of such petition; (d) to give Landlord at least forty-five (45) days prior
written notice of any abandonment of the Premises, any such abandonment to be
deemed a rejection of this Lease; (e) to do all other things of benefit to
Landlord otherwise required under the Bankruptcy Code; (f) to be deemed to have
rejected this Lease in the event of the failure to comply with any of the above;
and (g) to have consented to the entry of an order by an appropriate United
States Bankruptcy Court providing all of the above, waiving notice and hearing
of the entry of same.
16. DEFAULT BY TENANT.
16.1 ACTS CONSTITUTING DEFAULTS. In addition to the events specified as a
default under Section 15.1 or elsewhere in this Lease, the material failure of
Tenant to perform each and every material covenant made under this Lease,
including any abandonment of the Premises by Tenant, shall constitute a default
hereunder. However, Landlord shall not commence any action to terminate Tenant's
right of possession as a consequence of a default until any period of grace with
respect thereto has elapsed; provided, such period of grace shall be in lieu of
and not in addition to the period during which Tenant may cure such default
following the delivery of notice pursuant to California Code of Civil Procedure
Section 1161.
16.1.1 Tenant shall have a period of ten (10) days from the date of
written notice from Landlord to Tenant within which to cure any default in the
payment of Base Rent.
16.1.2 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any default in the
payment of any monetary obligation of Tenant pursuant to this Lease other than
the payment of Base Rent.
16.1.3 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any nonmonetary default
under this Lease; provided, however, that with respect to any default which
cannot reasonably be cured within thirty (30) days, the default shall not be
deemed to be uncured if Tenant commences to cure within thirty (30) days from
Landlord's notice and thereafter prosecutes diligently and continuously to
completion all acts required to cure the default.
16.1.4 A default by Tenant in the Loan and Security Agreement or
other similar financing agreements between Tenant and General Electric Capital
Corporation ("GECC"), provided that GECC has accelerated the principal, interest
or other obligations under the agreement between Tenant and GECC.
16.2 LANDLORD'S REMEDIES. If Tenant fails to cure a default within the time
allowed, Landlord shall have the following rights and remedies in addition to
any other rights and remedies available to Landlord at law or in equity.
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16.2.1 Landlord may, pursuant to Civil Code (S) 1951.4, continue
this Lease in full force and effect, and this Lease will continue in effect so
long as Landlord does not terminate Tenant's right to possession, and Landlord
shall have the right to collect Rent (including, without limitation, Base Rent)
as it becomes due. During the period Tenant is in default, Landlord can enter
the Premises and relet the Premises, or any part of the Premises, to third
parties for Tenant's account. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises, including without
limitation, brokers' commissions, expenses of remodeling the Premises required
by the reletting, and like costs. Reletting can be for a period shorter or
longer than the remaining Term of this Lease. Tenant shall pay to Landlord the
Rent due under this Lease on the dates the Rent is due, less the rental amounts
Landlord receives from any reletting. No act by Landlord allowed by this section
shall terminate this Lease unless Landlord notifies Tenant in writing that
Landlord elects to terminate this Lease. After Tenant's default and for so long
as Landlord does not terminate Tenant's right to possession of the Premises, if
Tenant obtains Landlord's consent, Tenant shall have the right to assign or
sublet its interest in this Lease, but Tenant shall not be released from
liability. Landlord's consent to such a proposed assignment or subletting shall
not be unreasonably withheld. If Landlord elects to relet the Premises as
provided in this section, any rental amounts that Landlord receives from
reletting shall be applied to the payment of: first, any indebtedness from
Tenant to Landlord other than Rent due from Tenant; second, all costs, including
for maintenance incurred by Landlord in reletting; and third, Rent due and
unpaid under this Lease. After deducting the payments referred to in this
section, any sum remaining from the rental amounts Landlord receives from
reletting shall be held by Landlord and applied in payment of future Rent as
Rent becomes due under this Lease. In no event shall Tenant be entitled to any
excess rental received by Landlord. If, on the date Rent is due under this
Lease, the rent received from the reletting is less than the Rent due on that
date, Tenant shall pay to Landlord, in addition to the remaining Rent due, all
costs including for maintenance Landlord incurred in reletting that remain after
applying the rent received from the reletting as provided in this section.
16.2.2 Landlord may, pursuant to Civil Code (S) 1951.2, terminate
Tenant's right to possession of the Premises at any time. No act by Landlord
other than giving express written notice thereof to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises, or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. Upon
termination of Tenant's right to possession, Landlord has the right to recover
from Tenant: (1) the Worth of the unpaid Rent that had been earned at the time
of termination of Tenant's right to possession; (2) the Worth of the amount by
which the unpaid Rent that would have been earned after the date of termination
until the time of award exceeds the amount of the loss of Rent that Tenant
proves could have been reasonably avoided; (3) the Worth of the amount of the
unpaid Rent that would have been earned after the award throughout the remaining
Term of the Lease to the extent such unpaid Rent exceeds the amount of the loss
of Rent that Tenant proves could have been reasonably avoided; and (4) any other
amount, including but not limited to, expenses incurred to relet the Premises,
court costs, attorneys' fees and collection costs necessary to compensate
Landlord for all detriment caused by Tenant's default. The "Worth", as used
above in (1) and (2) in this subsection is to be computed by allowing interest
at the lesser of ten percent (10%) per annum or the maximum legal interest rate
permitted by law. The "Worth", as used above in (3) in this subsection is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award, plus one percent (1%).
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16.3 LANDLORD'S RIGHT TO CURE DEFAULT. All covenants and agreements to be
performed by Tenant under the terms of this Lease shall be performed by Tenant
at Tenant's sole cost and expense and without any reduction of Rent. If Tenant
shall be in default of its obligations under this Lease to pay any money other
than rental or to perform any other act hereunder, and if such default is not
cured within the applicable grace period (if any) provided in this Section 16,
Landlord may, but shall not be obligated to, make any such payment or perform
any such act on Tenant's part without waiving its rights based upon any default
of Tenant and without releasing Tenant from any of its obligations. All sums so
paid and all costs incurred by Landlord shall be paid to Landlord on demand.
17. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in default in the
performance of any obligation under this Lease unless and until it has failed to
perform such obligation within thirty (30) days after receipt of written notice
by Tenant to Landlord specifying such failure; provided, however, that if the
nature of Landlord's default is such that more than thirty (30) days are
required for its cure, then Landlord shall not be deemed to be in default if
Landlord meaningfully commences such cure within the thirty (30) day period and
thereafter diligently prosecutes such cure to completion. Tenant agrees to give
any Mortgagee a copy, by registered mail, of any notice of default served upon
Landlord, provided that prior to such notice Tenant has been notified in writing
(by way of Notice of Assignment of Rents and Leases, or otherwise), of the
address of such Mortgagee. Any time during which such Mortgagee may cure
Landlord's default hereunder may, at Tenant's election, run concurrently with
Landlord's time to cure.
18. DAMAGE AND DESTRUCTION
18.1 DAMAGE - INSURED. In the event that the Premises is damaged by fire or
other casualty which is covered under insurance pursuant to the provisions of
Section 11 above, Landlord shall restore such damage provided that: (i)
insurance proceeds are available (inclusive of any deductible amounts) to pay
one hundred percent (100%) of the cost of restoration; and (ii) in the
reasonable judgment of Landlord, the restoration can be completed within three
hundred and sixty (360) days after the date of the damage or casualty under the
laws and regulations of the state, federal, county and municipal authorities
having jurisdiction. The deductible amount of any insurance coverage shall be
paid by Tenant except in the case of flood or earthquake and in such case the
deductible amount in excess of $20,000 per occurrence shall be paid by Landlord.
If such conditions apply so as to require Landlord to restore such damage
pursuant to this Section 18.1, this Lease shall continue in full force and
effect, unless otherwise agreed to in writing by Landlord and Tenant. Tenant
shall be entitled to a proportionate reduction of Rent at all times during which
Tenant's use of the Premises is interrupted, such proportionate reduction to be
based on the extent to which the damage and restoration efforts interfere with
Tenant's business in the Premises. Tenant's right to a reduction of Rent
hereunder shall be Tenant's sole and exclusive remedy in connection with any
such damage.
18.2 DAMAGE - UNINSURED. In the event that the Premises is damaged by a
fire or other casualty and Landlord is not required to restore such damage in
accordance with the provisions of Section 18.1 immediately above, Landlord shall
have the option to either (i) repair or restore such damage, with the Lease
continuing in full force and effect, but Rent to be proportionately abated as
provided in Section 18.1 above; or (ii) give notice to Tenant at any time within
thirty (30) days after the occurrence of such damage terminating this Lease as
of a date to be specified in such notice which date shall not be less than
thirty (30) nor more than sixty (60) days after the date on which such notice of
termination is given. In the event of the giving of such notice of termination,
this Lease shall expire and all interest of Tenant in the Premises shall
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terminate on the date so specified in such notice and the Rent, reduced by any
proportionate reduction in Rent as provided for in Section 18.1 above, shall be
paid to the date of such termination. Notwithstanding the foregoing, if Tenant
delivers to Landlord the funds necessary to make up the shortage (or absence) in
insurance proceeds and the restoration can be completed in a three hundred sixty
(360) day period, as reasonably determined by Landlord, Landlord shall restore
the Premises as provided in Section 18.1 above.
18.3 END OF TERM CASUALTY. Notwithstanding the provisions of Sections 18.1
and 18.2 above, either Landlord or Tenant may terminate this Lease if the
Premises is damaged by fire or other casualty (and Landlord's reasonably
estimated cost of restoration of the Premises exceeds ten percent (10%) of the
then replacement value of the Premises) and such damage or casualty occurs
during the last twelve (12) months of the Term of this Lease (or the Term of any
renewal option, if applicable) by giving the other notice thereof at any time
within thirty (30) days following the occurrence of such damage or casualty.
Such notice shall specify the date of such termination which date shall not be
less than thirty (30) nor more than sixty (60) days following the date on which
such notice of termination is given. In the event of the giving of such notice
of termination, this Lease shall expire and all interest of Tenant in the
Premises shall terminate on the date so specified in such notice and the Rent
shall be paid to the date of such termination. Notwithstanding the foregoing to
the contrary, Landlord shall not have the right to terminate this Lease if
damage or casualty occurs during the last twelve (12) months of the Term if
Tenant timely exercises its option to extend the Term pursuant to Section 2.2 of
this Lease within twenty (20) days after the date of such damage or casualty.
18.4 TERMINATION BY TENANT. In the event that the destruction to the
Premises cannot be restored as required herein under applicable laws and
regulations within two hundred seventy (270) days of the damage or casualty,
notwithstanding the availability of insurance proceeds, Tenant shall have the
right to terminate this Lease by giving the Landlord notice thereof within
thirty (30) days of date of the occurrence of such casualty specifying the date
of termination which shall not be less than thirty (30) days nor more than sixty
(60) days following the date on which such notice of termination is given. In
the event of the giving of such notice of termination, this Lease shall expire
and all interest of Tenant in the Premises shall terminate on the date so
specified in such notice and the Rent, reduced by any proportionate reduction in
Rent as provided for in Section 18.1 above, shall be paid to the date of such
termination.
18.5 RESTORATION. Landlord agrees that, in any case in which Landlord is
required to, or otherwise agrees to restore the Premises, that Landlord shall
proceed with due diligence to make all appropriate claims and applications for
the proceeds of insurance and to apply for and obtain all permits necessary for
the restoration of the Premises. Landlord shall restore the Premises to the
condition existing prior to the date of the damage if permitted by applicable
law. Landlord shall not be required to restore alterations made by Tenant,
Tenant's improvements, Tenant's trade fixtures, and Tenant's personal property,
such excluded items being the sole responsibility of Tenant to restore provided,
however, that Landlord shall, to the extent of available insurance proceeds,
restore Tenant Improvements to the Premises made by Tenant.
18.6 WAIVER. Tenant waives the provisions of Civil Code (S)1932(2) and
Civil Code (S)1933(4) with respect to any destruction of the Premises.
19. CONDEMNATION.
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19.1 DEFINITIONS. The following definitions shall apply: (1) "CONDEMNATION"
means (a) the exercise of any governmental power of eminent domain, whether by
legal proceedings or otherwise by condemnor, or (b) the voluntary sale or
transfer by Landlord to any condemnor either under threat of condemnation or
while legal proceedings for condemnation are proceeding; (2) "DATE OF TAKING"
means the date the condemnor has right to possession of the property being
condemned; (3) "AWARD" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation; and (4)
"CONDEMNOR" means any public or quasi-public authority, or private corporation
or individual, having power of condemnation.
19.2 OBLIGATIONS TO BE GOVERNED BY LEASE. If during the Term of the Lease
there is any Condemnation of all or any part of the Premises, the rights and
obligations of the parties shall be determined strictly pursuant to this Lease.
Each party waives the provisions of Code of Civil Procedure (S)1265.130 allowing
either party to petition the Superior Court to terminate this Lease in the event
of a partial Condemnation of the Premises.
19.3 TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
Condemnation, this Lease shall terminate on the Date of Taking. If any portion
of the Premises is taken by Condemnation, this Lease shall remain in effect,
except that Tenant can elect to terminate this Lease if the remaining portion of
the Premises is rendered unsuitable for Tenant's continued use of the Premises.
If Tenant elects to terminate this Lease, Tenant must exercise its right to
terminate by giving notice to Landlord within thirty (30) days after the nature
and extent of the Condemnation have been finally determined. If Tenant elects to
terminate this Lease, Tenant shall also notify Landlord of the date of
termination, which date shall not be earlier than thirty (30) days nor later
than ninety (90) days after Tenant has notified Landlord of its election to
terminate; except that this Lease shall terminate on the Date of Taking if the
Date of Taking falls on a date before the date of termination as designated by
Tenant. If any portion of the Premises is taken by Condemnation and this Lease
remains in full force and effect, on the Date of Taking the Base Rent shall be
reduced by an amount in the same ratio as the total number of square feet in the
building(s) which are a part of the Premises taken bears to the total number of
square feet in the building(s) which are a part of the Premises immediately
before the Date of Taking. Any Award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Landlord, whether such Award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Tenant
shall be entitled to any compensation separately awarded to Tenant for Tenant's
relocation expenses and/or loss of Tenant's trade fixtures
20. HOLDING OVER. Any holding over after the expiration of the Term shall be a
tenancy from month to month. The terms, covenants and conditions of such tenancy
shall be the same as provided herein, except that the Base Rent shall be one
hundred three percent (103%) of the Base Rent in effect immediately prior to the
commencement of such holding over. Acceptance by Landlord of Rent after such
expiration shall not result in any other tenancy or any renewal of the Term of
this Lease, and the provisions of this section are in addition to and do not
affect Landlord's right of reentry or other rights provided under this Lease or
by applicable law.
21. ESTOPPEL CERTIFICATES. Within ten (10) business days following any written
request which Landlord and Tenant may make from time to time, Tenant or
Landlord, without any charge therefor, shall execute, acknowledge and deliver to
the other a statement certifying: (a) the Commencement Date of this
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Lease; (b) the fact that this Lease is unmodified and in full force and effect
(or, if there have been modifications hereto, that this Lease is in full force
and effect, as modified, and stating the date and nature of such modifications);
(c) the date to which the Base Rent and other sums payable under this Lease have
been paid; (d) the fact that there are no current defaults under this Lease by
either Landlord or Tenant except as specified in the statement; and (e) such
other reasonable matters requested by Landlord or Tenant. Landlord and Tenant
intend that any statement delivered pursuant to this Section may be relied upon
by a mortgagee, beneficiary, purchaser or prospective purchaser of the Premises
or any interest therein, or any financial institution, investment banker,
underwriter or the counsel of each of the foregoing, providing credit or seeking
capital for Tenant or Landlord. The failure of Landlord or Tenant to deliver any
such statement within said ten (10) day period shall constitute a material
default, and the defaulting party shall indemnify and hold the other party
harmless from and against any and all liability, loss, cost, damage and expense
which such party may sustain or incur as a result of or in connection with the
defaulting party's failure or delay in delivering such statement.
22. SUBORDINATION AND ATTORNMENT.
22.1 SUBORDINATION. Upon the written request of Landlord or any Mortgagee,
Tenant will in writing subordinate its rights under this Lease to the lien of
any mortgage or deed of trust now or hereafter in force against the Premises,
and to all advances made or hereafter to be made upon the security thereof, and
to all extensions, modifications and renewals thereunder. Tenant shall also,
upon Landlord's request, subordinate its rights hereunder to any ground or
underlying lease which may now exist or hereafter be executed affecting the
Premises and/or the underlying land. Tenant shall have the right to condition
its subordination upon the execution and delivery of an attornment and non-
disturbance agreement, as described in Subsection 22.2, between the Mortgagee or
the lessor under any such ground or underlying lease and Tenant.
22.2 ATTORNMENT AND NON-DISTURBANCE. Upon the written request of the
Landlord or any Mortgagee or any lessor under a ground or underlying lease,
Tenant shall attorn to any such Mortgagee or beneficiary, provided such
Mortgagee or lessor agrees that if Tenant is not in material default under this
Lease, Tenant's possession of the Premises in accordance with the terms of this
Lease shall not be disturbed. Such agreement shall provide, among other things,
(a) that this Lease shall remain in full force and effect, (b) that Tenant pay
rent to said Mortgagee or lessor from the date of said attornment, (c) that said
Mortgagee or lessor shall not be responsible to Tenant under this Lease except
for obligations accruing subsequent to the date of such attornment, and (d) that
Tenant, in the event of foreclosure or a deed in lieu thereof or a termination
of the ground or underlying lease, will enter into and will have the right to, a
new lease with the Mortgagee, lessor or other person having or acquiring title
on the same terms and conditions as this Lease and for the balance of the Term.
22.3 NONMATERIAL AMENDMENTS. If any lender should require any nonmaterial
modification of this Lease as a condition of loans secured by a lien on the
Premises, or the land underlying the Premises, or if any such nonmaterial
modification is required as a condition to a ground or underlying lease, Tenant
will approve and execute any such modifications, promptly after request by
Landlord provided no such modification shall relate to the net effective rent
payable hereunder, the length of the Term or otherwise materially change the
rights or obligations of Landlord or Tenant.
23. WAIVER. If either Landlord or Tenant waives the performance of any term,
covenant or condition
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contained in this Lease, such waiver shall not be deemed to be a waiver of the
term, covenant or condition itself or a waiver of any subsequent breach of the
same or any other term, covenant or condition contained herein. Furthermore, the
acceptance of rent by Landlord shall not constitute a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time Landlord accepts such
rent. Failure by either Landlord or Tenant to enforce any of the terms,
covenants or conditions of this Lease for any length of time shall not be deemed
to waive or to decrease the right to insist thereafter upon strict performance
by the nonperforming party. Waiver by either party to this Lease may only be
made by a written document signed by the waiving party.
24. ATTORNEYS' FEES. In the event that any action or proceeding (including
arbitration) is brought to enforce or interpret any term, covenant or condition
of this Lease on the part of Landlord or Tenant, the prevailing party in such
action or proceeding (whether after trial or appeal) shall be entitled to
recover from the party not prevailing its expenses therein, including reasonable
attorneys' fees and all allowable costs.
25. NOTICES. All notices, requests or demands to a party hereunder shall be in
writing and shall be given or served upon the other party by personal service,
by certified return receipt requested or registered mail, postage prepaid, or by
Federal Express or other nationally recognized commercial courier, charges
prepaid, addressed as set forth below. Any such notice, demand, request or other
communication shall be deemed to have been given upon the earlier of personal
delivery thereof, three (3) business days after having been mailed as provided
above, or one (1) business day after delivery through a commercial courier, as
the case may be. Notices may be given by facsimile and shall be effective upon
the transmission of such facsimile notice provided that the facsimile notice is
transmitted on a business day and a copy of the facsimile notice together with
evidence of its successful transmission indicating the date and time of
transmission is sent on the day of transmission by recognized overnight carrier
for delivery on the immediately succeeding business day. Each party shall be
entitled to modify its address by notice given in accordance with this Section
25.
If to Landlord: The Price Trust u/t/d
1500 Collins Avenue
Colma, CA 94014
Attention: Thomas A. Price
FAX: 415-756-3945
If to Tenant: FirstAmerica Automotive, Inc.
100 The Embarcadero, PH
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax: 415-512-9277
If to Tenant: FAA Serramonte L, Inc.
(Subsidiary) 700 Serramonte Blvd.
Colma, CA 94014
Attn: Thomas A. Price
Fax: 415-756-3945
With a copy to: Kay & Merkle
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100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich, Esq.
Fax: 415-512-9277
26. MERGER. Notwithstanding the acquisition (if same should occur) by the same
party of the title and interests of both Landlord and Tenant under this Lease,
there shall not be a merger of the estates of Landlord and Tenant under this
Lease, but instead the separate estates, rights, duties and obligations of
Landlord and Tenant, as existing hereunder, shall remain unextinguished and
continue, separately, in full force and effect until this Lease expires or
otherwise terminates in accordance with the express provisions herein contained.
27. DEFINED TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used in neuter
gender include the feminine and masculine, where applicable. If there is more
than one Tenant, the obligations imposed under this Lease upon Tenant shall be
joint and several. The headings and titles to the sections and paragraphs of
this Lease are used for convenience only and shall have no effect upon the
construction or interpretation of this Lease.
28. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of
its provisions. This Lease shall in all respects be governed by and interpreted
in accordance with the laws of the State of California.
29. SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 12 and the
limitation expressed below, the terms, covenants and conditions contained herein
shall be binding upon and inure to the benefit of the heirs, successors,
executors, administrators and assigns of the parties hereto. However, the
obligations imposed on Landlord under this Lease shall be binding upon
Landlord's successors and assigns only with respect to obligations arising
during their respective periods of ownership of the Premises.
30. ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all the
agreements of the parties hereto and supersedes any previous negotiations. There
have been no representations made by the Landlord or Tenant or understandings
made between the parties other than those set forth in this Lease and its
exhibits.
31. SEVERABILITY. If any provision of this Lease or the application thereof to
any person or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Lease and the application of such provision to other persons
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
32. SIGNS. Tenant shall have the exclusive right, at its own cost and expense,
to install and affix to the Premises such signs (the "Signs") as Tenant may
desire. The location, construction, size and appearance of the Signs shall
comply with all applicable laws, ordinances and regulations and the requirements
of any governmental agency or authority having jurisdiction thereof. The Signs
shall remain the property of Tenant and may be removed by Tenant at any time
provided that Tenant, at its expense, shall repair any damage caused by reason
of such removal and shall restore the Premises to its original condition. Tenant
shall, at its own expense, maintain the Signs in good condition and working
order, shall comply with all laws, ordinances and regulations with respect
thereto (including the requirements of any governmental agency or
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authority having jurisdiction thereof), and shall pay for all utility service to
the Signs. Upon the expiration of the Term or earlier termination of this Lease,
or upon the vacation of the Premises by Tenant, Tenant shall remove the Signs,
shall repair any damage caused by reason of such removal and shall restore the
Premises to its original condition, all at Tenant's sole cost and expense.
33. RECORDABILITY OF LEASE. Landlord and Tenant agree that a Memorandum of
Lease, in a form reasonably acceptable to both Landlord and Tenant, may be
recorded at the request of either party.
34. CONSTRUCTION. All provisions hereof, whether covenants or conditions, shall
be deemed to be both covenants and conditions. The definitions contained in this
Lease shall be used to interpret the Lease. All rights and remedies of Landlord
and Tenant shall, except as otherwise expressly provided, be cumulative and non-
exclusive of any other remedy at law or in equity.
35. CONSENT. Whenever in this Lease the consent of a party is required to any
act by or for the other party, such consent shall not be unreasonably withheld
or delayed.
36. LIABILITY TO PERFORM. This Lease and the obligations of Tenant or Landlord
hereunder as the case may be, shall not be affected or impaired because the
other party is unable to fulfill any of its obligations hereunder, other than
the payment of money, or is delayed in doing so, if such inability or delay is
caused by reason of force majeure, strike, labor troubles, acts of God, acts of
government, unavailability of materials or labor, or any other cause beyond the
control of such other party.
37. CORPORATE AUTHORITY. Each individual executing this Lease on behalf of
Tenant, represents and warrants that Tenant is duly incorporated, in good
standing and qualified to do business in California, and that he or she is duly
authorized to execute and deliver this Lease on behalf of Tenant and that he or
she will deliver appropriate certification to that effect if requested.
38. QUIET ENJOYMENT. So long as Tenant is not in default under this Lease,
Tenant shall have quiet enjoyment of the Premises for the Term, subject to all
the terms and conditions of this Lease and all liens and encumbrances prior to
this Lease.
39. WAIVER. As material consideration to Landlord, Tenant agrees that Landlord
shall not be liable to Tenant for any damage to Tenant or Tenant's property from
any cause, except for damages resulting from Landlord's gross negligence or
willful misconduct, and Tenant waives all claims against Landlord for damage to
persons or property arising for any reason, except for damage resulting directly
from Landlord's breach of its express obligations under this Lease which
Landlord has not cured within a reasonable time after written notice of such
breach from Tenant.
40. AMENDMENT. This lease may be modified only in writing, signed by the
parties in interest at the time of the modification.
41. CONSTRUCTION. The Landlord and Tenant acknowledge that each has had its
counsel review this Lease and hereby agree that the normal rule of construction
to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Lease or in any amendments
or exhibits hereto.
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Wherefore, Landlord and Tenant enter into this Lease as of the day and year
first above written.
LANDLORD: TENANT:
Price Trust u/t/d 10/5/84 FirstAmerica Automotive, Inc.
a Delaware corporation
By: /s/ Thomas A. Price By: /s/ Thomas A. Price
_______________________ ____________________________
Thomas A. Price, Trustee Thomas A. Price, President
FAA Serramonte L, Inc.
a California corporation
By: /s/ Thomas A. Price
_____________________________
Thomas A. Price, President
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EXHIBIT 10.9.4
LEASE AGREEMENT
This Lease ("LEASE") is entered into this 1st day of July 1997 in the City
of Santa Clara, County of Santa Clara, State of California, between Rosewood
Village Associates, a California limited partnership ("LANDLORD") and
FirstAmerica Automotive, Inc., a Delaware corporation ("FIRSTAMERICA"), and
California Carriage Limited a California corporation ("SUBSIDIARY")
(collectively, "TENANT").
1. PREMISES. On and subject to the terms, covenants and conditions set forth
in this Lease, Landlord leases to Tenant and Tenant rents from Landlord that
certain real property, including all buildings, improvements and appurtenances
existing thereon, commonly known as 1300 Concord Avenue, Concord, California and
as more particularly described and shown on Exhibit A hereto (the "PREMISES").
2. TERM.
2.1 PERIOD. Subject to Section 2.2 below, the term of this Lease (the
"TERM") shall be for a period of fifteen (15) years commencing on July 1, 1997
(the "COMMENCEMENT DATE") and ending on June 30, 2012 (the "TERMINATION DATE"),
unless sooner terminated pursuant to any provision of this Lease. Except as
otherwise expressly set forth in this Lease, Tenant hereby accepts the Premises
in the condition existing as of the date of execution hereof and Tenant
acknowledges that neither Landlord, nor any representative of Landlord has made
any representation or warranty as to the suitability of the Premises for the
conduct of Tenant's business. If Landlord, for any reason, cannot deliver
possession of the Premises to Tenant on the Commencement Date, this Lease shall
not be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting from such delay. In that event, however, there shall be an
abatement of Rent (as defined below) covering the period between the
Commencement Date and the date when Landlord delivers possession to Tenant and
such date on which possession is delivered shall be the Commencement Date and
the Termination Date shall be the day immediately preceding the tenth
anniversary of the Commencement Date. If a delay in possession is caused by
Tenant's failure to perform any obligation in accordance with this Lease, the
Term shall commence as of the Commencement Date, and there shall be no reduction
of Rent between the Commencement Date and the time Tenant takes possession.
2.2 EXTENDED TERM. Tenant shall have the option to extend the Term for two
(2) consecutive five (5) year periods (the "FIRST EXTENDED TERM" and "SECOND
EXTENDED TERM", respectively) on all the terms and conditions contained in this
Lease including, without limitation, continuation of the adjustment of the Base
Rent on an annual basis as provided in Section 3.3 below (provided only that
upon commencement of the First Extended Term the only remaining option to extend
the Term shall be the Second Extended Term and upon exercise of the option with
respect to the Second Extended Term, no further right to extend the Term shall
exist). Tenant shall deliver, if at all, written notice of its exercise of the
option ("OPTION NOTICE") to Landlord at least six (6) months but not more than
one (1) year before the expiration of the Term or First Extended Term, as the
case may be. In the event Tenant fails to deliver the applicable Option Notice
within the time allowed, Landlord shall deliver written notice to Tenant of
Tenant's failure to deliver the Option Notice, and Tenant shall then have thirty
(30) days from receipt of such notice within which to deliver the Option Notice,
if at all, to Landlord. In the event (and only in the event) that, Tenant fails
to deliver an Option Notice to Landlord within such thirty (30) days, Tenant
shall be considered to have elected not to extend the Term of this Lease and
thereafter, Tenant shall have no further right to extend the Term of this Lease.
References in this Lease to the "Term" shall include the initial Term of
fifteen (15) years and shall,
<PAGE>
in addition, include the First Extended Term and the Second Extended Term, if
applicable.
3. RENT.
3.1 BASE RENT. Tenant shall pay to Landlord as monthly base rent ("BASE
RENT") for the Premises, in advance on the Commencement Date and on the first
(1st) day of each and every calendar month of the Term thereafter, without
deduction, set-off, prior notice or demand in a lawful currency of the United
States of America, the Base Rent as described in this Lease. The Base Rent
commencing as of the Commencement Date and continuing through the last day of
the month in which the third anniversary of the Commencement Date occurs, shall
be the sum of $32,500 per month. Commencing on the first day of the calendar
month immediately thereafter, and continuing for the balance of the Term
(including the First Extended Term and the Second Extended Term, if applicable)
the Base Rent shall be adjusted as provided in Section 3.3.
3.2 LATE CHARGE. Tenant acknowledges that late payment by Tenant to
Landlord of any Base Rent shall cause Landlord to incur costs not contemplated
by this Lease, the exact amount of such cost being extremely difficult and
impracticable to ascertain. Such costs include, without limitation, processing
and accounting charges and late charges that may be imposed on Landlord by the
terms of any encumbrance or note secured by the Premises. Therefor, if any Base
Rent is not received by Landlord within ten (10) days of its due date, Tenant
shall pay to Landlord a late charge equal to Five Hundred Dollars ($500).
Landlord and Tenant hereby agree that such late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of any such
late payment and that the late charge is in addition to any and all remedies
available to the Landlord and that the assessment and/or collection of the late
charge shall not be deemed a waiver of any other default.
3.3 ADJUSTMENT TO BASE RENT. The Base Rent, commencing on the first day of
the calendar month immediately following the calendar month in which the third
anniversary of the Commencement Date occurs ("INITIAL ADJUSTMENT DATE") shall be
adjusted in accordance with the provisions of this Section 3.3 and shall,
thereafter, be adjusted annually on each anniversary of the Initial Adjustment
Date (each date an "ADJUSTMENT DATE") during the balance of the Term (including
the First Extended Term and the Second Extended Term, if applicable). Such
adjustment to Base Rent shall reflect two-thirds (2/3) of any increase in the
Consumer Price Index and shall be calculated as follows:
The base for computing the adjustment is the Consumer Price Index (All
Items) for Urban Consumers for the San Francisco-Oakland-San Jose Metropolitan
Area, published by the United States Department of Labor, Bureau of Labor
Statistics ("INDEX") which is in effect immediately prior to the second
anniversary of the Commencement Date ("BEGINNING INDEX"). The Index published
and in effect on the 30th day preceding the Initial Adjustment Date and on the
30th day preceding each Adjustment Date thereafter ("ADJUSTMENT INDEX") is to be
used in determining the amount of the increase from one year to the next.
Beginning as of the Initial Adjustment Date and continuing on each Adjustment
Date thereafter, the Base Rent shall be increased to equal the product achieved
by multiplying the initial Base Rent amount by a fraction, the numerator of
which shall be an amount equal to the sum of (i) the Beginning Index plus (ii)
two-thirds (2/3) of the amount, if any, by which the Adjustment Index is greater
than the Beginning Index, and the denominator of which will be the Beginning
Index. Notwithstanding the foregoing, the Base Rent shall not be increased by
more than six percent (6%) nor less than four percent (4%) of the Base Rent for
the immediately preceding year in any one year period.
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If the Index is changed so that the base year differs from that described
above, the Index shall be converted in accordance with the conversion factor
published by the United States Department of Labor, Bureau of Labor Statistics.
If the Index is discontinued or revised during the Term, such other government
index or computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised.
On adjustment of the Base Rent as provided in Section 3.3 above, the
parties shall immediately execute an amendment to the Lease stating the new Base
Rent.
3.4 PRORATION. If the Term begins or ends on a day other than the first
or last day of a calendar month, the Base Rent payable for such calendar month
of the Term shall be prorated on the basis which the number of days of the Term
in the calendar month bears to the total number of days in such month. The term
"RENT" as used in this Lease shall refer to Base Rent, prepaid rent, if any,
real property taxes, insurance costs, repairs and maintenance costs, utilities,
late charges and other similar charges payable by Tenant pursuant to this Lease,
either directly to Landlord or otherwise.
4. TAXES.
4.1 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon Tenant owned leasehold improvements,
trade fixtures, furnishings, equipment and all personal property of Tenant
contained in the Premises or elsewhere. When possible, Tenant shall cause its
leasehold improvements, trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Landlord.
4.2 REAL PROPERTY TAXES. Tenant shall pay prior to delinquency all Real
Property Taxes (as defined below) which accrue in connection with the Premises
during the Term of this Lease. Upon request, Tenant shall furnish Landlord with
satisfactory evidence that all Real Property Taxes are paid and current. If any
Real Property Taxes paid by Tenant cover any period of time prior to the
Commencement Date or after expiration of the Term, Tenant's share of the Real
Property Taxes shall be equitably prorated to cover only the period of time this
Lease is in effect, and Landlord shall reimburse Tenant for any overpayment by
reason of such proration. If Tenant shall fail to pay any Real Property Taxes
required by this Lease to be paid by Tenant, Landlord shall have the right to
pay the same upon ten (10) days written notice to Tenant, and Tenant shall
reimburse Landlord therefor, including any interest and penalties upon demand.
As used herein, the term "REAL PROPERTY TAXES" shall include any form of
real estate tax, any general, special, ordinary or extraordinary assessment, any
improvement bond, levy or similar tax (or any other fee, charge, or excise which
may be imposed as a substitute for any of the foregoing) imposed upon the
Premises by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district, levied against
any legal or equitable interest of Landlord in the Premises. Tenant shall not
be responsible for the payment of any portion of Real Property Taxes which
result from a transfer of an ownership interest in the Premises during the Term
or any tax levied against Landlord's leasing of the Premises.
5. USES.
5.1 AUTHORIZED. The Premises shall be used by Tenant for the sale,
leasing, servicing and repair of new and used automobiles, and all uses
incidental and related thereto, or any other lawful use.
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5.2 COMPLIANCE WITH LAWS. Tenant shall not do or suffer anything to be
done in or on the Premises which will in any way conflict with any law, statute,
ordinance or other governmental rule, regulation or requirement applicable to
the Premises during the Term, or cause or create any nuisance. Tenant shall, at
its sole cost and expense, promptly comply with each and all of said
governmental measures existing now or in the future.
6. HAZARDOUS MATERIALS.
6.1 PERMITTED USE. Landlord acknowledges that the use of the Premises
contemplated by Section 5 above necessarily requires that Tenant have and
maintain certain petroleum-based and other substances on the Premises during the
Term which constitute Hazardous Materials (as defined below). At all times,
Tenant shall store, handle and otherwise maintain all Hazardous Materials kept
on the Premises in full compliance with all applicable laws and regulations, and
Tenant shall take every commercially reasonable caution in connection with the
presence and handling of Hazardous Materials on the Premises.
6.2 INDEMNIFICATION OF LANDLORD. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Landlord
arising from or relating to the release of Hazardous Materials in, on or under
the Premises, or any neighboring property, resulting from Tenant's use or
storage of Hazardous Materials at the Premises. Tenant's indemnification
obligations created by this section shall include, without limitation, all costs
of (i) site investigation and testing, (ii) clean-up, remediation, removal or
restoration work, and (iii) all monitoring activities which are required by any
federal, state or local governmental agency with jurisdiction over the matter as
a result of use or storage of Hazardous Materials at the Premises by Tenant.
6.3 INDEMNIFICATION OF TENANT. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Tenant
arising from or relating to the release or presence of Hazardous Materials in,
on or under the Premises, or any neighboring property, occurring or existing in
connection with the Premises prior to the Commencement Date. Landlord's
indemnification obligations created by this Section shall include, without
limitation, all costs of (i) site investigation and testing, (ii) clean-up,
remediation, removal or restoration work, and (iii) all monitoring activities
which are required by any federal, state or local governmental agency.
6.4 HAZARDOUS MATERIALS DEFINED. As used herein, the term "HAZARDOUS
MATERIALS" means any hazardous or toxic substance, material or waste which is or
becomes regulated by any local governmental authority, the State of California
or the United States Government. The term "hazardous material" includes, without
limitation, any material or substance which is (i) defined as a "hazardous
waste," "extremely hazardous waste" or "restricted hazardous waste" under
Section 25115, 25117 or 25122.7, or listed pursuant to Section 25140, of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law), (ii) defined as a "hazardous substance" under Section 25316 of the
California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-
Tanner Hazardous Substance Account Act), (iii) defined as a "hazardous
material," "hazardous substance," or "hazardous waste" under Section 25501 of
the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous
Materials Release Response Plans and Inventory), (iv) defined as a "hazardous
substance"
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under Section 25281 of the California Health and Safety Code, Division 20,
Chapter 6.7 (Under Storage of Hazardous Substances), (v) petroleum, (vi) friable
asbestos not in compliance with applicable laws or regulations, (vii) listed
under Article 9 or defined as hazardous or extremely hazardous pursuant to
Article 11 of Title 22 of the California Administrative Code, Division 4,
Chapter 20, (viii) designated as a "hazardous substance" pursuant to Section 311
of the Federal Water Pollution Control Act (33 U.S.C. Section 1317), (ix)
defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section
6903), or (x) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq. (42 U.S.C. Section 9601).
7. SERVICES AND UTILITIES. Tenant shall pay prior to delinquency all charges
for water, gas, heat, light, power, telephone, sewage, air conditioning and
ventilating, scavenger, janitorial, landscaping, and all other materials and
utilities supplied to the Premises. Landlord shall not be liable, and Tenant
shall not be entitled to any abatement of Rent (including without limitation,
Base Rent) for the reduction, interruption or suspension of any utility service
to the Premises unless caused by the negligent act or omission of Landlord or
its agents. No such interruption, reduction or suspension of utilities shall
constitute an eviction of Tenant from the Premises.
8. ALTERATIONS.
8.1 TENANT IMPROVEMENTS. Tenant shall obtain Landlord's written consent
prior to performing any alteration, addition or improvement on or to the
Premises; provided, however, that Landlord's consent shall not be required where
the contemplated work (i) does not include any alteration of the structural
components of the Premises, and (ii) will not cost more than Two Hundred Fifty
Thousand Dollars ($250,000.00) to complete. In the event Landlord's consent is
required, such consent shall not be unreasonably withheld, conditioned or
delayed. In all events, Tenant shall provide to Landlord a written description
of any alterations (other than alterations involving expenditure of less than
$10,000). All alterations, additions and improvements shall be constructed in a
good and workmanlike manner by licensed contractors and in compliance with all
applicable laws, regulations, CC&R's, zoning ordinances and building codes.
Except as provided immediately below, all alterations, additions and
improvements constructed in or on the Premises by Tenant shall remain on the
Premises without compensation of any kind to Tenant upon expiration of the Term.
Tenant shall not be required to remove any of the alterations, additions or
improvements made to the Premises during the Term except only those alterations,
additions or improvements requiring Landlord's consent, to the extent Landlord
conditioned its consent upon removal of the subject alteration, addition or
improvement by Tenant at the expiration of the Term. With respect to such
alterations, additions or improvements only, Tenant upon the written request of
Landlord, shall upon the expiration of the Term, remove such alteration,
addition or improvement at its cost and restore the Premises to its condition
prior to such alteration, addition or improvement. Tenant shall maintain
insurance as required by Section 11.2 covering any improvements, alterations or
additions to the Premises made by Tenant under the provisions of this Section
8.1, it being understood and agreed that none of such improvements shall be
insured by Landlord.
8.2 LIENS. Tenant shall keep the Premises free from any liens arising out
of work performed, materials furnished, or obligations incurred by Tenant and
shall indemnify, hold harmless and defend Landlord from any liens and
encumbrances arising out of any work performed or materials furnished by or at
the direction of Tenant. Landlord shall have the right to post and keep posted
on the Premises any notices permitted or required by law, or which Landlord
shall deem proper, for the protection of Landlord and the
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Premises, and any other party having an interest therein, from mechanics' and
materialmen's liens. Tenant shall give Landlord written notice at least twenty
(20) days prior to the expected date of commencement of any work done or
materials delivered to the Premises for the purpose of posting notices.
9. MAINTENANCE AND REPAIRS.
9.1 AS IS. Tenant acknowledges that it accepts possession of the Premises
from Landlord in its "AS-IS" condition, without representation or warranty from
Landlord as to any component of the Premises unless otherwise expressly set
forth in this Lease.
9.2 TENANT'S OBLIGATIONS.
9.2.1 Tenant shall, at all times during the Term and at Tenant's sole
cost and expense, keep the Premises and every part thereof including structural
and non-structural in good order, condition and repair, ordinary wear and tear
and casualty as described in Section 18 excepted. Tenant shall exercise and
perform good maintenance practices. Tenant's repair and maintenance obligations
shall include all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roof, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about or adjacent
to the Premises (whether or not such portion of the Premises requiring repairs,
or the means of repairing same, are reasonably or readily accessible to Tenant,
and whether or not the need for such repairs occurs as a result of Tenant's use,
any prior use, the elements or the age of such portion of the Premises).
Tenant's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. If, inclusive of Tenant's occupancy
pursuant to earlier lease agreement(s) and amendments thereto, Tenant has
occupied the Premises for seven (7) years or more, Landlord may require Tenant
to repaint the exterior of the buildings on the Premises as reasonably required,
but not more frequently than once every seven (7) years.
9.2.2 Upon the expiration or earlier termination of this Lease,
Tenant shall surrender the Premises in the same condition as delivered on the
Commencement Date, subject to permitted alterations, additions and improvements,
and ordinary wear and tear and casualty, and Tenant shall promptly remove or
cause to be removed, at Tenant's expense, all of Tenant's signs, displays, trade
fixtures and personal property from the Premises.
9.3 LANDLORD'S OBLIGATIONS. During the Term of this Lease, Landlord shall
have no obligation of any kind whatsoever to repair or maintain the Premises, or
any equipment therein, whether structural or non-structural, all of which
obligations are intended to be that of Tenant pursuant to Section 9.2 hereof.
It is the intention of the parties that the terms of this Lease govern the
respective obligations of the parties as to the maintenance and repair of the
Premises. Tenant expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford the Tenant the right to make repairs at
Landlord's expense or to terminate this Lease because of Landlord's failure to
keep the Premises in good order, condition and repair.
9.4 COMPLIANCE WITH LAW. Tenant shall each do all acts required to comply
with all present
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and future applicable laws, ordinances, regulations and rules of any public
authority relating to its maintenance obligations as set forth herein.
10. INDEMNITY.
10.1 TENANT'S OBLIGATIONS. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Landlord arising from or related to (i) Tenant's breach of any
material covenant or condition contained in this Lease, (ii) Tenant's use and
occupancy of the Premises, and/or (iii) the negligent or willful misconduct of
Tenant. In the event any action or proceeding is brought against Landlord which
falls within the scope of this section, Tenant, upon written notice from
Landlord, shall defend Landlord in such action at Tenant's expense by counsel
reasonably satisfactory to Landlord. For purposes of this paragraph, "Tenant"
shall include all of the employees, agents, officers and directors of Tenant.
10.2 LANDLORD'S OBLIGATIONS. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Tenant arising from or related to (i) Landlord's breach of any
material covenant or condition contained in this Lease, and/or (ii) the
negligent or willful misconduct of Landlord. In the event any action or
proceeding is brought against Tenant which falls within the scope of this
section, Landlord, upon written notice from Tenant, shall defend Tenant in such
action at Landlord's expense by counsel reasonably satisfactory to Tenant. For
purposes of this paragraph, "Landlord" shall include all of the employees,
agents, officers and directors of Landlord.
11. INSURANCE.
11.1 GENERAL. All insurance required to be carried by Tenant hereunder
shall be issued by responsible insurance companies reasonably acceptable to
Landlord and the holder of any mortgage or deed of trust secured by any portion
of the Premises (referred to herein as a "MORTGAGEE"). All policies of insurance
provided for in this Lease shall be issued by insurance companies licensed to do
business in the State of California, with general policy holder's rating of not
less than "A-" and a financial rating of not less than "Class X" as rated in the
most current available "Best's Insurance Reports." Each policy shall name
Landlord and at Landlord's request any Mortgagee as an additional insured, as
their respective interests may appear, and a duplicate original of all policies
or certificates evidencing the existence and amounts of such insurance shall be
delivered to Landlord upon Landlord's written request. All policies of insurance
delivered to Landlord shall contain a provision that the company writing said
policy will give Landlord (and any Mortgagee with respect to property insurance)
thirty (30) days written notice in advance of any cancellation or lapse of or
any change in such insurance. All public liability, property damage and other
casualty insurance policies shall be written as primary policies, not
contributing with, and not in excess of coverage which Landlord may carry.
Tenant shall furnish Landlord with renewals or "binders" of any such policy at
least thirty (30) days prior to the expiration thereof. If Tenant does not
procure and maintain such insurance, Landlord may (but shall not be required to)
obtain such insurance on Tenant's behalf and charge Tenant the premiums therefor
which shall be payable upon demand, and no such action by Landlord shall
constitute a waiver of Tenant's default hereunder. Tenant may carry such
insurance under a blanket policy, provided such blanket policy expressly affords
the coverage required by this Lease by a Landlord's protective liability
endorsement or otherwise.
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11.2 PROPERTY INSURANCE. Tenant shall obtain and keep in force during the
Term a policy of insurance in the name of Landlord and Tenant, with loss payable
to Landlord and to any Mortgagee insuring loss or damage to the Premises. The
amount of such insurance shall be equal to the full replacement cost of the
Premises, exclusive of foundations, as the same shall exist from time to time,
or the amount required by any lender(s), but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Such insurance shall, in addition, include
earthquake coverage to the extent required by any Mortgagee provided that such
coverage is available at reasonable commercial rates and shall, in addition,
include flood coverage if the Premises is within a designated flood zone. The
insurance required by this section shall, in addition, include coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises required
to be demolished, and shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, then Tenant shall be liable for
such deductible amount provided that, in no event, shall Tenant be liable for a
deductible amount in excess of $20,000.
11.3 LIABILITY INSURANCE. Tenant shall obtain and keep in force during the
Term of this Lease a commercial general liability policy of insurance protecting
Tenant and Landlord (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than Two Million Dollars
($2,000,000) per occurrence with an "Additional Insured-Managers or Landlords of
Premises" endorsement and contain an "Amendment of the Pollution Exclusion" for
damage caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations. All insurance to be carried by Tenant shall be primary to and not
contributory with any similar insurance carried by Landlord, whose insurance
shall be considered excess insurance only.
11.4 RENTAL VALUE. Tenant shall, in addition, obtain and keep in force
during the Term of this Lease a policy or policies in the name of Landlord, with
loss payable to Landlord and any Mortgagee, insuring the loss of the full rental
or other charges payable by Tenant to Landlord pursuant to this Lease for a
period of not less than one year. Such insurance shall provide that in the
event that the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of Rent from the date of any such loss. Said insurance shall contain an agreed
evaluation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected Rent payable by
Tenant for the next twelve (12) month period. Tenant shall be liable for any
deductible amount in the event of such loss.
11.5 MUTUAL WAIVER. Notwithstanding any provision to the contrary
contained in this Lease, to the extent that this release and waiver does not
invalidate or impair their respective insurance policies, the parties hereto
release each other and their respective agents, employees, officers, directors,
shareholders, successors and assigns from all liability for injury to any person
or damage to any property that is caused by
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or results from a risk which is actually insured against pursuant to the
provisions of this Lease without regard to the negligence or willful misconduct
of the parties so released. Each party shall use its best efforts to cause each
insurance policy it obtains to provide that the insurer thereunder waives all
right of recovery by way of subrogation as required herein in connection with
any injury or damage covered by the policy. If such insurance policy cannot be
obtained with such waiver of subrogation, or if such a waiver of subrogation is
only available at additional cost and the party for whose benefit the waiver is
not obtained does not pay such additional cost after reasonable notice, then the
party obtaining such insurance shall promptly notify the other party of the
inability to obtain insurance coverage with the waiver of subrogation.
12. ASSIGNMENT AND SUBLETTING.
12.1 ASSIGNMENT TO AFFILIATE. Tenant shall have the right to assign its
interest in this Lease, or sublet any portion of the Premises, to any entity in
which FirstAmerica and/or Subsidiary hold either directly or indirectly an
ownership interest without the prior consent of Landlord, provided that such
entity agrees to be bound by the terms and conditions of this Lease. Tenant
shall give Landlord written notice of the effective date of such assignment or
subletting as soon as practicable. In connection with any such assignment,
Tenant shall continue to be jointly and separately liable with the assignee for
the obligations of tenant pursuant to this Lease.
12.2 ASSIGNMENT TO THIRD PARTIES. Except as provided in Section 12.1
above, Tenant shall not assign or encumber its interest in this Lease or the
Premises or sublease all or any portion of the Premises without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld.
Landlord shall give written notice of its consent or its determination not to
consent within thirty (30) days following written request for such consent given
by Tenant to Landlord. Any assignment, encumbrance or sublease without
Landlord's prior written consent shall be voidable and at Landlord's election
shall constitute a default.
12.3 INVOLUNTARY ASSIGNMENT. No interest of Tenant in this Lease shall be
assignable by operation of law including, without limitation, the transfer of
this Lease by will or intestacy. Each of the following acts shall be considered
an involuntary assignment: (a) if Tenant is or becomes bankrupt or insolvent,
makes an assignment for the benefit of creditors, or institutes or becomes the
subject of a proceeding under the Bankruptcy Code in which Tenant is the debtor
and such proceeding remains undismissed for a period of sixty (60) days; (b) if
a writ of attachment or execution is levied on this Lease and not released
within sixty (60) days; (c) if, in any proceeding or action to which Tenant is a
party, a receiver is appointed with authority to take possession of the
Premises. An involuntary assignment shall be deemed to constitute a material
default by Tenant and Landlord shall have the right to elect to terminate this
Lease, in which case this Lease shall not be treated as an asset of Tenant.
12.4 NO RELEASE OF TENANT. Notwithstanding any assignment or subletting of
any interest in this Lease or the Premises by Tenant, unless Landlord otherwise
consents in writing, Tenant shall continue to be liable for the full performance
of all Tenant obligations set forth in the Lease.
13. SALE OF PREMISES OR BUILDING. Each conveyance by Landlord or its successor
in interest of Landlord's interest in the Premises prior to the expiration or
termination of this Lease shall be subject to this Lease and shall relieve the
grantor of all further liability or obligations as Landlord, except for such
liability or obligations accruing prior to the date of such conveyance. Tenant
agrees to attorn to Landlord's successors in interest, whether such interest is
acquired by sale, transfer, foreclosure, deed in lieu of
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foreclosure or otherwise.
14. ENTRY BY LANDLORD. Landlord and its authorized representatives shall have
the right to enter the Premises during business hours and after reasonable
notice (except in the event of an emergency in which case entry may be at any
time and with such prior notice to Tenant as is reasonable under the
circumstances): (a) to inspect the Premises; (b) to supply any service provided
to Tenant hereunder; (c) to show the Premises to prospective lenders,
purchasers, or broker and agents in connection with a sale of the building; (d)
to show the Premises to prospective tenants or brokers and agents in connection
with a leasing of the Premises, but only during the last twelve (12) months of
the Term; (e) to post notices of non-responsibility; (f) to alter, improve or
repair the Premises (to the extent permitted or required hereunder); and (g) to
erect scaffolding and other necessary structures, where required by the work to
be performed, all without reduction or abatement of rent.
15. INSOLVENCY OR BANKRUPTCY.
15.1 ACTS OF DEFAULT. Without limitation, the following events shall
constitute a default under this Lease: (a) if Tenant shall admit in writing its
inability to pay its debts as they mature; (b) if Tenant shall make an
assignment for the benefit of creditors or take any other similar action for the
protection or benefit of creditors; (c) if Tenant shall give notice to any
governmental body of insolvency or pending insolvency, or suspension or pending
suspension of operations; (d) if Tenant shall file a voluntary petition in
bankruptcy or shall be adjudicated a bankrupt or insolvent; (e) if Tenant shall
file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or other similar relief for
itself under any present or future applicable federal, state or other statute or
law relative to bankruptcy, insolvency or other relief for debtors; (f) if a
court of competent jurisdiction shall enter an order, judgment or decree
approving a petition filed against Tenant seeking any relief described in the
preceding clause (e), and (i) Tenant acquiesces in the entry of such order,
judgment or decree (the term "ACQUIESCE" as used in this Section shall include,
without limitation, Tenant's failure to file a petition or motion to vacate or
discharge any order, judgment or decree within sixty (60) days after entry of
such order, judgment or decree), or (ii) such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of sixty (60) days, whether or
not consecutive, from the date of entry thereof; (g) if Tenant shall seek or
consent to or acquiesce in the appointment of any trustee, receiver, conservator
or liquidator of Tenant of all or any substantial part of Tenant's properties or
its interest in the Premises; (h) if any trustee, receiver, conservator or
liquidator of Tenant or of all or any substantial part of its property or its
interest in the Premises shall be appointed without the consent or acquiescence
of Tenant and such appointment shall remain unvacated and unstayed for an
aggregate of sixty (60) days, whether or not consecutive; or (i) if this Lease
or any estate of Tenant hereunder shall be levied upon under any attachment or
execution and such attachment or execution shall remain unvacated and unstayed
for an aggregate of sixty (60) days, whether or not consecutive. Notwithstanding
the foregoing, the above described events shall not constitute a default under
this Lease where Tenant has assigned the Premises as permitted in this Lease,
such assignee has assumed this Lease, and such assignee is not otherwise in
default hereunder.
15.2 RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE. Upon the filing of
a petition by or against Tenant under the United States Bankruptcy Code, Tenant,
as debtor in possession, and any trustee who may be appointed agree as follows:
(a) to perform each and every obligation of Tenant under this Lease until such
time as this Lease is either rejected or assumed by order of the United States
Bankruptcy Court; (b) to pay monthly in advance on the first day of each month
as reasonable compensation for use and occupancy of the Premises the sum
required under Section 3, and all other charges otherwise due pursuant
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to this Lease; (c) to reject or assume this Lease within sixty (60) days of the
filing of such petition; (d) to give Landlord at least forty-five (45) days
prior written notice of any abandonment of the Premises, any such abandonment to
be deemed a rejection of this Lease; (e) to do all other things of benefit to
Landlord otherwise required under the Bankruptcy Code; (f) to be deemed to have
rejected this Lease in the event of the failure to comply with any of the above;
and (g) to have consented to the entry of an order by an appropriate United
States Bankruptcy Court providing all of the above, waiving notice and hearing
of the entry of same.
16. DEFAULT BY TENANT.
16.1 ACTS CONSTITUTING DEFAULTS. In addition to the events specified as a
default under Section 15.1 or elsewhere in this Lease, the material failure of
Tenant to perform each and every material covenant made under this Lease,
including any abandonment of the Premises by Tenant, shall constitute a default
hereunder. However, Landlord shall not commence any action to terminate Tenant's
right of possession as a consequence of a default until any period of grace with
respect thereto has elapsed; provided, such period of grace shall be in lieu of
and not in addition to the period during which Tenant may cure such default
following the delivery of notice pursuant to California Code of Civil Procedure
Section 1161.
16.1.1 Tenant shall have a period of ten (10) days from the date of
written notice from Landlord to Tenant within which to cure any default in the
payment of Base Rent.
16.1.2 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any default in the
payment of any monetary obligation of Tenant pursuant to this Lease other than
the payment of Base Rent.
16.1.3 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any nonmonetary default
under this Lease; provided, however, that with respect to any default which
cannot reasonably be cured within thirty (30) days, the default shall not be
deemed to be uncured if Tenant commences to cure within thirty (30) days from
Landlord's notice and thereafter prosecutes diligently and continuously to
completion all acts required to cure the default.
16.1.4 A default by Tenant in the Loan and Security Agreement or
other similar financing agreements between Tenant and General Electric Capital
Corporation ("GECC"), provided that GECC has accelerated the principal, interest
or other obligations under the agreement between Tenant and GECC.
16.2 LANDLORD'S REMEDIES. If Tenant fails to cure a default within the
time allowed, Landlord shall have the following rights and remedies in addition
to any other rights and remedies available to Landlord at law or in equity.
16.2.1 Landlord may, pursuant to Civil Code (S) 1951.4, continue this
Lease in full force and effect, and this Lease will continue in effect so long
as Landlord does not terminate Tenant's right to possession, and Landlord shall
have the right to collect Rent (including, without limitation, Base Rent) as it
becomes due. During the period Tenant is in default, Landlord can enter the
Premises and relet the Premises, or any part of the Premises, to third parties
for Tenant's account. Tenant shall be liable immediately to Landlord for all
costs Landlord incurs in reletting the Premises, including without
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limitation, brokers' commissions, expenses of remodeling the Premises required
by the reletting, and like costs. Reletting can be for a period shorter or
longer than the remaining Term of this Lease. Tenant shall pay to Landlord the
Rent due under this Lease on the dates the Rent is due, less the rental amounts
Landlord receives from any reletting. No act by Landlord allowed by this section
shall terminate this Lease unless Landlord notifies Tenant in writing that
Landlord elects to terminate this Lease. After Tenant's default and for so long
as Landlord does not terminate Tenant's right to possession of the Premises, if
Tenant obtains Landlord's consent, Tenant shall have the right to assign or
sublet its interest in this Lease, but Tenant shall not be released from
liability. Landlord's consent to such a proposed assignment or subletting shall
not be unreasonably withheld. If Landlord elects to relet the Premises as
provided in this section, any rental amounts that Landlord receives from
reletting shall be applied to the payment of: first, any indebtedness from
Tenant to Landlord other than Rent due from Tenant; second, all costs, including
for maintenance incurred by Landlord in reletting; and third, Rent due and
unpaid under this Lease. After deducting the payments referred to in this
section, any sum remaining from the rental amounts Landlord receives from
reletting shall be held by Landlord and applied in payment of future Rent as
Rent becomes due under this Lease. In no event shall Tenant be entitled to any
excess rental received by Landlord. If, on the date Rent is due under this
Lease, the rent received from the reletting is less than the Rent due on that
date, Tenant shall pay to Landlord, in addition to the remaining Rent due, all
costs including for maintenance Landlord incurred in reletting that remain after
applying the rent received from the reletting as provided in this section.
16.2.2 Landlord may, pursuant to Civil Code (S) 1951.2, terminate
Tenant's right to possession of the Premises at any time. No act by Landlord
other than giving express written notice thereof to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises, or the appointment
of a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. Upon
termination of Tenant's right to possession, Landlord has the right to recover
from Tenant: (1) the Worth of the unpaid Rent that had been earned at the time
of termination of Tenant's right to possession; (2) the Worth of the amount by
which the unpaid Rent that would have been earned after the date of termination
until the time of award exceeds the amount of the loss of Rent that Tenant
proves could have been reasonably avoided; (3) the Worth of the amount of the
unpaid Rent that would have been earned after the award throughout the remaining
Term of the Lease to the extent such unpaid Rent exceeds the amount of the loss
of Rent that Tenant proves could have been reasonably avoided; and (4) any other
amount, including but not limited to, expenses incurred to relet the Premises,
court costs, attorneys' fees and collection costs necessary to compensate
Landlord for all detriment caused by Tenant's default. The "Worth", as used
above in (1) and (2) in this subsection is to be computed by allowing interest
at the lesser of ten percent (10%) per annum or the maximum legal interest rate
permitted by law. The "Worth", as used above in (3) in this subsection is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award, plus one percent (1%).
16.3 LANDLORD'S RIGHT TO CURE DEFAULT. All covenants and agreements to be
performed by Tenant under the terms of this Lease shall be performed by Tenant
at Tenant's sole cost and expense and without any reduction of Rent. If Tenant
shall be in default of its obligations under this Lease to pay any money other
than rental or to perform any other act hereunder, and if such default is not
cured within the applicable grace period (if any) provided in this Section 16,
Landlord may, but shall not be obligated to, make any such payment or perform
any such act on Tenant's part without waiving its rights based upon any default
of Tenant and without releasing Tenant from any of its obligations. All sums so
paid and all costs incurred by Landlord shall be paid to Landlord on demand.
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17. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in default in the
performance of any obligation under this Lease unless and until it has failed to
perform such obligation within thirty (30) days after receipt of written notice
by Tenant to Landlord specifying such failure; provided, however, that if the
nature of Landlord's default is such that more than thirty (30) days are
required for its cure, then Landlord shall not be deemed to be in default if
Landlord meaningfully commences such cure within the thirty (30) day period and
thereafter diligently prosecutes such cure to completion. Tenant agrees to give
any Mortgagee a copy, by registered mail, of any notice of default served upon
Landlord, provided that prior to such notice Tenant has been notified in writing
(by way of Notice of Assignment of Rents and Leases, or otherwise), of the
address of such Mortgagee. Any time during which such Mortgagee may cure
Landlord's default hereunder may, at Tenant's election, run concurrently with
Landlord's time to cure.
18. DAMAGE AND DESTRUCTION
18.1 DAMAGE - INSURED. In the event that the Premises is damaged by fire
or other casualty which is covered under insurance pursuant to the provisions of
Section 11 above, Landlord shall restore such damage provided that: (i)
insurance proceeds are available (inclusive of any deductible amounts) to pay
one hundred percent (100%) of the cost of restoration; and (ii) in the
reasonable judgment of Landlord, the restoration can be completed within three
hundred and sixty (360) days after the date of the damage or casualty under the
laws and regulations of the state, federal, county and municipal authorities
having jurisdiction. The deductible amount of any insurance coverage shall be
paid by Tenant except in the case of flood or earthquake and in such case the
deductible amount in excess of $20,000 per occurrence shall be paid by Landlord.
If such conditions apply so as to require Landlord to restore such damage
pursuant to this Section 18.1, this Lease shall continue in full force and
effect, unless otherwise agreed to in writing by Landlord and Tenant. Tenant
shall be entitled to a proportionate reduction of Rent at all times during which
Tenant's use of the Premises is interrupted, such proportionate reduction to be
based on the extent to which the damage and restoration efforts interfere with
Tenant's business in the Premises. Tenant's right to a reduction of Rent
hereunder shall be Tenant's sole and exclusive remedy in connection with any
such damage.
18.2 DAMAGE - UNINSURED. In the event that the Premises is damaged by a
fire or other casualty and Landlord is not required to restore such damage in
accordance with the provisions of Section 18.1 immediately above, Landlord shall
have the option to either (i) repair or restore such damage, with the Lease
continuing in full force and effect, but Rent to be proportionately abated as
provided in Section 18.1 above; or (ii) give notice to Tenant at any time within
thirty (30) days after the occurrence of such damage terminating this Lease as
of a date to be specified in such notice which date shall not be less than
thirty (30) nor more than sixty (60) days after the date on which such notice of
termination is given. In the event of the giving of such notice of termination,
this Lease shall expire and all interest of Tenant in the Premises shall
terminate on the date so specified in such notice and the Rent, reduced by any
proportionate reduction in Rent as provided for in Section 18.1 above, shall be
paid to the date of such termination. Notwithstanding the foregoing, if Tenant
delivers to Landlord the funds necessary to make up the shortage (or absence) in
insurance proceeds and the restoration can be completed in a three hundred sixty
(360) day period, as reasonably determined by Landlord, Landlord shall restore
the Premises as provided in Section 18.1 above.
18.3 END OF TERM CASUALTY. Notwithstanding the provisions of Sections 18.1
and 18.2 above, either Landlord or Tenant may terminate this Lease if the
Premises is damaged by fire or other casualty (and Landlord's reasonably
estimated cost of restoration of the Premises exceeds ten percent (10%) of the
then
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replacement value of the Premises) and such damage or casualty occurs during the
last twelve (12) months of the Term of this Lease (or the Term of any renewal
option, if applicable) by giving the other notice thereof at any time within
thirty (30) days following the occurrence of such damage or casualty. Such
notice shall specify the date of such termination which date shall not be less
than thirty (30) nor more than sixty (60) days following the date on which such
notice of termination is given. In the event of the giving of such notice of
termination, this Lease shall expire and all interest of Tenant in the Premises
shall terminate on the date so specified in such notice and the Rent shall be
paid to the date of such termination. Notwithstanding the foregoing to the
contrary, Landlord shall not have the right to terminate this Lease if damage or
casualty occurs during the last twelve (12) months of the Term if Tenant timely
exercises its option to extend the Term pursuant to Section 2.2 of this Lease
within twenty (20) days after the date of such damage or casualty.
18.4 TERMINATION BY TENANT. In the event that the destruction to the
Premises cannot be restored as required herein under applicable laws and
regulations within two hundred seventy (270) days of the damage or casualty,
notwithstanding the availability of insurance proceeds, Tenant shall have the
right to terminate this Lease by giving the Landlord notice thereof within
thirty (30) days of date of the occurrence of such casualty specifying the date
of termination which shall not be less than thirty (30) days nor more than sixty
(60) days following the date on which such notice of termination is given. In
the event of the giving of such notice of termination, this Lease shall expire
and all interest of Tenant in the Premises shall terminate on the date so
specified in such notice and the Rent, reduced by any proportionate reduction in
Rent as provided for in Section 18.1 above, shall be paid to the date of such
termination.
18.5 RESTORATION. Landlord agrees that, in any case in which Landlord is
required to, or otherwise agrees to restore the Premises, that Landlord shall
proceed with due diligence to make all appropriate claims and applications for
the proceeds of insurance and to apply for and obtain all permits necessary for
the restoration of the Premises. Landlord shall restore the Premises to the
condition existing prior to the date of the damage if permitted by applicable
law. Landlord shall not be required to restore alterations made by Tenant,
Tenant's improvements, Tenant's trade fixtures, and Tenant's personal property,
such excluded items being the sole responsibility of Tenant to restore provided,
however, that Landlord shall, to the extent of available insurance proceeds,
restore Tenant Improvements to the Premises made by Tenant.
18.6 WAIVER. Tenant waives the provisions of Civil Code (S)1932(2) and
Civil Code (S)1933(4) with respect to any destruction of the Premises.
19. CONDEMNATION.
19.1 DEFINITIONS. The following definitions shall apply: (1) "CONDEMNATION"
means (a) the exercise of any governmental power of eminent domain, whether by
legal proceedings or otherwise by condemnor, or (b) the voluntary sale or
transfer by Landlord to any condemnor either under threat of condemnation or
while legal proceedings for condemnation are proceeding; (2) "DATE OF TAKING"
means the date the condemnor has right to possession of the property being
condemned; (3) "AWARD" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation; and (4)
"CONDEMNOR" means any public or quasi-public authority, or private corporation
or individual, having power of condemnation.
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19.2 OBLIGATIONS TO BE GOVERNED BY LEASE. If during the Term of the Lease
there is any Condemnation of all or any part of the Premises, the rights and
obligations of the parties shall be determined strictly pursuant to this Lease.
Each party waives the provisions of Code of Civil Procedure (S)1265.130 allowing
either party to petition the Superior Court to terminate this Lease in the event
of a partial Condemnation of the Premises.
19.3 TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
Condemnation, this Lease shall terminate on the Date of Taking. If any portion
of the Premises is taken by Condemnation, this Lease shall remain in effect,
except that Tenant can elect to terminate this Lease if the remaining portion of
the Premises is rendered unsuitable for Tenant's continued use of the Premises.
If Tenant elects to terminate this Lease, Tenant must exercise its right to
terminate by giving notice to Landlord within thirty (30) days after the nature
and extent of the Condemnation have been finally determined. If Tenant elects
to terminate this Lease, Tenant shall also notify Landlord of the date of
termination, which date shall not be earlier than thirty (30) days nor later
than ninety (90) days after Tenant has notified Landlord of its election to
terminate; except that this Lease shall terminate on the Date of Taking if the
Date of Taking falls on a date before the date of termination as designated by
Tenant. If any portion of the Premises is taken by Condemnation and this Lease
remains in full force and effect, on the Date of Taking the Base Rent shall be
reduced by an amount in the same ratio as the total number of square feet in the
building(s) which are a part of the Premises taken bears to the total number of
square feet in the building(s) which are a part of the Premises immediately
before the Date of Taking. Any Award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Landlord, whether such Award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Tenant
shall be entitled to any compensation separately awarded to Tenant for Tenant's
relocation expenses and/or loss of Tenant's trade fixtures
20. HOLDING OVER. Any holding over after the expiration of the Term shall be a
tenancy from month to month. The terms, covenants and conditions of such tenancy
shall be the same as provided herein, except that the Base Rent shall be one
hundred three percent (103%) of the Base Rent in effect immediately prior to the
commencement of such holding over. Acceptance by Landlord of Rent after such
expiration shall not result in any other tenancy or any renewal of the Term of
this Lease, and the provisions of this section are in addition to and do not
affect Landlord's right of reentry or other rights provided under this Lease or
by applicable law.
21. ESTOPPEL CERTIFICATES. Within ten (10) business days following any written
request which Landlord and Tenant may make from time to time, Tenant or
Landlord, without any charge therefor, shall execute, acknowledge and deliver to
the other a statement certifying: (a) the Commencement Date of this Lease; (b)
the fact that this Lease is unmodified and in full force and effect (or, if
there have been modifications hereto, that this Lease is in full force and
effect, as modified, and stating the date and nature of such modifications); (c)
the date to which the Base Rent and other sums payable under this Lease have
been paid; (d) the fact that there are no current defaults under this Lease by
either Landlord or Tenant except as specified in the statement; and (e) such
other reasonable matters requested by Landlord or Tenant. Landlord and Tenant
intend that any statement delivered pursuant to this Section may be relied upon
by a mortgagee, beneficiary, purchaser or prospective purchaser of the Premises
or any interest therein, or any financial institution, investment banker,
underwriter or the counsel of each of the foregoing, providing credit or seeking
capital for Tenant or Landlord. The failure of Landlord or Tenant to deliver any
such
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statement within said ten (10) day period shall constitute a material default,
and the defaulting party shall indemnify and hold the other party harmless from
and against any and all liability, loss, cost, damage and expense which such
party may sustain or incur as a result of or in connection with the defaulting
party's failure or delay in delivering such statement.
22. SUBORDINATION AND ATTORNMENT.
22.1 SUBORDINATION. Upon the written request of Landlord or any Mortgagee,
Tenant will in writing subordinate its rights under this Lease to the lien of
any mortgage or deed of trust now or hereafter in force against the Premises,
and to all advances made or hereafter to be made upon the security thereof, and
to all extensions, modifications and renewals thereunder. Tenant shall also,
upon Landlord's request, subordinate its rights hereunder to any ground or
underlying lease which may now exist or hereafter be executed affecting the
Premises and/or the underlying land. Tenant shall have the right to condition
its subordination upon the execution and delivery of an attornment and non-
disturbance agreement, as described in Subsection 22.2, between the Mortgagee or
the lessor under any such ground or underlying lease and Tenant.
22.2 ATTORNMENT AND NON-DISTURBANCE. Upon the written request of the
Landlord or any Mortgagee or any lessor under a ground or underlying lease,
Tenant shall attorn to any such Mortgagee or beneficiary, provided such
Mortgagee or lessor agrees that if Tenant is not in material default under this
Lease, Tenant's possession of the Premises in accordance with the terms of this
Lease shall not be disturbed. Such agreement shall provide, among other things,
(a) that this Lease shall remain in full force and effect, (b) that Tenant pay
rent to said Mortgagee or lessor from the date of said attornment, (c) that said
Mortgagee or lessor shall not be responsible to Tenant under this Lease except
for obligations accruing subsequent to the date of such attornment, and (d) that
Tenant, in the event of foreclosure or a deed in lieu thereof or a termination
of the ground or underlying lease, will enter into and will have the right to, a
new lease with the Mortgagee, lessor or other person having or acquiring title
on the same terms and conditions as this Lease and for the balance of the Term.
22.3 NONMATERIAL AMENDMENTS. If any lender should require any nonmaterial
modification of this Lease as a condition of loans secured by a lien on the
Premises, or the land underlying the Premises, or if any such nonmaterial
modification is required as a condition to a ground or underlying lease, Tenant
will approve and execute any such modifications, promptly after request by
Landlord provided no such modification shall relate to the net effective rent
payable hereunder, the length of the Term or otherwise materially change the
rights or obligations of Landlord or Tenant.
23. WAIVER. If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be deemed
to be a waiver of the term, covenant or condition itself or a waiver of any
subsequent breach of the same or any other term, covenant or condition contained
herein. Furthermore, the acceptance of rent by Landlord shall not constitute a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, regardless of Landlord's knowledge of such preceding breach at the
time Landlord accepts such rent. Failure by either Landlord or Tenant to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or to decrease the right to insist thereafter upon
strict performance by the nonperforming party. Waiver by either party to this
Lease may only be made by a written document signed by the waiving party.
24. ATTORNEYS' FEES. In the event that any action or proceeding (including
arbitration) is brought to
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enforce or interpret any term, covenant or condition of this Lease on the part
of Landlord or Tenant, the prevailing party in such action or proceeding
(whether after trial or appeal) shall be entitled to recover from the party not
prevailing its expenses therein, including reasonable attorneys' fees and all
allowable costs.
25. NOTICES. All notices, requests or demands to a party hereunder shall be in
writing and shall be given or served upon the other party by personal service,
by certified return receipt requested or registered mail, postage prepaid, or by
Federal Express or other nationally recognized commercial courier, charges
prepaid, addressed as set forth below. Any such notice, demand, request or other
communication shall be deemed to have been given upon the earlier of personal
delivery thereof, three (3) business days after having been mailed as provided
above, or one (1) business day after delivery through a commercial courier, as
the case may be. Notices may be given by facsimile and shall be effective upon
the transmission of such facsimile notice provided that the facsimile notice is
transmitted on a business day and a copy of the facsimile notice together with
evidence of its successful transmission indicating the date and time of
transmission is sent on the day of transmission by recognized overnight carrier
for delivery on the immediately succeeding business day. Each party shall be
entitled to modify its address by notice given in accordance with this Section
25.
If to Landlord: Rosewood Village Associates
P.O. Box 489
Orinda, CA 94563
Attention: Donald V. Strough
FAX: 510-689-2680
If to Tenant: FirstAmerica Automotive, Inc.
100 The Embarcadero, PH
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax: 415-512-9277
If to Tenant: California Carriage Limited
(Subsidiary) 1300 Concord Avenue
Concord, CA
Attn: Donald V. Strough
Fax: 510-689-2680
With a copy to: Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich, Esq.
Fax: 415-512-9277
26. MERGER. Notwithstanding the acquisition (if same should occur) by the same
party of the title and interests of both Landlord and Tenant under this Lease,
there shall not be a merger of the estates of Landlord and Tenant under this
Lease, but instead the separate estates, rights, duties and obligations of
Landlord and Tenant, as existing hereunder, shall remain unextinguished and
continue, separately, in full force and effect until this Lease expires or
otherwise terminates in accordance with the express provisions herein contained.
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27. DEFINED TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used in neuter
gender include the feminine and masculine, where applicable. If there is more
than one Tenant, the obligations imposed under this Lease upon Tenant shall be
joint and several. The headings and titles to the sections and paragraphs of
this Lease are used for convenience only and shall have no effect upon the
construction or interpretation of this Lease.
28. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of
its provisions. This Lease shall in all respects be governed by and interpreted
in accordance with the laws of the State of California.
29. SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 12 and the
limitation expressed below, the terms, covenants and conditions contained herein
shall be binding upon and inure to the benefit of the heirs, successors,
executors, administrators and assigns of the parties hereto. However, the
obligations imposed on Landlord under this Lease shall be binding upon
Landlord's successors and assigns only with respect to obligations arising
during their respective periods of ownership of the Premises.
30. ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all the
agreements of the parties hereto and supersedes any previous negotiations. There
have been no representations made by the Landlord or Tenant or understandings
made between the parties other than those set forth in this Lease and its
exhibits.
31. SEVERABILITY. If any provision of this Lease or the application thereof to
any person or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Lease and the application of such provision to other persons
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
32. SIGNS. Tenant shall have the exclusive right, at its own cost and expense,
to install and affix to the Premises such signs (the "Signs") as Tenant may
desire. The location, construction, size and appearance of the Signs shall
comply with all applicable laws, ordinances and regulations and the requirements
of any governmental agency or authority having jurisdiction thereof. The Signs
shall remain the property of Tenant and may be removed by Tenant at any time
provided that Tenant, at its expense, shall repair any damage caused by reason
of such removal and shall restore the Premises to its original condition. Tenant
shall, at its own expense, maintain the Signs in good condition and working
order, shall comply with all laws, ordinances and regulations with respect
thereto (including the requirements of any governmental agency or authority
having jurisdiction thereof), and shall pay for all utility service to the
Signs. Upon the expiration of the Term or earlier termination of this Lease, or
upon the vacation of the Premises by Tenant, Tenant shall remove the Signs,
shall repair any damage caused by reason of such removal and shall restore the
Premises to its original condition, all at Tenant's sole cost and expense.
33. RECORDABILITY OF LEASE. Landlord and Tenant agree that a Memorandum of
Lease, in a form reasonably acceptable to both Landlord and Tenant, may be
recorded at the request of either party.
34. CONSTRUCTION. All provisions hereof, whether covenants or conditions, shall
be deemed to be both covenants and conditions. The definitions contained in this
Lease shall be used to interpret the Lease. All rights and remedies of Landlord
and Tenant shall, except as otherwise expressly provided, be cumulative and non-
exclusive of any other remedy at law or in equity.
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35. CONSENT. Whenever in this Lease the consent of a party is required to any
act by or for the other party, such consent shall not be unreasonably withheld
or delayed.
36. LIABILITY TO PERFORM. This Lease and the obligations of Tenant or Landlord
hereunder as the case may be, shall not be affected or impaired because the
other party is unable to fulfill any of its obligations hereunder, other than
the payment of money, or is delayed in doing so, if such inability or delay is
caused by reason of force majeure, strike, labor troubles, acts of God, acts of
government, unavailability of materials or labor, or any other cause beyond the
control of such other party.
37. CORPORATE AUTHORITY. Each individual executing this Lease on behalf of
Tenant, represents and warrants that Tenant is duly incorporated, in good
standing and qualified to do business in California, and that he or she is duly
authorized to execute and deliver this Lease on behalf of Tenant and that he or
she will deliver appropriate certification to that effect if requested.
38. QUIET ENJOYMENT. So long as Tenant is not in default under this Lease,
Tenant shall have quiet enjoyment of the Premises for the Term, subject to all
the terms and conditions of this Lease and all liens and encumbrances prior to
this Lease.
39. WAIVER. As material consideration to Landlord, Tenant agrees that Landlord
shall not be liable to Tenant for any damage to Tenant or Tenant's property from
any cause, except for damages resulting from Landlord's gross negligence or
willful misconduct, and Tenant waives all claims against Landlord for damage to
persons or property arising for any reason, except for damage resulting directly
from Landlord's breach of its express obligations under this Lease which
Landlord has not cured within a reasonable time after written notice of such
breach from Tenant.
40. AMENDMENT. This lease may be modified only in writing, signed by the
parties in interest at the time of the modification.
41. CONSTRUCTION. The Landlord and Tenant acknowledge that each has had its
counsel review this Lease and hereby agree that the normal rule of construction
to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Lease or in any amendments
or exhibits hereto.
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Wherefore, Landlord and Tenant enter into this Lease as of the day and year
first above written.
LANDLORD: TENANT:
Rosewood Village Associates, FirstAmerica Automotive, Inc.
a California limited partnership a Delaware corporation
By: Strough 1983 Family Trust,
general partner
By: /s/ Thomas A. Price
____________________________
Thomas A. Price, President
By: /s/ Donald V. Strough
__________________________
Donald V. Strough, Trustee
California Carriage Limited
a California corporation
By: /s/ Linda L. Strough
__________________________
Linda L. Strough, Trustee
By: /s/ Donald V. Strough
_____________________________
Donald V. Strough, President
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EXHIBIT 10.9.5
LEASE AGREEMENT
This Lease ("LEASE") is entered into this 1st day of July 1997 in the City
of Santa Clara, County of Santa Clara, State of California, between Rosewood
Village Associates, a California limited partnership ("LANDLORD") and
FirstAmerica Automotive, Inc., a Delaware corporation ("FIRSTAMERICA"), and FAA
Stevens Creek, Inc., a California corporation ("SUBSIDIARY") (collectively,
"TENANT").
1. PREMISES. On and subject to the terms, covenants and conditions set forth
in this Lease, Landlord leases to Tenant and Tenant rents from Landlord that
certain real property, including all buildings, improvements and appurtenances
existing thereon, commonly known as 4855 and 4875 Stevens Creek Blvd., Santa
Clara, California and as more particularly described and shown on Exhibit A
hereto (the "PREMISES").
2. TERM.
2.1 PERIOD. Subject to Section 2.2 below, the term of this Lease (the
"TERM") shall be for a period of fifteen (15) years commencing on July 1, 1997
(the "COMMENCEMENT DATE") and ending on June 30, 2012 (the "TERMINATION DATE"),
unless sooner terminated pursuant to any provision of this Lease. Except as
otherwise expressly set forth in this Lease, Tenant hereby accepts the Premises
in the condition existing as of the date of execution hereof and Tenant
acknowledges that neither Landlord, nor any representative of Landlord has made
any representation or warranty as to the suitability of the Premises for the
conduct of Tenant's business. If Landlord, for any reason, cannot deliver
possession of the Premises to Tenant on the Commencement Date, this Lease shall
not be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting from such delay. In that event, however, there shall be an
abatement of Rent (as defined below) covering the period between the
Commencement Date and the date when Landlord delivers possession to Tenant and
such date on which possession is delivered shall be the Commencement Date and
the Termination Date shall be the day immediately preceding the tenth
anniversary of the Commencement Date. If a delay in possession is caused by
Tenant's failure to perform any obligation in accordance with this Lease, the
Term shall commence as of the Commencement Date, and there shall be no reduction
of Rent between the Commencement Date and the time Tenant takes possession.
2.2 EXTENDED TERM. Tenant shall have the option to extend the Term for
two (2) consecutive five (5) year periods (the "FIRST EXTENDED TERM" and "SECOND
EXTENDED TERM", respectively) on all the terms and conditions contained in this
Lease including, without limitation, continuation of the adjustment of the Base
Rent on an annual basis as provided in Section 3.3 below (provided only that
upon commencement of the First Extended Term the only remaining option to extend
the Term shall be the Second Extended Term and upon exercise of the option with
respect to the Second Extended Term, no further right to extend the Term shall
exist). Tenant shall deliver, if at all, written notice of its exercise of the
option ("OPTION NOTICE") to Landlord at least six (6) months but not more than
one (1) year before the expiration of the Term or First Extended Term, as the
case may be. In the event Tenant fails to deliver the applicable Option Notice
within the time allowed, Landlord shall deliver written notice to Tenant of
Tenant's failure to deliver the Option Notice, and Tenant shall then have thirty
(30) days from receipt of such notice within which to deliver the Option Notice,
if at all, to Landlord. In the event (and only in the event) that, Tenant fails
to deliver an Option Notice to Landlord within such thirty (30) days, Tenant
shall be considered to have elected not to extend the Term of this Lease and
thereafter, Tenant shall have no further right to extend the Term of this Lease.
References in this Lease to the "Term" shall include the initial Term of
fifteen (15) years and shall, in addition, include the First Extended Term and
the Second Extended Term, if applicable.
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3. RENT.
3.1 BASE RENT. Tenant shall pay to Landlord as monthly base rent ("BASE
RENT") for the Premises, in advance on the Commencement Date and on the first
(1st) day of each and every calendar month of the Term thereafter, without
deduction, set-off, prior notice or demand in a lawful currency of the United
States of America, the Base Rent as described in this Lease. The Base Rent
commencing as of the Commencement Date and continuing through the last day of
the month in which the third anniversary of the Commencement Date occurs, shall
be the sum of $32,500.00 per month. Commencing on the first day of the calendar
month immediately thereafter, and continuing for the balance of the Term
(including the First Extended Term and the Second Extended Term, if applicable)
the Base Rent shall be adjusted as provided in Section 3.3.
3.2 LATE CHARGE. Tenant acknowledges that late payment by Tenant to
Landlord of any Base Rent shall cause Landlord to incur costs not contemplated
by this Lease, the exact amount of such cost being extremely difficult and
impracticable to ascertain. Such costs include, without limitation, processing
and accounting charges and late charges that may be imposed on Landlord by the
terms of any encumbrance or note secured by the Premises. Therefor, if any Base
Rent is not received by Landlord within ten (10) days of its due date, Tenant
shall pay to Landlord a late charge equal to Five Hundred Dollars ($500).
Landlord and Tenant hereby agree that such late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of any such
late payment and that the late charge is in addition to any and all remedies
available to the Landlord and that the assessment and/or collection of the late
charge shall not be deemed a waiver of any other default.
3.3 ADJUSTMENT TO BASE RENT. The Base Rent, commencing on the first day
of the calendar month immediately following the calendar month in which the
third anniversary of the Commencement Date occurs ("INITIAL ADJUSTMENT DATE")
shall be adjusted in accordance with the provisions of this Section 3.3 and
shall, thereafter, be adjusted annually on each anniversary of the Initial
Adjustment Date (each date an "ADJUSTMENT DATE") during the balance of the Term
(including the First Extended Term and the Second Extended Term, if applicable).
Such adjustment to Base Rent shall reflect two-thirds (2/3) of any increase in
the Consumer Price Index and shall be calculated as follows:
The base for computing the adjustment is the Consumer Price Index (All
Items) for Urban Consumers for the San Francisco-Oakland-San Jose Metropolitan
Area, published by the United States Department of Labor, Bureau of Labor
Statistics ("INDEX") which is in effect immediately prior to the second
anniversary of the Commencement Date ("BEGINNING INDEX"). The Index published
and in effect on the 30th day preceding the Initial Adjustment Date and on the
30th day preceding each Adjustment Date thereafter ("ADJUSTMENT INDEX") is to be
used in determining the amount of the increase from one year to the next.
Beginning as of the Initial Adjustment Date and continuing on each Adjustment
Date thereafter, the Base Rent shall be increased to equal the product achieved
by multiplying the initial Base Rent amount by a fraction, the numerator of
which shall be an amount equal to the sum of (i) the Beginning Index plus (ii)
two-thirds (2/3) of the amount, if any, by which the Adjustment Index is greater
than the Beginning Index, and the denominator of which will be the Beginning
Index. Notwithstanding the foregoing, the Base Rent shall not be increased by
more than six percent (6%) nor less than four percent (4%) of the Base Rent for
the immediately preceding year in any one year period.
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If the Index is changed so that the base year differs from that described
above, the Index shall be converted in accordance with the conversion factor
published by the United States Department of Labor, Bureau of Labor Statistics.
If the Index is discontinued or revised during the Term, such other government
index or computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised.
On adjustment of the Base Rent as provided in Section 3.3 above, the
parties shall immediately execute an amendment to the Lease stating the new Base
Rent.
3.4 PRORATION. If the Term begins or ends on a day other than the first
or last day of a calendar month, the Base Rent payable for such calendar month
of the Term shall be prorated on the basis which the number of days of the Term
in the calendar month bears to the total number of days in such month. The term
"RENT" as used in this Lease shall refer to Base Rent, prepaid rent, if any,
real property taxes, insurance costs, repairs and maintenance costs, utilities,
late charges and other similar charges payable by Tenant pursuant to this Lease,
either directly to Landlord or otherwise.
4. TAXES.
4.1 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon Tenant owned leasehold improvements,
trade fixtures, furnishings, equipment and all personal property of Tenant
contained in the Premises or elsewhere. When possible, Tenant shall cause its
leasehold improvements, trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Landlord.
4.2 REAL PROPERTY TAXES. Tenant shall pay prior to delinquency all Real
Property Taxes (as defined below) which accrue in connection with the Premises
during the Term of this Lease. Upon request, Tenant shall furnish Landlord with
satisfactory evidence that all Real Property Taxes are paid and current. If any
Real Property Taxes paid by Tenant cover any period of time prior to the
Commencement Date or after expiration of the Term, Tenant's share of the Real
Property Taxes shall be equitably prorated to cover only the period of time this
Lease is in effect, and Landlord shall reimburse Tenant for any overpayment by
reason of such proration. If Tenant shall fail to pay any Real Property Taxes
required by this Lease to be paid by Tenant, Landlord shall have the right to
pay the same upon ten (10) days written notice to Tenant, and Tenant shall
reimburse Landlord therefor, including any interest and penalties upon demand.
As used herein, the term "REAL PROPERTY TAXES" shall include any form of
real estate tax, any general, special, ordinary or extraordinary assessment, any
improvement bond, levy or similar tax (or any other fee, charge, or excise which
may be imposed as a substitute for any of the foregoing) imposed upon the
Premises by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district, levied against
any legal or equitable interest of Landlord in the Premises. Tenant shall not
be responsible for the payment of any portion of Real Property Taxes which
result from a transfer of an ownership interest in the Premises during the Term
or any tax levied against Landlord's leasing of the Premises.
5. USES.
5.1 AUTHORIZED. The Premises shall be used by Tenant for the sale,
leasing, servicing and
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repair of new and used automobiles, and all uses incidental and related thereto,
or any other lawful use.
5.2 COMPLIANCE WITH LAWS. Tenant shall not do or suffer anything to be
done in or on the Premises which will in any way conflict with any law, statute,
ordinance or other governmental rule, regulation or requirement applicable to
the Premises during the Term, or cause or create any nuisance. Tenant shall, at
its sole cost and expense, promptly comply with each and all of said
governmental measures existing now or in the future.
6. HAZARDOUS MATERIALS.
6.1 PERMITTED USE. Landlord acknowledges that the use of the Premises
contemplated by Section 5 above necessarily requires that Tenant have and
maintain certain petroleum-based and other substances on the Premises during the
Term which constitute Hazardous Materials (as defined below). At all times,
Tenant shall store, handle and otherwise maintain all Hazardous Materials kept
on the Premises in full compliance with all applicable laws and regulations, and
Tenant shall take every commercially reasonable caution in connection with the
presence and handling of Hazardous Materials on the Premises.
6.2 INDEMNIFICATION OF LANDLORD. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Landlord
arising from or relating to the release of Hazardous Materials in, on or under
the Premises, or any neighboring property, resulting from Tenant's use or
storage of Hazardous Materials at the Premises. Tenant's indemnification
obligations created by this section shall include, without limitation, all costs
of (i) site investigation and testing, (ii) clean-up, remediation, removal or
restoration work, and (iii) all monitoring activities which are required by any
federal, state or local governmental agency with jurisdiction over the matter as
a result of use or storage of Hazardous Materials at the Premises by Tenant.
6.3 INDEMNIFICATION OF TENANT. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fines and/or costs (including
reasonable attorney's and consultant fees) made against or incurred by Tenant
arising from or relating to the release or presence of Hazardous Materials in,
on or under the Premises, or any neighboring property, occurring or existing in
connection with the Premises prior to the Commencement Date. Landlord's
indemnification obligations created by this Section shall include, without
limitation, all costs of (i) site investigation and testing, (ii) clean-up,
remediation, removal or restoration work, and (iii) all monitoring activities
which are required by any federal, state or local governmental agency.
6.4 HAZARDOUS MATERIALS DEFINED. As used herein, the term "HAZARDOUS
MATERIALS" means any hazardous or toxic substance, material or waste which is or
becomes regulated by any local governmental authority, the State of California
or the United States Government. The term "hazardous material" includes, without
limitation, any material or substance which is (i) defined as a "hazardous
waste," "extremely hazardous waste" or "restricted hazardous waste" under
Section 25115, 25117 or 25122.7, or listed pursuant to Section 25140, of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law), (ii) defined as a "hazardous substance" under Section 25316 of the
California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-
Tanner Hazardous Substance Account Act), (iii) defined as a "hazardous
material," "hazardous substance," or "hazardous
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waste" under Section 25501 of the California Health and Safety Code, Division
20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory),
(iv) defined as a "hazardous substance" under Section 25281 of the California
Health and Safety Code, Division 20, Chapter 6.7 (Under Storage of Hazardous
Substances), (v) petroleum, (vi) friable asbestos not in compliance with
applicable laws or regulations, (vii) listed under Article 9 or defined as
hazardous or extremely hazardous pursuant to Article 11 of Title 22 of the
California Administrative Code, Division 4, Chapter 20, (viii) designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1317), (ix) defined as a "hazardous waste"
pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903), or (x) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42
U.S.C. Section 9601).
7. SERVICES AND UTILITIES. Tenant shall pay prior to delinquency all charges
for water, gas, heat, light, power, telephone, sewage, air conditioning and
ventilating, scavenger, janitorial, landscaping, and all other materials and
utilities supplied to the Premises. Landlord shall not be liable, and Tenant
shall not be entitled to any abatement of Rent (including without limitation,
Base Rent) for the reduction, interruption or suspension of any utility service
to the Premises unless caused by the negligent act or omission of Landlord or
its agents. No such interruption, reduction or suspension of utilities shall
constitute an eviction of Tenant from the Premises.
8. ALTERATIONS.
8.1 TENANT IMPROVEMENTS. Tenant shall obtain Landlord's written consent
prior to performing any alteration, addition or improvement on or to the
Premises; provided, however, that Landlord's consent shall not be required where
the contemplated work (i) does not include any alteration of the structural
components of the Premises, and (ii) will not cost more than Two Hundred Fifty
Thousand Dollars ($250,000.00) to complete. In the event Landlord's consent is
required, such consent shall not be unreasonably withheld, conditioned or
delayed. In all events, Tenant shall provide to Landlord a written description
of any alterations (other than alterations involving expenditure of less than
$10,000). All alterations, additions and improvements shall be constructed in a
good and workmanlike manner by licensed contractors and in compliance with all
applicable laws, regulations, CC&R's, zoning ordinances and building codes.
Except as provided immediately below, all alterations, additions and
improvements constructed in or on the Premises by Tenant shall remain on the
Premises without compensation of any kind to Tenant upon expiration of the Term.
Tenant shall not be required to remove any of the alterations, additions or
improvements made to the Premises during the Term except only those alterations,
additions or improvements requiring Landlord's consent, to the extent Landlord
conditioned its consent upon removal of the subject alteration, addition or
improvement by Tenant at the expiration of the Term. With respect to such
alterations, additions or improvements only, Tenant upon the written request of
Landlord, shall upon the expiration of the Term, remove such alteration,
addition or improvement at its cost and restore the Premises to its condition
prior to such alteration, addition or improvement. Tenant shall maintain
insurance as required by Section 11.2 covering any improvements, alterations or
additions to the Premises made by Tenant under the provisions of this Section
8.1, it being understood and agreed that none of such improvements shall be
insured by Landlord.
8.2 LIENS. Tenant shall keep the Premises free from any liens arising out
of work performed, materials furnished, or obligations incurred by Tenant and
shall indemnify, hold harmless and defend
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Landlord from any liens and encumbrances arising out of any work performed or
materials furnished by or at the direction of Tenant. Landlord shall have the
right to post and keep posted on the Premises any notices permitted or required
by law, or which Landlord shall deem proper, for the protection of Landlord and
the Premises, and any other party having an interest therein, from mechanics'
and materialmen's liens. Tenant shall give Landlord written notice at least
twenty (20) days prior to the expected date of commencement of any work done or
materials delivered to the Premises for the purpose of posting notices.
9. MAINTENANCE AND REPAIRS.
9.1 AS IS. Tenant acknowledges that it accepts possession of the Premises
from Landlord in its "AS-IS" condition, without representation or warranty from
Landlord as to any component of the Premises unless otherwise expressly set
forth in this Lease.
9.2 TENANT'S OBLIGATIONS.
9.2.1 Tenant shall, at all times during the Term and at Tenant's sole
cost and expense, keep the Premises and every part thereof including structural
and non-structural in good order, condition and repair, ordinary wear and tear
and casualty as described in Section 18 excepted. Tenant shall exercise and
perform good maintenance practices. Tenant's repair and maintenance obligations
shall include all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roof, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about or adjacent
to the Premises (whether or not such portion of the Premises requiring repairs,
or the means of repairing same, are reasonably or readily accessible to Tenant,
and whether or not the need for such repairs occurs as a result of Tenant's use,
any prior use, the elements or the age of such portion of the Premises).
Tenant's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. If, inclusive of Tenant's occupancy
pursuant to earlier lease agreement(s) and amendments thereto, Tenant has
occupied the Premises for seven (7) years or more, Landlord may require Tenant
to repaint the exterior of the buildings on the Premises as reasonably required,
but not more frequently than once every seven (7) years.
9.2.2 Upon the expiration or earlier termination of this Lease,
Tenant shall surrender the Premises in the same condition as delivered on the
Commencement Date, subject to permitted alterations, additions and improvements,
and ordinary wear and tear and casualty, and Tenant shall promptly remove or
cause to be removed, at Tenant's expense, all of Tenant's signs, displays, trade
fixtures and personal property from the Premises.
9.3 LANDLORD'S OBLIGATIONS. During the Term of this Lease, Landlord shall
have no obligation of any kind whatsoever to repair or maintain the Premises, or
any equipment therein, whether structural or non-structural, all of which
obligations are intended to be that of Tenant pursuant to Section 9.2 hereof.
It is the intention of the parties that the terms of this Lease govern the
respective obligations of the parties as to the maintenance and repair of the
Premises. Tenant expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford the Tenant the right to make repairs at
Landlord's
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expense or to terminate this Lease because of Landlord's failure to keep the
Premises in good order, condition and repair.
9.4 COMPLIANCE WITH LAW. Tenant shall each do all acts required to comply
with all present and future applicable laws, ordinances, regulations and rules
of any public authority relating to its maintenance obligations as set forth
herein.
10. INDEMNITY.
10.1 TENANT'S OBLIGATIONS. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Landlord arising from or related to (i) Tenant's breach of any
material covenant or condition contained in this Lease, (ii) Tenant's use and
occupancy of the Premises, and/or (iii) the negligent or willful misconduct of
Tenant. In the event any action or proceeding is brought against Landlord which
falls within the scope of this section, Tenant, upon written notice from
Landlord, shall defend Landlord in such action at Tenant's expense by counsel
reasonably satisfactory to Landlord. For purposes of this paragraph, "Tenant"
shall include all of the employees, agents, officers and directors of Tenant.
10.2 LANDLORD'S OBLIGATIONS. Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all claims, demands, liabilities,
responsibilities, losses, damages, penalties, fees, expenses and costs
(including attorney's fees) of any kind and nature whatsoever made against or
incurred by Tenant arising from or related to (i) Landlord's breach of any
material covenant or condition contained in this Lease, and/or (ii) the
negligent or willful misconduct of Landlord. In the event any action or
proceeding is brought against Tenant which falls within the scope of this
section, Landlord, upon written notice from Tenant, shall defend Tenant in such
action at Landlord's expense by counsel reasonably satisfactory to Tenant. For
purposes of this paragraph, "Landlord" shall include all of the employees,
agents, officers and directors of Landlord.
11. INSURANCE.
11.1 GENERAL. All insurance required to be carried by Tenant hereunder
shall be issued by responsible insurance companies reasonably acceptable to
Landlord and the holder of any mortgage or deed of trust secured by any portion
of the Premises (referred to herein as a "MORTGAGEE"). All policies of insurance
provided for in this Lease shall be issued by insurance companies licensed to do
business in the State of California, with general policy holder's rating of not
less than "A-" and a financial rating of not less than "Class X" as rated in the
most current available "Best's Insurance Reports." Each policy shall name
Landlord and at Landlord's request any Mortgagee as an additional insured, as
their respective interests may appear, and a duplicate original of all policies
or certificates evidencing the existence and amounts of such insurance shall be
delivered to Landlord upon Landlord's written request. All policies of
insurance delivered to Landlord shall contain a provision that the company
writing said policy will give Landlord (and any Mortgagee with respect to
property insurance) thirty (30) days written notice in advance of any
cancellation or lapse of or any change in such insurance. All public liability,
property damage and other casualty insurance policies shall be written as
primary policies, not contributing with, and not in excess of coverage which
Landlord may carry. Tenant shall furnish Landlord with renewals or "binders" of
any such policy at least thirty (30) days prior to the expiration thereof. If
Tenant does not procure and maintain such
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insurance, Landlord may (but shall not be required to) obtain such insurance on
Tenant's behalf and charge Tenant the premiums therefor which shall be payable
upon demand, and no such action by Landlord shall constitute a waiver of
Tenant's default hereunder. Tenant may carry such insurance under a blanket
policy, provided such blanket policy expressly affords the coverage required by
this Lease by a Landlord's protective liability endorsement or otherwise.
11.2 PROPERTY INSURANCE. Tenant shall obtain and keep in force during the
Term a policy of insurance in the name of Landlord and Tenant, with loss payable
to Landlord and to any Mortgagee insuring loss or damage to the Premises. The
amount of such insurance shall be equal to the full replacement cost of the
Premises, exclusive of foundations, as the same shall exist from time to time,
or the amount required by any lender(s), but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Such insurance shall, in addition, include
earthquake coverage to the extent required by any Mortgagee provided that such
coverage is available at reasonable commercial rates and shall, in addition,
include flood coverage if the Premises is within a designated flood zone. The
insurance required by this section shall, in addition, include coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises required
to be demolished, and shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, then Tenant shall be liable for
such deductible amount provided that, in no event, shall Tenant be liable for a
deductible amount in excess of $20,000.
11.3 LIABILITY INSURANCE. Tenant shall obtain and keep in force during
the Term of this Lease a commercial general liability policy of insurance
protecting Tenant and Landlord (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than Two Million Dollars
($2,000,000) per occurrence with an "Additional Insured-Managers or Landlords of
Premises" endorsement and contain an "Amendment of the Pollution Exclusion" for
damage caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations. All insurance to be carried by Tenant shall be primary to and
not contributory with any similar insurance carried by Landlord, whose insurance
shall be considered excess insurance only.
11.4 RENTAL VALUE. Tenant shall, in addition, obtain and keep in force
during the Term of this Lease a policy or policies in the name of Landlord, with
loss payable to Landlord and any Mortgagee, insuring the loss of the full rental
or other charges payable by Tenant to Landlord pursuant to this Lease for a
period of not less than one year. Such insurance shall provide that in the
event that the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of Rent from the date of any such loss. Said insurance shall contain an agreed
evaluation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected Rent payable by
Tenant for the next twelve (12) month period. Tenant shall be liable for any
deductible amount in the event
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of such loss.
11.5 MUTUAL WAIVER. Notwithstanding any provision to the contrary
contained in this Lease, to the extent that this release and waiver does not
invalidate or impair their respective insurance policies, the parties hereto
release each other and their respective agents, employees, officers, directors,
shareholders, successors and assigns from all liability for injury to any person
or damage to any property that is caused by or results from a risk which is
actually insured against pursuant to the provisions of this Lease without regard
to the negligence or willful misconduct of the parties so released. Each party
shall use its best efforts to cause each insurance policy it obtains to provide
that the insurer thereunder waives all right of recovery by way of subrogation
as required herein in connection with any injury or damage covered by the
policy. If such insurance policy cannot be obtained with such waiver of
subrogation, or if such a waiver of subrogation is only available at additional
cost and the party for whose benefit the waiver is not obtained does not pay
such additional cost after reasonable notice, then the party obtaining such
insurance shall promptly notify the other party of the inability to obtain
insurance coverage with the waiver of subrogation.
12. ASSIGNMENT AND SUBLETTING.
12.1 ASSIGNMENT TO AFFILIATE. Tenant shall have the right to assign its
interest in this Lease, or sublet any portion of the Premises, to any entity in
which FirstAmerica and/or Subsidiary hold either directly or indirectly an
ownership interest without the prior consent of Landlord, provided that such
entity agrees to be bound by the terms and conditions of this Lease. Tenant
shall give Landlord written notice of the effective date of such assignment or
subletting as soon as practicable. In connection with any such assignment,
Tenant shall continue to be jointly and separately liable with the assignee for
the obligations of tenant pursuant to this Lease.
12.2 ASSIGNMENT TO THIRD PARTIES. Except as provided in Section 12.1
above, Tenant shall not assign or encumber its interest in this Lease or the
Premises or sublease all or any portion of the Premises without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld.
Landlord shall give written notice of its consent or its determination not to
consent within thirty (30) days following written request for such consent
given by Tenant to Landlord. Any assignment, encumbrance or sublease without
Landlord's prior written consent shall be voidable and at Landlord's election
shall constitute a default.
12.3 INVOLUNTARY ASSIGNMENT. No interest of Tenant in this Lease shall be
assignable by operation of law including, without limitation, the transfer of
this Lease by will or intestacy. Each of the following acts shall be considered
an involuntary assignment: (a) if Tenant is or becomes bankrupt or insolvent,
makes an assignment for the benefit of creditors, or institutes or becomes the
subject of a proceeding under the Bankruptcy Code in which Tenant is the debtor
and such proceeding remains undismissed for a period of sixty (60) days; (b) if
a writ of attachment or execution is levied on this Lease and not released
within sixty (60) days; (c) if, in any proceeding or action to which Tenant is a
party, a receiver is appointed with authority to take possession of the
Premises. An involuntary assignment shall be deemed to constitute a material
default by Tenant and Landlord shall have the right to elect to terminate this
Lease, in which case this Lease shall not be treated as an asset of Tenant.
12.4 NO RELEASE OF TENANT. Notwithstanding any assignment or subletting
of any interest in this Lease or the Premises by Tenant, unless Landlord
otherwise consents in writing, Tenant shall continue
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to be liable for the full performance of all Tenant obligations set forth in the
Lease.
13. SALE OF PREMISES OR BUILDING. Each conveyance by Landlord or its successor
in interest of Landlord's interest in the Premises prior to the expiration or
termination of this Lease shall be subject to this Lease and shall relieve the
grantor of all further liability or obligations as Landlord, except for such
liability or obligations accruing prior to the date of such conveyance. Tenant
agrees to attorn to Landlord's successors in interest, whether such interest is
acquired by sale, transfer, foreclosure, deed in lieu of foreclosure or
otherwise.
14. ENTRY BY LANDLORD. Landlord and its authorized representatives shall have
the right to enter the Premises during business hours and after reasonable
notice (except in the event of an emergency in which case entry may be at any
time and with such prior notice to Tenant as is reasonable under the
circumstances): (a) to inspect the Premises; (b) to supply any service provided
to Tenant hereunder; (c) to show the Premises to prospective lenders,
purchasers, or broker and agents in connection with a sale of the building; (d)
to show the Premises to prospective tenants or brokers and agents in connection
with a leasing of the Premises, but only during the last twelve (12) months of
the Term; (e) to post notices of non-responsibility; (f) to alter, improve or
repair the Premises (to the extent permitted or required hereunder); and (g) to
erect scaffolding and other necessary structures, where required by the work to
be performed, all without reduction or abatement of rent.
15. INSOLVENCY OR BANKRUPTCY.
15.1 ACTS OF DEFAULT. Without limitation, the following events shall
constitute a default under this Lease: (a) if Tenant shall admit in writing its
inability to pay its debts as they mature; (b) if Tenant shall make an
assignment for the benefit of creditors or take any other similar action for the
protection or benefit of creditors; (c) if Tenant shall give notice to any
governmental body of insolvency or pending insolvency, or suspension or pending
suspension of operations; (d) if Tenant shall file a voluntary petition in
bankruptcy or shall be adjudicated a bankrupt or insolvent; (e) if Tenant shall
file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or other similar relief for
itself under any present or future applicable federal, state or other statute or
law relative to bankruptcy, insolvency or other relief for debtors; (f) if a
court of competent jurisdiction shall enter an order, judgment or decree
approving a petition filed against Tenant seeking any relief described in the
preceding clause (e), and (i) Tenant acquiesces in the entry of such order,
judgment or decree (the term "ACQUIESCE" as used in this Section shall include,
without limitation, Tenant's failure to file a petition or motion to vacate or
discharge any order, judgment or decree within sixty (60) days after entry of
such order, judgment or decree), or (ii) such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of sixty (60) days, whether or
not consecutive, from the date of entry thereof; (g) if Tenant shall seek or
consent to or acquiesce in the appointment of any trustee, receiver, conservator
or liquidator of Tenant of all or any substantial part of Tenant's properties or
its interest in the Premises; (h) if any trustee, receiver, conservator or
liquidator of Tenant or of all or any substantial part of its property or its
interest in the Premises shall be appointed without the consent or acquiescence
of Tenant and such appointment shall remain unvacated and unstayed for an
aggregate of sixty (60) days, whether or not consecutive; or (i) if this Lease
or any estate of Tenant hereunder shall be levied upon under any attachment or
execution and such attachment or execution shall remain unvacated and unstayed
for an aggregate of sixty (60) days, whether or not consecutive. Notwithstanding
the foregoing, the above described events shall not constitute a default under
this Lease where Tenant has assigned the Premises as permitted in this Lease,
such assignee has assumed this Lease,
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and such assignee is not otherwise in default hereunder.
15.2 RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE. Upon the filing of
a petition by or against Tenant under the United States Bankruptcy Code, Tenant,
as debtor in possession, and any trustee who may be appointed agree as follows:
(a) to perform each and every obligation of Tenant under this Lease until such
time as this Lease is either rejected or assumed by order of the United States
Bankruptcy Court; (b) to pay monthly in advance on the first day of each month
as reasonable compensation for use and occupancy of the Premises the sum
required under Section 3, and all other charges otherwise due pursuant to this
Lease; (c) to reject or assume this Lease within sixty (60) days of the filing
of such petition; (d) to give Landlord at least forty-five (45) days prior
written notice of any abandonment of the Premises, any such abandonment to be
deemed a rejection of this Lease; (e) to do all other things of benefit to
Landlord otherwise required under the Bankruptcy Code; (f) to be deemed to have
rejected this Lease in the event of the failure to comply with any of the above;
and (g) to have consented to the entry of an order by an appropriate United
States Bankruptcy Court providing all of the above, waiving notice and hearing
of the entry of same.
16. DEFAULT BY TENANT.
16.1 ACTS CONSTITUTING DEFAULTS. In addition to the events specified as a
default under Section 15.1 or elsewhere in this Lease, the material failure of
Tenant to perform each and every material covenant made under this Lease,
including any abandonment of the Premises by Tenant, shall constitute a default
hereunder. However, Landlord shall not commence any action to terminate Tenant's
right of possession as a consequence of a default until any period of grace with
respect thereto has elapsed; provided, such period of grace shall be in lieu of
and not in addition to the period during which Tenant may cure such default
following the delivery of notice pursuant to California Code of Civil Procedure
Section 1161.
16.1.1 Tenant shall have a period of ten (10) days from the date of
written notice from Landlord to Tenant within which to cure any default in the
payment of Base Rent.
16.1.2 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any default in the
payment of any monetary obligation of Tenant pursuant to this Lease other than
the payment of Base Rent.
16.1.3 Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord to Tenant (which notice shall specifically state
the nature of the asserted default) within which to cure any nonmonetary default
under this Lease; provided, however, that with respect to any default which
cannot reasonably be cured within thirty (30) days, the default shall not be
deemed to be uncured if Tenant commences to cure within thirty (30) days from
Landlord's notice and thereafter prosecutes diligently and continuously to
completion all acts required to cure the default.
16.1.4 A default by Tenant in the Loan and Security Agreement or
other similar financing agreements between Tenant and General Electric Capital
Corporation ("GECC"), provided that GECC has accelerated the principal, interest
or other obligations under the agreement between Tenant and GECC.
16.2 LANDLORD'S REMEDIES. If Tenant fails to cure a default within the
time allowed, Landlord
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shall have the following rights and remedies in addition to any other rights and
remedies available to Landlord at law or in equity.
16.2.1 Landlord may, pursuant to Civil Code (S) 1951.4, continue
this Lease in full force and effect, and this Lease will continue in effect so
long as Landlord does not terminate Tenant's right to possession, and Landlord
shall have the right to collect Rent (including, without limitation, Base Rent)
as it becomes due. During the period Tenant is in default, Landlord can enter
the Premises and relet the Premises, or any part of the Premises, to third
parties for Tenant's account. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises, including without
limitation, brokers' commissions, expenses of remodeling the Premises required
by the reletting, and like costs. Reletting can be for a period shorter or
longer than the remaining Term of this Lease. Tenant shall pay to Landlord the
Rent due under this Lease on the dates the Rent is due, less the rental amounts
Landlord receives from any reletting. No act by Landlord allowed by this section
shall terminate this Lease unless Landlord notifies Tenant in writing that
Landlord elects to terminate this Lease. After Tenant's default and for so long
as Landlord does not terminate Tenant's right to possession of the Premises, if
Tenant obtains Landlord's consent, Tenant shall have the right to assign or
sublet its interest in this Lease, but Tenant shall not be released from
liability. Landlord's consent to such a proposed assignment or subletting shall
not be unreasonably withheld. If Landlord elects to relet the Premises as
provided in this section, any rental amounts that Landlord receives from
reletting shall be applied to the payment of: first, any indebtedness from
Tenant to Landlord other than Rent due from Tenant; second, all costs, including
for maintenance incurred by Landlord in reletting; and third, Rent due and
unpaid under this Lease. After deducting the payments referred to in this
section, any sum remaining from the rental amounts Landlord receives from
reletting shall be held by Landlord and applied in payment of future Rent as
Rent becomes due under this Lease. In no event shall Tenant be entitled to any
excess rental received by Landlord. If, on the date Rent is due under this
Lease, the rent received from the reletting is less than the Rent due on that
date, Tenant shall pay to Landlord, in addition to the remaining Rent due, all
costs including for maintenance Landlord incurred in reletting that remain after
applying the rent received from the reletting as provided in this section.
16.2.2 Landlord may, pursuant to Civil Code (S) 1951.2, terminate
Tenant's right to possession of the Premises at any time. No act by Landlord
other than giving express written notice thereof to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises, or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. Upon
termination of Tenant's right to possession, Landlord has the right to recover
from Tenant: (1) the Worth of the unpaid Rent that had been earned at the time
of termination of Tenant's right to possession; (2) the Worth of the amount by
which the unpaid Rent that would have been earned after the date of termination
until the time of award exceeds the amount of the loss of Rent that Tenant
proves could have been reasonably avoided; (3) the Worth of the amount of the
unpaid Rent that would have been earned after the award throughout the remaining
Term of the Lease to the extent such unpaid Rent exceeds the amount of the loss
of Rent that Tenant proves could have been reasonably avoided; and (4) any other
amount, including but not limited to, expenses incurred to relet the Premises,
court costs, attorneys' fees and collection costs necessary to compensate
Landlord for all detriment caused by Tenant's default. The "Worth", as used
above in (1) and (2) in this subsection is to be computed by allowing interest
at the lesser of ten percent (10%) per annum or the maximum legal interest rate
permitted by law. The "Worth", as used above in (3) in this subsection is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award, plus one percent
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(1%).
16.3 LANDLORD'S RIGHT TO CURE DEFAULT. All covenants and agreements to be
performed by Tenant under the terms of this Lease shall be performed by Tenant
at Tenant's sole cost and expense and without any reduction of Rent. If Tenant
shall be in default of its obligations under this Lease to pay any money other
than rental or to perform any other act hereunder, and if such default is not
cured within the applicable grace period (if any) provided in this Section 16,
Landlord may, but shall not be obligated to, make any such payment or perform
any such act on Tenant's part without waiving its rights based upon any default
of Tenant and without releasing Tenant from any of its obligations. All sums so
paid and all costs incurred by Landlord shall be paid to Landlord on demand.
17. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in default in the
performance of any obligation under this Lease unless and until it has failed to
perform such obligation within thirty (30) days after receipt of written notice
by Tenant to Landlord specifying such failure; provided, however, that if the
nature of Landlord's default is such that more than thirty (30) days are
required for its cure, then Landlord shall not be deemed to be in default if
Landlord meaningfully commences such cure within the thirty (30) day period and
thereafter diligently prosecutes such cure to completion. Tenant agrees to give
any Mortgagee a copy, by registered mail, of any notice of default served upon
Landlord, provided that prior to such notice Tenant has been notified in writing
(by way of Notice of Assignment of Rents and Leases, or otherwise), of the
address of such Mortgagee. Any time during which such Mortgagee may cure
Landlord's default hereunder may, at Tenant's election, run concurrently with
Landlord's time to cure.
18. DAMAGE AND DESTRUCTION
18.1 DAMAGE - INSURED. In the event that the Premises is damaged by fire
or other casualty which is covered under insurance pursuant to the provisions of
Section 11 above, Landlord shall restore such damage provided that: (i)
insurance proceeds are available (inclusive of any deductible amounts) to pay
one hundred percent (100%) of the cost of restoration; and (ii) in the
reasonable judgment of Landlord, the restoration can be completed within three
hundred and sixty (360) days after the date of the damage or casualty under the
laws and regulations of the state, federal, county and municipal authorities
having jurisdiction. The deductible amount of any insurance coverage shall be
paid by Tenant except in the case of flood or earthquake and in such case the
deductible amount in excess of $20,000 per occurrence shall be paid by Landlord.
If such conditions apply so as to require Landlord to restore such damage
pursuant to this Section 18.1, this Lease shall continue in full force and
effect, unless otherwise agreed to in writing by Landlord and Tenant. Tenant
shall be entitled to a proportionate reduction of Rent at all times during which
Tenant's use of the Premises is interrupted, such proportionate reduction to be
based on the extent to which the damage and restoration efforts interfere with
Tenant's business in the Premises. Tenant's right to a reduction of Rent
hereunder shall be Tenant's sole and exclusive remedy in connection with any
such damage.
18.2 DAMAGE - UNINSURED. In the event that the Premises is damaged by a
fire or other casualty and Landlord is not required to restore such damage in
accordance with the provisions of Section 18.1 immediately above, Landlord shall
have the option to either (i) repair or restore such damage, with the Lease
continuing in full force and effect, but Rent to be proportionately abated as
provided in Section 18.1 above; or (ii) give notice to Tenant at any time within
thirty (30) days after the occurrence of such damage terminating this Lease as
of a date to be specified in such notice which date shall not be less than
thirty (30)
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nor more than sixty (60) days after the date on which such notice of termination
is given. In the event of the giving of such notice of termination, this Lease
shall expire and all interest of Tenant in the Premises shall terminate on the
date so specified in such notice and the Rent, reduced by any proportionate
reduction in Rent as provided for in Section 18.1 above, shall be paid to the
date of such termination. Notwithstanding the foregoing, if Tenant delivers to
Landlord the funds necessary to make up the shortage (or absence) in insurance
proceeds and the restoration can be completed in a three hundred sixty (360) day
period, as reasonably determined by Landlord, Landlord shall restore the
Premises as provided in Section 18.1 above.
18.3 END OF TERM CASUALTY. Notwithstanding the provisions of Sections
18.1 and 18.2 above, either Landlord or Tenant may terminate this Lease if the
Premises is damaged by fire or other casualty (and Landlord's reasonably
estimated cost of restoration of the Premises exceeds ten percent (10%) of the
then replacement value of the Premises) and such damage or casualty occurs
during the last twelve (12) months of the Term of this Lease (or the Term of
any renewal option, if applicable) by giving the other notice thereof at any
time within thirty (30) days following the occurrence of such damage or
casualty. Such notice shall specify the date of such termination which date
shall not be less than thirty (30) nor more than sixty (60) days following the
date on which such notice of termination is given. In the event of the giving
of such notice of termination, this Lease shall expire and all interest of
Tenant in the Premises shall terminate on the date so specified in such notice
and the Rent shall be paid to the date of such termination. Notwithstanding the
foregoing to the contrary, Landlord shall not have the right to terminate this
Lease if damage or casualty occurs during the last twelve (12) months of the
Term if Tenant timely exercises its option to extend the Term pursuant to
Section 2.2 of this Lease within twenty (20) days after the date of such damage
or casualty.
18.4 TERMINATION BY TENANT. In the event that the destruction to the
Premises cannot be restored as required herein under applicable laws and
regulations within two hundred seventy (270) days of the damage or casualty,
notwithstanding the availability of insurance proceeds, Tenant shall have the
right to terminate this Lease by giving the Landlord notice thereof within
thirty (30) days of date of the occurrence of such casualty specifying the date
of termination which shall not be less than thirty (30) days nor more than sixty
(60) days following the date on which such notice of termination is given. In
the event of the giving of such notice of termination, this Lease shall expire
and all interest of Tenant in the Premises shall terminate on the date so
specified in such notice and the Rent, reduced by any proportionate reduction in
Rent as provided for in Section 18.1 above, shall be paid to the date of such
termination.
18.5 RESTORATION. Landlord agrees that, in any case in which Landlord is
required to, or otherwise agrees to restore the Premises, that Landlord shall
proceed with due diligence to make all appropriate claims and applications for
the proceeds of insurance and to apply for and obtain all permits necessary for
the restoration of the Premises. Landlord shall restore the Premises to the
condition existing prior to the date of the damage if permitted by applicable
law. Landlord shall not be required to restore alterations made by Tenant,
Tenant's improvements, Tenant's trade fixtures, and Tenant's personal property,
such excluded items being the sole responsibility of Tenant to restore provided,
however, that Landlord shall, to the extent of available insurance proceeds,
restore Tenant Improvements to the Premises made by Tenant.
18.6 WAIVER. Tenant waives the provisions of Civil Code (S)1932(2) and
Civil Code (S)1933(4) with respect to any destruction of the Premises.
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19. CONDEMNATION.
19.1 DEFINITIONS. The following definitions shall apply: (1)
"CONDEMNATION" means (a) the exercise of any governmental power of eminent
domain, whether by legal proceedings or otherwise by condemnor, or (b) the
voluntary sale or transfer by Landlord to any condemnor either under threat of
condemnation or while legal proceedings for condemnation are proceeding; (2)
"DATE OF TAKING" means the date the condemnor has right to possession of the
property being condemned; (3) "AWARD" means all compensation, sums or anything
of value awarded, paid or received on a total or partial condemnation; and (4)
"CONDEMNOR" means any public or quasi-public authority, or private corporation
or individual, having power of condemnation.
19.2 OBLIGATIONS TO BE GOVERNED BY LEASE. If during the Term of the Lease
there is any Condemnation of all or any part of the Premises, the rights and
obligations of the parties shall be determined strictly pursuant to this Lease.
Each party waives the provisions of Code of Civil Procedure (S)1265.130 allowing
either party to petition the Superior Court to terminate this Lease in the event
of a partial Condemnation of the Premises.
19.3 TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
Condemnation, this Lease shall terminate on the Date of Taking. If any portion
of the Premises is taken by Condemnation, this Lease shall remain in effect,
except that Tenant can elect to terminate this Lease if the remaining portion of
the Premises is rendered unsuitable for Tenant's continued use of the Premises.
If Tenant elects to terminate this Lease, Tenant must exercise its right to
terminate by giving notice to Landlord within thirty (30) days after the nature
and extent of the Condemnation have been finally determined. If Tenant elects
to terminate this Lease, Tenant shall also notify Landlord of the date of
termination, which date shall not be earlier than thirty (30) days nor later
than ninety (90) days after Tenant has notified Landlord of its election to
terminate; except that this Lease shall terminate on the Date of Taking if the
Date of Taking falls on a date before the date of termination as designated by
Tenant. If any portion of the Premises is taken by Condemnation and this Lease
remains in full force and effect, on the Date of Taking the Base Rent shall be
reduced by an amount in the same ratio as the total number of square feet in the
building(s) which are a part of the Premises taken bears to the total number of
square feet in the building(s) which are a part of the Premises immediately
before the Date of Taking. Any Award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Landlord, whether such Award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Tenant
shall be entitled to any compensation separately awarded to Tenant for Tenant's
relocation expenses and/or loss of Tenant's trade fixtures
20. HOLDING OVER. Any holding over after the expiration of the Term shall be a
tenancy from month to month. The terms, covenants and conditions of such tenancy
shall be the same as provided herein, except that the Base Rent shall be one
hundred three percent (103%) of the Base Rent in effect immediately prior to the
commencement of such holding over. Acceptance by Landlord of Rent after such
expiration shall not result in any other tenancy or any renewal of the Term of
this Lease, and the provisions of this section are in addition to and do not
affect Landlord's right of reentry or other rights provided under this Lease or
by applicable law.
21. ESTOPPEL CERTIFICATES. Within ten (10) business days following any written
request which
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Landlord and Tenant may make from time to time, Tenant or Landlord, without any
charge therefor, shall execute, acknowledge and deliver to the other a statement
certifying: (a) the Commencement Date of this Lease; (b) the fact that this
Lease is unmodified and in full force and effect (or, if there have been
modifications hereto, that this Lease is in full force and effect, as modified,
and stating the date and nature of such modifications); (c) the date to which
the Base Rent and other sums payable under this Lease have been paid; (d) the
fact that there are no current defaults under this Lease by either Landlord or
Tenant except as specified in the statement; and (e) such other reasonable
matters requested by Landlord or Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this Section may be relied upon by a mortgagee,
beneficiary, purchaser or prospective purchaser of the Premises or any interest
therein, or any financial institution, investment banker, underwriter or the
counsel of each of the foregoing, providing credit or seeking capital for Tenant
or Landlord. The failure of Landlord or Tenant to deliver any such statement
within said ten (10) day period shall constitute a material default, and the
defaulting party shall indemnify and hold the other party harmless from and
against any and all liability, loss, cost, damage and expense which such party
may sustain or incur as a result of or in connection with the defaulting party's
failure or delay in delivering such statement.
22. SUBORDINATION AND ATTORNMENT.
22.1 SUBORDINATION. Upon the written request of Landlord or any
Mortgagee, Tenant will in writing subordinate its rights under this Lease to the
lien of any mortgage or deed of trust now or hereafter in force against the
Premises, and to all advances made or hereafter to be made upon the security
thereof, and to all extensions, modifications and renewals thereunder. Tenant
shall also, upon Landlord's request, subordinate its rights hereunder to any
ground or underlying lease which may now exist or hereafter be executed
affecting the Premises and/or the underlying land. Tenant shall have the right
to condition its subordination upon the execution and delivery of an attornment
and non-disturbance agreement, as described in Subsection 22.2, between the
Mortgagee or the lessor under any such ground or underlying lease and Tenant.
22.2 ATTORNMENT AND NON-DISTURBANCE. Upon the written request of the
Landlord or any Mortgagee or any lessor under a ground or underlying lease,
Tenant shall attorn to any such Mortgagee or beneficiary, provided such
Mortgagee or lessor agrees that if Tenant is not in material default under this
Lease, Tenant's possession of the Premises in accordance with the terms of this
Lease shall not be disturbed. Such agreement shall provide, among other things,
(a) that this Lease shall remain in full force and effect, (b) that Tenant pay
rent to said Mortgagee or lessor from the date of said attornment, (c) that said
Mortgagee or lessor shall not be responsible to Tenant under this Lease except
for obligations accruing subsequent to the date of such attornment, and (d) that
Tenant, in the event of foreclosure or a deed in lieu thereof or a termination
of the ground or underlying lease, will enter into and will have the right to, a
new lease with the Mortgagee, lessor or other person having or acquiring title
on the same terms and conditions as this Lease and for the balance of the Term.
22.3 NONMATERIAL AMENDMENTS. If any lender should require any nonmaterial
modification of this Lease as a condition of loans secured by a lien on the
Premises, or the land underlying the Premises, or if any such nonmaterial
modification is required as a condition to a ground or underlying lease, Tenant
will approve and execute any such modifications, promptly after request by
Landlord provided no such modification shall relate to the net effective rent
payable hereunder, the length of the Term or otherwise materially change the
rights or obligations of Landlord or Tenant.
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23. WAIVER. If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be deemed
to be a waiver of the term, covenant or condition itself or a waiver of any
subsequent breach of the same or any other term, covenant or condition contained
herein. Furthermore, the acceptance of rent by Landlord shall not constitute a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, regardless of Landlord's knowledge of such preceding breach at the
time Landlord accepts such rent. Failure by either Landlord or Tenant to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or to decrease the right to insist thereafter upon
strict performance by the nonperforming party. Waiver by either party to this
Lease may only be made by a written document signed by the waiving party.
24. ATTORNEYS' FEES. In the event that any action or proceeding (including
arbitration) is brought to enforce or interpret any term, covenant or condition
of this Lease on the part of Landlord or Tenant, the prevailing party in such
action or proceeding (whether after trial or appeal) shall be entitled to
recover from the party not prevailing its expenses therein, including reasonable
attorneys' fees and all allowable costs.
25. NOTICES. All notices, requests or demands to a party hereunder shall be
in writing and shall be given or served upon the other party by personal
service, by certified return receipt requested or registered mail, postage
prepaid, or by Federal Express or other nationally recognized commercial
courier, charges prepaid, addressed as set forth below. Any such notice,
demand, request or other communication shall be deemed to have been given upon
the earlier of personal delivery thereof, three (3) business days after having
been mailed as provided above, or one (1) business day after delivery through a
commercial courier, as the case may be. Notices may be given by facsimile and
shall be effective upon the transmission of such facsimile notice provided that
the facsimile notice is transmitted on a business day and a copy of the
facsimile notice together with evidence of its successful transmission
indicating the date and time of transmission is sent on the day of transmission
by recognized overnight carrier for delivery on the immediately succeeding
business day. Each party shall be entitled to modify its address by notice given
in accordance with this Section 25.
If to Landlord: Rosewood Village Associates
P.O. Box 489
Orinda, CA 94563
Attention: Donald V. Strough
FAX: 510-689-2680
If to Tenant: FirstAmerica Automotive, Inc.
100 The Embarcadero, PH
San Francisco, CA 94105
Attn: W. Bruce Bercovich
Fax: 415-512-9277
If to Tenant: California Carriage Limited
(Subsidiary) 1300 Concord Avenue
Concord, CA
Attn: Donald V. Strough
Fax: 510-689-2680
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With a copy to: Kay & Merkle
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Attn: W. Bruce Bercovich, Esq.
Fax: 415-512-9277
26. MERGER. Notwithstanding the acquisition (if same should occur) by the same
party of the title and interests of both Landlord and Tenant under this Lease,
there shall not be a merger of the estates of Landlord and Tenant under this
Lease, but instead the separate estates, rights, duties and obligations of
Landlord and Tenant, as existing hereunder, shall remain unextinguished and
continue, separately, in full force and effect until this Lease expires or
otherwise terminates in accordance with the express provisions herein contained.
27. DEFINED TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used in neuter
gender include the feminine and masculine, where applicable. If there is more
than one Tenant, the obligations imposed under this Lease upon Tenant shall be
joint and several. The headings and titles to the sections and paragraphs of
this Lease are used for convenience only and shall have no effect upon the
construction or interpretation of this Lease.
28. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of
its provisions. This Lease shall in all respects be governed by and interpreted
in accordance with the laws of the State of California.
29. SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 12 and the
limitation expressed below, the terms, covenants and conditions contained herein
shall be binding upon and inure to the benefit of the heirs, successors,
executors, administrators and assigns of the parties hereto. However, the
obligations imposed on Landlord under this Lease shall be binding upon
Landlord's successors and assigns only with respect to obligations arising
during their respective periods of ownership of the Premises.
30. ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all the
agreements of the parties hereto and supersedes any previous negotiations. There
have been no representations made by the Landlord or Tenant or understandings
made between the parties other than those set forth in this Lease and its
exhibits.
31. SEVERABILITY. If any provision of this Lease or the application thereof to
any person or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Lease and the application of such provision to other persons
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
32. SIGNS. Tenant shall have the exclusive right, at its own cost and expense,
to install and affix to the Premises such signs (the "Signs") as Tenant may
desire. The location, construction, size and appearance of the Signs shall
comply with all applicable laws, ordinances and regulations and the requirements
of any governmental agency or authority having jurisdiction thereof. The Signs
shall remain the property of Tenant and may be removed by Tenant at any time
provided that Tenant, at its expense, shall repair any damage caused by reason
of such removal and shall restore the Premises to its original condition. Tenant
shall, at its
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own expense, maintain the Signs in good condition and working order, shall
comply with all laws, ordinances and regulations with respect thereto (including
the requirements of any governmental agency or authority having jurisdiction
thereof), and shall pay for all utility service to the Signs. Upon the
expiration of the Term or earlier termination of this Lease, or upon the
vacation of the Premises by Tenant, Tenant shall remove the Signs, shall repair
any damage caused by reason of such removal and shall restore the Premises to
its original condition, all at Tenant's sole cost and expense.
33. RECORDABILITY OF LEASE. Landlord and Tenant agree that a Memorandum of
Lease, in a form reasonably acceptable to both Landlord and Tenant, may be
recorded at the request of either party.
34. CONSTRUCTION. All provisions hereof, whether covenants or conditions,
shall be deemed to be both covenants and conditions. The definitions contained
in this Lease shall be used to interpret the Lease. All rights and remedies of
Landlord and Tenant shall, except as otherwise expressly provided, be cumulative
and non-exclusive of any other remedy at law or in equity.
35. CONSENT. Whenever in this Lease the consent of a party is required to any
act by or for the other party, such consent shall not be unreasonably withheld
or delayed.
36. LIABILITY TO PERFORM. This Lease and the obligations of Tenant or
Landlord hereunder as the case may be, shall not be affected or impaired because
the other party is unable to fulfill any of its obligations hereunder, other
than the payment of money, or is delayed in doing so, if such inability or delay
is caused by reason of force majeure, strike, labor troubles, acts of God, acts
of government, unavailability of materials or labor, or any other cause beyond
the control of such other party.
37. CORPORATE AUTHORITY. Each individual executing this Lease on behalf of
Tenant, represents and warrants that Tenant is duly incorporated, in good
standing and qualified to do business in California, and that he or she is duly
authorized to execute and deliver this Lease on behalf of Tenant and that he or
she will deliver appropriate certification to that effect if requested.
38. QUIET ENJOYMENT. So long as Tenant is not in default under this Lease,
Tenant shall have quiet enjoyment of the Premises for the Term, subject to all
the terms and conditions of this Lease and all liens and encumbrances prior to
this Lease.
39. WAIVER. As material consideration to Landlord, Tenant agrees that
Landlord shall not be liable to Tenant for any damage to Tenant or Tenant's
property from any cause, except for damages resulting from Landlord's gross
negligence or willful misconduct, and Tenant waives all claims against Landlord
for damage to persons or property arising for any reason, except for damage
resulting directly from Landlord's breach of its express obligations under this
Lease which Landlord has not cured within a reasonable time after written notice
of such breach from Tenant.
40. AMENDMENT. This lease may be modified only in writing, signed by the
parties in interest at the time of the modification.
41. CONSTRUCTION. The Landlord and Tenant acknowledge that each has had its
counsel review this Lease and hereby agree that the normal rule of construction
to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Lease or in any amendments
or exhibits hereto.
19
<PAGE>
Wherefore, Landlord and Tenant enter into this Lease as of the day and year
first above written.
LANDLORD: TENANT:
Rosewood Village Associates, FirstAmerica Automotive, Inc.
a California limited partnership a Delaware corporation
By: Strough 1983 Family Trust,
general partner
By: /s/ Thomas A. Price
____________________________
Thomas A. Price, President
By: /s/ Donald V. Strough
___________________________
Donald V. Strough, Trustee
FAA Stevens Creek, Inc.,
a California corporation
By: /s/ Linda L. Strough
_________________________
Linda L. Strough, Trustee
By: /s/ Donald V. Strough
_____________________________
Donald V. Strough, President
20
<PAGE>
EXHIBIT 10.10
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This Executive Employment Agreement is entered into by and between
FirstAmerica Automotive, Inc. (the "Company") and Donald Strough ("Executive")
this 1st day of July, 1997 (the "Effective Date").
1. Position and Duties: The Company does hereby employ Executive as
-------------------
Chairman of the Board and Director of Acquisitions of the Company during the
Initial Term (and a Renewal Term, if any) of this Agreement. Executive does
hereby accept and agree to such employment. Subject to the supervision and
control of the Board of Directors of the Company (the "Board"), Executive shall
do and perform all services and acts necessary or advisable to fulfill the
duties and responsibilities of his position and shall render such services on
the terms set forth herein. In addition, Executive shall have such other
executive and managerial powers and duties with respect to the Company as may be
assigned to him by the Board. During the Initial Term (and a Renewal Term, if
any), Executive shall devote his full working time, attention and efforts to the
Company and its affiliates; provided, however, nothing in this Agreement shall
-------- -------
preclude Executive from pursuing those ventures or business activities described
in Schedule 1, subject to approval by the Board, and so long as such efforts
does not interfere with Executive's duties and responsibilities as provided
herein or otherwise involve more than [10]% of Executive's daily work
activities. Executive's principal place of employment shall be the Company's
principal executive offices.
As Chairman of the Company's Board, Executive shall be subject to the
provisions of the Company's bylaws and all applicable general corporation laws
relative to his position on the Board. In addition to the Company's bylaws, as a
member of the Board, Executive shall also be subject to the statement of powers,
both specific and general, as set forth in the Company's Articles of
Incorporation.
2. Term of Agreement: The term of this Agreement shall commence on the
-----------------
Effective Date and shall continue for a period of five (5) years thereafter
("Initial Term"), unless Executive's employment and this Agreement are earlier
terminated pursuant to Section 5, below, or extended by mutual agreement of the
parties; provided, however, the term of this Agreement shall be automatically
-------- -------
renewed for successive periods of one year (each a "Renewal Term"), unless
either party gives the other written notice of termination or a desire to change
the provisions herein on or before the thirtieth (30th) day prior to the
expiration of the Initial Term or any Renewal Term.
3. Compensation: During the Initial Term (and a Renewal Term, if any),
------------
Executive shall be compensated by the Company for his services as follows:
(a) Salary: Executive shall be paid a monthly salary of $20,833.33
------
($250,000.00 per year), subject to applicable withholding, in accordance with
the Company's normal payroll procedures (the "Base Salary"). Executive's Base
Salary shall be reviewed annually and adjusted as determined by the Board.
<PAGE>
(b) Benefits: Executive shall have the right, on the same basis as
--------
other members of senior management of the Company, to participate in and to
receive benefits under any of the Company's employee benefit plans, including
the medical, dental, vision and disability group insurance plans, if any.
Executive shall also be entitled to participate in any retirement plan
maintained by the Company for which he is eligible in accordance with its terms.
(c) Expense Reimbursements: Upon receipt of proper documentation
----------------------
establishing the amount of such expenses, the Company shall reimburse Executive
for any reasonable business expenses incurred as provided in the Company's
policy on this subject applicable to the Company's senior management.
(d) Car Allowance: In addition to reimbursement of expenses described
-------------
in subsection 3(c), Executive shall receive [$600.00] per month as an allowance
for car expenses as provided in the Company's policy on this subject applicable
to the Company's senior management.
(e) Performance Bonus. Executive shall be eligible to earn a
-----------------
performance bonus of up to fifty percent (50%) of the Base Salary for the then-
current fiscal year (the "Performance Bonus"). The Performance Bonus shall be
determined on the following basis:
(i) Fifty percent of the Performance Bonus shall be considered
earned upon the Company's meeting such annual performance objectives as shall be
established by the Compensation Committee of the Board no later than ten weeks
following the beginning of the Company's then-current fiscal year. For Fiscal
Year 1997, the Compensation Committee of the Board shall establish such
performance objectives within four weeks of the date of the Effective Date; and
(ii) Fifty percent of the Performance Bonus shall be awarded
strictly in the Board's discretion.
The Performance Bonus shall be paid within thirty days of receipt of
certification by the Compensation Committee of the Board of Executive's
attainment of the pre-established goals under subsection 3(e)(i), and said bonus
shall not accrue until the conclusion of the fiscal year for which such bonus is
to be paid.
4. Benefits Upon Executive's Voluntary Resignation, Death or Disability:
--------------------------------------------------------------------
In the event that Executive voluntarily resigns from his employment with the
Company, or in the event that Executive's employment terminates as a result of
his death or disability, Executive shall be entitled to no compensation or
benefits from the Company other than those earned under section 3 through the
date of such termination or resignation.
5. Termination for "Cause": If Executive's employment is terminated by
-----------------------
the Company for Cause, Executive shall be entitled to no further compensation or
benefits from the Company hereunder or otherwise except for such compensation
and benefits that are accrued but unpaid as of the date of Executive's
termination for cause. In
<PAGE>
particular, Executive shall be entitled to no portion of any Performance Bonus
described in Section 3(e), above. For purposes of this Section 5, a termination
for "Cause" occurs if Executive's employment and this Agreement are terminated
due to: (i) Executive's theft, dishonesty, or falsification of any employment or
Company records; (ii) Executive's breach of any fiduciary duty or duty of
loyalty to the Company; (iii) Executive's commission of any crime involving a
felony offense or a criminal offense involving moral turpitude; (iv) Executive's
material breach of this Agreement; or (v) any intentional act by Executive which
has a material detrimental effect on the Company's reputation or business;
provided, however, if the Company seeks to terminate Executive's employment for
- -------- -------
Cause for the reason or reasons set forth in subsection 5(iv), prior to any such
termination, the Company shall give Executive thirty (30) days written notice of
its intention to terminate Executive's employment and this Agreement and inform
Executive regarding the nature of the acts or omissions that give rise to the
Company's proposed termination for Cause and allow Executive during this thirty
day period to cure, eliminate, remedy or otherwise correct such acts or
omissions, if such acts or omissions are capable of being cured, eliminated,
remedied or corrected; provided further, however, if the acts or omissions that
-------- ------- -------
give rise to the-Company's proposed termination for Cause cannot be cured,
eliminated, remedied or otherwise corrected during the thirty day time-period,
the Company may terminate Executive's employment and this Agreement for Cause
for the reasons set forth in subsection 5(iv) immediately and without notice or
an opportunity to cure.
6. Confidential Information and Nondisclosure Agreement: Executive
----------------------------------------------------
acknowledges that during his employment with the Company, he shall be exposed to
or be given access to proprietary information, trade secrets, and other
confidential materials of the Company, including, without limitation, lists of
customers, suppliers and vendors, sales and marketing strategies, and financial
information including past, present and future financial performance and
projections thereof ("Confidential Information"). Executive agrees, without
limitation in time or until such information shall become public other than by
Executive's unauthorized disclosure, to maintain the confidentiality of the
Confidential Information and to refrain from divulging, disclosing, or otherwise
using in any respect the Confidential Information to the detriment of the
Company or its subsidiaries, affiliates, successors or assigns, or for any other
purpose or no purpose. Executive further agrees that, as condition precedent to
this Agreement and as a condition precedent to his continued receipt of benefits
hereunder, he shall sign the Company's [Proprietary Information/Confidential
Information and Conflicts of Interest Agreement] and he shall adhere to each of
the covenants and agreements contained therein.
7. Return of Company Property. Immediately upon the termination of
--------------------------
Executive's employment (at the end of the Initial Term or any Renewal Term, or
upon the early termination of Executive's employment by the Company or
Executive), Executive shall return to the Company all of its property,
equipment, documents, records, lists, files and any and all other Company
materials including, without limitation, computerized or electronic information,
that is in Executive's possession (the "Company Property") by delivering the
Company Property to the Company's principal executive offices on or before the
date of such termination. Unless otherwise agreed by
<PAGE>
the Company in writing, Executive shall not retain any Company Property or any
copies thereof.
8. Dispute Resolution: Except as necessary for either party to
------------------
specifically enforce, or enjoin the breach of, the Combined Agreements (as
defined in Section 11), and to the extent such equitable remedies are otherwise
available, the parties agree that any dispute that arises out of or relates in
any way to this Agreement or Executive's employment with the Company, the
termination of that employment, or any and all other disputes by and between the
parties, shall be submitted to binding arbitration in San Francisco, California,
according to the National Employment Dispute Resolution Rules and procedures of
the American Arbitration Association that are then in effect. This arbitration
obligation extends to any and all claims that may arise by and between the
parties and expressly extends to any claims asserted under any State
Constitution, the United States Constitution, and applicable federal, state and
local law including, without limitation, state fair employment laws, federal
equal employment opportunity laws, federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as
amended, the Fair Labor Standards Act, as amended, the National Labor Relations
Act, as amended, the Labor-Management Relations Act, as amended, the Worker
Retraining and Notification Act of 1988, as amended, the Americans with
Disabilities Act of 1990, as amended, the Rehabilitation Act of 1973, as
amended, the Employee Retirement Income Security Act of 1974, as amended, the
Age Discrimination in Employment Act of 1967, as amended, and any similar State
laws.
9. Attorneys' Fees: The prevailing party shall be entitled to recover his
---------------
or its attorneys' fees and costs incurred in any formal proceeding brought to
enforce any right arising out of this Agreement.
10. Interpretation: Executive and the Company agree that this Agreement
--------------
shall be interpreted in accordance with and governed by the laws of the State of
California without giving effect to any conflict of law principles.
11. Entire Agreement: This Agreement and the [Proprietary
----------------
Information/Confidential Information and Conflicts of Interest Agreement]
(together the "Combined Agreements") constitute the entire agreement between
Executive and the Company regarding the subject matter hereof. The Combined
Agreements supersede all prior negotiations, representations or agreements
between Executive and the Company, whether written or oral, concerning the
subject matters described therein.
12. Modification: This Agreement may only be modified or amended by a
------------
supplemental written agreement signed by Executive and the Company.
13. Assignment; Successors. The Executive's rights and obligations
----------------------
provided for in this Agreement are personal in nature and Executive shall not
assign or transfer this Agreement or any rights or obligations hereunder. The
Company shall be entitled to assign or transfer its rights and delegate its
duties hereunder.
14. Survival. In the event of any termination of Executive's employment
--------
and this Agreement for any reason by Executive or the Company, Executive and/or
the
<PAGE>
Company, as the case may be, nevertheless shall continue to be bound by the
terms and conditions set forth in Sections 6 through 8 herein and all of the
terms and conditions set forth in the [Proprietary Information/Confidential
Information and Conflicts of Interest Agreement].
15. Headings. Section headings in this Agreement are included herein for
--------
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
16. Construction of Agreement. The parties acknowledge that this
-------------------------
Agreement was jointly prepared by them, by and through their respective legal
counsel, and any uncertainty or ambiguity existing herein shall not be
interpreted against any one of the parties.
17. Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be given by telefax or first-class mail, certified
or registered with return receipt requested, and shall be deemed to have been
duly given three (3) days after mailing or twenty-four (24) hours after
transmission of a telefax to the respective persons named below.
If to the Company: FirstAmerica Automotive, Inc.
100 The Embarcadero
San Francisco, California 94105-1217
Facsimile: (415) 512-9277
and
Skadden, Arps, Slate, Meagher & Flom, LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071-3144
Facsimile: (213) 687-5600
If to Executive: 1300 Concord Ave.
Concord, California 94520
Either party may change such party's address for notices by notice duly
given pursuant hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first written above.
Executive FirstAmerica Automotive, Inc.
/s/ Donald Strough By: /s/
- ------------------------ ------------------------------
Donald Strough
Its: President
----------------------------
<PAGE>
EXHIBIT 10.10.1
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This Executive Employment Agreement is entered into by and between
FirstAmerica Automotive, Inc. (the "Company") and Thomas Price ("Executive") as
of this 1st day of July, 1997 (the "Effective Date").
1. Position and Duties: The Company does hereby employ Executive as Chief
-------------------
Executive Officer of the Company during the Initial Term (and a Renewal Term, if
any) of this Agreement. Executive does hereby accept and agree to such
employment. Subject to the supervision and control of the Board of Directors of
the Company (the "Board"), Executive shall do and perform all services and acts
necessary or advisable to fulfill the duties and responsibilities of his
position and shall render such services on the terms set forth herein. In
addition, Executive shall have such other executive and managerial powers and
duties with respect to the Company as may be assigned to him by the Board.
During the Initial Term (and a Renewal Term, if any), Executive shall devote his
full working time, attention and efforts to the Company and its affiliates;
provided, however, nothing in this Agreement shall preclude Executive from
- -------- -------
pursuing those ventures or business activities described in Schedule 1, subject
to approval by the Board, and so long as such efforts do not interfere with
Executive's duties and responsibilities as provided herein or otherwise involve
more than [ 5 ]% of Executive's daily work activities. Executive's principal
place of employment shall be the Company's principal executive offices.
2. Term of Agreement: The term of this Agreement shall commence on the
-----------------
Effective Date and shall continue for a period of five (5) years thereafter
("Initial Term"), unless Executive's employment and this Agreement are earlier
terminated pursuant to Section 5, or extended by mutual agreement of the
parties; provided, however, the term of this Agreement shall be automatically
-------- -------
renewed for successive periods of one year (each a "Renewal Term"), unless
either party gives the other written notice of termination or a desire to change
the provisions herein on or before the thirtieth (30th) day prior to the
expiration of the Initial Term or any Renewal Term.
3. Compensation: During the Initial Term (and a Renewal Term, if any),
------------
Executive shall be compensated by the Company for his services as follows:
(a) Salary: Executive shall be paid a monthly salary of $40,000.00
------
($480,000.00 per year), subject to applicable withholding, in accordance with
the Company's normal payroll procedures (the "Base Salary"). Executive's Base
Salary shall be reviewed annually and adjusted as determined by the Board.
(b) Benefits: Executive shall have the right, on the same basis as
--------
other members of senior management of the Company, to participate in and to
receive benefits under any of the Company's employee benefit plans, including
the medical, dental,
<PAGE>
vision and disability group insurance plans, if any. Executive shall also be
entitled to participate in any retirement plan maintained by the Company for
which he is eligible in accordance with its terms.
(c) Expense Reimbursements: Upon receipt of proper documentation
----------------------
establishing the amount of such expenses, the Company shall reimburse Executive
for any reasonable business expenses incurred as provided in the Company's
policy on this subject applicable to the Company's senior management.
(d) Car Allowance: In addition to reimbursement of expenses described
-------------
in subsection 3(c), Executive shall receive [$ 1200] per month as an allowance
for car expenses as provided in the Company's policy on this subject applicable
to the Company's senior management.
(e) Performance Bonus. Executive shall be eligible to earn a
-----------------
performance bonus of up to fifty percent (50%) of the Base Salary for the then-
current fiscal year (the "Performance Bonus"). The Performance Bonus shall be
determined on the following basis:
(i) Fifty percent of the Performance Bonus shall be considered
earned upon the Company's meeting such annual performance objectives as shall be
established by the Compensation Committee of the Board no later than ten weeks
following the beginning of the Company's then-current fiscal year. For Fiscal
Year 1997, the Compensation Committee of the Board shall establish such
performance objectives within four weeks of the date of the Effective Date; and
(ii) Fifty percent of the Performance Bonus shall be awarded
strictly in the Board's discretion.
The Performance Bonus shall be paid within thirty days of receipt of
certification by the Compensation Committee of the Board of Executive's
attainment of the pre-established goals under subsection 3(e)(i), and said bonus
shall not accrue until the conclusion of the fiscal year for which such bonus is
to be paid.
4. Benefits Upon Executive's Voluntary Resignation, Death or Disability:
--------------------------------------------------------------------
In the event that Executive voluntarily resigns from his employment with the
Company, or in the event that Executive's employment terminates as a result of
his death or disability, Executive shall be entitled to no compensation or
benefits from the Company other than those earned under section 3 through the
date of such termination or resignation.
5. Termination for "Cause": If Executive's employment is terminated by
-----------------------
the Company for Cause, Executive shall be entitled to no further compensation or
benefits from the Company hereunder or otherwise except for such compensation
and benefits
-2-
<PAGE>
that are accrued but unpaid as of the date of Executive's termination for cause.
In particular, Executive shall be entitled to no portion of any Performance
Bonus described in Section 3(e), above. For purposes of this Section 5, a
termination for "Cause" occurs if Executive's employment and this Agreement are
terminated due to: (i) Executive's theft, dishonesty, or falsification of any
employment or Company records; (ii) Executive's breach of any fiduciary duty or
duty of loyalty to the Company; (iii) Executive's commission of any crime
involving a felony offense or a criminal offense involving moral turpitude; (iv)
Executive's material breach of this Agreement; or (v) any intentional act by
Executive which has a material detrimental effect on the Company's reputation or
business; provided, however, if the Company seeks to terminate Executive's
-------- -------
employment for Cause for the reason or reasons set forth in subsection 5(iv),
prior to any such termination, the Company shall give Executive thirty (30) days
written notice of its intention to terminate Executive's employment and this
Agreement and inform Executive regarding the nature of the acts or omissions
that give rise to the Company's proposed termination for Cause and allow
Executive during this thirty day period to cure, eliminate, remedy or otherwise
correct such acts or omissions, if such acts or omissions are capable of being
cured, eliminated, remedied or corrected; provided further, however, if the acts
-------- ------- -------
or omissions that give rise to the Company's proposed termination for Cause
cannot be cured, eliminated, remedied or otherwise corrected during the thirty
day time-period, the Company may terminate Executive's employment and this
Agreement for Cause for the reasons set forth in subsection 5(iv) immediately
and without notice or an opportunity to cure.
6. Confidential Information and Nondisclosure Agreement: Executive
----------------------------------------------------
acknowledges that during his employment with the Company, he shall be exposed to
or be given access to proprietary information, trade secrets, and other
confidential materials of the Company, including, without limitation, lists of
customers, suppliers and vendors, sales and marketing strategies, and financial
information including past, present and future financial performance and
projections thereof ("Confidential Information"). Executive agrees, without
limitation in time or until such information shall become public other than by
Executive's unauthorized disclosure, to maintain the confidentiality of the
Confidential Information and to refrain from divulging, disclosing, or otherwise
using in any respect the Confidential Information to the detriment of the
Company or its subsidiaries, affiliates, successors or assigns, or for any other
purpose or no purpose. Executive further agrees that, as condition precedent to
this Agreement and as a condition precedent to his continued receipt of benefits
hereunder, he shall sign the Company's [Proprietary Information/Confidential
Information and Conflicts of Interest Agreement] and he shall adhere to each of
the covenants and agreements contained therein.
7. Return of Company Property. Immediately upon the termination of
--------------------------
Executive's employment (at the end of the Initial Term or any Renewal Term, or
upon the early termination of Executive's employment by the Company or
Executive), Executive shall return to the Company all of its property,
equipment, documents,
-3-
<PAGE>
records, lists, files and any and all other Company materials including, without
limitation, computerized or electronic information, that is in Executive's
possession (the "Company Property") by delivering the Company Property to the
Company's principal executive offices on or before the date of such termination.
Unless otherwise agreed by the Company in writing, Executive shall not retain
any Company Property or any copies thereof.
8. Dispute Resolution: Except as necessary for either party to
------------------
specifically enforce, or enjoin the breach of, the Combined Agreements (as
defined in Section 11), and to the extent such equitable remedies are otherwise
available, the parties agree that any dispute that arises out of or relates in
any way to this Agreement or Executive's employment with the Company, the
termination of that employment, or any and all other disputes by and between the
parties, shall be submitted to binding arbitration in San Francisco, California,
according to the National Employment Dispute Resolution Rules and procedures of
the American Arbitration Association that are then in effect. This arbitration
obligation extends to any and all claims that may arise by and between the
parties and expressly extends to any claims asserted under any State
Constitution, the United States Constitution, and applicable federal, state and
local law including, without limitation, state fair employment laws, federal
equal employment opportunity laws, federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as
amended, the Fair Labor Standards Act, as amended, the National Labor Relations
Act, as amended, the Labor-Management Relations Act, as amended, the Worker
Retraining and Notification Act of 1988, as amended, the Americans with
Disabilities Act of 1990, as amended, the Rehabilitation Act of 1973, as
amended, the Employee Retirement Income Security Act of 1974, as amended, the
Age Discrimination in Employment Act of 1967, as amended, and any similar State
laws.
9. Attorneys' Fees: The prevailing party shall be entitled to recover his
---------------
or its attorneys' fees and costs incurred in any formal proceeding brought to
enforce any right arising out of this Agreement.
10. Interpretation: Executive and the Company agree that this Agreement
--------------
shall be interpreted in accordance with and governed by the laws of the State of
California without giving effect to any conflict of law principles.
11. Entire Agreement: This Agreement and the [Proprietary
----------------
Information/Confidential Information and Conflicts of Interest Agreement],
(together the "Combined Agreements") constitute the entire agreement between
Executive and the Company regarding the subject matter hereof. The Combined
Agreements supersede all prior negotiations, representations or agreements
between Executive and the Company, whether written or oral, concerning the
subject matters described therein.
12. Modification: This Agreement may only be modified or amended by a
------------
supplemental written agreement signed by Executive and the Company.
-4-
<PAGE>
13. Assignment; Successors. Executive's rights and obligations provided
----------------------
for in this Agreement are personal in nature and Executive shall not assign or
transfer this Agreement or any rights or obligations hereunder. The Company
shall be entitled to assign or transfer its rights and delegate its duties
hereunder.
14. Survival. In the event of any termination of Executive's employment
--------
and this Agreement for any reason by Executive or the Company, Executive and/or
the Company, as the case may be, nevertheless shall continue to be bound by the
terms and conditions set forth in Sections 6 through 8 herein and all of the
terms and conditions set forth in the [Proprietary Information/Confidential
Information and Conflicts of Interest Agreement].
15. Headings. Section headings in this Agreement are included herein for
--------
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
16. Construction of Agreement. The parties acknowledge that this Agreement
-------------------------
was jointly prepared by them, by and through their respective legal counsel, and
any uncertainty or ambiguity existing herein shall not be interpreted against
any one of the parties.
17. Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be given by telefax or first-class mail, certified
or registered with return receipt requested, and shall be deemed to have been
duly given three (3) days after mailing or twenty-four (24) hours after
transmission of a telefax to the respective persons named below.
If to the Company: FirstAmerica Automotive, Inc.
100 The Embarcadero
San Francisco, California 94105-1217
Facsimile: (415) 512-9277
and
Skadden, Arps, Slate, Meagher & Flom, LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071-3144
Facsimile: (213) 687-5600
If to Executive: 1500 Collins Ave.
Colma, California 94014
-5-
<PAGE>
Either party may change such party's address for notices by notice duly
given pursuant hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first written above.
Executive FirstAmerica Automotive, Inc.
/s/ Thomas Price By: /s/
- ------------------------------ -----------------------------
Thomas Price
Its: Sec
---------------------------
-6-
<PAGE>
EXHIBIT 10.10.2
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into by and between FirstAmerica
Automotive, Inc. (the "Company") and Steven S. Hallock ("Hallock") as of March
1, 1997.
1. Position and Duties: Hallock shall be employed by the Company as its
-------------------
Chief Operating Officer ("COO") reporting to the Company's Chief Executive
Officer ("CEO"), effective March 1, 1997 (the "Commencement Date"). As COO,
Hallock agrees to devote his full business time, energy and skill to his duties
at the Company. These duties shall include, but not be limited to, any duties
consistent with his position which may be assigned to Hallock from time to time
by the Company's CEO.
2. Term of Employment: Hallock's employment with the Company pursuant to
------------------
this Agreement is "at-will" and for no specified period of time beginning on the
Commencement Date (the "Term"), subject to the provisions regarding termination
set forth below. Upon the termination of Hallock's employment with the Company,
for any reason, neither Hallock nor the Company shall have any further
obligation or liability to the other, except as set forth in paragraphs 4 and 5
below.
3. Compensation: Hallock shall be compensated by the Company for his
------------
services as follows:
(a) Salary: Hallock shall be paid a monthly salary of $33,333.33
------
($400,000.00 per year), subject to applicable withholding, in accordance with
the Company's normal payroll procedures (the "Base Salary"). Such salary shall
be reviewed annually and adjusted as determined appropriate by the Board.
(b) Benefits: Hallock shall have the right, on the same basis as other
--------
members of senior management of the Company, to participate in and to receive
benefits under any of the Company's employee benefit plans, including the
medical, dental, vision and disability group insurance plans, if any. Hallock
shall also be entitled to participate in any retirement plan maintained by the
Company for which he is eligible in accordance with its terms. In addition,
Hallock shall be entitled to the benefits afforded to other members of senior
management under the Company's vacation, holiday and business expense
reimbursement policies.
(c) Stock Options:
-------------
(i) Upon the later of the execution of this Agreement or the
Company's adoption, and if required by law qualification, of a stock option
plan, Hallock shall be granted a nonstatutory stock option to purchase 280,000
shares of the Company's Common Stock at an exercise price per share equal to the
fair market value
<PAGE>
of a share of the Company's Common Stock as determined by the Board as of the
date of grant (the "Initial Stock Option"). Provided Hallock remains an employee
of the Company, the shares subject to the Initial Stock Option shall vest at the
rate of 4,666.67 shares per month following the Commencement Date. In the event
that Hallock terminates his employment with the Company for Good Reason (as
defined in paragraph 5(c), below) following a Transfer of Control (as also
defined in paragraph 5(c), below), then, in addition to the benefits set forth
in paragraph 5, Hallock shall become immediately vested in all of the shares
subject to the Initial Stock Option, effective as of the date ten days' prior to
the Transfer of Control.
Except as otherwise provided herein, the Initial Stock Option shall be subject
to the terms and conditions of the Company's stock option plan and the Company's
standard form of stock option agreement, which Hallock shall be required to sign
as a condition of the issuance of the Initial Stock Option.
(ii) In addition to the Initial Stock Option, in the event that
Hallock is successful in obtaining a written agreement providing for Toyota
Motor Corporation's appointment of the Company for the "open point" in Tracy,
California, Hallock shall be granted, as soon as practicable thereafter, an
additional stock option to purchase 100,000 shares of the Company's Common
Stock. The stock option earned by Hallock under this subparagraph shall be
immediately vested. The exercise price per share for such option shall be equal
to the fair market value of a share of the Company's Common Stock determined by
the Board as of the date of grant. This option otherwise shall be subject to the
terms and conditions of the Company's stock option plan and the Company's
standard form of stock option agreement, which Hallock shall be required to sign
as a condition of the issuance of such option.
(iii) In addition to the above, in the event that Hallock is
successful in negotiating the acquisition of Concord Toyota by the Company,
Hallock shall be granted, as soon as practicable after the closing of such
acquisition, an additional stock option to purchase 100,000 shares of the
Company's Common Stock. The stock option earned by Hallock under this
subparagraph shall be immediately vested. The exercise price per share for such
option shall be equal to the fair market value of a share of the Company's
Common Stock determined by the Board as of the date of grant. This option
otherwise shall be subject to the terms and conditions of the Company's stock
option plan and the Company's standard form of stock option agreement, which
Hallock shall be required to sign as a condition of the issuance of such option.
(d) Signing Bonus: Immediately upon execution of this Agreement, the
-------------
Company shall provide Hallock with a signing bonus in the amount of Five Hundred
Thousand Dollars ($500,000.00)(the "Signing Bonus"), which Signing Bonus shall
become due and payable upon the closing of the financing transaction currently
contemplated with TCW.
-2-
<PAGE>
(e) Expense Reimbursements: Upon receipt of proper documentation
----------------------
establishing the amount of such expenses, the Company shall reimburse Hallock
for any reasonable business expenses incurred.
(f) Car Allowance: In addition to reimbursement of expenses described in
-------------
paragraph 3(d), Hallock shall receive $500 per month as an allowance for car
expenses.
(g) Performance Bonus. Hallock shall be eligible to earn a performance
-----------------
bonus of up to ninety percent (90%) of the Base Salary Hallock was paid for the
then-current fiscal year (the "Performance Bonus"). The Performance Bonus shall
be determined on the following basis:
(i) Fifty percent of the Performance Bonus shall be considered
earned if the Company achieves its projected earnings before interest and taxes
as extablished in the FAA fiscal forecast. Notwithstanding the foregoing,
Hallock shall earn a minimum Performance Bonus under this subparagraph (f)(i)
for the Company's fiscal year ending December 31, 1997 of $120,000.
(ii) Fifty percent of the Performance Bonus shall be considered
earned upon Hallock's meeting such annual performance objectives as shall be
established by agreement between Hallock and the Compensation Committee of the
Board no later than ten weeks following the beginning of the Company's fiscal
year. For Fiscal Year 1997, Hallock and the Compensation Committee of the Board
shall come to agreement as to the performance objectives within four weeks of
the date of the Commencement Date.
The Performance Bonus shall be paid within thirty days of the Company's
receipt from its independent auditors of audited financial statements confirming
that the Company has met the net profit on sales goal determined under
subparagraph (g)(i) and certification by the Compensation Committee of the Board
of Hallock's attainment of the pre-established goals under subparagraph (g)(ii).
4. Benefits Upon Voluntary Termination: In the event that Hallock
-----------------------------------
voluntarily resigns from his employment with the Company, or in the event that
Hallock's employment terminates as a result of his death or disability, Hallock
shall be entitled to no compensation or benefits from the Company other than
those earned under paragraph 3 above through the date of his termination.
5. Benefits Upon Other Termination: Hallock agrees that his employment may
-------------------------------
be terminated by the Company at any time, with or without cause. In the event
of the termination of Hallock's employment by the Company for the reasons set
forth below, he shall be entitled to the following:
-3-
<PAGE>
(a) Termination for Cause: If Hallock's employment is terminated by the
---------------------
Company for cause, Hallock shall be entitled to no compensation or benefits from
the Company other than those earned under paragraph 3 through the date of his
termination. For purposes of this Agreement, a termination "for cause" occurs if
Hallock is terminated for any of the following reasons:
(i) theft, dishonesty, or falsification of any employment or
Company records;
(ii) improper disclosure of the Company's confidential or
proprietary information;
(iii) any intentional act by Hallock which has a material
detrimental effect on the Company's reputation or business; or
(iv) any material breach of this Agreement by Hallock, which breach
is not cured within thirty (30) days following written notice of such breach
from the Company.
(b) Termination Other Than for Cause: If Hallock's employment is
--------------------------------
terminated by the Company for any reason other than for cause, Hallock shall be
entitled to the following separation benefits:
(i) continuation of Hallock's Base Salary for a period of one
year, such salary continuation payments to be made in accordance with the
Company's ordinary payroll procedures without regard to whether Hallock obtains
alternative employment in the interim; and
(ii) payment of an amount equivalent to the average of the amounts
of Performance Bonuses previously paid to Hallock, less applicable withholding,
such payment to be made in twelve equal monthly installments.
(c) Resignation for Good Reason: For purposes of paragraph 5(b) of this
---------------------------
Agreement, Hallock's resignation for Good Reason following a Transfer of Control
shall constitute a Termination Other Than for Cause.
For purposes of this Agreement, a "Transfer of Control" shall mean an
"Ownership Change Event" (as defined below) or a series of related Ownership
Change Events (collectively, the "Transaction") wherein the stockholders of the
Company immediately before the Transaction do not retain immediately after the
Transaction direct or indirect beneficial ownership of more than fifty percent
(50%) of the total combined voting power of the outstanding voting stock of the
Company or the corporation or corporations to which the assets of the Company
were transferred (the "Transferee Corporation(s)"), as the case may be. For
purposes of the preceding
-4-
<PAGE>
sentence, indirect beneficial ownership shall include, without limitation, an
interest resulting from ownership of the voting stock of one or more
corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through one or
more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
For purpose of this Agreement, an "Ownership Change Event" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
A. the direct or indirect sale or exchange in a single or series
of related transactions by the stockholders of the Company of more than fifty
percent (50%) of the voting stock of the Company;
B. a merger or consolidation in which the Company is a party;
C. the sale, exchange, or transfer of all or substantially all
of the assets of the Company; or
D. a liquidation or dissolution of the Company.
For purposes of this Agreement, "Good Reason" means any of the following
conditions, which condition(s) remain(s) in effect 30 days after written notice
to the Board from Hallock of such condition(s):
(i) a decrease in Hallock's base salary and/or a material decrease in
Hallock's standard management bonus plan or employee benefits;
(ii) a material, adverse change in Hallock's title, authority,
responsibilities or duties, as measured against Hallock's title, authority,
responsibilities or duties immediately prior to such change;
(iii) the relocation of Hallock's work place to a location outside the
San Francisco Bay Area (i.e., Marin County, Contra Costa County, Alameda County,
San Francisco County, San Mateo County or Santa Clara County);
(iv) any material breach by the Company of any provision of this
Agreement, which breach is not cured within thirty (30) days following written
notice of such breach from Hallock;
-5-
<PAGE>
(v) any failure of the Company to obtain the assumption of this
Agreement by any successor or assign of the Company; or
(vi) any purported termination of Hallock's employment for "material
breach of contract" which is not effected following a written notice satisfying
the requirements of paragraph 5(a)(iv).
6. Confidential Information and Nondisclosure Agreement: Hallock agrees to
----------------------------------------------------
execute and abide by the terms and conditions of the Company's standard employee
Confidential Information and Nondisclosure Agreement.
7. Dispute Resolution: In the event of any dispute or claim relating to or
------------------
arising out of this Agreement (including, but not limited to, any claims of
breach of contract, wrongful termination or age or other discrimination),
Hallock and the Company agree that all such disputes shall be fully and finally
resolved by binding arbitration conducted by the American Arbitration
Association in San Francisco, California. Hallock acknowledges that by accepting
this arbitration provision he is waiving any right to a jury trial in the event
of such dispute. Provided, however, that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the misuse or
misappropriation of the Company's trade secrets or proprietary information.
8. Non-Solicitation of Employees. In the event that Hallock's employment
-----------------------------
with the Company is terminated for any reason, Hallock agrees that for a period
of two years after the date of this Agreement, he shall not, either directly or
indirectly, solicit the services, or attempt to solicit the services of any
employee of the Company or its affiliated entities to any other person or
entity.
9. Attorneys' Fees: The prevailing party shall be entitled to recover from
---------------
the losing party its attorneys' fees and costs incurred in any action brought to
enforce any right arising out of this Agreement.
10. Interpretation: Hallock and the Company agree that this Agreement shall
--------------
be interpreted in accordance with and governed by the laws of the State of
California without giving effect to any conflict of law principles.
11. Validity: If any one or more of the provisions (or any part thereof) of
--------
this Agreement shall be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions (or any
part thereof) shall not in any way be affected or impaired thereby.
12. Entire Agreement: This Agreement constitutes the entire employment
----------------
agreement between Hallock and the Company regarding the terms and conditions of
his
-6-
<PAGE>
employment, with the exception of (i) the confidentiality and nondisclosure
agreement described in paragraph 6 and (ii) any stock option agreement between
Hallock and the Company. This Agreement supersedes all prior negotiations,
representations or agreements between Hallock and the Company, whether written
or oral, concerning Hallock's employment by the Company.
13. Modification: This Agreement may only be modified or amended by a
------------
supplemental written agreement signed by Hallock and the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year written below.
FirstAmerica Automotive Corporation
Date: 7/22/97 By: /s/
----------------------- --------------------------------------
Its: President
--------------------------------------
Date: 7/22/97 /s/ Steven S. Hallock
----------------------- ------------------------------------------
Steven S. Hallock
-7-
<PAGE>
EXHIBIT 10.10.3
NONCOMPETITION AGREEMENT
------------------------
This Noncompetition Agreement, dated as of July 8, 1997 (the
"Agreement"), is entered into by and among Thomas A. Price ("Price") and Donald
Strough ("Strough" and, together with Price, the "Principals"), on one hand, and
FirstAmerica Automotive, Inc., a Delaware corporation (the "Company"), on the
other hand.
RECITALS
--------
WHEREAS, Price, directly or indirectly, owns and operates certain
retail automotive dealerships in the State of California, including Melody
Toyota, Stevens Creek Nissan, Marin Nissan, Lexus of Serramonte, and Serramonte
Auto Plaza (the "Price Automotive Dealerships");
WHEREAS, Strough, directly or indirectly, owns and operates
California Carriage, Ltd., a retail automotive dealerships in the State of
California (the "Strough Automotive Dealership");
WHEREAS, Price is selling or otherwise disposing of all of his stock
in the Price Automotive Dealerships, together with the goodwill of those
businesses, and Strough is selling all or substantially all of the assets of the
Strough Automotive Dealership, together with the goodwill of that business;
WHEREAS, upon the consummation of the transactions contemplated by the
agreements and plans of merger, stock purchase agreements and asset purchase
agreements by Price or Strough on one hand and the Company on the other
(collectively, the "Acquisition Documents"), the Company will be acquiring all
of the stock of the Price Automotive Dealerships and the Strough Automotive
Dealership, together with the goodwill of those businesses, and the Company will
operate the Price and Strough Automotive Dealerships in the same cities and
counties throughout the State of California where those businesses previously
were carried on by the Principals. In addition, the Company will be acquiring
additional retail automotive dealerships in other geographic locations, and
generally will be engaged in the business of owning and operating retail
automotive dealerships throughout the United States;
WHEREAS, upon the consummation of the transactions contemplated by
Acquisition Documents, the Principals will acquire substantial interests of the
Company's common stock, with Price acquiring approximately 39% of the Company's
common stock and Strough acquiring approximately 11% of such stock;
WHEREAS, pursuant to certain Executive Employment Agreements, dated as
of July 8, 1997, the Principals will be employed as officers of the Company and,
together will be directly engaged in directing and overseeing the Company's
operations and business;
WHEREAS, in partial consideration for the Company's acquisition of the
Price and Strough Automotive Dealerships and the Principals' receipt of the
Company's common stock, and as a condition to effectiveness of certain
provisions of the Stockholders' Agreement, dated July 8, 1997,
<PAGE>
among the Company, the Principals and the Stockholders listed on the signature
pages thereto (the "Stockholders' Agreement"), the Principals are entering into
this Agreement.
NOW, THEREFORE, in consideration of the mutual representations, warran
ties, covenants and agreements set forth herein and in the Stockholders'
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
AGREEMENT
---------
1. RESTRICTIVE COVENANTS. The Principals, by and through the Price
---------------------
and Strough Automotive Dealerships, are engaged in the business of owning and
operating retail automotive dealerships, including, without limitation, selling
and leasing new and used domestic and imported automobiles to individual and
commercial customers and clients, and repairing and servicing the same in each
of the following counties in Northern California: Santa Clara, Marin, Contra
Costa and San Mateo (the "Purchased Business"). Moreover, upon the consummation
of certain of the transactions contemplated by the Acquisition Documents, the
Principals, by and through the Company, will be engaged in the Purchased
Business, as well as the business of owning and operating retail automotive
dealer ships, including, without limitation, selling and leasing new and used
domestic and imported automobiles to individual and commercial customers and
clients, and repairing and servicing the same throughout the United States (the
"Business"). The Principals each acknowledge that (i) the market for the
Business extends throughout the United States, and that the Princ ipals,
individually and through the Company, are some of the limited number of people
engaged in the Business; (ii) as part of the transactions contemplated by the
Acquisition Documents, the Company, directly or indirectly, will be acquiring
all of the stock and/or all or substantially all of the assets, as the case may
be, of the Purchased Business, including its goodwill, and will carry on the
Purchased Business in the same or similar geographic locations and in the same
or similar manner, as the Purchased Business had been carried on by the
Principals; (iii) upon the consummation of certain of the transactions
contemplated by and upon the occurrence of certain conditions in the
Stockholders' Agreement, the Principals shall sell or otherwise dispose of all
of their stock of the Company; (iv) the restrictive cove-nants and the other
agreements contained herein are an essential part of this Agreement and the
transactions contemplated by the Stockholders' Agreement and the Acquisition
Docu ments, and that the transactions contemplated by the Stockholders'
Agreement and the Acquisition Documents are designed and intended to qualify as
a sale (or other disposition) by the Principals of all of their interests in the
Business and the Purchased Business, as the case may be, within the meaning of
section 16601 of the Business and Professions Code of California (the "BPCC"),
which section provides as follows:
(S) 16601. SALE OF GOOD WILL OR CORPORATION SHARES; AGREEMENT NOT TO
COMPETE.
Any person who sells the goodwill of a business, or any stockholder of
a corporation selling or otherwise disposing of all his shares in said
corporation, or any stockholder of a corporation which sells (a) all
or substantially all of its operating assets together with the
goodwill of the corporation, (b) all or substantially all of the
operating assets of a
2
<PAGE>
division or a subsidiary of the corporation together with the goodwill
of such division or subsidiary, or (c) all of the shares of any
subsidiary, may agree with the buyer to refrain from carrying on a
similar business within a specified county or counties, city or
cities, or a part thereof, in which the business so sold, or that of
said corporation, division, or subsidiary has been carried on, so
long as the buyer, or any person deriving title to the goodwill or
shares from him, carries on a like business therein. For the purposes
of this section, "subsidiary" shall mean any corporation, a majority
of whose voting shares are owned by the selling corporation.
The Principals further represent and warrant and acknowledge and agree that (i)
they have been fully advised by counsel in connection with the negotiation,
preparation, execution and delivery of this Agreement, the Stockholders'
Agreement, the Acquisition Documents, and the transactions contemplated by those
agreements; (ii) they have read section 16601 of the BPCC, understand its terms
and agree that section 16601 of the BPCC applies in the context of the
transactions contemplated by the Stockholders' Agreement, the Acquisition Docu
ments, and this Agreement, and such transactions are within the scope and intent
of section 16601 and an exception to section 16600 of the BPCC and agree to be
fully bound by the restrictive covenants and the other agreements contained in
this Agreement; (iii) they have read or otherwise have become familiar with the
common law regarding the enforceability of noncompetition agreements and other
restrictive covenants and agree that the restrictive covenants contained herein
are reasonable, valid and enforceable in the context of this Agreement, the
Stockholders' Agreement, the Acquisition Documents, and the transactions contem
plated by those agreements; and (iv) no reasonable Person would engage in any of
the transactions contemplated by the Acquisition Documents, the Stockholders'
Agreement, and this Agreement without the benefit of each of restrictive
covenants and agreements contained herein by the Principals. Accordingly, the
Principals agree to be bound by the noncompetition agreement and the other
restrictive covenants and agreements contained in this Agreement to the maximum
extent permitted by law, it being the intent and spirit of the parties that the
noncompetition agreement and the other restrictive covenants and agreements
contained herein shall be valid and enforceable in all respects and, subject to
the terms and conditions of this Agreement, the Stockholders Agreement, and the
Acquisition Documents, mutually dependent upon the obligations of the Company to
pay or transfer the consideration recited in such agreements to the Principals
pursuant to the Acquisition Documents and the Stockholders' Agreement.
A. NONCOMPETITION.
--------------
(1) THE PURCHASED BUSINESS. Throughout each Principal's
----------------------
employment with the Company and for a 2-year period thereafter (the "Restricted
Period"), and excluding any Permitted Activities (defined below), each of the
Principals shall not in any city, town, county, parish or other municipality in
any state of the United States (including, without limitation, each of the 58
counties in the State of California, the names of each of which being expressly
incorporated by reference herein), or in Canada or Mexico, where the Company or
any of its subsidiaries, Affiliates (as defined in the Stockholders' Agreement),
successors or assigns engages in the Purchased Business, directly or indirectly,
(i) engage in the Purchased Business for the Principals' own account; (ii) enter
the employ of, or render any services to or for any entity that is engaged in
the Purchased Business; and/or (iii) become
3
<PAGE>
interested in any such entity in any capacity, including as an individual,
partner, stockholder, officer, director, principal, agent, trustee or
consultant; provided, however, the Principals may own, directly or indirectly,
-------- -------
solely as a passive investment, securities of any entity traded on any national
securities exchange or automated quotation system if the Principals,
individually or in the aggregate, are not a controlling Person of, or a member
of a group which controls, such entity and do not, directly or indirectly,
"beneficially own" (as defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended, without regard to the 60 day period referred to in Rule 13d-
3(d)(1)(i)) 5% or more of any class of securities of such entity;
(2) THE BUSINESS. Throughout each Principal's employment
------------
with the Company and, in the event that either Principal, or both Principals,
sells or otherwise disposes of all of his, or their, stock in the Company
through a purchase by or other transfer to the Company or any of its
subsidiaries, Affiliates, successors or assigns, for a 2-year period thereafter,
and excluding any Permitted Activities (defined below), each of the Principals
shall not in any city, town, county, parish or other municipality in any state
of the United States (including, without limitation, each of the 58 counties in
the State of California, the names of each of which being expressly incorporated
by reference herein), or in Canada or Mexico, where the Company or any of its
subsidiaries, Affiliates, successors or assigns engages in the Business,
directly or indirectly, (i) engage in the Business for the Principals' own
account; (ii) enter the employ of, or render any services to or for any entity
that is engaged in the Business; and/or (iii) become interested in any such
entity in any capacity, including as an individual, partner, stockholder,
officer, director, principal, agent, trustee or consultant; provided, however,
-------- -------
the Principals may own, directly or indirectly, solely as a passive investment,
securities of any entity traded on any national securities ex change or
automated quotation system if the Principals, individually or in the aggregate,
are not a controlling Person of, or a member of a group which controls, such
entity and do not, directly or indirectly, "beneficially own" (as defined in
Rule 13d-3 of the Securities Ex change Act of 1934, as amended, without regard
to the 60 day period referred to in Rule 13d-3(d)(1)(i)) 5% or more of any class
of securities of such entity;
(3) PERMITTED ACTIVITIES. As used herein, "Permitted
--------------------
Activities" means either of the Principal's ownership or operation of retail
automotive dealerships, including, without limitation, selling and leasing new
and used domestic and imported automobiles to individual and commercial
customers and clients, and repairing and servicing the same at those specific
dealerships and at the specific geographic locations identified in Schedule 1.
B. NONINTERFERENCE. During the Restricted Period, the
---------------
Principals shall not, directly or indirectly, (i) solicit, induce, or attempt to
solicit or induce, any Person known to any Principal to be an employee of the
Company or any of its subsidiaries, Affiliates, successors or assigns, that is
involved in the Business, including the Purchased Business (each such Person, a
"Company Person"), to terminate his or her employment or other relationship
with the Company or any of its subsidiaries, Affiliates, successors or assigns
for the purpose of associating with (A) any entity of which any of the
Principals is or becomes a officer, director, partner, stockholder, agent,
trustee or consultant, or (B) any competitor of the Company or its subsidiaries,
Affiliates, successors or assigns, or (ii) otherwise encourage any Company
Person to terminate his or her employment or other relationship with the
4
<PAGE>
Company or any of its subsidiaries, Affiliates, successors or assigns, for any
other purpose or no purpose.
C. NONSOLICITATION. During the Restricted Period, the
---------------
Principals shall not, directly or indirectly, solicit, induce, or attempt to
solicit or induce, any Person or entity then known to be customers, clients,
vendors, suppliers, distributors or consultants of the Company or any of its
subsidiaries, Affiliates, successors or assigns, in the Business, including the
Purchased Business, including, without limitation, any foreign or domestic
automobile manufacturer with whom the Company does business from time to time (a
"Cus tomer or Supplier"), to terminate his, her or its relationship with the
Company or any of its subsidiaries, Affiliates, successors or assigns, for any
purpose, including the purpose of associating with or becoming a Customer or
Supplier, whether or not exclusive, of any of the Principals or any entity of
which any of the Principals is or becomes a partner, stockholder, principal,
member, officer, director, principal, agent, trustee or consultant, or otherwise
solicit, induce, or attempt to solicit or induce any such Customer or Supplier
to terminate his, her or its relationship with the Company or any of its
subsidiaries, Affiliates, successors or assigns, for any other purpose or no
purpose.
D. RIGHT OF SUCCESSOR TO ENFORCE AGREEMENT. Any Person to whom
all or part of the Business and/or the Purchased Business is sold shall, if this
Agree ment is assigned, be entitled to enforce each of the covenants contained
herein.
2. CONFIDENTIALITY OF TRADE SECRETS OR PROPRIETARY INFORMATION. The
-----------------------------------------------------------
Principals acknowledge that they have and will have access to proprietary
information, trade secrets, and confidential material (including lists of key
personnel, customers, clients, vendors, suppliers, distributors or consultants)
of the Company that, in part, is being acquired in connection with the Company's
acquisition of the Pur chased Business (the "Confidential Information"). The
Principals agree, without limitation in time or until such information shall
become public other than by the Principals' unauthorized disclosure, to maintain
the confidentiality of the Confidential Information and refrain from divulging,
disclosing, or otherwise using in any respect the Confidential Information to
the detriment of the Company and any of its subsidiaries, Affiliates, successors
or assigns, or for any other purpose or no purpose.
3. OWNERSHIP OF INTELLECTUAL PROPERTY. Each of the Principals
----------------------------------
acknowledge and agree that all work performed, and all ideas, concepts,
materials, products, software, documentation, designs, architectures,
specifications, flow charts, test data, programmer's notes, deliverables,
improvements, discoveries, methods, processes, or inventions, trade secrets or
other subject matter related to the Business (collectively, "Materials")
conceived, developed or prepared by each Principal alone, or with others, during
the period of each Principal's employment or other relationship with the Company
in written, oral, electronic, photographic, optical or any other form, are the
property of the Company and its successors or assigns, and all rights, title and
interest therein shall vest in the Company and its successors or assigns, and
all Materials shall be deemed to be works made for hire and made in the course
of each Principal's employment or other relationship with the Company. To the
extent that title to any Materials has not or may not, by operation of law, vest
in the Company and its successors or assigns, or such Materials may not be
considered works made for hire, each Principal hereby irrevocably assigns all
rights, title and interest therein to the Company and its successors or assigns.
All Materials
5
<PAGE>
belong exclusively to the Company and its successors or assigns, with the
Company and its successors or assigns having the right to obtain and to hold in
its or their own name, copyrights, patents, trade marks, applications,
registrations or such other protection as may be appropriate to the subject
matter, and any extensions and renewals thereof. Each Principal hereby grants to
the Company and its successors or assigns an irrevocable power of attorney to
perform any and all acts and execute any and all documents and instruments on
behalf of each Principal as the Company and its successors or assigns may deem
appropriate in order to perfect or enforce the rights defined in this Section.
Each Principal further agrees to give the Company and its successors or assigns,
or any person designated by the Company and its successors or assigns, at the
Company's or its successors' or assigns' expense, any assistance required to
perfect or enforce the rights defined in this Section. Employee shall
communicate and deliver to the Company and its successors or assigns promptly
and fully all Materials conceived or developed by each Principal (alone or
jointly with others) during the period of each Principal's employment or other
relationship with the Company and its successors and assigns. Nothing contained
is this Section shall apply to any invention that qualifies fully under the
provisions of Section 2870 of the California Labor Code. In Schedule 2, each
Principal has identified all ideas, concepts, materials, products, software,
documentation, designs, architectures, specifications, flow charts, test data,
programmer's notes, deliverables, improvements, discoveries, methods,
processes, or inventions, and trade secrets, and works in progress of the same,
if any, which each Principal, either individually or with others, owns as of the
date hereof.
4. RIGHTS AND REMEDIES UPON BREACH BY THE PRINCIPALS. If the
--------------------------------------------------
Principals, or any of them, breach, or threaten to commit a breach of, any of
the provisions of this Agreement, the Company and its subsidiaries, Affiliates,
successors or assigns shall have the following rights and remedies, each of
which shall be independent of the others and severally enforceable, and each of
which shall be in addition to, and not in lieu of, any other rights or remedies
available to the Company or its subsidiaries, Affiliates, successors or assigns
at law or in equity under this Agreement, the Acquisition Documents or
otherwise:
A. SPECIFIC PERFORMANCE. The right and remedy to have each and
--------------------
every one of the covenants in this Agreement specifically enforced and the right
and remedy to obtain injunctive relief, it being agreed that any breach or
threatened breach of any of the noncompetition or other restrictive covenants
and agreements contained herein would cause irreparable injury to the Company
and its subsidiaries, Affiliates, successors or assigns and that money damages
would not provide an adequate remedy at law to the Company and its subsidiaries,
affiliates, successors or assigns.
B. ACCOUNTING. The right and remedy to require the Principals
----------
to account for and pay over to the Company and its subsidiaries, Affiliates,
successors or assigns, as the case may be, all compensation, profits, monies,
accruals, increments or other benefits derived or received by the Principals
that result from any transaction or activity constituting a breach of this
Agreement.
C. SEVERABILITY OF COVENANTS. The Principals acknowledge and
-------------------------
agree that the noncompetition and other restrictive covenants and agreements
contained herein are reasonable and valid in geographic and temporal scope and
in all other respects. If, however, any court subsequently
6
<PAGE>
determines that any of such covenants or agreements, or any part thereof, is
invalid or unenforceable, the remainder of such covenants and agreements shall
not thereby be affected and shall be given full effect without regard to the
invalid portions.
D. BLUE-PENCILING. If any court determines that any of the
--------------
noncompetition and other restrictive covenants and agreements, or any part
thereof, is unen forceable because of the duration or geographic scope of such
provision, such court shall have the power to reduce the duration or scope of
such provision, as the case may be, and, in its reduced form, such provision
shall then be enforceable to the maximum extent permitted by applicable law.
E. ENFORCEABILITY IN ALL JURISDICTIONS. The Principals intend
-----------------------------------
to and hereby confer jurisdiction to enforce each and every one of the covenants
and agree ments contained herein upon the courts of any jurisdiction within the
geographic scope of such covenants and agreements. If the courts of any one or
more of such jurisdictions hold any such covenant or agreement unenforceable by
reason of the breadth or such scope or otherwise, it is the intention of the
Principals that such determination shall not bar or in any way affect the
Company's or any of its subsidiaries', Affiliates', successors' or assigns'
right to the relief provided above in the courts of any other jurisdiction
within the geographic scope of such covenants and agreements, as to breaches of
such covenants and agreements in such other respective jurisdictions, such
covenants and agreements as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants and agreements.
5. NATURE OF OBLIGATIONS. Each of the parties hereto agree that the
---------------------
nature of the Principals' obligations hereunder are several and not joint and
several and no Principal shall be responsible or accountable hereunder for the
breach or violation of any of the covenants or other agreements contained herein
by any other Principal.
6. NOTICES. All notices or other communications required or
-------
permitted hereunder shall be in writing and shall be deemed duly given upon (a)
transmitter's confirma tion of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or when delivered by hand, or
(c) the expiration of three (3) business days after the day when mailed by
certified or registered mail, postage prepaid, addressed to the parties at the
following addresses (or at such other address as the parties hereto shall
specify by like notice):
If to the Company:
FirstAmerica Automotive, Inc.
c/o Kay & Merkle
100, The Embarcadero
Penthouse
San Francisco, California 94105
Attention: Bruce Bercovich, Esq.
with copies to:
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Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Rod A. Guerra, Esq.
Facsimile No.: (213) 687-5600
If to a particular the Principal:
Thomas Price
c/o Serramonte Auto Plaza
1500 Collins Avenue
Colma, California 94014
Donald Strough
c/o Concord Honda
1300 Concord Avenue
Concord, California
7. PARTIES IN INTEREST/ASSIGNMENT. Neither this Agreement nor any of
------------------------------
the rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, except that the Company and any
of its subsidiaries, Affiliates, and successors may sell, assign or otherwise
transfer any or all of its or their right and interest in the Business,
including the Purchased Business, whether by operation of law or otherwise, and
in this Agreement, in which case this Agreement shall remain in full force after
such sale, assignment or other transfer and may be enforced by (i) any
successor, assignee or transferee of all or any part of the Business, including
the Purchased Business, as fully and completely as it could be enforced by the
Company or its subsidiaries and Affiliates if no such sale, assignment or
transfer had occurred, and (ii) the Company and any of its subsidiaries and
Affiliates in the case of any sale, assignment or other transfer of a part, but
not all, of the Business, including the Purchased Business. The benefits under
this Agree ment shall inure to and may be enforced by the Company and any of its
subsidiaries, Affiliates, successors, transferees and assigns.
8. INTERPRETATION. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
9. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same Agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each party.
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10. ENTIRE AGREEMENT/MODIFICATION. This Agreement, the Acquisition
-----------------------------
Documents, the Stockholders' Agreement, the Executive Employment Agreements,
and all documents incorporated by reference herein, represent the entire
agreement of the parties with respect to the subject matter hereof and shall
supersede any and all previous contracts, arrangements or understandings between
the parties hereto with respect to the subject matter hereof. This Agreement
may not be modified or amended except by an instru ment in writing signed by
each of the parties hereto.
11. GOVERNING LAW. This Agreement shall be construed, interpreted,
-------------
and governed in accordance with either (i) the laws of the State of California,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof, or (ii) in the event of a breach of any of the
restrictive covenants contained in Section 1, the law of the State where such
breach actually occurs, depending on whichever choice of law shall ensure to the
maximum extent that the restrictive covenants shall be enforced in accor dance
with the intent of the parties.
12. DISPUTE RESOLUTION. Except as necessary to specifically enforce,
------------------
or enjoin the breach of, this Agreement or any provision herein (to the extent
such remedies may otherwise be available), any dispute arising out of or
relating to this Agree ment shall be submitted to binding arbitration by one
arbiter under the then existing Commercial Arbitration Rules of the American
Arbitration Association in arbitration proceedings conducted in Los Angeles,
California. The arbitrator shall have no power or authority in making his award
to modify, enlarge or add to the terms and provisions of this Agreement, except
as otherwise expressly agreed herein. Judgement upon the award of the arbiter
shall be binding upon the parties and may be entered in any court having
jurisdiction. The arbiter shall award to the prevailing party reasonable
attorneys' fees and expenses from the other party, including any expert fees,
which fees and expenses shall be in addition to any other relief which may be
awarded.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agree
ment on the day and year first above written.
FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Thomas A. Price
________________________________
Thomas A. Price
Its:President
/s/ Thomas A. Price
___________________________________
Thomas A. Price
/s/ Donald Strough
___________________________________
Donald Strough
<PAGE>
EXHIBIT 10.11
FIRSTAMERICA AUTOMOTIVE, INC.
1997 STOCK OPTION PLAN,
AS AMENDED OCTOBER 1, 1997
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
---------------------------------------
1.1 ESTABLISHMENT. The FirstAmerica Automotive, Inc. 1997
Stock Option Plan (the "PLAN") is hereby established effective as of July 10,
1997 (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by providing
an incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the earlier of the date
the Plan is adopted by the Board or the date the Plan is duly approved by the
stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
----------------------------
2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of
1986, as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee
or other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.
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(d) "COMPANY" means FirstAmerica Automotive,
Inc., a Delaware corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.
(f) "DIRECTOR" means a member of the Board or of
the board of directors of any other Participating Company.
(g) "DISABILITY" means the inability of the
Optionee, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of the Optionee's position with the Participating
Company Group because of the sickness or injury of the Optionee.
(h) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
(j) "FAIR MARKET VALUE" means, as of any date,
the value of a share of Stock or other property as determined by the Board, in
its sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein, subject to the
following:
(i) If, on such date, there is a public
market for the Stock, the Fair Market Value of a share of Stock shall be the
closing sale price of a share of Stock (or the mean of the closing bid and asked
prices of a share of Stock if the Stock is so quoted instead) as quoted on the
Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or
regional securities exchange or market system constituting the primary market
for the Stock, as reported in the Wall Street Journal or such other source as
-------------------
the Company deems reliable. If the relevant date does not fall on a day on which
the Stock has traded on such securities exchange or market system, the date on
which the Fair Market Value shall be established shall be the last day on which
the Stock was so traded prior to the relevant date, or such other appropriate
day as shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public
market for the Stock, the Fair Market Value of a share of Stock shall be as
determined by the Board without regard to any restriction other than a
restriction which, by its terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option
intended to be (as set forth in the Option Agreement) and which qualifies as an
incentive stock option within the meaning of Section 422(b) of the Code.
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(l) "INSIDER" means an officer or a Director of
the Company or any other person whose transactions in Stock are subject to
Section 16 of the Exchange Act.
(m) "NONSTATUTORY STOCK OPTION" means an Option
not intended to be (as set forth in the Option Agreement) or which does not
qualify as an Incentive Stock Option.
(n) "OPTION" means a right to purchase Stock
(subject to adjustment as provided in Section 4.2) pursuant to the terms and
conditions of the Plan. An Option may be either an Incentive Stock Option or a
Nonstatutory Stock Option.
(o) "OPTION AGREEMENT" means a written agreement
between the Company and an Optionee setting forth the terms, conditions and
restrictions of the Option granted to the Optionee and any shares acquired upon
the exercise thereof.
(p) "OPTIONEE" means a person who has been
granted one or more Options.
(q) "PARENT CORPORATION" means any present or
future "parent corporation" of the Company, as defined in Section 424(e) of the
Code.
(r) "PARTICIPATING COMPANY" means the Company or
any Parent Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any
point in time, all corporations collectively which are then Participating
Companies.
(t) "RULE 16B-3" means Rule 16b-3 under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(u) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(v) "SERVICE" means an Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. The Optionee's Service shall not be deemed
to have terminated merely because of a change in the capacity in which the
Optionee renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
an Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise
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<PAGE>
designated by the Company or required by law, a leave of absence shall not be
treated as Service for purposes of determining vesting under the Optionee's
Option Agreement. The Optionee's Service shall be deemed to have terminated
either upon an actual termination of Service or upon the corporation for which
the Optionee performs Service ceasing to be a Participating Company. Subject to
the foregoing, the Company, in its sole discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
(w) "STOCK" means the Class A Common Stock, par
value $0.00001, of the Company, as adjusted from time to time in accordance with
Section 4.2.
(x) "SUBSIDIARY CORPORATION" means any present
or future "subsidiary corporation" of the Company, as defined in Section 424(f)
of the Code.
(y) "TEN PERCENT OWNER OPTIONEE" means an
Optionee who, at the time an Option is granted to the Optionee, owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of a Participating Company within the meaning of Section
422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
--------------
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan or of any
Option shall be determined by the Board, and such determinations shall be final
and binding upon all persons having an interest in the Plan or such Option. Any
officer of a Participating Company shall have the authority to act on behalf of
the Company with respect to any matter, right, obligation, determination or
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such matter,
right, obligation, determination or election.
3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
4
<PAGE>
(a) to determine the persons to whom, and the
time or times at which, Options shall be granted and the number of shares of
Stock to be subject to each Option;
(b) to designate Options as Incentive Stock
Options or Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares
of Stock or other property;
(d) to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for shares
purchased upon the exercise of the Option, (iii) the method for satisfaction of
any tax withholding obligation arising in connection with the Option or such
shares, including by the withholding or delivery of shares of stock, (iv) the
timing, terms and conditions of the exercisability of the Option or the vesting
of any shares acquired upon the exercise thereof, (v) the time of the expiration
of the Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option
Agreement;
(f) to amend, modify, extend, or renew, or grant
a new Option in substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or any shares acquired upon the exercise
thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules,
guidelines and policies relating to the Plan, or to adopt supplements to, or
alternative versions of, the Plan, including, without limitation, as the Board
deems necessary or desirable to comply with the laws of, or to accommodate the
tax policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission
or reconcile any inconsistency in the Plan or any Option Agreement and to make
all other determinations and take such other actions with respect to the Plan or
any Option as the Board may deem advisable to the extent consistent with the
Plan and applicable law.
5
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4. SHARES SUBJECT TO PLAN.
----------------------
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be One Million Five Hundred Thousand
(1,500,000) and shall consist of authorized but unissued or reacquired shares of
Stock or any combination thereof. If an outstanding Option for any reason
expires or is terminated or canceled or shares of Stock acquired, subject to
repurchase, upon the exercise of an Option are repurchased by the Company, the
shares of Stock allocable to the unexercised portion of such Option, or such
repurchased shares of Stock, shall again be available for issuance under the
Plan. Notwithstanding the foregoing, at any such time as the offer and sale of
securities pursuant to the Plan is subject to compliance with Section 260.140.45
of Title 10 of the California Code of Regulations ("SECTION 260.140.45"), the
total number of shares of Stock issuable upon the exercise of all outstanding
Options (together with options outstanding under any other stock option plan of
the Company) and the total number of shares provided for under any stock bonus
or similar plan of the Company shall not exceed thirty percent (30%) (or such
other higher percentage limitation as may be approved by the stockholders of the
Company pursuant to Section 260.140.45) of the then outstanding shares of the
Company as calculated in accordance with the conditions and exclusions of
Section 260.140.45.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event
of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price per
share of any outstanding Options. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Options are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change Event, as defined in Section 8.1) shares of another corporation
(the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to
provide that such Options are exercisable for New Shares. In the event of any
such amendment, the number of shares subject to, and the exercise price per
share of, the outstanding Options shall be adjusted in a fair and equitable
manner as determined by the Board, in its sole discretion. Notwithstanding the
foregoing, any fractional share resulting from an adjustment pursuant to this
Section 4.2 shall be rounded up or down to the nearest whole number, as
determined by the Board, and in no event may the exercise price of any Option be
decreased to an amount less than the par value, if any, of the stock subject to
the Option. The adjustments determined by the Board pursuant to this Section 4.2
shall be final, binding and conclusive.
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5. ELIGIBILITY AND OPTION LIMITATIONS.
----------------------------------
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only
to Employees, Consultants, and Directors. For purposes of the foregoing
sentence, "Employees," "Consultants" and "Directors" shall include prospective
Employees, prospective Consultants and prospective Directors to whom Options are
granted in connection with written offers of a Service relationship with the
Participating Company Group. Eligible persons may be granted more than one (1)
Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an
Employee on the effective date of the grant of an Option to such person may be
granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that Options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for Stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such Options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, Options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of Stock shall be determined as of the time the Option
with respect to such Stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
-------------------------------
Option Agreements specifying the number of shares of Stock covered thereby, in
such form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall
be established in the sole discretion of the Board; provided, however, that (a)
the exercise price per share for an Incentive Stock Option shall be not less
than the Fair Market Value of a share of Stock on the effective date of grant of
the Option, (b) the exercise price per share for a Nonstatutory Stock
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Option shall be not less than eighty-five percent (85%) of the Fair Market Value
of a share of Stock on the effective date of grant of the Option, and (c) no
Option granted to a Ten Percent Owner Optionee shall have an exercise price per
share less than one hundred ten percent (110%) of the Fair Market Value of a
share of Stock on the effective date of grant of the Option. Notwithstanding the
foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock
Option) may be granted with an exercise price lower than the minimum exercise
price set forth above if such Option is granted pursuant to an assumption or
substitution for another option in a manner qualifying under the provisions of
Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time
or times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten (10) years
after the effective date of grant of such Option, (b) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
(c) no Option granted to a prospective Employee, prospective Consultant or
prospective Director may become exercisable prior to the date on which such
person commences service with a Participating Company, and (d) with the
exception of an Option granted to an officer, Director or Consultant, no Option
shall become exercisable at a rate less than twenty percent (20%) per year over
a period of five (5) years from the effective date of grant of such Option,
subject to the Optionee's continued Service.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of shares of Stock
owned by the Optionee having a Fair Market Value (as determined by the Company
without regard to any restrictions on transferability applicable to such stock
by reason of federal or state securities laws or agreements with an underwriter
for the Company) not less than the exercise price, (iii) by the assignment of
the proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by cash for a portion of the exercise price not less
than the par value of the shares being acquired and the Optionee's promissory
note for the balance of the exercise price in a form approved by the Company,
(v) by such other consideration as may be approved by the Board from time to
time to the extent permitted by applicable law, or (vi) by any combination
thereof. The Board may at any time or from time to time, by adoption of or by
amendment to the standard forms of Option Agreement described in Section 7, or
by other means, grant Options which do not permit all of the foregoing forms of
consideration to be used in payment of the exercise price or which otherwise
restrict one or more forms of consideration.
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(b) TENDER OF STOCK. Notwithstanding the
foregoing, an Option may not be exercised by tender to the Company of shares of
Stock to the extent such tender of Stock would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Company's stock. Unless otherwise provided by the Board, an Option may not be
exercised by tender to the Company of shares of Stock unless such shares either
have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at
any and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory
note shall be permitted if the exercise of an Option using a promissory note
would be a violation of any law. Any permitted promissory note shall be on such
terms as the Board shall determine at the time the Option is granted. The Board
shall have the authority to permit or require the Optionee to secure any
promissory note used to exercise an Option with the shares of Stock acquired
upon the exercise of the Option or with other collateral acceptable to the
Company. Unless otherwise provided by the Board, if the Company at any time is
subject to the regulations promulgated by the Board of Governors of the Federal
Reserve System or any other governmental entity affecting the extension of
credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value, as determined by the Company, equal
to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding, cash payment or otherwise,
including by means of a Cashless Exercise, to make adequate provision for any
such tax withholding obligations of the Participating Company Group arising in
connection with the Option or the shares acquired upon the exercise thereof. The
Company shall have no obligation to deliver shares of Stock or to release shares
of Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be
subject to a right of first refusal, one or more repurchase options, or other
conditions and restrictions as determined by the Board in its sole discretion at
the time the Option is granted. The Company shall have the right to assign at
any time any repurchase right it may have, whether or not such
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<PAGE>
right is then exercisable, to one or more persons as may be selected by the
Company. Upon request by the Company, each Optionee shall execute any agreement
evidencing such transfer restrictions prior to the receipt of shares of Stock
hereunder and shall promptly present to the Company any and all certificates
representing shares of Stock acquired hereunder for the placement on such
certificates of appropriate legends evidencing any such transfer restrictions.
6.6 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier
termination of the Option as otherwise provided herein, an Option shall be
exercisable after an Optionee's termination of Service as follows:
(i) Disability. If the Optionee's
----------
Service with the Participating Company Group is terminated because of the
Disability of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of six (6) months (or such longer period of
time as determined by the Board, in its sole discretion) after the date on which
the Optionee's Service terminated, but in any event no later than the date of
expiration of the Option's term as set forth in the Option Agreement evidencing
such Option (the "OPTION EXPIRATION DATE").
(ii) Death. If the Optionee's Service
-----
with the Participating Company Group is terminated because of the death of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee's
legal representative or other person who acquired the right to exercise the
Option by reason of the Optionee's death at any time prior to the expiration of
six (6) months (or such longer period of time as determined by the Board, in its
sole discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date. The Optionee's Service
shall be deemed to have terminated on account of death if the Optionee dies
within thirty (30) days after the Optionee's termination of Service.
(iii) Other Termination of Service. If the
----------------------------
Optionee's Service with the Participating Company Group terminates for any
reason, except Disability or death, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within thirty (30) days (or such
longer period of time as determined by the Board, in its sole discretion) after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable time periods set forth in Section 6.6(a) is prevented by the
provisions of Section 11 below, the Option shall remain exercisable until thirty
(30) days after the date the Optionee is notified by the Company that the Option
is exercisable, but in any event no later than the Option Expiration Date.
10
<PAGE>
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION
16(B). Notwithstanding the foregoing, if a sale within the applicable time
periods set forth in Section 6.6(a) of shares acquired upon the exercise of the
Option would subject the Optionee to suit under Section 16(b) of the Exchange
Act, the Option shall remain exercisable until the earliest to occur of (i) the
tenth (10th) day following the date on which a sale of such shares by the
Optionee would no longer be subject to such suit, (ii) the one hundred and
ninetieth (190th) day after the Optionee's termination of Service, or (iii) the
Option Expiration Date.
(d) TERMINATION FOR CAUSE. Notwithstanding any
other provision of the Plan to the contrary, if the Optionee's Service with the
Participating Company Group is terminated for Cause as defined below, the Option
shall terminate and cease to be exercisable immediately upon such termination of
Service. For purposes of this Section 6.6(d), "CAUSE" shall mean any of the
following: (1) the Optionee's theft, dishonesty, or falsification of any
employment or Participating Company records; (2) the Optionee's improper
disclosure of a Participating Company's confidential or proprietary information;
(3) any intentional act by the Optionee which has a material detrimental effect
on a Participating Company's reputation or business; or (4) any material breach
by the Optionee of any employment agreement between the Optionee and the
Participating Company Group, which breach is not cured pursuant to the terms of
such agreement.
7. STANDARD FORMS OF OPTION AGREEMENT.
----------------------------------
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by
the Board at the time the Option is granted, an Option designated as a
"Nonstatutory Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of Nonstatutory Stock Option Agreement adopted
by the Board concurrently with its adoption of the Plan and as amended from time
to time.
7.3 STANDARD TERM OF OPTIONS. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
7.4 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any of the standard forms of
Option Agreement described in this Section 7 either in connection with the grant
or amendment of an individual Option or in connection with the authorization of
a new standard form or forms; provided, however, that the terms and conditions
of any such new, revised or amended standard form or forms of Option Agreement
shall be in accordance with the terms of the Plan. Such authority shall include,
but
11
<PAGE>
not by way of limitation, the authority to grant Options which are immediately
exercisable subject to the Company's right to repurchase any unvested shares of
Stock acquired by an Optionee upon the exercise of an Option in the event such
Optionee's Service with the Participating Company Group is terminated for any
reason, with or without cause.
8. TRANSFER OF CONTROL.
-------------------
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed
to have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or
exchange in a single or series of related transactions by the stockholders of
the Company of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of
all or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the
Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction direct or indirect
beneficial ownership of more than fifty percent (50%) of the total combined
voting power of the outstanding voting stock of the Company or the corporation
or corporations to which the assets of the Company were transferred (the
"TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding
sentence, indirect beneficial ownership shall include, without limitation, an
interest resulting from ownership of the voting stock of one or more
corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through one or
more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
12
<PAGE>
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of
a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Transfer of
Control, the Option confers the right to purchase, for each share of Stock
subject to the Option immediately prior to the Transfer of Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Transfer of Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control. Notwithstanding
the foregoing, shares acquired upon exercise of an Option prior to the Transfer
of Control and any consideration received pursuant to the Transfer of Control
with respect to such shares shall continue to be subject to all applicable
provisions of the Option Agreement evidencing such Option except as otherwise
provided in such Option Agreement. Furthermore, notwithstanding the foregoing,
if the corporation the stock of which is subject to the outstanding Options
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the outstanding Options shall not
terminate unless the Board otherwise provides in its sole discretion.
9. PROVISION OF INFORMATION. At least annually, copies of the Company's
------------------------
balance sheet and income statement for the just completed fiscal year shall be
made available to each Optionee and purchaser of shares of Stock upon the
exercise of an Option. The Company shall not be required to provide such
information to persons whose duties in connection with the Company assure them
access to equivalent information.
10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
-----------------------------
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
11. COMPLIANCE WITH SECURITIES LAW. The grant of Options and the
------------------------------
issuance of shares of Stock upon exercise of Options shall be subject to
compliance with all applicable requirements of federal, state or foreign law
with respect to such securities. Options may not be exercised if the issuance of
shares of Stock upon exercise would constitute a violation of any applicable
federal, state or foreign securities laws or other law or regulations or the
requirements of any stock exchange or market system upon which the Stock may
then be listed. In addition, no Option may be exercised unless (a) a
registration statement under the Securities Act shall at the time of exercise of
13
<PAGE>
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (b) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares hereunder shall relieve
the Company of any liability in respect of the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained. As a
condition to the exercise of any Option, the Company may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
12. INDEMNIFICATION. In addition to such other rights of
---------------
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at its own expense to handle
and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
--------------------------------
the Plan at any time. However, subject to changes in applicable law, regulations
or rules that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no other amendment of the Plan that
would require approval of the Company's stockholders under any applicable law,
regulation or rule. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such termination or amendment is
required to enable an Option designated as an Incentive Stock Option to qualify
as an Incentive Stock Option or is necessary to comply with any applicable law,
regulation or rule.
14. STOCKHOLDER APPROVAL. The Plan or any increase in the maximum
--------------------
number of shares of Stock issuable thereunder as provided in Section 4.1 (the
"MAXIMUM SHARES") shall be approved by the stockholders of the Company within
twelve (12) months of the date of adoption thereof by the Board. Options granted
prior to stockholder approval of the Plan or in excess of
14
<PAGE>
the Maximum Shares previously approved by the stockholders shall become
exercisable no earlier than the date of stockholder approval of the Plan or such
increase in the Maximum Shares, as the case may be.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing FirstAmerica Automotive, Inc. 1997 Stock Option Plan was duly
adopted by the Board on July 10, 1997.
/s/ W. Bruce Bercovich
----------------------------------
Secretary
15
<PAGE>
PLAN HISTORY
------------
July 10, 1997 Board adopts Plan, with an initial reserve of 755,000
shares.
___________ Stockholders approve Plan, with an initial reserve of
755,000 shares.
October 1, 1997 Board adopts amendment to Plan, increasing the
reserve by 745,000 shares to a total of 1,500,000
shares.
___________ Stockholders approve the amendment to Plan approved
by the Board on October 1, 1997.
16
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME JURISDICTION PERCENT OWNED
---- ------------ -------------
<S> <C> <C>
FAA Auto Factory, Inc. California 100%
FAA Concord H, Inc. California 100%
FAA Concord N, Inc. California 100%
FAA Dealer Services, Inc. California 100%
FAA Dublin N, Inc. California 100%
FAA Dublin VWD, Inc. California 100%
FAA Poway D, Inc. California 100%
FAA Poway H, Inc. California 100%
FAA Poway T, Inc. California 100%
FAA San Bruno, Inc. California 100%
FAA Serramonte, Inc. California 100%
FAA Serramonte L, Inc. California 100%
FAA Stevens Creek, Inc. California 100%
Smart Nissan, Inc. California 100%
Transcar Leasing, Inc. California 100%
</TABLE>
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears above constitutes and appoints Debra Smithart his true and lawful
attorney-in-fact and agent, with full power of substitution and, for him and in
his name, place and stead, in any and all capacities to sign any and all
amendments to this Report on Form 10-K, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: April 24, 1998 By: /s/ Thomas A. Price
---------------------------
Thomas A. Price
President, Chief Executive Officer
and Director (Principal Executive
Financial Officer)
Dated: April 27, 1998 By: /s/ Donald V. Strough
----------------------------
Donald V. Strough
Chairman of the Board of Directors
Dated: April 27, 1998 By: /s/ Jean-Marc Chapus
----------------------------
Jean-Marc Chapus
Director
Dated: April 30, 1998 By: /s/ W. Bruce Bercovich
----------------------------
W. Bruce Bercovich
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 2,924 668
<SECURITIES> 0 0
<RECEIVABLES> 20,102 9,046
<ALLOWANCES> (320) (183)
<INVENTORY> 77,594 38,732
<CURRENT-ASSETS> 104,545 50,681
<PP&E> 9,214 4,794
<DEPRECIATION> (2,133) (1,804)
<TOTAL-ASSETS> 124,002 56,127
<CURRENT-LIABILITIES> 88,732 47,441
<BONDS> 0 0
3,439 0
0 0
<COMMON> 0 0
<OTHER-SE> 6,563 4,880
<TOTAL-LIABILITY-AND-EQUITY> 124,002 56,127
<SALES> 474,048 332,552
<TOTAL-REVENUES> 474,048 332,522
<CGS> 407,074 289,662
<TOTAL-COSTS> 407,074 289,662
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,340 2,922
<INCOME-PRETAX> 510 1,741
<INCOME-TAX> (446) (48)
<INCOME-CONTINUING> 64 1,693
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 64 1,693
<EPS-PRIMARY> (0.01) 0.19
<EPS-DILUTED> (0.01) 0.19
</TABLE>
